Annual Report 2008 For personal use only use personal For CHAIRMAN’S REPORT
Looking ahead, the Directors believe the continuing difficult retail environment could give rise to value-creating opportunities.
Dear Shareholders The Directors have pleasure in submitting to This strong cash position of the group provides Premier shareholders the company’s Annual Report for the year with the flexibility to pursue additional acquisition ended 30 June 2008. In particular, we are delighted to opportunities, with the focus on the ownership of submit it to our 6,300 new shareholders, who joined operating businesses that leverage Premier’s expertise Premier Investments Limited (“Premier”) following in the retail and wholesale segments. our successful acquisition of Just Group Limited. Reflecting this strength, the Directors have resolved The acquisition was finalised post 30 June 2008. that the final dividend be increased to 18 cents per That acquisition has been transformational for the share (2007: 9 cents per share). This results in a total company, and – although not reflected in Premier’s dividend for 2008 of 29 cents per share (2006: 18 cents FY2008 annual accounts – occupied a significant per share), a 61% increase in the full year dividend. amount of the company’s resources and attention Looking ahead, the Directors believe the continuing during the year. difficult retail environment could give rise to Just Group is a quality business which is core to value-creating opportunities. Premier will continue to Premier’s ongoing strategy and going forward monitor these opportunities and will communicate its shareholders can expect to see its results consolidated views to shareholders in due course. Premier will also with Premier’s. However, in the circumstances, we are continue to explore opportunities to unlock the value presenting Just’s accounts for FY2008 separately. of its substantial franking balance. They are set out in this annual report. I would like to thank my Board colleagues for Premier had no influence over Just Group’s FY2008 their considerable contribution in both preparing performance. However, our view is that it was a credible the Company for its acquisition of Just Group, result given the significant economic headwinds and continuing to oversee the performance of experienced in Australia and New Zealand. the Company’s other assets during the last year. Premier has recently commenced a comprehensive I look forward to working with my Board colleagues, review of the assets, strategy and operation of Just in the executive leadership team at Just Group and over conjunction with management, and plans to update 6,000 employees that have recently joined Premier to shareholders on the progress of this strategic review realise our aspirations in the year ahead. at the AGM in late November 2008. Critically, Premier is well capitalised, which has become increasingly important as recent developments in the global financial system have unfolded. Before taking into account Just Group’s net debt under its normal Solomon Lew lines of credit (c.A$96million), Premier has Chairman & Non-Executive Director
approximately A$300 million in cash. For personal use only use personal For Solomon Lew Chairman & Non-Executive Director
Jason Murray
Managing Director of Just Group For personal use only use personal For
1 Premier Investments Limited Annual Report 2008
The Directors
Solomon Lew Frank W. Jones FCA, CPA, ACIS Lindsay E. Fox AC Chairman and Non-Executive Director Deputy Chairman and Non-Executive Director Non-Executive Director
Solomon Lew a few. Where these investments Australia’s leading manufacturing, Mr. Lew was appointed a have been sold, it has resulted retailing and shopping centre non-executive director and in substantial profits. development companies. Chairman of Premier on 31 March He is the Chairman of the Mount Mr. Jones served as Chairman of 2008. For many years, Mr. Lew has Scopus College Foundation, a Premier from 1999 to 2002 and, been a director of Century Plaza member of the Board of Trustees more recently, from 2007 to 2008. Investments Pty. Ltd., the largest of the Sport and Tourism Youth He is the Chairman of the Audit shareholder in Premier and was Foundation, a life member of the Committee of Premier. previously Chairman of Premier The Duke of Edinburgh’s Award from 1987 to 1994. World Fellowship, a Patron of Lindsay E. Fox AC Mr. Lew has over 40 years Opera Australia and a Chairman Mr. Fox has extensive experience experience in the manufacture, or director of several philanthropic in all aspects of the transport, importation, wholesaling and organisations. distribution and warehousing retailing of textiles, apparel and Mr. Lew was a director of Coles industry. He is the founder of general merchandise. Mr. Lew’s Myer Limited from 1985 to 2002, the Linfox Group of Companies. success in the clothing industry has serving as Vice Chairman from Today, the Linfox Group is one been largely due to his ability to 1989, Chairman from 1991 to 1995, of the largest supply chain read fashion trends and interpret Executive Chairman in 1995 and services groups with operations them in the Australian market and Vice Chairman in 1995 and 1996. in 11 countries. The Linfox Group to efficiently and cost-effectively He was also a director of the employs 20,000 people, operates produce quality garments. Property Reserve Bank of Australia from 1992 250 warehouses and a fleet of more development and the acquisition to 1997. than 6,000 vehicles and carries out and disposal of equity investments distribution operations for leading have proven to be a profitable and Frank W. Jones FCA, CPA, ACIS companies across the Asia-Pacific For personal use only use personal For region. The Linfox Group consistent activity for entities Mr. Jones is a Fellow of the Institute comprises Linfox M Logistics controlled by Mr. Lew’s family of Chartered Accountants in Pty Limited, Linfox Airports Pty entities. He has, through those Australia and an Associate of the Limited, Linfox Property Group family entities, made a number of Australian Society of Certified Pty Limited and Linfox Armaguard investments in publicly listed Practising Accountants and the Pty Limited. companies over the years, including Institute of Chartered Secretaries investments in Coles Myer Limited, & Administrators. Mr. Jones has Mr. Fox has extensive involvement Colorado Group Limited and extensive experience as a financial in Australian and international Country Road Limited to name and general advisor to some of circles and apart from his business
2 The Directors
Henry D. Lanzer B. COM., LLB (Melb) Michael R.I. McLeod Gary H.Weiss LLM, J.S.D. Non-Executive Director Non-Executive Director Non-Executive Director
interests, is well recognised and Henry D. Lanzer B. COM., LLB (Melb) He holds a Bachelor of Arts active in sport and charity work. Mr. Lanzer is Managing Partner of (First Class Honours and University Medal) from the University of NSW. In 2008, Mr Fox’s work in the Arnold Bloch Leibler, a leading Since March 2008, Mr. McLeod has logistics industry, in promoting Australian commercial law firm. also served as a director of the youth traineeships and in He has over 25 years experience in following other listed companies: philanthropy was recognised when providing legal and strategic advice he was awarded Australia’s highest to some of Australia’s leading • Just Group Limited* honour, a Companion of the Order companies. Mr Lanzer is life of Australia (AC). Governor of the Mount Scopus Gary H.Weiss LLM, J.S.D. College Council, President of the Dr. Weiss is an Executive Director He was awarded an Officer of the Mount Scopus College Foundation Order of Australia (AO) in 1992 of Guinness Peat Group plc., and a director of the Tarrawarra Chairman of Ariadne Australia for his contribution to the transport Museum of Art and a member of industry and the community and Limited and Coats Holdings plc. the Development Committee of During the past three years, he received a Centenary Medal for The Burnet Institute. services to the transport industry Dr Weiss has held the following additional listed company in 2001. Michael R.I. McLeod directorships: From September 1992 to Mr. McLeod is Executive Director December 1993, Mr. Fox together of Century Plaza Trading Pty. Ltd. • Canberra Investment with Mr. Bill Kelty introduced a He has been associated with the Corporation Limited national campaign called ‘Work Century Plaza Group of Companies • Capral Limited* for Australia’. This campaign since 1996 as an advisor in relation • Ariadne Australia Limited* encouraged companies and local to corporate strategy, investment • Tower Limited communities to generate jobs for and public affairs and is a director • Australian Wealth For personal use only use personal For unemployed with the aid of of a number of associated government subsidies and programs. companies. He has been a member Management Limited More than 60,000 jobs were pledged of the Premier Board since 2002. He • Tag Pacific Limited* through their efforts and Mr. Fox is a former Non-Executive Director • Westfield Group* and Mr. Kelty were awarded of Zurich Scudder (formerly • Tower Australia Group Limited* ‘Victorians of the Year’ by the Scudder, Stevens and Clark Australia Sunday Age. The success of this Limited), a large asset manager, campaign set the foundations and he has experience as an advisor for NETTFORCE. to companies and government.
*Denotes current directorship 3 Premier Investments Limited Annual Report 2008
Just Group Executive Team
ABOUT JUST
Just has a portfolio of seven high-profile fashion brands that are supported by a fast fashion retail machine. The group now has over 900 stores across four countries.
Just traces its history back to Throughout the year, ongoing Increasing inventory turns and 1970 when the first Just Jeans upgrades were made to the improving cost competitiveness store was opened in Chapel Street, infrastructure that underpins were the major areas of capability Melbourne. Today, there are seven the company’s fast fashion retail development during the year. brands – Just Jeans, Jay Jays, machine. Premier Investments Limited Portmans, Jacqui E, Dotti, Peter The upgrades included: gained a controlling interest in Alexander and Smiggle. the shares of Just Group Limited • Enhancement of the Just’s operations are largely in on 8 August 2008.
For personal use only use personal For e-commerce platform. Australia and New Zealand where it has 896 stores as of October 2008. • Construction and opening It also has 26 Jay Jays stores in South of a new distribution centre Africa through a joint venture with in Auckland, New Zealand. local retailer, Pepkor and there are • Development of a supplier three Peter Alexander stores in the network in Asian centres United States. outside China.
4 Actual Actual Actual Actual Actual Growth $million, unless otherwise stated 2004* 2005 2006 2007 2008 vs 2007 Weeks in year 53 52 52 52 52 Sales revenue 619.8 632.8 698.0 762.4 816.1 +7.0% Gross profit 359.1 363.0 402.2 438.8 483.6 +10.2% EBITDA 94.1 88.6 105.4 117.3 106.2 -9.5% EBITA 75.3 72.9 88.3 97.4 82.4 -15.4% NPAT (reported) 40.0 45.9 57.2 63.9 49.1 -23.2% Earnings per share (cents) 18.19 21.06 26.24 29.85 24.40 -18.3% Stock turns 4.4x 4.5x 4.7x 5.1x 5.5x +0.4x Operating cash flow 68.7 65.8 81.1 89.8 85.7 -4.6%
*2004 prepared under AGAAP; all other years prepared under AIFRS.
Store numbers Sales ($m) NPAT ($m) Return on capital (%) 885 885 885 885
900900 900 900 900900 900 900 80 80 80 80 70 70 70 70 66 66 66 66 816.1 816.1 816.1 816.1 810 810 810 810 775 775 775 775 60 60 60 60 800800 800 800 800800 800 800 762.4 762.4 762.4 762.4 57 57 57 57
729 729 729 729 70 70 70 70 56 56 56 56
63.9 63.9 63.9 63.9 60 60 60 60 55 55 55 55 698.0 698.0 698.0 698.0 687 687 687 687 655 655 655 655
700700 700 700 700700 700 700 57.2 57.2 57.2 57.2 632.8 632.8 632.8 632.8
619.8 619.8 619.8 619.8 60 60 60 60 50 50 50 50 562.1 562.1 562.1 562.1
600600 600 600 600600 600 600 49.1 49.1 49.1 49.1
50 50 50 50 45.9 45.9 45.9 45.9 40 40 40 40
500500 500 500 500500 500 500 40.0 40.0 40.0 40.0 34 34 34 34 40 40 40 40 400400 400 400 400400 400 400 30 30 30 30 30 30 30 30
300300 300 300 300300 300 300 22.6 22.6 22.6 22.6 20 20 20 20 20 20 20 20 200200 200 200 200200 200 200 10 10 10 10 100100 100 100 100100 100 100 10 10 10 10
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
20032003 20042003 2004 20052003 2004 2005 2006 20042005 20062007 200520062007 2008 20062007 20082007 2008 2008 20032003 20042003 2004 20052003 2004 2005 2006 20042005 20062007 200520062007 2008 20062007 20082007 2008 200820032003 20042003 2004 20052003 2004 2005 2006 20042005 20062007 200520062007 2008 20062007 20082007 2008 200820032003 20042003 2004 20052003 2004 2005 2006 20042005 20062007 200520062007 2008 20062007 20082007 2008 2008 For personal use only use personal For
5 Premier Investments Limited Annual Report 2008
BRANDS
For 2008, Just Group’s brands held their own in a difficult and turbulent market. While the fashion retail sector was impacted by the downturn in consumer confidence during the second half, the business remains well balanced and continues to generate strong cash flows.
The Peter Alexander sleepwear Portmans had a disappointing year and lifestyle brand continued Of all Just brands, Just Jeans and was the focus of an intensive to grow strongly during the year was most heavily impacted by the effort to rebuild the brand. with sales increasing 28.7% over downturn in consumer confidence This effort included new ranging the previous year. during the second half. However, and re-engagement with customers There are now 23 stores open in solid progress has been made in and staff. Australia and New Zealand, with terms of brand health. Initiatives for the coming year each performing very well. The successful introduction include a new store format and new Wholesaling to David Jones was of Calvin Klein, J. Society and ranges, including Miss Jackson hats changed at the end of the year Levi 501 expanded the denim and the “Bloom for Portmans” from a purely wholesale model offering. The popular Just Shop range of cosmetics. Positive results to a mixture of wholesaling loyalty program continues to grow are expected to build through 2009. and concessions. and now has 600,000 members. During 2008, two stores were opened in California – in San Jose and in Glendale, Los Angeles. Since then, The repositioning of Jacqui E a third, flagship store has opened on resulted in pleasing winter sales the famous Robertson Boulevard in Jay Jays, which is the Group’s for the brand. Second half Los Angeles. largest brand, consolidated on same-stores-sales grew by 4.3% the strong gains made in 2007. while overall sales growth It continued to increase retail space increased by 3.3%. with new store openings and store expansions, and made an excellent The VIP loyalty program is growing contribution to earnings. well and will continue to be a focus When Just acquired the in 2009. fashion stationery chain Smiggle In South Africa the joint (August 2007), it had 20 stores. venture with Pepkor performed to expectations and there are now By year’s end, Smiggle had 34 stores 26 Jay Jays stores operating there. and had entered new geographic markets, being Western Australia The brand has developed a high The work done during 2007 on and the ACT. level of customer connection in repositioning the Dotti brand
For personal use only use personal For all three countries in which it came to fruition during 2008. The Integration into the Just retail operates and the business has repositioning and re-energising of machine was smooth and rapid and a deep value component which Dotti is arguably one of the most the brand produced earnings above should stand it in good stead in successful in recent Australian expectations for the year. tough economic times. fashion retailing history and the brand’s contribution to earnings was outstanding. The repositioning included a new store design, new ranges and a new marketing program. 6 Jay Jays
Dotti
Portmans
Peter Alexander
Jacqui E For personal use only use personal For
Smiggle Just Jeans
7 Premier Investments Limited Annual Report 2008
The strong cash position of the group provides Premier with the flexibility to pursue additional acquisition opportunities, with the focus on the ownership of operating businesses that leverage
Premier’s expertise in the retail and wholesale segments. For personal use only use personal For
8 Designed and Produced by walterwakefield.com.auFor personal use only For personal use only
Financial Report 2008 For personal use only use personal For For personal use only PREMIER INVESTMENTS
A.C.N. 006 727 966
Directors’ Report 2 Income Statement 12 Balance Sheet 13 Statement of Changes in Equity 14 Cash Flow Statement 16 Notes to the Financial Statements 17 Directors’ Declaration 36 Independent Audit Report 37
For personal use only use personal For Corporate Governance Statement 39 ASX Additional Information 46 Corporate Directory 48 Directors’ Report
The Board of Directors of Premier Investments Limited (A.C.N. 006 727 966) has pleasure in submitting its report in respect of the financial year ended 30 June 2008.
Directors The names and details of the Directors in office during the financial year and until the date of this report are as follows. Directors were in office for the entire period unless otherwise stated.
Solomon Lew Chairman and Non-Executive Director Mr. Lew was appointed a non-executive director and Chairman of Premier on 31 March 2008. For many years, Mr. Lew has been a director of Century Plaza Investments Pty. Ltd., the largest shareholder in Premier and was previously Chairman of Premier from 1987 to 1994.
Mr. Lew has over 40 years experience in the manufacture, importation, wholesaling and retailing of textiles, apparel and general merchandise. Mr. Lew’s success in the clothing industry has been largely due to his ability to read fashion trends and 2 interpret them in the Australian market and to efficiently and cost-effectively produce quality garments. Property development and the acquisition and disposal of equity investments have proven to be a profitable and consistent activity for Mr. Lew’s family entities. He has, through those family entities, made a number of investments in publicly listed companies over the years, including investments in Coles Myer Limited, Colorado Group Limited and Country Road Limited to name a few. Where these investments have been sold, it has resulted in substantial profits.
He is the Chairman of the Mount Scopus College Foundation, a member of the Board of Trustees of the Sport and Tourism Youth Foundation, a life member of the The Duke of Edinburgh’s Award World Fellowship, a Patron of Opera Australia and a Chairman or director of several philanthropic organisations.
Mr. Lew was a director of Coles Myer Limited from 1985 to 2002, serving as Vice Chairman from 1989, Chairman from 1991 to 1995, Executive Chairman in 1995 and Vice Chairman in 1995 and 1996. He was also a director of the Reserve Bank of Australia from 1992 to 1997.
Frank W. Jones FCA, CPA, ACIS, DEPUTY CHAIRMAN AND NON-EXECUTIVE DIRECTOR Mr. Jones is a Fellow of the Institute of Chartered Accountants in Australia and an Associate of the Australian Society of Certified Practising Accountants and the For personal use only use personal For Institute of Chartered Secretaries & Administrators. Mr. Jones has extensive experience as a financial and general advisor to some of Australia’s leading manufacturing, retailing and shopping centre development companies.
Mr. Jones served as Chairman of Premier from 1999 to 2002 and, more recently, from 2007 to 2008. He is the Chairman of the Audit Committee of Premier. Sir. Ron Brierley Chairman and Non-Executive Director (Resigned 27 November 2007)
Sir Ron Brierley founded Brierley Investments Ltd in 1961 and as chairman implemented his investment approach successfully over the next 30 years, retiring as a director of that company on 30 March 2001. He is Chairman of Guinness Peat Group plc. During the past three years, Sir Ron Brierley has also served as a director of the following other listed companies:
• Alinta LGA Limited • Tooth & Co Ltd* *Denotes current directorship
Lindsay E. Fox A.C. Non-Executive Director Mr. Fox has extensive experience in all aspects of the transport, distribution and warehousing industry. He is the founder of the Linfox Group of Companies. Today, the Linfox Group is one of the largest supply chain services groups with operations in 11 countries. The Linfox Group employs 20,000 people, operates 250 warehouses and a fleet of more than 6,000 vehicles and carries out distribution operations for leading companies across the Asia-Pacific region. The Linfox Group comprises Linfox M Logistics Pty Limited, Linfox Airports Pty Limited, Linfox Property Group Pty Limited and Linfox Armaguard Pty Limited. 3 Mr. Fox has extensive involvement in Australian and international circles and, apart from his business interests is well recognised and active in sport and charity work.
In 2008, Mr Fox’s work in the logistics industry, in promoting youth traineeships and in philanthropy was recognised when he was awarded Australia’s highest honour, a Companion of the Order of Australia (AC).
He was awarded an Officer of the Order of Australia (AO) in 1992 for his contribution to the transport industry and the community and he received a Centenary Medal for services to the transport industry in 2001.
From September 1992 to December 1993, Mr. Fox together with Mr. Bill Kelty introduced a national campaign called ‘Work for Australia’. This campaign encouraged companies and local communities to generate jobs for unemployed with the aid of government subsidies and programs. More than 60,000 jobs were pledged through their efforts and Mr. Fox and Mr. Kelty were awarded ‘Victorians of the Year’ by the Sunday Age. The success of this campaign set the foundations for NETTFORCE.
Henry D. Lanzer B. COM., LLB (Melb), Non-Executive Director
For personal use only use personal For Mr. Lanzer is Managing Partner of Arnold Bloch Leibler, a leading Australian commercial law firm. He has over 25 years experience in providing legal and strategic advice to some of Australia’s leading companies. Mr Lanzer is life Governor of the Mount Scopus College Council, President of the Mount Scopus College Foundation and a director of the Tarrawarra Museum of Art and a member of the Development Committee of The Burnet Institute. Michael R.I. McLeod Non-Executive Director
Mr. McLeod is an Executive Director to the Century Plaza Group of Companies, and a Director of related entities including Century Plaza Trading Pty Ltd, Australian Retail Investments Pty Ltd and International Brand Management Pty Ltd. Between 1996 and 2002 he was Non-Executive Director of Zurich Scudder (formerly Scudder, Stevens and Clark Australia Limited), a fund manager with $8 billion of funds under management. He has extensive experience as an advisor to a range of companies and government. He holds a Bachelor of Arts (First Class Honours and University Medal) from UNSW. Since March 2008, Mr. McLeod has also served as a director of the following other listed companies : • Just Group Limited* *Denotes Current Directorship
Gary H.Weiss LLM, J.S.D., Non-Executive Director Dr. Weiss is an Executive Director of Guinness Peat Group plc., Chairman of Ariadne Australia Limited and Coats Holdings plc. During the past three years, Dr Weiss has held the following additional listed company directorships: • Canberra Investment Corporation Limited • Capral Limited* • Ariadne Australia Limited* 4 • Tower Limited • Australian Wealth Management Limited • Tag Pacific Limited* • Westfield Group* • Tower Australia Group Limited * Denotes current directorship Company Secretary
Kim F. Davis B. COM, NON-EXECUTIVE ALTERNATE DIRECTOR Mr. Davis was appointed as Alternate Director on the 10 July 2008 for Mr. Jones. Mr. Davis has been the Company Secretary and Financial Controller of Premier Investments Limited for 14 years. Prior to holding this position, Mr Davis had 15 years experience within the accounting industry as a tax and financial advisor.
Principal Activities The principal activities of the consolidated entity during the financial year comprised of investments in listed securities and money market deposits. At the date of this Report, the consolidated entity holds 32.1 million (24.8%) shares in Housewares International Limited. Premier has acquired by way of off market
takeover offer more than 90% of Just Group Limited. As such the principal activity For personal use only use personal For of the consolidated entity at the date of this report is that it operates a number of specialty retail fashion chains. Dividends Cents $’000 Final dividend recommended 18.0 16,234 Dividends paid in the year Interim for the year 11.0 9,922 Final for 2007 shown as recommended in the 2007 report 9.0 8,116
Review and Results of Operations The net profit after income tax for the financial year was $41,782,000. This result reflects the impact of the successful sale of Premier's longstanding shareholding in Coles Group Limited in 2007. On the 31st March 2008, Premier announced an offer to acquire all the issued shares in Just Group Limited (“Just”). This offer closed on the 3rd September 2008 at which stage Premier had acquired 95.87% of Just. Premier has initiated the process to achieve 100% of Just shares through compulsory acquisition.
The directors have declared a final fully franked dividend for the financial year of 18 cents per share, which results in a total fully franked dividend for the financial year of 29 cents per share. 5
Shareholder Return: The consolidated entity is pleased to report that return to shareholders, both through dividends and capital growth, reflects the initiatives put in place by management.
2008 2007 2006 2005 Basic earning per share (cents) 46.33 716.39 14.92 10.64 Dividends paid per share (cents) 29 18 14.5 10.5 Return on equity (%) 5.16 78.41 2.51 2.05 Net debt/equity ratio (%) 2.95 54.23 60.88 53.38
Significant Changes in the State of Affairs There have been no significant changes in the state of affairs of the consolidated entity that occurred during the financial year that have not been disclosed in this report or the consolidated financial statements.
Significant Events After The Balance Date On the 31st March 2008, Premier Investments Limited (“Premier”) announced an offer to acquire all the issued shares in Just. Under the terms of the offer made by
For personal use only use personal For way of Bidders Statement dated 19th May 2008 as supplemented and varied, Premier offered $2.095 cash per Just shares plus 0.25 Premier shares for each Just share. Just shareholders who accepted the offer and are registered shareholders of Premier at the record date for the final dividend are entitled to receive Premier's final dividend of 18 cents per Premier share fully franked. In addition, as Premier now has a relevant interest in Just shares of 90% or more an additional $0.15 cash per share was paid to Just shareholders. The offer closed on the 3rd of September 2008. As at 30th June 2008, Premier had received acceptances for less than 1% of the issued Just shares. As at the date of this report, Premier has received acceptances for 95.869% of the issued Just shares.
