Embed Size (px)
Citation preview
PwC Ref: 15299756 / L001 DocID: 138439
Calibre Group Limited ACN 100 255 623
Target’s Statement
This Target’s Statement has been issued in response to the off-market takeover bid made by Jupiter Civil Pty Ltd (ACN 630 129 903) as trustee for The
Jupiter Unit Trust (ABN 47 305 680 941) for all the ordinary shares in Calibre Group Limited (ACN 100 255 623) (the Offer).
Your Independent Directors unanimously recommend that you
ACCEPT
the Offer in the absence of a Superior Proposal. This document contains important information and requires your immediate attention. You should read all of the document. If you are in any doubt as to
what you should do you should consult your investment, financial, taxation or other professional adviser.
Target’s Statement
PwC Ref: 15299756 / L001 DocID: 138439 i
Contents 1. Chairman’s Letter 6
2. Next steps 8
3. Recommendation and relevant considerations 9
4. Frequently Asked Questions 14
5. Your choices as a Calibre Shareholder 19
6. About the Offer 20
7. Information about Calibre 26
8. Risks 31
9. Additional information 35
10. Glossary 40
11. Approval of Target’s Statement 45
Schedule 1 – Independent Expert’s Report 46
Target’s Statement
PwC Ref: 15299756 / L001 DocID: 138439 2
Important Notices 1.1 Nature of this Document
This document is the Target’s Statement dated 19 December 2018 issued by Calibre Group Limited (ACN 100 255 623) (Calibre) under Part 6.5 of the Corporations Act. This Target’s Statement is given in response to the Bidder’s Statement lodged with ASIC by Jupiter Civil Pty Ltd (ACN 630 129 903) as trustee for The Jupiter Unit Trust (ABN 47 305 680 941) (Bidder) on 10 December 2018.
1.2 ASIC disclaimer
A copy of this Target’s Statement has been lodged with ASIC. Neither ASIC nor any of its officers takes any responsibility for the contents of this Target’s Statement.
1.3 Definitions
Terms used in this Target's Statement have the meaning given to them in the Glossary at Section 10 of this Target's Statement. The Glossary also includes certain rules of interpretation which apply to this Target's Statement.
1.4 Foreign jurisdictions
The release, publication or distribution of this Target’s Statement in jurisdictions other than Australia may be restricted by law or regulation in such other jurisdictions and persons who come into possession of it should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable laws and regulations. This Target’s Statement has been prepared solely in accordance with Australian law.
1.5 No account of personal circumstances
This Target's Statement and the recommendations and other information contained in it do not constitute financial product advice. The recommendations and other information contained in this Target’s Statement should not be taken as personal financial or taxation advice, as each Calibre Shareholder’s deliberations and decision will depend upon their own financial situation, tax position, investment objectives and particular needs.
It is important that you read this Target’s Statement in its entirety before making any investment decision and any decision relating to the Offer. Your Independent Directors encourage you to obtain independent advice from your investment, financial, taxation or other professional adviser before making a decision whether or not to accept the Offer for your Calibre Shares.
1.6 Forward-looking statements
This Target's Statement contains various forward-looking statements. All statements other than statements of historical fact are forward-looking statements.
You should note that forward-looking statements are only predictions and are inherently subject to uncertainties in that they may be affected by a variety of known and unknown risks, variables and other important factors, many of which are beyond the control of Calibre.
Actual values or results, performance or achievements may differ materially from those expressed or
PwC Ref: 15299756 / L001 DocID: 138439 3
implied by such statement. The risks, variables and other factors that may affect the forward-looking statement include matters specific to the engineering sector and the utilities industry, as well as economic and financial market conditions; legislative, fiscal or regulatory developments; the price performance of Calibre Shares, including the risk of possible price decline in the absence of the Offer or other takeover or merger speculation; and risks associated with the business and operations of Calibre.
None of Calibre, any of its officers, nor any persons named in this Target's Statement with their consent, nor any person involved in the preparation of this Target's Statement, makes any representation or warranty (either express or implied) as to the accuracy or likelihood of fulfilment of any forward-looking statement, or any events or results expressed or implied in any forward-looking statement. You are cautioned not to place undue reliance on those statements.
The forward-looking statements in this Target’s Statement reflect the views held only as at the date of this Target’s Statement.
1.7 Effect of rounding
A number of figures, amounts, percentages, prices, estimates, calculations of value and fractions in this Target's Statement, are subject to the effect of rounding. Accordingly, their actual calculation may differ from the calculations in this Target’s Statement.
1.8 Independent Expert’s Report
The Independent Expert’s Report has been prepared by the Independent Expert for the purposes of this Target’s Statement and the Independent Expert is responsible for that report. Neither Calibre nor any of its officers or advisers assumes any responsibility for the accuracy or completeness of the Independent Expert’s Report.
1.9 Information on the Bidder
The information concerning the Bidder in this Target's Statement has been obtained from publicly available sources or provided by the Bidder or its advisers and has not been independently verified by Calibre or its advisers. If the information is inaccurate or incomplete, this may affect the information included in the Target’s Statement. Neither Calibre nor any of its directors, officers or advisers assumes any responsibility for the accuracy or completeness of this information.
1.10 No internet site is part of this Target’s Statement
Calibre maintains an internet site at http://www.calibregroup.com. Any references in this Target’s Statement to an internet site are a textual reference for information only and no information in any internet site forms part of this Target’s Statement.
1.11 Privacy statement
Calibre has collected certain information about you from the Calibre Shareholder Register for the purposes of providing you with this Target’s Statement. Without this information, Calibre would be hindered in its ability provide this Target’s Statement to you. The type of information collected about you includes your name, address, contact details and information on your shareholding in Calibre.
Under the Corporations Act, the name and address of securityholders are required to be held in a
PwC Ref: 15299756 / L001 DocID: 138439 4
public register. In connection with the Offer, your information may be shared on a confidential basis with certain external service providers (such as the Calibre Share Registry and providers of print and mail services), and may be required to be disclosed to certain regulators, including ASIC.
Calibre Shareholders have the right to access personal information that has been collected. They should contact the Calibre Share Registry in the first instance if they wish to exercise this right. A copy of Calibre’s Privacy Policy is available on its website at www.calibregroup.com/legal/privacy-policy.
1.12 References to currency
Unless otherwise indicated, all references to $, A$, dollars or cents in this Target's Statement are to Australian currency.
1.13 References to time
Unless otherwise indicated, all references to time in this Bidder's Statement are to the time in Sydney, Australia.
1.14 Date
This Target’s Statement is dated 19 December 2018.
PwC Ref: 15299756 / L001 DocID: 138439 5
Important Dates
Date of this Target’s Statement Wednesday, 19 December 2018
Date of Offer and date Offer opens Monday, 17 December 2018
Offer Period ends (unless extended) 7.00 pm (Sydney time) on 17 January 2019
Target’s Statement
PwC Ref: 15299756 / L001 DocID: 138439 6
1. Chairman’s Letter
19 December 2018
On Friday, 23 November 2018, Calibre announced that it had signed a Bid Implementation Agreement with the Bidder under which the Bidder proposes to acquire all the ordinary shares in Calibre by way of an off-market takeover bid (referred to in this Target’s Statement as the Offer). The Offer is a conditional off-market takeover bid to acquire all of the ordinary shares on issue in Calibre on the commencement of the Offer Period plus any Calibre Shares issued upon any conversion of the Series A Preference Shares, but will not extend to any Calibre Shares issued during the Offer Period as a result of the conversion of the Series B Notes or the Series B Preference Shares. The consideration offered under the Offer will be $0.007 (seven tenths of a cent) per Calibre Share (referred to in this Target’s Statement as the Offer Consideration or Offer Price) that you hold, subject to the Offer becoming or being declared unconditional. The Bidder’s Statement sent to you by the Bidder sets out the full terms of the Offer. This Target’s Statement is the formal response of the Independent Directors of Calibre to the Offer and sets out the reasons for our recommendation that you ACCEPT the Offer, in the absence of a Superior Proposal. These reasons include that: (a) the Offer is an all-cash offer and provides you with certainty of value for your Calibre Shares;
(b) the latest financial and operating results raises concerns about the continued financial viability of Calibre, and unless the financing structure of the Company is successfully resolved, the Company is at risk of not being able to continue as a going concern. The Offer gives you a liquidity opportunity for your Calibre Shares;
(c) at the EGM of Calibre Shareholders held on 17 December 2018, Calibre Shareholders approved the Resolution for the issue of Calibre Shares to John O’Connor and Margaret O’Connor on conversion of the Series B Notes and Series B Preference Shares, the effect of which will be to cause a change of control of Calibre;
(d) all Calibre Shareholders have an equal opportunity to participate in the benefits of the change of control of Calibre under the Offer, which they would not have if it were not for the Offer;
(e) no other offer or Superior Proposal has been received;
(f) the Offer is supported by the majority shareholder, First Reserve Corporation, which has stated that it intends to accept the Offer in the absence of a Superior Proposal;
(g) the Independent Expert has concluded that the Offer is not fair but reasonable to Calibre Shareholders; and
(h) no duty or brokerage will be charged on the sale of your Calibre Shares.
A detailed explanation of these reasons why the Independent Directors recommend you accept the Offer is set out in Section 3.5 of this Target’s Statement. Each of the Independent Directors who hold or control Calibre Shares intends to accept the Offer, in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude the Offer is reasonable. The Independent Expert considers the advantages of the Offer to be greater than the disadvantages of the
PwC Ref: 15299756 / L001 DocID: 138439 7
Offer, and has concluded that the Offer is not fair but that it is reasonable to Calibre Shareholders. The Independent Expert’s Report is annexed to this Target’s Statement as Schedule 1. The Offer is subject to the satisfaction or waiver of the Conditions set out in Section 6.4 of this Target’s Statement. I encourage you to read this Target’s Statement in full. To accept the Offer, following the instructions on the Acceptance Form accompanying the Target’s Statement.
If you are in any doubt about whether to accept the Offer, you should consult your investment, financial, taxation or other professional adviser.
Yours sincerely
Geoff Tomlinson Chairman
Target’s Statement
PwC Ref: 15299756 / L001 DocID: 138439 8
2. Next steps
2.1 What you need to do
Read this Target’s Statement, which contains the unanimous recommendation of your Independent Directors to accept the Offer, and provides the detailed reasons for this recommendation.
To accept the Offer made by the Bidder, COMPLETE THE ACCEPTANCE FORM attached to the Bidder’s Statement as Appendix B.
You may only accept the Offer in respect of all (and not part) of your Calibre Shares.
To accept the Offer, you must complete, sign and return the Acceptance Form attached as Appendix B to the Bidder’s Statement in accordance with the instructions provided in Section 9.3 of the Bidder’s Statement before the close of the Offer.
If you have any questions in relation to the Offer or this Target's Statement, please call the Calibre Shareholder Information Line on 1300 306 413 in Australia or +61 1300 306 413 from outside Australia between 8.30 am and 5.30 pm (Sydney time), Monday to Friday.
PwC Ref: 15299756 / L001 DocID: 138439 9
3. Recommendation and relevant considerations
3.1 Summary of the Offer
On 10 December 2018, the Bidder lodged its Bidder’s Statement with ASIC. The Bidder’s Statement sets out the terms of the Offer. The key terms of the Offer are summarised in Section 4 and Section 6 of this Target’s Statement.
Calibre Shareholders should read the Bidder’s Statement for full details of the Offer.
3.2 The unanimous recommendation of the Independent Directors
In assessing the Offer, your Independent Directors have taken into account many considerations, including the matters set out in the Bidder’s Statement and in this Target’s Statement.
Based on this assessment, and for the reasons set out below in Section 3.5 of this Target’s Statement, each of your Independent Directors recommends that Calibre Shareholders ACCEPT the Offer in respect of all of their Calibre Shares, in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Offer is reasonable.
In considering whether you wish to follow your Independent Directors’ recommendation, you should:
• read the whole of this Target’s Statement;
• consider your individual risk profile, investment strategy, tax position and financial circumstances; and
• obtain independent financial and taxation advice if you believe that is necessary.
You should also consider the following:
• if you hold Calibre Shares as a short-term investment, and you decide that you wish to sell your Calibre Shares now, you should consider accepting the Offer; and
• if you decide to retain your Calibre Shares, you should consider the risks associated with an investment in Calibre.
Further information on the risks associated with holding Calibre Shares are set out in Section 8 of this Target’s Statement.
3.3 Intentions of the Independent Directors
Your Independent Directors, who hold or control approximately 13.96% of Calibre Shares on issue as at the date of this Target’s Statement, have indicated their intention to accept the Offer, or procure the acceptance of the Offer in respect of the Calibre Shares they own or control, in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Offer is reasonable.
3.4 Recommendation of Peter Massey
As noted in Section 6.2(d) of the Bidder’s Statement, the Bidder intends to maintain the current employment arrangements of Calibre employees, including Peter Massey as Managing Director &
PwC Ref: 15299756 / L001 DocID: 138439 10
Chief Executive Officer. Further, as noted in Section 6.2 of the Bidder’s Statement, the Bidder has stated that it intends to give Calibre Group employees an opportunity to acquire interests in Calibre through an employee share/option scheme if Calibre is privatised following the Offer. Accordingly, to ensure that the Directors’ recommendations with regards to the Offer is free from any actual or perceived conflicts of interest, Peter Massey, in his capacity as an executive Director (and non-Independent Director), makes no recommendation to Calibre Shareholders in relation to the Offer.
3.5 Reasons why you should ACCEPT the Offer
The Independent Directors have considered the merits of the Offer and weighed up the factors for and against acceptance. The Independent Directors unanimously recommend that you ACCEPT the Offer made to you in the absence of a Superior Proposal for the reasons set out below.
The Independent Directors acknowledge there are risks associated with accepting the Offer, which are highlighted in Section 8.2 of this Target’s Statement.
While your Independent Directors acknowledge that there are reasons to reject the Offer, they believe the advantages of the Offer outweigh the disadvantages.
(a) The Independent Directors recommend that you ACCEPT the Offer
The Independent Directors unanimously recommend that you accept the Offer, in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Offer is reasonable. Subject to those same qualifications, the Independent Directors intend to accept the Offer for Calibre Shares they own or control.
(b) The Offer is an all-cash offer and provides you with certainty of value for your Calibre Shares
Calibre is not listed on any securities exchange and there is no liquid market for your Calibre Shares. Calibre was previously listed on the ASX until its de-listing in December 2015. Since that time, there has been limited liquidity opportunities to exit your shareholding in Calibre.
The Offer Consideration of $0.007 (seven tenths of a cent) cash per Calibre Share provides you with certainty of value for your Calibre Shares and the opportunity for you to realise certain value in the near term which may not be achieved if the Offer is not accepted.
If you accept the Offer, you will cease to be exposed to the risks associated with an investment in Calibre (as highlighted in Section 8.1(e)).
If you retain your Calibre Shares, the price which you will be able to realise is uncertain and you will continue to be exposed to the risks associated with being a Calibre Shareholder. These risk factors for remaining a Calibre Shareholder are discussed in Section 8.1(e). The Offer removes these risks and uncertainties for Calibre Shareholders and allows Calibre Shareholders to exit their investment in Calibre.
(c) The latest financial and operating results raises concerns about the continued financial viability of Calibre and unless the financing structure of the Company is successfully resolved, the Company is at risk of not being able to continue as a going concern
PwC Ref: 15299756 / L001 DocID: 138439 11
Calibre’s FY18 accounts noted that there is material uncertainty regarding Calibre Group's ability to continue as a going concern in the event its financing structure is not addressed. The accounts also noted that the Calibre Board was working on a number of working capital and capital management initiatives, including evaluating an expression of interest to privatise the Calibre Group.
Given the uncertainty as to the outcomes of options being investigated by Calibre to access alternative capital structures and advance working capital initiatives, the combined circumstances give rise to a material uncertainty as to the ability of Calibre Group to continue as a going concern and therefore its ability to realise its assets and discharge its liabilities in the ordinary course of business.
The Calibre Board considers that in order to achieve a sustainable financing structure, a significant capital injection into the business is required. Calibre’s senior financiers have declined to provide additional funding and have requested a reduction in their exposure to the Calibre Group. As noted in the FY18 Annual Report, discussions are being undertaken to agree mutual terms of a new debtor financing facility of $50m with Greensill and the senior banks, which will allow a repayment of some of the existing drawn bank debt as part of facilitating additional working capital, bank guarantee and asset financing facilities required for future growth.
Under the terms of the Series B Notes, Calibre is not able to raise additional new capital without the consent of the noteholders, John O’Connor and Margaret O’Connor. In practical terms, this means that to recapitalise Calibre will require sufficient capital to be raised to fully redeem those noteholders’ interests in both the Series B Notes and the Series B Preference Shares.
Unless the financing structure of the Company is successfully resolved, the Company is at risk of not being able to continue as a going concern. If you retain your Calibre Shares and Calibre becomes insolvent, the value of your Calibre Shares could fall below the value implied by the Offer. The Offer gives you a liquidity opportunity for your Calibre Shares in the near term which may not be achieved if the Offer is not accepted.
(d) Approval of the conversion of Series B Notes and Series B Preference Shares
At the EGM of Calibre Shareholders held on 17 December 2018, Calibre Shareholders approved the Resolution for the issue of Calibre Shares to John O’Connor and Margaret O’Connor on conversion of the Series B Notes and Series B Preference Shares, the effect of which will be to cause a change of control of Calibre. Specifically, the Resolution allows the Bidder (pursuant to the Bid Implementation Agreement) to require Calibre to issue a specified number of Calibre Shares to Margaret O’Connor and John O’Connor by way of conversion of some of the Series B Notes and/or Series B Preference Shares so that the Bidder, Margaret O’Connor and John O’Connor collectively (when combined with acceptances under the Offer) have a shareholding of at least 90% in Calibre, allowing the Bidder to compulsorily acquire your Calibre Shares (if you have not previously accepted the Offer).
If you do not accept the Offer and the Bidder compulsorily acquires your Calibre Shares using its post-takeover bid compulsory acquisition powers, you will still receive the Offer Price for your Calibre Shares but at a later date than you would have received it if you had accepted the Offer.
PwC Ref: 15299756 / L001 DocID: 138439 12
(e) Equal opportunity to participate in the benefits of a change of control of Calibre
All Calibre Shareholders have an equal opportunity to participate in the benefits of the change of control of Calibre which will occur by virtue of the Offer. If it were not for the Offer, approval of the Resolution would facilitate an outcome where all Calibre Shareholders may not get that opportunity as the conversion of the Series B Notes or the Series B Preference Shares will allow a change of control in Calibre that other Calibre Shareholders are not entitled to participate in.
(f) No other offer or Superior Proposal has been received
Since Calibre’s de-listing from ASX in December 2015, there has been no other offer or alternative proposal to acquire your Calibre Shares. This Offer is an opportunity for you to exit your shareholding in a single transaction.
As at the date of this Target’s Statement, Calibre has not received, and is unaware of, any proposal superior to the Offer.
(g) The Offer is supported by the majority shareholder
First Reserve currently owns 61% of the shares in Calibre and has confirmed with Calibre that it currently intends to accept the Offer, in the absence of a Superior Proposal and subject to the Independent Expert’s Report continuing to conclude that the Offer is reasonable. As at the date of this Target’s Statement, Calibre is not aware of First Reserve having changed its intentions.
(h) The Independent Expert has concluded that the Offer is not fair but reasonable to Calibre Shareholders
Based on the analysis set out in the Independent Expert’s Report, the Independent Expert has assessed that the Offer is not fair but reasonable to Calibre Shareholders.
The Independent Expert has assessed the market value of a Calibre Share, inclusive of a full premium for control, to lie in the range of $ 0.014 to $0.020 per Calibre Share. As the Offer Price of $0.007 (seven tenths of a cent) per Calibre Share lies below its range of assessed values, the Independent Expert has concluded that the Offer is not fair to Calibre Shareholders.
However, the Independent Expert has concluded that the benefits to Calibre Shareholders of accepting the Offer (such as the Offer gives Calibre Shareholders a liquidity event to exit their investment from Calibre, and that First Reserve has advised Calibre of its intention to accept the Offer, along with other advantages described in further detail in the Independent Expert’s Report) outweigh the disadvantages. Accordingly, whilst the Independent Expert has concluded that the Offer is not fair, it has concluded that the Offer is reasonable in the absence of a Superior Proposal.
Calibre Shareholders should refer to the Independent Expert’s Report in Schedule 1 to this Target’s Statement for further information.
(i) No duty of brokerage
There will be no Australian duty or brokerage charges payable on the sale of Calibre Shares under the Offer.
PwC Ref: 15299756 / L001 DocID: 138439 13
3.6 Possible reasons for not accepting the Offer
Some factors that may lead you to reject the Offer may include the following:
(a) you may disagree with the recommendation of the Independent Directors and Independent Expert;
(b) you may consider that the Offer Consideration is less than the true value of Calibre Shares;
(c) based on your individual circumstances, there may be adverse tax consequences of accepting the Offer;
(d) you may prefer an investment with the specific characteristics of Calibre;
(e) you may consider that there are prospects of an improved takeover offer being made in future by the Bidder or any other party; or
(f) you may consider that the Offer is subject to Conditions that are unacceptable.
PwC Ref: 15299756 / L001 DocID: 138439 14
4. Frequently Asked Questions
This Section answers some frequently asked questions about the Offer. It is not intended to address all issues relevant to Calibre Shareholders. This Section should be read together with all other parts of this Target’s Statement.
Question Answer
An overview of the Offer
What is the Offer? The Bidder is offering to buy all of your Calibre Shares. The Bidder is offering $0.007 (seven tenths of a cent) cash for every Calibre Share that you hold. The Offer is made for all Calibre Shares currently on issue and any Calibre Shares issued pursuant to the conversion of the Series A Preference Shares, but will not extend to any Calibre Shares issued during the Offer Period as a result of the conversion of the Series B Notes or the Series B Preference Shares.
What is the Bidder’s Statement?
The Bidder’s Statement was prepared by the Bidder and is the document setting out the terms of the Offer. The Bidder lodged the Bidder’s Statement with ASIC on 10 December 2018 and dispatched the Bidder’s Statement to Calibre Shareholders on 17 December 2018.
What is this Target’s Statement?
This Target’s Statement has been prepared by Calibre and provides the response of Calibre to the Offer, including the recommendation of your Independent Directors.
Who is the Bidder? The Bidder is a newly formed entity beneficially owned by David O’Connor and John Paul O’Connor. David and John Paul have both worked for Calibre in a range of roles since Calibre’s acquisition of Diona Pty Ltd (Diona). David O’Connor is currently the Executive General Manager – Strategy and Growth of Calibre Group and an employee of Calibre. John Paul O’Connor is currently the National Operations Manager – Diona and is an employee of Calibre. As at the date of this Target’s Statement, the Bidder holds a Relevant Interest in 0.02% of Calibre Shares on issue (through Calibre Shares held by John Paul O’Connor). You should refer to Section 2 of the Bidder’s Statement for further information on the Bidder.
What does the Independent Expert say?
