ACQUISITION OF THE WITCHERY GROUP AND RIGHTS ISSUE - INVESTOR PRESENTATION 1 August 2012
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ACQUISITION OF THE WITCHERY
GROUP AND RIGHTS ISSUE
INVESTOR PRESENTATION
1 August 2012
IMPORTANT NOTICES AND DISCLAIMER
This disclaimer and important notice applies to this presentation and any information provided in relation to or in connection with the information contained in it or the Rights Issue.
The information in this presentation is not a prospectus or offering document. This presentation provides information in summary form as at the date of this presentation. Some of that information is based on publicly
available sources, has not been independently verified and may not be complete. For further information relating to Country Road Limited (CTY) see the periodic and continuous disclosure announcements lodged with
ASX by CTY which are available on the ASX website.
This presentation contains certain forward looking statements. Forward looking statements should or can generally be identified by the use of forward looking words such as “anticipate”, “believe”, “expect”, “forecast”,
“estimate”, “will”, “could”, “may”, “target”, “plan” and other similar expressions within the meaning of securities laws of applicable jurisdictions, and include earnings guidance, statements of intention about future matters
and the outcome and effects of the equity raising. Indications of, and guidance or outlook on, future earnings, distributions or financial position or performance are also forward looking statements. The forward looking
statements contained in this presentation involve known and unknown risks and uncertainties and other factors, many of which are beyond the control of CTY, and may involve significant elements of subjective
judgement and assumptions as to future events which may or may not be correct. CTY assumes no obligation to update or revise such information to reflect any change in expectations, beliefs, hopes, intentions or
strategies. No representations, warranty or assurance (express or implied) is given that the occurrence of the events expressed or implied in any forward looking statements in this presentation will actually occur. Past
performance information given in this presentation is given for illustrative purposes only and should not be relied upon and is not an indication of future performance. See the “Key risks” section of this presentation for a
discussion of certain risks that may impact the outcome of matters discussed in forward looking statements. There can be no assurance that actual outcomes will not differ materially from these forward looking
statements.
No representation or warranty, express or implied, is made as to the currency, accuracy, completeness, reliability, fairness or correctness of the information contained in this presentation. To the maximum extent
permitted by law, no person, including CTY and its affiliates, related bodies corporate, officers, employees and representatives (including agents and advisors), accepts any liability or responsibility for any expenses,
losses, damages or costs incurred by an investor as a result of their participation in the Rights Issue and the information in this presentation being inaccurate or incomplete in any way for any reason, whether by
negligence or otherwise.
The advisors, vendors and Witchery Australia Holdings Pty Ltd have not authorised or caused the issue, lodgement, submission, dispatch or provision of this presentation and do not make or purport to make any
statement in this presentation and there is no statement in this presentation which is based on any statement by the advisors, vendors and Witchery Australia Holdings Pty Ltd. The advisors, vendors and Witchery
Australia Holdings Pty Ltd take no responsibility for any information in this presentation or any action taken by investors on the basis of such information. To the maximum extent permitted by law, the advisors, vendors
and Witchery Australia Holdings Pty Ltd and any of their respective affiliates, related bodies corporate, officers, employees and representatives (including agents) do not accept any liability or responsibility for any
expenses, losses, damages or costs incurred by an investor as a result of their participation in the Rights Issue and the information in this presentation being inaccurate or incomplete in any way for any reason, whether
by negligence or otherwise, make no representation or warranty, express or implied, as to the currency, accuracy, completeness, reliability, fairness or correctness of the information contained in this presentation and
take no responsibility for any part of this presentation. The advisors, vendors and Witchery Australia Holdings Pty Ltd make no recommendations as to whether investors or their related parties should participate in the
Rights Issue nor do they make any representations or warranties to investors concerning this Rights Issue, or any such information and investors represent, warrant and agree that they have not relied on any
statements made by any of the advisors, vendors and Witchery Australia Holdings Pty Ltd or any of their affiliates in relation to the issue of new shares or the Rights Issue generally.
The information contained in this presentation is not investment or financial product advice (nor tax, accounting or legal advice) and is not intended to be used as the basis for making an investment decision. In this
regard, this presentation has been prepared without taking into account the investment objectives, financial situation or particular needs of any person. Investors should obtain their own professional, legal, tax, business
and/or financial advice before making any investment decision.
This presentation does not constitute an offer to issue or sell, or to arrange to sell, securities or other financial products.
This presentation does not constitute an offer of new ordinary shares (New Shares) of CTY in any jurisdiction in which it would be unlawful. New Shares may not be offered or sold in any country outside Australia and
New Zealand.
New Zealand
The New Shares are not being offered or sold to the public within New Zealand other than to existing shareholders of CTY with registered addresses in New Zealand to whom the offer of New Shares is being made in
reliance of the Securities Act (Overseas Companies) Exemption Notice 2002 (New Zealand). The offer of New Shares is renounceable in favour of members of the public.
This presentation has not been registered, filed with or approved by any New Zealand regulatory authority under the Securities Act 1978 (New Zealand). This presentation is not an investment statement or prospectus
under New Zealand law and is not required to, and may not contain all the information that an investment or prospectus under New Zealand law is required to contain.
United States
In particular, this presentation and the information contained in it does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in the United States. This presentation may not be distributed or
released in the United States. The rights and the new shares offered in the Rights Issue have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the Securities Act) or the securities
laws of any state or other jurisdiction of the United States and may not be offered or sold, directly or indirectly, in the United States absent registration or in a transaction exempt from, or not subject to, the registration
requirements of the Securities Act and any other applicable securities laws.
