WBCA09.002.0418

Westpac Banking Corporation ABN 33 007457 141

Franchise System Profile

I Name I Pie Face 641

Date August 2012 Last Update New accreditation Aug 2011

Owner Pie Face Franchising Pty Ltd Business Activity Pie Face is a fully integrated retail micro bakery cafe chain specialising in coffee, pies and other baked goods (including sandwiches, pastries, quiches and cakes). Pie Face is a unique offer in that it owns its supply chain including the manufacture of almost all of its products from scratch utilising a frozen, national distribution model in markets outside of Sydney. The Pie Face group comprises the Pie Face brand and the Dinky Di brand, effectively distributing the same product and managed under the same structure.

Contents: Quick Links SYSTEM AND CONTACT INFORMATION ...... 2 WESTPAC DEDICATED MANAGER DETAILS ...... 2 FRANCHISE AGREEMENT ...... 6 FRANCHISE / BUSINESS HISTORY ...... 7 FRANCHISEE TRADING RESULTS AND PROJECTIONS ...... 8 FRANCHISEE SET-UP COST ...... 9 SELECTION CRITERIA AND LEASE ...... 10 FRANCHISOR SUPPORT ...... 12 INDUSTRY PROFILE ...... 14 PRODUCT ...... 15 SUPPLIERS ...... 15 MARKET ENVIRONMENT ...... 17 INDIVIDUAL SITE FACTORS ...... 18 PORTFOLIO QUALITY AND ANALySiS ...... 18 FRANCHISE SALES HISTORY ...... 18 MAXIMUM BORROWING ...... 19 FRANCHISOR PERFORMANCE AND MANAGEMENT OF FRANCHiSEES ...... 20 GENERAL COMMENTS ...... 21

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, •• ,., '.'.westpac.com .au WBCA09.002.0419

System and Contact Information

I Westpac I Ian Watt I Phone

Trading 27 Cadogan Street, Address Marrickville, NSW 2204

Bank Westpac Manager Era Dhiri - Senior Relationship Manager Name L31, 275 Kent St, Sydney Location Professional Su- ort Accountants Andrew Panos - Cowell Watts Panos 70 Crown St, Sydney NSW 2000

Solicitors Matthew Rowe - Coleman & Grieg Level 9 The McNamara Centre 100 George St, Parramatta NSW 2150

Directors Name Shareholding Responsibility Wayne Homschek 19.3% (with Betty Fong) CEO and Co-Founder Angus Scott Geddes 22.6% Director Adam Benjamin Davis 4.8% Director Betty Fong 19.3% (with Wayne COO and co-Founder Homschek)

Westpac Dedicated Manager Details (Where applicable)

Manager Name Era Dhiri (SRM)

address As above telephone email

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General

Year Established in Australia 2003 Year first franchised in 2008 Australia Number of Franchisees 18 Number of Franchised Outlets 18 Number of Company Outlets 10 Number with West pac Dinky DilPie Face 5/5 Do we have access to Yes is the disclosure document Yes Franchisors Financial details including solvency certificate from Registered Auditor Attached Mortgage Debenture allowed Yes Will the Franchisor execute our N/A Tripartite Agreement

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Operational Plans Management Discuss the Franchisors Pie Face has established a strong management team focused on growth and expansion of management and operational the business. This is supported with a capable shareholder register that provides invaluable plans for the business: advice. o Management • Wayne Homscheck, CEO - ex Citibank Investment Banker o Operational • Betty Fong, COO - ex Paablo Nevada Founder/Designer and ex Retail Interior o Expansion Designer o Changes over last 3 years • Francois Cointrel, Head of Central Kitchen Facility - Qualified pastry chef and o Changes planned founder of Dinky Di's pie chain over next 3 years • Ben McPherson, Chief Marketing Officer - executive and board experience with publicly listed companies • Alun Evans, Corporate Affair - ex investment banker • Bob Ozdemir, Franchise Manager - Franchise industry veteran with experience in franchise development within the retail food sector with Michel's Patisserie, Sumo Salad and Mrs Fields Cookies. • Angus Geddes, Director - founder and CEO of Fatprophets, a well known independent stock market research house.

