Lenard`s Group Holdings Pty Ltd

nurturing investment
Lenard’s Group Holdings Pty Ltd
Information Memorandum
17 May 2008
Blue Sky Private Equity Limited
AFSL 314 177
investment brief
table of contents
Investment Brief
2
Notice to Investors
3
Business Description
5
Key Success Factors
8
Market Size and Structure
9
Financial Information
11
Blue Sky Private Equity
16
Board and Senior Management
17
Deal Structure and Key Terms
19
Fees and Exit Scenarios
22
Board Composition
24
Overview of Key Documents
25
Project Risks
27
Offer
29
Application Form
31
Wholesale Investor Certificate
33
Blue Sky Private Equity is offering
investors the opportunity to invest into
Australia’s largest fresh value added
chicken franchise system, Lenard’s.
features
•Profitable food retailing business with network
revenues greater than $140m.
•Award winning retailer including Australian Retailer
of the Year (2002), Best Franchisor (2003) and
Best Retailer (2005 and 2006).
•Sustainable competitive position with strong
market share and new avenues for growth.
•Funds to provide expansion capital to buy back
Master Franchise Licenses and launch new
Lenard’s Extra stores.
•Staged investment with 37.6% of the business
acquired through two tranches.
•Founder and Management Team focused on
exit path through IPO or Trade Sale.
fast facts
Project Value
$4,990,000 via two tranches
First Tranche
$3,330,000 by 23 June 2008
Second Tranche
$1,660,000 by 30 June 2010
Investment
$10,000 minimum
Project Manager
Blue Sky Private Equity Limited
Structure
Unit Trust
Forecast IRR (5 Years, pre-tax) (1)
35%
Forecast IRR (5 Years, pre-tax) (2)
32%
(1) F orecast IRR based on equity funding for first tranche and debt
funding for second tranche with interest funded via dividends.
IRR is calculated post BSPE performance fee.
(2) F orecast IRR based on all equity funding for first and second
tranche. IRR is calculated post BSPE performance fee.
Lenard’s Information Memorandum
notice to investors
Information Memorandum
This Information Memorandum (‘IM’) has been compiled solely
for information purposes to assist the Approved Recipients in
evaluating the Project. You may not rely upon this IM if you are not
an Approved Recipient.
This IM is supplied on the conditions listed below. An Approved
Recipient accepts these conditions by retaining this IM. If an
Approved Recipient does not wish to accept these conditions, this
IM should be returned to Blue Sky Private Equity Ltd (‘Blue Sky’)
immediately.
The commercial merits in investing in interests such as those
offered by this document should be regarded as being of a
speculative nature. The investment is not recommended for
investors who are unable to risk the initial outlays and ongoing
commitments. Prior to entering into an investment such as this,
prospective investors should read this offer document in its entirety
and consult their independent licensed investment advisor, legal,
taxation and other professional consultants in assessing the
potential merits of the investment. The only information authorised
by Blue Sky to be provided to prospective investors is that
contained in this offer document and no person is authorised to
give any information or to make any representations in connection
with the offer other than the information representations which are
contained in this offer document.
Conditions of this IM
This IM and any other information provided by Blue Sky with
respect to the Project (‘Investment Information’) is confidential,
and is for the exclusive use of the Approved Recipients. They
may not be reproduced in whole or in part. Their contents may be
disclosed to the Approved Recipients’ professional advisers for the
purpose of seeking relevant advice. They may not be disclosed to
any other person. It is not possible to have regard to the investment
objectives, financial situation and particular needs of each
Approved Recipient.
The opinions, estimates, projections and targeted returns which are
contained in the Investment Information involve significant elements
of subjective judgement and analysis. That subjective judgement
and analysis, and therefore the targeted returns, may not prove to
be correct. There are usually differences between targeted returns
and actual results because events and actual circumstances may
not occur as anticipated. These differences may be material to your
investment decision.
The Investment Information does not purport to contain all of
the information that may be required by an Approved Recipient.
Approved Recipients should conduct their own investigation and
analysis of the Project and the Investment Information.
Forward-Looking Statements
Certain information in this IM contains statements that are forwardlooking. Such forward looking information involves risks and
uncertainties that could significantly affect anticipated results in
the future, and accordingly, such results may differ materially from
those expressed in any forward looking statement made by or on
behalf of Blue Sky.
Factors that could cause the Unit Trust’s results to differ materially
from those contemplated in the forward-looking statements include,
among other things, delivery of new revenue streams, underlying
performance of the business, the timing and extent of any changes
to interest rates, and other business investment considerations.
Currency of Information and
Other Matters
Unless otherwise stated, all information in this IM is current only
as at the date of issue of this IM, and then only to the extent
relevant information is available at the time of compilation of this
Memorandum. Accordingly, financial information (for example)
should not necessarily be assumed to be based on the latest
auditable information.
The publication of this IM does not create any implication that there
will be, or has been, no change in the business or affairs of Blue
Sky since the date of issue. Blue Sky may, in its absolute discretion,
update or supplement this Information Memorandum, but is under
no obligation to do so. BSPE, its associates or Directors do not
guarantee the performance or success of the Offer, the repayment
of capital or any particular rate of return on either capital or income.
No person named in this IM or any other person, guarantees the
performance of the Fund or the payment of any return (capital or
income).
Disclaimer
Blue Sky:
•does not warrant or represent the origin, validity, accuracy,
completeness or reliability of the Investment Information;
•does not accept any responsibility for errors or omissions in
any information contained in the Investment Information;
•to the extent permitted by law, disclaims and excludes all
liability arising from or in connection with the Investment
Information; and
•does not, by the Investment Information, give any
recommendation, service or advice.
Approved Recipients must make their own independent
assessment and investigation of the Project (described in the
section headed ‘Investment Brief’) and the Investment Information
including, if necessary, seeking any professional advice. Approved
Recipients should base any decision to participate in the Project on
that assessment, investigation and advice.
An investment in this Project is not a deposit with, nor a liability of
Blue Sky. Investment in the Unit Trust is subject to investment risks,
including possible delays in repayment, loss of capital invested and
failure to earn a return in the short or long term.
Risks of the investment are outlined in this Information
Memorandum. Blue Sky does not guarantee the repayment
of capital or the payment of income or the performance of an
investor’s investment. In preparing this Information Memorandum,
Blue Sky has relied on information sources which it believes to
be accurate and reliable. However, it makes no representations
regarding the accuracy or completeness of the information
contained in this document.
Investors should read the whole of this Information
Memorandum and, if necessary, seek professional advice
before investing.
Lenard’s Information Memorandum
lenard’s group holdings pty ltd
In 1987, master butcher, Lenard Poulter
identified a niche market for value-added
chicken products and founded Lenard’s.
The first Lenard’s store was opened at Sunnybank Hills
in Brisbane, Queensland in 1987 and is still going strong
today. Twenty years later and Lenard’s is a household name,
providing ready-made, tailored meal solutions to busy
customers through 180 franchise stores nationwide.
Lenard’s franchise network now has annual turnover of
more than $140 million and an estimated market share of
10-12% of retail chicken consumption. They sell more than
20 million chickens each year and serve 200,000 customers
every week.
Lenard’s has won numerous awards including:
This substantial structural change will allow Lenard’s to:
•Achieve direct line of sight to their franchisees,
eliminating the middleman structure currently in
existence;
•More aggressively rollout expansion plans across the
network, including more ‘In-Supermarket’ stores and
a new company-owned concept, Lenard’s Extra;
•Improve delivery of marketing and product initiatives,
increasing the ability of the network to react to
competitors and market trends; and
•Purchase back existing royalty streams, delivering
stronger cash flows to the Lenard’s business.
•Best Franchisor (National Retail Association) in 2003;
and
In order to realise value for investors, the primary exit
mechanism will be through an IPO or a trade sale, and
this will be considered on its merits if/when it occurs.
A comparable recent transaction in May 2007 was the
purchase of 100% of the issued capital of Brumby’s
bakeries by Retail Food Group for $46.8m cash. Brumby’s
bakeries had a FY2006 EBITDA of $3.3m which implies a
historical Enterprise Value (EV)/EBITDA of 14 times.
•Media Campaign of the Year (National Retail
Association) in 2006.
Source: Retail Food Group Bidders Statement, May 2007,
Brumby’s Bakery Annual Report 2006
In addition, Lenard Poulter was inducted into the
Franchising Hall of Fame (Franchise Council of Australia)
in 2003.
Structured as a Unit Trust, this investment provides
Investors with an opportunity to participate in a national
business with a proven product and reliable cash flows.
•Australian Retailer of the Year in 2002
(Australian Retailers Association);
•Best Food Retailer (National Retail Association) in
2005 and 2006;
Lenard’s is an established, profitable food retailer
specialising in the delivery of value-added products to
consumers.
Lenard’s has a strong brand presence with 75% aided
awareness at the individual consumer level. Major
supermarkets regard the growth of franchised specialty
food retailers like Lenard’s Poultry, Brumby’s Bakery and
Baker’s Delight as important contributors to contestability
and competition1.
The business experienced strong growth up until 2003 but
since that time growth has stalled due to a range of factors.
