Special Meeting – Acquisition of Aged Care Facilities
11544589_1
NZX Release 27 May 2020
Special Meeting - Acquisition of Aged Care Facilities
Background
Promisia Integrative Limited (NZX:PIL) (Promisia) is pleased to confirm that it will hold a Special
Meeting of shareholders on 11 June 2020 through the virtual meeting platform available at
http://www.virtualmeeting.co.nn/pil20sm, starting at 2 pm.
At the meeting, shareholders will be asked to consider, and if thought fit, pass resolutions approving
the acquisition of aged care facilities from the Brankin Family Trust and related transactions.
Accompanying this announcement are:
• The Notice of Meeting;
• A Listing Profile detailing the Promisia’s retirement and aged care operations should the
resolutions be passed;
• An Independent Report on the transactions by Simmons Corporate Finance Limited; and
• A New Constitution as described by the Notice of Meeting.
The Board considers that completing the Transactions is in the best interests of Promisia shareholders
as the Transactions will allow Promisia to acquire a new business with a strong reputation and reinvent
Promisia in a new industry; allow shareholders to retain their shares; and have an interest in an
established business in the aged care sector with strong growth prospects.
In Peter Simmons’ opinion:
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...after having regard to all relevant factors, the positive aspects of the Transactions (including
the Brankin Allotment) significantly outweigh the negative aspects from the perspective of the
Non-associated Shareholders.
Shareholders are encouraged to read the Independent Report by Peter Simmons in full in determining
their voting decision.
Website Information
As referred to in the Listing Profile, addition information on the business and assets of the aged care
facilities, including historic financial information is available on the Promisia website at
https://www.promisia.com/.
ENDS
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Paragraph 2.2 Summary of the Evaluation of the Merits of the Transactions (Including the Brankin Allotment), Promisia
Integrative Limited Independent Adviser’s Report and Appraisal Report In Respect of the Acquisition of Shares in 6 Aged Care
Facilities Companies from the Brankin Family Trust, Simmons Corporate Finance Limited
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For further information please contact Mr Stephen Underwood, Chairman on 027 499 3387 or Mr Rene
de Wit on 021 571 000.
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11518572_1
26 May 2020
Dear Shareholder
Please find enclosed notice of Promisia Integrative Limited’s (PIL) special meeting of shareholders
which will be held on 11 June 2020 by virtual means, starting at 2 pm. Details for logging into the meeting
are set out in the accompanying proxy form.
Background
Shareholders will be well aware of the regulatory difficulties that have placed the future of PIL at risk. In
particular, the regulatory actions taken by Medsafe in relation to Arthrem have severely impacted sales
and jeopardised the ability for the business to operate.
PIL is waiting for a hearing date in the District Court trial where it will contest charges from the Ministry
of Health that it breached the Medicines Act. The maximum fine for these offences is $100,000 per
offence but recent fines have been in the order of $1,000 per offence. The Ministry of Health prosecution
is limited to the Arthrem supplement and is not expected to have any material impact on any of PIL’s
future transactions and we believe any brand damage has already been incurred.
It is the view of the PIL directors that there is little, if any, viable future in continuing with the current
business activities. The Board has been exploring new opportunities to leverage the listing of PIL and
introduce a profitable business that is resilient and scalable. This has led to PIL entering a conditional
agreement to acquire three aged care facilities in the North Island and a long term lease for a property
in the South Island that is intended to operate as an aged care facility. The intention is to complete this
transaction and cease operating in the natural remedy business. Following completion the Board will
consider a possible re-branding of PIL to reflect its change in direction.
As advised to the market on 14 February 2020, most Arthrem stock was subject to an impairment
provision as at 30 June 2019 and the unimpaired stock has been sold. Sales of Arthrem in Australia
have ceased.
The Aged Care Sector
The aged care sector is well represented on the NZX market and understood by financial markets. With
an aging population and continued capacity constraints on the New Zealand public health system,
demand can only be expected to grow. With that growing demand, the Board believes that a move into
this sector could provide PIL with stable cash flows, sustainable profits, and growth through new
developments at the acquired facilities. There is also the opportunity to grow through the acquisition of
other profitable and high quality privately owned facilities and to undertake greenfield developments.
The Facilities
PIL’s director and largest shareholder, Mr. Thomas Brankin, has (through the Brankin Family Trust)
entered into a conditional agreement with PIL (Purchase Agreement) to sell 100% of the shares on
issue of six companies to PIL (the Brankin Acquisitions). Five of these companies own the business
and assets of the following three profitable aged care facilities:
• Ranfurly Residential Care Centre, located in Feilding;
• Nelson Residential Care Centre, located in Feilding; and
• Eileen Mary Residential Care Centre, located in Dannevirke,
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As part of the Purchase Agreement, the Brankin Family Trust has agreed to fund and develop a further
32 new external units and 10 internal units as an expansion of the Ranfurly Residential Care Centre (the
Ranfurly Development). A separate purchase price has been attributed to this development, being
$14,180,000 (Ranfurly Purchase Price). This amount will be treated as an interest free loan repayable
to the Brankin Family Trust following Completion. The sole recourse for repayment of the loan is from
the proceeds of selling occupational rights agreements to those new units, once developed.
In addition, the sixth company being acquired from the Brankin Family Trust has a long term lease of a
property at 62 Aldwins Road, Christchurch (Aldwins Facility). PIL will also obtain the benefit of an
option to purchase the land and buildings at the Aldwins Facility for a fixed purchase price of
$10,000,000, plus certain improvements costs and GST (if any) (Aldwins Option). The Aldwins Option
can be exercised at any time before 31 May 2021 at PIL’s discretion.
The Brankin Acquisitions, the Ranfurly Development, together with their associated debt and equity
financing, are referred to in this Notice of Meeting as the Transactions.
PIL proposes to acquire these three aged care facilities and the lease of the Aldwins Facility (Facilities)
for an aggregate purchase price of $31,385,000 on a debt free basis (Purchase Price). The expected
completion date under the Purchase Agreement is five days following this shareholder meeting
(Completion). For further discussion of PIL’s corporate structure following Completion of the
Transaction, please see page 19 of the Profile described below.
Profile and Independent Report
Accompanying this Notice of Meeting is a listing profile (Profile) which describes the assets and the
intended business of PIL if shareholders approve the Transactions. The Profile also provides financial
information and risk factors that shareholders should consider as part of their voting decision.
Also accompanying this Notice of Meeting is an independent report by Simmons Corporate Finance
Limited (Independent Report). This report assesses the merits of the Transactions for shareholders.
Acquisition Financing
PIL proposes to finance the acquisition of the Facilities through a mixture of debt and equity as follows:
• New debt finance of approximately $17,780,000. PIL is currently working through satisfying
conditions for securing this debt finance with a New Zealand registered bank and the Transactions
remain conditional on this debt finance being secured.
• An issue of $8,000,000 of ordinary shares to the Brankin Family Trust as part consideration for
the Transaction at an issue price of $0.001 per share.
• An issue of up to $8,000,000 of ordinary shares to wholesale investors at an issue price of $0.001
per share (Placements). The Transactions are conditional on PIL securing a minimum of $6
million of Placements. PIL has indicative commitments of over $5 million and, following the issue
of the Profile will look to secure legally binding commitments and reach the $6 million required
level.
Any additional subscriptions received from wholesale investors will be used for debt reduction, working
capital or expansion/development opportunities. PIL will keep the market informed on progress against
these conditions in accordance with its continuous disclosure obligations.
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Share Purchase Plan
As is set out in the resolutions, PIL also intends to offer all shareholders a share purchase plan later this
year where shareholders can, subject to scaling, acquire up to $15,000 of shares in PIL at $0.001 per
share. The maximum number of shares available under the share purchase plan will be 5 billion shares
having an aggregate value of $5,000,000. That offer is intended to be made in September 2020 after
Completion has occurred and after audited accounts for the six months to 30 June 2020 for PIL have
been released to market.
It is likely that at this time PIL will also undertake a share consolidation and issue a notice requiring
shareholders holding Shares below a minimum holding level ($1,000 in aggregate) to increase their
holding to the minimum holding level or PIL will acquire their shares. PIL expects to complete the
consolidation and the minimum holdings buyback immediately after allotment of the share purchase
plan.
PIL will advise the use of the funds raised under the share purchase plan at the time of the offer. One
potential use of the funds is to fund in part the purchase price of the Aldwins Option.
Benefits of the Transactions
The Board considers the Transactions to be of significant benefit for PIL as they will:
• Introduce substantial and profitable business operations into PIL in the aged care sector;
• Provide growth opportunities through building on surplus land at the Facilities. Resource and
building consents are already in place for a $14 million extension of Ranfurly Residential Care
Centre, and an arrangement for Mr. Brankin’s interests to fund this development has been agreed
and is detailed in the Profile;
• Allow PIL to establish a new residential care facility with minimal capital expenditure in central
Christchurch, where PIL believes there is built up demand for new aged care facilities; and
• Provide a platform for the acquisition of other independent aged care facilities operating
throughout New Zealand, particularly in provincial areas and lower property cost centres.
There will be a significant dilutionary effect on shareholders from the Transactions as is detailed in this
Notice of Meeting. However, Shareholders will be able to offset the dilution of their interests by
subscribing for shares under the Share Purchase Plan at the same issue price offered under the
Transactions.
If the Transactions do not proceed, PIL will continue to have no operating business or sources of income
and will likely face insolvency causing shareholders to receive a total loss on their investment.
The Board considers that the Transactions provide a very worthwhile set of opportunities for
shareholders and believes the Transactions are in their best interests. The Board is confident that, with
Mr Brankin’s expertise and experience in the aged care sector, PIL will transition successfully and thrive
in this sector.
Approvals Sought
Due to the nature of the Transactions, PIL shareholder approval is necessary in order to proceed. A
description of the Transactions and the requirement for the resolutions to be considered at the meeting
are set out in the Notice of Meeting.
The resolutions being put forward at the meeting will, if passed, authorise the Board to:
• Proceed under the NZX Listing Rules, Takeovers Code and the Companies Act 1993 with
acquiring the six companies that own and/or operate the Facilities.
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• Perform the financing arrangements required to proceed with the Transactions, as summarised
above and detailed further in the Notice of Meeting.
• Exercise the Aldwins Option and acquire the land and building of the Aldwins Facility before 31
May 2021.
• Undertake a future share purchase plan offer to all shareholders at the same price per share that
Placement investors and the Brankin Family Trust will receive under the Transactions.
• Enter new remuneration and incentive arrangements for directors and employees where:
o Director remuneration reflects the new scale of PIL’s business and is at a level sufficient to
attract new directors with relevant expertise to further strengthen governance.
o Incentivise key employees to help retain them for the long term and to align their interests
with shareholders.
o Recognise the considerable additional workload of some existing directors and
management in guiding PIL through its recent difficulties and in facilitating the Transactions
for shareholders.
• Adopt a new constitution that complies with the new NZX Listing Rules.
If approved, the Transactions will result in the essential nature of PIL’s business changing to focus on
the operation and development of business interests in the aged care sector.
A timetable for the Proposed Transaction is set out in the Explanatory Notes at page Error!
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Board Recommendation
The Board considers that the transactions are in the best interests of PIL and its shareholders and
recommends that shareholders vote in favour of the resolutions outlined in this Notice of Meeting. The
Board encourages you to read this Notice of Meeting, together with the Profile and Independent Report,
and to exercise your right to vote.
The enclosed proxy form has detailed instructions on how shareholders may lodge their vote or appoint
a proxy to vote on their behalf if they are unable to attend the meeting online. Shareholders may submit
specific questions to the Board at any time in advance of the meeting by emailing me at
stephen@renouf.co.nz.
I look forward to seeing you at the meeting.
Stephen Underwood
Chairman
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NOTICE OF SPECIAL MEETING
If you have sold or otherwise transferred all of your shares in PIL, please pass this Notice of
Meeting, together with all accompanying documents, as soon as possible to the purchaser or
transferee or to the broker or other person who arranged the sale or transfer of your shares.
Notice is hereby given that a virtual special meeting (Meeting) of shareholders of Promisia Integrative
Limited (PIL) will be held on 11 June 2020 through the virtual meeting platform available at
http://www.virtualmeeting.co.nz/pil20sm starting at 2 pm.
Capitalised terms used in this Notice of Meeting have the meaning given to them in the Glossary
commencing on page 34 of this Notice of Meeting.
AGENDA
A. Chairman’s introduction.
B. Presentation to shareholders.
C. Shareholder discussion.
D. Resolutions.
RESOLUTIONS
To consider and, if thought fit, to pass the following Special Resolution:
1. Approval of Transactions: That under Listing Rules 4.2.1(a) (issue of equity securities),
5.1.1(a) (change in nature of business), 5.1.1(b) (acquisition of material assets) and 5.2.1
(related party transaction) and Rule 7(d) (allotment of voting securities) of the Takeovers Code
and section 129 of the Companies Act 1993, the performance of the Transactions on the basis
described in this Notice of Meeting is approved.
To consider and, if thought fit, to pass the following Ordinary Resolutions:
2. Approval of Placements: That under Listing Rule 4.2.1(a) (issue of equity securities) the Board
is authorised to issue up to 8 billion Shares at an issue price of $0.001 per Share to wholesale
investors that have apply for and are allotted such Shares within 12 months of the date of the
Meeting (and are not PIL directors or associated persons of such directors) and otherwise on
the basis described in this Notice of Meeting.
3. Approval to issue equity securities under Aldwins Option: That under Listing Rule 4.2.1(a)
(issue of equity securities), if the Board determines to exercise the Aldwins Option then it is
authorised to partially satisfy the Aldwins Purchase Price by issuing to Teltower Limited up to 4
billion Shares at an issue price of $0.001 per Share on the terms described in this Notice of
Meeting.
4. Approval of Share Purchase Plan: That under Listing Rule 4.2.1(a) (issue of equity securities)
the Board is authorised issue up to 5 billion Shares pursuant to a Share Purchase Plan that will
offer each of its shareholders (other than Mr Thomas Brankin and his associated persons) an
opportunity to subscribe for up to $15,000 of Shares (subject to scaling) at an issue price of
$0.001, to be conducted within 12 months of the date of this Meeting and on the basis described
in this Notice of Meeting.
5. Approval of share issue under Employee Share Scheme: That under Listing Rule 4.2.1(a)
(issue of equity securities) the Board is authorised to offer to its Employees up to 1 billion unpaid
Shares at an issue price of $0.001 per Share on the terms of an Employee Share Scheme
described in this Notice of Meeting.
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6. Approval of share issue under Director Share Scheme: That under Listing Rule 4.2.1(a)
(issue of equity securities), the Board is authorised to issue and offer the current director Mr.
Stephen Underwood up to 150,000,000 unpaid Shares at an issue price of $0.001 per Share
on the terms of the Director Share Scheme described in this Notice of Meeting.
7. Approval of Director Fees: That under Listing Rules 2.11.1 (directors’ remuneration), 2.11.2(b)
(directors’ remuneration through an issue of equity securities) the Board is authorised to
increase the aggregate maximum amount of fees that can be paid to Directors from $100,000
to $200,000 in each financial year, with effect from Completion and with such remuneration
permitted to be paid, in whole or in part, in cash or by way of an issue of equity securities in
accordance with Listing Rule 4.7.
To consider, and if thought fit, to pass the following Special Resolutions:
8. Revocation and Adoption of New Constitution: That under section 32 of the Companies Act,
the existing constitution of PIL be revoked and that PIL adopt the new constitution described in
this Notice of Meeting with effect from the date of this special resolution being passed.
PROCEDURAL NOTES
Interdependence of Resolutions
Resolutions 3 to 7 (both inclusive) in this Notice of Meeting are dependent on Resolutions 1 and 2 being
passed by shareholders. If those two Resolutions are not passed then those other Resolutions put to
the Meeting will not be treated as having been passed.
Resolution 8 is not dependent on any other Resolutions being passed.
Relationship to Market Price
As at 19 December 2019 (being the date shareholders were notified publicly of the Transactions through
the NZX market) the price of a Share on the NZX was $0.002.
The proposed share issues under Resolutions 1 to 6 will be undertaken at a price per share of $0.001.
This represents a discount of 50% from the market price of a share at the time the Transactions were
announced. The issue price has been set at a level agreed by negotiation with the Brankin Family Trust
and in the Board’s view, fairly reflects the value of PIL as an NZX listed shelf company.
Proxies
Any shareholder of PIL who is entitled to attend and vote at the Meeting may appoint a proxy to attend
and vote on their behalf. A corporation which is a shareholder may appoint a representative to attend
the Meeting on its behalf in the same manner as it could appoint a proxy. A proxy does not need to be
a shareholder of PIL. A Proxy Form can be returned by delivery, mail, email, fax, or online (as set out
below).
The Chairman of the Meeting (Mr. Stephen Underwood) and any of the Directors are prepared to act as
proxy. Where any Director is appointed as a discretionary proxy and is not prohibited from voting, each
of the Directors intends to vote in favour of all of the Resolutions.
Voting restrictions apply to each of the Directors (and persons associated with them) as detailed below
and shareholders are encouraged to give express voting directions to any Director that they appoint as
their proxy. Please note that the Chairman (Mr. Stephen Underwood) is prohibited from voting on
resolutions 4, 6 and 7 and where he is appointed proxy, voting directions should be given to him in
respect of these resolutions.
To appoint a proxy you should complete and sign the enclosed Proxy Form and either return it by
delivery, mail, email or fax to the share registrar of PIL:
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By delivery:
Promisia Integrative Limited
C/- Link Market Services Limited
Level 11, Deloitte Centre
80 Queen Street
Auckland
By mail:
Promisia Integrative Limited
C/- Link Market Services Limited
PO Box 91976
Auckland 1142
By email: meetings@linkmarketservices.co.nz (please put the words “Promisia Integrative
Limited Proxy Form” in the subject line for easy identification)
By fax: +64 9 375 5990
You may also lodge your proxy online at https://investorcentre.linkmarketservices.co.nz/voting/PIL. You
will require your CSN/Holder Number and FIN to complete your proxy appointment. A shareholder will
be taken to have signed the Proxy Form by lodging it in accordance with the instructions on the website.
The completed Proxy Form must be received by Link Market Services no later than 48 hours before the
Meeting, being 2 pm on 9 June 2020. Online proxy appointments must also be completed by this time.
Registered shareholders at that time will be the only persons entitled to vote at the Meeting and only the
shares registered in those shareholders’ names at that time may be voted at the Meeting.
Ordinary Resolutions
Resolutions 2 to 7 are ordinary resolutions. An ordinary resolution is a resolution passed by a simple
majority of votes of those shareholders entitled to vote and voting on the resolutions in person or by
proxy.
Special Resolutions
Resolutions 1 and 8 are special resolutions. A special resolution is a resolution passed by a majority of
75% or more of the votes of those shareholders entitled to vote and voting on the resolution in person
or by proxy.
Resolution 1 involves approval for a major transaction under the Companies Act and, if it is passed,
then any shareholder that has cast all the votes attached to the Shares registered in that shareholder’s
name and having the same beneficial owner against Resolution 1 is entitled to require PIL to purchase
those Shares in accordance with section 110 of the Companies Act (Minority Buy-out Rights). Appendix
One to this Notice of Meeting sets out the procedure for Minority Buy-out Rights.
If this right is exercised validly by any shareholders, the Companies Act provides for PIL to acquire (or
procure the acquisition of) the relevant Shares at a fair and reasonable price as at the close of business
on 10 June 2020 (being the day before the date of the Meeting), disregarding any value attributable to
the Shares as a result of the Transactions. Shareholders who become entitled to exercise this right are
strongly encouraged to first seek independent professional advice from a financial adviser. In particular,
if they do desire to exit their shareholding, seek advice on whether better value for the Shares may be
obtained by selling on-market compared to exercising these rights.
Voting Restrictions
In relation to Resolution 1 and pursuant to Listing Rule 6.3.1 and Rule 17(2) of the Takeovers Code, Mr.
Thomas Brankin, Mr. Michael John Kirwin Lay and their respective Associated Persons and Associates
are prohibited from voting any Shares that they hold.
In relation to Resolution 2 and pursuant to Listing Rule 6.3.1, the Placement Participants and their
Associated Persons are prohibited from voting any Shares they hold.
In relation to Resolution 3 and pursuant to Listing Rule 6.3.1 Teltower Limited and its Associated
Persons are prohibited from voting any Shares that they hold.
In relation to Resolution 4 and pursuant to Listing Rule 6.3.1, each Director other than Mr. Thomas
Brankin and their respective Associated Persons are prohibited from voting any Shares they hold.
In relation to Resolution 5 and pursuant to Listing Rule 6.3.1, any Employee of PIL together with their
Associated Persons are prohibited from voting any Shares that they hold.
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In relation to Resolution 6 and pursuant to Listing Rule 6.3.1, Mr. Stephen Underwood and his
Associated Persons are prohibited from voting any Shares that they hold.
In relation to Resolution 7 and pursuant to Listing Rule 6.3.1, the current Directors (Mr. Stephen
Underwood, Ms. Helen Down, Mr. Duncan Priest and Mr. Thomas Brankin) and their respective
Associated Persons are prohibited from voting any Shares that they hold.
Under the Takeovers Code, “associates” are, in summary, where the persons are or through a third
person, acting jointly or in concert, where one person acts or is accustomed to act in accordance with
the wishes of the other person, where the persons are related companies or where the persons have a
business relationship, personal relationship, or an ownership relationship such that they should, under
the circumstances, be regarded as associates. Under the Listing Rules, “Associated Persons” has a
similar definition.
PIL will disregard any votes cast on Resolutions 1, 2, 4, 5, 6 and 7 by any persons to whom the foregoing
applies. Any discretionary proxies given to persons disqualified from voting under the requirements set
out above will not be valid.
Interested Directors
Mr. Thomas Brankin is, as a Director, interested in Resolutions 1 and has abstained from voting on the
Board on matters associated with the subject matters of those Resolutions.
Mr. Stephen Underwood is, as a Director, interested in Resolution 6 and has abstained from voting on
the Board on matters associated with the subject matters of that Resolution.
Every Director is interested in Resolution 7 given that it relates to Director remuneration. The Directors
have however been permitted to vote on and be counted in a quorum for a board meeting in relation to
Resolution 7 on the basis of Listing Rule 2.10.2.
Under the Listing Rules, for the purpose of Rule 2.10, the term “interested” bears the meaning
assigned in section 139 of the Companies Act being when a director:
• is a party to, or will or may derive a material financial benefit from, the transaction; or
• has a material financial interest in another party to the transaction; or
• is a director, officer, or trustee of another party to, or person who will or may derive a material
financial benefit from, the transaction not being a party or person that is -
o the company’s holding company being a holding company of which the company is a
wholly-owned subsidiary;
o a wholly-owned subsidiary of the company; or
o a wholly-owned subsidiary of the company; or
• is the parent, child, spouse, civil union partner, or de facto partner of another party to, or
person who will or may derive a material financial benefit from, the transaction; or
• is otherwise direct or indirectly materially interested in the transaction.
Independent Report
Accompanying this Notice of Meeting is the Independent Report. The Independent Report has been
prepared by Simmons Corporate Finance Limited and constitutes an appraisal report for the purposes
of the Listing Rules, and a report from an independent adviser for the purposes of the Takeovers Code.
Shareholders are urged to read the Independent Report in full.
Profile
A Profile as required under Listing Rules 1.11.1 and 7.3.1 accompanies this Notice of Meeting. The
Profile discloses particulars of the assets and business of PIL if the Transactions are approved. The
Profile is forward looking and assumes:
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▪ the Resolutions contained in this Notice of Meeting that relate to the Transactions have all been
passed; and
▪ the Transactions are implemented on the basis set out in this Notice of Meeting.
NZX No Objection
This Notice of Meeting has been reviewed by NZX. NZX has confirmed it has no objection to this Notice
of Meeting.
Trading Suspension in PIL Shares
In accordance with NZX practice for reverse listings, trading in the shares of PIL on the NZX Market was
suspended at the time that the Transactions were first announced to market. It is expected that this
suspension will be lifted and trading will resume after the Meeting has been held and the results of the
Meeting have been announced to market.
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EXPLANATORY NOTES
INTRODUCTION
PIL’s previous business activities involved the manufacturing, sales and marketing of two health
supplements, Arthrem and Artevite. As explained in the Chairman’s letter, PIL encountered a number
of difficulties with those business operations and has now ceased those operations.
These difficulties are apparent in PIL’s recently released annual report for the year ending 31 December
2019 where the audit opinion was disclaimed due to PIL incurring a net loss for the year of $2.4 million,
having negative working capital and equity and being subject to litigation. These factors together meant
the auditor could not form an opinion about PIL’s ability to continue as a going concern.
To stabilise PIL and provide new value opportunities for shareholders, the Board has been investigating
new business opportunities for PIL. These investigations have led to the opportunity to pursue the
transactions and re-focus PIL’s business operations into the New Zealand aged care sector.
A profile of PIL including its history is provided in section 4 of the Independent Report. Key dates for the
Transactions are:
PIL shareholder meeting 2 pm, 11 June 2020
Meeting results announced to market, suspension lifted and Shares
resume trading on NZX Market
11 June 2020
Shares enter trading halt 5pm, 18 June 2020
Completion of the Proposed Transaction (including the issue of all New
Shares)
19 June 2020
Trading halt of Shares on NZX lifted 19 June 2020
Release of Interim Results for six months to 30 June 2020 By 29 August 2020
Share Purchase Plan September 2020
Share Consolidation and Minimum Holdings Purchase October 2020
These key dates and references to them throughout this document are indicative only and may
change. PIL reserves the right to amend the dates without prior notice, subject to applicable law and
the Listing Rules. NZX will continue to apply the suspension of trading in Shares until the shareholders
have voted at the PIL Shareholder Meeting.
THE TRANSACTIONS
The Resolutions put forward in this Notice of Meeting involve seeking shareholder approval for the
following transactions:
• Brankin Acquisitions: acquiring the five companies that own and operate the Facilities and a
sixth company that leases the Aldwins Property;
• Ranfurly Development: acquiring bare land from the Brankin Family Trust and developing 32
new external units and 10 new internal units at the Ranfurly Residential Care Centre;
• Aldwins Option: the Board being authorised to issue up to 4 billion shares at an issue price of
$0.001 per Share towards satisfaction of the purchase price if it decides to exercise the Aldwins
Option and purchase the land and buildings comprising the Aldwins Facility;
• Equity Issuances: issuing up to 16 billion new Shares in the Company at an issue price of
$0.001 per share to raise up to $16 million of capital to fund, in part, the Purchase Price and up
to an additional $5 million at $0.001 per Share under the Share Purchase Plan to reduce debt
or fund growth.
• Debt Facilities: entering new debt facilities of approximately $17.78 million to partially fund the
Purchase Price and provide working capital resources.
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• Remuneration and Incentives: authorise the Board to set new remuneration levels and offer
equity incentives in respect of Directors and Employees that are commensurate with the scale
and operations of PIL following the Transactions.
The above transactions have the effect of changing the essential nature of PIL’s business to the
ownership and operation of aged care facilities, as is described more fully in the Profile.
Each of these key elements to the transactions are discussed in further detail below.
BRANKIN ACQUISITIONS
PIL has entered into the Purchase Agreement to acquire 100% of the shares on issue in the following
companies (Brankin Companies):
• Ranfurly Manor Limited.
• Ranfurly Manor No: 1 Limited.
• Nelson Street Resthome Limited.
• Eileen Mary Age Care Property Limited.
• Eileen Mary Age Care Limited.
• Aldwins House Limited.
The Brankin Companies own and/or operate the Facilities:
• Ranfurly Residential Care Centre located at 6 Monmouth Street Feilding;
• Nelson Residential Care Centre located at 38 Nelson Street, Feilding;
• Eileen Mary Residential Care Centre located at 44 Trafalgar Street, Dannevirke; and
• Aldwins Facility located at 62 Aldwins Road, Christchurch and intended to start operating as an
aged care facility in the next six months.
On or prior to Completion of the Purchase Agreement, the Brankin Family Trust will conduct a restructure
of the ownership arrangements of the Facilities and the land interests being sold under the Purchase
Agreement (Restructure). This aspect of the Transaction is discussed further below.
Further information about the Facilities and the Brankin Companies, including PIL’s corporate structure
following Completion, can be found in the Profile. The following is a summary of the material commercial
terms of the Purchase Agreement:
Purchase Price
The Purchase Price for the Brankin Acquisitions is $31,385,000 and is to be satisfied by:
• A payment in cash to the Brankin Family Trust at Completion of $23,385,000 (funded by the Bank
Facilities and the Placements); and
• The issue of the Consideration Shares at Completion to the Brankin Family Trust, being
$8,000,000 of Shares at an issue price of $0.001 per Share.
The purchase price is the value of the assets agreed by PIL and the Brankin Family Trust by reference
to independent valuations undertaken as at 31 March 2019 (which were the most current valuations at
the time negotiations for the Transaction commenced).
11518572_1 12
In addition to the above, a separate purchase price of $14,180,000 is being ascribed to the Ranfurly
Development Land. This aspect of the Transactions is discussed further below.
The Purchase Price may be adjusted after Completion through an adjustment amount. The adjustment
amount will be the monetary amount equal to prepayments minus reimbursements.
Prepayments means each of the following:
• any amounts paid by or on behalf of the Brankin Companies on or before Completion to the extent
that such amount relates to goods or services to be supplied to the Facilities on or after
Completion;
• any other payments in advance made by the Brankin Companies in respect of the operation of
the Facilities, to the extent that the benefit of the payment is received or is to be received by the
Facilities after Completion; and
• any cash on hand in the Brankin Companies as at Completion.
Reimbursements means each of the following:
• any amounts received by or on behalf of the Brankin Companies on or before Completion to the
extent that such amount relates to goods or services to be supplied by the Facilities after
Completion; and
• any amounts payable for goods and services supplied to and consumed by the Facilities or
otherwise due by the Brankin Companies in connection with the operation of the Facilities before
Completion to the extent that the benefit was received by the Facilities before Completion and
where payment is due but has not been made on or before Completion.
The adjustment amount will be determined through the preparation of an adjustment statement which
will set out the value of all prepayments, reimbursements and the adjustment amount. The amount will
be calculated as at Completion and settled within two months after Completion. If the adjustment amount
is a positive figure, the Purchase Price will increase by the value of the adjustment amount, and a
negative figure will correspondingly decrease the Purchase Price by the value of the adjustment amount.
Conditions
As at the date of this notice, the outstanding conditions required for Completion under the Purchase
Agreement are:
• The shareholders of PIL approving the Transactions as required under the Takeovers Code,
Companies Act and the Listing Rules. This condition must be satisfied by 12 June 2020.
• PIL and the Brankin Family Trust obtaining any contractually required change of control consents
for the Brankin Companies for the Transactions and the Restructure. This condition must be
satisfied by 19 June 2020.
• A debt provider making the funds available under the Bank Facilities to allow Completion to
occur. This condition must be satisfied by 19 June 2020.
• PIL holding legally binding commitments to take up shares under the Placements of at least
$6,000,000. This condition must be satisfied by 19 June 2020.
The status of these conditions at the date of this Notice are discussed further below.
Completion requirements
The requirements to be satisfied at Completion include requirements that are standard for a share sale
and purchase transaction of this nature such as evidence of change of control approvals and changing
the composition of the board of directors of the Brankin Companies.
11518572_1 13
Warranties and indemnities
The Purchase Agreement contains warranties in favour of PIL that:
• Clear title to the shares in the Brankin Companies will pass to PIL.
• There are no outstanding material claims, disputes or litigation concerning the Brankin
Companies.
• All material information for assessing the Brankin Companies has been disclosed to PIL.
• Other warranties that are customary or common for transactions of this nature are provided.
PIL has given the Brankin Family Trust an indemnity in respect of its taxation compliance up until
Completion. The Brankin Family Trust has given PIL an indemnity in respect of the taxation compliance
of the Brankin Companies up until Completion.
Restructure
On or prior to Completion, the Brankin Family Trust intends to restructure the ownership arrangements
of the Facilities and the land interests being sold through the Purchase Agreement. It is intended that
this will help deliver to PIL the Brankin Companies which hold the relevant business interests in the
Facilities free of any corporate trading history.
Currently the following companies own assets used by the Facilities that the parties to the Purchase
Agreement intend for PIL to acquire on completion (Existing Companies):
• Eileen Mary Holdings Limited (previously named Eileen Mary Age Care Limited);
• Ranfurly Manor Holdings Limited (previously named Ranfurly Manor Limited); and
• Design Care Group Limited.
To allow the Brankin Family Trust to retain its shareholdings in the Existing Companies and PIL to
acquire the relevant business interests, the Brankin Family Trust has incorporated the following
companies that will be acquired by PIL under the same names as the previous names of the Existing
Companies (New Companies):
• Eileen Mary Age Care Limited;
• Ranfurly Manor Limited; and
• Nelson Street Resthome Limited.
The Brankin Family Trust has agreed to complete the Restructure by transferring the relevant business
interests in the Existing Companies to the New Companies prior to completion.
RANFURLY DEVELOPMENT
The Ranfurly Development Land is bare land that adjoins the Ranfurly Residential Care Centre and is
being sold to PIL under the Purchase Agreement. It is intended that the Ranfurly Development Land
will be developed to expand the capacity of the Ranfurly Residential Care Centre (the Ranfurly
Development).
11518572_1 14
The Ranfurly Development involves the construction of up to thirty-two new external units and ten new
internal units in three stages (with the removal of one existing internal unit to connect the ten new internal
units to the existing Ranfurly Residential Care Centre). Stage 1 consists of ten internal units and ten
external units; Stage 2 consists of ten external units and Stage 3 consists of twelve external units.
However, the construction of these units may be pursued more slowly or aggressively depending on
prevailing demand.
As noted above a separate purchase price has been ascribed to the Ranfurly Development Land, being
$14,180,000 (Ranfurly Purchase Price). This amount will be treated as an interest free loan repayable
to the Brankin Family Trust following Completion (Ranfurly Loan). The Ranfurly Purchase Price has
been set at a level that assumes the development of the Ranfurly Development Land has been
completed at Completion. At Completion PIL shall grant a mortgage (ranking behind the Bank Facilities
provider and the statutory supervisor) in favour of the Brankin Family Trust (or their nominee) over the
Ranfurly Development Land to secure the Ranfurly Loan under the Purchase Agreement.
Following Completion, interests associated with Mr. Brankin may fund and complete the landscaping of
the Ranfurly Development Land as part of the Ranfurly Development and complete the Ranfurly
Development at their risk. PIL and interests associated with Mr. Brankin will work towards completing
the Ranfurly Development within seven years from Completion.
As new units are constructed at the Development, PIL will market and sell Occupation Right Agreements
(ORA) for those units. ORAs are an agreement to provide the right to occupy a residential unit in a
retirement village and governs the management, services, charges and the nature of the right to occupy
and deal with the unit. All costs incurred in marketing, offering and entering into ORAs for the units on
the Ranfurly Development Land shall be met by PIL. It is the intention of PIL to have ORAs in place
that commence upon construction completion for units in the Ranfurly Development. PIL is only liable
to make repayments on the Ranfurly Loan from the proceeds of the first ORA sold for each unit in the
Ranfurly Development. PIL will be entitled to the full proceeds of each subsequent ORA for a unit in the
Ranfurly Development.
When the Ranfurly Development is completed and an ORA sold for each new unit in it, the Ranfurly
Loan will have been fully repaid and PIL will enjoy the full financial benefit of the Ranfurly Development
in the future. If the Ranfurly Development is not completed within seven years following Completion
(unless the parties agree to an extension) or on certain limited grounds, then the arrangement is
terminated, the Ranfurly Purchase Price (and therefore the Ranfurly Loan) is reduced to the sum of the
repayments already made, amounts to be received for units that are constructed or partially constructed
once an ORA for them is settled and a land value for any undeveloped land remaining at that time.
PIL can only be called upon to make any repayment on the Ranfurly Loan from the proceeds of the first
ORA sold for a new unit in the Ranfurly Development and in no other circumstances. Accordingly, this
arrangement funds the expansion of the Ranfurly Residential Care Centre for PIL with PIL carrying no
development risk but receiving the long-term benefit of the Ranfurly Development. PIL expects there to
be continued demand for units in the extension given limited facilities in the Feilding area and aging
demographics. However, given the financing arrangements for the extension, slow or delayed sales will
place minimal financial risk on PIL.
ALDWINS OPTION
The Aldwins Property is owned by Teltower Limited (Aldwins Landlord), which is owned by Ian Cassels
and Patricia Taylor.
The Aldwins Option gives PIL a discretionary right to purchase the land and buildings at the Aldwins
Facility at any time until 31 May 2021 for the Aldwins Purchase Price, being $10,000,000 plus up to
$1,000,000 to reimburse the Aldwins Landlord for the costs of certain improvements at the property.
The maximum amount of the Aldwins Purchase Price payable by PIL is $11,000,000 plus GST (if any).
If PIL elects to exercise the Aldwins Option, the following material terms will apply:
• PIL must give the Aldwins Landlord 10 working days’ written notice of its decision to exercise the
Aldwins Option;
11518572_1 15
• The settlement of PIL’s purchase of the Aldwins Property will take place no later than 20 working
days from the date that PIL gives that written notice to Aldwins;
• The general conditions of sale contained in the Auckland District Law Society Agreement for Sale
and Purchase will apply. The provisions of that agreement include the usual warranties and
indemnities to be provided by Aldwins Landlord, as vendor, that PIL can expect to receive as
purchaser;
• PIL can satisfy the Aldwins Purchase Price as follows:
o up to $4,000,000 can be satisfied by issuing to the Aldwins Landlord up to 4 billion Shares
in PIL at an issue price of $0.001 per Share (or proportionally adjusted to take account of
any share consolidation undertaken by PIL prior to the Aldwins Option being exercised)
(Aldwins Shares); and
o The balance in cash.
PIL will only exercise the Aldwins Option if it has access to sufficient finance on reasonable commercial
terms to satisfy the Aldwins Purchase Price and there is a real benefit to PIL in acquiring the Aldwins
Property. While a decision will be made in the prevailing circumstances it is the present intention of the
Board to exercise the Aldwins Option.
If PIL does not exercise the Aldwins Option, PIL would still be entitled to continue operating the Aldwins
Facility under the Aldwins Lease.
FINANCING
The Transactions and working capital for PIL will be funded from the following sources:
• Share issue to Brankin Family Trust ($8 million).
• Bank Facilities ($17.78 million).
• Placements (up to $8 million).
The financing arrangement for the purchase of the Ranfurly Development Land is discussed above in
the description of the Transactions. The three financing components above are further described below.
Bank Facilities
The Transactions are conditional on the Bank Facilities being available for drawdown at Completion. At
the date of this Notice of Meeting PIL has agreed conditional terms with a New Zealand registered bank
(Lender) to provide funding as follows (Bank Facilities):
• The Lender provides an amortising term loan of $17,780,000, for a term of 3 years. Facility
amortisation is $1,000,000 per annum with quarterly reductions.
• The interest rate is 3% plus the three-month bank bill market rate (BKBM).
• PIL providing the following security:
o PIL and each member of the guaranteeing group (being PIL, each of the Brankin
Companies and Aged Care Holdings Limited) entering into a first ranking general security
agreement in favour of the Lender;
o Interlocking cross-guarantee between PIL and each member of the guaranteeing group;
o A first ranking mortgage over each of the secured properties (being each of the Facilities
except for the Aldwins Property); and
11518572_1 16
o Limited recourse share security over shares in Aged Care Holdings Limited;
• PIL agreeing to comply with covenants that include:
o financial covenants, including a debt service cover ratio, an interest cover ratio and a 55%
loan to value ratio; and
o reporting covenants, including quarterly reporting, provision of accounts and budgets and
annual registered valuations of the Facilities by a bank approved valuer.
At the date of this Notice the Bank Facilities are under credit committee consideration with the Bank and
a decision is expected at the end of May 2020. PIL has, as a pre-condition to the lending, had an
independent business review report on the Transactions completed by Deloitte and has no outstanding
pre-conditions. If credit committee approval is given, PIL expects legally binding documentation for the
Bank Facilities to be prepared and issued. While PIL anticipates that credit committee approval will be
given, it remains in discussions with a second New Zealand registered bank as a back-up. If PIL did
need to go with the second bank it is talking to, PIL anticipates that the terms would not materially differ
from those described above.
PIL will inform the market on progress with satisfying the Bank Facilities condition in accordance with
its continuous disclosure obligations.
Share Issues
The Share issues to fund the Transactions will all be undertaken at $0.001 per Share and involve:
• $8 million through an issue of 8 billion Shares to the Brankin Family Trust.
• Up to $8 million through an issue of up to 8 billion Shares under the Placement.
PIL has been in discussions with a number of wholesale investors (Placement Participants) to
subscribe for Shares at an issue price of $0.001 per Share. At the date of this Notice, PIL has:
• Entered a binding subscription agreement with Ian Bracken Cassels (or nominee) where Mr.
Cassels has agreed to subscribe for $1.7 million of Shares at $0.001 per Share conditional on
Completion occurring under the Purchase Agreement (Cassels Subscription). Mr Cassels is a
director and shareholder of Teltower Limited which owns the Aldwins Property. Payment is due
after Completion on 15 July 2020. If payment has not been made by the time PIL exercises the
Aldwins Option, PIL may retain $1.7 million of cash of the Aldwins Purchase Price and issue an
equivalent value in Shares.
• Indicative, non-binding interest from approximately 12 wholesale investors to subscribe for
approximately $4.0 million of Shares under the Placement. None of these wholesale investors
are anticipated to hold 5% or more of PIL’s shares immediately following Completion.
• Indicative, non-binding interest from 2 wholesale investors to advance up to $1.7 million to PIL
should it be required to meet the condition that PIL raise $6 million in aggregate to part fund the
Purchase Price. This would be a short-term arrangement that is essentially bridge financing of
the Cassels Subscription to allow Completion to occur. While the form of this bridge finance is still
to be determined, it is likely to be in the form of short-term convertible debt which would be repaid
from the proceeds of the Cassels Subscription when it is received by PIL in mid-July 2020. The
terms of the short-term debt may provide for the lenders to convert all or part of the amount they
advance to Shares (at their option) at $0.001 per Share and may provide that PIL pays a
commercial rate of interest. If secured this funding option would only be drawn upon to the extent
necessary to meet the $6 million funding condition (when taken together with the Placements).
Payment for the Shares issued under the Placement (excluding the Cassels subscription) is due after
the Meeting but prior to Completion so that PIL is in funds at Completion. The Transaction is conditional
11518572_1 17
on $6 million of these funds being available at Completion. PIL will keep the market informed on progress
with this condition in accordance with its continuous disclosure obligations.
PIL will continue discussions with other wholesale investors regarding additional participation in the
Placement following Completion so that the Placement may reach up to $8 million in aggregate. Any
additional funds raised by PIL under the Placement following Completion will be used for future growth
or reduction of debt. PIL is seeking the capacity to raise up to $8 million and issue 8 billion Shares in
aggregate under the Placement until 12 months following the date of the Meeting.
All Consideration Shares issued under the Brankin Acquisition to the Brankin Family Trust will be fully
paid ordinary shares ranking equally in all respects with all existing Shares. However, the Brankin
Family Trust has agreed to escrow Shares that are received.
The Brankin Family Trust has agreed to enter into a restricted security deed on the following terms:
• The restricted security deed will place certain restrictions on:
o 100% of the Consideration Shares (8 billion Shares) for 6 months from Completion;
o 75% of the Consideration Shares (6 billion Shares) for 12 months from Completion;
o 50% of the Consideration Shares (4 billion Shares) for 18 months from Completion; and
o 25% of the Consideration Shares (2 billion Shares) for 24 months from Completion.
(Restricted Periods)
• During the Restricted Periods, the Brankin Family Trust is prohibited from:
o Selling, transferring, assigning or otherwise disposing of, or offer or agree to sell, transfer,
assign or otherwise dispose of their right and title to, and beneficial interest in the
Consideration Shares otherwise than by way of granting a security interest in favour of any
bona fide lender to the Brankin Family Trust; or
o Do, or omit to do, any act if the act or omission would have the effect of transferring effective
ownership or control of the Consideration Shares during the Restricted Periods otherwise
than pursuant to the enforcement of any loan and/or security interest granted to a bona fide
lender to the Brankin Family Trust.
Further details on these share issues, including control and dilution implications are discussed below.
SHARE ISSUES
Resolutions 4, 5 and 6 in this Notice of Meeting seek to approve the issue of equity securities under:
• The Share Purchase Plan;
• The Employee Share Scheme; and
• The Director Shares.
