DAVID JONES ANNUAL REPORT
For personal use only use personal For 2008 CONTENTS
Performance Analysis 1 GLOSSARY OF TERMS USED IN THE ANNUAL REPORT Chairman’s and Chief Executive Officer’s Report 2 AASB Australian Accounting Standards Board Five Year Financial Statistics 9 AGAAP Australian Generally Accepted Accounting Principles Board of Directors 10 AIFRS Australian equivalents to International Financial Management Committee 12 Reporting Standards Corporate Governance Statement 13 ASX Australian Securities Exchange Limited Environment 27 Board The Board of Directors of David Jones Community 30 Board Charter The charter setting out (among other things) the Occupational Health & Safety 31 role, purpose and structure of the Board, available in the corporate Directors’ Report 32 governance section at www.davidjones.com.au Remuneration Report 36 CAGR Compound Annual Growth Rate Financial Statements 58 CEO Chief Executive Officer Directors’ Declaration 117 CODB Total Cost of Doing Business Auditor’s Independence Declaration 118 Company David Jones Independent Audit Report 119 Corporations Act The Corporations Act 2001 (Cth) Shareholder Information 121 Consolidated Entity David Jones Limited and its controlled entities, Corporate Directory 123 as listed in note 30 to the Financial Statements David Jones David Jones Limited DESP Deferred Employee Share Plan, as described in section 4 of the Remuneration Report DRP Dividend Reinvestment Plan EBIT Earnings Before Interest and Tax EC Employment Cost, as described in section 4 of the Remuneration Report EESP Exempt Employee Share Plan, as described in note 29 to the Financial Statements EPS Earnings Per Share FY Financial Year KMP Key Management Personnel, as described in section 1 of the Remuneration Report LTI Plan Long Term Incentive Plan, as described in section 3 of the Remuneration Report 2008 ANNUAL GENERAL MEETING NPAT Net Profit After Tax
For personal use only use personal For ROFE Return On Funds Employed, as described in section 4 The Annual General Meeting will be held on of the Remuneration Report Friday 28 November 2008 at 10.00 a.m. at the RPS Reset Preference Share Wesley Conference Centre, 220 Pitt Street, Sydney, STI Scheme Short Term Incentive Scheme, as described in New South Wales. section 2 of the Remuneration Report The Notice of Meeting and Proxy Form are separate TSR Total Shareholder Return, as described in section 4 items accompanying this 2008 Annual Report. of the Remuneration Report PERFORMANCE ANALYSIS
FY2008 FY2007 $m % of sales $m % of sales Sales 2,098.0 1,983.2 Gross Profit 829.8 39.5% 779.8 39.3% Cost of Doing Business 655.2 31.2% 639.9 32.3% Department Stores EBIT 174.6 8.3% 139.9 7.1% Financial Services EBIT 38.4 36.1 Total EBIT 212.9 10.2% 176.1 8.9%
NPAT* 137.1 109.5
* NPAT refers to underlying net profit after tax after removing the one-off impacts of the profit from the sale of the Bourke Street Home Store in FY2008 and the Sale and Leaseback in FY2007 137.1 137.1 5.24 5.24 137.1 38.4 2.098.0 38.4 2.098.0 5.24 38.4 2.098.0 5.04 5.04 36.1 1,983.2 36.1 1,983.2 5.04 36.1 1,983.2 34.1 1,821.6 4.63 34.1 1,821.6 4.63 4.57 4.57 1,800.8 4.46 1,800.8 4.46 34.1 1,821.6 4.63 109.5 4.57 109.5 32.1 32.1 1,769.5 1,769.5 1,800.8 4.46 109.5 32.1 1,769.5 137.1 137.1 137.1 5.24 5.24 5.24 27.7 38.4 38.4 38.4 2.098.0 2.098.0 2.098.0 27.7 27.7 5.04 5.04 5.04 36.1 36.1 36.1 1,983.2 1,983.2 1,983.2 81.0 81.0 77.8 77.8 34.1 34.1 34.1 1,821.6 1,821.6 1,821.6 4.63 4.63 4.63 4.57 4.57 4.57 81.1 77.8 1,800.8 1,800.8 1,800.8 4.46 4.46 4.46 109.5 109.5 109.5 32.1 32.1 32.1 1,769.5 1,769.5 1,769.5 68.0 68.0 68.0 65.3 65.3 65.3 27.7 27.7 27.7 81.0 81.0 81.0 77.8 77.8 77.8 68.0 68.0 68.0 65.3 65.3 65.3
04 05 05 06 07 08 04 05 06 07 08 04 0405 0506 0607 0708 08 04 0405 0506 0607 0708 08 04 0405 05060405070506080607 070808 04 05 0406 0507 0508 06 07 08 04 05 06 07 08
Five Year Sales SalesFiv pere Ye Squaar Salere Metrs e 04 0405Financial040506Sales050607 Ser06per0708vices 07Squa08 08EBITre Metre Fiv04e Ye0405ar04Previous 05Sale06Financial05s0607 06AG0708 AAPSer0708vices08 EBIT Sales04 04 05per0405 Squa0605Previous0607re06 Metr0708 07AG08e AAP08 04Financial0405040505 05Ser0506vices050607 06EBIT07080708 08 Previous AGAAP To tal Sales ($ Millions) ($ Thousands) To tal Sales ($ Millions) ($ Thousands) ($ Millions) To tal Sales ($ Millions) ($ Thousands) ($ Millions) AIFRS AIFRS FiveFiv YeFivear Ye eSale arYe arSales Sales s SalesSales perSalesAIFRS perSqua per Square Squa Metrre reMetre Metre e FinancialFinancialFinancial Ser vicesSer Services EBITvices EBIT EBIT PreviousPreviousPrevious AG AAPAG AGAAPAAP To talTo SalestalTo talSales ($Sales Millions($ ($Millions Millions) ) ) ($ Thousands)($ Thousands)($ Thousands) ($ Millions($ ($Millions Millions) ) ) NPAT* ($ Millions) NPAT* ($ Millions) AIFRSAIFRSAIFRS NPAT* ($ Millions) * NPAT refers to underlying net profit after * NPAT refers to underlying net profit after * NPAT refers to underlying net profit after tax after removing the one-off impacts of tax after removing the one-off impacts of NPATNP*NPAT ($AT* Millions)($* ($Millions) Millions) tax after removing the one-off impacts of the profit from the sale of the Bourke Street the profit from the sale of the Bourke Street the profit from the sale of the Bourke Street * NPAT* NP ref*AT NPer srefAT toer refunders toer sunder lyingto under netlying proflying netit profnet after profit afterit after Home Store in FY2008 and the Sale and Home Store in FY2008 and the Sale and Home Store in FY2008 and the Sale and tax aftertax afterremotax after removing remo theving one-off vingthe one-offthe impacts one-off impacts of impacts of of Leaseback in FY2007 Leaseback in FY2007 Leaseback in FY2007 35.0 35.0 137.1 34.1 35.0
34.1 the proftheit profthe from profit fromtheit fromsale the of salethe the saleof Bour the of keBourthe Street Bourke Street ke Street 27 27 5.24 38.4 2.098.0 34.1 33.5 30.5 33.5 27 30.5 32.7 32.7 32.3 32.3 5.04 33.5 28.4 32.7 36.1 1,983.2 HomeHome StoreHome Store in FY2008Store in FY2008 in and FY2008 the and Sale andthe andSalethe Saleand and 31.2 32.3 31.2 31.2 34.1 1,821.6 4.63 4.57 1,800.8 4.46 LeasebackLeasebackLeaseback in FY2007 in FY2007 in FY2007 109.5 22 32.1 22 1,769.5 24.6 24.6 22 35.0 35.0 35.0 24.6 34.1 34.1 34.1 27 27 27 27.7 33.5 33.5 33.5 30.5 30.5 30.5 32.7 32.7 32.7 32.3 32.3 32.3 31.2 31.2 31.2 16 16 81.1 18.7 18.7 77.8 16 18.7 22 22 22 24.6 24.6 24.6 68.0 13 15.0 13 15.0 14.6 14.6 65.3 13 17.0 15.0 14.6 11 11 11 16 16 16 18.7 18.7 18.7 13 13 13 15.0 15.0 15.0 14.6 14.6 14.6 11 11 11
04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 0404 040505 050605 060706 070807 0808 04 0504 050605 060705 070806 0807 08 04 0405 0506 0507 0608 07 08 04 05 05 06 07 08
Dividend History 04 04050405060506070607080708 08 Previous AGAAP DividendFive Year SaleHistors y SalesDividendPrevious per Squa AGHistorre AAPMetry e 04 0405Financial040506Previous050607 PreviousSer060708 vicesAG0708AAP AG08EBITAAP 04 0405Previous0405050505Previous06 AG050607AAP0607 AG0807AAP08 08 Previous AGAAP (centsTo tal Sales per share($ Millions (cps))) ($ Thousands)(cents per share (cps)) ($ Millions) (cents per share (cps)) AIFRSAIFRS AIFRS AIFRS AIFRS AIFRS For personal use only use personal For AIFRS DividendDividendDividend Histor Histor History y y PreviousPreviousPrevious AG AAPAG AGAAPAAP PreviousPreviousPrevious AG AAPAG AGAAPAAP (cents(cents (centsper pershare per share (cps))share (cps)) (cps)) Cost of Doing Business EPS*Cost of Doing Business NPAIFRSATAIFRS*EPAIFRS ($S *Millions) CostAIFRS ofAIFRS DoingAIFRS Business EPS* (Percentage of Sales) (Percentage of Sales) * Earnings(Percentage used refers to ofunder Sales)lying earnings * NPAT ref*er Eas torn ingsunder usedlying ref neters profto underit afterlying earnings * Earnings used refers to underlying earnings after removing the one-off impacts of the CosttaxCost afterofCost Doing remoofafter ofDoingving remo Doing Businestheving one-off Busines the Busines one-offs impactss impacts ofs of the EPSEP* SEP* S* after removing the one-off impacts of the profit from the sale of the Bourke Street the profit fromprof itthe from sale the of salethe Bourof theke Bour Streetke Street profit from the sale of the Bourke Street (Percentage(Percentage(Percentage of Sales) of Sales)of Sales) * Earn* ingsEa*rn usedEaingsrn ingsusedrefer used sref toer refunders toer sunder lyingto under ealyingrnlyingings earn eaingsrn ings Home Store in FY2008 and the Sale and Home StoreHome in FY2008 Store inand FY2008 the Sale and and the Sale and Home Store in FY2008 and the Sale and after afterremoafter removing remo theving one-off vingthe one-offthe impacts one-off impacts of impacts the of the of the Leaseback in FY2007 Leaseback Leasebackin FY2007 in FY2007 Leaseback in FY2007
35.0 profitprof fromprofit fromtheit fromsale the of salethe the saleof Bour the of keBourthe Street Bourke Street ke Street 34.1 27 33.5 28.4 32.7
32.3 HomeHome StoreHome Store in FY2008Store in FY2008 in and FY2008 the and Sale andthe andSalethe Saleand and 31.2 LeasebackLeasebackLeaseback in FY2007 in FY2007 in FY2007 22 24.6 16 18.7 13 17.0 15.0 14.6 David Jones Annual Report 2008 11 1
04 05 06 07 08 04 05 05 06 07 08 04 05 05 06 07 08
Dividend History Previous AGAAP Previous AGAAP (cents per share (cps)) AIFRS AIFRS
Cost of Doing Business EPS* (Percentage of Sales) * Earnings used refers to underlying earnings after removing the one-off impacts of the profit from the sale of the Bourke Street Home Store in FY2008 and the Sale and Leaseback in FY2007 CHAIRMAN’S AND CHIEF EXECUTIVE OFFICER’S REPORT
Dear Shareholders, On behalf of the Board and management of David Jones Limited, we are pleased to present our Company’s Annual Report for the 2008 financial year ended 26 July 2008. Before commencing our Report, we would like to take the opportunity to thank you, our shareholders, for your support throughout the year and for entrusting us with
stewardship of the iconic and much loved David Jones brand. For personal use only use personal For
Robert Savage Chairman Mark McInnes Chief Executive Officer
David Jones Annual Report 2008 David Jones Annual Report 2008 2 3 2,098.0 27 137.1 1,983.2 1,821.6 1,800.8 1,769.5 22 109.5 1,674.6 16 81.1 77.8 68.0 13 65.3 11 6 (25.5) 03 04 05 06 07 08 03 04 05 06 07 08 03 04 05 05 06 07 08 Graph 1 Department Graph 3 Dividend Store Sales FY03–FY08 Previous AGAAP FY03–FY08 (cps) ($ Millions) Graph 1 GraphGraph 22 Prof it After Tax Graph 3 Department Store Sales FY03–FY08Profit After ($ Tax Millions ) Dividend FY03–FY08 ($ Millions) FY03–FY08 ($ Millions) FY03–FY08 (cps)
OVERVIEW and HIGHLIGHTS In 2008 David Jones celebrated 170 years of trading. We are proud – delivering a 350% increase in fully franked dividends to ordinary that our Company is the only department store in the world that shareholders from 6 cents per share (cps) in FY03 to 27cps in has been trading under the same name for such a long period. FY08 (refer to Graph 3); In addition to celebrating our 170th birthday, the 2008 Financial – delivering an increase of nearly 150 basis points in Gross Profit Year is the fifth since implementation of the 2003 Strategic Plan. Margin from FY03* to FY08 to 39.6% in FY08; We are pleased to report that our Company has delivered a – decreasing its Cost of Doing Business (CODB) by 340 basis record high Net Profit After Tax (NPAT) result and a record points from 34.6% in FY03* to 31.2% in FY08; and high dividend to shareholders. This is particularly pleasing given that in 2003 we started off a very difficult base (namely a loss – maintaining a tight control on Capital Expenditure leading to of $25.5 million) and have managed to dramatically turn the significant reinvestment in our Company’s core business whilst performance of the Company around. Based on our five year track simultaneously increasing our free cash flow. record of delivering NPAT and dividend growth, management Our Company has established a strong track record over the unveiled the Company’s FY09–FY12 Strategic Plan, which was past five years, in terms of financial performance and shareholder approved by the Board and which sets the foundations to continue returns (despite fluctuations in the economic cycle). our growth track record over the next four years. Our track record demonstrates the fact that we have a proven The key highlights of the past 12 months (compared to our business model, a capable management team and a solid Company’s performance last financial year and since 2003) include, foundation for future growth in shareholder returns, regardless of our Company: the peaks and troughs of the economic cycle. Most importantly, we – delivering an increase in Department Store Sales of more than have now established a solid foundation from which to implement $423.3 million since FY03, to $2,098.0 million in FY08 (refer to our FY09–FY12 Strategic Plan and to implement initiatives that will Graph 1); deliver longer-term success for our Company and ongoing growth in shareholder returns. – delivering a year-on-year increase in NPAT (from a loss of $25.5 million in FY03 (post-significant items) previous AGAAP
to $137.1 million* in FY08 (refer to Graph 2); For personal use only use personal For
*FY03 figure adjusted for AIFRS and S&L impact
David Jones Annual Report 2008 David Jones Annual Report 2008 2 3 CHAIRMAN’S AND CHIEF EXECUTIVE OFFICER’S REPORT