The corporate structure is well placed for future growth plans and has the executive and distribution experience and expertise to successfully manage sustained and measured growth.

Operational • Dinky Di brand in 2007 (5 stores). • Currently company owned stores with view to franchise and included in overall 'Pie Face' store numbers of 28 • Sell the same products as a Pie Face franchise (Dinky Di does sell some additional cakes and 'patissiere' products) • All products for both brands are produced at the Central Kitchen Facility (CKF). • Due to the substantial length of tenure (20 years), prime locations and loyal customer base of the Dinky Di stores, the decision was made NOT to retire the brand on purchase and allow them to continue trading under the Dinky Di brand • All management and reporting are the same for both. Store size and fit out requirements are the same for both stores, therefore store sales of Dinky Di stores are expected to in line with Pie Face store. • Operationally, Pie Face will continue to invest in it's CKF to ensure it's key point of difference to competitors (fully integrated and owned end to end value chain). • The facility located in Marrickville has been purchased with expansion in mind, with just over half of the premises currently in use and the remaining area fill as business and stores grow. The executive/directors deemed this a more appropriate strategy to cope with growth. • Continue operating model of 24/7 trading opportunity. • Only other competitor in this space is McDonalds. • Expansion of high street model allows for morning/lunch/dinner/evening/late trading which increases revenue opportunity.

Expansion

I I 2011 I 2012 I 2013 I 2014 I

I Store no. I 56 I 90 I 140 I 200 I

I EBITDA I $2.07m I $6.18m I $12.86m I $23.17m I • 14 stores under development (offers accepted) • Franchise sales transaction rate of 2-3 per month and accelerating • Continue using website as key recruitment portal - Average of 120 leads generated per month • 25+ applications per month over last 6 months • Continue to open corporate stores in key locations with aim to franchise. Current strategy has worked well

Changes over last 3 years • July 2006 Pie Face commissioned a central kitchen facility in Marrickville which supplies the whole store network. • The following year it acquired the Dinki Di Pies & Pastries brand. • First franchisee joined in February 2008 and franchising program was launched in April 2009. • By the end of 2009 we had 9 franchisees signed. • Currently 28 stores with 18 of those franchised • Geographic spread - Sydney (17) Melb (4), ACT (1), Brisbane (1) • $12m raised in start up/private capital WARNING: For Westpac staff reference ONL Y. Circulation outside Westpac is PROHIBITED WBCA09.002.0422

Plans over next 3 years • Grow to 140 stores by 2013 • Possible IPO in 2012 • Maintain Dinky Di numbers, grow Pie Face numbers • Increase in high margin products contribution to product mix (sandwiches, hot drinks) .... Key drivers of sustainable growth in QSR chains

Chain Oayparts Occasion Format

lunch pn dinner late night sat in take catsrirg ma/I high drills Name Build cost est snack snack fffl<'1Y s1root thru Subway 1250 $250,000 0 000 0 0 0 0 0 0 McDonakls 850 $1,500,000+ 00 00 0 0 00 0 0 00 0 00 Dominos 518 $400,000 0 000 0 0 0 Gloria Jeans 480 $400,000 00 0 00 000 0 0 Michels 350 $350,000

Pie Face (???) $300,000 00 0 00 0 0 00 00 @@ @@ @ @ @@@@ @@@ @ @@ (???)

Pie Face "ticks all the boxes" regarding long term viabil~y / scalabilITy in QSR and is more affordable than most of its compet~o""

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Franchise Agreement Discuss the provisions ofthe Franchise agreement in respect ofthese attributes Annual Review Date: I I Has there been changes? If YES details to be provided. Franchise Term 5 years 0 Yes 0 No Renewal Options 5 years 0 Yes

0 No

Initial Franchise Fee $40,000 (+gst) 0 Yes

0 No

Renewal Fee 1) the cost of Pie Face investigating the status of 0 Yes franchisee/guarantors; 2) all Pie Face's costs of documenting the franchise 0 No 3) all other costs and expenses