The release, publication or distribution of this presentation in jurisdictions outside Australia and New Zealand may be restricted by law. Any failure to comply with such restrictions may constitute a violation of applicable
securities laws. This presentation may not be copied by you, or distributed to any other person.
All amounts are presented in Australian dollars unless otherwise stated. The information in this presentation remains subject to change without notice. CTY reserves the right to withdraw or vary the timetable for the
proposed Rights Issue without notice.
2
CONTENTS 1 Executive Summary 2 The Witchery Group 3 Strategic Rationale 4 Combined Group 5 Acquisition Terms and Funding A Key Risks 3
1 EXECUTIVE SUMMARY 4
HIGHLIGHTS
ACQUISITION
Country Road has agreed to acquire the Witchery Group from Gresham Private Equity for an enterprise
value of A$172m(1)
̶ The Witchery Group comprises the Witchery and Mimco brands
Acquisition price represents c.5x FY11 normalised EBITDA(2)
Creates a business of greater scale, with combined Country Road and normalised Witchery Group(2) pro
forma FY11 revenue of c.A$680m and c.520 stores
Acquisition to be funded by a 5 year term facility of A$92m and a Rights Issue for up to A$92m
̶ Irrevocable undertaking from Country Road’s 88% shareholder, WIA(3), for c.A$81m of the Rights Issue
STRATEGIC AND FINANCIAL RATIONALE
Creates one of Australia’s largest speciality fashion retailers with leading complementary brands and a
market leading position in the mid to upper tier of specialty fashion
Provides a new and exciting growth opportunity for Country Road:
̶ Leverages Country Road’s scalable infrastructure and processes
̶ Greater operational scale, diversified revenue streams and industry leading margins
̶ Significantly enhances Country Road’s growth platform, creating a stable of 4 iconic brands targeting
different but complementary fashion segments
Pro forma FY12 Earnings Per Share (“EPS”) accretion pre synergies of more than 20%(4)
Significant cost synergies of c.A$10m p.a. expected to be realised over 4 years, with one-off integration
costs of c.A$7m incurred over 3 years
Notes:
(1) The acquisition is on a cash free, debt free basis with a normalised level of working capital and subject to conditions precedent as set out on page 24.
(2) Witchery Group financials normalised to exclude sales and operating losses associated with Mimco’s UK operations as a result of the planned closure of Mimco’s UK operations and
transaction costs arising from the Witchery Group sale process. Refer to page 6 for an update on recent trading.
(3) Woolworths Holdings Limited (South Africa) (“WHL”), via Woolworths International (Australia) Pty Limited (“WIA”).
(4) In accordance with AASB 133, EPS calculations reflect the impact of an adjustment factor to take into account the bonus element of the Rights Issue. In assessing estimated pro forma
EPS accretion, it has been assumed that Witchery Group was owned by Country Road for the entire FY12 year. EPS calculations exclude synergies (and any cost of achieving synergies)
and any amortisation of acquired intangibles or other acquisition accounting impacts on earnings.
5
COMMENTARY ON RECENT TRADING
COUNTRY ROAD
In the announcement dated 17 July 2012, Country Road outlined that total sales had increased by 1.8% on
last year to A$419m for FY12(1)
Profit Before Tax for FY12 is expected to be between A$20m and A$21m (vs. A$23m in FY11)(1)(2)
FY12 normalised EBITDA is expected to be between A$35m and A$36m (vs. A$39m in FY11)(1)(2)
Country Road’s actual financial results for the financial year ended 30 June 2012 are due to be released on
22 August 2012 and may differ from the guidance provided. Shareholders are therefore encouraged to
review the audited results expected to be released 22 August 2012
WITCHERY GROUP
FY12 normalised sales expected to be substantially in line with FY11 normalised sales of A$266m(3)
FY12 normalised EBITDA expected to be substantially in line with FY11 normalised EBITDA of A$34m(3)
Notes:
(1) The Country Road FY12 financial information is based on unaudited information. Country Road’s financial results may differ from the guidance provided. Refer to the Key Risks in
Appendix A, in particular the risk titled “FY12 financial information”
(2) Before one off costs already incurred in relation to the acquisition of the Witchery Group (c.A$1.5m).
(3) The Witchery FY12 financial information is based on unaudited, management information provided by Witchery. Witchery’s actual FY12 financial results may differ from the guidance
provided. Refer to the Key Risks in Appendix A, in particular the risks titled “Limited Due Diligence” and “FY12 financial information”. Witchery Group financials are normalised to exclude
sales and operating losses associated with Mimco’s UK operations as a result of the planned closure of Mimco’s UK operations and transaction costs arising from the Witchery Group sale
process.
6
2 WITCHERY GROUP 7
WITCHERY GROUP TODAY
Witchery Group(1)
NT
1
FY11 Sales: A$266m
FY11 EBITDA: A$34m WA 32
Stores: 306 17 17
QLD
10
16
7
69
SA NSW / 35
210 stores 96 stores ACT
VIC
Leading speciality apparel Leading Australian
39
and accessories fashion designer of women’s 21
house accessories TAS
Sub-brands include 1
WitcheryMan, Witchery
Kids and
International outlets
Witchery8Fourteen 22
5
NZ
3 (Singapore) 1 (Singapore)
10 (South Africa)
Note:
(1) Witchery Group financials are normalised to exclude sales and operating losses associated with
Mimco’s UK operations as a result of the planned closure of Mimco’s UK operations and transaction
costs arising from the Witchery Group sale process. Refer to page 6 for an update on recent trading.
