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JUST GROUP LIMITED (ACN 096 911 410) Target’s Statement
This Target’s Statement has been issued in response to the takeover offer made by Premier Investments Limited for all the ordinary shares in Just Group Limited.
REJECT THE TAKEOVER OFFER FROM PREMIER
This is an important document and requires your immediate attention. If you are in any doubt about how to deal with this document, you should contact your broker, financial adviser or legal adviser immediately.
ACN 096 911 410 Financial Adviser Legal Adviser KEY DATES CORPORATE DIRECTORY
Date of Premier’s Offer 19 May 2008 ACN 096 911 410 AUDITOR Date of this Target’s Statement 2 June 2008 DIRECTORS Ernst & Young 8 Exhibition Street Close of Premier’s Offer Period (unless extended or withdrawn) 7.00pm (AEST) on 20 June 2008 Ian Pollard (Chairman) Melbourne VIC 3000 Jason Murray (Managing Director) Just Group shareholder information AUSTRALIA Just Group has established a Shareholder Information Line which Just Group shareholders may call if they have any queries in Laura Anderson relation to Premier’s Offer. The telephone number for the Shareholder Information Line is 1300 780 445 (for calls made from within Australia) or +612 8280 7106 (for calls made from outside Australia). Bronwyn Constance LAWYERS Just Group notifies shareholders that calls to the Shareholder Information Line may be tape recorded, indexed and stored. Ian Dahl Freehills Further information relating to Premier’s Offer can be obtained from Just Group’s website at www.justgroup.com.au. Terrence McCartney Important notices Level 42 Michael McLeod Nature of this document 101 Collins Street This document is a Target’s Statement issued by Just Group under Part 6.5 Division 3 of the Corporations Act in response to Susan Oliver Premier’s Bidder’s Statement and Offer. Melbourne VIC 3000 Defined terms AUSTRALIA A number of defined terms are used in this Target’s Statement. These terms are explained in Section 7 of this Target’s Statement. COMPANY SECRETARY No account of personal circumstances Janice Payne This Target’s Statement does not take into account your individual objectives, financial situation or particular needs. It does not InvestIGATing Accountants contain personal advice. You should seek independent financial and taxation advice before making a decision as to whether or not EXECUTIVE MANAGEMENT TEAM to accept the Offer. PricewaterhouseCoopers Securities Limited Disclaimer as to forward looking statements David Bull (Merchandising Director Casualwear) Freshwater Place Further, some of the statements appearing in this Target’s Statement may be in the nature of forward looking statements. Ashley Gardner (Chief Financial Officer) You should be aware that such statements are only predictions and are subject to inherent risks and uncertainties. Those risks and 2 Southbank Blvd uncertainties include factors and risks specific to the industry in which Just Group operates as well as general economic conditions, Rachel Kelly (Retail Director Australia and New Zealand) Southbank VIC 3006 prevailing exchange rates and interest rates and conditions in the financial markets. Actual events or results may differ materially from the events or results expressed or implied in any forward looking statement. None of Just Group, Just Group’s officers, any Anita Muller (Human Resources Director) AUSTRALIA persons named in this Target’s Statement with their consent or any person involved in the preparation of this Target’s Statement, Janice Payne (Corporate Affairs Director and Company makes any representation or warranty (express or implied) as to the accuracy or likelihood of fulfilment of any forward looking Financial Advisers statement, or any events or results expressed or implied in any forward looking statement, except to the extent required by law. Secretary) You are cautioned not to place undue reliance on any forward looking statement. The forwarding looking statements in this Glenys Shearer (Commercial and Merchandising Caliburn Partnership Target’s Statement reflect views held only as at the date of this Target’s Statement. Risks Womenswear Director) Level 34 There are a number of risks which may affect the future performance of Just Group. These are discussed in Section 4. Wai Tang (Director of Operations and Peter Alexander The Chifley Tower ASIC disclaimer Sleepwear) A copy of this Target’s Statement has been lodged with ASIC. Neither ASIC nor any of its officers take any responsibility for the 2 Chifley Square content of this Target’s Statement. REGISTERED OFFICE Sydney NSW 2000 AUSTRALIA CONTENTS 658 Church Street Richmond VIC 3121 SHARE REGISTRY Chairman’s Letter to Shareholders 1 AUSTRALIA Link Market Services Limited How to Reject Premier’s Offer 3 T: 03 9420 0200 Locked Bag A14 Section 1 Why You Should Reject Premier’s Offer 4 F: 03 9426 0200 Sydney South NSW 1235 Section 2 Frequently Asked Questions 30 WEBSITE AUSTRALIA T: 1300 554 474 (within Australia) Section 3 Financial Information and Directors’ Pro-forma Forecast 33 www.justgroup.com.au T: 02 8280 7761 Section 4 Risk Factors 47 EMAIL F: 02 9287 0303 Section 5 Taxation Consequences 51 [email protected] E: [email protected] Section 6 Important Matters for Just Group Shareholders to Consider 54 W: www.linkmarketservices.com.au BANKERS Section 7 Glossary and Interpretation 62 STOCK EXCHANGE Commonwealth Bank of Australia Section 8 Authorisation 64 National Australia Bank Just Group Limited shares are listed on Annexure A Investigating Accountant’s Report 66 Westpac Banking Corporation Australian Stock Exchange. The home branch is Melbourne. Ticker: JST Annexure B Independent Expert’s Report 72 CHAIRMAN’S LETTER TO SHAREHOLDERS
2 June 2008 Dear Just Group Shareholder Reject Premier’S Offer You should have recently received an offer from Premier to acquire your Just Group Shares for $2.095 cash and 0.25 Premier shares for every Just Group Share you hold (“Premier’s Offer”). This document is our Target’s Statement, which sets out the recommendation of your Special Board Committee and the reasons for that recommendation. As I indicated in my letter to you dated 7 April 2008, Just Group has taken steps to ensure the independence of Just Group’s response and has formed a Special Board Committee to assess and consider Premier’s Offer. The two Directors who recently joined the Just Group Board as nominees of Metrepark Pty Ltd (which may be considered an associate of Premier for the purposes of Premier’s Offer), are not members of the Special Board Committee.
Your Special Board Committee unanimously recommends that you REJECT the unsolicited and opportunistic Premier Offer. Your Special Board Committee believes there are a number of key reasons why you should REJECT Premier’s unsolicited Offer: 1. Just Group is a unique Australian retail company; 2. Premier’s Offer is materially inadequate and undervalues your shareholding; 3. Premier’s Offer is highly opportunistic and your outcome is uncertain if you accept the Offer; 4. Premier appears to need Just Group (but Just Group doesn’t need Premier); 5. An investment in Premier represents a fundamental change in your investment profile; and 6. You should consider Premier’s corporate governance framework. Lonergan Edwards, the Independent Expert, has concluded the Premier Offer is neither fair nor reasonable. The Independent Expert has assessed the value of: • your Just Group Shares to be between $4.78 and $5.28 per Share on a 100% controlling interest basis; • Premier’s Offer consideration to be between $3.97 and $4.23 per Share. The Independent Expert’s assessed value of Premier’s Offer consideration is between $0.81 and $1.05 per Share below its assessed value of Just Group’s Shares.
Detailed reasons for reaching our conclusion are set out in this document. You should read these reasons carefully. The Independent Expert’s Report is also included. TO REJECT THE PREMIER OFFER, SIMPLY IGNORE ALL DOCUMENTATION SENT TO YOU BY PREMIER. Each member of the Special Board Committee of Just Group who holds Just Group Shares intends to REJECT the Premier Offer in relation to those Shares. Just Group is two years into a four year strategic plan that is designed to generate continued long term, sustainable growth. We have an exceptional management team, with outstanding experience and skills in retailing, that has delivered seven years of continuous sales and profit growth and strong financial returns. Our management team remains focused on delivering returns to all shareholders within the context of a strong board and governance framework. On the basis set out on page 10, your Board has adopted a goal of delivering at least 40 cents earnings per share (“EPS”) in FY2010. If achieved, this will represent double-digit EPS growth on average for the remaining two years of the strategic plan. We are committed to ensuring that shareholders benefit fully from Just Group’s underlying value and growth potential. We also remain dedicated to our objective of being one of the world’s most exciting retailers. Your Special Board Committee will continue to keep you updated on developments as they occur. In the meantime, if you have any questions in relation to this Target’s Statement or your shareholding in Just Group, please call our Shareholder Information Line on 1300 780 445 (within Australia) or +612 8280 7106 (outside Australia) Monday to Friday between 9.00am and 5.00pm (AEST). All company announcements are available on our website, www.justgroup.com.au. Yours sincerely
Ian Pollard Chairman Target’s Statement | JUST GROUP | 1 Your Special Board Committee Recommends that you REJECT Premier’s offer Do nothing IGNORE PREMIER’S OFFER WHowhy Yotou REJECT Shou ldPremier REJECT’s P Offremierer ’s Offer
1. To REJECT Premier’s Offer, DO NOTHING. Ignore all documents sent to you by Premier
2. You should read this Target’s Statement, which contains your Special Board Committee’s recommendation to REJECT Premier’s Offer and the reasons for this recommendation
3. If you have any questions, please call the Shareholder Information Line on: • 1300 780 445 (within Australia); or • +612 8280 7106 (outside Australia) which is available Monday to Friday between 9.00am and 5.00pm (AEST)
To REJECT Premier’s Offer, DO NOTHING and ignore all documents sent to you by Premier
Target’s Statement | JUST GROUP | 3 1 Why You Should REJECT Premier’s Offer
1. Just Group is a unique Australian retail company
• Just Group is Australia’s leading fast fashion retailer • Just Group is a growth company
2. Premier’s Offer is materially inadequate and undervalues your shareholding
• Premier’s Offer does not reflect the value of Just Group • The Independent Expert has concluded that Premier’s Offer is NEITHER FAIR NOR REASONABLE
3. Premier’s Offer is highly opportunistic and your outcome is uncertain if you accept the Offer
• Premier’s Offer is well below the price Just Group’s Shares have traded at for much of the past 12 months • Premier’s Offer conditions create uncertainty and the Offer may have adverse capital gains tax consequences • The future value and liquidity of Premier’s shares is uncertain
4 | JUST GROUP | Target’s Statement W1 Whyh yYo You uSho Shoulduld REJECT REJECT Premier Premier’s ’Offs Offerer
4. Premier appears to need Just Group (but Just Group doesn’t need Premier)
• The Premier Offer is structured to suit Premier’s objectives, not the interests of Just Group shareholders • Premier has endorsed Just Group’s management • It is not clear if Premier will add any value to Just Group
5. An investment in Premier represents a fundamental change in your investment profile
• Premier’s strategy appears to lack focus and detail and may expose Just Group shareholders to additional risks • Your interests may become subordinated to interests associated with Premier’s Chairman and you will dilute your exposure to Just Group’s future performance • Premier’s shares trade at a substantial discount to net tangible assets and have significantly lower liquidity than Just Group Shares
6. You should consider Premier’s corporate governance framework
• Premier’s corporate governance framework is inconsistent with ASX best practice • Premier is silent on how it will manage potential conflicts
Target’s Statement | JUST GROUP | 5 JUST GROUP MANAGEMENT TEAM
David Bull Glenys Shearer Wai Tang Jason Murray Anita Muller Ashley Gardner Rachel Kelly Janice Payne
David Bull Wai Tang Anita Muller Rachel Kelly Merchandising Director Director of Operations and Human Resources Director Retail Director Australia and Casualwear Peter Alexander Sleepwear Anita has been with Just New Zealand David joined the Group in Wai has over 18 years Group since June 2003. Rachel has been with Just May 1999 and has over experience in operations and Anita has over 20 years Group for 10 years in various 20 years experience in fashion general management, having experience in human retail leadership positions. retail, having previously held previously held positions at resources, having previously Rachel holds a Bachelor of positions at Esprit and Pacific Brands (formerly a held HR management Business from the University of Sportsgirl. division of Pacific Dunlop Ltd) positions at Foster’s Group South Australia. and IBM Management Ltd, CSR Ltd and ICI Glenys Shearer Consulting. Wai holds a Bachelor Australia Ltd. Janice Payne Commercial and Merchandising and Master of Science from the Corporate Affairs Director and Womenswear Director Company Secretary Royal Melbourne Institute of Ashley Gardner Glenys has over 25 years Technology, an MBA from Chief Financial Officer Janice has been with experience in the retail industry Melbourne Business School and Ashley joined Just Group in Just Group since June 1998. (primarily with Just Group). is a certified Company Director January 2007. Ashley has Janice previously spent Glenys was the 2005 Australian with a Diploma from AICD. strong finance, retail and 10 years with Evans Partners Telstra Business Woman of fashion credentials, having (now Howarth Chartered the Year in the category of Jason Murray most recently been CFO and Accountants). Janice holds a Australian Government Private Managing Director and CEO an executive director at Bachelor of Commerce from and Corporate Sector. Jason has been at Just Group Country Road. Ashley holds the University of Melbourne for almost five years, having a Bachelor of Commerce and is also a Chartered previously been at McKinsey (Hons) from the University Accountant. and Company for 10 years, of Melbourne and is also a working mainly with retail Chartered Accountant. companies. Jason has a University Medal in Economics from Sydney University and an MBA (Hons) from IMD in Lausanne, Switzerland. 6 | JUST GROUP | Target’s Statement W1 Whyh yYo You uSho Shoulduld REJECT REJECT Premier Premier’s ’Offs Offerer
1. Just Group is a unique Australian retail company
Just Group is Australia’s leading fast fashion retailer Just Group’s vision is to become one of the world’s most exciting retailers • Just Group has a formidable portfolio of clearly segmented and continuously refreshed retail fashion brands.
ESTABLISHED BRANDS GROWTH BRANDS EMERGING BRANDS
• Just Group’s brands leverage a highly capable and diverse “fast fashion retail machine”, including: – 885 stores across Australia and New Zealand by July 2008; – expansion into North America, with two Peter Alexander stores open and a third store opening in August – with additional store expansion in other countries in due course; – a joint venture in South Africa with 23 stores; – an award-winning supply chain capability, with stock turns amongst the best in the industry; – an acquisition strategy which has contributed to the growth and profitability of Just Group and which has helped build a brand portfolio that provides resilience to shifts in the economy and customer behaviour; and – outstanding corporate, product and brand leadership. • Just Group has delivered exceptional returns: – seven consecutive years of sales and profit growth; – return on capital employed (measured as EBITA/average capital employed) in excess of 67% per annum for the 12 months to January 2008; and – total shareholder return since listing of c. 24% per annum (assuming dividends reinvested).
Target’s Statement | JUST GROUP | 7 1 Why You Should REJECT Premier’s Offer
Just Group is a growth company Just Group is two years into a four year strategic plan that is designed to generate continued long term sustainable growth • Just Group has forecast1 continued growth for FY2008: – sales of $824 million1, representing growth of 8.5% on FY20072; – EPS of 33.4 cents1, representing growth of 14.4% on FY20072; and – EBITA of $107.0 million1, representing growth of 11.0% on FY20072.
JUST GROUP’S EPS GROWTHA,B,C JUST GROUP’S EBITA GROWTHA,B,C
35 120 14% yoy growth 33.4 11% yoy growth 11% yoy growth 30 107 9% yoy growth 29.2 100 25% yoy growth 97 26.4 21% yoy growth 25 89 EBITA (A$M) EBITA
EARNINGS PER SHARE (C) 80
20 21.2 73
0 0 FY2005 FY2006 FY2007 FY2008 FY2005 FY2006 FY2007 FY2008 Pro-forma Pro-forma Forecast Forecast Source: Just Group Notes: A FY2008 based on Directors’ Pro‑forma Forecast as defined in Section 3. Note EBITA is stated on a consistent basis to Just Group’s reporting standards and includes interest income of $1.1 million. Adjusting for the interest income EBITA would be $106 million B Based on adjusted historical results as defined in Section 3; FY2005 and FY2006 adjusted for timing of foreign exchange gain (loss) on ineffective cash flow hedges as per that applied to FY2007 and FY2008 – refer to Section 3 C While Just Group has prepared the Directors’ Pro-forma Forecast with due care and attention, it is subject to inherent risks and uncertainties facing Just Group’s operations. These risks are discussed in further detail in Section 4 35 120 • The Directors’ Annualised Pro‑forma Forecast EBITA for FY2008 is $111 million3. This represents the underlying profitability of Just Group based on the forecast stores30 expected to be operating as at the end of FY2008, restated on the basis they had traded for 52 weeks. 100
25
80 20
15 60
Notes: 1 As per Directors’ Pro-forma Forecast detailed in Section 3 2 Adjusted historical results for FY2007 as defined in Section 3 3 As per Directors’ Annualised Pro-forma Forecast detailed in Section 3
8 | JUST GROUP | Target’s Statement
JUST GROUP’S EPS GROWTH1,2 JUST GROUP’S EBIT GROWTH1,2
35 14% yoy growth 120 11% yoy growth 11% yoy growth 33.4 9% yoy growth 25% yoy growth 21% yoy growth 30 107 29.2 100 96 26.4 25 89 EBIT (A$M) 80 EARNINGS PER SHARE C 21.2 20 73
0 0 FY 2005 FY 2006 FY 2007 FY 2008e FY 2005 FY 2006 FY 2007 FY 2008e
35 120
30 100
25
80 20
15 60 1 Why You Should REJECT Premier’s Offer
• Just Group’s business continues to grow despite market trading conditions softening in the second half of FY2008 (notably since the 5 March 2008 interest rate rise). Just Group’s full‑year result is underpinned by: – continued sales and profit growth in Dotti and Peter Alexander; – an improvement in the performance of Jacqui.E and Portmans; – the profit earned from the recently acquired Smiggle brand; and – the ongoing benefits of the stronger Australian dollar, especially for the casualwear brands of Just Jeans and Jay Jays.
JUST GROUP SALES – H2, 2008 Total Sales Same-Store Sales Brand 17 weeks Last 8 weeksA 17 weeks Last 8 weeksA AUSTRALIA
(2.2)% (1.0)% (0.6)% 0.7%
3.2% 5.1% (1.3)% 1.0%
6.7% 8.8% 5.1% 7.3%
0.2% 7.3% (5.0)% 1.5%
23.4% 15.5% 7.7% 3.2% 42.1% 42.9% 26.8% 30.9%
TOTAL AUST. (excl. Smiggle) 5.2% 7.4% 1.0% 3.8% 81.7% 71.3% 5.4% 0.9%
TOTAL AUST. (incl. Smiggle) 6.3% 8.1% 1.0% 3.8%
New Zealand (NZ$) (1.4)% 0.9% (8.0)% (6.2)%
GROUP TOTALB 4.1% 6.0% (1.4)% 1.2% Source: Just Group Notes: A Since Premier’s Offer announced up to 24 May 2008 B Excludes South African joint venture and Peter Alexander USA
Target’s Statement | JUST GROUP | 9 1 Why You Should REJECT Premier’s Offer
Just Group’s strategic goal is to deliver at least 40 cents EPS in FY2010 • Just Group has previously outlined a strategic goal of delivering EPS in FY2010 of at least 38.4 cents, which would represent double‑digit annual EPS growth on average over the life of Just Group’s FY2006‑FY2010 strategic plan. • Just Group has recently undertaken a review of its strategic plan, as a result of which it has now adopted the goal of delivering at least 40 cents EPS in FY2010. This represents double-digit EPS growth on average for the remaining two years of the strategic plan. • This goal has been derived having regard to the factors set out in Section 3 with respect to Just Group’s FY2008 Directors’ Pro‑forma Forecast and expectations beyond FY2008. These factors include: – an expectation that the AUD:USD exchange rate will remain above 90 cents; – that Australian GDP growth remains positive; and – the investment into and operating results from Just Group’s international strategy. While Just Group believes it has a reasonable basis for adopting this goal, it is a goal, not a forecast, and, accordingly, does not carry the same level of certainty of achievement as would a forecast. It is made subject to a number of assumptions and risks which are referred to in Section 3 and Section 4 of this Target’s Statement – you should read these sections carefully. Just Group has adopted this goal with due care and attention, but no guarantee or assurance can be given that it will be achieved. Actual events or results may differ materially. • Just Group’s strategic plan is supported by four key elements, specifically: 1. continued growth in Australasia; 2. international expansion; 3. continued investment into Just Group’s fast fashion retail machine; and 4. scope for selected acquisitions. Element One – Continued growth in Australasia • Sales and earnings in Australasia are expected to continue to grow between FY2008 and FY2010, largely supported by: – an ongoing increase in the number and size of stores, particularly in Jay Jays, Dotti, Peter Alexander and Smiggle. Just Group expects to have close to 1,000 stores across Australia and New Zealand by the end of FY2010; – continued improvement in the trading of Dotti and Jacqui.E, which have achieved same‑store sales growth in the first 17 weeks of 2H2008 of 26.8% and 5.1%; – a continuation of the improvements currently being achieved in Portmans; – the higher Australian dollar secured through our forward currency purchases and options. Assuming a spot rate of 90 cents, the expected achieved AUD:USD rate is 89.51 cents in FY2009 and 90 cents in FY2010, versus an expected achieved rate in FY2008 of c. 83.66 cents; – a reduction in import duties on clothing into New Zealand from 15% to 12.5% (which becomes effective on 1 July 2008) and from 12.5% to 10% (which becomes effective on 1 July 2009); and – a reduction in import duties on clothing into Australia from 17.5% to 10.0% (which becomes effective on 1 January 2010).
10 | JUST GROUP | Target’s Statement 1 Why You Should REJECT Premier’s Offer
Element Two – International expansion • International expansion represents a substantial growth option for Just Group, as: – the scale and profitability of the South African joint venture increase: – this market offers 15 million potential consumers aged between 15 and 29 years with rising average disposable incomes; and – Just Group’s current investment in South Africa is limited to the Jay Jays brand, which has been rolled out in a measured way. Same-store sales growth year to date for stores open for at least a year is 17.8% as at 24 May 2008; – Just Group continues its international rollout of the Peter Alexander concept: – if the initial sites prove to be successful, Just Group will continue its store rollout into the US as appropriate and explore the potential for other stores in other international markets; – the rollout of Smiggle stores internationally is initiated, taking advantage of the infrastructure being built for the Peter Alexander expansion and of proposals that have been received from major retail players in a number of regions: – early analysis indicates that the potential exists for a substantial number of company‑owned stores outside Australia and New Zealand, plus scope for franchised and licensed opportunities; and – resources will be deployed in FY2009 to further scope this growth option and then to progress it as quickly as is appropriate. Element Three – ContinueD investment into Just Group’s fast fashion retail machine • The FY2010 strategic plan is underpinned by ongoing investment into, and improvement of, the fast fashion retail machine – the talent, infrastructure, systems and skills that makes the Just Group model successful: – a new distribution centre will be opened in Auckland in September 2008 which will increase the distribution capacity of Just Group in New Zealand; – Just Group’s e‑commerce platform has recently been upgraded and new investment is planned to further upgrade the point-of-sale system and to streamline and improve the core merchandising system; – work has started that will further diversify Just Group’s sourcing base, both within China and in other countries such as India, Bangladesh, and Vietnam. Collaboration has increased with core vendors within each region, and in Melbourne, to improve speed to market and to mitigate product cost pressures; and – a comprehensive and rigorous system for the identification and management of talent will continue to be rolled out throughout Just Group.
Target’s Statement | JUST GROUP | 11 1 Why You Should REJECT Premier’s Offer
Element Four – Scope for selected Acquisitions • Further acquisitions capitalise on Just Group’s fast fashion retail machine: – Just Group’s fast fashion retail machine provides a competitive advantage and enhanced growth options as it enables Just Group to successfully add value to acquisitions made; and – since 2000, Just Group has undertaken four major acquisitions, all of which have added significant value for shareholders. annual STORE REVENUE strategic BRAND GROWTHA GROWTHB OUTCOME
Catalogue to 1 to 24 25% (Acquired January 2000) multi‑channel
87 to 133 7% Margin and scale (Acquired June 2002) expansion
Brand turnaround and 10 to 70 52% (Acquired October 2004) store rollout
20 to 35 77% Store rollout (Acquired August 2007) Source: Just Group Notes: A From time of acquisition to position estimated at July 2008 B Compounded annual growth rate from full year prior to acquisition to position estimated to year ending July 2008 including estimated revenue from the end of May 2008 through to the end of July 2008
• Just Group has clear criteria for considering acquisitions, based on portfolio fit, operational fit and financial returns and is regularly considering opportunities.
A FORMIDABLE PORTFOLIO OF RETAIL Fashion BRANDS WITH ADDITIONAL POTENTIAL FOR NEW BRANDS
Casualwear Womenswear Lifestyle
30s/Lifestyle Mature Women
Contemporary Fashion AGE Other ootwear Intimates F Accessories
Kids
“LEVERAGING” fast fashion retail machine
KEY: Established Brands Potential New Brands
Source: Just Group
12 | JUST GROUP | Target’s Statement 1 Why You Should REJECT Premier’s Offer
2. Premier’s Offer is materially inadequate and undervalues your shareholding
Premier’s Offer does not reflect the value of Just Group The Independent Expert has stated that Just Group is worth significantly more than what Premier is offering • Your Special Board Committee commissioned Lonergan Edwards to undertake an independent assessment of Premier’s Offer. The Independent Expert’s Report is provided in Annexure 2 of this Target’s Statement. • The Independent Expert has assessed that the value of Just Group on a 100% controlling interest basis ranges from $4.78 to $5.28 per Just Group Share. • The Independent Expert has also assessed that the value of Premier’s Offer consideration ranges from $3.97 to $4.23 per Just Group Share. • The mid‑point of the Independent Expert’s assessed value of Premier’s Offer consideration ($4.10 per Share) is at a substantial discount (being 18.5% or 93 cents per Share) to its assessed mid-point value of Just Group on a 100% controlling interest basis ($5.03 per Share).
PREMIER’S OFFER IS BELOW THE INDEPENDENT EXPERT’S VALUATIONA
5.50
$5.28 Discount of 18.5% or 93 cents per Share 5.00 $5.03
$4.78
4.50 $ PER JUST GROUP SHARE
4.00 $4.10
0 Independent Expert’s Independent Expert’s Independent Expert’s Mid-Point Independent Valuation of Valuation of Valuation of Expert’s Assessment of Just Group (Low)A Just Group (High)A Just Group (Mid-Point)A Premier’s Offer consideration Source: Independent Expert’s Report Notes: A The Independent Expert has assessed the value of Just Group on a 100% controlling interest basis
Target’s Statement | JUST GROUP | 13
5.1
4.7
4.3
3.9
3.5 1 Why You Should REJECT Premier’s Offer
Takeover offers for control of listed companies typically include a significant premium to prices at which shares normally trade in the market • The premia implied by the Premier Offer are well below typical control premia paid in Australia. • The Independent Expert has stated that takeover premia paid to acquire 100% of a company are generally priced at a premium of between 30% to 35% above the pre‑bid stock market price (assuming the pre‑bid price does not reflect speculation of the bid).
THE PREMIUM FOR CONTROL IMPLIED BY PREMIER’S OFFER IS INADEQUATE
Premium for control implied by Independent Typical takeover premium relative to Expert’s Assessment of Premier’s OfferA,B the pre-bid stock market priceC
40%
35% 30% 30%
20%
16% 10% 8%
0% IMPLIED PREMIUM/(DISCOUNT)
–9% –10%
–20% Just Group Day Prior Just Group’s Just Group’s Typical Premium Typical Premium to Announcement 3 Month VWAP 6 Month VWAP Low High Prior to Announcement Source: IRESS, Independent Expert’s Report Notes: A Premier’s Offer price is based on the mid‑point of the Independent Expert’s assessment of the value of Premier’s Offer consideration ($4.10). Just Group’s share prices the day prior to announcement, three month and six month VWAPs (prior to announcement) are $3.52, $3.80 and $4.50 respectively (on a cum-dividend basis). Just Group began trading ex 10.5 cent dividend on 5 May 2008. If Premier’s share prices the day prior to announcement ($7.90), three month ($8.17) and six month ($8.03) VWAPs (prior to announcement), are used to calculate the value of Premier’s Offer consideration, the implied premium/(discount) for control of Just Group would be 18.6%, 11.7% and (6.5)% respectively B Just Group’s share price not adjusted for Just Group’s 10.5 cent dividend which was paid on 22 May 2008. Just Group began trading ex-dividend on 5 May 2008 C See Section VI of the Independent Expert’s Report. Analysis assumed the pre-bid price does not reflect speculation of a bid
• The Independent Expert notes (in paragraph 22 of its report), “The premium for control implied by our assessed value of the Offer consideration is significantly less than the average premiums paid in successful takeovers generally”. ⎫ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎬ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎭ 40 ⎫ ⎪ ⎪ ⎪ ⎬ ⎪ ⎪ ⎪ ⎭ ⎫ ⎪ ⎪ ⎪ ⎪ ⎪ ⎬ ⎪ ⎪ ⎪ ⎪ ⎪ ⎭ 14 | JUST GROUP30 | Target’s Statement
20 ⎫ ⎪ ⎪ ⎪ ⎬ ⎪ ⎪ ⎪ ⎭
10
0
-10
-20 1 Why You Should REJECT Premier’s Offer
The Independent Expert has concluded that Premier’s Offer is NEITHER FAIR NOR REASONABLE • The Independent Expert has concluded that Premier’s Offer is NEITHER FAIR NOR REASONABLE. • The Independent Expert has made a number of important comments in its Report including:
– “As our assessed value of the consideration offered by Premier is significantly less than our assessed value for 100% of the Shares in Just Group, in our opinion, the Offer is not fair …” (paragraph 20)
– “Our valuation range represents a premium of 25.8% and 38.9% above the VWAP of Just Group Shares in the three months prior to the announcement of the Offer. This range is broadly consistent with the empirical evidence on premiums paid in successful takeovers in Australia.” (paragraph 179)
– “… Further, we note our assessed value of the Offer consideration ($3.97 to $4.23 per share) is only consistent with the high end of our assessed value of Just Group Shares on a portfolio basis ($3.59 to $4.22 per share). Consequently, in our opinion, the Offer does not provide Just Group shareholders with a sufficient premium for control.” (paragraphs 221 and 222)
– “… a large component of the Offer consideration effectively comprises (on a look through basis) Shares in Just Group. Existing Just Group shareholders are therefore being offered in respect of around half the Offer consideration what they already own, but under the Offer their ongoing interest in Just Group will be held indirectly (through Premier).” (paragraph 22)
– “Premier is effectively controlled by interests associated with its Chairman (Mr Solomon Lew). Accordingly, Just Group shareholders accepting the Offer will be minority shareholders in a company (Premier) which is: (a) controlled by a large shareholder who has not given any indication of seeking to acquire a 100% interest in the company (b) unlikely to receive a takeover offer from a third party (at least in the short to medium term)” (paragraph 228)
Target’s Statement | JUST GROUP | 15 1 Why You Should REJECT Premier’s Offer
3. Premier’s Offer is highly opportunistic and your outcome is uncertain if you accept the Offer
Premier’s Offer is well below the price Just Group’s Shares have traded at for much of the past 12 months Your Special Board Committee believes the timing of the Premier Offer is highly opportunistic • Premier’s Offer comes during a period when Just Group’s share price is close to its 52 week low: – Premier’s Offer is below Just Group’s six month ($4.50) and 12 month ($4.46) VWAPs immediately prior to Premier’s Offer (Just Group commenced trading ex its 10.5 cent FY2008 interim dividend on 5 May 2008); and – Premier’s Offer (at the Independent Expert’s assessed mid-point of the value of Premier’s Offer consideration of $4.10), represents a 30% discount to Just Group’s all‑time closing high of $5.88 per Just Group Share on 1 November 2007, only seven months ago. • Since Premier announced its Offer on 31 March 2008, the S&P/ASX 200 Index has increased by 7% (as at Monday 26 May 2008) which further highlights the opportunistic nature of Premier’s Offer.
PREMIER’S OFFER IS HIGHLY OPPORTUNISTIC
Closing high of $5.88
6.00 A Mid-point Independent Expert’s assessment Date of of the control value of Just Group: $5.03 Premier’s Offer
5.00
4.00 Mid-point Independent Expert’s assessment of the value of Premier’s Offer consideration: $4.10 JUST GROUP SHARE PRICE ($) 3.00 12 month closing low of $3.30
0 May 07 Jul 07 Sep 07 Nov 07 Jan 08 Mar 08 May 08 Source: IRESS Notes: A Just Group’s share price not adjusted for Just Group’s 10.5 cent dividend which was paid on 22 May 2008. Just Group began trading ex-dividend on 5 May 2008
“The opportunistic nature of the acquisition was reinforced by commentary from PMV [Premier] implying the acquisition was driven by share price performance, as they were happy with the operational performance of the company and current management.” Credit Suisse equities report, 1 April 2008
16 | JUST GROUP | Target’s Statement 1 Why You Should REJECT Premier’s Offer
Premier is trying to encourage Just Group shareholders to accept its Offer by emphasising weak prevailing economic conditions • It is unclear why Premier would make an Offer for Just Group if it didn’t believe Just Group has attractive future prospects: – Premier must believe that Just Group’s medium‑long term outlook is strong, and that by buying Just Group “on the cheap” Premier will transfer significant value to its existing shareholders; and – Premier’s comments regarding current economic and retail sector conditions appear self‑serving. • Indeed, prevailing economic conditions, especially in Australia, are not preventing Just Group from growing sales and profits. Just Group has delivered same‑store sales growth in Australia of 1.0% thus far for the winter season and 3.8% in the eight weeks since Premier announced their Offer. Inventory is well controlled and gross margins are up on the corresponding period last year. As per the Directors’ Pro‑forma Forecast contained in Section 3, total sales and EPS are forecast to grow by 8.5% and 14.4% in FY2008. • Premier issued a Replacement Bidder’s Statement reflecting extensive changes that Premier agreed to make in order to clarify serious concerns Just Group had with the original Bidder’s Statement.
Premier’s Offer conditions create uncertainty and the Offer may have adverse capital gains tax consequences Premier’s Offer is subject to a number of conditions and as such is uncertain • In particular, Premier’s Offer is conditional on acquiring at least 50% of Just Group Shares: – there is no certainty that Premier will acquire 50% of Just Group Shares. • Premier’s Offer is also conditional on there being no change of control consequences for material contracts: – the condition requires that Just Group confirms that neither Just Group nor a subsidiary of Just Group is party to a material contract under which the other party could terminate or vary that contract as a result of Premier making the Offer, acquiring Shares under the Offer or Premier obtaining control of 50% or more of Just Group; and – Just Group has identified one contract, a Just Group financial facility, that Just Group may be required to repay if Premier obtains more than 50% of Just Group (see Section 6.5 for more information). Therefore, unless Premier waives the condition, the condition may not be satisfied and the Offer may not proceed.
Target’s Statement | JUST GROUP | 17 1 Why You Should REJECT Premier’s Offer
In the event that Premier gains control of Just Group, Just Group shareholders remain subject to uncertainty • Premier must end up with at least 80% of Just Group Shares for eligible Just Group shareholders who accept Premier’s Offer to receive capital gains tax (“CGT”) scrip‑for‑scrip rollover relief: – if the 80% threshold is not reached, Just Group shareholders who make a capital gain from their disposal of Just Group Shares will be liable to pay CGT on their scrip consideration (in addition to CGT payable on the cash component). • Premier may face additional risks if it does not acquire all of Just Group’s Shares: – Premier will remain unable to access Just Group’s cash flows unless it acquires all of Just Group’s Shares. Its ability to access Just Group’s cash flows will be limited to dividends declared by the Just Group Board; and – in its Bidder’s Statement, Premier noted the risks of Just Group not becoming a wholly‑owned subsidiary and additional costs associated with Just Group remaining an ASX‑listed company.