Royalty 5.0% of gross revenue 0 Yes

0 No

Advertising Levy 2.5% of gross revenue 0 Yes

0 No

Legal Fees $5,000 0 Yes

0 No

Other Fees $10,000 (training) 0 Yes

0 No

Assignment Fee Y1 - $35,000; Y2 - $30,000; Y3 - $25,000; Y4- 0 Yes $20,000; Y5; $15,000; Y6 onwards - $10,000 0 No

Outlet Lease Held by Franchisee 0 Yes

0 No

Termination of In accordance with Franchising Code of 0 Yes Agreement Conduct 0 No

Treatment of Goodwill 0 Yes The Franchisee agrees that all the goodwill and other rights and interests arising from the Franchisee's use 0 No of the Business Name (or any other derivative of the Network Name), the Trade Marks, the Image and the System belong to Pie Face or a Related Entity of Pie Face. Dispute Resolution In accordance with Franchising Code of 0 Yes Conduct 0 No Westpac Legal Has Legal reviewed the Franchise Agreement and Disclosure Document? Services Review 0 Yes (to be attached to Annual Review) 0 No

Details of comments:

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Franchise I Business History

• Founded in 2003 by Betty Fong and Wayne Homschek • Founders/management currently own about 25% of the company with the remainder held by high net worth/professional investors • 2nd store opened in Kings Cross in 2004, followed by 3rd and 4th in Westfields in 2005. • 6 more stores opened in Westfields during 2006 • Pie Face has raised over $1 Om since it's inception through strategic/high net worth investors, the proceeds of which were used to open 19 company stores and to commission and build a 500sqm central kitchen facility with scope and capability to service current outlets and future outlets based on expected growth levels • The centralised kitchen facility allows the business to produce all of the pie and pastry product fresh from scratch and deliver to stores around the country. This provides a unique point of difference in the market segment • The retail store offering has moved from Pies and sausage rolls to a broader menu that includes fresh sandwiches, pastry and coffee • The higher margin products sandwiches and coffee have increased to 40% of revenue • 3 year plan is for 117 stores opened with a 20/80 company/franchised mix that will generate $63.7m in revenue and an EBITDA of about $10.3m

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1. High St store model

Franchisee Trading Results and Projections

LOW AVERAGE HIGH Benchmark Trading Results Last This Last This Last This Review Review Review Review Review Review 30/08/12 30/03/11 30/08/12 30/03/11 30/08/12 30/03/11 Sales $676,000 $676,000 $884,000 $884,000 $1,092,000 $1,092,000

GP $418,578 $417,092 $547,371 $545,428 $676,164 $673,764 (61.9%) (61.7%) (61.9%) (61.7%) (61.9%) (61.7%)

EBITDA $126,560 $89,000 $214,756 $165,000 $282,951 $236,000

Average Weekly Sales $13,000 $13,000 $17,000 $17,000 $21,000 $21,000 ($) exGST Average COGS (%) 38.1% 38.3% 38.1% 38.3% 38.1% 38.3%

Average Labour Cost 21% 27% 16% 22% 13% 18% (%)

Average Transaction ($)

Average Occupancy 11.3% 11.8% 10.9% 11.3% 12.5% 12.8% Costs (%)

Detail the basis of the results and/or Above numbers/data is based on the High Street store projections: model for both dates for consistency. o Number and % of franchisee system's data reported Minor changes are due to increases in both employment o Reporting periods or forecast and utilities costs. projections and assumptions

Analysis and reasons for variances in benchmarking results o Sales o Gross Profit DEBIT o Weekly sales o COGS o Labour o Transaction o Occupancy

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Franchisee Set-Up Cost

LOW AVERAGE HIGH $ $ $ Set Up costs (Turnkey) Last This Last This Last This Excl. GST Review Review Review Review Review Review

30/03/11 30/08/12 30/03/11 30/08/12 30/03/11 30/08/12

Franchise Fees $35,000 $40,000 $35,000 $40,000 $35,000 $40,000 Total Administration Costs $30,000 $30,000 $35,000 $35,000 $40,000 $40,000 Design Fee $10,000 $15,000 $10,000 $15,000 $10,000 $15,000 Recruitment $ 1,800 $ 1,800 $ 1,800 $ 1,800 $ 1,800 $ 1,800 Training fee $10,000 $10,000 $10,000 $10,000 $10,000 $10,000