As at the date of this report, Premier has received acceptances for more than 90% of the issued Just shares. Premier will compulsory acquire any shares in Just for which it has not received acceptances. The effect of acquiring 100% of Just is that Premier will pay approximately $447,834,600 cash under the terms of the takeover offer. In addition, approximately 49,871,000 ordinary shares will be issued by Premier.
Premier's results in this financial report do not include the effect of the results from the business of Just. AASB3 “Business Combinations” requires disclosure of such information for each business combination effected after the reporting date but before the financial report is authorised for issue, unless such disclosure would be impracticable. Premier believes that such disclosure is impracticable. As at the of this report, Just has not released its audited results and Premier does not have access to such financial information.
At the date of this report, Premier has acquired 95.869% of Just, under the terms of the offer and 47,791,895 Premier shares have been issued as part consideration 6 for acceptances received. The holders of these shares will be entitled to receive the fully franked dividend of 18 cents per shares. This will reduce the cash held by Premier by $8,602,541, being the additional amount payable by way of dividend on those shares on the 14th October 2008. Premier has not received, as at the date of this report, acceptances for 8,316,693 Just shares. As Premier will compulsory acquire these shares, Premier will issue approximately 2,079,000 shares as part consideration for the Just shares it compulsorily acquires. These shares will not be issued in time to participate in the fully franked dividend payable on 14th October 2008.
Likely Developments and Expected Results Disclosure of information as to likely developments in operations of the consolidated entity and expected results of those operations would be prejudicial to the interests of the consolidated entity. Accordingly, such information has not been included in this Report.
Environmental Regulation and Performance The consolidated entity’s operations are not subject to any significant
environmental obligations or regulations. For personal use only use personal For Share Options No company in the consolidated entity has granted any options to have shares issued to any person in any company in the consolidated entity during the financial year or to the date of this Report.
Indemnification and Insurance of Directors and Officers To the extent permitted by law, the company indemnifies every person who is a director or officer of the company or of a wholly-owned subsidiary of the company against liability for damages awarded or judgements entered against them and legal defence costs and expenses, arising out of a wrongful act, incurred by that person whilst acting in their capacity as a director or officer provided there has been no admission, or judgement, award or other finding by a court, tribunal or arbitrator which establishes in proper use of portion, or committing of any criminal, dishonest, fraudulent or malicious act.
The total amount of insurance premium paid was $56,929.
Directors’ Interests At the date of this report, the interests of the directors in the shares of the company were: 7 S. Lew 58,052,420 ordinary shares* L.E. Fox 5,434,000 ordinary shares F.W. Jones 160,000 ordinary shares M. McLeod 471 ordinary shares
* This number includes 57,400,717 shares in Premier in which Century Plaza Investments Pty. Ltd., Playcorp Pty. Ltd. & Metrepark Pty. Ltd. (Associated Entities) have a relevant interest. The Associated Entities are associates of Mr. Lew. However, Mr. Lew does not have a relevant interest in the shares in Premier held by the Associated Entities.
Directors’ Meetings
The number of meetings of the Board of Directors during the financial year, and the number of meetings attended by each director were as follows:
Director Directors’ Meetings Attended Maximum Possible Attended Mr. S. Lew 5 5 Mr. F.W. Jones 13 13
Sir. Ron Brierley 3 3 For personal use only use personal For Mr. L.E. Fox 12 13 Mr. H.D. Lanzer 5 5 Mr. M.R.I. McLeod 7 7 Dr. G.H. Weiss 13 13 Audit Committee Premier Investments Limited has an audit committee of which F. W. Jones, Dr G. H. Weiss and L. E. Fox are members. The committee met twice during the financial year, and all members attended the meeting.
Rounding The company is a company of the kind specified in Australian Securities and Investment Commission’s class order 98/0100. In accordance with that class order amounts in the financial statements and the Directors’ Report have been rounded to the nearest thousand dollars unless specifically stated to be otherwise.
Auditor Independence and Non-Audit Services The directors received the following declaration from the auditor of Premier Investments Limited.
8 For personal use only use personal For Remuneration Report (Audited) This report outlines the remuneration arrangements in place for directors and executives of Premier Investments Limited.
Remuneration philosophy
The performance of the company depends upon the quality of its directors and executives. To prosper, the company must attract, motivate and retain highly skilled directors and executives. This is reflected by the company’s remuneration framework which provides competitive rewards to attract high calibre executives.
Remuneration structure In accordance with best practice corporate governance, the structure of non- executive director and senior manager remuneration is separate and distinct.
Non-executive director remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. 9 Structure The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The latest determination was at the Annual General Meeting held on 19 November 1999 when shareholders approved an aggregate remuneration of $200,000 per year. The amount of aggregate remuneration sought to be approved by shareholders
and the manner in which it is apportioned among directors is reviewed annually. For personal use only use personal For Senior Manager and Executive Director remuneration
Objective The company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the company.
Presently, the senior manager’s remuneration consists of fixed remuneration. Bonuses are payable at the discretion of the board of director’s.
Details of the nature and amount of each element of emolument for each director of the company and the executive officer of the company and the consolidated entity receiving the highest emolument for the financial year are as follows:
Salary/Fee Superannuation Cash Bonus Total $$ $
Directors S. Lew: 2008 - - - - 2007 - - - - F.W. Jones: 2008 57,200 - - 57,200 2007 10,000 - - 10,000 Sir R. Brierley: 2008 10,416 - - 10,416 2007 25,000 - - 25,000 10 K. F. Davis: (Alt. Director for F.W. Jones) 2008 - - - - 2007 - - - - L.E. Fox: 2008 10,000 900 - 10,900 2007 10,000 900 - 10,900 H. D. Lanzer: 2008 2,750 - - 2,750 2007 - - - - M.R.I. McLeod: 2008 10,000 900 - 10,900 2007 10,000 900 - 10,900 Dr. G.H. Weiss: 2008 10,000 900 - 10,900 2007 10,000 900 - 10,900
Total Remuneration: 2008 97,616 2,700 100,316 2007 65,000 2,700 - 67,700
Executive K.F. Davis: 2008 287,460 13,129 - 300,589 2007 218,611 12,686 500,000 731,297
Signed in accordance with a resolution of the directors. For personal use only use personal For
Solomon Lew Chairman 23 September 2008 PREMIER INVESTMENTS
A.C.N. 006 727 966
11
Financial Statements For personal use only use personal For INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2008
Note Consolidated Parent
2008 2007 2008 2007 $’000 $’000 $’000 $’000
Continuing operations
Dividends 2,481 30,132 2,481 30,132 Finance revenue 3(a) 61,896 20,456 60,582 16,651 Net gain on disposal of investments - 791,061 - 791,061 Other income 3(a) - 3,047 - -
Revenue 64,377 844,696 63,063 837,844 Finance costs 3(b) (1,792) (16,630) - (9,778) Other expenses (3,106) (1,999) (3,106) (1,999)
Profit before income tax 59,479 826,067 59,957 826,067
Income tax expense 4 (17,697) (179,976) (17,841) (179,976)
Profit from continuing operations after income tax 41,782 646,091 42,116 646,091
Net profit for the period 41,782 646,091 42,116 646,091 12 Profit attributable to members of the parent 41,782 646,091 42,116 646,091
Earnings per share (cents per share) 23
-basic and diluted for profit for the year 46.33 716.39
-basic and diluted for profit from
continuing operations 46.33 716.39 For personal use only use personal For
The accompanying notes form an integral part of this Income Statement. BALANCE SHEET AS AT 30 JUNE 2008
Note Consolidated Parent
2008 2007 2008 2007 $’000 $’000 $’000 $’000 ASSETS
Current Assets Cash and cash equivalents 20(a) 790,341 1,174,951 790,341 915,126 Trade and other receivables 6 6,634 13,103 7,317 10,348 Prepayments 24 1,837 24 45
Total Current Assets 796,999 1,189,891 797,682 925,519
Non-Current Assets Investments 7 36,727 80,898 99,696 143,867 Plant and equipment 8 - - - -
Total Non-Current Assets 36,727 80,898 99,696 143,867
TOTAL ASSETS 833,726 1,270,789 897,378 1,069,386
LIABILITIES Current Liabilities Trade and other payables 9 2,179 541 2,179 1,368 13 Interest–bearing loans and borrowings 10 79 250,000 79 - Income tax payable 19,483 176,241 19,483 176,241 Provisions 11 135 97 135 97
Total Current Liabilities 21,876 426,879 21,876 177,706
Non-Current Liabilities Interest-bearing loans and borrowings 12 - - 63,318 48,597 Deferred tax liabilities 4 2,040 19,959 2,040 19,132
Total Non-Current Liabilities 2,040 19,959 65,358 67,729
TOTAL LIABILITIES 23,916 446,838 87,234 245,435
NET ASSETS 809,810 823,951 810,144 823,951
EQUITY Contributed equity 13 205,149 205,149 205,149 205,149 Reserves 14 877 38,762 413 38,298 Retained earnings 15 603,784 580,040 604,582 580,504
TOTAL EQUITY 809,810 823,951 810,144 823,951 For personal use only use personal For
The accompanying notes form an integral part of this Balance Sheet. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2008
Contibuted Reserves Retained Total equity earnings Equity CONSOLIDATED $’000 $’000 $’000 $’000
At 1 July 2006 205,149 381,208 (49,819) 536,538 Net gains on investments - 43,553 - 43,553 Net deferred income tax on investments - (12,979) - (12,979) Transferred to income statement upon sale of investments (net of income tax) - (373,020) - (373,020) Total income and expense recognised directly in equity 205,149 38,762 (49,819) 194,092 Profit for the period - - 646,091 646,091
Total income 205,149 38,762 596,272 840,183 Equity dividends - - (16,232) (16,232)
At 30 June 2007 205,149 38,762 580,040 823,951
At 1 July 2007 205,149 38,762 580,040 823,951 Net loss on investments - (54,018) - (54,018) Net deferred income tax 14 on investments - 16,133 - 16,133 Total income and expense recognised directly in equity 205,149 877 580,040 786,066 Profit for the period - - 41,782 41,782
Total income 205,149 877 621,822 827,848 Equity dividends - - (18,038) (18,038)
At 30 June 2008 205,149 877 603,784 809,810 For personal use only use personal For
The accompanying notes form an integral part of this Statement of Changes in Equity. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2008
Contibuted Reserves Retained Total equity earnings Equity PARENT $’000 $’000 $’000 $’000
At 1 July 2006 205,149 377,920 (49,355) 533,714 Net gains on investments - 43,553 - 43,553 Net deferred income tax on investments - (12,979) - (12,979) Transferred to income statement upon sale of investments (net of income tax) - (370,196) - (370,196)
Total income and expense recognised directly in equity 205,149 38,298 (49,355) 194,092 Profit for the period - - 646,091 646,091
Total income 205,149 38,298 596,736 840,183 Equity dividends - - (16,232) (16,232)
At 30 June 2007 205,149 38,298 580,504 823,951
At 1 July 2007 205,149 38,298 580,504 823,951 Net loss on investments - (54,018) - (54,018) Net deferred income tax on investments - 16,133 - 16,133 15 Total income and expense recognised directly in equity 205,149 413 580,504 786,066 Profit for the period - - 42,116 42,116
Total income 205,149 413 622,620 828,182 Equity dividends - - (18,038) (18,038)
At 30 June 2008 205,149 413 604,582 810,144 For personal use only use personal For
The accompanying notes form an integral part of this Statement of Changes in Equity. CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2008
Note Consolidated Parent
2008 2007 2008 2007 $’000 $’000 $’000 $’000
Cash flows from operating activities Receipts from customers - - - - Payments to suppliers and employees (1,920) (2,003) (1,920) (2,003) Dividends received 2,481 30,132 2,481 30,132 Interest received 67,811 8,058 63,742 6,925 Interest paid - (16,709) - (9,778) Income tax paid (176,241) - (177,068) -
Net cash flows from (used in) operating activities 20(c) (107,869) 19,478 (112,765) 25,276
Cash flows from investing activities Purchase of investments (8,782) - (8,782) - Proceeds from the disposal of investments - 1,137,080 - 1,137,080 Proceeds from the termination of derivatives - 3,047 - -
Net cash flows from 16 (used in) investing activities (8,782) 1,140,127 (8,782) 1,137,080
Cash flows from financing activities Equity dividends paid (18,038) (16,232) (18,038) (16,232) Proceeds from borrowings - - 14,721 -
Repayment of borrowings (250,000) - - (244,695)
Net cash flows used in financing activities (268,038) (16,232) (3,317) (260,927)
Net increase (decrease) in cash and cash equivalents (384,689) 1,143,373 (124,864) 901,429 Cash and cash equivalents at beginning of period 1,174,951 31,578 915,126 13,697
Cash and cash equivalents at end of period 20(a) 790,262 1,174,951 790,262 915,126 For personal use only use personal For
The accompanying notes form an integral part of this Cash Flow Statement. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008
1. Corporate Information The financial report of Premier Investments Limited for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of the directors on 23 September 2008. Premier Investments Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange. The nature of the operations and principal activities of the Group are described in the Director’s Report.
2. Statement of Significant Accounting Policies Basis of Preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, and Australian Accounting Standards. The financial report has been prepared on a historical cost basis, except for derivative financial instruments and available-for-sale investments, which have been measured at fair value. The financial report is reported in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) under the option available to the company under ASIC class order 98/0100.
Statement of Compliance The financial report complies with Australian Accounting Standards, and International Financial Reporting Standards (IFRS). Except for the amendments to AASB 2007-4 Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments, which the Group has early 17 adopted, Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ended 30 June 2008. These are outlined in the table below.
Reference Title Summary Impact Application Application date of date for standard* Group* AASB Amendments to Amending AASB 8 is a disclosure 1 January 1 July 2009 Australian standard standard so will have 2009 2007-3 Accounting issued as a no direct impact on Standards consequence the amounts included arising from of AASB 8 in the Group’s AASB 8 [AASB Operating financial statements. 5, AASB 6, Segments AASB 102, AASB 8 is a AASB 107, new standard AASB 117, replacing AASB AASB 134, 114 Segment AASB 136, Reporting, which AASB 1023 & adopts a AASB 1038] management AASB 8 approach to Operating segment Segments reporting.
AASB Amendments to Amending The amendments to 1 January 1 July 2009 Australian standard issued AASB 123 require that 2009 2007-6 Accounting as a all borrowing costs Standards consequence of associated with a arising from revisions to qualifying asset be AASB 123 AASB 123 capitalised. The Group [AASB 1, AASB Borrowing Costs has no borrowing costs
For personal use only use personal For 101, AASB 107, associated with AASB 111, qualifying assets and as AASB 116 & such the amendments AASB 138 and are not expected to Interpretations 1 have any impact on the & 12] Group’s financial report.
* Application date is for the annual reporting periods beginning on or after the date shown in the above table. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008
2. Statement of Significant Accounting Policies (continued) Statement of Compliance (continued)
Reference Title Summary Impact Application Application date of date for standard* Group* AASB Amendments Amending standard These amendments 1January 1 July 2009 to Australian issued which introduces are only expected 2007-8 Accounting a statement of to affect the 2009 Standards comprehensive income. presentation of the arising from Other revisions include Group’s financial AASB 101 impactsonthe report and will not presentation of items in have a direct the statement of changes impact on the in equity, new measurement and presentation recognition of requirements for amounts disclosed restatements or in the financial reclassifications of items report. The Group in the financial has not determined statements, changes in at this stage the presentation whether to present requirements for a single statement dividends and changes to of comprehensive the titles of the financial income or two statements. separate statements. AASB Amendments Amending standard The Group may 1 July 2009 1 July 2009 to Australian issued as a consequence enter into some 2008-3 Accounting of revisions to AASB 3 business Standards and AASB 127. combinations arising from during the next AASB 3 and The amendments to financial year and 18 AASB 127 AASB 3 introduces a may therefore number of changes to consider early AASB 3 the accounting for adopting the Business business combinations, revised standard. Combinations the most significant of The Group has not AASB 127 which allows entities a yet assessed the Consolidated choice for each business impact of early and Separate combination entered adoption, Financial into - to measure a non- including which Statements controlling interest accounting policy (formerly a minority to adopt. interest) in the acquiree either at its fair value or If the Group at its proportionate changes its interest in the acquiree’s ownership interest net assets. This choice in existing will effectively result in subsidiaries in the recognising goodwill future, the change relating to 100% of the will be accounted business (applying the for as an equity fair value option) or transaction. This recognising goodwill will have no impact relating to the on goodwill, nor percentage interest will it give rise to a acquired. The changes gain or a loss in the apply prospectively. Group’s income statement. The amendments to AASB 127 requires a change in the ownership interest of a subsidiary (that does not result in loss of control) will be accounted for as an equity transaction.
* Application date is for the annual reporting periods beginning on or after the date shown in the above table. For personal use only use personal For
Adoption of new accounting standard The Group has adopted AASB 7 'Financial Instruments: Disclosures and all consequential amendments' which became applicable on 1 July 2007. The adoption of this standard has only affected the disclosure in these financial statements. There has been no affect on profit and loss or the financial position of the entity. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008
2. Statement of Significant Accounting Policies (continued) Basis of Consolidation The consolidated financial statements are those of the consolidated entity, comprising Premier Investments Limited (the parent entity) and all entities that Premier Investments Limited controlled from time to time during the year and at reporting date. All inter-company balances and transactions have been eliminated in full. Where an entity either began or ceased to be controlled during the year, the results are included only from the date control commenced or up to the date control ceased. The financial statements of these subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
Derivative Asset During the 2007 financial year, Premier Investments Limited disposed if its investment in Coles Group Limited. The profit on disposal of this investment before income tax was $791,061,000. Under the terms of the share sale agreement Premier was granted a call option to repurchase the Coles shares under certain circumstances. The Directors have considered the accounting treatment of this option and determined that in accordance with AASB 139 Financial Instruments: Recognition and Measurement it is required to be recognised as a derivative asset. However after considering various valuation methodologies including the use of external valuation experts, the Directors determined that the value of the option to the financial results at 30 June 2007 was not material.
Investments/Other Financial Assets All investments are initially recognised at cost, being fair value of the consideration given and including acquisition charges associated with the investment. 19 After initial recognition investments, are measured at fair value using the last bid price at balance date. Gains or losses on investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. If there is objective evidence that an investment is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement. Reversals of impairment losses for equity instruments classified as investments are not recognised in profit. Reversals of impairment losses for debt instruments are reversed through profit or loss if the increase in an instrument's fair value can be objectively related to an event occurring after the impairment loss was recognised in profit or loss. The classification of investments includes an assessment of whether the Group has significant influence over its investments in which case the investment is accounted for using the equity accounting method.
Plant and Equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Plant and equipment are depreciated over their economic lives over 3 to 5 years on a straight line basis. Additions and disposals are depreciated for the period held in the year
of acquisition or disposal. For personal use only use personal For NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008
2. Statement of Significant Accounting Policies (continued) Income Tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period's taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: • except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry- forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: • except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset and liability in a transaction that 20 is not a business combination and, at the time of the transaction, affects neither the accounting profit not taxable profit or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statements.
Trade and Other Receivables Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectable debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable.
Trade and Other Payables Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity.
Interest-bearing Loans and Borrowings All loans and borrowings are initially recognised at cost, being the fair value of the For personal use only use personal For consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in the income statement when the liabilities are derecognised and as well as through the amortisation process. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008
2. Statement of Significant Accounting Policies (continued)
Contributed Equity Issued and paid up capital is recognised at the fair value of the consideration. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.
Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Interest Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Dividends The right to receive the dividend payment when the dividend has been paid by the investee.
Derivative Financial Instruments Premier Investments Limited enters into interest rate swap agreements that are used to convert the variable interest rate of its short-term borrowings to medium-term fixed interest rates. The swaps are entered into with the objective of reducing the risk of rising interest rates. Such derivative financial instruments are stated at fair value. For the purpose of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; 21 or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. In relation to fair value hedges, which meet the conditions for special hedge accounting, any gain and loss from remeasuring the hedging instrument at fair value is recognised immediately in the income statement. In relation to cash flow hedges to hedge firm commitments which meet the conditions for special hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the income statement. When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the income statement in the same year in which the hedged firm commitment affects the net profit and loss, for example when the future sale actually occurs. For derivatives that do not qualify for hedge accounting, any gains and losses arising from changes in fair value are taken directly to the income statement. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in For personal use only use personal For equity is kept in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008 2. Statement of Significant Accounting Policies (continued) Employee and Retirement Benefits Charges have been made against profits for amounts expected to be paid to employees for accrued annual leave and long service leave. Amounts accrued which represent vested entitlements are shown as current liabilities. The non current portion of the long service leave provision is measured at the present value of estimated future cash flows discounted at an appropriate rate. Employee contribution superannuation funds exist to provide benefits for the economic entity’s employees and their dependents on retirement, disability or death. The contributions made to these funds are charged against profits.
Cash and Cash Equivalents Cash and short-term deposits in the balance sheet comprise cash on hand and in banks and money market investments readily convertible to cash within two working days.
Earnings per Share Basic earnings per share is calculated as net profit attributable to members of the parent divided by the weighed average number of ordinary shares, adjusted for any bonus element.
Consolidated Parent
2008 2007 2008 2007 $’000 $’000 $’000 $’000
22 3. Revenues and expenses (a) Revenue Dividends 2,481 30,132 2,481 30,132 Finance revenue 61,896 20,456 60,582 16,651 Net gain on disposal of investments - 791,061 - 791,061 Other income Net gain on termination of derivatives - 3,047 - -
64,377 844,696 63,063 837,844
Breakdown of finance revenue: Bank interest revenue 61,896 20,456 60,582 16,651
61,896 20,456 60,582 16,651
(b) Finance costs Bank interest expense - wholly owned group - - - 9,778 - other entities 1,471 16,463 - - Amortisation of loan facility fees 321 167 - -
For personal use only use personal For 1,792 16,630 - 9,778 NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE 2008
Consolidated Parent
2008 2007 2008 2007 $’000 $’000 $’000 $’000
4. Income Tax The major components of income tax expense are: Income Statement Current income tax Current income tax charge 19,483 176,242 18,800 177,069 Deferred income tax Relating to origination and reversal of temporary differences (1,786) 3,734 (959) 2,907
Income tax expense reported in the income statement 17,697 179,976 17,841 179,976
Statement of Changes in Equity Deferred income tax related to items charged or credited directly to equity Unrealised gain (loss)on available for sale investments (16,133) 12,979 (16,133) 12,979 (16,133) 12,979 (16,133) 12,979
A reconciliation between tax expense 23 and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows:
Accounting profit before tax from continuing operations 59,479 826,067 59,957 826,067
Accounting profit before income tax 59,479 826,067 59,957 826,067
At the Group’s statutory income tax rate of 30% (2007: 30%) 17,843 247,820 17,987 247,820 Rebateable dividends (1,063) (12,914) (1,063) (12,914) Non-assessable items 917 (54,930) 917 (54,930)
Aggregate income tax expense 17,697 179,976 17,841 179,976
Recognised deferred tax assets and liabilities Deferred tax liabilities Potential capital gains tax on financial investments 92 16,225 92 16,225 Other debtors 1,948 3,734 1,948 2,907
2,040 19,959 2,040 19,132
Tax consolidation
For personal use only use personal For Effective 1 July 2003, for the purposes of income taxation, Premier Investments Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated group. Premier Investments Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. In addition the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE 2008
Consolidated Parent
2008 2007 2008 2007 $’000 $’000 $’000 $’000 5. Dividends Paid and Proposed a) Recognised amounts Declared and paid during the year Interim franked dividends for 2008: 11 cents per share (2007: 9 cents) 9,922 8,116 9,922 8,116 Final franked dividends for 2007: 9 cents per share (2007: 9 cents) 8,116 8,116 8,116 8,116 b) Unrecognised amounts Final franked dividend for 2008 18 cents per share (2007: 9 cents) 16,234 8,116 16,234 8,116 c) Franking credit balance The amount of franking credits available for the subsequent financial year are: - franking account balance as at the end of the financial year at 30% (2007:30%) 236,875 67,301 - franking credits that will arise from the payment of income tax payable as 24 at the end of the financial year 19,483 176,241 - franking debits that will arise from the payment of dividends as at the end of the financial year (6,957) (3,478) 249,401 240,064 6. Trade and Other Receivables Other debtors 6,634 13,103 7,317 10,348
Total trade and other receivables, net 6,634 13,103 7,317 10,348
Balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these balances will be received when due. 7. Investments Shares in companies quoted on prescribed stock exchange at fair value 36,727 80,898 36,727 80,898 Shares in controlled entities - at cost (Note 21) - - 62,969 62,969
Total investments 36,727 80,898 99,696 143,867
Investments represent the definition of available-for-sale financial assets as per AASB 139
“Financial Instruments: Recognition & Measurements”. For personal use only use personal For The fair value of listed investments has been determined directly by reference to published price quotations in an active market. Available-for-sale financial investments consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE 2008
Consolidated Parent
2008 2007 2008 2007 $’000 $’000 $’000 $’000 8. Plant & Equipment Plant & equipment - at cost 4 4 4 4 Accumulated depreciation (4) (4) (4) (4)
Total plant & equipment, net - - - -
9. Trade and Other Payables Trade payables 2,179 541 2,179 1,368
Total trade and other payables 2,179 541 2,179 1,368
10. Interest-bearing loans and borrowings (Current) Bank overdraft 79 - 79 - Secured (a) Bills payable - 250,000 - -
Total current interest-bearing loans and borrowings 79 250,000 79 -
a) The bills payable were secured by a charge over 250 million dollars of cash on deposit. 25 This facility was repaid on 31 July 2007.
