Prospectus dated 24 April 2012
Société Anonyme des Galeries Lafayette
(A société anonyme à Directoire et Conseil de surveillance established under the laws of the Republic of France) €500,000,000 4.75 per cent. Bonds due 2019 Issue Price: 99.273 per cent.
This Prospectus constitutes a prospectus (the “Prospectus”) for the purposes of Article 5.3 of Directive 2003/71/EC (the “Prospectus Directive”) and the related implementing measures in the Grand Duchy of Luxembourg in relation to the issue of the Bonds (as defined below).
The €500,000,000 4.75 per cent. Bonds due 2019 (the “Bonds”) of Société Anonyme des Galeries Lafayette (the “Issuer”) will be issued outside the Republic of France and will mature on 26 April 2019 (the “Maturity Date”). Interest on the Bonds will accrue at the rate of 4.75 per cent. per annum from 26 April 2012 (the “Issue Date”) and will be payable in Euro annually in arrears on 26 April in each year, commencing on 26 April 2013. Payments of principal and interest on the Bonds will be made without deduction for or on account of taxes of the Republic of France (See “Terms and Conditions of the Bonds—Taxation”).
Unless previously purchased and cancelled, the Bonds may not be redeemed prior to the Maturity Date. The Bonds may, and in certain circumstances shall, be redeemed, in whole but not in part, at their principal amount together with accrued interest in the event that certain French taxes are imposed (See “Terms and Conditions of the Bonds—Redemption, Exchange and Purchase”).
The Bonds will, upon issue on the Issue Date, be inscribed (inscription en compte) in the books of Euroclear France, which shall credit the accounts of the Euroclear France Account Holders (as defined in “Terms and Conditions of the Bonds—Form, Denomination and Title”) including Euroclear Bank S.A./N.V. (“Euroclear”) and the depositary bank for Clearstream Banking, société anonyme (“Clearstream, Luxembourg”).
The holders of the Bonds (the “Bondholders”) will be entitled, following a Change of Control (as defined herein), to request the Issuer to redeem or procure the purchase of their Bonds at their principal amount together with any accrued interest thereon as more fully described under “Terms and Conditions of the Bonds—Redemption, Exchange and Purchase – Redemption at the option of Bondholders following a Change of Control”.
The Bonds will be in dematerialised bearer form in the denomination of €100,000. The Bonds will at all times be represented in book entry form (dématérialisé) in the books of the Euroclear France Account Holders in compliance with Articles L. 211-3 and R. 211-1 of the French Code monétaire et financier. No physical document of title (including certificats représentatifs pursuant to Article R. 211-7 of the French Code monétaire et financier) will be issued in respect of the Bonds.
Application has been made to the Commission de Surveillance du Secteur Financier (the “CSSF”), in its capacity as competent authority under the Luxembourg act dated 10 July 2005 relating to prospectuses for securities (the “Luxembourg Act”), for the approval of this Prospectus for the purposes of the Prospectus Directive. In giving its approval, the CSSF makes no undertaking as to the economic or financial soundness of the transaction or the quality or the solvency of the Issuer in line with the provisions of article 7(7) of the Luxembourg Act. Application has also been made to the Luxembourg Stock Exchange for the Bonds to be listed on the official list of the Luxembourg Stock Exchange (the “Official List”) and admitted to trading on the Luxembourg Stock Exchange’s regulated market. The Luxembourg Stock Exchange’s regulated market is a regulated market for the purposes of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments.
The Bonds have not been assigned a rating from any rating agency.
This Prospectus has not been submitted for the approval of the Autorité des marchés financiers.
Prospective investors should have regard to the factors described in the section headed “Risk Factors” in this Prospectus.
Global Coordinator and Joint Book Runner HSBC Joint Book Runners Crédit Agricole CIB Société Générale Corporate & Investment Banking
1 This Prospectus has been prepared for the purpose of giving information with regard to the Issuer, the Issuer and its subsidiaries and affiliates taken as a whole (the “Group”) and the Bonds which is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position and profit and losses of the Issuer. This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer or the Managers (as defined in “Subscription and Sale”) to subscribe or purchase, any of the Bonds. The distribution of this Prospectus and the offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer and the Managers to inform themselves about and to observe any such restrictions. The Bonds have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”). Subject to certain exceptions, the Bonds may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act (“Regulation S”)). For a description of certain restrictions on offers and sales of Bonds and on distribution of this Prospectus, see “Subscription and Sale”. No person is authorised to give any information or to make any representation not contained in this Prospectus and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer or the Managers. Neither the delivery of this Prospectus nor any sale made in connection herewith shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuer or of the Group since the date hereof or the date upon which this Prospectus has been most recently amended or supplemented or that there has been no adverse change in the financial position of the Issuer or of the Group since the date hereof or the date upon which this Prospectus has been most recently amended or supplemented or that the information contained in it or any other information supplied in connection with the Bonds is correct as of any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same. The Managers have not separately verified the information contained in this Prospectus in connection with the Issuer. None of the Managers makes any representation, express or implied, or accepts any responsibility, with respect to the accuracy or completeness of any of the information in this Prospectus in connection with the Issuer. Neither this Prospectus nor any other financial statements are intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by any of the Issuer and the Managers that any recipient of this Prospectus or any other financial statements should purchase the Bonds. Each potential purchaser of Bonds should determine for itself the relevance of the information contained in this Prospectus and its purchase of Bonds should be based upon such investigation as it deems necessary. None of the Managers undertakes to review the financial condition or affairs of the Issuer during the life of the arrangements contemplated by this Prospectus or to advise any investor or potential investor in the Bonds of any information coming to the attention of any of the Managers. In this Prospectus, unless otherwise specified, references to a “Member State” are references to a Member State of the European Economic Area, references to “EUR” or “euro” or “€” are to the single currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treaty establishing the European Community, as amended. In connection with the issue of the Bonds, HSBC Bank plc (the “Stabilising Manager”) (or any person acting on behalf of the Stabilising Manager) may over-allot Bonds or effect transactions with a view to supporting the market price of the Bonds at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Bonds is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Bonds and 60 days after the date of the allotment of the Bonds. Any stabilisation action or over- allotment must be conducted by the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) in accordance with all applicable laws and rules.
2 PERSONS RESPONSIBLE FOR THE INFORMATION GIVEN IN THE PROSPECTUS
To the best knowledge and belief of the Issuer (which has taken all reasonable care to ensure that such is the case), the information contained in this Prospectus (including, for the avoidance of doubt, the free English translation of the audited consolidated financial statements of the Issuer as at, and for the years ended, 31 December 2011 and 2010 and of the audit reports thereon contained at pages F-1 onwards) is in accordance with the facts and does not omit anything likely to affect the import of such information. The Issuer accepts responsibility accordingly.
Société Anonyme des Galeries Lafayette 40, boulevard Haussmann 75009 Paris France
Tel: +33 (0)1 42 82 38 58
3 TABLE OF CONTENTS
Page
PERSONS RESPONSIBLE FOR THE INFORMATION GIVEN IN THE PROSPECTUS ...... 3 RISK FACTORS ...... 5 TERMS AND CONDITIONS OF THE BONDS ...... 15 USE OF PROCEEDS ...... 26 DESCRIPTION OF THE GROUP ...... 27 TAX AT ION ...... 53 SUBSCRIPTION AND SALE ...... 56 GENERAL INFORMATION ...... 58
FRENCH LANGUAGE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE ISSUER AS AT, AND FOR THE YEAR ENDED, 31 DECEMBER 2011 AND THE AUDIT REPORT THEREON ...... F-1
FREE ENGLISH TRANSLATION OF THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE ISSUER AS AT, AND FOR THE YEAR ENDED, 31 DECEMBER 2011 AND THE AUDIT REPORT THEREON ...... F-58
FRENCH LANGUAGE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE ISSUER AS AT, AND FOR THE YEAR ENDED, 31 DECEMBER 2010 AND THE AUDIT REPORT THEREON ...... F-114
FREE ENGLISH TRANSLATION OF THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE ISSUER AS AT, AND FOR THE YEAR ENDED, 31 DECEMBER 2010 AND THE AUDIT REPORT THEREON ...... F-183
4 RISK FACTORS
Investing in bonds involves a high degree of risk. Investors may lose the value of their entire investment or part of it, as the case may be. Potential investors should carefully review this entire Prospectus and, in particular, should consider and make their own independent evaluations of all the risks inherent in making such an investment, including the risk factors set forth below, before making a decision to invest in the Bonds. These risk factors, individually or together, could have a material adverse effect on the Group (including the Issuer), its business, operations and financial condition and/or the rights of the Bondholders under the Bonds.
Prospective investors should note that the risks described below are not the only risks the Group (including the Issuer) faces. These are the risks the Issuer considers material. There may be additional risks that the Issuer currently considers immaterial or of which it is currently unaware, and any of these risks could have similar effects to those set forth below.
The terms defined in “Terms and Conditions of the Bonds” shall have the same meaning where used in this section and any reference to a “Condition” shall be to the numbered paragraphs therein.
Risks related to the Issuer and/or the Group and their operations
Economic and political conditions The Group has no control over changes in inflation and interest rates, foreign currency exchange rates and controls, or other economic factors affecting its business such as purchasing power, consumer spending or unemployment. Similarly, political, legal or regulatory changes are all beyond the Group’s control. Any one of these factors could affect the Group and/or its business, operations and financial condition.
Business interruption The Group relies to a significant degree on the efficient and uninterrupted operation of its various computer, information and data-protection systems and those of third parties. Any significant breakdown of equipment, accident, such as a serious flood or fire, or other significant disruption to operations, such as computer viruses, vandalism, theft or security breaches in the Group’s offices or other premises, might significantly impact its ability to manage its operations. As regards the retail business, daily stock movements into stores are necessitated by minimal stockroom space and freshness of food items, therefore any disruption could have an adverse effect on the Group’s in-store inventory and could materially adversely affect its gross transaction value, results of operations and financial condition.
In addition, any disruption to the businesses of any of the Group’s main contract partners could have a similar material adverse effect on the Group’s operations. A disaster or disruption in the infrastructure that supports the Group’s businesses could have a material adverse effect on its ability to continue to operate its business without interruption. Although the Group has in place business disruption and disaster recovery procedures, (See “Description of the Group Risk prevention and crisis management”), the Group’s disaster recovery procedures may not be sufficient to mitigate the harm that may result from such a disaster or disruption.
Increases in energy or other commodity costs, including electricity, gas and fuel, may increase the cost of sales and adversely impact the Group’s results of operations due to consequential increases in operating costs.
Any terrorist attacks or armed conflicts or other geopolitical uncertainty could result in a significant reduction in consumer confidence and spending levels. This could in turn have a material adverse effect on the Group’s sales and results of operations.
5 Tourism The Group’s retail business, and in particular the Boulevard Haussmann flagship department store, relies to a significant degree on sales to tourists. Any factor affecting tourism, including a decrease in tourism in Paris (due to factors such as economic crisis, increase in travel costs, security or political issues, pandemics, etc.), a decline in their purchasing power (due to factors such as economic crisis, currency fluctuation, etc.) or tourists’ willingness to shop in the Group’s department stores may have a material adverse effect on the Group and/or its business, operations and financial condition.
Seasonality and atypical/extreme weather conditions The Group’s retail business is subject to seasonal peaks. Its most important trading period in terms of sales, operating results and cash flow is the Christmas and January sale seasons, both of which occur between the beginning of November and the end of January. Any factor resulting in lower than expected sales during the Group’s peak seasons, particularly the Christmas season, may have a material adverse effect on the Group and/or its business, operations and financial condition, including an increase in working capital and lower cash flows.
Similarly, the Group and/or its business, operations and financial condition may also be adversely affected by periods of abnormal, severe or unseasonal weather conditions, as such events may, inter alia, result in a mismatch in the timing between products on offer and customer demand.
Market competition The retail sector and the financial and marketing services sectors are highly competitive. See “Description of the Group – Competition”. In the retail sector, the Group competes at the national and local levels with a wide variety of retailers of varying sizes and covering different product categories across all markets in which it operates, including the internet. Some of the Group’s competitors are general retailers that compete in a number of product groups while others are specialist retailers that compete with it only in certain product categories. In the financial and marketing services sector, the Group competes with both national and international financial institutions operating in the consumer credit sector and with specialists providing services such as data-mining, marketing, loyalty and other services to retailers.
Actions taken by the Group’s competitors, including any price wars in the retail sector, as well as actions taken by the Group to maintain its competitiveness and reputation, have placed and will continue to place pressure on its pricing strategy, margins and profitability. In the future, these factors could have a material adverse effect on the Group and/or its business, operations and financial condition.
Licensors and suppliers While the Group’s retail business deals with a large number of licensors or suppliers, some of them, specifically in the luxury and fashion segments, have a more prominent role in terms of customer attraction and brand positioning. Any deterioration in the relationship between the Issuer and such licensors or suppliers, including as a result of a change in such licensors’ or suppliers’ sale or marketing strategy or perception of the Group’s brand, may have a material adverse effect on the sales and reputation of the Group.
Moreover, the collapse of a major supplier, licensor or service vendor could affect the Group’s ability to adequately source products or services and could have an adverse impact on its operations and financial results. Any significant disruption or other event adversely affecting the Group’s relationship with any of its major suppliers may have a material adverse effect on the Group and/or its business, operations and financial condition.
Customer preferences and demand The Group derives a significant amount of its revenues from the sale of products which are subject to changing customer tastes. The availability of new products and changes in customer preferences has made it more difficult to predict sales demand accurately. The Group’s success depends, in part, on its
6 ability to predict and respond to changing consumer demands and preferences, and to translate market trends into appropriate, saleable merchandise offerings. The Group’s ability to anticipate and respond to changing customer preferences and tastes depends, in part, on its ability to attract and retain key personnel in its buying, design, merchandising, marketing and other functions. Competition for such personnel is intense and the Group may not be able to attract and retain a sufficient number of qualified personnel in future periods.
In some instances, the Group must enter into contracts for the purchase and manufacture of merchandise well in advance of the applicable selling season. The long lead times between ordering and delivery and the Group’s policy of reducing its inventory levels make it more important to predict accurately, and more difficult to fulfil, the demand for items. There can be no assurance that the Group’s orders will match actual demand. If the Group is unable to predict or respond to sales demand or to changing styles or trends successfully, its sales will be lower and it may be forced to rely on additional markdowns and/or promotional sales to dispose of excess or slow-moving inventory or it may experience inventory shortfalls on popular merchandise, any of which could have a material adverse effect on its business, financial condition and results of operations.
Brand and reputation The Group’s brand is an important asset of its business. Failure to protect the Group’s brand proposition and loss of trust and confidence in the Group and its products could affect operations in a number of ways, from a decline in the Group’s customer base through to an impact on partnerships with licensors or suppliers or the Group’s ability to recruit and retain the best staff. Product sabotage such as food contamination could also lead to a loss of trust in the Group’s goods and therefore affect the Group’s financial results.
The Group does not control its manufacturers or their labour practices. Unfavourable publicity concerning the Group, any of its brands or products or any of its franchisees or manufacturers or a substantial erosion in the reputation of, or value associated with, the Group’s brand could have a material adverse effect on the Group’s ability to attract and retain third party brands, designers and franchisees, and otherwise on the Group’s business, financial condition or results of operations.
Complaints and litigations From time to time, the Group is the subject of complaints and litigation from its customers, employees or other third parties, alleging product, injury, health, environmental, safety or operational concerns, nuisance, negligence or failure to comply with applicable laws, regulations or contractual obligations. These complaints and claims, even if successfully disposed of without any direct adverse financial effect, could have a material adverse effect on the Group’s reputation and divert its financial and management resources from more beneficial uses. If the Group were to be found liable under any such claims, this may have a material adverse effect on the Group and/or its business, operations and financial condition.
Management and personnel The Group is highly dependent upon certain key senior management personnel who have extensive experience and knowledge of the Group’s industries. The successful implementation of the Group’s strategy also depends on the availability of skilled management at its head office, buying and merchandising departments, distribution centres and major stores. The Group’s success depends in part on its ability to continue to attract, motivate and retain other highly qualified employees. There can be no assurance that any of these key personnel will continue to be employed by the Group or that it will be able to attract and retain qualified personnel in the future. The loss of services of key personnel, or a failure to attract and retain qualified new personnel, could significantly delay or prevent the achievement of the Group’s business plan and may have a material adverse effect on the Group and/or its business, operations and financial condition.