Total shop fitting cost $180,000 $180,000 $235,000 $240,000 $270,000 $430,000

Total extra equipment $ 5,000 $ 65,000 $ 7,500 $80,000 $ 10,000 $ 90,000

Opening promotions $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000

Working capital & other costs $15,000 $15,000 $22,500 $22,500 $30,000 $30,000

TOTAL $291,800 $361,800 $361,800 $449,300 $411,800 $661,800

Analysis of variances in Turnkey N/A costs from last review (include reasons for the changes and forecasts) o Franchise Fees o Leasehold Improvements o Plant & Equipment o Furniture & fittings o Signage o Stock o Working Capital o Legals o Total

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2. Shopping centre store model

Franchisee Trading Results and Projections

LOW AVERAGE HIGH Benchmark Trading Results Last This Last This Last This Review Review Review Review Review Review 30/08/12 30/08/12 30/08/12 Sales $416,000 $676,000 $936,000

GP $247,700 $402,513 $557,674 (59.5%) (59.5%) (59.5%)

EBITDA $7,742 $120,454 $233,167

Average Weekly Sales $8,000 $13,000 $18,000 ($) exGST Average COGS (%) 38.3% 38.3% 38.3%

Average Labour Cost 26% 16% 11% (%)

Average Transaction ($)

Average Occupancy 20.8% 15.8% 13.6% Costs (%)

Detail the basis of the results and/or projections: o Number and % of franchisee system's data reported o Reporting periods or forecast projections and assumptions

Analysis and reasons for variances in benchmarking results o Sales o Gross Profit DEBIT o Weekly sales o COGS o Labour o Transaction o Occupancy

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Franchisee Set-Up Cost

LOW AVERAGE HIGH $ $ $ Set Up costs (Turnkey) Last This Last This Last This Excl. GST Review Review Review Review Review Review

30/08/12 30/08/12 30/08/12 Franchise Fees $40,000 $40,000 $40,000 Total Administration Costs $30,000 $32,500 $35,000 Design Fee $10,000 $10,000 $10,000 Recruitment $ 1,800 $ 1,800 $ 1,800 Training fee $10,000 $10,000 $10,000

Total shop fitting cost $145,000 $165,000 $345,000

Total extra equipment $ 50,000 $50,000 $ 50,000

Opening promotions $ 5,000 $ 5,000 $ 5,000

Working capital & other costs $15,000 $17,500 $20,000

TOTAL $306,800 $331,800 $516,800

Analysis of variances in Turnkey N/A costs from last review (include reasons for the changes and forecasts) o Franchise Fees o Leasehold Improvements o Plant & Equipment o Furniture & fittings o Signage o Stock o Working Capital o Legals o Total

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Details ofthe System's operations None over the last 3 years: 0 Terminations 0 Closures 0 Relocations 0 Buy Back Arrangements 0 Territory

Detail any current: None 0 Litigation / Disputes

Selection Criteria and Lease

Franchisee The company now generates in excess of 200 franchise enquiries per month for its Selection Process franchises. On a per store basis, this is one of the highest if not the highest enquiry per store of any franchise in Australia. The company spends approximately $160,000 per annum on a digital based marketing program. Search engines, eDM, CRM, telephone follow up, dedicated web site and landing pages are some of the key elements used. A strict process has been developed which includes: • Enquiry generation • Enquiry qualification (both financial capability and capability) • Group based presentations • Formal application and approval process • Formal site offer and acceptance • Payment and Documentation

Pie Face believes it has developed the most sophisticated franchise recruitment system in Australia. This is based on:-

• an recruitment process which is being overseen by Bob Ozdemir, an industry veteran with over 500 franchise sales under his belt. Our legal framework was initially prepared by Deacons Lawyers and DC Strategy and is now being managed by Coleman and Greig (who also act for Gloria Jeans). • Stong interest in proposition. Since June 2009, we have signed 17 franchisees into transactions and have about 22 more with applications/deposits lodg ed. • Selection of franchisees, following recruitment, is based upon a number of criteria including relevant experience, perceived fit with Pie Face, proposed approach to managing and running the franchise and financial capacity.

