JB Hi-Fi Limited ABN

Transcription

1 JB Hi-Fi Limited ABN Prospectus for the Offer of 86,592,912 Shares in JB Hi-Fi Limited Joint Lead Managers: Goldman Sachs JBWere Pty Ltd Macquarie Equity Capital Markets Limited

2 This Prospectus is dated Thursday, 18 September 2003 and was lodged with ASIC on Thursday, 18 September Neither ASIC nor ASX take any responsibility for the content of this Prospectus. JB Hi-Fi will apply for admission to the official list of ASX and quotation of the Shares on ASX within seven days after the date of this Prospectus. No securities will be sold or issued on the basis of this Prospectus later than 13 months after the date of the Prospectus. You should read this Prospectus in its entirety before deciding to complete and lodge an Application Form. If you have any questions you should seek professional advice from your stockbroker, accountant or financial adviser. The Corporations Act prohibits JB Hi-Fi from processing applications received until after the Exposure Period. The Exposure Period is the seven day period from the date of this Prospectus and may be extended by ASIC by up to a further seven days. The purpose of the Exposure Period is to enable the Prospectus to be examined by market participants prior to the raising of funds. That examination may result in the identification of deficiencies in the Prospectus, in which case any application received may need to be dealt with in accordance with section 724 of the Corporations Act. No preference will be conferred on applications received during the exposure period. The offer of securities under this Prospectus does not constitute a public offer in any jurisdiction other than Australia and New Zealand. This Prospectus does not constitute an offer to any person to whom, or an offer in any place in which, it would be unlawful to make such an offer. The distribution of this Prospectus in jurisdictions outside Australia and New Zealand may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. No distribution or sale in the United States Neither this Prospectus nor the accompanying Application Form may be sent to investors in the United States or otherwise distributed in the United States. Shares may not be sold in the United States, except that the Joint Lead Managers may sell Shares offered under this Prospectus in the United States in accordance with United States securities laws. The Offer constituted by this Prospectus in electronic form is available only to persons receiving this Prospectus in electronic form within Australia or New Zealand. Disclaimer No person is authorised to give any information or make any representation in connection with the Offer which is not contained in this Prospectus. Any information or representation not contained in this Prospectus may not be relied on as having been authorised by JB Hi-Fi or the Directors. Exposure Period This Prospectus will be made generally available to Australian and New Zealand residents during the Exposure Period by being posted on the Company s Internet site at A paper copy of this Prospectus will be available to Australian and New Zealand residents on request to the Registry or one of the Joint Lead Managers and Joint Bookrunners during the Exposure Period. Applications under this Prospectus received during the Exposure Period will not be processed until after the expiry of the Exposure Period. No preference will be conferred on Applications received during the Exposure Period. Electronic Prospectus This Prospectus may be viewed online at The Prospectus is only available online to residents in Australia or New Zealand. Persons who access the electronic version of this Prospectus should ensure that they download and read the entire Prospectus. A paper copy of this Prospectus is available free of charge to any person in Australia or New Zealand by telephoning the JB Hi-Fi Share Offer Information Line on (Australia) or (New Zealand) during the period of the Offer. Privacy If you apply for Shares, you will provide personal information to the Vendor Shareholders, JB Hi-Fi and the Registry. The Vendor Shareholders, JB Hi-Fi and the Registry collect, hold and use your personal information in order to assess your Application, service your needs as an investor, provide facilities and services that you request and carry out appropriate administration. Company and tax law requires some of the information to be collected. If you do not provide the information requested, your Application may not be able to be processed efficiently, or at all. The Vendor Shareholders, JB Hi-Fi and the Registry may disclose your personal information for purposes related to your investment to their agents and service providers including those listed below or as otherwise authorised under the Privacy Act 1988: the Joint Lead Managers in order to assess your Application; the Registry for on-going administration of the register; and the printers and the mailing house for the purposes of preparation and distribution of statements and for handling of mail. Under the Privacy Act 1988, you may request access to your personal information held by (or on behalf of) JB Hi-Fi, the Vendor Shareholders or the Registry. You can request access to your personal information by telephoning or writing to the Vendor Shareholders or JB Hi-Fi through the Registry as follows: Computershare Investor Services Pty Limited: GPO Box 2975, Melbourne, VIC (toll free) (for international callers) Definitions and abbreviations Defined terms and abbreviations used in this Prospectus are explained in the Glossary at the end of this document. Financial amounts The financial amounts in this Prospectus are expressed in Australian dollars unless stated otherwise. Contents Chairmans Letter 1 Investment Overview 3 2 Details of the Offer 8 3 Industry Overview 15 4 Business Profile 19 5 Board and Management 27 6 Financial Information 32 7 Risk Factors 40 8 Investigating Accountants Report 44 9 Report on Review of Directors Forecasts Additional Information 66 Glossary 79 Application Forms Corporate Directory