7 Funding The perceived creditworthiness of the Group depends on many factors, including macro-economic factors and consumer lending regulations, the financial standing of the Group and its ability to maintain the diversity and quality of its financing sources and to correctly anticipate its funding needs. Some of these factors are outside of the Group’s control. Deterioration in any of these factors or a combination of these factors may result in a downgrade in the Group’s perceived creditworthiness among current and potential creditors. Deterioration in the perception among current and potential creditors could potentially impact on the cost and accessibility of new funding, thereby having an adverse impact on the Group’s results of operations.
LaSer Cofinoga (a subsidiary of LaSer) is rated by Moody’s Investors Service (“Moody’s”). Moody’s is an independent rating agency registered under Regulation (EC) No. 1060/2009 on credit ratings agencies as amended by Regulation (EU) No. 513/2011 and, as such, is included in the list of credit rating agencies published by the European Securities and Markets Authority on its website in accordance with such regulation. Changes in LaSer Cofinoga’s results, in market conditions or in Moody’s methodology or evaluations may result in a rating downgrade. On 13 December 2011, following the downgrading of BNP Paribas (which owns 50 per cent. of LaSer’s share capital through BNP Paribas Personal Finance), Moody’s consequently lowered the long-term senior unsecured and deposit rating of LaSer Cofinoga by one notch, from A1 to A2, and its subordinated debt to A3 from A2. The ratings of LaSer Cofinoga are currently on “creditwatch” for a further possible downgrade as a consequence of the current difficult economic environment and the stricter lending regulations, leading LaSer Cofinoga to review its business model. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, change or withdrawal at any time by the assigning rating agency.
The Group’s gearing ratio, defined as net financial debt over shareholders’ equity (including minority interests), as at 31 December 2011 was 40% (the total net financial debt being €686 million and the shareholders’ equity being €1.7 billion). Any further incurrence of debt without a concomitant increase in equity will affect this ratio and may consequently have an adverse impact on the ability of the Issuer and the Group to access external funding under attractive conditions. It may also have an effect on the ability of the Issuer in the future to fulfil its financial covenants.
Solvency ratio LaSer Cofinoga must currently set its solvency ratio in accordance with the Basel II rules. Application of the Basel III rules or other solvency rules may result in additional capital requirements, which may have a material adverse impact on its funding conditions, or on its ability to fulfil its financial obligations, which may in turn have a material adverse impact on the Group’s results and financial conditions.
Legal/Compliance/Regulatory/Environment The Group is exposed to many forms of legal and compliance risk, which may arise in a number of ways including, but not limited to, failure to adequately protect its intellectual property (such as its trade names) and failure to conduct its business in accordance with applicable laws. The Group is subject to a broad spectrum of regulatory requirements, particularly in relation to key areas such as health and safety, environment, fire, tax, protection of customer and employee data, landlord and tenant, product safety, quality and liability, transportation, labour and employment practices (including pensions) and competition. In particular, the vast majority of the Group’s establishments in France are governed by the regulations applicable to establishments open to the public (établissements recevant du public), some of which are listed buildings (installations classées). Moreover, some of its activities are subject to specific regulatory regimes, for example those applicable to the consumer credit (LaSer Cofinoga), insurance brokerage, tourism (e.g. Galeries Lafayette Voyages), food supply, hairdressing and jewellery trading business lines.
In addition, as a financial institution, LaSer Cofinoga is subject to the rules of the Banque de France and the Autorité de Contrôle Prudentiel.
8 There can be no assurance that the Group will not incur material costs or liabilities in connection with regulatory requirements. A change in any of these factors may have a material adverse effect on the Group and/or its business, operations and financial condition.
Product safety The integrity of its products is of paramount importance to the Group, which seeks to ensure the application of the best standards in safety, quality, environment and animal welfare. A breach of such standards may affect consumer confidence and may consequently have a material adverse effect on the Group and/or its business, operations and financial condition.
Risks associated with the Group’s properties Although the Group owns the majority of its premises, the Group remains susceptible to fluctuations in the property rental market. In addition, the Group’s ability to obtain real estate to open new stores depends upon the availability of real estate that meets its criteria and its ability to negotiate terms that meet its financial targets. Furthermore, the Group may not be able to renew its existing store leases if the landlord is able to establish legal grounds for non-renewal or if a lease comes to an end. These factors may result, among other things, in significant alterations in rental terms (including rental rates and service charges), in an inability to achieve site renewals, in the closure of stores in desirable locations or in a failure to secure real estate locations adequate to meet annual targets. As a result, any of these factors could have a material adverse effect on the Group’s business, financial condition or results of operations.
The Group’s property portfolio comprises properties that have been constructed at various times and a number of its properties are situated in areas that have historically been the subject of commercial or industrial use. It is possible that on-site pollution or contamination could have been caused by such previous uses, or in limited circumstances by current uses, for which it is possible that the Group could be held liable. A claim or regulatory action against the Group for pollution or contamination could have a material adverse effect on its business, financial condition and results of operations.
Insurance The Group endeavours to implement an insurance strategy aimed at optimising cover levels and the cost of its insurance policies, while achieving satisfactory risk containment, so as to ensure the protection of its clients, employees, shareholders and assets. The vast majority of the Group’s establishments in France are classified as establishments open to the public (établissements recevant du public) and, as a result, the Group attaches great importance to the risks entailed by the presence of the general public on its premises. Furthermore, in light of the large number of sites, the value of the Group’s assets to be protected is significant and requires constant monitoring of risk-prevention strategies.
The Group currently has insurance coverage for certain operating risks, which include property damage, loss of business and third party liability. See “Description of the Group – Insurance”.
Although the Group maintains insurance that it believes is in accordance with customary industry practices, no assurance can be given that this insurance will be adequate to cover fully all potential hazards incidental to the Group’s business.
Furthermore, the current price of the policies and the coverage provided may be affected by external circumstances, such as natural disasters and similar events.
Any failure to obtain an adequate insurance coverage at economically acceptable premiums may have a material adverse impact on the Group’s results and financial condition.
Equity investments The Group has a number of equity investments, which are required to be marked-to-market at certain accounting dates according to applicable accounting rules. This marking-to-market resulted, for example, in a write-down of €16.1 million in its investment in Casino Guichard-Perrachon (“Casino”)
9 as at 31 December 2011. A further deterioration in the market value of such equity investments may lead to a further write down of their value and may have a material adverse impact on the results of the Group.
Financial risks The Group is exposed to financial risks (including credit risk, interest rate risk and currency risk), especially for its financial and marketing services activities developed by LaSer.
Credit risk Credit risks can be broken down into three main types of exposure:
• risk vis-à-vis the clientele;
• risk vis-à-vis credit institutions; and
• risk vis-à-vis counterparties in market activities.
The risk vis-à-vis the clientele encompasses in particular the debit portfolio and the risk that its clients may default on part or all of their financial obligations towards the LaSer group in respect of credit advanced to such clients (especially in relation to payment cards, consumer and other credit activities developed by LaSer).
The risk vis-à-vis credit institutions essentially covers the risk supported by LaSer for financing issued to credit subsidiaries under joint control with third parties, for the portion of such funding not eliminated in its consolidated financial statements.
The risk vis-à-vis counterparties in market activities covers the risk of default of LaSer financial counterparties (being leading French or international banks for which a specific authorisation procedure is in place) in connection mainly with hedging transactions or treasury activities.
Such credit risks are, inter alia, dependent on macro-economic factors impacting the clients or the other counterparties of the LaSer group (such as economic growth, financial instability, employment rate, purchasing and saving power and price instability) as well as on the ability of the LaSer group to appropriately assess the creditworthiness of its clients and counterparts to implement proper selection, lending and collection policies. Any deterioration in any of those macro-economic factors or any inadequacy or failure of the LaSer group’s credit risk management policies could materially adversely affect the LaSer group’s business, results of operations and financial conditions and consequently that of the Group as a whole.
Interest rate risk The Group is engaged in a series of financing transactions and is therefore exposed to variations in relevant interest rates.
The valuation of the assets and liabilities of the Group and its financial results are subject to price variations and, where applicable, to the appropriateness of the Group’s hedging policy. Any material variations in interest rates to which the Group is exposed as well as any inappropriateness or failure of its hedging policy could materially adversely affect the Group’s business, results of operations and financial condition.
Currency risk Although the majority of the retail transactions entered into by the Group are denominated in euro, the Group conducts a number of transactions and holds assets or liabilities denominated in other currencies (including mainly the Polish Zloty, the Pound Sterling and the Danish and Norwegian Crowns). The valuation of the assets and liabilities of the Group and its financial results are subject to price variations and, where applicable, to the appropriateness of the Group’s hedging policy. Any material variations in foreign currencies in which the Group is dealing as well as any inappropriateness or failure of its hedging policy could materially adversely affect the Group’s business, results of operations and financial condition.
10 Monoprix
In accordance with the shareholders’ agreements entered into with Casino, Casino benefits from a call option whereby it has the right, exercisable as from 1 January 2012, to purchase 10 per cent. of the share capital of Monoprix held by the Issuer. Including a 21% control premium, the exercise price of this call option is 121% of the price determined by an independent expert, using a multi-criteria approach. If Casino exercises such call option, the Issuer has the option to require Casino to buy the Issuer’s remaining 40% shareholding in Monoprix for the same price per share.
In addition, the Issuer benefits from a put option whereby it has the right, exercisable as from 1 January 2012, to sell to Casino its 50% stake in Monoprix. The exercise price of this put option is the price determined by an independent expert, using a multi-criteria approach. This price does not include the 21% premium included in the Casino call option exercise price.
According to the terms of such shareholders’ agreement, each party may request that Monoprix undergo a valuation process once a year. Such request does not mean that the option has to be exercised. Once the price is determined, each party may then (but is not required to) exercise its call or put option, as the case may be, during a 60-day period.
On 7 December 2011, the Issuer notified Casino of a request for such valuation. The valuation process is still pending as the Issuer and Casino do not agree on the modalities of implementation of such process. On 20 February 2012, the Issuer raised an action against Casino in the Paris Commercial Court to obtain an order requiring Casino to participate in good faith in the valuation process.
In addition, the reappointment by the board of directors of Monoprix on 22 February 2012 of Mr. Philippe Houzé, as Chairman and Chief Executive Officer of Monoprix, for a further one-year term has been disputed by Casino, who raised an action against the Issuer in the Paris Commercial Court on 5 March 2012.
If Casino exercises the call option described above resulting in the Issuer becoming a 40% minority shareholder in Monoprix, or if the reappointment of Mr Houzé is successfully challenged by Casino, this may result in the Group not being able to exercise day-to-day operational decision-making functions in relation to Monoprix (although it will still keep strategic veto rights).
Moreover, the court action described above may delay the valuation process. (See further “Description of Group—Business Divisions— The Citymarket division (Monoprix and concept stores)”)
Risks related to the Bonds
The Bonds may not be a suitable investment for all investors Each potential investor in the Bonds must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
(i) have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risks of investing in the Bonds and the information contained in this Prospectus or any applicable supplement;
(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Bonds and the impact the Bonds will have on its overall investment portfolio;
(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Bonds, including where the currency for principal or interest payments is different from the potential investor's currency;
(iv) understand thoroughly the terms of the Bonds and be familiar with the behaviour of any relevant indices and financial markets; and
11 (v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
Risks related to the market generally Set out below is a brief description of the principal market risks, including liquidity risk, exchange rate risk, interest rate risk and credit risk:
The secondary market generally The Bonds may have no established trading market when issued, and one may never develop. If a market does develop, it may not be very liquid. Therefore, investors may not be able to sell their Bonds in the secondary market in which case the market or trading price and liquidity may be adversely affected or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market.
Exchange rate risks and exchange controls The Issuer will pay principal and interest on the Bonds in euro. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the “Investor’s Currency”) other than euro. These include the risk that exchange rates may change significantly (including changes due to devaluation of the euro or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to the euro would decrease (i) the Investor’s Currency-equivalent yield on the Bonds, (ii) the Investor’s Currency-equivalent value of the principal payable on the Bonds and (iii) the Investor’s Currency- equivalent market value of the Bonds.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal.
Interest rate risks Investment in the Bonds involves the risk that subsequent changes in market interest rates may adversely affect the value of the Bonds.
The Bonds may be redeemed prior to maturity In the event that the Issuer would be obliged to pay additional amounts payable in respect of any Bonds due to any withholding as provided in Condition 7(b), the Issuer may redeem all outstanding Bonds in accordance with such Terms and Conditions.
Market value of the Bonds The value of the Bonds depends on a number of interrelated factors, including economic, financial and political events in France or elsewhere, including factors affecting capital markets generally and the stock exchanges on which the Bonds are traded. The price at which a holder of Bonds will be able to sell the Bonds prior to maturity may be at a discount, which could be substantial, from the issue price or the purchase price paid by such holder.
Exercise of Put Option and effect of Bonds liquidity Depending on the number of Bonds in respect of which the Put Option as provided in Condition 5(d) is exercised, any trading market in respect of those Bonds in respect of which the Put Option has not been exercised may become illiquid.
No credit rating No credit rating has been, nor has the Issuer requested or will it request a rating to be, assigned by any Rating Agency to the Bonds.
12 Modification of Terms and Conditions The Terms and Conditions of the Bonds contain provisions for calling meetings of Bondholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Bondholders, including Bondholders who did not attend and vote at the relevant meeting and Bondholders who voted in a manner contrary to the majority.
Change of law The Terms and Conditions of the Bonds are based on the laws of France in effect as at the date of this Prospectus. No assurance can be given as to the impact of any possible judicial decision or change to the laws of France or administrative practice after the date of this Prospectus. Furthermore, the Issuer operates in a heavily regulated environment and has to comply with extensive regulations in France and elsewhere. No assurance can be given as to the impact of any possible judicial decision or change to laws or administrative practices after the date of this Prospectus.
Legal investment considerations may restrict certain investments The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) the Bonds are legal investments for it, (ii) the Bonds can be used as collateral for various types of borrowing and (iii) other restrictions apply to its purchase or pledge of any Bonds. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of the Bonds under any applicable risk-based capital or similar rules.
Restrictive covenants The Bonds do not restrict the Issuer or certain other entities of the Group from incurring additional debt. The Terms and Conditions of the Bonds contain a negative pledge that prohibits the Issuer and its Principal Subsidiaries in certain circumstances from creating security over assets, but only to the extent that such is used to secure other bonds or similar listed or quoted debt instruments, and there are certain exceptions to the negative pledge. The definition of “Subsidiary” for the purposes of the definition of “Principal Subsidiary” includes all the entities in respect of which the Issuer holds more than 50 per cent of the share capital. Accordingly the entities of the Group held on a 50-50 joint venture control basis, in particular Monoprix and LaSer, which are consolidated in the Issuer's consolidated financial statements using the proportional method are not included in this definition for the purposes of the scope of the negative pledge and the events of default under the Bonds. See “Terms and Conditions of the Bonds - Negative Pledge and other Covenants” and “Terms and Conditions of the Bonds - Events of Default”.
The Terms and Conditions of the Bonds do not contain any other covenants restricting the operations of the Issuer. The entities of the Group other than the Issuer are not bound by obligations of the Issuer under the Bonds and are not guarantors of the Bonds.
Structural subordination due to holding company status The Issuer is a holding company directly owning, inter alia, shareholdings, real estate properties and Group brands, whereas other assets remain at a subsidiary level, such as the ownership and operating of the different businesses (fonds de commerce). Moreover, a substantial amount of income is generated through operating companies which are jointly controlled by the Issuer with third parties (namely Monoprix and LaSer), such income being received by the Issuer in the form of dividend payments. Investors will not have any direct claims on the cash flows or the assets of the other entities of the Group, and such entities have no obligation, contingent or otherwise, to pay amounts due under the Bonds or to make funds available to the Issuer for these payments.
Claims of the creditors of the other entities of the Group have priority as to the assets of such entities over the claims of the Issuer’s creditors. Consequently, holders of the Bonds are in effect structurally subordinated on insolvency to the prior claims of the creditors of the other entities of the Group.
13 French insolvency law In accordance with French insolvency law as amended by ordinance n°2008-1345 dated 18 December 2008 which came into force on 15 February 2009, holders of debt securities are automatically grouped into a single assembly of holders (the “Assembly”) in order to defend their common interests should a preservation (procédure de sauvegarde), an accelerated financial safeguard procedure (procedure de sauvegarde financière accélérée) or a judicial reorganisation procedure (procédure de redressement judiciaire) be opened in France with respect to the Issuer. The Assembly would comprise holders of all debt securities issued by the Issuer (including the Bonds) regardless of their governing law. The Assembly would deliberate on the proposed safeguard (projet de plan de sauvegarde) or judicial reorganisation plan (projet de plan de redressement) applicable to the Issuer and would have to vote on whether to:
• increase the liabilities (charges) of holders of debt securities (including the Bondholders) by rescheduling due payments and/or partially or totally writing off receivables in form of debt securities;
• establish an unequal treatment between holders of debt securities (including the Bondholders) as appropriate under the circumstances; and/or
• decide to convert debt securities (including the Bonds) into securities that give or may give right to share capital.