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Site Selection • All site selection is ultimately signed off by the CEO and Co Founder. Process • Pie Face also involves the franchisee, who studies the site for a number of days/weeks and reports back findings to franchisor. • Utilise the skills and experience of Bob Ozdemir, who has opened hundreds of stores for Michel's Patisserie, Sumo Salad and Mrs Fields Cookies. • Pie Face have also recently hired a site development manager, Andrew Lyme, who has significant real estate experience and assists in the site selection and development process. • To assist in selection, Pie Face have employed infra red people counters in many of their stores, which allows them to calculate passing trade and the conversion ratio of passing people into sales. This is then used in comparison to proposed sites of a similar location/size • Currently in the process of rolling out the people counters into all new stores as well as to employ people counting firms to measure locations prior to finalizing lease terms. Will also engage the prospective franchisee to record traffic counts in front of their stores at different times of the day to provide this data as a cross check.

Premises Pie Face operates stores in both in-line and shopping mall locations. Size varies from Size, Type, Owned, 20 sqm to 1OOsqm+ dependent on location. All current shops are leased with the Leased exception of one which is operated under a licence agreement. Pie Face has to date NB if Leased state who been the Lessor/Licensee in all cases. holds lease

Rental! Lease Pie Face is Lessor or Licensee in all cases. If the store is franchised, Pie Face enters Arrangements into a Licence Agreement with the franchisee which requires the franchisee to fulfil the obligations under the lease.

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Franchisor Support

Initial Training • 4 week intensive induction process, comprising one week of classroom, one week of hands on training (both in Sydney) and minimum two weeks of in store training in the market from which the franchisee comes. • In some cases the in store training can last up to 2 months • The objective to provide the new franchisee a solid understanding of the front end (sales), back of shop (operational - inventory management, health and food hygiene, staff management) and financial (cash flow and P&L management) elements of the business Pre-opening a/a Training

Ongoing There are two key initiatives:- Training Pie Space HR/Training Portal - can provide a URL and log on if required. This portal is a day to day, living Ops Manual for all franchisees and staff. It contains information on all things Pie Face including:- • "how to" videos/information; • the latest updates from head office; • key KPI data on all stores; • key recruitment material; • other HR data; and • employee/franchisee forums

Pie Space have allocated resources to making this the "industry best" HR/Training tool.

In store audits/continuing training:- • a series of in-store audits covering things such as coffee, merchandising, up selling, 4Fs (full, fresh, fast and friendly), cleanliness etc. • Audits will come from four sources: 1. secret shopping service 2. other franchisees 3. head office 4. customers themselves • All results will be made available on Pie Space for all franchisees to see, so that they may know how they are rating in their peer group. Manuals Pie Space continually updates Ops Manual but, in addition, a paper-based manual is maintained in every store.

Financial Rob Dardano is the CFO and has had 10 years in senior financial positions. Rob has a Reporting team of 3 who focus on accounts payable, payroll, financial analysis and other reporting functions.

Pie Face runs an in-house management database with MYOB back-of-house accounting system.

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Other Pie Face has a dedicated business analyst in Head Office who tracks many KPI's on a Management daily, weekly, monthly and quarterly basis. Systems Some of these KPls include: -same store sales per store, per shift (including same day last week, same week last year, same month last year; -coffee sales % overall sales, per store per shift, as a group -average transaction values per store -COGs per store -Wages % revenue per store -Product mix per store and resultant profit margins -Employees sales per shift and per hour These reports are made available to executives and field managers Qual ity Control In the kitchen Pie Face deploys a rigorous batch testing program. (including KPI's etc) With regard to overall franchise performance Pie Face monitors the KPls outlined above on a daily basis

