Company Quick10K Filing
Quick10K
Naked Brand Group
20-F 2019-01-31 Annual: 2019-01-31
20-F 2018-01-31 Annual: 2018-01-31
VFC VF 32,252
CTAS Cintas 27,224
LULU Lululemon 22,135
COLM Columbia Sportswear 6,484
CRI Carters 4,019
OXM Oxford Industries 1,160
VRA Vera Bradley 359
SGC Superior Group of Companies 240
DLA Delta Apparel 159
JRSH Jerash 79
NAKD 2019-01-31
Item 17 [ ] Item 18 [ ]
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Time Table
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-4.4 ex4-4.htm
EX-4.5 ex4-5.htm
EX-4.6 ex4-6.htm
EX-4.7.1 ex4-7_1.htm
EX-4.7.2 ex4-7_2.htm
EX-4.7.3 ex4-7_3.htm
EX-4.7.4 ex4-7_4.htm
EX-4.8.1 ex4-8_1.htm
EX-4.8.2 ex4-8_2.htm
EX-4.8.3 ex4-8_3.htm
EX-4.8.4 ex4-8_4.htm
EX-8.1 ex8-1.htm
EX-11.1 ex11-1.htm
EX-12.1 ex12-1.htm
EX-12.2 ex12-2.htm
EX-13.1 ex13-1.htm

Naked Brand Group Earnings 2019-01-31

NAKD 20F Annual Report

Balance SheetIncome StatementCash Flow

20-F 1 form20-f.htm

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

(Mark One)

[  ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
   
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended January 31, 2019

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________ to _____________

 

[  ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report ____________

 

Commission File Number 001-38544

 

NAKED BRAND GROUP LIMITED

 

(Exact name of registrant as specified in its charter)

 

N/A

 

(Translation of Registrant’s name into English)

 

Australia

 

(Jurisdiction of incorporation or organization)

 

c/o Bendon Limited

Building 7B, Huntley Street

Alexandria

NSW 2015, Australia

+61 2 9384 2400

 

(Address of principal executive offices)

 

Justin Davis-Rice, Executive Chairman

c/o Bendon Limited

Building 7B, Huntley Street

Alexandria

NSW 2015, Australia

+61 2 9384 2400

 

(Name, telephone, e-mail and/or facsimile number and address of Company contact person)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of each exchange on which registered
Ordinary Shares   The Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

 

(Title of class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

None

 

(Title of class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: At June 12, 2019, 59,487,636 ordinary shares were issued and outstanding.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] No [X]

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.

Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

  Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [X]
      Emerging growth company [X]

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

  U.S. GAAP [  ] International Financial Reporting Standards as issued
by the International Accounting Standards Board
[X] Other [  ]

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 [  ] Item 18 [  ]

 

If this report is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

 

 

 
 

 

NAKED BRAND GROUP LIMITED

 

TABLE OF CONTENTS

 

INTRODUCTION 1
   
TRADEMARKS AND SERVICE MARKS 1
   
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 1
   
NON-IFRS FINANCIAL MEASURES 3
   
PART I 4
   
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 4
   
ITEM 2. OFFER STATISTICS AND EXPECTED TIME TABLE 4
   
ITEM 3. KEY INFORMATION 4
   
ITEM 4. INFORMATION ON THE COMPANY 17
   
ITEM 4A. UNRESOLVED STAFF COMMENTS 27
   
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 27
   
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 54
   
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 57
   
ITEM 8. FINANCIAL INFORMATION 61
   
ITEM 9. THE OFFER AND LISTING 61
   
ITEM 10. ADDITIONAL INFORMATION 62
   
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 73
   
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 74
   
PART II 74
   
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 74
   
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 74
   
ITEM 15. CONTROLS AND PROCEDURES 74
   
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 76
   
ITEM 16B. CODE OF ETHICS 76
   
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 76
   
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 77
   
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 77
   
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT 77
   
ITEM 16G. CORPORATE GOVERNANCE 77
   
ITEM 16H. MINE SAFETY DISCLOSURE 77
   
PART III 78
   
ITEM 17. FINANCIAL STATEMENTS 78
   
ITEM 18. FINANCIAL STATEMENTS 78
   
ITEM 19. EXHIBITS 78

 

 i 

 

 

INTRODUCTION

 

Unless otherwise indicated, all references in this Annual Report on Form 20-F to “we,” “our,” “us,” the “Company,” “Naked” or similar terms refer to Naked Brand Group Limited and its consolidated subsidiaries. We publish our consolidated financial statements in New Zealand dollars. In this Annual Report, unless otherwise specified, all monetary amounts are in New Zealand dollars, and all references to “$,” “NZD$,” and “dollars” mean New Zealand dollars, unless otherwise indicated.

 

This Annual Report on Form 20-F (this “Annual Report”) contains our audited consolidated financial statements and related notes for the years ended January 31, 2019 and 2018, the seven month period ended January 31, 2017 and the year ended June 30, 2016 (“Audited Consolidated Financial Statements”). Our Audited Annual Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

 

On June 19, 2018, we consummated the transactions contemplated by that certain Agreement and Plan of Reorganization, dated as of May 25, 2017 and amended on July 26, 2017, February 21, 2018, March 19, 2018 and April 23, 2018 (the “Merger Agreement”), by and among our company, Naked Brand Group Inc., a Nevada corporation (“Naked (NV)”), Bendon Limited, a New Zealand limited company (“Bendon Limited”), Naked Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of ours (“Merger Sub”) and Bendon Investments Ltd., a New Zealand company and at the time the owner of a majority of the outstanding shares of Bendon Limited (the “Principal Shareholder”).

 

Pursuant to the Merger Agreement, (i) we undertook a reorganization (the “Reorganization”) pursuant to which all of the shareholders of Bendon Limited exchanged all of the outstanding ordinary shares of Bendon Limited (the “Bendon Ordinary Shares”) for our ordinary shares (“Naked Ordinary Shares”), and (ii) immediately thereafter, the parties effectuated a merger of Merger Sub and Naked (NV), with Naked (NV) surviving as a wholly owned subsidiary of ours and the Naked (NV) stockholders receiving Naked Ordinary Shares in exchange for all of the outstanding shares of common stock of Naked (NV) (the “Merger” and together with the Reorganization, the “Transactions”).

 

As a result of the Transactions, Bendon Limited and Naked (NV) became our wholly owned subsidiaries and the shareholders of Bendon Limited and the stockholders of Naked (NV) became shareholders of ours.

 

TRADEMARKS AND SERVICE MARKS

 

This Annual Report contains references to a number of trademarks which are our registered trademarks or trademarks for which we have pending applications or common law rights. Our major trademarks include, among others, the “Naked” trademark, the Heidi Klum trademarks, Frederick’s of Hollywood trademarks and other related trademarks.

 

Solely for convenience, the trademarks, service marks and trade names referred to in this Annual Report are listed without the ®, (sm) and (TM) symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report contains forward-looking statements. Forward-looking statements include all statements that are not historical facts. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. They appear in a number of places throughout this Annual Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. Forward-looking statements contained in this Annual Report include, among other things, statements relating to:

 

  expectations regarding industry trends and the size and growth rates of addressable markets;

 

 1 

 

 

  our business plan and our growth strategies, including plans for expansion to new markets and new products; and
     
  expectations for seasonal trends.

 

These statements are not assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Although we base the forward-looking statements contained in this Annual Report on assumptions that we believe are reasonable, we caution you that actual results and developments (including our results of operations, financial condition and liquidity, and the development of the industry in which we operate) may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report. In addition, even if results and developments are consistent with the forward-looking statements contained in this Annual Report, those results and developments may not be indicative of results or developments in subsequent periods. Certain assumptions made in preparing the forward-looking statements contained in this Annual Report include:

 

  our ability to implement our growth strategies;
     
  our ability to maintain good business relationships with our suppliers, wholesalers and distributors;
     
  our ability to keep pace with changing consumer preferences;
     
  our ability to protect our intellectual property; and
     
  the absence of material adverse changes in our industry or the global economy.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in Item 3.D of this Annual Report, “Risk Factors,” which include, but are not limited to, the following risks:

 

  we may be unable to raise any necessary capital;
     
  we may be unable to maintain the strength of our brand or to expand our brand to new products and geographies;
     
  we may be unable to protect or preserve our brand image and proprietary rights;
     
  we may not be able to satisfy changing consumer preferences;
     
  an economic downturn may affect discretionary consumer spending;
     
  we may not be able to compete in our markets effectively;
     
  we may not be able to manage our growth effectively;
     
  poor performance during our peak season may affect our operating results for the full year;
     
  our indebtedness may adversely affect our financial condition;
     
  our ability to maintain relationships with our select number of suppliers;
     
  our ability to manage our product distribution through our retail partners and international distributors;
     
  the success of our marketing programs;

 

 2 

 

 

  the risk our business is interrupted because of a disruption at our headquarters; and
     
  fluctuations in raw materials costs or currency exchange rates.

 

Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. As a result, any, or all of our forward-looking statements in this Annual Report may turn out to be inaccurate. We have included important factors in the cautionary statements included in this Annual Report, particularly in Item 3.D of this Annual Report, “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not rely on our forward-looking statements. Moreover, we operate in a highly competitive and rapidly changing environment in which new risks often emerge. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

 

You should read this Annual Report and the documents that we reference herein and have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained herein are made as of the date of this Annual Report, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.

 

NON-IFRS FINANCIAL MEASURES

 

This document includes “non-IFRS financial measures,” that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. Specifically, we make use of the non-IFRS measures “EBITDA.”

 

EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization and impairment. Our management uses EBITDA as a measure of our operating results and considers it to be a meaningful supplement to net income as a performance measurement, primarily because we incur significant depreciation and depletion and the exclusion of impairment losses in EBITDA eliminates the non-cash impact.

 

EBITDA is used by investors and analysts for the purpose of valuing an issuer. The intent of EBITDA is to provide additional useful information to investors and the measure does not have any standardized meaning under IFRS. Accordingly, this measure should not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate EBITDA differently. For a reconciliation of net income from continuing operations to EBITDA, please see Item 5 of this Annual Report, “Operating and Financial Review and Prospects – Results of Operations.”

 

 3 

 

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIME TABLE

 

Not applicable.

 

ITEM 3. KEY INFORMATION

 

A. Selected Financial Data

 

The selected statement of operations data set forth below for the years ended January 31, 2019 and 2018, the seven month period ended January 31, 2017 and the year ended June 30, 2016, and the selected balance sheet data as at January 31, 2019, 2018 and 2017 and June 30, 2016, has been derived from our audited consolidated financial statements prepared and presented in accordance with IFRS, which are included in this Annual Report. The selected financial information set forth below for the year ended January 31, 2017 has been derived from unaudited consolidated financial information that is not included in this Annual Report.

 

The selected financial information below is only a summary and should be read in conjunction with our audited financial statements and notes thereto contained elsewhere herein. The financial results should not be construed as indicative of financial results for subsequent periods. See Item 5 of this Form 20-F and the financial statements and the accompanying notes thereto included under Item 18 of this Form 20-F for further information about our financial results and condition.

 

Naked Brand Group Limited Financial Information as prepared under IFRS and in New Zealand Dollars (NZ$)

 

Consolidated Statement of Operations Data:

 

           Unaudited             
   Jan. 31,   Jan. 31,   Jan. 31,   Jan. 31,   June 30,   June 30, 
   2019   2018   2017   2017   2016   2015 
   NZ$000   NZ$000   NZ$000   NZ$000   NZ$000   NZ$000 
   12 months   12 months   12 months   7 months   12 months   12 months 
Revenue   111,920    131,388    152,144    96,284    151,000    138,838 
Cost of goods sold   (74,480)   (87,459)   (84,358)   (57,144)   (83,525)   (79,031)
Gross profit   37,440    43,929    67,786    39,140    67,475    59,807 
Brand management   (49,256)   (53,653)   (53,957)   (32,040)   (48,362)   (42,203)
Administrative expenses   (3,432)   (4,131)   (3,712)   (2,383)   (4,090)   (4,691)
Corporate expenses   (14,145)   (12,851)   (12,920)   (8,082)   (13,002)   (13,940)
Finance expense   (4,041)   (8,791)   (11,214)   (6,238)   (10,409)   (5,870)
Brand transition, restructure and transaction expenses   (10,075)   (3,272)   (2,430)   (1,321)   (2,232)   (12,182)
Impairment expense   (8,173)   (1,914)   (2,865)   (292)   (2,157)   0 
Other foreign currency gains/(losses)   1,963    757    (14,327)   (3,306)   (2,423)   4,700 
Fair value gain/(loss) on convertible notes derivative   (775)   2,393    (592)   (592)   0    0 
Loss before income tax   (50,494)   (37,533)   (34,230)   (15,114)   (15,200)   (14,379)
Income tax benefit/(expense)   1,274    (60)   (6,123)   (865)   (5,546)   1,274 
Loss for the period   (49,220)   (37,593)   (40,352)   (15,979)   (20,746)   (13,105)
Other comprehensive loss                              
Exchange differences on translation of foreign operations   (7)   148    384    (29)   31    (93)
Total comprehensive loss for the period   (49,227)   (37,445)   (39,968)   (16,008)   (20,715)   (13,198)
                               
Loss per share for loss from continuing operations attributable to the ordinary equity holders of the company:                              
Basic loss per share (NZ$)*   (2.01)   (1.79)   (2.06)   (0.82)   (1.13)   (0.72)
Diluted loss per share (NZ$)*   (2.01)   (1.79)   (2.06)   (0.82)   (1.13)   (0.72)

 

 4 

 

 

*A stock reorganization occurred on June 19, 2018 upon completion of the merger between Naked (NV) and Bendon Limited. As a result, the calculation of basic and diluted earnings per share for 2018, 2017 and 2016 has been adjusted retrospectively. The number of ordinary shares outstanding has been adjusted to reflect the proportionate change in the number of shares. See note 23 of our audited consolidated financial statements for further information.

 

Consolidated Balance Sheet Data:

 

    January 31,     January 31,     January 31,     June 30,     June 30,  
    2019     2018     2017     2016     2015  
    NZ$000     NZ$000     NZ$000     NZ$000     NZ$000  
Cash and cash equivalents     1,962       10,739       2,645       4,193       1,246  
Working capital     (29,426 )     (20,752 )     (19,644 )     (19,987 )     (24,067 )
Total assets     75,687       88,096       101,232       95,591       99,849  
Borrowings     20,967       52,121       68,998       77,593       56,273  
Total shareholders’ equity     10,519       (5,710 )     (9,044 )     (17,876 )     2,839  

 

 

Unless otherwise noted, all translations from U.S. dollars to New Zealand dollars in this Form 20-F were made at the closing rate as at January 31, 2019 of NZ$1 = US$0.69. We make no representation that any New Zealand dollars or U.S. dollar amounts could have been, or could be, converted into U.S. dollar or New Zealand dollars, as the case may be, at any particular rate, at the rates stated below, or at all.

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D. Risk Factors

 

Risks Related to Our Business and Operations

 

We have a history of operating losses that may continue into the foreseeable future.

 

We have a history of operating losses and negative cash flow that may continue into the foreseeable future. If we fail to execute our strategy to achieve and maintain profitability in the future, investors could lose confidence in the value of our Ordinary Shares, which could cause our share price to decline and adversely affect our ability to raise additional capital. Investors should evaluate an investment in our company in light of this.

 

If we are unable to obtain additional financing on acceptable terms, we may have to curtail our growth or cease our development plans and operations.

 

The operation of our business and our growth efforts will require significant cash outlays. We are largely dependent on outside capital to implement our business plan and support our operations. We anticipate for the foreseeable future that cash on hand and cash generated from operations will not be sufficient to meet our cash requirements, and that we will need to raise additional capital through investments to fund our operations and growth. We cannot assure you that we will be able to raise additional capital as needed on terms acceptable to us, if at all. If we are unable to raise capital as needed, we may be required to reduce the scope of our growth efforts, which could harm our business plans, financial condition and operating results, or cease our operations entirely, in which case, you may lose all your investment. Financings, including future equity investments, if obtained, may be on terms that are dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the price at which you purchase your shares. Furthermore, the terms of securities issued in a financing, if obtained, may be more favorable for new investors.

 

 5 

 

 

Investors should be aware that the value of an investment in our company may go down as well as up. In addition, there can be no certainty that the market value of an investment in our company will fully reflect its underlying value.

 

The auditors’ report on our consolidated financial statements included an explanatory paragraph regarding there being substantial doubt about the ability to continue as a going concern.

 

For the financial year ended January 31, 2019, we experienced a loss after income tax from continuing operations of $49.2m and operating cash outflows of $9.4m. We also are in a net current liability position of $29.4m and a positive net asset position of $10.5m. We anticipate we will need to continue to fund losses through to the start of the fiscal year beginning February 1, 2021. We also have trade creditors that are trading beyond their original credit terms and have breached the loan covenants of our credit facility during our fiscal year ended January 31, 2019. The lender has extended our credit facility from being due on June 30, 2019 to August 31, 2019 to provide us and the lender time to consider a refinance of the facility to a longer term to assist us to continue as a going concern. Therefore, there is substantial doubt about our ability to continue operations in the future as a going concern, as noted by our auditors with respect to the consolidated financial statements for the periods ended January 31, 2019. Although our consolidated financial statements raise substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our business. If we cannot continue as a viable entity, our shareholders may lose all of their investment in our company.

  

We have a concentration of sales to key customers and any substantial reduction in sales to these customers would have a material adverse effect on our business.

 

During the twelve month period ended January 31, 2019 sales were concentrated with Myer, Farmers, Woolworths and David Jones accounting for 9%, 5%, 1% and 1%, respectively. During the twelve month period ended January 31, 2018, sales were concentrated with Myer, Farmers and Woolworths accounting for 7%, 6% and 2% respectively. During the twelve month period ended January 31, 2017, sales were concentrated with Myer, Farmers and Woolworths accounting for 10%, 7%, 5% and 2%, respectively.

 

Our results of operations would be materially adversely affected if these relationships ceased. Although we have diversified our customers and continue to receive increasing sales orders from existing customers, these customers do not have any ongoing purchase commitment agreement with us; therefore, we cannot guarantee that the volume of sales will remain consistent going forward. Any substantial change in purchasing decisions by these customers, whether due to actions by our competitors, industry factors or otherwise, could have a material adverse effect on our business and our financial condition.

 

Our customers generally purchase our products on credit, and as a result, our results of operations and financial condition may be adversely affected if our customers experience financial difficulties.

 

During the past several years, various retailers, including some of our largest customers, have experienced significant difficulties, including restructurings, bankruptcies and liquidations. This could adversely affect us because our customers generally pay us after goods are delivered. Adverse changes in our customers’ financial position could cause us to limit or discontinue business with that customer, require us to assume more credit risk relating to that customer’s future purchases or limit our ability to collect accounts receivable relating to previous purchases by that customer, all of which could have a material adverse effect on our business, results of operations and financial condition.

 

We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, resulting in a loss of our market share and a decrease in our net revenue and profitability.

 

The market for intimate apparel products is highly competitive. Competition may result in pricing pressures, reduced profit margins or lost market share or a failure to grow our market share, any of which could substantially harm our business and results of operations. We compete directly against wholesalers and direct retailers of intimate apparel products, including large, diversified companies with substantial market share and strong worldwide brand recognition, such as L Brands Inc., Hanesbrands Inc. and PVH Corp., whose brands include Victoria’s Secrets, Calvin Klein, Maidenform, Bonds and others. Many of our competitors have significant competitive advantages, including longer operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research and development, marketing, distribution and other resources than we do. Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can. Many of our competitors promote their brands through traditional forms of advertising, such as print media and television commercials, and through celebrity endorsements, and have greater and substantial resources to devote to such efforts. Our competitors may also create and maintain brand awareness using traditional forms of advertising more quickly than we can. Our competitors may also be able to increase sales in their new and existing markets faster than we can by emphasizing different distribution channels than we do, such as catalog sales or an extensive franchise network, as opposed to distribution through retail stores, wholesale or internet, and many of our competitors have substantial resources to devote toward increasing sales in such ways.

 

 6 

 

 

If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative and updated products, we may not be able to maintain or increase our sales and profitability.

 

Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. We may be unable to introduce new products in a timely manner. Our customers may not accept our new products including our recently launched women’s products, or our competitors may introduce similar products in a more timely fashion. Failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower sales and excess inventory levels. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products. Our failure to effectively introduce new products that are accepted by consumers could have a material adverse effect on our financial condition.

 

Our net sales, profit results and cash flows are sensitive to, and may be affected by, general economic conditions, consumer confidence, spending patterns, weather or other market disruptions.

