MIRA INFORM REPORT

Report Date :

29.11.2014

IDENTIFICATION DETAILS

Name :	BEVILLES CORP PTY LTD
Registered Office :	Level 2, 111 Coventry Street, South Melbourne, Victoria, 3205
Country :	Australia
Date of Incorporation :	19.02.2014
Com. Reg. No.:	168124972
Legal Form :	Australian Proprietary Company, Limited by Shares
Line of Business :	Subject’s business consists of retail sales of jewellery, diamonds, gemstones, watches, homewares and giftwares.
No of Employees :	270

RATING & COMMENTS

MIRA’s Rating :

Ca

RATING		STATUS	PROPOSED CREDIT LINE
11-25	Ca	Adverse factors are apparent. Repayment of interest and principal sums in default or expected to be in default upon maturity	Limited with full security

Status :	Moderate
Payment Behaviour :	Unknown
Litigation :	Clear

NOTES :

Any query related to this report can be made on e-mail : infodept@mirainform.com while quoting report number, name and date.

ECGC Country Risk Classification List – June 1, 2014

Country Name	Previous Rating (31.03.2014)	Current Rating (01.06.2014)
Australia	A1	A1

Risk Category	ECGC Classification
Insignificant	A1
Low	A2
Moderate	B1
High	B2
Very High	C1
Restricted	C2
Off-credit	D

AUSTRALIA - ECONOMIC OVERVIEW

The Australian economy has experienced continuous growth and features low unemployment, contained inflation, very low public debt, and a strong and stable financial system. By 2012, Australia had experienced more than 20 years of continued economic growth, averaging 3.5% a year. Demand for resources and energy from Asia and especially China has grown rapidly, creating a channel for resources investments and growth in commodity exports. The high Australian dollar has hurt the manufacturing sector, while the services sector is the largest part of the Australian economy, accounting for about 70% of GDP and 75% of jobs. Australia was comparatively unaffected by the global financial crisis as the banking system has remained strong and inflation is under control. Australia has benefited from a dramatic surge in its terms of trade in recent years, stemming from rising global commodity prices. Australia is a significant exporter of natural resources, energy, and food. Australia's abundant and diverse natural resources attract high levels of foreign investment and include extensive reserves of coal, iron, copper, gold, natural gas, uranium, and renewable energy sources. A series of major investments, such as the US$40 billion Gorgon Liquid Natural Gas project, will significantly expand the resources sector. Australia is an open market with minimal restrictions on imports of goods and services. The process of opening up has increased productivity, stimulated growth, and made the economy more flexible and dynamic. Australia plays an active role in the World Trade Organization, APEC, the G20, and other trade forums. Australia has bilateral free trade agreements (FTAs) with Chile, Malaysia, New Zealand, Singapore, Thailand, and the US, has a regional FTA with ASEAN and New Zealand, is negotiating agreements with China, India, Indonesia, Japan, and the Republic of Korea, as well as with its Pacific neighbors and the Gulf Cooperation Council countries, and is also working on the Trans-Pacific Partnership Agreement with Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, and Vietnam.

Source : CIA

COMPANY NAME

BEVILLES CORP PTY LTD

CORPORATE DETAILS

Verified Address

Subject name BEVILLES CORP PTY LTD Business name / Other BEVILLES JEWELLERS Business address Level 2, 111 Coventry Street Town South Melbourne Province Victoria Zip / Postal code 3205 Country Australia Telephone +61 3 83973900 Fax +61 3 86659955 Website www.bevilles.com.au Remarks The representative contacted Mr. Robert Derman advised that the Subject was established as the successor of BEVILLES PTY. LTD. now known as A.C.N. 005 064 308 PTY LTD under the Australian Company Number: 005064308 and Australian Business Number: 16005064308. The company is now Under External Administration.

