COLLINS FOODS LIMITED
ACN 151 420 781
prospectus
Initial Public Offering of Ordinary Shares
Joint Lead Managers
This Prospectus
This Prospectus is dated 15 July 2011 and was lodged with the Australian Securities and Investments Commission (ASIC) on that date.
Neither ASIC nor ASX takes any responsibility for the contents of this Prospectus or the merits of the investment to which this Prospectus relates.
Refer to section 6.9 for further information.
This Prospectus is available to Australian and New Zealand investors in electronic form at www.collinsfg.com.au. The Offer constituted by this
Prospectus in electronic form is available only to persons within Australia or New Zealand. It is not available to persons in other jurisdictions (including
the United States or US Persons). Persons having received a copy of this Prospectus in its electronic form may, before the Closing Date of the Broker
Firm Offer, obtain a paper copy of this Prospectus (free of charge) by telephoning the Collins Foods Offer Information Line on 1800 622 202. If you
are eligible to participate in the Offer and are calling from outside Australia, you should call +61 2 8280 7694. Applications for Shares may only be
made on an Application Form attached to or accompanying this Prospectus, or in its paper copy form which may be downloaded in its entirety from
www.collinsfg.com.au. Refer to section 6.3.2 for further information.
Offer
The Offer contained in this Prospectus is an initial public offering by invitation of Collins Foods Limited of 80.7 million fully paid ordinary shares in
Collins Foods Limited (Shares) at $2.50 per Share. Refer to section 6 for further information.
Offeror
At the date of this Prospectus, Collins Foods Limited had issued three Shares for $1 and had not traded. On settlement of the Offer (referred to
as Completion of the Offer), Collins Foods Limited will acquire, through a wholly owned subsidiary, Collins Foods Holding Pty Limited and SingCo
Trading Pte Ltd. Refer to section 6.1.3 for further information.
Collins Foods Holding Pty Limited and SingCo Trading Pte Ltd operate the Collins Foods businesses. These businesses, their management and keys
risks are described in this Prospectus.
References to “Collins Foods” in this Prospectus describe Collins Foods Limited and its subsidiaries following Completion of the Offer. Refer to
sections 2-5 for further information.
Restrictions on
distribution
This Prospectus does not constitute an offer of Shares or invitation in any place in which, or to any person to whom, it would not be lawful to make
such an offer or invitation. Refer to section 6.7.
Important
Information for
New Zealand
Investors
This offer to New Zealand investors is a regulated offer made under Australian and New Zealand law. In Australia, this is Chapter 8 of the
Corporations Act 2001 and Regulations. In New Zealand, this is Part 5 of the Securities Act 1978 and the Securities (Mutual Recognition of
Securities Offerings-Australia) Regulations 2008. This offer and the content of the offer document are principally governed by Australian rather than
New Zealand law. In the main, the Corporations Act 2001 and Regulations (Australia) sets out how the offer must be made. There are differences
in how securities are regulated under Australian law. For example, the disclosure of fees for collective investment schemes is different under the
Australian regime. The rights, remedies and compensation arrangements available to New Zealand investors in Australian securities may differ
from the rights, remedies and compensation arrangements for New Zealand securities. Both the Australian and New Zealand securities regulators
have enforcement responsibilities in relation to this offer. If you need to make a complaint about this offer, please contact the Financial Markets
Authority, Wellington, New Zealand. The Australian and New Zealand regulators will work together to settle your complaint. The taxation treatment
of Australian securities is not the same as for New Zealand securities. If you are uncertain about whether this investment is appropriate for you, you
should seek the advice of an appropriately qualified financial adviser.
The offer may involve a currency exchange risk. The currency for the securities is not New Zealand dollars. The value of the securities will go up or
down according to changes in the exchange rate between that currency and New Zealand dollars. These changes may be significant. If you expect
the securities to pay any amounts in a currency that is not New Zealand dollars, you may incur significant fees in having the funds credited to a bank
account in New Zealand in New Zealand dollars.
If the securities are able to be traded on a securities market and you wish to trade the securities through that market, you will have to make
arrangements for a participant in that market to sell the securities on your behalf. If the securities market does not operate in New Zealand, the way
in which the market operates, the regulation of participants in that market, and the information available to you about the securities and trading may
differ from securities markets that operate in New Zealand.
Exposure Period
The Corporations Act prohibits Collins Foods Limited from processing applications to subscribe for Shares under this Prospectus (Applications) in the
seven day period after the date of lodgement of this Prospectus (Exposure Period). This period may be extended by ASIC by up to a further seven
days. This period is an exposure period to enable this Prospectus to be examined by market participants prior to the raising of funds. The examination
may result in the identification of certain deficiencies in this Prospectus in which case any Application may need to be dealt with in accordance with
section 724 of the Corporations Act. Applications received during the Exposure Period will not be processed until after the expiry of that period.
No preference will be conferred on Applications received during the Exposure Period.
Financial
information and
forward looking
statements
Section 3 sets out in detail the financial information referred to in this Prospectus. The basis of preparation of that information is set out in
section 3.2.
All financial amounts contained in this Prospectus are expressed in Australian currency and rounded to the nearest $0.1 million unless otherwise
stated. Any discrepancies between totals and sums of components in tables contained in this Prospectus are due to rounding.
This Prospectus contains forward looking statements which are identified by words such as “may”, “could”, “believes”, “estimates”, “expects”,
“intends” and other similar words that involve risks and uncertainties. The Forecast Financial Information is an example of forward looking
statements.
Any forward looking statements are subject to various risk factors that could cause Collins Foods Limited’s actual results to differ materially from
the results expressed or anticipated in these statements. Forward looking statements should be read in conjunction with risk factors as set out in
section 4, specific assumptions as set out in section 3.8.1, general assumptions as set out in section 3.8.2, the sensitivities as set out in section 3.9,
and other information in this Prospectus.
Defined terms
and time
Certain terms and abbreviations used in this Prospectus have defined meanings which are explained in the Glossary in section 9 of this Prospectus.
Unless otherwise stated or implied, references to times in this Prospectus are to Sydney time.
Disclaimer
No person is authorised to give any information or to make any representation in connection with the Offer described in this Prospectus which is not
contained in this Prospectus. You should rely only on information in this Prospectus.
Except as required by law, and only to the extent so required, neither Collins Foods Limited nor any other person warrants or guarantees the future
performance of Collins Foods Limited, or any return on any investment made pursuant to this Prospectus.
Further queries
If you are considering applying for Shares under the Offer, this document is important and should be read in its entirety.
If you have any questions in relation to the Offer, please call the Collins Foods Offer Information Line on 1800 622 202 within Australia. If you are
eligible to participate in the Offer and are calling from outside Australia, you should call +61 2 8280 7694.
The information in this Prospectus is not financial product advice and does not take into account your investment objectives, financial situation
or particular needs. In particular, in considering Collins Foods’ prospects, you should consider the assumptions underlying the forecast financial
information and the risk factors that could affect Collins Foods’ financial performance. You should carefully consider these factors in light of your
personal circumstances (including financial and taxation issues). Refer to sections 3-4 for further information.
If you do not understand any part of this Prospectus, or are in any doubt as to whether to invest in Shares or not, it is recommended that you seek
professional guidance from your stockbroker, solicitor, accountant or other independent and qualified professional adviser before deciding whether
to invest.
1
COLLINS FOODS LIMITED PROSPECTUS
CONTENTS
Letter from the Chairman
3
1. Investment overview
4
2. Company overview
19
3. Financial information
43
4. Risks
67
5. Key people, interests and benefits
72
6. Details of the Offer
82
7. Investigating Accountant’s Report
96
8. Additional information
104
9. Glossary
117
APPENDIX – Key accounting policies
123
Corporate directory
2
COLLINS FOODS LIMITED PROSPECTUS
key
dates
Prospectus Date
Friday 15 July 2011
Open of Broker Firm Offer
Monday 25 July 2011
Close of Broker Firm Offer
Tuesday 2 August 2011
Allocation announcement (on or before)
Wednesday 3 August 2011
Settlement
Wednesday 3 August 2011
Allotment of Shares (Completion of the Offer)
Thursday 4 August 2011
Expected commencement of trading on ASX
(on a deferred settlement basis)
Thursday 4 August 2011
Expected despatch of Shareholder statements
Friday 5 August 2011
Shares expected to begin trading on a normal settlement basis
Monday 8 August 2011
Note:This timetable is indicative only. The Existing Investors, Collins Foods Limited and the Joint Lead Managers reserve the right to vary the dates and
times of the Offer, including to close the Offer early, extend the Offer or accept late Applications, either generally or in particular cases, without
notification. Applicants are therefore encouraged to submit their Applications as early as possible.
3
COLLINS FOODS LIMITED PROSPECTUS
letter from
the chairman
15 July 2011
Dear investor,
On behalf of the Directors, I am pleased to invite you to consider becoming a Shareholder of Collins Foods Limited
(to operate from Completion of the Offer as “Collins Foods”).
Collins Foods is a major restaurant operator in Australia. Its restaurant network comprises 119 KFC restaurants in
Australia, and 85 Sizzler restaurants in Australia and Asia. The vast majority of Collins Foods’ company-owned KFC and
Sizzler restaurants are based in Queensland, forecast to be Australia’s fastest growing state , while its franchised Sizzler
operations are located in Asia.
Collins Foods has a proud history, which dates back to 1969 when it opened its first KFC restaurant in Queensland.
Today, Collins Foods is Australia’s largest KFC franchisee and employs a workforce of approximately 700 full time staff
and 6,000 casual and part time staff across its businesses.
Collins Foods has a highly experienced management team, with the top five executives having an average of 26 years’
experience with Collins Foods. The CEO, Kevin Perkins, has been with Collins Foods for more than 32 years, and is one of
13 franchisee presidents currently sitting on the “KFC International Brand Council”. The top five management will own
8.3% of Collins Foods on Completion of the Offer.
Collins Foods has a strong financial track record and the Directors believe it is well positioned for future growth
through new restaurant roll-outs and refurbishments, expansion of the product range and day parts as well as ongoing
operating initiatives.
The Offer provides an opportunity for you to share in our exciting future.
The information in this Prospectus contains detailed information about the Offer and the financial and operating
performance of Collins Foods. It also includes a description of the key risks associated with an investment in Collins
Foods such as food safety and sanitation, security of supply chain and changes in regulation. I encourage you to read
it carefully and in its entirety before making your investment decision.
On behalf of the Board, I look forward to welcoming you as a Shareholder.
Yours sincerely,
Russell Tate
Chairman
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COLLINS FOODS LIMITED PROSPECTUS
1
INVESTMENT
OVERVIEW
KFC Super Variety Bucket
5
COLLINS FOODS LIMITED PROSPECTUS
Topic
Summary
For more
information
Collins Foods is a major restaurant operator in Australia. It is the:
Section 2.1
A. INTRODUCTION
What is the nature of
Collins Foods’ business?
–– Largest KFC franchisee in Australia by number of restaurants,
operating 117 KFC restaurants in Queensland and two in
New South Wales;
–– Owner of Sizzler trademarks in Australia and more than 68 other
countries 1;
–– Operator of 26 Sizzler restaurants in Queensland, Western Australia
and New South Wales; and
–– Franchisor of 59 Sizzler restaurants in Asia, predominantly located
in Thailand, Japan and China.
What are the
key strengths
of Collins Foods?
Collins Foods believes the key strengths and appeal of its business are:
Attractive market dynamics
Section 2
Section 3
–– The Australian chained quick service restaurant (QSR) market is
forecast to grow at a CAGR of 8.0% from 2011-2013 2.
Leading market position and scale in Queensland
–– A major restaurant operator in Australia, Australia’s largest
KFC franchisee and the only KFC franchisee in Queensland.
Long‑standing relationship with Yum!, one of the world’s
largest restaurant companies
–– Access to the Yum! system including global brand and product
development, operating systems, national advertising scale and
frequency, and national procurement scale.
Proven and highly experienced management team
–– The top five management personnel have an average of 26 years’
experience with Collins Foods.
Strong financial track record
–– Achieved average annual same store sales growth of 5.9% and 6.3%
for KFC and Sizzler respectively over the past 10 years; and
–– Strong cash flow generation supporting an attractive dividend yield.
Established platform for future growth
–– Multiple levers for growth through the introduction of new products
and day parts, operational initiatives, new restaurant roll-out and
refurbishment and, subject to appropriate opportunities arising
and Yum! approval, the acquisition of KFC restaurants in other
Australian states.
Further information about these strengths is included in the summary
of Collins Foods’ business model in Part B of this Investment Overview.
Investors should balance this information against the risks faced by
Collins Foods.
1
Excluding the United States, Guatemala and Puerto Rico.
2Euromonitor International Ltd.: Passport data (May 2011) December Y/E. Information in the Prospectus attributed to Euromonitor has been
prepared from independent market research carried out by it and includes forward looking statements. This information is not fact nor its
outcomes guaranteed by any person. Investors are cautioned not to place undue reliance on forward looking statements.
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COLLINS FOODS LIMITED PROSPECTUS
1
INVESTMENT
OVERVIEW
Topic
Summary
For more
information
What are key risks to
Collins Foods?
Collins Foods believes the key risks to its business are:
Section 4
Food safety and sanitation
–– A serious food-poisoning incident could occur at a Collins Foods KFC
or Sizzler restaurant.
Security of supply chain
–– The supply chain for one or more of Collins Foods’ restaurants
could be materially disrupted, resulting in insufficient supplies
being delivered.
Termination of franchise agreements for non-compliance
–– Yum! could terminate KFC franchise arrangements due to
non‑compliance by Collins Foods.
Change in regulation
–– Laws or regulations could be introduced that seek to reduce the
advertising or consumption of foods sold by Collins Foods.
Brand and reputation calamity
–– An incident beyond the control of Collins Foods could occur and
reduce consumer confidence in the KFC or Sizzler brands or products.
Failure to open a sufficient number of new restaurants
–– Collins Foods could be unable to open new KFC or Sizzler restaurants
in accordance with its capital expenditure programme.
Failure to introduce sufficient new products or LTOs
–– Collins Foods could be unable to offer a sufficient number of
successful new products or limited time offers (LTOs) at its KFC
and Sizzler restaurants.
Reduction in customer numbers
–– A deterioration in economic conditions or consumer sentiment that
affects the markets in which Collins Foods operates could reduce
customer numbers.
Insufficient supervision of operations by management
–– A failure by management to supervise closely the day to day
operations of its restaurants may result in reduced revenues and
increased costs.
Further information about these risks is included in the summary of key
risks in Part D of this Investment Overview.
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COLLINS FOODS LIMITED PROSPECTUS
Topic
Summary
For more
information
B. Key features of Collins Foods’ business model
What markets
does Collins Foods
compete in?
–– Collins Foods’ KFC restaurants compete in the QSR subset of the
Australian restaurant industry.
–– The QSR market is comprised of both chained and non-chained
restaurant operators.
Section
2.2.1
Section
2.3.1
–– Chained QSR operators such as Collins Foods can benefit from
well known branding and efficiencies associated with standardised
restaurant formats, menus and centralised administration.
–– In 2011, Euromonitor International forecast the Australian chained
QSR market to generate total 2011 revenue of approximately
$11.0 billion, and grow at a CAGR of 8.0% from 2011-2013 1.
–– Collins Foods’ Sizzler restaurants compete in the casual dining market
against a broad range of restaurants including licensed clubs, hotels
and bars, pubs and cafés.
What are the benefits
of Collins Foods’ scale
and distribution?
–– Collins Foods’ restaurants primarily operate in key population centres
of Queensland. Queensland is projected to be Australia’s fastest
growing state by population and gross State product 2.
–– The scale and location of Collins Foods’ restaurants provides a number
of benefits including:
Section
2.2.2
Section
2.3.2
–– Limited reliance on the earnings of any particular restaurant;
–– Close proximity to existing and potential customers;
–– High brand exposure;
–– Enhanced ability to secure new restaurant sites;
–– Position as a significant and valuable franchisee to Yum!;
–– Financial capacity to recruit and retain high quality management;
–– Ability to relocate staff between restaurants to optimise staffing
levels; and
–– Economies of scale which facilitate the operation of a significant
shared services platform.
1Euromonitor International Ltd.: Passport data (May 2011) December Y/E. Information in the Prospectus attributed to Euromonitor has been
prepared from independent market research carried out by it and includes forward looking statements. This information is not fact nor its
outcomes guaranteed by any person. Investors are cautioned not to place undue reliance on forward looking statements.
2Deloitte Access Economics Business Outlook (March quarter 2011) for the period 2011-2020.
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COLLINS FOODS LIMITED PROSPECTUS
1
investment
overview
Topic
Summary
How are Collins Foods’
products and service
models key to its
businesses?
–– Collins Foods believes its KFC product offering of chicken pieces,
burgers, wraps and snacks provides the following competitive benefits:
–– Product freshness and quality, with between four and seven
deliveries of fresh products to each restaurant per week;
For more
information
Section
2.2.4
Section
2.3.4
–– Recognised flavour from KFC’s secret blend of 11 herbs and spices;
–– Sale of chicken on a per-piece basis enables application of
marinade (giving KFC its flavour profile), and improves portability
of the product. This enables a higher gross margin than if sold on
a per-chicken basis; and
–– Faster cooking time compared to barbecuing techniques enables
Collins Foods to reduce wastage and to respond more quickly
to changes in customer demand.
–– Collins Foods has a track record of introducing new product initiatives
and LTOs, including those targeted at the growing “in-between” meal
snacking market.
–– Collins Foods sets the prices of its products which enables it to adjust
prices where appropriate to allow for regional variations and respond
to changes in input costs. It also assists Collins Foods to keep prices
competitive and offer customers value for money.
–– Sizzler’s primary product offering is its signature salad and beverage
bar (which includes soups, salads, pasta and desserts). It also serves
grilled items including chicken, red meat and seafood.
–– Sizzler operates a pay first, unlimited self service model that allows
customers to select, order and pay for their meals before being seated
at a table. This model reduces costs by requiring fewer staff, and
increases revenues through higher average table turns than if Sizzler
operated as a traditional table service restaurant. It also assists Sizzler
to offer customers value for money.
What are the
advertising
and marketing
arrangements?
–– Both the KFC and Sizzler brands attract customers to Collins Foods’
restaurants.
–– Collins Foods invests at least 6% of annual KFC revenue in advertising
and promotion of the KFC brand:
–– 5% of annual KFC revenue paid to ADCO which operates as
a national KFC advertising body; and
–– At least a further 1% of annual KFC revenue on local advertising
and marketing.
–– National KFC marketing provides a number of benefits to Collins
Foods including:
–– The development and maintenance of a strong and consistent
brand throughout Australia;
–– Participation in the sponsorship of high profile events and
organisations that would be difficult or impossible to sponsor
on an individual operator basis;
–– Discounted rates from scale buying of media; and
–– The development of quality marketing programmes through Yum!
and Collins Foods’ sharing of costs and combined expertise in
media production and buying.
–– Collins Foods spends approximately 4%-5% of annual Sizzler revenue
on Sizzler advertising and marketing including television, direct mail,
print, radio and social media.
Section
2.2.5
Section
2.3.5
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COLLINS FOODS LIMITED PROSPECTUS
Topic
Summary
What are the key
aspects of Collins Foods’
supply arrangements?
–– Collins Foods maintains a number of suppliers for each of its key
inputs in order to minimise its dependency on any one supplier.
What is the relationship
with Yum! (the owner
of the KFC brand) and
why does it matter?
–– Yum! is one of the world’s largest restaurant chains by number of
system restaurants 1 and is the global owner and franchisor of the
KFC brand.
–– Collins Foods may purchase supplies for its KFC restaurants from
Yum!’s supply network. It also selects its own suppliers, provided
in the case of its KFC restaurants they meet Yum!’s specifications.
For more
information
Section
2.2.6
Section
2.3.6
Section
2.2.7
–– Collins Foods operates all its KFC restaurants under single-site
franchise agreements and various ancillary agreements with Yum!.
–– Collins Foods receives a number of benefits from its relationship with
Yum!, including:
–– Use of the KFC brand, and associated strong brand recognition;
–– Access to products and marketing strategies developed by Yum!;
–– Participation in national KFC advertising and marketing
arrangements;
–– Ongoing training and assistance; and
–– Access to the Yum! supply chain and buying power, which can
assist to reduce supply costs.
–– Upon Completion of the Offer, new franchise arrangements with
Yum! will commence for Collins Foods’ KFC restaurants. These will
have an average term of approximately 10 years and Collins Foods
will have the option to extend them for a further 10 years after expiry
of the initial term.
What are Collins Foods’
key strategies?
–– Collins Foods’ KFC strategy is to remain one of the pre-eminent QSR
restaurant operators in Queensland and for its Australian Sizzler
business to continue to offer customers value for money.
–– Growth strategies across both these businesses focus on:
Section
2.2.8
Section
2.3.7
–– Operational initiatives and innovations to drive same store
sales growth;
–– Refurbishing its existing restaurant network; and
–– Establishing new restaurants.
–– If appropriate opportunities to acquire KFC restaurants in other
states arise, Collins Foods will consider these opportunities
(subject to Yum! approval).
–– Collins Foods’ Sizzler Asia strategy is to seek to grow restaurant
numbers through new and existing franchisees.
How do Collins Foods’
shared services
functions contribute
to its business?
–– Collins Foods performs a number of administrative and management
functions using a shared services structure including property, human
resources, insurance, supply and distribution, quality control, IT,
finance and risk management.
–– Collins Foods’ shared services functions assist to reduce and manage
risks, including its exposure to food safety and sanitation risks,
monitor company performance and implement new strategies
as required.
1
System restaurants comprise both owned, franchised and licensed restaurants.
Section
2.5.1 to
Section
2.5.6
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COLLINS FOODS LIMITED PROSPECTUS
1
investment
overview
For more
information
Topic
Summary
How does Collins Foods
expect to fund its
operations?
–– On Completion of the Offer, Collins Foods will have total debt facilities
of $145 million, which will be available for general corporate, working
capital and capital expenditure purposes. Collins Foods will initially
draw down $105 million of debt to repay a portion of its existing
debt facilities.
Section
3.4.3
–– Collins Foods will fund its growth and maintenance capital
expenditure in FY2012 through operating cash flows.
C. Key offer statistics
What are the key Offer
statistics?
Section 6
Offer Price
Total number of Shares offered
under the Institutional Offer and
Broker Firm Offer
Total cash proceeds from the
Institutional Offer and Broker
Firm Offer 1
$2.50
80.7 million
$201.7 million
Total number of Shares on issue
following the Offer 2
93.0 million
Indicative market capitalisation3
$232.5 million
Pro forma net debt 4
$101.5 million
Enterprise value 5
$334.0 million
1This is the amount of cash received by Collins Foods Limited under the Offer (before payment of any expenses) and is calculated by multiplying
the Offer Price (of $2.50) by the number of Offer Shares offered under the Institutional Offer and Broker Firm Offer and excludes $30.8 million
of Shares to be issued to certain Existing Investors pursuant to the Sale Deeds (refer to section 8.3 for more information).
2This comprises the Shares offered under the Institutional Offer, Broker Firm Offer and pursuant to the Sale Deeds as referred to above, and the
three Shares on issue at the date of this Prospectus.
3Calculated by multiplying the Offer Price by the number of Shares on issue on Completion of the Offer.
4Pro forma net total indebtedness. Calculated as debt drawn of $105 million (see section 3.4.3) less pro forma cash and cash equivalents
of $3.5 million (see section 3.4.2).
5
Calculated by adding indicative market capitalisation and pro forma net debt.
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COLLINS FOODS LIMITED PROSPECTUS
For more
information
Topic
Summary
What are the key
investment metrics?
Enterprise value/pro forma FY2012 EBITDA
5.7x
Enterprise value/pro forma FY2012 EBIT
7.7x
Offer Price/pro forma FY2012 NPAT per Share
9.4x
Offer Price/pro forma FY2012 NPATA per Share
9.0x
1
Section 3
6.4%
FY2012 annualised dividend yield 2
Pro Forma Forecast
ForecastStatutory
Pro Forma Historical ResultsResultsResults
$ million
FY2009
FY2010
FY2011
FY2012
FY2012
Revenue
405.9402.9410.8430.3429.7
EBITDA
54.2 51.755.959.060.8
EBIT
39.3 36.140.843.4 41.5
NPAT
21.320.622.824.716.0
NPATA
22.6 21.924.125.919.8
FY2012
Statutory revenue 410.6
Statutory NPAT
(41.2)
400.5
408.2
17.5
1.4
Earnings per Share 3 (cents)
26.617.3
Key ratios 4
Net debt 5/EBITDA1.7x
EBITDA/net interest expense
7.3x
EBIT/net interest expense
5.4x
Fixed charges cover 62.6x
Current assets 5/Current liabilities 525.2%
1
Net profit after tax and before amortisation.
2Collins Foods expects to pay a dividend of 11.8 cents per Share in FY2013 with respect to earnings generated from Completion of the Offer
to 29 April 2012. Refer to section 3.10.
3Based on the total number of Shares to be on issue following Completion of the Offer (as in, 93.0 million).
4Ratios calculated by reference to Forecast Statutory Results have not been included in this Prospectus as Collins Foods believes they do not
provide meaningful information to investors about Collins Foods because of the change in capital structure that will occur on Completion
of the Offer. Further, no forecast statutory balance sheet has been prepared.
5Pro forma as at 1 May 2011.
6EBITDA plus rental expense/(net interest expense plus rental expense).
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COLLINS FOODS LIMITED PROSPECTUS
1
investment
overview
Topic
Summary
For more
information
D. KEY RISKS
Food safety and
sanitation
–– There is a risk that a serious food-poisoning incident could occur at
a Collins Foods’ KFC or Sizzler restaurant as a result of an operational
lapse in food safety or sanitation procedures or malicious tampering.
Section
4.1.1
–– The occurrence of a serious food-poisoning incident at a KFC
or Sizzler restaurant (including restaurants operated by others
as discussed below under “Brand and reputation calamity”) is
likely to have very significant consequences for Collins Foods’
like‑branded restaurants.
Security of supply chain
–– There is a risk that the supply chain for one or more of Collins
Foods’ restaurants could be materially disrupted (for example, by the
occurrence of a natural disaster or industry-wide event) with the result
that sufficient quantities of supplies are not delivered on time.
Section
4.1.2
Relationship with
Yum! (termination
for non-compliance)
–– There is a risk that Yum! could terminate KFC franchise arrangements
with Collins Foods as a result of a material breach by Collins Foods
of its obligations to Yum! under those arrangements (including to
refrain from damaging the KFC brand, a failure to upgrade its KFC
restaurants to Yum!’s brand standards, or if a person acquires control
of Collins Foods without Yum!’s prior consent).
Section
4.1.3
–– There is a possibility that this would result in Collins Foods being
unable to conduct any business from the KFC restaurants sites, or
unable to conduct a business that generates revenues equal to those
currently being generated, or the cessation of business at all sites and
the sale of the business assets to a third party or to Yum!.
Change in regulation
–– There is a risk that laws or regulations could be introduced that seek
to reduce the advertising or consumption of foods sold by QSRs
generally which would affect Collins Foods’ KFC restaurants and
potentially its Sizzler restaurants. Collins Foods is not aware of any
specific proposals that are currently being considered in Australia (and
it is therefore difficult to ascertain the likely consequences for Collins
Foods of any such development); however, there is the potential for
such measures to materially reduce revenues, increase its costs or
cause both to arise.
Section
4.1.4
Brand and reputation
calamity
–– There is a risk that some incident beyond the control of Collins Foods
could occur which would have the effect of reducing consumer
confidence or preferences for the KFC or Sizzler brands or for any
of the component products sold by those businesses, such as:
Section
4.1.5
–– The occurrence of a food safety incident at a KFC or Sizzler
restaurant belonging to a separate franchisee elsewhere in
Australia or overseas;
–– A widespread loss of consumer confidence in one or more
products; or
–– A widespread loss of consumer confidence in the food safety
procedures in the industry as a whole.
–– The consequences of such an incident could be very significant for
either or both of Collins Foods’ KFC and Sizzler restaurants.
13
COLLINS FOODS LIMITED PROSPECTUS
For more
information
Topic
Summary
Failure of growth driver
(open insufficient
number of new
restaurants)
–– There is a risk that Collins Foods could be unable to open new KFC
or Sizzler restaurants in accordance with its capital expenditure
programme.
Failure of growth driver
(insufficient successful
new products and LTOs)
–– There is a risk that Collins Foods could be unable to offer a sufficient
number of successful new products or limited time offers at its KFC
and Sizzler restaurants, which could potentially result in reduced
or negative organic growth.
Section
4.1.7
Reduction in
customer numbers
–– There is a risk that economic conditions in or consumer sentiment
affecting the markets in which Collins Foods operate could
deteriorate, with the potential result that customer numbers reduce
leading to lower or negative organic growth.
Section
4.1.8
Insufficient supervision
of operations
by management
–– A failure by management to supervise closely the day to day
operations of its restaurants and other aspects of the business of
Collins Foods may result in reduced revenues and increased costs.
Section
4.1.9
Section
4.1.6
–– The effect of this would be reduced or no growth for the relevant
Collins Foods’ business.
14
COLLINS FOODS LIMITED PROSPECTUS
1
investment
overview
Topic
For more
information
Summary
E. Key information on the experience and background of the Directors and key management
Who is in control of
Collins Foods and what
is their expertise?
Directors
Experience
Russell Tate
(Non-executive
Chairman)
–– Russell was an Executive Director of ASX listed
STW Communications Group Limited from its IPO
(as John Singleton Advertising) in 1994 to 2008.
He was Group Managing Director/CEO from 1997
until 2006. He was Executive Chairman from 2006
to 2008 and Deputy Chairman from 2008 to 2011.
Section 5.1
–– Russell was appointed Executive Chairman of ASX
listed Macquarie Radio Network Limited in 2009,
a position he still holds. He is also Chairman of
Central Coast Stadium Limited.
Kevin Perkins
(Managing
Director and
CEO)
–– Kevin is a highly experienced manager in the
QSR and casual dining segments of the Australian
restaurant industry. He has had more than 32
years’ experience with Collins Foods, having
overseen its growth both domestically and
overseas over that time.
–– Kevin is one of 13 franchisee presidents currently
on the “KFC International Brand Council”.
Newman
Manion
(Non‑executive
Director)
–– Newman has had over 30 years’ experience in the
food franchise industry, including over 29 years
since 1982 in various roles with Yum!.
–– Previously Newman served as a board member for
KFC Japan (from 2005 to 2008), general manager
of KFC operations in Australia and New Zealand
(from 1995 to 2004), development director of
PepsiCo restaurants (including KFC) in Australia
(from 1990 to 1995) and general manager of KFC
New Zealand (from 1988 to 1990).
–– Most recently Newman was Vice-President,
Operations for Yum!’s Asian franchise business
(from 2004 until 2010).
Bronwyn Morris
(Non-executive
Director)
–– Bronwyn is a professional director with an
executive career background in accounting and
finance. She worked for KPMG for over 20 years,
including seven years as partner.
–– Bronwyn’s current roles include director of Spotless
Group Limited, QIC Limited, Care Australia,
The Royal Automobile Club of Queensland Limited
and Gold Coast 2018 Commonwealth Games Bid
Limited. Bronwyn is also currently a member of
the Queensland Council of the Australian Institute
of Company Directors. She is Chairman of the
Audit, Finance and Risk Committee of Spotless
Group Limited.
–– Bronwyn is a former director of other companies
including Stanwell Corporation Limited, Colorado
Group Limited and Taylors Group Limited, and
a former Councillor of Bond University.
Russell Tate, Newman Manion and Bronwyn Morris were appointed non-executive
directors of Collins Foods Limited following its incorporation on 10 June 2011.
Kevin Perkins was appointed executive director on 15 July 2011.
15
COLLINS FOODS LIMITED PROSPECTUS
For more
information
Topic
Summary
Who is in control of
Collins Foods and what
is their expertise?
(continued)
Senior
Management
Experience
Kevin Perkins
(Managing
Director and
CEO)
–– See page 14
Simon Perkins
(CFO)
–– Simon joined Collins Foods in 1994, and has been
CFO since 1995.
–– Prior to Collins Foods he worked at accounting
firms Deloitte, Haskins & Sells (1979 to 1986) and
Coopers & Lybrand (1986 to 1989).
–– Between 1989 and 1994, Simon held accounting
related positions with Daikyo Australia, ARCO Coal
and Biggs & Biggs Francis McGregor.
Martin Clarke
(CEO – KFC)
–– Martin joined Collins Foods in 1980 and has
worked as an Assistant Manager (1982 to 1984),
restaurant general manager (1984 to 1988), area
manager (1988 to 2006), Director of Operations
(2006 to 2008) leading up to his current role
overseeing Collins Foods’ KFC operations
since 2009.
James Ryan
(CEO – Sizzler
Australia)
–– James joined the Collins Foods’ business in 1983
and prior to his current position as Sizzler CEO,
held positions including State Manager of Sizzler
WA, Director of Group Services and as General
Manager of Sizzler Australia/Asia.
–– He is currently responsible for the strategic
development of the Sizzler brand in Australia
and Asia.
John Hands
(CSO / CIO)
–– John has been with Collins Foods for over
22 years. His role includes responsibility for
purchasing, supply logistics and distribution, and
information needs.
–– Prior to joining Collins Foods, John spent 20 years
in the Australian Defence Force, achieving the rank
of Lieutenant Colonel.
Other
employees
–– In addition to senior Management, Collins Foods’
KFC business has 40 divisional employees, over
440 restaurant managers and approximately 600
full time and 3,900 casual and part time staff.
–– Collins Foods’ Sizzler Australia business has
22 divisional employees, over 130 restaurant
managers and approximately 200 full time and
2,000 casual and part time staff.
Section 5.2
16
COLLINS FOODS LIMITED PROSPECTUS
1
investment
overview
Topic
For more
information
Summary
F. Significant interests of key people and related party transactions
What significant
benefits and interests
are payable to Directors
and other persons
connected with the
issuer or Offer?
Key people
Interest or benefit
Management
(including Kevin Perkins)
–– Sale of interest in Collins Foods
Funds advised by
Pacific Equity Partners and
other Existing Investors
–– Sale of interests in Collins Foods
Section
6.1.6
Non-executive Directors
–– Directors’ fees
Section
5.3.1
Advisers and other
service providers
–– Fees for services
Section
6.1.2
Existing Investors
Who are the owners
of Collins at the date
of this Prospectus
and are they retaining
an interest?
–– Remuneration
Section
6.1.6
Retained interest in Collins Foods
on Completion of the Offer
Funds advised by Pacific Equity Partners
0.0%
Kevin Perkins
7.5%
Other members of Management
1.5%
Other investors
4.2%
Section
6.1.6
For more information, including the expected ownership structure
of Collins Foods on Completion of the Offer, please refer to
section 6.1.6
G. Proposed use of funds and key terms and conditions of the offer
Who is the issuer
of the Prospectus?
–– Collins Foods Limited, a company incorporated in Victoria, Australia
(ACN 151 420 781).
Section
6.1.3
What is the Offer?
–– The Offer is an initial public offering by invitation of Collins Foods
Limited of 80.7 million Shares.
Section 6.1
What is the purpose
of the Offer?
–– The purpose of the Offer is to enable a wholly owned subsidiary of
Collins Foods Limited to purchase Collins Foods Holding Pty Limited
and SingCo Trading Pte Ltd (the companies that own the Collins
Foods businesses in Australia and Asia respectively) from the Existing
Investors and to provide Collins Foods Limited with:
Section
6.1.1
–– Additional financial flexibility to pursue growth opportunities and
improve access to capital markets as a result of its listing on ASX;
–– Provide a liquid market for its Shares and an opportunity for others
to invest in Shares in Collins Foods Limited; and
–– Funds to pay in part existing debts of the Collins Foods’ businesses
and Offer costs (as described further in section 6.1.2).
–– The Offer also provides the Existing Investors with an opportunity
to realise all or part of their investment in Collins Foods Holding
Pty Limited and SingCo Trading Pte Ltd.
17
COLLINS FOODS LIMITED PROSPECTUS
For more
information
Topic
Summary
Will the Shares
be listed?
–– Collins Foods Limited will apply to ASX for admission to the official
list of ASX and quotation of Shares on ASX under the code CKF.
Completion of the Offer is conditional on ASX approving this
application. If approval is not given within three months after such
application is made (or any longer period permitted by law), the
Offer will be withdrawn and all Application Monies received will be
refunded without interest as soon as practicable in accordance with
the requirements of the Corporations Act.
Section 6.9
How is the Offer
structured?
–– The Offer comprises:
Section 6.3
Section 6.4
–– The Broker Firm Offer; and
–– The Institutional Offer.
Is the Offer
underwritten?
–– Yes. The Offer is fully underwritten by the Joint Lead Managers.
Section 6.5
Section 8.2
What is the
allocation policy?
–– For Broker Firm Offer participants, it will be a matter for Brokers
as to how they allocate Shares among their retail clients.
Section
6.3.5
Is there any brokerage,
commission or stamp duty
payable by Applicants?
–– No brokerage, commission or stamp duty is payable by Applicants
on acquisition of Shares under the Offer.
Section 6.2
What are the tax
implications of investing
in the Shares?
–– Shareholders will be subject to Australian tax on dividends. The tax
consequences of any investment in the Shares will depend upon
an investor’s particular circumstances, particularly for non-resident
Shareholders. Applicants should obtain their own tax advice prior
to deciding whether to invest.
Section 8.6
When will I receive
confirmation that
my Application has
been successful?
–– It is expected that initial holding statements will be despatched
by standard post on or around 5 August 2011.
Section
6.3.6
When will dividends
on the Shares be paid?
–– Collins Foods expects to pay a fully franked dividend of 11.8 cents per
Share in FY2013 with respect to earnings generated from Completion
of the Offer to 29 April 2012, which represents an annualised dividend
yield of 6.4%. No interim dividend will be paid for the half year period
ending 16 October 2011.
Section 3.10
–– Thereafter Collins Foods is targeting a dividend payout ratio of at least
50% of statutory NPAT.
–– Depending on available profits and the financial position of Collins
Foods Limited, it is the current intention of the Board to pay an
interim dividend each December and a final dividend each July.
–– The Board of Directors can provide no guarantee as to the future
dividend policy, the extent of future dividends or the level of franking
or imputation credits applying to such dividends, as these will depend
upon, among other things, the actual levels of profitability and the
financial and taxation position of Collins Foods Limited at the time.
How can I apply?
–– You may apply for Shares by completing a valid Application Form
(attached to or accompanying this Prospectus).
–– To the extent permitted by law, an Application by an Applicant under
the Offer is irrevocable.
Section
6.3.2
18
COLLINS FOODS LIMITED PROSPECTUS
1
INVESTMENT
OVERVIEW
Topic
Summary
Where can I find more
information about this
Prospectus or the Offer?
–– Call the Collins Foods Offer Information Line on 1800 622 202
(toll free within Australia) or +61 2 8280 7694 (outside Australia)
from 8.30am until 5.30pm (AEST) Monday to Friday.
For more
information
Section 6
–– If you are unclear in relation to any matter or are uncertain as to
whether Collins Foods Limited is a suitable investment for you, you
should seek professional guidance from your solicitor, stockbroker,
accountant or other independent and qualified professional adviser
before deciding whether to invest.
Can the Offer be
withdrawn?
