UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F/A

 

Amendment No. 1

 

(Mark One)

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

 

For the fiscal year ended January 31, 2019

 

OR

 

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

 

For the transition period from _____________ to _____________

 

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

 

Date of event requiring this shell company report ____________

 

Commission File Number 001-38544

 

NAKED BRAND GROUP LIMITED

(Exact name of registrant as specified in its charter)

 

N/A

(Translation of Registrant’s name into English)

 

Australia

(Jurisdiction of incorporation or organization)

 

c/o Bendon Limited

Building 7C, Huntley Street

Alexandria

NSW 2015, Australia

+61 2 9384 2400

(Address of principal executive offices)

 

Justin Davis-Rice, Executive Chairman

c/o Bendon Limited

Building 7B, Huntley Street

Alexandria

NSW 2015, Australia

+61 2 9384 2400

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

 

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

 

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

 

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

 

None

(Title of class)

 

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

 

None

(Title of class)

 

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

 

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

Yes [  ] No [X]

 

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

Yes [  ] No [X]

 

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

Yes [X] No [  ]

 

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

Yes [X] No [  ]

 

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

 

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

 

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

 

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

 

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

 

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

 

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

Item 17 [  ] Item 18 [  ]

 

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

Yes [  ] No [X]

 

 

 

 

 

 

NAKED BRAND GROUP LIMITED

 

TABLE OF CONTENTS

 

EXPLANATORY NOTE 1
   
INTRODUCTION 2
   
TRADEMARKS AND SERVICE MARKS 2
   
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 2
   
NON-IFRS FINANCIAL MEASURES 4
   
PART I 5
   
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 5
   
PART III 33
   
ITEM 17. FINANCIAL STATEMENTS 33
   
ITEM 18. FINANCIAL STATEMENTS 33
   
ITEM 19. EXHIBITS 33

 

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EXPLANATORY NOTE

 

On October 10, 2019, following the approval of our audit committee, we engaged BDO Audit Pty Ltd (“BDO”) as the principal accountant to audit the Company’s financial statements, which engagement was approved by our shareholders at our annual general meeting held on December 16, 2019. BDO has re-audited our financial statements for the fiscal years ended January 31, 2019 and 2018 and for the seven months ended January 31, 2017.

 

This Form 20-F/A is being filed by us as Amendment No. 1 to our annual report on Form 20-F for the fiscal year ended January 31, 2019, as filed with the Securities and Exchange Commission on June 14, 2019 (the “Original Form 20-F”), solely for the purpose of:

 

  amending and restating Items 17 and 18 to include our consolidated financial statements as re-audited by BDO. The only changes to our consolidated financial statements were to update Note 2(a) thereto (“Going Concern”) and Note 36 (“Events occurring after the reporting date”) to reflect events that occurred after June 20, 2019, the date the consolidated financial statements were initially issued; and
     
  amending and restating Item 5 to reflect the changes to Note 2(a) and Note 36 to our consolidated financial statements.

 

Other than as stated above, this Form 20-F/A does not amend, update or restate the information in any other item of the Form 20-F as originally filed on June 14, 2019 or reflect any events that have occurred after the original filing of the Form 20-F on June 14, 2019. Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Form 20-F/A also contains new certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

On December 20, 2019, we completed a reverse stock split of our ordinary shares, pursuant to which every 100 ordinary shares outstanding as of the effective time of the reverse stock split were combined into one ordinary share. All share and per share information in this MD&A is presented on a pre-reverse split basis.

 

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INTRODUCTION

 

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

 

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

 

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

 

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

 

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

 

TRADEMARKS AND SERVICE MARKS

 

This Form 20-F/A contains references to a number of trademarks which are our registered trademarks or trademarks for which we have pending applications or common law rights. Our major trademarks include, among others, the “Naked” trademark, the Heidi Klum trademarks, Frederick’s of Hollywood trademarks and other related trademarks.

 

Solely for convenience, the trademarks, service marks and trade names referred to in this Form 20-F/A are listed without the ®, (sm) and I symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Form 20-F/A contains forward-looking statements. Forward-looking statements include all statements that are not historical facts. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. They appear in a number of places throughout this Form 20-F/A and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. Forward-looking statements contained in this Form 20-F/A include, among other things, statements relating to:

 

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

 

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

 

These statements are not assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Although we base the forward-looking statements contained in this Form 20-F/A on assumptions that we believe are reasonable, we caution you that actual results and developments (including our results of operations, financial condition and liquidity, and the development of the industry in which we operate) may differ materially from those made in or suggested by the forward-looking statements contained in this Form 20-F/A. In addition, even if results and developments are consistent with the forward-looking statements contained in this Form 20-F/A, those results and developments may not be indicative of results or developments in subsequent periods. Certain assumptions made in preparing the forward-looking statements contained in this Form 20-F/A include:

 

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

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in Item 3.D of the Original Form 20-F, “Risk Factors,” which include, but are not limited to, the following risks:

 

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

 

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Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. As a result, any, or all of our forward-looking statements in this Annual Report may turn out to be inaccurate. We have included important factors in the cautionary statements included in this Annual Report, particularly in Item 3.D of this the Original Form 20-F, “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not rely on our forward-looking statements. Moreover, we operate in a highly competitive and rapidly changing environment in which new risks often emerge. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

 

You should read this Form 20-F/A, together with the Original Form 20-F, and the documents that we reference herein and therein and have filed as exhibits hereto and thereto, completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained herein are made as of the date of this Form 20-F/A, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.