8
HERITAGE OF WITCHERY GROUP
2001
Mimco opens first stand 2012
alone boutique store, Launch of
Melbourne Witchery8Fourteen,
a teen brand
Cessation of Mimco
1996 UK
Mimco founded in
Australia as an 2007
accessories designer Witchery
and retailer acquires
Mimco
1970 Today
2006
Gresham
acquires
1970’s Witchery
Witchery founded in Australia 2008
as a women’s apparel brand 2000 2010
Launch of Mimco
Mimco expands into Launch of
footwear line
department stores in Mimco
Asia, UK and New sunglasses line
Zealand
2009 WitcheryKids
WitcheryMan launched
launched
9
WITCHERY – AN ICONIC AUSTRALIAN FASHION BRAND
A leading Australian fashion brand
One of Australia’s leading fashion brands
offering women’s, men’s and kid’s apparel and
related accessories
Significant brand equity built up over more than
40 years
Recently expanded into WitcheryMan,
WitcheryKids and Witchery8Fourteen
Demonstrated ability to undertake significant
category expansion
Significant store footprint
Currently 197 stores across Australia and New
Zealand and 13 stores in Singapore and South
Africa
Online
Currently contributes c.4% of sales and provides
a strong growth opportunity
10MIMCO – THE DESTINATION FOR UNIQUE ACCESSORIES
A leading designer accessories brand
One of Australia’s favourite accessories brands –
“accessible luxury designed with quirk”
Founded in 1996, Mimco was acquired by the
Witchery Group in August 2007
Leading position in upmarket accessories
Established brand in bags, jewellery and other
statement pieces
Recent expansion into shoes, sunglasses and
watches
Established store footprint
Currently 96 stores
Online currently contributes c.9% of sales and
provides a strong growth opportunity
113 STRATEGIC RATIONALE 12
CUSTOMER PROPOSITON AND BUSINESS MODEL Witchery and Mimco are highly respected and complementary brands to those of Country Road Witchery and Mimco have high brand loyalty Middle to upper tier fashion segment, offering well designed, well made and accessible products Strong cultural, philosophy and brand fit, but clear brand segmentation Witchery Group has a similar and well understood vertically integrated business model Full control over value chain from design to in-store execution Owned brands which is consistent with Country Road’s core business model and customer offering ̶ Established customer database and loyalty programmes Witchery Group has similar channels to market as Country Road Company controlled and operated retail stores Concessions through major department stores Rapidly developing online sales channel 13
PROPOSED BRAND POSITIONING: CLEARER
DIFFERENTIATION, BETTER PRICING •
•
Broad offering
Relaxed lifestyle brand
• Australian heritage
Common characteristics of each
brand
Designer
Pricing Well Well
Accessible • Timeless
designed made
• Elegant
• Aspirational
• Fashion forward
Market • Edgy
• Confident
Price • More accessible
Positioning
• Design led
• Accessories focussed
• Boutique
Disposable
Fashion
Pricing
High fashion Timeless / classic
Level of fashionability
“Youth” “Mature”
14INFRASTRUCTURE AND MANAGEMENT TEAM
Creates a major Australian apparel retailer with a platform for growth
Combined, Country Road and Witchery Group will be one of the largest specialty apparel retailers in
Australia with pro forma FY11 revenues of c.A$680m and c.520 stores
Key growth initiatives identified
̶ Enhance brand positioning of Country Road, Trenery, Witchery and Mimco for clearer differentiation
and better pricing
̶ Online sales and loyalty programmes
̶ Market expansion
̶ Optimise store footprint
Significant cost synergies (c.A$10m per annum, expected to be achieved over 4 years) available through
scale and systems improvements
̶ Roll out Country Road scalable systems and processes to Witchery and Mimco
̶ Consolidate and enhance systems across the enlarged group
̶ Operational efficiencies
Well positioned against prospective new entrants given enhanced owned brand portfolio, store network
and customer loyalty
Strong management team
Combined expertise and experience of two highly regarded management teams
Enhanced talent pool and opportunities for staff
15ECONOMIES OF SCALE ADD SIGNIFICANT VALUE – SYNERGY
POTENTIAL OF c.A$10M PER ANNUM EXPECTED OVER 4 YEARS
Improved systems World class systems to be introduced to Witchery and Mimco
Services function on group basis Material cost efficiencies
Single sourcing structure Lower cost of goods
Single supply chain More economic and effective flow of goods
Real estate portfolio of c.520 stores Scale efficiencies
Single online platform Enterprise wide omni-channel with enhanced customer experience
Improved customer relationship management and lower cost of
Leverage customer databases
direct marketing
Enhanced skill set for the group and greater opportunities for
Improved talent pool
employees
16INTEGRATION PLAN – CREATING VALUE Phase 1 – Consolidation and integration commences (commencing FY13)(1) Dedicated resources to be committed to ensure a successful integration whilst maintaining focus on individual brand performance Continue to develop world class online and digital strategies Initial phase of systems integration by rolling out Country Road systems to Witchery and Mimco Integration of structures and implementing overhead efficiencies Phase 2 – Benefits realisation from consolidation (FY13/FY14)(1) Drive real estate synergies Leverage group sourcing opportunities in Asia Develop joint supply chain solution Continue Witchery systems integration / maximise benefits from sourcing office in Asia Implement brand repositioning for clearer differentiation and better pricing Pursue diversified channels to market Note (1) Timelines indicative only 17
4 COMBINED GROUP 18
COMBINED GROUP STRUCTURE
FY11 Sales: A$679m
FY11 EBITDA: A$73m
Employees: 4,760
Stores: 517
FY11 Sales: A$413m
FY11 Sales: A$266m(1)
FY11 EBITDA: A$39m
FY11 EBITDA: A$34m(1)
Employees: 2,780
Employees: 1,980
Stores: 211
Stores: 306
Pro forma FY11 combined normalised revenue of c.A$680m and normalised EBITDA
of A$73m(1)
Note:
(1) Witchery Group financials are normalised to exclude sales and operating losses associated with Mimco’s UK operations as a result of the planned closure of Mimco’s UK
operations and transaction costs arising from the Witchery Group sale process. No normalisations have been applied to the Country Road FY11 Sales or EBITDA. Refer to
page 6 for an update on recent trading.