The future value and liquidity of Premier’s shares is uncertain • The future value of Premier’s shares is uncertain. • Premier’s share price is currently materially below net tangible assets per share. The market does not seem to currently regard net tangible assets as an appropriate basis for valuing Premier’s shares. • Premier is a very illiquid stock.
18 | JUST GROUP | Target’s Statement 1 Why You Should REJECT Premier’s Offer
4. Premier appears to need Just Group (but Just Group doesn’t need Premier)
The Premier Offer is structured to suit Premier’s objectives, not the interests of Just Group shareholders • Premier does not fully own any operating businesses: – Premier is a listed “cash box”. Its only material non‑cash investment is a 21.8% shareholding in ASX‑listed wholesale group Housewares International (with a market value of c. $39 million).
• Just Group already has the management team, the business operations and the trading liquidity that Premier appears to need.
JUST GROUP PREMIER
Management Team Leading retail management team Currently no CEO and a number of that Premier wants to retain functions outsourced to Century Plaza TradingA
Business 100% ownership of seven leading Only current material non‑cash Operations fast fashion brands investment is a stake in Housewares International (which is not a retail business)
Liquid Share
Register c. 7,500 shareholders c. 360 shareholders Notes: A A company associated with Premier’s Chairman, Mr Solomon Lew
Target’s Statement | JUST GROUP | 19 1 Why You Should REJECT Premier’s Offer
Premier has endorsed Just Group’s management • Just Group has an outstanding management team, with deep experience and skills in retailing, focused on delivering returns to all shareholders within a strong board and governance framework.
“PREMIER HAS SIGNIFICANT RESPECT FOR JUST’S MANAGEMENT TEAM.” p 16, Bidder’s Statement
• Premier has endorsed Just Group’s capabilities: – Premier appears to need Just Group’s expertise and experience – not the other way around; and – Premier has publicly recognised the strength of Just Group’s team. • Premier has stated its desire to retain Just Group Chairman Ian Pollard, Managing Director Jason Murray and the members of the management team: – in the interest of preserving the independence of Just Group’s process for reviewing Premier’s Offer, Ian Pollard has indicated that he does not intend to join Premier’s board. • Just Group’s management continuity may be affected by Premier’s Offer and Premier has highlighted this in its Bidder’s Statement.
“Integrating Just [Group] into Premier’s business may produce some risks, including the retention of senior management of Just and the fulfilment of Premier’s intentions ... If one or more of Just [Group]’s senior management leave their employment, this may adversely affect the ability of Just to manage its business and, accordingly, may adversely affect the financial performance of Premier.” p 49, Bidder’s Statement
20 | JUST GROUP | Target’s Statement 1 Why You Should REJECT Premier’s Offer
It is not clear if Premier will add any value to Just Group Your current Board and management have a clear strategic vision for the future of Just Group and detailed plans in place – Premier has nOt adequately explained its strategic vision for Just Group • Premier has not provided any compelling justification to conclude that Premier is better placed to deliver the benefits of Just Group’s existing strategy than the existing Just Group Board and management team: – Premier has not provided details of how it would modify, supplement or accelerate any of Just Group’s existing strategies, saying it needs to conduct a “strategic review”; – Premier has acknowledged in the Bidder’s Statement that there would be no synergies or any other special value created if it controlled Just Group; and – Premier has also acknowledged as an integration risk that one or more of Just Group’s experienced and well regarded management team may leave. There is a lack of direct relevant retail experience across Premier’s board and management team • Premier’s Bidder’s Statement does not provide details of the performance of any business operated or managed by any of its directors which is similar to Just Group’s business. The only retail management experience identified in the Bidder’s Statement is experience on the Coles Myer board. • Premier is an investment company with no management executives apart from a company secretary/financial controller 4. The fact that Premier is seeking to appoint a CEO and currently outsources certain functions to Century Plaza Trading, highlights Premier’s lack of management • Premier’s proposed appointment of an unidentified CEO may create additional risks: – Premier has not specified what skills and experience the CEO will have; and – Premier has not indicated how the CEO will interact with the current Just Group management team. • Century Plaza Trading, an associate of Premier’s Chairman Mr Solomon Lew, acts as Premier’s de facto management: – Century Plaza Trading provides investment sourcing services to Premier; – Premier relies on Century Plaza Trading to provide financial, legal and accounting services; and – in its Bidder’s Statement, Premier highlighted its dependence on Century Plaza Trading, stating:
“If Premier were required to engage a different service provider or perform these services directly, there is a risk that the costs associated with the provision of such services would significantly increase and there may be disruption to Premier’s business and ability to operate.” p 48, Bidder’s Statement Notes: 4 Based on Premier’s 2007 Annual Report
Target’s Statement | JUST GROUP | 21 1 Why You Should REJECT Premier’s Offer
5. An investment in Premier represents a fundamental change in your investment profile
Premier’s strategy appears to lack focus and detail and may expose Just Group shareholders to additional risks • Your current investment gives you full, direct exposure to Australia’s leading specialty fashion retail platform. • Premier’s investment strategy lacks focus and detail: – Premier is an investment company rather than a pure retail company (unlike Just Group); and – Premier may further expand its investments beyond retail.
“Premier intends to invest only in sectors in which it has substantial experience and skills, being the retail, wholesaling, distribution and retail property sectors.” p 28, Bidder’s Statement
• The nature of Premier’s operations as an investment company may expose Just Group shareholders who accept Premier’s Offer to additional risks compared to holding Just Group Shares.
“the risk profiles of retail investments are different to the risk profiles of wholesaling, distribution and retail property investments.” p 50, Bidder’s Statement
• The Bidder’s Statement (pages 48 to 50) identifies additional risks that Just Group shareholders may be exposed to if they accept Premier’s Offer, including: – the customer bases of wholesaling and distribution businesses could be more consolidated than those of retail businesses; – wholesaling and distribution businesses may be particularly impacted by exchange rate fluctuations; – local real estate conditions, such as the level of demand for and supply of retail space, may impact the value and performance of any retail property investments made by Premier; – movements in the value of property or in the property market in general may impact the performance of any retail property investments made by Premier; and – the potential default by tenants under the terms of their lease or the potential insolvency of a tenant may impact the performance of any retail property investments made by Premier.
22 | JUST GROUP | Target’s Statement 1 Why You Should REJECT Premier’s Offer
Your interests MAY become subordinated to interests associated with Premier’s Chairman and you will dilute your exposure to Just Group’s future performance If the Premier Offer proceeds, depending on the level of acceptances achieved, interests associated with Mr Solomon Lew will hold between 51% and 42% of Premier (assuming 50% and 100% acceptances respectively) • Other Just Group shareholders would hold between only 12% and 27% of Premier (assuming 50% and 100% acceptances respectively). • Other Just Group shareholders risk being subordinated to the associated interests of Mr Solomon Lew. PRO-FORMA PREMIER SHARE OWNERSHIP STRUCTURE ASSUMING 50% ACCEPTANCE ASSUMING 100% ACCEPTANCE BY JUST GROUP SHAREHOLDERSA BY JUST GROUP SHAREHOLDERSE
Unassociated Just Group shareholders 12%B Other Other Unassociated current Premier current Premier Just Group shareholders shareholders shareholders 31%D 37%D 27%B
Interests related Interests related to Solomon Lew to Solomon Lew 51%C 42%C Source: Company announcements Notes: A Based on 201.3 million Just Group Shares. At 50% acceptance the total number of Just Group Shares of 201.3 million less 1.85 million held by Premier would convert into 24.7 million Premier shares (assume 0.25 Premier share for one Just Group Share). The pro-forma Premier would have total shares outstanding of 114.9 million (90.2 million of current Premier shares outstanding plus 24.7 million new shares issued to Just Group shareholders). Interests associated with Mr Lew have voting power over 45.8 million Just Group Shares (this holding comprises 41.2 million shares held by Metrepark Pty Ltd, and 4.6 million shares held by Springsand Investments Pty Ltd) which, assuming Metrepark and Springsand Investments Pty Ltd accept Premier’s Offer for all their Shares, would convert into 11.5 million Premier shares B Current Just Group shareholders excluding Premier, Metrepark Pty Ltd and Springsand Investments Pty Ltd (47.7 million Shares) C Century Plaza Investments, Playcorp Pty Ltd, Metrepark Pty Ltd and Springsands Investments Pty Ltd D Current Premier shareholders excluding Century Plaza Investments and Playcorp Pty Ltd E Based on 201.3 million Just Group Shares. At 100% acceptance the total number of Just Group Shares of 201.3 million less 1.85 million held by Premier would convert into 49.9 million Premier shares (assume 0.25 Premier share for one Just Group Share). The pro-forma Premier would have total shares outstanding of 140.1 million (90.2 million of current Premier shares outstanding plus 49.9 million new shares issued to Just Group shareholders). Interests associated with Mr Lew have voting power over 45.8 million as outlined in Note A, which assuming acceptance of Premier’s Offer for these Shares, would convert into 11.5 million Premier shares If you accept the Premier Offer (and it proceeds), you would forEgo a significant portion of any future value potential of your Just Group Shares and reduce your exposure to the retail sector • You will dilute your economic interest in Just Group. • By diluting your economic interest in Just Group, your exposure to future improvements in the retail environment and benefits which arise from Just Group’s existing strategy would be lower.
Target’s Statement | JUST GROUP | 23 1 Why You Should REJECT Premier’s Offer
Premier’s Shares trade at a substantial discount to net tangible assets and have significantly lower liquidity than Just Group shares Premier is currently trading at a substantial discount to its net tangible assets (“NTA”) and there is a significant risk that Premier will continue to trade at a discount following an acquisition of your Just Group Shares • Premier is encouraging shareholders to value Premier with reference to its NTA. Your Special Board Committee believes it is more appropriate to value Premier’s Offer with reference to Premier’s market price: – the market does not currently consider NTA as an appropriate basis for valuing Premier’s shares, given Premier’s trading discount. • The Independent Expert has stated Premier shares, at least in the short term, are likely to continue to trade at a discount to their NTA if Premier’s Offer is successful. • Guinness Peat Group sold a c. 12.5% stake in Premier in December 2007 at a c. 12% discount to NTA. • Comparable listed investment companies currently trade at an average 23% discount to net assets, highlighting the risk that Premier may continue to trade at a significant discount in the future.
COMPARABLE LISTED INVESTMENT COMPANIESA,B
10% B
0%
–10% –13% –16% –19% –20%
Average discount (ex Premier): 23%
–30% SHARE PRICE DISCOUNT TO NET ASSETS PER –38% –40% Macquarie Capital Babcock & Brown Premier Guinness Alliance Group Capital Peat Group Source: Company announcements, IRESS, Bloomberg Notes: A Share prices as at 26 May 2008. Allco Equity Partners trades at a 63% discount to its net assets and has been excluded as an outlier B As a number of the comparable listed companies have minimal/negligible net tangible assets, the chart above illustrates the discount to net assets. Premier currently does not have any intangible assets, so net assets are equivalent to NTA
24 | JUST GROUP | Target’s Statement
10
0
-10
-20
-30
-40 1 Why You Should REJECT Premier’s Offer
Premier is a very illiquid stock, with less than 1% of its shares having traded in the three months prior to the announcement of Premier’s Offer • By contrast, 24% of Just Group’s Shares traded in the three months prior to that announcement.
COMPARISON OF JUST GROUP AND PREMIER TRADING VOLUMES
25% Premier Just Group 24.2%
20%
15%
OUTSTANDING SHARES OUTSTANDING 10% VOLUME TRADED AS A % OF 9.2%
5%
0.3% 0.8% 0% 1 month volume 3 month volume Prior to Announcement Source: IRESS
• Since Premier announced its Offer on 31 March 2008, only 2.8% of Premier’s shares have traded whilst 19.2% of Just Group’s Shares have traded. • Given the likely shareholding structure of Premier, with interests related to Mr Solomon Lew holding between 42% and 51%, Premier’s limited free float and illiquidity are likely to be an ongoing issue: 30– this may impact shareholders’ ability to sell Premier shares at a given point in time at the prevailing market price; and 25 – it is uncertain that Premier will be included in the key S&P/ASX 200 Index given its limited 20free float and illiquidity. • A number of Just Group’s current shareholders are unlikely to be able to, or want to, 15 hold Premier shares: 10– this may create a significant “overhang” in Premier’s stock which may depress Premier’s share price and further negatively impact the realisable price of Premier’s shares. 5 “…IN THE SHORT-TERM THERE MAY BE AN OVERSUPPLY OF PREMIER SHARES FROM THOSE JU0ST GROUP SHAREHOLDERS NOT WISHING TO RETAIN THE PREMIER SHARES RECEIVED AS CONSIDERATION.” Independent Expert’s Report, paragraph 15(d)
Target’s Statement | JUST GROUP | 25 1 Why You Should REJECT Premier’s Offer
6. You should consider Premier’s corporate governance framework
Premier’s corporate governance framework is inconsistent with ASX best practice • Just Group believes that a robust corporate governance framework is crucial to ensure: – the interests of all shareholders are protected and enhanced; – the confidence of the investment market is maintained; and – the interests of all stakeholders are considered, including customers, employees, suppliers and local communities. • Premier appears to have a materially different approach to corporate governance.
JUST GROUP PREMIER Currently complies with ASX Corporate Governance Council’s recommendations Believes independence of A directors is important for Board effectiveness
Independent directors Majority None identified Notes: A As indicated in Premier’s Annual Report for the years 2004, 2005, 2006 and 2007
• Premier’s claimed intention to add “additional” independent directors is uncertain: – it is not consistent with Premier’s approach to date; – it is uncertain as to whether Premier currently has any independent directors on its board, so it is questionable whether any new appointments would be “additional”; and – it is not clear that independent directors would comprise a majority of directors (as set out in ASX Corporate Governance Council’s recommendations). • Interests associated with Mr Solomon Lew will hold between 42% and 51% of Premier, highlighting the need for a robust corporate governance framework and independent directors.
26 | JUST GROUP | Target’s Statement 1 Why You Should REJECT Premier’s Offer
• Century Plaza Trading acts as Premier’s de facto management, although it doesn’t have a fiduciary duty to act in the best interests of Premier shareholders as a whole: – it is not clear how Century Plaza Investments’/Century Plaza Trading’s potential conflicts of interest will be managed, particularly around interests associated with Mr Solomon Lew; and – Premier has indicated in its Bidder’s Statement that Century Plaza Trading employees are entitled to receive incentive payments from Premier, but has failed to disclose the basis on which these are provided.
Premier is silent on how it will manage potential conflicts • There is potential for the interests of Premier, Lew family interests and Just Group interests to conflict in the future. • This may arise given that: – Century Plaza Trading, a Lew family company, provides a number of services to Premier. In particular, Century Plaza Trading is required to source, develop and assess opportunities for investments by Premier; – Just Group understands that Lew family companies and retailing and distribution interests include Nine West, Seed, FCUK, the rights to the Zara business, Voyager Solo, Playcorp and a shareholding in API; and – Just shareholders who accept Premier’s Offer will receive shares in Premier; • Premier has confirmed that not every opportunity identified by Century Plaza Trading will be offered exclusively to Premier. However, apart from stating that Premier has no current intention for Premier or Just Group to acquire any business with which Mr Lew and his family are involved, Premier’s Bidder’s Statement does not address how it will manage the potential conflicts identified above. • This may be of particular concern when new business opportunities, retail sites or experienced retailers become available.
“The services provided by Century Plaza Trading, a company associated with Mr Lew, are not exclusive to Premier and there is a risk that, in the future, Premier will not be presented with every opportunity identified by Century Plaza Trading.” p 48, Bidder’s Statement
Target’s Statement | JUST GROUP | 27 1 Why You Should REJECT Premier’s Offer
It is not clear if Premier will add any value to Just Group
PREMIER’S STRATEGY IMPLICATIONS FOR JUST GROUP SHAREHOLDERS • Highlights strength of Just Group’s management and strategy Retain Just Group management • Retention of Just Group management has been acknowledged by Premier as an integration risk Appoint a new CEO for • Lack of Premier management Premier • Management uncertainty Pay fees to Century Plaza • Value leakage given fees are paid away Trading for business • Potential for conflicts support (including incentives) Acquisitions in wholesale, • Undermines the purity of your current investment in Just Group distribution and/or retail • Additional risks and uncertainties property sectors • Just Group already undertaking this successfully (including the acquisitions of Add retail brands that Peter Alexander in 2000, Portmans in 2002, Dotti in 2004 and Smiggle in offer synergies 2007) and continuously considering acquisition opportunities
Identify and assess • Just Group already undertaking this successfully opportunities for • No need for fee leakage to Century Plaza Trading accelerating revenue • Potential for conflicts with other interests of Century Plaza Investments and growth its affiliates • Just Group has industry leading sourcing capability and already selectively sources product from Voyager, which is associated with Premier’s major Help with sourcing shareholder • Potential for conflicts Review existing foreign • Just Group Board and management already manage exchange risk exchange policy effectively • Just Group already undertaking this successfully (including the recent launch Expand internationally of Peter Alexander in North America) Review New Zealand • New Zealand is a highly profitable business, with Just Group having a large strategy presence in this market Review South Africa • South African investment is a small recent investment that is currently trading strategy well and has strong long term growth potential
28 | JUST GROUP | Target’s Statement Smiggle
Portmans
.E Jacqui
Just Jeans
Jay Jays
Dotti
Peter Alexander 2 frequently asked questions
This section answers some questions you may have about the Offer. It is not intended to address all relevant issues for Just Group shareholders. This section should be read together with all other parts of this Target’s Statement. Question Answer What is Premier’s Offer for Premier is offering $2.095 cash plus 0.25 Premier shares my Just Group Shares? for each Just Group Share held by you. What is the Special Board A committee of the Just Group Board formed to consider Committee? the Offer. It comprises all of the directors of Just Group other than Terrence McCartney and Michael McLeod. They are not members of the committee as they were nominated for appointment to the Board of Just Group by Metrepark Pty Ltd, which may be considered an associate of Premier. What is the Special Board Each director on the Special Board Committee Committee recommending? recommends that you reject the Offer. What choices do I have as You have the following choices in respect of your Shares: a Just Group shareholder? • do nothing (as recommended by the Special Board Committee); • accept the Offer; or • sell your Shares on the ASX (unless you have previously accepted the Offer and you have not validly withdrawn your acceptance). Shareholders should note that, if Premier and its associates have a relevant interest in at least 90% of the Shares during or at the end of the Offer Period, Premier will be entitled to compulsorily acquire the Shares that it does not already own. See Section 6 for more information. Are there adverse If you accept the Offer, you will limit your right to sell your consequences of accepting Shares on the ASX or otherwise deal with your Shares the Offer? while the Offer remains open. The effect of acceptance of the Offer is set out in Section 12.6 of the Bidder’s Statement. Just Group shareholders should read these provisions in full to understand the effect that acceptance will have on their ability to exercise the rights attaching to their Shares and the representations and warranties which they give by accepting the Offer. Can acceptances be You only have limited rights to withdraw your acceptance withdrawn? of the Offer. You may only withdraw your acceptance if Premier varies the Offer in a way that postpones the time when Premier is required to satisfy its obligations by more than one month. This will occur if Premier extends the Offer Period by more than one month and the Offer is still subject to conditions. When does the Offer close? The Offer is presently scheduled to close at 7.00pm (AEST) on 20 June 2008.
30 | JUST GROUP | Target’s Statement 2 frequently asked questions
Question Answer Can the Offer Period be In summary, Premier may extend the Offer Period at any extended? time before the end of the Offer Period. In addition, there will be an automatic extension of the Offer Period if, within the last seven days of the Offer Period: • Premier improves the consideration offered under the Offer; or • Premier’s voting power in Just Group increases to more than 50%. If either of these two events occurs, the Offer Period is automatically extended so that it ends 14 days after the relevant event occurs. What are the conditions to The conditions to the Offer are set out in Section 12.9 of the Offer? the Bidder’s Statement. In summary, the conditions to the Offer are: • minimum acceptance of more than 50% of Just Shares; • no material acquisitions or disposals; • disclosure that no material contracts terminate/change due to the Offer; • no material adverse change; • no prescribed occurrences; and • the S&P/ASX 200 Index not falling below 4600. What happens if the If the conditions are not satisfied or waived before the conditions of the Offer are Offer closes, the Offer will lapse. You would then be free not satisfied or waived? to deal with Just Group Shares even if you had accepted the Offer. How long will I have to If you accept the Offer, you will receive your consideration wait for my consideration only if the Offer becomes unconditional. You will be issued if I accept the Offer? your consideration by Premier on or before the later of: • one month after the date the Offer becomes or is declared unconditional; and • one month after the date you accept the Offer if the Offer is, at the time of acceptance, unconditional, but, in any event (assuming the Offer becomes or is declared unconditional), no later than 21 days after the end of the Offer Period. However, there are certain exceptions. Full details of when you will be issued your consideration are set out in Section 12.7 of the Bidder’s Statement.
Target’s Statement | JUST GROUP | 31 2 frequently asked questions
Question Answer What are the tax A general outline of the tax implications of accepting the implications of accepting Offer is set out in Section 5 of this Target’s Statement. the Offer? As the outline is a general outline only, shareholders are encouraged to seek their own specific professional advice as to the taxation implications applicable to their circumstances. What if I am an overseas Any Just Group shareholder whose address (as recorded shareholder? in the register of members of Just Group provided by Just Group to Premier) is in a place outside Australia may not be issued with Premier’s shares under the Offer. Instead, the relevant Premier shares (that would otherwise be transferred to such foreign holders) will be allotted to a nominee approved by ASIC who will sell the Premier shares and will distribute to each of those foreign holders their proportion of the proceeds of sale net of expenses. See Section 12.8 of the Bidder’s Statement for further details. Is there a number that If you have any further queries in relation to the Offer, you I can call if I have further can call 1300 780 445 (for calls made from inside Australia) queries in relation to the or +612 8280 7106 (for calls made from outside Australia). Offer? These calls may be recorded.
32 | JUST GROUP | Target’s Statement 3 Financial Information and Directors’ Pro‑forma Forecast
3.1 Introduction This section provides relevant financial information for Just Group shareholders to consider when assessing their response to Premier’s Offer: • adjusted historical income statement for the 52 weeks ended 28 July 2007; • Directors’ Pro‑forma Forecast income statement for the 52 weeks ending 26 July 2008; • Directors’ Annualised Pro‑forma Forecast income statement for the 52 weeks ending 26 July 2008; and • Just Group balance sheets as at 26 January 2008 and 28 July 2007. (Collectively, the “Financial Information”.) The Financial Information in this section should be read in conjunction with the risks described in Section 4 and other information contained in this Target’s Statement. Certain financial information in this section has been reviewed by PricewaterhouseCoopers Securities Ltd, whose Investigating Accountant’s Report is included with this Target’s Statement. Just Group shareholders should note the scope and limitations of that report. The Financial Information in this section is presented in an abbreviated form and does not contain all of the disclosures that would be required to be presented in an annual report in accordance with the Corporations Act. Basis of forward looking information The Directors’ Pro‑forma Forecast should be read in conjunction with the assumptions upon which it is based (as detailed in Section 3.3), sensitivities (as detailed in Section 3.8) and the risks surrounding forward looking statements (set out on the inside cover of this Target’s Statement).
3.2 Just Group Financial Information BASIS OF PREPARATION OF THIS FINANCIAL INFORMATION (a) Just Group’s accounting policies The accounting policies adopted by Just Group in the preparation of the Financial Information for the years ended 28 July 2007 and ending 26 July 2008 are consistent with those set out in Just Group’s annual financial report for the year ended 28 July 2007 and half-year financial report for the 26 weeks ended 26 January 2008 respectively (www.justgroup.com.au), with the exception of the adjustments and pro‑forma adjustments referred to below. Earnings figures are stated on a consistent basis with Just Group’s reporting standards and as such include interest income (which is included in “other income”). (b) Adjusted Historical Information Audited financial statements of Just Group for the 52 weeks ended 28 July 2007 have been adjusted to: 1 exclude the net gain on disposal of Just Group’s strategic investment in Colorado Limited which is considered to be a non‑recurring transaction; 2 exclude sales to the joint venture entity in South Africa and the Company’s share of the loss from the joint venture, which is in its initial start-up phase; and 3 align the unrealised foreign exchange loss on ineffective cash flow hedges at year end to the period in which the underlying inventory purchases were made as the Directors consider that this better reflects the underlying purpose of the hedging instruments and the performance of the Company. A reconciliation between Just Group’s audited financial statements for the 52 weeks ended 28 July 2007 has been included in Table 8. Target’s Statement | JUST GROUP | 33 3 Financial Information and Directors’ Pro‑forma Forecast
(c) Directors’ Pro‑forma Forecast The Directors’ Pro‑forma Forecast for the 52-week period ending 26 July 2008 has been prepared on the following basis: 1 unaudited actual sales results for the 42 weeks ended 17 May 2008 plus forecast for the remaining 10 weeks of FY2008; 2 unaudited actual operating costs and other income for the 38 weeks ended 19 April 2008 plus forecast operating costs and other income for the remaining 14 weeks of FY2008; 3 an assessment of the forecast results for the remainder of FY2008 based on the Directors’ best estimate assumptions, outlined in Section 3.3, which take into account present economic and operating conditions; 4 exclude the forecast initial start-up costs associated with the commencement of international businesses in South Africa and the United States of America; 5 exclude all actual and forecast sales by Peter Alexander USA Inc. and sales to the joint venture entity in South Africa; 6 align the unrealised foreign exchange loss on ineffective cash flow hedges at year end to the period in which the underlying inventory purchases were made as the Directors consider that this better reflects the underlying purpose of the hedging instruments and performance of Just Group; and 7 exclude any provision for costs related to the defence of Premier’s Offer as these would be considered to be non‑recurring in nature. The Directors’ Pro‑forma Forecast differs from the expected reported results of Just Group in FY2008 as the Directors’ Pro‑forma Forecast has been adjusted for non‑recurring items and certain timing differences in order to present the underlying performance of the Company on a consistent basis. A reconciliation of the Directors’ Pro‑forma Forecast to the expected reported financial results for the 52 weeks ending 26 July 2008 is included in Table 9 in Section 3.5. (d) Directors’ Annualised Pro‑forma Forecast The Directors’ Annualised Pro‑forma Forecast for the 52-week period ending 26 July 2008 is based on the Directors’ Pro‑forma Forecast for that period adjusted for the annualised net trading impact of new stores opened or planned to open/stores closed or planned to close in FY2008, and the annualised impact of Smiggle which was acquired during FY2008.
34 | JUST GROUP | Target’s Statement 3 Financial Information and Directors’ Pro‑forma Forecast
JUST GROUP SUMMARY INCOME STATEMENTS The Adjusted Historical, Directors’ Pro‑forma Forecast and Directors’ Annualised Pro‑forma Forecast income statements are summarised in Table 1.
Table 1 Historical and Forecast Just Group Income Statements Directors’ Directors’ Annualised Adjusted Pro-forma Pro-forma Historical Forecast Forecast ($’000) FY07A FY08B FY08C Revenue from sale of goods 759,616 824,020 837,891 Gross profit 438,761 492,526 501,562 Gross margin % 57.8% 59.8% 59.9% Operating expenses (328,663) (366,494) (371,528) Fair value adjustment to cash flow hedges (476) (1,825) (1,825) Other incomeD 6,716 5,542 5,542 EBITDA 116,338 129,749 133,750 Depreciation (19,832) (22,663) (23,010) EBITA 96,506 107,086 110,740 % sales 12.70% 13.00% 13.20% Amortisation (179) (161) (161) EBIT 96,327 106,925 110,580 Interest expense (6,929) (10,676) Profit before tax 89,398 96,249 Income tax expense (26,814) (28,939) Net profit after tax 62,584 67,310 Earnings per share (EPS) 29.2 33.4 Notes: A Refer Table 8 for reconciliation of audited Reported Historical Results to Adjusted Historical Results B Refer Table 9 for reconciliation of Directors’ Pro‑forma Forecast to expected Reported results for FY2008 C Refer Table 11 for reconciliation between Directors’ Annualised Pro‑forma Forecast and Directors’ Pro‑forma Forecast D Directors’ Pro-forma Forecast and Directors’ Annualised Pro‑forma Forecast are stated on a consistent basis with Just Group’s reporting standards. As such, other income includes interest income of $1.1 million (Adjusted Historical FY2007 $1.6 million)
Table 2 Geographic Segment Information Directors’ Directors’ Annualised Adjusted Pro-forma Pro-forma Historical Forecast Forecast Sales revenue ($’000) FY07 FY08 FY08 Australia 650,860 713,208 725,576 New Zealand 108,756 110,812 112,315 Total sales revenue 759,616 824,020 837,891 Management discussion and analysis (a) Directors’ Pro‑forma Forecast Total sales for FY2008 are forecast to be 8.5% higher than FY2007, with sales from the Australian operations up 9.6% and New Zealand operations up 1.9%. The number of stores is forecast to increase by 9.3% to 885 stores by the end of FY2008, including 20 Smiggle stores acquired in August 2007. Gross margin is forecast to improve by 201 basis points (“bps”), with the benefits of reduced markdowns in Dotti and Jacqui.E, a stronger Australian dollar (refer Table 7) and the strong contributions from Smiggle and Peter Alexander.
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Other income consists of interest income, deferred income related to lease incentives received from landlords, fees from the Just Shop loyalty program and unconditional lease incentives. Operating expenses are forecast to increase by 11.5% in FY2008, representing an increase of 121 bps as a percentage of sales. Costs are forecast to increase by more than sales growth due to a significant increase in advertising and marketing costs (due to a low spend in FY2007), insufficient sales growth in New Zealand to compensate for increases in operating costs in that country, and additional investment in management teams and group support functions to support the Company’s growth aspirations. Depreciation is forecast to increase due to increased investment in new stores, ongoing refurbishments of existing stores and the investment in the fast fashion retail machine in areas such as distribution and IT systems. The Directors’ Pro‑forma Forecast excludes costs associated with the defence of Premier’s Offer (refer Section 3.5). Directors’ Pro‑forma Forecast EBITA of $107.1 million represents an increase of 11.0% on Adjusted FY2007, and an EBITA margin of 13.0% of sales, an increase of 30 bps on Adjusted FY2007. Interest costs are forecast to increase by $3.7 million due to higher costs of finance, and higher average borrowings in FY2008 following the off‑market share buy‑back in April 2007 and the acquisition of Smiggle in August 2007. Directors’ Pro‑forma Forecast profit before tax is forecast to increase by 7.7% to $96.2 million, with pro‑forma net profit after tax forecast to increase by 7.6% to $67.3 million. Directors’ Pro‑forma Forecast EPS is forecast to be 33.4 cents per share, an increase of 14.4% on Adjusted FY2007, with the Directors’ Pro‑forma Forecast benefiting from strong underlying profitability and the off‑market share buy‑back completed in April 2007. (b) Directors’ Annualised Pro‑forma Forecast The Directors’ Annualised Pro‑forma Forecast includes the results of stores that are forecast to be open as of the end of FY2008, that have not traded for a full 12-month period under Just Group ownership, including 20 Smiggle stores acquired (in August 2007). The annualisation adjustment assumes the current run rate for each store based on actual months traded continues for the balance of the period, adjusted for variable costs and seasonal influences, such as whether the store was open prior to or after Christmas and other peak trading periods. The trading results of stores closed or scheduled to close during FY2008 have been excluded from the Annualised Pro‑forma Forecast. The Directors’ Annualised Pro‑forma Forecast gross margin is slightly higher than the Directors’ Forecast gross margin predominantly due to the contribution of Smiggle stores not open for a full year. Smiggle stores achieve a higher gross margin than the group average. Directors’ Pro‑forma Forecast fixed costs have not been increased in the annualisation calculation on the assumption that these do not vary materially with the forecast number of stores or sales revenue. Directors’ Annualised Pro‑forma EBITA is $110.7 million, representing the underlying profitability of the Company based on the stores operating or expected to be operating at the end of FY2008, restated on the basis that they had traded for 52 weeks.
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3.3 Key Best Estimate Assumptions Underlying the Directors’ Pro‑forma Forecast The Directors’ Pro‑forma Forecast has been prepared on a comparable basis to the Adjusted Historical FY2007 results so as to eliminate the impacts of non‑recurring items, costs related to the commencement of international operations and certain timing differences. The Directors’ Pro‑forma Forecast is based on various best estimate assumptions, including those set out below, and should be read in conjunction with the business and investment risks set out in Section 4. This information is intended to assist shareholders in assessing the reasonableness of the Directors’ Pro‑forma Forecast and its likelihood of being achieved, and is not intended to be a representation that the assumptions will occur. Shareholders should be aware that the timing of events and the magnitude of their impact may differ from that assumed, and this may have a material positive or negative impact on the Directors’ Pro‑forma Forecast financial performance of Just Group. Furthermore, the expected reported results for the 52 weeks ending 26 July 2008 are likely to differ from the Directors’ Pro‑forma Forecast results as the latter have been adjusted as described in Section 3.2. A reconciliation of the Directors’ Pro‑forma Forecast to the expected reported results for FY2008 is included at Table 9. Shareholders should review the key assumptions detailed below. SPECIFIC ASSUMPTIONS (a) Sales Revenue Assumptions The Directors’ Pro‑forma Forecast sales revenue is based on actual trading for the 42 weeks to 17 May 2008, and Directors’ Pro‑forma Forecast sales for the remaining 10 weeks of FY2008. The Directors’ Pro‑forma Forecast includes a further six store openings in the remaining 10 weeks. However, sales from the Peter Alexander USA stores that opened in April/May 2008 and the South African joint venture have not been included in the Directors’ Pro‑forma Forecast or Annualised Directors’ Pro‑forma Forecast.
Table 3 Sales Revenue Directors’ Directors’ Annualised Adjusted Pro-forma Pro-forma Historical Forecast Forecast ($’000) FY07 FY08 FY08 Just Jeans 224,564 226,964 227,704 Jay Jays 226,986 237,342 240,208 Dotti 46,020 61,840 64,109 Portmans 136,878 139,824 142,054 Jacqui.E 88,973 92,137 93,036 Peter Alexander 36,195 47,368 49,351 759,616 805,475 816,462 Smiggle – 18,545 21,429 Total sales revenue – pro-forma 759,616 824,020 837,891 Sales growth 8.8% 8.5%
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Table 4 Stores by brand Directors’ Pro-forma HISTORICAL FORECAST included in directors’ pro-forma FY07 FY08 Just Jeans 270 270 Jay Jays 234 246 Dotti 61 70 Portmans 122 133 Jacqui.E 104 108 Peter Alexander 18 22 Smiggle – 35 Group 1 1 810 885 Excluded Peter Alexander USA – 2 South Africa joint ventureA Jay Jays 14 23 Notes: A South Africa joint venture accounted for on an equity basis (b) Gross Profit The Directors’ Pro‑forma Forecast gross profit increases by 201 bps compared to FY2007 due to: • improved trading from Dotti and Jacqui.E, with reduced markdowns in each business; • the benefits of the stronger Australian dollar, with the average exchange rate for US dollar purchases for FY2008 forecast to be 0.8366, compared to 0.7689 in FY2007; and • growth from Smiggle and Peter Alexander that achieve above group average gross margins.