3 Chairman s Letter 18 September 2003 Dear Investor On behalf of the Directors, I have great pleasure in offering you the opportunity to become a shareholder in JB Hi-Fi. The business of JB Hi-Fi was founded in 1974 as a discount retailer of hi-fi equipment and recorded music with a single store in the Melbourne suburb of East Keilor. Since that time, the Company has grown to 26 stores, with sites located in most Australian States. JB Hi-Fi is now one of Australia s largest and fastest growing home entertainment product retailers featuring Consumer Electronics, car sound systems, Music and DVDs. The Company is positioned as a discounter of leading brands, sold in an informal environment by knowledgeable customer oriented staff. JB Hi-Fi operates from stand alone destination sites and shopping centre locations. The cornerstone of the Company s success has been, and will continue to be, its ability to consistently offer low prices. It is able to do this through the scale of its operations, relatively high stock turns and low cost operating structure. The Company expects it will continue to benefit from the high growth product categories of DVD, home theatre, wide-screen TVs and digital cameras. The maturation of the 11 stores opened in the last two years and the planned opening of stores in new and existing markets is expected to contribute to strong earnings growth. Under this Prospectus 86.6 million Shares are being offered for sale by the Vendor Shareholders, representing approximately 85% of the undiluted issued Shares of JB Hi-Fi. Based on the midpoint of the Indicative Price Range ($1.45), approximately $125 million will be raised under the Offer. The proceeds from the Offer, net of applicable costs, will be received by the Vendor Shareholders. Following the Offer, interests associated with current and former management of the business will own the remaining issued Shares (approximately 15% of the undiluted issued Shares) in JB Hi-Fi. This Prospectus contains detailed information on JB Hi-Fi and its business, and I encourage you to read it carefully before making your investment decision. On behalf of the Directors, I commend this investment opportunity to you and look forward to welcoming you as a shareholder. Yours sincerely Patrick Elliott Chairman Prospectus JB Hi-Fi 1

4 Key dates Retail Offer opens Wednesday, 1 October 2003 Retail Offer closes 5:00pm, Friday, 17 October 2003 Institutional Offer opens Monday, 20 October 2003 Institutional Offer closes 6:00pm, Tuesday, 21 October 2003 Final Price and basis of Share allocation announced Wednesday, 22 October 2003 Shares expected to commence trading on ASX (on a conditional and deferred settlement basis) Thursday, 23 October 2003 Retail and Institutional Settlement Monday, 27 October 2003 Transfer of Shares to successful Applicants and last day of conditional trading Monday, 27 October 2003 Expected despatch of holding statements Wednesday, 29 October 2003 Shares expected to commence trading on ASX on a normal settlement basis Thursday, 30 October 2003 Expected date of settlement of all trades executed on a deferred settlement basis Tuesday, 4 November 2003 All times are Melbourne time. The dates and times are indicative only. JB Hi-Fi and the Vendor Shareholders reserve the right, in consultation with the Joint Lead Managers, to vary the dates and times, which includes closing the Offer early, without notice to any recipient of the Prospectus or any Applicant for Shares. Retail Applicants are advised to lodge their Applications as early as possible after the Offer opens. Applications for Offer Shares will not be accepted after the Closing Date (as varied by the Vendor Shareholders and Joint Lead Managers). Key Offer Statistics Indicative Price Range $1.35 to $1.55 Market capitalisation 1 $148.1 million Pro forma enterprise value 1 $175.3 million Earnings per share (basic) cents PE multiple 1, times Dividend per share (fully franked) cents Dividend yield (fully franked) 1,2 5.0% EBITDA multiple 1,2 7.4 times EBIT to interest ratio times Fixed charge cover ratio times Pro forma net assets at 30 June 2003 $38.6 million Pro forma net assets per share at 30 June cents 1 Based on the midpoint of the Indicative Price Range. 2 Based on 2004 forecasts. 3 Calculated as the sum of EBIT, Operating Lease Expense and Rent Expense divided by the sum of Interest Expense, Operating Lease Expense and Rent Expense. 2 JB Hi-Fi Prospectus

5 1. Investment Overview Prospectus JB Hi-Fi 3

6 1 Investment Overview 1.1 Overview of JB Hi-Fi The business of JB Hi-Fi was founded in 1974 as a discount retailer of hi-fi equipment and recorded music with a single store in the Melbourne suburb of East Keilor. Since that time, the business has grown to 26 stores, with sites located mainly in Melbourne and Brisbane. The Company has commenced a store roll-out programme in Sydney and other major Australian cities. JB Hi-Fi is a specialty retailer of home entertainment products, focusing on: Consumer Electronics, which includes wide-screen, digital and plasma TVs, hi-fi, DVD players, home theatres, digital still and video cameras and accessories; car sound systems (audio and visual); and Music and DVDs. The Company is positioned as a retailer of leading brands, offering a broad range of products at discount prices. JB Hi-Fi primarily operates from stand alone destination sites and shopping centre locations. 1.2 Key investment features JB Hi-Fi has a number of attributes that the Directors believe make it a compelling investment proposition: attractive growth profile, supported by: focused exposure to the high growth home entertainment product market, such as DVD players and digital still cameras, where sales in Australia grew by 87% and 151% respectively in the 12 months to 30 June 2003; maturing of recently opened stores. Sales from stores opened in the 2001 financial year grew by 18.4% in the 12 months to 30 June 2003, compared to sales growth of 12.5% for stores opened prior to 30 June 2000; and continued roll-out of stores in new and existing geographic markets, new store formats (such as Music and DVD Superstores) and shopping centre locations; solid track record of growth and profitability: comparative store sales growth of 14.2% (for the 15 stores opened for the full year ending 30 June 2002) in the 12 months to 30 June 2003; and a compound annual growth rate of 51.6% in sales and 70.7% in EBIT for the two years to 30 June 2003; experienced management team with a proven track record in high growth segments of the retail sector; positive cashflows driven by stock turns greater than five times per annum and low capital investment requirements, enabling a fully funded store roll-out programme; attractive forecast dividend yield of 5% at the midpoint of the Indicative Price Range in 2004 (fully franked); and sustainable competitive advantage, supported by: low cost and large scale operations that are driven, in large measure, by sales per square metre of selling space of around $25,000*; discount positioning which the Directors believe provides protection from the retail economic cycle; * Year ended 30 June JB Hi-Fi Prospectus

