INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

Transcription

1 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) PLEASE NOTE THAT THE SUBSCRIPTION RIGHTS ARE EXPECTED TO HAVE AN ECONOMIC VALUE To avoid losing the value of the subscription rights, the holder must either: exercise the received subscription rights and subscribe for new shares no later than December 20, 2012; or no later than December 17, 2012, sell the received subscription rights which have not been exercised for subscription of new shares. Please note that for those who have exercised subscription rights, it is also possible to subscribe for new shares without the exercise of subscription rights. Note that shareholders with nominee registered holdings, i.e. holdings in custody account at bank or nominee, subscribe for new shares through the shareholders respective nominee. This is an English translation of the Swedish language version that has been approved and registered with the Swedish Financial Supervisory Authority. In the event of any discrepancies between the Swedish and the English translation, the former shall prevail.

2 IMPORTANT INFORMATION This prospectus has been prepared in accordance with the rules in the Financial Instruments Trading Act (1991:980), directive 2003/71/EC as it has been amended through directive 2010/73/EU and 2010/78/EU of the European Parliament and of the Council (the Pro-spectus Directive ) and EU Commission Regulation (EC) No. 809/2004 as it has been amended through subsequent amending regulations. The prospectus has been approved by and registered with the Swedish Financial Supervisory Authority (Sw: Finansinspektionen) in accordance with the provisions in Sections 25 and 26 of Chapter 2 in the Financial Instru-ments Trading Act. The approval and registration do not entail that the Swedish Financial Supervisory Authority guarantees the accuracy or completeness of the information in the prospectus. The prospectus has been drawn up in a Swedish language and an English language version. In case of any discrepanciesbetween the different language versions, the Swedish language version shall prevail. None of the Subscription Rights, the BTAs or the New Shares have been, or will be, regis-tered under the United States Securities Act of 1933, as amended (the Securities Act ), or in any jurisdiction outside Sweden. Securities may not, in the absence of such registration, be offered or transferred in or into the United States or to so called U.S. Persons (as defined in Regulation S under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Securities are offered under this prospectus outside the United States pursuant to Regulation S under the Securities Act. The offer pursuant to this prospectus is neither made to persons residing or located in Australia, Canada, Hong Kong, Japan, New Zealand, Singapore or South Africa, nor to persons, the participation of whom, would require further prospectus or registration or other measures than those imposed under Swedish law. The prospectus may not be distributed in any country where such distribution or the offer in accordance with this prospectus requires such steps or is in breach of applicable rules in such country. A notice of subscription of shares in contradiction with the above may be deemed invalid. In the member states of the European Economic Area which have implemented the Prospectus Directive, except in Sweden, the offer in accordance with this prospectus can only be made pursuant to an exemption from the requirement to draw up a prospectus. As a condition to exercise the Subscription Rights or subscribe for the New Shares pursuant to the offer in this prospectus, each subscriber will be deemed to have made, or, in some cas-es, be required to make, certain representations, that will be relied upon by KappAhl, Carnegie and others. KappAhl reserves the right, in its sole discretion, to reject any subscription of the New Shares that the Company or its representatives believe may give rise to a breach or violation of any law, rule or regulation. For further information on the restrictions related to the offering, see Selling and transfer restrictions. Carnegie has received an assignment from KappAhl to manage the sale of Subscription Rights that would have been distributed to persons in the USA, Australia, Canada, Singapore, Hong Kong, New Zealand, South Africa or Japan and not included in the Rights Issue on behalf of such persons and the distribution of sales proceeds, after deduction of fees, to such persons. This prospectus and the offering will be governed by the laws of Sweden. Any disputes arising from the contents of this prospectus or from the legal relationships related thereto shall be settled exclusively by a court of competent jurisdiction in Sweden. The prospectus has been drawn up by KappAhl based on proprietary information and infor-mation from sources that KappAhl believes are reliable. No guarantee, expressed or implied, is given by Carnegie as to the accuracy or completeness of the information contained in this prospectus, and nothing contained in this prospectus is, or shall be relied upon as, a representation or warranty in this respect, whether as to the past or the future, as Carnegie has not undertaken an independent verification of such information. In making an investment decision, investors must rely on their own examination of KappAhl and the offering in accordance with this prospectus, including the circumstances and risks involved, and investors may not rely on any other information than as included in this prospectus and any supplement thereto. No person has been authorised to give any information concerning the offering or to make any statement not included in this prospectus, and, if given or made, any such other information or statement should not be relied upon as having been authorised by KappAhl. Moreover, trading in financial instruments is always associated with risk and risk taking. Since an investment in shares may both increase or decrease in value it is not certain that an investor can recover invested capital. Any investment in KappAhl-shares should therefore be subject to thorough analysis of the Company, its competitors and market and general information on the business sector. An investment in shares should not be seen as a swift way of generating return but rather a long-term investment with capital which the investor can do without. FORWARD-LOOKING STATEMENTS AND MARKET INFORMATION ETC. This prospectus includes forward-looking statements, which reflect KappAhl s current views with respect to future events as well as financial and operational development. Words such as intend, assess, expect, may, plan, appreciate and other statements that contain indications and predictions with regard to future developments or trends and which are not based on historical facts, are forward-looking statements. These forward-looking statements concern only the state of the matters on the date of this prospectus and KappAhl does not undertake to release updates or reviews of forward-looking statements, as a result of new information, future developments or otherwise except pursuant to applicable laws. While KappAhl believes that the expectations described in such forwardlooking statements are reasonable there is no guarantee that such forward-looking statements will materialise or are accurate. Consequently, potential investors should not place undue reliance on these and other forward-looking statements. Actual results or developments may differ from forward looking statements because of factors that include, but are not limited to, those described in section Risk factors. The prospectus contains historical market information and industry forecasts, including in-formation on the size of the markets in which KappAhl operates. This information is based on a number of external sources and KappAhl undertakes to reproduce such information accurately. While the Company believes these sources to be reliable no information has been independently verified, and the accuracy and completeness of such information cannot be guaranteed. In addition, certain information is based on KappAhl s own estimates. Certain financial and other information in this prospectus has been subject to rounding ad-justments for ease of reference for the reader. Accordingly the numbers in certain tables may not conform exactly to the total figure given for that table. 2 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

3 TABLE OF CONTENTS SUMMARY... 5 RISK FACTORS INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL BACKGROUND AND REASONS TERMS, CONDITIONS AND INSTRUCTIONS MARKET OVERVIEW VISION, MISSION, TARGETS AND STRATEGIES OPERATIONS CAPITAL STRUCTURE AND OTHER FINANCIAL INFORMATION BOARD OF DIRECTORS, SENIOR MANAGEMENT AND AUDITOR SHARE CAPITAL AND OWNERSHIP STRUCTURE ARTICLES OF ASSOCATION LEGAL CONSIDERATIONS AND SUPPLEMENTARY INFORMATION TAX ISSUES IN SWEDEN SELLING AND TRANSFER RESTRICTIONS ADDRESSES Definitions BTA means paid subscribed shares (Sw: Betalda Tecknade Aktier); Carnegie means Carnegie Investment Bank AB (publ) (corporate registration number ); Subsidiary means a company owned wholly or in part by KappAhl AB (publ), excluding affiliated companies; Euroclear Sweden means Euroclear Sweden AB (formerly VPC AB); IFRS means International Financial Reporting Standards; KappAhl or the Company means in this prospectus, depending on the context, KappAhl AB (publ) (corporate registration number ) or the group of companies where KappAhl AB is the parent company. Group means KappAhl and its subsidiaries; NASDAQ OMX Stockholm means NASDAQ OMX Stockholm AB; New Shares means the shares issued in connection with the Rights Issue; Rights Issue means the offer to subscribe for shares in accordance with the terms and conditions in this prospectus; Subscription Rights means the transferable subscription rights distributed to holders of shares in KappAhl on the record date of the Rights Issue. INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 3

4 DOCUMENTS INCORPORATED BY REFERENCE The following documents which have previously been made public shall be incorporated by reference and form part of the prospectus: 1. KappAhl s audited annual accounts for 2011/12, including the auditor s report, referred to page in the annual report for 2011/12 2. KappAhl s audited annual accounts for 2010/11, including the auditor s report, referred to page in the annual report for 2010/11 3. KappAhl s audited annual accounts for 2009/10, including the auditor s report, referred to page in the annual report for 2009/10 KappAhl s annual accounts for 2009/10, 2010/11 and 2011/12, which have been incorporated through reference, have been audited by PricewaterhouseCoopers AB with Bror Frid as the principal auditor and do not contain any remarks. However, the Company s auditor has emphasised a matter of particular importance in the auditor s report for the financial year 2011/12. The comment reads as follows: Without it qualifying our opinion above, we would like to draw attention to the following matter; As described in the annual report, the company has entered into an agreement with the company s banks, regarding the amortization of loans in 2012/13. A significant prerequisite for the company to meet this requirement by the banks, and thereby secure long term financing, is that the proposed new share issue is authorized by the annual general meeting. Save for the aforementioned annual accounts, no information in the prospectus has been reviewed or audited by the Company s auditors. Copies of the Swedish prospectus and the documents incorporated by reference are available from KappAhl by e- mail: info_se@kappahl.com or by telephone: and can also be downloaded electronically from KappAhl s website The prospectus can also be downloaded electronically from The Swedish Financial Supervisory Authority s website, and Carnegie s website, TERMS FOR THE RIGHTS ISSUE IN BRIEF Preferential rights Each existing share entitles the holder to one (1) Subscription Right. One (1) Subscription Right entitles to subscription for one (1) New Share. For those who have exercised Subscription Rights, it is also possible to subscribe for New Shares without the exercise of Subscription Rights. Subscription price SEK 1.70 per share. Subscription and payment with preferential rights Subscription by exercise of Subscription Rights is made by simultaneous cash payment during the subscription period. Please note that Subscription Rights not intended to be exercised must be sold no later than 17 December 2012, in order not to expire without value. IMPORTANT DATES Record date Trading in Subscription Rights Subscription period Trading in subscribed paid shares (BTAs) OTHER INFORMATION Marketplace Short name ISIN codes FINANCIAL CALENDAR January 16, 2013 April 12, 2013 June 28, 2013 October 2, 2013 Shares and New Shares Subscription Rights BTA 1 BTA 2 December 3, 2012 December 6, 2012 December 17, 2012 December 6, 2012 December 20, 2012 December 6, 2012 December 21, 2012 NASDAQ OMX Stockholm KAHL SE SE SE SE Interim report for the first quarter (Sep-Nov) Interim report for the second quarter (Dec-Feb) Interim report for the third quarter (Mar-May) Interim report for the fourth quarter (Jun-Aug) 4 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