Table 5 Gross Profit Table Directors’ Directors’ Annualised Adjusted Pro-forma Pro-forma Historical Forecast Forecast ($’000) FY07 FY08 FY08 Gross profit 438,761 492,526 501,562 Gross profit margin 57.8% 59.8% 59.9% (c) Expenses The primary operating expenses relating to the Directors’ Pro‑forma Forecast comprise: salaries, rent, depreciation, advertising and direct marketing, store operating costs and overheads. The Directors’ Pro‑forma Forecast takes into account the actual costs for the 38 weeks to 19 April 2008, being the most recently completed monthly accounts. The Directors’ Pro‑forma Forecast incorporates most recent run rates and known changes resulting from store openings, closures and other expected seasonal factors and planned expenditure. The Directors’ Annualised Pro‑forma Forecast includes all operating expenses associated with those stores that form part of the annualisation calculation. Fixed costs are not materially affected by the additional stores and, as such, there has been no annualisation adjustment required for these costs. Neither the Directors’ Pro‑forma Forecast nor the Directors’ Annualised Pro‑forma Forecast for FY2008 includes any expenses associated with the defence of Premier’s Offer.
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(d) Interest Rates Interest on Just Group’s Core Debt Facility has been calculated in accordance with the terms of the Facility Agreement and the most recent Selection Notices. The average interest rate for the core debt facility was 7.8% in the 38 weeks to April 2008. The average interest rate is forecast to be 8.8% for the remaining 14 weeks of FY2008. (e) Taxation The forecast effective corporate tax rate for the year ending 26 July 2008 is 30.1%. This is higher than the prevailing Australian corporate tax rate of 30.0% due to the higher New Zealand corporate tax rate of 33.0%. The Directors’ Pro‑forma Forecast does not contemplate any adjustment to reflect the reduction in the New Zealand corporate tax rate from 33% to 30% in FY2009. (f) Exchange Rates Just Group is exposed to exchange rate movements as follows: – Translation of New Zealand operations from NZD to AUD The financial results of Just Group’s wholly-owned subsidiary in New Zealand, Kimbyr Investments Limited, are required to be translated from New Zealand dollars to Australian dollars for presentation in the consolidated financial statements of Just Group. Changes in the AUD:NZD exchange rate will therefore result in changes in the AUD value of revenue, expenses, assets and liabilities consolidated in Just Group’s results. Just Group does not use financial instruments to hedge its exposure to translation of the financial results of its New Zealand operations. The Directors’ Pro‑forma Forecast assumes an average exchange rate for translation of the New Zealand operations for the period May 2008 to July 2008 to be 1.20NZD:1.00AUD. The Directors estimate the impact on net profit after tax for each 1 cent change in the NZD:AUD exchange rate for the remaining 14 weeks of FY2008 to be approximately A$50,000, as detailed in Table 13. – Purchases of Inventory in USD Just Group is directly exposed to movements in the value of the USD on approximately 50% of the value of its inventory purchases, and as such, changes in the AUD:USD and NZD:USD exchange rates have a direct impact on the cost of goods purchased. In order to reduce the Company’s exposure to these movements, Just Group adopts a hedging policy that is designed to effectively offset any changes in the underlying AUD and NZD cost of the inventory purchases with the use of either forward exchange contracts or foreign currency options. As at the date of this Target’s Statement, Just Group has hedged 100% of its purchase commitments for the balance of FY2008 using forward exchange contracts (“FECs”) and foreign currency options. These hedging instruments will ensure that the AUD or NZD cost of inventory denominated in USD will not significantly affect the Directors’ Pro‑forma Forecast cost of goods for the remainder of FY2008 (refer to Table 7). Table 6 provides a summary of Just Group’s outstanding hedge position and the instruments used.
Target’s Statement | JUST GROUP | 39 3 Financial Information and Directors’ Pro‑forma Forecast
Table 6 Outstanding Hedging PositionA AUD:USD AUD:USD AUD:USD NZD:USD ($’000) FECs PUT Options Collared OptionsB FECs Strike Strike USD RateC USD StrikeC USD (Floor)C (Cap)C USD RateC May‑July 2008 17,697 0.8291 – – 10,000 0.8500 0.9100 3,630 0.7874 FY2009 21,150 0.8821 31,500 0.8500 26,100 0.8559 0.9300 – – FY2010 17,500 0.8997 20,000 0.8500 – – – – – Notes: A As of 26 May 2008 B A collared option consisting of a purchased AUD put option (“floor”) and a corresponding sold AUD call option (“cap”) of equivalent value and expiry date C Calculated on a weighted average basis Table 7 details the forecast exchange rates underlying the Directors’ Pro‑forma Forecast together with historical exchange rates for comparative purposes.
Table 7 Foreign Exchange Rates Table
Directors’ Adjusted Pro-forma Historical Forecast FY07 FY08 AUD:USDD 0.7689 0.8366 NZD:USDE 0.6995 0.7777 NZD:AUD 1.1382 1.1730 Notes: D 100% of purchases for the remainder of FY2008 are hedged, with no exposure to movements in the AUD:USD exchange rate above 0.91. If the AUD:USD were to decrease below 0.91, the negative impact on NPAT would approximate $0.075 million per 1 cent change to 0.85, and nil thereafter E 100% of purchases for the remainder of FY2008 are hedged, with no exposure to movements in the NZD:USD exchange rate – Fair Value of Financial Instruments – Cash Flow Hedges The directors believe Just Group’s hedging policy effectively manages the Company’s exposure to movements in exchange rates, and ensures that actual and/or forecast inventory purchases are costed accurately such that retail prices and gross margins can be set appropriately. However, AASB139 “Financial Instruments: Recognition and Measurement” requires these hedging instruments to be tested for effectiveness5 at each balance date, and to the extent they are not considered effective, any changes in fair value should be recognised in the income statement. The accounting adjustments arising from this fair value assessment represent changes in the timing of recognition of the income/expense relative to the underlying liabilities being hedged (i.e. stock purchases). Notwithstanding this accounting treatment, the directors have adjusted the Directors’ Pro‑forma Forecast to align the income/expense associated with the fair value adjustments of the hedging instruments to the years in which the underlying inventory purchases occurs and the inventory is sold, so as to better reflect the underlying purpose and impact of the hedging instruments. Table 8 illustrates the impact on the Adjusted Historical FY2007 results, and Table 9 illustrates the impact on the Directors’ Pro‑forma Forecast results for FY2008.
Notes: 5 Effectiveness as defined by AASB139 “Financial Instruments: Recognition and Measurement” whereby a hedge is considered to be highly effective if “… the actual results of the hedge are within a range of 80‑125%” AASB139 Appendix A para AG105
40 | JUST GROUP | Target’s Statement 3 Financial Information and Directors’ Pro‑forma Forecast
GENERAL ASSUMPTIONS Set out below are the general best estimate assumptions that have been adopted in preparing the Directors’ Pro-forma Forecast for the year ending 26 July 2008: • no significant change in the economic conditions or consumer sentiment in Australia and New Zealand from those which prevail at the date of this Target’s Statement; • retention of key personnel; • no material acquisitions or disposals; • no material industrial strikes or other disturbances, environmental costs or legal claims; • no significant change in the legislative regimes and regulatory environments in the jurisdictions in which Just Group or its key customers or suppliers operate which will materially impact on the forecast results; • no changes in accounting standards or other mandatory professional reporting requirements or the Corporations Act which would have a material effect on Just Group’s financial performance; • no material beneficial or adverse effects arising from the actions of competitors; • no change in the Company’s capital structure; • no material adverse changes to Just Group’s offshore product sourcing capabilities and costs; • no significant amendment to any significant agreement or arrangement relating to Just Group’s businesses. The parties to those agreements and arrangements are assumed to continue to comply with the terms of all significant agreements and arrangements; • no impacts from changes in control; and • no costs have been included in relation to Premier’s Offer.
3.4 Reconciliation of Just Group’s Reported Results to Adjusted Historical Results for the Year Ended 28 July 2007 The FY2007 Adjusted NPAT contained in Table 1 enables Just Group shareholders to compare the adjusted historical results of Just Group to the forecast financial information contained in this Target’s Statement on a consistent basis. Table 8 reconciles Just Group’s Reported Results to the Adjusted Historical Results for the year ended 28 July 2007 as stated in Table 1.
Table 8 Reconciliation of Just Group’s Reported Results to Adjusted Historical Results for the Year Ended 28 July 2007 ($’000 except for EPS) EBITA NPAT EPS (cents) Reported (Audited)A 97,420 63,891 29.8 Adjustments Less: Dividend income – Colorado LimitedB (2,433) (2,433) (1.1) Less: Net capital gain on sale of shares in Colorado LimitedC (40) (28) (0.0) Add: Share of loss of Associate – South Africa 210 210 0.1 Add: Fair value adjustment for ineffective cash flow hedges – FY07D 1,825 1,278 0.6 Less: Fair value adjustment for ineffective cash flow hedges – FY06E (476) (333) (0.2) Adjusted Historical 96,506 62,584 29.2 Notes: A Based on Just Group Limited 2007 audited annual financial statements (EBITA includes $1.6 million of interest income) B Special fully franked dividend received from Colorado Limited as part consideration for sale of shares C Profit on sale of shares, net of costs incurred and tax D Fair value adjustment arising from the mark to market valuation of ineffective cash flow hedges as at 28 July 2007 – these hedging instruments were purchased to hedge inventory commitments in FY2008 E Fair value adjustment arising from the mark to market valuation of ineffective cash flow hedges as at 29 July 2006 – these hedging instruments were purchased to hedge inventory commitments in FY2007 Target’s Statement | JUST GROUP | 41 3 Financial Information and Directors’ Pro‑forma Forecast
3.5 Reconciliation of Directors’ Pro‑forma Forecast Results to expected reported results for the Year Ending 26 July 2008 The Directors’ Pro‑forma Forecast has been prepared to present the underlying performance of the Company, and accordingly, a number of adjustments to the expected reported results have been made as described in Section 3.2(c). The Directors’ Pro‑forma Forecast is based on the Directors’ best estimate assumptions outlined in Section 3.3. Table 9 reconciles the Directors’ Pro‑forma Forecast results to the expected reported results for the year ending 26 July 2008.
Table 9 Reconciliation of Directors’ Pro‑forma Forecast Results to expected reported results for the Year Ending 26 July 2008 ($’000) EBita npat e EPS Directors’ Pro-forma Forecast Results 107,086 67,310 33.4 Pro-forma adjustments Less: Fair value adjustment for ineffective cash flow hedges – FY08A (2,539) (1,777) (0.9) Add: Fair value adjustment for ineffective cash flow hedges – FY07B 1,825 1,278 0.6 Less: Net start-up costs for Peter Alexander USAC (1,721) (1,205) (0.6) Less: Share of Joint Venture loss – South AfricaC (716) (716) (0.4) Expected reported results (before provision for takeover defence costs) D 103,935 64,889 32.2 Notes: A Forecast fair value adjustment arising from the mark to market valuation of ineffective cash flow hedges expected to be recognised as at 26 July 2008 – these hedging instruments were purchased to hedge inventory commitments in FY2009. Refer to discussion below for further discussion regarding sensitivity of this estimate B Fair value adjustment arising from the mark to market valuation of ineffective cash flow hedges recognised as at 28 July 2007 – these hedging instruments were purchased to hedge inventory commitments in FY2008 C Start up costs associated with the commencement of international operations in South Africa and the United States of America D Excludes provision for takeover defence costs which the Directors estimate to be between $7.5 million and $9.0 million, as discussed below • Cash Flow Hedge Fair Value Assumptions – Sensitivity of Expected Reported Results Table 6 summarises Just Group’s outstanding hedging profile. At year end, Just Group will assess the fair value of these financial instruments, with any adjustments to their carrying value recognised in equity (cash flow hedge reserve) to the extent the instruments are considered effective. The change in the fair value of ineffective cash flow hedges will be recognised in the income statement. The Just Group Board believes the outstanding forward exchange contracts will qualify as effective hedges as at 26 July 2008. However, based on a current estimate of the fair value of the foreign currency options, the Directors believe it is unlikely these options will qualify as effective hedges at year end, and as such, an estimated fair value adjustment has been included in the expected reported results as presented in Table 9. The fair value of the foreign currency options is dependent on a number of variables as at 26 July 2008, including Australian and US interest rates, option volatility and the actual level of the AUD:USD exchange rate on this date. Table 10 summarises the sensitivity of the estimated fair value adjustment at different AUD:USD exchange rates at 26 July 2008, assuming all other variables remain unchanged.
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The estimated impact on the expected reported income statement has been determined by assuming the following conditions apply as at 26 July 2008: • the spot AUD:USD exchange rate is 0.936; • Australian and US interest rates and option volatility remain unchanged; • outstanding forward exchange contracts qualify as effective hedges, with any fair value adjustments recognised in equity and brought to account in the income statement when the underlying stock to which the hedging instrument relates is sold; and • outstanding foreign currency options (call and collared options) do not qualify as effective hedges. Based on these assumptions, the expected reported results for FY2008 includes an estimated fair value adjustment (expense) to cash flow hedges as at 26 July 2008 of $2,539,000.
Table 10 Foreign Currency Option Valuation Sensitivity on Expected Reported Results ebita npat eps Estimated aud:usd as ($’000) ($’000) (cents) at 26 july 2008 +/– +/– +/– 0.85 4,025 2,806 1.39 0.86 3,351 2,336 1.16 0.87 2,735 1,907 0.95 0.88 2,174 1,516 0.75 0.89 1,663 1,160 0.58 0.90 1,195 834 0.41 0.91 766 534 0.27 0.92 369 258 0.13 0.93 – – – 0.94 (347) (242) (0.12) 0.95 (676) (470) (0.23) 0.96 (988) (688) (0.34) 0.97 (1,288) (897) (0.45) 0.98 (1,577) (1,099) (0.55)
• Takeover defence costs The costs incurred and to be incurred by the Company in relation to its defence of Premier’s Offer have not been included in the Directors’ Pro‑forma Forecast as these are considered to be non‑recurring costs. However, the expected reported results of the Company for FY2008 will include costs associated with this defence. The total cost of the takeover defence depends on the outcome of the takeover bid, the duration of the bid and required response activities, and the complexity of the issues addressed in the defence process. Therefore, it is difficult to estimate the likely total cost to Just Group, however, as at the date of this Target’s Statement, the Directors estimate the total defence costs could be between $7.5 million and $9.0 million. In determining the FY2008 final dividend, the impact of takeover defence costs on the after tax profit will be ignored.
Notes: 6 Average of a survey of bank forecasts taken on 26 May 2008
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3.6 Reconciliation of Directors’ Pro‑forma Forecast EBITA to Directors’ Annualised Pro‑forma Forecast EBITA for the Year Ending 26 July 2008 The reconciliation of the Directors’ Annualised Pro‑forma Forecast EBITA to the Directors’ Pro‑forma Forecast EBITA has been presented in Table 11. The adjustments to the Directors’ Pro‑forma Forecast EBITA include the annualised net impact of new stores opened or planned to open/stores closed or planned to close in FY2008 (including the annualised impact of Smiggle acquired during FY2008). Table 11 Reconciliation of Directors’ Pro‑forma Forecast EBITA to Directors’ Annualised Pro-forma EBITA ($’000) EBITA Directors’ Pro-forma Forecast 107,086 Annualisation adjustments Add: Net contribution from stores not trading for 12 months 3,654 Directors’ Annualised Pro-forma EBITA 110,740
3.7 Just Group Historical and Directors’ Pro‑forma Forecast EPS Set out below is a summary of the actual EPS achieved for Just Group for the year ended 28 July 2007, the adjusted EPS for the year ended 28 July 2007 and the anticipated EPS for the year ending 26 July 2008 based on the Directors’ Pro‑forma Forecast and the expected reported results. The EPS calculation for the year ending 26 July 2008 should be read in conjunction with the Directors’ best estimate assumptions set out in Section 3.3 and the associated investment risks as detailed inside the cover of this Target’s Statement.
Table 12 Historical and Forecast EPS Directors’ Adjusted Pro-FORMA Expected Historical Historical FORECAST REPORTED FY07 FY07 FY08 FY08C Net profit after tax 63,891 62,584 67,310 64,889 EPS (cents) 29.8 29.2 33.4 32.2 Weighted average number of issued sharesA,B 214,072,482 214,072,482 201,330,882 201,330,882 Notes: A Outstanding performance rights issued to certain Company Executives are not considered dilutive as the Company plans to continue to fulfil any obligations arising upon vesting of the rights by purchasing shares on market, as has been the case in prior periods B The Company completed an off‑market share buy-back on 30 April 2007 which resulted in the buy-back of 16.7 million shares C Excluding takeover defence costs
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3.8 Directors’ Pro‑forma Forecast Sensitivity Analysis The Directors’ Pro‑forma Forecast is sensitive to variations in certain assumptions used in its preparation. The table below summarises the sensitivity of forecast NPAT to variations in a number of key assumptions. The sensitivities have been determined by reference to the potential impact of each sensitivity, in isolation, on group operating results for the remaining 10 trading weeks of FY2008 for sales and gross margin, and the remaining 14 trading weeks of FY2008 for sensitivities to exchange rates and expenses. Care should be taken in interpreting these sensitivities. Just Group operates seven brands across a diverse geographic and demographic customer base. These sensitivities treat each movement in the variables in isolation whereas, in reality, the movements will vary by brand, and could be interdependent and management may take corrective action. The effects of movements may offset each other or may be additive. The effects on forecast NPAT presented for each sensitivity in isolation are not intended to be indicative or predictive of the likely range of outcomes that may occur with respect to each sensitivity.
Table 13 Sensitivity Analysis Impact on directors’ pro-forma sensitivity forecast npat for year ending 26 july 2008 +/– 1% change in sales increases/decreases by $1.0 million +/– 1% change in gross profit margin increases/decreases by $1.6 million +/– 1c change in NZD:AUD exchange rate decreases/increases by $0.05 million +/– 1% change in expenses decreases/increases by $0.7 million The Just Group Board does not believe there is any material sensitivity to changes in the AUD:USD or NZD:USD exchange rate in relation to purchases of inventory denominated in USD. Refer to Table 7 for USD:AUD and USD:NZD exchange rate assumptions and sensitivity to inventory purchases. Table 10 provides details of the sensitivity of the expected reported results to changes in the spot exchange rate as at 26 July 2008 in relation to fair value adjustments for ineffective cash flow hedges.
Target’s Statement | JUST GROUP | 45 3 Financial Information and Directors’ Pro‑forma Forecast
3.9 Balance Sheet Since the date of this report, there have been no transactions or events that have materially changed the financial position of the Company. The consolidated balance sheets of Just Group as at 26 January 2008 (and 28 July 2007) are presented in Table 14.
Table 14 Consolidated Balance Sheets as at 26 January 2008 and 28 july 2007 26 JANUARY 2008 28 JULY 2007 $’000 $’000 Assets Current assets Cash and cash equivalents 23,464 38,134 Trade and other receivables 2,904 2,512 Inventories 62,861 61,250 Derivative financial instruments 2,226 – Other 3,143 2,795 Total current assets 94,598 104,691 Non‑current assets Trade and other receivables 1,256 1,256 Other financial assets 84 84 Plant and equipment 69,257 62,751 Intangible assets 105,492 79,084 Deferred tax assets 9,316 8,782 Investment in an associate 1,627 1,959 Total non‑current assets 187,032 153,916 Total Assets 281,630 258,607 Liabilities Current liabilities Trade and other payables 47,971 50,415 Interest-bearing liabilities 218 144 Derivative financial instruments 2,450 1,825 Income tax payable 7,738 6,391 Provisions 11,288 10,680 Other 2,191 2,240 Total current liabilities 71,856 71,695 Non‑current liabilities Interest-bearing liabilities 121,299 121,651 Deferred tax liabilities 2,489 2,354 Provisions 1,040 886 Other 13,745 8,723 Total non‑current liabilities 138,573 133,614 Total Liabilities 210,429 205,309 Net Assets 71,201 53,298 Equity Contributed equity 13,720 13,720 Reserves (6,353) (3,406) Retained profits 63,834 42,984 Total Equity 71,201 53,298
46 | JUST GROUP | Target’s Statement 4 Risk factors
There are a number of risks, both company specific to Just Group and general investment risks, which may materially and adversely affect the future operating and financial performance and financial condition of Just Group and the value of the Shares. Many of these risks are outside the control of Just Group and its Directors. There can be no guarantee Just Group will achieve its stated objectives or that any forward looking statements will eventuate. This section describes risks associated with an investment in Just Group Shares. Just shareholders should note that this list of risks might not be exhaustive. Just shareholders should read this Target’s Statement in its entirety and carefully consider the following risk factors.
Specific risks
4.1 Competitive environment The Australian, New Zealand, South African and United States specialty apparel retail markets are highly competitive with a large number of market participants and few barriers to entry. Just Group’s concepts compete for both target customers and store locations with a wide range of retail formats including local, national and international specialty apparel retail chains, full service national department stores, discount department stores and single store operations. Although Just Group has demonstrated an ability to compete effectively in Australia and New Zealand, there can be no assurance that the actions of Just Group’s existing or new competitors or changes in consumer preferences will not have a material adverse effect on Just Group’s performance. Certain Just Group brands have only recently been introduced to the United States and South Africa and there are risks in establishing these brands in those markets.
4.2 Brands and fashion trends The apparel retail industry is subject to rapid and occasionally unpredictable changes in customer preferences. Just Group’s success in each of its brands depends upon Just Group’s ability to identify and respond to movements in fashion trends, and to develop appealing merchandise on a timely basis. If Just Group misjudges consumer trends or fails to sell stock at anticipated prices, lower sales and margins could result. In addition, customers’ perceptions that one or more of Just Group’s formats is no longer able to offer fashionable products and reasonable prices, may also adversely impact the reputation of Just Group’s brands.
4.3 Supply chain and product sourcing Just Group has established an extensive and reliable supply chain that allows it to procure and deliver products to customers in a timely and efficient manner. The efficiency of Just Group’s supply chain management assists in managing working capital levels, in particular, inventory levels and the reliability of delivery to customers. Disruption to any aspect of Just Group’s supply chain could have a material adverse effect on its operational and financial performance. Approximately 50% of the value of the products purchased by Just Group are sourced internationally, predominantly using one sourcing agent based in China. The concentration of Just Group’s suppliers in China makes the Company vulnerable to the political and economic environments in this country, including movements in the Chinese yuan/United States dollar exchange rate, which could have a material adverse effect on the Company’s ability to source product at competitive prices.
Target’s Statement | JUST GROUP | 47 4 Risk factors
Material increases in production costs in these locations could lead to higher costs and therefore impact Just Group’s gross margins, or require it or its agents to source product from alternative locations. In this event, there can be no guarantee that the existing gross margins will be maintained. In addition, any delays in lead times on orders from suppliers could expose Just Group to the risk of changes in fashion and consumer behaviour and generate constraints on Just Group’s cash flow.
4.4 Relationships with landlords Just Group operates its stores, distribution centres, regional offices and head office on a leasehold basis. While leases are distributed across multiple landlords, maintenance of strong relationships with landlords is an important aspect of the Company’s business. Given that Just Group’s future growth prospects depend in part upon its ability to increase sales at existing stores, refurbish existing stores, open new stores at new locations, develop new concepts and continue to operate stores on a profitable basis, any adverse change in Just Group’s relationships with landlords could increase its costs or adversely impact the ability of Just Group to operate stores in preferred locations. Whilst Just Group generally enters into medium‑term leases typically for a period of five years, Just Group can give no assurance that it will be able to renew leases on acceptable terms. Failure to renew leases on acceptable terms could result in the loss of revenue and profitability. As is common in retail leases, a number of store leases held by Just Group and its subsidiaries are subject to “change of control” or similar provisions which might be triggered if Premier becomes the owner of more than 50% of Just Group Shares. These provisions usually require the landlord’s consent to the change of control, though often limitations apply to require the landlord to act reasonably. If the provisions in one or more leases are triggered, Just Group intends to discuss this issue with each relevant landlord with a view to minimising any possible disruption to Just Group’s business.
4.5 Foreign exchange rates Approximately 50% of the value of Just Group’s products are currently sourced offshore, mainly in United States dollars, and consequently Just Group is exposed to movements in exchange rates, in particular the AUD:USD and NZD:USD exchange rates. The competitive environment, strength of Just Group’s product offering and management skill determine how much of any appreciation in the Australian dollar or New Zealand dollar is captured by the business, and the extent to which any depreciation may be recovered through vendors, supply chain initiatives or from customers. In the year ended July 2007, approximately 14% of Just Group’s sales were in New Zealand dollars. However, Just Group’s financial statements are maintained in Australian dollars. Due to the potential volatility of exchange rates, Just Group cannot reliably predict the impact of exchange rates on future operating results. While Just Group engages in foreign exchange hedging to manage foreign currency exposure, adverse movements in exchange rates may have a material adverse impact on the operating results of Just Group in the future.
48 | JUST GROUP | Target’s Statement 4 Risk factors
4.6 Loss of key personnel Just Group’s success depends to a large extent on its key personnel who play an important role in the business, in particular the senior management team discussed in Section 1. Whilst efforts are made to retain the services of key employees, the loss of key personnel could have a material adverse effect on Just Group’s earnings or growth prospects. Just Group may not be able to recruit replacements within a short timeframe.
4.7 Interest rates Just Group, as a borrower of money, is potentially exposed to adverse interest rate movements that may increase the financial risk inherent in its business. Upon expiration of the current facility in June 2009, there is no guarantee that Just Group will be able to secure borrowings on the same terms and conditions as currently exist, or be able to refinance its borrowings on similar terms in the future. Any material change to borrowing arrangements may adversely impact Just Group’s future profitability. Furthermore, as discussed in relation to macroeconomic factors below, interest rates may also affect the level of consumer spending and therefore an increase in interest rates could be expected to have a negative impact on the Company and its operating results.
4.8 Expansion plans The continued growth of Just Group, its revenue and profitability is to a certain extent dependent upon opening new stores and upgrading existing ones. This expansion is dependent upon Just Group’s ability to successfully identify suitable sites, negotiate acceptable lease terms and open new stores on time. Additionally, although Just Group employs strict financial criteria prior to committing to the opening of new stores and the refurbishment of existing stores, there can be no assurance that these stores will meet established targets. Part of Just Group’s strategy also includes undertaking acquisitions and developing new concepts to add to its existing formats. Just Group can give no assurance that any new concepts or acquisitions will be profitable, nor that they will generate sales sufficient to cover the costs of acquisition or start‑up. Further, the terms on which any acquisition or new concept development is funded may impact Just Group’s operations and financial position.
4.9 Seasonality Just Group’s sales are subject to some seasonal fluctuations. There is typically increased demand in the period leading up to Christmas and the winter sales period in June/July. Any significant decrease in sales during these periods could have a material adverse effect on the Group’s financial performance.
4.10 Reliance on third party brands Just Group sells third party brands (including Calvin Klein, Levi’s®, LeeRider and Blend) through Just Jeans pursuant to licence agreements with the relevant brand owners. A relatively small number of licensed products are also sold throughout the group. As Just Group is not the owner of the brands there is a risk that Just Group may lose the right to use these brands, either as a result of non‑compliance by it with the licence terms or as a result of an action by the licensor. A loss of right to use a brand may have an adverse impact on Just Group’s trading performance. Just Group is not aware of any non‑compliance by it with any licence terms or any detrimental action by a licensor.
Target’s Statement | JUST GROUP | 49 4 Risk factors
4.11 Information technology Just Group has invested significantly in the development of information systems. While the Company will make every effort to ensure that these systems are maintained and improved to best meet the demands of the market, system failures may negatively impact on the Company’s performance.
4.12 Tariff Reduction in australia and new zealand A program of phased annual reduction in tariffs has been occurring in Australia since the mid‑1980s. The Australian Government has announced that tariffs will be further reduced from 17.5% to 10% on 1 January 2010. Similarly, the New Zealand Government also has a program for the reduction of tariffs on imported clothing and footwear with a reduction in the tariffs on clothing into New Zealand from 15% to 12.5% to become effective on 1 July 2008 and from 12.5% to 10% to become effective from 1 July 2009. The extent to which any future planned or announced tariff reductions in Australia and New Zealand are not enacted may adversely impact Just Group’s margins in the future.
General Risks
4.13 Macroeconomic factors Just Group, like most other retailers, is affected by general business cycles and economic conditions including interest rates, inflation, disposable income levels, consumer sentiment, population growth and population demographics. Changes in general macroeconomic factors may result in consumers changing spending patterns or their level of consumption, which may have a material adverse impact on Just Group and its earnings.
50 | JUST GROUP | Target’s Statement 5 Taxation consequences
5.1 General Your Special Board Committee recommends you reject Premier’s Offer. If you accept Premier’s Offer, there are likely to be taxation consequences. The Australian income tax consequences are summarised in this section. The comments set out below are relevant only to those Just Group shareholders who hold their Just Group Shares as capital assets for the purposes of investment, and not for the purposes of speculation or a business of dealing in securities (e.g. as trading stock) or acquired them pursuant to an employee share or option plan. The following description is based upon taxation law and practice in effect at the date of this Target’s Statement. It is not intended to be an authoritative or complete analysis of the taxation laws of Australia applying to the specific circumstances of any particular shareholder. Each Just Group shareholder is advised to consult his or her own professional adviser regarding the Australian tax consequences of acquiring, holding or disposing of Just Group Shares and Premier shares in light of that shareholder’s particular circumstances.
5.2 Australian resident shareholders (a) Capital Gains Tax on disposal of Just Group Shares The disposal of Just Group Shares following acceptance of the Offer will generally have CGT implications. The CGT implications of a disposal of Just Group Shares pursuant to acceptance of the Offer will depend upon a number of factors, including whether scrip-for-scrip rollover relief is available and chosen, the taxpayer status of the shareholder and the date on which they acquired their Shares for CGT purposes. The CGT implications are set out below. (1) General position A capital gain will arise for the shareholder if the cash consideration of $2.095 (“Cash Consideration”) per Just Group Share together with the market value of the Premier shares received, calculated at the time the Offer is accepted, exceeds the cost base of the shareholder’s Just Group Shares. For CGT purposes, the cost base of the Just Group Shares would generally include the amount paid to acquire those Shares plus any incidental costs of acquisition (for example, brokerage fees and stamp duty). If an individual, trust or complying superannuation fund has held the Just Group Shares for at least 12 months, they may be eligible to treat the gain as a discount capital gain: • for an individual or trust – include in assessable income, only one‑half of the net realised nominal gain, being the difference between the capital proceeds and the cost base of the Just Group Shares; • for a complying superannuation fund – include in assessable income, two‑thirds of the net realised nominal gain. Under the discount capital gain rules, any available capital losses of the shareholder will be applied to reduce the realised nominal gain before reducing the gain by one‑half (or one‑third for complying superannuation funds) to calculate the amount included in assessable income. A capital loss will result if the capital proceeds received are less than the cost base of the Just Group Shares. A capital loss may be used to offset capital gains derived in the same or subsequent years of income. A capital loss cannot be offset against ordinary income.
Target’s Statement | JUST GROUP | 51 5 Taxation consequences
(2) Scrip-for-scrip rollover relief Partial scrip-for-scrip rollover relief will be available if Premier ends up holding at least 80% of Just Group Shares as a result of the Offer. Where a shareholder chooses scrip-for-scrip rollover relief the shareholder will make a capital gain to the extent that the cash consideration that the shareholder received exceeds a proportionate part of the cost base for the shareholder’s Just Group Shares. The capital gain will be calculated as follows:
CASH CONSIDERATION CAPITAL GAIN ON CASH COST BASE OF EXCHANGING = CONSIDERATION – CASH CONSIDERATION + MARKET VALUE X JUST GROUP SHARES JUST GROUP SHARES OF PREMIER ORDINARY SHARES ( AT THE DATE THE OFFER IS ACCEPTED (
Rollover is not available if a capital loss arises on the exchange of the Just Group Shares. (b) Implications of holding Premier shares As a consequence of accepting the Offer, a Just Group shareholder will cease to be a shareholder of Just Group and will become a shareholder of Premier. Dividends (and any attaching franking credits) received by an Australian resident shareholder of Premier would generally be required to be included in the assessable income of such a shareholder. (c) CGT on subsequent disposal of Premier shares A subsequent disposal of Premier shares will generally result in Australian CGT implications as described above. These will differ depending upon whether or not scrip-for-scrip rollover relief was claimed in relation to the disposal of Just Group Shares pursuant to the Offer. Where scrip-for-scrip rollover relief was not claimed or was not available in relation to the disposal of the Just Group Shares, the cost base of each Premier share would include the market value of the Just Group Shares disposed of under the Offer at the time the Offer is accepted less the cash consideration. Where a shareholder chooses scrip-for-scrip rollover relief the cost base for the Premier shares will equal the cost base of the Just Group Shares that the shareholder exchanged for them, i.e. excluding the proportion of the Just Group Shares exchanged for the cash consideration. The cost base for the Premier shares will be calculated as follows:
MARKET VALUE OF PREMIER SHARES COST BASE = COST BASE OF X OF PREMIER SHARES JUST GROUP SHARES CASH CONSIDERATION + MARKET VALUE OF PREMIER SHARES
The cost base of the Premier shares may change, for example by any incidental costs to sell the Premier shares. Where a shareholder chooses scrip-for-scrip rollover relief the shareholder will be taken to have acquired the Premier shares at the time the Just Group Shares were acquired for CGT purposes. Where scrip-for-scrip rollover relief was not claimed or was not available in relation to the disposal of the Just Group Shares, a shareholder will be taken to have acquired the Premier shares at the time the Offer is accepted.
52 | JUST GROUP | Target’s Statement 5 Taxation consequences
5.3 Shareholders who are not Australian residents The tax implications for a non‑resident shareholder who holds Just Group Shares through a permanent establishment in Australia are generally the same as set out in Section 5.2 above. (a) CGT on disposal of Just Group Shares For a Just Group shareholder who is: • not a resident of Australia for Australian tax purposes; and • does not hold the Just Group Shares through an Australian permanent establishment, Australian CGT implications on the disposal of the Just Group Shares pursuant to the acceptance of the Offer will only arise if: (1) that shareholder, together with its associates held 10% or more of the Shares of Just Group at the time of disposal or for any continuous 12-month period within two years preceding the disposal; and (2) more than 50% of Just Group’s value is due to direct or indirect interests in Australian real property, which is defined to include mining and exploration leases and licences. Just Group does not expect that the requirement as to relative value of its Australian land assets in paragraph 5.3(a)(2) above will be satisfied. Therefore, a non‑resident shareholder should not have any Australian CGT implications arising on sale of its Just Group Shares under the Offer. However, a non‑resident shareholder that satisfies the requirements in paragraph 5.3(a)(1) above should obtain independent advice as to the tax implications of sale. (b) Implications of holding and disposing of Premier shares Tax implications similar to those outlined in 5.2(c), subject to considerations mirroring the matters addressed in 5.3(a) above, should apply on any disposal of Premier shares.
5.4 GST On the basis of current GST law, each of the following transactions: • the disposal of Just Group Shares pursuant to the Offer; • the payment of dividends on Premier shares; and • a subsequent disposal of Premier shares; would not be subject to GST.