Share Purchase Plan
Resolution 4 of this Notice of Meeting is intended to approve the Share Purchase Plan that PIL intends
to offer to eligible shareholders within 12 months of the date of the Meeting. PIL will not however make
the Share Purchase Plan offer until it has released its first periodic financial reporting under the Listing
Rules.
The purpose of the Share Purchase Plan is to allow PIL’s existing shareholders the opportunity to
acquire additional Shares in PIL at the same issue price of $0.001 that is offered under the Transaction
and to allow PIL to raise capital to grow and/or reduce debt.
11518572_1 18
The key terms of the proposed Share Purchase Plan are as follows:
• the maximum number of Shares offered under the Share Purchase Plan is 5,000,000,000 (5
billion) Shares;
• each shareholder of PIL on the record date for the offer will have a non-renounceable
entitlement to subscribe for up to $15,000 in Shares in PIL (being 15 million Shares) at an issue
price of $0.001 per Share (subject to scaling);
• if PIL receives applications that exceed the 5 billion maximum number of Shares offered,
applications will be scaled down on a proportionate basis to the shareholding percentage of all
shareholders that wish to participate in the Share Purchase Plan;
• an oversubscription facility (which is subject to availability and scaling) will also be available for
any shareholders that want to subscribe for more than their maximum entitlement at the same
issue price of $0.001 per Share; and
• the offer timetable (including the record date) will be advised to the market and will be
determined in accordance with the Listing Rule requirements.
PIL may choose to not extend the offer to shareholders resident outside of New Zealand if the costs or
requirements of doing so are unduly burdensome.
The Board has decided to structure the offer to shareholders as a fixed entitlement to subscribe for
shares rather than a proportionate entitlement offer (i.e. rights issue). The Transactions will cause
substantial dilution and a proportionate offer would be unlikely to give the vast majority of shareholders
a meaningful entitlement to consider taking up.
As part of undertaking the Share Purchase Plan, the Board intends to take two other steps to rationalise
its share register:
• Undertake a share consolidation to reduce proportionately the number of Shares on issue. The
ratio for the consolidation will be determined and advised to the market in due course.
• Issue a notice under the Listing Rules and the new constitution requiring shareholders holding
Shares below a minimum holding level ($1,000 in aggregate) to increase their holding to the
minimum holding level or PIL will acquire the relevant Shares. PIL has a large number of such
shareholders on its share register and they will, through the Share Purchase Plan, be given a
brokerage free opportunity to increase their holding if they wish.
PIL expects to complete the consolidation and the minimum holdings buyback in October after allotment
of the Share Purchase Plan.
NZX Regulation has released COVID-19 related class waivers to increase non-shareholder approved
equity capital raising capacity, including for share purchase plans. However, this class waiver period
ends on 31 October 2020 and to ensure the Share Purchase Plan can proceed as intended should any
delays occur, PIL is seeking shareholder approval for this Share Purchase Plan to have greater time
flexibility.
Employee Share Scheme
Resolution 5 in this Notice of Meeting seeks to approve the issue of Shares for the purpose of enabling
any Employees of PIL to acquire ordinary Shares under an unpaid share plan (Employee Share
Scheme).
The Board wishes to offer Employees an opportunity to participate in the future success of PIL and
incentivise their performance in a way which aligns with the creation of shareholder value.
11518572_1 19
The new Employee Share Scheme that PIL proposes to offer to Employees after Completion allows
Employees an opportunity to participate in the growth and expansion of PIL in the aged care sector
following Completion of the Transactions and to reward Employees for their continued loyalty to PIL. As
part of the Transactions PIL will inherit a number of key staff who are responsible for operating the
various facilities at a day to day level and are vital to the success of the facilities.
The terms of the proposed Employee Share Scheme are as follows:
• up to 1,000,000,000 (1 billion) unpaid Shares will be issued to Promisia Trustee Limited
(Nominee) under the Employee Share Scheme for the issue price of $0.001 per Share (Issue
Price) which is the same issue price offered under the Transactions. The Nominee is a wholly
owned subsidiary of PIL and will hold the unpaid Shares on trust for PIL and Employees subject
to the rules of the Employee Share Scheme; and
• Shares will be vested with Employees over a defined period to provide an incentive and retention
arrangement that is appropriate in the circumstances. While the unpaid Shares remain unpaid,
they will confer no voting rights.
The proposed Employee Share Scheme and all of the unpaid Shares under that scheme will be offered
to Employees by sending an offer letter which specifies:
• The number of unpaid Shares allocated to the Employee;
• The Issue Price (as payable by the Employee);
• That the allocation of unpaid Shares will vest on a defined date (Vesting Date);
• That it is a vesting condition that the Employee is employed by (or contracted to) PIL on a
Vesting Date in order for the relevant unpaid Shares to vest;
• That when unpaid Shares vest, the Issue Price must be paid for those vested shares within a
defined time period (Payment Dates); and
• That PIL holds a lien over the unpaid Shares until they are vested and fully paid up and they
may not be transferred or otherwise dealt with by an Employee during such time.
The Issue Price may be paid by an Employee on the Payment Dates in respect of the unpaid Shares
that have vested. The Issue Price may be paid through either or a combination of the following means:
• Bonus: If PIL issues an Employee any cash bonus under any PIL bonus scheme, then the
Board may, with the agreement of the Employee, apply any such bonus to outstanding amounts
due on vested unpaid Shares allocated to the Employee. However, any such payment shall be
limited to the net amount of such cash bonus (for example, net of PAYE tax).
• Voluntary Payment: An Employee is entitled to pay up their vested unpaid Shares from their
own financial resources.
Upon the unpaid Shares being fully paid up (which may only occur after they have vested), the Nominee
will transfer legal title to the relevant fully paid ordinary Shares to the relevant Employee. The Employee
will then receive legal title to the relevant fully paid ordinary Shares and only then will the Employee
have the ability to hold (and exercise all rights attaching to), or sell, those Shares as they wish.
Unpaid Shares shall revert to being held on trust by the Nominee exclusively for PIL (at which time PIL
may cancel such unpaid Shares) following the occurrence of any of the following events:
• Expiration of Time: Unless the Board gives an Employee written notice to the contrary, when
any unpaid Shares are not fully paid within a specified time period of being allocated to an
Employee.
11518572_1 20
• Election by Employee: Upon an Employee providing written notice to PIL that they wish to
surrender their interest in any unpaid Shares.
• Cancellation: If the Employee’s employment or engagement with PIL ceases due to a breach
of the Employee Share Plan or an act of serious misconduct.
• Insolvency of PIL: If an insolvency event occurs in respect of PIL.
• Bankruptcy of Employee: If the Employee suffers any event analogous to an insolvency (as
determined by the Board), such as bankruptcy.
The Board retains certain discretions under the Employee Share Scheme. For example, if an Employee
has ceased to be an employee or engaged by PIL on a Vesting Date, then the Board may still allow all
or a portion of the unpaid Shares to be vested.
Director Share Scheme
Resolution 6 of this Notice of Meeting is intended to approve the issue of Shares for the purpose of
enabling PIL's Chairman Mr. Stephen Underwood to acquire ordinary Shares under an unpaid share
plan (Director Share Scheme).
The terms of the proposed Director Share Scheme are as follows:
• up to 150,000,000 (150 million) unpaid Shares will be issued to Promisia Trustee Limited
(Nominee) under the Director Share Scheme on Completion for the issue price of $0.001 per
Share (Issue Price), which is the same issue price offered under the Transactions. The Nominee
is a wholly owned subsidiary of PIL and will hold the unpaid Shares on trust for Mr Underwood
subject to the rules of the Director Share Scheme;
• Shares will be vested with Mr Underwood over a two-year period from Completion to provide an
incentive and retention arrangement that is appropriate in the circumstances. While the unpaid
Shares remain unpaid, they will confer no voting rights; and
• That PIL holds a lien over the unpaid Shares until they are vested and fully paid up and they may
not be transferred or otherwise dealt with by Mr Underwood during such time.
The Issue Price of unpaid Shares under the Director Share Scheme that have vested in Mr Underwood
may be paid at any time through either a combination of the following means:
• Director’s Fees: Mr Underwood may elect to allocate all or part of his annual director’s fees to
pay up any vested Shares that are unpaid; and/or
• Voluntary Payment: Mr Underwood is entitled to pay in cash any vested Shares that are unpaid
under the Director Share Scheme.
Upon the unpaid Shares being fully paid up (which may only occur after they have vested), the Nominee
will transfer legal title to the relevant fully paid ordinary Shares to Mr Underwood. Mr Underwood will
then receive legal title to the relevant fully paid ordinary Shares and only then will Mr Underwood have
the ability to hold (and exercise all rights attaching to), or sell, those Shares as he wishes.
Unpaid Shares shall revert to being held on trust by the Nominee exclusively for PIL (at which time PIL
may cancel such unpaid Shares) following the occurrence of any of the following events:
• Expiration of Time: Unless the Board gives Mr Underwood written notice to the contrary, when
any unpaid Shares are not fully paid with a specified period of being allocated to Mr Underwood;
• Election: Upon Mr Underwood providing written notice to PIL that he wishes to surrender his
interest in any unpaid Shares;
11518572_1 21
• Cancellation: If Mr Underwood’s employment or engagement with PIL ceases due to a breach
of the Director Share Plan or an act of serious misconduct;
• Insolvency of PIL: If an insolvency event occurs in respect of PIL; or
• Bankruptcy: If Mr Underwood suffers any event analogous to an insolvency (as determined by
the Board), such as bankruptcy.
DIRECTORS FEES
Resolution 7 of this Notice of Meeting is intended to approve an increase in the amount of Directors’
remuneration that PIL can pay in each financial year from $100,000 to $200,000, payable to all Directors
in aggregate.
The current Directors’ remuneration was set in 2016 and reflects the duties carried out by Directors
based on PIL’s business activities prior to the Transactions.
As the Transactions will substantially change the nature of PIL’s business and PIL’s commercial
operations will increase significantly, the Directors’ duties and governance responsibilities will inherently
change. It is appropriate to review the Directors’ fees to ensure the Directors receive remuneration that
is commensurate with the increased scope of their duties, and the additional time they are required to
commit to perform their responsibilities and attend to the affairs of PIL.
PIL seeks approval for the proposed remuneration as it considers it an appropriate level of remuneration
for the following reasons:
• the increased amount of the directors’ fee pool reflects the market remuneration as set by other
NZX listed companies that also operate in the provision of aged care facilities, and has been
adjusted according to the size of PIL in comparison to those companies;
• to retain Directors of an appropriate level of expertise and experience, PIL needs to remunerate
its directors based on the scale of PIL’s operations and the industry it operates in; and
• to attract new Directors, PIL must be paying a market level of directors’ fees. PIL does intend to
seek new directors with relevant expertise following Completion to strengthen its governance. In
accordance with the Listing Rules on any new appointment occurring the director’s fee pool will
expand by the average amount paid to non-executive directors (disregarding additional committee
or chairperson fees) giving remuneration capacity for such new appointments.
The proposed remuneration will take effect from Completion.
To provide flexibility in the manner in which directors’ fees may be paid, Resolution 7 also seeks approval
to pay directors’ fees, in full or in part, by PIL issuing the directors equity securities rather than cash.
The Board considers that adding this flexibility for the payment of directors’ fees may be advantageous
to PIL if it is in a position where it wishes to preserve cash and Directors agree at the time to take equity.
ADOPTION OF NEW CONSTITUTION
Resolution 9 in this Notice of Meeting seeks to approve the revocation of PIL’s existing constitution and
the adoption of a new constitution (New Constitution).
On 1 January 2019, NZX introduced new Listing Rules which replaced the former NZX Main Board
Listing Rules dated 1 October 2017. PIL was required to comply with the updated Listing Rules from 1
July 2019.
The updated Listing Rules, under Listing Rule 2.18.1, require PIL to ensure that its constitution complies
with the updated Listing Rules. A large number of amendments must be made to PIL’s existing
constitution to ensure that it complies with the new Listing Rules. Due to the number of amendments
that are required to be made, and PIL’s existing constitution needing to be modernised, the Board is
recommending that PIL revoke its existing constitution and adopt the New Constitution.
11518572_1 22
The necessity to amend PIL’s constitution has prompted the Board to undertake a complete review of
PIL’s existing constitution. In undertaking this review, the Board has taken into account the minimum
holding acquisition that it wishes to implement to remove unmarketable share parcels through acquiring
all Shares held by shareholders holding a parcel of Shares less than a Minimum Holding (as defined
under the Listing Rules).
This has led the Board to identify a deficiency in the buyback and redemption provisions under the
existing constitution in relation to the distribution of sale proceeds payable to shareholders that hold
Shares which may be acquired by PIL. The Board expects there to be a significant number of
shareholders holding less than a Minimum Holding who:
• have not kept an up to date address on PIL’s share register and are unlikely to respond to provide
or confirm their account details for payment of proceeds from the acquisition;
• are entitled to receive only very small monetary amounts for their shares and do not respond to
requests for bank account details or create administrative costs in payment handling that are
greater than their actual consideration due.
Without including an adequate mechanism for dealing with these proceeds, the Board will be required
to deal with the proceeds in accordance with the burdensome requirements of the Unclaimed Money
Act 1971 for, what is likely to be, insignificant sums.
To avoid the burdensome requirements, the Board proposes to include in the New Constitution the
following process of paying out sale proceeds:
Application of Proceeds: The proceeds of any Shares acquired by the Board will be applied as follows:
• First, in payment of any reasonable sale expenses;
• Second, in satisfaction of any unpaid calls or other amounts owing to PIL in respect of the Shares;
and
• The residue, if any, must be paid to the account of the person who was the shareholder
immediately before the sale or to their executors, administrators or assigns.
Payment of proceeds: Where PIL does not hold up to date bank account details for a shareholder:
• And a shareholder is entitled to aggregate proceeds of less than $20, the Board will donate the
proceeds to any New Zealand based charity registered under the Charities Act 2005 and as
nominated by the Board from time to time; and
• For any shareholders that are entitled to proceeds greater than $20, the Board will:
o make a reasonable attempt to notify those Shareholders of the amount due to them and
requesting their bank account details. This obligation is discharged once the Board has
sent at least one payment notice to a shareholder’s most recent contact details recorded
in PIL’s share register. The payment notice must advise the amount of proceeds that
shareholder is entitled to, request that shareholder to provide account details for payment
of the proceeds within 30 working days from the date of the notice; and
o if on the expiry of the payment notice that shareholder has not provided account details or
otherwise communicated with PIL, will donate the proceeds to any charity registered under
the Charities Act 2005 and as nominated by the Board from time to time.
Any donations made under the foregoing clauses will represent a complete discharge of the amounts
otherwise due to the relevant shareholders.
11518572_1 23
The advantages of the New Constitution are that:
• It will be shorter and simpler. PIL’s existing constitution is 55 pages and the New Constitution is
only 18 pages;
• It modernises provisions that are now outdated as the existing constitution was adopted in 2001
and legislation that is referred to in the constitution has been amended or superseded; and
• The provisions of the New Constitution incorporate the Listing Rules by reference so if the Listing
Rules are amended in the future, those amendments are incorporated into the New Constitution
by reference without a constitutional amendment being required; and
• It includes the simple and less burdensome process set out above for paying out the sale
proceeds to shareholders from Shares redeemed or acquired by PIL.
Apart from the inclusion of the simplified process for paying out the sale proceeds, the New Constitution
also includes the following key changes as compared to PIL’s existing constitution:
Directors
The rules requiring regular retirement and re-election of directors have been changed.
Under the previous NZX Listing Rules, one third of directors or the number nearest to one third, must
retire at the annual meeting in each year and are eligible for re-election. The directors required to retire
were those who had been in office the longest. Executive directors were not required to retire by rotation
and the term of appointment of any executive director was not to exceed five years. PIL’s existing
constitution incorporated these rules by reciting the conditions of the previous Listing Rules and
providing that one executive director shall be exempt from the obligation to retire by rotation.
Under the new Listing Rules, a director may not hold office without being re-elected past the third annual
meeting after their appointment or re-election, or for three years, whichever is the longer. The
requirement providing that executive directors not retire by rotation and their term not exceed five years
was also removed.
The New Constitution has been amended to reflect these changes by removing the clauses in respect
of rotation and executive directors and providing that directors shall retire from office when required by
the Listing Rules and, subject to the Listing Rules, shall be eligible for re-election.
Board Composition
The New Constitution has been amended to include an express statement that PIL shall comply with
the minimum board composition requirements of the new Listing Rules.
Other Changes
A number of other changes have been proposed in the New Constitution to reflect the Listing Rules,
and to simplify the form of the New Constitution by removing unnecessary repetition of provisions of the
Companies Act and the Listing Rules with which PIL must comply and which would in any event take
precedence in the event of any existing or future inconsistency with the provisions of PIL’s constitution.
The following changes are also proposed to generally update the provisions of the New Constitution:
• Updating the company name from Savoy Equities Limited to PIL;
• Amending the alternate director provision to provide that alternate directors are entitled to
receive remuneration in proportion to their appointer as their appointer may direct by notice in
writing to PIL; and
• To specify that if there are any provisions in the New Constitution that are inconsistent with the
Listing Rules (as amended by any waiver or ruling granted to PIL), the Listing Rules will prevail.
This is not the present position under the existing constitution.
11518572_1 24
The New Constitution will not affect the rights attached to PIL’s Shares, nor impose or remove any
restrictions on PIL’s powers.
The form of the New Constitution can be viewed at www.nzx.com/companies/PIL/announcements.
PIL’s solicitors, Duncan Cotterill, have provided an opinion to NZX that they consider the proposed New
Constitution complies with the Listing Rules, as required under Listing Rule 2.19.1.
EFFECT OF RESOLUTIONS
Effect of Resolutions passing
If the Resolutions are all passed:
• PIL will own a substantial and established business in the aged care sector with a footprint in both
the North and South Island of New Zealand;
• PIL will have the opportunity to develop and expand the business operations acquired, initially
through the Ranfurly Development Land which is fully funded through the Transactions;
• PIL will secure a new stream of income and have a strong balance sheet;
• PIL can leverage the reputation and expertise of the Facilities to establish the Aldwins Facility
which is located in an area understood to have high demand for more aged care facilities;
• PIL would also secure an option to purchase the Aldwins Property at a fixed purchase price;
• On and after Completion of the Transactions, PIL will:
o implement the Employee Share Scheme that will promote staff retention; and
o offer the Share Purchase Plan that will allow PIL shareholders an opportunity to acquire
Shares at the issue price offered under the Transactions and allow PIL to raise more capital
for growth.
This Notice of Meeting should be read in conjunction with:
• the Profile, which discloses particulars of the assets and business plan of PIL if the Resolutions
are passed; and
• the Independent Report, which assesses the fairness of the Transactions.
Effect of Resolutions not passing
The effect of the Resolutions not passing, is as follows:
• PIL will have no operating business or sources of income;
• If PIL is unsuccessful in defending the Ministry of Health charges, PIL will have no trading future
and even if PIL is successful, PIL will have no working capital to continue business operations;
• PIL is unlikely to be offered another opportunity to undertake a transaction of the type contained
in this Notice of Meeting (see section 2.7 of the Independent Report); and
• As at 31 December 2019, the Brankin Family Trust had made advances and loans to PIL
totalling $855,175. To secure repayment, the Brankin Family Trust holds a general security over
PIL’s assets. If the Resolutions do not pass, PIL will likely be insolvent and Brankin Family Trust
would be entitled to appoint a receiver under its general security. If this occurs (or if there is
instead a liquidator appointed) shareholders will have a total loss on their investment in PIL.
11518572_1 25
For further discussion of the effects of resolutions passing and not passing, see section 2 of the
Independent Report.
Dilution Effect
Resolutions 1, 2, 3, 4, 5, 6 and 7 all involve the issue of equity securities. The equity securities
concerned involve Shares and unpaid Shares. Assuming that the Resolutions are all passed and all
Shares that are authorised for issue under the Resolutions are issued (and paid up), then dilution will
occur in respect of current shareholdings.
The dilutionary effect on a shareholder that does not participate in the Share Purchase Plan is as
follows
1
:
Current Shares on Issue: 2,151,797,451
Resolution 1: Shares issued to Brankin Family
Trust under the Transactions.
8,000,000,000
Resolution 2: Shares issued under the Placement 8,000,000,000
Resolution 3: Shares issued as purchase price
under the Aldwins Option.
4,000,000,000
Resolution 4: Shares issued under the Share
Purchase Plan.
5,000,000,000
Resolution 5: Shares issued under the Employee
Share Scheme.
1,000,000,000
Resolution 6: Shares issues under the Director
Share Scheme
150,000,000
Total Shares approved for issue under the
Resolutions:
26,150,000,000
Total Shares on Issue following completion: 28,301,797,451
Example Shareholder percentage holding pre
allotments:
10.00%
Example Shareholder percentage holding post
allotments:
0.76%
The Transactions will result in a non-participating shareholder’s shareholding in PIL being diluted
materially. The number of Shares each shareholder has in PIL following Completion will remain
unchanged by the Share issues, but the percentage of PIL that such a shareholder holds will be
substantially reduced.
Shareholders will have an opportunity to increase their shareholding and off-set this dilutionary effect by
subscribing for additional Shares in PIL under the Share Purchase Plan when it is offered. If
Shareholders choose not to participate in the Share Purchase Plan, their relative shareholdings will be
diluted further. For further detail, see section 2.10 of the Independent Report.
REQUIREMENTS FOR RESOLUTIONS
Shareholder approval for Resolution 1 (Brankin Acquisition, Ranfurly Development and their relevant
debt and equity raising) is required under Listing Rules 4.2.1(a), 5.1.1(a), 5.1.1(b), 5.1.1(c) and 5.2.1
and Rule 7(d) of the Takeovers Code and section 129 of the Companies Act.
1
This table also assumes that no Shares are acquired by PIL under the Minority Buy-out Rights and no allowance is made for
the rounding of holdings at allotment.
11518572_1 26
Shareholder approval for Resolution 2 (Placements) is required under Listing Rule 4.2.1(a).
Shareholder approval for Resolution 3 (Aldwins Option) is required under Listing Rule 4.2.1(a).
Shareholder approval for Resolutions 4 to 6 (Share Purchase Plan, Employee Share Scheme and
Director Share Scheme) are required under Listing Rule 4.2.1(a).
Shareholder approval for Resolution 7 (Directors Remuneration) is required under Listing Rule 2.11.1.
Shareholder approval for Resolution 8 (Revocation and Adoption of New Constitution) is required under
section 32 of the Companies Act.
A description of these Listing Rules, Takeovers Code and Companies Act requirements, a description
of how those requirements are triggered and any relevant disclosures against these requirements are
set out below.
Resolution 1 – Transactions
Listing Rules
Listing Rule 4.2.1(a) – Issue of New Equity Securities
Listing Rule 4.2.1(a) requires shareholders to approve the precise terms and conditions of certain issues
of equity securities. Listing Rule 4.2.2(b) provides that, in the present circumstances, the equity security
issue must be completed within 12 months of the date that shareholders pass Resolution 1.
Shareholder approval for the issue of the Consideration Shares is required under Listing Rule 4.2.1(a).
The table below sets out the specific disclosures required by Listing Rule 7.8.4 for the equity security
issues being authorised in Resolution 1.
Maximum number of
Shares to be issued
8,000,000,000 Shares (Consideration Shares)
Purpose of issue To part fund the Purchase Price under the Transactions.
Issue price $0.001 per Share
Party to whom
Shares will be issued
Thomas David Brankin and Michael John Kirwin Lay as trustees of the
Brankin Family Trust
Consideration for
the issue
$8 million (being part of the Purchase Price).
Time period for the
issue
On Completion
Ranking of Shares to
be issued
The Shares to be issued will rank equally in all respects with all other Shares
on issue in PIL.
Listing Rule 5.1.1(a) – Change in nature of business
Listing Rule 5.1.1(a) provides that, except with prior approval by an ordinary resolution, or a special
resolution if approval by way of special resolution is required under section 129 of the Companies Act
2
,
PIL may not enter into any transaction or series of transactions to acquire, sell, exchange, or otherwise
dispose of assets of PIL which would change significantly the nature of PIL’s business.
The Transactions constitute a ‘transaction’ under Listing Rule 5.1.1(a) as they would significantly change
the nature of PIL’s business from developing and marketing health supplements to owning and operating
aged care facilities as is described more fully in the Profile.
2
PIL is also seeking approval by special resolution for the Transactions as a whole under Resolution 8 in accordance with the
Companies Act 1993.
11518572_1 27
Listing Rule 5.1.1(b) – Disposal or acquisition of assets
Listing Rule 5.1.1(b) provides that, except with the prior approval by an ordinary resolution, or a special
resolution if approval by way of special resolution is required under section 129 of the Companies Act,
PIL may not enter into any transaction or series of transactions to acquire, sell, exchange, or otherwise
dispose of assets of PIL in respect of which the gross value is in excess of 50% of the average market
capitalisation of PIL.
The Transactions constitute a ‘transaction’ under Listing Rule 5.1.1(b). In particular, the Transactions
involve PIL acquiring assets having a gross value that exceeds 50% of the average market capitalisation
of PIL in that PIL’s average market capitalisation at 19 December 2019 (being the date that shareholders
were publicly notified of the Transactions through the NZX market) was approximately $4,304,000 and
PIL will acquire the Facilities for a market value of $31,385,000.
Listing Rule 5.1.1(c) – Requirement for Special Resolution
Listing Rule 5.1.1(c) provides that a special resolution is required to approve transactions under Listing
Rules 5.1.1(a) or (b) if approval by special resolution is required under section 129 of the Companies
Act. This is required as is discussed below.
Companies Act
Shareholder approval is required under section 129 of the Companies Act 1993 as the Transactions
constitute a ‘major transaction’. A major transaction is a transaction or related series of transactions
that involves acquiring assets, disposing of assets or incurring obligations that together or individually
have a gross value which is more than half the market value of a company’s assets before the relevant
transaction(s).
The current book value of PIL’s total assets is $85,000 (as determined in PIL’s annual report as at 31
December 2019).
Resolution 1 seeks shareholder approval by special resolution for the Transactions individually and
taken as a whole for the purposes of section 129.
Listing Rule 5.2.1 – Related Party Transaction
Listing Rule 5.2.1 provides that except with the prior approval of an ordinary resolution, PIL may not
enter into a ‘Material Transaction’ with a ‘Related Party’. A Material Transaction is a transaction or
related series of transactions that involves acquiring or disposing of assets that have an Aggregate Net
Value (being the greater of the net tangible asset value or market value) above 10% of the issuers
Average Market Capitalisation.
The Transactions proposed by Resolution 1 constitute a ‘Material Transaction’ because they involve:
• the acquisition of assets, being 100% of the shares on issue in the Brankin Companies from the
Brankin Family Trust with a market value of $31,385,000, which is above 10% of PIL’s Average
Market Capitalisation;
• the issue of the Consideration Shares to the Brankin Family Trust have a value of $8,000,000,
which is above 10% of PIL’s Average Market Capitalisation.
• the Ranfurly Development, the purchase price attributed to the development being $14,180,000,
which is above 10% of PIL’s Average Market Capitalisation.
As at 19 December 2019 (being the date that shareholders were publicly notified of the Transactions
through the NZX market), PIL had a market capitalisation of approximately $4,304,000.
The Brankin Family Trust is a ‘Related Party’ of PIL as it is the holder of a relevant interest in more than
10% of the equity securities in PIL (maintaining a shareholding in PIL of 1,103,804,210 Shares, being
51.3%) and it is an ‘Associated Person’ of PIL’s director, Mr. Thomas Brankin.
11518572_1 28
The Independent Report accompanying this Notice of Meeting is an Appraisal Report under the Listing
Rules and is partly required due to the Transactions constituting a ‘Related Party’ transaction. The
Independent Report gives an opinion on the fairness of the Transactions in Section 3.
Takeovers Code
PIL is a "Code Company" as it is listed on the NZX Main Board and has financial products that confer
voting rights, and is subject to the Takeovers Code. The fundamental rule under rule 6 of the Takeovers
Code provides that a person (and their associates) who hold or control 20% or more of the voting rights
in a Code Company may not become the holder or controller of an increased percentage of the voting
rights in the Code Company. An exception to the fundamental rule under rule 7(d) is that a person (and
their associates) may become the holder or controller of an increased percentage of the voting rights in
a Code Company by an allotment to a person if the allotment has been approved by an ordinary
resolution in accordance with the Takeovers Code. Resolution 1 seeks such approval.
The Brankin Family Trust currently holds 51.3% of voting rights in PIL and PIL will issue to the Brankin
Family Trust the Consideration Shares, which will result in the Brankin Family Trust holding an increased
percentage of voting rights (being a maximum of 62.99% of voting rights in PIL).
The information below corresponds to that as required by Schedule 5 to the Takeovers Code for the
share allotments being authorised by Resolution 1 and is based on the maximum theoretical control
percentage that the Brankin Family Trust can hold. The date used to determine the particulars set out
below is the date of this Notice of Meeting. The assumptions on which the particulars in the following
table are calculated are as follows:
• 2,151,797,451 Shares are on issue on the date of this Notice of Meeting;
• There is no change in the total number of Shares on issue from the date of this Notice of Meeting
until Completion;
• 8 billion Shares are issued to Thomas David Brankin and Michael John Kirwin Lay as trustees of
the Brankin Family Trust under the Purchase Agreement; and
• 4.3 billion Shares are issued under the Placements at Completion (with bridge financing of $1.7
million obtained in order to satisfy the $6 million Placement condition as is more particularly
described on page 16).
This percentage will be diluted by the Shares to be issued on and after Completion under the Cassels
Subscription, the Aldwins Option, Share Purchase Plan, Employee Share Scheme and Director Share
Scheme and the expected maximum control percentage that the Brankin Family Trust will hold based
on the share issues described in this Notice of Meeting are exhibited in the table included in the section
entitled “Director Recommendation” at the end of this Notice of Meeting.
Rule 16, Takeovers Code Compliance Information
(a)
the identity of the allottee and, if different
from the allottee, the identity of any person
who will become a controller of an increased
percentage of voting securities in the code
company as a result of the allotment or
allotments.
Thomas David Brankin and Michael John Kirwin
Lay as trustees of the Brankin Family Trust
(b)
particulars of the voting securities to be
allotted, including:
(i) the maximum number that could be
allotted; and
8,000,000,000 Shares
11518572_1 29
(ii) the percentage of the aggregate of
all existing voting securities and all
voting securities that could be
allotted that that number represents;
and
55.36%
(iii) the maximum percentage of all
voting securities that could be held
or controlled by the allottee
after completion of the allotment;
and
62.99%
(iv) the maximum aggregate of the
percentages of all voting securities
that could be held or controlled by
the allottee and the allottee’s
associates after completion of the
allotment.
62.99%
(c)
Not applicable
(d)
the issue price for the voting securities to be
allotted and when it is payable.
$0.001 per Share, payable (or applied) at
Completion.
(e)
the reasons for the allotment To part fund the Purchase Price.
(f)
a statement to the effect that the allotment, if
approved, will be permitted under rule 7(d) of
the Takeovers Code as an exception to rule
6 of the Takeovers Code.
The allotment of the Shares, if approved, will be
permitted under rule 7(d) of the Takeovers
Code as an exception to rule 6 of the Takeovers
Code.
(g)
a statement by the allottee setting out
particulars of any agreement or arrangement
(whether legally enforceable or not) that has
been, or is intended to be, entered into
between the allottee and any other person
(other than between the allottee and the
code company in respect of the matters
referred to in paragraphs (a) to (e)) relating
to the allotment, holding, or control of the
voting securities to be allotted, or to the
exercise of voting rights in the code
company.
Thomas David Brankin and Michael John Kirwin
Lay as trustees of the Brankin Family Trust
have agreed to enter into a restricted security
deed placing restrictions on any disposal of the
Consideration Shares, those restrictions being:
• 100% of the Consideration Shares (8
billion Shares) within 6 months from
Completion;
• 75% of the Consideration Shares (6 billion
Shares) within 12 months from
Completion;
• 50% of the Consideration Shares (4 billion
Shares) within 18 months from
Completion; and
• 25% of the Consideration Shares (2 billion
Shares) within 24 months from
Completion.
Other than the above, there is no agreement or
arrangement (whether or not legally
enforceable) that has been, or is intended to be,
entered into between the allottee and any other
person relating to the allotment, holding, or
control of the voting securities to be allotted, or
to the exercise of voting rights in PIL.
(h)
The report from an independent advisor that
complies with rule 18
The Independent Report from Simmons
Corporate Finance Limited accompanies this
Notice of Meeting.
11518572_1 30
(i)
the statement by the directors of the Code
company referred to in rule 19.
The Directors of PIL recommend approval of
Resolution 1 for the reasons set out in the
section entitled “Director Recommendation” at
the end of this Notice of Meeting.
Resolution 2 – Placements
Listing Rule 4.2.1(a) – Issue of New Equity Securities
Listing Rule 4.2.1(a) requires shareholders to approve the precise terms and conditions of certain issues
of equity securities. Listing Rule 4.2.2(b) provides that, in the present circumstances, the equity security
issue must be completed within 12 months of the date that shareholders pass the relevant Resolution
approving the issue of the equity securities
Shareholder approval for the issue of Shares under the Placements is required under Listing Rule
4.2.1(a).
The tables below set out the specific disclosures required by Listing Rule 7.8.4 the equity security issues
being authorised in Resolution 2.
Resolution 2 - Shares Issued under the Placements
Maximum number of Shares
to be issued
Up to 8,000,000,000 fully paid Shares
Purpose of issue To provide cash funding to be applied towards satisfying the
Purchase Price and raise further capital for future growth and/ or
reduction of debt.
Issue price $0.001 per Share
Party to whom Shares will be
issued
The Placement Participants and other wholesale investors who are
not directors of PIL or their associated persons.
Consideration for the issue Cash
Time period for the issue The issue of Shares under the Placement may occur at multiple
times. The issue will occur initially at Completion. The issue will
otherwise occur within 12 months from the date of the Meeting.
Ranking of Shares to be
issued
The Shares to be issued will rank equally in all respects with all
other Shares on issue in PIL.
Resolution 3 – Aldwins Option
Listing Rule 4.2.1(a) – Issue of New Equity Securities
Listing Rule 4.2.1(a) requires shareholders to approve the precise terms and conditions of certain issues
of equity securities. Listing Rule 4.2.2(b) provides that, in the present circumstances, the equity security
issue must be completed within 12 months of the date that shareholders pass Resolution 3.
Shareholder approval for the issue of Shares under the Aldwins Option (Aldwins Shares) is required
under Listing Rule 4.2.1(a).
The table below sets out the specific disclosures required by Listing Rule 7.8.4 for the equity security
issues being authorised in Resolution 3.
Maximum number of Shares
to be issued
4,000,000,000 Shares
Purpose of issue To part fund the Aldwins Purchase Price if the Aldwins Option is
exercised.
Issue price $0.001 per Share
Party to whom Shares will be
issued
Teltower Limited
Consideration for the issue $4 million.
Time period for the issue Within 12 months of the date of this meeting.
11518572_1 31
Ranking of Shares to be
issued
The Shares to be issued will rank equally in all respects with all
other Shares on issue in PIL.
Resolutions 4 to 6 – Approval of Share Issues
Listing Rule 4.2.1(a) – Issue of New Equity Securities
Listing Rule 4.2.1(a) requires shareholders to approve the precise terms and conditions of certain issues
of equity securities. Listing Rule 4.2.2(b) provides that, in the present circumstances, the equity security
issue must be completed within 12 months of the date that shareholders pass the relevant Resolution
approving the issue of the equity securities
Shareholder approval for the issue of Shares under the Share Purchase Plan, the Employee Share
Scheme and the Director Share Scheme is required under Listing Rule 4.2.1(a).
The tables below set out the specific disclosures required by Listing Rule 7.8.4 for each of these equity
security issues being authorised in Resolutions 4 to 6.
Resolution 4 – Share Issue under Share Purchase Plan
Maximum number of Shares
to be issued
5,000,000,000 Shares
Purpose of issue To allow PIL’s shareholders the opportunity to subscribe for
Shares in PIL at the issue price offered under the transactions
described in this Notice of Meeting and raise further capital for
future growth and/or reduction of debt.
Issue price $0.001 per Share
Party to whom Shares will be
issued
Any shareholders in PIL as at 5pm on the record date for the Share
Purchase Plan, other than Mr Thomas David Brankin or his
associated persons.
Consideration for the issue Cash
Time period for the issue The issue of Shares will occur within 5 business days of the closing
date of the Share Purchase Plan, which in any case will be within
12 months of the date of the Meeting.
Ranking of Shares to be
issued
The Shares to be issued will rank equally in all respects with all
other Shares on issue in PIL.
Resolution 5 – Share Issue under Employee Share Scheme
Maximum number of Shares
to be issued
1,000,000,000 unpaid Shares
Purpose of issue To reward Employees for their loyalty and provide a retention
incentive.
Issue price $0.001 per Share
Party to whom Shares will be
issued
Employees (as that term is defined in the Listing Rules)
Consideration for the issue Cash payable in accordance with the terms of the Employee Share
Scheme.
Time period for the issue The unpaid Shares will be issued within 12 months of the date of
the Meeting.
Ranking of Shares to be
issued
The Shares to be issued will rank equally in all respects with all
other Shares on issue in PIL once fully paid up. Until they are fully
paid up the unpaid Shares will only provide the rights of a Share in
the proportion that they are paid up.
Resolution 6 – Share Issue under Director Share Scheme
Maximum number of Shares
to be issued
150,000,000 unpaid Shares
Purpose of issue To reward Mr Underwood for his loyalty and provide a retention
incentive.
Issue price $0.001 per Share
11518572_1 32
Party to whom Shares will be
issued
Stephen Underwood
Consideration for the issue Cash payable in accordance with the terms of the Director Share
Scheme.
Time period for the issue The unpaid Shares will be issued on Completion.
Ranking of Shares to be
issued
The Shares to be issued will rank equally in all respects with all
other Shares on issue in PIL once fully paid up. Until they are fully
paid up the unpaid Shares will only provide the rights of a Share in
the proportion that they are paid up.
Resolution 7 – Directors’ Fees
Listing Rules 2.11.1 and 2.11.2(b)
Resolution 7 seeks shareholder approval to increase the aggregate maximum amount of fees that can
be paid to Directors from $100,000 to $200,000 in each financial year and to satisfy any directors’
remuneration, in whole or in part, by way of an issue of equity securities.
Listing Rule 2.11.1 provides that no remuneration shall be paid to directors if it has not been approved
by ordinary resolution and Listing Rule 2.11.2 allows any remuneration to be satisfied in equity securities
if the resolution for the purposes of Listing Rule 2.11.1 (approving the directors’ remuneration) provides
for this. In addition, Listing Rule 2.11.2 also requires any equity securities issued to directors in these
circumstances to comply with Listing Rule 4.7, which only allows PIL to issue equity securities to
directors if:
• The equity securities are of a class already on issue;
• The issue of equity securities is made after the end of the period or half period to which that
remuneration is payable; and
• The issue price of the equity securities is not less than the ‘Average Market Price’ before the
issue occurs.
The directors’ remuneration is expressed as a monetary sum per annum payable to all Directors of PIL
taken together. If the total number of PIL’s Directors increases, the Directors may, without the
authorisation of an ordinary resolution, increase the total remuneration by such amount as is necessary
to enable PIL to pay to the additional director remuneration. Resolution 7 also provides that any
remuneration a Director is entitled to receive from the director fee pool can be satisfied, in whole and in
part, through an issue of Shares in PIL that complies with Listing Rule 4.7.
The new director fee pool will apply from Completion if approved by shareholders.
Resolution 8 – Adoption of New Constitution
Companies Act
PIL proposes to revoke its current constitution and adopt the New Constitution. In accordance with
section 32(2) of the Companies Act, the adoption of the New Constitution must be approved by special
resolution of shareholders.
Listing Rules
PIL’s solicitors, Duncan Cotterill, have provided an opinion to NZX that they consider the New
Constitution complies with the Listing Rules, as required under Listing Rule 2.19.1.
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Directors Recommendation – Rule 19 of the Takeovers Code
The Directors of PIL that are not interested in Resolutions 1 and 3, being, Stephen Underwood, Helen
Down, and Duncan Priest, recommend that shareholders vote in favour of Resolutions 1 and 3 for the
purposes of the Takeovers Code.
The grounds supporting this recommendation are:
1. The Transactions allow PIL to acquire a new business with a strong reputation and reinvent PIL
in a new industry;
2. Shareholders of PIL will retain their Shares and have an interest in an established business in
the aged care sector with strong growth prospects;
3. Simmons Corporate Finance Limited, as independent adviser, has in section 3 on pages 29 and
30 of the Independent Report opined that the terms of the Transactions are fair and reasonable
to shareholders and in the best interests of PIL; and
4. The control percentage that the Brankin Family Trust will hold is expected to be less than the
theoretical maximum percentage disclosed, as that percentage will be diluted by the other Share
issues occurring after Completion as set out in section 1.5 of the Independent Report.
5. Provides PIL with new business prospects and opportunity for growing shareholder wealth. If
the Transactions do not proceed PIL will be insolvent and could be placed in receivership or
liquidation which would result in a total loss of shareholder value in PIL.
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GLOSSARY
The following terms have the following meanings where used in this Notice of Meeting unless the context
otherwise requires:
“Aldwins Facility” means the new aged care facility to be established by PIL at Aldwins Property.
“Aldwins Landlord” means Teltower Limited (company number 1337170).
“Aldwins Option” means a right to purchase the Aldwins Property for the Aldwins Purchase Price and
on the terms described on page 14 of this Notice of Meeting.
“Aldwins Property” means the land and buildings at 62 Aldwins Road, Christchurch.
“Aldwins Purchase Price” means up to $11,000,000 (plus GST, if any).
“Aldwins Shares” means up to 4 billion Shares to be issued to the Aldwins Landlord in part payment of
up to $4,000,000 of the Aldwins Purchase Price.
“Associate” has the meaning in the Takeovers Code.
“Associated Person” has the meaning in the NZX Listing Rules.
“Bank Facilities” means the new banking facilities as described on page 15 of the Explanatory Notes.
“Board” means the board of directors of PIL.
“Brankin Acquisitions” means PIL’s purchase of 100% of the shares on issue of the Brankin
Companies.
“Brankin Family Trust” means Thomas David Brankin and Michael John Kirwin Lay as trustees of the
Brankin Family Trust.
“Brankin Companies” means Nelson Street Resthome Limited (company no. 7859466), Eileen Mary
Age Care Property Limited (company no. 1258335), Eileen Mary Age Care Limited (company no.
7833236), Ranfurly Manor Limited (company no. 7833156), Ranfurly Manor No: 1 Limited (company no.
3069267) and Aldwins House Limited (company no. 7832936).
“Companies Act” means the Companies Act 1993.
“Completion” means completion of the Transactions.
“Consideration Shares” means 8 billion Shares to be issued to the Brankin Family Trust as part
payment of the Purchase Price at an issue price of $0.01 per share.
“Directors” means the directors of PIL.
“Director Share Scheme” means the director share scheme offered to PIL’s Chairman Mr. Stephen
Underwood described on page 20 of this Notice of Meeting for which an approval is sought under
Resolution 6.
“Employee Share Scheme” means the PIL employee share scheme described on page 18 of this
Notice of Meeting and for which an approval is sought under Resolution 5.
“Employees” has the meaning in the Listing Rules.
“Existing Companies” means Eileen Mary Holdings Limited (company no. 1252891), Ranfurly Manor
Holdings Limited (company no. 2198757) and Design Care Group Limited (company no. 1482603)
“Explanatory Notes” means the explanatory notes that form part of this Notice of Meeting.
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“Facilities” means Ranfurly Residential Care Centre, Eileen Residential Care Centre, Nelson
Residential Care Centre and if applicable, the Aldwins Facility.
“Independent Report” means the independent adviser’s and independent appraisal report prepared by
Simmons Corporate Finance Limited, a copy of which accompanies this Notice of Meeting.
“Listing Rules” means the NZX Listing Rules dated 1 January 2020 and “Listing Rule” means a rule
contained in the NZX Listing Rules.
“Meeting” means the special meeting of shareholders of PIL to be held on 11 June 2020, starting at 2
pm.
“Minority Buy-out Rights” means a shareholder’s right to require PIL to purchase that shareholder’s
Shares in accordance with section 110 of the Companies Act, as discussed in Appendix One.
“New Companies” means Eileen Mary Age Care Limited (company no. 7833236), Ranfurly Manor
Limited (company no. 7833156) and Nelson Street Resthome Limited (company no. 7859466).
“New Constitution” means the proposed new constitution of PIL, approval for which is sought in
Resolution 8.