 

Our net sales, profit, cash flows and future growth may be affected by negative local, regional, national or international political or economic trends or developments that reduce the consumers’ ability or willingness to spend on discretionary products, including the effects of general economic conditions, employment, consumer debt, changes in personal net worth based on changes in securities market price levels, residential real estate and mortgage markets, taxation, healthcare costs, fuel and energy prices, interest rates, credit availability, consumer confidence and other macroeconomic factors, and national and international security concerns such as war, terrorism or the threat thereof. In addition, market disruptions due to severe weather conditions, natural disasters, health hazards or other major events or the prospect of these events could also impact discretionary consumer spending and confidence levels.

 

The worldwide apparel industry is heavily influenced by general economic cycles. Apparel retailing is a cyclical industry that is heavily dependent upon the overall level of consumer spending. Purchases of specialty apparel and related goods tend to be highly correlated with the cycles of the levels of disposable income of consumers. As a result, purchases of women’s intimate and other apparel, beauty and personal care products and accessories often decline during periods when economic or market conditions are unsettled or weak. Downturns, or the expectation of a downturn, in general economic conditions could materially and adversely affect consumer spending patterns. Because apparel generally is a discretionary purchase, declines in consumer spending may have a more negative effect on apparel retailers than on other retailers. A decline in consumer spending may negatively affect our profitability, because, in such circumstances, our sales may decrease and we may increase the number of promotional sales, either of which could have a material adverse effect on our results of operations, financial condition and cash flows.

 

The decision by the United Kingdom to leave the European Union (“Brexit”) has increased the uncertainty in the economic and political environment in Europe. In particular, our business in the United Kingdom may be adversely impacted by fluctuations in currency exchange rates, changes in trade policies, or changes in labor, immigration, tax or other laws.

 

Extreme weather conditions in the areas in which our stores are located, particularly in markets where we have multiple stores, could adversely affect our business. For example, heavy snowfall, rainfall or other extreme weather conditions over a prolonged period might make it difficult for our customers to travel to our stores and thereby reduce our sales and profitability.

 

Our financial performance may be affected by general economic conditions and financial difficulties.

 

Future increases in interest rates or other tightening of the credit markets, or future turmoil in the financial markets, could make it more difficult for us to access funds, to refinance our indebtedness (if necessary), to enter into agreements for new indebtedness, or to obtain funding through the issuance of our securities. Any such adverse changes in the credit or financial markets could also impact the ability of our suppliers to access liquidity, or could result in the insolvency of suppliers, which in turn could lead to their failure to deliver our merchandise. Worsening economic conditions could also result in difficulties for financial institutions (including bank failures) and other parties that we may do business with, which could potentially impair our ability to access financing under existing arrangements or to otherwise recover amounts as they become due under our other contractual arrangements. Any such events could have a material adverse effect on our results of operations, financial condition and cash flows.

 

 7 

 

 

Our net sales, operating income, cash and inventory levels fluctuate on a seasonal basis.

 

We experience major seasonal fluctuations in our net sales and operating income, with a significant portion of our operating income typically realized during the fourth quarter holiday season. Any decrease in sales or margins during this period could have a material adverse effect on our results of operations, financial condition and cash flows.

 

Seasonal fluctuations also affect our cash and inventory levels, since we usually order merchandise in advance of peak selling periods and sometimes before new fashion trends are confirmed by customer purchases. We must carry a significant amount of inventory, especially before the holiday season selling period. If we are not successful in selling inventory, we may have to sell the inventory at significantly reduced prices or may not be able to sell the inventory at all, which could have a material adverse effect on our results of operations, financial condition and cash flows.

 

We are subject to risks associated with leasing retail space, are generally subject to long-term non-cancelable leases and are required to make substantial lease payments under our operating leases. Any failure to make these lease payments when due may lead to the landlord terminating the lease, which would harm our business, profitability and results of operations.

 

We do not own any of our stores, but instead lease all of our retail stores under operating leases. Our leases generally have initial terms of 5 years. All of our leases require a fixed annual rent, and some of them require the payment of additional rent if store sales exceed a negotiated amount. Most of our leases are “net” leases, which require us to pay all of the cost of insurance, taxes, maintenance and utilities, and we generally cannot cancel these leases at our option.

 

Our net sales depend on a volume of traffic to our stores and the availability of suitable lease space.

 

Most of our stores are located in retail shopping areas including malls and other types of retail centers. Sales at these stores are derived, in part, from the volume of traffic in those retail areas. Our stores benefit from the ability of the retail center and other attractions in an area, including “destination” retail stores, to generate consumer traffic in the vicinity of our stores. Sales volume and retail traffic may be adversely affected by factors that we cannot control, such as economic downturns or changes in consumer demographics in a particular area, competition from internet and other retailers and other retail areas where we do not have stores, the closing or decline in popularity of other stores in the shopping areas where our stores are located and the deterioration in the financial condition of the operators of the shopping areas or developers in which our stores are located.

 

Our ability to grow depends in part on new store openings and existing store remodels and expansions.

 

Our continued growth and success will depend in part on our ability to open and operate new stores and expand and remodel existing stores on a timely and profitable basis. Accomplishing our new and existing store expansion goals will depend upon a number of factors, including the ability to partner with developers and landlords to obtain suitable sites for new and expanded stores at acceptable costs, the hiring and training of qualified personnel and the integration of new stores into existing operations. There can be no assurance we will be able to achieve our store expansion goals, manage our growth effectively, successfully integrate the planned new stores into our operations or operate our new, remodeled and expanded stores profitably. These risks could have a material adverse effect on our ability to grow and results of operations, financial condition and cash flows.

 

Our planned international expansion may adversely impact our results and reputation.

 

We intend to further expand into international markets through partner arrangements and/or company-owned stores. The risks associated with our expansion into international markets include difficulties in attracting customers due to a lack of customer familiarity with our brands, our lack of familiarity with local customer preferences and seasonal differences in the market. Such expansions will also have upfront investment costs. If the expansion is not accompanied by sufficient revenues to achieve typical or expected operational and financial performance, it may have a material adverse effect on our results of operations and our business reputation.

 

 8 

 

 

We may not select suitable business partners for our international expansion, which could have a materially adverse effect on our results of operations.

 

In expanding into international markets through partner arrangements, we may be exposed to risks if we fail to identify suitable business partners. For example, these third parties may be unable to meet their projections regarding store openings and sales or they may fail to maintain compliance with federal and local law. Because these parties likely will be independent contractors, certain aspects of these arrangements will be outside of our direct control. These risks could have a material adverse effect on our results of operations, financial condition and cash flows.

 

Our operations in international markets are subject to additional political, economic, and other risks and uncertainties that could adversely affect our business, and our exposure to such risks will increase as we expand into additional international markets.

 

Our operations in international markets are subject to a number of risks inherent in any business operating in multiple countries.

 

As we continue our international expansion, our operations will continue to encounter the following risks, among others:

 

  Competition with new competitors or with existing competitors with an established market presence.
     
  General economic conditions in specific countries or markets.
     
  Volatility in the geopolitical landscape.
     
  Restrictions on the repatriation of funds held internationally
     
  Disruptions or delays in shipments.
     
  Changes in diplomatic and trade relationships.
     
  Political instability.
     
  Foreign governmental regulation.

 

If any of these or other similar events should occur, it could have a material adverse effect on our results of operations, financial condition and cash flows.

 

We may be impacted by our ability to service or refinance our debt.

 

We currently have substantial indebtedness. Some of our debt agreements contain covenants which require maintenance of certain financial ratios and also, under certain conditions, restrict our ability to pay dividends, repurchase common shares and make other restricted payments as defined in those agreements. Our cash flow from operations provides the primary source of funds for our debt service payments. If our cash flow from operations declines, we may be unable to service or refinance our current debt. If we are unable to service or refinance our current debt, we may not be able to continue as a viable entity, in which case you may lose your entire investment.

 

If we do not comply with the terms of our existing debt agreements, and such debt agreements cannot be amended or replaced with new indebtedness, we may be in default of our obligations under such debt agreements.

 

Our existing debt agreements (including our credit facility and our term loan agreement) contain a number of affirmative and negative covenants and representations and warranties. We have, in the past, been required to seek waivers of compliance with, or amendments of, certain of the financial covenants in the debt agreements, and we may be required to seek such waivers or amendments in the future. Our ability to meet these financial covenants may be affected by events beyond our control, and there can be no assurance that the lenders will grant any required waivers under, or amendments to, the debt agreements if for any reason we are unable to meet the requirements of such covenants.

 

 9 

 

 

If we fail to comply with covenants, representations or warranties under our debt agreements and do not either receive a waiver or amendment from our lenders or refinance the indebtedness subject to such agreements, such failure could trigger a default under our debt agreements. If we default, the lenders under those debt agreements could declare all borrowings owed to them, including accrued interest and other fees, to be due and payable, which declaration could have an adverse impact on our business and results of operations.

 

Our business is exposed to foreign currency exchange rate fluctuations and control regulations.

 

Our business has substantial international components that expose us to significant foreign exchange risk. Changes in exchange rates can impact our financial results in two ways: a translation impact and a transaction impact. The translation impact refers to the impact that changes in exchange rates can have on our financial results, as our operating results in local foreign currencies are translated into New Zealand dollars using an average exchange rate over the representative period. Accordingly, during times of a strengthening New Zealand dollar, particularly against the Australian dollar, the Euro, the British pound sterling and the U . S . dollar, our results of operations will be negatively impacted, and during times of a weakening New Zealand dollar, our results of operations will be favorably impacted.

 

The transaction impact on financial results is common for apparel companies operating outside the United States that purchase goods in U.S. dollars, as is the case with most of our foreign operations. During times of a strengthening U.S. dollar, our results of operations will be negatively impacted from these transactions as the increased local currency value of inventory results in higher cost of goods sold in local currency when the goods are sold, and during times of a weakening U.S. dollar, our results of operations will be favorably impacted. We also have exposure to changes in foreign currency exchange rates related to certain intercompany transactions and, to a lesser extent, SG&A expenses that are denominated in currencies other than the functional currency of a particular entity. We currently use and plan to continue to use foreign currency forward exchange contracts or other derivative instruments to mitigate the cash flow or market value risks associated with these inventory and intercompany transactions, but we are unable to entirely eliminate these risks.

 

We are also exposed to market risk for changes in exchange rates for the U.S. dollar in connection with our business as a licensee. Most of our license agreements require us to pay in Unites States dollars based on the exchange rate as of the last day of the contractual selling period but the sales are reported in the relevant territories’ local currencies. Thus we are exposed to exchange rate changes during and up to the last day of the selling period. In addition, we are exposed to exchange rate changes up to the date we make payment in U.S. dollars. As a result, during times of a strengthening U.S. dollar, our royalty fees will be positively impacted, and during times of a weakening U.S. dollar, our royalty fees will be negatively impacted.

 

We conduct business, directly or through licensees and other partners, in countries that are or have been subject to exchange rate control regulations and have, as a result, experienced difficulties in receiving payments owed to us when due, with amounts left unpaid for extended periods of time. Although the amounts to date have been immaterial to our results, as our international businesses grow and if controls are enacted or enforced in additional countries, there can be no assurance that such controls would not have a material and adverse effect on our business, financial condition or results of operations.

 

Our reported financial results may be adversely affected by changes in accounting principles

 

Generally accepted accounting principles are subject to interpretation by the SEC and the Public Company Accounting Oversight Board and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

 

 10 

 

 

Acquisitions may not be successful in achieving intended benefits, cost savings and synergies.

 

A component of our growth strategy has been to make acquisitions. Prior to completing any acquisition, our management team identifies expected synergies, cost savings and growth opportunities but, due to legal and business limitations, we may not have access to all necessary information. The integration process may be complex, costly and time-consuming. The potential difficulties of integrating the operations of an acquired business and realizing our expectations for an acquisition, including the benefits that may be realized, include, among other things:

 

  failure to implement our business plan for the combined business;
     
  delays or difficulties in completing the integration of acquired companies or assets;
     
  higher than expected costs, lower than expected cost savings or a need to allocate resources to manage unexpected operating difficulties;
     
  unanticipated issues in integrating manufacturing, logistics, information, communications and other systems;
     
  unanticipated changes in applicable laws and regulations affecting the acquired business;
     
  unanticipated changes in the combined business due to potential divestitures or other requirements imposed by antitrust regulators;
     
  retaining key customers, suppliers and employees;
     
  retaining and obtaining required regulatory approvals, licenses and permits;
     
  operating risks inherent in the acquired business;
     
  diversion of the attention and resources of management;
     
  consumers’ failure to accept product offerings by us or our licensees;
     
  assumption of liabilities not identified in due diligence;
     
  the impact on our or an acquired business’ internal controls and compliance with the requirements under the Sarbanes-Oxley Act of 2002; and
     
  other unanticipated issues, expenses and liabilities.

 

We have completed acquisitions that have not performed as well as initially expected and cannot assure you that any acquisition will not have a material adverse impact on our financial condition and results of operations.

 

The loss of the services of Justin Davis-Rice as Executive Chairman, Anna Johnson as Chief Executive Officer, other members of our executive management team, or other key personnel could have a material adverse effect on our business.

 

Justin Davis-Rice’s and Anna Johnson’s leadership in the design and marketing areas of our business has been a critical element of our success since our inception. The death or disability of Mr. Davis-Rice , Anna Johnson or other extended or permanent loss of his or her services, or any negative market or industry perception with respect to him or her or arising from his or her loss, could have a material adverse effect on our business, results of operations, and financial condition.

 

We also depend on the service and management experience of other key executive officers and other members of senior management who have substantial experience and expertise in our industry and our business and have made significant contributions to our growth and success. The loss of the services of any of our key executive officers or other members of senior management, or one or more of our other key personnel, or the concurrent loss of several of these individuals or any negative public perception with respect to these individuals, could also have a material adverse effect on our business, results of operations, and financial condition.

 

We are not protected by a material amount of key-man or similar life insurance covering our executive officers, including Mr. Davis-Rice or Ms. Johnson, or other members of senior management. We have entered into employment agreements with certain of our executive officers, but competition for experienced executives in our industry is intense and the non-compete period with respect to certain of our executive officers could, in some circumstances in the event of their termination of employment with our company, end prior to the employment term set forth in their employment agreements.

 

 11 

 

 

We rely on third-party suppliers and manufacturers to provide fabrics for and to produce our products, and we have limited control over them and may not be able to obtain quality products on a timely basis or in sufficient quantity.

 

We do not manufacture our products or the raw materials for them and rely instead on third-party suppliers and manufacturers. Many of the specialty fabrics used in our products are technically advanced textile products developed and manufactured by third parties and may be available, in the short-term, from only one or a very limited number of sources. We may experience a significant disruption in the supply of fabrics or raw materials from current sources or, in the event of a disruption, we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significant increased demand, or if we need to replace an existing supplier manufacturer, we may be unable to locate additional suppliers of fabrics or raw materials or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with their quality control, responsiveness and service, financial stability and labor and other ethical practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products and quality control standards. Delays related to supplier changes could also arise due to an increase in shipping times if new suppliers are located farther away from other participants in our supply chain. Any delays, interruption or increased costs in the supply of fabric or manufacture of our products could have an adverse effect on our ability to meet customer demand for our products and result in lower net revenue and income from operations both in the short and long term. We have occasionally received, and may in the future continue to receive, shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control standards. In that event, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenue resulting from the inability to sell those products and related increased administrative and shipping costs. If defects in the manufacture of our products are not discovered until after our customers purchase such products, our customers could lose confidence in the technical attributes of our products and our results of operations could suffer and our business could be harmed.

 

The fluctuating cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer.

 

The fabrics used by our suppliers and manufacturers include synthetic fabrics whose raw materials include petroleum-based products. Our products also include natural fibers, including cotton. Our costs for raw materials are affected by, among other things, weather, consumer demand, speculation on the commodities market, the relative valuations and fluctuations of the currencies of producer versus consumer countries and other factors that are generally unpredictable and beyond our control. Increases in the cost of raw materials could have a material adverse effect on our cost of goods sold, results of operations, financial condition and cash flows.

 

We face challenges as consumers migrate to online shopping and we depend on our ability to compete in the e-commerce marketplace.

 

As consumers continue to migrate online, we face pressures to compete in the e-commerce marketplace. We continue to significantly invest in our online sales capabilities to provide a seamless shopping experience to our customers between our brick and mortar locations and our online environments. Insufficient, untimely or misguided investments in this area could significantly impact our profitability and growth and affect our ability to attract new customers, as well as maintain our existing ones. In addition, declining customer store traffic and migration of sales from brick and mortar stores to digital platforms could lead to store closures, restructuring and other costs that could adversely impact our results of operations and cash flows.

 

 12 

 

 

A material disruption in our computer systems could adversely affect our business or results of operations.

 

We rely extensively on our computer systems to process transactions, summarize results and manage our business. Our computer systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by our employees. If our computer systems are damaged or cease to function properly, including a material disruption in our ability to authorize and process transactions at our stores or on our online systems, we may have to make a significant investment to fix or replace them, and we may suffer loss of critical data and interruptions or delays in our operations. Any material interruption in our computer systems could negatively affect our business and results of operations.

 

If our technology-based e-commerce systems do not function properly, our operating results could be negatively affected.

 

Customers are increasingly using computers, tablets and smart phones to shop online and to do price and comparison shopping. We strive to anticipate and meet our customers’ changing expectations and are focused on building a seamless shopping experience across our omnichannel business. Any failure to provide user-friendly, secure e-commerce platforms that offer a variety of merchandise at competitive prices with low cost and quick delivery options that meet customers’ expectations could place us at a competitive disadvantage, result in the loss of e-commerce and other sales, harm our reputation with customers and have a material adverse impact on the growth of our business and our operating results.

 

If we are unable to safeguard against security breaches with respect to our information systems our business may be adversely affected.

 

In the course of our business, we gather, transmit and retain confidential information, including personal information about our customers, and process payment transactions through our information systems. Although we endeavor to protect confidential information and payment information through the implementation of security technologies, processes and procedures, it is possible that an individual or group could defeat security measures and access sensitive information about our customers, employees and other third parties. Any misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information gathered, stored or used by us could have a material impact on the operation of our business, including damaging our reputation with our customers, employees, third parties and investors. We could also incur significant costs implementing additional security measures to comply with applicable federal, state or international laws and regulations governing the unauthorized disclosure of confidential or personally identifiable information as well as increased costs such as organizational changes, implementing additional protection technologies, training employees or engaging consultants. In addition, we could incur lost revenues and face increased litigation as a result of any potential cyber-security breach. We are not aware of that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a cyber-security breach or other act, however, a cyber-security breach or other act and/or disruption to our information technology systems could have a material adverse effect on our business, prospects, financial condition or results of operations.

 

Our fabrics and manufacturing technology are not patented and can be imitated by our competitors.

 

The intellectual property rights in the technology, fabrics and processes used to manufacture our products are owned or controlled by our suppliers and are generally not unique to us. Our ability to obtain intellectual property protection for our products is therefore limited and we currently own no patents or exclusive intellectual property rights in the technology, fabrics or processes underlying our products. As a result, our current and future competitors are able to manufacture and sell products with performance characteristics, fabrics and styling similar to our products. Because many of our competitors have significantly greater financial, distribution, marketing and other resources than we do, they may be able to manufacture and sell products based on our fabrics and manufacturing technology at lower prices than we can. If our competitors do sell similar products to ours at lower prices, our net revenue and profitability could suffer.

 

 13 

 

 

Our failure or inability to protect our intellectual property rights could diminish the value of our brand and weaken our competitive position.

 

We currently rely on trademarks, as well as confidentiality procedures, to establish and protect our intellectual property rights. We cannot assure you that the steps taken by us to protect our intellectual property rights will be adequate to prevent infringement of such rights by others, including imitation of our products and misappropriation of our brand. In addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our intellectual property rights as fully as in the United States, Canada or the European Union, and it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the value of our brand could be diminished and our competitive position may suffer.

 

We may be impacted by changes in taxation, trade and other regulatory requirements.

 

We are subject to income tax in local, national and international jurisdictions. In addition, our products are subject to import and excise duties and/or sales or value-added taxes in many jurisdictions. We are also subject to the examination of our tax returns and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. Fluctuations in tax rates and duties, changes in tax legislation or regulation or adverse outcomes of these examinations could have a material adverse effect on our results of operations, financial condition and cash flows.

 

We have significant tax losses arising on historical trading losses. The availability to utilize these tax losses to offset future taxable profit is dependent on future performance and trade of the business. There can be no assurance as to the availability of these losses for utilization.

 

There is increased uncertainty with respect to tax policy and trade relations between the U.S. and other countries. Major developments in tax policy or trade relations, such as the disallowance of tax deductions for imported merchandise or the imposition of unilateral tariffs on imported products, could have a material adverse effect on our results of operations, financial condition and cash flows.