–– Collins Foods Limited reserves the right not to proceed with the Offer
at any time before the issue of Shares to successful Applicants.
–– If the Offer does not proceed, Application Monies will be refunded.
–– No interest will be paid on any Application Monies refunded as
a result of the withdrawal of the Offer.
Section 6.8
19
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
Sizzler steak with salt and
pepper calamari
20
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
2.1
What is Collins Foods and its business?
Collins Foods is a major restaurant operator in Australia. It is the:
––
perator of 117 KFC restaurants in Queensland and two in New South Wales and is Australia’s largest KFC
O
franchisee by number of restaurants;
––
Operator of 26 Sizzler restaurants in Queensland, Western Australia and New South Wales;
––
Owner of Sizzler trademarks in Australia and more than 68 other countries 1; and
––
Franchisor of 59 Sizzler restaurants in Asia, predominantly located in Thailand, Japan and China.
Collins Foods’ Australian operations date back to 1969 when Collins Foods opened the first KFC restaurant
in Queensland. Collins Foods opened its first Australian Sizzler restaurant in 1985 in Brisbane (see timeline on page 21).
2.2KFC
2.2.1 What is KFC’s position in the Australian restaurant industry?
KFC restaurants operate in the quick service restaurant (QSR) market which is a segment of the Australian restaurant
industry. Restaurants in the QSR market seek to differentiate themselves from other restaurant formats through a focus
on convenience, consistency, speed of service and value for money. The QSR market comprises both chained and
non‑chained restaurant formats.
KFC restaurants are part of the chained format, which is the faster growing component of the QSR market. Chained
QSR restaurants can benefit from well known branding and efficiencies associated with standardised restaurant
formats and menus, and centralised administration. In 2011, Euromonitor International forecast the chained QSR
market to generate total revenue in Australia of approximately $11.0 billion, and grow at a CAGR of 8.0% from
2011-2013 2.
The Australian QSR market
Chained QSR participants
by outlet numbers (b)
Australian QSR market (a)
Revenue $ billion
20.0
Actual
2008-2010 CAGR
Chained = 10.6%
Non-chained = 3.4%
Total = 8.1%
15.0
12.4
4.2
13.5
4.3
10.0
8.2
9.2
14.5
4.5
10.0
Forecast
2011-2013 CAGR
Chained = 8.0%
Non-chained = 3.7%
Total = 6.8%
15.6
4.7
11.0
16.7
4.8
11.9
17.8
5.0
11.6%
4.6%
5.2%
6.3%
12.8
14.7%
6.7%
7.8%
11.1%
5.0
Subway
McDonald’s
KFC
Domino’s
0.0
2008
27.0%
5.0%
2009
2010
2011
2012
Red Rooster
Hungry Jack’s
Eagle Boys
Pizza Hut
Nando’s
Others
2013
(a)Based on nominal revenue. Non-chained comprises “Independent 100%
home delivery/takeaway” and “Independent Fast Food” and Chained
comprises “Chained Fast Food” and “Chained 100% home delivery/
takeaway.”
Source:Euromonitor International Ltd.: Passport data (May 2011) December
Y/E. Information in the Prospectus attributed to Euromonitor has been
prepared from independent market research carried out by it and includes
forward looking statements. This information is not fact nor its outcomes
guaranteed by any person. Investors are cautioned not to place undue
reliance on forward looking statements.
(b)Based on major chain number of outlets
in Australia.
Source:BIS Shrapnel Pty Ltd – Fast Food in Australia
2011.
1
Excluding the United States, Guatemala and Puerto Rico.
2Euromonitor International Ltd.: Passport data (May 2011) December Y/E. Information in the Prospectus attributed to Euromonitor has been
prepared from independent market research carried out by it and includes forward looking statements. This information is not fact nor its
outcomes guaranteed by any person. Investors are cautioned not to place undue reliance on forward looking statements.
21
COLLINS FOODS LIMITED PROSPECTUS
COLLINS FOODS’ TIMELINE
1968
1969
1979
1984
1985
1989
ollins Foods obtains
C
KFC franchise in
Queensland
Collins Foods
opens its first
KFC restaurant
in Kedron,
Queensland
Collins Foods
introduces drivethrough format
to Australia
Original Fillet
Burger introduced
Collins Foods
opens its first
Sizzler restaurant
in Australia
Collins Foods
opens 50th
KFC restaurant
Collins Foods
introduces its
first food court
restaurant
format for KFC
1992
1994
1997
2005
2011
Kevin Perkins
appointed President
and CEO of the
business operating
Collins Foods
Management and
funds advised by
Pacific Equity
Partners acquire
Collins Foods
Headquarters
moved to Brisbane,
Australia
Collins Foods owns
and operates
119 KFC and
26 Sizzler restaurants
in Australia, and
franchises 59 Sizzler
restaurants in Asia
Collins Foods expands Kevin Perkins
Sizzler into Asia
appointed CEO
of the NYSE-listed,
former holding
company of
Collins Foods
Major competitors within the Australian QSR market include chained restaurant formats such as Red Rooster, Oporto
and Nando’s (chicken-based), McDonald’s and Hungry Jack’s (burger-based), Domino’s Pizza, Pizza Hut and Eagle Boys
(pizza-based) and Subway (sandwich-based). Other competitors include non-chained formats such as independent fast
food and takeaway restaurants.
Queensland is forecast to be Australia’s fastest growing state when measured by forecast growth in population and
gross State product. Collins Foods expects this to support growth of the Queensland QSR market. As one of the largest
QSR operators in Queensland by number of restaurants, Collins Foods is well positioned to benefit from this growth.
Queensland market dynamics
Forecast (2011-2020 CAGR)
Population
Forecast (2011-2020 CAGR)
gross State product (a)
Chained QSR participants
by outlet numbers (b)
13.4%
QLD
1.9%
WA
1.8%
NT
1.6%
VIC
1.3%
ACT
1.2%
NSW
SA
TAS
0.0%
1.1%
4.9%
NT
4.5%
WA
VIC
2.8%
NSW
2.7%
ACT
2.7%
SA
0.5%
1.5%
2.0%
0.0%
(a)Gross State product (constant prices).
Source:Deloitte Access Economics Business Outlook (March quarter 2011).
10.2%
8.7%
8.7%
Subway
McDonald’s
Eagle Boys
KFC
1.7%
4.0%
12.3%
8.6%
2.4%
2.0%
24.1%
3.7%
4.7%
5.7%
3.7%
TAS
0.7%
0.5% 1.0%
QLD
Red Rooster
Domino’s
Hungry Jack’s
Pizza Hut
Nando’s
Others
6.0%
(b)Based on major chain number of outlets
in Queensland.
Source:BIS Shrapnel Pty Ltd – Fast Food in
Australia 2011.
22
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
2.2.2 What is the scale of Collins Foods’ KFC business and where is it located?
Collins Foods’ 117 Queensland KFC restaurants are located in key population centres. Its restaurants are spread
throughout Brisbane (53 restaurants) and regional centres and towns (64 restaurants).
Collins Foods’ KFC locations – Queensland(a)
Collins Foods’ KFC locations – Brisbane
Caboolture (3)
Strathpine (2)
Albany Creek
Aspley
Mareeba
Atherton
Chermside
Kedron
Clayfield Wynnum
Kelvin Grove
Morningside
Cleveland
BRISBANE (3)
Capalaba (3)
Kangaroo Pt
Greenslopes
Upper Mt Gravatt
Indooroopilly (2)
Annerley
Carindale (2)
Everton Park
Grovely
Cairns (5)
Innisfail
Ingham
Townsville (6)
Ayr
Mt Isa
Moranbah
Emerald
Mackay (2)
QLD
Rockhampton (4)
Gladstone (2)/Bundaberg (2)/
Biloela
Hervey Bay/Maryborough/Gympie
Kingaroy/Roma/
Sunshine Coast (4)
Dalby/Nambour
BRISBANE (53)
Toowoomba (5)
Gold Coast (17)
Warwick
Tweed Heads (2)
Deception Bay
Redcliffe
North Lakes
Kallangur
Deagon
North Ipswich
Ipswich (3)
Mt Ommaney
Inala
Acacia Ridge
Springfield
Browns Plains (2)
Marsden
Springwood
Sunnybank (2)
Woodridge
Loganholme (2)
Beenleigh
(a)
Includes two restaurants located in Tweed Heads, NSW
Locations have one restaurant unless otherwise indicated
Collins Foods believes that the scale and distribution of its KFC restaurant network provides a number of
benefits including:
––
Limited reliance on the earnings of any particular restaurant with no individual KFC restaurant contributing
more than 3% to Collins Foods’ KFC EBITDA 1 in FY2011;
––
Close proximity of its restaurants to existing and potential customers;
––
High brand exposure, stemming from increased effectiveness of advertising campaigns;
––
Enhanced ability to secure new sites (given its status as a large, established operator of restaurants);
––
Position as a significant and valuable franchisee to Yum!;
––
Ability to relocate staff between restaurants to optimise staffing levels;
––
Economies of scale which facilitate a significant shared services platform (refer section 2.5); and
––
The financial capacity to recruit and retain high quality staff and management.
Collins Foods believes that it would be difficult for a new QSR market entrant to establish a comparable network
in Queensland for a reasonable economic cost given the capital outlay expected to be required to do so.
1
EBITDA before corporate costs.
23
COLLINS FOODS LIMITED PROSPECTUS
2.2.3 What KFC restaurant formats does Collins Foods operate?
Collins Foods operates a variety of formats for its KFC restaurants. The formats are:
––
Free standing drive through (FSDT) restaurants;
––
Food court restaurants; and
––
In-line restaurants.
This enables Collins Foods to position its KFC restaurants in more locations and service a greater cross section
of customers. It also enables Collins Foods greater flexibility in establishing new restaurants, as it is able to select
a restaurant format to target its specified geography and customer type.
KFC restaurant formats
FSDT
Food court
In-line
82 restaurants
30 restaurants
7 restaurants
–– Stand-alone restaurants
–– Restaurants located in shopping
centres and food court areas
–– Restaurants located in shopping
strips
–– Dedicated internal and/or
external seating
–– Drive through and car park
facilities
–– Typically serve larger meal
bundles (such as family meals),
resulting in larger customer
spend
Deagon
–– Seating shared with other
food operators
–– Typically serve individual meal
sizes and target lunchtime meals
Australia Fair, Gold Coast
–– Street frontage “in-line” with
other shops
–– Dedicated internal seating
–– Serve a combination of individual
meal sizes and larger meal
bundles
Surfers Paradise, Gold Coast
24
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
2.2.4 What are the KFC products and who are the customers?
KFC chicken offerings are sold in a variety of formats, including pieces, burgers and wraps. KFC restaurants also offer
a variety of snacks to complement its main offerings, such as Crispy Strips, Popcorn Chicken and Krushers.
Collins Foods believes its KFC product offering provides the following competitive benefits:
––
Product freshness and quality (with between four and seven deliveries of fresh products into each restaurant
per week);
––
Recognised flavour from KFC’s secret blend of 11 herbs and spices;
––
Sale of chicken on a per-piece basis enables application of marinade (giving KFC its flavour profile), and
improves portability of the product. This enables a higher gross margin than if sold on a per-chicken basis; and
––
Faster cooking time compared to barbecuing techniques.
These benefits assist Collins Foods to provide a consistent product offering and convenient service to its customers.
KFC products cater to different customer demands at various times throughout the day. The lunchtime (10am-3pm)
and “snacking” (3pm-5pm) trade typically targets males in the 18-24 age demographic with individual meal offerings,
whereas dinner (5pm onwards) primarily caters to the family market through “full meal replacement” bundles.
In FY2011, individual and family meals represented approximately 96% of Collins Foods’ KFC sales.
Collins Foods can vary the prices of its KFC products across its restaurants. This enables it to adjust prices to allow for
regional variations; for example, higher delivery costs for restaurants in regional areas.
Collins Foods offers new products and LTOs in its KFC restaurants to maintain and grow sales from existing
restaurants, as well as sustain brand awareness among its customers, reach new consumer demographics and
address different parts of the day. (Further details on the development of new products and LTOs are provided
in section 2.2.8.)
Since January 2006, Collins Foods has introduced 27 new KFC products to its KFC restaurants. Key examples of new
products include the All Stars Box, Mega Bucket and Krushers.
Individual meals
Family meals
Snacks
60% of FY2011 KFC revenue
36% of FY2011 KFC revenue
4% of FY2011 KFC revenue
LTOs
Percentage of revenues included in individual meals and family meals above
25
COLLINS FOODS LIMITED PROSPECTUS
2.2.5 What are the KFC advertising and marketing arrangements?
The KFC brand, one of the most recognised food brands in Australia, provides Collins Foods with a competitive
advantage when advertising and marketing its products.
Leading brand awareness in Australia
90
McDonald’s
80
70
Unprompted
60
Hungry Jack’s
50
Subway
40
Red Rooster
30
Pizza Hut
Domino’s Pizza
Eagle Boys Pizza
20
10
Oporto
0
40
50
Muffin Break
60
Nando’s
70
Prompted
Donut King
80
Gloria Jean’s
Wendy’s
90
100
Source:BIS Shrapnel Pty Ltd – Fast Food in Australia 2011. Unprompted awareness: Respondents were asked which chains came to mind when thinking
of fast food and snack food chains. Prompted awareness: Respondents were asked which chains they were aware of from a list of fast food and
snack food chains.
To maintain and promote the awareness of the KFC brand, KFC franchisees in Australia typically invest at least 6%
of annual revenue in advertising and promotion. This comprises 5% of annual revenue paid to ADCO which operates
as a national KFC advertising body, and at least a further 1% of annual revenue spent on local advertising and
marketing. Yum! also contributes funds to ADCO in respect of its own KFC restaurant network in Australia.
There are four directors of ADCO nominated by Australian franchisees (including one director nominated by Collins
Foods), and four directors nominated by Yum! (including currently the Chair who holds a casting vote). Examples of the
national advertising and marketing operations of ADCO include:
––
Advertising of the KFC brand and its products on television every week of the year. Typically, two LTO
promotions run simultaneously, with one of these promotions aimed at the individual meal segment and the
other aimed at the home meal replacement segment. KFC LTOs aim to promote product “freshness” and
“innovation”, and provide a “call to action” to both potential and existing customers; and
––
Sponsorship of a number of high profile events and organisations such as Cricket Australia (through events
such as the KFC Twenty20 Big Bash) and World Hunger Relief.
This national marketing provides a number of benefits to Collins Foods including:
––
The development and maintenance of a strong and consistent brand throughout Australia;
––
Participation in the sponsorship of prominent events and organisations that would be difficult or impossible
to sponsor on an individual operator basis; and
––
The production and execution of quality marketing programmes.
2.2.6 What are the KFC supply arrangements?
Collins Foods can use the Yum! supply network, comprising suppliers that Yum! has sourced, or can select its own
suppliers, provided that they meet standards mandated by Yum!. Yum! negotiates material supply contracts in
consultation with the Yum! Supply Council, which comprises representatives from both Yum! and major franchisees.
Collins Foods holds one of the six seats on this council. This allows Collins Foods to convey its views on the purchasing
and other supply arrangements made available via the Yum! supply network.
Collins Foods works to maintain strong, long-standing relationships with key suppliers (including suppliers of chicken
and other key inputs) by undertaking periodic business reviews and joint efficiency initiatives. Collins Foods’ size assists
it to secure required supply volumes at competitive prices. To the extent practicable, Collins Foods agrees pricing for
key commodities in advance to assist it to forecast its forward cost structure. Pricing for over 90% of key commodities
for its KFC restaurants is already contracted for FY2012.
26
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
2.2.7 What is the relationship with Yum!, the owner of the KFC brand?
Yum! is one of the world’s largest restaurant chains in terms of system restaurants and is the global owner and
franchisor of the KFC brand. Yum! operates in over 100 countries and territories with nearly 38,000 restaurants,
including more than 15,000 owned or franchised KFC restaurants.
Collins Foods receives a number of benefits from its relationship with Yum!, including:
––
Use of the highly recognised KFC brand, and associated intellectual property;
––
Access to products and marketing strategies developed by Yum!’s investment in research and development;
––
Participation in national KFC advertising and marketing arrangements;
––
Ongoing training and assistance; and
––
Access to the Yum! supply chain and buying power, which can assist to reduce supply costs.
Collins Foods operates all its KFC restaurants under single-site franchise agreements and various ancillary agreements
(discussed further below) with Yum! as franchisor. Upon Completion of the Offer, Collins Foods will pay upfront
franchise fees 1 and new franchise agreements with Yum! will commence for 116 Collins Foods KFC restaurants,
with an average term of approximately 10 years 2.
Upon expiry, Collins Foods also has the option to renew each of those franchise agreements for a further 10 years
on payment of the required fee at the time of renewal 3. Under these franchise agreements, Collins Foods must pay
a royalty fee of 6% of annual revenues of its KFC restaurants to Yum!. While currently the only KFC operator in
Queensland, Collins Foods does not have exclusive rights to operate KFC restaurants in that state. Refer to section 8.1
for a summary of key terms and conditions of these arrangements.
Franchise arrangements with Yum! are significant to Collins Foods’ KFC business. In addition to royalty and advertising
arrangements, Collins Foods has a number of further obligations under the franchise agreements, including ensuring
its KFC restaurants are upgraded to the brand standards mandated by Yum! (refer to sections 2.2.8 and 8.1.2). If Yum!
terminated or refused to renew a franchise agreement for a particular site, Collins Foods could not continue to operate
that site as a KFC restaurant (or certain other types of restaurant – refer to sections 4.1.3 and 8.1.1).
Collins Foods intends to continue to maintain a close working relationship with Yum! and adhere to Yum!’s branding
and refurbishment requirements. Collins Foods continues to work closely with Yum! through its membership of
a number of KFC councils which oversee key areas of KFC operations in Australia. These include ADCO, the Supply
Council, the Development Council and the Operations Council. As Australia’s largest KFC franchisee, Collins Foods
is an active member of these councils.
2.2.8 What are the strategies for KFC?
Collins Foods’ KFC strategy is to remain one of the pre-eminent QSR restaurant operators in Queensland, with growth
strategies focusing on:
––
Expanding product range and day parts;
––
Refurbishing its existing restaurant network;
––
Establishing new restaurants;
––
Ongoing operational excellence; and
––
If appropriate acquisition opportunities arise, it will also consider expanding into other states of Australia
(subject to Yum! approval).
Expanding product range and day parts
The introduction of new products and the expansion of existing products to target new day parts is designed to
increase the revenue and profitability of existing restaurants. Future initiatives for Collins Foods in this area may include:
––
1
2
3
Extending opening hours to target different parts of the day:
––
Late night trading hours have been trialled at 10 KFC restaurants on the Gold Coast and Brisbane
in 2010, with further testing being considered by Collins Foods; and
––
Evaluating the introduction of a breakfast menu. This is currently being trialled by Yum! at
Sydney Airport.
The franchise fee is $43,800 (plus GST) per KFC restaurant, which will be paid out of available cash.
Collins Foods has decided not to renew agreements for three of its restaurants as it plans to close these restaurants within the next five years.
The renewal fee is 50% of this initial amount (refer to footnote 1 above), indexed by an agreed US consumer price index, per restaurant.
27
COLLINS FOODS LIMITED PROSPECTUS
––
Regularly refreshing the existing product range and improving operations:
––
Introducing new product initiatives and LTOs, including those targeted at the growing “in-between”
meal snacking market; and
––
Introducing new cooking procedures; for example, Collins Foods plans to roll-out the use of high oleic
canola oil in its KFC restaurants to reduce the amount of saturated fat in products.
Day parts (a)
6am
10am
3pm
5pm
10pm1am
Breakfast
Lunch
Snacking
Dinner
Late night
(a)
Solid red (lunch and dinner) represents current core business and light red represents expansion opportunities.
Refurbishing existing KFC restaurants
Collins Foods has an active programme to refurbish existing restaurants. Restaurant refurbishments aim to improve the
appearance of the restaurant, increase seating capacity, increase speed of service and throughput and/or restructure
behind-the-counter meal preparation areas. These refurbishments seek to improve revenue, labour efficiency and
cost control.
The table below describes the types of restaurant refurbishment and provides an indication of the historic per
restaurant capital expenditure for each type of refurbishment.
$ millionHistoric capital expenditure
Refurbishment type
Description
Rebranding
– A rebrand ensures the restaurant remains at minimum Yum! brand standard
FSDT
In-line
Food court
0.1-0.5
0.2-0.3
0.1-0.3
0.8-1.0
n/a
n/a
– Upgrades to the restaurant are focused on
improving the appearance of the restaurant
to customers (such as signage)
Reimaging
– A restaurant reimage typically improves the facilities, seating, layout and back of
house operations
– There is generally a higher capital expenditure
for a reimage than a rebrand
Relocation
– A relocation is the closure of a restaurant and reopening at another location
0.7 (a)-3.0n/a 0.6
– This occurs when either an appropriate lease
renewal cannot be renegotiated or the site no
longer satisfies the demographic profile
Rebuild
(a)
– A complete rebuild on an existing site location
Unique FSDT as part of a service centre.
0.7 (a)-3.0n/a 0.6
28
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
A range of factors affect the success of a restaurant refurbishment, including restaurant location, the extent and
nature of the QSR competition the restaurant faces, the proximity of the restaurant to other existing KFC restaurants
as well as the prevailing economic conditions at the time of refurbishment.
Since September 2005, Collins Foods has refurbished 35 of its KFC restaurants. These refurbished restaurants
generated an average weighted cash return on invested capital (ROIC) of 24% 1 in the year following completion
of the refurbishment.
$ million
Refurbishment type
Collins Foods: example KFC restaurant refurbishments (a)
Rebrand
Reimage Relocation/rebuild
Average since
September
2005
Myer Centre
Greenslopes
Capalaba
Restaurant format
Food court
FSDT
FSDT
Refurbishment date
April 2008
May 2006
January 2009
Capital expenditure (b)
0.3
0.8
2.2
Sales pre refurbishment
2.4
1.8
n/a n/a (d)
Year 1 sales (post refurbishment)
2.8
2.6
3.6
2.5
EBITDA pre refurbishment
0.5
0.4
n/a n/a (d)
Year 1 EBITDA (post refurbishment)
0.5
0.6
0.6
0.5
EBITDA uplift (%)
17%
66%
n/a Year 1 ROIC
29% (c)
31% (c)
Location
November 2005September 2009
0.8
(d)
(d)
(d)
n/a (d)
28% (d)
24% (e)
(a)Past performance of a particular location is not a reliable indicator of future performance at those or other locations.
(b)Collins Foods’ contribution to capital expenditure, excluding landlord contribution (if any).
(c)ROIC measured as (Year 1 EBITDA post refurbishment less EBITDA pre refurbishment)/capital expenditure.
(d)ROIC measured as Year 1 EBITDA/capital expenditure. Relocation and rebuild returns treated as new restaurants therefore do not have
pre refurbishment sales or EBITDA.
(e)Average across all refurbishments since September 2005.
Collins Foods intends to refurbish 22 KFC restaurants in FY2012 and a further 62 restaurants over the following four
years, which is consistent with Collins Foods’ obligations under its arrangements with Yum! to ensure that all of its
restaurants satisfy Yum!’s brand standards by that time. All of these restaurants have been identified by Collins Foods
and approved for refurbishment by Yum! subject to Yum!’s approval of specific refurbishment plans. Refer to sections
8.1.1 to 8.1.2 for further information on these arrangements with Yum!. Following this period, Collins Foods intends to
maintain a regular refurbishment programme consistent with its ongoing business strategy and franchise obligations.
The table below shows the incremental forecast FY2012 revenue and EBITDA impact of the restaurant refurbishment
plan, as well as the estimated incremental annualised contribution.
Incremental FY2012 earnings from the restaurant refurbishment plan
$ million
FY2012Estimated annualised contribution (a)
Revenue
0.96.7
EBITDA
0.22.2
(a)
Annualised for 12 months’ contribution, indicative measure only.
1Eight of the 35 restaurants have been excluded from the historic ROIC calculations; seven as they have not traded for a full year, and an
additional restaurant which experienced abnormal trading as part of an overall shopping centre redevelopment. Rebranding and reimaging ROIC
measured as (Year 1 EBITDA post refurbishment less EBITDA pre refurbishment)/capital expenditure. Relocation and rebuild ROIC measured as
Year 1 EBITDA/capital expenditure. Relocation and rebuild returns treated as new restaurants therefore do not have pre refurbishment sales
or EBITDA.
29
COLLINS FOODS LIMITED PROSPECTUS
Establishing new KFC restaurants
Collins Foods has an active programme for the establishment of new restaurants. Further details on its processes for
locating and developing sites are provided in section 2.5.1.
In FY2012, Collins Foods plans to open six new KFC restaurants at sites which have already been identified. A further
19 geographic areas that Collins Foods believes could be suitable for new restaurant sites in the following four years
have also been identified, and are currently being investigated. Yum! has agreed to the development of seven sites
per year in Queensland for the next five years (subject to site availability and final Yum! approval).
The table below shows the forecast FY2012 revenue and EBITDA impact of new restaurants, as well as the estimated
annualised contribution.
$ million
FY2012Estimated annualised contribution (a)
Revenue
3.614.5
EBITDA
0.42.0
(a)
Annualised for 12 months’ contribution, indicative measure only.
Collins Foods has achieved strong average returns from the establishment of new restaurants. There have been 12 new
KFC restaurants opened since September 2005, which have generated an average weighted cash ROIC of 38% 1 per
restaurant in the year following opening. The majority of restaurants opened since September 2005 have been located
in food courts, which incur a lower average build cost compared to the FSDT format.
Collins Foods also assesses the closure of restaurants in appropriate circumstances. For example, it has closed
restaurants if commercial renewal terms could not be reached with the lessor, or if management believed that the
demographics or market conditions at a particular restaurant no longer supported the restaurant. Collins Foods has
closed five restaurants in the last five years, and expects to close three restaurants within the next five years.
$ million
Collins Foods: example KFC restaurant roll-outs (a)
Location
Riverlink
Plainlands
Restaurant format
Food court
FSDT, service centre
Opening date(s)
April 2007
August 2009
October 2005August 2009
Capital expenditure
0.5
0.8
0.8
Year 1 sales
1.6
2.2
1.8
0.3
0.3
0.3
52%
38%
38%
Year 1 EBITDA
Year 1 ROIC (b)
Average since
September 2005
(a)Actual historical restaurant case studies. Note, past performance of a particular location is not a reliable indicator of future performance at those
or other locations.
(b)ROIC measured as Year 1 EBITDA/capital expenditure.
1Two of the 12 restaurants have been excluded from the historic ROIC calculations as they have not traded for a full year. Calculated as Year 1
EBITDA/capital expenditure (excluding landlord contribution, if any).
30
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
Operational excellence
Collins Foods is continually focused on improving the KFC customer experience, the quality and skills of its
workforce, and the speed of service. Improving these areas drives increased restaurant revenue, reduces costs and
enhances profitability.
––
Continuing to enrich the customer experience:
––
––
Initiatives such as the CHAMPS mystery shopper programme (CHAMPS). Twice each month a “mystery
shopper” employed by an external company assesses each KFC restaurant on a number of customer
focused key performance indicators (cleanliness, hospitality, accuracy, maintenance, product quality
and speed of service). Feedback is provided to Collins Foods to assist it to improve its operations and
customer service.
Staff training initiatives:
––
––
Employee skills’ training programmes aimed at improving customer service and nationally accredited
retail and management traineeships
Automation and increasing speed of service:
––
Introducing self-ordering automated kiosks. This is currently being tested by Collins Foods at five
restaurants, with further trials planned. To date, average customer spend at kiosks has been higher
than at traditional front counters;
––
The introduction of a “tap and go” contactless payment card system which will increase the speed
of the customer order process; and
––
Evaluating the introduction of an online ordering system, to drive revenue growth, assist in the
optimisation of labour and service utilisation, reduce costs and increase profitability.
Collins Foods’ annual KFC same store sales growth (SSSG) has averaged approximately 5.9% since FY2002.
The expansion of KFC’s product range and day parts, as well as initiatives of the nature referred to above, have
also contributed to this growth. Collins Foods intends to pursue this strategy to drive KFC’s SSSG in the future.
SSSG FY2002-FY2012 (a)
Actual
Forecast
11.8
9.9
9.5
10.0
8.1
(%)
6.6
5.0
6.5
Average = 5.9%
4.3
4.2
2.8
1.5
0.0
(3.7)
(5.0)
FY2002
(a)
(b)
(c)
FY2003
FY2004
FY2005
FY2006
Past performance is not a reliable indicator of future performance.
Refer to section 3.7 for management discussion and analysis.
For more information, refer to section 3.8.
FY2007
FY2008
FY2009 (b)
FY2010 (b)
FY2011 (b)
FY2012 (c)
31
COLLINS FOODS LIMITED PROSPECTUS
Collins Foods’ KFC restaurants recorded negative SSSG in FY2010, which Collins Foods believes was a result of weak
economic conditions in Queensland attributable to the global financial crisis reducing consumer confidence and levels
of activity in the tourism industry, competitors increasing the opening hours of their restaurants and lower than
expected levels of sales of the Cayan Grill LTO.
In the fourth quarter of FY2011, the rate of growth in total turnover was greater for the Queensland takeaway food
services market than for the Australian takeaway food services market. Collins Foods’ KFC restaurants rate of SSSG was
higher than the rate of growth in total turnover for the Queensland takeaway food services market in FY2011.
Quarterly SSSG – FY2010-FY2011 (%) (a)
20.0
KFC SSSG
Queensland takeaway food services spend growth(b)
National takeaway food services spend growth(c)
15.0
10.0
%
6.0
5.0
0.0
1.3
0.7
(5.0)
(3.3)
1QFY2010
2QFY2010
(5.9)
(5.3)
3QFY2010
4QFY2010
2.5
(3.7)
1QFY2011
2QFY2011
3QFY2011
4QFY2011
(a)
Past performance is not a reliable indicator of future performance.
(b)Turnover ($ million): Queensland takeaway food services, series ID A3349718A.
(c)Turnover ($ million): Total (state) takeaway food services, series ID A3349388W.
Source: Australian Bureau of Statistics, 8501.0 Retail Trade, Australia (April 2011): TABLE 11. Retail Turnover, State by Industry Subgroup, Original.
32
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
Potential KFC consolidation opportunities
There is a potential opportunity for Collins Foods to expand by acquiring KFC restaurants from smaller KFC franchisees
in other Australian states, subject to approval from Yum!. Collins Foods has more than twice as many KFC restaurants
in its network than the next largest franchisee in Australia.
While Collins Foods is not currently involved in any such discussions, the ability to introduce Collins Foods’ systems, centralised
shared service functions (discussed in section 2.5) and its scale advantages, may allow Collins Foods to generate performance
improvements in acquired restaurants.
Ownership of KFC restaurants in Australia
Number of restaurants by operator
Collins Foods
119
Yum! owned and operated 160
Other
326
Total
605
5 0(e) 0
NT
119 1
QLD(a)
45 2
2
0
WA
2 1(c) 40
SA
NSW
ACT
Number of franchised restaurants
Number of franchisees
Number of Yum! owned and operated restaurants
8 0(d) 0
147 17 23
VIC
TAS
(a)Including two restaurants in Tweed Heads, NSW, near the Queensland border.
(b)Three franchisees are also located in other states.
(c)One franchisee is also located in another state.
(d)One franchisee is also located in another state.
(e)Two franchisees are also located in other states.
119 22(b) 82
0
0 13
33
COLLINS FOODS LIMITED PROSPECTUS
2.3
Sizzler Australia
2.3.1 What is Sizzler’s position in the Australian restaurant industry?
In Australia, Sizzler operates in the casual dining market, which is a segment of the Australian restaurant industry.
Casual dining is characterised by a restaurant format that offers seated dining in a relaxed, informal atmosphere.
Sizzler operates a pay first, unlimited self service model that allows customers to select, order and pay for their meals
before being seated at a table. This model reduces costs by requiring fewer staff, and increases revenues through
higher average table turns, than if Sizzler operated as a traditional table service restaurant. It also assists Collins Foods
to offer customers value for money.
In the casual dining segment, Sizzler’s key competitors are:
––
Licensed clubs including RSL, sports and surf lifesaving clubs;
––
Pubs, hotels and bars; and
––
Chained and non-chained cafés.
Key areas of competition among restaurants in the casual dining segment include location, food quality and
innovation, value for money, child friendly atmosphere and speed of service. Collins Foods seeks to ensure that
it offers its customers all of these factors across each of its Sizzler restaurants.
2.3.2 What is the scale of Collins Foods’ Sizzler business and where is it located?
Collins Foods owns and operates 26 Sizzler restaurants, primarily in Queensland, together with a presence
in Western Australia and New South Wales.
Sizzler Australia (number of owned and operated restaurants)
Cairns
Townsville
NT
Rockhampton
QLD
Bundaberg
WA
Toowoomba
Maroochydore
BRISBANE (11 restaurants)
Gold Coast
SA
NSW
PERTH (5 restaurants)
SYDNEY (3 restaurants)
ACT
VIC
TAS
93% of people within reach of a Sizzler have visited at least once
65% of people within reach of a Sizzler have visited in the last 12 months
80% of customers have visited between once and three times a year, and
20% of customers have visited four or more times a year
Over 80% of visits to a Sizzler are repeat visits
Being the owner of the Sizzler trademark in Australia and more than 68 other countries 1 has enabled Collins Foods
to franchise 59 Sizzler restaurants in Asia, predominantly in Thailand, Japan and China. In FY2011, Sizzler’s Australian
restaurants contributed 98% of Sizzler’s total revenue and are the focus of this section 2.3. Sizzler’s Asian franchised
restaurants contributed the balance (and are discussed further in section 2.4).
1
93% of people within reach
80% of customers have visited
of a Sizzler have visited at
between once and three times a
the United States, Guatemala
and
Puerto
Rico.
leastExcluding
once
year, and
20%
of customers
have
65% of people within reach of
visited four or more times a year
34
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
As with its KFC restaurants, the scale of Collins Foods’ Sizzler restaurant network provides a number of
benefits including:
––
Limited reliance on the earnings of particular restaurants, with no individual Sizzler restaurant contributing
more than 10% to Collins Foods’ Sizzler EBITDA 1 in FY2011;
––
Close proximity of its restaurants to existing and potential customers;
––
High brand exposure and increased effectiveness and efficiency of advertising campaigns;
––
Enhanced ability to secure new sites (given its status as a large, established operator of restaurants); and
––
Economies of scale which facilitate a significant shared services platform (refer section 2.5) and ability to
leverage the product sourcing scale of Collins Foods’ KFC business for common food inputs, such as chicken
and beverages.
2.3.3 What Sizzler restaurant formats does Collins Foods operate?
Sizzler operates two restaurant formats, being free standing and shopping centre located restaurants. These formats
enable Collins Foods to position its Sizzler restaurants in different locations and service a greater cross section
of customers.
Sizzler restaurant formats
Free standing
Shopping centre
18 restaurants
8 restaurants
–– Stand-alone restaurants
–– Restaurants located in major shopping strips
–– Dedicated internal seating
–– Internal dedicated seating
–– Dedicated car park facilities
–– Typically located near the entertainment area
of the shopping centre so as to capture the lunch
and dinner trade
Redcliffe
Toowong
Sizzler restaurants are open to customers seven days a week for lunch and dinner, with the majority of restaurants
opening for breakfast on Sundays.
2.3.4 What are the Sizzler products and service structures?
Sizzler’s key product offering is its signature unlimited self service salad and beverage bar. The salad bar includes
soups, salads, desserts and is the primary purchase for approximately 57% of customers. In addition, Sizzler offers
various grilled items such as chicken, red meat and seafood. Menus and pricing structures vary during the day to meet
changing customer demands.
Collins Foods’ Sizzler restaurants promote quality, abundance, value, choice and convenience to their customers.
All salads are produced fresh daily, which allows Collins Foods to maintain the quality of its core menu item. Sizzler
has a dedicated food and menu development team whose role is to create new menu items to provide variety for
customers. This is an important part of Collins Foods’ Sizzler strategy, as over 80% of visits to a Sizzler are repeat visits.
1
EBITDA before corporate costs.
35
COLLINS FOODS LIMITED PROSPECTUS
Collins Foods sets the price of its salad bar and grill offerings after considering a range of factors including: minimum
required margin levels, competitor pricing levels for equivalent offerings and overall customer sensitivity to certain price
points. If required, Sizzler can vary the composition of the salad bar to adjust for changes in the availability and cost
of ingredients in order to maintain its margins.
Salad bar
Grill items
FY2011 Sizzler meal sales by menu item (a)
9%
7%
8%
8%
57%
11%
Salad bar
Steak
Seafood
Chicken
Kids
Others
(a)By customer count. Excludes beverage bar as not classified as a meal, salad bar represents the percentage purchasing the salad bar only,
dinner grill menus also include the salad bar.
Sizzler is targeted at families and women aged between 24 and 40 who Collins Foods understands seek consistent
quality and convenient service that is family friendly and offers a variety of choice at reasonable prices.
2.3.5 What are the Sizzler advertising and marketing arrangements?
The Sizzler brand attracts customers to Collins Foods’ restaurants. To maintain and promote the awareness of
the Sizzler brand, Collins Foods invests approximately 4%-5% of total Sizzler annual revenues on advertising and
marketing. Collins Foods markets the Sizzler brand through television, direct mail, print, radio and social media.
Three examples of Sizzler’s advertising and marketing efforts include:
––
Television advertising campaigns in Queensland and Western Australia to promote each seasonal menu;
––
Sponsoring a 30 minute food-based radio programme in Queensland; and
––
Sponsorship of various sporting teams including the Gold Coast Titans and the Ocean’s 38 Surf Life
Saving competitions.
2.3.6 What are the Sizzler supply arrangements?
Collins Foods works to maintain strong relationships with existing suppliers, and seeks to leverage its KFC supply
relationships where possible. Collins Foods’ Sizzler restaurants contract fewer inputs in advance of immediate
requirements than its KFC restaurants given Sizzler’s focus on seasonal produce, which assists in the regular variation
of the composition of the salad bar.
36
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
2.3.7 What are the strategies for Sizzler?
Collins Foods’ strategy for its Australian Sizzler business is to continue to offer customers value for money and variety
of choice, underpinned by its signature salad bar. Collins Foods’ growth strategies for Sizzler Australia will focus on:
––
Refurbishing existing restaurants;
––
Opening new restaurants; and
––
Operational initiatives and innovations to increase the efficiency, revenues and profitability of its
existing restaurants.
Refurbishing existing Sizzler restaurants
Collins Foods has an active programme to refurbish its existing restaurants. Through refurbishments, Sizzler seeks
to increase in-restaurant seating capacity and modernise the overall restaurant layout with the goal of increasing
customer numbers and restaurant profitability.
Depending on the size and complexity, a refurbishment can cost between $0.2 million to $1.5 million. In FY2012,
Collins Foods plans to refurbish four Sizzler restaurants.
The table below shows the forecast FY2012 revenue and EBITDA impact of the restaurant refurbishment plan,
as well as the estimated annualised contribution.
$ million
FY2012Estimated annualised contribution (a)
(b)
Revenue(0.1) 0.8
(b)
0.2
EBITDA(0.1) (a)
(b)
Annualised for 12 months’ contribution, indicative measure only.
Negative contribution due to timing of restaurant closure and reopening late in FY2012.