7 ability to offer leading brands in each product category through strong supplier relationships; specialist image through a carefully targeted focus on home entertainment products; and distinctive branding and prominent retail locations. 1.3 Business strategy JB Hi-Fi offers one of Australia s largest ranges of home entertainment products at discounted prices, positioned to appeal to both enthusiasts and price sensitive customers. The Company maintains a low cost operating model designed to underpin competitive pricing at the store level. JB Hi-Fi s strategic initiatives for growth include: targeting high growth segments of the home entertainment market; ensuring recently opened stores mature rapidly and profitably; continuing to improve the efficiency and profitability of existing stores; opening new stores. The Company has opened 16 new stores over the last three years, and has plans to continue expanding with at least five new stores forecast to open in the 2004 financial year. JB Hi-Fi has a strong store representation in the Melbourne and Brisbane markets, which it will continue to fill out, and intends to accelerate its focussed store roll-out in Sydney, Adelaide and Perth over the next three years; and opening new format stores, such as the Music and DVD Superstores successfully established in Perth and Adelaide. 1.4 Selected financial information The table below is a summary of JB Hi-Fi s historical financial information for the financial years ended 30 June 2001, 2002 and 2003 and the forecast financial information to 30 June This information is intended as a summary only. More detailed financial information can be found in Section June June June June 2004 Historical pro forma Historical pro forma Historical pro forma Forecast Sales ($ 000) 154, , , ,291 EBITDA ($ 000) 7, ,633 18,051 23,796 EBIT ($ 000) 5,745 11,593 16,732 21,306 Net profit after tax ($ 000) 13, Before significant items as detailed in Table 6.1 Statement of Financial Performance. Prospective investors should review the financial forecasts in conjunction with the assumptions on which the forecasts are based and the sensitivity of the financial forecasts to changes in variables. 1.5 Dividend policy Subject to the Forecast being achieved, the Directors expect that the Company will pay fully franked dividends totalling 7.2 cents per Share with respect to the year ending 30 June This represents a yield of 5% based on the mid-point of the Indicative Price Range and a payout ratio of approximately 55%. This is expected to comprise an interim dividend of 3.6 cents per share and a final dividend of 3.6 cents per share. The Directors will endeavour to provide shareholders with fully franked dividends in future years, and the Company currently intends to maintain a dividend payout ratio of 50% to 60% of NPAT following the Forecast Period. However, the Directors can give no assurance as to the future dividend policy, the extent of future dividends, nor the franking status as these will depend upon the actual levels of profitability, capital requirements and taxation position of JB Hi-Fi at the relevant time. Prospectus JB Hi-Fi 5

8 1 Investment Overview continued 1.6 Risks There are a number of factors, both specific to JB Hi-Fi and of a general nature, which may affect the future operating and financial performance of the Company and the outcome of an investment in JB Hi-Fi. There can be no guarantee that JB Hi-Fi will achieve its stated objectives, that forecasts will be met or that forward looking statements will be realised. Before deciding to invest in the Company, potential investors should read the entire Prospectus and, in particular, should consider the assumptions underlying the prospective financial information and the risk factors that could affect the financial performance of JB Hi-Fi. These risks are set out in Section 7 of this Prospectus. 1.7 The Offer This Prospectus contains information on the Offer by the Vendor Shareholders for the sale of 86,592,912 Shares. The Offer comprises: A Retail Offer, open to members of the general public, MPET Unitholders, JB Hi-Fi employees and Broker Firm Applicants with a registered address in Australia or New Zealand. Under the Retail Offer, investors must apply for a dollar value of Shares, with a minimum amount of $2,000, and thereafter in multiples of $100; and An Institutional Offer, which is open to certain Australian and international institutional investors. Full details of the Offer are set out in Section 2. You should read this Prospectus in its entirety before deciding to complete and lodge an Application Form. Potential investors are encouraged to submit their Application Forms as early as possible as the Offer may be closed before the indicated Closing Date without prior notice. 6 JB Hi-Fi Prospectus

9 Store locations JB Hi-Fi has opened 16 new stores over the last three years, and has plans to continue expanding with at least five new stores forecast to open in the 2004 financial year. JB Hi-Fi has a strong store representation in the Melbourne and Brisbane markets, which it will continue to fill out, and intends to accelerate its focussed store roll-out in Sydney, Adelaide and Perth over the next three years. Kedron Indooroopilly City MacGregor Capalaba Parramatta Northern Territory Queensland Bankstown Western Australia South Australia Brisbane Gold Coast Perth Adelaide New South Wales Newcastle Sydney Canberra Australian Capital Territory Victoria Melbourne Tasmania East Keilor Preston Highpoint Heidelberg City Camberwell Ringwood City (Duty Free) Prahran Nunawading Brighton Chadstone Knox Dandenong Frankston Prospectus JB Hi-Fi 7

