Company Announcements Office
ASX Limited
20 Bridge Street
SYDNEY NSW 2000
By electronic lodgement on 18 November 2011
Total Pages: 70 (including cover letter)
Dear Sir/Madam
EYECARE PARTNERS LIMITED (“EPL”)
NOTICE OF EXTRAORDINARY GENERAL MEETING
In accordance with ASX Listing Rule 15.2, attached is a copy of the following documents that are being dispatched to shareholders of EPL today:
1. Notice of Extraordinary General Meeting of EPL shareholders to be held on Tuesday 20 December 2011;
2. Explanatory Statement; and
3. Independent Expert’s Report.
Also attached is a sample Proxy Form for the Meeting. Proxy Forms with pre-populated shareholder details will accompany the documents sent to shareholders.
Yours faithfully
For and on behalf of Eyecare Partners Limited
Michael Jenkins
Company Secretary For personal use only use personal For
Eyecare Partners Limited Ph: +61 (0) 2 9695 9300 A.B.N. 47 006 505 880 Fax: +61 (0) 2 9316 8892 Ground Floor, 4A Lord Street, Email: [email protected] Botany, NSW, 2019 PO Box 641, Botany, NSW, 1455 Eyecare Partners Limited ABN 47 006 505 880
Notice of Extraordinary General Meeting & Explanatory Statement
Meeting Details
Time & Date: 10.30am AEDT, Tuesday 20 December 2011
Location: Ground Floor, 4A Lord Street, Botany, NSW, 2019 For personal use only use personal For This is an important document. If you are in any doubt about the information provided, or how you should act, you should consult your investment or other professional adviser. Contents
Heading Page
Contents, Abbreviations, Important Dates 2
Chairman’s Letter 3
NoticeofEGM 4
NotestotheNoticeofEGM 5
Explanatory Statement 7
Overview of the Proposed Transactions 7
Effect of the Proposed Transactions 11
Summary of the Transaction Documents 12
Legal and Regulatory Requirements 14
Directors’ Interests 15
Share Price Information 16
Other Information 16
Glossary 17
Appendix: Independent Expert’s Report
Abbreviations
Terms and abbreviations used in this Notice of EGM and Explanatory Statement are defined in the Glossary.
Important Dates
Key Outcome Date
Record date to determine entitlement to vote at 10:30am AEDT, 18 December 2011 EGM
Deadline for return of Proxy Forms 10:30am AEDT, 18 December 2011
EGM 10:30am AEDT, 20 December 2011
If Proposed Resolution approved at the EGM, Shortly following the EGM** Proposed Transactions completed **Note: Given the proximity of the EGM to the Christmas period, the actual date of completion of the Proposed Transactions is not certain.
Your vote is important
The business of the EGM affects your shareholding and your vote is important.
Information relating to which Shareholders are entitled to vote on the Proposed Resolution and how they For personal use only use personal For may vote is set out in the Notice of EGM and Explanatory Statement.
Notice of EGM & Explanatory Statement 2 Dear Fellow Shareholders
On 19 October 2011 Eyecare Partners Limited (“EPL”) announced to the ASX the sale of 3 optometry businesses operating across 6 locations to interests associated with Dr Anthony Hanks OAM and Vicki Hanks. The consideration payable by Dr Hanks and Vicki Hanks and their associates is, in effect, $2,540,541 (payable partly in cash of $1,350,000 and partly through the buyback of 28,346,219 fully paid ordinary shares in EPL).
In the announcement, I commented that “We believe the transaction we are announcing today is a win/win for all concerned. The share buyback will remove the uncertainty on our share register as a result of Dr Hanks' strategic conflict and the sale of the practices will generate $1.35m in cash for EPL.”
I continue to believe this transaction is a win/win for all concerned and, in particular, I view this as positive news for the shareholders of EPL.
Since the announcement, we have engaged Moore Stephens Sydney Corporate Finance Pty Ltd to prepare an independent expert report advising whether the proposed transactions are fair and reasonable to those EPL shareholders that are not associated with Dr Hanks and Vicki Hanks. I’m pleased to note that Moore Stephens have found that the proposed transactions are indeed fair and reasonable.
As required by the Corporations Act 2001 (Cth) and the ASX Listing Rules, we are now seeking the requisite shareholder approval to complete the proposed transactions.
EPL’s board of directors believes the proposed transactions are in your interests as EPL shareholders and unanimously recommends that you vote in favour of the proposed resolution.
Your support and your vote at the general meeting are important and critical in determining whether or not the proposed transactions shall proceed. I urge you to read the enclosed notice of extraordinary general meeting, explanatory statement and the independent expert’s report carefully as they provide information which will assist you in making an informed decision as to how you will vote at the general meeting. If you have any questions, you should consult your legal or financial adviser.
I look forward to seeing you at the general meeting or, if you are unable to attend in person, receiving your proxy vote in advance.
Yours faithfully,
Ray Fortescue, Executive Chairman BOptom (Hons), FCLSA, MAICD
18 November 2011 For personal use only use personal For
Eyecare Partners Limited Ph: +61 (0) 2 9695 9300 A.B.N. 47 006 505 880 Fax: +61 (0) 2 9316 8892 Ground Floor, 4A Lord Street, Email: [email protected] Botany, NSW, 2019 PO Box 641, Botany, NSW, 1455
Notice of EGM & Explanatory Statement 3 Notice of Extraordinary General Meeting
Eyecare Partners Limited ABN 47 006 505 880 (Company or EPL) gives notice that an extraordinary general meeting of its Shareholders will be held at Ground Floor, 4A Lord Street, Botany, NSW, 2019 on Tuesday 20 December 2011 at 10:30 am AEDT.
The Explanatory Statement, which accompanies this Notice of EGM, describes the various matters to be considered. The Notes attached to this Notice of EGM should be read together with and form part of this Notice of EGM.
Terms and abbreviations used in this Notice of EGM and Explanatory Statement are defined in the Glossary.
Business
Approval of the Proposed Transactions
To consider and, if thought fit, pass the following as a special resolution:
“That, for the purposes of section 257D of the Corporations Act and Listing Rule 10.1 and for all other purposes, the following be approved:
(a) the terms and conditions of the Transaction Documents dated 19 October 2011 (including without limitation the Buy-back Agreement), details of which are set out in the Explanatory Statement accompanying this Notice of EGM; and
(b) the selective buy-back of 28,346,219 fully paid ordinary Shares by the Company from the Partnership and Utada on the terms and subject to the conditions set out in the Buy-back Agreement, details of which are set out in the Explanatory Statement accompanying this Notice of EGM.”
Dated: 18 November 2011
BY ORDER OF THE BOARD
Michael Jenkins, Company Secretary
Eyecare Partners Limited For personal use only use personal For
Notice of EGM & Explanatory Statement 4 Notes
These notes form part of the Notice of EGM.
1. Voting exclusion statement
As the Hanks Entities are parties to the Buy-back Agreement, pursuant to sections 257D (1) and 257H (1) of the Corporations Act neither they nor their Associates are entitled to vote on the Proposed Resolution.
Accordingly, the Company will disregard any votes cast by the Hanks Entities and their Associates in relation to the Proposed Resolution.
In accordance with the Listing Rules, the Company need not disregard a vote if:
(a) it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form; or
(b) it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.
2. Entitlement to attend and vote
Pursuant to regulation 7.11.37 of the Corporations Regulations 2001 (Cth), the holders of the Company’s Shares for the purposes of the meeting, will be those registered holders of Shares at 10:30am AEDT, 18 December 2011.
If you are entitled to vote, you may vote by attending the meeting in person, by proxy or authorised representative.
3. Voting in person
To vote in person, attend the EGM on the date and time and at the place set out above.
4. Voting by proxy
A Proxy Form is enclosed with this Notice of Meeting and Explanatory Statement.
A Shareholder who is entitled to attend and vote at the EGM may appoint a proxy. A proxy can be either an individual or a body corporate. A proxy does not need to be a Shareholder of the Company. The appointment may specify the proportion or number of votes the proxy may exercise.
To be effective, your completed Proxy Form must be received by the Share Registrar in accordance with the instructions set out on the Proxy Form.
Shareholders who wish to appoint the Chairman of the meeting as proxy to vote on their behalf may leave open their votes to the discretion of the Chairman. The Chairman of the meeting intends to vote undirected
proxies in favour of the Proposed Resolution. For personal use only use personal For 5. Corporate representatives
A body corporate which is a Shareholder may appoint an individual as its corporate representative to exercise any of the powers the body corporate may exercise at meetings of a company’s members. The appointment must comply with the requirements of section 250D of the Corporations Act. The appointment may be a standing one. Unless the appointment states otherwise, the corporate representative may exercise all of the
Notice of EGM & Explanatory Statement 5 powers that the appointing body corporate could exercise at the EGM or in voting on the Proposed Resolution.
The corporate representative should bring to the EGM evidence of his or her appointment, including any
authority under which the appointment is signed, unless it has previously been given to the Company. For personal use only use personal For
Notice of EGM & Explanatory Statement 6 Explanatory Statement
The purpose of this Explanatory Statement is to provide Shareholders with all information known to the Company which is material to a decision on how to vote on the Proposed Resolution.
This Explanatory Statement should be read in conjunction with the Notice of EGM.
Terms and abbreviations used in the Notice of EGM and this Explanatory Statement are defined in the Glossary.
1. Overview of the Proposed Transactions
Background to the Proposed Transactions
On 19 November 2010, the Company announced that it intended to undertake a comprehensive strategic review of the Company.
On 22 July 2011, the key outcomes of the strategic review were announced, namely:
to rebrand the EPL group’s practices to create a uniform brand across the group – this included the termination of the Company’s licence to use the “Eyecare Plus” brand in many of its practices across Australia;
to introduce a common practice management software program, new supplier purchasing agreements and consistent HR policies across the EPL group;
to relocate the national office from Melbourne to Sydney; and
to sell or close certain unprofitable practices.
Shortly following the announcement of the findings of the strategic review, the Company entered into discussions with the Hanks Entities in relation to the strategic conflict that arose as they and their Associates were substantial Shareholders in the Company and also in Eyecare Plus Limited (the owner of the “Eyecare Plus” brand).
On 19 October 2011, the Company announced that it had entered into an Implementation Deed with the Hanks Entities. Under that deed, it was agreed, subject to conditions set out in further detail below:
for the Company to undertake a selective buy back of all shares currently owned by the Hanks Entities, being 28,346,219 Shares or approximately 20.79% of the Company’s issued share capital; and
for the EPL group to sell to Hanks Optometrists 3 optometry businesses (these businesses operate from 6 locations) (the Sale) presently conducted by EOPL at the following locations:
(i) 95 William Street, Port Macquarie;
(ii) 1/29 Horton Street, Port Macquarie;
(iii) 3 High Street, Wauchope, NSW; For personal use only use personal For
(iv) 75 Channon Street, Gympie QLD 4570;
(v) Shop 39, Whitsunday Shopping Centre, 226 Shute Harbour Rd. Cannonvale QLD 4802; and
Notice of EGM & Explanatory Statement 7 (vi) Shop 4, 124 Main Street, Proserpine QLD 4800,
(together the Businesses).
Mechanics of the Proposed Transactions
The Proposed Transactions would, if approved by the Shareholders at the EGM, proceed in the following order:
1. buy-back of 28,346,219 Shares in the issued capital of the Company in consideration for the issue of the Promissory Notes to the relevant Hanks Entities (such promissory notes having an aggregate face value of $1,190,541).
2. assignment of the Promissory Notes by the relevant Hanks Entities to one of their associated entities, Hanks Optometrists.
3. sale of the Businesses by EOPL to Hanks Optometrists in consideration for (i) the assignment of the Promissory Notes, and (ii) $1,350,000 in cash.
A diagram of the steps described above is set out below.
1
Buyback of 28,346,219 shares Eyecare Partners Hanks Shareholder Limited Entities
$1,190,541 Promissory Notes
2 $ 1,190,541 100% Promissory Notes
Sale of 6 practices Hanks Eyecare Operations Optometrists Pty Pty Ltd Ltd atf Hanks $1,350,000 cash & Family Trust $ 1,190,541 Promissory Notes
3
Conditions to Proposed Transactions
The Proposed Transactions are conditional upon:
the Company obtaining all necessary approvals under the Listing Rules and the Corporations Act; For personal use only use personal For
an independent expert opining in an independent expert’s report that the Proposed Transactions are fair and reasonable to the Non-Associated Shareholders; and
the Company obtaining the written consent of its principal financier, the NAB group, to the Proposed Transactions.
Notice of EGM & Explanatory Statement 8 At the date of this Explanatory Statement, discussions with the NAB group are ongoing.
Notable features of the Proposed Transactions
Notable features of the transaction include:
presently, there are 136,375,555 shares on issue in the capital of the Company and it is proposed that 28,346,219 of those Shares are bought back. The amount of Shares to be bought back represents approximately 20.79% of the issued Share capital of the Company;
the consideration for the Buy-back will be 4.2 cents per Share ($1,190,541 in aggregate), payable by way of the issue of the Promissory Notes to the relevant Hanks Entities;
following the Buy-back, Hanks Optometrists will purchase the Businesses from the EPL group for $2,540,541 (subject to certain completion adjustments that are set out in more detail below). The consideration will be paid partly in cash ($1,350,000, as adjusted) and partly by the assignment of the Promissory Notes (which have an aggregate face value of $1,190,541);
as part of the Sale, Hanks Optometrists will make offers of employment to all employees in the Businesses and such offers will respect the accrued entitlements of those staff. No adjustment will be made to the purchase price for the assumption by of these staff entitlements;
under the Business Sale Agreement, an adjustment will be made to the extent that the value (at cost) of inventory in the Businesses exceeds or falls short of a target inventory value of $284,396;
certain debtors of EOPL in relation to the Businesses are being sold to Hanks Optometrists and the consideration payable to the EPL group will be adjusted upwards as a result; and
the transaction has a “sunset date” of 31 January 2012 and if all conditions have not been met by that date, either party may terminate the Buy-back and the Sale.