 

NON-IFRS FINANCIAL MEASURES

 

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

 

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

 

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

 

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PART I

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

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

 

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

 

Basis of Presentation

 

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

 

Introduction

 

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

 

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

 

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

 

Overview

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Application of Critical Accounting Policies, Estimates, and Judgements

 

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

 

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Critical accounting policies

 

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

 

(a) Going concern

 

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

 

For the financial year ended 31 January 2019 the Group experienced a loss after income tax from continuing operations of NZ$49.227million (2018: NZ$37.445million) and operating cash outflows of NZ$9.434 million (2018: NZ$4.116million). It also is in a net current liability position of $NZ29.426 million (2018: NZ$20.752million) and a positive net asset position of NZ$10.519 million (2018: net liability position of NZ$5.710million).

 

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

 

The Group has also breached its Bank debt loan covenants during financial year, and is the process of extending their facilities which are currently due on 31 January 2020 to provide the Group and the Bank time to consider a refinance of the facility to a longer term to assist the group continue as a going concern.

 

In consequent to the challenging trading conditions and the negative working capital the business raised NZ$24 million of funds in the form of issued capital and convertible notes over the course of the financial year and generated further working capital by reducing inventory by NZ$9.993million. The Group used the funds to reduce the bank debt from NZ$38.489 million to NZ$20 million, reduce long overdue trade creditors, fund operating losses, reduce costs, rebuild higher margin inventory, recruit new staff, and pay the costs of listing on the Nasdaq stock exchange.

 

It is expected the group will need to continue to fund losses through to the start of the year ending 31 January 2022. This capital raising/recapitalisation is continuing, and management had raised US$32.4 million between March 2019 and the date of this report. At the date of this report management is intending on raising up to a further US$15 million. The Group must complete the fundraising to finalise the recapitalization plan and continue as a going concern

 

As part of the discussions to renegotiate the Bank facilities the Bank appointed Korda Mentha to review the cash flow and working capital history and forecasts. Korda Mentha produced a report which is consistent with the information in this note and the Bank has advised they will continue to monitor the Group’s performance during the Bank debt renegotiation process. The Directors expect the Bank to offer a new two year facility. The offer of a new Bank facility is dependent on the Group achieving inventory covenants set by the Bank, and the Bank being satisfied with the raising of the remaining capital planned of US$15 million.

 

8

 

 

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

 

Raising further funding before 28 February 2020 in order to meet all debts due in the 12 months after signing of these financial statements;
   
Generating sufficient sales and increasing gross margins and reducing overheads in line with forecasts;
   
Having sufficient funds to maintain a positive cashflow position, and to reduce bank debt in line with agreed bank amortisation;
   
Continuing to receive support from creditors to delay payment of overdue amounts until the Group has adequate cash flow to commence a repayment arrangement or repay the debts in full; and
   
Renegotiating the current bank facilities of NZ$20 million to a facility that is at least a 12 month facility.

 

As a result, the viability of the Group is dependent on the above matters. The dependence on these matters indicate a material uncertainty exists, that may cast significant doubt as to whether the Group will continue as going concern and therefore whether they will realise their assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial report.

 

However, the Directors’ believe that the Group will be successful in the above matters and, accordingly, have prepared the report on a going concern basis

 

(b) Revenue recognition

 

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

 

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

 

Sale of goods

 

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

 

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

 

Significant Accounting Judgments, Estimates, and Assumptions

 

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

 

9

 

 

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

 

Key estimates — inventory

 

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

 

Key estimates — impairment of goodwill

 

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

 

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

 

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

 

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

 

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

 

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

 

Key estimates — fair value of financial instruments

 

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

 

Key estimates — impairment of brands

 

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

 

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

 

10

 

 

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

 

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

 

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

 

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

 

Key estimates — taxes

 

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

 

Recent Accounting Pronouncements

 

New Accounting Standards and Interpretations

 

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

 

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

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

 

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

 

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

 

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

 

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

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

 

11

 

 

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

 

Recent Developments

 

On February 14, 2019, Carole Hochman resigned from the board of directors and as Executive Chairman.

 

In March 2019, the following share transactions occurred :

 

  (1) 1.4m ordinary shares and 1.4m warrants were issued in exchange for services to the value of NZ $0.1m / US$ 87k. The warrants have an exercise price of US$0.50 and expire 2 years from the date of issue.
     
  (2) The issue of 11,248,415 ordinary shares to trade creditors in satisfaction of NZ$6.6m / US$4.5m trade payables, at a share price of US$0.40.
     