Registered address Level 2, 111 Coventry Street Town South Melbourne Province Victoria Zip / Postal code 3205 Country Australia

SUMMARY DETAILS

Report Summary

Date registered 19/02/14 Legal form Australian Proprietary Company, Limited by Shares Key personnel Michelle Beville-Stanton Line of business The Subject’s business consist of retail sales of jewellery, diamonds, gemstones, watches, homewares and giftwares. Staff employed 270 employees

Paid-up capital AUD10.00

Subject’s Credit Risk Analysis

Country risk Country risk is minimal Operation trend Operational trend is declining Management experience Management is reasonably experienced Financial performance Financial performance is poor

Organisation structure Organisational structure is acceptable Detrimental Serious detrimental found Payment history Payment punctuality is undetermined

STATUTORY DETAILS

Registry Information

Date registered 19/02/2014 Legal form Australian Proprietary Company, Limited by Shares Registration number Australian Company Number: 168124972 Registered authority Australian Securities and Investments Commission Tax / VAT number Australian Business Number: 80168124972

Statutory status Active Previous name None reported. Change of legal form None reported. Other registration BEVILLES JEWELLERS is a business name owned by the Subject registered on 07/05/2014. BEVILLES JEWELLERS is a business name owned by the Subject registered on 08/05/2014.

BOARD OF MANAGEMENT

Key Personnel

Name Michelle Beville-Stanton Designation Chief Executive Officer Name Gary Beville Designation General Manager Name Robert Derman Designation Chief Financial Officer

BOARD OF DIRECTORS

Appointments

Name Michelle Beville-Stanton Title Director and Company Secretary Appointment date 19/02/14 Address 2 Harold Avenue Glen Iris, VIC 3146 Australia Biography Born on 03/01/1969 in Melbourne, Victoria, Australia.

Staff employed 270 employees

SHARE CAPITAL

Composition

Authorized capital AUD10.00 Number / Type of shares 10 Ordinary Shares Share par value AUD1.00 Issued capital AUD10.00

Paid-up capital AUD10.00

OWNERSHIP / SHAREHOLDERS

Composition

How listed Full list Shareholder name Michelle Beville-Stanton Address 2 Harold Avenue Glen Iris, VIC 3146 Australia Number / Type of shares 10 Ordinary Shares Percentage (%) of shares 100%

CORPORATE AFFILIATIONS AND RELATED COMPANIES

Structure

Company name BEVILLES HOLDINGS PTY LTD Affiliation type Associate Country of business Australia Company name BEVILLES SUPER PTY. LTD. Affiliation type Associate Country of business Australia Company name BEVILLES RETAIL CO PTY LTD Affiliation type Associate Country of business Australia Company name A.C.N. 005 064 308 PTY LTD Affiliation type Associate Country of business Australia Comments Under External Administration. Company name ROMEO ART PTY LTD Affiliation type Associate Country of business Australia Comments Under External Administration. Company name A.C.N. 119 154 380 PTY LTD Affiliation type Associate Country of business Australia

BANK AND MORTGAGES

Bank Details

Name of bank Commonwealth Bank of Australia Address Australia

Comments It is generally not the policy of local banks to provide credit status information to non related parties, however interested parties would be advised to consult first with the Subject if banker's references are required.

Mortgages

None reported.

Legal Filings

Bankruptcy filings None reported. Court judgements None reported.

Tax liens None reported. Others None reported.

FINANCIAL STATISTICS

Remarks

The representative contacted Mr. Robert Derman declined to provide any financial information until the inquiring party details are revealed. The Subject is classified as a small proprietary company by the Australian Securities & Investments Commission hence is not required to disclose their financial statement. A proprietary company is defined as small for a financial year if it satisfies at least two of the following: - The consolidated revenue for the financial year of the company and any entities it controls is less than $25 million; -The value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is less than $12.5 million, and -The company and any entities it controls have fewer than 50 employees at the end of the financial year.

BUSINESS DETAILS

Operational Details

Main activities The Subject engages in retail sales of jewellery, diamonds, gemstones, watches, homewares and giftwares. Products and services Gold Jewellery Silver Jewellery Diamonds Gemstones Watches Homewares Giftwares Brands BULOVA CASIO CASIO G-SHOCK CITIZEN CLASSIQUE (NURSES WATCHES) DKNY FERRARI FIORELLI FOSSIL GUESS JAG LORUS PIERRE CARDIN POLICE SEIKO SKAGEN SUPERDRY TIMEX

Purchases

Local None reported.

International The Subject sources its product(s) / material(s) from countries such as Hong Kong, Japan, India, Sri Lanka, United States, Europe.

Sales

Local The Subject sells its product(s) locally.

International None reported.

Key events

Bevilles goes into administration

April 8, 2014

Eighty years after its launch and just six months after a major rebranding, Bevilles has entered into voluntary administration which is expected to lead to the closure of some of its 27 stores as well as the loss of nearly 250 jobs.

Announcing the decision in an official statement, CEO Michelle Beville said the company had developed a proposal to restructure the business and ensure its survival.