Despite recent setbacks, Lenard’s remains by far Australia’s
largest independent retailer of meat products and is now
well positioned for future expansion as the grocery sector
focuses on the fresh food segment.
The funds raised will be used to acquire a 37.6% interest
in the business. This will be achieved in two tranches with
a payment of $3.33 million by 23 June 2008, and a further
$1.66 million by 30 June 2010.
1 Coles, ACCC submission, March 2008
The first tranche of funds will be used to purchase Master
Franchise Licenses in Victoria and South Australia,
completing a nationwide buyback of all Licenses.
Lenard’s Information Memorandum
Source and Application of Funds
Source
$
Application
$
BSPE Investors $4.99m
Buyback Master $3.00m
Franchises
Lenard’s Extra
Rollout
$1.66m
Project management
and transaction
fees
$0.33m
Total
$4.99m
$4.99m
business description
Lenard’s is a multi award-winning
national food retailer with proven systems
and processes delivering high quality
fresh food to Australian consumers at
a competitive price.
Lenard’s has 180 stores around Australia, with Queensland
representing the largest proportion of stores. 155 of these
stores are defined as ‘Stand Alone’, and 25 stores are
defined as ‘Supermarket’. A Stand Alone store is typically
positioned inside a major shopping centre near a Coles or
Woolworths, capturing foot traffic and providing shoppers
with a clear choice of products.
Average annual turnover in FY2008 for stand-alone stores
is approximately $850,000 with supermarket stores turning
over approximately $490,000. Supermarket stores (pictured
below) are a relatively new addition to the Lenard’s stable
and have experienced 20% revenue growth from FY2007 to
FY2008 as the concept is refined and improved.
Well Known and Strong Brand
Lenard’s is a national brand that is well known for its delivery
of fresh and quality value added chicken. In an average
week, Lenard’s serves over 200,000 customers across
all age and socio economic groups. Consumer research
indicates that customers trust the Lenard’s brand to deliver
convenient meals that combine value, quality and flavour
(taste), together with superior customer service.
Exciting Growth Prospects in the
Fresh Food Segment
Lenard’s speciality is the delivery of fresh value added
poultry. Larger supermarket chains have targeted fresh
meats and vegetables as the fastest growing segment
within their businesses for the next 5-10 years. Lenard’s
is well placed to capitalise on this trend with product
innovation and targeted marketing.
Strong Market Position with
Broad Franchise Network
Lenard’s has 180 stores across Australia giving it a market
penetration that cannot be rivaled by any other specialty
meat franchise or company owned network. The meat and
poultry retailing segment is a very fragmented market with a
large number of independent operators competing with the
major supermarket chains.
Stable Revenue Streams
Lenard’s has a strong national footprint across metropolitan
and regional Australia. Opportunity for growth is likely to be
in the two most populous states of NSW and Victoria.
Lenard’s has an extensive store network selling a staple
food product with low seasonality and minimal response to
economic cycles. Average revenue across the network is
approximately $2.7m per week.
2
61
28
25
30
34
Lenard’s Information Memorandum
Assets of the Business
$20
0
$0
Lenard’s EBITDA ($m)
Lenard’s is the owner of the world-wide Intellectual Property
rights to the Lenard’s specialty value-added poultry retail
system. In addition, Lenard’s is the Franchisor of those
rights in Australia and New Zealand.
$2.5
$2.0
$1.5
$1.0
The assets of the business include:
$0.5
•The worldwide Intellectual property rights associated
with the Lenard’s system;
$0.0
•The Lenard’s Franchisor businesses in Australia and
New Zealand;
•The six company owned Master Franchise Businesses:
(i) Northern and Central Queensland, (ii) South East
Queensland, (iii) Gold Coast (iv) New South Wales –
Metropolitan region (v) New South Wales – Country and
(vi) Western Australia;
•Two company owned stores (one as a national training
store); and
•The leases for all franchised and company owned
stores.
Lenard’s enjoyed strong growth in store numbers, revenue,
and profitability until 2004. Since that time Lenard’s has
experienced a slight fall in store numbers and flat revenue
growth.
Lenard’s Store Numbers and Franchise Network
Revenue
$60
50
$40
25
$20
0
$0
Network Revenue ($m)
2008
75
2006
$80
2004
100
2002
$100
2000
125
1998
$120
1996
150
1994
$140
1992
175
1990
$160
1998
200
Number of Stores
2006
25
2004
$40
2002
$60
50
2000
75
1998
$80
1996
100
1994
$100
1992
125
1990
$120
1998
150
-$0.5
-$1.0
2003
2004
2005
2006
2007
The loss in FY2006 is attributable to Lenard’s completing a master
franchise buyback ($330,000), legal fees related to a High Court case
($530,000), incremental bad debts write off ($280,000) and company
owned store losses ($430,000).
In the period, 2004 to 2006, a number of events occurred
which have had a material impact on the performance of
the company.
Legal Case (Baker Case)
Lenard’s won legal proceedings, on appeal, in the full
Federal Court of Australia relating to representations
and disclaimers contained within disclosure documents
regarding profitability and site selection for a Lenard’s store
operated by Mr and Mrs Baker in Hilton, South Australia.
New Franchisee Challenges
Finding new franchisees in an environment of low
unemployment has been difficult for the entire franchise
sector, including Lenard’s.
Existing Franchisee Pressures
Increased rent, labour and input costs have placed some
franchisees under pressure in recent years. Rental growth
has since slowed and Lenard’s has undertaken initiatives to
increase gross profit per store.
Master Franchise Buybacks
Lenard’s has been in negotiations for some time to buy
back Master Franchise Licenses. All Master Franchise
licences have been bought back except from Victoria
and South Australia where in-principle agreement has
been reached.
Lenard’s Information Memorandum
Corporate Structure of Lenard’s Group Holdings Pty Ltd
(Post Equity Injection)
Lenard’s Group Holdings Pty Ltd
Lenard’s Extra Pty Ltd
Company
Lenard’s Pty Ltd
Lenard’s
International
Pty Ltd
Lenard’s (NZ) Ltd
(New Zealand
Company)
Lenard’s NSW
Pty Ltd
Lenard’s
Ingredients
Pty Ltd
Lenard’s Catering
and Food Services
Pty Ltd
The Poultry Shop
Leasing (State)
Pty Ltd (QLD, NSW,
VIC, SA & WA)
Principal Activity
Lenard’s Group Holdings Pty LtdInvestment Company and ultimate owner of the subsidiaries in the
Lenard’s Group.
Lenard’s Pty LtdRetailing of poultry and related products, provision of services, the
sale of Lenard’s fitouts and franchises and the operation of Lenard’s
retail outlets.
Lenard’s (NZ) LtdFormed to hold the New Zealand operational activities.
Lenard’s International Pty LtdHolds the licence to the Lenard’s system outside Australia. Its sole
purpose is to collect royalties from international master franchisors.
The Poultry Shop Leasing (State) Pty Ltd (QLD, NSW, VIC, SA & WA)
These entities hold the shop leases in the states where Lenard’s
trades (i.e. one company for each state where traded).
Lenard’s Ingredients Pty LtdOwns the Intellectual Property rights to all the core ingredients used
in the Lenard’s system. It contracts the manufacturing of these
ingredients for supply to the stores.
Lenard’s Catering and Food Services Pty Ltd
A non-trading entity from a previous venture.
Lenard’s NSW Pty Ltd
The master franchisee of the New South Wales – metro north region.
Lenard’s Extra Pty Ltd
Created to operate the Lenard’s Extra stores.
Lenard’s Information Memorandum
key success factors
Buyback of Master Franchise
Licenses
Lenard’s embarked on a buyback of Licenses over the past
two financial years with the most recent acquisition being in
Western Australia which was completed in April 2008. The
remaining licenses are Victoria and South Australia. Lenard’s
has negotiated in principal terms for both territories. This
will complete the Master Franchise Buyback strategy and
provide the business with a more direct relationship with
their franchisees.
Lenard’s Extra Store Rollout
Lenard’s has developed a new concept store which is
designed to capture a greater share of the ‘centre of plate
protein’ component. The store will offer the traditional
Lenard’s chicken product range as well as a broad range of
other value-added meat products in beef, lamb and pork.
The first Lenard’s Extra store is targeted to open at The Gap
in Brisbane in June 2008 and will operate as a stand alone
store with all meat and poultry processed on-site.
Expected benefits of this structural change include:
Lenard’s anticipate the store will deliver substantially higher
revenues than chicken-only stores, and will initially be run
under a company-owned model.
•Reinvigoration of the network to improve franchisee
relationships and profitability;
The Lenard’s Extra stores have a number of
benefits including;
•Improved delivery of innovation through marketing and
product development;
•Development of a destination store for meat products;
•Increased opening of new Stand Alone stores in regions
where Lenard’s is currently not represented; and
•Ramp-up of Supermarket stores with groups such
as IGA to capture the trend towards fresh food.
•Continued rationalisation of the fragmented meat
industry;
•Broader range of products enticing new customers to
experience the Lenard’s brand;
•Ability to place stores in areas where traditional Lenard’s
stores are not viable, including 2nd tier shopping centres
and strip malls;
•Utilisation of a brand extension strategy, building on
consumer trust in Lenard’s products; and
•Increased attraction to a potential trade buyer or
strategic acquirer.