Benefits of the Proposed Transactions
The benefits of the Proposed Transactions include:
as the Hanks Entities and their Associates have interests in other businesses that operated throughout the value chain in the Australian optometry market (for example, Eyecare Plus Limited), their large shareholding in the Company added a layer of complexity to the Company’s negotiations with its key suppliers. Following the Buy-back, the Hanks Entities will no longer be Shareholders and this complexity will be removed. As such, the Company will have increased flexibility to pursue its corporate and business strategy with its key suppliers;
since the Company terminated its arrangements with Eyecare Plus Limited (the owner of the “Eyecare Plus” brand) and the strategic conflict arose for the Hanks Entities, there has been uncertainty as to whether the Hanks Entities would continue to hold their stake in the Company or would seek to sell their holding to a third party. This uncertainty arguably created a “market overhang” on the Company’s share price as, should the Hanks Entities sell their stake in the Company, this would likely lead to a fall in the trading price of the Company’s shares (assuming the current liquidity levels continued to prevail). Commonly such a situation deters buyers from acquiring shares until the market overhang is resolved. Were the Proposed Transactions to proceed, any market overhang that exists as a result of the stake in the Company held by the Hanks Entities For personal use only use personal For would be resolved;
the payment of $1,350,000 received by EOPL as part of the Sale will be used by the EPL group to reduce its debt levels, which in turn will lead to annual savings in interest payments;
Notice of EGM & Explanatory Statement 9 the Proposed Transactions do not require the Company to make any cash payments to the Hanks Entities or to Hanks Optometrists and as such no additional funds have needed to be sourced. All transaction costs have been met by the Company from its existing cash reserves;
some of the Businesses being sold are not achieving levels of profitability that were anticipated at the time they were acquired. As such, the Sale (using a multiple that is broadly similar to that used at the time of their acquisition) crystallizes the impairment in relation to these practices and allows the Company to move forward with confidence that no further impairment on these practices will be necessary;
from mid-2012, the restraint and non-compete provisions that apply to the Hanks Entities pursuant to the agreements under which the practices were sold by the relevant Hanks Entities to EOPL around the time of the Company’s initial public offering in 2007 will expire. After those provisions expire, the Hanks Entities and their Associates would have been able to set up in opposition to the EPL group’s existing practices without any recompense for the EPL group. This increased level of competition in what are relatively small catchment areas may have affected the performance and value of the Businesses over time. As such, it was considered prudent to exit the Businesses before the restraint and non-compete provisions expire; and
the Directors of the Company believe the price at which the Company is buying back the Shares from the Hanks Entities is reasonable given relevant business and other market factors. This view has been supported by the Independent Expert who has concluded that the Proposed Transactions are fair and reasonable to the Non-Associated Shareholders.
Potential disadvantages of the Proposed Transactions
The Directors believe the Proposed Transactions do not pose any material disadvantage to Shareholders.
However, in making their decision, Shareholders should evaluate the following factors:
there would likely be a dilutive effect to the earnings per Share in the first two years (assuming that 100% of the cash proceeds are used to retire debt) but after that the Proposed Transactions would likely have an accretive effect on the Shares. It is noted that the Independent Expert considered the dilutive effect of the Proposed Transactions on an earnings per Share basis but notwithstanding this and having regard to other relevant factors opined that the Proposed Transactions were fair and reasonable to the Non-Associated shareholders;
in FY11, the Businesses contributed EBITDA of approximately $631,000 (aggregate FY11 EBITDA for all EPL practices was approximately $4,780,000). The Sale will therefore reduce the aggregate EBITDA of the EPL group’s optometry practices and may impact the EPL group’s financial performance going forward. To avoid doubt, these EBITDA figures for the practices exclude corporate and treasury costs incurred at head office level; and
the accounting implications of the Proposed Transactions include: (i) an impairment charge to goodwill in the Company's FY12 consolidated statement of comprehensive income of approximately $1,300,000 , and (ii) a transfer within the Equity section in the Company's consolidated statement of financial position, being the transfer of approximately $4,100,00 from contributed capital to reserves (Share Buyback Reserve).
What if the Proposed Transactions do not proceed? For personal use only use personal For
If the Proposed Resolution is not approved by Shareholders at the EGM, the Sale and the Buy-back will not proceed. As a result, Shares owned by the Hanks Entities will not be bought back and cancelled and the Hanks Entities will continue to hold (in aggregate) approximately 20.79% of the Shares.
As a result, the benefits of the Proposed Transactions will not be obtained by the Company.
Notice of EGM & Explanatory Statement 10 Independent Expert’s opinion
As required by the Listing Rules and as recommended in ASIC Regulatory Guide 110, the Company has appointed an independent expert to prepare a report to consider and opine on whether the Proposed Transactions are fair and reasonable to the Non-Associated Shareholders.
The Independent Expert has concluded in its report that the Proposed Transactions are fair and reasonable to Non-Associated Shareholders.
The Independent Expert has given, and has not withdrawn, its consent to the inclusion of its report in this Explanatory Statement in the form and the context in which it appears.
The Independent Expert’s Report is set out in the Appendix. You are encouraged to read the report in full.
Independent Directors’ recommendations
Your Independent Directors believe that the Proposed Transactions are in the interests of Non-Associated Shareholders. Having regard to the findings of the Independent Expert, your Independent Directors unanimously recommend that Shareholders vote in favour of the Proposed Resolution.
2. Effect of the Proposed Transactions
The financial impact of the Proposed Transactions on the Company is summarised below.
In order to analyse the financial impact, the following assumptions have been made:
that all cash proceeds from the Proposed Transactions will be applied to reduce the principal amount outstanding under the Company’s debt facilities with the NAB group;
that the Company achieves its forecast financial results;
that the Australian economy does not slow further or move to recession;
that improved trading terms with key suppliers are able to be achieved notwithstanding the reduced number of practice locations;
that the Medicare does not make significant changes to its funding for optometry services;
that Australian health insurance funds do not make significant changes to funding for optometry services; and
that head office cost savings are realised as a result of the need to manage 6 fewer optometry practice locations.
Pro-forma impact on financial performance
In FY11, the Businesses contributed EBITDA of approximately $631,000 (this amounts to approximately 13% of the aggregate FY11 EBITDA for all EPL practices). The Sale will therefore reduce the aggregate EBITDA of the EPL group’s optometry practices and may impact the EPL group’s financial performance going forward. To avoid doubt, these EBITDA figures for the practices exclude corporate and treasury costs incurred at head
office level. For personal use only use personal For
In section 8 of the Independent Expert’s Report, the Independent Expert has estimated the impact of the proposed transactions on the future maintainable EBITDA of the EPL group.
However, as noted above, the Company believes that as a result of the termination of its arrangements with Eyecare Plus Limited and the removal of the Hanks Entities from the Company’s share register, that its key
Notice of EGM & Explanatory Statement 11 suppliers will be more willing to engage with the Company as it pursues its corporate and business strategy. As part of this enhanced engagement, the Company believes it will be able to improve procurement terms with its key suppliers and therefore achieve improved margins on sales made at its remaining 28 optometry practices. When these improved margins are considered along with the reduction in interest payments (assuming a stable interest rate environment) and reduced head office costs, it is the Company’s view that the Proposed Transactions will be accretive for Shareholders within 24 months of completion of the Proposed Transactions.
Franking account balance
Having taken taxation advice, the Company is of the view that the franking account balance will not be affected by the Proposed Transactions.
Impact on gearing levels
Following completion of the Proposed Transactions and the application of the cash to its debt facilities held with the NAB group, the Company expects aggregate gearing to fall from approximately $4,500,000 to approximately $3,150,000.
No material non-financial impacts
There are no material non-financial impacts on the Company as a result of the Proposed Transactions.
However, the Proposed Transactions will lead to the departure of the largest Shareholder from the Company's share register. Upon completion of the Buy-back and cancellation of the Shares bought back from the Hanks Entities, the proportionate shareholding of each Non-Associated Shareholder in the Company will increase by approximately 26%.
For example, a Non-Associated Shareholder holding 1% of the Company's Shares prior to the proposed Buy- back would hold approximately 1.26% after the proposed Buy-back.
3. Summary of the Transaction Documents
Implementation Deed
Effect of Deed
The Implementation Deed sets out the terms upon which the parties will implement the Proposed Transactions, including the timing and order of those transactions.
Issues to Note
(a) The Company is guaranteeing the payment, performance and observance by EOPL of all of its liabilities and obligations to the Hanks Entities in connection with the Implementation Deed.
(b) Dr Anthony Hanks OAM and his wife Vicki Hanks are jointly and severally guaranteeing the payment, performance and observance by their associates of all of their liabilities and obligations to the Company and EOPL in connection with the Implementation Deed.
Buy-back Agreement For personal use only use personal For Effect of Agreement
The Buy-back Agreement sets out the terms upon which the Company will buy back 28,346,219 Shares from the Hanks Entities and their Associates – namely the Partnership and Utada.
Issues to Note
Notice of EGM & Explanatory Statement 12 (a) The Buy-back is conditional upon:
(i) all Transaction Documents being signed;
(ii) the Company obtaining all necessary approvals under the Listing Rules and Corporations Act;
(iii) an independent expert determining that the Proposed Transactions are fair and reasonable to the Non-Associated Shareholders; and
(iv) the Company obtaining written consent of the NAB group to the execution, delivery and performance of the Transaction Documents.
(b) If the conditions are not satisfied by 31 January 2012, the Company or the relevant Hanks Entities may terminate the Buy-Back Agreement.
(c) At completion of the Buy-back Agreement, the Company will deliver the Promissory Notes to the Partnership and Utada (the promissory notes will have an aggregate face value of $1,190,541). This will discharge all payment obligations of the Company to the Partnership and Utada in relation to the Shares being bought back.
Business Sale Agreement
Effect of Agreement
This document sets out the terms upon which EOPL will sell the Businesses to Hanks Optometrists.
Issues to Note
(a) the Company is not a party to the Business Sale Agreement - rather EOPL is as that is the entity which owns the Businesses.
(b) completion of the Business Sale Agreement is conditional upon completion of the Buy-back Agreement. If the condition is not satisfied by 31 January 2012, EOPL or Hanks Optometrists can terminate.
(c) prior to the Business Sale Agreement completing, EOPL must carry on the Businesses in the same way as it has prior to 19 October 2011 and must not make any significant change to the nature or scale of any activity comprised in the Businesses.
(d) there will be a stocktake undertaken shortly after Completion to determine the amount of inventory in the practices at completion. The purchase price will be adjusted up or down by an amount equal to the difference between the value of the actual inventory at completion against the “Target Inventory Value” of $284,396.
(e) Hanks Optometrists has agreed to make offers of employment to all staff in the Businesses on
For personal use only use personal For comparable or superior terms to their existing employment arrangements. If accepted, these offers would have effect from completion of the Proposed Transactions. Historic leave entitlements of the transferring employees that have accrued while they are employees of EOPL will be respected by Hanks Optometrists. EOPL will be responsible for paying out to the transferring employees all unpaid wages, commission, bonuses or allowances accrued up to completion (excluding for the avoidance of doubt unpaid leave entitlements).
Notice of EGM & Explanatory Statement 13 (f) to allow for a clean transition on the sale of the businesses, it is proposed to sell to Hanks Optometrists certain of the debtors of EOPL relating to the Businesses.
(g) stamp duty arising from the sale of the practices to Hanks Optometrists is for the account of Hanks Optometrists.
(h) it is proposed to sell each of the Businesses as a going concern for GST purposes. Specifically, the Sale has been structured as the sale of 3 businesses, namely:
(i) Business 1: the Port Macquarie cluster of optometry practices (William Street, Horton Street and Wauchope) – recognised as a single business due to the sharing of staff and resources;
(ii) Business 2: the Whitsunday cluster of optometry practices (Cannonvale and Proserpine) – recognised as a single business due to the sharing of staff and resources; and
(iii) Business 3: the Gympie optometry practice.
(i) EOPL is giving limited warranties to Hanks Optometrists in relation to its capacity, solvency, authorisations, assets, inventory, insurances, leases, employees and licenses and permits.
4. Legal and regulatory requirements
Part 2J.1 of the Corporations Act
Under section 257A of the Corporations Act, the Company may only buy back its own shares if:
(a) the Buy-back does not materially prejudice the Company's ability to pay its creditors; and
(b) the Company follows the procedures for selective buy-backs set out in the Corporations Act.
The Directors consider that the proposed Buy-back will not materially prejudice the Company's ability to pay its creditors.
The Buy-back is a selective buy-back. Section 257D of the Corporations Act requires that the terms of the Buy-back Agreement be approved by a special resolution passed at a general meeting of the company, with no votes being cast in favour of the resolution by any person whose Shares are proposed to be bought back or by their Associates.
As the Hanks Entities are parties to the Buy-back Agreement, pursuant to sections 257D (1) and 257H (1) of the Corporations Act neither they nor their Associates are entitled to vote on the Proposed Resolution.
Listing Rule 10.1
Listing Rule 10 deals with transactions between an entity and persons in a position to influence the entity. Transactions covered by this rule include acquiring and disposing of substantial assets by the company and acquiring shares in the company.
For personal use only use personal For Listing Rule 10.1 provides that a company must ensure that neither it nor any of its child entities acquire a substantial asset from or disposes of a substantial asset to any of the following without approval of the shareholders:
(a) a related party;
(b) a subsidiary;
Notice of EGM & Explanatory Statement 14 (c) a substantial holder if he and associates have a relevant interest (or did at any time in six months before the transaction) in at least 10% of the total votes attached to voting shares;
(d) an associate of any (a), (b) or (c);
(e) any person whose relationship set out in (a), (b), (c), (d) is such that in the opinion of ASX the transaction should be approved by the shareholders.
An asset is substantial if its value or the value of the consideration for it is 5% or more of the equity interests of the company.
A person is a substantial holder in a company if:
(a) the total votes attaching to voting shares in the company, in which they or their associates;
(i) have relevant interests; and
(ii) would have a relevant interest but for subsection 609(6) (market traded options) or 609(7) (conditional agreements) of the Corporations Act;
is 5% or more of the total number of votes attached to voting shares in the company; or
(b) the person has made a takeover bid for the voting shares in the company and the bid period has started and not yet ended.
Listing Rule 10.1 will apply to the Proposed Transactions as:
(a) the 28,346,219 Shares currently owned by the Hanks Entities amount to approximately 20.79% of the issued Shares in the Company, and therefore the Hanks Entities are classified as “substantial holders”; and
(b) the value of the Businesses exceeds 5% of the equity interests of EPL, and therefore the Businesses are classified as substantial assets.
5. Directors’ interests
Set out below are details of the relevant interests of each Director in the share capital of the Company as at the date of this Explanatory Statement.