The Independent Expert has concluded that the Offer is not fair but reasonable. The Independent Expert has assessed the market value of a Calibre Share to lie in the range of $0.014 and $0.020 per Calibre Share. The Offer Price of $0.007 per Calibre Share lies below this range of assessed values. However, the Independent Expert has concluded that the advantages of Calibre Shareholders accepting the Offer outweigh the disadvantages, and therefore has concluded that the Offer is reasonable, notwithstanding the Offer is not fair. The Independent Expert’s Report is included at Schedule 1 to this Target’s Statement. You should read that report carefully as it contains important information explaining how the Independent Expert has formulated its opinions.
PwC Ref: 15299756 / L001 DocID: 138439 15
Question Answer
What are your Independent Directors recommending?
Your Independent Directors unanimously recommend that you ACCEPT the Offer, in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Offer is reasonable. The reasons for your Independent Directors’ recommendation are explained in Section 3.5 of this Target’s Statement headed “Reasons why you should ACCEPT the Offer”.
What do the Independent Directors intend to do with their Calibre Shares?
Your Independent Directors intend to ACCEPT the Offer in respect of all of Calibre Shares held or controlled by them before the end of the Offer Period, in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Offer is reasonable.
What are the reasons to accept the Offer?
Please refer to Section 3.5 headed “Reasons why you should ACCEPT the Offer” for some reasons why you may consider accepting the Offer.
What are the reasons to not accept the Offer?
Please refer to Section 3.6 headed “Possible reasons for not accepting the Offer” for some reasons why you may consider rejecting the Offer.
Can the Offer be withdrawn?
The Bidder may only withdraw the Offer with the written consent of ASIC and subject to the conditions (if any) specified in such consent. If at the time the Offer is withdrawn, the Conditions of the Offer have been waived or satisfied, the Bidder may not withdraw the Offer if you have already accepted it. However, if at the time the Offer is withdrawn, the Offer remains subject to the Conditions, all accepted Offers will become void. The consequences of the Bidder withdrawing the Offer are described in Section 9.11 of the Bidder’s Statement.
Can the Offer be extended?
Yes, the Offer Period may be extended at the election of the Bidder and as permitted under the Corporations Act. Calibre has also agreed in the Bid Implementation Agreement to keep the Offer open until 17 January 2019. The Bidder requires the consent of Calibre to extend the Offer Period to longer than 3 months. The Bidder will give written notice of any extension of the Offer Period in accordance with the Corporations Act.
Can I be forced to sell my Calibre Shares?
You cannot be forced to sell your Calibre Shares unless the Bidder and its Associates have a Relevant Interest in at least 90% of all the Calibre Shares by the end of the Offer Period, and proceeds to compulsory acquisition of your Calibre Shares. If that happens because the Bidder exercises its post-takeover bid compulsory acquisition power, your Calibre Shares will be compulsorily acquired and you will receive the Offer Consideration of $0.007 (seven tenths of a cent) cash for each Calibre Share that you hold. For the reasons outlined in Section 6.14 of this Target’s Statement and Section 6.2 of the Bidder’s Statement, in the absence of a Superior Proposal, it is likely that your Calibre Shares will be compulsorily acquired by the Bidder if you do not accept the Offer.
Offer Consideration
What is the Offer Consideration?
If you accept the Offer, you will receive the Offer Consideration of $0.007 (seven tenths of a cent) cash for every Calibre Share that you hold and any Calibre Shares issued to you by Calibre upon any conversion of the Series A Preference Shares during the Offer Period. The Offer does not extend to any Calibre Shares issued during the Offer Period as a result of the conversion of the Series B Notes or the Series B Preference Shares.
PwC Ref: 15299756 / L001 DocID: 138439 16
Question Answer
If I choose to accept the Offer, when will I receive my Offer Consideration?
If you validly accept the Offer, the Bidder has stated in its Bidder’s Statement that it will pay the cash consideration for your Calibre Shares on or before the earlier of:
• one month after the date of your acceptance or, if the Offer is subject to a Condition when you accept the Offer, within 1 month after the Offer becomes unconditional; or
• 21 days after the end of the Offer Period. As at the date of this Target’s Statement, the Offer is not unconditional and remains subject to each of the Conditions, other than the Condition relating to the approval of the Resolution, which was satisfied on 17 December 2018. For more information, see Section 9.6 of the Bidder’s Statement.
What if there is a Competing Transaction?
Your Independent Directors will carefully consider the merits of any Competing Transaction and will update Calibre Shareholders as appropriate. If you have already accepted the Offer, then you may not be able to participate in any Competing Transaction.
Conditions of the Offer
What are the conditions of the Offer?
The Offer is subject to certain Conditions. By way of broad overview these Conditions include:
• minimum acceptance condition: that by the end of the Offer Period, the Bidder has received valid acceptances with respect to at least 75% of the Calibre Shares held by Calibre Shareholders who are not the Bidder’s Associates and for which it has made the Offer;
• Resolution: approval of the Resolution by the requisite majority at the EGM. This Condition was fulfilled on 17 December 2018;
• no Prescribed Occurrence: no Prescribed Occurrence occurs during the Offer Period (except for a Permitted Action); and
• financier undertakings: the lenders and financiers of the Calibre Group provide undertakings to the Bidder and Calibre not to exercise, and do not state an intention to exercise, any rights they may have to terminate any financing arrangement, require repayment of funds, or enforce security over assets of the Calibre Group as a result of the Offer.
Refer to Section 6.4 of this Target’s Statement, and Section 9.7 of the Bidder’s Statement, for further details of the Conditions.
What happens if the Conditions of the Offer are not fulfilled or waived?
If the Conditions are not fulfilled or waived in accordance with the terms of the Offer before the end of the Offer Period, the Offer will lapse, and you will not receive the Offer Consideration (even if you had accepted the Offer). However, you would then be free to deal with your Calibre Shares.
Choices as a Calibre Shareholder
What choices do I have as a Calibre Shareholder?
As a Calibre Shareholder, in respect of the Offer you can:
• ACCEPT the Offer for all of your Calibre Shares; or
• reject the Offer by doing nothing. Refer to Section 5 of this Target’s Statement for further details. Outside of the Offer, you may seek to sell some or all of your Calibre Shares to a third party. However, as Calibre Shares are not listed on any securities exchange, this may be difficult.
PwC Ref: 15299756 / L001 DocID: 138439 17
Question Answer
If you are in any doubt as to what to do, your Independent Directors recommend that you consult with your investment, financial, taxation or other professional adviser.
How do I accept the Offer?
If you agree with the recommendation of your Independent Directors to ACCEPT the Offer, you should follow the instructions in Section 9.3 of the Bidder’s Statement to complete and return the Acceptance Form attached to the Bidder’s Statement.
How do I reject the Offer?
To reject the Offer you do not need to do anything. However, you should note that the Independent Directors’ recommendation is that you ACCEPT the Offer in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Offer is reasonable.
When do I have to decide? How long will the Offer remain open?
If you wish to follow the Independent Directors’ recommendation and ACCEPT the Offer, you will need to do so before it expires. The Offer is currently scheduled to expire at 7.00pm (Sydney time) on 17 January 2019, unless withdrawn or extended. Your Independent Directors will keep you informed if there are any material developments in relation to the Offer. Calibre Shareholders are also encouraged to monitor the Calibre website at http://www.calibregroup.com/engage/news-announcements for any updates on the Offer.
Can I accept the Offer for only some of my Calibre Shares?
No, you can only accept the Offer for all of your Calibre Shares.
If I choose to accept the Offer now, can I withdraw my acceptance?
You will only be permitted to withdraw your acceptance in certain circumstances permitted under the Corporations Act, as set out in Section 6.12 of this Target’s Statement and Section 9.5 of the Bidder’s Statement.
What happens if I accept the Offer and a Superior Proposal is made?
If you accept the Offer, you will not be able to accept an offer under a Superior Proposal unless the Offer lapses or you are able to withdraw your acceptance. As at the date of this Target’s Statement, no offer has emerged that the Independent Directors consider to be a Superior Proposal.
Will I need to pay transaction costs if I accept?
No, you will not have to pay any stamp duty or brokerage fees on the disposal of your Calibre Shares if you accept the Offer.
What are the tax implications of accepting the Offer?
A general outline of the tax implications of accepting the Offer for certain Australian resident Calibre Shareholders is set out in Section 7 of the Bidder’s Statement. You should not rely on that general outline of advice on your own affairs. It does not deal with the position of certain Calibre Shareholders. It also does not take into account the particular circumstances of each Calibre Shareholder. You should therefore seek your own professional, financial and taxation advice before making a decision as to whether or not to accept the Offer for your Calibre Shares. You may, for example, be liable for Australian capital gains tax in circumstances where you make a capital gain on your Calibre Shares.
What happens if I do nothing?
If you do nothing (and thereby reject the Offer) you will remain a Calibre Shareholder and will not receive any Offer Consideration. The Bidder has stated that if it becomes entitled to compulsorily acquire
PwC Ref: 15299756 / L001 DocID: 138439 18
Question Answer
your Calibre Shares, it intends to do so using the post-takeover bid compulsory acquisition power. This means that the Bidder may be able to acquire your Calibre Shares even if you did not accept the Offer. If the Bidder exercises its post-takeover bid compulsory acquisition power, you will still receive the Offer Consideration but at a later date than you would have received if you had accepted the Offer. For the reasons outlined in Section 6.14 of this Target’s Statement and Section 6.2 of the Bidder’s Statement, in the absence of a Superior Proposal, it is likely that your Calibre Shares will be compulsorily acquired by the Bidder if you do not accept the Offer.
What if I am a foreign Calibre Shareholder?
Foreign Calibre Shareholders will receive the same cash consideration as stipulated under the Offer, which will be paid in Australian dollars. However, the tax implications under the Offer for those foreign Calibre Shareholders may be different to those relating to Australian resident Calibre Shareholders.
Further information
Who should I call if I have questions?
You can contact the Calibre Shareholder Information Line on 1300 306 413 in Australia or +61 1300 306 413 from outside Australia between 8:30am and 5:30pm (Sydney time) Monday to Friday or you can speak to your investment, financial, tax or other personal adviser.
Important notice The information in this Section 4 is a summary only of the Offer and is qualified by the detailed information set out elsewhere in this Target’s Statement. You should read the entire Target’s Statement and the Bidder’s Statement before deciding whether to accept the Offer.
PwC Ref: 15299756 / L001 DocID: 138439 19
5. Your choices as a Calibre Shareholder
As a Calibre Shareholder you have the following two options:
(a) ACCEPT the Offer
You may choose to accept the Offer. This is the approach recommended by your Independent Directors.
Instructions on how to accept the Offer are set out in Section 9.3 of the Bidder’s Statement and the Acceptance Form attached to the Bidder’s Statement.
You will receive $0.007 (seven tenths of a cent) cash for each of your Calibre Shares if you accept the Offer. You will only receive that payment if each Condition is fulfilled or waived. Further details of the payment that you will receive if you accept the Offer and the Conditions of the Offer are set out in Sections 9.6 and 9.7 of the Bidder’s Statement respectively.
The consequences of accepting the Offer are discussed in Section 9.5 of the Bidder’s Statement. If you accept the Offer, you will not be able to sell your Calibre Shares to any other potential bidder, unless, when you decide you no longer wish to accept the Offer, you have the right to withdraw your acceptance and you exercise that right. The circumstances in which acceptances of the Offer may be withdrawn are set out in Section 6.12 of this Target’s Statement.
If you accept the Offer, you may be liable for capital gains tax or income tax (or incur a tax loss) as a result of your acceptance. An overview of the taxation consequences for certain Australian resident Calibre Shareholders selling Calibre Shares is included in Section 7 of the Bidder’s Statement.
(b) Take no action (reject the Offer)
If you do not wish to accept the Bidder’s Offer, you should take no action. Simply disregard the documents sent to you by the Bidder in relation to the Offer.
If you choose not to accept the Offer, you will not receive any money from the Bidder unless your Calibre Shares are compulsorily acquired by the Bidder.
Calibre Shareholders should note that if the Bidder acquires at least 90% of the Calibre Shares at the end of the Offer Period, the Bidder will become entitled to compulsorily acquire those Calibre Shares that it does not already own. The Bidder has stated that it intends to exercise this right if it becomes so entitled. Please refer to Section 6.14 for further information regarding compulsory acquisition.
The Independent Directors encourage you to consider your personal risk profile, investment strategy, tax position and financial circumstances before making any decision in relation to your Calibre Shares.
PwC Ref: 15299756 / L001 DocID: 138439 20
6. About the Offer
6.1 The Offer
The Bidder is offering to acquire all of your Calibre Shares, including any rights attaching to those shares. The key features of the Offer are summarised in this Section 6.
Section 9 of the Bidder’s Statement sets out the full terms of the Offer.
The Offer is open for acceptance from 17 December 2018 to 17 January 2019 (referred to as the Offer Period), unless it is withdrawn or the Offer Period is extended in accordance with the Corporations Act.
6.2 Information about the Bidder
The Bidder is a newly formed entity beneficially owned by David O’Connor and John Paul O’Connor. David and John Paul have both worked for Calibre in a range of roles since Calibre’s acquisition of Diona.
David O’Connor is currently the Executive General Manager – Strategy and Growth of Calibre Group and is an employee of Calibre.
John Paul O’Connor is currently the National Operations Manager – Diona and is an employee of Calibre.
As at the date of this Target’s Statement, the Bidder holds a Relevant Interest in 0.02% of Calibre Shares on issue.
Further information on the Bidder can be found in Section 2 of the Bidder’s Statement.
6.3 Offer Price
The Bidder is offering $0.007 (seven tenths of a cent) in cash for each Calibre Share that you hold and any Calibre Shares issued to you by Calibre upon any conversion of the Series A Preference Shares.
The Offer does not extend to any Calibre Shares issued during the Offer Period as a result of the conversion of the Series B Notes or the Series B Preference Shares.
6.4 Conditions of the Offer
The Bidder’s Offer is subject to the Conditions which are summarised below:
(a) minimum acceptance condition: that by the end of the Offer Period, the Bidder has received valid acceptances with respect to at least 75% of the Calibre Shares held by Calibre Shareholders who are not the Bidder’s Associates and for which it has made the Offer;
(b) no Prescribed Occurrence: no Prescribed Occurrence occurs during the Offer Period (except for a Permitted Action);
(c) no conversion of CRCPS: none of the Series B Preference Shares are converted to Calibre Shares without the prior written consent of the Bidder;
PwC Ref: 15299756 / L001 DocID: 138439 21
(d) no conversion of convertible notes: none of the Series B Notes are converted into Calibre Shares without the prior written consent of the Bidder;
(e) Resolution: Calibre Shareholders approve the Resolution by the requisite majority at the EGM;
(f) no regulatory action: no regulatory actions, of various kinds, occur during the Offer Period (subject to certain exceptions);
(g) acquisitions, disposals, capex: no acquisitions or capital expenditure by Calibre exceeding $100,000 in aggregate (except for purchases of assets in the ordinary course) or disposals by Calibre exceeding $100,000 in aggregate (except for sales of assets in the ordinary course) during the Offer Period;
(h) financier undertakings: each lender or other financier to Calibre gives an undertaking to the Bidder and Calibre not to exercise, and does not state an intention to exercise, any rights they may have to terminate any financing arrangement, require repayment of funds, or enforce security over assets of the Calibre Group as a result of the Offer; and
(i) no dividends or distributions: no distribution (whether by way of dividend, capital reduction or otherwise and whether in cash or in specie) is announced, made, declared, paid or agreed during the Offer Period.
The full details of the Conditions of the Offer are set out in Section 9.7 of the Bidder’s Statement.
6.5 Notice of Status of Conditions
Section 9.9 of the Bidder's Statement states that the Bidder will give a Notice of Status of Conditions on 10 January 2019 (subject to variation in accordance with section 630(2) of the Corporations Act if the Offer Period is extended).
The Bidder is required to set out in its Notice of Status of Conditions:
(a) whether its Offer is free of any or all of the Conditions;
(b) whether, so far as the Bidder knows, any of the Conditions have been fulfilled; and
(c) the Bidder’s Voting Power in Calibre at that time.
If the Offer Period is extended before the time by which the Notice of Status of Conditions is to be given, the date that the Bidder must give its Notice of Status of Conditions will be taken to be postponed for the same period. In the event of such an extension, the Bidder is required, as soon as reasonably practicable after the extension, to notify Calibre of the new date for the giving of the Notice of Status of Conditions.
In addition, if a Condition is fulfilled during the Offer Period but before the date on which the Notice of Status of Conditions is required to be given, the Bidder must, as soon as practicable, give Calibre a notice stating that the particular Condition has been fulfilled.
6.6 Offer Period and acceptance
The Offer is open for acceptance from 17 December 2018 until 7.00pm (Sydney time) on 17 January
PwC Ref: 15299756 / L001 DocID: 138439 22
2019, unless it is withdrawn or the Offer Period is extended in accordance with the Corporations Act. If you choose to accept the Offer, then your acceptance must be received by the Bidder before the end of the Offer Period.
Instructions on how to accept the Offer are included in Section 9.3 of the Bidder’s Statement and in the Acceptance Form that accompanies the Bidder’s Statement. If you want to accept the Offer, you should follow these instructions carefully to ensure that your acceptance is valid.
6.7 Extension of the Offer Period
The Bidder may extend the Offer Period at any time before giving the Notice of Status of Conditions, and after giving the Notice of Status of Conditions in limited circumstances.
However, if the Offer is unconditional (that is, all the Conditions are fulfilled or waived), the Bidder may extend the Offer Period at any time before the end of the Offer Period.
Under the terms of the Bid Implementation Agreement, prior consent of the Independent Directors must be obtained if the Bidder extends the Offer Period to a period of more than 3 months.
In addition, under the Corporations Act, there will be an automatic extension of the Offer Period if, within the last 7 days of the Offer Period:
(a) the Bidder improves the Offer Price; or
(b) the Bidder’s Voting Power in Calibre increases to more than 50%.
If either of these two events occurs, the Offer Period is automatically extended so that it ends 14 days after the relevant event occurs.
6.8 Variation of the Offer
The Bidder may vary the Offer in any of the ways permitted by the Corporations Act, including by extending the Offer Period (see Section 6.7), provided the varied terms and conditions are not less favourable to Calibre Shareholders than the Offer.
If the Bidder varies the Offer in any of those ways, it must give written notice to ASIC and Calibre and send you a copy of that notice (provided, however, that the Bidder will not be required to send you a copy of the notice if, at the time of the variation, you have already accepted the Offer, the Offer is unconditional and the variation merely extends the Offer Period).
6.9 Withdrawal of the Offer by the Bidder
The Bidder may not withdraw the Offer if you have already accepted it. Before you accept the Offer, the Bidder may withdraw the Offer if it obtains the written consent of ASIC, subject to any conditions in the consent.
If at the time the Offer is withdrawn, the Conditions of the Offer have been waived or satisfied, the Bidder may not withdraw the Offer if you have already accepted it.
However, if at the time the Offer is withdrawn, the Offer remains subject to the Conditions, all accepted Offers will become void.
PwC Ref: 15299756 / L001 DocID: 138439 23
The consequences of the Bidder withdrawing the Offer are set out in Section 9.11 of the Bidder’s Statement.
6.10 Lapse of the Bidder’s Offer
The Offer will lapse if, at the end of the Offer Period, the Conditions are not fulfilled or waived in accordance with the Offer. If this occurs then acceptances given by Calibre Shareholders will be void. Calibre Shareholders will continue to own the Calibre Shares the subject of any such acceptances and will be free to deal with them as they choose.
Unless otherwise disclosed in this Target’s Statement, Calibre is not aware of any act, omission, fact or event that would result in any of the Conditions to the Offer not being fulfilled by the end of the Offer Period.
6.11 Effect of acceptance
The effect of acceptance of the Offer is set out in Section 9.5 of the Bidder’s Statement. You should read those provisions in full to understand the effect that acceptance will have on your ability to exercise the rights attaching to your Calibre Shares and the representations and warranties that you are deemed by the Bidder to give to it by accepting the Offer.
6.12 Your withdrawal rights
You only have limited rights to withdraw your acceptance of the Offer.
Once you have accepted this Offer, you will be unable to revoke your acceptance, except as follows:
(a) if, by the end of the Offer Period, the Conditions have not all been fulfilled or waived, the Offer and the contract resulting from your acceptance will automatically terminate; or
(b) if the Offer Period is extended for more than one month and the obligations of the Bidder to pay the Offer Consideration are postponed for more than one month and, at the time, the Offer is subject to the Conditions, you may be able to withdraw your acceptance in accordance with section 650E of the Corporations Act.
For further information, see Section 9.5 of the Bidder’s Statement.
6.13 When you will receive your consideration if you accept the Offer
If you accept the Offer, you will receive the Offer Consideration on the earlier of:
(a) one month after you accept the Offer, or one month after the Conditions have been fulfilled or waived (whichever is later); or
(b) 21 days after the end of the Offer Period
Full details of when payments will be made by the Bidder are set out in Section 9.6 of the Bidder’s Statement.
6.14 Compulsory acquisition and effect of Calibre’s convertible securities
As noted in Section 6.2 of the Bidder’s Statement, the Bidder will be entitled to acquire compulsorily
PwC Ref: 15299756 / L001 DocID: 138439 24
any outstanding Calibre Shares for which it has not received acceptances on the same terms as the Offer in accordance with Part 6A.1 of the Corporations Act (Compulsory acquisitions and buy-outs following takeover bid) if, during or at the end of the Offer Period, the Bidder (taken together with its Associates):
(a) has a Relevant Interest in at least 90% (by number) of Calibre Shares on issue; and
(b) has acquired at least 75% (by number) of Calibre Shares for which it has made an Offer.
The Offer is subject to a 75% minimum acceptance condition that mirrors the 75% compulsory acquisition threshold described above.
If these compulsory acquisition thresholds are met, the Bidder will have one month from the end of the Offer Period in which to give compulsory acquisition notices to Calibre Shareholders who have not accepted the Offer.
Under the Bid Implementation Agreement, the Bidder may, during the last 5 Business Days of the Offer Period, give Calibre a notice requiring it to convert such number of Series B Notes and/or Series B Preference Shares by the end of the Offer Period as the Bidder elects (Conversion Notice). Calibre must convert the number of Series B Notes and/or Series B Preference Shares specified in the Conversion Notice immediately following receipt of that notice and in any case, before the end of the Offer Period.
Calibre has no obligation to comply with the Conversion Notice unless:
(a) the Resolution has been passed;
(b) the Offer is unconditional (except for the Condition in relation to No Prescribed Occurrences); and
(c) the Bidder acquires a Relevant Interest of more than 50% (by number) of all Calibre Shares.
If the requirements set out in paragraphs (a) to (c) above are met, the Bidder has stated that its current intention is that it will issue Calibre a Conversion Notice requiring Calibre to convert a number of Series B Notes and/or Series B Preference Shares so that the Bidder (through acceptances under the Offer) and its Associates (through the conversion of the Series B Notes and/or Series B Preference Shares) will together hold a Relevant Interest in at least 90% of the issued shares in Calibre. This will allow the Bidder to proceed with compulsory acquisition of the Calibre Shares not held by the Bidder and its Associates in accordance with the Corporations Act.