“Notice of Meeting” or “Notice” means this notice of special meeting, including the Explanatory Notes.
“NZX” means NZX Limited.
“PIL” means Promisia Integrative Limited.
“Placement” means the issue of up to $8,000,000 of fully paid ordinary shares in PIL at a price of $0.001
per share to wholesale investors.
“Placement Participants” means the wholesale investors that participate in the Placement as described
on page Error! Bookmark not defined. of this Notice of Meeting.
“Profile” means the listing profile prepared by PIL in relation to the Transactions and accompanies this
Notice of Meeting.
“Proxy Form” means a proxy form in relation to this Notice of Meeting, a personalised copy of which
accompanies this Notice of Meeting.
“Purchase Agreement” means an Agreement for Sale and Purchase of Shares between the Brankin
Family Trust and PIL where PIL has agreed to purchase 100% of the shares on issue in the Brankin
Companies.
“Purchase Price” means $31,385,000.
“Ranfurly Development” means the development of up to a further 32 new external units and 10
internal units as an expansion of the Ranfurly Residential Care Centre.
“Ranfurly Development Land” means the bare land being purchased by PIL under the Purchase
Agreement that adjoins the Ranfurly Residential Care Centre and is the site of the Ranfurly
Development.
“Resolutions” means the resolutions set out in this Notice of Meeting.
“Restructure” means a restructure of the ownership of the Facilities on the basis set out on page 13 of
the Explanatory Notes.
“Share Purchase Plan” means the proposed share purchase plan offer to be made to shareholders
that is described in this Notice of Meeting and for which approval is sought under Resolution 4.
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“Shareholder” means a shareholder of PIL.
“Shares” means ordinary shares in PIL.
“Takeovers Code” means the Takeovers Regulations 2000.
“Transactions” means the acquisition of 100% of the shares on issue in the Brankin Companies,
entering the Bank Facilities, issuing the Consideration Shares, undertaking the Placements and all
ancillary documents or actions thereto.
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Appendix One: Minority Buy-out Rights Procedure
If the shareholders of PIL pass the special resolution set out in Resolution 1, a shareholder that has cast
all the votes attached to the Shares registered in their name (and having the same beneficial owner)
against that special resolution is entitled to require PIL to purchase those Shares in accordance with
section 110 of the Companies Act.
To exercise that right, that shareholder must give notice requiring PIL to repurchase those Shares within
10 working days of the passing of the special resolution. The Board of PIL must, within 20 working days
of receiving such notice:
(a) agree to purchase the Shares; or
(b) arrange for some other person to agree to purchase the Shares; or
(c) apply to the Court for an order exempting it from purchasing the Shares under section 114 or
section 115 of the Companies Act; or
(d) arrange, before the resolution becomes effective, for the resolution to be rescinded by special
resolution in accordance with section 106 of the Companies Act or decide in the appropriate
manner not to take the action concerned (as the case may be); and
(e) give written notice of the Board’s decision to the relevant shareholder.
Where the Board agrees to the purchase of the Shares by PIL, it must within five working days of giving
notice under (e) above, give written notice of the price to the shareholder that it offers for those Shares.
The price must be a fair and reasonable price (as at the close of business on the day before the date
that the resolution was passed) and calculated as follows:
(a) first, the fair and reasonable value of the total Shares in each class to which the Shares belong
must be calculated (the Class Value);
(b) secondly, each Class Value must be adjusted to exclude any fluctuation (whether positive or
negative) in the Class Value that has occurred (whether before or after the resolution was
passed) that was due to, or in expectation of, the event proposed or authorised by the resolution;
(c) thirdly, a portion of each adjusted Class Value must be allocated to the shareholder in proportion
to the number of Shares they hold in the relevant class.
However, a different methodology from that set out above may be used to calculate the fair and
reasonable price for the Shares if using the methodology set out above would be clearly unfair to the
shareholder or PIL. The written notice to the shareholder must state how (a) to (c) above was calculated
or why using this methodology was clearly unfair to PIL or the shareholder.
A shareholder may object to the price offered for the Shares by giving notice of their objection to PIL
within 10 working days of receiving notice of the price offered. If the shareholder does not object or
accepts the offer, PIL must purchase the Shares at the nominated price no later than 10 working days
after the date that the offer is accepted or the date that is 10 working days after the date that notice of
the price offered was given to the shareholder. These time periods may be adjusted by agreement
between PIL and the shareholder.
If an objection to the price has been received by PIL, the following issues must be submitted to
arbitration:
(a) the fair and reasonable price for the Shares, on the basis set out in section 112(2) and (3) of the
Companies Act; and
(b) the remedies available to the shareholder or PIL in respect of any price for the Shares that
differs from that determined by the Board of PIL under section 112 of the Companies Act.
PIL must, within five working days of receiving the objection, pay to the shareholder a provisional price
in respect of each Share equal to the price offered by the Board. If the price determined for the Shares
by the arbitrator:
(a) exceeds the provisional price paid, the arbitrator must order PIL to pay the balance owing to the
shareholder; or
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(b) is less than the provisional price paid, the arbitrator must order the shareholder to pay the excess
to PIL.
Except in exceptional circumstances, the arbitrator must award interest on any balance owing or excess
to be paid. If a balance is owing to the shareholder, the arbitrator may award to the shareholder, in
addition to or instead of an award of interest, damages for loss attributable to the shortfall in the initial
payment. Any sum that must be paid in accordance with the arbitrator’s decision must be paid no later
than 10 days after the date of the arbitrator’s determination, unless the arbitrator specifically orders
otherwise.
Where PIL agrees to arrange a third party to purchase the Shares, the provisions set out above apply
(subject to such modifications as may be necessary) to that purchase of the Shares. Every shareholder
whose Shares are purchased through a third party pursuant to such an arrangement is indemnified by
PIL in respect of loss suffered by reason of the failure by the third party who has agreed to purchase the
Shares to purchase them at the price nominated or fixed by arbitration, as the case may be.
---
PROMISIA INTEGRATIVE LIMITED
NZX LISTING PROFILE
26 May 2020
Prepared in connection with the proposed acquisition of aged care facilities
Prepared pursuant to Listing Rule 7.3.1
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INTRODUCTION
Shareholders are being asked to vote on a number of Resolutions as set out in the Notice of
Meeting that accompanies this Profile. Amongst other things, these Resolutions are intended
to approve the acquisition by PIL of the business and assets of three retirement village and
aged care facilities in the lower North Island and a leasehold interest in a property in the South
Island which is intended to commence operating as an aged care facility. This Profile describes
the business and assets of PIL should those Resolutions be passed and the acquisitions
completed.
The Proposed Transaction
On 19 December 2019 PIL announced that it intended to change the essential nature of its
business to become an owner and operator of retirement villages and aged care facilities. To
cause this change PIL entered into the Purchase Agreement where it conditionally agreed to
purchase the shares in six New Zealand companies that:
• own the land and buildings and operate the following three aged care facilities:
o Ranfurly Residential Care Centre, located in Feilding;
o The Nelson Residential Care Centre, located in Feilding; and
o Eileen Mary Age Care Centre, located in Dannevirke.
• lease the Aldwins Property in central Christchurch which is intended to open as a new
aged care facility in mid-2020 and holds the Aldwins Option, which may be exercised to
acquire the Aldwins Property for a fixed purchase price.
The vendor under the Purchase Agreement is the Brankin Family Trust, a family trust
associated with PIL’s director and largest shareholder Mr. Thomas Brankin. The aggregate
purchase price payable by PIL to acquire the shares of the Brankin Companies is $31,385,000
(subject to Completion adjustments). The purchase price was agreed based on valuations
conducted by CBRE as at March 2019, the most recent valuations of the aged care facilities at
the time negotiations for the Proposed Transaction first commenced.
PIL will satisfy the Purchase Price through a combination of a cash payment and a share issue
to the Brankin Family Trust at Completion as follows:
• An issue of $8 million of New Shares to the Brankin Family Trust at $0.001 per New
Share; and
• A cash payment of $23,385,000 that will be funded from:
o the new Bank Facilities to be made available at Completion of approximately
$17.78 million; and
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o the proceeds of the Placement, being an issue of up to $8 million of New Shares
to a number of wholesale investors (as defined in relation to an offer of financial
products under clause 3, Schedule 1 of Financial Markets Conduct Act 2013) at
$0.001 per New Share.
At the date of this Profile the Proposed Transaction is conditional upon:
• The shareholders of PIL approving the Proposed Transaction as required under the
Takeovers Code, Companies Act and the Listing Rules. This condition is due for
satisfaction by 12 June 2020;
• PIL and the Brankin Family Trust obtaining any contractually required change of control
consents for the Proposed Transaction and the Brankin Family Trust’s restructure. This
condition is due for satisfaction by 19 June 2020;
• A debt provider making the funds available under the Bank Facilities to allow
Completion to occur. At the date of this Profile PIL has agreed a conditional term sheet
with a New Zealand registered bank for the required Bank Facilities and is awaiting final
credit committee approval. Under the term sheet the interest rate on the term loan
portion of the Bank Facilities is 3% plus the three-month bank bill market rate (BKBM).
The security to be provided is mortgages over all freehold properties being acquired
and general securities over all personal property. The term sheet also includes financial
covenants requiring compliance with a debt service cover ratio, interest cover ratio and
a 55% loan to value ratio (LVR). The details of the Bank Facilities are further described
in the Notice of Meeting. This condition is due for satisfaction by 19 June 2020; and
• The Placement raising a minimum of $6 million. At the date of this Profile PIL has
indicative, non-binding interest from a number of wholesale investors to fund $5.7
million towards this condition. Further details on the Placement and the status of this
condition is discussed on page 19 of the Notice of Meeting. This condition is due for
satisfaction by 19 June 2020.
PIL will announce progress against these conditions in accordance with its continuous
disclosure obligations. As soon as all conditions are satisfied it is intended to undertake
Completion as soon as possible but no later than 19 June 2020. If the conditions are not
satisfied by their due date (or extended by agreement between PIL and the Brankin Family
Trust), the Purchase Agreement may be terminated by the Brankin Family Trust.
At Completion, the Brankin Family Trust will continue to be the largest shareholder in PIL,
with a current shareholding of 51.3% and following Completion a maximum potential
shareholding of 62.99%.
The Proposed Transaction constitutes a reverse acquisition for the purposes of the Listing
Rules. As a result of the reverse acquisition, PIL will undergo a significant change in the nature
and scale of its activities and will become a new enterprise with the prospects and risks
associated with being an owner and operator of retirement villages and aged care facilities.
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The purpose of this Profile is to assist PIL’s shareholders to make a decision whether to
approve the Proposed Transaction by describing the intended business of PIL as if the
Proposed Transaction is approved. Further information regarding the Proposed Transaction
is set out in the Notice of Meeting for the Shareholder Meeting and the Independent Report
prepared by Simmons Corporate Finance Limited.
About the Facilities
Under the Proposed Transaction, PIL will from Completion operate the Facilities and will also
own the land and buildings associated with each of the Facilities with the exception of the
Aldwins Property.
The Facilities include:
• Retirement villages: independent and assisted living in a self-contained unit where a
resident purchases an exclusive right to occupy a unit (i.e. an ORA). Assisted living
residents can request varying levels of care to be provided in their self-contained units,
which are privately funded.
• Rest home and hospital care: residents reside in private rooms, usually with an ensuite,
and receive varying levels of care, with hospital care being the highest level of care
provided. Each resident pays a fee based on the care required. Fees payable by
residents are largely funded by the Government.
• Dementia care: accommodation with qualified carers to assist residents who suffer
from dementia. Residents reside in private rooms in a secure environment and receive
full time care. The fee structure is similar to rest home and hospital care and is funded
privately or by the Government.
The North Island Facilities are located in the provincial areas of Feilding and Dannevirke. It is
the view of the Directors that provincial areas benefit specifically from lower land cost and
benefit generally from lower operating costs than in larger centers. Provincial facilities have
strong average occupancy rates given there are fewer competing facilities within the
surrounding areas. The Facilities also have development opportunities which could increase
their capacity. This is particularly so with the Ranfurly Residential Care Center where
development plans and funding arrangements have been agreed with the Brankin Family
Trust to add up to 42 additional retirement village units over the next five years.
The Aldwins Facility is located in central Christchurch. Previously used as an aged care facility,
the Aldwins Property is currently unoccupied and has recently undergone extensive
renovations and strengthening works. A Code Compliance Certificate (CCC) for those works is
being sought and is expected in mid-2020 and the Aldwins Facility will then open to new
residents as a rest home and hospital care facility for up to 147 residents. PIL will have the
Aldwins Option where it may, at its discretion, purchase the land and buildings of the Aldwins
Facility for up to $11 million plus GST at any time before 31 May 2021, with $4 million of that
purchase price payable in Shares at an issue price of $0.001 per share.
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For more information about the Facilities and the business of PIL after Completion of the
Proposed Transaction, see Section 1 (PIL and What it Will Do).
Key dates
Key dates in relation to the Proposed Transaction are as follows:
PIL Shareholder Meeting 2pm 11 June 2020
Meeting results announced to market, suspension lifted
and Shares resume trading on NZX Market
11 June 2020
Shares enter trading halt 5pm 18 June 2020
Completion of the Proposed Transaction (including the
issue of all New Shares)
19 June 2020
Trading halt of Shares on NZX lifted 19 June 2020
Release of Interim Result By 29 August 2020
Share Purchase Plan September 2020
Share Consolidation and Minimum Holdings Purchase October 2020
These key dates and references to them throughout this document are indicative only and
may change. PIL reserves the right to amend the dates without prior notice, subject to
applicable law and the Listing Rules. NZX will continue to apply the suspension of trading in
Shares until the shareholders have voted at the PIL Shareholder Meeting.
How pricing of Shares in PIL is fixed
If the Proposed Transaction proceeds, all of the New Shares will be issued for $0.001 per New
Share. As is detailed in the Notice of Meeting, PIL is also seeking shareholder approval to
undertake the Share Purchase Plan offer to all Shareholders at $0.001 per Share. Otherwise
the price of Shares will be determined based on the trading in Shares on the NZX market. You
should also read Section 2 (Key Features of PIL’s Shares).
How you can get your money out
PIL intends to quote the New Shares on the NZX market. This means you may be able to sell
them on the NZX market if there are interested buyers. You may get less than you invested.
The price will depend on the demand for the Shares.
Key drivers of return
PIL considers that the current and future aspects of the Proposed Transaction that have, or
may have, the most impact on the financial performance of PIL’s business and the key
strategies and plans for those aspects of the business, can be summarised as follows:
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• To ensure continued demand for the Facilities, maintaining a strong reputation for
providing a high level of care to residents. This includes management of the Facilities
through the Covid-19 pandemic in accordance with the lockdown plan for each Facility
to mitigate the risk of an outbreak within a Facility.
• Development of the Facilities to increase resident capacity without having to expend
capital to purchase additional land;
• Build a sustainable mix of lower margin recurring revenue (assisted living and
specialist care) with higher margin one-off revenue (sale of retirement village ORAs);
• Opening the Aldwins Facility and securing as many residents as possible as soon as
possible;
• Offering additional or enhanced services at the Facilities which are paid for privately
above Government funding levels to increase revenue per resident; and
• Identify and potentially acquire additional aged care and retirement village facilities,
particularly in provincial areas.
The above summary does not cover all key drivers of return affecting the Proposed
Transaction. For further information on these and other key drivers affecting the Proposed
Transaction, you should also read Section 1 (PIL and What it Will do – Growth Strategy).
COVID-19 Risks
COVID-19 and the governmental responses to it across the world will have a material,
detrimental impact on the global economy. How long that detrimental impact will last is
unknown and investors are cautioned that continued volatility in equity markets may impact
negatively on the market price of the Shares. In addition, there is uncertainty on how COVID-
19 may effect property values and PIL’s material assets will be property assets.
At the date of this Profile there are no known or suspected cases of COVID-19 at any of the
Facilities.
COVID-19 – Impact on property values
The valuations for the Facilities that are referred to in this Profile were undertaken prior to
COVID-19 being declared a pandemic. Accordingly, any impact that COVID-19 may have on
those property values is not considered in the valuations.
The Purchase Price was agreed based on valuations undertaken in March 2019 as those were
the most current valuations at the time commercial agreement to enter the Proposed
Transaction was reached. Those valuations also represent the carrying values of the Facilities
in the FY2020 financial statements for the Brankin Companies. Further valuations were
undertaken in February 2020 and are referred to in this Profile given that they are the most
current valuations for the Facilities.
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The impact that COVID-19 may have on property valuations is currently very uncertain as:
• The ability of valuers and the market to rely upon market transactions which occurred
prior to the evolution of COVID-19 into a global pandemic has been materially reduced.
The daily shifts in the global market and Government responses are unprecedented in
modern times, creating market uncertainty.
• Direct comparisons with previous financial crises cannot be easily drawn on.
• Despite Government announced stimulus, economists advise that COVID-19 will result
in a global recession.
• In terms of aged care facilities, key influences on value can be consolidated into four
criteria:
o The age and quality of the asset;
o Management expertise of the operator;
o Government regulation and policy; and
o Investor profile and demand to enter the sector.
The first three criteria above remain unchanged by COVID-19. However, it is too early to
gauge any significant change in investor demand. A key factor will be the scale and longevity
of the outbreak which remains unknown.
The valuations of the Facilities need to be relied on with caution as they do not take account
of the effects of COVID-19 and COVID-19 may ultimately have a material effect on them. PIL
is unable to provide any certainty as to the likelihood of the pandemic materially impacting
on property values given that the medium-term impact of COVID-19 is uncertain.
If property values do fall, there is a risk for PIL following the Proposed Transaction that the
final LVR covenant agreed under the Bank Facilities (currently 55%) is breached which would
require PIL to urgently raise additional capital to reduce debt and come back into compliance
with that covenant. To raise such capital would require the co-operation of the lender who
may otherwise be entitled to call for repayment of all the Bank Facilities for an LVR breach.
Non-compliance with bank covenants is therefore a highly material risk.
In addition, there is a risk that property values (for example, the sale price of ORAs) could fall
or demand for ORAs could decline which may reduce revenue and growth prospects for PIL.
While acknowledging these uncertainties, the Directors consider that the March 2019
valuations of the Facilities reflect the fair value of the Facilities for inclusion in the financial
information in this Profile. This is because:
• They represent the value that was agreed on an arm’s length basis to set the Purchase
Price.
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• Any reduction in ORA sales is mitigated by the aged care operations of PIL which receive
Government subsidies as a principal source of income rather than ORA proceeds. Aged
care revenue represents approximately 90% of all revenue earned from the Facilities
with ORA’s comprising the balance.
• COVID-19 is not expected to reduce aged care occupancy (in the absence of a COVID-
19 case at the Facilities). Occupancy is driven by age and need for care, not affordability
and property values like ORAs.
To recognise the uncertainty of COVID-19, the Directors have not adopted the February 2020
valuations as the fair value of the Facilities, keeping their view of the fair value of the Facilities
in line with the slightly lower March 2019 valuation.
COVID-19 - Impact on operations
All retirement villages and aged care services have been classified as an essential service
under the New Zealand Government’s COVID-19 criteria and will continue to operate
throughout the pandemic. The main priority of PIL and the Brankin Family Trust during this
time is to ensure the health and safety of staff and residents. PIL and the Brankin Family Trust
are committed to providing residents with the best possible care during this emergency,
particularly given the vulnerability of the elderly to COVID-19.
The parties are working closely to ensure that infection control is maintained. The Facilities
have been operating under a lockdown plan and have restricted visitation for the time being
to ensure the health and safety of their residents. The Ministry of Health certification that the
Facilities hold requires them to maintain infection control systems, and to ensure that staff
are trained to manage outbreaks. PIL considers that each of the Facilities is well-prepared to
manage COVID-19, as:
• The lockdown plans were implemented successfully at one of the Facilities twice last
year to mitigate the risk of a norovirus outbreak at that facility.
• The Facilities have all been through certification audits under the HDSS Act and have no
outstanding issues to address.
Aged care is an integral part of New Zealand’s public health system and is well supported by
each of the local District Health Boards. The Ministry of Health has assured aged care
providers that they will have access to the national stock of infection control materials and
pharmaceuticals.
Provided there is no known case of COVID-19 at any of the Facilities, PIL does not consider
that COVID-19 will have a material effect on its profitability and that it will have adequate
working capital available through the Bank Facilities and the Placement proceeds. Since the
Government put New Zealand into alert level 4 for COVID-19 on 25 March 2020, PIL has
observed increased occupancy at each of the operational Facilities as hospitals looked to
move non-acute elderly patients out of public hospitals and into aged care facilities.
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COVID-19 – Impact on financing for the Proposed Transaction
PIL does not consider that COVID-19 will adversely affect financing for the Proposed
Transaction but is mindful that COVID-19 does increase default risk and is staying in close
communication with its financiers. If there is a financier default, the Proposed Transaction
may be terminated on the basis that the conditions for the Proposed Transaction cannot be
satisfied.
Key Risks
The most significant risk factors that could affect PIL’s financial position, financial
performance or stated plans following Completion of the Proposed Transaction are:
• The loss of government funding - The Facilities will receive residential care subsidy
funding from the local DHBs which may be subject to change. Any loss in aged care
facility funding will have a material adverse effect on financial performance.
• Changes to legislation – Aged care providers need to meet standards set by the HDSS
and all facilities that provide independent living also need to comply with the
Retirement Villages Act 2003. Significant changes to certification standards and
requirements of retirement village operators may create additional obligations and
costs on aged care operators. Any such additional obligations and cost may have a
material adverse effect on financial performance.
• Labour availability, cost and turnover - Aged care facilities rely on the staffing of care
and non-care positions. These positions are paid at the lower end of pay scales,
primarily due to underfunding by the DHBs. Labour availability and cost makes
attracting staff to the aged care sector difficult.
• The Aldwins Property obtaining a CCC and PIL attracting sufficient residents to reach
occupancy rates that will allow PIL to at least cover the cost of operating the Aldwins
Facility.
The above summary does not cover all risks affecting PIL if the Proposed Transaction
proceeds. For further information on these and other risks affecting PIL, you should also read
Section 4 (Risks to PIL’s Business and Plans).
Where you can find PIL’s financial information
The financial position and performance of PIL are essential to an assessment of the Proposed
Transaction. You should read Section 3: PIL's financial information which includes pro forma,
consolidated financial information for the year ended 31 March 2018, 31 March 2019 and 31
March 2020. This financial information is taken from audited annual accounts for PIL, Ranfurly
Manor No:1 Limited and Eileen Mary Age Care Property Limited. It is otherwise taken from
unaudited accounts for the other Brankin Companies.
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PIL’s balance date is currently 31 December and the balance date for each of the companies
being acquired under the Proposed Transaction is 31 March. Following Completion, it is
intended that the companies will initially change their balance dates to 31 December to align
with PIL. PIL intends to then meet its periodic reporting requirements for the six months to
30 June 2020 and have those interim accounts audited. After completing that periodic
reporting it is intended that PIL will change its balance date to 31 March and report to that
balance date on an ongoing basis.
About this Profile
The Proposed Transaction will result in a change in the essential nature of PIL from the
manufacturing, sale and marketing of health supplements, to developing and operating aged
care facilities. PIL is required to prepare this Profile under the Listing Rules.
This Profile:
• contains important information about the Proposed Transaction, in particular the
aged care sector, the Facilities to be acquired and established, their operations, their
financial performance and risks associated with their operations; and
• is forward looking and assumes that Completion of the Proposed Transaction has
occurred.
Further information about the Proposed Transaction is available in the Notice of Meeting and
the Independent Report. These documents and certain other information referred to in this
Profile is available on the PIL website at:
https://www.promisia.com/index.php?option=com_docman&view=list&slug=aged-care-
transaction-documents&Itemid=159&layout=default.
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Table of Contents
1. PIL AND WHAT IT WILL DO ............................................................................................... 13
2. KEY FEATURES OF PROMISIA’S SHARES ........................................................................... 38
3. PIL’S FINANCIAL INFORMATION ...................................................................................... 39
4. RISKS TO PIL’S BUSINESS AND PLANS .............................................................................. 48
5. TAX ................................................................................................................................... 54
6. WHERE YOU CAN FIND MORE INFORMATION ................................................................ 55
7. CONTACT INFORMATION ................................................................................................. 56
8. GLOSSARY ......................................................................................................................... 57
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Letter from the Chairman
26 May 2020
Dear Shareholder,
I am pleased to present you with this Profile and further information on the aged care facilities
that PIL has the opportunity to acquire and operate.
The Proposed Transaction involves the acquisition of three established aged care facilities
located in the lower North Island from a reputable vendor, and a lease interest in a recently
renovated property located in central Christchurch that PIL intends to open as a new
residential care facility. The Directors believe that there are significant opportunities to
develop and expand aged care facilities in New Zealand, particularly with New Zealand’s aging
population.
Demand for aged care in New Zealand is expected to increase significantly over the next 12
years as the number of New Zealanders over the age of 75 years is expected to double. The
aged care facilities currently available in New Zealand cannot accommodate the expected
increase in demand and new facilities will need to be built.
The aged care facilities that PIL is looking to acquire and establish come with a number of
growth opportunities, including development and expansion of the existing facilities by using
vacant land within the facilities. PIL does not intend to take on any significant development
risk and will only build on existing facilities as demand grows.
If approved, these acquisitions will represent a significant change of direction for PIL but one
with significant prospects for growth.
The Proposed Transaction is conditional upon the approval of PIL’s shareholders at a special
meeting to be held on 11 June 2020 and debt funding being made available under new
banking facilities to enable completion of the Proposed Transaction.
This document contains detailed information about PIL, the aged care facilities that PIL is
proposing to acquire, develop and establish and the aged care sector (including information
about risks affecting PIL in Section 4 (Risks to PIL’s business and plans)). I encourage you to
read it carefully and seek professional advice should you need to.
PIL’s directors believe that the Proposed Transaction is an attractive opportunity to create
value for PIL’s shareholders.
We recommend this proposal to you and look forward to your support.
Stephen Underwood
Chairman
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1. PIL AND WHAT IT WILL DO
Overview
PIL’s previous business activities involve the manufacturing, sales and marketing of two
health supplements, Arthrem and Artevite. PIL has now ceased these business activities. PIL
is listed on the NZX market.
The Proposed Transaction will pivot PIL into the retirement village and aged care sector as it
becomes a national owner and operator of aged care facilities. The Facilities:
• Are located in both the North Island and the South Island, providing a footprint in both
islands.
• Are located in areas with lower operating costs (e.g. provincial towns) or believed to
have a lack of supply (Christchurch) and in either case, less competition.
• Offer the full spectrum of aged care and services that includes independent retirement
village living, rest home and hospital care and specialised dementia care.
• Comprise of a range of accommodation options including individual units, apartments,
studios and private rooms with ensuites.
• Sell ORAs, being an agreement to provide the right to occupy a residential unit in a
retirement village. An ORA governs the management of the Village, services to be
provided to the resident, the resident’s charges and the nature of the right to occupy
and deal with the residential unit (discussed further under Sector Overview).
• Offer 269 beds (in aggregate) across this range of accommodation options.
• Include a recently renovated property in a central city location that will offer an
additional 147 rest home beds in brand new modern accommodation and amenities;
• Employ 280 employees with this number increasing once the Aldwins Facility opens and
begins having residents.
• Are capable of development and expansion to match market demand increases that are
expected with an aging population.
The Proposed Transaction
The Proposed Transaction involves PIL acquiring all the shares on issue in the Brankin
Companies from the Brankin Family Trust. The operations of the Brankin Companies are as
follows:
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Entity Operations
Ranfurly Manor Limited Operates the rest homes at Ranfurly Residential Care Centre
and Nelson Residential Care Centre, both situated in Feilding.
Ranfurly Manor No: 1
Limited
Owns the land and buildings that currently comprise the
Ranfurly Residential Care Centre and is the retirement village
operator selling ORAs at the Ranfurly Residential Care Centre
and also owns certain development land adjoining the
Ranfurly Residential Care Centre in Feilding.
Eileen Mary Age Care
Limited
Operates the rest homes at Eileen Mary Residential Care
Centre in Dannevirke.
Eileen Mary Age Care
Property Limited
Owns land and buildings at Eileen Mary Residential Care
Centre and is the retirement village operator selling ORAs at
the Eileen Mary Residential Care Centre.
Nelson Street Resthome
Limited
Owns the land and buildings at the Nelson Residential Care
Centre.
Aldwins House Limited Leases the Aldwins Property and intends to operate it as a
rest home from mid-2020. Holds the Aldwins Option.
The Facilities
The Ranfurly Residential Care Centre and the Eileen Mary Residential Care Centre are
operating aged care facilities that offer a full range of aged care services for independent and
assisted living, including independent living (units and apartments), rest homes (studios) and
facilities for accommodating and caring for dementia patients. Nelson Residential Care Centre
is a facility providing care for those assessed as requiring rest home level care.
The Health and Disability Services Act 2001 governs the provision of aged care services in New
Zealand and the Retirement Villages Act 2003 sets out the standards of aged care providers
that also offer independent living in retirement villages. Each of the Ranfurly Residential Care
Centre, the Nelson Residential Care Centre and the Eileen Mary Residential Care Centre
currently maintain Ministry of Health certifications associated with offering aged care services
and independent living. They also receive funding from their local District Health Boards for
the provision of aged care services.
The Facilities are owned (except Aldwins House) and operated by the Brankin Companies
which are all owned by the Brankin Family Trust. The Brankin Family Trust started operating
in the aged care sector in Dannevirke in 1998 by acquiring the Eileen Mary Residential Care
Centre. From there, Mr Brankin continued his acquisition and development of aged care
facilities, acquiring the Nelson Residential Care Centre and the Ranfurly Residential Care
Centre in 2013. The Brankin Family Trust has established a strong relationship and reputation
with the local communities they service.
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On average 66% of patients are government funded and 34% are privately funded (or a mix
of both). All revenues stated include government subsidies as well as revenue from private
patients.
Ranfurly Residential Care Centre
The Ranfurly Residential Care Centre operates in Feilding as a 162 bed aged care facility
consisting of 74 hospital beds, 63 assisted living beds, 25 dementia beds, and 6 independent
living units.
The majority of the facility’s care rooms include a private bathroom, giving residents extra
and often welcomed privacy. This facility also provides administration and residential facilities
including resident lounges, dining and recreational rooms, a kitchen, office and reception,
male and female amenities, seven internal courtyards including covered seating, gardens and
lawn areas.
The facility provides for and tailors care to the needs of each resident, from independent
living units, internal care apartments, hospital level care service, dementia level care service
and a secure dementia centre. With a focus on providing professional and friendly care, the
facility is also conveniently located only a short distance from the township of Feilding making
it convenient for families, visitors and staff.
Currently, the facility employs 168 staff (68 full time and 100 part time or causal) and is,
together with the Nelson Residential Care Centre, the largest employer and ratepayer in
Feilding and therefore a significant contributor to the community.
The land area is significant and includes approximately 1 hectare of adjoining bare land that
is available for development and the terms of the Transactions make provision for such
development as is discussed on page 28.
Valuation as at 11
February 2020
Average Occupancy % for
March 2020
Beds – Current set up
$23,150,000
1
Dementia: 78.97%
Hospital/Rest home: 90.45%
Apartments: 68.46%
• 25 Dementia Beds
• 74 Hospital Beds
• 63 ORA Assisted Living Beds
• 6 ORA Independent Living Beds
Valuation and Beds Source: The Brankin Facility Trust Portfolio Confirmation of Values (CBRE)
Nelson Residential Care Centre
The Nelson Residential Care Centre operates in Feilding as a 49 bed rest home and provides
recreational facilities including resident lounges, dining and recreational rooms, kitchen,
office, laundry and reception and two internal courtyards with seating. The Centre is located
close to the Ranfurly Residential Care Centre and the two facilities share staffing and
administration resources.
1
Please see discussion of COVID-19 risks associated with valuations at page 6.
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The facility was refurbished in 2016 in order to modernise the premises, which included the
refitting of the care facility interior together with extensions to the dining room and day room.
This has allowed a steady increase in occupancy rates from less than 20% in March 2017 to
85% in December 2019. PIL expects this to grow due to rising demand for aged care services
over time (discussed further below at page 26, Market Size). The facility employs 32 staff (5
full time and 27 part time or causal).
According to the 2018 Census, Feilding has a resident population of 15,348. Of the population
10.8% is over the age of 75 which is relatively high compared to the national average at 6.4%
2
.
This demographic will provide a continued demand for aged care services. Demand for aged
care facilities is expected to grow as the New Zealand population experiences a demographic
shift towards a larger elderly population. Pressure on the public health system means DHBs
are looking to aged care facilities to help accommodate non-acute elderly patients. Nelson
Residential Care Centre often receives these patients (in groups of 5-10) for temporary care.
This means the occupancy rate can fluctuate substantially.
Valuation as at 11
February 2020
Average Occupancy %
for March 2020
Beds – Current set up
$3,200,000
3
58.79%
• 49 Rest Home Beds
Valuation and Beds Source: The Brankin Facility Trust Portfolio Confirmation of Values (CBRE)
Eileen Mary Age Care Centre
The Eileen Mary Age Care Centre operates in Dannevirke as a 58 bed aged care facility,
consisting of 21 hospital beds, 18 rest home beds, 19 assisted living beds, and 5 independent
living units.
The facility also provides administration and recreational facilities including resident lounges,
dining and recreational rooms, a kitchen, office and reception, male and female amenities, an
internal courtyard with covered seating, gardens and lawn areas. The facility employs 58 staff
(16 full time and 42 part time or casual) and has 700sqm of land available for development.
Dannevirke is the largest town in the Tararua District, and this facility, with its reputation and
relationship with the community and local District Health Board, provides key services to a
more rural community. Having opened in 1998, the facility is modern and purpose built. It has
continually improved, with the most recent improvement being an extension and
refurbishment in 2012.
Valuation as at 11
February 2020
Average Occupancy
% for March 2020
Beds – Current set up
$6,370,000
4
83.48%
• 18 Rest Home Beds
• 21 Hospital Beds
• 19 ORA Assisted Living Beds
• 5 ORA Independent Living Beds
Valuation and Beds Source: The Brankin Facility Trust Portfolio Confirmation of Values (CBRE)
2
Statistics New Zealand Taturanga Aotearoa (2018) Age and sex of people in New Zealand, 2018 Census
3
Please see discussion of COVID-19 risks associated with valuations at page 6.
4
Please see discussion of COVID-19 risks associated with valuations at page 6.
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Aldwins Residential Care Centre
The Aldwins Property is located in central Christchurch and comprises of approximately 8,241
m2 of land and 4,050 m2 of buildings.
The property was previously a large rest home in Christchurch before it was damaged in the
2011 Canterbury earthquake and eventually closed in 2017. The current landlord, Teltower
Limited, purchased the property in 2018 and has since strengthened and thoroughly
refurbished the premises. The Christchurch City Council has issued the Aldwins Property with
a code compliance certificate for those works dated 15 April 2020.
The newly renovated complex is spread over two storeys and multiple wings, and consists of
147 bedrooms, each with ensuites. The amenities include a reception foyer, open plan
entertainment hall with adjoining kitchenette and hair salon/beauty room, dining room
serviced by a large commercial grade kitchen, nurses stations, sitting rooms, staffroom,
administration offices, sheltered communal outdoor areas situated within two internal
courtyards, 75 car parking spaces and two double-width bed sized elevators.
The Aldwins Property is currently being leased to Aldwins House Limited (which will be
acquired by PIL as part of the Proposed Transaction) for a period of 15 years from 1 March
2020, the final expiry date being 28 February 2035. Aldwins House Limited has the benefit of
a rent-free period of six months from 1 March 2020, during which Aldwins House Limited shall
only pay the outgoings due under the Lease.
The lease also provides for some final development work to be undertaken at the Aldwins
Property. This work is primarily the construction of commercial kitchen and commercial
laundry facilities. These works are currently being undertaken and, despite some delays
caused by COVID-19, are expected to be completed in mid-2020. Ministry of Health
certification will then be sought so that Aldwins House qualifies for Government funding.
Preliminary discussions with the DHB suggest that there is immediate demand for the
additional capacity of Aldwins House for the aged care sector in Christchurch.
An annual rental of $1,060,000 is payable under the lease.
The Explanatory Notes to the Notice of Meeting explain the terms of this arrangement
further. The further terms to the lease are typical terms and conditions of an ADLS Deed of
Lease.
Aldwins House Limited also has an option to purchase the Aldwins Property, the exercise
period being the 18 months period commencing on 1 March 2020.
Out of the 147 beds available, 67 beds will be allocated to rest home care and the remaining
80 beds will be used for hospital beds. It is expected that 140 staff will need to be employed
to operate the Aldwins Facility at full occupancy and staff will be employed gradually as
occupancy grows.
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The central location, modern amenities and short distance to retail and social amenities are
expected to make the Aldwins Facility attractive compared to other facilities in central
Christchurch. PIL’s inquiries indicate there is a lack of supply of aged care facilities in this area
and anticipates the demand for beds in the Aldwins Facility to be high from commencement
of business operations.
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PIL’s Corporate Structure
PIL has incorporated a new wholly owned subsidiary company, Aged Care Holdings Limited
(ACHL), to acquire all the shares of the Brankin Companies. After Completion, PIL and ACHL
will be non-trading entities, with PIL being the listed holding company of ACHL, which will
hold all the shares in the Brankin Companies. Following completion of the Proposed
Transaction, the corporate structure of PIL and its significant group companies will be as
follows:
ACHL
(Non-trading)
Nelson Street
Resthome
Limited
PIL
(Non-trading
NZX listed)
Ranfurly
Manor
Limited
Ranfurly
Manor No. 1
Limited
Eileen Mary
Age Care
Limited
Eileen Mary
Age Care
Property
Limited
Aldwins
House
Limited
Sector Overview
PIL will operate in the retirement village and aged care sector, specifically the operation of
aged care facilities that provide a continuum of independent and assisted retirement living
for the elderly. The retirement village and aged care sectors are linked closely and generally
have the following characteristics:
Market Accommodation
Options
Funding
Retirement Village
Residential
alternatives to a
house or
apartment.
Integrated
retirement villages
provide care
services to support
this form of
independent living.
Villas, apartments
or serviced
apartments.
Typically fully self-
contained but
offering meals,
support, health
services and
community
facilities.
Residents privately fund the costs of residing in
a retirement village. Occupation right
agreements (ORAs) are the most common
form of occupational right. Typically
structured as a licence to occupy, a resident
makes an initial lump sum payment to reflect
the capital cost of the unit and ongoing costs
for the duration of their stay. On the
termination of the ORA, the balance of the
initial lump sum payment less any deferred
management fees is repaid to the resident but
generally operators require that a new ORA be
entered with a new resident before it repays
the previous resident. The majority of any
capital gain realized on the re-sale of an ORA
are typically retained by the operator
Aged Care
Caters to older
residents by
offering a
continuum of
personal care,
nursing and other
healthcare services
and support.
Rest home,
hospital
and dementia care
based options.
Generally consist
of a single room
with ensuite with
the room secured
and nursing care
provided based on
resident needs.
A mixture of government and private funding.
Government funding is provided by local DHBs,
for those who require financial assistance and
are eligible for the residential care subsidy (i.e.
subject to income and asset testing), paid
directly to operators under nationwide
contracts. Funding typically covers
accommodation, meals, pharmaceuticals and
medical supplies. Residents who do not qualify
for government funding privately fund the cost
of their accommodation and care.
The aged care sector in New Zealand provides a vital social service. Demand in this sector is
principally due to aging population levels, which are expected to increase significantly in the
next twelve years (this is discussed further below at page 26, Market Size).
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Currently, aged care facilities are provided by a number of corporate, public and not for profit
operators. A large number of the operators are corporate (similar to PIL) and only a small
proportion of aged care is provided by public health services and hospitals. All private aged
care facilities can qualify for government funding allocated by their local DHBs provided they
meet the certification requirements under the HDSS.
PIL Services
Aged care and retirement village operators provide different levels of care ranging from
independent living to full time assistance and support. The level of care provided is based on
the type of living offered by the operator and a resident’s need. The type of services received
by residents will also determine the government funding payable by the local DHBs
The Facilities provide either the full range or a mixture of care options offered by aged care
and retirement village operators. The following table summarises the type of care and
services provided by the Facilities:
Type of
living
Description Level of Care Facilities that
provide Service
Independent
living
Residents purchase an
ORA interest in either a
standalone home or an
apartment within a
retirement village.
No care is provided. Eileen Mary
Residential Care
Centre and Ranfurly
Residential Care
Centre
Assisted
living
Residents purchase an
ORA interest in either a
standalone home or an
apartment within a
retirement village.
Rest home or
hospital care is
provided as
required.
Eileen Mary
Residential Care
Centre and Ranfurly
Residential Care
Centre
Rest home Residents will reside in a
serviced room and
receive personalised
care.
Varying level of care
dependent on a
resident’s need.
All Facilities,
including the
Aldwins Facility once
operational
Hospital Residents will reside in a
serviced room and
receive full time care.
Highest level of care
given to residents
and includes end of
life care, palliative
care or respite care.
All Facilities,
including the
Aldwins Facility once
operational,
Dementia Special care facilities for
residents who suffer
from Alzheimer’s
disease or dementia.
Full time assistance
and support similar
to hospital care but
in a secure
environment.
Ranfurly Residential
Care Centre
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The varying types of living and care provided by the Facilities will allow PIL to retain residents
as their health needs change. Rest home and hospital rooms are also interchangeable if the
room is approved to provide hospital care. The rest home rooms in each of the existing
Facilities have all been approved to provide hospital care, which allows PIL to alter the set up
as demand changes. Hospital beds receive higher DHB funding and, provided there is demand,
PIL can increase hospital beds to receive more funding and generate more revenue. PIL
intends to also set up each room in the Aldwins Facility to provide interchangeable rest home
and hospital services.
Ownership of Aged Care Facilities
Market ownership of aged care facilities is comprised of three main categories:
5
• Publicly Listed: 38%
• Major Group (Not for Profits and Private): 41%
• Individual (Not for Profits and Private): 21%
Ownership of aged care facilities in recent years has trended from individual operators
towards major group or publicly listed entities
6
.
PIL considers the main reason for this is that smaller, individually operated aged care facilities
(being individual privates and not for profits) are generally more susceptible to pressure on
their bottom-line profitability or EBITDAR (for example, through increases in compliance
costs, wages and other operational costs) leading to closure or sale.
Securing qualified staffing is also a general issue in the industry, with annual turnover of staff
in 2017 being 27% (an increase from 21% in 2014)
7
. DHB wage rates tend to be higher than
the rates of aged care operators and much higher than rates afforded by individual providers
8
.
Smaller facilities which lack economies of scale have their profitability disproportionately by
increasing wage rates and fee rates but are increasingly needing to do so in order to secure
staff and remain competitive.
Further, from 1 April 2020, the Government has lifted the minimum wage in New Zealand to
$18.90. PIL considers these types of cost pressures may make smaller, privately operated
aged care facilities less viable in the future.
Lastly, the ability for corporate aged care owners (being publicly listed and major group
entities) to obtain significant investment for the development of new facilities has
contributed to the sale and purchase of facilities from individual operators to corporate aged
care owners.
5
New Zealand Aged Care Association (2018) Aged Residential Care Industry Profile 2017-2018 at page 9.
6
Ibid at page 8
7
Ibid at page 36
8
NZ Herald (2017) ‘Wage rises throw up challenges for aged-care sector’ April 23
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PIL considers these smaller individually operated facilities may provide attractive acquisition
and development targets for PIL in the future, if, combined with PIL, the economies of scale
can lift EBITDAR at those facilities.
Regulatory Compliance
Aged care facilities in New Zealand are principally regulated under the following key statutes:
• Health and Disability Services (Safety) Act 2001 (HDSS Act);
• The Retirement Villages Act 2003 (Retirement Villages Act); and
• Food Act 2014 (Food Act).
The HDSS Act
The purpose of this Act is to:
• Promote the safe provision of health and disability services;
• Enable consistent and reasonable standards for providing such services;
• Encourage providers to take responsibility for providing such services safely to the
public; and
• Encourage the providers of health and disability services to improve continuously the
quality of those services.
Under the HDSS Act, all rest home and aged care facilities are required to be certified and
audited to ensure that the facilities provide safe and appropriate care for residents and meet
the standards set out in the HDSS Act.
