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CHAIRMAN’S LETTER 4
Key Offer Statistics and Important Dates 5
1. Investment Overview 7
2. Business and Industry Overview 23
3. Financial Information 67
4. Key Risks 119
5. Key Individuals, Interests and Benefits 129
6. Details of the Offer 155
7. Investigating Accountant’s Report
on historical financial information 172
8. Investigating Accountant’s Report
on forecast financial information 177
9. Additional Information 184
Appendix A – Significant Accounting Policies 206
Appendix B – Glossary 218
Corporate Directory 228
WE’LL
TAKE
CARE
OF IT.
PROSPECTUS 3
Chairman’s Letter
Dear Investor,
On behalf of the Board of Directors, it is my pleasure to invite you to become a Shareholder in Spotless Group
Holdings Limited (Spotless). Founded in 1946, Spotless is a leading provider of outsourced facility services and
laundry and linen services in Australia and New Zealand. Within the market it serves, Spotless is the leader by
revenue, scale and breadth of services. Spotless, which is one of Australia’s and New Zealand’s largest employers
with almost 33,000 employees, provides its services to a diverse range of customers across various industry sectors
in Australia and New Zealand.
Spotless serves four primary customer sectors, being Health, Education and Government; Commercial and Leisure;
Base and Township; and Laundry and Linen. Across these customer sectors, Spotless provides facility
management, catering and food and cleaning services as well as laundry and linen services.
Spotless operates in the facility services industry in Australia and New Zealand. L.E.K. Consulting estimates that
the potential revenue of the market that Spotless serves in Australia is approximately $40.4 billion per annum in
FY2013 and in New Zealand is approximately NZ$4.0 billion per annum in FY2013. It is estimated that in Australia
approximately 47% (or $18.9 billion) 1 of the total revenue in Spotless’ market is attributable to services that are
outsourced to third party service providers like Spotless. In New Zealand, it is estimated that approximately 61%
(or NZ$2.4 billion) 2 of total revenue in Spotless’ market is outsourced.
Spotless provides services to a high quality and diverse customer base and benefits from entering into multi-year
contracts with many of these customers, providing it with a high degree of revenue visibility. Approximately 55% 3
of Spotless’ FY2013 Facility Services Sales Revenue was derived from situations where Spotless provided multiple
services to a single customer under its integrated services model or PPP model. Spotless also benefits from a cost
base that is largely embedded within contracts and is therefore variable for contract wins and losses and from the
fact that approximately 99.6% 4 of its contracts contain some form of embedded price growth mechanism. These
favourable contract dynamics, combined with an efficient and customer focused management structure, underpin
Spotless’ strong margins.
Spotless has also had a history of revenue growth, delivering a CAGR of 8.8% since 1990.5 Looking forward,
Spotless’ growth strategy is underpinned by four pillars, being underlying market growth, outsourcing penetration,
market share growth and expansion opportunities in adjacent services and customer sectors.
The purpose of the Offer is to raise capital to reduce the Company’s existing debt levels, provide Spotless with
access to capital markets and added financial flexibility to pursue further growth opportunities, create a liquid
market for Spotless’ shares and to allow Existing Shareholders to realise part of their investment in Spotless.
Upon Completion of the Offer, new shareholders are expected to hold 50.6% of the shares in Spotless6. Existing
Shareholders, including PEP Shareholders and Management Shareholders, will hold the remaining shares in
Spotless. The PEP Shareholders remain supporters of Spotless.
This Prospectus contains detailed information about the Offer and the historical and forecast financial position of
Spotless, as well as the material risks associated with an investment in the Company. I encourage you to read this
document carefully and in its entirety before making your investment decision.
I believe firmly in the Spotless management team and the work they have done to date in successfully repositioning
the business to take advantage of the significant growth opportunities in the Australian and New Zealand facility
services markets.
On behalf of my fellow Directors, I look forward to welcoming you as a Shareholder.
Yours sincerely,
Margaret Jackson AC
Independent Non-Executive Chairman
1 L.E.K. Consulting.
2 Frost & Sullivan.
3 Based on identifiable Facility Services contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 69.7% of pro forma
FY2013 Sales Revenue.
4 Based on identifiable contracts with greater than $1 million pro forma FY2013 Sales Revenue which represented 74.6% of pro forma FY2013 Sales Revenue.
5 Spotless’ revenue CAGR over FY1990 to FY2012. Refer to Section 2.6.1.
6 Based on a Final Price at the midpoint of the Indicative Price Range and disregarding any over-allocation and any exercise of the Over-allocation Option
(see Section 6.6). This includes bonus Shares issued to Directors in connection with the Offer (see Section 5.3.2).
Total proceeds under the Offer at Indicative Price Range $864.9 million – $1,000.0 million
(assuming no over-allocation as described in Section 6.6)
Total proceeds under the Offer at Indicative Price Range $994.6 million – $1,150.0 million
(assuming the Over-allocation Option is exercised in full)
Total proceeds from the issue of New Shares under the Offer9 $695.3 million – $700.2 million
Total proceeds from the sale of Existing Shares under the Offer9 $169.6 million – $299.8 million
(assuming no over-allocation as described in Section 6.6)
Total proceeds from the sale of Existing Shares under the Offer9 $299.3 million – $449.8 million
(assuming the Over-allocation Option is exercised in full)
Total number of New Shares available under the Offer9 378.5 million – 434.5 million
Total Existing Shares to be sold under the Offer9, 10 106.0 million – 162.0 million
Total number of Shares on issue at Completion of the Offer9 1,045.0 million – 1,098.3 million
Pro forma net debt (reflecting management target cash $617.6 million
position at Completion of the Offer) 11
Implied forecast dividend yield range for FY2015 dividend13 5.1% – 5.6%
7 Key Offer statistics contain Forecast Financial Information set out in Section 3.9, prepared on the basis of the best estimate assumptions set out
in Section 3.9 and should be read in conjunction with the discussion of the Pro Forma Historical Financial Information in Section 3.8 including the
sensitivities set out in Section 3.10, and the risk factors set out in Section 4. This table contains non-IFRS financial measures, which are discussed
in Section 3.3.
8 The Indicative Price Range is the indicative range for the Final Price. The Final Price may be set below, within or above the Indicative Price Range. Shares
may trade below the lower end of the Indicative Price Range (refer to Section 6.4 for more details).
9 Based on the Indicative Price Range.
10 This disregards any over-allocation and any exercise of the Over-allocation Option. See Section 6.6 for further information.
11 The pro forma Australian dollar denominated debt as at 31 December 2013 of $617.6 million reflects management’s target cash position at Completion
of the Offer and is net of capitalised borrowing costs of $4.7 million (see Section 3.6 for further information).
12 Enterprise Value is calculated as the sum of market capitalisation of Spotless at the Indicative Price Range and pro forma net debt as at 31 December
2013 (reflecting management target cash position at Completion of the Offer—see Section 3.6 for further information).
13 Calculated as the implied dividend per Share divided by the Indicative Price Range. For more information on Spotless’ dividend policy, see Section 3.13.
PROSPECTUS 5
Key Offer Statistics and Important Dates continued
Key dates
Broker Firm Offer and Personnel and Priority Offer open 6 May 2014
Broker Firm Offer and Personnel and Priority Offer close 19 May 2014
and Applications due
How to invest
Applications for Shares can only be made by completing and lodging an Application Form.
Instructions on how to apply for Shares are set out in Sections 6.3, 6.4 and 6.5 and on the back of the
Application Form.
Questions
Please call the Spotless Offer Information Line on 1800 660 083 (toll free within Australia) or +61 1800 660 083
(outside Australia) from 8.30am until 5.30pm (Sydney time) Monday to Friday. If you are unclear in relation
to any matter or are uncertain as to whether Spotless is a suitable investment for you, you should seek
professional guidance from your solicitor, stockbroker, accountant or other independent and qualified
professional adviser before deciding whether to invest.
PROSPECTUS 7
For more
Topic Summary information
1. Investment Overview continued
1.1 Introduction
What is Spotless’ Spotless is a market leading provider of outsourced facility services Section 2.1
business? and laundry and linen services in Australia and New Zealand. Within the
market it serves, Spotless is the leader by revenue, scale and breadth
of services. Spotless today employs almost 33,000 people comprised
of full-time, part-time and casual employees, making Spotless one of
Australia’s and New Zealand’s largest employers.
In FY2013 Spotless:
•Served food to 76 million customers;
•Catered to approximately 11 million sports fans at stadia
and major events;
•Maintained over 80,000 homes in public housing estates;
•Laundered 36 million sheets and 22 million industrial garments;
•Served 13.5 million meals across 16 remote mining operations;
•Delivered 3.5 million hours of service to over 200 healthcare
providers; and
•Purchased 4,600 tonnes of meat, poultry and seafood.
What is the Spotless operates in the facility services and laundry and linen Sections 2.1
market currently services industry in Australia and New Zealand. L.E.K. Consulting and 2.2
served by estimates that the potential revenue of the market that Spotless served
Spotless and in FY2013 was approximately $40.4 billion per annum in Australia and
what are its approximately NZ$4.0 billion (A$3.2 billion) 14 per annum in New
key customer Zealand. It is estimated that in Australia approximately 47% (or
sectors? $18.9 billion) 15 of the total revenue in Spotless’ market is attributable
to services that are outsourced to third party service providers like
Spotless. The New Zealand market has experienced a greater
penetration of outsourcing than the Australian market, with
approximately 61% (or NZ$2.4 billion) of the market outsourced
in FY2013.16
Spotless delivers its services to the following four key customer sectors:
•Health, Education and Government: Customers in this sector
include private and governmental entities involved in the provision
of social infrastructure services;
•Commercial and Leisure: Customers in this sector include large
and medium sized companies, operators of airports and airline
terminals and operators of function centres and large stadia;
•Base and Township: Customers in this sector include defence
forces and resources companies; and
•Laundry and Linen: Customers in this sector include hospitals,
aged care facilities, hotels and corporate customers.
Who are Spotless currently holds a large contract base of in excess of Section 2.4
Spotless’ 1,750 contracts.
customers? Spotless provides services to a diverse customer base that includes
governmental departments, agencies and authorities at the federal,
state and municipal level, large global and domestic corporations
and medium sized domestic corporations across Australia and
New Zealand.
Spotless enjoys a high degree of customer diversity, with its largest
contract representing only 4% of pro forma Sales Revenue in FY2013.
How does Spotless generated approximately 83% of its pro forma Sales Revenue Section 2.4
Spotless in FY2013 from contractual arrangements.
generate Spotless generates the remainder of its revenue from sources that do
its revenue? not fall within a documented contract, including products and services
delivered to a large number of smaller customers within the Laundry
and Linen services segment, as well as operating business units in
painting and building maintenance and event-based catering revenue.
While these relationships and services do not fall within a documented
multi-year contract, they are usually subject to Spotless’ standard
business terms and conditions.
PROSPECTUS 9
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Topic Summary information
1. Investment
What is the
Overview continued
Spotless has a large number of long term customer relationships. Section 2.4
nature of Spotless benefits from contracts with relatively long terms, with
Spotless’ approximately 57% 17 of its contracts (by pro forma Sales Revenue
customer for FY2013 under contract) having an average term of five years
relationships or more excluding extension options.
and contracts?
Spotless offers its contracted services under three main relationship
models18 :
•Single Service (approximately 45% of Facility Services contract-
based FY2013 pro forma Sales Revenue);
•Multiple Integrated Services (approximately 50% of Facility
Services contract-based FY2013 pro forma Sales Revenue); and
•Public-Private Partnership (PPP) (approximately 5% of Facility
Services contract-based FY2013 pro forma Sales Revenue).
Which Approximately 86% of Spotless’ pro forma Sales Revenue in FY2013 Section 3.5
geographical was generated in Australia with the remaining 14% generated in
markets New Zealand.
does Spotless
operate in?
What is Spotless’ The Spotless business was founded by Ian McMullin in 1946 as a dry Section 2.1
history? cleaning business based in Melbourne, Australia and incorporated
as Spotless Pty Ltd in 1957. The company was first listed on the
Australian Stock Exchange in 1961 and grew both organically and
through acquisitions to become a diversified facility services provider,
offering a broad range of services.
In August 2012, the listed holding company of the group, Spotless
Group Limited, was acquired by Pacific Industrial Services (2012
Acquisition), an entity owned by the PEP Shareholders, the
Coinvestment Shareholders and Management Shareholders.
Following the 2012 Acquisition, a new senior management team was
appointed, headed by Chief Executive Officer (CEO) Bruce Dixon.
This team has driven a significant improvement in operating performance.
How has the Following the 2012 Acquisition, the management team restructured Section 2.1
Company been the business.
reorganised In restructuring the business, the management team sought to achieve
since 2012? three key objectives:
•Increase customer focus: Change the organisational structure to
enable Spotless staff throughout the organisation to focus on the
customers’ needs on a holistic basis, rather than a service line
specific basis;
•Improve quality of earnings, margins and productivity: Reduce
the unpredictability of earnings that was being caused by the
Braiform and International Services divisions and improve overall
Group margins and cash flows to be more consistent with those
of international peers; and
•Business development and pipeline growth: Focus the
organisational structure to allow Spotless to better identify and
pursue new business growth opportunities within each customer
sector, leveraging in-house service line expertise where appropriate.
17 Based on identifiable contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 74.6% of pro forma FY2013 Sales Revenue.
18 Based on identifiable Facility Services contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 69.7% of pro forma
FY2013 Sales Revenue.
How has the The key restructuring initiatives of the new management team upon Section 2.1
Company been taking control were:
reorganised •Refocused organisational structure: Spotless was realigned to
since 2012? be a customer centric business, organised based on customer
continued sectors rather than on service delivery based silos;
•Divestment of non-core divisions: Two non-core divisions,
Braiform and International Services, were divested;
•Addressing the cost base: Management focused on reducing
overhead, driving procurement savings, improving direct labour
productivity and exiting loss making and marginal contracts; and
•Business development decentralised to sector management:
Spotless’ business development function was restructured to
focus on customer sectors rather than discrete services or
product offerings.
How does Spotless’ principal sources of funds will be cash flows from operations Section 3.6
Spotless expect and borrowings under its New Banking Facilities.
to fund its Spotless is forecast to continue to generate strong cash flow from
operations? operations with pro forma Free Cash Flow forecast in FY2015 to be
$246 million.
After Listing, Spotless will also have total debt facilities in place of
$837 million, of which $637 million will be drawn and approximately
$50 million used to provide bank guarantees on Completion of
the Offer.
What is Spotless’ The Directors intend to pay out between 65–75% of Adjusted NPAT Section 3.13
dividend policy? as a dividend commencing in FY2015.
The level of payout ratio is expected to vary between periods
depending on factors the Directors may consider, including the general
business environment, the operating results and financial condition of
Spotless, future funding requirements, capital management initiatives,
taxation considerations (including the level of franking credits available),
any contractual, legal or regulatory restrictions on the payment of
dividends by Spotless, and any other factors the Directors may
consider relevant.
Total
revenue 2,505.0 2,574.5 2,585.9 2,560.6 2,694.4 2,560.6 2,694.4
NPAT 39.4 31.6 47.7 103.4 134.5 (41.4) 134.5
Sales
Revenue 2,364.6 2,411.9 2,468.7 2,478.6 2,694.4 2,478.6 2,694.4
EBITDA 146.2 139.6 166.2 248.8 301.4 179.4 301.4
EBITA 91.8 82.6 113.0 193.8 240.9 124.4 240.9
Adjusted
NPAT 40.0 32.8 54.9 111.0 141.8
Adjusted
EPS19 $0.04 $0.03 $0.05 $0.10 $0.13
Note: This table contains non-IFRS financial measures. Refer to Section 3 for further
financial information.
19 This assumes the Final Price is set at the midpoint of the Indicative Price Range.
PROSPECTUS 11
For more
Topic Summary information
1. Investment Overview continued
1.3 Key strengths
The market Spotless is the market leader in the Australian and New Zealand facility Section 2.3
leading provider services and laundry and linen services markets, holding leading
of integrated positions across four key customer sectors: Health, Education and
services in Government; Commercial and Leisure; Base and Township; and
Australia and Laundry and Linen.
New Zealand Within Australia and New Zealand, Spotless’ scale allows it to offer its
facility services customers a fully integrated, multi-service offering, providing a broader
and laundry and array of services in more places than that of any of its competitors.
linen services
markets Spotless’ Australian and New Zealand national coverage provides
it with a competitive advantage, particularly when tendering for, or
renewing, contracts with customers with a national presence as it is
able to offer a single, national solution to the customers’ requirements.
High quality Spotless serves a high quality customer base, with approximately Section 2.4
customer base 54% 20 of pro forma Sales Revenue in FY2013 generated from entities
with attractive backed by governments (all of which have 2013 credit ratings from
contract Standard & Poor’s of AA or better).
dynamics Spotless’ business also has low customer concentration, with in excess
of 1,750 contracts, no single customer contract accounting for more
than 4% of pro forma Sales Revenue in FY2013 and the top five
contracts representing 16% of FY2013 pro forma Sales Revenue.
Customer contracts are typically long term, with approximately 57% 21
of contracts by FY2013 pro forma Sales Revenue having a contract
term (excluding extension options) of five years or more.
Strong margins Spotless’ operating cost base is largely embedded within contracts, Section 2.4
underpinned and is therefore variable for contract wins and losses. Overall, more
by a cost base than 94% of the FY2013 pro forma operating cost base comprised of
embedded within operating costs embedded within contracts, with costs such as head
contracts and office and sector-based overheads, representing only 6% of total costs.
contract pass Approximately 99.6% 20 of Spotless’ contracts contain some form of
through embedded price growth mechanism.
mechanisms
To enhance value and productivity, Spotless also continually refines
its delivery mix between labour and subcontractors, and its mix of
employees between full-time, part-time and casual employees.
Strong revenue Spotless’ growth strategy is underpinned by four pillars: underlying Section 2.6
growth outlook market growth, outsourcing penetration, market share growth and
expansion opportunities in adjacent services and customer sectors.
Underlying market growth: Inherent growth in target sectors
underpins Spotless’ revenue growth outlook. L.E.K. Consulting
expects underlying growth of 5.3% per annum in the (in-sourced and
outsourced) Australian facility services and laundry and linen services
markets over FY2013 to FY2018. This is broadly in line with forecast
nominal GDP growth in Australia of 5-6% per annum.21
20 Based on identifiable contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 74.6% of pro forma FY2013 Sales Revenue.
21 Nominal GDP forecast CAGR for 2013-2018 period from Euromonitor of approximately 6% and from IMF World Economic Outlook Database of 5.3%.
Highly The Spotless management team is highly experienced and led by Sections 5.1
experienced the CEO and Executive Director, Bruce Dixon. and 5.2
management Bruce Dixon was appointed CEO of Spotless in August 2012 and has
team and Board significant experience in leading business restructuring and profit
improvement programs. Bruce was previously Managing Director of
Healthscope Limited from December 1997 to October 2010. Prior to
that, Bruce held various senior management positions at Spotless.
The current Spotless management team has a broad range of experience
and is responsible for driving the improved performance of Spotless.
They have delivered sustainable margin improvement, established
a platform for future growth and created a culture of performance.
The independent Board is chaired by Ms Margaret Jackson AC. The other
Directors are Diane Grady AM (Independent Non-Executive Director),
Garry Hounsell (Independent Non-Executive Director), Geoff Hutchinson
(Non-Executive Director), Rob Koczkar (Non-Executive Director) and
The Hon. Nick Sherry (Independent Non-Executive Director).
22 L.E.K. Consulting.
23 L.E.K. Consulting.
PROSPECTUS 13
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Topic Summary information
1. Investment Overview continued
1.4 Key risks
Spotless may fail Spotless’ ability to renew contracts with existing customers and win Section 4.2
to renew existing new contracts with existing and new customers is fundamental to its
contracts or win business, growth and profitability. Spotless faces competition in all the
new contracts markets in which it operates. New contracts, including contracts
entered into with an existing customer where a previous contract has
expired, are usually subject to a competitive process. There is a risk
that Spotless may not win these contracts.
Failure to successfully renew existing contracts or to win new contracts
could negatively impact Spotless’ financial performance.
Potential Where Spotless wins a contract, commencement of the contract can Section 4.2
delays to be delayed past the expected commencement date. Spotless is also
commencement a party to a number of contracts where Spotless’ ability to perform
of new contracts its obligations and commence earning revenue is dependent on third
and dependence parties performing their own contractual arrangements in a timely
on third parties manner. Spotless may not have any contractual protection against such
delays. Any delay in the commencement of a contract may result in
a delay in Spotless receiving revenue or may cause Spotless to incur
additional costs, and therefore could have an adverse impact on
Spotless’ financial performance, including its ability to achieve
management’s forecasts for the business.
Spotless’ failure Spotless may from time to time enter into contracts where agreed Section 4.2
to properly revenue is insufficient to cover Spotless’ costs of delivering the services
understand or to provide adequate profit margins. This can occur for a number
customer of reasons, including a failure to properly understand the scope and
requirements, requirements of a contract, a failure to assess accurately the costs
drivers of of delivering the contracted services, a failure to properly model the
customer drivers of customer demand or a failure to adhere to Spotless’ internal
demand or cost risk assessment and contracting process guidelines. If Spotless enters
inputs may lead into low margin contracts, Spotless’ revenue and profitability could be
to low margins or adversely impacted.
poor performing
contracts
Customers may Customers have a right to terminate contracts in certain circumstances. Section 4.2
have the right to Termination of Spotless’ services by a customer before the end of
terminate their a contract’s term will reduce Spotless’ future revenue and, in some
contracts or situations, may leave Spotless with excess capacity or redundancy
may seek to costs. Upon termination, Spotless may not receive adequate
renegotiate compensation, or any compensation, for such losses and costs.
during the From time to time, customers may seek to renegotiate existing
contract term contracts for various reasons during the term of the contract. If contract
renegotiations lead to the parties entering into new contracts on terms
less favourable to Spotless, or if the parties fail to reach an agreement
and the customer terminates the existing contract, Spotless’ revenue
and profitability could be adversely impacted.
Spotless’ existing Spotless’ financial performance depends on its customers and the Section 4.2
and target industries in which it operates continuing to outsource facility services
customers may and laundry services. Spotless’ anticipated future growth depends in
choose to change part on additional services being outsourced in the future. A decline
from outsourcing in outsourcing in the industries in which Spotless and its customers
to in-sourcing of operate, or an increase in customers taking services back in-house
services may adversely affect Spotless’ future revenue and profitability and its
prospects for growth.
Spotless’ Spotless’ performance is dependent on the ability of its senior Section 4.2
performance executives and other key personnel to manage and grow its business
is linked to its and respond to customers’ needs. Continuity and retention of senior
ability to attract executives and other key personnel are important for customer retention
and retain key and ongoing customer negotiations, and for the ongoing implementation
management of current business transformation and growth initiatives. The loss of the
services of Spotless’ senior executives or other key personnel, or an
inability to attract and retain qualified and competent senior executives
or other key personnel, could have a material adverse effect on
Spotless’ operating and financial performance.
Spotless’ Spotless manages a large and diverse workforce consisting of almost Section 4.2
performance 33,000 employees to deliver outsourced services to its customers.
is linked to its Spotless’ service quality is largely dependent on Spotless’ ability to
ability to manage attract, develop, motivate and retain appropriately skilled personnel in
effectively a large these categories, and provide a sufficient level of training and oversight
and diverse in order to achieve consistent standards. A high level of staff turnover
workforce reduces operational efficiency, impairs knowledge management and
leads to excessive recruitment costs.
Many of Spotless’ full and part-time employees are represented by a
union or are otherwise employed under awards or union-negotiated
Enterprise Agreements. The negotiation of new Enterprise Agreements
or changes to awards from time to time may increase the overall costs
of running Spotless’ business and such increased costs may not be
able to be passed through to customers in full.
If employees take industrial action, Spotless could be exposed to loss
to the extent the industrial action impairs Spotless’ ability to provide
services or causes disruption to Spotless’ customers, if the relevant
customer contracts do not include industrial action as a force majeure
event or, even if they do, if the action becomes materially extended.
Spotless may Spotless is subject to laws and regulations in respect of health and Section 4.2
fail to meet its safety. Additional or amended laws and regulations may increase the
workplace health cost of compliance, adversely impact Spotless’ ability to comply, or
and safety expose Spotless to greater potential liabilities. In the event Spotless
obligations breaches these laws and regulations, including for example where
Spotless is held responsible for an injury or death, Spotless and its
Directors and officers could be subject to sanctions and penalties,
and Spotless’ safety record and reputation may be affected, which
may make it difficult for Spotless to hire and retain personnel and
win new business.
Spotless delivers In each jurisdiction in which it operates, Spotless is required to comply Section 4.2
catering and food with a variety of regulations at various governmental levels including in
services and may relation to the handling, preparation and serving of food, the cleanliness
be adversely of food production facilities and the responsible service of alcohol.
impacted by a In providing catering and food services, there is a risk that raw
failure to comply materials may deteriorate or products may become contaminated
with food safety within the supply chain. Such incidents or instances of non-compliance
standards and with food safety and alcohol laws and regulations could damage
alcohol licences Spotless’ brand and reputation, which may in turn make it difficult for
Spotless to win contracts from customers. Other potential adverse
consequences for Spotless include the loss of the ability to sell alcohol
at venues, other regulatory penalties, and liability associated with
adverse health effects on consumers, loss of stock, delay in supply
and financial costs.
PROSPECTUS 15
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Topic Summary information
1. Investment
Significant
Overview continued
Following Completion of the Offer, the PEP Shareholders, Coinvestment Section 4.3
retained holding Shareholders and certain Management Shareholders will hold
by the PEP approximately 48.2% to 50.7% of the issued capital of the Company24.
Shareholders and The PEP Shareholders, with Coinvestment Shareholders, may therefore
Coinvestment have the capacity to control the election of Directors, and the potential
Shareholders outcome of all matters submitted to a vote of Shareholders. The
interests of the PEP Shareholders and Coinvestment Shareholders may
differ from the interests of Spotless, and the interests of investors who
purchase Shares in the Offer. Also, while they hold a large stake in the
Company, the PEP Shareholders and Coinvestment Shareholders will
be able to determine or influence whether a takeover or similar offer
for the Shares is successful.
Furthermore whilst escrow restrictions will apply to the Shares held
by the PEP Shareholders, Coinvestment Shareholders and certain
Management Shareholders for the period disclosed in Section 6.7,
there will be no restrictions on the sale of any Existing Shares on
and from the date on which those escrow restrictions are released
in accordance with the terms of the relevant restriction (or sooner, in
the event an exception to the restriction is available). A significant sale
of Shares by some or all of the PEP Shareholders and Coinvestment
Shareholders, or the perception that such sales have occurred or
might occur, could adversely affect the price of Shares.
Other key risks A number of other key risks are included in Section 4. Section 4
What are the key Indicative Price Range26 $1.60 – $1.85 Sections 3
Offer statistics? and 6
Total proceeds under the Offer at Indicative $864.9 million –
Price Range (assuming no over-allocation $1,000.0 million
as described in Section 6.6)
Total proceeds under the Offer at Indicative $994.6 million –
Price Range (assuming the Over-allocation $1,150.0 million
Option is exercised in full)
Total proceeds from the issue of New Shares $695.3 million –
under the Offer27 $700.2 million
Total proceeds from the sale of Existing $169.6 million –
Shares under the Offer27 (assuming no $299.8 million
over-allocation as described in Section 6.6)
Total proceeds from the sale of Existing $299.3 million –
Shares under the Offer27 (assuming the $449.8 million
Over-allocation Option is exercised in full)
Total number of New Shares available 378.5 million –
under the Offer27 434.5 million
Total Existing Shares to be sold under 106.0 million –
the Offer27, 28 162.0 million
24 Based on the Indicative Price Range. This disregards any over-allocation and any exercise of the Over-allocation Option (see Section 6.6 for further
information). This also disregards any bonus Shares issued to Directors in connection with the Offer (see Section 5.3.2) and any additional Shares
acquired by Non-Executive Directors under the Offer.
25 Key Offer statistics contain Forecast Financial Information set out in Section 3.9, prepared on the basis of the best estimate assumptions set out
in Section 3.9 and should be read in conjunction with the discussion of the Pro Forma Historical Financial Information in Section 3.8 including the
sensitivities set out in Section 3.10, and the risk factors set out in Section 4. This table contains non-IFRS financial measures, which are discussed
in Section 3.3.
26 The Indicative Price Range is the indicative range for the Final Price. The Final Price may be set below, within or above the Indicative Price Range.
Shares may trade below the lower end of the Indicative Price Range (refer to Section 6.4 for more details).