Directors’ shareholdings in EPL
Fully paid ordinary Director shares in EPL Other EPL securities
Mr Raymond Fortescue & Associates 9,721,379 Nil
MrColinCoverdale&Associates Nil Nil
Mr Robert Rollinson & Associates Nil Nil For personal use only use personal For
None of the Directors have any interest in the Hanks Entities or Hanks Optometrists.
Notice of EGM & Explanatory Statement 15 6. Share Price Information
Information relating to the recent share price history of the Company is set out below.
EPL Share trading data ($ per Share)
Time Period High Low VWAP
3 months to 3 November 2011 $0.04 $0.037 $0.0393
6 months to 3 November 2011 $0.055 $0.037 $0.044
12 months to 3 November 2011 $0.06 $0.037 $0.044 Source: www.tradingroom.com.au
7. Other information
As the audited accounts of the Company for the 12 months to 30 June 2011 were provided to Shareholders on or around 22 September 2011, the Company considers it unnecessary to provide these accounts again at this time.
There is no further information known to the Company that is material to the decision as to how to vote on the Proposed Resolution.
Any Shareholder who has any doubt about the information provided in the Notice of General Meeting and the Explanatory Statement, or the action he or she should take should consult their financial, taxation or
other professional adviser. For personal use only use personal For
Notice of EGM & Explanatory Statement 16 Glossary
Defined Term Meaning
A$, $ or cents Australian currency
ASIC Australian Securities and Investments Commission
Associate the meaning given in the Corporations Act
ASX Australian Stock Exchange Limited (ABN 98 008 624 691)
Board the board of the Company from time to time
Businesses the meaning given in Section 1 of the Explanatory Statement
Business Sale Agreement the business sale agreement dated 19 October 2011 relating to the sale of the Businesses by EOPL to Hanks Optometrists Buy-back the selective buy-back of 28,346,219 Shares by the Company pursuant to the terms of the Buy-back Agreement Buy-back Agreement the share buy-back agreement dated 19 October 2011 relating to the selective buyback of all shares in the Company held by the Hanks Entities or their Associates (whether held individually or jointly) Chairman the chairman of the Board from time to time
Company Eyecare Partners Limited (ABN 47 006 505 880)
Corporations Act Corporations Act 2001 (Cth)
Director a director appointed to the Board from time to time
EBITDA earnings before interest, tax, depreciation and amortisation
EGM the extraordinary general meeting of Shareholders to be held at 10.30 am on 20 December 2011 at Ground Floor, 4A Lord Street, Botany, NSW, 2019 EOPL Eyecare Operations Pty Ltd (ABN 77 125 366 225)
Explanatory Statement the explanatory statement contained in this document, and any supplementary or replacement explanatory statement FY11 the period of 12 months ending on 30 June 2011
FY12 the period of 12 months ending on 30 June 2012
Hanks Entities collectively, Dr Anthony Hanks OAM, Vicki Hanks, the Partnership and Utada Hanks Optometrists Hanks Optometrists Pty Ltd (ABN 69 153 267 460) as trustee for the Hanks Family Trust (ABN 15 765 921 432)
Implementation Deed the implementation deed dated 19 October 2011 between the Company, EOPL and the Hanks Entities
Independent Directors Mr Robert Rollinson and Mr Colin Coverdale
Independent Expert Mr Alan Max of Moore Stephens Sydney Corporate Finance Pty Ltd
Independent Expert’s Report the independent expert’s report prepared by the Independent Expert at For personal use only use personal For the request of the Company’s Directors, as set out in the Appendix to this Notice of EGM and Explanatory Statement Listing Rules the listing rules of ASX
NAB group National Australia Bank Limited (ACN 004 044 937) and/or its relevant subsidiaries
Notice of EGM & Explanatory Statement 17 Defined Term Meaning
Non-Associated Shareholders all Shareholders excluding the Hanks Entities and their Associates
Notice of EGM the notice of extraordinary general meeting dated 18 November 2011 contained in this document, and any supplementary or replacement notice Partnership the partnership of Dr Anthony Hanks OAM and Vicki Hanks with an ABN 80 224 254 499 that is known as “AJ & VJ Hanks” Promissory Notes promissory notes issued by the Company with an aggregate face value of $1,190,541 Proposed Resolution the special resolution set out in the Notice of EGM
Proposed Transactions the Buy-back and the Sale, further details of which are set out in the Explanatory Statement Proxy Form the proxy form enclosed with this Notice of EGM and Explanatory Statement
Registered Office the registered office of the Company, being Ground Floor, 4A Lord Street, Botany, NSW, 2019
Sale the meaning given in Section 1 of the Explanatory Statement
Share a fully paid ordinary share in the capital of the Company
Shareholder a holder of one or more Shares
Share Registrar Computershare Investor Services Pty Ltd, whose contact details are set out on the Proxy Form
Transaction Documents collectively, the Implementation Deed, the Buy-back Agreement and the Business Sale Agreement Utada Utada Pty Ltd (ACN 003 680 617) as trustee for the Utada
Superannuation Fund (ABN 11 722 195 955) For personal use only use personal For
Notice of EGM & Explanatory Statement 18
Appendix: Independent Expert’s Report For personal use only use personal For
Notice of EGM & Explanatory Statement 19
Eyecare Partners Limited Independent Expert’s Report
16 November 2011
Moore Stephens Sydney Corporate Finance Pty Ltd
Level only use personal For 7, 20 Hunter Street Sydney NSW 2000 Australia Tel: +61 2 8236 7700 Fax: +61 2 9233 4636 www.moorestephens.com.au
An affiliate of Moore Stephens Sydney Pty Ltd. Moore Stephens Sydney Pty Ltd is an independent member of Moore Stephens International Limited - members in principal cities throughout the world.
16 November 2011
The Directors Eyecare Partners Limited Ground Floor, 4A Lord Street Botany NSW 2019
Dear Directors
INDEPENDENT EXPERT’S REPORT FOR NON-ASSOCIATED SHAREHOLDERS OF EYECARE PARTNERS LIMITED
1. Introduction Eyecare Partners Limited (“ Eyecare ” or “ the Company ”) has entered into an Implementation Deed with Dr Anthony Hanks OAM (“Hanks ”), Vicki Hanks and various associated entities (collectively the “ Hanks Entities ”) which provides that, subject to certain conditions: • Eyecare will undertake a selective buy back of all shares currently owned by the Hanks Entities, equating to 28,346,219 fully paid ordinary shares (“Buyback Shares” ) or 20.8% of Eyecare’s issued share capital (the “Buyback ”). The consideration for the Buyback will be $0.042 per share, or $1,190,541 in aggregate, payable by way of promissory notes issued to the relevant Hanks Entities. • Eyecare will sell six optometry practices (the “ Businesses ”) to a Hanks Entity for $2,540,541 (the “ Sale ”). The consideration will be partly an assignment of the Buyback promissory notes with a face value of $1,190,541 and partly a cash payment of $1,350,000 (“ Cash Consideration ”) (subject to certain adjustments).
The Buyback and the Sale together constitute the “ Proposed Transaction ”.
The Directors of Eyecare have engaged Moore Stephens Sydney Corporate Finance Pty Ltd (“ Moore Stephens ”) to prepare an independent expert’s report (“ Report ”) advising whether the Proposed Transaction is fair and reasonable to shareholders of Eyecare that are not associated with the Hanks Entities (“ Non-associated Shareholders ”).
2. Scope and Purpose We understand that the Proposed Transaction is subject to the following legislation and regulations in relation to disclosures to shareholders:
(a) Corporations Act 2001 (“the Act”)
Under section 257D(1) of the Act, a selective buy-back must be approved by either a:
• Special resolution passed at a general meeting of the company, with no votes For personal use only use personal For being cast in favour of the resolution by any person whose shares are proposed to be bought back or by their associates; or
• Resolution agreed to, at a general meeting, by all ordinary shareholders.
Under section 257D(2) of the Act, Eyecare must include with the notice of meeting a statement setting out all information known to it that is material to the decision on how to vote on the resolution.
Further, under section 257G of the Act, the offer to buy-back shares must include a statement setting out all information known to the company that is material to the decision whether to accept the offer.
ASIC Regulatory Guide 110 “ Share buy-backs ” states that a company should consider providing a Report with a valuation of the shares when making disclosures to shareholders in terms of sections 257D(2) and 257G of the Act.
(b) Australian Securities Exchange (“ASX”) Listing Rules
ASX Listing Rule 10.1 prohibits a listed entity from acquiring a substantial asset from, or disposing of a substantial asset to, an entity in a position of influence without the prior approval of its shareholders. ASX Listing Rules 10.1 applies to the Proposed Transaction.
Under ASX Listing Rule 10.10.2, a notice of meeting containing a resolution being put to shareholders for the purposes of ASX Listing Rule 10.1 must be accompanied by a Report stating whether or not the proposed transaction is fair and reasonable to the shareholders not associated with the transaction (“Non-associated Shareholders”).
This Report has been prepared by Moore Stephens for inclusion in Eyecare’s Notice of Extraordinary General Meeting and Explanatory Memorandum to assist Non- associated Shareholders to decide whether or not to approve the Proposed Transaction. The sole purpose of this Report is to express our opinion as to whether the Proposed Transaction is fair and reasonable to the Non-associated Shareholders.
This is a summary of Moore Stephens’ opinion as to the merits or otherwise of the Proposed Transaction. This summary should be considered in conjunction with, and not independently of, our detailed Report.
3. Basis of Evaluation Under the Australian Securities & Investments Commission Regulatory Guide 111 “Content of expert reports” : • A proposed transaction 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. This comparison should be made assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm’s length.
• A proposed transaction is “ reasonable ” if it is “ fair ”; and For personal use only use personal For • A proposed transaction may be reasonable if, despite being “ not fair ”, the expert believes there are sufficient other reasons for shareholders to vote for the proposal in the absence of a superior alternative.
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RG111 requires the expert to focus on the substance of the transaction rather than the legal mechanism used to effect the transaction.
4. Summary of Opinion
Proposed Transaction is Fair to Non-associated Shareholders In our opinion the Proposed Transaction is fair to Non-associated Shareholders as the aggregate value of the Buyback Shares and Cash Consideration is greater than the value of the Businesses.
Proposed Transaction is Reasonable to Non-associated Shareholders After forming an opinion that the Proposed Transaction is fair and after considering the advantages and disadvantages of the Proposed Transaction to the Non- associated Shareholders of Eyecare, as set out in Section 9 of this Report, in our opinion the Proposed Transaction is also reasonable to the Non-associated Shareholders.
Yours faithfully
Moore Stephens Sydney Corporate Finance Pty Ltd
Alan Max Scott Whiddett
Director Director For personal use only use personal For
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Contents
1. PROPOSED TRANSACTION ...... 1 2. BASIS OF ASSESSMENT ...... 1 2.1 Corporations Act 2001 ...... 1 2.2 Australian Securities Exchange Listing Rules ...... 2 2.3 ASIC Regulatory Guide 111...... 2 2.4 Purpose ...... 3 2.5 Limitations and Reliance on Information ...... 3 3. OVERVIEW OF EYECARE ...... 3 3.1 Company Overview ...... 3 3.2 Financial Performance ...... 5 3.3 Financial Position ...... 7 3.4 Capital Structure ...... 8 3.5 Share Price Performance and Liquidity ...... 10 4. OVERVIEW OF THE BUSINESSES...... 11 5. OPTOMETRY INDUSTRY ...... 12 5.1 Revenue Segmentation and Drivers ...... 13 5.2 Market Players ...... 14 6. IMPACT OF THE PROPOSED TRANSACTION ...... 15 6.1 Impact on NTA per Share ...... 15 6.2 Impact on EPS ...... 16 6.3 Impact on Share Structure ...... 17 7. APPROACH AND VALUATION METHODOLOGIES ...... 17 8. FAIRNESS OF THE PROPOSED TRANSACTION ...... 18 8.1 Value of Businesses ...... 18 8.1.1 Maintainable Earnings of Businesses ...... 18 8.2 Value of Buyback Shares...... 19 8.2.1 Maintainable Earnings of Eyecare ...... 19 8.3 EBITDA Multiple ...... 21 8.3.1 Trading Multiples ...... 21 8.3.2 Eyecare Transaction Multiples ...... 22 8.3.3 Other Transaction Multiples ...... 22
For personal use only use personal For 8.3.4 Other Considerations applicable to both Eyecare and the Businesses ...... 23 8.4 Surplus Assets and Debt ...... 23 8.5 Valuation Cross-Check ...... 24 8.5.1 Summary ...... 24 8.5.2 Assumptions ...... 26
8.5.3 Control Premium ...... 26 8.6 Comparison of Fair Value with Recent Trading Prices ...... 27 8.7 Before and After Proposed Transaction ...... 28 9. EVALUATION OF THE PROPOSED TRANSACTION ...... 28 9.1 Fairness of the Proposed Transaction ...... 29 9.2 Reasonableness of the Proposed Transaction ...... 29 9.2.1 Advantages of Approving the Proposed Transaction ...... 29 9.2.2 Disadvantages of Approving the Proposed Transaction ...... 30 9.3 Conclusion ...... 30
Appendix 1 – Financial Services Guide Appendix 2 – Disclosures Appendix 3 – Valuation Methodologies Appendix 4 – Peer Group Companies Appendix 5 – Comparable Company Transactions
Appendix 6 – Sources of Information For personal use only use personal For
1. Proposed Transaction Eyecare Partners Limited (“ Eyecare ” or “ the Company ”) has entered into an Implementation Deed with Dr Anthony Hanks OAM (“ Hanks ”), Vicki Hanks and various associated entities (collectively the “ Hanks Entities ”) which provides that, subject to certain conditions: • Eyecare will undertake a selective buy back of all shares currently owned by the Hanks Entities, equating to 28,346,219 fully paid ordinary shares (“ Buyback Shares ”) or 20.8% of Eyecare’s issued share capital (the “Buyback ”). The consideration for the Buyback will be $0.042 per share, or $1,190,541 in aggregate, payable by way of promissory notes issued to the relevant Hanks Entities. • Eyecare will sell six optometry practices (the “ Businesses ”) to a Hanks Entity for $2,540,541 (the “ Sale ”). The consideration will be partly an assignment of the Buyback promissory notes with a face value of $1,190,541 and partly a cash payment of $1,350,000 (“ Cash Consideration ”) (subject to certain adjustments).
The Buyback and the Sale together constitute the “ Proposed Transaction ”.