At stores they run a series of in-store audits (see ongoing training) and also require stores to report any product quality issues they become aware of. Franchisee See above comments on our National Training Manager who works together with our COO Support to support franchisees. As the system expands, then field support will be re-assessed to Manager ensure the appropriate 'face to face' support structure is in place

Marketing Marketing drives four key initiatives

-Franchising -Marketing Planning -Branding -Local Area Marketing

Franchising

The company now generates in excess of 200 franchise enquiries per month for its franchises. On a per store basis, this is one of the highest if not the highest enquiry per store of any franchise in Australia. The company spends approximately $160,000 per annum on a digital based marketing program. Search engines, eDM, CRM, telephone follow up, dedicated web site and landing pages are some of the key elements used. A strict process has been developed which includes: -Enquiry generation -Enquiry qualification (both financial capability and capability) -Group based presentations -Formal application and approval process -Formal site offer and acceptance -Payment and Documentation

Pie Face believes it has developed the most sophisticated franchise recruitment system in Australia.

Marketing Planning

This involves franchisee engagement through a formal Marketing Committee, testing and reporting, forward planning and ultimate approval by Pie Face management. The process engages all stakeholders (finance, training, franchisees, operations, franchise development and the CEO) to ensure we have a cogent successful marketing program.

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Branding

Strategically the company generates limited marketing levy funds from franchisees. Utilising its inherently strong brand, Pie Face has opted to focus its branding efforts in the following areas:

.In store service and customer satisfaction - word of mouth branding .Online engagement - web sites and social media programs .Packaging .Loyalty Programs .Above the line media exposure generated by PR.

Local Area Marketing

At this earlier stage of development, the Company is focusing 2/3rds of its consumer marketing activity on supporting and building effective local area marketing campaigns/programs. Programs include New Store Opening campaigns which involve providing free coffee and mini pie tasters to local potential patrons, coffee boost promotions for stores which have less than 15% coffee share of sales, winter food promotions, summer food promotions, catering, etc.

Industry Profile

Description Pie Face operates in the QSR (Quick Service Retail) food service industry in Australia. It would be best classified as a micro retail bakery/cafe chain specializing in the delivery of fresh quality baked pies, sandwiches and coffee.

Key Success • High street location with strong walk by traffic Factors • Small business experience, in particular ability to build profile in local area, maximise local marketing spend and ability to manage rosters and staffing • Inventory management skills • Desire to operate a 24/7 model and optimise revenue generating periods • Identify and capitalise on consumer trends • Desire to work with franchisor to leverage brand and training opportunities

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Product Describe the Pie Face is a retail micro bakery cafe operating under 2 brands - Pie Face and Product! Oinki Oi Service sold

quiche, pastries o cold drinks ,­ snacks & cakes ..o sandwiches N

hot drinks

pies & sausage rolls

Pie Face aims to increase the share for high margins products such as sandwiches and hot drinks over the next 4 years Life Cycle Pie Face has spent six years formulating and refining its business and franchising model Position and is about to embark on a period of significant growth.

The company was established in 2003. It spent the first 3 years developing its product and business model and a 9 store network.

In July 2006 Pie Face commissioned a central kitchen facility in Marrickville which supplies the whole store network.

In March 2007 it acquired the Dinki Di Pies & Pastries brand.

Our first franchisee joined in February 2008 and our franchising program was launched in April 2009. By the end of 2009 we had 9 franchisees signed.

As at August 12 2010 Pie Face has 28 stores trading in Sydney, Melbourne, Canberra and Brisbane (20 franchised and 8 company stores) with another 18 under development.

56 stores are planned for June 2011 with 200 planned to open by 30 June 2014

Specialist Plant Pie Face owns and operates a fully equipped central kitchen facility and central ! Equipment distribution facility in Marrickville.