27 Based on the Indicative Price Range.
28 This disregards any over-allocation and any exercise of the Over-allocation Option (see Section 6.6 for further information).
29 The pro forma Australian dollar denominated debt as at 31 December 2013 of $617.6 million reflects management’s target cash position at Completion
of the Offer and is net of capitalised borrowing costs of $4.7 million (see Section 3.6 for further information).
30 Enterprise Value is calculated as the sum of market capitalisation of Spotless at the Indicative Price Range and pro forma net debt as at 31 December
2013 (reflecting management target cash position at Completion of the Offer—see Section 3.6 for further information).
31 Based on the Indicative Price Range.
32 Calculated as the implied dividend per Share divided by the Indicative Price Range. For more information on Spotless’ dividend policy, see Section 3.13.
33 The pro forma Australian dollar denominated debt as at 31 December 2013 of $617.6 million reflects management’s target cash position at Completion
of the Offer and is net of capitalised borrowing costs of $4.7 million (see Section 3.6 for further information).
PROSPECTUS 17
For more
Topic Summary information
1. Investment Overview continued
1.6 Spotless Directors and key executives
34 This assumes that the Final Price is set at the midpoint of the Indicative Price Range.
Will any Shares All Shares retained by the PEP Shareholders, Coinvestment Section 6.7
be subject to Shareholders and certain Management Shareholders following
restrictions on Completion of the Offer will be subject to voluntary escrow
disposal following arrangements.
Completion of PEP Shareholders and Coinvestment Shareholders
the Offer?
Under the terms of the voluntary escrow arrangements, subject to the
Over-allocation Option arrangements and certain customary exceptions,
Shares held by the PEP Shareholders and the Coinvestment
Shareholders may only be sold in the period prior to Spotless’ financial
results being announced for FY2015 on the following basis:
Securities to be released
from escrow Escrow release conditions
After the release of the FY2015 financial results, all remaining Shares
held by the PEP Shareholders and Coinvestment Shareholders will
cease to be subject to escrow restrictions.
The Shares the subject of these voluntary escrow arrangements
will include shares which are returned to the PEP Shareholders and
Coinvestment Shareholders pursuant to the Over-allocation option
arrangements described in Section 6.6.
Management Shareholders
Shares retained by certain Management Shareholders following
Completion of the Offer will also be subject to voluntary escrow
arrangements. Under the terms of those escrow arrangements, subject
to certain customary exceptions and exceptions for certain individual
executives, Shares may only be sold on the following basis:
The % of issued Shares that each
After: Management Shareholder may sell is:
The announcement of FY2015 50%
financial results
The announcement of FY2016 All remaining Shares retained by
financial results Management Shareholders will cease
to be subject to escrow restrictions
PROSPECTUS 19
For more
Topic Summary information
1. Investment Overview continued
What significant Shares Sections 5.3
benefits and Shares held acquired/ and 6.1
Directors and prior to the (sold) in IPO bonus Shares held
interests are key executives Offer the Offer35 Shares 35 on Listing 35
payable to
Margaret
Directors and
Jackson – 1,739,130 139,130 1,878,260
other persons
connected with Bruce Dixon 14,896,628 (1,853,006) – 13,043,622
Spotless or Diane Grady – 31,159 84,783 115,942
the Offer and Garry Hounsell – 115,942 86,957 202,899
what significant
Geoff
interests do
Hutchinson – 43,478 – 43,478
they hold?
Rob Koczkar – 289,855 – 289,855
Nick Sherry – 11,594 69,565 81,159
Vita Pepe 14,896,628 – – 14,896,628
Danny
Agnoletto – – – –
Interests, The PEP Shareholders and Coinvestment Shareholders will retain Sections 6.1
benefits and a 45.5% interest in Spotless on Completion of the Offer.36 and 9.5
related party In March 2014, the Independent Directors approved the Company entering
transactions into a Relationship Deed with representatives of the PEP Shareholders.
of the PEP Under the Relationship Deed, the representatives of the PEP Shareholders
Shareholders retain the right to appoint two Directors to the Board for so long as the
PEP Shareholders and the Coinvestment Shareholders (other than
Lentesco) together hold at least 25%, or one Director to the Board for
so long as the PEP Shareholders and the Coinvestment Shareholders
together hold at least 10%, of the issued share capital of Spotless.
PEP Advisory and the Coinvestment Shareholders will receive certain
fees on Completion of the Offer as outlined in Section 6.1.
1.8 Proposed use of funds and key terms and conditions of the Offer
Who is the Spotless Group Holdings Limited (ABN 27 154 229 562), a company Section 6.1
issuer of the registered in Victoria, Australia and Spotless SaleCo Pty Ltd
Prospectus? (ACN 168 847 916), a company registered in Victoria, Australia.
What is the Offer? The Offer is an initial public offering of 540.5 million Shares that will Section 6.1
in part be issued by the Company and in part sold by SaleCo.37
What is SaleCo? SaleCo is a special purpose vehicle, established to sell Shares Section 9.3
acquired from the Selling Shareholders.
The Existing Shares which SaleCo acquires from the Selling
Shareholders, along with New Shares issued by the Company, will be
transferred to Successful Applicants at the Final Price.
35 This assumes that the Final Price is set at the midpoint of the Indicative Price Range.
36 This assumes that the Final Price is set at the midpoint of the Indicative Price Range. This disregards any over-allocation and any exercise
of the Over-allocation Option (see Section 6.6 for further information).
37 This disregards any over-allocation and any exercise of the Over-allocation Option (see Section 6.6 for further information).
What is the The Over-allocation Option is the option granted by SaleCo to the Section 6.6
Over-allocation Stabilisation Manager to acquire up to an additional 81.1 million Shares
Option? at the Final Price, to cover over-allocations made under the Offer, if any.
The Over-allocation Option represents between 7.4% and 7.8% of the
Shares on issue at Completion of the Offer (assuming that the Final Price
is at the bottom and top of the Indicative Price Range respectively).
What are over- The Company and SaleCo, in agreement with the JLMs, may over- Section 6.6
allocations and allocate up to 81.1 million Shares to Institutional Investors under the
what is market Institutional Offer.
stabilisation? If Shares are over-allocated, the Stabilisation Manager will initially satisfy
these over-allocations by borrowing an equivalent number of Shares
from SaleCo. Ultimately, the over-allocations (or any borrowings
undertaken to satisfy the over-allocations) are expected to be satisfied
either by:
•requiring SaleCo to transfer Shares at the Final Price under the
Over-allocation Option; or
•purchasing Shares on the ASX at or below the Final Price once
ASX trading in the Shares commences; or
•by a combination of these means,
any time within the period of up to 30 days following Listing.
The purchase of Shares on the ASX during that period is referred to as
“market stabilisation”. Such purchases may have the effect of stabilising
the trading price for Shares on the ASX in circumstances where the
trading price is at or below the Final Price. There is no guarantee that
the trading price of Shares will not drop below the Final Price (even if
the Stabilisation Manager undertakes market stabilisation).
What is the Assuming the Final Price is at the midpoint of the Indicative Price Section 6.1
proposed use Range, the funds received under the Offer will be used as follows:
of funds raised •$697.7 million will be paid to the Company to reduce net debt
pursuant to and pay costs associated with the Offer; and
the Offer?
•$234.7 million received by SaleCo will be paid to the Selling
Shareholders (each of whom will have sold Existing Shares
to SaleCo) 38.
Will the Shares Spotless will apply to the ASX within seven days after the Prospectus Section 6.9
be quoted? Date for admission of the Company to the official list of the ASX and
quotation of Shares on the ASX (which is expected to be under the
code SPO). It is anticipated that quotation will initially be on a
conditional and deferred settlement basis.
Completion of the Offer is conditional on the ASX approving that
application. If approval is not given within three months after such
application is made (or any longer period permitted by law), the Offer
will be withdrawn and all Application Monies received will be refunded
without interest as soon as practicable in accordance with the
requirements of the Corporations Act.
38 This disregards any exercise of the Over-allocation Option (see Section 6.6 for further information).
PROSPECTUS 21
For more
Topic Summary information
1. Investment
Is the Offer
Overview continued
No. The Offer is not underwritten. Section 6.2
underwritten?
What is the The allocation of Shares between the Broker Firm Offer, the Institutional Sections 6.3,
allocation policy? Offer and the Personnel and Priority Offer will be determined by the 6.4 and 6.5
JLMs in agreement with Spotless and the Financial Adviser, having
regard to the allocation policies outlined in Sections 6.3, 6.4 and 6.5.
With respect to the Broker Firm Offer, it will be a matter for the Brokers
and Co-Managers how they allocate firm stock among their eligible
retail clients.
Is there any No brokerage, commission or stamp duty is payable by Applicants on Section 6.2
brokerage, acquisition of Shares under the Offer.
commission
or stamp duty
payable by
Applicants?
What are the tax Shareholders may be subject to Australian income tax or withholding Section 9.10
implications of tax on any future dividends paid. The tax consequences of any
investing in investment in the Shares will depend upon an investor’s particular
Shares? circumstances, particularly for non-resident Shareholders. Applicants
should obtain their own tax advice prior to deciding whether to invest.
When will It is expected that initial holding statements will be dispatched by Sections 6.3,
I receive standard post on or about 28 May 2014. 6.4 and 6.5
confirmation that
my Application
has been
successful?
How can I apply? If you are an eligible investor, you may apply for Shares by completing Sections 6.3,
a valid Application Form. 6.4 and 6.5
To the extent permitted by law, an Application under the Offer
is irrevocable.
Where can I find Please call the Spotless Offer Information Line on 1800 660 083 Key Offer
more information (toll free within Australia) or +61 1800 660 083 (outside Australia) from Statistics
about this 8.30am until 5.30pm (Sydney time) Monday to Friday. If you are unclear and
Prospectus in relation to any matter or are uncertain as to whether Spotless is a Important
or the Offer? suitable investment for you, you should seek professional guidance Dates and
from your solicitor, stockbroker, accountant or other independent on pages
and qualified professional adviser before deciding whether to invest. 5 and 6
Can the Offer Spotless reserves the right not to proceed with the Offer at any time Section 6.9
be withdrawn? before the issue of New Shares or transfer of Existing Shares to
Successful Applicants.
If the Offer does not proceed, Application Monies will be refunded
by the Share Registry, your Broker or Spotless.
No interest will be paid on any Application Monies refunded as a result
of the withdrawal of the Offer.
PROSPECTUS 23
2. Business and Industry Overview
This Section 2 provides an overview of Spotless and the industry in which it operates.
Delivered 3.5 million hours of service to over 200 healthcare providers; and
Customer sectors Health, Education Commercial and Base and Township Laundry and Linen
and Government Leisure
% of Spotless
pro forma FY2013
Sales Revenue1,2
$857m $867m $483m $262m
35% 35% 20% 11%
Notes:
1. Sales Revenue excludes Legacy Pass Through Revenue and Other Income—see Section 3 for further detail.
2. Pro forma FY2013 Sales Revenue by customer sector does not add to 100% due to rounding.
PROSPECTUS 25
2. Business and Industry Overview continued
Facility Services
– Facility Management, which includes property management, maintenance and mechanical
services, grounds management, security and fire services, waste management and the
delivery of a range of other facility services;
– Catering and Food, including services such as operating canteens, dining halls and restaurants,
personal meal delivery, specialised food preparation and delivery, management of food and
beverage facilities and event catering services; and
– Cleaning, which includes general facility cleaning, specialist industrial and sterile cleaning and
washroom services; and
34%
Note:
1 Sales Revenue excludes Legacy Pass Through Revenue and Other Income—see Section 3 for further detail.
2 Core service mix contribution does not add to 100% due to rounding.
Catering •Dining services in boarding •Stadium catering, including •Catering services to workers
and Food schools and university retail, function and corporate in remote mining and defence
colleges hospitality suites locations, operating
•School “tuckshops” and •Exclusive catering provider to restaurants, cafes, stocking
branded cafeterias one-off and recurring major vending machines and other
•Menu and food production sporting and entertainment event based catering services
management system events •Operating supermarkets and
in hospitals •Branded retail outlets post offices in remote mining
•Production and distribution at airports townships and camps
of catering within hospital
networks via Spotless patient
service assistants with
automated guidance vehicles
planned for new PPP hospitals
Cleaning •Sterile cleaning of operating •Special event cleaning for •Cleaning and housekeeping
theatres within hospitals major sporting, function and services to mine sites
•Cleaning of schools under entertainment venues helping and villages, including
integrated PPP contracts to clean up, dispose of waste accommodation and
•Cleaning of lecture theatres and prepare for the next event common areas
and open space areas •Industrial cleaning of plant and •Cleaning services within
within universities equipment, including power Defence bases and
•Cleaning of government station turbines military offices
offices •Cleaning, security and
•Cleaning of public transport concierge services within
infrastructure major retail shopping centres
Laundry •Linen services to hospitals •Linen services to Commercial •Linen services to mine
and Linen across Australia and and Leisure clients including sites and villages including
New Zealand, managing accommodation linen, accommodation linen,
the collection, laundering laundering and linen laundering and linen
and return of linen as well as management supply supply management
providing garments, surgical •Turnkey branded workwear
scrubs, gowns, sterilised garment rental and laundering
theatre items and other services for customers
specialty items including retail and
manufacturing operations
PROSPECTUS 27
2. Business and Industry Overview continued
Spotless delivers its services through a range of proprietary brands servicing different sub-sectors
of the market under the broader Spotless corporate brand. These brands are set out in Figure 4.
Fig. 4 Spotless’ brand portfolio
Will be one of the largest and most technologically advanced hospitals to be built in Australia
– Spotless is to act as facility manager under a PPP with the Government of South Australia
from completion of this hospital in 2016
– A “Profit and Loss” contract39 under a PPP structure with a term of 35 years
– Spotless will provide an integrated facility service offering, including helpdesk, facility
maintenance, utilities and medical gases management, grounds and garden maintenance
services, security, car parking services, pest control services, patient support services,
cleaning and domestic services, orderly services, catering services, waste management
services, internal linen distribution services and bulk stores distribution services
– Spotless has designed and will be responsible for delivering a complex and comprehensive
preventative and life cycle maintenance program to cost-effectively refurbish and upgrade
the hospital throughout the contract term
– Spotless will adopt a patient centred integrated approach that supports the State’s Model of
Care, placing the patient and their well-being at the core of clinical and non-clinical service
delivery, capitalising on the synergies that exist in the delivery of services and facilitating
effective internal and external communication at all levels
– The PPP is designed to limit the customers’ costs and is expected to improve quality
standards and deliver a lift in patient, clinician and visitor satisfaction across South Australia
Images supplied by Hansen Yuncken and Leighton Contractors Joint Venture and partnership of Silver Thomas Hanley and Design Inc.
PROSPECTUS 29
2. Business and Industry Overview continued
10th largest stadium in the world and Australia’s pre-eminent sporting stadium, a relationship
spanning 36 years
– Spotless manages the catering and food retail services at the MCG for ‘match-day’ and
‘non-match day’ functions
– A “Profit and Loss” style contract40 where Spotless pays licensing fees for the right to provide
catering, with the current contract term commencing in October 2011 for an initial term of
five years
– Operates 114 corporate suites, 31 function rooms / areas, seven restaurant / cafes, 56 bars,
38 food concession stands / retail outlets and 20 mobile food stands and serves over three million
people per year including over 600,000 Melbourne Cricket Club members
– 95 full-time staff supported by casual staff (from 80 to 2,000 depending on the event)
– During a typical ‘match day’ Spotless caters for up to 5,000 guests across a variety of corporate
functions, caters to over 1,960 guests across 114 corporate suites and provides an extensive
retail food and beverage offering across 38 outlets. Spotless provides these services through
an employee base that it manages throughout the entire Australian sporting calendar
– For ‘non-match day’ functions, Spotless manages the function booking process on behalf of the
MCG, from initial enquiry through to booking, catering for and managing the function on the day
QGC
PROSPECTUS 31
2. Business and Industry Overview continued
Expanded into the industrial laundry space with the acquisition of a 50% interest in Ensign;
1977 the remaining 50% was acquired in 1981
Expanded into New Zealand market through laundry business acquisitions
Diversified into food services with the acquisition of Nationwide Food Services and O’Brien
1984 Catering (focused on stadia, residential, boarding schools and mine sites catering)
Increased scale of the New Zealand laundries business with the acquisition of 55%
1991 of Taylors (New Zealand Stock Exchange listed laundry services business); the remaining
45% was acquired in 2009
Acquired Braitrim (UK based), which was merged with Plastiform to form Braiform
to further expand garment hanger manufacturing and supply capability
2001
Acquired Epicure Catering providing exposure to high end, boutique catering services and
further extending capabilities across catering services
Won its first PPP project for social infrastructure to provide facilities services for
2004 New South Wales schools
Ian McMullin, Ron Evans and Brian Blythe stepped down from Board
2006-08 Acquisition of Alliance Catering
Change of management
Taken private by Pacific Industrial Services — an entity owned by the PEP Shareholders,
the Coinvestment Shareholders and Management Shareholders
2012 Appointment of Bruce Dixon as CEO leading a new management team
Divested non-core divisions Braiform and International Services
42 Statutory FY2008 EBITDA of $121.5 million adjusted for restructuring costs ($24.6 million), transaction costs ($14.3 million), impaired
assets and onerous contracts ($1.0 million) and legal disputes ($2.6 million).
43 Statutory FY2012 EBITDA of $153.2 million adjusted for non-recurring transaction costs as part of the acquisition of Spotless by Pacific
Industrial Services ($8.0 million).
PROSPECTUS 33
2. Business and Industry Overview continued
• Addressing the cost base: Management focused on reducing overhead, reviewing the
procurement function, improving direct labour productivity and exiting loss making contracts.
This was achieved via the following measures:
– to support a reduction in overhead, employees in administrative or management roles were
reduced by approximately 790 full-time equivalents, a saving equivalent to 50% of the FY2012
total overhead expenses. A majority of these headcount reductions took place by the end of
December 2012;
– following a review of the procurement function, a more coordinated approach was adopted with
all major categories of product and service supply being reviewed and retendered across the
organisation. This initiative achieved a greater than 30% reduction in the number of suppliers
and an aggregate 7% saving on the applicable cost base of FY2012 procurement expenditure
secured through new contractual arrangements;
– management also implemented a number of labour management initiatives to improve labour
productivity. These included new labour rostering systems, a new daily labour reporting tool,
weekly reporting of labour hours against budget and regular meetings between each sector
general manager, chief operating office and group general manager to review site-level rosters,
overtime variances and payroll costs by contract; and
– management undertook an extensive review of Spotless’ contract base, which allowed the
Company to identify and intentionally exit loss making contracts. This review also allowed
management to identify additional cost saving opportunities and institute new benchmarking
practices to monitor contract performance.
The recalibration of the cost base increased margins and cash flow generation. Spotless’ pro
forma EBITDA margin in H1FY2014 was approximately 10% 44, compared to approximately 6% 45
in FY2012 and approximately 13% 46 in FY1990. Throughout this process, management focused
on ensuring there was minimal impact on the customer facing side of the organisation and that
continuity of service was maintained. A summary of the change from service line focus to customer
sector focus is set out in Figure 9 below; and
• Business development accountability decentralised to sector management: Spotless’
business development function was restructured to focus on customer sectors rather than discrete
services or product offerings. Sector management teams are now responsible for understanding
customer needs and encouraged to pro-actively identify new business opportunities to pursue.
See Section 2.7 for further detail on Spotless’ business development function.
47%
Managed Services
21%
Food
13%
Cleaning
Customer centric business model1 (by pro forma FY2013 Sales Revenue2)
35%
Notes:
1 Service delivery silos / customer sector contributions do not add to 100% due to roundings.
2 Sales Revenue excludes Legacy Pass Through Revenue and Other Income – see Section 3 for further detail.
Actions taken
• Refocused organisational structure
• Divestment of non-core divisions
• Addressing the cost base
• Business development accountability decentralised to sector management
PROSPECTUS 35
2. Business and Industry Overview continued
47 L.E.K. Consulting.
48 L.E.K. Consulting.
49 Frost & Sullivan.
50 Frost & Sullivan.
51 Frost & Sullivan.
40% 40%
40%
0% 0%
0%
Total market In-house vs. Japan New Zealand UK Scandinavia Germany
in Australia Outsourced (2010) (2013) (2010) (2010) (2010)
Source: L.E.K. Consulting, Frost & Sullivan Sources: Frost & Sullivan
Health, Education and Government Commercial and Leisure Base and Township1
Laundry and Linen Outsourced In-house
Note:
1 Estimated total size of Base and Township customer sector is expected to reduce given Government initiative to achieve efficiencies
in Defence expenditure.
Estimated outsourced – Health (22%) – Business and – Resources (65%) – Laundry and Linen
market sub-sector split – Education (27%) Industry (92%) – Defence (35%) (100%)
– Government – Leisure, Sports
(50%) and Entertainment
(8%)
Source: L.E.K. Consulting
Notes:
1 Health, Education and Government estimated customer sub-sector split of outsourced market does not add to 100% due to rounding.
2 Estimated total size of Base and Township customer sector has been calculated assuming efficiency improvements in Australian Defence
Force contracts.
PROSPECTUS 37
2. Business and Industry Overview continued
52 Refer to market definition in Section 2.2.1. Based on Compass Group FY Sep 2013 Australia and New Zealand financial report filings.
Compass Group (New Zealand) revenue has been converted to AUD at a rate of NZD/AUD 0.82).
PROSPECTUS 39
2. Business and Industry Overview continued
Fig. 12 Estimated annual facility services revenue in Australia and New Zealand
of large competitors
3.0
Latest Australia and New Zealand Revenue, A$bn
2.5 2.5
2.0 2.0
1.5
1.3
1.0
0.9 0.9
0.8
0.6
0.5
0.3
0.2
0.0
Notes:
1 Spotless pro forma FY2013 Sales Revenue.
Figure 13 shows the service offerings of Spotless’ main competition within the market that
Spotless serves in Australia and New Zealand based on available public information.
A number of these competitors serve markets and offer service lines that are outside the market
within which Spotless competes, and which are therefore not shown on Figure 13. As Figure 13
shows, Spotless offers a broader range of service in these customer sectors in comparison to that
of its major competitors.
FM
Catering
Cleaning
Laundries
FM
Catering
Cleaning
Laundries
FM
Catering
Cleaning
Laundries
FM
Catering
Cleaning
Laundries
FM
Catering
Cleaning
Laundries
FM
Catering
Cleaning
Laundries
FM
Catering
Cleaning
Laundries
FM
Catering
Cleaning
Laundries
FM
Catering
Cleaning
Laundries
= Core service focus (Australia and New Zealand) (based on public company information)
PROSPECTUS 41
2. Business and Industry Overview continued
Spotless holds leading market positions across the Health, Education and Government, the
Commercial and Leisure and the Laundry and Linen customer sectors while maintaining a top
three position in the Base and Township customer sector.
Spotless’ positions across the key customer sectors are outlined below in Figure 14.
Fig. 14 Spotless market share1 by customer sector (%) by pro forma total revenue (FY2013)
30%
25%
Spotless’ market share of
outsourced market (%)
20%
15%
10%
5%
13% 7% 16% 27%
0%
Health, Education Commercial Base and Laundry
and Government and Leisure Township and Linen
Spotless
market position2 #1 #1 Top 3 #1
Notes:
1 L.E.K.Consulting.
2 Management estimate of Spotless market position.
Outsourced
20% 40% 61%
In-house
0%
Total New Zealand In-house vs.
market Outsourced
Note:
1 Laundry and Linen is embedded in each of the sectors shown for the total New Zealand market that Spotless serves.
PROSPECTUS 43
2. Business and Industry Overview continued
2.4 Customers
2.4.1 Customer base
Spotless has a number of long term customer relationships. Spotless provides services to a diverse
customer base that includes government departments, agencies and authorities at the federal, state and
municipal level, large global and domestic corporations and medium sized domestic corporations across
Australia and New Zealand. Across these customer groups, Spotless enjoys a high degree of customer
diversity with its largest contract representing only approximately 4% of FY2013 pro forma Sales
Revenue, the top five contracts representing approximately 16% of FY2013 pro forma Sales Revenue
and the largest 200 contracts representing approximately 74% of FY2013 pro forma Sales Revenue.
56 Based on sub-contractor expenses being 23% of pro forma FY2013 total operating expenses.
12%
Australian 23%
Government
Other corporates
Note:
1 Based on identifiable contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 74.6% of pro forma FY2013
Sales Revenue.
57 Based on identifiable contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 74.6% of pro forma FY2013
Sales Revenue.
PROSPECTUS 45
2. Business and Industry Overview continued
58 Based on identifiable Facility Services contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 69.7%
of pro forma FY2013 Sales Revenue.
59 Based on identifiable Facility Services contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 69.7%
of pro forma FY2013 Sales Revenue.
60 Based on identifiable Facility Services contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 69.7%
of pro forma FY2013 Sales Revenue.
Spotless primarily self-delivers its services, with subcontractor costs representing only 23% of
Spotless’ FY2013 pro forma total operating expenses. While Spotless has a philosophy of self-delivery
of services wherever appropriate, in some circumstances customer value is best realised by engaging
subcontractors. Spotless may utilise subcontractors where services are complex, specialised and
infrequent in nature or require original equipment manufacturer servicing or where direct employment
across all roles would not be cost efficient (such as certain services in remote areas). In addition,
some contracts, including contracts with governmental entities and resources companies, require a
portion of services to include “local content”, requiring Spotless to engage local subcontractors and
social enterprises. Spotless has a strong level of engagement with small to medium sized enterprises
and social enterprises, and provides customer access to this network as a point of difference. There
is scope for Spotless to continue to incrementally increase its level of self-delivery, with management
having identified an opportunity to establish labour pools to service existing contracts which provides
an alternative to the current practice of engaging subcontractors.
61 Based on identifiable Facility Services contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 69.7%
of pro forma FY2013 Sales Revenue.
PROSPECTUS 47
2. Business and Industry Overview continued
7% 3-4 years
13%
25% 4-5 years
5-6 years
Note:
1 Based on identifiable contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 74.6% of pro forma FY2013
Sales Revenue.
62 Based on identifiable contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 74.6% of pro forma
FY2013 Sales Revenue.
63 Pro forma FY2013 Sales Revenue under contract represents approximately 83% of all pro forma FY2013 Sales Revenue.
64 The contract pricing structures shown are high level descriptions only. Individual contracts may differ from the summary provided and/or
may contain combinations of the shown fee structures or departures from the shown structures.
65 Includes 21.9% of contracts with contract specific pricing mechanisms that can be broadly defined as “Profit and Loss” contracts.
66 Pro forma FY2013 Sales Revenue under contract represents approximately 83% of all pro forma FY2013 Sales Revenue.
67 Based on identifiable contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 74.6% of pro forma FY2013
Sales Revenue.
PROSPECTUS 49
2. Business and Industry Overview continued
99.6%
40%
20%
0%
Pro forma FY2013 Sales Revenue
Note:
1 Based on identifiable contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 74.6% of pro forma FY2013
Sales Revenue.
Many of Spotless’ contracts contain provisions for abatement or other penalties if Spotless fails to
meet agreed service standards.
Customers also typically have the right to terminate contracts in certain circumstances if Spotless
fails to perform adequately. In addition, some customers have the right to terminate contracts for
convenience, without fault on Spotless’ part. Such provisions tend to be more prevalent in government
contracts where procurement policies require their inclusion. To the knowledge of management, no
such customer has exercised its right to terminate a material contract for convenience.
100% 100%
6% < Fixed < Catering rights
costs < Operating expenses
80% 80%
< Cost of goods sold
60% 60%
< Subcontractor costs
0% 0%
FY2013 FY2013
PROSPECTUS 51
2. Business and Industry Overview continued
The provision of laundry and linen services is different from the provision of facility services. While
facility services are provided “onsite” at a customer location, laundry and linen services are primarily
provided “offsite” at Spotless owned or leased facilities. Spotless typically arranges for collection of
soiled linen and garments from the customer site, delivering these items to a central, Spotless owned
or leased industrial laundry facility for processing. Once the sorting, washing, drying, ironing and
allocation process is complete, Spotless dispatches the linen and garments back to the customer
site, e.g. directly to hospital wards or individual employee lockers in the case of uniforms.
As well as processing soiled linen and garments, Spotless owns a large stock of linen and garments
which it rents to customers while also offering customers a comprehensive stock management
solution across its entire linen and garment inventory.
Spotless operates 16 68 strategically positioned laundry and linen facilities throughout Australia and
New Zealand that provide unrivalled scale and breadth of geographic coverage. Spotless utilises this
network together with its sophisticated logistics function to enable it to service customers throughout
Australia and New Zealand. Through these facilities, Spotless processed 103,000 tonnes of linen and
garments in FY2013.