5 SUMMARY Prospectus summaries consist of elements that must contain certain information. These elements are numbered in sections A-E (A.1 E.7). This summary contains the elements to be included in a summary for a new issue of shares with preferential rights for the Company s shareholders. Since some other points were omitted, there are gaps in the numbering of the paragraphs. Although an item is required to be included in the current summary, relevant information concerning such items may be missing. In these cases, the summary contains a brief description of the information requirement, together with the statement Not Applicable. SECTION A INTRODUCTIONS AND WARNINGS A.1 Introduction and warnings A.2 Consensus and financial intermediaries This summary should be read as an introduction to the prospectus. Any decision to invest in securities should be based on consideration of the prospectus as a whole by the investor If a claim related to the information contained in the prospectus is brought before a court, the plaintiff investor might, under the national legislation of the member states, have to bear the costs of translating the prospectus before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the prospectus or it does not provide, when read together with the other parts of the prospectus, key information in order to aid investors, when considering whether to invest in such securities. Not applicable; The offering does not include financial intermediaries. SECTION B ISSUER AND ANY WARRANTOR B.1 Legal and Commercial name B.2 Headquarters and business entity The Company s registered business name is KappAhl AB (publ). The share s ISIN code is SE The Company was founded in Sweden and has its headquarters in Mölndal, Sweden. The Company is a public limited corporation and operates under Swedish law. B.3 Main activity KappAhl is a leading fashion chain with approximately 390 stores and 4,500 co-workers in Sweden, Norway, Finland, Poland, and the Czech Republic. KappAhl sells value-for-money fashion with a wide appeal women, men, and children and focuses in particular on women in the ages years with families. A vast majority of all clothes are designed in-house. B.4a Trends During the fiscal year 2011/12, which ended August 31, 2012, KappAhl experienced a weak market, partly due to consumers being more restrictive as a consequence of the uncertain economic outlook. KappAhl has also been negatively affected by the fact that its product offering did not fully meet customers expectations. However, during September and October, the first two months in KappAhl s fiscal year 2012/13, the Company s sales in local currencies is estimated to have increased by 5 percent compared to the same period the previous year, according to a press release published on November 13, In the same period, the gross margin is estimated to have increased by 3 percentage points during the same period. Measures are being taken to secure an assortment that to a higher degree will meet customers needs in the future. Results are expected to be delayed by a INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 5

6 few months. The Company believes that KappAhl s market position continues to be strong. However, the market development for the current fiscal year 2012/13 is uncertain and the Company expects the weak market to continue. The sale of the property containing the Company s distribution centre and headquarters, which was completed in November 2012, will together with lower investments affect the cash flow positively. In combination with the Rights Issue, this will result in a lower debt ratio and s stronger financial position during the year. B.5 The Group KappAhl AB (publ) is the parent company in the Group, which consists of eleven companies. Operations in Sweden are mainly carried out through the wholly-owned subsidiary KappAhl Sverige AB. The KappAhl Group also comprises wholly-owned subsidiaries in Norway, Finland, Poland, the Czech Republic, and a purchasing company in China. The Group also has production offices in Turkey, Bangladesh, and India. B.6 Notifiable persons, major shareholders, and control of the Company The number of shares in KappAhl before the Rights Issue is 225,120,000. Each share has a quota value of SEK 1/7 and equal rights to KappAhl s assets, earnings, and voting rights. The Company s ownership is dispersed, and the number of shareholders on October 31, 2012, amounted to 20,693. Dutot Ltd. (Christian W. Jansson) is the Company s largest shareholder with a holding of 36,644,100 shares corresponding to approximately 16.3 percent of the share capital and voting rights. The table below displays shareholders, which as of October 31, 2012, held more than five percent of the shares in the Company. Major shareholders 1 Shareholder Number of shares % of votes % of capital Dutot Ltd (Christian W. Jansson) 36,644, % 16.3% Mellby Gård AB (Rune 27,252, % 12.1% Andersson) Swedbank Robur 14,765, % 6.6% Fonder 2 Nordea Bank Norge 12,660, % 5.6% Nominee Others 133,797, % 59.4% Total 225,120, % 100.0% B.7 Financial information in brief Group income statement summary 2011/ / /10 SEK million Sep-Aug Sep-Aug Sep-Aug Sales revenue 4, , ,110.7 Cost of goods sold -1, , ,953.8 Gross profit 2, , ,156.9 Selling expenses -2, , ,466.4 General and administrative expenses Operating profit Interest income Interest expense Profit before tax Source: The Company s share register kept by Euroclear Sweden. 2 Refers to total holdings for Swedbank Robur Sverigefond, Swedbank Robur Sverigefond Mega, and Robur Försäkring AB. 6 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

7 Income tax expenses Profit for the year Group balance sheet summary SEK million 31 Aug 31 Aug 31 Aug Tangible assets ,006.4 Intangible assets 1, , ,329.0 Deferred tax assets Inventories Other current assets Cash and cash equivalents Total assets 3, , ,359.4 Shareholder s equity Non-current interest-bearing debt , ,877.8 Other non-current liabilities Current interest-bearing debt Other current liabilities Total shareholder s equity and liabilities 3, , ,359.4 Group cash flow statement summary 2011/ / /10 SEK million Sep-Aug Sep-Aug Sep-Aug Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Key figures 2011/ / /10 Sep-Aug Sep-Aug Sep-Aug Gross margin 56.7% 58.8% 61.8% Operating margin -1.4% 4.5% 10.8% Interest coverage ratio (multiple) Net interest-bearing liabilities, SEKm 1,673 2,266 1,866 Net interest-bearing liabilities/ebitda (multiple) Equity/assets ratio, % 26.2% 14.9% 22.1% Equity per share, SEK Earnings per share, SEK Dividend per share, SEK Definitions Gross margin Operating margin Interest coverage ratio (multiple) Net interest-bearing liabilities, SEKm Gross profit in relation to sales revenue Operating profit in relation to sales revenue EBITDA (excluding one-off items) divided by net interest income excluding non-recurring items, for the immediately preceding twelve-month period Interest-bearing debt minus cash and cash equivalents INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 7

8 Net interest-bearing liabilities/ebitda (multiple) Equity/assets ratio Equity per share, SEK Earnings per share, SEK Net interest-bearing debt divided by EBITDA for the immediately preceding twelve-month period Equity divided by balance sheet total Equity divided by the average number of shares Profits after tax divided by average number of shares On November 13, 2012, KappAhl announced that the Company s sales during the period September-October 2012 increased by 5 percent in local currencies, compared to the same period previous year, of which 2 percentage points were attributable to comparable stores. During the same period, the gross margin increased by 3 percentage points. On November 23, 2012, the sale of the property containing the Company s distribution centre and headquarters was completed. The sale was made through a legal entity, with an underlying property value of SEK 490 million, resulting in a capital gain of approximately SEK 60 million. B.8 Selected pro forma accounting Not applicable; the prospectus does not contain any pro forma accounting. B.9 Earnings forecast Not applicable; the prospectus does not contain any earnings forecasts or calculations of expected profits. B.10 Auditor s qualifications KappAhl s annual accounts for 2009/10, 2010/11 and 2011/12, including auditor s reports, does not contain any remarks. However, the Company s auditor has emphasised a matter of particular importance in the auditor s report for the financial year 2011/12. The comment reads as follows: Without it qualifying our opinion above, we would like to draw attention to the following matter; As described in the annual report, the company has entered into an agreement with the company s banks, regarding the amortisation of loans in 2012/13. A significant prerequisite for the company to meet this requirement by the banks, and thereby secure long term financing, is that the proposed new share issue is authorised by the annual general meeting. B.11 Working capital The Board of Directors in KappAhl are of the opinion that the current working capital (that is before the Rights Issue) is not sufficient for the Company s current need for the coming twelve-month period, since the Company s working capital need for the period is larger than the Company s short and long-term financial assets. KappAhl is obliged to amortise loans during 2012/13. The current working capital in KappAhl (that is before the Rights Issue) is estimated to be sufficient to continue operations for approximately five months. The working capital deficit for the coming twelve-month period is estimated to amount to approximately SEK 300 million. The Company s action plan to obtain more working capital is the current Rights Issue that the Board of Directors has secured major shareholders support for and is fully guaranteed, and the sale of the property containing the distribution centre and headquarters. The Rights Issue amounts to SEK 383 million before transaction costs, and the property sale was made through a legal entity with the underlying property value of SEK 490 million. With the capital injection from the current Rights Issue, the Board of Directors estimates that the Company s working capital will be sufficient to continue operations during the coming twelve-month period. If the Rights Issue is not completed, despite the fact that it has been approved by the Annual General Meeting and is fully guaranteed, the Company would be forced to seek other sources of finances, e.g. directed issue of new shares or renegotiations of current credit agreements. KappAhl s single largest current asset is the inventory. The inventory consists of products in stores and products en route to stores. The reported inventory level has decreased during the last year, and amounted to SEK 751 million as of August 31, The inventory level is now considered satisfactory. Next to liabilities to credit institutions, the Company s largest current liabilities are trade payables, and accrued expenses and deferred income. The latter is mainly related to employee-related liabilities. 8 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