Since 2007, Collins Foods has refurbished five of its Sizzler restaurants. These refurbished restaurants generated
an average weighted cash ROIC of 18% 1 in the year following completion of the refurbishment.
$ million
Location
Collins Foods: example Sizzler restaurant refurbishments (a)
Toowong
Maroochydore
Redcliffe
Shopping centre
Free standing
Free standing
Dec 2007
Aug 2008
Nov 2008
Capital expenditure (b)
1.1
0.7
1.1
1.0
Sales pre refurbishments
2.7
4.0
2.8
3.2
Year 1 sales (post refurbishments)
3.8
4.6
3.6
4.0
EBITDA pre refurbishments
0.2
0.6
0.3
0.4
Year 1 EBITDA (post refurbishments)
0.4
0.7
0.5
0.5
109%
23%
71%
51%
19%
20%
17%
18%
Restaurant format
Refurbishment date
EBITDA uplift (%)
Year 1 ROIC (c)
Average
since
2007
(a)Past performance of a particular location is not a reliable indicator of future performance at those or other locations. $ figures have been
rounded to 1 decimal point.
(b)Collins Foods’ contribution to capital expenditure, excluding landlord contribution (if any).
(c)ROIC measured as (Year 1 EBITDA post refurbishment less EBITDA pre refurbishment)/capital expenditure.
Opening new Sizzler restaurants
Collins Foods has an active programme to identify potential new Sizzler restaurant sites. In FY2012, it plans to
open two new Sizzler restaurants and has fully agreed lease terms for one restaurant and identified the target
geographical area for the second restaurant. It will cost approximately $3.0 million to build each of these new Sizzler
restaurants. Collins Foods has also identified seven further geographical areas in Queensland, Western Australia and
New South Wales that may be suitable for new Sizzler restaurants in the next four years.
1
Two of the five restaurants have been excluded from the historic ROIC calculations as they have not traded for a full year.
37
COLLINS FOODS LIMITED PROSPECTUS
The table below shows the forecast FY2012 revenue and EBITDA impact of new restaurants, as well as the estimated
annualised contribution.
$ million
FY2012Estimated annualised contribution (a)
Revenue
2.610.4
EBITDA
0.31.6
(a)
Annualised for 12 months’ contribution, indicative measure only.
Collins Foods is also investigating an alternative restaurant format, “Sizzler Express” which is a smaller footprint version
of the current Sizzler restaurants. It is being assessed by Collins Foods for its potential to generate revenues in food
court and kiosk locations where traditional Sizzler formats would not be suitable.
Sizzler operational initiatives and innovations
Operational initiatives and innovations have the potential to increase the efficiency, revenues and profitability of
existing restaurants through:
––
New menu items and improvements to its menu range. For example, recent changes to simplify Sizzler’s menu
had the effect of reducing order times and inventory levels and increasing the quality of the food served to
customers; and
––
Better labour and space utilisation in its restaurants.
Collins Foods’ annual Sizzler SSSG has averaged approximately 6.3% since FY2002. The implementation of operational
initiatives and innovations have also contributed to this growth. Collins Foods intends to pursue this strategy to drive
Sizzler’s SSSG in the future.
SSSG FY2002-FY2012 (a)
Actual
Forecast
9.0
8.4
7.7
(%)
7.5
7.1
7.6
7.1
7.0
6.7
Average = 6.3%
5.0
2.5
1.1
1.0
1.3
FY2010 (b)
FY2011 (b)
FY2012 (c)
0.0
FY2002
(a)
(b)
(c)
FY2003
FY2004
FY2005
FY2006
Past performance is not a reliable indicator of future performance.
Refer to section 3.7 for management discussion and analysis.
For more information, refer to section 3.8.
FY2007
FY2008
FY2009 (b)
38
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
2.4
Sizzler Asia
Collins Foods is the franchisor of 59 Sizzler restaurants in Asia, where its “western style” menu has an established track
record and provides a platform for future growth. Its restaurants are located in Thailand, China, Singapore, Korea,
Japan and the United Arab Emirates. In FY2011, system-wide sales generated by Collins Foods’ Sizzler franchisees
in Asia were $98 million, of which the majority were in Thailand (57%) and Japan (24%).
Sizzler Asia’s franchising model differs from Sizzler Australia (where Collins Foods owns and operates its own
restaurants), and potentially enables Collins Foods to encourage the expansion of the Sizzler brand in Asia with
lower capital requirements than under an owner/operator model. Another key difference is that Sizzler Asia offers
a “full service” model given the relatively lower labour costs in Asia.
Sizzler Asia (a) (number of franchised restaurants)
JAPAN (9)
KOREA (2)
CHINA (6)
THAILAND (39)
SINGAPORE (2)
(a)
One additional restaurant in the United Arab Emirates (not shown).
Under its franchise arrangements, Collins Foods has appointed a franchisee for each country (or in the case of China,
a franchisee for each city) in which a Sizzler restaurant is to be established. Franchisees do not have exclusive rights to
operate Sizzler in that country; however, the franchise arrangements are structured to encourage franchisees to grow
restaurant numbers.
Each franchised Sizzler restaurant in Asia is covered by a separate franchise agreement under which the franchisee
must pay Collins Foods an initial franchise fee of between US$10,000 and US$50,000 and a royalty of between
2%‑5% of revenue. Sizzler franchisees are required to comply with standards and procedural manuals supplied
by Collins Foods. A typical franchise agreement provides for an initial 20 year term with a renewal option for an
additional 20 years.
Collins Foods’ Sizzler Asia strategy is to grow restaurant numbers (particularly with the existing partners in Thailand,
Japan and China) and also expand into other South East Asian territories such as Vietnam, Cambodia and Laos
through new and existing franchisees. Collins Foods believes its experience, established presence in Asia and current
relationships with its larger franchisees is a solid platform from which to implement this strategy.
39
COLLINS FOODS LIMITED PROSPECTUS
2.5
What are the shared services arrangements?
Collins Foods’ scale enables it to benefit from operating a shared services structure across its KFC and Sizzler
restaurants. The key shared services are: property, human resources, quality control, IT and finance.
2.5.1 What are the centralised property services functions?
Dedicated team
Collins Foods has a dedicated property services team that manages the site leases and renewal renegotiations for both
its KFC and Sizzler branded restaurant sites. The team is also responsible for identifying potential sites for new KFC and
Sizzler restaurants.
This dedicated team assists Collins Foods to:
––
Develop and maintain long-term relationships with landlords and property developers;
––
Ensure it has access to a sufficient number of new sites and reduce the risk that Collins Foods could be unable
to open new KFC or Sizzler restaurants in accordance with its capital expenditure programme;
––
Reduce the risk that new restaurants are unprofitable because they are not supported by a sufficient catchment
area or cannibalise revenue from existing restaurants; and
––
Reduce the risk that the refurbishment of existing KFC and Sizzler restaurants is over-capitalised.
Management of existing leases
Collins Foods attempts to stagger lease expiry dates over a number of years to minimise the number of leases that
expire in any one single year, as well as to attempt to ensure the alignment of lease expiry dates with franchise renewal
dates in the case of its KFC restaurants.
Collins Foods has commenced a process to obtain consents from its landlords for the change of control arising from
the Offer and does not expect any issues material to the business will arise in relation to the process.
The chart below indicates the number of landlords across Collins Foods’ property portfolio (both KFC and Sizzler).
Leases by landlord (a)
Leases held by multi-unit
landlords (5-7 leases)
Leases held by multi-unit
landlords (3-4 leases)
Leases held by multi-unit
landlords (2 leases)
Leases held by single-unit
landlords
(a)
21%
5%
64%
10%
Excludes four restaurant sites owned by Collins Foods.
What are the existing KFC lease arrangements?
All but one of the sites for Collins Foods’ 119 KFC restaurants are leased. This reduces the capital investment required
to establish and maintain its restaurants. No single landlord leases more than seven KFC sites to Collins Foods.
A profile of the lease expiry dates for the leases is provided below; the average remaining lease term for its KFC
restaurants is approximately eight years, inclusive of renewal options. Collins Foods seeks to spread lease expiries
to reduce the potential for non-renewals to disrupt its KFC business.
40
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
KFC lease expiry profile (by term to expiry) (a)
11%
<5 years
5-10 years
10-15 years
>15 years
29%
18%
42%
(a)Excludes one restaurant site owned by Collins Foods. Assumes full exercise of all available options.
What are the existing Sizzler lease arrangements?
Collins Foods leases 23 of its 26 Sizzler restaurant sites. This reduces the capital investment required to establish and
maintain its restaurants.
No single landlord leases more than two Sizzler sites to Collins Foods. A profile of the lease expiry dates for the leases
is provided below with the average remaining lease term for its Sizzler restaurants being approximately seven years,
inclusive of renewal options. Collins Foods seeks to spread lease expiries to reduce the potential for non-renewals
to disrupt its Sizzler business.
Sizzler lease expiry profile (by term to expiry) (a)
5% 4%
<5 years
5-10 years
10-15 years
>15 years
39%
52%
(a)Excludes three restaurant sites owned by Collins Foods. Assumes full exercise of all available options.
Identification and assessment of new sites
Collins Foods reviews and assesses potential new sites using a range of factors such as demographics, population
and population growth, actual and expected timeframes for receiving government planning approvals and actual and
expected commercial activity. An evaluation is performed to compare the potential site to established benchmarks for
profitability and return on capital employed and to ensure that any cannibalisation of existing restaurant profitability
is identified and minimised.
Collins Foods also periodically considers developments in conjunction with petrol station operators to co-locate on
larger regional sites. This assists Collins Foods by reducing the overall site cost and allowing it to access sites that are
otherwise not economically viable.
41
COLLINS FOODS LIMITED PROSPECTUS
2.5.2 What are the centralised employee functions?
Collins Foods employs a workforce comprising approximately 700 full time staff and 6,000 casual and part time staff,
and manages the payroll and associated human resources functions centrally from its head office. Centralisation of
these functions assists Collins Foods to apply consistent human resources policies and achieve economies of scale,
thereby reducing costs and increasing profitability.
Collins Foods has implemented specific strategies to attract and retain senior management with extensive experience
in the QSR market and to maintain an experienced employee base. These strategies include:
––
The use of incentive-based remuneration structures that are linked to key performance indicators;
––
The availability of work skills and training programmes; and
––
Opportunities to study towards nationally recognised qualifications.
All of these initiatives seek to lower the level of employee turnover experienced by Collins Foods. The benefits of lower
staff turnover are:
––
Improved customer service levels;
––
Lower operational costs and increased efficiencies, revenues and profitability; and
––
Reduced risks, including all of the key risks identified in section 4.1.
Collins Foods has a strong track record in the QSR and casual dining markets of retaining full time employees, assisted
by its preference to promote internal candidates over external hiring. More than 15% of Collins Foods’ full time KFC
employees have more than 15 years’ service.
2.5.3What are the centralised quality control functions?
Collins Foods has a variety of formalised quality control systems and procedures in place, including:
––
Operational procedures and manuals (the majority of which are provided by Yum! in the case of KFC), which
cover food handling procedures that have been the subject of in-house and third party testing as well as
occupational health and safety (OH&S) procedures to minimise the number and extent of OH&S incidents;
––
The preparation and delivery to senior management (including the CEO and CFO) of operational reports,
detailing all health and food safety issues;
––
In-house and third party audits of customer service standards and compliance with food safety standards; and
––
The installation of closed-circuit television systems in the majority of restaurants.
This assists Collins Foods to:
––
Increase customer frequency;
––
Reduce the risk of an operational lapse in food safety or sanitation procedures or malicious tampering
(refer section 4.1.1) resulting in the occurrence of a serious food-poisoning incident;
––
Ensure compliance with food industry regulations; and
––
Reduce its exposure to litigation (refer section 4.2.11).
2.5.4What are Collins Foods crisis and related management functions?
Collins Foods has an active programme to ensure that it is able to respond to an operational crisis including a food
safety or sanitation incident (refer section 4.1.1) and has prepared and maintains a crisis manual. Collins Foods has also
implemented operational changes in seeking to reduce the risk of such an incident occurring, including the installation
of closed-circuit television cameras at the majority of its restaurants and a policy that at least one staff member should
monitor customer access to the Sizzler salad bar. Collins Foods also maintains insurance cover for such events.
42
COLLINS FOODS LIMITED PROSPECTUS
2
company
Overview
2.5.5What are the centralised IT and finance functions?
Collins Foods has dedicated IT and finance teams. It uses a number of third party IT and finance systems for both its
KFC and Sizzler restaurants. These systems assist senior management to track Collins Foods actively on a daily basis
across a number of key performance indicators including daily sales performance, inventory and staffing levels.
At the restaurant level, each restaurant has a number of IT systems designed to maximise throughput and ensure
ordering and food preparation efficiency. Collins Foods conducts periodic reviews of its systems, with the aim of
optimising work processes and identifying and assessing operating efficiencies for potential implementation. Other
controls such as double-keyed safes, periodic skimming of registers, detailed point of sale transaction recording, and
the installation of closed-circuit television cameras in the majority of restaurants have also been implemented to lower
inventory shrinkage and ensure cash handling procedures are adhered to.
2.5.6What community initiatives is Collins Foods involved in?
Collins Foods is committed to supporting the communities in which it operates. Collins Foods launched a workplace
giving programme in 2008, which provides employees with the opportunity to donate to charities through a pre-tax
payroll contribution. Collins Foods also matches staff donations (up to an annual cap of $0.1 million).
43
COLLINS FOODS LIMITED PROSPECTUS
3
Financial
information
KFC Mega Bucket
44
COLLINS FOODS LIMITED PROSPECTUS
3
Financial
information
3.1Introduction
The financial information for Collins Foods contained in section 3 has been prepared by the Directors and includes:
––
Historical financial information for Collins Foods being the:
––
Pro forma consolidated historical income statements for FY2009, FY2010 and FY2011 (Pro Forma
Historical Results);
––
Pro forma consolidated historical cash flow statements for FY2009, FY2010 and FY2011; and
––
Pro forma consolidated historical balance sheet as at 1 May 2011,
(together the Historical Financial Information); and
––
Forecast financial information for Collins Foods being the:
––
Pro forma consolidated forecast income statement for FY2012 (Pro Forma Forecast Results);
––
Forecast statutory consolidated income statement for FY2012 (Forecast Statutory Results);
––
Pro forma consolidated forecast cash flow statement for FY2012; and
––
Forecast statutory consolidated cash flow statement for FY2012,
(together the Forecast Financial Information).
Historical Financial Information and Forecast Financial Information together forms the Financial Information.
Below is a key to the Financial Information contained in section 3:
Section HeadingPage
3.2
Basis of preparation and presentation of the Financial Information
44
3.3
Consolidated historical and forecast income statements 46
3.4
Consolidated historical balance sheet 50
3.5
Consolidated historical and forecast cash flows
54
3.6
Segment information 55
3.7
Management discussion and analysis of Historical Financial Information
55
3.8
Pro Forma Forecast Financial Information
61
3.9
Sensitivity analysis
66
3.10
Dividend policy
66
All amounts disclosed in the tables are presented in Australian dollars and, unless otherwise noted, are rounded to the
nearest $0.1 million.
3.2
Basis of preparation and presentation of the Financial Information
Collins Foods Limited was incorporated on 10 June 2011, but it will not undertake any trading activities until
Completion of the Offer, being the date that the Offer, and the acquisition of Collins Foods Holding Pty Limited and
SingCo Trading Pte Ltd by a wholly owned subsidiary of Collins Foods Limited completes (which is scheduled to occur
on 4 August 2011).
Collins Foods Holding Pty Limited, which will become a controlled entity of Collins Foods Limited on Completion
of the Offer, owns the Collins Foods’ KFC and Sizzler Australia businesses. The FY2009, FY2010 and FY2011 financial
statements of Collins Foods Holding Pty Limited have been audited by PwC, who have issued unqualified opinions
in respect of all periods. SingCo Trading Pte Ltd, which will also become a controlled entity of Collins Foods Limited
on Completion of the Offer, owns the Collins Foods’ Sizzler Asia business. Further information on the group structure
is set out in section 6.1.3. The Historical Financial Information and the Forecast Financial Information has also been
reviewed and reported on by PwCS, as set out in the Investigating Accountant’s Report in section 7. Investors should
note the scope and limitations of the Investigating Accountant’s Report.
The Financial Information has been prepared and presented in accordance with the recognition and measurement
principles of Australian Accounting Standards, although it is presented in an abbreviated form insofar as it does not
include all the disclosures, statements or comparative information as required by Australian Accounting Standards
applicable to annual financial reports prepared in accordance with the Corporations Act.
45
COLLINS FOODS LIMITED PROSPECTUS
Collins Foods’ key accounting policies are set out in the Appendix.
Segmental disclosure of the Financial Information comprises the Collins Foods KFC business and the Collins Foods
Sizzler business, as set out in section 3.6. These segments are based on Collins Foods’ management reporting system.
3.2.1 Preparation of Historical Financial Information
There are no actual historical consolidated results for Collins Foods Limited. The Historical Financial Information has
been derived from the audited historical consolidated statutory financial statements of Collins Foods Holding Pty
Limited for FY2009, FY2010 and FY2011 after adjusting for pro forma transactions and/or other adjustments to reflect
Collins Foods’ operations following Completion of the Offer and to eliminate non-recurring items, as set out in section
3.3.2, section 3.4.1 and section 3.5.1.
Collins Foods has determined that the acquisition of Collins Foods Holding Pty Limited by its wholly owned subsidiary
on Completion of the Offer does not represent a business combination as outlined in Australian Accounting Standard
AASB3 (AASB3) for accounting purposes. The appropriate accounting treatment for recognising the new group
structure is on the basis that the transaction is a form of capital reconstruction and group reorganisation. Therefore,
the Financial Information included in this Prospectus has been prepared using the principles of a reverse acquisition
by Collins Foods Holding Pty Limited of Collins Foods Limited.
The Financial Information also reflects that a wholly owned subsidiary of Collins Foods Limited will acquire SingCo
Trading Pte Ltd on Completion of the Offer. Collins Foods Limited has evaluated the substance of this transaction
with reference to AASB3 and determined that the transaction represents a business combination as outlined in the
standard. Accordingly, the Financial Information included in this Prospectus has been prepared using the principles
of the acquisition method of accounting in respect of the acquisition of SingCo Trading Pte Ltd, as outlined in the
“Business combinations” policy as set out in the Appendix.
Investors should note that past results do not guarantee future performance.
3.2.2 Preparation of Forecast Financial Information
The pro forma consolidated forecast income and cash flow statements for FY2012 (Pro Forma Forecast Financial
Information) have been derived from the forecast statutory consolidated income and cash flow statements of Collins
Foods Holding Pty Limited for FY2012 after adjusting for pro forma transactions and/or other adjustments to reflect
Collins Foods’ operations following Completion of the Offer and to eliminate non-recurring items, as set out in section
3.3.2 and section 3.5.1.
The Forecast Financial Information has been prepared by the Directors based on an assessment of present economic
and operating conditions and on a number of best estimate assumptions regarding future events and actions as set out
in section 3.8.1 and section 3.8.2. This information is intended to assist investors in assessing the reasonableness and
likelihood of the assumptions occurring, and is not intended to be a representation that the assumptions will occur.
The Forecast Financial Information presented in this Prospectus has been reviewed by PwCS but has not been audited.
Directors believe the best estimate assumptions when taken as a whole to be reasonable at the time of preparing
this Prospectus. However, this information is not fact and investors are cautioned not to place undue reliance on the
Forecast Financial Information.
Investors should be aware that the timing of actual events and the magnitude of their impact might differ from that
assumed in preparing the Forecast Financial Information, and that this may have a material positive or material negative
effect on Collins Foods’ actual financial performance or financial position. Accordingly, neither Collins Foods nor
any other person can give investors any assurance that the outcomes discussed in the Forecast Financial Information
will arise.
The information in section 3 should be read in conjunction with the specific assumptions as set out in section 3.8.1,
the general assumptions as set out in section 3.8.2, the sensitivities as set out in section 3.9, the risk factors as set out
in section 4 and other information in this Prospectus.
Collins Foods Limited has no intention to update or revise the Forecast Financial Information or other forward looking
statements, or to publish prospective financial information in the future, regardless of whether new information, future
events or any other factors affect the information contained in this Prospectus, except where required by law.
46
COLLINS FOODS LIMITED PROSPECTUS
3
Financial
information
3.3
Consolidated historical and forecast income statements
The table below sets out the Pro Forma Historical Results, the Pro Forma Forecast Results and the Forecast
Statutory Results.
Pro Forma Forecast
ForecastStatutory
2
Pro Forma Historical Results 1Results Results
April Y/E, $ million
FY2009
FY2010
FY2011
FY2012
FY2012
Revenue
405.9402.9410.8430.3429.7
Cost of sales
(198.1)
(193.3)
(192.5)
(200.2)
(200.2)
Gross profit
207.8
209.5
218.3
230.1
229.5
Rent
(20.3)(21.0) (22.1)(23.4)(23.4)
Other operating costs
(133.3)
(136.9)
(140.3)
(147.6)
(145.3)
EBITDA
54.2 51.755.959.060.8
Depreciation
(12.9)(13.6)(13.2)(14.0)(14.0)
Amortisation
(1.9)(1.9)(2.0)(1.6)(5.3)
EBIT
39.336.140.843.441.5
Net interest expense
(8.9)
(6.7)
(8.2)
30.4
29.5
(9.2)
(8.9)
Profit before tax
Income tax expense
(8.0)
(24.0)
32.6
35.4
17.5
(9.8)
(10.6)
(1.4)
NPAT
21.320.622.824.716.0
NPATA
22.621.924.125.919.8
Notes:
1.
2.
The Pro Forma Historical Results are reconciled to the Historical Statutory Results in section 3.3.2.
The Pro Forma Forecast Results are reconciled to the Forecast Statutory Results in section 3.3.2.
47
COLLINS FOODS LIMITED PROSPECTUS
3.3.1 Key operating metrics
Set out below is a summary of the Collins Foods’ key historical operating metrics for FY2009, FY2010 and FY2011 derived
from the Pro Forma Historical Results, and the forecast key operating metrics for FY2012 derived from the Pro Forma Forecast
Results and the Forecast Statutory Results.
Pro Forma Historical Results 1Pro Forma
Forecast
ForecastStatutory
2
2
Results Results April Y/E
FY2009
FY2010
FY2011
FY2012
FY2012
Average restaurant numbers 139143144145145
Ending restaurant numbers 3
142143145153153
3, 4
Revenue growth
(0.7%)
2.0%
4.7%
5.3%
51.2%
52.0%
53.1%
53.5%
53.4%
EBITDA growth
(4.6%)
8.2%
5.6%
24.5%
EBITDA margin
13.3%
12.8%
13.6%
13.7%
14.1%
EBIT growth
(8.1%)
12.8%
6.5%
21.1%
9.7%
Gross profit margin
EBIT margin
9.7%
9.0%
9.9%
10.1%
NPAT growth
(3.1%)
10.6%
8.6%
nm 5
NPATA growth
(2.9%)
10.1%
7.2%
nm 5
Notes:
1.
The Pro Forma Historical Results are reconciled to the Historical Statutory Results (as defined in section 3.3.2).
2.The Pro Forma Forecast Results are reconciled to the Forecast Statutory Results in section 3.3.2. FY2012 Forecast Statutory Results growth rates
shown are relative to FY2011 Historical Statutory Results.
3. This includes KFC and Sizzler Australia restaurants but does not include Sizzler Asia restaurants which are operated by franchisees and not
Collins Foods.
4.The average number of restaurants open during the year is a function of the number of new restaurants opened together with the impact of the
temporary closure for, or reopening of existing restaurants from, refurbishment or relocation.
5. The audited historical consolidated statutory NPAT and NPATA for FY2011 cannot be compared with the forecast statutory consolidated
NPAT and NPATA for FY2012 to give meaningful growth percentages because of the change in capital structure that will occur on Completion
of the Offer.
48
COLLINS FOODS LIMITED PROSPECTUS
3
Financial
information
3.3.2 Pro forma adjustments to the statutory income statements
The table below sets out the adjustments to the audited historical consolidated statutory income statements of Collins
Foods for FY2009, FY2010 and FY2011 (Historical Statutory Results) and the Forecast Statutory Results to reflect the
full year impact of the operating and capital structure that will be in place following Completion of the Offer and to
eliminate non-recurring items.
HistoricalForecast
April Y/E, $ million
Statutory revenue
FY2009
FY2010
FY2011
FY2012
410.6
400.5
408.2
429.7
Operational adjustments:
53rd trading week 1
(7.5)0.00.00.0
IPO – restructuring-related adjustments:
Acquisition of SingCo Trading Pte Ltd 2
2.82.42.60.6
Pro forma revenue
405.9
402.9
410.8
430.3
Statutory NPAT
(41.2)
17.5
1.4
16.0
Operational adjustments:
53rd trading week 1
(2.4)0.00.00.0
Net insurance recovery (0.9)(0.6) 0.0 0.0
3
IPO – restructuring-related adjustments:
Acquisition of SingCo Trading Pte Ltd 2
Royalty adjustment Public company costs 5
Net interest expense adjustment 1.10.91.20.2
(2.2)(2.0)(2.0)(0.4)
4
(0.7)(0.8)(0.8)(0.2)
6
11.311.421.816.0
IPO – other adjustments:
Employee incentive scheme 7
(0.2)(0.0) 0.3 (0.4)
Investment services fees 8
1.21.21.60.4
58.0 (3.4) 4.7(10.7)
Related party transactions Costs of the Offer expensed 10
9
0.00.01.69.2
KFC franchise fee write‑off 0.00.00.03.8
Tax impact of above adjustments 12
(2.6)(3.6)(7.0)(6.4)
Tax impact of asset tax base reset 13
0.00.00.0(2.8)
11
Pro forma NPAT
21.3
20.6
22.8
24.7
49
COLLINS FOODS LIMITED PROSPECTUS
Notes:
1.FY2009 had 53 trading weeks. All other years presented include 52 weeks. The revenue and NPAT associated with the additional week
of trading in the FY2009 Historical Statutory Results has been removed from the FY2009 Pro Forma Historical Results.
2.SingCo Trading Pte Ltd is the parent entity of Collins Foods’ Sizzler Asia business and will be acquired by a wholly owned subsidiary of Collins
Foods Limited on Completion of the Offer. The adjustments comprise the recognition (in Australian dollars) of pre acquisition amounts in respect
of the revenue and NPAT of Sizzler Asia as though SingCo Trading Pte Ltd had formed part of the Collins Foods consolidated group at the
beginning of FY2009. The financial statements for SingCo Trading Pte Ltd were prepared in Singaporean dollars and audited in accordance with
Singaporean accounting standards. Because no audited accounts in Australian dollars are available for SingCo Trading Pte Ltd, these adjustments
have been made on the basis of unaudited historical management accounts for SingCo Trading Pte Ltd.
3.Sizzler Australia received compensation from insurers in FY2009 and FY2010 following events which occurred prior to the commencement
of FY2009. The benefit of these payments in the Historical Statutory Results has been removed from the Pro Forma Historical Results.
4.Royalties paid by Collins Foods in respect of its KFC restaurants to Yum! have historically varied between 5% and 6% of Collins Foods’ KFC
annual sales revenue. Effective from Completion of the Offer, Collins Foods will operate under new KFC franchise arrangements with Yum!
that will increase the royalties paid by Collins Foods to Yum! under these arrangements to 6% of KFC annual sales revenue. This additional
royalty cost is not reflected in the Historical Statutory Results or the Forecast Statutory Results for the period prior to Completion of the Offer.
The adjustments reflect the increase in royalty costs as though it had occurred at the beginning of FY2009.
5.Incremental costs associated with being a public company are not reflected in the Historical Statutory Results or the Forecast Statutory Results
for the period prior to Completion of the Offer, but are included in the Pro Forma Historical Results and Pro Forma Forecast Results.
6. Prior to Completion of the Offer, Collins Foods Holding Pty Limited operated under a different capital structure to that proposed to apply from
Completion of the Offer. Accordingly, the interest costs reflected in the Historical Statutory Results and the Forecast Statutory Results prior
to Completion of the Offer differ from those expected to be incurred from Completion of the Offer. The net interest expense included in the
Historical Statutory Results and the Forecast Statutory Results for the period prior to Completion of the Offer has been adjusted to reflect the
net interest expense that would have been incurred if the New Banking Facilities detailed in section 3.4.3 had been in place for the period prior
to Completion of the Offer, using the base interest rates that prevailed at the time (BBSY) and margins as set out in the New Banking Facilities.
In addition, the Forecast Statutory Results include as part of the Pre IPO Restructuring the write-off of capitalised borrowing costs relating to the
capital structure in place prior to Completion of the Offer ($11.2 million pre-tax).
7.An employee incentive scheme will be terminated upon Completion of the Offer. This adjustment removes the revaluation adjustments that were
recognised in the Historical Statutory Results and are expected to be recognised in the Forecast Statutory Results prior to Completion of the Offer
(in relation to that scheme).
8.Fees for services charged by PEP Advisory Pty Ltd will not be incurred following Completion of the Offer. This adjustment removes the fees
incurred prior to Completion of the Offer which were expensed in the Historical Statutory Results and, to the extent relating to the period from
1 May 2011 until Completion of the Offer, will be expensed in the Forecast Statutory Results.
9.A guarantee of liabilities (relating to an entity formerly owned by the Existing Investors) and receivables (relating to that entity, and SingCo
Trading Pte Ltd) were impaired in FY2009 and remeasured and adjusted in FY2010 and FY2011. These revaluations were recognised in
the Historical Statutory Results and have been removed from the Pro Forma Historical Results. Collins Foods has been released from, and
has no further exposure to this guarantee of liabilities and it has no relevance to Collins Food’s ongoing businesses. Accordingly a benefit
of $10.7 million will be recognised and has been included in the Forecast Statutory Results. The adjustment removes this item from the
Pro Forma Forecast Results. Following the acquisition of SingCo Trading Pte Ltd, receivables from SingCo Trading Pte Ltd will be eliminated
on consolidation.
10. Total costs of the Offer that were expensed in the Historical Statutory Results and will be expensed in the Forecast Statutory Results
($10.8 million before tax) have been removed from the Pro Forma Historical Results and the Pro Forma Forecast Results. The remaining
$5.5 million of Offer costs (after tax) have been offset against equity raised in the Offer (reflected in the consolidated historical balance sheet
provided in section 3.4).
11.Effective on Completion of the Offer, Collins Foods will operate under new KFC franchise arrangements with Yum! resulting in a requirement
to write-off previously capitalised KFC franchise fees. This write-off will be expensed in the Forecast Statutory Results and has been removed
from the Pro Forma Forecast Results. Refer to section 3.5.
12.Reflects the tax effect of adjustments 1-11 outlined above at the effective tax rate used by Collins Foods to prepare the Forecast Statutory
Results and the Pro Forma Forecast Results (30.1%), adjusted for permanent differences arising in relation to recognition and subsequent
revaluation and reversal of the guarantee of related party financial liabilities and the impairment of related party receivables (as outlined
in adjustment 9 above) together with permanent differences of $2.6 million in relation to a proportion of the costs of the Offer which have
been expensed.
13.Reflects the tax effect of permanent differences which arise as a result of resetting the tax basis of depreciable assets upon Collins Foods
Holding Pty Limited becoming a member of the Collins Foods Limited income tax consolidation group.
50
COLLINS FOODS LIMITED PROSPECTUS
3
Financial
information
3.4
Consolidated historical balance sheet
The table below sets out the adjustments that have been made to the audited statutory consolidated balance sheet
for Collins Foods Holding Pty Limited as at 1 May 2011 to prepare a pro forma consolidated historical balance sheet
for Collins Foods. These adjustments reflect the impact of the operating and capital structure that will be in place
following Completion of the Offer as if they had occurred or were in place as at 1 May 2011.
Audited statutory Impact of the
Collins FoodsOffer and
Holding PtyRestructuring New Banking
As at 1 May 2011, $ millionLimited 1
events
FacilitiesPro forma
Cash and cash equivalents
Receivables
Inventories
Total current assets Property, plant and equipment
Intangible assets Deferred tax assets, net
Other
43.7 0.1 3.6 0.2 (40.3)2
0
3.5
3.8
4.5 0
0
4.5
51.8 0.3 (40.3)
11.8
52.7 0
0
52.7
222.8 12.8 1.2 236.8
9.9 (2.0)
3.3 11.3
11.9 (10.8)
(0.5)
0.6
Total non-current assets 297.3 (0)
4.0 301.3
Total assets 349.1 0.3 (36.3) 313.1
Trade and other payables
51.4 0.3 (1.2)
50.5
Current tax liabilities
(0.6)
0
(6.6)
(7.1)
Borrowings
24.3 (10.7)
3.4 Provisions
Total current liabilities Borrowings
Provisions
3
0
0
(13.7) 0
3.4
78.5 (10.4)
(21.5)
46.6
228.0 0
1.5 0
3
(123.7) 104.3
(0.4)
1.1
Total non-current liabilities 229.5 0
(124.1)
105.4
Total liabilities 308.0 (10.4)
(145.6)
152.0
Net assets
41.1 10.7 109.3 161.1
Contributed equity
55.5 0
127.5 183.0
Currency translation reserve
Retained profits/(losses) 5
Total equity
4
0
0
0
0
(14.4)
10.7 (18.2)
(21.9)
41.1 10.7 109.3 161.1
Notes:
1.The accounting policies relevant to this table are set out in the Appendix.
2.Cash decreases by $40.3 million as a result of receipt of cash proceeds from the Institutional Offer and Broker Firm Offer ($201.7 million) and
draw down of the New Banking Facilities ($105.0 million), offset by repayment of existing debt and certain other obligations ($260.4 million),
payments to Existing Investors ($60.4 million) and payments for costs of the Offer and other obligations of Collins Foods to be paid on
Completion of the Offer ($26.3 million).
3.As a result of the impact of the New Banking Facilities, current borrowings decrease by $13.7 million through the repayment of existing current
debt $18.6 million, offset by the write-off of unamortised capitalised borrowing costs ($4.9 million) and non-current borrowings decrease by
$123.7 million through the repayment of non-current debt ($234.3 million) offset by the write-off of unamortised capitalised borrowing costs
($6.3 million), the drawdown of the new debt facilities ($105.0 million) and the associated increase in capitalised borrowing costs ($0.7 million).
4.Contributed equity increases by $127.5 million as a result of the impact of the Offer through the issue of Shares to new Shareholders
($201.7 million) offset by cash paid to Existing Investors ($60.4 million), input tax credits received ($8.3 million) and costs of the Offer
($5.5 million). In addition Collins Foods will issue new equity of $30.8 million (12.3 million Shares at $2.50 per Share) as partial consideration
for the acquisition of the Collins Foods business from the Existing Investors under the Sale Deeds (refer to section 8.3 for more information). Due
to the principles of a reverse acquisition by Collins Foods Holding Pty Limited of Collins Foods Limited the Shares issued to Existing Investors will
not affect contributed equity.
5.The retained losses predominantly relate to the recognition of guarantees of liabilities (relating to an entity formerly owned by the Existing
Investors) and receivables (relating to that entity, and SingCo Trading Pte Ltd) that were impaired in FY2009 and remeasured and adjusted in
FY2010 and FY2011. Collins Foods has been released from and has no further exposure to, this guarantee of liabilities and it has no relevance
to Collins Foods’ ongoing businesses. Following the acquisition of SingCo Trading Pte Ltd, receivables from SingCo Trading Pte Ltd will be
eliminated on consolidation.
51
COLLINS FOODS LIMITED PROSPECTUS
3.4.1 Pro forma adjustments to the statutory balance sheet
The pro forma consolidated adjustments made to the audited statutory balance sheet for Collins Foods Holding
Pty Limited as at 1 May 2011 reflect the following events and assumptions:
Restructuring events
These adjustments relate to:
––
The disposal prior to the date of this Prospectus of an interest in an entity formerly owned by the Existing
Investors, and the concurrent release of a Collins Foods company from liability under an associated guarantee
(referred to in note 9 of section 3.3.2);
––
The acquisition on Completion of the Offer pursuant to the Sale Deeds by a wholly owned subsidiary
of Collins Foods Limited of all of the shares issued in the capital of SingCo Trading Pte Ltd for cash.
(SingCo Trading Pte Ltd accounts (in Singapore dollars) have been audited in accordance with Singapore
accounting standards. There are no audited accounts for SingCo Trading Pte Ltd in Australian dollars.)
Impact of the Offer and New Banking Facilities
In conjunction with the Offer, Collins Foods will issue new equity as partial consideration for the acquisition of the
Collins Foods business from Existing Investors under the Sale Deeds (refer to section 8.3 for more information).
In addition, Collins Foods will issue new equity and draw down on its New Banking Facilities (described in
section 3.4.3). Proceeds from the foregoing, together with available cash, will be used to pay:
––
Existing Investors for the cash portion of the consideration payable for the acquisition by a wholly owned
subsidiary of Collins Foods Limited of all of the remaining interests in Collins Foods Holding Pty Limited;
––
loan establishment costs;
––
amounts owing by Collins Foods under syndicated finance debt facilities, finance leases and associated
derivatives and certain other obligations of Collins Foods Holding Pty Limited and its subsidiaries; and
––
costs of the Offer and other obligations of Collins Foods to be paid on Completion of the Offer.
For further information, refer to the notes to the table in section 3.4. Further information on the sources and uses
of funds of the Offer is contained in section 6.1.2.
3.4.2 Capitalisation and indebtedness
The table below sets out the capitalisation and indebtedness of Collins Foods as at 1 May 2011, before and following
the Completion of the Offer.
Audited Statutory Pro forma
Collins Foods Holding Pty Limited (following Completion
As at 1 May 2011, $ million
(before Completion of the Offer)1
of the Offer)
Cash and cash equivalents
43.7 3.5
Current borrowings
24.3 –
Non-current borrowings
228.0 105.0 2
Net total indebtedness
208.7
101.5
Contributed equity
55.5 Retained profits/(losses)4
(14.4)(21.9)
Total equity
Total indebtedness and capitalisation
183.0 3
41.1 161.1
249.8 262.6
Notes:
1.Extracted from the audited statutory consolidated balance sheet of Collins Foods Holding Pty Limited as at 1 May 2011.
2.The $105.0 million of drawn Facility A presented above, net of capitalised loan establishment costs of $0.7 million equals the $104.3 million
balance recorded in the pro forma historical (following Completion of the Offer) balance sheet.
3.Includes $5.5 million of Offer costs (after tax) which have been offset against equity raised (see section 3.4.1 for further details).
4.The retained losses predominantly relate to the recognition of guarantees of liabilities (relating to an entity formerly owned by the Existing
Investors) and receivables (relating to that entity and SingCo Trading Pte Ltd) that were impaired in FY2009 and remeasured and adjusted in
FY2010 and FY2011. Collins Foods has been released from and has no further exposure to this guarantee of liabilities and it has no relevance
to Collins Foods’ ongoing businesses. Following the acquisition of SingCo Trading Pte Ltd, receivables from SingCo Trading Pte Ltd will be
eliminated on consolidation.