The Sale consideration will be adjusted to the extent that: • The value (at cost) of inventory in the Businesses exceeds or falls short of a target inventory value of $284,396; and • Certain debtors of Eyecare are sold to the Hanks Entities.
In addition, the Proposed Transaction is subject to a “sunset date” of 31 January 2012 after which either party may terminate the Proposed Transaction if all conditions associated with it have not yet been met.
2. Basis of Assessment
2.1 Corporations Act 2001 ( “the Act” ) Section 257A of the Act provides that a company may buy back its own shares if: • The buy-back does not materially prejudice the company’s ability to pay its creditors; and • The company follows the procedures laid down in Part 2J.1 Division 2 of the Act.
Under section 257D(1) of the Act, a selective buy-back must be approved by either a: • Special resolution passed at a general meeting of the company, with no votes being cast in favour of the resolution by any person whose shares are
proposed to be bought back or by their associates; or For personal use only use personal For • Resolution agreed to, at a general meeting, by all ordinary shareholders.
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Under section 257D(2) of the Act, Eyecare must include with the notice of meeting a statement setting out all information known to it that is material to the decision on how to vote on the resolution.
Further, under section 257G of the Act, the offer to buy-back shares must include a statement setting out all information known to the company that is material to the decision whether to accept the offer.
ASIC Regulatory Guide 110 “Share buy-backs” states that a company should consider providing an independent expert’s report (“Report” ) with a valuation of the shares when making disclosures to shareholders in terms of sections 257D(2) and 257G of the Act.
2.2 Australian Securities Exchange (“ASX”) Listing Rules ASX Listing Rule 10.1 prohibits a listed entity from acquiring a substantial asset from, or disposing of a substantial asset to, an entity in a position of influence without the prior approval of its shareholders.
"An entity in a position of influence" includes a shareholder with a relevant interest in at least 10% of the issued voting shares in the listed entity. An asset is "substantial" if its value, or the value of the consideration being paid, is 5% or more of the listed entity's equity as set out in the latest accounts lodged with the ASX.
With the Hanks Entities owning an interest in over 20% of the issued voting shares in Eyecare and the value of the consideration being paid in the Proposed Transaction being greater than 5% of Eyecare's equity, ASX Listing Rule 10.1 shall apply to the Proposed Transaction.
Under ASX Listing Rule 10.10.2, a notice of meeting containing a resolution being put to shareholders for the purposes of ASX Listing Rule 10.1 must be accompanied by a Report stating whether or not the proposed transaction is fair and reasonable to the shareholders not associated with the transaction.
2.3 ASIC Regulatory Guide 111 In preparing our Report we have had regard to the guidelines set out in the Australian Securities & Investments Commission (“ ASIC ”) Regulatory Guide 111 “Content of expert’s reports ” (“ RG111 ”). Neither the Act nor the ASX Listing Rules define the term “ fair and reasonable ”; however RG 111 provides that each of these criteria be assessed individually and not as a compound phrase. Under RG 111: • A proposed transaction 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. This comparison should be made assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm’s length (“ Fair Value ”). • A proposed transaction is “ reasonable ” if it is “ fair ”; and
• A proposed transaction may be reasonable if, despite being “not fair ”, the For personal use only use personal For expert believes there are sufficient other reasons for shareholders to vote for the proposal in the absence of a superior alternative.
RG111 requires the expert to focus on the substance of the transaction rather than the legal mechanism used to effect the transaction.
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2.4 Purpose Consistent with the above requirements, the Directors of Eyecare have appointed Moore Stephens Sydney Corporate Finance Pty Ltd (“ Moore Stephens ”) as an independent expert to prepare a Report.
This Report has been prepared by Moore Stephens for inclusion in Eyecare’s Notice of Extraordinary General Meeting and Explanatory Memorandum to assist shareholders of Eyecare that are not associated with the Hanks Entities (“ Non- associated Shareholders”) to decide whether or not to approve the Proposed Transaction. The sole purpose of this Report is to express our opinion as to whether the Proposed Transaction is fair and reasonable to the Non-associated Shareholders.
The Report may not be used for any other purpose, or by any other party, and Moore Stephens will not accept any responsibility for its use outside this purpose. No extract, quote or copy of this Report, in whole or in part, should be reproduced without the prior written consent of Moore Stephens, as to the form and context in which it appears.
2.5 Limitations and Reliance on Information Our opinion is based on market, economic and other factors existing at the date of this Report. Such conditions can change significantly in short periods of time.
Our Report is based upon financial and other information provided by Eyecare’s representatives, contractors, advisors, agents and/or related parties (“ Providers ”). In forming our opinion we have reviewed and relied upon this information and have no reason to believe that the information provided is not reliable, accurate and complete. Also, we have no reason to believe that material facts or information have been withheld by the Providers.
The information provided was evaluated through analysis, enquiry and review for the purpose of forming an opinion as to whether the Proposed Transaction is fair and reasonable. Our enquiries and procedures do not constitute an audit, extensive examination or “due diligence” investigation. None of these assignments have been undertaken by Moore Stephens.
In forming the opinion expressed in this Report, the opinions and judgments of management of Eyecare have been considered. Although this information has been evaluated through analysis, enquiry and review to the extent practical, inherently such information is not always capable of independent verification.
3. Overview of Eyecare
3.1 Company Overview Eyecare owns and operates optometry practices providing optometric health services and optical products to patients. The practices have recently been
For personal use only use personal For rebranded “ EyeQ Optometrists ”.
Eyecare provides a full scope of primary eye care services, including eye examinations, contact lenses, behavioral optometry and low vision services, and also engages in the co-management of medical and post-operative conditions with local ophthalmologists.
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Eyecare currently operates 34 practices across Australia, with locations in NSW, QLD, VIC, WA and SA. The Company’s head office has recently relocated to Sydney.
In July 2007, the Company (then a listed shell company) acquired 16 optometry practices in exchange for the issue of shares and options. The 16 practices acquired included 10 practices from the Hanks Entities. Eyecare acquired additional practices from 2007 to 2009, mainly in regional areas.
In March 2011, Eyecare completed a strategic review resulting in the implementation of the following more significant projects: • Rebrand practices as “ EyeQ Optometrists ” to create a uniform brand across the group (from 5 brand names previously) and facilitate a consistent marketing approach. • Introduce a common practice management software program to improve operational efficiencies which include better management of inventory levels, pricing and marketing across the group. • Relocation of the national office from Melbourne to Sydney to enable all national office personnel to be located in one location. • Introduce new supplier purchasing agreements to achieve better purchasing opportunities and improved profitability. This requires the termination of Eyecare’s membership of Eyecare Plus, a business support group for optometrists which provides territory specific business development support and advertising materials, workshops and training, and group purchasing support. • Sale or closure of unprofitable practices to eliminate a drain on financial and operational resources resulting in improved profitability. To date: - 3 practices have been closed; and - 3 practices have been sold. • Introduction of consistent HR policies across the group to standardise
contracts, staff benefits and incentives. For personal use only use personal For
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3.2 Financial Performance 3.2.1. Actual Financial Performance The following table summarises Eyecare’s historic financial performance:
FY08 FY09 FY10 FY11 1Q12 ($000) ($000) ($000) ($000) ($000)
Sale of goods 11,579 22,502 24,868 22,875 5,262 Rendering of services 4,390 4,840 5,261 4,980 1,223
Total revenue 15,969 27,342 30,129 27,855 6,484 Cost of goods sold (4,863) (8,891) (9,555) (8,098) (1,819)
Gross profit 11,106 18,451 20,574 19,757 4,665 Gross profit margin (%) 69.5 67.5 68.3 70.9 71.9
Employee benefits expense (6,388) (11,869) (13,448) (12,360) (2,895) Occupancy expense (1,048) (1,831) (2,491) (2,563) (735) Other expenses (1,350) (2,359) (2,549) (2,363) (786)
Earnings befo re interest, tax, depreciation and amortisation (“EBITDA ”) 2,320 2,392 2,086 2,471 250 EBITDA margin (%) 14.5 8.7 6.9 8.9 3.9
Depreciation & amortisation (212) (563) (806) (852) (201) Impairment of Goodwill - - (4,945) - -
Earnings befo re interest and tax (“EBIT ”) 2,108 1,829 (3,665) 1,619 49
Interest and dividend income 194 135 60 84 11 Interest expense (5) (449) (560) (535) (124) Other income 318 445 36 - -
Profit / (Loss) before tax 2,615 1,960 (4,129) 1,168 (64) Income tax expense (799) (576) (243) (341) 19
Profit / (Loss) after tax 1,816 1,384 (4,372) 827 (45)
Source: Eyecare’s audited financial statements for FY09, FY10 and FY11 and unaudited management accounts for the first quarter of FY12. Note: Numbers may not add due to rounding.
We note the following with regard to Eyecare’s historic financial performance: • Total revenue increased by 71% in FY09 from $16.0 million to $27.3 million,
For personal use only use personal For largely as a result of the acquisition of a number of optometry practices in FY08 (refer section 3.5). Accordingly, FY08 only reflected a partial period of earnings for the acquisitions. • Eyecare’s negative earnings in FY10 are primarily caused by a goodwill impairment expense of $4.9 million, a non-recurring item.
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• Results for Quarter 1 FY12 include significant one-off costs associated with the strategic review and Proposed Transaction costs.
3.2.2. Normalised EBITDA The following table summarises our normalised EBITDA calculation:
Note FY10 FY11
($000) ($000)
EBITDA 2,086 2,471
Normalisation Adjustments
Add back:
Discontinued practices 1 463 527 Professional service fees 2 - 150
New software installation 3 - 25
CEO termination charges 4 450 -
Redundancy costs - Settlement City 5 - 20
Additional advertising costs 6 - 50
Total 913 772
Normalised EBITDA 2,999 3,243
Normalised EBITDA % 7 11% 12%
(1) Negative EBITDA contribution of practices which have been subsequently closed or sold.
(2) Professional fees related to strategic review and Proposed Transaction. (3) Software update to bring all practices onto one reporting platform. (4) Costs associated with termination of previous CEO’s employment contract. (5) Redundancy costs associated with the closure of the Settlement City practice. (6) Costs associated with rebranding. (7) Normalised EBITDA / Normalised revenue.
For personal use only use personal For
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3.3 Financial Position The following table summarises Eyecare’s historic financial position: As at 30 June 30 June 30 June 30 June 30 Sept 2008 2009 2010 2011 2011 ($000) ($000) ($000) ($000) ($000)
Cash and equivalents 2,631 1,359 838 1,861 2,013 Receivables 744 942 813 893 917 Inventories 1,265 2,191 2,134 1,571 1,494 Current tax receivable - - 366 - - Other current assets 261 231 255 258 280 Assets held for sale - - - 113 - Total current assets 4,901 4,723 4,406 4,696 4,704
Other financial assets 134 506 384 355 355 Deferred tax assets 172 295 305 307 315 Plant and equipment 1,692 3,792 3,638 2,826 2,692 Intangible assets 21,129 30,064 25,037 25,150 25,150 Total non-current assets 23,127 34,657 29,364 28,638 28,513 Total assets 28,028 39,380 33,770 33,334 33,217
Payables 649 1,920 1,972 1,990 2,531 Borrowings 21 1,754 6,224 4,781 4,412 Current tax payable 713 630 - 23 (73) Provisions 261 757 834 997 854 Other current liabilities - - - 17 - Total current liabilities 1,644 5,061 9,030 7,808 7,724
Borrowings 61 5,245 120 51 41 Provisions 129 93 97 144 176 Total non-current liabilities 190 5,338 217 195 217 Total liabilities 1,834 10,399 9,247 8,003 7,941 Net assets 26,194 28,981 24,523 25,331 25,276
Contributed capital 22,918 24,778 24,778 24,778 24,778 Reserves 2,395 2,701 2,615 159 149
Retained earnings / (Accumulated losses) 881 1,502 (2,870) 394 349 Total equity 26,194 28,981 24,523 25,331 25,276
For personal use only use personal For Source: Eyecare’s audited financial statements for FY09, FY10 and FY11 and unaudited management accounts as at 30 September 2011. Note: Numbers may not add due to rounding.
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We note the following with regard to Eyecare’s historic balance sheets: • Intangible assets of $25.2 million at 30 June 2011 represent goodwill at cost of $30.1 million less accumulated impairment losses of $4.9 million. • Borrowings at 30 June 2011 are represented by $4.7 million in a secured floating rate bank facility and $0.1 million in finance leases. The bank facility has been classified as a current liability based on the facility terms; however it is not due to expire until 30 September 2013. • The assets held for sale at 30 June 2011 relate to two practices in Victoria that Eyecare planned to sell at that date. The sale was subsequently finalised in July 2011. • Reserves records the value of options issued to shareholders, directors and employees as part of their remuneration. The decrease in FY11 reflects the transfer to retained earnings for the value of lapsed options.
3.4 Capital Structure Eyecare has approximately 136.4 million ordinary shares on issue, with the Top 10 shareholders holding approximately 56% of the issued shares as at 25 August 2011, as indicated below:
Registered Shareholder Shares Held Percentage of Issued Shares (000) (%)
Dr Anthony John Hanks + Mrs Vicki Joyce Hanks 14,506 10.6 Bipalo Pty Ltd
Top 10 Shareholders Subtotal 76,157 55.8 Other Shareholders 60,219 44.2
Total 136,376 100.0
Source: Annual Report FY11. Note: Numbers may not add due to rounding.
For personal use only use personal For
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The following shareholders, together with their related parties, have a 5% or greater interest in Eyecare:
Substantial Shareholder Shares Held Percentage of Issued Shares (000) (%)
Hanks Entities 28,346 20.8 Bipalo Pty Ltd and related parties 26,176 19.2 Wetahall Pty Ltd and related parties 9,721 7.1 Ludeba Pty Ltd and related parties 9,325 6.8
Substantial Sharehol ders Subtotal 73,568 53.9 Other Shareholders 62,807 46.1
Total 136,376 100.0
Source: Shareholder list as of 20 October 2011. Note: Numbers may not add due to rounding
The Directors collectively held a direct and indirect interest in 9.7 million shares at 25 August 2011, representing 7.1% of issued shares.
Eyecare had 1.3 million employee options outstanding as of 30 June 2011 which are due to expire on 30 November 2011. The exercise price of these options is $0.20, well out of the money.
For personal use only use personal For
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3.5 Share Price Performance and Liquidity The chart below illustrates Eyecare’s daily closing share price and volumes traded since 9 August 2007, the date the Company re-commenced trading following its change in focus and acquisition of the 16 optometry practices.