She said the proposal was in line with the company’s strategy, announced in January last year, to phase out giftware and focus on smaller, smarter new-look jewellery-only format stores.

Beville said the company’s first such stores, in Liverpool (NSW) and Highpoint (Victoria), had demonstrated this was the right strategy for the brand to move forward with.

“However, we have been constrained by external factors that have not allowed us to move to the new formats as quickly as planned,” she said.

“It’s no secret that shopping centre landlords are constrained and agreements can be difficult to alter or break.

“In January 2013 we announced we wanted to close six stores across the Victoria and South Australia regions, including Doncaster, Greensborough, Moorabbin and Southland in Victoria and Elizabeth and Marion in South Australia by the end of the year, however only one of these stores, Moorabbin, was able to close its doors.

“This meant we weren’t able to move forward into our smaller, smarter new-look jewellery-only format stores quickly enough,” she said, “and this created financial strain on the business.”

Beville, the grand-daughter of Bevilles’ founders Leo and Rae Beville, said the company was aiming to minimise closures and retain as many employees as possible.

“One of our end-of-lease stores, Bevilles’ Doncaster in Victoria closed last week, and we expect that over the coming weeks there will be announcements of further store closures [but] we’re not sure of the exact number at this point in time.

“Any decisions regarding redundancies will be made during the administration period, but we expect approximately 47 full-time, 190 part-time and 10 casual redundancies will be made, and approximately 230 will be retained under our proposed restructure.”

She concluded that although it was a difficult decision to enter voluntary administration, “we believe this path offers the best possible outcomes for everyone and helps ensure that this much-loved 80 year old brand continues”

Leo and Rae Beville founded Bevilles in 1934 with a store in Melbourne’s Bourke Street Mall. The store featured homewares but expanded to include jewellery and diamonds in the late 1950s.

Late last year Bevilles underwent major rebranding which included a new logo and tagline, along with “an enhanced store experience” featuring a fresh colour scheme and a streamlined layout.

At the time, Beville told Jewellery World: “We listened to what our customers wanted and refreshed the brand with a focus on what we do best – beautiful quality jewellery at always affordable prices.”

Valuable lessons from the Bevilles collapse

June 26th, 2014

When Bevilles collapsed owing $14 million, and being the first major jewellery retailer to fail in 18 years, the chance to dissect a disaster was too good to pass up.

The recent collapse of the 27-store jewellery chain Bevilles caught many by surprise, especially given that late last year the business announced a major rebranding project that included the roll out of “new-look” stores across Australia.

In addition to a new logo and tagline “Feel Fabulous”, Bevilles made plans to enhance the shopping experience with a streamlined store layout and a fresh colour scheme. It also planned to offer a greater selection of diamond jewellery and watches.

Importantly, after 80 years of heritage in giftware, Bevilles’ new retail strategy included phasing out its giftware range.

The announced restructure and relaunch of the Bevilles brand last October came after a more significant announcement in January 2013 of a major “alliance” with Tara Jewels, an Indian company operating in both the manufacturing and retail channels.

Tara Jewels, established in 2006, conducts a vertical business model; the jewellery manufacturing arm has quickly expanded with a presence across five continents and more than 20 countries, while its jewellery retailing arm operates 30 retail stores in India.

At the same time as revealing the Indian alliance, Bevilles announced it would be closing six stores, eventually reducing its store count from 29 to 23.

Voluntary administration

With that in mind, the local jewellery industry was caught by surprise when it was announced on 1 April that Bevilles had been placed in voluntary administration, owing creditors $14 million.

At the time, Bevilles CEO Michelle Beville told Jeweller, "We have been constrained by external factors that have not allowed us to move to the new formats as quickly as planned.

“The decision to enter voluntary administration was brought about by a number of factors, including a changing retail environment in which the current business model wasn’t viable due to higher operating costs and customers seeking specialist boutique experiences.”

Beville said a restructure plan would be proposed to creditors, and assessed by appointed administrators PPB Advisory. Just one month later the Beville family revealed that its bid to reacquire the retail chain had been successful.

The deal was finalised on Friday 2 May, when it was announced that under the new structure, Bevilles Corp, headed by Michelle Beville, would retain 16 existing stores.

Prior to the company being placed into voluntary administration Bevilles operated 27 stores and, while eight had since been closed, the three remaining stores that would not be acquired by the new entity will close by 30 June.

