Sigma and CWG Merger Risks and Management Overview
Key Risks - Risks Relating to the Proposed Merger
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Key Risk
Increased leverage of Sigma
as a result of the Proposed
Merger
Integration of accounting
policies and methods
Alignment of year ends and
acquisition accounting
Foreign exchange risk and
foreign regulations
Summary
Sigma intends to fund the cash component of the consideration payable to CWG shareholders under the Proposed Merger by drawing down on the proposed Debt Facility. This will result in an increase
to Sigma's gearing ratio, which creates a level of financial risk. An increase in leverage creates a risk that Sigma could have its credit rating downgraded, which could adversely affect the Sigma Group's
cost of funds and related margins, competitive position and its access to capital and funding markets.
Further, should Sigma experience a decrease in its revenue or profitability in the future, it may be forced to lower the amount of dividends to shareholders (or cease paying dividends), issue new shares
or sell assets to reduce its debts and avoid being in breach of its financing arrangements (including financial covenants).
Sigma and CWG, as standalone entities, have particular accounting policies and methods which are fundamental to how they record and report their financial position and results of operations. Sigma
and CWG may have exercised judgment in selecting accounting policies or methods, which might have been reasonable in the circumstances yet might have resulted in reporting materially different
outcomes than would have been reported under the other company's policies and methods. The integration of CWG and Sigma's accounting functions may lead to revisions of these accounting policies,
which may adversely impact MergeCo's reported results of operations and/or financial position and performance. Year-end reporting periods will be aligned post implementation of the Proposed Merger.
Sigma and CWG have different year end reporting periods with Sigma reporting on a year ended 31 January basis and CWG using 30 June. There has been no alignment of the financial year ends of
Sigma and CWG to present MergeCo's reported results or financial position.
In addition the financial information presented in the Investor Presentation does not reflect any potential acquisition accounting-related adjustments as is required for business combinations in accordance
with the requirements of AASB 3 Business Combinations. The application of acquisition accounting and the alignment of financial year ends will likely impact MergeCo's reported results of operations
and/or financial position and performance.
The Proposed Merger includes the acquisition of controlling interests in overseas entities that operate in New Zealand and Ireland and also the acquisition of Chinese operations. These entities transact
in the local currencies of the countries in which they are domiciled. The value of a financial asset, liability, commitment or earnings held or transacted in foreign currency may be impacted by changes in
currency exchange rates.
The overseas operations of CWG are also subject to the laws of those countries and could be adversely impacted by changes to laws or regulations in those countries in the future.
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