Source: Capital IQ
Commentary We observe the following in relation to Eyecare’s share price history during the period 9 August 2007 to 15 November 2011: • Shares have traded between a high of $0.23 on 9 August 2007 and 22 October 2007 and a low of $0.037 on 5 August through 5 September 2011. • The share price was $0.039 on the last trading day prior to the announcement of the Proposed Transaction i.e. 18 October 2011 (“Last Trading Day ”).
For personal use only use personal For
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An analysis of the trading liquidity of Eyecare’s shares in the 12 months up to the Last Trading Day, is set out below:
Period Closing share price VWAP Cumulative As a % of issued High Low volume capital ($) ($) ($) (000) (%)
1 week 0.039 0.038 0.039 5 0.0 1 month 0.039 0.038 0.038 11 0.0 3 months 0.042 0.037 0.040 662 0.5 6 months 0.055 0.037 0.045 1,626 1.2 12 months 0.060 0.037 0.044 3,873 2.8
Source: Capital IQ
The above analysis indicates that the market for Eyecare’s shares is illiquid.
We summarise below notable capital events of the Company over the period analysed:
Date Event 7 August 2007 Company reports raising $4.8 million under a prospectus issued in June 2007 9 August 2007 Hanks Entities, Peter Rose Group, Raymond Fortescue Group and Mark Flanders Group announced as substantial holders following the sale of their optometry practices to Eyecare 13 August 2007 Acquires 2 optometry practices 9 October 2007 Acquires 2 optometry practices 26 February 2008 Acquires 1 optometry practice 7 April 2008 Acquires 1 optometry practice 14 April 2008 Acquires 4 optometry practices 27 June 2008 Acquires 7 optometry practices 1 July 2008 Issues 0.1 million ordinary shares and 7.1 million convertible notes in connection with acquisitions announced on 27 June 2008 2 October 2008 Acquires 5 optometry practices and issues 0.5 million convertible notes in connection with the acquisition 21 January 2009 Acquires 1 optometry practice 26 February 2009 Acquires 1 optometry practice 21 April 2009 Announces sale of unmarketable parcels of shares of less than $500 for a total consideration of $87,239 31 July 2009 Acquires 1 optometry practice 19 October 2011 Announcement of Proposed Transaction
4. Overview of the Businesses For personal use only use personal For The Businesses comprise of six optometry practices located in three “clusters” in Northern NSW and QLD. The Businesses have been operating for many years and were previously under the supervision of Hanks who originally founded the Businesses and sold them to Eyecare in 2007.
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Hanks is a Doctor of Optometry, and a founder and chairman of Eyecare Plus Limited, a business support group for optometrists which provides territory specific business development support and advertising materials, workshops and training, and group purchasing.
A summary of the locations and historic financial performance of the individual practices comprising the Businesses is set out below:
Location State Employees Revenue EBITDA 2011 2009 2010 2011 2009 2010 2011 ($000) ($000) ($000) ($000) ($000) ($000)
Port Macquarie - William Street NSW 9 1,283 1,291 1,194 160 131 163 Port Macquarie - Horton Street NSW 4 341 324 375 (36) (70) (22) Wauchope NSW 3 467 481 425 95 82 71 Proserpine QLD 2 437 462 387 124 132 120 Cannonvale QLD 3 642 595 569 149 96 123 Gympie QLD 5 773 756 726 167 141 176
Total 3,943 3,908 3,676 659 512 631
The following table sets out the aggregate historic financial performance and normalised EBITDA calculation of the Businesses:
Normalised EBITDA Note FY09 FY10 FY11 ($ 000 ) ($ 000 ) ($ 000 )
Revenue 3,943 3,908 3,676
Gross Profit 2,729 2,625 2,650 Gross margin (%) 69.2 67.2 72.1
EBITDA 659 512 631 EBITDA margin (%) 16.7 13.1 17.2 Normalisation Adjustment Support Services 1 (100) (100) (100) Normalised EBITDA 559 412 531
(1) There are no allocations made to the Businesses in relation to head office expenses. As such we have applied a normalisation adjustment of $100,000 to reflect support services likely to be required upon exiting the Eyecare structure including accounting, marketing, advertising and administrative services.
5. Optometry Industry There are over 3,600 optometry establishments in Australia, employing around 9,800
For personal use only use personal For full time equivalent staff. The optometry and optical dispensing industry is expected to generate revenue of $1.6 billion in FY12, with an average annualised real growth rate of 1.5% in the five years to FY12 1.
1 IBISWorld: Optometry and Optical Dispensing in Australia (July 2011)
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5.1 Revenue Segmentation and Drivers Optometry practices typically generate their revenue from two key sources: • Provision of optometry services - specialist examination of the eyes and related structures to determine vision problems and other abnormalities, and provide and adapt optical aids. • Dispensing of optical goods - sale of visual aids, including subscriptions for spectacles and non-prescription glasses in a range of styles for frames and lenses.
Source: IBISWorld: Optometry and Optical Dispensing in Australia (July 2011)
For the 2010 year, industry revenue from dispensing of optical goods was approximately 77% of total optometry industry revenue, with the remaining 23% from the provision of optometry services. The ratio of optical goods revenue to total revenue has remained fairly consistent over the past few years.
Key drivers of revenue for the optometry industry include: • Household Disposable Income - With household disposable income increasing at an average annual rate of 3.7% per annum over the past 5 years, and per IBISWorld expected to increase to 3.8% per annum (on average) for the next 5 years, there does not appear to be significant pressure on households to cut expenditure on healthcare products and services. • Private Health Insurance - The number of individuals registering for private health insurance has increased in the past four years and as a result the number of insured optical services has increased by an average annualised
For personal use only use personal For rate of 11% over this period. • Federal Medicare Funding - Revenue from optometry services is driven by the Federal Governments’ fee schedule. As such optometrists are heavily reliant on government policy to sustain or grow their optometry services revenue.
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• Ageing Population - The median age in Australia has increased by 4.8 years over the past two decades (per the Australian Bureau of Statistics). With an ageing population the likelihood that optometry and other health services will be required increases significantly.
While demand for optometry products and services is on the rise, prices for these products and services are falling in real terms. New players have entered the optical dispensing market and they are competing fiercely on price to gain market share.
Industry revenue is forecast to increase at an annualised real rate of 2.2% in the next five years, to $1.75 billion in 2016-17 2. However, profit margins are expected to be pressurised over this period by downward pressure on average unit selling prices.
5.2 Market Players Over the past five years there has been a 2% increase in the number of optometry establishments 3 in Australia; however a 13% decrease in the number of enterprises 4 providing optometry services 5. This indicates that large players in the industry are buying establishments and increasing their market share. IBISWorld projects this trend to continue over the next few years with both the number of establishments increasing and the number of enterprises operating these establishments decreasing.
Source: IBISWorld Optometry and Optical Dispensing in Australia (July 2011)
For personal use only use personal For
2 IBISWorld: Optometry and Optical Dispensing in Australia (July 2011). 3 Establishment: The smallest type of accounting unit within an Enterprise; usually consists of one or more locations. 4 Enterprise: A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry. 5 IBISWorld: Optometry and Optical Dispensing in Australia (July 2011).
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Whilst there are a large number of enterprises providing optometry services in Australia, the top two largest enterprises have a combined market share in excess of 55%: • Luxottica South Pacific Holdings Pty Ltd (“ Luxottica ”) - a subsidiary of the Italian Luxottica Group that owns and operates over 7,000 optometry stores globally. Luxottica continues to build its presence in the Australian market (with a market share of approximately 35%) through the brands: OPSM, Laubman & Pank, Budget Eyeware and Sunglass Hut. • Specsavers Pty Ltd – a subsidiary of the United Kingdom based optical retailer, that has a market share of approximately 20% since beginning retailing to the Australian market in February 2008.
6. Impact of the Proposed Transaction In assessing the Proposed Transaction, we have considered the potential impact on Eyecare’s net tangible assets (“ NTA ”) per share, earnings per share (“ EPS ”) and share structure.
6.1 Impact on NTA per Share The table below sets out the impact on NTA per share (based on 30 September 2011 NTA):
Balance sheet Pro -forma Pro -forma adjustments (2) balance sheet 30 Sept 2011 30 Sept 2011 ($000) ($000) ($000)
Total current assets 4,704 1,084 5,788 Total non-current assets 28,513 (2,095) 26,417 Total assets 33,217 (1,012) 32,205 Total current liabilities 7,724 (175) 7,549 Total non-current liabilities 217 - 217 Total liabilities 7,941 (175) 7,766 Net assets 25,276 (837) 24,439 Less: Intangible assets (1) (25,465) 1,834 (23,631) Net tangible assets (189) 997 808 Shares outstanding 136,376 (28,346) 108,029
Net assets per share ($) 0.1853 0.2262 NTA per share ($) (0.0014) 0.0075
Source: Eyecare’s unaudited management accounts as at 30 September 2011 and pro-forma adjustments provided by Eyecare. Note: Numbers may not add due to rounding.
For personal use only use personal For (1) Intangible assets comprise goodwill and deferred tax assets. (2) Balance sheet impact of the Proposed Transaction, as advised by the Company.
The Proposed Transaction results in an increase to NTA per share based on the above analysis.
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6.2 Impact on EPS The table below sets out the impact on EPS of the Proposed Transaction based on the trading results for the years ended 30 June 2011: FY11 Pro -forma FY11 ($000) ($000)
Contribution of Eyecare practices (before corporate 4,000 4,000 and treasury charges) Remove contribution of the Businesses na (572) Corporate and treasury charges (2,832) (2,832) Interest savings na 81 (a)
Profit before income tax after adjustment for the 1,168 677 Proposed Transaction Tax (341) (198)(a)
Profit after income tax 827 480 Shares outstanding (000) 136,376 108,029
EPS (cents) 0.6 0.4
Source: Eyecare’s audited financial accounts as at 30 June 2011 and Moore Stephens analysis. Note: Numbers may not add due to rounding. (a) Estimated.
The Proposed Transaction results in a decrease to EPS based on the above
analysis. For personal use only use personal For
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6.3 Impact on Share Structure The table below sets out Eyecare’s substantial shareholders and the impact of the Proposed Transaction on their shareholdings:
Registered Shareholder Pre- Percentage Post- Percentage transaction of Issued transaction of Issued Shares Held Shares Shares Held Shares (000) (%) (000) (%)
Hanks Entities 28,346 20.8 - - Bipalo Pty Ltd and related parties 26,176 19.2 26,176 24.2 Wetahall Pty Ltd and related parties 9,721 7.1 9,721 9.0 Ludeba Pty Ltd and related parties 9,325 6.8 9,325 8.6
Substantial Shareholders 73 ,568 53. 9 45,223 41. 9 Other Shareholders 62,807 46.1 62,807 58.1
Total 136,376 100.0 108 ,030 100.0
Source: Shareholder list as at 20 October 2011. Note: Numbers may not add due to rounding
7. Approach and Valuation Methodologies In considering whether the Proposed Transaction is fair, our approach is to compare the: • Value of the Businesses subject to the Sale; to • Aggregate value of the: - Buyback Shares; plus - Cash Consideration (together “ Aggregate Consideration ”).
Although the Buyback relates to a 20.8% interest in the Company, in valuing the Buyback Shares we have not incorporated a control premium as the Proposed Transaction does not represent a control transaction in relation to the Hanks Entities, as contemplated by RG111. A control transaction occurs when a person acquires or increases a controlling stake in a company. The Hanks Entities are disposing of their interest in the Company.
In selecting the valuation methods to apply, we have considered the valuation guidelines set out in RG 111 and summarised in Appendix 3.
We have elected to use the capitalisation of future maintainable earnings (“ CFME ”) method as our primary valuation method to calculate the enterprise value of both Eyecare and the Businesses. The CFME method is most appropriate for businesses with a longer operating history and an earnings trend which is sufficiently stable to be indicative of ongoing earnings performance.
To cross-check the assessed CFME valuation results we have performed an For personal use only use personal For indicative discounted cash flow (“ DCF ”) analysis.
The equity value is then calculated by adding surplus assets to, and deducting debt from, the enterprise value.
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8. Fairness of the Proposed Transaction We set out our valuations of the Buyback Shares and the Businesses below:
8.1 Value of Businesses We assess the value of the Businesses to be in the range of $1.7 million to $2.1 million . The following table summarises our valuation assessment:
Section Low High
Ref ($000) ($000)
Maintainable EBITDA 8.1.1 520 550 EBITDA multiple 8.3 3.25 3.75
Assessed enterprise value (1) 1, 69 0 2,063
(1) The businesses are being sold debt-free and cash-free. 8.1.1 Maintainable Earnings of the Businesses We summarise below normalised historic EBITDA and estimated maintainable EBITDA of the Businesses:
Maintainable EBITDA Normalised EBITDA FY09 FY10 FY11 Low High ($000) ($000) ($000) ($000) ($000)
Normalised EBITDA 559 412 531 520 550
Normalised EBITDA % 14% 11% 14%
Revenue • Revenue has been in the band of $3.7m to $3.9m over the last few years and is forecast to have inflationary-like growth. Gross Profit • Gross Profit / Revenue (“GP% ”) has ranged from 67% to 72%. Gross margins are projected to stabilise towards the higher end of this range due in part to upselling of auxiliary services concentrating on clinical based servicing of customers. Expenses • Expenses are projected to remain relatively stable. EBITDA • Historic normalised EBITDA summarised (refer Section 8.1.1) ranges from $412,000 to $559,000 in recent years.
For personal use only use personal For • Normalised EBITDA% has ranged from 11% to 14% in recent years with the higher levels due to the elevated GP%.
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Other • We note that there are no allocations made to the Businesses in relation to head office expenses. As such we have applied a normalisation adjustment of $100,000 to reflect support services likely to be required upon exiting the Eyecare structure including accounting, marketing, advertising and administrative support. • Growth capital expenditure is not envisaged, only maintenance capital expenditure to replace depleted capital items.
The estimated future maintainable EBITDA relates to events and actions which have not yet occurred and may not occur. While some evidence may be available to support the best estimate assumptions on which this projection is based, such evidence is generally future orientated and therefore speculative in nature.
Actual results are likely to be different from this projection since anticipated events frequently do not occur as expected and the variation may be material. Accordingly, we do not confirm, guarantee or express an opinion as to whether the projected EBITDA will be achieved as future events, by their nature, are not capable of substantiation.