9 SECTION C SECURITIES C.1 Securities offered The Rights Issue consists of New Shares in KappAhl (ISIN code: SE ). C.2 Denomination The shares are denominated in SEK. C.3 Total number of shares in the Company C.4 Rights associated with the securities C.5 Restrictions to the transferability of shares C.6 Admission to trading The Company s registered shares capital amounts to SEK 32,160,000, divided between 225,120,000 shares. Each share has a quota value of SEK 1/7 (corresponding to approximately SEK 0.14). After the Rights Issue of New Shares the Company s share capital will amount to a maximum of SEK 64,320,000 divided between a maximum of 450,240,000 shares. Each share entitles to one vote at the general meeting. Each share is entitled to the same share of the Company s earnings and potential surplus in case of liquidation. The Annual General Meeting makes decisions regarding dividends, and dividends will be paid out by Euroclear Sweden. Those who are registered as shareholders in the share register kept by Euroclear Sweden at the record date, which is set by the Annual General Meeting, have the rights to dividends. Not applicable; the shares are not subject to any restrictions on the transferability of the shares. The New Shares will be, and the existing shares are, admitted to trading on NASDAQ OMX Stockholm. C.7 Dividend policy The Company s objective is that dividends should amount to percent of profits after tax, under the assumption that the KappAhl Group achieves its financial targets. SECTION D RISKS D.1 Principals risks related to the issuer or its industry Before an investor decides to subscribe for shares in KappAhl it is important to carefully analyse the risks that are deemed to be of importance to the future of the Company and the share. Below is a description, in no particular order, of the main categories of risk factors which are likely to be relevant to the Company s future development, without claiming to be comprehensive. Financial risks include inter alia risks related to sales and earnings, adverse capital and credit market conditions, currency risks, future financial and capital requirements, taxes (mainly related to the ability to utilise deferred tax assets), write down requirements for intangible assets, significant equity-debt ratio and payment obligations (mainly that KappAhl may need to use a large portion of the cash flow for payment of debts and that KappAhl s flexibility may be limited) and credit risks (mostly counterpart risks arising from the purchase of derivatives instruments). Market related risks include inter alia risks related to cyclical influences, fashion risks (mainly that KappAhl has failed to identify and adapt to the ever changing fashion trends), weather and seasonal variations (mainly that an unusual change in weather can result in increased inventory levels and increased sales at reduced prices) and access to new store locations. Operational risks include inter alia a risk of increased production and distribution costs, supplier risks (mainly that KappAhl s trademark may be damaged if KappAhl s independent producers violate employment laws or deviate from working conditions which in the EU are seen as ethical or international labour standards), inventory risks (mainly that obsolescence may INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 9

10 occur), risks related to information systems, dependence on key personnel and allocation of adequate operational resources (mainly related to failure to achieve adequate managerial and operational resources for business growth), risk related to trade restrictions, risks related to damage to the corporate distribution center in Mölndal, and risks related to failure to protect KappAhl s trademarks. These risks includes inter alia industry, market and financial risks such as risks relating to cyclical influences, fashion trends, weather and season variations, competitors, access to new store locations, increased production and distribution costs, suppliers, inventory, information systems, dependence of key personnel, allocation of sufficient operational resources, trade restrictions, damage to the distribution center, failure to protect KappAhl s trademarks, sales and profits, unfavourable capital and credit market terms, currency and interest rate fluctuations, future financing and capital requirement, taxes, intangible assets, indebtedness and debt service obligations, and credits. There may be risks related to KappAhl or the industry that are not currently known to KappAhl. D.3 Principal risks relating to the securities Risks related to the share and the Rights Issue includes risks related to the fact that the subscription and guarantee undertakings that have been obtained are not covered, offers of shares in the future, influence from major shareholders, future dividends and the share price development. There could be risks related to the securities that at the moment are not known to KappAhl. SECTION E THE OFFERING E.1 Issue proceeds and issue costs The Rights Issue will provide KappAhl with a maximum of approximately SEK 383 million before transaction costs. The Rights Issue proceeds will be reduced by transaction costs, which are estimated to amount to approximately SEK 15 million. No costs will be imposed on investors. E.2a Motives and use of proceeds The purpose of the Rights Issue is to strengthen the Company s financial position. Approximately SEK 300 million of the proceeds from the Rights Issue is intended to be used to amortise the Company s bank loans, while the remaining proceeds from the Rights Issue is intended to be used to reduce the drawn bank overdraft facilities. The Rights Issue is expected to provide the Company with approximately SEK 368 million, net of transaction costs. E.3 Offer terms and instructions On October 23, 2012, the Board of Directors in KappAhl resolved, subject to approval by the Annual General Meeting, on a new issue of shares with preferential rights for the Company s shareholders. On November 26, 2012, the Board of Directors resolved that a maximum of 225,120,000 New Shares will be issued at a subscription price of SEK 1.70 per share. The Board of Director s resolution was approved by the Annual General Meeting on November 28, Through the Rights Issue, KappAhl s share capital will increase by a maximum of SEK 32,160,000 through issuance of a maximum of 225,120,000 New Shares. The Company s existing shareholders have preferential rights to subscribe for the New Shares in relation to shares held. The record date for participation in the Rights Issue is December 3, Every existing share held entitles the holder to one (1) Subscription Right. One (1) Subscription Right entitles to subscription for one (1) New Share. In the event that not all New Shares have been subscribed for using Subscription Rights, the Board of Directors may, within the Rights Issue s maximum amount, resolve on allocation of shares to those who have subscribed for shares without Subscription Rights. The subscription period runs as from and including December 6, 2012, up to and including December 20, 2012, or a later day decided by the Board of Directors. 10 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

11 E.4 Issues relevant to the offer Dutot Ltd., Mellby Gård AB, Ferd AS, Jula AB, and Håkan Westin have undertaken to subscribe for shares in the Rights Issue corresponding to their respective pro rata share holding, which in aggregate corresponds to 34.9 percent of the Rights Issue. Dutot Ltd., Ferd AS and Håkan Westin have also undertaken to guarantee an amount corresponding to approximately 41.4 percent of the Rights Issue, meaning that existing shareholders have granted subscription undertakings and guarantee undertakings in respect of approximately 76.3 percent of the Rights Issue. In addition, Italo Invest AB, Sawajpore AB, Mount Mitchell AB, Lindgate Industri AB, and Independia AB (Jan Samuelson) have undertaken to guarantee an amount corresponding to approximately 23.7 percent of the Rights Issue. Consequently, the Rights Issue is fully guaranteed by means of subscription and guarantee undertakings. Some Board of Directors and senior managers have economic interests in the form of shares in the Company. Among them Christian W. Jansson, who controls Dutot Ltd., and Håkan Westin, both of which guarantee part of the Rights Issue. E.5 Lock-up agreements The existing shareholders Dutot Ltd., Mellby Gård AB, Ferd AS, Jula AB, and Håkan Westin, who have committed to use their preferential rights in the Rights Issue, have also committed to not reduce their respective holdings in KappAhl until the preferential right has been used. E.6 Dilution Through the Rights Issue, the number of shares in the Company will increase from 225,120,000 to 450,240,000, which corresponds to an increase of 100 percent. Shareholders who do not subscribe for New Shares in the Rights Issue will see their ownership diluted by a maximum of 225,120,000 New Shares, corresponding to a maximum of approximately 50 percent of the total number of shares in the Company after the Rights Issue. E.7 Costs imposed on investors Not applicable; the Company does not impose any costs on the investors. INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 11