Lenard’s Information Memorandum
market size and structure
Lenard’s competes in the ‘centre of
the plate’ protein segment of the retail
food chain.
The total market size for chicken meat is growing in
Australia. Per capita consumption levels calculated and
reported by ABS and ABARE (see graph below) have
steadily increased over time due partly to the expansion of
foodservice markets for poultry.
Predominantly supplying chicken meat, Lenard’s is therefore
exposed to trends in consumer preferences. In 2006-07,
the Fresh Meat, Fish and Poultry retailing industry generated
revenue of $2.9 billion, representing an increase of 1.0%
compared to the previous year2.
Consumption per Capita (kg) in Australia
A significant trend in fresh retailing has been the ‘top up’
trend where customers are making more frequent, lower
value purchases in each visit to meet their short term needs
for food and groceries. Customer demand is driven by a
spectrum of competitive factors including price, quality,
service, range and convenience.
This trend has resulted in more frequent trips to the
shopping centre for ‘top ups’. To support the ‘top up’
shopping trend, in its submission to the ACCC Grocery
Inquiry, Woolworths, had a national average transaction
value of $36.34 with an average basket size of 10 products.
21% of customer transactions (by value) are below $30.
Lenard’s has average transaction value of $14.51 per
customer with an average of 1.3 products per basket.
Roy Morgan market research indicates that customers
engage in cross-shopping across different supermarket
and specialist operators with 35% of customers shopping
at a butcher or specialist meat retailer. This suggests that
customers are looking at a number of elements other than
price in making a purchasing decision such as quality,
range and service. Direct competitors to Lenard’s are the
supermarkets, butchers and small supermarket.
Weekly National Cross Shopping Behaviour for Meat
Woolworths 43.1%
Other Supermarkets 51.1%
9.0%
24.3%
30.4%
45
40
35
30
25
20
15
10
5
0
1990/91
Chicken
1995/96
2000/01
Beef
2008/09
Pigmeat
2012/13
Lamb
Source: Australian Bureau of Agricultural Research and Economics
(ABARE): Outlook for Meat, ABARE Conference 2007
ABARE forecast the price differential between chicken and
other meats will grow, with chicken enjoying a lower cost of
production than beef, lamb and pork. This is expected to
fuel incremental consumption of chicken.
Chicken meat is competitively priced to other meats in the
category due to differentiation of pricing through different
cuts and portion packaging.
The increased consumption of chicken meat is the
result of many factors including:
•Growing perception that chicken meat is healthier than
red meat;
•Versatility and ease of chicken meat in meal preparation
and cooking;
•Cost advantage of chicken meat over other meats
with prices forecast to be between 2.0x to 3.0x more
expensive for red meats over the next 5 years.
2.7%
7.1%
9.0%
19.8%
Butchers 34.8%
2 IBIS World Report, 17 January 2007, Fresh Meat,
Source: Woolworths ACCC Grocery Inquiry submission, April 2008
Fish and Poultry Retailing in Australia: G5121
Lenard’s Information Memorandum
Relative Retail Prices of Chicken Meat to Other Meats
3.5
3.0
Lenard’s is one of Australia’s largest retail franchise systems
with a brand presence equivalent to major franchise
systems such as Brumby’s Bakery, Baker’s Delight, Subway
and Donut King. On comparison of the upfront and ongoing
franchise royalty streams, Lenard’s franchise royalty of 4%
appears to be at the low end of the major franchise systems
(see table below).
2.5
2.0
1.5
1.0
Beef
Pigmeat
2012/13
2010/11
2008/09
2006/07
2004/05
2002/03
2000/01
1998/99
1996/97
1994/95
1992/93
1990/91
0.5
0.0
Comparison of Franchise
Systems
Lamb
Source: Australian Bureau of Agricultural Research and Economics
(ABARE): Outlook for Meat, ABARE Conference 2007
The industry is extremely fragmented outside the
supermarket chains which account for 70% of the total
market. Lenard’s is estimated to have market share of
10-12%, making it by far the largest independent food
retailer in chicken.
It is forecast by IBIS World that the franchise industry will
experience average annualised growth in revenue of 6.0%
per annum up to 2012-13. Revenue in this period will be
influenced by the performance of key macroeconomic
variables including the national unemployment rate,
population growth and fluctuations in the level of real GDP.
In addition, IBIS World forecasts that the franchise industry
will post average annualised growth in enterprise numbers
of 5.8% per annum up to 2012-13.
Scale benefits are also enjoyed by the larger franchise
systems (over 100 stores) as major financial institutions are
willing to cashflow finance franchisees for the set-up costs
of a new store which enhances the potential opportunity
for revenue growth and store network expansion.
Retail food sales have grown by 7% per annum since 2000
(ABS, Retail Trade, Cat: 8501.0, January 2008) with the major
supermarkets suggesting the fresh food and meat segment
is expected to maintain or exceed this growth rate.
Item
Lenard’s
Baker’s Delight
Brumby’s
Subway
Donut King
Red Rooster
Number of Stores
180
630
328
1,067
302
350
Franchise Fee
$50,000
$50,000
$50,000
$12,500
$50,000
N/A
Franchise Royalty
4.0%
6.5%
6.0%
8.0%
7.0%
5.0%
Marketing Levy
3.0%
2.0%
1.5%
4.5%
3.0%
5.0%
Source: Company website and marketing material
10
Lenard’s Information Memorandum
financial information
Financial Performance
Lenard’s Group Holdings Pty Ltd will be the owner of the
Lenard’s chicken retail franchise system of Lenard’s Pty
Ltd, Lenard’s NZ, Lenard’s Ingredients and Lenard’s Extra.
The table below outlines the historical pro-forma financial
performance of the group up to 24 June 2007. Forecasts
from FY2008 onwards assume:
•the execution of the master franchise buyback; and
• the rollout of the Lenard’s Extra concept.
Lenard’s Group Holdings Pro-forma
June 06 June 07 June 08 June 09 June 10 June 11 June 12
Actual
Actual Forecast Forecast Forecast Forecast Forecast
Lenard’s Pty Ltd
Revenue
9,303
10,775
11,071
13,488
14,280
15,751
16,833
Direct Costs
(5,855)
(6,055)
(6,491)
(8,076)
(8,485)
(9,017)
(9,583)
Gross Profit
3,449
4,719
4,579
5,412
5,795
6,734
7,250
Gross Profit %
37%
44%
41%
40%
41%
43%
43%
Indirect Costs
(3,880)
(3,838)
(3,608)
(3,472)
(3,620)
(3,960)
(4,048)
(431)
881
971
1,939
2,175
2,774
3,202
-5%
8%
9%
14%
15%
18%
19%
Lenard’s Ingredients – EBITDA
10
(16)
-
-
-
-
-
Lenard’s NZ – EBITDA
86
105
138
172
176
121
-
Revenue
-
-
46
2,812
6,758
15,910
28,678
Direct Costs
-
-
(25)
(1,687)
(4,055)
(9,546)
(17,207)
Indirect Costs
-
-
(182)
(1,213)
(2,401)
(5,224)
(9,220)
Lenard’s Extra EBITDA
-
-
(161)
(88)
302
1,140
2,251
96
89
(23)
84
479
1,260
2,251
Lenard’s EBITDA – before
(335)
Master Franchise Buyback write-off
971
948
2,024
2,653
4,034
5,453
(330)1
(305)2
(1,400)3
(3,200)4
-
-
-
-
669
-
-
-
-
-
Lenard’s Group Holdings – EBITDA
(665)
1,335
(452)
(1,176)
2,653
4,034
5,453
Lenard’s Group Holdings – EBIT
(908)
1,097
(803)
(1,740)
2,023
3,420
4,503
Lenard’s Group Holdings – NPAT
(647)
887
(915)
(1,856)
1,847
2,302
3,051
Lenard’s Pty Ltd – EBITDA
EBITDA %
Other Subsidiaries
Lenard’s Extra
Total Subsidiary Companies – EBITDA
Abnormals
Master Franchise Buyback write-off
Legal Costs Recovery
(1) Gold Coast, (2) NSW metro, (3) NSW country and WA, (4) VIC and SA
Lenard’s Information Memorandum
11
Historical Performance
Forecast Performance
Lenard’s in Financial Year 2006 incurred a loss which was
attributable to Lenard’s completing a master franchise
buyback ($330,000), legal fees related to a High Court case
($530,000) and incremental bad debts write off ($280,000)
and company owned store losses ($430,000). Throughout
the franchise network, 13 unprofitable or marginal stores
were closed during the year, significantly above closures for
any previous year.
Financial Year 2008 forecasts have been developed based
on a forecast provided by Lenard’s management on the
9th May 2008 indicating FY2008 Lenard’s EBITDA of
approximately $950,000 (on a pre normalised basis).
In Financial Year 2007, the business reversed this result
with a significant improvement in performance due to new
store openings including supermarket stores, lower level
of closures, lower company store losses ($164,000) and
incremental revenue from the master franchise buyback of
NSW Metro.