At the date of this Target’s Statement, there are:
(a) 1,223,923,714 Series B Preference Shares held by John O’Connor (father of David O’Connor and John Paul O’Connor);
(b) 1,223,923,714 Series B Preference Shares held by Margaret O’Connor (mother of David O’Connor and John Paul O’Connor); and
(c) 66,666,668 Series B Notes held in equal proportions by John O’Connor and Margaret O’Connor,
on issue.
PwC Ref: 15299756 / L001 DocID: 138439 25
In accordance with the terms of the Series B Preference Shares and the Series B Notes, the conversion of all the Series B Notes and Series B Preference Shares would result in John O’Connor and Margaret O’Connor (and the Bidder, by virtue of each of John O’Connor and Margaret O’Connor being Associates of Bidder) holding a Relevant Interest at approximately 90.5% of the issued shares in Calibre (assuming the Bidder acquires no other Relevant Interest and there are no conversions of the Series A Preference Shares). Accordingly the conversion of the Series B Preference Shares and/or Series B Notes would ordinarily constitute a breach the 20% threshold in section 606 of the Corporations Act. However, the Resolution was passed at the EGM to permit this conversion pursuant to section 611 item 7 of the Corporations Act.
Calibre Shareholders have statutory rights to challenge compulsory acquisition, but this will require the relevant Calibre Shareholder to establish to the satisfaction of the court that the terms of the Offer do not represent ‘fair value’ for Calibre Shares.
If the Bidder compulsorily acquires your Calibre Shares using the post-takeover bid compulsory acquisition power, you will still receive the Offer Price for your Calibre Shares but at a later date than you would have received it if you had accepted the Offer.
In circumstances where compulsory acquisition in reliance on Part 6A.1 of the Corporations Act (as described above) is not possible, the Bidder may also seek to proceed to compulsory acquisition in accordance with Part 6A.2 of the Corporations Act (General compulsory acquisition and buy-outs) if that is, or becomes, available. For example, this may occur as a result of acquisitions of Calibre Shares in reliance on the “3% creep” exception in item 9 of section 611 of the Corporations Act. If this opportunity arises, the Bidder has stated that it intends to exercise those rights to the extent it is able to do so.
Further details regarding the Bidder’s intentions in respect of Calibre as a wholly-owned controlled entity are set out in in Section 6.2 of the Bidder’s Statement.
6.15 Minority ownership consequences
The Offer is subject to a 75% minimum acceptance condition. Theoretically, this Condition may be waived by the Bidder, although the Bidder has not indicated to Calibre any intention to do so.
In Section 6.3 of the Bidder's Statement, the Bidder describes its intentions in the event that it obtains control of Calibre but does not become entitled to at least 90% of the Calibre Shares (and is therefore not entitled to compulsorily acquire all outstanding Calibre Shares). This includes the Bidder’s ability to exercise the general compulsory acquisition powers in Part 6A.2 of the Corporations Act as noted in Section 6.14 of this Target’s Statement.
PwC Ref: 15299756 / L001 DocID: 138439 26
7. Information about Calibre
7.1 Overview of Calibre
Calibre is a diversified engineering and construction services provider which services the resources, infrastructure and urban development industries in Australia, New Zealand and Asia. Calibre primarily provides engineering and project delivery services within the Australian construction sector in Australia. The engineering construction sector forms part of the construction sector in Australia, which also includes the non-residential building sector and the residential building sector.
Calibre has two core business divisions: Professional Services and Diona.
Calibre’s Professional Services division is made up of 1,000 team members located throughout Australasia. It is responsible for the delivery of integrated services across the entire asset lifecycle, delivering to the resources, urban development and infrastructure markets. Complementing Calibre’s professional services offering is its specialist geology, mining services and geotechnical brand, Xstract. Based in Australia, but offering services globally, Xstract provides strategic and tactical solutions and operational services to resource projects and mining operations across corporate advisory, technical and consulting services, and project and mine support.
Diona is the construction business of Calibre which provides specialist delivery of utility services and infrastructure across Australia. Diona is an accredited service provider to many asset owners including Energy Australia, Energex, TransGrid, Sydney Water, Queensland Urban Utilities, Brisbane Water, APA, Jemena and Telstra.
7.2 Directors of Calibre
The Directors of Calibre as at the date of this Target’s Statement are:
Name Position
Geoffrey Tomlinson Chairman
Peter Massey Managing Director & Chief Executive Officer
Raymond Munro Non-Executive Director
Graham Smith Non-Executive Director
Dod Wales Non-Executive Director
The Independent Directors comprise Geoffrey Tomlinson, Raymond Munro, Graham Smith and Dod Wales.
7.3 Calibre’s issued securities
As at the date of this Target’s Statement, Calibre has the following securities on issue:
Class Number
Calibre Shares 340,969,545
CRCPS Series A 33,333,334
PwC Ref: 15299756 / L001 DocID: 138439 27
Class Number
CRCPS Series B1 1,223,923,714
CRCPS Series B2 1,223,923,714
Series B Notes 66,666,668
The Offer is made in respect of Calibre’s 340,969,545 issued ordinary shares, as well as any Calibre Shares issued pursuant to conversion of 33,333,334 Series A Preference Shares. The Series A Preference Shares (if fully converted) will convert into 38,463,333 Calibre Shares (plus 10,084,140 Calibre Shares if the Series A Preference Shares holder elects to receive accrued distributions in the form of Calibre Shares on 17 January 2019).
7.4 Calibre Financial Information
(a) Financial position of Calibre
On 30 October 2018, Calibre released its 2018 Annual Report for the financial year ended 30 June 2018. An extract from Calibre’s audited Consolidated Statement of Financial Position as at 30 June 2018 (as contained in Calibre’s 2018 Annual Report) is set out below:
PwC Ref: 15299756 / L001 DocID: 138439 28
Further details can be found in Calibre’s 2018 Annual Report.
(b) Historical financial information of Calibre
An extract of Calibre’s Consolidated Statement of Comprehensive Income as at the end of FY16, FY17
PwC Ref: 15299756 / L001 DocID: 138439 29
and FY18 is set out below:
Further details can be found in Calibre’s 2018 Annual Report.
PwC Ref: 15299756 / L001 DocID: 138439 30
(c) Trading update
On 22 November 2018, Calibre provided a trading update advising that its first quarter trading results have been in line with expectations delivering revenues of $107m and an EBITDA of $5m, and that Calibre’s longer-term order book was increasing in line with expectations and the growing infrastructure and resources sector expenditures in the private and government sectors. Similarly, Calibre’s committed and secured FY19 work on hand and work delivered was solid at $420m or 84% of the Calibre group’s $500m FY19 revenue target.
The trading update also noted that unaudited net assets as at 30 September 2018 had increased substantially to $50.5m (from $18.4m at 30 June 2018) as a result of improved operating performance across all businesses and the raising of $17.1m in new equity.
The October trading results, which were released on 18 December 2019, continue to track in line with expectations delivering year to date revenues of $144m and EBITDA of $6m.
However, Calibre Shareholders should refer to Section 3.5(c) above in relation to the continued financial viability of Calibre given its current financing structure.
PwC Ref: 15299756 / L001 DocID: 138439 31
8. Risks
8.1 Risks associated with not accepting the Offer
Calibre Shareholders should be aware of the following key risks that arise from not accepting the Offer.
(a) Illiquid market
Calibre Shares cannot be readily traded in a liquid market. The current status of Calibre, as an unlisted public company, means that there will not always be an active market for trading Calibre Shares. As a result, Calibre Shareholders may only have a limited opportunity to sell their Calibre Shares and may therefore have to bear the economic risk of holding the present investment in the Calibre Shares for an indefinite period of time.
(b) Change of control in Calibre
At the EGM of Calibre Shareholders held on 17 December 2018, Calibre Shareholders approved the Resolution for the issue of Calibre Shares to John and Margaret O’Connor on conversion of the Series B Notes and Series B Preference Shares, the effect of which will be to cause a change of control of Calibre. The Bidder’s intentions for Calibre as a wholly-owned controlled entity (in the event it becomes entitled to proceed to compulsory acquisition of all outstanding Calibre Shares) or as a part-owned controlled entity (in the event it fails to acquire sufficient Calibre Shares to be entitled to compulsorily acquire all outstanding Calibre Shares but the Offer is declared unconditional) is set out in Sections 6.2 and 6.3 of the Bidder’s Statement respectively.
(c) Minority shareholding
If the Bidder fails to acquire sufficient Calibre Shares to be entitled to compulsorily acquire all outstanding Calibre Shares but nonetheless declares the Offer unconditional, non-accepting Calibre Shareholders may find themselves as minority shareholders in a company with even more limited liquidity than it currently has. In those circumstances (given Calibre is a public unlisted company with no active market for its shares) there would be a risk that Calibre Shareholders will not be able to sell their Calibre Shares or can only sell those shares at a price lower than the Offer Price.
(d) Compulsory acquisition
If, after the end of the Offer Period, the Bidder becomes the holder of at least 90% of all Calibre Shares, then the Bidder may be entitled to compulsorily acquire the Calibre Shares it does not own (see Section 6.14 of this Target’s Statement and Section 6.2 of the Bidder’s Statement for more information).
If you choose not to accept the Offer, and the Bidder exercises compulsory acquisition rights, you are likely to be paid later than Calibre Shareholders who accept the Offer.
(e) Risks associated with holding Calibre Shares
There are specific risks affecting the operations of Calibre and other companies operating in the engineering industry as well as general risks affecting the price of Calibre Shares as with any investment in shares. Set out below is a summary of some of these risks. They are not exhaustive and are relevant to Calibre Shareholders as at the date of this Target’s Statement and will continue to be relevant to Calibre Shareholders who remain Calibre Shareholders following completion of the Offer.
PwC Ref: 15299756 / L001 DocID: 138439 32
(i) Future for Calibre if the Offer fails: Given the current difficult economic climate and Calibre's current cash position, if the Offer fails, the Independent Directors are of the view that Calibre would need to raise capital or recapitalise in the short term. As noted in the 2018 Annual Report, there is uncertainty regarding the Calibre Group's ability to continue as a going concern in the event its financing structure is not addressed. On 18 December 2018, Calibre announced that it had executed and commenced using its new banking and working capital facilities totalling $136.6m. The new facilities, expected to be initially drawn to $92m, provide Calibre with the increased working capital and bank guarantee facilities capacity needed to meet its future growth targets. Further, Calibre noted that it was able to extend its arrangements with Greensill Capital having provided expanded working capital facilities for the Calibre group group. Whilst these facilities will assist Calibre’s cash position in the short term, the announcement did note that Calibre anticipates further equity injections as a part of its capital management project. If the financing and capital structure of Calibre cannot be fully resolved, Calibre is at risk of not being able to continue as a going concern. If that occurs, it is likely that Calibre would need to be placed into administration or wound up. In those circumstances the return to Calibre Shareholders after payment of the administrator’s or liquidator’s fees and third party creditors would likely be minimal.
(ii) General economic conditions: Calibre’s operating and financial performance is influenced by a variety of general economic and business conditions including the level of inflation, interest rates and government fiscal, monetary and regulatory policies. Prolonged deterioration in general economic conditions, including an increase in interest rates, could be expected to have a corresponding adverse impact on Calibre’s operating and financial performance.
No guarantee can be made that Calibre's operating and financial performance will not be adversely affected by any such market fluctuations or factors. Neither Calibre, nor any person associated with the Offer guarantees the future performance of Calibre or the price of Calibre Shares.
(iii) Changes in accounting standards: Accounting standards may change. This may affect the reported earnings of Calibre and its financial position from time to time.
(iv) Taxation: Future changes in Australian tax law, including changes in interpretation or application of the law by the courts or tax authorities in Australian, may affect the tax treatment of an investment in Calibre Shares or the holding and disposal of those shares.
(v) Inability to attract and retain personnel: Infrastructure services firms and resources companies compete to attract and retain engineers. If Calibre is unable to attract and retain sufficient skilled personnel, it may not be able to meet expanding client demand. Failure to respond to demand may result in Calibre failing to perform its contracts, which could lead to loss of revenue due to claims for breach of contract or termination of contract and clients not wanting to award future work to Calibre.
(vi) Downturn in the resources industry: A decline in worldwide demand for resources, particularly China’s demand for iron ore and coal, would result in a decrease in the future capital expenditure of the resources sector and related infrastructure and this would have a direct impact on Calibre’s revenue and profitability. As the resources industry is exposed to cyclical patterns, there may be periods of intense development when Calibre is able to secure significant work and have a strong and stable revenue stream. These periods may, however, be followed by a marked decrease in development projects which could detrimentally affect
PwC Ref: 15299756 / L001 DocID: 138439 33
Calibre’s profitability and its growth.
(vii) Competition for project roles: There is increasing competition as existing and new businesses seek to benefit from growth in the Australian engineering services industry, particularly in the resources sector. Overseas engineering services firms with proven track record and significant resources are also increasingly targeting projects in Australia. Increased competition makes it more difficult for Calibre to continue to obtain engagements on similar terms as its existing contracts. If Calibre is required to agree to less advantageous terms with clients due to competing pressures (for example by agreeing to absorb more costs, agreeing to undertake work on a fixed fee or agreeing to a reduced role on a project), the margins on those contracts could be smaller and thereby negatively impact Calibre’s profitability.
(viii) Loss of revenue from key clients: Calibre relies on a small number of key clients for the majority of its total revenue and profitability. As there are limited opportunities to seek alternative work, if one or more of those clients do not continue to award work to Calibre or awards less work to Calibre, the Company’s ability to continue to sustain its revenue streams could be significantly impacted.
(ix) Termination or delay of work under contracts: Calibre’s framework contracts with key clients, any underlying work orders and project contracts with other clients can generally be terminated on 30 days’ notice. In the case of termination, Calibre may be entitled to compensation where it has commenced work on a particular work order or project contract. However, the compensation that Calibre would general receive for early termination by a client would not cover Calibre’s loss or future revenue or, in the case of a key client framework contract, profit from further work orders under such framework contract.
Calibre’s key clients may also delay issuing anticipated work orders or project contracts to Calibre if they are experiencing delays to their project. Delayed or postponed work orders or project contracts would result in a deferral of Calibre’s anticipated revenue in a given period.
(x) Reduction in outsourcing: Calibre’s growth depends on its clients continuing to outsource engineering and infrastructure services. If there is a decline in outsourcing in Calibre’s clients’ industries, this may negatively impact Calibre’s future revenue and profitability as well as its prospects for growth.
(xi) Potential involvement in workplace accidents: The engineering services industry involves the provision of services to clients who engage in high risk activities, such as mining and construction. Calibre’s personnel work on mine sites and development sites and this exposes them to potential workplace accidents, which could result in serious injury or death. Calibre or its clients could be liable for accidents which occur to Calibre personnel under occupational health and safety laws of jurisdictions in which it operates. If Calibre was held to be responsible under such legislation, the penalties could be significant and, in addition, Calibre may be liable for compensation to injured personnel.
8.2 Risks associated with accepting the Offer
Calibre Shareholders should be aware of the following key risks that arise from accepting the Offer.
(a) Conditions of the Offer
As described in Section 9.7 of the Bidder's Statement and Section 6.4 of this Target's Statement, the
PwC Ref: 15299756 / L001 DocID: 138439 34
Offer is subject to a number of Conditions. If you accept the Offer while it remains subject to Conditions, then subject to any statutory withdrawal rights that may be available to you (see Section 6.12 of this Target's Statement), you will no longer be able to sell or otherwise deal with your Calibre Shares.
If you accept the Offer and any of the Conditions remain unfulfilled at the end of the Offer Period and are not otherwise waived by the Bidder, there is no obligation on the Bidder to issue the Offer Consideration to you as consideration for your Calibre Shares. In those circumstances, any acceptances of the Offer will be void and you would then be free to deal with your Calibre Shares.
(b) Limited withdrawal rights
As described in Section 9.5 of the Bidder's Statement, once you accept the Offer, you will not be able to accept any other offer for your Calibre Shares which may arise and there are limited circumstances under which you may withdraw your acceptance (see Section 6.12 of this Target's Statement).
(c) Superior Proposal
Once you have accepted the Offer, you will not be able to accept into any Superior Proposal that may emerge unless the Offer lapses or you are able to withdraw your acceptance due to extension to the Offer Period.
PwC Ref: 15299756 / L001 DocID: 138439 35
9. Additional information
9.1 Bid Implementation Agreement
On Friday, 23 November 2018, Calibre and the Bidder entered into the Bid Implementation Agreement in relation to the Offer.
A summary of the Bid Implementation Agreement is set out in Section 8.1 of the Bidder’s Statement.
A full copy of the Bid Implementation Agreement is available on the Calibre website at http://www.calibregroup.com/assets/documents/media-releases/Bid-implementation-agreement.pdf.
9.2 Interests of the Directors in Calibre Securities
As at the date of this Target’s Statement, the Directors have relevant interests in the following Calibre Securities:
Name of Director Number of CRCPS Series A Number of Ordinary Shares
Geoffrey Tomlinson - -
Peter Massey - 2,490,672
Raymond Munro - 38,725,185
Graham Smith 15,000,000 6,397,199
Dod Wales# - -
#FR Calibre BV directly holds 208,653,415 ordinary shares in Calibre. Dod Wales has been nominated as a director of Calibre by FR Calibre BV. Dod Wales does not directly own any shares in Calibre.
9.3 Dealings by Directors in Calibre Securities
In October 2018, 1,473,185 Calibre Shares were transferred from the Calibre employee trust to Peter Massey.
Apart from this acquisition of Calibre Shares by Peter Massey, there have been no acquisitions or disposals by Directors of any Calibre Securities within the period of four months immediately preceding the date of this Target’s Statement.
9.4 Director’s interests in the Bidder
As at the date of this Target’s Statement:
• no Director has a relevant interest in the securities of the Bidder; and
• there have been no acquisitions or disposals by the Directors in the securities of the Bidder in the four months ending on the date immediately before the date of this Target's Statement.
PwC Ref: 15299756 / L001 DocID: 138439 36
9.5 Benefits and agreements
(a) Benefits in connection with retirement from office
No person has been or will be given any benefit (other than a benefit which can be given without member approval under the Corporations Act) in connection with the retirement of that person, or someone else, from a board or managerial office of Calibre or related body corporate of Calibre.
(b) Agreements connected with or conditional on the Offer
There are no agreements made between any Director and any other person in connection with, or conditional upon, the outcome of the Offer other than in their capacity as a holder of Calibre Shares.
(c) Benefits from the Bidder
None of the Independent Directors have agreed to receive, or are entitled to receive, any benefit from the Bidder which is conditional on, or is related to, the Offer other than in their capacity as a holder of Calibre Shares.
As noted in Section 6.2 of the Bidder’s Statement, the Bidder has stated that it intends to give Calibre Group employees an opportunity to acquire interests in Calibre through an employee share/option scheme if Calibre is privatised following the Offer. These benefits are likely to extend to Peter Massey, in his capacity as Chief Executive Officer of Calibre. At the date of this Target’s Statement, the Independent Directors are not aware of any agreement between the Bidder and Peter Massey regarding such benefits.
(d) Interests of Directors in contracts with the Bidder
None of the Independent Directors have any interest in any contract entered into by the Bidder.
At the date of this Target’s Statement, the Independent Directors are not aware of any agreement between the Bidder and Peter Massey regarding the opportunity to acquire interests in Calibre through an employee share/option scheme if Calibre is privatised following the Offer, as described above in Section 9.5(c).
9.6 Potential impact of Bidder’s Offer on Calibre’s material contracts
Calibre and Diona are a party to a number of key customer contracts which contain change of control provisions which may be triggered by the Offer, including its contracts with TransGrid, Sydney Water Corporation, Multinet Gas and Horizon Power. Under these contracts, prior written consent from, and reasonable notification to, the relevant client or customer counterparty of a change in control of Calibre is generally required.
It is also a Condition to the Offer that each lender to, and other financier of, the Calibre Group gives an undertaking to the Bidder and Calibre not to exercise, and does not state an intention to exercise, any rights they may have to terminate any financial arrangement, require repayment of funds, or enforce security over assets of Calibre Group as a result of the Offer.
Except in respect of the customer contracts and financing arrangements noted above, to the best of Calibre’s knowledge, none of the other material contracts to which Calibre is a party contain a change of control provision that may be triggered if the Bidder acquires Calibre Shares as a result of the Offer
PwC Ref: 15299756 / L001 DocID: 138439 37
and which may have a material adverse effect on the assets and liabilities, financial position and performance, profits and losses and prospects of Calibre.
9.7 Material litigation
Calibre Group and Diona have been notified of a potential claim against Diona and/or the Calibre Group which arose prior to the Calibre Group’s acquisition of Diona from Margaret O’Connor and John O’Connor in November 2015. The earlier owners of Diona (preceding Margaret O’Connor and John O’Connor) (the Plaintiffs) allege that Calibre had acquired trust property in circumstances where it had notice of the trust property prior to the acquisition of Diona. The current claim made by the Plaintiffs is for $12 million.
At this stage, the Plaintiffs have been successful in seeking orders from the NSW Supreme Court of Appeal for Margaret O’Connor, John O’Connor and Diona to provide preliminary discovery. Due to an indemnity provided under the share purchase agreement for the acquisition of Diona by Calibre from Margaret O’Connor and John O’Connor (SPA), Margaret O’Connor and John O’Connor have assumed conduct of this claim and will indemnify Diona for any costs associated with it.
Calibre also has a W&I insurance policy to cover breaches of title warranties under the SPA. Calibre has notified its insurers of the potential claim and is currently awaiting a coverage response. Excess under the W&I policy is $900,000, which is indemnified by Margaret O’Connor and John O’Connor. Preliminary advice provided to Calibre from external lawyers on this matter is that any claim will fall within the W&I policy coverage.
9.8 Taxation considerations for Calibre Shareholders
Section 7 of the Bidder’s Statement sets out advice on Australian tax implications of accepting the Offer.
Calibre Shareholders should consult their own tax adviser for tax advice tailored to their own particular circumstances. Calibre Shareholders should not solely rely on Section 7 of the Bidder’s Statement in relation to the taxation implications associated with their acceptance of the Offer.
9.9 ASIC modifications and exemption
Calibre has not applied for or been granted any modifications or exemptions by ASIC from the Corporations Act in relation to the Offer, except as set out in ASIC Class Order 13/521.
Calibre has not been granted any waivers in relation to the Offer.
9.10 Reliance on information obtained from the Bidder or public sources
The information in this Target’s Statement about the Bidder has been compiled from or is otherwise based on information obtained from publicly available sources, and has not been independently audited or verified by Calibre or its advisers. If the information obtained from the public sources is inaccurate or incomplete, this may affect the information included in the Target’s Statement.
9.11 Consents
Each of the persons listed below has given and has not, before the lodgement of this Target’s Statement with ASIC, withdrawn their consent to the inclusion of the following information in this Target’s Statement in the form and context in which it is included and to all references in this Target’s
PwC Ref: 15299756 / L001 DocID: 138439 38
Statement to that information in the form and context in which they appear:
• each Independent Director, to being named as an independent director of Calibre;
• PricewaterhouseCoopers Securities Ltd, to being named as financial advisers to Calibre;
• PricewaterhouseCoopers, to being named as legal advisers to Calibre;
• KPMG Corporate Finance, to being named as the independent expert engaged by Calibre and to the inclusion of the Independent Expert's Report and statements noted next to its name, and the references to that report or statements; and
• Link Market Services Limited, to being named as Calibre’s Share Registry.