The existing Facilities each comply with the statutory requirements and are all certified health
providers under the HDSS Act. A current notice of certification is held by the respective
Company that operates the relevant facility. To maintain certification, the Facilities each need
to pass certification audits that are conducted against the Health and Disability Services
Standards under the HDSS Act. Each of the Facilities is audited by The DAA Group Limited who
are approved by the Ministry of Health to conduct such audits. Certification audits are carried
out every 1 to 4 years, before the expiry of a facility’s current notice of certification. Spot
audits may also be undertaken from time to time. The length of certification is dependent on
the results of the audits and the attainment levels achieved. Aged care providers that achieve
higher attainment levels will inherently receive a longer certification period.
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The following table summarises the audit results of each of the Facilities:
Facility Date Years of
Certification
Partial
attainments
9
End date of
current
certificate
Ranfurly Residential
Care Centre
24
September
2018
Three (3)
years
3 2 December
2021
Nelson Residential Care
Centre
29 October
2019
Three (3)
years
4 27 February
2021
Eileen Mary Age Care
Centre
6 June 2018 Four (4)
years
1 14 August 2022
The matters causing partial attainments were not considered material and have subsequently
been addressed. Ranfurly recently had a spot audit and passed with no partial attainments.
It is critical that the Facilities maintain their certifications given that approximately 65% of
revenue comes from the Government and requires these certifications. Currently the
Facilities operate to high service standards, each obtaining high attainment levels in their last
audits, receiving either a 3 year or 4 year certification period. PIL intends to maintain these
standards, particularly by retaining key personnel at each Facility. For example, employee
share incentive schemes are intended (and are discussed in detail in the Notice of Meeting).
The Aldwins Facility does not have current certification as business operations have not yet
commenced. PIL will operate the Aldwins Facility in compliance with the standards of the
HDSS Act and will seek certification following Completion. The certification process will
involve making an application for certification under the HDSS Act. As part of the application,
Aldwins House Limited will need to select an auditing agency that has been designated by the
Director-General of Health to audit the rest home care and hospital services to be provided
by the Aldwins Facility. Following the audit, the Ministry of Health will then make an
assessment within 20 working days as to whether the rest home and hospital services
provided meet the requirements of the HDSS Act, taking into account the application and the
audit report.
PIL is confident that the Aldwins Facility will be certified. Preliminary discussions with the DHB
have been positive, with the DHB welcoming the additional capacity Aldwins House will bring
to the area. PIL intends to draw upon the industry experience and expertise from the
members of the board and senior management team (discussed further below at page 31,
Directors and Senior Managers) in order to meet the compliance requirements and ensure
that the Aldwins Facility meets the highest standard of service practices. In order to ensure
that the Aldwins Facility meets the relevant standards and requirements of the HDSS Act, PIL
also intends to leverage the policies and standards of the other Facilities to build a foundation
for the services and care to be provided by the Aldwins Facility.
9
Partial attainments indicate where meeting a relevant standard or criteria has been partially attained. It does not represent a failure against
that standard or criteria but represents where a facility requires improvement.
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To obtain and maintain certification under the HDSS Act, ongoing audits are required to be
carried out on all aged care providers to ensure that they can demonstrate that their service
complies with all relevant approved standards.
As a result of the introduction of the HDSS Act, a number of older facilities have been unable
to meet the standards to comply with audit requirements and become certified and, as a
result, have ceased operations. Many religious and welfare organisations that operate aged
care facilities are assumed to be finding it increasingly difficult to operate profitably,
particularly where their facilities require significant refurbishment to comply with both
certification and market requirements. PIL will test these assumptions in Christchurch once
Aldwins House is certified with a view to growing its occupancy in the short term.
The Retirement Villages Act
This Act sets out obligations of retirement village operations, in addition to the HDSS Act, and
the rights of residents. To evidence compliance with the requirements of the Retirement
Villages Act, all aged care providers that offer independent living in the form of ORAs must be
registered on the public Retirement Villages Register. Registration must be accompanied by
the specific documents and information required to be disclosed publicly under this Act,
including a disclosure document that contains the prescribed information about the
retirement village, its policies and residents’ rights, and the form of the ORA offered to
residents. Any changes to the documents or information must be notified and uploaded to
the Register.
Currently, only the Ranfurly Residential Care Centre and the Eileen Mary Residential Care
Centre include retirement village operations by offering independent living through ORAs.
Both of these facilities are registered on the Retirement Villages Register and up to date
information and documents are maintained on the Register.
The Aldwins Facility is not required to comply with the Retirement Villages Act as the facility
will not include independent living.
The Food Act
All businesses that trade in food are subject to the requirements of the Food Act and the
supplementary Food Regulations 2015. This Act classifies food sections into 3 risk based
classes which are each subject to different requirements. Rest homes and hospitals are
classified as high level or risk to public health and must operate under a food control plan. A
food control plan is a document that sets out what a business needs to do to make safe and
suitable food. All food control plans must be registered with the appropriate authority and
made available on a public register that is maintained by the Ministry of Primary Industries.
Each of the existing Facilities has registered a current food control plan with the relevant
authority – Nelson Residential Care Centre and Ranfurly Residential Care Centre with the
Manawatu District Council and the Eileen Mary Residential Care Centre with the Tararua
District Council.
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The Aldwins Facility will also need to establish and register a food control plan with the
relevant authority before the commencement of business operations.
Funding Aged Care
Aged care in New Zealand is subsidised, either fully or partially, by the government with any
balance funded privately. The ratio of government to privately funded aged care is
approximately 63% and 37% but can vary depending on the level of care, assistance required
and the higher standard of accommodation
10
. For example, families of residents may cover
the cost of more intensive levels of care which they are unable to provide themselves within
the resident’s home.
Government funding for residential care in New Zealand is provided by local DHBs and is
provided to aged care providers that are certified under the HDSS Act. DHBs enter into
contracts with aged care providers for the provision of long-term residential care to residents
that are eligible for government funding.
Each certified Facility has a contract in place with the relevant DHB and is able to accept
residents who are either privately funded or funded by the government through the
residential-care subsidy.
Market Size
The information in this section was provided by the Aged Care Association and can be viewed
in a report on its website (www.nzaca.org.nz).
The market size for aged care facilities is represented by people in New Zealand who require
aged care, in particular those over the age of 75 years. PIL estimates that 12% of people over
the age of 75 will require aged care in any one year.
In 2018 there were approximately 303,000 people in New Zealand aged 75 or over
11
which
indicates that 36,360 of those people required aged residential care. That number is expected
to increase significantly due to the aging of the baby boom generation (born between 1946
and 1964) of whom are expected to reach the age of 75 between 2021 and 2039. Statistics
New Zealand Taturanga Aotearoa’s national population projection provides that by the year
2035, it is estimated that there will be approximately 650,000 people over the age of 75 in
New Zealand
12
and this is expected to increase to over 1,200,000 in the year 2068
13
. Assuming
that 12% of those people will require aged care, 78,000 aged care beds will be required in
2035 and 144,000 aged care beds will be required in 2068.
10
Source: EY Aged Residential Care Funding Model Review dated August 2019, section 4.2.2, page 93
11
Statistics New Zealand Taturanga Aotearoa (2018) Age and sex of people in New Zealand, 2018 Census
12
Statistics New Zealand Taturanga Aotearoa (2018) National population projections, by age and sex, 2016(base)-2068
13
A projection over this amount of time carries inherent risk and a number of factors may arise to alter this projection (for example,
COVID-19, which may greatly impact on elderly mortality rates), however the Board is of the opinion that this information projection
provides valuable context into the market for aged care facilities.
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Currently there are only 38,621 aged care beds available across all aged care providers in New
Zealand, including those provided by both the public and private sectors. Between 2018 and
2040 the expected increase in the older population indicates strong demand for aged
residential care beds of up to 3,000 additional residents per annum.
The public sector services does not fund the capital cost of aged care facilities but does
subsidise residential care costs for some residents. The charitable and private sectors will
need to provide the additional aged residential care beds in order to meet demand. The
capital expenditure required will be significant and it is likely only the private sector will be
able to secure the necessary capital.
PIL’s Growth Strategy
PIL has identified a number of opportunities for growth in the aged care sector. With demand
for aged care services in New Zealand growing, PIL intends to meet this demand by increasing
its capacity to provide aged care services. PIL intends to focus initially on establishing the
Aldwins Facility and developing the existing Facilities. PIL will then look to identify other
suitable acquisitions or development opportunities in New Zealand, particularly in regional
areas. PIL will also consider opportunities in metropolitan areas if they fit with the primary
growth goals.
PIL intends to fund any acquisition or development by issuing equity and taking on a limited
level of additional debt.
PIL considers that the aspects of its business that drive its financial performance, together
with the key strategies and plans to grow the earnings of the business, can be summarised as
follows:
• Establishment of the Aldwins Facility;
• Development of the existing Facilities, in particular the Ranfurly Residential Care Centre;
• Acquisition and development of other aged care facilities, in New Zealand; and
• Enhancing the range of services offered in existing facilities to enable higher fee income
Establishment of Aldwins Facility
Following Completion of the Proposed Transaction, PIL will focus on opening the Aldwins
Facility to residents. The Aldwins Facility is expected to be operational from mid-2020,
subject to the completion of the final works, Code Compliance Certificates being issued and
Ministry of Health certification being obtained.
PIL will be required to expend minimal resources and costs in the set-up of the Aldwins Facility
as the landlord is funding the establishment costs pursuant to the terms of the Aldwins Lease.
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The Aldwins Lease also allows PIL a six-month rent-free period to allow time for the Aldwins
Facility to be opened.
The last milestone to commencing operations of the Aldwins Facility will be to obtain Ministry
of Health certification (as described above at page 23, Regulatory Compliance) in order to
provide rest home and hospital services.
Once certification has been obtained, PIL will then focus on growing occupancy (which will
directly grow revenue). PIL’s due diligence and market research for Aldwins Facility causes
the Board to believe:
• There are a number of older aged care facilities in the area that are less attractive for
residents (for example, rooms without ensuites, tired décor, limited facilities, or need
for earthquake strengthening);
• Increasing demand in the Christchurch urban area with an aging demographic; and
• DHB needs for more capacity for non-acute care due to high demand on the public
health system;
Accordingly, the Board is optimistic that there will be strong demand for a newly refurbished,
substantial facility such as Aldwins House and that with focussed sales and marketing efforts,
occupancy can be grown in the short term.
Development of existing Facilities
The development and expansion of existing facilities will allow PIL to accommodate more
residents and increase revenue. Two out of the three existing Facilities have spare land that
will allow PIL to add either to the existing buildings on the land or build entirely new facilities
separate from the existing buildings. The development of existing facilities will enable PIL to
accommodate additional residents and increase revenue.
Ranfurly Development
PIL’s first development project will be the development of the Ranfurly Residential Care
Centre in Feilding (Ranfurly Development).
The Ranfurly Residential Care Centre is the largest aged care provider in Feilding, the next
largest provider in Feilding being an 80 bed facility. PIL intends to maintain this local market
position by purchasing a completed development of ORA units on the bare land adjoining the
Ranfurly Residential Care Centre. Given the relatively high proportion of elderly population in
Feilding in comparison to the national average (10.8% of people being over the age of 75
compared to the national average of 6.4%), the demand for aged care services is expected to
grow.
As part of the Purchase Agreement, Mr Brankin’s related company, Design Care Limited, has
agreed to fund and manage the Ranfurly Development. A separate purchase price of
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$14,180,000 has been agreed for the Ranfurly Development and this price assumes that the
development has been completed and was calculated based on the aggregate agreed value
for the first ORA sale proceeds of each newly built unit. At Completion PIL will acquire title to
the land and the purchase price of $14,180,000 will be an interest free loan repayable to
Brankin Family Trust.
PIL is only liable to repay the loan from the proceeds of the first ORA sold for each new unit.
If the arrangement is terminated or not completed in seven years, the purchase price and
corresponding loan will be reduced to reflect ORA net proceeds received for completed units.
PIL will reimburse Design Care Limited for direct construction costs for partially completed
units and for the land value in respect of any units where no construction has commenced.
The price of the land for each unit has been agreed as part of the purchase price.
The proceeds of the second and all subsequent ORAs for any unit will be for the benefit of
PIL.
The plans for the Ranfurly Development provide for 32 new external units and 10 new internal
units to be constructed. One existing unit will be removed to connect the ten new internal
units to the existing Ranfurly Residential Care Centre. The Ranfurly Development is intended
to be undertaken in three stages: stage 1 consists of ten external units and ten internal units,
stage 2 consists of ten external units and stage 3 consists of twelve external units. However,
the stages of the Ranfurly Development will be undertaken to meet demand for the units and
may be pursued more slowly or more aggressively based on such demand.
Resource and building consents have already been granted for the Ranfurly Development. PIL
expects the development to begin in late 2020 and will work towards completing the Ranfurly
Development within seven years from Completion. All units will be offered to the market
under ORAs. At present, Ranfurly Residential Care Centre has insufficient units available to
meet demand for ORAs.
The Ranfurly Development requires no new capital expenditure by PIL – loan repayments to
Design Care Limited are only due from ORA sales in all circumstances. Design Care Limited is
also assuming the material risks associated with a property development. The Ranfurly
Development should provide long-term financial benefits to PIL, being, the benefit of ORA
proceeds from each subsequent sale of a new unit and the increased capital value of what is
currently bare land.
New Zealand market acquisitions
PIL believes there are further growth opportunities through the acquisition of other aged care
facilities, particularly in provincial New Zealand which tend to not be a focus for other
corporate operators.
The majority of corporate operators are focusing on developing facilities in metropolitan
areas (for example Auckland, Tauranga and Queenstown) and expansion into Australia. Many
aged care providers in non-urban areas in New Zealand are smaller individual operators.
These operators often lack the scale to afford increasing levels of compliance or access the
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capital required to meet market requirements. PIL sees the potential exit of small aged care
operators as an opportunity for PIL to construct or acquire new facilities in areas where strong
market demand exists.
PIL will pursue these acquisition opportunities based on quality, geographic and cultural fit,
demand for services, growth potential and contribution to PIL’s profitability. Once the initial
growth strategies of the Ranfurly Development and Aldwins House are underway, this
strategy will become more of a focal point.
PIL expects additional lending will be required to fund acquisitions and expects that it would
be generally able to debt fund at least 50% of the purchase price of new acquisitions. The
balance would be funded through any combination of:
• PIL raising new capital;
• PIL equity forming part of the purchase price; and
• PIL’s cashflows from its own operations.
Service offering
PIL will keep under review the range of services offered at each Facility and look to transition
the mix of beds towards higher levels of care and revenue (hospital and dementia) if there is
local demand. For example, only Ranfurly Residential Care Centre offers dementia care and
PIL may look to add dementia care services to the other facilities in the future if there is
demand.
The provision of additional services can also provide new income streams for existing facilities
without the need to incur substantial establishment costs. Certain services are not funded by
the Government (for example transport or activities) however there may be a market among
residents to privately pay for additional services.
Previous Insolvency, Convictions and Other Proceedings
PIL is currently subject to a prosecution by the Ministry of Health for alleged breaches of the
Medicines Act 1981 in relation to the Arthrem dietary supplement. In these charges, the
Ministry alleges that PIL has sold an unlicensed medicine and that certain advertising by the
company is in breach of the Medicines Act.
The Ministry of Health prosecution is limited to the Arthrem supplement and will not have
any material impact on the Proposed Transaction or PIL’s operations of the Facilities following
Completion. PIL is still waiting for a hearing date in the District Court trial where it will contest
charges that it breached the Medicines Act. The maximum fine for these offences is $100,000
per offence but recent fines have been in the order of $1,000 per offence.
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Directors and Senior Managers
Directors
The current directors of PIL, Stephen Underwood, Thomas Brankin, Duncan Priest and Helen
Down, will remain directors. It is intended that following Completion the composition of the
Board will be reviewed
Mr Stephen Underwood
Independent Chairman and Non-Executive Director
BCA LLB (VUW)
Stephen Underwood was first appointed a director of PIL
in 2005. He holds a number of directorships in private
companies.
Mr Underwood’s background is in business and
management consulting and has extensive experience
with venture capital investment.
Mr Thomas Brankin
Non-Executive Director
Dip Agriculture & Dip Farm Management (Lincoln)
Thomas Brankin joined PIL as a director in 2018. He is a
New Plymouth based businessman with an extensive
background in the management, ownership and
development of aged care facilities.
Thomas has owned and operated the Brankin Facilities
since 1998. He brings to the Board not only a wealth of
experience in the management of aged care facilities, but
also critical knowledge about the operation of the Brankin
Facilities.
Mr M.D. Priest
Independent Non-Executive Director
Duncan Priest is an experienced New Zealand director.
Duncan has a long association with the New Zealand
capital markets, equity financing and investment banking.
He has considerable experience in capital raising in both
retail and wholesale markets
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Ms H. Down
Independent Non-Executive Director
BCA (VUW) FCIM
Helen Down is a well-known Wellington-based subject
matter expert in both marketing and governance.
Helen specialises in supporting the growth of innovative
and exciting small and medium sized businesses, especially
across the STEMM sectors.
Helen is currently Chief Executive Officer of Hutt Valley
Chamber of Commerce.
Senior Management
PIL’s senior management team will comprise the following:
Mr Rene de Wit
MSc Chem/MBA (Otago)
Chief Executive Officer
Rene de Wit joined PIL in October 2017.
Rene has 25 years of experience in fast moving consumer
goods (FMCG), food manufacturing, printing, packaging,
import/export, financial services and logistics.
He has worked extensively in corporate and privately
owned businesses, including his own. Mr. de Wit also
maintains a very strong science background having worked
in the health supplement sector.
Sarah Wah
Finance Manager
BBS, CA
Sarah Wah is a Chartered Accountant with a broad range
of financial skills attained across a wide range of public,
private and not for profit organisations.
She brings over 20 years of finance experience gained
within health, chemicals, corporate travel and consulting
sectors.
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Virginia Dyall-Kalidas
General Manager
RCpN, BN, MN (Hons)
Virginia Dyall-Kalidas is an experienced manager with over
25 years’ experience in the health sector. She has been the
General Manager of each of the Brankin Facilities for nearly
5 years and will continue this role with PIL.
Virginia started her career as an enrolled nurse, and
become a qualified auditor in mental health, community
health, Maori health and aged care services. She has held
management positions in the public, corporate and private
sectors. She is a very experienced facility manager and held
a position as Clinical Quality and Risk Manager for the
Lower North Island at MetlifeCare prior to becoming
General Manager with the Brankin Facilities.
Substantial Shareholders
Current substantial shareholders
As at 15 May 2020 the following shareholder held a relevant interest in 5% or more of the
Shares in PIL.
Name Legal ownership or
other nature of the
interest
Number of
Shares held
% of Shares
held
T.D Brankin & M.J Kirwin Lay Registered holder and
beneficial owner
1,103,804,210 51.3%
Substantial shareholders immediately after Completion
The following persons are likely to have a relevant interest in 5% or more of the Shares in PIL
immediately following Completion of the Proposed Transaction.
The date used to determine the particulars set out in the table below is 15 May 2020. The
assumptions on which the particulars in the table below are calculated are as follows:
• The number of Shares on issue immediately prior to the issue of the New Shares is
2,151,797,451;
• Following the issue of the New Shares, the total number Shares on issue at Completion
shall be 16,151,797,451. This assumes that 6 billion Shares are issued under the private
placements in addition to the 8 billion consideration Shares to the Brankin Family Trust;
and
• No minority buy-out rights under the Companies Act 1993 are exercised.
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Name Legal ownership or other
nature of the interest
Number of
Shares held
% of Shares
held
Thomas David Brankin and
Michael John Kirwin Lay as
trustees of the Brankin
Family Trust
Registered holder 9,103,804,210 56.36%
Ian Bracken Cassels (or nominee) has signed a subscription agreement for 1.7 billion Shares
for an issue price of $0.001 per Share. Settlement of the subscription agreement is due to
occur on 15 July 2020. Mr. Cassels is a director and shareholder of Teltower Limited which
owns the Aldwins Property. If PIL exercises the Aldwins Option it may issue 4 billion Shares to
Teltower Limited as part of the purchase price. This may cause Mr. Cassels to become a
substantial shareholder of PIL in the next 12 months.
Shareholdings held by Directors and Senior Managers
The following Directors and Senior Managers are likely to have a relevant interest in the
following Shares in PIL immediately following completion of the Proposed Transaction. The
percentages expressed in this table use the same assumptions described above in respect of
substantial shareholders.
Interest
Holder
Legal ownership or
other nature of the
interest
Prior to the Proposed
Transaction
Immediately after the
Proposed Transaction
Number of
Shares
% of
Shares
Number of
Shares
% of
Shares
Thomas
Brankin
Joint registered
holder with Michael
John Kirwan Lay (as
trustees of the
Brankin Family Trust).
1,103,804,210 51.29% 9,103,804,210 56.36%
Stephen
Underwood
Registered holder and
beneficial owner.
72,089,798 3.35% 72,089,798 0.45%
Rene de
Wit
Registered holder and
beneficial owner.
2,000,000 0.09% 2,000,000 0.01%
Duncan
Priest
Registered holder and
beneficial owner.
26,836,315 1.25% 26,836,315 0.17%
Helen
Down
Registered holder and
beneficial owner.
500,000 0.02% 500,000 0.003%
Total 1,207,531,606 56.01% 9,207,531,606 56.99%
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The New Shares being issued to the Brankin Family Trust as part of the Proposed Transaction
will be subject to restrictions. The Brankin Family Trust has agreed to enter into a restricted
security deed on the following terms:
• The restricted security deed will place the restrictions described below on (Restricted
Periods):
o 100% of the New Shares within 6 months from Completion;
o 75% of the New Shares within 12 months from Completion;
o 50% of the New Shares within 18 months from Completion; and
o 25% of the New Shares within 24 months from Completion.
• During the Restricted Periods, the Brankin Family Trust is prohibited from:
o Selling, transferring, assigning or otherwise disposing of, or offer or agree to sell,
transfer, assign or otherwise dispose of their right and title to, and beneficial
interest in the New Shares otherwise than by way of granting a security interest
in favour of any bona fide lender to the Brankin Family Trust; or
o Do, or omit to do, any act if the act or omission would have the effect of
transferring effective ownership or control of the New Shares during the
Restricted Periods otherwise than pursuant to the enforcement of any loan
and/or security interest granted to a bona fide lender to the Brankin Family Trust.
The New Shares being issued under the Proposed Transaction to persons other than the
Brankin Family Trust are not subject to any lock-up or escrow arrangements. Therefore, those
persons are free to sell or otherwise dispose of the New Shares at any time they wish.
The New Shares being issued to Mr. Stephen Underwood are part of an unpaid share plan
further described as the Director Share Scheme in the Notice of Meeting at page 20. The terms
of the Director Share Scheme are as follows:
• up to 150,000,000 (150 million) unpaid Shares will be issued to Promisia Trustee Limited
on Completion for the issue price of $0.001 per Share. Promisia Trustee Limited is a
wholly owned subsidiary of PIL and will hold the unpaid Shares on trust for Mr
Underwood.
• Shares will be vested in Mr Underwood over a two year period from Completion to
provide an incentive and retention arrangement that is appropriate in the
circumstances. While the unpaid Shares remain unpaid, they will confer no voting
rights. PIL holds a lien over the unpaid Shares until they are vested and fully paid.
• Upon the unpaid Shares being fully paid-up, Promisia Trustee Limited will transfer legal
title to the relevant fully paid ordinary Shares to Mr Underwood.
In addition, an unpaid employee share plan is intended to be established following
completion. It is intended that Senior Managers (but not directors) will participate in that
plan. The terms of the Plan are described in the Notice of Meeting and when decisions are
made by the Board to allocate shares under the plan, the allocations to Senior Managers will
be disclosed to the market.
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Interests of the Directors and Senior Management
Directors’ remuneration and other benefits
The table below sets out the total of the remuneration and the value of other benefits
received by each Director in respect of PIL during FY2019 or any other member of PIL’s group
during FY2019.
Directors Directors’ fees received for
FY2019 ($)
Other benefit received for
FY2019 ($)
Stephen Underwood 48,000
Thomas Brankin 14,000
Duncan Priest 14,000
Helen Down 15,000 8,875
The fees payable to the Directors during FY2020 by PIL will differ from the above.
At the Shareholder Meeting, PIL’s shareholders will be asked to approve an increase in the
total pool available for director fees from a maximum aggregate amount of $100,000 per
annum to $200,000 per annum payable to all directors of PIL taken together. If the
shareholders of PIL approve the new pool of director fees, the increased amount will take
effect from the first day of the month following the month in which completion of the
Proposed Transaction occurs.
The Directors are entitled to be reimbursed for all reasonable travel, accommodation and
other expenses incurred by them in connection with their attendance at Board or shareholder
meetings, or otherwise in connection with PIL’s business.
Mr. Thomas Brankin is currently the sole director of the Brankin Companies and the aggregate
director’s remuneration received by Mr. Brankin during the Brankin Companies’ financial year
ended 31 March 2019 was $120,000.
Employee remuneration and other benefits
The number of employees of PIL (not being directors) who received remuneration and other
benefits in FY2019 in their capacity as employees that in value was or exceeded $100,000 per
annum was as follows:
Remuneration No. of Employees
$220,000 – $229,999 1
Two employees employed by the Brankin Companies received remuneration or any other
benefits in the Brankin Companies that in value was or exceeded $100,000 per annum in the
most recent financial year ended 31 March 2019.
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With effect from Completion of the Proposed Transaction, PIL will acquire a number of new
employees and it is expected the number of employees of PIL (not being directors) who will
receive remuneration and other benefits, from Completion until the end of FY2020, in their
capacity as employees that in value will be or exceed $100,000 per annum will be as follows:
Remuneration No. of Employees
$120,000 – $129,999 2
$220,000 – $229,999 1
Material interests in PIL
Following Completion of the Proposed Transaction, each of the Directors and Rene de Wit
will have an interest in Shares in PIL, details of which are set out above under the heading
“Shareholdings Held by Directors and Senior Managers.”
PIL has granted indemnities, as permitted by the Companies Act, in favour of each of its
directors. PIL also maintains insurance for its directors and officers.
Other material governance disclosures
At the Shareholder Meeting, PIL’s shareholders will be asked to approve the adoption of the
Proposed Constitution.
Under both PIL’s current constitution and the Proposed Constitution, the Board has the power
to appoint additional directors to the Board from time to time. The Board will use this power
to appoint new directors if necessary after Completion of the Proposed Transaction. Any
director appointed by the Board must retire and seek re-appointment at PIL’s next annual
general meeting in accordance with the Listing Rules and the Proposed Constitution.
PIL operates in accordance with the NZX Corporate Governance Code and copies of its policies
and deviations from the Code can be revised on its website.
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2. KEY FEATURES OF PROMISIA’S SHARES
Shares
From Completion, PIL will have a single class of ordinary shares on issue. Those shares confer
equal rights and rank equally in all respects. To the extent a share is paid up, it confers:
• a vote on a poll at a shareholders meeting;
• an equal right to share in any distributions declared from time to time; and
• an equal right to share in the surplus assets of PIL on winding up.
New Shares issued under the Proposed Transaction
All New Shares issued under the Proposed Transaction will be fully paid ordinary shares in PIL
which rank equally with each other and all other ordinary shares in PIL on issue.
The principal terms of the New Shares to be issued under the Proposed Transaction are
identical to those of the ordinary shares in PIL on issue as at the date of this Profile.
PIL’s dividend policy from Completion
The Directors have no plans for PIL to pay dividends for FY2021. Any immediate profits
generated by PIL will be applied towards reducing debt or reinvested to fund the growth
strategies outlined earlier in this Profile. If this strategy is successful, shareholders may
benefit from an increase in the price of the Shares.
The Directors intend to adopt a dividend policy of paying 50% of net profit after tax less
repayment of bank debt. Subject to business performance and capital requirements, the
Directors current intention is to declare the first dividend for FY2022. The current view of the
Board is that debt should be at 50% of asset value before dividends can be considered.
Despite the intentions set out above, PIL can give no guarantees or assurances as to when PIL
will be in a position to pay dividends to shareholders, the level or frequency of any dividend
(or other distributions, if any) payable, or the level of imputation credits, if any, attached to
any dividends.
Any changes to PIL’s dividend policy will be announced to shareholders on NZX’s website
(www.nzx.com).
If a dividend is declared, PIL must comply with the solvency test under the Companies Act.
Dividends may also be subject to covenants agreed in the Bank Facilities.
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3. PIL’S FINANCIAL INFORMATION
Introduction
The information in this section provides key financial information about PIL. Full financial
statements are available on the PIL website at:
https://www.promisia.com/index.php?option=com_docman&view=list&slug=aged-care-
transaction-documents&Itemid=159&layout=default.
If you do not understand this financial information, you should seek advice from a financial
adviser or an accountant.
No prospective financial information
There is no prospective financial information (PFI) in this Profile. The Board has, following
careful consideration and after due enquiry, concluded that the provision of PFI for
accounting periods subsequent to 31 March 2020, may be misleading for potential investors
with regard to particulars that are material to the Proposed Transaction. The Directors believe
that it is not practicable to formulate reasonable assumptions on which to base prospective
financial statements.
The Board’s reasons for this opinion are as follows:
• The uncertainty of the economic and financial environment associated with the
COVID-19 pandemic renders any forecasts unreliable. Please see the risks and key
information summary sections of this Profile and specifically the risk in respect of
COVID-19.
• PIL’s immediate growth strategy includes the establishment of the Aldwins Facility. On
the commencement of businesses operations, PIL will start to incur operational
expenses as it seeks to attract residents. While PIL considers there will be resident
demand for Aldwins House, there is uncertainty (including from COVID-19) as to how
soon the facility may be populated;
• PIL’s key growth strategy also includes the acquisition and development of other aged
care facilities in New Zealand. These acquisitions will not only create transaction costs
but will also incorporate the financial positions of newly acquired businesses into the
group structure which would substantially alter the PFI.
Given the inability to reliably determine reasonable assumptions for the periods that would
be covered by the PFI, the Board is of the view that prospective financial statements may be
misleading for potential investors in a material manner because actual operating revenue or
expenditure for that period could be materially different from that forecast.
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Pro Forma Historical Financial Information
Pro forma historical financial information has been derived from the historical financial
information referred to below, reconciled to GAAP and adjusted for structural changes and
non-recurring adjustments:
• Historical financial information comprises the aggregation of the financial reporting
information for each of the Brankin Companies (or where applicable, their predecessor
entities) for the relevant periods prior to acquisition, as if each of those companies were
controlled by PIL for all of the relevant historical periods.
• For the purposes of the pro forma historical financial information it is assumed that PIL
has no revenue, no earnings and no net assets, consistent with it being a shelf company.
• Adjustments for structural changes in the business include:
o Removing any business units not included in the Proposed Transaction;
o Replacing costs associated with the pre-Proposed Transaction operating structure
(including net interest expense and amortization) with an estimated public
company operating cost structure (including an estimated annual amortization
charge reflecting the assumed acquired intangible assets and an estimated
interest expense reflecting the assumed debt structure immediately post
Completion);
o Removing any goodwill, brand and customer contract values for each of the
Brankin Companies, replacing these with the goodwill, brand value and customer
contract value assumed to be recognized on Completion;
o Removing any external borrowings and cash balances for each of the Brankin
Companies, replacing these with the assumed debt structure immediately
following Completion; and
o Excluding one-off consulting, legal and accounting fees as well as gains and losses
on disposal of fixed assets incurred by the Brankin Companies.
Further details on these adjustments and GAAP reconciliations are included in the
Supplementary Financial Information.
Historical financial information for Eileen Mary Age Care Property Limited and Ranfurly Manor
No: 1 Limited for FY2018, FY2019 and FY2020 comprises of the full audited accounts for each
year.
Historical financial information for Design Care Group Limited, Eileen Mary Holdings Limited
(previously Eileen Mary Age Care Limited) and Ranfurly Manor Holdings Limited (previously
Ranfurly Manor Limited) comprises of unaudited accounts for FY2018, FY2019 and FY2020.
These companies are the predecessor entities to Ranfurly Manor Limited, Eileen Mary Age
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Care Limited and Nelson Street Resthome Limited as they held relevant business assets until
they were transferred to the Brankin Companies following signing of the Purchase Agreement
under the Restructure.
Historical financial information for Aldwins House Limited comprises of unaudited special
purpose financial statements for the period ended 31 March 2020.
Audited accounts are only available for Eileen Mary Age Care Property Limited and Ranfurly
Manor No: 1 Limited as they are required to be audited under the Retirement Villages Act
2003 and the other entities had no legal obligation to be audited. The value of the assets held
by the two audited entities represents approximately 90% of the value of all of the Brankin
Companies.
Ranfurly Manor Limited, Eileen Mary Age Care Limited, Nelson Street Resthome Limited and
Aldwins House Limited are newly incorporated entities and do not have any actual trading
history. They will acquire their respective businesses (as described on page 13 of this Profile)
immediately prior to Completion under the Restructure.
Historical financial information for PIL comprises of audited accounts for FY2018 and FY2019.
All historical financial information is available on PIL’s website.
The balance date for each of the Brankin Companies is 31 March. Following Completion, the
Brankin Companies will change their balance dates to 31 December to align with PIL. PIL will
then produce audited, consolidated six-month accounts to 30 June 2020. Following release
of those accounts, the group will change its balance date to 31 March.
Business combination
The Proposed Transaction for accounting purposes constitutes a business combination under
common control. This is outside the scope of IFRS 3.
Further details are available in the Supplementary Financial Information on PIL’s website.
Financial Reporting Standards
Recently there has been several changes in financial reporting standards. The most significant
of which is NZ IFRS (Leases) which has replaced NZ IAS 17 (Leases). IFRS 16 applies to financial
periods beginning on or after 1 January 2019.
PIL has adopted IFRS 16 and no material adjustments were required to be made in the audited
accounts for PIL for the year ended 31 December 2019.
PIL has also reviewed the accounting policies of each of the Brankin Companies. These were
consistent with PIL’s current accounting policies.
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Selected Financial Information
Financial year ended 31 March Pro forma Pro forma Pro forma
NZD$’000
Year ended
31 March 18
Historical
Year ended
31 March 19
Historical
Year ended
31 March 20
Historical
Revenue 13,242 12,149 13,012
EBITDA 2,845 1,322 1,335
Net Profit (Loss) after tax 1,389 (224) (238)
Dividends on all securities of PIL Nil Nil Nil
Total assets 48,767 48,139 54,048
Cash and cash equivalents NM (799) (770)
Total liabilities 26,628 25,577 35,686
Total debt 16,820 16,447 11,579
Net cashflow from operating activities NM 1,087 1,204
*NM means non-material
Notes to table:
1 Pro forma historical financial information has been sourced from audited and unaudited
financial statements and management reports that are available on PIL’s website.
Details of consolidation and other pro forma adjustments can be found in the
Supplementary Financial Information.
2 EBITDA refers to earnings before interest, tax, depreciation and amortisation. EBITDA
and pro forma EBITDA are non-GAAP profit measures. PIL considers that pro forma
EBITDA, which normalises performance for certain structural changes within the
business and removes the impact of a number of non-recurring items, allows for a
better comparison of operating performance over the historical period and for
comparison with that of other companies. However, caution should be exercised as
other companies may calculate EBITDA and pro forma EBITDA differently.
Reconciliations between pro forma EBITDA and GAAP profit measures are contained
within the Supplementary Financial Information.
3 NPAT refers to net profit after tax. Pro forma NPAT is a non-GAAP measure.
Reconciliations between pro forma NPAT and GAAP profit measures are contained
within the Supplementary Financial Information.
4 The dividends declared by the Brankin Companies on a stand-alone basis have been
normalised out for the purposes of the pro forma financial information. Refer to Section
2 (Key features of PILs Shares) for further details of the expected dividends following
Completion.
5 Current and non-current trade and other receivables make up 0.4% (2019: 1.8%) of total
assets as at 31 March 2020, while property, plant and equipment make up
approximately 99% (2019: 89%) of total assets at 31 March 2020. Intangible assets make
up approximately 1.14% (2019: 1.27%) of total assets at 31 March 2020.
6 Intangible assets consist of those recognised on the acquisition of the Brankin
Companies by PIL. These intangible assets consist of brand names and intellectual
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property, customer contracts and relationships such as goodwill. The balances
displayed in the table above represent the assumed intangible asset balances, had the
acquisition of the Brankin Companies occurred at the beginning of the relevant periods.
7 Current and non-current trade and other payables make up approximately 3.96% (2019:
8.14%) of total liabilities at 31 March 2020, while interest bearing debt makes up
approximately 33% (2019: 64%) of total liabilities at 31 March 2019.
8 The debt position shown at FY2020 reflects the assumed debt position for PIL, had the
acquisition of the Brankin Companies occurred at the beginning of the relevant periods.
9 Pro forma net cash flows from operating activities is a non-GAAP profit measure. Pro
forma net cash flows from operating activities have been calculated as net cash flows
from operating activities adjusted for the cash impact of the pro forma adjustments.
The Supplementary Financial Information contains reconciliations between pro forma
net cash flows from operating activities and GAAP profit measures.
Capitalisation Table
The figures in the table below have been calculated assuming an enterprise value for the
Brankin Group of $31,385 million.
Capitalisation Table
NZD$’000
Implied PIL value (pre-acquisition) $2,152
Enterprise value of Brankin Companies $31,385
Implied enterprise value of PIL (at Completion) $33,536
Less debt: $17,700
Plus equity: $14,100
Implied equity value of PIL post completion $30,336
Number of shares on issue (millions)
14
16,151,797
Implied value per share $0.002
Implied enterprise value is a measure of the total value of the business of PIL, as implied by
the price of the shares being offered. Implied enterprise value is the amount that a person
would need to pay to acquire all of PIL’s equity securities and to settle all of PIL’s borrowings.
It is a measure of what PIL is proposing the business of PIL as a whole is worth.
14
This number is the minimum number of shares that will be on issue at Completion. It is equal to the number of Shares currently on
issue, the 8 billion New Shares to be issued to the Brankin Family Trust and the 6 billion New Shares to be issued under the Placement.
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How the Brankin Companies generate revenue
The Brankin Companies generate revenue by operating and developing aged care and
retirement village facilities.
Aged Care:
• Care fees: The Brankin Companies receive regulated care fees for occupied beds which
are funded either by the Government (via DHBs) or by resident contributions. Care
fees are based on the level of care provided (rest home, hospital, or dementia) and
are earned per occupied bed per day.
• Premium accommodation charges: Additional fees are charged by the Brankin
Companies for beds in some rooms with additional premium features (such as an
ensuite bathroom, larger size).
• Other care income: Additional fees are charged by the Brankin Companies for care
services such as meals or laundry provided for some retirement village residents and
in relation to ancillary services provided to aged care residents (for example, hair
dressing).
Retirement Villages:
• Weekly service fees: Weekly fees are charged to retirement village residents. These
contribute to the upkeep of the retirement village.
• Changes in fair value of investment properties: Fair value movements in the value of
investment property (including in relation to development properties under
development) are recognized for financial reporting purposes under NZ IAS 40. The
fair value movements reflect both realized and unrealized movements associated with
the fair value of units. The Brankin Companies obtain an annual valuation of its
retirement village portfolio from CBRE, an independent external valuer, as an input to
the investment property valuation. CBRE undertakes valuations for all listed New
Zealand aged care / retirement village operators (Ryman Healthcare, Oceania,
Summerset, Metlifecare and Arvida).
• Rental income: The Brankin Companies receive rental income for occupied units that
are not subject to an ORA. Rental units are typically units that have been bought back
from outgoing residents on a targeted basis to facilitate future development projects.
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Overview of Historical Financial Performance
This section provides an overview of the pro forma historical financial performance of the
Brankin Companies and should be read in conjunction with the table headed Selected
Financial Information above.
FY2019PF Financial Performance relative to FY2018PF
Between FY2018 and FY2019 the Brankin Companies pro forma revenue decreased by 8.26%
to $12,148 million which was driven by revenue from rest home, hospital, dementia beds,
other fees from ORA occupants and occupancy amortisation. Other income reduced from
$504,000 to $230,000 and the movement of fair value of the Facilities was $1,155,000 less
than 2018.
Between FY2018 and FY2019 cash revenues all increased but these increases were offset by
a negative movement in fair value compared to the previous year.
FY2019PF Financial Performance relative to FY2018PF
NZD$’000 Year ended
31 March 18
Historical
Year ended
31 March 19
Historical
% change
Revenue
Brankin Companies $13,242 $12,148 -8.26%
EBITDA
Brankin Companies $2,843 $1,937 -31.86%
FY2020PF Financial Performance relative to FY2019PF
Between FY2019 and FY2020 the Brankin Companies pro forma revenue increased by 7.09%
to $13.01 million which was driven by increased revenue from having an increased number
of rest home, hospital and dementia beds. There was no material change in other income or
in the fair value of the Facilities.
FY2020PF Financial Performance relative to FY2019PF
NZD$’000 Year ended
31 March 19
Historical
Year ended
31 March 20
Historical
% change
Revenue
Brankin Companies $12,148 $13,010 7.09%
EBITDA
Brankin Companies $1,987 $2,351 18.28%
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Supplementary Financial Information
The following additional financial information is available on the PIL website:
Historical financial information for FY2018, FY2019 and FY2020 for:
(a) Promisia Integrative Limited
• Audited financial statements for FY2018 and FY2019
(b) Eileen Mary Age Care Property Limited
• Audited financial statements for FY2018, FY2019 and FY2020.
(c) Ranfurly Manor No:1 Limited
• Audited financial statements for FY2018, FY2019 and FY2020.
(d) Design Care Group Limited
• Unaudited financial statements for FY2018, FY2019 and FY2020.
(e) Eileen Mary Holdings Limited (previously Eileen Mary Age Care Limited)
• Unaudited financial statements for FY2018, FY2019 and FY2020.
(f) Ranfurly Manor Holdings Limited (previously Ranfurly Manor Limited)
• Unaudited financial statements for FY2018, FY2019 and FY2020.
(g) Aldwins House Limited
• Unaudited special purpose financial statements for FY2020.
Supplementary Financial Information has also been prepared in accordance with FRS-42 and
is available on the PIL website.
PIL’s annual report for FY2019 included a disclaimed audit opinion due to PIL incurring a net
loss for the year of $2.4 million, having negative working capital and equity and being subject
to litigation. These factors together meant the auditor could not form an opinion about PIL’s
ability to continue as a going concern.
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Other Items
The principal assumptions on which the pro forma historical information in this Section 3
(PIL’s Financial Information) have been prepared include reconciliations between:
• Information prepared in accordance with GAAP and the pro forma information
presented in the table headed Selected Financial Information above; and
• Net profit after tax and EBITDA, the non-GAAP profit measure referred to in the table
headed Selected Financial Information above.
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4. RISKS TO PIL’S BUSINESS AND PLANS
This section sets out a description of the circumstances that the Directors are aware of that
exist or are likely to arise that significantly increase the risk to PIL’s financial position, financial
performance or stated plans.
This section outlines the Directors’ assessment of the likelihood, nature and potential
magnitude of the impact of the circumstances. These risks are based on the knowledge and
assessment of the Directors, as at the date of this Profile and it is possible that other risks may
emerge over time.
Material Risk – COVID-19
The spread of COVID-19, its effect on the global economy and actions taken in response by
governments may have a material adverse effect on PIL, its financial performance and
position. PIL has taken care to ensure that each of the assumptions throughout this Listing
Profile remain relevant and current in light of this global crisis.
PIL will continue to address and respond to the challenges that the pandemic presents. As the
situation surrounding the pandemic continues to evolve and develop, PIL can provide no
certainty as to the severity or likelihood of any unforeseen impacts arising, whether any
mitigating action can be taken, or what the consequences of that action might be.
Please ensure that you make an assessment of the risks associated with PIL, including the
inherent uncertainties as to the impact of COVID-19. In particular, the impact COVID-19 may
have on property values is unknown at the date of this Profile and it may have a material
effect on property values. The valuations for the Facilities that are referred to in this Profile
pre-date COVID-19 being declared a pandemic and COVID-19 may have materially effect
those valuations.
Please consider the specific COVID-19 risks to PIL set out at page 6.
Other Risks
Establishment of Aldwins Facility
What is it?
The Aldwins Property to be used by PIL to establish the Aldwins Facility has received a
CCC and is currently unoccupied. It will open once further certain construction works
have been completed and certification under the HDSS Act has been obtained. On the
commencement of business operations, PIL will start to incur operational expenses.
Why is it
significant?
The commencement of business operations will require PIL to incur operational
expenses and if the occupancy rate at the time, which determines revenue generated,
is not sufficient to break even or generate a profit, PIL will be operating the Aldwins
Facility at a loss. Any losses could significantly impact PIL’s total cash flow, particularly
if there is low occupancy for a protracted period following opening.
Assessment
of the
PIL management is liaising with the local DHB to encourage referrals to the Aldwins
Facility once the facility is open. The local DHB has indicated that there is demand for
the facility. However uptake cannot be reliably predicted particularly given COVID-19.