19COMBINED GROUP PRO FORMA BALANCE SHEET
Pro forma adj. for
Adjusted Witchery acquisition, debt and
Pro forma Dec 11 (A$m) Country Road Group(6) Rights Issue Pro forma Dec 11
Current assets
Cash & cash equivelants 27 - 2 29
Trade & other receivables 7 5 - 12
Inventories 41 33 - 74
Other 3 2 - 5
Total current assets 78 39 2 119
Non-current assets
Plant and equipment 51 25 - 76
Intangible assets 11 54 - 65
Other 9 3 92 104
Total non-current assets 71 82 92 245
Total assets 149 121 94 364
Current liabilities
Trade & other payables (38) (35) - (73)
Other (9) (6) - (14)
Total current liabilities (46) (41) - (88)
Non-Current liabiliities
Provisions (7) - - (7)
Borrowings - - (92) (92)
Total non-current liabiliities (7) - (92) (99)
Total liabilities (54) (41) (92) (187)
Net assets 96 80 2 178
Total equity 96 80 2 178
Notes
(1) Represents acquisition EV of A$172m and A$10m of transaction costs; Total new funds of A$92m in new term debt and A$92m in new equity (assuming all shareholders participate);
If less than A$92m received as part of the Rights Issue, cash will decrease by the corresponding decrease in funds raised.
(2) The pro forma balance sheet assumes the acquisition of Witchery Group has been completed as at 31 December 2011, although the actual date of acquisition will be at a later date.
(3) Debt has been classified as non-current on the assumption that the resolution referred to on slide 24 is passed.
(4) The pro forma balance sheet of Country Road which includes Witchery Group is based on the assumption that the fair value of tangible assets and liabilities are equal to their book
value. A full purchase price allocation will be undertaken post acquisition and fair value of the assets and liabilities will be more accurately assessed at that time. Please refer to the
risk titled “Acquisition Accounting” in Appendix A for further detail.
(5) The accounting policies of Country Road and Witchery Group are similar and consistent in all material aspects.
(6) Reflects acquired assets and liabilities only, at book value.
20MANAGEMENT TEAM TO BE LED BY IAIN NAIRN
Over 30 years of retail experience in Australia and the UK
Currently Chief Executive Officer of the Witchery Group
Experience in fashion, home and sportswear sectors
Senior positions with a number of retailers in Australia and the UK
CEO Witchery Group (2006 – present)
GM Apparel Colorado Group (2004 – 2006)
Joint COO Laura Ashley (1997 – 2004)
Director QS PLC (1996 –1997)
Head of retail operations Laura Ashley (1994 – 1996)
21BOARD AND MANAGEMENT CHANGES
The following senior executive changes will be made(1):
Iain Nairn, currently the Chief Executive Officer of the Witchery Group, will assume the role of Chief
Executive Officer and will be appointed to the Board;
David Thomas, the current Chief Financial Officer of Country Road, will assume the role of Chief
Operating Officer;
Oliver Kysela, currently the Chief Financial Officer of the Witchery Group, will assume the role of Chief
Financial Officer and will be appointed to the Board; and
Howard Goldberg, currently Chief Executive Officer of Country Road, will leave Country Road as a
result of the Acquisition. Howard has provided a strong contribution during his tenure and will stay on
in his role until the Acquisition is completed.
New Non-Executive Director(1)
Zyda Rylands, an Executive Director of WHL, will be appointed to the Board.
Note:
(1) Conditional and effective upon completion of the Acquisition.
225 ACQUISITION TERMS
AND FUNDING
23ACQUISITION TERMS AND FUNDING
Acquisition
Acquisition enterprise value of A$172m (1)
Acquisition expected to complete by October 2012
̶ Completion of the acquisition is conditional on there being no action by a regulatory authority
restraining Country Road from using the proceeds of its Rights Issue to fund the acquisition
̶ A break fee of A$1.7m is payable to the vendors of the Witchery Group if the acquisition does not
complete other than in limited circumstances (e.g. due to a breach of the vendors)
Approvals
Approval by the South African Reserve Bank for WIA to participate in the equity raising has been
received
Shareholders of Country Road will need to approve the giving of securities by Witchery Group and its
subsidiaries by special resolution passed at the next Annual General Meeting(2)
Notes:
(1) The acquisition is on a cash free, debt free basis with a normalised level of working capital.