12 RISK FACTORS An investment in Subscription Rights, BTA and/or shares is associated with risks. A number of factors outside KappAhl s control, together with a number of factors whose effects KappAhl can influence by its actions, may have a negative impact on the Company s operations, result and financial position or cause the value of the Company s shares and BTA and Subscription Rights to be reduced. Risk factors which could have an impact on KappAhl s prospects are presented further below. The risks are not internally ranked and the presentation does not claim to be exhaustive. Further risks and uncertainties which KappAhl does not know about or which presently are not considered to be material can develop into factors which affect KappAhl. In addition to information in the prospectus, any investor should therefore make its own assessment of each risk factor and its importance to the Company s prospects and make a general assessment. The prospectus contains future looking statements that are dependent on future events, risks and uncertainties. The Company s actual result may due to many factors, for example but not limited to the risks presented below or elsewhere in the prospectus, differ substantially from results predicted in any future looking statements. RISKS RELATED TO KAPPAHL AND THE INDUSTRY Risks related to sales and result There is a risk that KappAhl s sales or result may deviate from the Company s plans. Should the development deviate from the Company s plans it cannot be ruled out that further capital may be necessary and there is a risk that such capital cannot be raised on terms which are acceptable to KappAhl. If KappAhl s sales and result deviate negatively from its plans it may have adverse effects on KappAhl s operations, result and financial position. Furthermore, the Company s bank agreement contains conditions stipulating that KappAhl must fulfil certain commitments regarding the Group s net debt in relation to operating income before depreciation and write-down (EBITDA). If the Company does not meet such undertakings the Company s financing costs or expansion rate may be affected, which could have a negative impact on the Company s results. Unfavourable capital and credit market terms KappAhl needs cash or cash equivalents to pay running costs including rent and interest. Without sufficient cash or cash equivalents KappAhl may be forced to limit its expansion or reduce its business. If KappAhl s existing assets would not be sufficient for the Company s needs KappAhl may need to seek further financing at unfavourable terms. The access to further financing is affected by a number of factors such as market terms, market volume, and the total access to credits within the financial sector, as well as KappAhl s credit worthiness and credit capacity. The access to further financing may also be dependent upon that customers and/or banks do not come to have a negative opinion of the Company s long- and short-term financial prospects, which for example could be the case if KappAhl s sales or result is reduced. Furthermore, the Company s bank agreements are entered into on customary conditions, which, inter alia means that the interest rate which the Company shall pay is dependent upon the market interest. If the capital and credit market terms deteriorate, it could have a negative impact on the Company s results. Currency risks KappAhl relies on external manufacturers located throughout Asia, Europe and the rest of the world for its finished products, and its purchases are principally denominated in US dollars. KappAhl s merchandise is marketed and sold in countries with different currencies. As KappAhl reports its financial statements in Swedish kronor, and purchases are primarily in US dollars, and a substantial portion of KappAhl s sales is in currencies other than the Swedish krona, KappAhl faces considerable exposure to fluctuations in the currency exchange rates for the Swedish krona against US dollars, Norwegian kroner, euro and Polish zloty. This may in the future have an adverse effect on KappAhl s business, results and financial position. An increase in US dollars against SEK with 0.50 krona means, all else equal, increased purchase costs with approximately SEK 91 million. There is no assurance that KappAhl s hedging strategy will adequately protect the operating results from the effects of future exchange rate fluctuations. All transactions between KappAhl and the other companies within the Group are in local currency, why currency differences largely only occurs in the Swedish companies in the Group. At group level, currency calculation differences occur when the results and balance sheets of foreign subsidiaries are consolidated. Such exposure is not hedged and can therefore have material impact on the Company s result. 12 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

13 Interest rate risks KappAhl partly finances its operation through credit arrangements. It means that part of the cash flow of the Group is used for interest payments referable to debts in the Group, which reduces the means available for the operations and prospects of the Group. A future increase in interest may increase interest payments which may have an adverse effect on KappAhl s cash flow, financial position and result. Future financing and capital requirement KappAhl s finance risks include potential increased costs for, and potential delays in, financing the capital need of the operations and refinancing of the Company s outstanding loans. If KappAhl s development deviates from the Company s plans it cannot be excluded that further capital may be needed and that there is risk that such capital fail or cannot be raised on terms which are acceptable to KappAhl. If the Rights Issue, which is authorised by the Annual General Meeting and fully guaranteed, is not carried out the Company would have to seek other funding options as, inter alia, private placement or renegotiation of existing credit agreement. If the Company in the future fails in raising necessary capital, the Company s continuous operations may be negatively affected. Risks related to the shares and the Rights Issue is further set forth under Risks associated with the shares and the Rights Issue. Tax risks It cannot be excluded that the Group s interpretations of applicable rules or administrative practice is incorrect, or that rules or practice may change, potentially with retroactive effect. By decision of tax authorities, the Group s previous or existing tax situation may be degraded which may negatively affect the Company s financial development and result. KappAhl has as a significant asset deferred tax assets. If KappAhl s long-term development deteriorates, KappAhl may be forced to re-evaluate deferred tax assets; which would then have an adverse effect on KappAhl s results. Furthermore, a change in ownership of the Company, which means that no owner will hold more than 50 percent of the votes and capital in the Company, could mean that the possibility of using the available tax losses in KappAhl is limited or completely disappears, which could lead to that the Company s results is negatively affected. There is also a risk that the tax legislation changes in such a way that it prevents the exploitation of the fiscal deficit that KappAhl is in possession of. Risks related to intangible assets KappAhl s balance sheet partly includes goodwill, trademark and other intangible assets. As per 31 August 2012, the Company s booked value referable to goodwill was SEK 696 million and SEK 610 million referable to trademark value. For valuation of goodwill, trademark and other intangible assets, assumptions on future, growth, profitability and financing are important factors. Even if the Company presently does not expect to write off aforesaid assets it cannot be guaranteed that this will not happen in the future. If material write-offs are made on KappAhl s goodwill, trademark or other intangible assets it will negatively affect the Group s financial position and result. KappAhl has substantial leverage and debt service obligations KappAhl has significant credit and debt service requirements and may incur additional debt in the future. Such level of indebtedness and leverage could have important consequences relevant to a holder of Shares, including, without limitation: that KappAhl may be required to dedicate a substantial portion of KappAhl s cash flow to service KappAhl s indebtedness, which would reduce cash available to finance operations, capital expenditures, working capital and other general corporate purposes; and that KappAhl s flexibility to plan for, or react to, changes in the apparel retail market is limited. Any of these or other consequences or events could have a material adverse effect on the Company s ability to satisfy its obligations as they become due, and, as a result, (e.g. as in-creased costs for refinancing) have a material adverse effect on its business, results of operations or financial position. Credit risks KappAhl s credit risks are largely limited to counterparty-risks in connection with banks or other counterparties obligations against KappAhl which occur when derivative instruments are acquired. If such counterparty does not fulfil its commitments, KappAhl s sales, financial position or result may be negatively affected. INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 13

14 Cyclical influences Consumers spending patterns are affected by a number of general factors beyond KappAhl s control, such as overall business conditions, interest rates, currency exchange rates, rate of inflation or deflation, taxation, availability of credit, stock market performance, rate of unemployment, other local economic conditions, uncertainties about future economic prospects and shifts in discretionary spending toward other goods and services. A more favourable economical situation means a positive impact on the households economy, which usually impacts their consumption pattern in positive manners. A less favourable economical situation generally has the opposite effect. KappAhl has operations in Sweden, Norway, Finland, Poland and the Czech Republic. There is no assurance that the Company will be able to maintain historical levels of net sales or remain profitable, particularly if the overall apparel retail market in any of its geographic markets is stagnant or does not recover. A decline in gross domestic product ( GDP ) and a decline in consumer spending in any of KappAhl s markets could have a material adverse effect on the Company s business, results of operations or financial position. Fashion risks KappAhl s success depends on its ability to identify and respond to constantly shifting fashion trends and customer demands and on its ability to timely develop new and appealing products. KappAhl s products must also appeal to a broad range of consumers whose preferences cannot be predicted with certainty. If KappAhl should misjudge consumer trends, or fail to sell existing products, this may result in excess inventories and increased levels of markdown for some products and missed opportunities for others. Moreover, KappAhl s brand may suffer if customers believe that KappAhl is no longer able to offer them products that they perceive as being fashionable. If KappAhl fails to identify and respond to fashion trends and customer demands, this could have a material adverse effect on KappAhl s business, results of operations and financial position. Weather and season variations The apparel industry is affected by changes in weather. Unpredictable weather may reduce the demand for and/or profitability of KappAhl s lines of apparel. Any unprecedented or unusual changes in weather could result in excess inventory and increased levels of mark-down adversely affecting the Company s net sales and gross profit. Competitors The market for KappAhl s products and services is competitive, and there may be several competitors on the local markets. KappAhl also competes with other retailers for favourable store locations and advantageous lease terms for stores. KappAhl s competitors, both Nordic and international, may sometimes have greater financial, marketing and other resources and may consequently be more adaptable to changes in customer requirements, and may devote greater resources to the marketing and design of their products and stores and achieve greater brand recognition than KappAhl. Increased and continued competition may lead to price pressure and loss of market shares, which could have a material adverse effect on KappAhl s business, results and financial position. Access to new store locations KappAhl s strategy includes store expansion and KappAhl s future operating results depend, in part, upon the Company s ability to increase sales at existing store locations, to open new stores and to further develop store concepts. KappAhl s ability to open new stores and to upgrade and expand existing stores depend on a number of factors, some of which are outside of the Company s control, including the availability of suitable new locations in targeted markets or locations adjacent to existing stores and the terms of the relevant leases. the Company must also successfully negotiate acceptable leases for new stores, meet construction and remodelling schedules and manage the store expansion. If KappAhl fails to successfully open new stores or expand and upgrade existing stores, this could have an adverse effect on KappAhl s ability to increase its market shares and sales. It could occur that KappAhl may not be able to renew its leases on acceptable terms or at all. If KappAhl fails to do so, the Company could lose some of its prime retail locations which could adversely affect KappAhl s retail strategy and force KappAhl to incur relocation costs. KappAhl could also experience lower sales during periods of relocations or expansions. The occurrence of any of the foregoing could have a material adverse effect on the Company s business, results of operations or financial position. Risk for increased production- and distribution costs A large part of the products sold by KappAhl are made in countries with lower costs and salaries than in Sweden. This means that KappAhl can sell its products at a lower price than would otherwise be the case if production was based in Sweden. The development in the countries where the production is located is however in many cases rapid 14 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