 

Our current operations in international markets and our efforts to expand into additional international markets, and any earnings in those markets, may be affected by legal and regulatory risks.

 

We are subject to the U.S. Foreign Corrupt Practices Act, in addition to the anti-corruption laws of the foreign countries in which we operate and manufacture our products. Although we implement policies and procedures designed to promote compliance with these laws, our employees, contractors and agents, as well as those companies to which we outsource certain of our business operations, may take actions in violation of our policies. Any such violation could result in sanctions or other penalties and have an adverse effect on our business, reputation and operating results.

 

We may be subject to loss and theft.

 

Our merchandise is subject to loss, including those caused by illegal or unethical conduct by associates, customers, vendors or unaffiliated third parties. We have experienced events such as inventory shrinkage in the past, and we cannot assure that incidences of loss and theft will decrease in the future or that the measures we are taking will effectively reduce these losses. Higher rates of loss or increased security costs to combat theft could have a material adverse effect on our results of operations, financial condition and cash flows.

 

A portion of our revenue is dependent on royalties and licensing.

 

License arrangements exist for Heidi Klum and Frederick’s of Hollywood, and previously existed for Stella McCartney through June 30, 2018. The license arrangements for Heidi Klum, Stella McCartney and Frederick’s of Hollywood contributed revenue of 21%, 5% and 35% of Company sales, respectively, in the twelve month period to January 31, 2019. The gross margin contribution during this period was 26%, 7%, and 30%, respectively, of total Company gross margin. The license arrangements for Heidi Klum, Stella McCartney and Frederick’s of Hollywood contributed revenue of 25%, 11% and 21% of Company sales, respectively, in the twelve month period to January 31, 2018. The gross margin contribution during this period was 19%, 12%, and 30%, respectively, of total Company gross margin. The license arrangements for Heidi Klum, Stella McCartney and Frederick’s of Hollywood contributed revenue of 32%, 9% and 11% of Company sales, respectively, in the twelve month period to January 31, 2017. The gross margin contribution during this period was 29%, 8%, and 16%, respectively, of total Company gross margin.

 

 14 

 

 

The operating profit associated with our royalty, advertising and other revenue is significant because the operating expenses directly associated with administering and monitoring an individual licensing or similar agreement are minimal. Therefore, the loss of a significant licensing partner, whether due to the termination or expiration of the relationship, the cessation of the licensing partner’s operations or otherwise (including as a result of financial difficulties of the partner), without an equivalent replacement, could materially impact our profitability. For example, Bendon Limited’s license to use the Stella McCartney brand terminated effective June 30, 2018.

 

While we generally have significant control over our licensing partners’ products and advertising, we rely on our licensing partners for, among other things, operational and financial controls over their businesses. Our licensing partners’ failure to successfully market licensed products or our inability to replace our existing licensing partners could materially and adversely affect our revenue both directly from reduced royalty and advertising and other revenue received and indirectly from reduced sales of our other products. Risks are also associated with our licensing partners’ ability to obtain capital, execute their business plans, timely deliver quality products, manage their labor relations, maintain relationships with their suppliers, manage their credit risk effectively and maintain relationships with their customers.

 

A significant shift in the relative sources of our earnings, adverse decisions of tax authorities or changes in tax treaties, laws, rules or interpretations could have a material adverse effect on our results of operations and cash flow.

 

We have direct operations in many countries and the applicable tax rates vary by jurisdiction. As a result, our overall effective tax rate could be materially affected by the relative level of earnings in the various taxing jurisdictions to which our earnings are subject. In addition, the tax laws and regulations in the countries where we operate may be subject to change and there may be changes in interpretation and enforcement of tax law. As a result, we may pay additional taxes if tax rates increase or if tax laws, regulations or treaties in the jurisdictions where we operate are modified by the competent authorities in an adverse manner.

 

In addition, various national and local taxing authorities periodically examine us and our subsidiaries. The resolution of an examination or audit may result in us paying more than the amount that we may have reserved for a particular tax matter, which could have a material adverse effect on our cash flows, business, financial condition and results of operations for any affected reporting period.

 

We and our subsidiaries are engaged in a number of intercompany transactions. Although we believe that these transactions reflect arm’s length terms and that proper transfer pricing documentation is in place, which should be respected for tax purposes, the transfer prices and conditions may be scrutinized by local tax authorities, which could result in additional tax liabilities.

 

If we fail to implement and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

 

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.

 

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We previously have identified deficiencies in our internal controls that are deemed to be material weaknesses. A material weakness is a deficiency, or a combination of deficiencies in internal controls over financial reporting, such that if there is a material misstatement in our financial statements, they will not necessarily be prevented or detected on a timely basis. As of January 31, 2019, the matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:

 

  1) The audit committee has been established, however is still operating under the first year exemptions as outlined in section 16 D in respect of independent members.
     
  2) Lack of skilled resources and lack of expertise with complex IFRS and SEC reporting matters.
     
  3) No formally implemented system of internal control over financial reporting and no associated written documentation of our internal control policies and procedures.
     
  4) We did not maintain an effective process for reviewing financial information and did not have a sufficient number of personnel with an appropriate level of accounting knowledge, experience and training in the application of International Financial Reporting Standards commensurate with management’s financial reporting requirements.

 

We believe that these material weaknesses primarily related to our lack of board oversight and appropriately skilled resources. While these material weaknesses have not resulted in errors that were material to our financial statements in the current year, it impacted our company’s ability to close financial reporting on a timely basis and resulted in numerous late amendments to draft financial statements. We believe the introduction of a properly constituted board with diverse skills and talent will assist in managing the risks across the business. We delayed implementing the appointment of an appropriately qualified personnel on the basis we were preparing to merge with Naked (NV). Upon completion of the merger and becoming public, Naked (NV)’s newly appointed independent non-executive director became a member of our board of directors. In addition, upon becoming public, we established an audit committee. In the future, we plan to provide improved support for our Chief Financial Officer and to take a number of other actions to correct these material weaknesses, including, but not limited to, appointing additional independent directors, adding experienced accounting and financial personnel and retaining third party consultants to review our internal controls and recommend improvements.

 

Our efforts to remediate these material weaknesses may not be effective. If our efforts to remediate these material weaknesses are not successful, the remediated material weaknesses may reoccur, or other material weaknesses could occur in the future. As a result of these material weaknesses, we may be unable to report our financial results accurately on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence and could cause the stock price to decline. As a result of such failures, we could also become subject to investigation by the stock exchange on which our shares are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors, which would harm our reputation, business, financial condition and results or operations, and divert financial and management recoveries from our core business.

 

In addition, any future testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm, if and when required, may reveal additional deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. If we are unable to remedy the existing material weaknesses in our internal control over financial reporting, if in the future we identify additional material weaknesses in our internal control over financial reporting, including at some of our acquired companies, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm required to and is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are then listed, the SEC, or other regulatory authorities, which could require additional financial and management resources. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

 

We incurred substantial transaction fees and costs in connection with the Transactions.

 

We incurred material non-recurring expenses in connection with the Merger Agreement and consummation of the Transactions contemplated by the Merger Agreement. Additional unanticipated costs may be incurred in the course of the integration of the businesses of Bendon Limited and Naked. We cannot be certain that the elimination of duplicative costs or the realization of other efficiencies related to the integration of the two businesses will offset the transaction and integration costs in the near term, or at all.

 

Nasdaq may delist the Naked Ordinary Shares from quotation on its exchange, which could limit investors’ ability to sell and purchase our securities and subject us to additional trading restrictions.

 

The Naked Ordinary Shares are currently listed on the Nasdaq Capital Market under the trading symbol “NAKD”. However, on February 5, 2019, we received a notice from the Listing Qualifications Department of Nasdaq stating that, for the last 30 consecutive business days, the closing bid price for the Naked Ordinary Shares had been below the minimum of US$1.00 per share required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). We will be afforded 180 calendar days (until August 5, 2019) to regain compliance with the minimum bid price requirement. In order to regain compliance, the bid price for shares of the Naked Ordinary Shares must close at US$1.00 per share or more for a minimum of ten consecutive business days. The notification letter also states that in the event we do not regain compliance within the 180 day period, we will be eligible for additional time if we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and notify Nasdaq of our intention to cure the deficiency during such second compliance period, including by effecting a reverse stock split, if necessary. There can be no assurance that we will regain compliance with the minimum bid price requirement within the allotted period, or that we will be able to maintain compliance with the other continued listing requirements under the Nasdaq Listing Rules.

  

If the Naked Ordinary Shares are not listed on Nasdaq at any time after this offering, we could face significant material adverse consequences, including:

 

a limited availability of market quotations for our securities;
   
reduced liquidity;
   
a determination that the Naked Ordinary Shares are a “penny stock” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for the Naked Ordinary Shares;
   
a limited amount of news and analyst coverage for our company; and
   
a decreased ability to issue additional securities or obtain additional financing in the future.

 

As a foreign private issuer, we are permitted and expect to follow certain home country corporate governance practices (in our case Australian) in lieu of certain Nasdaq requirements applicable to domestic issuers and we are permitted to file less information with the Securities and Exchange Commission than a company that is not a foreign private issuer. This may afford less protection to holders of our securities.

 

As a foreign private issuer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Nasdaq allows us to follow home country governance practices (in our case Australian) in lieu of the otherwise applicable Nasdaq corporate governance requirements. In accordance with this exception, we follow Australian corporate governance practices in lieu of certain of the Nasdaq corporate governance standards, as more fully described elsewhere herein. In particular, we will follow Australian law and corporate governance practices with respect to the composition of our board and quorum requirements applicable to shareholder meetings. These differences may result in a board that is more difficult to remove as well as less shareholder approvals required generally. We will also follow Australian law instead of the Nasdaq requirement to obtain shareholder approval prior to the issuance of securities in connection with a change of control, certain acquisitions, private placements of securities, or the establishment or amendment of certain stock option, purchase, or other equity compensation plans or arrangements. These differences may result in less shareholder oversight and requisite approvals for certain acquisition or financing related decisions or for certain company compensation related decisions. The Australian home country practices described above may afford less protection to holders of our securities than that provided under the Nasdaq Listing Rules.

  

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ITEM 4. INFORMATION ON THE COMPANY

 

A. History and Development of the Company

 

Office Location

 

Our principal and registered office is located at Building 7B, Huntley Street, Alexandria, NSW 2015, Australia, and our telephone number is +61 2 9384 2400. Our agent for service of process in the United States is Graubard Miller, our U.S. counsel, located at The Chrysler Building, 405 Lexington Avenue, New York, New York 10174.

 

Principal Legal Advisers

 

Our principal legal adviser in the United States is Graubard Miller, located at The Chrysler Building, 405 Lexington Avenue, New York, New York 10174.

 

History and Development

 

We are an Australian public limited company formed on May 11, 2017 under the name “Bendon Group Holdings Limited.” We were formed to serve as a holding company for Bendon Limited and Naked (NV) after consummation of the Transactions. Bendon Limited was formed in 1947. Naked (NV) was incorporated in the State of Nevada on May 17, 2005, under the name “Search By Headlines.com Corp.” Prior to the completion of the Transactions, we had no assets and had not conducted any material activities other than those incidental to our formation.

 

On June 19, 2018, we consummated the Transactions contemplated by the Merger Agreement. Pursuant to the Merger Agreement, Bendon Limited and Naked (NV) completed a business combination transaction by means of (i) the Reorganization, pursuant to which all of the shareholders of Bendon Limited exchanged all of the outstanding Bendon Ordinary Shares for Naked Ordinary Shares, and (ii) immediately thereafter, Merger Sub merged with and into Naked (NV), with Naked (NV) surviving as a wholly owned subsidiary of ours and the Naked (NV) stockholders receiving Naked Ordinary Shares in exchange for all of the outstanding shares of common stock of Naked (NV). Effective on and from the closing of the Transactions, we changed our name from Bendon Group Holdings Limited to “Naked Brand Group Limited.”

 

On November 15, 2018, we and our wholly-owned subsidiary, Bendon, entered into a stock purchase agreement with the shareholders of FOH Online Corp. (“FOH”), including Cullen Investments Limited (“Cullen”), a significant shareholder of the Company and also a debtor to the Company. Pursuant to the agreement, on December 6, 2018, we purchased all of the issued and outstanding shares of FOH, in order to gain direct ownership of the Frederick’s of Hollywood license arrangement FOH had with Authentic Brands Group (“ABG”). We previously marketed merchandise under the Frederick’s of Hollywood brand through a sub-license arrangement with FOH. As a result of the acquisition of FOH, we now have a direct relationship with ABG in relation to the Frederick’s of Hollywood license. Under the terms of the stock purchase agreement, we paid a purchase price of approximately US$18.2 million, as follows (i) the Company forgave debt owed to it by FOH and Cullen, in the aggregate amount of approximately US$9.9 million, and (ii) the Company issued 3,765,087 of our Ordinary Shares to FOH’s shareholders, valued at a price per share of US$2.20. We also agreed to satisfy certain obligations with respect to certain claims involving the parties. A portion of the Ordinary Shares issued to FOH’s shareholders are held in trust and may be released to Cullen to the extent not applied in satisfaction of such claims.

 

Additional Information

 

The SEC maintains an internet site, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers, like us, that file electronically with the SEC. We also maintain a website at www.nakedbrands.com, which contains information about our company. The information on our website shall not be deemed part of this Annual Report.

 

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Principal Capital Expenditures

 

Our capital expenditures for the twelve months ended January 31, 2019, 2018 and 2017 amounted to $0.2m, $2.2m and $0.7m, respectively. Our capital expenditures during those years consisted of investments in property, plant and equipment for new and existing stores. We anticipate our capital expenditures in fiscal year 2020 to include investments in property, plant and equipment for new and existing stores, which will be financed through cashflows from operations and from financing transactions.

 

B. Business Overview

 

Overview

 

We operate in the highly competitive specialty retail business. We are a designer, distributor, wholesaler, and retailer of women’s and men’s intimate apparel, as well as women’s swimwear. Our merchandise is sold through company-owned retail stores in Australia and New Zealand; through online channels; and through wholesale partners in Australia, New Zealand, the United States and Europe (collectively, “partners”).

 

We have seven reportable segments:

 

  Australia Retail: This segment covers retail and outlet stores located in Australia.
     
  New Zealand Retail: This segment covers retail and outlet stores located in New Zealand.
     
  Australia Wholesale: This segment covers the wholesale of intimates apparel to customers based in Australia.
     
  New Zealand Wholesale: This segment covers the wholesale of intimates apparel to customers based in New Zealand.
     
  U.S. Wholesale: This segment covers the wholesale of intimates apparel to customers based in the United States.
     
  Europe Wholesale: This segment covers the wholesale of intimates apparel to customers based in Europe.
     
  E-commerce: This segment covers the Company’s online retail activities.

 

In addition, we continually explore new ways to expand its business, including through the use of new technologies, such as blockchain technology. We are presently evaluating how these new technologies may be leveraged in the retail fashion industry. For instance, blockchain technology might be used in the future to create highly efficient end-to-end operations from suppliers to consumers and also to provide low cost trade finance for market participants through blockchain trading platforms. However, we have not yet established the feasibility of, or taken any steps to progress the use of, blockchain technology in our business.

 

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Revenues by Segment

 

Our revenues in each of our reportable segments for the twelve months ended January 31, 2019 and 2018 and the 7 months ended January 31, 2017 were as follows:

 

   12 Months Ended January 31,   7 months
ended
January 31,
   12 months
ended
January 31,
 
   2019   2018   2017   2016 
           Unaudited     
Australia Retail  $18.5m  $18.2m  $12.1m  $20.6m
New Zealand Retail  $31.8m  $34.3m  $22.0m  $37.4m
Australia Wholesale  $11.5m  $15.5m  $18.1m  $28.0m
New Zealand Wholesale  $7.2m  $10.5m  $7.5m  $15.1m
U.S. Wholesale  $5.8m  $6.4m  $9.0m  $18.8m
Europe Wholesale  $5.0m  $14.1m  $9.5m  $16.5m
E-commerce  $32.1m  $32.2m  $18.1m  $6.7m

 

Recent Developments

 

On February 14, 2019, Carole Hochman resigned from the board of directors and as our Executive Chairman, and from all other positions she held with our subsidiaries. Ms. Hochman’s resignation was for personal reasons, and was not due to any disagreement with us or our management on any matter relating to our operations, policies or practices (financial or otherwise).

 

In March 2019, we issued 1,400,000 Naked Ordinary Shares and 1,400,000 warrants to purchase Naked Ordinary Shares to a service provider in exchange for services. The warrants have an exercise price of US$0.50 and expire two years from the date of issuance. The exercise price and the number of shares covered by the warrants are subject to adjustment for stock splits, stock combinations and certain other transactions affecting the share capital as a whole.

 

On the March 27, 2019, the Company closed on the following share issuances.

 

  (1) NZ$6.60 million/US$4.50 million related to the issue of 11,248,415 Naked Ordinary Shares to trade creditors in satisfaction of trade payables due to them, at an effective per share price of US$0.40.
     
  (2) NZ$1.25 million/US$0.85 million related to the issue of 2,119,178 Naked Ordinary Shares to the holder of one of our outstanding promissory notes in the amount of US$847,671, at an effective per share price of US$0.40 per share.
     
  (3) NZ$1.69 million/US$1.15 million related to the issue of 4,510,588 Naked Ordinary Shares to investors in a private placement at a share price of US$0.255. The investors also received warrants to purchase 100% of the number of Naked Ordinary Shares for which they had subscribed. The warrants have an exercise price of US$0.306 and expire two years from the date of issuance. The exercise price and the number of shares covered by the warrants are subject to adjustment for stock splits, stock combinations and certain other transactions affecting the share capital as a whole.
     
  (4) NZ$4.05 million/US$2.75 million relating to the issue of 10,784,313 Naked Ordinary Shares to certain accredited investors at an agreed per share price of US$0.255, except that, to the extent an investor would beneficially own more than 9.9% of our outstanding Naked Ordinary Shares after the closing, we agreed to issue the investor a “pre-funded” warrant (the “March Pre-Funded Warrants”) in lieu of such shares. Each investor also received an “investment” warrant (the “March Investment Warrants” and together with the March Pre-Funded Warrants, the “March Warrants”) to purchase 100% of the number of Naked Ordinary Shares for which it had agreed to subscribe. As a result, we issued 3,914,846 Naked Ordinary Shares, March Pre-Funded Warrants to purchase 6,869,467 Naked Ordinary Shares and March Investment Warrants to purchase 10,784,313 Naked Ordinary Shares to the investor at the closing. The March Investment Warrants have an exercise price of US$0.306 per share and expire five years from the date of issuance. The March Pre-Funded Warrants have an exercise price of US$0.01 per share and expire five years from the date of issuance. The exercise price and number of shares covered by the March Warrants are subject to adjustment for stock splits, stock combinations and certain other transactions affecting the share capital as a whole, as well as for subsequent equity issuances occurring prior to July 16, 2019, subject to certain exceptions. If the exercise price of the March Warrants is higher than the last closing bid price of the Naked Ordinary Shares, at any time starting on June 16, 2019, the March Warrants may be exercised on a cashless basis for a number of shares equal to the Black-Scholes value of the portion of the warrant being exercised (as calculated in accordance with the March Warrants), divided by the closing bid price as of two business days prior to the exercise date (but not less than US$0.10). The March Warrants may not be exercised to the extent the holder and its affiliates would beneficially own more than 9.9% of our outstanding Ordinary Shares after such exercise.

 

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On April 2, 2019, the board of directors appointed Anna Johnson as our Chief Executive Officer. Previously Ms Johnson was Chief Executive Officer of Bendon Limited, the main operating entity within the Company. In connection with Ms. Johnson’s appointment, Justin Davis-Rice was appointed as Executive Chairman and resigned as our Chief Executive Officer.

 

Effective on May 13, 2019, we completed a private placement of a Secured Convertible Promissory Note (the “Note”) to St. George Investments LLC (the “Noteholder”) for a purchase price of US$3,000,000, pursuant to a Securities Purchase Agreement (the “NSPA”) of even date. Pursuant to the NSPA, the Note was sold with an original issue discount of the US$300,000 and we paid US$20,000 of the Noteholder’s expenses, which amount was added to the principal balance of the Note. Accordingly, the Note had an initial principal balance of US$3,320,000. The NSPA includes certain customary representations and warranties and covenants. In addition, we agreed that, so long as the Note is outstanding, we will not issue any debt instrument or incur any debt, subject to certain exceptions, including an exception for any debt incurred from a bank. The Note accrues interest at a rate of 10% per annum, compounded daily, and matures on November 13, 2020. We have the right to prepay the Note, subject to a 15% premium. The Note is secured by a second priority security interest in all our assets and is subordinated to the Company’s existing senior secured credit facility with the Bank of New Zealand (the “Bank” or “BNZ”). The Noteholder has the right to convert the Note into Naked Ordinary Shares at a conversion price of US$0.90 per share, subject to adjustment for subdivisions or combinations of the ordinary shares. The Noteholder also has the right, beginning on December 13, 2019, to cause us to redeem any portion of the Note, up to a maximum of US$400,000 per month.