THE COMPANY’S FY09–FY12 STRATEGIC PLAN FY08 STRATEGIC ACHIEVEMENTS In March 2008 we unveiled our Company’s FY09–FY12 Strategic In addition to the announcement of the Company’s FY09–FY12 Plan. This Plan forms the blueprint for shareholder growth over Strategic Plan, FY08 was a notable year for our Company not only the next four years by outlining seven key sources of value. These in terms of financial performance, but also because of our following value sources are designed to deliver NPAT growth of at least strategic achievements. 5–10% p.a. over the next four years (regardless of fluctuations in – On 20 November 2007 we unveiled our Company’s plans to the economic cycle), dividend growth in line with NPAT growth, create Melbourne’s pre-eminent department store by investing a strong balance sheet and strong cash flows with excess cash $85 million in the redevelopment of our two flagship Bourke returned to shareholders in the most efficient manner over time. Street Melbourne CBD stores. This $85 million investment is The FY09–FY12 Strategic Plan’s seven sources of value involve being funded in part by the sale of the David Jones’ Melbourne the Company: CBD Home Store, for a total transaction value in excess of $50 million. The sale of Myer’s Bourke Street and Lonsdale 1. opening 4–8 high value new stores (in addition to Doncaster Street properties to developers CFS JV provided our Company and Claremont) in centres with strong demographics which are with a ‘once in a century’ opportunity to maximise value well-located to capture our growing customer base; from our adjoining Home Store and is another example of 2. refurbishing 11–14 of our high-value stores to reinforce our our business benefiting from the Australian department store contemporary branded department store positioning, to increase industry restructure that has taken place over the past two years. space for our high margin categories and brands and to generate Our Bourke Street stores will continue to trade throughout their short to medium term sales and earnings before interest and tax redevelopment and will be completed in time for Christmas (EBIT) growth; trading in 2009. 3. launching a new David Jones branded American Express card in – On 30 January 2008 we announced that our Claremont store time for Christmas 2008; would be completely rebuilt as part of a broader development being undertaken by the owners of the Claremont Shopping 4. continuing to sustainably improve gross profit margin by Centre. The new David Jones Claremont store will open in focusing on higher margin category and brand mix in new stores 2011. It will increase in size by almost 60% and deliver Store and refurbishments as well as through the comprehensive EBIT of approximately $5 million in its first full year of trading. renegotiation of our trading terms with suppliers; – We announced on 20 February 2008 a Company transforming 5. delivering CODB improvements of 50–80 basis points by strategic alliance partnership with American Express to launch FY12 whilst maintaining our customer service standards. We the David Jones American Express card – which was launched have identified and are implementing 74 well defined and fully in October this year. This transaction will deliver significant resourced cost efficiency initiatives; earnings growth and value to shareholders over time and in 6. adopting stringent capital efficiency disciplines. Our Company the short-term has resulted in the release of significant working will invest approximately $400 million into key value and growth capital from David Jones’ Balance Sheet as all of the receivables opportunities identified in the Strategic Plan over the next relating to the Store Card have been transferred to American four years. Of this $400 million, $100 million will be funded by Express. external stakeholders, $42 million will be funded from the sale – We announced on 7 May 2008 our Company’s first new store proceeds of the Melbourne Home Store and $70 million will be under the FY09–FY12 Strategic Plan, namely a brand new, full- funded from our DRP. This leaves a remaining $190 million over line 14,000 square metre David Jones department store in the the next four years that will be funded by the Company and Sunshine Plaza on Queensland’s Sunshine Coast. The new David which translates to an average of no more than $50 million of Jones Sunshine Coast store is expected to generate sales of Capital Expenditure p.a.; and $50–$60 million p.a. over time and at least $5 million p.a. Store 7. managing the business throughout the economic cycle to EBIT by year two. ensure that margins are maintained, inventory is well managed and cost efficiencies deliver savings, all of which in turn will enable the Company to grow profit and dividends throughout
the cycle. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 4 5 – We announced on 24 July 2008 that we have added 50 new iconic brands (across all categories) to the David Jones portfolio on a department store exclusive basis. The new department store exclusive brands include: Jets Swimwear; Speedo; Shu 21.0% Uemura; YSL; Thierry Mugler Beauty; Gorman; See by Chloè; Philosophy by Alberta Ferretti; Canali; American Apparel; Scotch growth & Soda; Zane Robe; Bottega Venetta; and Harrods Gourmet IN ebit Foods. These 50 new brands reinforce our Company’s standing as the “Home of Brands” within the Australian market. It also emphasises the trust that these brands and designers have in partnering with David Jones on a long-term basis and enables us to generate value and sustainably improve our gross profit margins through our category and brand mix as well as through our negotiated terms of trade. 5.8% – We have completed in time for the all important Christmas INCREASE IN 2008 trading period, the strategic refurbishment of the following key stores: SALES REVENUE – the upper floors of the Sydney CBD Elizabeth and Market Street stores; – the Bondi Junction (Sydney) store; and – the Robina (Gold Coast, Queensland) store. All of these refurbishments will have a payback period of between one and three years. 25.1% INCREASE IN FY08 FINANCIAL PERFORMANCE UNDERLYING From a financial perspective FY08 was a very challenging year for the retail sector. As can be seen from the Access Economics graph, net PROFIT 3Q08 and 4Q08 in particular experienced a marked slowdown in AFTER TAX consumer spending and a deterioration in consumer confidence.
10%
8%
6% Forecast
4% Trend
2%
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-2% June June June June June June June June June June 98 00 02 04 06 08 09 10 11 12
GraphAccess 4Economics Real Retail ChartTurnov ater AugustGrowth 2008 For personal use only use personal For %Real Change Retail yeTurnoverar-to Growth Source:% Change ABS 8501.0, year-to Access Economics Source: ABS 8501.0, Access Economics
David Jones Annual Report 2008 David Jones Annual Report 2008 4 5 CHAIRMAN’S AND CHIEF EXECUTIVE OFFICER’S REPORT
Despite this challenging environment our Company delivered a Capital Expenditure in FY08 was $73.6 million. Allowing for new record profit result and declared a record dividend – both being stores and the Bourke Street store refurbishment (which are to be the highest since listing in 1995 and demonstrating the ability of funded from proceeds of the DRP and the sale of the Melbourne our business model to continue to deliver profit and dividend Home Store) we met our Company’s target cap of $50 million growth throughout the economic cycle. This is all the more per annum. pleasing given the tough retail conditions we were operating in Our Inventory has been well managed. Management ensured more and the fact that many other retailers became casualties of these than 12 months ago that we ordered for flat sales growth in 2H08 challenging conditions. and we utilised the month of July to clear out any remaining surplus As announced on 24 September 2008, our Company winter stock. We are now in the position of our year-end stock in reported NPAT for the financial year ended 26 July 2008, of 2008 being 8% lower than in FY07, which means our Company has $137.1 million**. This represents an increase of 25.1% on NPAT a very clean inventory position entering into FY09. for FY07 ($109.5 million). The Company continued its track record of strong free cash flow. Sales Revenue for the year grew by 5.8% in FY08 (from At year end in FY08 free cash flow was of $128.3 million versus $1,983.2 million in FY07 to $2,098.0 million in FY08). $115.6 million at year end in FY07. Net cash flow at year end in On a like-for-like basis, sales grew by 4.5% over FY07. FY08 (post Dividends) was $41.9 million and with the addition of the proceeds of sale of the Melbourne Home Store the Company EBIT in FY08 was $212.9 million** up 21.0% on FY07 was able to reduce non-current debt from $188.7 million at year ($176.1 million**). The ‘EBIT to Sales Ratio’ for FY08 was 10.2% end in FY07 to $103.5 million in FY08. The Company’s net cash which represents an increase of 130 basis points on FY07 (8.9%**). flow position indicates good financial coverage to support future EBITDA increased from $212.2 million** in FY07 to $254.5 Capex and ongoing growth in dividends. As stated in our FY09– million** in FY08 and now constitutes 12.1% of sales. FY12 Strategic Plan in March 2008 our Company will not require any additional debt funding to support its growth initiatives. Our Financial Services business continued its solid performance track record, reporting growth of 6.3% in EBIT to $38.4 million DEBT POSITION in FY08 from $36.1million in FY07. We are pleased to report Our Company’s existing bank facility of $350 million extends until the successful launch of the new David Jones branded American 2012. This facility was put in place at the time of the unwinding Express card and look forward to growing this new and exciting of the Sale & Leaseback arrangements relating to our Sydney part of our business. and Melbourne CBD flagship stores. The facility ensures that our The total CODB percentage for FY08 was 31.2%**, an interest payments on the entire $350 million debt are lower than improvement of 110 basis points on the FY07 CODB percentage the escalating rent payments payable under the Sale & Leaseback. (32.3%**). This performance reflects our strong cost efficiency We are in the fortunate position of having only drawn down focus over the past 18 months. Management utilised the strong $170 million as at the end of July 2008 (allowing for the Store economic climate in late 2006 and 2007 to implement the Cost Card receivables which were transferred to American Express on Efficiency Programs that have delivered and will continue to deliver 1 August 2008). This represents a conservative debt position, with sustainable and significant cost savings (both fixed and variable) plenty of “headroom”. Our Capex is manageable over the FY09– in FY08 and beyond. We are on track to continue to reduce our FY12 period which in turn means we have a strong balance sheet Company’s cost base in FY09. upon which to embark upon implementation of our FY09–FY12 Despite volatile trading in the second half of FY08 (2H08) and the Strategic Plan. requirement to clear seasonal stock, the Company’s Gross Profit Full details of our Company’s financial performance in FY08 are set percentage for FY08 was up approximately 10 basis points on out on pages 58 to 116. the second half of FY07, delivering a full year result of 39.5%. This means we are well placed to deliver Gross Profit Margins within
our target range of 39.5–40.0% throughout FY09–FY12. For personal use only use personal For
**Excludes the one-off impact of the unwinding of the Sale and Leaseback Transaction in 2007 and the profit on the sale of the Little Bourke Street premises in 2008.
David Jones Annual Report 2008 David Jones Annual Report 2008 6 7 EMPLOYEES Pages 13 to 26 of this Report set out details of our Company’s FY08 has undoubtedly been a challenging and rewarding year corporate governance policies and practices and should assist for our Company. Our performance is a credit to each of our shareholders in appreciating the importance that the Board places employees who were instrumental in enabling our Company on corporate governance issues. Pages 27 to 30 outline our to deliver an excellent financial result despite a marked retail commitment to the environment and the community and page 31 slowdown and an environment when many other retailers have sets out our Occupational Health & Safety policies. floundered. Our employees have demonstrated that we have the DAVID JONES AMERICAN EXPRESS SHAREHOLDER OFFER ability to successfully deliver NPAT growth and dividend growth throughout the economic cycle and most importantly even during On 24 September 2008 our Company unveiled a compelling value the times of a downturn. proposition for Shareholder Rewards members who apply for the new David Jones American Express Card. Shareholders will receive We would like to take this opportunity to express thanks to the following benefits in return for an annual membership fee of each of our employees for their hard work, commitment and $99 under the new David Jones American Express Card. outstanding contribution in achieving our FY08 results and ask them to continue their good work in FY09. – Earning Gift points for every dollar spent both within David Jones stores (2 points per dollar spent) and at more than a SUPPLIERS million other places around the world (1.5 points for every We would also like to take the opportunity to thank our suppliers dollar spent). The Gift Points can be redeemed for David Jones (both existing and new additions to our portfolio). Our suppliers Gift Cards or for travel on Qantas and a range of other leading are an integral part of our “Home of Brands” strategy, which in turn airlines. is instrumental in differentiating David Jones from its competitors. – Double Gift Points for the first six months of ownership of the As a result the management team is committed to nurturing and David Jones American Express Card by shareholders. strengthening David Jones’ relationship with each of its suppliers. – A $50 David Jones Gift Card for using the David Jones We look forward to continuing to work closely with our suppliers American Express Card outside David Jones. in the year ahead, in a spirit of co-operation and mutual benefit. – All existing David Jones store card benefits such as interest-free CUSTOMERS periods, Christmas deferred payment option, complimentary gift Last but not least we would like to thank all of David Jones’ wrapping and more. customers for their patronage and support throughout the year. – An extra $100 Gift Card for Shareholder Rewards customers. We are proud of our service heritage and strive to continuously Current David Jones Shareholder Reward members will be uphold excellent service levels. We have been particularly mindful eligible to receive in February 2009 an additional $100 David of this in implementing our cost efficiency initiatives to ensure that Jones Gift Card if they apply for a David Jones American we do not in any way compromise our customer service levels. Express Card before 1 February 2009 and are approved by American Express. DIVIDENDS In light of the Company’s strong financial performance in FY08 Of course the much loved, existing David Jones Store Card will and the exciting opportunities that lie ahead, the Board has continue to operate with all of its existing benefits other than declared a fully franked dividend of 16 cps for 2H08. the 2% shareholder discount which will be discontinued as of 1 February 2009. The decision to discontinue the shareholder Added to the fully franked dividend of 11 cps declared for the first discount program follows a detailed review undertaken of half of FY08, this takes the total dividend declared for the year to Australian publicly listed retailers. Our review findings were that 27 cps, fully franked. This represents an increase of 22.7% on the Australian publicly listed retailers (such as Wesfarmers – which Company’s FY07 dividend of 22 cps. includes Coles, Bi-Lo, Kmart, Target, Officeworks and Bunnings; The Board and the management team remain committed to Woolworths – which includes Woolworths, Safeway, BWS, Dan delivering ongoing dividend growth. Murphy, Big W, Dick Smith and Tandy; Harvey Norman, the Just Group and JB Hi Fi amongst others) do not offer shareholder CORPORATE GOVERNANCE, COMMUNITY & discounts at their retail outlets. OCCUPATIONAL HEALTH & SAFETY The Board places great importance on rewarding all shareholders For personal use only use personal For On a number of occasions in the past, the Board has stressed the (regardless of whether they are institutional or retail shareholders) crucial role that it believes public company boards must play if high by way of profit and dividend growth. In the interests of generating corporate governance standards are to be upheld. This continues value for all shareholders and given the broader industry movement to be a key area of focus, as is our Company’s role in the broader away from shareholder discount programs, we have decided to community and our commitment to high standards of Occupational end the Company’s Shareholder Rewards Program. Health and Safety.