15 and there are no assurances for how long the relatively low costs will prevail in the relevant countries. Also costs for raw material, for example cotton, can change for suppliers if the market for such raw material changes. KappAhl also has costs for distribution of products to Sweden from the countries where they are produced. Also such costs can increase. Accordingly there is a risk that KappAhl s costs for products bought can increase to such extent that the cost increase cannot fully be covered in relation to KappAhl s customers, with decreased marginal as a consequence. Supplier risks KappAhl sources all of its apparel and accessories from external manufacturers located throughout Asia, Europe and the rest of the world which exposes it to political, economic and regulatory conditions in those areas and to a variety of local business and labour practice issues. The violation of labour laws, regulations or standards by KappAhl s external manufacturers, or the divergence by its external manufacturers labour practices from those generally accepted as ethical in the European Union or by international labour standards, could have a material adverse effect on KappAhl s brand name and public image and, as a result, KappAhl s business, results of operations and financial position. KappAhl may not control all external manufacturers actions or omissions. Inventory risk The KappAhl Group has a common distribution centre (central warehouse) and inventory stock in the individual stores. Inventory risk means that a risk for obsolescence arises if the inventory is not sold at a value exceeding the purchase price (obsolescence). If obsolescence arises the Company shall write down the inventory, which will have an adverse effect on the Company s result. Information systems KappAhl depends on information systems to coordinate allocation, manage merchandise inventory, purchase and transport garments as well as gather and process operational and statistical information. As a result hereof of any system failures, viruses, computer hackers or other causes, may cause problems. Any material disruption or slowdown of the information systems could cause valuable information to be lost or operations to be delayed which in turn especially if the problems occur during the peak shopping season, in particular the pre-christmas period could have a material adverse effect on KappAhl s business, results or financial position. Dependence of key persons It is not certain that KappAhl will be able to retain its senior management. The loss of the services of any member of KappAhl s senior management team or any other key senior personnel could have a material adverse effect on KappAhl s business, results of operations or financial position. Allocation of sufficient operational resources Pursuant to the Company s growth strategy, it intends to increase the number of stores. As a result, the operating complexity of the business, as well as the responsibilities of the management, can be expected to increase, which may place significant strain on the Company s managerial and operational resources. Future operating results depend, in part, upon a small number of key senior management. The efficiency in KappAhl s operational, managerial and financial systems are kept under regular review as KappAhl grows. Furthermore, the Company will have to coordinate its personnel within logistics, accounting, finance, marketing and sales. Any failure to obtain the necessary managerial and operational resources for the business growth or identify weaknesses in operational, managerial and financial systems and processes could impact the reliability of the Company s financial statements or adversely affect the Company s business, operations or financial position. Trade restrictions Any trade restrictions, including increased tariffs, safeguards or quotas on apparel and accessories could have a material adverse effect on KappAhl s business, results of operations and financial position. It cannot be predicted whether any countries in which KappAhl s merchandise is currently manufactured, or may be manufactured in the future, will be subject to additional trade restrictions, nor can it be predicted the likelihood, type and effect of any such restrictions. Damage to the distribution centre All apparel sold by KappAhl is for the Group processed through the distribution centre in Mölndal outside Gothenburg. If the distribution centre was destroyed or closed for any reason or the equipment in the distribution centre was significantly damaged, the Company would likely be unable to distribute its products to the stores. Such INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 15

16 circumstances, to the extent KappAhl is unable to find an alternative distribution centre or repair the distribution centre or any such equipment in a timely and cost effective manner, could have a material adverse effect on KappAhl s business, results of operations or financial position. There can be no assurance that KappAhl will be able to fully recover such amounts or that recovered amounts will be sufficient to cover potential losses. Inability or failure to protect KappAhl s trademarks etc. There can be no assurance that KappAhl can fully protect its trademarks. In addition, the unauthorised use of KappAhl s brand names or trademarks on imitation products, or the imitation of KappAhl s stores, could harm the Company s market image and reputation which could have a material adverse effect on the business, results of operations or financial position. Fashion designers tend to follow similar trends and the designs of KappAhl s products may be similar to the designs of other designers and retailers. From time to time, designers, retailers and other third parties may allege that KappAhl s products infringe their intellectual property rights. While the Company is not currently party to any such proceeding, it cannot provide any assurance that claims will not be brought against the Company in the future. If this were to occur, KappAhl may be required to incur significant expenses. MARKET RISK REGARDING CURRENT SECURITIES Obtained subscription and guarantee undertakings are unsecured KappAhl has in written form obtained subscription undertakings from shareholders, pursuant to which they on customary terms have undertaken to subscribe for their respective pro rata share in the Rights Issue. In addition, KappAhl has in written form obtained guarantee undertakings from shareholders and external guarantors pursuant to which they, on customary terms, have undertaken to subscribe for those shares which are not subscribed for with or without preferential right. The Company has, in connection with the received undertakings, obtained information that cash or cash equivalents for fulfilling the undertakings are available for each part. The subscription and guarantee undertakings are however not secured through bank guarantee, pledge or otherwise than written agreements and the Company s obtainment of information about cash available for each party. In the light of the aforesaid, the Company cannot guarantee that the subscription and guarantee undertakings will be fulfilled. Future offer of shares While KappAhl presently has no plans on issuing further shares (in excess of those shares which will be issued at utilisation of the warrants which are outstanding in the Company), KappAhl may in the future need to issue shares or other financial instruments for the purpose of for example executing large acquisitions or other investments. Any future issue of shares or other financial instruments by KappAhl could have a negative and material effect on the stock market price for KappAhl-shares. Major shareholders influence As per October 31, 2012, KappAhl s two largest shareholders, Dutot Ltd. (Christian W. Jansson) and Mellby Gård AB (Rune Andersson) held approximately 16.3 percent and 12.1 percent, respectively, of the share capital and votes in the Company. Dutot Ltd. may as a result of the Rights Issue increase their share holdings in KappAhl since Dutot Ltd. have undertaken to subscribe for shares in addition to their pro rata share. As a consequence of the above, Dutot Ltd. may be able to significantly influence matters submitted to a vote of all of the shareholders. There is a risk that small shareholders influence thereby will be reduced. Extensive sale of KappAhl shares by major shareholders may have negative effects on the stock price If KappAhl s major shareholders would sell a significant number of KappAhl-shares on the stock market, or if the market perceives that such sales could occur, KappAhl s share price may be negatively affected. None of KappAhl s shareholders has (in addition to that share-holders which have made subscription undertakings as customary, agreed not to transfer their shares before the shareholder has subscribed for his portion in the Rights Issue), any obligation against KappAhl to keep and maintain its holding, and there are no assurances that major shareholders will keep and maintain the current holdings in KappAhl after the Rights Issue. Future dividends For any financial year, the dividend level for shareholders is uncertain. The size of potential future dividends is dependent on the Company s future result, financial position, cash flow, working capital requirements, and other factors. The terms of any existing or future bank or credit agreement may preclude KappAhl from paying any dividends. KappAhl cannot guarantee that distributable earnings will be available for any financial year. 16 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

17 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL On October 23, 2012, the Board of Directors in KappAhl resolved, subject to the Annual General Meeting s approval, on a new share issue with preferential rights for the Company s shareholders. On November 26, 2012, the Board of Directors resolved that a maximum of 225,120,000 New Shares will be issued at a subscription price of SEK 1.70 per share. The Board of Directors resolution was approved by the Annual General Meeting on November 28, The Company s shareholders have preferential right to subscribe for New Shares in proportion to shares held on the record date December 3, Each existing share held entitles the holder to one (1) Subscription Right. One (1) Subscription Right entitles to subscription for one (1) New Share at the subscription price SEK 1.70 per share. The subscription period runs from and including December 6, 2012, up to and including December 20, 2012, or a later date decided by the Board of Directors. The New Shares will have the same rights as existing shares in the Company. Subscription for New Shares is also possible without exercising Subscription Rights. See section Terms, conditions, and instructions below for further information. Through the Rights Issue, the share capital increases by a maximum of SEK 32,160,000 from SEK 32,160,000 to a maximum of SEK 64,320,000, divided between 450,240,000 shares. At full subscription, the Rights Issue will provide the Company with approximately SEK 383 million before transaction costs, which are estimated to amount to approximately SEK 15 million. Shareholders who choose not to participate in the Rights Issue will see their holdings diluted by a maximum of approximately 50 percent, but have the opportunity to receive economic compensation for the dilution by selling their Subscription Rights. In the event that all New Shares are not subscribed for with Subscription Rights, the Board of Directors may, within the maximum amount of the Rights Issue, resolve to allocate shares to those who have subscribed for shares without preferential rights. It is therefore possible to subscribe for shares without preferential rights, in addition to the subscription with Subscription Rights, using a separate application form. Only those who subscribe for shares in the Rights Issue with Subscription Rights are entitled to subscribe for shares without Subscription Rights. SUBSCRIPTION AND GUARANTEE UNDERTAKINGS 3 Dutot Ltd., Mellby Gård AB, Ferd AS, Jula AB and Håkan Westin have undertaken to subscribe for their respective pro rata shares in the Rights Issue, which in aggregate corresponds to 34.9 percent of the Rights Issue. Dutot Ltd., Ferd AS and Håkan Westin have also undertaken to guarantee an amount corresponding to approximately 41.4 percent of the Rights Issue, meaning that existing shareholders have granted subscription undertakings and guarantee undertakings in respect of a total of approximately 76.3 percent of the Rights Issue. In addition, Italo Invest AB, Sawajpore AB, Mount Mitchell AB, Lindgate Industri AB and Independia AB (Jan Samuelson) have undertaken to guarantee an amount corresponding to 23.7 percent of the Rights Issue. Consequently, the Rights Issue is fully guaranteed by means of subscription and guarantee undertakings. Shareholders are hereby invited to subscribe for New Shares in KappAhl with preferential rights, in accordance with the terms set out in this prospectus. Mölndal, November 29, 2012 KappAhl AB (publ) The Board of Directors 3 See section Legal considerations and supplementary information. INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 17