Technology Pie Face uses proven IT and kitchen equipment. We do not regard technology risk as a Risk! major risk to the business model. Obsolescence

Suppliers

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Who are major Major suppliers to franchisees are as follows:- suppliers • Pie Face for all food product (approx 75% of purchases) • Country Wide Distributors (paper, small goods, cleaning products (approx 12.5% of purchases) • Cadbury Schweppes/Coke for bottled drink (approx 5%) • Fonterra milk (approx 7.5%) Substitutes • Other baked good operators • Other national distribution companies such as Bidvest • Other soft drink manufacturers and distributors • Other providers of dairy products Trade Terms Pie Face is on a direct debit plan with franchisees in Sydney as we distribute to them direct. Country Wide is on a 7 day payment plan with franchisees and drinks suppliers are on 7-14 days

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Market Environment

Major McCafe (micro bakery cafe but without pies and within the larger McDonalds footprint); Com petitors Starbucks/Gloria Jeans (coffee shops with limited food offers-do not bake in store);

Michels Patisserie (baked goods retailers with pies and coffee; do not bake in store and stick to a predominantly "fresh food, mall" format; Pie Face is both a mall format and high street 24/7 format; Pie Face is also a more targeted food offer and baked fresh in store, providing better revenue/sqm on average and a more versatile offer);

Subway to some extent as we see more potential Subway franchisees than the others-Subway has similar economics to Pie Face but slightly cheaper build costs and lower average unit volumes. (Pie Face' average franchisee turnover is about $15k per week; whereas Subway is probably more like $10-11 k; and Subway is predominantly a lunch time offer whereas Pie Face is a 24/7 offer.

Muffin Break is a micro bakery cafe chain but focused almost exclusively on the mall, 9 to 5 format; Pie Face would compete with Muffin Break within shopping malls to some extent; and

Donut King is another micro bakery cafe chain more focused on sweets/snacks than savories and again only competes in the mall environment Com petitive Pie Face classifies itself as a superior business model to all of the above offers for the Advantage I following reasons: Differentiation • it has a freshly baked business model;

• fully integrated supply chain and make all products from scratch;

• they have a frozen supply chain model giving their franchisees more flexibility/cost control then those chains that do not bake in store and do not have a frozen ready to bake offer;

• they have both a 24/7 high street format and a mall format, giving a much broader market to expand into than those chains without a high street, 24/7 format (only McDonalds above has similar flexibility and not with the McCafe offer as much as the main burger menu);

• As a result of the above, Pie Face have some of the highest average $/per sqm/per annum averages in the world. Average high street store is about 30 sqm and Pie Face average high street store currently turns over about $850-900k; or about $30k per sqm per annum. By comparison, Starbucks USA is about one third of this average as their average store size is over 120sqm. Starbucks is arguably the most valuable QSR food model in the USA and the world given its firm value (circa US$20bn) and the time it took to achieve this (circa 20-25 years)

• Attractive business model for franchisees - simple to operate, with good potential returns available by industry standards

• Unique brand - developed over six years Entry Barriers • Relatively high entry cost • Competition for new sites from other brands • Competition from other applicants enquiring Exit Barriers • Franchise Agreement • Initial capital invested

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Individual Site Factors

What I Who is the Target Market Broad based retail market - we believe we have a food offering that is broadly attractive to retail customers across a range of day-parts. Individual franchises will target particular sub-markets based upon particular store location. What are the required There are no REQUIRED demographics. Pie Face has a demographics for a franchise franchise model which works well in both in-line High 8t sites and shopping mall sites. Given that Pie Face food offering is applicable to all day parts we are particularly interested in sites which allow the potential for extended hours trading

Portfolio Quality and Analysis To be completed at each Periodic Review of the system Portfolio Analysis Analysis of exposure by risk grade

Transfer to LM U Indicate date transferred, store location, connection number, reasons, plus workout strategy and assistance provided by the franchisor

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Maximum Borrowing

Recommended Sector Value Ratio (SVR) for this system

Type of System Lending Value

New franchised stores Turnkey I Greenfield site 60%

Existing franchised stores - purchase 1.75x EBITDA capped at 60% (based on last 12 months financial statements)

Existing franchised stores - equity in store(s) 1.75x EBITDA capped at 60% already owned (based on last 12 months financial statements)