68 Includes five composite garment and linen sites, excludes sub processor sites.
Darwin
Queensland
regional
Brisbane
Darra
Coffs Harbour
Perth Kelston
Murdoch North Rocks Somersby
Point Chev
Bathurst Rosebery
Punchbowl
Adelaide Hamilton
Sydney
Dudley Park Albury
Northcote Nelson
Melbourne Abbotsford Wellington
Tasmania Christchurch
69 Euromonitor.
70 Estimated total size of Base and Township customer sector is expected to reduce in FY2014 due to the value impact of significant
retenders within this sector containing efficiency initiatives. Market growth from FY2014 has been calculated on an estimated post
retender revenue estimate.
PROSPECTUS 53
2. Business and Industry Overview continued
Outsourcing growth
L.E.K. Consulting forecasts additional potential growth over FY2013 to FY2018 as a result of growth
in the penetration of outsourcing. Individual customer opportunities that would add to a total of
$3.0 billion71 in annual revenue to the market that Spotless serves have been identified by Spotless
management as potential new outsourcing projects over the next five years. If realised, these
additional outsourcing opportunities are forecast to increase the level of outsourcing in these markets
in Australia to approximately 54% in FY2018.72 Growth in the outsourced market is forecast to be
strongest in the Health, Education and Government customer sector, driven by favourable underlying
growth drivers and a strong pipeline of potential new outsourcing opportunities, particularly in the
Health sub-sector. Outsourcing growth is also expected in the Laundry and Linen customer sector.
A summary of the underlying market growth and outsourced market growth outlook in the key
customer sectors Spotless serves is set out in Figure 24 below.
Fig. 24 Spotless’ end-markets growth outlook
6% 9% 15%
5% 0% 5%
5% 1 0% 5%
3% 3% 6%
Note:
1 Estimated total size of the Base and Township sector is expected to reduce in FY2014 as a result of efficiency initiatives. Market growth for
the Base and Township sector has been calculated for the period FY2014 to FY2018, excluding estimated one-off efficiency adjustments.
71 L.E.K. Consulting.
72 L.E.K. Consulting.
L.E.K. Consulting forecasts underlying growth across the Health sub-sector to be driven by
continued growth in demand for hospital and aged care services and subsequent growth in patient
and occupied bed days, a trend toward improved catering standards across health and aged care
facilities and an increasing maintenance spend given the ageing of existing healthcare assets.
Underlying growth across the Education sub-sector is supported by modest volume growth in the
student market, constrained in part by a decline in facilities space per student in tertiary education.
The market for Government customer sub-sector is expected to show growth of approximately
5% per annum.
PROSPECTUS 55
2. Business and Industry Overview continued
Fig. 26 Key drivers of growth in the Commercial and Leisure customer sector
Volume growth across the Business and Industry sub-sector is forecast to be driven by modest
growth in retail and commercial office space of approximately 0.7% per annum and stronger growth
in airport passenger numbers of approximately 4.2% per annum. Price growth is forecast to be driven
by growth in facility services costs per square metre in commercial offices and major retail spaces
and facilities services spend per passenger across major airports.
Growth in the Leisure, Sports and Entertainment sub-sector is expected to grow as a result of continued
growth of attendees at function centres and modest growth in sporting attendance, as well as a
continuation of growth in sports stadia spend per attendee and price indexation in function catering.
73 Growth rate is calculated assuming Australian Defence Force efficiency targets, which assumes an initial yield reduction driven
by a desire to reduce cost.
Modest growth in the Workwear and Accommodation sub-sectors is expected, with stronger growth
anticipated in the Hospitals sub-sector, driven by volume and price indexation. Growth may be
constrained in part by a decline in certain workwear markets such as food manufacturing employment.
2.5.3 Australian outsourcing growth drivers
L.E.K. Consulting has identified potential outsourcing growth opportunities over FY2013 to FY2018
in the Health, Education and Government and the Laundry and Linen customer sectors. Unlike the
Commercial and Leisure and the Base and Township customer sectors where the majority of the
market is outsourced (approximately 56% and approximately 93%, respectively) 74, the Health,
Education and Government and the Laundry and Linen customer sectors are relatively
underpenetrated at approximately 33% 75 and approximately 24% 76 outsourcing, respectively.
Health
L.E.K. Consulting expects the growth in outsourcing in the Health sub-sector to be driven by a
move to increase outsourcing in public hospitals, in particular across New South Wales (NSW) and
Queensland (QLD). In 2012, the NSW Government established a Commission of Audit to review the
delivery of its services. The Commission recommended that HealthShare NSW, the current provider
of shared services to public hospitals and health services, should investigate whether some of its
functions would be more effectively provided through outsourced arrangements. In line with this
recommendation, HealthShare NSW has begun outsourcing processes for information and
communication technology and linen services. L.E.K. Consulting estimates that the outsourcing
of these functions would add a total of approximately $1.3 billion of annual revenue to the market.
Similarly in 2012, the QLD Government established a Commission of Audit to review the
Government’s financial position, and to make recommendations on, among other things, ensuring
value for money in the delivery of frontline services. In 2013, the Commission recommended that
the Government should progressively expand contestable markets, initially in metropolitan areas,
for the private provision of non-clinical support services such as catering, cleaning, laundry and
ward support. The QLD Government accepted this recommendation in April 2013. L.E.K. Consulting
estimates that outsourcing these functions would add approximately $0.7 billion of annual revenue
to the market.
74 L.E.K. Consulting.
75 L.E.K. Consulting.
76 L.E.K. Consulting.
PROSPECTUS 57
2. Business and Industry Overview continued
Education
L.E.K. Consulting has identified potential additional outsourcing of approximately $0.7 billion in annual
revenue across Education, driven primarily by a move to increase outsourcing across universities and
colleges as well as in Queensland public schools and Western Australian independent public schools.
Federal Government funding cuts to universities and colleges have accelerated the focus on cost
reduction and increased outsourcing of facility services across these institutions. Outsourcing of
maintenance and grounds services is expected to be the key driver given the limited outsourcing
currently in place for these services. L.E.K. Consulting estimates that the outsourcing of these services
across universities and colleges would add approximately $0.6 billion of annual revenue to the market.
There is also potential for additional outsourcing growth across QLD public schools where the QLD
Department of Education, Training and Employment is seeking to consolidate facility services into
large outsourced contracts. There is potential for a similar level of increased outsourcing in public
schools in Western Australia (WA) following a change in the WA Governments funding model that
gives schools more autonomy over their operations and costs. L.E.K. Consulting estimates that
outsourcing these services would add approximately $140 million of annual revenue to the market.
Government
Across the Government sub-sector, opportunities include the outsourcing of facility management for
government facilities across NSW and QLD including state-run correctional facilities. L.E.K. Consulting
estimates that the outsourcing of these services for the two states combined would add approximately
$0.28 billion in annual revenue to the market.
77 Euromonitor.
78 Euromonitor.
79 International Monetary Fund World Economic Outlook.
80 International Monetary Fund World Economic Outlook.
81 Frost & Sullivan.
3,000
Y2012) : c.4%
2
2,500 CAGR (FY20
06 –F
2,000
Revenue, A$m
%
c.11
0 6 ):
1,500 Y20
0–F
199
R (FY
CAG
1,000
500
FY1990 FY1992 FY1994 FY1996 FY1998 FY2000 FY2002 FY2004 FY2006 FY2008 FY2010 FY2012
Notes:
1 Historical financial information for FY1990 to FY2010 has been derived from statutory accounts and adjusted based on publicly available
information in those statutory accounts to exclude the identified discontinued operations. This has been done to present the FY1990 to
FY2010 information as consistently as possible with the pro forma Financial Information for FY2011 to FY2014; however, the FY1990 to
FY2010 information may not have been prepared or presented on a consistent basis to the pro forma financial information for FY2011
to FY2014. Figure 29 represents Spotless statutory revenue from sales for the period FY1990 to FY2010 adjusted to exclude discontinued
operations that are separately reported: Manufacturing segment revenue (FY1990 to FY1999); Plastics segment revenue (FY2000); Braiform
segment revenue (FY2001 to FY2010); Windswept segment revenue (FY2001 to FY2005); Clifford Hallam segment revenue (FY2005);
International Services segment revenue (FY2010). For FY2011 and FY2012, pro forma total revenue less Other Income is shown.
2 Between 2006 to 2008 Ian McMullin, Ron Evans and Brian Blythe stepped down from the Board and there was a change of management.
FY2006 to FY2012 represents the subsequent period leading up to the take private of Spotless.
Spotless’ growth strategy is underpinned by four pillars: underlying market growth, outsourcing
penetration, market share growth and expansion opportunities in adjacent services and
customer sectors.
This growth framework is summarised in Figure 30 below.
82 Spotless’ revenue CAGR over FY1990 to FY2012. Refer to notes under Figure 29.
PROSPECTUS 59
2. Business and Industry Overview continued
Underlying
Market
Growth
✓ Expected customer volume and growth with customer demand for facility
services typically growing in line with, or above, GDP
2 ✓
Significant outsourcing growth is anticipated through to 2018, in particular
across Health, Education and Government, where possible market opportunities
with $3.0 billion in annual revenue have been identified
Outsourcing
Penetration PPPs secured, providing long term, contracted income streams (~$130 million
✓ of additional contracted PPP Sales Revenue per annum commencing over
FY2016 and FY2017)
3 ✓
Cross-sell existing products to existing customers with expansion
to additional customer sites and provision of additional services
(driven by an increasing demand for integrated solutions and outsourcing)
Market Share
Growth
✓ Gain market share in a fragmented market via value proposition / breadth
of service offering
4 ✓ Enter attractive adjacent sectors where Spotless can utilise its competitive
advantages. Opportunities include home care, allied health services, and immigration
Expansion Expand service lines and improve self delivery which reduces need
Opportunities
✓ for subcontracting (e.g. security, fire protection, heating, ventilation and
air-conditioning event management and staffing)
83 Euromonitor.
Cross-sell opportunities
Spotless has opportunities to deliver additional services to existing customers via integrated services
solutions and through expanding existing services to other customer sites. In connection with its
operational restructuring in 2012, Spotless’ management structure changed from a service line basis
to a customer sector focus, which has made it easier to cross-sell additional services, particularly
in the Commercial and Leisure customer sector. See Section 2.1.4 for further discussion on the
restructuring initiatives undertaken by management.
2.6.5 Expansion opportunities
Customer sector expansion
Spotless has identified expansion opportunities into certain adjacent customer sectors it does not
currently serve. These include home care, allied health services and immigration.
Adjacent market opportunities have been identified in the health sub-sector through areas including
home care and allied health services, both of which are exposed to the macro trend of Australia’s
ageing population. L.E.K. Consulting estimates these opportunities generate a total market
opportunity of approximately $6.8 billion of annual revenue. In addition, facilities management
opportunities in local government have been identified as an extension of existing offerings, which
L.E.K. Consulting estimates may generate approximately $2.2 billion of annual market revenue.
L.E.K. Consulting estimates that the Australian Federal Government currently spends approximately
$2 billion on relevant immigration programs, which includes expenditure on facilities services.
Spotless believes that a portion of services contracts may be tendered in 2014 and 2015. Spotless
has not historically serviced the immigration sector; however, it believes that it is well qualified to
provide integrated facility services to the immigration sector within Australia given its track record
in providing analogous services across the Base and Township customer sector.
These areas represent longer term opportunities; however, they would represent natural areas of
organic expansion for Spotless given they would effectively involve provision of Spotless’ existing
services to new customers.
Spotless may choose to extend or acquire new customer service capabilities in order to enhance
prospects of successful customer sector expansion.
PROSPECTUS 61
2. Business and Industry Overview continued
Market Spotless cross sell revenue Approximately $11 billion* in potential Approximately $12 billion*
share uplift opportunity adjacent market opportunities of adjacent service lines
growth where Spotless can target
opportunity market share growth
84 L.E.K. Consulting.
85 L.E.K. Consulting.
New Contract Opportunities as at March 2014 (A$ billion Sales Revenue per annum)
Incremental potential
Identified New Contract Opportunities market opportunities1
2.0 3
0.6
61%
New outsourcing Market share Cross-sell Total Total Large resources Immigration
opportunities opportunities opportunities (by customer opportunities
sector) 2
Notes:
1 Refer to Sections 2.6.4 and 2.6.5 for further information.
2 New Contract Opportunities by customer sector do not add to 100% due to rounding.
3 Source: L.E.K. Consulting.
PROSPECTUS 63
2. Business and Industry Overview continued
Between 1 July 2013 and 31 January 2014, Spotless has been successful in winning approximately
30% 86 of the new business it has tendered for. Since 2004, Spotless has been particularly successful
at winning PPP facility service contracts. Of the 30 major PPP facility services contracts awarded
since 2004, Spotless bid on 23 and won 14. Nine of these contracts have reached full operation
by FY2014. The other five PPPs will commence or reach first year at full operation over FY2016
and FY2017 and are expected to generate incremental Sales Revenue of approximately $130 million
per annum once at full operation. Spotless’ 14 currently contracted PPPs are expected to contribute
Sales Revenue of approximately $230 million in FY2017 and total Sales Revenue of approximately
$10.5 billion in aggregate over the FY2014 to FY2046 period.87
2.8 Employees
2.8.1 Employee base
Spotless is the largest employer within the Australian facility services industry, with almost 33,000
employees. As at 31 December 2013, full-time staff numbers were approximately 10,000 and part-
time employees were approximately 6,000. During the year ended 31 December 2013, approximately
17,000 were employed as casuals.
Spotless utilises a high proportion of casual employees as a cost-effective way to shift employees
among existing customer contracts and locations based on changes in customer demand. In
addition, Spotless keeps a central support pool of approximately 700 part-time and casual staff
trained across a broad range of skills, to meet any short term spikes in demand across contracts
(e.g., a new customer contract mobilisation).
Approximately 80% of employees are based in Australia and 20% in New Zealand. The vast majority
of Spotless staff are directly involved with the provision of services under customer contracts.
The Leisure, Sports and Entertainment sub-sector is the largest employer in the Spotless Group, with
a large casual workforce to service the seasonal or infrequent, event driven service requirements of
its major stadium customers. Other sub-sectors have employee numbers more in line with their sales
contribution to the Spotless Group.
Fig. 33 Spotless’ employee base
Employee mix
(at 31 December 2013)
Full-time
29% 9,733
Casual
17,316 53%
18%
Part-time
5,872
86 New business win rate of approximately 30% reflects the proportion of estimated EBITDA secured, measured against the estimated total
EBITDA where Spotless has submitted final proposals and has received win/loss result, year to date FY2014 for the seven months to
31 January 2014.
87 PPP contracts include price escalation provisions. Value assumes escalation of approximately 3% per annum and that none of the
contracts are terminated.
PROSPECTUS 65
2. Business and Industry Overview continued
88 Includes five composite garment and linen sites, excludes sub processor sites. Some properties currently owned or leased by the
business are not currently used as laundry plants (e.g. sites used for administration, warehousing and distribution only).
89 Some properties currently owned or leased by Spotless are not currently used as laundry plants (e.g. sites used for administration,
warehousing and distribution only).
PROSPECTUS 67
3. Financial Information
3.1 Introduction
3.1.1 Background
On 30 April 2012, Pacific Industrial Services BidCo Pty Ltd, a wholly owned subsidiary of the
Company, which was then called Pacific Industrial Services Pty Ltd (Pacific Industrial Services),
entered into a Scheme Implementation Agreement with Spotless Group Limited, providing for a
Scheme of Arrangement under which it acquired all the issued shares of Spotless Group Limited.
Following the approval of Spotless Group Limited shareholders, the scheme was implemented on
16 August 2012, at which time Spotless Group Limited became a wholly owned indirect subsidiary
of Pacific Industrial Services.
The first reported financial information of Pacific Industrial Services was for the year ended
30 June 2013 which included 10.5 months of Spotless Group Limited’s operations from
16 August 2012 to 30 June 2013. Pacific Industrial Services’ historical condensed consolidated
financial statements for the half year ended 31 December 2013 included comparative information
for the prior corresponding period, which covered 4.5 months of operations from 16 August 2012
to 31 December 2012.
The unaudited historical condensed consolidated financial statements of Pacific Industrial Services for
the half years ended 31 December 2012 and 31 December 2013 were prepared in accordance with
AASB 134 Interim Financial Reporting. As the company was not listed at the half years noted above,
these condensed consolidated financial statements were not required for statutory purposes to be
lodged with ASIC.
Prior to lodging this Prospectus, Pacific Industrial Services was converted into a public company
and renamed Spotless Group Holdings Limited.
References to Spotless in Section 3 relate to Spotless Group Limited for FY2011 and FY2012, Pacific
Industrial Services for FY2013, H1FY2013 and H1FY2014 and Spotless Group Holdings Limited for
FY2014 and FY2015.
3.1.2 Overview of financial information
The financial information for Spotless contained in Section 3 has been extracted from:
• statutory historical financial information for Spotless, being the:
– audited statutory annual historical consolidated statements of profit or loss for FY2011,
FY2012 and FY2013 (Statutory Historical Results);
– reviewed half year historical condensed consolidated statements of profit or loss for
H1FY2013 and H1FY2014 (Half Year Historical Results);
– audited statutory annual historical consolidated statements of cash flows for FY2011,
FY2012 and FY2013 (Statutory Historical Cash Flows);
– reviewed half year historical condensed consolidated statements of cash flows for H1FY2013
and H1FY2014 (Half Year Historical Cash Flows); and
– reviewed historical condensed consolidated statement of financial position as at
31 December 2013,
(together the Statutory Historical Financial Information);
• pro forma historical financial information for Spotless, being the:
– pro forma historical consolidated statements of profit or loss for FY2011, FY2012, FY2013,
H1FY2013 and H1FY2014 (Pro Forma Historical Results);
– pro forma historical consolidated statements of cash flows for FY2011, FY2012, FY2013,
H1FY2013 and H1FY2014 (Pro Forma Historical Cash Flows); and
– pro forma historical consolidated statement of financial position as at 31 December 2013,
(together the Pro Forma Historical Financial Information); and
PROSPECTUS 69
3. Financial Information continued
PROSPECTUS 71
3. Financial Information continued
PROSPECTUS 73
3. Financial Information continued
EBITDA may not be indicative of the Company’s historical operating results, nor is it meant to be
a projection or forecast of future results.
The Directors believe that EBITDA is a measure commonly reported and widely used by investors in
comparing performance without regard to depreciation and amortisation (which can vary significantly
depending upon accounting methods), interest or tax. EBITDA has been disclosed in this Prospectus
because it is used by management in determining the Group’s core performance and the Directors
believe that it permits better analysis of Spotless’ operating performance.
EBITA is earnings before interest, tax and amortisation. It is similar to EBITDA, except that it includes
depreciation. Including depreciation provides a useful alternative measure because the depreciation
charge largely relates to plant and equipment (in particular laundry rental stock) that will be replaced
in the ordinary course of business. EBITA Margin is EBITA divided by Sales Revenue, expressed
as a percentage.
EBIT is earnings before interest and tax.
3.3.3 Segment Contribution, Allocation of Corporate Overheads, Segment EBITDA
and Segment EBITA
In the segment disclosures in this Prospectus, along with the IFRS measure of Segment Contribution,
Spotless uses three non-IFRS financial measures of segment performance in order to assist readers
to understand the relative profitability of its business segments. Spotless has unallocated corporate
overheads which include executive, legal, finance, property, procurement, information services,
human resources, and business development expenses incurred by Spotless that are not directly
attributable to the businesses within the reporting segments. The following measures enable readers
to analyse segment results with and without these corporate overheads:
• Segment Contribution – this refers to the EBITDA generated by each segment in the ordinary
course of business and is included in the segment notes to Spotless’ financial statements;
• Allocation of Corporate Overheads – this reflects the share of the unallocated corporate
overheads that is being attributed to the segment on the basis of the proportion of Sales Revenue
that the segment generated;
• Segment EBITDA – this is the EBITDA of the segment after the Allocation of Corporate
Overheads; and
• Segment EBITA – this is Segment EBITDA less depreciation (including both direct segment
depreciation and an allocation of corporate overhead depreciation that is attributed to the segment
on the basis of the proportion of Sales Revenue that the segment generated).
PROSPECTUS 75
3. Financial Information continued
A split between Maintenance Capital Expenditure and Growth Capital Expenditure for the historical
periods presented in this Prospectus was not presented in the Statutory Historical Financial
Information and, as a result, these items are instead shown on an aggregated basis.
3.3.6 Working Capital
Spotless defines Working Capital as the total of current trade and other receivables, inventory,
prepayments, trade and other payables, current provisions and other current creditors.
3.3.7 Free Cash Flow and Free Cash Flow Conversion
Free Cash Flow is a non-IFRS measure that represents EBITDA less change in Working Capital less
Maintenance Capital Expenditure. Free Cash Flow Conversion is Free Cash Flow divided by EBITDA,
expressed as a percentage. As a result, it is a measure of the operating cash flow generated by the
business before Growth Capital Expenditure and SAP IT Capital Expenditure. It is important to note
that Free Cash Flow does not take into account the requirements of the business for cash to fund
financing costs such as interest expenses and tax payments.
PROSPECTUS 77
3. Financial Information continued
Notes:
1 Sales Revenue is revenue excluding Legacy Pass Through Revenue and Other Income. Refer to Section 3.3.
2 Spotless is reimbursed for products and services procured on behalf of a customer from third party suppliers across a range of contracts.
The arrangement with a relevant customer for a material contract is expected to cease in FY2015; therefore, this revenue (Legacy Pass
Through Revenue) is reported separately to Sales Revenue. Similarly, the cost of the same amount (Legacy Pass Through Costs) is shown
separately in operating expenses, having been extracted from subcontractor costs. Refer to Section 3.3.
3 Other Income comprises government grant income relating to traineeships and operational foreign exchange gains.
4 Operating expense line items impacted by the pro forma adjustments to the statutory consolidated statements of profit or loss (shown
in Tables 7 and 8) are direct employee costs (for redundancy costs within the transaction and restructuring costs adjustment) and other
costs (for all other pro forma adjustments to the operating expenses). The 1.5 month adjustment impacts all operating expense line items.
5 Amortisation expense relates to capitalised intangible assets, predominantly information technology software and Amortisation of
Customer Contracts (which were capitalised as part of the purchase price allocation upon the 2012 Acquisition).
6 Pro forma historical net finance costs have been adjusted to reflect the terms of the New Banking Facilities on Completion of the Offer.
Refer to Section 3.6.
7 A pro forma tax expense rate of 30% has been applied, which is the Australian corporate tax rate and is reflective of the Spotless’
anticipated tax rate following Completion of the Offer.
8 Amortisation of Customer Contracts is a non-cash item. Upon the 2012 Acquisition, certain intangible assets resulting from acquisitions,
in particular customer contracts, were recorded on Spotless’ statement of financial position at their assessed values. The value of these
assets is being amortised over a seven to 30 year period and forms part of the amortisation change in the statements of profit or loss for
FY2013, FY2014 and FY2015. Amortisation of Customer Contracts for FY2011 and FY2012 relates to acquisitions prior to the 2012
Acquisiton. This amortisation expense is added back after tax to derive Adjusted NPAT. Refer to Section 3.3.
9 The Unwind of Discounts on Provisions relates to the non-cash after tax increase in the net present value of the provisions raised upon
the 2012 Acquisition, accounted for in net finance costs for FY2013, FY2014 and FY2015. Unwind of Discounts on Provisions for FY2011
and FY2012 relates to onerous contract provisions arising prior to the 2012 Acquisition. This non-cash finance cost is added back after
tax to derive Adjusted NPAT. Refer to Section 3.3.
10 Adjusted NPAT reflects adjustments to add back Amortisation of Customer Contracts and Unwind of Discounts on Provisions after tax.
Refer to Section 3.3.
Set out in Tables 3 and 4 is a summary of Spotless’ key historical operating metrics for FY2011,
FY2012, FY2013, H1FY2013 and H1FY2014 derived from the Pro Forma Historical Results, and the
forecast key operating metrics for FY2014 and FY2015 derived from the Pro Forma Forecast Results
and the Statutory Forecast Results. Refer to Section 3.3 for more detail on the metrics shown.
PROSPECTUS 79
3. Financial Information continued
Table 3 Key pro forma historical financial metrics for FY2011 to FY2013 and pro forma and
statutory forecast financial metrics for FY2014 and FY2015
Pro forma historical Pro forma forecast Statutory forecast
June year end
$ million Note FY2011 FY2012 FY2013 FY2014 FY2015 FY2014 FY2015
Group
Sales Revenue growth 2.0% 2.4% 0.4% 8.7% 8.7%
EBITDA growth (4.5%) 19.1% 49.7% 21.1% 68.0%
EBITDA Margin 1 6.2% 5.8% 6.7% 10.0% 11.2% 7.2% 11.2%
EBITA growth (10.0%) 36.8% 71.5% 24.3% 93.6%
EBITA Margin 1 3.9% 3.4% 4.6% 7.8% 8.9% 5.0% 8.9%
Free Cash Flow
Conversion 2 54.0% 81.6% 39.4% 75.3%
Facility Services
EBITDA Margin 3 3.8% 3.4% 4.7% 7.9% 9.1%
EBITA Margin 3 3.0% 2.6% 4.0% 7.1% 8.3%
Laundries
EBITDA Margin 3 26.4% 25.5% 23.8% 28.6% 28.3%
EBITA Margin 3 11.5% 10.7% 9.3% 14.0% 13.9%
Notes:
1 EBITDA Margin is EBITDA divided by Sales Revenue. EBITA Margin is EBITA divided by Sales Revenue. Refer to Section 3.3.
2 Free Cash Flow Conversion represents (EBITDA less change in Working Capital less Maintenance Capital Expenditure) divided by EBITDA,
as set out in Table 16. Refer to Section 3.3.
3 Segment EBITDA and Segment EBITA are based on Segment Contribution after Allocation of Corporate Overheads. Corporate overheads
have been attributed to the segment on the basis of the proportion of Sales Revenue generated by the segment. Segment EBITDA Margin
is Segment EBITDA divided by Sales Revenue. Segment EBITA Margin is Segment EBITA divided by Sales Revenue. Refer to Section 3.3.
Table 4 Key pro forma historical financial metrics for H1FY2013 and H1FY2014
Pro forma historical
December half
$ million Note H1FY2013 H1FY2014
Group
Sales Revenue growth 2.2%
EBITDA growth 133.8%
EBITDA Margin 1 4.2% 9.7%
EBITA growth 272.3%
EBITA Margin 1 2.0% 7.4%
Facility Services
EBITDA Margin 3 2.3% 7.6%
EBITA Margin 3 1.5% 6.8%
Laundries
EBITDA Margin 3 20.3% 27.2%
EBITA Margin 3 6.1% 12.9%
Notes: Refer to Table 3 notes.
Table 6 Summary historical consolidated statements of profit or loss for H1FY2013 and H1FY2014
Historical
December half H1FY2013 H1FY2014
$ million (4.5 months) (6 months)
PROSPECTUS 81
3. Financial Information continued
Pro forma adjustments to the statutory historical and forecast consolidated statements
of profit or loss
Tables 7 and 8 set out a reconciliation from the Statutory Historical Results and the Statutory
Forecast Results to the Pro Forma Historical Results and Pro Forma Forecast Results respectively.