 

On the May 14, 2019, we closed on NZ$2.17 million/US$1.5million share issuance of 6,000,000 shares to an investor in a private placement at a share price of US$0.25. The investor also received warrants to purchase 1,000,000 Naked Ordinary Shares. The warrants have an exercise price of US$0.25, subject to adjustment, and expire two years from the date of issuance.

 

On May 16, 2019, we issued 653,595 ordinary shares in exchange for the cancellation of US$200,000 in debt held by a shareholder, or an effective purchase price of US$0.306 per share.

 

On June 11, 2019, we announced that we had appointed David Anderson to become our new Chief Financial Officer. Previously, Mr. Anderson served as Head of Finance for Goodman Fielder, one of the largest consumer goods companies in New Zealand, where he oversaw all financial aspects of the business and led numerous acquisitions. Mr. Anderson will succeed Howard Herman, our current Chief Financial Officer, after the filing with the SEC of certain amendments to our existing registration statements, but no later than June 20, 2019. In connection with the appointment of Mr. Anderson, Mr. Herman is resigning from all positions held by him with our company.

 

Our senior secured credit facility with the Bank matures on August 31, 2019 and discussions are continuing to extend the facility beyond that point. As at October 31, 2018, there was a breach in minimum gross EBITDA ratio. As at January 31, 2019, there was a breach of the minimum Gross EBITDA ratio and a breach of the inventory and receivables ratio. The Bank has advised that they are currently taking these breaches under review.

 

Brands

 

Heidi Klum

 

Heidi Klum is the face and Creative Director of our flagship brands, Heidi Klum Intimates, Heidi Klum Swim, Heidi Klum Man, and Heidi Klum Intimates Solutions. Our flagship brand, Heidi Klum Intimates collection exudes femininity, elegance and sophistication, each piece designed with the modern woman in mind. We sell our Heidi Klum products at 63 Bendon stores in Australia, New Zealand and Ireland and online at www.bendonlingerie.com and www.heidiklumintimates.com. Additionally, Heidi Klum products are sold in approximately 5,000 wholesale doors in 43 countries across regions in Australia, New Zealand, United States, Europe and United Kingdom under wholesale arrangements.

 

Frederick’s of Hollywood

 

Since 1946, Frederick’s of Hollywood has set the standard for innovative apparel, introducing the push-up bra, the padded bra, and black lingerie to the United States market. The brand’s rich history has led it to become one of the most recognized in the world. Through FOH, we are the exclusive licensee of the Frederick’s of Hollywood global online license, under which we sell Frederick’s of Hollywood intimates products, sleepwear and loungewear products, swimwear and swimwear accessories products, and costume products. We sell our Frederick’s of Hollwood products online at www.bendonlingerie.com and www.fredericks.com.

 

Naked

 

Naked is an apparel and lifestyle brand company that is currently focused on innerwear products for women and men. Under its flagship brand name and registered trademark “Naked®”, Naked designs, manufactures and sells men’s and women’s underwear, intimate apparel, loungewear and sleepwear through retail partners and direct to consumer through its online retail store www.wearnaked.com. Naked has a growing retail footprint for its innerwear products in premium department and specialty stores and internet retailers in North America, including accounts such as Nordstrom, Dillard’s, Bloomingdale’s, Amazon.com, and others.

 

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Other Brands

 

Our other brands are Bendon, Bendon Man, Davenport, Fayreform, Hickory, Lovable and Pleasure State. We sell our products at 63 Bendon stores in Australia and New Zealand and online at www.bendonlingerie.com. Additionally, our products are sold in approximately 3,293 wholesale stores in 43 countries across regions in Australia, New Zealand, United States, Europe and United Kingdom under wholesale arrangements.

 

Until June 30, 2018, we sold Stella McCartney Lingerie and Stella McCartney Swimwear products at Bendon stores in Australia and New Zealand and online at www.bendonlingerie.com. Additionally, Stella McCartney products were sold in wholesale doors in numerous countries across regions in Australia, New Zealand, United States, Europe and United Kingdom under wholesale arrangements.

 

Our Strengths

 

We believe the following competitive strengths contribute to our leading market position and differentiate us from our competition:

 

Distinct, Well-Recognized Brands

 

Our iconic brands, including Heidi Klum Intimates and Swimwear and Frederick’s of Hollywood Intimates and Swimwear, have come to represent a unique lifestyle across its targeted customers. Our brands allow us to target markets across the economic spectrum, across demographics and across the world. We believe our flagship brands and prominent, highly-recognized creative directors provide us with a competitive advantage.

 

In-Store Experience and Store Operations

 

We view our customers’ in-store experience as an important vehicle for communicating the image of each brand. We utilize visual presentation of merchandise, in-store marketing and our sales associates to reinforce the image represented by the brands. Our in-store marketing is designed to convey the principal elements and personality of each brand. The store design, furniture, fixtures and music are all carefully planned and coordinated to create a unique shopping experience. Every brand displays merchandise uniformly to ensure a consistent store experience, regardless of location. Store managers receive detailed plans designating fixture and merchandise placement to ensure coordinated execution of the company-wide merchandising strategy. Our sales associates and managers are a central element in creating the atmosphere of the stores by providing a high level of customer service.

 

Product Development, Sourcing and Logistics

 

We believe a large part of our success comes from frequent and innovative product launches, as well as launches of new collections from our existing brands. Our merchant, design and sourcing teams have a long history of bringing innovative products to our customers. Our key vendor partners are industry leaders in both innovation and social responsibility. We work closely together to form a world class supply chain that is dynamic and efficient.

 

Highly Experienced Leadership Team

 

Our management team is led by Justin Davis-Rice, Executive Chairman, who joined Bendon in 2011 and is responsible for leading our revenue growth. Prior to joining Bendon, Mr. Davis-Rice co-founded Pleasure State. Anna Johnson, Chief Executive Officer, brings to us a track record of over 25 years’ experience driving growth across a number of industries, including consumer electronics, outdoor adventure and intimate apparel. The rest of our senior management team has a wealth of retail and business experience at Gazal, Specialty Fashion Group, and Pleasure State. We have developed a strong and collaborative culture aligned around our goals to create the most sensual, functional and comfortable lingerie and underwear for women and men all over the world.

 

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Growth Strategy

 

Our growth strategy involves seeking to take advantage of the following opportunities across brands and channels:

 

Channel

 

  Opportunity for an additional 50+ retail stores across Australia and New Zealand
     
  Additional 25 Bendon outlet stores across Australia and New Zealand in the next 5 years
     
  Leveraging e-commerce to attract and educate new and existing customers
     
  Targeting e-commerce sales penetration of 40% over the medium term
     
  Improving productivity in existing wholesale accounts by gaining additional floor space
     
  Selectively adding new wholesale doors, with a focus on US markets
     
  Enhancing margins by increasing the proportion of the business derived from direct-to-consumer channels

 

Brands

 

  Expanding the brand and product offering via organic innovation and new license partnerships
     
  Expanding brand reach by leveraging our brand portfolio to extend globally, particularly in the US and EU
     
  Continuing to build our license portfolio and add new licenses in existing and tangential categories

 

Vision and Culture

 

We are passionate about making sure we have a great company culture that supports our vision, which is to be close to our customers for life. We value individual differences and diverse thought processes. We believe the quality of decision making is improved by people with varying backgrounds and perspectives working together by connecting and sharing ideas. If we get the culture right then we can deliver on our goal to be the leader in intimate apparel because great customer service, designing great products, passionate employees and customers will happen naturally. Our commitment to our customers has grown stronger over 70 years, evolving into the Bendon culture statement:

 

ONE COMPANY, ICONIC BRANDS, A MILLION IDEAS. COLLABORATE AND COMMUNICATE.

 

We believe this simple, resonant message reminds our people to actively participate, and inspire others, every day in making us a world leader in intimate apparel. At our company, our values underpin everything we do. They guide the way we work, the way we make decisions and how we interact with each other. They define what we can expect when we interact with work colleagues, stakeholders and what our customers can expect when they deal with us. Our message is defined by 5 core values:

 

People

 

Our success is built on the success of our people, as it is our people who help create a high-performing culture. Friendly, like-minded, innovative and passionate, we work together to achieve a common goal. Driven to be the best we can be, we celebrate our successes and push boundaries in everything we do.

 

Pride

 

We are a house of brands that has captured hearts and souls all around the world. We are inspired by our customers and aim to delight our consumers through designing and creating high quality, beautiful products that engage our customers in a lifetime relationship with us. We promote a positive, energizing, and optimistic environment and continuously strive to find ways to improve what we do every day.

 

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Collaboration

 

At our company, we believe that diverse minds are critical to our success and we drive innovation, creativity and problem-solving across all levels. We believe in building strong working relationships, always considering the views of others and most importantly letting people know when they’ve done a good job. A collaborative environment is encouraged with a flat structure and open door policy. Embracing our heritage as a family business means that we all work together as a unit to celebrate ideas enabling us to become stronger and more successful.

 

Business strength

 

We are determined to reach greater heights. By constantly raising the bar and aiming for ambitious goals, we commit to achieving superior financial results. Driven by targets, we push ourselves to win and increase our market share. We achieve this through our people and their drive to promote our brands positively at every opportunity and to operate with integrity, openness and honesty.

 

Responsibility

 

We are all committed to contributing to a sustainable global community, and supporting non-profit organizations that seek to make a positive difference in the world. We recognize the importance of providing social support to our global community. At our company, we look for opportunities to change lives and shape the future by giving our time, money, and unique expertise. Giving is an essential aspect of our culture and we have been able to deliver projects and contributions throughout the years. We aim to attract employees who understand this is a core part of who we are.

 

Real Estate

 

Executive Offices and Warehouse

 

Our principal executive offices are in a 497 m2 facility located at Building 7B, Huntley Street, Alexandria, NSW 2015, Australia. We have additional office space and a warehouse in a 9,163 m2 facility located at 8 Airpark Drive, Airport Oaks, Auckland 2022, New Zealand. We occupy the Alexandria facility pursuant to a five-year lease that expires on April 24, 2024 and we occupy the Auckland facility pursuant to a six-year lease that expires on May 31, 2022. We believe that these facilities are in good condition and are suitable to the conduct of our business.

 

Company-owned Retail Stores

 

Our company-owned retail stores are located in shopping malls and strips in Australia, New Zealand and Ireland. As a result of our strong brands and established retail presence, we have been able to lease high-traffic locations.

 

The following table provides the number of our company-owned retail stores in operation for each location as of January 1, 2019, 2018 and 2017.

 

Store Location (State/City)  Country  January 1, 2017   January 1, 2018   January 1, 2019 
Australian Capital Territory  Australia   1    1    1 
New South Wales  Australia   8    8    8 
Queensland  Australia   5    7    6 
South Australia  Australia   1    1    1 
Victoria  Australia   9    10    9 
Western Australia  Australia   1    0    2 
North Island  New Zealand   28    31    29 
South Island  New Zealand   5    5    7 
Kildare  Ireland   1    0    0 

 

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The following table provides the changes in the number of our company-owned retail stores operated for the past five calendar years.

 

Calendar Year  Beginning
of Year
   Opened   Closed   End of Year 
2018   62    4    (3)   63 
2017   59    5    (2)   62 
2016   52    8    (1)   59 
2015   50    3    (1)   52 
2014   54    2    (6)   50 

 

Franchise, License and Wholesale Arrangements

 

In addition to our company-owned stores, our products are sold at many partner locations in 43 countries. Under these arrangements, third parties operate stores that sell our products under brand names. Revenue recognized under franchise and license arrangements generally consists of royalties earned and recognized upon sale of merchandise by franchise and license partners to retail customers. Revenue is generally recognized under wholesale arrangements at the time the title passes to the partner. We continue to increase the number of locations under these types of arrangements as part of our international expansion.

 

The following table provides the number of partner stores that sell our products as of January 1, 2019, 2018 and 2017.

 

Wholesale doors, excluding distributors  January 1, 2017   January 1, 2018   January 1, 2019 
ANZ  Australia & New Zealand   1,783    1,344    1,078 
UK  United Kingdom   166    137    2 
INTL  International   106    105    5 
US  United States of America   1,595    5,204    4,456 
Total      3,650    6,790    5,241 

 

Additional Information

 

Merchandise Suppliers

 

During the twelve months ended January 31, 2019, 2018 and 2017, we purchased merchandise from approximately 59, 22 and 23 suppliers located primarily in China. We believe price volatility is low.

 

Distribution and Merchandise Inventory

 

Most of our merchandise is shipped from our suppliers to our distribution centers in New Zealand and Los Angeles. We use a variety of shipping terms that result in the transfer to us of title to the merchandise at either the point of origin or point of destination. From our distribution centers, our merchandise is transported to our wholesale customers, to our retail stores and directly to consumers who purchase online.

 

Our policy is to maintain sufficient quantities of inventories on hand in our retail stores and distribution centers to enable us to offer customers an appropriate selection of current merchandise. We emphasize rapid turnover and take markdowns as required to keep merchandise fresh and current.

 

Information Systems

 

Our management information systems consist of a full range of retail, financial and merchandising systems. The systems include applications related to point-of-sale, e-commerce, merchandising, planning, sourcing, logistics, inventory management, data security and support systems including human resources and finance.

 

Seasonal Business

 

Our operations are seasonal in nature and consist of two selling periods across the year, where the second selling season generates the most sales (the August to January period). This second selling period, which includes the holiday season, accounted for approximately 57%, 54% and 56% of our net sales for the twelve months ended January 31, 2019, 2018 and 2017, respectively, and is typically our most profitable period.

 

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Working Capital

 

We fund our business operations through a combination of available cash and cash equivalents, cash flows generated from operations and equity and debt financing transactions. In addition, our senior credit facilities are available for additional working capital needs and investment opportunities.

 

Regulation

 

We and our products are subject to regulation by various federal, state, local and foreign regulatory authorities. We are subject to a variety of customs regulations and international trade arrangements.

 

Legal Proceedings

 

From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition, operating results or cash flows. We establish reserves for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable.

 

Trademarks and Patents

 

Our trademarks and patents, which constitute our primary intellectual property, have been registered or are the subject of pending applications in 20 countries and with the registries of many foreign countries and/or are protected by common law. All Heidi Klum and Frederick’s of Hollywood trademarks are licensed under license agreements, while all of our other trademarks are company-owned. We believe our products are identified by our intellectual property and, thus, our intellectual property is of significant value. Accordingly, we intend to maintain our intellectual property and related registrations and vigorously protect our intellectual property assets against infringement.

 

Competition

 

The sale of women’s intimate and other apparel, personal care and beauty products and accessories through retail stores is a highly competitive business. Our competitors are numerous and include individual and chain specialty stores, department stores and discount retailers. Brand image, marketing, design, price, service, assortment and quality are the principal competitive factors in retail store sales. Our online businesses compete with numerous online merchandisers. Image presentation, fulfillment and the factors affecting retail store sales discussed above are the principal competitive factors in online sales.

 

Employee Relations

 

As of January 31, 2019, we employed approximately 772 employees, 537 of whom were part-time or casual. The number of employees, by geography, is noted in the table below.

 

Region  Employees 
Australia   332 
New Zealand   400 
United Kingdom   12 
Hong Kong   7 
United States of America   21 

 

None of the employees are currently covered by a collective bargaining agreement. We have had no labor-related work stoppages and believes its relations with its employees are excellent.

 

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C. Organizational Structure

 

The following chart illustrates the organizational structure of us and our subsidiaries as of the date of this Annual Report:

 

 

D. Property, Plants and Equipment

 

The disclosure set forth under “Real Estate” on page 19 is incorporated herein by reference.

 

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ITEM 4A. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion and analysis (this “MD&A”) for Bendon Limited provides information concerning our financial condition and results of operations for the year ended January 31, 2019, 2018 and 2017 and should be read in conjunction with our audited consolidation financial statements and the related notes included in Part III, Item 17, “Financial Statements.” Our selected financial information are reported for the fiscal years ended January 31, 2019 and 2018, for the seven month period ended January 31, 2017, and for the fiscal year ended June 30, 2016. In order to provide additional meaningful information to investors, we have included unaudited consolidated information for the 12 month period ended January 31, 2017, and for the seven month period ended January 31, 2016. This unaudited information is presented for comparative purposes to the corresponding fiscal year ended January 31, 2018 and for the seven month period ended January 31, 2017, and is derived from accounting records.

 

The following discussion contains forward-looking statements that reflect our future plans, estimates, belief, and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed elsewhere in this Form 20-F, particularly in Part I, Item 3.D, “Risk Factors” and in “Cautionary Note Regarding Forward-Looking Statements.” In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.

 

Basis of Presentation

 

The Audited Annual Consolidated Financial Statements of the Company have been prepared in accordance with IFRS as issued by the IASB, and are presented in thousands of New Zealand dollars, except where otherwise indicated. However, certain financial measures contained in this MD&A are non-IFRS measures and are discussed further under “Non-IFRS Measures” below. All references to “$” and “dollars” refer to New Zealand dollars, unless otherwise indicated. Certain totals, subtotals and percentages throughout this MD&A may not reconcile due to rounding.

 

Introduction

 

We are a designer, distributor, wholesaler and retailer of women’s and men’s intimates apparel and swimwear. Our merchandise is sold through retail and outlet stores located in New Zealand and Australia, wholesale operations in New Zealand, Australia, the United States of America and Europe, and through online channels. We operate licensed brands including Heidi Klum and Frederick’s of Hollywood, and owned brands including Pleasure State, Davenport, Lovable, Bendon, Fayreform, VaVoom, Evollove, and Hickory. We also operated the Stella McCartney brand until June 30, 2018, at which time Bendon Limited’s license to use the brand terminated. Key customers include Farmers, Myer, David Jones and Woolworths.

 

All dollar values discussed below are presented in New Zealand dollars.

 

In keeping with customary practice in New Zealand, our fiscal years end on June 30. Subsequent to registration, Bendon Limited changed its fiscal year end to January 31 and align with Naked’s fiscal year end.

 

Overview

 

Year ended January 31, 2019 and year ended January 31, 2018

 

During the 12- month period ended January 31, 2019 and 12-month period ended January 31, 2018 we incurred a net comprehensive loss of ($49.2m) and ($37.4m) respectively.

 

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Net sales in the 12-month period ended January 31, 2019 decreased by $19.5m, or 14.8%, to $111.9m when compared with $131.4m in the 12-month period ended January 31, 2018. The sales in the 12-month period ending January 31, 2019 were negatively impacted by a stock supply issue because of liquidity issues. In addition, we also ended our wholesale relationship with key major accounts in the U.S. market. Our strategic decision to exit the E.U./U.K. market as well as the loss of the Stella McCartney license also contributed to the reduction in sales for the Company.

 

Brand management expenses decreased by $4.4m, or 8.2% from $53.7m to $49.3m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018. This was largely due to cost savings in our store overheads and reduced marketing spend.

 

Corporate expenses increased by $1.3m, or 10.1%, from $12.8m to $14.1m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018, primarily driven by increased salary allocation and rental costs.

 

Finance expenses decreased by $4.8m, or 54.5% from $8.8m to $4.0m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018, due to a reduction in interest on both external borrowings and shareholder loans.

 

Brand transition, restructure and transaction expenses increased by $6.8m, or 212.5%, from $3.2m to $10.0m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018, which was driven by costs incurred in respect of the U.S. listing process.

 

Impairment expense increased by $6.3m, or 331.6%, from $1.9m to $8.2m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018, which was driven by stock supply issue because of liquidity issues.

 

Other foreign currency gains increased by $1.2m or 159.2% from $0.7m to $1.9m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018, due to positive movements in exchange rates on foreign exchange contracts.

 

Year ended January 31, 2018 and 12-month period ended January 31, 2017 (unaudited)

 

During the 12- month period ended January 31, 2018 and 12-month period ended January 31, 2017, we incurred a net comprehensive loss of ($37.4m) and ($39.9m) respectively.

 

Net sales in the 12-month period ended January 31, 2018 decreased by $20.75m, or 13.6%, to $131.4m when compared with $152.1m in the 12-month period ended January 31, 2017. The sales in the 12-month period ending January 31, 2018 were negatively impacted by a stock supply issue because of liquidity issues.

 

During the 12-month period ended January 31, 2018 and the 12-month period ended January 31, 2017, the gross margin was 33.4% and 44.6% respectively. The reduction in gross margin was caused by increased discounts provided to customers and sub-optimal stock mix because of the stock supply issue.