18 BACKGROUND AND REASONS KappAhl is a leading fashion chain selling affordable fashion to well-defined customer segments through approximately 390 stores in five countries. The Company has performed well since the stock exchange listing in 2006 and has fulfilled both the operational and financial targets up until the fiscal year 2009/10. Based on the business strong cash flow, the Company has had the opportunity to apply a strategy of shareholder-friendly dividend policy. KappAhl has since the fiscal year 2010/11 experienced a significantly weaker demand compared to what the Company has expected and planned for. In addition, the product offering has not sufficiently met the customers expectations. A higher proportion of clearance sales and higher sourcing costs have resulted in deteriorated profitability. The weaker sales development has also resulted in an inventory increase and increased tie-up of capital. In parallel, the attitude on both the banking and the stock market in general has become more negative towards debt financing in companies, which makes an adjustment to the current market situation suitable. A number of actions have been carried out during the fiscal year 2011/12 in order to address the weaker sales development. Cost savings have been conducted and a total of approximately SEK 150 million has been saved through a number of measures. Furthermore, a lot of effort has been put into the assortment, which has been further adapted to KappAhl s core customer. In addition, the Company has successfully decreased its tie-up of inventory, which has led to a reduction of the inventory levels during the fiscal year 2011/12 from SEK 858 million at the beginning of the fiscal year to SEK 751 million at the end of the fiscal year. The size and the composition of the inventory are now altogether considered to be satisfactory. The Company has, as previously announced, sold the property that contains the distribution centre and headquarters. The disposal is made through a legal entity, and with an underlying property value of SEK 490 million. The sale is expected to generate a capital gain of approximately SEK 60 million. Meanwhile, a new 15 year lease agreement has been signed. KappAhl s Board of Directors has resolved on a new share issue of approximately SEK 383 million (before transaction costs) with preferential rights for the Company s shareholders, with the purpose to strengthen the Company s financial position and reduce the debt position by loan amortisation 4. Following the property sale and the Rights Issue, the debt level is expected to correspond broadly to the value of the inventory and is therefore expected to be at a sustainable level in the current financial climate. The financial costs are now expected to relatively quickly decrease to a historically normal level. The Board of Directors in KappAhl is responsible for the content of this prospectus. The Board of Directors hereby declares that, having taken all reasonable care to ensure that such is the case, the information contained in this prospectus is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import. Mölndal, November 29, 2012 KappAhl AB (publ) The Board of Directors 4 Subscription and guarantee undertakings have been obtained for the entire Rights Issue. The Rights Issue proceeds will be reduced by transaction costs, which are estimated to amount to approximately SEK 15 million, of which SEK 6.2 million is related to guarantee undertakings. The remuneration for guarantors is based on a maximum amount for each respective guarantor (see also section Legal considerations and supplementary information ). 18 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

19 TERMS, CONDITIONS AND INSTRUCTIONS PREFERENTIAL RIGHT Existing shareholders on the record date December 3, 2012, have preferential right to subscribe for the New Shares. Each existing share entitles to subscription for one (1) New Share at the subscription price of SEK 1.70 per share. SUBSCRIPTION PRICE The New Shares in KappAhl will be issued at a subscription price of SEK 1.70 per New Share. No commission will be charged. RECORD DATE The record date at Euroclear Sweden to determine who are entitled to receive Subscription Rights in the Rights Issue is December 3, The shares in KappAhl are traded including rights to receive Subscription Rights up to and including November 28, The shares are traded excluding the rights to receive Subscription Rights from and including November 29, INFORMATION FROM EUROCLEAR SWEDEN TO DIRECTLY REGISTERED SHAREHOLDERS A pre-printed issue statement with an attached payment notice and an application form with payment instructions will be distributed to shareholders or representatives of shareholders in KappAhl who, on the record date December 3, 2012, are registered in the share register held by Euroclear Sweden on behalf of KappAhl and who are entitled to subscribe for New Shares in the Rights Issue. The pre-printed issue statement states, among other things, the number of Subscription Rights received and the number of New Shares that may be subscribed for. No separate securities notification, regarding the registration of Subscription Rights on VP accounts, will be sent out. Those entered into the separate list of pledgees and trustees kept in connection with the share register will not receive an issue statement, but will instead be informed separately. NOMINEE-REGISTERED HOLDINGS Shareholders whose holdings in KappAhl are nominee-registered at a bank or other nominee will not receive an issue statement from Euroclear Sweden. Subscription and payment will instead take place in accordance with instructions from the nominee. SUBSCRIPTION RIGHTS For one (1) existing share in KappAhl, held on the record date December 3, 2012, one (1) Subscription Right will be received. One (1) Subscription Right entitles to subscription for one (1) New Share. TRADING IN SUBSCRIPTION RIGHTS Trading in Subscription Rights will take place on NASDAQ OMX Stockholm during the period from and including December 6, 2012, up to and including December 17, Banks and securities institutions with the required licences in Sweden can assist in buying and selling Subscription Rights. Customary commission will be charged for such trading. SUBSCRIPTION FOR NEW SHARES WITH SUBSCRIPTION RIGHTS Subscription shall take place through payment during the period from and including December 6, 2012, up to and including December 20, After the subscription period, Subscription Rights that have not been exercised will be void and lose its value. After December 20, 2012, Subscription Rights that have not been exercised will be deleted from VP accounts, without notice from Euroclear Sweden. The Board of Directors in KappAhl has the right to extend the subscription period, which if exercised will be announced no later than December 20, SHAREHOLDERS RESIDENT IN SWEDEN Subscription for New Shares by preferential rights will be effected by means of cash payment using the distributed payment notice. The payment must have been received by 5:00 PM on December 20, The pre-printed payment INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 19

20 notice, attached to the pre-printed issue statement, should be used if all Subscriptions Rights designated equal subscription are exercised. The application form as described below should then not be used. The non pre-printed application form with payment instructions should be used if Subscription Rights have been bought or sold, transferred from another VP account or if all Subscription Rights according to the issue statement from Euroclear Sweden designated equal subscription will not be used. Application forms will be distributed to those who, on the record date, were registered shareholders in KappAhl and can also be obtained at Carnegie s offices or via telephone , or be downloaded from Carnegie s website, SHAREHOLDERS RESIDENT IN CERTAIN OTHER JURISDICTIONS THAN SWEDEN The allocation of Subscription Rights, and the issuance of New Shares by exercise of Subscription Rights, to persons resident in, or citizens of, countries outside Sweden may be affected by securities legislation prevailing in such countries. Consequently, subject to certain potential exceptions, shareholders whose existing shares are directly registered on VP accounts and whose with registered addresses in for example Australia, Canada, Hong Kong, Japan, New Zealand, Singapore South Africa or the US will not receive this prospectus. Nor will they receive any Subscription Rights on their respective VP accounts. The Subscription Rights that otherwise would have been registered to such shareholders will be sold, and the proceeds, less a deduction of costs, will be paid out to such shareholders. Amounts less than SEK 100 will not be paid out. SHAREHOLDERS RESIDENT OUTSIDE SWEDEN Shareholders who are not resident in Sweden and are unable to use the pre-printed payment notice shall always complete the received application form for subscription. The application form should be sent to the address provided below, and in connection therewith, payment shall be made in SEK through any bank via S.W.I.F.T. to the below stated Swedish bank account. Carnegie Investment Bank AB Transaction Support SE Stockholm, Sweden S.W.I.F.T: ESSESESS Account number: IBAN: SE At payment, the subscriber s name and address, as well as VP account number, must be specified. The application form and payment must have been received by Carnegie, Transaction Support no later than 5:00 PM on December 20, PAID SUBSCRIBED SHARES ( BTA ) A few days after payment and subscription, Euroclear Sweden will send a notice confirming that paid subscribed shares ( BTAs ) have been registered on the shareholder s VP account. The New Shares will be registered as BTAs on the VP account until the Rights Issue has been registered with the Swedish Companies Registration Office (or if the option of a separate registration is exercised at separate registration of BTA 1). If the option of a separate registration is used, an additional series of BTA will be issued whereas the first series will be named BTA 1. After the first registration is made with the Swedish Companies Registration Office, BTA 1 will be converted to ordinary shares that will be registered on the shareholders VP accounts around January 8, 2013, without notice from Euroclear Sweden. A second series of BTA (BTA 2) will be issued for the subscription that has taken place at such a time when subscribed shares could not have been included in the first registration, and by Euroclear Sweden been converted to ordinary shares at the time of final registration with the Swedish Companies Registration Office. If the option of a separated registration is not exercised, registration with the Swedish Companies Registration Office is expected to take place around January, After that date the BTA will be converted to ordinary shares. No securities account notification will be issued in connection with this conversion. BTA will be listed for trading on NASDAQ OMX Stockholm from and including December 6, 2012, and is expected to be traded up to and including December 21, In the event that two series of BTA is issued, only the first series, BTA 1, will be traded on NASDAQ OMX Stockholm. 20 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

