Limiteed of 86,592,912 B Hi-Fi he Off r J

for t spectus B Hi-Fi Limited Pro in J Shares

0 136 093 22 ABN 80

Joint Lead Managers: Goldman Sachs JBWere Pty Ltd Macquarie Equity Capital Markets Limited

This Prospectus is dated Thursday, 18 September 2003 and was lodged with ASIC on Thursday, 18 September 2003. Neither ASIC nor ASX take any responsibility for the content of this Prospectus. JB Hi-Fi will apply for admission to the official list of ASX and quotation of the Shares on ASX within seven days after the date of this Prospectus. No securities will be sold or issued on the basis of this Prospectus later than 13 months after the date of the Prospectus. You should read this Prospectus in its entirety before deciding to complete and lodge an Application Form. If you have any questions you should seek professional advice from your stockbroker, accountant or financial adviser. The Corporations Act prohibits JB Hi-Fi from processing applications received until after the Exposure Period. The Exposure Period is the seven day period from the date of this Prospectus and may be extended by ASIC by up to a further seven days. The purpose of the Exposure Period is to enable the Prospectus to be examined by market participants prior to the raising of funds. That examination may result in the identification of deficiencies in the Prospectus, in which case any application received may need to be dealt with in accordance with section 724 of the Corporations Act. No preference will be conferred on applications received during the exposure period. The offer of securities under this Prospectus does not constitute a public offer in any jurisdiction other than Australia and New Zealand. This Prospectus does not constitute an offer to any person to whom, or an offer in any place in which, it would be unlawful to make such an offer. The distribution of this Prospectus in jurisdictions outside Australia and New Zealand may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. No distribution or sale in the United States Neither this Prospectus nor the accompanying Application Form may be sent to investors in the United States or otherwise distributed in the United States. Shares may not be sold in the United States, except that the Joint Lead Managers may sell Shares offered under this Prospectus in the United States in accordance with United States securities laws. The Offer constituted by this Prospectus in electronic form is available only to persons receiving this Prospectus in electronic form within Australia or New Zealand. Disclaimer No person is authorised to give any information or make any representation in connection with the Offer which is not contained in this Prospectus. Any information or representation not contained in this Prospectus may not be relied on as having been authorised by JB Hi-Fi or the Directors. Exposure Period This Prospectus will be made generally available to Australian and New Zealand residents during the Exposure Period by being posted on the Companys Internet site at www.jbhifi.com.au. A paper copy of this Prospectus will be available to Australian and New Zealand residents on request to the Registry or one of the Joint Lead Managers and Joint Bookrunners during the Exposure Period. Applications under this Prospectus received during the Exposure Period will not be processed until after the expiry of the Exposure Period. No preference will be conferred on Applications received during the Exposure Period. Electronic Prospectus This Prospectus may be viewed online at www.jbhifi.com.au. The Prospectus is only available online to residents in Australia or New Zealand. Persons who access the electronic version of this Prospectus should ensure that they download and read the entire Prospectus. A paper copy of this Prospectus is available free of charge to any person in Australia or New Zealand by telephoning the JB Hi-Fi Share Offer Information Line on 1300 302 417 (Australia) or +61 3 9615 5970 (New Zealand) during the period of the Offer. Privacy If you apply for Shares, you will provide personal information to the Vendor Shareholders, JB Hi-Fi and the Registry. The Vendor Shareholders, JB Hi-Fi and the Registry collect, hold and use your personal information in order to assess your Application, service your needs as an investor, provide facilities and services that you request and carry out appropriate administration. Company and tax law requires some of the information to be collected. If you do not provide the information requested, your Application may not be able to be processed efficiently, or at all. The Vendor Shareholders, JB Hi-Fi and the Registry may disclose your personal information for purposes related to your investment to their agents and service providers including those listed below or as otherwise authorised under the Privacy Act 1988: 5 the Joint Lead Managers in order to assess your Application; 5 the Registry for on-going administration of the register; and 5 the printers and the mailing house for the purposes of preparation and distribution of statements and for handling of mail. Under the Privacy Act 1988, you may request access to your personal information held by (or on behalf of) JB Hi-Fi, the Vendor Shareholders or the Registry. You can request access to your personal information by telephoning or writing to the Vendor Shareholders or JB Hi-Fi through the Registry as follows: Computershare Investor Services Pty Limited: GPO Box 2975, Melbourne, VIC 8060 1300 850 505 (toll free) +61 3 9615 5970 (for international callers) Definitions and abbreviations Defined terms and abbreviations used in this Prospectus are explained in the Glossary at the end of this document. Financial amounts The financial amounts in this Prospectus are expressed in Australian dollars unless stated otherwise.

1 2 3 4 5 6 7 8 9 10

Contents Chairmans Letter Investment Overview Details of the Offer Industry Overview Business Profile Board and Management Financial Information Risk Factors Investigating Accountants Report Report on Review of Directors Forecasts Additional Information Glossary Application Forms Corporate Directory

3 8 15 19 27 32 40 44 63 66 79

Chairmans Letter
18 September 2003

Dear Investor On behalf of the Directors, I have great pleasure in offering you the opportunity to become a shareholder in JB Hi-Fi. The business of JB Hi-Fi was founded in 1974 as a discount retailer of hi-fi equipment and recorded music with a single store in the Melbourne suburb of East Keilor. Since that time, the Company has grown to 26 stores, with sites located in most Australian States. JB Hi-Fi is now one of Australias largest and fastest growing home entertainment product retailers featuring Consumer Electronics, car sound systems, Music and DVDs. The Company is positioned as a discounter of leading brands, sold in an informal environment by knowledgeable customer oriented staff. JB Hi-Fi operates from stand alone destination sites and shopping centre locations. The cornerstone of the Companys success has been, and will continue to be, its ability to consistently offer low prices. It is able to do this through the scale of its operations, relatively high stock turns and low cost operating structure. The Company expects it will continue to benefit from the high growth product categories of DVD, home theatre, wide-screen TVs and digital cameras. The maturation of the 11 stores opened in the last two years and the planned opening of stores in new and existing markets is expected to contribute to strong earnings growth. Under this Prospectus 86.6 million Shares are being offered for sale by the Vendor Shareholders, representing approximately 85% of the undiluted issued Shares of JB Hi-Fi. Based on the midpoint of the Indicative Price Range ($1.45), approximately $125 million will be raised under the Offer. The proceeds from the Offer, net of applicable costs, will be received by the Vendor Shareholders. Following the Offer, interests associated with current and former management of the business will own the remaining issued Shares (approximately 15% of the undiluted issued Shares) in JB Hi-Fi. This Prospectus contains detailed information on JB Hi-Fi and its business, and I encourage you to read it carefully before making your investment decision. On behalf of the Directors, I commend this investment opportunity to you and look forward to welcoming you as a shareholder. Yours sincerely

Patrick Elliott Chairman

Prospectus JB Hi-Fi

Key dates
Retail Offer opens Retail Offer closes Institutional Offer opens Institutional Offer closes Final Price and basis of Share allocation announced Shares expected to commence trading on ASX (on a conditional and deferred settlement basis) Retail and Institutional Settlement Transfer of Shares to successful Applicants and last day of conditional trading Expected despatch of holding statements Shares expected to commence trading on ASX on a normal settlement basis Expected date of settlement of all trades executed on a deferred settlement basis Wednesday, 1 5:00pm, Friday, 17 Monday, 20 6:00pm, Tuesday, 21 Wednesday, 22 October October October October October 2003 2003 2003 2003 2003

Thursday, 23 October 2003 Monday, 27 October 2003 Monday, 27 October 2003 Wednesday, 29 October 2003 Thursday, 30 October 2003 Tuesday, 4 November 2003

All times are Melbourne time. The dates and times are indicative only. JB Hi-Fi and the Vendor Shareholders reserve the right, in consultation with the Joint Lead Managers, to vary the dates and times, which includes closing the Offer early, without notice to any recipient of the Prospectus or any Applicant for Shares. Retail Applicants are advised to lodge their Applications as early as possible after the Offer opens. Applications for Offer Shares will not be accepted after the Closing Date (as varied by the Vendor Shareholders and Joint Lead Managers).

tics ffer Statis Key O

Indicative Price Range Market capitalisation1 Pro forma enterprise value1 Earnings per share (basic)2 PE multiple1,2 Dividend per share (fully franked)2 Dividend yield (fully franked)1,2 EBITDA multiple1,2 EBIT to interest ratio2 Fixed charge cover ratio3 Pro forma net assets at 30 June 2003 Pro forma net assets per share at 30 June 2003
1 2 3

$1.35 to $1.55 $148.1 million $175.3 million 12.8 cents 11.3 times 7.2 cents 5.0% 7.4 times 8.2 times 3.0 times $38.6 million 37.8 cents

Based on the midpoint of the Indicative Price Range. Based on 2004 forecasts. Calculated as the sum of EBIT, Operating Lease Expense and Rent Expense divided by the sum of Interest Expense, Operating Lease Expense and Rent Expense.

JB Hi-Fi Prospectus

Overview estment 1. Inv

Prospectus JB Hi-Fi

1 Investment Overview
1.1 Overview of JB Hi-Fi The business of JB Hi-Fi was founded in 1974 as a discount retailer of hi-fi equipment and recorded music with a single store in the Melbourne suburb of East Keilor. Since that time, the business has grown to 26 stores, with sites located mainly in Melbourne and Brisbane. The Company has commenced a store roll-out programme in Sydney and other major Australian cities. JB Hi-Fi is a specialty retailer of home entertainment products, focusing on: 5 Consumer Electronics, which includes wide-screen, digital and plasma TVs, hi-fi, DVD players, home theatres, digital still and video cameras and accessories; 5 car sound systems (audio and visual); and 5 Music and DVDs. The Company is positioned as a retailer of leading brands, offering a broad range of products at discount prices. JB Hi-Fi primarily operates from stand alone destination sites and shopping centre locations.

1.2 Key investment features JB Hi-Fi has a number of attributes that the Directors believe make it a compelling investment proposition: 5 attractive growth profile, supported by: focused exposure to the high growth home entertainment product market, such as DVD players and digital still cameras, where sales in Australia grew by 87% and 151% respectively in the 12 months to 30 June 2003; maturing of recently opened stores. Sales from stores opened in the 2001 financial year grew by 18.4% in the 12 months to 30 June 2003, compared to sales growth of 12.5% for stores opened prior to 30 June 2000; and continued roll-out of stores in new and existing geographic markets, new store formats (such as Music and DVD Superstores) and shopping centre locations;

5 solid track record of growth and profitability: comparative store sales growth of 14.2% (for the 15 stores opened for the full year ending 30 June 2002) in the 12 months to 30 June 2003; and a compound annual growth rate of 51.6% in sales and 70.7% in EBIT for the two years to 30 June 2003;

5 experienced management team with a proven track record in high growth segments of the retail sector; 5 positive cashflows driven by stock turns greater than five times per annum and low capital investment requirements, enabling a fully funded store roll-out programme; 5 attractive forecast dividend yield of 5% at the midpoint of the Indicative Price Range in 2004 (fully franked); and 5 sustainable competitive advantage, supported by: low cost and large scale operations that are driven, in large measure, by sales per square metre of selling space of around $25,000*; discount positioning which the Directors believe provides protection from the retail economic cycle;

* Year ended 30 June 2003

JB Hi-Fi Prospectus

ability to offer leading brands in each product category through strong supplier relationships; specialist image through a carefully targeted focus on home entertainment products; and distinctive branding and prominent retail locations.

1.3 Business strategy JB Hi-Fi offers one of Australias largest ranges of home entertainment products at discounted prices, positioned to appeal to both enthusiasts and price sensitive customers. The Company maintains a low cost operating model designed to underpin competitive pricing at the store level. JB Hi-Fis strategic initiatives for growth include: 5 targeting high growth segments of the home entertainment market; 5 ensuring recently opened stores mature rapidly and profitably; 5 continuing to improve the efficiency and profitability of existing stores; 5 opening new stores. The Company has opened 16 new stores over the last three years, and has plans to continue expanding with at least five new stores forecast to open in the 2004 financial year. JB Hi-Fi has a strong store representation in the Melbourne and Brisbane markets, which it will continue to fill out, and intends to accelerate its focussed store roll-out in Sydney, Adelaide and Perth over the next three years; and 5 opening new format stores, such as the Music and DVD Superstores successfully established in Perth and Adelaide.

1.4 Selected financial information The table below is a summary of JB Hi-Fis historical financial information for the financial years ended 30 June 2001, 2002 and 2003 and the forecast financial information to 30 June 2004. This information is intended as a summary only. More detailed financial information can be found in Section 6.
30 June 2001 Historical pro forma 30 June 2002 Historical pro forma 30 June 2003 Historical pro forma 30 June 2004 Forecast

Sales ($000) EBITDA ($000) EBIT ($000) Net profit after tax ($000)

154,885 7,5711 5,745

248,802 13,633 11,593

355,835 18,051 16,732

457,291 23,796 21,306 13,103

1. Before significant items as detailed in Table 6.1 Statement of Financial Performance.

Prospective investors should review the financial forecasts in conjunction with the assumptions on which the forecasts are based and the sensitivity of the financial forecasts to changes in variables.

1.5 Dividend policy Subject to the Forecast being achieved, the Directors expect that the Company will pay fully franked dividends totalling 7.2 cents per Share with respect to the year ending 30 June 2004. This represents a yield of 5% based on the mid-point of the Indicative Price Range and a payout ratio of approximately 55%. This is expected to comprise an interim dividend of 3.6 cents per share and a final dividend of 3.6 cents per share. The Directors will endeavour to provide shareholders with fully franked dividends in future years, and the Company currently intends to maintain a dividend payout ratio of 50% to 60% of NPAT following the Forecast Period. However, the Directors can give no assurance as to the future dividend policy, the extent of future dividends, nor the franking status as these will depend upon the actual levels of profitability, capital requirements and taxation position of JB Hi-Fi at the relevant time.

Prospectus JB Hi-Fi

1 Investment Overview continued

1.6 Risks There are a number of factors, both specific to JB Hi-Fi and of a general nature, which may affect the future operating and financial performance of the Company and the outcome of an investment in JB Hi-Fi. There can be no guarantee that JB Hi-Fi will achieve its stated objectives, that forecasts will be met or that forward looking statements will be realised. Before deciding to invest in the Company, potential investors should read the entire Prospectus and, in particular, should consider the assumptions underlying the prospective financial information and the risk factors that could affect the financial performance of JB Hi-Fi. These risks are set out in Section 7 of this Prospectus.

1.7 The Offer This Prospectus contains information on the Offer by the Vendor Shareholders for the sale of 86,592,912 Shares. The Offer comprises: 5 A Retail Offer, open to members of the general public, MPET Unitholders, JB Hi-Fi employees and Broker Firm Applicants with a registered address in Australia or New Zealand. Under the Retail Offer, investors must apply for a dollar value of Shares, with a minimum amount of $2,000, and thereafter in multiples of $100; and 5 An Institutional Offer, which is open to certain Australian and international institutional investors. Full details of the Offer are set out in Section 2. You should read this Prospectus in its entirety before deciding to complete and lodge an Application Form. Potential investors are encouraged to submit their Application Forms as early as possible as the Offer may be closed before the indicated Closing Date without prior notice.

JB Hi-Fi Prospectus

Store locations
JB Hi-Fi has opened 16 new stores over the last three years, and has plans to continue expanding with at least five new stores forecast to open in the 2004 financial year.
Indooroopilly

5 Kedron

JB Hi-Fi has a strong store representation in the Melbourne and Brisbane markets, which it will continue to fill out, and intends to accelerate its focussed store roll-out in Sydney, Adelaide and Perth over the next three years.

5
City

Capalaba

MacGregor

Parramatta

Northern Territory Queensland

Bankstown

Western Australia South Australia

5 Brisbane 5 Gold Coast

Perth 5 Adelaide

New South Wales

Newcastle 5 Sydney 5 Canberra Victoria Melbourne Australian Capital Territory

East Keilor

5
Highpoint

Preston

Heidelberg Ringwood

City

City (Duty Free) 5 Brighton Tasmania

5 5 5Prahran 5

Camberwell

5
Nunawading

5 5
Knox

5
Chadstone

5
Dandenong

Frankston

Prospectus JB Hi-Fi

etails 2. D

Offer f the o

JB Hi-Fi Prospectus

2 Details of the Offer

2.1 Key dates Retail Offer opens Retail Offer closes Institutional Offer opens Institutional Offer closes Final Price and basis of Share allocation announced Shares expected to commence trading on ASX (on a conditional and deferred settlement basis) Retail and Institutional Settlement Transfer of Shares to successful Applicants and last day of conditional trading Expected despatch of holding statements Shares expected to commence trading on ASX on a normal settlement basis Expected date of settlement of all trades executed on a deferred settlement basis

Wednesday, 1 5:00pm, Friday, 17 Monday, 20 6:00pm, Tuesday, 21 Wednesday, 22

October October October October October

2003 2003 2003 2003 2003

Thursday, 23 October 2003 Monday, 27 October 2003 Monday, 27 October 2003 Wednesday, 29 October 2003 Thursday, 30 October 2003 Tuesday, 4 November 2003

All times are Melbourne time. The dates and times are indicative only. JB Hi-Fi and the Vendor Shareholders reserve the right, in consultation with the Joint Lead Managers, to vary the dates and times, which includes closing the Offer early, without notice to any recipient of the Prospectus or any Applicant for Shares. Retail Applicants are advised to lodge their Applications as early as possible after the Offer opens. Applications for Offer Shares will not be accepted after the Closing Date (as varied by the Vendor Shareholders and Joint Lead Managers).

2.2 Description of the Offer Investors are invited to apply for a total of 86,592,912 Offer Shares. All of these Shares are offered for sale by the Vendor Shareholders and all proceeds, net of costs of the Offer, will be received by the Vendor Shareholders. None of the proceeds of the Offer will be retained by the Company. On completion of the Offer, the Shares offered under this Prospectus will represent approximately 85% of the issued capital of JB Hi-Fi. At the Indicative Price Range of $1.35 to $1.55 per Share, the gross proceeds received by the Vendor Shareholders under the Offer would be between $117 million and $134 million. The Application Monies are payable in full on Application. No stamp duty or brokerage is payable by Applicants. Stamp duty payable on the sale of the Shares (if any) will be borne by the Vendor Shareholders. All Application Monies will be held on trust for Applicants until the Shares are transferred or, if the Shares are not transferred, until the Application Monies are returned to the Applicants.

2.3 Purpose of the Offer The purpose of the Offer is to: 5 allow the Vendor Shareholders to realise part or all of their investments; 5 achieve listing on ASX, broaden the shareholder base and provide a liquid market for shares in JB Hi-Fi; 5 provide JB Hi-Fi with on-going access to liquid capital markets to improve capital management flexibility; and 5 increase the flexibility of management and employee incentive schemes that will assist JB Hi-Fi in attracting and retaining quality employees.
Prospectus JB Hi-Fi 9

2 Details of the Offer continued

The net proceeds raised from the sale of the Offer Shares will be passed to the Vendor Shareholders and will not be received by the Company. The costs of the Offer will be borne by the Vendor Shareholders in proportion to their respective sell down of Shares in the Offer. (See Section 10.13.)

2.4 Shareholders and Option Holders The ownership structure of JB Hi-Fi immediately prior to and at completion of the Offer is shown in the table below:
Pre-Offer Shares % At Completion of the Offer Shares %

Interests associated with MDIL Australian Ventures LLC BancBoston Interests associated with previous owners of the business Current management Non-Executive Directors New shareholders pursuant to the Offer Total
1 2

60,629,280 4,727,632 20,000,000 9,445,088 6,518,000 800,000 102,120,0002

59.4% 4.6% 19.6%

0.0% 0.0% 0.0% 8.4% 6.4% 0.4% 84.8% 100.0%

9.2% 8,609,088 6.4% 6,518,000 0.8% 400,0001 86,592,912 100.0% 102,120,0002

Patrick Elliott intends to apply for Shares under the Offer which are not included in this figure. Options over 2,025,000 unissued Shares will exist at the conclusion of the Offer. Details of the Options are set out in Section 10.4.