 

Finance expenses decreased by $2.4m, or 21.6% from $11.2m to $8.8m in the 12-month period ended January 31, 2018 as compared with the 12-month period ended January 31, 2017, due to a reduction in interest on the shareholder loan due to the principal amount of such loans being reduced, the majority of which was converted to equity in September 2016.

 

Brand transition, restructure and transaction expenses increased by $0.8m, or 34.7%, from $2.4m to $3.2m in the 12-month period ended January 31, 2018 as compared with the 12-month period ended January 31, 2017, which was driven by costs incurred in respect of the U.S. listing process.

 

Other foreign currency gains/(losses) reduced from a loss of $14.3m in 12-month period ended January 31, 2017 to a gain of $0.7m in the 12-month period ended Jan 31, 2018, due to positive movements in exchange rates on foreign exchange contracts.

 

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7-month period ended January 31, 2017, 7-month period ended January 31, 2016 (unaudited), the 12 month period ended June 30, 2016 and the 12 month period ended June 30, 2015

 

During the 7-months ended January 31, 2017 and 12-month period ended June 30, 2016 and 12-month period ended June 30, 2015, we incurred a net comprehensive loss of ($16.0m), ($20.7m) and ($13.2m) respectively.

 

Net sales in the 12 month period ended June 30, 2016 increased by $12.2m, or 8.8%, to $151.0m when compared with $138.8m in the 12 month period ended June 30, 2015. This was driven by extension of the business into providing advisory and management services to other intimates apparel businesses, favorable foreign exchange rate fluctuations between the New Zealand dollar and United States Dollar, growth in U.S. wholesale distribution through a new contract with Macy’s, growth in the online business and introduction of 8 new stores across Australia.

 

Net sales in the 7-month period ended January 31, 2017 increased by $1.6m, or 1.7%, to $96.2m when compared with $94.7m in the 7-month period ended January 31, 2016. Sales were negatively impacted by a stock supply issue, and less favorable foreign exchange rate fluctuations between the New Zealand dollar and U.S. Dollar, which was offset by the beneficial impact of a new licensing agreement with Frederick’s of Hollywood.

 

During the 7-month period ended January 31, 2017, the 7-month period ended January 31, 2016, the 12 month period ended June 30, 2016 and the 12 month period ended June 30, 2015, the gross margin was 40.7%, 45.1%, 44.7%, and 43.1%, respectively. The movement in gross margin has remained fairly consistent, but has improved due to changes in the sales mix including additional online revenue, as well as positive foreign exchange rate fluctuations.

 

Brand management expenses increased by $6.2m, or 14.6%, from $42.2m to $48.4m between the 12 month period ended June 30, 2015 and the 12 month period ended June 30, 2016. This was largely driven by growth in business and associated employee costs, as well as additional marketing expenditures to support the introduction of new swimwear ranges. The increase of $4.4m, or 15.9%, from $27.6m to $32.0m in the 7-month period to January 31, 2017 as compared with the 7-month period to January 31, 2016, was also driven by additional marketing expenditures.

 

Finance expenses increased by $4.5m, or 77.3%, between the 12 month period ended June 30, 2015 and the 12 month period ended June 30, 2016 from $5.9m to $10.4m, due to additional interest expense associated with an increase in debt. The finance expense in the 7-month period to January 31, 2016 and January 31, 2017 increased slightly due to additional interest on convertible loan notes being partially offset by a reduction in interest on the shareholder loan due to the principal amount of such loans being reduced, the majority of which was converted to equity in September 2016.

 

Brand transition, restructure and transaction expenses of $1.3m, $2.2m and $12.2m were incurred in the 7-month period ended January 31, 2017, the 12 month period ended June 30, 2016 and the 12 month period ended June 30, 2015, respectively. The biggest driver for this decrease was a reduction in brand transition expenses incurred in relation to the transition from the Elle MacPherson to Heidi Klum brand which decreased over time given the Elle MacPherson license was terminated in the fiscal year 2015.

 

An impairment expense of $2.2m was recognized in the 12 month period ended June 30, 2016 and 7-month period to January 31, 2016 in relation to a goodwill write-off. An impairment expense of $0.3m was recognised in 7-month period to January 31, 2017.

 

Other foreign currency gains/(losses) reduced from a gain of $4.7m the 12 month period ended June 30, 2015 to a loss of $2.4m in the 12 month period ended June 30, 2016 due to weakening of the New Zealand dollar and the impact of unfavorable hedge contracts entered into. Other foreign currency gains/(losses) reduced from a gain of $5.7m in the 7-month period to January 31, 2016 to a loss of $3.3m in the 7-month period to January 31, 2017 as a result of the same foreign exchange drivers.

 

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Application of Critical Accounting Policies, Estimates, and Judgements

 

Our accounting policies form the basis for preparation of our financial statements and our financial statements in tum are an essential factor in understanding our operations. Our accounting policies are in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and are fully described in the notes to our audited financial statements as of and for the year ended January 31, 2019, year ended January 31, 2018, 7-month period ended January 31, 2017 and the two years ended June 30, 2016 and June 30, 2015. The preparation of our financial statements required management to make judgments, estimates, assumptions and judgments that affect the reported amounts of revenue, assets, liabilities and expenses. Our management re-evaluates estimates on an on-going basis and such estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Unless otherwise stated, all dollar amounts stated in our financial statements are expressed in the currency of the Commonwealth of Australia.

 

Critical accounting policies

 

Critical accounting policies that reflect our industry and activity specific accounting treatments used in preparing our financial statements as of the 12 month period ended January 31, 2019, 12 month period ended January 31, 2018, the 7- month period ended January 31, 2017, the 12 month period ended June 30, 2016 and the 12 month period ended June 30, 2015 or that have significant potential to result in a material adjustment to the carrying amounts of assets and liabilities during each of the years.

 

(a) Going concern

 

The financial statements have been prepared on the basis of going concern which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

 

For the financial year ended 31 January 2019 the Group experienced a loss after income tax from continuing operations of NZ$49.220million and operating cash outflows of NZ$9.434 million. It also is in a net current liability position of $NZ29.426 million and a positive net asset position of NZ$10.519 million.

 

The losses in the year ended 31 January 2019 were a result of reduced revenue from wholesale customers, increased rebates and discounts, and the plateauing of sales in retail outlets believed to be due to the stores and stockists not having new high margin inventory. The business is experiencing challenging trading conditions which have been impacted by the cancellation of the Stella McCartney licence held by the Group which expired on 30 June 2018, the lack of working capital to purchase sufficient levels of inventory required for trading, reduced customer foot traffic in retail stores and outlets, and a reduction of revenue from wholesale customers. The business also incurred NZ$10.075 million of non-trading costs in relation to brand transition, restructure, and transaction costs associated with listing the Group on the Nasdaq stock exchange. The Group also has trade creditors that are trading beyond their original credit terms.

 

The Group has also breached its Bank debt loan covenants during financial year, and the Bank has extended the facility from being due on 30 June 2019 to being due or subject to renewal on 31 August 2019. The extension of time in the term of the facility is to provide the Group and the Bank time to consider a refinance of the facility to a longer term to assist the group continue as a going concern.

 

In consequent to the challenging trading conditions and the negative working capital the business raised NZ$23.248 million of funds in the form of issued capital and convertible notes over the course of the financial year and generated further working capital by reducing inventory by NZ$9.993 million. The Group used the funds to reduce the bank debt from NZ$38.489 million to NZ$20.000 million, reduce long overdue trade creditors (both pre and post year end), fund operating losses, reduce costs, rebuild higher margin inventory, recruit new staff, and pay the costs of listing on the Nasdaq stock exchange.

 

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The funds raised and cash flow generated during the financial year ended 31 January 2019 have not been sufficient to provide the Group with adequate working capital, so subsequent to the end of the financial year management has taken steps to raise further capital to complete a program that will fund new inventory that will restock stores and supply wholesale customers, fund further losses, reduce out of term creditors, reduce costs, and provide funds to amortise the Bank debt. It is expected the group will need to continue to fund losses through to the start of the year beginning 1 February 2021. This capital raising/recapitalisation is continuing at the time of this report with management having set a target to raise a further NZ$31.587 million between March 2019 and 31 January 2020. At the date of this report management had raised NZ$12.179 million and was still planning on raising NZ$19.409 million, of which NZ$4.347 million is in the forecast for collection in June 2019, NZ$7.31 million in July 2019; and NZ$7.531 million in October 2019. The Group may need to raise further funds beyond these amounts to fund the period to 31 January 2022.

 

Management has also engaged in further restructuring of the businesses operations including reducing costs across distribution channels, renegotiating supplier contracts, resetting customer supply commitments, updating leadership roles including appointing a new CEO (which occurred in October 2018) at the Bendon Limited level and the Naked Brand Group Limited level in April 2019, for the operating business, and managing the opening of new stores. The impact from the proposed capital raising and the restructure will take time to generate positive cash flows from operations. The Group expects the business will trend to be cash flow positive by through the year ending 31 January 2021, but will not be fully cash flow positive until the beginning of the year ending 31 January 2022.

 

As part of the discussions to renegotiate the Bank facilities the Bank appointed an independent review accountant (Review Accountant) to review the cash flow and working capital history and forecasts. The Review Accountant issued a report which is consistent with the information in this note and the Bank has advised they will continue to monitor the Group’s performance during the Bank debt renegotiation process through a formal appointment of a Review Accountant. The Directors expect the Bank to offer a new one year facility with amortisation over the next twelve months by 31 August 2019. The offer of a new Bank facility is dependent on the Group achieving inventory covenants set by the Bank through to 31 August 2019 and the Bank being satisfied that the Group has progressed with securing the remaining capital planned of $NZD$19.409 million.

 

The directors have also considered the Loan Agreement from its previous major shareholder Cullen Investments Limited (“Cullen”) and has been advised by Cullen that due to some changes with Cullen’s financial circumstances Cullen is not likely to be a reliable source of funding and as a result the directors have decided to pursue new capital raising activities and not rely on Cullen.

 

Despite the ongoing losses, reduced cash flow and cash facilities, and the other negative financial conditions, the Directors are confident that the Group will continue as a going concern. However, while the Directors are confident of continuing as a going concern and meeting its debt obligation to its Bank and creditor commitments as they fall due, the going concern is dependent upon the Directors and Group being successful in:

 

  Raising further capital in line with the Group’s cashflow forecast of at least NZ$19.409 million and collecting it between June 2019 and October 2019 (NZ$4.347 million in June 2019; NZ$7.531 million in July 2019; and NZ$7.531 million in October 2019) then raising follow on capital (the amount is yet to be determined) to fund the business through until it expects to become cash flow positive;
  Generating sufficient sales and increasing gross margins and reducing overheads from trading in line with forecast;
  Having sufficient funds from the capital raised to reduce costs, recruit new staff, rebuild higher margin inventory, increasing revenue across the wholesale and retail channels, increase gross margin percentages and contribution that leads to a reduction in the current cash outflow being incurred each month to reach a cash flow positive position, and to reduce bank debt;
  Continue to receive support from creditors to delay payment of overdue amounts until the Group has adequate cash flow to commence a repayment arrangement or repay the debt in full;and
  Renegotiating the current bank facilities of $20 million to a facility that is at least a 12 month facility, reviewed annually that commences before the current facilities mature on 31 August 2019; and

 

(b) Revenue recognition

 

Revenue is recognised when the amount of the revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Company and specific criteria relating to the type of revenue as noted below, has been satisfied.

 

Revenue is measured at the fair value of the consideration received or receivable and is presented net of returns, discounts and rebates. The Company assess the expected customer returns and rebates according to the specific information in its possession and its past experience in similar cases.

 

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Sale of goods

 

Sales of goods through retail stores, e commerce and wholesale channels are recognised when control of the products have been transferred to the customer which is a point in time. For wholesale and e commerce sales, risks and rewards are transferred when goods are delivered to customers, and therefore reflects an estimate of shipments that have not been received at year end based on shipping terms and historical delivery times. The Company also provides a reserve for projected merchandise returns based on prior experience.

 

The Company sells gift cards to customers. The Company recognises revenue from gift cards when they are redeemed by the customers. In addition, the Company recognises revenue on all of its unredeemed gift cards when the gift cards have expired.

 

Significant Accounting Judgments, Estimates, and Assumptions

 

Significant accounting judgments, estimates, and assumptions that have been used in the preparation of our financial statements are set out below. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

 

We make estimates and assumptions concerning the future in determining accounting treatments and quantifying amounts for transactions and balances in certain circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

Key estimates — inventory

 

Each item on inventory is reviewed on an annual basis to determine whether it is being carried at higher than its net realizable value. During the period, management have written down inventory based on best estimate of the net realizable value, although until the time that inventory is sold this is an estimate.

 

Key estimates — impairment of goodwill

 

In accordance with IAS 36 Impairment of Assets, the Company is required to estimate the recoverable amount of goodwill at each reporting period.

 

Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate and using a terminal value to incorporate expectations of growth thereafter.

 

In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of:

 

  growth in EBITDA future cash flows;
     
  timing and quantum of future capital expenditure;
     
  long-term growth rates; and
     
  the selection of discount rates to reflect the risks involved.

 

Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect the Company’s impairment evaluation and hence results.

 

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The Company’s review includes the key assumptions related to sensitivity in the cash flow projections. Further details are provided in note15(c) to the consolidated financial statements.

 

Key estimates — fair value of financial instruments

 

The Company has certain financial assets and liabilities which are measured at fair value. Where fair value has not been able to be determined based on quoted price, a valuation model has been used. The inputs to these models are observable, where possible, however these techniques involve significant estimates and therefore fair value of the instruments could be affected by changes in these assumptions and inputs.

 

Key estimates — impairment of brands

 

In accordance with IFRS 36 Impairment of Assets, the Company is required to estimate the recoverable amount of indefinite-lived brand assets at each reporting period.

 

Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by their value in use or fair value less cost to sell.

 

In calculating the fair value less costs to sell, certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of:

 

  growth in brand revenues
     
  market royalty rate
     
  the selection of discount rates to reflect the risks involved, and
     
  long-term growth rates

 

Changing the assumptions selected by management, in particular the growth rate, discount rate and market royalty rate assumption used, could significantly affect the Company’s impairment evaluation and hence results.

 

The Company’s review includes the key assumptions related to sensitivity in the model. Further details are provided in note 15 to the consolidated financial statements.

 

Key estimates — taxes

 

Determining income tax provisions and the recognition of deferred tax assets including carried forward income tax involves judgment on the tax treatment of certain transactions. Deferred tax is recognised on tax losses not yet used and on temporary differences where it is probable that there will be taxable revenue against which these can be offset. Management has made judgments as to the probability of future taxable income being generated against which tax losses will be available for offset based on budgets, current and future expected economic conditions.

 

Recent Accounting Pronouncements

 

New Accounting Standards and Interpretations

 

Certain new accounting standards and interpretations have been published that are not mandatory for January 31, 2019 reporting periods and have not been early adopted by the Company. The Company’s assessment of the impact of these new standards and interpretations is set out below.

 

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Title of Standard   Nature of change   Impact   Mandatory application date/Date of adoption by Company
IFRS 16 Leases   In February 2016 the IASB issued a new standard for leases. This AASB 16 replaces IAS 17.  The main impact on lessees is that almost all leases go on balance sheet. This is because the balance sheet distinction between operating and finance leases is removed for lessees. Instead, under the new standard an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exemptions are short-term and low-value leases.  

Management is currently assessing the impact of the new rules and believes the adoption of the provisions of this update will have a material impact on the Company’s consolidated financial statements.

 

The new standard will require that we record a liability and a related asset on the balance sheet for our leased facilities.

 

Management is currently assessing the impact of the new rules and believes the adoption of the provisions of this update will have a material impact on the Company’s consolidated financial statements.

 

Mandatory for financial years commencing on or after January 1, 2019.

 

Expected date of adoption by the Company: February 1, 2019.

             
IFRC 23 Uncertainty over Income Tax Treatments (IFRIC 23)   On June 7, 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments (“IFRIC 23”). IFRIC 23 clarifies the application of recognition and measurement requirements in IAS 12, Income Taxes, when there is uncertainty over income tax treatments. The IFRIC 23 interpretation specifically addresses whether an entity considers uncertain tax treatments separately; the assumptions an entity makes about the examination of tax treatments by taxation authorities; how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and how an entity considers changes in facts and circumstances.   The Company is currently evaluating the impact of adopting this standard on the consolidated financial statements.   IFRIC 23 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted.

 

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

 

 34 

 

 

Recent Developments

 

On February 14, 2019, Carole Hochman resigned from the board of directors and as our Executive Chairman, and from all other positions she held with our subsidiaries. Ms. Hochman’s resignation was for personal reasons, and was not due to any disagreement with us or our management on any matter relating to our operations, policies or practices (financial or otherwise).

 

In March 2019, we issued 1,400,000 Naked Ordinary Shares and 1,400,000 warrants to purchase Naked Ordinary Shares to a service provider in exchange for services. The warrants have an exercise price of US$0.50 and expire two years from the date of issuance. The exercise price and the number of shares covered by the warrants are subject to adjustment for stock splits, stock combinations and certain other transactions affecting the share capital as a whole.

 

On the March 27, 2019, the Company closed on the following share issuances.

 

  (1) NZ$6.60 million/US$4.50 million related to the issue of 11,248,415 Naked Ordinary Shares to trade creditors in satisfaction of trade payables due to them, at an effective per share price of US$0.40.
     
  (2) NZ$1.25 million/US$0.85 million related to the issue of 2,119,178 Naked Ordinary Shares to the holder of one of our outstanding promissory notes in the amount of US$847,671, at an effective per share price of US$0.40 per share.
     
  (3) NZ$1.69 million/US$1.15 million related to the issue of 4,510,588 Naked Ordinary Shares to investors in a private placement at a share price of US$0.255. The investors also received warrants to purchase 100% of the number of Naked Ordinary Shares for which they had subscribed. The warrants have an exercise price of US$0.306 and expire two years from the date of issuance. The exercise price and the number of shares covered by the warrants are subject to adjustment for stock splits, stock combinations and certain other transactions affecting the share capital as a whole.
     
  (4) NZ$4.05 million/US$2.75 million relating to the issue of 10,784,313 Naked Ordinary Shares to certain accredited investors at an agreed per share price of US$0.255, except that, to the extent an investor would beneficially own more than 9.9% of our outstanding Naked Ordinary Shares after the closing, we agreed to issue the investor a March Pre-Funded Warrant in lieu of such shares. Each investor also received a March Investment Warrant to purchase 100% of the number of Naked Ordinary Shares for which it had agreed to subscribe. As a result, we issued 3,914,846 Naked Ordinary Shares, March Pre-Funded Warrants to purchase 6,869,467 Naked Ordinary Shares and March Investment Warrants to purchase 10,784,313 Naked Ordinary Shares to the investor at the closing. The March Investment Warrants have an exercise price of US$0.306 per share and expire five years from the date of issuance. The March Pre-Funded Warrants have an exercise price of US$0.01 per share and expire five years from the date of issuance. The exercise price and number of shares covered by the March Warrants are subject to adjustment for stock splits, stock combinations and certain other transactions affecting the share capital as a whole, as well as for subsequent equity issuances occurring prior to July 16, 2019, subject to certain exceptions. If the exercise price of the March Warrants is higher than the last closing bid price of the Naked Ordinary Shares, at any time starting on June 16, 2019, the March Warrants may be exercised on a cashless basis for a number of shares equal to the Black-Scholes value of the portion of the warrant being exercised (as calculated in accordance with the March Warrants), divided by the closing bid price as of two business days prior to the exercise date (but not less than US$0.10). The March Warrants may not be exercised to the extent the holder and its affiliates would beneficially own more than 9.9% of our outstanding Ordinary Shares after such exercise.

 

On April 2, 2019, the board of directors appointed Anna Johnson as our Chief Executive Officer. Ms Johnson was previously Chief Executive Officer of Bendon Limited, the Company’s main operating entity. In connection with Ms. Johnson’s appointment, Justin Davis-Rice was appointed as Executive Chairman and resigned as our Chief Executive Officer.

 

Effective on May 13, 2019, we completed a private placement of a Secured Convertible Promissory Note (the “Note”) to St. George Investments LLC (the “Noteholder”) for a purchase price of US$3,000,000, pursuant to a Securities Purchase Agreement (the “NSPA”) of even date. Pursuant to the NSPA, the Note was sold with an original issue discount of the US$300,000 and we paid US$20,000 of the Noteholder’s expenses, which amount was added to the principal balance of the Note. Accordingly, the Note had an initial principal balance of US$3,320,000. The NSPA includes certain customary representations and warranties and covenants. In addition, we agreed that, so long as the Note is outstanding, we will not issue any debt instrument or incur any debt, subject to certain exceptions, including an exception for any debt incurred from a bank. The Note accrues interest at a rate of 10% per annum, compounded daily, and matures on November 13, 2020. We have the right to prepay the Note, subject to a 15% premium. The Note is secured by a second priority security interest in all our assets and is subordinated to the Company’s existing senior secured credit facility with BNZ. The Noteholder has the right to convert the Note into Naked Ordinary Shares at a conversion price of US$0.90 per share, subject to adjustment for subdivisions or combinations of the ordinary shares. The Noteholder also has the right, beginning on December 13, 2019, to cause us to redeem any portion of the Note, up to a maximum of US$400,000 per month.