  (3) The issue of 2,119,178 ordinary shares in settlement of a promissory notes in the amount of NZ$1.25m / US$847,671, at a share price of US$0.40 per share.
     
  (4) The issue of 4,510,588 ordinary shares to investors in a private placement at a share price of US$0.255 for a total cash consideration of NZ$1.69m / US$1.15m. The investors also received warrants to purchase 4.510,588 ordinary shares, at an exercise price of US$0.306 and expiry 2 years from the date of issue.
     
  (5) The issue of 10,784,313 ordinary shares to certain investors at a share price of US$0.255 for a total cash consideration of NZ$4.05m / US$2.75m, as well as “pre-funded” warrants to purchase ordinary shares in lieu of such shares if an investor would own more than 9.9% of the total outstanding ordinary shares. Each investor also received “investment” warrants to purchase 100% of the number of ordinary shares, and as a result 3,914,846 ordinary shares, pre-funded warrants to purchase 6,869,467 ordinary shares and investment warrants to purchase 10,784,313 ordinary shares were issued to investors. The investment warrants have an exercise price of US$0.306 per share and expire 5 years from the date of issue. The pre-funded warrants have an exercise price of US$0.01 per share and expire 5 years from the date of issue. If the exercise price of the warrants was higher than the last closing bid price of the ordinary shares, the warrants could be exercised on a cashless basis using a Black-Scholes valuation (but not less than US$0.10). In July and August 2019, the holders of the pre-funded warrants exercised such warrants in full, resulting in the issue of 6,869,467 shares, and the holders of the investment warrants exercised them as to 9,078,877 on a cashless basis, resulting in the issuance of 19,586,048 ordinary shares at that time.

 

On April 2, 2019, the board of directors appointed Anna Johnson as Chief Executive Officer. Previously Ms. Johnson was Chief Executive Officer of Bendon Limited, the main operating entity within the Company. At the same time, Justin Davis-Rice was appointed as Executive Chairman and resigned as our Chief Executive Officer.

 

12

 

 

In May 2019, the following share of funding transactions occurred:

 

  (1) NZ$4.3m / US$3m cash was raised via a secured convertible promissory note to St. George Investments, with a US$3.32m note principal value. The note accrues daily interest at 10% p.a, and matures on November 13, 2020. The Company has the right to prepay the note, subject to a 15% premium. The note is secured by a second priority security interest over all the Company’s assets and is subordinated to the Company’s existing senior secured credit facility with the Bank of New Zealand. The noteholder has the right to convert the note into Naked ordinary shares at a conversion price of US$0.90 per share, and also has the right, from December 13, 2019, to request redemption of any portion of the note, up to a maximum of US$0.4m per month.
     
  (2) NZ$2.17m / US$1.5m cash was raised via the issue of 6m Naked ordinary shares to an investor in a private placement at a share price of US$0.25. The investor also received warrants to purchase 1m Naked ordinary shares. The warrants have an exercise price of US$0.25, and expire 2 years from the date of issue.
     
  (3) 653,595 ordinary shares were issued in exchange for the cancellation of NZ$0.3m / US$0.2m in debt held by a shareholder, at a price of US$0.306 per share.

 

In July 2019, the following share transactions occurred:

 

  (1) The issue of 25,068,250 ordinary shares to certain suppliers at a price of US$0.10 per share, in cancellation of NZ$3.7m / US$2,506,825 trade payables.
     
  (2) The issue of 15.75m ordinary shares to certain investors at a price of US$0.10 per share, and warrants to purchase up to 15.75m ordinary shares, at an exercise price of US$0.10 per share, for a total cash consideration of NZ$2.35m / US$ 1.575m. Warrants to purchase 1.26m ordinary shares were also issued to various designees of the placement agent at an exercise price of US $0.125 per share. The placement agent warrants are immediately exercisable and expire 5.5 years from date of the cash offering.
     
  (3) The exercise prices of certain outstanding warrants to purchase 2.8m ordinary shares held by one of the investors were reduced to US$0.10 per share, with the exercise prices previously ranging from US$1.55 to US$3.75.

 

On July 31, 2019, Kelvin Fitzalan was appointed as a member of the board of directors.

 

In August 2019, the following equity transactions occurred:

 

  (1) 28,571,431 ordinary shares, at a price of $0.07 per share in a cash offering and 28,571,431 warrants to purchase ordinary shares were issued to certain investors, for a total cash consideration of NZ $3.1m / US$2.0m. The warrants are immediately exercisable, expiring 5.5 years from the date of issue, at an exercise price per share of US$0.07, and may be exercised on a ‘cashless’ basis based on as Black Scholes valuation from 6 months after the issue. The Company also issued warrants to certain designees of the placement agent to purchase 2,285,714 ordinary shares at an exercise price of US$0.0875 per share. The placement agent warrants are immediately exercisable and expire 5.5 years from date of the cash offering.
     