(2) Under the terms of the Bank facilities, which will be utilised to partially fund the proposed acquisition of Witchery Group and its subsidiaries, Country Road is required to ensure that certain
members of the Witchery Group give security to Country Road's Banks within 60 days of Country Road’s next Annual General Meeting. This funding requirement means that the
shareholders of Country Road will need to approve the giving of the securities by the relevant members of the Witchery Group / subsidiaries by special resolution passed at the next
Annual General Meeting.
24ACQUISITION TERMS AND FUNDING
Funding arrangements
The acquisition is funded through a combination of debt and new equity via a renounceable Rights Issue
Overview of debt funding arrangements (5 year tenor)(1)
̶ Term debt facility of A$92m
̶ Working capital facility of A$45m
̶ Revolving credit facility of A$20m
Pro forma gross debt / normalised EBITDA of 1.3x(2)
Sources and uses of funds(3)
Sources Uses
WIA new equity based on irrevocable undertaking A$81m Acquisition of Witchery Group A$172m
Non WIA new equity A$11m Cash reserves A$12m
New bank debt A$92m
Total sources A$184m Total uses A$184m
Dividends
Whilst there is no final decision, the Directors of Country Road are not likely to declare a dividend for FY12
The ongoing dividend policy is currently being reviewed given the new debt funding arrangements and
associated covenants and restrictions
Notes:
(1) The availability of these facilities is subject to satisfaction of conditions precedent which are customary for facilities of this nature.
(2) Assumes $92m term facility drawn in full, no drawdown of the working capital facility or the revolving credit facility and excludes cash. Based on pro forma normalised FY11 EBITDA (a
similar gross debt metric is expected on the basis of expected pro forma normalised FY12 unaudited EBITDA). Please refer to page 6 for an explanation of normalised EBITDA.
(3) Assumes all shareholders participate in the rights issue and c.A$10m of transaction costs are funded by existing CRL cash. To the extent that non-WIA shareholders subscribe for less
than A$11million under the Rights Issue, the cash reserves available to Country Road will be reduced by an equivalent amount.
25KEY TERMS OF RIGHTS ISSUE
Offer structure and size
1 for 2 pro-rata renounceable Rights Issue to raise gross proceeds of up to A$92 million
Eligible Shareholders(1) will also have the opportunity to apply for additional New Shares in excess of
their entitlement to the extent there is a shortfall in the Rights Issue
Pricing
Offer Price of A$2.66 per New Share
̶ 13.4% discount to the theoretical ex-rights price (“TERP”) of A$3.07 on 31 July 2012
̶ 18.9% discount to the last closing price of A$3.28 on 31 July 2012
Underwriting and WIA participation
The Rights Issue is not underwritten
WHL, the ultimate holding company of Country Road’s 88% shareholder WIA, has provided an
irrevocable undertaking that WIA will participate in the Rights Issue for its pro rata entitlement of
A$81m(2)
Ranking
New Shares will rank equally with existing shares
Notes:
(1) Eligible shareholders must have bought shares before the ex date and still hold those shares on the record date; have a registered address in Australia or New Zealand; not be in the
United States and not be “U.S. persons” (as defined under Regulation S under the United States Securities Act of 1933, as amended) (U.S. Persons) and not be acting for the account or
benefit of U.S. Persons; and are eligible under all applicable securities laws to receive an offer under the Rights Issue.
(2) Under the ASX Listing Rules, WIA is not entitled to apply for any additional shares beyond its pro-rata entitlement.
26IMPLICATIONS OF MINORITY SHAREHOLDERS NOT TAKING
UP THEIR RIGHTS UNDER THE RIGHTS ISSUE
WHL has provided an irrevocable undertaking that WIA (88% shareholder in Country Road) will take up
100% of its pro rata entitlement under the Rights Issue
The control impact on the shareholdings in Country Road will largely depend on the participation of
Country Road shareholders in the Rights Issue
Should minority shareholders not participate, this will result in WIA exceeding the 90% compulsory
acquisition threshold(2)
Where all shareholders participate in the Where only WIA participates in the Rights
Rights Issue Issue
% of total % of total
Number of Number of Number of Number of
ordinary CTY ordinary CTY
ordinary CTY ordinary CTY ordinary CTY ordinary CTY
Shareholder shares on Shareholder shares on
Shares held Shares held (post- Shares held Shares held (post-
issue (post- issue (post-
(pre-Offer) Offer) (pre-Offer) Offer)
Offer) Offer)
Woolworths International Woolworths International
60,688,384 91,032,576 87.9% 60,688,384 91,032,576 91.6%
(Australia) Pty Limited (Australia) Pty Limited
Australian Retail Australian Retail
8,173,688 12,260,532 11.8% 8,173,688 8,173,688 8.2%
Investments Pty Limited Investments Pty Limited
Other shareholders 194,750 292,125 0.3% Other shareholders 194,750 194,750 0.2%
Shares on issue 69,056,822 103,585,233 100.0% Shares on issue 69,056,822 99,401,014 100.0%
Notes:
(1) Assumes issue price of A$2.66 per New Share.
(2) WHL has advised Country Road that it has not yet made a decision as to whether it would procure WIA to exercise that right and such a decision would depend on a number of
variables. Refer to the Rights Issue Offer Booklet for further information.