 

 35 

 

 

On the May 14, 2019, we closed on NZ$2.17 million/US$1.5million share issuance of 6,000,000 shares to an investor in a private placement at a share price of US$0.25. The investor also received warrants to purchase 1,000,000 Naked Ordinary Shares. The warrants have an exercise price of US$0.25, subject to adjustment, and expire two years from the date of issuance.

 

On May 16, 2019, we issued 653,595 ordinary shares in exchange for the cancellation of US$200,000 in debt held by a shareholder, or an effective purchase price of US$0.306 per share.

 

On June 11, 2019, we announced that we had appointed David Anderson to become our new Chief Financial Officer. Previously, Mr. Anderson served as Head of Finance for Goodman Fielder, one of the largest consumer goods companies in New Zealand, where he oversaw all financial aspects of the business and led numerous acquisitions. Mr. Anderson will succeed Howard Herman, our current Chief Financial Officer, after the filing with the SEC of certain amendments to our existing registration statements, but no later than June 20, 2019. In connection with the appointment of Mr. Anderson, Mr. Herman is resigning from all positions held by him with our company.

 

Our senior secured credit facility with the Bank matures on August 31, 2019 and discussions are continuing to extend the facility beyond that point. As at October 31, 2018, there was a breach in minimum gross EBITDA ratio. As at January 31, 2019, there was a breach of the minimum Gross EBITDA ratio and a breach of the inventory and receivables ratio. The Bank has advised that they are currently taking these breaches under review.

 

A. Operating Results

 

Year ended January 31, 2019 compared to year ended January 31, 2018

 

The following table sets forth certain selected operating results and other financial information for each of the years ended January 31, 2019, 2018 and 2017:

 

   

Jan. 31,

2019

NZ$000

12 months

   

Jan. 31,

2018

NZ$000

12 months

   

%

movement

FY19 v

FY18

   

Unaudited

Jan. 31,

2017

NZ$000

12 months

   

%

movement

FY18 v

FY17

 
Revenue     111,920       131,388       -14.8 %     152,144       -13.6 %
Cost of goods sold     (74,480 )     (87,459 )     -14.8 %     (84,358 )     3.7 %
Gross profit     37,440       43,929       -14.8 %     67,786       -35.2 %
Brand management     (49,256 )     (53,653 )     -8.2 %     (53,957 )     -0.6 %
Administrative expenses     (3,432 )     (4,131 )     -16.9 %     (3,712 )     11.3 %
Corporate expenses     (14,145 )     (12,851 )     10.1 %     (12,920 )     -0.5 %
Finance expense     (4,041 )     (8,791 )     -54.0 %     (11,214 )     -21.6 %
Brand transition, restructure and transaction expenses     (10,075 )     (3,272 )     207.9 %     (2,430 )     34.7 %
Impairment expense     (8,173 )     (1,914 )     326.9 %     (2,865 )     -33.2 %
Other foreign currency gains/(losses)     1,963       757       159.3 %     (14,327 )     -105.3 %
Fair value gain/(loss) on convertible notes derivative     (775 )     2,393       -132.4 %     (592 )     -504.5 %
Loss before income tax     (50,494 )     (37,533 )     34.5 %     (34,230 )     9.7 %
Income tax benefit/(expense)     1,274       (60 )     -2223.3 %     (6,123 )     -99.0 %
Loss for the period     (49,220 )     (37,593 )     30.9 %     (40,352 )     -6.8 %
Other comprehensive loss                                        
Exchange differences on translation of foreign operations     (7 )     148       -104.7 %     384       -61.5 %
Total comprehensive loss for the period     (49,227 )     (37,445 )     31.5 %     (39,968 )     -6.3 %

 

 36 

 

 

Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)

 

The following table sets forth certain selected operating results and other financial information for each of the years ended January 31, 2018 and 2017:

 

       Unaudited     
   Jan. 31,   Jan. 31,     
   2018   2017     
   NZ$000   NZ$000   % 
   12 months   12 months   movement 
Revenue   131,388    152,144    -13.6%
Cost of goods sold   (87,459)   (84,358)   3.7%
Gross profit   43,929    67,786    -35.2%
Brand management   (53,653)   (53,957)   -0.6%
Administrative expenses   (4,131)   (3,712)   11.3%
Corporate expenses   (12,851)   (12,920)   -0.5%
Finance expense   (8,791)   (11,214)   -21.6%
Brand transition, restructure and transaction expenses   (3,272)   (2,430)   34.7%
Impairment expense   (1,914)   (2,865)   -33.2%
Other foreign currency gains/(losses)   757    (14,327)   -105.3%
Fair value gain/(loss) on convertible notes derivative   2,393    (592)   -504.5%
Loss before income tax   (37,533)   (34,230)   9.7%
Income tax benefit/(expense)   (60)   (6,123)   -99.0%
Loss for the period   (37,593)   (40,352)   -6.8%
Other comprehensive loss               
Exchange differences on translation of foreign operations   148    384    -61.5%
Total comprehensive loss for the period   (37,445)   (39,968)   -6.3%

 

* Note that January 31, 2017 is not an annual period, rather it has been derived from accounting records, to provide a 12 month comparative to the January 31, 2018 annual period. 

 

7-month period ended January 31, 2017 compared to 7-month period ended January 31, 2016 and 12-month period ended June 30, 2016 compared to 12-month period ended June 30, 2015

 

The following table sets forth certain selected operating results and other financial information for each of the 7-month periods ended January 31, 2017 and 2016, and each of the years ended June 30, 2016 and 2015:

 

   Jan. 31,
2017
NZ$000
seven
months
   Unaudited
Jan. 31,
2016
NZ$000
seven
months
   %
movement
   Jun. 30,
2016
NZ$000
12 months
   Jun. 30,
2015
NZ000$
12 months
   %
movement
 
Revenue   96,284    94,667    1.7%   151,000    138,838    8.8%
Cost of goods Sold   (57,144)   (51,998)   9.9%   (83,525)   (79,031)   5.7%
Gross Profit   39,140    42,669    -8.3%   67,475    59,807    12.8%
Brand Management   (32,040)   (27,647)   15.9%   (48,362)   (42,203)   14.6%
Administrative expenses   (2,383)   (2,109)   13.0%   (4,090)   (4,691)   -12.8%
Corporate expenses   (8,082)   (8,236)   -1.9%   (13,002)   (13,940)   -6.7%
Finance expense   (6,238)   (5,436)   14.8%   (10,409)   (5,870)   77.3%
Brand transition, restructure and transaction expense   (1,321)   (1,122)   17.7%   (2,232)   (12,182)   -81.7%
Impairment expense   (292)   (2,157)   -86.5%   (2,157)   -    100.0%
Other foreign currency gains/(losses)   (3,306)   5,685    -158.2%   (2,423)   4,700    -151.6%
Fair value gain/(loss) on convertible notes derivative   (592)   -    100.0%   -    -    0%
Profit/(Loss) before income tax   (15,114)   1,647    -1017.7%   (15,200)   (14,379)   5.7%
Income tax benefit/(expense)   (865)   (289)   199.3%   (5,546)   1,274    -535.3%
Profit/(Loss) for the period   (15,979)   1,358    -1276.7%   (20,746)   (13,105)   58.3%
Other comprehensive income                              
Exchange differences on translation of foreign operations   (29)   (379)   -92.3%   31    (93)   -133.3%
Total comprehensive income/(loss) for the period   (16,008)   979    -1735.2%   (20,715)   (13,198)   57.0%

 

 37 

 

 

Revenue

 

Year ended January 31, 2019 compared to 12-month period ended January 31, 2018

 

During the 12-month period ended January 31, 2019 the net sales decreased by $19.5m or 14.8% when compared with $131.4m in the 12-month period ended January 31, 2018. The sales in the 12-month period ended January 31, 2019 continued to be negatively impacted by a stock supply issue because of liquidity issues. In addition, we also ended our wholesale relationship with key major accounts in the US market. Our strategic decision to exit the EU/UK market as well as the loss of the Stella McCartney license also contributed to the reduction in sales for the Company.

 

One new store was opened in Australia, as well as three new stores in New Zealand to continue to expand our brand presence across the Australasian market during the year ended January 31, 2019. During the current financial year, we also successfully acquired both the Naked and Fredricks of Hollywood entities.

 

Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)

 

During the 12-month period ended January 31, 2018 the net sales decreased by $20.75m or 13.6% when compared with $152.1m in the 12-month period ended January 31, 2017. The sales in the 12-month period ended January 31, 2018 were negatively impacted by a stock supply issue because of liquidity issues. Three new stores were opened in Australia, as well as two new stores in New Zealand to continue to expand our brand presence across the Australasian market.

 

7-month period ended January 31, 2017 compared to the 7-month period ended January 31, 2016 (unaudited) and 12-month period ended June 30, 2016 compared to the 12-month period ended June 30, 2015

 

Net sales in the 7-month period ended January 31, 2017 increased by $1.6m, or 1.7%, to $96.2m when compared with $94.7m in the 7-month period ended January 31, 2016. Sales were negatively impacted by a stock supply issue, and less favorable foreign exchange rate fluctuations between the New Zealand dollar and U.S. Dollar, which was offset by the beneficial impact of a new licensing agreement with Frederick’s of Hollywood.

 

Net sales in the 12-month period ended June 30 2016 increased by $12.2m, or 8.8%, to $151.0m when compared with $138.8m in the 12-month period ended June 30 2015. This was driven by the extension of the business into providing advisory and management services to other intimate apparel businesses, favorable foreign exchange rate fluctuations between the New Zealand dollar and U.S. Dollar, growth in U.S. wholesale distribution through a new contract with Macy’s, growth in the online business and introduction of 8 new stores across Australia.

 

Gross margins

 

Year ended January 31, 2019 compared to 12-month period ended January 31, 2018

 

During the 12-month period ended January 31, 2019 and the 12-month period ended January 31, 2018, the gross margin was 33.5% and 33.4% respectively. The movement year on year is consistent, however the margin continues to be impacted by the sales mix, discounts provided to customers and a lack of current season stock because of the supply issue.

 

 38 

 

 

Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)

 

During the 12-month period ended January 31, 2018 and the 12-month period ended January 31, 2017, the gross margin was 33.4% and 44.6% respectively. The reduction in gross margin was caused by increased discounts provided to customers and sub-optimal stock mix because of the stock supply issue.

 

7-month period ended January 31, 2017 compared to 7-month period ended January 31, 2016 and 12-month period ended June 30, 2016 compared to 12-month period ended June 30, 2015

 

During the 7-month period ended January 31, 2017, the 7-month period ended January 31, 2016, 12-month period ended June 30 2016 and 12-month period ended June 2015, the gross margin was 40.7%, 45.1%, 44.7%, and 43.1%, respectively. The movement in gross margin has remained fairly consistent, but has improved due to changes in the sales mix including additional online revenue, as well as positive foreign exchange rate fluctuations.

 

Operating expenses

 

Year ended January 31, 2019 compared to 12-month period ended January 31, 2018

 

   

Jan. 31,

2019

NZ$000

12 months

   

Jan. 31,

2018

NZ$000

12 months

   

%

movement

FY19 v

FY18

   

Unaudited

Jan. 31,

2017

NZ$000

12 months

   

%

movement

FY18 v

FY17

 
Brand management     (49,256 )     (53,653 )     -8.2 %     (53,957 )     -0.6 %
Administrative expenses     (3,432 )     (4,131 )     -16.9 %     (3,712 )     11.3 %
Corporate expenses     (14,145 )     (12,851 )     10.1 %     (12,920 )     -0.5 %
Finance expense     (4,041 )     (8,791 )     -54.0 %     (11,214 )     -21.6 %
Brand transition, restructure and transaction expenses     (10,075 )     (3,272 )     207.9 %     (2,430 )     34.7 %
Impairment expense     (8,173 )     (1,914 )     326.9 %     (2,865 )     -33.2 %
Other foreign currency gains/(losses)     1,963       757       159.3 %     (14,327 )     -105.3 %
Fair value gain/(loss) on convertible notes derivative     (775 )     2,393       -132.4 %     (592 )     -504.5 %

 

Brand management decreased by $4.4m, or 8.2% from $53.6m to $49.2m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018. This was largely due to cost savings in our store overheads and reduced marketing spend.

 

Administrative expenses decreased by $0.7m, or 17% from $4.1m to $3.4m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018. This was due to cost saving initiatives implemented by our new CEO who joined us during the financial year ended January 31, 2019.

 

Corporate expenses increased by $1.3m, or 10.1%, from $12.8m to $14.1m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018, which was primarily driven by an increase in salary and rental costs.

 

Finance expenses decreased by $4.8m, or 54.5% from $8.8m to $4.0m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018, due to a reduction in interest on both external borrowings and shareholder loans.

 

 39 

 

 

Brand transition, restructure and transaction expenses increased by $6.4m, or 195.9%, from $3.2m to $9.6m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018, which was driven by costs incurred in respect of the US listing process.

 

Impairment expense increased by $6.3m, or 331.6%, from $1.9m to $8.2m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018, which was driven by stock supply issue due to liquidity issues.

 

Other foreign currency gains increased by $1.2m or 159.2% from $0.7m to $1.9m in the 12-month period ended January 31, 2019 as compared with the 12-month period ended January 31, 2018 due to gains on foreign exchange contracts.

 

Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)

 

       Unaudited     
   Jan. 31,   Jan. 31,     
   2018   2017     
   NZ$000   NZ$000   % 
   12 months   12 months   movement 
Brand management   (53,653)   (53,957)   -0.6%
Administrative expenses   (4,131)   (3,712)   11.3%
Corporate expenses   (12,851)   (12,920)   -0.5%
Finance expense   (8,791)   (11,214)   -21.6%
Brand transition, restructure and transaction expenses   (3,272)   (2,430)   34.7%
Impairment expense   (1,914)   (2,865)   -33.2%
Other foreign currency gains/(losses)   757    (14,327)   -105.3%
Fair value gain/(loss) on convertible notes derivative   2,393    (592)   -504.5%

 

Brand management expenses decreased by $0.3m, or 0.6%, from $53.9m to $53.6m in the 12-month period to January 31, 2018 as compared with the 12-month period to January 31, 2017. This reduction was due to the increased focus on cost control in this area.

 

Administrative expenses increased by $0.4m or 11.3% from $3.7m to $4.1m in the 12-month period to January 21, 2018 as compared with the 12-month period to January 31, 2017. This increase was due to a higher spend on accounting and tax fees associated with the US listing process.

 

Corporate expenses are consistent with the prior 12-month period. The slight decrease of $69k, or 0.5% between the 12-month period ended to January 31, 2018 and 12- month period to January 31, 2017, from $12.92m to $12.85m is considered immaterial.

 

Finance expenses decreased by $2.4m, or 21.6% from $11.2m to $8.8m in the 12-month period ended January 31, 2018 as compared with the 12-month period ended January 31, 2017, due to a reduction in interest on the shareholder loan due to the principal amount of such loans being reduced, the majority of which was converted to equity in September 2016.

 

Brand transition, restructure and transaction expenses increased by $0.8m, or 34.7%, from $2.4m to $3.2m in the 12-month period ended January 31, 2018 as compared with the 12-month period ended January 31, 2017, which was driven by costs incurred in respect of the US listing process.

 

Impairment expense decreased by $0.95m or 33.2% from $2.8m to $1.9m in the 12-month period ended January 31, 2018 as compared with the 12-month period ended January 31, 2017. During the current financial year an impairment expense of $1.6m was incurred as management impaired the costs incurred on the ERP upgrade, as this software will need to be replaced and updated with a more advanced system. In the 12-month period ended January 31, 2017 an impairment expense of $2.2m was recognized in relation to a goodwill write-off.

 

 40 

 

 

Other foreign currency gains/(losses) reduced from a loss of $14.3m in 12-month period ended January 31, 2017 to a gain of $0.7m in the 12-month period ended Jan 31, 2018, due to gains on foreign exchange contracts.

 

Fair value gain/(loss) on convertible notes derivative was a gain of $2.4m in 12-month period ended January 31, 2018 compared to a loss of $0.6m the period ended January 31, 2017. This is because the derivative ended at conversion date.

 

7-month period ended January 31, 2017 compared to 7-month period ended January 31, 2016 and 12-month period ended June 30, 2016 compared to 12-month period ended June 30, 2015

 

   Jan. 31,
2017
NZ$000
seven
months
   Unaudited
Jan. 31,
2016
NZ$000
seven
months
   %
movement
   Jun. 30,
2016
NZ$000
12 months
   Jun. 30,
2015
NZ000$
12 months
   %
movement
 
Brand management   (32,040)   (27,647)   15.9%   (48,362)   (42,203)   14.6%
Administrative expenses   (2,383)   (2,109)   13.0%   (4,090)   (4,691)   -12.8%
Corporate expenses   (8,082)   (8,236)   -1.9%   (13,002)   (13,940)   -6.7%
Finance expense   (6,238)   (5,436)   14.8%   (10,409)   (5,870)   77.3%
Brand transition, restructure, and transaction expenses   (1,321)   (1,122)   17.7%   (2,232)   (12,182)   -81.7%
Impairment expense   (292)   (2,157)   -86.5%   (2,157)       100.0%
Other foreign currency gains/(losses)   (3,306)   5,685    -158.2%   (2,423)   4,700    -151.6%
Fair value gain/(loss) on convertible notes derivative   (592)   -    100.0%   -    -    0%

 

Brand management expenses increased by $6.2m, or 14.6%, from $42.2m to $48.4m between the 12-month period ended June 30 2015 and 12-month period ended June 30 2016. This was largely driven by growth in business and associated employee costs, as well as additional marketing expenditures to support the introduction of new swimwear ranges. The increase of $4.4m, or 15.9%, from $27.6m to $32.0m in the 7-month period to January 31, 2017 as compared with the 7- month period to January 31, 2016, was also driven by additional marketing expenditures.

 

Finance expenses increased by $4.5m, or 77.3%, between the 12-month period ended June 30 2015 and 12-month period ended June 30 2016, from $5.9m to $10.4m, due to additional interest expense associated with an increase in debt. The finance expense in the 7- month period to January 31, 2016 and January 31, 2017 remained consistent due to additional interest on convertible loan notes being partially offset by a reduction in interest on the shareholder loan due to the principal amount of such loans being reduced, the majority of which was converted to equity in September 2016.

 

Brand transition, restructure and transaction expenses decreased by $10.0m from $12.2m in fiscal year 2015 to $2.2m in fiscal year 2016. This was largely driven by a reduction in brand transition expenses incurred in relation the transition from the Elle MacPherson to Heidi Klum brand of $9.2m, given the licence arrangement terminated in fiscal year 2015 and therefore majority of the associated costs were recognized in the same period.

 

Brand transition, restructure and transaction expenses decreased by $0.9m from $2.2m in the 12-month period ended June 30 2016 to $1.3m in the 7-month period ended January 31, 2017, largely due to a $0.9m decrease in Heidi Klum brand transition costs due to any non-recurring costs associated with the transition having been incurred prior to the 7-months ended January 31, 2017.

 

An impairment expense of $2.2m was recognized in the 12-month period ended June 30 2016 and 7-month period to January 31, 2016 in relation to a goodwill write-off. An impairment expense of $0.3m was recognised in the 7- month period to January 31, 2017.

 

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Other foreign currency gains/(losses) reduced a gain of $4.7m in the 12-month period ended June 30 2015 to a loss of $2.4m in the 12-month period ended June 30 2016, due to weakening of the New Zealand dollar and the impact of unfavorable hedge contracts.

 

Other foreign currency gains/(losses) reduced a gain of $5.7m in the 7-month period to January 31, 2016 to a loss of $3.3m in the 7-month period to January 31, 2017 as a result of the same foreign exchange drivers.

 

Taxation

 

Year ended January 31, 2019 compared to 12-month period ended January 31, 2018

 

The tax benefit of $1,274k in the 12 month period ended January 31, 2019 was an increase of $1,334k when compared to the tax expense of $60k for the 12 month period ended January 31, 2018. This year on year movement is due to increased tax benefits resulting from the increased losses and adjustments for current tax for prior periods.