David Jones Annual Report 2008 David Jones Annual Report 2008 6 7 CHAIRMAN’S AND CHIEF EXECUTIVE OFFICER’S REPORT
The decision to discontinue the 2% shareholder discount will generate $2 million savings in FY10, which in turn will flow through to shareholders in the form of enhanced dividends and 22.7% profits. In the interests of giving shareholders ample notice of the discontinuance however, we have decided to continue the dividend shareholder discount for one further Christmas and Clearance growth period. This means that all purchases made on the David Jones Shareholder Storecard until 1 February 2009 will continue to receive the 2% shareholder discount. No new shareholder rewards enrolments however have been accepted since 24 September 2008.
CONCLUSION We would like to take the opportunity to congratulate our management team for delivering an outstanding financial performance in FY08 in what has been a very challenging retail environment. The retail conditions we have experienced in the first couple of months of FY09 are in line with what we expected and what we have consistently forecast over the past 12 months. Our Company’s financial performance since 2003 is evidence of the fact that we have implemented a strong business model, which has delivered excellent shareholder returns, year-on-year regardless of the peaks and troughs of the economic cycle. Looking forward, management and the Board believe that the implementation of the FY09–FY12 Strategic Plan will enable our Company to continue its track record of delivering ongoing shareholder value and returns. We are genuinely excited about the opportunities that lie ahead over the next four years and are confident of our ability to deliver profit and dividend growth throughout the economic cycle. We thank you, our shareholders, for your support. We are pleased and proud to be able to present this year’s Annual Report and on behalf of the Board to declare an unprecedented dividend of 27 cps in FY08. We look forward to reporting back to you in 12 months and to our Company continuing to grow profits and dividends and delivering value to our shareholders.
Robert Savage Mark McInnes For personal use only use personal For Chairman Chief Executive Officer
David Jones Annual Report 2008 David Jones Annual Report 2008 8 9 FIVE YEAR FINANCIAL STATISTICS
2008 2007 2006 2005 2005 20041 $000 $000 $000 $000 $000 $000 Previous Previous AGAAP AGAAP
SALES AND PROFIT Sales 2,097,999 1,983,220 1,821,560 1,800,796 1,799,123 1,769,505 Gross Profit 829,772 779,846 705,900 690,649 662,825 657,162 – % of sales 39.5% 39.3% 38.8% 38.4% 36.8% 37.1% Retail Contribution 174,560 139,945 85,503 60,423 73,897 64,988 Property Contribution – – – 2,659 2,659 2,630 Financial Services EBIT 38,385 36,114 34,147 32,092 32,236 27,658 EBIT 212,945 176,060 119,650 95,174 108,792 95,275 NPAT* 137,056 109,513 81,120 67,973 77,862 65,329
BALANCE SHEET Inventory 257,288 280,281 273,728 272,734 289,198 306,190 Other current assets 490,017 578,078 609,547 558,966 205,034 179,890 Property, plant & equipment 670,687 666,169 227,641 225,090 233,084 229,577 Other non-current assets 111,653 110,115 28,652 23,767 52,019 55,100 Total Assets 1,529,645 1,634,643 1,139,568 1,080,557 779,335 770,756 Creditors 274,608 265,972 236,710 220,773 243,011 255,690 Provisions 61,635 71,885 52,947 50,408 60,465 65,429 Interest-bearing liabilities 512,360 719,994 390,575 366,030 – 1,697 Other liabilities 61,252 63,496 111,059 68,795 – – Total Liabilities 909,855 1,121,347 791,291 706,006 303,476 322,816 Net Assets 619,790 513,296 348,277 374,551 475,859 447,940
RATIOS EBIT to Sales (%) 10.2% 8.9% 6.6% 5.3% 6.0% 5.4% Basic earnings per share (cents) 28.4 24.6 18.7 15.0 17.0 14.6 Dividends per share (cents) 27.0 22.0 16.0 13.0 13.0 11.0 Debt to equity (%) 83% 140% 112% 97.7% 0.0% 0.4% Return on shareholder equity (%) 22.1% 21.3% 23.3% 18.6% 16.7% 15.0% *NPAT refers to underlying net profit after tax after removing the one-off impacts of the profit from the sale of the Bourke Street Home Store in FY08 and the sale and leaseback in FY07
1 53 week year For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 8 9 BOARD OF DIRECTORS
Robert Savage JOHN coates MARK Mcinnes STEPHEN GODDARD AC LLB EMBA (MBS) B.SC (Hons) MSC
Resident of Sydney Resident of Sydney Resident of Sydney Resident of Sydney Term of office Non-Executive Term of office Non-Executive Term of office Executive Director Term of office Executive Director Director since 25 October 1999 Director since 6 October 1995 and Chief Executive Officer since and Finance Director since and appointed Chairman on and appointed Deputy Chairman 3 February 2003. 3 February 2003. 17 July 2003. on 14 October 2003. Independent No Independent No Independent Yes Independent Yes External Directorships Director External Directorships Nil External Directorships Chairman External Directorships of Australian National Retailers Skills, experience and expertise and Director of Perpetual Trustees Partner, Kemp Strang Lawyers; Association and Eastern Suburbs Mr Goddard has nearly 25 years Australia Limited and Mincom President, Australian Olympic Leagues Club. experience in the Australian Limited (until May 2007); and Committee Inc; Non-Executive Skills, experience and expertise retail sector across a broad Director of Fairfax Media Limited Chairman, William Inglis & Son Mr McInnes has nearly 26 years range of areas including finance, and Smorgan Steel Limited (until Limited; Director, the Australian experience in the Australian strategic planning, merchandise, August 2007). subsidiaries of Grosvenor Group retail sector. He has held senior stores, logistics, supply chain Skills, experience and expertise Limited, being Grosvenor management roles across the and property. The vast majority Mr Savage has been a Non- Australia Properties Pty Limited retail sector including marketing, of this time has been in senior Executive Director for 9 years and Grosvenor Australia merchandising, stores, supply management and strategic roles across a wide range of industries Investments Pty Limited, and chain, logistics, strategic planning, in major Australian department and has held several roles including Events New South Wales Pty operations and advertising. He stores including 11 years at David on Audit and Remuneration and Limited; Member, Grant Samuel has spent more than 18 years Jones and 13 years at Coles Myer Nominations Committees. Prior Advisory Board, International in senior management and Limited. Mr Goddard brings to to his appointment at David Jones, Olympic Committee and Sydney strategic roles in major Australian the Board extensive and broad Mr Savage had extensive business Olympic Park Authority. department stores, including 11 ranging retail experience. Mr experience gained during a 35 Skills, experience and expertise years at David Jones and 12 years Goddard joined David Jones in year career with IBM in marketing, Mr Coates has practised in at Coles Myer Limited. 1997 as Operations Director. finance, software development and commercial and property Board committee membership He was appointed Chief Financial management roles. law and served on various Executive Directors are not Officer in July 2001 and Finance During this period, he worked in Commonwealth and State members of Board Committees Director in February 2003, Australia, throughout Asia and in statutory authorities. His public but attend Board Committee and has played an integral the United States. company and Olympic board meetings as required. role in rebuilding the financial experience includes shopping performance of the Company Roles at IBM included the following: centre and funds management, in recent years. Managing Director and Chairman while Grosvenor’s property and of IBM Australia; General Manager Board committee membership investment activities provide – Government for all of IBM’s Executive Directors are not experience and expertise for business activity with governments members of Board Committees David Jones’ many and complex throughout Asia Pacific and South but attend Board Committee property dealings. Mr Coates Asia; and Chairman and Chief meetings as required.
For personal use only use personal For plays an active role in advising and Executive Officer of IBM Hong assisting senior executives in the Kong, China and Taiwan. implementation of the Company’s Board committee membership key legal, public and commercial Member of the Audit Committee relationships. (until January 2008) and Board committee membership Remuneration and Nominations Member of the Audit Committee. Committee.
David Jones Annual Report 2008 David Jones Annual Report 2008 10 11 reginald clairs john harvey katie lahey PETER MASON AO LLB B.JURIS GRAD. DIP ACC., FCA BA (Hons) MBA AM B. Com (Hons), MBA, Honorary Doctorate of Business (UNSW)
Resident of Brisbane Resident of Melbourne Resident of Sydney Resident of Sydney Term of office Non-Executive Term of office Non-Executive Term of office Non-Executive Term of office Non-Executive Director since 22 February 1999. Director since 8 October 2001. Director since 6 October 1995. Director since 28 November Independent Yes Independent Yes Independent Yes 2007. External Directorships Director External Directorships Chairman External Directorships Chief Independent Yes of Commonwealth Bank and Director, Fed Square Executive, Business Council of External Directorships Chairman, of Australia and Cellnet Group Pty Ltd; Director, Templeton Australia; Chairman, Carnival AMP Limited; Senior Advisor to Limited (until August 2007). Global Growth Fund, Australian Australia; and Member, Major UBS Investment Bank; Director, Skills, experience and expertise Infrastructure Fund Ltd, APN Performing Arts Board. University of New South Wales Prior to joining the Board of Property Group Ltd, APN Funds Skills, experience and expertise Foundation; Director, The David Jones, Mr Clairs had Management Ltd and Racing In her Chief Executive roles in Australian Research Alliance for a career of 33 years with Victoria Limited; and Non- the public and private sectors, Children and Youth; Member, Woolworths Limited, culminating executive Member of the Board Ms Lahey has gained extensive Advisory Board of the National as the Chief Executive Officer of Freehills (until January 2008). experience in managing large Youth Mental Health Foundation for 5 years to December 1998. Skills, experience and expertise complex organisations and (Headspace); and Member, During his career he gained Mr Harvey has had a 26 achieving significant change Takeovers Panel. valuable retail experience at year professional career with within these organisations. She Skills, experience and expertise state, national and international PricewaterhouseCoopers has skills in general management, Mr Mason has extensive levels. The successful ‘Fresh Food during which he provided marketing, media, human experience as a director and People’ theme was developed professional advisory services resources management, finance Chief Executive Officer in during his appointment as to many multinational and and an extensive knowledge financial services in Australia and National Marketing Manager. Australian national companies, of the workings of government the United Kingdom, primarily Mr Clairs has also held several including retailers. He was a at all levels. Her practical in investment banking. Mr positions on industry bodies, registered company auditor hands-on experience has been Mason has been a Director and including chair of the Australian for 20 years (which did not supplemented with her academic Chairman of a number of public Supermarket Institute and a include David Jones). Mr Harvey achievements. companies. Mr Mason’s previous board member of C.I.E.S., an was Chief Executive Officer Board committee membership directorships include Executive international retail organisation. of PricewaterhouseCoopers Member of Remuneration and Chairman of the Investment Board committee membership in Australia and served Nominations Committee. Banking Group for JP Morgan Chairman of Remuneration and on the global board of Chase (Australia), Chairman Nominations Committee. PricewaterhouseCoopers. of the Ord Minnett Group, He has also served on the boards Executive Chairman of Schroders of Opera Australia, Docklands Australia Limited, and Director of Authority and the Board of Mayne Group Limited. Taxation. His experience provides Board committee membership the financial expertise necessary Member of the Audit Committee
For personal use only use personal For to chair the Audit Committee. (from March 2008). Board committee membership Chairman of Audit Committee.
David Jones Annual Report 2008 David Jones Annual Report 2008 10 11 Management committee
mark mcinnes stephen goddard Colette garnsey Chief Executive Officer Finance Director Group General Manager Apparel, Accessories, Footwear and Cosmetics
Patrick robinson paul zahra karen mclachlan Group General Manager Group General Manager Group General Manager Home and Food Stores and Operations Information Technology
damian eales Paula Bauchinger antony karp Group General Manager Group General Manager Group General Manager Financial Services and Human Resources Retail Development
Marketing For personal use only use personal For
The Management Committee is currently comprised of nine members all of whom are pictured on this page. The role of the Management Committee is to implement group policy, manage the corporate processes and review strategy and resources.
