Smiths City enters receivership at Board’s invitation

NZX AND MEDIA RELEASE 22 May 2020 Smiths City enters receivership at Board's invitation Appointment of receivers follows an agreement to sell stores and Smiths City Finance to Polar Capital Smiths City (NZX.SCY) today announces it has invited its largest secured creditor ASB to appoint receivers to Smiths City Group Limited and Smiths City (Southern) Limited ("the Companies"). As a result, Colin Gower and Diana Matchett of BDO Christchurch and Andrew Bethell of BDO Auckland have been appointed as the Joint Receivers and Managers of the Companies. The appointment of the Receivers follows the conditional agreement announced to the NZX on Monday 18 May 2020 to sell all of Smiths City Finance and most of Smiths City's stores to Polar Capital, a business owned by Colin Neal, founder of the refrigerated logistics company Big Chill. It also follows Polar Capital's confirmation on Wednesday 20 May 2020 that it had secured ongoing funding for the assets it intends to acquire. Rather than putting the sale of the assets to Polar Capital to a shareholder vote, Directors sought to appoint receivers for the following reasons: o Smiths City's shareholders' approval was the only condition outstanding. o Smiths City's ordinary shares will retain no value following the sale . o Further delay risked jeopardising the completion of the sale and a reduction in the amount available to secured and unsecured creditors. The business cannot function without the confidence of suppliers and customers. o A receivership would ensure the timely and orderly transition of the assets to Polar Capital, protect their value and the jobs of the approximately 350 people expected to transition to the new owners with the sale. o The Board considered an insolvency process was inevitable. If shareholders rejected the transaction, the Board would have requested that Receivers be appointed as the financial position of the company was not sustainable. In the knowledge that shareholder value was extinguished, the Board's duty became to preserve as much value as possible for creditors. The appointment of Receivers today was necessary to fulfil that duty. Immediately on appointment the receivers waived the remaining condition and settled the sale. All stores are open as usual today. As advised to the market earlier today, Smiths City will close seven stores as the result of a restructure. Those stores: Mount Wellington, Porirua, Lower Hutt, Kapiti, Whangarei stores, the Invercargill clearance centre and the Christchurch outlet store, are expected to be closed in the coming weeks. The Receivers' first report on the state of affairs with respect to the property in receivership will be prepared no later than two months after their appointment. Smiths City Chair Alastair Kerr said: "While the outcome is disappointing for shareholders, we are pleased to have been able to take steps to protect Smiths City's legacy and the hundreds of jobs that will transition to the new business. The Board will now work to ensure an orderly transition of Smiths City Group to the Receivers." Polar Capital's Colin Neal said: "Smiths City today opens a new chapter in its more than 100-year history of serving heartland New Zealand. All the stores we have acquired will be open for trading today, doing what they do best: offering great quality products, excellent value and no-nonsense service. "Commitments made to customers will be unaffected by the receivership and the sale. If, customers have paid for a product they will get the product. I am looking forward to working with Smiths City's people and the communities in which we operate to build on the company's position at the heart of New Zealand retailing." The Board is also sending the enclosed letter to shareholders today to give further background on why this course of action has been necessary. Media Richard Inder The Project Mob: 021 645 643 Dear Shareholders Receivership of Smiths City Smiths City Group Limited ("the Company") has today requested that ASB Bank appoint Receivers to the Company and Smiths City (Southern) Limited. We sincerely regret that this action has had to be taken. Unfortunately, it became apparent to the Board that shareholder value in the Company had been lost and to preserve the Smiths City business and jobs for around 75% of our employees, this course of action had to be taken. Catastrophic impact of COVID-19 In recent weeks we have kept you appraised of the impact that the COVID-19 pandemic lockdown has had on the Group. The closure of 29 Smiths City stores for seven weeks between March and May delivered a material and significant shock to our retail business and this, in turn, substantially reduced our timeframe to execute the turnaround programme that was critical to the Company's strategic plan. This turnaround was always dependent on stable trading conditions. Strategic investor support sought As we advised the market on 30 March 2020, it had become clear that Smiths City needed to bring new capital into the business, and Smiths City was seeking strategic investment support as well as introducing a comprehensive range of cost-cutting measures. With the support of ASB Bank (which had agreed to delay the repayment of $1.5 million of the Company's $65 million senior debt facility by four weeks), we appointed PwC to help develop a strategy to attract new investment and create the optimal capital structure. Over the past few weeks, the Board has taken many steps to preserve cash and contain costs, including the commencement of an organisational restructure (see announcement 6 May 2020). It concurrently explored numerous options to secure new capital, including discussions with our largest shareholders and other potential strategic investors, to provide some immediate funding and potentially underwrite a broader capital raising. We were unsuccessful in securing sufficient capital commitments to make this course of action viable. As a retailer it is vital that we have a stable financial base to give our customers, suppliers and financiers confidence to work with us. Sale to Polar Capital After evaluating all available options, it became clear that Polar Capital's offer to purchase Smiths City Finance and the majority of Smiths City's retail stores and other assets, would provide the greatest opportunity - both for Smiths City to endure for the long term, and to recover as much value for the group's assets as possible. Accordingly, the Board negotiated an agreement for the conditional sale of these businesses which was announced on Monday 18 May 2020. Unfortunately, the proceeds of the sale, combined with the value of residual assets, will not sufficiently cover the Group's liabilities to unsecured creditors (in particular under leases that are not being transferred). Consequently, the Board advised the market earlier this week that the sale would likely result in the loss of all shareholder value in the Company. Receivership decision By yesterday, 21 May 2020, only the shareholder approval condition remained to be satisfied. After careful consideration, the Board decided that instead of putting the sale of the assets to Polar Capital to a shareholder vote, it would invite ASB, its largest secured creditor, to appoint Receivers. This was for the following reasons: o Smiths City's shareholders' approval was the only condition outstanding. o Smiths City's ordinary shares will retain no value following the sale . o Further delay risked jeopardising the completion of the sale and a reduction in the amount available to secured and unsecured creditors. The business cannot function without the confidence of suppliers and customers. o A receivership would ensure the timely and orderly transition of the assets to Polar Capital, protect their value and the jobs of the approximately 350 people expected to transition to the new owners with the sale. o The Board considered an insolvency process was inevitable. If shareholders rejected the transaction, the Board would have requested that Receivers be appointed as the financial position of the company was not sustainable. In the knowledge that shareholder value was gone, the Board's duty became to preserve as much value as possible for creditors. The appointment of Receivers today was necessary to fulfil that duty. Colin Gower and Diana Matchett of BDO Christchurch and Andrew Bethell of BDO Auckland have been appointed as the Joint Receivers and Managers. Immediately on appointment the receivers waived the remaining condition and settled the sale. All stores are open as usual today. As advised to the market earlier today, Smiths City will close seven stores as the result of a restructure. Those stores: Mount Wellington, Porirua, Lower Hutt, Kapiti, Whangarei stores, the Invercargill clearance centre and the Christchurch outlet store, are expected to be closed in the coming weeks. Next steps The Receivers' first report on the state of affairs with respect to the property in receivership will be prepared no later than two months after their appointment. This has been a very challenging situation, compounded by unprecedented circumstances, and we sincerely regret that Directors have had to take this action. However, while this outcome is extremely disappointing for both the Board and shareholders, we have been able to take steps to protect Smiths City's legacy and the hundreds of jobs that will transition to the new business. The Board will now work to ensure an orderly transition of Smiths City Group to the Receivers. Kind regards Alastair Kerr Chair Smiths City Group Limited End CA:00353582 For:SCY Type:RA Time:2020-05-22 15:22:10