Target’s Statement | JUST GROUP | 53 6 Important matters for Just Group shareholders to consider
6.1 Just Group Board The Just Group Board comprises: Ian Pollard Independent Chairman and Non‑Executive Director Ian Pollard was appointed Chairman of Just Group Board on 19 July 2007 and has held the position of Non‑Executive Director since 22 March 2004. Ian was also the Chairman of the Audit and Risk Committee from 22 March 2004 to 24 July 2007. He has extensive experience in corporate finance, strategic investment and public company governance. He was previously Managing Director of Development Finance Corporation Limited and Development Capital of Australia Limited. Ian is also a current director of Corporate Express Australia Limited (from 1 July 2004, and Chairman from 1 January 2005), and Milton Corporation Limited (from 6 August 1998). Previously, Ian held the role of non‑executive director of OPSM Group Limited (from 28 January 1992 to 23 September 2003) and of DCA Group Limited (from 17 August 1984 to 12 December 2006). Ian, an actuary and Rhodes Scholar, holds a Bachelor of Arts from Macquarie University, a Master of Arts (First Class Honours) from Oxford University and a Doctor of Philosophy from the International Management Centre. Jason Murray Managing Director Jason Murray was appointed Managing Director of Just Group on 18 September 2006 and has held the position of Executive Director since 14 September 2005. Jason has been with the Company since July 2003 and was appointed Chief Financial Officer in March 2004. Jason has over 10 years’ experience as a management consultant with McKinsey and Company, working mainly with retail companies. Jason holds a Bachelor of Economics (Honours) from the University of Sydney and an MBA (Honours) from IMD in Lausanne, Switzerland. Laura Anderson Independent Non‑Executive Director Laura Anderson became a Non‑Executive Director of Just Group in September 2004 and became the Chairman of the Risk Committee on 5 March 2008. Laura is also a member of the Audit Committee. Laura was the National Partner in Charge of Strategy and Development for KPMG Australia and founding Partner of KPMG’s Risk and Advisory Services for Industry Practice. Laura is a Director and Victorian Chairman of the Starlight Children’s Foundation. Laura is also a Member of the Board of the Australian Grand Prix Corporation and a Director of Eastern Health. She is a Governor of the American Chamber of Commerce and was Strategic Advisor to the National Defense University in Washington D.C. on global supply chains, technology and strategy. Laura was the founding Chairman and President of the Council of Supply Chain Management Professionals – Australasia and is a Fellow of the Chartered Institute of Logistics and Transport. She is a selected member of the Women Chiefs of Enterprise International, the Australian Institute of Company Directors and the National Association of Corporate Directors in Washington D.C. Educated in the United States, Laura holds a Bachelor’s Degree with concentrations in Applied Mathematics and English from Southern Methodist University. She has completed advanced studies at Northwestern University in Evanston, Illinois USA and at The University of Melbourne, Melbourne Australia.
54 | JUST GROUP | Target’s Statement 6 Important matters for Just Group shareholders to consider
Bronwyn Constance Independent Non‑Executive Director Bronwyn Constance became a Non‑Executive Director of Just Group and the Chairman of the Audit Committee on 11 April 2008. Bronwyn is currently a director and Chairman of the Audit Committees of Plantic Technologies Limited and the Cooperative Research Centre for Advanced Automotive Technologies. She is also a director of The Melbourne Markets Authority. Bronwyn’s 30 years of financial and accounting experience include Chief Financial Officer (or equivalent) roles at Austrim Nylex, Pasminco and Kraft. Bronwyn brings a depth of financial, accounting and commercial experience to the Just Group Board. She is a Fellow of Australian Institute of Company Directors, a Fellow of Australian Society of Certified Practising Accountants, and a Fellow of the Chartered Institute of Secretaries. Ian Dahl Independent Non‑Executive Director Ian Dahl became a Non‑Executive Director of Just Group on 19 July 2007 and was appointed Chairman of the Remuneration and Nomination Committee on 24 July 2007. Ian has a lifetime of experience in retailing in Australia and the United Kingdom. He was formerly CEO of Sportsgirl Australia, United Kingdom Chief Executive of listed jewellery retailer Signet Group PLC and Chairman and Group Chief Executive of Asprey International, the leading United Kingdom retailer of luxury goods. His retail experience also includes roles at House of Fraser PLC, Myer Stores Ltd and Marks & Spencer PLC. He is currently company director and co‑owner of La Senza Lingerie, Australia. Terrence McCartney Non‑Executive Director Terry McCartney became a Non‑Executive Director of Just Group on 4 March 2008 and is a member of the Audit Committee and the Risk Committee. Terry has had a comprehensive career in retailing spanning more than 25 years especially with the Coles Myer group culminating in his roles as Managing Director of Kmart Australia and New Zealand and Myer Grace Bros. Subsequently, Terry has been involved in consultancy assignments in Australia and overseas, for corporations including BHP Billiton and Sual Holdings, a global aluminium producer, private equity investors and expert witness submissions. Michael McLeod Non‑Executive Director Michael McLeod became a Non‑Executive Director of Just Group on 4 March 2008 and is a member of the Remuneration and Nomination Committee. Michael is an Executive Director of the Century Plaza group of companies. He has been associated with Century Plaza since 1996 as an adviser in relation to corporate strategy, investment and public affairs. He is also a non‑executive director of Premier and has previously been a non‑executive director of Zurich Scudder, a large funds manager. Michael holds a Bachelor of Arts (First Class Honours and University Medal) from the University of NSW. Susan Oliver Independent Non‑Executive Director Susan Oliver became a Non‑Executive Director of Just Group on 19 July 2007 and a member of the Audit and Risk Committee on 24 July 2007. Susan has extensive experience as a listed company board director. She has been on the Board of Transurban Group Ltd since 1997, where she chairs the Risk Committee and, until recently, chaired the Corporate Social Responsibility Committee. She has also been a director of Programmed Maintenance Services Ltd since 1999, and is a governor of The Smith Family. Susan is an Executive Director of wwite Pty Ltd, a company providing e‑business applications. Previously she was a director of MBF Australia (1998 to 2008), a senior manager at Andersen Consulting
Target’s Statement | JUST GROUP | 55 6 Important matters for Just Group shareholders to consider
(now Accenture) and Managing Director of the Australian Commission for the Future. Susan has held senior management positions at Invetech Pty Ltd (now part of Danaher Corporation) and in the Victorian public sector. Susan holds a Bachelor of Building (QS) (now Property and Construction) from the University of Melbourne, a certificate of Financial Management from the Australian Institute of Management, Victoria, and is a fellow of the Australian Institute of Company Directors.
6.2 Special Board Committee In order to ensure the independence of Just Group’s response, the Board has formed a special committee to consider this Offer (“Special Board Committee”). The members of the Special Board Committee are all of the directors of Just Group who are independent of Premier and interests associated with Premier’s major shareholder. They are: Name Position Ian Pollard Independent Chairman and Non‑Executive Director Jason Murray Managing Director Laura Anderson Independent Non‑Executive Director Bronwyn Constance Independent Non‑Executive Director Ian Dahl Independent Non‑Executive Director Susan Oliver Independent Non‑Executive Director The two other directors of Just Group, Terrence McCartney and Michael McLeod, were both nominated for appointment to the Just Group Board by Metrepark Pty Ltd, which may be considered an associate of Premier, and Mr McLeod is also a director of Premier. For these reasons, Mr McCartney and Mr McLeod have not participated in the consideration of the Offer, nor in the preparation or approval of this Target’s Statement and each declines to make any recommendation on whether the Offer should be accepted. ASIC has granted an exemption under the Corporations Act so that this Target’s Statement need not contain information known to Mr McCartney or Mr McLeod.
6.3 Directors’ Interests and dealings in Just Group securities (a) Interests in Just Group Shares and Performance Rights As at the date of this Target’s Statement, your Directors had the following relevant interests in Shares and Performance Rights: Number of Number of Just Group Director Just Group Shares Performance Rights Ian Pollard 109,452 – Jason Murray 615,885 185,776 Laura Anderson 41,363 – Bronwyn Constance – – Ian Dahl 3,923 – Terrence McCartney – – Michael McLeod 1,883 – Susan Oliver – – Total 772,506 185,776
56 | JUST GROUP | Target’s Statement 6 Important matters for Just Group shareholders to consider
(b) Dealings in Just Group Shares and Performance Rights No director of Just Group has acquired or disposed of a relevant interest in any Shares or Performance Rights in the four months before this Target’s Statement, other than four directors who acquired Shares under the non‑executive director share plan on 12 March 2008 at $3.57 per Share, as follows: Director Number of Just Group Shares Ian Pollard 4,446 Laura Anderson 4,079 Ian Dahl 2,295 Michael McLeod 1,883 The non‑executive director share plan is summarised at Section 6.8(b) of this Target’s Statement.
6.4 No other benefits and agreements As a result of the Offer, no person has been or will be given any benefit (other than a benefit which can be given without member approval under the Corporations Act) in connection with the retirement of that person, or someone else, from a board or managerial office of Just Group or related body corporate of Just Group. There are no agreements made between any member of the Special Board Committee and any other person in connection with, or conditional upon, the outcome of the Offer, other than in their capacity as a holder of Shares. None of the members of the Special Board Committee: • have agreed to receive, or are entitled to receive, any benefit from Premier which is conditional on, or is related to, the Offer; or • have any interest in any contract entered into by Premier.
6.5 Effect of the takeover on Just Group’s material contracts Under Section 12.9(c) of Premier’s Bidder’s Statement, the Offer is conditional upon the following: before the end of the Offer Period, either an announcement by Just to ASX or the target’s statement by Just in response to the Offer contains a statement, expressed to be made with the approval of the directors of Just, which confirms that, after due enquiry, none of Just or any of its subsidiaries is party to, bound by or subject to any material contracts under which any other party to such contracts could: (i) terminate; (ii) vary, amend or modify; or (iii) exercise any right, as a result of: (iv) Premier making the Offer; (v) premier acquiring Just Shares pursuant to the Offer; or (vi) Premier obtaining a relevant interest in more than 50% of the number of Just Shares then on issue, and the statement is not materially varied, revoked or qualified prior to the close of the Offer.
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Just Group has undertaken a review of its material contracts in light of this condition as part of preparing this Target’s Statement. Having regard to the nature of Just Group’s business, the review has identified one contract which may be considered material. Just Group’s financing facility includes a provision under which the financiers may call for all outstanding monies to be due and payable following the agent for the financiers becoming aware that Premier has obtained 50.1% or more of Just Group. Currently $121.5 million is outstanding under the facility. Accordingly, Just Group cannot provide the statement required by this condition to Premier’s Offer. In addition, as set out in Section 4.4, a number of store leases held by Just Group and its subsidiaries are subject to “change of control” or similar provisions which might be triggered if Premier becomes the owner of more than 50% of Just Group Shares. No single lease is considered by Just Group to be a “material contract” under clause 12.9(c) of Premier’s Bidder’s Statement.
6.6 Major holders in Just Group As at the date of this Target’s Statement, the following persons held interests in Just Group of more than 5%. Substantial holder Holding Premier Investments Limited, Metrepark Pty Ltd, and Springsand Investments Pty Ltd 23.671%A AXA Asia Pacific Holdings Limited 11.78% Barclays Global Investors Australia Limited 10.59% Notes: A This holding comprises 1,850,000 shares held by Premier, 41,200,925 shares held by Metrepark Pty Ltd, and 4,606,812 shares held by Springsand Investments Pty Ltd 6.7 Minority ownership consequences and risks If Premier acquires more than 50% but less than 90% of the Just Group Shares then, assuming all other conditions to the Offer are fulfilled or freed, Premier will acquire a majority shareholding in Just Group. Accordingly, shareholders who do not accept the Offer will become minority shareholders in Just Group. This has a number of possible implications, including: • Premier will be in a position to cast the majority of votes at a general meeting of Just Group. This will enable it to control the composition of Just Group’s Board of Directors and senior management, and control the strategic direction of the businesses of Just Group and its subsidiaries; • the Just Group Share price may fall immediately following the end of the Offer Period although this may be mitigated by the underlying attractiveness of Just Group’s business; • liquidity of Just Group Shares may be lower than at present, and there is a risk that Just Group could be fully or partially removed from certain S&P/ASX market indices due to lack of free float and/or liquidity; • if the number of Just Group shareholders is less than that required by the ASX Listing Rules to maintain an ASX listing then Premier may seek to have Just Group removed from the official list of the ASX. If this occurs, Just Group Shares will not be able to be bought or sold on the ASX; • if Premier acquires 75% or more of the Just Group Shares it will be able to pass a special resolution of Just Group. This would enable Premier to, among other things, change Just Group’s constitution; and
58 | JUST GROUP | Target’s Statement 6 Important matters for Just Group shareholders to consider
• Premier would be in a position to determine Just Group’s dividend policy. This may vary significantly from current Just Group dividend policy as Premier has stated that, if it gains control of more than 50% but less than 90% of Just Group, it will seek to review Just Group’s dividend policy. Premier has stated that the review will be undertaken with a view to paying out an “appropriate yield … while having regard to ensuring that sufficient resources are available within Just [Group] to fund its ongoing activities and capital requirements (including business acquisition opportunities).” It is important to note that Premier has not indicated what it considers (i) an “appropriate yield” or (ii) “sufficient resources” for ongoing activities and capital requirements, so it is unclear whether Just Group’s current policy will be maintained.
6.8 Effect of Offer on Just Group’s employee incentive schemes and securities issued under those schemes (a) Performance Rights Plan Under the Performance Rights Plan (PRP), participants are offered Performance Rights which automatically vest upon the satisfaction of conditions specified in the terms of offer. Upon vesting of a Performance Right, a number of shares (each a Performance Share) calculated in accordance with the terms of offer are issued to the relevant participant. If Premier (and its associates) obtains a relevant interest in 50% or more of Just Group Shares, the PRP rules provide that any performance right granted (or that Just Group is contractually obliged to grant) will vest, where in the Just Group Board’s absolute discretion, pro rata performance is in line with any condition applicable to those Performance Rights over the period from the date of grant to the date the bidder (and its associates) acquires the relevant interest. There are currently 598,383 unvested Performance Rights on issue. If Premier and its associates obtain a relevant interest in 50% or more of Just Group Shares, the Just Group Board will consider the extent to which the Performance Rights are to vest. In addition, there are 813,642 Performance Shares on issue. Holders of Performance Shares are restricted from dealing with Performance Shares until the earlier of: • 10 years after the grant of the relevant Performance Right; • the date on which the participant ceases to be employed by the Just Group (or a group company); or • such other date as the Just Group Board determines. If there is a change of control, the Just Group Board will determine whether or not it is appropriate for the restrictions on transfer to be lifted. (b) Non‑executive director share plan Under the non‑executive director share plan, directors may elect to sacrifice a percentage of their annual directors’ fees for Just Group Shares. There are currently 72,336 Just Group Shares which are restricted under the plan. Those Just Group Shares may not be dealt with by a director until the earlier of: • the date on which the director ceases to be a director of Just Group; • the date which is 10 years after the Shares were allocated; • a change in control of the Company; or • if the Just Group Board so determines (in its discretion). The transfer restriction therefore ceases to apply upon control passing to Premier.
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(c) Employee share acquisition plan Under the employee share acquisition plan, employees are able to acquire shares. There are currently 136,809 Just Group Shares which, in accordance with the terms of the plan, are subject to transfer restrictions until September 2008. If a takeover bid is made, the Board may, in its discretion, determine that any restrictions cease to apply – there is no requirement for a bidder to have acquired a specific number of Just Group Shares or for control to have passed. At this stage, the Just Group Board has not determined to lift the restrictions. It will continue to monitor the progress of the Offer and consider if the restrictions should be lifted.
6.9 Compulsory acquisition Premier has indicated in Section 3.2 of its Bidder’s Statement that if it satisfies the required thresholds it intends to compulsorily acquire any outstanding Just Group Shares. Premier will be entitled to compulsorily acquire any Just Group Shares in respect of which it has not received an acceptance of its Offer on the same terms as the Offer if, during or at the end of the Offer Period: • Premier and its associates have a relevant interest in at least 90% (by number) of the Just Group Shares; and • Premier and its associates have acquired at least 75% (by number) of the Just Group Shares that Premier offered to acquire (excluding Just Group Shares in which Premier or their associates had a relevant interest at the date of the Offer and also excluding any Just Group Shares issued to an associate of Premier during the Offer Period). If this threshold is met, Premier will have one month after the end of the Offer Period within which to give compulsory acquisition notices to Just Group shareholders who have not accepted the Offer. Just Group shareholders have statutory rights to challenge the compulsory acquisition, but a successful challenge will require the relevant shareholder to establish to the satisfaction of a court that the terms of the Offer do not represent ‘fair value’ for their Just Group Shares. If compulsory acquisition occurs, Just Group shareholders who have their Just Group Shares compulsorily acquired are likely to be issued their consideration approximately five to six weeks after the compulsory acquisition notices are dispatched to them. It is also possible that Premier will, at some time after the end of the Offer Period, become the beneficial holder of 90% of the Shares. Premier would then have rights to compulsorily acquire Shares not owned by it within six months of becoming the holder of 90%. Premier price for compulsory acquisition under this procedure would have to be considered in a report of an independent expert.
6.10 Third party statements and consents The Special Board Committee has assumed, for the purposes of preparing this Target’s Statement, that the information in the Bidder’s Statement is accurate (unless expressly indicated otherwise in this Target’s Statement). However, the Directors of Just Group do not take any responsibility for the contents of the Bidder’s Statement and are not to be taken as endorsing, in any way, any of the statements contained in it.
60 | JUST GROUP | Target’s Statement 6 Important matters for Just Group shareholders to consider
Each of the following persons have consented to the inclusion of each statement they have made in the form and context in which the statements appear and have not withdrawn that consent at the date of this Target’s Statement: • Credit Suisse Equities (Australia) Limited; • Lonergan Edwards & Associates Limited; and • PricewaterhouseCoopers Securities Limited. As permitted by ASIC Class Order 01/1543, this Target’s Statement contains statements which are made, or based on statements made, in documents lodged by Premier with ASIC or given to the ASX, or announced on the Company Announcements Platform of the ASX, by Premier. Pursuant to the Class Order, the consent of Premier is not required for the inclusion of such statements in this Target’s Statement. Any Just Group shareholder who would like to receive a copy of any of those documents may obtain a copy (free of charge) during the Offer Period by contacting the Just Group Shareholder Line on 1300 780 445 (for calls made from within Australia) or +612 8280 7106 (for calls made from outside Australia). (Any telephone calls to these numbers may be tape recorded, indexed and stored.) In addition, as permitted by ASIC Class Order 03/635, this Target’s Statement may include or be accompanied by certain statements: • fairly representing a statement by an official person; or • from a public official document or a published book, journal or comparable publication. Neither Caliburn nor Freehills should be regarded as having made any statements in this Target’s Statement, nor as having authorised the issue of it.
Target’s Statement | JUST GROUP | 61 7 Glossary and interpretation
7.1 Glossary Term Meaning $, A$ or AUD Australian dollar. ASIC Australian Securities and Investments Commission. ASX ASX Limited. Bidder’s Statement the replacement bidder’s statement of Premier dated 13 May 2008 containing an offer dated 19 May 2008. Board the board of Just Group. Century Plaza Century Plaza Investments Pty Limited ACN 006 640 115. Investments Century Plaza Trading Century Plaza Trading Pty Limited ACN 006 643 296. CGT capital gains tax. CHESS Holding a number of Shares which are registered on Just Group’s Share register being a register administered by ASX Settlement and Transfer Corporation Pty Limited and which records uncertificated holdings of shares. Corporations Act the Corporations Act 2001 (Cth) (as modified or varied by ASIC). Director a director of Just Group. Independent the independent accountant’s report prepared by Accountant’s Report PricewaterhouseCoopers and dated 30 May 2008 which is included with this Target’s Statement. Independent Expert’s the independent expert’s report prepared by Lonergan Report Edwards and dated 30 May 2008 which is included with this Target’s Statement. Just/Just Group Just Group Limited ACN 096 911 410. Just Group Shares fully paid ordinary shares in Just Group. Lonergan Edwards Lonergan Edwards & Associates Ltd ACN 095 445 560. NZ$ or NZD New Zealand dollar. Offer or Premier’s Offer the offer by Premier for the Just Group Shares dated 19 May 2008, which is contained in Section 12 of the Bidder’s Statement. Offer Period the period during which the Offer will remain open for acceptance in accordance with Section 12.3 of the Bidder’s Statement. Performance Rights performance rights described in Section 6.7. Premier Premier Investments Limited ACN 006 727 966.
62 | JUST GROUP | Target’s Statement 7 Glossary and interpretation
Term Meaning Premier shares fully paid ordinary shares of Premier. PricewaterhouseCoopers PricewaterhouseCoopers Securities Ltd ACN 003 311 617. Pro‑forma Forecast a pro‑forma financial forecast prepared by the Just Group Board, as outlined in Section 3. Rights has the meaning given in Section 13 of the Bidder’s Statement. Shares ordinary shares in Just Group. Special Board Committee a committee of the Just Group Board comprising all of the directors of Just Group other than Michael McLeod and Terrence McCartney (see Section 6). Target’s Statement this document (including the attachments), being the statement of Just Group under Part 6.5 Division 3 of the Corporations Act. US$ or USD US dollar. VWAP volume weighted average price.
7.2 Interpretation In this Target’s Statement: (1) Other words and phrases have the same meaning (if any) given to them in the Corporations Act. (2) Words of any gender include all genders. (3) Words importing the singular include the plural and vice versa. (4) An expression importing a person includes any company, partnership, joint venture, association, corporation or other body corporate and vice versa. (5) A reference to a section, clause, attachment and schedule is a reference to a section of, clause of and an attachment and schedule to this Target’s Statement as relevant. (6) A reference to any legislation includes all delegated legislation made under it and amendments, consolidations, replacements or re-enactments of any of them. (7) Headings and bold type are for convenience only and do not affect the interpretation of this Target’s Statement. (8) A reference to time is a reference to Melbourne time. (9) A reference to dollars, $, A$, AUD, cents, ¢ and currency is a reference to the lawful currency of the Commonwealth of Australia.
Target’s Statement | JUST GROUP | 63 8 Authorisation
This Target’s Statement has been approved by a resolution of the Special Board Committee. Signed for and on behalf of Just Group:
Ian Pollard Chairman
64 | JUST GROUP | Target’s Statement Just Jeans
Smiggle
Jay Jays
Peter Alexander
Dotti
.E Jacqui
Portmans
Annexure A investigating accountant’s report
PricewaterhouseCoopers Securities Ltd ACN 003 311 617 ABN 54 003 311 617 Holder of Australian Financial Services Licence No 244572
Freshwater Place The Directors 2 Southbank Boulevard Just Group Limited SOUTHBANK VIC 3006 GPO Box 1331L 658 Church Street MELBOURNE VIC 3001 Richmond DX 77 Telephone 61 3 8603 1000 VIC 3121 Facsimile 61 3 8603 1999 Australia Website:www.pwc.com/au
30 May 2008
Subject: Investigating Accountant’s Report on Forecast Financial Information
Dear Sirs
We have prepared this report on forecast financial information of Just Group Limited and controlled entities (the Company) for inclusion in a Target’s Statement dated on or about 2 June 2008 (the Target’s Statement) relating to the takeover offer by Premier Investments Limited.
Expressions defined in the Target’s Statement have the same meaning in this report.
The nature of this Report is such that it should be given by an entity which holds an Australian Financial Services licence under the Corporations Act 2001 (Cwlth). PricewaterhouseCoopers Securities Ltd is wholly owned by PricewaterhouseCoopers and holds the appropriate Australian Financial Services licence.
Background
The purpose of this report is to provide an opinion on the forecast financial information in respect of the year ending 26 July 2008, as set out in Section 3.2 of the Target Statement.
Scope
You have requested PricewaterhouseCoopers Securities Ltd to prepare an Investigating Accountant’s Report (the Report) covering the following information:
Forecast financial information
(a) forecast financial performance of the Company for the year ending 26 July 2008 adjusted for certain pro forma adjustments (the “Pro-forma
66 | JUST GROUP | Target’s Statement
investigating accountant’s report
Adjustments”) described in section 3.2 (the “Directors Pro-forma Forecast”); and (b) annualised pro forma forecast financial performance of the Company for the year ending 26 July 2008 which is based upon the Director’s Pro-forma Forecast and then allows for certain annualisation adjustments described in section 3.2 (the “Annualisation Adjustments”) (the “Directors’ Annualised Pro-forma Forecast”). (collectively the “Forecast Financial Information”)
This Report has been prepared for inclusion in the Target’s Statement. We disclaim any assumption of responsibility for any reliance on this Report or on the Forecast Financial Information to which it relates for any purposes other than for which it was prepared.
Scope of review of Forecast Financial Information
The Directors are responsible for the preparation and presentation of the Forecast Financial Information, including the best estimate assumptions, the Pro-forma Adjustments and the Annualisation Adjustments on which they are based.
Our review of the best estimate assumptions underlying the Directors Pro-forma Forecast was conducted in accordance with Australian Auditing Standards applicable to review engagements. Our procedures consisted primarily of enquiry and comparison and other analytical review procedures we considered necessary so as to adequately evaluate whether the best estimate assumptions and pro-forma adjustments provide a reasonable basis for the preparation and presentation of the Forecast Financial Information. These procedures included discussion with the Directors and management of the Company and have been undertaken to form an opinion whether anything has come to our attention which causes us to believe that the best estimate assumptions, Pro-Forma Adjustments and the Annualisation Adjustments do not provide a reasonable basis for the preparation of the Forecast Financial Information and whether, in all material respects, the Forecast Financial Information is properly prepared on the basis of the assumptions and is presented fairly in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies of the Company referred to in Section 3.2 of the Target’s Statement so as to present a view of the Company which is consistent with our understanding of the Company’s past, current and future operations.
The Forecast Financial Information has been prepared by the Directors to provide investors with a guide to the Company’s potential future financial performance based upon the achievement of certain economic, operating, development and trading assumptions about future events and actions that have not yet occurred and may not necessarily occur. There is a considerable degree of subjective judgement involved in the preparation of forecasts. Actual results may vary materially from the Forecast Financial Information and the variation may be materially positive or negative. Accordingly, investors should have regard to the investment risks set out in Section 4 of the Target’s Statement.
Target’s Statement | JUST GROUP | 67
investigating accountant’s report
Our review of the Forecast Financial Information is substantially less in scope than an audit examination conducted in accordance with Australian Auditing and Assurance Standards. A review of this nature provides less assurance than an audit. We have not performed an audit and we do not express an audit opinion on the Forecast Financial Information included in the Target’s Statement.
Review statement on the Forecast Financial Information
Based on our review of the Forecast Financial Information, which is not an audit, nothing has come to our attention which causes us to believe that:
(a) the best estimate assumptions set out in Section 3.3 of the Target’s Statement and the Pro-forma Adjustments set out in Section 3.5 do not provide a reasonable basis for the preparation of the Directors Pro-forma Forecast;, (b) the Annualisation Adjustments set out in Section 3.6 of the Target’s Statement do not provide a reasonable basis for the preparation of the Directors’ Annualised Pro-forma Forecast; (c) the Directors Pro-forma Forecast is not properly prepared on the basis of the best estimate assumptions and the Pro-forma Adjustments and presented fairly in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies adopted by the Company; (d) the Annualised Pro-forma Forecast is not properly prepared on the basis of the Directors Pro-forma Forecast and the Annualisation Adjustments, and presented fairly in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies adopted by the Company; and (e) the Forecast Financial Information is unreasonable.
The underlying assumptions are subject to significant uncertainties and contingencies often outside the control of the Company. If events do not occur as assumed, actual results and distributions achieved by the Company may vary significantly from the Forecast Financial Information. Furthermore, the expected reported results for the year ending 26 July 2008 are likely to differ from the Director’s Pro-forma Forecast as the latter has been adjusted for certain non-recurring items and timing differences. Accordingly, we do not confirm or guarantee the achievement of the Forecast Financial Information, as future events, by their very nature, are not capable of independent substantiation.
Subsequent events
Apart from the matters dealt with in this Report, and having regard to the scope of our Report, to the best of our knowledge and belief no material transactions or events outside
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investigating accountant’s report
of the ordinary business of the Company have come to our attention that would require comment on, or adjustment to, the information referred to in our Report or that would cause such information to be misleading or deceptive.
Independence or Disclosure of Interest
Neither PricewaterhouseCoopers nor PricewaterhouseCoopers Securities Ltd has any interest in the outcome of this issue other than the preparation of this Report and participation in due diligence procedures for which normal professional fees will be received.
Financial Services Guide
We have included our Financial Services Guide as Appendix 1 to our Report. The Financial Services Guide is designed to assist retail clients in their use of any general financial product advice in our Report.
Yours faithfully
John Grouios Authorised Representative of PricewaterhouseCoopers Securities Ltd
Target’s Statement | JUST GROUP | 69
investigating accountant’s report
PricewaterhouseCoopers Securities Ltd ACN 003 311 617 ABN 54 003 311 617 Holder of Australian Financial PRICEWATERHOUSECOOPERS SECURITIES LTD Services Licence No 244572 FINANCIAL SERVICES GUIDE Freshwater Place 2 Southbank Blvd This Financial Services Guide is dated 30 May 2008 SOUTHBANK VIC 3006 GPO BOX 1331L MELBOURNE VIC 3001 DX 77 Australia www.pwc.com/au Telephone +61 3 8603 1000 Facsimile +61 3 8603 1999 1 About us 5 Fees, commissions and PricewaterhouseCoopers Securities Ltd (ABN 54 003 other benefits we may receive 311 617, Australian Financial Services Licence no PwC Securities charges fees to produce reports, 244572) ("PwC Securities") has been engaged by Just including this Report. These fees are negotiated and Group Limited (“Just Group”) to provide a report in the agreed with the entity who engages PwC Securities to form of an Investigating Accountant's Report in relation provide a report. Fees are charged on an hourly basis to the pro-forma forecast and annualised pro-forma or as a fixed amount depending on the terms of the forecast financial information (the “Report”) for agreement with the person who engages us. In the inclusion in the Target’s Statement dated 2 June 2008. preparation of this Report our fees are based on an hourly basis. You have not engaged us directly but have been provided with a copy of the Report as a retail client Directors or employees of PwC Securities, because of your connection to the matters set out in PricewaterhouseCoopers, or other associated entities, the Report. may receive partnership distributions, salary or wages from PricewaterhouseCoopers. 2 This Financial Services Guide This Financial Services Guide ("FSG") is designed to 6 Associations with issuers of financial products assist retail clients in their use of any general financial PwC Securities and its authorised representatives, product advice contained in the Report. This FSG employees and associates may from time to time have contains information about PwC Securities generally, relationships with the issuers of financial products. For the financial services we are licensed to provide, the example, PricewaterhouseCoopers may be the auditor remuneration we may receive in connection with the of, or provide financial services to, the issuer of a preparation of the Report, and how complaints against financial product and PwC Securities may provide us will be dealt with. financial services to the issuer of a financial product in the ordinary course of its business. 3 Financial services we are licensed to provide Our Australian financial services licence allows us to 7 Complaints provide a broad range of services, including providing If you have a complaint, please raise it with us first, financial product advice in relation to various financial using the contact details listed below. We will products such as securities, interests in managed endeavour to satisfactorily resolve your complaint in a investment schemes, derivatives, superannuation timely manner. In addition, a copy of our internal products, foreign exchange contracts, insurance complaints handling procedure is available upon products, life products, managed investment schemes, request. government debentures, stocks or bonds, and deposit products. If we are not able to resolve your complaint to your satisfaction within 45 days of your written notification, 4 General financial product advice you are entitled to have your matter referred to the The Report contains only general financial product Financial Industry Complaints Service ("FICS"), an advice. It was prepared without taking into account external complaints resolution service. You will not be your personal objectives, financial situation or needs. charged for using the FICS service.
You should consider your own objectives, financial 8 Contact Details situation and needs when assessing the suitability of PwC Securities can be contacted by sending a letter to the Report to your situation. You may wish to obtain the following address: personal financial product advice from the holder of an Mr John Grouios Australian Financial Services Licence to assist you in Freshwater Place this assessment. 2 Southbank Blvd Southbank, Vic 3006
70 | JUST GROUP | Target’s Statement Design
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Annexure B independent expert’s report
The Special Board Committee Just Group Limited ABN 53 095 445 560 658 Church Street AFS Licence No 246532 Richmond VIC 3121 Level 27, 363 George Street Sydney NSW 2000 Australia GPO Box 1640, Sydney NSW 2001 30 May 2008 Telephone: [61 2] 8235 7500 Facsimile: [61 2] 8235 7550 Subject: Independent Expert’s Report www.lonerganedwards.com.au
Dear Sirs
Introduction 1 On 31 March 2008 Premier Investments Limited (Premier) announced its intention to make a conditional off- market takeover offer for all the shares in Just Group Limited (Just Group) that it did not already own1. 2 Premier subsequently issued a Bidder’s Statement on 23 April 2008 containing an offer for the shares in Just Group consistent with the 31 March 2008 announcement. A revised Replacement Bidder’s Statement was issued by Premier on 13 May 2008 in response to identified disclosure omissions in the original Bidder’s Statement. 3 The consideration offered by Premier comprises $2.095 in cash2 plus 0.25 Premier shares for each Just Group share (the Offer).
Profile of Just Group 4 Just Group is a leading Australian and New Zealand specialty apparel retailer with an emphasis on men and women’s casual wear and women’s wear. It also has an interest in the stationery retailing segment through the recently acquired Smiggle. Just Group operates some 900 stores under a portfolio of well-known and established brands including Just Jeans, Jay Jays, Portmans, Jacqui E, Peter Alexander, Dotti and Smiggle.
Profile of Premier 5 Premier Investments Limited (Premier) is an ASX listed Australian investment holding company. The company has a strategy to acquire controlling or strategic holdings in premier Australian companies, with a focus on the retailing, importing, retail property and distribution sectors. 6 As noted above, Premier’s voting power in Just Group shares is 23.7%. In addition, the companies have a common director. Accordingly, there is a statutory requirement for Just Group to obtain an Independent Expert’s Report (IER) in relation to the takeover offer. 7 The Just Group Special Board Committee has therefore requested that Lonergan Edwards & Associates Limited (LEA) prepare an IER to accompany the Target’s Statement to be sent to Just Group shareholders in response to the Offer stating whether, in our opinion, the Offer is fair and reasonable to Just Group shareholders. 8 LEA is independent of Just Group and Premier and has no other involvement or interest in the outcome of the Offer, other than the preparation of this report.
Summary of opinion 9 In our opinion the Offer is neither fair nor reasonable. We have formed this opinion for the following reasons.
1 Premier‘s voting power in Just Group shares is 23.7%, held directly and through related parties. 2 On 5 May 2008 Just Group shares traded ex the entitlement to an interim dividend of 10.5 cents per share, which was paid on 22 May 2008.