  (2) The Company agreed to reduce the exercise price of outstanding warrants held by certain investors, consisting of warrants to purchase up to 18,550,000 ordinary shares at an exercise price of US$0.10 per share that expire in October 2021, June 2023 and July 2025. The Company agreed to amend each of the outstanding warrants to reduce the exercise price to US$0.07.
     
  (3) The Company issued 57,142,857 ordinary shares to suppliers at a price of US$0.07 per share in exchange for the cancellation of NZ$6.2m / US$4.0m trade payables and the establishment of prepayment credits.

 

13

 

 

In October 2019, the following funding transaction occurred:

 

  (1) The Company completed a private placement of a convertible promissory note and a warrant to purchase ordinary shares, for a purchase price of NZ$3.2m / US$2.0m, with a principal balance before discount and expenses of US$2.12m. The holder had the right to exchange the warrant for a 5% increase in the balance of the note. On October 9, 2019, the holder exercised this right, and as result the warrant was cancelled and the balance of the note was increased by US$106,100. The note balance was further increased to US$2.51m on November 21, 2019 due to additional funding requirement deadline not being met. The note accrues daily interest at 20% per annum, and matures on October 4, 2021. The Company has the right to prepay the Note, subject to a 25% premium. The note is subordinated to the Company’s existing senior secured credit facility with the Bank of New Zealand, From April 7, 2020 the holder has the right to convert the outstanding balance of the note into the Company’s ordinary shares at a conversion price of US$0.05 per share.

 

In November 2019, the following funding transaction occurred:

 

  (1)

The Company issued a NZ$4.8m / US$3.0m convertible note in a private placement, maturing November 12, 2021. The face value of the note is NZ$5.0m / US$3.17m after discount and costs, with a cash consideration of US$3.0m. The holder had the right to exchange the warrant for a 5% increase in the balance of the note. On November 15, 2019, the holder exercised this right, and as result the warrant was cancelled and the balance of the note was increased by US$158,600. The note balance was further increased by $340,900 on December 27, 2019 due to additional funding requirement deadline not being met. The interest rate is 20% per annum. The Company has the right to prepay the note at a 25% premium. The note is subordinated to the Company’s existing BNZ facility. The note outstanding balance is convertible into ordinary shares from May 13, 2020, at a conversion price of US$0.04 per share. From May 13, 2020, the holder can request the company redeem any portion of the note, up to a maximum of US$0.6m per month. At same time warrants to purchase the number of ordinary shares issued under the notes (estimated to be approximately 63,400,000 shares), at a US$0.05 exercise price, were issued to the note holder, exercisable at any time, with a November 30, 2021 expiry date.

     
  (2)

The holder of the convertible notes issued by us in May 2019 exchanged a portion of the notes at negotiated prices, for a US$0.028 average price, reducing the principal value of the convertible note by US$340k.

 

In December 2019, the following funding transactions occurred :

 

  (1)

The holder of the convertible notes issued by us in May 2019 exchanged an additional portion of the notes at negotiated prices, for a US$0.021 average price, reducing the principal value of the convertible note by an additional US$2.265m.

     
  (2)

The Company issued a NZ$4.8m / US$3.0m convertible note in a private placement, maturing December 19 2021. The face value of the note is NZ$5.0m / US$3.17m after discount and costs, with a cash consideration of US$3.0m. The holder had the right to exchange the warrant for a 5% increase in the balance of the note. On January 2, 2020, the holder exercised this right, and as result the warrant was cancelled and the balance of the note was increased by US$159,600. The interest rate is 20% per annum. The Company has the right to prepay the note at a 25% premium. The note is subordinated to the Company’s existing BNZ facility. The note outstanding balance is convertible into ordinary shares from May 13, 2020, at a conversion price of US$0.04 per share. From June 19, 2020, the holder can request the company redeem any portion of the note, up to a maximum of US$0.6m per month. At same time warrants to purchase the number of ordinary shares issued under the December notes (estimated to be approximately 79,300,000 shares), at a US$0.05 exercise price, were issued to the note holder, exercisable at any time, with a December 31, 2021 expiry date.

 

In January 2020, the holder of the convertible notes issued by us in May 2019 exchanged an additional portion of the notes at a negotiated prices, for a US$0.012 average price, reducing the principal value of the convertible note by an additional US$0.2m.

 

On February 5, 2019, we received a notice from the Listing Qualifications Department of Nasdaq stating that, for the last 30 consecutive business days, the closing bid price for our Ordinary Shares had been below the minimum of US$1.00 per share required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). We will be afforded until February 3, 2020 to regain compliance with the minimum bid price requirement. In order to regain compliance, the bid price for shares of our ordinary shares must close at US$1.00 per share or more for a minimum of ten consecutive business days.

 

14

 

 

At the annual general meeting of the Company’s shareholders held on December 16, 2019, it was resolved to complete a reverse stock split of our ordinary shares, pursuant to which every 100 ordinary shares outstanding as of the effective time of the reverse stock split were combined into one ordinary share. Pursuant to a resolution of our Board of Directors, the reverse stock split became effective on December 20, 2019. All share and per share information in this MD&A is presented on a pre-reverse split basis.