27RIGHTS ISSUE TIMETABLE(1)
Event Date
Documents lodged with the ASX 1 August
Ex rights date, rights market opens on ASX, and ASX quotes Country
3 August
Road shares ex-rights
Rights trading commences 3 August
Record date (7:00pm Melbourne time) 10 August
Rights Issue opens 15 August
Country Road FY12 results announcement 22 August
Rights market ceases on ASX 22 August
New shares quoted on a deferred settlement basis 23 August
Rights Issue closes (5:00pm Melbourne time) 29 August
ASX notified of under-subscriptions 3 September
Issue of New Shares under the Rights Issue 5 September
Despatch of holding statements 6 September
New shares commence trading on a normal settlement basis 7 September
Note:
(1) The above timetable is indicative only. Country Road reserves the right to amend any or all of these dates and times, to accept late applications either generally or, in
particular cases, to withdraw the offers without prior notice subject to the Corporations Act, the ASX Listing Rules and other applicable laws. The commencement of
quotation of shares and trading in the Rights Issue is subject to ASX confirmation.
28A KEY RISKS 29
KEY RISKS
This section discusses some of the key risks associated with an investment in the Brands - The Company’s brand names are a key asset of the business. The reputation and
Company. Before investing in the Company, you should consider whether this investment value associated with the Company’s brand names could be adversely impacted by a
is suitable for you. Potential investors should consider publicly available information on the number of factors including failure to provide customers with the quality of product and
Company (such as that available on the websites of the Company and ASX), carefully service standards they expect, incorrect pricing, incorrect brand segmentation, disputes or
consider their personal circumstances and consult their stockbroker, solicitor, accountant or litigation with third parties such as employees, suppliers and customers, or adverse media
other professional adviser before making an investment decision. coverage. Significant erosion in the reputation of, or value associated with, the Company’s
brand names could have an adverse effect on the Company’s future financial performance
Specific business risks and financial position, particular arising from any impairment in the value of the Company’s
Retail environment and general economic conditions – The Australian retail brand names.
environment in which the Company operates is currently experiencing challenging
conditions due to volatility in consumer sentiment and retail demand. This has arisen as a Fashion - A significant proportion of the Company’s revenues are generated from fashion
result of general uncertainty about future Australian and international economic conditions. related products, which are subject to rapid and occasionally unpredictable changes in
If Australian or international economic conditions worsen, there is a risk that the retail customer preferences. A large number of products sold in the Company’s stores are
environment will deteriorate as consumers reduce their level of consumption or redirect manufactured internationally which means there can be a significant delay between ordering
their spending to cheaper products or discount stores. A reduction in consumer spending and delivery. This delay further exposes the Company to the risk that customer preferences
or a change in spending patterns is likely to result in a reduction in the Company’s revenue may change between the time products are ordered and the time they are available for
and may have a material adverse effect on the Company’s future financial performance purchase. If the Company misjudges customer preferences or fails to convert market trends
and financial position. into appealing product offerings on a timely basis, this may result in lower revenue and
margins and could adversely impact the Company’s future financial performance.
Competition - The Australian retail industry in which the Company operates is competitive,
has low barriers to entry and is subject to changing customer preferences. The Company’s Online expansion strategy - The Company’s strategy includes expansion of the online
competitors include local and international companies and online retailers. Competition is store to deliver internationally. There a number of risks relating to the implementation of this
based on factors including merchandise selection, price, advertising, store location, store strategy including the potential inability to register trademarks in certain overseas
appearance, product presentation and customer service. Further, the Company anticipates jurisdictions and exposure to design protection laws and product safety regulations in those
that a challenging retail environment may lead to an increased focus on price based jurisdictions. A failure to successfully implement this strategy could have a material adverse
competition by some of the Company’s competitors. impact on the Company’s operational and financial performance.
The Company’s competitive position may deteriorate as a result of factors including actions
by existing competitors, the entry of new competitors or a failure by the Company to South African operations - The Company has operations in South Africa. There are a
continue to position itself successfully as the retail environment changes. Any deterioration number of specific risks relating to the operations in South Africa including political instability,
in the Company’s competitive position may result in a decline in revenue and margins and consumer risk, product affordability, exchange rate risk and restrictions on the repatriation of
a loss of market share which may have an adverse effect on the Company’s future financial funds to Australia. These risks may lead to material adverse changes to the Company’s
performance. operational and financial performance.
On-line retailing – The ability to purchase products via the internet is increasing retail Advertising, marketing or sales promotion failure – The Company’s business depends
competition by opening up that market to participants who provide on-line platforms for on effective marketing and advertising. There is a risk that one or more marketing or
purchasing products (whether instead of, or in addition to, traditional retail outlets). Online advertising campaigns may be unsuccessful, which may adversely impact margins, reduce
retailing has resulted in consumers being able to undertake greater global price overall profitability and have an adverse effect on the Company’s future financial
comparisons and has placed pressure on traditional bricks and mortar retailers to compete performance or position.
on price despite their higher overhead costs. In particular, the strength of the Australian
dollar combined with no import duty on items under $1,000 has resulted in an increase in
consumers shifting their retail fashion spend offshore. Continued migration of consumers
to on-line retail purchases may adversely impact the performance of the Company’s bricks
and mortar retail outlets and the historically higher margin regions.
30KEY RISKS
Product sourcing – The Company’s products are sourced and manufactured by a network IT systems – The Company is reliant on the capability and reliability of its information
of third parties, primarily in Asia. The key risks with the Company’s product sourcing technology systems and backup systems and those of its external service providers (such as
include: communication carriers), to process transactions, manage inventory, report financial results
• loss or interruption to business of major suppliers; and manage its business. The failure of any of the Company’s or its customer’s IT systems,
• increase in cost of materials; including inventory management systems, could have a significant impact on the Company’s
• increase in cost of manufacturing; ability to trade. Such failures may have an adverse effect on the Company’s future financial
• increase in labour costs; performance.