52
COLLINS FOODS LIMITED PROSPECTUS
3
Financial
information
3.4.3 Description of the New Banking Facilities
Collins Foods Limited and CFG Finance Pty Limited have entered into facility agreements for the provision of three year
revolving cash facilities and a working capital facility (New Banking Facilities). On Completion of the Offer, funding
provided under the facility agreements (together with certain proceeds from the sale of New Shares under the Offer)
will be utilised to repay existing syndicated finance debt facilities, finance leases and associated derivatives and certain
other obligations of Collins Foods Holding Pty Limited and its subsidiaries. Upon repayment of existing syndicated
finance debt facilities, associated guarantees and security will be discharged.
The availability of funding under the facility agreements is conditional on listing on ASX as contemplated by this Offer
and other conditions precedent which are within the control of Collins Foods Limited. Accordingly, on Completion
of the Offer, Collins Foods Limited will have debt funding available to assist with the repayment of the existing
syndicated finance debt of Collins Foods Holding Pty Limited and its subsidiaries and to provide for the debt funding
needs after listing.
The New Banking Facilities are based on signed facility agreements provided to Collins Foods Limited by a group of
banking institutions and will comprise:
––
$110 million three year Revolving Cash Advance Facility (Facility A);
––
$25 million three year Revolving Cash Advance Facility (Facility B); and
––
$10 million three year Working Capital Facility (Working Capital Facility).
The table below sets out the New Banking Facilities.
$ million
FacilityPro forma drawn
commitment
at 1 May 2011
Facility A
110.0
Facility B
25.0
0.0
Working Capital Facility
10.0
0.0
145.0
105.0
Total New Banking Facilities Net debt/FY2012 pro forma EBITDA 2
105.0 1
n/a1.7x
Note:
1.The $105.0 million of drawn Facility A presented above, net of capitalised loan establishment costs of $0.7 million equals the $104.3 million
balance recorded in the pro forma historical (following Completion of the Offer) balance sheet.
2.Pro forma net debt equal to $101.5 million.
Pro forma consolidated forecast net interest expense in relation to the establishment fees and agency fees in the
New Banking Facilities for FY2012 is $0.3 million.
3.4.3.1 Facility A
Facility A is repayable in full at maturity, being three years from the date of the first drawdown under the New Bank
Facilities. No interim scheduled principal repayments are required during the term of Facility A.
Facility A has a variable interest rate, which is based on BBSY.
Based on BBSY as at 25 May 2011 of 5.0683%, the average effective interest rate of Facility A would be 7.2%. Pro
forma consolidated forecast interest expense in relation to Facility A for FY2012 is $7.5 million. This is based on pro
forma historical (following Completion of the Offer) debt of $105.0 million. Facility A will attract commitment fees
equal to 50% of the margin on the committed but undrawn funds under this facility.
3.4.3.2 Facility B
Collins Foods Limited does not intend to draw Facility B on Completion of the Offer; however, Collins Foods Limited
may choose to draw on these facilities at any time after the date of listing on ASX and before two years and eleven
months from the date of the first drawdown under the New Bank Facilities. Drawn amounts will attract the same
interest rate as the interest rate on Facility A. In addition, Facility B will attract the same commitment fees as Facility A.
Facility B is repayable in full at maturity, being three years from the date of the first drawdown under the New Bank
Facilities. No interim scheduled principal repayments are required during the term of Facility B.
Pro forma consolidated forecast commitment fees and line fees for FY2012 in relation to Facility B are $0.2 million.
53
COLLINS FOODS LIMITED PROSPECTUS
3.4.3.3 Working Capital Facility
The Working Capital Facility will be available for general corporate, working capital and capital expenditure purposes.
It will have the same tenor and will attract the same interest rate and commitment fees as Facility B.
Pro forma consolidated forecast commitment fees and line fees for FY2012 in relation to the Working Capital Facility
are $0.1 million.
Pro forma consolidated forecast interest expense in relation to the Working Capital Facility for FY2012 is $0.1 million.
This assumes an average draw of $1.0 million.
3.4.3.4 Financial undertakings
The agreement under which the New Bank Facilities will be made available contains undertakings typical for facilities
of this nature. The undertakings include financial undertakings which will be tested at financial year end and financial
half-year end based on the preceding 13 accounting periods (approximately 12 months). Collins Foods Limited expects
to remain in compliance with these undertakings.
Pro forma drawn at 1 May 2011
Net leverage ratio to be not greater than 2.75:111.8
Lease adjusted interest cover ratio to be equal to or greater than 1.75:122.6
Notes:
1.
2.
Pro forma debt to EBITDA for that period.
Consolidated EBITDA plus rental expense for that period to net interest expense plus rental expense for that period.
3.4.3.5 Other financing considerations
The agreement under which the New Banking Facilities are made available contains certain representations,
undertakings, events of default and review events. Any material breach by Collins Foods Limited of the representations
or undertakings given or made by it, or the occurrence of an event of default or a review event, may lead to the funds
borrowed becoming due and the New Banking Facilities being cancelled.
3.4.4 Contractual obligations and commitments
The table below summarises Collins Foods Limited contractual obligations and commitments (following Completion
of the Offer) under Facility A and operating leases:
Payments due by period
As at 1 May 2011, $ millionPro forma total
Facility A Operating lease commitments 2
Total
Notes:
1. 2.
< 1 year
1-5 years
> 5 years
105.00.0
105.00.0
1
97.4 22.160.814.5
202.4 Facility A obligations are set out in section 3.4.3.1.
Collins Foods’ operating lease commitments relate to land, buildings and equipment.
22.1 165.8 14.5
54
COLLINS FOODS LIMITED PROSPECTUS
3
Financial
information
3.5
Consolidated historical and forecast Cash Flows
The table below sets out the pro forma consolidated historical operating free cash flows after capital expenditure
of Collins Foods Limited for FY2009, FY2010 and FY2011; and the pro forma forecast and forecast statutory
consolidated operating free cash flows after capital expenditure of Collins Foods for FY2012 (Cash Flows).
Pro forma Forecast
forecast statutory
Pro forma historical Cash FlowsCash FlowsCash Flows
April Y/E, $ million
EBITDA 1
FY2009
FY2010
FY2011
FY2012
FY2012
54.2 51.7 55.9 59.060.8
Change in working capital
(1.1)
0.3
(0.3)
0.6
0.6
Non cash movements in EBITDA
0.0
0.0
0.0
0.0
(10.7)2
Maintenance Capital Expenditure Growth Capital Expenditure:
(4.8)
(9.2)
(7.9)
(7.3)
(7.3)
(13.6)
(1.8)
(7.6)
(28.0)
(28.0)
(13.3)
New restaurant capital expenditure
(4.2)
(1.0)
(0.9)
(13.3)
Rebuild/relocation capital expenditure
(6.8)
(0.1)
(1.3)
(4.5)
(4.5)
Refurbishment capital expenditure
(2.7)
(0.6)
(5.4)
(10.2)
(10.2)
(18.4)
(11.0)
(15.5)
(35.4)
(35.4)
34.7
41.0
40.1
24.3
15.4
Capital expenditure
Operating free cash flow after capital expenditure
Notes:
1.EBITDA above has been adjusted to reflect the pro forma adjustments to the Historical Statutory Results and Forecast Statutory Results outlined
in the table provided in section 3.3.2, with the exception of adjustments 6, 11, 12 and 13 relating to the pro forma interest expense, the write-off
of capitalised franchise fees on Completion of the Offer, the tax effect of the pro forma adjustments and the resetting of tax bases respectively,
none of which impact pro forma EBITDA.
2.Reflects note 9 to the table of pro forma adjustments in section 3.3.2 in respect of the release of guarantee liabilities relating to an entity
formerly owned by the Existing Investors. This adjustment is non-cash in nature, and therefore will not be reflected in the forecast statutory
operating cash flows after capital expenditure. This amount has been excluded from the pro forma forecast EBITDA.
3.5.1 Pro forma adjustments to the statutory cash flow statement
The table below sets out the adjustments to the statutory consolidated forecast cash flow in FY2012 to reflect the
full year impact of the operating and capital structure that will be in place following Completion of the Offer and
to eliminate certain non-recurring items.
April Y/E, $ millionStatutory AdjustmentsPro forma
EBITDA 1
Change in working capital
60.8 1.759.0
0.6
0.0
0.6
(10.7)20.0
Non‑cash movements in EBITDA
(10.7)
Maintenance Capital Expenditure
(7.3)
0.0
(7.3)
Growth Capital Expenditure:
(28.0)
0.0
(28.0)
New restaurant capital expenditure
(13.3)
0.0
(13.3)
Rebuild/relocation capital expenditure
Refurbishment capital expenditure
Capital expenditure
Operating cash flow after capital expenditure
(4.5)
0.0
(4.5)
(10.2)
0.0
(10.2)
(35.4)
0.0
(35.4)
15.4
(8.9)
24.3
Notes:
1.EBITDA in the pro forma forecast consolidated cash flow statement has been adjusted to reflect the pro forma adjustments to the Forecast
Statutory Results in the table provided in section 3.3.2, with the exception of adjustments 6, 11, 12 and 13 relating to the pro forma interest
expense, the write-off of capitalised franchise fees on Completion of the Offer, the tax effect of the pro forma adjustments and the resetting
of tax bases respectively, none of which impact statutory or pro forma EBITDA.
2. Reflects note 9 to the table of pro forma adjustments in section 3.3.2, in respect of the release of guarantee liabilities relating to an entity
formerly owned by the Existing Investors. This adjustment is non-cash in nature, and therefore will not be reflected in the forecast statutory
operating cash flows after capital expenditure.
55
COLLINS FOODS LIMITED PROSPECTUS
3.6
Segment information
Collins Foods has two operating divisions and performs a number of administration functions using a shared services
structure. The costs relating to the shared services administration functions are not allocated to a division and include
head office salaries, travel, consultancy fees, bonuses and inter-divisional land and building rent.
KFC
Collins Foods is a franchisee of 119 KFC restaurants in Australia, comprised of 117 in Queensland and two in
New South Wales.
Sizzler
Collins Foods operates 26 Sizzler restaurants in Australia, in Queensland, Western Australia and New South Wales.
Collins Foods is the franchisor of 59 Sizzler restaurants in Asia, predominantly located in Thailand, Japan and China.
3.6.1 Summary financials
The table below sets out the summary financials for Collins Foods’ divisions as outlined above:
Pro Forma
Forecast
Pro Forma Historical ResultsResults
April Y/E, $ million
FY2009
FY2010
FY2011
FY2012
Revenue
KFC
300.7296.4303.3318.0
Sizzler
105.2106.5 107.5 112.3
Total revenue
405.9
402.9
410.8
430.3
EBITDA
KFC
50.446.349.053.0
Sizzler 10.6
11.9
12.8
13.0
Shared services
(6.8)
(6.5)
(5.9)
(7.0)
Total EBITDA
54.2
51.7
55.9
59.0
EBITDA margin KFC (pre shared service costs)
16.8%
15.6%
16.1%
16.7%
Sizzler (pre shared service costs)
10.1%
11.2%
11.9%
11.6%
Total EBITDA margin
13.3%
12.8%
13.6%
13.7%
3.7
Management discussion and analysis of Historical Financial Information
3.7.1 General factors affecting the operating results of Collins Foods
Below is a discussion of the main factors which affected Collins Foods’ operations and relative financial performance
in FY2009, FY2010 and FY2011 and which the Directors expect may continue to affect it in the future.
The discussion of those general factors is intended to provide a brief summary only and does not detail all factors that
affected Collins Foods’ historical operating and financial performance, nor everything which may affect operations and
financial performance in the future.
56
COLLINS FOODS LIMITED PROSPECTUS
3
Financial
information
3.7.1.1 Revenue
Sales revenue is generated by Collins Foods’ KFC and Sizzler Australia businesses. Franchise revenue is generated
by Collins Foods as the franchisor of Sizzler restaurants in Asia, primarily in Thailand, China and Japan.
Drivers of sales revenue in KFC and Sizzler are average number of restaurants open, customer volumes per restaurant,
and average spend per customer (cheque average).
The change in average number of restaurants open during the year is a function of the number of new restaurants
opened (and when they are opened) together with the impact of the temporary closure for, or reopening of
existing restaurants from, refurbishment or relocation. Collins Foods targets a cash return of at least 23% on capital
expenditure for new restaurants and existing restaurants that are refurbished or relocated in the first full year. The
capital expenditure required to open, refurbish, relocate or rebuild a restaurant varies depending on the nature and
location of the restaurant and the nature of the refurbishment or relocation.
Customer volumes are impacted by macroeconomic factors, the level of advertising, other promotional activity and
seasonality. The proportion of sales generated in school holiday periods is higher than in the remainder of the year.
There are also six accounting periods in the first half of the year and seven in the second half. Together, those factors
historically result in first half results accounting for approximately 46% of full year revenue, while second half results
account for 54% of full year revenue.
Cheque average is driven by menu prices and varies with the mix of products sold, including the effect of promotional
and discount offers made during the year. Historically, Collins Foods has averaged two to three price increases per year
with an 80% pass through of price rises to customers. A price pass through percentage attempts to provide a measure
of the effectiveness of a price increase by taking into account the variation by customers of their standard order as
a result of the increase in the price (some customers will substitute a lower priced item in order to keep their standard
total spend unchanged, whereas others will increase their total spend in line with the increased prices).
To an extent, Collins Foods has the ability to impact both customer volumes and cheque average through marketing
and promotional activity. These two drivers are actively managed to seek to maximise sales revenue and profit.
An important indicator of revenue growth is SSSG, which provides a measure of the organic growth in the
business over a particular period. It is calculated by analysing the sales growth from those restaurants in the group
that were operating in the comparable period in the prior year. It excludes any new stores or refurbished stores
for a 12 to 15 month period after opening or remodel to ensure the figures are not distorted by the impact of
Growth Capital Expenditure.
The level of franchise revenue in Sizzler is determined by the average number of franchise restaurants open, the
royalties payable by franchisees (in US dollars) in respect of their local sales revenue and the average foreign exchange
rates applicable.
3.7.1.2 Gross profit margin
Cost of sales incorporates food costs, an allocation of labour incurred in the direct production of products, packaging
and distribution costs.
Margin is impacted by menu prices and changes in product costs and wages. Collins Foods manages its price points
and cost structure to generate margins at targeted levels.
3.7.1.3 Other operating costs
Other operating costs incorporate restaurant labour (excluding that allocated to cost of sales), advertising and royalties,
rent, utilities, maintenance and corporate overheads.
Collins Foods manages its cost structure to generate margins at targeted levels.
3.7.1.4 Working capital
As customers of Collins Foods’ restaurants primarily pay in cash, Collins Foods has a negative working capital
balance (reflected in the excess of trade payables over trade receivables on the balance sheet). This represents a form
of funding for Collins Foods. Changes in working capital are essentially driven by movements in trade payables.
Trade payable balances vary year on year depending upon the proximity of calendar month end payments to the end
of a financial year.
57
COLLINS FOODS LIMITED PROSPECTUS
3.7.2 Pro forma income statements: FY2010 compared to FY2009
Pro Forma Historical Results1
April Y/E, $ million
FY2009
FY2010Change
Average number of restaurants
KFC
112.9 116.6
Sizzler Australia
3.7
25.9
26.0
0.1
Revenue
KFC 300.7
296.4
(1.4%)
Sizzler 105.2
106.5
1.2%
Total revenue 405.9
402.9
(0.7%)
Gross profit
207.8
209.5
0.9%
Gross profit margin
51.2%
52.0%
Other operating costs
(153.6)
(157.9)
EBITDA
EBITDA margin
2.8%
54.2 51.7(4.6%)
13.3%
EBIT
EBIT margin
39.3
9.7%
12.8%
36.1
(8.1%)
9.0%
Note:
1. Explanations of pro forma adjustments to Historical Statutory Results are shown in section 3.3.2.
The commentary below highlights the key changes in Collins Foods business over the relevant period with reference
to the drivers mentioned in section 3.7.1 as relevant.
3.7.2.1 KFC revenue
The average number of restaurants increased by 3.7. This was a result of four new restaurants being added in the
second half of FY2009 together with the addition of one new restaurant and five restaurants being refurbished during
FY2010. Customer numbers reduced as a result of the flow on effects of the global financial crisis on the Queensland
economy. Those effects included an increase in unemployment and a significant reduction in consumer confidence and
expenditure. Cheque average increased primarily as a result of menu price increases and promotional activity.
The combination of the above factors resulted in a SSSG decline of 3.7% and a decrease in revenue of 1.4%.
3.7.2.2 Sizzler revenue
Restaurant numbers in Australia were effectively stable at 26. Customer frequency reduced as the macro economic
conditions in Sizzler’s market segment became increasingly challenging as customers traded down to restaurants
with lower price point options. Despite this, cheque average increased, driven by the introduction of new menu items
in conjunction with selected price increases.
The combination of the above factors resulted in SSSG of 1.1% during FY2010.
Sizzler Asia revenues declined due to difficult trading conditions throughout Asia in the wake of the global financial
crisis, which was partially offset by the addition of three restaurants by the franchisee in Thailand.
Overall, Sizzler revenue increased by 1.2% in FY2010.
3.7.2.3 Gross profit
Gross profit margin increased to 52.0% of revenue (compared to 51.2% in FY2009). This increase in profit margin was
due to menu price increases which outpaced the increases in the costs of most products sold. This was accentuated
by a reduction in the cost of fresh chicken from the abnormally high prices from the previous year. Labour costs in KFC
also increased due to the phasing in of the minimum rates of pay contained in the relevant modern labour award.
58
COLLINS FOODS LIMITED PROSPECTUS
3
Financial
information
3.7.2.4 Other operating costs
A shortage of restaurant management personnel in FY2009, particularly in KFC, was addressed in FY2010 when the
availability of suitable candidates improved, resulting in increased restaurant management labour costs of 5.9%.
Advertising expenditures in KFC and Sizzler as a percentage of revenue increased in FY2010 in response to challenging
trading conditions. Royalties increased in line with KFC revenue growth.
Rent was consistent as a percentage of sales compared with FY2009 since the majority of leases operate on a turnover
rent basis.
Utilities expenditure increased marginally as a percentage of revenue due to an increase in market determined
electricity prices.
Corporate expenses reduced as staff bonuses reduced in line with difficult trading conditions.
3.7.2.5 Depreciation and amortisation
Depreciation and amortisation increased in FY2010. This was consistent with the new restaurant and remodel activity
in KFC together with the refurbishment of the corporate support centre of Collins Foods.
3.7.3 Pro forma historical Cash Flows: FY2010 compared to FY2009
Pro forma historical Cash Flows
April Y/E, $ million
EBITDA 1
FY2009
FY2010Change
54.2 51.7(4.6%)
Change in working capital
(1.1)
0.3
nm
Maintenance Capital Expenditure
(4.8)
(9.2)
nm
Growth Capital Expenditure:
(13.6)
(1.8)
nm
New restaurant capital expenditure
(4.2)
(1.0)
nm
Rebuild/relocation capital expenditure
(6.8)
(0.1)
nm
Refurbishment capital expenditure
(2.7)
(0.6)
nm
Capital expenditure
(18.4)
(11.0)
(40.4%)
Operating cash flow after capital expenditure
34.7
41.0
Note:
1.EBITDA in the pro forma historical consolidated cash flow statements has been adjusted to reflect the pro forma adjustments to the Historical
Statutory Results in the table provided in section 3.3.2, with the exception of adjustments 6 and 12 relating to the pro forma interest expense
and the tax effect of the pro forma adjustments respectively, none of which impact pro forma EBITDA in these years.
3.7.3.1 Change in working capital
The amount of working capital has remained relatively stable.
3.7.3.2 Capital expenditure for Facility Actions
Capital expenditure reduced which was directly attributable to the reduction in Facility Actions. There was one new
KFC restaurant constructed compared to four in the prior year. Restaurant remodel activity also reduced with five
KFC restaurant refurbishments in FY2010 compared to seven in the prior year.
The increase in Maintenance Capital Expenditure primarily related to the investment in ovens required for a new
product roll-out in Collins Foods’ KFC restaurants.
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COLLINS FOODS LIMITED PROSPECTUS
3.7.4 Pro forma income statements: FY2011 compared FY2010
Pro Forma Historical Results 1
April Y/E, $ million
FY2010
FY2011Change
Average number of restaurants
KFC
116.6 118.0
Sizzler Australia
26.0
1.3
25.9
(0.1)
Revenue
KFC
296.4 303.3 2.3%
106.5
Sizzler 107.5
1.0%
Total revenue
402.9
410.8
2.0%
Gross profit
209.5
218.3
4.2%
52.0%
53.1%
(157.9)
(162.4)
Gross profit margin
Other operating costs
EBITDA
EBITDA margin
2.9%
51.7 55.98.2%
12.8%
EBIT
EBIT margin
36.1
9.0%
13.6%
40.8
12.8%
9.9%
Note:
1. Explanations of pro forma adjustments to Historical Statutory Results are shown in section 3.3.2.
The commentary below highlights the key changes in the business over the relevant period with reference to the
drivers mentioned in section 3.7.1.
3.7.4.1 KFC revenue
The average number of restaurants increased by 1.3. This was a result of two new restaurants being added during
FY2011 together with seven restaurant refurbishments. Customer numbers declined, which was most evident in the
first three quarters of FY2011, due to continued reduced activity levels in the Queensland economy. This included
some temporary restaurant closures as a result of the Queensland floods. Customer numbers partially recovered in the
fourth quarter of FY2011, despite the occurrence of Cyclone Yasi. Cheque average increased as a result of menu price
increases and customer menu item selection.
The combination of the above factors resulted in an increase in SSSG of 1.5% and revenue by 2.3% in FY2011.
3.7.4.2 Sizzler revenue
Sizzler undertook two restaurant refurbishments during FY2011 which resulted in a slight reduction in average
restaurant numbers in FY2011. Despite increases in advertising spend, customer numbers continued to decline due
to ongoing challenging trading conditions being experienced by the retail sector. Cheque average, however, increased,
driven by the introduction of new menu items in conjunction with selected price increases.
The combination of the above factors resulted in SSSG of 1.0% for Sizzler Australia.
Sizzler Asia revenues increased as a result of improving trading conditions in Asia, particularly in Thailand and China.
This was achieved despite the continuing appreciation of the Australian dollar relative to the US dollar.
Overall Sizzler revenue increased by 1.0% in FY2011.
3.7.4.3 Gross profit
Gross profit margin increased to 53.1% of revenue (compared to 52.0% in FY2010). This increase in profit margin was
due to menu price increases together with commodity price reductions in certain key commodities including fresh
chicken, soft drinks and seafood. In addition, operational initiatives and menu simplification contributed to improved
inventory control and reduced product wastage.
Restaurant labour costs in KFC increased in FY2011. This was due primarily to a $26 per week increase in minimum
adult wages awarded by Fair Work Australia during the year. Total labour costs in Sizzler were also impacted by the
Fair Work Australia decision and organic growth in the business during the course of FY2011. A further contributor
to the labour cost increase for KFC was the continuation of the phasing in of the minimum rates of pay contained
in the relevant modern labour award.
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Financial
information
3.7.4.4 Other operating costs
Advertising expenditures in KFC and Sizzler as a percentage of revenue increased in FY2011 in continued response
to the challenging trading conditions confronting both businesses. Royalties paid to Yum! increased in line with KFC
revenue growth.
Rent was consistent as a percentage of sales compared with FY2010, reflecting the fact that the majority of leases
operate on a turnover rent basis.
Utilities expenditure increased marginally as a percentage of revenue due to the increases in market determined
electricity prices.
Corporate expenses reduced due to reduced headcount.
3.7.4.5 Depreciation and amortisation
While the level of depreciable assets increased, depreciation decreased in FY2011. This was due to the timing of the
capital expenditure which was weighted to the back half of the financial year.
3.7.5 Pro forma historical Cash Flows: FY2011 compared to FY2010
Pro forma historical Cash Flows
April Y/E, $ million
EBITDA 1
FY2010
FY2011Change
51.7 55.98.2%
Change in working capital
0.3
(0.3)
nm
Maintenance Capital Expenditure
(9.2)
(7.9)
nm
Growth Capital Expenditure: (1.8)
(7.6)
nm
New restaurant capital expenditure
(1.0)
(0.9)
nm
Rebuild/relocation capital expenditure
(0.1)
(1.3)
nm
Refurbishment capital expenditure
(0.6)
(5.4)
nm
Capital expenditure
(11.0)
(15.5)
41.8%
Operating cash flow after capital expenditure
41.0
40.1
Note:
1.EBITDA in the pro forma historical consolidated cash flow statements has been adjusted to reflect the pro forma adjustments to the Historical
Statutory Results in the table provided in section 3.3.2, with the exception of adjustments 6 and 12 relating to the pro forma interest expense
and the tax effect of the pro forma adjustments respectively, none of which impact pro forma EBITDA in these years.
3.7.5.1 Change in working capital
The amount of working capital remained relatively stable.
3.7.5.2 Capital expenditure for Facility Actions
Capital expenditure increased in FY2011, which was directly attributable to the increase in Facility Actions. There were
two new KFC restaurants constructed in FY2011 compared to one in the prior year. Restaurant remodel activity also
increased with seven KFC and two Sizzler refurbishments in FY2011 compared to five KFC in the prior year.
$1.7 million of Maintenance Capital Expenditure primarily related to the investment in equipment for new product
roll‑out (Krushers) in KFC.
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COLLINS FOODS LIMITED PROSPECTUS
3.8
Pro forma Forecast Financial Information
The pro forma Forecast Financial Information is based on various best estimate assumptions, including those set
out below. In preparing the pro forma Forecast Financial Information, Collins Foods has undertaken an analysis of
historical restaurant performance and applied assumptions where appropriate across each of the KFC and Sizzler
segments (with adjustments for individual restaurants where considered relevant including as a result of Facility
Actions). The assumptions set out below should be read in conjunction with the sensitivity analysis set out in section
3.9, the risk factors set out in section 4 and the Investigating Accountant’s Report on Forecast Financial Information
set out in section 7. A reconciliation of the Pro Forma Forecast Results to the Forecast Statutory Results is set out
in section 3.3.2.
3.8.1 Specific assumptions
3.8.1.1 KFC revenue
FY2012 forecast revenue growth is based on key assumptions concerning Facility Actions, customer numbers and
cheque averages as set out below.
Facility Actions
Restaurant
$ million
numbers
FY2012 FY2012
forecast forecastEstimatedEstimated
revenue capital
annualised annualised
1,2,4
1,2,4
growth expenditure 1revenue EBITDA New restaurants FY2012
6
3.6
7.3
14.5
2.0
New restaurants FY2011
2
0.8
n/a
n/a
n/a
Refurbishments FY2012
22
0.9
Refurbishments FY2011
7
2.0
13.1 3 6.72.2
n/a
n/a
n/a
Notes:
1.
Relevant to FY2012 new and refurbished restaurants only. Revenue and EBITDA annualised for 12 months’ contribution, indicative measure only.
2.
Based on FY2012 full year revenue for comparable restaurants.
3.
Additional capital expenditure of $1.6 million was incurred in FY2011 for restaurants completed in FY2012.
4.As per page 28 relocation and rebuild returns are treated as new restaurants, therefore do not have pre refurbishment revenue or EBITDA.
The relevant revenue and EBITDA figures for the table above, as if the relocation and rebuilds were treated as new restaurants, would be
$14.6 million and $3.3 million respectively.
New restaurants
The forecast FY2012 revenue contribution from new restaurants is based on an analysis of the sales history from
comparable Collins Foods restaurants with similar demographics assuming similar results can be obtained for those
new restaurants being opened as for those opened historically, taking into account assumed timing of restaurant
openings. The associated capital expenditure is based on recent comparable restaurant spend, or where available
tenders. This expenditure is planned to be funded out of free cash flow from operations.
Collins Foods opened two new restaurants during FY2011. Collins Foods is forecasting it will generate an additional
$0.8 million of revenue from those new restaurants in FY2012 compared to revenue generated in FY2011 (assumed
for the period beginning 1 May 2011 to the first anniversary of the restaurant opening).
Refurbished restaurants
The forecast FY2012 revenue contribution from restaurants refurbished during FY2012 is based on an analysis of the
historical results of comparable past remodels with similar demographics, assuming similar results can be obtained for
those restaurants being remodelled as for those remodelled historically. It also takes into account revenue expected
to be forgone while the restaurant is closed during construction and the expected timing of restaurant reopening.
The associated capital expenditure is based on recent comparable restaurant spend or, where available, tenders. This
expenditure is to be funded out of free cash flow from operations. Collins Foods forecasts it will generate an additional
$2.0 million of revenue in FY2012 from the restaurants it refurbished in FY2011 (assumed for the period beginning
1 May 2011 to the first anniversary of the restaurant reopening).
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COLLINS FOODS LIMITED PROSPECTUS
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Financial
information
Customer numbers and cheque average
Collins Foods forecasts SSSG of 2.8% in FY2012, reflecting a combination of growth in customer numbers and cheque
average as outlined below. Same store customer numbers are forecast to grow by 1.2%. This is based on an increase
in customer numbers in Q4 FY2011 driven by promotional activity and an improvement in the Queensland economy
resulting from a recovery in resource industries. Same store cheque average is forecast to grow by 1.7%, reflecting
menu price increases and product mix changes in the forecast period. The assumed price increases are lower than
those achieved in recent years in light of current market conditions.
3.8.1.2 Sizzler revenue
FY2012 forecast revenue is based on key assumptions concerning Facility Actions, customer numbers and cheque
averages as set out below.
Facility Actions
Restaurant
$ million
numbers
FY2012
FY2012
forecast forecastEstimatedEstimated
revenue capital annualised annualised
1, 2
1, 2
growth expenditure 1revenue EBITDA New restaurants FY2012
2
New restaurants FY2011
Refurbishments FY2012
Refurbishments FY2011
2 1.2 n/an/an/a
Notes:
1.
2.
2.6
6.0
10.4
1.6
0
n/a
n/a
n/a
n/a
4
(0.1)
1.6
0.8
0.2
Relevant to FY2012 new and refurbished restaurants only. Annualised for 12 months’ contribution, indicative measure only.
Based on FY2012 full year revenue for comparable restaurants.
New restaurants for Sizzler Australia
The forecast FY2012 revenue contribution from new restaurants is based on the sales history from comparable Collins
Foods’ restaurants with similar demographics assuming similar results can be obtained for those new restaurants being
opened as for those opened historically taking into account assumed timing of restaurant openings. The associated
capital expenditure is based on comparable store spend, adjusted for inflationary increases or, where available, tenders,
and is expected to be funded out of free cash flow from operations.
Refurbished restaurants for Sizzler Australia
The forecast FY2012 revenue contribution from restaurants refurbished during FY2012 is based on the historical
results of past remodels from comparable Collins Foods’ restaurants with similar demographics assuming similar
results can be obtained for those restaurants being remodelled as for those remodelled historically. It also takes
into account revenue forgone while the restaurant is closed during construction and the timing of the restaurant
reopening. Collins Foods also forecasts to generate $1.2 million in revenue from restaurants refurbished in FY2011
(assumed for the period beginning 1 May 2011 to the first anniversary of the restaurant reopening). The associated
capital expenditure is based on recent comparable restaurant spend or, where available, tenders. This expenditure
is to be funded out of free cash flows.
Customer numbers and cheque average for Sizzler Australia
Collins Foods forecasts SSSG of 1.3% in FY2012, reflecting a combination of decline in customer numbers and growth
in cheque average as outlined below. Same store customer numbers are forecast to decline by 1.6% in FY2012,
reflecting a decline in Sizzler customer numbers observed by Collins Foods in Q4 FY2011 and which Collins Foods
believes reflects consumer uncertainty impacting discretionary spend in the restaurant sector. Same store cheque
average is forecast to grow by 2.9%, reflecting menu price increases and product mix changes. The assumed price
increases are lower than those achieved in recent years in light of current market conditions.
Sizzler Asia
Revenue from Sizzler Asia is forecast to decrease by $0.1 million (to $2.5 million) as a result of restaurant closures
in Taiwan in FY2011 and the expected closure of two restaurants in South Korea in FY2012.
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COLLINS FOODS LIMITED PROSPECTUS
3.8.1.3 Gross profit margin assumptions
Gross profit margin is forecast to be 53.5% of revenue in FY2012. This represents a modest increase in gross margin
percentage from FY2011 (53.1%) and is based on the assumption that menu price increases (as described above) will
continue to slightly exceed the expected cost increases in most major input products, including fresh chicken, chips,
soft drinks and packaging.
Commodity price increases are based on contracted price increases, where relevant. Pricing for over 90% of key
commodities for its KFC restaurants are already contracted for FY2012. Prices for approximately 23% of Sizzler
Australia’s key commodities are contracted with suppliers. Non-contracted price increases have been forecast in line
with inflation (assumed to be 3%), or above inflation where it is known or expected that prices in FY2012 will be
higher than 3%.
Direct labour costs are forecast to increase from FY2011 by 4.8%, based on average hourly rate or Fair Work Australia
increases, plus additional headcount related to new restaurant openings. As a percentage of revenue, direct labour
costs are consistent with recent Collins Foods’ experience.
3.8.1.4 Operating expenses assumptions
Operating expenses (including rent) are forecast to be $171.0 million in FY2012. This reflects an increase of
$8.6 million from FY2011, which is driven by an increase in the variable component of operating expenses and
the following key assumptions.
Indirect labour costs and administration costs are assumed to increase by 6.3% from FY2011, based primarily on
an increase in the number of restaurants and a 4% salary increase (which is consistent with Collins Foods’ recent
experience) to attract and retain quality restaurant management staff.
Advertising is assumed to be 6.0% of KFC annual sales revenue, based on the revised agreements with Yum!
(refer sections 2.2.7 and 8.1) and 5.0% of Sizzler sales revenue, based on historic levels of spend.
Royalty expenses are assumed to represent 6.0% of KFC annual sales revenue based on the revised agreements
with Yum! (refer sections 2.2.7 and 8.1).
Rental expenses are assumed to be $23.4 million in FY2012, based on the terms of the relevant lease agreements
for all restaurants, and expected costs associated with the new restaurant openings (based on agreed terms or
comparable restaurant costs). The majority of lease agreements contain clauses providing that rental expense is to
be determined as the higher of an amount calculated by reference to turnover and an amount calculated by reference
to a base rental expense as increased by an inflationary, fixed increase or market rate escalation clause.
Utilities expenditures are assumed to increase in FY2012 by 9.4% compared to FY2011, based on increases in market
determined electricity prices and new restaurant openings. Approximately 28% of the utility costs are contracted with
the remainder of costs mainly based on the Queensland Competition Authority’s electricity pricing.
Other operating costs are assumed to increase in line with inflation at 3%.
3.8.1.5 Depreciation and amortisation assumptions
Depreciation expense and amortisation is forecast to be $15.6 million in FY2012, compared to $15.2 million in FY2011.
Depreciation for FY2012 is based on the useful lives and costs of the existing asset base, adjusted for the impact
of additional capital expenditure from the date of commissioning of assets. FY2012 amortisation also includes the
amortisation of fees associated with the new KFC franchising arrangements which will take effect on Completion
of the Offer.
3.8.1.6 Net interest expense assumptions
Net interest expense is forecast to be $8.0 million in FY2012, based on the revised capital structure (New Debt
Facilities) as set out in section 3.4.3. The net interest expense forecast assumes $105.0 million of drawn facilities with
the interest rate hedged for 50% of the drawn facilities. A $1.0 million average draw down on the Working Capital
Facility in relation to timing of cash flows is also assumed. Net interest expense includes amortisation of borrowing
costs $0.2 million and undrawn facility fees $0.3 million net of the forecast interest income. Based on BBSY as at
25 May 2011 of 5.0683%, the average effective interest rate of Facility A is assumed to be 7.2%. It is assumed there is
no change to the capital structure from the consolidated pro forma post Offer balance sheet set out in section 3.4.
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Financial
information
3.8.1.7 Income tax expense assumptions
Income tax expense of $10.6 million has been forecast based on an effective tax rate of 30.1%, representing a blend
of the current corporate income tax rate of 30% applicable in Australia for FY2012 and withholding tax in Asia for
FY2012. Income tax expense has been adjusted to reflect the tax effect of differences relevant to the pro forma
forecast information. These differences are outlined in Note 12 to the table in section 3.3.2.
3.8.1.8 Working capital assumptions
The growth in working capital balances ($0.6 million) has been forecast in line with forecast revenue growth, assuming
historical working capital trends are maintained during the forecast period.
3.8.1.9 Maintenance Capital Expenditure
Maintenance Capital Expenditure is forecast to be $7.3 million, which is equivalent to 1.7% of revenue and which is
consistent with normalised historical levels of expenditure, after adjusting for one off projects, such as the introduction
of grill ovens in FY2010 ($3.0 million) and equipment associated with KFC’s Krushers product in FY2011 ($1.7 million).
No significant new equipment is forecast to be necessary to deliver the products forecast for FY2012. This expenditure
is planned to be funded out of free cash flow from operations.
3.8.2 General assumptions
In preparing the Forecast Financial Information, the following general best estimate assumptions have been adopted:
––
No material change in the competitive operating environment in which Collins Foods operates;
––
No significant deviation from current market expectations of global or Australian economic conditions relevant
to the food industry in Australia for the period;
––
No material changes in Australian Commonwealth state or local government legislation, tax legislation,
regulatory legislation, regulatory requirements or government policy that will have a material impact on the
financial performance or cash flows, financial position, accounting policies, financial reporting or disclosure
of Collins Foods during the forecast period;
––
No material changes in key personnel;
––
No material changes in applicable Australian Accounting Standards, other mandatory professional reporting
requirements or the Corporations Act which have a material effect on Collins Foods’ financial performance,
financial position, accounting policies, financial reporting or disclosure;
––
No material industry strikes or other disturbances, environmental costs, contingent liabilities or legal claims
will arise or be settled to the detriment of Collins Foods;
––
No material cash flow or income statement or financial position impact in relation to litigation
(existing or otherwise);
––
No material acquisitions or disposals of businesses other than as set out in, or contemplated by, this Prospectus;
––
No material changes to Collins Foods’ corporate and funding structure other than as set out in, or contemplated
by, this Prospectus;
––
No material disruptions to the continuity of operations of Collins Foods nor other material changes in
its business;
––
No material amendment to any material agreement or arrangement relating to Collins Foods’ business other
than set out in, or contemplated by, this Prospectus; and
––
None of the risks listed in section 4 have a material adverse impact on the operations of Collins Foods.
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COLLINS FOODS LIMITED PROSPECTUS
3.8.3 Pro forma income statements: FY2012 compared to FY2011
Pro FormaPro Forma
Historical Forecast
1
Results Results 1
April Y/E, $ million
FY2011
FY2012Change
Average number of restaurants
KFC
Sizzler Australia
118.0 119.1
25.9
26.3
1.1
0.4
Revenue
KFC
303.3 318.0 4.8%
107.5
112.3
Total revenue
410.8
430.3
4.7%
Gross profit
218.3
230.1
5.4%
Gross profit margin
53.1%
53.5%
Other operating costs
(162.4)
(171.0)
Sizzler EBITDA
EBITDA margin
EBIT
EBIT margin
Note:
1. 4.4%
5.3%
55.9 59.05.6%
13.6%
40.8
9.9%
13.7%
43.4
6.5%
10.1%
Explanations of pro forma adjustments to Historical and Forecast Statutory Results are shown in section 3.3.2.