Before the appointment of the official administrators, PPB Advisory, Bevilles employed 477 staff, but under the new entity that had been be reduced to 237.

Detailed financials

As part of any business administration or liquidation, the official administrators must prepare a report to creditors and, in this case, David McEvoy & Ian Carson produced a 94-page detailed analysis of the Bevilles collapse.

While it was not meant for public viewing, or to be poured over by competitors and the wider jewellery industry, the report provides some valuable insights into not only the Bevilles business but the inner workings of a major retail jewellery chain.

When dissected, the administrators’ report offers valuable lessons for large and small jewellers alike as well as the wider Australian and New Zealand jewellery industry.

Indeed, for all the doom and gloom Aussie and Kiwi jewellers have experienced in recent times (post the global financial crisis), when compared to other retail categories, there has been no collapse of a major retail jeweller for 18 years.

The Bevilles collapse is the first significant jewellery chain collapse since 1996 when Universal Retailers was liquidated, putting the Prouds and Goldmark chains stores on the chopping block.

That event actually resulted in a major restructure of the local jewellery industry with Prouds being purchased by the New Zealand based James Pascoe Group, and Goldmark being acquired by, the then, ASX listed Angus & Coote. (James Pascoe went on to eventually acquire Angus & Coote in 2006 along with its Goldmark and Edments stores making it one of the world’s largest jewellery retailers.)

The only other significant retail collapse since Universal Retailers was Kleins, the 186-store budget fashion accessories and jewellery chain, which went belly-up in 2007.

However, while not a fine jewellery chain, the Kleins failure had much more to do with it being a franchise operation, and failings in its corporate structure, rather than with its retail-trading strategies.

Detailed data
Having obtained the creditors’ report, a number of Bevilles failings immediately became apparent to Jeweller, and it was decided to seek expert analysis on the financial data and the administrator’s commentary with the view of presenting a case study for other jewellery storeowners and managers.

Download: Official administrators' report

The following analysis is based solely on the official Bevilles’ administrators’ report, while the Michael Hill figures are from its 2013 annual report to the New Zealand Stock Exchange. Other observations from our independent commentators are provided based on extensive industry experience and generally accepted jewellery retailing “benchmarks”.

Sales
David Brown, president Retail Edge Consultants, a firm specialising in advice to independent jewellery storeowners, highlights some interesting statistics,

Bevilles overall store sales dropped from an average of just over $3 million per door in 2011 to $2.67 million per door in 2013.
As a matter of interest, even its 2013 results are more than double the average sales for an independent jewellery store.
During the same period, Michael Hill stores averaged just over $2 million but managed a healthy 9.4 per cent increase in EBIT over 2012.
Michael Hill increased its Australian revenue by 4.3 per cent from 2012 to 2013, in the same consumer market that Bevilles lost 9 per cent.
When you look to what is happening “out there” (the economy, the industry), you take your eye off what is happening “in here” (your performance, your KPIs, your strategies).
In “soft” markets, typically there are fewer people buying luxury goods, which means you need to get more money from the people who are still buying. This is achieved by: raising the average retail value; concentrating on close ratios; add on sales and margins rather than trying to renegotiate your rent.

Colin Pocklington, managing director of Nationwide Jewellers, Australia and New Zealand’s largest group of independent jewellers, is well credentialed to provide a financial analysis of the Bevilles data. While he is also a JAA Board member, Pocklington makes the following observations as a qualified CPA and a member of the Associate Chartered Institute of Secretaries (now the Governance Institute).

Coincidentally, he was also the group finance manager at Prouds, and led the management buyout team in 1989 when the liquidator for Hooker Retail sold the business to Universal Retailers, and again when Universal Retailers was liquidated in 1996.

Pocklington says that, “Tough trading periods often bring undone businesses with underlying structural issues,” and points out that,

In the two years from 2011 to 2013, Bevilles’ sales declined by 14 per cent however, in the same period, Michael Hills sales increased, albeit moderately.
In 2013 Michael Hill had a profit before interest and tax of 9 per cent of sales whereas Bevilles had a loss of 9 per cent of sales.
The drop in sales exposed some structural issues in the Bevilles business, the main areas being gross profit, rent and wages.
In addition, it would also appear that Bevilles suffered a loss of market share, as the fall in sales was below the industry trend. No doubt this is an issue that Bevilles is examining carefully.