Liability limited by a scheme approved under Professional Standards Legislation 1 72 | JUST GROUP | Target’s Statement independent expert’s report
Valuation of Just Group
10 In our opinion the value of Just Group shares on a 100% controlling interest basis (ie including a takeover control premium) ranges between $4.78 to $5.28 per share, as follows:
Value of Just Group on a 100% controlling interest basis Low High $m $m Enterprise value of core businesses 1,100.0 1,200.0 Less net debt (123.0) (123.0) Less other net liabilities (15.4) (14.7) Value of equity 961.6 1,062.3 Shares on issue (millions) 201.331 201.331 Value per share $4.78 $5.28
11 We have assessed the market value of Just Group using the capitalisation of EBITA and profit after tax methods. The EBITA and PE multiples implied by our valuation are shown below:
Implied Multiples Low High FY08 EBITA multiple(1) 10.4 11.3 FY09 EBITA multiple(2) 9.2 10.0
FY08 PE multiple(3) 14.3 15.8 FY09 PE multiple(4) 12.4 13.6
Note: 1 Based on EBITA for FY08 of $105.9 million (refer paragraph 153). 2 Based on EBITA of $120 million following discussions with management and our review of management’s internal projections for FY09. 3 Based on earnings per share (EPS) of 33.4 cents as set out in the Target’s Statement. 4 Based on EPS of 38.7 cents, calculated based on EBITA of $120 million less net interest expenses of $8.6 million and tax of $33.4 million.
12 In our opinion, the EBITA and PE multiples implied by our valuation of Just Group are appropriate when compared against the controlling interest EBITA and PE multiples of the other listed apparel retailers, particularly given Just Group’s size, the quality of its brands, level of brand diversification, established business infrastructure and opportunities for future growth.
2 Target’s Statement | JUST GROUP | 73 independent expert’s report
Likely market price of Premier shares if the Offer is successful
13 In our opinion, Premier shares are likely to trade in the following ranges if Premier acquires either 50.1% or 100% of Just Group under the Offer:
Percentage of Just Group acquired Assuming 50.1% Assuming 100.0% Low High Low High $m $m $m $m Portfolio value of Just Group holding(1) 362.2 425.8 722.7 849.5 Portfolio value of other net assets(2) 507.7 537.6 325.3 344.4 Total portfolio value of Premier shares 869.9 963.4 1,048.0 1,193.9 Premier shares on issue(3) 115.0 115.0 140.1 140.1 Estimated listed market price of Premier shares $7.56 $8.38 $7.48 $8.52
Note: 1 Refer paragraph 200. 2 Refer paragraph 204. 3 Calculated as follows: Million Million shares shares Just Group shares on issue 201.3 201.3 Interest acquired 50.1% 100.0% Number of Just Group shares held by Premier 100.9 201.3 Less existing Just Group shareholding (1.85) (1.85) Just Group shares acquired under the Offer 99.0 199.5 Offer ratio 0.25 0.25 Number of Premier shares issued under the Offer 24.8 49.9 Premier shares currently on issue 90.2 90.2 Premier shares on issue post completion of Offer 115.0 140.1
14 As trading in Premier shares is currently illiquid the above valuation range has been assessed by aggregating the portfolio value of Premier’s Just Group holding (if the Offer is successful) and the value of its other net assets. For the purposes of this assessment: (a) Premier’s Just Group holding has been assessed on a portfolio basis reflecting the underlying indirect minority interest held by Premier shareholders (b) a 10% to 15% discount has been applied to the value of Premier’s other net assets, consistent with the discount at which Premier shares have historically traded. 15 In our opinion, at least in the short term, Premier shares are likely to continue to trade at a discount to their net tangible asset (NTA) backing per share on 28 March 2008 of $9.05 per share. This is principally because: (a) in our opinion, the listed market price of Premier shares will reflect the portfolio value (rather than a controlling interest value) of Premier’s investment in Just Group, as investors in Premier will have an indirect minority interest in Just Group (b) Premier shares have consistently traded at a discount to their NTA backing per share
3 74 | JUST GROUP | Target’s Statement independent expert’s report
(c) in our opinion, a takeover offer for Premier is not considered likely in the short-term (as associates of Mr Solomon Lew are expected to have a relevant interest in 50.9% or 41.8% of Premier’s issued capital if Premier acquires 50% or 100% of Just Group respectively3) (d) in the short-term there may be an oversupply of Premier shares from those Just Group shareholders not wishing to retain the Premier shares received as consideration.
Value of the Offer consideration
16 Based on the above we have assessed the value of the Offer consideration at $3.97 to $4.23 per Just Group share, calculated as follows:
Percentage of Just Group acquired Assuming 50.1% Assuming 100.0% Low High Low High $ $ $ $ Estimated market price of Premier shares 7.56 8.38 7.48 8.52 Number of Premier shares for every Just Group share 0.25 0.25 0.25 0.25 Value of share consideration (per share) 1.890 2.095 1.870 2.130 Cash consideration (per share) 2.095 2.095 2.095 2.095 Value of Offer consideration (per share) 3.99 4.19 3.97 4.23
17 Just Group shareholders should also note that, as the combined asset values of Just Group and Premier are effectively fixed4, any adjustment (increase) to the Offer consideration by Premier (by way of increasing either the cash component or the share ratio of the Offer) will have the effect of a relative value transfer from Premier to Just Group shareholders. It follows in such circumstances that our assessed value of Premier shares would be lower.
Assessment of fairness
18 Pursuant to ASIC Regulatory Guide 111 an offer is “fair” if:
“The value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer.”
19 This comparison is shown below:
Low High Mid-point $ $ $ Value of 100% of Just Group (per share) 4.78 5.28 5.03 Value of consideration (per share) 3.97 4.23 4.10 Extent to which value of Just Group exceeds the Offer consideration 0.81 1.05 0.93
20 As our assessed value of the consideration offered by Premier is significantly less than our assessed value for 100% of the shares in Just Group, in our opinion, the Offer is not fair when assessed based on the guidelines set out in Regulatory Guide 111.
3 Source: page 35 of Premier’s Replacement Bidder’s Statement. 4 Being the value of 100% of Just Group, the investment of Premier in Housewares International Limited (HWI) and the cash held by Premier.
4 Target’s Statement | JUST GROUP | 75 independent expert’s report
Assessment of reasonableness
21 Pursuant to Regulatory Guide 111, an offer may be reasonable if, despite not being fair but after considering other significant factors, shareholders should accept the offer in the absence of a higher bid before the close of the offer. 22 In our opinion, the Offer is also not reasonable. This is because: (a) the value of the Offer consideration is significantly below the value of 100% of the shares in Just Group (b) the premium for control implied by our assessed value of the Offer consideration is significantly less than the average premiums paid in successful takeovers generally (c) a large component of the Offer consideration effectively comprises (on a look through basis) shares in Just Group. Existing Just Group shareholders are therefore effectively being offered in respect of around half the Offer consideration what they already own, but under the Offer their ongoing interest in Just Group will be held indirectly (through Premier).
Conclusion 23 Based on the above we have concluded that the Offer is neither fair nor reasonable.
Other matters 24 The impact of accepting the Offer on the tax position of Just Group shareholders depends on the individual circumstances of each investor. Shareholders should consult their own professional advisers if in doubt as to the taxation consequences of the Offer. 25 The ultimate decision whether to accept the Offer should be based on each shareholder’s assessment of their own circumstances, including their risk profile, liquidity preference, tax position and expectations as to value and future market conditions. If shareholders are in doubt about the action they should take in relation to the Offer or matters dealt with in this report, shareholders should seek independent professional advice. 26 For our full opinion on the Offer, and the reasoning behind our opinion, we recommend that Just Group shareholders read the remainder of our report.
Yours faithfully
Craig Edwards Martin Holt Authorised Representative Authorised Representative
5 76 | JUST GROUP | Target’s Statement independent expert’s report
Table of contents
Section Paragraph I Outline of the Offer 27 – 31 II Scope of our report 32 – 43 III Profile of Just Group 44 – 92 IV Retail industry 93 – 139 V Valuation approach 140 –150 VI Valuation of 100% of Just Group 151 – 180 VII Valuation of consideration offered 181 – 208 VIII Evaluation of the Offer 209 – 236
Appendices A Financial Services Guide B Qualifications, declarations and consents C Trading multiples of listed comparables D Transaction multiples E Profile of Premier F Glossary
6 Target’s Statement | JUST GROUP | 77 independent expert’s report
I Outline of the Offer
27 On 31 March 2008 Premier Investments Limited (Premier) announced its intention to make a conditional off- market takeover offer for all the shares in Just Group Limited (Just Group) that it did not already own5. 28 Premier subsequently issued a Bidder’s Statement on 23 April 2008 containing an offer for the shares in Just Group consistent with the 31 March 2008 announcement. A revised Replacement Bidder’s Statement was issued by Premier on 13 May 2008 in response to identified disclosure omissions in the original Bidder’s Statement. 29 The consideration offered by Premier comprises $2.095 in cash6 plus 0.25 Premier shares for each Just Group share (the Offer).
Conditions 30 The Offer is subject to the following conditions (amongst others): (a) that by the end of the offer period, Premier has a relevant interest in more than 50% of the Just Group shares then on issue (b) no purchase of any assets for an aggregate amount of more than $35 million by Just Group (c) Just Group does not incur any capital expenditure or other commitment of more than $35 million (d) no disposal of any assets for an aggregate amount of more than $35 million by Just Group (e) confirmation in the Just Group Target’s Statement (or ASX announcement) that Just Group is not party to any material contracts which another party could terminate, amend or exercise any right in relation thereto as a result of Premier making the Offer, acquiring Just Group shares pursuant to the Offer or obtaining a relevant interest in Just Group of more than 50% (f) no material adverse change in respect of Just Group (g) no prescribed occurrences (as set out in section 12.9 of the Replacement Bidder’s Statement) (h) that by the end of the Offer period the S&P/ASX 200 Index has not declined below 4,600 at the close of any trading day. 31 More detail on the above conditions (as well as others) is set out in the Replacement Bidder’s Statement dated 13 May 2008.
5 Premier’s voting power in Just Group shares is 23.7%, held directly and through related parties. 6 On 5 May 2008 Just Group shares traded ex the entitlement to an interim dividend of 10.5 cents per share, which was paid on 22 May 2008.
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II Scope of our report
Purpose 32 As noted previously Premier’s voting power in Just Group shares is 23.7%. In addition, Just Group and Premier have a common director. Accordingly, there is a statutory requirement for Just Group to obtain an IER, in relation to the takeover offer. The Just Group Special Board Committee has therefore requested that LEA prepare an IER stating whether, in LEA’s opinion, the Offer is fair and reasonable and the reasons for that opinion. 33 This report has been prepared to assist the Just Group Special Board Committee in making their recommendation to Just Group shareholders in relation to the Offer and to assist the shareholders of Just Group assess the merits of the Offer. The sole purpose of this report is to set out LEA’s opinion as to whether the Offer is fair and reasonable. This report should not be used for any other purpose. 34 The ultimate decision whether to accept the Offer should be based on each shareholders’ assessment of their own circumstances, including their risk profile, liquidity preference, tax position and expectations as to value and future market conditions. If in doubt about the Offer or matters dealt with in this report, shareholders should seek independent professional advice.
Basis of assessment 35 Our report has been prepared under Section 640 of the Corporations Act 2001 (Corporations Act). Consequently, in preparing our report we have given due consideration to the Regulatory Guides issued by ASIC, particularly Regulatory Guide 111 “Content of Expert Reports”. 36 Regulatory Guide 111 distinguishes “fair” from “reasonable” and considers: (a) an offer to be “fair” if the value of the offer price or consideration is equal to or greater than the value of the securities that are the subject of the offer. A comparison must be made assuming 100% ownership of the target company (b) an offer to be “reasonable” if it is fair. An offer may also be “reasonable” if, despite not being “fair” but after considering other significant factors, shareholders should accept the offer in the absence of any higher bid before the close of the offer. 37 Our report therefore considers: (a) the market value of 100% of the shares in Just Group (b) the value of the consideration offered by Premier, having regard in particular to: (i) the amount Just Group shareholders could realise if they sought to sell the Premier shares issued as consideration (ii) the potential impact on the listed market price of Premier shares if Premier fails to acquire 100% control of Just Group (iii) the fact that Premier’s largest investment will be Just Group if the offer is successful (c) the extent to which (a) and (b) differ (in order to assess whether the offer is fair under ASIC Regulatory Guide 111) (d) the extent to which a control premium is being paid to Just Group shareholders (measured based on the listed market price of Just Group shares prior to the announcement of the Offer) (e) the level of synergies likely to be generated by an acquirer and the extent to which a share of those synergies is being paid to Just Group shareholders (f) the value of Just Group to an alternative offeror and the likelihood of an alternative offer emerging, either prior to the close of the Offer or sometime in the future
8 Target’s Statement | JUST GROUP | 79 independent expert’s report
(g) the listed market price of Just Group shares: (i) prior to and subsequent to the announcement of the Premier takeover offer (ii) if the takeover offer is not successful (iii) if the minimum acceptance condition of more than 50% is met and Premier fails to acquire 100% control (h) ownership and control issues, including the extent to which Just Group shareholders will retain an indirect interest in Just Group (i) other risks, advantages and disadvantages associated with the Offer which are relevant to Just Group shareholders.
Limitations and reliance on information 38 Our opinion is based on the economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time. 39 Our report is also based upon financial and other information provided by or on behalf of Just Group. We have considered and relied upon this information and believe that the information provided is reliable, complete and not misleading and we have no reason to believe that material facts have been withheld. The information provided was evaluated through analysis, enquiry and review for the purpose of forming an opinion as to whether the Offer is fair and reasonable. However, in assignments such as this, time is limited and we do not warrant that our enquiries have identified or verified all of the matters which an audit, extensive examination or “due diligence” investigation might disclose. None of these additional tasks have been undertaken. 40 We understand the accounting and other financial information that was provided to us has been prepared in accordance with the Australian equivalent to International Financial Reporting Standards (AIFRS). 41 An important part of the information base used in forming an opinion of the kind expressed in this report is the opinions and judgement of management of the relevant companies. This type of information has also been evaluated through analysis, enquiry and review to the extent practical. However, it must be recognised that such information is not always capable of external verification or validation. 42 We in no way guarantee the achievability of budgets or forecasts of future profits. Budgets and forecasts are inherently uncertain. They are predictions by management of future events which cannot be assured and are necessarily based on assumptions of future events, many of which are beyond the control of management. Actual results may vary significantly from forecasts. 43 We have assumed that the forecasts have been prepared fairly and honestly, based on reasonable grounds and the information available to management at the time and within the practical constraints and limitations of such forecasts. We have assumed that management have reasonable grounds for the forecasts and the forecasts do not reflect any material bias. We have no reason to believe that these assumptions are inappropriate.
9 80 | JUST GROUP | Target’s Statement independent expert’s report
III Profile of Just Group
Overview 44 Just Group is a leading Australian and New Zealand specialty apparel retailer with an emphasis on men and women’s casual wear and women’s wear. It also has an interest in the stationery retailing segment through the newly acquired Smiggle. Just Group operates almost 900 stores under a portfolio of well-known and established brands including: (a) Just Jeans (b) Jay Jays (c) Portmans (d) Jacqui E (e) Peter Alexander (f) Dotti; and (g) Smiggle.
45 In addition, Just Group has a small but growing presence in South Africa, via a joint venture arrangement to establish a chain of Jay Jays stores, and is at the initial stages of introducing the Peter Alexander brand into the US.
History 46 Just Group’s history dates back to 1970 when Just Jeans was established by the Kimberley family. The first store opened on Chapel Street in Melbourne selling jeans only. The company expanded rapidly over the next two decades. By 1989, Just Jeans operated some 200 stores in major cities across Australia. In 1990, the first Just Jeans store opened in New Zealand. The company listed on the Australian Stock Exchange (ASX)7 in April 1993 under the name Just Jeans Australia Limited. 47 Just Jeans expanded its brand and product range through a number of acquisitions, being: (a) Jay Jays Warehouse in 1993 for $4.5 million, a business with a 20 year history. Jay Jays, at the time, was operating six discount style warehouse outlets. Jay Jays Warehouse strategy was subsequently changed and renamed Jay Jays (b) Jacqueline Eve in 1994. At the time of the acquisition Jacqueline Eve primarily offered discounted products through 50 stores across Australia. The brand was re-launched as Jacqui E in 1996 (c) Peter Alexander, a specialised sleepwear, homewear and accessories brand, in 2000, further diversifying the company’s product range. 48 By 2001, the company had approximately 500 stores operating in Australia and New Zealand. 49 In January 2002, Just Jeans was acquired via a scheme of arrangement by Catalyst Investment Managers Pty Ltd (Catalyst) for $115 million and delisted from the ASX. Under Catalyst’s private ownership, the company underwent further expansion: (a) in 2002 it acquired the Portmans brand including 85 Portmans stores in Australia and New Zealand. Portmans specialises in office and casualwear for young women (b) during 2002 it also bought a number of street-fashion concept stores including Mooks, M-One-11 and Stussy and their associated assets. The concept however failed to breakeven and the assets were sold in 2004 for a small profit (c) online selling was introduced in 1999 via the Just Jeans brand, followed in 2001 with Peter Alexander. 50 Just Group was re-listed on the ASX under the name Just Group Limited in May 2004. At that date the company had 676 stores generating around $610 million revenue. Since then Dotti and Smiggle have been added to its brand portfolio:
7 The Australian Stock Exchange changed its name to the Australian Securities Exchange with the merger with the Sydney Futures Exchange in July 2006.
10 Target’s Statement | JUST GROUP | 81 independent expert’s report
(a) the Dotti Fashion (Dotti) business was acquired in October 2004 for $5 million. Dotti is a retailer of women’s fashion apparel and had 10 stores in operation at the time of acquisition. It had high brand recognition in the Australian market but was not profitable at the time (b) Smiggle, a fashion stationery business founded in 2003, was acquired for some $29 million8 in July 2007. Upon completion on 27 August 2007, Smiggle operated a network of 20 stores in Melbourne, Sydney and Brisbane. 51 During FY06 Just Group embarked on an international expansion program based on the selective introduction of some of its brands into suitable overseas markets. As part of this program Just Group: (a) initiated a joint venture arrangement in South Africa with Pepkor Retail Limited (Pepkor Retail) for the roll-out of the Jay Jays brand. The first South African store was opened by Pepkor Retail in 2006 and the joint venture was signed in March 2007. There are 23 Jay Jays stores currently in operation (b) recently entered the US with the Peter Alexander brand. At the date of this report two stores had opened in California with a third store planned to open in September 2008.
Current operations 52 Just Group’s head office is in Melbourne, Victoria and the company employs around 6,000 staff. It is the largest participant in the Australian speciality clothing retailing industry with a market share of 6% as of November 20079. The company has a strong management team with extensive experience in fashion related merchandising, supply chain management and retailing. 53 Just Group currently operates 739 stores in Australia and 141 stores in New Zealand operating under seven brands10. There are also 23 joint venture Jay Jays stores in South Africa and two Peter Alexander stores recently opened in the US. 54 The distribution of stores by brand and historical year, as well as the number of stores expected as at 26 July 2008 is set out in the table below:
Just Group - store numbers Year ended July(1) FY04 FY05 FY06 FY07 FY08(2) Just Jeans 289 284 282 270 270 Jay Jays 189 212 222 234 246 Portmans 97 107 116 122 133 Jacqui E 87 94 98 104 108 Peter Alexander 1 5 9 18 24 Dotti (acquired Oct 04) n/a 25 48 61 70 Smiggle (acquired Aug 07) n/a n/a n/a n/a 35 (3) Other stores 23 1 1 1 1 South Africa joint venture n/a n/a 5 14 23 Total 686 728 781 824 910
Opening store numbers 655 686 728 781 824 New stores 48 77 70 74 97 Store closures (16) (35) (17) (31) (11) Net increase in store numbers 32 42 53 43 86 Closing store numbers 686 728 781 824 910
Growth in store numbers 6.1% 7.3% 5.5% 10.4%
Note: 1 All numbers are as at 1 August. 2 Forecast for the FY08 year end (ie 26 July 2008). 3 Includes a corporate store and discontinued store brands.
8 Includes a performance based earnout component. 9 Source: IBISWorld. 10 A further six Australian stores (net) are planned to open by 26 July 2008 to take total store numbers to 910.
11 82 | JUST GROUP | Target’s Statement independent expert’s report
55 Just Group’s brands are high quality, some of which are recognised as icons in Australian and New Zealand apparel markets. Descriptions of these brands and their target markets are discussed below.
Just Jeans
56 Just Jeans offers fashionable casualwear targeted at men and women aged between 16 and 39 years of age, with a greater proportion of sales from womenswear. The product range includes jeans, chinos, cargo pants, skirts, tops, jackets and accessories, of which, denim apparel makes up around 30% of sales. Just Jeans predominantly sells company-owned brands with third party brands, including Levis, LeeRider, Calvin Klein, Blend and Lucky making up the remainder. Products are primarily sourced from Asia. 57 The number of Just Jeans stores reduced from 292 in 2003 to 270 (224 in Australia and 46 in New Zealand) at present. This reduction largely reflects a strategy of focusing on return on sales and capital, and has led to closures and the replacement of Just Jeans stores with Jay Jays or other brands considered more appropriate for the respective sites. Notwithstanding the reduction in store numbers Just Jeans maintains its market leading position, as its main competitors (Jeanswest, Westco and General Pants) only operate some 300 stores in total. This position is further reinforced via the Just Shop loyalty program which currently has over 500,000 members.
Jay Jays
58 The original Jay Jays concept (discount jeans warehouses) was strategically repositioned in 2000 to offer value-for-money “street smart” casual apparel for the 16 to 24 year-old youth market. The offering includes a range of clothing and accessories incorporating basic casual, street, surf and club styles. Jay Jays sources its products predominantly from Asia and only sells company-owned brands. There are 269 Jay Jays stores, 23 of which were recently opened in South Africa. Jay Jays was named Retail Chain Of The Year in 2004 by Ragtrader Magazine. 59 The South African expansion is being conducted through a joint venture with Pepkor Retail, an experienced South African retailer operating a portfolio of South African brands and over 2,400 stores primarily based in South Africa. Pepkor Retail also has operations in Australia (Best and Less) and Poland.
Portmans
60 Since acquiring the Portmans brand in June 2002, Just Group has been able to reposition the brand as one of Australia’s premier fashion retail brands for young women. Portmans offers office and casualwear targeted at the value-conscious 20 to 26 year-old woman. Portmans sells only company-owned brands and sources many of its products from third party suppliers in Melbourne. It was named Retail Chain of the Year in 2006 by Ragtrader Magazine11.
Jacqui E
61 Jacqui E offers a diverse range of quality and fashionable womenswear at mid-market price-points, targeted at the 30 to 35 year-old career and family woman. Similar to Portmans, Jacqui E sells only company-owned brands and sources many of its products from Melbourne. Customer loyalty is high and serviced via a comprehensive direct marketing campaign combined with an in-store loyalty program.
Peter Alexander
62 Peter Alexander offers sleepwear, intimates, fashionable fitness apparel, bed linen, resortwear and accessories through a variety of distribution channels including retail stores, catalogues, the internet and David Jones. Peter Alexander was also named Retail Chain of the Year in 2006 by Ragtrader Magazine12.
11 For chains with more than 20 stores. 12 For chains with less than 20 stores.
12 Target’s Statement | JUST GROUP | 83 independent expert’s report
63 The Peter Alexander brand has grown substantially since its acquisition in 2000, with store numbers increasing to 22 as at 31 March 2008. Plans for continued expansion include the opening of new stores in Australia, New Zealand and the US, in tandem with increased direct sales via the internet and catalogues.
Dotti
64 Dotti offers fashionable apparel targeted at the 14 to 20 year old woman. The brand has expanded from 10 stores at the date of acquisition (2004), to the current 70 locations. Just Group launched a successful brand repositioning for Dotti in winter 2007 which brought about changes to clothing range, marketing and store design as well as the product team and staff training. Dotti is expected to be one of Just Group’s fastest growing brands in terms of store numbers and profitability over the coming years. It is also expected to benefit from continued improvements in its sourcing and supply arrangements.
Smiggle
65 Smiggle, a young brand developed in Melbourne, offers a range of fashionable, creative and value for money stationery products targeting teenagers. Smiggle is Just Group’s first acquisition outside apparel. It had 20 stores upon completion of the acquisition on 27 August 2007. 66 There are now over 30 Smiggle stores based in Melbourne, Sydney, Brisbane and the ACT. Smiggle has substantial growth prospects given its unique product offering and differentiation from other large stationery suppliers.
Revenue contribution by division
67 Just Jeans and Jay Jays are currently the largest contributors to Just Group’s sales, followed by Portmans and Jacqui E:
Just Group - sales by brand FY04 FY05 FY06 FY07 $m $m $m $m Just Jeans 242.4 219.4 217.2 224.6 Jay Jays 165.6 180.4 207.7 227.0 Portmans 106.9 115.7 129.7 136.9 Jacqui E 74.8 81.8 89.0 89.0 Peter Alexander 13.8 16.5 23.2 36.2 Dotti n/a 12.0 31.0 46.0 Other sales 16.3 7.0 0.1 2.8 619.8 632.8 698.0 762.4
Proportion of sales Just Jeans 38.9% 34.7% 31.1% 29.5% Jay Jays 26.6% 28.5% 29.8% 29.8% Portmans 17.2% 18.3% 18.6% 18.0% Jacqui E 12.0% 12.9% 12.8% 11.7% Peter Alexander 2.2% 2.6% 3.3% 4.7% Dotti n/a 1.9% 4.4% 6.0% Other 3.0% 1.1% 0.0% 0.3% 100.0% 100.0% 100.0% 100.0%
Note: 1 Smiggle was acquired in FY08. n/a – not available.
13 84 | JUST GROUP | Target’s Statement independent expert’s report
68 In the year to 28 July 2007, both the Just Jeans and Jay Jays brands contributed approximately 30% of the company’s total sales. Traditionally, Just Jeans has contributed the largest proportion of sales representing more than 40% of total revenue. In recent years the proportion of Just Jeans’ revenue has reduced due to the impact of acquisitions, combined with lower organic growth given the brand’s already strong position in its market segment. 69 Jay Jays’ contribution, conversely, has increased from 23% in FY03 to 30% in 2007, largely through store expansion. With its expansion into South Africa and prospects for other overseas countries, Jay Jays is expected to play an increasing role in Just Group’s future. 70 Portman’s and Jacqui E have increased sales in line with overall sales growth, thereby broadly maintaining their respective sales contributions. 71 Jay Jays, Dotti and Smiggle13 are considered to have more store growth potential than other brands and are expected to make up a larger proportion of Just Group’s revenue in the future. Growth of the Peter Alexander brand is expected through a combination of store roll-outs and sales through other distribution channels such as the internet.
Supply chain
72 Over 90% of Just Group’s products are designed in-house and sourced and sold under its own brands. Just Group has a full production cycle of 12 to 14 weeks from concept development to stock availability. Continuous improvement to Just Group’s supply chain and information systems means that a greater proportion of new lines are now developed in four to six weeks from fabric availability. 73 Each Just Group brand has its own product design and development team. The majority of the company’s products are sourced from Asia, primarily from China. The company has a relationship with an offshore agent Li & Fung in relation to its outsourcing. In addition Just Group has access to a wide range of suppliers and can choose between those suppliers who best suit its needs depending on the circumstances. 74 The company has four distribution centres: (a) Huntingwood, New South Wales servicing Australian Just Jeans and Dotti stores (b) Altona, Victoria servicing all other Australian stores (c) a warehouse in Victoria for Smiggle products; and (d) a distribution centre in Auckland servicing all stores in New Zealand. 75 The company was awarded Best Apparel Supply Chain by Logistic magazine in 2007.
13 Smiggle was acquired in July 2007 and thus does not have a long history with Just Group.
14 Target’s Statement | JUST GROUP | 85 independent expert’s report
Financial performance 76 A summary of Just Group’s historical operating performance for the three years ended July 2007, as well as management’s forecast for the year ending 26 July 2008, is set out below:
Just Group - financial performance FY08 Directors’ FY05 FY06 FY07 Pro-forma Actual Actual Actual Forecast(1) $m $m $m $m Total sales 632.8 698.0 762.4(2) 824.0 Cost of sales (269.7) (295.8) (323.6) (331.5) Gross profit 363.0 402.2 438.7 492.5 Other income 2.0 3.8 7.3(3) 4.4 Operating expenses (277.2) (301.4) (330.4) (368.3) EBITDA(4) 87.9 104.6 115.6(5) 128.6 Depreciation (15.7) (17.2) (19.8) (22.7) EBITA(4) 72.2 87.4 95.8(5) 105.9 Amortisation (0.2) (0.2) (0.2) (0.2) EBIT(4) 72.0 87.2 95.6(5) 105.7 Net interest expense (6.4) (5.3) (5.3) (9.5) Profit before tax 65.6 81.8 90.3(5) 96.2 Income tax (19.6) (24.7) (26.4) (28.9) Net profit after tax 45.9 57.2 63.9(5) 67.3 Margins Gross profit margin 57.4% 57.6% 57.5% 59.8% EBITA margin 11.4% 12.5% 12.2%(6) 12.9% Other statistics Inventory stockturn 4.5 4.7 5.1 n/a Interest coverage ratio(7) 11.3 16.5 18.1 11.1 EPS (cents per share) 21.1 26.2 29.9 33.4 Note: 1 Refer Section VI for further details. The Directors’ pro-forma forecast differs to the expected reported results of Just Group in FY08 as the Directors’ pro-forma forecast has been adjusted for non-recurring items and certain timing differences in order to present the underlying performance of the company. 2 Sales in FY07 include $2.8 million of sales to an associate. 3 Establishment losses from the Jay Jays South African joint venture have been netted off against other income. 4 The EBITDA, EBITA and EBIT figures above exclude interest income and are therefore different from that shown in the Target’s Statement (which includes interest income in EBITDA, EBITA and EBIT). A reconciliation to the Target’s Statement numbers is set out in paragraph 153. 5 Includes a net gain of $2.5 million from the dividend received from Colorado Group Limited (Colorado Group) and gain on sale of Colorado Group shares, net of consulting and legal fees. 6 Calculated excluding the $2.5 million net gain from the trading of Colorado Group shares. 7 Calculated as EBIT divided by net interest expense. n/a – not available.
77 Overall, Just Group has exhibited a strong financial performance since re-listing on the ASX in 2004. Sales have grown both organically and by acquisition, and both inventory stockturns and profit margins have increased. 78 Just Group maintains a dividend policy of distributing 60% to 65% of net profit after tax. 79 The following comments relate to the operating performance of Just Group for three financial years (FY) to 2007 and the expected performance for the year ending July 2008:
15 86 | JUST GROUP | Target’s Statement independent expert’s report
Year ended 30 July 2005 x Store numbers increased by 42 during the year, net of closures and including the 10 Dotti stores acquired in October 2004 x The company successfully integrated and expanded the Dotti retail chain acquired during the year x Sales increased moderately at 2.1%, however this was based on a 52 week trading period compared to 53 weeks for the previous year. Growth compared to a 52 week period was 4.1% x Just Jeans sales were down by 7.9%14 due to a warm winter in Australia and underperformance of the Levi brand x Overall sales growth was driven by strong increases in revenue from Jay Jays (10.8%14), Jacqui E (11.5%14) and Portmans (10.3% 14) x A booming mining sector lifted trading performance in Western Australia and Queensland
Year ended 29 July 2006 x Store numbers increased by a net 53 x Sales increased 10.3% due to strong growth from Jay Jays (15%), Dotti (159%), Portmans (12%) and Peter Alexander (40%). Sales at the flagship Just Jeans stores decreased by 1% x A new strategy for Just Jeans was implemented with the closing of less economic stores and an emphasis on denim and lifestyle elements of the brand. A new store format was also developed x Despite difficult economic conditions, the New Zealand operations performed well, achieving increases in sales and profit before tax of 13.8% and 35.8% respectively x A record net profit after tax of $57.2 million was achieved for the year, representing an increase of 24.6% over FY05
Year ended 28 July 2007 x Total store numbers increased by 43 (net) with overall retail space increasing 5.8% x Strong market conditions combined with robust consumer demand and the continued appreciation of the Australian dollar favourably impacted results x Total sales increased 9.2% driven by increases in the number of stores of the Jay Jays, Dotti and Peter Alexander brands. Total same store sales growth rate was 3.5% x The rollout of new Jay Jays stores combined with strong sales growth promoted Jay Jays to the largest Just Group brand x Just Group reported a net gain of some $2.5 million from the sale of the Colorado shares purchased between May and July 200615 x The Australian dollar appreciated approximately $0.10 against the US dollar over the period, decreasing import costs x EBIT and net profit after tax increased 9.7% and 11.7% respectively
Half year ended 26 January 2008 / Forecast for year ending 26 July 2008 x The Smiggle business was acquired and integrated into the company x Three Peter Alexander pilot stores are to be opened in California during calendar 2008 with the intention of launching the brand internationally from this base. At the date of this report two of the Californian stores had opened x The rollout of Smiggle stores continues with a further 15 stores to be added to take the total to 35 by year end x The repositioning of Dotti continued on the back of strong growth in sales
14 Based on a comparable 52 week period. 15 Including dividends received, net of consulting and legal fees.
16 Target’s Statement | JUST GROUP | 87 independent expert’s report
x The Australian dollar continued to appreciate, decreasing the cost of imported goods x The financial performance deteriorated in the women’s wear brands of Jacqui E and Portmans. Significant progress had been made by the date of this report to reverse this trend, especially in Jacquie E x Trading in New Zealand has been relatively weak with flat profit growth expected for the full year on the back of a small increase in store numbers and a stronger New Zealand dollar.
80 Just Group entered into a license arrangement in South Africa in FY06 with Pepkor Retail (an experienced South African retailer with over 2,400 stores primarily based in South Africa), which opened five pilot Jay Jays stores during that year. Progress continued to be made in the market in the year ending July 2007 with a joint venture between the two companies signed and in operation at year end and a small loss incurred.
Financial position 81 The financial position of Just Group as at 28 July 2006 and 2007 and 26 January 2008 is set out below:
Just Group - financial position 28-Jul-06 28-Jul-07 26-Jan-08 $m $m $m Cash and cash equivalents 20.0 38.1 23.5 Trade and other receivables 1.0 2.5 2.9 Inventories 65.9 61.3 62.9 Other 2.5 2.8 5.4 Total current assets 89.3 104.7 94.6
Receivables - 1.3 1.3 Property, plant and equipment 55.2 62.8 69.3 Intangibles 79.0 79.0 105.5 Deferred tax assets 7.9 8.8 9.3 Financial assets 21.4 2.0 - Investment in associate - 0.1 1.6 Total non-current assets 163.5 153.9 187.0 Total assets 252.9 258.6 281.6
Trade and other payables 47.8 50.4 48.0 Borrowings - 0.1 0.2 Current tax liabilities 5.7 6.4 7.7 Provisions 8.3 10.7 11.3 Other 3.6 4.1 4.6 Total current liabilities 65.5 71.7 71.7
Borrowings 79.6 121.7 121.3 Deferred tax liabilities 1.5 2.4 2.5 Provisions 1.9 0.9 1.0 Other 7.1 8.7 13.7 Total non-current liabilities 90.1 133.6 138.6 Total Liabilities 155.6 205.3 210.4
Net assets 97.3 53.3 71.2
Contributed equity 15.4 13.7 13.7
17 88 | JUST GROUP | Target’s Statement independent expert’s report
Just Group - financial position 28-Jul-06 28-Jul-07 26-Jan-08 $m $m $m Reserves 1.1 (3.4) (6.4) Retained profits 80.8 43.0 63.8 Total equity 97.3 53.3(1) 71.2(1)
Note: 1 The reduction in net assets is largely due to a $65 million share buyback conducted in FY07.