• intellectual property disputes in the place of manufacture; In addition, the Company also plans to implement new systems. There may be delays in the
• delays or failures in receiving orders; and implementation of these new systems or unanticipated increases in costs to the Company
• imposition of additional taxes or quotas. arising from the implementation process. These consequences could have an adverse effect
Any of these identified risks may result in increased product souring costs for the Company on the Company’s future financial performance.
or a reduction in the available product range. This may in turn adversely impact sales and
margins, reduce overall profitability and have an adverse effect on the Company’s future Exchange rates – A substantial proportion of the Company’s products sold to the Australian
financial performance or position. and South African retail marketplace are sourced offshore and therefore the Company may
be exposed to rapid and material movements in exchange rates (including between the AUD
Supply chain descriptions – The Company has established an extensive supply chain and the USD, Chinese RMB and the South African Rand) to the extent that they are not
that allows it to procure and deliver products to customers in a timely and efficient manner. hedged.
Disruption to any aspect of the Company’s supply chain could have a material adverse Adverse movements in exchange rates relating to either finished products or raw material
impact on the Company’s operational and financial performance and cash flows. costs, or increased price competitiveness in response to movements in exchange rates may
materially adversely impact the operations and financial performance and cash flows of the
Loss of key personnel – The Company is reliant on retaining and attracting quality senior Company in the future.
executives and other employees. The loss of the services of any of the Company’s senior
management or key personnel, or the inability to attract new qualified personnel, could Interest rate risk – Adverse fluctuations in interest rates, to the extent that they are not
adversely affect the Company’s operations. hedged, may impact the Company’s earnings. This exposure will increase as a result of the
increased debt resulting from the Acquisition.
Property – The growth prospects of the Company are likely to result from increased
contribution from existing stores and the Company’s ability to continue to open and operate Debt covenants – The Company has various covenants in relation to its existing and new
new stores on a profitable basis. This is dependent on the Company’s ability to secure banking facilities. Factors such as a decline in the Company’s operational and financial
suitable sites on acceptable terms. A significant increase in rental costs associated with performance could lead to a breach in debt covenants. In such an event the Company’s
existing stores or new stores could impact margins and the profitability of some stores. lenders may require their loans to be repaid immediately.
Similarly, the inability of the Company to source new locations in target areas could reduce
the Company’s ability to continue to expand its store footprint. Increased debt – Country Road’s debt will increase as result of the new debt facilities to be
put in place to fund the Acquisition. Payments of principal and interest under the new debt
Operations – The Company is exposed to a range of operational risks including equipment facilities may have an adverse impact on Country Road’s financial performance, cash flow
failures and other accidents, industrial action or disputes, lease renewals, damage by third and ability to pay dividends
parties, floods, fire, major cyclone, earthquake, terrorist attack or other disaster. These
risks may have a material adverse impact on the Company’s financial performance and Litigation and disputes – Legal and other disputes may arise from time to time in the
cash flows. ordinary course of operations. Any such dispute may impact on earnings or affect the value
of the Company’s assets.
31KEY RISKS
Counterparty/credit risk – Third parties, such as customers, suppliers and other Assumption of liabilities - If the acquisition of Witchery completes, Country Road may
counterparties to contracts may not be willing or able to perform their obligations to the become directly or indirectly liable for any liabilities that Witchery has incurred in the past,
Company. The Company provides credit to its customers in the ordinary course of its which were not identified during its due diligence or which are greater than expected, and for
business. The inability of a customer to pay its debts may have an impact on the which the market standard protection (in the form of insurance, representations and
profitability of the Company. warranties and indemnities) negotiated by Country Road prior to its agreement to acquire
Witchery turns out to be inadequate in the circumstances. Such liability may adversely affect
Integration risk - There is a risk that the integration of Witchery may be more complex the financial performance or position of Country Road post‐acquisition.
than currently anticipated, encounter unexpected challenges or issues and take longer than
expected, divert management attention or not deliver the expected benefits and this may Acquisition accounting - In accounting for the acquisition in the pro‐forma combined
affect the Company’s operating and financial performance. Other specific integration risks balance sheet contained in this Presentation, the Company has not performed a fair value
include loss of knowledge through key management personnel not being retained, loss of assessment of all of the assets, liabilities and contingent liabilities of Witchery. The Company
major supplier or concession contracts, differences in the management culture of the two will undertake a formal fair value assessment of all of the assets, liabilities and contingent
groups, delays or cost-overruns in the integration of technology platforms and the general liabilities of Witchery post‐acquisition, which may give rise to a different fair value allocation
inability to achieve synergy benefits and cost savings. to that used for purposes of the pro‐forma financial information set out in this Presentation.