Rent and staff
Brown notes that Bevilles blames a combination of a retail downturn and high fixed rental costs (among other factors) as part of the reason for its collapse. He observes,

Rent, when combined with advertising, is high at 20 per cent in 2013 (and 17 per cent in 2011) when compared to industry benchmarks in these types of locations of between 12-16 per cent.
In 2013, Michael Hill's rent and advertising totaled 14.5 per cent - which is within the benchmark range.
Average store rents for Bevilles are considerably higher than Michael Hill's but then Bevilles doesn’t have the negotiating power of 267 stores that Michael Hill does!
High rent is typically not a problem in, and by, itself. We have many clients paying extremely high shopping centre rents because they have even less negotiating power than Bevilles does with 27 stores, but their rent is a consistent and relevant percentage of the store’s sales volume.
Not having enough sales relative to the rent is a problem which comes down to having the right image/brand (point of difference), the right staff to greet the customers who are enticed by the image and having the right product for them to sell.

Pocklington’s analysis of the rent and occupancy cost data shows,

The high rent, at 16 per cent of sales (compared to Michael Hill’s 10 per cent) is no doubt related to the larger store size, which in turn might have been required to accommodate the additional giftware category.
I note that Bevilles has flagged this as an issue that they are working on.
Even though sales dropped by $11.5 million between 2011 and 2013, wage costs remained the same at $19.5 million. With large decreases in sales, retailers must act quickly to reduce costs.

Bryan Young, managing director Retail Rescue, an advisory and mentoring firm specialising in the retail sector, said that when he first read that Bevilles had 477 staff across 27 stores the “alarm bells started ringing straight away.”

An average sized jewellery store is between 35-50sqm and supports between 4-7 staff, both factors depending on whether there is an onsite bench jeweller and an admin office.

This means that even with maximum staff, there should only be around 190 employees in a 27-store business.

Bevilles stores averaged a massive 160sqm, mostly due to a large giftware section, but even if you double staff to cover this, in my view Bevilles was overstaffed by approx 100 people, and with the average annual wage being around $37,000, (not including owners), that’s $3.7 million per annum overspent on wages alone!
In support of this comment, benchmarking data available from the ATO indicates jewellers average wages sit at 15 per cent of sales for regional stores and 18 per cent for city stores.

The data indicates that Bevilles was operating at between 24-27 per cent.

Gross margin

Gross margin is an important KPI for any business and Pocklington says,

Bevilles’ 53 per cent gross profit or gross margin is too low for the jewellery industry.
No doubt the giftware products have weighted it down, however one would have thought that with a strong relationship with the large Indian jewellery manufacturer, Tara Jewels, a higher gross profit percentage would be expected.

By comparison, Michael Hill achieved a 63 per cent gross profit.
I believe that retailers should be targeting a gross profit rate of 60 per cent. I note that some long standing jewellery people think that a 60 per cent gross profit is too high, but it actually represents the same dollar gross profit as did a 53 per cent rate when calculated under the old sales tax regime (pre-GST).

Brown also focuses on Bevilles’ gross margin saying, “The biggest difference, and lesson, to take out of the Bevilles collapse when comparing the performance of Bevilles to Michael Hill is gross margin.”

For example, he highlights,

Bevilles has maintained a consistent 53 per cent to 54 per cent margin with COGS (cost of good sold) running at between 46 per cent and 47 per cent.

Michael Hill has maintained a consistent margin of more than 60 per cent - actually closer to 64 per cent - which means COGS are running at around 36 per cent.

Sure, Michael Hill has greater negotiating power with suppliers too, but its more than just buying better. It's also about pricing better, less discounting and generally improving selling skills … and yes, negotiating skills.

It's also about honouring and protecting margin and openly discussing margin targets and strategies with the sales team.

Every 1 per cent improvement in gross margin for Bevilles, based on 2013 sales, would have added $719,000 of extra gross profit - most of which ends up on the bottom line.

To put this into perspective, if Bevilles achieved the same margins as Michael Hill did last year (64 per cent), the business would have generated an extra $8 million in gross/net profit before tax.
That is, the entire Bevilles loss of $6.74 million could have been wiped out by increasing margin to 62 per cent, still 2 per cent less than Michael Hill.

Yes, it’s easier said than done, but it is possible - because Michael Hill is already doing it, as are many other independent retailers, with far less buying power than Bevilles.

