Archive Pharmacy Listing Magazines John Mitchel Pharmacy, Cobar | Page 21

BUSINESS VALUATION METHOD PAGE EIGHT GENERAL CAPITALISATION OF EARNINGS METHOD Armstrong Business Valuations Pty Ltd assess a pharmacy business to estimate the Market Value of the business. In this valuation report Market Value is taken as representing the estimated value a ready and willing but not anxious seller and a ready and willing but not anxious purchaser, both having access to the same information, reaching a negotiated sale agreement rather than an auction or other sale method. This valuation method assesses the future maintainable earnings of the business and capitalises this by a rate representing the current required rate of return from buyers of comparable businesses. The pharmacy industry custom is to use Earnings Before Interest Taxation Depreciation and Amortisation (‘EBITDA’) as the earnings basis and this valuation report uses this as its basis. In assessing EBITDA Armstrong Business Valuations Pty Ltd use recent trading results, Pharmacy Guild industry benchmarks and benchmarks gained from direct experience. In respect of ‘Greenfields’ businesses to be established the earnings are based on projected trading prepared by the accountant for the business and adjusted to net present value and capitalised at a rate assessed by Armstrong Business Valuations Pty Ltd that reflects the lack of trading history. The Market Value uses two primary valuation methods to estimate the value, the capitalisation of earnings method and the asset method. Both of these are methods to estimate Market Value in the absence of an actual offer or transaction. This valuation report assumes that:       There are ready, willing and not anxious buyers and seller. A reasonable period of marketing the business for sale has been undertaken. There is an absence of an actual offer or transaction for the sale/purchase of the business being valued. No specific buyer has been identified and therefore no account of greater or lesser value to specific buyers is taken into account. The whole of the business is being valued. The business is a going concern and that at no time there is material uncertainty that the business will be able to continue as a going concern including lease tenure and therefore realize its assets and meet its liabilities in the normal course of business. In the pharmacy industry it is accepted practice that pharmacy businesses are valued on the basis of their goodwill, stock, plant, equipment, fixtures and fittings only. This valuation report sets out the assets comprising the assessed Market Value but users of this valuation report should note that not all assets are covered within this value and that all liabilities of the pharmacy business are assumed excluded. Prospective sellers and/or purchasers must take their own accounting and legal advice to ensure that any final agreement they enter into reflects the agreed transaction. This valuation report assumes that the whole of the business is being valued. The value attributable to a minority interest (i.e. a non-controlling interest in the business) may attract a discount attributable to the lack of control as well as any inability to readily sell the interest in the future (i.e. reduced liquidity or marketability). LIMITATION OF LIABILITY This valuation report is not intended for general circulation, nor is it to be used for any purpose other than as set out in the Executive Summary. Armstrong Business Valuations Pty Ltd, its Directors, contractors and staff do not assume any liability for damages or losses suffered by any party as a result of the circulation, reproduction or other use of this report and reserves the right, but will not be under any obligation, to review and amend all calculations included or referred to in this report and to revise its opinion and report in the light of any information existing at the time of the Valuation Date that becomes known to Armstrong Business Valuations Pty Ltd after the date of sign-off by the valuer. This valuation is current as at the date of valuation only. The value assessed herein may change significantly and unexpectedly over a relatively short period (including as a result of general market movements or factors specific to the particular property/business). We do not accept liability for losses arising from such subsequent changes in value. Without limiting the generality of the above comment, we do not assume any responsibility or accept any liability where this valuation is relied upon after the expiration of 3 months from the date of the valuation, or such earlier date if you become aware of any factors that have any effect on the valuation. Armstrong Business Valuations Pty Ltd The assessment of appropriate capitalisation rates is most accurate where actual comparable transactions indicate the range of yields and this valuation report uses these and, in the absence of comparable transactions, other indicators. Regional NSW transactions have indicated capitalisation rates of between 16.9% and 21.2%. In consideration of the diverse rate range and the regional location of Corowa we have assessed an appropriate core range as 17.0% to 19.0%. We have used 19.0% as appropriate for this valuation. You are referred to the Capitalisation Table on page 14 and page 5 for commentary on the choice of capitalisation rate. These transactions carry client confidentiality and we are not able to disclose greater detail of the comparable transactions. Size by Sales EBITDA Cap Rate Transaction Date Regional NSW (outer) Location $6,996k $1,111k 21.2% FY2019 Regional QLD (outer) $1,832k $410k 19.5% FY2019 Regional NSW (seaside) $2,613k $440k 16.9% FY2018 Regional City NSW $2,677k $203k 17.6% FY2018 Regional NSW/VIC $1,864k $285k 18.1% FY2017 Regional NSW/VIC $2,319k $462k 17.5% FY2017 ASSET METHOD If the Market Value as indicated by the capitalisation of earnings method is lower than the realisation value of the underlying tangible assets of the business then Market Value may be more closely indicated by assessing the value of such assets. Armstrong Business Valuations Pty Ltd do not undertake the valuation of stock, plant, equipment, fixtures and fittings but use financial statements and depreciation schedules or other means as noted to indicate these values. Assessing the value of these assets is in the context of the business being a “going concern”. Pharmacy licenses are treated as off-Balance Sheet assets. With the introduction of new pharmacy relocation rules in September 2011 the market for PBS Licenses is unlikely as an application process is open and we have treated licenses as having no ascertainable commercial value for security lending purposes. Page 8 of 56