3.8.4 Pro forma Cash Flows: FY2012 compared to FY2011
Pro formaPro forma
historical forecast
Cash FlowsCash Flows
April Y/E, $ million FY2011
FY2012Change
EBITDA 55.9 59.05.6%
Change in working capital
(0.3)
1
0.6
nm
Maintenance Capital Expenditure
(7.9)
(7.3)
nm
Growth Capital Expenditure: (7.6)
(28.0)
nm
New restaurant capital expenditure
(0.9)
(13.3)
nm
Rebuild/relocation capital expenditure
(1.3)
(4.5)
nm
Refurbishment capital expenditure
(5.4)
(10.2)
nm
(15.5)
(35.4)
127.6%
40.1
24.3
Capital expenditure
Operating cash flow after capital expenditure
Note:
1.EBITDA in the pro forma historical and forecast consolidated cash flow statements has been adjusted to reflect the pro forma adjustments to
the Historical Statutory Results and Forecast Statutory Results in the table provided in section 3.3.2, with the exception of adjustments 6, 11, 12
and 13 in respect of the pro forma interest expense, the write-off of capitalised franchise fees on Completion of the Offer, the tax effect of the
pro forma adjustments and the resetting of tax bases respectively, none of which impact pro forma EBITDA.
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COLLINS FOODS LIMITED PROSPECTUS
3
Financial
information
3.9
Sensitivity analysis
The Forecast Financial Information is based on a number of estimates and assumptions as described in section 3.8.1
and section 3.8.2. These estimates and assumptions are subject to business, economic and competitive uncertainties
and contingencies, many of which are beyond the control of Collins Foods, the Directors and Management. These
estimates are also based on upon assumptions with respect to future business decisions, which are subject to change.
Set out below is a summary of the sensitivity of the Pro Forma Forecast Results to changes in a number of key
assumptions. The changes in the key assumptions set out in the sensitivity analysis are not intended to be indicative
of the complete range of variations that may be experienced. For the purposes of this analysis, each sensitivity is
presented in terms of the impact of each on FY2012 forecast pro forma NPAT of $24.7 million and is set out below.
FY2012
Increase/
pro forma
1
Assumption(decrease) NPAT impact
Sales 2
1.0%/(1.0%)
1.0/(1.0)
Delay of 12 weeks for all new restaurant openings 3 n/a(0.2)
Cost of sales 1.0%/(1.0%)
(1.4)/1.4
Other operating costs 1.0%/(1.0%)
(1.0)/1.0
Interest 41.0%/(1.0%)
(0.4)/0.4
Notes:
1.These sensitivities are relative sensitivities. A +/– 1% variation is to be interpreted as resulting in the base assumption (revenue or cost) x 1.01 or
0.99 respectively.
2.
Based on a change in customer volumes and associated increases and decreases in variable operating costs.
3.
Represents the impact of delaying the specific NPAT contributions of the new restaurants for 12 weeks.
4.Based on an absolute increase or decrease of 1% in BBSY. The net interest expense forecast assumes $105.0 million of drawn facilities with the
interest rate hedged for 50% of the drawn facilities.
Care should be taken in interpreting each sensitivity. The estimated impact of changes in each of the assumptions has
been calculated in isolation from changes in other assumptions, in order to illustrate the likely impact on the forecasts.
In practice, changes in assumptions may offset each other or be additive, and it is likely that Management would
respond to any adverse change in one item to seek to minimise the net effect on Collins Foods’ financial performance.
3.10 Dividend policy
Subject to the forecasts being achieved and other relevant factors, the Board expects to declare a final dividend
in respect of FY2012 of 11.8 cents per Share which represents an annualised dividend yield of 6.4%1. It is expected
that the dividend will be fully franked.
Depending on available profits and the financial position of Collins Foods Limited, it is the current intention of the
Board to pay an interim dividend each December and a final dividend each July. It is expected that all future dividends
will be franked to the maximum extent possible.
The Directors intend to target a payout ratio of at least 50% of statutory NPAT; however, the payment of a dividend
by Collins Foods is at the discretion of the Directors and will be a function of a number of factors, including the general
business environment, the operating results and the financial condition of Collins Foods, future funding requirements,
capital management initiatives, potential strategic growth opportunities, taxation considerations (including the level
of franking credits available), any contractual, legal or regulatory restrictions on the payment of dividends by Collins
Foods (including the Yum! arrangements), and any other factors the Directors may consider relevant. Therefore,
no assurances can be given by any person, including the Directors, about the payment of any dividend and the level
of franking on any such dividend.
1The FY2012 dividend of 11.8 cents per Share is based on the earnings generated during the period from the completion of the Offer and
29 April 2012. On an annualised basis this represents a dividend yield of 6.4%.
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COLLINS FOODS LIMITED PROSPECTUS
4
RISKS
KFC Chicken Salad
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COLLINS FOODS LIMITED PROSPECTUS
4
riskS
An investment in Collins Foods will be exposed to a number of risks.
Risks that the Directors believe are key risks are described in section 4.1 below. The key risks are the risks that senior
Management and the Directors focus on when managing the business of Collins Foods and have the potential, if they
occurred, to result in very significant consequences for Collins Foods and an investment in it. The balance of risks
regarded by the Directors as potentially material are described in section 4.2.
There are also risks that are common to all investments in shares and which are not specific to an investment in
Collins Foods; for example, the general volatility of share prices including as a result of general economic conditions
(including monetary and fiscal policy settings as well as exchange and interest rates) in Australia and overseas and
other events outside the usual course of Collins Foods’ business such as acts of terrorism or war.
Investors should note that the occurrence or consequences of some of the risks described in this section of the
Prospectus are partially or completely outside the control of Collins Foods, its Directors and senior Management.
Further, investors should note that this description focuses on the risks referred to above and does not purport to list
every risk that Collins Foods may have now or in the future. It is also important to note that there can be no guarantee
that Collins Foods will achieve its stated objectives or that any forward looking statements or forecasts contained
in this Prospectus will be realised or otherwise eventuate.
Investors should satisfy themselves that they have a sufficient understanding of these matters, including the risks
described in this section of the Prospectus, and have regard to their own investment objectives, financial circumstances
and taxation position before investing in Collins Foods. If you do not understand any part of this Prospectus, or are in
any doubt as to whether to invest in Shares or not, it is recommended that you seek professional guidance from your
stockbroker, solicitor, accountant or other independent and qualified professional adviser before deciding whether
to invest.
4.1
Key risks
4.1.1 Food safety and sanitation
There is a risk that a serious food-poisoning incident could occur at a Collins Foods KFC or Sizzler restaurant as a result
of an operational lapse in food safety or sanitation procedures or malicious tampering.
The occurrence of a serious food-poisoning incident at a KFC or Sizzler restaurant (including restaurants operated
by others as discussed in section 4.1.5 “Brand and reputation calamity”) is likely to have very significant consequences
for Collins Foods’ same branded restaurants. It may involve:
––
A loss of consumer trust in the relevant brand that results in reduced revenues;
––
An increase in expenditure on advertising to seek to attempt to restore consumer trust in the relevant brand;
––
Some or all restaurants for the relevant brand being partially or wholly closed while the relevant food safety
authorities satisfy themselves that the underlying issue has been resolved satisfactorily. Revenues from these
restaurants would be forgone as a result; and
––
The payment to affected consumers (or their dependents) of some form of compensation and to the relevant
food authorities of some form of penalty or fine (unless the incident results from malicious tampering).
See also the description of Collins Foods’ related exposure to brand and reputation calamity risk in section 4.1.5 below.
4.1.2 Security of supply chain
There is a risk that the supply chain for one or more of Collins Foods’ restaurants will be materially disrupted with the
result that sufficient quantities of supplies are not delivered on time. This could result from the occurrence of a natural
disaster that affects the delivery by suppliers of supplies to restaurants; for example, a flood, or alternatively some
industry-wide phenomena affecting the availability of supplies to suppliers; for example, a widespread disease in
chickens. It should be noted that the failure of any one supplier common to all restaurants, or the failure of all suppliers
to a limited number of restaurants, is unlikely to result in material consequences for Collins Foods.
The occurrence of such an event would potentially have significant consequences for all Collins Foods restaurants
(as well as the QSR or casual dining industries more generally), including the inability to sell some or all products,
with an associated loss of revenue and (potentially) brand damage, increased costs flowing from alternative delivery
arrangements, or a combination of both.
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COLLINS FOODS LIMITED PROSPECTUS
4.1.3Relationship with Yum! (termination for non-compliance)
There is a risk that Yum! could terminate KFC franchise arrangements with Collins Foods as a result of a material
breach by Collins Foods of its obligations to Yum! under those arrangements (including to refrain from damaging the
KFC brand, a failure by Collins Foods to upgrade its KFC restaurants to Yum! brand standards or if a person acquires
control of Collins Foods without Yum!’s prior consent).
The termination of all of Collins Foods’ KFC franchise arrangements would result in:
––
The imposition on Collins Foods of an obligation not to be engaged in or perform any services for any business
involving the preparation, marketing or sale of products similar to the KFC products for a period of 12 months;
and
––
Collins Foods ceasing to trade as KFC through any of its restaurants, with an associated loss of revenue and
cost to refurbish its restaurants (if an alternative use for them could be found).
There is a possibility that this would result in Collins Foods being unable to conduct any business from these sites,
or be unable to conduct a business that generates revenues equal to those currently being generated, or the cessation
of business at all sites and the sale of the assets to a third party or to Yum!.
4.1.4 Change in regulation
There is a risk that laws or regulations will be introduced that seek to reduce the advertising or consumption of foods
sold by QSRs generally which would affect Collins Foods’ KFC restaurants and potentially its Sizzler restaurants,
including by imposing restrictions on the location of restaurants, by the introduction of mandatory dietary content
disclosures or by the introduction of taxation measures that reference food content.
While the Directors do not believe any specific proposals are currently being considered in Queensland (and that
it is therefore difficult to ascertain the likely consequences for Collins Foods of any such development), there is the
potential for such measures to reduce materially revenues, increase its costs or cause both to arise.
4.1.5 Brand and reputation calamity
There is a risk that some incident beyond the control of Collins Foods could occur which would have the effect
of reducing consumer confidence or preferences for the KFC or Sizzler brands or for any of the component menu
items sold by those businesses, such as:
––
The occurrence of a food safety incident at a KFC or Sizzler restaurant belonging to a separate franchisee
elsewhere in Australia or overseas;
––
A widespread loss of consumer confidence in one or more of the products sold by Collins Foods’ restaurants;
and
––
A widespread loss of consumer confidence in the food safety procedures in the industry as a whole.
The consequences of such an incident could be very significant for either or both of Collins Foods’ KFC and Sizzler
restaurants, including reduced revenues, loss of consumer trust in the relevant brand or products, reduced desirability
of restaurants for the relevant brand to landlords and reduced prominence of the relevant brand in customers’ minds.
4.1.6Failure of growth driver (open insufficient number of new restaurants)
There is a risk that Collins Foods will be unable to open new KFC or Sizzler restaurants in accordance with its capital
expenditure programme, including as a result of an inability to secure:
––
Government development approvals in accordance with the capital expenditure timetable;
––
Sufficient numbers of professional builders to construct the new restaurants;
––
Suitable sites for new restaurants on acceptable terms or at all;
––
Landlord approvals; and
––
Yum! approval to open a new restaurant.
The effect of such a failure would be reduced or no growth for the relevant Collins Foods business.
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COLLINS FOODS LIMITED PROSPECTUS
4
riskS
4.1.7Failure of growth driver (insufficient successful new products and LTOs)
There is a risk that Collins Foods will be unable to offer a sufficient number of successful new products or limited time
offers at its KFC and Sizzler restaurants, which could potentially result in reduced or negative organic growth.
4.1.8 Reduction in customer numbers
There is a risk that economic conditions in or consumer sentiment affecting the markets in which Collins Foods
operates could deteriorate, with the potential result that customer numbers reduce leading to lower or negative
organic growth.
4.1.9Insufficient supervision of operations by management
Close attention by management to the day to day operations of its restaurants and other aspects of the business is
critical to Collins Foods’ performance. A failure to do this would be likely to result in reduced revenues, increased costs,
or a combination of both.
4.2
Other risks
4.2.1Failure of growth driver (inability to refurbish existing restaurants)
There is a risk that Collins Foods will be unable to refurbish existing KFC and Sizzler restaurants in a particular year
in accordance with its capital expenditure programme, including as a result of an inability to secure sufficient numbers
of professional builders to refurbish existing restaurants in accordance with the refurbishment programme.
The effect of such a failure would be reduced or negative growth and potentially reduced revenues, for the relevant
Collins Foods businesses and potentially (in the case of its KFC restaurants) a breach of its obligations to Yum! to
execute the capital expenditure programme (which could give lead to a termination of the KFC franchise arrangements
with Yum!).
4.2.2Inability to employ sufficient numbers of staff in required locations
There is a risk that Collins Foods will be unable to employ sufficient numbers of staff for its KFC and Sizzler restaurants,
including in those regions experiencing strong economic growth as a result of the high levels of activity in the mining
and resources industry.
This would result in decreased operational efficiencies and increased costs for the affected restaurants, which,
if affecting a substantial number of restaurants, could result in material reduction in profits for Collins Foods.
4.2.3 Competition (existing competitors)
There is a risk that the existing QSR competitors of Collins Foods’ KFC restaurants will develop strategies for
the conduct and advertising of their businesses that result in sustained and material reductions in revenues for
Collins Foods.
4.2.4Lease renewal (inability to renew on acceptable terms)
There is a risk that Collins Foods will not be able to renew its site leases on acceptable terms or at all, which would
result in the closure of the restaurants operated at the relevant sites and thereby an associated loss of the revenue
previously generated by those restaurants. Given the scarcity of appropriate sites in some areas, it may also result
in the inability to operate a restaurant within those areas at all.
4.2.5 Reduced or negative population growth
There is a risk that reduced or negative population growth will be experienced in Queensland. Were this to occur it
is expected that it would result in reduced or negative growth in the size of the QSR and casual dining markets in the
affected regions, and thereby reduced growth or reduction in revenues for the Collins Foods restaurants operating in
those regions.
4.2.6 Failure of advertising programmes
There is a risk that the advertising programmes conducted by ADCO for KFC nationally and in Queensland, and by
Collins Foods for KFC locally and for Sizzler in its markets, will be poorly constructed or executed with the result
of reduced growth in or lower revenues for the relevant businesses.
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COLLINS FOODS LIMITED PROSPECTUS
4.2.7 New restaurants
There is a risk that new restaurants opened by Collins Foods will be unprofitable because they are not supported
by a sufficient market or are not adequately staffed or managed. There is also a risk that new restaurants:
––
Waste construction costs or incur construction costs earlier than necessary; and
––
Cannibalise revenues of existing restaurants to a greater extent than predicted.
4.2.8Failure of growth driver (refurbishments over-capitalised)
There is a risk that Collins Foods will over-capitalise the refurbishment of its existing KFC and Sizzler restaurants,
resulting in material wasted costs being incurred.
4.2.9 Suppliers (change in pricing dynamics)
There is a risk that the supply chains for Collins Foods businesses (which include in material part the supply chains
for Yum! nationally in respect of the KFC business) will develop in such a way that Collins Foods becomes exposed
to material pricing risk; for example, by a reduction of competition for the supply of key product components.
The Directors do not believe this is currently occurring in any material respect; however, if it occurred it could
potentially result in a material increase in costs.
4.2.10 Reduced demand (material change in consumer dietary preferences)
There is a risk that consumer dietary preferences will develop in such a way that demand for Collins Foods’ products
is reduced. The Directors do not believe this is currently occurring in any material respect; however, if this occurred
it could potentially result in materially reduced revenues.
4.2.11 Litigation risk
Collins Foods is exposed to litigation risk principally relating to customer and employee personal injury claims. While
the historical experience of the frequency and quantum of existing claims suggests that this is not currently a material
issue, there is the potential for one or more claims that are material in cumulative quantum to occur with the result
that costs are increased or the brand is damaged.
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COLLINS FOODS LIMITED PROSPECTUS
5
Key people, interests
and benefits
Sizzler honey BBQ pork ribs
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COLLINS FOODS LIMITED PROSPECTUS
Board of Directors
(From left to right: Russell Tate, Kevin Perkins, Newman Manion and Bronwyn Morris)
5.1
Board of Directors
The Directors of Collins Foods Limited bring to the Board relevant expertise and skills, including industry and business
knowledge, financial management and corporate governance experience.
Director
Position
Experience, qualifications and expertise
Russell Tate
Chairman
–Russell was an Executive Director of ASX listed STW Communications Group
Limited from its IPO (as John Singleton Advertising) in 1994 to 2008. He was
Group Managing Director / CEO from 1997 until 2006. He was Executive
Chairman from 2006 to 2008 and Deputy Chairman from 2008 to 2011.
–Russell was appointed Executive Chairman of ASX listed Macquarie Radio
Network Limited in 2009, a position he still holds. He is also Chairman
of Central Coast Stadium Limited.
Kevin Perkins
Managing
Director
and CEO
–Kevin is a highly experienced manager in the QSR and casual dining segments
of the Australian restaurant industry. He has had more than 32 years’
experience with Collins Foods, having overseen its growth both domestically
and overseas over that time.
–Kevin is one of 13 franchisee presidents currently sitting on the KFC
International Brand Council, an informal advisory group of Yum! franchisees.
Newman
Manion
Non-executive
Director
–Newman has had over 30 years’ experience in the food franchise industry,
including over 29 years’ since 1982 in various roles with Yum!.
–Previously Newman served as a board member for KFC Japan (from
2005 to 2008), general manager of KFC operations in Australia and New
Zealand (from 1995 to 2004), development director of PepsiCo restaurants
(including KFC) in Australia (from 1990 to 1995) and general manager
of KFC New Zealand (from 1988 to 1990).
–Most recently Newman was Vice-President, Operations for Yum!’s Asian
franchise business (from 2004 until 2010).
Bronwyn
Morris
Non-executive
Director
–Bronwyn is a professional director with an executive career background in
accounting and finance. She worked for KPMG for over 20 years, including
seven years as partner.
–Bronwyn’s current roles include director of Spotless Group Limited, QIC
Limited, Care Australia, The Royal Automobile Club of Queensland Limited
and Gold Coast 2018 Commonwealth Games Bid Limited. Bronwyn is also
currently a member of the Queensland Council of the Australian Institute
of Company Directors. She is Chairman of the Audit, Finance and Risk
Committee of Spotless Group Limited.
–Bronwyn is a former director of other companies including Stanwell
Corporation Limited, Colorado Group Limited and Taylors Group Limited,
and a former Councillor of Bond University.
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COLLINS FOODS LIMITED PROSPECTUS
5
Key people, interests
and benefits
Russell Tate, Newman Manion and Bronwyn Morris were appointed non-executive directors of Collins Foods Limited
following its incorporation on 10 June 2011. Kevin Perkins was appointed executive director on 15 July 2011 .
The composition of Collins Foods Limited’s board committees, and summary of its key corporate governance policies
is set out in section 5.5.2.
Each Director above has confirmed to Collins Foods Limited that he or she anticipates being available to perform their
duties as a non-executive director or executive director (and employee) as the case may be of Collins Foods Limited
without constraint from other commitments.
The Board considers that each of Russell Tate, Newman Manion and Bronwyn Morris are free from any business or any
other relationship that could materially interfere with, or reasonably be perceived to interfere with the independent
exercise of the Director’s judgement and is able to fulfil the role of an independent Director for the purposes of the
ASX Corporate Governance Principles and Recommendations (second edition). Kevin Perkins is not currently considered
by the Board to fulfil the role of independent director. He is the Chief Executive Officer of Collins Foods and expects
to hold on Completion of the Offer approximately 7.5% of the Shares of Collins Foods Limited.
5.2Management
The below diagram shows the current senior Management structure of Collins Foods Limited.
Senior Management
Kevin Perkins
Managing Director and CEO
Simon Perkins
CFO – Global
Martin Clarke
CEO – KFC
James Ryan
CEO – Sizzler
John Hands
CSO/CIO
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COLLINS FOODS LIMITED PROSPECTUS
Years with
Collins Foods Background
Name
Title
Kevin
Perkins
Managing
Director
and CEO
32
Refer to section 5.1
Simon
Perkins
CFO – Global
17
Simon joined the Collins Foods’ business in 1994 and has been CFO
since 1995. Prior to Collins Foods, he held accounting or finance
positions with Deloitte, Haskins & Sells (from 1979 to 1986) and
Coopers & Lybrand (from 1986 to 1989). Following this, he held
positions within Daikyo Australia (1989 to 1990), ARCO Coal (1990 to
1993) and as CFO with Biggs & Biggs Francis McGregor (1993 to 1994).
Martin
Clarke
CEO – KFC
31
Martin first joined the Collins Foods business as a food service team
member in 1980. Since then he has gained extensive experience across
a wide range of roles, including Assistant Manager (1982 to 1984),
Restaurant General Manager (1984 to 1988), Area Manager (1988 to
2006), Director of Operations (2006 to 2008) leading up to his current
role overseeing Collins Foods’ KFC operations since 2009.
James Ryan
CEO – Sizzler
28
James joined the Collins Foods’ business in 1983. Since then he has
held positions as State Manager of Sizzler WA (with responsibility for
introducing the Sizzler brand to WA), Director of Group Services and
as General Manager of Sizzler Australia/Asia, leading to his current
role as CEO of Sizzler. He is currently responsible for the strategic
development of the Sizzler brand in Australia and Asia.
John Hands
CSO/CIO
22
John has 22 years’ experience with the Collins Foods business. His role
includes responsibility for purchasing, supply logistics and distribution,
and information needs. Prior to joining Collins Foods, John spent 20
years in the Australian Defence Force in varying roles, achieving the
rank of Lieutenant Colonel.
In addition to senior Management, Collins Foods’ KFC business has 40 divisional employees, over 440 restaurant
managers and approximately 600 full time and 3,900 casual and part time staff. Collins Foods’ Sizzler Australia
business has 22 divisional employees, over 130 restaurant managers and approximately 200 full time and 2,000
casual and part time staff.
5.3
Interests and benefits
This section sets out the nature and extent of the interests and fees of certain persons involved in the Offer.
Other than as set out below or elsewhere in this Prospectus, no:
––
Director or proposed Director of Collins Foods Limited;
––
Person named in this Prospectus and who has performed a function in a professional, advisory or other
capacity in connection with the preparation or distribution of this Prospectus;
––
Promoter of Collins Foods Limited; or
––
Stockbroker to the Offer,
holds at the time of lodgement of this Prospectus with ASIC, or has held in the two years before lodgement of this
Prospectus with ASIC, an interest in:
––
The formation or promotion of Collins Foods Limited;
––
Property acquired or proposed to be acquired by Collins Foods Limited in connection with its formation
or promotion, or in connection with the Offer; or
––
The Offer,
and no amount (whether in cash, Shares or otherwise) has been paid or agreed to be paid, nor has any benefit been
given or agreed to be given to any such persons for services in connection with the formation or promotion of Collins
Foods Limited or the Offer or to any Director or proposed Director to induce them to become, or qualify as, a Director
of Collins Foods Limited.
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COLLINS FOODS LIMITED PROSPECTUS
5
Key people, interests
and benefits
5.3.1 Directors’ interests and remuneration
Executive Director
Collins Foods Limited has entered into an employment contract with Kevin Perkins to govern Kevin’s employment with
Collins Foods Limited. Kevin is Managing Director of Collins Foods Limited and is employed in the position of Chief
Executive Officer. Kevin will receive an annual base salary of $746,750, and have the opportunity to receive 70% of
his annual remuneration in the form of a short‑term incentive, payable after the annual results of Collins Foods Limited
have been published. The payment under this short-term incentive will be determined by the Board of Directors and
vary depending on the amount by which Collins Foods’ EBITDA for FY2012 exceeds forecast EBITDA. No short‑term
incentive will be paid if forecast EBITDA is not achieved. The amount may be significantly increased if the targets are
materially exceeded.
Kevin’s employment contract has a term of three years commencing on Completion of the Offer. Collins Foods Limited
or Kevin may terminate Kevin’s employment after the expiry of 30 months from Completion of the Offer, by providing
at least six months’ notice in writing before the proposed date of termination, or in Collins Foods Limited’s case,
payment in lieu of notice. Collins Foods Limited may terminate the employment of Kevin immediately and without
payment in lieu of notice in certain circumstances including for any act of dishonesty, fraud, wilful disobedience,
serious misconduct or serious breach of duty. Kevin’s employment contract also includes a restraint of trade period of
12 months. Enforceability of such restraint of trade is subject to all usual legal requirements.
Director remuneration
Under the Constitution, the Directors decide the total amount paid to all Directors as remuneration for their services
as a Director to Collins Foods. However, under ASX Listing Rules, the total amount paid to all Directors for their
services must not exceed in aggregate in any financial year the amount fixed by Collins Foods in general meeting.
This amount has been fixed by Collins Foods at $700,000. For the remainder of the financial year ending 29 April 2012,
it is expected that the fees payable to the current Directors will not exceed $275,000 in aggregate. Annual directors’
fees currently agreed to be paid by Collins Foods are $180,000 to the Chairman, Russell Tate, $95,000 to Newman
Manion and $105,000 to Bronwyn Morris. The remuneration of Directors must not include a commission on,
or a percentage of profits or operating revenue. Superannuation on these amounts will also be paid at 9% of the
respective amounts.
Deeds of access, indemnity and insurance for Directors
Collins Foods Limited has entered into deeds of indemnity, insurance and access with each Director which confirm
each person’s right of access to certain books and records of Collins Foods Limited for a period of seven years after
the Director ceases to hold office. This seven year period can be extended where certain proceedings or investigations
commence before the seven years expires. The deed also requires Collins Foods Limited to provide an indemnity for
liability incurred as an officer of Collins Foods Limited and its subsidiaries, to the maximum extent permitted by law.
Indemnification: Pursuant to the Constitution, Collins Foods Limited is required to indemnify all Directors and
employees, past and present, against all liabilities allowed under law. Collins Foods Limited has entered into an
agreement with each Director to indemnify those parties against all liabilities to another person that may arise from
their position as Director or other officer of Collins Foods Limited or its subsidiaries to the extent permitted by law.
The deed stipulates that Collins Foods Limited will meet the full amount of any such liabilities, including reasonable
legal costs and expenses.
Insurance: Pursuant to the Constitution, Collins Foods Limited may arrange and maintain directors’ and officers’
insurance for its Directors to the extent permitted by law. Collins Foods Limited has entered into an agreement with
each Director to obtain such insurance during each Director’s period of office and for a period of seven years after
a Director ceases to hold office. This seven year period can be extended where certain proceedings or investigations
commence before the seven years expires.
Other information
Directors may also be reimbursed for travel and other expenses incurred in attending to Collins Foods Limited’s affairs.
Non-executive directors may be paid such additional or special remuneration as the Directors decide is appropriate
where a Director performs extra work or services which are not in the capacity as Director of Collins Foods Limited
or a subsidiary.
There are no retirement benefit schemes for Directors, other than statutory superannuation contributions.
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COLLINS FOODS LIMITED PROSPECTUS
Directors’ Shareholdings
Directors are not required under the Constitution to hold any Shares in Collins Foods Limited. The Directors (and their
associates) are entitled to apply for Shares in the Offer. All Directors will hold Shares on Completion of the Offer,
as described in section 6.1.6).
Kevin Perkins’ interests in Sizzler USA Acquisition, Inc
Sizzler USA Acquisition, Inc operates or franchises Sizzler restaurants across the United States and Puerto Rico. Kevin
Perkins is the Non-executive Chairman of Sizzler USA Acquisition, Inc. He holds approximately 55% of the common
stock in Sizzler USA Acquisition, Inc (acquired for a nominal amount) and will invest approximately US$1.1 million to
recapitalise that business in August 2011. The operations of Collins Foods and Sizzler USA Acquisition, Inc are separate.
Mr Kevin Perkins has advised Collins Foods Limited that he expects his duties as Non-executive Chairman of Sizzler
USA Acquisition, Inc will only involve approximately four days’ work per year.
5.3.2 Interests of professionals
Collins Foods Limited has engaged the following professional advisers:
––
Deutsche Bank AG, Sydney Branch and UBS AG, Australia Branch have acted as Joint Lead Managers to the
Offer, and the fees payable to each Joint Lead Manager are described in section 8.2. Each of the Joint Lead
Managers or affiliates of them have interests as lenders in Collins Foods’ existing term debt facilities which will
be repaid on Completion of the Offer;
––
Clayton Utz has acted as Australian legal adviser to Collins Foods Limited in relation to the Offer. Collins Foods
Limited has paid, or agreed to pay, approximately $1,075,000 (excluding disbursements and GST) for these
services up until the date of this Prospectus. Further amounts may be paid to Clayton Utz in accordance with
its normal time-based charges;
––
PricewaterhouseCoopers Securities Limited has acted as Investigating Accountant and has prepared the
Investigating Accountant’s Report and has performed work in relation to due diligence enquiries. Collins Foods
Limited has paid, or agreed to pay, approximately $570,000 (excluding disbursements and GST) for the above
services up until the date of this Prospectus;
––
PricewaterhouseCoopers has acted as taxation adviser to Collins Foods Limited in relation to the Offer. Collins
Foods Limited has paid or agreed to pay approximately $487,000 (excluding disbursements and GST) for
these services. PricewaterhouseCoopers acts as auditor of Collins Foods Holding Pty Limited and Collins Foods
Limited; and
––
Bell Potter, Craigs Investment Partners, UBS Wealth Management and Wilson HTM have agreed to act as
Co Managers to the Offer. Each will be paid fees up to 1.5% of the value of Shares allocated to clients of that
Broker. All of the amounts payable to them are payable by the Joint Lead Managers out of the fees payable to
the Joint Lead Managers under the Underwriting Agreement.
These amounts, and other expenses of the Offer, will be paid by Collins Foods Limited (or one of its subsidiaries) out
of funds raised under the Offer or available cash. Further information on the use of proceeds and payment of expenses
of the Offer is set out in section 6.1.2.
5.4
Employee incentive plans
Collins Foods Limited has established a short term incentive plan (STIP) to assist in the attraction, motivation and
retention of senior executives and employees of the Group.
Participants in the STIP have the opportunity to receive up to a specified percentage of their annual remuneration in
the form of a cash bonus, payable after the annual results of Collins Foods Limited have been published. The amount
of the payment (if any) under the STIP will be determined by the Board of Directors by reference to the amount by
which actual EBITDA for the relevant year exceeds EBITDA budgets set by the Board of Directors for that year for
Collins Foods or its relevant division. No bonus will be payable if the applicable targets are not met. The remuneration
structure for restaurant managers and area managers also includes variable quarterly cash incentives, set by the CEO,
based on key performance indicators and operational performance against established targets.
Collins Foods has not established a long term incentive plan (LTIP). The Board intends to consider the introduction
of an appropriate LTIP which may involve the granting of options, performance rights or shares to certain employees
on terms and conditions, including as to vesting and exercise, determined by the Board. If any such plan is
implemented by the Board, grants under it will not be made until after publication of Collins Foods Limited’s results
in respect of FY2012. When considering whether to introduce an LTIP, the Board of Directors expects that it will
seek advice from appropriately qualified remuneration consultants and take into account the nature of LTIPs utilised
by comparable companies.
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COLLINS FOODS LIMITED PROSPECTUS
5
Key people, interests
and benefits
5.5
Corporate governance
This section explains how the Board will manage Collins Foods’ business. The Board is responsible for the overall
corporate governance of Collins Foods. The Board monitors the operational and financial position and performance
of Collins Foods and oversees its business strategy including approving the strategic goals of Collins Foods. The
Board is committed to maximising performance, generating appropriate levels of Shareholder value and financial
return, and sustaining the growth and success of Collins Foods. In conducting business with these objectives, the
Board is concerned to ensure that Collins Foods is properly managed to protect and enhance Shareholder interests,
and that Collins Foods, its Directors, officers and employees operate in an appropriate environment of corporate
governance. Accordingly, the Board has created a framework for managing Collins Foods including adopting relevant
internal controls, risk management processes and corporate governance policies and practices which it believes are
appropriate for Collins Foods’ business and which are designed to promote the responsible management and conduct
of Collins Foods.
The main policies and practices adopted by Collins Foods, which will take effect from listing on ASX, are summarised
below. In addition, many governance elements are contained in the constitution of Collins Foods Limited. The Collins
Foods’ code of conduct outlines how Collins Foods expects Directors and employees to behave and conduct business
in a range of circumstances. In particular, the code requires awareness of, and compliance with, laws and regulations
relevant to Collins Foods’ operations, including OH&S, risk management, privacy and employment and diversity
practices. Details of Collins Foods’ key policies and practices and the charters for the Board and each of its committees
are available at www.collinsfg.com.au.
Collins Foods Limited is seeking a listing on ASX. The ASX Corporate Governance Council has developed and released
corporate governance recommendations for Australian listed entities in order to promote investor confidence and
to assist companies to meet stakeholder expectations. The recommendations are not prescriptions, but guidelines.
However, under ASX Listing Rules, Collins Foods Limited will be required to provide a statement in its annual report
disclosing the extent to which it has followed the recommendations in the reporting period. Where Collins Foods
Limited does not follow a recommendation, it must identify the recommendation that has not been followed and
give reasons for not following it. The Board does not anticipate that it will depart from the recommendations of the
ASX Corporate Governance Council; however, it may do so in the future if it considers that such departure would be
reasonable.
5.5.1 Board Charter of Directors and its committees
The Board has adopted a written charter to provide a framework for the effective operation of the Board. The charter
addresses the following matters and responsibilities of the Board:
––
Enhancing Shareholder value;
––
Oversight of Collins Foods, including its control and accountability systems;
––
Appointing and removing the Managing Director (or equivalent) and the Chief Financial Officer;
––
Ratifying the appointment, and where appropriate, the removal of the senior executives;
––
Providing strategic direction for, and approval of, corporate strategy and performance objectives;
––
Reviewing and ratifying systems of risk management, internal compliance and control, codes of conduct
and legal compliance;
––
Monitoring senior Management’s performance, implementing strategy and seeking to ensure appropriate
resources are available;
––
Approving and monitoring the progress of major capital expenditure, capital management and acquisitions
and divestitures;
––
Approving budgets;
––
Approving and monitoring operational and financial position and performance of Collins Foods and
other reporting;
––
Identifying the principal risks faced by Collins Foods and taking reasonable steps designed to ensure that
appropriate internal controls and monitoring systems are in place to manage and, to the extent possible,
reduce the impact of these risks; and
––
Adopting appropriate procedures to ensure compliance with all laws, governmental regulations and accounting
standards, including establishing procedures to ensure the financial results are appropriately and accurately
reported on a timely basis in accordance with all legal and regulatory requirements.
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COLLINS FOODS LIMITED PROSPECTUS
The management function is conducted by, or under the supervision of, the chief executive officer as directed by
the Board (and by officers to whom the management function is properly delegated by the chief executive officer).
Management must supply the Board with information in a form, timeframe and quality that will enable the Board
to discharge its duties effectively. Directors are entitled to access senior management and to request additional
information at any time they consider it appropriate. The Board collectively, and individual directors, may seek
independent professional advice at Collins Foods’ expense, subject to the approval of the Chairman or the Board
as a whole.
5.5.2 Board committees
The Board may from time to time establish appropriate committees to assist in the discharge of its responsibilities.
The Board has established the Audit and Risk Committee and the Remuneration and Nomination Committee.
Other committees may be established by the Board as and when required. Membership of Board committees will
be based on the needs of Collins Foods, relevant legislative and other requirements and the skills and experience
of individual Directors.
Under the Board’s charter, Board committee performance evaluations will occur annually.
Audit and Risk Committee
Under its charter, this committee must have at least three members, a majority of whom must be independent and all
of whom must be non-executive Directors. Currently, all the non-executive Directors are members of this committee.
Bronwyn Morris will act as Chairman of the committee. In accordance with its charter, it is intended that all members
of the committee should be financially literate and have familiarity with financial management and at least one
member should have relevant qualifications and experience.
The primary role of this committee includes:
––
Overseeing the process of financial reporting, internal control, continuous disclosure, financial and non-financial
risk management and compliance and external audit;
––
Providing advice in relation to Collins Foods’ OH&S management and performance and auditing systems;
––
Monitoring Collins Foods’ compliance with laws and regulations and Collins Foods’ own codes of conduct
and ethics;
––
Encouraging effective relationships with, and communication between, the Board, Management and
Collins Foods’ external auditor; and
––
Evaluating the adequacy of processes and controls established to identify and manage areas of potential risk
and to seek to safeguard the assets of Collins Foods.
Under the charter it is the policy of Collins Foods that its external auditing firm must be independent of it.
The committee will review and assess the independence of the external auditor on an annual basis.
Remuneration and Nomination Committee
Under its charter, this committee must have at least three members, a majority of whom (including the chairman)
must be independent Directors. Currently, Russell Tate, Newman Manion and Kevin Perkins are members of this
committee. Newman Manion will act as Chairman of the committee.
The main functions of the committee are to assist the Board with a view to establishing a Board of effective
composition, size, diversity, expertise and commitment to adequately discharge its responsibilities and duties, and
assist the Board with a view to discharging its responsibilities to Shareholders and other stakeholders to seek to ensure
that Collins Foods:
––
Has coherent remuneration policies and practices which enable Collins Foods to attract and retain executives
and Directors who will create value for Shareholders;
––
Fairly and responsibly remunerates Directors and executives, having regard to the performance of Collins Foods,
the performance of the executives and the general remuneration environment;
––
Has policies to evaluate the performance of the Board, individual directors and executives on (at least)
an annual basis;
––
Has effective policies and procedures to attract, motivate and retain appropriately skilled and diverse persons
to meet Collins Foods’ needs; and
––
Will integrate human capital and organisational issues into the overall business strategy.
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COLLINS FOODS LIMITED PROSPECTUS
5
Key people, interests
and benefits
5.5.3 Risk management policy
The identification and proper management of Collins Foods’ risks are an important priority of the Board. Collins Foods
has adopted a risk management policy appropriate for its business. This policy highlights the risks relevant to Collins
Foods’ operations and Collins Foods’ commitment to designing and implementing systems and methods appropriate
to minimise and control its risks.
The Board is responsible for overseeing and approving risk management strategy and policies. The Board has
delegated to the Audit and Risk Committee responsibility for identifying major risk areas and implementing
risk management systems. The Audit and Risk Committee is responsible for monitoring risk management and
establishing procedures which seek to provide assurance that major business risks are identified, consistently assessed
and appropriately addressed.
Collins Foods will regularly undertake reviews of its risk management procedures to ensure that it complies with its
legal obligations, including to assist the chief executive officer or chief financial officer to provide its declaration under
section 295A of the Corporations Act.
Collins Foods has in place a system whereby management is required to report as to its adherence to policies and
guidelines approved by the Board for the management of risks.
5.5.4 Diversity policy
Collins Foods values a strong and diverse workforce and is committed to developing measurable objectives to
achieve gender diversity in its workplace. Collins Foods has implemented a diversity policy which is overseen by the
Remuneration and Nomination Committee and which aligns Collins Foods’ management systems with the commitment
to develop a culture and business model that values and achieves diversity in its workforce and on its Board. In its
annual report, Collins Foods will disclose the measurable objectives for achieving gender diversity and progress
towards achieving them, and will also disclose the proportion of women employees in the whole organisation,
women in senior executive positions and women on the Board.