 

The senior secured credit facility with the Bank of New Zealand has been extended from August 31, 2019 to January 31, 2020, with discussions underway to extend for a further period beyond 12 months. The bank covenants were breached throughout the 6 months ended July 31, 2019, and were reset, with a minimum inventory to bank debt ratio required to be maintained from May 1, 2019. This new ratio has been breached every month to the date of signing of the accounts, creating an event of review, but the bank has taken no further action in relation to these breaches.

 

A restructure or operations was commenced in October 2019 with initiatives to close the US wholesale business as well as the Australian office and to reduce the number of employees by 67 globally by the end of the year, subject to consultation with employees.

 

A. Operating Results

 

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

 

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

 

   

Jan. 31,

2019

NZ$000

12 months

   

Jan. 31,

2018

NZ$000

12 months

   

%

movement

FY19 v

FY18

   

Unaudited

Jan. 31,

2017

NZ$000

12 months

   

%

movement

FY18 v

FY17

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

 

15

 

 

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

 

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

 

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

 

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

 

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

 

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

 

    Jan. 31,
2017
NZ$000
seven months
    Unaudited
Jan. 31,
2016
NZ$000
seven months
    %
movement
   

 

Jun. 30,
2016
NZ$000
12 months

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

 

16

 

 

Revenue

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Gross margins

 

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

 

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

 

17

 

 

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

 

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

 

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

 

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

 

Operating expenses

 

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

 

   

Jan. 31,

2019

NZ$000

12 months

   

Jan. 31,

2018

NZ$000

12 months

   

%

movement

FY19 v

FY18

   

Unaudited

Jan. 31,

2017

NZ$000

12 months

   

%

movement

FY18 v

FY17

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

 

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

 

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

 

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

 

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

 

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

 

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

 

18

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

19

 

 

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

 

    Jan. 31,
2017
NZ$000
seven months
    Unaudited
Jan. 31,
2016
NZ$000
seven months
    %
movement
   

 

Jun. 30,
2016
NZ$000
12 months

   

 

Jun. 30,
2015
NZ000$
12 months

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

20

 

 

Taxation

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Net loss and comprehensive loss

 

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

 

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

 

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

 

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

 

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

 

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

 

21

 

 

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

 

Segmented Reporting

 

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

 

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

 

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

 

Year ending January 31, 2019

 

    NZ Retail     AU Retail    

NZ Wholesale

   

AU Wholesale

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

 

Year ending January 31, 2018

 

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

 

22

 

 

Year ending January 31, 2017 (Unaudited)

 

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

 

For the 7-months ended January 31, 2017

 

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

 

Year to June 30, 2016

 

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

 

Year to June 30, 2015

 

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

AU
Wholesale

NZ$000’s

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

 

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

 

New Zealand and Australia Retail

 

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

 

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

 

23

 

 

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

 

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

 

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

 

NZ Wholesale, AU Wholesale, US Wholesale and EU wholesale

 

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

 

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

 

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

 

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

 

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

 

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

 

24

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

E-commerce

 

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

 

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

 

25

 

 

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

 

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

 

Non-IFRS Financial Measures

 

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

 

Reconciliations

 

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

 

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

 

   

12 months ended

January 2019

NZ$000

   

12 months ended

January 2018

NZ$000

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

 

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

 

    12 months    

Unaudited

12 months

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

 

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

 

   

7 months

ended
January 2017
NZ$000’s

   

 

12 months
ended
June 2016
NZ$000’s

   

 

12 months
ended
June 2015
NZ$000’s

 
Segment EBITDA     (2,126 )     10,470       3,420  
Income tax (expense)/ benefit     (865 )     (5,546 )     1,274  
Other Revenue             7,710       24  
Any other reconciling items     (12,988 )     (33,380 )     (17,823 )
Total net loss after tax     (15,979 )     (20,746 )     (13,105 )

 

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

 

26

 

 

B. Liquidity, and Capital Resources

 

Liquidity

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Working capital

 

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

 

As of January 31, 2019 and January 31, 2018

 

   

January 31,

2019

NZ$000

   

January 31,

2018

NZ$000

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

 

27

 

 

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

 

As of January 31, 2018 and January 31, 2017

 

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

 

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

 

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

 

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

 

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

 

Cash flows

 

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

 

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

 

Operating Activities

 

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

 

28

 

 

Investing Activities

 

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

 

Financing Activities

 

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

 

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

 

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

 

Operating Activities

 

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

 

Investing Activities

 

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

 

Financing Activities

 

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

 

29

 

 

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

 

    7 months
ended
January 31,
2017
NZ$000’s
   

12 months
ended
June 30,
2016
NZ$000’s

   