Sales growth of the franchise network has been driven by
implementation of targeted retail campaigns to drive multiproduct sales in stores, local direct marketing including
vouchers, expanded in-store cooking and trials and price
matching of high volume items (e.g. chicken breasts).
New product innovation is seen as a key differentiation
strategy for Lenard’s with the business launching between
3-4 new products a year.
Growth of EBITDA margins is due to the following:
•Economies of scale from buyback of master franchises
with incrementally higher EBITDA margin;
•Higher number of new store openings and assignments
during 2007 and 2008;
•Fixed costs, predominantely finance and administration
costs, as a proportion of total costs declined, boosting
marginal gains from increases in revenue.
Lenard’s Holdings Pty Ltd had a carrying value of $8.2m for
its investments in Lenard’s Pty Ltd as at 24 June 2007.
From FY1997 to FY2007, Lenard’s franchise network
revenue has grown at a cumulative annual growth rate
(CAGR) of 5.5%. FY2008 through to FY2012 has forecast
franchise network revenue growth of approximately
5.7% per annum.
Master franchise revenue streams for Victoria, South
Australia and Western Australia have been included in
the forecasts from FY2009 onwards. Approximately 11
additional operational and field staff have been included in
the forecasts from FY2009 onwards. Incremental staff are
based in the state acquired as part of the master franchise
buyback. In addition, the appointment of a general manager
for the Southern Region has also been factored into the
forecasts.
Moderate Stand-Alone store growth has been forecast
with a net increase of 17 stores over the 5 year period
to FY2012. A solid increase in supermarket stores has
been forecast with an incremental 55 supermarket stores
to be opened in the next 5 years. Lenard’s have targeted
supermarket store rollouts as a key growth driver going
forward given the current momentum of store openings
and the 20% revenue growth per store between FY2007
and year to date FY2008.
Lenard’s Extra, the company owned store strategy, is
forecast to grow from 1 pilot store in The Gap, Brisbane as
at June 2008 to 17 stores by FY2012. Average revenue
per store is forecast to be $1,820,000 per annum or
$35,000 per week with a 3% per annum growth rate.
EBITDA margin, prior to Head Office overheads, is forecast
to be 9% to 10%.
The opening of a Lenard’s Extra store at The Gap is a
pilot to enable testing of the concept with consumers
and to refine the offering and strategy. Forecast financial
performance of this pilot has been conservative with
opportunity for margin improvement from continued
rollout and achievement of scale benefits associated with
centralisation of production facilities (Commissary).
12
Lenard’s Investment Trust
Key Revenue and Expense Assumptions
June 06 June 07 June 08 June 09 June 10 June 11 June 12
Lenard’s Pty Ltd
Franchise Network Revenue ($’m)
139.7
141.5
145.1
148.3
158.0
172.1
186.9
Growth %
-2.1%
1.3%
2.5%
2.2%
6.6%
8.9%
8.6%
Stand-Alone
167
161
155
158
162
167
172
Supermarket
16
20
25
32
46
66
80
183
181
180
190
208
233
252
Average Revenue per Stand-alone store ($’000s)
829.7
848.6
857.1
865.7
874.4
883.1
Growth %
2.3%
1.0%
1.0%
1.0%
1.0%
Average Revenue per Supermarket ($’000s)
397.0
490.4
495.3
500.3
505.3
510.3
Growth %
23.5%
1.0%
1.0%
1.0%
1.0%
Lenard’s Extra Revenue ($’m)
0.0
2.8
6.8
15.9
28.7
Number of Stores
1
2
5
11
17
Average Revenue per store ($’000s)
1,820.0
1,874.6
1,930.8
1,988.8
2,048.4
Growth %
3%
3%
3%
3%
Number of Stores
Number of Franchise Stores
Lenard’s Extra
Head Count
Head Office
45.0
46.0
48.0
48.0
48.0
48.0
Master Buyback (Regional Staff – May 2008)
-
2.0
11.0
11.0
11.0
11.0
Lenard’s Extra
-
2.0
2.0
3.0
4.0
5.0
Total Head Count
45.0
50.0
61.0
62.0
63.0
64.0
Total Direct Labour Cost (including on-costs) ($’000s)
4,516
5,577
5,805
6,218
6,394
Lenard’s Information Memorandum
13
Key Assumptions
Revenue per StoreFranchised stand-alone store revenue per annum is forecast to be $848,600 increasing
at 1.0% per annum.
Franchised supermarket store revenue per annum is forecast to be $490,400 increasing
at 1.0% per annum.
Lenard’s Extra stores are forecast to have revenue of $1,820,000 per annum
(approximately $35,000 per week).
Franchise RoyaltiesLenard’s receives a franchise royalty of 4% of franchise network revenue. This franchise
royalty is split with the master franchisee at a rate of 2.0% to 2.5% with Lenard’s
receiving 1.5% to 2.0%. Upon successful completion of the master franchise buyback,
Lenard’s will receive the entire 4% franchise fee.
Marketing LevyLenard’s receives a 3% Marketing Levy to deliver marketing campaigns and services
across the franchise network.
ChargebackLenard’s acts as a central buying group for the franchise store network and is paid
5c per kg of whole birds for the provision of this service.
New Store Openings, Lenard’s charges a $50,000 Franchise Fee to open a new store and receives between
Renewals and Assignments $10,000 to $25,000 for renewals and assignments.
Supermarket stores are charged a franchise fee of $25,000 and assignment renewal
fee of $10,000.
Lenard’s ExtraCost of goods sold or direct costs are assumed to be 55% in FY2008 rising to 60%
by FY2010 to incorporate direct costs of the commissary facilities.
Indirect costs are forecast to include labour (15% of revenue reducing to 14% of revenue
from FY2010 due to commencement of commissary facilities), rent (6% of revenue),
marketing (5% of revenue) and other overheads including utilities and insurance
(5% of revenue).
Central administration costs have been forecast to be $10,000 per annum per store
and an average ratio of 1 head office staff member for every incremental Lenard’s Extra
6 stores.
Training and Lenard’s earns incremental revenue from the provision of various training and network
Network Supportsupport activities including rental management, IT Help Desk and sale of training material
to new and existing franchisees.
Salaries and Wages Salaries and wages for staff are forecast to increase at a rate of 2.5% per annum from
FY2009 onwards.
Cost Saving CostsThe business case has targeted $250,000 of labour and administration cost savings per
year for FY2009 and FY2010.
Working Capital Facilities
14
Lenard’s Information Memorandum
Lenard’s Group Holdings Pty Ltd currently has two facilities with Westpac bank for a total
of $2,760,000. As at 31 March 2008, $1,723,000 of this facility had been drawn down.
Capital Expenditure The business is forecast to have maintenance capital expenditure of $150,000
and Depreciationper annum.
Capital expenditure for Lenard’s Extra is forecast to be $500,000 in FY2008, $300,000
in FY2009 and $1,650,000 in FY2010. New store capital expenditure is forecast to be
$300,000 per store. Capital expenditure for a centralised production facility is forecast to
cost $750,000 per facility. The first of these facilities is forecast to be built in FY2010 and
funded out of operational cashflows.
Forecast straight line depreciation rate for Lenard’s Extra capital expenditure of
10% per annum.
Dividend PolicyThe dividend payout policy in FY2008 and FY2009 is 0%. Subject to Board approval,
it is forecast to be 50% payout of Net Profit after Tax (NPAT) from FY2010 onwards.
Lenard’s NZLenard’s signed a Licence Agreement in February 2006 with the 150 store Progressive
Supermarket group in New Zealand. There are currently 39 serve over counters selling
a limited range of Lenard’s products and a further 26 stores that sell a range of tray pack
Lenard’s branded product produced in a centralised processing facility.
The fee structure with Progressive Supermarkets is for a royalty fee of 5% of gross sales.
The Initial licence agreement will be for a period of 5 years from February 2006.
Master Franchise BuybackThe master franchise buybacks for NSW Country ($450,000) and Western Australia
($950,000) have been completed in FY2008. Victoria ($2,100,000) and South Australia
($1,100,000) are forecast to occur in FY2009 post the capital injection of $3,000,000.
Lenard’s Information Memorandum
15
steven reibelt
mark sowerby
robertson brooks
blue sky private equity
bspe
Robertson Brooks
Mark Sowerby
Rob provides Blue Sky Private Equity with a strong
combination of analytical and commercial skills through
his extensive background across corporate Australia.
Rob has held management and analytical roles with
PricewaterhouseCoopers, Telstra Corporation, SKYCITY
Entertainment Group, mhm Corporate Finance, and Elders
Rural Bank.
Mark is the entrepreneurial drive behind Blue Sky with
a strong track record in business turnaround and new
venture development. Mark’s primary skills lie in opportunity
recognition, strategic direction and project delivery.
Rob’s primary role within the Blue Sky Private Equity team
includes acquisition and divestment projects including
valuation and financing, strategic planning, opportunity
recognition, investment monitoring and reporting, market
research, feasibility studies, and development of investment
products.
Rob’s diverse background provides an enviable platform
of knowledge and experience for Blue Sky Private
Equity, delivering complementary strengths and industry
understanding to the Blue Sky team.