11. Provisions Employee entitlements 135 97 135 97
Total current other provisions 135 97 135 97
Employee entitlements The number of full-time equivalents employed as at 30 June are 1 1
12. Interest-bearing loans and borrowings (Non-Current) Unsecured Non trade amounts owing to related parties Wholly owned group - - 63,318 48,597
Total non-current interest-bearing loans
and borrowings - - 63,318 48,597 For personal use only use personal For NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE 2008
Consolidated Parent
2008 2007 2008 2007 $’000 $’000 $’000 $’000 13. Contributed Equity
Issued and paid up capital Ordinary shares fully paid 205,149 205,149 205,149 205,149
No. No. No. No. Movements in issued shares for the year: (‘000) (‘000) (‘000) (‘000)
On issue at start 90,187 90,187 90,187 90,187 Movements for the year - - - - On issue at end 90,187 90,187 90,187 90,187
Fully paid ordinary shares carry one vote per share and carry the rights to dividends. 14. Reserves Reserves comprise: Asset revaluation 413 38,298 413 38,298 Capital profits 464 464 - - Cash flow hedge - - - - Total reserves 877 38,762 413 38,298 26 Capital profit i) Nature and purpose of reserve: The capital profits reserve is used to accumulate realised capital profits. Asset revaluation i) Nature and purpose of reserve: The asset revaluation reserve is used to record increments and decrements in the value of non-current assets. ii) Movements in reserve: Opening balance 38,298 377,920 38,298 377,920 Increment (Decrement) on revaluation of financial investments (54,018) 43,553 (54,018) 43,553 Transferred to income statement upon sale of investments - (370,196) - (370,196) Net deferred income tax movement on investments 16,133 (12,979) 16,133 (12,979) Closing balance 413 38,298 413 38,298
Cash flow hedge i) Nature and purpose of reserve: This reserve records the portion of the gain or loss on a hedging instrument
For personal use only use personal For in a cash flow hedge that is determined to be an effective hedge. ii) Movements in reserve: Opening balance - 2,824 - - Transferred to income statement upon termination of derivatives - (2,824) - - Closing balance - - - - NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE 2008
Consolidated Parent
2008 2007 2008 2007 $’000 $’000 $’000 $’000 15. Retained Earnings Balance at 1 July 580,040 (49,819) 580,504 (49,355) Net profit 41,782 646,091 42,116 646,091 Dividends (18,038) (16,232) (18,038) (16,232)
Balance at 30 June 603,784 580,040 604,582 580,504
16. Remuneration of Auditors $$ $ $ The auditor of Premier Investments Limited is Ernst and Young. Amounts received, or due and receivable, by Ernst and Young for: - An Audit or review of the financial report of the entity and any other entity in the consolidated entity 30,050 21,320 30,050 21,320 - Other services in relation to the entity and any other entity in the consolidated entity. - - - -
17. Key Management Personnel 27 a) Details of Key Management Personnel i) Directors S. Lew Chairman (non-executive) - appointed 31 March 2008 F.W. Jones Deputy Chairman and Director (non-executive) Sir. R. Brierley Chairman and Director (non-executive) - Resigned 27 November 2007 K. F. Davis Alt. Director (non-executive) for Mr Jones L.E. Fox Director (non-executive) H. D. Lanzer Director (non-executive) - appointed 31 March 2008 M.R.I. McLeod Director (non-executive) Dr. G.H. Weiss Director (non-executive) ii) Executive K.F. Davis Company Secretary and Chief Financial Officer There have been no changes to key management personnel after reporting date and before the date the financial report was authorised for issue. b) Compensation of Key Management Personnel $$ Short-term employee benefits 385,076 783,611 Post-employment benefits 15,829 15,386
Total compensation 400,905 798,997
Premier Investments Limited has applied the option under Corporations Amendments Regulation 2006 to transfer KMP remuneration disclosure required by AASB 124 'Related Party Disclosures' paragraph Aus 25.4 to Aus 25.7.2 to the Remuneration Report section of the Directors' report. These transferred disclosures have been audited.
c) Other transaction and balances with key management personnel and their related For personal use only use personal For parties services Mr. Lanzer is a partner of the legal firm Arnold Bloch Leibler, and his fees of $2,750 including GST (2007: $ Nil) were paid to Arnold Bloch Leibler. Legal services totalling $1,271,676 (2007: $ Nil), including Mr. Lanzer's directors fees, GST and disbursements were invoiced by Arnold Bloch Leibler to the consolidated group since Mr. Lanzer's appointment. The fees paid for these services were all at arm's length. There have been no other transactions concerning key management personnel during the year. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE 2008 17. Key Management Personnel (continued) d) Shareholdings of Key Management Personnel Shares held in Premier Investments Limited
Balance 1 July 2007 Net Change Balance 30 June 2008 2008 Ord. Ord. Ord. S. Lew - - - L.E. Fox 5,434,000 - 5,434,000 H. Lanzer - - - F.W. Jones 155,000 - 155,000 G.H. Weiss - - - M. McLeod - - - 5,589,000 - 5,589,000
Balance 1 July 2006 Net Change Balance 30 June 2007 2007 Ord. Ord. Ord. Sir R. Brierley - - - L.E. Fox 5,434,000 - 5,434,000 G.H. Weiss - - - F.W. Jones 155,000 - 155,000 M. McLeod - - - 5,589,000 - 5,589,000 28 18. Contingent Liabilities and Events After the Balance Date On the 31st March 2008, Premier Investments Limited (“Premier”) announced an offer to acquire all the issued shares in Just Group Limited (“Just”). Under the terms of the offer made by way of Bidders Statement dated 19th May 2008 as supplemented and varied, Premier offered $2.095 cash per Just shares plus 0.25 Premier shares for each Just share. Just shareholders who accepted the offer and are registered shareholders of Premier at the record date for the final dividend are entitled to receive Premier's final dividend of 18 cents per Premier share fully franked. In addition, as Premier now has a relevant interest in Just shares of 90% or more an additional $0.15 cash per share was paid to Just shareholders. The offer closed on 3rd September 2008. As at 30th June 2008, Premier had received acceptances for less than 1% of the issued Just shares. As at the date of this report, Premier has received acceptances for 95.869% of the issued Just shares. As at the date of this report, Premier has received acceptances for more than 90% of the issued Just shares. Premier will compulsory acquire any shares in Just for which it has not received acceptances. The effect of acquiring 100% of Just is that Premier will pay approximately $447,834,600 cash under the terms of the takeover offer. In addition, approximately 49,871,000 ordinary shares will be issued by Premier. Premier's results in this financial report do not include the effect of the results from the business of Just. AASB3 “Business Combinations” requires disclosure of such information for each business combination effected after the reporting date but before the financial report is authorised for issue, unless such disclosure would be impracticable. Premier believes that such disclosure is impracticable. As at the of this report, Just has not released its audited results and Premier does not have access to such financial information. At the date of this report, Premier has acquired 95.869% of Just, under the terms of the
For personal use only use personal For offer and 47,791,895 Premier shares have been issued as part consideration for acceptances received. The holders of these shares will be entitled to receive the fully franked dividend of 18 cents per shares. This will reduce the cash held by Premier by $8,602,541, being the additional amount payable by way of dividend on those shares on the 14th October 2008, Premier has not received, as at the date of this report, acceptances for 8,316,693 Just shares. As Premier will compulsory acquire these shares, Premier will issue approximately 2,079,000 shares as part consideration for the Just shares it compulsorily acquires. These shares will not be issued in time to participate in the fully franked dividend payable on 14th October 2008. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE 2008
19. Segment Information The consolidated entity derives its revenue from one segment, being the investment in securities for both long term and short term gains and dividend income and interest. The consolidated entity operates within Australia.
20. Notes to the Cash Flow Statement
Consolidated Parent
2008 2007 2008 2007 $’000 $’000 $’000 $’000
a) For the purposes of the cash flow statement, cash and cash equivalents comprise the following at 30 June Cash at bank - 282 - 282 Short term deposits 790,341 1,174,669 790,341 914,844 Bank overdraft (79) - (79) - 790,262 1,174,951 790,262 915,126
b) Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods of between one day and three months, 29 depending on the immediate cash requirements of the group, and earn interest at the respective short term deposit rates. At year end the average rate was 7.58% (2007: 6.28%).
c) Reconciliation of net cash flow from operations to net profit after income tax: Net profit after income tax 41,782 646,091 42,116 646,091 Adjustments for: Net profit on disposal of investments - (791,061) - (791,061) Net profit on termination of derivatives - (3,047) - - Changes in assets and liabilities: Decrease/(Increase) in prepayments 1,813 (104) 21 (25) Decrease/(Increase) in receivables 6,469 (12,938) 2,204 (10,266) Increase in creditors 573 513 573 513 (Decrease)/Increase in current tax liability (156,758) 176,241 (156,758) 176,241 Increase in provisions 38 49 38 49 (Decrease)/Increase in deferred tax liability (1,786) 3,734 (959) 3,734 Net cash flows from(used in)
operating activities (107,869) 19,478 (112,765) 25,276 For personal use only use personal For NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE 2008
21. Significant Investments Premier Investments Limited holds 24.8% of Housewares International Limited. Management have performed a review of this investment, in light of the requirements of AASB 128, concluding that Premier Investments Limited does not hold significant influence over Housewares International Limited. Accordingly the investment in Housewares International Limited has not been equity accounted.
22. Related Party Disclosures
a) Subsidiaries The consolidated financial statements include the financial statements of Premier Investments Limited and the subsidiaries listed in the following table. The financial years of all subsidiaries are incorporated in Australia.
2008 2007 %% Holding Holding
Kimtara Investments Pty. Ltd. (ii) 100 100 Premfin Pty. Ltd. (ii) 100 100 Springdeep Investments Pty. Ltd. (ii) 100 100 Prempref Pty. Ltd. (ii) 100 100
30 i) All entities carry on business in their place of incorporation. ii) Not required to produce audited accounts, as small proprietary companies as defined by Corporations Act 2001.
b) Ultimate parent. Premier Investments Limited is the ultimate parent entity. c) Key management personnel Details relating to KMP, including remuneration paid, are included in note 17. d) Wholly-owned group transactions. In addition to those transactions disclosed in Note 3, the parent entity entered into the following transactions during the year with related parties in the wholly owned group: i) Loan borrowings were made; and ii) Loan borrowings were repaid. These transactions were undertaken on normal commercial terms and conditions, with the exception that no interest has been charged on certain borrowings and no fixed date for repayment has been set. Amounts due to and receivable from related parties in the wholly owned group are appropriately disclosed in the respective notes to the financial statements. e) Other related party transactions. Amounts due to and receivable from other related parties are appropriately disclosed
in the respective notes to the financial statements. For personal use only use personal For NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008
Consolidated
2008 2007 $’000 $’000 23. Earnings Per Share The following reflects the income and share data used in the calculation of basic earnings per share: Net Profit 41,782 646,091 Adjustments - - Earnings used in calculating basic earnings per share 41,782 646,091
Number of Shares Weighted average number of ordinary shares used in calculating basic and diluted earnings per share. There are no potential ordinary shares outstanding which are considered dilutive. 90,187,462 90,187,462
24. Financial Instruments a) Financial risk management objectives and policies The principal financial risks to which the consolidated entity is exposed are those of interest rate, equity price, liquidity and credit. Each of these are managed in accordance 31 with Board-approved policies which are reviewed annually including, setting limits for trading in derivatives, interest rate risk, credit allowances, and future cash flow forecast projections. The consolidated entity's overall risk management policies focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the consolidated entity's financial performance. These policies are set out below. The consolidated entity uses different methods to measure and manage different types of risks to which it is exposed. These include, monitoring level of exposure and assesses market forecasts for interest rate risk and equity prices. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk, liquidity risk is monitored through development of future cash flow forecast projections. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expense are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 of the financial statements. b) Capital risk management The consolidated entity's objectives when managing capital are to safeguard the ability to continue as a going concern while maximising the returns to shareholders. The capital structure of the group consists of cash and cash equivalents disclosed in note 20(a) and equity attributable to equity holders of the consolidated entity, comprising contributed equity, reserves and retained profits disclosed in notes 13, 14 and 15. The capital structure is reviewed on a regular basis which includes review and consideration of investment returns and short term capital requirements. c) Categories of financial instruments For personal use only use personal For The consolidated entity's principal financial instruments comprise cash and cash equivalents comprising cash and short-term deposits, investments, trade and other receivables, other payables, bank overdraft and bills payable as disclosed in note 24 (d). The consolidated entity currently does not hold any derivative financial instruments at 30 June in 2008 and 2007. d) Market Risk The consolidated entity's activities expose it primarily to the financial risks of changes in interest rates and changes in the price of equity investments. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008
24. Financial Instruments (continued)
Interest rate risk The consolidated entity is exposed to interest rate risks via the cash and cash equivalents that it holds. Interest rate risk is the risk that a financial instruments value will fluctuate as a result of changes in market interest rates which impacts future cash flows. The consolidated entity's objective of managing interest rate risk is to minimise the entity's exposure to fluctuations in interest rate that might impact its interest revenue and cash flow. To manage interest rate risk, the consolidated entity locks a portion of the consolidated entity's cash and cash equivalents into term deposits. The maturity of term deposits is determined based on the consolidated entity's cash flow forecast. The consolidated entity considers the risk of receiving reduced interest rate by retaining cash and cash equivalents in at call accounts compared to placing funds into a term deposit. This consideration also takes into account the costs associated with breaking a term deposit should early access to cash and cash equivalents be required. The following tables summarises the consolidated entity's exposure to interest rate risks at 30 June 2008 and 30 June 2007:
Fixed interest rate maturing in
Floating 1 year Over More Non Total Average interest or 1 to 5 than Interest Interest rate less years 5 years bearing rate 2008 $’000 $’000 $’000 $’000 $’000 $’000 Floating Fixed
32 Financial assets Cash 790,341 - - - - 790,341 7.58% - Other debtors ----6,634 6,634 - - Investments ----36,727 36,727 - - 790,341 - - - 43,361 833,702
Financial liabilities Trade payables ----2,179 2,179 - - Bank overdraft 79 ---- 7911.75% - 79 - - - 2,179 2,258
Fixed interest rate maturing in
Floating 1 year Over More Non Total Average interest or 1 to 5 than Interest Interest rate less years 5 years bearing rate 2007 $’000 $’000 $’000 $’000 $’000 $’000 Floating Fixed
Financial assets Cash 1,174,951 - - - - 1,174,951 6.28% - Other debtors ----13,103 13,103 - - Investments ----80,898 80,898 - -
1,174,951 - - - 94,001 1,268,952 For personal use only use personal For Financial liabilities Trade payables ----541541-- Bank loans 250,000 ----250,000 6.70% - 250,000 - - - 541 250,541 NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008
24. Financial Instruments (continued)
i) Floating interest rates represent the more recently determined rate applicable to the instrument at balance date. ii) Sundry debtors and other receivables are non interest bearing and have repayment terms between 30 and 90 days. iii) Trade payables are non interest bearing and are normally settled on 30 days terms.
The consolidated entity has conducted a sensitivity analysis of the consolidated entity's exposure to interest rate risk. The sensitivity analysis below has been determined based on the exposure to interest rates from financial instruments at the reporting date and the stipulated change taking place at the beginning of the financial year and being held constant throughout the reporting period, holding all other variables constant. A 100 (2007: 100) basis point increase and decrease in Australian interest rates represents management's assessment of the possible change in interest rates. A positive number indicates an increase in profit after tax and equity, whilst a negative number indicates a reduction in profit after tax and equity.
Judgements of reasonably Profit after Tax Equity possible movements: Higher/(Lower) Higher/(Lower) 2008 2007 2008 2007 $'000 $'000 $'000 $'000 Consolidated +1% (100 basis points) 5,532 6,475 5,532 6,475 33 -1% (100 basis points) (5,532) (6,475) (5,532) (6,475)
The interest bearing assets and liabilities on which the sensitivity is shown in the table above are considered not representative of the consolidated entity's average interest rate exposure for the years ended 30 June 2007 and 30 June 2008. This is due to fluctuations in the balance throughout the period and a portion of the consolidated entity's cash holdings being placed on term deposits for certain periods of the year.
Equity Price Risk The consolidated entity is exposed to equity price risk through its portfolio of investments. Equity price risk is the risk that the value of the consolidated entity's equity investments will fluctuate as a result of changes in market prices and ultimately result in lower returns on investments. The consolidated entity's objective of managing price risk is to minimise the entity's exposure to fluctuations in prices by holding its investments for long term capital appreciation. The board monitor's the consolidated entity's portfolio of investments on a regular basis to minimise exposure to price risk and ensure the portfolio is consistent with the strategic direction of the consolidated entity. The extent of the consolidated entity's exposure to equity price risk on its portfolio of investments can be found in note 7. There has been no change to the consolidated entity's exposure to equity price risk or the manner in which it manages and measures its risk in the year ended 30 June 2008. The consolidated entity has conducted a sensitivity analysis of the consolidated entity's exposure to equity price risk. The sensitivity analysis below has been determined based on the exposure to price risks from its portfolio of investments at the reporting date and the stipulated change taking place at the beginning of the financial year and being held For personal use only use personal For constant throughout the reporting period, holding all other variables constant. A 25% (2007: 25%) increase and decrease in ASX published share prices represents management's assessment of the possible change in prices. A positive number indicates an increase in equity, whilst a negative number indicates a reduction in equity. There is no sensitivity on profit after tax. NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008
24. Financial Instruments (continued)
Judgement of reasonably Equity possible movements: Higher/(Lower) 2008 2007 $'000 $'000 Consolidated 25 % increase in share prices 9,139 20,177 -25% decrease in share prices (9,139) (20,177)
The investments on which the sensitivity is shown in the table above are considered not representative of the consolidated entity's average price exposure for the years ended 30 June 2007 and 30 June 2008, due to movements in shareholding during the year and events subsequent to balance date as disclosed in note 18. e) Credit Risk Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. Credit risk arises from the financial assets of the consolidated entity, comprise cash and cash equivalents (note 20(a)) and trade and other receivables (note 6). The consolidated entity's exposure to credit risk arises from the potential default of the counter party, with maximum exposure equal to the carrying amount of these instruments. 34 To minimise credit risk, the consolidated entity trades only with recognised and trustworthy third parties. In addition, receivable balances are monitored on an ongoing basis with the result that the consolidated entity's exposure to bad debts is not significant. There are no significant concentrations of credit risk within the consolidated entity and financial instruments are spread amongst a number of financial institutions to minimise the risk of default of counterparties. f) Liquidity risk Liquidity risk refers to the risk of encountering difficulties in meeting obligations associated with financial liabilities. Liquidity risk management is associated with ensuring that there are sufficient finds available to meet financial commitments in a timely manner and planning for unforeseen events which may curtail cash flows and cause pressure on liquidity. The consolidated entity keeps its short, medium and long term funding requirements under constant review. Its policy is to have sufficient committed funds available to meet medium term requirements, with flexibility and headroom to make acquisitions for cash in the event an opportunity should arise. The consolidated entity has at balance date $23.8 million (2007: $24.6 million) cash held in deposit with 11am at call term and the remaining $766.5 million (2007: 1,150.3 million) cash held in deposit with a 30 day term. Hence management believe there is no significant
exposure to liquidity risk at 30 June 2008 and 30 June 2007. For personal use only use personal For NOTES TO THE FINANCIAL STATEMENTS AT 30 JUNE, 2008
24. Financial Instruments (continued)
g) Fair value of financial assets and liabilities The fair value of financial assets and financial liabilities is based on market prices (where a market exists) or using other widely accepted methods of valuation. At 30 June 2008 and 30 June 2007 the fair value of cash and cash equivalents, short-term receivables and payables approximates their carrying value. The fair value of the consolidated entity's available for sale equity investments is shown below:
2008 2007 Carrying Net Fair Carrying Net Fair amount amount amount value $’000 $’000 $’000 $’000
Investments 36,727 36,533 80,898 80,494
35 For personal use only use personal For PREMIER INVESTMENTS LIMITED (A.C.N. 006 727 966)
DIRECTORS’ DECLARATION
In accordance with a resolution of the directors of Premier Investments Limited, I state that: 1. In the opinion of the directors: a) The financial statements, notes and the additional disclosures included in the directors' report designated as audited, of the Company and of the consolidated entity are in accordance with the Corporations Act 2001, including i) giving a true and fair view of the Company's and consolidated entity's financial position as at 30 June 2008 and of their performance for the year ended on that date; and
ii) complying with Accounting Standards and Corporation Regulation 2001; and b) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due and payable.