Each person named in this Section 9.11 of this Target’s Statement, having given its consent to the inclusion of a statement or to being named in this Target’s Statement:
• has not caused or authorised the issue of this Target's Statement;
• does not make, or purport to make, any statement in this Target's Statement or any statement on which a statement in this Target's Statement is based other than a statement included in this Target's Statement with the consent of that person; and
• to the maximum extent permitted by law, expressly disclaims and takes no responsibility for any part of this Target's Statement, other than a reference to its name and, in the case of a person referred to above as having given their consent to the inclusion of a statement, any statement or report which has been included in this Target's Statement with the consent of that party.
As permitted by ASIC Class Order 13/521, this Target’s Statement contains statements that are made, or based on statements made, in documents lodged with ASIC. Pursuant to this Class Order, the consent of persons such statements are attributed is not required for the inclusion of those statements in this Target’s Statement.
In accordance with ASIC Class Order 13/521, any Calibre Shareholder who would like to receive a copy of those documents (or relevant extracts from those documents) may obtain a copy free of change by contacting Calibre.
9.12 Further developments
Should there be any developments during the Offer Period, which have the effect of changing the recommendation of the Independent Directors in relation to the Offer, the Independent Directors will notify Calibre Shareholders of such developments and the change to the recommendations of the Independent Directors through a supplementary Target’s Statement.
9.13 Despatch of Bidder’s Statement
Under the Bid Implementation Agreement, Calibre agreed to the earlier despatch of the Bidder’s Statement by the Bidder to Calibre Shareholders on 17 December 2018.
9.14 Other information
This Target’s Statement is required to include all the information Calibre Shareholders and their
PwC Ref: 15299756 / L001 DocID: 138439 39
professional advisers would reasonably require to make an informed assessment of whether to accept the Offer, but:
• only to the extent to which it is reasonable for investors and their professional advisers to expect to find this information in this Target’s Statement; and
• only if the information is known to any of the Calibre Directors.
The Independent Directors are of the opinion that the information that Calibre Shareholders and their professional advisers would reasonably require to make an informed assessment of whether to accept the Offer is:
• the information contained in the Bidder’s Statement (to the extent that the information is not inconsistent with or superseded by the information in this Target’s Statement);
• the information contained in documents lodged by the Bidder with ASIC before the date of this Target’s Statement; and
• the information contained in this Target’s Statement.
In deciding what information should be included in this Target’s Statement, the Independent Directors have had regard to:
• the nature of the Calibre Shares;
• the matters Calibre Shareholders may reasonably be expected to know;
• the fact that certain matters may reasonably be expected to be known to the professional advisers of Calibre Shareholders; and
• the time available to Calibre to prepare this Target’s Statement.
PwC Ref: 15299756 / L001 DocID: 138439 40
10. Glossary
10.1 Definitions
In this Target’s Statement, the following terms have the following meanings, unless the context otherwise requires:
Acceptance Form means the acceptance form enclosed with the Bidder’s Statement.
ASIC means the Australian Securities and Investments Commission.
Associate has the meaning given to that term in the Corporations Act.
Bid Implementation Agreement means the bid implementation agreement dated 23 November 2018 between the Bidder and Calibre under which the Bidder proposes to acquire all the ordinary shares in Calibre by way of an off-market takeover bid, as amended from time to time.
Bidder means Jupiter Civil Pty Ltd (ACN 630 129 903) as trustee for The Jupiter Unit Trust (ABN 47 305 680 941).
Bidder's Statement means the bidder’s statement lodged by the Bidder under Part 6.5 of the Corporations Act with ASIC on 10 December 2018 relating to the Offer, with a print version lodged with ASIC on 17 December 2018.
Business Day means a day on which banks are open for general banking business in Sydney, Australia, excluding Saturdays, Sundays or public holidays.
Calibre or Company means Calibre Group Limited (ACN 100 255 623).
Calibre Board means the board of directors of Calibre from time to time.
Calibre Director or Director means a director of Calibre.
Calibre Group means Calibre and each of its subsidiaries, and Calibre Group Members means each one of them.
Calibre Securities means the Calibre Shares, CRCPS Series A, CRCPS Series B1, CRCPS Series B2 and Series B Notes (as the case requires).
Calibre Share or Share means a fully paid ordinary share in Calibre.
Calibre Shareholder means a person who is registered as the holder of a Calibre Share in the Calibre register of members from time to time.
Calibre Shareholder Register means register of members of Calibre maintained by, or on behalf of, Calibre in accordance with section 168(1) of the Corporations Act.
Calibre Share Registry means Link Market Services Limited (ACN 083 214 537).
Competing Transaction means any expression of interest, proposal, offer or transaction (or a series of transaction), which if entered into or completed, would result in:
PwC Ref: 15299756 / L001 DocID: 138439 41
(a) a person (other than the Bidder or one of its Related Bodies Corporate):
(i) acquiring Voting Power in Calibre of more than 20%;
(ii) directly or indirectly, acquiring an interest in, a relevant interest in, having the right to acquire, becoming the holder of, or entering into a cash settled equity swap or other synthetic, economic or derivative transaction connected with, or relating to, more than 20% of the Calibre Shares or the whole or a material pat of the business or assets of the Calibre Group;
(iii) acquiring control of Calibre, within the meaning of section 50AA of the Corporations Act; or
(iv) otherwise acquiring or merging (including by a scheme of arrangement, capital reduction, sale of assets, strategic alliance, joint venture, partnership, reverse takeover bid or dual listed company structure) with Calibre; or
(b) the Offer not being able to be implemented on the terms set out in the Bid Implementation Agreement.
Condition means any of the conditions of the Offer as summarised in Section 6.4 of this Target’s Statement and set out in full in Section 9.7 of the Bidder’s Statement.
Corporations Act means the Corporations Act 2001 (Cth), as in force from time to time.
CRCPS means cumulative redeemable convertible preference shares in capital of Calibre.
CRCPS Series A means the series A cumulative redeemable convertible preference shares in the capital of the Calibre issued under the cumulative redeemable convertible preference shares subscription agreement between Calibre and each of the subscribers listed in the schedule to that agreement dated 28 June 2017.
CRCPS Series B1 means the series B cumulative redeemable convertible preference shares in the capital of Calibre issued under the subscription agreement between Calibre and John O’Connor dated on or about 24 September 2018.
CRCPS Series B2 the series B cumulative redeemable convertible preference shares in the capital of Calibre issued under the subscription agreement between Calibre and Margaret O’Connor dated on or about 24 September 2018.
Diona means Diona Pty Ltd (ACN 001 904 258).
Director means a director of Calibre.
EGM means the extraordinary general meeting of Calibre held on 17 December 2018.
FY means the financial year ending or ended 30 June.
First Reserve means First Reserve Calibre BV, a Related Body Corporate of First Reserve Corporation.
Foreign Shareholder means a shareholder whose address is shown in the Calibre Shareholder Register as a place outside Australia.
PwC Ref: 15299756 / L001 DocID: 138439 42
Independent Directors means Geoffrey Tomlinson, Raymond Munro, Graham Smith and Dod Wales.
Independent Expert means KPMG Corporate Finance, being the party hired by the Independent Directors to prepare and deliver the Independent Expert’s Report.
Independent Expert’s Report means the report and related financial services guide prepared by the Independent Expert, as set out in Schedule 1.
KPMG Corporate Finance means KPMG Financial Advisory Services (Australia) Pty Ltd (ABN 43 007 363 215) (of which KPMG Corporate Finance is a division).
Notice of Status of Conditions means the Bidder’s notice disclosing the status of the Conditions of the Offer, which is required to be given under section 630(3) of the Corporations Act.
Offer means the offer by the Bidder under Chapter 6 of the Corporations Act to acquire all of the Calibre Shares on issue on the date of the Bid Implementation Agreement and all Calibre Shares issued on conversion of the Series A Preference Shares during the Offer Period, on the terms contained in the Bidder’s Statement (as subsequently varied in accordance with the Corporations Act).
Offer Consideration has the same meaning as Offer Price.
Offer Period has the meaning given to it in the Bidder’s Statement.
Offer Price means $0.007 (seven tenths of a cent) per Calibre Share offered by the Bidder under the Offer.
Permitted Action has the meaning given in the Bid Implementation Agreement.
Prescribed Occurrence has the meaning given in the Bid Implementation Agreement, which is also set out in Section 9.7(b) of the Bidder’s Statement.
Relevant Interest has the meaning given to it under sections 608 and 609 of the Corporations Act.
Resolution means the resolution for the approval for the issue of Calibre Shares on the conversion of Series B Notes and Series B Preference Shares, voted on at the EGM.
Series A Preference Shares means CRCPS Series A.
Series B Notes means the series B convertible notes issued by Calibre to John O’Connor and Margaret O’Connor under the convertible note subscription agreements dated 3 October 2017 between Calibre, and John O’Connor and Margaret O’Connor, respectively.
Series B Preference Shares means, collectively:
(a) CRCPS Series B1; and
(b) CRCPS Series B2.
Superior Proposal means a bona fide Competing Transaction which each of the Independent Directors determine, acting in good faith and in order to satisfy what the Independent Directors consider to be their fiduciary and statutory duties (after having taken advice from Calibre’s financial
PwC Ref: 15299756 / L001 DocID: 138439 43
advisers), is capable of being completed, taking into account all aspects of the transaction or proposed transaction (including its consideration (and form of consideration), conditions and the person or persons making it) and is superior overall for Calibre Shareholders as compared to the Offer.
Target’s Statement means this document, being the statement of Calibre under Part 6.5 of the Corporations Act in relation to the Offer. It includes the Independent Expert’s Report.
Voting Power has the meaning given in the Corporations Act.
10.2 Interpretation
In this Target’s Statement, the following principles of interpretation apply unless the context otherwise requires:
(a) words and phrases not specifically defined in this Target’s Statement have the same meaning that is given to them in the Corporations Act (if any) and a reference to a statutory provision is to the Corporations Act unless otherwise specified;
(b) a reference to any legislation or legislative provision includes any statutory modification or re-enactment of, or any legislative provision substituted for, and any subordinate legislation issued under, that legislation or legislative provision;
(c) the singular includes the plural and vice versa;
(d) a reference to an individual or person includes a corporation, partnership, joint venture, association, authority, trust, state or government, and vice versa;
(e) a reference to gender includes any gender;
(f) a reference to a section or paragraph is to a section or paragraph of this Target’s Statement;
(g) where a word or phrase is given a particular meaning, other parts of speech and grammatical forms of a word or phrase defined in this Target’s Statement have a corresponding meaning;
(h) a reference to “dollars”, “$” or “cents” is to Australian currency unless otherwise stated;
(i) a reference to a time is a reference to the local time in Sydney, Australia;
(j) a reference to a period of time (including a year, a quarter, a month or a day) is to a calendar period;
(k) a statement made in this Target’s Statement is made as at the date of this Target’s Statement;
(l) headings are for ease of reference only and do not affect its interpretation;
(m) “including”, “for example” or “such as” when introducing an example, does not limit the meaning of the words to which the example relates to that example or examples of a similar kind;
(n) a reference to writing includes e-mail transmissions;
(o) a reference to you is to a person to whom the Offer is made under this Target’s Statement;
PwC Ref: 15299756 / L001 DocID: 138439 44
(p) a reference to a document includes all amendments or supplements to, or replacements or novations of, that document; and
(q) a right or obligation of two or more persons benefits them jointly and binds them jointly and severally.
PwC Ref: 15299756 / L001 DocID: 138439 45
11. Approval of Target’s Statement
This Target's Statement has been approved by a resolution passed by the Independent Directors. Each Director (other than Peter Massey who did not vote on the resolution because he is not an Independent Director) has voted in favour of the resolution authorising this Target’s Statement.
Signed for and on behalf of Calibre Group Limited
Geoff Tomlinson Chairman
Target’s Statement
PwC Ref: 15299756 / L001 DocID: 138439 46
Schedule 1 – Independent Expert’s Report
See attached.
KPMG Financial Advisory Services (Australia) Pty Ltd Australian Financial Services Licence No. 246901 235 St Georges Terrace Perth WA 6000 GPO Box A29
ABN: 43 007 363 215 Telephone: +61 8 9263 7171 Facsimile: +61 8 9263 7129 www.kpmg.com.au
kpmg
KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
The Directors Calibre Group Limited Level 7, 601 Pacific Highway St Leonards NSW 2065
18 December 2018
Dear Directors
INDEPENDENT EXPERT REPORT AND FINANCIAL SERVICES GUIDE
PART ONE – INDEPENDENT EXPERT’S REPORT
1 Introduction
Calibre Group Limited (Calibre or the Company) is a diversified engineering and construction services provider which services the resources, infrastructure and urban development industries in Australia, New Zealand and Asia. The Company provides a range of services including feasibility, design, engineering, procurement, construction management, construction and maintenance.
On 16 November 2015, Calibre acquired Diona Pty Ltd (Diona), a civil engineering company for $45 million in cash and up to another $45 million in deferred consideration contingent upon the Diona business achieving agreed earnings targets in subsequent financial years.
An initial deferred consideration of $14.4 million was paid in cash during the financial year (FY) ended 30 June 2017.
On 1 November 2017, Calibre announced the issue of convertible notes to the original vendors of Diona, John O’Connor and Margaret O’Connor1 (the Vendors), with an aggregate face value of $25 million as part of the settlement of the final deferred consideration obligations payable in relation to the acquisition of Diona. The convertible notes comprised of two tranches:
100.0 million Series A convertible notes (Series A Notes) with an aggregate face value of $15 million
66.7 million Series B convertible notes (Series B Notes) with an aggregate face value of $10 million, (together the Notes).
The remaining $5 million of the deferred consideration obligation was paid to the Vendors in cash.
1 We have been advised by the Company that John O’Connor and Margaret O’Connor are currently considered to be associates under the Corporations Act 2001 (Cth) (the Act)
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
2
On 15 March 2018, Calibre announced that following a strategic review, it had commenced a formal sale process in respect of each of its businesses, Professional Services, Diona and G&S Engineering Pty Ltd (G&S Engineering).
On 4 July 2018, Calibre entered into a conditional agreement to sell G&S Engineering, which was completed on 6 August 2018.
On 10 August 2018, Calibre advised that following the withdrawal of a potential purchaser for the Professional Services and Diona businesses, it had ended the strategic sale process for these businesses.
On 25 September 2018, Calibre announced it has concluded an agreement for the issue of approximately 2.45 billion Series B cumulative redeemable convertible preference shares (Series B CRCPS) to the Vendors, replacing the Series A Notes.
On 23 November 2018, Calibre announced that it had entered into a Bid Implementation Agreement (BIA) with Jupiter Civil Pty Ltd as trustee for The Jupiter Unit Trust (Jupiter or the Bidder), pursuant to which Jupiter has offered to acquire all of the shares in Calibre for a consideration of $0.007 cash per Calibre share acquired (the Offer).
On 17 December 2018, Calibre announced that shareholders had approved the potential future conversion of the Series B CRCPS, along with the Series B Notes (together the Series B Instruments).
Jupiter is a newly formed entity beneficially owned by Messers David O’Connor and John Paul O’Connor, the sons of the Vendors.
The Directors of Calibre (the Directors) have requested KPMG Financial Advisory Services (Australia) Pty Ltd (of which KPMG Corporate Finance is a division) (KPMG Corporate Finance) prepare an Independent Expert Report (IER) setting out whether or not, in our opinion, the Offer is fair and reasonable to the shareholders of Calibre.
This report should be considered in conjunction with and not independently of the information set out in the Target Statement to which this report is attached.
KPMG Corporate Finance’s Financial Services Guide is contained in Part Two of this report.
2 Summary of the Offer
The principal terms of the Offer as they affect Calibre shareholders are that if the Offer is successful, Calibre shareholders will receive $0.007 cash in respect of each Calibre ordinary share they hold.
The Offer will also extend to any shares issued by the Company upon any conversion of the Series A cumulative redeemable convertible preference shares issued on 30 June 2017 (Series A CRCPS), but will not extend to any shares issued during the period of the offer (Offer Period) as a result of the conversion of any Series B Instruments issued by the Company to the Vendors2.
2 We have been advised by the Company that the Vendors are deemed to be associates of the Bidder for the purposes of the Act
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
3
2.1 Conditions precedent
Completion of the Offer is subject to a number of conditions precedent as set out in the BIA, including, but not limited to:
that by the end of the Offer Period, the Bidder has received valid acceptances with respect to at least 75% of the ordinary shares in the Company held by shareholders who are not its associates and for which it has made an offer under the Offer (Minimum Acceptance Condition);
approval of the resolution to be voted on at the Company’s Extraordinary General Meeting held on 17 December 2018 by the requisite majority (which has now been satisfied);
no prescribed occurrences occur with respect to the Company, which includes no conversion of any Series B Instruments, except to the extent agreed to in writing by the Bidder; and
the lenders and financiers of the Company or its subsidiaries provide undertakings to Jupiter and the Company not to exercise, and not to state an intention to exercise, any rights they may have to terminate any financing arrangement, require repayment of funds, or enforce security over assets of the Company or its subsidiaries.
3 Scope of report
The Directors have requested KPMG Corporate Finance prepare an IER for the shareholders of Calibre setting out whether in our opinion the Offer is fair and reasonable to the shareholders of Calibre that satisfies the requirements under Section 640 of the Act.
3.1 Basis of assessment
Under Section 640 of the Act, an IER is required to state whether an offer is considered fair and reasonable. In undertaking our work, we have referred to guidance provided by the Australian Securities and Investments Commission (ASIC) in its Regulatory Guides, in particular Regulatory Guide 111 ‘Content of expert reports’ (RG 111) which outlines the principles and matters which it expects a person preparing an independent expert report to consider when providing an opinion on whether a transaction is “fair and reasonable”.
RG 111 notes:
‘fair and reasonable’ is not regarded as a compound phrase
an offer is ‘fair’ if the value of the offer price or consideration is equal to or greater than the value of the securities subject to the offer
the comparison should be made assuming 100% ownership of the ‘target’ and irrespective of whether the consideration is scrip or cash
the expert should not consider the percentage holding of the ‘bidder’ or its associates in the target when making this comparison
an offer is ‘reasonable’ if it is ‘fair’
an offer might also be ‘reasonable’ if, despite being ‘not fair’, the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid before the close of the offer.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
4
In addition, RG 111 notes that the weight of judicial authority is that an expert should not reflect ‘special value’ that might accrue to the acquirer. Accordingly, when assessing the full underlying value of Calibre, we have considered those synergies and benefits which would be available to more than one potential purchaser (or a pool of potential purchasers) of Calibre. As such, we have not included the value of special benefits that may be unique to Jupiter. Accordingly, our valuation of Calibre has been determined without regard to the specific bidder, and any special benefits have been considered separately.
Reasonableness involves an analysis of other factors that shareholders might consider prior to accepting an offer, such as but not limited to:
the bidder’s pre-existing shareholding in the target
the liquidity of the market in the target’s shares
any special value of the target to the bidder
the likely market price of the target’s shares in the absence of the offer
any conditions associated with the offer
the likelihood of an alternative offer being made
the consequences of not approving the offer.
4 Summary of opinion
In our opinion the Offer is not fair but is reasonable to Calibre shareholders in the absence of a superior offer.
In forming our opinion on the fairness of the Offer, the principal matter we considered was whether the consideration to be paid, being $0.007 cash for each ordinary Calibre share on issue, exceeds the market value of a Calibre share on a 100% control basis.
We have assessed the market value of a Calibre share, inclusive of a full premium for control, to lie in the range of $0.014 to $0.020. As the cash consideration under the Offer of $0.007 per Calibre share lies below our range of assessed values we consider the Offer is not fair.
Whilst we consider our range of assessed values for a Calibre share in the absence of the Offer to be reasonable at the date of this report, our values assume that:
Calibre will be able to continue as a going concern but, having regard to its current financial circumstances, will not be in a position to redeem the Series B CRCPS; and
the holders of the Series B Notes agree to the conversion of the Series B Notes rather than seeking their redemption, which is at their option.
In the event the Company was able to source funding allowing for redemption of these instruments rather than conversion, our range of values would increase significantly to between $0.040 to $0.0553. However, for the reasons set out below, we consider the uncertainty in relation to the Company’s ability
3 Assuming all interest and distributions relating to the Series A CRCPS, Series B CRCPS and Series B Notes are accrued until conversion and capitalised. This scenario also assumes that the holders of the Series B Notes would elect to convert given that the undiluted value of Calibre lies above the conversion price of the Series B Notes
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
5
to source sufficient additional funding prior to the maturity of the Series B Instruments is too great to adopt this as the basis of assessing the fairness of the Offer.
The Company is part way through a restructuring plan, which has included:
the sale of G&S Engineering
a refinancing of senior debt
securing supply chain refinancing and similar working capital financing arrangements from certain other parties
the issue of the Series B CRCPS,
and continues to be focused on increasing sales, improving controllable costs and improving general operating efficiency.
Whilst these restructuring initiatives have reduced Calibre’s immediate funding commitments, and both of Calibre’s remaining business units are expected to be positive contributors to the Company’s performance moving forward, it is unlikely that the trading performance of these businesses alone will be sufficient to fund redemption of the Series B Instruments at maturity, as well as addressing the Company’s current working capital shortfall and servicing other funding obligations (noting that under the Company’s security arrangements related to its borrowings the redemption of the Series B Instruments would in any event require approval from the senior debt facility providers).
As an already highly leveraged4 unlisted public company in a vulnerable financial position5, we consider that in the absence of the Offer, the prospects of Calibre raising significant further debt and/or equity capital to fund the redemption of the Series B Instruments to be unlikely. We also note that the Series B Notes are secured pursuant to General Security Deeds, which provide for a negative pledge that the Company will not without the prior written consent of the holders of the Series B Notes create or allow other security interests in the Company’s assets and subsidiaries or dispose of or part with possession of any assets or shares in subsidiaries. This right effectively gives the holders of the Series B Notes negative control over the Company and its ability to transfer assets of the Company to a third party. Further, the Company is not entitled to issue any securities without the consent of the holders of the Series B Notes.
As we have determined the Offer to be not fair based on our estimate of the underlying value of Calibre, the more important question for Calibre shareholders is whether the Offer is reasonable. This requires consideration as to whether Calibre shareholders would be better off accepting the Offer, notwithstanding that it is not fair.
On balance, whilst we consider the Offer to be not fair, we consider the benefits to Calibre shareholders of accepting the Offer outweigh the disadvantages, including:
the Offer provides the opportunity for Calibre shareholders to exit their investment for a certain cash amount. In contrast, in the event shareholders elect to retain their shares in Calibre the future value of these shares will be outside the control of shareholders, including:
4 Current gearing ratio in the order of 177%. Gearing ratio represents total loans, borrowings and deferred consideration divided by net assets as at 31 October 2018 5 With a net tangible asset deficiency of approximately $57 million as at 31 October 2018 and an assessed working capital shortfall in the order of $18 million to $20 million net of cash
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
6
there is no guarantee that the holders of the Series B Notes will not seek the redemption rather than conversion of these instruments in the future. In the absence of the Company being able to source additional funding to facilitate redemption, there would be an increase in the prospect that the Company would be unable to continue as a going concern which, in turn, would have a material adverse impact on any remaining shareholder value given the substantial level of debt held by the Company
the Company is part way through a restructuring program. Accordingly, the future value of the Company in the absence of the Offer will change, either positively or negatively, as the success or otherwise of the current performance initiatives crystallises over time.
the Offer provides a liquidity event for all Calibre shareholders. Trading in Calibre shares is conducted via an informal internally administered secondary market, which is extremely illiquid.
the Offer is conditional upon Calibre shareholders approving the potential conversion of the Series B Instruments, which was satisfied on 17 December 2018. Accordingly, Calibre shareholders have already effectively approved the potential for a change of control event, albeit under this scenario existing Calibre shareholders would retain their diluted shares in Calibre.