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likelihood,
nature and
potential
magnitude
There have been heavily reported outbreaks of COVID-19 at a number of aged care
facilities in New Zealand. This may have the effect of reducing demand for aged care
facilities in circumstances where potential residents have other appropriate care
options (e.g. family) available.
PIL believes that Aldwins House will be seen as an attractive facility for prospective
residents given its central location in Christchurch, that it will be newly refurbished and
offers private ensuites.
Demand and Occupancy Risk
What is it?
PIL’s revenue relies entirely on the occupancy rates of the aged care facilities.
Why is it
significant?
The occupancy rate of PIL’s aged care facilities determines revenue received from
residents that are either privately funded or receive government funding.
Any reduction in occupancy and demand for aged care services will directly reduce
PIL’s profitability. A significant reduction in occupancy rates will have a material
adverse effect on PIL’s financial performance.
The Aldwins Facility currently has no occupants. From Completion, PIL will begin to
incur operational expenses at Aldwins House. Until PIL is able to lift occupancy, PIL will
operate the Aldwins Facility at a loss. Any losses could significantly impact PIL’s cash
resources if they occur for an extended period of time.
Assessment
of the
likelihood,
nature and
potential
magnitude
Available statistics indicate a significant increase in the aging population. A shortage of
beds in aged care facilities compared with the expected number of people likely to
require aged care, leads PIL to consider that the risk of declining occupation rates is
low.
PIL is aware that the government has been endorsing home based support services as
a means of having elderly stay in their homes for longer and thus relieve the financial
burden of aged home care. This policy has led to a slight decline in demand for
retirement villages (1.1% in 5 years). However, these residents often end up in
specialised care eventually, a service that is provided by each of PIL’s facilities. PIL
would therefore provide care for these residents at a later stage of life.
The range of different accommodation, care and services provided by PIL’s facilities
also mitigates the risk of declining occupancy rates as it allows PIL to retain residents
by relocating residents within its facilities as their health needs change.
Furthermore, PIL is aware that as a result of COVID-19, the Facilities have observed a
spike in occupancy to ensure that elderly receive the specialised care that they need
out of the public hospitals and in a safe, certified facility.
Labour Availability and Cost
What is it?
PIL relies on skilled and qualified staffing, particularly nurses and caregivers, to care for
residents in the aged care facilities. There is a shortage of skilled nurses and caregivers
in the aged care sector and PIL may face strong competition in recruiting or retaining
such personnel.
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Why is it
significant?
The availability of skilled personnel in the aged care sector has been a long term issue.
The sector is known for high turnover of staff in all areas, the key reason being low
levels of remuneration. As a result the sector depends heavily on foreign workers, who
can be on short term visas and therefore rely upon immigration requirements and the
availability of visas.
To attract and retain qualified workers to provide the optimum care for residents, PIL
may be required to pay more than it currently does and such increases in labor costs
could impact materially on PIL’s financial performance as its business operations are
labor intensive.
Assessment
of the
likelihood,
nature and
potential
magnitude
PIL may be adversely affected if it is unable to recruit suitably qualified staff or if it loses
its existing employees (who could then be difficult to replace).
Labour costs may face upwards pressure as a result of, amongst other factors, a
shortage of suitable skilled and qualified staff. A proposal under the Government’s
coalition deal to increase the minimum wage to $20 an hour by 2021 will also provide
further pressure on labour costs.
PIL will attempt to off-set any increase in labour costs against fixed operational cost
savings that PIL will benefit from through the expansion and development of its
existing facilities. Such expansion would allow PIL to increase profitability for existing
facilities and spread fixed costs across a larger scale of operations.
Furthermore, PIL considers that the location of the existing facilities and the new
facility would mitigate this risk for the reasons as follows:
1. the existing facilities are located in provincial areas where there are fewer
competitors within close proximity to these facilities and therefore fewer
competing jobs available. The lower living costs in provincial areas are
attractive for recruiting and retaining staff and, given the lower wage paid
across all staff in the aged care sector, it would be difficult for staff to relocate
to urban areas where living costs are higher; and
2. the new facility is located in central Christchurch where the supply of staff in
residential care facilities is expected to be high due to the number of nearby
facilities that need to close to complete earthquake strengthening works and
staff from these facilities needing to find new employment. Furthermore, as
Christchurch is still in the process of rebuilding after the 2010/2011
earthquakes, the population is expected to increase gradually as rebuild
progresses bringing new residents that relocating to or previous residents
relocating back to Christchurch. The population growth will provide PIL with
recruitment opportunities.
There is a degree of reliance on foreign workers and a concern that these workers are
on short term visas. However, Immigration New Zealand offers an easy path to
residency for registered nurses in the aged care sector, as this occupation is included
in the long term skills shortage list. This is a good incentive for qualified foreign
employees to relocate and remain in New Zealand, thereby increasing the number of
skilled employees available in the aged care sector.
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Regulatory Risk
What is it?
The aged care sector is subject to high regulation and any changes to legislation or a
review of requisite standards may impact materially on PIL’s operations and the entire
aged care sector.
Why is it
significant?
In order to continue operating the Facilities, PIL is required to comply with the
legislation that regulates the aged care sector. The aged care sector is predominately
regulated by the following legislation:
• The Health and Disability Services (Safety) Act 2001; and
• Retirement Villages Act 2003;
The legislation currently specifies strict standards and requirements that aged care
providers must meet in order to obtain certification and accreditation to continue
business operations. The certification and accreditation process involves an audit of
each aged care facility to ensure it meets the requisite standard and identifies any
issues that need to be remedied.
Changes to Key Personnel
What is it?
PIL operates in a specialised industry and relies on key personnel with knowledge
which will be integral to PIL’s success in the aged care industry. If PIL is not able to
retain one or more of those key personnel, it could adversely affect PIL’s operations.
Why is it
significant?
PIL’s business model depends upon a board and management team with talent and
experience to drive performance and integrate and manage the Facilities into PIL’s core
business operations.
PIL also relies on its ability to identify and retain key employees at each of the Facilities
and to execute PIL’s strategies at a business level under the guidance of PIL’s
management team.
To this end, a number of individuals have been identified as key personnel. Loss of
their input may have a substantial adverse impact on the operation of the Facilities,
existing commercial relationships and the integration and ongoing operation of PIL.
Key personnel includes Mr. Tom Brankin who holds a wealth of industry experience
and knowledge, and will be vital to the immediate success of PIL.
Assessment
of the
likelihood,
nature and
potential
magnitude
As part of the Proposed Transaction, the existing owner of the Facilities will maintain
a key directorship role in PIL and will own Shares in PIL to ensure their interests are
aligned. Shares being issued to the Brankin Family Trust will be subject to escrow as
part of Mr. Brankin’s long term investment into the success of PIL (details of the escrow
are discussed above at page 35).
PIL is confident that it can retain existing key personnel, but will position itself to
identify qualified personnel should the need to replace staff arise. At a Board level, PIL
is actively looking for potential Board members with retirement sector and/or property
experience.
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Increasing regulation has made it difficult for aged care facilities to operate profitably
and any additional regulations that would require PIL to incur additional costs to
ensure compliance or implement new procedures or hire more personnel have the
potential to diminish PIL’s profits.
If any of the aged care facilities do not comply with any new standard, it could lose its
certification and accreditation, which would disqualify PIL from operating that aged
care facility.
Assessment
of the
likelihood,
nature and
potential
magnitude
Given the uncertainty with any legislative changes and the potential costs involved
with complying with any changes, the magnitude of a legislative change for PIL could
be severe.
Additionally, the risk that PIL faces with legislative changes is further exacerbated by
the potential for PIL to lose its government funding in the event it is unable to comply
with new regulations.
Regulatory risk due to policy changes by the New Zealand Government is inherently
unpredictable. PIL intends to manage this risk by maintaining and continually
improving its aged care facilities to mitigate any expenditure required to comply with
legislative changes that impose higher standards for aged care facilities.
Because any legislative changes are a threat to the wider sector, it is likely that the any
significant legislative changes would allow a transition period to ensure compliance
with the changes, which would give PIL time to implement the changes.
PIL could also look to pass on cost increases to its residents incurred in complying with
additional regulations. As the entire sector would be facing similar additional costs to
comply with any new regulations, it is likely that the entire sector would be required
to increase aged care costs which lowers the risk of PIL’s occupancy rates declining as
a result of competing providers offering lower rates.
Lastly, with the recent outbreak of COVID-19, the New Zealand Government has
announced its economic response package which includes dedicated cash injections to
health care. The Ministry of Health has also assured aged care facilities that they are
essential health care services that will receive support throughout the pandemic. It is
unlikely that there is any regulatory risk arising out of the pandemic.
Government Funding
What is it?
Approximately 66% of aged care in New Zealand is government funded by way of a
residential care subsidy, which is subject to a means test.
Why is it
significant?
Government funding for residential care in New Zealand is provided by local DHBs and
allocated by the Ministry of Health.
Given the percentage of residents that rely on funding from the government to pay for
their care in aged care facilities, a reduction in funding could have a material adverse
effect on PIL’s revenue.
Assessment
of the
PIL considers the likelihood of the government cutting funding across the aged care
sector to be relatively low, especially due to the expected increase in an aging
population that will require aged care.
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likelihood,
nature and
potential
magnitude
The existing funding model was developed in the 1990s and the DHBs and Ministry of
Health are looking into ways to improve the funding model. The Ministry has
commissioned Ernst and Young to carry out a review of the funding model to improve
understanding of the issues with the current model.
Given the necessity of government funding for aged care to ensure the wellbeing of
New Zealand’s aging population, PIL anticipates that any reviewed funding model will
amount to an increase in the amount of government funding available for the aged
care sector. It is unlikely that any revised model will result in a decrease in the funding
available for aged care.
Sector Competition
What is it?
Aldwins Facility is considered by the Board to be an attractive aged care facility due to
their perceived lack of sector competition in the Christchurch central area.
Why is it
significant?
Any new high quality aged care facilities that are established within close proximity to
the Aldwins Facility may reduce demand for beds in the Aldwins Facility and cause
slower growth in occupancy than anticipated.
Assessment
of the
likelihood,
nature and
potential
magnitude
PIL does not have exclusivity over the provision of aged care facilities in the
Christchurch central area that the Aldwins Facility is located and the entry barriers to
establishing a new aged care facility are not considered to be high. There are also
bigger scale aged care operators that may be attracted to constructing new aged care
facilities within close proximity to the Aldwins Facility.
The magnitude of the impact on PIL as result of competing operators can vary
depending on PIL’s ability to retain and attract new residents within the area.. PIL’s
investigations indicate there is currently high demand and the area is a prime
opportunity to establish its reputation in order to limit the impact of new competitors.
PIL may minimise any impact of new competitors on the business by spreading the risk
across the other three existing aged care facilities. The other facilities maintain a well-
respected reputation in the areas they operate and are less exposed to sector
competition given the lower populations of their respective areas.
If the Aldwins Facility provides a quality service and PIL continues to improve and
maintain Aldwins Facility, it should be difficult for a newly established operators with
no history to compete with the Aldwins Facility.
5. TAX
Tax can have significant consequences for investments. If you have queries relating to the tax
consequences of holding shares in PIL you should obtain professional advice on those
consequences.
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6. WHERE YOU CAN FIND MORE INFORMATION
Further information relating to PIL and the Proposed Transaction (including the Proposed
Constitution and Financial Reports) is available on PIL’s website at:
https://www.promisia.com/index.php?option=com_docman&view=list&slug=aged-care-
transaction-documents&Itemid=159&layout=default
On 30 March 2020 PIL released its annual report for the year ending 31 December 2019. The
annual report can be viewed at: https://www.nzx.com/announcements/350874.
Further information relation to PIL is also available on the public register at the Companies
Office managed by the Ministry of Business, Innovation and Employment. This information
can be accessed on the Companies Office at: www.business.govt.nz/companies.
PIL’s Notice of Special Meeting in relation to the Proposed Transaction and announcements
relating to the Proposed Transaction required by the Listing Rules from time to time can be
obtained from NZX's website (www.nzx.com) by searching under PIL’s ticker code (“PIL”).
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7. CONTACT INFORMATION
Promisia
Promisia Integrative Limited
Level 5
22 Panama St
Wellington 6011
Phone: +64 (4) 499 5563
Promisia’s Legal Advisor
Duncan Cotterill
Level 2, Chartered Accountants House
50 Customhouse Quay
Wellington 6011
Phone: +64 (4) 499 3280
Promisia Share Registrar
Link Market Services Limited
Level 11, Deloitte Centre
80 Queen Street
Auckland 1010
Phone: +64 (9) 375 5998
Promisia’s Auditors
William Buck
Level 4
21 Queen Street
Auckland 1010
Phone: +64 (9) 366 5000
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8. GLOSSARY
The following terms have the following meanings where used in this Profile unless the context
otherwise requires:
“Aldwins Facility” means the new aged care facility to be established by PIL at the Aldwins
Property.
“Aldwins Option” means a right to purchase the Aldwins Property for up to $11,000,000 (plus
GST, if any) on the terms described on page 4 of this Profile and further described in the
Notice of Meeting.
“Aldwins Property” means the land and buildings at 62 Aldwins Road, Christchurch.
“Bank” means the New Zealand registered bank providing PIL with the Bank Facilities.
“Bank Facilities” means the new banking facilities entered into by PIL with the Bank to part
fund the Proposed Transaction and for ongoing capital purposes as further described in the
Notice of Meeting.
“Board” means the board of directors of PIL.
“Brankin Family Trust” means Thomas David Brankin and Michael John Kirwin Lay as trustees
of the Brankin Family Trust.
“Brankin Companies” means Nelson Street Resthome Limited (company no. 7859466), Eileen
Mary Age Care Property Limited (company no. 1258335), Eileen Mary Age Care Limited
(company no. 7833236), Ranfurly Manor Limited (company no. 7833156), Ranfurly Manor No:
1 Limited (company no. 3069267) and Aldwins House Limited (company no. 7832936).
“Completion” means the completion of the Purchase Agreement, intended to by no later than
19 June 2020.
“Directors” means the directors of PIL.
“DHB” means the District Health Board.
“EBITDAR” means Earnings before interest, taxes, depreciation, amortisation and
restructuring or rent costs. EBITDAR is a non-GAAP financial measure that can be used to
assess a company's underlying financial performance.
“Facilities” means Ranfurly Residential Care Centre, Eileen Residential Care Centre, Nelson
Residential Care Centre and, where the context permits, the Aldwins Facility
“FY[Year]” means a financial year ended on 31 December where it is a reference to PIL prior
to Completion and a financial year ended on 31 March where it is a reference to the Brankin
Companies or PIL following Completion.
58
11518561_1
“HDSS Act” means Health and Disability Services (Safety) Act 2001.
“Independent Report” means the independent report prepared by Simmons Corporate
Finance in respect of the Proposed Transaction under the Listing Rules and Takeovers Code.
“Listing Rules” means the NZX Listing Rules dated 1 January 2020 and “Listing Rule” means a
rule contained in the NZX Listing Rules.
“Minority Buy-out Rights” means a PIL shareholder’s right to require PIL to purchase that
shareholder’s shares in accordance with section 110 of the Companies Act, as discussed in
Appendix One of the Notice of Meeting
“New Shares” means up to 16 billion new ordinary shares in PIL to be issued at an issue price
of $0.001 per share at Completion under the Proposed Transaction.
“Notice of Meeting” or “Notice” means the notice of Shareholder Meeting.
“NZX” means NZX Limited.
“ORA” means Occupation Right Agreement.
“PIL” means Promisia Integrative Limited.
“Placement” means the issue of up to $8,000,000 of New Shares at an issue price of $0.001
per share to wholesale investors.
“Profile” means this document, being a profile prepared in accordance with the Listing Rules.
“Proposed Constitution” proposed new constitution for PIL to be put to PIL’s shareholders
for approval at the Shareholder Meeting.
“Proposed Transaction” means the acquisition of 100% of the shares on issue in the Brankin
Companies that own the Facilities and the funding and share issues associated with that
acquisition.
“Purchase Agreement” means the sale and purchase agreement dated 18 December 2019
between the Brankin Family Trust and PIL where PIL is acquiring all of the shares in the Brankin
Companies.
“Purchase Price” means the purchase price payable for the shares of the Brankin Companies,
being $31,385,000 subject to working capital adjustments.
“Ranfurly Development” means the development of the vacant land at the Ranfurly
Residential Care Centre as described on page 28 of this Profile and further described in the
Notice of Meeting.
59
11518561_1
“Resolutions” means the resolutions set out in the Notice of Meeting.
“Share Purchase Plan” means the proposed share purchase plan offer to be made to
shareholders that is described in the Notice of Meeting.
“Shareholder” means a shareholder of PIL.
“Shareholder Meeting” means the special meeting of shareholders of PIL to be held on 11
June 2020 at 2 pm to consider the Proposed Transaction.
“Supplementary Financial Information” means the document entitled “Reconciliation of
non-GAAP to GAAP information, and supplementary financial information” which is available
on PIL’s Website.
“Shares” means ordinary shares in PIL.
“Takeovers Code” means the Takeovers Regulations 2000.
---
www.simmonscf.co.nz
Promisia Integrative Limited
Independent Adviser’s Report and
Appraisal Report
In Respect of the Acquisition of Shares in
6 Aged Care Facilities Companies from
the Brankin Family Trust
May 2020
Statement of Independence
Simmons Corporate Finance Limited confirms that it:
has no conflict of interest that could affect its ability to provide an unbiased report; and
has no direct or indirect pecuniary or other interest in the proposed transactions considered in this report,
including any success or contingency fee or remuneration, other than to receive the cash fee for providing
this report.
Simmons Corporate Finance Limited has satisfied the Takeovers Panel, on the basis of the material provided to the
Takeovers Panel, that it is independent under the Takeovers Code for the purposes of preparing this report.
Independent Adviser’s Report
Promisia Integrative Limited and Appraisal Report
Index
Section Page
1. Executive Summary ........................................................................................................... 1
2. Evaluation of the Merits of the Transactions (including the Brankin Allotment) ............... 12
3. Evaluation of the Fairness of the Transactions ................................................................ 29
4. Profile of Promisia ............................................................................................................ 31
5. Overview of the Retirement Village and Aged Care Sector ............................................. 38
6. Profile of the Brankin Companies and the Facilities ........................................................ 44
7. Valuation of the Brankin Companies ............................................................................... 52
8. Reasonableness of the Brankin Allotment, the Wholesale Allotment and the
Teltower Allotment Issue Price ........................................................................................ 57
9. Sources of Information, Reliance on Information, Disclaimer and Indemnity .................. 60
10. Qualifications and Expertise, Independence, Declarations and Consents ...................... 62
Appendix
I Retirement Village and Aged Care Companies’ Trading Multiples .................................. 63
Independent Adviser’s Report
Promisia Integrative Limited Page 1 and Appraisal Report
1. Executive Summary
1.1 Background
Promisia Integrative Limited (Promisia or the Company) operated a natural remedy
business that has now been wound down. Promisia developed and marketed
therapeutic natural products. It offered Arthrem, a dietary supplement for joint health
and Artevite, a dietary supplement for dogs.
On 15 February 2018, Medsafe, a division of the New Zealand Ministry of Health (the
Ministry), issued an alert advising that there was a risk of harm to the liver from
taking Arthrem (the Medsafe Alert). On 27 November 2018 Medsafe issue an
updated alert.
On 7 February 2019, Promisia was served with a notice of prosecution by the Ministry
for 9 alleged breaches of the Medicines Act 1981 (the Medsafe Prosecution). The
Ministry alleged that the Company sold an unlicensed medicine and that certain
advertising by Promisia was in breach of the Medicines Act. The Company has made
3 appearances in the District Court with little progress being made. Promisia is
currently waiting for a hearing date in the District Court trial where it will contest the
charges.
Most Artherm inventory was written off as at 30 June 2019 and the inventory retained
has been sold. Sales of Arthrem in Australia have ceased with wholesale distribution
in Australia now at an end. Sales in New Zealand have also ceased and Promisia
has no intention to resume sales.
The Company’s shares are listed on the main equities securities market (the NZX
Main Board) operated by NZX Limited (NZX) with a market capitalisation of
approximately $4.3 million as at 18 December 2019 (when its shares were
suspended from quotation). Its audited total equity as at 31 December 2019 was
approximately negative $1.4 million.
A profile of the Company is set out in section 4.
1.2 Acquisition of Aged Care Facilities
Brankin Facilities
On 17 December 2019, Promisia entered into the Agreement for Sale and Purchase
of Shares (the Purchase Agreement) with Thomas Brankin and Michael Lay, as
trustees of the Brankin Family Trust (the Brankin Trust), to acquire 100% of the
shares in 5 companies that own the business and assets of 3 aged care facilities:
Ranfurly Residential Care Centre (Ranfurly RCC), located in Fielding
Nelson Residential Care Centre (Nelson RCC), located in Fielding
Eileen Mary Residential Care Centre (Eileen Mary RCC), located in
Dannevirke.
We refer to the 3 aged care facilities as the Brankin Facilities.
Independent Adviser’s Report
Promisia Integrative Limited Page 2 and Appraisal Report
Aldwins Facility and Aldwins Option
A 6th company will be acquired from the Brankin Trust which holds a long term lease
of a property at 62 Aldwins Road, Christchurch (the Aldwins Facility). It is intended
to open the Aldwins Facility as a rest home / hospital in mid 2020.
The Aldwins Facility is owned by Teltower Limited (Teltower), which is owned by
Ian Cassels and Patricia Taylor.
Promisia will also obtain the benefit of an option to purchase the land and buildings
at the Aldwins Facility (the Aldwins Option) for $10,000,000 (plus GST) plus up to
$1,000,000 to reimburse Teltower for the costs of certain improvements to the
property (the Aldwins Purchase Price). The Aldwins Option can be exercised at
any time before 31 May 2021 at Promisia’s discretion.
We refer to the Brankin Facilities and the Aldwins Facility collectively as the
Facilities.
Brankin Companies
The 6 companies that Promisia will acquire are:
Ranfurly Manor Limited
Ranfurly Manor No: 1 Limited
Nelson Street Resthome Limited
Eileen Mary Age Care Property Limited
Eileen Mary Age Care Limited
Aldwins House Limited.
We refer to the 6 companies as the Brankin Companies and the acquisition of the
Brankin Companies as the Acquisition.
Acquisition Purchase Price
Promisia will acquire the Brankin Companies for an aggregate purchase price of
$31,385,000 on a debt free basis (the Acquisition Purchase Price).
The Acquisition Purchase Price is payable:
$23,385,000 in cash (the Cash Payment)
$8,000,000 by way of the issue of 8,000,000,000 ordinary shares (the
Consideration Shares) at an issue price of $0.001 per share (the Brankin
Allotment).
Ranfurly Development
Under the Purchase Agreement, the Brankin Trust has agreed to fund and develop
a further 32 new external units and 10 internal units as an expansion of the Ranfurly
RCC (the Ranfurly Development).
A separate purchase price of $14,180,000 has been attributed to the Ranfurly
Development (the Ranfurly Development Purchase Price). This amount will be
treated as an interest free loan repayable to the Brankin Trust following completion.
The sole recourse for repaying the loan will be from the proceeds of selling
occupational rights agreements (ORAs) to those new units, once developed.
Independent Adviser’s Report
Promisia Integrative Limited Page 3 and Appraisal Report
Completion Date
The expected completion date of the Acquisition is 5 days after the completion of all
the conditions in the Purchase Agreement (the Completion Date).
Finance Facilities
Promisia proposes to finance the Acquisition Purchase Price through a mixture of
debt and equity:
new debt finance of approximately $17,780,000 (the Bank Facilities)
$8,000,000 of Consideration Shares under the Brankin Allotment
up to $8,000,000 from the issue of up to 8,000,000,000 ordinary shares (the
Wholesale Shares) to a number of wholesale or eligible investors (the
Wholesale Shareholders) at an issue price of $0.001 per share (the
Wholesale Allotment).
As at the date of this report, Promisia has received indicative commitments to
subscribe for over $5,000,000 of the Wholesale Allotment. This includes a binding
subscription agreement with Ian Cassels (or his nominee) where Mr Cassels has
agreed to subscribe for 1,700,000,000 Wholesale Shares for $1,700,000 (the
Cassels Allotment), conditional on the completion of the Acquisition. Mr Cassels is
a director and shareholder of Teltower.
Payment under the Cassels Allotment is due on 15 July 2020 (ie after the Completion
Date). If payment has not been made by the time Promisia exercises the Aldwins
Option, Promisia may retain $1,700,000 of cash of the Aldwins Purchase Price and
issue an equivalent value in shares.
Furthermore, Promisia may partially satisfy the Aldwins Purchase Price by issuing up
to a further 4,000,000,000 ordinary shares (the Teltower Shares) at an issue price
of $0.001 per share to Teltower (the Teltower Allotment).
We refer to the Bank Facilities, the Brankin Allotment, the Wholesale Allotment
(including the Cassels Allotment) and the Teltower Allotment collectively as the
Finance Facilities.
Transactions
We refer to the Acquisition, the Ranfurly Development, the Aldwins Option and the
Finance Facilities collectively as the Transactions.
The Transactions effectively represent a backdoor listing (or reverse acquisition) of
the Brankin Companies through Promisia. Following the Transactions, the Brankin
Companies will be wholly owned subsidiaries of Promisia (via its wholly owned
subsidiary company Aged Care Holdings Limited (ACHL)).
Independent Adviser’s Report
Promisia Integrative Limited Page 4 and Appraisal Report
1 Assumes the maximum number of Wholesale Shares other than the Cassels Allotment are issued under the
Wholesale Allotment
1.3 Share Purchase Plan
Promisia also intends to offer all shareholders a share purchase plan later this year
where shareholders will be able to acquire up to $15,000 of ordinary shares at an
issue price of $0.001 per share (the SPP).
The maximum number of shares available under the SPP will be 5,000,000,000
shares, representing an aggregate value of $5,000,000.
The funds raised may be used to part fund the purchase price of the Aldwins Option.
The SPP offer is intended to be made in September 2020 after the Company’s
audited accounts for the 6 months ended 30 June 2020 have been released to
market.
It is likely that at this time Promisia will also undertake a share consolidation and
issue a notice requiring shareholders holding shares below a minimum holding level
($1,000 in aggregate) to increase their holding to the minimum level or the Company
will acquire their shares.
Non-associated
Shareholders
Brankin
Trust
48.70%51.30%
Prior to the Transactions
Promisia Integrative
Limited
100%
Post the Transactions
Non-associated
Shareholders
Brankin
Trust
Wholesale
Shareholders
Promisia Integrative
Limited
Aged Care Holdings
Limited
6.37%
1
55.34%
1
38.29%
1
Eileen Mary Age
Care Property Limited
Ranfurly Manor
No:1 Limited
Eileen Mary Age
Care Limited
Nelson Street Resthome
Limited
Ranfurly Manor
Limited
Aldwins House
Limited
100%
100%
100%
100%
100%
100%
Independent Adviser’s Report
Promisia Integrative Limited Page 5 and Appraisal Report
1.4 Brankin Trust
Thomas Brankin and Michael Lay, as trustees of the Brankin Trust, are Promisia’s
largest shareholder, holding 1,103,804,210 ordinary shares. This represents 51.30%
of the Company’s ordinary shares currently on issue.
Mr Brankin is a New Plymouth based businessman. His commercial interests have
included a hospital, rest homes and retirement villages throughout New Zealand. He
owns iAgri Limited, which has developed a cloud-based farm management program.
Mr Brankin has other interests in commercial and residential property.
Mr Brankin is a director of Promisia. He was the Company’s acting chief executive
officer in 2017 and has provided significant levels of additional funding for the
Company as required:
in 2018, the Brankin Trust underwrote $1.3 million of the Company’s
$1.67 million rights issue (the 2018 Rights Issue)
in 2019, the Brankin Trust subscribed for $0.25 million of new shares through
the exercise of an option (the 2019 Option Exercise)
the Brankin Trust has provided approximately $0.8 million of loans to Promisia
as at 31 December 2019 (the Brankin Loan).
1.5 Impact on Shareholding Levels
Post the Brankin Allotment and the Wholesale Allotment but Prior to the
Cassels Allotment
Following the Brankin Allotment and depending on the number of shares issued
under the Wholesale Allotment prior to the Cassels Allotment (and assuming there
are no other changes to the Company’s capital structure):
the Brankin Trust will hold between 55.34% and 62.99% of the Company’s
ordinary shares on issue
the Company’s current shareholders who are not associated with the Brankin
Trust (the Non-associated Shareholders) will collectively hold between
6.37% and 7.25% of the Company’s ordinary shares on issue
the Wholesale Shareholders will collectively hold between 29.75% and 38.29%
of the Company’s ordinary shares on issue.
Impact on Shareholding Levels
Current
Brankin
Allotment
Wholesale
Allotment
1
Post Brankin Allotment and
Wholesale Allotment
Brankin Trust 1,103,804,210 8,000,000,000 - 9,103,804,210 55.34%
Non-associated
Shareholders 1,047,993,241 - - 1,047,993,241 6.37%
Wholesale Shareholders - - 6,300,000,000 6,300,000,000 38.29%
Total
2,151,797,451 8,000,000,000 6,300,000,000 16,451,797,451 100.00%
1 Assumes the maximum number of Wholesale Shares other than the Cassels Allotment are issued under the Wholesale Allotment
The graph that follows shows the varying shareholding levels for the Brankin Trust,
the Non-associated Shareholders and the Wholesale Shareholders depending on the
number of shares issued under the Wholesale Allotment prior to the Cassels
Allotment.
Independent Adviser’s Report
Promisia Integrative Limited Page 6 and Appraisal Report
Post the Brankin Allotment, the Wholesale Allotment, the Teltower Allotment
and all Other Share Issues
Following the Brankin Allotment, depending on the number of shares issued under
the Wholesale Allotment, following the Teltower Allotment and the other share issues
associated with the Transactions (and assuming there are no other changes to the
Company’s capital structure):
the Brankin Trust will hold between 32.17% and 34.61% of the Company’s
ordinary shares on issue
the Wholesale Shareholders (other than Mr Cassels) will collectively hold
between 16.35% and 22.26% of the Company’s ordinary shares on issue
Teltower and its associates will theoretically hold between 20.14% and 21.67%
of the Company’s ordinary shares on issue
the other shareholders in the Company (including the Non-associated
Shareholders) will collectively hold between 25.43% and 27.37% of the
Company’s ordinary shares on issue.
Impact on Shareholding Levels Post the Transactions
No. of Shares %
Brankin Trust 9,103,804,210 32.17%
Wholesale Shareholders
1
6,300,000,000 22.26%
Teltower and associates
2
5,700,000,000 20.14%
Other shareholders
3
7,197,993,241 25.43%
Total
28,301,797,451 100.00%
1 Assumes the maximum number of Wholesale Shares are issued under the Wholesale Allotment (excluding the Cassels Allotment)
2 Assumes the maximum number of Teltower Shares are issued under the Teltower Allotment (including the Cassels Allotment)
3 Assumes the maximum number of shares are issued under the SPP and to employees and directors
The graph that follows shows the varying shareholding levels for the Brankin Trust,
the Wholesale Shareholders (other than Mr Cassels), Teltower and its associates
and the other shareholders in the Company (including the Non-associated
Shareholders) following the Transactions, depending on the number of shares issued
under the Wholesale Allotment.
Independent Adviser’s Report
Promisia Integrative Limited Page 7 and Appraisal Report
While Teltower and its associates could theoretically hold between 20.14% and
21.67% of the Company’s ordinary shares on issue, we understand that this is not
likely to occur because if the Aldwins Option were to be exercised, additional equity
would need to be raised in order to fund the Aldwins Purchase Price and this would
dilute the shareholding of Teltower and its associates to a level below 20%.
1.6 Summary of Opinion
Takeovers Code
Our evaluation of the merits of the Brankin Allotment as required under the Takeovers
Code (the Code) is set out in section 2.
In our opinion, after having regard to all relevant factors, the positive aspects of the
Transactions (including the Brankin Allotment) significantly outweigh the negative
aspects from the perspective of the Non-associated Shareholders.
NZX Listing Rules
Our evaluation of the fairness of the Transactions as required under the NZX Listing
Rules (the Listing Rules) is set out in section 3.
In our opinion, after having regard to all relevant factors, the terms and conditions of
the Transactions are fair to the Non-associated Shareholders.
1.7 Impact of COVID-19 Pandemic
All retirement villages and aged care services have been classified as an essential
service under the New Zealand government’s COVID-19 criteria and will continue to
operate through the pandemic.
We are advised that as at the date of this report, there are no known or suspected
cases of COVID-19 at any of the Brankin Facilities.
The share prices for NZX Main Board listed companies (including the 5 retirement
village operators) have been highly volatile. We cannot know where share prices will
be when the Company’s shareholders receive our report and then later when the
Non-associated Shareholders vote on the Transactions. However, our valuation of
the Brankin Companies is primarily based on the assessed values of the Brankin
Facilities, which are to a large degree based on long term forecasts of cash flows and
comparable sales values and are not directly impacted by short term share price
movements.
Independent Adviser’s Report
Promisia Integrative Limited Page 8 and Appraisal Report
1.8 Special Meeting
Promisia is holding a special meeting of shareholders by virtual means on 11 June
2020, where the Company will seek shareholder approval of 7 resolutions which
cover the Transactions and associated matters (the Transactions Resolutions):
resolution 1 – approval of the Transactions for the purposes of the Listing
Rules, the Code and section 129 of the Companies Act 1993 (the Co’s Act)
resolution 2 – approval of the Wholesale Allotment for the purposes of the
Listing Rules
resolution 3 – approval of the Teltower Allotment for the purposes of the Listing
Rules
resolution 4 – approval of the SPP for the purposes of the Listing Rules
resolution 5 – approval of an employee share scheme to issue up to
1,000,000,000 unpaid ordinary shares at an issue price of $0.001 per share
(the Employee Share Scheme) for the purposes of the Listing Rules
resolution 6 – approval of the issue of 150,000,000 unpaid ordinary shares at
an issue price of $0.001 per share to Company chair Stephen Underwood (the
Director Share Scheme) for the purposes of the Listing Rules
resolution 7 – approval of an increase in directors’ fees.
Shareholders will also vote on a resolution in respect of the revocation and adoption
of a new constitution (resolution 8).
Resolutions 3 to 7 are dependent on resolutions 1 and 2 being passed by
shareholders. If resolutions 1 and 2 are not passed, then those other resolutions put
to the meeting will not be treated as having been passed. However, resolutions 1
and 2 are not dependent on resolutions 3 to 7 being passed.
Resolution 8 is not dependent on any other resolutions being passed.
Resolutions 2 to 7 are ordinary resolutions. An ordinary resolution is a resolution
passed by a simple majority of votes of those shareholders entitled to vote and voting
on the resolutions in person or by proxy.
Resolutions 1 and 8 are special resolutions. A special resolution is a resolution
passed by a majority of 75% or more of the votes of those shareholders entitled to
vote and voting on the resolution in person or by proxy.
If resolution 1 is passed, then any shareholder that has cast all of their votes against
the resolution is entitled to require Promisia to purchase their shares in accordance
with section 110 of the Co’s Act. Appendix One of the notice of special meeting sets
out the procedure for minority buy-out rights.
Voting Restrictions
In relation to resolution 1, Thomas Brankin, Michael Lay and their respective
associated persons and associates are prohibited from voting any shares that they
hold.
In relation to resolution 2, the Wholesale Shareholders and their associated persons
are prohibited from voting any shares that they hold.
In relation to resolution 3, Teltower and its associated persons are prohibited from
voting any shares that they hold.
Independent Adviser’s Report
Promisia Integrative Limited Page 9 and Appraisal Report
In relation to resolution 4, each director (other than Thomas Brankin) and their
respective associated persons are prohibited from voting any shares that they hold.
In relation to resolution 5, any employee of Promisia together with their associated
persons are prohibited from voting any shares that they hold.
In relation to resolution 6, Stephen Underwood and his associated persons are
prohibited from voting any shares that they hold.
In relation to resolution 7, the current directors of the Company and their respective
associated persons are prohibited from voting any shares that they hold.
1.9 Regulatory Requirements
Takeovers Code
Promisia is a code company as it is listed on the NZX Main Board (and has financial
products that confer voting rights) and is subject to the provisions of the Code.
Rule 6 of the Code prohibits:
a person who holds or controls no voting rights or less than 20% of the voting
rights in a code company from holding or controlling an increased percentage
of the voting rights in the code company unless, after that event, that person
and that person’s associates hold or control in total not more than 20% of the
voting rights in the code company
a person who holds or controls 20% or more of the voting rights in a code
company from holding or controlling an increased percentage of the voting
rights in the code company
unless done in compliance with exceptions to this fundamental rule.
One of the exceptions, set out in Rule 7(d) of the Code, enables a person to become
a holder or controller of an increased percentage of voting rights by an allotment of
voting securities in the code company if the allotment is approved by an ordinary
resolution of the code company (on which neither that person, nor any of its
associates, may vote).
The Brankin Allotment will result in the Brankin Trust increasing its holding or control
of the voting rights in Promisia from 51.30% to a maximum level of 62.99%.
Accordingly, in accordance with the Code, the Non-associated Shareholders will vote
at the Company’s special meeting on an ordinary resolution in respect of the Brankin
Allotment.
Rule 18 of the Code requires the directors of a code company to obtain an
Independent Adviser’s Report on the merits of an allotment under Rule 7(d).
This Independent Adviser’s Report is to be included in, or accompany, the notice of
meeting pursuant to Rule 16(h).
NZX Listing Rules
Guidance Note
Listing Rule 5.1.1 stipulates that an Issuer must not enter into a transaction to acquire
assets where the transaction would significantly change the nature of the Issuer’s
business or involves a Gross Value above 50% of the Average Market Capitalisation
of the Issuer unless the transaction is approved by way of an ordinary resolution.
Independent Adviser’s Report
Promisia Integrative Limited Page 10 and Appraisal Report
The Acquisition will change the nature of Promisia’s business and have a Gross
Value above 50% of the Company’s Average Market Capitalisation.
Listing Rule 7.3.1 (b) (iii) requires Promisia to provide a listing profile in respect of the
Acquisition (the Profile).
NZX Guidance Note Backdoor and Reverse Listing Transactions dated 1 January
2019 (the Guidance Note) states that “NZX considers that a notice of meeting in
relation to a backdoor or reverse transaction must include an independent appraisal
report prepared in accordance with Rule 7.10”.
Listing Rule 5.2.1
Listing Rule 5.2.1 stipulates that an Issuer must not enter into a Material Transaction
if a Related Party is a party to the Material Transaction or to one of a related series
of transactions of which the Material Transaction forms part unless the Material
Transaction is approved by way of an ordinary resolution from shareholders not
associated with the Related Party.
The Acquisition, the Brankin Allotment and the Ranfurly Development are Material
Transactions as they each have an Aggregate Net Value in excess of 10% of
Promisia’s Average Market Capitalisation.
The Brankin Trust is a Related Party of the Company as it holds 51.30% of the
Company’s shares and Mr Brankin is a director of Promisia.
Listing Rule 7.8.8 (b) requires an Appraisal Report to be prepared where a meeting
will consider a resolution required by Listing Rule 5.2.1.
1.10 Purpose of the Report
The Company’s directors not associated with Mr Brankin, being Helen Down, Duncan
Priest and Stephen Underwood (the Non-associated Directors) have engaged
Simmons Corporate Finance Limited (Simmons Corporate Finance) to prepare an
Independent Adviser’s Report on the merits of the allotment of shares under the
Brankin Allotment in accordance with Rule 18 of the Code.
Simmons Corporate Finance was approved by the Takeovers Panel on 21 August
2019 to prepare the Independent Adviser’s Report.
The Non-associated Directors have also engaged Simmons Corporate Finance to
prepare an Appraisal Report on the fairness of the Acquisition in accordance with
Listing Rule 7.8.8 (b).
Simmons Corporate Finance was approved by NZX Regulation on 20 August 2019
to prepare the Appraisal Report.
Simmons Corporate Finance issues this Independent Adviser’s Report and Appraisal
Report to the Non-associated Directors for the benefit of the Non-associated
Shareholders to assist them in forming their own opinion on whether to vote for or
against the Transactions Resolutions.
We note that each shareholder’s circumstances and objectives are unique.
Accordingly, it is not possible to report on the merits of the Brankin Allotment and the
fairness of the Transactions in relation to each shareholder. This report on the merits
of the Brankin Allotment and the fairness of the Transactions is therefore necessarily
general in nature.
The Independent Adviser’s Report and Appraisal Report is not to be used for any
other purpose without our prior written consent.
Independent Adviser’s Report
Promisia Integrative Limited Page 11 and Appraisal Report
1.11 Listing Profile
A Profile as required under Listing Rules 1.11.1 and 7.3.1 accompanies the notice of
special meeting provided by Promisia to the Non-associated Shareholders.
The Profile discloses particulars of the assets and business of Promisia if the
Transactions are approved. The Profile also provides financial information in respect
of the Transactions and identifies the key risk factors associated with the intended
business.
This report should be read in conjunction with the Profile. In order to avoid
unnecessary repetition, references are made to information contained in the Profile
rather than being repeated in this report.
Independent Adviser’s Report
Promisia Integrative Limited Page 12 and Appraisal Report
2. Evaluation of the Merits of the Transactions (including the
Brankin Allotment)
2.1 Basis of Evaluation
Rule 18 of the Code requires an evaluation of the merits of the allotment of shares to
the Brankin Trust under the Brankin Allotment, having regard to the interests of the
Non-associated Shareholders.
There is no legal definition of the term merits in New Zealand in either the Code or in
any statute dealing with securities or commercial law.
In the absence of an explicit definition of merits, guidance can be taken from:
the Takeovers Panel Guidance Note on Independent Advisers dated 21 April
2020
definitions designed to address similar issues within New Zealand regulations
which are relevant to the proposed transaction
overseas precedents
the ordinary meaning of the term merits.
The Brankin Allotment is a component of the Transactions. Therefore, when
assessing the merits of the Brankin Allotment, an assessment of the merits of the
Transactions also needs to be undertaken.
We are of the view that an assessment of the merits of the Transactions should focus
on:
the rationale for the Transactions
the terms and conditions of the Transactions
the alternatives to the Transactions
the impact of the Transactions on Promisia’s financial position
the impact of the Transactions on the control of Promisia
the impact of the Transactions on Promisia’s share price
the benefits and disadvantages to the Non-associated Shareholders and the
Brankin Trust of the Transactions
the implications if the Transactions Resolutions are not approved.
Our opinion should be considered as a whole. Selecting portions of the evaluation
without considering all the factors and analyses together could create a misleading
view of the process underlying the opinion.
Independent Adviser’s Report
Promisia Integrative Limited Page 13 and Appraisal Report
2.2 Summary of the Evaluation of the Merits of the Transactions (Including the
Brankin Allotment)
The Non-associated Shareholders currently hold shares in a company with total
equity of approximately negative $1.4 million as at 31 December 2019 and whose
business has been irreparably damaged by the Medsafe Alert and the Medsafe
Prosecution.
The Transactions will change the essential nature of Promisia’s business to one of
owning and operating 3 aged care facilities in Fielding and Dannevirke and leasing a
4
th
aged care facility in Christchurch with an option to purchase the facility. Promisia
has ceased operating its natural remedy business.
The Transactions consist of:
acquiring the 6 Brankin Companies that own and operate the 3 Brankin
Facilities and leases the Aldwins Facility from the Brankin Trust under the
Acquisition. The Aldwins Option will enable the Company, at its discretion, to
purchase the Aldwins Facility at any time before 31 May 2021
issuing up to 16,000,000,000 new shares in the Company at an issue price of
$0.001 per share to raise up to $16.0 million of capital under the Brankin
Allotment and the Wholesale Allotment
issuing up to 4,000,000,000 new shares in the Company at an issue price of
$0.001 per share under the Teltower Allotment as part payment of the Aldwins
Purchase Price if the Aldwins Option is exercised
entering into the approximately $17,780,000 Bank Facilities to partially fund the
Acquisition Purchase Price and provide working capital resources
authorising the Company’s board of directors (the Board) to give shareholders
an opportunity to subscribe for shares under the SPP at the same issue price
as under the Brankin Allotment, the Wholesale Allotment and the Teltower
Allotment
authorising the Board to set new remuneration levels and offer equity incentives
in respect of directors and employees that are commensurate with the scale of
Promisia post the Transactions.
The Non-associated Shareholders are being asked to vote on 7 resolutions in respect
of the Transactions. Resolution 1 (in respect of the Transactions) and resolution 2
(in respect of the Wholesale Allotment) must both be passed in order for the
Transactions to proceed.