5.5.5 Continuous disclosure policy
Once listed, Collins Foods will be required to comply with the continuous disclosure requirements of the ASX Listing
Rules and the Corporations Act. Subject to the exceptions contained in the Listing Rules, Collins Foods will be
required to disclose to the ASX any information concerning Collins Foods which is not generally available and which
a reasonable person would expect to have a material effect on the price or value of the Shares. Collins Foods is
committed to observing its disclosure obligations under ASX Listing Rules and the Corporations Act. Collins Foods
has adopted a policy to take effect from listing on ASX which establishes procedures which are aimed at ensuring
that Directors and Management are aware of and fulfil their obligations in relation to the timely disclosure of material
price‑sensitive information.
5.5.6Securities trading policy
Collins Foods has adopted a written policy to take effect from listing on ASX for dealing in securities which is intended
to explain the prohibited type of conduct in relation to dealings in securities under the Corporations Act and to
establish a best practice procedure in relation to Directors’, management’s and employees’ dealings in Shares in
Collins Foods.
Subject to the overriding restriction that persons may not deal in Shares while they are in possession of material
price‑sensitive information, Directors and management will only be permitted to deal in Shares during certain
“window periods”, such as following the annual general meeting, the release of Collins Foods’ full and half year
financial results or the release of a disclosure document offering shares in Collins Foods. Outside of these periods,
Directors and management must receive clearance for any proposed dealing in Shares. In all instances, buying or selling
shares is not permitted at any time by any person who possesses price-sensitive information.
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COLLINS FOODS LIMITED PROSPECTUS
5.5.7 Code of Conduct
The Board recognises the need to observe the highest standards of corporate practice and business conduct.
Accordingly, the Board has adopted a formal code of conduct, to take effect from listing on ASX, to be followed
by all employees and officers. The key aspects of this code are to:
––
Act with honesty, integrity and fairness and in the best interest of Collins Foods and in the reasonable
expectations of Collins Foods’ shareholders;
––
Act in accordance with all applicable laws, regulations, policies and procedures;
––
Have responsibility and accountability for individuals for reporting and investigating reports of unethical
practices; and
––
Use Collins Foods’ resources and property properly.
The code of conduct sets out Collins Foods’ policies on various matters including ethical conduct, business conduct,
compliance, privacy, security of information, financial integrity, and conflicts of interest.
5.5.8 Communications with Shareholders
The Board’s aim is to ensure that Shareholders are provided with sufficient information to assess the performance
of Collins Foods and that they are informed of all major developments affecting the state of affairs of Collins Foods
relevant to Shareholders in accordance with all applicable laws. Information will be communicated to Shareholders
through the lodgement of all relevant financial and other information with ASX and publishing information on Collins
Foods’ website, www.collinsfg.com.au.
In particular, Collins Foods’ website will contain information about it, including media releases, key policies and the
terms of reference of its Board committees. All relevant announcements made to the market and any other relevant
information will be posted on Collins Foods’ website as soon as they have been released to ASX.
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COLLINS FOODS LIMITED PROSPECTUS
6
Details of
the Offer
KFC Twister
83
COLLINS FOODS LIMITED PROSPECTUS
6.1
The Offer
The Offer includes the offer of 80.7 million Shares at an Offer Price of $2.50 per Share under the Broker Firm Offer and
the Institutional Offer. Based on this Offer Price, the cash proceeds to be received by Collins Foods Limited from the
Institutional Offer and Broker Firm Offer are expected to be $201.7 million (with an additional $30.8 million of Shares
to be issued to Existing Investors as referred to below). The total number of Shares on issue at the completion of this
Offer will be 93.0 million and all Shares will rank equally with each other.
No general public offer will be made. The allocation of Shares between the Broker Firm Offer and the Institutional
Offer was determined by the Joint Lead Managers in consultation with Collins Foods Limited, having regard to the
allocation policy outlined in section 6.3.5 and section 6.4.
The Offer has been fully underwritten by the Joint Lead Managers, Deutsche Bank AG, Sydney Branch and UBS AG,
Australia Branch.
Below is a key to the information on the Offer contained in section 6:
SectionHeadingPage
6.1
The Offer (this section)
83
6.2
Terms and conditions of the Offer
86
6.3
Broker Firm Offer
88
6.4
Institutional Offer
89
6.5
Underwriting arrangements
90
6.6
Escrow arrangements
90
6.7
Restrictions on distribution
90
6.8
Discretion regarding the Offer
91
6.9
ASX listing, registers and holding statements, deferred settlement trading
91
6.10
Description of Shares
93
6.1.1 Purpose of the Offer
The purpose of the Offer is to enable a wholly owned subsidiary of Collins Foods Limited to purchase Collins Foods
Holding Pty Limited and SingCo Trading Pte Ltd (the companies that own the Collins Foods businesses in Australia and
Asia respectively) from the Existing Investors and to provide Collins Foods Limited with:
––
Additional financial flexibility to pursue growth opportunities and improve access to capital markets as a result
of its listing on ASX;
––
A liquid market for its Shares and an opportunity for others to invest in Shares in Collins Foods Limited; and
––
Funds to pay in part existing debts of the Collins Foods’ businesses and Offer costs (as described further in
section 6.1.2).
The Offer also provides the Existing Investors with an opportunity to realise all or part of their investment in Collins
Foods Holding Pty Limited and SingCo Trading Pte Ltd.
The consideration payable for the acquisition of Collins Foods Holding Pty Limited and SingCo Trading Pte Ltd from
the Existing Investors will be reduced by the amount of payments for costs of the Offer and other obligations of
Collins Foods to be paid on Completion of the Offer (net of tax refunds and deductions). This is described further
in section 6.1.2.
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COLLINS FOODS LIMITED PROSPECTUS
6
Details of
the Offer
6.1.2 Sources and uses of funds
Sources of funds
Cash and cash equivalents 1 May 2011 1
A$ million
%
43.712.5%
Cash proceeds received for Shares issued under the Institutional Offer and Broker Firm Offer
201.7
Drawdown of New Banking Facilities 2
105.030.0%
Cash acquired in SingCo Trading Pte Ltd
57.5%
0.1
0.0%
Total sources
350.5
100.0%
Uses of funds
A$ million
%
Repayment of syndicated finance debt facilities, finance leases and associated derivatives
and certain other obligations of Collins Foods Holding Pty Limited and its subsidiaries
260.4
74.3%
Payment to Existing Investors as part consideration for the acquisition of Collins Foods
Holding Pty Limited and SingCo Trading Pte Ltd
60.4
17.2%
Costs of the Offer
15.4
4.4%
Stamp duty and GST arising from the Offer and restructure 5.1
1.5%
Fees relating to new KFC franchise agreements
5.1
1.5%
Establishment costs in relation to New Banking Facilities
0.6
0.1%
Pro forma cash balance 1
3.51.0%
Total uses
Notes:
1
2
350.5
100.0%
For more information, refer to section 3.4
For more information, refer to section 3.4.3
Sources of funds
The amount of $201.7 million in respect of cash proceeds received for Shares issued under the Institutional Offer
and Broker Firm Offer represents the cash that Collins Foods Limited expects to receive on Completion of the Offer
(80.7 million Shares at the Offer Price of $2.50 per Share). (Collins Foods Limited will also issue $30.8 million of Shares
on Completion of the Offer to Existing Investors who have chosen to receive part of the consideration for the sale of
their shares in Collins Foods Holding Pty Limited in the form of Shares.)
Collins Foods will draw $105.0 million under New Banking Facilities at Completion of the Offer (refer section 3.4.3).
Collins Foods will acquire $0.1 million in cash and cash equivalents when it completes the acquisition of SingCo Trading
Pte Ltd.
Uses of funds
Key payments to be made by Collins Foods on Completion of the Offer include:
––
$260.4 million to discharge its obligations under existing syndicated finance debt facilities, finance leases and
associated derivatives and certain other obligations of Collins Foods Holding Pty Limited and its subsidiaries;
––
$60.4 million to Existing Investors as part consideration for the acquisition of Collins Foods Holding Pty Limited
and SingCo Trading Pte Ltd (with the remaining consideration of $30.8 million to be satisfied by the issue
of the Shares to Existing Investors on Completion of the Offer under the Sale Deeds (refer to section 8.3)).
This aggregate consideration of $91.2 million is calculated as $232.5 million (the Offer Price multiplied by the
number of Shares in Collins Foods Limited following the Offer) less $115.0 million (the amount by which pro
forma net debt in Collins Foods Holding Pty Limited and its subsidiaries is to be paid down on Completion
of the Offer) and less $26.3 million (being the aggregate of the other payments under the heading “Uses
of funds” referred to in the table above); and
––
$15.4 million in respect of the costs of the Offer (comprising estimates of fees payable to legal, accounting and
tax advisers and to the Joint Lead Managers under the Underwriting Agreement (in aggregate, $8.6 million
– refer to section 5.3.2), with the remaining ($6.8 million) being for other estimated costs of the Offer,
including services from PEP Advisory Pty Ltd (including $3.4 million in respect of the transactions the subject
of the Sale Deeds), prospectus design, advertising, marketing, listing and administrative fees, and Share
Registry expenses.
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COLLINS FOODS LIMITED PROSPECTUS
The amounts referred to in the above table under the heading “Uses of funds” are estimates. The Sale Deeds provide
that, to the extent that these amounts decrease, including after taking into account the effect of tax refunds, the
consideration payable to the Existing Investors will increase. The final impact of any tax refunds in relation to these
costs is expected to be known by June 2012 with any final adjustments to the consideration payable by Collins Foods
to Existing Investors to be made as soon as practicable thereafter.
6.1.3 Formation of the group
Collins Foods Limited was incorporated in Victoria, Australia, on 10 June 2011 as a company limited by shares.
At the date of this Prospectus, Collins Foods Limited has not traded. Collins Foods Limited has three Shares on issue
(each fully paid to $1.00), with one Share held by each of the non-executive Directors. As referred to in section 6.1.2,
on Completion of the Offer, Collins Foods Limited will acquire Collins Foods Holding Pty Limited and SingCo Trading
Pte Ltd (the companies that own the Collins Foods businesses in Australia and Asia respectively) through a wholly owned
subsidiary from the Existing Investors, and will have a corporate structure as illustrated below:
Collins Foods Limited
CFG Finance Pty Limited
SingCo Trading Pte Ltd
Collins Foods Holding Pty Limited
Other subsidiaries
Other subsidiaries
Collins Foods Limited will be taxed as an Australian tax resident public company in Australia for the purposes of
Australian income tax law. It expects that it will submit an application to the Australian Taxation Office to change
its financial year end from 30 June to 30 April, in order to synchronise with the financial year end date for all other
Collins Foods companies, shortly following Completion of the Offer.
6.1.4 Pro forma balance sheet
Collins Foods Limited’s pro forma balance sheet following Completion of the Offer, including details of the pro forma
adjustments, is set out in section 3.4.
6.1.5 Capital structure
Collins Foods Limited’s capitalisation and indebtedness as at 1 May 2011, before and following Completion of the
Offer, is set out in section 3.4.2.
6.1.6Shareholders
Collins Foods Holding Pty Limited and SingCo Trading Pte Ltd own the existing Collins Foods businesses in Australia
and Asia respectively. The ownership structure of those companies immediately before the Offer is set out below.
On Completion of the Offer, Collins Foods Limited will acquire, through a wholly owned subsidiary, all of the shares in
Collins Foods Holding Pty Limited and SingCo Trading Pte Ltd from the Existing Investors. The consideration payable
for the acquisition of those shares from the Existing Investors is described in section 6.1.2. The Sale Deeds which effect
these sales are described in section 8.3.
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COLLINS FOODS LIMITED PROSPECTUS
6
Details of
the Offer
The ownership structure of Existing Investors in Collins Foods Limited immediately following Completion of the Offer
is set out below.
Prior to the Offer (economic
interest in Collins Foods
Holding Pty Limited and
SingCo Trading Pte Ltd)
Following Completion
of the Offer (ownership
of Collins Foods Limited)
%Shares
%
Funds advised by Pacific Equity Partners 52.0%
–
0.0%
Kevin Perkins
23.4%
7.0 million
7.5%(b)
1.5%
Other members of Management
11.2%
1.4 million
Other Existing Investors 13.3%
3.9 million (a)4.2%
New Shareholders pursuant to the Offer
Total
–
80.7 million
86.8%
100%
93.0 million
100%
(a)
Includes three existing Shares held by the Non-executive Directors
(b)Represents 82% of his pre Offer investment in Collins Foods
Information on the number of Shares to be held on Completion of the Offer that will be subject to escrow
arrangements, and details of those escrow arrangements, is set out in section 6.6.
6.1.7 Control implications of the Offer
The Directors do not expect any Shareholder to control Collins Foods on Completion of the Offer.
6.1.8 Potential effect of the fundraising on the future of Collins Foods Limited
The Directors believe that on Completion of the Offer, Collins Foods Limited will have sufficient funds available
from the cash proceeds of the Institutional Offer and Broker Firm Offer, its operations and the New Bank Facilities,
to fulfil the purposes of the Offer and meet its stated business objectives including the forecast capital expenditure
during FY2012.
6.2
Terms and conditions of the Offer
Topic
Summary
What is the type of security being
offered?
Shares (being fully paid ordinary shares in Collins Foods Limited).
What are the rights and liabilities
attached to the security being
offered?
A description of the Shares, including the rights and liabilities attaching
to them, is set out in section 6.10 below.
What is the consideration
payable for each security being
offered?
The Offer Price is $2.50 per Share.
What is the Offer period?
The key dates, including details of the Offer period, are set out on page 2.
No securities will be issued on the basis of this Prospectus later than the expiry
date of 15 August 2012.
What are the cash proceeds to be
raised?
$201.7 million will be raised under the Institutional Offer and Broker Firm Offer.
What is the minimum and
maximum Application size under
the Broker Firm Offer?
The minimum Application under the Broker Firm Offer is $2,000, and in
multiples of $500 thereafter, as directed by the Applicant’s Broker.
The Joint Lead Managers, in consultation with Collins Foods Limited, reserve
the right to reject any Application or to allocate a lesser number of Shares than
that applied for.
There is no maximum value of Shares that may be applied for under the Broker
Firm Offer.
87
COLLINS FOODS LIMITED PROSPECTUS
Topic
Summary
What is the allocation policy?
The allocation of Shares between the Broker Firm Offer and the Institutional
Offer was determined by the Joint Lead Managers in consultation with Collins
Foods Limited, and Collins Foods Holding Pty Limited having regard to the
allocation policy outlined in section 6.3.5 and section 6.4.
For further information on the Broker Firm Offer, see section 6.3.5.
For further information on the Institutional Offer, see section 6.4.
Will the securities be listed?
Collins Foods Limited will apply for admission to the official list of ASX and
quotation of Shares on ASX under the code CKF. Completion of the Offer
is conditional on ASX approving this application. If approval is not given within
three months after such application is made (or any longer period permitted
by law), the Offer will be withdrawn and all Application Monies received will
be refunded without interest as soon as practicable in accordance with the
requirements of the Corporations Act.
When are the securities expected
to commence trading?
It is expected that trading of the Shares on ASX will commence on or about
4 August 2011, initially on a deferred settlement basis.
It is the responsibility of each Applicant to confirm its holding before
trading in Shares. Applicants who sell Shares before they receive an
initial statement of holding do so at their own risk. Collins Foods Limited
and the Joint Lead Managers disclaim all liability, whether in negligence or
otherwise, to persons who sell Shares before receiving their initial statement of
holding, whether on the basis of a confirmation of allocation provided by any
of them, by Collins Foods Offer Information Line, by a Broker or otherwise.
Shares are expected to commence trading on ASX on a normal settlement
basis on or about 8 August 2011.
Is the Offer underwritten?
Yes. The Joint Lead Managers have fully underwritten the Offer. Details are
provided in section 6.5.
Are there any escrow
arrangements?
Yes. Details are provided in section 6.6.
Has any ASIC relief or ASX waiver
been obtained or been relied on?
No.
Are there any taxation
considerations?
Refer to section 8.6.
Are there any brokerage,
commission or stamp duty
considerations?
No brokerage, commission or stamp duty is payable by Applicants on
acquisition of Shares under the Offer. See section 8.2 for details of various fees
payable by Collins Foods Limited to the Joint Lead Managers and by the Joint
Lead Managers to certain Brokers.
What should you do with
any enquiries?
All enquiries in relation to this Prospectus should be directed to Collins
Foods Offer Information Line on 1800 622 202 (toll free within Australia)
or +61 2 8280 7694 (outside Australia) from 8.30am until 5.30pm (AEST)
Monday to Friday.
If you are unclear in relation to any matter or are uncertain as to whether
Collins Foods Limited is a suitable investment for you, you should seek
professional guidance from your solicitor, stockbroker, accountant or other
independent and qualified professional adviser before deciding whether
to invest.
88
COLLINS FOODS LIMITED PROSPECTUS
6
Details of
the Offer
6.3
Broker Firm Offer
6.3.1 Who can apply in the Broker Firm Offer
The Broker Firm Offer is open to persons who have received a firm allocation from their Broker and who have a
registered address in Australia or New Zealand. If you have been offered a firm allocation by a Broker, you will be
treated as a Broker Firm Offer Applicant in respect of that allocation. You should contact your Broker to determine
whether they may allocate Shares to you under the Broker Offer.
6.3.2How to apply for Shares under the Broker Firm Offer
Broker Firm Offer
Applications for Shares may only be made on an Application Form attached to or accompanying this Prospectus,
or in its paper copy form which may be downloaded in its entirety from www.collinsfg.com.au. If you are an investor
applying under the Broker Firm Offer, you should complete and lodge your Broker Firm Offer Application Form with
the Broker from whom you received your firm allocation. Broker Firm Offer Application Forms must be completed
in accordance with the instructions given to you by your Broker and the instructions set out on the reverse of the
Application Form.
By making an Application, you declare that you were given access to the Prospectus, together with an Application
Form. The Corporations Act prohibits any person from passing an Application Form to another person unless it is
attached to, or accompanied by, a hard copy of this Prospectus or the complete and unaltered electronic version
of this Prospectus.
If you apply in the Broker Firm Offer, you must apply for a minimum value of $2,000 worth of Shares and in multiples
of $500 thereafter. There is no maximum value of Shares that may be applied for under the Broker Firm Offer.
However, Collins Foods Limited and the Joint Lead Managers reserve the right to reject or scale back any Applications
in the Broker Firm Offer which are for more than $250,000. Collins Foods Limited and the Joint Lead Managers
also reserve the right to aggregate any Applications which they believe may be multiple Applications from the same
person. Collins Foods Limited may determine a person to be eligible to participate in the Broker Firm Offer, and may
amend or waive the Broker Firm Offer application procedures or requirements, in its discretion in compliance with
applicable laws.
Broker Firm Offer Applicants must lodge their Application Form and Application Monies with the relevant Broker in
accordance with the relevant Broker’s directions in order to receive their firm allocation. Applicants under the Broker
Firm Offer must not send their Application Forms to the Share Registry.
The Broker Firm Offer opens at 9.00am (AEST) on 25 July 2011 and is expected to close at 5.00pm (AEST) on
2 August 2011. Collins Foods Limited and the Joint Lead Managers may elect to close the Offer or any part of it early,
extend the Offer or any part of it, or accept late Applications either generally or in particular cases. The Offer or any
part of it may be closed at any earlier date and time, without further notice. Your Broker may also impose an earlier
closing date. Applicants are therefore encouraged to submit their Applications as early as possible. Please contact your
Broker for instructions.
6.3.3 Application Monies
Applicants under the Broker Firm Offer whose Applications are not accepted, or who are allocated a lesser dollar
amount of Shares than the amount applied for, will receive a refund of all or part of their Application Monies,
as applicable. Interest will not be paid on any monies refunded.
Applicants whose Applications are accepted in full will receive the whole number of Shares calculated by dividing
the Application Amount by the Offer Price. Where the Offer Price does not divide evenly into the Application Amount,
the number of Shares to be allocated will be determined by the Applicant’s Broker.
Cheque(s) or bank draft(s) must be in Australian dollars and drawn on an Australian branch of an Australian bank,
must be crossed “Not Negotiable” and must be made payable in accordance with the directions of the Broker from
whom you received a firm allocation.
You should ensure that sufficient funds are held in the relevant account(s) to cover the amount of the cheque(s) or
bank draft(s). If the amount of your cheque(s) or bank draft(s) for Application Monies (or the amount for which those
cheque(s) or bank draft(s) clear in time for allocation) is less than the amount specified on the Application Form, you
may be taken to have applied for such lower dollar amount of Shares as for which your cleared Application Monies will
pay (and to have specified that amount on your Application Form) or your Application may be rejected.
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COLLINS FOODS LIMITED PROSPECTUS
6.3.4 Acceptance of Applications
An Application in the Broker Firm Offer is an offer by the Applicant to Collins Foods Limited to subscribe for Shares
for all or any of the Application Amount specified in and accompanying the Application Form at the Offer Price on
the terms and conditions set out in this Prospectus including any supplementary or replacement prospectus and the
Application Form (including the conditions regarding quotation on ASX in section 6.9.1). To the extent permitted
by law, an Application by an Applicant under the Offer is irrevocable.
An Application may be accepted by Collins Foods Limited and the Joint Lead Managers in respect of the full number
of Shares specified in the Application Form or any of them, without further notice to the Applicant. Acceptance of
an Application will give rise to a binding contract.
6.3.5Allocation policy under the Broker Firm Offer
Broker Firm Offer
Shares which have been allocated to Brokers for allocation to their Australian and New Zealand resident retail clients
will be issued to the Applicants nominated by those Brokers (subject to the right of Collins Foods Limited and the
Joint Lead Managers to reject or scale back Applications which are for more than $250,000). It will be a matter for
the Brokers how they allocate firm stock among their retail clients, and they (and not Collins Foods Limited and the
Joint Lead Managers) will be responsible for ensuring that retail clients who have received a firm allocation from them
receive the relevant Shares.
Collins Foods Limited intends to allocate approximately 310,000 Shares in aggregate to directors and officers of Collins
Foods, advisers to the Offer, and friends and family of any of them. Collins Foods reserves the right to alter this number
in its discretion. Such persons may participate in the Institutional Offer or receive firm allocations from Brokers under
the Broker Firm Offer.
6.3.6Announcement of final allocation policy in the Broker Firm Offer
Collins Foods Limited expects to announce the final allocation policy under the Broker Firm Offer on or about
3 August 2011. It is expected that this information will be advertised in The Sydney Morning Herald, The Melbourne
Age, The Australian, The Australian Financial Review, and The Courier Mail as well as other major metropolitan
newspapers on that same day. Applicants in the Broker Firm Offer will be able to call the Collins Foods Offer
Information Line on 1800 622 202 (toll free within Australia) or +61 2 8280 7694 (outside Australia) from 8.30am until
5.30pm (AEST) Monday to Friday from 11 August 2011 to confirm their allocations. Applicants under the Broker Firm
Offer will also be able to confirm their firm allocation through the Broker from whom they received their allocation.
However, if you sell Shares before receiving a holding statement, you do so at your own risk, even if you obtained
details of your holding from the Collins Foods Offer Information Line or confirmed your firm allocation through
a Broker.
6.4
Institutional Offer
The Institutional Offer consists of an invitation to certain Institutional Investors in Australia and a number of other
eligible jurisdictions to apply for Shares. The Joint Lead Managers have separately advised Institutional Investors
of the Application procedures for the Institutional Offer.
The allocation of Shares among Applicants in the Institutional Offer was determined by the Joint Lead Managers in
consultation with Collins Foods Limited. The Joint Lead Managers, in consultation with Collins Foods Limited, will have
absolute discretion regarding the basis of allocation of Shares among Institutional Investors, and there is no assurance
that any Institutional Investor will be allocated any Shares, or the number of Shares for which it has bid. The allocation
policy was influenced by the following factors:
––
Number of Shares bid for by particular bidders;
––
The timeliness of the bid by particular bidders;
––
Collins Foods Limited’s desire for an informed and active trading market following listing on ASX;
––
Collins Foods Limited’s desire to establish a wide spread of institutional shareholders;
––
Overall level of demand under the Broker Firm Offer and Institutional Offer;
––
The size and type of funds under management of particular bidders;
––
The likelihood that particular bidders will be long-term shareholders; and
––
Any other factors that Collins Foods Limited and the Joint Lead Managers considered appropriate.
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COLLINS FOODS LIMITED PROSPECTUS
6
Details of
the Offer
6.5
Underwriting arrangements
The Offer is fully underwritten. The Joint Lead Managers and Collins Foods Limited have entered into an Underwriting
Agreement under which the Joint Lead Managers have been appointed as arrangers and managers and underwriters
of the Offer. The Joint Lead Managers agree, subject to certain conditions and termination events, to underwrite
severally Applications for all Shares under the Offer in equal proportions. The Underwriting Agreement sets out
a number of circumstances under which the Joint Lead Managers may terminate the agreement and the underwriting
obligations. A summary of certain terms of the agreement and underwriting arrangements, including the termination
provisions, is provided in section 8.2.
6.6
Escrow arrangements
The members of Management identified below have agreed to an escrow arrangement with Collins Foods Limited
under which they will be restricted from dealing with any of the Shares issued to them under the Offer until three
business days after the announcement of Collins Foods Limited’s audited financial results for FY2012. Kevin Perkins
has agreed with Collins Foods Limited that this escrow arrangement will continue in respect of 50% of the Shares
issued to him under the Offer until three business days after the announcement of Collins Foods Limited’s audited
financial results for FY2013.
Name of escrowed partyTitle
Number of SharesPercentage of Shares
held in escrow
on issue in escrow
Kevin Perkins (until FY2012 results)
Managing Director, CEO
3.5 million
3.8%
Kevin Perkins (until FY2013 results)
Managing Director, CEO
3.5 million
3.8%
Simon Perkins
CFO – Global
0.2 million
0.2%
Martin Clarke
CEO – KFC
0.1 million
0.1%
James Ryan
CEO – Sizzler
0.2 million
0.2%
John Hands
CSO/CIO
0.2 million
0.2%
An “escrow” is a restriction on sale, disposal, or encumbering of, or certain other dealings in respect of, the securities
concerned for the period of the escrow, subject to any exceptions in the escrow arrangement concerned.
There are limited circumstances in which the escrow may be released, namely:
––
To allow the holder to accept a takeover bid for Collins Foods Limited in accordance with the Australian
takeovers code provided that holders of not less than 50% of Shares not subject to escrow have then accepted
the takeover bid;
––
To allow the escrow Shares to be acquired under an amalgamation or scheme of arrangement or other
reorganisation or acquisition of share capital under the Companies Act; and
––
The death or incapacity of the holder of the Shares.
The escrow deeds prevent the escrowed party from giving security over their escrowed Shares.
In aggregate, 7.7 million Shares will be the subject of these escrow arrangements. This will represent approximately
8.3% of all of the Shares. This is not expected to have a material effect on the liquidity of trading in Shares on ASX.
6.7
Restrictions on distribution
No action has been taken to register or qualify this Prospectus, the Shares or the Offer or otherwise to permit a public
offering of the Shares in any jurisdiction outside Australia and New Zealand. Investors in New Zealand should refer
to page 1 for further information.
This Prospectus does not constitute an offer or invitation to subscribe for Shares in any jurisdiction in which, or to any
person to whom, it would not be lawful to make such an offer or invitation or issue under this Prospectus.
This Prospectus may not be released or distributed by you in the United States or to or for the account or benefit of US
Persons, and may only be distributed to persons to whom the Offer may lawfully be made in accordance with the laws
of any applicable jurisdiction.
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The Shares have not been, and will not be, registered under the US Securities Act 1933 and may not be offered or sold
in the United States or to, or for the account or benefit of, US Persons except in accordance with an exemption from,
or in a transaction not subject to, the registration requirements of the US Securities Act 1933 and any other applicable
securities laws.
Each Applicant in the Broker Firm Offer, and each person to whom the Institutional Offer is made under this
Prospectus, will be taken to have represented, warranted and agreed as follows:
––
It understands that the Shares have not been, and will not be, registered under the US Securities Act 1933 or
the securities law of any state of the United States and may not be offered, sold or resold in the United States,
or to or for the account or benefit of US Persons, except in a transaction exempt from, or not subject to,
registration under the US Securities Act 1933 and any other applicable securities laws;
––
It is not in the United States or a US Person, and is not acting for the account or benefit of a US Person;
––
It has not and will not send the Prospectus or any other material relating to the Offer to any person in the
United States or to any person that is, or is acting for the account or benefit of, a US Person; and
––
It will not offer or sell the Shares in the United States or to, or for the account or benefit of, any US Person
or in any other jurisdiction outside Australia except in transactions exempt from, or not subject to, registration
under the US Securities Act 1933 and in compliance with all applicable laws in the jurisdiction in which Shares
are offered and sold.
Any offer, sale or resale of the Shares in the United States by a dealer (whether or not participating in the Offer) may
violate the registration requirements of the UIS Securities Act 1933 if made prior to 40 days after the date on which
the Offer Price is determined and the Shares are allocated under the Offer or if such Shares were purchased by a dealer
under the Offer.
This document does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States.
Any securities described in this document have not been, and will not be, registered under the US Securities Act 1933
and may not be offered or sold in the United States except in transactions exempt from, or not subject to, registration
under the US Securities Act 1933 and applicable US state securities laws.
6.8 Discretion regarding the Offer
Collins Foods Limited may withdraw the Offer at any time before the issue of Shares to successful Applicants or bidders
in the Broker Firm Offer and Institutional Offer. If the Offer, or any part of it, does not proceed, all relevant Application
Monies will be refunded (without interest).
Collins Foods Limited and the Joint Lead Managers also reserve the right to close the Offer or any part of it early,
extend the Offer or any part of it, accept late Applications or bids either generally or in particular cases, reject any
Application or bid, or allocate to any Applicant or bidder fewer Shares than applied or bid for.
6.9ASX listing, registers and holding statements, deferred settlement trading
6.9.1Application to ASX for listing and quotation of Shares
Collins Foods Limited will apply for admission to the official list of ASX and quotation of the Shares on ASX. Collins
Foods Limited’s expected ASX code will be CKF.
ASX takes no responsibility for this Prospectus or the investment to which it relates. The fact that ASX may admit
Collins Foods Limited to the official list is not to be taken as an indication of the merits of Collins Foods Limited
or the Shares offered for subscription.
If Collins Foods Limited does not make such an application within seven days after the date of this Prospectus, or
if permission is not granted for the official quotation of the Shares on ASX within three months after the date of
this Prospectus (or any later date permitted by law), all Application Monies received by Collins Foods Limited will be
refunded without interest as soon as practicable in accordance with the requirements of the Corporations Act.
Subject to certain conditions (including any waivers obtained by Collins Foods Limited from time to time), Collins Foods
Limited will be required to comply with ASX Listing Rules.
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Details of
the Offer
6.9.2 CHESS and issuer sponsored holdings
Collins Foods Limited will apply to participate in ASX’s Clearing House Electronic Sub-register System (CHESS) and will
comply with ASX Listing Rules and the ASX Settlement Operating Rules. CHESS is an electronic transfer and settlement
system for transactions in securities quoted on ASX under which transfers are effected in an electronic form.
When the Shares become approved financial products (as defined in the ASX Settlement Operating Rules), holdings
will be registered in one of two sub-registers, an electronic CHESS sub-register or an issuer sponsored sub-register.
For all successful Applicants, the Shares of a Shareholder who is a participant in CHESS or a Shareholder sponsored
by a participant in CHESS will be registered on the CHESS sub-register. All other Shares will be registered on the
issuer sponsored sub-register.
Following Completion of the Offer, Shareholders will be sent a holding statement that sets out the number of Shares
that have been allocated to them. This statement will also provide details of a Shareholder’s Holder Identification
Number (HIN) for CHESS holders or, where applicable, the Securityholder Reference Number (SRN) of issuer sponsored
holders. Shareholders will subsequently receive statements showing any changes to their Shareholding. Certificates
will not be issued.
Shareholders will receive subsequent statements during the first week of the following month if there has been
a change to their holding on the register and as otherwise required under ASX Listing Rules and the Corporations
Act. Additional statements may be requested at any other time either directly through the Shareholder’s sponsoring
broker in the case of a holding on the CHESS sub-register or through the Share Registry in the case of a holding on the
issuer sponsored sub-register. Collins Foods Limited and the Share Registry may charge a fee for these additional issuer
sponsored statements.
6.9.3Deferred settlement trading and selling shares on market
It is expected that trading of the Shares on ASX (on a deferred basis) will commence on or about 4 August 2011.
It is the responsibility of each person who trades in Shares to confirm their holding before trading in Shares. If you sell
Shares before receiving a holding statement, you do so at your own risk. Collins Foods Limited, the Share Registry,
the Joint Lead Managers and the Existing Investors disclaim all liability, whether in negligence or otherwise, if you sell
Shares before receiving your holding statement, even if you obtained details of your holding from the Collins Foods
Offer Information Line or confirmed your firm allocation through a Broker.
Shares are expected to commence trading on ASX on a normal settlement basis on or about 8 August 2011.
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6.10 Description of Shares
Introduction
The rights and liabilities attaching to ownership of Shares arise from a combination of the Constitution, statute,
ASX Listing Rules and general law.
A summary of the significant rights attaching to the Shares and a description of other material provisions of the
Constitution is set out below. This summary is not exhaustive nor does it constitute a definitive statement of the rights
and liabilities of Shareholders. The summary assumes that Collins Foods Limited is admitted to the Official List of ASX.
Voting at a general meeting
At a general meeting of Collins Foods Limited, every Shareholder present in person or by proxy, representative
or attorney has one vote on a show of hands and, on a poll, one vote for each Share held.
Meetings of members
Each Shareholder is entitled to receive notice of, attend and vote at general meetings of Collins Foods Limited and
to receive all notices, accounts and other documents required to be sent to Shareholders under the Constitution,
the Corporations Act and ASX Listing Rules.
Dividends
The Board may from time to time resolve to pay dividends to Shareholders of Collins Foods Limited and fix the amount
of the dividend, the time for determining entitlements to the dividend and the timing and method of payment.
For further information in respect of Collins Foods Limited’s proposed dividend policy, see section 3.10.
Transfer of Shares
Subject to the Constitution, Shares may be transferred by a proper transfer effected in accordance with ASX
Settlement Operating Rules, by a written instrument of transfer which complies with the Constitution or by any other
method permitted by the Corporations Act, ASX Listing Rules or ASX Settlement Operating Rules.
The Board may refuse to register a transfer of Shares where permitted to do so under the Corporations Act, ASX
Listing Rules or ASX Settlement Operating Rules. The Board must refuse to register a transfer of Shares when required
by the Corporations Act, ASX Listing Rules or ASX Settlement Operating Rules.
Issue of further Shares
Subject to the Corporations Act, ASX Listing Rules and ASX Settlement Operating Rules and any rights and restrictions
attached to a class of shares, Collins Foods Limited may issue, or grant options in respect of further Shares on such
terms and conditions as the Directors resolve.
Winding up
If Collins Foods Limited is wound up, then subject to any rights or restrictions attached to a class of shares, any surplus
must be divided among Collins Foods Limited’s members in the proportions which the amount paid and payable
(including amounts credited) on the Shares of a member is of the total amount paid and payable (including amounts
credited) on the Shares of all members of Collins Foods Limited.
Unmarketable parcels
Subject to the Corporations Act, ASX Listing Rules and ASX Settlement Operating Rules, Collins Foods Limited may sell
the Shares of a Shareholder who holds less than a marketable parcel of Shares.
Share buy-backs
Subject to the Corporations Act, ASX Listing Rules and ASX Settlement Operating Rules, Collins Foods Limited may buy
back shares in itself on terms and at times determined by the Board.
Proportional takeover provisions
The Constitution contains provisions for Shareholder approval to be required in relation to any proportional takeover
bid. These provisions will cease to apply unless renewed by special resolution of the Shareholders in general meeting
by the third anniversary of the date of the Constitution’s adoption.
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the Offer
Variation of class rights
At present, Collins Foods Limited’s only class of shares on issue is ordinary shares. Subject to the Corporations Act
and the terms of issue of a class of shares, the rights attaching to any class of shares may be varied or cancelled:
––
With the consent in writing of the holders of three quarters of the issued shares included in that class; or
––
By a special resolution passed at a separate meeting of the holders of those shares
In either case, the holders of not less than 10% of the votes in the class of shares, the rights of which have been varied
or cancelled, may apply to a court of competent jurisdiction to exercise its discretion to set aside such a variation
or cancellation.
Dividend reinvestment plan, dividend selection plan and bonus share plan
The Constitution authorises the Directors, on any terms and at their discretion, to establish a dividend reinvestment
plan (under which any member may elect that the dividends payable by Collins Foods Limited be reinvested by
a subscription for securities).
Directors – appointment and removal
Under the Constitution, the minimum number of Directors that may comprise the Board is three and the maximum
is fixed by the Directors but may not be more than 10 unless the Shareholders pass a resolution varying that number.
Directors are elected at annual general meetings of Collins Foods Limited. Retirement will occur on a rotational basis so
that any Director who has held office for three or more years or three or more annual general meetings (excluding any
Managing Director) retires at each annual general meeting of Collins Foods Limited. The Directors may also appoint
a Director to fill a casual vacancy on the Board or in addition to the Directors, who will then hold office until the next
annual general meeting of Collins Foods Limited.
Directors – voting
Questions arising at a meeting of the Board will be decided by a majority of votes of the Directors present at the
meeting and entitled to vote on the matter. In the case of an equality of votes on a resolution, the chairperson of the
meeting has a casting vote.
Directors – remuneration
The Directors, other than any executive Director (of which there are none other than Mr Kevin Perkins as at the date
of this Prospectus) shall be paid by way of fees for services up to the maximum aggregate sum per annum as may
be approved from time to time by Collins Foods Limited in general meeting. The current maximum aggregate sum
per annum is $700,000 with the initial remuneration of the Directors set out in section 5.3.1. Any change to that
maximum aggregate sum needs to be approved by Shareholders. The Constitution also makes provision for Collins
Foods Limited to pay all reasonable expenses of Directors in attending meetings and carrying out their duties.
Indemnities
Collins Foods Limited, to the extent permitted by law, indemnifies each Director against any liability incurred by that
person as an officer of Collins Foods Limited or its subsidiaries, and legal costs incurred by that person in defending
an action for a liability of that person. Collins Foods Limited, to the extent permitted by law, may make a payment
(whether by way of advance, loan or otherwise) to a Director in respect of legal costs incurred by that person in
defending an action for a liability of that person.
Collins Foods Limited, to the extent permitted by law, may pay, or agree to pay, a premium for a contract insuring
a Director against any liability incurred by that person as an officer of Collins Foods Limited or its subsidiaries and legal
costs incurred by that person in defending an action for a liability of that person.
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COLLINS FOODS LIMITED PROSPECTUS
Collins Foods Limited, to the extent permitted by law, may enter into an agreement or deed with a Director or a person
who is, or has been, an officer of Collins Foods Limited or its subsidiaries, under which Collins Foods Limited must do
all of the following:
––
Keep books of Collins Foods Limited and allow either or both that person and that person’s advisers access
to those books on the terms agreed;
––
Indemnify that person against any liability incurred by that person as an officer of Collins Foods Limited or its
subsidiaries and legal costs incurred by that person in defending an action for a liability of that person;
––
Make a payment (whether by way of advance, loan or otherwise) to that person in respect of legal costs
incurred by that person in defending an action for a liability of that person; and
––
Keep that person insured in respect of any act or omission by that person while a Director or an officer of
Collins Foods Limited or its subsidiaries, on the terms agreed (including as to payment of all or part of the
premium for the contract for insurance).