David Jones Annual Report 2008 12 CORPORATE GOVERNANCE STATEMENT
1. INTRODUCTION 14 5. EXTERNAL AUDITOR INDEPENDENCE 19 2. DAVID JONES’ APPROACH TO 5.1 Approach to auditor independence CORPORATE GOVERNANCE 14 5.2 Certification of independence 5.3 Other monitoring of independence 2.1 Framework and approach to corporate governance 5.4 Prohibited non-audit services by the external auditor and responsibility 5.5 Attendance at Annual General Meeting 2.2 Compliance with the ASX Best Practice Recommendations 6. OVERSEEING, MANAGING AND 3. THE BOARD OF DIRECTORS 15 CONTROLLING RISK 20 3.1 Membership and expertise of the Board 6.1 Approach to risk oversight, risk management and 3.2 Board role and responsibility internal control 3.3 Board size and composition 6.2 Risk management and internal control roles 3.4 The selection and role of the Chairman and responsibilities 3.5 Directors’ independence 6.3 Executive declaration 3.6 Avoidance of conflicts of interest by a Director 3.7 Meetings of the Board and their conduct 7. REMUNERATION POLICIES AND PROCEDURES 21 3.8 Succession planning 7.1 Overview 3.9 Review of Board performance 7.2 STI Scheme 3.10 Nomination and appointment of new Directors 7.3 LTI Plan 3.11 Retirement and selection of Directors 7.4 Other equity schemes in David Jones 3.12 Board access to information and advice 8. CORPORATE CONDUCT AND RESPONSIBILITY 23 4. BOARD COMMITTEES 17 8.1 Approach to corporate conduct 4.1 Board committees and membership 8.2 The David Jones Code of Ethics and Conduct 4.2 Committee charters 8.3 Compliance with the Code 4.3 Remuneration and Nominations Committee 8.4 Share trading policy 4.4 Audit Committee 8.5 Continuous disclosure and shareholder communication (a) External financial reporting 8.6 Community and Environment (b) Related party transactions (c) Risk management and internal control 9. ASX PRINCIPLES OF GOOD CORPORATE (d) External audit GOVERNANCE AND BEST PRACTICE
(e) Internal corporate risk management and audit RECOMMENDATIONS 25 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 12 13 corporate governance statement
1. INTRODUCTION Copies of David Jones’ corporate governance practices have This Statement sets out the key corporate governance principles been posted on its website as required by the ASX Best Practice adopted by the Directors in governing David Jones and reflects Recommendations. the corporate governance policies and procedures which applied As detailed in this Statement, David Jones considers that its during the financial period ending 26 July 2008. The Company governance practices comply with 27 of the ASX Best Practice continues to monitor and review its corporate governance policies Recommendations. A checklist summarising this view is shown on and procedures. pages 25 to 26 of this Statement. 2. DAVID JONES’ APPROACH TO CORPORATE There is one recommendation where David Jones’ past practices GOVERNANCE only partially comply. 2.1 Framework and approach to corporate governance ASX Best Practice Recommendation 9.4 recommends companies and responsibility seek shareholder approval of equity-based reward schemes for The Board has the responsibility for ensuring David Jones is executives. David Jones has five equity-based reward plans, all properly managed so as to protect and enhance shareholders’ of which were introduced prior to the release of the ASX Best interests in a manner that is consistent with the Company’s Practice Recommendations. Shareholder approval has been responsibility to meet its obligations to all stakeholders. obtained for four plans and accordingly the requirements of ASX Best Practice Recommendation 9.4 in respect of these plans have For this reason, the Board is committed to maintaining the highest been met in full. standards of corporate governance across the David Jones Consolidated Entity. The four plans which fully comply with ASX Best Practice Recommendation 9.4 are: The Board believes that corporate governance is about having a set of values and behaviours that underpin the Company’s everyday – the Employee Share Plan which was established in 1995 and activities – values and behaviours that ensure transparency, risk approved by former shareholders prior to the listing of David management, accountability, value creation, fair dealing and Jones on the ASX in November 1995; and protection of the interests of stakeholders. Consistent with this – the EESP, DESP and Executive Option Plan which were belief, the Board’s approach is to consider corporate governance approved by shareholders at the 1998 Annual General Meeting. within the broader framework of corporate responsibility and regulatory oversight. In the case of the LTI Plan which was introduced in 2001, the requirements of ASX Best Practice Recommendation 9.4 have The Board has adopted practices as appropriate to ensure David only partially been complied with. However, although the LTI Plan Jones remains at the forefront in protecting stakeholder interests has not been explicitly approved by shareholders, at each relevant which are consistent with the “Principles of Good Corporate Annual General Meeting shareholder approval was obtained Governance and Best Practice Recommendations” (ASX Best to offer shares under the LTI Plan to David Jones’ Executive Practice Recommendations) published in March 2003 by the Directors. David Jones has also previously made extensive ASX Corporate Governance Council and the Commonwealth disclosures in relation to the LTI Plan in its notices of meeting and Government’s CLERP 9 amendments to the Corporations Act. financial statements. Details of the LTI Plan are also disclosed in In August 2007, the ASX Corporate Governance Council issued the Remuneration Report on pages 36 to 57 and in note 5 on revised Corporate Governance Principles and Recommendations, pages 75 to 76 of this Annual Report. In view of the foregoing which are effective from 1 January 2008 (Principles). David circumstances, and as shareholders have not raised any material Jones will be required to report against these Principles in its issues, David Jones does not propose to present the LTI Plan for 2009 Annual Report. The ASX Corporate Governance Council shareholder approval. All proposed grants to Executive Directors has encouraged entities to make an early transition to the new will however continue to be put to shareholders for approval. Principles. David Jones has commenced this transition and as at the In this Statement, the relevant governance items are linked to each date of this Annual Report has achieved substantial compliance. of the 28 ASX Best Practice Recommendations. A table on pages The Board’s approach has been guided by the principles and 25 to 26 of this Statement also links this Statement to the ASX practices that are in stakeholders’ best interests whilst ensuring Best Practice Recommendations. full compliance with legal requirements. The Company’s Corporate Governance Statement is available at For personal use only use personal For www.davidjones.com.au. 2.2 Compliance with the ASX Best Practice Recommendations The ASX Listing Rules require listed companies to include in their annual report a statement disclosing the extent to which they have followed the 28 ASX Best Practice Recommendations in the reporting period. Listed companies must identify the recommendations that have not been followed and provide reasons for the company’s decision.
David Jones Annual Report 2008 David Jones Annual Report 2008 14 15 3. THE BOARD OF DIRECTORS The CEO manages David Jones in accordance with the strategy, plans and delegations approved by the Board. 3.1 Membership and expertise of the Board The Board has a broad range of relevant skills, experience and The Board Charter is available in the Corporate Governance expertise to meet its objectives. The composition of the current section of the David Jones website. Board with details of each Director’s qualifications, experience ASX Best Practice Recommendation 1.1 and special responsibilities is set out on pages 10 to 11 of this Annual Report. 3.3 Board size and composition ASX Best Practice Recommendation 2.5 The Board determines its size and composition, subject to the limits imposed by David Jones’ constitution, using the following principles: 3.2 Board role and responsibility – the Board is to be comprised of both executive and non- The Board is responsible for protecting the rights and interests executive directors, with a majority of non-executive directors of shareholders and is accountable to them for the management who satisfy the criteria for independence; of David Jones. The Board Charter clearly defines the matters that are reserved for the Board and those that the Board has delegated – the directors shall be from different backgrounds with to management. complementary skills and experience; In summary, the Board’s accountabilities and responsibilities include: – the Chairman must be an independent non-executive director; – setting the direction, financial objectives and goals for – the same individual must not exercise the roles of Chairman or management; Deputy Chairman and CEO; and – reviewing and approving the annual budget and strategic plan; – all directors shall bring independent judgement to bear in decision-making. – monitoring management and financial performance against the Company’s financial objectives and goals; David Jones’ Board currently comprises six independent Non- Executive Directors (including the Chairman) and two Executive – reviewing and approving the strategic allocation of capital Directors being the CEO and Finance Director. including major capital projects and property leases; 3.4 The selection and role of the Chairman – approving capital management initiatives and major financing facilities; The Chairman is selected by the Board from the Non- Executive Directors. – evaluating the performance and determining the remuneration of the Chief Executive Officer (CEO), senior managers and the The Chairman’s role includes: Board (within the shareholder approved limit); – providing leadership to the Board and to David Jones; – ensuring the appropriate risk management systems, internal – ensuring efficient organisation and conduct of the Board; controls, reporting systems and compliance frameworks are in place and operating effectively; – monitoring Board performance annually; – ensuring there are plans and procedures for recruitment, training, – guiding the agenda and conduct of Board meetings; remuneration and succession planning for senior managers; – promoting consultative and respectful relations between – defining Board competencies, evaluating Board performance and Directors, and between the Board and management; and planning Board succession; – chairing shareholder meetings. – considering and approving David Jones’ interim and full year The current Chairman, Robert Savage, is an independent Non- financial statements; Executive Director appointed by the Board. He has been a – selection, appointment and removal of the CEO; and Director of David Jones since October 1999 and Chairman since July 2003. The Chairman is a member of the Remuneration and – ensuring there are appropriate standards of corporate Nominations Committee. governance and ethical behaviour.
The current Deputy Chairman, John Coates, is an independent For personal use only use personal For Responsibility for the day to day management and administration of Non-Executive Director appointed by the Board. He has been a David Jones is delegated by the Board to the CEO, assisted by the Director of David Jones since October 1995 and Deputy Chairman Management Committee. since October 2003. The Deputy Chairman is a member of the Board Audit Committee. ASX Best Practice Recommendations 2.2, 2.3
David Jones Annual Report 2008 David Jones Annual Report 2008 14 15 corporate governance statement
3.5 Directors’ independence 3.6 Avoidance of conflicts of interest by a Director It is the Board’s view that each of its Non-Executive Directors is In accordance with the Corporations Act, any Director with a independent. material personal interest in a matter being considered by the Board must not be present when the matter is being considered The Board has adopted specific principles in relation to Non- and may not vote on the matter. Directors must keep the Board Executive Directors’ independence. A Non-Executive Director advised, on an ongoing basis, of any interest that could potentially is considered to be independent when not a member of conflict with those of David Jones. The Board has developed management and: procedures to assist Directors to disclose potential conflicts of – is not a substantial shareholder of David Jones or an officer of, interest. Where a significant conflict exists, the Director concerned or otherwise associated directly with, a substantial shareholder of declares their interests in those dealings to the Board and takes no the Company; part in decisions or discussions relating to them.
– within the last three years has not been employed in an 3.7 Meetings of the Board and their conduct executive capacity by David Jones or another David Jones Group The full Board currently holds not less than eight scheduled member, or been a Director after ceasing to hold any such meetings per year, plus strategy and other additional meetings employment; as necessary to address any specific significant matters that may – within the last three years has not been a principal of a material arise. The agenda for scheduled Board meetings incorporates professional adviser or material consultant to David Jones (or standing items including the CEO’s report, financial reports, Board another David Jones Group member), or a director, officer, Committee reports, strategic matters, governance and compliance. employee or consultant materially associated with the service Executives are regularly involved in Board discussions and Directors provided by a material professional adviser or material consultant have other opportunities, including visits to stores and business to the Company; functions, for contact with a wider group of employees. – is not a material supplier or customer of David Jones or other A meeting of Non-Executive Directors is also held on the same David Jones Group member, or an officer of or otherwise date as each scheduled Board meeting to discuss the operation of associated directly or indirectly with a material supplier or the Board and a range of other matters. customers; The number of Board meetings, Non-Executive Directors’ meetings – has no material contractual relationship with David Jones or and Board Committee meetings held during the year is set out in another David Jones Group member other than as a Director the Directors’ Report on page 33 of this Annual Report. of the Company; 3.8 Succession Planning – has not served on the Board for a period which could, or The Board plans succession of its own members in conjunction could reasonably be perceived to, materially interfere with the with the Remuneration and Nominations Committee, taking Director’s ability to act in the best interests of David Jones; and into account the skills, experience and expertise required and – is free from any interest and any business or other relationship, currently represented, and David Jones’ future direction. The which could, or could reasonably be perceived to, materially Board is also responsible for succession planning for the CEO, and interfere with the Director’s ability to act in the best interests for ensuring succession plans for the Finance Director and other of the Company. senior managers.