10 2. Details of the Offer 8 JB Hi-Fi Prospectus

11 2 Details of the Offer 2.1 Key dates Retail Offer opens Wednesday, 1 October 2003 Retail Offer closes 5:00pm, Friday, 17 October 2003 Institutional Offer opens Monday, 20 October 2003 Institutional Offer closes 6:00pm, Tuesday, 21 October 2003 Final Price and basis of Share allocation announced Wednesday, 22 October 2003 Shares expected to commence trading on ASX (on a conditional and deferred settlement basis) Thursday, 23 October 2003 Retail and Institutional Settlement Monday, 27 October 2003 Transfer of Shares to successful Applicants and last day of conditional trading Monday, 27 October 2003 Expected despatch of holding statements Wednesday, 29 October 2003 Shares expected to commence trading on ASX on a normal settlement basis Thursday, 30 October 2003 Expected date of settlement of all trades executed on a deferred settlement basis Tuesday, 4 November 2003 All times are Melbourne time. The dates and times are indicative only. JB Hi-Fi and the Vendor Shareholders reserve the right, in consultation with the Joint Lead Managers, to vary the dates and times, which includes closing the Offer early, without notice to any recipient of the Prospectus or any Applicant for Shares. Retail Applicants are advised to lodge their Applications as early as possible after the Offer opens. Applications for Offer Shares will not be accepted after the Closing Date (as varied by the Vendor Shareholders and Joint Lead Managers). 2.2 Description of the Offer Investors are invited to apply for a total of 86,592,912 Offer Shares. All of these Shares are offered for sale by the Vendor Shareholders and all proceeds, net of costs of the Offer, will be received by the Vendor Shareholders. None of the proceeds of the Offer will be retained by the Company. On completion of the Offer, the Shares offered under this Prospectus will represent approximately 85% of the issued capital of JB Hi-Fi. At the Indicative Price Range of $1.35 to $1.55 per Share, the gross proceeds received by the Vendor Shareholders under the Offer would be between $117 million and $134 million. The Application Monies are payable in full on Application. No stamp duty or brokerage is payable by Applicants. Stamp duty payable on the sale of the Shares (if any) will be borne by the Vendor Shareholders. All Application Monies will be held on trust for Applicants until the Shares are transferred or, if the Shares are not transferred, until the Application Monies are returned to the Applicants. 2.3 Purpose of the Offer The purpose of the Offer is to: allow the Vendor Shareholders to realise part or all of their investments; achieve listing on ASX, broaden the shareholder base and provide a liquid market for shares in JB Hi-Fi; provide JB Hi-Fi with on-going access to liquid capital markets to improve capital management flexibility; and increase the flexibility of management and employee incentive schemes that will assist JB Hi-Fi in attracting and retaining quality employees. Prospectus JB Hi-Fi 9

12 2 Details of the Offer continued The net proceeds raised from the sale of the Offer Shares will be passed to the Vendor Shareholders and will not be received by the Company. The costs of the Offer will be borne by the Vendor Shareholders in proportion to their respective sell down of Shares in the Offer. (See Section ) 2.4 Shareholders and Option Holders The ownership structure of JB Hi-Fi immediately prior to and at completion of the Offer is shown in the table below: Pre-Offer At Completion of the Offer Shares % Shares % Interests associated with MDIL 60,629, % 0.0% Australian Ventures LLC 4,727, % 0.0% BancBoston 20,000, % 0.0% Interests associated with previous owners of the business 9,445, % 8,609, % Current management 6,518, % 6,518, % Non-Executive Directors 800, % 400, % New shareholders pursuant to the Offer 86,592, % Total 102,120, % 102,120, % 1 Patrick Elliott intends to apply for Shares under the Offer which are not included in this figure. 2 Options over 2,025,000 unissued Shares will exist at the conclusion of the Offer. Details of the Options are set out in Section Except for 609,088 Shares held by interests associated with the previous owners of the business, all Existing Shareholders who are retaining part or all of their shareholdings have entered into voluntary escrow arrangements relating to the Shares they will own after the Offer. They have agreed with the Joint Lead Managers that they will not dispose of any such Shares until the Company has reported its audited financial results for the year ended 30 June Details of these agreements are set out in Section Offer pricing Maximum Retail Price $1.55 per Share Indicative Price Range $1.35 to $1.55 per Share Retail Offer Price Lower of Final Price and Maximum Retail Price of $1.55 The Final Price will be determined by way of an institutional bookbuild and an allocation process managed by the Joint Lead Managers. Successful Applicants in the Retail Offer will pay the lower of the Maximum Retail Price and the Final Price ( Retail Offer Price ). Successful bidders in the Institutional Offer will pay the Final Price. While an Indicative Price Range of $1.35 to $1.55 per Share has been established, the Vendor Shareholders, in consultation with the Joint Lead Managers and the Company, reserve the right to set the Final Price above, below or within the Indicative Price Range. The Indicative Price Range may be varied by the Vendor Shareholders in consultation with the Joint Lead Managers and the Company at any time. The Final Price is expected to be announced on Wednesday, 22 October 2003 and will be published in certain national and regional newspapers. 2.6 Structure of the Offer The Offer will comprise two parts: a Retail Offer, which is open to members of the general public, MPET Unitholders, JB Hi-Fi employees and Broker Firm Applicants with a registered address in Australia or New Zealand; and an Institutional Offer, which is open to certain Australian and international institutional investors. The Vendor Shareholders and the Joint Lead Managers, in consultation with JB Hi-Fi, will determine the allocation of Shares between the Retail Offer and the Institutional Offer. 10 JB Hi-Fi Prospectus