Except for 609,088 Shares held by interests associated with the previous owners of the business, all Existing Shareholders who are retaining part or all of their shareholdings have entered into voluntary escrow arrangements relating to the Shares they will own after the Offer. They have agreed with the Joint Lead Managers that they will not dispose of any such Shares until the Company has reported its audited financial results for the year ended 30 June 2004. Details of these agreements are set out in Section 10.8.

2.5 Offer pricing Maximum Retail Price Indicative Price Range Retail Offer Price

$1.55 per Share $1.35 to $1.55 per Share Lower of Final Price and Maximum Retail Price of $1.55

The Final Price will be determined by way of an institutional bookbuild and an allocation process managed by the Joint Lead Managers. Successful Applicants in the Retail Offer will pay the lower of the Maximum Retail Price and the Final Price (Retail Offer Price). Successful bidders in the Institutional Offer will pay the Final Price. While an Indicative Price Range of $1.35 to $1.55 per Share has been established, the Vendor Shareholders, in consultation with the Joint Lead Managers and the Company, reserve the right to set the Final Price above, below or within the Indicative Price Range. The Indicative Price Range may be varied by the Vendor Shareholders in consultation with the Joint Lead Managers and the Company at any time. The Final Price is expected to be announced on Wednesday, 22 October 2003 and will be published in certain national and regional newspapers.

2.6 Structure of the Offer The Offer will comprise two parts: 5 a Retail Offer, which is open to members of the general public, MPET Unitholders, JB Hi-Fi employees and Broker Firm Applicants with a registered address in Australia or New Zealand; and 5 an Institutional Offer, which is open to certain Australian and international institutional investors. The Vendor Shareholders and the Joint Lead Managers, in consultation with JB Hi-Fi, will determine the allocation of Shares between the Retail Offer and the Institutional Offer.

10

JB Hi-Fi Prospectus

All Shares being offered under this Prospectus rank equally with each other and will rank equally with Existing Shares. The Offer will not be underwritten. The Vendor Shareholders, the Company and the Joint Lead Managers have entered into an Offer Management Agreement in respect of the management of the Retail Offer and the Institutional Offer. Once the Final Price has been determined, the Joint Lead Managers will be obliged to provide settlement support in respect of successful bids in the Institutional Offer under a completion support agreement. The Offer Management Agreement and associated completion support arrangements set out a number of circumstances under which the Joint Lead Managers may terminate the agreement and the completion support obligations. A summary of certain terms of the agreement and associated completion support arrangements, including the termination provisions, is set out in Section 10.7.

2.7 How to apply for Shares in the Retail Offer To apply for Shares under the Retail Offer you must complete the Application Form attached to this Prospectus in accordance with the instructions on that form. Applicants are required to nominate the Australian dollar amount they wish to invest in the Retail Offer. Applicants whose Applications are accepted in full will receive the whole number of Offer Shares calculated by dividing the Application Amount by the Retail Offer Price. Where the Retail Offer Price does not divide evenly into the Application Amount, the number of Offer Shares to be allocated will be rounded down to the nearest whole number of Offer Shares. In this circumstance, surplus Application Monies will not be returned to Applicants and will become an asset of the Vendor Shareholders. Applications must be for a minimum amount of $2,000. Application Amounts in excess of the minimum amount must be in multiples of $100. There is no maximum amount which may be applied for under the Retail Offer. However, JB Hi-Fi and the Joint Lead Managers reserve the right to treat Applications in excess of $100,000 as part of the Institutional Offer. The Retail Offer is open to all members of the public who are resident in Australia or New Zealand. However, priority will be given to MPET Unitholders and JB Hi-Fi employees over general public Applicants. The Company and the Vendor Shareholders reserve their right, in consultation with the Joint Lead Managers, to allocate no Shares to general public Applicants in the event of a scaleback of Applications under the Offer. Applications may be made, and will only be accepted, on the Application Form attached to this Prospectus or in its paper copy form as downloaded in its entirety from www.jbhifi.com.au. The Application Form must be accompanied by a cheque in Australian dollars drawn on an Australian branch of an Australian bank for the value of the Shares for which application is made. All cheques must be made payable to JB Hi-Fi Limited Share Offer and crossed not negotiable. Sufficient cleared funds must be held in your account as cheques returned unpaid may not be re-presented and may result in your Application being rejected. Completed Application Forms (except for Broker Firm Applications) and accompanying cheques must be mailed or delivered to the Registry as set out below: Mailing address: Computershare Investor Services Pty Limited GPO Box 52, Melbourne, VIC 8060 Delivery address: Computershare Investor Services Pty Limited Level 12, 565 Bourke Street, Melbourne VIC 3000 Regardless of the method of lodgment, all Applications must be received by the Registry no later than 5:00pm on Friday, 17 October 2003, unless the dates and times are varied by the Company and the Vendor Shareholders, in consultation with the Joint Lead Managers.

Prospectus JB Hi-Fi

11

2 Details of the Offer continued

The Company and the Vendor s reserve their right, in consultation with the Joint Lead Managers, to close the Offer at an earlier date or to extend the Offer at their absolute discretion without prior notice. Potential investors are therefore encouraged to submit their Application Forms as early as possible. It is not proposed to pay stamping fees to brokers on general public or priority Applications under the Offer. You should read this Prospectus in its entirety before deciding to complete and lodge an Application Form.

2.8 Broker Firm Applications If you have received a firm allocation of Offer Shares from your broker you should obtain a copy of this Prospectus from that broker and apply for Offer Shares using the Application Form included at the back of that Prospectus. Applicants who receive a firm allocation should make cheques payable to the broker from whom the firm allocation of Offer Shares was received, or as otherwise instructed by the broker. In addition, completed Application Forms should be returned to the broker, unless otherwise instructed by the broker.

2.9 Allocation of Shares to Retail Applicants The Company reserves the right to allocate Offer Shares in full for any Application, to allocate any lesser number, or to decline any Application. MPET Unitholders and employees of JB Hi-Fi will be given priority in allocations over general public Applicants. The Company and the Vendor Shareholders reserve their right, in consultation with the Joint Lead Managers, to allocate no Shares to general public Applicants in the event of a scaleback of the Offer. Where no allocation is made or the value of Offer Shares allocated is less than the value for which application is made, subject to Section 2.7, surplus Application Monies will be returned to the Applicant as soon as practicable. Interest will not be paid on any monies refunded and any interest earned on Application Monies pending the allocation or refund will become an asset of the Vendor Shareholders. After the Offer Shares are transferred, the balance of monies held in the special purpose account will be payable to the Vendor Shareholders.

2.10 The Institutional Offer The Vendor Shareholders and JB Hi-Fi are inviting certain Australian and international institutional investors to bid for Offer Shares in the Institutional Offer. The Institutional Offer will be conducted using a bookbuild process managed by the Joint Lead Managers, who will be Joint Bookrunners. Full details of how to participate, including bidding instructions, will be provided to participants by the Joint Lead Managers. Participants can only bid into the book for Offer Shares through the Joint Lead Managers. They may bid for Offer Shares at specific prices or at the Final Price. Participants may bid above, within or below the Indicative Price Range, which is $1.35 to $1.55 per Offer Share. The Indicative Price Range may be varied at any time by the Vendor Shareholders, in consultation with JB Hi-Fi and the Joint Lead Managers. The bookbuild period is expected to commence at 9:00am AEST on Monday, 20 October 2003 and to end at 6:00pm AEST on Tuesday, 21 October 2003, unless these times and dates are varied by the Vendor Shareholders and the Company in consultation with the Joint Lead Managers. Bids may be amended or withdrawn at any time up to the close of the bookbuild period. Bids can be accepted or rejected by the Vendor Shareholders or the Joint Lead Managers in whole or in part, without further notice to the bidder. Acceptance of a bid will give rise to a binding contract that is conditional on quotation of the Offer Shares on ASX. Subject to this condition being met and payment of settlement funds by the Applicant, JB Hi-Fi expects that the Offer Shares will be transferred to successful Applicants on Monday, 27 October 2003 (see Sections 2.11 and 10.9 for a discussion of conditional and deferred settlement trading). All successful institutional bidders will pay the Final Price.

12

JB Hi-Fi Prospectus

The Final Price The bookbuild process will be used to determine the Final Price. The Final Price will be determined by the Vendor Shareholders and the Joint Lead Managers, in consultation with JB Hi-Fi. It is expected that the Final Price and basis of Share allocation will be determined and announced on Wednesday, 22 October 2003. Allocation policy in the Institutional Offer The allocation of Shares amongst bidders in the Institutional Offer will be determined by the Vendor Shareholders and the Joint Lead Managers, in consultation with, and having regard to, the reasonable requests of the Company. There is no assurance that any investor lodging a bid in the Institutional Offer will be allocated any Shares or the number of Shares for which it has bid. The initial determinant of the allocation of Shares in the Institutional Offer will be the Final Price. Bids lodged at prices below the Final Price will not receive an allocation of Shares. The Vendor Shareholders and the Joint Lead Managers, in consultation with the Company, will be responsible for determining the basis for allocations under the Institutional Offer at their absolute discretion.

2.11 ASX listing and conditional and deferred settlement trading JB Hi-Fi will apply for admission to the official list of ASX and quotation of the Shares on ASX within seven days after the date of this Prospectus. All contracts formed on acceptance of Applications under the Retail Offer and bids in the Institutional Offer will be conditional on quotation of the Shares on ASX. If the Shares are not admitted to quotation within three months after the date of this Prospectus, Application Monies will be returned to the Applicant as soon as practicable (without interest). It is expected that trading of the Shares on ASX will commence on a conditional and deferred settlement basis on or about Thursday, 23 October 2003 and the Offer Shares will be transferred to successful Applicants on Monday, 27 October 2003. Deferred settlement trading will continue until the despatch of holding statements on or about Wednesday, 29 October 2003. It is expected that trading on a normal settlement basis will commence on Thursday, 30 October 2003. Details of the Final Price, Retail Offer Price and basis of Share allocations will be advertised in certain national and regional newspapers on Thursday, 23 October 2003 or can be confirmed by calling the JB Hi-Fi Share Offer Information Line on 1300 302 417 (Australia) or +61 3 9615 5970 (New Zealand). Applicants are responsible for confirming their allocation before trading in Shares. Anyone who sells Shares before receiving confirmation of their allocation does so at their own risk. See Section 10.9 for further information in relation to the conditional and deferred settlement trading of the Shares, and how to confirm allocations before trading Shares.

2.12 Electronic Prospectus This Prospectus may be viewed online at www.jbhifi.com.au. Applicants using the Application Form attached to the electronic version of this Prospectus must be located in Australia or New Zealand. Persons who receive the electronic version of this Prospectus should ensure they download and read the entire Prospectus. A paper copy of this Prospectus will be provided free of charge to any person who requests a copy by contacting the Registry or the Joint Lead Managers, by mail or in person, during the Offer Period.

Prospectus JB Hi-Fi

13

2 Details of the Offer continued

2.13 CHESS and holding statements The Company will apply to participate in CHESS, and, in accordance with the Listing Rules and the SCH Business Rules, will maintain an electronic issuer-sponsored sub-register and an electronic CHESS subregister. Following the transfer of Offer Shares to successful Applicants, shareholders will be sent an initial holding statement that sets out the number of Shares which they have been allocated. Holding statements are expected to be despatched on Wednesday, 29 October 2003. This statement will also provide details of a shareholders identification number or, where applicable, the security holder reference number for each of the sponsored holders. It is the responsibility of Applicants to determine their allocation prior to trading Shares. Shareholders will receive subsequent statements showing changes to their shareholding in JB Hi-Fi. No share certificates will be issued.

2.14 Taxation The Australian taxation consequences of any investment in Offer Shares will depend upon the investors particular circumstances. It is an obligation of investors to make their own enquiries concerning the taxation consequences of an investment in the Company. If you are in doubt as to the course you should follow, you should consult your stockbroker, lawyer, accountant or other professional adviser.

2.15 Enquiries If you require assistance to complete the Application Form or require additional copies of this Prospectus, you should contact the JB Hi-Fi Share Offer Information Line on 1300 302 417 (Australia) or +61 3 9615 5970 (New Zealand) or Goldman Sachs JBWere on 1800 003 355 or Macquarie on 1800 621 656. If you are unclear in relation to any matter or are uncertain as to whether JB Hi-Fi is a suitable investment for you, you should seek professional advice from your stockbroker, lawyer, accountant or other professional adviser.

14

JB Hi-Fi Prospectus

Overview . Industr y 3

Prospectus JB Hi-Fi

15

3 Industry Overview
3.1 Background JB Hi-Fi is a specialty retailer of home entertainment products, focussing on: 5 Consumer Electronics, which includes wide-screen, digital and plasma TVs, hi-fi, DVD players, home theatres, digital still and video cameras and accessories; 5 car sound systems (audio and visual); and 5 Music and DVDs. The markets for home entertainment products are generally characterised by: 5 strong sales growth; 5 high levels of technological innovation; and 5 a large number of retailers operating in a fragmented and competitive environment. Sales in the Domestic Appliance and Recorded Music Retailing market in Australia were approximately $11.2 billion for the year to 30 June 2003 . While this market includes some products not supplied by JB Hi-Fi, such as white goods and non-electronic domestic appliances, the Directors believe that Consumer Electronics products are amongst the highest growth categories in this market.

3.2 Industry growth Consumer Electronics Recent growth in some of JB Hi-Fis Consumer Electronics product categories is demonstrated in the following table which has been compiled by GfK Marketing Services based on data supplied by the majority of Australian retailers in the consumer electronics industry. GfK Australian Consumer Electronics Retail Statistics
Products Year Ended 30 June 2002 Year Ended 30 June 2003 2002-2003 Growth

Camcorders and Video Cameras

Colour Televisions

Audio Home Systems*

Video Cassette Recorders

DVD Players

Receivers and Amplifiers

Digital Still Cameras

Sales in Units Value Average Price Sales in Units Value Average Price Sales in Units Value Average Price Sales in Units Value Average Price Sales in Units Value Average Price Sales in Units Value Average Price Sales in Units Value Average Price

124,480 $178,104,128 $1,431 1,071,228 $935,760,571 $874 499,858 $289,255,337 $579 756,066 $212,008,959 $280 619,619 $257,058,352 $415 86,203 $76,739,525 $890 175,966 $143,470,000 $815

184,720 $247,887,849 $1,342 1,266,980 $1,134,591,683 $896 533,206 $294,603,924 $553 771,943 $212,065,902 $275 1,160,765 $336,411,641 $290 138,700 $124,203,768 $895 441,643 $281,072,000 $636

48.4% 39.2% (6.2)% 18.3% 21.2% 2.5% 6.7% 1.8% (4.5)% 2.1% 0.0% (1.8)% 87.3% 30.9% (30.1)% 60.9% 61.9% 0.6% 151.0% 95.9% (21.9)%

* Incudes all-in-one systems and pre-packaged home theatre systems. Source: GfK Marketing Services

16

JB Hi-Fi Prospectus

Section 4.5 of this Prospectus sets out further analysis of the markets for the Companys other key product categories, including Music and DVDs and car sound systems which are not included in GfK Marketing Services research.

3.3 Industry drivers The Directors believe that technological change has been, and will continue to be, the single most important growth driver in the home entertainment product industry. Other key drivers include growth in disposable household income, low interest rates and low inflation. The Consumer Electronics industry has seen a series of new technologies that have helped drive significant growth in demand over the past 25 years, such as new format TVs, the VCR, video cameras, walkmans, discmans, CDs and DVDs. More recently, the change from analogue to digital technology has seen a rapid increase in new products that has resulted in customers updating appliances, including DVD and recordable DVD, digital still and video cameras, wide-screen, digital and plasma TVs and home theatre. An example of this trend is the uptake of DVD players in Australia with DVD unit sales increasing by 87% over the year to 30 June 2003. Australias early adoption and forecast uptake of DVD technology is displayed in the following chart. International DVD-Video Hardware Ownership
% of Households

140%
USA

120% 100% 80% 60% 40% 20% 0% 2000A 2001A 2002A 2003F 2004F 2005F
UK Germany Australia France Spain

Italy

NB: Penetration is number of devices in use divided by the number of households and therefore includes multiple set ownership and can exceed 100%. Above: Includes DVD players and recorders and combination TV/Video products containing DVD player, does not include DVD game consoles or DVD-ROM drives. Source: Understanding & Solutions Ltd (August 2003). Periods are January - December

3.4 Competitive landscape Given the fragmented nature of the retail industry in Australia and the focussed range of product offered by JB Hi-Fi, there are a number of competitors in each of the Companys product categories. The Directors believe that key competitors include: 5 major national retailers, such as Harvey Norman, Woolworths (Big W, Dick Smith, Tandy) and Coles Myer (Myer Grace, Kmart, Target, Megamart); 5 buying and marketing groups, such as Retravision, Betta Electrical, The Good Guys, Camera House and Autobarn; 5 national specialty retailers, including Sanity Entertainment, Strathfield Group, HMV, Video Ezy and Blockbuster; and 5 local specialist retailers.

Prospectus JB Hi-Fi

17

3 Industry Overview continued

3.5 Industry regulation Like any company in Australia, JB Hi-Fi must comply with a range of statutory obligations in conducting its business, including the Trade Practices Act 1974 (Cwlth), Corporations Act and Workplace Relations Act 1996 (Cwlth). In addition, specific regulations that prescribe when a retailer can trade apply to JB Hi-Fi. The regulation of retail trading hours varies greatly across Australia. In some States and Territories retail trading hours are almost unregulated. In other States and Territories there are designated days for late night shopping and restrictions on trading Sundays and certain public holidays. To the extent that JB Hi-Fi operates in any State or Territory where trading hours are regulated, the Board does not believe that these regulations currently have, or will have, a material effect on its current business operations or expansion plans.

18

JB Hi-Fi Prospectus

s Profile . Busines 4

Prospectus JB Hi-Fi

19

4 Business Profile
4.1 Overview JB Hi-Fi trades from stand alone destination sites and shopping centre locations, with 26 stores in Melbourne, Brisbane, Sydney, Newcastle, Canberra, Adelaide and Perth. JB Hi-Fi is positioned as a retailer of leading brands offering a broad range at discounted prices. Sales are forecast to grow from $356 million for the year ended 30 June 2003 to $457 million in the year to 30 June 2004. JB Hi-Fis successful business model involves four fundamental components: 5 offering a broad range of branded home entertainment products within focussed categories, creating a specialist retail image; 5 consistently offering low prices supported by the Companys low cost operating structure; 5 providing an informal and informative customer service atmosphere that promotes an enjoyable and distinctive shopping experience; and 5 attracting and retaining skilled and dedicated staff. The result is a high volume business at consistently low prices that builds exceptional customer loyalty. Due to this, and the Companys distinctive advertising campaigns, JB Hi-Fi has been able to build strong brand recognition in its established markets. The Directors believe that this successful business model provides a significant competitive advantage for JB Hi-Fi that would be difficult to replicate in the short to medium term.

4.2 History The business was started with a single store in East Keilor, Melbourne in 1974 and grew to 10 stores by the time it was acquired by the Existing Shareholders in August 2000. At the time of acquisition nine stores were located in Melbourne and one store was located in Parramatta, Sydney. Since August 2000, the Company has opened 16 new stores in Australia, 11 of which are outside of Victoria, as part of a significant inter-state expansion. A list of new stores, their date of opening and JB Hi-Fis monthly sales is set out in the graph below. Company sales by month and timing of new store openings
$million

60
Newcastle NSW

50 40 30 20 10

Highpoint VIC Brisbane City QLD Capalaba QLD Canberra ACT

Gold Coast QLD Frankston VIC Perth WA

Macgregor QLD Chadstone VIC

Indooroopilly QLD

Ringwood VIC Prahran VIC

Kedron QLD

Adelaide SA Bankstown NSW

Monthly sales Trend line

0
Mar01 Feb02 Jan01 Oct01 Jun02 Aug00 Sep00 Nov00 May01 Aug01 Nov02 Oct00 Jun01 Jul01 Jan02 Mar02 Dec00 Sep01 Nov01 Dec01 May02 Dec02 Mar03 Feb01 Oct02 Jul00 Apr01 Apr02 Jul02 Aug02 Sep02 Jan03 Feb03 Apr03 May03 Jun03

20

JB Hi-Fi Prospectus

Since the appointment of the current senior management team in August 2000, there have been a number of material enhancements to the business: 5 expansion of retail space and relocation of certain existing stores and the opening of larger sized stores to enable growth in all product categories; 5 introduction and increased emphasis on the emerging product categories of DVD, digital still and video cameras, wide-screen and plasma TVs and home theatre; 5 improved management information systems and processes, including the introduction of point of sale systems and enhanced financial management software (accounting, payroll and electronic data interface with suppliers); 5 roll-out of 16 new stores, predominantly outside Victoria; 5 establishment of shopping centre locations; and 5 establishment of Music and DVD Superstores in Adelaide and Perth.