Cashflow, credit and stockturn

Brown’s analysis of the Bevilles financial results show,

With nearly $1.6 million of cash washing through the business per week on average - $58K per week, per store – it’s quite possible to mask underlying business problems by paying yesterday’s bills with today's cash.

But when that cash drops to $50K per week, per store ($1.38 million), it's hard to hide from the ugly truth and things start to unravel pretty quickly and dramatically.

Despite attempts to reduce costs after the event, unless these problems are confronted when they start, it is often too late to make adequate improvements quickly enough to prevent the house of cards “falling over”, as witnessed with Bevilles.

Living off surplus, non-performing stock is not a sustainable strategy.

Young says that retailers often don’t understand that credit is both a friend and an enemy,

Keeping funds fluid is one of the biggest challenges any business can face but even more so in retail. It’s a “Catch 22 juggling act”… you can’t sell it if you don’t have it and you can’t get it if you don’t sell it. Therefore how you manage your credit is extremely important and by “credit” I also refer to loans, overdrafts and supplier terms. It can provide you with much needed stock, cover that wages bill, or even clear tax debt, but without capacity to repay it, it will eventually stab you in the back.
Based on the current turnover and cashflow, retailers must ask if they can repay any new debt quickly and without compounding the problem?
The way to manage credit is to avoid it. Always look at the worst-case scenario before using it and to never allow wishful thinking, such as “hopefully business will turn around soon”, to govern your actions.
Any injection of funds should be going towards improving your business, not a way of keeping doors open. If you are even one dollar in the red at the end of the financial year, then you need to take a long hard look at how you are running your business.
Constantly compare industry trends against your own. Is everyone doing it tough, or just you? How much are others paying in wages, rent, marketing etc? Are you over or under spending?
KPIs - how many dollars per hour are staff generating versus the cost to have them there? Are they more than paying for themselves, how big is their basket size?

Pocklington provides some interesting analysis and commentary on cashflow and stockturn,

Bevilles stock turn rate (1.7 times) and sales per store ($2.7 million) compare very favourably to Michael Hill.
However, both figures are likely to be influenced by the larger store footprint and the faster stock turns achieved by giftware.
With large retail businesses it is also important to look at the balance sheet to determine liquidity, and sensitivity to periods of poor trading.
At 36 per cent, Bevilles equity is quite strong, as only 64 per cent of assets are financed by borrowings. This compares favourably to Michael Hill’s 32 per cent equity ratio.
The stock at cost per store of $659,000 also compares well to Michael Hill’s $690,000, indicating that overstocks have not contributed to the cashflow problems that resulted in insolvency.
Comparing the proportion of trade creditors to inventory at cost is another quick measure of a retailer’s cash flow strength. When compared to Michael Hill at 27 per cent) Bevilles’ 45 per cent is high but I have seen a lot worse.

Lessons learned
Young makes an interesting point, which, in part, explains the reason for this article. “When a large jewellery chain such as Bevilles goes into administration it can only instill fear in smaller jewellery businesses. When you look at Bevilles history, a family business that has been operating for 80 years, with 27 stores and 477 staff, it sounds like they must have been doing something right, so how come they are now in such a position?”

Bevilles trading losses over the past three years amounted to more than $10 million and total claims against it, including related party loans, amount to $14 million. So, what went wrong?

Young believes that Bevilles identified the problems surrounding its giftware category too late, stepping away from it, while downsizing stores was a knee-jerk reaction.

“Unfortunately they [Bevilles] found themselves tied into leases that landlords weren’t keen to break. This highlights a new issue in regards to leases; traditionally, both landlords and owners prefer longer leases, for security reasons. However, noting how volatile the retail industry has become and how much things can rapidly change, perhaps shorter leases now provide more security?” Young said.

Pocklington also makes comment about the inherent problems with the giftware category. “It [Bevilles] appears to be a very good business that has been too slow to react to a changing market by continuing to maintain a large, but low margin giftware range, requiring large stores and a high rental cost.

“Their plan for smaller stores without giftware is sound and should result in higher gross profit percentages, lower rents, and hopefully reduced labor costs. Bevilles also needs to look at what caused their loss of market share from 2011 to 2013.”

He adds that, “In summary, when you look at the key indicators it is clear that there are some areas that need to be addressed. It’s encouraging that Bevilles is focused on making the changes needed, to ensure that this long standing jewellery business has a strong future.”

Young offers a cautionary take for all jewellery retailers – large or small - in light of traditional values and a changing market, thanks largely to the internet.