21 SUBSCRIPTION WITHOUT PREFERENTIAL RIGHTS Those who have exercised Subscription Rights can also subscribe for New Shares without Subscription Rights. An application to subscribe for New Shares without Subscription Rights must be made on a special application form. Application forms for subscription without Subscription Rights can be obtained from any of Carnegie s offices or be downloaded from Application for subscription for New Shares without Subscription Rights can be made by mail to Carnegie Investment Bank AB, Transaction Support, SE Stockholm, or by submitting the application form to any of Carnegie s offices. The application form must be received by Carnegie, Transaction Support, on December 20, 2012, at the latest. ALLOCATION In the event that all New Shares are not subscribed for by exercising Subscription Rights, allocation will be made within the maximum amount of the Rights Issue to those who have subscribed for New Shares by exercising Subscription Rights and have subscribed for New Shares without Subscriptions Rights. In the event that allocation cannot be made in full due to oversubscription, allocation will made pro rata in proportion to the number of New Shares subscribed for by exercising Subscription Rights, and insofar this cannot be done, by drawing of lots. In the event that all New Shares cannot be allocated in accordance with above, the remaining shares will be allocated to the parties who have guaranteed the Rights Issue in accordance with the terms and conditions for the respective guarantor s guarantee undertaking. As confirmation of allocation of New Shares subscribed for without Subscription Rights, a settlement note will be sent on or around December 28, Subscribed for and allocated New Shares must be paid for in cash in accordance with the instructions on the settlement note no later than three banking days after the subscriber has been notified of allocation. The New Shares will be delivered as soon as possible after the settlement day, which is estimated to be around January 17, 2013, with notice from Euroclear Sweden. Note that shareholders whose holdings are nominee-registered, i.e. holdings in custody account at bank or other nominee, subscribe for New Shares without Subscription Rights through their respective nominee, or in some cases nominees. TRADING IN NEW SHARES KappAhl s shares are traded on NASDAQ OMX Stockholm. After the Swedish Companies Registration Office has registered the Rights Issue, the New Shares will also be able to be traded on NASDAQ OMX Stockholm. The New Shares are expected to be available for trading on NASDAQ OMX Stockholm in connection with the registration of the New Shares on shareholders VP accounts. RIGHTS TO DIVIDENDS The New Shares carry right to dividends from the first record date for dividends occurring after the New Shares have been registered at the Swedish Companies Registration Office. The New Shares have same rights to dividends as the existing shares. OTHER INFORMATION KappAhl is not entitled to discontinue the Rights Issue. In the event that a subscriber remits money for the New Shares in excess of the amount owed, Carnegie will arrange for the excess amount to be refunded. Subscription for New Shares, with or without Subscription Rights, is irrevocable and the shareholder may not cancel or modify a subscription for New Shares. Incomplete or incorrect application forms may be disregarded. If the subscription payment is made too late, is insufficient or paid incorrectly, the application for subscription may be disregarded or subscription may be made for a lesser amount. In such cases, any subscription remittance not used for payment will be refunded. Only one application form per kind can be submitted. If multiple application forms of the same kind are submitted only the latest application form received by Carnegie, Transaction Support will be considered. The final outcome of subscriptions will be announced through a press release on or around December 28, INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 21

22 MARKET OVERVIEW The data regarding market development and KappAhl s market position in absolute figures or in relation to competitors that are specified in this prospectus is the Company s gathered evaluation based on internal as well as external sources. The Company does not know of any available single source of market statistics that provides a comprehensive and relevant representation of the Company s markets that results in market shares measures being calculated in a reliable way. The external sources that the Company has based its evaluation on are mainly data from independent research institutes and other industry statistics. This information has been accurately transcribed in this prospectus. However, KappAhl has not verified the information from these sources. As far as KappAhl is aware and can assure by comparison with other relevant information that has been published by a third party, no information has been omitted in a way that would make the transcribed information incorrect or misleading. GENERAL MARKET TRENDS KappAhl has stores in Sweden, Norway, Finland, Poland and the Czech Republic. Sweden is KappAhl s single largest market. The total value of the Company s markets is just over SEK 190 billion, according to Company estimates on the basis of available data for each market. In 2011/12 the fashion market continued to be weak and there is uncertainty about the development in the coming year. The risk of a continued weak economic trend affects the consumers willingness to buy fashion. Market development 5 Sweden Norway GDP GDP growth Consumer spending growth The market in brief 6 Number of KappAhl stores Population: 9,5 million Clothing consumption/capita, incl. VAT: SEK 5,571 per year Unemployment: 7.5 percent Population: 5,0 million Clothing consumption/capita, incl. VAT: SEK 8,719 per year Unemployment: 3.3 percent KappAhl s net sales per market, SEK million 2,388 (2,639) 1,264 (1,338) Number of KappAhl employees 2,167 (2,460) 1,128 (1,129) Competitors H&M, Lindex, Dressman, Cubus H&M, Lindex, Dressman, Cubus 5 Estimated for the full year Statistics for INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

23 Loyal and growing customer base There is a link between GDP development and growth in fashion retailing. Changes in population trends are also slowly but surely affecting patterns of consumption and behaviour. KappAhl s mission is to sell value for- money fashion with wide appeal to women, men and children. The Company s main target group, women in the prime of life with families, is a stable and loyal target group that is also growing. Highest sales in autumn and winter The fashion industry follows a clear seasonal pattern. In terms of sales, autumn and winter are the major seasons. The reason is that customers buy a greater proportion of more expensive items. A warm autumn can delay demand for these garments somewhat. Seen over a longer period of time, however, the weather does not affect sales to any great extent. Increased competition Competition in today s fashion industry is appreciable. As regards consumer spending, clothes also compete with other products that provide well-being, such as beauty and training products. KappAhl competes with international chains, local chains, independent stores, clothing departments in department stores and with supermarkets and sporting goods stores. Finland Poland Czech Republic Population: 5,4 million Clothing consumption/capita, incl. VAT: SEK 5,105 per year Unemployment: 7.8 percent Population: 38,5 million Clothing consumption/capita, incl. VAT: SEK 1,392 per year Unemployment: 12.3 percent Population: 10,5 million Clothing consumption/capita, incl. VAT: SEK 1,468 per year Unemployment: 8.6 percent 573 (616) 331 (360) 31 (21) 500 (498) 451 (417) 84 (74) H&M, Lindex, Dressman, Seppälä C&A, Inditex, Vistula, H&M, LPP H&M, Marks & Spencer, Lindex, C&A Source: Countries respective national bureaus of statistics, central banks, and chambers of commerce. Size gives economies of scale Today s world of fashion is increasingly global and fashion more similar overall. This has benefited the major fashion chains that gain market share, mainly at the expense of local stores. Many of these companies are known as fully integrated chains, with control of the entire process from idea and design to store. This makes the chains faster and more responsive to meeting new trends, purchasing patterns and shifting customer requirements. INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 23

24 Clear concepts a strength Clear concepts create stability in a trend sensitive fashion world. There are more trends now than before and they shift faster. Consumers more often mix different styles of clothing, levels of fashion, quality and price. 24 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

25 VISION, MISSION, TARGETS AND STRATEGIES VISION KappAhl is to be a significant fashion chain in Europe. This is the vision that drives KappAhl forward. All day-today activities are to lead ultimately towards the vision. Each initiative, each change, each decision. MISSION KappAhl s mission is Value-for-money fashion with wide appeal for women, men and children. The Company specially targets women in the prime of life. STRATEGY KappAhl s strong brand is associated with many positive qualities fashion, design, loyalty, credibility and value for money. The Company s strategic market position is based on a broad range of fashionable and good-value clothes and accessories for women, men and children. Women in the prime of life our main target group KappAhl s main target group is women in the prime of life. In 2011/12 KappAhl conducted the largest customer survey ever in the history of the Company, which gave increased knowledge about our core target group. KappAhl s main target group is large and is also growing in relation to the population as a whole in all the countries where KappAhl is present. It also has greater purchasing power than younger customer categories. Another advantage is that these customers are more loyal and less unpredictable than younger target groups. KappAhl s target group might not spend the most money on clothes, but they do not just buy for themselves they often shop for the whole family. They like fashion and rely on KappAhl being able to offer it. Many of our customers may not be among those who benefit most from business booms, but nor are they particularly adversely affected by downturns. This makes it easier for KappAhl to plan its operations and the Company is also less sensitive to business cycles. Aiming for a stronger gross margin KappAhl focuses on increasing profitability by strengthening the gross margin. The Company is working to strengthen profitability, for example through more effective use of its purchasing and logistics resources. Low capital requirement in the business The capital requirement in KappAhl s business is low. One of the main advantages of this is that expansion, via investment in new stores, can take place without tying up large amounts of capital. With the exception of , KappAhl s business has generated a strong cash flow for a number of years. Expansion in the store network The growth strategy rests on two principles: increased sales via existing stores and establishment of new stores. KappAhl will continue to gain market share. The expansion of new stores will be mainly in shopping malls and central store sites. The long-term goal is to increase the number of stores by 20 to 25 per year. In 2011/12, 19 stores were opened, net. Investing in the stores KappAhl invests on an on-going basis in improvement and refurbishment of existing stores. Renovated and updated stores generally attract greater visitor flows, an increased percentage of paying customers and improved sales per square metre. Plans for the future include refurbishment of KappAhl s stores on average every fifth to seventh year. Stores in the very best locations are renovated more frequently to retain competitiveness. Effective marketing, improved store layout and goods display and development of the product mix are other important tools that KappAhl uses to increase sales. In addition there are regular sales competitions and training initiatives for employees. INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 25

26 Utilising economies of scale When the store network is expanded, KappAhl benefits from economies of scale in the existing structure. The Company s central functions are dimensioned to cope with such expansion. This means that the costs of running the store network do not increase at the same rate as sales. Plan for improved earnings Since the turn of the year 2011/12, KappAhl has been following a plan with priority measures to increase sales and strengthen profitability. Most of the actions will be launched in autumn Action plan for improved earnings Strategic areas The assortment The offer Store operation Leadership Expansion Overall objectives of the measures Increase attractiveness of the assortment, on the basis of KappAhl s customer profile Increase interest in KappAhl through customer-oriented market communication, and inspiration and clarity in stores Quality assured store and chain operation that utilises KappAhl s economies of scale Increased confidence, participation and commitment. Consensus on leadership in KappAhl Profitable expansion Most of the activities arising from the plan were launched in autumn TARGETS AND TARGET FULFILMENT KappAhl s Board of Directors has set up the following operational and financial targets for the Group: Target as of 2011/12 Outcome 2011/12 Target 2005/ /11 Outcome 2010/11 Outcome 2009/10 Outcome 2008/09 Outcome 2007/08 Operative targets Operative targets The number of stores is to increase by per year 19 new stores opened and none closed The number of stores is to increase by per year 28 new stores opened and 4 closed 27 new stores opened and 1 closed 32 new stores opened and 4 closed 22 new stores opened and 3 closed The operating margin is to be 10 percent at the latest in the 2013/2014 financial year 2.6 percent The operating margin is to be 12 percent over a business cycle and no lower than 10 percent 4.5 percent 10.8 percent 10.8 percent 14.1 percent Financial targets Financial targets Interest-bearing net debt is not to exceed 3 times EBITDA other than temporarily 10.7 times Interest-bearing net debt is not to exceed 3 times EBITDA other than temporarily The interest coverage ratio is to exceed a multiple of five 5.1 times 2.4 times 2.8 times 2.3 times 3.1 times 6.2 times 6.3 times 8.5 times Dividend policy Dividend policy Dividend is to be percent of the profit after tax on condition that the Group meets the financial targets above The Board of Directors has decided to propose that no dividend be distributed Dividend is to be percent of the profit after tax The Board of Directors has decided to propose that no dividend be distributed The dividend was 76.0 percent of the profit after tax paid The dividend was 29.7 percent of the profit after tax paid, which was a temporary deviation from policy The dividend was 77.5 percent of the profit after tax paid 26 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