13 All Shares being offered under this Prospectus rank equally with each other and will rank equally with Existing Shares. The Offer will not be underwritten. The Vendor Shareholders, the Company and the Joint Lead Managers have entered into an Offer Management Agreement in respect of the management of the Retail Offer and the Institutional Offer. Once the Final Price has been determined, the Joint Lead Managers will be obliged to provide settlement support in respect of successful bids in the Institutional Offer under a completion support agreement. The Offer Management Agreement and associated completion support arrangements set out a number of circumstances under which the Joint Lead Managers may terminate the agreement and the completion support obligations. A summary of certain terms of the agreement and associated completion support arrangements, including the termination provisions, is set out in Section How to apply for Shares in the Retail Offer To apply for Shares under the Retail Offer you must complete the Application Form attached to this Prospectus in accordance with the instructions on that form. Applicants are required to nominate the Australian dollar amount they wish to invest in the Retail Offer. Applicants whose Applications are accepted in full will receive the whole number of Offer Shares calculated by dividing the Application Amount by the Retail Offer Price. Where the Retail Offer Price does not divide evenly into the Application Amount, the number of Offer Shares to be allocated will be rounded down to the nearest whole number of Offer Shares. In this circumstance, surplus Application Monies will not be returned to Applicants and will become an asset of the Vendor Shareholders. Applications must be for a minimum amount of $2,000. Application Amounts in excess of the minimum amount must be in multiples of $100. There is no maximum amount which may be applied for under the Retail Offer. However, JB Hi-Fi and the Joint Lead Managers reserve the right to treat Applications in excess of $100,000 as part of the Institutional Offer. The Retail Offer is open to all members of the public who are resident in Australia or New Zealand. However, priority will be given to MPET Unitholders and JB Hi-Fi employees over general public Applicants. The Company and the Vendor Shareholders reserve their right, in consultation with the Joint Lead Managers, to allocate no Shares to general public Applicants in the event of a scaleback of Applications under the Offer. Applications may be made, and will only be accepted, on the Application Form attached to this Prospectus or in its paper copy form as downloaded in its entirety from The Application Form must be accompanied by a cheque in Australian dollars drawn on an Australian branch of an Australian bank for the value of the Shares for which application is made. All cheques must be made payable to JB Hi-Fi Limited Share Offer and crossed not negotiable. Sufficient cleared funds must be held in your account as cheques returned unpaid may not be re-presented and may result in your Application being rejected. Completed Application Forms (except for Broker Firm Applications) and accompanying cheques must be mailed or delivered to the Registry as set out below: Mailing address: Computershare Investor Services Pty Limited GPO Box 52, Melbourne, VIC 8060 Delivery address: Computershare Investor Services Pty Limited Level 12, 565 Bourke Street, Melbourne VIC 3000 Regardless of the method of lodgment, all Applications must be received by the Registry no later than 5:00pm on Friday, 17 October 2003, unless the dates and times are varied by the Company and the Vendor Shareholders, in consultation with the Joint Lead Managers. Prospectus JB Hi-Fi 11

14 2 Details of the Offer continued The Company and the Vendor s reserve their right, in consultation with the Joint Lead Managers, to close the Offer at an earlier date or to extend the Offer at their absolute discretion without prior notice. Potential investors are therefore encouraged to submit their Application Forms as early as possible. It is not proposed to pay stamping fees to brokers on general public or priority Applications under the Offer. You should read this Prospectus in its entirety before deciding to complete and lodge an Application Form. 2.8 Broker Firm Applications If you have received a firm allocation of Offer Shares from your broker you should obtain a copy of this Prospectus from that broker and apply for Offer Shares using the Application Form included at the back of that Prospectus. Applicants who receive a firm allocation should make cheques payable to the broker from whom the firm allocation of Offer Shares was received, or as otherwise instructed by the broker. In addition, completed Application Forms should be returned to the broker, unless otherwise instructed by the broker. 2.9 Allocation of Shares to Retail Applicants The Company reserves the right to allocate Offer Shares in full for any Application, to allocate any lesser number, or to decline any Application. MPET Unitholders and employees of JB Hi-Fi will be given priority in allocations over general public Applicants. The Company and the Vendor Shareholders reserve their right, in consultation with the Joint Lead Managers, to allocate no Shares to general public Applicants in the event of a scaleback of the Offer. Where no allocation is made or the value of Offer Shares allocated is less than the value for which application is made, subject to Section 2.7, surplus Application Monies will be returned to the Applicant as soon as practicable. Interest will not be paid on any monies refunded and any interest earned on Application Monies pending the allocation or refund will become an asset of the Vendor Shareholders. After the Offer Shares are transferred, the balance of monies held in the special purpose account will be payable to the Vendor Shareholders The Institutional Offer The Vendor Shareholders and JB Hi-Fi are inviting certain Australian and international institutional investors to bid for Offer Shares in the Institutional Offer. The Institutional Offer will be conducted using a bookbuild process managed by the Joint Lead Managers, who will be Joint Bookrunners. Full details of how to participate, including bidding instructions, will be provided to participants by the Joint Lead Managers. Participants can only bid into the book for Offer Shares through the Joint Lead Managers. They may bid for Offer Shares at specific prices or at the Final Price. Participants may bid above, within or below the Indicative Price Range, which is $1.35 to $1.55 per Offer Share. The Indicative Price Range may be varied at any time by the Vendor Shareholders, in consultation with JB Hi-Fi and the Joint Lead Managers. The bookbuild period is expected to commence at 9:00am AEST on Monday, 20 October 2003 and to end at 6:00pm AEST on Tuesday, 21 October 2003, unless these times and dates are varied by the Vendor Shareholders and the Company in consultation with the Joint Lead Managers. Bids may be amended or withdrawn at any time up to the close of the bookbuild period. Bids can be accepted or rejected by the Vendor Shareholders or the Joint Lead Managers in whole or in part, without further notice to the bidder. Acceptance of a bid will give rise to a binding contract that is conditional on quotation of the Offer Shares on ASX. Subject to this condition being met and payment of settlement funds by the Applicant, JB Hi-Fi expects that the Offer Shares will be transferred to successful Applicants on Monday, 27 October 2003 (see Sections 2.11 and 10.9 for a discussion of conditional and deferred settlement trading). All successful institutional bidders will pay the Final Price. 12 JB Hi-Fi Prospectus