Accordingly, shareholders have 3 alternatives with regard to their voting:
vote in favour of resolutions 1 and 2 (if not all of the Transactions Resolutions).
In the event that all resolutions are passed, the Company will complete the
Transactions and will transform into an owner and operator of aged care
facilities, or
vote against resolutions 1 and / or 2. In the event that either resolution 1 or 2
is not passed, then the Transactions will not be undertaken and Promisia will
remain as an operator of a natural remedy business, albeit one with no
perceivable future, or
abstain from voting, in which case the voting of the other shareholders will
determine the outcome.
Independent Adviser’s Report
Promisia Integrative Limited Page 14 and Appraisal Report
Our evaluation of the merits of the Transactions is set out in detail in sections 2.3 to
2.14.
In our view, the key overriding factor in assessing the merits of the Transactions is
that, in the absence of the proposed transactions, the Non-associated Shareholders’
investment in the Company has negligible value at this point in time as Promisia has
negative total equity, negligible cash on hand and its natural remedy business is no
longer viable. The Non-associated Shareholders will potentially be in a more
advantageous financial position post the Transactions, where they will collectively
hold a 4.73% to 6.49% interest in the Brankin Companies. The degree to which the
Non-associated Shareholders are financially better off will depend on the value of the
Brankin Companies, which will be driven to a large degree by the Company’s ability
to successfully execute the Brankin Companies’ business strategy and growth
initiatives.
In summary, the positive aspects of the Transactions are:
the rationale for the Transactions is sound. The Medsafe Alert and the Medsafe
Prosecution have irreparably damaged the Company’s natural remedy
business. The Transactions will transform Promisia into the owner and
operator of aged care facilities, provide opportunities to grow the business
operations and ensure that the Company is adequately financed
the terms of the Transactions are reasonable:
the Acquisition Purchase Price of $31,385,000 is reasonable. We assess
the value of the Brankin Companies to be in the vicinity of $31.2 million
the Ranfurly Development Purchase Price of $14,180,000 is fair to the
Non-associated Shareholders as it is based on the agreed initial ORA sale
proceeds for the new units and will be treated as a non-recourse interest
free loan from the Brankin Trust, repayable from the proceeds of selling
the initial ORAs to the new units
the Brankin Allotment, the Wholesale Allotment and the Teltower Allotment
issue price of $0.001 per share is fair to the Non-associated Shareholders
as it significantly exceeds the asset backing of the shares, even allowing
for the value of the Company’s NZX Main Board listing, and is in line with
the most recent capital raising issue prices and the recent share prices for
Promisia
the Consideration Shares are subject to escrow restrictions ranging
between 6 months and 2 years
the conditions and warranties set out in the Purchase Agreement are in
line with market practice for transactions of this nature and are not
unreasonable
the Transactions will have a positive impact on the Company's financial
position, increasing its level of equity from approximately negative $1.4 million
as at 31 December 2019 to approximately $18.4 million as at 31 March 2020
(on a pro forma basis prior to the equity raised under the Wholesale Allotment)
the Company’s shares may be re-rated by the market, which may improve the
liquidity of the shares
Independent Adviser’s Report
Promisia Integrative Limited Page 15 and Appraisal Report
the implications of the Transactions Resolutions not being approved by the
Non-associated Shareholders are significant. The Company’s natural remedy
business is not sustainable. In the absence of a capital raising in the near term,
Promisia will be unable to repay its debts as they fall due and the Board will
likely have no option but to place the Company into receivership or liquidation.
Such an outcome is unlikely to result in any return to shareholders.
In summary, the negative aspects of the Transactions are:
the risk profile of Promisia will change significantly from the risks associated
with a relatively small natural remedy business to the wide range of risks
associated with a much larger business operating in the aged care sector
the dilutionary impact of the Brankin Allotment, the Wholesale Allotment and
the Teltower Allotment on the Non-associated Shareholders will result in their
current collective interests in the Company reducing by between 85.1% and
92.4% (depending on the number of Wholesale Shares and Teltower Shares
issued). However, the Non-associated Shareholders will be able to reduce the
dilution of their interests to some degree by subscribing for shares under the
SPP
if the Teltower Shares are issued under the Teltower Allotment, Teltower and
its associates may hold up to 21.67% of the Company’s shares. This will
enable Teltower and its associates to exert a degree of influence over
shareholder voting, but not as significant as the Brankin Trust’s level of
influence.
In our view, the Transactions are unlikely to have any material impact on:
the Brankin Trust’s ability to exert influence over shareholder voting, the Board
or the Company’s operations
the Company’s share price in the near term
the liquidity of the Company’s shares in the near term
the attraction of Promisia as a takeover target.
There are a number of positive and negative features associated with the
Transactions. In our view, when the Non-associated Shareholders are evaluating
the merits of the Transactions, they need to carefully consider whether the negative
aspects of the Transactions, particularly the dilutionary impact, could justify voting
against the Transactions Resolutions with the outcome that the Company will likely
be placed into receivership or liquidation unless it can raise additional capital in the
very near term.
In our opinion, after having regard to all relevant factors, the positive aspects
of the Transactions (including the Brankin Allotment) significantly outweigh
the negative aspects from the perspective of the Non-associated Shareholders.
Independent Adviser’s Report
Promisia Integrative Limited Page 16 and Appraisal Report
2.3 The Rationale for the Transactions
The Medsafe Alert and the Medsafe Prosecution have irreparably damaged
Promisia’s natural remedy business and the Company has ceased operating the
business.
Promisia is waiting for a hearing date in the District Court trial where it will contest
charges that it breached the Medicines Act 1981. The maximum fine for these
offences is $100,000 per offence but Promisia has stated that recent fines have been
in the order of $1,000 per offence. The Board does not consider that the Medsafe
Prosecution will have any material impact on any of Promisia’s future transactions.
The Company currently has limited working capital and operates solely due to the
support of the Brankin Trust.
The Board has advised us that it has explored a number of opportunities to introduce
a business of suitable scale and resilience into the Company in order to leverage its
listed status. The Transactions represent the most compelling opportunity evaluated
by the Board.
The Transactions will transform Promisia into the owner and operator of 3 aged care
facilities in Fielding and Dannevirke and the lessee of a 4
th
facility in Christchurch
with an option to purchase the facility.
The Board considers the Transactions to be of significant benefit for Promisia, as
they will:
introduce into Promisia substantial and established business operations in the
aged care sector
provide growth opportunities through building on surplus land at the Brankin
Facilities, including the Ranfurly Development
allow the Company to establish a new residential care facility with minimal
capital expenditure in central Christchurch at the Aldwins Facility
provide additional growth opportunities through acquisition given that there are
a number of independent, provincial aged care facilities operating throughout
New Zealand.
If the Transactions proceed, the Non-associated Shareholders will be provided with
the opportunity to acquire additional shares in Promisia by way of the SPP at the
same issue price of $0.001 per share as offered under the Brankin Allotment and the
Wholesale Allotment.
In our view, the rationale for the Transactions is compelling. The Medsafe Alert and
the Medsafe Prosecution have severely disrupted Promisia’s operations to the extent
that the Company has ceased operating the natural remedy business. The
Transactions offer the Company the opportunity to change its business direction,
investing in the aged care sector and ensuring it is adequately financed.
2.4 Process Undertaken by Promisia
We are advised by the Non-associated Directors that the Company commenced
discussions with Mr Brankin in respect of the Transactions in April 2019 following the
issue of the Medsafe Alert and the notification of the Medsafe Prosecution.
Negotiations on behalf of Promisia were led by Stephen Underwood (chair) and René
de Wit (chief executive officer).
Independent Adviser’s Report
Promisia Integrative Limited Page 17 and Appraisal Report
The due diligence process undertaken by the Non-associated Directors and their
advisers encompassed visits to each of the Brankin Facilities, interviews of key
operational staff, commissioning independent valuations of the Brankin Facilities and
reviews of the Brankin Companies’ financial and legal matters.
The Non-associated Directors then negotiated and entered into the Purchase
Agreement with the Brankin Trust on 17 December 2019.
2.5 Terms of the Transactions
Promisia has entered into the Purchase Agreement to acquire 100% of the shares in
the 5 Brankin Companies that own and operate the Brankin Facilities:
Ranfurly RCC, located at 6 Monmouth Street, Fielding
Nelson RCC, located at 38 Nelson Street, Fielding
Eileen Mary RCC, located at 44 Trafalgar Street, Dannevirke.
Under the Purchase Agreement, Promisia will also acquire 100% of the shares in the
Brankin Company that leases Aldwins House, located at 62 Aldwins Road,
Christchurch.
Further information about the Brankin Companies and the Facilities can be found in
section 6 of this report and in section 1 of the Profile entitled PIL And What It Will Do.
The key terms of the Purchase Agreement are set out below.
Acquisition Purchase Price
The Acquisition Purchase Price is $31,385,000 on a debt free basis and is to be
satisfied by:
the $23,385,000 Cash Payment. This cash will be available to Promisia
through the Bank Facilities and the proceeds from the Wholesale Allotment
the Brankin Allotment, being 8,000,000,000 Consideration Shares issued at
$0.001 per share, totalling $8,000,000.
The Acquisition Purchase Price may be adjusted within 2 months of the Completion
Date through an adjustment amount (in respect of prepayments less
reimbursements), which will be determined through the preparation of an adjustment
statement for the Brankin Companies.
The Non-associated Directors have advised us that they negotiated the Acquisition
Purchase Price on a commercial arms-length basis with Mr Brankin, based on
independent valuations of the Brankin Facilities undertaken by CB Richard Ellis
(CBRE) as at 31 March 2019 (which were the most current valuations at the time
negotiations for the Acquisition commenced).
Set out in section 7 is our assessment of the value of the Brankin Companies. We
assess the value of the Brankin Companies to be in the vicinity of $31.2 million.
The Acquisition Purchase Price is marginally higher than our valuation assessment
(by 0.6%), which we do not consider to be significant. Accordingly, we are of the
view that the Acquisition Purchase Price is reasonable.
Independent Adviser’s Report
Promisia Integrative Limited Page 18 and Appraisal Report
Key inputs into our valuation assessment are independent valuations of the Brankin
Facilities dated 11 February 2020. We note that since that date, the global COVID-19
pandemic has resulted in New Zealand entering into a period of lockdown and there
have been significant changes in share prices for companies listed on the NZX Main
Board.
Ranfurly Development Purchase Price
The Ranfurly Development Purchase Price of $14,180,000 was based on the level of
initial ORA sale proceeds agreed between the Non-associated Directors and the
Brankin Trust.
Ranfurly Development Initial ORA Sale Proceeds
Unit Type
No.
ORA Sale Proceeds / Unit
$000
Total
$000
Internal unit 10 190 1,900
1 bedroom villa 2 290 580
2 bedroom villa 30 390 11,700
42
14,180
Source: Promisia
The Ranfurly Development Purchase Price will be treated as an interest free loan
from the Brankin Trust. The loan will be repayable from the proceeds of selling the
initial ORAs to the new units, once developed, and shall have no other recourse for
repayment.
Promisia will be entitled to the full proceeds of each subsequent ORA for a unit in the
Ranfurly Development.
Conditions
At the date of this report, the Acquisition is conditional on:
Promisia obtaining the Non-associated Shareholders’ approval of the
Transactions Resolutions by 12 June 2020
Promisia and the Brankin Trust obtaining any contractually required change of
control consents for the Brankin Companies in respect of the Transactions
a debt provider making the funds available under the Bank Facilities to allow
completion of the Acquisition to occur
Promisia holding legally binding commitments to take up shares under the
Wholesale Allotment of at least $6,000,000.
The proposed date for satisfaction of the above conditions (other than the
Non-associated Shareholders’ approval of the Transactions Resolutions) is no later
than 19 June 2020.
We are of the view that the conditions of the Acquisition are in line with market
practice for transactions of this nature and are not unreasonable.
Independent Adviser’s Report
Promisia Integrative Limited Page 19 and Appraisal Report
Warranties and Indemnities
Promisia has provided warranties in respect of Promisia’s corporate structure and
shares, proceedings and filings, information and material circumstances.
The Brankin Trust has provided warranties in respect of the Brankin Companies’
shares, corporate structure, information and material circumstances, loans, business
operations, property, assets, litigation / claims, employment and intellectual property.
Each party’s liability under these warranties is limited to claims brought within
12 months of the Completion Date and to an aggregate amount limited to $5.0 million.
Promisia has given the Brankin Trust an indemnity in respect of its taxation
compliance up until the Completion Date and the Brankin Trust has given Promisia
an indemnity in respect of the taxation compliance of the Brankin Companies up until
the Completion Date.
We are of the view that the warranties and indemnities provided under the Purchase
Agreement are in line with market practice for transactions of this nature and are not
unreasonable.
2.6 Financing of the Acquisition
Bank Facilities
The Transactions are conditional on the Bank Facilities being available for drawdown
at the Completion Date.
At the date of this report, we understand that Promisia has agreed the following
conditional key terms in respect of the Bank Facilities with a New Zealand registered
bank (the Lender):
a loan of approximately $17,780,000 for a term of 3 years
facility amortisation of $1,000,000 per annum with quarterly reductions
an interest rate based on the 3 month bank bill market rate plus a margin of
3.0%
Promisia providing the following security:
the Company and each member of the guaranteeing group (being
Promisia, each of the Brankin Companies and ACHL) entering into a first
ranking general security agreement in favour of the Lender
an interlocking cross-guarantee between Promisia and each member of
the guaranteeing group
a first ranking mortgage over each of the secured properties (being each
of the Brankin Facilities)
a limited recourse share security over the shares in ACHL
Promisia agreeing to comply with financial covenants (including a debt
service cover ratio, an interest cover ratio and a 55% loan to value ratio)
and reporting covenants (including quarterly reporting, provision of
accounts and budgets and annual registered valuations of the Facilities by
a bank approved valuer).
Independent Adviser’s Report
Promisia Integrative Limited Page 20 and Appraisal Report
At the date of this report, we understand that the Bank Facilities are under credit
committee consideration with the Lender and a decision is expected towards the end
of May 2020.
The Bank Facilities will be drawn down or made available at the Completion Date to
part fund the Cash Payment component of the Acquisition Purchase Price.
Brankin Allotment, Wholesale Allotment and Teltower Allotment
Brankin Allotment
The 8,000,000,000 Consideration Shares issued under the Brankin Allotment at
$0.001 per share will be fully paid ordinary shares ranking equally in all respects with
all existing shares and will be placed in escrow over restricted periods ranging from
6 months to 2 years.
Wholesale Allotment
The Wholesale Allotment involves the issue of up to 8,000,000,000 Wholesale
Shares at $0.001 per share. The shares will rank equally in all respects with all
existing shares and are not subject to any lock-up or escrow arrangements.
We are advised by the Non-associated Directors that as at the date of this report,
Promisia has:
entered into a binding subscription agreement with Mr Cassels where he will
subscribe for $1,700,000 of Wholesale Shares, conditional on the completion
of the Acquisition (the Cassels Allotment)
indicative, non-binding interest from approximately 12 wholesale investors to
subscribe for approximately $4,000,000 of Wholesale Shares. None of these
wholesale investors are anticipated to hold 5% or more of Promisia’s shares
immediately following the Transactions
indicative, non-binding interest from 2 wholesale investors to advance up to
$1,700,000 to Promisia should it be required to meet the condition that the
Company raise $6 million in aggregate to part fund the Acquisition Purchase
Price. This would be a short term arrangement that is essentially bridge
financing of the Cassels Allotment to allow the completion of the Acquisition to
occur. While the form of this bridge finance is still to be determined, it is likely
to be in the form of short term convertible debt which would be repaid from the
proceeds of the Cassels Allotment when received in July 2020. The terms of
the short term debt may provide for the lenders to convert all or part of the
amount advanced into shares (at their option) at $0.001 per share.
Payment for the Wholesale Shares issued under the Wholesale Allotment (excluding
the Cassels Allotment) is due after the special meeting of shareholders but prior to
the Completion Date so that Promisia is in funds at the Completion Date.
The Transactions are conditional on at least $6,000,000 of these funds being
available at the Completion Date.
The Non-associated Directors have advised us that the Company will continue
discussions with other wholesale investors regarding additional participation in the
Wholesale Allotment following the Completion Date so that the Wholesale Allotment
may reach up to $8,000,000 in aggregate. Any additional funds raised by Promisia
under the Wholesale Allotment following the Completion Date will be used for future
growth or reduction of debt.
Independent Adviser’s Report
Promisia Integrative Limited Page 21 and Appraisal Report
Teltower Allotment
The Teltower Allotment involves the issue of up to 4,000,000,000 Teltower Shares at
$0.001 per share to Teltower if Promisia exercises the Aldwins Option. The shares
will rank equally in all respects with all existing shares and will not be subject to any
lock-up or escrow arrangements.
Issue Price
We consider the Brankin Allotment, the Wholesale Allotment and the Teltower
Allotment issue price of $0.001 per share to be fair, from a financial point of view, to
the Non-associated Shareholders:
the issue price of $0.001 per share is equal to or slightly lower than the recent
trading prices for Promisia’s shares over the past 12 months up to the
announcement of the Transactions on 19 December 2019. The issue price is:
the same price as the one month volume weighted average share price
(VWAP) of $0.0010
a discount of 9% to the 3 months VWAP of $0.0011
a 44% discount to the 6 months and 12 months VWAP of $0.0018
the Company’s 2 most recent share issues in December 2018 and November
2019 were both at an issue price of $0.001 per share
we assess the value of Promisia’s shares prior to the Transactions to be
negligible. Our valuation assessment is set out in section 8.
Escrow Restrictions
The Consideration Shares are subject to the following escrow restrictions:
8,000,000,000 shares (100%) cannot be sold within 6 months of the
Completion Date
6,000,000,000 shares (75%) cannot be sold within 12 months of the
Completion Date
4,000,000,000 shares (50%) cannot be sold within 18 months of the
Completion Date
2,000,000,000 shares (25%) cannot be sold within 24 months of the
Completion Date.
The escrow restrictions ensure that the Brankin Trust cannot sell the Consideration
Shares in the near term. This alleviates the risk of there being an over-supply of
shares on the market in the near term which could depress the Company’s share
price.
Share Purchase Plan
The purpose of the SPP is to offer Non-associated Shareholders the opportunity to
acquire additional shares in Promisia at the same issue price of $0.001 per share
that is offered under the Brankin Allotment, the Wholesale Allotment and the Teltower
Allotment and to allow Promisia to raise capital to further grow the Company and
reduce debt.
Independent Adviser’s Report
Promisia Integrative Limited Page 22 and Appraisal Report
Promisia plans to undertake the SPP in 2020. The exact offer opening date of the
SPP will depend on the release of Promisia’s interim financial results after the
Completion Date. In connection with the Transactions, Promisia is proposing to
change its balance date from 31 December to 31 March. Promisia would then
release interim financial results for the period to 30 September 2020 in late November
2020.
As part of undertaking the SPP, the Board has advised us that it intends to take 2
other steps to rationalise its share register:
undertake a share consolidation to proportionately reduce the number of
shares on issue
issue a notice under the Listing Rules and the new constitution requiring
shareholders holding shares below a minimum holding level ($1,000 in
aggregate) to increase their holding to the minimum holding level or Promisia
will acquire the relevant shares back (with no brokerage costs incurred).
2.7 Limited Likelihood of Alternative Transactions
The carrying value of Promisia’s equity was approximately negative $1.4 million as
at 31 December 2019. It had $21,000 of cash and cash equivalents and owed
$855,000 under the Brankin Loan.
The Medsafe Alert and the Medsafe Prosecution have had a disastrous impact on
Promisia’s business. In the event the Transactions do not proceed, the Company’s
natural remedy business will remain the only business of Promisia, but will not have
a trading future.
Promisia will have insufficient working capital to continue operations as a listed entity
unless it undertakes a capital raising in the near term. If the Company is unable to
repay its debts as they fall due, the Board will have no option but to place the
Company into receivership or liquidation. Such an outcome is unlikely to result in
any return to shareholders.
The Board has confirmed to us that it is not evaluating any other acquisitions /
backdoor listing opportunities. Accordingly, we consider the likelihood of an
alternative transaction in the near term to be limited.
2.8 Impact on Financial Position
A summary of Promisia’s recent financial position is set out in section 4.7.
Promisia’s total equity as at 31 December 2019 was approximately negative
$1.4 million. The Company had negligible cash on hand and interest bearing debt of
approximately $0.8 million as at that date.
The Transactions will significantly strengthen Promisia’s financial position. As set
out in section 6.7, Promisia’s consolidated pro forma financial position as at 31 March
2020 shows total equity of approximately $18.4 million (prior to the equity raised from
the Wholesale Allotment) and total assets of approximately $54.0 million.
2.9 Impact on Control
Share Capital and Shareholders
Promisia currently has 2,151,797,451 fully paid ordinary shares on issue held by
1,439 shareholders. The names, number of shares and percentage holding of the
Company’s 10 largest shareholders as at 15 May 2020 are set out in section 4.4.
Independent Adviser’s Report
Promisia Integrative Limited Page 23 and Appraisal Report
Shareholding Levels
The Brankin Trust currently holds 51.30% of the Company’s shares.
Following the Transactions, the Brankin Trust’s maximum shareholding level will be
62.99% (based on 4,300,000,000 Wholesale Shares being issued) and no other
shares being issued under the Cassels Allotment, the Teltower Allotment, the SPP,
the Employee Share Scheme or the Director Share Scheme.
As set out in section 1.5, it is possible that the Brankin Trust’s shareholding level
following the Transactions will be diluted down to between 32.17% and 34.61%
following the Cassels Allotment, the Teltower Allotment, the SPP, the Employee
Share Scheme and the Director Share Scheme.
Shareholding Voting
The Brankin Trust’s current level of voting rights of 51.30% enables it to:
singlehandedly determine the outcome of ordinary resolutions (which require
the approval of more than 50% of the votes cast by shareholders)
block special resolutions (which require the approval of 75% of the votes cast
by shareholders).
However, it cannot singlehandedly pass special resolutions.
Following the Transactions, the Brankin Trust’s ability to influence the outcome of
shareholder voting will not increase to any significant level and may in fact reduce.
Its level of voting rights will only increase by 11.69% at most.
Following the Transactions, Teltower and its associates will not be able to
singlehandedly block special resolutions or determine the outcome of ordinary
resolutions.
The ability for any shareholder to influence the outcome of voting on the Company’s
ordinary resolutions or special resolutions may be reduced by external factors such
as the Company’s constitution, the Code, the Listing Rules and the Co’s Act 1993
(eg if the shareholder is precluded from voting on the resolution because it is a party
to the transaction which the resolution relates to).
Given the above, we are of the view that the Transactions will not increase the
Brankin Trust’s ability to exert control over shareholder voting to any significant
degree.
As stated in section 1.5, while Teltower and its associates could theoretically hold
between 20.14% and 21.67% of the Company’s ordinary shares on issue post the
Transactions, we understand that this is not likely to occur because if the Aldwins
Option were to be exercised, additional equity would need to be raised in order to
fund the Aldwins Purchase Price and this would dilute the shareholding of Teltower
and its associates to a level below 20%.
Ability to Creep
The Brankin Trust is currently able to utilise the creep provisions of Rule 7(e) of the
Code. The creep provisions enable entities that hold or control more than 50% and
less than 90% of the voting securities in a code company to acquire up to a further
5% of the code company’s shares in any 12 month period without the need for
shareholder approval.
Independent Adviser’s Report
Promisia Integrative Limited Page 24 and Appraisal Report
Following the Transactions, the Brankin Trust may be able to continue to utilise the
creep provisions commencing 12 months after the date of the Brankin Allotment if it
continues to hold or control more than 50% of the Company’s shares.
Board Control
As set out in section 4.3, the Company currently has 4 directors on the Board, one of
whom is associated with the Brankin Trust (Thomas Brankin).
The other 3 directors are Non-associated Directors. Company chair Stephen
Underwood is Promisia’s 4th largest shareholder, holding 2.82% of the Company’s
shares and director Duncan Priest is the Company’s 10th largest shareholder,
holding 1.25% of the Company’s shares.
We are advised by the Non-associated Directors that following the Transactions, 2
directors with aged care sector expertise will be appointed to the Board to replace
Duncan Priest and Helen Down.
Resumes of the current directors are set out in section 1 of the Profile entitled PIL
And What It Will Do.
Operations
We are advised by the Non-associated Directors that the Brankin Trust currently does
not have any influence over the Company’s operations other than through
Mr Brankin’s role as a director.
The Non-associated Directors do not envisage that the Brankin Trust’s influence over
the Company’s operations will change following the Transactions. However,
Mr Brankin’s knowledge of the Brankin Companies, the Brankin Facilities and the
aged care sector in general will be extremely useful to the Company’s operations. It
is expected that Mr Brankin’s contributions to the Company’s operations will be
through his role as a director of the Company.
Following the Acquisition, Virginia Dyall-Kalidas will join the Company’s senior
management team. Ms Dyall-Kalidas is currently the general manager of the Brankin
Facilities and will continue in that role.
2.10 Dilutionary Impact
The Brankin Allotment, the Wholesale Allotment and the Teltower Allotment will result
in the Non-associated Shareholders’ shareholdings in the Company being diluted.
Furthermore, any shares issued under the SPP, the Employee Share Scheme and
the Director Share Scheme will further dilute the Non-associated Shareholders’
shareholdings if they do not participate in the share issues.
The dilutionary impact on Non-associated Shareholders will be between:
85.1% (assuming only 4,300,000,000 Wholesale Shares are issued) and
92.4% (assuming the maximum number of shares are issued under the
Transactions).
While the dilutionary impact is very significant, we are of the view that the
Non-associated Shareholders’ main focus should be on whether there is any
dilutionary impact on the value of their respective shareholdings rather than on their
level of voting rights. As stated in section 2.5, we are of the view that the Transactions
are fair to the Non-associated Shareholders from a financial point of view and
therefore do not dilute the value of their respective shareholdings.
Independent Adviser’s Report
Promisia Integrative Limited Page 25 and Appraisal Report
Furthermore, Non-associated Shareholders will have the opportunity to reduce the
dilutionary impact of the share issues to some degree by subscribing for shares in
the SPP.
2.11 Impact on Share Price and Liquidity
A summary of Promisia’s daily closing share price and monthly volume of shares
traded from 5 January 2016 is set out in section 4.9.
In the year up to 18 December 2019 (immediately prior to the announcement of the
Transactions), 2.1% of the Company’s shares traded at a VWAP of $0.0018.
More recently:
the 3 months VWAP was $0.0011
the one month VWAP was $0.0010
the closing share price on 18 December 2019 was $0.0020.
The Company’s shares were suspended from trading following the announcement of
the Transactions in accordance with NZX practice.
Given that the Consideration Shares, the Wholesale Shares and the Teltower Shares
issue price of $0.001 per share is in line with the one month and 3 months VWAP,
the Company’s share price is (in theory) unlikely to change immediately after the
Transactions.
Re-rating of Promisia Shares
The completion of the Transactions may lead to a re-rating of the Company’s shares.
The transformation of the Company to an owner and operator of aged care facilities
may lead to greater demand for the Company’s shares which in turn may lead to
higher prices for the shares. However, Non-associated Shareholders should also
bear in mind that any re-rating of the Company’s shares may increase the variability
in the share prices and this may result in the Company’s share price either increasing
or decreasing.
Liquidity
Trading in the Company’s shares is extremely thin, reflecting that the top 10
shareholders collectively hold 71.26% of the shares.
Non-associated Shareholders currently have very limited opportunities to sell their
shares. Only 2.1% of the Company’s shares traded in the year up to 18 December
2019.
The Transactions will not necessarily improve the liquidity of the Company’s shares
in the near term as the number of shares held by the Non-associated Shareholders
will not change and the Consideration Shares issued to the Brankin Trust are subject
to escrow restrictions which range from 6 months to 2 years.
Should the Brankin Trust and / or the Wholesale Shareholders seek to dispose of
some of their Promisia shares (following the completion of the escrow restrictions in
the case of the Brankin Trust), this may result in increased trading in the Company’s
shares, thereby improving liquidity.
Independent Adviser’s Report
Promisia Integrative Limited Page 26 and Appraisal Report
While we would expect increased demand for the Company’s shares post the
Transactions, we note that the relatively small free float means that there will be a
limited number of shares available for sale and this may restrict the level of trading
in the Company’s shares.
2.12 Main Advantage to the Non-associated Shareholders of the Transactions
Following the Transactions, the Non-associated Shareholders (assuming they do not
participate in the SPP) will collectively hold between 3.70% and 3.98% of the shares
in a company that owns and operates aged care facilities and has total equity of at
least approximately $18.4 million.
Currently they hold 48.70% of the shares in a company whose business has ceased
to operate, which had total equity of approximately negative $1.4 million as at
31 December 2019 and whose shares are thinly traded on the NZX Main Board.
2.13 Main Disadvantage to the Non-associated Shareholders of the Transactions
The main disadvantage to the Non-associated Shareholders of the Transactions is
that the shares issued under the Brankin Allotment, the Wholesale Allotment and the
Teltower Allotment will significantly dilute their interests in the Company. Their
collective shareholding will be diluted by between 85.1% and 92.4% from their
collective shareholding of 48.70% at present to between 3.70% and 3.98%
(assuming they do not participate in the SPP).
In our view, the positive aspects of the transformation of the Company (as set out in
section 2.2) significantly outweigh the dilutionary impact of the Transactions.
2.14 Other Issues for the Non-associated Shareholders to Consider
Key Benefit to the Brankin Trust
The Transactions provide the Brankin Trust with the opportunity to sell the Brankin
Companies for $31,385,000, receive the Cash Payment of $23,385,000 and possibly
increase its shareholding in Promisia from its current level of 51.30% to a maximum
level of 62.99%.
Benefits to Promisia of the Brankin Trust as a Cornerstone Shareholder
The Brankin Allotment will enhance the Brankin Trust’s position as an important
cornerstone strategic investor in the Company and further signals its confidence in
the future prospects of Promisia.
Change in Business Risk
A summary of the risks associated with Promisia’s natural remedy business is set out
in section 4.5.
A detailed analysis of the risks associated with an investment in Promisia post the
Transactions is set out in section 4 of the Profile entitled Risks To PIL’s Business And
Plans and is summarised in section 6.4 of this report.
The analysis highlights the significant change in the nature of risk associated with an
investment in the Company post the Transactions and the Non-associated
Shareholders need to be cognisant of the change in the risk profile of their investment
in the Company.
Independent Adviser’s Report
Promisia Integrative Limited Page 27 and Appraisal Report
Future Requirements for Capital
Section 1 of the Profile entitled PIL And What It Will Do briefly discusses the
Company’s longer term acquisition strategy and how it will fund the acquisitions.
It is likely that the Company will need to raise additional equity capital in the medium
to long term to fund the Company’s growth initiatives. Accordingly, Non-associated
Shareholders should be cognisant that any equity raisings by the Company in the
future in which they do not participate will lead to further dilution of their proportionate
interests in the Company.
Transactions Costs
The total transaction costs associated with the Transactions are estimated to be in
the vicinity of $0.6 million. The costs include legal fees, financial advisory fees,
capital raising fees, Takeovers Panel fees, NZX Regulation fees, shareholder
meeting costs and the cost of this report.
Promisia will fund the majority of these costs (other than the capital raising fees)
through the Bank Facilities, which will be drawn down at the Completion Date.
Attraction of Promisia as a Takeover Target is Unlikely to Change
Following the Brankin Allotment, the Brankin Trust will not be able to increase the
level of its shareholding unless it complies with the provisions of the Code and the
Listing Rules. It will only be able to acquire more shares in the Company if:
it makes a full or partial takeover offer
the acquisition is approved by way of an ordinary resolution of the
Non-associated Shareholders
the Company makes an allotment of shares which is approved by way of an
ordinary resolution of the Non-associated Shareholders
the Company undertakes a share buyback that is approved by the Company’s
shareholders and the Brankin Trust does not accept the offer of the buyback
it utilises the creep provisions of Rule 7(e) of the Code as discussed in
section 2.9
the Company makes an allotment of shares on or before 31 October 2020 in
compliance with the temporary class exemptions from the Code introduced on
10 April 2020 to address the impact of COVID-19.
We are of the view that a change in the Brankin Trust’s shareholding from 51.30% to
a maximum level of 62.99% will not impact on the likelihood (if any) of a takeover
offer for the Company from the Brankin Trust as the potential increase in the Brankin
Trust’s shareholding level does not significantly change its control over Promisia.
We are also of the view that the Brankin Trust’s potential increased shareholding is
unlikely to reduce the attraction of Promisia as a takeover target to other parties, as
any bidder looking to fully or partially take over the Company would need to ensure
that the Brankin Trust would accept its offer, irrespective of whether it held 51.30%
or up to 62.99% of the Company’s shares.
Non-associated Shareholders Approval is Required
Pursuant to Rule 7(d) of the Code, the Non-associated Shareholders must approve
by ordinary resolution the Brankin Allotment.
Independent Adviser’s Report
Promisia Integrative Limited Page 28 and Appraisal Report
The Transactions will not proceed unless the Non-associated Shareholders approve
resolution 1 (in respect of the Transactions) and resolution 2 (in respect of the
Wholesale Allotment).
2.15 Likelihood of the Transactions Resolutions Being Approved
The Brankin Trust is not permitted to vote on resolution 1 but is permitted to vote on
the other Transactions Resolutions. The outcome of resolution 1 will therefore be
determined by the voting of the Non-associated Shareholders, who collectively hold
48.70% of the Company’s shares.
The Non-associated Directors have unanimously recommended the approval of the
Transactions Resolutions. Non-associated Directors Helen Down, Duncan Priest
and Stephen Underwood collectively control 4.62% of the Company’s shares
(representing 9.49% of the maximum number of shares that can vote on resolution 1),
which we assume will be voted in favour of the Transactions Resolutions.
The Company’s top 10 shareholders other than the Brankin Trust collectively hold
19.96% of the Company’s shares. This includes Non-associated Directors
Stephen Underwood and Duncan Priest. We are not aware of how these major
shareholders will vote in respect of the Transactions Resolutions (other than
assuming the 2 Non-associated Directors will vote in favour of the resolutions). The
votes of the major shareholders will significantly influence the outcome of the voting
on the Transactions Resolutions.
2.16 Implications of the Transactions Resolutions not Being Approved
If resolutions 1 and 2 are not approved, then the Transactions cannot proceed. The
implications of the Transactions not proceeding are discussed in section 2.7 and will
potentially result in the Board having to place the Company into receivership or
liquidation if it cannot raise sufficient capital in the near term. Such an outcome is
unlikely to result in any return to shareholders.
2.17 Options for Shareholders who do not Wish to Retain Their Investment in
Promisia
Sell On-market
Those Non-associated Shareholders who do not wish to remain shareholders in the
Company after the Transactions are completed could possibly sell their shares on
market. However, given that the Company’s shares are infrequently traded on the
NZX Main Board, that option may not be readily available.
Minority Buy-out Rights Under the Co’s Act
If the Transactions Resolutions are passed, those Non-associated Shareholders who
voted all of their shares against special resolution 1 will be entitled to require the
Company to buy their shares in accordance with the provisions of the Co’s Act.
A detailed explanation of the minority buy-out rights is set out in Appendix One of the
notice of special meeting.
2.18 Voting For or Against the Transactions Resolutions
Voting for or against the Transactions Resolutions is a matter for individual
shareholders based on their own views as to value and future market conditions, risk
profile and other factors. Shareholders will need to consider these consequences
and consult their own professional adviser if appropriate.
Independent Adviser’s Report
Promisia Integrative Limited Page 29 and Appraisal Report
3. Evaluation of the Fairness of the Transactions
3.1 Basis of Evaluation
Listing Rule 7.10.2 requires an Appraisal Report to consider whether the terms and
conditions of the Transactions are fair to the Non-associated Shareholders.
There is no legal definition of the term fair in either the Listing Rules or in any statute
dealing with securities or commercial law in New Zealand.
In our opinion, the Transactions will be fair to the Non-associated Shareholders if:
they are likely to be at least no worse off if the Transactions proceed than if
they do not. In other words, we consider that the Transactions will be fair if
there is no value transfer from the Non-associated Shareholders to the Brankin
Trust, and
the terms and conditions of the Transactions are in line with market terms and
conditions.
We have evaluated the fairness of the Transactions by reference to:
the rationale for the Transactions
the terms and conditions of the Transactions
the alternatives to the Transactions
the impact of the Transactions on Promisia’s financial position
the impact of the Transactions on the control of Promisia
the impact of the Transactions on Promisia’s share price
the benefits and disadvantages to the Non-associated Shareholders of the
Transactions
the benefits and disadvantages to the Brankin Trust of the Transactions
the implications if the Transactions Resolutions are not approved.
Our opinion should be considered as a whole. Selecting portions of the evaluation
without considering all the factors and analyses together could create a misleading
view of the process underlying the opinion.
3.2 Evaluation of the Fairness of the Transactions for the Purposes of Listing Rule
7.10.2
In our opinion, after having regard to all relevant factors, the terms and
conditions of the Transactions are fair to the Non-associated Shareholders.
The basis for our opinion is set out in detail in sections 2.3 to 2.14. In summary, the
key factors leading to our opinion are:
the rationale for the Transactions is sound
the terms of the Transactions are reasonable:
the Acquisition Purchase Price is reasonable
the Ranfurly Development Purchase Price is fair
Independent Adviser’s Report
Promisia Integrative Limited Page 30 and Appraisal Report
the Brankin Allotment, the Wholesale Allotment and the Teltower Allotment
issue price is fair
the conditions and warranties set out in the Purchase Agreement are in
line with market practice
the Transactions will have a positive impact on the Company's financial position
the Company’s shares may be re-rated by the market
the Brankin Trust’s level of voting rights will increase to a maximum level of
62.99% following the Brankin Allotment. This will not increase the Brankin
Trust’s ability to influence the outcome of shareholding voting to any significant
degree
Teltower and its associates’ level of voting rights will increase to a maximum
level of 21.67% following the Teltower Allotment and the Cassels Allotment.
This will enable Teltower and its associates to exert a degree of influence over
shareholder voting, but not as significant as the Brankin Trust’s level of
influence
the dilutionary impact of the Brankin Allotment, the Wholesale Allotment and
the Teltower Allotment on the Non-associated Shareholders will result in their
current collective interests in the Company reducing by between 85.1% and
92.4%
the Transactions are unlikely to have any material impact on:
the Company’s share price in the near term
the liquidity of the Company’s shares in the near term
the attraction of Promisia as a takeover target
the implications of the Transactions Resolutions not being approved by the
Non-associated Shareholders are significant. Promisia will be unable to repay
its debts as they fall due and the Board will likely have no option but to place
the Company into receivership or liquidation unless it can raise additional
capital in the very near term.
3.3 Alternative Courses for Promisia
As stated in section 2.7, the likelihood of an alternative transaction in the near term
is limited. The Board is not evaluating any other potential transactions. The costs
incurred in evaluating the Transactions and seeking shareholder approval will reduce
the Company's cash reserves.
3.4 Voting For or Against the Transactions Resolutions
Voting for or against the Transactions Resolutions is a matter for individual
shareholders based on their own views as to value and future market conditions, risk
profile and other factors. Shareholders will need to consider these consequences
and consult their own professional adviser if appropriate.
Independent Adviser’s Report
Promisia Integrative Limited Page 31 and Appraisal Report
4. Profile of Promisia
4.1 Background
The Company was incorporated on 2 August 1983 as Genestock New Zealand
Limited. It subsequently changed its name to:
Parapine Timber New Zealand Limited on 5 January 1990
Counterpoint Equities Limited on 22 August 1997
Savoy Equities Limited on 22 October 1998
Promisia Integrative Limited on 13 January 2014.
The Company’s key events are set out below.
Independent Adviser’s Report
Promisia Integrative Limited Page 32 and Appraisal Report
4.2 Nature of Current Operations
Prior to the severe disruption arising from the Medsafe Alert and the Medsafe
Prosecution, Promisia operated a natural remedy business that developed and
distributed premium quality natural products. It marketed its products through
pharmacies and online.
The Company had 2 products:
Arthrem was its main source of revenue. Arthrem was a dietary supplement
for joint health containing a supercritical extract of the plant Artemisia annua.
This herb, also known as sweet wormwood or qinghaosu, has been used in
Chinese medicine for more than 2,000 years. The Artemisia annua seed was
sourced in Switzerland, grown and harvested by hand in Tanzania, then
extracted and manufactured into the Arthrem product in New Zealand
Artevite was a dietary supplement for dogs. The key ingredient to Artevite was
the same as for Arthrem. The plant extract was combined with other
ingredients to make a chewable tablet.
Medsafe issued the Medsafe Alert on 15 February 2018 and issued an updated alert
on 27 November 2018. On 7 February 2019, Medsafe commenced the Medsafe
Prosecution. The Company has made 3 appearances in the District Court with little
progress being made. Promisia is currently waiting for a hearing date in the District
Court trial where it will contest the charges that it breached the Medicines Act.
4.3 Directors and Senior Management
The directors of Promisia are:
Thomas Brankin – non-executive director
Helen Down – non-executive independent director
Duncan Priest – non-executive independent director
Stephen Underwood – chair and non-executive independent director.
The Promisia senior management team is:
René de Wit – chief executive officer
Sarah Wah – finance manager.
Independent Adviser’s Report
Promisia Integrative Limited Page 33 and Appraisal Report
4.4 Capital Structure and Shareholders
Promisia currently has 2,151,797,451 fully paid ordinary shares on issue held by
1,439 shareholders.
The names, number of shares and percentage holding of the 10 largest shareholders
as at 15 May 2020 are set out below.
Promisia’s 10 Largest Shareholders
Shareholder No. of Shares %
Thomas Brankin and Michael Lay (the Brankin Trust) 1,103,804,210 51.30%
Stephen Ward, Julie Ward and James Ward 74,391,081 3.46%
Jillian O’Brien 73,929,066 3.44%
Stephen Underwood 60,775,560 2.82%
Eoin Johnson 48,818,720 2.27%
Eoin Johnson and Kathleen Johnson 44,570,320 2.07%
George Royal 43,508,830 2.02%
Philip McVeigh 28,589,017 1.33%
Tirol Nominees Limited 28,083,413 1.31%
Duncan Priest 26,836,315 1.25%
Top 10 shareholders 1,533,306,532 71.26%
Others (1,429 shareholders) 618,490,919 28.74%
Total
2,151,797,451 100.00%
Source: NZX Company Research
Under a put option deed between Garry Wells (the former chair of the Company) and
Wells Investments Limited (together Wells) and Mr Brankin dated October 2018,
Wells holds an option to sell up to 39,027,368 ordinary shares to the Brankin Trust
on 30 September 2020 at a price of $0.009 per share (the Wells Put Option).
In conjunction with the Wells Put Option, a debt of $798,175 owed by the Company
to Wells was assigned to the Brankin Trust.
4.5 Key Issues Affecting Promisia
The main industry and specific business factors and risks that Promisia faced when
operating its natural remedy business included:
Promisia was dependent upon meeting the regulatory standards for its
products. The Medsafe Alert and Medsafe Prosecution highlight the risks of
not meeting these standards
as Artevite was a relatively new product for Promisia, it needed to establish its
presence in the market with new and potential customers
the reliance on pharmacies and distributors to sell its products
fluctuations in foreign exchange rates could adversely affect earnings from
sales in Australia and other overseas markets
the ability to finance the Company’s operations.
Independent Adviser’s Report
Promisia Integrative Limited Page 34 and Appraisal Report
4.6 Financial Performance
A summary of Promisia’s recent financial performance is set out below.
Summary of Promisia Financial Performance
Year to
31 Dec 16
(Audited)
$000
Year to
31 Dec 17
(Audited)
$000
Year to
31 Dec 18
(Audited)
$000
Year to
31 Dec 19
(Audited)
$000
Revenue 2,665 2,332 727 190
Operating loss (415) (817) (2,371) (2,350)
Loss before income tax (459) (859) (2,412) (2,401)
Net loss for the period (459) (859) (2,412) (2,401)
Source: Promisia audited financial statements
Promisia’s revenue increased by 553% from $0.4 million in the 2015 financial year to
$2.7 million in the 2016 financial year due to a significant increase in the sale of
Arthrem.
The Company reported a net loss of $0.5 million in the 2016 financial year, down
from a loss of $0.9 million in the previous year. Promisia’s total expenses in the 2016
financial year totalled $3.1 million, up from $1.4 million in the 2015 financial year. Its
main expenses were marketing costs and cost of goods sold.
Promisia’s revenue decreased by 13% to $2.3 million in the 2017 financial year,
following a change in marketing representatives and increased competition.