“Past success can easily become current failure if you try too hard to stick to old ‘proven ways’ of making money in your business while ignoring the changes in the marketplace itself.

I recently parted ways with a client due to his inflexibility to change. He had established his business with a set way of doing things, which were very successful during the 1980s and 90s. I told him how he need to change for the current market in order to turn his business around, but he refused to do so, simply because the advice didn’t correlate with his previously ‘proven’ methods.”

While it is not pleasing to hear about the failure of any business and the resulting job losses, it is encouraging to note that the Australian jewellery industry has not experienced the same number of major collapses that have occurred in other retail categories.

If there’s a silver lining in the Bevilles collapse, it’s that other retailers and suppliers can learn from the company’s mistakes and incorporate those lessons in order to strengthen their own businesses.

Business Facilities and Assets

Premises The Subject operates from the verified heading address consisting of an administrative office.

Branches In addition, the Subject operates from 16 retail outlet(s) located in Australia.

SUMMARIZED COUNTRY RISK

Gross Domestic Products (GDP) and Economic Overview

Central bank Reserve Bank of Australia Reserve of foreign exchange and gold US$ 46.714 billion Gross domestic product (GDP) US$ 1.586 trillion Purchasing power parity (GPP) 954.296 billion of International dollars GDP per capita (current prices) US$ 68,916 GDP composition by sector agriculture: 4% industry: 25.6% services: 70.4% Inflation 2010: 2.8% 2011: 3.4% 2012: 2.7% Unemployment rate 2010: 5.2% 2011: 5.1% 2012: 5.2%

Public debt (general Government gross debt as percentage (%) of GDP) 2010: 20.4% 2011: 22.9% 2012: 24% Government bond ratings Standard & Poors: AAA Moodys rating: Aaa Moodys outlook: STA Market value of publicly traded shares US$1.198 trillion Largest companies Qantas Airways (Airline),Coca-Cola Amatil (Beverages), CSL (Biotechs), Brambles (Business & Personal Services),Crown Ltd (Casinos & Gaming), Amcor (Containers & Packaging),Suncorp-Metway (Diversified Insurance), BHP Billiton (Diversified Metals & Mining),Newcrest Mining (Diversified Metals & Mining), Orica (Diversified Metals & Mining), Iluka Resources (Diversified Metals & Mining), Origin Energy (Electric Utilities), AGL Energy (Electric Utilities), Wesfarmers (Food Retail), Woolworths (Food Retail), Metcash (Food Retail), Macquarie Group (Investment services), AMP (Investment services), Challenger Ltd (Investment services), Fortescue Metals Group (Iron & Steel), Bluescope Steel (Iron & Steel), Commonwealth Bank (Major Banks), Westpac Banking Group (Major Banks), National Australia Bank (Major Banks), ANZ (Major Banks), Woodside Petroleum (Oil & Gas Operations), Santos (Oil & Gas Operations), Caltex Australia (Oil & Gas Operations), WorleyParsons (Oil Services & Equipment), Toll Holdings (Other Transportation), Transurban Group (Other Transportation), QBE Insurance Group (Property & Casualty Insurance), Insurance Australia Group (Property & Casualty Insurance), QR National (Railroads), Westfield Group (Real Estate), Stockland Australia (Real Estate), Westfield Retail Trust (Real Estate), Lend Lease (Real Estate), CFS Retail Property Trust (Real Estate), Goodman Group (Real Estate), Bendigo & Adelaide Bank (Regional Banks), Bank of Queensland (Regional Banks), Incitec Pivot (Specialized Chemicals), Telstra (Telecommunications Services)

Trade and Competitiveness Overview

Total exports US$263.9 billion Export commodities Coal, iron ore, gold, meat, wool, alumina, wheat, machinery and transport equipment Total imports US$239.7 billion Import commodities Machinery and transport equipment, computers and office machines, telecommunication equipment and parts; crude oil and petroleum products Best countries for doing business 10 out of 185 countries Global competitiveness ranking 20 (ranking by country on a basis of 144, the first is the best)

Major export partners China 27.4%, Japan 19.2%, South Korea 8.9%, India 5.8% Major import partners China 18.5%, US 11.4%, Japan 7.9%, Singapore 6.3%, Germany 4.7% FDI inflows 2009: US$26,554 million 2010: US$35,556 million 2011: US$41,317 million FDI outflows 2009: US$16,693 million 2010: US$12,791 million 2011: US$19,999 million

Country and Population Overview

Total population 22.68 million Total area 7,692,024 km2 Capital Canberra

Currency Australian dollars (AUD) Internet users as percentage (%) of total population 79%

PAYMENT OUTLOOK

Purchases Term

International L/C, Prepayment, Telegraphic transfer, Credit up to 120 days

Sales Term

Local Cash, Credit card

Trade Reference / Payment Behaviour

Comments As local and international trade references were not supplied, the Subject's payment track record history cannot be appropriately determined.