Table 7 Pro forma adjustments to the statutory historical consolidated statements of profit or loss
for FY2011 to FY2013 and pro forma adjustments to the statutory forecast consolidated
statements of profit or loss for FY2014 and FY2015
Historical Forecast
June year end
$ million Note FY2011 FY2012 FY2013 FY2014 FY2015
PROSPECTUS 83
3. Financial Information continued
Table 9 Pro forma Sales Revenue, EBITDA and EBITA summary by reporting segment and
customer sector for FY2011 to FY2015
Pro forma historical Pro forma forecast Change
FY2011–
June year end FY2013 FY2013– FY2014–
$ million Note FY2011 FY2012 FY2013 FY2014 FY2015 CAGR FY2014 FY2015
Facility Services
Health, Education
and Government 832.6 793.0 857.0 927.1 1,044.0 1.5% 8.2% 12.6%
Commercial
and Leisure 910.7 906.7 866.5 739.7 774.8 (2.5%) (14.6%) 4.7%
Base and
Township 372.5 452.5 483.4 556.9 585.0 13.9% 15.2% 5.0%
Facility Services
Sales Revenue 2,115.8 2,152.2 2,206.9 2,223.7 2,403.8 2.1% 0.8% 8.1%
Facility Services
Segment
Contribution 1 131.8 122.9 143.2 212.4 257.4 4.2% 48.3% 21.2%
Facility Services
Allocation of
Corporate
Overheads 2 (51.4) (49.4) (39.4) (36.6) (38.3) (12.4%) (7.1%) 4.6%
Facility Services
Segment EBITDA 80.4 73.5 103.8 175.8 219.1 13.6% 69.4% 24.6%
Depreciation 3 (17.1) (18.6) (15.1) (17.7) (18.6) (6.0%) 17.2% 5.1%
Facility Services
Segment EBITA 63.3 54.9 88.7 158.1 200.5 18.4% 78.2% 26.8%
Laundries
Laundries (Laundry
and Linen) Sales
Revenue 248.8 259.7 261.8 254.9 290.6 2.6% (2.6%) 14.0%
Laundries
Segment
Contribution 1 71.9 72.1 67.1 77.2 86.9 (3.4%) 15.1% 12.6%
Laundries
Allocation of
Corporate
Overheads 2 (6.1) (6.0) (4.7) (4.2) (4.6) (12.2%) (10.6%) 9.5%
Laundries
Segment EBITDA 65.8 66.1 62.4 73.0 82.3 (2.6%) 17.0% 12.7%
Depreciation 3 (37.3) (38.4) (38.1) (37.3) (41.9) 1.1% (2.1%) 12.3%
Laundries
Segment EBITA 28.5 27.7 24.3 35.7 40.4 (7.7%) 46.9% 13.2%
Notes:
1 Segment Contribution represents the Segment EBITDA before adjusting for unallocated corporate overheads (see note 2).
2 Segment EBITDA and Segment EBITA are based on Segment Contribution after Allocation of Corporate Overheads. Corporate overheads
have been attributed to the segment on the basis of the proportion of Sales Revenue generated by the segment. Refer to Section 3.3.
3 Includes segment depreciation, as well as depreciation relating to unallocated corporate assets apportioned between segments in
proportion to the Sales Revenue generated by each segment.
Tables 11 and 12 contain a summary of Spotless’ Sales Revenue by geographic segment for FY2011,
FY2012, FY2013, FY2014, FY2015, H1FY2013 and H1FY2014.
Table 11 Pro forma Sales Revenue summary by geographic segment for FY2011 to FY2015
Pro forma historical Pro forma forecast Change
FY2011–
June year end FY2013 FY2013– FY2014–
$ million FY2011 FY2012 FY2013 FY2014 FY2015 CAGR FY2014 FY2015
Table 12 Pro forma Sales Revenue summary by geographic segment for H1FY2013 and H1FY2014
Pro forma historical Change
December half H1FY2013–
$ million H1FY2013 H1FY2014 H1FY2014
PROSPECTUS 85
3. Financial Information continued
Assets
Current assets
Cash and cash equivalents 1 54.7 43.8 98.5
Current tax assets 1.5 – 1.5
Trade and other receivables 304.8 – 304.8
Inventory 21.9 – 21.9
Prepayments 8.3 – 8.3
Assets classified as held for sale 5.5 – 5.5
Total current assets 396.7 43.8 440.5
Non-current assets
Investments accounted for using
the equity method 1.8 – 1.8
Trade and other receivables 23.8 – 23.8
Property, plant and equipment 208.6 – 208.6
Goodwill 827.4 – 827.4
Intangible assets 136.0 – 136.0
Deferred tax assets 2 129.6 27.1 156.7
Prepayments 1.5 – 1.5
Derivatives at fair value 3 52.2 (52.2) –
Total non-current assets 1,380.9 (25.1) 1,355.8
Total assets 1,777.6 18.7 1,796.3
Liabilities
Current liabilities
Trade and other payables 4 257.9 11.3 269.2
Borrowings 5 0.5 (0.2) 0.3
Provisions 104.2 – 104.2
Total current liabilities 362.6 11.1 373.7
Non-current liabilities
Borrowings 5 1,206.1 (573.8) 632.3
Deferred tax liabilities 61.9 (15.7) 46.2
Provisions 61.6 – 61.6
Other financial liabilities 1.9 – 1.9
Total non-current liabilities 1,331.5 (589.5) 742.0
Total liabilities 1,694.1 (578.4) 1,115.7
Net assets 83.5 597.1 680.6
PROSPECTUS 87
3. Financial Information continued
Estimated
31 December impact of the Pro forma
2013 (before Offer and (reflecting
As at 31 December 2013 Completion of New Banking Completion of
$ million Note the Offer) Facilities the Offer)
Equity
Share capital 6 329.6 651.3 980.9
Reserves 7 (1.0) 4.2 3.2
Accumulated losses 8 (245.1) (58.4) (303.5)
Total equity 83.5 597.1 680.6
Notes:
1 The net adjustments to cash and cash equivalents include:
• raising cash as a result of the Offer, offset by the payment of transaction costs related to the Offer;
• drawings under the New Banking Facilities;
• making of a principal repayment on the Existing Banking Facilities; and
• realisation of swap assets, as a result of the refinancing.
Management’s target cash position at Completion of the Offer is $15.0 million.
2 The adjustment to deferred tax assets represents the tax effect of the costs associated with the Offer and the tax deduction associated
with the write off of existing borrowing costs and debt break fees.
3 The refinancing will result in the realisation of swap assets recorded at $52.2 million at 31 December 2013.
4 Adjustment relates to certain transaction costs to be paid in FY2015.
5 Spotless has executed a syndicated facility agreement and a bilateral facility agreement (see Section 3.6.4). On Completion of the Offer,
funding provided under the facility agreement for the New Banking Facilities will be drawn down to $637.0 million, with associated
refinancing costs which will be capitalised and amortised over the terms of the loans. All proceeds from the New Banking Facilities are
non-current liabilities. Spotless will make a principal repayment of $1,250.1 million on its Existing Banking Facilities and write off existing
capitalised borrowing costs.
6 Share capital is impacted by the primary equity Offer of $697.7 million (assumes the Final Price is at the midpoint of the Indicative Price
Range) offset by the costs after income tax related to the issue of New Shares of approximately $46.4 million.
7 Reserves are impacted by the restructuring of pre-IPO executive incentives.
8 Accumulated losses are impacted by:
• IPO transaction costs that are required to be expensed;
• write off of borrowing costs associated with the Existing Banking Facilities;
• swap and debt break fees; and
• the restructuring of pre-IPO executive incentives.
PROSPECTUS 89
3. Financial Information continued
subsidiaries. Upon repayment of the Existing Banking Facilities, the associated guarantees and
security granted by the Spotless Group will be discharged.
The availability of funding under the New Banking Facilities is conditional upon confirmation that
Spotless will be quoted on the ASX as contemplated by the Offer and other conditions precedent
which are within the control of Spotless and customary for facilities of the nature of the New Banking
Facilities. Accordingly, at Completion of the Offer, Spotless will have debt funding available to assist
with the repayment of the Existing Banking Facilities of Spotless and its subsidiaries and to provide
for funding needs after Listing.
The Syndicated Facility Agreement has an aggregate commitment of A$637 million and comprises:
• A$424.2 million three year revolving facility A (Facility A), with a sub-tranche available for cash
advances in Australian dollars up to A$324.9 million, and a sub-tranche available for cash
advances in New Zealand dollars up to NZ$107 million, each of which will be fully drawn at
Completion of the Offer; and
• A$212.8 million four year revolving facility B (Facility B), with a sub-tranche available for cash
advances in Australian dollars up to A$163.6 million, and a sub-tranche available for cash
advances in New Zealand dollars up to NZ$53 million, each of which will be fully drawn at
Completion of the Offer.
The Bilateral Facility Agreement has a total aggregate commitment of A$200 million (with a total
aggregate New Zealand dollar sub-limit of NZ$95 million) and comprises:
• A$115 million two year revolving cash advance facility available in Australian and New Zealand
dollars, with a NZ$70 million sub-limit (Cash Advance Facility);
• A$80 million performance guarantee facility available in both Australian and New Zealand dollars,
with a NZ$20 million sub-limit, subject to annual review (Performance Guarantee Facility); and
• A$5 million financial guarantee facility available in both Australian and New Zealand dollars, with
a NZ$5 million sub-limit, subject to annual review (Financial Guarantee Facility).
The sub-tranche amounts under the New Banking Facilities were determined based on an exchange
rate of the A$ to the NZ$ of 1.0776, as at 7 April 2014. Therefore, Spotless will be exposed to
fluctuations in the exchange rate between the A$ and the NZ$ for the period between 7 April 2014
and the Completion of the Offer.
Approximately A$50 million of the aggregate of the Performance Guarantee Facility and the Financial
Guarantee Facility are expected to be used to fund letters of credit, bank and performance
guarantees at Completion of the Offer.
Financial covenants
The New Banking Facilities contain undertakings which are customary for facilities of their nature and
which are consistent across the Syndicated Facility Agreement and the Bilateral Facility Agreement.
The undertakings include financial undertakings which will be tested at financial year end and
financial half year end based on the preceding 12 month period, commencing in the period ending
31 December 2014. These undertakings include:
• a net leverage ratio that is not greater than 3.50 to 1, being net debt to EBITDA (as defined under
the New Banking Facilities); and
• an interest cover ratio that is not less than 3.00 to 1, being EBITDA to net total cash interest
(as defined under the New Banking Facilities).
Calculations under the covenants in the New Banking Facilities for net debt, EBITDA and net cash
interest expense include a number of specific adjustments. These adjustments are not reflected in net
debt, EBITDA and net cash interest expense shown in this Prospectus and therefore these measures
will be different to the values used for covenant calculations under the New Banking Facilities.
Spotless expects to remain in compliance with these financial and other undertakings.
Refer to Section 9.5 for more information on the New Banking Facilities.
3.6.5 Capital and contractual commitments
Table 15 sets out Spotless’ Capital Expenditure and other commitments as at 30 June 2013.
Table 15 Capital Expenditure and other commitments as at 30 June 2013
As at 30 June 2013 Less than More than
$ million Note 1 year 1 – 5 years 5 years Total
3.7 Summary pro forma historical and forecast consolidated statements of cash flows
and statutory forecast consolidated statements of cash flows
Table 16 sets out a summary of Spotless’ pro forma historical consolidated statements of cash flows
for FY2011, FY2012, FY2013, H1FY2013 and H1FY2014, pro forma forecast consolidated statements
of cash flows for FY2014 and FY2015 and statutory forecast consolidated statements of cash flows
for FY2014 and FY2015.
PROSPECTUS 91
3. Financial Information continued
Table 16 Summary pro forma historical consolidated statements of cash flows for FY2011 to
FY2013 and pro forma and statutory forecast consolidated statements of cash flows
for FY2014 and FY2015
Pro forma historical Pro forma forecast Statutory forecast
June year end
$ million Note FY2011 FY2012 FY2013 FY2014 FY2015 FY2014 FY2015
Table 17 Summary pro forma historical consolidated statements of cash flows for H1FY2013 and
H1FY2014
Pro forma historical
December half
$ million Note H1FY2013 H1FY2014
Pro forma adjustments to the statutory historical consolidated statements of cash flows
Tables 18, 19 and 20 set out the pro forma adjustments to the Statutory Historical Cash Flows as well
as the Statutory Forecast Cash Flows to reflect the full year impact of the operating structure that will
be in place following Completion of the Offer and to eliminate certain non-recurring items.
PROSPECTUS 93
3. Financial Information continued
Table 18 Pro forma adjustments to the statutory consolidated historical statements of cash flows
for FY2011 to FY2013
Historical
June year end
$ million Note FY2011 FY2012 FY2013
Net cash flow before financing, taxation and business combinations 54.0 21.7
Transaction and restructuring costs 1A 39.5 13.5
Dividends received 3 (0.3) –
Receipts from security plan loans 4 (6.5) (2.4)
Proceeds from sale of investment securities 5 (6.4) –
Net proceeds from sale of International Services and Braiform 6 (30.3) –
Listed public company costs 8 (0.8) (1.1)
1.5 month adjustment 9 (32.3) –
Pro forma net cash flow before financing and taxation 16.9 31.7
Notes: Refer to Table 18 notes. In addition:
1A H1FY2013 cash flow related to transaction and restructuring costs of $62.0 million, as presented in Table 8 reconciling NPAT to pro forma
Adjusted NPAT, reduced for the non-cash component of transaction and restructuring costs $22.5 million. H1FY2014 cash flow related
to transaction and restructuring costs of $21.5 million, as presented in Table 8 reconciling NPAT to pro forma Adjusted NPAT, reduced
for the non-cash component of transaction and restructuring costs and unpaid amounts of $8.0 million. Also includes $0.4 million and
$0.7 million of bank guarantee costs expensed to the forecast statutory statements of profit or loss in H1FY2013 and H1FY2014
respectively, as presented in Table 8 reconciling NPAT to pro forma Adjusted NPAT.
PROSPECTUS 95
3. Financial Information continued
Table 20 Pro forma adjustments to the statutory forecast consolidated statements of cash flows
for FY2014 and FY2015
Forecast
June year end
$ million Note FY2014 FY2015
Revenue
Spotless earns the majority of its revenue from customer contracts and other standing arrangements.
The Facility Services segment earns revenue from the performance of a wide variety of services
including facilities management, catering and cleaning. Some catering contracts (such as stadia and
airports) include the provision of retail food services where Spotless generates revenue for the sale
of goods directly to consumers.
In the Laundries segment, Spotless earns revenue both under contract and under longstanding
customer arrangements. Revenue is a function of the volume of laundry processed and the unit
charges of both rented and sold items.
Drivers of Spotless’ revenue in both Facility Services and Laundries can be identified at three levels:
• Industry demand – this includes the level of economic growth and demographic factors which
drive the overall demand for the services that Spotless provides. In the shorter term, the key driver
of demand is underlying activity and growth in outsourcing. Key drivers for each customer sector
are detailed in Section 2.5;
• Winning and retaining contracts – Spotless derives most of its revenue under multi-year customer
contracts. Spotless’ rate of success in winning new contracts and retaining existing contracts
when they come up for renewal is the most important driver of revenue; and
• Existing contract performance – revenue levels within an existing contract can vary over time
based on a number of factors, for example a change in scope or volume of services required
under a contract.
Spotless’ total revenue consists of Sales Revenue, Legacy Pass Through Revenue and Other Income,
which are explained in Section 3.3. Management considers Sales Revenue to be the most appropriate
measure of the revenue generated by Spotless’ operations.
Operating expenses
Spotless’ operating expense line items are:
• Direct employee costs – costs of labour to perform services, supply goods and perform head
office functions;
• Subcontractor costs – costs of subcontractors engaged to provide additional capacity and provide
services that augment Spotless’ current capabilities;
• Cost of goods sold – costs of materials and supplies that Spotless uses to perform its services,
including building supplies and hardware, cleaning products, linen and work-wear, food and
beverages and office supplies;
PROSPECTUS 97
3. Financial Information continued
• Other costs – costs such as occupancy costs, professional costs, transportation costs, payments
for catering rights and other expenses; and
• Legacy Pass Through Costs – reimbursed costs that are directly associated with Legacy Pass
Through Revenue. Refer to Section 3.3.
The majority of costs including direct employee costs, subcontractor costs, cost of goods sold
and other costs, are embedded within the service delivery of particular contracts and are therefore
variable for contract wins and losses.
Laundries
The Laundries segment EBITDA reflects revenue from customer contracts, typically rental and
fee-for-service contracts and other standing arrangements, less costs including rent, labour,
electricity, gas, water, fuel and vehicle running costs. Laundries segment EBITDA Margins are
consistently higher than those for the Facility Services segment, reflecting the higher level of capital
intensity inherent in operating a portfolio of industrial laundry facilities. Both Laundries Segment
EBITDA and EBITDA Margins are presented after Allocation of Corporate Overheads, as described
in Section 3.3.
Depreciation
Depreciation expense comprises depreciation of fixtures, fittings and equipment across the Facility
Services and Laundries segments. The Laundries segment includes an additional depreciation
category for laundry rental stock assets, being a pool of linen and garments owned by Spotless
and rented to customers.
Working Capital
Working Capital comprises current trade and other receivables, inventory, prepayments, trade and
other payables, current provisions and other current creditors.
Given the magnitude of revenue inflow and cost outflow, Working Capital can vary significantly across
a month, with Working Capital generally peaking in the middle of the month. The variability in Working
Capital means that point-to-point movements in balances may not accurately reflect the average
changes of Working Capital in the business. Intra-month cash balances can therefore vary by up
to approximately $50 million from those reported at month end.
As Spotless revenue rises, there is generally a requirement to increase Working Capital as trade
receivables grow (partly offset by increases in trade payables and higher employee related
provisions). Typical trading terms for customer contracts are 30 days from invoice. Typical trading
terms for subcontractors are seven to 30 days and other suppliers are typically 30 to 50 days.
Further, the bulk of Spotless’ workforce is paid on a weekly basis (as measured by employee
numbers and gross wages paid). Spotless’ inventory movements are generally not a significant
driver of changes in Working Capital.
Capital Expenditure
Spotless has several categories of Capital Expenditure.
PROSPECTUS 99
3. Financial Information continued
3.8.2 Pro forma historical consolidated statements of profit or loss: FY2011 compared to FY2012
Table 21 sets out the summary pro forma historical consolidated statements of profit or loss for
FY2011 and FY2012.
Table 21 Selected pro forma historical consolidated statements of profit or loss: FY2011 compared
to FY2012
Pro forma historical
June year end
$ million Note FY2011 FY2012 Change Change %
Sales Revenue
Health, Education and Government 832.6 793.0 (39.6) (4.8%)
Commercial and Leisure 910.7 906.7 (4.0) (0.4%)
Base and Township 372.5 452.5 +80.0 21.5%
Facility Services Sales Revenue 2,115.8 2,152.2 +36.4 1.7%
Laundries (Laundry and Linen)
Sales Revenue 248.8 259.7 +10.9 4.4%
Sales Revenue 2,364.6 2,411.9 +47.3 2.0%
Total revenue 1 2,505.0 2,574.5 +69.5 +2.8%
EBITDA
Facility Services EBITDA 2 80.4 73.5 (6.9) (8.6%)
Laundries EBITDA 2 65.8 66.1 +0.3 0.5%
EBITDA 146.2 139.6 (6.6) (4.5%)
EBITA
Facility Services EBITA 2 63.3 54.9 (8.4) (13.3%)
Laundries EBITA 2 28.5 27.7 (0.8) (2.8%)
EBITA 91.8 82.6 (9.2) (10.0%)
Notes:
1 Total revenue includes Sales Revenue, Legacy Pass Through Revenue and Other Income. Refer to Section 3.3.
2 Segment EBITDA and Segment EBITA are based on Segment Contribution after Allocation of Corporate Overheads. Corporate overheads
have been attributed to the segment on the basis of the proportion of Sales Revenue generated by the segment. Refer to Section 3.3.
Sales Revenue
Sales Revenue increased by $47.3 million, from $2.36 billion to $2.41 billion, an increase of 2.0%, driven
by an increase in the Base and Township and the Laundry and Linen customer sectors, partially offset by
declines in the Health, Education and Government and the Commercial and Leisure customer sectors:
• Health, Education and Government decreased by $39.6 million, from $832.6 million to
$793.0 million, a decrease of 4.8%. The decrease was driven by the unsuccessful retender of one
material Education contract and the loss of a number of smaller contracts, partially offset by the
commencement of new contracts and revenue increases within existing contracts, particularly
in Health and Government;
• Commercial and Leisure decreased by $4.0 million, from $910.7 million to $906.7 million,
a decrease of 0.4%. The decrease was driven by a decline in Business and Industry partially
offset by a range of new contract wins as well as increased event related activity in Leisure,
Sports and Entertainment;
EBITDA
EBITDA decreased by $6.6 million, from $146.2 million to $139.6 million, a decrease of 4.5%. This
was driven by a decrease in Facility Services EBITDA of $6.9 million, partially offset by an increase
in Laundries EBITDA of $0.3 million.
Facility Services EBITDA Margin decreased from 3.8% to 3.4%. EBITDA was negatively impacted
by a number of large unprofitable contracts entered into prior to the 2012 Acquisition, which have
subsequently been exited. EBITDA was also negatively impacted by unplanned mobilisation costs
associated with a number of new contracts In addition, higher operational expenditure was incurred
following the transition to the new SAP IT platform across cleaning contracts.
Laundries EBITDA Margin decreased from 26.4% to 25.5%, with revenue growth more than offset
by cost growth, particularly higher management and administrative expenditure.
Depreciation
Depreciation expense increased by $2.6 million, from $54.4 million to $57.0 million, an increase of
4.8%. This was primarily due to higher Capital Expenditure in FY2011 and FY2012 when compared
with that in previous periods, relating to the commencement of new contracts and the construction
of a new laundry in Queensland.
3.8.3 Pro forma historical consolidated statements of cash flows: FY2011 compared to FY2012
Table 22 sets out the summary pro forma historical consolidated statements of cash flows for FY2011
and FY2012.
Table 22 Selected pro forma historical consolidated statements of cash flows: FY2011 compared
to FY2012
Pro forma historical
June year end
$ million Note FY2011 FY2012
PROSPECTUS 101
3. Financial Information continued
Capital Expenditure
Total Capital Expenditure increased by $12.9 million, from $95.2 million to $108.1 million, an increase
of 13.6%, driven by:
• lower levels of Capital Expenditure on fixtures, fittings and equipment (declined from $43.8 million
to $28.5 million) with declines in spending in the Facility Services and corporate support areas,
partly offset by a small increase in Laundries Capital Expenditure;
• higher laundry rental stock spending, which increased from $30.8 million to $31.6 million; and
• significantly increased spending on the SAP IT project, which increased from $20.6 million
to $48.0 million.
3.8.4 Pro forma historical consolidated statements of profit or loss: FY2012 compared
to FY2013
Table 23 sets out the summary pro forma historical consolidated statements of profit or loss
for FY2012 and FY2013.
Table 23 Selected pro forma historical consolidated statements of profit or loss: FY2012 compared
to FY2013
Pro forma historical
June year end
$ million Note FY2012 FY2013 Change Change %
Sales Revenue
Health, Education and Government 793.0 857.0 +64.0 8.1%
Commercial and Leisure 906.7 866.5 (40.2) (4.4%)
Base and Township 452.5 483.4 +30.9 6.8%
Facility Services 2,152.2 2,206.9 +54.7 2.5%
Laundries (Laundry and Linen) 259.7 261.8 +2.1 0.8%
Sales Revenue 2,411.9 2,468.7 +56.8 2.4%
Total revenue 1 2,574.5 2,585.9 +11.4 0.4%
EBITDA
Facility Services EBITDA 2 73.5 103.8 +30.3 41.2%
Laundries EBITDA 2 66.1 62.4 (3.7) (5.6%)
EBITDA 139.6 166.2 +26.6 19.1%
EBITA
Facility Services EBITA 2 54.9 88.7 +33.8 61.6%
Laundries EBITA 2 27.7 24.3 (3.4) (12.3%)
EBITA 82.6 113.0 +30.4 36.8%
Notes: Refer to Table 21 notes.
EBITDA
EBITDA increased by $26.6 million, from $139.6 million to $166.2 million, an increase of 19.1%. This
was driven by an increase in Facility Services EBITDA of $30.3 million, partially offset by a decrease
in Laundries EBITDA of $3.7 million.
EBITDA benefited by the new management team’s focus on addressing the cost base, following the
2012 Acquisition. The cost reduction program included:
• reduction in administrative and management roles;
• review of procurement practices and renegotiation of many supplier contracts;
• consolidation of laundry sites;
• implementation of improved labour management practices; and
• detailed contract performance reviews, including exiting a number of marginal and unprofitable
contracts.
The initiatives were implemented progressively following the 2012 Acquisition and, as a result, only
a part year benefit of the savings is reflected in the FY2013 results. Over the period, total corporate
overheads and support costs (including allocated and unallocated) reduced by $9.3 million, from
$92.9 million to $83.6 million. Further detail on the program to address the cost base is detailed in
Section 2.1.4.
Facility Services EBITDA Margin increased from 3.4% to 4.7%, reflecting the in-year impact of the
management actions described above.
Laundries EBITDA Margin decreased from 25.5% to 23.8%, driven by lower margins on retendered
contracts, including one material contract, and a change in purchasing arrangements relating to
rental stock. These impacts were partly offset by the in-year impact of lower management and
administrative costs following the 2012 Acquisition and the consolidation of laundry sites.
PROSPECTUS 103
3. Financial Information continued
Depreciation
Depreciation expense decreased by $3.8 million, from $57.0 million to $53.2 million, a decrease of
6.7%. This was primarily due to a reduction in the carrying value of fixed assets, which, as required
under Australian Accounting Standards, were reviewed following completion of the 2012 Acquisition.
3.8.5 Pro forma historical consolidated statements of cash flows: FY2012 compared to FY2013
Table 24 sets out the summary pro forma historical consolidated statements of cash flows for
FY2012 and FY2013.
Table 24 Selected pro forma historical consolidated statements of cash flows: FY2012 compared
to FY2013
Pro forma historical
June year end
$ million Note FY2012 FY2013
Capital Expenditure
Total Capital Expenditure declined by $13.7 million, from $108.1 million to $94.4 million, a decrease
of 12.7%, driven by:
• higher levels of Capital Expenditure on fixtures, fittings and equipment (increased from
$28.5 million to $30.3 million) driven by Capital Expenditure on Laundries plant and equipment
to drive efficiency gains;
• lower laundry rental stock spending, which declined from $31.6 million to $29.9 million; and
• lower spending on the SAP IT project resulting from a more focused project scope under new
management, with spending reduced from $48.0 million to $34.3 million.
3.8.6 Pro forma historical consolidated statements of profit or loss: H1FY2013 compared
to H1FY2014
Table 25 sets out the summary pro forma historical consolidated statement of profit or loss for
H1FY2013 and H1FY2014.
Revenue
Sales Revenue increased by $26.3 million, from $1.22 billion to $1.25 billion, an increase of 2.2%.
The overall increase was driven by an increase in the Health, Education and Government and the
Base and Township customer sectors, partially offset by declines in the Commercial and Leisure
and the Laundry and Linen customer sectors:
• Health, Education and Government increased by $46.1 million, from $404.2 million to
$450.3 million, an increase of 11.4%, driven by higher activity levels and volumes within existing
Government and Health contracts, partly offset by lost Education contracts;
• Commercial and Leisure decreased by $64.8 million, from $450.4 million to $385.6 million, a
decrease of 14.4%, reflecting the impact of contracts voluntarily exited during the prior financial
year and contracts lost during the period, with these impacts partly offset by higher activity levels
within existing contracts and new contract wins;
• Base and Township increased by $45.2 million, from $232.4 million to $277.6 million, an increase
of 19.4%, driven by mix of performance across the portfolio, with higher activity levels in a number
of contracts across both Resources and Defence, partly offset by lower activity levels within several
Resources contracts; and
• Laundry and Linen decreased by $0.2 million, from $132.7 million to $132.5 million, a decrease
of 0.2%, driven by lost contracts, partly offset by foreign exchange gains on New Zealand dollar
denominated revenue.
PROSPECTUS 105
3. Financial Information continued
EBITDA
EBITDA increased by $68.9 million, from $51.5 million to $120.4 million, an increase of 133.8%.
This was driven by an increase in Facility Services EBITDA of $59.8 million and Laundries EBITDA
of $9.1 million.
Facility Services EBITDA Margin increased from 2.3% to 7.6%, as the impact of the management
cost reduction and efficiency initiatives implemented in both the prior period and the current period
flowed through the business. Refer to Section 2.1.4 for further detail.
Laundries EBITDA Margin increased from 20.3% to 27.2%, driven by improved plant and distribution
productivity, in addition to the impact of the program to address the cost base, detailed in
Section 2.1.4.
Corporate overhead costs were reduced as a result of the program to address the cost base,
with both Facility Services and Laundries EBITDA Margins benefiting from these initiatives.
The decrease in direct employee costs was partially offset by an increase in subcontractor costs,
driven by a change in labour type required to service contracts during the period.
Depreciation
Depreciation expense increased by $1.1 million, from $26.6 million to $27.7 million, an increase of
4.1%. This was primarily due to Capital Expenditure exceeding depreciation on fixtures, fittings and
equipment during the prior period, influencing depreciation expense for a full six months. Rental
stock depreciation remained relatively stable.
3.8.7 Pro forma historical consolidated statements of cash flows: H1FY2013 compared
to H1FY2014
Table 26 sets out the pro forma historical consolidated statements of cash flows for H1FY2013
and H1FY2014
Table 26 Selected pro forma historical consolidated statements of cash flows: H1FY2013 compared
to H1FY2014
Pro forma historical
December half
$ million Note H1FY2013 H1FY2014
PROSPECTUS 107
3. Financial Information continued
PROSPECTUS 109
3. Financial Information continued
3.9.4 Pro forma consolidated statements of profit or loss: FY2013 compared to FY2014
Table 27 sets out the pro forma historical consolidated statement of profit or loss for FY2013
compared to the pro forma forecast consolidated statement of profit or loss for FY2014.