Amendment
The Constitution can only be amended by special resolution passed by at least three‑quarters of Shareholders present
(in person or by proxy) and entitled to vote on the resolution at a general meeting of Collins Foods Limited. Collins
Foods Limited must give at least 28 days’ written notice of a general meeting of Collins Foods Limited.
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Burger Meal
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COLLINS FOODS LIMITED PROSPECTUS
The Directors
Collins Foods Limited
16-20 Edmondstone Street
Newmarket QLD 4051
15 July 2011
Subject: Investigating Accountant’s Report on Historical and Forecast Financial
Information and Financial Services Guide
We have prepared this report on certain historical and forecast financial information of Collins Foods
Limited (Collins Foods) for inclusion in a prospectus dated on or about 15 July 2011 (the
Prospectus) relating to the issue of shares in the proposed initial public offer and listing on the
Australian Securities Exchange (the Offer).
Expressions defined in the Prospectus have the same meaning in this report.
The nature of this report is such that it should be given by an entity which holds an Australian financial
services licence under the Corporations Act 2001. PricewaterhouseCoopers Securities Limited, which
is wholly owned by PricewaterhouseCoopers, holds the appropriate Australian financial services
licence. This report is both an Investigating Accountant’s Report, the scope of which is set out below,
and a Financial Services Guide, as attached at Appendix A of this report.
Scope
Collins Foods Limited has requested PricewaterhouseCoopers Securities Limited to prepare this
investigating accountant’s report (the Report) covering the following information:
i)
Pro Forma consolidated historical income statements for FY2009, FY2010 and
FY2011 (“Pro Forma Historical Results”);
ii)
Pro Forma consolidated historical cash flow statements for FY2009, FY2010 and
FY2011;
iii)
Pro Forma consolidated historical balance sheet as at 1 May 2011 (the Pro Forma
Balance Sheet) which assumes completion of the proposed transactions disclosed in
section 6.1.2 of the Prospectus (the Pro Forma Transactions),
(collectively, the Historical Financial Information);
iv)
Pro Forma consolidated forecast income statement for FY2012 (“Pro Forma Forecast
Results”);
PricewaterhouseCoopers Securities Limited
ACN 003 311 617 ABN 54 003 311 617
Holder of Australian Financial
Services Licence No: 244572
Riverside Centre, 123 Eagle Street, GPO BOX 150, Brisbane QLD 4000
DX 77, Brisbane, Australia
T +61 7 3257 5000, F +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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v)
Forecast statutory consolidated income statement for FY2012 (“Forecast Statutory
Results);
vi)
Pro Forma consolidated forecast cash flow statement for FY2012; and
vii)
Forecast statutory consolidated cash flow statement for FY2012,
(collectively, the Forecast Financial Information or the Forecasts)
Together, the Historical Financial Information and the Forecast Financial Information are collectively
referred to as the Financial Information.
This Report has been prepared for inclusion in the Prospectus. We disclaim any assumption of
responsibility for any reliance on this Report or on the Financial Information to which this Report
relates for any purposes other than the purpose for which it was prepared.
Scope of review of Historical Financial Information
The Historical Financial Information set out in section 3 of the Prospectus has been extracted from the
audited financial statements of Collins Foods Holding Pty Limited. The financial statements were
audited by PricewaterhouseCoopers that issued an unqualified audit opinion on them. The Historical
Financial Information incorporates such pro forma transactions and adjustments as is considered
necessary to present the Historical Financial Information on a basis consistent with the Forecasts. The
Directors are responsible for the preparation of the Historical Financial Information, including the
determination of the Pro Forma Transactions and adjustments.
We have conducted our review of the Historical Financial Information in accordance with Australian
Auditing Standards applicable to review engagements. We made such inquiries and performed such
procedures as we, in our professional judgement, considered reasonable in the circumstances
including:
•
an analytical review of the audited financial performance of Collins Foods Holding Pty
Limited for the relevant historical period;
•
a review of work papers, accounting records and other documents;
•
a review of the adjustments made to the Historical Financial Information;
•
a review of the assumptions (which include the Pro Forma Transactions) used to compile
the Pro Forma Balance Sheet;
•
a comparison of consistency in application of the recognition and measurement principles
under Australian Accounting Standards and other mandatory professional reporting
requirements in Australia, and the accounting policies adopted by Collins Foods Limited
disclosed in the Appendix to the Prospectus; and
•
enquiry of Directors, management and others
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These procedures do not provide all the evidence that would be required in an audit, thus the level of
assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we
do not express an audit opinion on the Historical Financial Information.
Review statement on Historical Financial Information
Based on our review, which is not an audit, nothing has come to our attention which causes us to
believe that:
•
the Pro Forma Balance Sheet has not been properly prepared on the basis of the Pro
Forma Transactions;
•
the Pro Forma Transactions do not form a reasonable basis for the Pro Forma Balance
Sheet;
•
the Historical Financial Information, as set out in Section 3 of the Prospectus does not
present fairly:
i)
the Pro Forma consolidated historical income statements for FY2009, FY2010 and
FY2011;
ii) the Pro Forma consolidated historical cash flow statements for FY2009, FY2010
and FY2011; and
iii) the Pro Forma consolidated historical balance sheet as at 1 May 2011 which
assumes completion of the Pro Forma Transactions
in accordance with the recognition and measurement principles prescribed under Australian
Accounting Standards and other mandatory professional reporting requirements in Australia, and the
accounting policies adopted by Collins Foods Limited disclosed in the Appendix to the Prospectus.
Scope of review of Forecasts
The Directors are responsible for the preparation and presentation of the Forecasts, including the best
estimate assumptions (which include the Pro Forma Transactions) on which they are based.
Our review of the best estimate assumptions underlying the Forecasts was conducted in accordance
with Australian Auditing Standards applicable to review engagements. Our procedures consisted
primarily of enquiry and comparison and other such analytical review procedures as we considered
necessary to form an opinion as to whether anything has come to our attention which causes us to
believe that:
(a)
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(b)
in all material respects, the Forecasts are not properly prepared on the basis of the
best estimate assumptions and presented fairly in accordance with the recognition and
measurement principles prescribed in Australian Accounting Standards and other
mandatory professional reporting requirements in Australia, and the accounting
policies of Collins Foods Limited disclosed in the Appendix of the Prospectus; or
(c)
the Forecasts are unreasonable
The Forecasts have been prepared by the Directors to provide investors with a guide to Collins Foods
Limited’s potential future financial performance based upon the achievement of certain economic,
operating, development and trading assumptions about future events and actions that have not yet
occurred and may not necessarily occur. There is a considerable degree of subjective judgement
involved in the preparation of the Forecasts. Actual results may vary materially from the Forecasts and
the variation may be materially positive or negative. Accordingly, investors should have regard to the
description of investment risks set out in section 4 of the Prospectus.
Our review of the Forecasts and the best estimate assumptions upon which the Forecasts are based is
substantially less in scope than an audit conducted in accordance with Australian Auditing Standards.
A review of this nature provides less assurance than an audit. We have not performed an audit and we
do not express an audit opinion on the Forecasts included in the Prospectus.
Review statement on the Forecasts
Based on our review of the Forecasts, which is not an audit, and the reasonableness of the best
estimate assumptions giving rise to the Forecasts, nothing has come to our attention which causes us
to believe that:
(a)
the best estimate assumptions set out in section 3.8 of the Prospectus do not provide a
reasonable basis for the Forecasts;
(b)
in all material respects, the Forecasts are not properly prepared on the basis of the
best estimate assumptions and presented fairly in accordance with the recognition and
measurement principles prescribed in Australian Accounting Standards and other
mandatory professional reporting requirements in Australia, and the accounting
policies of Collins Foods Limited disclosed in the Appendix of the Prospectus; or
(c)
the Forecasts are unreasonable
The best estimate assumptions set out in section 3.8 of the Prospectus are subject to significant
uncertainties and contingencies often outside the control of Collins Foods Limited. If events do not
occur as assumed, actual results and distributions achieved by Collins Foods Limited may vary
significantly from the Forecasts. Accordingly, we do not confirm or guarantee the achievement of the
Forecasts, as future events, by their very nature, are not capable of independent substantiation.
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Subsequent events
Apart from the matters dealt with in this Report, and having regard to the scope of our Report, to the
best of our knowledge and belief no material transactions or events outside of the ordinary course of
business of Collins Foods Limited have come to our attention that would require comment on, or
adjustment to, the information referred to in our Report or that would cause such information to be
misleading or deceptive.
Independence or disclosure of interest
PricewaterhouseCoopers Securities Limited does not have any interest in the outcome of the Offer
other than the preparation of this Report and participation in due diligence procedures for which
normal professional fees will be received.
Liability
PricewaterhouseCoopers Securities Limited has consented to the inclusion of this Report in the
Prospectus in the form and context in which it is included. The liability of PricewaterhouseCoopers
Securities Limited is limited to the inclusion of this Report in the Prospectus. PricewaterhouseCoopers
Securities Limited makes no representation regarding, and has no liability for, any other statements or
other material in, or any omissions from, the Prospectus.
Financial Services Guide
We have included our Financial Services Guide as Appendix A to our Report. The Financial Services
Guide is designed to assist retail clients in their use of any general financial product advice in our
Report.
Yours faithfully
Wim Blom
Authorised Representative
PricewaterhouseCoopers Securities Limited
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Appendix A – Financial Services Guide
PRICEWATERHOUSECOOPERS SECURITIES LIMITED
FINANCIAL SERVICES GUIDE
This Financial Services Guide is dated 15 July 2011
1.
About us
PricewaterhouseCoopers Securities Limited (ABN 54 003 311 617, Australian Financial Services Licence no 244572)
(PwC Securities) has been engaged by Collins Foods Limited to provide a report in the form of an Investigating
Accountant’s Report in relation to the to the issue of Shares in the proposed initial public offering and listing on the ASX
(the “Report”) for inclusion in the Prospectus dated on or about 15 July 2011.
You have not engaged us directly but have been provided with a copy of the Report as a retail client because of your
connection to the matters set out in the Report.
2.
This Financial Services Guide
This Financial Services Guide (FSG) is designed to assist retail clients in their use of any general financial product advice
contained in the Report. This FSG contains information about PwC Securities generally, the financial services we are
licensed to provide, the remuneration we may receive in connection with the preparation of the Report, and how complaints
against us will be dealt with.
3.
Financial services we are licensed to provide
Our Australian financial services licence allows us to provide a broad range of services, including providing financial
product advice in relation to various financial products such as securities, interests in managed investment schemes,
derivatives, superannuation products, foreign exchange contracts, insurance products, life products, managed investment
schemes, government debentures, stocks or bonds, and deposit products.
4.
General financial product advice
The Report contains only general financial product advice. It was prepared without taking into account your personal
objectives, financial situation or needs.
You should consider your own objectives, financial situation and needs when assessing the suitability of the Report to your
situation. You may wish to obtain personal financial product advice from the holder of an Australian Financial Services
Licence to assist you in this assessment.
PricewaterhouseCoopers Securities Limited,
ACN 003 311 617 ABN 54 003 311 617
Holder of Australian Financial
Services Licence No: 244572
Riverside Centre, 123 Eagle Street, GPO BOX 150, Brisbane QLD 4000
DX 77, Brisbane, Australia
T +61 7 3257 5000, F +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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5.
Fees, commissions and other benefits we may receive
PwC Securities charges fees to produce reports, including this Report. These fees are negotiated and agreed with the
entity who engages PwC Securities to provide a report. Fees are charged on an hourly basis or as a fixed amount
depending on the terms of the agreement with the person who engages us. In the preparation of this Report the estimate of
our fees is approximately $570,000 (exclusive of GST and out of pocket expenses) estimated as at 15 July 2011.
Directors or employees of PwC Securities, PricewaterhouseCoopers, or other associated entities, may receive partnership
distributions, salary or wages from PricewaterhouseCoopers.
6.
Associations with issuers of financial products
PwC Securities and its authorised representatives, employees and associates may from time to time have relationships
with the issuers of financial products. For example, PricewaterhouseCoopers may be the auditor of, or provide financial
services to the issuer of a financial product and PwC Securities may provide financial services to the issuer of a financial
product in the ordinary course of its business. PricewaterhouseCoopers was the auditor of Collins Foods Holding Pty
Limited for the years ended 3 May 2009, 2 May 2010 and 1 May 2011.
Complaints
If you have a complaint, please raise it with us first, using the contact details listed below. We will endeavour to
satisfactorily resolve your complaint in a timely manner. In addition, a copy of our internal complaints handling procedure is
available upon request.
If we are not able to resolve your complaint to your satisfaction within 45 days of your written notification, you are entitled to
have your matter referred to the Financial Ombudsman Service (FOS), an external complaints resolution service. FOS can
be contacted by calling 1300 780 808. You will not be charged for using the FOS service.
7.
Contact Details
PwC Securities can be contacted by sending a letter to the following address:
Wim Blom
Authorised Representative of
PricewaterhouseCoopers Securities Limited
Riverside Centre
123 Eagle Street
BRISBANE QLD 4000
GPO Box 150
BRISBANE QLD 4001
DX 77 Brisbane
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ADDITIONAL
INFORMATION
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caesar salad
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8.1
Summary of agreements with Yum!
Collins Foods Limited and various Collins Foods companies (referred to as Collins Foods in this section 8.1) has entered
into a series of agreements with subsidiaries of Yum! (referred to as Yum! in this section 8.1), pursuant to which it will
operate its KFC restaurants with Yum! as franchisor from Completion of the Offer. Key terms of these arrangements
are described in sections 8.1.1 to 8.1.5 below.
8.1.1 Master Franchising Deed
Under the Master Franchising Deed, Yum! agrees to enter into Individual Franchise Agreements with Collins Foods in
respect of 116 Collins Foods KFC restaurants and transfer the existing franchise agreements in respect of three Collins
Foods KFC restaurants. Collins Foods agrees to pay $5.1 million (exclusive of GST) in respect of the aggregate amount
of the initial and transfer franchise fees payable under the Individual Franchise Agreements (refer below) to Yum! on
or shortly after Completion of the Offer. Collins Foods will also pay a royalty fee of 6% of annual revenues of its KFC
revenues to Yum!. While currently the only KFC operator in Queensland, Collins Foods does not have exclusive rights
to operate KFC restaurants in that state.
Collins Foods is restricted from holding any interests in or engaging in or performing any services for other food
businesses without Yum!’s prior approval, which may be withheld in Yum!’s absolute discretion if more than 20%
of the food products prepared, marketed or sold by that other food business consists of pizza, pizza and pasta
collectively, ready-to-eat chicken, Mexican food, or beef burgers. Breach of this restriction by Collins Foods will entitle
Yum! to terminate the Master Franchising Deed. There is a specific exemption from the restriction for Collins Foods’
Sizzler business.
Collins Foods agrees to ensure that the ratio of total net debt 1 to EBITDA is less than 4.1 times, and the ratio of EBITDA
to Debt Service Amount (being the aggregate of interest expenses and repayments of principal amounts under the
finance debt and finance leases) is greater than 1.35 times. Collins Foods is restricted from declaring dividends if as a
result of the payment of those dividends Collins Foods would be likely to breach those ratios. Collins Foods expects
to remain in compliance with these ratios. A failure to comply with these ratios or the restrictions on the declaration
of dividends will entitle Yum! to terminate the Master Franchising Deed (or to withdraw its consent to Collins Foods
opening new restaurants as referred to in section 8.1.2).
Collins Foods grants Yum! a first right of refusal in relation to any proposed sale of Collins Foods companies that are
parties to the Master Franchising Deed and any proposed transfer or assignment of the Master Franchising Deed.
Additionally, Collins Foods agrees that it must seek a consent from Yum! to continue operating each of its restaurants
following the occurrence of a change in control of Collins Foods and must pay a transfer fee (currently $6,300 per
restaurant) following the grant of such consent. A change in control of Collins Foods will occur if one or more persons
individually or collectively acquires in any of the Collins Foods’ companies that are a party to the Master Franchising
Deed a relevant interest (as defined in the Corporations Act) or economic interest in 50% or more of the company’s
ordinary shares, all or a material part of the assets, property or business of the company, or control (within the
meaning of section 50AA of the Corporations Act) of the company, or merges with the company. Collins Foods will
also agree to obtain Yum!’s consent before granting any security to lenders that is superior to Yum!’s interests under
any agreements between Collins Foods and Yum!. A breach of any of these obligations will entitle Yum! to terminate
the Master Franchising Deed.
The Master Franchising Deed will expire when the last of the Individual Franchise Agreements expires. Collins Foods
and Yum! may terminate the Master Franchising Deed for material breach or the insolvency of the other party. Yum!
may also terminate the Master Franchising Deed if negative public perceptions associated with Collins Foods would
have a continuing negative impact on its business.
8.1.2 Facility Actions Deed
The Facility Actions Deed sets out the requirements to upgrade, relocate or rebuild 108 of the 119 KFC (including
24 signage only upgrades) restaurants operated by Collins Foods during the five year period following Completion
of the Offer. While Collins Foods is in substantial compliance with this obligation, Yum! grants Collins Foods
(under the Master Franchising Deed) the right to open up to seven new KFC restaurants during each of those five
years (subject to site availability and Yum! approval).
1
Calculated as the outstanding amounts owing by Collins Foods under all finance debt less cash or cash equivalents.
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INFORMATION
A failure by Collins Foods to comply with its obligations under the Facility Actions Deed will entitle Yum! under the
Master Franchising Deed to require Collins Foods to pay specified monies to an escrow agent. Those monies will only
be released from escrow to Collins Foods for the purpose of enabling Collins Foods to comply with its obligations
under the Facility Actions Deed to make specified refurbishments to restaurants. A failure by Collins Foods to pay such
monies would entitle Yum! to terminate the Master Franchising Deed.
The Facility Actions Deed will expire five years after Completion of the Offer, after which time the parties have agreed
to negotiate in good faith and use best endeavours to enter into further facilities action deeds with five year terms.
8.1.3 Individual Franchise Agreements
The Individual Franchise Agreements contain the substantive franchise rights and obligations, including the grant of
a non-exclusive right to use the KFC trade marks, service marks and trade names and the KFC system for preparing,
marketing and selling food in relation to a specified restaurant.
Collins Foods is required to comply with various operational policies mandated by Yum!, which may be changed
by Yum! from time to time, and may be required by Yum! to upgrade, modify or renovate the specified restaurant.
In addition to the payment of initial and continuing fees (referred to in section 8.1.1 above) Collins Foods must also
invest in advertising by paying an amount equal to 5% of its KFC revenues to ADCO, and a further 1% of its KFC
revenues on local advertising approved by Yum!.
A number of the obligations of the parties under the Master Franchising Deed are repeated in each Individual
Franchising Agreement, including the non-compete and non-assignment obligations, the grant of a first right
of refusal in favour of Yum!, and to take action if requested to upgrade the relevant restaurant.
The terms of the Individual Franchise Agreements range from eight through to 12 years, with an average term
of approximately 10 years. Each may be renewed upon expiry by Collins Foods for a further 10 years, conditional
on the payment of the required fee at the time of renewal and satisfaction of agreed conditions. Yum! may terminate
an Individual Franchise Agreement, including for material or repeat breach of the Individual Franchise Agreement or
other agreements, misconduct, insolvency, damage to its trade marks or goodwill by Collins Foods, or if the restaurant
ceases operations for more than three days without its approval.
8.1.4 Marketing Agreement
The Marketing Agreement sets out the terms under which Yum! will procure that ADCO provides marketing, technical
and financial services associated with KFC marketing, media and promotional activities in Queensland to, and consults
with, Collins Foods’ KFC restaurants.
The Marketing Agreement will expire five years after Completion of the Offer, after which time Collins Foods may
renew it for a further five year period.
8.1.5 Supply Agreement
The Supply Agreement sets out the terms under which Yum! sources and negotiates purchasing arrangements for
food, packaging, consumables and equipment to all KFC restaurants in Australia. Collins Foods agrees to pay a supply
chain contribution amount of up to 0.35% of annual revenues to Yum!.
Collins Foods will be entitled to fully participate in and appoint one representative to the KFC Supply Chain Council
established by Yum! to consult with and participate in discussions to agree strategies for the supply chain for
KFC restaurants.
Collins Foods will be entitled to conduct its own supply chain management for distributors, small-wares (eg utensils,
cleaning products) and for any other suppliers approved by Yum!.
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COLLINS FOODS LIMITED PROSPECTUS
8.2
Summary of Underwriting Agreement
The Offer is being underwritten and managed by the Joint Lead Managers pursuant to an Underwriting Agreement,
dated 15 July 2011, between the Joint Lead Managers, Collins Foods Limited and Collins Foods Holding Pty Limited
(referred to as the Company and the Guarantor respectively, and as Collins Foods collectively in this section 8.2).
8.2.1 Commission, fees and expenses
Collins Foods must pay to the Joint Lead Managers, in equal proportions on Completion of the Offer an offer
management fee equal to 0.5% in aggregate of the cash proceeds and an underwriting fee equal to 2.0% in
aggregate of the cash proceeds. Collins Foods may also agree to pay to the Joint Lead Managers in equal proportions
an offer incentive fee of up to 1.0% in aggregate of the cash proceeds on Completion of the Offer. Cash proceeds
are expected to be $201.7 million (calculated at the Offer Price of $2.50 multiplied by the number of Offer Shares to
be issued to investors under the Institutional Offer and Broker Firm Offer). These amounts are exclusive of GST.
Collins Foods has also agreed to reimburse the Joint Lead Managers for certain agreed costs and expenses incurred
by the Joint Lead Managers in relation to the Offer. The Joint Lead Managers must pay any broker firm fees due
to Brokers appointed by them in relation to the Offer.
8.2.2 Warranties, undertakings and other terms
The Underwriting Agreement contains certain common representations, warranties and undertakings provided by
Collins Foods to the Joint Lead Managers (as well as common conditions precedent, including the entry into voluntary
escrow deeds, as described further at section 6.6). The warranties relate to matters such as the conduct of the parties,
information provided to the Joint Lead Managers, financial information, material contracts, licences, insurance,
information in this Prospectus and the conduct of the Offer. Collins Foods’ undertakings include that it will not, during
the period following the date of the Underwriting Agreement until 180 days after Completion of the Offer, issue or
agree to issue any Shares or other securities, or until 90 days after Completion of the Offer reduce, reorganise, or
otherwise alter or restructure its capital structure, and agrees to carry on its business in the ordinary course during that
period (subject to certain limited exceptions, and other than as disclosed in this Prospectus).
8.2.3Indemnity
Subject to certain exclusions relating to, among other things, fraud, wilful misconduct, wilful default or negligence
by an indemnified party, Collins Foods agrees to keep the Joint Lead Managers and certain affiliated parties
indemnified from losses suffered in connection with the Offer.
8.2.4 Termination events
If any of the following events in Part 1 occurs at any time, then a Joint Lead Manager may at any time by notice to
the Company and the other Joint Lead Manager, immediately without any cost or liability to the Joint Lead Manager,
terminate its obligations under the Underwriting Agreement.
If an event in Part 2 occurs, a Joint Lead Manager may not terminate its obligations under the Underwriting Agreement
unless, in the reasonable opinion of that Joint Lead Manager, the event has had or is likely to have a material adverse
effect on the ability of the Joint Lead Managers to market the Offer, or the outcome, success or settlement of the
Offer; or has given or is likely to give rise to a contravention by that Joint Lead Manager of, or that Joint Lead Manager
being involved in a contravention of, the Corporations Act or any other applicable law.
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COLLINS FOODS LIMITED PROSPECTUS
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ADDITIONAL
INFORMATION
Part 1
(a)
(supplementary prospectus) (1) the Company issues or, in a Joint Lead Manager’s reasonable opinion, becomes
required to issue a supplementary prospectus because of a circumstance set out in section 719(1) of the
Corporations Act; or (2) the Company lodges a supplementary prospectus with ASIC in a form that has not
been approved by the Joint Lead Managers (acting reasonably);
(b)
(material adverse change) there is a material adverse change including any material adverse change in
the assets, liabilities, financial position or performance, profits, losses, prospects or forecasts from those
respectively disclosed in the Prospectus;
(c)
(unable to allot and issue Offer Shares) the Company is prevented from allotting and issuing the Shares for
at least two business days of the time required by the timetable, by the ASX Listing Rules, applicable laws,
an order of a court of competent jurisdiction or a government agency;
(d)
(market fall) the S&P/ASX 200 Index, at any time before settlement, is at a level that is 90% or less of the level
of that index at market close on the business day immediately prior to the date of the agreement at the close
of trading for two consecutive business days, or on the business day before the settlement date;
(e)
(prosecution) any of the following occur: (1) a director of the Company or the Guarantor is charged with an
indictable offence; (2) any government agency commences any public action against the Company or the
Guarantor or any of their directors in their capacity as a director of that company, or announces that it intends
to take such action; or (3) any director of the Company or the Guarantor is disqualified from managing a
corporation under Part 2D.6;
(f)
(insolvency) the Company, the Guarantor or a Group member is Insolvent or there is an act or omission which
will result in the Company, the Guarantor or a Group member becoming insolvent;
(g)
(ASX listing approvals) unconditional approval (or conditional approval subject only to customary conditions) is
refused or not granted for: (1) the Company’s admission to the official list of ASX; (2) the official quotation of
all of the Shares on ASX; or (3) deferred settlement trading of the Shares on ASX, on or before the settlement
date (other than in the case of paragraph (3), where approval must be obtained before the quotation date), or
if granted, the approval is subsequently withdrawn, qualified (other than by customary condition) or withheld;
or, at any time after the quotation date, there is a suspension or material limitation in trading in the Company’s
securities on ASX;
(h)
(NZ notifications) any New Zealand regulatory body having jurisdiction in respect of the Offer issues an
order suspending or cancelling the issue or use of the “New Zealand Opt-in Notice” or any advertisement,
or preventing the Company or Guarantor from issuing the “New Zealand Opt-in Notice” or any advertisement
or the New Zealand Securities Commission exercises any power under Part 3 of the Securities Act 1978 (NZ)
in a manner which is materially adverse relation to the Offer;
(i)
(consent) any person whose consent to the issue of the Prospectus is required by section 720 who has
previously consented to the issue of the Prospectus withdraws such consent or any person otherwise named in
the Prospectus with their consent (other than a Joint Lead Manager) withdraws such consent;
(j)
(notifications) any of the following notifications are made, other than a notification that is not made public
and is withdrawn by the earlier of 6.00pm on the second business day after it is made or 12.00 noon on the
business day before the settlement date: (1) ASIC issues an order under section 739(1); (2) ASIC issues an order
under section 739(3) or 739(4); (3) an application is made by ASIC for an order under Part 9.5 in relation to
the Prospectus or ASIC commences any investigation or hearing under Part 3 of the ASIC Act in relation to
the Prospectus; (4) any person gives a notice under section 733(3) or any person (other than the Joint Lead
Manager seeking to terminate under this clause) who has previously consented to the inclusion of their name in
the Prospectus or to be named in the Prospectus withdraws that consent; or (5) any person gives a notice under
section 730 in relation to the Prospectus;
(k)
(timetable) Any event specified in the timetable after the lodgement date but prior to and including the
commencement of normal trading is delayed by two business days or more, without the prior written approval
of the Joint Lead Managers;
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COLLINS FOODS LIMITED PROSPECTUS
(l)
(material contracts) if any of the obligations of the relevant parties under any of the material contracts are
not capable of being performed in accordance with their terms (in the reasonable opinion of the Joint Lead
Managers) or if all or any part of any of the material contracts: (1) other than the new franchise agreements
– is amended or varied without the consent of the Joint Lead Managers (acting reasonably); (2) in the case of
the new franchise agreements – is amended or varied without the consent of the Joint Lead Managers (acting
reasonably) and those amendments or variations, singly, or in aggregate, have a material adverse effect on
the Offer or outcome of the Offer; (3) is terminated; (4) is breached in a respect that the Joint Lead Managers
believe would be expected to have a material adverse effect on the Offer or outcome of the Offer; (5) ceases to
have effect, otherwise than in accordance with its terms; or (6) is or becomes void, voidable, illegal, invalid or
unenforceable (other than by reason only of a party waiving any of its rights) or capable of being terminated,
rescinded or avoided or of limited force and effect, or its performance is or becomes illegal;
(m)
(facility agreement) (1) a provider of debt or other financial accommodation to the Company pursuant to
the facility agreement terminates or cancels its commitment to provide that financial accommodation, or
declares an event of default or an acceleration of the obligation to repay that financial accommodation, or
the availability period of that financial accommodation expiring without it being provided; or (2) a condition
precedent to drawdown of any part of that financial accommodation pursuant to the facility agreement is not
satisfied or not waived or becomes incapable of being satisfied, in each case by 12.00 noon on the business
day prior to the settlement date;
(n)
(restriction agreement) the restriction agreement entered into by Mr Kevin Perkins is terminated, rescinded,
altered, amended, or breached or failed to be complied with, prior to the allotment date;
(o)
(investigations) an application (other than an application that is not made public and is either withdrawn or
terminated by the earlier of 6.00pm on the second business day after it is made or 12.00 noon on the business
day before the settlement date) is made by any person for an order under Part 9.5, or to any government
agency, in relation to the Prospectus or the Offer, ASIC, NZR, NZFMA or any other government agency
commences, or gives notice of an intention to hold, any investigation, proceedings or hearing in relation to the
Offer or any of the Prospectus or prosecutes or commences proceedings against or gives notice of an intention
to prosecute or commence proceedings against the Company;
(p)
(fraud) the Company, the Guarantor or any of their directors or officers (as those terms are defined in the
Corporations Act) engage, or have engaged in any fraudulent conduct or fraudulent activity whether or not in
connection with the Offer;
(q)
(withdrawal) the Company or the Guarantor withdraws the Prospectus, the New Zealand Opt-in Notice, any
invitations to apply for Shares under the offer documents or all or any part of the Offer;
(r)
(charges) the Company, the Guarantor or other Group member charges, or agrees to charge, the whole or a
substantial part of the business or property of the Group other than as disclosed in the Prospectus or as agreed
with the Joint Lead Managers; or
(s)
(illegality) there is an event or occurrence, including any statute, order, rule, regulation, directive or request
(including one compliance with which is in accordance with the general practice of persons to whom the
directive or request is addressed) of any governmental agency which makes it illegal for the Joint Lead
Managers to satisfy an obligation under the agreement, or to market, promote or settle the Offer in accordance
with the agreement.
Part 2
(a)
(change to Company) The Company: (1) alters the issued capital of the Company; or (2) disposes or attempts to
dispose of a substantial part of the business or property of the Company or any other member of the Group,
without the prior written consent of the Joint Lead Managers (such consent not to be unreasonably withheld or
delayed);
(b)
(information supplied) any information supplied (including any information supplied prior to the date of this
agreement) by or on behalf of the Company, each other member of the Group to the Joint Lead Managers in
respect of the Offer, the Company, each other member of the Group is, or is found to be, false or misleading or
deceptive, or likely to mislead or deceive;
(c)
(offer documents to comply) an offer document, or any aspect of the Offer, does not comply with the
Corporations Act, the NZ Acts, the ASX Listing Rules, or any other applicable law or regulation;
(d)
(mutual recognition) the Company fails to comply with the requirements of the NZ Mutual Recognition
Regulations to enable the Offer to proceed on the basis of the Prospectus, under those regulations;
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COLLINS FOODS LIMITED PROSPECTUS
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ADDITIONAL
INFORMATION
(e)
(disclosures in an offer document) a statement contained in an offer document is or becomes misleading or
deceptive (including, without limitation, misleading representations within the meaning of section 728(2)), or
a matter is omitted from an offer document (having regard to the provisions of sections 710, 711 and 716 and
the NZ Acts) or is likely to deceive, mislead, or confuse with regard to any particular that is material to the Offer
of securities to which it relates under Section 38B of the Securities Act 1978 of New Zealand or a statement is
untrue under Section 58 of the Securities Act 1978 of New Zealand;
(f)
(new circumstance) there occurs a new circumstance that arises after the Prospectus is lodged with ASIC that
would have been required to be included in the Prospectus if it had arisen before the lodgement;
(g)
(breach) the Company or the Guarantor fails to perform or observe any of its obligations under the agreement,
an obligation of the Company and/or the Guarantor becomes incapable of being performed or observed or
unlikely to be performed or observed by the required time for observance or performance, or a representation
or warranty made or given by the Company and/or the Guarantor under this agreement proves to be, or has
been, or becomes, untrue or incorrect;
(h)
(disclosures in due diligence report) the due diligence report or any other information supplied by or on
behalf of the Company to the Joint Lead Managers in relation to the Company or the Guarantor or any of
their Subsidiaries, or the Offer in final form, is untrue, incomplete, misleading or deceptive or proves to be or
becomes untrue, incomplete, misleading or deceptive;
(i)
(compliance with regulatory requirements) a contravention by any of the Company, the Guarantor or any
Group Member, of the Corporations Act, the ASIC Act, the NZ Acts, its Constitution, or any of the ASX Listing
Rules;
(j)
(change in management) a change in the chief executive officer, chief financial officer or board of directors
of the Company or of the Guarantor is announced or occurs (other than a change fairly disclosed in the
Prospectus);
(k)
(certificate content) a certificate which is required to be furnished by the Company and the Guarantor under
the agreement is untrue, incorrect or misleading;
(l)
(change of law) there is introduced, or there is a public announcement of a proposal to introduce, into the
Parliament of Australia, any State of Australia or New Zealand, a new law, or a Government Agency, any
Federal or State authority of Australia or New Zealand, adopts or announces a proposal to adopt a new policy
(other than a law or policy which has been announced before the date of this agreement), any of which does
or is likely to prohibit or regulate the Offer, capital issues or stock markets or affect the taxation treatment of
the Shares; or
(m)
(disruption in financial markets and hostilities) any of the following occurs: (1) a general moratorium on
commercial banking activities in Australia, New Zealand, the United States of America or the United Kingdom
is declared by the relevant central banking authority in any of those countries, or there is a material disruption
in commercial banking or security settlement or clearance services in any of those countries; (2) a suspension or
material limitation in trading in securities generally on ASX, the London Stock Exchange or the New York Stock
Exchange; (3) the occurrence of any other adverse change or adverse disruption to the political or economic
conditions or financial markets in Australia, New Zealand, Japan, Hong Kong, Singapore, the People’s Republic
of China, the United States of America or a member of the European Union or the international financial
markets or any change or development involving a prospective adverse change in national or international
political, economic or financial conditions; or (4) hostilities not existing at the date of this agreement commence
(whether war has been declared or not) or an escalation in existing hostilities occurs (whether war has been
declared or not) involving any one or more of Australia, New Zealand, the United States of America, the United
Kingdom, Japan, Russia, a member of the European Union or the People’s Republic of China, or a national
emergency is declared by any of those countries, or a major terrorist act is perpetrated anywhere in the world.
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COLLINS FOODS LIMITED PROSPECTUS
8.3 Summary of Sale Deeds
Under the Sale Deeds, each of the Existing Investors has agreed to sell all of its shares and other interests in Collins
Foods Holding Pty Limited and SingCo Trading Pte Ltd (the companies that own the Collins Foods businesses in
Australia and Asia respectively as at the date of this Prospectus) (the Existing Interests) to CFG Finance Pty Limited
ACN 151 677 351, a wholly owned subsidiary of Collins Foods Limited, free from encumbrances and third party rights,
or otherwise acknowledge the satisfaction of obligations owed to it by Collins Foods Holding Pty Limited or SingCo
Trading Pte Ltd, for an aggregate consideration of approximately $91.2 million. The consideration will be paid partly
in cash ($60.4 million) and partly by way of the issue of Shares ($30.8 million). Completion of the sale of the Existing
Interests under the Sale Deeds and Completion of the Offer (including the allotment of Shares to Shareholders) are
inter-conditional.
The aggregate consideration of $91.2 million is calculated as $232.5 million (the Offer Price multiplied by the number
of Shares in Collins Foods Limited following the Offer) less $115.0 million (the amount by which pro forma net debt
in Collins Foods Holding Pty Limited and its subsidiaries is to be paid down on Completion of the Offer) and less
$26.3 million (being the aggregate of the other payments under the heading “Uses of funds” referred to in the table in
section 6.1.2). The amounts referred to in that table under the heading “Uses of funds” are estimates. The Sale Deeds
provide that, to the extent that the latter two of these amounts decrease, including after taking into account the effect
of tax refunds, the consideration payable to the Existing Investors will increase. The final impact of any tax refunds in
relation to these costs is expected to be known by June 2013 with any final adjustments to the consideration payable
by Collins Foods to Existing Investors to be made as soon as practicable thereafter.
The Existing Investors were entitled to receive the consideration for their Existing Interests in the form of cash, or a
combination of cash and Shares . The Funds advised by Pacific Equity Partners have irrevocably elected to receive 0%
of the consideration payable to them for their Existing Interests in the form of Shares. Kevin Perkins has irrevocably
elected to receive 82.0% of the consideration payable to him for his Existing Interests in the form of Shares. These
Shares will be subject to escrow arrangements as set out in section 6.6. Other members of the Management team
have irrevocably elected to receive 30.9% of the consideration payable to them for their Existing Interests in the
form of Shares. These Shares will be subject to escrow arrangements as set out in section 6.6. In total, $30.8 million
of consideration will be satisfied by way of the issue of the Shares to Existing Investors. Shares offered to Existing
Investors under the Sale Deeds are issued with disclosure under this Prospectus.
The Sale Deeds oblige the Existing Investors to perform various actions contemporaneously with Completion of the
Offer, including to procure that all of the directors appointed to the boards of Collins Foods Holding Pty Limited and
SingCo Trading Pte Ltd nominated by the Funds advised by Pacific Equity Partners resign with immediate effect upon
Completion of the Offer. A failure to comply with any of these obligations will result in the Existing Investors being
in default under the Sale Deed.
CFG Finance Pty Limited has no material assets, liabilities or operations other than its interest in the Sale Deeds
described above and in the New Banking Facilities described in section 3.4.3. The directors of CFG Finance Pty Limited
are Russell Tate, Newman Manion and Bronwyn Morris and the sole shareholder of CFG Finance Pty Limited is Collins
Foods Limited. CFG Finance Pty Limited will borrow from Collins Foods Limited, and draw down under the New
Banking Facilities, all of the monies required to fund the acquisition of all of the issued share capital of Collins Foods
Holding Pty Limited and SingCo Trading Pte Ltd from the Existing Investors, and perform a number of other matters
as part of Completion of the Offer.
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COLLINS FOODS LIMITED PROSPECTUS
8
ADDITIONAL
INFORMATION
8.4Consents to be named and disclaimers of responsibility
Each of the parties referred to below (each a Consenting Party), to the maximum extent permitted by law, expressly
disclaims all liabilities in respect of, makes no representations regarding and takes no responsibility for any statements
in or omissions from this Prospectus, other than the reference to its name in the form and context in which it is named
and a statement or report included in this Prospectus with its consent as specified below.