Rob’s academic qualifications include a Bachelor of Laws
and Bachelor of Commerce (Honours) from the University
of Queensland, and a Graduate Diploma of Applied Finance
and Investment from FINSIA.
Most importantly, he has a demonstrated ability to
recognise talented management and put together effective,
productive, and motivated teams to deliver commercial
outcomes.
Mark has a Bachelor of Agricultural Science, Graduate
Diploma in Applied Finance and Investment, and Masters of
Business Administration. He is a Member of Finsia and the
AICD, and has completed the Private Equity and Venture
Capital course at Harvard Business School.
Steven Reibelt
Steven is the Finance Director of the Blue Sky Private
Equity Group and is responsible for the funding and
financial management of the Group. Steven is a Chartered
Accountant and brings over 20 years experience in senior
financial management, risk management, accounting and
corporate governance to the firm.
Steven gained his accounting qualifications with various
Chartered Accounting firms both in Australia and the United
Kingdom. He has a Masters of Business Administration, a
Bachelor of Business Degree and a Graduate Diploma in
Applied Finance and Investment.
Steven is a member of the Institute of Chartered
Accountants in Australia and a fellow of the Financial
Services Institute of Australia.
16
Lenard’s Information Memorandum
board and senior management
Terry Mackenroth
Lenard Poulter
Non-Executive Director & Chairman Elect
Founding Director
Terry Mackenroth was appointed to Lenard’s Board of
Directors on 29 May 2007. Terry is a former Queensland
Member of Parliament, serving almost 28 years with a
notable parliamentary service history and a number of
ministerial roles, including Treasurer and Deputy Premier.
Terry is a Director of property development company
Devine Limited. He is also Chairman of the Gold Coast Indy
and Director of the Queensland Rugby League.
Lenard Poulter is the founder of the Lenard’s concept and
is recognised throughout the fresh food industry for his
contribution to innovative retailing in Australia, recently being
inducted in the Franchising Hall of Fame. With more than
30 years experience in the industry, Lenard has directed his
knowledge and hands-on retailing and management skills
to the development of the concepts which underpin
Lenard’s success.
Paul Lange
Chief Operating Officer
Bruce Myers
Executive Director & Chief Executive Officer
Bruce joined Lenard’s in 1998 with more than fifteen years
of experience in senior management positions in finance
and general management with Defiance Mills Ltd. Bruce’s
hard work and dedication to Lenard’s earned him the role
of Lenard’s First Chief Executive Officer in 2000, and most
recently his appointment to Lenard’s Board of Directors.
Paul joined Lenard’s in 2002 as the Chief Operating
officer of the Lenard’s system and is in charge of all the
operational aspects of the business including training,
quality assurance, procurement and manuals. Paul is an
experienced franchising executive with 11 years experience
in managing franchisee relationships. Paul started his
franchising career with Eagle Boys as an area manager
and then moved on to be Queensland State Manager for
Bakers Delight.
Alan Bates
Legal Counsel
Alan is an experienced franchise and corporate lawyer
having worked in the franchising industry for Eagle Boys
and as a Corporate Lawyer with Energex. Alan joined
Lenard’s in November 2003 and contributes to the
leadership team with solid commercial and strategic
judgement as well as legal advice.
Lenard’s Information Memorandum
17
Organisation Chart – Lenard’s
Lenard’s is structured around function departments reporting to various leadership team members.
The business currently employs 47 full-time staff across the following departments.
Board
Chief Executive Officer | Bruce Myers
18
Chief
Operating
Officer
General
Manager
Eastern
Region
Legal
Counsel
Acting
Financial
Controller
Marketing
Manager
IT
Manager
Product
Manager
Lenard’s
Extra
Paul
Lange
Glenn
Walford
Alan
Bates
David
Doxey
Carla
Anderson
Ian
Taylor
Jennifer
Ross
Peter
Talbot
Department
Primary Function
Executive
Strategic direction and management of Lenard’s
2
Operations
National Operations
Training
Procurement
Quality Assurance / Food Safety
9
Company Owned Stores (Eastern Region)
North and South East Queensland
Gold Coast
Sydney and Northern NSW
7
Supermarket Development
1
Finance
Accounting and Administration
Charge-back System
7
IT
National Office IT Systems
Store EPOS System
5
Marketing
Marketing
Brand Development
Promotions
Public Relations
9
Legal
Legal
Leasing
3
Product Development
New Product Development
2
Lenard’s Extra
Lenard’s Extra Pilot and Rollout
2
Total
Supermarkets
Lenard’s Information Memorandum
No People
47
deal structure and key terms
Blue Sky Private Equity is seeking to
raise $4.99 million to subscribe for
Preference Shares in Lenard’s Group
Holdings Pty Ltd.
The equity investment is structured over two tranches
as follows:
•$3,330,000 for 30% of the business payable by
23 June 2008;
•$1,660,000 for 10.8% of the business payable by
30 June 2010;
A new entity, Lenard’s Group Holdings Pty Ltd, will be the
ultimate holding company of Lenard’s Pty Ltd (operator of
the Lenard’s franchise retail system) and Lenard’s Extra Pty
Ltd. Prior to Blue Sky’s investment, existing shareholders
of Lenard’s Holdings Pty Ltd will execute a script for script
roll-over of their shareholdings into Lenard’s Group Holdings
Pty Ltd. Blue Sky has a condition precedent that it must
be satisfied with this script for script roll-over prior to its
investment.
•On a fully dilluted basis this will result in BSPE having
a 37.6% post money shareholding in Lenard’s Group
Holdings Pty Ltd.
The diagram below outlines the shareholders and ownership
of Lenard’s Group Holding Pty Ltd subsequent to the
subscription of 292,779 Preference Shares by BSPE
Lenard’s Investment Trust for $3,000,000 (excluding
transaction costs). Total shares on issue will be 683,152
Ordinary Shares and 292,779 Preference Shares.
Blue Sky
Private Equity Ltd
(Trustee)
Shareholding Structure Post Equity Injection
LSRK Pty Ltd atf
Poulter Family Trust
50.4%
552,092
Ordinary Shares
Bruce Andrew
Myers
5.3%
58,030
Ordinary Shares
Paul Lange
3.9%
43,030
Ordinary Shares
Employee Share
Options Scheme
2.7%
30,000
Ordinary Shares
BSPE Lenard’s
Investment Trust
37.6%
411,520
Preference Shares
Lenard’s
Group Holdings
Pty Ltd
100%
Lenard’s Extra
Pty Ltd
100%
Lenard’s
Pty Ltd
and Subsidiaries
Lenard’s Information Memorandum
19
It is currently proposed that the funding of the second
tranche be financed via debt raised from a financial
institution. Blue Sky will use best endeavours to secure
this funding, however if the debt funding is not secured,
Blue Sky will be required to call on BSPE Lenard’s
Investment Trust unitholders to subscribe for further units on
a pro rata basis in the trust to complete payment of the
second tranche.
Ratchet Clause
Notice of a Unitholder call will be made no later than
60 business days prior to the date of payment.
Upon payment of the second tranche the BSPE
Lenard’s Investment Trust will have subscribed for 37.6%
of the share capital of Lenard’s Group Holdings Pty Ltd.
2The Earnings Before Interest and Tax (Ratchet EBIT)
of Lenard’s following the first anniversary of the
subscription of capital (‘Base Year’) must not be
less than:
Following completion of the second tranche, total shares on
issue will be 683,152 Ordinary Shares (including employee
share options) and 411,520 Preference Shares.
Unitholders will, on receipt and approval of the attached
Application Form, become Applicants in the Unit Trust
and entitled to benefits under the BSPE Lenard’s
Investment Trust Deed.
Ratchet Downside Protection
for Blue Sky Investors
A ratchet clause is a structure whereby the eventual equity
allocations between Lenard’s and Blue Sky shareholders
depends on the future performance of the company, in this
case EBIT. In this case, if the Lenard’s financial performance
falls below a benchmark then Blue Sky shareholders are
allocated additional Preference Shares. If the return to the
Unit Trust is greater than a benchmark pre-tax IRR, Lenard’s
management will receive additional Ordinary Shares
upon exit.
20
Lenard’s Information Memorandum
As conditions subsequent to Blue Sky subscription
of capital:
1The turnover of Lenard’s on the first anniversary
following the subscription of capital (‘Base Year’)
must not be less than the Base Year Turnover; and
(1)$1,000,000 for the financial year ending June 30,
2009;
(2)$1,250,000 for the financial year ending June 30,
2010; and
(3)$1,500,000 for the financial year ending June 30,
2011.
3For calculation of the Ratchet EBIT as at June 30, 2009,
June 30, 2010 and June 30, 2011, the following factors
will be excluded from the calculation:
(1)the write-off of the master franchise buybacks; and
(2)losses in respect of new company stores acquired
as a result of any master franchise buybacks for a
period of 1 year from the acquisition of the relevant
store.
4If Lenard’s fails to achieve the benchmarks in
Clause 1 and 2 of this Ratchet Clause, Lenard’s must
allot further shares to BSPE, at no cost to BSPE, to
take BSPE’s shareholding in Lenard’s to 50% post
further allotment.