Table 27 Selected pro forma consolidated statements of profit or loss items: FY2013 compared
to FY2014
Pro forma Pro forma
historical forecast
June year end
$ million Note FY2013 FY2014 Change Change %
Sales Revenue
Health, Education and Government 857.0 927.1 +70.1 8.2%
Commercial and Leisure 866.5 739.7 (126.8) (14.6%)
Base and Township 483.4 556.9 +73.5 15.2%
Facility Services 2,206.9 2,223.7 +16.8 0.8%
Laundries (Laundry and Linen) 261.8 254.9 (6.9) (2.6%)
Sales Revenue 2,468.7 2,478.6 +9.9 0.4%
Total revenue 1 2,585.9 2,560.6 (25.3) (1.0%)
EBITDA
Facility Services EBITDA 2 103.8 175.8 +72.0 69.4%
Laundries EBITDA 2 62.4 73.0 +10.6 17.0%
EBITDA 166.2 248.8 +82.6 49.7%
EBITA
Facility Services EBITA 2 88.7 158.1 +69.4 78.2%
Laundries EBITA 2 24.3 35.7 +11.4 46.9%
EBITA 113.0 193.8 +80.8 71.5%
Notes: Refer to Table 21 notes.
Sales Revenue
Sales Revenue is forecast to increase modestly from $2.47 billion to $2.48 billion, an increase of 0.4%.
Overall growth is driven by an increase in the Health, Education and Government and the Base and
Township customer sectors, offset by declines in the Commercial and Leisure and the Laundry and
Linen customer sectors:
• Health, Education and Government is forecast to increase by $70.1 million, from $857.0 million
to $927.1 million, an increase of 8.2%. Forecast growth is driven by Government and Health,
partially offset by a decline in Education. The majority of Government growth during FY2014 is
attributable to additional activity within existing contracts together with the part year effect of net
new business in the forecast period. Growth in Health is driven by higher activity levels within a
number of Health contracts, including one material contract, and mobilisation revenue for two
Health PPP contracts. The forecast decline in Education is primarily driven by the loss of a number
of tertiary and secondary education contracts, in a year during which an above average number
of contracts in the Education portfolio are due for renewal. These losses are expected to be partly
offset by higher revenue from PPP contracts;
EBITDA
EBITDA in FY2014 is forecast to increase by $82.6 million, from $166.2 million to $248.8 million.
As described in the specific assumptions, the forecast includes Spotless’ reviewed results for
H1FY2014 and the actual unaudited trading results for January and February 2014.
During the period, management continued to implement the cost and efficiency program. The
forecast FY2014 result includes the full year impact of initiatives implemented in FY2013, together
with a part year impact of initiatives implemented in FY2014, the majority of which have been
implemented as at 28 February 2014.
Net new business for the period from 28 February 2014 to 30 June 2014 includes the part year effect
on a probability weighted basis of a number of new Government opportunities which management
expects to commence during the period.
Facility Services EBITDA Margin is forecast to increase from 4.7% to 7.9%, reflecting benefits of the
program to address the cost base, together with stronger margins from PPP contracts.
Laundries EBITDA Margin is expected to increase from 23.8% to 28.6%, reflecting the benefits of the
cost-out program.
Depreciation
Depreciation expense is forecast to increase by $1.8 million, from $53.2 million to $55.0 million, an
increase of 3.4%. This is primarily due to higher forecast depreciation in the Facility Services and
corporate support areas, offset by a reduction in forecast depreciation of laundry rental stock.
PROSPECTUS 111
3. Financial Information continued
3.9.5 Pro forma consolidated statements of cash flows: FY2013 compared to FY2014
Table 28 sets out the summary pro forma historical consolidated statement of cash flows for FY2013
compared to the pro forma forecast consolidated statement of cash flows for FY2014.
Table 28 Selected pro forma consolidated statements of cash flows: FY2013 compared to FY2014
Pro forma Pro forma
historical forecast
June year end
$ million Note FY2013 FY2014
Capital Expenditure
Total Capital Expenditure is forecast to decrease by $17.4 million from $94.4 million to $77.0 million,
a decline of 18.4%, driven by:
• higher Capital Expenditure on fixtures, fittings and equipment, which is forecast to increase from
$30.2 million to $39.0 million. In FY2014, other general investment comprised $13.8 million of
Maintenance Capital Expenditure and $25.2 million of Growth Capital Expenditure. The Growth
Capital Expenditure is primarily in the Commercial and Leisure and the Base and Township
customer sectors to support new contracts and businesses;
• lower laundry rental stock investment, which is forecast to decrease from $30.0 million to
$27.2 million, is driven by procurement savings on laundry rental stock. In FY2014, laundry rental
stock is expected to comprise $25.0 million of Maintenance Capital Expenditure and $2.2 million
of Growth Capital Expenditure related to new contracts and customers; and
• significantly lower SAP IT Capital Expenditure, which is forecast to decline from $34.3 million
to $10.9 million, as the project nears completion.
Sales Revenue
Sales Revenue is forecast to increase by $215.8 million, from $2.48 billion to $2.69 billion, an increase
of 8.7%. This growth is expected to comprise:
• $106.1 million from existing business;
• a decline of $68.4 million from the full year effect of contract wins and losses in FY2014; and
• $178.2 million from net new business (in-year effect of contracts commencing and losses
terminating during FY2015).
The categories above are explained further in the Directors’ best estimate assumptions in this
Section 3.9.
Sales Revenue for Facility Services and Laundries is outlined below:
• Health, Education and Government is forecast to increase by $116.9 million, from $927.1 million
to $1,044.0 million, an increase of 12.6%. The forecast includes revenue from net new business
of $97.2 million.
Forecast growth is expected to come from both Health and Government, partially offset by a
decline in Education. Forecast growth in Health is driven by both new business and growth within
existing contracts. Forecast growth in Government is driven by new business and growth from
a small number of existing integrated services contracts. The decline in Education reflects the
full year impact of contracts lost during prior periods;
PROSPECTUS 113
3. Financial Information continued
• Commercial and Leisure is forecast to increase by $35.1 million, from $739.7 million to
$774.8 million, an increase of 4.7%. The forecast includes revenue from net new business
of $27.7 million.
Both the Business and Industry and Leisure, Sports and Entertainment sub-sectors are expected
to deliver growth. The negative full year effect of contracts lost in FY2014 is forecast to be offset by
growth in the existing portfolio. Leisure, Sports and Entertainment revenue is forecast to reflect the
full year impact of contracts lost in FY2014, partially offset by increased volumes in stadia and
venues and new business;
• Base and Township is forecast to increase by $28.1 million, from $556.9 million to $585.0 million,
an increase of 5.0%. The forecast includes revenue from net new business of $23.0 million.
Both Resources and Defence are expected to contribute to revenue growth. Resources growth
is driven primarily by expected new contract wins and increased volume in most major contracts,
partially offset by reduction in revenue in a large Queensland contract. Defence growth reflects
a change in the mix of contracts through the year; and
• Laundry and Linen revenue is forecast to increase by $35.7 million, from $254.9 million to
$290.6 million, an increase of 14.0%. The forecast includes revenue from net new business of
$30.3 million. Growth is primarily from new business, of which approximately 69% has either been
won or for which Spotless is in final negotiations. A number of existing contracts are expected to
have higher revenue, which will be mostly offset by the full year effect of a number of contracts
either lost during FY2014 or for which the contract scope has decreased.
EBITDA
EBITDA in FY2015 is forecast to increase by $52.6 million, from $248.8 million to $301.4 million.
This growth is expected to comprise:
• $7.9 million from existing business and support functions;
• a decline of $5.7 million due to the net effect of contract wins and losses from FY2014;
• $22.4 million from net new business (in-year effect of contracts commencing and losses
terminating during FY2015); and
• $28.0 million of benefit from specific initiatives.
The net effect of contract wins and losses from FY2014 includes known wins and losses prior
to 28 February 2014 and the full year effect of net new business assumed to be won between
28 February 2014 and 30 June 2014, as included in the FY2014 forecast. It includes event based
revenue and EBITDA for contracts such as the Cricket World Cup which are known to have been
won but for which there was no (or limited) impact in FY2014.
Net new business reflects the impact of the assumed revenue wins and losses described above.
The EBITDA impact is driven by the assumed margins on these contracts, which on average is
12.6%. The average margin reflects the assumed contract mix across the Facility Services and
Laundries segments. It is also impacted by certain existing material contracts which are due be
replaced by new contracting arrangements during the period. The margin on the new arrangements
is expected to be materially lower than the existing margins.
The specific initiatives comprise various cost saving and efficiency initiatives addressing overheads,
property, insurance and procurement, together with in-contract efficiency savings, and improved
profitability from self-delivering certain services that are currently serviced by subcontractors. Of the
$28.0 million included in the forecast period, $13.5 million is expected to be delivered from initiatives
that have been implemented, but for which the full year effect has not yet been delivered and
$14.5 million is from initiatives that are presently in implementation.
As a result of these changes, Facility Services EBITDA Margin is forecast to increase from 7.9%
to 9.1%. Laundries EBITDA Margin is expected to decrease from 28.6% to 28.3%.
Capital Expenditure
Total Capital Expenditure is forecast to increase by $43.3 million, from $77.0 million to $120.3 million,
an increase of 56.2%, driven by the net impact of the following key factors:
• lower Maintenance Capital Expenditure on fixtures, fittings and equipment across the Group,
which is forecast to decrease slightly from $13.8 million to $13.5 million;
• significantly higher Growth Capital Expenditure on fixtures, fittings and equipment, which is
forecast to increase from $25.2 million to $60.6 million. The increase is driven by a number of
growth initiatives to support new contract revenue, across both Facility Services and Laundries.
The increase in Facility Services Capital Expenditure is primarily driven by investment in new
equipment to support contracts in the Base and Township and the Commercial and Leisure
customer sectors;
• lower laundry rental stock Maintenance Capital Expenditure, which is forecast to decrease from
$25.0 million to $23.8 million;
• higher laundry rental stock Growth Capital Expenditure, which is forecast to increase from
$2.2 million to $9.3 million, with growth relating to forecast linen contract wins in both Australia
and New Zealand; and
PROSPECTUS 115
3. Financial Information continued
• higher Capital Expenditure on the SAP IT platform, with spending forecast to rise from
$10.9 million to $13.1 million. It is expected that the planned roll out of SAP will be materially
completed during FY2015.
Care should be taken in interpreting these sensitivities. The estimated impact of changes in each of
the variables has been calculated in isolation from changes in other variables, in order to illustrate the
likely impact on the forecast.
In practice, changes in variables may offset each other or be additive, and it is likely that Spotless
management would respond to any adverse change in one variable by seeking to minimise the net
effect on Spotless’ Adjusted NPAT.
PROSPECTUS 117
3. Financial Information continued
credit ratings from Standard & Poor’s of AA or better) 90. The credit risk on liquid funds and derivative
financial instruments is limited because the counterparties are banks with high credit ratings assigned
by international credit-rating agencies.
The carrying amount of financial assets recorded in the financial statements, net of any provisions for
losses, represents Spotless’ maximum exposure to credit risk without taking account of the value of
any collateral or other security obtained.
90 Based on identifiable contracts with greater than $1 million pro forma FY2013 Sales Revenue which represent 74.6% of pro forma FY2013
Sales Revenue.
PROSPECTUS 119
4. Key Risks
4.1 Introduction
Spotless is subject to various risk factors. Some of these are specific to its business activities.
Others are of a more general nature. Individually, or in combination, these risk factors may affect the
future operating and financial performance of Spotless, its investment returns and the value of an
investment in the Shares. Each of the risks set out below could, if they eventuate, have a material
adverse impact on Spotless’ business, financial condition and results of operations. Investors
should be aware that this Section 4 does not purport to list every risk that may be associated with an
investment in Spotless or the Shares, either now or in the future, and that many of the risks described
below are outside the control of Spotless and its Directors and management. This Section 4 should
be read in conjunction with other information disclosed in this Prospectus. There can be no guarantee
that Spotless will achieve its stated objectives or that any forward looking statements or forecasts
will eventuate.
Before applying for Shares, investors should satisfy themselves that they have a sufficient understanding
of the matters identified in this Section 4 and should consider whether Shares are a suitable investment
for them, having regard to their own investment objectives, financial circumstances and particular
needs (including financial and tax issues). If investors are unclear in their understanding of any matter
or are uncertain as to whether Spotless is a suitable investment for them, they should seek professional
guidance from their solicitor, stockbroker, accountant or other independent and qualified professional
adviser before deciding whether to invest.
PROSPECTUS 121
4. Key Risks continued
4.2.5 Claims for abatements, damages or indemnities may arise in connection with Spotless’
service delivery under customer contracts
Some of Spotless’ customer contracts impose detailed obligations on Spotless to perform services
at a defined standard. From time to time, Spotless may fail to perform its obligations under a contract,
or may disagree with its customers about whether the services have been performed in the manner
that the contract requires. In such cases, Spotless may be subject to claims for abatements, liquidated
damages or liability under indemnity provisions, or Spotless’ invoices may otherwise not be paid.
These types of liabilities, unlike other liabilities such as public injury liability or liability for third party
property damage, are not typically insurable and could have a negative impact on Spotless’
financial performance.
4.2.6 Spotless’ existing and target customers may choose to change from outsourcing
to in-sourcing of services
Spotless’ financial performance depends on its customers continuing to outsource facility services and
laundry and linen services. Spotless’ anticipated future growth depends in part on additional services
being outsourced in the future. A reduction in outsourcing may result from a variety of factors,
including changing economic conditions or industry trends, changes in the specific strategies of
Spotless’ customers or poor performance by outsourced service providers. A decline in outsourcing
in the industries in which Spotless’ customers operate, or an increase in customers taking services
back in-house (i.e. in-sourcing) may adversely affect Spotless’ future revenue and profitability and its
prospects for growth.
A significant portion of Spotless’ existing business consists of providing facility services and laundry
and linen services to diverse government departments and bodies at national, state and local levels
in Australia and New Zealand. Outsourcing decisions by government departments and bodies may
be driven by political and public policy considerations and preferences as well as the priorities and
agendas of political parties or other stakeholders. These are subject to change, including as a result
of changes in government. A decline in outsourcing by government departments and bodies may
adversely affect Spotless’ future revenue and profitability and its prospects for growth.
4.2.7 Spotless’ performance is linked to its ability to attract and retain key management
Spotless’ performance is dependent on the ability of its senior executives and other key personnel to
manage and grow its business and respond to customers’ needs. Continuity and retention of senior
executives and other key personnel are important for customer retention and ongoing customer
negotiations, and for the ongoing implementation of the business transformation and growth initiatives
commenced by the new senior management team appointed in August 2012. The loss of the services
of Spotless’ senior executives or other key personnel, or an inability to attract and retain qualified
and competent senior executives or other key personnel, could have a material adverse effect
on Spotless’ operating and financial performance.
PROSPECTUS 123
4. Key Risks continued
4.2.10 Disruption to Spotless’ external suppliers may lead to Spotless failing to meet
customer requirements
Spotless has supply relationships with manufacturers, distributors, logistics providers and
subcontractors, which it uses for the sourcing and delivery of food and other supplies, and the
provision of services. Suppliers may experience or cause disruptions that are beyond the control
of Spotless, for example as a result of financial distress, industrial action or the actions of regulators.
Sustained disruption to the services provided by a major supplier which results in disruption to the
supply chain could adversely impact Spotless’ financial condition and results.
Inadequate or inefficient management of subcontractors, including the use of subcontractors without
the required level of insurance, skills and accreditations, could also result in damage to Spotless’
reputation, or cause Spotless to be in breach of its customer contracts, which could adversely impact
Spotless’ operating and financial performance.
4.2.11 Rising input costs may lead to lower profitability
The profitability of Spotless’ contracts depends on its management of costs. This involves active
management of input volumes and per-unit prices, and maintaining the ability to pass increases
in costs through to customers in the form of price increases. A significant or sustained increase in
input costs to which Spotless is unable to respond adequately, or at all, either through cost reduction
measures or contract price increases, could have an adverse effect on the financial performance of
the business and the ability of the business to deliver its forecast financial results. Some, but not all,
customer contracts include price escalation provisions, but there is a risk that such provisions may
not allow Spotless to recoup all cost increases.
4.2.12 Spotless may be adversely impacted by a failure to comply with food safety standards
and alcohol licences
In each jurisdiction in which it operates, Spotless is required to comply with a variety of regulations
at various governmental levels including in relation to the handling, preparation and serving of food,
the cleanliness of food production facilities and the responsible service of alcohol.
In providing catering and food services, there is a risk that raw materials may deteriorate or products
may become contaminated within the supply chain due to various factors, including human error or
equipment failure. Such incidents or instances of non-compliance with food safety and alcohol laws
and regulations could damage Spotless’ brand and reputation, which may in turn make it difficult for
Spotless to win contracts with customers. Other potential adverse consequences for Spotless include
loss of the ability to sell alcohol at venues, other regulatory penalties, and liability associated with
adverse health effects on consumers, loss of stock, delay in supply and financial costs. In addition,
new or amended regulations may increase the cost of compliance, adversely impact Spotless’ ability
to comply, or expose Spotless to unforeseen costs and liabilities where, for example, such changes
to the regulatory framework result in higher or more complicated regulatory standards.
4.2.13 Incidences of non-compliance with environmental regulation may have consequences
for the business
Spotless is required to run its operations in compliance with legislation concerning the protection of
the environment, including relating to the use of natural resources (e.g. water), emissions and waste
water, and the generation, storage, handling, transportation, treatment and disposal of waste materials.
In particular, certain chemicals have contaminated soil and groundwater at some of Spotless’ laundry
sites due to historical use of those sites, which are subject to regulatory management. Spotless may,
in the future, be required to remediate the contamination caused by such events.
Costs may be incurred in connection with actual or alleged violations arising under any environmental
laws, including fines, damages and criminal or civil sanctions, or interruptions to operations.
PROSPECTUS 125
4. Key Risks continued
4.2.18 Spotless may not be able to secure future funding on acceptable terms
Spotless’ New Banking Facilities will require refinancing in the future and Spotless may seek
additional debt finance in the future to support growth. The terms which debt financiers are willing
to offer may depend on macroeconomic conditions, the tenor of the facilities, the performance
of Spotless and the risks associated with the intended use of the funds. Deterioration of Spotless’
financial condition, reduction in its credit standing or instability in local and global bank and capital
markets could increase Spotless’ cost of borrowing or eliminate its ability to raise additional debt or
replace existing debt as it matures. An inability for Spotless to secure debt funding on reasonable
terms or, to continue to comply with its financial covenants could constrain the future growth of its
business and could adversely impact Spotless’ operating and financial performance.
4.2.19 General economic conditions in Australia and New Zealand may worsen
Spotless’ business is predominantly based in Australia, with the balance of its business based in
New Zealand. The operating and financial performance of Spotless is influenced by the general
economic conditions in Australia and New Zealand, as well as general economic conditions globally.
A prolonged downturn in general economic conditions may impact the demand for Spotless’ services
or make it difficult to win or renew contracts at equivalent or higher prices. Economic conditions
in Australia and New Zealand may also encourage increased competition, either from domestic
competitors or from overseas competitors. These factors may in turn have a material adverse
impact on Spotless’ financial performance and growth prospects.
4.2.20 Spotless could be impacted by force majeure events
Events may occur within or outside Australia and New Zealand that could impact upon the Australian
and New Zealand economies, the operations of Spotless and the price of the Shares. The events
include but are not limited to acts of terrorism, an outbreak of international hostilities, fires, floods,
earthquakes, labour strikes, civil wars, natural disasters, outbreaks of disease or other natural or
man-made events or occurrences that can have an adverse effect on the demand for Spotless’
services and its ability to conduct business. Spotless has only a limited ability to insure against
some of these risks.
PROSPECTUS 127
4. Key Risks continued
PROSPECTUS 129
5. Key Individuals, Interests and Benefits
Mr Bruce Dixon Bruce was appointed as Chief Executive Officer (CEO) and
as a Director in August 2012.
Chief Executive Officer
and Executive Director Bruce served as Managing Director of Healthscope Limited,
Australia’s largest provider of integrated healthcare services, from
BA (Econ)
1997 to 2010, during which time he oversaw compound revenue
growth of 32% per annum and profit growth of 33% per annum
from 2000 to 2010. Before this, Bruce was a long serving senior
executive of Spotless, having held the positions of General
Manager of Spotless Healthcare, and General Manager of
Servicemaster of Australasia. Bruce has previously served as
non-executive director of Greencross Limited (Australia’s leading
veterinary business) and as a non-executive director of Ruralco
Holdings Limited (Australian agribusiness).
PROSPECTUS 131
5. Key Individuals, Interests and Benefits continued
The Hon. Nick Sherry Nick was appointed as a Non-Executive Director in March 2014.
Independent Nick is chairman of FNZ (Australia) Pty Limited and is also a
Non-Executive Director Senior Advisor Superannuation and Pensions to Citi and advises
in a range of countries on all aspects of the reform of Pension
BA (Tas)
Systems including working with the OECD and World Economic
Forum. He is a member of the UNSW Risk – Actuarial Studies
Advisory Board and the Business Advisory Panel of Insurance
Ireland’s Public Policy Council.
Nick also served as a Senator for Tasmania from 1990 to 2012.
He served as Minister for Superannuation and Corporate Law from
2007 to 2009, Assistant Treasurer in 2009 and 2010 and Small
Business Minister in 2010 and 2011.
Vita Pepe Vita Pepe joined Spotless and was appointed to her current role
as Chief Operating Officer (COO) in August 2012.
Chief Operating Officer
Prior to joining Spotless, Vita served as group chief operating officer
MHA
at Healthscope Limited from 1998 to 2010. In this role, as COO, Vita
was responsible for all operations within the Healthscope business.
Prior to this, Vita held a number of senior chief executive officer
positions in the public health sector.
Paul Waterson Paul joined Spotless in August 2012 and in February 2014 was
appointed to his current position as a Group General Manager
Group General Manager
responsible for the Government, Laundries, Defence and
MBA Resources sub-sectors.
Prior to joining Spotless, Paul was chief operating officer of
Pathology and Medical Centres at Healthscope Limited where
he was responsible for integrating many acquired hospitals
and pathology laboratories with a focus on cost synergies
and business growth.
Dana Nelson Dana joined Spotless in 2010 to lead the development of the
Alliance Catering business and in February 2014 was appointed to
Group General Manager
her current position as a Group General Manager responsible for
BSc (Orthoptics) Masters of Commercial and Leisure, Business and Industry, Education and
Enterprise (Management & New Zealand Business and Industry customer sub-sectors.
Leadership) (Melbourne
Prior to joining Spotless, Dana was managing director of Delaware
Business School)
North (Australia / NZ).
PROSPECTUS 133
5. Key Individuals, Interests and Benefits continued
Sue Williams Sue joined Spotless in January 2013 as a Group General Manager
responsible for the Health and Aged Care customer sub-sectors.
Group General Manager
Prior to joining Spotless, Sue served in roles including chief
RN, BBus, MBA
operating officer of hospitals at Healthscope Limited, a partner at
KPMG and chief nurse of the North-Western Healthcare Network.
Sue has over 25 years of experience in the health industry at a
senior management level in both the public and private sectors.
Paul Morris Paul joined Spotless in August 2000 and has led the Group Legal
division since July 2008. In September 2012, Paul was appointed
General Counsel and
General Counsel and Company Secretary.
Company Secretary
Prior to joining Spotless, Paul was a senior associate at Minter
BEc (Hons), LLB
Ellison, practising in corporate law and mergers and acquisitions.
John Douglas John joined Spotless in August 2012 to manage the human
resources function for Spotless.
General Manager
Human Resources Prior to joining Spotless, John established and managed the
human resources function for Healthscope Limited. He has worked
BA, LLB
as a barrister and solicitor and held other senior human resources
management roles in various industries.
Chris Hewison Chris joined Spotless in 2008 and in July 2011 was appointed
to his current position as General Manager, Group Procurement
General Manager, Group
& Property. Prior to this role, Chris held several positions within
Procurement and Property
Spotless, serving as General Manager Service Delivery and
BBus (Property), Grad Dip General Manager Corporate Services.
Bus Mgt, MBA
Prior to joining Spotless, Chris held several senior client interfacing
roles at DTZ (a UGL company) and Knight Frank.
Peter Lotz Peter joined Spotless in June 2012 and was appointed to his
current role as Chief Information Officer in December 2012.
Chief Information Officer
Prior to joining Spotless, Peter spent six years as a senior
BSc (Eng), MBA
partner at CharterMason where he was responsible for large,
enterprise system projects for multiple clients in Victoria.
Prior to that role, Peter held a number of senior roles at IBM,
PricewaterhouseCoopers (PwC) Consulting, COMPAREX and
Hewlett Packard.
PROSPECTUS 135
5. Key Individuals, Interests and Benefits continued
Simon Lipscombe Simon joined Spotless in March 2008 to lead the Healthcare
Services business in New Zealand and was appointed in May 2013
General Manager
to the role of General Manager New Zealand, a role that also
New Zealand
incorporates being General Manager of the Business and Industry
BA and Education customer sub-sectors.
Prior to joining Spotless, Simon held several senior positions at
Restaurant Brands including operations executive KFC, general
manager Pizza, and head of Human Resources for the group.
PROSPECTUS 137
5. Key Individuals, Interests and Benefits continued
Annual Directors’ fees to be paid by the Company are $320,000 to the Chairman, Margaret Jackson
AC, and $160,000 to each of Diane Grady AM, Garry Hounsell, Geoff Hutchinson, Rob Koczkar and
The Hon. Nick Sherry. In addition, the chairman of the Audit and Risk Management Committee will
be paid $40,000 annually and the chairman of the People and Remuneration Committee will be
paid $35,000 annually for their services provided to those committees.
All Directors’ fees include superannuation.
PROSPECTUS 139
5. Key Individuals, Interests and Benefits continued
In addition, Bruce Dixon will receive $1,100,000 worth of Options under the LTI Plan on or around
Completion of the Offer as described in Sections 5.3.2 and 5.3.3. The actual number of Options that
Bruce Dixon will receive will be determined in accordance with the method described in
Section 5.3.3.
Rob Koczkar and Geoff Hutchinson will also have an indirect interest in Shares through investment
vehicles that hold interests in vehicles that are among the PEP Shareholders.
Final Directors’ security holdings will be notified to the ASX on Listing. Directors may hold their
interests in securities shown above directly, or indirectly through holdings by companies or trusts.
See Section 6.7 for details of the Shares that will be subject to escrow arrangements.
93 This assumes the Final Price is set at the midpoint of the Indicative Price Range.
CEO 90%
94
Other Senior Management 75%
Other selected employees will also be eligible to participate in the STI Plan, and the Maximum STI
for these employees will be as determined by the Board.
Under the STI Plan, from FY2015, it is intended that 30% of any incentive awarded to Senior
Management and other selected senior executives if determined by the Board will be deferred for
a period of 12 months. In the case of certain senior executives (including Senior Management), it is
intended that such deferred component would be in the form of restricted Shares, subject to obtaining
Shareholder approval (if required) and the award of Shares to the relevant participant being permitted
under applicable law. Otherwise, the deferred component would be in the form of cash. Vesting of the
deferred component is conditional on the participant remaining employed by the Spotless Group at
the time of vesting, except in certain circumstances where employment is terminated without cause,
in which case the deferred component will vest immediately. The remaining incentive award will be
paid in cash.
PROSPECTUS 141
5. Key Individuals, Interests and Benefits continued
Offers Under the rules of the LTI Plan, Shares, Options and / or Rights
(Awards) may be offered to Eligible LTI Employees from time to time.
The number of Awards the subject of an offer under the LTI Plan will
be determined by the Plan Committee.
Loan funded Shares Subject to applicable law, the Plan Committee may determine that a
loan may be made by the Company to a participant for the purpose
of acquiring or subscribing for Shares the subject of an offer under the
LTI Plan.