 

Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)

 

The tax expense of $60k in the 12month period ended January 31, 2018 decreased by $6.06m when compared to the 12-month period ended January 31, 2017. The variance was due to the write off of the carrying value of prior year tax losses and deferred tax in the due to the uncertainty over whether the deferred tax asset could be utilized.

 

7-month period ended January 31, 2017 compared to the 7-month period ended January 31, 2016 (unaudited) and 12-month period ended June 30, 2016 and the 12-month period ended June 30, 2015

 

The tax benefit of $1.3m in the 12-month period ended June 30 2015, increased by $6.8m, which resulted in a tax expense of $5.5m in the 12-month period ended June 30 2016. A tax expense of $0.9m was recognised in the 7- month period to January 31, 2017. The variances were caused by a write off of the carrying value of prior year tax losses and deferred tax temporary differences in the 12-month period ended June 30 2016 due to uncertainty over future profitability to ensure utilization of the deferred tax assets.

 

The effective tax rate for the 7-month period ended January 31, 2017, the 12-month period ended June 30 2016 and the 12-month period ended June 30 2015 was 5.7%, 36.5% and 8.9%, respectively. These effective tax rates can be explained by deferred tax credits not brought to accounts due to uncertainty over their availability for utilization.

 

Net loss and comprehensive loss

 

Year ended January 31, 2019 compared to 12-month period ended January 31, 2018

 

The net loss in the 12-month period ended January 31, 2019 increased by $11.2m, or 29.9%, to ($48.9m) when compared with ($37.4m) in the 12-month period ended January 31, 2018. This was due to both the decrease in gross profit of $6.5m and the increase in expenses of $6.4m in the 12-month period ended January 31, 2019 when compared with the 12-month period ended January 31, 2018.

 

Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)

 

The net loss in the 12-month period ended January 31, 2018 decreased by $2.5m, or 6.3%, to ($37.4m) when compared with ($39.9m) in the 12-month period ended January 31, 2017. The decrease in gross profit of $23.9m in the 12-month period ended January 31, 2018 when compared with the 12-month period ended January 31, 2017 was significantly offset by the reduction in expenses of $20.5m when comparing the same 12 month periods. Tax expense also decreased by $6.06m when compared to the 12-month period ended January 31, 2017 to $60k in the 12month period ended January 31, 2018. The variance was due to the write off of the carrying value of prior year tax losses and deferred tax in the due to the uncertainty over whether the deferred tax asset could be utilized.

 

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7-month period ended January 31, 2017 compared to the 7-month period ended January 31, 2016 (unaudited) and 12-month period ended June 30, 2016 and the 12-month period ended June 30, 2015

 

For the seven months ended January 31, 2017 and fiscal years ended June 30, 2016 (fiscal year 2016) and June 30, 2015 (fiscal year 2015), we incurred a net comprehensive loss of ($16.0m), ($20.7m) and ($13.2m) respectively. Gross profit for the seven month period ended January 31, 2017, the seven month period ended January 31, 2016, fiscal year 2016 and fiscal year 2015 was 40.7%, 45.1%, 44.7%, and 43.1%, respectively. The movement in gross margin has remained fairly consistent, but improved due to changes in the sales mix including additional online revenue, as well as positive foreign exchange rate fluctuations. The tax benefit of $1.3m in fiscal year 2015, increased by $6.8m, which resulted in a tax expense of $5.5m in fiscal year 2016. A tax expense of $0.9m was recognised in the seven month period to January 31, 2017. The variances were caused by a write off of the carrying value of prior year tax losses and deferred tax temporary differences in fiscal year 2016 due to uncertainty over future profitability to ensure utilization of the deferred tax assets.

 

The net loss in the 6-month period ended July 31, 2017 increased by $4.8m, or 34.8%, to ($18.5m) when compared with ($13.7m) in the 12-month period ended July 31, 2016. This net loss was due to a reduction in gross profit, which decreased $13.6m in the 6-month period ended July 31, 2017 when compared with the 6-month period ended July 31, 2016, however this was partially offset by a reduction in expenses of $2.2m and a reduction in income tax expense of $5.9m for the 6-month period ended July 31, 2017 when compared with the 6-month period ended July 31, 2016.

 

Segmented Reporting

 

Bendon Limited has seven reportable segments: Australia retail, New Zealand retail, Australia wholesale, New Zealand wholesale, US wholesale, Europe wholesale and E-commerce.

 

  Australia retail. This segment covers retail and outlet stores located in Australia.
     
  New Zealand retail. This segment covers retail and outlet stores located in New Zealand.
     
  Australia wholesale. This segment covers the wholesale of intimates apparel to customers based in Australia.
     
  New Zealand wholesale. This segment covers the wholesale of intimates apparel to customers based in New Zealand.
     
  US wholesale. This segment covers the wholesale of intimates apparel to customers based in the United States of America.
     
  Europe wholesale. This segment covers the wholesale of intimates apparel to customers based in Europe.
     
  E-commerce. This segment covers the Company’s online retail activities.

 

The following table provides our segment net sales, gross margin and EBITDA for the 12-month period to January 31, 2019, 2018 and 2017.

 

Year ending January 31, 2019

 

           NZ   AU   US   EU             
   NZ Retail   AU Retail   Wholesale   Wholesale   Wholesale   Wholesale   e-commerce   Unallocated     
   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   Total 
Revenue   31,801    18,547    7,154    11,491    5,798    4,996    32,133    -    111,920 
Gross margin   16,377    9,355    782    2,993    576    506    10,885    (4,034)   37,440 
EBITDA   3,373    (1,337)   (10)   (1,309)   (2.120)   (1,006)   (210)   (22,983)   (25,602)

 

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Year ending January 31, 2018

 

           NZ   AU   US   EU             
   NZ Retail   AU Retail   Wholesale   Wholesale   Wholesale   Wholesale   e-commerce   Unallocated     
   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   Total 
Revenue   34,269    18,236    10,453    15,512    6,390    14,192    32,234    102    131,388 
Gross margin   17,781    8,779    2,240    2,967    (48)   3,971    11,260    (3,021)   43,929 
EBITDA   4,330    (2,550)   1,172    (814)   (3,349)   1,067    (260)   (23,649)   (24,053)

 

Year ending January 31, 2017 (Unaudited)

 

           NZ   AU   US   EU             
   NZ Retail   AU Retail   Wholesale   Wholesale   Wholesale   Wholesale   e-commerce   Unallocated     
   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   NZ$000’s   Total 
Revenue   35,968    19,395    13,636    27,174    15,695    15,148    23,424    1,702    152,143 
Gross margin   20,761    10,958    4,072    9,764    4,979    5,013    10,879    1,358    67,785 
EBITDA   7,683    310    1,157    5,623    907    925    4,551    (19,060)   2,098 

 

For the 7-months ended January 31, 2017

 

   NZ Retail
NZ$000’s
   AU Retail
NZ$000’s
   NZ Wholesale
NZ$000’s
   AU Wholesale
NZ$000’s
   US Wholesale
NZ$000’s
   EU Wholesale
NZ$000’s
   e-commerce
NZ$000’s
   Unallocated
NZ$000’s
   Total 
Revenue   21,953    12,053    7,484    18,091    9,015    9,548    18,140    -    96,284 
Gross margin   12,246    6,461    2,523    6,660    2,081    3,271    6,238    (340)   39,140 
EBITDA   4,766    265    2,048    4,571    16    1,258    2,584    (17,634)   (2,126)

 

Year to June 30, 2016

 

   NZ Retail
NZ$000’s
   AU Retail
NZ$000’s
   NZ
Wholesale
NZ$ 000’s
   AU
Wholesale
NZ$000’s
   US
Wholesale
NZ$000’s
   EU
Wholesale
NZ$000’s
   e-commerce
NZ$ 000’s
   Unallocated
NZ$000’s
   Total 
Revenue   37,389    20,680    15,071    28,021    18,876    16,531    6,722    7,710    151,000 
Gross margin   21,336    11,750    4,350    9,965    4,336    4,873    3,140    7,725    67,475 
EBITDA   9,073    1,915    3,641    6,445    1,519    1,669    1,101    (14,893)   10,470 

 

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Year to June 30, 2015

 

   NZ Retail
NZ$000’s
   AU Retail
NZ$000’s
   NZ
Wholesale
NZ$ 000’s
  

AU
Wholesale

NZ$000’s

   US
Wholesale
NZ$000’s
   EU
Wholesale
NZ$000’s
   e-commerce
NZ$ 000’s
   Unallocated
NZ$000’s
   Total 
Revenue   37,089    18,491    16,333    29,817    13,853    17,548    5,683    24    138,838 
Gross margin   20,819    10,425    5,355    11,356    2,924    6,290    2,611    27    59,807 
EBITDA   8,934    2,801    3,568    8,907    388    3,024    620    (24,822)   3,420 

 

(1) Unallocated revenue, gross margin and EBITDA relates to revenue, gross margin and EBITDA that cannot be attributed directly to the other reportable segments above including various brand management and head office costs.

 

New Zealand and Australia Retail

 

In the 12-month period ended January 31, 2019 New Zealand retail EBITDA was $3.4m compared with $4.3m in the 12-month period to January 31, 2018. Australian Retail EBITDA for the 12-month period ended January 31, 2019 was a loss of $1.3m compared with a loss of $2.5m in the 12-month period to January 31, 2018. The retail environment continued to be challenging for our Bendon stores, and this along with a lack of current season stock supply were the key reasons for both the reduction in the New Zealand market EBITDA year on year as well as the continued operating loss in the Australian market.

 

In the 12-month period ended January 31, 2018 New Zealand retail EBITDA was $4.3m compared with $7.7m in the 12-month period to January 31, 2017. Australian Retail EBITDA for the 12-month period ended January 31, 2018 was a loss of $2.5m compared with a profit of $0.3m in the 12-month period to January 31, 2017. A challenging retail environment, seasonal product mix and vendor supply issues were the key reasons for this reduced EBITDA across both the New Zealand and Australian retail markets.

 

New Zealand Retail Gross margin reduced 5.8% between the 12-month period to January 31, 2018 and 12- month period to January 31, 2017 from 57.7% to 51.9%. Australia Retail Gross margin reduced 8.4% between the 12-month period to January 31, 2018 and 12- month period to January 31, 2017 from 56.5% to 48.1%. The reduction in the gross margin in both markets was caused by increased discounts provided to customers and sub-optimal stock mix because of the stock supply issue.

 

In the 7-month period ended January 31, 2017, the 12-month period ended June 30 2016, the 12-month period ended June 30 2015, New Zealand retail EBITDA was $4.8m, $9.1m, an d $8.9m respectively, as a result of similar trading conditions and consistent store numbers.

 

In the 12-month period ended June 30 2016, Australia retail recognized increased revenue and reduced EBITDA of $20.7m and $1.9m, respectively, as compared with $18.5m and $2.8m, respectively, in the 12-month period ended June 30 2015. The increase in revenue was due to the introduction of 8 new outlet stores, which due to early trading losses experienced reduced EBITDA. The revenue and EBITDA in the 7-month period to January 31, 2017 showed a consistent trend as compared with the 12-month period ended June 30 2016.

 

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NZ Wholesale, AU Wholesale, US Wholesale and EU wholesale

 

In the 12-month period ended January 31, 2019 the EBITDA loss decreased in the US market and increased in the NZ, AU and EU markets when compared with the 12-month period ended January 31, 2018. New Zealand wholesale EBITDA was a loss of $0.01m in the 12-months ended January 31, 2019 compared with an EBITDA profit of $1.1m in the 12-months ended January 31, 2018. AU wholesale EBITDA was a loss of $1.3m in the 12-months ended January 31, 2019 compared with an EBITDA loss of $0.8m in the 12-months ended January 31, 2018. US wholesale EBITDA was a loss of $2.1m in the 12-months ended January 31, 2019 compared with an EBITDA loss of $3.3m in the 12-months ended January 31, 2018. EU Wholesale EBITDA was a loss of $1.0m in the 12-months ended January 31, 2019 compared with a profit of $1.1m in the 12-months ended January 31, 2018.

 

In the 12-month period January 31, 2019, and 12-month period ended January 312, 2018 New Zealand wholesale revenue was $7.1m and $10.4m respectively. In the 12-month period ended January 31, 2019 New Zealand Wholesale EBITDA was a loss of $0.01m compared with a profit of $1.1m in the 12-month period to January 31, 2018. Both the reduction in sales, and EBITDA loss in the New Zealand market is attributed to a lack of order fulfillment due to the reduced stock supply, additional costs were also incurred as a result of unfulfilled orders.

 

In the 12-month period ended January 31, 2019 and 12-month period ended January 31, 2018, Australia wholesale revenue was $11.5m and $15.5m, respectively. In the 12-month period ended January 31, 2019 Australia Wholesale EBITDA was a loss of $1.3m compared with a loss of $0.8m in the 12-month period to January 31, 2018. The EBITDA loss for the Australian market was also due to a lack of fulfillment of orders because of the reduced stock supply.

 

US wholesale revenue dropped from $6.4m for the 12-month period ended January 31, 2018 to $5.8m for the 12-month period ended January 31, 2019. The EBITDA Loss for the period ended January 31, 2019 was $2.1m compared to the EBITDA loss of $3.3m for the year ended January 31,2018. The EBITDA loss incurred for the US Wholesale market was primarily due to our relationship ending with key major wholesale accounts.

 

In the 12-month period ended January 31, 2019, and the 12-month period ended January 31, 2018, EU wholesale revenue was $5.0m, and $14.2m respectively. The EBITDA Loss for the period ended January 31, 2019 was $1.0m compared to the EBITDA profit of $1.1m for the year ended January 31, 2018. A strategic decision was made by the business to exit the EU market and this is the key driver for reduction in sales and the loss for the current period.

 

In the 12-month period ended January 31, 2018 EBITDA increased in the NZ Wholesale and EU Wholesale markets and decreased in the AU Wholesale and US Wholesale markets when compared with the 12-month period ended January 31, 2017. New Zealand wholesale EBITDA was $1.17m in the 12-months ended January 31, 2018, compared with $1.15m in the 12-months ended January 31, 2017. AU wholesale EBITDA was a loss of $0.8m in the 12-months ended January 31, 2018, compared with an EBITDA profit of $5.6m in the 12-months ended January 31, 2017. US wholesale EBITDA was a loss of $3.3m in the 12-months ended January 31, 2018 compared with an EBITDA profit of $0.9m in the 12-months ended January 31, 2017. EU wholesale EBITDA was a profit of $1.1m in the 12-months ended January 31, 2018, compared with a profit of $0.9m in the 12-months ended January 31, 2017.

 

In the 12-month period ended January 31, 2018 and 12-month period ended January 31, 2017 New Zealand wholesale revenue was $10.4m and $13.6m, respectively. Cancellation of orders from our key account holders due to vendor supply issues were the key reasons for these reduced sales.

 

In the 12-month period ended January 31, 2018 and 12-month period ended January 31, 2017, Australia wholesale revenue was $15.5m and $27.1m, respectively. In the 12-month period ended January 31, 2018 Australia Wholesale EBITDA was a loss of $0.8m compared with a profit of $5.6m in the 12-month period to January 31, 2017. The EBITDA loss for the Australian market was due to the cancellation of multiple orders as a result of delayed supply, due to vendor delays and discounts offered to customers for delayed ranges.

 

US wholesale revenue dropped from $15.7m for the 12-month period ended January 31, 2017 to $6.4m for the 12-month period ended January 31, 2018. The EBITDA Loss for the period ended January 31, 2018 was $3.3m compared to the EBITDA profit of $0.9m for the year ended January 31,2017. The EBITDA loss incurred for the US Wholesale market was primarily due to our relationship ending with Macy’s

 

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In the 12-month period ended January 31, 2018, and the 12-month period ended January 31, 2017, EU wholesale revenue was $14.2m, and $15.1m respectively. EU Wholesale Gross margin decreased 5.1% between the 12-month period to January 31, 2018 and 12- month period to January 31, 2017 from 33.1% to 28%. These fluctuations were driven by changes in customer mix. EBITDA increased year on year, driven by a reduction in expenses.

 

In the 7-month period ended January 31, 2017, the 12-month period ended June 30 2016, and the 12-month period ended June 30 2015, New Zealand wholesale revenue was $7.5m, $15.1m, and $16.3m, respectively. In the 7-month period ended January 31, 2017, the 12-month period ended June 30 2016, and the 12-month period ended June 30 2015, Australia wholesale revenue was $18.1m, $28.0m and $29.8m, respectively. These fluctuations were driven by changes in customer mix and a general trend in the business to focus on its direct to consumer strategy. EBITDA for these respective segments was in line with sales movements.

 

US wholesale revenue grew from $13.9m in the 12-month period ended June 30 2015 to $18.9m in the 12-month period ended June 30 2016 as a result of a new Macy’s contract and favorable foreign exchange rate variances. U.S. wholesale revenue was $9.0m and EBITDA was $0.0m in the 7-month period to January 31, 2017 which was due to reduced business from Macy’s and less favorable foreign exchange movements than in the 12-month period ended June 30 2016. EBITDA for this segment was in line with sales movements.

 

In the 7-month period ended January 31, 2017, the 12-month period ended June 30 2016, and the 12-month period ended June 30 2015, EU wholesale revenue was $9.6m, $16.5m, and $17.5m respectively. These fluctuations were driven by changes in customer mix and general trend in the business to focus on its direct to consumer strategy. EBITDA for segments was in line with sales movements.

 

E-commerce

 

For the 12-months ended January 31, 2019 the e-commerce EBITDA was a loss of $0.2m compared with a loss of $0.3m for the 12-months ended January 31, 2018. The loss for this period was impacted by the reduction in gross margin between the 12-month period to January 31, 2019 and 12-month period to January 31, 2018 from 34.9% to 33.9%, sales are comparable year on year.

 

For the 12-months ended January 31, 2018 our e-commerce EBITDA was a loss of $0.3m compared with a profit of $4.5m for the 12-months ended January 31, 2017. The loss for this period is due to decrease in margin as a result of the new license fee under the license agreement with FOH and discounts offered to customers. E-commerce Gross margin reduced 11.5% between the 12-month period to January 31, 2018 and 12-month period to January 31, 2017 from 46.4% to 34.9%.

 

In the 12-month period ended June 30 2016, e-commerce Revenue grew to $6.7m from $5.7m in the 12-month period ended June 30 2015. This was as a result of changing consumer trends and a conscious shift in the business to focus on this revenue stream. EBIDA for this segment was in line with sales movements.

 

The e-commerce revenue and EBITDA increased significantly in the 7-month period to January 31, 2017, to $18.4m and $2.6m respectively. This was as a result of entering into a license agreement with Frederick’s of Hollywood. The previous management service arrangement with Frederick’s of Hollywood that existed in the 12-month period ended June 30 2016 was not allocated to this segment.

 

Non-IFRS Financial Measures

 

EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization and impairment. Our management uses EBITDA as a measure of our operating results and considers it to be a meaningful supplement to net income as a performance measurement, primarily because we incur significant depreciation and depletion and impairment charges, and the exclusion of such amounts in EBITDA eliminates the non-cash impact.

 

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Reconciliations

 

Reconciliation of segment EBITDA to the consolidated statements of profit or loss and other comprehensive income follows:

 

Year ended January 31, 2019 compared to 12-month period ended January 31, 2018

 

   

12 months ended

January 2019

NZ$000

   

12 months ended

January 2018

NZ$000

 
Segment EBITDA     (25,602 )     (24,053 )
Income tax (expense)/benefit     1,274       (60 )
Any other reconciling items     (24,892 )     (13,480 )
Total net loss after tax     (49,220 )     (37,593 )

 

Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)

 

   12 months  

Unaudited

12 months

 
   ended   ended 
   January 2018   January 2017 
   NZ$000   NZ$000 
Segment EBITDA   (24,053)   2,098 
Income tax (expense)/benefit   (60)   (6,123)
Any other reconciling items   (13,480)   (36,327)
Total net loss after tax   (37,593)   (40,352)

 

7-month period ended January 31, 2017 compared to the 12-month period ended June 30, 2016 and the 12-month period ended June 30, 2015

 

   7 months ended
January 2017
NZ$000’s
   12 months ended
June 2016
NZ$000’s
   12 months ended
June 2015
NZ$000’s
 
Segment EBITDA   (2,126)   10,470    3,420 
Income tax (expense)/ benefit   (865)   (5,546)   1,274 
Other Revenue        7,710    24 
Any other reconciling items   (12,988)   (33,380)   (17,823)
Total net loss after tax   (15,979)   (20,746)   (13,105)

 

In each of the tables above, “other reconciling items” consist of brand transition, restructure and transaction expenses, finance expense, impairment expense, depreciation and amortization, fair value (gain)/loss on foreign exchange contracts, and unrealized foreign exchange (gain)/loss.