Materiality for these purposes is assessed on both qualitative and 3.9 Review of Board performance quantitative bases having regard to all the circumstances of the The Board has in place a process to review its performance relationship, including among other things the: annually. In line with the Company’s continuous improvement – strategic importance to David Jones’ business of the goods or focus, the performance evaluation process of the Board has services purchased or supplied by David Jones; been benchmarked against the evaluation practices of Boards in other ASX listed companies. As a result, the core elements – proportion of a class of expenses or revenues that the of the evaluation process have been further enhanced and are relationship represents to both David Jones and the third party; summarised below: – nature of the goods and services;
– the performance evaluation of the Board and Chairman is For personal use only use personal For – nature and value of the transaction to David Jones and the other comprised of structured interviews, written surveys and from third party to the transaction; and time to time involves assistance of an independent adviser; – nature of the position or interest held by a third party. ASX Best Practice Recommendations 2.1, 2.5
David Jones Annual Report 2008 David Jones Annual Report 2008 16 17 – a self assessment process is undertaken by all Directors for The Board has adopted a formal policy whereby the Directors may, review by the Chairman, and an assessment of the Chairman is subject to the Chairman’s consent which may not be unreasonably completed by the Deputy Chairman and other Directors. The withheld or delayed, individually or collectively obtain independent review incorporates the performance of the Board as a whole professional advice, at the expense of David Jones, in the relative to the Board Charter and each Board Committee under furtherance of their duties as Directors of the Company. its respective charter; ASX Best Practice Recommendation 2.5 – integral to the process is feedback from key stakeholders and senior management which is obtained through an interview 4. BOARD COMMITTEES process; and 4.1 Board committees and membership – the Chairman conveys the results of the performance evaluation To assist in the execution of responsibilities, the Board has in process to each Director and the Board and these results form place two Board committees comprising a Remuneration and the basis of an action plan designed to address performance Nominations Committee and an Audit Committee. improvement opportunities. Personnel and remuneration matters have been delegated to the A Board evaluation process was completed in November 2007. Board Remuneration and Nominations Committee for review. ASX Best Practice Recommendation 8.1 In general, the review of financial reporting, financial risk management, audit and compliance matters has been delegated to 3.10 Nomination and appointment of new Directors the Board Audit Committee. Recommendations for nominations of new Directors are made The members of the Board Remuneration and Nominations by the Board Remuneration and Nominations Committee and Committee are: considered by the Board as a whole. Reginald Clairs AO (Chairman) The agreed process for the appointment of Non-Executive Katie Lahey Directors to the Board is reviewed at the time the need for a Robert Savage new Director is identified or an existing Director is required to stand for re-election. The Board Remuneration and Nominations The members of the Board Audit Committee are: Committee reviews the range of skills, experience and expertise John Harvey (Chairman) on the Board, identifies its needs and prepares a short-list of John Coates AC candidates with appropriate skills and experience. For the purpose Peter Mason AM (appointed on 25 March 2008) of objectivity, the selection process is supported throughout by Robert Savage (from 25 March 2008 the Chairman has attended independent consultants. meetings in an ex officio capacity) The Board Remuneration and Nominations Committee reviews Other committees may be established from time to time to and makes recommendations for Board approval in respect of the consider matters of special importance. appointment, contract terms, and termination of the CEO. ASX Best Practice Recommendations 4.2, 9.2 It also provides the Board with the opportunity to review the appointment or termination of any executive reporting to the 4.2 Committee charters CEO, and the Company Secretary, prior to implementation. The roles and responsibilities of each Committee are set out ASX Best Practice Recommendation 2.5 in the Committee charters. Copies of the Committee charters are available in the Corporate Governance section of the 3.11 Retirement and selection of Directors David Jones website. The Constitution of David Jones specifies that all Directors (with Each Committee is entitled to the resources and information it the exception of the CEO) must retire from office no later than requires, including direct access to employees and advisers. The the third Annual General Meeting following their last election. CEO, senior executives and certain other employees are invited Where eligible, a Director may stand for re-election. to attend Committee meetings. All Directors receive copies of 3.12 Board access to information and advice all Committee papers and meeting minutes, and can attend all Committee meetings. For personal use only use personal For All Directors have unrestricted access to Company records and information and receive regular detailed financial and operational Committee members are chosen for the skills, experience and reports from management to enable them to carry out their duties. other qualities they bring to the Committees. As soon as possible following each Committee meeting, the Board is given a verbal report by the Committee Chairman.
David Jones Annual Report 2008 David Jones Annual Report 2008 16 17 corporate governance statement
All matters determined by Committees are submitted to the – assess from time to time the extent to which the required full Board as recommendations for Board decision. Minutes of competencies are represented on the Board; Committee meetings are tabled at a subsequent Board meeting. – ensure that succession plans are in place to maintain the The performance of Committees is discussed and reviewed initially required competencies, and the number and profiles of the within each Committee and then reviewed as part of the Board’s Board members; performance review. The performance of each member of the – assist the Chairman as required to evaluate the performance of Committees is evaluated as part of the performance review of the Board, its Committees, and individual members, including the each Director. performance of the CEO; ASX Best Practice Recommendations 4.4, 4.5, 8.1, 9.2, 9.5 – ratify appointments to David Jones’ Management Committee; and 4.3 Remuneration and Nominations Committee – review and assess succession plans for executive positions The role of the Board Remuneration and Nominations Committee reporting to the CEO. is documented in a charter that has been approved by the Board Further details around the Remuneration and Nominations and is reviewed on an annual basis. Committee’s responsibilities as they relate to remuneration are The objectives of the Committee are to assist the Board in detailed on page 37 in the Remuneration Report. ensuring David Jones has: ASX Best Practice Recommendations 2.4, 2.5, 9.2, 9.5 – a Board of effective composition, size and commitment to adequately discharge its responsibilities and duties; 4.4 Audit Committee The objectives of the Board Audit Committee are to provide – remuneration policies and practices that are aligned with David advice and assistance to the Board to: Jones’ strategy and objectives; and – safeguard the integrity of financial reporting; – fair and responsible remuneration of Directors and executives, having regard to the performance of David – make timely and balanced disclosure; Jones, the performance of the executives and the general – recognise and ensure risk is appropriately managed; and remuneration environment. – oversee and assess the effectiveness of the Company’s risk The Committee’s responsibilities in connection with management and internal control system. remuneration include: The Audit Committee comprises three independent Non- – the review and recommendation for shareholder approval of Executive Directors and the Chairman of the Board sits on the Non-Executive Director remuneration; Audit Committee in an ex officio capacity. The Committee has – the review of and recommendation to the Board on the appropriate financial expertise and all members have a sound remuneration of the CEO and Finance Director, and the terms knowledge of the industry in which David Jones operates. The of their employment contracts; Committee Chairman is a chartered accountant and was formerly a registered company auditor, although he has never acted as an – approval, on the recommendation of the CEO, of the auditor of David Jones. remuneration of the members of the Management Committee, including the terms of their employment contracts; The external auditors, internal Corporate Risk Management and Audit Manager, Chairman of the Board, CEO, Finance Director and – the review of and recommendation to the Board on the other senior executives attend Audit Committee meetings at the nature and composition of short-term and long-term incentive invitation of the Committee. plans; and This Committee has specific responsibility for the following. – the review and recommendation to the Board of any annual payments to be made under any incentive plans. (a) External financial reporting The Committee’s responsibilities in connection with nominations The Committee reviews and recommends all aspects of external include to: financial reporting including:
For personal use only use personal For – conduct searches for new Board members and recommend – accounting policies and principles and any changes to them; preferred candidates to the Board, including the CEO and – significant estimates and adjustments in the financial reports; Finance Director; – compliance with related party disclosures; – recommend required Board competencies and the number and profiles of Directors; – discussion of half-year and full-year financial reports with management, auditors and other advisers as appropriate, and the adoption of those reports by the Board;
David Jones Annual Report 2008 David Jones Annual Report 2008 18 19 – policies and procedures for the adoption of new accounting The Committee also monitors and reports to the Board on standards and pronouncements; and Management’s responsiveness to internal Risk Review reports, findings and any recommendations. – the integrity of David Jones’ written policies and procedures designed to ensure continuous disclosure and accurate The CRM & A Manager reports directly to the Committee, financial reporting. except in respect of operational matters which are delegated to the Finance Director, and members have the opportunity (b) Related party transactions to meet with the CRM & A Manager without the presence of The Committee reviews, monitors and recommends for approval other management. by the Board all related party transactions. The effectiveness of the Audit Committee is periodically reviewed (c) Risk management and internal control by independent experts. The David Jones Board is responsible for overseeing the (f) Meetings establishment, implementation and ongoing effectiveness of the Company’s risk management and internal control system. The The number of Audit and Risk meetings held during the year is set Audit Committee provides advice and assistance to the Board in out in the Directors’ Report on page 33 of this Annual Report . meeting that responsibility. ASX Practice Recommendations 4.2, 4.3, 4.4, 4.5 The roles, responsibilities and processes established by 5. EXTERNAL AUDITOR INDEPENDENCE management are described in the Risk Management and Internal Control Compliance and Control Systems Policy. 5.1 Approach to auditor independence The Committee evaluates results and reports from those processes David Jones’ Board Audit Committee has adopted a policy for including: external auditor independence and the provision of non-audit related services to ensure best practice in financial and audit – the risk management and control system; governance is maintained. The policy has been endorsed by – the risk profile; the Board. – results of independent risk reviews; The fundamental principle of auditor independence reflected in the policy is that in order for the external auditor to be independent, – risk reporting, and; a conflict of interest situation must not exist between David Jones – regulatory compliance. and the auditor. A conflict of interest situation would exist if the external auditor or a professional member of the audit team were (d) External audit not capable of exercising objective and impartial judgement in The Committee is responsible for making recommendations relation to the conduct of the audit of David Jones. to the Board concerning the appointment of David Jones’ For the external auditor to be eligible to undertake any non-audit external auditor including remuneration and other terms of the related services, the external auditor must not as a result of the auditor’s engagement. assignments: The Committee reviews the performance of the external auditor – create a mutual or conflicting interest with that of David Jones; and each half-year will review the independence of the external auditor including compliance with its policy covering the provision – audit their own work; of non-audit services. – act in a management capacity or as an employee; or The external auditor meets directly with this Committee. The – act as an advocate for David Jones. Committee has the opportunity to meet with the external auditor without management being present and Committee members are 5.2 Certification of independence free to contact the external auditor at any time. Each half-year the external auditor provides the Committee and (e) Internal corporate risk management and audit Board with an independence declaration certifying its continued The Committee is responsible for making recommendations to independence, and in particular confirming that it has not carried the Board concerning the appointment of David Jones’ General out any engagements during the year that would impair its
For personal use only use personal For Manager, Corporate Risk Management and Audit Manager (“CRM professional independence as the auditor, as contemplated by the & A Manager”) including remuneration and other terms of the Code of Professional Conduct jointly issued by the Institute of CRM & A Manager’s engagement. Chartered Accountants in Australia and CPA Australia, and the Corporations Act. The Committee reviews the performance of the CRM & A function. The external auditor is also required to confirm it will retain all Each year, the Committee reviews the internal Risk Review plan working papers for the audit (or review) for a period of seven and recommends it to the Board for approval. years after the date of the audit report.
David Jones Annual Report 2008 David Jones Annual Report 2008 18 19 corporate governance statement
5.3 Other monitoring of independence 5.5 Attendance at the Annual General Meeting The Board Audit Committee will review and approve or decline, as David Jones requires a partner of its external auditor to attend its considered appropriate, before the engagement commences, any Annual General Meeting and be available to answer questions from individual engagement for non-audit related services involving fees shareholders about the audit. The audit partner from Ernst and exceeding or estimated to exceed $50,000 Australian dollars. Young attended the 2007 Annual General Meeting. David Jones ensures that written questions received from shareholders are No work will be awarded to the external auditor if the Committee given to the external auditor to be answered, along with any other believes such work would be in contravention of the Corporations questions put to the auditor at the Annual General Meeting. Act, give rise to a ‘self review threat’ (as defined in Professional Statement F1) or would create a conflict, or perceived conflict of ASX Best Practice Recommendation 6.2 interest, for the external auditor or any member of the audit team. 6. OVERSEEING, MANAGING AND CONTROLLING RISK Further, if, in the view of the Committee, the level of fees for non-audit related services being provided by the external auditors 6.1 Approach to risk oversight, risk management and is of a magnitude that could impair, or be perceived to impair, the internal control auditor’s independence, the Committee may, from time to time, David Jones’ approach to risk oversight, risk management and impose a restriction on non-audit work being awarded to the internal control has been developed and is consistent with external auditor. recognised industry reference material and guidelines including the ASX “Corporate Governance Principles and Recommendations, The Committee receives half-yearly reports on audit related “Risk Management AS/NZS 4360” (Standards Australia), and services undertaken and fees incurred, together with comparative publications from The Committee of Sponsoring Organisations information for prior years, to assist in the monitoring of the from the Treadway Commission (“COSO”). provision of such services. The risk management process is designed to ensure material risks David Jones requires rotation of a person who plays a significant are identified, assessed, mitigated through effective internal controls role in the external audit of the David Jones Group for five and monitored to manage risk in the achievement of David Jones’ successive financial years or for five out of seven successive business objectives. Material risks are those with significant areas of financial years, with suitable succession planning to ensure uncertainty or exposure at an enterprise level that could have an consistency. A person who is rotated off the audit cannot play impact on the achievement of company objectives. The assessment a significant role in the audit for at least two successive financial includes threats and opportunities. David Jones considers risk in at years. An external audit partner rotation occurred in 2007. least the following categories: A former member or director of the external auditor who was – strategy; directly involved in an audit of David Jones (or its controlled entities) cannot be appointed an officer (Director, Company – brand and reputation; Secretary or senior manager) of David Jones during the two year – products and service quality; period following the former member’s or director’s resignation from the external audit firm. – operational; David Jones’ independent external auditor, Ernst & Young, was – sustainability; appointed by shareholders at the 2003 Annual General Meeting. – ethical conduct; An analysis of the fees paid to the external auditors is provided in – compliance; note 27 on page 93 of this Annual Report. – technological; No fees were paid to Ernst & Young for non-audit services in 2007. – financial reporting; 5.4 Prohibited non-audit services by the external auditor – human capital, and No work carried out by an external auditor will be approved, and the external auditor will not provide services, involving: – market. – preparation of accounting records and financial statements; David Jones has an effective control environment to manage its
For personal use only use personal For material risks with the following components: – information technology systems design and implementation; – comprehensive risk management framework; – valuation services and other corporate finance activities; – clearly defined management responsibilities and – internal audit services; or organisational structure; – secondment of senior staff to act in a management capacity. – delegated limits of authority defined by a Delegations Manual;
David Jones Annual Report 2008 David Jones Annual Report 2008 20 21 – accounting control and reconciliations; 6.3 Executive declaration – strong management reporting systems; The CEO and the Finance Director have provided the following declaration to the Board in connection with the financial statements – disciplined budgeting and rolling five year strategic plan processes; of David Jones for the financial period ended 26 July 2008: – regular internal review and mechanisms including the – David Jones’ financial statements and accompanying notes operation of a Capex Committee, Marketing Forum and present a true and fair view, in all material respects, of David Management Committee; Jones’ financial condition and operating results, and are in – personnel requirements for key positions; accordance with relevant accounting standards; – segregation of duties; – the statement referred to in the above paragraph is founded on a system of risk management, internal compliance and control, – physical and logical security over company assets; which implements the policies adopted by the Board; – appropriate policies and procedures that are widely disseminated – David Jones’ risk management and internal compliance and to, and understood by, employees; control systems are operating efficiently and effectively in all – an independent corporate risk management and internal audit material respects; and function; and – the financial records of David Jones for the financial period – an internal and external audit function. ended 26 July 2008 have been properly maintained in accordance with section 286 of the Corporations Act. The risk categories identified above are interlinked and the control environment is integrated to manage those risks. ASX Best Practice Recommendations 4.1, 7.2, 7.3 ASX Best Practice Recommendations 7.1, 7.3 7. REMUNERATION POLICES AND PROCEDURES
6.2 Risk management and internal control roles 7.1 Overview and responsibilities David Jones has established processes to ensure that the level The David Jones Board is responsible for overseeing and assessing and composition of remuneration are sufficient, reasonable and the effectiveness of the Company’s risk management and internal explicitly linked to performance. These processes are described control system. The Audit Committee provides advice and below and on pages 36 to 57 in the Remuneration Report. assistance to the Board in meeting that responsibility. Non-Executive Directors David Jones’ management is responsible for and has implemented The Remuneration and Nominations Committee is a risk management and control system. The risk identification, responsible for recommending to the Board fees applicable to analysis and mitigation process is documented in the Company’s Non-Executive Directors. Risk Profile. The process is designed to ensure material risks are In accordance with a resolution of shareholders at the 2006 Annual identified, assessed, mitigated through effective internal controls General Meeting, the maximum aggregate amount that is permitted and monitored to minimise risk in the achievement of David Jones’ to be paid to Non-Executive Directors under the David Jones business objectives. constitution is $1.8 million per annum. The Risk Profile is reviewed and updated at least annually by the Contributions to the retirement allowance plan for Non-Executive Audit Committee. The Risk Profile forms the basis of planning Directors (other than notional interest adjustments based on the and conducting independent reviews by the internal Corporate retirement allowance balance) were discontinued in October 2004. Risk Management & Audit function or other independent experts Since October 2003 no new directors have been entitled to join to provide independent assurance over the operation of key this plan. controls in place to address the material risks. External audit has full access to the Risk Profile, results of the internal Corporate Non-Executive Directors may also be reimbursed for their Risk Management & Audit reviews, and results of any other expenses properly incurred as a Director, or in the course of their independent expert reviews. duties. Non-Executive Directors are also encouraged to own David Jones shares and may participate in the DESP if they elect to The role of the Audit Committee in relation to risk management sacrifice Directors’ fees and have shares purchased under the Plan For personal use only use personal For is described in Section 4.4. at market value. The Non-Executive Directors do not participate in A copy of David Jones’ Risk Management Policy and internal any other David Jones employee share plans nor its short or long- compliance and control systems is available in the Corporate term incentive schemes. Governance section of David Jones’ website.