4.3 Customer propositions JB Hi-Fis product offering, which combines software (Music and DVDs) with hardware (Consumer Electronics and car sound systems) is rare amongst its competitors, providing a distinct customer proposition. Not only do software purchases complement hardware purchases, software builds high volume repeat floor traffic and brand awareness. This gives high visibility to JB Hi-Fis hardware range so that it becomes a logical supplier for the typically less frequent hardware purchase. Consumer Electronics and car sound systems are generally characterised as infrequent, relatively expensive and complex purchases. Accordingly, key drivers of customer purchasing behaviour are range, advice, price and trust. Music and DVDs are relatively simple repeat purchases. Key drivers for these categories include range, price and convenience. JB Hi-Fis customer offering involves three fundamental propositions: (a) Broad range of branded home entertainment products with customer appeal JB Hi-Fi offers one of Australias largest ranges of branded Consumer Electronics, car sound systems, Music and DVDs at discounted prices, appealing to both enthusiasts and price sensitive customers. Within the Music and DVD product category, JB Hi-Fi is positioned as a back catalogue retailer, stocking one of Australias widest collections of both current and earlier release titles (the Company currently stocks over 35,000 CD and 5,000 DVD titles). Customers of JB Hi-Fi may be driven by the planned purchase of a chart music or movie title, but will often add to their purchases on impulse from the extensive back catalogue. While JB Hi-Fi offers a broad product range in its chosen product categories, it is rare amongst its competitors in that it focusses almost entirely on the home entertainment market, which includes Consumer Electronics or brown goods. Many of the Companys competitors combine their brown goods range with other products such as white goods (which includes fridges, dishwashers, washing machines and microwaves), furniture, air-conditioning, kitchen appliances, computers and home office products. JB Hi-Fis broad product range in specialised product categories is a feature of its customer proposition. (b) Consistent low price offering JB Hi-Fi actively markets itself as a discount retailer offering customers an every day low price. Customers experience this through store layouts which have a warehouse or no frills look and feel that conveys a strong message of value and savings. Most stock is priced with handwritten tickets on yellow cardboard and a large amount of stock is stacked into a relatively small space, highlighting the bargain atmosphere within each store.

Prospectus JB Hi-Fi

21

4 Business Profile continued

(c) An informal and informative customer service atmosphere that promotes an enjoyable and distinctive shopping experience Customers are serviced by casually dressed staff that have been trained in a friendly selling style that is complemented by the in-store handwritten signage and audio and visual ambience. Each staff member specialises in a single or limited number of product categories to promote in-depth product knowledge that is shared with customers. Narrow aisles, block stock displays and high customer volumes create a busy bargain atmosphere. Most JB Hi-Fi stores open from 10:00am to 9:00pm weekdays, which few of its major competitors match, enabling customers to shop at convenient hours.

4.4 Business model The Directors believe that JB Hi-Fi operates a unique business model in the Australian home entertainment retailing market and that its every day low pricing strategy to some degree insulates the Company from economic driven demand shocks as consumers generally tend to trade down in such circumstances. A decline in economic conditions also generally leads to a switching of expenditure from high cost life style products (e.g. new cars, overseas holidays) to in-home entertainment. The Companys every day low price strategy is supported by the Companys low cost operations. This is made possible by: 5 economies of scale in purchasing, advertising and support services. For example, JB Hi-Fi is a member of NARTA, a group of larger independent stores and chains. NARTA is one of the largest industry buying groups in Australia when measured in purchases and is a similar size to Retravision and Harvey Norman. Being a part of this buying group allows JB Hi-Fi to obtain competitive pricing; 5 low occupancy costs underpinned by long term leases (store occupancy costs as a percentage of sales are below industry benchmarks); 5 efficient supply chain management. All stock is delivered directly to stores by suppliers (the Company does not maintain warehouses). Storage space is kept to a minimum, with the preference for stock to be stored on the sales floor enabling rapid stock turns greater than five times per annum; and 5 high store productivity. JB Hi-Fi currently operates out of sites that are around 900 m2 with a selling space of approximately 600 m2. The 21 stores opened for more than 12 months as at June 2003 achieved sales per square metre of selling space of around $25,000.

4.5 Product categories The Companys mix of sales by product grouping is set out in the following chart: Year to June 2003 Total sales $356 million

Car Sound Systems 11% Consumer Electronics 55% Music and DVDs 34%

22

JB Hi-Fi Prospectus

Consumer Electronics Consumer Electronics is JB Hi-Fis largest product category, accounting for 55% of sales in the year to 30 June 2003. Strong demand for home theatre systems has underpinned growth in the Consumer Electronics category. Sales of DVD players, wide-screen and large format TVs, hi-fi and speaker systems have all grown as a result of the attractiveness of home theatre systems. Whether it be for new release movies, televised sport or music DVDs, home theatre has been a strong growth category for all of the major brands. From a store merchandising perspective, the home theatre displays generate a large volume of customer traffic and are a key store attraction. Digital still and video cameras also fall into the Consumer Electronics category and are another major driver of growth. Advances in technology that enable consumers to store, download and edit video footage and photographs have made digital photography extremely popular. Music and DVDs Music and DVDs represented approximately 34% of sales in the year to 30 June 2003. DVDs are the Companys fastest growing product category. The introduction by suppliers of a large and growing catalogue of new release and back catalogue (previous release) DVD titles has been favourably received by the consumer. The Company stocks a growing catalogue of motion picture, animated, documentary and TV series titles. The DVD, with its higher quality audio visual capabilities and long lasting format, has increased consumer demand because it is viewed by consumers as a collectable, whereas the video is not. JB Hi-Fis music category includes CDs and music related DVDs. The international market for CDs has been widely reported to be declining due to illegal copying and downloading. However, a combination of the Companys large investment in back catalogue music titles, growth in music DVDs, and a customer base that largely prefers to collect music has meant the Company has been able to grow Music sales by 7.3% on a comparable store basis for the year to 30 June 2003. As DVD player ownership has become more prevalent, sales of music DVDs have grown considerably and are a key growth factor for the music market. Car sound systems Car sound systems represented approximately 11% of sales in the 2003 financial year. Growth in this category has been largely driven by the increasing installation of CD players and a desire by consumers to upgrade sound systems in their vehicles. Further growth is expected to be driven by technological improvements which allow the instalment of visual products such as DVD players and television screens into vehicles.

Prospectus JB Hi-Fi

23

4 Business Profile continued

4.6 Strategy for growth JB Hi-Fis focussed exposure to the high growth home entertainment products market is expected to contribute to growth in sales and earnings in three ways: 5 organic growth in the Companys established stores; 5 maturation of recently opened stores; and 5 new store openings. The relative contribution to sales of each of these is set out below: Company sales by store opening date
$million

500 New stores forecast to be opened during FY2004 New stores opened during FY2003 New stores opened during FY2002 New stores opened during FY2001 Existing stores acquired in July 2000

400

300

200

100

0 2001A 2002A 2003A 2004F

Organic growth in the Companys established stores The Directors believe that high growth products such as DVDs, wide-screen and plasma TVs, digital cameras and home theatre systems will continue to contribute to organic store growth. In addition, the Directors believe that advances in technology will continue to be one of the key drivers of product growth in the home entertainment industry. Accordingly, the Company invests considerable time and resources in evaluating new products and likely customer demand before a selective range of new products is introduced. When the Company considers introducing a new product category, it undertakes detailed analysis and research into that category to determine: 5 the products likely rate of adoption by consumers; 5 the products compatibility with the Companys existing range of product categories; 5 JB Hi-Fis ability to achieve market leadership in that product category through offering a broad range at every day low prices; and 5 the ability to achieve a highly competitive purchasing position through relationships with new and existing suppliers. Optimisation of existing stores is an ongoing process. In the past, this has led to the implementation of strategies such as the increased size of some stores, the relocation of other stores to better locations and new store layouts and in-store merchandising to further improve floor space productivity.

24

JB Hi-Fi Prospectus

Maturity of recently opened stores JB Hi-Fis progressive roll-out strategy means that, at any point in time, a number of stores will be maturing in terms of sales and profitability. For example, currently 11 of the Companys stores are less than two years old and there is an emphasis on maximising the growth profile of these maturing stores. The chart opposite demonstrates the expected sales growth of these stores over the 2004 financial year. Independent of product category growth and new store openings, the simple maturity of recently opened stores is expected to be a principal driver of earnings growth. New store openings The Company plans to continue opening at least five new stores each year for the next three years. The selection process for each new store is based on a review of location, occupancy costs, demographics, local competition and forecast financial performance of the new site. Stand alone destination sites must be in high traffic locations, have good visibility, easy access and ample parking. Large regional shopping centre sites are also considered by JB Hi-Fi where rentals, as a percentage of sales, are not significantly higher than destination sites. The Companys success in diversifying from its high street and destination format into shopping centre locations, as well as the successful establishment of Music and DVD Superstores in Perth and Adelaide, has given the Board confidence to open new stores in whichever of these formats best suits a particular local demographic. With all three formats available it is expected that the Company can continue to expand at its current rate within Australia over the Forecast Period without causing any material cannibalisation of existing store sales. The Companys planned expansion into new geographic markets in Australia has been modelled on its successful launch into the Queensland market during 2001 and 2002, where six new stores were opened over an 18 month period. This strategy reflects the benefit of leveraging a concentrated marketing effort over a rapid roll-out of sites in a new geographic region. The Forecast assumes five new stores will be opened during the 2004 financial year. As at the date of this Prospectus, the Company has executed leases over three new stores located at Osborne Park (Perth, Western Australia), Marion (Adelaide, South Australia) and Leichhardt (Sydney, New South Wales), and has reached in principle agreements with landlords for new stores located at Cannington (Perth, Western Australia), Modbury (Adelaide, South Australia), Kawana (Sunshine Coast, Queensland) and Fountaingate (Melbourne, Victoria). Given the current status of new store opportunities, JB Hi-Fi will consider opening additional new stores should the opportunity arise. The Directors believe that the Companys cashflow and financing facilities are sufficient to support an expanded store roll-out programme. JB Hi-Fi continues to build strong relationships with key landlords. The Company is currently holding discussions with several of Australias largest shopping centre landlords with regard to securing new sites in some of Australias leading shopping centres.

4.7 Suppliers JB Hi-Fi sources product from over 30 suppliers. Individual suppliers vary depending on product categories. Relationships with suppliers are strong and the Directors believe that JB Hi-Fi is not unduly reliant on any one supplier. These relationships strengthen the Companys competitive position.

Prospectus JB Hi-Fi

25

4 Business profile continued

The Company has agreements with all of its major suppliers and generally receives a rebate on all purchases or upon achieving an agreed sales target. JB Hi-Fis products are mainly supplied by Australian based subsidiaries of multi national companies, however, some suppliers are local independents. JB Hi-Fi does not operate a warehouse with all product supplied directly into its stores.

4.8 Promotional activities There are a number of components to the Companys marketing approach: 5 JB Hi-Fi undertakes television, radio, print media and catalogue campaigns that are well recognised in its established markets and feature brand name, product and price. Consistent with its low cost positioning, JB Hi-Fi spends less than 2% of sales on advertising; 5 high visibility of store locations with distinctive yellow and black signage; and 5 reliance on word of mouth referral from a long history of serving customers with a broad range of branded product at every day low prices.

4.9 Information technology The JB Hi-Fi store network operates on a point of sale system installed in 2000. The system is fully scalable as both sales and store numbers grow and is integrated with the Companys general ledger system. The system is Windows based, integrates EFTPOS, and provides full in-store reporting to allow easy access to current stock information, sell through rates, gross profit achieved and sales staff performance. The integrated system also underpins the monthly reporting package provided to management and the Board. The point of sale assisted stock ordering system provides a combination of centralised and decentralised ordering, and is achieved via the use of a secure network between the stores and head office. All orders are placed with suppliers via the head office computer system, allowing easy tracking and reconciliation of orders. Ordering modules allow access to past sales history, current stock on hand and any pending orders to ensure accurate forecasting for orders. All stock is bar-coded and scanned for ease of handling in store. Store managers and staff receive a mix of daily and weekly reports. The reports highlight: 5 sales and gross profit performance by product category compared with budget and the previous year; 5 individual sales staff performance by sales and gross profit; 5 alerts for any low gross profit sales and low stocking levels for best sellers; and 5 inventory purchasing spend compared to budget.

26

JB Hi-Fi Prospectus

agement nd Man . Board a 5

Prospectus JB Hi-Fi

27

5 Board and Management

5.1 Board of Directors and senior management

Patrick Elliott Non-Executive Chairman

B.Comm LLB, MBA (Hons), CA

Richard Uechtritz Chief Executive Officer

Richard has been CEO of JB Hi-Fi since his appointment as head of the new executive management team at the time the business was acquired by the Existing Shareholders in August 2000. Richard is involved, on a day to day basis, in operations, marketing, property, merchandising, and supplier relationships. Richard has over 20 years experience in the retail industry, having been a co-founder and joint Managing Director of Rabbit Photo. Richard later founded Cut-Price Photo which was purchased by Kodak in 1991. Richard was subsequently appointed Managing Director of Kodaks Australian retail operations (Klikk Pty Ltd, trading as Smiths Kodak Express) before becoming a director of Kodak (Australasia) Pty Ltd. During his tenure, Richard implemented Kodaks successful expansion strategy in the 1990s which saw Klikk grow to more than 150 stores throughout Australia.

Terry Smart Operations and Finance Director

Terry joined JB Hi-Fi as an executive director at the time the Business was acquired by the Existing Shareholders in August 2000. As Operations and Finance Director, Terry has developed the operational processes that underpin JB Hi-Fis management of its retail operations. Since joining JB Hi-Fi, Terry has successfully led the implementation of the Companys management information systems, including a point of sale system, a range of in-store reporting systems and an electronic data interface with the Companys major suppliers. Prior to joining JB Hi-Fi, Terry spent six years working with the Australian retail operations of Kodak (Klikk Pty Ltd), where he held the position of director and general manager of operations.

Patrick has chaired JB Hi-Fi since the acquisition of the business by the Existing Shareholders in August 2000. He has overseen its growth from 10 to 26 stores over that period. Patrick is an executive director of Macquarie Direct Investment Limited, the private equity division of Macquarie Bank Limited. Patrick is a director of a number of MDILs investee companies including InvoCare Pty Limited, Financial Network Services (Holdings) Pty Limited, Space Health Clubs Pty Limited, Can Can Lingerie Group Pty Limited and is Deputy Chairman of the Australian Venture Capital Association Limited.

Board of Direc

28

JB Hi-Fi Prospectus

Gary Levin Non-Executive Director

B.Comm, LLB

Will Fraser Non-Executive Director

Ph.D

Frank Garonzi General Manager

Frank has over 30 years experience in the consumer electronics industry. Frank joined JB Hi-Fi in 1999 and prior to this he was Deputy Managing Director of TEAC Australia. Franks key responsibilities at the Company include marketing, supplier relationships, and supervising product buying.

Gary has over 20 years management experience in running private and public companies in the retail, real estate and renewable energy fields. Prior to his current role as Managing Director of Environmental Infrastructure Limited and EarthPower Technologies Sydney Pty Limited, he was the founder and Managing Director of TLC Dry Cleaners Pty Limited and a previous joint Managing Director of Rabbit Photo Holdings Limited. Gary was admitted to the Bar of New South Wales in 1978, and is a member of the New South Wales Bar Association. Gary was appointed to the Board in November 2000.

Wills deep involvement with retail and retail strategies at Kodak Australasia Pty Ltd over many years is highlighted by the successful Kodak Express QMS program which was introduced by his team in 1987. Will retired in 1999 as Chairman and Managing Director of Kodak Australasia Pty Ltd, an appointment that followed two years in London as a Corporate Vice President of Eastman Kodak and Regional Business General Manager, Consumer Imaging, of Europe, Africa, India and the Middle East Region. Will is currently a member of the Board of Trustees of The Baker Foundation. Will was appointed to the Board in September 2003.

ctors

Prospectus JB Hi-Fi

29

5 Board and Management continued

5.2 Organisational structure JB Hi-Fi employs approximately 1,070 staff within the stores and a further 46 staff at its head office in Brighton, Melbourne. Approximately 27% of store staff are casual. The organisation chart is set out below:

Richard Uechtritz CEO

Terry Smart Operations and Finance Director

Frank Garzoni General Manager

Retail Operations

Finance

Information Technology

Human Resources

Marketing and Advertising

Merchandising

Buying and Supplier Relationships

The Directors believe that the Company can roll-out its expansion strategy in the next three years without materially increasing the number of its head office staff. Stores operate with a store manager, a floor manager, a third-in-charge and department heads. Store managers are highly experienced, most of whom have worked their way up from the sales floor. Sales staff receive a base salary and a commission based on gross profit. JB Hi-Fi empowers store managers to make many operational, buying and pricing decisions, within agreed parameters, to best meet the demands of the local market. Store managers report to State managers. The Directors believe that the quality, enthusiasm and energy of its staff and management are key strengths of the Company and have contributed significantly to its success and rapid growth.

Management Team: Top from left: Matt Linhart, Terry Smart, Derek Durrant, Mario Pantano, Nick Prestigiacomo, Richard Murray. Middle: Andrea Lund, Matt Pirzas, Piret Cantwell, Michelina Iaccovella, Bruce Thierbach, Geoff Craig, Suji Wimalaratna. Bottom: Adam Baldwin, Richard Uechtritz, Frank Garonzi. Absent: Sandy Kuecher, Craig Caulkett. 30 JB Hi-Fi Prospectus

5.3 Corporate governance Board of Directors and its committees The Board is responsible for the overall corporate governance of the Company including establishing and monitoring key performance goals. The Board has created a framework for managing the Company including internal controls, a business risk management process and appropriate ethical standards. To assist in the execution of its responsibilities, the Board has established a Remuneration Committee and an Audit Committee. These committees have written mandates and operating procedures. These require that the members of both committees be comprised of a majority of Non-Executive Directors. Composition of the Board The Directors of the Company in office at the date of this Prospectus are detailed in Section 5.1. It is the Companys intention to add a further Non-Executive Board member following the listing of the Company on ASX should a suitably qualified candidate be available. Remuneration Committee The role of the Remuneration Committee is to review and make recommendations to the Board on remuneration packages and policies related to the Non-Executive Directors, Chief Executive Officer and senior executives and ensure that the remuneration policies and practices are consistent with the Companys strategic goals and human resource objectives. Independent advice will be sought where appropriate. Audit Committee The role of the Audit Committee is to advise on internal controls and appropriate ethical standards for the management of the Company. The Committee also confirms the quality and reliability of the financial information prepared, working on behalf of the Board with the external auditors. The Committee reviews non-audit services provided by the external auditor to confirm they are consistent with maintaining external audit independence. The Audit Committee provides advice to the Board and reports on the status of the business risks to the Company through its risk management process aimed at ensuring risks are identified, assessed and appropriately managed. Continuous disclosure All relevant information provided to ASX will be immediately posted onto the Companys corporate website, www.jbhifi.com.au in compliance with the continuous disclosure requirements of the Corporations Act 2001 and ASX Listing Rules. Ethical standards The Company has a code of conduct documented in an employee handbook. This sets out the standards as to how each employee of the Company is expected to act in their capacity as an employee of JB Hi-Fi. On joining the Company, employees sign an acknowledgement stating that they have read and understood the document. Communication to shareholders The Board of Directors aims to ensure that the shareholders are informed of all major developments affecting the Companys state of affairs. Information is communicated to shareholders through its annual report, annual general meeting, half-yearly results announcements and corporate website, www.jbhifi.com.au which has a dedicated investor relations section.