 

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B. Liquidity, and Capital Resources

 

Liquidity

 

We finance our business through cash from operations and equity and debt financing. Our cash requirements have been principally to fund working capital needs, to support the growth of the business and to partially repay our bank loan.

 

Management intends to continue to raise funds from equity financing to fund our operations and objectives. There is no assurance the additional funding will be achieved. If we are unable to achieve the additional funding, we may not be able to conduct our operations and pursue our objectives as presently contemplated, which may adversely affect our results of operations and financial condition.

 

12-month period ended January 31, 2019 compared to 12-month period ended January 31, 2018

 

As at January 31, 2019 and January 31, 2018 the Company had cash totaling $1.9m and $10.7m respectively. During the 12-months ended January 31, 2019 and the 12-months ended January 31, 2018 insufficient cash availability directly contributed to a lack of stock.

 

During the year ended January 31, 2019, the Company has undertaken a number of financing activities and raised $23.6m. Of this amount, $18.5m was utilized to repay Bank debt and the balance was utilized as working capital in the operating business.

 

12-month period ended January 31, 2018 compared to 12-month period ended January 31, 2017

 

As of January 31, 2018, and January 31, 2017, the Company had cash totaling $10.7m and $2.6m respectively. During the 12-months ended January 31, 2018 and the 12-months ended January 31, 2017, insufficient cash liquidity contributed to a stock supply issue as described above.

 

During the year ended January 31, 2018, the Company issued an aggregate amount of USD $2,600,000 (NZ$3,544,649) of convertible notes.

 

Working capital

 

We have managed and continue to manage our working capital constraints through the deferral of creditor settlement. Our relationships with our suppliers are managed carefully and we do not have any significant concerns about the deferred payment arrangements. We are continuing to raise capital and believe that this will assist greatly in reducing the overdue creditor position in the coming financial year.

 

As of January 31, 2019 and January 31, 2018

 

   

January 31,

2019

NZ$000

   

January 31,

2018

NZ$000

 
             
Current Assets     33,369       70,343  
Current Liabilities     (62,795 )     (91,095 )
Working Capital     (29,426 )     (20,752 )

 

As of January 31, 2019, current assets decreased due to the reduction in related party receivables, the reduction in inventory because of the reduced stock supply, and the reduced trade and other receivables because of cancelled orders from our wholesale accounts due to ongoing stock supply issues. Our cash balance also reduced by $8.8m from $10.7m as at the year ended January 31, 2018 to $1.9m as at the year ended January 31, 2019.

 

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As of January 31, 2018 and January 31, 2017

 

   January 31,   January 31, 
   2018   2017 
   NZ$000   NZ$000 
Current Assets   70,343    81,588 
Current Liabilities   (91,095)   (101,232)
Working Capital   (20,752)   (19,644)

 

The negative working capital is primarily driven by the classification of bank debt and shareholder loan as current liabilities. As of January 31, 2018, current assets decreased due to both the reduction in inventory because of vendor supply issues and the reduced trade and other receivables as a result of cancelled orders from our wholesale accounts due to vendor supply issues

 

As of January 31, 2017, June 30, 2016 and June 30, 2015

 

   January 31,
2017
NZ$000’s
   June 30,
2016
NZ$000’s
   June 30,
2015
NZ000’s
 
Current Assets   81,588    74,807    70,026 
Current Liabilities   (108,027)   (94,794)   (94,093)
Working Capital   (26,439)   (19,987)   (24,067)

 

The negative working capital is primarily driven by the classification of bank debt and shareholders loan as current liabilities.

 

Cash flows

 

Year ended January 31, 2019 compared to 12-month period ended January 31, 2018

 

    12 months ended     12 months ended  
    January 31, 2019     January 31, 2018  
      NZ$000       NZ$000  
Net cash outflow from operating activities     (9,434 )     (4,116 )
Net cash outflow from investing activities     (1,867 )     (2,312 )
Net cash inflow from financing activities     2,168       14,496  
Net increase/(decrease) in cash and cash equivalents held     (9,133 )     8,068  
Cash and cash equivalents at end of the year     1,962       10,739  

 

Operating Activities

 

Net cash outflow from operating activities for the 12-month period to January 31, 2019 and, 12-month period to January 31, 2018 was $9.4m, and $4.1m, respectively. This was largely because of the increased net loss for the current period. The company is committed to a strategic plan lead by our new CEO to create cost savings and manage the overhead structure moving forward, we anticipate that this plan will have a positive impact on our operating cashflow moving forward.

 

Investing Activities

 

Net cash outflow from investing activities for the 12-month period to January 31, 2019 and for the 12-month period to January 31, 2018 was $1.9m and $2.3m respectively. This was driven by the proceeds from the businesses acquired during the period.

 

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Financing Activities

 

Net cash inflow from financing activities for the 12-month period to January 31, 2019 and, 12-month period to January 31, 2018 was $2.2m, and $14.5m, respectively. During the 12-month period to January 31, 2019 the company raised $23.2m through the issue of shares. These funds were partially used to fund interest charges of $2.3m during the period, and to also repay the bank $18.5m.

 

Year ended January 31, 2018 compared to 12-month period ended January 31, 2017 (unaudited)

 

   12 months   12 months 
   ended   ended 
   January 31,   January 31, 
   2018   2017 
   NZ$000   NZ$000 
Net cash outflow from operating activities   (4,116)   (15,160)
Net cash outflow from investing activities   (2,312)   (2,933)
Net cash inflow from financing activities   14,496    17,039 
Net increase/(decrease) in cash and cash equivalents held   8,068    (1,053)
Cash and cash equivalents at end of the year   10,739    2,645 

 

Operating Activities

 

Net cash outflow from operating activities for the 12-month period to January 31, 2018 and, 12-month period to January 31, 2017 was $4.1m, and $15.1m, respectively. This was largely as a result of the net loss for the periods. Bendon Limited will continue to implement a restructure plan to create cost savings and manage the overhead structure, which will show as favorable impact in the cash flow going forward.

 

Investing Activities

 

Net cash outflow from investing activities for the 12-month period to January 31, 2018 and, 12-month period to January 31, 2017 was $2.3m, and $2.9m, respectively. This was largely driven by capital expenditure on property, plant and equipment in stores including enhancement of existing stores and introduction of new stores.

 

Financing Activities

 

Net cash inflow from financing activities for the 12-month period to January 31, 2018 and, 12-month period to January 31, 2017 was $14.5m, and $17m, respectively. During the 12-month period to January 31, 2018 the company raised $22m through the issue of shares and an additional $4.5m through convertible note issuance. These funds were used partly to fund interest charges of $3.4m during the period, and to also repay the bank $9.7m.

 

7-month period ended January 31, 2017 compared to 12-month period ended June 30, 2016 and 12-month period ended June 30 2015

 

   7 months
ended
January 31,
2017
NZ$000’s
   12 months
ended
June 30,
2016
NZ$000’s
   12 months
ended
June 30,
2015
NZ000’s
 
Net cash (outflow) from operating activities   (13,518)   (5,040)   (17,199)
Net cash (outflow) from investing activities   (1,074)   (3,178)   (5,794)
Net cash inflow from financing activities   13,082    11,251    20,524 
Net increase/decrease in cash and cash equivalents held   (1,510)   3,033    (2,469)
Cash and cash equivalents   2,644    4,193    1,246 

 

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Operating Activities

 

Net cash (outflow) from operating activities for the 7-month period to January 31, 2017, 12 month period ended June 30 2016 and the 12 month period ended June 30, 2015 was $13.5m, $5.0m, and $17.2m, respectively, which was largely as a result of the net loss for the periods.

 

Investing Activities

 

Net cash (outflow) from investing activities for the 7-month period to January 31, 2017, the 12 month period ended June 30, 2016 and the 12 month period ended June 30, 2015 was $1.1m, $3.2m, and $5.8m respectively. This was largely driven by capital expenditure on property, plant and equipment in stores including enhancement of existing stores and introduction of new stores.

 

Financing Activities

 

Net cash inflow from financing activities for the 7- month period to January 31, 2017, the 12 month period ended June 30, 2016, and the 12 month period ended June 30, 2015 was $13.1m, $11.3m, and $20.5m respectively. Bank debt and shareholder loan finance increased in the 12 month period ended June 30 2015 and the 12 month period ended June 30 2016 to fund operating cash outflows. During the 7- month period ended January 31, 2017, in addition to additional bank and shareholder debt, cash was also raised through issuance of $16.5m in convertible note debt.

 

Indebtedness

 

Bank loan

 

On June 27, 2016, all banking facilities were repaid and a new banking arrangement with BNZ commenced. This debt arrangement with BNZ was entered into on June 27, 2016 and included a term loan facility and revolving (working capital) loan facility. The facility limits of the term loan and revolving loan were $54,000,000 in aggregate.

 

On June 13, 2018, we entered into a Deed of Amendment with BNZ to reduce the facility limits from $54,000,000 in the aggregate to a single revolving facility limit of $20,000,000. In addition, the new facility takes over guarantees and financial instruments totalling $1,345,000. In connection with the Deed of Amendment, we repaid approximately $18 million of the outstanding loans.

 

The new facility of $20,000,000 has been extended to August 31, 2019 and discussions are continuing to extend the facility beyond that point. The current amount outstanding under the facilities (including the instruments referenced above) is $20,000,000 (January 31, 2018: $38,489,428, 2017: $41,710,000). The current interest rate on this loan is 5.57% (January 31, 2019: 5.57%, 2018: 5.55%, 2017: 4.84%) per annum.

 

BNZ has the first ranking charge over all assets of the Company and its subsidiaries. Under the terms of the major borrowing facility, the new facility is subject to four undertakings being: Interest cover ratio of three times that is first tested as at April 30, 2019; gross EBITDA ratio measured to 3 months to September 2018 had to be greater than $0, six months to December 30, 2018 is greater than $3 million; inventory and receivables ratio must be greater than 2 times being first measured as at September 30, 2018; and the actual sales and gross margin must not vary by more than 10% from the budget submitted to the Bank.

 

As at October 31, 2018, there was a breach in minimum gross EBITDA ratio. As at January 31, 2019, there was a breach of the minimum Gross EBITDA ratio and a breach of the inventory and receivables ratio. The Bank has advised that they are currently taking these breaches under review.

 

Shareholder loan

 

On September 29, 2016, Bendon Limited issued 24,839 Bendon Ordinary Shares to the shareholders as part of an agreement to convert debt to equity. The amount of debt converted on this date amounted to $24,839,783.

 

On June 19, 2018, Bendon Limited issued additional 24,221 Bendon Ordinary Shares to the shareholders as part of an agreement to convert the remainder of the shareholder debt to equity. The amount of debt converted on this date amounted to a fair value of $12,244,208.

 

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After this conversion, the shareholder loan is fully converted to equity and the outstanding balance as at January 31, 2019 was zero (January 31, 2018: $10,951,295, 2017: $8,200,000). The interest rate on the shareholder loans up to the date of conversion was 30%, and was capitalised quarterly. Total interest capitalised during the twelve months to January 31, 2019 was $641,000 (January 31, 2018: $553,000, 2017: $275,000).

 

Convertible notes

 

On September 29, 2017, the holders of US$11.75m (NZ$16.79m) of convertible notes converted to 23,961 Bendon Ordinary Shares. On June 19, 2018, in connection with the closing of the Reorganization, the holders of US$2.8m (NZ$4.2m) of convertible notes converted to 16,408 Bendon Ordinary Shares.

 

The holder of US$1.0m (NZ$1.42m) of convertible notes elected for their convertible note to be repaid which is due at a future date to be agreed between us and the holder. The amount owing has been classified as a current borrowing and amounted to NZ$1.247m as at January 31, 2019.

 

All the convertible notes have now converted to equity due to the closing of the Reorganization, or been reclassified as other loans. Accordingly, the outstanding balance of the convertible notes was zero as at January 31, 2019 (January 31, 2018: US$2,600,000 (NZ$3,624,198), 2017: US$12,000,000 (NZ$16,474,465)). The convertible notes had been issued pursuant to an Investment Agreement dated on August 9, 2017. The convertible notes accrued interest at 10% interest, were subject to a conversion at a fixed value on the business day immediately prior to the Reorganization and had a maturity date of August 10, 2019. Conversion was at the noteholders option. If conversion had not occurred the convertible notes would have been redeemable at maturity. The issuer could have elected to redeem the convertible notes at any time prior to maturity.

 

The carrying value of the convertible notes at initial recognition was determined as the difference between the consideration received and the fair value of the embedded derivative recognised. The convertible notes are subsequently measured at amortised cost using the effective interest rate method. The carrying value of the convertible notes at January 31, 2019 was zero (2018: $1,740,000, 2017: $13,744,000).

 

C. Research and Development, Patents and Licenses

 

We do not have any set research and development policies and have not spent a significant amount on research and development in the last three fiscal years

 

D. Trend Information

 

For a discussion of trends relating to revenues, please see Item 5.A, “Results of Operations,” contained in this Annual Report and incorporated herein by reference.

 

E. Off-balance Sheet Arrangements

 

Except for amounts due under operating lease commitments disclosed below under Item E, “Contractual Obligations,” of this Annual Report, we do not have any material off-balance sheet commitments or arrangements.

  

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F. Contractual Obligations

 

As of January 31, 2019, our contractual, obligations, excluding trade creditors, were as set forth below:

 

   

Total

January 31, 2019

   

Not later

than one year

   

Between

one year and

five years

   

Later than

five years

 
    NZ$000     NZ$000     NZ$000     NZ$000  
Bank loan     20,000       20,000                  
Shareholder loans     1,049       1,049                  
Other Loans     967       967                  
Working capital financing bank facility     -       -                  
Convertible notes     0       0                  
Minimum lease payments under non-cancellable operating leases     28,057       8,974       18,532       1,485  
Contracted commitements     12,982       4,286       8,696          
Total     64,066       35,354       27,228       1,485  

 

G. Safe Harbor

 

The safe harbor provided in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act applies to forward-looking information provided under “Off-Balance Sheet Arrangements” and “Contractual Obligations.”

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Senior Management

 

Effective as of the consummation of the Transactions, our officers and directors are as follows:

 

Name   Age   Position
Justin Davis-Rice   48   Executive Chairman and Director
Anna Johnson   47   Chief Executive Officer
Howard Herman   54   Chief Financial Officer
Paul Hayes   53   Independent Non Executive Director
Andrew Shape   46   Independent Non Executive Director

 

Justin Davis-Rice has been a member of our board of directors since our formation and became our Chief Executive Officer upon consummation of the Transactions. Mr. Davis-Rice is currently Executive Chairman of Bendon Limited. Prior to becoming Executive Chairman, Mr. Davis-Rice served as Chief Executive Officer of Bendon Limited for six years during which he transformed the company through an operational restructuring and a re-engineering of key functional and operational aspects of the business including, supply chain, human resources, design and development, sourcing, wholesale and retail sales. Prior to joining the Company, Mr. Davis-Rice co-founded Pleasure State, an intimate apparel company which he merged with Bendon Limited in May 2010. Mr. Davis-Rice helped turn Pleasure State into a business with multimillion dollar earnings. Mr. Davis-Rice has served as a member of Naked (NV)’s board of directors since January 2017. The Company believes Mr. Davis-Rice’s experience in the fashion industry makes him well suited to serve as a member of the board of directors.

 

Anna Johnson became our Chief Executive Officer in April 2019. She brings to Naked a track record of over 25 years’ experience driving growth across a number of industries, including consumer electronics, outdoor adventure and intimate apparel. From September 2018 until her appointment as Chief Executive Officer of the Company, Ms. Johnson was the Chief Executive Officer of Bendon, our wholly owned subsidiary. In addition, from 2012 to June 2017, she was Executive General Manager of Bendon, spearheading Bendon’s retail channel and delivering sequential 30% plus returns from multiple women’s categories. From June 2017 to September 2018, Ms. Johnson was Executive General Manager of operations with The Warehouse Group (NZE: WHS), one of New Zealand’s largest publicly listed companies, where she oversaw $1 billion of revenue and a 93-store footprint. Prior to 2012, Ms. Johnson was the General Manager for the New Zealand territory and franchisee with Harvey Norman (ASX: HVN), one of Australia’s largest list retailers.

 

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Howard Herman became our Chief Financial Officer upon consummation of the Transactions. Mr. Herman joined Bendon Limited in March 2015 and is a Chartered Accountant with 25 years’ experience in the retail, finance and property sectors. Prior to joining Bendon Limited, Mr. Herman was a Director for 4.5 years at Universal Retail Brands which completed a management buyout of the Queenspark fashion retail chain from Specialty Fashion Group, and subsequently bought Events Fashion. The business were subsequently sold to Noni B, a retailer listed on the Australia Stock Exchange, ASX. Previously Mr. Herman was CFO at Speciality Fashion Group for 9 years. Speciality Fashion Group is a leading Apparel ASX listed retailer with over 900 doors across Australia and New Zealand and revenues of approximately AUD$800m.

 

Paul Hayes became a member of our board of directors upon consummation of the Transactions. Mr. Hayes has served as a member of Naked (NV)’s board of directors since February 2015. Mr. Hayes, a certified public accountant, has been the Vice President Finance for Parfums de Coeur Ltd, a beauty and wellness products concern, since September 2014. From October 2013 to August 2014 he was an independent consultant providing advice to a range of companies in the areas of financial reporting, systems implementation, risk management, and compliance. Through September 2013 and for more than five years previous he was with The Warnaco Group, Inc. in several roles of financial leadership. He has extensive global experience managing and driving growth in a wide range of industries, particularly in the intimate apparel and sleepwear categories through his tenure at Calvin Klein. Mr. Hayes is a Certified Public Accountant and led the commercial finance and accounting team for the $500 million Calvin Klein brand business in Europe in his capacity as Chief Financial Officer for the Europe region of The Warnaco Group. Previously, he held senior positions at Nokia Corporation and Deloitte & Touche LLP. Mr. Hayes received a BBA from Iona College and an MBA from New York University Leonard N. Stern School of Business. The Company believes Mr. Hayes’ extensive business experiences in the apparel merchandising industries makes him well suited to serve as a member of the board of directors.

 

Andrew Shape became a member of our board of directors upon consummation of the Transactions. Mr. Shape has over 25 years of merchandising, marketing, branding, licensing, and management experience. He also has provided consulting and management services to early stage brands on launching of the brand, creating a marketing plan, establishing distribution models, earning market share, and formulating an exit strategy. Mr. Shape is a co-founder of Stran & Company, Inc., a promotional merchandise and marketing agency that provides leading consumer brands with promotional merchandise and marketing support, and has served as its President since September 1996. He is also the founder of Harbor Scientific Consulting, and has served as its President since November 2017. Prior to forming Stran & Company, Inc., he worked at Copithorne & Bellows Public Relations (a Porter Novelli company) as an Account Executive covering the technology industry. Mr. Shape received a BA from the University of New Hampshire. The Company believes Mr. Shape’s extensive experience in branding and licensing makes him well suited to serve as a member of the board of directors.

 

B. Compensation

 

Compensation of Senior Management/Executive Officers

 

Justin Davis-Rice, Howard Herman and Carole Hochman served as executive officers of our company for the twelve months ended January 31, 2019. Ms. Hochman resigned as Executive Chairman and as a director in February 2019. Anna Johnson was appointed as our Chief Executive Officer in April 2019, with Mr. Davis-Rice becoming our Executive Chairman upon such appointment.

 

During the twelve months ended January 31, 2019, the aggregate amount of compensation paid to our executive officers was approximately US$1.15m. The following table sets forth the compensation of each of our executive officers for the twelve months ended January 31, 2019:

 

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Name and Principal Position  Salary   Bonus   Equity Compensation   All Other Compensation   Total 
Justin Davis-Rice
Executive Chairman (former Chief Executive Officer)
  $576,003      0        0        0   $576,003 
Howard Herman
Chief Financial Officer
  $324,000    0    0    0   $324,000 
Carole Hochman
Former Executive Chairman
  $349,998    0    0    0   $349,998 

 

Compensation of Non-Executive Independent Directors

 

Our non-employee directors receive an annual cash fee of $25,000 and an annual grant of $35,000 of ordinary shares for service on our board of directors. In addition, the chair of our audit committee receives an additional annual cash fee of $10,000, the chair of our compensation committee receives an additional annual cash fee of $5,000 and the chair of our nominating committee receives an additional annual cash fee of $5,000.

 

During the twelve months ended January 31, 2019, the aggregate amount of compensation paid to our non-employee directors (former and current) was $67,500. The following table sets forth the compensation of each of our non-employee directors for the twelve months ended January 31, 2019:

 

Name and Principal Position  

Cash Fees

USD

   

Equity

USD

   

All Other

Compensation

   

Total

USD

 

Paul Hayes

  $ 17,500     $ 17,500     $         -