2. The declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2008.
36 On behalf of the board
Solomon Lew Chairman
23 September 2008 For personal use only use personal For
37 For personal use only use personal For
38 For personal use only use personal For Corporate Governance Statement
The Board of Premier Investments Limited (“Premier”) is responsible for the corporate governance of the Group. The Board guides and monitors the business of Premier and its subsidiaries on behalf of its shareholders. To ensure the highest standards of ethical behaviour and accountability, the Board undertook a review of its corporate governance policies and practices (“Governance Review”) after the acquisition of Just Group Limited. The Board completed its review at the end of September 2008, and has implemented significant changes as a result. Premier and its Board are fully committed to achieving and demonstrating the highest standards of accountability and transparency in their reporting and see the continued development of a cohesive set of corporate governance policies and practices as fundamental to Premier's successful growth. The Board as part of the Governance Review, has included in its corporate governance policies those matters contained in the Australian Securities Exchange Corporate Governance Council's Corporate Governance Principles and Recommendations (“ASX Recommendations”) where applicable. However, the Board also recognises that full adoption of the ASX Recommendations may not be practical or provide the optimal result given the particular circumstances of Premier. This corporate governance statement outlines Premier's corporate governance policies and practices for the 2007/08 financial year, while highlighting the changes that have been implemented for the 2008/09 financial year as a result of the Governance Review. Premier has elected to make an early transition to the revised ASX Corporate Governance Principles and Recommendations announced by the ASX in August 2007. 39
1 Principle 1 - Lay solid foundations for management and oversight 1.1 Role of the Board The Directors are responsible for protecting the rights and interests of Premier, its shareholders and other stakeholders, including creditors and employees. The Board's key responsibilities are set out in its Board Charter and include: • protecting and enhancing the value of the assets of Premier; • setting strategies, directions and monitoring and reviewing against these strategic objectives; • overseeing the conduct of Premier's business in order to evaluate whether Premier is adequately managed; • identifying, assessing, monitoring and managing risk and identifying material changes in Premier's risk profile to ensure it can take advantage of potential opportunities while managing potential adverse effects; • monitoring Premier's financial results; • ensuring the significant risks facing Premier have been identified and adequate control monitoring and reporting mechanisms are in place; • approval of transactions relating to acquisitions, divestments and capital expenditure above delegated authority limits;
• determining Premier's investment policy; For personal use only use personal For • approval of financial statement and dividend policy; and • ensuring responsible corporate governance. To assist in the execution of the above responsibilities, the Board had in place an Audit Committee during the 2007/08 financial year. Since completion of the Governance Review, it has established two additional Board Committees, being an Audit & Risk Committee and a Remuneration & Nomination Committee. CORPORATE GOVERNANCE STATEMENT (CONTINUED)
The Board has delegated responsibility for compliance with the ASX's disclosure requirements and for shareholder communication to the Company Secretary. The Company Secretary uses the ASX and professional legal advice in ensuring compliance with Premier's obligations with respect to the ASX Listing Rules and Corporate Governance Principles. Premier communicates with shareholders through announcements to the ASX, general meetings of shareholders, the annual report and through written and electronic correspondence from the Company Secretary from time to time. 1.2 Role of Management During the 2007/08 financial year, Premier did not have a Chief Executive Officer (“CEO”). Premier is actively seeking to appoint a CEO. Until such time as a CEO is appointed, the Board can delegate the responsibilities allocated to the CEO to other persons, such as: • the Chairman; • external service providers including, without limitation, Century Plaza Trading Pty Ltd; and • existing employees of Premier and its subsidiaries. Under the Premier Board Charter, once appointed, the CEO's responsibilities will. include: • the day-to-day leadership and management of Premier; • assisting the board with the strategy and long term direction of Premier; 40 • managing and overseeing the interfaces between Premier and the public and to act as the principal representative for Premier; and • to report annually to the Board on succession planning and management development. The Board will continually evaluate the performance of the CEO once appointed in accordance with the Board Charter. The evaluation is based on criteria that include the performance of the business, the accomplishment of long-term strategic objectives and other non-quantitative objectives established at the beginning of each year.
2 Principle 2 - Structure the Board to add value The Board of Premier comprises six directors. The members of the Board and their position as at the date of this report are:
Name Date Appointed Position Solomon Lew 31 March 2008 Non-Executive Chairman Gary Weiss 11 March 1994 Non-executive director Henry Lanzer 31 March 2008 Non-executive director Lindsay Fox 1 April 1987 Non-executive director Frank Jones 1 April 1987 Non-executive director
Michael McLeod 29 August 2002 Non-executive director For personal use only use personal For
Details of the respective directors' qualifications, skills, directorships and experience are set out in the Directors' Report at page 2. CORPORATE GOVERNANCE STATEMENT (CONTINUED)
2.1 Director Independence ASX Recommendation 2.1 requires that the Board comprise a majority of independent directors. Directors are assessed as being an independent director where they are independent of management and free of any business or other relationship that could materially interfere with the exercise of their unfettered and independent judgement. The current structure of the Board does not comply with ASX Recommendation 2.1. During the 2007/08 financial year, there were no independent directors on the Board. Companies associated with Messrs Weiss and Fox are no longer substantial shareholders of Premier. However, Premier has decided to continue to consider Messrs Weiss and Fox as non-independent directors for at least a 12 month period after companies associated with Messrs Weiss and Fox ceased to be substantial shareholders due to the length of time they have served on the Premier Board while associated with substantial shareholders. The Board is aware of ASX Recommendation 2.1 and is confident that proper processes are in place through its Board Charter to address needs and expectations with respect to decision making and the management of conflicts of interest. The directors on the Board of Premier all add significant value and expertise in a variety of fields. Given Premier's unique circumstances and history, a majority independent board is not the most appropriate means for achieving Premier's aims and goals. However, Premier is currently seeking to appoint two independent directors to the Board to enhance the composition of the Board.
2.2 Chairman of the Board 41 Mr. Lew is Chairman of the Board, which does not comply with ASX Recommendation 2.2 that the chair should be an independent director. The Board believes that Mr. Lew's position as a director of Premier's major shareholder, Century Plaza Investments Pty Ltd, does not prevent him from carrying out his responsibilities as Chairman of the Board. Given Mr Lew's industry experience, skills, expertise and reputation, and his relationship with Premier as its founder, the Board feels that Mr Lew adds most value to the Board as its Chairman and is the most appropriate person for the position. 2.3 Nomination Committee During the 2007/08 financial year, Premier did not have a Nomination Committee, as recommended by ASX Recommendation 2.4. However, the full Board of Premier undertook all functions, duties and responsibilities that would typically be delegated to such a committee. On 23 September 2008, and following the Governance Review, Premier established a Remuneration & Nomination Committee. The Remuneration & Nomination Committee will support and advise the Board on the nomination policies and practices of Premier. The Committee is to consist of three members, all of whom are non-executive directors. The nomination purposes of the Committee include: • reviewing and providing recommendations of plans of succession for executives, non-executive directors and Premier's Chief Executive Officer (when appointed); • establishing and maintaining a formal procedure for the selection and
For personal use only use personal For appointment of directors to the Board; • undertaking regular reviews of the structure and size of the Board to ensure that the Board continues to have a mix of skills and experience necessary to conduct Premier's business and to make any consequential recommendations to the Board; and • identifying, assessing the suitability of, and investigating the backgrounds of, individuals qualified to become directors and to make recommendations to the Board about potential nominees. CORPORATE GOVERNANCE STATEMENT (CONTINUED)
2.4 Independent Advice Directors are free to take independent professional advice on matters pertaining to their roles and responsibilities as directors of Premier. Premier may pay the reasonable costs incurred by a director in doing so, provided that before the advice is obtained the director discusses the requirement for the advice with the Chairman. 2.5 Term of office Premier's Constitution specifies that all directors must retire from the office at no later than the third annual general meeting following their last election. Where eligible, a director may stand for re-election.
3 Principle 3 - Promote ethical and responsible decision-making 3.1 Code of conduct The Board insists on the highest ethical standards from all officers and employees of Premier and is vigilant to ensure appropriate corporate professional conduct at all times. Standards by which all officers, employees and directors are expected to act are contained in the Board Charter and the Premier share trading policy. They include: • insider trading and employee security trading; • conflicts of interest; and 42 • confidentiality and privacy policy. Just Group Limited also has its own formal code of conduct, outlining the standards by which its employees are expected to act. ASX Recommendation 3.1 asks that a company also disclose its code of conduct or a summary of that code. Following the Governance Review, Premier is seeking to implement a formal code of conduct. This code will be available on the Premier website once completed. 3.2 Share Trading Policy Premier has established formal guidelines regarding trading in Premier shares. These guidelines prohibit directors and members of senior management (and their associates) from dealing in Premier's shares while in possession of price sensitive information. Directors and officers are permitted to buy and sell shares at all times other than when in possession of such information or during: • the period commencing 1 December and ending 24 hours after the release of Premier's half year results to the ASX; or • the period commencing 6 weeks prior to the release of Premier's year end results to the ASX and ending 24 hours after such release; or • the period commencing 2 weeks prior to Premier's Annual General Meeting and ending 24 hours after the Annual General Meeting. Outside of these periods, directors and members of senior management must advise the Company Secretary of their intention to trade. The Company Secretary will
discuss the proposed trading with the Chairman. For personal use only use personal For CORPORATE GOVERNANCE STATEMENT (CONTINUED)
4 Principle 4 - Safeguard integrity in financial reporting 4.1 Audit Committee In accordance with ASX Recommendation 4.1, the Board has established an Audit Committee. The Audit Committee supports and advises the Board in fulfilling its corporate governance and oversight responsibilities in relation to Premier's financial reporting, internal control structures, ethical standards and risk management framework and systems. The Committee consists of three members, who as at the date of this report are:
Name Date Appointed Position in Committee Frank Jones 7 September 1995 Chairperson Gary Weiss 7 September 1995 Non-executive director Lindsay Fox 31 March 2006 Non-executive director
Details of the respective directors' qualifications, skills, directorships and experience are set out in the Directors' Report at page 2. Following the Governance Review, the Audit Committee has now become the Audit & Risk Committee. This committee's role and responsibilities, as well as composition, structure and membership requirements is set out in a formal charter approved by the Board, in accordance with ASX Recommendation 4.3. The Audit and Risk Committee's prime responsibilities under its charter include: 43 • reviewing the appropriateness of the accounting policies and principles, any changes to those policies and principles and the methods of applying them to ensure that they are in accordance with Premier's stated financial reporting framework; • reviewing the nomination, performance, independence and competence of the external auditor; • meeting periodically with key management, external auditors and compliance staff to understand Premier's control environment; and • examining and evaluating the effectiveness of the internal control system with management and external auditors. 4.2 Composition The composition of the Audit Committee did not satisfy ASX Recommendation 4.2 during the 2007/08 financial year. While it consists of 3 members, all of whom are non-executive directors, it is not comprised of a majority of independent directors, and the chair of the Committee is also not independent. Mr Jones has been appointed Chairman of the Audit and Risk Committee as he is considered to be the most qualified and appropriate Director for this role. The Board believes that his role as advisor to the Century Plaza Group of Companies does not affect his ability to discharge his responsibilities as Chairman of the Audit and Risk Committee in an objective and impartial manner. However, Premier is actively seeking to appoint two independent directors to the Board. It is envisaged that ASX Recommendation 4.2 will be followed once further independent directors
For personal use only use personal For are appointed. The Audit & Risk Committee will meet as frequently as required to undertake its role effectively. During the 2007/08 financial year, the former Audit Committee met two times. The Chief Executive Officer (or the Chairman in the absence of a Chief Executive Officer) is invited to attend each scheduled meeting of the Audit & Risk Committee and a standing invitation will be issued to the external auditors. CORPORATE GOVERNANCE STATEMENT (CONTINUED)
Directors who are not members of the Audit and Risk Committee are notified of all meetings and may attend if they wish. Other senior managers and external advisors may also be invited to attend meetings of the Audit and Risk Committee. The Audit and Risk Committee may request management and/or others to provide such input and advice as required. The Board has received a written statement from the Chief Financial Officer/Company Secretary that Premier's financial reports present a true and fair view in all material respects of Premier's financial condition and operational results and in accordance with relevant accounting standards.
5 Principle 5 - Make timely and balanced disclosure During the 2007/08 financial year, Premier adopted a policy to ensure that it complied with its continuous disclosure obligations under the ASX Listing Rules, the ASX Recommendations and the Corporations Act, and to ensure that all investors have equal and timely access to material and price sensitive information. Following the Governance Review, Premier has formalised that policy in its Board Charter.
6 Principle 6 - Respect the rights of shareholders Premier endeavours to encourage and promote effective communication with its shareholders, as prescribed by ASX Recommendation 6.1. Premier's constitution sets out the procedures to be followed regarding: 44 • the convening of meetings; • the form and requirements of the notice; • the chairperson and quorums; and • the voting procedures, proxies, representations and polls. Premier's strategy is to ensure that shareholders, regulators and the wider investment community are informed of all major developments affecting Premier in a timely and effective manner. Information is communicated in a number of ways including: • annual and half-yearly reports; • market disclosures in accordance with the continuous disclosure protocol; • updates on operations and developments; • announcements on Premier's website; and • market briefings and presentations at general meetings. Shareholders are encouraged to attend and participate at general meetings. To facilitate this, meetings are held during normal business hours and at a place convenient for the greatest possible number of shareholders to attend. Following the Governance Review, the full text of notices and accompanying materials will be included on Premier's website. Information will be presented in a clear and concise manner designed to provide shareholders and the market with full and accurate
information. For personal use only use personal For 7 Principle 7 - Recognise and manage risk The Board has overall responsibility to ensure that there is a sound system of risk management and internal control across the business. One of the primary responsibilities of the Board is to identify, assess, monitor and manage risk and identify material changes in Premier's risk profile to ensure Premier can take advantage of potential opportunities while managing potential adverse effects. CORPORATE GOVERNANCE STATEMENT (CONTINUED)
7.1 Audit & Risk Committee Following the Governance Review, the Board has delegated responsibility for the identification, assessment and management of risks relating to both internal and external controls on Premier to the Audit & Risk Committee. The risk management functions of the Audit and Risk Committee include: • examining and evaluating the effectiveness of the internal control system with management and external auditors; • assessing existing controls that management has in place for unusual transactions or transactions that may carry more than an accepted level of risk; • meeting periodically with key management, external auditors and compliance staff to understand Premier's control environment; • receiving reports concerning all suspected and actual frauds, thefts and breaches of the law; and • assessing and ensuring that there are internal processes for determining and managing key areas, such as important judgments and accounting estimates. 7.2 CEO assurance In the absence of a CEO, the Chief Financial Officer/Company Secretary has provided assurance to the Board that: • the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control; and • Premier's risk management system is operating effectively in all material aspects in relation to financial reporting risks. 45
8 Principle 8 - Remunerate fairly and responsibly 7.1 Audit & Risk Committee During the 2007/08 financial year, Premier did not have a formal remuneration committee in place as recommended by ASX Recommendation 8.1. However, the full Board of Premier undertook all functions, duties and responsibilities that would typically be delegated to such a committee. On 23 September 2008, Premier implemented a new Remuneration & Nomination Committee. The Remuneration & Nomination Committee will support and advise the Board on the remuneration policies and practices of Premier. The Remuneration and Nomination Committee is to consist of three members, all of whom are non-executive directors. The remuneration purposes of the committee include: • review and make recommendations to the Board on remuneration packages and policies applicable to senior executives and Directors; • define levels at which the Chief Executive Officer must make recommendations to the Committee on proposed changes to remuneration and employee benefit policies; • ensure that remuneration packages and policies attract, retain and motivate high calibre executives; and • ensure that remuneration policies demonstrate a clear relationship between key
executive performance and remuneration. For personal use only use personal For The Remuneration & Nomination Committee shall consist of the following three members:
Name Date Appointed Position in Committee Solomon Lew 23 September 2008 Chairperson Henry Lanzer 23 September 2008 Non-executive director Gary Weiss 23 September 2008 Non-executive director ASX Additional Information
Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 19 September 2008.
1. Distribution of Equity securities
Size of Holding Number of Shareholders
1 to 1,000 4,078 1,001 to 5,000 1,604 5,001 to 10,000 138 10,001 to 100,000 139 100,001 and over 52
Total Shareholders 6,011
Holders of less than a marketable parcel 253
46 2. Substantial Shareholders The names of substantial shareholders who have notified the company in accordance with section 671B of the Corporations Act 2001 are:
Number of Ordinary Shares
Century Plaza Investments Pty. Limited and Associated Parties 58,552,420 IOOF Holdings Limited 10,393,635 Commonwealth Bank of Australia and its subsidiaries 10,057,568 Perpetual Limited and its subsidiaries 9,406,958 452 Capital Pty Ltd 7,872,743
Barclays Global Investors Australia Limited 4,560,109 For personal use only use personal For ASX ADDITIONAL INFORMATION (CONTINUED)
3. Twenty Largest Shareholders Ordinary Shares %
Century Plaza Investments Pty. Limited 46,600,485 33.77 J P Morgan Nominees Australia Limited 10,407,647 7.54 Metrepark Pty. Limited 10,300,232 7.47 HSBC Custody Nominees (Australia) Limited 10,186,805 7.38 National Nominees Limited 9,805,090 7.11 Linfox Share Investment Pty. Limited 5,434,000 3.94 RBC Dexia Investor Services Australia Nominees Pty. Limited 4,639,052 3.36 Merrill Lynch (Australia) Nominees Pty. Limited 4,219,950 3.06 ANZ Nominees Limited 3,215,354 2.33 Congent Nominees Pty. Limited 3,040,966 2.20 Citicorp Nominees Pty. Limited (CFS WSLE 452 Aust Share A/c) 1,824,351 1.32 UBS Nominees Pty Ltd 1,663,796 1.21 Citicorp Nominees Pty. Limited 1,495,808 1.08 Argo Investments Limited 1,250,000 0.91 Springsand Investments Pty. Limited 1,151,703 0.83 Equity Trustees Limited (SGH PI Absolute Return Fund) 1,102,000 0.80 Citicorp Nominees Pty. Limited (CFSIL CWLTH Aust SHS 18 A/c) 1,085,774 0.79 Australian Reward Investment Alliance 963,248 0.70 Djerriwarrh Investments Limited 837,690 0.61 47 Greissen Limited 635,000 0.46
Total held by twenty largest shareholders 119,858,951 86.87
4. Voting Rights Attaching to the Ordinary Shares Subject to any rights or restrictions on voting from time to time affecting any class of share every member present in person or by representative, proxy or attorney shall on a show of hands have one vote and on a poll every member present in person or by representative, proxy or attorney shall in respect of each fully paid share held by him and in respect of each partly paid share on which all calls which have become due and payable have been duly paid have one vote for that share, provided that in respect of partly paid shares issued other than on a pro-rata basis to members every member shall on a poll have such number of votes as bears the same proportion to the total of such shares registered in his name as the amount of the issue price thereof paid up bears to
the total issue price thereof. For personal use only use personal For
Premier Investments Limited A.C.N. 006 727 966 Corporate Directory
Directors Solomon Lew (Chairman) Frank W. Jones Lindsay E. Fox Henry Lanzer Michael R.I. McLeod Dr. Gary H. Weiss
Secretary Kim F. Davis
Registered Office Level 53 101 Collins Street Melbourne, Victoria 3000 Telephone (03) 9650 6500 Facsimile (03) 9654 6665 48 Accountants BDO Kendalls (NSW - Vic) Pty. Ltd. “Rialto Towers” Level 29, 525 Collins Street Melbourne, Victoria
Auditors Ernst & Young 8 Exhibition Street Melbourne, Victoria 3000
Bankers Australia and New Zealand Banking Group Limited
Share Register Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford, Victoria 3067
For personal use only use personal For Telephone (03) 9415 5000 For personal use only For personal use only
Financial Report 2008 For personal use only use personal For For personal use only JUST GROUP LIMITED
ABN 97 096 911 410
FINANCIAL REPORT FOR THE PERIOD COMMENCING 29 JULY 2007 TO 26 JULY 2008
CONTENTS
DIRECTORS’ REPORT 2 AUDITOR’S INDEPENDENCE DECLARATION 5 INCOME STATEMENT 6 BALANCE SHEET 7 CASH FLOW STATEMENT 8 STATEMENT OF CHANGES IN EQUITY 9 NOTES TO THE FINANCIAL STATEMENTS 11 DIRECTORS’ DECLARATION 65
INDEPENDENT AUDIT REPORT TO MEMBERS OF JUST GROUP 66 For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 1 DIRECTORS’ REPORT
T
The directors present their report together with the financial report of Just Group Limited (the “company”) and the consolidated financial report of the consolidated entity, being the company and its controlled entities, for the 52 weeks commencing 29 July 2007 to 26 July 2008, together with the independent audit report to the members thereon.
DIRECTORS The names and details of the company’s directors in office during the financial year and until the date of the report are as follows: Solomon Lew Chairman (appointed 22 September 2008) Jason Murray Managing Director Michael McLeod Non-Executive Director (appointed 4 March 2008) Terrence McCartney Non-Executive Director (appointed 4 March 2008) Glenys Shearer Executive Director (appointed 22 September 2008) Mark Middeldorf Non-Executive Director (appointed 22 September 2008) Henry Lanzer Non-Executive Director (appointed 22 September 2008) Ian Pollard Chairman (resigned 26 August 2008) Laura Anderson Non-Executive Director (resigned 26 August 2008) Bronwyn Constance Non-Executive Director (appointed 11 April 2008; resigned 26 August 2008) Ian Dahl Non-Executive Director (resigned 26 August 2008) Susan Oliver Non-Executive Director (resigned 26 August 2008) Alison Watkins Non-Executive Director (resigned 6 March 2008) Janice Payne Company Secretary EARNINGS PER SHARE
2008 2007 CENTS CENTS
Basic earnings per share 24.40 29.85 Diluted earnings per share 24.40 29.85
DIVIDENDS Two fully franked dividends were paid during the financial year: 2007 Final Dividend $20,133,088 (10.0 cents per share) on 14 November 2007 (2007: 8.5 cents per share) 2008 Interim Dividend $21,139,742 (10.5 cents per share) on 22 May 2008 (2007: 9.5 cents per share). The directors have not declared a final dividend for the 2008 year (2007: 10.0 cents per share). CORPORATE INFORMATION CORPORATE STRUCTURE Just Group Limited is a company limited by its shares that is incorporated and domiciled in Australia. NATURE OF OPERATIONS AND PRINCIPAL ACTIVITIES The consolidated entity operates a number of specialty retail fashion chains within the specialty retail fashion markets in Australia, New Zealand and the United States of America, and via a joint venture entity in South Africa. OPERATING AND FINANCIAL REVIEW Just Group is a leading specialty fashion retailer in Australia and New Zealand, and has recently commenced operations in South Africa and the United States of America. Just Group has a portfolio of well-recognised retail brands, offering latest fashion at value price points. Just Group currently has seven unique brands trading from more than 900 stores across four countries.
For personal use only use personal For The emphasis is on a range of brands that provide diversification through breadth of target demographic and sufficiently broad appeal to enable a national footprint. Over 90% of Just Group’s product range is designed, sourced and sold under its own brands. The Group continually invests in its brands to ensure they remain relevant to changing consumer tastes and remain at the forefront of their respective target markets. This investment includes national advertising campaigns and over five kilometres of store window displays, most of which are updated every two weeks.
2 | JUST GROUP ANNUAL REPORT 2008 DIRECTORS’ REPORT (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED) Net profit after income tax for the year ended 26 July 2008 was $49.1 million (2007: $63.9 million), which reflects a 23.1% decrease compared to last year. The 2008 result includes the costs associated with defending the takeover by Premier Investments Limited, which amounted to $5.4 million (net of tax). In addition, the 2007 year includes a gain on the sale of the company’s strategic investment in Colorado Limited amounting to $2.5 million(net of tax). After adjusting for these non-recurring transactions and events, net profit after income tax for the 2008 financial year was $54.6 million (adjusted 2007: $61.4 million), which reflects a 11.2% decrease compared to last year. The Group remains highly cash generative, which allows continuous investment in the business and the ongoing reduction of debt. Total capital expenditure for the year was $33.1 million (2007: $26.9 million). The company completed an off-market share buy-back in May 2007 and the acquisition of Smiggle Pty Ltd in August 2007, which resulted in an increase to the company’s gearing ratio, however it continues to maintain a sound capital structure that is well serviced by the profitability of its operations. All debt covenants have been satisfied throughout the year. The Group’s core debt facility is due to expire in June 2009, and has been classified as a current liability in the financial statements. The Board believes the company will be able to refinance this debt during the next 12 months and has reasonable grounds to believe the company has sufficient funds to finance its operations throughout the year. The Group also maintains a working capital facility in the amount of $20.0 million to manage the inter-month and intra-month fluctuations in cash flow inherent in the business which was unused at year end. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In May 2007, the company completed an off-market share buy-back. The company purchased 16,669,118 of its own shares for total consideration of $65.7 million, including associated costs. As a result of the buy-back, share capital was reduced by $1.7 million, and retained earnings were reduced by $64.0 million. In August 2007, the Group completed the acquisition of Smiggle Pty Ltd. An initial cash payment of $24.6 million was paid for 100% of the business, with a further amount payable in 2010 based on the actual average earnings of Smiggle in 2009 and 2010. The company borrowed $20.0 million to finance this acquisition, which was subsequently repaid in January 2008. SIGNIFICANT EVENTS AFTER THE BALANCE DATE On 8 August 2008, Premier Investments Limited obtained a controlling interest in the shares of Just Group Limited following an off-market takeover offer for all of the Group’s shares that commenced on 31 March 2008. As a result of this change of control, the company’s financing facilities and certain leases are subject to review events which may result in changes to the terms, expiry date, conditions, fees and/or amounts payable under these agreements. The Group has been discussing these matters with the relevant parties and remains confident that there will be no material changes to the Group’s financial position as presented in financial statements as a result of the change of control. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Certain likely developments in the operations of the consolidated entity and the expected results of those operations in financial years subsequent to the period ended 26 July 2008 are referred to in the preceding operating and financial review. No additional information is included on the likely developments in the operations of the economic entity and the expected results of those operations as the directors reasonably believe that the disclosure of such information would be likely to result in unreasonable prejudice to the economic entity if included in this report, and it has therefore been excluded in accordance with section 299(3) of the Corporations Act 2001. INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND AUDITORS To the extent permitted by law, the company indemnifies every person who is or has been a director or officer of the company or of a wholly-owned subsidiary of the company against liability for damages awarded or judgments entered against them and legal defence costs and expenses, arising out of a wrongful act, incurred by that person whilst acting in their capacity as a director or officer provided there has been no admission, or judgment, award or other finding by a court, tribunal or arbitrator which
For personal use only use personal For establishes improper use of position, or committing of any criminal, dishonest, fraudulent or malicious act. The officers include the directors, as named earlier in this report, the company secretary and other officers, being the executive senior management team. Details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors, and officers, liability insurance contracts are not disclosed as such disclosure is prohibited under the terms of the contracts.