Prospectus JB Hi-Fi

31

nformation Financial I 6.

32

JB Hi-Fi Prospectus

6 Financial Information
6.1 Introduction All information presented in this Section should be read in conjunction with the assumptions outlined in Section 6.2, the risk factors in Section 7, the Investigating Accountants Report set out in Section 8 and the Report on Review of Directors Forecast set out in Section 9. JB Hi-Fis historical pro forma consolidated statements of financial performance for each of the years ended 30 June 2001, 2002 and 2003, and the Directors forecast statement of financial performance for the year ending 30 June 2004 are summarised in Table 6.1. For the purpose of preparing the historical results for the year ended 30 June 2001, it has been assumed that the JB Hi-Fi business was acquired by the Company on 1 July 2000, instead of the actual purchase date of 1 August 2000. As disclosed in the Investigating Accountants Report in Section 8, the historical statements of financial performance for the three years ended 30 June 2001, 2002 and 2003, do not include any costs associated with operating as a publicly listed company. Additional costs associated with a listed public company structure have been assumed for the purposes of the Directors Forecast for the year ending 30 June 2004. The Forecast is based on the Directors assessment of current economic and operating conditions and on a number of assumptions regarding future events and actions, which, at the date at which the Forecast was adopted, the Directors consider will take place. These events or actions may or may not take place. The Forecast is, by its very nature, subject to uncertainties and unexpected events, many of which are outside the control of the Company and its Directors. Events and circumstances often do not occur as anticipated and therefore actual results may differ from the Forecast and these differences may be material. Accordingly, the Directors cannot and do not guarantee that the Forecast will be achieved.

Prospectus JB Hi-Fi

33

6.2 Review of historical and forecast results Table 6.1 sets out a summary of the historical results of JB Hi-Fi for the years ended 30 June 2001, 30 June 2002 and 30 June 2003, and the Companys forecast performance for the year ending 30 June 2004. Table 6.1 Statement of Financial Performance
Year ended 30 June 2001(1) Actual $000 Year ended 30 June 2002 Actual $000 Year ended 30 June 2003 Actual $000 Year ending 30 June 2004 Forecast $000

Sales Existing Stores New Stores(2) Gross Profit(3) EBITDA before significant items EBIT before significant items Significant Item(4) EBIT Interest Expense Profit before Tax Income Tax Expense Profit after Tax Total Sales Growth Gross Margin EBIT Margin EBIT Growth Store Number

154,885 154,885 36,322 7,571 6,811 (1,066) 5,745

248,802 248,802 58,341 13,633 11,593 11,593

355,835 355,835 79,934 18,051 16,732 16,732

n/a 23.5% 4.4%5 n/a 15

60.6% 23.4% 4.7% 70.2%5 21

43.0% 22.5% 4.7% 44.3% 26

418,725 38,566 457,291 103,983 23,796 21,306 21,306 2,587 18,719 5,616 13,103 28.5% 22.7% 4.7% 27.3% 31

Note 1: For the purpose of preparing the historical results for the year ended 30 June 2001, it has been assumed that the JB Hi-Fi business was acquired by the Company on 1 July 2000, instead of the actual purchase date of 1 August 2000. Note 2: New stores are those forecast to be opened in the year ending 30 June 2004. Note 3: The gross profit in 2001 and 2002 has been adjusted to provide a consistent treatment of stock shrinkage in the historical and forecast results. Note 4: The significant item relates to redundancy and rationalisation expenses incurred after acquisition. Note 5: Before significant items.

JB Hi-Fi has demonstrated strong growth in sales and profitability over the three years ended 30 June 2003. The Directors are forecasting further improvements in the financial performance of the Company during the year ending 30 June 2004. Sales Historic sales analysis Total sales grew from $155 million in 2001 to $356 million in 2003. This growth was achieved through the expansion of existing store sales and by exploiting new market opportunities through additional new store openings. For the 12 months ended 30 June 2003 sales increased by 43% over the corresponding 12 month period to 30 June 2002. The increase was due to the opening of five new stores in the year to 30 June 2003 and sales growth from existing stores, in particular, the ramp up of sales from stores opened in the year to 30 June 2002.

34

JB Hi-Fi Prospectus

Forecast sales analysis The Directors are forecasting total sales of $457 million for 2004. The sales forecast is based on an analysis of expected monthly sales by product category at each of the Companys stores, taking into account actual sales and sales growth for the 12 months ended 30 June 2003 and current market conditions. Comparable store sales growth of 6.5% for 2004 is expected from continued growth in almost all product categories in the year to 30 June 2004. Sales growth for the Companys strongest growing categories of digital cameras and DVDs is expected to remain strong, albeit less than the growth rate achieved in 2003. CD sales on a comparable store basis are expected to remain stable over the forecast period. Sales growth in most other product categories for 2004 is forecast to remain positive, however will decline from the growth rates experienced during the 2003 financial year. Stores open at 30 June 2003 are forecast to contribute 92% of forecast sales for the 2004 financial year. The remaining sales are forecast from five stores to be opened over the course of the 2004 financial year. The new stores to be opened in the year ending 30 June 2004 will largely be in areas where JB Hi-Fi is not currently represented, minimising any impact on the sales of existing stores. New stores are forecast to contribute less sales than existing stores in their initial year of opening. This reflects historical experience that it takes approximately two to three months for sales at a new store to stabilise. Gross profit The gross profit forecast is based on individual product category margins which are applied to the sales forecast. The decline in gross margin of approximately 0.9% to 22.5% during the year to 30 June 2003 in comparison to the year to 30 June 2002 was due to a combination of strong sales growth in lower margin products and lower gross margins on certain other products. Based on expected individual product margins and the expected sales growth rates of each product, aggregate gross margin for the Company is forecast to increase to 22.7% in the 2004 financial year. This is due to improved selling techniques and training provided to sales staff and the expected introduction of interest free terms. The forecast gross margin for the 2004 financial year is consistent with recent trading. EBIT Historic EBIT analysis The growth in EBIT over the three years ended 30 June 2003 reflects sales growth from new store openings and comparable store sales growth. Operating expenses as a percentage of sales declined in 2003. In general, salaries and wages, occupancy and advertising expenses account for a significant portion of total operating expenses. For the 12 months ended 30 June 2003, EBIT grew by 44.3% over the corresponding 12 month period to 30 June 2002. The increase was due mainly to the new store roll-out programme and EBIT growth from existing stores. Forecast EBIT analysis The Directors are forecasting EBIT to increase to $21.3 million in the year ending 30 June 2004. The forecast increase in EBIT is primarily attributable to the increase in sales referred to above. New stores take a number of months to reach maturity from an earnings perspective. This is due to start up costs which are expensed in the year of establishment and lower initial gross margins to attract customers and establish a store in that location. For example, the EBIT contribution from the five stores which were opened during the 2002 year is forecast to increase from $6.4 million in the 2003 year to $7.3 million in 2004.

Prospectus JB Hi-Fi

35

6 Financial Information continued

Seasonality JB Hi-Fi generates approximately 52% of sales and 63% of EBIT in the first six months of the financial year which is driven by the Christmas retail period in the November-December months. Forecast assumptions JB Hi-Fi has developed a business model that forecasts future performance based on historical information, trends and plans for the Company. The Forecast has been prepared with proper care and attention and the Directors consider all assumptions to be reasonable, when taken as a whole. The Forecast may vary from actual results and any variation may be materially positive or negative, because the assumptions, and therefore the Forecast, is by its very nature subject to uncertainties and contingencies, many of which are outside the control of the Directors. Accordingly, neither the Company, nor its Directors, can give any assurance that the Forecast will be achieved. Events and outcomes may differ in quantum and timing from the assumptions, with material consequential impact on the Forecast. The Forecast should be read with the assumptions and sensitivity analysis set out in this Section and other information contained in this Prospectus. The material assumptions made by the Directors in preparing the Forecast are as follows: General assumptions 5 There are no material beneficial or adverse effects arising from the actions of competitors. 5 The operating and financial performance of JB Hi-Fi is influenced by a variety of general economic and business conditions, including the Australian housing construction cycle, levels of inflation, interest rates and exchange rates, government fiscal, monetary and regulatory policies. The Forecast assumes that there will be no material changes in these factors over the period to 30 June 2004. 5 There is no material amendment to any material agreement relating to the Companys business. 5 There are no changes to the statutory, legal or regulatory environment which would be detrimental to JB Hi-Fi in any of the jurisdictions in which it operates. 5 There are no changes in current income tax legislation in Australia. 5 Accounting policies remain as disclosed in the Investigating Accountants Report. 5 There are no material changes in Australian Accounting Standards, Statements of Accounting Concepts or other mandatory professional reporting requirements, being Urgent Issues Group Consensus Views and the Corporations Law, which would have a material effect on the financial results of JB Hi-Fi. 5 In July 2002 the Australian Financial Reporting Council announced its decision to support Australias adoption of International Financial Reporting Standards (IFRS), with effect from 1 January 2005. Under IFRS, there is no requirement to amortise identifiable intangible assets that have indefinite useful lives. JB Hi-Fis brand names have not been subject to amortisation as, in the opinion of the Directors, they have an indefinite useful life. Specific assumptions 5 The Company issues Shares prior to listing on ASX to Existing Shareholders upon the exercise of options as disclosed in the pro forma Statement of Financial Position, and there are no further issue of Shares. 5 On a comparable store basis, forecast retail sales for the year ending 30 June 2004 will increase by 6.5%. 5 There will be a further five stores opened at various times during the year to 30 June 2004. Should some of these stores not open or be delayed this would adversely impact on forecast profitability (refer to Sensitivity analysis in Section 6.3).

36

JB Hi-Fi Prospectus

5 New store sales forecasts are lower than those assumed for existing stores, reflecting the historic maturity profile of new stores. 5 No material change in operating costs (such as salaries and wages, occupancy, office costs) as a percentage of sales for the year ending 30 June 2004. 5 Capital expenditure for new stores will be $0.7 million per store in the year ending 30 June 2004. 5 Gross margins will be 22.7% in the year ending 30 June 2004 in light of expected product mix and individual product margins. 5 Forecast income tax expense has been based on the statutory company tax rate of 30%. 5 An allowance for expenditure associated with being a listed company has been made. 5 Interest on the bank debt is calculated assuming a fixed interest rate of 6.7% per annum for 50% of the bank debt and a variable interest rate of 6.4% per annum for the remaining 50%. Interest on the overdraft is calculated assuming a variable interest rate of 6.4% per annum. 5 A payment of $3.1 million in relation to the profit share and loan agreements relating to the Highpoint store. 5 A payment of a fully franked special dividend of $10 million to Existing Shareholders prior to the Offer.

6.3 Sensitivity analysis The Forecast is based on certain economic and business assumptions about future events. JB Hi-Fis EBIT is sensitive in varying degrees to movements in a number of key business drivers. The sensitivities discussed below assume no offsetting changes in other variables. In practice, JB Hi-Fis management would respond to any adverse changes in one variable by taking action to minimise its impact. The effect on EBIT presented for each sensitivity is not intended to be indicative or predictive of the likely range of outcomes to be experienced with each sensitivity. The following sensitivities summarise the financial effect of changes in the specified variables for the Forecast Period: Table 6.2
% Change Impact on EBIT 2004 Forecast ($000)

Sales Gross Margin(1) Each of the five store openings in FY2004 are delayed by three months. Salaries and wages

+/- 1% +/- 1% +/- 1%

+/- 924 +/- 4,346 -1,075 +/- 477

Note 1: A 1% change in the gross margin has been calculated as a change in the gross margin from 22.7% to 23.7% or 21.7%.

The Company enters into property leases with terms varying from five to 10 years. A majority of stores have base terms that expire after 30 June 2004.

Prospectus JB Hi-Fi

37

6 Financial Information continued

6.4 Pro forma historical statement of financial position The pro forma historical statement of financial position for JB Hi-Fi has been prepared from the audited statement of financial position as at 30 June 2003. Details of the statement of financial position are included in the Investigating Accountants Report in Section 8 and are summarised in the table below. Table 6.3 Pro Forma Statement of Financial Position
Actual 30 June 2003 $000 Pro Forma Adjustments $000 Pro Forma 30 June 2003 $000

ASSETS Current Assets Cash Receivables and Prepayments Inventories Other Non-Current Assets Net Property, Plant and Equipment Brand Name Deferred Tax Assets Other Total Assets LIABILITIES Current Liabilities Creditors and Accruals Other Current Liabilities Non-Current Liabilities Bank Debt Other Total Liabilities NET ASSETS EQUITY Contributed Equity Retained Profits TOTAL EQUITY

12,990 9,121 49,074 681 71,866 14,880 43,094 1,727 787 60,488 132,354

(2,970)

10,020 9,121 49,074 681 68,896 14,880 43,094 1,727 3,287 62,988 131,884

2,500

46,341 10,907 57,248 32,000 4,644 36,644 93,892 38,462 21,900 16,562 38,462

(600)

46,341 10,307 56,648 32,000 4,644 36,644 93,292 38,592

10,130 (10,000)

32,030 6,562 38,592

The pro forma statement of financial position reflects a number of adjustments: 5 the exercise of 14.52 million options over new Shares prior to listing on ASX, raising $10.13 million; 5 the payment of $3.1 million in relation to the termination of the profit share and loan agreements relating to the Highpoint store; and 5 the payment of a fully franked special dividend of $10 million to Existing Shareholders prior to the Offer.

38

JB Hi-Fi Prospectus

6.5 Historical and Forecast statement of cashflows The Directors believe that the Company will have sufficient cash reserves and cashflow to finance the operations and forecast capital expenditure over the Forecast Period. The following table sets out the actual cashflow for the years ended 30 June 2002 and 30 June 2003 and forecast cashflows for the year ending 30 June 2004. Table 6.4 Historical and Forecast Statement of Cashflows
Year ended 30 June 2002 Actual $000 Year ended 30 June 2003 Actual $000 Year ending 30 June 2004 Forecast $000

Operating Profit Before Interest and Tax Depreciation and Amortisation of Assets Movement in Working Capital Net Interest Paid Income Tax Net Cashflow from Operating Activities Cashflows from Investing Activities Net Purchases of Property, Plant and Equipment Acquisition of Store Interest Net Cashflow from Investing Activities Cashflows from Financing Activities Proceeds from Issue of Equity Securities Repayment of Borrowings Net increase in Lease Liabilities Payment of Dividends Net Cashflow from Financing Activities Net Increase/(Decrease) in Cash Held Cash at the Beginning of the Year Cash at the End of the Year

11,593 2,040 (9,864) (2,718) (980) 71 (3,290)

16,732 1,319 12,698 (3,021) (4,082) 23,646 (5,781)

21,306 2,490 (14,940) (2,571) (5,314) 971 (4,965) (2,500) (7,465) 10,130 (600) 1,229 (13,676) (2,917) (9,411) 12,990 3,579

Cashflows from Operating Activities In the 2002 year the Company introduced a number of new product categories into stores which resulted in an investment in working capital. Cashflow in the year ended 30 June 2003 was positively impacted by a reduction in working capital due to active management of inventory and creditors. In the year to 30 June 2004 the Company is forecasting an increase in working capital which reflects the expansion of the Companys operations, an increase in inventory days and a reduction in creditor days. Cashflows relating to Financing Activities The forecast cashflow to 30 June 2004 financial year includes the exercise of options over new Shares prior to listing ($10.1 million), the payment of dividends totalling $10 million in September 2003 to Existing Shareholders, and the interim dividend forecast to be paid for the half year ending 31 December 2003 ($3.7 million). The forecast final dividend with respect to the year ending 30 June 2004 is expected to be paid in the following financial year.

Prospectus JB Hi-Fi

39

Factors 7. Risk

40

JB Hi-Fi Prospectus

7 Risk Factors
7.1 General comments There are a number of factors, both specific to JB Hi-Fi and of a general nature, which may affect the future operating and financial performance of the Company and the outcome of an investment in JB Hi-Fi. There can be no guarantee that JB Hi-Fi will achieve its stated objectives, that the Forecast will be met or that forward looking statements will be realised. This Section describes risks associated with an investment in the Company. Each of the risks set out below could, if they eventuate, have a material adverse impact on JB Hi-Fis operating performance and profits. Before deciding to invest in the Company, potential investors should read the entire Prospectus and, in particular, should consider the assumptions underlying the prospective financial information and the risk factors that could affect the financial performance of JB Hi-Fi. Potential investors should specifically consider the factors contained within this Section in order to fully appreciate the risks associated with an investment in the Company. You should carefully consider these factors in light of your personal circumstances and seek professional advice from your accountant, stockbroker, lawyer or other professional adviser before deciding whether to invest.

7.2 Specific risk factors The business activities of JB Hi-Fi are subject to a number of risks that could affect JB Hi-Fi and the industry in which it operates. These factors may substantially impact on its future performance. The Directors believe that there are a number of specific factors that should be taken into account before investors decide whether or not to apply for Shares. These are as follows: Competition The markets in which JB Hi-Fi operates are fragmented and competitive. The Companys financial performance or operating margins could be adversely affected if the actions of competitors or potential competitors become more effective, or if new competitors enter the market, and JB Hi-Fi is unable to counter these actions. Growth in the popularity of downloading digital music via the Internet, combined with the improvement in accessibility and the ability to do this, may adversely impact the sale of CDs in the Australian market and reduce the Companys gross margins and profitability. The impact on earnings as a result of a reduction in the Companys gross margins is set out in the Sensitivity analysis in Section 6.3. Leasing arrangements The growth prospects of JB Hi-Fi are likely to result from increased contribution from existing stores and the Companys ability to continue to open and operate new stores on a profitable basis. The ability to identify suitable sites and negotiate suitable leasing terms is key to these plans. Further, managements ability to renegotiate acceptable lease terms for existing stores where leases are due to expire is vital to on-going profitability. The majority of leases have over two years to expiry with an option to renew. The Companys increased dependence on shopping centres, particularly for its Sydney expansion, means that the development and maintenance of strong relationships with shopping centre landlords and the negotiation of cost effective rental arrangements will be essential for achieving profitability in these locations.

Prospectus JB Hi-Fi

41

7 Risk Factors continued

Operating costs The Companys ability to consistently offer low prices and operate profitably is dependent on a combination of the scalability of its operations, relatively high stock turns and low cost operating structure. There can be no assurance that this relatively low cost operating structure can be maintained. Information technology JB Hi-Fi has invested significantly in the development of management information and point of sales systems designed to maximise the efficiency of the Companys operations. Should these systems not be maintained sufficiently or updated when required, or JB Hi-Fis disaster recovery processes not be adequate, system failures may negatively impact on the Companys performance. Reliance on key personnel JB Hi-Fi has a number of key senior management staff and is committed to providing an attractive employment environment, conditions and prospects to assist in retaining these personnel. However, there can be no assurance that the Company will be able to retain these key personnel. Growth prospects Over the past few years, the Company has achieved strong growth in sales and profitability. The growth rates forecast in this Prospectus are dependent upon a number of factors, including appropriate product selection, maturation of recently opened stores and the Companys ability to open new stores on a profitable basis. These factors are discussed in Section 4 of this Prospectus. Should sales not meet management forecasts, the Companys net profit is likely to be lower than the Prospectus forecasts. Section 6.3 sets out the sensitivity of EBIT to changes in forecast sales. The Companys planned store roll-out programme contains a number of risks. The Company intends to open new stores in markets where the JB Hi-Fi brand is less recognisable than in its established markets, which may impact the success of new stores in those markets. If there is a delay in the opening of one or more stores, or if the Company opens fewer stores than it currently plans over the Forecast Period, the Company may not be able to meet its sales or profit forecasts for the Forecast Period. The sensitivity of profits over the Forecast Period to a delay in the opening of stores in the 2004 financial year is set out in the Sensitivity analysis in Section 6.3. Product selection JB Hi-Fi relies on its ability to assess and satisfy customers needs. Misjudgements in demand or changes in customer preferences could result in overstocked inventory and/or lower gross margins as a result of mark downs. Relationship with suppliers Any material adverse change in JB Hi-Fis relationship with its suppliers, or in terms of trade, could have an adverse impact on the Companys prospects. For example, material failure to achieve sales targets may reduce the rebates received from suppliers, reducing the Companys gross margins and profitability. Rapid technological change Rapid changes in technology are changing the products demanded by customers in the segments in which JB Hi-Fi operates. Many of these technological changes are providing the growth opportunities discussed in this Prospectus, but there is a risk that competitors will introduce technologies that provide them with a competitive advantage relative to JB Hi-Fi.