Such a scenario will result in a reallocation of the fair value of assets and liabilities acquired
Completion risk - There are a number of conditions in the share sale agreement to to or from goodwill and also an increase or decrease in depreciation and amortisation
acquire Witchery which must be satisfied prior to the completion of the transaction. If any of charges in the Combined Group’s income statement (and a respective increase or decrease
the conditions precedent fail to be satisfied within the time limits prescribed in the share in net profit after tax).
sale agreement, the Company may not be able to complete its acquisition of Witchery but
may nevertheless be required to complete the Rights Issue. As such, there is a risk that the FY12 Financial information - The Country Road FY12 financial information in this
Company may be overcapitalised in those circumstances. presentation remains unaudited at this time. Country Road’s actual financial results for the
year ended 30 June 2012 are subject to finalisation of Country Road’s accounts and
Limited due diligence - Country Road undertook a due diligence process in respect of completion of the audit by Country Road’s auditors. Country Road’s actual financial results
Witchery, which relied in part on the review of financial and other information provided by for the financial year ended 30 June 2012 are due to be released on 22 August 2012 and
the vendors of Witchery. While the Company has conducted due diligence, the Company is may differ from the guidance provided. Shareholders are therefore encouraged to review the
unable to verify the accuracy, reliability or completeness of all the information which was audited results expected to be released 22 August 2012.
provided to it against independent data. If any of the data or information provided to and
relied upon by Country Road in its due diligence process and its preparation of this The Witchery FY12 financial information in this presentation is unaudited and based on
Presentation proves to be incomplete, incorrect, inaccurate or misleading, there is a risk management estimates provided by Witchery. While the Company has conducted due
that the actual financial position and performance of Witchery and the Combined Group diligence on this information, the Company is unable to verify the accuracy, reliability or
may be materially different to the financial position and performance expected by Country completeness of all the information which was provided to it against independent data.
Road and reflected in this Presentation. Notwithstanding that Country Road has sought Therefore, Witchery’s actual financial results for the financial year ended 30 June 2012 may
warranties and indemnities from the vendors of Witchery, investors should note that there is differ from the guidance provided. Shareholders should not place undue reliance on these
no assurance that the due diligence conducted will have identified all material issues and numbers.
risks in respect of the acquisition and that warranties and indemnities (and insurance in
respect of those warranties and indemnities) will adequately compensate for any losses Dividends - The payment of dividends on the Company's shares is dependent on a range of
arising from those material issues. Therefore, there is a risk that unforeseen issues and factors including the profitability of its group, the availability of cash, capital requirements of
risks may arise, which may also have a material impact on the Company. the business and obligations under debt instruments. Any future dividend levels will be
determined by the Company’s board having regard to its operating results and financial
position at the relevant time. There is no guarantee that any dividend will be paid by Country
Road or, if paid, that they will be paid at previous levels.
32KEY RISKS
General Risks Taxation implications – Future changes in Australian taxation law, or changes in the
Risks of renouncing Rights interpretation or application of the law, may affect taxation treatment of an investment in the
Prices obtainable for rights may rise and fall over the entitlement trading period. If you sell Company’s shares, or the holding and disposal of those shares. Further changes in tax law
your rights at one stage in the entitlement trading period, you may receive a higher or lower or changes in the interpretation or application of the law, in the various jurisdictions in which
price than a shareholder who sells their rights at a different stage in the entitlement trading the Company operates, may impact the future tax liabilities of the Company.
period. If you are a shareholder and renounce you entitlement by doing nothing under the
Rights Issue, there is no guarantee that any value will be received for your renounced Regulatory issues and changes in law – The Company is subject to the usual business
entitlement. The ability to sell rights and the ability to obtain any value for them will be risk that there may be changes in laws that reduce income or increase costs.
dependent upon various factors, including market conditions and liquidity. There is no
guarantee that there will be a viable market during, or on any particular day in, the Changes in accounting policy – The Company is subject to the usual business risk that
entitlement trading period, on which to sell rights on ASX. You should note that if you sell, there may be changes in accounting policies which have an adverse impact on the
or do not take up, all or part of your entitlement, then your percentage shareholding in the Company.
Company will be diluted by not participating to the full extent in the Rights Issue and you
will not be exposed to further increase or decreases in Country Road’s share price in Dilution Risks – You should note that if you do not take up all or part of those New Shares
respect of the New Shares which could have been issued to you had you taken up all of offered to you under the Offer, then your percentage shareholding in the Company will be
your entitlement. The tax consequences from selling rights or from doing nothing may be diluted by not participating to the full extent in the Offer and you will not be exposed to future
different. Before selling rights or choosing to do nothing in respect of rights, you should increases or decreases in the Company’s share price in respect of those New Shares which
seek independent tax advice and may wish to refer to the tax disclosure in the Offer would have been issued to you had you taken up all of your entitlement.
Booklet which will provide further information on potential tax implications for Australian
shareholders. Control Risk – If the Rights Issue results in WIA holding 90% or more of the Shares then it
may (but is not obliged to) proceed to compulsorily acquire all the remaining Shares in
Liquidity risk for Shares accordance with the Corporations Act. The present intentions of WIA should this
The two major Shareholders currently hold 99.76% of the Shares in the Company. The circumstance arise are set out in the Offer Booklet.
size of these holdings is likely to result in a lack of liquidity for the Shares and the New
Shares.
There can be no guarantee that an active market in the Shares will develop. There may be
relatively few potential buyers or sellers of the Shares on ASX at any time. This may
increase the volatility of the market price of the Shares. It may also affect the prevailing
market price at which Shareholders are able to sell their Shares. This may result in
Shareholders receiving a market price for their Shares that is less or more than the price
that Shareholders paid. There is also a real risk that illiquidity will mean that Shareholders
will be unable to realise their investment in the Company at an acceptable price or at all.
Market price – The market price of the Company’s shares may fluctuate due to various
factors including general movements in commodity prices, the Australian and international
investment markets, economic conditions, global geopolitical events and hostilities,
consumer confidence, investor perceptions and other factors that may affect the
Company’s financial performance and position. The market price of the Company’s shares
could trade on ASX at a price below their issue price.
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