David Jones Annual Report 2008 David Jones Annual Report 2008 20 21 corporate governance statement
Executive Directors and Senior Managers 7.3 LTI Plan The Remuneration and Nominations Committee is responsible David Jones’ LTI Plan was introduced in 2001. Executive Directors for recommending to the Board remuneration policies, fees, and executives are eligible to participate in this plan. salaries, and short and long-term incentives applicable to Executive Under this plan, eligible participants may be granted the right Directors and senior managers of the Company. to receive a certain number of ordinary shares in David Jones, David Jones’ remuneration policies are designed to drive a which may vest, conditional on the achievement of performance performance culture and to ensure that the way in which measures covering a three year consecutive period. employees are recognised and rewarded through remuneration The Board has determined that the following performance is in the best interests of the shareholders, the Company and measures, which operate independently of each other, will be the individual. used to determine the entitlement of participants to receive shares The remuneration policy achieves this in the following ways: under this plan. The performance measures are: – by applying a “pay for performance” philosophy which ensures – TSR (all LTI Plan offers); executive remuneration is linked to both individual performance – ROFE (up to and including the 2006–2008 offer); and and Company performance; – EPS (2007–2009 offers). – by providing remuneration that is market competitive to ensure David Jones has the ability to retain and motivate strong In addition, selected executives are subject to NPAT and TSR performing employees and attract high calibre prospective measures under the FY09–FY12 Retention Plan, as disclosed on employees; and pages 41 to 49 of the Remuneration Report. – by undertaking an annual evaluation process on the performance Depending on David Jones’ performance against these measures, a of all executives, the results of which contribute to the number of shares may vest in favour of participants, at which time determination of any salary adjustment an individual executive the participants will become beneficially entitled to, and enjoy the may receive. rights attaching to, the shares, subject to the terms and conditions of the plan. As detailed in the Remuneration Report, the short and long- term incentive components of remuneration are determined If the performance conditions are not met within the performance with reference to external benchmarking and advice from period, the conditional entitlement to some or all of the offered independent experts. shares will lapse. In addition, special Retention Offers under the LTI Plan were made to ensure the ongoing tenure of key The financial hurdles in the STI Scheme and LTI Plan are (as employees, in 2006 during a period of industry restructure, and applicable) determined through a structured budgeting and three more recently in 2008 to secure the delivery of the Company’s year planning process that requires full Board approval. FY09–FY12 strategy. Further details relating to the LTI Plan, Payments made under the STI Scheme and shares issued including the Retention Offers, are provided on pages 40 to 50 under the LTI Plan are audited or reviewed by the Company’s in the Remuneration Report. external auditors. 7.4 Other equity schemes in David Jones The Remuneration and Nominations Committee’s responsibilities Other equity schemes in David Jones are the in relation to remuneration are detailed on page 37 in the Remuneration Report. – Employee Share Plan;
7.2 STI Scheme – Employee Share Purchase Plan; Under David Jones’ STI Scheme, the Executive Directors and – EESP; senior managers can earn a cash based payment which represents – DESP; and a pre-determined percentage of their employment cost (which is comprised of base salary and superannuation contributions). – Executive Option Plan. Payments under this scheme are dependent on the achievement The relevant details of each scheme are contained in the of specific financial objectives relating to sales, gross profit, costs, Remuneration Report on page 50 and in note 29 on inventory management and profit after tax (as applicable to For personal use only use personal For pages 99 to 106 of this Annual Report. the relevant position) with a key component also based on the assessment of personal performance. ASX Best Practice Recommendations 9.1, 9.2, 9.3, 9.4, 9.5 The Board intends that similar conditions will be imposed in future financial years. Further details of the STI Scheme are provided on pages 38 to 40 in the Remuneration Report.
David Jones Annual Report 2008 David Jones Annual Report 2008 22 23 8. CORPORATE CONDUCT AND RESPONSIBILITY – Risk Management Guidelines; 8.1 Approach to corporate conduct – Delegations Manual; To continue its tradition of excellence, David Jones must uphold – Treasury Policy; the honest and transparent business practices that customers, shareholders, suppliers and the community have come to expect. – Capital Expenditure Policy; With this in mind, David Jones aims to maintain a high standard of – Share Trading Policy; and ethical business behaviour at all times and expects its Directors, senior management, employees and contractors to treat others – Occupational Health and Safety, Equal Opportunity and other with fairness, honesty and respect. human resources policies. David Jones has a Code of Ethics and Conduct (Code), which has ASX Best Practice Recommendations 3.1, 3.2, 3.3, 10.1 been provided to employees and is available in the Corporate 8.3 Compliance with the Code Governance section of the David Jones website. David Jones is committed to promoting and maintaining a ASX Best Practice Recommendations 3.1, 10.1 culture of honest, ethical and law abiding behaviour. To fulfil this commitment, David Jones has processes in place to ensure that: 8.2 The David Jones Code of Ethics and Conduct The Code applies to all Directors and employees. The Code has – violations of the Code are detected and reported; and been fully endorsed by the Board and is provided to all Directors – appropriate action is taken in response to any such violations. and employees as part of their formal orientation process. The Code governs workplace and human resource practices, risk David Jones encourages Directors and employees to report management and legal compliance, and is aligned to the David promptly, in good faith, any violations or suspected violations Jones’ core values of teamwork, integrity and performance. The of this Code. All employees have access to a confidential ethics Code is reviewed periodically and has been amended to reflect the hotline, which they are encouraged to use and may do so on ASX Best Practice Recommendations. an anonymous basis. All reports are investigated promptly, confidentially and fairly. In summary, the Code reflects the requirement to: The policy underlying these procedures ensures that employees are – uphold the reputation of David Jones with all stakeholders in not disadvantaged in any way for reporting violations of the Code terms of quality, service, legal compliance and ethical conduct; or other unethical conduct. – respect property and the ownership of that property; ASX Best Practice Recommendations 3.1, 10.1 – maintain confidentiality and privacy of information; 8.4 Share Trading Policy – ensure equal opportunity for all employees; Consistent with the legal prohibitions on insider trading, all – maintain a safe and healthy environment for customers and Directors, officers, members of senior management, other employees alike; employees and consultants are prohibited from dealing in David Jones shares, options or other securities while in possession of – treat all employees in a fair and professional manner, ensuring unpublished price sensitive information about David Jones. David the workplace is free from harassment, discrimination and Jones price sensitive information is information that a reasonable bullying; person would expect would have a material effect on the price – ensure business is conducted fairly, honestly and objectively, or value of David Jones’ securities. Directors, officers, members of in ways that benefit David Jones’ stakeholders: shareholders, senior management, other employees and consultants may acquire customers, employees, suppliers and the communities in which shares in David Jones where they are not in possession of any price David Jones operates; sensitive information which has not been made publicly available to the market, but are prohibited from dealing in David Jones shares – avoid (and disclose) situations or transactions which, or might be or exercising options: seen to, conflict with the interests of David Jones, including gifts and benefits from suppliers; – if in possession of price sensitive information; – trading for short-term gain; and
For personal use only use personal For – comply with the David Jones policy on trading in shares; and – report and investigate instances of unethical behaviour. – outside the following permitted trading periods: Other responsibility policies and codes that operate in – within six weeks after the date of release of the Company’s David Jones include: half-year and annual results to the ASX; and – Legal Compliance Manual; – the rights trading period when the Company has issued a prospectus for those rights. – External Communications and Continuous Disclosure Policy;
David Jones Annual Report 2008 David Jones Annual Report 2008 22 23 corporate governance statement
Prior to 20 March 2007, the prohibited trading periods under the Directors, officers, members of senior management and other Company’s Share Trading Policy were the two months preceding employees and consultants are also prohibited from dealing in the the lodgement of the Company’s half-year and annual results with securities of outside companies about which they may gain price the ASX. This was amended on 20 March 2007 to provide for a sensitive information by virtue of their position with David Jones. more robust policy. David Jones’ share trading policy is available in the Corporate Other restrictions on trading covered by this policy include specific Governance section of its website. terms relating to the use of financial products to limit the risk ASX Best Practice Recommendations 3.2, 3.3 attaching to shares and other equity (that is hedging) where that equity is granted as part of remuneration. Specifically, Directors, 8.5 Continuous disclosure and shareholder communication officers, members of senior management and other employees David Jones is committed to: and consultants: – ensuring shareholders and the investment market are provided – are prohibited from entering into transactions in financial with full and timely information about its activities; products which operate to limit the economic risk of security holdings in the Company over unvested entitlements or vested – ensuring that all stakeholders have equal opportunity to receive entitlements subject to a holding lock or restriction on dealing externally available information issued by David Jones; and (known as restricted entitlements) including, without limitation, – complying with the continuous disclosure obligations contained any hedging or similar arrangement in respect of unvested in applicable ASX Listing Rules and the Corporations Act. entitlements or restricted entitlements held or granted under any equity based remuneration scheme; and David Jones’ Continuous Disclosure Policy sets out David Jones’ commitment to comply with its continuous disclosure obligations. – must advise the Company of any entry into, renewal of, alteration of or closure of any hedging arrangement in respect A copy of the Continuous Disclosure Policy is available in the of vested and unrestricted security holdings in the Company (at Corporate Governance section of David Jones’ website. the same time confirming that they are not in possession of any unpublished price-sensitive information). Under this Policy, the Board will, as soon as it becomes aware of information concerning David Jones that would be likely to The Company regards compliance with the Share Trading Policy have a material effect on the price or value of David Jones’ as fundamental. A breach of the Share Trading Policy (including securities, ensure that the information is released to the Company a breach of the hedging policy described above) will be regarded Announcements office of the ASX. The Board has appointed a as serious misconduct which may lead to disciplinary action committee comprising the CEO, Finance Director and the General (including dismissal). Manager – Investor Relations to continually monitor compliance and to ensure appropriate communications with the ASX through Directors, officers and members of senior management are also the office of the General Counsel and Company Secretary. prohibited from entering into any stock lending or other similar arrangements in relation to their security holding in the Company. The Board aims to keep shareholders informed of all major developments affecting David Jones’ activities and its state of affairs David Jones requires that Directors must advise the Chairman, and through distribution of the Annual Report. The Board encourages officers, members of senior management and consultants to advise full participation of shareholders at the Annual General Meeting to the Company Secretary or Chief Executive Officer of the following: ensure a high level of accountability and identification with David – a proposed trade in the Company’s shares, options or other Jones’ strategy and goals. The Company’s senior management and securities prior to any trade and confirm they are not in auditors attend the Annual General Meeting to answer questions of possession of any unpublished price-sensitive information; shareholders as required. – any transaction or arrangement proposed to be entered into, All recent David Jones announcements, media briefings, details of renewed, altered or closed out which may operate to limit the David Jones meetings, press releases and annual reports for the last economic risk of their vested and unrestricted security holdings five years and information on all corporate governance practices in the Company and confirm they are not in possession of any are placed on the David Jones’ website at www.davidjones.com.au. unpublished price-sensitive information; ASX Best Practice Recommendations 5.1, 5.2, 6.1 – any margin loan arrangement proposed to be entered into in For personal use only use personal For relation to security holdings in the Company; and 8.6 Community and the environment Information in relation to the Company’s approach to the – any proposed transfer of Company securities into an existing environment and the community is set out on pages 27 and 30 margin loan account. respectively of the Annual Report. The ASX is notified of any transactions conducted by Directors.