Decisions of the Assembly would be taken by a two-thirds majority (calculated as a proportion of the debt securities held by the holders having expressed their vote). No quorum would be required to convoke the Assembly.
The procedures, as described above or as they will or may be amended, could have an adverse impact on holders of the Bonds seeking repayment in the event that the Issuer or its subsidiaries were to become insolvent.
Taxation Potential purchasers and sellers of the Bonds should be aware that they may be required to pay taxes or other documentary charges or duties in accordance with the laws and practices of the country where the Bonds are transferred or other jurisdictions. In some jurisdictions, no official statements of the tax authorities or court decisions may be available for financial instruments such as the Bonds. Potential investors are advised not to rely upon the tax summary contained in this Prospectus but to ask for their own tax adviser’s advice on their individual taxation with respect to the acquisition, holding, sale and redemption of the Bonds. Only these advisers are in a position to duly consider the specific situation of the potential investor. This investment consideration has to be read in connection with the taxation sections of this Prospectus.
EU Savings Directive On 3 June 2003, the European Council of Economic and Finance Ministers adopted Directive 2003/48/CE regarding the taxation of savings income in the form of interest payments (the “Directive”). The Directive requires Member States, subject to a number of conditions being met, to provided the tax authorities of other Member States with details of payments of interest and other similar income made by a paying agent located within its jurisdiction to, or for the benefit of, an individual resident in that other Member State, except that, for a transitional period, Luxembourg and Austria will instead withhold an amount on interest payments unless the relevant beneficial owner of such payment elects otherwise and authorises the paying agent to disclose the above information (see “Taxation”).
If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of tax were to be withheld from that payment, neither the Issuer nor any paying agent nor any other person would be obliged to pay additional amounts with respect to any Bond as a result of the imposition of such withholding tax.
14 TERMS AND CONDITIONS OF THE BONDS
The issue outside the Republic of France of the €500,000,000 4.75 per cent. bonds due 2019 (the “Bonds”) of Société Anonyme des Galeries Lafayette (the “Issuer”) has been authorised pursuant to a resolution of the Management Board (Directoire) of the Issuer dated 17 April 2012 and a decision of the Supervisory Board (Conseil de surveillance) of the Issuer adopted on 20 March 2012. A fiscal and paying agency agreement (the “Fiscal Agency Agreement”) dated 26 April 2012 has been entered into between the Issuer and CACEIS Corporate Trust, as fiscal agent and principal paying agent (the “Fiscal Agent”, which expression shall, where the context so admits, include any successor for the time being as Fiscal Agent), and the other paying agent named therein (together, the “Paying Agents”, which expression shall, where the context so admits, include the Fiscal Agent and any additional paying agents and any successors for the time being of the Paying Agent or any additional paying agents appointed thereunder from time to time). Copies of the Fiscal Agency Agreement are available for inspection at the specified offices of the Paying Agents. References herein to “Conditions” are, unless the context otherwise requires, to the numbered paragraphs below.
1 Form, Denomination and Title The Bonds are issued on 26 April 2012 (the “Issue Date”) in dematerialised bearer form (au porteur), in the denomination of €100,000. Title to the Bonds will be evidenced in accordance with Articles L. 211-3 and R. 211-1 of the French Code monétaire et financier by book entries (inscription en compte). No physical document of title (including certificats représentatifs pursuant to Article R. 211-7 of the French Code monétaire et financier) will be issued in respect of the Bonds.
The Bonds will, upon issue, be inscribed in the books of Euroclear France which shall credit the accounts of the Euroclear France Account Holders. For the purpose of these Conditions, “Euroclear France Account Holder” shall mean any intermediary institution entitled to hold accounts, directly or indirectly, with Euroclear France, and includes Euroclear Bank S.A./N.V. (“Euroclear”) and the depositary bank for Clearstream Banking, société anonyme (“Clearstream, Luxembourg”).
Title to the Bonds shall be evidenced by entries in the books of Euroclear France Account Holders and will pass upon, and transfer of Bonds may only be effected through, registration of the transfer in such books.
2 Status of the Bonds The Bonds constitute direct, unconditional, unsecured (subject to the provisions of Condition 3 below) and unsubordinated obligations of the Issuer and rank and will rank at all times pari passu without any preference or priority among themselves and (subject to such exceptions as are from time to time mandatory under French law) equally and rateably with all other present or future unsecured and unsubordinated obligations of the Issuer.
3 Negative Pledge and Other Covenants
(a) Negative Pledge
So long as any of the Bonds remains outstanding (as defined below), the Issuer will not, and will procure that none of its Principal Subsidiaries (as defined below) will:
(i) create or permit to subsist any mortgage, lien, charge, pledge or other form of security interest (sûreté réelle) upon any of its or their assets or revenues, present or future, to secure (a) any Relevant Indebtedness (as defined below) or (b) any guarantee or indemnity granted in respect of any Relevant Indebtedness; or
(ii) give any guarantee of, and indemnity in respect of, any Relevant Indebtedness
unless, at the same time or prior thereto, the Issuer’s obligations under the Bonds (a) are equally and rateably secured therewith or benefit from a guarantee or indemnity in substantially
15 identical terms thereto or (b) have the benefit of such other security, guarantee, indemnity or such other arrangement as shall be approved by a decision of the Masse (as defined in Condition 9) of the Bondholders.
For the purposes of these Conditions:
“outstanding” means, in relation to the Bonds, all the Bonds issued other than: (a) those which have been redeemed in accordance with the Conditions, (b) those in respect of which the date for redemption in accordance with the Conditions has occurred and the redemption monies (including all interest accrued on such Bonds to the date for such redemption and any interest payable under Condition 4 after such date) have been duly paid to the Fiscal Agent and (c) those which have been purchased and cancelled as provided in Condition 5.
“Relevant Indebtedness” means any present or future indebtedness for borrowed money represented by bonds (obligations), notes or other securities (including titres de créances négociables) which are for the time being, or are capable of being quoted, listed or ordinarily dealt in on any stock exchange, over-the-counter market or other securities market.
“Principal Subsidiary” means at any relevant time a Subsidiary of the Issuer:
(i) whose total assets or sales (or, where the Subsidiary in question prepares consolidated accounts, whose total consolidated assets or consolidated sales, as the case may be) represent not less than 5 per cent. of the total consolidated assets or consolidated sales of the Issuer, as the case may be, all as calculated by reference to the then latest annual audited accounts (or consolidated accounts, as the case may be) of such Subsidiary, and the then latest annual audited consolidated accounts of the Issuer and its consolidated subsidiaries; or
(ii) to which is transferred all or substantially all the assets and undertakings of a Subsidiary which immediately prior to such transfer is a Principal Subsidiary, in which case the transferring Subsidiary will no longer be considered a Principal Subsidiary as of the day of such transfer. For the avoidance of doubt, (x) such transferring Subsidiary will become a Principal Subsidiary again and (y) any Subsidiary which becomes a Principal Subsidiary under this sub-paragraph (ii) will continue to be a Principal Subsidiary, in each case following the next audited accounts of such Subsidiary only if it satisfies the requirements set forth in sub-paragraph (i).
“Subsidiary” means any person or entity in which the Issuer holds, directly or indirectly, more than 50 per cent. of the share capital.
(b) Other Covenants
So long as any of the Bonds remain outstanding, the Issuer will make available (i) its French language audited consolidated annual accounts and (ii) its French language unaudited consolidated semi-annual accounts for the first semi-annual period of each financial year, for inspection by the Bondholders during normal business hours at the specified offices of the Paying Agents, from not later than 150 days from the end of each financial year in the case of the annual accounts and not later than 90 days from the end of each relevant semi-annual period in the case of the semi-annual accounts.
4 Interest
(a) Each Bond bears interest on its principal amount from (and including) the Issue Date at the rate of 4.75 per cent. per annum payable annually in arrears on 26 April of each year (each an “Interest Payment Date”) commencing on 26 April 2013. The amount of interest payable in respect of each Bond in respect of each Interest Payment Date is €4,750.
(b) Interest will cease to accrue on each Bond on the due date for redemption thereof unless, upon such due date, payment of principal is improperly withheld or refused or if default is otherwise
16 made in respect of payment thereof. In such event, interest will continue to accrue at the relevant rate per annum as specified in the preceding paragraph (as well after as before judgment) on the principal amount of such Bond until the day on which all sums due in respect of such Bond up to that day are received by or on behalf of the relevant Bondholder.
(c) Interest will be calculated on an Actual/Actual (ICMA) basis. If interest is required to be calculated in respect of a period which is equal to or shorter than an Interest Period (as defined below), the day count fraction used will be the number of days elapsed in the relevant period, from and including the date from which interest begins to accrue to but excluding the date on which it falls due, divided by the number of days in the Interest Period in which the relevant period falls (including the first such day but excluding the last). The period beginning on, and including, the Issue Date and ending on, but excluding, the first Interest Payment Date and each successive period beginning on an Interest Payment Date and ending on the next successive Interest Payment Date is called an “Interest Period”.
5 Redemption, Exchange and Purchase The Bonds may not be redeemed otherwise than in accordance with this Condition 5.
(a) Final Redemption Unless previously redeemed, exchanged or purchased and cancelled as provided below, the Bonds will be redeemed at their principal amount on 26 April 2019 (the “Maturity Date”).
(b) Exchange Nothing in these Conditions shall prevent the Issuer from making any offers to the Bondholders to exchange their Bonds for other bonds or notes issued by the Issuer.
(c) Redemption for Taxation Reasons
(i) If by reason of a change in French law, or any change in the official application or interpretation of such law, becoming effective after the Issue Date, the Issuer would on the occasion of the next payment of principal or interest due in respect of the Bonds not be able to make such payment without having to pay additional amounts as specified under Condition 7, the Issuer may, at any time, subject to having given not more than 60 nor less than 30 days' prior notice to the holders of the Bonds (the “Bondholders”) (which notice shall be irrevocable), in accordance with Condition 10, redeem all, but not some only, of the Bonds at their principal amount with accrued interest (if any) to the date set for redemption, provided that the due date for redemption of which notice hereunder may be given shall be no earlier than the latest practicable date on which the Issuer could make payment of principal and interest without withholding for French taxes or, if such date has passed, as soon as practicable thereafter.
(ii) If the Issuer would on the next payment of principal or interest in respect of the Bonds be prevented by French law from making payment to the Bondholders of the full amount then due and payable, notwithstanding the undertaking to pay additional amounts contained in Condition 7, then the Issuer shall forthwith give notice of such fact to the Fiscal Agent and the Issuer shall upon giving not less than seven days’ prior notice to the Bondholders redeem all, but not some only, of the Bonds then outstanding at their principal amount plus any accrued interest to the date set for redemption, provided that the due date for redemption of which notice hereunder shall be given shall be no earlier than the latest practicable date on which the Issuer could make payment of the full amount of principal and interest payable without withholding for French taxes or, if such date has passed, as soon as practicable thereafter.
17 (d) Redemption at the option of Bondholders following a Change of Control If at any time while any Bond remains outstanding there occurs a Change of Control (a “Put Event”), the holder of such Bond will have the option (the “Put Option”) (unless, prior to the giving of the Put Event Notice, the Issuer gives notice of its intention to redeem the Bonds under Condition 5(c)) to require the Issuer to redeem or, at the Issuer's option, to procure the purchase of, that Bond, on the Optional Redemption Date at its principal amount together with (or where purchased, together with an amount equal to) interest accrued to, but excluding, the Optional Redemption Date (as defined below).
A “Change of Control” shall be deemed to have occurred each time that any person or persons acting in concert (in each case other than one or more Permitted Shareholder (as defined below)) come(s) to own or acquire(s) directly or indirectly such number of shares in the capital of the Issuer carrying more than 50 per cent. of the voting rights exercisable at a general meeting of the Issuer.
“Permitted Shareholder(s)” means each and any (i) of Madame Ginette Moulin, (ii) of the present or future descendants of Madame Ginette Moulin, (iii) of the respective spouse(s) of any such descendants or (iv) present or future company or other legal entity whose share capital (or equivalent) and associated voting rights are directly or indirectly controlled (within the meaning of article L.223-3 of the French Code de Commerce) by any of the persons mentioned in (i) to (iii) and through which any or all such persons at any time hold directly or indirectly shares in the capital of the Issuer. For the purpose of this definition, (i) “control” will be deemed to be transitive (i.e., if a company A controls a company B which controls a company C, such company A will be deemed to control such company C) and (ii) any company or other legal entity controlled by one or more Permitted Shareholders will be deemed to be a Permitted Shareholder.
Promptly upon the Issuer becoming aware that a Put Event has occurred and, in any event, no later than the fifteenth Business Day following such occurrence, the Issuer shall give notice (a “Put Event Notice”) to the Bondholders in accordance with Condition 9 specifying the nature of the Put Event, the circumstances giving rise to it and the procedure for exercising the Put Option contained in this Condition 5(d).
To exercise the Put Option to require redemption or, as the case may be, purchase of the Bonds following a Put Event, a Bondholder must transfer or cause to be transferred its Bonds to be so redeemed or purchased to the account of the Fiscal Agent specified in the Put Option Notice (as defined below) for the account of the Issuer within the period (the “Put Option Period”) of 90 days after the Put Event Notice is given together with a duly signed and completed notice of exercise (a “Put Option Notice”) and in which the holder may specify a bank account to which payment is to be made under this Condition 5(d).
A Put Option Notice once given shall be irrevocable. The Issuer shall redeem or, at the option of the Issuer procure the purchase of, the Bonds in respect of which the Put Option has been validly exercised as provided above and subject to the transfer of such Bonds to the account of the Fiscal Agent for the account of the Issuer, on the date which is the fifth Paris business day following the end of the Put Period (the “Optional Redemption Date”). Payment in respect of such Bonds will be made on the Optional Redemption Date by transfer to the bank account specified in the Put Option Notice and otherwise subject to the provisions of Condition 6.
18 (e) Purchases The Issuer and any of its subsidiaries or affiliates may at any time purchase Bonds in the open market or otherwise at any price.
Bonds so purchased by the Issuer may be held and resold in accordance with Articles L.213-1-A and D.213-1-A of the French Code monétaire et financier, for the purpose of enhancing the liquidity of Bonds.
(f) Cancellation All Bonds which are redeemed, exchanged or purchased for cancellation by the Issuer pursuant to paragraphs (b), (c)(i) or (ii), (d) or (e) of this Condition 5 will be cancelled and accordingly may not be reissued or sold.
6 Payments (a) Method of Payment Payments in respect of principal and interest on the Bonds will be made in euro by credit or transfer to a euro denominated account (or any other account to which euro may be credited or transferred) specified by the payee with a bank in a city in which banks have access to the TARGET System (as defined below). Such payments shall be made for the benefit of the Bondholders to the Euroclear France Account Holders and all payments validly made to such Euroclear France Account Holders in favour of Bondholders will be an effective discharge of the Issuer and the Fiscal Agent, as the case may be, in respect of such payment.
Payments in respect of principal and interest on the Bonds will, in all cases, be made subject to any fiscal or other laws and regulations or orders of courts of competent jurisdiction applicable in respect of such payments but without prejudice to the provisions of Condition 7. No commission or expenses shall be charged by the Issuer, the Fiscal Agent or any Paying Agent to the Bondholders in respect of such payments.
(b) Payments on Business Days If the due date for payment of any amount of principal or interest in respect of any Bond is not a Business Day (as defined below), then the Bondholder thereof shall not be entitled to payment of the amount due until the next following Business Day and the Bondholder shall not be entitled to any interest or other sums in respect of such postponed payment.
For the purposes of these Conditions, “Business Day” means any day, not being a Saturday or a Sunday, on which (i) commercial banks and foreign exchange markets are open for general business in Paris, (ii) Euroclear France, Euroclear and Clearstream, Luxembourg are operating and (iii) the TARGET System is operating; “TARGET System” means the Trans-European Automated Real-Time Gross Settlement Express Transfer (known as TARGET2) System or any successor thereto.