Each of the Consenting Parties has given and has not, before the lodgement of this Prospectus with ASIC, withdrawn
its written consent to be named in this Prospectus in the form and context in which it is named. None of the
Consenting Parties referred to below has made any statement that is included in this Prospectus or any statement
on which a statement made in this Prospectus is based, other than as specified below:
––
Deutsche Bank AG, Sydney Branch;
––
UBS AG, Australia Branch;
––
Clayton Utz;
––
PricewaterhouseCoopers Securities Limited;
––
PricewaterhouseCoopers;
––
Link Market Services Limited;
––
Craigs Investment Partners Limited;
––
Bell Potter Securities Limited;
––
Wilson HTM Corporate Finance Ltd;
––
UBS Wealth Management Australia Limited;
––
BIS Shrapnel Pty Ltd;
––
Euromonitor International Ltd.; and
––
Deloitte Access Economics Pty Limited.
PricewaterhouseCoopers Securities Limited has given, and not withdrawn before lodgement of this Prospectus with
ASIC, its written consent to the inclusion in this Prospectus of statements by it, including its Investigating Accountant’s
Report in section 7 and the statements specifically attributed to it in the text of, or by a footnote in, this Prospectus,
in the form and context in which they are included (and all other references to that report and those statements) in
this Prospectus.
PricewaterhouseCoopers has given, and not withdrawn before lodgement of this Prospectus with ASIC, its written
consent to be named in this Prospectus as auditor and taxation adviser in the form and context it is so named.
BIS Shrapnel Pty Ltd has given, and not withdrawn before lodgement of this Prospectus with ASIC, its written consent
to the inclusion in this Prospectus of statements by it, including the statements specifically attributed to it in the text
of, or by a footnote in, this Prospectus, in the form and context in which they are included (and all other references
to those statements) in this Prospectus.
Deloitte Access Economics Pty Limited has given, and not withdrawn before lodgement of this Prospectus with
ASIC, its written consent to the inclusion in this Prospectus of statements by it, including the statements specifically
attributed to it in the text of, or by a footnote in, this Prospectus, in the form and context in which they are included
(and all other references to these statements) in this Prospectus.
Euromonitor International Ltd has given, and not withdrawn before lodgement of this Prospectus with ASIC, its written
consent to the inclusion in this Prospectus of statements by it, including the statements specifically attributed to it
in the text of, or by a footnote in, this Prospectus, in the form and context in which they are included (and all other
references to those statements) in this Prospectus.
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COLLINS FOODS LIMITED PROSPECTUS
8.5
Description of the syndicate
The Joint Lead Managers to the Offer are Deutsche Bank AG, Sydney Branch and UBS AG, Australia Branch.
The co managers to the Offer are Bell Potter, Craigs Investment Partners, UBS Wealth Management and Wilson HTM.
8.6
Taxation considerations
The comments below provide a general outline of Australian tax issues for Australian tax resident Shareholders that
hold Shares in Collins Foods Limited on capital account for Australian income tax purposes. The comments do not
apply to Shareholders that hold the Shares on revenue account or as trading stock, or to non-Australian tax resident
Shareholders. They also do not apply to Shareholders that are banks, insurance companies or taxpayers that carry
on a business of trading in shares.
The comments below are based on the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997,
the A New Tax System (Goods and Services Tax) Act 1999, relevant stamp duty legislation, applicable case law and
published Australian Taxation Office and State/Territory Revenue Authority rulings, determinations and statements
of administrative practice at the date of this Prospectus. The tax consequences discussed below may alter if there is
a change to the tax law after the date of this Prospectus. They do not take into account the tax law of countries other
than Australia.
The comments are general in nature and are not intended to be an authoritative or complete statement of the tax
law applicable to the particular circumstances of every Shareholder. Therefore they should not be relied upon as tax
advice. Shareholders are advised to seek independent professional advice regarding the Australian and, if applicable,
foreign tax consequences arising in respect of holding and disposing of their Shares, taking into account their
specific circumstances.
8.6.1Income tax treatment of dividends received for Australian resident Shareholders
Dividends distributed by the company to a Shareholder will constitute assessable income of an Australian tax resident
Shareholder. Shareholders should include in their assessable income the dividend received, together with any franking
credit attached to that dividend.
Where the franking credit is included in the Shareholder’s assessable income, the Shareholder will generally be
entitled to a corresponding tax offset against tax payable by the Shareholder. To be eligible for the franking credit
and tax offset, a Shareholder must satisfy the “holding period” rule and “related payments” rule. This requires
that a Shareholder hold the Shares in Collins Foods Limited “at risk” for a specified period of not less than 45 days
(not including the date of acquisition and the date of disposal). In addition, a Shareholder must not be obliged to
make a “related payment” in respect of any dividend, unless they hold the Shares at risk for the required holding
period around all dividend dates. Shareholders should seek professional advice to determine if these requirements,
as they apply to them, have been satisfied.
The holding period rules will not apply to a Shareholder who is an individual whose tax offset entitlement (for all
franked distributions received in the income year) does not exceed A$5,000 for the income year in which the franked
dividend is received.
Where a Shareholder is an individual or a complying superannuation entity, the Shareholder will generally be entitled
to a refund to the extent that the franking credits attached to that Shareholder’s dividends exceed that Shareholder’s
income tax liability for the income year.
Where a Shareholder is a company, the Shareholder will generally be entitled to claim a carry forward tax loss
calculated by reference to any excess of the franking credit attached to the Shareholder’s dividends over the
Shareholder’s tax liability for the income year. Shareholders that are companies should seek specific advice regarding
the tax consequences of dividends received in respect of the Shares in Collins Foods Limited and the calculation of
carry forward tax losses arising from excess tax offsets.
Special rules apply to Shareholders that are trustees (other than trustees of complying superannuation entities) or
partnerships. These Shareholders should seek specific advice regarding the tax consequences of dividends received
in respect of the Shares in Collins Foods Limited.
Where the Shareholder is a corporate shareholder, franked dividends received by the Shareholder will generally give
rise to a franking credit in the Shareholder’s franking account (subject to the Shareholder satisfying the rules outlined
above for claiming a tax offset).
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COLLINS FOODS LIMITED PROSPECTUS
8
ADDITIONAL
INFORMATION
8.6.2Capital gains tax (CGT) implications for Australian resident Shareholders
Where a Shareholder holds their Shares in Collins Foods Limited on capital account, the disposal of the Shares will
be taxed under the CGT rules.
For CGT purposes, the Shareholder will make a capital gain where the capital proceeds received for their Shares
exceeds the CGT cost base of their Shares. Similarly, the Shareholder will make a capital loss where the capital
proceeds received for their shares are less than the reduced cost base of their Shares. Broadly, the cost base and
reduced cost base of the Shares would usually be equal to the amount paid to acquire the Shares. (The cost base and
reduced cost base of the Shares may be different if a CGT roll-over applied to the acquisition of the Shares.) Certain
other costs associated with holding the Shares, such as incidental costs of acquisition and disposal, may be added
to the cost base and reduced cost base.
Generally, all capital gains and losses made by a Shareholder for an income year, plus any net capital loss carried
forward from an earlier year, will need to be aggregated to determine whether the Shareholder has made a net capital
gain or a net capital loss for the year. A net capital gain is included in the Shareholder’s assessable income whereas
a net capital loss is carried forward and may be available to set off against capital gains of later years (subject to the
satisfaction of the loss recoupment rules for companies).
If a Shareholder is an individual, complying superannuation entity or trust, and has held the Shares for at least
12 months or more before disposal of the Shares, the Shareholder will prima facie be entitled to a “CGT discount”
for any capital gain made on the disposal of the Shares. Capital gains may be discounted by half in the case of
individuals and trusts, and by one-third in the case of complying superannuation entities. Shareholders that are
companies are generally not entitled to a CGT discount.
Where the Shareholder is a trustee of a trust that has held the Shares for at least 12 months or more before disposal,
the CGT discount may flow through to the beneficiaries of that trust if those beneficiaries are not companies.
Shareholders that are trustees should seek specific advice regarding the tax consequences of distributions
to beneficiaries who may qualify for discounted capital gains.
8.6.3Tax File Numbers (TFN)
A Shareholder is not required to quote their TFN to Collins Foods Limited. However, if a Shareholder’s TFN or
exemption details are not provided, Australian tax may be required to be deducted by Collins Foods Limited from
certain distributions (other than fully franked dividends) at the maximum marginal tax rate plus the Medicare levy.
A Shareholder that holds shares as part of an enterprise may quote their Australian Business Number instead
of their TFN.
8.6.4Goods and Services Tax (GST) implications
No GST should be payable by Shareholders in respect of the acquisition or disposal of their Shares in Collins
Foods Limited. The extent to which each Shareholder is entitled to recover any GST incurred on costs relating
to the acquisition or disposal of Shares in Collins Foods Limited will depend on the individual circumstances
of each Shareholder.
No GST should be payable by Shareholders on receiving dividends distributed by Collins Foods Limited.
8.6.5Stamp duty
No Australian stamp duty should be payable by Shareholders in respect of their acquisition or disposal of their Shares.
Individual Shareholders should obtain their own independent advice depending on their individual circumstances.
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COLLINS FOODS LIMITED PROSPECTUS
8.7Privacy
By making an Application for Shares, you are providing personal information to Collins Foods Limited through
Collins Foods Limited’s service provider, the Share Registrar, which is contracted by Collins Foods Limited to manage
Applications. Collins Foods Limited and the Share Registrar on its behalf, collect, hold and use that personal
information to process your Application, service your needs as a Shareholder, provide facilities and services that you
request and carry out appropriate administration. If you do not provide the information requested, Collins Foods
Limited and the Share Registrar may not be able to process or accept your Application. By submitting an Application,
each Applicant agrees that Collins Foods Limited and the Share Registry may use the information provided by an
Applicant (including in an Application Form) for the purposes set out in this privacy disclosure statement and may
disclose it in accordance with Collins Foods Limited’s privacy policy for those purposes to Collins Foods Limited and
to Collins Foods Limited’s other related bodies corporate, the Lead Managers, agents, contractors and third party
service providers, including mailing houses and professional advisers, and to ASX and other regulatory authorities.
The types of agents and service providers that may be provided with your personal information and the circumstances
in which your personal information may be shared are:
––
The Share Registrar for ongoing administration of the Shareholder register;
––
Printers and other companies for the purpose of preparation and distribution of statements and for handling
mail;
––
Market research companies for the purpose of analysing Collins Foods Limited’s Shareholder base and
for product development and planning; and
––
Legal and accounting firms, auditors, contractors, consultants and other advisers
for the purpose of administering, and advising on, the Shares and for associated actions. If an Applicant becomes
a Shareholder, the Corporations Act requires Collins Foods Limited to include information about the Shareholder
(including name, address and details of the Shares held) in its public register of members. The information contained
in Collins Foods Limited’s register of members must remain there even if that person ceases to be a Shareholder.
Information contained in Collins Foods Limited’s register of members is also used to facilitate dividend payments and
corporate communications (including Collins Foods Limited’s financial results, annual reports and other information
that Collins Foods Limited may wish to communicate to its Shareholders) and compliance by Collins Foods Limited
with legal and regulatory requirements. An Applicant has a right to gain access to the information that Collins Foods
Limited and the Share Registry hold about that person, subject to certain exemptions under law. A fee may be charged
for access. Access requests must be made in writing or by telephone call to Collins Foods Limited’s registered office
or the Share Registry’s office, details of which are disclosed in the Corporate Directory. Applicants can obtain a copy
of Collins Foods Limited’s privacy policy by visiting the Collins Foods Limited website (www.collinsfg.com.au).
8.8Photographs and diagrams
The assets depicted in photographs in this Prospectus (other than intellectual property owned by Yum!, including
the “KFC” brand, and some land and some buildings) are assets of Collins Foods unless otherwise stated. Diagrams
appearing in this Prospectus are illustrative only and may not be drawn to scale. Unless otherwise stated, all data
contained in charts, graphs and tables is based on information available at the date of the Prospectus.
8.9Market date, industry forecasts and projections
This Prospectus, including the industry overview, uses market data, industry forecasts and projections. Collins Foods
has obtained significant portions of this information from market research prepared by BIS Shrapnel Pty Ltd, Deloitte
Access Economics Pty Limited and Euromonitor International Ltd. There is no assurance that any of the forecasts
contained in the reports, surveys and research referred to in this Prospectus will be achieved. Collins Foods has not
independently verified this information. Estimates involve risks and uncertainties and are subject to change based
on various factors, including those discussed in the risk factors set out in section 4.
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COLLINS FOODS LIMITED PROSPECTUS
8
ADDITIONAL
INFORMATION
8.10Governing law
This Prospectus and the contracts that arise from the acceptance of the Applications and bids under this Prospectus are
governed by the laws applicable in Queensland and each Applicant for Shares under this Prospectus and each bidder
submits to the exclusive jurisdiction of the courts of Queensland.
8.11Statement of Directors
The Directors report that, after due enquiries by them, in their opinion, since 2 May 2010 there have not been any
circumstances that have arisen or that have materially affected or will materially affect the assets and liabilities,
financial position, profits or losses or prospects of Collins Foods Limited, other than as disclosed in this Prospectus.
This Prospectus is authorised by each Director who consents to its lodgement with ASIC and its issue.
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COLLINS FOODS LIMITED PROSPECTUS
9
Glossary
Caption lorem ipsum
ediscit et hos arto
stipata theatro spectat
Roma potens
habet hosChocolate
KFC Cornetto
numeratque poetas.
Classic Krusher
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COLLINS FOODS LIMITED PROSPECTUS
9
Glossary
Term
ADCO
KFC Adco Limited
Applicant
a person who submits an Application
Application
an application made to subscribe for Shares offered under this Prospectus
Application Form
the application form attached to or accompanying this Prospectus (including
the electronic form provided by an online application facility)
Application Monies or
Application Amount
the amount accompanying an Application Form submitted by an Applicant
ASIC
Australian Securities and Investments Commission
ASX Settlement Operating Rules
the rules of ASX Settlement and Transfer Corporation Pty Ltd
ASX
Australian Securities Exchange
ASX Listing Rules
the listing rules of ASX
Australian Accounting Standards
Australian Accounting Standards and other authoritative pronouncements
issued by the Australian Accounting Standards Board and Urgent Issues
Group Interpretations
BBSY
for a period, the average bid rate displayed at the agreed time on the first
day of the relevant period on the Reuters screen BBSY “Australian Bank Bill
Swap Bid Rate” page for a term equivalent to the relevant period (or in certain
circumstances, the rate determined by the agent under the New Banking
Facilities in accordance with those facilities)
Bell Potter
Bell Potter Securities Limited (ACN 006 390 772)
Board or Board of Directors
the board of directors of Collins Foods Limited
Broker
any ASX or NZX participating organisation selected by the Joint Lead Managers
and Collins Foods to act as Broker to the Offer
Broker Firm Offer
the Offer of Shares under this Prospectus to Australian or New Zealand resident
retail clients of Brokers who have received a firm allocation from their Broker
CAGR
compound annual growth rate
Cash Flows
has the meaning given to that term in section 3.5
CEO
chief executive officer
CFO
chief financial officer
CHAMPS
the KFC monthly mystery shopper evaluation programme (cleanliness,
hospitality, accuracy, maintenance, product quality and speed of service)
CHESS
Clearing House Electronic Sub-register System, operated in accordance with
the Corporations Act
CIO
chief information officer
Closing Date
the date by which Applications must be lodged for the Offer, being Tuesday,
2 August 2011 for the Broker Firm Offer unless varied
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COLLINS FOODS LIMITED PROSPECTUS
Term
Collins Foods
the business that operates KFC restaurants in Queensland and Northern New
South Wales, owns and operates Sizzler restaurants in Australia and franchises
Sizzler restaurants in Asia, which is to be acquired by Collins Foods Limited
on Completion of the Offer
Collins Foods Holding Pty Limited
the holding company of the group which owns KFC restaurants in Queensland
and Northern New South Wales, and which also owns and operates Sizzler
restaurants in Australia
Collins Foods Limited
Collins Foods Limited (ACN 151 420 781), the company which will issue Shares
under the Offer through which the Shareholders will hold the operating
subsidiaries of the Collins Foods business
Collins Foods Offer
Information Line
within Australia: 1800 622 202
Companies Act
Companies Act 1993 (NZ)
Completion of the Offer
completion in respect of the allotment of Shares of the Offer under the
Underwriting Agreement
Constitution
the constitution of Collins Foods Limited
Corporations Act
Corporations Act 2001 (Cth)
Craigs Investment Partners
Craigs Investment Partners Limited (ARBN 143 656 437)
CSO
chief supply officer
Director
a member of the Board
EBIT
earnings before interest and tax
EBITA
earnings before interest, tax and amortisation
EBITDA
earnings before interest, tax, depreciation and amortisation
Existing Interests
Shares and other interests in Collins Foods Holding Pty Limited and SingCo
Trading Pte Ltd (the companies that own the Collins Foods businesses in
Australia and Asia respectively as at the date of this Prospectus) held by
Existing Investors immediately prior to Completion of the Offer
Existing Investors
the persons holding shares and other interests in Collins Foods Holding
Pty Limited and SingCo Trading Pte Ltd immediately prior to Completion
of the Offer. Refer to section 6.1.6 for further information
Facility A
has the meaning given to that term in section 3.4.3
Facility B
has the meaning given to that term in section 3.4.3
Facility Actions
the construction of new restaurants as well as restaurant rebuilds,
refurbishments and relocations
Facility Actions Deed
the agreement between Collins Foods and Yum! that sets out the requirements
to upgrade, relocate or rebuild certain KFC restaurants operated by Collins
Foods during the five year period following Completion of the Offer. Refer
to section 8.1.2 for further information
outside Australia +61 2 8280 7694
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COLLINS FOODS LIMITED PROSPECTUS
9
Glossary
Term
Financial Information
has the meaning given to that term in section 3.1
Forecast Financial Information
has the meaning given to that term in section 3.1
Forecast Statutory Results
has the meaning given to that term in section 3.1
FSDT
free standing drive through
Funds advised by Pacific
Equity Partners
Pacific Equity Partners Fund II L.P. (established in Jersey), Pacific Equity Partners
Supplementary Fund II L.P. (established in Jersey), Pacific Equity Partners Fund
II (NQP) L.P. (established in Jersey), Pacific Equity Partners Fund II (Australasia)
Pty Limited ACN 106 318 370 as trustee for the Pacific Equity Partners Fund
II (Australasia) Unit Trust (incorporated in Australia), Pacific Equity Partners
Fund II (Australasia) Pty Limited ACN 106 318 370 as trustee for the Pacific
Equity Partners Supplementary Fund II (Australasia) Unit Trust (incorporated
in Australia), PEP Investment Pty Limited ACN 083 026 984 (incorporated
in Australia), PEP Co-Investment Pty Limited ACN 083 026 859 (incorporated
in Australia), being the funds, advised by Pacific Equity Partners Pty Limited
(ACN 082 283 949), which are existing investors in Collins Foods Holding
Pty Ltd and SingCo Trading Pte Limited
FY2009
financial year ended 3 May 2009
FY2010
financial year ended 2 May 2010
FY2011
financial year ended 1 May 2011
FY2012
financial year ended 29 April 2012
FY2013
financial year ended 28 April 2013
Growth Capital Expenditure
capital expenditure incurred to expand the assets of Collins Foods and
to generate a return on investment
Group
Collins Foods Limited and its subsidiaries on Completion of the Offer
GST
goods and services or similar tax imposed in Australia
Historical Financial Information
has the meaning given to that term in section 3.1
Historical Statutory Results
has the meaning given to that term in section 3.3.2
Individual Franchise Agreements
the agreements between Collins Foods and Yum! containing the substantive
franchise rights and obligations, including the grant of a non-exclusive right
to use the KFC trade marks, service marks and trade names and the KFC
system for preparing, marketing and selling food in a specified restaurant.
Refer to section 8.1.3 for more information
Institutional Investor
an investor to whom offers or invitations in respect of securities can be made
without the need for a lodged prospectus (or other formality, other than
a formality which Collins Foods Limited is willing to comply with), including
in Australia persons to whom offers or invitations can be made without the
need for a lodged prospectus under section 708 of the Corporations Act
and in New Zealand, persons to whom offers and invitations can be made
without the need for a registered prospectus under section 3(2)(a) of the
Securities Act 1978 NZ
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COLLINS FOODS LIMITED PROSPECTUS
Term
Institutional Offer
the invitation to Institutional Investors under this Prospectus to acquire Shares,
as described in section 6.4
Investigating Accountant
PricewaterhouseCoopers Securities Limited (ACN 003 311 617)
IPO
initial public offering
Joint Lead Managers
Deutsche Bank AG, Sydney Branch and UBS AG, Australia Branch
LTO
limited time offer
Maintenance Capital Expenditure
capital expenditure incurred to preserve the existing assets of Collins Foods
Management
the five executives of Collins Foods Limited identified in section 5.2
Marketing Agreement
the agreement between Collins Foods and Yum! that sets out the terms under
which Yum! will procure that ADCO provides marketing, technical and financial
services associated with KFC marketing, media and promotional activities in
Queensland to, and consults with, Collins Foods’ KFC restaurants. Refer to
section 8.1.4 for more information
Master Franchising Deed
the agreement between Collins Foods and Yum! under which Yum! agrees
to enter into Individual Franchise Agreements with Collins Foods in respect
of Collins Foods’ KFC restaurants. Refer to section 8.1.1 for more information
New Banking Facilities
has the meaning given to that term in section 3.4.3
NPAT
net profit after tax
NPATA
net profit after tax and before amortisation
nm
not meaningful
Offer
the offer under this Prospectus of Shares for issue by Collins Foods Limited
Offer Price
$2.50 per Share
OH&S
occupational health and safety
PEP Advisory Pty Ltd
PEP Advisory Pty Limited ACN 086 327 522
Pro Forma Forecast Financial
Information
has the meaning given to that term in section 3.2.2
Pro Forma Forecast Results
has the meaning given to that term in section 3.1
Pro Forma Historical Results
has the meaning given to that term in section 3.1
Prospectus
this document (including the electronic form of this Prospectus) and any
supplementary or replacement Prospectus in relation to this document
Prospectus Date
the date on which a copy of this Prospectus is lodged with ASIC, being
15 July 2011
PwC
PricewaterhouseCoopers
PwCS
PricewaterhouseCoopers Securities Limited
QSR
quick service restaurant
ROIC
return on invested capital
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9
Glossary
Term
Sale Deeds
the deeds, acknowledgements and other agreements between CFG Finance
Pty Limited, Collins Foods Holding Pty Limited, SingCo Trading Pte Ltd and the
Existing Investors, which set out the terms and conditions of sale of Collins
Foods Holding Pty Limited and SingCo Trading Pte Ltd from the Existing
Investors to CFG Finance Pty Limited and the satisfaction of obligations owed
to certain Existing Investors by Collins Foods Holding Pty Limited or SingCo
Trading Pte Ltd. Refer to section 8.3 for further information
Share
a fully paid ordinary share in the capital of Collins Foods Limited
Shareholder
a holder of Shares
Share Registry
Link Market Services Limited (ABN 54 083 214 537)
SingCo
SingCo Trading Pte Ltd, the holding company of the Collins Foods’ Sizzler
Asia business
Sizzler
a division of Collins Foods which owns and operates Sizzler restaurants
in Australia and franchises Sizzler restaurants in Asia
SSSG
same store sales growth. It is calculated by analysing the sales growth from
those restaurants in the group that were operating in the comparable period.
It excludes any new stores or refurbished stores for a 12 to 15 month period
after opening or reopening respectively to ensure the figures are not distorted
by the impact of Facility Actions
Supply Agreement
the agreement between Collins Foods and Yum! that sets out the terms
under which Yum! sources and negotiates purchasing arrangements for food,
packaging, consumables and equipment to all KFC restaurants in Australia.
Refer to section 8.1.5 for more information
UBS Wealth Management
UBS Wealth Management Australia Limited (ACN 005 311 937)
Underwriting Agreement
the agreement of that name between Deutsche Bank, UBS, Collins Foods
Limited and Collins Foods Holding Pty Limited. Refer to section 8.2 for
further information
Wilson HTM
Wilson HTM Corporate Finance Ltd (ABN 65 057 547 323)
Working Capital Facility
has the meaning given to that term in section 3.4.3
Y/E
year ending
Yum!
Yum! Brands, Inc. or its subsidiaries
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APPENDIX
KEY ACCOUNTING
POLICIES
Sizzler sizzling steak and
Szechuan prawns
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COLLINS FOODS LIMITED PROSPECTUS
APPENDIX
KEY ACCOUNTING
POLICIES
The principal accounting policies adopted in the preparation of the Financial Information are set out below. These
policies have been consistently applied to all periods presented, unless otherwise stated.
Entities reporting
The consolidated financial information for the Group is for the economic entity comprising Collins Foods Limited and
its subsidiaries (Group). On completion of the Offer, the Group consists of:
Collins Foods Limited
Holding company
CFG Finance Pty Limited
100% owned by Collins Foods Limited
Collins Foods Holding Pty Limited
100% owned by CFG Finance Pty Limited
Collins Foods Finance Pty. Limited
100% owned by Collins Foods Holding Pty Limited
Collins Foods Group Pty. Ltd. 100% owned by Collins Foods Finance Pty. Limited
Collins Restaurants Queensland Pty. Ltd.
100% owned by Collins Foods Group Pty. Ltd.
Collins Restaurants NSW Pty. Ltd. 100% owned by Collins Restaurants Queensland Pty. Ltd.
Sizzler Restaurants Group Pty. Ltd. 100% owned by Collins Foods Group Pty. Ltd.
Collins Restaurants Management Pty. Ltd. 100% owned by Collins Foods Group Pty. Ltd.
Collins Property Development Pty. Ltd.
100% owned by Collins Foods Group Pty. Ltd.
Club Sizzler Pty. Ltd.
100% owned by Collins Foods Group Pty. Ltd.
Collins Foods Australia Pty. Ltd.
100% owned by Collins Foods Group Pty. Ltd.
Collins Finance and Management Pty. Ltd.
100% owned by Collins Foods Australia Pty. Ltd.
Sizzler South Pacific Pty. Ltd.
100% owned by Collins Foods Group Pty. Ltd.
SingCo Trading Pte Ltd
100% owned by CFG Finance Pty Limited
Sizzler International Marks, LLC
100% owned by SingCo Trading Pte Ltd
Sizzler Asia Holdings, LLC
100% owned by Sizzler International Marks, LLC
Sizzler New Zealand, LLC
100% owned by Sizzler Asia Holdings, LLC
Sizzler Restaurant Services, LLC
100% owned by Sizzler Asia Holdings, LLC
Sizzler South East Asia, LLC
100% owned by Sizzler Asia Holdings, LLC
Sizzler Steak Seafood Salad(s) Pte Ltd
50% owned by Sizzler Asia Holdings, LLC
Sizzler China Pte Ltd
50% owned by Sizzler Asia Holdings, LLC
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COLLINS FOODS LIMITED PROSPECTUS
Historical cost convention
The Financial Information has also been prepared under the historical cost convention, as modified by the revaluation
of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value
through profit or loss.
Subsidiaries
The Financial Information comprises the financial information of the Group. All transactions and balances between
companies in the Group are eliminated on consolidation. Subsidiaries are all those entities over which the Group
has the power to govern the financial and operating policies, generally accompanying a shareholding of more than
one‑half of the voting rights. Where an entity began to be controlled during a reporting period, the results are
included only from the date control commenced. Where a subsidiary ceased to be controlled during a reporting period,
the results are included only through to the date control ceased. Except as disclosed in section 3.2.1, in relation to the
acquisition of Collins Foods Holding Pty Limited by CFG Finance Pty Limited, the acquisition method of accounting
is used to account for the acquisition of subsidiaries by Collins Foods Limited. Consistent accounting policies are
employed in the preparation and presentation of the Financial Information.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue from the sale of goods is
recognised when the Group has passed control of the goods to the customer, interest income is recognised on a time
proportion basis using the effective interest method and traineeship income is recognised as revenue when the right
to receive payment is established. Revenue arising from the sale of property, plant and equipment is recognised when
the risks and rewards have been transferred, which is considered to occur on settlement.
Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject
to risks and returns that are different from those of other business segments. Operating segments are reported in
a manner consistent with the internal reporting provided to the Board of Directors.
Income tax
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based
on the national income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary
differences between the tax bases of assets and liabilities and their carrying amounts in
the financial statements, and to unused tax losses.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when
the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to
measure the deferred tax asset or liability.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable
that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax
bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the
temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are
offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise
the asset and settle the liability simultaneously.
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COLLINS FOODS LIMITED PROSPECTUS
APPENDIX
KEY ACCOUNTING
POLICIES
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly
in equity.
Collins Foods Limited and its wholly owned Australian controlled entities intend to implement the tax consolidation
legislation. Collins Foods Limited, as the head entity in the tax consolidated group and its wholly owned Australian
controlled entities continues to account for their own current and deferred tax amounts. These tax amounts are
measured as if each entity in the tax consolidated group continues to be a standalone taxpayer in its own right.
In addition to its own current and deferred tax amounts, Collins Foods Limited also recognises the current tax liabilities
(or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled
entities in the tax consolidated group. Assets or liabilities arising under the tax funding agreement with the tax
consolidated entities are recognised as amounts receivable from or payable to other entities in the Group.
Foreign currency translation
Items included in the Financial Information of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (“the functional currency”). The consolidated financial
statements are presented in Australian dollars, which is the functional and presentation currency of the Group.
Transactions in foreign currencies are converted at the exchange rates in effect at the dates of each transaction.
Amounts payable to or by the Group in foreign currencies have been translated into Australian currency at the
exchange rates ruling on balance date. Gains and losses arising from fluctuations in exchange rates on monetary assets
and liabilities are included in the income statement in the period in which the exchange rates change, except when
deferred in equity as qualifying cash flow hedges.
Employee entitlements
Provision has been made in the accounts for benefits accruing to employees up to balance date, such as annual leave,
long service leave and bonuses. No provision is made for non-vesting sick leave as the anticipated pattern of future
sick leave taken indicates that accumulated non-vesting leave will never be paid. Annual leave provisions are measured
at their nominal amounts using the remuneration rates expected to apply at the time of settlement and are classified
in other payables. Long service leave provisions are measured as the present value of expected future payments to
be made in respect of services provided by employees up to reporting date using the projected unit credit method.
Expected future payments are discounted using market yields at reporting date on national government bonds with
terms to maturity that match estimated future cash outflows.
All on-costs, including superannuation, payroll tax, workers’ compensation premiums and fringe benefits tax are
included in the determination of provisions.
Cost of sales
For the purposes of the Financial Information, cost of sales includes the carrying amount of inventories sold during
the reporting period and an estimated allocation of overheads incurred in relation to those inventories.
Cash and cash equivalents
For the purposes of the Financial Information, cash includes cash on hand, at call deposits with banks or financial
institutions, and other short-term, highly liquid investments in money market instruments that are readily convertible
to known amounts of cash and which are subject to an insignificant risk of changes in value.
Borrowings
Bank loans are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption
amount is recognised in the income statement over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities, which are not incremental costs relating to the actual drawdown
of the facility, are capitalised and amortised on a straight line basis over the term of the facility.
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Borrowing costs
Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that
is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.
Receivables
Trade and related party receivables are recognised initially at fair value and subsequently measured at amortised cost,
less any provision for doubtful debts. Trade receivables are generally due for settlement no more than 30 days from the
date of recognition. Collectability of trade and related party receivables are reviewed on an ongoing basis. Debts which
are known to be uncollectable are written off. A provision for doubtful debts is raised when there is objective evidence
that the Group will not be able to collect all amounts due. The amount of the impairment loss is recognised in the
income statement within other expenses. When a receivable for which an impairment allowance has been recognised
becomes uncollectable in a subsequent period, it is written off against the allowance account. Subsequent recoveries
of amounts previously written off are credited against other expenses in the income statement.
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is assigned on a first-in first-out basis and
includes expenditure incurred in acquiring the stock and bringing it to the existing condition and location.
Business combinations
Except as set out in section 3.2.1 in respect of the acquisition of Collins Foods Holding Pty Limited by CFG Finance
Pty Limited, the acquisition method of accounting is used to account for all business combinations regardless of
whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares
issued or liabilities incurred or assumed at the date of exchange. Where equity instruments are issued in an acquisition,
the value of the instruments is their published market price as at the date of exchange unless, in rare circumstances,
it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that
other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the
issue of equity instruments are recognised directly in equity. Transaction costs arising from business combinations are
expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of
the cost of acquisition over the fair value of the Groups share of the identifiable net assets acquired is recorded as
goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference
is recognised directly in the income statement, but only after a reassessment of the identification and measurement
of the net assets acquired.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate,
being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms
and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested
annually for impairment, or more frequently if events or changes in circumstances indicate that they might be
impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less
costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash flows (cash generating units).
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APPENDIX
KEY ACCOUNTING
POLICIES
Property, plant and equipment
All property, plant and equipment is recorded at historical cost less depreciation. Historical cost includes expenditure
that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item can be measured reliably.
Property, plant and equipment, excluding freehold land, is depreciated at rates based upon the expected useful
economic life as follows:
MethodLife
Buildings
Straight line
20 years
Leasehold improvements
Straight line
Primary term of the lease
Plant and equipment
Straight line
8 years
Equipment under finance lease
Straight line
4 to 8 years
Leasehold improvements are depreciated over the unexpired period of the primary lease or the estimated life of the
improvement, whichever is the shorter. Finance leased assets are depreciated over the shorter of the asset’s estimated
useful life and the lease term.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount
is greater than its estimated recoverable amount.
The gain or loss on disposal of all non-current assets is determined as the difference between the carrying amount of
the asset at the time of disposal and the proceeds on disposal, and is included in the income statement of the Group
in the year of disposal.
Leases
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the
leased property and the present value of the minimum lease payments. The corresponding rental obligations, net
of finance charges, are included in other long-term payables. Finance lease payments are allocated between interest
expense and reduction of lease liability over the term of the lease. The interest expense is determined by applying
the interest rate implicit in the lease to the outstanding lease liability at the beginning of each lease payment period.
Finance leased assets are depreciated on a straight-line basis over the shorter of the asset’s estimated useful life and
the lease term.
Where the risks and rewards of ownership are retained by the lessor, leased assets are classified as operating leases
and are not capitalised. Rental payments are charged to the income statement on a straight line basis over the period
of the lease.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net
identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortised. Instead, goodwill
is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be
impaired, and is carried at cost less accumulated impairment losses. Goodwill is allocated to cash generating units
for the purpose of impairment testing.
Deferred franchise rights
Costs associated with franchise licences which provide a benefit for more than one financial year are deferred and
amortised over the remaining term of the franchise licence. Capitalised costs associated with renewal options for
franchise licences are deferred and amortised over the renewal option period. The unamortised balance is reviewed
each balance date and charged to the income statement to the extent that future benefits are no longer probable.
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Other intangibles – Sizzler brand
Sizzler brand intangibles which are owned and registered by the Group are considered to have a useful life of
20 years and are amortised accordingly. These intangibles will be tested for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. Sizzler brand intangibles are carried at
amortised cost less impairment losses.
Derivatives
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative
is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain
derivatives as either cash flow hedges or fair value hedges.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged
items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group
also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are
used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair value or
cash flows of hedged items.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income
statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the
hedged risk. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss
relating to the ineffective portion is recognised immediately in the income statement. Changes in fair value of any
derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement.
Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect
profit or loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset
or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included
in the measurement of the initial cost or carrying amount of the asset or liability.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no
longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the
income statement.
Accounts payable
These amounts represent liabilities for goods and services provided prior to the end of the reporting period and which
are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.
Provisions
Provisions for legal claims and make good obligations are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle
the obligation, and the amount has been reliably estimated. Provisions are not recognised for future operating losses.
As the Group is required to restore the leased premises of certain retail stores to their original condition upon the exit,
an annual review of leased sites is conducted to revise its estimate of the provision required.
However, as leases are traditionally renewed, the Group only recognises a provision for those restaurants where
an estimate of make good costs can be measured and will result in a probable outflow of funds. The provision
recognised is the present value of the estimated expenditure required to remove any leasehold improvements and
decommissioning costs. The discount rate used to determine the present value is a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the liability.
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COLLINS FOODS LIMITED PROSPECTUS
APPENDIX
KEY ACCOUNTING
POLICIES
Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except where the
amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition
of an asset or as part of an item of expense.
The net amount of GST payable to the taxation authority is included as part of trade and other payables.
Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising
from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified
as operating cash flows.
Non-current assets (or disposal groups) held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as held for sale and stated at the lower of their carrying amount
and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction rather
than through continuing use. An impairment loss is recognised for any initial or subsequent write-down of the asset
(or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less
costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised.
A gain or loss not previously recognised by the date of sale of the non-current asset (or disposal group) is recognised
at the date of derecognition.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are
classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held
for sale continue to be recognised. Non-current assets classified as held for sale and the assets of a disposal group
classified as held for sale are presented separately from other assets in the balance sheet. The liabilities of a disposal
group classified as held for sale are presented separately from other liabilities in the balance sheet.
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and
that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan
to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale.
The results of discontinued operations are presented separately on the face of the income statement.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the new share issue are shown in
equity as a deduction, net of tax, from the proceeds.
Dividends
Provision is made for the amount of any dividend declared at or before the end of the financial year but not distributed
at balance date. The dividend distribution to Shareholders is recognised as a liability in the Collins Foods Limited’s and
Group’s financial statements in the period in which the dividends are approved by the Board of Directors.
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COrPOrate
directory
Collins Foods registered office
Legal adviser
16-20 Edmondstone Street, Newmarket
Brisbane Qld 4051
PO Box 286
Lutwyche Qld 4030
Clayton Utz
Level 15
1 Bligh Street
Sydney NSW 2000
Joint Lead Managers
Investigating Accountant
Deutsche Bank AG, Sydney Branch
Deutsche Bank Place
Level 16, Corner Hunter and Phillip Streets
Sydney NSW 2000
PricewaterhouseCoopers Securities Limited
Riverside Centre
123 Eagle Street
GPO Box 150
Brisbane Qld 4000
UBS AG, Australia Branch
Level 16, Chifley Tower
2 Chifley Square
Sydney NSW 2000
Co Managers
Bell Potter Securities Limited
Level 33, Grosvenor Place
225 George Street
Sydney NSW 2000
Craigs Investment Partners Limited
Craigs Investment Partners House
Corner Cameron Road and Spring Street
Tauranga, New Zealand, 3110
PO Box 13-155
Tauranga Central, New Zealand 3141
UBS Wealth Management Australia Limited
Level 16, Chifley Tower
2 Chifley Square
Sydney NSW 2000
Wilson HTM
Wilson HTM Investment Group
Level 38 Riparian Plaza
71 Eagle Street
Brisbane Qld 4000
Taxation adviser
PricewaterhouseCoopers
Riverside Centre
123 Eagle Street
GPO Box 150
Brisbane Qld 4000
Auditor
PricewaterhouseCoopers
Riverside Centre
123 Eagle Street
GPO Box 150
Brisbane Qld 4000
Share registry
Link Market Services Limited
Level 12
680 George Street
Sydney NSW 2000
Collins Foods Offer Information Line
Within Australia: 1800 622 202
Outside of Australia: +61 2 8280 7694
Hours of operation: 8.30am to 5.30pm (AEST)
Monday to Friday
Collins Foods Offer website
precinct.com.au
www.collinsfg.com.au