Terms and conditions The Plan Committee has the absolute discretion to determine the terms
and conditions applicable to an offer under the LTI Plan, including:
– any conditions required to be satisfied before an Award will
be granted;
– any conditions restricting dealing in, or which might result in the
forfeiture of, Shares the subject of an offer (Share Vesting Conditions);
– any performance, vesting or other conditions required to be satisfied
before Options or Rights vest and may be exercised (Option Vesting
Conditions or Right Vesting Conditions (as applicable));
– any period during which Shares will be subject to any Share Vesting
Conditions or during which Option Vesting Conditions or Right
Vesting Conditions must be satisfied before Options or Rights vest
(Vesting Period);
– the exercise period during which Options or Rights may be exercised,
subject to the terms of the LTI Plan and the offer (Exercise Period);
– any applicable issue price and / or exercise price;
– the terms and conditions of any loan that Spotless will make to the
participant for the purpose of acquiring or subscribing for Shares
the subject of an offer;
Ranking of Shares Shares issued (including Shares issued upon exercise of Options
or Rights) under the LTI Plan will rank equally in all respects with
existing Shares.
Restrictions on Shares Subject to the ASX Listing Rules, Spotless must refuse to transfer,
and must apply a holding lock to prevent a transfer of, any Shares to
which Share Vesting Conditions or other disposal restrictions attach.
The Plan Committee may take any other steps that it considers
necessary or appropriate to enforce any disposal restrictions.
If restricted by applicable law, a participant may not enter into any
arrangement for the purpose of hedging, or otherwise affecting their
economic exposure to any Shares to which Share Vesting Conditions
or other disposal restrictions attach.
Vesting of Shares If Shares are offered subject to Share Vesting Conditions, Spotless
must give the participant a vesting notice upon such Share Vesting
Conditions having been satisfied or waived by the Plan Committee.
Upon all Share Vesting Conditions attaching to Shares having been
satisfied or waived (as determined by the Plan Committee), the Shares
will cease to be subject to such Share Vesting Conditions and the Plan
Committee must lift the holding lock applicable to such Shares.
Forfeiture of Shares Shares which are subject to Share Vesting Conditions (Unvested
Shares) may be forfeited:
– if the Plan Committee determines that any Share Vesting Condition
applicable to the Unvested Shares has not been satisfied in
accordance with its terms or is not capable of being satisfied;
– in certain circumstances if the participant’s employment is terminated
(see Cessation of employment below);
– in the event of a change of control (see Change of control below);
– in other circumstances specified in the LTI Plan rules (e.g. where the
Plan Committee determines that the participant has committed an act
of fraud or gross misconduct in relation to the affairs of Spotless); or
– if the participant purports to deal in the Unvested Shares in breach
of Share Vesting Conditions or enter into any hedging arrangement
in respect of the Unvested Shares in breach of any hedging
restrictions.
PROSPECTUS 143
5. Key Individuals, Interests and Benefits continued
Rights attaching to Unless otherwise specified in the particular offer, a participant may:
Unvested Shares
– exercise all voting rights attaching to the Shares held by the
participant pursuant to the offer; and
– participate in any bonus issue on the same terms as other
Shareholders (provided that, if the Shares held by the participant are
subject to any Share Vesting Conditions, any Shares issued under the
bonus issue will be subject to the same Share Vesting Conditions).
The Plan Committee may determine, at the time of the offer of Shares
to a participant, whether the participant is entitled to all dividends
declared or paid on Shares which are subject to Share Vesting
Conditions (including whether any such dividends are to be held
in escrow until the Shares are fully vested).
Capital In the event of a capital reconstruction, subject to the ASX Listing Rules,
reconstructions the Plan Committee may adjust the number of Shares issued pursuant
to an offer under the LTI Plan as the Plan Committee deems
appropriate.
Options Each Option confers on its holder the entitlement to acquire one Share
(by way of issue or transfer) at the exercise price (if any) upon the
exercise of the Option.
Rights Each Right confers on its holder the entitlement to receive one Share
(by way of issue or transfer) at the exercise price (if any) upon the
exercise of the Right.
Rights attaching to A participant has no right or interest in a Share the subject of an Option
Options and Rights or Right held by the participant until the Share is issued or transferred
to that participant pursuant to the exercise of the Option or Right.
Options and Rights do not carry any rights to dividends, rights to
vote or rights to capital.
Lapse of Options Unless otherwise specified in the Option Vesting Conditions or Right
and Rights Vesting Conditions (as applicable) or otherwise determined by the Plan
Committee, an Option or Right will lapse on the earliest of:
– if the Plan Committee determines that any Option Vesting Condition
or Share Vesting Condition (as applicable) applicable to the Option
or Right has not been satisfied in accordance with its terms or is
not capable of being satisfied;
– the expiry of the exercise period;
– in certain circumstances if the participant’s employment is
terminated (see Cessation of employment below);
– in the event of a change of control (see Change of control below);
– in other circumstances specified in the LTI Plan rules (e.g. where the
Plan Committee determines that the participant has committed an act
of fraud or gross misconduct in relation to the affairs of Spotless); or
– if the participant purports to deal in the Option or Right in breach of
any disposal or hedging restrictions in respect of the Option or Right
in breach of any hedging restrictions.
PROSPECTUS 145
5. Key Individuals, Interests and Benefits continued
Restrictions on Except as permitted by the Plan Committee, Options and Rights must
Options and Rights not be sold, transferred, encumbered or otherwise dealt with.
The Plan Committee may permit the transfer of Options or Rights if
the transfer occurs as part of a takeover or in other circumstances
determined by the Plan Committee.
If restricted by applicable law, a participant may not enter into any
arrangement for the purpose of hedging, or otherwise affecting their
economic exposure to any Options or Rights.
Waiver of The Plan Committee has the discretion to reduce or waive Share
vesting conditions Vesting Conditions, Option Vesting Conditions or Right Vesting
Conditions (as applicable) attaching to Awards in whole or in part
at any time.
Bonus issues, pro-rata The LTI Plan provides for adjustments to be made to the number of
issues and capital Shares which a participant would be entitled to receive on the exercise
reorganisations of Options or Rights or the exercise price (if any) of the Options or
Rights in the event of a bonus issue or pro-rata issue to existing
holders of Shares (other than an issue in lieu or in satisfaction of
dividends or by way of dividend reinvestment) or a reorganisation
of capital.
Cessation of The LTI Plan contains certain provisions concerning the treatment of
employment vested and unvested Shares, Options and / or Rights in the event that
a participant ceases employment.
Change of control In the event of a change of control, unvested Shares, Options and / or
Rights will vest on a pro-rata basis based on the proportion of the
applicable Vesting Period that has elapsed at the date of the change
of control. The Plan Committee has the discretion as to how to treat
the remaining unvested Shares, Options and / or Rights which may
include the remaining unvested Shares, Options and / or Rights being
forfeited or lapsing (as applicable) or vesting being accelerated.
Trustee Spotless may appoint a trustee to acquire and hold Shares, Options
or Rights (including unvested Shares, Options or Rights) on behalf of
participants, for transfer to future participants or otherwise for the
purposes of the LTI Plan.
Plan limit and No Awards may be issued to, or exercised by, a participant if to do so
compliance with laws would contravene the Corporations Act, the ASX Listing Rules or any
relief or waiver granted by ASIC or the ASX that binds Spotless in
making any offer under the LTI Plan or otherwise in connection with
the operation of the LTI Plan.
No Awards may be offered under the LTI Plan if to do so would breach
the 5% capital limit on the issue of shares set out in ASIC Class Order
03/184 in relation to employee share schemes.
Amendments Subject to the ASX Listing Rules, the Plan Committee or the Board may,
in its absolute discretion amend the LTI Plan rules, or waive or modify the
application of the LTI Plan rules in relation to a participant, provided that
(except in specified circumstances) if such amendment would adversely
affect the rights of participants in respect of any Awards then held by
them, the Plan Committee or the Board must obtain the consent of
participants who hold not less than 75% of the total number of those
Awards held by all those participants before making the amendment.
PROSPECTUS 147
5. Key Individuals, Interests and Benefits continued
Consideration Nil
for grant
Vesting Period The period commencing on the date of grant and ending on:
– 30 June 2016, in respect of 25% of Tranche 1 Options; and
– 30 June 2017, in respect of 75% of Tranche 2 Options.
Exercise Period In respect of Tranche 1 Options: from the date of the relevant vesting
notice until 30 June 2017; and
In respect of Tranche 2 Options: from the date of the relevant vesting
notice until 30 June 2018.
Bruce Dixon will be granted up to $1,100,000 worth of Options under the LTI Plan on the above terms
on or around Completion of the Offer. The actual number of Options that Bruce Dixon will receive will
be determined in accordance with the method described above.
Other members of Senior Management and certain other senior executives identified by the Board will
also receive grants of Options under the LTI Plan on the above terms. A total value of $575,000 worth
of Options will be granted to Senior Management (excluding Bruce Dixon) under the LTI Plan on or
around Completion of the Offer. The actual number of Options that Senior Management (excluding
Bruce Dixon) will receive will be determined in accordance with the method described above. In
addition, Options may be granted to other Eligible LTI Employees as determined by the Board.
Future grants
It is intended that future grants under the LTI Plan will be made annually and that these will vest
3 years from grant, subject to the satisfaction of any Share Vesting Conditions, Option Vesting
Conditions or Right Vesting Conditions (as applicable) set by the Plan Committee. However,
there is no obligation on Spotless to make any further grants under the LTI Plan.
PROSPECTUS 149
5. Key Individuals, Interests and Benefits continued
95 This assumes that the Final Price is set at the midpoint of the Indicative Price Range. This disregards any over-allocation and any exercise
of the Over-allocation Option. See Section 6.6 for further information.
PROSPECTUS 151
5. Key Individuals, Interests and Benefits continued
and Compliance Committee’s risk management process is to assist the Board in relation to risk
management policies, procedures and systems and ensure that risks are identified, assessed
and appropriately managed.
It is the policy of the Company that its external auditor must be an independent external auditor.
The Charter of the Audit, Business Risk and Compliance Committee provides that the committee
should comprise at least three Directors all of whom are Non-Executive Directors and a majority of
whom are independent of management. A member of the Audit, Business and Risk and Compliance
Committee, who is an independent Director and who does not chair the Board, shall be appointed
the chair of the committee.
The Audit, Business Risk and Compliance Committee will meet as often as is required by the Audit,
Business and Risk and Compliance Committee Charter. The chair of the Audit, Business Risk and
Compliance Committee will routinely invite other Directors, members and representatives
of the external auditor to be present at meetings of the committee and seek advice from external
advisors. The Audit, Business Risk and Compliance Committee will regularly report to the
Board about committee activities, issues and related recommendations.
The committee comprises Garry Hounsell (chair), Margaret Jackson, The Hon. Nick Sherry and
Geoff Hutchinson.
Nomination Committee
The Nomination Committee is responsible for reviewing and making recommendations in relation
to the composition and performance of the Board and its committees and ensuring that adequate
succession plans are in place (including for the recruitment and appointment of Directors and senior
management). Independent advice will be sought where appropriate.
The Nomination Committee will meet as often as required and its recommendations from time to
time will be reported to the Board. The committee will be chaired by Margaret Jackson and will also
comprise other directors selected by the Board from time to time.
5.4.5 Risk Management Policy
The identification and proper management of the Company’s risks are an important priority of the
Board. The Company has adopted a risk management policy appropriate for its business (which
is reflected in the Audit, Business Risk and Compliance Committee Charter). This policy highlights
the risks relevant to the Company’s operations and the Company’s commitment to designing and
implementing systems and methods appropriate to minimise and control its risks.
The Board is responsible for overseeing and approving risk management strategy and policies.
The Board has delegated to the Audit, Business Risk and Compliance Committee responsibility
for identifying major risk areas and monitoring risk management to provide assurance that major
business risks are identified, consistently assessed and appropriately addressed.
PROSPECTUS 153
5. Key Individuals, Interests and Benefits continued
• the period commencing two weeks prior to the Company’s annual general meeting and ending
24 hours after the annual general meeting; or
• any other period that the Board designates as a “closed period” for the purposes of this policy,
such as a period during which the Company is involved in corporate transactions that may have
a material impact on the price of the Company’s listed securities.
In all instances, buying or selling Shares is not permitted at any time by any person who possesses
price-sensitive information in a manner contrary to the Corporations Act.
5.4.9 Code of Conduct
The Board recognises the need to observe the highest standards of corporate practice and
business conduct. Accordingly, the Board has adopted a Code of Conduct, which sets out the way
the Company conducts business. The Company will carry on business honestly and fairly, acting
only in ways that reflect well on the Company in strict compliance with all laws and regulations.
The policy document outlines Company employees’ obligations of compliance with the Code of
Conduct, and explains how the Code of Conduct interacts with the Company’s other corporate
governance policies.
Responsibilities include protection of the Company’s business, using the Company’s resources
in an appropriate manner, protecting confidential information and avoiding conflicts of interest.
5.4.10 Relationship with Pacific Equity Partners
The PEP Shareholders, together with the Coinvestment Shareholders, will retain a 45.5% interest
in Spotless on Completion of the Offer.96
The PEP Shareholders continue to be supportive of Spotless and its growth potential and their
current intention is to remain a strategic Shareholder of Spotless. The PEP Shareholders and
Coinvestment Shareholders have entered into voluntary escrow arrangements. Any decision by the
PEP Shareholders or Coinvestment Shareholders to sell down their interest in Spotless following the
expiry of the voluntary escrow arrangements will be a decision made having regard to a range of
factors. These include the market environment at the time and the interests of the investors in the
PEP Shareholders and Coinvestment Shareholders. See Section 6.7 for a summary of the terms
of the voluntary escrow arrangements.
The Independent Directors have approved the Company entering into a Relationship Deed with
representatives of the PEP Shareholders that governs their relationship while the PEP Shareholders and
Coinvestment Shareholders (other than Lentesco) retain an interest in Spotless. Section 9.5.3 provides
a summary of the terms of the Relationship Deed. The key provisions of the Relationship Deed:
• require that the parties agree procedures for the management of conflicts of interest and
appropriate use of confidential information;
• provide for representatives of the PEP Shareholders to have the right to nominate two Directors
to the Board while the PEP Shareholders and Coinvestment Shareholders (other than Lentesco)
hold at least 25%, or one Director to the Board while the PEP Shareholders and Coinvestment
Shareholders (other than Lentesco) hold at least 10%, of the issued share capital of Spotless; and
• require Spotless to provide market disclosure (subject to certain conditions) to facilitate the
PEP Shareholders and Coinvestment Shareholders (other than Lentesco) selling their Shares.
The PEP Shareholders and Coinvestment Shareholders have also entered into confidentiality
arrangements with Spotless which govern access to Spotless’ information.
Risks associated with the PEP Shareholders’ and Coinvestment Shareholders’ continued interest
in Spotless are set out in Section 4.3.3.
96 This assumes that the Final Price is set at the midpoint of the Indicative Price Range. This disregards any over-allocation and any exercise
of the Over-allocation Option. See Section 6.6 for further information.
PROSPECTUS 155
6. Details of the Offer
Note: Any discrepancies between totals and sums of components in this table are due to rounding.
Note: Any discrepancies between totals and sums of components in this table are due to rounding.
Management Shareholders will sell down up to 8.3% of all Shares they would otherwise hold on
Completion of the Offer.98 Shares held by the PEP Shareholders, the Coinvestment Shareholders
and the Management Shareholders post IPO will be subject to restrictions contained in voluntary
escrow arrangements described in Section 6.7.
100 This assumes that the Final Price is set at the midpoint of the Indicative Price Range. This disregards any over-allocation and any exercise
of the Over-allocation Option (see Section 6.6 for further information).
101 Existing liabilities include Existing Banking Facilities, break fees and financing fees. Also included is $7.6 million in fees (excluding GST)
payable to PEP Advisory and the Coinvestment Shareholders in respect of prior periods under an advisory services agreement that
terminates on Completion of the Offer.
102 Other fees associated with the Offer include, assuming the Final Price is set at the midpoint of the Indicative Price Range, $24.6 million in
fees (excluding GST) payable to PEP Advisory under an advisory services agreement for services provided in connection with the Offer.
The advisory services agreement terminates on Completion of the Offer.
103 This includes bonus Shares issued to Directors in connection with the Offer (see Section 5.3.2) and any additional Shares acquired
by Directors under the Offer.
PROSPECTUS 157
6. Details of the Offer continued
PROSPECTUS 159
6. Details of the Offer continued
Topic Summary
When are the securities It is the responsibility of each Applicant to confirm their
expected to commence trading? holding before trading in Shares. Applicants who sell
continued Shares before they receive an initial statement of holding
do so at their own risk. Spotless, the JLMs, the Financial
Adviser and the Existing Shareholders disclaim all liability,
whether in negligence or otherwise, to persons who sell
Shares before receiving their initial statement of holding,
whether on the basis of a confirmation of allocation
provided by any of them, by the Spotless Offer
Information Line, by a Broker or otherwise.
Is the Offer underwritten? No. The Offer is not underwritten.
Are there any escrow Yes. Details are provided in Section 6.7.
arrangements?
Are there any taxation Refer to Section 9.10.
considerations?
Is there any brokerage, No brokerage, commission or stamp duty is payable by
commission or stamp Applicants on acquisition of Shares under the Offer. See
duty considerations? Section 9.5 for details of various fees payable by Spotless
to the JLMs and by the JLMs to certain Brokers.
What should you do with Please call the Spotless Offer Information Line on
any enquiries? 1800 660 083 (toll free within Australia) or +61 1800 660 083
(outside Australia) from 8.30am until 5.30pm (Sydney time)
Monday to Friday.
If you are unclear in relation to any matter or are uncertain
as to whether Spotless is a suitable investment for you, you
should seek professional guidance from your solicitor,
stockbroker, accountant or other independent and qualified
professional adviser before deciding whether to invest.
PROSPECTUS 161
6. Details of the Offer continued
PROSPECTUS 163
6. Details of the Offer continued
Applications under the Priority Offer for an amount less than the amount indicated on your
personalised invitation must be for a minimum of $1,000 worth of Shares and in multiples of
$500 worth of Shares thereafter.
Priority Offer Applicants are guaranteed an allocation of Shares in the amount specified on their
personalised invitation or such a lesser amount validly applied for (rounded down to the nearest
whole Share).
Spotless otherwise has absolute discretion regarding the allocation of Shares to Applicants in the
Priority Offer and may reject an Application, or allocate fewer Shares than the amount applied for,
in its absolute discretion.
Payment may be made via BPAY® only. Application Monies must be received by the Share Registry
by 5.00pm (Sydney time) on 19 May 2014.
To make a payment via BPAY®, you will need to apply online at www.spotless.com/offer and must
comply with the instructions on the website. It is your responsibility to ensure that your BPAY®
payment is received by the Share Registry by no later than 5.00pm (Sydney time) on 19 May 2014.
You should be aware that your financial institution may implement earlier cut-off times with regards to
electronic payment, and you should therefore take this into consideration when making payment.
104 This assumes that the Final Price is at the top and bottom of the Indicative Price Range respectively.
PROSPECTUS 165
6. Details of the Offer continued
Securities to be released
from escrow Escrow release conditions
25% of Shares held at Completion of •Financial results for FY2014 released; and
Offer (including any shares returned
•Volume-weighted average price in any 20 consecutive
following stabilisation process)
trading days following release of those financial
results exceeds the Final Price by more than 20%
25% of Shares held at Completion of •Financial results for H1FY2015 released; and
Offer (including any shares returned
•Volume-weighted average price in any 20 consecutive
following stabilisation process)
trading days following release of those financial
results exceeds the Final Price by more than 20%
After the release of the FY2015 financial results, all remaining Shares held by the PEP Shareholders
and Coinvestment Shareholders will cease to be subject to escrow restrictions.
The Shares the subject of these voluntary escrow arrangements will include Shares which are
returned to the PEP Shareholders and Coinvestment Shareholders pursuant to the Over-allocation
Option arrangements described in section 6.6 above.
In addition to the common exceptions to escrow described below, the PEP Shareholders and
Coinvestment Shareholders may encumber any or all of their Shares to a bona fide third party
financial institution as security for a loan, hedge or other financial accommodation, provided that the
encumbrance does not in any way constitute a direct or indirect disposal of the economic interests,
or decrease an economic interest, that the relevant Escrowed Shareholder has in any of its escrowed
Shares and no escrowed Shares may be transferred to the financial institution in connection with the
encumbrance (with the documentation for such encumbrance making it clear that the escrowed
Shares remain in escrow and subject to the voluntary escrow arrangements for the term of those
arrangements).
Management Shareholders
All Shares retained by Management Shareholders following Completion of the Offer will also be
subject to voluntary escrow arrangements. Under the terms of those escrow arrangements, subject
to certain customary exceptions and exceptions for certain individual executives as set out below,
Shares may only be sold on the following basis:
In addition, the Board has the discretion to release Management Shareholders’ Shares from
voluntary escrow in circumstances where the relevant manager dies, or becomes seriously or
permanently incapacitated.
Shares held by two Management Shareholders, Vita Pepe and Geoffrey Barnsley, will be subject to
voluntary escrow arrangements on the same basis as other Management Shareholders, except that
100% of their Shares will cease to be subject to escrow restrictions after the announcement of FY15
financial results if those results demonstrate that the Company has met or exceeded the forecast
revenue, NPAT and EBITDA for that period set out in this Prospectus.
PROSPECTUS 167
6. Details of the Offer continued
• it understands that the Offer and sale of the Shares have not been, and will not be, registered
under the U.S. Securities Act or the securities laws of any state or other jurisdiction of the United
States and may not be offered, sold or resold in the United States except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and
applicable U.S. state securities laws;
• it is not in the United States;
• it has not and will not send the Prospectus or any other material relating to the Offer to any person
in the United States; and
• it will not offer or sell the Shares in the United States or in any other jurisdiction outside Australia
or New Zealand except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the U.S. Securities Act and in compliance with all applicable laws
in the jurisdiction in which Shares are offered and sold.
Each person who bids for Shares in the Institutional Offer will be required to make certain
representations, warranties and covenants set out in the confirmation of allocation letter
distributed to it.
6.10 ASX listing, registers and holding statements, and conditional and deferred
settlement trading
6.10.1 Application to the ASX for Listing
Spotless will apply to ASX within seven days of the Prospectus Date for admission of the Company
to the official list of the ASX and quotation of the Shares on the ASX. Spotless’ ASX code is expected
to be SPO.
The ASX takes no responsibility for this Prospectus or the investment to which it relates. The fact
that the ASX may admit Spotless to the official list is not to be taken as an indication of the merits
of Spotless or the Shares offered for subscription.
If Spotless has not been admitted to the official list within three months after such application is
made (or any longer period permitted by law), the Offer will be withdrawn and all Application Monies
received will be refunded without interest as soon as practicable in accordance with the requirements
of the Corporations Act.
Spotless will be required to comply with the ASX Listing Rules, subject to any waivers obtained
by Spotless from time to time.
6.10.2 CHESS and issuer sponsored holdings
Spotless will apply to participate in the ASX’s Clearing House Electronic Subregister System (CHESS)
and will comply with the ASX Listing Rules and the ASX Settlement Operating Rules. CHESS is an
electronic transfer and settlement system for transactions in securities quoted on the ASX under
which transfers are effected in an electronic form.
When the Shares become approved financial products (as defined in the ASX Settlement Operating
Rules), holdings will be registered in one of two subregisters, being an electronic CHESS subregister
or an issuer sponsored subregister.
PROSPECTUS 169
6. Details of the Offer continued
Meetings of members
Each Shareholder is entitled to receive notice of, and to attend and vote at, general meetings
of Spotless and to receive all notices, accounts and other documents required to be sent to
Shareholders under the Constitution, the Corporations Act and the ASX Listing Rules.
Dividends
The Board may from time to time resolve to pay dividends to shareholders and fix the amount of
the dividend, the time for determining entitlements to the dividend and the timing and method of
payment. For further information in respect of Spotless’ proposed dividend policy, see Section 3.13.
Transfer of Shares
Subject to the Constitution, Shares may be transferred by a proper transfer effected in accordance
with the ASX Settlement Operating Rules, by a written instrument of transfer which complies with the
Constitution or by any other method permitted by the Corporations Act, the ASX Listing Rules or the
ASX Settlement Operating Rules.
The Board may refuse to register a transfer of Shares where permitted to do so under the
Corporations Act, the ASX Listing Rules or the ASX Settlement Operating Rules. The Board must
refuse to register a transfer of Shares when required by the Corporations Act, the ASX Listing Rules
or the ASX Settlement Operating Rules.
Issue of further shares
Subject to the Corporations Act, the ASX Listing Rules and the ASX Settlement Operating Rules and
any rights and restrictions attached to a class of shares, Spotless may issue, or grant options in
respect of further shares on such terms and conditions as the Directors resolve.
Winding up
If Spotless is wound up, then subject to any rights or restrictions attached to a class of shares, any
surplus must be divided among Spotless’ members in the proportions which the amount paid and
payable (including amounts credited) on the shares of a member is of the total amount paid and
payable (including amounts credited) on the shares of all members of Spotless.
Unmarketable parcels
Subject to the Corporations Act, the ASX Listing Rules and the ASX Settlement Operating Rules,
Spotless may sell the Shares of a Shareholder who holds less than a marketable parcel of Shares.
Share buy-backs
Subject to the Corporations Act, the ASX Listing Rules and the ASX Settlement Operating Rules,
Spotless may buy back shares in itself on terms and at times determined by the Board if the financial
position of the Company justifies it.
Proportional takeover provisions
The Constitution contains provisions for shareholder approval to be required in relation to any
proportional takeover bid.
These provisions will cease to apply unless renewed by special resolution of the Shareholders in
general meeting by the third anniversary of the date of the Constitution’s adoption.
Variation of class rights
At present, Spotless’ only class of shares on issue is ordinary shares. Subject to the Corporations Act
and the terms of issue of a class of shares, the rights attaching to any class of shares may be varied
or cancelled:
• with the consent in writing of the holders of three-quarters of the issued shares included in that
class; or
• by a special resolution passed at a separate meeting of the holders of those shares.
PROSPECTUS 171
Section 7
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
28 April 2014 Sydney NSW 1220 Australia
The Directors
Spotless SaleCo Pty Limited
549 St Kilda Road
MELBOURNE VIC 3004
Dear Directors
Introduction
This report has been prepared at the request of the Directors of Spotless Group Holdings Limited
(the “Company”) for inclusion in the prospectus (“Prospectus”) to be issued by the Company and
Spotless SaleCo Pty Limited (“SaleCo”) in respect of the initial public offering of fully paid
ordinary shares in the Company (the “Offer”) and listing of the Company on the Australian
Securities Exchange.
Deloitte Corporate Finance Pty Limited is wholly owned by Deloitte Touche Tohmatsu and holds
the appropriate Australian Financial Services licence under the Corporations Act 2001 for the issue
of this report.
References to the Company and other terminology used in this report have the same meaning as
defined in the Glossary of the Prospectus.
Scope
Deloitte Corporate Finance Pty Limited has been engaged by the Directors of the Company to
review the following as referred to in Section 3.1 of the Prospectus:
the pro forma historical consolidated statements of profit or loss for the financial years ended
30 June 2011, 30 June 2012 and 30 June 2013 and for the half years ended 31 December 2012
and 31 December 2013;
the pro forma historical consolidated cash flow statements for the financial years ended 30 June
2011, 30 June 2012 and 30 June 2013 and for the half years ended 31 December 2012 and 31
December 2013; and
PROSPECTUS 173
7. Investigating Accountant’s Report on
Historical Financial Information continued
Page 2
28 April 2014
the pro forma historical consolidated balance sheet as at 31 December 2013, (together the Pro
forma Historical Financial Information”).
The Pro forma Historical Financial Information has been derived from:
Spotless Group Limited’s (“Spotless”) historical consolidated statements of profit or loss and
historical consolidated statements of cash flows for the years ended 30 June 2011 and 30 June
2012;
the Company’s historical consolidated statements of profit or loss and historical consolidated
statements of cash flows for the year ended 30 June 2013 and the half years ended 31
December 2012 and 31 December 2013; and
The Historical Financial Information has been extracted from the financial reports of:
Spotless for the years ended 30 June 2011 and 30 June 2012, which were audited by Deloitte
Touche Tohmatsu in accordance with the Australian Auditing Standards. Deloitte Touche
Tohmatsu issued unmodified audit opinions on the respective financial reports; and
the Company for the year ended 30 June 2013, which was audited by Ernst & Young in
accordance with the Australian Auditing Standards. Ernst & Young issued an unmodified audit
opinion on the financial report; and
the Company for the half years ended 31 December 2012 and 31 December 2013, which were
reviewed by Ernst & Young in accordance with Auditing Standard on Review Engagements
ASRE 2410. Ernst & Young issued unmodified review conclusions on the interim condensed
reports.
The Pro forma Historical Financial Information is presented in the Prospectus in an abbreviated
form, insofar as it does not include all of the presentation and disclosures required by Australian
Accounting Standards and other mandatory professional reporting requirements applicable to
general purpose financial reports and interim condensed financial reports prepared in accordance
with the Corporations Act 2001.