(c) Fiscal Agent and Paying Agents The name and specified office of the initial Fiscal Agent and the other initial Paying Agent are as follows:
FISCAL AGENT AND PRINCIPAL PAYING AGENT
CACEIS Corporate Trust 1/3, place Valhubert 75013 Paris France
19 LUXEMBOURG PAYING AGENT
CACEIS Bank Luxembourg 5, allée Scheffer L-2520 Luxembourg, Grand Duchy of Luxembourg
The Issuer reserves the right at any time to vary or terminate the appointment of the Fiscal Agent or any Paying Agent and/or appoint another Fiscal Agent or Paying Agent and additional or other Paying Agents or approve any change in the office through which the Fiscal Agent or any Paying Agent acts, provided that there will at all times be a Fiscal Agent having a specified office in a European city. Any notice of a change in Fiscal Agent or Paying Agent or their specified office shall be given to Bondholders as specified in Condition 10.
7 Taxation (a) Tax Exemption All payments of principal, interest and other revenues by or on behalf of the Issuer in respect of the Bonds shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within France or any authority therein or thereof having power to tax, unless such withholding or deduction is required by law.
(b) Additional Amounts If French law should require that payments of principal or interest in respect of any Bond be subject to deduction or withholding in respect of any present or future taxes, duties, assessments or other governmental charges of whatever nature imposed or levied by or on behalf of the Republic of France or any authority therein or thereof having power to tax, the Issuer shall, to the fullest extent then permitted by law, pay such additional amounts as may be necessary in order that the holder of each Bond, after such deduction or withholding, will receive the full amount then due and payable thereon in the absence of such withholding, except that no such additional amounts shall be payable with respect to any Bond:
(i) to, or to a third party on behalf of, a Bondholder who is subject to such taxes, duties, assessments or governmental charges in respect of such Bond by reason of his having some connection with the Republic of France other than the mere holding of such Bond;
(ii) to or on behalf of a holder (or beneficial owner (ayant-droit)) who could avoid such deduction or withholding by making a declaration of non-residence or similar claim for exemption but fails to do so;
(iii) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to the European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26 and 27 November 2000 on the taxation of savings or any law implementing or complying with, or introduced in order to conform to, such Directive; or
(iv) more than 30 days after the Relevant Date (as defined below), except to the extent that the holder thereof would have been entitled to such additional amounts on the last day of such period of 30 days.
For this purpose, the “Relevant Date” in relation to any Bond means whichever is the later of (A) the date on which the payment in respect of such Bond first becomes due and payable and (B) if the full amount of the moneys payable on such date in respect of such Bond has not been received by the Fiscal Agent on or prior to such date, the date on which notice is given to Bondholders that such moneys have not been received.
20 Any references in these Conditions to principal and interest in respect of the Bonds shall be deemed also to refer to any additional amounts which may be payable under the provisions of this Condition 7(b).
8 Events of Default The Representative (as defined in Condition 9) of the Masse (as defined in Condition 9) (upon written request of any Bondholder) may upon written notice to the Issuer, with a copy to the Fiscal Agent, cause the Bonds held by such Bondholder to become immediately due and repayable, whereupon they shall without further formality become immediately due and payable at their principal amount, together with interest accrued to the date of repayment, in any of the following events (“Events of Default”) unless prior to the receipt of such notice all Events of Default in respect of the Bonds shall have been cured:
(a) Non-Payment: if any amount of principal of, or interest on, any Bond shall not be paid on the due date thereof and such default shall not be remedied within a period of seven (7) days; or
(b) Breach of Other Obligations: if default is made by the Issuer in the due performance or observance of any other obligation of the Issuer in these Conditions and such default continues for a period of thirty (30) days (unless such default is not curable in which case such period shall not apply) following receipt of a written notice of such default by the Issuer from the Representative; or
(c) Cross-Default: if (i) any other present or future indebtedness of the Issuer or any of its Principal Subsidiaries for or in respect of moneys borrowed or raised becomes due and payable prior to its stated maturity by reason of any actual or potential default, event of default or the like (howsoever described), or (ii) any such indebtedness is not paid when due or, as the case may be, within any applicable grace period, or (iii) the Issuer or any of its Principal Subsidiaries fails to pay when due or, as the case may be, within any applicable grace period, any amount payable by it under any present or future guarantee for, or indemnity in respect of, any moneys borrowed or raised, provided that the aggregate amount of the relevant indebtedness and/or guarantees and indemnities in respect of which one or more of the events mentioned above in this paragraph (c) have occurred equals or exceeds €20,000,000 (or its equivalent in any other currency); or
(d) Security Enforced: if any mortgage, charge, pledge, lien, security interest (sûreté réelle) or other encumbrance, present or future, created or assumed by the Issuer or any of its Principal Subsidiaries to secure any amount payable by it or them under any present or future indebtedness for moneys borrowed or raised, or guarantee for, or indemnity in respect of, any such indebtedness becomes enforceable and any step is taken to enforce it (including the taking of possession or the appointment of a receiver, manager or other similar person), provided that the aggregate amount of such indebtedness and/or guarantee and/or indemnity secured in respect thereof by mortgages, charges, pledges, liens or other encumbrances in relation to which any such step is taken equals or exceeds €20,000,000 (or its equivalent in any other currency); or
(e) Winding-up: if an order is made or an effective resolution passed for the winding-up or dissolution of the Issuer or any of its Principal Subsidiaries or the Issuer ceases or threatens to cease to carry on all or a material part of its business or operations, except for the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or consolidation on terms approved by an Assemblée Générale of the Bondholders; or
(f) Insolvency: if either (i) the Issuer or any Principal Subsidiary established in the Republic of France makes any proposal for a general moratorium in relation to its debt or enters into a conciliation procedure (procédure de conciliation) with its creditors or a judgment is issued for the judicial liquidation (liquidation judiciaire) or for a judicial transfer of the whole of its business (cession totale de l’entreprise) or, to the extent permitted by applicable law, if it is
21 subject to any other insolvency or bankruptcy proceedings or enters into a composition (accord à l’amiable) with its creditors or (ii) any of the Issuer’s Principal Subsidiaries not established in the Republic of France is subject to any analogous proceedings under applicable law as those mentioned in paragraph (i) above; or
(g) Illegality: if it is or will become unlawful for the Issuer to perform or comply with any one or more of its obligations under any of the Bonds.
9 Representation of the Bondholders (a) The Masse The Bondholders will be grouped automatically for the defence of their respective common interests in a masse (hereinafter referred to as the “Masse”).
The Masse will be governed by the provisions of the French Code de commerce (with the exception of the provisions of Articles L.228-48, L.228-59, L228-65 II, R.228-63, R.228-67 and R.228-69 and R.228-72, thereof). Notices calling for a general meeting of the Bondholders (a “General Meeting”), resolutions passed at any General Meeting and any other decision to be published pursuant to French legal and regulatory provisions will be published as provided under Condition 10.
The Bonds being issued outside the Republic of France, the Masse is, in accordance with Article L.228-90 of the French Code de commerce, governed solely by the legal provisions that are expressed as applicable to the Bonds as stated above and subject to the foregoing paragraphs.
(b) Legal Personality The Masse will be a separate legal entity, by virtue of Article L.228-46 of the French Code de commerce acting in part through one representative (the “Representative”) and in part through a general assembly of the Bondholders.
The Masse alone, to the exclusion of all individual Bondholders, shall exercise the common rights, actions and benefits which now or in the future may accrue with respect to the Bonds.
(c) Representative The office of the Representative may be conferred on a person of any nationality. However, the following persons may not be chosen as Representative:
(i) the Issuer, the members of its Supervisory Board (Conseil de surveillance), the members of its Executive management board (Directoire), its general managers (directeurs généraux), its statutory auditors or its employees and their ascendants, descendants and spouses;
(ii) companies possessing at least 10 per cent. of the share capital of the Issuer or of which the Issuer possesses at least 10 per cent. of the share capital;
(iii) companies guaranteeing all or part of the obligations of the Issuer, their respective managers (gérants), general managers (directeurs généraux), members of their Board of Directors (Conseil d’administration), management board (Directoire), or Supervisory Board (Conseil de surveillance), their statutory auditors, managers, as well as their ascendants, descendants and spouses; or
(iv) persons to whom the practice of banker is forbidden or who have been deprived of the right of directing, administering or managing a business in whatever capacity.
22 The initial Representative shall be:
CACEIS CORPORATE TRUST (439 430 976 RCS PARIS) M. Jean-Michel DESMAREST Directeur Général de CACEIS Corporate Trust 14, rue Rouget de Lisle 92130 Issy Les Moulineaux France
The alternative representative of the Masse will be:
CACEIS BANK FRANCE (692 024 722 RCS PARIS) M. Philippe DUPUIS Directeur Général de CACEIS BANK 1-3, place Valhubert 75013 Paris, France
In the event of the death, retirement or revocation of the Representative, such Representative will be replaced by the alternative representative named above.
As of such replacement, all references to the “Representative” will be deemed to be references to the “alternative representative”. The alternative representative shall have the same powers as the Representative.
In the event of death, incompatibility, resignation or revocation of the alternative representative, a replacement representative will be elected by a meeting of the general assembly of Bondholders.
The Representative shall not be entitled to any remuneration in respect of its functions.
All interested parties will at all times have the right to obtain the name and the address of the Representative at the head office of the Issuer and at the offices of any of the Paying Agents.
(d) Powers of the Representative The Representative shall, in the absence of any decision to the contrary of the general assembly of Bondholders, have the power to take all acts of management to defend the common interests of the Bondholders.
All legal proceedings against the Bondholders or initiated by them in order to be justifiable, must be brought against the Representative or by it, and any legal proceedings which shall not be brought in accordance with this provision shall not be legally valid.
The Representative may not interfere in the management of the affairs of the Issuer.
(e) General Assemblies of Bondholders General assemblies of the Bondholders may be held at any time, on convocation either by the Issuer or by the Representative. One or more Bondholders, holding together at least one- thirtieth of outstanding Bonds may address to the Issuer and the Representative a demand for convocation of the general assembly; if such general assembly has not been convened within two months from such demand, such Bondholders may commission one of themselves to petition the competent court in Paris to appoint an agent who will call the meeting.
Notice of the date, hour, place, agenda and quorum requirements of any meeting of a general assembly will be published as provided under Condition 10 not less than 15 days prior to the
23 date of the general assembly for a first convocation and not less than six days in the case of a second convocation.
Each Bondholder has the right to participate in meetings of the Masse in person, by proxy, correspondence, or, if the statuts of the Issuer so specify1, videoconference or any other means of telecommunications allowing the identification of the participating Bondholders. Each Bond carries the right to one vote.
(f) Powers of General Assemblies A general assembly is empowered to deliberate on the dismissal and replacement of the Representative, and may also act with respect to any other matter that relates to the common rights, actions and benefits which now or in the future may accrue with respect to the Bonds, including authorising the Representative to act as plaintiff or defendant.
A general assembly may further deliberate on any proposal relating to the modification of the Conditions of the Bonds, including any proposal, whether for arbitration or settlement, relating to rights in controversy or which were the subject of judicial decisions, it being specified, however, that a general assembly may not increase amounts payable by the Bondholders nor establish any unequal treatment between the Bondholders, nor decide to convert the Bonds into shares.
Meetings of a general assembly may deliberate validly on first convocation only if Bondholders present or represented hold at least one quarter of the principal amount of the Bonds then outstanding. On second convocation, no quorum shall be required. Decisions at meetings shall be taken by a simple majority of votes cast by the Bondholders attending such meeting or represented thereat.
(g) Notice of Decisions Decisions of the meetings must be published in accordance with the provisions set out in Condition 10 not more than 90 days from the date thereof.
(h) Information to the Bondholders Each Bondholder or representative thereof will have the right, during the 15 day period preceding the holding of each meeting of a general assembly, to consult or make a copy of the text of the resolutions which will be proposed and of the reports which will be presented at the meeting, which will be available for inspection at the principal office of the Issuer, at the offices of the Paying Agents and at any other place specified in the notice of meeting.
(i) Expenses The Issuer will pay all reasonable expenses incurred in the operation of the Masse, including expenses relating to the calling and holding of meetings and the expenses which arise by virtue of the remuneration of the Representative, and more generally all administrative expenses resolved upon by a general assembly of the Bondholders, it being expressly stipulated that no expenses may be imputed against interest payable on the Bonds.
10 Notices Any notice to the Bondholders will be valid if delivered to the Bondholders through Euroclear France, Euroclear and Clearstream, Luxembourg, provided that as long as the Bonds are admitted to trading on the Luxembourg Stock Exchange and the rules of that stock exchange so require, such notice shall also be published in a leading daily newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or on the Luxembourg Stock Exchange website
1 The statuts of the Issuer do not currently contemplate the right for a Bondholder to participate in a General Meeting by videoconference or any other means of telecommunication.
24 (www.bourse.lu). Any such notice shall be deemed to have been given on the date of delivery of such notice to Euroclear France, Euroclear and Clearstream, Luxembourg or, where relevant and if later, on the date of such publication or, if published more than once or on different dates, on the first date on which such publication is made.
11 Prescription Claims against the Issuer for the payment of principal and interest in respect of the Bonds shall become prescribed 10 years (in the case of principal) and five years (in the case of interest) from the due date for payment thereof.
12 Further Issues The Issuer may from time to time without the consent of the Bondholders issue further bonds to be assimilated (assimilables) with the Bonds as regards their financial service, provided that such further bonds and the Bonds shall carry rights identical in all respects (or in all respects except for the first payment of interest thereon) and that the terms of such further bonds shall provide for such assimilation. In the event of such assimilation, the Bondholders and the holders of any assimilated (assimilables) bonds will for the defence of their common interests be grouped in a single Masse having legal personality.
13 Governing Law and Jurisdiction The Bonds are governed by, and shall be construed in accordance with, the laws of the Republic of France.
Any action against the Issuer in connection with the Bonds may be brought before the competent court in Paris.
25 USE OF PROCEEDS
The net proceeds from the issue of the Bonds, which will be approximately €493,615,000, will be used by the Issuer for the general corporate purposes of the Group and, in particular, its continuing development projects.
26 DESCRIPTION OF THE GROUP
Introduction
The Issuer is a French société anonyme à Directoire et Conseil de Surveillance registered with the Registre du Commerce et des Sociétés of Paris under the number 542 094 065. Its registered office is located at 40, boulevard Haussmann, 75009 Paris, France. Its telephone number is +33 (0)1 42 82 38 58.
The Issuer is governed by articles L. 210-1 et seq. of the French Code de Commerce.
The Issuer was incorporated on 4 September 1899 for a term expiring on 30 August 2048 unless such term is terminated early or extended.
As at 31 December 2011, the Issuer’s share capital amounted to €26,685,192, consisting of 13,342,596 shares with a nominal value of €2 each. For nearly a century (from 30 January 1911 to 21 July 2005), the Issuer was traded publicly and listed on the Paris stock exchange.
The Issuer was delisted on 21 July 2005, at the end of a compulsory buyback further to the squeeze-out initiated by Motier (formerly known as Semad), the holding company of the Group. Since then, 99 per cent. of the Issuer’s share capital has been controlled by Motier, whose capital has, since BNPP's withdrawal in March 2009, been wholly-owned by the Moulin family, one of the two founding families of Galeries Lafayette.
Business overview
The Group is a major French retail distributor operating in the fashion, luxury and beauty, leisure, home and food sectors, and, through its 50 per cent.-owned affiliate, LaSer, in the customer relationship management and financial services sectors.
The Group has more than 45,000 employees and generated more than €5 billion in retail sales (VAT inclusive)1 for the 2011 financial year.
The Group's business is organised around four principal business divisions: (1) department stores, with the Galeries Lafayette and Bazar de l’Hôtel de Ville (“BHV”) stores (the “Department Store division”); (2) “Citymarkets”, through the Monoprix, Inno and Naturalia stores (the “Citymarket division”); (3) watch stores, with the Louis Pion and Royal Quartz stores (the “Watch Store division”); and (4) Financial and Marketing Services, through the Group’s affiliate LaSer (the “Financial and Marketing Services division”). The Group also has an in-house real estate division (the “Real Estate division”), represented by Citynove Asset Management (“Citynove”).
The Galeries Lafayette department stores (comprising 55 stores in France) specialise principally in clothes and accessories, while the BHV department stores (comprising six stores in France) specialise principally in household goods.
The Department Store division represents more than 60 per cent. of all of the Group's retail sales (VAT inclusive). With €1.3 billion of retail sales (VAT inclusive) for the 2011 financial year, the Galeries Lafayette flagship department store on boulevard Haussmann in the Opéra district in Paris is the biggest of the Group’s department stores in terms of sales.