The Company reported a net loss of $0.9 million in the 2017 financial year. Total
expenses remained relatively steady at $3.2 million, including $0.2 million of
pre-launch costs for Artevite.
Promisia’s revenue decreased by 69% to $0.7 million in the 2018 financial year, due
largely to the Medsafe Alert which caused an immediate collapse of Arthrem sales
and had a negative impact on the launch of Artevite.
The Company reported a loss of $2.4 million in the 2018 financial year, reflecting the
significant reduction in revenue to $0.7 million while incurring $3.1 million of costs,
including a $0.3 million impairment in respect of inventory.
Promisia reported a loss of $2.4 million in the 2019 financial year, reflecting negligible
revenue, a $1.1 million impairment in respect of inventory and $0.3 million of legal
fees incurred in respect of the Transactions.
Independent Adviser’s Report
Promisia Integrative Limited Page 35 and Appraisal Report
4.7 Financial Position
A summary of Promisia’s recent financial position is set out below.
Summary of Promisia Financial Position
As at
31 Dec 16
(Audited)
$000
As at
31 Dec 17
(Audited)
$000
As at
31 Dec 18
(Audited)
$000
As at
31 Dec 19
(Audited)
$000
Current assets 2,985 2,088 1,730 62
Non current assets 207 207 121 23
Total assets 3,192 2,295 1,851 85
Current liabilities (588) (837) (1,053) (1,439)
Non current liabilities (919) (439) - -
Total liabilities (1,507) (1,276) (1,053) (1,439)
Total equity
1,685 1,019 798 (1,354)
Source: Promisia audited financial statements
Promisia’s main current assets as at 31 December 2019 comprised cash and
receivables. $1.1 million of inventory was impaired and written off in the 2019
financial year.
Non current assets as at 31 December 2019 comprised mainly the Company’s NZX
listing bond.
Liabilities as at 31 December 2019 comprised mainly:
trade and other payables – $0.5 million
the Brankin Loan – $0.8 million. The loan bears interest at rates of between
6.5% and 8.0% per annum and is secured by way of a general security
agreement over Promisia’s assets.
The Company had equity of negative $1.4 million as at 31 December 2019,
comprising:
share capital – $58.5 million
reserves – negative $59.9 million.
4.8 Cash Flows
A summary of Promisia’s recent cash flows is set out below.
Summary of Promisia Cash Flows
Year to
31 Dec 16
(Audited)
$000
Year to
31 Dec 17
(Audited)
$000
Year to
31 Dec 18
(Audited)
$000
Year to
31 Dec 19
(Audited)
$000
Net cash (outflow) from operating activities (664) (1,526) (1,799) (868)
Net cash inflow / (outflow) from investing activities (40) (24) (47) 73
Net cash inflow from financing activities
1,510 47 2,034 304
Net increase / (decrease) in cash held 806 (1,503) 188 (491)
Opening cash balance 1,021 1,827 324 512
Closing cash balance
1,827 324 512 21
Source: Promisia audited financial statements
Independent Adviser’s Report
Promisia Integrative Limited Page 36 and Appraisal Report
Promisia has incurred cash losses from its operations over the past 4 years.
The Company has historically funded its operating losses and capital expenditure by
raising equity capital, including:
$1.4 million in December 2016 through the 2016 Rights Issue
$1.0 million in January 2018 through a share placement
$1.35 million in December 2018 through the 2018 Rights Issue
$0.25 million in December 2019 through the 2019 Option Exercise.
4.9 Share Price History
Set out below is a summary of Promisia’s daily closing share price and monthly
volumes of shares traded from 5 January 2016 to 18 December 2019 (when the
quotation of the shares was suspended).
Source: NZX Company Research
During the period, Promisia’s shares have traded between $0.001 and $0.065 at a
VWAP of $0.0236.
Promisia’s share price dropped 44% on 20 February 2018 from $0.018 to $0.010
following the announcement of the Medsafe Alert. Over 18 million shares were
traded on that day.
Since then, the Company’s share price steadily decreased to between $0.001 and
$0.002 up until the suspension of its quotation on 18 December 2019.
An analysis of Promisia’s recent VWAP, traded volumes and liquidity (measured as
traded volumes as a percentage of shares outstanding) up to 18 December 2019 is
set out below.
Share Trading up to 18 December 2019
Period Low
($)
High
($)
VWAP
($)
Volume
Traded
(000)
Liquidity
1 month 0.001 0.002 0.0010 979 0.0%
3 months 0.001 0.002 0.0011 2,521 0.1%
6 months 0.001 0.002 0.0018 15,045 0.7%
12 months 0.001 0.003 0.0018 44,275 2.1%
Source: NZX Company Research
Independent Adviser’s Report
Promisia Integrative Limited Page 37 and Appraisal Report
The analysis highlights the extremely thin trading in the Company’s shares, due
largely to:
the relatively small free float, with over 70% of the shares held by the
Company’s top 10 shareholders
the lack of demand for the shares given the uncertainty of Promisia’s operations
following the Medsafe Alert and the Medsafe Prosecution.
Independent Adviser’s Report
Promisia Integrative Limited Page 38 and Appraisal Report
5. Overview of the Retirement Village and Aged Care Sector
5.1 Sector Overview
There are approximately 400 retirement villages and more than 40,000 village
residents in New Zealand.
The 5 largest retirement village operators are NZX Main Board listed companies:
Arvida Limited (Arvida)
Oceania Healthcare Limited (Oceania)
Metlifecare Limited (Metlifecare)
Ryman Healthcare Limited (Ryman)
Summerset Group Holdings Limited (Summerset).
Together, the 5 operators make up approximately 57% of the New Zealand
retirement village market.
5.2 Accommodation and Care Options
New Zealand retirement village and aged care operators offer a mix of
accommodation and care services. While there is a full continuum of options
available to meet the needs of residents, operators generally differentiate their
products into 4 categories:
independent living units (ILU)
serviced apartments (SA)
age related residential care services in apartments
residential aged care homes (RCH).
Independent Living Units
ILUs are designed for residents who are still active, self-sufficient and want to live
independently. The units vary in size, typically compromising one, 2 and 3 bedroom
villas, townhouse and apartments. Residents are able to live independently in their
own home while enjoying the security, social aspects, convenience and facilities
offered by the village community.
Serviced Apartments
SAs are designed for residents who require extra assistance in their day-to-day life
while maintaining independence within their own home. SAs are typically smaller
than ILUs and offer a broader array of additional services such as meals, cleaning
and laundry services.
Age Related Residential Care Services
Care apartments or suites provide certified residential aged care services – eg rest
home care delivered into a resident’s apartment. This enables a resident to stay in
their own apartment while also receiving high level care services.
Independent Adviser’s Report
Promisia Integrative Limited Page 39 and Appraisal Report
Residential Aged Care Homes
RCHs offer residents 24 hour-a-day certified hospital, dementia or rest home care
services. Staff, including qualified nurses, provide residents with assistance to
support all activities of daily living as well as providing complex nursing care.
Retirement village operators and other operators of aged care services work closely
with one another to provide a continuum of care to meet the varying needs of older
adults. Approximately half of the aged care industry’s bed count is located within
retirement villages.
Entry into a RCH is usually prompted by either deteriorating health or family support
no longer being able to meet the required level of care. To enter a RCH, a resident
requires an independent assessment by a District Health Board (DHB) Needs
Assessor. Residents can access a RCH from either the retirement village or directly
from the community.
Work and Income New Zealand provides means tested subsidies to support RCH
residents with care fees. The subsidies are paid directly to the RCH operator and
typically covers accommodation, meals, pharmaceuticals and medical supplies.
Residents who do not qualify for the subsidies privately fund their accommodation
and care.
Continuum of Accommodation and Care
The industry average entry age of a resident moving into an ILU is currently around
79 years and 85 years for a resident moving into a SA.
The typical movement of a resident through the retirement village environment as
they age and greater assistance is needed is depicted below.
5.3 Key Industry Drivers
Aging Population
Statistics New Zealand estimates that the New Zealand population aged 75+ years
will experience strong annualised growth of 3.9% over the next 20 years, growing
from approximately 340,000 to approximately 736,000 by 2040.
People aged 75+ years currently represent 7% of New Zealand’s population and this
is expected to increase to 13% by 2040.
(Source: Statistics New Zealand National population projections, by age and sex, 2016(base)-2068)
Continue living at home
Retirement village (ILU)
Retirement village (SA)
Residential Aged Care Home
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Penetration Rates
Industry research indicates that people’s views towards retirement villages have
become more favourable, driven by:
increased familiarity and acceptance of the retirement village concept
a shift in accommodation mix towards ‘lifestyle resort’ villages
higher quality facilities and services offered by operators
increased awareness of isolation and loneliness within the elderly community
operators’ increased efforts to engage with the local community.
Residential Housing Prices
Retirement village operators’ generally price their units closely in line with the
prevailing house prices in the area surrounding a village. Under the ORA ownership
model, if house prices in the area appreciate, operators will generally capture the
capital gains for the units. Because of this, residential house prices heavily influence
the industry’s financial performance.
Over the last 10 years, New Zealand residential property prices have experienced
strong growth. The Housing Price Index (HPI), which is a measure of property values
in New Zealand, has increased by 78% over this period.
The growth in house prices has been driven by:
significant population growth as a result of both natural population growth and
strong net migration
the construction of new homes has lagged the demand for housing. High
construction costs and shortages of skilled labour have impacted development
both in terms of timing and profitability, leading to an undersupply in housing
stock
the low interest rate environment has lowered the cost of capital, allowing
homeowners to borrow more when purchasing property.
Liquidity of the Property Market
New residents often rely on selling their family home as the main source of capital to
fund their entry into a retirement village. It will often take potential new residents
longer to sell their homes at a value they expect when liquidity is low and the property
market is slow moving. This can delay potential new residents’ entry into a village,
which impacts on operators’ turnover of units and cash flows.
Demographics and Location
The main catchment area for a retirement village in urban environments is often
considered to be within an 8 to 10 kilometre radius. As such, competition in the
retirement village sector is generally localised.
Staffing
The retirement village and aged care sector is a major employer across New Zealand.
Retirement villages employ over 19,000 people in their day-to-day operations and
require a variety of skillsets and roles including onsite carers, registered nurses,
kitchen staff, activity coordinators, cleaners, village managers and administrators.
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Industry surveys have identified higher wage demands and the difficulty of finding the
right staff as key concerns of operators.
Development
The development and sale of new retirement villages represent the main growth
opportunity for operators. Although not all operators own material land banks or
undeveloped facilities, this is a significant driver of value and a key part of the
economic model for the larger corporate operators.
5.4 Ownership Model
There are a variety of ownership models offered by retirement village operators. The
key components of the typical ownership model are an ORA (which typically includes
a deferred management fee (DMF)) and weekly village, services and care fees.
Occupational Rights Agreement
Most retirement village operators in New Zealand have adopted the ORA as the
arrangement allowing individuals to take up residence.
Under the terms of an ORA, an incoming resident enters into an arrangement in
which the village operator retains the freehold title of the unit. The resident pays an
entry contribution to secure the ORA, which in turn secures their right to occupy their
unit. The price paid for the ORA is generally equal to the market value of the unit,
which varies based on the village and its facilities, the size and location of the unit
and the residential housing prices in the area. Given the upfront capital sum required
to secure an ORA, incoming residents often rely on selling their family home as the
main source of capital to fund their entry into a retirement village. The entry
contribution is paid back to the resident (less a DMF) when they leave the village and
the operator is able to settle an ORA with a new resident.
The market value of the ORA often changes during the term of a resident’s
occupancy. When a resident moves out of the village, the difference in price between
their original entry contribution and the entry contribution paid by the unit’s new
resident is generally retained by the village operator – ie the village operator keeps
any capital gains. In limited instances, capital gains (and losses) are shared with the
resident.
As operators are legally obliged to return the entry contribution to an outgoing
resident, the entry contribution is treated as an interest free loan to the operator.
Operators do not realise (in a cash sense) the appreciation in value of property until
a resident moves out of a unit and a new resident signs and pays for a new ORA.
However, operators generally revalue their property assets regularly and accrue any
capital gain in their income statement.
Deferred Management Fee
The DMF is typically capped at between 20% to 30% of the price paid for a unit and
accrues contractually over the first 3 to 5 years of a resident’s occupancy. This fee
is usually deducted from the ORA returned to the resident when the resident moves
out and the operator resells the unit to a new resident.
The DMF is generally designed to cover long-term maintenance costs in villages
together with costs associated with refurbishing and reselling the unit at the end of a
resident’s occupancy, with any surplus retained by the operator.
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DMF income increases when there is a higher turnover of residents. Increasing life
expectancies could lengthen the average occupancy periods for retirement village
residents, assuming the entry age of residents remains relatively constant.
Accordingly, this could negatively impact the DMF revenue stream of operators over
time unless operators maintain discipline around age-of-entry. Conversely, lowering
age-of-entry levels broadens the market for operators’ current product and future
developments.
Village Fees
Village fees cover the day-to-day maintenance and operating costs of the village.
These fees, paid periodically, cover expenses such as rates, building insurance,
maintenance of community amenities, staff costs and the cost of maintaining and
managing the village as a whole. Residents are generally responsible for their own
expenses such as internal maintenance, power and communications. Some
providers offer these village fees at a fixed rate for the length of the tenancy.
Village fees vary by village and by resident based on the facilities, activities, level of
care and incremental support services offered by operators.
5.5 Industry Regulation
Health and Disability Services (Safety) Act 2001
The purpose of the Health and Disability Services (Safety) Act 2001 (the HDSS Act)
is to:
promote the safe provision of health and disability services
enable consistent and reasonable standards for providing such services
encourage providers to take responsibility for providing such services safely to
the public
encourage the providers of health and disability services to continuously
improve the quality of those services.
Under the HDSS Act, all rest home and aged care facilities are required to be certified
and audited to ensure that the facilities provide safe and appropriate care for
residents and meet the standards set out in the HDSS Act.
Certification audits are carried out every one to 4 years, before the expiry of a facility’s
current notice of certification. The length of certification is dependent on the results
of the audits and the attainment levels achieved. Aged care providers that achieve
higher attainment levels will inherently receive a longer certification period.
Retirement Villages Act 2003
The rapid development of the retirement village sector in the late 1990’s led to the
introduction of the Retirement Villages Act 2003 (the RV Act). The aim of the RV
Act, which is administered by the Ministry of Housing, is to standardise and regulate
the retirement village industry, thereby protecting the interests of retirement village
residents.
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Among other obligations, the RV Act requires retirement village operators to:
register the village on the Retirement Villages Register, which is maintained by
the Companies Office
make annual returns to the Registrar
appoint an approved statutory supervisor (statutory supervisors are appointed
under a deed of supervision and provide the role of safeguarding the interests
of residents)
provide a disclosure statement to every potential resident
have a clear and unambiguous ORA
ensure intending residents receive independent legal advice
provide intending residents with a minimum 15 working days “cooling off” period
(ie a period which allows residents to change their mind about becoming a
resident after signing an ORA and receive a refund of any deposit that may
already have been paid).
5.6 Taxation
Under New Zealand’s income tax rules, the income earned through the revaluation
of an operator’s property assets is not included in its taxable income. Accordingly,
retirement village operators typically pay relatively low levels of income tax.
The basis for this is that the underlying land and buildings are rarely if ever legally
sold. Under the widely adopted ORA ownership model, the change in valuation
stems from the present value of the expected cash flow from future ORA entry
contributions. Pursuant to the ORA financial arrangement, operators are legally
obliged to return the entry contribution to an outgoing resident. Accordingly, any
income arising on receipt of the entry contribution is immediately offset by an equal
deduction for its future repayment. As such, the entry contribution is treated as an
advance or interest free loan for tax purposes and is therefore not considered taxable
income. Therefore, the economic gain of retirement village operators through capital
gains does not give rise to net income for tax purposes.
While income tax paid by operators is low, dividends paid to shareholders are
generally unimputed. This means that the tax is borne by shareholders rather than
the operators.
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Promisia Integrative Limited Page 44 and Appraisal Report
6. Profile of the Brankin Companies and the Facilities
6.1 Ownership Structure
The Brankin Trust wholly owns each of the Brankin Companies.
The Brankin Facilities are owned and operated by 5 companies:
Ranfurly Manor Limited – operates the Ranfurly RCC and the Nelson RCC
Ranfurly Manor No: 1 Limited – owns the Ranfurly RCC and the Ranfurly
Development
Nelson Street Resthome Limited – owns the Nelson RCC
Eileen Mary Age Care Property Limited – owns the Eileen Mary RCC
Eileen Mary Age Care Limited – operates the Eileen Mary RCC.
Aldwins House Limited leases the Aldwins Facility and holds the Aldwins Option.
6.2 Overview of the Facilities
Section 1 of the Profile entitled PIL And What It Will Do provides a comprehensive
overview of the Brankin Companies and the Facilities.
A summary of the Facilities is set out below.
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Brankin Facilities
The Brankin Facilities consist of 2 aged care facilities located in Fielding and one in
Dannevirke, offering a total of 269 beds and 11 ILUs.
The Brankin Facilities include:
rest home and hospital care
dementia care
retirement villages.
Ranfurly RCC and Eileen Mary RCC offer a full range of aged care services for
independent and assisted living, including ILUs, rest home studios and facilities for
accommodating and caring for dementia patients.
Nelson RCC provides care for those assessed as requiring rest home level care.
Key Brankin Facilities Statistics
Ranfurly
RCC
Nelson
RCC
Eileen Mary
RCC
Total
Age 6 years 3 years
1
22 years
Beds
Assisted living beds 63 - 19 82
Rest home beds - 49 18 67
Hospital beds 74 - 21 95
Dementia beds 25 - - 25
Total beds
162 49 58 269
ILUs 6 - 5 11
Employees
Full time 68 5 16 89
Part time 100 27 42 169
Total
168 32 58 258
Occupancy (March 2020) 80% 59% 83% 77%
Current Certification
Years 3 3 4
End date 2 Dec 2021 27 Feb 2021 14 Aug 2022
1 Originally dating from circa 1940s, significant refurbishment was completed in 2017
Source: Promisia and CBRE Valuations
Ranfurly Development
The Ranfurly Development involves the construction of up to 32 new external units
(30 detached 2 bedroom units and 2 detached one bedroom units with no garage)
and 10 new internal units (assisted living beds) on bare land that adjoins the Ranfurly
RCC.
The Ranfurly Development will be undertaken in 3 stages:
stage 1 – 10 internal units and 10 external units
stage 2 – 10 external units
stage 3 – 12 external units.
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One existing internal unit will be removed to connect the 10 new internal units to the
existing Ranfurly RCC.
The Ranfurly Development will be undertaken by Design Care Limited, a company
owned by the Brankin Trust. Resource and building consents have already been
granted for the Ranfurly Development. Development is expected to commence in
late 2020.
Aldwins Facility
The Aldwins Facility is located in central Christchurch. It was previously used as an
aged care facility and is currently unoccupied having recently undergone extensive
renovations and strengthening works. A Code Compliance Certificate (CCC) for
those works was issued on 15 April 2020. The Aldwins Facility will then open to new
residents as a rest home and hospital care facility for up to 147 residents with 67 rest
home beds and 80 hospital beds.
The Aldwins Facility is leased by Aldwins House Limited on a 15 year lease at an
annual rental of $1,060,000. The lease commenced on 1 March 2020.
The Aldwins Option will enable Promisia, at its discretion, to purchase the land and
buildings of the Aldwins Facility for up to $11,000,000 (plus GST) at any time before
31 May 2021.
6.3 CBRE Valuations
CBRE has ascribed a value of $32.72 million to the Brankin Facilities as at
11 February 2020 (the CBRE Valuations), representing the sum of:
the aged care facilities
the Brankin Companies’ interest in ORAs
unsold units
development land.
Summary of the CBRE Valuations
Ranfurly RCC
$000
Nelson RCC
$000
Eileen Mary RCC
$000
Total
$000
Aged care facilities 15,550 3,200 4,800 23,550
ORAs 4,460 - 1,470 5,930
Unsold units 680 - - 680
Development land 2,450 - 100 2,550
Rounding 10 - - 10
Total
23,150 3,200 6,370 32,720
Source: CBRE Valuations
The values ascribed to the aged care facilities are based on the capitalised forecast
earnings of the facilities and comparable sales values, assuming a freehold going
concern.
The aged care facilities represent 72% of the total value of the Brankin Facilities.
The values ascribed to the Brankin Companies’ interests in ORAs are based on an
assessment of the net present value of projected net future cash flows that the
Brankin Companies can reasonably expect to receive from future resales of the ILU
ORAs.
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Promisia Integrative Limited Page 47 and Appraisal Report
The Brankin Companies’ interests in ORAs represent 18% of the total value of the
Brankin Facilities.
The values ascribed to unsold units are based on their current selling prices less
disposal costs and represent 2% of the total value of the Brankin Facilities.
The values ascribed to development land are based on comparable sales values and
the residual value of the land, having regard to the costs and risks associated with
development and potential for profit.
The development land represents 8% of the total value of the Brankin Facilities.
CBRE is the pre-eminent valuer of aged care facilities and retirement villages in
New Zealand. The valuation approaches it has adopted for the Brankin Facilities are
consistent with those applied to its valuations of numerous other aged care facilities
and retirement villages in New Zealand.
The CBRE Valuations are as at 11 February 2020 and have not been updated since
then. The valuations predate the fluctuations in capital markets values which have
occurred as a result of the global COVID-19 pandemic and New Zealand entering
into various levels of lockdown on 25 March 2020. We note that between 11 February
2020 and 20 May 2020, the S&P/NZX 50 Index decreased by 8.8%.
While it is not possible to definitively assess the impact of the COVID-19 pandemic
on the CBRE Valuations, we consider the impact will not necessarily be significant
for the following reasons:
the majority of the value of the Brankin Facilities (72%) is represented by its
aged care facilities (ie rest home and hospital care beds and dementia care
beds). The value of the aged care facilities is based on the capitalised forecast
earnings of the facilities and comparable sales values, assuming a freehold
going concern. The earnings of the aged care facilities are largely a function
of occupancy levels and government funding policy. Neither of these key value
drivers are likely to be negatively impacted by the COVID-19 pandemic to any
significant degree
the valuations are to a large degree based on long term forecasts of cash flows
(especially in respect of the interest in ORAs) and comparable sales values,
neither of which are directly impacted by short term share price movements
while there is a risk that property values (in particular the sale price of ORAs)
could fall or demand for ORAs could decline in the near term, economic
forecasts by the Reserve Bank of New Zealand and trading banks are for
property values to recover in the medium to long term.
Pages 6 to 9 of the Profile provide further analysis of the potential impact of the
COVID-19 pandemic on:
the Brankin Facilities’ property values
the Brankin Companies’ operations
the financing of the Transactions.
We strongly recommend that Non-associated Shareholders read the analysis in
conjunction with this report.
Independent Adviser’s Report
Promisia Integrative Limited Page 48 and Appraisal Report
6.4 Key Business Risks
Section 4 of the Profile entitled Risks To PIL’s Business And Plans sets out in detail
the key business risks faced by the Brankin Companies and the Facilities and
stresses that the global COVID-19 pandemic may have a material adverse effect on
the Brankin Companies and the Facilities.
In summary, the key business risks are:
the loss of government funding – the Brankin Facilities will receive residential
care subsidy funding from local DHBs which may be subject to change. Any
loss in aged care facility funding will have a material adverse effect on financial
performance
regulatory risk – aged care providers need to meet standards set by the HDSS
Act and all facilities that provide independent living also need to comply with
the RV Act. Significant changes to certification standards and requirements of
retirement village operators may create additional obligations and costs on
aged care operators. Any such additional obligations and costs may have a
material adverse effect on the Company’s financial performance
labour availability, cost and turnover – aged care facilities rely on the staffing
of care and non-care positions. These positions are paid at the lower end of
pay scales. Labour availability and costs make attracting staff to the aged care
sector difficult
establishment of the Aldwins Facility – Promisia must attract sufficient residents
to reach occupancy rates that will allow the Company to at least cover the cost
of operating the Aldwins Facility
demand and occupancy risk – the occupancy rate of the Facilities determines
revenue received from residents. Any reduction in occupancy and demand for
aged care services will directly reduce Promisia’s profitability
changes to key personnel – the loss of key personnel may have a substantial
adverse impact on the operation of the Facilities and existing commercial
relationships
sector competition – existing and newly established aged care facilities within
close proximity to the Facilities may result in a loss of residents for the
Company and directly impact Promisia’s profitability.
6.5 Pro Forma Financial Information
Promisia has prepared pro forma financial information in respect of the Transactions
which consolidates Promisia’s and the Brankin Companies’ historic results for the
years ended 31 March, 2018 to 2020.
The basis of how the pro forma financial information was compiled is set out in
section 3 of the Profile entitled PIL’s Financial Information, along with summaries of
the pro forma financial information.
The Promisia financial information excludes the natural remedy business.
Accordingly, the pro forma financial information reflects the financial information of
the Promisia business that will exist following the completion of the Transactions.
The detailed pro forma financial information is set out in the document entitled
Reconciliation of non-GAAP to GAAP information, and supplementary financial
information (the Supplementary Financial Information), which is available on
Promisia’s website www.promisia.com.
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There is no prospective financial information (PFI) in this Profile. Section 3 of the
Profile entitled PIL’s Financial Information states:
“The Board has, following careful consideration and after due enquiry, concluded that
the provision of PFI for accounting periods subsequent to 31 March 2020, may be
misleading for potential investors with regard to particulars that are material to the
Proposed Transaction. The Directors believe that it is not practicable to formulate
reasonable assumptions on which to base prospective financial statements.
The Board’s reasons for this opinion are as follows:
The uncertainty of the economic and financial environment associated with the
COVID-19 pandemic renders any forecasts unreliable. Please see the risks and
key information summary sections of this Profile and specifically the risk in
respect of COVID-19.
PIL’s immediate growth strategy includes the establishment of the Aldwins
Facility. On the commencement of businesses operations, PIL will start to incur
operational expenses as it seeks to attract residents. While PIL considers there
will be resident demand for Aldwins House, there is uncertainty (including from
COVID-19) as to how soon the facility may be populated;
PIL’s key growth strategy also includes the acquisition and development of
other aged care facilities in New Zealand. These acquisitions will not only
create transaction costs but will also incorporate the financial positions of newly
acquired businesses into the group structure which would substantially alter the
PFI.
Given the inability to reliably determine reasonable assumptions for the periods that
would be covered by the PFI, the Board is of the view that prospective financial
statements may be misleading for potential investors in a material manner because
actual operating revenue or expenditure for that period could be materially different
from that forecast.”
6.6 Financial Performance
A summary of the historic pro forma financial performance for the 2018 to 2020
financial years is set out below.
Summary of Pro Forma Financial Performance
Year to
31 Mar 18
(Historic)
$000
Year to
31 Mar 19
(Historic)
$000
Year to
31 Mar 20
(Historic)
$000
Revenue 13,242 12,149 13,012
Gross profit 3,858 2,937 3,439
EBITDA 2,845 1,322 1,335
NPAT 1,389 (224) (238)
EBITDA: Earnings before interest, tax, depreciation and amortisation
NPAT: Net profit after tax
Source: Supplementary Financial Information
Revenue is derived mainly from:
rest home and hospital charges
care and other fees paid by ORA occupants
provision of dementia care.
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Promisia Integrative Limited Page 50 and Appraisal Report
These 3 categories accounted for 92% of pro forma revenue in the 2020 financial
year.
Gross profit is after direct costs, which consist mainly of wages.
Administration expenses in the 2020 financial year included approximately
$1.0 million of operating expenses attributable to the Promisia listed entity.
Explanations in respect of the changes in pro forma financial performance are set out
in section 3 of the Profile entitled PIL’s Financial Information.
6.7 Financial Position
A summary of the historic pro forma financial position as at 31 March 2020 is set out
below.
Summary of Pro Forma Financial Position
As at
31 Mar 20
(Historic)
$000
Current assets 413
Non current assets 53,635
Total assets 54,048
Current liabilities (14,482)
Non current liabilities (21,204)
Total liabilities (35,686)
Total equity
18,362
Source: Supplementary Financial Information
The pro forma financial position as at 31 March 2020 is prior to the debt and equity
capital raisings under the Transactions.
Assets as at 31 March 2020 consisted mainly of property, plant and equipment (ie
the Brankin Facilities plus associated fixed assets such as furniture and fittings and
plant and equipment) of $41.9 million and the Aldwins Facility right to use asset of
$11.7 million.
Current liabilities as at 31 March 2020 consisted mainly of:
the Aldwins Facility lease liability - $11.7 million
trade and other creditors - $1.0 million
revenue in advance - $0.9 million.
Non current liabilities as at 31 March 2020 consisted of:
refundable ORA - $9.6 million
term debt - $11.6 million (being $10.8 million owing by the Brankin Companies
and the $0.8 million Brankin Loan owing by Promisia).
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Promisia Integrative Limited Page 51 and Appraisal Report
6.8 Cash Flows
A summary of the historic pro forma cash flows for the 2020 financial year is set out
below.
Summary of Pro Forma Cash Flows
Year to
31 Mar 20
(Historic)
$000
Net cash inflow from operating activities 1,204
Net cash (outflow) from investing activities (263)
Net cash inflow from financing activities
(912)
Net increase in cash held 29
Opening cash balance (799)
Closing cash balance
(770)
Source: Supplementary Financial Information
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Promisia Integrative Limited Page 52 and Appraisal Report
7. Valuation of the Brankin Companies
7.1 Impact of COVID-19
We refer to the comments in section 1.7 as to the impact of the global COVID-19
pandemic on the aged care sector. Non-associated Shareholders should consider
the valuation assessment in combination with Promisia’s analysis of the potential
impact of the COVID-19 pandemic on the Company set out in pages 6 to 8 of the
Profile.
7.2 Standard of Value
We have assessed the fair market value of 100% of the shares in the Brankin
Companies.
Fair market value is defined as the price that a willing but not anxious buyer, with
access to all relevant information and acting on an arm’s length basis, would be
prepared to pay to a willing but not anxious seller in an open, unrestricted and stable
market.
7.3 Basis of Valuation
In general terms it is recognised that the value of a share represents the present
value of the net cash flows expected therefrom. Cash flows can be in the form of
either dividends and share sale proceeds or a residual sum derived from the
liquidation of the business.
There are a number of methodologies used in valuing shares and businesses. The
most commonly applied methodologies include:
discounted cash flow (DCF)
capitalisation of earnings
net assets or estimated proceeds from an orderly realisation of assets.
Each of these valuation methodologies is applicable in different circumstances. The
appropriate methodology is determined by a number of factors including the future
prospects of the business, the stage of development of the business and the
valuation practice or benchmark usually adopted by purchasers of the type of
business involved.
The DCF method is the fundamental valuation approach used to assess the present
value of future cash flows, recognising the time value of money and risk. The value
of an investment is equal to the value of future free cash flows (FCF) arising from the
investment, discounted at the investor’s required rate of return.
The capitalisation of earnings method is an adaptation of the DCF method. It requires
an assessment of the maintainable earnings of the business and a selection of a
capitalisation rate (or earnings multiple) appropriate to that particular business for the
purpose of capitalising the earnings figure.
An assets based methodology is often used in circumstances where the assets of a
company have a market value independent of the profitability of the company that
owns them. A valuation based on an orderly realisation of assets is normally
restricted to instances where the investor holds sufficient control to effect a sale of
the assets and / or there is some indication that an orderly realisation is
contemplated.
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7.4 Valuation Approach
Our preferred valuation approach is the DCF method. However, in the absence of
robust long term financial forecasts that have been approved by the Board, it is not
possible to undertake a meaningful DCF analysis of the Brankin Companies.
We have therefore assessed the value of the Brankin Companies using the sum of
the parts (SOTP) valuation methodology.
We have assessed the reasonableness of the valuation outcome by comparing the
implied valuation multiples with the observed multiples for comparable companies.
7.5 SOTP Valuation Assessment
Methodology
The SOTP approach assumes that the Brankin Companies can and will continue as
a going concern. It involves assessing:
the current market value of all of the Brankin Companies’ assets
the current market value of all of the Brankin Companies’ liabilities (both on and
off balance sheet)
the net present value (NPV) of the Brankin Companies’ obligations not reflected
in the assets or liabilities (e.g. its ongoing management costs not taken into
account in the asset valuations).
The SOTP approach is an adaption of the DCF approach. It is premised on the basis
that:
the current market values of the Brankin Companies’ assets are the NPV of the
assets’ FCF
the current market values of the Brankin Companies’ liabilities are the NPV of
the FCF associated with those liabilities and obligations.
We have assessed the underlying value of the Brankin Companies’ shares by
aggregating the values of the Company's component assets and liabilities as follows:
the Brankin Facilities based upon the CBRE Valuations
the Aldwins Facility based upon the NPV of the lease obligations
the value of the Brankin Companies' other assets and liabilities based upon
their carrying values as at 31 March 2020
the Brankin Companies' maintainable ongoing level of corporate overheads not
taken into account in the asset valuations (if any) have been capitalised at an
appropriate multiple to arrive at the NPV for the head office function.
Brankin Facilities
We have adopted the CBRE Valuations as set out in section 6.3 as the basis for
assessing the value of the Brankin Facilities.
Aldwins Facility
Promisia has calculated the NPV of the Aldwins Facility lease obligations to be
approximately $11.7 million.
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Promisia Integrative Limited Page 54 and Appraisal Report
Other Assets and Liabilities
We have adopted the carrying values for the Brankin Companies’ other assets and
liabilities as at 31 March 2020, other than:
we have assumed the deferred tax asset (which arises from revenue in
advance) will not be realised as our valuation is predicated on a going concern
basis and revenue in advance will continue (effectively into perpetuity)
the CBRE Valuations include the owner’s net interest in ORAs and therefore
the refundable ORA liability is effectively taken into account in the CBRE
Valuations
the Acquisition is on a debt free basis and therefore Promisia will not assume
the obligation in respect of the Brankin Companies’ bank debt.
Corporate Overheads
The CBRE Valuations take into account all corporate overheads of the Brankin
Companies in the DCF and capitalisation of earnings calculations. Accordingly, no
further allowance is required in the SOTP valuation for capitalised corporate
overheads.
Valuation Assessment
Based on the above, we assess the value of 100% of the shares in the Brankin
Companies’ to be in the vicinity of $31.2 million as at the present date using the SOTP
approach.
SOTP Valuation Assessment
As at
31 Mar 20
$000
Basis
SOTP
Value
$000
Receivables 153
100%
153
Brankin Facilities 41,890
1
32,720
Aldwins Facility 11,742
2
11,742
Deferred tax 184
0%
-
Total assets 53,969
44,615
Overdraft (791)
100%
(791)
Revenue in advance (871)
100%
(871)
Refundable ORA (9,625)
1
-
Bank debt (10,739)
3
-
Lease liability (11,742)
2
(11,742)
Total liabilities (33,768)
(13,404)
Total equity
20,201
31,211
Capitalised corporate costs
-
Value of 100% of shares
31,211
1 CBRE Valuations, which represent the owner’s net interest in ORAs
2 NPV of Aldwins Facility lease obligations
3 Acquisition is on a debt free basis
Source: Supplementary Financial Information
Independent Adviser’s Report
Promisia Integrative Limited Page 55 and Appraisal Report
Implied NTA Multiple
The assessed value of $31.2 million implies a net tangible assets (NTA) multiple of
1.0x, based on the Brankin Companies’ NTA as at 31 March 2020, adjusted for debt
which is not being assumed by Promisia under the Acquisition.
Set out at Appendix I is an analysis of historic and prospective price earnings (PE)
multiples and historic NTA multiples as at 20 May 2020 for the 5 retirement village
operators listed on the NZX Main Board.
The observed PE and NTA multiples are based on trading prices for minority parcels
and as such do not include any premium for control.
The 5 listed companies are considerably larger than the Brankin Companies and
have more diverse operations, with a much greater focus on retirement villages as
opposed to the Brankin Companies’ focus on aged care facilities.
A significant proportion of the 5 listed companies’ earnings are derived from
development profits and unrealised gains on the values of their retirement villages.
The Brankin Companies did not derive any earnings from these sources in the 2020
financial year. Accordingly, we do not consider a comparison of PE multiples to be
meaningful in this instance.
Source: S&P Capital IQ, data as at 20 May 2020
The NTA multiples range from 0.6x to 2.8x at an average of 1.3x.
We note that the share prices for the 5 listed companies have been highly volatile
over the past few weeks and have decreased as a result of concerns associated with
the global COVID-19 pandemic.
By way of example, as at 11 February 2020 (the date of the CBRE Valuations):
the average historic PE multiple was 18.9x (36% higher than at 20 May 2020)
the average prospective PE multiple was 18.6x (26% higher than at 20 May
2020)
the average historic NTA multiple was 1.8x (38% higher than at 20 May 2020).
Independent Adviser’s Report
Promisia Integrative Limited Page 56 and Appraisal Report
Given:
the current volatility in the capital markets due to the uncertainty associated
with the global COVID-19 pandemic
the comparative size of the Brankin Companies to the comparable companies
the much stronger weighting of the Brankin Companies towards aged care
facilities rather than retirement villages compared with the comparable
companies
and taking into account that we are valuing 100% of the Company, whereas
the observed multiples are based on trading prices for minority parcels
we consider the implied NTA multiple to be reasonable.
7.6 Conclusion
We assess the fair market value of 100% of the shares in the Brankin Companies to
be in the vicinity of $31.2 million as at the present date.
The valuation represents the full underlying standalone value of the Brankin
Companies based on their current strategic and operational initiatives.
The assessed value in the vicinity of $31.2 million is marginally lower than the
Acquisition Purchase Price of $31.385 million. The value of the Brankin Facilities as
assessed in the CBRE Valuations would need to increase by approximately 0.5% in
order for our assessed value of 100% of the shares in the Brankin Companies to
equate to the Acquisition Purchase Price.
Independent Adviser’s Report
Promisia Integrative Limited Page 57 and Appraisal Report
8. Reasonableness of the Brankin Allotment, the Wholesale
Allotment and the Teltower Allotment Issue Price
8.1 Basis of Setting the Issue Price
The Brankin Allotment involves the issue of 8,000,000,000 Consideration Shares, the
Wholesale Allotment involves the issue of up to 8,000,000,000 Wholesale Shares
and the Teltower Allotment involves the issue of up to 4,000,000,000 Teltower
Shares, all at $0.001 per share.
We are advised by the Non-associated Directors that the issue price of $0.001 was
based on a negotiated value with the Brankin Trust and, in the Non-associated
Directors’ view, fairly reflects the value of Promisia as a NZX listed shell company.
8.2 Assessment of the Reasonableness of the Issue Price
We have assessed the reasonableness of the issue price of $0.001 per share by
reference to:
the prices at which the Company’s shares have recently traded on the NZX
Main Board prior to the announcement of the Transactions
the prices at which the Company has recently issued shares
the asset backing of the shares.
8.3 Share Price History
A summary of Promisia’s daily closing share price and monthly volumes of shares
traded since 5 January 2016 is set out in section 4.9.
The issue price of $0.001 per share is equal to or slightly lower than the trading prices
for Promisia’s shares over the past 12 months up to the announcement of the
Transactions on 19 December 2019.
Independent Adviser’s Report
Promisia Integrative Limited Page 58 and Appraisal Report
The issue price of $0.001 per share is:
the same price as the 1 month VWAP of $0.0010
a discount of 9% to the 3 months VWAP of $0.0011
a 44% discount to the 6 months and 12 months VWAP of $0.0018.
In our view, limited reliance can be placed on the observed share prices as an
indication of the fair value of the Promisia shares given the very thin trading in the
shares. Only 0.7% of the Company’s shares traded in the last 6 months and 2.1%
traded in the last 12 months. Furthermore, $0.001 is the lowest price that shares
may trade at on the NZX Main Board.
8.4 Share Issues
Promisia’s most recent share issues were:
the issue of 1,345,088,480 ordinary shares on 31 December 2018 at $0.001
per share under the 2018 Rights Issue
the issue of 250,000,000 ordinary shares on 12 December 2019 at $0.001 per
share to the Brankin Trust under the 2019 Option Exercise.
Both share issues were at the same price as the Brankin Allotment, the Wholesale
Allotment and the Teltower Allotment issue price of $0.001 per share.
8.5 Net Assets per Share
Promisia's total equity amounted to approximately negative $1.4 million as at
31 December 2019, equating to net assets of negative $0.0006 per share.
The nature of the Company’s assets (predominantly cash, receivables and a NZX
bond) is such that their carrying values represent reasonable proxies of their market
values.
As a listed shell company, Promisia’s only material intangible asset is likely to be its
NZX Main Board listing. In general terms, the value ascribed to a NZX Main Board
listing is a function of the costs saved by a company undertaking a backdoor listing
or reverse listing rather than undergoing an initial public offering (IPO) or compliance
listing.
The costs of an IPO (when a company seeks to raise capital at the time of its listing)
can be significant due to brokerage fees as well as other expenses such as share
registry expenses, legal fees, accounting fees, advertising costs, printing costs and
postage costs associated with preparing a product disclosure statement. However,
the costs associated with a compliance listing, where a company’s shares are listed
but no new capital is raised, are considerably lower.
Recent backdoor listings and reverse listings on the NZX Main Board have ascribed
values in the range of $200,000 to $500,000 to the NZX Main Board listings.
We consider a reasonable value for Promisia’s NZX Main Board listing to be in the
range of $200,000 to $500,000.
Based on the above, we are of view that the value of Promisia shares prior to the
Transactions, and in the absence of any alternative transaction, is negligible.
Independent Adviser’s Report
Promisia Integrative Limited Page 59 and Appraisal Report
Value of Promisia Shares Prior to the Transactions
Total Per Share
Low
$000
High
$000
Low
$
High
$
Net assets as at 31 December 2019 (1,345) (1,345) (0.0006) (0.0006)
Value of NZX Main Board listing 200 500 0.0001 0.0002
Value of Promisia shares
(1,145) (845) (0.0005) (0.0004)
A value of $0.001 per Promisia share implies a value of approximately $3.5 million
for Promisia’s NZX Main Board listing. We consider this implied value to be
significantly higher than the market value of a NZX Main Board listing and therefore
is extremely favourable to the Non-associated Shareholders.
8.6 Conclusion
We consider the issue price of $0.001 per share under the Brankin Allotment, the
Wholesale Allotment and the Teltower Allotment to be reasonable from the
perspective of the Non-associated Shareholders as it significantly exceeds the asset
backing of the shares, even allowing for the value of the Company’s NZX Main Board
listing, and it is in line with the most recent capital raising issue prices and the recent
share prices for Promisia.
Independent Adviser’s Report
Promisia Integrative Limited Page 60 and Appraisal Report
9. Sources of Information, Reliance on Information, Disclaimer
and Indemnity
9.1 Sources of Information
The statements and opinions expressed in this report are based on the following main
sources of information:
the draft notice of special meeting
the draft Profile
the Purchase Agreement
the Promisia annual reports for the years ended 31 December, 2016 to 2019
data in respect of the Brankin Companies and the Facilities
the Brankin Companies’ annual reports for the years ended 31 March, 2019
and 2020
the Supplementary Financial Information
the CBRE Valuations
publicly available information on the New Zealand retirement village and aged
care sector
data in respect of Promisia and companies operating in the retirement village
and aged care sector from NZX Company Research and S&P Capital IQ.
During the course of preparing this report, we have had discussions with and / or
received information from the Non-associated Directors, the Company’s senior
management and Promisia’s legal advisers.
The Non-associated Directors have confirmed that we have been provided for the
purpose of this Independent Adviser’s Report and Appraisal Report with all
information relevant to the Transactions that is known to them and that all the
information is true and accurate in all material aspects and is not misleading by
reason of omission or otherwise.
Including this confirmation, we have obtained all the information that we believe is
desirable for the purpose of preparing this Independent Adviser’s Report and
Appraisal Report.
In our opinion, the information to be provided by Promisia to the Company’s
shareholders is sufficient to enable the Non-associated Directors and the
Non-associated Shareholders to understand all the relevant factors and to make an
informed decision in respect of the Transactions.
Independent Adviser’s Report
Promisia Integrative Limited Page 61 and Appraisal Report
9.2 Reliance on Information
In preparing this report we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was available from
public sources and all information that was furnished to us by Promisia and its
advisers.
We have evaluated that information through analysis, enquiry and examination for
the purposes of preparing this report but we have not verified the accuracy or
completeness of any such information or conducted an appraisal of any assets. We
have not carried out any form of due diligence or audit on the accounting or other
records of Promisia or the Brankin Companies. We do not warrant that our enquiries
would reveal any matter which an audit, due diligence review or extensive
examination might disclose.