5If prior to June 30, 2012, there is the occurrence
of a trade sale, IPO or other liquidity event, and
BSPE achieves a pre tax internal rate of return on its
investment in Lenard’s of at least 30% Blue Sky will
authorise the issue of additional shares to the precapital injection shareholders in proportion to their
shareholdings. The issue of shares will be equal to
$500,000 of the post-capital injection equity capital
proposed in this Transaction.
Acquisition Multiples
A$’000s
Forecast EBITDA
Add Backs
Directors Expenses
Lenard’s Extra
Normalised FY08 EBITDA
FY08
A$’000s
FY09
948
Forecast EBITDA
1,248
Add
138
WA Master Franchise
162
Less
1,248
Lenard’s Extra
Normalised FY09 EBITDA
Enterprise Value
Net Debt – Forecast
Equity Value
FY09 EV/EBITDA Multiple
4.9x
FY08 EV/EBITDA Multiple
6.0x
The table above provides an indication of the implied
historical and forecast acquisition multiple for Lenard’s
Group Holdings Pty Ltd on an EV/EBITDA basis. The
FY2009 EBITDA has been calculated on a pre capital
injection basis based on current operational performance of
Lenard’s including the incremental 9 months of EBITDA of
the Western Australian master franchise acquired in
April 2008.
358
(88)
1,518
7,505.3
(505.3)
7,000.0
Source and Application of Funds
Source
Application
BSPE Investors
$3,330,000
Preference Shares (23 June 2008)
$3,000,000
Debt or BSPE Investors
$1,660,000
Preference Shares (30 June 2010)
$1,660,000
Establishment Fee
Legal and Due Diligence Costs
Project Management Fee
Marketing and IM Production
$15,000
Accounting and Insurance
$10,000
Total
Total
$4,990,000
It is the intention of Blue Sky to seek bank finance for
the BSPE Lenard’s Investment Trust to fund payment of
$1,660,000, being the second tranche of expansion capital.
Subject to Lenard’s Board approval, it is currently forecast
that a 50% dividend payout policy be implemented from
June 2010 onwards.
$150,000
$35,000
$120,000
$4,990,000
Forecast dividends upon adoption of a payout ratio of
50% of Net Profit After Tax (NPAT) indicate the BSPE
Lenard’s Investment Trust will have sufficient cashflows to
meet financing costs. In the event that the financing is not
secured or a 50% dividend payout policy is not adopted,
a call will be required on existing BSPE Lenard’s Investment
Trust Unitholders to fund the payment of the second
tranche of $1,660,000.
Lenard’s Information Memorandum
21
fees and exit scenarios
Below is an outline of fees and costs
payable to Blue Sky and other
transaction-related costs.
Applicants should read the information below about fees
and costs because it is important to understand their
impact on the Project.
Blue Sky Investors to subscribe for 37.6% of the share
capital for $4,990,000 including transaction costs and fees:
•$3,330,000 payment for 30% of the share capital to be
subscribed as Preference Shares on 23 June, 2008;
•$1,660,000 payment for an additional 10.8% of the
share capital to be subscribed as Preference Shares by
30 June 2010.
Transaction Fees
Payable to Blue Sky Private Equity to cover third party
costs for establishment of the Project (including legal costs,
due diligence costs and costs of producing this IM).
These fees include:
Legal Fees
$35,000
Marketing and Information Memorandum $15,000
Accountants and Insurance
$10,000
Establishment Fees
Payable to Blue Sky Private Equity for establishment of the
Project and investment structure. Total payable is $150,000
and includes all work for execution of the transaction to the
end June 2008.
Performance Fee
Payable to Blue Sky Private Equity only in the event pre tax
project IRR is above 15%. This fee will be 20% of total
pre tax Project IRR above 15%. This fee is payable on a
liquidity event.
Investment Returns and
Exit Scenarios
The primary exit goal is to achieve an IPO with a motivated
founder looking to exit to maximise his wealth. BSPE and
existing Lenard’s shareholders are in alignment on a 5 year
exit horizon with an IPO or trade sale. Potential trade sale
parties are listed franchise groups such as Retail Food
Group or Allied Brands. There are also opportunities for a
trade sale with suppliers seeking to vertically integrate a
retail distribution channel.
Forecast Exit Multiple and
Transaction
Forecast Exit Multiple and Equity Value
EBITDA
EV / EBITDA Multiple
Enterprise Value
Add Cash
Equity Value – 100%
33,307
BSPE Unitholders Equity Interest %1
36.0%
Equity Value – BSPE Unitholders
Shareholding
Project Management Fee
Fee to cover Blue Sky Private Equity Management
assistance required over the first 2 years. This fee shall be
2% of the deployed capital (being $3,000,000) payable
quarterly in advance from July 2008 until end
June 2010 – $120,000.
22
Lenard’s Information Memorandum
June 12
BSPE Performance Fee
Equity Value – BSPE Unitholders
Shareholding post Performance Fee
5,453
6.0x
32,718
588
11,987
(793)
11,193
Forecasts indicate that the Pre-tax IRR on the Project will
be greater than 30%. If such a return is generated, the
Lenard’s existing shareholder ratchet will be triggered.
This ratchet involves the issue of $500,000 of ordinary
shares at the entry price of the BSPE Lenard’s Investment
Trust to Lenard’s existing shareholders. Please refer to
clause 5 of the ratchet section on Page 20 for further
details. The triggering of this ratchet results in a 1.6%
dilution of BSPE Lenard’s Investment Trust.
The investment returns and potential returns to an investor are based on two funding scenarios outlined below:
1 Equity funded for first and second tranche
2Equity funded for first tranche and debt funded for second tranche
Equity Funding for First and Second Tranche
All Equity Funded
June 08
June 09
June 10
June 11
June 12
Equity
(3,330)
(1,660)
Dividends (50% Dividend Policy)
347
433
549
Forecast Equity Value (Post BSPE Performance Fee)
11,193
Returns to Investors
11,742
(3,330)
IRR (pre-tax)
32%
Times Money
2.8 x
-
(1,313)
433
Assumptions for equity funded Tranches:
•50% Dividend payout policy;
•2nd Tranche paid on the 30 June 2010.
Equity Funding for First Tranche and Debt Funding for Second Tranche
Equity and Debt Funded
June 08
June 09
June 10
June 11
June 12
Equity – 1st Tranche
Debt – 2nd Tranche
(1,660)
Interest of Debt (After Tax)
(116)
(116)
Dividends (50% Dividend Policy)
433
549
Forecast Equity Value (Post BSPE Performance Fee)
11,193
Repayment of Debt
(1,660)
Return to Investors
(3,330)
10%
(3,330)
IRR (pre-tax)
35%
Times Money
3.2 x
-
347
347
316
9,966
The assumptions for potential returns for a debt funded Second Tranche are as follows:
•50% Dividend payout policy;
•2nd Tranche paid on the 30 June 2010;
•Interest rate on debt of 10% per annum;
•Interest paid annually in arrears;
•Tax rate of 30%.
Lenard’s Information Memorandum
23
board composition
The Blue Sky nominee directors for the Lenard’s
Group Holdings Pty Ltd will be:
Stephen Giles
Immediate past Chairman of the
Franchise Council of Australia
Board Composition and
Blue Sky Nominee Directors
The Board of Lenard’s Group Holdings Pty Ltd will consist
of 5 Directors. Blue Sky is entitled to appoint two nominee
directors to the Board of Lenard’s Group Holdings Pty Ltd.
Lenard Poulter and Bruce Myers are the initial Lenard’s
appointed Directors. An independent Chairman shall be
appointed with the consent of all shareholders and subject
to annual review. Terry Mackenroth has been approached
to be the independent Chairman.
Stephen Giles is recognised in the International Who’s Who
of Franchising Lawyers as Australia’s leading franchising
lawyer. He is a partner with national law firm Deacons
practising in franchising, trade practices and commercial
law, and heads Deacons’ Retail Trade & Distribution Group.
He has a wealth of industry knowledge and contacts
in Australia and internationally built during his 25 year
involvement in the franchise sector. This involvement
has included over 10 years on the national board of the
Franchise Council of Australia, with 6 years as chairman.
Stephen’s appointment as a Director remain subject to
Deacons Lawyers approval.
Mark Sowerby
Managing Director of Blue Sky Private Equity
Mark is Managing Director of Blue Sky Private Equity
Limited and his credentials are outlined in the
Blue Sky Private Equity section.
24
Lenard’s Information Memorandum
overview of key documents
Executive Services Agreement
Lenard Poulter will enter into a formal employment
agreement with the Company under which the terms and
conditions of his employment and specific responsibilities
in relation to the Company will be detailed. This agreement
will run for a period of 3 years.
Loans
Make any loan or advance not included in the Business
Plan or give any guarantee or indemnity in respect of the
obligations of any other person, except in the ordinary
course of business.
Encumbrances
The agreements contain a restrictive covenant which
operates for a period of up to 24 months following the
end of this agreement.
Create any mortgage, charge, pledge or other
encumbrance that is not included in the Business Plan
over an asset or undertaking.