12 months
ended
June 30,
2015
NZ000’s

 
Net cash (outflow) from operating activities     (13,518 )     (5,040 )     (17,199 )
Net cash (outflow) from investing activities     (1,074 )     (3,178 )     (5,794 )
Net cash inflow from financing activities     13,082       11,251       20,524  
Net increase/decrease in cash and cash equivalents held     (1,510 )     3,033       (2,469 )
Cash and cash equivalents     2,644       4,193       1,246  

 

Operating Activities

 

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

 

Investing Activities

 

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

 

Financing Activities

 

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

 

Indebtedness

 

Bank loan

 

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

 

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

 

The new facility of $20,000,000 has been extended to January 31, 2020 and discussions are continuing to extend the facility beyond that point. The current amount outstanding under the facilities (including the instruments referenced above) is $20,000,000 (January 31, 2018: $38,489,428, 2017: $41,710,000). The current interest rate on this loan is 5.57% (January 31, 2019: 5.57%, 2018: 5.55%, 2017: 4.84%) per annum.

 

BNZ has the first ranking charge over all assets of the Company and its subsidiaries. Under the terms of the major borrowing facility, the new facility is subject to four undertakings being: Interest cover ratio of three times that is first tested as at April 30, 2019; gross EBITDA ratio measured to 3 months to September 2018 had to be greater than $0, six months to December 30, 2018 is greater than $3 million; inventory and receivables ratio must be greater than 2 times being first measured as at September 30, 2018; and the actual sales and gross margin must not vary by more than 10% from the budget submitted to the Bank. The covenants were reset as at 1 May 2019 and only the inventory covenant remains.

 

30

 

 

As at October 31, 2018, there was a breach in minimum gross EBITDA ratio. As at January 31, 2019, there was a breach of the minimum Gross EBITDA ratio and a breach of the inventory and receivables ratio. The reset inventory ratio has been breached up until November 30, 2019. The Bank has advised that they are currently taking these breaches under review.

 

Shareholder loan

 

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

 

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

 

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

 

Convertible notes

 

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

 

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

 

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

 

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

 

C. Research and Development, Patents and Licenses

 

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

 

D. Trend Information

 

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

 

31

 

 

E. Off-balance Sheet Arrangements

 

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

 

F. Contractual Obligations

 

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

 

   

Total

January 31, 2019

   

Not later

than one year

   

Between

one year and

five years

   

Later than

five years

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

 

G. Safe Harbor

 

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

 

32

 

 

PART III

 

ITEM 17. FINANCIAL STATEMENTS

 

See Item 18, “Financial Statements,” of this Form 20-F/A.

 

ITEM 18. FINANCIAL STATEMENTS

 

Our Audited Annual Consolidated Financial Statements are included at the end of this Form 20-F/A.

 

ITEM 19. EXHIBITS

 

Exhibit No.   Description
12.1   Certification of Principal Executive Officer required by Rule 13a-14(a).
     
12.2   Certification of Principal Financial Officer required by Rule 13a-14(a).
     
13.1   Certification required by Section 1350 of Chapter 63 of Title 18 of the United States Code.
     
15.1   Consent of BDO Audit Pty Ltd.
     
15.2   Consent of PricewaterhouseCoopers.
     
101.INS   XBRL Instance Document.
     
101.SCH   XBRL Taxonomy Extension Schema Document.
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.

 

33

 

 

SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

  Naked Brand Group Limited
     
  By: /s/ Justin Davis-Rice
  Name: Justin Davis-Rice
  Title: Executive Chairman
     
  By: /s/ David Adams
  Name: David Adams
  Title: Interim Chief Financial Officer

 

Date: January 3, 2020

 

34

 

 

Naked Brand Group Limited

ACN 619 054 938

 

Consolidated Financial Statements

(Expressed in New Zealand Dollars)

 

For the Periods Ended 31 January 2019, 31 January 2018, and 31 January 2017 and 30 June 2016

 

     

 

 

Naked Brand Group Limited

ACN 619 054 938

 

Contents

For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016

 

  Page
Report of the Independent Registered Public Accounting Firm F-2
Consolidated Statements of Profit or Loss and Other Comprehensive Income F-5
Consolidated Balance Sheets F-7
Consolidated Statements of Changes in Equity F-9
Consolidated Statements of Cash Flows F-11
Notes to the Consolidated Financial Statements F-13

 

F- 1

 

 

Naked Brand Group Limited

ACN 619 054 938

 

Report of the Independent Registered Public Accounting Firm

 

 

  F- 2  

 

 

 

  F- 3  

 

 

 

  F- 4  

 

 

 

Naked Brand Group Limited

ACN 619 054 938

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016

 

    Note  

For the Year Ended 31 January 2019

NZ$000’s

   

For the Year Ended 31 January 2018

NZ$000’s

   

For the 7 Months Ended 31 January 2017

NZ$000’s

   

For the Year Ended 30 June 2016

NZ$000’s

 
                             
Revenue   5     111,920       131,388       96,284       151,000  
Cost of goods sold         (74,480 )     (87,459 )     (57,144 )     (83,525 )
                                     