42

JB Hi-Fi Prospectus

7.3 General risk factors Share market The Shares may trade on ASX at higher or lower prices than the Offer Price following listing. Investors who decide to sell their Shares after listing may not receive the amount of their original investment. There can be no guarantee that an active market in the Shares will develop. The price at which the Shares trade on ASX may be affected by the financial performance of JB Hi-Fi and by external factors over which the Directors and JB Hi-Fi have no control. These factors include movements on international share markets, local interest rates and exchange rates, domestic and international economic conditions, government taxation, market supply and demand and other legal, regulatory or policy changes. Dependence on general economic conditions The operating and financial performance of JB Hi-Fi is influenced by a variety of general economic and business conditions, including the Australian housing construction cycle, levels of consumer spending, inflation, interest rates and exchange rates, access to debt and capital markets, government fiscal, monetary and regulatory policies. A prolonged deterioration in general economic conditions, including an increase in interest rates or a decrease in consumer and business demand, could be expected to have a material adverse impact on the Companys business or financial condition. Acts of terrorism and outbreak of international hostilities Acts of terrorism or an outbreak of international hostilities may adversely affect consumer confidence and lead to a downturn in customer spending. This may adversely affect sales of the Companys products which could have a negative impact on the value of investing in the Company.

Prospectus JB Hi-Fi

43

tigating 8. Inves Report ountants Acc

44

JB Hi-Fi Prospectus

Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 505 Bourke Street Melbourne VIC 3000 Australia DX 111 Telephone (03) 9208 7000 Facsimile (03) 9208 7001 www.deloitte.com.au

8 Investigating Accountants Report

18 September 2003 The Directors JB Hi-Fi Limited 14 Spink Street BRIGHTON VIC 3186 Dear Sirs Report on Historical Financial Information Introduction This report has been prepared for inclusion in the prospectus to be issued by JB Hi-Fi Limited (JB Hi-Fi or the Company) to be dated on or around 18 September 2003 (Prospectus) relating to an offer to the public for the sale of 86,592,912 shares at an indicative price range of $1.35 to $1.55 per share, resulting in gross proceeds ultimately received by the Vendor Shareholders under the Offer of between $117 million and $134 million. Background The historical financial information pertaining to JB Hi-Fi and the entities which it controls (the JB Hi-Fi Group) has been presented on a basis which is considered to be the most relevant to potential investors and accordingly this report on historical financial information includes the results of all the entities controlled by JB Hi-Fi at the date of this report. The JB Hi-Fi Group comprises the following: 5 The Parent Entity: JB Hi-Fi Limited (formerly JB Hi-Fi Holdings Pty Limited) incorporated 7 June 2000

5 Its Wholly-owned Controlled Entities: JB Hi-Fi Group Pty Limited incorporated 31 May 2000 JB Hi-Fi (A) Pty Ltd incorporated 24 August 2000 (dormant)

On 1 August 2000 the following transactions took place to effect the current group structure: 5 JB Hi-Fi Limited and JB Hi-Fi Group Pty Limited were existing shell companies as at 1 August 2000 with JB Hi-Fi Limited purchasing 100% of the share capital of JB Hi-Fi Group Pty Limited for $2. 5 On 1 August 2000 JB Hi-Fi Group Pty Limited acquired the business (i.e. certain assets and liabilities) of JB Hi-Fi. The total purchase consideration was satisfied by way of an immediate cash payment, a deferred cash payment due by 30 June 2002, and the issue of shares in JB Hi-Fi Limited. 5 JB Hi-Fi Limited acts as the holding entity with JB Hi-Fi Group Pty Limited the retail operating entity. The historical financial information set out in the Annexure to this report comprises: 5 The pro forma consolidated Statement of Earnings Before Interest and Tax (EBIT) of the JB Hi-Fi Group for year ended 30 June 2001, and the audited consolidated Statement of Earnings Before Interest and Tax (EBIT) for the years ended 30 June 2002 and 30 June 2003 respectively; 5 The consolidated Statement of Earnings Before Interest and Tax for the year ended 30 June 2001 has been restated to exclude redundancies and several one-off costs associated with the acquisition of the JB Hi-Fi business on 1 August 2000; 5 The audited consolidated Statement of Cashflows for the year ended 30 June 2002 and the pro forma consolidated Statement of Cashflows for the year ended 30 June 2003;
The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). Prospectus JB Hi-Fi 45

8 Investigating Accountants Report continued

5 The audited and pro forma consolidated Statements of Financial Position of the JB Hi-Fi Group as at 30 June 2003 incorporating the assumptions detailed in note 3 in the Annexure; and 5 Notes to and forming part of this financial information. The financial information presented in this report in respect of the year ended 30 June 2001 has been obtained from the unaudited financial reports of the JB Hi-Fi Group for the month ended 31 July 2000 and the audited financial report for the 11 months ended 30 June 2001. The financial information for the years ended 30 June 2002 and 30 June 2003 has been obtained from the respective audited financial reports. Scope The Directors of JB Hi-Fi are responsible for the preparation of the consolidated audited and pro forma financial information. Deloitte Touche Tohmatsu has audited the financial statements of the JB Hi-Fi Group for the 11 months ended 30 June 2001, for the year ended 30 June 2002 and for the year ended 30 June 2003, and our audit reports in respect to these periods were unqualified. The financial information prior to the year ended 30 June 2001 has not been included in this report as the nature and size of the business has changed significantly since that time and is therefore not considered relevant to potential investors. Our audits of the JB Hi-Fi Group were conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial information referred to above is free from material misstatement. Our audit procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial information and the examination of accounting policies and significant accounting estimates. These procedures were undertaken to form an opinion whether, in all material respects, the financial information was presented fairly in accordance with Australian Accounting Standards, other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) and statutory requirements, so as to present a view which was consistent with our understanding of the operating performance, cashflows and financial position of these entities. Opinion In our opinion, the historical financial information included in this report presents fairly: 5 The audited and pro forma consolidated Statements of Earnings Before Interest and Tax and the pro forma and audited consolidated Statements of Cashflows of the entities comprising the JB Hi-Fi Group for the periods identified; and 5 The audited and pro forma consolidated Statements of Financial Position of the JB Hi-Fi Group as at 30 June 2003 in accordance with applicable Australian Accounting Standards and mandatory professional reporting requirements and the accounting policies adopted by the JB Hi-Fi Group and described in the Annexure to this report. Subsequent Events Subsequent to 30 June 2003 and up to the date of this report, nothing has come to our attention that would cause us to believe material transactions or events outside the ordinary course of business of the consolidated entity have occurred, other than the matters dealt with in this report, which would require comment on, or adjustment to, the information contained in this report, or which would cause such information to be misleading. Yours faithfully

DELOITTE TOUCHE TOHMATSU Melbourne 18 September 2003

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). 46 JB Hi-Fi Prospectus

ANNEXURE JB HI-FI GROUP HISTORICAL FINANCIAL INFORMATION

JB Hi-Fi Group Consolidated Statement of Earnings Before Interest and Tax (EBIT) Year ended 30 June 2001 Pro forma(i) $000 Year ended 30 June 2002 Audited $000 Year ended 30 June 2003 Audited $000

Notes

Sales Revenue 3 Earnings Before Interest, Tax, Depreciation and Amortisation (including significant items detailed in note 2) Depreciation and Amortisation Plant and equipment, leasehold improvements Earnings Before Interest and Tax (EBIT)

154,885 6,459 (714) 5,745

248,802 13,633 (2,040) 11,593

355,835 18,051 (1,319) 16,732

The consolidated Statement of Earnings Before Interest and Tax should be read in conjunction with the notes to and forming part of the financial information.
(i) The pro forma consolidated Statement of Earnings Before Interest and Tax in respect of the year ended 30 June 2001 has been obtained from the unaudited financial reports of the JB Hi-Fi Group for the month ended 31 July 2000 and the audited financial report for the 11 months ended 30 June 2001.

RESTATED CONSOLIDATED STATEMENT OF EARNINGS BEFORE INTEREST AND TAX

Year ended 30 June 2001 Pro forma(ii) $000 Year ended 30 June 2002 Audited $000 Year ended 30 June 2003 Audited $000

Earnings Before Interest and Tax (EBIT) Redundancy and rationalisation costs Restated Consolidated Earnings Before Interest and Tax
(ii)

5,745 1,066 6,811

11,593 11,593

16,732 16,732

The restated consolidated Statement of Earnings Before Interest and Tax information has been adjusted to exclude redundancies and several one off costs associated with the acquisition of the JB Hi-Fi business on 1 August 2000. This restatement has removed the effect of these costs from the results for the year ended 30 June 2001.

No adjustments have been made to the earnings before interest and taxation to reflect public company costs.

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). Prospectus JB Hi-Fi 47

8 Investigating Accountants Report continued

JB Hi-Fi Group Pro Forma Consolidated Statement of Financial Position Audited as at 30 June 2003 $000 Adjustments as at 30 June 2003(i) $000 Pro forma as at 30 June 2003 $000

Notes

CURRENT ASSETS Cash assets Receivables Inventories Other TOTAL CURRENT ASSETS NON-CURRENT ASSETS Other non-current financial assets Plant and equipment Intangible assets Deferred tax assets Other TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Payables Interest-bearing liabilities Current tax liabilities Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing liabilities Deferred tax liabilities Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Retained profits TOTAL EQUITY
(i)

29(a) 5 6 7

12,990 9,121 49,074 681 71,866 6 14,880 43,094 1,727 781 60,488 132,354 48,340 3,289 2,081 3,538 57,248 34,588 1,387 669 36,644 93,892 38,462 21,900 16,562 38,462

(2,970) (2,970) 2,500 2,500 470 (600) (600) (600) 130 10,130 (10,000) 130

10,020 9,121 49,074 681 68,896 6 14,880 43,094 1,727 3,281 62,988 131,884 48,340 2,689 2,081 3,538 56,648 34,588 1,387 669 36,644 93,292 38,592 32,030 6,562 38,592

8 9 10 11

12 13 14 15

16 17 18

20 22

Assumptions underlying the adjustments have been detailed in note 2.

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). 48 JB Hi-Fi Prospectus

JB Hi-Fi Group Pro Forma Consolidated Statement of Cashflows Year ended 30 June 2002 Audited $000 Year ended 30 June 2003 Pro forma(ii) $000

Notes

Cashflows From Operating Activities Receipts from customers Payments to suppliers and employees Interest received Interest and other costs of finance paid Income tax paid Net cash provided by operating activities Cashflows From Investing Activities Payment for investment in shares Proceeds on sale of plant and equipment Payments for plant and equipment Amounts advanced to related parties Net cash (used in) investing activities Cashflows From Financing Activities Proceeds from issues of equity securities Payment for debt issue costs Proceeds from borrowings Repayment of borrowings Repayment of lease liabilities Dividends paid to members of the parent entity Net cash provided by/(used in) financing activities Net (decrease)/increase in cash held Cash at the beginning of the financial year Cash at the end of the financial year
(i)

29(c)

273,409 (269,640) (2,718) (980) 71 (3,290) (3,290) 2,993 13,601 (2,000) (1,181) 13,413 10,194 (9,632) 562

353,628 (322,879) 316 (3,337) (4,082) 23,646 (6) 478 (6,253) (5,781) 10,130 (3,846) 32,000 (35,772) (919) (10,000) (8,407) 9,458 562 10,020

29(a)

The pro forma consolidated Statement of Cashflows for the year ended 30 June 2003 is based on the audited balances per the annual financial statements adjusted for the transactions detailed in Note 2.

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). Prospectus JB Hi-Fi 49

8 Investigating Accountants Report continued

NOTE 1 NOTES TO AND FORMING PART OF THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION Summary of Significant Accounting Policies Financial Reporting Framework The audited and pro forma financial information has been prepared in accordance with the recognition and measurement principles of applicable Accounting Standards and Urgent Issues Group Consensus Views, and the specific accounting policies detailed below and in Note 2. The disclosure requirements of applicable Accounting Standards and UIG views have only been applied as considered necessary. The financial report has been prepared on the basis of historical cost and, except where stated, does not take into account changing money values or current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. Compilation of Pro Forma Consolidated Financial Information The audited and pro forma consolidated financial information includes the consolidation of the financial statements of JB Hi-Fi Limited, JB Hi-Fi Group Pty Limited, and JB Hi-Fi (A) Pty Ltd (collectively the JB Hi-Fi Group). Adjustments have been made in the preparation of the pro forma consolidated Statement of Earnings Before Interest and Tax as disclosed in the Annexure. In addition, the pro forma financial information includes the pro forma consolidated Statement of Financial Position and the pro forma consolidated Statement of Cashflows of the JB Hi-Fi Group as at and for the year ended 30 June 2003 reflecting transactions, as discussed in Note 2, as if they had occurred at that date. Significant Accounting Policies Accounting policies are selected and applied in a manner which ensures that the resultant financial information satisfies the concepts of relevance and reliability, thereby, ensuring that the substance of the underlying transactions and other events is reported. The following significant accounting policies have been adopted in the preparation and presentation of the financial report: (a) Principles of Consolidation The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the consolidated entity, being the Company (the parent entity) and its controlled entities as defined in Accounting Standard AASB 1024 Consolidated Accounts A list of controlled entities appears in Note 25 to the financial statements. The consolidated financial statements include the information and results of each controlled entity from the date on which the Company obtains control and until such time as the Company ceases to control such entity. In preparing the financial statements, all intercompany balances and transactions, and unrealised profits arising within the consolidated entity are eliminated in full. (b) Income Tax Tax-effect accounting procedures are adopted whereby income tax expense is calculated on pre-tax accounting profits after adjustments for permanent differences. The tax-effect timing differences, which occur when items are included or allowed for income tax purposes in a period different to that for accounting, is shown at current taxation rates in the deferred tax assets or liabilities, as applicable. Tax Consolidation Legislation to allow groups, comprising a parent entity and its Australia resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantively enacted on 21 October 2002. This legislation, which includes both mandatory and elective elements, is applicable to the Company. The impact of the mandatory elements of the tax consolidation system, in existing deferred tax balances of the consolidated entity and parent entity has not been reflected in the financial statements.

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). 50 JB Hi-Fi Prospectus

NOTE 1 NOTES TO AND FORMING PART OF THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION continued At the date of this report the Directors have not assessed the financial effect, if any, the legislation may have on the Company and the consolidated entity and, accordingly, the Directors have not made a decision whether or not to elect to be taxed as a single entity. The financial effect of the implementation of the tax consolidation system on the consolidated entity has been recognised in the financial statements. (c) Acquisitions of Assets Assets acquired are recorded at the cost of acquisition, being the purchase consideration determined as at the date of acquisition plus cost incidental to the acquisition. In the event that settlement of all or part of the cash consideration given in the acquisition of an asset is deferred, the fair value of the purchase consideration is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. (d) Inventories Inventories are valued at the lower of cost and net realisable value. Inventory is valued using the average cost method. (e) Receivables Trade receivables and other receivables are recorded at amounts due, less any allowance for doubtful debts. (f) Recoverable Amount of Non-Current Assets Non-Current assets are written down to recoverable amount where the carrying value of any non-current asset exceeds recoverable amount. In determining the recoverable amount of non-current assets, the expected net cashflows have not been discounted to their present value. (g) Interest-Bearing Liabilities Bills of exchange are recorded at an amount equal to the net proceeds received, with the premium or discount amortised over the period until maturity. Interest expense is recognised on an effective yield basis. Bank loans and other loans are recorded at an amount equal to the net proceeds received. Interest expense is recognised on an accrual basis. Ancillary costs incurred in connection with the arrangement of borrowings are deferred and amortised over the period of the borrowing. (h) Investments Investments in controlled entities are recorded at cost. Interest revenue is recognised on an accrual basis. (i) Derivative Financial Instruments The consolidated entity enters into derivative financial instruments to manage its exposure to interest rate risk, including interest rate swap. Gains and losses on interest rate swaps are included in the determination of interest expense. (j) Employee Benefits Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of wages and salaries, annual leave, sick leave, and other employee entitlements expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of long service leave which are not expected to be settled within the next 12 months are measured at their present value of the estimated future cashflows to be made by the consolidated entity in respect of services provided by employees up to reporting date.

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). Prospectus JB Hi-Fi 51

8 Investigating Accountants Report continued

NOTE 1 NOTES TO AND FORMING PART OF THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION continued (k) Accounts Payable Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future payments from the purchase of goods and services. (l) Depreciation Depreciation is provided on property, plant and equipment. Depreciation is calculated on a straight line method so as to write off the net cost or revalued amount of each asset over its expected useful life. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is shorter, using the straight line method. The following estimated useful lives are used in the calculation of depreciation: 5 Leasehold improvements 5 Plant and equipment 5 Equipment under finance lease 2 10 years 4 12 years 2 10 years

(m) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of Goods and Services Tax (GST), except: 5 where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the acquisition of an asset or as part of an item of expense; or 5 for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cashflows are included in the statement of cashflows on a gross basis. The GST component of cashflows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cashflows. (n) Revenue Recognition Sales of goods and disposal of assets Revenue from the sale of goods and the disposal of assets is recognised when the consolidated entity has passed control of the goods or other assets to the buyer. (o) Leased Assets Leased assets classified as finance leases are recognised as assets. The amount initially brought to account is the present value from the minimum lease payments. A finance lease is one that effectively transfers from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased property. Finance leased assets are amortised using the straight line method over the useful life of the asset. Finance lease payments are allocated between interest expense and reduction of lease liability over the term of the lease. The interest expense is determined by applying the interest rate implicit in the lease to the outstanding lease liability at the beginning of each lease payment period. Operating lease payments are recognised as an expense on a basis which reflects the pattern in which economic benefits from the leased assets are consumed. Surplus Leased Space In the event that premises leased by the consolidated entity pursuant to a non-cancellable operating lease are identified as surplus to the needs of the consolidated entity, a liability and expense are recognised equal to the present value of the total expected outlay relating to the surplus space as specified under the lease agreement. Lease Incentives In the event that lease incentives are received to enter into non-cancellable operating leases, such incentives are recognised as a liability. Lease payments are allocated between rental expense, reduction of the liability and, where appropriate, interest expense over the term of the lease.
The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). 52 JB Hi-Fi Prospectus

NOTE 1 NOTES TO AND FORMING PART OF THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION continued (p) Brand Names The Companys brand names are recorded at the cost of acquisition. The Directors gave due consideration to the technical and commercial life of the brand names to determine their useful life. In the opinion of the Directors, the brand names do not have a finite useful life and, accordingly, they have not been subject to amortisation. The Directors regularly review the carrying amount of the brand names to ensure their carrying value does not exceed their recoverable amount. (q) Financial Instruments Issued by the Group Debt and Equity Instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. Transaction Costs on the Issue of Equity Instruments Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued. Interest and Dividends Interest and dividends are classified as expenses or as distributions of profit consistent with the statement of financial position classification of the related debt or equity instruments or component parts of compound instruments. (q) Provisions Provisions are recognised when the consolidated entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is probable that recovery will be received and the amount of the receivable can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows. Dividends A provision is recognised for dividends when they have been declared, determined or publicly recommended by the Directors. NOTE 2 ASSUMPTIONS IN COMPILING THE PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND STATEMENT OF CASHFLOWS The Pro Forma Consolidated Statement of Financial Position and Statement of Cashflows as at and for the year ended 30 June 2003 reflects the following transactions as if those transactions had taken place as at 30 June 2003: (i) Exercise of 3.63 million options (14.12 million options following the 4 for 1 share split as outlined in note 20) over new shares prior to listing on the Australian Stock Exchange, raising $10.13 million; (ii) Repayment of $0.6 million in loans; (iii) Payment of $2.5 million for the acquisition of the remaining management rights in relation to the profit share of the Highpoint store which will be amortised over a period of 20 years; and (iv) Payment of a $10 million fully franked dividend to Existing Shareholders.