A copy of the Agreement may be obtained from
Blue Sky.
Securities
Share Subscription Agreement
Issue or allot or grant any right to issue or allot equity
securities, except out of an employee share plan or as
contemplated by this Agreement, or undertake any form
of capital reduction or share buyback.
This document contains the terms and conditions by which
Blue Sky, on behalf of the BSPE Lenard’s Investment
Trust agrees to purchase a 37.6% shareholding in
Lenard’s Group Holdings Pty Ltd. It contains the usual and
customary terms and warranties expected in an agreement
such as this. The documents also govern the management
and administration of Lenard’s Group Holdings Pty Ltd and
its subsidiaries, as well as dealings with shareholdings in
the Company.
Reorganisation Event
Significantly the Blue Sky directors must approve the
following items of business:
•not on arm’s length terms or with a related or
associated party;
Acquisitions and Disposals
•having a term or duration of more than 3 years,
other than in the ordinary course of business.
Undertake a trade sale or the acquisition or disposal of
any operations by the Company.
Related Party Transactions
Master Franchise Buyback
Any decision to approve or proceed with the buyback of
any remaining master franchise arrangements given they
will have a material impact on the business and use of
funds from the BSPE investment.
Winding Up
Take a step to dissolve or wind up the Company or
otherwise reorganise its share capital.
Listing
Apply to a stock exchange for a listing or for quotation of
any shares or appoint an underwriter in relation to an IPO,
or both.
Guarantee
Give or enter into any guarantee, letter of comfort or
performance bond, otherwise than in the ordinary course
of business.
Undertake or undergo a corporate reorganisation.
Contracts
Enter into, vary or terminate any contract which is:
•unusual or abnormal;
•loss making;
Enter into, vary or terminate a contract with a Shareholder
or a related party of a Shareholder or any contract in which
any such person is interested.
Employee Shares
Issue or grant any employee shares, except under an
employee share plan, to the extent it dilutes equity.
Partnerships and Joint Ventures
Enter into, amend or vary a partnership or joint venture.
Financial Assistance
Give a loan or other financial assistance to a Director or an
associate of a Director or vary the terms of a loan or other
financial assistance previously given to a Director or an
associate of a Director.
Change in Nature of Business
Stop to carry on, or materially alter the scale of operations
of the Company, or commence any material business
or operational activities other than the current business
operations of the Company.
Lenard’s Information Memorandum
25
Transaction Document
Terminate, amend, vary, assign, novate, enforce or waive a
right under any Transaction Document, or agree to do any
of those things.
The Trust Deed establishes:
•the rights attaching to Units;
Finance and Operating Leases
•the income entitlement of Unitholders;
Enter into any finance or operating lease, the value of which
in any Financial Year exceeds by more than $200,000 the
amount approved under the Business Plan.
•voting rights of Unitholders and meeting processes;
Capital Expenditure
Incur capital expenditure, the total of which in a Financial
Year exceeds by more than $200,000 the amount
approved under the Business Plan.
Assets
Acquire or dispose of any asset (either tangible or
intangible) having a book value of more than $100,000,
except as approved under the Business Plan.
Intellectual Property
Dispose of any interest in any intellectual property, except
in the ordinary and proper course of business.
Company Dividend Policy
Declare or pay out any dividend of the Company in
accordance with the Company Dividend Policy.
A copy of the Share Subscription and Shareholder
Agreement may be obtained from Blue Sky.
Key Terms of Preference Shares
1The shares represent preferred equity with full voting
rights.
2The Shares will have a preferential dividend paid prior to
dividends for ordinary shares.
3Subject to the terms of the agreed company dividend
policy, the shares will rank ahead of ordinary shares
with respect of all distributions including those on
a winding up or payments on a trade sale, IPO or
other liquidity event, but behind senior debt and any
mezzanine finance.
4The holders of the shares have an absolute discretion
to convert into the ordinary equity of the Company:
26
Trust Deed
(a)on trade sale of the business assets, flotation or
any other liquidity event; or
(b)after the fifth anniversary of the completion date in
respect of the shares.
Lenard’s Information Memorandum
•process by which Units may be transferred;
•how the Trust should be administered; and
•the Trustee’s powers and other ancillary matters.
A copy of the Trust Deed may be obtained from
Blue Sky.
Taxation Considerations
This is not a tax driven project. Therefore the targeted
rate of returns represents the Project’s position before tax.
Unitholders should seek their own advice as to the taxation
consequences of this Project for them.
project risks
You should consider carefully the
risks detailed below before making an
application to participate in the Project.
We have considered the risks associated with this Project
and have developed mitigation strategies where applicable.
Investors should be aware that the return of capital and
projected return on investment will be influenced by a
number of factors, some of which may be outside the
control of Blue Sky. As a result of these risks, no guarantee
is or can be given by Blue Sky or by any person involved
with the proposed investment that Investors will either
receive the return of their investment, or that returns will
be similar to those discussed in or anticipated in this
Information Memorandum.
This section sets out a number of risk factors associated
with the investment, the Business and generally related
to an investment of this nature. They are not exhaustive
and potential Investors should read the contents of this
Information Memorandum in its entirety prior to applying
for Units in the Trust.
Operational Risks
The Business may not perform to the levels expected and
as projected in this IM. This could temporarily affect the
viability of the Business.
Changes in Taxation Legislation
Changes to Australian taxation legislation may affect the
after tax return to Unitholders. Any such changes are
beyond the scope of this IM. Blue Sky cannot comment
on these risks.
Prior to applying for Units in the Trust, potential applicants
should seek independent advice in relation to their own
individual tax position.
Investors should be aware that any future change in
Australian tax law, including changes in interpretation or
application of the law by the courts or taxation authorities
of Australia, may affect the taxation treatment of the
acquisition, holding income received from or disposal
of Units in the Trust.
Uncontrolled Event
The Business can be excused from performing its
obligations if it is prevented from doing so due to
circumstances beyond its reasonable control (other
than financial circumstances arising from a breach of its
obligations). Blue Sky will try to remedy and avoid any
such circumstances.
Liquidity
There is no guarantee that another Member will purchase
a Member’s Units if offered for sale. If a Member cannot
sell its Units to another Member, it may be difficult to sell its
Units at all.
Financing Risk for
Second Tranche
Blue Sky will actively source and use best endeavours to
secure financing for the payment of the second tranche
of $1,660,000 payable by 30 June 2010. In the event that
bank finance cannot be obtained, a call will be required
on existing BSPE Lenard’s Investment Trust Unitholders
to fund this investment.
Current Competition
Competing businesses may adversely affect the Business.
This may have a materially adverse affect on Project returns
and consequently the returns anticipated to be provided
to Investors under this Information Memorandum. The
introduction of new competitors or a more aggressive
competitive response from existing participants may affect
the operating performance of the Business.
There is no assurance that the Company will be able to
compete successfully in its marketplace and any increase
in competition could adversely affect the earnings of the
Company.
Insurance
Various factors may lead to increased insurance premiums
or in some instances policies of insurance may not cover
all insurable risk associated with the Business. This may
have a materially negative impact on the Business and
a materially negative effect on the anticipated returns
disclosed in this Information Memorandum.
Lenard’s Information Memorandum
27
Due Diligence Risk
Due diligence investigations have been conducted in
relation to the Business. This has included, among other
things, a review of material documents and contracts.
However, there can be no assurance that this due diligence
has identified or is capable of identifying all material risks
regarding the Business.
Economic Conditions
There is a risk of a change in economic conditions such as
interest rates, government legislation, fiscal and monetary
policy, currency fluctuations, inflation or employment levels
and this may have an impact on the marketability of the
Business. Economic conditions may also be impacted
by other local or international events such as major share
market fluctuations and terrorist acts.
Government Legislation
There is a possibility that adverse consequences may
arise for Investors because of amendments to statutes
and regulations affecting this style of investment. The law
may be changed during the term of the investment, or new
decisions or determinations may alter the way in which the
law is generally interpreted.
There is also a possibility of amendments to statutes and
regulations affecting the operations of the Business which
may have a materially adverse effect.
Additional Financing
Requirements
Blue Sky expects that the proceeds of the Offer will provide
sufficient capital resources to enable the Business to
achieve its initial business objectives. However, Blue Sky
can give no assurances that such objectives will in fact be
met without future borrowings or further capital raisings
and if such borrowings or capital raisings are required, that
they can be obtained on terms favourable to the Company.
Unforeseen Expenditure Risk
Expenditure may need to be incurred that has not been
taken into account in the preparation of this IM. Although
Blue Sky is not aware of any such additional expenditure
requirements, if such expenditure is subsequently incurred,
this may adversely affect the expenditure proposals of the
Business.
Risk Management
Blue Sky has attempted to address all the risks associated
with the Business as well as possible. Well developed
management strategies are in place. However outside
influences, such as stock market performance, retirement
trends and changes to government policies such as
taxation will remain.
Liabilities of Unitholders
Key Personnel and Management
The success of the Business will, to a large extent, be
dependent on the ability and experience of its Directors,
executive management and key employees. The Company
has put in place strategies that it feels will allow it to
effectively lock in key personnel for at least the next
several years.