Calibre’s 61% shareholder, First Reserve Corporation (First Reserve), has advised the Company of its intention to accept the Offer, which at the date of this report has not been withdrawn.
4.1 Fairness
The Offer is not fair
In assessing the fairness of the Offer to Calibre shareholders, we have compared the value of an existing Calibre share, inclusive of a premium for control and on a going concern basis, to the consideration under the Offer, being $0.007 cash for each Calibre share on issue.
On this basis, we have assessed the value of Calibre, inclusive of a premium for control, to be in the range of approximately $52 million to $79 million, or between approximately $0.014 and $0.020 per Calibre share, as summarised in the table below.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
7
Table 1: Summary of assessed values on a fully diluted basis
Valuation summary Value range
$ million Section ref Low High
Future maintainable earnings 10.3.1 24 24
EBITDA multiple1 10.3.2 7.0x 7.5x
Enterprise value 168.0 180.0
Add: accumulated tax losses 10.3.3 4.5 16.7
Add: shares in unlisted investments 10.3.4 - 0.3
Less: working capital shortfall (net of cash) 2 10.3.5 (20.0) (18.0)
Less: borrowings (external) 10.3.6 (89.3) (89.3)
Less: onerous lease provision net of tax 10.3.7 (10.8) (10.8)
Implied equity value (control basis) 52.4 78.9
Ordinary shares pre-conversion (millions) 341.0 341.0
Series A CRCPS - dilution impact (millions) 3,5 10.3.8 44.7 44.7
Series B CRCPS - dilution impact (millions) 4,5 10.3.9 2,828.9 2,828.9
Series B Notes - dilution impact (millions) 4,5 10.3.10 660.2 660.2
Total number of shares - diluted (millions) 3,874.7 3,874.7
Implied value per share (control basis) $0.014 $0.020
Notes: 1 EBITDA means Earnings Before Interest Tax Depreciation and Amortisation 2 We note that Calibre has entered into a working capital facility with Greensill Capital Pty Ltd which is
expected to provide funding to partially address the working capital shortfall, however this will not impact our range of assessed values as the funds used to partially address the working capital shortfall will be reclassified as external borrowings
3 Series A CRCPS are assumed to be converted to ordinary shares by Calibre at 23 November 2018 based on amounts due as at 23 November 2018 where our assessed value per share is below the conversion price. In the event the Series A CRCPS were not converted until the change of control event triggered by conversion of the Series B CRCPS, the number of new Calibre shares issued would reduce to 42.8 million
4 The dilutionary impact of the Series B CRCPS and Series B Notes is calculated by aggregating the principal amounts and accrued unpaid distributions/interest of the respective securities to 1 November 2019, being the maturity date of the Series B CRCPS, which in turn will trigger a change of control event for the purpose of the Series B Notes
5 In the event the holders of the Series A CRCPS, Series B CRCPS and Series B Notes elect to receive unpaid accumulated distributions and interest in cash rather than convert to ordinary shares, which is at their election, the net assets of the Company as at 23 November 2018 would reduce by approximately $2.9 million and the aggregate dilution impact of the Series A CRCPS, Series B CRCPS and Series B Notes would reduce by 547 million shares. This would result in an increase in our range of assessed values to between $0.015 to $0.023 per Calibre share
6 Amounts may not calculate exactly due to rounding
Source: KPMG Corporate Finance analysis
Our range of assessed values for a Calibre share, inclusive of a premium for control, of between $0.014 to $0.020 compares to the consideration under the Offer of $0.007 for each Calibre share. As the consideration under the Offer falls below our range of assessed values for a Calibre share, inclusive of a premium for control, we consider the Offer is not fair to Calibre shareholders.
Given the potential for early redemption and/or conversion of some or all of the Series B Instruments, there are a myriad of potential outcomes in terms of the final financial and dilutionary impact of any
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
8
future conversion of the Series B Instruments upon the Company. However, having regard to Calibre’s current financial circumstances we have assumed that:
Calibre will not be in a position to redeem the Series B CRCPS, which have a face value of approximately $17 million
the holders of the Series B Notes agree to the conversion of the Series B Notes, which have a face value of $10 million, rather than seeking their redemption, which is at their option
practically speaking, the Series B CRCPS and Series B Notes are both converted into ordinary Calibre shares on 1 November 2019 (subject to no anti-dilution / restructuring events occurring).
In the event the Company was able to source funding allowing for redemption of the Series B Instruments rather than conversion, our range of values would increase significantly to between $0.040 to $0.0556. However, we consider the uncertainty in relation to the Company’s ability to source sufficient additional funding prior to maturity of the Series B Instruments is too great to adopt this as the basis of assessing the fairness of the Offer. We note that had this higher range of values been adopted as the basis for assessment, this would have had the impact of making the Offer more “unfair”.
Calibre has been valued using a capitalised earnings methodology with reference to Calibre’s forecast financial year 2019 (FY19) earnings and earnings multiples implied by comparable traded companies and completed transactions, as set out in Section 10 of this report. Our valuation assessment has required us to form a view in relation to the specific risks and uncertainties that we consider to exist in relation to Calibre’s business outlook.
The key factors considered in our assessment of the value of Calibre are set out below.
Market position. Whilst Calibre is a leading engineering services provider to the infrastructure and mining sectors in Australia, it is a relatively small participant in the increasingly globalised engineering and contractor services industry.
Earnings performance. Calibre’s remaining businesses following the sale of G&S Engineering recorded a decline in underlying earnings in FY18, but are forecast to record an improvement in earnings in FY19.
Growth prospects. Calibre is highly leveraged to a potential recovery in activity in the resources sector and as a result is pursing growth opportunities in other sectors.
Industry outlook. The engineering services and construction industry in Australia has experienced challenging market conditions over recent years with substantial contraction and consolidation, but is expected to achieve a small but stable level of growth over the next five years.
Synergies. In assessing an appropriate premium for control in accordance with RG 111, we have only considered those synergies and benefits which would be available to more than one potential purchaser (or a pool of potential purchasers) of Calibre.
Working capital. Calibre currently has a net working capital deficiency, which would require an increased level of investment by a purchaser to achieve the level of earnings being capitalised by us.
6 Assuming all interest and distributions relating to the Series A CRCPS, Series B CRCPS and Series B Notes are accrued until conversion and capitalised. This scenario also assumes that the holders of the Series B Notes would elect to convert given that the undiluted value of Calibre lies above the conversion price of the Series B Notes.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
9
Going concern. We have assumed that Calibre will be able to continue as a going concern. In the event Calibre is unable to continue as a going concern, this is likely to negatively impact upon Calibre equity values.
Further details in relation to the basis of our valuation of Calibre are set out in Section 10 of this report.
Whilst Calibre is not listed on a regulated exchange, there has been one transaction of Calibre shares via Calibre’s website over the 12 months to 23 November 2018. Our range of values for a Calibre share of between $0.014 to $0.020 represents a significant discount of 89% at the low end and 83% at the high end to the share price of the transaction.
In this regard, we caution however that:
the traded share price will not incorporate a control premium as it reflects a trade in a small parcel of Calibre shares
trading in Calibre shares is extremely illiquid, with only 0.01% of total shares on issue being traded in the past 12 months
the last recorded trade was on 13 February 2018, that is, well before the sale of G&S Engineering, the issue of the Series B CRCPS, which have a conversion price of $0.007 for each new Calibre share, and the release of the Calibre’s financial statements for the year ended 30 June 2018.
As such we do not consider that the price achieved is likely to be reflective of the market price that may currently be achievable in a more liquid market.
4.2 Reasonableness
In accordance with RG 111, a transaction may be considered reasonable if, despite being not fair, there are sufficient reasons for shareholders to approve the transaction in the absence of a superior offer. In determining the Offer to be reasonable, we have had regard to the following matters.
4.2.1 Advantages
The Offer provides Calibre shareholders with a liquidity event to exit their investment in Calibre for a certain cash amount at a time where there is uncertainty as to the Company’s ability to continue as a going concern in the absence of the Offer
The Offer provides all Calibre shareholders with the opportunity to realise their investment in Calibre for a known fixed cash amount of $0.007 per Calibre share.
In the event that the Offer is unsuccessful:
Calibre shareholders will retain their shares in Calibre
the ability of Calibre shareholders to realise an equivalent cash amount in net present value terms to that under the Offer will dependent upon:
the Company’s ability to pay dividends in the future, which in turn will be dependent upon the future success of the current restructuring plan being pursued by the Company and its ability to fully address its current funding issues. In this regard we note that the Company is currently seeking to put in place alternative funding arrangements reflecting that Calibre’s senior financiers have declined to provide additional funding and have requested a reduction to their exposure to Calibre Group. Whilst the new working capital facility with Greensill Capital Pty Ltd will assist
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
10
in partially addressing immediate working capital requirements, the Company is of the opinion, and we concur, that additional funding sources will still be required to ensure Calibre is able to continue as a going concern.
individual shareholders being able to secure a trade for their shares on Calibre’s informal secondary market at a price above that offered. As noted previously, trading on this market is extremely illiquid, accordingly there seems little prospect of a significant number of Calibre shareholders being able to realise their investment via this mechanism, if at all; and/or
the Company receiving a superior offer to the Offer. Whilst since its delisting in December 2015 there has been no other offer or alternative proposal to acquire the Company as a whole, we consider the terms of the Series B Notes represented a significant impediment to the Company receiving such an offer, in particular:
a) the Series B Notes could not be redeemed for cash at the option of the Company even if there is a change of control. The effect of this was to expose bidders for the whole company to potential dilution and a further change of control from the conversion of the Series B Notes after the bidder itself had acquired control;
b) the consent of the holders of the Series B Notes was required before any assets of the Company could be sold; and
c) the Company was prohibited from issuing further shares in the Company without the consent of the holders of the Series B Notes.
We note that the holders of the Series B Instruments have now separately agreed that in the event a superior proposal recommended by the Directors emerges prior to the Minimum Acceptance Condition being satisfied, they will accept the redemption of the Series B Instruments, effectively removing this previous impediment.
Given that a number of parties expressed an interest in the businesses units of Calibre during the previous strategic sales process conducted by the Company, the prospects of a superior offer cannot be discounted entirely, however we note that such an offer has not emerged as at the date of this of this report.
4.2.2 Disadvantages
Should the Offer become or be declared unconditional, accepting Calibre shareholders will no longer have an interest in the future operations of Calibre
Calibre shareholders accepting the Offer are required to do so in respect of their entire shareholding, accordingly in the event of the Offer becoming or being declared to be unconditional, accepting shareholders will no longer have an interest in the future operations or prospects of Calibre.
Furthermore, as set out in Section 9 of the Bidder’s Statement once the Offer has been accepted, Calibre shareholders will only have the ability to withdraw their acceptance or deal with their Calibre shares in very limited circumstances. Accordingly, it is technically possible that in the event of a superior alternative offer emerging after the date of acceptance, which is not matched by the Bidder, accepting shareholders will be, unless the Offer lapses or in limited other circumstances, excluded from participating in the incremental benefit of that superior offer.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
11
Tax consequences
Shareholders who accept the Offer will receive $0.007 cash for each Calibre share currently held, which may, depending upon individual non-associated shareholders’ taxation position, give rise to taxation consequences at a time that may or may not be advantageous to individual shareholders. Shareholders are strongly encouraged to read the outline of the taxation implications of the Offer prepared by Boroughs Australia Pty Ltd, which is included in the Bidder’s Statement at Section 7 and, if in any doubt, should seek their own independent taxation advice regarding the taxation consequences of the Offer.
4.2.3 Other considerations
Calibre’s major shareholder has indicated it intends to accept the Offer
First Reserve, which currently holds approximately 61% of the current issued capital of Calibre, has confirmed with the Company that it intends to accept the Offer, in the absence of a superior proposal and subject to the Independent Expert in respect of the Offer stating that the Offer is reasonable.
The practical effect of First Reserve’s acceptance of the Offer and the pre-existing agreement by the holders of the Series B Instruments to waive their rights upon the occurrence of a change of control event, is that, as set out in the BIA, subject to the Bidder declaring the Offer unconditional, the Bidder will be in a position to give the Company a notice requiring it to convert such number of the Series B Instruments by the end of the Offer Period as the Bidder elects, and the Company must comply with that notice.
It is expected that in this event the Company will be required to convert that number of Series B Instruments so that the Bidder will hold a relevant interest in at least 90% of the issued shares in the Company. Subject to the Bidder also having acquired at least 75% of the Calibre shares which it has offered to acquire under the Offer (excluding those shares held by the Bidder or its Associates at the beginning of the Offer Period), this will allow the Bidder to proceed with the compulsory acquisition of the shares not held by the Bidder and its associates in accordance with the Act.
The Offer is subject to a number of conditions that are yet to be satisfied
The Offer is subject to a number of conditions as set out in Section 9 of the Bidder’s Statement, including:
that by the end of the Offer Period, the Bidder has received valid acceptances with respect to at least 75% of the ordinary shares in the Company held by shareholders who are not its associates and for which it has made an offer under the Offer (which corresponds with the acceptance criteria to move to compulsory acquisition);
approval of the resolution to be voted on at the Company’s Extraordinary General Meeting held on 17 December 2018 by the requisite majority (which has now been satisfied);
no prescribed occurrences occur with respect to the Company, which includes no conversion of any Series B Instruments, except to the extent agreed to in writing by the Bidder; and
the lenders and financiers of the Company or its subsidiaries provide undertakings to Jupiter and the Company not to exercise, and not to state an intention to exercise, any rights they may have to terminate any financing arrangement, require repayment of funds, or enforce security over assets of the Company or its subsidiaries.
Whilst Jupiter is able, at its discretion, to waive any or all of the conditions, we note that, as at the date of this report, a number of these conditions are yet to be either satisfied or waived.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
12
Directors’ recommendation and intentions
The Directors have advised that they each intend to recommend that the shareholders accept the Offer and that they each intend, in the absence of a superior offer, to accept the Offer in respect of any Calibre shares they each hold personally or which are held on their behalf.
5 Other matters
In forming our opinion, we have considered the interests of Calibre shareholders as a whole. This advice therefore does not consider the financial situation, objectives or needs of individual shareholders. It is not practical or possible to assess the implications of the Offer on an individual shareholder as their financial circumstances are not known.
The decision of each shareholder as to whether or not to accept the Offer is a matter for individuals based on, amongst other things, their risk profile, liquidity preference, investment strategy and tax position. Individual shareholders should therefore consider the appropriateness of our opinion to their specific circumstances before acting on it. As an individual’s decision to accept or reject the Offer may be influenced by his or her particular circumstances, we recommend that individual shareholders including residents of foreign jurisdictions seek their own independent professional advice. Our opinion should not be interpreted as a recommendation to Calibre shareholders as to whether to accept or reject the Offer.
Our report has also been prepared in accordance with the relevant provisions of the Act and other applicable Australian regulatory requirements. This report has been prepared solely for the purpose of assisting Calibre shareholders in considering the Offer. We do not assume any responsibility or liability to any other party as a result of reliance on this report for any other purpose.
All currency amounts in this report are denominated in Australian dollars ($) unless otherwise stated.
Neither the whole nor any part of this report or its attachments or any reference thereto may be included in or attached to any document, other than the Target Statement to be sent to Calibre shareholders in relation to the Offer, without the prior written consent of KPMG Corporate Finance as to the form and context in which it appears. KPMG Corporate Finance consents to the inclusion of this report in the form and context in which it appears in the Target Statement.
Our opinion is based solely on information available as at the date of this report as set out in Appendix 2. We note that we have not undertaken to update our report for events or circumstances arising after the date of this report other than those of a material nature which would impact upon our opinion. We refer readers to the limitations and reliance on information as set out in Section 6.
References to an Australian financial year (i.e. the 12 months to 30 June) have been abbreviated to FY, and references to calendar years have been abbreviated to CY.
The above opinion should be considered in conjunction with and not independently of the information set out in the remainder of this report, including the appendices.
Yours faithfully
Jason Hughes Authorised Representative
Sean Collins Authorised Representative
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
13
Contents
1 Introduction 1
2 Summary of the Offer 2
3 Scope of report 3
4 Summary of opinion 4
5 Other matters 12
6 Limitations and reliance on information 14
7 Industry overview 15
8 Profile of Calibre 15
9 Profile of Jupiter 25
10 Valuation of Calibre Shares 26
Appendix 1 – KPMG Corporate Finance Disclosures 36
Appendix 2 – Sources of information 38
Appendix 3 – Industry overview 39
Appendix 4 – Valuation methodology 43
Appendix 5 – Comparable companies 45
Appendix 6 – Comparable transactions 47
Part Two – Financial Services Guide 49
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
14
6 Limitations and reliance on information
In preparing this report and arriving at our opinion, we have considered the information detailed in Appendix 2 to this report. In forming our opinion, we have relied upon the truth, accuracy and completeness of any information provided or made available to us without independently verifying it. Nothing in this report should be taken to imply that KPMG Corporate Finance has in any way carried out an audit of the books of account or other records of Calibre for the purposes of this report.
Further, we note that an important part of the information base used in forming our opinion is comprised of the opinions and judgements of management of Calibre (Management). In addition, we have also had discussions with Management in relation to the nature of the Company’s business operations, its specific risks and opportunities, its historical results and its prospects for the foreseeable future. This type of information has been evaluated through analysis, enquiry and review to the extent practical. However, such information is often not capable of external verification or validation.
Calibre has been responsible for ensuring that information provided by it or its representatives is not false or misleading or incomplete. Complete information is deemed to be information which at the time of completing this report should have been made available to KPMG Corporate Finance and would have reasonably been expected to have been made available to KPMG Corporate Finance to enable us to form our opinion.
We have no reason to believe that any material facts have been withheld from us but do not warrant that our inquiries have revealed all of the matters which an audit or extensive examination might disclose. The statements and opinions included in this report are given in good faith, and in the belief that such statements and opinions are not false or misleading.
The information provided to KPMG Corporate Finance included forecasts/projections and other statements and assumptions about future matters (forward-looking financial information), in particular the FY19 budget (discussed further below) prepared by Management. KPMG Corporate Finance has relied upon this forward-looking financial information in preparing this report and Calibre remains responsible for all aspects of this forward-looking financial information. The forecasts and projections as supplied to us are based upon assumptions about events and circumstances which have not yet transpired. We have not tested individual assumptions or attempted to substantiate the veracity or integrity of such assumptions in relation to any forward-looking financial information. However, we have made sufficient enquiries to satisfy ourselves that such information has been prepared on a reasonable basis.
KPMG Corporate Finance has made various enquiries in relation to the historical and forecast information of Calibre, including holding discussions with Management in regard to the historical earnings as well as the operational and commercial assumptions underlying the forecast earnings and their bases. KPMG Corporate Finance has, where considered appropriate, made adjustments to the analysis of historical and forecast performance. KPMG Corporate Finance is of the view that the short term forward-looking information which forms the basis of our valuation has been prepared on a reasonable basis.
In making this assessment, we have taken into account the following:
the FY19 budget was prepared based on a “ground up” approach by Calibre and reflects actual results to 31 August 2018
the outlook beyond 31 August 2018 is based on contracts on hand, key opportunities being pursued by the Company and expected gains from efficiency improvements implemented
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
15
EBITDA and revenue performance for FY19 to date to 31 October 2018 was largely consistent with the FY19 budget over the same period.
Notwithstanding the above, KPMG Corporate Finance cannot provide any assurance that the forward-looking financial information will be representative of the results which will actually be achieved during the forecast period. Any variations in the forward looking financial information may affect our valuation and opinion.
The opinion of KPMG Corporate Finance is based on prevailing market, economic and other conditions at the date of this report. Conditions can change over relatively short periods of time. Any subsequent changes in these conditions could impact upon our opinion. We note that we have not undertaken to update our report for events or circumstances arising after the date of this report other than those of a material nature which would impact upon our opinion.
6.1 Disclosure of information
In preparing this report, KPMG Corporate Finance has had access to all financial information considered necessary in order to provide the required opinion. Calibre has requested KPMG Corporate Finance limit the disclosure of some commercially sensitive information relating to Calibre and its subsidiaries. This request has been made on the basis of the commercially sensitive and confidential nature of the operational and financial information of the operating entities comprising Calibre. As such, the information in this report has been limited to the type of information that is regularly placed into the public domain by Calibre.
7 Industry overview
Calibre’s principal operations comprise engineering services for the resources, infrastructure and urban development industries in Australia. Accordingly, the financial performance of Calibre is impacted by developments in these sectors. To provide a context for assessing the prospects of Calibre, we have included an overview of recent trends in these sectors at Appendix 3.
8 Profile of Calibre
8.1 Business overview
Calibre is a diversified engineering and construction company providing services to the resources, infrastructure and urban development industries predominantly in Australia. The Company provides a range of services including feasibility, design, engineering, procurement, construction management, construction and maintenance.
Established in 2002, Calibre commenced as an engineering solutions provider to iron ore miners in the Pilbara region of Western Australia. Calibre listed on the official list of ASX Ltd (ASX) in August 2012 and reached a market capitalisation high of $491.8 million on 5 February 2013. Following a selective buy back, Calibre was delisted from ASX on 31 December 2015. Similar to its industry peers, Calibre has been adversely impacted by the decline in mining investment activity in both the iron ore and coal sectors since 2013.
Calibre completed the acquisition of Diona on 16 November 2015 and since delisting has focused largely on revenue diversification to drive organic growth, cost reductions via an organisational restructure, improved working capital management and reducing its debt exposure.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
16
8.2 Operations
Calibre currently has 30 offices across Australia, New Zealand and Asia, operating two businesses across two core segments as summarised below.
The construction and maintenance segment (CM), now comprising solely Diona, provides sustaining capital works and maintenance services specialised in underground infrastructure within Australia. It operates from 5 offices with over 500 professional and trade personnel deployed mainly over the Eastern region of Australia.
In FY18, CM contributed approximately 72% of Calibre’s total revenue, however it reported a loss of $5.8 million mostly resulting from the loss sustained by the divested G&S Engineering from its joint venture with DRA Holdings Pty Ltd (DRA) delivering the Mt Pleasant coal handling and preparation fixed price contract for Mach Energy.
The professional services segment (PS), operating as Calibre Professional Services, provides consulting and engineering services in Australia. With over 1,000 personnel, the PS segment is structured in four units: East, West, South Pacific and Innovation and Advisory.
A summary of Calibre’s segments is set out in the table below.