8.2 Value of Buyback Shares We assess the value of the Buyback Shares (including the Businesses) to be in the range of $1.7 million to $2.2 million . The following table summarises our valuation assessment:
Section Low High
Ref ($000) ($000)
Maintainable EBITDA of Eyecare 8.2.1 3,200 3,400 EBITDA multiple 8.3 3.75 4.25
Assessed enterprise value 12,000 14,450
Surplus Cash 8.4 500 500 Eyecare Plus Shares 8.4 287 287 Debt 8.4 (4,453) (4,453)
Equity value of Eyecare 8,3 34 10,784 Shares Outstanding 136,376 136,376
Value per share 0.061 0.079 No. of Buyback Shares 28,346 28,346
Value of Buyback Shares 1,732 2,241
Note: Numbers may not add due to rounding
For personal use only use personal For
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8.2.1 Maintainable Earnings of Eyecare We summarise below normalised historic EBITDA and estimated maintainable EBITDA:
Maintainable EBITDA Normalised EBITDA FY10 FY11 Low High ($000) ($000) ($000) ($000)
Normalised EBITDA 2,999 3,243 3,200 3,400
Normalised EBITDA % 11% 12%
To estimate the maintainable EBITDA range we consider the following: Revenue • Revenue has been in the band of $27 million to $30 million over the last few years and is forecast to have inflationary-like growth in the absence of practice acquisitions and disposals. • Discontinued practices have been normalised out of historic financial performance. Gross Profit • GP% has remained relatively stable between 68% and 72%. Gross margins are projected to stabilise towards the higher end of this range due in part to the implementation of the strategic initiatives. Expenses • Head office costs are projected to decrease, on a normalised basis, reflecting the lower number of practices being serviced. • Management believes that the overhead structure at the corporate level has the capacity to support a future increase in practices, without incurring substantial additional expenses. • Costs associated with compliance based professional services, such as IT support, are expected to decrease to reflect that the number of practices have decreased from 41 to approximately 34 before the Proposed Transaction and 28 practices after the Proposed Transaction. EBITDA • Historic normalised EBITDA (refer section 3.2) ranges from $3.0 million to $3.2 million in recent years. • Normalised EBITDA% has ranged from 11% to 12% in recent years with the higher levels due to the elevated GP%. Other •
For personal use only use personal For We are advised that the Board views the Company as being in a consolidation phase. • Initiatives are in place to turn around loss-making or marginally profitable practices within the group as well as the other strategic projects discussed in section 3.1.
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• Growth capital expenditure is not envisaged, only maintenance capital expenditure to replace depleted capital items.
The estimated future maintainable EBITDA relates to events and actions which have not yet occurred and may not occur. While some evidence may be available to support the best estimate assumptions on which this projection is based, such evidence is generally future orientated and therefore speculative in nature.
Actual results are likely to be different from this projection since anticipated events frequently do not occur as expected and the variation may be material. Accordingly, we do not confirm, guarantee or express an opinion as to whether the projected EBITDA will be achieved as future events, by their nature, are not capable of substantiation.
8.3 EBITDA Multiple We apply the following EBITDA multiple ranges: • Businesses – 3.25 to 3.75 times • Eyecare – 3.75 to 4.25 times
Our selected multiple ranges are based on the following considerations: • Trading multiples of the most comparable listed companies (“Peer Group Companies”) (section 8.3.1); • Transaction multiples of Eyecare’s acquisitions (section 8.3.2); • Transaction multiples of the most comparable other target companies (“Comparable Transactions”) (section 8.3.3); and • Other considerations (section 8.3.4).
In analysing the available transaction and trading data, we have used information from various financial databases, published financial information, ASX and other announcements. Where necessary, certain assumptions have been made.
8.3.1 Trading Multiples We refer to Appendix 4 which contains a summary of the Peer Group Companies. Key observations are below: • The median forecast EBITDA multiple of identified Peer Group Companies is 5.3 times. • The most comparable Peer Group Companies are New Look Eyeware and, to a lesser extent, Megane Top Co and Paris Miki Holdings. While substantially larger than Eyecare, these companies generate the majority (however not all) of earnings from the retailing of eyeware in a single geographic market. • Luxottica Group and Safilo Group are both large vertically integrated eyeware groups with diversified, multi-national operations.
For personal use only use personal For • In addition to eyeware retailing, Jin Co retails clothing and accessories in Japan, and Focus Point Holdings operates eyecare medical centres in Malaysia.
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The EBITDA multiples of Peer Group Companies are based on the prices at which investors buy and sell portfolio interests rather than controlling interests. As discussed in Section 7, we have not incorporated a control premium in valuing the Buyback Shares.
8.3.2 Eyecare Transaction Multiples As discussed in section 3.1, Eyecare has acquired several optometry practices since being established in 2007. These acquisition metrics are summarised below: • Historic EBITDA multiples ranged from 3.0 to 4.9 times; • Acquisition sizes ranged from single practices to “clusters” of up to 10 practices; and • Practice locations were predominantly in regional centres.
In 2007, Eyecare acquired 10 practices from Hanks and related parties at a prospective EBITDA multiple of 4.7 times. This acquisition occurred prior to the global financial crisis (“GFC”). Transaction multiples for like businesses have typically decreased since the GFC. The Sale relates to six of these practices which, in aggregate, have lower profitability than when acquired.
8.3.3 Other Transaction Multiples We refer to Appendix 5 which contains a summary of the Comparable Transactions. Key observations are below: • The Comparable Transactions have a median and average historic EBITDA multiple of 10.6 and 8.9 times respectively. • Australian transactions are most relevant from a geographic perspective due to the similar market dynamics. Although geographically relevant, the Australian transactions involve the acquisition of a considerably larger company (OPSM) by a global market leader (Luxottica). • While the market characteristics and regulatory environment may be different for companies operating in other international markets, we have selected transactions which reflect better matches to Eyecare. The Emerging Vision and OpticCare Health Systems transactions are most similar in size to Eyecare. • Many of the Comparable Transactions pre-dated the GFC. Transaction multiples pre-GFC may be higher than similar transactions post-GFC.
Unlike trading multiples (discussed in section 8.3.1), transaction multiples inherently include a premium for control (where 100% interest is transacted) and therefore an adjustment is necessary to reflect a minority basis multiple.
Where earnings growth is expected, the historic earnings multiple will be higher than the forecast earnings multiple by a factor of the expected growth rate. Also, in some instances transaction multiples may include some degree of “special value” reflecting transaction specific synergies.
For personal use only use personal For Our Fair Value basis of assessment (refer section 2.3) excludes such “special value” in part because a purchaser that can extract unique special value is unlikely to fully include the special value in an offer price where such value is not available to other parties.
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8.3.4 Other Considerations applicable to both Eyecare and the Businesses Other factors that we have considered when assessing an appropriate EBITDA multiple include the following: • The Businesses and, to a lesser extent, Eyecare are significantly smaller with less diverse (both product and geographic) revenue streams than almost all the Peer Group Companies and Comparable Transaction acquirees. • Smaller companies often have more business risk and financial risk than larger companies. For example, larger companies often tend to be: - Of a size where they participate in more than one industry or sector, therefore diversifying risk. Smaller companies are typically less diversified; - Spread over a broader geographical area than smaller companies; - Further developed in areas such as management, financial stability and strategic planning than many smaller companies; - Directed by management with greater depth and strength than most smaller companies; - Better able to benefit from greater economies of scale than smaller companies; and - Able to benefit from greater economies of scale than smaller companies. As a result, smaller companies typically have lower pricing multiples than larger companies. • Diverse revenue sources generally assist to minimise earnings risk and economic dependency compared with a less diverse portfolio. A higher risk profile generally lowers pricing multiples. • Eyecare has limited current brand recognition as practices have recently been rebranded. • Eyecare is in a consolidation phase. • Eyecare faces strong competition from multinational players such as Luxottica Group and Specsavers. • Eyecare’s shares have limited liquidity. • The Businesses will become private enterprises after the Proposed Transaction. Any future sale of the Businesses may not be immediate and may not reflect fair value which is often found in more liquid public companies. This has the impact of reducing earnings multiples when compared to actively traded listed entities.
8.4 Surplus Assets and Debt Surplus assets are assets that form part of a business or company, however do not contribute to the operating earnings or cash flow generation capacity of that
business or company. These are assets that, if sold or distributed, would not impact For personal use only use personal For the operating revenue or profit generating capacity of the business.
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Assets that do not form part of the core business activity must be valued separately. Such assets are considered to be “surplus” to the main business undertaking, however represent values that should be reflected in the equity value as they could be sold separately and the cash added to the value of the business. Alternatively it is cash itself.
Surplus assets and debt are summarised below:
($000)
Surplus cash (1) 500 Proceeds of Eyecare Plus share sale 287 Borrowings (4,453)
Net Debt (3,666)
Note: As at 30 September 2011. (1) Cash requirements are cyclical, with cash outflows of approximately $1.2m occurring in the first week of each month. Accordingly, management estimates that cash of approximately $500,000 is surplus to operating requirements.
8.5 Valuation Cross-Check We have prepared an indicative DCF analysis to cross-check the valuation conclusions based on the CFME approach.
For the purposes of the indicative DCF valuation, we have developed an indicative cash flow model based on reasonable assumptions with regards to the perceived future performance. These assumptions are driven from the historic earnings of Eyecare and the Businesses, having regard to trends and known factors affecting performance.
The model projects nominal (including inflation) ungeared after-tax cash flows for a five year period and estimates a terminal value at the end date.
8.5.1 Summary Using the base case assumptions set out in the following sections, the indicative DCF analysis generates the following indicative enterprise value ranges: • Businesses - $1.5 million to $ 1.9 million • Eyecare - $10.0 million to $ 13.7 million
For personal use only use personal For
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The sensitivity of the indicative DCF valuation to changes in key valuation assumptions is set out below:
Base Case Revenue EBITDA% Discount Growth % Rate
(+/- 3%) (+/- 3%) (+/- 3%)
Businesses
High ($000) 1,944 1,926 2,205 2,040 Low ($000) 1,534 1,568 1,273 1,520 Eyecare
High ($000) 13,716 13,204 15,406 14,857 Low ($000) 10,044 10,679 8,353 9,964
Note: Sensitivity analysis is applied to the midpoint of the Base Case indicative DCF valuation.
The indicative DCF valuation sensitivity analysis is set out graphically below: Businesses:
Primary Method Mid-Point
For personal use only use personal For
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Eyecare:
Primary Method Mid-Point
8.5.2 Assumptions The major assumptions underlying the DCF are as follows:
Eyecare Businesses (%) (%)
Revenue growth 3 3 EBITDA % 13 14.5 Working capital (% of revenue) 1.5 1.5 Discount rate 15 - 20 20 - 25 Capital expenditure (%) of revenue 3 3 Terminal growth rate 2.5 2.5 Tax rate 30 30
The indicative base case assumptions do not represent Moore Stephens’ forecast of the future financial performance of Eyecare or the Businesses. We give no undertaking and make no warranty regarding future financial performance. Such future performance is subject to fundamental uncertainty. Rather, the indicative base case assumptions have been developed purely to allow us to assess the impact on calculated net present values of alternative assumptions regarding the future financial performance of Eyecare and the Businesses.
8.5.3 Control Premium For personal use only use personal For An indicative DCF valuation is based on a 100% interest and accordingly does not reflect any minority discount. As such, it reflects value incorporating a control premium.
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Premiums for control tend to generally range between 20% and 40% and represent two elements: • A pure control premium; and • The expected synergy benefits which the acquirer is prepared to pay the target shareholders.
Observed premiums in takeovers therefore include both elements however it is not possible to separate these two elements in any meaningful way.
Based on our understanding of the Company, it appears that the potential synergy benefits available to a party acquiring Eyecare are not likely to be significant. Accordingly, as the Buyback Shares are valued on a minority basis (refer Section 7), our indicative DCF valuation includes a 20% discount to remove the control premium.
8.6 Comparison of Fair Value with Recent Trading Prices In section 3.5 we summarised the recent trading history of Eyecare’s shares on the ASX. On low trading volumes and liquidity, the trading range in the three months prior to the Last Trading Day was $0.037 to $0.042.
Our assessed fair value of an Eyecare share of $0.06 to $0.08 is significantly above the Company’s trading price. Given the lack of on-market trading in Eyecare’s shares, it is not unexpected that when the shares do trade they trade at prices less than our assessed value. As such, we do not believe that the current trading price is
reflective of the fair value of an Eyecare share. For personal use only use personal For
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8.7 Before and After Proposed Transaction We set out below the value of Eyecare both before and after the Proposed Transaction based on the valuation inputs determined in sections 8.1 – 8.3.
Eyecare Before Adjustment for Eyecare After Proposed Proposed Proposed Transaction Transaction Transaction
Section Low High Low High Low High Ref ($000) ($ 000 ) ($ 000 ) ($ 000 ) ($ 000 ) ($ 000 )
8.1.1, Maintainable EBITDA 8.2.1 3,200 3,400 (520) (550) 2,680 2,850 Reversal of support 4 (100) (100) (100) (100) service normalisation adjustment required to value the Businesses separate to Eyecare
Adjusted Maintainable EBITDA 3,200 3,400 (620) (650) 2,580 2,750 EBITDA multiple 8.3 3.75 4.25 3.75 4.25
Assessed enterprise value 12,000 14,450 9,675 11,688 Surplus Cash 8.4, 1 500 500 1,350 1,350 1,850 1,850 Eyecare Plus Shares 8.4 287 287 287 287 Debt 8.4 (4,453) (4,453) (4,453) (4,453)
Equity value 8,334 10,784 7,359 9,372 Shares Outstanding (000) 6.3 136,376 136,376 (28,346) (28,346) 108,029 108,029
Value per share ($) 0.0 61 0.07 9 0.0 68 0.08 7
The above analysis indicates that the value of each Eyecare share increases as a result of the Proposed Transaction.
9. Evaluation of the Proposed Transaction In order to assess whether the Proposed Transaction is fair and reasonable to Non- associated Shareholders we assess whether the: • Proposed Transaction is fair by comparing the value of the Businesses to the value of the Aggregate Consideration. • Proposed Transaction is reasonable by first considering whether the Proposed Transaction is fair. In addition, we have considered other advantages and
disadvantages of the Proposed Transaction to Non-associated Shareholders. For personal use only use personal For
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9.1 Fairness of the Proposed Transaction In order to assess whether the Proposed Transaction is fair, we compare the value of the Businesses to the value of the Aggregate Consideration as set out below:
Section Low High Ref ($000) ($000)
Assessed value of the Businesses 8.1 1,690 2,063 Assessed value of the Aggregate Consideration
Cash 1,350 1,350 Buyback Shares 8.2 1,732 2,241
Aggregate Consideration 3,082 3,591
As the Aggregate Consideration falls above our assessed valuation range for the Businesses, in our opinion the Proposed Transaction is fair.