David Jones Annual Report 2008 David Jones Annual Report 2008 24 25 9. ASX PRINCIPLES OF GOOD CORPORATE GOVERNANCE AND BEST PRACTICE RECOMMENDATIONS As at March 2003 ASX Principle and Recommendations Reference1 Compliance Principle 1 Lay solid foundations for management and oversight 1.1 Formalise and disclose the functions reserved to the board and those delegated 3.2 Comply to management. Principle 2 Structure the board to add value 2.1 A majority of the board should be independent directors. 3.5 Comply 2.2 The chairperson should be an independent director. 3.3, 3.4 Comply 2.3 The roles of chairperson and chief executive officer should not be exercised 3.3, 3.5 Comply by the same individual. 2.4 The board should establish a nomination committee. 4.3 Comply 2.5 Provide the information indicated in Guide to reporting on Principle 2. 3.1, 3.5, 3.10, 3.12, 4.3 Comply Principle 3 Promote ethical and responsible decision-making 3.1 Establish a code of conduct to guide the directors, the chief executive officer (or equivalent), the chief financial officer (or equivalent) and any other key executives as to: 3.1.1 the practices necessary to maintain confidence in the company’s integrity 8 Comply 3.1.2 the responsibility and accountability of individuals for reporting and investigating 8 Comply reports of unethical practices 3.2 Disclose the policy concerning trading in company securities by directors, 8.2, 8.4 Comply officers and employees. 3.3 Provide the information indicated in Guide to reporting on Principle 3. 8 Comply Principle 4 Safeguard integrity in financial reporting 4.1 Require the chief executive officer (or equivalent) and the chief financial officer 6.3 Comply (or equivalent) to state in writing to the board that the company’s financial reports present a true and fair view, in all material respects, of the company’s financial condition and operational results and are in accordance with relevant accounting standards. 4.2 The board should establish an audit committee. 4.1, 4.4 Comply 4.3 Structure the audit committee so that it consists of: 4.4 Comply 4.3.1 only non-executive directors 4.2, 4.4 Comply 4.3.2 a majority of independent directors 4.3.3 an independent chairperson, who is not chairperson of the board 4.3.4 at least three members 4.4 The audit committee should have a formal charter
For personal use only use personal For 4.5 Provide the information indicated in Guide to reporting on Principle 4 4.2, 4.4 and Directors’ Report Comply
David Jones Annual Report 2008 David Jones Annual Report 2008 24 25 corporate governance statement
ASX Principle and Recommendations Reference1 Compliance Principle 5 Make timely and balanced disclosure 5.1 Establish written policies and procedures designed to ensure compliance with ASX Listing Rule 8.5 Comply disclosure requirements and to ensure accountability at a senior management level for that compliance. 5.2 Provide the information indicated in Guide to reporting on Principle 5. 8.5 Comply Principle 6 Respect the rights of shareholders 6.1 Design and disclose a communications strategy to promote effective communication with 8.5 Comply shareholders and encourage effective participation at general meetings. 6.2 Request the external auditor to attend the Annual General Meeting and be available to answer 5.5 Comply shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. Principle 7 Recognise and manage risk 7.1 The board or appropriate board committee should establish policies on risk oversight 6.1 Comply and management. 7.2 The chief executive officer (or equivalent) and the chief financial officer (or equivalent) should state to the board in writing that: 6.3 Comply 7.2.1 The statement given in accordance with best practice recommendation 4.1 (the integrity of 6.3 Comply financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board. 7.2.2 The company’s risk management and internal compliance and control system is operating efficiently 6.3 Comply and effectively in all material respects. 7.3 Provide the information indicated in Guide to reporting on Principle 7. 6.1, 6.3 Comply Principle 8 Encourage enhanced performance 8.1 Disclose the process for performance evaluation of the board, 3.9, 4.2 and Remuneration Report Comply its committees and individual directors, and key executives. Principal 9 Remunerate fairly and responsibly 9.1 Provide disclosure in relation to the company’s remuneration polices to 7 and Remuneration Report Comply enable investors to understand (i) the costs and benefits link between those policies and (ii) the remuneration paid to directors and key executives and corporate performance. 9.2 The board should establish a remuneration committee. 4.1, 4.2, 4.3, 7 Comply 9.3 Clearly distinguish the structure of non-executive directors’ remuneration 7 and Remuneration Report Comply from that of executives. 9.4 Ensure that payment of equity-based executive remuneration is made 2.2, 7 and Remuneration Report Partially in accordance with thresholds set in plans approved by shareholders. comply 9.5 Provide the information indicated in Guide to reporting on Principle 9. 4.2, 4.3, 7 and Remuneration Report Comply Principle 10 Recognise the legitimate interests of stakeholders
For personal use only use personal For 10.1 Establish and disclose a code of conduct to guide compliance with legal 8.1, 8.2, 8.3 Comply and other obligations. 1 References to section numbers refer to the relevant sections of this Corporate Governance Statement.
David Jones Annual Report 2008 David Jones Annual Report 2008 26 27 environment
David Jones has improved energy efficiency by 8.3%, increased the Energy Management amount of recyclables diverted from landfill to 1,600 tonnes and Since 2006, David Jones has implemented a range of initiatives that sold more than 50,000 reusable shopping bags have aimed to reduce total energy consumption and greenhouse gas emissions at the lowest cost to the business. Environment Policy In recognition of David Jones’ responsibilities to its shareholders, As a result, David Jones recorded a 5.5% reduction in total energy its customers and to the broader community, and in preparation consumption for the two years to July 2008 (including usage for a transition to a low-carbon economy, David Jones aims to from new stores and refurbishments) or 6.1% on a like-for-like manage and, where viable, reduce the environmental impact of its basis. Concurrently, greenhouse gas emissions from electricity operations. consumed by the business have been reduced to 54.3 tonnes per million dollars of sales. Taking into account the impact of capital The actions of the organisation will continue to be guided by the investment made in FY08, further reductions are projected for following principles, where it is practical to do so and consistent FY09, offsetting the impact of new stores. with the interests of David Jones’ shareholders, customers and employees, to: To account for new stores and refurbishments, changes in trading hours, and the impact of energy efficiency projects, David Jones – meet changing community expectations; uses an alternative metric to normalise consumption data. This – meet and, where feasible, exceed regulatory requirements; and measure of energy efficiency (watts per square metre, based on average trading hours) has improved 8.26% from 69.81 watts per – maintain best practice within the Australian retail industry. square metre in July 2007 to 64.04 watts per square metre in July Investment in efficiency measures is key to minimising the 2008, and is projected to improve a further 3% to 4% in FY09. impact that David Jones has on the environment, and in building competitive advantage by mitigating the impact of climate change issues and policy on the business. This investment will enable David Jones to adapt to changing market conditions and regulatory 136.1 127.9 122.2 120.3 pressures, and to leverage new technology as it enters the market 127.3 and/or existing technology becomes more viable over time.
Environmental Management and Governance 69.81 David Jones is committed to managing its operations in an 64.04 environmentally responsible manner. The Board and Management Watts per square metre Committee reinforced this commitment in FY08, challenging the Baseline activity business to develop strategies to further minimise environmental 121.0 114.5 New activity impacts and identify growth opportunities in the new carbon- 04 05 06 07 08 constrained economy.
Management of environmental issues has previously been at the EnergyEnergy ConsumptionConsumption/Energy/Energy Ef Efficiencyficiency (FY04–FY08) (FY04–FY08) tactical level, but now executive, functional and project resources Annual GWh and Wwattsatts perPer squareSq. Metre metre, Per Trbasedading on Hour from all departments are actively engaged in environmental average trading hours management and governance. In addition to key governance mechanisms such as the Energy Steering Committee, Management Committee members and other senior executives have sponsored a number of cross-functional project teams in FY08 to facilitate a whole-of-business response to environmental issues, risks and opportunities, including: energy procurement; energy regulation and reporting; energy efficiency; regulatory reporting in relation to packaging; waste management 8.3% and recycling; and the launch of reusable shopping bags into stores. improvement
For personal use only use personal For This Report provides an overview of the ongoing response to IN ENERGY direct environmental and financial impacts arising from energy and water use, and waste disposal in David Jones’ stores and EFFICIENCY warehouses for the FY08 period.
David Jones Annual Report 2008 David Jones Annual Report 2008 26 27 environment
Energy Initiatives Waste Management David Jones’ energy efficiency program initially focused on Implementation of the David Jones Waste Management Initiative abatement measures that aimed to deliver lower consumption continued in FY08. The objective of this work is to minimise (and through behavioural and procedural change, including: where commercially viable, eliminate) the amount of waste sent to landfill, to offset the impact of accelerating landfill charges and – new business rules to regulate the use of lights, air conditioning, mitigate future financial risk to the business. lifts and escalators; To achieve this end, environmentally-sound disposal strategies are – new compliance and tracking measures to monitor adherence to under development for all unique components of the waste stream. these principles; and Measures implemented to date have focused on increasing recycling – new ordering guidelines to support the bulk relamping of 45,000 rates for cardboard and soft plastic film, to affect a corresponding halogen spotlights with more energy efficient lamps. reduction in the volume of general waste sent to landfill and subsequent waste collection costs. Following successful implementation of these new energy management work practices, David Jones invested $2.9 million in As a result, the business1 captured more than 1,500 tonnes of FY08 to further improve efficiency in existing stores and revised cardboard for recycling in FY08, supporting findings presented technical specifications to ensure best practice in energy efficient by independent waste auditors that between 70% and 80% of all retail design in new and refurbished stores. cardboard is now collected for recycling. In addition, the amount of soft plastic film separated and collected for recycling in the first full Lighting Upgrade year of implementation has grown from a zero base to more than A major lighting upgrade was completed in three stores in FY08. 120 tonnes in FY08. Preliminary analysis conducted since June 2008 indicates that initial Independent case studies conducted in four stores also indicate that energy savings are in line with the full-year projection of a 20% there has been a concurrent reduction in the amount of waste sent to 35% reduction in total energy consumption in these locations. to landfill. Further reductions in landfill volumes are projected for These results have been achieved by retrofitting the original FY09, as the scope of the initiative is expanded to include all types incandescent lighting grid with an energy efficient lighting solution, of waste, generated by all parts of the business. without any detrimental impact on store presentation. In addition to the work to reduce the amount of waste sent from Air Conditioning Upgrade stores, warehouses and the supply chain to landfill, the broader Following a successful pilot study in FY07, capital works have now business also continues to reduce the environmental impact of waste been completed in 18 of David Jones’ 35 department stores to and packaging, including: the cross-functional launch of the David enable air conditioning plant and equipment to more efficiently Jones reusable shopping bag; and the ongoing work managed by IT maintain environmental conditions in store. While installation to reduce the amount of hardware sent to landfill at end-of-life. activities continued into FY09, initial analysis supports projections The Waste Management Initiative, in addition to new measures in of a 4% to 5% reduction in aggregate consumption over the relation to the reusable shopping bags, also supports David Jones’ next year. commitments under the second National Packaging Covenant New Store and Refurbishment Program (NPC), as outlined in the Company’s NPC Action Plan for the 2007–2010 period. In launching its FY09–FY12 Strategic Plan, David Jones announced that it will open up to eight new stores over the next five years, Waste Initiatives in addition to its store refurbishment program. In preparation, the Improvements in recycling rates have been driven by new measures business conducted a cross-functional review of the specifications in stores, including: for new stores and refurbishments, with the aim of applying best practice energy efficient design to: lighting; air conditioning; lifts and – new systems, equipment and work practices to capture cardboard escalators; metering; and electrical services. and soft plastic film for recycling; and
Refurbishment of Sydney CBD Stores – new arrangements with service providers to maximise revenues from recycling rebates. The refurbishment of David Jones’ Sydney CBD stores provided a unique opportunity to improve the energy rating of these two These changes have enabled David Jones to reach new service
For personal use only use personal For heritage-listed buildings. The upgrade of lighting grids and lighting agreements in relation to the projected volume and frequency of control systems, and a review of the air conditioning control general waste collections, driving a reduction in collection, transport strategy delivered a 4% year-on-year improvement in efficiency and disposal costs in FY08. in these stores. The aim for FY09 is to apply key learnings from the implementation into stores in developing a comprehensive, whole-of-business approach to waste management and recycling.