JUST GROUP ANNUAL REPORT 2008 | 3 DIRECTORS’ REPORT (CONTINUED)
INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND AUDITORS (CONTINUED) The company has also entered into deeds of access, insurance and indemnity with all the directors of the company. In accordance with the deeds of access, insurance and indemnity, the company has purchased run-off directors, and officers, indemnity insurance for a period of seven years following the change of control of the company. This additional insurance was necessary because the existing policies cease to apply following a change of control of the company. No indemnification has been provided for the company’s auditors.
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the Auditor’s Independence Declaration in relation to the audit for the financial year is provided on page 5 of this report.
NON-AUDIT SERVICES
The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that independence was not compromised. Details of non-audit services provided by the entity’s auditor, Ernst & Young, can be found in Note 27 of the Financial Report.
ROUNDING
The amounts contained in this report and financial statements have been rounded off to the nearest thousand dollars under the option available to the company under Australian Securities and Investments Commission (ASIC) Class Order 98/0100. The company is an entity to which the Class Order applies.
Signed in accordance with a resolution of the board of directors.
Solomon Lew Jason Murray Chairman Managing Director
22 September 2008 For personal use only use personal For
4 | JUST GROUP ANNUAL REPORT 2008 Auditor’s Independence Declaration to the Directors of Just Group Limited
In relation to our audit of the financial report of Just Group Limited for the 52 weeks ended 26 July 2008, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.
Ernst & Young
Rob Perry Partner
Date: 22 September 2008 For personal use only use personal For
Liability limited by the Accountants Scheme, approved under the Professional Standards Act 1994 (NSW).
JUST GROUP ANNUAL REPORT 2008 | 5 INCOME STATEMENT FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008
CONSOLIDATED THE COMPANY
52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 NOTES $’000 $’000 $’000 $’000 Revenue from sale of goods 4 816,137 762,422 – – Other revenue 4 2,135 4,938 62,367 110,693 Total revenue 4 818,272 767,360 62,367 110,693 Other income 4 3,547 4,211 27,240 26,273 Total income 4 821,819 771,571 89,607 136,966
Changes in inventories of finished goods and work in progress and raw materials used 5 (332,528) (323,661) – – Employee expenses (160,103) (142,047) (17,216) (15,808) Operating lease rental expense (145,719) (132,842) (3,258) (3,433) Depreciation, impairment and amortisation 5 (23,941) (20,011) (1,756) (1,238) Advertising and direct marketing (20,354) (17,917) – – Borrowing costs 5 (11,188) (6,929) (9,275) (5,460) Auditor’s remuneration (audit and other services) 27 (536) (324) (536) (324) Takeover defence costs (7,176) – (7,176) – Other expenses (47,956) (37,318) (11,486) (6,989) Total expenses (749,501) (681,049) (50,703) (33,252) Share of loss of associate 13 (1,287) (210) – – Profit before income tax expense 71,031 90,312 38,904 103,714 Income tax (expense)/benefit 6 (21,913) (26,421) 4,057 (44) Profit after income tax expense 20 49,118 63,891 42,961 103,670 Basic earnings per share (cents per share) 32 24.40 29.85 Diluted earnings per share (cents per share) 32 24.40 29.85 Dividends paid per share (cents per share) 21 20.50 18.00
The above income statement should be read in conjunction with the accompanying notes. For personal use only use personal For
6 | JUST GROUP ANNUAL REPORT 2008 BALANCE SHEET AS AT 26 JULY 2008
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 NOTES $’000 $’000 $’000 $’000 ASSETS Current assets Cash and cash equivalents 28 23,650 38,134 18,080 24,107 Trade and other receivables 7 4,245 2,512 64 – Inventories 8 60,471 61,250 – – Derivative financial instruments 31 585 – 585 – Other 9 2,913 2,795 465 909 Total current assets 91,864 104,691 19,194 25,016 Non-current assets Trade and other receivables 7 2,420 1,256 15,948 12,385 Plant and equipment 11 72,381 62,751 6,698 3,968 Intangible assets 12 105,717 79,084 341 – Deferred tax assets 6 13,028 8,782 3,644 636 Investment in an associate 13 369 1,959 – – Derivative financial instruments 31 635 – 635 – Other financial assets 10 84 84 91,307 91,307 Total non-current assets 194,634 153,916 118,573 108,296 TOTAL ASSETS 286,498 258,607 137,767 133,312 LIABILITIES Current liabilities Trade and other payables 14 65,596 50,415 10,259 4,956 Interest-bearing liabilities 15 119,203 144 103,577 82 Derivative financial instruments 31 3,692 1,825 3,692 – Income tax payable 4,457 6,391 4,646 8,632 Provisions 16 12,032 10,680 – – Other 17 3,059 2,240 5 – Total current liabilities 208,039 71,695 122,179 13,670 Non-current liabilities Interest-bearing liabilities 15 327 121,651 327 103,715 Deferred tax liabilities 6 3,083 2,354 612 296 Provisions 16 988 886 – – Derivative financial instruments 31 62 – 62 – Other 17 16,779 8,723 3 15 Total non-current liabilities 21,239 133,614 1,004 104,026 TOTAL LIABILITIES 229,278 205,309 123,183 117,696 NET ASSETS 57,220 53,298 14,584 15,616 EQUITY Contributed equity 18 13,726 13,720 13,726 13,720 Reserves 19 (7,583) (3,406) (3,609) (635) For personal use only use personal For Retained profits 20 51,077 42,984 4,467 2,531 TOTAL EQUITY 57,220 53,298 14,584 15,616
The above balance sheet should be read in conjunction with the accompanying notes.
JUST GROUP ANNUAL REPORT 2008 | 7 CASH FLOW STATEMENT FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008
CONSOLIDATE THE COMPANY
52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 NOTES $’000 $’000 $’000 $’000 CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts in the course of operations 817,848 759,862 187 144 Cash payments in the course of operations (693,164) (640,797) (32,246) (30,393) Income taxes (paid)/refunded (27,087) (25,787) (948) 1,034 Interest received 1,417 1,577 697 1,247 Borrowing costs paid (13,288) (5,095) (10,761) (3,999) NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 28(b) 85,726 89,760 (43,071) (31,967)
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received – 2,436 – – Payment for investments – (2,169) – – Proceeds from sale of plant and equipment 171 317 141 113 Advances to related parties – – (615,583) (494,117) Repayment of advances to related parties – – 698,744 605,735 Proceeds from disposal of available-for-sale investments – 19,500 – – Acquisition of subsidiary 23 (24,333) – – – Payment for trademarks (341) – (341) – Advances to associate (1,164) (1,256) – – Payment for plant and equipment and leasehold premiums (33,070) (26,933) (4,470) (2,565) NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES (58,737) (8,105) 78,491 109,166 CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid 21 (41,273) (37,656) (41,273) (37,656) Share buy-back – (65,735) – (65,735) Proceeds from borrowings 20,000 39,916 20,000 39,916 Repayment of borrowings (20,000) – (20,000) – Lease payments (200) (30) (174) (26) NET CASH INFLOW/(OUTFLOW) FROM FINANCING ACTIVITIES (41,473) (63,505) (41,447) (63,501) NET INCREASE/(DECREASE) IN CASH HELD (14,484) 18,150 (6,027) 13,698 Cash at the beginning of the financial period 38,134 19,984 24,107 10,409 CASH AT THE END OF THE FINANCIAL PERIOD 28(a) 23,650 38,134 18,080 24,107
The above cash flow statement should be read in conjunction with the accompanying notes. For personal use only use personal For
8 | JUST GROUP ANNUAL REPORT 2008 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008
CONSOLIDATED
CASH FOREIGN PERFORMANCE FLOW CURRENCY FAIR CONTRIBUTED RIGHTS HEDGE TRANSLATION VALUE RETAINED EQUITY RESERVE RESERVE RESERVE RESERVE PROFITS TOTAL NOTES $’000 $’000 $’000 $’000 $’000 $’000 $’000 At 29 July 2006 15,405 1,670 – (3,036) 2,457 80,799 97,295 Net profit for the 20 – – – – – 63,891 63,891 period Translation of overseas subsidiary 19(b) – – – 265 – – 265 Disposal of available-for-sale investments 19(c) – – – – (2,457) – (2,457) Amortisation of performance rights 19(a) – 607 – – – – 607 After tax cost of on-market share purchase 19(a) – (2,583) – – – – (2,583) Reversal of amortisation of forfeited performance rights 19(a) – (329) – – – – (329) Share buy-back 18(b) 20 (1,685) – – – – (64,050) (65,735)
Dividends paid 21 – – – – – (37,656) (37,656)
At 28 July 2007 13,720 (635) – (2,771) – 42,984 53,298 Net profit for the 20 – – – – 49,118 49,118 period Translation of overseas subsidiary 19(b) – – – (1,203) – – (1,203)
Tax effect of share 18(b) 20 6 – – – – 248 254 buy-back costs
Amortisation of performance rights 19(a) – 1,499 – – – – 1,499 After tax cost of on-market share purchase 19(a) – (2,674) – – – – (2,674) After tax gain/(loss) 19(d) on cash flow hedges – – (1,799) – – – (1,799)
For personal use only use personal For Dividends paid 21 – – – – – (41,273) (41,273) At 26 July 2008 13,726 (1,810) (1,799) (3,974) – 51,077 57,220
The above statement of changes in equity should be read in conjunction with the accompanying notes.
JUST GROUP ANNUAL REPORT 2008 | 9 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
THE COMPANY
FOREIGN PERFORMANCE CASH FLOW CURRENCY FAIR CONTRIBUTED RIGHTS HEDGE TRANSLATION VALUE RETAINED EQUITY RESERVE RESERVE RESERVE RESERVE PROFITS TOTAL NOTES $’000 $’000 $’000 $’000 $’000 $’000 $’000 At 29 July 2006 15,405 1,670 – – – 567 17,642 Net profit for the 20 – – – – – 103,670 103,670 period Amortisation of 19(a) – 607 – – – – 607 performance rights After tax cost of on-market share 19(a) – (2,583) – – – – (2,583) purchase Reversal of amortisation of forfeited rights 19(a) – (329) – – – – (329)
Share buy-back 18(b) 20 (1,685) – – – – (64,050) (65,735)
Dividends paid 21 – – – – – (37,656) (37,656) At 28 July 2007 13,720 (635) – – – 2,531 15,616 Net profit for the 20 – – – – 42,961 42,961 period
Tax effect of share 18(b) 20 6 – – – – 248 254 buy-back costs
Amortisation of 19(a) – 1,499 – – – – 1,499 performance rights After tax cost of on-market share 19(a) – (2,674) – – – – (2,674) purchase After tax gain/(loss) 19(d) – – (1,799) – – – (1,799) on cash flow hedges Dividends paid 21 – – – – – (41,273) (41,273)
At 26 July 2008 13,726 (1,810) (1,799) – – 4,467 14,584
The above statement of changes in equity should be read in conjunction with the accompanying notes. For personal use only use personal For
10 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008
1 CORPORATE INFORMATION
The financial report of Just Group Limited for the period ended 26 July 2008 was authorised for issue in accordance with a resolution of the directors on 22 September 2008. Just Group is a leading specialty fashion retailer in Australia and New Zealand, with a portfolio of well-recognised retail brands, offering latest fashion at value price points. Just Group Limited is the ultimate parent company of the Group. Just Group Limited is a company limited by shares incorporated and domiciled in Australia.
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated and the company financial report is prepared for the period commencing 29 July 2007 to 26 July 2008.
(a) BASIS OF PREPARATION The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. Set out below is a summary of the significant accounting policies adopted in the preparation of this financial report. The financial report has also been prepared on a historical cost basis, except for derivative financial instruments and available-for-sale investments, which have been measured at fair value. The financial report has been prepared on the assumption that the company is a going concern. The company’s financing facilities are confirmed until 26 June 2009, and as such have been presented in the balance sheet as a current liability. The directors believe that the company will be able to refinance these debt facilities on acceptable terms on or prior to this date, and therefore believe the company will be able to meet its obligations for at least 12 months from the date of approving this financial report. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the company under Australian Securities and Investments Commission (ASIC) Class Order 98/0100. The company is an entity to which the Class Order applies.
(b) STATEMENT OF COMPLIANCE The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The following standards, amendments to standards or interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 26 July 2008, but have not been applied in preparing this financial report.
Reference Title Summary Application Impact on Group Application date of financial report date for standard* Group* AASB Int. 13 Customer Loyalty Deals with the accounting 1 July The Group operates 27 July Programmes for customer loyalty 2008 The Just Shop loyalty 2008 programmes, which are program within its Just used by companies to Jeans business. The provide incentives to their impact of this customers to buy their interpretation when products or use their applied is not expected
services. to be material. For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 11 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reference Title Summary Application Impact on Group Application date of financial report date for standard* Group* AASB 8 Operating New standard replacing 1 January AASB 8 is a disclosure 26 July and AASB Segments and AASB 114 Segment 2009 standard so will have no 2009 2007-3 consequential Reporting, which adopts direct impact on the amendments to a management reporting amounts included in the other Australian approach to segment Group's financial Accounting reporting. statements, although it Standards may indirectly impact the level at which goodwill is tested for impairment. In addition, the amendments may have an impact on the Group’s segment disclosures. AASB 123 Borrowing Costs The amendments to 1 January These amendments to 26 July (Revised) and consequential AASB 123 require that 2009 AASB 123 require that 2009 and AASB amendments to all borrowing costs all borrowing costs 2007-6 other Australian associated with a associated with a Accounting qualifying asset be qualifying asset be Standards capitalised. capitalised. The Group has no borrowing costs associated with qualifying assets and as such the amendments are not expected to have any material impact on the Group's financial report. AASB 101 Presentation of Introduces a statement of 1 January These amendments are 26 July (Revised) Financial comprehensive income. 2009 only expected to affect 2009 and AASB Statements and Other revisions include the presentation of the 2007-8 consequential impacts on the Group’s financial report amendments to presentation of items in and will not have a other Australian the statement of direct impact on the Accounting changes in equity, new measurement and Standards presentation recognition of amounts requirements for disclosed in the restatements or financial report. The reclassifications of items Group has not in the financial determined at this stage statements, changes in whether to present a the presentation single statement of requirements for comprehensive income dividends and changes to or two separate the titles of the financial statements.
statements. For personal use only use personal For
12 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reference Title Summary Application Impact on Group Application date of financial report date for standard* Group* AASB Amendments to The amendments clarify 1 January The Group has share- 26 July 2008-1 Australian the definition of ‘vesting 2009 based payment 2009 Accounting conditions’, introducing arrangements under the Standard – Share- the term ‘non-vesting existing performance based Payments: conditions’ for conditions rights plan that may be Vesting other than vesting affected by these Conditions and conditions as specifically amendments. However, Cancellations defined and prescribe the the Group has not yet accounting treatment of determined the extent of an award that is the impact, if any. effectively cancelled because a non-vesting condition is not satisfied. AASB Amendments to The amendments provide 1 January These amendments are 26 July 2008-2 Australian a limited exception to the 2009 not expected to have 2009 Accounting definition of a liability so any impact on the Standards – as to allow an entity that Group’s financial report Puttable Financial issues puttable financial as the Group does not Instruments and instruments with certain have on issue or expect Obligations arising specified features to to issue any puttable on Liquidation classify those financial instruments as instruments as equity defined by the rather than financial amendments. liabilities. AASB 3 Business The revised standard 1 July The Group may enter 26 July (Revised) Combinations introduces a number of 2009 into some business 2009 changes to the combinations during the accounting for business next financial year and combinations, the most may therefore consider significant of which early adopting the allows entities a choice revised standard. The for each business Group has not yet combination entered assessed the impact of into – to measure a early adoption, including non-controlling interest which accounting policy (formerly a minority to adopt. interest) in the acquiree either at its fair value or at its proportionate interest in the acquiree’s net assets. This choice will effectively result in recognising goodwill relating to 100% of the business (applying the fair value option) or recognising goodwill relating to the percentage interest acquired. The
For personal use only use personal For changes apply prospectively.
JUST GROUP ANNUAL REPORT 2008 | 13 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reference Title Summary Application Impact on Group Application date of financial report date for standard* Group* AASB 127 Consolidated and Under the revised 1 July If the Group changes its 26 July (Revised) Separate standard, a change in the 2009 ownership interest in 2009 Financial ownership interest of a existing subsidiaries in Statements subsidiary (that does not the future, the change result in loss of control) will be accounted for as will be accounted for as an equity transaction. an equity transaction. This will have no impact on goodwill, nor will it give rise to a gain or a loss in the Group’s income statement. AASB Amendments to Amending standard 1 July Refer to AASB 3 1 July 2008-3 Australian issued as a consequence 2009 (Revised) and AASB 2009 Accounting of revisions to AASB 3 127 (Revised) above. Standards arising and AASB 127. from AASB 3 and AASB 127 Amendments Cost of an The main amendments of 1 January Recognising all 26 July to Investment in a relevance to Australian 2009 dividends received from 2009 International Subsidiary, Jointly entities are those made subsidiaries, jointly Financial Controlled Entity to IAS 27 deleting the controlled entities and Reporting or Associate ‘cost method’ and associates as income Standards** requiring all dividends will likely give rise to from a subsidiary, jointly greater income being controlled entity or recognised by the associate to be parent entity after recognised in profit or adoption of these loss in an entity's amendments. separate financial statements (i.e. parent In addition, if the Group company accounts). The enters into any group distinction between reorganisation pre- and post-acquisition establishing new parent profits is no longer entities, an assessment required. However, the will need to be made payment of such to determine if the dividends requires the reorganisation meets entity to consider whether the conditions imposed there is an indicator of to be effectively impairment. accounted for on a ‘carry-over’ basis rather AASB 127 has also been than at fair value. amended to effectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the
For personal use only use personal For subsidiary (that is, share of equity) rather than its fair value.
14 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Reference Title Summary Application Impact on Group Application date of financial report date for standard* Group* Amendments Improvements to The improvements 1 January The Group has not yet 26 July to IFRSs project is an annual 2009 except determined the extent 2009 International project that provides a for of the impact of the Financial mechanism for making amendments amendments, if any. Reporting non-urgent, but to IFRS 5, Standards** necessary, amendments which are to IFRSs. The IASB effective from has separated the 1 July 2009. amendments into two parts: Part 1 deals with changes the IASB identified resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact. IFRIC 15** Agreements for This interpretation 1 January The Group does not 26 July the Construction proposes that when the 2009 enter into agreements 2009 of Real Estate real estate developer is to provide construction providing construction services to the buyers services to the buyer's specifications and as specifications, revenue such this interpretation can be recorded only as is not expected to have construction progresses. any impact on the Otherwise, revenue Group’s financial report. should be recognised on completion of the relevant real estate unit. IFRIC 16** Hedges of a Net This interpretation 1 January The interpretation is 26 July Investment in a proposes that the hedged 2009 unlikely to have any 2009 Foreign Operation risk in a hedge of a net impact on the Group investment in a foreign since it does not operation is the foreign significantly restrict the currency risk arising hedged risk or where between the functional the hedging instrument currency of the net can be held. investment and the functional currency of any parent entity. This also applies to foreign operations in the form of joint ventures, associates or branches.
* Designates the beginning of the applicable annual reporting period unless otherwise stated. ** Pronouncements that have been issued by the IASB and IFRIC but have not yet been issued by the AASB.
Adoption of new accounting standard The Group has adopted AASB 7 Financial Instruments: Disclosures and all consequential amendments which became For personal use only use personal For applicable on 1 January 2007. The adoption of this standard has only affected the disclosure in these financial statements. There has been no effect on profit and loss or the financial position of the entity.
JUST GROUP ANNUAL REPORT 2008 | 15 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) BASIS OF CONSOLIDATION Subsidiaries The consolidated financial statements comprise the financial statements of Just Group Limited ('the parent entity') and its subsidiaries ('the Group') as at the end of each financial year. A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities as at the end of the financial year. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated financial statements, all inter-company balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. The acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition.
(d) FOREIGN CURRENCY TRANSLATION Both the functional and presentation currency of Just Group Limited and its Australian subsidiaries is Australian dollars. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All exchange differences in the consolidated financial report are taken to the income statement. The New Zealand subsidiaries’ functional currency is New Zealand dollars and the United States subsidiaries’ functional currency is United States dollars. As at the reporting date the assets and liabilities of these overseas subsidiaries are translated into the presentation currency of Just Group Limited at the rate of exchange ruling at the balance sheet date and the income statements are translated at the weighted average exchange rates for the period. Exchange variations resulting from the translation are recognised in the foreign currency translation reserve.
(e) CASH AND CASH EQUIVALENTS Cash and cash equivalents in the balance sheet comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less. For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.
(f) TRADE AND OTHER RECEIVABLES Trade receivables, which generally have 30-60 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.
For personal use only use personal For Collectibility of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identified. An allowance for doubtful debts is raised when there is objective evidence that the Group will not be able to collect the debt.
16 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) INVENTORIES Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: - Raw materials - purchase cost on a first-in, first-out basis; - Finished goods and work-in-progress - purchase cost plus a proportion of the purchasing department, freight, handling and warehouse costs incurred to deliver the goods to the point of sale. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale.
(h) PLANT AND EQUIPMENT Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: - Store plant and equipment 3 to 8 years - Leased plant and equipment 2 to 5 years - Other plant and equipment 2 to 10 years The carrying values of plant and equipment are reviewed for impairment annually for events or changes in circumstances that may indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If an indication of impairment exists, and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets.
(i) GOODWILL Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Goodwill is reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). This generally means an assessment at the store level. However, if cash inflows cannot be separately identified, the impairment assessment is performed at the business unit or group level. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. In conducting the impairment testing for goodwill, a pre-tax discount rate of 11.5% (2007: 10.4%) is used to discount future net cash flows for each cash-generating unit. The assessment is conducted over the lesser of the remainder of the
lease term or useful life of the cash-generating unit, or five years. Future cash inflows are projected to grow at an average For personal use only use personal For rate of 3.0% (2007: 4.1%) over the relevant assessment period, based on current and historical growth patterns.