Share capital 82 Just Group had 201,330,882 ordinary shares on issue as of 22 May 2008. 83 In addition Just Group has 598,383 performance rights outstanding. The performance rights are subject to conversion to shares based on certain vesting events. Just Group has historically fulfilled its vesting obligations by purchasing shares on-market and therefore does not consider the performance rights to be dilutive.
Substantial shareholders 84 As at 15 May 2008 the top ten shareholders in Just Group held 59.9% of the issued capital. The substantial shareholders in Just Group (being those holding interests of more than 5%) as at 15 May 2008 were:
Just Group - substantial shareholders Relevant interest % Premier, Metrepark Pty Ltd and Springsand Investments Pty Ltd 23.67 AXA Asia Pacific Holdings Limited 11.78 Barclays Global Investors Australia Limited 10.59
18 Target’s Statement | JUST GROUP | 89 independent expert’s report
Share price performance 85 The price of Just Group’s shares from 1 January 2006 to 30 April 2008 is summarised in the table below:
Just Group - share price movements Monthly High Low Close volume $ $ $ (000) Quarter ended Mar-06 3.40 2.32 3.15 33,821 Jun-06 3.65 2.87 3.42 17,202 Sep-06 3.80 3.06 3.75 14,986 Dec-06 4.27 3.34 3.70 22,019 Mar-07 4.27 3.31 4.17 21,421 Jun-07 4.85 3.81 4.40 20,597 Month Jul-07 5.01 4.40 4.75 20,039 Aug-07 4.84 4.04 4.51 21,546 Sep-07 5.22 4.48 5.20 15,487 Oct-07 5.80 4.97 5.65 15,737 Nov-07 5.97 5.01 5.29 15,228 Dec-07 5.50 4.51 4.65 19,063 Jan-08 4.96 3.72 3.97 15,068 Feb-08 4.15 3.39 3.50 15,562 Mar-08 3.99 3.25 3.96 21,759 Apr-08 4.27 3.76 4.00 26,781
86 The following graph illustrates the movement in Just Group’s share price from 1 January 2006 to 30 April 2008:
Just Group Limited Share Price History: Daily from 1 January 2006 to 30 April 2008 ($)
6.00 (c) (d) 5.50
5.00 (b)
4.50 (e)
4.00 (a)
3.50
3.00
2.50
2.00 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
87 We note the following in respect of Just Group’s recent share price movements: (a) on 29 June 2006, Howard McDonald announced his resignation as managing director of Just Group. On 27 July 2006, Jason Murray was appointed as the new managing director
19 90 | JUST GROUP | Target’s Statement independent expert’s report
(b) on 7 March 2007, the company announced an off-market share buy back worth approximately $65 million. At this time the share price may have also been impacted by positive retail statistics released by the Australian Bureau of Statistics (ABS) together with the Reserve Bank of Australia’s (RBA) decision to keep the cash target rate unchanged (c) the improvement in Just Group’s share price reflected a combination of strong performance in FY07 and the generally positive retail environment. Just Group’s share price reached a record high of $5.88 on 1 November 2007 (d) the sharp drop in share price between November 2007 and March 2008 coincides with the general decline of the Australian and overseas share markets over this period due to anticipated difficult business conditions, including: (i) increased interest rates and petrol prices, and the flow on effect on consumer confidence and retail sales (ii) the fears about a potential recession of the US economy; and (iii) the possible slowdown of the global economy
(e) on 31 March 2008, Premier Investments Limited announced its intention to make a takeover bid for Just Group. 88 Just Group is a part of the S&P/ASX 200 Index and the S&P/ASX 300 Retailing Index. The following graph illustrates the performance of Just Group’s share price relative to these indices:
Just Group v S&P/ASX 200 v S&P/ASX 300 Retailing Index Common base: 1 January 2006 to 30 April 2008
150%
120%
90%
60%
30%
0%
-30% Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
Just Group S&P/ASX 200 S&P/ASX 300 Retail
89 From the above we note the following: (a) Just Group’s shares significantly outperformed both the S&P/ASX 200 Index and S&P/ASX 300 Retailing Index from 1 January 2006 to 30 April 2008. During this period, Just Group’s share price increased 61%. In comparison the S&P/ASX 200 Index and the S&P/ASX 300 Retailing Index showed a gain of 17% and 18% respectively (b) Just Group’s share price movements were correlated with the movements of both indices, however Just Group’s share price appeared to better track the S&P/ASX 300 Retailing Index than the S&P/ASX 200 Index (c) while Just Group outperformed both indices we note that its share price was considerably more volatile.
20 Target’s Statement | JUST GROUP | 91 independent expert’s report
Liquidity 90 An analysis of Just Group’s liquidity and weighted average share price prior to the offer from Premier is set out below:
Just Group - liquidity and weighted average share prices As a % of High Low VWAP Value Volume issued Period $ $ $ $000 000 capital 1 day 3.58 3.46 3.52 4,361 1,240 0.6% 1 week 3.58 3.43 3.51 12,241 3,491 1.7% 1 month 3.99 3.25 3.55 65,682 18,519 9.2% 2 months 4.15 3.25 3.62 130,728 36,113 17.9% 3 months 4.96 3.25 3.80 185,464 48,814 24.2% 6 months 5.97 3.25 4.50 444,803 98,805 49.1% 12 months 5.97 3.25 4.46 973,712 218,214 108.4%
91 Just Group shares are liquid investments. Due to its position in a number of prominent Australian indices, there are a ready number of buyers and sellers for the stock. Over the most recent twelve month period (the equivalent of) greater than 100% of Just Group shares were traded. This implies that some 9% of total shares trade each month, consistent with the volume traded in the one month period prior to the announcement of the proposed offer (ie 9.2%). 92 The volume weighted average price (VWAP) of Just Group’s shares ranges from $3.52 to $3.80 for time periods up to three months prior to the announcement of the proposed offer from Premier. Just Group’s VWAPs for the six and 12 month periods are significantly higher, reflecting the higher values attributed to listed companies generally in most of the 2007 calendar year.
21 92 | JUST GROUP | Target’s Statement independent expert’s report
IV Retail industry
Introduction 93 Just Group operates in the specialty retail clothing industry in the Australian and New Zealand markets16. The company generates more than 80% of its revenue from Australia and the remainder from New Zealand. This section therefore focuses on the Australian retail clothing industry and to a lesser extent the New Zealand retail clothing industry. 94 The performance of the industry is generally related to macroeconomic factors such as general economic growth, interest rates, petrol prices, consumer sentiment and the relative strength of currencies (ie the Australian dollar versus the US dollar etc).
Australian retail clothing industry
Overview
95 The Australian retail clothing industry is characterised by a low level of concentration with a large number of small independent operators and a very high level of competition. There are approximately 19,000 establishments employing 74,000 staff, generating total revenue of approximately $10.5 billion ($17 billion if the clothing revenue of department stores is included)17. 96 According to IBISWorld, Just Group is the largest participant in the Australian industry with a market share of around 6%, with profit margins above industry averages. Just Group is the only participant in the industry with annual revenues in excess of $500 million.
Size and growth
97 The sales and growth performance of the Australian retail clothing industry for the last five years is set out in the graph below:
Australian Retail Clothing Industry ($m) Total revenue and growth (%) 11,000 6.0%
10,500 5.0%
10,000 4.0%
9,500 3.0%
9,000 2.0%
8,500 1.0%
8,000 0.0% 2002-03 2003-04 2004-05 2005-06 2006-07
Source: IBISWorld. Revenue Real growth rate
16 Excluding Just Group’s Jay Jays joint venture in South Africa and the three pilot Peter Alexander stores opened in the USA. 17 Source: IBISWorld.
22 Target’s Statement | JUST GROUP | 93 independent expert’s report
98 Turnover for the period grew at an average real rate of 3.5%, slightly above Australia’s corresponding GDP growth rate of 3.1%. The average growth rates of the number of establishments and staff employed for the last five years were 2.4% and 3.6% respectively. Retail clothing sales exhibit cyclicality, and actual growth rates in any one year can vary widely depending on changes in macro factors for that year. 99 In recent times, growth in the retail clothing industry has been driven by a favourable retail environment due to low unemployment rates, relatively strong GDP growth and strong consumer sentiment. The reduced growth in 2004 to 2006 was primarily attributable to increased petrol prices, which had a negative impact on consumer sentiment.
Market segmentation
100 By gender and age, the retail clothing industry can be segmented into women’s clothing, men’s clothing, girl’s clothing, boy’s clothing, infant’s clothing, and headwear, hosiery and accessories.
Australian Retail Clothing Industry Market share by gender and age
4% 6%
9% ¬¬Women's clothing
¬¬Men's clothing
¬¬Infant's clothing 9% 48% ¬¬Headwear, hosiery, accessories
¬¬Girl's clothing
¬¬Boy's clothing
24%
101 Women tend to spend a higher proportion of their disposable income on clothing and are more likely to buy fashionable higher priced goods. As a result women’s clothing accounts for nearly 50% of sales. 102 Men spend approximately half that of women on clothes. Men are more willing to reduce spending during times of economic uncertainty, with the opposite true in prosperous times. 103 The remaining segments, whilst specifically targeted at boys, girls and infants etc, are generally purchased by women (ie mothers). So too is a large portion of men’s clothing. Therefore the majority of marketing expenditure within the industry is aimed at women, both directly and indirectly.
23 94 | JUST GROUP | Target’s Statement independent expert’s report
104 By age group, there are three major market segments: baby boomers, generation X and generation Y.
Australian Retail Clothing Industry Market share by generation
3%
24% ¬¬Generation X (Aged 32 to 43) 39% ¬¬Baby Boomers (Aged 44 to 63)
¬¬Generation Y (Aged 14 to 31)
¬¬People aged 60+
34%
105 Generations X and Y, the target markets of Just Group, are estimated to account for 63% of total market demand18. Both age groups spend a high proportion of their income on clothing. They focus on brand and fashion trends. Baby boomers, the second largest single market segment, make up a large proportion of businesswear sales and focus on comfort, quality and price rather than fashion trends. 106 The three most populous states, New South Wales, Victoria and Queensland, account for around 81% of the total retail clothing revenue as set out in the following table:
Australian Retail Clothing Industry Market share by region 2001 2004 2007 % % % NSW 36.1 34.6 33.3 VIC 25.9 25.9 25.0 QLD 18.8 21.4 22.8 WA 8.4 8.6 9.1 SA 5.7 5.6 5.5 ACT 2.4 1.7 1.8 TAS 1.8 1.5 1.8 NT 0.9 0.7 0.7
Source: IBISWorld.
107 Queensland and Western Australia, driven by the current resource boom and a migration of an increasing proportion of the Australian population to these states, have increased their share of total sales in recent years.
Competition
108 The large number of small independent operators makes for a highly competitive industry. Competition is generally based on one or more factors including price, range, style, quality, brands and labels, service and location.
18 Source: IBISWorld.
24 Target’s Statement | JUST GROUP | 95 independent expert’s report
109 The level of industry concentration remains low with the five largest participants accounting for just 20% of industry revenue. Concentration is expected to remain low due to the varied range of segments that compete on price, style, quality, location and demographic. These multi-layered segments give consumers an abundance of choice and make it difficult for major players to cover a significant share of the market without incurring substantial costs. 110 A summary of the major players in the specialty retail clothing sector in Australia is set out below:
Major Participants – Australian speciality retail clothing in 2007 Market share Company Key products Clothing brands (%) Just Group Casualwear, women’s Just Jeans, Jay Jays, Jacqui E, 6.2 clothing, fashion stationery Portmans, Peter Alexander, Dotti Specialty Fashion Group Women’s clothing Miller’s Fashion Club, Katies, 5.0 CrossRoads, Autograph, City Chic, Queenspark Retail Holdings Women’s clothing Sussan, Suzanne Grae 4.9 Supre Holdings Teen female clothing Supre 2.0 Lowes-Manhattan Men’s clothing Lowes, Elliots, Ron Rolls, Beare and 1.9 Ley Pretty Girl Fashion Group Women’s clothing Be Me, Rockmans, Table Eight, 1.7 Wombat Country Road Clothing, homewares Country Road 1.6 Cue Design Women’s clothing Cue, Veronika Maine 1.6 Jeanswest Clothing Jeanswest, Spoylt and Denial 1.3 Rebel Sport Sports clothing Rebel Sport 1.3 Esprit (Retail) Clothing, footwear and Esprit 1.2 accessories Noni-B Women’s clothing, accessories Noni-B, Liz Jordan 1.2 Oroton Group Clothing and accessories Oroton, Polo Ralph Lauren 1.1
Source: IBISWorld and company websites.
111 The major external competitors of specialty retail clothing are department stores, such as Target, Big W and K-Mart at the lower end of the market, and David Jones and Myer at the upper end of the market. Department stores are estimated to account for 35% to 40% of women’s and men’s clothing sales. 112 Barriers to entry into the industry are low to medium. Capital costs required to establish new stores are considered low for small retailers, however costs to compete on a larger scale can be substantial.
Demand determinants
113 A key determinant of demand for clothing is the level and change in real household disposable income. There is a positive correlation between the change in real household disposable income and clothing sales. Real household disposable income in turn is determined by factors such as real wage growth, changes to taxes, petrol prices and interest rates. 114 Another important determinant is consumer confidence which measures consumers’ general perception about the outlook of the economy. Strong consumer confidence will have a positive impact on general demand for clothing, while weak consumer confidence is likely to result in an increase in demand for discounted items and a reduction in demand for high priced items. 115 Other factors influencing clothing demand are brand recognition, fashion trends, price and weather conditions.
25 96 | JUST GROUP | Target’s Statement independent expert’s report
Supply profile
116 Retail clothing participants obtain their products from a number of sources, including manufacturing or contract manufacturing (local or overseas), by purchasing through a local wholesaler or by importing directly from an overseas supplier. As is the case for Just Group and other larger retailers, the primary method is to import directly from overseas suppliers19. The costs of imported products are therefore affected by tariffs and exchange rates.
Tariffs
117 Australian import tariffs on clothing have fallen from 55% in 1990 to 17.5% in 2005, with expectations of further reductions to 10% by 2010 and 5% by 201520. The Australian government however has not yet committed to tariff elimination on clothing post 2015. 118 The free trade agreement between Australia and Thailand, which came into force on 1 January 2005, reduces import tariffs on apparel items imported from Thailand to 12.5%, with a further 5% reduction to 7.5% in 2010. 119 In addition there are a number of negotiations currently underway with the potential to impact future tariffs on clothing imports. These include: (a) the ASEAN-Australia-New Zealand Free Trade Agreement, where negotiations commenced in March 2005 with a stated aim for conclusion by mid 2008; and (b) the Australia-China Free Trade Agreement, where negotiations are up to the tenth round. 120 The conclusion of any free trade agreement with (any of the) developing countries in Asia (ie the major garment suppliers to the world) is expected to further reduce import tariffs on clothing and therefore further lower future purchasing costs for Australian retail clothing.
Exchange rates
121 The majority of clothing imported from Asia is priced in US dollars (USD). Further, the Chinese Yuan has historically been pegged to the USD, although in recent times it has been allowed to appreciate in value (by the setting of higher trading bands by the Chinese government). Consequently, Australian clothing imports are exposed to movements in the AUD / USD exchange rate, which is set out below:
Monthly AUD/USD Exchange Rate: January 2001 - April 2008 AUD/USD
1.00
0.90
0.80
0.70
0.60
0.50
0.40 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08
Source: RBA.
19 Just Group has a wide range of suppliers it can select from to best suit its requirements. 20 Developing countries also presently enjoy a 5% tariff benefit (reduction) on these rates.
26 Target’s Statement | JUST GROUP | 97 independent expert’s report
122 The AUD/USD exchange rate has increased from 55 cents in early 2001 to 93 cents at the end of April 2008, after a period of tracking sideways from 2004 to 2006. This has lowered the prices of clothing imports and thus boosted domestic companies’ gross profit margins. However, some retailers have indicated that at present the competitive environment has transferred some of this benefit to the consumer.
Cost of outsourcing
123 Australian retailers source the majority of their products from Asia, mainly China. While clothing prices (like many of the world’s manufactured goods exported from China), have exhibited price deflation over the last few years, high inflation in China, the toughening of Chinese labour laws and higher commodity prices (eg cotton) are all expected to add to the costs of sourcing products from China over the medium term.
Outlook
124 The Australian retail clothing industry’s growth is expected to moderate over the next few years as high interest rates and high petrol prices weaken consumer sentiment. In addition, the US economy is weak from the dual pressures of the sub-prime crisis and weak consumer expenditure, and there are mixed views about the direction of the AUD:USD exchange rate, which affects the cost of imported products. 125 A number of key Australian economic indicators are set out in the table below:
Australian Economic Indicators 2006 2007 2008f 2009f GDP growth rate (%) 2.8 3.9 2.5 2.4 Inflation rate (%) 3.5 2.3 3.4 2.8 Unemployment rate (%) 4.8 4.4 4.2 4.6
Source: ANZ’s Economic and Financial Market Forecasts, April 2008.
126 While higher interest rates and the slow down in the global economy are impacting GDP growth expectations, domestic economic conditions and fundamentals remain sound. Strong employment growth is expected to continue, with unemployment predicted to remain at the current record low of around 4%. Inflation however is expected to remain high (at least in the short to medium term), above or at the upper bound of the RBA’s target inflation rate range. 127 World GDP meanwhile is forecast to increase by 4.5% in 2008 and 4.7% in 2009, down from 5% in 200721. The US, Japan and Europe are all expected to grow at lower rates in the next two years22 and the current international financial market turbulence originating from the sub-prime market crisis in the US shows no sign of significant easing in the near term. 128 Australian interest rates, currently at a 12-year high (at 7.25% per annum), combined with the slow down of the US economy and the continuing global financial market turmoil, have dampened consumer confidence. The Westpac-Melbourne Institute Consumer Sentiment Index is set out in the following chart:
21 Source: Westpac market insights: Australia, G3 and the Asia Pacific, April 2008. 22 Source: Westpac market insights: Australia, G3 and the Asia Pacific, April 2008.
27 98 | JUST GROUP | Target’s Statement independent expert’s report
Westpac-Melbourne Institute Consumer Sentiment Index: January 2001 - May 2008 130.0
120.0
110.0
100.0
90.0
80.0 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Source: RBA.
129 The index has fallen 21.2% in the three months to 31 March 2008, the largest three-month drop since the introduction of the Index in September 1974. The Federal Government’s budgeted income tax reductions scheduled for July 2008 are expected to positively impact household disposable incomes, however the extent of the impact is difficult to estimate. 130 The Westpac-Melbourne Institute Consumer Sentiment Index also provides an index of consumer sentiment sorted by age, education, profession, sex etc. Given Just Group’s target demographics are primarily the young to middle age group, the consumer sentiment of these demographics are most relevant to Just Group. In the chart below we set out the consumer sentiment indices for the 18 to 24 years, 25 to 44 years and 45 years and over age brackets:
Westpac-Melbourne Institute Consumer Sentiment Index by age demographic: January 2001 - May 2008 140.0
130.0
120.0
110.0
100.0
90.0
80.0 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Source: WMICSI 18-24 Demographic 25-44 Demographic 45+ Demographic
28 Target’s Statement | JUST GROUP | 99 independent expert’s report
131 As noted, while the overall Consumer Sentiment Index is at historic lows, this primarily reflects the 25 to 44 years and 45 years and over demographics. Consumer confidence for the 18 to 24 year old demographic (Just Group’s largest customer demographic) has recently rebounded indicating that, on average, consumers in this group are positive and more likely to spend than their older counterparts. The consumer sentiment index also revealed that women are less confident than men at present. 132 Given the softening market conditions IBISWorld forecasts that revenue for the Australian retail clothing industry will grow at a real rate of 3.1% per annum for the five years to 2013 as set out in the graph below. Growth rates are expected to fall in the next two years before moderating at the end of the forecast period.
Australian Clothing Retailing Industry ($m) Forecast Revenue and Growth Rate (%)
13,500 7.0%
13,000 6.0%
12,500 5.0%
12,000 4.0%
11,500 3.0%
11,000 2.0%
10,500 1.0%
10,000 0.0% 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Source: IBISWorld. Revenue Real growth rate
New Zealand retail clothing industry 133 The New Zealand retail clothing industry has many similar characteristics to the Australian market, albeit on a smaller scale. There are approximately 3,000 retail clothing outlets23 in a market with a population of more than 4 million. Total clothing and soft goods sales for 2007 were approximately NZ$2.5 billion. 134 The industry has demonstrated steady growth over the last few years, however the short-term outlook for retail clothing in New Zealand appears somewhat bleak due to plummeting consumer and business confidence, rising food and petrol prices, high interest rates, and the currently unfolding international credit turmoil. 135 The medium-term outlook however is more positive as, similar to Australia, the fundamentals of the New Zealand economy remain solid. A number of key New Zealand economic indicators are set out in the table below:
New Zealand Economic Indicators 2006 2007 2008f 2009f GDP growth rate (%) 1.8 3.6 0.5 4.4 Inflation rate (%) 2.6 3.2 3.1 2.5 Unemployment rate (%) 3.8 3.4 4.0 3.6
Source: ANZ’s Economic and Financial Market Forecasts, April 2008.
23 Source: New Zealand Retailers Association.
29 100 | JUST GROUP | Target’s Statement independent expert’s report
136 GDP growth is expected to pick up in 2009 after a sharp drop in 2008. The unemployment rate is forecast to remain low, while inflationary pressures are expected to ease gradually24. The New Zealand retail sector is expected to grow at around 4.4% in 200825 whereas the retail clothing sector is expected to grow at 3.6% in 200826. 137 In addition, the New Zealand corporate tax rate reduced from 33% to 30% effective 1 April 2007. The level of tariffs on imported clothing goods will also fall from 15% to 12% effective 1 July 2008.
Summary 138 The Australian and New Zealand retail clothing industries are fragmented with a large number of operators and a very high level of competition. Industry operators compete based on price, product range, quality, brand, service and location. Demand for clothing is affected by key factors including the level and change in real household disposable income and consumer confidence, which in turn are determined by the general economic environment. In addition, demand is also affected by brand recognition, fashion trend, price and weather conditions. Retail clothing participants source the majority of their products from Asia and the costs of imported products are affected by factors such as tariffs and exchange rates. The falling import tariffs and the appreciation of the Australian dollar in recent years have had a positive impact on the industry. 139 The strong growth of the industry over the last few years was due to a combination of strong GDP growth, a low unemployment rate and falling apparel prices. The short-term outlook of the industry appears somewhat weaker than in the past due to high interest rates, high commodity prices, falling business and consumer confidence, and the uncertainty of the global financial market. However, the medium term outlook is expected to improve given the strong economic fundamentals of both the Australian and New Zealand economies, the major markets of Just Group.
24 Source: Westpac Bank. 25 Source: Westpac Bank. 26 Source: Infometrics Retail Forecasts 2008.
30 Target’s Statement | JUST GROUP | 101 independent expert’s report
V Valuation approach
140 ASIC Regulatory Guide 111 “Content of Expert Reports” outlines the appropriate methodologies that a valuer should consider when valuing assets or securities for the purposes of, amongst other things, share buy-backs, selective capital reductions, schemes of arrangement, takeovers and prospectuses. These include: (a) the discounted cash flow (DCF) methodology (b) the application of earnings multiples appropriate to the businesses or industries in which the company or its profit centres are engaged, to the estimated future maintainable earnings or cash flows of the company, added to the estimated realisable value of any surplus assets (c) the amount that would be available for distribution to shareholders in an orderly realisation of assets (d) the quoted price of listed securities, when there is a liquid and active market and allowing for the fact that the quoted market price may not reflect their value on a 100% controlling interest basis (e) any recent genuine offers received by the target for any business units or assets as a basis for valuation of those business units or assets. 141 The DCF method is the superior valuation methodology because: (a) value is the net present value (NPV) of future cash flows (ie future year’s cash flows, net of outgoings, expressed in terms of today’s dollars) (b) the DCF methodology is technically superior as it separately assesses key factors such as growth and risk rather than trying to capture them in a single factor (ie the capitalisation multiple). 142 Under the DCF methodology the value of the business is equal to the NPV of the estimated future cash flows including a terminal value. In order to arrive at the NPV the future cash flows are discounted using a discount rate which reflects the risks associated with the cash flow stream. 143 Methodologies using capitalisation multiples of earnings or cash flows are commonly applied when valuing businesses where a future “maintainable” earnings stream can be established with a degree of confidence. Generally, this applies in circumstances where the business is relatively mature, has a proven track record and expectations of future profitability and has relatively steady growth prospects. Such a methodology is generally not applicable where a business is in start up phase, has a finite life, or is likely to experience a significant change in growth prospects and risks in the future. 144 Capitalisation multiples can be applied to either estimates of operating cash flow, earnings before interest, tax, depreciation and goodwill amortisation (EBITDA), earnings before interest and tax (EBIT) or net profit after tax. The appropriate multiple to be applied to such earnings is usually derived from stock market trading in shares in comparable companies which provide some guidance as to value and from precedent transactions within the industry. The multiples derived from these sources need to be reviewed in the context of the differing profiles and growth prospects between the company being valued and those considered comparable. When valuing controlling interests in a business an adjustment is also required to incorporate a premium for control. The earnings from any non-trading or surplus assets are excluded from the estimate of the maintainable earnings and the value of such assets is separately added to the value of the business in order to derive the total value of the company. 145 An asset based methodology is applicable in circumstances where neither a capitalisation of earnings nor a DCF methodology is appropriate. This approach is generally used in either of the following circumstances: (a) where an entity or business is no longer expected to remain a going concern, eg where the owners can generate more from the orderly realisation of the assets and satisfaction of liabilities than by continuing to conduct the business as a going concern (b) where asset values are of prime importance to an entity and are marketable in their own right, eg passive stock market or property investments (such as holding companies) where there are no material disadvantages in acquiring an interest in the entity. 146 Normally, net asset value is determined on the basis of the orderly realisation value of the net assets adjusted for the time, cost and taxation consequences of realising those assets. In the case of passive investment companies an allowance for any deferred tax liabilities should be made.
31 102 | JUST GROUP | Target’s Statement independent expert’s report
Methodology selected 147 We have assessed the fair market value of Just Group by determining the market value of the businesses, together with the realisable value of any surplus assets and deducting net borrowings. 148 The valuations of the businesses have been made on the basis of market value as a going concern. We have adopted the capitalisation of EBITA method as our principal valuation methodology. Under this methodology the values of the businesses are represented by their core underlying EBITA capitalised at a rate (or EBITA multiple) reflecting the risk inherent in those earnings. 149 We have then cross-checked the valuation using the capitalisation of profit after tax method27. 150 Other assets have been valued based on the estimated net realisable value of each of the assets.
27 With respect to Peter Alexander and Smiggle (which are exhibiting strong growth) we have also cross-checked our valuation of these businesses using a DCF approach.
32 Target’s Statement | JUST GROUP | 103 independent expert’s report
VI Valuation of 100% of Just Group
Methodology 151 As set out in Section V we have assessed the market value of Just Group using the capitalisation of EBITA and profit after tax methods (or price earnings (PE) method). This requires consideration of the following factors: (a) the selection of an appropriate level of underlying EBITA and profit after tax, having regard to the historical and forecast operating results after adjusting for non-recurring items of income and expenditure and other known factors likely to affect the future operating performance of the business (b) the determination of an appropriate EBITA and PE capitalisation multiple having regard to (inter alia) the extent and nature of competition in the industry, quality of earnings, future growth opportunities, asset backing and relative investment risk28. 152 Under the capitalisation of EBITA method the level of net interest bearing debt is deducted from the enterprise value to derive the value of the equity. However, as the capitalisation of profit after tax method derives an equity value no further adjustment for debt is required.
Historical and forecast EBITA 153 We summarise below the historical and forecast results (to the EBITA line) for Just Group as set out in the Target’s Statement:
Just Group – summary of financial performance FY08 FY08 Directors’ FY07 Directors’ Pro- Annualised Adjusted forma Pro-forma Actual Forecast Forecast $m $m $m Revenue from sale of goods 759.6 824.0 837.9
EBITDA(1) 114.7 128.6 132.6 Depreciation (19.8) (22.7) (23.0) EBITA(1) 94.9 105.9 109.6 EBITA margin 12.5% 12.9% 13.1% Growth Sales 8.8% 8.5% n/a Note: 1 The EBITDA and EBITA figures above exclude interest income and are therefore different from that shown in the Target’s Statement (which includes interest income in EBITDA and EBITA). A reconciliation to the Target’s Statement EBITA numbers is set out below: $m $m $m EBITA per above 94.9 105.9 109.6 Add interest income 1.6 1.2 1.2 Rounding difference - - (0.1) EBITA per Target’s Statement 96.5 107.1 110.7
n/a – not available.
28 With respect to Peter Alexander and Smiggle (which are exhibiting strong growth) we have also cross-checked our valuation of these businesses using a DCF approach.
33 104 | JUST GROUP | Target’s Statement independent expert’s report
154 With respect to the above table it should be noted that: (a) the FY07 figures exclude the net gain of $2.5 million on the disposal of the strategic investment in Colorado Group (inclusive of dividend income received) (b) the FY08 forecast excludes: (i) costs incurred in connection with Premier’s takeover offer (ii) start-up costs incurred in connection with the recent opening of Peter Alexander stores in the USA (c) EBITDA and EBITA exclude sales to the Jay Jays South African Joint Venture and the company’s share of the loss from the Joint Venture (d) unrealised foreign exchange losses on ineffective cash flow hedges at year end are reflected in the period in which the underlying inventory purchases were made as the Directors of Just Group believe this better reflects the underlying purpose of the hedging instruments and the performance of Just Group (e) the Directors’ Annualised Pro-forma FY08 forecast: (i) assumes the current run rate for each store opened in FY08 (based on actual months traded) continues for the 12 month period, adjusted for variable costs and seasonal influences (such as whether the store was opened prior to or after Christmas and other peak trading periods) (ii) excludes the trading results for stores closed or scheduled to be closed during FY08.
FY08 results
155 Management’s forecasts for FY08 are based on: (a) unaudited actual sales results for the 42 weeks ended 17 May 2008 plus forecast sales for the remaining 10 weeks of FY08 (b) unaudited actual operating costs and other income for the 38 weeks ended 19 April 2008 plus forecast operating costs and other income for the remaining 14 weeks of FY08. 156 These figures have been independently reviewed by PricewaterhouseCoopers. 157 While we have reviewed the sales and profitability of the business by brand this information has not been disclosed in our report as it is commercially sensitive. However, we comment below on the key earnings trends with respect to each brand. 158 Management have forecast an increase in total EBITA from $94.9 million (FY07) to $105.9 million, representing growth of approximately 11.6%. The increase in forecast EBITA reflects: (a) a 10% increase in forecast EBITA in the Just Jeans division, following a continued focus on store profitability (which has seen a number of poor performing stores closed or re-branded) (b) a relatively constant EBITA contribution from Jay Jays (following strong growth in FY07) (c) significant reductions in the EBITA forecast to be achieved by the Portmans and Jacqui E divisions, reflecting the relatively poor trading conditions for women’s apparel in FY08. However, we note that more recent performance has improved (d) a significant uplift in profitability, number of stores and thus overall contribution from both the Peter Alexander and Dotti divisions29 (e) the acquisition of the Smiggle business in late August 2007, which has since been significantly expanded
29 Management’s FY08 forecast figures shown in paragraph 153 do not include any profit or loss from the Peter Alexander pilot stores opened in California, USA.
34 Target’s Statement | JUST GROUP | 105 independent expert’s report
(f) a relatively flat EBITA contribution from Just Group’s New Zealand businesses (reflecting, in part, the state of the NZ economy) (g) an increase in the total number of stores from 824 as at 31 July 2007 to 910 (forecast) as at 26 July 2008.
FY09 outlook
159 The Directors of Just Group have not provided forecasts for FY09. However, we have discussed the outlook of each of Just Group’s divisions with management and have reviewed Management’s internal projections for FY09 and subsequent years. Key assumptions underlying management’s projections for FY09 include: (a) a relatively flat contribution from Just Jeans at a divisional profit level (b) projected growth in Jay Jays EBITA of 4.2%, principally due to growth in store numbers (c) significant improvements in the profitability of Portmans and Jacqui E (albeit to levels still below the level of profitability achieved in FY06 and FY07) (d) strong projected growth in EBITA from Dotti and Smiggle, principally due to the rollout of additional stores which continue to be well received by customers (e) a 17.7% increase in projected EBITA from Peter Alexander, reflecting the continued rollout of store numbers and the full year impact of stores opened in FY0830 (f) a slight reduction in the EBITA contribution from Just Group’s NZ businesses, reflecting continued difficult market conditions. 160 Having regard to the above, including the pro-forma forecast for FY08 and management’s internal projections for FY09, we have adopted projected EBITA for FY09 of $120 million (prior to any profit or loss from Just Group’s international operations31 and non-recurring items). In our opinion, this is an appropriate level of projected EBITA to adopt for valuation purposes.
Future growth
161 Beyond FY09 further growth is expected to arise from: (a) the continued rollout of the Smiggle and Dotti brands across Australia and New Zealand (b) on-going growth in the Jay Jays and Peter Alexander brands in Australia and New Zealand (c) improved profitability of the Portmans and Jacqui E brands, towards the levels achieved in FY06 (d) the expansion of the Smiggle business into international markets (e) the expansion of the Peter Alexander business into selected countries, subsequent to the pilot stores in the US that are currently under trial (f) the expansion of the Jay Jays South Africa joint venture (g) the possible introduction of additional portfolio brands into the South African market, once the Jay Jays South Africa joint venture becomes profitable.
Valuation of businesses 162 In our opinion, the value of Just Group’s businesses ranges from $1.1 billion to $1.2 billion. This value range was determined using the capitalisation of EBITA methodology and has been cross-checked using the capitalisation of profit after tax methodology.
30 Excluding any contribution from Peter Alexander’s USA stores in FY09. 31 Being Peter Alexander in the USA and the Jay Jays South African Joint Venture.