9.2 Reasonableness of the Proposed Transaction In accordance with RG 111 a transaction is reasonable if it is fair. On this basis, in our opinion the Proposed Transaction is reasonable. We have also considered the following additional factors in assessing the reasonableness of the Proposed Transaction.
9.2.1 Advantages of Approving the Proposed Transaction The primary advantages of approving the Proposed Transaction are as follows: a) Risk if conflict of interest not resolved – As explained in Section 3, Eyecare has implemented a number of strategic initiatives including the rebranding of practices and the introduction of new supplier purchasing agreements. We understand that Eyecare must terminate its Eyecare Plus membership to achieve these strategic objectives.
Hanks is the Chairman of, and shareholder in, Eyecare Plus. Hanks, through the Hanks Entities, is also a large shareholder in Eyecare. These capacities create a conflict of interest for Hanks which the Proposed Transaction resolves.
In the absence of the Proposed Transaction there is a risk that Hanks’ desire to seek another resolution to the conflict of interest could lead to an adverse (and potentially value destructive) outcome for the Company.
We observe that: • Hanks’ restraint of trade obligation terminates in mid-2012; • The Hanks Entities are lessors of three of the Businesses; and
• Hanks has the loyalty of the customers and staff in the Businesses. For personal use only use personal For
Eyecare considered other alternatives to address this conflict of interest, and considered the Proposed Transaction to be the most desirable option. b) Aggregate Consideration greater than value of Businesses – the Aggregate Consideration is greater than the value of the Businesses.
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c) Increase in net asset backing - the Proposed Transaction increases the Company’s net asset and net tangible asset backing per share as set out in section 6.1. d) Decrease in net debt – receipt of $1,350,000 from the Sale will potentially assist Eyecare to reduce its level of net debt and interest costs. e) Larger ownership interest for Non-associated Shareholders – the Proposed Transaction increases the ownership percentage of Non- associated Shareholders in Eyecare. As a result they will have a relatively greater share in any increase in the underlying value of the Company. f) Reduced risk of share price falling due to on-market sale of Hanks Shares – the Proposed Transaction will remove this risk of overhang.
9.2.2 Disadvantages of Approving the Proposed Transaction The primary disadvantages of approving the Proposed Transaction are as follows: a) Head office costs per practice – a reduction in the number of practices leads to an increase in the head office normalised costs attributable to each remaining practice (after accounting for the head office savings arising from the Proposed Transaction). b) Decrease in EPS – the Proposed Transaction decreases EPS, assuming the relative profitability of the various practices is maintained (refer to section 6.2). c) Increased Control of Bipalo – Bipalo’s shareholding increases from 19.2% to 24.2% as a consequence of the Proposed Transaction, with the next largest shareholder having an 8.9% interest (refer section 4.3). The exit of the Hanks Entities therefore provides Bipalo with the potential to increase its influence over the Company.
9.3 Conclusion In our opinion the Proposed Transaction is fair and reasonable to Non-associated
Shareholders of Eyecare. For personal use only use personal For
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Appendix 1 - Financial Services Guide – 16 November 2011
1. Moore Stephens Sydney Corporate Finance Pty Ltd 5. Independence Moore Stephens Sydney Corporate Finance Pty Ltd (“ Moore Moore Stephens is required to be independent of the Stephens ”) is an authorised representative of Moore Stephens Company. Sydney Wealth Management Pty Ltd (“ Licence Holder ”) in relation to Australian Financial Services Licence (“AFSL” ) Neither Moore Stephens, Moore Stephens Sydney Pty No. 336950. Limited, any Director thereof, nor any individual involved in the preparation of the Report have any financial interest in Moore Stephens may provide the following financial services to the outcome of the Proposed Transaction of the Company, wholesale and retail clients as an authorised representative of other than a fee in connection with the preparation of our the Licence Holder: Report for which professional fees in the order of $35,000 • Financial product advice in relation to securities, interests in (excluding GST) will be received. managed investment schemes, government debentures, stocks or bonds, deposit and payment products, life products, No pecuniary or other benefit, direct or indirect, has been retirement savings accounts and superannuation (collectively received by Moore Stephens, Moore Stephens Sydney Pty “Authorised Financial Products ”); and Limited, their Directors or employees, or related bodies • Applying for, varying or disposing of a financial product on corporate for or in connection with the preparation of this behalf of another person in respect of Authorised Financial Report. Products. 6. Complaints Resolution 2. Financial Services Guide Moore Stephens is only responsible for its Report and this The Corporations Act 2001 requires Moore Stephens to provide FSG. Complaints or questions about the Notice of this Financial Services Guide (“ FSG ”) in connection with its Extraordinary General Meeting and Explanatory provision of an Independent Expert’s Report (“ Report ”) which is Memorandum should not be directed to Moore Stephens included in the Notice of Extraordinary General Meeting and which is not responsible for that document. Explanatory Memorandum provided by Eyecare Partners Limited (the “ Company ”). Both Moore Stephens and the Licence Holder may be contacted as follows: 3. General Financial Product Advice • By phone: (02) 8236 7700 The financial product advice provided in our Report is known as • By fax: (02) 9233 4636 “general advice” because it does not take into account your • By mail: GPO Box 473 personal objectives, financial situation or needs. You should SYDNEY NSW 2001 consider whether the general advice contained in our Report is appropriate for you, having regard to your own personal If you have a complaint about Moore Stephens’ Report or objectives, financial situation or needs. You may wish to obtain this FSG you should take the following steps: personal financial product advice from the holder of an Australian Financial Services Licence to assist you in this assessment. 1. Contact the Enquiries and Complaints Officer of the Licence Holder on (02) 8236 7700 or send a written 4. Remuneration complaint to the Licence Holder at Level 7, 20 Hunter Moore Stephens’ client is the Company to which it provides the Street, Sydney NSW 2000. We will try to resolve your Report. Moore Stephens receives its remuneration from the complaint quickly and fairly. Company. Our fee for the Report is based on a time cost or fixed fee basis. This fee has been agreed in writing with the party who 2. If you still do not get a satisfactory outcome, you have engaged us. Neither Moore Stephens nor its Directors and the right to complain to the Financial Industry employees, nor any related bodies corporate (including the Complaints Service at PO Box 579 Collins St West, Licence Holder) receive any commissions or other benefits in Melbourne, Victoria 8007 or call on 1300 78 08 08. connection with the preparation of this Report, except for the fees We are a member of this scheme. referred to above. 3. The Australian Securities & Investments Commission All our employees receive a salary. Employees may be eligible (ASIC) also has a freecall Infoline on 1300 300 630 for bonuses based on overall productivity and contribution to the which you may use to make a complaint and obtain operation of Moore Stephens or related entities but any bonuses information about your rights. are not directly connected with any assignment and in particular not directly related to the engagement for which our Report was provided. The Licence Holder, as holder of the AFSL, gives authority to Moore Stephens to distribute this FSG.
For personal use only use personal For We do not pay commissions or provide any other benefits to any parties or person for referring customers to us in connection with the reports that we are licensed to provide.
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Appendix 2 – Disclosures
Terms defined in the attached Report have the same meaning in this Appendix.
Qualifications and Independence
The individuals responsible for preparing this Report on behalf of Moore Stephens are Alan Max, Director, B.Com (Hons) CA and Scott Whiddett, Director, B.Com FCA. Alan has many years experience in the preparation of valuations and Independent Expert’s Reports as well as the provision of corporate finance advice. Scott is experienced at performing financial due diligence assignments and statutory audits, as well as preparing Investigating Accountant's Reports, Review of Directors' Forecasts and Independent Expert’s Reports.
Neither Moore Stephens, its related entities, any Director thereof, nor any individual involved in the preparation of the Report has any financial interest in the outcome of the Proposed Transaction which could be considered to affect our ability to render an unbiased opinion. Moore Stephens will receive a fee of approximately $35,000 (excluding GST) for the preparation of this Report. This fee is based upon time spent at our normal hourly rates and is not contingent upon the success or otherwise of the Proposed Transaction.
Neither Moore Stephens, its related entities, any Director thereof, nor any individual involved in the preparation of the Report receive any commissions or other benefits in connection with the preparation of this Report, except for fees referred to above.
During the course of this engagement, Moore Stephens provided a draft copy of this Report to Eyecare for comment as to the factual accuracy. Changes made to the Report as a result of these reviews have not changed the opinions reached by Moore Stephens.
Disclaimer and Indemnity
It is not intended that this Report should be used or relied upon for any purpose other than to assist shareholders to decide whether or not to approve the Proposed Transaction. Moore Stephens expressly disclaims any liability to any Eyecare shareholder who relies or purports to rely on the Report for any other purpose and to any other party who relies or purports to rely on the Report for any purpose whatsoever.
Other than this Report, neither Moore Stephens nor its related entities has been involved in the preparation of the Notice of Extraordinary General Meeting and Explanatory Memorandum or any other document prepared in respect of the Proposed Transaction. Accordingly, we take no responsibility for the content of the Notice of Extraordinary General Meeting and Explanatory Memorandum as a whole or other documents prepared in respect of the Proposed Transaction.
Statements and opinions contained in this Report are given in good faith. In the For personal use only use personal For preparation of this Report, Moore Stephens has relied upon information provided by the Providers. In forming our opinion we have reviewed and relied upon this information and have no reason to believe that the information provided is not reliable, accurate and complete. Also, we have no reason to believe that material facts or information have been withheld by the Providers.
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The information provided was evaluated through analysis, enquiry and review for the purposes of forming an opinion as to whether the Proposed Transaction is fair and reasonable. Our enquiries and procedures do not constitute an audit, extensive examination or “due diligence” investigation. None of these assignments have been undertaken by Moore Stephens.
In forming the opinions expressed in this Report, the opinions and judgments of management of Eyecare have been considered. Although this information has been evaluated through analysis, enquiry and review to the extent practical, inherently such information is not always capable of independent verification.
Eyecare has agreed to indemnify and hold harmless Moore Stephens, its directors, officers, employees, servants, agents or affiliated organisations (“Associates”) or any other person who is sought to be made liable against any and all losses, claims, damages and liabilities arising out of or related to the performance of these services and which arise from reliance on information received which is provided by the Providers or material information any of the Providers had in their possession and was not provided to us.
With respect to tax implications of the Proposed Transaction, it is recommended that individual shareholders obtain their own tax advice, tailored to their own particular circumstances. Furthermore, the advice provided in this Report does not constitute legal or taxation advice to the shareholders, or any other party.
Moore Stephens has no obligation to update this Report for events occurring subsequent to the date of this Report.
Consent
Moore Stephens consents to the inclusion of this Report in the form and context in which it is included with the Notice of Extraordinary General Meeting and Explanatory Memorandum to be issued to the shareholders of Eyecare. Neither the whole nor the any part of this Report nor any reference thereto may be reproduced or included in any other document without the prior written consent of Moore Stephens as to the form and context in which it appears.
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Appendix 3 – Valuation Methodologies
RG 111 provides guidance on the valuation methods that an independent expert should consider when valuing a company. These methods include the: • Discounted cash flow method and the estimated realisable value of any surplus assets (“DCF”); • Application of earnings multiples (appropriate to the business or industry in which the entity operates) to the estimated future maintainable earnings or cash flows of the entity (“CFME”), added to the estimated realisable value of any surplus assets; • Amount that would be available for distribution to security holders on an orderly realisation of assets (“Net Asset Value”); • Quoted price for listed securities, when there is a liquid and active market and allowing for the fact that the quoted price may not reflect their value, should 100 per cent of the securities be available for sale; • Recent genuine offers, if any, received by the target for any business units or assets as a basis for valuation of those business units or assets; and • Amount that any alternative acquirer might be willing to offer if all the securities in the target were available for purchase.
ASIC does not suggest that this list is exhaustive or that an expert should use all of the valuation methods listed above. Rather, each of the above valuation methods has application in different circumstances. These circumstances include the nature, profitability and financial position of the business being valued and the quality of information available.
1.1 Discounted Cash Flow The DCF method estimates the net present value (“NPV”) of future cash flows expected to be generated from the business including a terminal value. The terminal value is the assessed value of the business after the projection period. The NPV is calculated by discounting future cash flows and the terminal value using a discount rate which reflects the risks associated with the cash flow stream.
Cash flows subject to discounting are operating cash flows on an ungeared basis (i.e. before interest and debt repayments) less tax payments, working capital requirements and capital expenditure. Cash flows on an ungeared basis are used to enable the enterprise value to be determined irrespective of the level of debt funding. The equity value may then be calculated by adding surplus assets to, and subtracting debt from, the enterprise value.
1.2 Capitalisation of Future Maintainable Earnings The CFME method involves capitalising the earnings of a business at a multiple which reflects the growth prospects of the business and the risks inherent in the For personal use only use personal For business. A multiple may be applied to, amongst others, earnings before interest, tax, depreciation and amortisation (“EBITDA”) or net profit after tax (“NPAT”).
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This method determines the enterprise (or business) value. The equity value may then be calculated by adding surplus assets to, and subtracting debt from, the enterprise value.
If the transaction value is known or the enterprise value has been estimated, the CFME method may be “reversed” to determine the required earnings or earnings multiple to support the enterprise value.
1.3 Net Asset Value The Net Asset Value method is based on the value of the assets of a business less its liabilities, adjusted to fair value.
The Net Asset Value method is most relevant when a company is not producing economic returns, a significant portion of a company’s assets are liquid, for asset holding companies, or where other common valuation methods are unable to be utilised.