The Department Store division employs more than 13,000 people, principally in France.
1 Retail sales include all sales generated on the Group's premises, including those generated by third party concession-holders (concessions hors gestion) (See “Description of the Group” - Business divisions”- “The Department Store division (Galeries Lafayette and BHV)”.
27 In addition, the Issuer and Casino each holds an equal share of 50 per cent. in the Monoprix group. Monoprix operates city centre stores under the Monoprix, Inno and Naturalia names. The Monoprix group employs more than 20,000 people.
After the acquisition of Europa Quartz in 2002 and Goldy in 2003, in 2007 the Group acquired the Sofidi group, owner of the Louis Pion and Royal Quartz watch brands. Since then, the Group has headed up a network of 171 luxury and fashion watch boutiques organised around the Royal Quartz (luxury) and Louis Pion (fashion) brands. The Watch Store division employs more than 800 people.
In addition, the Group owns a significant real estate portfolio in France, which is managed by the Group’s real estate division – Citynove – and which comprises practically all the premises of its department stores, including the boulevard Haussmann flagship department store. Monoprix owns nearly half of the properties of its chain of stores.
In the financial services sector, the Group operates through LaSer, a company in which the Group and BNP Paribas hold equal shareholdings of 50 per cent. each. LaSer operates in the European market and is involved in intermediation, customer relations and consumer credit. It develops solutions on behalf of stores and brands for the management and enhancement of customer portfolios, and offers individuals a range of financial services and similar products. Payment and credit cards for consumer credit services are provided by LaSer Cofinoga, a wholly-owned subsidiary of LaSer. Customer loyalty services are provided by LaSer Loyalty, another wholly-owned subsidiary of LaSer. The LaSer division employed approximately 10,000 people as at 31 December 2011.
28 Key consolidated figures
The following table shows the Group’s audited consolidated key figures for the Group for the financial years ended 31 December 2011, 2010 and 2009.
Variation Variation Financial Financial Financial 2011-2010 2010-2009 in €m year 2011 year 2010 year 2009 (unaudited) (unaudited)
Retail sales (VAT included) (including concession) distribution activity (unaudited) 5,579.0 5,366.0 4969,0 4.0% 8.0% Consolidated Turnover (VAT excluded) 4,956.4 4,921.8 4.739.8 0.7% 3.8% of which credit activities 632.3 701.0 723.7 -9.8% -3.1% of which distribution activities 4,324.0 4,220.8 4,016.1 2.4% 5.1% Gross margin (unaudited) 2,723.7 2,760.4 2,613.0 -1.3% 5,6% of which credit activities 540.1 625.6 624.3 -13.7% 0.2% of which distribution activities 2,183.6 2,134.8 1,988.7 2.3% 7.3% Margin (1) (unaudited) 50.50% 50.58% 49.52% -0.08 pt 1.06pt Other operating revenue 15.4 14.3 11.7 1.1% 22.2% Personnel charges (1,027.5) (991.4) (932.6) 3.6% 6.3% Operating charges (922.4) (903.1) (880.4) 2.1% 2.6% Net cost of credit risk (244.1) (332.1) (334.9) -26.5% -0.8% Depreciation allowances (167.2) (157.5) (170.7) 6.2% -7.7% Provisions (net of recoveries) (11.2) (35.0) (13.9) NS NS Gains (losses) on disposal 5.2 (0.9) 35.3 N.S NS COI – Current Operating Income 371.9 354.8 327.5 4.8% 8.3% Other income and expenses relating to operations (191.0(2)) 211.0(2) (31.5) N.S. NS Operating income (loss) 180.9 565.8 296.0 -68.0% 91.1% Financial income (31.5) (39.9) (43.0) -21.1% -7.2% Income tax expense (101.2) (135.0) (69.0) -25.0% 95.7% Share in earnings (losses) of associates 0.0 0.1 0.1 N.S. NS Net income from continuing operations 48.2 391.0 184.1 -87.7% 112.4% Net income from discontinued operations and operations held for sale (1.8) (5.1) 17.3 NS NS Net income 46.4 386.0 201.4 -88.0% 91.6% Net income Group share 43.1 379.7 194.0 -88.6% 95.7% EBITDA(3)(unaudited) 514.7 524.6 460.9 -1.9% 13.8%
(1) Margin of distribution activities (2) The significant variation in “Other income and expenses relating to operations” between the financial years 2010 and 2011 primarily reflects exceptional charges incurred in 2011 relating to modifications made to credit provisioning methods for the Financial and Marketing Services division (LaSer Cofinoga) and exceptional income received in 2010 from the sale of ALDETA. See note AB to the consolidated financial statements of the Group as at and for the year ended 31 December 2011 and “Description of the Group” – “The Financial and Marketing Services division (LaSer Cofinoga)” – “Recent developments with respect to LaSer Cofinoga”. (3) As used throughout this Prospectus, EBITDA means earnings before interest, depreciation and amortisation (i.e. current operating income (referred to as “recurrent operating income” in the English translation of the Group’s financial statements) adjusted by reversing the effect of gains or losses on asset disposals, interest, depreciation, amortisation and change in net provision for contingencies). EBITDA is not a measure specifically defined by IFRS and is thus not audited.
29 History
The following is a chronological summary of the main events in the Group’s history to date:
1893: Opening of a 70 m² store at n° 1, rue Lafayette in Paris 1899: Creation of the Issuer 1912: Inauguration of the first Galeries Lafayette department store on boulevard Haussmann 1916: First store opened in the French provinces: opening of Galeries Lafayette in Nice 1932: Opening of the first Monoprix in Rouen 1965: Takeover of Inno France operating six stores in Paris and the French provinces 1985: Acquisition of Paris-France (12 Aux Dames de France department stores in the French provinces and 19 Parunis convenience stores) 1991: Public offer of Société Française des Nouvelles Galeries Réunies (SFNGR), the then holding company of the Nouvelles Galeries group: acquisition of 46 Nouvelles Galeries department stores, seven BHV department stores, 11 BHV specialty stores, 47 Uniprix convenience stores, and the Cap 3000 shopping centre 1992: Closing of simplified public offer: Galeries Lafayette increases its holding in SFNGR to 98.8 per cent. 1993: Cetelem acquires a 49 per cent. stake in Cofinoga 1994: Overhaul of the legal organisational structure of the group with the creation of three distinct business divisions (department stores, LaSer services, Monoprix convenience stores) 1997: Monoprix acquires Prisunic (139 stores of which 30 are franchises); Casino acquires 21.4 per cent. of the capital of Monoprix SA Alliance between LaSer Cofinoga and BNP Paribas/Cetelem 1998: Cetelem acquires a 9.80 per cent. stake in LaSer but reduces its holding in Cofinoga to 44 per cent. 1999: Signing of a computer facilities management contract with IBM Global Services 2000: Strategic alliance between Casino and Monoprix resulting in joint control of Monoprix 2001: The Group acquires SNMF, owner of Grand Rex cinemas and nine Monoprix franchise stores; acquisition of 100 per cent. of the capital of Marks & Spencer France (renamed GL Opera) 2002: Acquisition of 100 per cent. control of BHV following a tender offer of BHV shares and delisting of BHV 2003: Extension until March 2009 of the strategic partnership between Casino and Galeries Lafayette in Monoprix 2005: The Moulin family and BNP Paribas, joint owners of Semad, initiate a simplified takeover bid followed by a squeeze-out, leading to the delisting of the Issuer. Semad, the new holding company of the Galeries Lafayette group, changes its name to Motier. The Moulin family holds a 62.7 per cent. stake in Motier 2006: Following a contribution and transfer of securities, Cofinoga becomes 100 per cent. owned by LaSer, with LaSer held in equal shares of 50 per cent. by each of the Group and Cetelem
30 2007: Acquisition of Louis Pion-Royal Quartz (following the acquisition of Europa Quartz in 2002 and Goldy in 2003) 2008: Monoprix acquires Naturalia Galeries Lafayette and Casino agree to extend their strategic partnership until 2028 2009: Following BNP Paribas' withdrawal (representing 37.2 per cent. of the capital), the Moulin family consolidates its stake in Motier to 100 per cent. 2010: Sale of securities of Aldeta, a listed company and owner of the Cap 3000 shopping centre Legal reorganisation of the Grands Magasins Galeries Lafayette (“GMGL”) (department stores) division 2011: Acquisition by the GMGL division of 1001 Listes, a business specialising in wedding gift lists
Group’s strengths and strategy
Group’s strengths The Group considers that its core strengths include:
• a hundred years of presence as a leader on the retail market – the Group opened its first store in 1893 and has had a continuous and growing market presence ever since, centred around its Galeries Lafayette’s boulevard Haussmann flagship department store;
• a consistent and stable shareholding base – the Group is 100 per cent. controlled by the founder’s family, providing long-term strategic stability and vision;
• strong and recognisable brand portfolio – each of the Galeries Lafayette, BHV, Monoprix and LaSer brands is one of the leaders in its respective sector1;
• vision – the Group’s success demonstrates its continuous ability to innovate and to set and anticipate changing market trends and consumer habits, including in periods of crisis;
• responsive and reliable management and operational teams – the Group has shown its ability to adapt its operations to changing market trends, manage organic growth and successfully integrate and consolidate external growth (for example, Prisunic, Nouvelles Galeries,– see “— History” section above);
• cross-selling ability – LaSer and its subsidiaries, LaSer Cofinoga and LaSer Loyalty, offer cross-selling opportunities between the Group’s retail business and consumer finance business by combining (i) the ability to offer payment cards and consumer credit and (ii) customer loyalty programmes and the knowhow to nurture customer relationships –;
• resilient asset structure – the Group operates a variety of complementary business lines, which helps to protect the Group from dependency on a single consumer base or line of products; it owns a significant portion of its real estate portfolio, including the boulevard Haussmann flagship department store, which helps to protect the Group from exposure to fluctuations in the property rental market.
1 The Galeries Lafayette brand is owned by the Issuer, the BHV brand is owned by BHV, the Monoprix brand is owned by Monoprix and the LaSer brand is owned by LaSer.
31 Group’s strategy The Group’s overall strategy is to maintain and further develop its leading positions in the retail and consumer financial services businesses in which it operates. Its positioning strategy is to democratise trends in food and non-food products by making attractive and high-quality products accessible to as many consumers as possible in diverse and distinctive locations.
The Group intends to pursue these strategies through continued innovation and differentiation of its activities and brands and by leveraging its extensive historic experience in these markets, in particular through a coherent marketing and brand positioning policy and focused strategic acquisitions and partnerships. In particular, the Group intends to:
• accentuate differentiation from other market participants by reinventing and transforming its businesses to anticipate and adapt to customer needs;
• improve profitability and cash flows by constantly reviewing its business models and by strengthening cost control and working capital management;
• further develop intra-group synergies, both in the department stores business and with its strategic partners in Monoprix and LaSer;
• seek out opportunities to expand its activities through focused acquisitions aimed at providing high return on investment and/or significant synergies to the Group;
• continue to optimise and enhance the value of its real estate portfolio through Citynove, its Real Estate division.
Retail sector: In the department stores business (Galeries Lafayette and BHV), the Group’s strategy is to maintain and reinforce leadership in the French retail market, improve profitability and develop internationally by:
• developing new concept stores (such as Lafayette Homme) to be implemented in the existing network;
• reinforcing synergies between Galeries Lafayette and BHV (in areas such as logistics and purchases) and with Louis Pion/Royal Quartz;
• introducing more sophisticated tools to enable management to exert better control of the business and continue to drive it forward (a new IT system was implemented in Galeries Lafayette and BHV in 2011) (See “—Information Technology” below);
• expanding the Group’s Internet business;
• emphasising customer relationship management and loyalty programmes to ensure customer loyalty;
• developing internationally, in the Far East and in the Mediterranean countries on a franchised or proprietary business model (such as was used for Lafayette Dubaï, Lafayette Casablanca and the joint-venture in China to open Galeries Lafayette department stores in China, where the first department store is expected to open in 2013).
In relation to the Monoprix business, which is owned in equal shares of 50 per cent. each by the Issuer and Casino, the Group’s strategy is to continue developing new concepts and opening new stores, to increase both revenues and profits and to maintain a clear and differentiated market position. Monoprix’s strategy encompasses:
• deployment of its different concepts (Monoprix, Monop’, dailymonop’, beauty monop, Naturalia) under either a proprietary business model or a franchised model;
32 • continuous improvement of its product offerings through the development of private labels and a new product strategy for its apparel offerings;
• exploring the possibility of focused acquisitions of specialised networks, where available (such as the 2008 acquisition of Naturalia);
• improvement of customer services, including through a new data mining tool implemented in 2010.
Financial and marketing services sector In the financial and marketing services sector, after the implementation of various measures aimed at stabilising risk on the existing client-base and focussing on new clients with better credit quality profiles, the strategy is now to strengthen the business model in order to regain profitability, reinforce the marketing of the core French credit activity, maximize the synergies and cross-selling between operations, simplify the organisation and optimise corporate structure costs. In addition, the Group will continue product development and innovation, both of which are considered by the Group as key differentiating strengths of LaSer.
Group structure
The following chart sets out the organisational structure of the Group at the date of this Prospectus:
MOTIER
98.79%
SAGL
Department Store division Watch Store division Real Estate division Citymarkets division Financial and Marketing Services division
50% 50% 100% 100% 100% 100 %
GMGL 44 Galeries UPLIC CITYNOVE MONOPRIX LASER Lafayette 44GL
100 % 100 % 100 % 100 % 100 % 100 % 100 % LRMD LASER SOFIDI COFINOGA BHV GL Galeries Galeries Deutschland Lafayette Lafayette GmbH Haussmann Stores 57.34 % 100 % 100 % LASER 42.66 % LOYALTY Louis Pion Monoprix SAS Exploitation
Naturalia 100 %
The Issuer directly or indirectly holds an interest in the different divisions of the Group through its main subsidiaries, namely:
• 100 per cent. of GMGL, the company that owns:
- almost all of the premises of the stores operated under the Galeries Lafayette name (with the exception of the premises of the boulevard Haussmann flagship department store, that is directly owned by the Issuer);
33 - 100 per cent. of the capital of Bazar de l’Hôtel de Ville - BHV, the company that owns the premises and business operated under the BHV name;
• 100 per cent. of 44 Galeries Lafayette-44 GL, the holding company of the Galeries Lafayette department stores and referencing centre, and which also holds an interest in the operating companies of Galeries Lafayette department stores and companies providing services associated with those operations (including logistics, catering, hairdressing, wedding gift lists);
• 100 per cent. of the Watch Store division via Union pour les Investissements Commerciaux (UPLIC), the parent company of the Sofidi/Louis Pion group, organised around the Royal Quartz (luxury) and Louis Pion (fashion) brands;
• 100 per cent. of Citynove, the Real Estate division;
• 50 per cent. of the Citymarket division via Monoprix1, which owns, together with LRMD (an intermediary holding company), 100 per cent. of the share capital in Samada, a company providing transport and logistics for Monoprix Exploitation, the company operating virtually the entire chain of stores (excluding the new formats, Monop’ and Beauty Monop’, which are operated by separate entities) and Naturalia France;
• 50 per cent. of the LaSer division via LaSer 2 , the holding company of LaSer Cofinoga (consumer credit) and LaSer Loyalty (activities involving contact centres and sales outlets, customer loyalty and similar services).
Business divisions
The Department Store division (Galeries Lafayette and BHV)
Galeries Lafayette Since its beginnings in the late nineteenth century, Galeries Lafayette has sought to reflect and anticipate the style of the times through a sophisticated and constantly renewed selection of brands, ranging from the most prestigious to the most affordable. Galeries Lafayette’s aim is to provide customers with fashion that is accessible, avant-garde and constantly changing with the times, and this influences all segments of its offer, from women's, men's and children's apparel to home furnishings and gourmet food.
Galeries Lafayette carefully selects and displays a gradated range of selective and non-selective brands (including both prestigious luxury products and also more affordable fashion products) within its stores, in order to continually enhance the shopping experience. Galeries Lafayette is focussed on creating an environment which stimulates the desire to purchase, and aims at generating a strong intangible added value around its products. The store develops its own brands, such as Galeries Lafayette Paris, Lafayette Collection, Briefing, Jodhpur, Avant-Première, Version Originale, Kids Graffiti, Cadet Rousselle, etc. In addition, the store stocks more than 3,800 other brands and 150 exclusive labels from around the world.