35 106 | JUST GROUP | Target’s Statement independent expert’s report
163 In assessing the value of Just Group’s businesses we have had regard to, inter-alia: (a) the historical and forecast profitability of each brand / division and region (ie Australia and NZ) (b) the profitability of each brand / division on a per store basis over the historical periods FY05 to FY07 and management’s forecasts for FY08 and FY09 (c) the inherent cyclicality of the industry and the necessity, in our opinion, to assess value based on the average profitability per store over a number of years (d) the future growth outlook for each brand / division, including the likelihood of and ability to expand overseas (e) the market share of each brand / division and level of competition (f) the impact of the high Australian dollar and planned tariff reductions on the value of Just Group and retailers generally (g) the prices paid and the subsequent performance of businesses recently acquired by Just Group (h) the multiples implied by the value of listed companies operating in the retail clothing sector in Australasia and internationally (i) the multiples implied by recent acquisitions of companies operating in the retail clothing industry in Australasia and internationally (j) the trading range in Just Group shares prior to the announcement of the Offer (k) empirical evidence on average premiums paid in successful takeovers over and above the pre-bid market price. 164 In assessing the value of Just Group we also note that:
Just Jeans: is a mature business and is by far the most substantial brand in its core market, with more than three times the store numbers of competing brands enjoys strong brand recognition, reinforced by a Just Shop customer loyalty program with more than 500,000 members was restructured in FY06 to enhance profitability, with a number of stores reformatted into Jay Jays stores or other brands more suitable for the sites derives margins which are well above standard industry levels
Jay Jays: is the market leader in the youth market by a significant margin is beginning to mature after double digit growth in earnings in FY07 has a profitable model based on a self-service sales structure and high sales densities has the ability to leverage off its South African joint venture experience to achieve volume related sourcing benefits and to potentially expand the brand into other international markets
Jacqui E: is a mature business with significant brand recognition in the 30 to 35 year old women’s fashion segment the women’s apparel market is the most competitive of all specialty retail segments and recent trading conditions in this segment have been difficult earnings decreased significantly during FY07 and FY08, reflecting weak consumer spending in the women’s wear category and increased competition. However, we note that more recent performance has improved
36 Target’s Statement | JUST GROUP | 107 independent expert’s report
Portmans: is an established and well known brand in the women’s 20 to 25 year old segment the division had a strong winter performance during FY07 and performed well in FY06 profitability in FY08 is expected to fall significantly (from the strong performance in FY07) due to depressed conditions for women’s wear and increased competition however, we note that more recent performance has improved and management are of the view that the strong performance in FY06 and FY07 can be repeated
Dotti: the Dotti brand has been developed successfully under Just Group ownership, growing from 10 stores at the time of its acquisition to 70 stores currently the brand was successfully restructured during FY07, with sales and profitability both up significantly the business has carved a successful niche in the fashion conscious 14 to 20 year old women’s segment management believe the business has the potential to grow to up to 120 stores across Australia and New Zealand
Peter Alexander: started as a catalogue business and has grown substantially under the multi-brand Just Group structure has a unique offering and through a complementary multi channel strategy, has improved profitability significantly in FY08 has the potential to expand globally, with expansion into the US currently taking place (with potential to enter the Canadian, UK and Ireland markets over the medium term) the business boasts high sales per square metre (one of Australia’s highest for a retail clothing store) and as a result achieves very high retail margins
Smiggle: Smiggle is a unique business with a high growth potential both in Australia and internationally the business exhibits an element of cyclicality, with the key season weighted towards the Christmas and back to school periods (ie December to January). However, this business is not weather dependant (as is the case with retail apparel) stores are generally small and accordingly generate high sales per square meter, which translates to higher margins.
Implied EBITA multiples 165 The EBITA multiples implied by our valuation of Just Group are shown below:
Implied EBITA Multiples Low High FY08 EBITA multiple(1) 10.4 11.3 FY09 EBITA multiple(2) 9.2 10.0
Note: 1 Based on EBITA for FY08 of $105.9 million. 2 Based on EBITA of $120 million following discussions with management and our review of management’s internal projections for FY09.
37 108 | JUST GROUP | Target’s Statement independent expert’s report
Listed company multiples
166 The EBITA multiples of listed Australian and international companies operating in the retail apparel sector (refer Appendix C) are summarised below. The multiples set out in Appendix C are based on the listed market price, which represents their value on a minority or portfolio interest basis. In contrast, takeover offers for 100% of a company are generally priced at a premium of between 30% to 35% above the pre bid stock market price (assuming the pre bid price does not reflect speculation of the bid). As we are valuing 100% of the shares in Just Group we have therefore adjusted the listed company multiples to incorporate a 30% premium for control at the equity level (which we refer to as the controlling interest multiples):
EBITA Multiples Portfolio interest Controlling interest EBITA multiples EBITA multiples FY08 FY09 FY08 FY09 Australian apparel retailers Billabong International 10.5 9.5 13.3 12.0 Pacific Brands 7.9 7.4 9.1 8.6 Pumpkin Patch 8.8 8.1 11.0 10.1 Country Road 18.1 n/a 24.0 n/a Hallenstein Glasson Holdings 6.8 6.6 9.1 8.9 Specialty Fashion Group 5.3 5.1 6.9 6.6 Oroton Group 6.2 5.5 8.0 7.1 Noni B 6.1 5.6 8.1 7.4
International apparel retailers(1) Range 4.8 – 12.9 4.2 – 9.0 7.0 – 17.8 6.1 – 11.8 Average 8.5 7.0 11.8 9.6 Median 8.5 6.8 12.0 9.8
Note: 1 Excluding Lululemon Athletica which has been considered an outlier given its very high EBITA multiples. 2 Multiples as at 14 May 2008.
167 Of the Australasian apparel retailers we note that: (a) Billabong has enjoyed a successful global rollout of its brand and has traditionally traded at a premium to other Australian clothing companies (b) Pacific Brands is a wholesaler of a range of clothing and related apparel. The company has struggled to achieve significant growth despite a number of bolt on acquisitions, and has therefore generally traded at a discount to the multiples implied for the larger listed retailers (c) Pumpkin Patch is a specialist children’s clothing company that originated in New Zealand. While Pumpkin Patch has performed well in Australia and New Zealand, a difficult retail environment in the UK and USA, higher expansion costs in the USA and the high level of the New Zealand dollar have lowered short term earnings growth (d) Country Road shares are traded infrequently and are therefore too illiquid to provide meaningful multiples that can be relied upon (e) Hallenstein Glasson Holdings is a men’s and women’s clothing company which operates mainly in New Zealand. Due to the depressed retail conditions in New Zealand its EBITA is forecast to decline some 10% in FY08, with EBITA not expected to recover to levels above FY07 until post FY10 (f) Specialty Fashion Group, Oroton Group and Noni B are women’s apparel brands in the Australian market with varying levels of market penetration. They are also significantly smaller than Just Group in terms of size and profitability and their operations are not as diversified as Just Group.
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168 Having regard to the above and in particular Just Group’s size, the quality of its brands, level of brand diversification and opportunities for future growth, in our opinion the EBITA multiples implied by our valuation are appropriate on a 100% controlling interest basis.
Transaction evidence
169 In our opinion, the transaction which provides the most guidance when valuing Just Group is the acquisition of Colorado Group. As set out in Appendix D: (a) 83.6% of Colorado Group was acquired in 2006, with the implied enterprise value representing 8.5 times the independent expert’s assessment of maintainable EBITA. However, the bidder failed to acquire 100% of the company indicating that some shareholders believed the price offered was too low (b) in 2007 the remaining minority interests in Colorado Group were acquired, with the implied enterprise value representing 12.5 times forecast EBITA. However, in our opinion, little reliance should be placed on this multiple, as the price paid appears to have represented an above market premium in order to secure 100% control. 170 Whilst, subsequent to the initial Colorado Group transaction there have been both favourable and unfavourable movements in equity values generally, in our opinion, the EBITA multiples implied by our valuation are reasonable when compared to the implied multiples paid for Colorado Group (which, in our view, should reflect lower multiples than Just Group due to a number of factors, including Just Group’s better brand portfolio, level of diversification and growth prospects).
Net debt 171 As at the end of May 2008 Just Group’s net debt was approximately $123 million. We have also had regard to the average net debt level of Just Group throughout the year (due to the inherent seasonality of retail businesses generally). While Just Group’s average net debt level over FY08 is lower, we have adopted net debt of $123 million for valuation purposes as this reflects the payment of Just Group’s interim dividend of 10.5 cents per share ($21.1 million) on 22 May 2008.
Other assets and liabilities 172 As at 31 January 2008 Just Group’s investment in the Jay Jays South African joint venture had a carrying value of approximately $2.9 million. This amount includes loans to the joint venture. Whilst the joint venture is not expected to be cash flow positive until after FY10, Just Group is also entitled to receive royalty income from the joint venture. Having regard to the future prospects for the business we have adopted a value which is consistent with its current carrying value. 173 In addition our valuation reflects: (a) the present value of the estimated additional consideration payable to the Smiggle vendors (which depends on the average earnings achieved by Smiggle in FY09 and FY10) (b) the cost of acquiring Just Group’s shares on market to satisfy the company’s performance right obligations (consistent with the way Just Group has historically fulfilled these obligations). In this regard we have assumed that the Directors of Just Group would allow holders of the performance rights to exercise their entitlements in the event of a successful takeover for 100% of the company. 174 The net effect of the above results in other net liabilities of between $14.7 million and $15.4 million.
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Valuation 175 Based on the above we have concluded that the value of Just Group shares on a 100% controlling interest basis (ie including a takeover control premium) is $4.78 to $5.28 per share, as follows:
Value of Just Group on a 100% controlling interest basis Low High $m $m Enterprise value of core businesses 1,100.0 1,200.0 Less net debt (123.0) (123.0) Less other net liabilities (15.4) (14.7) Value of equity 961.6 1,062.3 Shares on issue (millions) 201.331 201.331 Value per share $4.78 $5.28
Cross-check using PE approach 176 As stated above we have also considered the PE ratios implied by our valuation of Just Group. The PE ratios based on management’s FY08 and FY09 forecast earnings are shown below:
Implied EBITA Multiples EPS PE ratio Forecast(1) Low High FY08 PE ratio 33.4(2) 14.3 15.8 FY09 PE ratio 38.7(3) 12.4 13.6
Note: 1 Before taking into account the equity accounted profit contribution from the Jay Jays South African Joint Venture, costs incurred in connection with the Offer and assuming no profit or loss from the rollout of Peter Alexander stores in the US. 2 Refer Section 3 of the Target’s Statement. 3 Based on FY09 earnings after tax adopted for valuation purposes, being EBITA of $120 million less net interest expenses of $8.6 million and tax of $33.4 million. Consistent with management’s projections EBITA and earnings after tax are before profits or losses on international operations (being the Jay Jays South African Joint Venture and Peter Alexander’s USA stores).
177 In comparison, the PE ratios for the listed companies operating in the apparel retail sector are set out below. These PE ratios are based on: (a) each company’s listed market price (referred to as the portfolio PE ratio, excluding a premium for control); and (b) each company’s listed market price plus a 30% premium for control (consistent with empirical evidence on average premiums paid for control in successful takeovers)32:
32 These PE ratios are referred to in the table below as controlling interest PE ratios.
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PE Multiples Portfolio interest Controlling interest PE multiples PE multiples FY08 FY09 FY08 FY09 Australian apparel retailers Billabong International Ltd 14.2 12.6 18.4 16.4 Pacific Brands Ltd 8.2 7.7 10.6 10.0 Pumpkin Patch Ltd 12.8 11.6 16.6 15.0 Country Road Ltd 28.4 n/a 36.9 n/a Hallenstein Glasson Holdings 10.6 10.1 13.8 13.1 Specialty Fashion Group Ltd 8.2 7.7 10.6 10.0 Oroton Group Ltd 9.0 7.9 11.7 10.3 Noni B Ltd 9.3 8.4 12.2 11.0 International apparel retailers Range 10.8 – 23.8 9.0 – 15.3 14.1 – 30.9 11.8 – 20.0 Average 15.8 12.6 20.6 16.4 Median 15.6 13.5 20.3 17.5
Note: 1 Excluding Lululemon Athletica which has been considered an outlier given its very high PE multiples.
178 In our opinion, the PE ratios implied by our valuation of Just Group are appropriate when compared against the controlling interest PE ratios of the other listed apparel retailers, particularly given Just Group’s size, the quality of its brands, level of brand diversification, established business infrastructure and opportunities for future growth.
Comparison with recent market prices 179 Our valuation range represents a premium of 25.8% and 38.9% above the VWAP of Just Group shares in the three months prior to the announcement of the Offer. This range is broadly consistent with the empirical evidence on premiums paid in successful takeovers in Australia. 180 Further, we note that Just Group shares have traded (on a portfolio basis) significantly above our valuation range within the last 12 months, having traded at prices from $3.25 to $5.97 per share. However, it should be noted that sharemarket values have generally declined appreciably in FY08.
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VII Valuation of consideration offered
The Offer 181 As set out in Section I, Just Group shareholders who accept the Offer in its current form will receive $2.095 cash33 plus 0.25 Premier shares for every Just Group share (the Offer).
Methodology 182 Under ASIC Regulatory Guide 111 “Content of Expert’s Reports” an offer is fair if the value of the offer consideration is equal to or greater than the value of the target company’s shares on a 100% controlling interest basis. 183 As Premier’s Offer includes a scrip component it is necessary to determine the likely market value of Premier shares assuming the Offer is successful. 184 In our opinion, the value of the Offer consideration should be equal to the amount that Just Group shareholders could reasonably be expected to realise if they accepted the Offer and sold the Premier shares received as consideration either immediately or in the short-term. This is because a decision to hold Premier shares beyond the short-term is a separate investment decision which should be made by shareholders having regard to their risk profile, liquidity preference, tax position and expectations as to value and future market conditions. It is also not possible to accurately predict future share price movements. 185 In order to assess the likely market price of Premier shares if the Offer is successful we have had regard to: (a) the market price of Premier shares both prior to and after the announcement of the Offer (b) the level of on-market trading in Premier shares (c) the net tangible asset (NTA) backing of Premier shares prior to the announcement of the Offer, and the extent to which Premier and other investment companies trade at a discount to their reported NTA (d) the size and nature of Premier’s existing investment portfolio and the extent to which this will change if the Offer is successful (e) the number of shares to be issued by Premier under the Offer compared to the existing number of Premier shares on issue (f) the likely level of on-market trading in Premier shares subsequent to completion of the Offer (assuming it is successful), having regard to factors including: (i) any potential oversupply of Premier shares from those Just Group shareholders not wishing to retain the Premier shares received as consideration (ii) the dilution effect implicit in any control premium being paid by Premier
(iii) the potential for a re-rating of Premier shares subsequent to the acquisition of Just Group (iv) the potential increase in liquidity in Premier shares arising from the effective transfer of the Just Group shareholder base pursuant to the Offer (g) the likely market price of Premier shares if Premier achieves acceptances for at least 50.1% of Just Group shares, but does not acquire 100% of Just Group. In such circumstances we note that: (i) Premier will not have full control of Just Group and will need to consider the interests of minority shareholders (ii) whilst Premier will control Just Group’s future dividend policy it will not have access to 100% of Just Group’s cash flow (h) general stock market conditions and other factors.
33 Just Group shareholders registered as at 9 May 2008 will also receive the interim dividend of 10.5 cents per share which will be paid on 22 May 2008.
42 Target’s Statement | JUST GROUP | 113 independent expert’s report
Recent Premier share prices 186 We set out below the recent Premier share prices both prior and subsequent to the announcement of the Offer on 31 March 2008:
High Low VWAP(1) Volume Period $ $ $ 000 Prior to Offer announcement: 28 February 2008 to 28 March 2008 8.10 7.65 7.76 293 29 December 2007 to 28 March 2008 8.66 7.65 8.17 752 Subsequent to Offer announcement: 1 April 2008 to 14 May 2008 8.10 7.48 7.77 1,526
Note: 1 Volume weighted average price.
187 Premier shares traded “ex” an 11 cent dividend on 25 March 2008. Consequently, the prices prior to the announcement largely reflect the prices on a “cum” dividend basis. As Just Group shareholders who accept the Offer will not receive this dividend it is appropriate to have regard to the “ex” dividend share prices. On this basis the ex-dividend VWAP of Premier shares prior to the announcement of the Offer is as follows:
Ex-dividend VWAP Period $ 28 February 2008 to 28 March 2008 7.65 29 December 2007 to 28 March 2008 8.06
188 While the level of on-market trading indicates Premier is a relatively illiquid stock34, we note that on 7 December 2007 Guinness Peat Group Plc (GPG) sold 11.25 million shares in Premier (representing approximately 12.5% of Premier) at $8.00 per share.
Net tangible asset backing 189 As at the date of Premier’s Bidder’s Statement35, Premier’s assets included: (a) a 0.9% interest in Just Group (b) net cash of approximately $780 million (c) a 21.8% interest in Housewares International Limited (HWI). 190 Premier’s only material investment (other than cash) comprised a 21.8% interest in HWI36. The stock market value of this investment at the date of Premier’s Bidder’s Statement was approximately $45 million. 191 Premier’s NTA backing per share as at 31 December 2007 and 28 March 2008 was as follows:
34 Less than 1% of Premier shares traded in the three months prior to the Offer announcement. 35 Premier’s Bidder’s Statement was dated 23 April 2008. 36 Premier is the largest shareholder in HWI.
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Net tangible asset backing per share $ As at 31 December 2007(1) 9.12 As at 28 March 2008(2) 9.05 Note: 1 Based on Premier’s accounts for the six months ended 31 December 2007. 2 Based on Premier’s unaudited NTA as at 28 March 2008 (adjusted for the dividend paid by Premier of 11 cents per share on 11 April 2008). Source: Premier’s Offer presentation dated 31 March 2008.
192 The reduction in NTA per share as at 28 March 2008 (compared to the NTA per share as at 31 December 2008) principally reflects the net effect of the payment of the interim dividend, the fall in the stock market price of HWI shares (which coincided with large falls in equity markets generally) and interest income received on Premier’s significant cash holdings. 193 The VWAP of Premier shares in the one month period up to 28 March 200837 of $7.65 per share (on an ex dividend basis) therefore represented a 15.5% discount to the NTA per share as at 28 March 2008. 194 Further, the sale of GPG’s 12.5% stake in Premier (on 7 December 2007) represented a discount of approximately 12.3% to Premier’s NTA per share as at 31 December 2007. 195 In addition we note that this level of discount is consistent with the observed level of discount at which investment companies listed on the ASX generally trade (after allowing for tax on realised and unrealised gains and losses). However, these companies generally have a relatively large number of investments in their portfolio38.
Likely market price of Premier shares if the Offer is successful 196 As noted above Premier is a relatively illiquid stock. Accordingly, in considering the likely market price of Premier shares assuming the Offer is successful, we have had regard to the NTA backing per share of Premier. 197 In our opinion, at least in the short term, Premier shares are likely to continue to trade at a discount to their NTA backing per share on 28 March 2008 of $9.05 per share if the Offer is successful. This is principally because: (a) in our opinion, the listed market price of Premier shares will reflect the portfolio value (rather than a controlling interest value) of Premier’s investment in the Just Group, as investors in Premier will have an indirect minority interest in Just Group (b) Premier shares have consistently traded at a discount to their NTA backing per share (c) in our opinion, a takeover offer for Premier is not considered likely in the short-term (as associates of Mr Solomon Lew are expected to have a relevant interest in 50.9% or 41.8% of Premier’s issued capital if Premier acquires 50% or 100% of Just Group respectively39) (d) in the short-term there may be an over-supply of Premier shares from those Just Group shareholders not wishing to retain the Premier shares received as consideration.
Value of Just Group holding on a portfolio basis
198 As the listed market price of Premier shares post completion of the Offer will reflect a portfolio (or listed market) value of Just Group shares it is appropriate to exclude the premium for control implicit in our valuation of Just Group when determining the likely listed market price of Premier shares. This is consistent with the fact that Just Group shares can be expected to trade at a discount to our controlling interest valuation in the absence of the Offer or similar proposal.
37 Being the last trading day prior to the announcement of the Offer. 38 Premier has historically had two main investments, being its shares in Coles Group (subsequently realised) and HWI. 39 Source: page 35 of Premier’s Replacement Bidder’s Statement.
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199 Applying a 20% to 25% discount to our controlling interest valuation (consistent with empirical evidence on minority interest discounts) results in the following implied portfolio value for Premier’s investment in Just Group:
Low High $ $ Controlling interest value of Just Group ($ per share)(1) 4.78 5.28 Less portfolio interest discount ($ per share) 1.19 1.06 Portfolio value of Just Group ($ per share) 3.59 4.22
Note: 1 Refer Section VI.
200 We note that the above range of portfolio values is broadly consistent with the range at which Just Group shares have traded over the two months prior to the announcement of the Offer. On this basis the portfolio value of Premier’s investment in Just Group (assuming Premier acquires either 50.1% or 100% of Just Group) is as follows40:
Percentage of Just Group acquired Assuming 50.1% Assuming 100.0% Low High Low High Just Group shares on issue (million) 201.3 201.3 201.3 201.3 Premier shareholding if Offer is successful 50.1% 50.1% 100.0% 100.0% Number of shares held by Premier ($m) 100.9 100.9 201.3 201.3 Portfolio value of Just Group (per share) $3.59 $4.22 $3.59 $4.22 Portfolio value of shareholding in Just Group ($m) 362.2 425.8 722.7 849.5
Other net assets
201 As stated above, as at 28 March 2008 Premier’s unaudited net tangible assets were $9.05 per share, or approximately $816.2 million (which largely comprised cash). 202 If the Offer is successful and Premier acquires either 50.1% or 100% of Just Group, Premier’s net assets (other than its investment in Just Group) will reduce to approximately $597.3 million or $382.7 million respectively, calculated as follows:
40 We note that if Premier acquires 100% of Just Group there are likely to be cost savings as a result of Just Group no longer being a publicly listed company. However, in our opinion, such savings are likely to be immaterial relative to the combined size of Just Group and Premier if the Offer is successful.
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Percentage of Just Group acquired Assuming Assuming 50.1% 100% $m $m NTA as at 28 March 2008 816.2 816.2 Less cost of Just Group shares purchased on 31 March 2008(1) (6.5) (6.5) Less cash consideration under the Offer(2) (207.4) (418.0) Less transaction costs incurred(3) (5.0) (9.0) Other net assets 597.3 382.7
Note: 1 Being 1.85 million shares at $3.50 (source: page 37 of Bidder’s Statement). 2 Calculated as follows: Just Group shares on issue (millions) 201.3 201.3 Interest acquired 50.1% 100.0% Just Group shareholding (millions) 100.9 201.3 Less existing Just Group shareholding (millions) (1.85) (1.85) Just Group shares acquired under the Offer (millions) 99.0 199.5 Cash consideration ($ per share) $2.095 $2.095 Cash consideration to be paid under the Offer ($m) 207.4 418.0 3 Source: page 44 of the Replacement Bidder’s Statement.
203 In our opinion, it is reasonable to assume that (at least in the short-term) the proportion of Premier’s listed market price attributable to these other net assets will reflect a 10% to 15% discount to their underlying value (consistent with the discount to NTA at which Premier shares have recently traded). 204 Accordingly, we have adopted the following values for Premier’s other net assets when assessing the likely listed market price of Premier shares if the Offer is successful:
Percentage of Just Group acquired Assuming 50.1% Assuming 100.0% Low High Low High $m $m $m $m Underlying value of Premier’s other net assets 597.3 597.3 382.7 382.7 Discount (10% to 15%) (89.6) (59.7) (57.4) (38.3) Portfolio value of Premier’s other net assets 507.7 537.6 325.3 344.4
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Summary
205 Based on the above, in our opinion, Premier shares are likely to trade in the following ranges if Premier acquires either 50.1% or 100% of Just Group under the Offer:
Percentage of Just Group acquired Assuming 50.1% Assuming 100.0% Low High Low High $m $m $m $m Portfolio value of Just Group holding(1) 362.2 425.8 722.7 849.5 Portfolio value of other net assets(2) 507.7 537.6 325.3 344.4 Total portfolio value of Premier shares 869.9 963.4 1,048.0 1,193.9 Premier shares on issue(3) 115.0 115.0 140.1 140.1 Estimated listed market price of Premier shares $7.56 $8.38 $7.48 $8.52 Note: 1 Refer paragraph 200. 2 Refer paragraph 204. 3 Calculated as follows: Million Million shares shares Just Group shares on issue 201.3 201.3 Interest acquired 50.1% 100.0% Number of Just Group shares held by Premier 100.9 201.3 Less existing Just Group shareholding (1.85) (1.85) Just Group shares acquired under the Offer 99.0 199.5 Offer ratio 0.25 0.25 Number of Premier shares issued under the Offer 24.8 49.9 Premier shares currently on issue 90.2 90.2 Premier shares on issue post completion of Offer 115.0 140.1
206 Notwithstanding the illiquid nature of Premier shares, we note that the above range is broadly consistent with the trading range for Premier shares subsequent to the announcement of the Offer.
Value of the Offer consideration 207 Based on the above we have assessed the value of the Offer consideration at $3.97 to $4.23 per Just Group share, calculated as follows:
Percentage of Just Group acquired Assuming 50.1% Assuming 100.0% Low High Low High $ $ $ $ Estimated market price of Premier shares 7.56 8.38 7.48 8.52 Number of Premier shares for every Just Group share 0.25 0.25 0.25 0.25 Value of share consideration (per share) 1.890 2.095 1.870 2.130 Cash consideration (per share) 2.095 2.095 2.095 2.095 Value of Offer consideration (per share) 3.99 4.19 3.97 4.23
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208 Just Group shareholders should also note that, as the combined asset values of Just Group and Premier are effectively fixed41, any adjustment (increase) to the offer consideration by Premier (by way of increasing either the cash component or the share ratio of the Offer) will have the effect of a relative value transfer from Premier to Just Group shareholders. It follows in such circumstances that our assessed value of Premier shares would be lower.
41 Being the value of 100% of Just Group, the investment of Premier in HWI and the cash held by Premier.
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VIII Evaluation of the Offer
Summary of opinion 209 LEA has concluded that the Offer is neither fair nor reasonable. 210 We summarise below the reasons for this opinion. 211 Pursuant to ASIC Regulatory Guide 111 an offer is “fair” if:
“The value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer.”
212 LEA has valued 100% of the shares in Just Group on a controlling interest basis at between $4.78 and $5.28 per share, as summarised in Section V. 213 In comparison, if Just Group shareholders accept the Premier Offer in its current form and all conditions are satisfied then Just Group shareholders will receive the consideration offered by Premier, which we have assessed at $3.97 to $4.23 per Just Group share. 214 Our comparative assessments are shown below:
Low High Mid-point $ $ $ Value of 100% of Just Group (per share) 4.78 5.28 5.03 Value of consideration (per share) 3.97 4.23 4.10 Extent to which value of Just Group exceeds the Offer consideration 0.81 1.05 0.93
215 As our assessed value of the consideration offered by Premier is significantly less than our assessed value for 100% of the shares in Just Group, in our opinion, the Offer is not fair when assessed based on the guidelines set out in Regulatory Guide 111. 216 Pursuant to Regulatory Guide 111, an offer may be reasonable if, despite not being fair but after considering other significant factors, shareholders should accept the offer in the absence of a higher bid before the close of the offer. 217 In assessing whether the Premier Offer is reasonable LEA has also considered: (a) the extent to which a control premium is being paid to Just Group shareholders (measured based on the listed market price of Just Group shares prior to the announcement of the Offer) (b) the value of Just Group to an alternative offeror and the likelihood of an alternative offer emerging, either prior to the close of the Offer or sometime in the future (c) the listed market price of Just Group shares: (i) prior to and subsequent to the announcement of the Premier takeover offer (ii) if the takeover offer is not successful (iii) if the minimum acceptance condition of more than 50% is met and Premier fails to acquire 100% control (d) ownership and control issues, including the extent to which Just Group shareholders will retain an indirect interest in Just Group (e) other risks, advantages and disadvantages associated with the Offer which are relevant to Just Group shareholders. 218 These issues are discussed in detail below.
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Extent to which a control premium is being paid
219 Empirical evidence indicates that average premiums paid in successful takeovers in Australia generally range between 30% and 35% above the listed market price of the target company’s shares three months prior to the announcement of the bid (assuming no speculation of the takeover is reflected in the pre-bid price). This premium reflects the fact that: (a) the owner of 100% of the shares in a company obtains access to all the free cash flows of the company being acquired, which it would otherwise be unable to do as a minority shareholder (b) the controlling shareholder can direct the disposal of surplus assets and the redeployment of the proceeds (c) a controlling shareholder can control the appointment of directors, management policy and the strategic direction of the company (d) a controlling shareholder is often able to increase the value of the entity being acquired through synergies and/or rationalisation savings. 220 We have calculated the premium implied by the Premier share offer42 by reference to the market prices of Just Group shares prior to the announcement by Premier on 31 March 2008 of its intention to make a conditional off-market takeover offer for all the shares in Just Group, as shown below:
Implied offer premium relative to recent share prices Implied control Just Group share premium price (discount)(1) $ % 28 March 2008(2) 3.52 16.5% Closing price 1 month prior (29 February 2008) 3.50 17.1% Closing price 3 months prior (31 December 2007) 4.65 (11.8%)
1-month VWAP (29 February 2008 – 28 March 2008) 3.55 15.5% 3-month VWAP (31 December 2007 – 28 March 2008) 3.80 7.9%
Note: 1 Based on the mid-point of our assessed value of the offer consideration of $4.10 per Just Group share. 2 Being the closing price on the last day of trading prior to the announcement of Premier’s intention to make an offer.
221 As indicated above our assessed value of the Offer consideration represents a modest premium to the market price of Just Group shares prior to the announcement of the Offer (with the exception of the closing price three months prior to the Offer announcement). Further, we note our assessed value of the Offer consideration ($3.97 to $4.23 per share) is only consistent with the high end of our assessed value of Just Group shares on a portfolio basis ($3.59 to $4.22 per share). 222 Consequently, in our opinion, the Offer does not provide Just Group shareholders with a sufficient premium for control.
Recent share prices subsequent to the Premier share offer
223 Subsequent to the announcement on 31 March 2008 by Premier of its intention to make a takeover offer, shares in Just Group have traded in a range between $3.54 and $4.27 per share. Recent trades have been closer to the VWAP for the period of around $3.90 per share (exclusive of the entitlement to the interim dividend of 10.5 cents per share).
42 For calculation purposes we have adopted the mid-point of our assessed valuation range of the consideration offered by Premier of $4.10 per share.
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224 This trading reflects prices significantly below our assessed value of Just Group on a controlling interest basis (being more consistent with prices reflecting a portfolio interest in the company), and suggests that, at the date of this report, the market consensus is that the takeover is unlikely to succeed.
Comparative position of Just Group shareholders
Premier acquires a 100% interest in Just Group
225 If the Offer is successful and Premier acquires a 100% interest in Just Group shareholders in Just Group will receive 0.25 Premier shares plus $2.095 in cash for each Just Group share. 226 Effectively Just Group shareholders will have: (a) exchanged around 58% of the value of their current direct interest in Just Group for an indirect interest held through Premier43 (b) sold the balance of their existing interest in Just Group for cash. 227 As noted in Appendix E Premier shares have been very illiquid, although the effective transfer of the Just Group shareholder base to Premier pursuant to the Offer may increase the liquidity of Premier shares in future. In contrast trading in Just Group shares over the previous 12 months indicates a high level of liquidity. 228 In addition, Premier is effectively controlled by interests associated with its Chairman (Mr Solomon Lew). Accordingly, Just Group shareholders accepting the Offer will be minority shareholders in a company (Premier) which is: (a) controlled by a large shareholder who has not given any indication of seeking to acquire a 100% interest in the company44 (b) unlikely to receive a takeover offer from a third party (at least in the short to medium term).
Premier acquires a 50.1% interest in Just Group
229 If the Offer is successful and Premier acquires a 50.1% interest in Just Group: (a) those Just Group shareholders accepting the Offer will be in a comparable position to that noted above (as if Premier had acquired a 100% interest in Just Group), with the exception that: (i) any increase in the liquidity of Premier shares is likely to be more modest (ii) Just Group shareholders will not be eligible for scrip-for-scrip rollover relief, which will result in some shareholders paying capital gains tax (CGT) in respect of the total consideration received (iii) as Premier will not control 100% of Just Group it will not have access to 100% of Just Group’s cash flow (b) those Just Group shareholders who do not accept the Offer will remain minority shareholders in a company (Just Group) in relation to which: (i) there is likely to be reduced liquidity of its shares (ii) there may be a potential adverse effect on the market price (at least in the short-term) due to reduced institutional shareholder interest / investment (arising from lower levels of liquidity and the possible reduced weighting or exclusion of Just Group from the S&P / ASX 200 Index) (iii) the likelihood of a full takeover offer in future is diminished as Premier will control Just Group.
43 At the date of this report Premier is effectively a “cash-box”, with a relatively minor (in comparative value terms) holding in HWI. 44 In contrast, Mr Lew has indicated an intention to use Premier as an investment vehicle for other opportunities being considered.
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Likelihood of an alternative offer
230 We have been advised by the Directors of Just Group that no alternative offers have been received subsequent to the Premier announcement of its intention to make an offer on 31 March 2008. 231 In addition, as Premier’s voting power in Just Group is 23.7% this may deter potential acquirers.
Likely price of Just Group shares if the Offer lapses
232 In our opinion, if the Offer lapses and no higher offer or alternative proposal emerges, it is likely that (at least in the short-term) Just Group shares will trade at a discount to our assessed value of Just Group shares (consistent with the difference between the value of Just Group shares on a portfolio basis and their value on a 100% controlling interest basis).
Potential capital gains tax impact
233 Just Group’s Australian shareholders who accept the Offer should note that they will not be eligible for scrip- for-scrip rollover relief if the Offer is declared unconditional and Premier acquires less than 80% of Just Group. In such circumstances some shareholders will therefore have to pay CGT in respect of the total consideration received.
Conclusion
234 Based upon the above we have concluded that the Offer is neither fair nor reasonable.
Other matters 235 The taxation consequences of accepting the Offer depend on the individual circumstances of each investor. Just Group shareholders should read the taxation advice set out at Section 10 of the Bidder’s Statement and should consult their own professional adviser if in doubt as to the taxation consequences of the Offer. 236 The ultimate decision whether to accept the Offer should be based on each shareholders’ assessment of their own circumstances, including their risk profile, liquidity preference, tax position and expectations as to value and future market conditions. If shareholders are in doubt about the action they should take in relation to the Offer or matters dealt with in this report, shareholders should seek independent professional advice.
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Appendix A
Financial Services Guide
Lonergan Edwards & Associates Limited 1 Lonergan Edwards & Associates Limited (LEA) (ABN53 095 445 560) is a specialist valuation firm which provides valuation advice, valuation reports and Independent Expert’s Reports (IER) in relation to takeovers and mergers, commercial litigation, tax and stamp duty matters, assessments of economic loss, commercial and regulatory disputes. 2 LEA holds Australian Financial Services Licence No 246532.
Financial Services Guide 3 The Corporations Act 2001 authorises LEA to provide this Financial Services Guide (FSG) in connection with its preparation of an IER to accompany the Target Statement to be sent to Just Group shareholders in connection with the Offer. 4 This FSG is designed to assist retail clients in their use of any general financial product advice contained in the IER. This FSG contains information about LEA generally, the financial services we are licensed to provide, the remuneration we may receive in connection with the preparation of the IER, and if complaints against us ever arise how they will be dealt with.
Financial services we are licensed to provide 5 Our Australian financial services licence allows us to provide a broad range of services to retail and wholesale clients, including providing financial product advice in relation to various financial products such as securities, derivatives, interests in managed investment schemes, superannuation products, debentures, stocks and bonds.
General financial product advice 6 The IER contains only general financial product advice. It was prepared without taking into account your personal objectives, financial situation or needs. 7 You should consider your own objectives, financial situation and needs when assessing the suitability of the IER to your situation. You may wish to obtain personal financial product advice from the holder of an Australian Financial Services Licence to assist you in this assessment.
Fees, commissions and other benefits we may receive 8 LEA charges fees to produce reports, including this IER. These fees are negotiated and agreed with the entity who engages LEA to provide a report. Fees are charged on an hourly basis or as a fixed amount depending on the terms of the agreement with the person who engages us. In the preparation of this IER our fees are based on a time cost basis using agreed hourly rates. 9 Neither LEA nor its directors and officers receives any commissions or other benefits, except for the fees for services referred to above. 10 All of our employees receive a salary. Our employees are eligible for bonuses based on overall performance and the firm’s profitability, and do not receive any commissions or other benefits arising directly from services provided to our clients. The remuneration paid to our directors reflects their individual contribution to the company and covers all aspects of performance. Our directors do not receive any commissions or other benefits arising directly from services provided to our clients. 11 We do not pay commissions or provide other benefits to other parties for referring prospective clients to us.