27 OPERATIONS OVERVIEW KappAhl is a leading Nordic fashion chain with stores in Sweden, Norway, Finland, Poland and the Czech Republic. The Company designs, markets and sells clothes for women, men and children through its own store network. In the financial year 2011/12, net sales amounted to SEK 4,587 (4,974) million and the operating profit amounted to SEK - 64 (222) million. KappAhl designs its product range to be able to offer its customers fashionable clothes at attractive prices. The Company has a customer-oriented business model, aimed at adapting fashion trends to products that meet the customer s needs. Consequently, the Company itself designs the vast majority of garments sold in its stores. KappAhl s collections comprise everyday and party clothes, outerwear, underwear and accessories. Most clothes are sold under the KappAhl brand, but the Company also markets clothes under several own and licensed brands. KappAhl s main target group is women aged years with families. KappAhl considers this customer group to be more loyal and more predictable than younger age groups, which are usually influenced more by changing fashion trends. HISTORY In 1953 the Company s founder, Per Olof Ahl, opened his first clothing store in Gothenburg, which sold coats under the KappAhl brand. Per Olof Ahl was CEO until 1986 and his objective was to make it possible for as many people as possible to be well-dressed. The business expanded rapidly in the 1950 s and 1960 s when the range was extended to include clothes for both women and men, but coats were still the most important product group. At the end of the 1970 s children s clothes were included in the offer and in the 1980 s operations expanded to Norway and Finland. KappAhl was sold in 1990 to KF (the Swedish Cooperative Union). Since spring 2002, when a new management team took over, operations have been streamlined. Among other things a decision was made to concentrate on four geographical markets Sweden, Norway, Finland and Poland, with Sweden as the base for operations. The Company has also renewed its emphasis on the main customer group, which are women aged years with families. KappAhl has also increased its marketing efforts, including frequent campaigns to improve brand recognition, particularly among the main target group. In addition, KappAhl has improved supply of goods through considerable investment in infrastructure and has concentrated logistics to the distribution centre in Mölndal. In December 2004 KF sold KappAhl AB to Nordic Capital, Accent Equity and some members of the senior management. In February 2006 KappAhl was listed on the Stockholm Stock Exchange O list. Nordic Capital and Accent Equity sold the majority of their holdings at the time of the listing but the President and CEO at the time, Christian W. Jansson, and member of the board, Paul Frankenius, continued as main shareholders. In 2009, KappAhl opened its first store in the Czech Republic, which became KappAhl s fifth market. The expansion continued in 2010 until 2012 and on August 31, 2012, KappAhl had 388 stores and contracts for another 25. In 2012 KappAhl conducted its largest customer survey ever and has taken a number of measures to strengthen and develop its offering. KappAhl has since the fiscal year 2010/11 experienced a significantly weaker demand compared to what the Company has expected and planned for. In addition, the product range has not sufficiently met the customers expectations. A higher proportion of clearance sales and higher sourcing costs have resulted in deteriorated profitability. The weaker sales development has also resulted in an inventory increase and increased tie-up of capital. IDENTIFIED COMPETITIVE ADVANTAGES KappAhl considers that it has several competitive advantages that make the Company well-positioned to implement its strategy: INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 27

28 KappAhl has a strong brand and a strong market presence The brand is among KappAhl s most important assets and it is a well-known brand in KappAhl s Nordic markets. KappAhl believes that its brand is closely associated with a series of positive qualities such as fashion, design, loyalty, credibility and value for money, which reflects KappAhl s strategic positioning in the market. KappAhl s strong market presence is also confirmed by the store network of 388 stores, as of August 31, 2012, which constitutes the foundation for the loyal customer base. In the 2010/11 financial year about 300,000 visitors a day were recorded. The Company considers that one of the key factors for implementing its growth strategy is the ability to acquire good store locations that match the customer profile and KappAhl believes that its stores as a rule are sited at excellent store locations in the towns in which KappAhl operates. KappAhl s brand, in combination with the extensive store network and ability to find suitable store locations, has made it possible to build up a strong market position, particularly in the Company s Nordic markets. KappAhl is established in geographical markets with stable macroeconomic development KappAhl is established in Sweden, Norway, Finland, Poland and the Czech Republic. These countries have managed relatively well, compared with other European countries, in recent years. This facilitates day-to-day activities that include decisions on purchases, sales and expansion, as the market is more predictable. On the whole, stable macroeconomic development reduces operational risk. The Company s primary target group, women aged years with families, is attractive and growing The principal customer group has comprised of women with families since KappAhl was established in KappAhl considers that the Company s sales potential will benefit from the customer group s increasing percentage of the total population. The Company considers that KappAhl s present position with the customer group, combined with KappAhl s strong market positions and extensive store network, form a basis for utilising the favourable growth in this customer group and to increase the Company s market share in the Nordic markets. KappAhl has a customer-oriented business model, aimed at adapting fashion to the customer s needs The Company s business model centres on the principal customer group and KappAhl devotes considerable time to analysing customers purchasing behaviour. This analysis is based on information from customer surveys, external survey panels, databases and sales history. Based on the analyses KappAhl is developing a product offer that combines the latest fashion trends with customer demand as regards colours, fabric, fit and size. KappAhl considers that the focus should be on customer needs, rather than on the product itself, which allows a more optimised product offer to be supplied to the stores at the right time. The assessment of the Company is that this results in increased full price sales and higher profitability. This approach is also intended to create customer loyalty, which is expected to support the Company s growth going forward. KappAhl has great retail competence, comprising an internal design department that produces all collections, a centralised purchasing and logistics function, and a local presence where KappAhl buys its products KappAhl s design organisation is entirely internal and works continually to put together new collections of fashionable and affordable clothing. KappAhl s design, purchasing and production units collaborate closely and work constantly with an open order book, which increases the possibilities of handling changes in fashion trends and demand patterns. KappAhl s centralised and flexible purchasing and logistics infrastructure was designed for cost-effective and fast deliveries to the stores. On August 31, 2012, there were about 120 people employed in the Company s purchasing department. The distribution centre is located in Mölndal outside Gothenburg and handles over 50 million clothing and accessory items per year. KappAhl s distribution centre makes it possible to distribute products on the basis of statistics and historical results from the stores. In that way each store can be supplied with an optimum range of garments, minimising the need for price reductions. 28 INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL)

29 KAPPAHL S CUSTOMER-ORIENTED BUSINESS MODEL CUSTOMERS Women aged 30 years and above with families are the main customer group. This customer category usually buys clothes for her partner and children and/or grandchildren. In that way the market is expanded to also cover men s and children s clothes. KappAhl focuses on its principal customer group, since the Company has a particularly good knowledge of its clothing preferences. It is important that KappAhl is well-informed about who the customers are and how they can best be offered good service, creating a positive shopping experience. The Company designs its collections for women who want to feel modern and well-dressed but who do not feel the need to be very trendy or follow the more extreme expressions of fashion. In Poland KappAhl also attracts younger customers, many of whom are working women aged 25 upwards. PRODUCTS Overview KappAhl offers a broad selection of fashionable and good value clothes and accessories for women, men and children. The clothes for women, men and children consist of several collections with different styles. In principle KappAhl s entire clothing offer is continually being replaced and is focused on the four seasons, though with some successive overlap to even out seasonal effects. A smaller part of the total product range is basic garments that are always offered for sale, such as a selection of underwear. Approximately 10,000 articles are produced every year and as a rule the stores receive deliveries of garments three to four times a week. The popularity of KappAhl s collections depends on the Company s image and knowledge of customers needs. The Company endeavours to offer the right quality and fashion content at the right price. KappAhl always works to put the customer in focus and when the latest fashion trends are incorporated into the collections it is done in such a way as to be consistent with the Company s image. This means that the most extreme fashion trends are not adopted, since they do not usually appeal to KappAhl s primary customer group. Women s clothes KappAhl Woman offers a wide, varied range of clothes for every occasion party, smart casual and leisure. The assortment includes complete wardrobes, from underwear to outdoor clothing and accessories. KappAhl s intention, particularly regarding female customers, is that it should always be possible to find matching combinations of several garments in the stores. The way in which KappAhl s product range is presented is intended to suggest matching of different garments in an attractive way. In addition, great importance is laid on design and sales of garments with a good fit, which is a fundamental condition for maintaining such a wide range of sizes as KappAhl offers. Trousers constitute a strategic product group and KappAhl is according to the market research INVITATION TO SUBSCRIBE FOR SHARES IN KAPPAHL AB (PUBL) 29