In addition to its historic boulevard Haussmann flagship department store, Galeries Lafayette directly operates 54 department stores in France and one department store in Berlin. Through their different sizes and product ranges, these stores offer products which are adapted to their specific client bases. Furthermore, Galeries Lafayette has seven affiliates (five in France and in French overseas departments and territories, one in Dubai and one in Casablanca) and plans to open a store in Beijing in 2013 with its strategic partner I.T. Ltd..
1 The remaining 50 per cent. of the share capital of Monoprix being held by Casino. 2 The remaining 50 per cent. of the share capital of LaSer being held by BNP Paribas Personal Finance, a subsidiary 100 per cent.- owned by BNP Paribas
34 In 2009, Galeries Lafayette ventured into e-commerce, with the opening of the "Galeries Lafayette.com" commercial website. Galeries Lafayette regards the development of e-commerce as a strategic priority, in which it has recently made significant investments (such as the acquisition through the GMGL division of 1001 Listes in 2011), and which it expects will come to play a more important and complementary role for the Group in the short to medium term.
A significant share of department stores sales is generated by means of "shop-in-the-shop" and "corners" managed directly by third parties who pay Galeries Lafayette a commission based on the level of retail sales they make, while bearing the working capital and staff expenses directly themselves. Third parties have no proprietary rights over the areas allocated to them in the stores or over the clientele. For sales made in these areas, IFRS revenues include only the commissions received from these third parties.
The boulevard Haussmann flagship department store, which has a sales area of 65,000 m², attracts a French and international clientele, thanks to the architectural appeal of its Neo-Byzantine dome, its unique geographical location in Paris’ Opéra district and its wide range of internationally renowned fashion brands. It comprises the following concept stores: Lafayette Femme, Lafayette Homme, Lafayette Chaussure, Lafayette Gourmet, Lafayette Maison and the Coupole and the Lafayette Organic restaurant. The boulevard Haussmann flagship department store is the second most visited tourist attraction in Paris after the Eiffel Tower, with more than 80,000 visitors a day and is one of the biggest department stores in the world in terms of sales; in 2011 it contributed €1.3 billion to the Group's total retail sales (including VAT).
A number of services are offered to customers with a view to facilitating purchases, such as the “mode plus” service (a style advisor, by appointment only), grouped purchases, home deliveries, alterations, private fitting rooms, a special VIP welcome service with areas reserved for VIP clientele (and notably The Suite, inaugurated on the sixth floor of the boulevard Haussmann flagship department store in 2010). Specialised services have also been created for wedding and baby gift lists.
Customers further benefit from diverse additional services at the point of sale, such as travel agencies (there are 21 Galeries Lafayette Voyages agencies in France), hairdressers, restaurants, bars and shoe repair shops.
Customer satisfaction is the main focus at all times and is at the heart of all sales initiatives. The store makes every effort to consolidate its relationship with its clientele, notably by means of the Galeries Lafayette credit card which includes several customer loyalty programmes.
In 2006, Galeries Lafayette penetrated a new market segment with the inauguration of the Lafayette Homme extension – a dedicated concept shop for men. Designed by the architect Didier Gomez, and covering four floors and 10,000 m², the store is part of the boulevard Haussmann flagship department store. With 250 French and foreign brands, it is one of the biggest department stores for men's fashion in Europe. Lafayette Homme stores have since been opened in Bordeaux and Orleans.
On the other side of boulevard Haussmann and on the site of the former Marks & Spencer store, the Group created Lafayette Maison in 2004, offering 8,000 m² of surface area entirely dedicated to interior design and the “art-of-living”. This is one of the biggest stores in France arranged around the organisation of the home, with each floor or area devoted to an everyday activity or time of day. Since the opening of the Paris store, Lafayette Maison stores have been opened in 13 towns in the French provinces.
Lafayette Gourmet, which is part of the boulevard Haussmann flagship department store, offers its customers 15,000 fresh products including gourmet foodstuffs (approximately 30 per cent. of which come from abroad), organised around takeaway and eat-in sales. The Wine Library offers a selection of 1,600 wines and was expanded in 2010 with the addition of a Bordeaux section with more than 3,000 Bordeaux vintages. Lafayette Gourmet stores have been opened in Nice, Marseille, Berlin and Dubai.
35 In 2010, Lafayette Organic was launched, also inside the boulevard Haussmann flagship department store, an organic restaurant concept where seasonal products are supplied mainly by local producers from the Ile de France region.
The following table sets out certain key financial indicators for the Galeries Lafayette business for the last three financial years:
Unaudited 2011 2010 2009 Division Consolidated Turnover (excluding VAT) (€ millions) 1,890.5 1,775.1 1,648.7 Contribution to Group Consolidated Turnover (excluding VAT) (€ millions) 1,813.1 1,736.1 1,614.1 Divisional Consolidated Turnover (excluding VAT) as a percentage of total Group Consolidated Turnover 36.6% 35.3% 33.8% Contribution to Group Current Operating Income (€ millions) 174.3 150.7 138.5 Divisional Current Operating Income as a percentage of total Group Operating Income 46.9% 42.5% 42.5% Contribution to Group EBITDA (€ millions) 244.7 244.0 192.9 Divisional EBITDA as a percentage of total Group EBITDA 47.5% 46.5% 42.0%
Number of employees at the close of the financial year 11,117 10,991 10,836
Breakdown of sales (excluding VAT) per core product group (in % of total divisional sales1):
Unaudited 2011 2010 2009
Fashion 79 78 77
Cosmetics/perfume 9 6 9
Home 6 7 7
Food 5 8 6
Leisure 1 1 1
1 After rounding
36 Breakdown of sales (excluding VAT) Paris/French provinces (in % of total divisional sales1):
Unaudited 2011 2010 2009
Paris Haussmann 45.5 42.7 39.5
French provinces 54.5 57.3 60.5
Breakdown of sales (excluding VAT) Paris/French provinces per core product group (in % of total divisional sales1):
Unaudited Paris Haussmann French provinces
Fashion 79.4 73.1
Cosmetics/perfume 6.9 10.6
Home 7.5 6.8
Food 4.3 8.3
Leisure 1.9 1.2
BHV
With its prime location in the centre of Paris opposite the town hall, BHV Paris Rivoli has been a popular Paris store for more than 150 years. Although it originally built its reputation based on do-it- yourself (DIY) home improvements, with the basement area containing one of the biggest hardware stores in Paris, it has managed to reinvent itself and diversify whilst remaining faithful to its roots. The aim of BHV is to be a modern store, combining practical intelligence with a product offer that is innovative, useful and attractive, and offering solutions and tips, advice and services by experts. BHV has departments offering, inter alia: decoration, DIY home improvements, the “art-of-living” and household appliances, leisure activities, and well-being. It is a key player in the lighting market in Paris and its lighting department, which has more than 1,100 m2 of floor space, offers chandeliers, standard lamps, suspended light fittings and other wall lights from the most basic to the most stylish.
In terms of apparel, customers can find affordable fashion items with the emphasis being on everyday, casual clothing. The opening of BHV Homme in 2008 has further enabled BHV to establish itself as a key player in men's fashion in Paris. Designed in a New York loft style, the store is aimed at men of all ages and is focussed on practical, contemporary and accessible fashion.
New store concepts such as BHV Vélo (bikes), BHV Moto (motorbikes), BHV La Niche (pet store) and BHV La Cave (wine cellar) show a commitment to innovative ideas and solutions to meet the needs of a demanding city-dwelling clientele.
BHV Rivoli is the flagship of a network of another seven stores situated in the Paris and Lyon regions (of which two are expected to be closed later this year). BHV also has two franchise stores, one in Toulouse and the other in Beirut.
1 After rounding
37
The following table sets out certain key financial indicators for the BHV business for the last three financial years:
Unaudited 2011 2010 2009
Division Consolidated Turnover (excluding VAT) (€ millions) 392.4 421.9 422.1
Contribution to Group Consolidated Turnover (excluding VAT) (€ millions) 349.7 383.8 385.8
Divisional Consolidated Turnover (excluding VAT) as a percentage of total Group Consolidated Turnover 7.1% 7.8% 8.1%
Contribution to Group Current Operating Income (€ millions) 16.9 19.8 20.6
Divisional Current Operating Income as a percentage of total Group Operating Income 4.5% 5.6% 6.3%
Contribution to Group EBITDA (€ millions) 25.3 31.0 26.1
Divisional EBITDA as a percentage of total Group EBITDA 4.9% 5.9% 5.7%
Number of employees at the close of the financial year 2, 369 2, 705 2, 821
Breakdown of sales (excluding VAT) per core product group in comparable stores (in % of total divisional sales1):
Unaudited 2011 2010 2009
Home 59 65 69
Fashion 25 23 20
Leisure 13 9 8
Cosmetics/perfume 3 3 3
Breakdown of sales (excluding VAT) Paris/French provinces (in % of total divisional sales1):
Unaudited 2011 2010 2009
Paris (Rivoli) 81.5 80.4 75.7
French provinces 18.5 19.6 24.3
1 After rounding
38 The Citymarket division (Monoprix and concept stores) The Monoprix chain is jointly owned by the Issuer and Casino in equal shares of 50 per cent. The Issuer and Casino entered into a shareholders’ agreement, which provides for certain put and call option in relation to certain of the Monoprix shares held by each of them. See further, “Risk Factors – Risks related to the Issuer and/or the Group and their operations - Casino/Monoprix options” above.
Monoprix is one of the market leaders in France in the city-centre food retail sector. The chain had 502 sales outlets as at the end of 2011.
With its Citymarket concept, where stores have an average surface area of 1,800 m², the Monoprix brand aims at meeting the needs of an active, urban clientele, and to stand out through its highly diversified offering (of up to 60,000 products), covering both food and non-food items, and through innovation with its wide range of own brands.
Food represents approximately two thirds of Monoprix’s total sales (which amounted to €3,959.1 million (excluding VAT) for the 2011 financial year), while the cosmetics, apparel, and home and leisure sections generate collectively roughly one third of the chain’s sales, as shown in the table below.
In the category of non-selective beauty and personal care products, Monoprix has established itself as one of the market leaders in France, with a third type of distribution channel positioned between selective perfumeries and supermarkets.
In addition to its traditional stores, Monoprix has developed new retail formats, known as "concept stores":
• Monop’ is an innovative convenience store concept in France. With a surface area of 150 to 300 m², these practical and distinctively designed stores provide a varied range of products to cater for both day-to-day needs and impulse buys. Situated in high density urban areas and open from 9 a.m. to midnight, six days a week, Monop’ is designed to match the lifestyles and desires of an active, urban clientele;
• Beauty is a cosmetics store entirely dedicated to day-to-day beauty and hygiene. It is designed for both men and women and offers a wide range of products selected from non-specialised major brands, designer brands and other brands usually distributed in pharmacies;
• Dailymonop’ combines fast food and ultra fresh products. With an average surface area of 50 to 100 m², the brand offers a wide range of snacks, pre-prepared dishes, dairy products, drinks, fruit and desserts.
In 2008, Monoprix extended its offering in the growing organic food segment by acquiring Naturalia, the leading brand specialised in natural and organic products in the Paris area with 50 stores offering more than 5,000 products.
39 The following table sets out certain key financial indicators for the Citymarket division for the last three financial years:
Unaudited (unless otherwise indicated) 2011 2010 2009
Division Consolidated Turnover (excluding VAT) (€ millions) (Audited) 3,959.1 3,836.8 3,664.6
Contribution to Group Consolidated Turnover (excluding VAT) (€ millions) 1,956.6 1,892.2 1,806.2
Division Consolidated Turnover (excluding VAT) as a percentage of total Group Consolidated Turnover 39.5% 38.4% 37.8%
Contribution to Group Current Operating Income (€ millions) 143.4 150.4 127.8
Divisional Current Operating Income as a percentage of total Group Operating Income 38.6% 42.4% 39.2%
Contribution to Group EBITDA (€ millions) 181.6 194.4 172.1
Divisional EBITDA as a percentage of total Group EBITDA 35.3% 37.1% 37.4%
Number of employees at the close of the financial year 20,807 20,471 20,357
Breakdown of Citymarket sales (excluding VAT) per core product group (in % of total divisional sales1):
Unaudited 2011 2010 2009
Food 64.2 63.6 65.1
Clothing 14.1 14.6 13.8
Cosmetics/perfume 13.4 13.4 13
Home/leisure 7.8 8.0 7.7
Fuel/Cafeteria 0.5 0.4 0.4
1 After rounding
40 Breakdown of Citymarket sales (excluding VAT) Paris/French provinces (in % of total divisional sales1):
Unaudited 2011 2010 2009
Paris 62.5 62.3 63.9
French provinces 37.5 37.7 36.1
Breakdown of Monoprix sales (excluding VAT) per format (in % of total divisional sales1):
Unaudited 2011 2010 2009
Citymarkets 93.9 94.4 94.8
Monop' 3.6 3.3 3
Beauty Monop 0.1 0.1 0.1
Daily Monop 0.1 0.1 0.1
Naturalia 2.3 2.1 3
The Watch Store division (Royal Quartz and Louis Pion) In 2002, the Group acquired Europa-Quartz (comprising 70 boutiques situated mainly in shopping centres). This was followed in 2003 by the Group’s acquisition of Time Square (five boutiques) and Goldy (29 company-owned boutiques and 22 franchised boutiques), active in the fashion and luxury watch sectors. In 2007, this network was completed by the acquisition of Louis Pion-Royal Quartz (20 boutiques in Paris as well as airport franchises), another well-known fashion and luxury watch distributor. In 2008, the Group reorganised its network around two brands: Royal Quartz for luxury watches and Louis Pion for fashion watches. The Group controls 100 per cent. of these activities and is one of the watch segment leaders.
Royal Quartz Royal Quartz is a chain of luxury watch retailers with a dozen outlets in the Paris area. In addition to the eponymous flagship store at 10, rue Royale, near the place de la Madeleine, and the Rolex corner in the boulevard Haussmann flagship department store, Royal Quartz also operates from strategically situated boutiques in the Orly and Roissy Charles de Gaulle airports (in April 2011, the Group won the tender submitted by Aéroports de Paris for the concession to operate all watch store outlets in the airports at Orly and Roissy for a five-year period commencing in 2013).
The Royal Quartz stores sell some of the most prestigious luxury watch brands in the world (such as Rolex, Cartier, Jaeger Lecoultre, Baume & Mercier and Blancpain), fashion brands (such as Dior and Hermès), and designs by prestigious jewellers based in the Place Vendôme and haute couture brands (such as Bulgari, Chanel, Chaumet and Boucheron).
Louis Pion Louis Pion specialises in fashion watches. In the space of a few years, the brand has expanded to become one of the main watch retail chains in France with 158 stores. Selling more than 50 watch brands inspired by the latest trends at highly accessible prices, the chain has in just a few years become one of the leading fashion watch retailers in France. In addition to top-name watches (such as Tag Heuer, Armani, Longines, Montblanc and Omega), Louis Pion designs and produces its own range of watches sold at carefully targeted prices under its own-name brand.
1 After rounding
41 The following table sets out certain key financial indicators for the Watch Store division for the last three financial years:
Unaudited 2011 2010 2009
Division Consolidated Turnover (excluding VAT) (€ millions) 139.3 125.4 91.3
Contribution to Group Consolidated Turnover (excluding VAT) (€ millions) 100.7 94.3 88.5
Divisional Consolidated Turnover (excluding VAT) as a percentage of total Group Consolidated Turnover 2.0% 1.9% 1.9%
Contribution to Group Current Operating Income (€ millions) 7.4 4.3 0.0
Divisional Current Operating Income as a percentage of total Group Operating Income 2.0% 1.2% 0.0%
Contribution to Group EBITDA (€ millions) 10.6 7.9 3.6
Divisional EBITDA as a percentage of total Group EBITDA 2.1% 1.5% 0.8%
Number of employees at the close of the financial year 852 851 744
42 The following chart shows the number of stores as at 31 December 2011 by category:
Galeries Lafayette 63
Of which:
Boulevard Haussmann flagship department store 1
Other department stores 38
Specialised stores 16
International 1
French franchises 5
International franchises 2
BHV 8
Of which:
Rivoli 1
Chain 5
Franchises 2
Total Galeries Lafayette and BHV Stores 71
Citymarket division 511
Of which:
Chain 326
Naturalia 58
Franchises (not including 12 affiliates owned in full by the Group) 127
Watch Store division 171
Of which:
Luxury 13
Fashion and Premium Fashion 158
TOTAL 753
43 The Real Estate division (Citynove) Citynove is the in–house real estate division of the Group. It determines and implements real estate strategies adapted to the Group's different activities.