Gross profit         37,440       43,929       39,140       67,475  
Brand management         (49,256 )     (53,653 )     (32,040 )     (48,362 )
Administrative expenses         (3,432 )     (4,131 )     (2,383 )     (4,090 )
Corporate expenses         (14,145 )     (12,851 )     (8,082 )     (13,002 )
Finance expense   6     (4,041 )     (8,791 )     (6,238 )     (10,409 )
Brand transition, restructure and transaction expenses   6     (10,075 )     (3,272 )     (1,321 )     (2,232 )
Impairment expense   6     (8,173 )     (1,914 )     (292 )     (2,157 )
Other foreign currency gains/(losses)   6     1,963       757       (3,306 )     (2,423 )
Fair value gain/(loss) on Convertible Notes derivative         (775 )     2,393       (592 )     -  
Loss before income tax         (50,494 )     (37,533 )     (15,114 )     (15,200 )
Income tax (expense)/benefit   7     1,274       (60 )     (865 )     (5,546 )
Loss for the period         (49,220 )     (37,593 )     (15,979 )     (20,746 )
                                     
Other comprehensive income                                    
                                     
Items that may be reclassified to profit or loss                                    
Exchange differences on translation of foreign operations   22     (7 )     148       (29 )     31  
                                     
Other comprehensive income/(loss) for the period, net of tax         (7 )     148       (29 )     31  
                                     
Total comprehensive income/(loss) for the period         (49,227 )     (37,445 )     (16,008 )     (20,715 )
Total comprehensive income/(loss) attributable to:                                    
Owners of Naked Brand Group Limited         (49,227 )     (37,445 )     (16,008 )     (20,715 )

 

  F- 5  

 

 

Naked Brand Group Limited

ACN 619 054 938

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2019

 

    Note  

For the Year Ended 31 January 2019

NZ$000’s

   

For the Year Ended 31 January 2018

NZ$000’s

   

For the 7 Months Ended 31 January 2017

NZ$000’s

   

For the Year Ended 30 June 2016

NZ$000’s

 
                             
Loss per share for profit from continuing operations attributable to the ordinary equity holders of the Group:                                    
Basic loss per share (NZ$)   23     (2.01 )     (1.79 )     (0.82 )     (1.13 )
Diluted loss per share (NZ$)   23     (2.01 )     (1.79 )     (0.82 )     (1.13 )

 

A stock reorganisation occurred on the 19th June 2018 upon completion of the merger between Naked Brands Inc. and Bendon Limited. As a result , the calculation of the basic and diluted earnings per share for 2018, 2017 and 2016 has been adjusted restrospectively. The number of ordinary shares outstanding has been adjusted to reflect the proportionate change in the number of shares. See note 23 for further information.

 

The above condensed consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

 

  F- 6  

 

 

Naked Brand Group Limited

ACN 619 054 938

 

Consolidated Balance Sheets

As at 31 January 2019, 31 January 2018, and 31 January 2017

 

    Note  

31 January 2019

NZ $000’s

   

31 January 2018

NZ $000’s

   

31 January 2017

NZ $000’s

 
                       
ASSETS                            
CURRENT ASSETS                            
Cash and cash equivalents   11     1,962       10,739       2,644  
Trade and other receivables   12     9,650       13,165       28,090  
Inventories   13     21,120       31,113       37,751  
Current tax receivable         355       -       52  
Related party receivables   34     282       15,326       13,051  
                             
TOTAL CURRENT ASSETS         33,370       70,343       81,588  
                             
NON-CURRENT ASSETS                            
                             
Property, plant and equipment   14     3,763       4,741       4,964  
Deferred tax assets   28     692       -          
Intangible assets   15     37,864       13,012       14,680  
                             
TOTAL NON-CURRENT ASSETS         42,319       17,753       19,644  
                             
TOTAL ASSETS         75,688       88,096       101,232  
                             
LIABILITIES                            
CURRENT LIABILITIES                            
Trade and other payables   18     35,545       32,516       28,565  
Borrowings   19     20,967       52,121       68,998  
Foreign currency derivative financial instruments   16     1,484       2,087       4,188  
Derivative on Convertible Notes   17     -       1,110       4,112  
Current tax liabilities         140       786          
Related party payables   34     3,738       1,369       635  
Provisions   20     921       1,106       1,528  
                             
TOTAL CURRENT LIABILITIES         62,795       91,095       108,026  

 

  F- 7  

 

 

Naked Brand Group Limited

ACN 619 054 938

 

Consolidated Balance Sheets

As at 31 January 2019, 31 January 2018, and 31 January 2017

 

    Note  

31 January 2019

NZ $000’s

   

31 January 2018

NZ $000’s

   

31 January 2017

NZ $000’s

 
                       
NON-CURRENT LIABILITIES                            
Provisions   20     2,372       2,711       2,249  
                             
TOTAL NON-CURRENT LIABILITIES         2,372       2,711       2,249  
                             
TOTAL LIABILITIES         65,167       93,806       110,275  
                             
NET ASSETS/(LIABILITIES)         10,519       (5,710 )     (9,043 )
                             