9.3 Disclaimer
We have prepared this report with care and diligence and the statements in the report
are given in good faith and in the belief, on reasonable grounds, that such statements
are not false or misleading. However, in no way do we guarantee or otherwise
warrant that any forecasts of future profits, cash flows or financial position of Promisia
or the Brankin Companies will be achieved. Forecasts are inherently uncertain. They
are predictions of future events that cannot be assured. They are based upon
assumptions, many of which are beyond the control of Promisia and the Brankin
Companies and their directors and management teams. Actual results will vary from
the forecasts and these variations may be significantly more or less favourable.
We assume no responsibility arising in any way whatsoever for errors or omissions
(including responsibility to any person for negligence) for the preparation of the report
to the extent that such errors or omissions result from our reasonable reliance on
information provided by others or assumptions disclosed in the report or assumptions
reasonably taken as implicit, provided that this shall not absolve Simmons Corporate
Finance from liability arising from an opinion expressed recklessly or in bad faith.
Our evaluation has been arrived at based on economic, exchange rate, market and
other conditions prevailing at the date of this report. Such conditions may change
significantly over relatively short periods of time. We have no obligation or
undertaking to advise any person of any change in circumstances which comes to
our attention after the date of this report or to review, revise or update this report.
We have had no involvement in the preparation of the notice of special meeting or
the Profile issued by Promisia and have not verified or approved the contents of the
notice of special meeting or the Profile. We do not accept any responsibility for the
contents of the notice of special meeting except for this report.
9.4 Indemnity
Promisia has agreed that, to the extent permitted by law, it will indemnify Simmons
Corporate Finance and its directors and employees in respect of any liability suffered
or incurred as a result of or in connection with the preparation of the report. This
indemnity does not apply in respect of any negligence, wilful misconduct or breach
of law. Promisia has also agreed to indemnify Simmons Corporate Finance and its
directors and employees for time incurred and any costs in relation to any inquiry or
proceeding initiated by any person. Where Simmons Corporate Finance or its
directors and employees are found liable for or guilty of negligence, wilful misconduct
or breach of law or term of reference, Simmons Corporate Finance shall reimburse
such costs.
Independent Adviser’s Report
Promisia Integrative Limited Page 62 and Appraisal Report
10. Qualifications and Expertise, Independence, Declarations and
Consents
10.1 Qualifications and Expertise
Simmons Corporate Finance is a New Zealand owned specialist corporate finance
advisory practice. It advises on mergers and acquisitions, prepares independent
expert's reports and provides valuation advice.
The person in the company responsible for issuing this report is Peter Simmons,
B.Com, DipBus (Finance), INFINZ (Cert).
Simmons Corporate Finance and Mr Simmons have significant experience in the
independent investigation of transactions and issuing opinions on the merits and
fairness of the terms and financial conditions of the transactions.
10.2 Independence
Simmons Corporate Finance does not have at the date of this report, and has not
had, any shareholding in or other relationship with Promisia, the Brankin Trust,
Teltower or Mr Cassels or any conflicts of interest that could affect our ability to
provide an unbiased opinion in relation to the Transactions.
Simmons Corporate Finance has not had any part in the formulation of the
Transactions or any aspects thereof. Our sole involvement has been the preparation
of this report.
Simmons Corporate Finance will receive a fixed fee for the preparation of this report.
This fee is not contingent on the conclusions of this report or the outcome of the
voting in respect of the Transactions Resolutions. We will receive no other benefit
from the preparation of this report.
10.3 Declarations
An advance draft of this report was provided to the Non-associated Directors for their
comments as to the factual accuracy of the contents of the report. Changes made to
the report as a result of the circulation of the draft have not changed the methodology
or our conclusions.
Our terms of reference for this engagement did not contain any term which materially
restricted the scope of the report.
10.4 Consents
We consent to the issuing of this report in the form and context in which it is to be
included in the notice of special meeting to be sent to the Non-associated
Shareholders. Neither the whole nor any part of this report, nor any reference thereto
may be included in any other document without our prior written consent as to the
form and context in which it appears.
Peter Simmons
Director
Simmons Corporate Finance Limited
22 May 2020
Independent Adviser’s Report
Promisia Integrative Limited Page 63 and Appraisal Report
Appendix I
Retirement Village and Aged Care Companies’ Trading Multiples
Trading Multiples
Company
Market
Capitalisation
($m)
Enterprise
Value
($m)
PE Multiples
NTA
Multiple
Historic Prospective
Arvida 748 1,026 8.5x 12.9x 1.1x
Metlifecare 928 1,235 23.6x 11.1x 0.6x
Oceania 473 766 11.5x 9.6x 0.8x
Ryman 6,202 7,739 18.1x 24.8x 2.8x
Summerset
1,372 1,951 7.8x 15.4x 1.2x
Minimum 473 766 7.8x 9.6x 0.6x
Median 928 1,235 11.5x 12.9x 1.1x
Average 1,945 2,543 13.9x 14.8x 1.3x
Maximum 6,202 7,739 23.6x 24.8x 2.8x
Source: S&P Capital IQ, data as at 20 May 2020
Arvida owns and operates retirement villages and rest homes in New Zealand. It operates
32 retirement villages with 1,788 ILUs, 687 SAs and 1,688 care beds. Arvida was founded
in 2014 and is based in Auckland.
Metlifecare develops, owns and operates retirement villages primarily in the North Island.
The company offers living and care services through independent villas and apartments as
well as through serviced apartments, rest homes and hospitals. It owns and operates 25
villages, providing 4,064 ILUs, 494 SAs and 440 care beds. The company was founded in
1984 and is based in Auckland.
Oceania develops, owns and operates rest homes and retirement villages in New Zealand.
The company provides rest home, hospital, dementia, psychogeriatric, respite and palliative
/ end of life care and independent retirement village living. It owns and operates 44 rest
homes and retirement villages, providing 1,209 ILUs, 542 SAs and 2,112 care beds. The
company was founded in 2005 and is based in Auckland.
Ryman develops, owns and operates integrated retirement villages, rest homes and
hospitals for the elderly in New Zealand and Australia. Its villages offer a range of retirement
living and care options such as independent townhouses and apartments and serviced
apartments, as well as a care centre, which provides rest homes, hospitals and dementia
level care. It owns and operates 34 retirement villages in New Zealand and 2 retirement
villages in Australia, housing over 11,600 residents in 4,650 ILUs, 1,963 SAs and 3,439 care
beds. The company was founded in 1984 and is based in Christchurch.
Summerset develops, owns and operates integrated retirement villages in New Zealand. It
provides various independent living options including villas, townhouses, apartments and
serviced apartments. The company also offers one-off, supported living, premium care, rest
home care, hospital care, memory care and respite and short term care services. It operates
28 retirement villages and provides living options and care services to over 5,300 residents
in 2,803 ILUs, 1,068 SAs and 858 care beds. The company was founded in 1994 and is
based in Wellington.
---
Constitution
Promisia Integrative Limited
a
10227024_1 2
Table of Contents
1 Definitions and Interpretation ..............................................................................................3
2 General ...............................................................................................................................4
3 Relationship between Constitution and Rules ....................................................................4
4 Shares .................................................................................................................................5
5 Call on Shares ....................................................................................................................6
6 Forfeiture of Shares ............................................................................................................7
7 Lien on Shares ....................................................................................................................7
8 Transfer of Shares ..............................................................................................................8
9 Compulsory Sale of Less than Minimum Holdings .............................................................9
10 Distributions ..................................................................................................................... 10
11 Shareholder Meetings ...................................................................................................... 10
12 Appointment and Removal of Directors ........................................................................... 10
13 Remuneration of Directors ............................................................................................... 11
14 Alternate Directors ........................................................................................................... 11
15 Indemnity and Insurance ................................................................................................. 12
16 Proceedings of Directors ................................................................................................. 12
17 Method of Contracting ..................................................................................................... 12
18 Notices ............................................................................................................................. 12
19 Liquidation ........................................................................................................................ 13
Schedule One .......................................................................................................................... 14
Schedule Two .......................................................................................................................... 18
10227024_1 3
CONSTITUTION OF PROMISIA INTEGRATIVE LIMITED
1 Definitions and Interpretation
Definitions - In this Constitution unless the context otherwise requires:
Board means the Directors of the Company who number not less than the required quorum
acting together as the board of the Company.
Companies Act means the Companies Act 1993.
Company means Promisia Integrative Limited (company number 442738).
Constitution means this constitution of the Company as amended from time to time.
Class means a class of equities securities in the Company having attached to them identical
rights, privileges, limitations and conditions.
Director means a person appointed as a director of the Company.
Listed has the meaning given to it in the Rules.
Minimum Holding means for so long as the Company is Listed, the same meaning as given
to the term in the Rules or otherwise such level of equity security holding as unanimously
approved by the Board.
NZX means NZX Limited and includes its successors and assignees and as the context
permits any duly authorised delegate of NZX (including the NZ Markets Disciplinary Tribunal
and its successors).
Ordinary Resolution is a resolution that is approved by a simple majority of the votes of
those Shareholders entitled to vote and voting on the question.
Personal Representative means:
in relation to a deceased individual Shareholder, the executor, administrator or trustee of
the estate of that Shareholder;
in relation to a bankrupt individual Shareholder, the assignee in bankruptcy of that
Shareholder; and
in relation to any other individual Shareholder, a person appointed or deemed to have
been appointed to administer property under the Protection of Personal and Property
Rights Act 1988, a manager appointed or deemed to have been appointed thereunder,
and under a donee of an enduring power of attorney complying with that Act.
Rules means the NZX Listing Rules in force from time to time except to the extent of any
Ruling relevant to the Company.
Ruling has the meaning given to it in the Rules.
Share means a share in the capital of the Company, and Shares has a corresponding
meaning.
Shareholder means a person whose name is entered in the Share Register as the holder for
the time being of one or more Shares.
Special Resolution means a resolution approved by a 75% majority of the votes of those
Shareholders entitled to vote and voting on the question.
Construction – In this Constitution, unless the context otherwise requires:
any expression not defined in this Constitution but defined in either the Companies
Act or the Rules shall bear the same meaning in this Constitution as in the Companies
Act or in the Rules;
10227024_1 4
words importing the singular number shall include the plural, and vice versa;
words importing persons include firms and corporations and firm includes partnership;
headings shall not affect the interpretation of this Constitution;
if there is any conflict between a provision in this Constitution and a provision in the
Companies Act which is expressly permitted to be altered by this Constitution, the
provision, word or expression in this Constitution prevails;
a reference to any statute, statutory regulations or other statutory instrument includes
the statute, statutory regulations or instrument as from time to time amended or re-
enacted or substituted;
a reference to a Rule includes that Rule as from time to time amended or substituted;
and
the words “written” and “writing” include electronic communications and any other
means of communication resulting in permanent visible reproduction.
2 General
Rights, powers and duties – The Company, the Board, each Director and each Shareholder
have the rights, powers, duties and obligations set out in the Companies Act except to the
extent that they are negated, modified or extended by this Constitution.
Powers of Shareholders – Unless otherwise specified in the Companies Act or this
Constitution, any power reserved to Shareholders may be exercised, and any approval of
Shareholders may be given, by Ordinary Resolution.
3 Relationship between Constitution and Rules
Incorporation of Rules – For so long as the Company is Listed:
this Constitution is deemed to incorporate all provisions of the Rules required under
the Rules to be contained or incorporated by reference in this Constitution;
a security holder must not cast a vote if prohibited from doing so by the Rules; and
Directors must not cast a vote if prohibited from doing so by the Rules.
Compliance with Rules – For so long as the Company is Listed, the Company must comply
with the Rules. If this Constitution contains any provision inconsistent with the Rules, then the
Rules prevail.
Rulings – If NZX has granted a Ruling in relation to the Company authorising any act or
omission which in the absence of that Ruling would be in contravention of the Rules or this
Constitution, that act or omission will, unless a contrary intention appears in this Constitution,
be deemed to be authorised by the Rules and this Constitution.
Failure to comply with Rules – Any failure to comply with the Rules while the Company is
Listed does not affect the validity or enforceability of any transaction, contract, action, decision
or vote taken at a meeting of equity security holders, or other matter entered into by, or
affecting the Company. However, a party to a transaction or contract who knew of the failure
to comply with the Rules is not entitled to enforce that transaction or contract. This clause
does not limit the rights of equity security holders against the Company or the Directors arising
from the failure to comply with the Rules.
10227024_1 5
Amendments to the Rules – If the Rules are changed so that any act or omission by the
Company which was formerly prohibited by the Rules, is subsequently required or permitted
by the change, the act or omission is deemed to be authorised by this Constitution with effect
from the date of the change.
4 Shares
Classes of shares – Different classes of Shares may be issued by the Company. Without
limiting the foregoing or the Classes listed in section 37(2) of the Companies Act which may
be issued, any share may be issued on the basis that it:
ranks equally with, or in priority to, any existing Shares;
confers preferential rights to distributions of capital or income;
confers special, limited or conditional voting rights;
is convertible;
is limited or restricted as to transfer;
does not confer voting rights;
is redeemable in accordance with section 68 of the Companies Act; or
possesses any combination of two or more of the foregoing characteristics.
Section 45 Negated – Section 45 of the Companies Act will not apply to the Company.
Issue of New Shares – Subject to this Constitution, the Companies Act and the terms of
issue of any existing Shares, the Board may issue Shares, securities that are convertible into
or exchangeable for Shares, or options to acquire Shares at any time, to any person, and in
any number it determines.
Alteration of Shareholders Rights – For the purposes of section 117 of the Companies Act,
the issue of equity securities ranking equally with, or in priority to, any existing Shares,
whether as to voting rights, Distributions or otherwise, is permitted (subject to clause 4) and is
deemed to not be an action affecting the rights attached to existing shares of that Class.
Consolidation and Subdivision – The Board may:
consolidate and divide the Shares or any Class; and
subdivide the Shares or any Class,
in each case in proportion to those Shares or the securities in that Class, as the case may be.
Shares in lieu of dividends – The Board may issue Shares to any Shareholders who have
agreed to accept the issue of Shares, wholly or partly, in lieu of proposed dividends or
proposed future dividends under section 54 of the Companies Act.
Share register may be divided – The share register may be divided into two or more
registers kept in different places.
Redemption of Shares – The Company may redeem any Share which is issued as
redeemable pursuant to its terms of issue and in accordance with the Companies Act
(including under the procedure provided for by section 71 of the Companies Act).
10227024_1 6
Company may acquire its own Shares – The Company is permitted to purchase or
otherwise acquire its own Shares from one or more Shareholders in any way permitted by the
Companies Act.
Company may hold its own Shares – The Company is permitted to hold its own Shares as
Treasury Stock in accordance with the Companies Act.
5 Call on Shares
Power to call – The Board may, from time to time, make calls upon the Shareholders in
respect of all moneys unpaid on Shares held by them which are not payable at fixed times by
the terms of issue of those Shares.
Timing of call – A call shall be deemed to have been made at the time when the resolution of
the Board making the call was passed.
Payment of calls – Each Shareholder will, subject to receiving at least 10 working days’
written notice specifying the time or times, and place, of payment, pay to the Company or
person appointed by the Board for the purpose at the time or times and place so specified by
the Board, the amount called. A call may be made payable by instalments and may be
revoked, reduced or postponed as the Board may determine. The Company is not required to
give notice and particulars of a call to a subsequent holder of those Shares.
Fixed instalments deemed calls – An amount which, by the terms of issue of a Share, is
payable on allotment or at a fixed date is deemed for the purposes of this Constitution to be a
call duly made and payable on the date on which the amount is payable.
Differential calls – The Board may, on the issue of Shares, differentiate between the
Shareholders as to the amounts to be paid in respect of the Shares and the times of payment
of such amounts.
Joint Shareholders – The joint holders of a Share are jointly and severally liable to pay all
calls in respect of Shares registered in their names.
Default interest – If a call in respect of a Share is not paid on or before the due date, the
Shareholder from whom the call is payable will pay interest on the call from the day specified
for payment by the Board to the date of actual payment at such rate as the Board may
reasonably determine or as set out in the terms of issue of the Share, and will pay all
expenses incurred by the Company (including reasonable legal fees) by reason of the delay in
payment or non-payment. The Board may waive payment of that interest wholly or in part.
Proceedings for recovery of call – In any proceeding for recovery of a call:
it is sufficient to prove that:
the name of the relevant Shareholder is entered in the Share Register as the
holder, or one of the holders, of the Shares to which the call relates; and
except in relation to any amount which, by the terms of issue of a share, is
payable on allotment or at a fixed date, the resolution making the call is entered
in the Records and notice of the call has been duly given,
and proof of the matters mentioned in this clause is conclusive evidence of the debt;
and
it is not necessary to prove the appointment or qualification of any member of the
Board which made the call nor any other matter.
10227024_1 7
6 Forfeiture of Shares
Notice requiring payment of call – If a Shareholder fails to pay any call or instalment or any
other sum which by the terms of issue of a Share becomes payable at a fixed time, on the due
date the Board may by written notice to that Shareholder at any time after such non-payment
require payment of the amount unpaid together with any accrued interest and all expenses
incurred by the Company by reason of such non-payment.
Contents of notice – Any notice to a Shareholder under clause 6.1 must specify a further
date (not earlier than 10 working days after the date of service of the notice) on or before
which the payment is to be made, and must state that, in the event of non-payment by the
specified date, the Shares in respect of which the call, instalment or other amount relates are
liable to be forfeited.
Forfeiture for non-payment – If payment is not made by the date specified in the notice then,
at any time thereafter before the payment required by the notice has been made, any Share in
respect of which the notice has been given may be forfeited by a resolution of the Board to
that effect. The forfeiture will include any Distribution declared in respect of the forfeited Share
and not paid before the forfeiture.
Cancellation of forfeiture – A forfeiture may be cancelled at any time before the sale of the
forfeited Share, on such terms as the Board thinks fit.
Effect of forfeiture – The holder of Shares which have been forfeited ceases to be a
Shareholder in respect of the forfeited Shares and have any rights in respected of the forfeited
Shares, but remains liable to the Company for all money payable in respect of the forfeited
Shares, until the Company receives payment in full of all outstanding amounts in respect of
those forfeited Shares.
Evidence of forfeiture – An entry in the Share Register that a Share has been forfeited on a
date stated in the Share Register shall be conclusive evidence of those facts as against all
persons claiming to be entitled to the Share.
Disposal – Forfeited Shares may be disposed of in such a manner as the Board determines.
Proceeds of forfeited Shares – If Shares are forfeited and sold the proceeds of sale shall
first be applied in payment of all costs and expenses of such sale and any attempted sale and
then in satisfaction of unpaid calls, instalments or interest. The residue, if any, will be paid to
the holder of the Share at the time of its forfeiture.
Disposal procedure – Any Director may execute a transfer of the forfeited Shares in favour of
the person to whom the Shares are disposed of, and the Company may receive consideration
for such disposal. Upon registration of such transfer the transferee shall be the Shareholder of
such Shares discharged from all calls due prior to transfer. The transferee shall not be bound
to see to the application of the purchase money nor shall the transferee’s title to the Shares be
affected by any irregularity or invalidity in the forfeiture or disposal. The remedy of the former
Shareholder, and of any person claiming under or through the former Shareholder, shall be
against the Company exclusively and in damages only.
7 Lien on Shares
Lien on Shares – The Company has a first and paramount lien on each Share registered in
the name of each Shareholder (whether solely or jointly), the proceeds of sale of the Share,
and all Distributions declared in respect of the Share, for:
all unpaid calls and instalments and any interest payable on such amounts, in respect
of those Shares; and
10227024_1 8
any amount which the Company may be called upon to pay by law in respect of those
Shares, including withholding and other taxes, whether or not the due date for
payment of such amounts has arrived.
Waiver of lien – Unless otherwise agreed between the Company and the relevant
Shareholder, the registration of a transfer of a Share will operate as a waiver of any lien which
the Company may have on that share, except as provided in clause 8.
Company may sell Shares – The Company may sell any Share on which the Company has a
lien, in such manner as the Board thinks fit if:
a sum in respect of which the lien exists is due and payable; and
the sum remains due and payable after the expiry of 10 working days after written
notice demanding payment of the amount owing was given to the person entitled to
receive notice of meetings of Shareholders in respect of the Shares.
Proceeds of sale – If Shares are sold pursuant to clause 7.3, the proceeds of sale shall first
be applied in payment of all costs and expenses of such sale and any attempted sale and then
in satisfaction of unpaid calls, instalments, interest or other amount in respect of which any
lien exists. The residue, if any, will be paid to the holder of the Share immediately prior to the
sale or, if applicable, to the Personal Representative of the holder. The registration of a
transfer of Shares shall operate as a waiver of the lien by the Company but not as a release of
any outstanding liability owed by any holder of the Share immediately prior to the sale.
Evidence – A certificate by a Director that any power of sale has arisen and is exercisable by
the Company under this Constitution, will be conclusive evidence of those facts.
Sale procedure – For giving effect to any sale under clause 7.3, the Board may execute a
transfer of the Shares to the transferee. The transferee will be registered as the holder of the
Share discharged from all calls due prior to sale. The transferee shall not be bound to see the
application of the purchase money nor shall the transferees’ title to the Share be affected by
any irregularity or invalidity on the sale. The remedy of any person having a cause of action in
relation to the sale is in damages only and solely against the Company.
8 Transfer of Shares
Power to refuse or delay – The Board may refuse or delay the registration of a transfer of
Shares if:
the Company has a lien over the Shares; or
a Share certificate has been issued in respect of the Shares, unless the form of
transfer required by this clause 8 is accompanied by the Share certificate, or by
evidence as to its loss or destruction and, if required, an indemnity in a form
prescribed by the Board,
provided that the Board resolves to exercise its power under this clause within 30 working
days after receipt of the relevant transfer and notice of the resolution is sent to the transferor
and to the transferee within five working days of the resolution being passed by the Board.
Transmission on death of Shareholder – If a Shareholder dies the survivor, if the deceased
was a joint Shareholder, or the Personal Representative, will be the only persons recognised
by the Company as having any title to or interest in the Shares of the deceased Shareholder,
but nothing in this clause will release the estate of a deceased joint Shareholder from any
liability in respect of any Share, or constitute a release of any lien which the Company may
have in respect of any Share.
10227024_1 9
Joint Personal Representatives – Where a Share is subject to the control of two or more
persons as Personal Representatives, they will, for the purposes of this Constitution, be
deemed to be joint holders of the Share.
9 Compulsory Sale of Less than Minimum Holdings
Notice of compulsory sale – The Company may at any time give notice to an equity security
holder holding less than a Minimum Holding that if, at the expiration of 3 months after the date
the notice is given, equity securities then registered in the name of the holder are less than a
Minimum Holding the Company may sell those securities (including through a broker acting on
the Company’s behalf). The notice must expressly advise the relevant equity security holders
to notify the Company if they want to receive the proceeds of sale and advise their bank
account number for the payment of such proceeds.
Sale procedure – The Board may authorise the transfer of equity securities sold by the
Company under this clause 9 and the holder is deemed to have authorised the Company to
act on behalf of the holder and to sign all necessary documents relating to the sale. The
purchaser of equity securities sold by the Company under this clause 9 shall have no
obligation to ensure the proceeds of the sale of those equity securities is applied in
accordance with this clause 9 nor shall the title to the equity securities by affected by any
irregularity or invalidity in the procedures under this Constitution in relation to the sale. The
remedy of any person aggrieved by the sale is in damages only and against the Company
exclusively.
Proceeds of sale – The proceeds of any equity securities sold under this clause must be
applied as follows:
first, in payment of any reasonable sale expenses;
second, in satisfaction of any unpaid calls or other amounts owing to the Company in
respect of the equity securities; and
subject to clauses 9.4 and 9.5 the residue, if any, is to be paid to the person who was
the holder immediately before the sale or their executors, administrators or assigns.
Payment of proceeds – Payments under clause 9.3.3 will be made on the following basis:
For any equity security holder that has advised the Company they wish to receive the
proceeds and advises their bank account details for that purpose (in response to the
notice under clause 9.1)(Account Notification), the Company is to pay the proceeds
of sale to that equity security holder accordingly.
For any equity security holder that does not provide an Account Notification and is
entitled to proceeds of $20.00 or less, the Company may pay out those proceeds in
accordance with clause 9.5.
For any equity security holder that does not provide an Account Notification and is
entitled to proceeds of $20.00 or more, the Company must send a further notice
requesting an Account Notification from the relevant equity security holder to their last
recorded address or email address in the Company’s records. If an Account
Notification is not received within 20 working days of sending that further notice, the
Company pay out those proceeds in accordance with clause 9.5.
Unclaimed proceeds – Any proceeds of sale that the Company is unable to pay to the
relevant equity security holder may be donated to any charity registered under the Charities
Act 2005 and as nominated by the Board from time to time.
10227024_1 10
Discharge of amounts owing - The donation of any unclaimed proceeds under clause 9.5
shall be a full discharge of all amounts owing by the Company to the relevant equity security
holder.
Directors certificate – A certificate, signed by a Director that records that a power of sale
under this clause has arisen and is exercisable by the Company is conclusive evidence of the
facts stated in that certificate.
10 Distributions
Deductions from Distribution – The Board may deduct from a Distribution payable to a
Shareholder all such sums of money as may be due from him or her to the Company on
account of:
unpaid calls and instalments, and any interest payable on such amounts, in respect of
the Shares for which the Distribution is being paid; and
such amounts as the Company may be called upon to pay under law in respect of the
Shares.
Manner of payment – A Distribution may be paid in any manner approved by the Board and
otherwise directed by the entitled Shareholder. Failing any direction, payment may be made
by cheque and sent by post:
to the registered address of the Shareholder;
in the case of joint holders to any one of the joint holders at his or her registered
address; or
to the person and the address as the Shareholder may direct,
and the Company shall not be responsible for any loss arising from such mode of
transmission.
No interest on Distributions – The Company is not liable to pay interest in respect of any
Distribution.
Unclaimed Distribution – A Distribution unclaimed for one year after having become payable
may be made use of by the Board for the benefit of the Company until claimed. The Company
shall be entitled to mingle the Distribution with other money of the Company and shall not be
required to hold it or regard it as being impressed with any trust. A Distribution unclaimed for
five years after having become payable, may, at the expiry of such period be forfeited by the
Board for the benefit of the Company, provided always that the Board may at any time after
such forfeiture annul the same and pay such Distribution to the person producing evidence of
entitlement.
11 Shareholder Meetings
Proceedings at meetings – The provisions of schedule 1 of the Companies Act as modified
by schedule one of this Constitution governs proceedings at meetings of Shareholders. The
same procedures also govern the proceedings of meetings of any interest group required to
be held, with all necessary consequential modifications.
12 Appointment and Removal of Directors
Existing Directors continue – The Directors in office at the date of adoption of this
Constitution shall continue in office subject to the provisions of this Constitution.
Appointment of Directors – A Director may be appointed by:
10227024_1 11
Ordinary Resolution; or
a resolution of the Board,
and there is no shareholding qualification for Directors.
Director ceasing to hold office – The office of Director is vacated if the person holding that
office:
dies, or becomes mentally disordered or subject to a property order or personal order
made under the Protection of Personal and Property Rights Act 1988;
resigns in accordance with the Companies Act;
is removed from office by Ordinary Resolution or otherwise in accordance with the
Companies Act; or
becomes disqualified from being a Director pursuant to the Companies Act.
Comply with the Rules – For so long as the Company is Listed:
the Company shall comply with the minimum Board composition requirements of the
Rules; and
each Director shall retire from the office when required by the Rules but, subject to the
Rules, shall be eligible for re-election.
13 Remuneration of Directors
Authorisation – The Board may, subject to the Rules (where applicable), exercise the power
conferred by section 161 of the Companies Act to authorise remuneration and other benefits
to and for Directors.
Expenses – Each Director is entitled to be paid for all reasonable travelling, accommodation
and other expenses incurred by the Director in connection with the Director’s attendance at
meetings or otherwise in connection with the Company’s business.
Special remuneration – Without limiting clause 13.1, the Board may authorise special
remuneration to any Director who is or has been engaged by the Company or a subsidiary to
carry out any work or perform any services which is not in the capacity of a director of the
Company or a subsidiary.
14 Alternate Directors
Appointment – Each Director may appoint, by notice to the Company, any person who:
is not already a Director;
is approved by a majority of the other Directors; and
is not disqualified under the Companies Act or this Constitution from being a Director,
to act as an alternate Director in his or her place.
Alternate Director powers – While acting in the place of the Director who appointed him or
her, an alternate Director:
has, and may exercise and discharge, all the powers, rights, duties and privileges of
that Director (including the right to receive notice of, be counted as part of the quorum,
10227024_1 12
and participate in a meeting, of the Board, and to sign any document, including a
written resolution, and to act as chairperson of the Board, but excluding the right to
appoint an alternate Director);
is also subject to the same terms and conditions of appointment as that Director,
except that he or she is not entitled to receive remuneration other than such
proportion (if any) of the remuneration otherwise payable to his or her appointer as the
appointer may direct by notice in writing to the Company.
Termination of appointment – The appointment of an alternate Director terminates
automatically if the Director who appointed him or her ceases to be a Director or if an event
occurs which would cause him or her to vacate office if he or she were a Director. A Director
retiring by rotation and being re-elected is not to be treated as having ceased to be a Director
for the purposes of this clause.
Removal of Alternate – The appointing Director or the Board by majority vote may at any
time revoke the appointment of any alternate Director by written notice to that alternate
Director.
15 Indemnity and Insurance
Company indemnity – The Company shall indemnify a Director of the Company, and may
indemnify an employee of the Company or a director or employee of a related company, for
any liability or costs for which a Director or employee may be indemnified under the
Companies Act. The Board may determine the terms and conditions of such an indemnity.
Company may effect insurance – The Company may, with prior approval of the Board,
effect insurance for a director or employee of the Company or a related company for any
liability or costs for which a company may effect insurance for a director or employee under
the Act. The Board may determine the amounts and the terms and conditions of any such
insurance.
16 Proceedings of Directors
Proceedings governed by Schedule Two – The provisions set out in schedule two to this
Constitution govern the proceedings of the Board and, except to the extent the Board
determines otherwise, govern the proceedings of any committee of Directors. Schedule 3 of
the Companies Act shall not apply to the Company.
17 Method of Contracting
Deeds – A deed which is to be entered into by the Company may be signed on behalf of the
Company, by:
a Director; or
any other person authorised by the Board whose signature must be witnessed.
Attorneys – The Company may, by deed, appoint one or more persons as its attorney or
attorneys either generally or in relation to a specified matter or matters. An act of an attorney
within the powers of the appointing deed binds the Company.
18 Notices
Joint Shareholders – A notice may be given by the Company to joint Shareholders by giving
the notice to the joint Shareholder named first in the Share Register in respect of the Share.
Shareholder deceased or bankrupt – If a Shareholder dies or is adjudicated bankrupt,
notice may be given in any manner in which notice might have been given if the death or
10227024_1 13
bankruptcy had not occurred, or by giving notice in the manner provided in section 391 of the
Companies Act to the Personal Representative of the Shareholder at the address supplied to
the Company for that purpose.
19 Liquidation
Division of surplus assets – Subject to the Act and in particular the satisfaction of the claims
of creditors of the Company under section 312 of the Act, the liquidator may divide among the
Shareholders in kind the whole or any part of the surplus assets of the Company (whether
they consist of property of the same kind or not). The liquidator may for that purpose set such
value as he or she deems fair upon any property to be divided and may determine how the
division shall be carried out as between the Shareholders or different Classes of
Shareholders. The liquidator shall divide the surplus assets of the Company so as to ensure
that each Shareholder receives his or her right to share in the distribution of the surplus assets
of the Company pro rata according to the Shares held by the Shareholder.
Distribution in kind – With the approval of an Ordinary Resolution, the liquidator of the
Company may divide amongst the Shareholders in kind the whole or any part of the surplus
assets of the Company (whether or not they are of the same kind) and for that purpose the
liquidator may:
attribute values to assets as the liquidator considers appropriate; and
determine how the division will be carried out between the Shareholders or different
Classes of Shareholders.
Trusts – With the approval of an Ordinary Resolution, the liquidator may vest the whole or any
part of any surplus assets of the Company in trustees upon trust for the benefit of
Shareholders. The liquidator may determine the terms of the trust.
10227024_1 14
SCHEDULE ONE
Proceedings at Meetings of Shareholders
1 Chairperson
Chairperson – If the Directors have elected a chairperson of the Board, and he or she is
present at a meeting of Shareholders, he or she must chair the meeting.
Directors may appoint chairperson – If:
no chairperson of the Board has been elected;
at any meeting of Shareholders, the chairperson of the Board is not present within 15
minutes after the time appointed for the commencement of the meeting; or
the chairperson of the Board considers it not proper or desirable to act as chairperson,
(either in relation to the entire meeting or in relation to any particular business to be
considered at the meeting),
the Directors present may elect one of their number to chair the entire meeting or that part of
the meeting which relates to particular business.
2 Notice of Meetings
Written notice - Written notice of the time and place of a meeting of Shareholders must be
sent or electronically delivered to every Shareholder entitled to receive notice of the meeting
and to every Director, and to the auditor (if any) of the Company, not less than 10 working
days before the meeting.
Contents of notice - A notice of meeting must state:
the nature of the business to be transacted at the meeting in sufficient detail to enable
a Shareholder to form a reasoned judgment in relation to it;
the text of any Special Resolution to be submitted to the meeting;
the text of any resolution for the purposes of section 207I or 207J of the Companies
Act to be submitted to the meeting; and
in the case of Special Resolution required by section 106(1)(a) or (b) of the
Companies Act, the right of a Shareholder under section 110 of the Companies Act.
Waiver of notice irregularity - An irregularity in a notice of a meeting is waived if all the
Shareholders entitled to attend and vote at the meeting attend the meeting without protest as
to the irregularity, or if all such Shareholders agree to the waiver.
Accidental omission - The accidental omission to give notice of a meeting to, or the failure to
receive notice of a meeting by, a Shareholder, does not invalidate the proceedings at that
meeting.
Notice of adjourned meeting - If a meeting of Shareholders is adjourned for less than 30
days it is not necessary to give notice of the time and place of the adjourned meeting other
than by announcement at the meeting which is adjourned.
3 Methods of holding meetings
Methods - A meeting of Shareholders may be held by a quorum of the Shareholders:
10227024_1 15
being assembled together at the time and place appointed for the meeting;
participating in the meeting by means of audio, audio and visual, or electronic
communication; or
by a combination of such methods.
4 Quorum
Requirement for quorum - No business may be transacted at a meeting of Shareholders if a
quorum is not present.
Quorum - Subject to clause 4.3 of this schedule, a quorum for a meeting of Shareholders
shall be three (3) Shareholders present either in person, by proxy or by corporate
representative. To avoid doubt, a shareholder participating in a meeting by means of audio,
audio and visual, or electronic communication is present at the meeting and part of the
quorum.
Lack of quorum - If a quorum is not present within 30 minutes after the time appointed for the
meeting, the meeting is adjourned to the same day in the following week at the same time and
place or to such other date, time, and place as the directors may appoint. If at the adjourned
meeting, a quorum is not present within 30 minutes after the time appointed for the meeting,
the Shareholders or their proxies and their corporate representatives present are a quorum.
5 Adjourned and Dissolved Meetings
Chairperson’s discretion – The chairperson at the meeting may, at any time during a
meeting at which a quorum is present, adjourn the meeting (including to a later time at the
same meeting or to an adjourned meeting).
Adjourned meetings – No business can be transacted at an adjourned meeting other than
the unfinished business from the original meeting. A notice of meeting need not be prepared
for the adjourned meeting provided that the adjourned meeting is held within 30 days of the
original meeting.
Unruly meetings – The chairperson at the meeting may adjourn or dissolve the meeting if in
their opinion the meeting has become so unruly, disorderly or protracted that the business of
the meeting cannot be conducted in a proper and orderly manner. Such decision is at the sole
discretion of the chairperson of the meeting and reasons for the decision need not be given.
Unfinished business – If a meeting is to be dissolved and there is an item of unfinished
business which is yet to be voted on, then the chairperson of the meeting may direct that such
item(s) be put to the vote by a poll without further discussion.
6 Voting
Number of votes - Subject to any applicable voting restrictions or rights or restrictions for the
time being attached to any Class:
on a poll every Shareholder has one vote in respect of each Share held; or
in any other case, every Shareholder has one vote.
Poll – For so long as the Company is Listed voting at a meeting of Shareholders must be
undertaken by way of a poll.
Voting at meeting – If clause 6.2 of this schedule does not apply, then unless a poll is
demanded, voting at the meeting will be by whichever of the following methods is determined
by the chairperson of the meeting:
10227024_1 16
voting by voice;
voting by show of hands;
voting by digital means; or
an appropriate combination of the above which in all cases gives each Shareholder
forming part of the quorum the opportunity to clearly indicate their assent or dissent.
Declaration by chairperson – Except where voting has been undertaken by a poll, a
declaration by the chairperson of the meeting that a resolution is carried by the requisite
majority is conclusive evidence of that fact.
Right to demand poll - At a meeting of Shareholders a poll may be demanded by:
the chairperson of the meeting;
not less than five Shareholders having the right to vote at the meeting;
a Shareholder or Shareholders representing not less than 10% of the total voting
rights of all Shareholders having the right to vote at the meeting; or
a Shareholder or Shareholders holding Shares that confer a right to vote on the
resolution and on which the aggregate amount paid up is not less than 10% of the
total amount paid up on all Shares that confer that right.
When poll may be demanded - A poll may be demanded either before or after the vote is
taken on a resolution. The demand for a poll may be withdrawn.
Poll result - The chairperson of the meeting may declare the result of a poll either at or after
the meeting when the outcome is known (regardless of whether all votes have been counted).
Joint Shareholders - Where two or more persons are registered as joint Shareholders, the
vote of the person named first in the share register and voting on a matter must be accepted
to the exclusion of the votes of the other joint holders.
Chairperson's casting vote - The chairperson of the meeting of Shareholders is not entitled
to a casting vote.
Record date for voting – The Board may determine in a notice of meeting for the purpose of
voting at that meeting that only those Shareholders as at 5pm on a day not more than 2
working days before the date of the meeting may vote at the meeting and only in respect of
the Shares held in their name at that time.
7 Proxies
Right to vote - A Shareholder may exercise the right to vote at a meeting either by being
present in person or by proxy.
Rights of proxy – A proxy for a Shareholder is entitled to attend and be heard at the meeting
and to demand or join in demanding a poll, as if the proxy were the Shareholder.
Notice of appointment - A proxy must be appointed by notice in writing signed by the
appointing Shareholder or, in the case of an electronic notice, sent or submitted by the
Shareholder. The notice must state whether the appointment is for a particular meeting or for
a specified term.
10227024_1 17
Multiple proxies - A Shareholder may appoint more than 1 proxy for a particular meeting,
provided that more than 1 proxy is not appointed to exercise the rights attached to a particular
Share held by the Shareholder.
Production of notice - No appointment of a proxy is effective in relation to a meeting unless a
copy of the notice of appointment is received by the Company at its registered office, or at
such other address as is specified for that purpose in the notice convening the meeting, not
later than 48 hours prior to the start of the meeting.
Proxy form with notice of meeting – A proxy form must be sent by the Company with each
notice of meeting.
8 Postal Votes
Board discretion – The Board may at its discretion determine that Shareholders may
exercise the right to vote at a meeting by casting postal votes. Where postal votes are
permitted, clause 7 of the first schedule of the Companies Act shall apply together with any
other procedures determined by the Board. Postal votes (whether submitted electronically or
not) must be received by the Company at least 48 hours prior to the meeting.
9 Minutes
Minutes must be kept – The Board must ensure that minutes are kept of all proceedings at
meetings of Shareholders.
Minutes are evidence – Minutes which have been signed correct by the chairperson of the
meeting are prima facie evidence of the proceedings.
10 Shareholder Proposals
Shareholder proposals - A Shareholder may give written notice to the Board of a matter
which the Shareholder proposes to raise for discussion or resolution at the next meeting of
Shareholders at which the Shareholder is entitled to vote. The provisions of clause 9 of
schedule 1 to the Companies Act apply to any notice given pursuant to this clause.
11 Corporate Representative
Appointment of representative - A body corporate which is a Shareholder may appoint a
representative to attend a meeting of Shareholders on its behalf in the same manner as that in
which it could appoint a proxy.
12 Other proceedings
Chairperson may regulate – Except as provided in this schedule, and subject to this
Constitution, the chairperson of a meeting of Shareholders may regulate the proceedings at
the meeting.
10227024_1 18
SCHEDULE TWO
Proceedings at meetings of Board
1 Chairperson
Chairperson - The Directors may elect one of their number as chairperson of the Board.
Term of office - The Director elected as chairperson holds that office until he or she dies or
resigns or a new chairperson is elected by the Board.
Election for particular meetings - If no chairperson is elected, or if at a meeting of the Board
the chairperson is not present within 30 minutes after the time appointed for the
commencement of the meeting, the Directors present may choose one of their number to be
chairperson of the meeting.
2 Notice of Meeting
Convening of a meeting - A Director or, if requested by a Director to do so, an employee of
the Company, may convene a meeting of the Board by giving notice in accordance with this
clause.
Notice of meeting – The notice of meeting must be a written notice that includes the date,
time and place of the meeting and the matters to be discussed. The notice of meeting may be:
Delivered by hand to a Director;
Sent to the address of a Director; or
Emailed to the email address of a Director.
The address or email address of a Director that is to be used is the most recent address or
email address which the Director has previously provided to the Company for communication
purposes. If an address or email address has not previously been provided, the notice of
meeting may be sent to such Director’s last place of employment or residence that is known to
the Company.
Period of notice - Not less than two calendar days’ notice of a meeting must be given to each
Director. However if the chairperson believes it is necessary to convene a meeting of the
Board as a matter of urgency, no less than two hours’ notice may be given and a written
notice of meeting may be dispensed with provided that all Directors are contacted by
telephone as soon as reasonably practicable and advised of the time and place of the meeting
and the matters to be discussed.
Absent directors – Notice need not be given to a Director who is ordinarily resident in New
Zealand but at the time of the notice is absent from New Zealand. However if such Director
has an alternate director, then notice must be given to that person.
Waiver of notice irregularity - An irregularity in the notice is waived if all Directors entitled to
receive the notice attend the meeting without protest as to the irregularity or if all Directors
entitled to receive notice agree (whether before, during or after the meeting) to the waiver.
3 Forms of Meeting
Methods of Meeting - A meeting of the Board may be held by a number of the Directors who
together constitute a quorum:
being assembled together at the place, date, and time appointed for the meeting;
10227024_1 19
by means of audio, or audio and visual, communication by which all Directors can
simultaneously hear each other throughout the meeting; or
by a combination of the above methods.
Written resolution in lieu of meeting - A resolution in writing, signed or assented to by a
majority of the Directors then entitled to receive notice of a Board meeting is as valid and
effective as if it had been passed at a meeting of the Board duly convened and held provided
those Directors would constitute a quorum for consideration of the resolution at a meeting of
the Board. Any such resolution may consist of several documents (including PDF
counterparts) in similar form, each signed by one or more Directors. A copy of any such
resolution must be entered in the records of the Company. The Company will within seven
days after any resolution is passed in accordance with this clause, send a copy of the
resolution to each Director who has not signed or assented to the resolution.
4 Quorum
Quorum - A quorum for a meeting of the Board is a majority of Directors. No business may be
transacted at a meeting of Directors if a quorum is not present.
Alternate Director may be included – In accordance with this Constitution an alternate
director present at a meeting may be included for the purposes of establishing a quorum.
Lack of a quorum - If a quorum is not present within 30 minutes after the time appointed for
the meeting, the chairperson will adjourn the meeting to another time within the next three
days at the same venue. Directors present at the adjourned meeting are deemed to constitute
a quorum.
5 Voting
Voting - Every Director has one vote. A Director must not vote where that Director is not
permitted to vote.
Chairperson - The chairperson does not have a casting vote.
Majority - A resolution of the Board is passed if it is agreed to by all Directors present without
dissent, or if a majority of the votes cast on it are in favour of the resolution. Any Director who
abstains from voting shall not be deemed to have voted for or against the matter being voted
on and accordingly shall not be required to execute any director’s certificates required under
the Act.
6 Minutes
Minutes - The Board must ensure that minutes are kept of all proceedings at meetings of the
Board. Minutes that have been signed correct by the chairperson of the meeting, or by the
chairperson of the next meeting, are prima facie evidence of the proceedings.
7 Other Proceedings
Procedure - Except as provided in this schedule the Board may regulate its own procedure.
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