Table 1: Summary of Calibre's operating segments
Construction and maintenance Professional services
Business (Diona) (Calibre Professional Services)
Overview Sustaining capital works and maintenance services
Consulting and engineering services
Capabilities Specialised in underground infrastructure including trenching, boring, drilling and pipeline installation and maintenance
Multi-disciplined capabilities including front end engineering and design, planning, design and engineering, procurement and construction management across a broad range of sectors
Geographic reach Australia based operations across four offices in key East Coast markets
Australia based operations primarily in key East Coast infrastructure markets, with capability also in Western Australia and Queensland resource markets. New Zealand operations are focused on built environment and infrastructure.
End markets Water, gas, electricity, telecommunications, sewer
Urban development, water and environment, renewable energy, transport, buildings, technology, resources
Source: Calibre
8.3 Strategy
Initiatives undertaken recently include:
Restructure of the business. In 2017, Calibre restructured its businesses into two segments: PS and CM, with an aim to control overheads, streamline systems and position Calibre for long term, sustainable growth. The establishment of the PS segment consolidates Calibre’s engineering and consulting capabilities to provide innovative engineering solutions for clients. The CM segment combines a broad range of capabilities into a complete service offering.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
17
The launch of the ‘One Calibre’ go-to-market model. This initiative has enabled Calibre to market, tender and deliver projects utilising its broad capabilities across the entire Group. Calibre has specialised capabilities to provide end-to-end technical services and support across the life cycle of complex assets and infrastructure. These services can be delivered nationwide as an individual service or integrated into multi-capability service offering, depending on the nature and size of the project.
Sale of G&S Engineering. In August 2018, Calibre completed the sale of its subsidiary G&S Engineering to DRA to provide enhanced focus on the Diona and PS businesses as well as to deleverage Calibre’s balance sheet.
In addition, Calibre is planning the expansion of the number of offices in Australia and New Zealand.
8.4 Financial performance
As a consequence of Calibre’s previous decision to pursue the sale of all of its businesses during FY18, its FY18 financial accounts were prepared on the basis that all of its three major business were classified as discontinued operations. However, in August 2018, Calibre terminated the sale process for the PS and Diona businesses as it considered enhanced shareholder value would arise from continuing in the current business. As a result we have set out below the pro forma historical consolidated financial performance as if Calibre’s businesses (including G&S Engineering) had been classified as continuing operations, rather than in the format disclosed in Calibre’s FY18 audited statutory accounts as we consider this to be more meaningful to shareholders in considering the performance of Calibre.
Table 2: Calibre’s pro forma historical consolidated financial performance including G&S Engineering
Pro forma Pro forma
30-Jun-17 30-Jun-18
($ million) 12 months 12 months
Construction and maintenance 324.0 442.7
Professional services 166.3 172.1
Other (1.1) (3.0)
Total Revenue (excluding interest income) 489.2 611.8
Cost of Services (386.0) (510.0)
Admin and marketing costs (66.7) (85.0)
Occupancy costs (10.8) (7.3)
Underlying EBITDA 25.8 9.4
Depreciation and amortisation expense (16.8) (15.9)
Underlying EBIT2 8.9 (6.6)
Finance costs (net of interest rate swaps) (6.4) (9.0)
Interest income 0.2 -
Impairment expense - (33.7)
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
18
Pro forma Pro forma
30-Jun-17 30-Jun-18
($ million) 12 months 12 months
Acquisition and restructuring costs3 (7.2) (10.8)
Income tax benefit/(expense) 4.5 (2.9)
Profit/(Loss) after tax for the year 0.1 (62.9)
CM revenue as a % of total 66% 72%
PS revenue as a % of total 34% 28%
CM revenue growth/(decline) 8% 37%
PS revenue growth/(decline) (19%) 3%
Total revenue growth/(decline) (3%) 25%
Underlying EBITDA growth/(decline) (22%) (64%)
Underlying EBITDA margin 5% 2%
Notes:
1 EBIT refers to Earnings Before Interest and Tax 2 Includes fair value adjustments made by the Company 3 Amounts may not calculate exactly due to rounding
Source: Calibre FY18 Annual Report, KPMG Corporate Finance analysis
Recent years have been challenging for Calibre as mining industry investment activity has stayed at a low level, in conjunction with the residential and non-residential construction industry’s decrease in revenue (see Appendix 3).
In particular, PS revenues declined significantly in FY17 due to the reduction in spending by resource sector clients and long term projects moving from construction to operational phases. Offsetting this somewhat, CM’s revenue for FY17 increased year-on-year driven by Diona’s work with Sydney Water.
Earnings in FY18 were below expectations, with many areas of the business distracted given the heavy time commitment to the multiple sales processes underway.
The strategic sales process conducted in FY18 resulted in further impairments of $34 million.
Reflecting that G&S Engineering was sold in August 2018 we have set also out below the pro forma historical consolidated financial performance of Calibre excluding G&S Engineering.
Table 3: Calibre’s historical consolidated financial performance excluding G&S Engineering
Pro forma Pro forma
30-Jun-17 30-Jun-18
($ million) 12 months 12 months
Construction and maintenance 180.1 243.1
Professional services 166.3 172.1
Other (0.9) (3.0)
Total Revenue (excluding interest income) 345.5 412.1
Cost of Services (262.9) (330.2)
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
19
Pro forma Pro forma
30-Jun-17 30-Jun-18
($ million) 12 months 12 months
Admin and marketing costs (50.6) (51.5)
Occupancy costs (8.1) (9.0)
Underlying EBITDA 23.9 21.4
Depreciation and amortisation expense (10.3) (12.2)
Underlying EBIT2 13.6 9.2
Finance costs (net of interest rate swaps) (6.3) (8.9)
Impairment expense - (31.0)
Acquisition and restructuring costs2 (6.2) (10.8)
Income tax benefit/(expense) 4.1 (4.0)
Profit/(Loss) after tax for the year 5.2 (45.4)
CM revenue as a % of total 52% 59%
PS revenue as a % of total 48% 41%
CM revenue growth/(decline) n/a 35%
PS revenue growth/(decline) n/a 3%
Total revenue growth/(decline) n/a 19%
Underlying EBITDA growth/(decline) n/a (10%)
Underlying EBITDA margin 6.9% 5.2%
Notes:
1 Amounts may not calculate exactly due to rounding 2 Includes fair value adjustments
Source: Calibre FY18 Annual Report, KPMG Corporate Finance analysis
8.5 Outlook
Following completion of the sale of G&S Engineering effective from 1 July 2018 and the cessation of the sales process for PS and Diona, Management has been able to refocus its efforts in pursuing its own growth initiatives. FY19 results have shown improvement and are in line with budget expectations. Management expects this recovery to continue over the remaining period of FY19 reflecting, at least in part, the refocus on internal efficiencies, a current high level of investment in infrastructure activities on the east coast of Australia, the reactivation of the resources industry and the recent recovery in commodity prices which has resulted in increased enquiries in relation to new greenfield projects.
Management also expects revenue growth to be driven by:
CM taking further market share in its existing markets
PS realising greater efficiencies through cross-selling work in conjunction with the strategy of sector-focus growth.
8.6 Financial position
The consolidated financial position of Calibre as at 30 June 2017 and 30 June 2018 as disclosed in the FY18 statutory accounts is summarised below.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
20
Table 4: Calibre’s historical financial position including G&S Engineering
Audited Audited
30-Jun-17 30-Jun-18
($’000) As at As at
Current assets
Cash and cash equivalents 12,076 12,835
Trade and other receivables 6,739 3,006
Current tax assets 1,208 1,321
Assets held for sale 290,995 257,984
Total current assets 311,018 275,146 Non-current assets
Property, plant and equipment 1,938 2,007
Other intangible assets 599 1,154
Investments 300 300
Deferred tax assets 9,191 5,585
Total non-current assets 12,028 9,046
Total Assets 323,046 284,192
Current liabilities
Trade and other payables 5,003 13,762
Borrowings 70,000 33,513
Deferred acquisition considerations 30,200 -
Provisions 2,736 3,625
Liabilities directly associated with assets held for sale 131,927 138,328
Total current liabilities 239,866 189,228
Non-current liabilities
Borrowings 1,659 72,739
Provisions 373 3,794
Total non-current liabilities 2,032 76,533
Total liabilities 241,898 265,761
Net Assets 81,148 18,431
Gearing - %2 126% 576%
Current ratio – times3 1.30 1.45
Notes:
1 Amounts may not calculate exactly due to rounding
2 Gearing represents total loans, borrowings and deferred consideration divided by net assets
3 Current ratio represents current assets divided by current liabilities Source: Calibre FY18 Annual Report, KPMG Corporate Finance analysis
As noted previously, as a result of Calibre’s decision to pursue the sale of each of its businesses during FY18, these businesses were classified as being ‘held for sale’ for the purposes of financial reporting. As a consequence the majority of Calibre’s assets and liabilities have been grouped together as being held for sale in the table set out above. We have set out below the pro forma balance sheets for Calibre as at 30 June 2018 and 31 October 2018 as if the PS and Diona businesses had been classified as continuing
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
21
operations. We consider this to be more meaningful to shareholders in considering the current financial position of Calibre.
Table 5: Calibre’s historical pro forma financial position excluding G&S Engineering
Pro forma Pro forma
30-Jun-18 31-Oct-18
($’000) As at As at
Current assets
Cash and cash equivalents 22.1 6.6
Trade and other receivables 66.9 66.5
Work in progress 22.1 12.5
Other current assets 3.5 3.7
Total current assets 114.6 89.3
Non current assets
Property, plant and equipment 25.0 24.1
Goodwill 103.1 103.1
Other intangible assets 3.9 4.0
Investments 0.3 0.3
Deferred tax assets 19.3 22.5
Total non-current assets 151.6 154.0
Total Assets 266.2 243.4
Current liabilities
Trade and other payables 105.9 69.4
Borrowings 36.5 17.6
Deferred acquisition considerations 0.2 0.2
Provisions 10.7 19.0
Total current liabilities 153.3 106.2
Non-current liabilities
Borrowings 75.3 71.6
Provisions 19.2 15.1
Total non-current liabilities 94.5 86.7
Total liabilities 247.8 192.9
Net Assets 18.4 50.4
Gearing - %2 609% 177%
Current ratio – times3 0.75 0.84
Notes:
1 Amounts may not calculate exactly due to rounding
2 Gearing represents total loans, borrowings and deferred consideration divided by net assets
3 Current ratio represents current assets divided by current liabilities Source: Calibre, Calibre FY18 Annual Report, KPMG Corporate Finance analysis
Consistent with service businesses particularly exposed to projects under construction, Calibre is “plant and equipment asset light” with a financial position largely comprising working capital amounts. Given
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
22
the capital demands and constraints on the Company, Calibre has actively managed net working capital to optimise cash positions where required.
Calibre has minority investments in unlisted shares which were carried at investment cost of $0.3 million as at 30 June 2018.
During November 2017, Calibre completed the refinancing of its existing borrowings, commencing a $101.5 million four-year senior financing facility (including both debt and bank guarantee facilities). Further details in relation to the refinanced senior facility are set out in the sections below.
8.7 Cash flows
The audited consolidated historical statement of cash flows for Calibre Group for FY17 and FY18 is summarised below.
Table 6: Calibre’s historical statement of cash flows (including G&S Engineering)
Audited Audited
30-Jun-17 30-Jun-18
($’000) 12 months 12 months
Cash flows from operating activities
Receipts from customers (inclusive of GST) 519,028 732,516
Payments to suppliers and employees (inclusive of GST) (489,532) (690,059)
GST paid (21,242) (24,686)
Income tax refund 227 -
Net cash generated by operating activities 8,481 17,771
Cash flows from investing activities
Payments for acquisitions of businesses and investments (16,544) (30,712)
Interest received 183 230
Purchase of property, plant and equipment and software (6,340) (5,022)
Proceeds from sale of property, plant and equipment and software 2,792 377
Net cash used in investing activities (19,909) (35,127)
Cash flows from financing activities
Proceeds from issue of preference shares (net of share issue costs) - 5,000
Interest paid (4,229) (8,255)
Proceeds from borrowings 25,000 109,950
Repayment of borrowings (14,703) (83,924)
Net cash generated by financing activities 6,068 22,771
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
23
Audited Audited
30-Jun-17 30-Jun-18
($’000) 12 months 12 months
Net increase/decrease in cash and cash equivalents (5,360) 5,415
Cash and cash equivalents at beginning of year 22,086 16,726
Cash and cash equivalents at the end of the year 16,726 22,141
Notes
1 Payments for acquisitions of businesses and investments is comprised of payments for business combinations, net of cash received, payment for acquisition of non-controlling interest, payment of deferred acquisition consideration and payment for investments
2 Net purchase of property, plant, equipment and software is comprised of both the payment for purchases of property, plant, equipment and software and proceeds from sale of property, plant, equipment and software
Source: Calibre FY18 Annual Report, KPMG Corporate Finance analysis
8.8 Taxation
As at 30 June 2018, Calibre had a recognised tax asset of $5.6 million and unrecognised tax losses and credits of $28.8 million on an after-tax basis, which are available to offset against future taxable income.
8.9 Dividends
No dividends have been declared since CY14.
8.10 Senior debt facility
As at 1 November 2017, Calibre completed the refinancing of existing senior debt facilities, with a new $101.5 million four-year senior financial facility with National Australia Bank Ltd and Bankwest, a division of Commonwealth Bank of Australia Ltd, comprising a senior debt facility of $79.5 million and a contingent guarantee and bonding tranche of $22.0 million.
We have been advised by Management that the weighted average interest charge on its senior debt facility is approximately 4.4% per annum.
Calibre has entered into a new debtor financing facility of $50.0 million with Greensill Capital Pty Ltd, which will allow partial repayment of existing drawn bank debt, improve the Company’s working capital position and facilitate additional bank guarantee and asset financing facilities.
8.11 Onerous leases
As at 30 June 2018, Calibre recognised provisions for onerous leases in the order of approximately $17.5 million in respect of long term lease contracts for office space no longer required in the business, calculated by taking the unavoidable lease costs that will be incurred under the contracts and deducting any estimated sublease income, discounted to present value using the risk free rate. As at 31 October 2018 the provision for onerous leases reduced to approximately $10.8 million, reflecting the removal of the obligation relating to the divested G&S Engineering business and the periodic release of provisions.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
24
8.12 Ordinary shares
At 23 November 2018, Calibre’s had approximately 341.0 million fully paid ordinary shares on issue. A summary of the Company’s top ten shareholders is set out in the table below.
Table 7: Top ten Calibre shareholders
Shareholder
Number of shares held (millions) % of issued capital
First Reserve Corporation 208.7 61.2
Raymond Campbell Munro 31.6 9.3
Sapphire Lane Pty Ltd 6.4 1.9
Graham Ross Smith 6.4 1.9
Auric Capital Pty Ltd 6.2 1.8
Silk Street Pty Ltd 4.9 1.4
Mr Robert James Smith 4.1 1.2
Auric Capital Pty Ltd 3.9 1.1
Spence Rego Pty Ltd 3.4 1.0
Massey Family Trust 2.5 0.7
Top ten shareholders (aggregate) 278.1 81.5
Other shareholders 62.9 18.5
Total shares on issue 341.0 100.0
Note: Amounts may not calculate exactly due to rounding
Source: Calibre
8.12.1 Trading in Calibre shares
Calibre delisted from the ASX on 31 December 2015. Since that time, Calibre has operated a low volume financial market (LVM) where shareholders can trade Calibre shares on Calibre’s website subject to certain constraints on the volume and value of the transactions7.
Trading in Calibre shares on the LVM has exhibited extremely low liquidity over the past 12 months, with only one trade executed on the LVM of 40,000 shares at $0.12 per share with a transaction value of $4,800 representing 0.01% of Calibre’s issued capital.
As at the date of this report, trading in Calibre’s shares via the LVM has been temporarily suspended.
8.13 Preference Shares
On 30 June 2017, Calibre announced the issue of approximately 33.3 million Series A CRCPS to a number of subscribers, including to a related party of Mr Graham Smith, an existing director and shareholder of Calibre. The Series A CRCPS raised $5.0 million and are redeemable on a tiered time-dependent ratio at Calibre’s option or convertible into ordinary shares on or before three years from issue at Calibre’s election. The Series A CRCPS incur a cumulative 11.2% per annum distribution yield, with
7 Limited to 100 completed transactions with a total value (measured by sale price) of not more than $500,000 during any 12 month period.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
25
the accumulated distribution payable in cash or, at the holder’s option, into new Calibre ordinary shares in the event of conversion of the Series A CRCPS.
On 25 September 2018, Calibre announced it had concluded an agreement for the issue of approximately 2.45 billion Series B CRCPS to the Vendors, replacing the Series A Notes.
The Series A CRCPS and Series B CRCPS (together the Preference Shares) do not participate in dividends payable to Calibre’s ordinary shares or in the proceeds on a winding up of Calibre. The Preference Shares hold no voting rights at Calibre’s shareholders’ meetings when a poll is called and are not eligible to participate in votes on a show of hands.
The Series A CRCPS, if converted at maturity and assuming distributions are accumulated in full, would result in approximately 45.8 million new ordinary Calibre shares being issued to the holders. If Calibre is unable to pay the distribution on a franked basis the conversion ratio for any accrued distribution will increase. Management has advised that Calibre has substantial franking credits and expects to be able to avoid any franking adjustment on distributions attached to the Series A CRCPS.
8.14 Options and performance rights
Management has advised, at the date of this report, that there are no options or performance rights on issue.
8.15 Contingent Liabilities
Management has advised that there are no material contingent liabilities outstanding other than the various guarantees and sureties provided by Calibre in the ordinary course of business and that there are no known material future expenditures or liabilities in relation to these guarantees and sureties as at the date of this report.
9 Profile of Jupiter
Jupiter is a newly formed entity beneficially owned by Messers David O’Connor and John Paul O’Connor, the sons of the Vendors. David O’Connor is currently the Executive General Manager Strategy and Growth – Calibre Group of the Company and John Paul O’Connor is the National Operations Manager – Diona of the Company. They have both worked for Calibre in a range of roles since Calibre’s acquisition of Diona.
We have been advised that the holders of the Series B Instruments are deemed to be associates of Jupiter pursuant to the Act for the purposes of the Offer.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
26
10 Valuation of Calibre Shares
10.1 Valuation summary
We have assessed the value of Calibre inclusive of a premium for control, to be in the range of approximately $52 million to $79 million, or between approximately $0.014 and $0.020 per Calibre share, as set out in the table below.
Table 8: Summary of assessed values on a fully diluted basis
Valuation summary Value range
$ million Section ref Low High
Future maintainable earnings 10.3.1 24 24
EBITDA multiple 10.3.2 7.0x 7.5x
Enterprise value 168.0 180.0
Add: accumulated tax losses 10.3.3 4.5 16.7
Add: shares in unlisted investments 10.3.4 - 0.3
Less: working capital shortfall (net of cash)1 10.3.5 (20.0) (18.0)
Less: borrowings (external) 10.3.6 (89.3) (89.3)
Less: onerous lease provision net of tax 10.3.7 (10.8) (10.8)
Implied equity value (control basis) 52.4 78.9
Ordinary shares pre-conversion (millions) 341.0 341.0
Series A CRCPS - dilution impact (millions) 2,4 10.3.8 44.7 44.7
Series B CRCPS - dilution impact (millions) 3,4 10.3.9 2,828.9 2,828.9
Series B Notes - dilution impact (millions) 3,4 10.3.10 660.2 660.2
Total number of shares - diluted (millions) 3,874.7 3,874.7
Implied value per share (control basis) $0.014 $0.020
Notes: 1 We note that Calibre has entered into a working capital facility with Greensill Capital Pty Ltd which is
expected to provide funding to partially address the working capital shortfall, however this will not impact our range of assessed values as the funds used to partially address the working capital shortfall will be reclassified as external borrowings
2 Series A CRCPS are assumed to be converted to ordinary shares by Calibre at 23 November 2018 based on amounts due as at 23 November 2018 where our assessed value per share is below the conversion price. In the event the Series A CRCPS were not converted until the change of control event triggered by conversion of the Series B CRCPS, the number of new Calibre shares issued would reduce to 42.8 million
3 The dilutionary impact of the Series B CRCPS and Series B Notes is calculated by aggregating the principal amounts and accrued unpaid distributions/interest of the respective securities to 1 November 2019, being the maturity date of the Series B CRCPS, which in turn will trigger a change of control event for the purpose of the Series B Notes
4 In the event the holders of the Series A CRCPS, Series B CRCPS and Series B Notes elect to receive unpaid accumulated distributions and interest in cash rather than convert to ordinary shares, which is at their election, the net assets of the Company as at 23 November 2018 would reduce by approximately $2.9 million and the aggregate dilution impact of the Series A CRCPS, Series B CRCPS and Series B Notes would reduce by 547 million shares. This would result in an increase in our range of assessed values to between $0.015 to $0.023 per Calibre share
5 Amounts may not calculate exactly due to rounding
Source: KPMG Corporate Finance analysis
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
27
Our range of assessed values for Calibre incorporates a control premium reflecting synergies that would generally be available to a pool of purchasers. It does not include any potential strategic or operational benefits unique to Jupiter, if any.
We also note that our range of values represents the full underlying value of Calibre on a going concern basis. In the event that Calibre was unable to continue as a going concern, the realisable value of a Calibre share would lie significantly below that assessed by us above.
10.2 Valuation methodology
Our valuation of Calibre has been prepared on the basis of 'market value', that is, the value that should be agreed in a hypothetical transaction between a knowledgeable, willing, but not anxious buyer and a knowledgeable, willing, but not anxious seller, each acting at arm’s length.
Market value excludes ‘special value’, which is the value over and above market value that a particular buyer, who can achieve synergistic or other benefits from the acquisition, may be prepared to pay.
Market value is commonly derived by applying one or more of the following valuation methodologies:
the capitalisation of a sustainable level of earnings (Capitalised Earnings)
the discounting of expected future cash flows (DCF)
the estimation of the net proceeds from an orderly realisation of assets (Net Assets)
trading prices for the company’s securities on an exchange.
These methodologies are discussed in greater detail in Appendix 4. Ultimately, the methodology adopted is dependent on the nature of the underlying business and the availability of suitably robust information.
For the purpose of this report we have adopted a Capitalised Earnings approach in valuing Calibre as it is a commonly adopted method for the valuation of industrial businesses, especially those with a long operating history and a consistent earnings trend that is sufficiently stable to be indicative of ongoing earnings potential. Further, there is sufficient market evidence available from which a meaningful earnings multiple can be derived. In particular, there are a number of comparable companies that perform similar services, operate within the resources, infrastructure and/or construction markets and have similar geographic presence to Calibre. Additionally, a number of transactions have occurred over the last five years involving engineering based service companies predominantly within Australia.
Whilst a DCF approach is also widely used in the valuation of established industrial businesses, the inherent uncertainty associated with the project-driven nature and cyclicality of Calibre’s operations, and the lumpiness of changes in working capital, means that preparing reliable cash flow projections beyond the current work in hand schedule is particularly challenging. Accordingly, we do not consider there to be sufficient certainty in those projections to conclude that there is a reasonable basis to adopt DCF analysis for Calibre.