JUST GROUP ANNUAL REPORT 2008 | 17 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) INTANGIBLE ASSETS (excluding goodwill) Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Intangible assets are tested for impairment where an indicator of impairment exists, and in the case of intangibles with indefinite lives annually, either individually or at the cash-generating unit level. Where the carrying amount of an intangible asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value-in-use. It is determined for an individual asset, unless the asset’s value-in-use cannot be estimated to be close to its fair value, less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time-value of money and the risks specific to the asset. A summary of the policies applied to the Group’s intangible assets is as follows: Trademarks Premiums paid on acquisition of leaseholds
Useful life Indefinite Finite
Method used Not amortised or revalued Amortised over the term of the lease Internally Acquired Acquired generated/acquired Impairment test/recoverable Annually; for indicator of impairment Amortisation method reviewed at each amount testing financial year end; reviewed annually for indicator of impairment
(k) OTHER FINANCIAL ASSETS (i) Available-for-sale investments After initial recognition, available-for-sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in the profit or loss. Fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. (ii) Non-derivative financial assets Loans and receivables are non-derivative financial assets with fixed or determinable repayments that are not quoted in an active market. Such assets are recognised at cost and amortised using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the
amortisation process. For personal use only use personal For
18 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008(CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) INVESTMENT IN ACCOCIATE The Group’s investment in its associate is accounted for using the equity method of accounting in the consolidated financial statements. Under the equity method, investment in the associate is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Groups share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group’s net investment in the associate. The Group’s share of its associate’s post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from the associate is recognised in the parent entity’s income statement, while in the consolidated financial statements they reduce the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The reporting date of the associate is currently 30 June and is in the process of being aligned to that of the company. The associate’s accounting policies conform to those used by the Group for like transactions and events in similar circumstances. (m) LEASES Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. (n) TRADE AND OTHER PAYABLES Liabilities for trade creditors and other amounts are recognised and carried at original invoice cost, which is the fair value of the consideration to be paid in the future for goods and services received whether or not billed to the consolidated entity. Trade liabilities are normally settled on terms of between seven and 45 days. (o) INTEREST-BEARING LIABILITIES All loans, borrowings and interest-bearing payables are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, such items are subsequently measured at amortised
cost using the effective interest method. Borrowing costs are expensed as incurred. For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 19 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p) PROVISIONS Provisions are recognised when the economic entity has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events. It is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation. If the effect of the time-value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time-value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. A provision for dividends is not recognised as a liability unless the dividends are declared on or before the reporting date.
(q) EMPLOYEE BENEFITS
(i) Wages, salaries and annual leave The provisions for employee entitlements to wages, salaries and annual leave represent the amount which the consolidated entity has a present obligation to pay, resulting from employees’ services provided up to the balance date. The provisions have been calculated at nominal amounts based on current wage and salary rates, and include related on-costs.
(ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Related on-costs have also been included in the liability. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity that match as closely as possible the estimated cash outflow.
(iii) Superannuation fund The company and other controlled entities contribute to eligible employee superannuation funds. Contributions are charged against income as they are made. Further information is set out in Note 25.
(r) DEFERRED INCOME Lease incentives are capitalised in the financial statements when received and credited to revenue over the term of the store lease to which they relate.
(s) REVENUE RECOGNITION Revenue is recognised to the extent that it is probable that the economic benefit will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.
(i) Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Risks and rewards are considered passed to the buyer at the point-of-sale in retail stores and at the time of delivery to catalogue and wholesale customers.
(ii) Interest For personal use only use personal For Revenue is recognised as interest accrues using the effective interest method.
(iii) Dividends Revenue is recognised when a right to receive consideration for the investment in assets is attained.
20 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s) REVENUE RECOGNITION (CONTINUED) (iv) Lay-by sales The company has a history of most lay-by sales in retail stores being completed following receipt of an initial deposit. Therefore, the company has elected to recognise revenue on lay-by sales upon receipt of a deposit.
(t) INCOME TAX Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted by the balance sheet date. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: - when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or - when the taxable temporary difference is associated with investments in subsidiaries, associates and interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry forward or unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses, can be utilised except: - when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or - when the deductible temporary difference is associated with investments in subsidiaries, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same
taxation authority. For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 21 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(t) INCOME TAX (CONTINUED) Tax consolidation Just Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 August 2004. The head entity, Just Group Limited, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, Just Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.
(u) OTHER TAXES Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except: - when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and - receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies in Note 24 are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (v) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING During the 52 weeks ended 26 July 2008, the consolidated entity has elected to apply the provisions for hedge accounting as prescribed in AASB 139: Financial Instruments: Recognition and Measurement. The consolidated entity uses derivative financial instruments (including forward currency contracts and foreign exchange options) to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently revalued to fair value at subsequent reporting dates. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as cash flow hedges, are taken directly to profit or loss for the period. For the purpose of hedge accounting, hedges are classified as cash flow hedges that hedge the exposure to variability in cash flows that is attributable either to a particular risk associated with a recognised asset or liability or to a highly probable forecast transaction. Hedges that meet the strict criteria for hedge accounting are accounted for as follows: (i) Cash flow hedges Cash flow hedges are hedges of the Group’s exposure to variability in cash flows that is attributable to a particular risk For personal use only use personal For associated with a recognised asset or liability that is a firm commitment and that could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss.
22 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(v) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING (CONTINUED) Amounts taken to equity are transferred out of equity and included in the measurement of the hedge transaction (finance costs or inventory purchases) when the forecast transaction occurs. The Group tests each of the designated cash flow hedges for effectiveness on an ongoing basis both retrospectively and prospectively using the ratio offset method. If the testing falls within the 80% to 125% range, the hedge is considered to be highly effective and continues to be designated as a cash flow hedge. At balance date, the Group measures ineffectiveness using the ratio offset method. For foreign currency cash flow hedges if the risk is over hedged, the ineffective portion is taken immediately to other income/expense in the income statement. If the forecast transaction is no longer expected to occur, amounts recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked (due to being ineffective), amounts previously recognised in equity remain in equity until the forecast transaction occurs. (w) BUSINESS COMBINATIONS The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the combination. Where equity instruments are issued in a business combination, the fair value of the instruments is their published market price as at the date of exchange. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Except for non-current assets or disposal groups classified as held for sale, which are measured at fair value less costs to sell, all identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of the business combination over the net fair value of the Group’s share of the identifiable net assets acquired is recognised as goodwill. If the cost of the acquisition is less than the Group’s share of the net fair value of the identifiable net assets of the subsidiary, the difference is recognised as a gain in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired. Where settlement of any part of the consideration is deferred, the amount payable in the future is discounted to present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
(x) SHARE-BASED REMUNERATION SCHEMES The Group provides benefits to certain employees (including senior executives) of the Group in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). There are currently two plans in place to provide these benefits: - a senior leaders reward scheme (SLRS); and - a long-term incentive plan known as the Performance Rights Plan (PRP). The SLRS provides a remuneration element designed to attract and retain key senior employees and link rewards with company performance and achievement of individual KPIs. The rewards include a cash bonus for meeting individual KPIs and shares in the company (purchased on market) for meeting company performance targets. Any shares allocated
For personal use only use personal For under this plan have a one or two-year trading restriction. The cost of the purchase of shares is expensed to the income statement.
JUST GROUP ANNUAL REPORT 2008 | 23 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(x) SHARE-BASED REMUNERATION SCHEMES (CONTINUED) The PRP provides a remuneration element designed to attract and retain key senior executives and link rewards with the company’s performance and maximisation of shareholder wealth. An offer under the PRP grants an individual the right to a certain number of ordinary shares in the company. This right may vest and be convertible into shares, conditional on the satisfaction of a “Total Shareholder Return” performance condition. Refer to Note 25(c) on page 51 for further details. The cost of these share-based transactions with employees is measured by reference to the fair value at the date at which they are granted. The cost of share-based transactions is expensed over the period in which the performance conditions may be fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects: (i) the extent to which the vesting period has expired; and (ii) the Group’s best estimate of the number of equity instruments that will ultimately vest. Upon vesting, the Company purchases shares on-market to fulfill its obligations under the PRP. The cost of the purchase of shares, net of tax, is charged to the performance rights reserve. (y) COMPARATIVES The current reporting period 29 July 2007 to 26 July 2008 represents 52 weeks and the comparative reporting period 30 July 2006 to 28 July 2007 also represents 52 weeks. (z) EARNINGS PER SHARE Basic earnings per share is calculated as net profit divided by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated as net profit divided by the weighted average number of ordinary shares and
dilutive potential ordinary shares outstanding as at the end of the reporting period. For personal use only use personal For
24 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
3 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES
The Group’s principal financial instruments, other than derivatives, comprise bank loans and overdrafts, finance leases and cash and short-term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables, investments and trade payables, which arise directly from its operations. The Group also enters into derivative transactions from time to time, principally forward exchange contracts and foreign currency options. The purpose is to manage the currency risks arising from the Group’s operations. Speculative trading in derivatives is prohibited by the Group’s financial risk management policies. The main risks arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk, foreign exchange risk and credit risk. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument, are disclosed in Note 2 to the financial statements. RISK EXPOSURES AND RESPONSES Interest rate risk The Group’s exposure to market interest rates relates primarily to its cash investments and long term debt obligations. The level of debt is disclosed in Note 15. At balance date, the Group had the following mix of financial assets and liabilities exposed to variable interest rate risk that are not designated in cash flow hedges:
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 NOTES $’000 $’000 $’000 $’000 FINANCIAL ASSETS Cash 28 23,650 38,134 18,080 24,107 23,650 38,134 18,080 24,107 FINANCIAL LIABILITIES Bank loans AUD 15 (103,361) (103,469) (103,361) (103,464) Bank loans NZD20.0 million 15 (15,565) (17,935) – – Lease liabilities 15 (548) (498) (489) (436) (119,474) (121,902) (103,850) (103,900) Net exposure (95,824) (83,768) (85,770) (79,793)
For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 25 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
3 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED)
RISK EXPOSURES AND RESPONSES (CONTINUED) Interest rate risk (continued) The Group enters into interest rate swaps from time to time to convert all or a portion of the variable interest rate component of the long-term debt obligations to fixed interest rates. The criteria used to determine whether a variable interest rate commitment should be converted to a fixed interest rate is based on an assessment of the Group’s future cash flows and investment requirements. The Group has not entered into any interest rate swaps in the past 12 months. The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date. As at 26 July 2008, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post-tax profit and equity would have been affected as follows:
POST-TAX PROFIT EQUITY
HIGHER/(LOWER) HIGHER/(LOWER)
Judgements of reasonably possible 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS movements: ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 $’000 $’000 $’000 $’000 CONSOLIDATED +1.0% (100 basis points) (667) (583) – – -1.0% (100 basis points) 667 583 – –
THE COMPANY +1.0% (100 basis points) (597) (555) – – -1.0% (100 basis points) 597 555 – –
The movements in profit and loss are due to higher/lower interest costs on long-term bank loans and also higher/lower
interest earned on short-term deposits. For personal use only use personal For
26 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
3 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED)
RISK EXPOSURES AND RESPONSES (CONTINUED) Foreign operations The Group has a significant operation in New Zealand. As a result, movements in the AUD/NZD exchange rate affect the Group’s balance sheet and results from operations. The Group has obtained New Zealand dollar denominated financing facilities from a financial institution to provide a natural hedge of the Group’s exposure to movements in the AUD/NZD on translation of the New Zealand balance sheet, however the company does not hedge its cash flow exposure to movements in the AUD/NZD. The Group has recently commenced operations in the United States of America. As a result, movements in the AUD/USD exchange rate affect the Group’s balance sheet and results from operations. The Group does not explicitly hedge this exposure. The Group has an investment and long-term receivables denominated in South African rand (ZAR) arising from its investment in Just Kor Fashion Group (Pty) Ltd. As a result of these transactions, movements in the AUD/ZAR exchange rates can affect the Group’s balance sheet. The Group does not consider this risk to be material and, as such, has not sought to hedge this exposure. Foreign currency transactions The Group has exposures to foreign currencies principally arising from purchases by operating entities in currencies other than the functional currency. Approximately 60% of the Group’s purchases are denominated in USD, which is not the functional currency of the Australian and New Zealand operating entities. The Group considers its exposure to USD arising from the purchases of inventory to be a long-term and ongoing exposure. As such, the Group’s foreign currency risk management policy provides guidelines for the term over which foreign currency hedging will be undertaken for part or all of the risk. This term cannot exceed two years. Factors taken into account include: - the implied market volatility for the currency exposure being hedged and the cost of hedging, relative to long-term indicators; - the level of the AUD and NZD against the currency risk being hedged, relative to long-term indicators;
- the company’s strategic decision-making horizon. For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 27 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
3 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED)
RISK EXPOSURES AND RESPONSES (CONTINUED) Foreign Currency Transactions (Continued) The policy requires periodic reporting to the Audit Committee, and its application is subject to oversight from the Chairman of the Audit Committee. The policy allows the use of forward exchange contracts and foreign currency options. At balance date, the Group had the following exposures to movements in the United States dollar and South African rand:
USD EXPOSURE ZAR EXPOSURE
CONSOLIDATED PARENT CONSOLIDATED PARENT
2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 FINANCIAL ASSETS Cash and cash equivalents 467 – – – – – – – Trade and other receivables 427 146 – – 2,420 1,256 – – Derivative financial assets (cash flow hedges) 1,220 –1,220 – – – – – 2,114 1461,220 – 2,420 1,256 – – FINANCIAL LIABILITIES Trade and other payables 20,835 19,238 – – – – – – Derivative financial liabilities (cash flow hedges) 3,754 1,8253,754 – – – – – 24,589 21,063 3,754 – – – – – Net exposure (22,475) (20,917) (2,534) – 2,420 1,256 – –
Outlined in Note 31, the Group has forward currency contracts and foreign currency options designated as cash flow hedges that are subject to movements
through equity and profit and loss respectively as foreign exchange rates move. For personal use only use personal For
28 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
3 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED)
RISK EXPOSURES AND RESPONSES (CONTINUED) Foreign currency risk (Continued) The following sensitivity is based on the foreign exchange risk exposures in existence at the balance sheet date:
POST-TAX PROFIT EQUITY
HIGHER/(LOWER) HIGHER/(LOWER)
Judgements of reasonably possible 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS movements: ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 $’000 $’000 $’000 $’000 CONSOLIDATED AUD/USD + 2.5% (83) 7 (1,616) – AUD/USD – 10.0% 1,287 2,119 7,345 – AUD/ZAR + 2.5% (59) (31) – – AUD/ZAR – 10.0% 269 140 – –
THE COMPANY AUD/USD + 2.5% (569) – (1,616) – AUD/USD – 10.0% 3,503 – 7,345 – AUD/ZAR + 2.5% – – – – AUD/ZAR – 10.0% – – – – The movement in profit and equity for 2008 is more sensitive due to a higher level of foreign exchange cover in place at 26 July 2008 as compared to 28 July 2007. There is no movement in equity relating to 2007 as the instruments were not designated cash flow hedges and were ineffective as per the provisions in AASB 139: Financial Instruments: Recognition and Measurement (note 2(v)). Price risk The Group’s exposure to price risk is minimal. The Group currently holds shares in listed entities designated as available-for-sale with a fair value of $84,000 (2007: $84,000). Credit risk The overwhelming majority of the Group’s sales are on cash or cash equivalent terms with settlement within 24 hours. As such, the Groups exposure to credit risk is minimal. The Group trades only with recognised, creditworthy third parties. It is the Groups policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. There are no significant concentrations of credit risk within the Group and financial instruments are spread amongst a number of financial institutions. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents,
available-for-sale financial assets and certain derivative instruments, the Group’s exposure to credit risk arises from default of For personal use only use personal For the counter party, with a maximum exposure equal to the carrying amount of these instruments. Since the Group trades only with recognised creditworthy third parties, there is no requirement for collateral by either party. Credit risk for the company also arises from financial guarantees that the company acts as guarantor. As at 26 July 2008, the maximum exposure to credit risk of the company is the amount guaranteed as disclosed in Note 34. JUST GROUP ANNUAL REPORT 2008 | 29 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
3 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED)
RISK EXPOSURES AND RESPONSES (CONTINUED) Liquidity risk The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profile of financial liabilities to forecast cash inflows. Due to the dynamic nature of the business, the Group aims to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, finance leases and hire purchase contracts with a variety of counterparties. Surplus funds are only invested in highly liquid cash assets.
Maturities of financial liabilities The remaining contractual maturities of the Group’s and parent entity’s financial liabilities are:
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 $’000 $’000 $’000 $’000 Maturity < 6 months 133,060 60,860 77,695 4,997 Maturity 6–12 months 152,618 4,369 136,328 3,656 Maturity 12–24 months 52,565 121,523 52,565 103,582 Maturity > 24 months 164 236 164 236
338,407 186,988 266,752 112,471 For personal use only use personal For
30 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 $’000 $’000 $’000 $’000
4 REVENUE
REVENUE Revenue from sale of goods 812,805 759,616 – – Revenue from sale of goods to associate 3,332 2,806 – – Revenue from sale of goods 816,137 762,422 – – OTHER REVENUE Membership program fees 718 879 – – Interest Other persons 1,145 1,577 696 1,247 Associate 272 46– – Wholly-owned controlled entity – – 9,171 5,446 Total Interest 1,417 1,623 9,867 6,693 Dividends Wholly-owned controlled entity – – 52,500 104,000 Other companies – 2,436 – – Total Dividends – 2,436 52,500 104,000 TOTAL OTHER REVENUE 2,135 4,938 62,367 110,693 TOTAL REVENUE 818,272 767,360 62,367 110,693 OTHER INCOME Amortisation of deferred income 3,142 2,678 – – Gain on disposal of financial assets – 477 – – Realised foreign exchange gain 96 144 96 144 Other 309 912187 – Management charges – wholly-owned group – – 26,957 26,129 TOTAL OTHER INCOME 3,547 4,211 27,240 26,273
TOTAL INCOME 821,819 771,571 89,607 136,966 For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 31 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
NOTES 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 $’000 $’000 $’000 $’000
5 EXPENSES AND LOSSES
Profit before income tax expense includes the following specific net losses and expenses: Costs of goods sold 332,528 323,661 – – DEPRECIATION AND IMPAIRMENT OF
NON-CURRENT ASSETS Depreciation of plant and equipment 11 23,195 19,523 1,626 1,220 Depreciation of plant and equipment under lease 11 130 38 130 18 Impairment of plant and equipment 11 439 271 – – TOTAL DEPRECIATION AND IMPAIRMENT OF NON-CURRENT ASSETS 23,764 19,832 1,756 1,238 AMORTISATION OF NON-CURRENT ASSETS Amortisation of leasehold premiums 177 179 – – TOTAL AMORTISATION OF NON-CURRENT 177 179 – – ASSETS TOTAL DEPRECIATION, IMPAIRMENT AND AMORTISATION 23,941 20,011 1,756 1,238 BORROWING COSTS EXPENSED Finance charges on capitalised leases 57 20 57 14 Interest charges on bank loans and overdraft 10,813 6,909 9,218 5,446 Provision for discount adjustment on deferred 318 – – – acquisition purchase price TOTAL BORROWING COSTS 11,188 6,929 9,275 5,460 Bad debts 14 60 – 10 Performance rights expense 1,499 278 1,499 278 Realised foreign exchange loss 210 – – – Unrealised foreign exchange loss – loan to associate 283 – – – Unrealised foreign exchange loss – investment in associate 303 – – – Cash flow hedge ineffectiveness 259 – 259 – Unrealised foreign exchange loss – financial instruments not in designated hedging relationship 3,330 1,825 – –
Net loss on disposal of plant and equipment 116 193 – 25 For personal use only use personal For
32 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 $’000 $’000 $’000 $’000
6 INCOME TAX The major components of income tax expense are:
INCOME STATEMENT CURRENT INCOME TAX Current income tax charge 25,347 26,535 (2,264) (866) Adjustments in respect of current income tax of previous years (122) 11 (4) (27) DEFERRED INCOME TAX Relating to origination and reversal of temporary differences (4,186) 233 (2,451) 252 Imputation credits on dividends received – (1,043) – – Change in New Zealand tax rate to 30% 212 – – – Other* 662 685 662 685
INCOME TAX EXPENSE/(BENEFIT) REPORTED IN THE INCOME STATEMENT 21,913 26,421 (4,057) 44
* Includes $250,000 for costs relating to the share buy-back completed in May 2007, initially considered non-deductible.
A reconciliation between tax expense and the accounting profit before tax multiplied by the Group’s applicable income tax rate is as follows:
Accounting profit before income tax 71,031 90,312 38,904 103,714 Income tax at the statutory income tax rate of 30% (2006: 30%) 21,309 27,094 11,671 31,114 Adjustments in respect of current income tax of previous years (122) 11 (4) (27) Expenditure not allowable for income tax purposes 1,174 173 26 157 Income not assessable for tax purposes – (346) (15,750) (31,200) Gross up income for franking credits – 313 – – Franking credits – (1,043) – – Expenditure allowable for income tax purposes (778) – – –
Change in New Zealand tax rate to 30% 212 – – – For personal use only use personal For Effect of tax rates in foreign jurisdictions 118 219 – –
INCOME TAX EXPENSE/(BENEFIT) REPORTED IN THE INCOME STATEMENT 21,913 26,421 (4,057) 44
JUST GROUP ANNUAL REPORT 2008 | 33 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 $’000 $’000 $’000 $’000
6 INCOME TAX (CONTINUED)
DEFERRED INCOME TAX DEFERRED TAX LIABILITIES – BALANCE SHEET Plant and equipment (1,472) (895) (524) (219) Intangibles (990) (1,066) – – Foreign exchange gains and losses 53 53 53 53 Expenditure deductible for tax purposes over five years 31 42 – – Other receivables and prepayments (556) (362) (1) (1) Leased plant and equipment (140) (129) (140) (129) Other (9) 3 – – TOTAL DEFERRED TAX LIABILITIES (3,083) (2,354) (612) (296)
DEFERRED TAX LIABILITIES – INCOME STATEMENT (MOVEMENTS) Plant and equipment 577 103 305 (56) Intangibles (24) 77 – – Foreign exchange gains and losses – 10 – 1 Expenditure deductible for tax purposes over five years 12 79 – 98 Other receivables and prepayments 27 361 – – Leased plant and equipment 11 129 11 129 Other – 35 – –
603 794 316 172 For personal use only use personal For
34 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 $’000 $’000 $’000 $’000
6 INCOME TAX (CONTINUED) DEFERRED TAX ASSETS – BALANCE SHEET Plant and equipment (601) (130) – – Deferred gains and losses on foreign exchange contracts 1,127 548 1,127 – Foreign exchange gains and losses 176 413 – – Inventory provisions 333 175 – – Deferred rent gain 1,920 1,384 2 4 Deferred lease incentive income 2,603 1,943 – – Employee provisions 4,239 3,490 5 – Capital expenditure deductible over five years 1,951 145 1,919 144 Performance rights 751 289 751 289 Other 748 395 59 68 Lease liability (219) 130 (219) 131 TOTAL DEFERRED TAX ASSETS 13,028 8,782 3,644 636
DEFERRED TAX ASSETS – INCOME STATEMENT (MOVEMENTS) Plant and equipment 335 715 – – Deferred gains and losses on foreign exchange contracts (521) (405) (1,126) – Foreign exchange gains and losses (229) (322) – – Inventory provisions (163) 36 – – Deferred rent gain (440) (679) 2 (2) Deferred lease incentive income (753) 213 – – Employee provisions (546) (401) 2 – Intangibles – 10 – – Capital expenditure deductible over five years (1,932) (124) (1,903) (125) Performance rights (95) 212 (95) 212 Other provisions (795) 314 3 126 Lease liability 350 (130) 350 (131)
(4,789) (561) (2,767) 80 For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 35 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
6 INCOME TAX (CONTINUED)
TAX CONSOLIDATION Effective 1 August 2004 for the purposes of income taxation, Just Group Limited and its 100% Australian-owned subsidiaries formed a tax consolidated group. Members of the group have a tax-sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries on a pro rata basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At balance date the possibility of default is remote. The head entity of the tax consolidated group is Just Group Limited.