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Appendix 4 – Peer Group Companies
Table 1 – Peer Group Summary
Company Region Enterprise Value Historic EBITDA Historic Forecast ($m) ($m) EBITDAx EBITDAx (times) (times)
Luxottica Group Europe 15,456 1,515 10.2 9.7 Safilo Group Europe 758 162 4.7 4.5 Megane Top Co. Ltd Asia 565 72 7.8 5.3 Jin Co Ltd. Asia 219 18 12.2 6.6 Paris Miki Holdings Inc. Asia 210 24 8.8 4.7 Formosa Optical Technology Co. Ltd Asia 149 4 37.3 n/a New Look Eyeware Inc. USA 82 12 6.8 n/a Focus Point Holdings Asia 14 4 3.5 n/a
Median 8.3 5.3 Average 11.4 6.2
n/a = not available
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Table 2 – Peer Group Information
Company Description
Luxottica Group Luxottica Group provides luxury and sport/performance eyewear worldwide. It operates in two segments - Manufacturing and Wholesale Distribution, and Retail Distribution. The Manufacturing and Wholesale Distribution segment engages in the design, manufacture, wholesale distribution, and marketing of house and designer lines of prescription frames and sunglasses. It also offers performance optics products, including sun and prescription eyewear, ski goggles, and electronically-enabled eyewear, as well as branded apparel, footwear, watches, and accessories. This segment provides its products under several house brands, such as Ray-Ban, Oakley, Arnette and Vogue. It serves retailers of mid- to premium- priced eyewear. The Retail Distribution segment operates optical and sunglass stores under the brand names of LensCrafters, Sunglass Hut, OPSM and Budget Eyewear. This segment operated approximately 7,000 optical and sunglass retail stores. The company headquartered in Milan, Italy.
Safilo Group Safilo Group engages in the design, production, and distribution of prescription eyewear, sunglasses, sports eyewear, and accessories. It also provides optical frames, technical sports glasses, ski goggles, and helmets. Its customers include opticians, optometrists, ophthalmologists, distribution chains, department stores, specialized retailers, licensors’ own stores, duty free shops, sports shops buying groups, and individual stores. Safilo Group sells its products through its own branches and distributors primarily in Europe, India, South Africa, the Americas, and the Asia Pacific. Safilo Group is headquartered in Padova, Italy.
Megane Top Co. Ltd Megane Top Co., Ltd. sells eyeglasses and related accessories in Japan. Its products also include rims of eyeglasses, contact lenses, sunglasses, and optical lenses. The company operates approximately 700 owned and franchised stores and is headquartered in Shizuoka, Japan.
Jin Co. Ltd Jin Co Ltd is a Japan-based company principally engaged in the eyewear business. The company operates in two business segments. The Eyewear-related segment is engaged in the import, wholesale and retail of spectacle frames, sunglasses and other eyewear accessories. The Miscellaneous Goods-related segment is engaged in the import, wholesale and retail of miscellaneous fashion goods including bags, hats, accessories and leather products. The company sells eyewear related products in the stores under the name JINS, ladies’ miscellaneous goods under brand name Cours de Couleur, and men’s
miscellaneous goods under the brand name NAUGHTIAM. For personal use only use personal For
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Company Description
Paris Miki Holdings Inc. Paris Miki Holdings Inc. operates a chain of shops that offer eyeglasses and glass frames in Japan (approx. 950 stores) and internationally. Its products series include Gum Metal, Octavo, Iki, SP Twist, Micro Titan, and AU. Paris Miki, Inc. Paris Miki Holdings is headquartered in Tokyo, Japan.
Formosa Optical Formosa Optical Technology Co. Ltd. operates approx. 250 retail stores that offer lenses, rims, sunglasses, contact lenses, Technology Co. Ltd. and solutions in China and internationally. It also provides glasses related accessories and eye examination services. The company is based in Taipei, Taiwan.
New Look Eyewear Inc. New Look Eyewear Inc. provides eye care products and services in eastern Canada. It offers sunglasses and lenses, as well as frames under OGA, X-eyes, JK London, Gucci, and Silhouette brand names. The company also provides a range of materials, including regular tints, mirror tints, polarized lenses, drivewear lenses and contact lenses. Further, the company provides professional services through its eyewear transformation laboratory. As of June 2010, its network consisted of 64 eye care stores. New Look Eyewear Inc. is based in Montreal, Canada.
Focus Point Holdings Focus Point Holdings Berhad owns and operates professional eye care centers in Malaysia. The company’s medical eye care centers provide refractive surgery using LASIK method and cataract surgery services. It also involves in the dispensing of prescription eyewear, provision of ophthalmic laboratory services, and retailing of eyewear and eye care products. It operates 63 wholly owned, 6 partially owned, 74 franchised, and 1 licensed professional eye care centers. The company is based in Petaling Jaya, Malaysia.
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Appendix 5 – Comparable Company Transactions Table 1 – Transaction Summary
Date Target Acquirer Region Enterprise Historic Historic EBITDA Value EBITDA multiple ($USDm) ($m) (times)
Australian Transactions Nov-04 OPSM Group Pty Ltd (17.4%) Luxottica Group Australia 495 51 12.4 April-03 OPSM Group Pty Ltd (82.6%) Luxottica Group Australia 368 54 10.6 Average 11.5 Median 11.5
Other International Transactions Apr-11 Emerging Vision Inc (8.9%) Horizons Investors Corp. USA 25 2 10.7 Sep-07 OptiCare Health Systems Inc. Eyecarecenter USA 6 6 1.8 (100%) Jul-05 National Vision Inc. (100%) Berkshire Partners USA 104 41 3.3 Feb-04 GrandVision B.V. (33%) HAL Investments B.V. Europe 865 109 10.6 Feb-04 Eye Care Centers of America, Moulin Global Eyecare Holdings USA 735 70 13.6 Inc. (100%) Ltd Feb-01 Sunglass Hut International, Inc. Luxottica Group USA 656 151 8.3 Average 8.1 Median 9.5
Average (all) 8.9 Median (all) 10.6
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Table 2 – Target Information
Target Description
OPSM Group Pty Ltd OPSM Group Pty Ltd. provides eye care and eyewear for retail customers and corporate groups in Australia and New Zealand. It offers sun glasses, contact lenses, and optical products. The company provides its products through its stores, as well as online. OPSM Group Pty Ltd. was formerly known as OPSM Protector Ltd. The company was founded in 1932 and is based in Sydney.
Emerging Vision Inc. Emerging Vision, Inc. operates a chain of retail optical stores and franchises optical chains in the United States and Canada. Its stores offer eye care products and services, such as prescription and non-prescription eyeglasses, eyeglass frames, ophthalmic lenses, contact lenses, sunglasses, and a range of ancillary items, as well as provide professional eye examinations to the public. The company and its franchisees operate retail optical stores under the trade names of Sterling Optical, Site for Sore Eyes, Kindy Optical, and Singer Specs. As of December 31, 2009, it owned and operated 135 Sterling stores, including 6 company-owned stores and 129 franchised stores. In addition, the company engages in the optical purchasing group business that offers its members with vendor discounts on optical products for resale.
OptiCare Health OptiCare Health Systems, Inc. provides vision correction services by optometrists through its optometric practice locations. Systems Inc. The division also sells eyeglasses and other optical products through its retail optometry centers.
National Vision Inc. National Vision Inc., trading as Americas Best Contact, operates as an optical retailer in the United States. Its products include plastic and metal frames, eyeglass lenses, contact lenses, sunglasses, and safety and sports glasses, as well as accessories, such as cases, cords, eyeglass cleaners, and lens cleaning cloths. The company also offers vision examinations, as well as repairs, including screw replacements, adjustments, and alignments.
GrandVision B.V. GrandVision B.V. operates as an optical retailer. It offers glasses and frames, optical glasses and contact lenses, sunglasses, and fashionable eye wear and eye health care solutions. The company is based in Paris, France. It operates
stores throughout Europe. For personal use only use personal For
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Target Description
Eye Care Centers of Eye Care Centers of America, Inc. operates optical retail stores that sell prescription eyewear, contact lenses, sunglasses, America, Inc. and ancillary optical products. The company’s stores offer various styles of branded, private label, and non-branded frames, which are paired with eyeglass lens and lens treatment technologies. Its stores also feature on-site laboratories. The company operates stores under various trade names, including EyeMasters, Visionworks, Doctor’s Vision Works, Vision World, Dr. Bizer’s VisionWorld, Dr. Bizer’s ValuVision, Doctor’s ValuVision, Hour Eyes, Stein Optical, Eye DRx, and Binyon’s. As of March 15, 2009, it operated 430 stores in 36 states, including 369 superstores and 61 conventional stores in the United States.
Sunglass Hut Sunglass Hut International, Inc. engages in retailing sunglasses for men, women, and children. It offers products through its International, Inc. stores around the globe, as well as through its online store.
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Appendix 6 – Sources of Information
• Draft Notice of Extraordinary General Meeting and Explanatory Memorandum. • Eyecare Annual Financial Reports for the years ended 30 June 2009, 2010 and 2011 • Eyecare management accounts for the years ended 30 June 2009, 2010 and 2011 • Eyecare budgets • Prospectus of Ruskin Industries Limited (name changed subsequently to Eyecare) dated 21 July 2007 • Accounting entries to record the Proposed Transaction prepared by Eyecare • Impairment evaluation model prepared by Eyecare Partners • Transaction Agreements comprising the Implementation Deed, Business Sale Agreement and Share Buy Back Agreement • Management Services and Administrative Support Agreement • Deed of Variation of Employment Agreement of Hanks • Top 20 shareholders list • ASX Announcements • IBIS World Report: Optometry and Optical Dispensing in Australia (July 2011) • Capital IQ • Other Publicly available information • Discussions and correspondence with management of Eyecare Partners.
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Page 42 of 42 Lodge your vote: By Mail: ABN 47 006 505 880 Computershare Investor Services Pty Limited GPO Box 242 Melbourne Victoria 3001 Australia
Alternatively you can fax your form to (within Australia) 1800 783 447 (outside Australia) +61 3 9473 2555 000001 000 EPL MR SAM SAMPLE For intermediary Online subscribers only FLAT 123 123 SAMPLE STREET (custodians) www.intermediaryonline.com THE SAMPLE HILL SAMPLE ESTATE For all enquiries call: SAMPLEVILLE VIC 3030 (within Australia) 1300 850 505 (outside Australia) +61 3 9415 4000 *S000001Q01*
Proxy Form
For your vote to be effective it must be received by 10:30am (AEDT) Sunday 18 December 2011
How to Vote on Items of Business Signing Instructions All your securities will be voted in accordance with your directions. Individual: Where the holding is in one name, the securityholder must sign. Appointment of Proxy Joint Holding: Where the holding is in more than one name, all of Voting 100% of your holding: Direct your proxy how to vote by the securityholders should sign. marking one of the boxes opposite each item of business. If you do Power of Attorney: If you have not already lodged the Power of not mark a box your proxy may vote as they choose. If you mark Attorney with the registry, please attach a certified photocopy of the more than one box on an item your vote will be invalid on that item. Power of Attorney to this form when you return it. Companies: Where the company has a Sole Director who is also Voting a portion of your holding: Indicate a portion of your the Sole Company Secretary, this form must be signed by that voting rights by inserting the percentage or number of securities person. If the company (pursuant to section 204A of the Corporations you wish to vote in the For, Against or Abstain box or boxes. The Act 2001) does not have a Company Secretary, a Sole Director can sum of the votes cast must not exceed your voting entitlement or also sign alone. Otherwise this form must be signed by a Director 100%. jointly with either another Director or a Company Secretary. Please sign in the appropriate place to indicate the office held. Delete titles Appointing a second proxy: You are entitled to appoint up to two as applicable. proxies to attend the meeting and vote on a poll. If you appoint two proxies you must specify the percentage of votes or number of Attending the Meeting securities for each proxy, otherwise each proxy may exercise half of Bring this form to assist registration. If a representative of a corporate the votes. When appointing a second proxy write both names and securityholder or proxy is to attend the meeting you will need to the percentage of votes or number of securities for each in Step 1 provide the appropriate “Certificate of Appointment of Corporate overleaf. Representative” prior to admission. A form of the certificate may be obtained from Computershare or online at www.investorcentre.com A proxy need not be a securityholder of the Company. under the information tab, "Downloadable forms".
Comments & Questions: If you have any comments or questions for the company, please write them on a separate sheet of paper and return with this form.
Turn over to complete the form For personal use only use personal For Update your securityholding, 24 hours a day, 7 days a week: http://www.investorcentre.com Review your securityholding Your secure access information is: Update your securityholding SRN/HIN: I9999999999
PLEASE NOTE: For security reasons it is important that you keep your SRN/HIN confidential.
916CR_0_Sample_Proxy/000001/000001/i MR SAM SAMPLE Change of address. If incorrect, FLAT 123 mark this box and make the 123 SAMPLE STREET THE SAMPLE HILL correction in the space to the left. *I9999999999* SAMPLE ESTATE Securityholders sponsored by a SAMPLEVILLE VIC 3030 broker (reference number commences with ’X’) should advise your broker of any changes. I 9999999999 I ND
Proxy Form Please mark to indicate your directions
STEP 1 Appoint a Proxy to Vote on Your Behalf XX I/We being a member/s of Eyecare Partners Limited hereby appoint
PLEASE NOTE: Leave this box blank if the Chairman OR you have selected the Chairman of the of the meeting Meeting. Do not insert your own name(s). or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, as the proxy sees fit) at the Extraordinary General Meeting of Eyecare Partners Limited to be held at Ground Floor, 4A Lord Street, Botany, New South Wales 2019 on Tuesday, 20 December 2011 at 10:30am (AEDT) and at any adjournment of that meeting.
STEP 2 PLEASE NOTE: If you mark the Abstain box for an item, you are directing your proxy not to vote on your Items of Business behalf on a show of hands or a poll and your votes will not be counted in computing the required majority.
SPECIAL RESOLUTION
1 “That, for the purposes of section 257D of the Corporations Act and ASX Listing Rule 10.1 and for all other purposes, the following be approved:
(a) the terms and conditions of the Transaction Documents dated 19 October 2011 (including without limitation the Buy-back Agreement), details of which are set out in the Explanatory Statement accompanying this Notice of EGM; and
(b) the selective buy-back of 28,346,219 fully paid ordinary Shares by the Company from the Partnership and Utada on the terms and subject to the conditions set out in the Buy-back Agreement, details of which are set out in the Explanatory Statement accompanying this Notice of EGM.”
The Chairman of the Meeting intends to vote undirected proxies in favour of each item of business.
"Terms and abbreviations used in this Proxy Form are defined in the Glossary included with the attached Notice of EGM."
SIGN For personal use only use personal For Signature of Securityholder(s) This section must be completed. Individual or Securityholder 1 Securityholder 2 Securityholder 3
Sole Director and Sole Company Secretary Director Director/Company Secretary
Contact Contact Daytime / / Name Telephone Date
E P L 9 9 9 9 9 9 A