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Appendix A
Complaints 12 If you have a complaint, please raise it with us first, using the contact details listed below. We will endeavour to satisfactorily resolve your complaint in a timely manner. 13 If we are not able to resolve your complaint to your satisfaction within 45 days of your written notification, you are entitled to have your matter referred to the Financial Industry Complaints Services (FICS), an external complaints resolution service. You will not be charged for using the FICS service.
Contact details 14 LEA can be contacted by sending a letter to the following address:
Level 27 363 George Street Sydney NSW 2000 (or GPO Box 1640, Sydney NSW 2001)
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Appendix B
Qualifications, declarations and consents
Qualifications 1 LEA is a licensed investment adviser under the Corporations Act. LEA’s authorised representatives have extensive experience in the field of corporate finance, particularly in relation to the valuation of shares and businesses and have prepared more than 100 Independent Expert’s Reports. 2 This report was prepared by Mr Craig Edwards and Mr Martin Holt, who are each authorised representatives of LEA. Mr Edwards and Mr Holt have over 15 years and 20 years experience respectively in the provision of valuation advice.
Declarations 3 This report has been prepared at the request of the Just Group Special Board Committee to accompany the Target Statement to be sent to Just Group shareholders. It is not intended that this report should serve any purpose other than as an expression of our opinion as to whether or not the Offer is fair and reasonable to the shareholders of Just Group.
Interests 4 At the date of this report, neither LEA, Mr Edwards nor Mr Holt have any interest in the outcome of the Offer. LEA is entitled to receive a fee for the preparation of this report based on time expended at our standard hourly professional rates. With the exception of the above fee, LEA will not receive any other benefits, either directly or indirectly, for or in connection with the preparation of this report.
Indemnification 5 As a condition of LEA’s agreement to prepare this report, Just Group agrees to indemnify LEA in relation to any claim arising from or in connection with its reliance on information or documentation provided by or on behalf of Just Group which is false or misleading or omits material particulars or arising from any failure to supply relevant documents or information.
Consents 6 LEA consents to the inclusion of this report in the form and context in which it is included in Just Group’s Target Statement.
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Appendix C
Trading multiples of listed comparables
1 The value of Just Group is based, inter alia, on observed sharemarket trading multiples for similar or comparable listed companies, listed both domestically and overseas. In order to gain a representative sample of the listed Australian retail companies with similar operations to Just Group we have classified them into the following categories: (a) apparel retailers: including those with wholesale operations. While apparel retailers are by definition specialty retailers, the grouping and analysis of this sub-division is useful as these companies are more comparable to Just Group (b) specialty retailers: these companies tend to focus on a specialised niche of the retail industry and therefore exhibit different business models to those categorised as diversified retailers (c) diversified retailers: including department stores and the large diversified retailers such as Woolworths and Wesfarmers, which generally sell large volumes at the lowest price. 2 For the international companies we have only included companies which are broadly similar in size and operation to Just Group (or parts of Just Group). 3 A summary of the earnings multiples and a brief company description of the relevant Australian and international retailers are set out below:
Listed company trading multiples Market EBITA multiples PE multiples capitalisation Historical Forecast Forecast Historical Forecast Forecast $m FY07 FY08 FY09 FY07 FY08 FY09 Apparel retailers Billabong International 2,483.0 11.7 10.5 9.5 14.8 14.2 12.6 Pacific Brands 969.4 9.4 7.9 7.4 9.1 8.2 7.7 Pumpkin Patch 311.4 8.0 8.8 8.1 10.5 12.8 11.6 Country Road 245.2 24.7 18.1 n/a 38.1 28.4 n/a Hallenstein Glasson Holdings 209.4 6.0 6.8 6.6 9.8 10.6 10.1 Specialty Fashion Group 203.5 5.5 5.3 5.1 8.3 8.2 7.7 Oroton Group 133.8 9.9 6.2 5.5 14.8 9.0 7.9 Noni B 71.0 5.7 6.1 5.6 8.6 9.3 8.4 Average 10.1 8.7 6.8 14.3 12.6 9.4 Median 8.7 7.3 6.6 10.2 10.0 8.4 Low 5.5 5.3 5.1 8.3 8.2 7.7 High 24.7 18.1 9.5 38.1 28.4 12.6
Specialty retailers JB Hi-Fi 1,101.2 18.2 12.2 10.3 28.3 18.3 15.2 Super Cheap Auto Group 343.1 11.6 8.9 6.9 15.0 11.5 9.7 Michael Hill International 321.3 10.5 8.5 9.2 15.4 12.0 11.5 Fantastic Holdings 263.3 10.6 7.9 6.4 16.0 11.2 9.5 Reject Shop 256.3 13.7 10.0 8.7 21.1 15.5 13.0 Clive Peeters 87.6 5.5 4.7 4.8 6.4 5.8 5.2 Nick Scali 63.2 4.8 7.1 6.6 7.3 10.6 9.5 Average 10.7 8.5 7.5 15.6 12.1 10.5 Median 10.6 8.5 7.5 15.4 11.5 9.7 Low 4.8 4.7 4.2 6.4 5.8 5.2 High 18.2 12.2 10.3 28.3 18.3 15.2
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Appendix C
Listed company trading multiples Market EBITA multiples PE multiples capitalisation Historical Forecast Forecast Historical Forecast Forecast $m FY07 FY08 FY09 FY07 FY08 FY09 Diversified retailers Woolworths 34,838.6 17.3 14.4 12.7 26.6 21.4 18.9 Wesfarmers 31,103.8 34.2 18.5 11.4 18.7 20.2 14.7 Harvey Norman Holdings 3,868.3 10.7 8.7 8.6 15.4 11.6 11.3 Metcash 3,138.9 11.8 10.9 10.0 17.0 15.6 13.9 David Jones 1,712.5 11.6 10.7 10.1 15.4 12.7 12.0 Warehouse Group 1,650.9(1) 11.5 12.8 12.4 16.4 18.5 17.7 Average 16.2 12.7 10.9 18.2 16.7 14.8 Median 11.7 11.8 10.8 16.7 17.1 14.3 Low 10.7 8.7 8.6 15.4 11.6 11.3 High 34.2 18.5 12.7 26.6 21.4 18.9
International companies lululemon athletica inc 2,397.2 44.1 29.3 21.1 71.2 45.2 33.0 Aeropostale Inc 2,340.8 10.0 9.5 8.5 17.7 16.3 14.6 AnnTaylor Stores Corp 1,664.5 7.4 7.9 6.7 13.4 13.5 11.5 Chico’s FAS Inc 1,315.0 8.0 12.1 7.2 14.4 21.4 13.2 bebe stores inc 1,050.1 5.6 7.4 6.2 13.2 15.5 13.4 Dress Barn Inc 1,042.8 4.9 7.4 6.5 9.1 12.7 10.8 Cato Corp 505.2 8.3 n/a n/a 15.8 22.5 15.3 Christopher & Banks Corp 407.6 5.8 9.0 7.4 11.7 16.8 14.3 Charlotte Russe Holding Inc 380.0 4.3 4.7 4.1 11.9 12.2 10.1 Wet Seal Inc 366.4 10.0 8.2 6.6 13.9 12.1 8.6 Ted Baker Plc 364.9 7.6 7.0 6.3 12.0 10.8 9.7 Simple average 10.5 10.3 8.0 18.6 18.1 14.0 Median 7.6 8.0 6.6 13.4 15.5 13.2 Low 4.3 4.7 4.1 9.1 10.8 8.6 High 44.1 29.3 21.1 71.2 45.2 33.0
Note: 1 Both Woolworths and Foodstuffs are currently seeking New Zealand Commerce Commission approval to acquire Warehouse Group. It is likely therefore that the current multiples for the Warehouse Group include some premium for control. 2 Multiples as at 14 May 2008. n/a – not available.
Apparel retailers
Billabong International Limited
4 Billabong International is a leading global surf wear apparel brand. In addition to surf wear it sells sports apparel and accessories for the surf, skate and snowboard markets. The company is principally a wholesaler but also has retail operations. The company’s products are sold in more than 100 countries by its directly controlled operations in Australia, New Zealand, North America, Europe, Japan and Brazil and through licensed distributors in other regions.
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Appendix C
Pacific Brands Limited
5 Pacific Brands manufactures, imports, markets and wholesales a wide range of consumer goods primarily in Australia and New Zealand. The group enjoys the number one or two positions across its major product lines. Pacific Brands has four operating divisions – Underwear and Hosiery, Outerwear and Sport, Home Comfort and Footwear.
Pumpkin Patch Limited
6 Pumpkin Patch is Australasia’s leading retailer of children’s clothing. Garments are designed in-house and targeted at the pre-teen market. Pumpkin Patch sells through its network of 215 company owned stores in Australia, New Zealand, UK and US and also has distribution arrangements with large department stores outside New Zealand.
Country Road Limited
7 Country Road is an Australasian company involved in the retail of fashion apparel and accessories for men, women and children, as well as homewares and home furnishings. The brand is sold through Country Road’s network of 56 retail stores, as well as 77 concession stores based in David Jones and Myer.
Hallenstein Glassons Holdings Limited
8 Based out of New Zealand, Hallenstein Glassons Holdings owns the Glassons and Hallenstein Bros brands. Glassons is engaged in the retail of women’s apparel, while Hallenstein Bros is engaged in the retail of men’s and boy’s apparel. The company aims to provide contemporary clothing at an affordable price.
Specialty Fashion Group Limited
9 Specialty Fashion Group operates in the Australian and New Zealand women’s apparel market, with a focus on the value end of the market. It operates six brands which include Miller’s Fashion Club, Katies and Crossroads. Specialty Fashion Group operates over 800 specialty retail stores and maintains a comprehensive loyalty program.
Oroton Group Limited
10 Oroton Group is a wholesaler and retailer of clothing, leather and accessories. The group owns the Oroton brand and is the exclusive licensee of Polo Ralph Lauren in Australia and New Zealand. Oroton Group operates 35 Oroton stores and 22 Ralph Lauren stores. In 2007 the company divested the Marcs, Morrisey and Aldo brands.
Noni B Limited
11 Noni B is a specialist retailer of women’s apparel and accessories. The company operates 209 Noni B and La Voca stores nationally, with plans to expand to 220 stores. Apparel is marketed under the Noni B and Liz Jordan brands and is aimed at the higher value segment.
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Appendix C
Specialty retailers
JB Hi-Fi Limited
12 JB Hi-Fi is a discount retailer of home entertainment products including consumer electronics, computers and games, car sound systems, music and DVDs. The company trades from 89 branded sites across Australia and New Zealand and is rapidly expanding via an aggressive store rollout program.
Super Cheap Auto Group Limited
13 Super Cheap Auto Group is a retailer of automotive parts and accessories as well as hardware, gardening, camping, outdoor, fishing and boating equipment. The company has a network of 246 Supercheap Auto and over 30 boating camping and fishing stores located throughout Australia and New Zealand.
Michael Hill International Limited
14 Michael Hill International operates Michael Hill Jeweller, a retail jewellery chains principally catering for the middle sector of the Australasian jewellery market. The company also specialises in higher priced diamond jewellery. Michael Hill International operates 210 stores located in Australia, New Zealand and Canada.
Fantastic Holdings Limited
15 Fantastic Holdings is a manufacturer, importer and retailer of furniture. Fantastic’s strategy is based on providing inexpensive quality furniture through Fantastic Furniture stores and higher value furniture through Plush branded outlets. The group also operates the Original Mattress Factory which is still in its infancy. In total, Fantastic operates a network of 77 stores in Australia.
Reject Shop Limited
16 The Reject Shop is a discount variety retailer of general low price merchandise products, with particular focus on everyday needs, lifestyle and seasonal merchandise. The group operates 122 stores across Australia with stores stocking an average of 7,000 items.
Clive Peeters Limited
17 Clive Peeters is a retailer of electrical appliances under the brand names of Clive Peeters in Victoria, Queensland, Tasmania and NSW (28 stores) and Rick Hart in Western Australia (18 stores). The company generally operates from large stand alone retailing sites, with a focus on selling premium products such as cooking appliances, whitegoods, home entertainment and other electrical appliances.
Nick Scali
18 Nick Scali is one of Australia’s largest retailers and importers of quality furniture. Nick Scali sources a large portion of its product from low cost overseas markets. The company owns and operates 24 show rooms located in all states except Western Australia and Tasmania.
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Appendix C
Diversified retailers
Woolworths Ltd
19 Woolworths is Australia’s largest retailer by profitability, with its primary focus being its supermarkets and liquor divisions. Its other operations include BIG W, consumer electronics through Dick Smith, PowerHouse and Tandy and petrol retailing through its Woolworths/Caltex alliance and Woolworths Petrol Plus service stations. Woolworths has also diversified into hotels with a number of recent acquisitions and expanded its New Zealand operations with the acquisition of Foodland Australia New Zealand supermarkets, trading under the Progressive Supermarkets banner.
Wesfarmers Ltd
20 With the acquisition of Coles Group, Wesfarmers is now Australia’s largest retailer by sales revenue. Its retailing activities include hardware (Bunnings), supermarkets, liquor and petrol (Coles), discount department stores (Target and Kmart) and office supplies and stationery (Officeworks). The company also has other significant operations in industrial supplies distribution, coal mining, PLG processing and distribution, fertilizers, chemicals and general insurance.
Harvey Norman Holdings Ltd
21 Harvey Norman Holdings operates in the retailing sector principally as a franchiser and property owner. Harvey Norman stores sell a large range of homewares, furniture, electrical products and computers. Revenue is derived from retailing, the provision of advisory and advertising services to franchisees, and property investment. The company has about 200 outlets in Australia, New Zealand, Slovenia and Ireland and investments in Pertama Holdings (Singapore).
Metcash Ltd
22 Metcash is a marketing and distribution company operating in the food and other fast moving consumer goods categories. It operates three business units: IGA Distribution, servicing over 2,500 independent grocery stores, Campbells Wholesale, a network of 55 stores across Australia and Australian Liquor Marketers which serves over 13,000 licensed premises.
David Jones Ltd
23 David Jones is a leading Australian up-market retailer, operating 35 department stores and two warehouse outlets. It follows a differentiation strategy of being a “Home of Brands” which has been very successful. David Jones currently runs a branded credit card and has plans to launch a David Jones branded American Express Card at the end of 2008.
Warehouse Group Ltd
24 The Warehouse Group is one of New Zealand’s largest retailers with a wide range of departments, including apparel, entertainment and technology, music, sporting, gardening and grocery. The company operates 85 Warehouse stores and 43 Warehouse Stationery stores in New Zealand. It exited the Australian market with the sale of its discount stores to a private equity consortium (Catalyst and CHAMP) in November 2005.
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Appendix C
International apparel retailers
lululemon athletica inc
25 lululemon athletica is a yoga inspired designer and retailer of technical athletic apparel marketed under the lululemon brand name. The company was founded in 1998 and has grown to 74 stores spread across Canada and the US, three in Australia and four joint controlled stores in Japan.
Aeropostale Inc
26 Aeropostale is a US based specialty retailer of casual apparel and accessories. The company designs, sources and markets branded merchandise primarily targeted at 14 to 17 year-olds. Aeropostale operates 828 stores, consisting of 814 Aeropostale stores and 14 Jimmy’Z stores. It also sells through its e-commerce website.
AnnTaylor Stores Corp
27 AnnTaylor Stores is a specialty retailer of women's apparel, shoes and accessories, sold under the Ann Taylor and Loft brands. The company operates some 930 retail stores in the US and Puerto Rico. Merchandise is developed in-house, and sourced from manufacturers globally utilising a centralised distribution system. Clients may also shop online or by phone.
Chico's FAS Inc
28 Chico’s FAS is a specialty retailer of branded, casual-to-dressy clothing, intimates and accessories under the Chico’s, WH|BM and Soma Intimates brands. The company both designs its products in-house and purchases designs from external vendors. Chico’s FAS operates approximately 1,045 retail stores in the US, the US Virgin Islands and Puerto Rico. Stores are generally located in established upscale, outdoor destination shopping areas and high-end enclosed malls.
bebe stores inc
29 bebe stores is a US based specialty retailer that develops and sells contemporary women’s apparel and accessories under the bebe, Collection bebe, Bebe Sport and bbsp brands. The company operates 290 retail stores in the US, an online store and 17 licensee operated stores outside the US.
Dress Barn Inc
30 Dress Barn is a specialty retailer of women’s apparel under the brands of dressbarn, dressbarn woman and maurices. The company operates some 1,460 stores in USA. Dress Barn stores offer career and casual fashion and are located in major trading and high density markets. Maurices stores cater to the apparel and accessory needs of 17 to 34 year old women and are typically located in small markets.
Cato Corporation
31 The Cato Corporation (Cato) operates both women’s fashion specialty stores and a credit card division. Cato offers merchandise with fashion and quality comparable to mall specialty stores at low prices. The company operates 1,318 stores under the names Cato, Cato Fashions, Cato Plus, It’s Fashion and It’s Fashion Metro. Stores are primarily located in strip shopping centres in the south-eastern US and a majority of merchandise is sold under its own private label. The company also offers its own credit card and lay-buy plan.
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Appendix C
Christopher & Banks Corp
32 Christopher & Banks is a US retailer of women’s specialty apparel. The company operates 841 stores, including 546 Christopher & Banks stores, 256 C.J. Banks stores and 39 Acorn stores. Christopher & Banks’ target demographic is the female baby boomer aged between 40 to 60 years old. Stores are located in regional shopping malls in mid-sized cities and suburban areas.
Charlotte Russe Holding Inc
33 Charlotte Russe is a mall-based specialty retailer of fashionable, value-priced apparel and accessories targeting young women in their teens and twenties. The company operates 432 Charlotte Russe stores throughout US and Puerto Rico under the brands of Charlotte Russe, Refuge and blu Chic.
Wet Seal Inc
34 Wet Seal is a specialty retailer of fashionable and contemporary apparel and accessory items designed for women. The company operates 494 retail stores in US and Puerto Rico under two brands, being Wet Seal and Arden B. Wet Seal is a junior apparel brand for teenage girls whereas Arden B is a fashion brand for female customers aged 25 to 35 years old. It also sells through its online stores.
Ted Baker plc
35 Ted Baker offers a wide range of innovative collections including, menswear, womenswear, global, endurance, accessories, teddy boy, teddy girl, teddy baby as well as fragrance, skinwear, footwear, eyewear and watch products. Ted Baker has a portfolio of company owned and licensed stores across the UK, the USA, Continental Europe, the Middle East and Asia and is also present in leading department stores. It derives its income from a mixture of retail, wholesale and license income.
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Appendix D
Transaction multiples
1 There have been a number of transactions in the Australian retail industry and international apparel retail industry. These transactions provide some guidance as to the prices that potential acquirers might be willing to pay for a controlling interest in Just Group. The acquisition multiples are provided below: Transaction multiples Consideration(1) EBIT multiple Date Target Acquirer $m Historical Forecast Australian transactions Sep-07 Coles Group Wesfarmers 19,247 - 16.7-17.3 n/a 19,936 May-07 Colorado Group ARH Investments - acquisition of 649.9(3) 13.9 12.5(2) remaining minorities Dec-06 Repco Corporation CCMP Capital Asia 569.7 10.9 12.3 Nov-06 Rebel Sport Archer Capital 335.2 10.6 11.0(2) Nov-06 Brazin MCCH 329.0 14.4 8.8(2) Jul-06 Colorado Group ARH Investments - acquisition of 83.6% 451.0 10.4 8.5(2) (4) Jul-06 Myer Newbridge Capital 1,000.0 18.6 11.8(5) May-06 Super A-mart Ironbridge Capital 500.0 10.1 n/a Aug-05 Barbeques Galore Ironbridge Capital 82.3 31.0 18.3(2) Nov-04 OPSM Luxottica - acquisition of remaining 616.2(3) 14.6 11.6(2) (4) minorities Oct-04 New Price Retail Australian Pharmaceutical Industries 167.0 10.1 n/a (New Clicks) Feb-04 Australian operations ABN Amro Capital, CHAMP, Investec 107.0 7.2 n/a of New Clicks Wentworth & Management Jul-04 Noel Leeming Gresham Private Equity NZ$138.5 7.1 n/a Aug-03 Freedom Group Leveraged buy-out by management team 246.2 8.9 n/a Jul-03 R M Williams Strathig Partnership 31.8 21.8 n/a Apr-03 OPSM Luxottica - acquisition of 82.6% 571.6 16.6(2) 12.2(2) (4)
International transactions Sep-07 United Retail Group Redcats USA US$148.6 16.7(6) n/a Jul-07 Deb Shops Inc. Lee Equity Partners US$264.1 9.4(6) n/a Mar-07 Claire’s Stores Inc. Apollo Management LP US$2,729.7 10.9 n/a Jan-06 Burlington Coat Bain Capital Inc. US$1,864.1 10.4 n/a Factory Warehouse Corp. Oct-05 Peacock Group Plc Hedge Fund Consortium GB£502.4 12.3 n/a May-05 Neiman Marcus Texas Pacific Group/Warburg Pincus US$5,033.3 12.4(6) n/a Group Inc. Nov-04 Barneys New York Jones Apparel Group Inc. US$379.0 10.9(6) n/a Inc. Apr-04 Loehmann’s Holdings Crescent Capital Investments Inc. US$170.7 11.6 n/a Inc.
Note: 1 Based on enterprise value of the target. 2 EBITA multiple rather than EBIT multiple. 3 Price implied for 100%. 4 Forecast based on FMEBIT as assessed by the independent expert. 5 Based on the premise the Melbourne Flagship store was purchased separately for $400 million. 6 Based on lagged historical information for the last 12 months. n/a – not available.
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Appendix E
Profile of Premier Investments Limited
Overview 1 Premier Investments Limited (Premier) is an ASX listed Australian investment holding company. The company has a strategy to acquire controlling or strategic holdings in Premier Australian companies with a focus on the retailing, importing and distribution sectors.
History 2 Premier listed on the ASX on 15 December 1987 and has entered into a number of material transactions since then. 3 The most recent was the sale of 69.5 million shares in Coles Group Limited (Coles Group)45 (representing a 5.9% shareholding) to Wesfarmers Limited (Wesfarmers) for $16.47 per share during April 2007. The sale was a precursor to the subsequent acquisition of Coles Group by Wesfarmers. A majority of the Coles Group shares had been held by Premier since 1989. Premier booked a substantial profit of $791 million on the sale and received proceeds of approximately $1.145 billion before tax. 4 Premier is also the largest shareholder in Housewares International Limited (HWI) with a 21.5% interest. The HWI shares had a market value of $45 million as at 23 April 2008. 5 Recently Premier also purchased 1.85 million shares in Just Group, representing 0.9% of Just Group’s issued capital. The shares were purchased for $3.50 per share on 31 March 2008.
Current position 6 As at 26 January 2008, Premier’s net assets were $816 million of which $788 million was represented by cash.
Summary of financial performance 7 A summary of Premier’s historical operating performance for the three years ended 30 June 2007, as well as the half year ended 31 December 2007, is provided below:
Financial performance - Premier Investments Limited FY05 FY06 FY07 HY08 $m $m $m $m Dividends received 25.2 28.9 30.1 - Interest income 1.3 1.5 20.5 32.5 Gain on sale of investments - - 791.1 - Gain on sale of derivatives - - 3.0 - Total revenue 26.5 30.4 844.6 32.5
Interest expense (16.2) (16.0) (16.6) (1.8) Other expenses (0.7) (0.9) (2.0) (0.4) Total expenses (16.9) (16.9) (18.6) (2.2)
Profit before income tax 9.6 13.5 826.0 30.3 Income tax expense - - (180.0) (9.1) Net profit for the period 9.6 13.5 646.0 21.2
45 Renamed Coles Group Limited from Coles Myer Limited.
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Appendix E
8 Historically Premier’s earnings have been derived from dividend and interest income and one-off gains on the sale of investments such as Coles Group. 9 In FY07 profit was significantly higher due to the sale of the Coles Group shares. Following the subsequent repayment of company debt and substantial increase in cash held, the company’s interest expense has become negligible while interest income has increased significantly.
Summary of financial position 10 Premier’s financial position as at 31 December 2007 and 26 January 2008 is summarised below:
Premier - financial position 31-Dec-07 26-Jan-08(1) $m $m Assets Cash and cash equivalents 778.7 778.0 Trade and other receivables 6.5 - Investments 59.6 48.0 Total assets 844.9 836.0
Liabilities Income tax payable 10.9 12.0 Provisions 0.1 - Deferred tax liabilities 11.8 8.0 Total liabilities 22.8 20.0
Net assets 822.1 816.0
Notes 1 Source: Premier Bidder’s Statement.
Share capital 11 As at 13 May 2008 Premier had 90,187,462 ordinary shares on issue.
Shareholders 12 As at 13 December 2007 the top five shareholders in Premier held 79.5% of the shares on issue:
Premier - substantial shareholders Number of Relevant ordinary shares interest held % Century Plaza Investments Pty Ltd and Associates 47,100,485 52.2 IOOF Holdings Ltd 10,077,177 11.2 Commonwealth Bank of Australia(1) 9,063,792 10.1 Lindsay Edward Fox 5,434,000 6.0 Total shares outstanding 71,675,454 79.5
Note: 1 This includes shares held by 452 Capital Pty Ltd. 452 Capital Pty Limited holds 7,735,165 shares in Premier and has a relevant interest of 8.6% of Premier.
65 136 | JUST GROUP | Target’s Statement independent expert’s report
Appendix E
13 Century Plaza Investments Pty Limited and other entities associated with Premier’s Chairman, Mr Solomon Lew are Premier’s largest shareholder with a 52.2% interest.
Share price performance 14 The price of Premier shares from 1 January 2006 to 30 April 2008 is summarised in the table below:
Premier - share price movements Monthly High Low Close volume (1) $ $ $ (000) Quarter ended Mar-06 4.59 4.07 4.45 183 Jun-06 4.90 4.40 4.75 150 Sep-06 6.50 4.60 6.30 485 Dec-06 6.10 5.22 5.72 237 Mar-07 7.80 5.75 7.80 427 Jun-07 9.50 8.30 8.73 433
Month Jul-07 9.40 8.55 8.80 231 Aug-07 8.85 8.46 8.85 144 Sep-07 8.55 8.50 8.50 8 Oct-07 8.60 8.50 8.60 9 Nov-07 8.55 8.27 8.27 615 Dec-07 8.60 8.00 8.60 3,661 Jan-08 8.66 8.00 8.20 409 Feb-08 8.28 8.00 8.00 49 Mar-08 8.00 7.00 7.90 730 Apr-08 8.10 7.48 7.70 1,380
Note: 1 Monthly volumes for the quarters represent average monthly volumes.
15 The following share price graph illustrates the movements in Premier’s share price from 1 January 2006 to 30 April 2008:
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Appendix E
Premier Investments Limited Share Price History: Daily from 1 January 2006 to 30 April 2008 ($) 10.00 (d)
9.00 (b)
8.00 (c) 7.00
(a) 6.00
5.00
4.00
3.00 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
16 We note the following with respect to Premier’s share price: (a) on 17 August 2006 Coles Group announced that it had been approached by a number of parties interested in acquiring parts of, or the entire Coles Group. This increased the Coles Group share price significantly. Given Premier’s 5.9% shareholding in Coles Group at the time the Premier share price responded accordingly (b) the rise in the Premier share price from February to March 2007 reflects Coles Group’s negotiations with potential acquirers and rising expectations of a formal offer (c) on 3 April 2007, Premier announced it had entered into an agreement with Wesfarmers to sell its entire Coles Group shareholding for $16.47 cash per Coles Group share (d) the sale to Wesfarmers was completed on 23 April 2007.
Liquidity
17 An analysis of Premier’s liquidity and weighted average share price prior to the Premier Offer for Just Group is set out below:
Premier - liquidity and weighted average share prices As a % of High Low VWAP Value Volume issued Period $ $ $ $000 000 capital 1 day 7.90 7.90 7.90 - - 0.0% 1 week 7.91 7.85 7.89 63 8 0.0% 1 month 8.10 7.65 7.76 2,271 293 0.3% 3 months 8.66 7.65 8.17 6,139 752 0.8% 6 months 8.66 7.65 8.03 130,695 16,276 18.0%
18 Premier shares are illiquid investments. The six month figures above include the sale on 7 December 2007 by GPG of 11.25 million shares in Premier (representing approximately 12.5% of Premier) at $8.00 per share.
67 138 | JUST GROUP | Target’s Statement independent expert’s report
Appendix F
Glossary
ABS Australian Bureau of Statistics AIFRS Australian equivalent to International Financial Reporting Standards ASIC Australian Securities and Investments Commission ASX Australian Securities Exchange Catalyst Catalyst Investment Managers Pty Ltd Cato Cato Corporation CGT Capital gains tax Colorado Group Colorado Group Limited Corporations Act Corporations Act 2001 DCF Discounted cash flow Dotti Dotti Fashion EBIT Earnings before interest and tax EBITA Earnings before interest, tax and amortisation EBITDA Earnings before interest, tax, depreciation and amortisation EPS Earnings per share FICS Financial Industry Complaints Services FSG Financial Services Guide FY Financial year GPG Guinness Peat Group Plc HWI Housewares International Limited IER Independent Expert’s Report Just Group Just Group Limited Just Jeans Just Jeans Australia Limited LEA Lonergan Edwards & Associates Limited MRP Market risk premium NPAT Net profit after tax NPV Net present value NTA Net tangible assets Offer $2.095 in cash plus 0.25 Premier shares for each Just Group share PE Price earnings Pepkor Retail Pepkor Retail Limited Premier Premier Investments Limited PwC PricewaterhouseCoopers RBA Reserve Bank of Australia USD United States dollar Voting power As defined in the Corporations Act VWAP Volume weighted average price
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140 | JUST GROUP | Target’s Statement KEY DATES CORPORATE DIRECTORY
Date of Premier’s Offer 19 May 2008 ACN 096 911 410 AUDITOR Date of this Target’s Statement 2 June 2008 DIRECTORS Ernst & Young 8 Exhibition Street Close of Premier’s Offer Period (unless extended or withdrawn) 7.00pm (AEST) on 20 June 2008 Ian Pollard (Chairman) Melbourne VIC 3000 Jason Murray (Managing Director) Just Group shareholder information AUSTRALIA Just Group has established a Shareholder Information Line which Just Group shareholders may call if they have any queries in Laura Anderson relation to Premier’s Offer. The telephone number for the Shareholder Information Line is 1300 780 445 (for calls made from within Australia) or +612 8280 7106 (for calls made from outside Australia). Bronwyn Constance LAWYERS Just Group notifies shareholders that calls to the Shareholder Information Line may be tape recorded, indexed and stored. Ian Dahl Freehills Further information relating to Premier’s Offer can be obtained from Just Group’s website at www.justgroup.com.au. Terrence McCartney Important notices Level 42 Michael McLeod Nature of this document 101 Collins Street This document is a Target’s Statement issued by Just Group under Part 6.5 Division 3 of the Corporations Act in response to Susan Oliver Premier’s Bidder’s Statement and Offer. Melbourne VIC 3000 Defined terms AUSTRALIA A number of defined terms are used in this Target’s Statement. These terms are explained in Section 7 of this Target’s Statement. COMPANY SECRETARY No account of personal circumstances Janice Payne This Target’s Statement does not take into account your individual objectives, financial situation or particular needs. It does not InvestIGATing Accountants contain personal advice. You should seek independent financial and taxation advice before making a decision as to whether or not EXECUTIVE MANAGEMENT TEAM to accept the Offer. PricewaterhouseCoopers Securities Limited Disclaimer as to forward looking statements David Bull (Merchandising Director Casualwear) Freshwater Place Further, some of the statements appearing in this Target’s Statement may be in the nature of forward looking statements. Ashley Gardner (Chief Financial Officer) You should be aware that such statements are only predictions and are subject to inherent risks and uncertainties. Those risks and 2 Southbank Blvd uncertainties include factors and risks specific to the industry in which Just Group operates as well as general economic conditions, Rachel Kelly (Retail Director Australia and New Zealand) Southbank VIC 3006 prevailing exchange rates and interest rates and conditions in the financial markets. Actual events or results may differ materially from the events or results expressed or implied in any forward looking statement. None of Just Group, Just Group’s officers, any Anita Muller (Human Resources Director) AUSTRALIA persons named in this Target’s Statement with their consent or any person involved in the preparation of this Target’s Statement, Janice Payne (Corporate Affairs Director and Company makes any representation or warranty (express or implied) as to the accuracy or likelihood of fulfilment of any forward looking Financial Advisers statement, or any events or results expressed or implied in any forward looking statement, except to the extent required by law. Secretary) You are cautioned not to place undue reliance on any forward looking statement. The forwarding looking statements in this Glenys Shearer (Commercial and Merchandising Caliburn Partnership Target’s Statement reflect views held only as at the date of this Target’s Statement. Risks Womenswear Director) Level 34 There are a number of risks which may affect the future performance of Just Group. These are discussed in Section 4. Wai Tang (Director of Operations and Peter Alexander The Chifley Tower ASIC disclaimer Sleepwear) A copy of this Target’s Statement has been lodged with ASIC. Neither ASIC nor any of its officers take any responsibility for the 2 Chifley Square content of this Target’s Statement. REGISTERED OFFICE Sydney NSW 2000 AUSTRALIA CONTENTS 658 Church Street Richmond VIC 3121 SHARE REGISTRY Chairman’s Letter to Shareholders 1 AUSTRALIA Link Market Services Limited How to Reject Premier’s Offer 3 T: 03 9420 0200 Locked Bag A14 Section 1 Why You Should Reject Premier’s Offer 4 F: 03 9426 0200 Sydney South NSW 1235 Section 2 Frequently Asked Questions 30 WEBSITE AUSTRALIA T: 1300 554 474 (within Australia) Section 3 Financial Information and Directors’ Pro-forma Forecast 33 www.justgroup.com.au T: 02 8280 7761 Section 4 Risk Factors 47 EMAIL F: 02 9287 0303 Section 5 Taxation Consequences 51 [email protected] E: [email protected] Section 6 Important Matters for Just Group Shareholders to Consider 54 W: www.linkmarketservices.com.au BANKERS Section 7 Glossary and Interpretation 62 STOCK EXCHANGE Commonwealth Bank of Australia Section 8 Authorisation 64 National Australia Bank Just Group Limited shares are listed on Annexure A Investigating Accountant’s Report 66 Westpac Banking Corporation Australian Stock Exchange. The home branch is Melbourne. Ticker: JST Annexure B Independent Expert’s Report 72 just.SAY NO
JUST GROUP LIMITED (ACN 096 911 410) Target’s Statement
This Target’s Statement has been issued in response to the takeover offer made by Premier Investments Limited for all the ordinary shares in Just Group Limited.
REJECT THE TAKEOVER OFFER FROM PREMIER
This is an important document and requires your immediate attention. If you are in any doubt about how to deal with this document, you should contact your broker, financial adviser or legal adviser immediately.
ACN 096 911 410 Financial Adviser Legal Adviser