Citynove's activities are structured into several business lines: property management, real estate consulting and asset management:
• Property management: this involves monitoring and controlling rents and charges on all buildings owned by the Group and on behalf of the other divisions in their relations with external owners;
• Real estate consulting: this consists of supporting the Group's divisions where the Group encounters real estate issues (such as when searching for offices or warehouses or new commercial sites, and in the renegotiation of rents) and assisting the Group’s companies in their property acquisitions and transfers;
• Asset management: the aim is to improve the commercial potential and value of fully-owned or joint-owned real estate assets. Asset managers ensure that premises are correctly maintained, market them in the event of vacancy, and initiate and carry out renovation or extension projects in partnership with local communities.
Citynove has formed a team of specialised professionals to manage and enhance the Group's property assets, maximise their value and advise the Group's stores with regards to major changes and new challenges facing commerce and real estate.
The Financial and Marketing Services division (LaSer Cofinoga)
Products and services LaSer is an autonomous company whose capital is held in equal shares of 50 per cent. each by the Issuer and BNP Paribas Personal Finance (part of the BNP Paribas group). The support of BNP Paribas, in particular in terms of funding, is considered by the Issuer to be an important advantage for LaSer.
LaSer has combined its consumer credit activities in France under the Cofinoga brand name.
Initially created around the private card developed by LaSer Cofinoga, the Group’s service activity has grown to encompass credit, financial services, customer relationship services and other services offered to a wide range of customers and partners. This client base is considered to be a major asset for LaSer for whom capitalising on its customer database through cross-selling operations is a major challenge and opportunity. These cross-selling operations include providing clients who hold the Group’s private card with financial services distributed by LaSer Cofinoga, including facilitated cash withdrawals through the Internet, cash dispensers or direct debit from the client’s own account, personal loans (only offered to premium clients) and insurance and contingency (“prévoyance”) services.
LaSer develops solutions in the field of:
• data (including data mining and analysis, know-your-customer, segmentation, consumer trends); the aim is to gain greater insight into the needs and expectations of partners’ customers and to direct them towards the most relevant marketing, technological and commercial offers;
• payment and credit cards (including a full range of card products: private-label, banking, co- branded, multi-payment, and prepaid cards), loyalty products and a multi-partner programme - to date 20 million cards have been distributed; and
• services (including credit (personal loans, secured and unsecured debt, consolidation loans, revolving loans), insurance, remote customer relations) on behalf of stores or brands.
44 Payment and credit cards for consumer credit services are provided by LaSer Cofinoga, a wholly- owned subsidiary of LaSer. Customer loyalty services are provided by LaSer Loyalty, another wholly- owned subsidiary of LaSer. Through its commercial brands, LaSer also offers online financial services.
In addition to its French network, LaSer is also established in the United Kingdom, the Netherlands, Poland, Denmark, Norway, Tunisia and South Africa.
LaSer designs and operates services intended for companies in all sectors, including retail, distribution, telecommunications, energy, leisure, tourism and services, and all with a focus on client service. LaSer enables its commercial partners to reinforce the relationship they have with their customers by setting up strategies drawing on its main complementary areas of expertise, as set out above.
Recent Developments with respect to LaSer Cofinoga In 2011, consumer credit activities in France were affected by the continued application of the European Consumer Credit Directive (2008/48/EC) (implemented into domestic French law by the Loi sur le Crédit à la Consommation of 1 July 2010, as amended), which requires, in particular, the enforcement of a maximum reimbursement term for renewable loans; modification of the “cooling- off” period (during which signed credit agreements can be cancelled); reinforcement of customer solvency controls; the obligation to train all personnel in charge of providing the borrower with explanations regarding the credit offered; and a gradual overhaul of the usury rate. This has significantly affected loan production in France and resulted in the refocusing of credit activity towards a target clientele with a better credit profile. This in turn has contributed to a decrease in total outstanding debt managed, which stood at €11.4 billion at the end of 2011 for France and Europe (not including the bank of the Casino group), down 3.3 per cent. compared to the end of 2010. There was a drop in the level of performing outstanding debt at the end of 2011 in France (-6.3% compared to the end of 2010). In parallel, with continuous improvements in debt collection and in the quality of the teams responsible for this collection, the level of outstanding debt due at the end of 2011 dropped significantly (approximately 20% less than the level at the start of the 2010 financial year). The major focus of attention remains the portfolio of clients whose debts are subject to a legally-imposed debt restructuring plan, the level of which has continued to increase over the last two years, in particular following the introduction of the Loi sur le Crédit à la Consommation. The level of outstanding debt currently subject to judicial proceedings is particularly high, having increased by approximately 40% since the entry into force of the new regulations.
The regional analysis is as follows:
• France: outstanding debt managed was €7.1 billion at year-end 2011, down 6 per cent. from year-end 2010. In particular, there was a decrease in renewable loans and card products, for which LaSer has been more impacted than the market trend, mainly as a consequence of lower new loan generation. The situation relating to the evolution of the outstanding debt portfolio in France, which still shows significant levels of customer over-indebtedness, continues to be a strong focus of attention.
• Banque Solféa, a joint subsidiary with Gaz de France: outstanding debt managed was €647 million at year-end 2011; up 13.1 per cent. from year-end 2010. The increase in outstanding debt is particularly linked to the growing share of loans relating to photovoltaic projects contributing to an increase in the average loan term.
• Northern Europe: outstanding debt managed was €2.8 billion at year-end 2011, up 13.4 per cent. from year-end 2010.
• The United Kingdom: outstanding debt managed was €1.7 billion at year-end 2011, representing 61 per cent. of all outstanding debt. There has been a steady growth in outstanding debt (20 per cent. between year-end 2010 and year-end 2011) thanks to its continued commercial development.
45 • Scandinavia: outstanding debt managed was €400 million at year-end 2011, showing resumed growth - up 22 per cent. compared to year-end 2010. This growth was achieved, in particular, by marketing loans in Norway. • Netherlands: LSN, the Dutch subsidiary, suffered more from difficult consumer credit market conditions, hence its outstanding debt was down 3.8 per cent. at year-end 2011 compared to year-end 2010; however, under the combined effects of a strong decline in the levels of new credit activity and increased efficiency in debt recovery, the level of outstanding debt due has shown a significant decrease (-27% compared to end 2010).
• Poland: outstanding debt managed was €774 million at year-end 2011, down 14.2 per cent. compared to year-end 2010. The drop was due to poor levels of new loan sales, notably in cross-selling, in a context of a more stringent local credit regulations. However, as with the Netherlands, there has been a significant drop in the level of outstanding debt due (-43% compared to end 2010).
• Spain: In 2009, LaSer decided to discontinue its business in Spain, the residual outstanding debt being €99 million at year-end 2011.
In 2011, the Credit Risk Department continued its efforts towards the centralisation, control and harmonization. The department was created in 2010, following a deterioration in risk levels and changes in the regulatory framework, to ensure proper compliance with the rules applying to, and supervision of the independence of, the division.
In 2011, a back testing aimed at comparing estimating losses and real losses, carried out upon the request of the Autorité de Contrôle Prudentiel (the French regulatory authority), led LaSer Cofinoga to amend its bad debt provisioning policy and to implement, like its foreign subsidiaries, a method based on collection per generation. This change in bad debt provisioning policy contributed to improving the hedging level (defined as provisions over outstanding debt), but resulted in exceptional items which had a significant impact on the results and profitability of the division for the 2011 financial year. In particular, a global charge of €190 million was incurred mainly due to write-offs linked to extraordinary accruals for credit risk and goodwill write-downs, and is reflected in the Group’s consolidated financial statements as at and for the year ended 31 December 2011. See “Key Consolidated Figures” – “Other income and expenses relating to operations”, and footnote 2 thereto.
The following table sets out certain key financial indicators for the Financial and Marketing Services division for the last three financial years:
Unaudited (unless otherwise indicated) 2011 2010 2009
Division Sales (excluding VAT) (€ millions) (Audited) 1,505.6 1,636.7 1,738.6
Contribution to Sales (excluding VAT) (€ millions) 732.9 797.4 819.3
Credit activity (€ millions) 632.3 701.0 723.7
Other activities (€ millions) 100.6 96.4 95.6
Contribution to Group Current Operating Income* 28.9 20.6 28.1
Number of employees at the close of the financial year 9,899 10,092 10,127
* Current Operating Income does not include exceptional charges of €136.5m in 2011, notably relating to modifications made to the credit risk provisioning method.
46 The operating results of the LaSer group are consolidated at 50 per cent. into the Group’s consolidated financial statements.
Contribution of divisions to total 2011 consolidated sales (excluding VAT) (based on IFRS)
Louis Pion Royal Quartz 2.0% LaSer (at 50 per cent.) 14.8% Galeries Lafayette 36.6%
Monoprix BHV (at 50 per cent.) 7.1% 39.5%
Competition
The retail sector and the financial and marketing services sector are highly competitive. In the retail sector, the Group competes at the national and local levels with a wide variety of retailers of varying sizes and covering different product categories across all markets in which it operates, including the Internet. For Monoprix, competitors are general retailers including the Carrefour, Auchan, Casino and Leclerc brands. For Galeries Lafayette, competitors are mainly all the specialist retailers (such as H&M, Zara, Sephora, Marionnaud and C&A), as well as generalist retailers and the brands’ own outlets. In the financial and marketing services sector, the Group competes with both national and international financial institutions operating in the consumer credit sector (including Société Générale, Crédit Agricole, BNP Paribas and CIC–Crédit Mutuel) and with specialists providing services such as data-mining, marketing, loyalty and other service to retailers.
Regulatory and legal
Regulations The Group’s facilities are subject to the regulations applicable to buildings open to the public and notably in France, where the Group has most of its stores, to the regulations applicable to establishments open to the public (établissements reçevant du public), and to special rules related to listed buildings (“Installations classées pour la protection de l’environnement”). Some of its activities are subject to specific regulations. These include activities in the consumer credit sectors (LaSer Cofinoga), insurance brokerage, tourism (Galeries Lafayette Voyages, etc.), food, hairdressing, jewellery, trading activities for which the entities concerned have each obtained, where applicable, the necessary authorisations.
Litigation At the date of this Prospectus, there is, as far as the Issuer is aware, no exceptional fact, dispute, litigation or arbitration likely to have, or having had in the recent past, a noticeable impact on the Issuer's financial situation, its activity, its results or the Group, except for the risk described “Risk Factors – Risks related to the Issuer and/or the Group and their operations - Monoprix” above.
47 The provision for litigation, which the Group believes is adequate, stood at €14,414,000 as at 31 December 2011 and concerns mainly commercial disputes.
Information systems
The maintenance, quality and durability of the information systems are a fundamental aspect of the Group's safety procedure. Accordingly, the Group invests significant amounts recurrently in order to develop and maintain its information systems so it can reasonably provide quality assurance. The Group operates a variety of information systems specific to its various activities, including SAP, Oracle and Gold. The retail businesses have recently completed the implementation of the operating, purchasing and supply chain enterprise resources planning project. This project is fully operational in relation to both Galeries Lafayette and Monoprix. The Group is investing a significant part of its budget expenditure to implement new IT systems that are considered key for improving profitability and control. The Group has in place a back-up system in the event of an information technology malfunction.
Insurance
Cover strategy The Group endeavours to implement an insurance strategy aimed at optimising the levels of cover and the costs of its insurance policies while properly controlling its risks, in order to insure the protection of its customers, employees, shareholders and assets.
Since the vast majority of the Group’s establishments are classified as Établissements reçevant du public – E.R.P, the Group places great importance on risks caused by, or resulting from, public access.
Furthermore, considering the considerable number of sites, the value of the Group's assets to be protected is significant and requires constant adherence to a risk prevention policy.
Summary of insurance policies taken out by the Group The Group has taken out the following insurance policies with leading insurance companies:
Property damage & operating losses The aim of this insurance is to protect the Group's balance sheet assets.
The policy is issued in the form of "All risks except" and in particular covers the risks of fire, explosion, water damage, theft, natural events and loss of business.
Civil liability The aim of this insurance is to cover physical injury, property damage and consequential loss suffered by third parties and for which the Group is responsible.
It includes an excess for accidental damage to the environment and for employer’s liability for accidents at work and occupational hazards.
Other insurance For risks others than those mentioned above, the Group has taken out insurance policies in strict compliance with legal obligations wherever necessary (automobile, construction, transport, personal accident insurance, etc.).
The Group retains what it believes is a secure level of self-insurance, mainly for frequent claims, for which an excess is applied.
Risk prevention and crisis management
The pro-active strategy implemented by the Group over the past few years, in partnership with the engineering departments of insurance companies, has enabled a prevention and security audit of all
48 major sites as well as the development of installation and monitoring standards with service providers and suppliers. These efforts have been rewarded by the obtaining in 2010 of the RHP label (Risque Hautement Protégé – Highly Protected Risk), awarded by AXA, for the entire Haussmann block. It is the first (and only) department store in France to have been awarded such label.
Similarly, "prevention" engineers from insurance companies are closely involved in all significant work, any significant extensions and/or renovations and any new constructions both at the design and site-protection levels.
All of the these policies are the subject of regular reviews, checks and adjustments, in order to take into account both operating constraints and prevention objectives defined by common agreement between the Group and the insurance companies.
Crisis management In the event of a crisis or serious disaster, the Group considers that it has the technical means and suitable advice and expertise at its disposal to allow it, depending on the circumstances, to intervene quickly to protect its customers and employees, preserve its assets and ensure as far as possible the operational continuity of its stores.
Product risks The Group is equipped with upstream control procedures for both food and non-food products.
In 2008, a Hygiene Control Plan (Plan de Maîtrise Sanitaire) (the “Plan”) was introduced. This Plan is compulsory for any activity linked to food and catering. The main elements are: maintaining the cold chain and respecting thermal processing scales applied to products, complying with traceability, and looking after premises and training staff. All these points are tested during annual audits carried out by an external laboratory.
Continued operation of business following an occurrence of risk In the event of their being a damage to property that has significant impact on the operation of any of the Group’s sites, the Group’s operational and technical departments are able to intervene promptly to limit the length of time that the affected site or sites are closed, thereby ensuring maximum protection of the “Loss of business and additional costs” cover under the damage policy.
As a consequence of this strategy, negotiations with insurance companies are easier both as regards the amount of premiums and the terms and conditions of cover.
Sources of funding
The Issuer relies on the following main sources of external funding:
(i) the outstanding €300,000,000, 4.5 per cent. bonds due April 2017, the terms of which are substantially similar to the terms and conditions of the Bonds;
(ii) €660 million of undrawn medium-term standby bank lines of credit expiring in 2012, 2013 and 2014, some of which contain certain customary financial covenants which must be complied with as a condition to drawing or to reimburse such financings if drawn; and
(iii) short-term financing lines (overdrafts and spots) which are not subject to any covenants.
Employees
As at 31 December 2011, the Group employed (including all Monoprix employees) 45,419 employees.
49 Management
The Issuer is managed by a Management Board (Directoire) that operates under the supervision of a Supervisory Board (Conseil de surveillance). In order to comply with corporate governance requirements, two specialised committees, the Finance and Audit Committee and the Selection and Remuneration Committee, have been set up by, and report to, the Supervisory Board. In addition, the Finance and Audit Committee is regularly informed of the work undertaken by the independent Group Internal Audit department.
A Group Executive Committee, composed of the Management Board members, Corporate directors and the general managers of the major Business Units, meet on a regular basis, as does a Corporate Committee.
Supervisory Board (Conseil de surveillance) Chairman Mrs. Ginette MOULIN, also Chairman of the Remuneration Committee Vice Chairman Mr. Jacques CALVET, also Chairman of the Finance and Audit Committee and Member of the Remuneration Committee
Members Mr. Augustin BELLOY Mr. Rolando BENEDICK Mr. Peter BOYLES Mr. Daniel CATHIARD Mr. Emmanuel d’ANDRE Mr. Guillaume HOUZE Mr. Matthieu LEMOINE Mrs. Patricia LEMOINE Mrs. Isabelle MOULIN, also Member of the Finance and Audit Committee Mr. Philippe SANTINI, also Member of the Finance and Audit Committee Censor Mr. Michel PEBEREAU Censor Mr. Pierre XAVIER, also Member of the Finance and Audit Committee
Management Board (Directoire) Chairman Mr. Philippe HOUZE Member Mr. Ugo SUPINO Member Mr. Nicolas HOUZE
Finance and Audit Committee Chairman Mr. Jacques CALVET Member Mrs. Isabelle MOULIN Member Mr. Philippe SANTINI Member Mr. Pierre XAVIER
Remuneration Committee Chairman Mrs. Ginette MOULIN Member Mr. Jacques CALVET
50 Group Executive Committee Chairman Mr. Philippe HOUZE, also Chairman of the Management Board Member Mr. Laurent BOUCHEZ Member Mr. Raffaele CICALA Member Mr. Eric COSTA Member Mr. Paul DELAOUTRE Member Mr. Laurent HAYNEZ Member Mr. Nicolas HOUZE, also Member of the Executive Board Member Mr. Philippe LEMOINE Member Mrs. Marie-Hélène PLAINFOSSE Member Mr. Ugo SUPINO, also Member of the Executive Board Note: The Group Executive Committee is not a corporate body.