EQUITY                            
Share capital   21     134,183       68,727       27,948  
Other reserves   22     (2,013 )     (2,006 )     (2,154 )
Accumulated profit/(losses)   24     (121,651 )     (72,431 )     (34,838 )
                             
TOTAL EQUITY         10,519       (5,710 )     (9,044 )

 

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

 

  F- 8  

 

 

Naked Brand Group Limited

ACN 619 054 938

 

Consolidated Statements of Changes in Equity

For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016

 

   

Ordinary Shares

NZ$000’s

   

Retained Earnings/ (Accumulated Losses)

NZ$000’s

   

Foreign Currency Translation Reserve

NZ$000’s

   

Total

NZ$000’s

 
                         
Balance at 1 July 2015     3,108       1,887       (2,156 )     2,839  
Loss for the year     -       (20,746 )     -       (20,746 )
Other comprehensive loss for the year     -       -       31       31  
Balance at 30 June 2016     3,108       (18,859 )     (2,125 )     (17,876 )
                                 
Balance at 1 July 2016     3,108       (18,859 )     (2,125 )     (17,876 )
Loss for the year     -       (15,979 )     -       (15,979 )
Other comprehensive loss for the year     -       -       (29 )     (29 )
Transactions with owners in their capacity as owners     -       -       -       -  
Issuance new shares     24,840       -       -       24,840  
Balance at 31 January 2017     27,948       (34,838 )     (2,154 )     (9,044 )
                                 
Balance at 1 February 2017     27,948       (34,838 )     (2,154 )     (9,044 )
Loss for the year     -       (37,593 )     -       (37,593 )
Other comprehensive income for the year     -       -       148       148  
Transactions with owners in their capacity as owners                                
Issuance new shares     22,990       -       -       22,990  
Value of conversion rights - convertible notes     17,789       -       -       17,789  
Balance at 31 January 2018     68,727       (72,431 )     (2,006 )     (5,710 )

 

  F- 9  

 

 

Naked Brand Group Limited

ACN 619 054 938

 

Consolidated Statements of Changes in Equity

For the Periods Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016

 

   

Ordinary Shares

NZ$000’s

   

Retained Earnings/ (Accumulated Losses)

NZ$000’s

   

Foreign Currency Translation Reserve

NZ$000’s

   

Total

NZ$000’s

 
                         
Balance at 1 February 2018     68,727       (72,431 )     (2,006 )     (5,710 )
Loss for the year     -       (49,220 )     -       (49,220 )
                                 
Other comprehensive income for the year     -       -       (7 )     (7 )
                                 
Transactions with owners in their capacity as owners                                
Issuance new shares     40,228       -               40,228  
                                 
Issuance new shares from business combination Naked     14,196                       14,196  
                                 
Issuance new shares from business combination FOH     6,873                       6,873  
                                 
Value of conversion rights - convertible notes     4,159       -       -       4,159  
                                 
Balance at 31 January 2019     134,183       (121,651 )     (2,013 )     10,519  

 

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

 

  F- 10  

 

 

Naked Brand Group Limited

ACN 619 054 938

 

Consolidated Statements of Cash Flows

For the Year Ended 31 January 2019, 31 January 2018, 31 January 2017 and 30 June 2016

 

    Note  

For the Year Ended 31 January 2019

NZ$000’s

   

For the Year Ended 31 January 2018

NZ$000’s

   

For the 7 Months Ended 31 January 2017

NZ$000’s

   

For the Year Ended 30 June 2016

NZ$000’s

 
                             
CASH FLOWS FROM OPERATING ACTIVITIES:                                    
Receipts from customers         140,736       159,042       92,066       160,880  
Payments to suppliers and employees         (149,750 )     (163,304 )     (105,389 )     (165,708 )
Income taxes paid         (420 )     146       (195 )     (530 )
                                     
Net cash (outflow) from operating activities   35     (9,434 )     (4,116 )     (13,518 )     (5,040 )
                                     
CASH FLOWS FROM INVESTING ACTIVITIES:                                    
Payment for intangible asset         (151 )     (118 )     (351 )     (475 )
Payments for property, plant and equipment         (2,585 )     (2,194 )     (723 )     (2,703 )
Proceeds from business combination, net of cash acquired         870       -       -       -  
                                     
Net cash (outflow) from investing activities         (1,867 )     (2,312 )     (1,074 )     (3,178 )
                                     
CASH FLOWS FROM FINANCING ACTIVITIES:                                    
Proceeds from issue of shares         23,248       22,721       -       -  
Proceeds from borrowings - Bank         -       463       1,940       62,127  
Proceeds from borrowings - Convertible notes issue         -       4,521       16,474       -  
Repayment of borrowings - Bank         (18,489 )     (9,684 )     (2,832 )     (46,986 )
Debt issuance costs         (322 )     (107 )     (367 )     (750 )
Interest paid         (2,269 )     (3,418 )     (2,133 )     (3,140 )
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