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). Prospectus JB Hi-Fi 53

8 Investigating Accountants Report continued

Year ended 30 June 2001 Pro forma $000

Year ended 30 June 2002 Audited $000

Year ended 30 June 2003 Audited $000

NOTE 3 OPERATING PROFIT FROM ORDINARY ACTIVITIES The operating profit from ordinary activities before income tax includes the following items of revenue and expense: (a) Operating Revenue Sales revenue 154,885 248,802 355,835 Interest revenue other entities 52 316 154,885 248,854 356,151 (b) Non-operating Revenue Proceeds from the sale of plant and equipment 478 154,885 248,854 356,629 (c) Expenses Cost of sales 118,563 189,469 275,901 Interest: Other related parties 321 1,087 Other entities 2,094 2,144 1,812 Finance lease charges 68 310 438 2,162 2,775 3,337 One-off costs associated with refinancing of debt facilities 1,086 2,162 2,775 4,423 Net bad and doubtful debts arising from: Other entities 367 651 300 Depreciation and amortisation of non-current assets: Plant and equipment 630 1,732 950 Leasehold improvements 84 308 369 714 2,040 1,319 Inventory: Write downs 308 142 1,542 Operating lease rental expense minimum lease payments 1,743 3,145 4,649
Pro forma 30 June 2001 $000 Audited 30 June 2002 $000 Audited 30 June 2003 $000

NOTE 4 INCOME TAX (a) The prima facie income tax expense on pre-tax accounting profit reconciles to the income tax expense in the accounts as follows: Profit from ordinary activities Income tax expense calculated at 30% (34% for 2001) of operating profit Permanent differences: Non-allowable deductions Income Tax Expense Attributable to Operating Profit

3,583 1,218 143 1,075

Pro forma 30 June 2001 $000

8,818 2,645 3 2,648

Audited 30 June 2002 $000

12,309 3,693 23 3,716

Pro forma 30 June 2003 $000

Adjusted Franking account balance (tax paid basis)

2,286

1,672

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). 54 JB Hi-Fi Prospectus

Audited 30 June 2003 $000

Pro forma 30 June 2003 $000

NOTE 5 CURRENT RECEIVABLES Trade receivables Provision for doubtful debts Other receivables Provision for doubtful debts

785 (37) 748 9,002 (629) 8,373 9,121

785 (37) 748 9,002 (629) 8,373 9,121

NOTE 6 CURRENT INVENTORIES Finished Goods At cost Provision for write down

49,890 (816) 49,074

49,890 (816) 49,074

NOTE 7 OTHER CURRENT ASSETS Prepayments

Plant and Equipment $000 Plant and Equipment hire purchase $000 Leasehold Improvements $000

681
Leasehold Improvements hire purchase $000

681

Total $000

NOTE 8 PLANT AND EQUIPMENT Cost Balance at 1 July 2002 9,519 1,263 Additions 3,069 2,278 Disposals (377) (73) Balance at 30 June 2003 12,211 3,468 Accumulated Depreciation/Amortisation Balance at 1 July 2002 (2,010) (278) Depreciation expense (900) (130) Disposals 84 23 Balance at 30 June 2003 (2,691) (405) Net Book Value Audited At 30 June 2002 7,644 965 At 30 June 2003 9,520 3,063 Net Book Value Pro Forma At 30 June 2003 9,520 3,063 Aggregate depreciation allocated during the year is recognised as an the pro forma consolidated financial information.

1,557 701 2,258 (331) (274) (699) 1,132 1,559

715 205 920 (146) (15) (182) 548 738

13,054 6,253 (450) 18,857 (2,765) (1,319) 107 (3,977) 10,289 14,880

1,559 738 14,880 expense and disclosed in Note 3 to

Audited 30 June 2003 $000 Pro forma 30 June 2003 $000

NOTE 9 INTANGIBLES Brand names At cost NOTE 10 DEFERRED TAX ASSETS Future income tax benefits attributable to: Timing differences

43,094

43,094

1,727

1,727

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). Prospectus JB Hi-Fi 55

8 Investigating Accountants Report continued

Audited 30 June 2003 $000

Pro forma 30 June 2003 $000

NOTE 11 OTHER NON-CURRENT ASSETS Deferred costs NOTE 12 CURRENT PAYABLES Unsecured: Trade payables Other creditors and accruals Goods and Services Tax (GST) payable

781

3,281

43,735 2,606 254 48,340

43,735 2,606 254 48,340

NOTE 13 CURRENT INTEREST-BEARING LIABILITES Unsecured: Loan other entity Secured: Hire purchase lease liabilities(i)
(i)

600 2,689 3,289

2,689 2,689

Secured by the assets leased, the current market value for which exceeds the value of the hire purchase lease liability.

NOTE 14 CURRENT TAX LIABILITIES Income tax payable NOTE 15 CURRENT PROVISIONS Employee entitlements NOTE 16 NON-CURRENT INTEREST-BEARING LIABILITIES Secured: Bank loan(i) Hire purchase lease liability(ii)
(i) (ii)

2,081

2,081

3,538

3,538

32,000 2,588 34,588

32,000 2,588 34,588

Secured by a fixed and floating charge over the consolidated entitys assets, the current market value of which exceeds the value of the loan. Secured by the assets leased, the current market value for which exceeds the value of the hire purchase lease liability.

NOTE 17 DEFERRED TAX LIABILITES Deferred income tax NOTE 18 NON-CURRENT PROVISIONS Employee entitlements NOTE 19 EMPLOYEE ENTITLEMENTS The aggregate employee entitlement liability recognised and included in the accounts is as follows: Provision for employee entitlements: Current (Note 15) Non-Current (Note 18)

1,387

1,387

669

669

3,538 669 4,207

No.

3,538 669 4,207

No.

Number of employees at end of financial period

822

822

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). 56 JB Hi-Fi Prospectus

Audited 30 June 2003 $000

Pro forma 30 June 2003 $000

NOTE 20 CONTRIBUTED EQUITY 21,900,000 fully paid ordinary shares 25,530,000 fully paid ordinary shares (Pro forma)

21,900 32,030
2003 No 000 $000

Fully Paid Ordinary Shares Audited balance at 30 June 2003 21,900 Exercise of options (note 2) 3,630 Pro forma balance at 30 June 2003 25,530 Fully Paid Ordinary Share Capital Fully paid ordinary Shares carry one vote per Share and carry the right to dividends.

21,900 10,130 32,030

On 15 September 2003, a share split occurred resulting in Existing Shareholders receiving four shares for every one share held. This share split had the effect of increasing the total number of shares on issue from 25.53 million to 102.12 million.
Audited 2003 No.

NOTE 21 SHARE OPTIONS The consolidated entity has an ownership-based remuneration scheme for executives and employees. Share Option Plan Pre 4 to 1 Share Split Balance at beginning of financial year(i) Granted during the financial year(ii) Balance at end of financial year(iii)
(i) Balance at the Beginning of the Financial Year 2003
Options Series No. Grant Date Expiry/Exercise Date

3,890,000 60,000 3,950,000

Exercise Price $

(1) Issued August 2000 (2) Issued February 2002 (3) Issued March 2002 Share options carry no rights to dividends and no voting rights. (ii) Granted During the Financial Year
Options Series

630,000 260,000 3,000,000 3,890,000

August 2000 February 2002 March 2002

Five years from date of issue As above As above

1.00 2.00 3.17

No.

Grant Date

Expiry/Exercise Date

Exercise Price $

(4) Issued October 2002 Share options carry no rights to dividends and no voting rights.

60,000

October 2002

Five years from date of issue

5.00

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). Prospectus JB Hi-Fi 57

8 Investigating Accountants Report continued

NOTE 21 SHARE OPTIONS continued

(iii) Balance at End of Financial Year
Options Series No. Grant Date Expiry/Exercise Date Exercise Price $

(1) Issued August 2000(*) (2) Issued February 2002(*) (3) Issued March 2002(*) (4) Issued October 2002(*)

630,000 260,000 3,000,000 60,000 3,950,000

August 2000 February 2002 March 2002 October 2002

Five years from date of issue As above As above As above

1.00 2.00 3.17 5.00

Share options carry no rights to dividends and no voting rights. (*) In accordance with the terms of the executive share scheme, one third of each option vests on each of the second, third and fourth anniversary of the issue date.

On 15 September 2003, the following transactions occurred to affect the number of options on issue: 1. 2. 3.63 million options were exercised, raising $10.13 million. This had the effect of reducing the total options issued from 3.95 million to 0.32 million. An additional 186,250 options were issued to executives, increasing the number of options on issue from 0.32 million to 0.51 million.
Audited 30 June 2003 $000 Pro forma 30 June 2003 $000

NOTE 22 RETAINED PROFITS Balance at beginning of financial period Net profit Dividends provided for or paid (Note 23) Balance at end of financial period

7,969 8,593 16,562

7,969 8,593 (10,000) 6,562

30 June 2003 Pro forma Cents Total per Share $000

NOTE 23 DIVIDENDS Recognised Amounts Fully Paid Ordinary Shares Final dividend franked to 30%

45.66
Audited 30 June 2003 $000

10,000
Pro forma 30 June 2003 $000

NOTE 24 COMMITMENTS (a) Hire Purchase Liabilities Hire purchase leases principally relate to motor vehicles and store fit out expenditure with lease terms of between three and five years. The consolidated entity has the option to purchase the equipment for a nominal amount at the conclusion of the lease arrangements. Not later than one year Later than one year and not later than five years Minimum lease payments(*) Less finance charges Present value of minimum lease payments Included in financial statements as follows: Current Interest-Bearing Liabilities (Note 13) Non-Current Interest-Bearing Liabilities (Note 16)
(*)

2,995 2,728 5,723 (446) 5,277 2,689 2,588 5,277

2,995 2,728 5,723 (446) 5,277 2,689 2,588 5,277

Minimum future lease payments include the aggregate of all the lease payments and any guaranteed residual.

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). 58 JB Hi-Fi Prospectus

Audited 30 June 2003 $000

Pro forma 30 June 2003 $000

NOTE 24 COMMITMENTS continued (b) Non-Cancellable Operating Leases Operating leases relate to stores with lease terms of between two to 10 years, with, in some cases an option to extend. All operating lease contracts contain market review clauses in the event that the consolidated entity exercises its option to renew. The consolidated entity does not have a right to purchase the leased asset at the expiry of the lease period. Future operating lease rentals not provided for in the financial statements and payable: Not later than one year 6,119 Later than one year and not later than five years 15,163 Later than five years 9,257 30,539
Country of Incorporation

6,119 15,163 9,257 30,539

Ownership Interest %

NOTE 25 DETAILS OF CONTROLLED ENTITIES Parent Entity JB Hi-Fi Limited Controlled Entities JB Hi-Fi Group Pty Ltd JB Hi-Fi (A) Pty Ltd (dormant)

Australia Australia Australia 100 100

NOTE 26 SEGMENT INFORMATION The consolidated entity operates in the Hi-Fi and audio-visual equipment retail industry including CD and DVD players, televisions, stereos and other related equipment, and operates only in Australia.
Year ended 30 June 2001 Pro forma $ Year ended 30 June 2002 Audited $ Year ended 30 June 2003 Audited $

NOTE 27 REMUNERATION OF DIRECTORS The Directors of JB Hi-Fi Limited at the date of this report were: Richard A Uechtritz, Executive Director Terry D Smart, Executive Director Patrick F Elliott, Non-Executive Director Hugh Toll, Non-Executive Director Gary Levin, Non-Executive Director Macdonnell Roehm, Non-Executive Director The aggregate of income paid or payable, or otherwise made available, in respect of the financial year, to all Directors of each entity in the consolidated entity, directly or indirectly, by the entities in which they are Directors or by any related party

815,592

824,689

857,858

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). Prospectus JB Hi-Fi 59

8 Investigating Accountants Report continued

NOTE 27 REMUNERATION OF DIRECTORS continued

Year ended 30 June 2001 Pro forma No. Year ended 30 June 2002 Audited No. Year ended 30 June 2003 Audited No.

The number of Directors of the Company whose total income falls within each successive $10,000 band of income: $0 $9,999 $10,000 $19,999 $20,000 $29,999 $240,000 $249,999 $250,000 $259,999 $260,000 $269,999 $530,000 $539,999

2 2 1 1

2 2 1 1

2 2 1 1

NOTE 28 RELATED PARTY DISCLOSURES (a) Equity Interests in Related Parties Equity Interests In Controlled Entities Details of the percentage of ordinary Shares held in controlled entities are disclosed in Note 25 to the financial statements. (b) Directors Remuneration Details of Directors remuneration are disclosed in Note 27 to the financial statements. (c) Directors Equity Holdings Ordinary Shares No Shares were issued during the financial year to Directors and their Director-related parties.
Audited Ordinary Shares fully paid No. Audited Options(i) No. Audited Options(ii) No.

Held as at reporting date by Directors and their Director-related entities in: JB Hi-Fi Limited Patrick F Elliott Terry D Smart 200,000 Hugh E Toll Richard A Uechtritz 785,000 Gary Levin 100,000 Macdonell Roehm 179,523 1,479,523
(i) (ii)

215,000 215,000 100,000 100,000 630,000

34,500 180,000 214,500

Options expire on June 2005. Each option issued entitles the option holder to purchase one ordinary Share at $1. Options expire March 2007. Each option issued entitles the option holder to purchase one ordinary Share at $3.17.

Macquarie Investment Trust 111A, a trust associated with Mr P Elliott and Mr H Toll, held 6,413,652 fully paid $1.00 ordinary shares in JB Hi-Fi Limited as at 30 June 2003 being a 29.29% holding in the Company. Macquarie Investment Trust 111B, a trust associated with Mr P Elliott and Mr H Toll, held 6,455,476 fully paid $1.00 ordinary shares in JB Hi-Fi Limited as at 30 June 2003 being a 29.48% holding in the Company. (d) Other Transactions with Directors During the year ended 30 June 2003 Macquarie Direct Investment Limited a firm associated with Mr P Elliott and Mr H Toll provided consulting services to the Company totalling $46,037 on normal commercial terms and conditions. During the year ended 30 June 2003, in conjunction with the Groups refinancing of borrowing facilities, JB Hi-Fi repaid $7,627,306 in respect of the Mezzanine Debt Facility to Bond Street Investments Limited, a firm associated with Mr P Elliott and Mr H Toll and repaid $715,000 in loans to Mr R Uechtritz and Mr T Smart in relation to the same facility. Details of interest expense in respect of transactions with Director-related entities are disclosed in Note 3. (e) Controlling Entities The parent entity in the consolidated entity and ultimate parent entity is JB Hi-Fi Limited.
The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). 60 JB Hi-Fi Prospectus

Year ended 30 June 2002 Audited $000

Year ended 30 June 2003 Pro forma $000

NOTE 29 NOTES TO THE STATEMENT OF CASHFLOWS (a) Reconciliation of Cash For the purposes of the statement of cashflows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statement of cashflows is reconciled to the related items in the balance sheet as follows: Cash Bank overdraft (b) Financing Facilities (i) Amount Used Mezzanine debt facility Bank overdraft Senior debt Indemnity guarantees Multi option transaction facility Other bank guarantees Lease facility Other loans (ii) Amount Unused Mezzanine debt facility Bank overdraft Senior debt Indemnity guarantees Multi option transaction facility Other bank guarantees Lease facility Other loans (c) Reconciliation of Profit From Ordinary Activities After Related Income Tax to Net Cashflows From Operating Activities Net profit from ordinary activities after related income tax Depreciation Increase/(decrease) in deferred tax balances Increase/(decrease) in current tax liability Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses: (Increase)/decrease in assets: current receivables current inventories other current assets other non-current assets Increase/(decrease) in liabilities: current payables current provisions non-current provisions Net cash from/(used in) operating activities 562 562 10,020 10,020

10,000 24,000 537 3,000 3,000 40,537 8,500 963 3,000 3,700 16,163

32,000 1,231 5,473 38,704 15,000 1,500 3,527 20,027

6,170 2,040 345 1,322

8,593 1,319 (293) (74)

(3,339) (13,984) 612 6,129 734 42 71

(2,206) (6,182) (401) 566 21,369 793 161 23,646

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). Prospectus JB Hi-Fi 61

8 Investigating Accountants Report continued

NOTE 30 FINANCIAL INSTRUMENTS (a) Significant Accounting Policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the financial statements. (b) Interest Rate Risk The following table details the consolidated entitys exposure to interest rate risk as at 30 June 2003:
Average Interest Rate % Variable Interest Rate $000 Fixed Interest Rate Maturity Less than One to five More than one Year Years five Years $000 $000 $000 Non Interest Bearing $000

2003

Total Pro forma $000

Financial Assets Cash Trade receivables Non-trade receivables Financial Liabilities Trade payables Other payables Bank loans Hire Purchase lease liabilities Employee entitlements

10,020 10,020

2,689 2,689

32,000 2,588 34,588

748 8,373 9,121 43,735 2,860 4,207 50,802

10,020 748 8,373 19,141 43,735 2,860 32,000 5,277 4,207 88,079

5 7 12.85

(c) Credit Risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The consolidated entity measures credit risk on a fair value basis. The consolidated entity does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the consolidated entitys maximum exposure to credit risk without taking account of the value of any collateral or other security obtained. (d) Net Fair Value The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements. NOTE 31 ADDITIONAL COMPANY INFORMATION Principal Place of Business and Registered Office JB Hi-Fi Limited is a public company, incorporated and operating in Australia. 14 Spink Street Brighton, Victoria 3186 Australia

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). 62 JB Hi-Fi Prospectus

Review eport on ecast 9. R tors For of Direc

Prospectus JB Hi-Fi

63

Deloitte Corporate Finance Pty Ltd A.B.N. 19 003 833 127 505 Bourke Street GPO Box 78B Melbourne VIC 3001 Australia DX 111 Telephone (03) 9208 7000 Facsimile (03) 9208 7001 www.deloitte.com.au

9 Report on Review of Directors Forecast

18 September 2003 The Directors JB Hi-Fi Limited 14 Spink Street Brighton VIC 3186 Dear Sirs

Review of Directors Financial Forecast Introduction This report has been prepared for inclusion in a Prospectus to be issued by JB Hi-Fi Limited (JB Hi-Fi or the Company) in respect of the offer of 86,592,912 Shares at an Indicative Price Range of $1.35 to $1.55 each. Deloitte Corporate Finance Pty Ltd is wholly owned by Deloitte Touche Tohmatsu and holds the appropriate dealers licence for the issue of this report. References to the Company and other terminology used in this report have the same meaning as defined in the Glossary. The Directors are solely responsible for the preparation and presentation of the financial forecast of the Company for the year ending 30 June 2004 as set out in Section 6.1 of the Prospectus (the Forecast) and the information contained therein, including the assumptions on which it is based. Scope of Report This report has been prepared having regard to the guidance set out in AGS 1062 Reporting in Connection with Proposed Fundraising, PS 170 Prospective Financial Information and AUS 804 The Audit of Prospective Financial Information. We have reviewed the Forecast in Section 6 together with the assumptions on the Forecast in order to give a statement thereon to the Directors of the Company. Our review of the Forecast has been conducted in accordance with AUS 902 Review of Financial Reports applicable to review engagements. Our review consisted primarily of enquiry, comparison, and analytical review procedures including discussions with management and Directors of the Company of the factors considered in determining their assumptions. Our procedures included examination, on a test basis, of evidence supporting the assumptions, amounts and other disclosures in the Forecast and the evaluation of accounting policies used in the Forecast. These procedures have been undertaken in order to state whether anything has come to our attention, which causes us to believe that: (i) the Directors best-estimate assumptions do not provide reasonable grounds for the preparation of the Forecast; (ii) in all material respects, the Forecast is not properly compiled on the basis of the Directors best-estimate assumptions, consistent with the accounting policies adopted and used by the Company and in accordance with applicable Australian Accounting Standards and mandatory professional reporting requirements; and (iii) the Directors Forecast is not based on reasonable grounds.