The business address of the members of the Supervisory Board, Management Board, Finance and Audit Committee, Remuneration Committee and Group Executive Committee is as follows: Galeries Lafayette, 40 boulevard Haussmann, 75009 Paris, France.
The members of the Supervisory Board1, Management Board, Finance and Audit Committee and Remuneration Committee have no activities outside the Issuer which are significant with respect to the Issuer. Consequently, and as far as the Issuer is aware, there are no conflicts of interest between the duties of any such members towards the Issuer and their private interests and/or their other duties, including any conflict of interest that would be material to the issue or offer of the Bonds; it being specified that Mr. Peter BOYLES is General Director for Continental Europe of HSBC Bank Plc and Vice-President of HSBC France, and that the members of the Management Board are direct or indirect shareholders of the Issuer. It is also specified, for the avoidance of any doubt, that Mr. Michel PÉBEREAU is honorary chairman of BNP Paribas.
Auditors
The statutory auditors of the Issuer are:
• PricewaterhouseCoopers Audit, represented by Mr. Olivier AUBERTY
• Cailliau Dedouit Associés, represented by Messrs. Laurent BRUN and Jean-Jacques DEDOUIT
The alternate statutory auditors are:
• Mr. Yves NICOLAS
• Mr. Didier CARDON
1 For the avoidance of any doubt, the censors of the Supervisory Board (Conseil de surveillance) are not included.
51 Shareholders
As at 31 December 2011, the share capital of the Issuer amounted to €26,685,192, consisting of 13,342,596 issued and fully-paid ordinary shares of €2 nominal value each and representing a total of 26,392,291 voting rights. The ordinary shares of the Issuer are held as follows:
Percentage Number of Percentage Number of of voting Shareholder shares of capital voting rights rights Motier1 13,180,542 98,79 26,361,084 99,88 Mrs. Ginette Moulin 10,000 0,07 20,000 0,08 Other members of the Supervisory Board (Conseil de surveillance) 11 0,00 19 0,00 Former employees 1,674 0,01 3,038 0,01 Employees 4,075 0,03 8,150 0,03 Issuer 146,294 1,10 0 0,00 Total 13,342,596 100,00 26,392,291 100,00 ______
1 Motier is a société par actions simplifiée registered with the Registre du Commerce et des Sociétés under the number 592 045 577, and is 100 per cent. controlled by the Moulin family. Its registered office is at 40, boulevard Haussmann, 75009 Paris, France.
52 TAXATION
The statements herein regarding taxation are based on the laws in force in the Republic of France and/or, as the case may be, the Grand Duchy of Luxembourg as at the date of this Prospectus and are subject to any changes in law. The following summary does not purport to be a comprehensive description of all the tax considerations which may be relevant to a decision to purchase, own or dispose of, the Bonds. Each prospective holder or beneficial owner of Bonds should consult its tax adviser as to the French or, as the case may be, the Luxembourg tax consequences of any investment in, or ownership, disposition of and receiving payment of interest, principal and/or other amounts under the Bonds.
EU Savings Directive Under EC Council Directive 2003/48/EC on the taxation of savings income (the “Directive”), each Member State is required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person located within its jurisdiction to, or collected by such a person for, an individual resident in that other Member State. However, for a transitional period, Austria and Luxembourg are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries).
If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Bond as a result of the imposition of such withholding tax.
The European Commission has proposed certain amendments to the Directive, which may, if implemented, amend or broaden the scope of the requirements described above. Investors who are in any doubt as to their position should consult their professional advisors.
French Taxation Following the introduction of the French loi de finances rectificative pour 2009 no. 3 (n° 2009-1674 dated 30 December 2009) (the “Law”), payments of interest and other revenues made by the Issuer with respect to bonds will not be subject to the withholding tax set out under Article 125 A III of the French Code général des impôts unless such payments are made outside France in a non-cooperative State or territory (Etat ou territoire non coopératif) within the meaning of Article 238-0 A of the French Code général des impôts (a “Non-Cooperative State”). If such payments under the bonds are made in a Non-Cooperative State, a 50 per cent withholding tax will be applicable (subject to certain exceptions and to the more favourable provisions of any applicable double tax treaty) by virtue of Article 125 A III of the French Code général des impôts.
Furthermore, in application of Article 238 A of the French Code général des impôts, interest and other revenues on such bonds will no longer be deductible from the Issuer's taxable income, if they are paid or accrued to persons domiciled or established in a Non-Cooperative State or paid in such a Non- Cooperative State or paid to a bank account opened in a financial institution located in such a Non- Cooperative State. Under certain conditions, any such non-deductible interest and other revenues may be recharacterised as constructive dividends pursuant to Article 109 of the French Code général des impôts, in which case such non-deductible interest and other revenues may be subject to the withholding tax set out under Article 119 bis 2 of the French Code général des impôts, at a rate of 30 per cent. or 55 per cent, subject to the more favourable provisions of any applicable double tax treaty.
Notwithstanding the foregoing, the Law provides that neither the 50 per cent. withholding tax nor the non-deductibility will apply in respect of a particular issue of bonds if the issuer can prove that the principal purpose and effect of such issue of bonds was not that of allowing the payments of interest or other revenues to be made in a Non-Cooperative State (the “Exception”). Pursuant to the ruling
53 (rescrit) 2010/11 (FP and FE) of the Direction générale des finances publiques dated 22 February 2010, an issue of bonds will benefit from the Exception without the Issuer having to provide any proof of the purpose and effect of such issue of bonds, if such bonds are:
(i) offered by means of a public offer within the meaning of Article L.411-1 of the French Code monétaire et financier or pursuant to an equivalent offer in a State other than a Non-cooperative State. For this purpose, an “equivalent offer” means any offer requiring the registration or submission of an offer document by or with a foreign securities market authority; or
(ii) admitted to trading on a regulated market or on a French or foreign multilateral securities trading system, provided that such market or system is not located in a Non-Cooperative State, and the operation of such market is carried out by a market operator or an investment services provider, or by such other similar foreign entity, provided further that such market operator, investment services provider or entity is not located in a Non-Cooperative State; or
(iii) admitted, at the time of their issue, to the clearing operations of a central depositary or of a securities clearing and delivery and payments systems operator within the meaning of Article L.561-2 of the French Code monétaire et financier, or of one or more similar foreign depositaries or operators provided that such depositary or operator is not located in a Non- Cooperative State.
Since the Bonds will be admitted to trading on the Luxembourg Stock Exchange and admitted, at the time of their issue, to the operations of Euroclear France, the Bonds will benefit from the Exception and are therefore exempt from the withholding tax set out under Article 125 A III of the French Code général des impôts.
Luxembourg Withholding Taxation Under Luxembourg tax law currently in effect and with the possible exception of interest paid to individual Bondholders or Bondholders that are Residual Entities (as defined below), there is no withholding tax on payments of interest (including accrued but unpaid interest). There is also no Luxembourg withholding tax, with the possible exception of interest paid to individual Bondholders or Bondholders that are Residual Entities (as defined below), upon repayment of the principal in case of reimbursement, redemption, repurchase or exchange of the Bonds.
Individuals
Luxembourg non-resident individuals Under the Directive (as defined above) and the Luxembourg laws dated 21 June 2005 implementing the Directive, and several agreements concluded between Luxembourg and certain dependent territories of the European Union, a Luxembourg-based paying agent (within the meaning of the Directive) is required since 1 July 2005 to withhold tax on interest and other similar income paid by it to (or under certain circumstances, to the benefit of) an individual resident in another Member State or a residual entity (“Residual Entities”) as described in Article 4.2. of the Directive (i.e., an entity without legal personality and whose profits are not taxed under the general arrangements for the business taxation and that is not, or has not opted to be considered as, a UCITS recognised in accordance with Council Directive 85/611/EEC as replaced by the European Council Directive 2009/65/EC), established in another Member State of the European Union unless the beneficiary of the interest payments elects for an exchange of information. The same regime applies to payments to individuals or Residual Entities resident in any of the following territories: the former Netherlands Antilles (i.e., Curaçao, Sint Maarten as well as Bonaire, Saba and Sint Eustatius), Aruba, Guernsey, Jersey, the Isle of Man, Montserrat and the British Virgin Islands.
The applicable withholding tax rate is 35%. Responsibility for the withholding of the tax will be assumed by the Luxembourg paying agent. The withholding tax system will only apply during a transitional period, the ending of which depends on the conclusion of certain agreements relating to information exchange with certain other countries.
54 Luxembourg resident individuals As from 1 January 2006, a 10% withholding tax has been introduced by the Luxembourg law dated 23 December 2005. Under such law, payments of interest or similar income made or ascribed by a paying agent established in Luxembourg to or for the immediate benefit of an individual beneficial owner who is resident of Luxembourg will be subject to a withholding tax of 10%. Such withholding tax will be in full discharge of income tax if the beneficial owner is an individual acting in the course of the management of his or her private wealth. Responsibility for the withholding of the tax will be assumed by the Luxembourg paying agent.
All prospective Bondholders should seek independent advice as to their tax positions.
55 SUBSCRIPTION AND SALE
Subscription Agreement HSBC Bank plc, Crédit Agricole Corporate and Investment Bank and Société Générale (together the “Joint Lead Managers” or “Managers”) have, pursuant to a Subscription Agreement dated 24 April 2012 (the “Subscription Agreement”), jointly and severally agreed with the Issuer, subject to the satisfaction of certain conditions, to subscribe for the Bonds at an issue price equal to 99.273 per cent. of the principal amount of the Bonds, less any applicable commission. In addition, the Issuer will pay certain costs incurred by it and the Managers in connection with the issue of the Bonds.
The Managers are entitled to terminate the Subscription Agreement in certain limited circumstances prior to the issue of the Bonds. The Issuer has agreed to indemnify the Managers against certain liabilities in connection with the offer and sale of the Bonds.
General Selling Restrictions No action has been, or will be, taken in any country or jurisdiction that would permit a public offering of the Bonds, or the possession or distribution of this Prospectus or any other offering material relating to the Bonds, in any country or jurisdiction where action for that purpose is required. Accordingly, the Bonds may not be offered or sold, directly or indirectly, and neither this Prospectus nor any circular, prospectus, form of application, advertisement or other offering material relating to the Bonds may be distributed in or from, or published in, any country or jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations and all offers and sales of Bonds by it will be made on the same terms.
Each Manager has agreed to observe to the best of its knowledge and belief and in all material respects all applicable laws and regulations in each jurisdiction in or from which it may acquire, offer, sell or deliver Bonds or have in its possession or distribute this Prospectus or any other offering material relating to the Bonds.
France Each of the Managers has represented and agreed that it has not offered or sold and will not offer or sell, directly or indirectly, any Bonds to the public in France and it has not distributed or caused to be distributed and will not distribute or cause to be distributed to the public in France, this Prospectus or any other offering material relating to the Bonds and such offers, sales and distributions have been and will be made in France only to (i) persons providing investment services relating to portfolio management for the account of third parties, and/or (ii) qualified investors (investisseurs qualifiés), as defined in, and in accordance with, Articles L.411-1, L.411-2 and D.411-1 to D.411-3 of the French Code monétaire et financier.
United Kingdom Each Manager has represented and agreed that:
(i) it has only communicated or caused to be communicated, and will only communicate or cause to be communicated, an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of the Bonds in circumstances in which section 21(1) of the FSMA would not apply to the Issuer; and
(ii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom.
United States The Bonds have not been and will not be registered under the Securities Act or the securities law of any U.S. state, and may not be offered, sold or delivered, directly or indirectly, in the United States of America or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or 56 in a transaction not subject to, the registration requirements of the Securities Act or such state securities laws. The Bonds are being offered and sold only outside of the United States to non-U.S. persons in reliance on Regulation S.
Each Manager has represented and agreed that it has not offered or sold, and will not offer or sell, the Bonds (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the issue date of the Bonds, within the United States or to, or for the account or benefit of, U.S. persons and it will have sent to each distributor or dealer to which it sells Bonds during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Bonds within the United States or to, or for the account or benefit of, U.S. persons.
Terms used in this paragraph and not otherwise defined in this Prospectus have the meanings given to them in Regulation S.
In addition, until 40 days after the commencement of the offering of the Bonds, an offer or sale of Bonds within the United States by a dealer, whether or not participating in the offering, may violate the registration requirements of the Securities Act.
57 GENERAL INFORMATION
1. The Bonds have been accepted for clearance through Euroclear France, Clearstream, Luxembourg and Euroclear. The International Securities Identification Number (ISIN) for the Bonds is FR0011242460. The Common Code number for the Bonds is 077586733. 2. The address of Euroclear France is 115, rue Réaumur, 75081 Paris Cedex 02, France. The address of Euroclear is 1, boulevard du Roi Albert II, 1210 Bruxelles, Belgium, and the address of Clearstream, Luxembourg is 42, avenue John Fitzgerald Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg. 3. Application has been made to the Luxembourg Stock Exchange for the Bonds to be admitted to trading on the Luxembourg Stock Exchange's regulated market and to be listed on the Official List. 4. The issue of the Bonds was authorised by resolution of the Management Board (Directoire) of the Issuer dated 17 April 2012, and a decision of the Supervisory Board (Conseil de surveillance) of the Issuer dated 20 March 2012. 5. Copies of:
• the statuts of the Issuer; • the Fiscal Agency Agreement; • this Prospectus together with any Supplement to this Prospectus; and • the financial statements referred in Condition 3(b) of the Terms and Conditions of the Bonds will be available for inspection during the usual business hours on any week day (except Saturdays and public holidays) at the registered office of the Fiscal Agent shown on the last page of this Prospectus. This Prospectus will (together with any Supplements to this Prospectus) be published on the website of the Luxembourg Stock Exchange (www.bourse.lu). 6. There has been no significant change in the financial or trading position of the Issuer or of the Group since 31 December 2011 and no material adverse change in the prospects of the Issuer since 31 December 2011. 7. The Issuer is not involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer is aware), during the 12 months preceding the date of this Prospectus which may have, or have had in the recent past, significant effects on the Issuer or the Group’s financial position or profitability. 8. Cailliau Dedouit et Associés and PricewaterhouseCoopers Audit are the statutory auditors of the Issuer. Cailliau Dedouit et Associés and PricewaterhouseCoopers Audit have audited, and rendered unqualified reports on, the consolidated financial statements of the Issuer as at, and for the two years ended, 31 December 2011 and 31 December 2010. Cailliau Dedouit et Associés and PricewaterhouseCoopers Audit, whose registered office is shown on the last page of this Prospectus, are registered as Commissaires aux comptes (members of the Compagnie Régionale des Commissaires aux Comptes of Paris and Versailles respectively) and regulated by the Haut Conseil du Commissariat aux Comptes. 9. The estimated costs for the admission to trading of the Bonds are €6,845. 10. The yield in respect of the Bonds is 4.875 per cent. per annum and is calculated as of the Issue Date on the basis of the issue price of the Bonds. It is not an indication of future yield. 11. As far as the Issuer is aware, no person involved in the issue of the Bonds has an interest material to the issue.
58
REGISTERED OFFICE OF THE ISSUER 40, boulevard Haussmann 75009 Paris France
STATUTORY AUDITORS OF THE ISSUER Cailliau Dedouit et Associés PricewaterhouseCoopers Audit 19, rue Clément Marot Crystal Park 75008 Paris 63, rue de Villiers France 92208 Neuilly-sur-Seine France
LEGAL ADVISERS To the Issuer To the Managers as to French law as to French law
Ginestié Magellan Paley-Vincent Linklaters LLP 10, place des Etats-Unis 25, rue de Marignan 75116 Paris 75008 Paris France France
FISCAL AGENT AND PRINCIPAL PAYING AGENT CACEIS Corporate Trust 1/3, place Valhubert 75013 Paris France
LUXEMBOURG PAYING AGENT AND LISTING AGENT CACEIS Bank Luxembourg 5, allée Scheffer L-2520 Luxembourg Grand Duchy of Luxembourg
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