We did not consider the net realisable assets approach to be appropriate as this method would not capture the potential for value to exist in a going concern business over and above the reference solely to its underlying assets particularly in respect of companies such as Calibre which are plant and equipment asset light. We note however that in the event Calibre is unable to continue as a going concern in the future, the net realisable assets approach may be a more appropriate methodology in those circumstances.
Given Calibre has been unlisted for over 2 years and the very limited trading of Calibre shares on the LVM, we did not consider historical trading prices reflective of market value.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
28
10.3 Capitalised earnings
10.3.1 Determination of future maintainable earnings
A capitalised earnings approach can be applied to a number of different earnings or cash flow measures, including EBITDA, EBIT and NPAT.
Given the nature of the engineering services industry in which Calibre operates, we consider EBITDA to be a superior metric as it provides a view of operating performance that is not distorted by the different depreciation and amortisation treatments (i.e. amortisation of intangible assets such customer relationships arising from past business combinations) or capital structures across comparable companies.
On this basis, we have adopted EBITDA as the earnings base to estimate Calibre’s future maintainable earnings (FME) and consequently refer to EBITDA multiples in our analysis of trading and transaction multiples.
Maintainable earnings represents that level of earnings that the business can sustainably generate in real terms in the future. In assessing the appropriate level of future maintainable EBITDA in respect of Calibre, we have considered the outlook for the industries in which Calibre operates more generally and also specific factors that have and/or are likely to impact upon the future trading results of Calibre. In particular, we have considered:
the historical underlying EBITDA performance of Calibre for FY17 and FY18, adjusted to exclude the impact of G&S Engineering, of approximately $23.9 million and $21.4 million respectively
the FY19 forecast EBITDA, reflecting performance to 31 August 2018 and expected performance for the remainder of FY19, of approximately $24.1 million
the outcome of discussions with Management in relation to the performance year-to-date.
Having regard to the above, we consider that an appropriate level of EBITDA for capitalisation in the order of $24.0 million is reasonable.
We have also taken into account:
no one-off significant items impacting historical EBITDA were identified through discussion with Calibre, other than impairment, restructuring and fair value impacts already adjusted for in the underlying EBITDA results
potential upside and downside risks to future profitability have been separately captured in our selection of an appropriate multiple range
we have not adjusted maintainable earnings for the cost savings available to any acquirer of 100% of a company as these types of general synergies are commonly subsumed within a premium for control that is reflected in our selection of an appropriate multiple range.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
29
10.3.2 Determination of multiple
The multiple applied in a capitalised earnings methodology should reflect the return expected by an investor in the businesses. Returns are dependent on various factors including a business’s operational risks, growth profile, profitability, size and external environment, amongst others.
In selecting the multiple range to be applied, consideration is generally given to market evidence derived from recent transactions involving comparable businesses/assets and listed comparable companies, with an appropriate adjustment to reflect the specific characteristics of the business being valued.
The multiples derived from listed comparable companies are based on share prices generally reflective of the trades of small parcels of shares. As such, they reflect prices at which portfolio interests change hands. That is, there is no premium for control incorporated within such pricing. They may also be impacted by the level of liquidity in trading of the particular stock. Accordingly, when valuing a business as a whole, it is appropriate to include a premium for control.
Consistent with the requirements of RG 111, in valuing Calibre we have assumed 100% ownership, and therefore included a premium for control when assessing the multiples implied by the share prices for listed comparable companies.
Observations from transaction evidence indicate that takeover premiums concentrate around a range between 25% and 40% for completed takeovers depending on the individual circumstances. In transactions where it was estimated that the combined entity would be able to achieve significant synergies, the takeover premium is frequently observed to be in excess of this range. Conversely, in instances where synergies available to a purchaser are not expected to be material, it is reasonable to expect that an appropriate control premium would be at or below the bottom end of this range.
In considering the level of appropriate control premium to apply in the case of Calibre we have considered:
that there have been a number of transactions in the industry in which Calibre operates in recent times, including three acquisitions by Calibre itself since 2012, reflecting ongoing consolidation within the industry
Calibre has a leading position in the Australian engineering sector, accordingly acquisition of Calibre would offer an acquirer potential for economies of scale.
Having regard to these factors we consider a control premium in the order of 25% and 40% to be reasonable.
Trading multiples
The table below sets out the historical and forecast EBITDA multiples implied by the current share prices of companies selected for comparison, inclusive of a premium for control of between 25% and 40%, along with various operating metrics.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
30
Table 9: Historical and forecast trading multiples
Company name
Market cap
EV EBITDA margin
EBITDA growth
EBITDA multiple
(25% CP)
EBITDA multiple
(40% CP)
FY18 FY19 FY18 FY19 FY18 FY19 FY18 FY19
$m $m % % % % times times times times
Cardno 461 480 5.1 5.2 -564.6 4.0 10.5 9.8 11.7 11.0
Lycopodium 201 131 14.2 13.1 80.1 n/a 6.6 7.5 7.7 8.8
GR Engineering 190 169 6.4 6.3 6.4 -43.6 11.9 16.4 13.4 18.6
Watpac 170 102 -0.7 0.7 -152.7 131.5 nmf 17.8 nmf 20.9
Decmil Group 164 148 2.3 4.1 85.9 213.2 24.6 8.0 27.8 9.0
Southern Cross 152 94 5.3 n/a 1262.3 n/a 7.1 n/a 8.3 n/a
Mastermyne 121 125 8.1 9.1 222.0 37.7 9.6 6.8 10.7 7.6
Valmec 31 38 4.5 6.8 10.0 9.1 9.9 6.4 10.9 7.0
LogiCamms 12 14 0.9 n/a -107.8 n/a 22.3 n/a 24.6 n/a
Mean
5.1 6.5 93.5 58.7 12.8 10.4 14.4 11.8
Median
5.1 6.3 10.0 23.4 10.2 8.0 11.3 9.0
Notes: 1. FY18 multiples calculated based on EBITDA and net debt position of the company as per the latest annual
report published prior to the announcement of the transaction, as sourced from S&P Capital IQ 2. EV means enterprise value 3. n/a means there was no data available from S&P Capital IQ 4. nmf means the data is not meaningful, in this case due to negative EBITDA
Sources: S&P Capital IQ (data as at 23 November 2018), KPMG Corporate Finance analysis
In assessing the comparability of the companies detailed above, we have considered the following:
Operating margins – the forecast FY19 EBITDA margins of the comparable companies range between 0.7% and 13.1%, with a mean of 6.5% and a median of 6.3%. Calibre has demonstrated a historical EBITDA margin at or around the mean and median margin (6.9% in FY17 and 5.2% in FY18 adjusted for the sale of G&S Engineering) and expects to experience a small reduction in its margin in FY19.
Growth prospects – the forecast multiples of each of the comparable companies lie below historical multiples with the exception of GR Engineering, Lycopodium and WatPac (which recorded negative EBITDA in FY18), suggesting an expectation of improving trading results. This compares to Calibre’s expectation of a modest improvement in earnings over FY19.
Scale – size is typically a substantial advantage for engineering and construction services for a number of reasons. Firstly, larger companies tend to be more competitive for the largest contracts. Secondly, the larger company, the larger the benefit realised from efficiencies (i.e. economies of scale and advantageous financing terms). Thirdly, larger companies have greater capacity to absorb losses on specific projects given the larger number of projects in their portfolio. Lastly, larger companies tend to have lower levels of earnings volatility as a result of their greater diversity in their service and/or market mix. We note that based on the net asset position of Calibre as at 30 June 2018 excluding G&S Engineering, the significant majority of the companies considered appear to be larger than Calibre, and in some cases significantly so.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
31
Leverage – Calibre appears to be significantly more geared in comparison to its peers with the majority holding a net cash position, which may adversely impact upon investors perception as to the financial risk associated with an investment in Calibre’s equity.
A description of the activities of the companies set out in the table above is included in Appendix 5.
Multiples implied by recent transactions
The table below sets out the EBITDA multiples implied by recent transactions involving companies operating in the engineering and related services sector in Australia and New Zealand for which sufficient financial data is available.
Table 10: Transaction multiples
Close date
Target Acquirer Percentage acquired
Transaction value1
LTM2 EBITDA multiple
% $m times
Sep-18 SRG Global Construction Services 100 152.6 12.3
Feb-18 TMM Macmahon Holdings 100 2.0 n/a
Nov-17 Opus International WSP Global 100 263.2 8.0
Oct-17 Seymour Whyte Vinci Construction 100 113.0 41.1
Dec-16 UGL CIMIC Group Investments 86 524.5 nmf
Sep-16 Ausenco Resource Capital Funds 60 75.1 nmf
Mar-16 Sedgman CIMIC Group Investments 63 263.6 5.7
Feb-16 J & P Richardson VINCI Energies S.A. 100 98.4 4.0
Jan-16 Coffey International Tetra Tech 100 108.7 8.2
Nov-15 Cardno Crescent Capital 21 571.4 8.9
Apr-14 Production Solutions GR Engineering Services 100 5.8 2.4
Dec-13 Sinclair Knight Merz Jacobs Australia 100 1209.4 7.4
Dec-13 Clough Murray & Roberts 38 1131.9 6.9
Oct-13 Transfield Worley WorleyParsons 50 60.0 4.0
Apr-13 Eastcoast Development Decmil Group 100 19.3 2.3
Median 7.1
Mean 9.3
Median (excl. outliers) 6.9
Mean (excl. outliers) 6.4
Notes: 1. Transaction value refers to the enterprise value of the company as of the date of completion 2. LTM multiples calculated based on EBITDA and net debt position of the target company as per the latest
annual report published prior to the announcement of the transaction, as sourced from S&P Capital IQ 3. n/a means there was no data available from S&P Capital IQ 4. nmf means the data is not meaningful, in this case due to negative EBITDA 5. Outliers (shaded) have been calculated based on an 80% confidence interval about the mean.
Source: S&P Capital IQ, KPMG Corporate Finance analysis
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
32
Although the target companies are considered broadly comparable to Calibre, it is necessary to consider the specific attributes of the target companies, as well as the prevailing economic conditions at the time of the transaction.
The multiples implied by the transactions set out above will reflect a range of factors, including:
Stage of the market – transactions during peak infrastructure investment timeframes tend to attract premiums to other transactions. We note that the EBITDA multiples of transactions in the sample tend to increase the more recent the transaction. This appears consistent with the more recent improved outlook for the various industries, in particular the mining industry, and investment in public and social infrastructure, particularly on the East Coast, in conjunction with recent challenging markets impacting the historical EBITDA levels.
Size of transaction – acquisitions of larger companies tend to occur on higher multiples, for reasons including increased resources/capabilities to undertake larger projects, scale economies and lower earnings volatility (driven by greater product/geographic diversity and increased capacity to absorb single project losses).
Historical multiples – the multiples calculated above reflect historical multiples, that is, based on the most recent 12 months results prior to the transaction. In circumstances of expected growth in forecast earnings it would be reasonable to expect forecast multiples would lie below those based on historical results.
Control premium – it is reasonable to expect that the final price paid to acquire the target will already reflect a pure control premium, as well as any general and specific synergies. Accordingly it is not necessary to make any further adjustments to reflect these factors.
A description of the activities of the target companies and the transactions set out in the table above is included in Appendix 6.
Selection of an appropriate multiple
In determining an appropriate range of forecast capitalisation multiples for Calibre we have:
considered that Calibre’s FY19 actual performance to 31 October 2018 is slightly above the budgeted performance
Calibre’s forecast FY19 EBITDA margin is largely in line with the mean and median of the companies selected for comparison and represents a marginal decline on the prior year
considered the nature, operations and size of the listed companies selected for comparison
considered the nature and operations of the companies acquired in recent transactions and other relevant information, where available, as set out above
considered Calibre’s recent strategic changes and sale of G&S Engineering.
Having regard to these considerations, we consider it appropriate to discount the mean / median EBITDA range of the comparable companies and have greater regard to the mean and median EBITDA multiples observed in recently completed transactions to reflect the specific circumstances and risks of the Calibre business. Therefore the capitalisation multiple range we have used in determining the value of Calibre’s operating business, inclusive of a premium for control, is 7.0 times to 7.5 times.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
33
Sensitivity analysis
Notwithstanding that we have already captured various company specific issues related to Calibre in the selection of our capitalisation of earnings multiple; in order to provide Calibre’s shareholders with an indication of the impact on value of a variance in Calibre’s future earnings, we have set out below a sensitivity analysis based on +/-10% to our assessed maintainable earnings of $24.0 million and +/- 0.5 times our EBITDA multiple.
Table 11: Sensitivities
Maintainable Earnings
($ million) 21.6 24.0 26.4
6.5x EBITDA multiple 140.4 156.0 171.6
7.0x EBITDA multiple 151.2 168.0 184.8
7.5x EBITDA multiple 162.0 180.0 198.0
8.0x EBITDA multiple 172.8 192.0 211.2
8.5x EBITDA multiple 183.6 204.0 224.4
Notes: 1 The shaded values reflect our assessed valuation range
Source: KPMG Corporate Finance analysis
10.3.3 Accumulated tax losses
We have estimated the NPV of the tax benefit related to the revenue tax losses and tax credits held by Calibre to be in the order of approximately $4.5 million to $16.7 million based on the level of earnings being capitalised. The value of accumulated tax losses at the low end reflects the uncertainty of the Company’s continued ability to utilise those losses following the sale of G&S Engineering and the assumed conversion of the Series A CRCPS and the Series B Instruments.
10.3.4 Investment in unlisted companies
Management has advised that the investment shares held are in in two unlisted early stage companies which are seeking funding. Management has estimated that market value is unlikely to exceed investment cost given the operations of the companies over recent years. We have adopted a range of nil to $0.3 million reflecting the original investment cost for these investments.
10.3.5 Cash and working capital position
Management has advised that Calibre has been actively managing working capital over recent years, and has been particularly capital constrained over the last 12 months, reflecting the Company’s declining earnings whilst also being required to pay the remaining obligations on the deferred consideration for Diona.
We have considered the estimated level of net working capital that would be required by Calibre to support the level of future maintainable earnings adopted by us having regard to Calibre’s historical net working capital metrics, analysis of historical net working capital for our selected listed companies and discussions with Management.
Having regard to the above, we consider Calibre to be in a net working capital deficiency position as at 31 October 2018. Based on this analysis we do not consider Calibre’s cash position as at 31 October 2018 to be surplus to working capital requirements and that any purchaser would be required to invest further
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
34
funds into the business to fund a net working capital deficiency in the order of approximately $18 million to $20 million. The Company has entered into a funding arrangement with Greensill Capital Pty Ltd, which when drawn down is expected to provide approximately $10 million to partially address the Company’s immediate working capital requirement. We note that once completed this will not impact our range of assessed values for a Calibre share as whilst the current working capital shortfall will decrease, external borrowings will increase by the same amount.
10.3.6 Borrowings
As at 31 October 2018, Calibre had a total borrowings of approximately $89.3 million, comprising the senior facility, hire purchase arrangements and other borrowings.
10.3.7 Onerous lease liability
We have adopted a surplus liability of approximately $10.8 million in respect of Calibre’s onerous leases, refting the estimated post-tax liability as at 31 October 2018 as discussed previously in Section 8, for the purpose of our report.
10.3.8 Series A CRCPS
The Series A CRCPS are able to be redeemed or converted to new Calibre ordinary shares at Calibre’s election. As our range of assessed values per share for a Calibre share is below the conversion price of the Series A CRCPS, we have assumed Calibre will elect to convert the Series A CRCPS at or before they reach maturity. We have adopted the estimated dilutionary effect resulting from the conversion of the Series A CRCPS and accumulated distributions to 23 November 2018, assuming all distributions to this date are capitalised, of 44.7 million ordinary shares in order to calculate a notional diluted number of Calibre ordinary shares on issue as at 23 November 2018. Consistent with this assumption we have not adjusted our enterprise values for Calibre for any redemption amount or distributions in relation to the Series A CRCPS.
10.3.9 Series B CRCPS
As with the Series A CRCPS, the Series B CRCPS are able to be redeemed or converted to new Calibre ordinary shares at Calibre’s election. Whilst our range of assessed values per share for a Calibre share is above the conversion price of the Series B CRCPS, and therefore ordinarily we would assume Calibre would not elect to convert the Series B CRCPS, we consider the uncertainty in relation to Calibre’s financial ability to redeem to be such that we have assumed that Calibre will not be in a position to redeem the Series B CRCPS. We have adopted the estimated dilutionary effect resulting from the conversion of the Series B CRCPS at 1 November 2019, being the maturity date, assuming all distributions to this date are capitalised, of 2,829 million ordinary shares reflecting the maximum dilutionary impact of the Series B CRCPS. Consistent with this assumption we have not adjusted our enterprise values for Calibre for any redemption amount or distributions in relation to the Series B CRCPS.
10.3.10 Series B Notes
Calibre is unable to redeem any Series B Notes without the consent of the Series B Note holders (the Noteholders). Calibre may offer the Noteholders the option to convert or redeem any or all of their notes prior to their maturity date, however, the Noteholders do not have an obligation to convert or redeem. As our range of assessed values per share for a Calibre share is above the conversion price of the Series B Notes, we have assumed Calibre will not offer the Noteholders the option to convert before they reach
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
35
maturity. At maturity date or if Calibre is subject to a change of control event, the Noteholders can choose to redeem or convert the whole face value and deferred interest of the Series B Notes or any part thereof, with the balance outstanding to be paid in cash. We consider there to be significant uncertainty as to Calibre’s access to sufficient funding to put itself in a position to redeem the Series B Notes and that being cognisant of the potential impact of seeking redemption we have assumed the Noteholders will agree to convert the whole face value and deferred interest of the Series B Notes at 1 November 2019, being the maturity date of the Series B CRCPS, which triggers a change of control event. Consistent with this assumption we have not adjusted our enterprise values for Calibre for any redemption amount or distributions in relation to the Series B Notes.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
36
Appendix 1 – KPMG Corporate Finance Disclosures
Qualifications
The individuals responsible for preparing this report on behalf of KPMG Corporate Finance are Jason Hughes and Sean Collins. Each has a significant number of years’ experience in the provision of corporate financial advice, including specific advice on valuations, mergers and acquisitions, as well as the preparation of expert reports.
Jason Hughes is an Authorised Representative of KPMG Corporate Finance and a Partner in the KPMG Partnership. Jason is a Fellow of Chartered Accountants Australia and New Zealand, a Senior Fellow of the Financial Services Institute of Australasia, a member of the Australasian Institute of Company Directors and holds a Bachelor of Commerce and a Graduate Diploma in Applied Finance. Jason has extensive experience in the preparation of independent expert reports and corporate valuations.
Sean Collins is an Authorised Representative of KPMG Corporate Finance and a Partner in the KPMG Partnership. Sean is a Fellow of Chartered Accountants Australia and New Zealand, a Fellow of the Chartered Institute for Securities and Investments, UK and holds a Bachelor of Commerce. Sean has extensive experience in the provision of corporate financial advice, including specific advice on valuations and the preparation of expert reports.
Disclaimers
It is not intended that this report should be used or relied upon for any purpose other than KPMG Corporate Finance’s opinion as to whether the Offer is fair and reasonable to Calibre shareholders. KPMG Corporate Finance expressly disclaims any liability to any shareholder who relies or purports to rely on the report for any other purpose and to any other party who relies or purports to rely on the report for any purpose whatsoever.
Other than this report, neither KPMG Corporate Finance nor the KPMG Partnership has been involved in the preparation of the Target Statement or any other document prepared in respect of the Offer. Accordingly, we take no responsibility for the content of the Target Statement as a whole or other documents prepared in respect of the Offer.
We note that the forward-looking financial information prepared by Calibre does not include estimates as to the potential impact of any future changes in taxation legislation in Australia. Future taxation changes are unable to be reliably determined at this time.
Independence
In addition to the disclosures in our Financial Services Guide, it is relevant to a consideration of our independence that, during the course of this engagement, KPMG Corporate Finance provided draft copies of this report to Management for comment as to factual accuracy, as opposed to opinions which are the responsibility of KPMG Corporate Finance alone. Changes made to this report as a result of those reviews have not altered the opinions of KPMG Corporate Finance as stated in this report.
KPMG Corporate Finance was engaged by Calibre in December 2017 to prepare an independent expert report in relation to the potential future conversion of the Series A Notes and Series B Notes. A draft of our report was issued to the Company however the Company decided not to pursue shareholder approval as a result of implementing its strategic sales process for its businesses. As a result our independent expert report was not finalised. KPMG Corporate Finance received a fee of $50,000 for the preparation of our draft report.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
37
In September 2018, KPMG Corporate Finance was engaged to update and complete the previous independent expert report reflecting the terms of a new agreement with the Vendors, which provided for the issue of $17.1 million in Series B CRCPS as replacement for the Series A Notes. KPMG Corporate Finance received a fee of $40,000 for the preparation of that report.
Consent
KPMG Corporate Finance consents to the inclusion of this report in the form and context in which it is included with the Explanatory Statement to be issued to Calibre shareholders. Neither the whole nor any part of this report nor any reference thereto may be included in any other document without the prior written consent of KPMG Corporate Finance as to the form and context in which it appears.
Declarations
Our report has been prepared in accordance with professional standard APES 225 "Valuation Services" issued by the Accounting Professional & Ethical Standards Board (APESB). KPMG Corporate Finance and the individuals responsible for preparing this report have acted independently.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
38
Appendix 2 – Sources of information
In preparing this report we have been provided with and considered the following sources of information:
Publicly available information:
company presentations and announcements of Calibre
annual reports for the periods ended 30 June 2017 and 2018 for Calibre
annual reports, company presentations and news releases of comparable companies
industry reports sourced from IBISWorld
data providers including S&P Capital IQ Pty Ltd, MergerMarket and Connect 4.
Non-public information provided by Calibre:
Management reports to 31 October 2018
other confidential documents, presentations and workpapers
In preparing this report, we have held discussions with, and obtained information from, senior management of Calibre.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
39
Appendix 3 – Industry overview
Calibre is a provider of engineering and construction related services to the resources, utilities and urban development sectors predominantly in Australia. Outlined below is an overview of the Australian engineering consulting (Engineering Consulting) industry, as well as the industry sectors to which Calibre is most exposed.
Engineering Consulting
Market concentration within the Engineering Consulting industry is relatively low, with the four largest companies expected to account for less than 40% of industry revenue in FY18.
Firms range from large multinationals which possess capabilities across an asset’s lifecycle and servicing multiple industries (i.e. Jacobs, Aecom, Bechtel) to either sector specialists (i.e. Macmahon, Arcadis and Technip) or capability specialists (i.e. Siape, Logicamms), and smaller boutique firms and sole proprietor companies.
The Engineering Consulting industry is highly competitive, and competition continues to intensify due to an increase in the number of sole proprietor and boutique firms and the entry of large global consultancy companies. Intense competition between the large multidisciplinary consulting firms is further exacerbated by the limited number of large-scale complex multidisciplinary projects available.
Outlook
Improved public sector capital expenditure is projected to drive demand for Engineering Consulting, as governments tender large infrastructure projects to stimulate the economy. Engineering Consulting firms are also anticipated to benefit from rising private capital expenditure on non-residential construction, as companies invest in several new industrial projects.
However, with the mining sector expected to continue with subdued activity, a decline in capital expenditure on mining is anticipated to limit overall industry revenue growth given the mining sector is one of the industry’s largest markets.