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). 64 JB Hi-Fi Prospectus

Our review is substantially less in scope than an audit examination conducted in accordance with Australian Auditing Standards and provides less assurance than an audit. In addition, prospective financial information, such as the Forecast, relates to events and actions that have not yet occurred and may not occur. While evidence may be available to support the assumptions on which the Forecast is based, those assumptions are generally future-orientated and therefore speculative in nature. Accordingly, actual financial performance may vary from the prospective financial information presented in the Prospectus and such variations may be material. Directors Financial Forecast The Forecast has been prepared by management and adopted by the Directors in order to provide prospective investors with a guide to the potential financial performance of the Company for the year ending 30 June 2004. There is a considerable degree of subjective judgement involved in estimating assumptions and preparing forecasts. The underlying assumptions are also subject to uncertainties and contingencies which are often outside the control of the Company. The Directors Forecast has been prepared using assumptions summarised in the Prospectus which are based on best-estimate assumptions relating to future events that management expect to occur and actions that management expect to take. The sensitivity analysis set out in Section 6.3 of the Prospectus demonstrates the impacts on the forecast financial performance of changes in key assumptions. The prospective financial information is therefore only indicative of the financial performance which may be achievable. Prospective investors should be aware of the material risks and uncertainties relating to an investment in the Company, which are detailed in the Prospectus, and the inherent uncertainty relating to the prospective financial information. Statement Based on our review of the Forecast, nothing has come to our attention which causes us to believe that: (i) the Directors best-estimate assumptions, as set out in the Prospectus, do not provide reasonable grounds for the preparation of the Forecast; (ii) the Forecast is not properly compiled on the basis of the Directors best-estimate assumptions, consistent with the accounting policies adopted and used by the Company and in accordance with applicable Australian Accounting Standards and mandatory professional reporting requirements; and (iii) the Directors Forecast is not based on reasonable grounds. Actual financial performance is likely to be different from the Forecast since anticipated events frequently do not occur as expected and the variations may be material. Accordingly, we express no opinion as to whether the Forecast will be achieved. We disclaim any responsibility for any reliance on this statement or on the Forecast to which it relates for any other purpose than that for which it was prepared. Yours faithfully Deloitte Corporate Finance Pty Ltd

Grant Hyde Director

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountants Scheme under the Professional Standards Act 1994 (NSW). Prospectus JB Hi-Fi 65

ormation ional Inf 10. Addit

66

JB Hi-Fi Prospectus

10 Additional Information
10.1 Incorporation of JB Hi-Fi JB Hi-Fi was incorporated in Australia and registered in New South Wales on 7 June 2000 under the name JB Hi-Fi Holdings Pty Limited. On 4 November 2002, JB Hi-Fi converted to a public company and on 7 February 2003 changed its name to JB Hi-Fi Limited.

10.2 Company balance date The statutory accounts of JB Hi-Fi are prepared for the period ending 30 June annually.

10.3 Constitution of JB Hi-Fi A summary of the rights attaching to the Shares and certain provisions of the Constitution are set out below. This summary is not intended to be exhaustive and must be read subject to the full text of the Constitution. General The Shares will be the only shares currently on issue in the capital of JB Hi-Fi. All Shares are of the same class and rank equally in all respects. Non-residents of Australia may hold and vote ordinary shares, subject to compliance with the Constitution, the Corporations Act and the Foreign Acquisitions and Takeovers Act 1975 (Cwlth). The Constitution is subject to the Listing Rules in all respects at any time that JB Hi-Fi is listed on ASX. Voting rights Subject to any special rights or restrictions currently attached to any class or classes of shares in JB Hi-Fi, at a general meeting every shareholder present in person or by proxy, representative or attorney has one vote on a show of hands and one vote for each fully paid share held on a poll. Voting at any meeting of shareholders is by a show of hands unless a poll is demanded (either before the vote is taken, or before or immediately after the declaration of the result of the show of hands). The quorum required for a meeting of shareholders is two members present in person or by proxy and representing members entitled to vote at the meeting. General meeting and notices Each holder of Shares will be entitled to receive notice of and to attend and vote at, general meetings of JB Hi-Fi and to receive all notices, accounts and other documents required to be sent to shareholders under the Constitution, the Corporations Act or the Listing Rules. Under the Corporations Act, a notice must currently be provided to the holders of Shares not less than 28 days in advance of the meeting. Dividends Subject to the rights of holders of shares issued with any special or preferential rights (as at the completion of the Offer, there will be none), the profits of JB Hi-Fi which the Directors may from time to time determine to distribute by way of dividend are divisible amongst the shareholders in proportion to the Shares held by them respectively and will be paid in proportion to the amounts paid, or credited as paid, on the issue price of those Shares.

Prospectus JB Hi-Fi

67

10 Additional Information continued

Variation of class rights Subject to the Corporations Act, whenever the capital of JB Hi-Fi is divided into different classes of shares, the rights attached to any class of share may be altered with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class or with the written consent of the holders of at least three-quarters of the shares of that class on issue. Further issues of shares and options The allotment and issue of shares is under the control of the Directors, and subject to any restrictions on the allotment of shares imposed by the Constitution, the Corporations Act or the Listing Rules, the Directors may allot or otherwise dispose of shares on such terms and conditions as they see fit. In addition, the Board has the power to grant to any person an option over shares and during such time and for such consideration as it determines. Pre-emptive rights Holders of Shares do not have any pre-emptive rights under the Constitution. Under the Listing Rules, certain restrictions apply to a listed company offering its ordinary shares otherwise than pro rata among shareholders. Winding up Subject to the rights of holders of shares issued with any special or preferential rights (as at the completion of the Offer, there will be none), if JB Hi-Fi is wound up, the liquidator may with the authority of a special resolution divide among the members in kind the whole or any part of the assets of JB Hi-Fi and for such purpose may set such value as he or she deems fair on any property and may determine how the division shall be carried out as between members or classes of members. Small holdings Subject to the Listing Rules, JB Hi-Fi may sell the Shares of a member who holds less than a marketable parcel of Shares. Buy-backs Subject to applicable laws, in particular the Corporations Act and the Listing Rules, JB Hi-Fi may buy back shares on such terms and conditions as may from time to time be determined by the Board. Transfer of Shares Holders of Shares may transfer them electronically by a proper transfer effected in accordance with the SCH Business Rules, the Corporations Act and the Listing Rules or by an instrument in writing in any usual or common form that the Directors approve. JB Hi-Fi will not issue share certificates to shareholders. Holding locks The Directors: 5 may, if the Listing Rules permit JB Hi-Fi to do so; and 5 must, if the Listing Rules require JB Hi-Fi to do so (or if the transfer is in breach of the Listing Rules or any restriction agreement between JB Hi-Fi and any holder of Shares under the Listing Rules), request SCH to apply a holding lock to prevent a transfer of Shares through CHESS or decline to register any transfer of Shares. Shareholding statements Following allocation, JB Hi-Fi will provide shareholders with a shareholder statement which sets out the number of Shares allocated to each shareholder under this Prospectus. If applicable, this notice will also advise shareholders of their Holder Identification Number and Sponsoring Issuer Number.

68

JB Hi-Fi Prospectus

Shareholders will receive an explanation of sale and purchase procedures under CHESS with their shareholder statement. If the shareholding changes within the month, the shareholder will receive a statement at the end of that month. Shareholders may also request statements at any other time, although JB Hi-Fi may charge an administrative fee. Directors The Board is responsible for the overall corporate governance of JB Hi-Fi, including establishing its strategic direction, establishing goals for management and monitoring the achievement of these goals. The Board must comprise a minimum of three Directors. Shareholders may vary the number by resolution in general meeting. The Constitution provides that at each annual general meeting, one-third of the Directors (or if the number of Directors is not a multiple of three, then the number nearest one-third), any other Director who has held office for three years or more and any Director who has been appointed by the Directors in the preceding year must retire from office. The chief executive officer is exempted from retirement by rotation. A retiring Director is eligible for re-election. Questions arising at a meeting of Directors will be decided by a majority vote. The chairman of the meeting has a casting vote in the event that there is an equality of votes.

10.4 JB Hi-Fi Limited Executive Share Option Plan The Company approved an Executive Share Option Plan in January 2002. Currently, 2,025,000 options are on issue under this share option plan to senior employees and management of the Company. The majority (1,040,000) of these options were issued on 7 February 2002, a further 240,000 options were issued on 22 October 2002 and the remaining 745,000 options were issued on 15 September 2003. Summary of options issued to management and senior employees
Plan under which Options Issued Date of Grant Term/ Expiration Date No. of Options on Issue Exercise Price Vesting

JB Hi-Fi 2002 Executive Share Option Plan

February 2002

five years from date of issue (subject to terms of plan)

1,040,000

$0.50

As above As above As above

October 2002 September 2003 September 2003

As above As above As above

240,000 160,000 585,000

$1.25 $1.25 $1.45

One third on each of second, third and fourth anniversary of issue date (subject to terms of plan) As above As above As above, however vesting is also subject to the Company achieving after tax profits in excess of the Prospectus Forecast, and that subsequent years results are not less than the 2004 forecast results

Total

2,025,000

Prospectus JB Hi-Fi

69

10 Additional information continued

Option issue The Board may offer options to executives of the Company. The Board will determine the eligibility of persons and their entitlement and the consideration payable for the options. Each option is to subscribe for one fully paid ordinary share in the Company. When issued, the share will rank equally with other ordinary shares of the Company. Exercise of options As set out in the table above, provided that an optionholder is an employee of or engaged by the Company, one-third of the options held by that optionholder will vest in and become capable of exercise on each of the second, third and fourth anniversaries of the issue date of the options or such other date as the Board may determine. Lapse of options Options lapse on the earlier of: 5 expiry of five years from the date of issue; or 5 where an option has not vested and become exercisable, the date upon which the optionholder ceases to be employed or engaged by the Company; and 5 where an option has vested and become exercisable, 30 days from the date upon which the optionholder ceases to be employed or engaged by the Company. Assignment of options Options may not be assigned. However, options may be exercised by the estate of a deceased optionholder as follows: 5 options which were not vested in and exercisable by the optionholder at the date of death are deemed to expire on the date of the optionholders death; and 5 options which were vested in and exercisable by the optionholder at the date of death are deemed to expire 90 days from the date of the optionholders death. Exercise price The exercise price per share for the options on issue under the Plan is: 5 $0.50 with respect to the 1,040,000 options issued in February 2002; 5 $1.25 with respect to the 240,000 options issued in October 2002 and 160,000 of the options issued in September 2003; and 5 $1.45 with respect to the remaining 585,000 options issued in September 2003. Allotment Unless the Company elects to refund the exercise price, as discussed below, the Company must issue Shares corresponding to the options exercised within 10 days of the date of the exercise notice. Refund Within seven days of exercise of an option, the Board may refund the exercise price and pay to the optionholder an amount equal to the difference between the market value of the shares as at the date of exercise and the exercise price. Rights issues Options which have not vested in and those options which have vested in but have not been exercised by an optionholder do not carry the right to participate in any new issues of securities by the Company. Capital reconstruction The Plan provides that certain appropriate adjustments be made to the number and exercise price of the options if certain reconstruction of issued capital events occur prior to the exercise of an option.

70

JB Hi-Fi Prospectus

10.5 Financing arrangements The on-going funding requirements of the group are provided by Westpac under the terms of the Facility Agreement. The key features of the facilities available to JB Hi-Fi are as follows:
Facility Amount Term and Type

Facility A Cash advance facility (fully drawn)

$32.0 million

Facility B Lease and hire purchase facility (partly drawn) Facility C Multi-option working capital facility (including overdraft and cash advance) Facility D Performance guarantee facility Total
*

$9.0 million $15.0 million

$1.5 million $57.5 million

three year term interest only maturing June 2006* variable rate three year term varying rates one year term at call variable rate one year term at call

Loan amortises at $1.6 million per half year where gearing ratio (Total Debt (excluding Facility C)/EBIT) is greater than 2.50 times.

These facilities are provided on a secured basis. Financial covenants are provided under these facilities with respect to maintenance of fixed charge cover ratios, leverage ratios, and minimum consolidated net worth, as is customary for facilities of this nature. The Facility Agreement also contains standard conditions precedent to initial drawing, undertakings, representations, warranties, review events and events of default as is customary for facilities of this nature. JB Hi-Fi has entered into hedging arrangements with respect to its interest rate exposure.

10.6 Related party loan agreements Under the terms of the Related Party Loan Agreements, JB Hi-Fi has agreed to provide bridging finance of $10.13 million to the following Existing Shareholders: Bond Street Investments, AVLLC, MacDonell Roehm, Roseville, Shawville, Richard Uechtritz, Terry Smart and Gary Levin. The proceeds of these loans have been used to fund these shareholders exercise of certain JB Hi-Fi options and purchase of Shares. Under the terms of the Related Party Loan Agreements, these shareholders are required to repay the outstanding amounts owing to the Company from the proceeds they receive on the sale of their Shares in the Offer. All Related Party Loans will be repaid at the completion of the Offer.

10.7 Offer Management Agreement On 18 September 2003, MDIL, JB Hi-Fi and the Joint Lead Managers entered into the Offer Management Agreement. Under the agreement, the Joint Lead Managers agreed to manage the Offer, including the bookbuild process and the allocation process. Subject to the termination of the agreement by the Joint Lead Managers by reason of the termination events described below (Termination Events) and conditional on the successful completion of the bookbuild process, the Joint Lead Managers agree to enter into a completion support agreement on the date of allocation of the Offer Shares.

Prospectus JB Hi-Fi

71

10 Additional information continued

MDIL must pay the Joint Lead Managers a fee of 2.5% of the Final Price per Share issued or transferred in connection with the Offer, on the date of such issue or transfer, subject to limited exclusions. MDIL agrees to pay the Joint Lead Managers an incentive fee of up to 0.5% of the Final Price per Share issued or transferred in connection with the Offer 60 days after settlement of the Offer as set out in Section 2.1. The incentive fee is payable at the absolute discretion of MDIL having regard to among other things, the quality of execution of the Offer. The Joint Lead Managers must pay any commissions and fees due to any co-managers and brokers appointed by them. MDIL must pay, or reimburse the Joint Lead Managers for, the reasonable costs, charges and expenses of and incidental to the Offer. Under the Offer Management Agreement, the Company and MDIL give certain representations, warranties and undertakings. The Companys undertakings include that it will not, during the period following the date of the agreement until 180 days after the Settlement date, allot or agree to allot, or indicate that it may or will allot any equity securities or securities that convert into equity (other than in connection with the Offer, an employee share plan, a dividend reinvestment plan or a bonus share plan) without the consent of the Joint Lead Managers. Subject to certain exclusions relating to, among other things, fraud, recklessness, wilful misconduct and negligence, the Company and the Vendor Shareholders unconditionally and irrevocably undertake to keep the Joint Lead Managers and certain affiliated parties indemnified from losses suffered in connection with the Offer. Each Joint Lead Manager may terminate the Offer Management Agreement by notice to MDIL and JB Hi-Fi at any time after a Lead Manager becomes aware of the happening of any one or more of the Termination Events set out below (although, in the case of the Termination Events marked with an asterisk, a Lead Manager may not terminate the agreement unless it has reasonable bona fide grounds to believe that the event has or is likely to have a material adverse effect on the success or settlement of the Offer or the event would give rise to a material liability of the Joint Lead Managers under any law or regulation): The Joint Lead Managers may Terminate by notice to the Company at any time after the Joint Lead Managers or either of them become aware of the happening of any one or more of the following events: (a) (disclosures in prospectus) a statement contained in the Prospectus is misleading or deceptive (Including, without limitation, misleading representations within the meaning of section 728(2)), or a matter is omitted from the Prospectus (having regard to the provisions of sections 710, 711 and 716); or (b) (disclosures in Due Diligence Report)* the Due Diligence Report or any other information supplied by or on behalf of the Company or the Selling Shareholder to Joint Lead Managers in relation to the Group, or the Offer is misleading or deceptive; or (c) (adverse change)* any adverse change occurs in the assets, liabilities, financial position or performance, profits, losses or prospects of the Company or the Group (in so far as the position in relation to an entity in the Group affects the overall position of the Company), including any adverse change in the assets, liabilities, financial position or performance, profits, losses or prospects of the Group from those respectively disclosed in the Prospectus or the Public Information; or (d) (Insolvency Event) an Insolvency Event occurs with respect to the Selling Shareholder, the Company or a Related Body Corporate of the Selling Shareholder or the Company; or (e) (new circumstance)* there occurs a new circumstance that has arisen since the Prospectus was lodged that would have been required to be included in the Prospectus if it had arisen before the Prospectus was lodged in relation to the Company or any entity in the Group (other than an issue permitted under clause 8.1 (Undertakings by the Company and the Selling Shareholder)), within the meaning of section 719; or

72

JB Hi-Fi Prospectus

(f) (hostilities)* hostilities not presently existing commence (whether war has been declared or not) or a major act of terrorism or escalation in existing hostilities occurs (whether war has been declared or not) involving any one or more of Australia, New Zealand, the United States of America, Japan, Russia or the Peoples Republic of China; or (g) (market fall) the S&P/ASX200 Index of ASX falls by an amount that is 10% or more of the level as at the close of trading on the date of this agreement, and remains at or below that level for a period of two consecutive Business Days or until the end of the Retail Offer Closing Date; or (h) (change of law) there is introduced or there is a public announcement of a proposal to introduce, into the Parliament of Australia or any State of Australia a new law, or the Reserve Bank of Australia, or any Commonwealth or State authority, adopts or announces a proposal to adopt a new policy (other than a law or policy which has been announced before the date of this agreement), any of which does or is likely to prohibit or regulate the Offer, capital issues or stock markets or materially adversely affect the taxation treatment of the Offer Securities; or (i) (change in management)* a change in senior management of the Board of Directors of the Company occurs; or (j) (indictable offence) a Director of the Company or the Selling Shareholder is charged with an indictable offence; or (k) (compliance with regulatory requirements)* a contravention by the Selling Shareholder, the Company or any entity in the Group of the Corporations Act, its constitution, or any of the Listing Rules; or (l) (Prospectus to comply) the Prospectus or any aspect of the Offer does not comply with the Corporations Act, the Listing Rules or any other applicable law or regulation; or (m) (Listing approvals) approval is refused or approval is not granted which is unconditional or conditional only on customary listing conditions which would not, in the reasonable opinion of the Joint Lead Managers, have a material adverse effect on the success of the Offer to: (i) the Companys admission to the official list of ASX, or (ii) the official quotation of all of the Offer Securities on ASX, on or before the Listing Approval Date, or if granted, the approval is subsequently withdrawn, qualified or withheld; or (n) (notifications) any of the following: (i) ASIC applies for an order under section 1324B in relation to the Prospectus and the application is not dismissed or withdrawn before the Closing Date; (ii) ASIC gives notice of intention to hold a hearing in relation to the Prospectus under section 739(2) or makes an interim order under section 739(3); (iii) an application is made by ASIC for an order under Part 9.5 in relation to the Prospectus or ASIC commences any investigation or hearing under Part 3 of the Australian Securities and Investments Commission Act 2001 (Cwlth) in relation to the Prospectus; (iv) any person gives a notice under section 733(3) or any person who has previously consented to the inclusion of its name in the Prospectus (or any Supplementary Prospectus) or to be named in the Prospectus withdraws that consent; or (v) any person gives a notice under section 730 in relation to the Prospectus; or (o) (withdrawal) the Selling Shareholder withdraws the Prospectus or the Offer; or

Prospectus JB Hi-Fi

73

10 Additional information continued

(p) (default)* a default by the Company or the Selling Shareholder in the performance of any of its obligations under this agreement occurs; or (q) (warranties)* a warranty contained in this agreement on the part of the Company or the Selling Shareholder is not true or correct.