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Franchisor Performance and Management of Franchisees Franchisor Financial Performance • Franchisor Turnover $671,059 • Franchisor Profitability $91,468 • Franchisor Net Assets $164,585 (Financial ability to assist franchisees) • Key movements over last 3 All metrics have improved over this period as business moves from start up to growth phase. The years business has built scale and financials reflect this Franchisee Support I Expansion Plans • What are the resources Franchisees have contact access to senior management including, but not limited to, the CEO, COO, allocated to assist the CMO and national training manager. There are other support functions within HO to assist with inventory Franchisees management, sales management and staffing. Aim is to have a 1 :15 support to franchisee ratio • What is the Franchisors Pieface experience: Pieface now has 2.5 years experience of successfully supporting its franchisees past experience in this regard Chris Guy Experience: Chris was previously the National Training Manager for Lenard's Chickens, a 190 store national chain based in Brisbane and, prior to that, the National Training Manager for Eagle Boys Pizza, a 250 store pizza chain based in Brisbane. • Is it sustainable; financial Pie Face has a fully developed business plan which is sustainable and profitable. Key outputs of the and non-financial financial model developed around the plan are included in Appendix 1: Investor Presentation • Other Capex Requirements • What are the ongoing None apart from refurbishment of stores typically once every 5 years Capex requirements of the Franchisee • Other Benchmarking monitoring • Detail the Benchmarking See above in 'Management Systems' criteria used? • How is it monitored? AS ABOVE • How often? AS ABOVE • Why have the Benchmarks Own experience as an operator and franchisor and industry comparisons have identified these are the been selected? best measures of store performance and predictor or future performance • What happens if We have regular meetings with franchisees to review their KPI data, discuss areas where Pie Face may Franchisees are not be able to assist the franchisee in improving KPI performance and develop a plan for the performing to these franchisee/store Benchmarks? • Other Distressed Franchisee Practices • What is the previous N/A experience with Franchisee difficulties? • What happened? N/A • What resources were N/A allocated; internal / external? • Who identified that there N/A was a problem? • How was it fixed? N/A • If no previous experience After a meeting to discuss the situation we would assist any sites in distress in the following areas: with a Franchisee having - Marketing; Promotion; Lease Negotiation; Re-Development difficulties then what is the After this, work out plan is agreed upon with clear actions (franchisee) and support required (franchisor) proposed procedure? with specific timeframes Schedule in key review dates monthly • What resources would be Assistance from the Head of Marketing, COO, Business Development Team and CEO as required allocated; internal / external? • If the Franchisee is still Pieface has established a store resale program under which assistance will be provided to franchisees struggling what is the who wish to sell stores. Pie Face will also consider purchasing these stores assistance to be provided? • If Franchisee wants out, Store resale program in tandem with Pie Face considering possible store purchase what is the procedure? • Will the Franchisor buy the Pie Face will consider purchasing stores in this situation Franchisee? • Other? Other Questions • List other key points and/or mitigants

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General Comments

Recommendation • Franchise system still in growth phase therefore needing to maximise opportunities with prospective franchisees. Solid management team and infrastructure in place to support sustained growth and current P&Ls and EBITDA actuals support growth of model to approved applicants. Higher set up costs (range $366k - $471 k) support a higher SVR for Greenfield as there is a higher requirement for capital investment from franchisee

Greenfield/Turnkey - 60% SVR

• Current cash flows (existing average $214,756 EBITDA) and sales price relative to turnover support an SVR for existing franchisees to purchase existing franchise as well as borrowing against current franchise by way of multiple of EBITDA. Franchisors strategy of taking on prime sites and operating as a corporate store and then selling has proved successful based on aforementioned recent sales which also supports an EBITDA multiple for existing stores.

Existing Stores (Purchase) - 1. 75x EBITDA capped at 60% of purch price (inclusive of both Pie Face and Dinky Di stores - note all 5 Dinky Di stores are owned corporately)

Existing Stores (Equity, already owned) -1.75x EBITDA (inclusive of both Pie Face and Dinky Di stores - note all 5 Dinky Di stores are owned corporately)

Matthew Whyte Franchise Development Manager NSW Recommendation / Supported

Name Manager Portfolio Risk Product & Operations Accepted and Approved

Name Senior Manager Portfolio Risk Product & Operations

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