CONSOLIDATED THE COMPANY
52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 NOTES $’000 $’000 $’000 $’000
7 TRADE AND OTHER RECEIVABLES
CURRENT Sundry debtors 3,445 2,070 64 – Related party receivables Associate 800 442 – – Carrying amount of trade and other 4,245 2,512 64 –
NON-CURRENT Wholly-owned entities – – 15,948 12,385 Related party receivables Loans to associate – interest-bearing 2,420 1,256 – – Carrying amount of trade and other 2,420 1,256 15,948 12,385
Impairment losses Receivables are non-interest-bearing and generally on 30 to 60 day terms. A provision for impairment loss is recognised where there is objective evidence that an individual receivable balance is impaired. No material impairment losses have been recognised by the consolidated entity or the company during the 52 weeks ended 26 July 2008 (2007: $nil). Neither, the consolidated entity nor the company has any receivables past due but not considered impaired. Related party receivables For terms and conditions of related party receivables refer to Note 29. Fair value and credit risk Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value. Foreign exchange and interest rate risk
Detail regarding foreign exchange and interest rate risk is disclosed in Note 3. For personal use only use personal For
36 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 $’000 $’000 $’000 $’000
8 INVENTORIES
The valuation policy adopted in respect of the following is set out in Note 2(g) Raw materials 4,459 5,051 – – Finished goods 56,012 56,199 – – TOTAL INVENTORIES AT THE LOWER OF COST AND NET REALISABLE VALUE 60,471 61,250 – –
9 OTHER ASSETS CURRENT Deposits and prepayments 2,913 2,795 465 909
10 OTHER FINANCIAL ASSETS NON-CURRENT Shares in listed entities at fair value 84 84 – – (available-for-sale) Shares in controlled entities at cost – – 91,307 91,307 TOTAL OTHER FINANCIAL ASSETS 84 84 91,307 91,307
11 PLANT AND EQUIPMENT
Plant and equipment – at cost 161,510 117,092 11,798 7,481 Less: accumulated depreciation and impairment (89,675) (54,832) (5,567) (2,723) Total 71,835 62,260 6,231 3,538 Capitalised leased assets 733 548 615 448 Less: accumulated depreciation (187) (57) (148) (18) Total 546491 467 430
TOTAL PLANT AND EQUIPMENT 72,381 62,751 6,698 3,968 For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 37 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 NOTES $’000 $’000 $’000 $’000
11 PLANT AND EQUIPMENT (CONTINUED) RECONCILIATIONS Reconciliations of the carrying amounts for each class of plant and equipment are set out below: Plant and equipment Carrying amount at beginning of period 62,260 55,099 3,538 2,394 Additions in normal course of business 34,386 26,870 4,318 2,565 Disposals (288) (515) – (201) Movement in carrying value due to foreign currency translation (889) 600 – – Impairment (439) (271) – – Depreciation (23,195) (19,523) (1,625) (1,220) Carrying amount at end of period 71,835 62,260 6,231 3,538 Leased plant and equipment Carrying amount at beginning of period 491 103 430 – Additions 185 426 167 448 Depreciation (130) (38) (130) (18) Carrying amount at end of period 546 491 467 430
TOTAL 72,381 62,751 6,6983,968 For personal use only use personal For
38 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
12 INTANGIBLES
CONSOLIDATED THE COMPANY
LEASEHOLD GOODWILL TRADEMARK TOTAL TRADEMARK PREMIUMS Year ended 26 July 2008 As at 28 July 2007 net of accumulated amortisation and impairment 75,062 3,594 428 79,084 – Acquisition of subsidiary (note 23) 14,271 12,116 – 26,387 – Impairment –– – – – Amortisation – – (177) (177) – Movement in carrying value due to foreign currency translation – – (32) (32) – Additions – – 114 114 – Trademark registrations – 341 – 341 341 As at 26 July 2008 net of accumulated amortisation and impairment 89,333 16,051 333 105,717 341
As at 26 July 2008 Cost (gross carrying amount) 104,833 16,051 1,141 122,025 341 Accumulated amortisation and impairment (15,500) – (808) (16,308) – Net carrying amount 89,333 16,051 333 105,717 341
Year ended 28 July 2007 As at 30 July 2006 net of accumulated amortisation and impairment 75,062 3,559 408 79,029 – Impairment –– – – – Amortisation – – (179) (179) – Movement in carrying value due to foreign currency translation – – 55 55 – Additions – – 144 144 – Trademark registrations – 35 – 35 – As at 28 July 2007 net of accumulated amortisation and impairment 75,062 3,594 428 79,084 –
As at 28 July 2007 Cost (gross carrying amount) 90,562 3,594 1,024 95,180 – Accumulated amortisation and impairment (15,500) – (596) (16,096) –
Net carrying amount 75,062 3,594 428 79,084 – For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 39 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2008 2007 NOTES $’000 $’000
13 INVESTMENT IN ASSOCIATE
Investment in associate 369 1,959
Just Jeans Group Pty Ltd, a subsidiary of Just Group Limited, has a 50% interest in a joint venture entity Just Kor Fashion Group (Pty) Ltd, which is involved in retailing of the Jay Jays concept in South Africa. Just Kor Fashion Group (Pty) Ltd is a small proprietary company incorporated in South Africa. Its functional currency is South African rand. There were no impairment losses relating to the investment in the associate and no capital commitments or other commitments relating to the associate. The Group’s share of the loss in its investment in the associate for the year was $1,286,911 (2007: $210,202). The following table illustrates summarised financial information relating to the Group’s investment in Just Kor Fashion Group (Pty) Ltd:
2008 2007 SHARE OF ASSOCIATE’S BALANCE SHEET $’000 $’000 Current assets 2,487 2,460 Non-current assets 1,047 1,070 Total assets 3,534 3,530 Current liabilities (557) (476) Non-current liabilities (2,608) (1,224) Total liabilities (3,165) (1,700) Exchange differences arising from translation – 129 NET ASSETS 369 1,959
2008 2007 SHARE OF ASSOCIATE’S PROFIT OR LOSS $’000 $’000 Revenue 3,779845 Profit/(loss) before income tax (1,287) (210) Exchange differences arising from translation (303) – Income tax expense – –
Profit/(loss) after income tax (1,590) (210) For personal use only use personal For
40 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 NOTES $’000 $’000 $’000 $’000
14 TRADE AND OTHER PAYABLES CURRENT Trade creditors 39,078 29,373 1,604 140 Other creditors and accruals 26,518 21,042 8,655 4,816 TOTAL CURRENT 65,596 50,415 10,259 4,956
Fair values Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value. Related party receivables For terms and conditions of related party payables refer to Note 29. Interest rate, foreign exchange rate and liquidity risk Detail regarding interest rate, foreign exchange and liquidity risk is disclosed in Note 3.
15 INTEREST-BEARING LIABILITIES CURRENT Lease liability 24 221 144 160 82 Bank loans* unsecured 103,361 – 103,361 – Bank loans* unsecured (NZ$20.0 million) 15,565 – – – 28(d) 118,296 – 103,361 – Plus/(less) directly attributable borrowing costs 56 – 56 – Net bank loans 118,982 – 103,417 – TOTAL CURRENT 119,203 144 103,577 82
NON-CURRENT Bank loans* unsecured – 103,469 – 103,464 Bank loans* unsecured (NZ$20.0 million) – 17,935 – – 28(d) – 121,404 – 103,464 Plus/(less) directly attributable borrowing costs – (107) – (103) Net bank loans – 121,297 – 103,361 Lease liability 24 327 354 327 354 TOTAL NON-CURRENT 327 121,651 327 103,715
*Bank loans are subject to a negative pledge and cross guarantee. Fair values The carrying value of the consolidated entities and company’s current and non-current borrowings approximate their
fair value. For personal use only use personal For Interest rate, foreign exchange rate and liquidity risk Detail regarding interest rate, foreign exchange and liquidity risk is disclosed in Note 3. Defaults and breaches During the current and prior years, there were no defaults or breaches on any of the loans.
JUST GROUP ANNUAL REPORT 2008 | 41 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 $’000 $’000 $’000 $’000
16 PROVISIONS CURRENT Employee benefits 25 12,032 10,680 – – NON-CURRENT Employee benefits 25 988 886 – –
17 OTHER LIABILITIES CURRENT Deferred income 3,059 2,240 5 – TOTAL CURRENT 3,059 2,240 5 – NON-CURRENT Deferred income 11,811 8,723 3 15 Deferred purchase consideration 4,968 – – – TOTAL NON-CURRENT 16,779 8,723 3 15
18 CONTRIBUTED EQUITY
(a) ISSUED AND PAID UP CAPITAL
Ordinary shares paid in full 13,726 13,720 13,726 13,720
Ordinary shares have the right to receive dividends as declared and, in the event of winding up of the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company.
2008 2007
NUMBER NUMBER OF SHARES $’000 OF SHARES $’000
(b) MOVEMENTS IN SHARES ON ISSUE Ordinary shares on issue at beginning of the financial year 201,330,882 13,720 218,000,000 15,405 Share buy-back – – (16,669,118) (1,685)
Tax effect of share buy-back costs* – 6 – –
Total shares on issue at end of the financial year 201,330,882 13,726 201,330,882 13,720
The company completed an off-market share buy-back in May 2007. This resulted in the company buying back 16,669,118 (7.65% of issued shares) for total consideration of $65.0 million. The purchase price for each share bought back was $3.90, with 10.0 cents allocated to share capital and $3.80 paid as a fully franked dividend.
Directly attributable costs of $0.7 million were incurred in relation to the share buy-back. These costs have been apportioned For personal use only use personal For between share capital and retained earnings on the same basis as the share purchase price allocation.
* Costs relating to the share buy-back completed in May 2007, previously thought non-deductible.
42 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
18 CONTRIBUTED EQUITY (CONTINUED)
(c) CAPITAL MANAGEMENT The Group’s objective is to maintain an adequate level of gearing that ensures returns to shareholders are maximised whilst retaining sufficient capacity and flexibility to continue to invest and grow the business. The capital structure of the Group consists of debt which includes borrowings as disclosed in Note 15, cash and cash equivalents as disclosed in Note 28 and equity attributable to the equity holders of the parent comprising of issued capital, reserves and retained profits as disclosed in Notes 18, 19 and 20 respectively. The Group operates primarily through its subsidiaries established in their respective markets and maintains a central borrowing facility through the parent entity to meet the Group’s funding requirements and to enable the Group to find the optimal debt and equity balance. The Group’s capital structure is reviewed on a periodic basis in the context of prevailing market conditions, and appropriate steps are taken to ensure the Group’s capital structure and capital management initiatives remain in line with the Board’s objectives. The Group maintains a dividend payout ratio of between 60% and 65% of net profit after tax.
CONSOLIDATED
2008 2007 NOTES $’000 $’000 Dividend Payout Ratio Dividends paid/declared 21 21,140 39,259 Net profit after tax 49,118 63,891 Dividend Payout Ratio 43.0% 61.4%
In May 2007, an off-market share buy-back was conducted by the Group. This resulted in shareholders equity reducing by approximately $65.0 million with the buy-back of 16.7 million shares (7.6% of issued shares), and an increase in the Group’s net debt of $65.0million. No further capital management initiatives have been conducted in the current financial year.
Externally imposed capital requirements The Group is subject to a number of financial undertakings as part of its financing facility agreement. These undertakings have been satisfied during the period.
The Group is not subject to any capital requirements imposed by regulators or other prudential authorities. For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 43 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 $’000 $’000 $’000 $’000
19 RESERVES
Performance rights reserve (1,810) (635) (1,810) (635) Foreign currency translation reserve (3,974) (2,771) – – Fair value reserve – – – – Cash flow hedge reserve (1,799) – (1,799) – TOTAL RESERVES (7,583) (3,406) (3,609) (635)
(a) PERFORMANCE RIGHTS RESERVE
(i) Nature and purpose of reserve This reserve is used to record the cumulative amortised value of performance rights issued to key senior employees net of the value of performance shares acquired under the performance rights plan. (ii) Movements in the reserve Opening balance (635) 1,670 (635) 1,670 Amortisation of performance rights 1,499 607 1,499 607 After tax cost of on-market share purchase (2,674) (2,583) (2,674) (2,583) Reversal of amortisation of forfeited rights – (329) – (329) CLOSING BALANCE (1,810) (635) (1,810) (635)
(b) FOREIGN CURRENCY TRANSLATION RESERVE (i) Nature and purpose of reserve This reserve is used to record differences arising from the translation of the financial statements. (ii) Movements in the reserve Opening balance (2,771) (3,036) – – Profit/(loss) on translation arising on consolidation of overseas subsidiaries (1,203) 265 – –
CLOSING BALANCE (3,974) (2,771) – – For personal use only use personal For
44 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 $’000 $’000 $’000 $’000
19 RESERVES (CONTINUED)
(c) FAIR VALUE RESERVE
(i) Nature and purpose of reserve This reserve is used to record gains and losses on revaluation to fair value of available-for-sale investments. (ii) Movements in the reserve Opening balance – 2,457 – – Revaluation of available-for-sale investments to fair value – – – – Disposal of available-for-sale investments – (2,457) – – CLOSING BALANCE – – – –
(d) CASH FLOW HEDGE RESERVE
(i) Nature and purpose of reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. (ii) Movements in the reserve Opening balance – – – – After tax gain/(loss) on cash flow hedges (1,799) – (1,799) –
CLOSING BALANCE (1,799) – (1,799) – For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 45 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 $’000 $’000 $’000 $’000
20 RETAINED PROFITS
Opening balance 42,984 80,799 2,531 567 Net profit attributable to members of the company 49,118 63,891 42,961 103,670 Dividends paid (41,273) (37,656) (41,273) (37,656) Tax effect of share buy-back costs* 248 – 248 – Share buy-back – (64,050) – (64,050) CLOSING BALANCE 51,077 42,984 4,467 2,531
* Costs relating to the share buy-back completed in May 2007, previously thought non deductible.
21 DIVIDENDS PAID AND PROPOSED
DIVIDENDS PAID DURING THE YEAR Final 2007 franked dividend paid 14 November 2007 10.0 cents per share (2006: 8.5 cents per share) 20,133 18,530 20,133 18,530 Interim 2008 franked dividend paid 22 May 2008 10.5 cents per share (2007: 9.5 cents per share) 21,140 19,126 21,140 19,126 TOTAL DIVIDENDS PAID 41,273 37,656 41,273 37,656
PROPOSED DIVIDEND Final 2008 franked dividend payable nil (2007: 10.0 cents per share) – 20,133 – 20,133 FRANKING CREDIT BALANCE The amount of franking credits available for the subsequent financial period are: Franking account balance as at the end of the financial period at 30% (2007: 30%) 22,944 15,853 22,944 15,853 Franking credits that will arise from the payment of income tax payable as at the end of the financial period 4,646 8,632 4,646 8,632 TOTAL FRANKING CREDIT BALANCE 27,590 24,485 27,590 24,485
The tax rate at which paid dividends have been franked is 30% (2007: 30%). For personal use only use personal For
46 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
22 STATEMENT OF OPERATIONS BY GEOGRAPHIC SEGMENT
(a) BUSINESS SEGMENTS
The consolidated entity operates in one business segment, being specialty retailing. (b) GEOGRAPHIC SEGMENTS
AUSTRALIA NEW ZEALAND UNITED STATES ELIMINATIONS CONSOLIDATED
2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
REVENUE Sale of goods 709,940 653,666 105,878 108,756 319 – – – 816,137 762,422 Other revenue and income 4,551 8,493 1,131 656 – – – – 5,682 9,149 Segment income 714,491 662,159 107,009 109,412 319 – – – 821,819 771,571 RESULT Segment result 68,076 81,777 7,026 7,589 (2,415) – (1,656) 946 71,031 90,312 Income tax expense (21,913) (26,421) Net profit for the year 49,118 63,891
ASSETS AND LIABILITIES Segment assets 263,656 238,997 43,851 30,109 4,895 – (25,904) (10,499) 286,498 258,607 Segment liabilities (223,361) (202,458) (24,696) (12,931) (1,174) – 19,953 10,080 (229,278) (205,309)
OTHER SEGMENT INFORMATION Share of loss of associate (1,287) (210) – – – – – – (1,287) (210) Investment in associate 369 1,959 – – – – – – 369 1,959 Capital expenditure 24,404 23,609 5,991 3,324 2,675 – – – 33,070 26,933 Depreciation and amortisation 19,985 16,813 3,435 2,927 82 – – – 23,502 19,740 Impairment loss recognised 439 271 – – – – – – 439 271
For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 47 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
23 BUSINESS COMBINATIONS
ACQUISITION OF SMIGGLE PTY LIMITED On 27 August 2007, the Group acquired 100% of the voting shares of Smiggle Pty Ltd, a private company based in Australia specialising in the retail of fashion stationery products. The transaction has been accounted for using the acquisition method of accounting. The minimum purchase consideration for Smiggle Pty Ltd is $29.0 million. The total cost of the combination in August 2007 was $24,655,000 including costs of $126,000. The balance of the consideration is subject to an earn out agreement based on the average earnings of Smiggle Pty Ltd for 2009 and 2010, of which $5.8 million (fair value $4.65 million) has been recognised upon acquisition. The fair value of the assets and liabilities of Smiggle Pty Ltd as at the date of acquisition are:
RECOGNISED ON ACQUISITION NET ASSETS ACQUIRED (FAIR VALUE) CARRYING VALUE $’000 $’000 Property, plant and equipment 1,615 2,131 Cash and cash equivalents 322 322 Trade and other receivables 532 532 Inventories 1,5231,523 Other – 383 Intangible assets 26,260 26,511 30,252 31,402 Trade and other payables 960 960 Interest-bearing liabilities 85 85 Provisions 28 28 Deferred acquisition purchase price payable 4,650* 5,800 5,723 6,873
Net assets acquired 24,529 24,529 Costs associated with acquisition 126 24,655 Cost of the combination: Cash 24,529 Costs associated with the acquisition 126 24,655
The cash outflow on the acquisition to date is as follows: Net cash acquired with the subsidiary 322
Cash paid (24,655) For personal use only use personal For Net cash outflow (24,333)
From the date of acquisition, Smiggle Pty Ltd has contributed $2,978,260 to the net profit of the consolidated entity. * Deferred purchase price payable is classified as other non-current liabilities in the consolidated balance sheet.
48 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 NOTES $’000 $’000 $’000 $’000
24 EXPENDITURE COMMITMENTS
CAPITAL EXPENDITURE Plant and equipment Payable within one year 6,753 8,397 – – TOTAL CAPITAL EXPENDITURE 6,753 8,397 – – LEASE EXPENDITURE COMMITMENTS (i) Operating leases Payable within one year 111,613 115,520 1,941 2,504 Payable within one to five years 209,784 230,377 – 2,059 Payable in more than five years 13,981 13,369 – – Total operating leases 335,378 359,266 1,941 4,563 (ii) Finance leases Total lease liability – current 15 221 144 160 82 Total lease liability – non-current 15 327 354 327 354 Total finance leases 548 498 487 436 Finance lease commitments Payable within one year 266 225 207 158 Payable within one to five years 373 458 371 458 Minimum lease payments 639 683 578 616 Less future finance charges (91) (185) (91) (180) TOTAL LEASE LIABILITY 548 498 487 436
Operating leases have an average lease term of five years. Assets, which are the subject of operating leases, include motor vehicles, premises and computers.
Finance leases have an average lease term of four years with the option to purchase the asset at the completion of the
lease term for the asset’s market value. The average discount rate implicit in the leases is 8.44% (2007: 8.44%). For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 49 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 NOTES $’000 $’000 $’000 $’000
25 EMPLOYEE BENEFITS EMPLOYEE BENEFITS The aggregate employee entitlement liability is comprised of: Accrued wages, salaries and on-costs 4,918 6,288 425 1,975 Provisions – current 16 12,032 10,680 – – Provisions – non-current 16 988 886 – – TOTAL 17,938 17,854 425 1,975 Number of employees at year end (FTE) 3,310 3,326 SUPERANNUATION COMMITMENTS Superannuation payments have been made by the company to complying superannuation plans for the provision of benefits to employees of the Group on retirement, death or disability. Benefits provided under the plan are based on contributions for each employee. Employees contribute various percentages of their gross income. There is no legally enforceable obligation on Group companies to contribute to the superannuation plans above the minimum statutory requirement of 9%. EMPLOYEE SHARE PLANS (a) Australian employee share plan Australian employees were issued shares on 11 May 2004 under the plan established in accordance with Division 13A and Part III of the Income Tax Assessment Act 1936, enabling employees to utilise the tax free exemption available under that division. This issue was not applicable to directors and existing management shareholders. No recipient of these shares was permitted to dispose of their shares before the earlier of either three years from the issue date or cessation of employment. The shares were held in a CHESS holding lock until the earlier of these events occurring. The three-year holding lock expired on 11 May 2007. (b) New Zealand employee share plan New Zealand employees were issued shares on 28 May 2004 under the Just Group Limited Employee Share Acquisition Plan (NZ). The plan established was approved by the Commissioner of Inland Revenue in accordance with section DF7 of the Income Tax Act 1994. The plan operates through a trust. The shares are held by the Trustee (Just Group Trustee Limited) for the benefit of participating employees for a restrictive period of three years which expired on 28 May 2007. In accordance with New Zealand tax laws, an employee forfeited their shares if they ceased to be employed during the restrictive period, other than for reasons of sickness, accident, redundancy or retirement at normal retirement age. At the plan’s last financial year end (31 March 2008) the number of shares remaining was nil. Employee shares carry the same rights as ordinary shares listed on the Australian Stock Exchange, including full voting and dividend rights. In 2004, under both the Australian and New Zealand Employee share schemes the company issued a total of 773,500 shares to each of the eligible full-time, part-time and casual employees. Fair
value at issue date per share was $2.10, the issue price of shares of the company at listing date on 7 May 2004. For personal use only use personal For
50 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
25 EMPLOYEE BENEFITS (CONTINUED)
(c) Performance rights The company has a long-term incentive plan known as Performance Rights Plan (PRP). The PRP provides a remuneration element designed to attract and retain key senior employees and link rewards with the company’s long-term performance and maximisation of shareholder wealth. The initial grant under the PRP to senior executives was made on 28 July 2004 and subsequent grants have been made on 1 October 2004, 1 October 2005, 21 November 2005, 1 October 2006 and 1 October 2007. All offers are made subject to the terms of the PRP rules, which confer various powers to the Board to add to or vary any of the plan rules, subject to the requirements of the Australian Stock Exchange. An offer under the PRP grants an individual the right to a certain number of ordinary shares in the company. This right may vest and be convertible into shares, conditional on the satisfaction of the “Total Shareholder Return” performance condition.