Investigation Note

Sources Interviews and material provided by the Subject Other official and local business sources

DIAMOND INDUSTRY – INDIA

- From time immemorial, India is well known in the world as the birthplace for diamonds.  It is difficult to trace the origin of diamonds but history says that in the remote past, diamonds were mined only in India. Diamond production in India can be traced back to almost 8^th Century B.C.  India, in fact, remained undisputed leader till 18^th Century when Brazilian fields were discovered in 1725 followed by emergence of S. Africa, Russia and Australia.

- The achievement of the Indian diamond industry was possible only due to combination of the manufacturing skills of the Indian workforce and the untiring and unflagging efforts of the Indian diamantaires, supported by progressive Government policies.

- The area of study of family owned diamond businesses derives its importance from the huge conglomerate of family run organizations which operate in the diamond industry since many generations.

- Some of the basic traits of family run business enterprises include spirit of entrepreneurship, mutual trust lowers transaction costs, small, nimble and quick to react, information as a source of advantage and philanthropy.

- Family owned diamond businesses need to improve on many fronts including higher standard of corporate governance, long-term performance – focused strategies, modern management and technology.

- Utmost caution is to be exercised while dealing with some medium and large diamond traders which are usually engaged in fictitious import – export, inter-company transactions, financially assisted by banks. In the process, several public sector banks lost several hundred million rupees. They mostly diverted borrowed money for diamond business into real estate and capital markets.

- Excerpts from Times of India dated 30^th October 2010 is as under –

- Gem & Jewellery Export Promotion Council in its statistical data has shown the export of polished diamonds to have increase by 28 % in February 2013. Compared to $ 1.4 bn worth of polished diamond export in February, 2012, India exported $ 1.84 billion worth of polished diamonds in February 2013. A senior executive of GJEPC said, “Export of cut and polished diamonds started falling month-wise after the imposition of 2 % of import duty on the polished diamonds. But February, 2013 has given a new ray of hope to the industry as the export of polished diamonds has actually increased by 28 %. It means the industry  is on the track of recovery and round tripping of diamonds has stopped completely.” Demand has started coming from the US, the UK, Japan and China. India’s polished diamond export is expected to cross $ 21 bn in 2013-14.

- The banking sector has started exercising restraint while following prudent risk management norms when lending money to gems and jewellery sector. This follows the implementation of Basel III accord – a global voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity.

FOREIGN EXCHANGE RATES

Currency	Unit	Indian Rupees
US Dollar	1	Rs.61.97
UK Pound	1	Rs.97.37
Euro	1	Rs.77.16

INFORMATION DETAILS

Analysis Done by :	SUB
Report Prepared by :	SMN

RATING EXPLANATIONS

RATING		STATUS	PROPOSED CREDIT LINE
>86	Aaa	Possesses an extremely sound financial base with the strongest capability for timely payment of interest and principal sums	Unlimited
71-85	Aa	Possesses adequate working capital. No caution needed for credit transaction. It has above average (strong) capability for payment of interest and principal sums	Large
56-70	A	Financial & operational base are regarded healthy. General unfavourable factors will not cause fatal effect. Satisfactory capability for payment of interest and principal sums	Fairly Large
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory
26-40	B	Capability to overcome financial difficulties seems comparatively below average.	Small
11-25	Ca	Adverse factors are apparent. Repayment of interest and principal sums in default or expected to be in default upon maturity	Limited with full security
<10	C	Absolute credit risk exists. Caution needed to be exercised	Credit not recommended
--	NB	New Business	--

This score serves as a reference to assess SC’s credit risk and to set the amount of credit to be extended. It is calculated from a composite of weighted scores obtained from each of the major sections of this report. The assessed factors and their relative weights (as indicated through %) are as follows:

Financial condition (40%) Ownership background (20%) Payment record (10%)

Credit history (10%) Market trend (10%) Operational size (10%)

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