CENN

Business Context and Reporting Period

Company: Naked Brand Group Limited (formerly Bendon Limited)

Filing Type: Form 6-K (Report of Foreign Private Issuer)

Reporting Period: Six months ended July 31, 2018

Business Overview: The Company is a designer, distributor, wholesaler, and retailer of women's and men's intimates apparel and swimwear. Operations span retail and outlet stores in New Zealand and Australia, wholesale operations in New Zealand, Australia, the US, and Europe, and online channels. Key brands include Bendon, Naked, Pleasure State, and licensed brands such as Heidi Klum and Fredericks of Hollywood.

Corporate Structure Change: On June 19, 2018, Bendon Limited completed a business combination with Naked Brand Group Inc. Bendon was treated as the accounting acquirer. The financial statements represent a full half-year of Bendon's results plus Naked Inc. from the acquisition date to July 31, 2018.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by 5.1% ($3.0 million) to $56.75 million. This was driven by a $4.3 million reduction in European sales and a $1.1 million reduction in US sales, attributed to vendor supply issues caused by liquidity constraints. Conversely, New Zealand and Australian retail sales increased.
• Margin Compression: Gross margin decreased from 32.7% to 31.2% due to increased product costs and higher discounts provided to customers to offset stock shortages.
• Increased Loss: Net loss widened by 35.8% to $26.09 million. This was primarily due to a $4.18 million impairment expense (goodwill and brands) and a $4.0 million increase in brand transition, restructure, and transaction expenses related to the US listing process.
• Finance Costs: Finance expenses decreased by 51.2% to $2.45 million due to a reduction in interest on external borrowings following debt repayments.
• Foreign Exchange: The Company recorded a foreign currency gain of $3.54 million, compared to a loss of $0.93 million in the prior period, driven by gains on foreign exchange contracts.

Outlook, Risks, and Contingencies

Going Concern and Liquidity

The filing explicitly states there is substantial doubt about the Company's ability to continue as a going concern. The business is in a net current liability position of $2.94 million and has breached bank loan covenants. Viability depends on:

• Raising at least NZ$26 million in capital between December 2018 and July 2019.
• Renegotiating the current $20 million bank facility to a 12-month rolling facility.
• Achieving cash flow positivity by October 2019 through cost reductions and margin improvements.

Subsequent to the reporting period, the Company raised NZ$10.1 million in equity to support working capital.

Management Commentary and Guidance

• Restructuring: Management is implementing cost-saving initiatives, renegotiating supplier contracts, and resetting customer supply commitments.
• Capital Raising: The Company is actively pursuing new capital raising activities and has ceased reliance on previous major shareholder Cullen Investments Limited as a funding source.
• Acquisition: On November 15, 2018, the Company entered into an agreement to acquire FOH Online Corp for approximately $18.2 million (partially via debt forgiveness and share issuance).

Risks and Unusual Items

• Impairment: Recognized $4.18 million in impairment costs, predominantly related to goodwill from the Naked acquisition and brand assets.
• Internal Controls: The Company identified material weaknesses in internal controls over financial reporting, including a lack of a functioning audit committee, lack of independent financial experts on the board, and insufficient skilled resources for complex GAAP/SEC reporting.
• Supply Chain: Ongoing liquidity issues have led to inadequate inventory levels, negatively impacting sales and forcing increased discounts.

Key Facts for Investor Verification

• Capital Raise Success: Verify if the Company successfully raised the required NZ$26 million in capital by July 2019 to sustain operations.
• Bank Covenant Compliance: Confirm the status of negotiations with the Bank of New Zealand to reset covenants and extend the $20 million facility.
• Inventory Restocking: Assess whether the recent equity injection has successfully resolved vendor supply issues and restored inventory levels.
• Internal Control Remediation: Review progress on appointing independent directors, establishing an audit committee, and remediating material weaknesses in financial reporting.
• FOH Acquisition Integration: Monitor the financial impact and integration of the FOH Online Corp acquisition completed in December 2018.