15 The Final Price The bookbuild process will be used to determine the Final Price. The Final Price will be determined by the Vendor Shareholders and the Joint Lead Managers, in consultation with JB Hi-Fi. It is expected that the Final Price and basis of Share allocation will be determined and announced on Wednesday, 22 October Allocation policy in the Institutional Offer The allocation of Shares amongst bidders in the Institutional Offer will be determined by the Vendor Shareholders and the Joint Lead Managers, in consultation with, and having regard to, the reasonable requests of the Company. There is no assurance that any investor lodging a bid in the Institutional Offer will be allocated any Shares or the number of Shares for which it has bid. The initial determinant of the allocation of Shares in the Institutional Offer will be the Final Price. Bids lodged at prices below the Final Price will not receive an allocation of Shares. The Vendor Shareholders and the Joint Lead Managers, in consultation with the Company, will be responsible for determining the basis for allocations under the Institutional Offer at their absolute discretion ASX listing and conditional and deferred settlement trading JB Hi-Fi will apply for admission to the official list of ASX and quotation of the Shares on ASX within seven days after the date of this Prospectus. All contracts formed on acceptance of Applications under the Retail Offer and bids in the Institutional Offer will be conditional on quotation of the Shares on ASX. If the Shares are not admitted to quotation within three months after the date of this Prospectus, Application Monies will be returned to the Applicant as soon as practicable (without interest). It is expected that trading of the Shares on ASX will commence on a conditional and deferred settlement basis on or about Thursday, 23 October 2003 and the Offer Shares will be transferred to successful Applicants on Monday, 27 October Deferred settlement trading will continue until the despatch of holding statements on or about Wednesday, 29 October It is expected that trading on a normal settlement basis will commence on Thursday, 30 October Details of the Final Price, Retail Offer Price and basis of Share allocations will be advertised in certain national and regional newspapers on Thursday, 23 October 2003 or can be confirmed by calling the JB Hi-Fi Share Offer Information Line on (Australia) or (New Zealand). Applicants are responsible for confirming their allocation before trading in Shares. Anyone who sells Shares before receiving confirmation of their allocation does so at their own risk. See Section 10.9 for further information in relation to the conditional and deferred settlement trading of the Shares, and how to confirm allocations before trading Shares Electronic Prospectus This Prospectus may be viewed online at Applicants using the Application Form attached to the electronic version of this Prospectus must be located in Australia or New Zealand. Persons who receive the electronic version of this Prospectus should ensure they download and read the entire Prospectus. A paper copy of this Prospectus will be provided free of charge to any person who requests a copy by contacting the Registry or the Joint Lead Managers, by mail or in person, during the Offer Period. Prospectus JB Hi-Fi 13

16 2 Details of the Offer continued 2.13 CHESS and holding statements The Company will apply to participate in CHESS, and, in accordance with the Listing Rules and the SCH Business Rules, will maintain an electronic issuer-sponsored sub-register and an electronic CHESS subregister. Following the transfer of Offer Shares to successful Applicants, shareholders will be sent an initial holding statement that sets out the number of Shares which they have been allocated. Holding statements are expected to be despatched on Wednesday, 29 October This statement will also provide details of a shareholder s identification number or, where applicable, the security holder reference number for each of the sponsored holders. It is the responsibility of Applicants to determine their allocation prior to trading Shares. Shareholders will receive subsequent statements showing changes to their shareholding in JB Hi-Fi. No share certificates will be issued Taxation The Australian taxation consequences of any investment in Offer Shares will depend upon the investor s particular circumstances. It is an obligation of investors to make their own enquiries concerning the taxation consequences of an investment in the Company. If you are in doubt as to the course you should follow, you should consult your stockbroker, lawyer, accountant or other professional adviser Enquiries If you require assistance to complete the Application Form or require additional copies of this Prospectus, you should contact the JB Hi-Fi Share Offer Information Line on (Australia) or (New Zealand) or Goldman Sachs JBWere on or Macquarie on If you are unclear in relation to any matter or are uncertain as to whether JB Hi-Fi is a suitable investment for you, you should seek professional advice from your stockbroker, lawyer, accountant or other professional adviser. 14 JB Hi-Fi Prospectus