Operating Cost Risk
Operating costs are based on previous Business
experience, however a variety of other factors outside of
the Company’s control may increase the operational costs
of the Business.
28
Lenard’s Information Memorandum
The liability of the Unitholders is limited to making the
initial capital contribution. Unless the Unitholders agree to
contribute further capital, the Unitholders are not required
to meet any shortfall in revenue.
offer
Blue Sky is seeking to raise a maximum of $4,990,000 for
an investment in Lenard’s Group Holdings Pty Ltd in two
tranches. The first tranche is for $3,330,000 payable by
23 June 2006 and the second tranche is for $1,660,000
payable by 30 June 2010.
You are invited to subscribe for Units in the Trust.
• Each Unit in the Trust will be fully paid to $1.00.
• The minimum subscription is 10,000 Units.
The process by which you may apply to participate in this
Project is set out on page 31 (Application Form).
The minimum application is for $10,000.
Blue Sky will give preference to applications for Units of
$200,000 or more, and to applications accompanied by
the Wholesale Investor Certificate.
Blue Sky may ‘scale back’ or reject any application at its
own discretion if the offer is oversubscribed.
Please complete the Application Form on page 31 if you
wish to offer to subscribe to this Project.
glossary
‘Approved Recipients’
Means those persons to whom this IM was given by
Blue Sky
‘ATO’
Means the Australian Taxation Office
‘Blue Sky’
Means Blue Sky Private Equity Ltd as trustee for the
BSPE Lenard’s Investment Trust
‘Business’
Means the Lenard’s Business
‘Company’
Means Lenard’s Group Holdings Pty Ltd
Application Form
‘Directors’
Investors should apply for Units in the Unit Trust by
following the instructions and completing the Application
Form attached to this Information Memorandum.
‘IM’
This Application Form needs to be signed by all parties
who wish to apply. Joint applicants will need to state
whether they wish to purchase as joint tenants or tenants
in common. In the absence of any such statement joint
applicants will be deemed to be tenants in common.
Means the current directors of Blue Sky
Means this Information Memorandum
‘Lenard’s’
Means the specialty value added poultry retail system
operated in Australia and New Zealand by Lenard’s
Pty Ltd
Tenants in common will be deemed to be in equal shares
unless the contrary is stated.
‘Project’
If the Application Form is signed under Power of Attorney,
the Attorney certifies that he or she has not received notice
of a revocation of that power and undertakes to produce
the Power of Attorney (or a certified copy of it) if requested.
A Company will need to execute under seal or by an
authorised representative. Applicants are advised to seek
independent advice as to their legal and taxation position
and in relation to the value of the investment and interests
subject of this IM.
‘Trustee’
Means the business explained in Page 5 of this IM by
which the Trustee (on behalf of the Trust) will acquire
and own a shareholding in the Company carrying
on the business of Lenard’s and Lenard’s Extra
Means Blue Sky Private Equity Limited as trustee for
the BSPE Lenard’s Investment Trust
‘Unitholders’
Means the persons to whom the Trustee issues Units
Privacy Statement
Applicants for Units in the Unit Trust will be asked to
provide personal information to Blue Sky. Blue Sky collects,
holds and uses that personal information to assess the
Application and to service the needs of investors. Under
the Privacy Act 1988 (Cth) (as amended), investors may
request access to their own personal information held by or
on behalf of Blue Sky.
‘Units’
Means ordinary units in the Unit Trust
‘Unit Trust’
Means the BSPE Lenard’s Investment Trust
Lenard’s Information Memorandum
29
invest today
30
Lenard’s Information Memorandum
application form
BSPE Lenard’s Investment Trust
Application Amount
I/We apply to contribute
to the BSPE Lenard’s Investment Trust.
The minimum contribution is $10,000 for 10,000 ordinary units in the BSPE Lenard’s Investment Trust. Blue Sky may accept,
reject or scale back any offers. My/Our application is accompanied by my/our payment to insert details.
This may be made by cheque or by direct deposit to:
Account name
Blue Sky Private Equity Ltd – Trust Account
BSB
084-255
Account number
85-693-5559
Applicant
Applications must be in the names of natural persons, companies or other legal entities acceptable to Blue Sky. Applications
in the name of trusts or estates, businesses, firms, partnerships or other unincorporated bodies cannot be accepted.
However, applications in the names of persons who are trustees, proprietors, partners, and so on of those bodies will
be accepted.
Full Name (Please Print)
Title, given name(s) and surname, or company name
Designated account e.g. <Super Fund> (or Joint Applicant 2)
Postal Address (Please Print)
Street number
Street name
Suburb/Town
State
Postcode
Telephone numbers and email (Please Print)
Contact Name
Telephone number – business hours
Telephone number – mobile
Email address
Preferred means of written communication
Post
Email
Tax File Number
Lenard’s Information Memorandum
31
Application Terms
I/We acknowledge and warrant that Blue Sky has not
given me/us a disclosure document as defined by the
Corporations Act 2001 (Cth) and I/we have made a final
decision to invest on the basis of advice received by
me/us independent of Blue Sky, their employees, directors
and advisers.
I/We acknowledge that Blue Sky may accept, reject or
scale back any or all applications and that Blue Sky does
not intend to accept offers to subscribe for more than
$5,000,000.
I/We agree that this application is made upon and subject
to the terms of the Information Memorandum and declares
that all details and statements made are complete and
accurate.
I/We agree that this application is an irrevocable offer
to subscribe for ordinary units in the BSPE Lenard’s
Investment Trust.
I/We agree to be bound by the Trust Deed for the BSPE
Lenard’s Investment Trust and the Constitution for Blue Sky
Private Equity Limited, which are available for inspection
upon request.
Returning the completed Application Form with payment
of the application money will constitute my/our offer to
participate.
I/We acknowledge that priority will be given to those
applications which are accompanied by a certificate duly
completed in the form set out in page 33.
Payment must be in Australian currency and cheques must
be drawn on an Australian bank. Cheques or bank drafts
must be payable to ‘Blue Sky Private Equity Limited – Trust
Account’ and crossed ‘Not Negotiable’. Cheques not
properly drawn will be rejected. Cheques will generally be
deposited on the day of receipt. If cheques are dishonoured
the application may be rejected.
If Blue Sky accepts this application, all income earned from
the investment of the application money will be paid to the
Business. If Blue Sky rejects this application, all income
earned from the investment of the application money will
be paid to me/us.
Power of Attorney
I/We appoint the Trustee and each of its directors its
attorney to do anything necessary to complete, execute
and stamp the Unit Trust Deed for the BSPE Lenard’s
Investment Trust.
I/We agree to approve the acts of the attorney under this
Power of Attorney.
I/We agree and declare that this Power of Attorney is given
for valuable consideration and I/we will not revoke this
Power of Attorney.
I/We agree that any act under this Power of Attorney is
binding on me/us, and any person who deals with an
attorney in good faith may accept as true a statement
signed by the attorney that states that:
•an act of the attorney is a proper exercise of the powers
under this Power of Attorney; and/or
•this Power of Attorney has not been revoked.
I/We authorise the attorneys to exercise the powers under
this Power of Attorney even if this involves a conflict of duty
or the attorneys (or a person they know) have a personal
interest in the exercise of power.
Forward your completed
application to:
Blue Sky Private Equity Ltd
PO Box 999
New Farm QLD 4005
Applications must be received by no later
than 5.00 pm (EST) on 23 June 2008.
This offer may close early.
I/We have read the Information Memorandum carefully before completing this Application Form.
Signature Applicant #1
32
Lenard’s Information Memorandum
Signature Applicant #2
wholesale investor certificate
BSPE Lenard’s Investment Trust
Given pursuant to section 708(8) of the Corporations Act 2001 (Cth)
Accountant
Name
Address
Firm name
Professional body
Post nominals
CPA Australia
‘CPA’ or ‘FPCA’
Yes
Institute of Chartered Accountants
‘CA’, ‘ACA’ or ‘FCA’
Yes
National Institute of Accountants
‘MNIA’ or ‘FNIA’ Yes
I am a member of this professional body. I am entitled to use these post nominals.
I am subject to and comply with this body’s continuing professional educational requirements
Investor
Name
Address
I am of the opinion that the Investor has net assets of at least AU$2.5 million.
Yes
No
I am of the opinion that the Investor has had a gross income for each of the
last two financial years of at least AU$250,000 per annum.
Yes
No
Investment
Project name
BSPE Lenard’s Investment Trust
Offer document
Information Memorandum
Offer date
17 May 2008
Promoter name
Blue Sky Private Equity Limited ACN 125 223 958
Promoter address
130 Commercial Road, Teneriffe Qld 4005
Dated the
day of
2008
Signed
Lenard’s Information Memorandum
33
Brisbane | Gold Coast
Adelaide
contact BSPE
blue sky private equity
ABN 45 125 223 958
AFSL 314 177
Head Office
130 Commercial Road, Teneriffe Qld 4005
PO Box 999, New Farm Qld 4005
Fax 07 3852 2204
Email info@bspe.com.au
phone 07 3852 2240
www.bspe.com.au