The stated basis of preparation is the recognition and measurement principles contained in
Australian Accounting Standards applied to the Historical Financial Information and the events or
transactions to which the Pro forma Adjustments relate, as described in Section 3.2 of the
Prospectus, as if those events or transactions had occurred as at the date of the historical financial
information. Due to its nature, the Pro forma Historical Financial Information does not represent
the Company’s actual or prospective financial position, comprehensive income and/or cash flows.
Directors’ Responsibility
the preparation and presentation of the Historical Financial Information and the Pro forma
Historical Financial Information, including the selection and determination of Pro forma
Adjustments made to the Historical Financial Information and included in the Pro forma
Historical Financial Information; and
This responsibility includes for the operation of such internal controls as the Directors determine
are necessary to enable the preparation of the Historical Financial Information and the Pro forma
Historical Financial Information that is free from material misstatement, whether due to fraud or
error.
Our Responsibility
Our responsibility is to express a limited assurance conclusion on the Pro forma Historical
Financial Information based on the procedures performed and the evidence we have obtained. We
have conducted our engagement in accordance with Australian Standard on Assurance Engagement
(ASAE) 3450 Assurance Engagements involving Corporate Fundraisings and/or Prospective
Financial Information.
A review consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with Australian Auditing Standards and
consequently does not enable us to obtain reasonable assurance that we would become aware of all
significant matters that might be identified in a reasonable assurance engagement. Accordingly we
will not express an audit opinion.
Our engagement did not involve updating or re-issuing any previously issued audit or review report
on any financial information used as a source of the financial information.
We have performed the following procedures as we, in our professional judgement, considered
reasonable in the circumstances:
consideration of work papers, accounting records and other documents of Spotless and the
Company, including those dealing with the extraction of Historical Financial Information from
audited consolidated financial statements for the years ended 30 June 2011, 30 June 2012 and
30 June 2013 and from reviewed consolidated financial statements for the half years ended 31
December 2012 and 31 December 2013;
consideration of the appropriateness of Pro forma Adjustments described in Section 3.2 of the
Prospectus;
enquiry of Directors, management, personnel and advisors;
the performance of analytical procedures applied to the Pro forma Historical Financial
Information;
a review of work papers, accounting records and other documents of Spotless and the Company
and their auditors; and
PROSPECTUS 175
7. Investigating Accountant’s Report on
Historical Financial Information continued
Page 4
28 April 2014
a review of the accounting policies adopted and used by Spotless and the Company over the
period for consistency of application.
Conclusions
Based on our review, which is not an audit, nothing has come to our attention that causes us to
believe that the Pro forma Historical Financial Information is not presented fairly in all material
respects, on the basis of the Pro forma Adjustments described in Section 3.2 of the Prospectus and
in accordance with the recognition and measurement principles contained in Australian Accounting
Standards and the accounting policies adopted by Spotless and the Company as disclosed in the
Prospectus.
Restrictions on Use
Without modifying our conclusions, we draw attention to Section 3.2 of the Prospectus, which
describes the purpose of the Financial Information, being for inclusion in the Prospectus. As a
result, the Investigating Accountant’s Report may not be suitable for use for another purpose.
Consent
Deloitte Corporate Finance Pty Limited has consented to the inclusion of this limited assurance
report in the Prospectus in the form and context in which it is included.
Disclosure of Interest
Deloitte Corporate Finance Pty Limited does not have any interest in the outcome of this Offer
other than the preparation of this report and participation in the due diligence procedures for which
normal professional fees will be received.
Yours faithfully
DELOITTE CORPORATE FINANCE PTY LIMITED
Ian Turner
Director
PROSPECTUS 177
8. Investigating Accountant’s Report on
Forecast Financial Information
Grosvenor Place
225 George Street
28 April 2014 Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
The Directors
Spotless SaleCo Pty Limited
549 St Kilda Road
MELBOURNE VIC 3004
Dear Directors
Introduction
This report has been prepared at the request of the Directors of Spotless Group Holdings Limited
(the “Company”) for inclusion in the prospectus (“Prospectus”) to be issued by the Company and
Spotless SaleCo Pty Limited (”SaleCo”) in respect of the initial public offering of fully paid
ordinary shares in the Company (the “Offer”) and listing of the Company on the Australian
Securities Exchange.
Deloitte Corporate Finance Pty Limited is wholly owned by Deloitte Touche Tohmatsu and holds
the appropriate Australian Financial Services licence under the Corporations Act 2001 for the issue
of this report.
References to the Company and other terminology used in this report have the same meaning as
defined in the Glossary of the Prospectus.
Scope
Deloitte Corporate Finance Pty Limited has been engaged by the Directors of the Company to
review the following financial information, as referred to in Section 3.1 of the Prospectus:
the statutory forecast consolidated statements of profit or loss for the twelve months ending 30
June 2014 and 30 June 2015; and
the statutory forecast consolidated statements of cash flows for the twelve months ending 30
June 2014 and 30 June 2015, (together the “Statutory Forecasts”) and;
the pro forma forecast consolidated statements of profit or loss for the twelve months ending 30
June 2014 and 30 June 2015; and
the pro forma forecast consolidated statements of cash flows for the twelve months ending 30
June 2014 and 30 June 2015 (together the “Pro forma Forecasts”),
(together the Statutory Forecasts and the Pro forma Forecasts are the “Forecasts”).
The director’s best-estimate assumptions underlying the Statutory Forecasts are described in
Section 3.9 of the Prospectus. The stated basis of preparation used in the preparation of the
Statutory Forecasts is the recognition and measurement principles contained in Australian
Accounting Standards and the Company’s adopted accounting policies
The Pro forma Forecasts have been derived from the Statutory Forecasts, after adjusting for the
effects of the pro forma transactions and/or adjustments described in Section 3.2 of the Prospectus
(the “Pro forma Adjustments”). The stated basis of preparation used in the preparation of the Pro
forma Forecasts is the recognition and measurement principles contained in Australian Accounting
Standards applied to the Statutory Forecasts and the events or transactions to which the Pro forma
Adjustments relate, as if those events or transactions had occurred prior to 1 July 2013. Due to its
nature the Pro forma Forecasts do not represent the Company’s actual prospective financial
performance and cash flows for twelve month periods ending 30 June 2014 and 30 June 2015.
The Forecasts have been prepared by management and adopted by the Directors in order to provide
prospective investors with a guide to the potential financial performance of the Company for the
twelve month periods ending 30 June 2014 and 30 June 2015. There is a considerable degree of
subjective judgement involved in preparing forecasts since they relate to events and transactions
that have not yet occurred and may not occur. Actual results are likely to be different from the
Forecasts since anticipated events or transactions frequently do not occur as expected and the
variation may be material.
The Directors’ best estimate assumptions on which the Forecasts are based relate to future events
and /or transactions that management expect to occur and actions that management expect to take
and are also subject to uncertainties and contingencies, which are often outside the control of the
Company. Evidence may be available to support the assumptions on which the Forecasts are
based, however such evidence is generally future orientated and therefore speculative in nature. We
are therefore not in a position to express a reasonable assurance conclusion on those best estimate
assumptions, and accordingly, provide a lesser level of assurance on the reasonableness of the
Directors’ best estimate assumptions. The limited assurance conclusion expressed in this report has
been formed on the above basis.
Prospective investors should be aware of the material risks and uncertainties relating to an
investment in the Company, which are detailed in the Prospectus, and the inherent uncertainty
relating to the prospective financial information. Accordingly prospective investors should have
regard to the investment risks and sensitivities set out in Section 3.10 of the Prospectus.
The sensitivity analysis set out in Section 3.10 of the Prospectus demonstrates the impacts on the
Forecasts of changes in key assumptions. The Forecasts are therefore only indicative of the
financial performance which may be achievable. We express no opinion as to whether the
Forecasts will be achieved.
PROSPECTUS 179
8. Investigating Accountant’s Report on
Forecast Financial Information continued
Page 3
28 April 2014
We have assumed, and relied on representations from certain members of management of the
Company, that all material information concerning the prospects and proposed operations of the
Company has been disclosed to us and that the information provided to us for the purpose of our
work is true, complete and accurate in all respects. We have no reason to believe that those
representations are false.
Directors’ Responsibility
the preparation of the Forecasts, including the best estimate assumptions underlying the
Forecasts and the selection and determination of the Pro forma Adjustments made to the
Statutory Forecasts and included in the Pro forma Forecasts; and
This responsibility includes for the operation of such internal controls as the Directors determine
are necessary to enable the preparation of the Forecasts that are free from material misstatement,
whether due to fraud or error.
Our Responsibility
Our responsibility is to express a limited assurance conclusion on the Statutory Forecasts and the
Pro Forma Forecasts based on the procedures performed and the evidence we have obtained. We
have conducted our engagement in accordance with Australian Standard on Assurance Engagement
(ASAE) 3450 Assurance Engagements involving Corporate Fundraisings and/or Prospective
Financial Information.
A review consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with Australian Auditing Standards and
consequently does not enable us to obtain reasonable assurance that we would become aware of all
significant matters that might be identified in a reasonable assurance engagement. Accordingly we
will not express an audit opinion.
Our engagement did not involve updating or re-issuing any previously issued audit or review report
on any financial information used as a source of the Forecasts.
We have performed the following procedures as we, in our professional judgement, considered
reasonable in the circumstances:
enquiries, including discussions with management and Directors of the factors considered in
determining the assumptions;
review of the accounting policies adopted and used in the preparation of the Forecasts; and
consideration of the Pro forma Adjustments applied to the Statutory Forecasts in preparing the
Pro forma Forecasts.
Conclusions
Based on our review, which is not an audit, nothing has come to our attention that causes us to
believe that:
(i) the Directors’ best estimate assumptions used in the preparation of the Statutory Forecasts do
not provide reasonable grounds for the Statutory Forecasts; and
(a) are not prepared on the basis of the Directors’ best estimate assumptions as described
in Section 3.9 of the Prospectus; and
(b) are not presented fairly in accordance with the stated basis of preparation, being the
accounting policies adopted and used by the Company and the recognition and
measurement principles contained in Australian Accounting Standards; and
Based on our review, which is not an audit, nothing has come to our attention that causes us to
believe that:
(i) the Directors’ best estimate assumptions used in the preparation of the Pro forma Forecasts
do not provide reasonable grounds for the Pro forma Forecasts; and
(a) are not prepared on the basis of the Directors’ best estimate assumptions as described
in Section 3.9 of the Prospectus; and
(b) are not presented fairly in accordance with the stated basis of preparation, being the
accounting policies adopted and used by the Company and the recognition and
measurement principles contained in Australian Accounting Standards, applied to the
Statutory Forecast and the events or transactions to which the Pro forma Adjustments
relate, as if those events or transactions had occurred as at 1 July 2013; and
Restrictions on Use
Without modifying our conclusions, we draw attention to Section 3.2 of the Prospectus, which
describes the purpose of the Forecasts, being for inclusion in the Prospectus. As a result, the
Investigating Accountant’s Report may not be suitable for use for another purpose.
PROSPECTUS 181
8. Investigating Accountant’s Report on
Forecast Financial Information continued
Page 5
28 April 2014
Consent
Deloitte Corporate Finance Pty Limited has consented to the inclusion of this limited assurance
report in the Prospectus in the form and context in which it is included.
Disclosure of Interest
Deloitte Corporate Finance Pty Limited does not have any interest in the outcome of this Offer
other than the preparation of this report and participation in the due diligence procedures for which
normal professional fees will be received.
Yours faithfully
DELOITTE CORPORATE FINANCE PTY LIMITED
Ian Turner
Director
How are we and all employees The Complaints Officer Financial Ombudsman Service
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Grosvenor Place Melbourne VIC 3001
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1 February 2013
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PROSPECTUS 183
Section 9
9.1 Registration
Spotless was registered in Victoria, Australia on 11 November 2011 as a private company
and was converted to a public company on 25 March 2014.
Key:
Interest held through subsidiaries
PROSPECTUS 185
9. Additional Information continued
PROSPECTUS 187
9. Additional Information continued
• (withdrawal) Spotless or SaleCo withdraws the Prospectus, any invitations to apply for Offer
Shares under the Offer documents or all of any part of the Offer or indicates that it does not
intend to proceed with the Offer or any part of it (other than as permitted by the Offer
Management Agreement);
• (certificate not provided) Spotless or SaleCo does not provide a closing certificate as and when
required by the Offer Management Agreement; and
• (Sale Deeds) a Sale Deed is withdrawn, varied, terminated, rescinded, breached, altered, or
materially amended (other than as contemplated by the Offer Management Agreement).
Termination events limited by materiality
If any of the following events occur prior to 10:00am on Settlement Date, the JLMs may terminate
their obligations under the Offer Management Agreement if the JLM reasonably believes (and does
in fact believe) that the event (a) has had or is likely to have a material adverse effect on the ability of
the JLMs to market the Offer or the outcome, success or Settlement of the Offer, the willingness of
investors to subscribe for the Offer Shares, or price at which Offer Shares are sold or the likely price
at which the Offer Shares will trade on ASX or; (b) has given or is likely to give rise to the JLMs
contravening any applicable laws or incurring a liability.
• (new circumstances) there occurs a new circumstance that arises after the Prospectus is lodged
that would have been required to be included in the Prospectus if it had arisen before lodgement;
• (disclosures in the due diligence report and any other information) the due diligence reports or
any other information supplied by or on behalf of Spotless or SaleCo to the Joint Lead Managers
in relation to the Spotless Group or the Offer is (or is likely to), or becomes (or becomes likely to
be), false, misleading or deceptive, including by way of omission;
• (adverse change) any adverse change occurs in the assets, liabilities, financial position or
performance, profits, losses or prospects or forecasts of Spotless or the Spotless Group (insofar
as the position in relation to an entity in the Spotless Group affects the overall position of Spotless),
including any adverse change in the assets, liabilities, financial position or performance, profits,
losses, prospects or forecasts of Spotless or the Spotless Group from those disclosed in any
Offer document;
• (Offer Documents) any of the Offer documents (other than the US Offer documents or the
Prospectus), certain other public disclosures made by the Company or any aspect of the Offer
does not comply with the Corporations Act (including if a statement in any of the Offer documents
(other than the US Offer documents or the Propsectus) or those other public disclosures is or
becomes misleading or deceptive), or a matter required by the Listing Rules or any other applicable
law or regulation to be included is omitted from an Offer document or the other public disclosures;
• (force majeure) there is an event or occurrence, including any statute, order, rule, regulation,
directive or request of any governmental agency which makes it illegal for the JLMs to satisfy an
obligation under the Offer Management Agreement, or to market, promote or settle the Offer;
• (breach) Spotless or SaleCo defaults on one or more of its obligations under the Offer
Management Agreement;
• (representations and warranties) a representation, warranty, undertaking or obligation contained
in the Offer Management Agreement on the part of Spotless or SaleCo is breached, becomes not
true or correct or is not performed;
• (constitution) Spotless varies any term of its constitution other than as contemplated by the Prospectus
without the prior written consent of the JLMs (not to be unreasonably withheld or delayed);
PROSPECTUS 189
9. Additional Information continued
Indemnity
Spotless and SaleCo agree to indemnify the JLMs, their affiliates and the officers, directors,
employees, agents, contractors and representatives of the JLMs and their affiliates against all claims,
demands, damages, losses, costs, expenses, liabilities or damages incurred by them in connection
with the Offer, the bookbuild and the Offer documents (subject to limited exclusions).
9.5.2 Description of the New Banking Facilities
The New Banking Facilities comprise:
• under the Syndicated Facility Agreement:
– NZ$107 million three year revolving facility A1, available for cash advances in New Zealand dollars;
– A$324.9 million three year revolving facility A2, available for cash advances in Australian dollars;
– NZ$53 million four year revolving facility B1, available for cash advances in New Zealand dollars;
and
– A$163.6 million four year revolving facility B2, available for cash advances in Australian dollars;
and
• under the Bilateral Facility Agreement:
– A$115 million two year revolving cash advance facility, available for advances in Australian
dollars or New Zealand dollars (up to a NZ$70 million sub-limit);
– A$80 million performance guarantee facility, subject to annual review, available for advances
in Australian dollars or New Zealand dollars (up to a NZ$20 million sub-limit); and
– A$5 million financial guarantee facility, subject to annual review, available for advances
in Australian dollars or New Zealand dollars (up to a NZ$5 million sub-limit).
Refer to Section 3.6 for more information on the New Banking Facilities, including a detailed
description of the facilities, the pro forma net finance cost and the financial covenants.
Security
The New Banking Facilities will be unsecured.
Defaults
The New Banking Facilities will also contain certain events of default which are customary for facilities
of their nature. These events of default include the failure to make payments due, a breach of any
financial covenants, a breach of any other obligation under the facilities, the misrepresentation of
facts pertaining to any finance document, the occurrence of a cross default, the occurrence of
any insolvency event as well as any event which has or may have a material adverse effect on, for
example, the business or financial condition of Spotless and its guarantor subsidiaries. In a number
of instances, the events of default are subject to materiality thresholds and/or cure periods.
It will be a review event under the New Banking Facilities if there is a change of control in Spotless, or,
if following listing on the ASX, the Shares are removed from the official list of the ASX or suspended
from trading for 10 consecutive business days (for reasons other than there being an imminent
announcement of a major acquisition or merger transaction). Following such review event, the
lenders may either agree to revised terms with Spotless or, if agreement cannot be reached, require
repayment of the New Banking Facilities. A change of control is defined to be the acquisition by any
person (other than the PEP Shareholders), either directly or indirectly, of beneficial ownership of 50%
or more of the ordinary voting power of the outstanding voting shares in the Company.
Upon the occurrence of an event of default, the lenders under the New Banking Facilities will be
entitled to, among other things, declare that all amounts owing to them under the facilities are
immediately due and payable, terminate all or part of its obligations to Spotless and the Spotless
Group and charge additional fees and interest.
Hedging policy
Under the New Banking Facilities, no borrower or guarantor may enter into hedging transactions
other than: (i) interest rate, currency and commodity hedging as set out in the Spotless Group’s
hedging policy; (ii) spot and forward delivery foreign exchange contracts entered into in the ordinary
course of business and not for speculative purposes; and (iii) any derivative transactions entered into
for the hedging of actual or projected real exposures arising in the ordinary course of trading activities
of a member of the Spotless Group and not for speculative purposes.
Distributions
Spotless is able to make distributions (including paying dividends) to its shareholders if, immediately
prior to and following the distribution, the financial covenants set out in Section 3.6 are complied with
and no default or review event is subsisting or will immediately occur as a result of the distribution
being made.
PROSPECTUS 191
9. Additional Information continued
9.7 Insurance
Spotless has a range of insurance policies in place to manage the risks of its day-to-day business
and certain other activities.
These policies include professional indemnity insurance, which is held by all member companies of the
Spotless Group, along with workers compensation insurance for all states and territories of operation.
There are additional, more specific policies in place to cover other relevant business risks, including
property, corporate travel and public and products liability cover.
9.10 Summary of tax issues for Australian and New Zealand tax resident investors
9.10.1 Taxation considerations
The comments in Section 9.10.2 provide a general outline of Australian tax issues for Australian tax
resident Shareholders who acquire Shares under this Prospectus and that hold Shares on capital
account for Australian income tax purposes. The categories of Shareholders considered in this
summary are limited to individuals, companies (other than life insurance companies), trusts,
partnerships and complying superannuation entities that hold their Shares on capital account.
This summary does not consider the consequences for foreign resident Shareholders, insurance
companies, banks, Shareholders that hold their Shares on revenue account or carry on a business
of trading in shares, or Shareholders who are exempt from Australian tax. This summary also does
not cover the consequences for Shareholders who are subject to the Taxation of Financial
Arrangements rules contained in Division 230 of the Income Tax Assessment Act 1997 (Cth).
The comments in Section 9.10.3 provide a general outline of New Zealand tax issues for New Zealand
tax resident Shareholders who acquire Shares under this Prospectus and that hold Shares in
Spotless in their own name on capital account for New Zealand income tax purposes, but does not
include managed funds. Whether the Shares are ultimately held on capital account (as opposed to
revenue account or as trading stock) may depend on the type of Shareholder involved and their
specific circumstances.
This summary does not consider the consequences for non-New Zealand resident Shareholders,
Shareholders that hold their Shares on revenue account or carry on a business of trading in shares
or Shareholders who are exempt from New Zealand tax.
The summaries in Sections 9.10.2 and 9.10.3 are general in nature and are not exhaustive of all
income tax consequences that could apply in all circumstances of any given Shareholder. The
individual circumstances of each Shareholder may affect the taxation implications of the investment
of the Shareholder.
It is recommended that all Shareholders consult their own independent tax advisers regarding the
income tax (including capital gains tax), stamp duty and GST consequences of acquiring, owning
and disposing of Shares, having regard to the specific circumstances.
The summaries in Sections 9.10.2 and 9.10.3 are based on the relevant Australian and New Zealand
tax law in force, established interpretations of that law and understanding of the practice of the
relevant tax authority at the time of issue of this Prospectus. The summaries do not take into account
the tax law of countries other than Australia and New Zealand.
PROSPECTUS 193
9. Additional Information continued
Tax laws are complex and subject to ongoing change. The tax consequences discussed in these
summaries do not take into account or anticipate any changes in law (by legislation or judicial decision)
or any changes in the administrative practice or interpretation by the relevant authorities. If there is a
change, including a change having retrospective effect, the tax, stamp duty and GST consequences
should be reconsidered by Shareholders in light of the changes. The precise implications of
ownership or disposal of the Shares will depend upon each Shareholder’s specific circumstances.
This summary in Section 9.10 does not constitute financial product advice as defined in the
Corporations Act. This summary is confined to taxation issues and is only one of the matters
which need to be considered by Shareholders before making a decision about their investments.
Shareholders should consider taking advice from a licenced advisor, before making a decision
about their investments.
9.10.2 Australian tax resident Shareholders
Australian tax resident individuals and complying superannuation entities
Where dividends on a Share are paid by the Company, those dividends will constitute assessable
income of an Australian tax resident Shareholder. Australian tax resident Shareholders who are
individuals or complying superannuation entities should include the dividend in their assessable
income in the year the dividend is paid, together with any franking credit attached to that dividend.
The rate of tax payable by each Australian Shareholder that is an individual will depend on the
individual circumstances of the Shareholder and his/her prevailing marginal rate of income tax.
Shareholders who are individuals or complying superannuation entities should be entitled to a tax
offset equal to the franking credit attached to the dividend subject to being a “qualified person”.
The tax offset can be applied to reduce the tax payable on the Shareholder’s taxable income.
Where the tax offset exceeds the tax payable on the Shareholder’s taxable income, such
Shareholders should be entitled to a tax refund.
Where a dividend paid by the Company is unfranked, the Shareholder will generally be taxed
at his or her prevailing marginal rate on the dividend received with no tax offset.
Corporate Shareholders
Corporate Shareholders are also required to include both the dividend and associated franking
credit in their assessable income. A tax offset is then allowed up to the amount of the franking credit
on the dividend.
An Australian tax resident corporate Shareholder should be entitled to a credit in its own franking
account to the extent of the franking credit attached to the dividend received. Such corporate
Shareholders can then pass on the benefit of the franking credits to their own shareholder(s)
on the payment of franked dividends.
Excess franking credits received by a corporate Shareholder cannot give rise to a refund, but
may in certain circumstances be converted into carry forward tax losses.
Capital gains tax (CGT) implications for Australian tax resident Shareholders
on a disposal of Shares
The disposal of a Share by a Shareholder will be a CGT event. A capital gain will arise where the
“capital proceeds” on disposal exceed the “cost base” of the Share (broadly, the amount paid to
acquire the Share plus any transaction costs incurred in relation to the acquisition or disposal of the
Shares). In the case of an “arm’s length” on-market sale, the capital proceeds will generally be the
cash proceeds received from the sale of the Shares.
A CGT discount may be applied against the net capital gain where the Shareholder is an individual,
complying superannuation entity or trustee, and the Shares have been held for more than 12 months
prior to the CGT event. Where the CGT discount applies, any capital gain arising to individuals and
entities acting as trustees (other than a trust that is a complying superannuation entity) may be
reduced by one-half after offsetting current year or prior year capital losses. For a complying
superannuation entity, any capital gain may be reduced by one-third, after offsetting current year
or prior year capital losses.
Where the Shareholder is the trustee of a trust that has held the Shares for more than 12 months
before disposal, the CGT discount may flow through to the beneficiaries of the trust if those
beneficiaries are not companies. Shareholders that are trustees should seek specific advice regarding
the tax consequences of distributions to beneficiaries who may qualify for discounted capital gains.
A capital loss will be realised where the “reduced cost base” of the Share exceeds the “capital
proceeds” from disposal. Capital losses may only be offset against capital gains realised by the
Shareholder in the same income year or future income years, subject to certain loss recoupment
tests being satisfied. Capital losses cannot be offset against other assessable income.
PROSPECTUS 195
9. Additional Information continued
GST
No GST should be payable by Shareholders in respect of the acquisition or disposal of their Shares,
regardless of whether or not the Shareholder is registered for GST.
Shareholders may not be entitled to claim full input tax credits in respect of any GST included in the
costs they have incurred in connection with their acquisition of the Shares. Separate GST advice
should be sought by Shareholders in this respect relevant to their particular circumstances.
No GST should be payable by Shareholders on receiving dividends distributed by the Company.
Stamp duty
Shareholders should not be liable for stamp duty in respect of the acquisition of their Shares, unless
they acquire, either alone or with an associated/related person, an interest of 90% or more in the
Company. Under current stamp duty legislation, no stamp duty would ordinarily be payable by
Shareholders on any subsequent transfer of their Shares whilst the Company remains listed.
9.10.3 New Zealand tax resident Shareholders
New Zealand income tax treatment of dividends received by New Zealand
tax resident Shareholders
New Zealand tax resident Shareholders that are individuals, trustees of a trust or portfolio corporate
shareholders (those holding less than 10% shareholding interests in the Company) will generally be
required to include in their assessable income the gross dividend actually received, which includes
any New Zealand imputation credits attached to that dividend and withholding taxes. New Zealand
tax resident Shareholders would then be subject to New Zealand tax at their applicable tax rate on
the gross dividend amount (which includes the imputation credit and any applicable withholding
taxes amount).
New Zealand tax resident Shareholders should be entitled to a tax offset against their New Zealand
tax liability equal to the New Zealand imputation credits attached to the dividend. The tax offset can
be applied to reduce the tax payable on the New Zealand tax resident Shareholder’s taxable income.
Where the offset exceeds the tax payable on the New Zealand tax resident Shareholder’s taxable
income, excess imputation credits can be carried forward by the Shareholder for utilisation in future
income years (in the form of tax credits for individuals or losses for companies and trustees other
than a Maori trustee).
Non-portfolio New Zealand corporate Shareholders (holding 10% or greater shareholding interests
in the Company) should not be subject to income tax on any dividends received from the Company.
Disposal of Shares
Amounts derived by New Zealand tax resident Shareholders from the sale or disposal of the Shares
should not be included in assessable income for New Zealand tax purposes if the Shares are held on
capital account. For completeness, Shareholders will be subject to tax on gains realised on the sale
or disposal of Shares where:
• the Shareholder is in the business of dealing in shares; or
• the Shares were acquired for the purpose of resale; or
• the Shares were acquired as part of a profit-making undertaking or scheme; or
• the Shares are otherwise held on revenue account.
New Zealand tax resident Shareholders should seek their own tax advice about whether the
proceeds from the sale of the Shares will be taxable in New Zealand.
Stamp duty
As there is no stamp duty in New Zealand, neither the acquisition nor disposal of Shares will attract
stamp duty in New Zealand.
PROSPECTUS 197
9. Additional Information continued
9.11 Consents
Each of the parties referred to below (Consenting Party), to the maximum extent permitted by law,
expressly disclaims all liabilities in respect of, makes no representations regarding and takes no
responsibility for any statements in or omissions from this Prospectus, other than the reference to
its name in the form and context in which it is named and a statement or report included in this
Prospectus with its consent as specified below.