17 3. Industry Overview Prospectus JB Hi-Fi 15

18 3 Industry Overview 3.1 Background JB Hi-Fi is a specialty retailer of home entertainment products, focussing on: Consumer Electronics, which includes wide-screen, digital and plasma TVs, hi-fi, DVD players, home theatres, digital still and video cameras and accessories; car sound systems (audio and visual); and Music and DVDs. The markets for home entertainment products are generally characterised by: strong sales growth; high levels of technological innovation; and a large number of retailers operating in a fragmented and competitive environment. Sales in the Domestic Appliance and Recorded Music Retailing market in Australia were approximately $11.2 billion for the year to 30 June While this market includes some products not supplied by JB Hi-Fi, such as white goods and non-electronic domestic appliances, the Directors believe that Consumer Electronics products are amongst the highest growth categories in this market. 3.2 Industry growth Consumer Electronics Recent growth in some of JB Hi-Fi s Consumer Electronics product categories is demonstrated in the following table which has been compiled by GfK Marketing Services based on data supplied by the majority of Australian retailers in the consumer electronics industry. GfK Australian Consumer Electronics Retail Statistics Year Ended Year Ended Products 30 June June 2003 Growth Camcorders and Video Cameras Sales in Units 124, , % Value $178,104,128 $247,887, % Average Price $1,431 $1,342 (6.2)% Colour Televisions Sales in Units 1,071,228 1,266, % Value $935,760,571 $1,134,591, % Average Price $874 $ % Audio Home Systems* Sales in Units 499, , % Value $289,255,337 $294,603, % Average Price $579 $553 (4.5)% Video Cassette Recorders Sales in Units 756, , % Value $212,008,959 $212,065, % Average Price $280 $275 (1.8)% DVD Players Sales in Units 619,619 1,160, % Value $257,058,352 $336,411, % Average Price $415 $290 (30.1)% Receivers and Amplifiers Sales in Units 86, , % Value $76,739,525 $124,203, % Average Price $890 $ % Digital Still Cameras Sales in Units 175, , % Value $143,470,000 $281,072, % Average Price $815 $636 (21.9)% * Incudes all-in-one systems and pre-packaged home theatre systems. Source: GfK Marketing Services 16 JB Hi-Fi Prospectus

19 Section 4.5 of this Prospectus sets out further analysis of the markets for the Company s other key product categories, including Music and DVDs and car sound systems which are not included in GfK Marketing Services research. 3.3 Industry drivers The Directors believe that technological change has been, and will continue to be, the single most important growth driver in the home entertainment product industry. Other key drivers include growth in disposable household income, low interest rates and low inflation. The Consumer Electronics industry has seen a series of new technologies that have helped drive significant growth in demand over the past 25 years, such as new format TVs, the VCR, video cameras, walkmans, discmans, CDs and DVDs. More recently, the change from analogue to digital technology has seen a rapid increase in new products that has resulted in customers updating appliances, including DVD and recordable DVD, digital still and video cameras, wide-screen, digital and plasma TVs and home theatre. An example of this trend is the uptake of DVD players in Australia with DVD unit sales increasing by 87% over the year to 30 June Australia s early adoption and forecast uptake of DVD technology is displayed in the following chart. International DVD-Video Hardware Ownership % of Households 140% 120% 100% 80% 60% USA UK Germany Australia France Spain 40% Italy 20% 0% 2000A 2001A 2002A 2003F 2004F 2005F NB: Penetration is number of devices in use divided by the number of households and therefore includes multiple set ownership and can exceed 100%. Above: Includes DVD players and recorders and combination TV/Video products containing DVD player, does not include DVD game consoles or DVD-ROM drives. Source: Understanding & Solutions Ltd (August 2003). Periods are January - December 3.4 Competitive landscape Given the fragmented nature of the retail industry in Australia and the focussed range of product offered by JB Hi-Fi, there are a number of competitors in each of the Company s product categories. The Directors believe that key competitors include: major national retailers, such as Harvey Norman, Woolworths (Big W, Dick Smith, Tandy) and Coles Myer (Myer Grace, Kmart, Target, Megamart); buying and marketing groups, such as Retravision, Betta Electrical, The Good Guys, Camera House and Autobarn; national specialty retailers, including Sanity Entertainment, Strathfield Group, HMV, Video Ezy and Blockbuster; and local specialist retailers. Prospectus JB Hi-Fi 17

20 3 Industry Overview continued 3.5 Industry regulation Like any company in Australia, JB Hi-Fi must comply with a range of statutory obligations in conducting its business, including the Trade Practices Act 1974 (Cwlth), Corporations Act and Workplace Relations Act 1996 (Cwlth). In addition, specific regulations that prescribe when a retailer can trade apply to JB Hi-Fi. The regulation of retail trading hours varies greatly across Australia. In some States and Territories retail trading hours are almost unregulated. In other States and Territories there are designated days for late night shopping and restrictions on trading Sundays and certain public holidays. To the extent that JB Hi-Fi operates in any State or Territory where trading hours are regulated, the Board does not believe that these regulations currently have, or will have, a material effect on its current business operations or expansion plans. 18 JB Hi-Fi Prospectus