TERMS AND CONDITIONS FOR EACH GRANT
FIRST LAST VESTING VESTING DATE DATE Grant 1 – Rights granted 28 July 2004 30 September 2005 30 September 2007
Grant 2 – Rights granted 1 October 2004 30 September 2005 30 September 2007
Grant 3 – Rights granted 1 October 2005 30 September 2006 30 September 2008
Grant 4 – Rights granted 21 November 2005 30 September 2006 30 September 2008
Grant 5 – Rights granted 1 October 2006 30 September 2007 30 September 2009
Grant 6 – Rights granted 1 October 2007 30 September 2008 30 September 2010 For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 51 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
26 KEY MANAGEMENT PERSONNEL
(a) DETAILS OF DIRECTORS AND EXECUTIVES Directors Solomon Lew, Director (Non-Executive, Chairman, appointed 22 September 2008) Ian Pollard, Director (Non-Executive, Chairman, resigned 26 August 2008) Jason Murray, Director (Managing Director) Glenys Shearer, Director (Executive, Commercial and Merchandising Womenswear Director) Laura Anderson, Director (Non-Executive, resigned 26 August 2008) Bronwyn Constance, Director (Non-Executive, appointed 11 April 2008; resigned 26 August 2008) Ian Dahl, Director (Non-Executive, resigned 26 August 2008) Henry Lanzer, Director (Non-Executive, appointed 22 September 2008) Terrence McCartney, Director (Non-Executive, appointed 4 March 2008) Michael McLeod, Director (Non-Executive, appointed 4 March 2008) Mark Middeldorf, Director (Non-Executive, appointed 22 September 2008) Susan Oliver, Director (Non-Executive, resigned 26 August 2008) Alison Watkins, Director (Non-Executive, resigned 6 March 2008) Executives David Bull (Merchandising Director – Casualwear) Ashley Gardner (Chief Financial Officer) Rachel Kelly (Retail Director Australia and New Zealand) Anita Muller (Human Resources Director) Janice Payne (Company Secretary and Corporate Affairs Director) Wai Tang (Director – Operations and Peter Alexander Sleepwear)
(b) REMUNERATION OF KEY MANAGEMENT PERSONNEL
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 NOTES $ $ $ $
Short-term employee benefits 3,501,683 4,409,208 3,501,683 4,409,208 Post-employment benefits 287,703 1,095,885 287,703 1,095,885 Share-based payments 1,244,820 607,169 1,244,820 607,169
TOTAL 5,034,206 6,112,262 5,034,206 6,112,262 For personal use only use personal For
52 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
26 KEY MANAGEMENT PERSONNEL (CONTINUED)
(c) SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL The shareholdings and share transactions during the period of directors and executives in office as at the end of the period are:
SHARES BALANCE SHARE ACQUIRED UNDER SHARE BALANCE 28 JULY 2007 PURCHASE PERORMANCE DISPOSAL 26 JULY 2008 2008 ORDINARY ORDINARY RIGHTS PLAN ORDINARY ORDINARY DIRECTORS Ian Pollard 101,852 7,600 – – 109,452 Jason Murray 509,308 – 106,577 – 615,885 Laura Anderson 33,678 7,685 – – 41,363 Bronwyn Constance2 – 7,000 – – 7,000 Susan Oliver1 – – – – – Ian Dahl1 – 3,923 – – 3,923 Terrence McCartney3 – – – – – Michael McLeod3 – 1,883 – – 1,883 EXECUTIVES David Bull 134,100 – 31,153 – 165,253 Ashley Gardner4 – – 5,953 – 5,953 Rachel Kelly5 16,964 – – – 16,964 Anita Muller 63,972 – 48,047 – 112,019 Janice Payne 300,969 – 52,636 – 353,605 Glenys Shearer6 1,173,307 – 74,943 – 1,248,250 Wai Tang 478,949 – 70,442 (300,000) 249,391 TOTAL 2008 2,813,099 28,091 389,751 (300,000) 2,930,941
SHARES BALANCE SHARE ACQUIRED UNDER SHARE BALANCE 29 JULY 2006 PURCHASE PERORMANCE DISPOSAL 28 JULY 2007 2007 ORDINARY ORDINARY RIGHTS PLAN ORDINARY ORDINARY DIRECTORS Ian Pollard 91,852 10,000 – – 101,852 Jason Murray 403,735 105,573 – 509,308 Laura Anderson 20,202 13,476 – 33,678 Susan Oliver1 – – – – Ian Dahl1 – – – – Alison Watkins 148,613 – – 148,613 EXECUTIVES David Bull 211,441 – 22,659 (100,000) 134,100 Ashley Gardner4 – – – – – Anita Muller 9,523 – 54,449 – 63,972 Janice Payne 489,922 – 61,047 (250,000) 300,969 6 1,069,767 – 103,540 – 1,173,307
For personal use only use personal For Glenys Shearer Wai Tang 752,325 – 76,624 (350,000) 478,949 TOTAL 2007 3,197,380 23,476 423,892 (700,000) 2,944,748 1 Joined the company on 19 July 2007. 4 Joined the company on 3 January 2007. 2 Joined the company on 11 April 2008. 5 Joined the executive team during the 2008 financial year. 3 Joined the company on 3 January 2007. 6 Appointed executive director 22 September 2008. JUST GROUP ANNUAL REPORT 2008 | 53 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
26 KEY MANAGEMENT PERSONNEL (CONTINUED)
(d) OTHER TRANSACTIONS AND BALANCES WITH KEY MANAGEMENT PERSONNEL The directors and the executives purchase goods from the consolidated entity through retail stores. These purchases are at a discount on the retail price, but are on the same terms and conditions as those available to other employees. From time to time the company purchases goods and/or services from director-related entities on normal commercial terms and conditions.
27 AUDITOR’S REMUNERATION
CONSOLIDATED THE COMPANY
52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED ENDED 26 JULY 2008 28 JULY 2007 26 JULY 2008 28 JULY 2007 $ $ $ $ Amounts received or due and receivable by the auditor for audit services:
Audit and review of financial reports 220,000 200,000 220,000 200,000
Amounts received or due and receivable by the auditor for other services: Taxation advice 181,110 120,350 181,110 120,350 Workers compensation certificates – 3,500 – 3,500 Risk management advice 126,732 – 126,732 – Other 8,195 – 8,195 – Total – Other services 316,037 123,850 316,037 123,850
TOTAL AUDITOR’S REMUNERATION 536,037 323,850 536,037 323,850 For personal use only use personal For
54 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 $’000 $’000 $’000 $’000
28 NOTES TO THE CASH FLOW STATEMENT
(a) RECONCILIATION OF CASH AND CASH EQUIVALENTS Cash at bank and in hand 5,950 14,634 380 607 Short-term deposits 17,700 23,500 17,700 23,500 TOTAL CASH ASSETS AND CASH EQUIVALENTS 23,650 38,134 18,080 24,107 (b) RECONCILIATION OF NET CASH FLOWS FROM OPERATIONS TO NET PROFIT Net profit 49,118 63,891 42,961 103,670 Adjustments for: Amortisation 177 179 –– Depreciation and impairment 23,764 19,832 1,756 1,278 Foreign exchange gain (96) (96) – Share of associate’s net (profit)/loss 1,287 210 –– Provision discount adjustment on deferred payables 318 – –– Finance charges on capitalised leases 57 20 57 – Loss on sale of non-current assets 116 193 – 25 Gain on disposal of financial assets – (477) – – Management charges – – (26,957) (26,129) Bad debts 14 60 – 10 Movement in performance rights reserve (1,175) (2,307) (1,175) (2,307) Movement in cash flow hedge reserve (1,799) – (1,799) – Net exchange differences (1,856) 1,151 – – Dividend income classified as investing cash flow – (2,436) (52,500) (104,000) Inter-company interest – – (9,171) (5,446) Changes in assets and liabilities net of the effects from acquisition and disposal of businesses: Increase/(decrease) in employee benefits 1,427 1,388 –– Increase/(decrease) in deferred tax liabilities 729 813 316 172 Increase/(decrease) in trade and other payables 14,227 2,628 5,302 1,024 Increase/(decrease) in derivative financial liabilities 1,929 1,349 3,754 – Increase/(decrease) in income tax payable (1,934) 705 (1,665) (193) Increase/(decrease) in deferred income 3,907 648 (6) 9 (Increase)/decrease in trade and other receivables (1,201) (1,486) (64) 10 (Increase)/decrease in prepayments (118) (327) 444 (301) (Increase)/decrease in inventories 2,301 4,609 –– (Increase)/decrease in derivative financial assets (1,220) – (1,220) –
(Increase)/decrease in deferred tax assets (4,246) (883) (3,008) 211 For personal use only use personal For NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 85,726 89,760 (43,071) (31,967)
JUST GROUP ANNUAL REPORT 2008 | 55 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
28 NOTES TO THE CASH FLOW STATEMENT (CONTINUED)
(c) NON-CASH FINANCING AND INVESTING ACTIVITIES Finance lease transactions: During the financial period the consolidated entity acquired $85,164 plant and equipment through the acquisition of Smiggle Pty Ltd (Note 23) (2007: $447,931) by means of finance lease.
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 $’000 $’000 $’000 $’000
(d) FINANCE FACILITIES Working capital facility Used –––– Unused 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000
Finance facility Used 118,296 121,404 103,361 103,464 Unused* 20,000 20,000 20,000 18,595 138,296 141,404 123,361 122,059
Leasing facility Used 548 498 487 436 Unused –––– 548 498 487 436
Total facilities Used 118,844 121,902 103,848 103,900 Unused 40,000 40,000 40,000 38,595 TOTAL 158,844 161,902 143,848 142,495
* The unused portion of the finance facility may only be used to fund permitted acquisitions, in accordance with the banking subscription agreement. For personal use only use personal For
56 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
29 RELATED PARTY DISCLOSURES The consolidated financial statements include the financial statements of Just Group Limited and the subsidiaries listed in the following table: (a) SUBSIDIARIES
INTEREST HELD
COUNTRY CLASS OF OF 2008 2007 INCORPORATION SHARE % %
Just Jeans Group Pty Limited Australia Ordinary 100 100 Just Jeans Pty Limited Australia Ordinary 100 100 Jay Jays Trademark Pty Limited Australia Ordinary 100 100 Just-Shop Pty Limited Australia Ordinary 100 100 Peter Alexander Sleepwear Pty Limited Australia Ordinary 100 100 Old Blues Pty Limited Australia Ordinary 100 100 Kimbyr Investments Limited New Zealand Ordinary 100 100 Underground Fashions Limited New Zealand Ordinary 100 100 Skelton Manufacturing (1995) Limited New Zealand Ordinary 100 100 Jacqui E Pty Limited Australia Ordinary 100 100 Jacqueline-Eve Fashions Pty Limited Australia Ordinary 100 100 Jacqueline-Eve (Hobart) Pty Limited Australia Ordinary 100 100 Jacqueline-Eve (Retail) Pty Limited Australia Ordinary 100 100 Jacqueline-Eve (Leases) Pty Limited Australia Ordinary 100 100 Sydleigh Pty Limited Australia Ordinary 100 100 Old Favourites Blues Pty Limited Australia Ordinary 100 100 Urban Brands Pty Ltd Australia Ordinary 100 100 Portmans Pty Limited Australia Ordinary 100 100 Dotti Pty Ltd Australia Ordinary 100 100 Peter Alexander USA Inc. United States Ordinary 100 100 Smiggle Pty Limited Australia Ordinary 100 – Just Group International Pty Limited* Australia Ordinary 100 – Just Group USA Inc.* United States Ordinary 100 – Smiggle USA Inc.* United States Ordinary 100 – Just UK International Limited* United Kingdom Ordinary 100 – ETI Holdings Limited* New Zealand Ordinary 100 – RSCA Pty Limited* Australia Ordinary 100 – RSCB Pty Limited* Australia Ordinary 100 –
* Not trading. For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 57 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
29 RELATED PARTY DISCLOSURES (CONTINUED)
(b) TRANSACTIONS WITH SUBSIDIARIES Just Group Limited is the ultimate parent company. (i) During the year Just Group Limited received interest of $9,171,182 (2007: $5,446,284) from entities within the wholly-owned Group. (ii) Just Group Limited charges a management fee to entities within the wholly-owned Group for services provided. The management fee is based on costs incurred by Just Group Limited. Amounts charged are shown in Note 4. (iii) During the year Just Group Limited received dividends totalling $52,500,000 (2007: $104,000,000) from subsidiary Just Jeans Group Pty Ltd. (iv) Loans receivable and payable from wholly-owned entities are disclosed in Notes 7 and 14.
(c) TRANSACTIONS WITH ASSOCIATES (i) During the year associate Just Kor Fashion Group (Pty) Ltd purchased goods from the Group in the amount of $3,331,961 (2007: $2,805,449). Transactions are priced on an arm’s-length basis. (ii) The Group charged Just Kor Fashion Group (Pty) Ltd a management fee for services provided in the amount of $170,499 (2007: $94,802). (iii) As a result of the above transactions the Group has a receivable of $799,617 (2007: $442,210) from Just Kor Fashion Group (Pty) Ltd at year end as disclosed in Note 7. (iv) During the year the Group provided a loan of ZAR10.0 million ($1,446,278) (2007: ZAR7.5 million ($1,255,969)) to Just Kor Fashion Group (Pty) Ltd. The loan is denominated in South African rand. Interest is charged at a commercial rate and payable monthly. Total interest received on the loan for the financial year was $271,865 (2007: $45,801) as disclosed in Note 4.
(d) KEY MANAGEMENT PERSONNEL
Details relating to key management personnel including remuneration paid are included in Note 26. For personal use only use personal For
58 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
30 DEED OF CROSS GUARANTEE Pursuant to Class Order 98/1418, relief has been granted to the wholly-owned subsidiaries listed below from the Corporations law requirements for preparation, audit and lodgement of financial reports.
As a condition of the class order, the company and each of the controlled entities listed below (the “Closed Group”) entered into a Deed of Cross Guarantee. The effect of the deed is that the company guarantees to each creditor payment in full of any debt in the event of winding up of any of the controlled entities under certain provisions of the Corporations law. If a winding up occurs under other provisions of the law, the company will only be liable in the event that after six months any creditor has not been paid in full. The controlled entities have also given similar guarantees in the event that the company is wound up.
The subsidiaries, which are members of the Closed Group, are:
Just Jeans Group Pty Limited
Just Jeans Pty Limited
Sydleigh Pty Limited
Old Favourites Blues Pty Limited
Jay Jays Trademark Pty Limited
Just-Shop Pty Limited
Jacqui E Pty Limited
Jacqueline-Eve Fashions Pty Limited
Jacqueline-Eve (Hobart) Pty Limited
Jacqueline-Eve (Retail) Pty Limited
Jacqueline-Eve (Leases) Pty Limited
Urban Brands Pty Ltd
Portmans Pty Limited
A consolidated income statement and consolidated balance sheet of the entities, which are members of the Closed
Group, are set out on the following page. For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 59 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
2008 2007 $’000 $’000
30 DEED OF CROSS GUARANTEE (CONTINUED) INCOME STATEMENT Profit before income tax 48,836 83,677 Income tax expense (15,378) (21,661) Profit after income tax 33,458 62,016 Retained profits at beginning of period 27,268 66,958 Dividends provided for or paid (41,273) (37,656) Share buy-back 248 (64,050) Retained profits at end of period 19,701 27,268
BALANCE SHEET Cash and cash equivalents 19,249 28,019 Trade and other receivables 11,846 55,458 Inventories 45,268 47,640 Other 2,818 2,267 Total current assets 79,181 133,384 Other financial assets 33,865 5,301 Plant and equipment 44,159 44,014 Intangible assets 80,027 79,705 Deferred tax assets 9,456 6,219 Total non-current assets 167,507 135,239 TOTAL ASSETS 246,688 268,623 Trade and other payables 82,876 95,658 Interest-bearing liabilities 103,577 144 Income tax payable 2,238 8,103 Provisions 11,267 10,026 Other 5,854 1,674 Total current liabilities 205,812 115,605 Interest-bearing liabilities 327 103,716 Deferred tax liabilities 1,940 1,639 Provisions 976 859 Other 7,815 6,453 Total non-current liabilities 11,058 112,667 TOTAL LIABILITIES 216,870 228,272 NET ASSETS 29,818 40,351 Contributed equity 13,726 13,718 Reserves (3,609) (635) Retained profits 19,701 27,268
For personal use only use personal For TOTAL EQUITY 29,818 40,351
60 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 NOTES $’000 $’000 $’000 $’000
31 DERIVATIVE FINANCIAL INSTRUMENTS CURRENT ASSETS Forward currency contracts – cash flow hedges 84 – 84 – Foreign currency options – cash flow hedges 501 – 501 – 585 – 585 –
NON-CURRENT ASSETS Forward currency contracts – cash flow hedges 86 – 86 – Foreign currency options – cash flow hedges 549 – 549 – 635 – 635 –
CURRENT LIABILITIES Forward currency contracts – not in designated – 1,825 hedging relationship –– Forward currency contracts – cash flow hedges 2,711 – 2,711 – Foreign currency options – cash flow hedges 981 – 981 – 3,692 1,825 3,692 –
NON-CURRENT LIABILITIES Forward currency contracts – cash flow hedges 62 – 62 – Foreign currency options – cash flow hedges – – - – 62 – 62 –
(a) INSTRUMENTS USED BY THE JUST GROUP Derivative financial instruments are used by the Group in the normal course of business in order to hedge exposure to short and long-term fluctuations in foreign exchange rates in accordance with the Group’s financial risk management policies (refer to- Note 3). (i) Forward currency contracts – cash flow hedges The majority of the Group’s inventory purchases are denominated in US dollars. In order to protect against exchange rates movements, the Group has entered into forward exchange contracts to purchase US dollars. These contracts are hedging highly probably forecasted purchases and are timed to mature when payments are
scheduled to be made. For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 61 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
31 DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
(a) INSTRUMENTS USED BY JUST GROUP (CONTINUED) (i) Forward currency contracts – cash flow hedges (continued) The cash flows are expected to occur between one to twenty four months from 1 August 2008 and the profit and loss within cost of sales will be affected over the next couple of years as the inventory is sold. At balance date, the details of the outstanding contracts are:
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000
NOTIONAL AMOUNTS AVERAGE NOTIONAL AMOU NTS AVERAGE Buy USD / Sell AUD $AUD EXCHANGE RATE $AUD EXCHANGE RATE Maturity < 6 months 33,322 56,607 0.8827 0.8196 33,322 – 0.8827 – Maturity 6 – 12 months 22,158 – 0.9026 – 22,158 – 0.9026 – Maturity 12 – 24 months 33,994 – 0.9002 – 33,994 – 0.9002 –
NOTIONAL AMOUNTS AVERAGE NOTIONAL AMOU NTS AVERAGE Buy USD / Sell NZD $NZD EXCHANGE RATE $NZD EXCHANGE RATE Maturity < 6 months 12,633 1,698 0.7360 0.7475 12,633 – 0.7360 – Maturity 6 – 12 months 2,466 – 0.7300 – 2,466 – 0.7300 – Maturity 12 – 24 months 5,716 – 0.7348 – 5,716 – 0.7348 –
The forward currency contracts are considered to be highly effective hedges as they are matched against forecast inventory purchases and any gain or loss on the contracts attributable to the hedge risk is taken directly to equity. The portion of gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the cash flows occur, the Group adjusts the initial measurement of the component recognised in the balance sheet by the related amount deferred in equity.
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 $’000 $’000 $’000 $’000 Cash flow hedge ineffectiveness recognised 151 – 151 –- immediately in profit and loss*
* The amount is included in other expenses. For personal use only use personal For
62 | JUST GROUP ANNUAL REPORT 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
31 DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
(ii) Foreign exchange options – cash flow hedges The majority of the Group’s inventory purchases are denominated in US dollars. In order to protect against exchange rates movements, the Group has entered into foreign exchange vanilla and collared options to purchase US dollars. These contracts are hedging highly probably forecasted purchases and are timed to expire when payments are scheduled to be made. The cash flows are expected to occur between one too twenty four months from 1 August 2008 and the profit and loss within cost of sales will be affected over the next couple of years as the inventory is sold. At balance date, the details of the outstanding contracts are:
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000
NOTIONAL AMOUNTS AVERAGE NOTIONAL AMOUNTS AVERAGE Buy USD / Sell AUD $AUD* EXCHANGE RATE $AUD* EXCHANGE RATE Maturity < 6 months 24,198 – 0.9133 – 24,198 – 0.9133 – Maturity 6 – 12 months 4,301 – 0.9300 – 4,301 – 0.9300 – Maturity 12 – 24 months 13,959 – 0.9600 – 13,959 – 0.9600 –
* Contracted cash flows is based on a AUD/USD spot rate of 0.9561 at balance date. The Group designates the intrinsic value component of the foreign currency vanilla and collared options value as the hedging instrument in the hedge relationship. The hedging instrument is considered to be highly effective hedges as they are matched against forecast inventory purchases and any gain or loss on the intrinsic value attributable to the hedge risk is taken directly to equity. Movements in the time-value component of the foreign currency vanilla and collared options value is recognised immediately in profit and loss. The portion of gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. hen the cash flows occur, the Group adjusts the initial measurement of the component recognised in the balance sheet by the related amount deferred in equity.
CONSOLIDATED THE COMPANY
2008 2007 2008 2007 $’000 $’000 $’000 $’000 Cash flow hedge ineffectiveness recognised 108 – 108 – immediately in profit and loss*
* The amount is included in other expenses.
(b) INTEREST RATE RISK Information regarding interest rate exposure is set out in Note 3. (c) CREDIT RISK For personal use only use personal For Information regarding credit risk exposure is set out in Note 3.
JUST GROUP ANNUAL REPORT 2008 | 63 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 26 JULY 2008 (CONTINUED)
32 EARNINGS PER SHARE
2008 2007 $’000 $’000
The following reflects the income and share data used in the calculation of basic and diluted earnings per share Net profit 49,118 63,891
NUMBER NUMBER OF SHARES OF SHARES
Weighted average number of ordinary shares used in calculating basic and diluted earnings per share 201,330,882 214,072,482
The performance rights do not have a dilutive effect for the purposes of the calculation of the diluted earnings per share.
There have been no other conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report.
33 SUBSEQUENT EVENTS
On 8 August 2008, Premier Investments Limited obtained a controlling interest in the shares of Just Group Limited following an off-market takeover offer for all of the Group’s shares that commenced on 31 March 2008.
At the date of this report, the directors and management of Just Group Limited have identified the following consequences resulting from this change of control on the future financial performance and operations of the company:
(i) review events were triggered in relation to the company’s financing facilities which may give rise to increased financing costs, withdrawal of facilities or changes to terms; and
(ii) certain leases require landlord consent to a change of control.
The Group has been discussing these matters with the relevant parties and remains confident that there will be no material change to the Group’s financial position as presented in these financial statements as a result of the change of control.
34 CONTINGENT LIABILITIES
The consolidated entity has bank guarantees totalling $2,939,397 (2007: $1,571,748).
The company acts as guarantor for the NZ$20.0 million bank loans that have been drawn by its subsidiary, Kimbyr Investments Limited. The company has not provided for this financial guarantee as it believes Kimbyr Investments Limited will be able to meet the terms and repayment dates of the loan.
Under the terms of the shareholder agreement Just Kor Fashion Group (Pty) Ltd, the company’s associate operating in South Africa, has the right to call on each shareholder for additional funding of up to ZAR15.0 million each. The company has not
provided for this obligation in this financial report. For personal use only use personal For
64 | JUST GROUP ANNUAL REPORT 2008 DIRECTORS’ DECLARATION
In accordance with a resolution of the directors of Just Group Limited we state that:
(1) In the opinion of the directors: (a) the financial report of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial positions as at 26 July 2008 and of their performance for the period ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial period ended 26 July 2008. (3) In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 30 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee.
On behalf of the Board
Solomon Lew Jason Murray Chairman Managing Director
22 September 2008 22 September 2008 For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 65 INDEPENDENT AUDIT REPORT TO MEMBERS OF JUST GROUP
Independent auditor’s report to the members of Just Group Limited
Report on the Financial Report We have audited the accompanying financial report of Just Group Limited, which comprises the balance sheet as at 26 July 2008, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion. For personal use only use personal For
Liability limited by a scheme approved under Professional Standards Legislation
66 | JUST GROUP ANNUAL REPORT 2008 INDEPENDENT AUDIT REPORT TO MEMBERS OF JUST GROUP
Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence. Auditor’s Opinion
In our opinion: 1. the financial report of Just Group Limited is in accordance with the Corporations Act 2001, including:
i giving a true and fair view of the financial position of Just Group Limited and the consolidated entity at 26 July 2008 and of their performance for the year ended on that date; and
ii complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.
2. the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Ernst & Young
Rob Perry Partner Melbourne
Date: 22 September 2008 For personal use only use personal For
JUST GROUP ANNUAL REPORT 2008 | 67 CORPORATE DIRECTORY
ABN 97 096 911 410
DIRECTORS BANKERS Solomon Lew (Chairman) Commonwealth Bank of Australia Jason Murray (Managing Director) National Australia Bank Terrence McCartney (Non-Executive Director) Westpac Banking Corporation Michael McLeod (Non-Executive Director) Mark Middeldorf (Non-Executive Director) AUDITOR Henry Lanzer (Non-Executive Director) Ernst & Young Glenys Shearer (Executive Director) 8 Exhibition Street Melbourne VIC 3000 COMPANY SECRETARY AUSTRALIA Janice Payne LAWYERS EXECUTIVE MANAGEMENT TEAM Freehills David Bull (Merchandising Director – Casualwear) Level 42 Ashley Gardner (Chief Financial Officer) 101 Collins Street Rachel Kelly (Retail Director Australia and Melbourne VIC 3000 New Zealand) AUSTRALIA Anita Muller (Human Resources Director) Janice Payne (Corporate Affairs Director) Wai Tang (Director – Operations and Peter Alexander Sleepwear)
REGISTERED OFFICE 658 Church Street Richmond VIC 3121 AUSTRALIA T: 03 9420 0200 F: 03 9426 0200
WEBSITE www.justgroup.com.au
[email protected] For personal use only use personal For
68 | JUST GROUP ANNUAL REPORT 2008 For personal use only For personal use only