10.8 Escrow arrangements On or about the date of this Prospectus, each of Richard Uechtritz, Terry Smart, Gary Levin, Roseville and Shawville entered into an Escrow Deed with the Joint Lead Managers to provide for an escrow arrangement between the Joint Lead Managers and these Existing Shareholders under which they have agreed with the Joint Lead Managers not to dispose of any Shares held by them after completion of the Offer until the audited results for the year ended 30 June 2004 are reported, unless otherwise agreed with the Joint Lead Managers.

10.9 Conditional and deferred settlement trading It is expected that trading of Shares on ASX will commence on a conditional and deferred settlement basis on or about Thursday, 23 October 2003. Deferred settlement trading will continue until the despatch of holding statements on or about Wednesday, 29 October 2003. The contracts formed on acceptance of Applications under the Retail Offer and bids under the Institutional Offer will be conditional on quotation of the Offer Shares on ASX. Trades on ASX during conditional trading of Offer Shares will be conditional on transfer of the Offer Shares from the Vendor Shareholders. Conditional trading will continue until JB Hi-Fi has advised ASX that a transfer of the Offer Shares has occurred, which is expected to be on Monday, 27 October 2003. The Offer Management Agreement and its attached completion support agreement includes certain conditions to settlement and rights of termination in certain circumstances. See Section 10.7 for a discussion of the Offer Management Agreement and completion support agreement. If notice of the transfer of the Offer Shares is not given by JB Hi-Fi to ASX within 14 days after the quotation of the Shares on ASX, the condition will be taken not to have been satisfied, in which case the Offer will be withdrawn, the contracts formed on acceptance of Applications under the Retail Offer and bids under the Institutional Offer will be terminated. In these circumstances, all purchases and sales made through ASX participating organisations during the conditional period will be cancelled and of no effect. In the event that the condition is not satisfied and the Offer is withdrawn, all Application Monies received in respect of the Offer will be refunded. No interest will be paid on any Application Monies which are refunded. After the satisfaction of the condition set out above, there will be a period of deferred settlement trading until the despatch of holding statements, which are expected to be despatched on Wednesday, 29 October 2003. You are responsible for confirming your allocation of Shares before trading in the Shares. If you sell Shares before receiving confirmation of your allocation, you do so at your own risk. To assist you in determining your allocation of Shares prior to receipt of your holding statement, JB Hi-Fi will advertise the basis of allocation in certain newspapers circulated nationally on Thursday, 23 October 2003. From that date, you may also call the JB Hi-Fi Share Offer Information Line during business hours on 1300 302 417 (Australia) or +61 3 9615 5970 (New Zealand) to seek information in relation to your allocation. JB Hi-Fi, the Joint Lead Managers and the Vendor Shareholders disclaim all liability whether in negligence or otherwise to anyone who trades shares before receiving their holding statement, whether on the basis of a confirmation of allocation provided by the Company or otherwise.

74

JB Hi-Fi Prospectus

10.10 Directors interests Under the terms of an agreement entered into on 20 July 2001 between MDIA, MDIB, BancBoston, AVLLC, MacDonell Roehm (Shareholders) and Richard Uechtritz and Terry Smart, the Shareholders granted options to Richard Uechtritz and Terry Smart over certain of the Shareholders shares in JB Hi-Fi. The Shareholders have cancelled the options and have paid or agreed to pay Richard Uechtritz $3.44 million and Terry Smart $1.075 million in consideration for the cancellation of these options. Except as set out in this Prospectus: 5 no Director or proposed Director of JB Hi-Fi has, or has had in the two years before lodgement of this Prospectus with ASIC, an interest in the formation or promotion of JB Hi-Fi or the Offer, or any property acquired or proposed to be acquired by JB Hi-Fi in connection with its formation or promotion or the Offer; and 5 no amount has been paid or agreed to be paid, and no benefit has been given or agreed to be given, to any Director or proposed Director of JB Hi-Fi, either to induce him to become, or to qualify him as, a Director, or otherwise for services rendered by him in connection with the promotion or formation of JB Hi-Fi, or in the Offer.

10.11 Shareholdings and option holdings of Directors Directors are not required under the Constitution to hold any shares in JB Hi-Fi. Except as set out below, as at the date of this Prospectus no Director is the beneficial owner of any shares or options in JB Hi-Fi. However, the Directors and their related companies may acquire Shares pursuant to the Offer. Patrick Elliott intends to make an Application for Shares under the Offer.
Director Shares Options

Patrick Elliott Will Fraser Gary Levin Terry Smart Richard Uechtritz TOTAL

400,000 1,798,000 4,720,000 6,918,000

240,000 345,000 585,000

10.12 Non-Executive Directors fees The Constitution provides that the Non-Executive Directors are entitled to be paid Directors fees in aggregate up to a maximum of $250,000 per annum or such other maximum amount determined from time to time by JB Hi-Fi in a general meeting. This remuneration is to be divided among the non-executive Directors in such proportion as the Board determines. Directors are entitled to be reimbursed for all reasonable costs and expenses including time charges incurred by them in the performance of their duties as Directors.

10.13 Interests of persons named in the Prospectus Except as set out below: 5 neither of the Joint Lead Managers nor any person named in the Prospectus as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of the Prospectus has, or has had in the two years before lodgement of the Prospectus with ASIC, an interest in the formation or promotion of JB Hi-Fi or the Offer, or any property acquired or proposed to be acquired by JB Hi-Fi in connection with its formation or promotion of the Offer;

Prospectus JB Hi-Fi

75

10 Additional information continued

5 no amount has been paid or agreed to be paid and no benefit has been given or agreed to be given to any person named in the Prospectus as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of the Prospectus or the Joint Lead Managers, in connection with the formation or promotion of JB Hi-Fi or the Offer; 5 Mallesons Stephen Jaques has acted as Australian legal adviser to the Offer, has performed work in relation to due diligence enquiries and advised JB Hi-Fi generally in relation to the matter. The Vendor Shareholders have paid or agreed to pay approximately $420,000 in relation to these services, to the date of this Prospectus. Further amounts may be paid to Mallesons in accordance with its normal time based charges; 5 Quigg Partners has acted as New Zealand legal advisor to the Offer and has advised JB Hi-Fi generally in respect of New Zealand legal aspects of the Offer. The Vendor Shareholders have paid or agreed to pay approximately $15,340 in relation to these services, to the date of this Prospectus; 5 Deloitte Touche Tohmatsu has acted as accountant to the Offer, has prepared an Investigating Accountants Report included in this Prospectus and has performed work in relation to due diligence enquiries. The Vendor Shareholders have paid or agreed to pay Deloitte Touche Tohmatsu approximately $235,000 in relation to these services, to the date of this Prospectus; 5 Deloitte Corporate Finance Pty Ltd has prepared the Report on Directors Forecasts included in this Prospectus and has also performed work in relation to due diligence enquiries. The Vendor Shareholders have paid or agreed to pay Deloitte Corporate Finance Pty Ltd for these services, the fees for which are included in the figure quoted above; and 5 Goldman Sachs JBWere and Macquarie have acted as Joint Lead Managers to the Offer. The amount which JB Hi-Fi has agreed to pay each of them is set out in Section 10.7; and 5 The Vendor Shareholders have each agreed to pay MDIL a management fee of 0.5% of the total proceeds raised from the sale of their Offer Shares.

10.14 Electronic Prospectus This Prospectus is available in electronic form at www.jbhifi.com.au. The Offer constituted by this Prospectus in electronic form is available only to persons receiving this Prospectus in electronic form within Australia or New Zealand. A paper copy of this Prospectus is available free of charge by calling Computershare on 1300 302 417 (Australia) or +61 3 9615 5970 (New Zealand), Goldman Sachs JBWere on 1800 003 355, or Macquarie on 1800 621 656. Applications for Shares may only be made in the Application Form attached to this Prospectus on a paper copy form. The Corporations Act prohibits any person from passing the Application Form on to another person unless it is attached to a hard copy of this Prospectus or the complete and unaltered electronic version of this Prospectus.

10.15 Consents Goldman Sachs JBWere and Macquarie have given, and have not before the lodgement of this Prospectus with ASIC, withdrawn their consent to being named in this Prospectus as Joint Lead Managers to the Offer under this Prospectus. Goldman Sachs JBWere and Macquarie have made no statement included in this Prospectus or on which a statement made in the Prospectus is based. Goldman Sachs JBWere and Macquarie Equities have given, and have not before the lodgment of this Prospectus with ASIC, withdrawn their consent to being named in this Prospectus as Brokers to the Offer under this Prospectus. Goldman Sachs JBWere and Macquarie Equities have made no statement included in this Prospectus or on which a statement in the Prospectus is based.

76

JB Hi-Fi Prospectus

Mallesons Stephen Jaques has given, and has not before lodgement of this Prospectus with ASIC, withdrawn its consent to being named in this Prospectus as Australian solicitors to the Offer. Mallesons Stephen Jaques has made no statement included in this Prospectus or on which a statement made in the Prospectus is based. Quigg Partners has given, and has not before lodgement of this Prospectus with ASIC, withdrawn its consent to being named in this Prospectus as New Zealand solicitors to the Offer. Quigg Partners has made no statement included in this Prospectus or on which a statement made in this Prospectus is based. Computershare Investor Services Pty Limited has given, and has not before lodgement of this Prospectus with ASIC, withdrawn its consent to be named as the Registry to the Offer. Computershare Investor Services Pty Limited has made no statement included in this Prospectus or on which a statement made in the Prospectus is based. Deloitte Touche Tohmatsu has given, and has not before lodgement of this Prospectus with ASIC, withdrawn its consent to the inclusion of its Investigating Accountants Report in Section 8 in the form and context in which it is included. Except with respect to its Investigating Accountants Report contained in the Prospectus, Deloitte Touche Tohmatsu has made no statement included in this Prospectus or on which a statement made in the Prospectus is based. Deloitte Corporate Finance Pty Ltd has given, and has not before lodgement of this Prospectus with ASIC, withdrawn its consent to the inclusion of its Report on Directors Forecast in Section 9 in the form and context in which it is included. Except with respect to its Report on Directors Forecast contained in the Prospectus, Deloitte Corporate Finance Pty Ltd has made no statement included in this Prospectus or on which a statement made in the Prospectus is based. GfK Marketing Services has given and has not, before lodgment of this Prospectus with ASIC, withdrawn its written consent to the inclusion of the statements in Sections 1 and 3 of this Prospectus which are based on statements made by it in the form and context in which the statements are included. Understanding & Solutions has given and has not, before lodgment of this Prospectus with ASIC, withdrawn its written consent to the inclusion of the statements in Section 3 of this Prospectus which are based on statements made by it in the form and context in which the statements are included.

10.16 Expenses of the Offer The total estimated costs of the Offer, including advisory, legal, accounting, tax, listing and administrative fees, as well as printing, advertising and other expenses are currently estimated to be approximately $5.3 million and will, except for ASX listing and Registry fees, be paid by the Vendor Shareholders.

10.17 ASX admission and quotation JB Hi-Fi will apply to ASX for admission to the Official List and quotation of the Shares on the exchange operated by ASX within seven days after the date of this Prospectus.

10.18 Governing law This Prospectus and the contracts that arise from the acceptance of the Applications and bids made under the Institutional Offer are governed by the laws applicable in Victoria and each Applicant and bidder under the Institutional Offer submits to the exclusive jurisdiction of the courts of Victoria.

Prospectus JB Hi-Fi

77

10.19 Documents available for inspection A copy of the following documents will be available for inspection free of charge between 9:00am and 5:00pm AEST, Monday to Friday, at JB Hi-Fis registered office during the Offer: 5 The Investigating Accountants Report. 5 Audited financial statements, containing statements of financial performance and cashflows for the years ended 2002 and 2003 and Statement of Financial Position as at 30 June 2002 and 30 June 2003. 5 The JB Hi-Fi Executive Share Option Plan referred to in Section 10.4. 5 The Constitution.

10.20 Expiry date No Shares will be offered on the basis of this Prospectus later than 13 months after the date of this Prospectus.

10.21 Consents to lodgement Each Director of JB Hi-Fi and each Director of MDIL has consented to the lodgement of this Prospectus with ASIC as required by section 720 of the Corporations Act.

Dated: Thursday, 18 September 2003

78

JB Hi-Fi Prospectus

Glossar y

Prospectus JB Hi-Fi

79

Glossary
AEST Applicant Application Application Amount Application Form Application Monies ASIC ASX AVLLC or Australian Ventures LLC BancBoston Board, Board of Directors or Directors Bond Street Investments Broker Firm Applicants Brokers CD CHESS Closing Date means Australian Eastern Standard Time. means a person who submits an Application Form. means an offer by the Vendor Shareholders to purchase Offer Shares subject to the terms and conditions set out in this Prospectus. means the amount of money that accompanies an Application Form. means an application form attached to or accompanying this Prospectus. means the monies payable in connection with an Application, being the Offer Price multiplied by the number of Shares applied for. means the Australian Securities & Investments Commission. means the Australian Stock Exchange Limited (ABN 98 008 624 691). means Australian Ventures LLC, a limited liability company incorporated in Delaware, United States. means BancBoston Investments Inc of 100 Federal Street, Boston, Massachusetts 02110. means the board of directors of JB Hi-Fi. means Bond Street Investments Pty Ltd (ACN 008 606 924). means persons offered a firm allocation of Shares by a Joint Lead Manager under the Retail Offer. means Goldman Sachs JBWere and Macquarie Equities. means compact disc. means Clearing House Electronic Subregister System, operated in accordance with the Corporations Act. means the date on which the Retail Offer closes, being 5:00pm on Friday, 17 October 2003 unless the Vendor Shareholders and Joint Lead Managers jointly agree to vary that date. means JB Hi-Fi. means the constitution of JB Hi-Fi as amended from time to time. means televisions (including wide-screen, digital and plasma TVs), hi-fis, speakers, portable sound systems, home theatre systems, DVD and CD players, digital video and still cameras and accessories. means the Corporations Act 2001 (Cwlth). means digital video disc. means earnings before interest and tax. means earnings before interest, tax and amortisation. means earnings before interest, tax, depreciation and amortisation.

Company Constitution Consumer Electronics

Corporations Act DVD EBIT EBITA EBITDA

Executive Share Option Plan means the JB Hi-Fi Executive Share Option Plan approved by the or the Plan Company in January 2002.

80

JB Hi-Fi Prospectus

Existing Shareholders

means the shareholders of JB Hi-Fi as at the date of this Prospectus, being Bond Street Investments, BancBoston, Gary Levin, MacDonell Roehm, Terry Smart, Richard Uechtritz, AVLLC, Roseville, Shawville, Jeremy Bouris, Michelle Bouris, Bouris Superannuation Fund, Jadeside Pty Ltd (ACN 006 659 016) (as trustee for the RJ Bouris Family Trust), David Rodd, Rodd Superannuation Fund, Fullfield Pty Ltd (ACN 006 679 483) (as trustee for the Rodd Family Trust), MDIA and MDIB. means the waiting period specified in section 727(3) of the Corporations Act, being a minimum period of seven days after the date of lodgement of this Prospectus with ASIC, during which an Application must not be accepted. ASIC may extend the period to no more that 14 days after the date of lodgement. means the final price for the Offer Shares determined in accordance with the terms set out in Section 2.6. means the period from 1 July 2003 until 30 June 2004. means the Directors financial forecast for the Company for the year ending 30 June 2004 as set out in this Prospectus. means GfK Marketing Services Australia Pty Ltd (ABN 90 056 061 495). means Goldman Sachs JBWere Pty Ltd (ABN 21 006 797 897). means $1.35 to $1.55 per Share. means the invitation to institutional investors under this Prospectus, the New Zealand Investment Statement, as described in Section 2.10. means JB Hi-Fi Limited (ABN 80 093 220 136) and includes references to its subsidiaries where the context requires. means Goldman Sachs JBWere and Macquarie. means Goldman Sachs JBWere and Macquarie. means the Listing Rules of ASX. means Macquarie Equity Capital Markets Limited (ABN 60 001 374 572). means Macquarie Equities Limited (ABN 41 002 574 923). means $1.55 per Share. means Macquarie Direct Investment A Limited (ABN 42 084 828 473). means Macquarie Direct Investment B Limited (ABN 34 084 828 437). means Macquarie Direct Investment Limited (ABN 61 008 607 083). means unitholders in the Macquarie Private Equity Trust and the Macquarie Private Equity Trust II. means recorded music in CD or DVD format. means the National Associated Retail Traders of Australia. means the net profit after tax. means the offer of Shares under this Prospectus.

Exposure Period

Final Price Forecast Period Forecast GfK Marketing Services Goldman Sachs JBWere Indicative Price Range Institutional Offer JB Hi-Fi Joint Bookrunners Joint Lead Managers Listing Rules Macquarie Macquarie Equities Maximum Retail Price MDIA MDIB MDIL MPET Unitholders Music NARTA NPAT Offer

Offer Management Agreement means the offer management agreement entered into between Goldman Sachs JBWere, Macquarie, MDIL and JB Hi-Fi, dated 18 September 2003.

Prospectus JB Hi-Fi

81

Offer Period

means the period during which the Offer is open for receipt of Applications, being 1 October 2003 to 17 October 2003 in respect of the Retail Offer and 20 October 2003 to 21 October 2003 in respect of the Institutional Offer, unless varied by the Vendor Shareholders and Joint Lead Managers. means some or all of the 86,592,912 Shares offered for sale by the Vendor Shareholders under the Offer described in this Prospectus. means this document (including the electronic form of this Prospectus), and any supplementary or replacement Prospectus in relation to this document. means Computershare Investor Services Pty Limited (ABN 48 078 279 277). means the loan agreements entered into between JB Hi-Fi and each of the following Vendor Shareholders: Bond Street Investments, AVLLC, MacDonell Roehm, Roseville, Shawville, Richard Uechtritz, Terry Smart and Gary Levin. means the invitation to retail investors under this Prospectus, as described in Section 2.6. means the lower of the Final Price and the Maximum Retail Price of $1.55. means Roseville Estate Pty Ltd (ABN 53 088 101 204). has the meaning given in the SCH Business Rules. mean the Securities Clearing House Business Rules. means a fully paid ordinary share in the capital of JB Hi-Fi. means Shawville Pty Ltd (ACN 093 578 888). means Understanding & Solutions Ltd of High Street South, Dunstable, Bedfordshire, United Kingdom. means BancBoston, MDIA, MDIB, Bond Street Investments, AVLLC, Roseville, Shawville, MacDonell Roehm, Jr and Gary Levin. means Westpac Banking Corporation. means Australian dollars unless specified otherwise.

Offer Shares Prospectus

Registry Related Party Loan Agreements

Retail Offer Retail Offer Price Roseville SCH SCH Business Rules Share Shawville Understanding & Solutions Vendor Shareholders Westpac $

82

JB Hi-Fi Prospectus

Directory
Directors Patrick Elliott (Chairman) Richard Uechtritz (CEO) Terry Smart Gary Levin Will Fraser Auditor Deloitte Touche Tohmatsu 505 Bourke Street Melbourne VIC 3000

Company Secretary Richard Murray

Investigating Accountants Deloitte Touche Tohmatsu 505 Bourke Street Melbourne VIC 3000

Registered Office 14 Spink Street Brighton VIC 3186 Tel: (03) 8530 7333

Share Registry Computershare Investor Services Pty Limited Level 12 565 Bourke Street Melbourne VIC 3000

Joint Lead Managers and Joint Bookrunners Goldman Sachs JBWere Pty Ltd Level 16 101 Collins Street Melbourne VIC 3000 Macquarie Equity Capital Markets Limited Level 23 101 Collins Street Melbourne VIC 3000

Brokers to the Offer Goldman Sachs JBWere Pty Ltd Level 16 101 Collins Street Melbourne VIC 3000 Macquarie Equities Limited Level 23 101 Collins Street Melbourne VIC 3000

Solicitors to the Offer Australia Mallesons Stephen Jaques Level 28 525 Collins Street Melbourne VIC 3000

Solicitors to the Offer New Zealand Quigg Partners Level 7 28 Brandon Street Wellington New Zealand

IDEAssociates.com.au