21 4. Business Profile Prospectus JB Hi-Fi 19

22 4 Business Profile 4.1 Overview JB Hi-Fi trades from stand alone destination sites and shopping centre locations, with 26 stores in Melbourne, Brisbane, Sydney, Newcastle, Canberra, Adelaide and Perth. JB Hi-Fi is positioned as a retailer of leading brands offering a broad range at discounted prices. Sales are forecast to grow from $356 million for the year ended 30 June 2003 to $457 million in the year to 30 June JB Hi-Fi s successful business model involves four fundamental components: offering a broad range of branded home entertainment products within focussed categories, creating a specialist retail image; consistently offering low prices supported by the Company s low cost operating structure; providing an informal and informative customer service atmosphere that promotes an enjoyable and distinctive shopping experience; and attracting and retaining skilled and dedicated staff. The result is a high volume business at consistently low prices that builds exceptional customer loyalty. Due to this, and the Company s distinctive advertising campaigns, JB Hi-Fi has been able to build strong brand recognition in its established markets. The Directors believe that this successful business model provides a significant competitive advantage for JB Hi-Fi that would be difficult to replicate in the short to medium term. 4.2 History The business was started with a single store in East Keilor, Melbourne in 1974 and grew to 10 stores by the time it was acquired by the Existing Shareholders in August At the time of acquisition nine stores were located in Melbourne and one store was located in Parramatta, Sydney. Since August 2000, the Company has opened 16 new stores in Australia, 11 of which are outside of Victoria, as part of a significant inter-state expansion. A list of new stores, their date of opening and JB Hi-Fi s monthly sales is set out in the graph below. Company sales by month and timing of new store openings $million Newcastle NSW Highpoint VIC Brisbane City QLD Gold Coast QLD Frankston VIC Macgregor QLD Chadstone VIC Indooroopilly QLD Ringwood VIC Prahran VIC 40 Capalaba QLD Canberra ACT Perth WA Kedron QLD Adelaide SA Bankstown NSW Monthly sales Trend line 0 Jul00 Aug00 Sep00 Oct00 Nov00 Dec00 Jan01 Feb01 Mar01 Apr01 May01 Jun01 Jul01 Aug01 Sep01 Oct01 Nov01 Dec01 Jan02 Feb02 Mar02 Apr02 May02 Jun02 Jul02 Aug02 Sep02 Oct02 Nov02 Dec02 Jan03 Feb03 Mar03 Apr03 May03 Jun03 20 JB Hi-Fi Prospectus

23 Since the appointment of the current senior management team in August 2000, there have been a number of material enhancements to the business: expansion of retail space and relocation of certain existing stores and the opening of larger sized stores to enable growth in all product categories; introduction and increased emphasis on the emerging product categories of DVD, digital still and video cameras, wide-screen and plasma TVs and home theatre; improved management information systems and processes, including the introduction of point of sale systems and enhanced financial management software (accounting, payroll and electronic data interface with suppliers); roll-out of 16 new stores, predominantly outside Victoria; establishment of shopping centre locations; and establishment of Music and DVD Superstores in Adelaide and Perth. 4.3 Customer propositions JB Hi-Fi s product offering, which combines software (Music and DVDs) with hardware (Consumer Electronics and car sound systems) is rare amongst its competitors, providing a distinct customer proposition. Not only do software purchases complement hardware purchases, software builds high volume repeat floor traffic and brand awareness. This gives high visibility to JB Hi-Fi s hardware range so that it becomes a logical supplier for the typically less frequent hardware purchase. Consumer Electronics and car sound systems are generally characterised as infrequent, relatively expensive and complex purchases. Accordingly, key drivers of customer purchasing behaviour are range, advice, price and trust. Music and DVDs are relatively simple repeat purchases. Key drivers for these categories include range, price and convenience. JB Hi-Fi s customer offering involves three fundamental propositions: (a) Broad range of branded home entertainment products with customer appeal JB Hi-Fi offers one of Australia s largest ranges of branded Consumer Electronics, car sound systems, Music and DVDs at discounted prices, appealing to both enthusiasts and price sensitive customers. Within the Music and DVD product category, JB Hi-Fi is positioned as a back catalogue retailer, stocking one of Australia s widest collections of both current and earlier release titles (the Company currently stocks over 35,000 CD and 5,000 DVD titles). Customers of JB Hi-Fi may be driven by the planned purchase of a chart music or movie title, but will often add to their purchases on impulse from the extensive back catalogue. While JB Hi-Fi offers a broad product range in its chosen product categories, it is rare amongst its competitors in that it focusses almost entirely on the home entertainment market, which includes Consumer Electronics or brown goods. Many of the Company s competitors combine their brown goods range with other products such as white goods (which includes fridges, dishwashers, washing machines and microwaves), furniture, air-conditioning, kitchen appliances, computers and home office products. JB Hi-Fi s broad product range in specialised product categories is a feature of its customer proposition. (b) Consistent low price offering JB Hi-Fi actively markets itself as a discount retailer offering customers an every day low price. Customers experience this through store layouts which have a warehouse or no frills look and feel that conveys a strong message of value and savings. Most stock is priced with handwritten tickets on yellow cardboard and a large amount of stock is stacked into a relatively small space, highlighting the bargain atmosphere within each store. Prospectus JB Hi-Fi 21