Written consents to the issue of this Prospectus have been given and, at the time of Lodgement
of this Prospectus with ASIC, had not been withdrawn by the following parties:
• Highbury Partnership Pty Limited has given, and has not withdrawn prior to the lodgement of
this Prospectus with ASIC, its written consent to be named in this Prospectus as financial adviser
to the Offer in the form and context in which it is named;
• each of Citi, Deutsche Bank and UBS has given, and has not withdrawn prior to the lodgement
of this Prospectus with ASIC, its written consent to be named in this Prospectus as a JLM to the
Offer in the form and context in which it is named;
• Evans & Partners have given, and has not withdrawn prior to lodgement of this Prospectus with
ASIC, its written consent to be named in this Prospectus as Co-Lead Manager to the Offer in the
form and context in which it is named;
• each of Bell Potter Securities Limited, UBS Wealth Management Australia Limited and Wilson
HTM Corporate Finance Limited has given, and has not withdrawn prior to lodgement of this
Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Manager
to the Offer in the form and context in which it is named;
• Gilbert + Tobin has given, and has not withdrawn prior to the lodgement of this Prospectus with
ASIC, its written consent to be named in this Prospectus as Australian legal adviser (other than
in relation to taxation matters) to Spotless in relation to the Offer in the form and context in which
it is named;
• Deloitte Corporate Finance has given, and has not withdrawn prior to the lodgement of this
Prospectus with ASIC, its written consent to be named in this Prospectus as Investigating
Accountant to Spotless in relation to the Pro Forma Historical Financial Information, Pro Forma
Forecast Financial Information and Statutory Forecast Financial Information in the form and context
in which it is named and has given and not withdrawn its consent to the inclusion in this
Prospectus of its Investigating Accountant’s Report in the form and context in which it is included;
• Deloitte Touche Tohmatsu has given, and has not withdrawn prior to the lodgement of this
Prospectus with ASIC, its written consent to be named in this Prospectus as auditor of Spotless
Group Limited in FY2011 and FY2012;
• Ernst & Young has given, and has not withdrawn prior to the lodgement of this Prospectus with
ASIC, its written consent to be named in this Prospectus as the auditor and tax advisor to Spotless
in the form and context in which it is named;
• L.E.K. Consulting has given, and has not withdrawn prior to the lodgement of this Prospectus with
ASIC, its written consent to the inclusion in this Prospectus of references to it and statements and
charts in this Prospectus regarding the industry Spotless operates in;
• Link Market Services Limited has given, and has not withdrawn prior to the lodgement of this
Prospectus with ASIC, its written consent to be named in this Prospectus as the Share Registry in
the form and context in which it is named. Link Market Services Limited has had no involvement in
the preparation of any part of this Prospectus other than being named as Share Registry to Spotless;
• Frost & Sullivan has given, and has not withdrawn prior to the lodgement of this Prospectus with
ASIC, its written consent to be named in this Prospectus and to the inclusion of the references
to it in the form and context in which they are included; and
• Euromonitor has given, and has not withdrawn prior to the lodgement of this Prospectus with
ASIC, its written consent to be named in this Prospectus and to the inclusion of the references
to it in the form and context in which they are included.
PROSPECTUS 199
9. Additional Information continued
Any financial information contained in this document has been prepared in accordance with
Australian Accounting Standards and also comply with International Financial Reporting Standards
and interpretations issued by the International Accounting Standards Board. Unless stated otherwise,
all dollar amounts contained in this document are in Australian dollars.
PROSPECTUS 201
9. Additional Information continued
No advertisement, invitation or document relating to the Shares has been or will be issued, or has
been or will be in the possession of any person for the purpose of issue, in Hong Kong or elsewhere
that is directed at, or the contents of which are likely to be accessed or read by, the public of Hong
Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect
to Shares that are or are intended to be disposed of only to persons outside Hong Kong or only to
professional investors (as defined in the SFO and any rules made under that ordinance). No person
allotted Shares may sell, or offer to sell, such securities in circumstances that amount to an offer
to the public in Hong Kong within six months following the date of issue of such securities.
The contents of this document have not been reviewed by any Hong Kong regulatory authority.
You are advised to exercise caution in relation to the offer. If you are in doubt about any contents
of this document, you should obtain independent professional advice.
9.13.6 Ireland
The information in this document does not constitute a prospectus under any Irish laws or
regulations and this document has not been filed with or approved by any Irish regulatory authority
as the information has not been prepared in the context of a public offering of securities in Ireland
within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005, as amended
(Prospectus Regulations). The Shares have not been offered or sold, and will not be offered, sold
or delivered directly or indirectly in Ireland by way of a public offering, except to “qualified investors”
as defined in Regulation 2(l) of the Prospectus Regulations.
9.13.7 Italy
The offering of the Shares in the Republic of Italy has not been authorized by the Italian Securities and
Exchange Commission (Commissione Nazionale per le Società e la Borsa or CONSOB) pursuant
to the Italian securities legislation and, accordingly, no offering material relating to the Shares may
be distributed in Italy and the Shares may not be offered or sold in Italy in a public offer within the
meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998, as amended (Decree
No. 58), other than:
• to qualified investors (Qualified Investors), as defined in Article 100 of Decree No. 58 by reference
to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999, as amended (Regulation
No. 1197l); and
• in other circumstances that are exempt from the rules on public offer pursuant to Article 100
of Decree No. 58 and Article 34-ter of Regulation No. 11971.
Any offer, sale or delivery of the Shares or distribution of any offer document relating to the Shares
in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the
paragraphs above must be:
• made by investment firms, banks or financial intermediaries permitted to conduct such activities
in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended),
Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 (as amended) and any
other applicable laws; and
• in compliance with all relevant Italian securities, tax and exchange controls and any other
applicable laws.
Any subsequent distribution of the Shares in Italy must be made in compliance with the public offer
and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971,
unless an exception from those rules applies. Failure to comply with such rules may result in the sale
of such Shares being declared null and void and in the liability of the entity transferring the Shares
for any damages suffered by the investors.
9.13.8 Japan
The Shares have not been and will not be registered under Article 4, paragraph 1 of the Financial
Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (FIEL) pursuant to
an exemption from the registration requirements applicable to a private placement of securities to
PROSPECTUS 203
9. Additional Information continued
9.13.13 Switzerland
The Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss
Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This
document has been prepared without regard to the disclosure standards for issuance prospectuses
under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing
prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange
or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing
material relating to the Shares may be publicly distributed or otherwise made publicly available in
Switzerland. The Shares will only be offered to regulated financial intermediaries such as banks,
securities dealers, insurance institutions and fund management companies as well as institutional
investors with professional treasury operations.
Neither this document nor any other offering or marketing material relating to the Shares have been or
will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be
filed with, and the offer of Shares will not be supervised by, the Swiss Financial Market Supervisory
Authority (FINMA).
This document is personal to the recipient only and not for general circulation in Switzerland.
9.13.14 United Arab Emirates
Neither this document nor the Shares have been approved, disapproved or passed on in any way
by the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority
or any other governmental authority in the United Arab Emirates, nor has the Company or SaleCo
received authorization or licensing from the Central Bank of the United Arab Emirates, the Emirates
Securities and Commodities Authority or any other governmental authority in the United Arab
Emirates to market or sell the Shares within the United Arab Emirates. No marketing of any financial
products or services may be made from within the United Arab Emirates and no subscription to any
financial products or services may be consummated within the United Arab Emirates. This document
does not constitute and may not be used for the purpose of an offer or invitation. No services relating
to the Shares, including the receipt of applications and/or the allotment or redemption of Shares,
may be rendered within the United Arab Emirates by the Company or SaleCo.
No offer or invitation to subscribe for Shares is valid in, or permitted from any person in, the Dubai
International Financial Centre.
9.13.15 United Kingdom
Neither the information in this document nor any other document relating to the offer has been
delivered for approval to the Financial Conduct Authority in the United Kingdom and no prospectus
(within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended
(FSMA)) has been published or is intended to be published in respect of the Shares. This document
is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA)
in the United Kingdom, and the Shares may not be offered or sold in the United Kingdom by means
of this document, any accompanying letter or any other document, except in circumstances which do
not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should
not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed
by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of
FSMA) received in connection with the issue or sale of the Shares has only been communicated or
caused to be communicated and will only be communicated or caused to be communicated in the
United Kingdom in circumstances in which section 21(1) of FSMA does not apply to the Company
or SaleCo.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who
have professional experience in matters relating to investments falling within Article 19(5) (investment
professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005
(FPO), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth
PROSPECTUS 205
Appendix A
PROSPECTUS 207
APPENDIX A
Significant Accounting Policies continued
PROSPECTUS 209
APPENDIX A
Significant Accounting Policies continued
Other liabilities
Financial liabilities, including all loans and borrowings, are initially measured at fair value, net of
transaction costs. Financial liabilities are subsequently measured at amortised cost using the effective
interest rate method, with interest expense recognised on an effective interest rate method basis.
The effective interest rate method is a method of calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts the estimated future cash payments through the expected life of the financial
liability, or, where appropriate, a shorter period.
(j) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax,
except (i) for receivables and payables which are recognised inclusive of goods and services tax;
and (ii) where the amount of goods and services tax incurred is not recoverable from the taxation
authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of
expense. The net amount of goods and services tax recoverable from, or payable to, the taxation
authority is included as part of receivables or payables.
Cash flows are included in the statement of cash flows on a gross basis. The goods and services
tax component of cash flows arising from investing and financing activities which is recoverable
from, or payable to, the taxation authority is classified within operating cash flows.
(k) Goodwill
Goodwill, representing the excess of the cost of an acquisition over the fair value of the identifiable
assets, liabilities and contingent liabilities acquired, is recognised as an asset net of impairment and
not amortised. A cash generating unit (CGU) to which goodwill has been allocated is tested for
impairment annually and whenever there is an indication that the goodwill may be impaired. Any
impairment is recognised immediately in profit or loss and cannot be subsequently reversed.
(l) Inventory
Inventory is stated at the lower of cost or net realisable value. Costs, including an appropriate
portion of fixed and variable overhead expenses, are assigned to inventory using the method most
appropriate to each particular class of inventory, with the majority being valued on a first-in-first-out
basis. Net realisable value represents the estimated selling price for inventory less all estimated costs
of completion and costs necessary to make the sale.
Deferred tax
Deferred tax is accounted for using the balance sheet liability method. Temporary differences are
differences between the tax base of an asset or liability and its carrying amount in the statement of
financial position. The tax base of an asset or liability is the amount attributed to that asset or liability
for tax purposes.
In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax
assets are recognised to the extent that it is probable that sufficient taxable amounts will be available
against which deductible temporary differences or unused tax losses and tax offsets can be utilised.
However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise
to them arise from the initial recognition of assets and liabilities (other than as a result of a business
combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax
liability is not recognised in relation to taxable temporary differences arising from the initial recognition
of goodwill.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments
in subsidiaries and associates and interests in joint ventures except where Spotless is able to control
the reversal of the temporary differences and it is probable that the temporary differences will not
reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences
associated with these investments and interests are only recognised to the extent that it is probable
that there will be sufficient taxable profits against which to utilise the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates
(and tax laws) that have been enacted or substantively enacted by reporting date. The measurement
of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner
in which Spotless expects, at the reporting date, to recover or settle the carrying amount of its assets
and liabilities.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same
taxation authority and Spotless intends to settle its current tax assets and liabilities on a net basis.
Tax consolidation
Spotless and all its wholly-owned Australian resident entities are part of a tax consolidated group
under Australian taxation law. Tax expense/income, deferred tax liabilities and deferred tax assets
arising from temporary differences of the members of the tax consolidated group are recognised in
the separate financial statements of the members of the tax consolidated group using the “separate
PROSPECTUS 211
APPENDIX A
Significant Accounting Policies continued
taxpayer within group” approach by reference to the carrying amounts in the separate financial
statements of each entity and the tax values applying under tax consolidation.
Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant
tax credits of the members of the tax consolidated group are recognised by Spotless (as head entity
in the tax consolidated group).
Due to the existence of a tax funding arrangement between the entities in the tax consolidated group,
amounts are recognised as payable to or receivable by Spotless and each member of the group in
relation to the tax contribution amounts paid or payable between the parent entity and the other
members of the tax consolidated group in accordance with the arrangement. Where the tax
contribution amount recognised by each member of the tax consolidated group for a particular
period is different to the aggregate of the current tax liability or asset and any deferred tax asset
arising from unused tax losses and tax credits in respect of that period, the difference is recognised
as a contribution from (or distribution to) equity participants.
(o) Joint venture entities
Interests in joint venture entities in which Spotless is a venturer (and so has joint control) are
accounted for under the equity method in the consolidated financial statements.
(p) Leased assets
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks
and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified
as operating leases.
Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts
equal to the present value of the minimum lease payments, each determined at the inception of the
lease. The corresponding liability to the lessor is included in the statement of financial position as a
finance lease obligation.
Finance lease payments are apportioned between finance charges and reduction of the lease
obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are charged directly against profit or loss. Finance leased assets are amortised on a straight
line basis over the estimated useful life of the asset.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term.
In the event that lease incentives are received to enter into operating leases, such incentives are
recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental
expense on a straight-line basis.
(q) Non-current assets classified as held for sale
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of
carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be
recovered principally through a sale transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable and the asset (or disposal group) is available
for immediate sale in its present condition. Management must be committed to the sale, which
should be expected to qualify for recognition as a completed sale within one year from the date
of classification.
(r) Intangible assets
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are identified and recognised separately from
goodwill where they satisfy the definition of an intangible asset. Subsequent to initial recognition,
intangible assets acquired in a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses.
PROSPECTUS 213
APPENDIX A
Significant Accounting Policies continued
impairment loss (if any). Where the asset does not generate cash flows that are independent from
other assets, Spotless estimates the recoverable amount of the cash-generating unit to which the
asset belongs.
The recoverable amount of an asset or cash generating unit is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-
generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset
(or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised
immediately in the profit or loss for the period in which it was incurred.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-
generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent
that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior
years. A reversal of an impairment loss is recognised immediately in profit or loss.
(u) Provisions
Provisions are recognised when Spotless has a present obligation (legal or constructive) as a result
of a past event, it is probable that Spotless will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle
the present obligation at reporting date, taking into account the risks and uncertainties surrounding
the obligation. Where a provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be
recovered from a third party, the receivable is recognised as an asset if it is virtually certain that
reimbursement will be received and the amount of the receivable can be measured reliably.
Onerous contracts – Present obligations arising under onerous contracts are recognised and
measured as a provision. An onerous contract is considered to exist where the Consolidated Entity
has a contract under which the unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received under it.
Dividends – A provision is recognised for dividends when they have been declared, determined
or publicly recommended by the Directors on or before the balance date.
Public liability – A provision is recognised under Spotless’s insurance for claims below the insured
excess.
(v) Financial assets
Financial assets at amortised cost and the effective interest rate method
A financial asset is measured at amortised cost if the following conditions are met:
• cash flows give rise, on specified dates, to cash flows that are solely payments of principal and
payment of interest on the principal outstanding; and
• Spotless does not irrevocably elect at initial recognition to measure the instrument at fair value
through other comprehensive income to minimise an accounting mismatch.
Amortised cost instruments are recognised initially at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition the carrying amount of amortised cost financial
instruments is determined using the effective interest rate method, less any impairment losses.
Sale of goods
Revenue from the sale of goods is recognised when Spotless has passed the significant risks and
rewards of ownership of the goods to the buyer.
Interest revenue
Interest revenue is recognised on a time proportionate basis that takes into account the effective
interest rate on the financial asset.
Dividend revenue
Dividend revenue is recognised when Spotless’s right to receive payment has been established.
(x) Share-based payments
Share-based payments made to employees and others, that grant rights over the shares of the parent
entity, Spotless Group Holdings Limited are accounted for as equity-settled share-based payment
transactions.
Equity-settled share-based payments with employees and others providing similar services are
measured at the fair value of the equity instrument at the grant date. Fair value is measured by use
of a Black Scholes model, a binomial model and/or Monte Carlo simulation model.
The fair value determined at the grant date of the equity-settled share-based payments is expensed
on a straight-line basis over the vesting period, based on Spotless estimate of shares that will
eventually vest.
For cash-settled share-based payments, a liability equal to the portion of the goods or services
received is recognised at the current fair value determined at each reporting date.
(y) Securities plan loans
When Spotless recognises a loan that is not issued at the market rate of interest or is interest free,
an estimate of the present value of all future cash receipts discounted, using the prevailing market
rate of interest, is calculated. The variance between the nominal loan balance and the present value
calculation is deemed to be foregone in respect of past services rendered by the employees.
This expense is then recouped as interest revenue over the life of the loan.
PROSPECTUS 215
APPENDIX A
Significant Accounting Policies continued
Onerous contracts
Spotless has recognised provisions for various contracts assessed as being onerous as at each
balance date. The provisions have been calculated based on management’s best estimate of
discounted net cash outflows required to fulfil the contracts. The status of these contracts and
the adequacy of provisions will be assessed at each reporting date.
Estimation of useful lives and residual values of property, plant and equipment
The estimation of the useful lives and residual of values of assets has been based on historical
experience as well as manufacturers’ warranties (for plant and equipment), lease terms (for leased
equipment) and turnover policies. In addition, the condition of the assets is assessed at least once
per year and considered against the remaining useful life. Adjustments to useful lives and residual
of values are made when considered necessary.
PROSPECTUS 217
Appendix B
Adjusted EPS Adjusted NPAT divided by total number of Shares on issue at Completion
of the Offer
Adjusted NPAT net profit after tax that is intended to remove the effect of certain non-cash
charges (Amortisation of Customer Contracts and Unwind of Discounts on
Provisions). Refer to Section 3.3
Allocation of Corporate the share of the unallocated corporate overheads that is being attributed to
Overheads the segment on the basis of the proportion of Sales Revenue that the
segment generated. Refer to Section 3.3
Application Form the application form attached to or accompanying this Prospectus (including
the electronic form provided by an online application facility)
ASX ASX Limited or the securities exchange that it operates, as the context
requires
ASX Recommendations the ASX Corporate Governance Council’s Corporate Governance Principles
and Recommendations
PROSPECTUS 219
Appendix B
Glossary continued
Broker any ASX participating organisation selected by the JLMs, Financial Adviser
and the Company to act as a Broker to the Offer
Broker Firm Offer the offer of Shares under this Prospectus to Australian and New Zealand
resident retail clients of Brokers who have received a firm allocation
from their Broker
Capital Expenditure Capital expenditure required to maintain Spotless’ current assets (including
replacement of laundry rental stock) and to expand its business as it wins
additional contracts. Refer to Section 3.3
Closing Date the date on which the Offer is expected to close, being 19 May 2014 in respect
of the Broker Firm Offer and the Personnel and Priority Offer. These dates may
be varied without prior notice
Co-Manager each of Bell Potter Securities Limited ABN 25 006 390 772,
UBS Wealth Management Australia Limited ABN 50 005 311 937
and Wilson HTM Corporate Finance Limited ABN 65 057 547 323
Coinvestment Spotless Coinvestment GP (Jersey) Limited (reg. no. 111721) in its capacity
Shareholders as general partner of Spotless Coinvestment L.P., Clean 2009 C.V. duly
represented by Alplnvest Partners 2009 B.V., its general partner, in its turn
represented by AlpInvest Partners B.V., its managing director, Clean 2011 II
C.V. duly represented by Alplnvest Partners 2011 II B.V., its general partner,
in its turn represented by AlpInvest Partners B.V., its managing director,
Clean 2012 I C.V. duly represented by Alplnvest Partners 2012 I B.V., its
general partner, in its turn represented by AlpInvest Partners B.V., its managing
director and Lentesco Packaging Pty Ltd ACN 136 351 249 as trustee for the
IFM Facility Services Unit Trust
Company Market Study The market study that Spotless commissioned from L.E.K. Consulting
Completion of the Offer the completion of the Offer, being the date upon which Shares are issued or
transferred to Successful Applicants in accordance with the terms of the Offer
Cost Plus contract a customer contract under which Spotless is entitled to reimbursement of its
costs plus a fixed management fee or margin
EBITA earnings before interest, tax and amortisation. Refer to Section 3.3
Eligible LTI Employees the employees that are eligible for the LTI Plan referred to in Section 5.3
Eligible U.S. Fund a dealer or other professional fiduciary organized, incorporated or (if an
Manager individual) resident in the United States that is acting for an account (other
than an estate or trust) held for the benefit or account of persons that are not
“U.S. persons” (as defined in Rule 902(k) under the U.S. Securities Act) for
which it has and is exercising investment discretion, within the meaning of Rule
902(k)(2)(i) of Regulation S under the U.S. Securities Act
PROSPECTUS 221
Appendix B
Glossary continued
Enterprise Agreement an agreement approved by the Australian Fair Work Commission setting out
employment conditions between an employee or group of employees and an
employer in relation to one or more specific workplaces
Enterprise Value the sum of market capitalisation of $1,845.3 million at the midpoint of the
Indicative Price Range and pro forma net debt as at 31 December 2013
(reflecting management target cash position at Completion of the Offer)
of $617.6 million
Escrow Deed the escrow deed between the Company and the Escrowed Shareholders
Escrow Period the period commencing the date Spotless is admitted to the official list of the
ASX and continuing until the date that Spotless’ FY2015 financial results are
provided to the ASX for release to the market
Escrowed Shareholders the PEP Shareholders, the Coinvestment Shareholders and certain
Management Shareholders
Escrowed Shares means the Shares retained immediately following Completion of the Offer
by the Escrowed Shareholders
Evans & Partners Evans and Partners Pty Ltd (ABN 85 125 338 785 / AFS Licence No. 318075)
Existing Banking US dollar-denominated senior debt facilities and associated derivatives, as well
Facilities as certain other obligations of Spotless and its subsidiaries as described in
Section 3.6
Existing Shareholders those Shareholders who hold Shares at the Lodgement Date, being the PEP
Shareholders, the Coinvestment Shareholders, the Management Shareholders
and other current Shareholders
Existing Shares Shares held by all Existing Shareholders as at the Prospectus Date
Exposure Period the seven day period after the Prospectus Date, which may be extended by
ASIC for up to an additional seven days, during which an Application must not
be accepted
Facility Services Spotless’ Facility Services segment, which includes the results of Spotless’
facility management, catering and cleaning service offerings to customers in
the Health, Education and Government; Commercial and Leisure; and Base
and Township customer sectors. Refer to Section 3.5
Final Price the price per Share that all Successful Applicants will pay for Shares under the
Offer as determined by the bookbuild and the process set out in Section 6.4,
denominated in Australian dollars
Financial Adviser Highbury Partnership Pty Limited (ABN 14 162 169 502/AFSL 434566)
Forecast Financial the forecast financial information described as Forecast Financial Information
Information in Section 3.9
Free Cash Flow EBITDA less change in Working Capital less Maintenance Capital Expenditure.
Refer to Section 3.3
Free Cash Flow Free Cash Flow divided by EBITDA, expressed as a percentage
Conversion
Growth Capital Capital Expenditure specifically related to new contracts, material expansion of
Expenditure an existing contract or investment to reduce the cost base. Refer to Section 3.3
GST has the meaning given in A New Tax System (Goods and Services Tax) Act
1999 (Cth)
Income Tax Assessment means the Income Tax Assessment Act 1936 (Cth) or the Income Tax
Act Assessment Act 1997 (Cth) as appropriate
Independent Director means each of Margaret Jackson AC, Diane Grady AM, Garry Hounsell and
The Hon. Nick Sherry
Indicative Price Range the indicative price range for the Offer of $1.60 to $1.85 per Share
PROSPECTUS 223
Appendix B
Glossary continued
Institutional Offer the invitation to Institutional Investors under this Prospectus to acquire Shares
as described in Section 6.4
Institutional Offering the offering memorandum under which the Institutional Offer will be made to
Memorandum QIBs and Eligible U.S. Fund Managers in the United States which consists of
this Prospectus and an offer document “wrap”
JLMs Joint Lead Managers, being Citigroup Global Markets Australia Pty Limited
(ABN 64 003 114 832 / AFS Licence No. 240992) (Citi), Deutsche Bank AG
Sydney Branch (ABN 13 064 165 162 AFS Licence No. 238153) (Deutsche
Bank), UBS AG, Australia Branch (ABN 47 088 129 613 / AFS Licence No.
231087) (UBS)
Laundries The Laundries segment includes the results of Spotless’ laundry and linen
service offerings. Refer to Section 3.5
Legacy Pass Through the direct cost associated with Legacy Pass Through Revenue
Costs
Legacy Pass Through Spotless has one large government customer for which it procures certain
Revenue goods and services on a “pass through” basis. That is, the customer
reimburses Spotless for the cost of supply, with no margin. Refer to
Section 3.3
Lentesco Lentesco Packaging Pty Ltd (ACN 136 351 249) as trustee for the IFM Facility
Services Unit Trust
Listing admission of Spotless to the official list of the ASX and quotation of the Shares
on the ASX
LTI Plan the Spotless Executive Incentive Plan described in Section 5.3.3
Maintenance Capital Capital Expenditure replenishing or replacing existing property, plant and
Expenditure equipment. Refer to Section 3.3
Management current management employees of the Spotless Group who hold Existing
Shareholders Shares immediately prior to Listing
New Banking Facilities new banking facilities following Completion of the Offer. Terms of the new
facilities are detailed in Sections 3.6.4 and 9.5
New Shares the new Shares to be issued by the Company under the Offer
Non-Executive Director a member of the Board of Directors who does not form part of Spotless’
management
Offer Management the agreement of that name between Company, SaleCo and the JLMs on or
Agreement about Prospectus date
Other Income government grant income relating to traineeships and operational foreign
exchange gains. Refer to Section 3.3
Pacific Equity Partners Pacific Equity Partners Pty Ltd (ACN 082 283 949)
Pacific Industrial Pacific Industrial Services Pty Ltd (ABN 27 154 229 562), the former name of
Services Spotless Group Holdings Limited
PEP Advisory PEP Advisory IV Pty Limited (ACN 125 815 223)
PEP Shareholders Pacific Equity Partners Fund IV GP (Jersey) Limited in its capacity as general
partner of Pacific Equity Partners Fund IV LP (incorporated in Jersey), Pacific
Equity Partners Fund IV GP (Jersey) Limited in its capacity as general partner
of Pacific Equity Partners Supplementary Fund IV LP (incorporated in Jersey),
Pacific Equity Partners Fund IV (Australasia) Pty Ltd ACN 124 839 989 as
trustee for Pacific Equity Partners Fund IV (Australasia) Unit Trust (incorporated
in Australia), Pacific Equity Partners Fund IV (Australasia) Pty Ltd ACN 124 839
989 as trustee for Pacific Equity Partners Supplementary Fund IV (Australasia)
Unit Trust (incorporated in Australia), PEP Investment Pty Limited ACN 083
026 984 (incorporated in Australia), Eagle Coinvestment Pty Limited ACN 119
182 688 as trustee for Pacific Equity Partners Fund IV Co-investment Trust B
(incorporated in Australia), being funds advised or managed by Pacific
Equity Partners
Personnel and Priority the Offer of Shares to certain employees of Spotless Group as described in
Offer Section 6.5 and investors nominated by Spotless
Plan Committee the committee which has been delegated power by the Board to administer
the LTI Plan or if there has been no delegation, the Board
PROSPECTUS 225
Appendix B
Glossary continued
Pro Forma Historical the financial information described as Pro Forma Historical Financial
Financial Information Information in Section 3
Profit and Loss contract in relation to a contract means a customer contract under which Spotless
takes or shares with the customer the profit and loss risk of providing services
Prospectus this document (including the electronic form of this Prospectus) and any
supplementary or replacement prospectus in relation to this document
Prospectus Date the date on which a copy of this Prospectus was lodged with ASIC,
being 28 April 2014
Public Information public and other media statements made by or on behalf of (and with the
express authorisation of) Spotless or SaleCo or in relation to the affairs of
Spotless, the Group or the Offer
Sales Revenue total revenue excluding Legacy Pass Through Revenue and excluding Other
Income. Refer to Section 3.3
SAP IT Capital Capital Expenditure relating to SAP IT implementation. Refer to Section 3.3
Expenditure
Segment Contribution EBITDA generated by each segment in the ordinary course of business. Refer
to Section 3.3
Segment EBITA Segment EBITDA less depreciation (including both direct segment
depreciation and an allocation of corporate overhead depreciation that is
attributed to the segment on the basis of the proportion of Sales Revenue that
the segment generated). Refer to Section 3.3
Segment EBITDA EBITDA of the segment after the Allocation of Corporate Overheads. Refer to
Section 3.3
Share Registry Link Market Services Limited (ABN 54 083 214 537)
Standard & Poor’s means Standard & Poor’s (Australia) Pty Ltd (ACN 007 324 852)
STI Plan Spotless’ short term incentive plan described in Section 5.3.3
Successful Applicant an Applicant or Institutional Investor who is issued Shares under the Offer
UBS UBS AG, Australia Branch (ABN 47 088 129 613 / AFS Licence No. 231087)
Working Capital the total of current trade and other receivables, inventory, prepayments, trade
and other payables, current provisions and other current creditors. Refer to
Section 3.3
the 2012 Acquisition the acquisition by Pacific Industrial Services of Spotless Group Limited
in August 2012
PROSPECTUS 227
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