An offer of shares in G3 Group Limited (G3)

Letter from the chair, Rob Campbell

Dear shareholders and investors,

I have pleasure in presenting this current investment opportunity to you.

G3 assists businesses, including a growing international customer base, to manage their data, documents and customer communications, deploying new technologies for maximum reliability and efficiency.

G3 began life 12 years ago as a small domestic provider of business mail services under the New Zealand Mail brand. Through a series of acquisitions, including Pete’s Post and Fastway Post, it now commands annual sales of over $40m and has a presence in the United Kingdom, Australia and the Pacific Islands.

The various G3 brands initially operated under separate corporate structures, but came together in early 2015 as “G3” with a single vision for the future – to offer businesses multi-channel delivery options for their customer communications and document workflow requirements.

G3 operates three core business divisions.

• Document and data management products in New Zealand and Australia;
• Tourism collateral in the United Kingdom, including personalised postal stamps for international tourists; and
• Business mail services in New Zealand.

The figures below are from the audited FY16 financial statements.

^{Note: “Documents Australia” sales are derived from the acquisition of the Formfile business, made during Q4 of the FY16 financial year.}

G3 met its growth targets for FY16, and expects to do so again for FY17.

Since listing on the NXT market in June 2015, G3 has continued to expand in its core document and data management, tourism collateral and business mail markets.

We have done what we said we would do – grow our traditional businesses, expand via acquisition into document and data management and move into Australia. Through the experience, energy, engagement and expertise of our G3 team, we will continue to deliver on these strategies.

Selected Financial Information¹

We have now recorded eight years of earnings history, delivering year-on-year growth and developing a group of market-leading business services brands in New Zealand, Australia and the United Kingdom.

Further financial information, including year to date performance and commentary is contained in the Financial section.

In New Zealand, growth in the business mail industry is static, and overall volumes are declining. However, the largest player is constrained by a legacy business model, and this is providing G3 with opportunities to grow its revenue share of the market. Growth opportunities exist through acquisition and by providing a strong product offering to transition customers from traditional mail to digital solutions. The New Zealand business mail market makes up about one third of G3’s profit in FY16. Further financial information, including year to date results and commentary, is contained in the Financial section.

G3 has specific strategies to:

• grow its existing business operations by increasing market share and profit margins;
• acquire businesses which complement its existing operations; and
• acquire technology businesses which focus on data management.

We have completed eight acquisitions in the past four years. These have allowed us to move into the large and fast growing data management markets of New Zealand and Australia and to extend our offering to include digital data services for small to medium sized businesses. Our management team is actively looking at a number of new acquisition opportunities. This capital raise will help facilitate these acquisitions.

G3 is well suited to acquiring small volume but high margin businesses where the company has a demonstrated ability to:

• leverage its existing customer base;
• cross-sell an extended product range;
• improve margins through a greater spread of services across a vertically integrated supply chain; and
• fund or partially fund acquisitions through share issues or relatively cheap access to finance.

Management are seeing plenty of these types of acquisition opportunities in our target markets at attractive multiples which provide a natural arbitrage between private and public sector valuations.

It is against this background of proven performance and growth activity that I invite you to consider an investment in G3.

The offer is for between $1m and $3 million by way of new ordinary shares at $0.75 per share which will rank equally with those currently listed on the NXT market². This represents a 6.25% discount to the last traded market price. The new shares will represent 2.4% to 6.8% of the shares on issue. I’m an existing shareholder holding 2.5% and plan to invest a further $100,000 in this offer via my investment company³. My fellow shareholder and director Steve Phillips holds 0.6% and plans to invest a further $50,000.

The capital raised will be leveraged with bank debt (as appropriate) to fund future acquisition targets that will increase G3’s overall earnings and expand on its service base.

Over the past 18 months we have built a solid platform for future growth in our chosen markets of New Zealand, Australia and the United Kingdom. We now have the confidence to accelerate this strategy. We are forecasting continued strong growth across our businesses.

Thank you for taking the time to consider this offer. We look forward to welcoming you as fellow shareholders in G3.

Yours sincerely

Rob Campbell
Chair - G3 Group Limited

¹ See the Financial section for a reconciliation of G3’s EBITDA to profit before tax.

² G3 is making the offer in reliance upon the exclusion in clause 19 of Schedule 1 to the Financial Markets Conduct Act 2013.

³ These subscriptions by the directors are made in accordance with NXT rule 25(c). Under that rule, allotments to directors and associated persons require shareholder approval if shareholders holding at least 5% of the votes in the company submit a request to the board for a special meeting of shareholders.

Objectives of the capital raise

The capital raised, supplemented by cash reserves and bank debt (as appropriate), will be used primarily to support targeted acquisitions in our growth markets. Our acquisition strategy is further explained in the Strategy section.

Secondary objectives of the capital raise are to:

• increase the spread of shareholders in G3, which will improve liquidity for shareholders (and we expect will result in G3 fully complying with NXT market shareholding spread requirements from which we currently hold an exemption); and
• develop a better awareness of the G3 business, which may have a positive impact on investor interest, recruitment, business leads and acquisition leads.

For further information on the G3 Group story and performance, please refer to the NXT website at: https://www.nxt.co.nz/companies/GGL/instrument/GGL. Please also see the Product, Strategy, Financial, Offer, Updates, and Q&A sections through the tabs at the top of this offer page.