Overall industry revenue is projected to increase by an annualised 0.6% over the five years through 2022-238.
Mining sector
Historically, Calibre’s revenues have been predominantly sourced from clients in the mining sector, particularly iron ore. Since 2000, the rising demand from emerging economies, particularly China, led to a boom in the Australian resources sector with high commodity prices and demand driving increased investment in mines and associated infrastructure. During this ‘capital investment phase’, resource companies focused on expansion and readily outsourced various services to third party contractors and consultants such as Calibre. However, in recent years, market conditions have become increasingly challenging with falling commodity prices, driven by:
slower demand growth for commodities from emerging countries, in particular China
capacity over-supply as a number of large mining and associated infrastructure projects have completed and subsequently shifted towards the production phase which is less capital-intensive.
8 IBISWorld
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
40
Implications for mining engineering consulting services in Australia
Mining activity in Australia is expected to increasingly focus on output and productivity, rather than capital expenditure growth. However, the recovery of the commodity prices and the (modest) increasing demand of resources from Asia are expected to drive investment growth in new brownfield and greenfield projects in Australia. Nevertheless, the growth in capital expenditure is expected to be modest, and the outlook for Engineering Consulting services in the Australian mining industry is expected to remain subdued in the short to medium term.
Iron ore
Between November 2014 and November 2018 iron ore prices have undergone a period of significant volatility, however have been showing signs of moderate recovery since December 2015, as set out in the chart below.
Figure 1: Iron ore price history and forecast
Source: S&P Capital IQ, KPMG Corporate Finance analysis
Outlook
Australian iron ore export volumes are anticipated to increase over the next five years through 2023-249 driven mainly by the expectation that Chinese steel production will continue to grow. However, iron ore prices are expected to decline in the period and partially offset revenue gains from the higher production volumes, such that industry revenue is forecast to increase at an annualised 0.5% over the five years through 2023-24.
Residential and non-residential construction
Calibre provides feasibility and design services to residential and non-residential construction companies. The Australian residential and non-residential construction industry includes companies involved in the construction of homes, apartments, offices, retail shops, infrastructure, education, health, industrial and entertainment buildings.
9 IBISWorld
0
20
40
60
80
100
120
140
160
Nov
-14
May
-15
Nov
-15
May
-16
Nov
-16
May
-17
Nov
-17
May
-18
Nov
-18
Pri
ce ($
) per
MT
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
41
This sector experienced a decrease in total revenue in 2016/17 mainly driven by the withdrawal of government stimulus put in place in the late 2000s to insulate the Australian economy against the global financial crisis.
A summary of the historical and future total revenue for the construction sector in Australia is set out in the chart below.
Figure 2: Revenue of the construction sector in Australia
Source: IBISWorld, KPMG Corporate Finance analysis
Demand in the residential and non-residential construction sector is driven by the following factors:
economic growth: Australia’s real GDP is forecast to grow at a CAGR of between 3.00% and 3.25% p.a. from 2017 to 201910
population growth: Australia’s population is projected to grow at a CAGR of between 1.0% and 1.9% p.a. between 2017 to 203011
interest rates: interest rates affect the demand for housing by both owner-occupiers and investors.
Outlook
The residential building construction industries are forecast to remain an important source of demand for the construction industry over the next five years, despite an expected short-term decline in housing investment. Housing demand is also likely to be subdued by the projected rise in mortgage interest rates from 2019 onwards. However, total residential building construction demand is projected to eventually strengthen over the next five years.
Demand for non-residential building construction is projected to grow by an annualised 1.3% over the five years through 202212, supported by investment in both commercial and institutional building projects. Changing consumer preferences for online services and shopping are projected to challenge commercial
10 Reserve Bank of Australia 11 Australian Bureau of Statistics 12 IBISWorld
0
50
100
150
200
250
300
350
400
450
Forecast Actual
A$ billion
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
42
construction, as online shopping’s popularity will reduce the need for physical retail stores and generate higher demand for warehouses and office spaces.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
43
Appendix 4 – Valuation methodology
Capitalisation of earnings
An earnings based approach estimates a sustainable level of future earnings for a business ('maintainable earnings') and applies an appropriate multiple to those earnings, capitalising them into a value for the business. The earnings bases to which a multiple is commonly applied include Revenue, EBITDA, EBIT and NPAT.
In considering the maintainable earnings of the business being valued, factors to be taken into account include whether the historical performance of the business reflects the expected level of future operating performance, particularly in cases of development, or when significant changes occur in the operating environment, or the underlying business is cyclical.
With regard to the multiples applied in an earnings based valuation, they are generally based on data from listed companies and recent transactions in a comparable sector, but with appropriate adjustment after consideration has been given to the specific characteristics of the business being valued. The multiples derived for comparable quoted companies are generally based on security prices reflective of the trades of small parcels of shares. As such, multiples are generally reflective of the prices at which portfolio interests change hands. That is there is no premium for control incorporated within such pricing. They may also be impacted by illiquidity in trading of the particular stock. Accordingly, when valuing a business en bloc (100 percent) we would also reference the multiples achieved in recent mergers and acquisitions, where a control premium and breadth of purchaser interest are reflected.
An earnings approach is typically used to provide a market cross-check to the conclusions reached under a theoretical DCF approach or where the entity subject to valuation operates a mature business in a mature industry or where there is insufficient forecast data to utilise the DCF methodology.
Discounted cash flow
Under a DCF approach, forecast cash flows are discounted back to the Valuation Date, generating a net present value for the cash flow stream of the business. A terminal value at the end of the explicit forecast period is then determined and that value is also discounted back to the Valuation Date to give an overall value for the business.
In a DCF analysis, the forecast period should be of such a length to enable the business to achieve a stabilised level of earnings, or to be reflective of an entire operation cycle for more cyclical industries. Typically a forecast period of at least five years is required, although this can vary by industry and by sector within a given industry.
The rate at which the future cash flows are discounted (the Discount Rate) should reflect not only the time value of money, but also the risk associated with the business’ future operations. This means that in order for a DCF to produce a sensible valuation figure, the importance of the quality of the underlying cash flow forecasts is fundamental.
The Discount Rate most generally employed is the Weighted Average Cost of Capital (WACC), reflecting an optimal (as opposed to actual) financing structure, which is applied to unleveraged cash flows and results in an Enterprise Value for the business. Alternatively, for some sectors it is more appropriate to apply an equity approach instead, applying a cost of equity to leveraged cash flows to determine equity value.
In calculating the terminal value, regard must be had to the business’ potential for further growth beyond the explicit forecast period. This can be calculated using either a capitalisation of earnings methodology
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
44
or the 'constant growth model', which applies an expected constant level of growth to the cash flow forecast in the last year of the forecast period and assumes such growth is achieved in perpetuity.
Net assets or cost based
Under a net assets or cost based approach, total value is based on the sum of the net asset value or the costs incurred in developing a business to date, plus, if appropriate, a premium to reflect the value of intangible assets not recorded on the balance sheet.
Net asset value is determined by marking every asset and liability on (and off) the company’s balance sheet to current market values. A premium is added, if appropriate, to the marked-to-market net asset value, reflecting the profitability, market position and the overall attractiveness of the business. The net asset value, including any premium, can be matched to the ‘book’ net asset value, to give a price to net assets, which can then be compared to that of similar transactions or quoted companies.
A net asset or cost based methodology is most appropriate for businesses where the value lies in the underlying assets and not the ongoing operations of the business (e.g. real estate holding companies). A net asset approach is also useful as a cross check to assess the relative riskiness of the business (e.g. through measures such as levels of tangible asset backing).
Enterprise or equity value
Depending on the valuation approach selected and the treatment of the business’ existing debt position, the valuation range calculated will result in either an enterprise value or an equity value being determined.
An enterprise value reflects the value of the whole of the business (i.e. the total assets of the business including fixed assets, working capital and goodwill/intangibles) that accrues to the providers of both debt and equity. An enterprise value will be calculated if a multiple is applied to unleveraged earnings (i.e. revenue, EBITDA, EBITA or EBIT) or unleveraged free cash flow.
An equity value reflects the value that accrues to the equity holders. To compare an enterprise value to an equity value, the level of net debt must be deducted from the enterprise value. An equity value will be calculated if a multiple is applied to leveraged earnings (i.e. NPAT) or free cash flow, post debt servicing.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
45
Appendix 5 – Comparable companies
Cardno Limited, a professional infrastructure and environmental services company, engages in the development and improvement of physical and social infrastructure for communities worldwide. It serves the building, land, coastal and ocean, environment, international development, management services, energy and resources, transportation, water, and defence market sectors. Cardno Limited was founded in 1945 and is headquartered in Fortitude Valley, Australia.
GR Engineering Services Limited is an engineering, consulting, and contracting company, providing engineering design and construction services to the mining and mineral processing industries in Australia and internationally. It operates through mineral processing, and oil and gas segments. Its services cover various aspects of projects, including initial evaluation and study phase, as well as design, construction, commissioning, and operational support. GR Engineering Services Limited was founded in 1986 and is based in Ascot, Australia
Lycopodium Limited provides engineering consultancy services in the mining, metallurgical, rail, and manufacturing industries in Australia and internationally. Lycopodium Limited was founded in 1992 and is based in East Perth, Australia
Southern Cross Electrical Engineering Limited provides electrical, instrumentation, communication, and maintenance services to mining, industrial, utilities, and oil and gas markets in Australia, South America, and the Caribbean. Its construction division installs and commissions greenfield and brownfield projects in remote environments. Its infrastructure division provides various electrical infrastructure works. Its services division offers multi-disciplined brownfields operational support, programed and breakdown maintenance, planned shutdown management, and sustaining capital project development to the mineral resources, oil and gas, heavy industry, and offshore industries. Southern Cross Electrical Engineering Limited was founded in 1978 and is headquartered in Naval Base, Australia
Decmil Group Limited provides design, engineering, and construction works for natural resources, government, and infrastructure sectors in Australia and internationally. It operates through three segments: construction and engineering, accommodation, and other. Decmil Group Limited was founded in 1979 and is headquartered in Osborne Park, Australia.
Mastermyne Group Limited provides contracting services to the underground long wall mining operations in Australia. It operates through two segments, Mastermyne and Mastertec. The Mastermyne segment offers project management, labour and equipment hiring, underground roadway development, underground ventilation device installation, bulk materials handling system installation and relocation, and underground mine support services, as well as underground conveyor installation, extension, and maintenance services. The Mastertec segment provides a range of above-ground contracting services to ports, resources, industrial, and infrastructure sectors. Mastermyne Group Limited was founded in 1996 and is headquartered in Mackay, Australia
Watpac Limited operates as a construction and civil and mining services company in Australia. It operates through three segments: contracting, civil and mining, and property. Watpac Limited was founded in 1983 and is headquartered in Newstead, Australia.
Valmec Limited is a diversified energy and infrastructure services group, providing equipment, construction, commissioning, and maintenance services to the oil and gas, resources, and infrastructure sectors in Australia. Valmec Limited was founded in 1988 and is headquartered in Kewdale, Australia.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
46
LogiCamms Limited provides engineering consulting, project delivery, environmental consulting, asset performance, and training services in Australia, New Zealand, Papua New Guinea, and internationally. It services the hydrocarbons, minerals and metals, and infrastructure sectors. LogiCamms Limited was founded in 1988 and is based in Brisbane, Australia
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
47
Appendix 6 – Comparable transactions
SRG Limited (SRG) provides various services for construction and mining industries in Australia, Hong Kong, and the United Arab Emirates. It operates through construction and mining segments. SRG Limited was founded in 1961 and is headquartered in Subiaco, Australia. Global Construction Services Limited (GCS) entered into a scheme of arrangement to acquire SRG for A$150 million in a merger of equals in June 2018.
TMM Group Pty Ltd (TMM) provides civil construction, operations, and maintenance services to the Queensland coal mining industry. TMM was incorporated in 2010 and is based in Brisbane, Australia. In January 2018, Macmahon Holdings Limited (Macmahon) signed an agreement to acquire TMM.
Opus International Consultants Limited (Opus) is a New Zealand based consulting firm providing services in areas of infrastructure, architecture, water, environment, asset development and management solutions. WSP Global (a Canada-based consultancy service provider) announced the transaction in August 2017, stating its intention to merge Opus with its existing New Zealand operations in order to position itself to participate in expected large infrastructure works
Seymour Whyte Limited is an engineering and construction company in Australia, with a special focus in civil and utilities infrastructure. Vinci Construction SA (subsidiary of Vinci SA, a listed France-based company involved in building, heavy construction, civil engineering and other industrial projects) announced the transaction in June 2017, stating the acquisition would enable it to expand synergies with its existing operations in Australia
UGL Limited provides outsourced engineering, construction, and asset management and maintenance services to blue-chip companies, government agencies, private enterprise, and public institutions in Australia and internationally. Cimic Group Ltd, an Australian construction company, announced the transaction in October 2016, which involved the acquisition of the remaining 86 percent stake in UGL Limited. Given the negative results of the UGL operations in FY16, the implied EBITDA multiple is not meaningful
Ausenco Limited provides engineering, construction, and project management services to the resources and energy markets in Australia and internationally. RCF Capital Fund announced the acquisition of a 94.8 percent interest in Ausenco Limited in a leveraged buyout transaction in May 2016. Given the negative results of the Ausenco Limited operations at the time of the transaction, the implied EBITDA multiple is not meaningful
Sedgman Limited provides mineral processing and associated infrastructure solutions to the resources industry in Australia, Canada, Chile, Mozambique, and internationally. Cimic Group Ltd, an Australian construction company, announced the acquisition via an unsolicited bid of the remaining 63 percent interest, which it did not already own
J&P Richardson Industries Pty Ltd provides services in the fields of engineering, installation and maintenance of electricity networks, water utilities, telecommunications and industrial processes. VINCI Energies S.A announced the acquisition of J & P Richardson Industries Pty Ltd. for €69 million in February 2016, stating the acquisition confirmed its momentum in the oceanic region and reflected its strategy of expansion in countries with high economic growth rates
Coffey International Limited provides consulting services in the geoservices, international development, and project management areas worldwide. Tetra Tech, Inc., a listed US-based provider
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
48
of consulting and engineering services, announced the transaction in October 2015. Tetra Tech stated the acquisition would make the combined group the leading consulting firm for international development, supporting the US Agency for International Development, Australia's Department for Foreign Affairs and Trade and the UK's Department for International Development
Cardno Limited is an infrastructure and environment services provider operating in the physical and social infrastructure industries both in Australia and globally. Crescent Capital Partners announced the potential transaction in September 2015, following a period of sustained share price depreciation for Cardno and the mining services industry throughout 2014 and 2015. The purchase was undertaken in order to consolidate the firm’s current 19.62% ownership in Cardno
Production Solutions is an engineering services, maintenance and well management service in the Australian oil and gas sector. GR Engineering purchased Production Solutions in April 2014 during a period of historically high oil prices. The purchase was undertaken in order to extend the services GR Engineering could provide in the Australian hydrocarbon market
Sinclair Knight Merz provides a range of engineering services, including consulting, planning architecture, and construction management services within civil and mining infrastructure development industries. Jacobs Australia’s purchase of Sinclair Knight Merz occurred in late 2013, at the height of the mining investment boom. The purchase was undertaken in order to expand Jacobs’ global market share and service offering across further markets
Clough provides engineering, procurement, construction and commissioning services within the oil, gas and minerals sector in Australia. Murray Roberts acquisition of the remaining free floating shares in Clough in late 2013 consolidated its Australian operations
Transfield Worley was a joint venture between Transfield Services Limited and WorleyParsons Limited and provides construction, maintenance and design services in the power, oil, gas, refining and petrochemical industry in New Zealand. The acquisition enabled WorleyParsons the opportunity to expand an existing presence in the New Zealand hydrocarbon market
Eastcoast Development Engineering provides engineering, manufacturing, construction and maintenance services for the hydrocarbon, mining and processing industries in Australia and internationally. Decmil acquisition of the business in early 2013 occurred during a period of high growth in the Queensland coal seam gas industry, and allowed Decmil to grow its service offerings for its Construction and Engineering divisions.
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
49
Part Two – Financial Services Guide
Dated 18 December 2018
What is a Financial Services Guide (FSG)?
This FSG is designed to help you to decide whether to use any of the general financial product advice provided by KPMG Financial Advisory Services (Australia) Pty Ltd ABN 43 007 363 215, Australian Financial Services Licence Number 246901 (of which KPMG Corporate Finance is a division) (KPMG Corporate Finance) and Jason Hughes as an authorised representative of KPMG Corporate Finance, authorised representative number 404183 and Sean Collins as an authorised representative of KPMG Corporate Finance, authorised representative number 404189 (Authorised Representative). This FSG includes information about: KPMG Corporate Finance and its Authorised Representatives and how they can be contacted the services KPMG Corporate Finance and its Authorised Representative are authorised to provide how KPMG Corporate Finance and its Authorised Representative are paid any relevant associations or relationships of KPMG Corporate Finance and its Authorised Representative how complaints are dealt with as well as information about internal and external dispute resolution systems and how you can
access them; and the compensation arrangements that KPMG Corporate Finance has in place. The distribution of this FSG by the Authorised Representative has been authorised by KPMG Corporate Finance. This FSG forms part of an Independent Expert’s Report (Report) which has been prepared for inclusion in a disclosure document or, if you are offered a financial product for issue or sale, a Product Disclosure Statement (PDS). The purpose of the disclosure document or PDS is to help you make an informed decision in relation to a financial product. The contents of the disclosure document or PDS, as relevant, will include details such as the risks, benefits and costs of acquiring the particular financial product.
Financial services that KPMG Corporate Finance and the Authorised Representative are authorised to provide
KPMG Corporate Finance holds an Australian Financial Services Licence, which authorises it to provide, amongst other services, financial product advice for the following classes of financial products: deposit and non-cash payment products; derivatives; foreign exchange contracts; government debentures, stocks or bonds; interests in managed investment schemes including
investor directed portfolio services; securities; superannuation; carbon units; Australian carbon credit units; and eligible international emissions units, to retail and wholesale clients. We provide financial product advice when engaged to prepare a report in relation to a transaction relating to one of these types of financial products. The Authorised Representative is authorised by KPMG Corporate Finance to provide financial product advice on KPMG Corporate Finance's behalf. KPMG Corporate Finance and the Authorised Representative's responsibility to you KPMG Corporate Finance has been engaged by Calibre (Client) to provide general financial product advice in the form of a Report to be included in the Target Statement (Document) prepared by Client in relation to the Offer (Transaction). You have not engaged KPMG Corporate Finance or the Authorised Representative directly but have received a copy of the Report because you have been provided with a copy of the Document. Neither KPMG Corporate Finance nor the
Authorised Representative are acting for any person other than the Client. KPMG Corporate Finance and the Authorised Representative are responsible and accountable to you for ensuring that there is a reasonable basis for the conclusions in the Report.
General Advice
As KPMG Corporate Finance has been engaged by the Client, the Report only contains general advice as it has been prepared without taking into account your personal objectives, financial situation or needs. You should consider the appropriateness of the general advice in the Report having regard to your circumstances before you act on the general advice contained in the Report. You should also consider the other parts of the Document before making any decision in relation to the Transaction.
Fees KPMG Corporate Finance may receive and remuneration or other benefits received by our representatives
KPMG Corporate Finance charges fees for preparing reports. These fees will usually be agreed with, and paid by, the Client. Fees are agreed on either a fixed fee or a time cost basis. In this instance, the Client has agreed to pay KPMG Corporate Finance $30,000 for preparing the Report. KPMG Corporate Finance and its officers, representatives, related entities and associates will not receive any other fee or benefit in connection with the provision of the Report. KPMG Corporate Finance officers and representatives (including the Authorised Representative) receive a salary or a partnership distribution from KPMG’s Australian professional advisory and accounting practice (the KPMG Partnership). KPMG Corporate Finance's representatives (including the Authorised Representative) are eligible for bonuses based on overall productivity. Bonuses and other remuneration and
Calibre Group Limited Independent Expert Report
18 December 2018
©2018 KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG. KPMG is an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International
50
benefits are not provided directly in connection with any engagement for the provision of general financial product advice in the Report. Further details may be provided on request.
Referrals
Neither KPMG Corporate Finance nor the Authorised Representative pay commissions or provide any other benefits to any person for referring customers to them in connection with a Report.
Associations and relationships
Through a variety of corporate and trust structures KPMG Corporate Finance is controlled by and operates as part of the KPMG Partnership. KPMG Corporate Finance's directors and Authorised Representatives may be partners in the KPMG Partnership. The Authorised Representatives are partners in the KPMG Partnership. The financial product advice in the Report is provided by KPMG Corporate Finance and the Authorised Representatives and not by the KPMG Partnership. From time to time KPMG Corporate Finance, the KPMG Partnership and related entities (KPMG entities) may provide professional services, including audit, tax and financial advisory services, to companies and issuers of financial products in the ordinary course of their businesses. KPMG entities have previously provided advisory services to the Client for which professional fees have been received. Over the past two years professional fees of approximately $90,000 have been received from the client for these services. KPMG entities have not provided any services to Jupiter over the past two years. No individual involved in the preparation of this Report holds a substantial interest in, or is a substantial creditor of, the Client or has other material financial interests in the transaction.
Complaints resolution
Internal complaints resolution process
If you have a complaint, please let either KPMG Corporate Finance or the Authorised Representative know. Formal complaints should be sent in writing to The Complaints Officer, KPMG, PO Box H67, Australia Square, Sydney NSW 1213. If you have difficulty in putting your complaint in writing, please telephone the Complaints Officer on 02 9335 7000 and they will assist you in documenting your complaint. Written complaints are recorded, acknowledged within 5 days and investigated. As soon as practical, and not more than 45 days after receiving the written complaint, the response to your complaint will be advised in writing.
External complaints resolution process
If KPMG Corporate Finance or the Authorised Representative cannot resolve your complaint to your satisfaction within 45 days, you can refer the matter to the Financial Ombudsman Service (FOS). FOS is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry. Further details about FOS are available at the FOS website www.fos.org.au or by contacting them directly at: Address: Financial Ombudsman Service Limited, GPO
Box 3, Melbourne Victoria 3001 Telephone: 1300 78 08 08
Facsimile: (03) 9613 6399 Email: [email protected]. The Australian Securities and Investments Commission also has a freecall infoline on 1300 300 630 which you may use to obtain information about your rights.
Compensation arrangements
KPMG Corporate Finance has professional indemnity insurance cover as required by the Corporations Act 2001(Cth).
Contact Details
You may contact KPMG Corporate Finance or the Authorised Representative using the contact details: KPMG Corporate Finance A division of KPMG Financial Advisory Services (Australia) Pty Ltd 10 Shelley St Sydney NSW 2000 Jason Hughes C/O KPMG PO Box H67 Australia Square NSW 1213 Telephone: (02) 9335 7000 Facsimile: (02) 9335 7000
![1 [DocID] Hewitt Associates Global Warming. 2 [DocID] Hewitt Associates What is Global Warming?](https://img.dokumen.tips/doc/110x75/5514fa12550346b0338b635f/1-docid-hewitt-associates-global-warming-2-docid-hewitt-associates-what-is-global-warming.jpg)