David Jones Annual Report 2008 David Jones Annual Report 2008 28 29 Recycling Systems Summary Based on key findings from audits conducted by external waste Significant progress has been made in FY08 to reduce the consultants, store management has developed site-specific action environmental impacts arising from David Jones’ energy and water plans to address opportunities for further improvement. As well as use, and waste disposal. This work will continue, as the transition to maintaining the focus on cardboard and soft plastic film, the scope a low-carbon economy creates new risks and opportunities for the of the program in stores was expanded in FY08 to also include: business. office paper, newsprint and collateral; and co-mingled recycling. By To that end, David Jones aims to continue investing in efficiency October 2008, all waste and recycling systems currently in place measures that deliver incremental financial, environmental and in David Jones’ stores will have been fully deployed to corporate social benefits. Projects under consideration include: office areas and warehouses. – lighting and air conditioning upgrades, in addition to the FY08 David Jones also continues to manage the environmental impacts capital investment; and of IT equipment through its life cycle. In FY08, 2.38 tonnes of decommissioned hardware was diverted from landfill, in addition – on-site power generation and rain water harvesting as part of to the 7.33 tonnes reported in last year’s Annual Report. This the redevelopment of David Jones’ Bourke Street Mall store in represents 100% of all IT equipment disposed of as a result of Victoria. ongoing maintenance and energy efficiency programs. FY09 Action Plan General Waste Initiatives In addition to these investigations, the company also aims to invest Pilot studies were conducted in FY08 to assess the viability of in the following key areas: new measures that aim to divert traditionally non-recyclable 1. develop an environment strategy that capitalises on the work materials from landfill, including: organic/polystyrene packing void; completed to date and aligns with the FY09–FY12 Strategic Plan; polystyrene boxes; and food waste. 2. review the impact of capital-enabled projects implemented in Employee Engagement Measures FY08, to ensure projected energy savings targets are achieved; To reinforce key messages in relation to waste management 3. increase employee engagement and awareness of environmental performance, store management continue to deliver training to, programs; and and seek feedback from, David Jones staff and cleaners. 4. enhance reporting tools to more effectively manage and Reusable Shopping Bags communicate environmental data to the business and wider In November 2007, David Jones took steps to further reduce stakeholders, within the following context: plastic bag consumption by introducing a reusable shopping bag. – David Jones will not exceed the EEO2 reporting threshold in Since that time, more than 50,000 bags have been sold. FY09, but will prepare for the company’s first NGER3 reporting Water Management year in 2010; and David Jones continued to invest in water efficiency measures – the first progress update to the NPC is due for submission in in FY08. This investment included implementation of new October 2008. water efficiency management plans to satisfy local regulations in
Queensland and Victoria. For personal use only use personal For
1 Excludes seven of David Jones’ 37 stores where the landlord manages waste collection and on-charges David Jones through outgoings 2 EEO – Energy Efficiency Opportunities Act (2006) 3 NGER – National Greenhouse and Energy Reporting Act (2007)
David Jones Annual Report 2008 David Jones Annual Report 2008 28 29 community
David Jones is committed to making a valuable social contribution Children’s Health to Australian society. In FY08 the Company provided financial Children’s Cancer Institute of Australia support to projects that focus on the health and well-being of Australian women and children. Contributions were made Total donation of $100,000. David Jones has an ongoing to selected charities through cash donations, sponsorship commitment to support research into neuroblastoma and arrangements and the contribution of resources, such as staff time, contributes to a grant for Dr Michelle Henderson, who works space in David Jones’ stores and sale of charity items. in the Experimental Therapeutics Program headed by Professor Michelle Haber. In the past year David Jones has made donations to the following charities: Sydney Children’s Hospital Total donation of $27,500 towards the Sydney Children’s Hospital Women’s Health Gold Dinner fundraiser. National Breast Cancer Foundation Westmead Hospital Total Donation of $339,480 (significant contributions are set out below) Total donation of $25,000 to the redevelopment of the new centre for Children with Cancer at Westmead Hospital. David Jones is extremely proud to be supporting the efforts of the National Breast Cancer Foundation, a relationship which dates back Steve Waugh Foundation to 1994 when we first introduced the sale of pink ribbons in store Total donation of $30,000 to the Steve Waugh Foundation. – a very simple activity which has led to a much deeper relationship The foundation provides financial relief to young people in and commitment to supporting breast cancer research. During Australia who are sick, disabled, neglected, abused, street kids this year’s Pink Ribbon month David Jones staff and customers or youths from educationally, economically and/or emotionally contributed $135,577 through Staff Breakfasts, sale of Pink Ribbon disadvantaged situations. Merchandise and the sale of ‘A Pocket Full of Sequins’. Other Charities Since 2002, we have raised over $900,000 from the David Jones Charity Bear alone. The David Jones charity bear has raised YWCA Australia $173,903 in FY08. The seventh David Jones Charity Bear, Grace, Total donation of $10,000 to YWCA Australia. The YWCA is was launched in October 2007. a global network of women advancing social justice and creating Our partnership with the National Breast Cancer Foundation in opportunities and services for the development of women and support of their efforts to provide much needed funds for breast their families. cancer research is very important to us. Nelune Foundation In addition, David Jones annually supports research through Total donation of $25,000 to the Nelune Foundation. The Nelune grant donations of $30,000. In total we have raised in excess Foundation is a not-for-profit charity that supports children, of $1.2 million. This year our $30,000 research grant donation adolescents, adults and families through cancer by providing in support of treatments for breast cancer went to Dr Georgia emotional support, care and post operative medical aids which Halkett of Curtin University of Technology in Western Australia. are not covered by government funding or a medical fund. Rose Clinic Total donation of $50,000. David Jones has a commitment to the Rose Clinic, which is located in the Elizabeth Street Sydney store and provides services such as breast screening, blood tests and bone density assessments for women. Our Company contributes towards operating costs to assist with the funding of a nurse’s wage to service the clinic and makes a donation of $50,000 each financial year. The Rose Clinic has provided services to over 40,000 customers since its launch
in 2003. For personal use only use personal For Dreamball Total donation of $28,000 contributed to the Look Good Feel Better initiative of the Cosmetics, Toiletry and Fragrance Foundation of Australia, supporting women in the community living with cancer.
David Jones Annual Report 2008 David Jones Annual Report 2008 30 31 occupational health and safety
Our OH&S Policy Safety Leadership Conference David Jones is committed to the health, safety and welfare of all In February 2008, all Senior Stores Management attended a full employees, contractors, visitors and customers. We acknowledge day conference dedicated to safety leadership. The OH&S plan the high personal and financial impact of work-related injuries and and a review of safety leadership initiatives were communicated to illness and are committed to preventing such injury and illness by participants. Specialists in workplace relations and safety provided providing a safe working environment. An Occupational Health & an overview of the duty of care that managers have to create a safe Safety (OH&S) Program is in place to enable David Jones to work working environment for employees, contractors and visitors. towards fulfilling that commitment. Management Committee Specialist Briefings FY08 OH&S Initiatives The key messages of the Safety Leadership Conference were This year our focus has been to develop and implement initiatives presented to the Management Committee. This included individual that continue to build a safety culture. specialist briefings to each member of the Management Committee on their responsibilities in relation to OH&S. OH&S Key Responsibility Area Key accountabilities relating to OH&S are communicated annually to all employees. This year Lost Time Injuries in the workplace was included as a Key Responsibility Area linked to the STI Scheme for all Stores Management.
Launch of OH&S Policy and Injury Management and Rehabilitation Policy An updated OH&S Policy was launched to employees under the banner of “SafetyFirst@davidjones: Think Safe, Act Safe, Be Safe”. Our philosophy is that the employees will be more likely to be safe if they ‘think’ and ‘act’ in a safe manner. This policy reaffirms David Jones’ commitment to the health, safety and welfare of all employees, retail brand management employees, contractors and visitors. In addition, a new Injury Management and Rehabilitation Policy was launched, reinforcing David Jones’ commitment to preventing injuries and illness through the provision of a safe working environment. Each of these policies is available and accessible to all employees in prominent locations in all Stores, Warehouses and Head Office.
Caring for Injured Staff In line with our Injury Management and Rehabilitation Policy, a set of care principles has been developed to assist line managers to facilitate a return to work plan for work and non-work related injuries. Over the last financial year, all Stores Management were trained on the policy and practices relating to the care
of injured staff. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 30 31 directors’ report
The Directors present their Report together with the Financial Statements of David Jones Limited (Company) and the Consolidated Entity for the 52 weeks ended 26 July 2008.
DIRECTORS The Directors of the Company in office at any time during, or since the end of, the financial year are as follows: Robert Savage Chairman and independent Non-Executive Director John Coates Deputy Chairman and independent Non-Executive Director Mark McInnes Chief Executive Officer and Executive Director Stephen Goddard Finance Director and Executive Director Reginald Clairs Independent Non-Executive Director John Harvey Independent Non-Executive Director Katie Lahey Independent Non-Executive Director Peter Mason Independent Non-Executive Director (appointed 28 November 2007) The above Directors, with the exception of Peter Mason, were in office for the entire financial year and up to the date of this Report. For details of the Directors’ qualifications, experience, special responsibilities and other Directorships, refer to pages 10 to 11, which are to be read as part of this Report.
COMPANY SECRETARY The Company Secretary is Caroline Waldron (LLB (Hons), ACIS). Caroline Waldron was appointed to the position of Company Secretary on 21 March 2005. She is also General Counsel of the Company and has more than 13 years of in-house legal experience working with boards of directors and senior management in public listed companies in Australia and New Zealand.
PRINCIPAL ACTIVITIES The principal activities of the Consolidated Entity during the financial year consisted of department store retailing and providing consumer credit through the David Jones’ store card. There were no significant changes in the nature of the activities of the Consolidated Entity during the financial year.
DIVIDENDS Dividends paid or declared by the Company to ordinary shareholders since the end of the previous financial year were as follows:
Total Paid / Payable Date Cents Per Share $000 Paid / Payable Dividends paid during the year 2007 Final dividend 13.0 61,940 8 November 2007 2008 Interim dividend 11.0 52,824 7 May 2008 Dividends declared after year end Final 2008 dividend 16.0 78,476 5 November 2008
All dividends were fully franked at the tax rate of 30%. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 32 33 REVIEW OF OPERATIONS BUSINESS STRATEGIES AND PROSPECTS The net profit after income tax expense of the Consolidated Entity Information on the Consolidated Entity’s business strategies and its for the financial year was $147.286 million, which includes the net prospects for future financial years is included in the Chairman and profit after tax impact of $10.232 million relating to the sale of the Chief Executive Officer’s Report. In the opinion of the Directors, property known as 266 Little Bourke Street, Melbourne, Victoria. further information on the Consolidated Entity’s business strategies and its prospects for future financial years would, if included in The full financial position of the Consolidated Entity is shown in this Report, be likely to result in unreasonable prejudice to the the Financial Statements and the accompanying notes on pages Consolidated Entity and has accordingly been omitted. 58 to 116. A detailed review of operations and the results of those operations SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS is set out in the Chairman and Chief Executive Officer’s Report on In the opinion of the Directors, other than the items noted below, pages 2 to 8. there were no significant changes in the state of affairs of the Consolidated Entity during the financial year. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS On 19 February 2008, the Consolidated Entity entered into agreements with American Express Australia Limited (American Comments on likely developments or expected results of the Express) relating to the assignment of store card receivables and Consolidated Entity’s operations are included in the Chairman the launch of a general purpose credit card. Further detail on this is and Chief Executive Officer’s Report. Further information on likely disclosed in note 33. developments in the operations of the Consolidated Entity and the expected results of those operations in future financial periods has On 22 July 2008, the Consolidated Entity completed the sale of its been omitted as the Directors believe it would be likely to result in property known as 266 Little Bourke Street, Melbourne, Victoria. unreasonable prejudice to the Consolidated Entity’s interests. Further detail is disclosed in note 2.
DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attended by each Director during the financial year were:
DIRECTORS’ MEETINGS REMUNERATION AND BY WRITTEN AUDIT COMMITTEE NOMINATIONS SCHEDULED RESOLUTION1 MEETINGS COMMITTEE MEETINGS DIRECTOR A B A B A B Robert Savage 9 9 5 32 2 4 4 John Coates 9 9 5 4 4 – – Mark McInnes 9 9 5 – – – – Stephen Goddard 9 9 5 – – – – Reginald Clairs 9 9 5 13 – 3 4 John Harvey 9 9 5 4 4 – – Katie Lahey 9 9 5 – – 3 4 Peter Mason 7 7 44 2 2 – – A Number of meetings attended B Number of meetings held during the time the Director held office or was a member of a committee during the year 1 Written resolution passed to deal with specific matters and signed by all Directors 2 Includes two meetings attended as a member of the Audit Committee and one meeting attended on an ex-officio basis after ceasing to be a member of the Audit Committee 3 Attended on an ex-officio basis
4 Number of written resolutions passed since appointment as a Director For personal use only use personal For During the financial year, Directors also visited many of the Company’s stores and major suppliers to improve their understanding of retail operations.
David Jones Annual Report 2008 David Jones Annual Report 2008 32 33 directors’ report
DIRECTORS’ INTERESTS Dividends The relevant interest of each Director in the contributed equity of Subsequent to 26 July 2008, the Company received dividends the companies within the Consolidated Entity, as notified by the of $130.000 million from a subsidiary company, resulting in an Directors to the ASX in accordance with section 205G(l) of the increase in retained earnings of $130.000 million and a reduction Corporations Act, at the date of this Report is as follows: in payables (current) of the same amount. ORDINARY SHARES LTI PLAN On 24 September 2008, the Directors declared a final dividend 1,2 DIRECTOR IN THE COMPANY RIGHTS of 16 cents per ordinary share, fully franked at the tax rate of 30%. Robert Savage 107,585 – The final dividend is payable on 5 November 2008. John Coates 41,945 – Mark McInnes 1,000,303 871,587 REMUNERATION REPORT Stephen Goddard 1,123,859 406,757 The Remuneration Report, which forms part of the Directors’ Reginald Clairs 175,166 – Report, is set out on pages 36 to 57 and has been audited as John Harvey 30,939 – required by section 308(3c) of the Corporations Act. Katie Lahey 21,702 – Peter Mason 102,504 – INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND AUDITORS 1 Not applicable to Non-Executive Directors Indemnification of Directors 2 In accordance with the LTI Plan rules the number of ordinary The Company has indemnified each Director referred to on pages shares which may be allocated is dependent on Company and 10 to 11 of this Report, the Company Secretary and previous individual performance and can range from zero up to 150% of Directors and Secretaries (Officers) against all liabilities or loss the rights allocated under some plans. (other than to the Company or a related body corporate) that may arise from their position as Officers of the Company and its RIGHTS TO UNISSUED SHARES controlled entities, except where the liability arises out of conduct At the date of this Report, the Company has on issue rights involving a lack of good faith or indemnification is otherwise not under the LTI Plan which could convert to 17,095,837 ordinary permitted under the Corporations Act. The indemnity stipulates shares in future periods. The Company will not receive any that the Company will meet the full amount of any such liabilities, monetary consideration on the vesting of these rights. Further including costs and expenses, and covers a period of seven years details including the expiry date of the rights outstanding are after ceasing to be an Officer of the Company. The indemnity is disclosed in the Remuneration Report. contained in a Deed of Access, Insurance and Indemnity, which also gives each Officer access to the Company’s books and records. SHARES ISSUED DURING OR SINCE THE END OF THE YEAR AS A RESULT OF THE EXERCISE OF RIGHTS The Company has also indemnified the current and previous During the financial year 1,453,479 rights under the LTI Plan Directors of its controlled entities and certain members of the converted to 2,180,219 fully paid ordinary shares in the capital of Company’s senior management for all liabilities or loss (other than the Company. No money was received by the Company on the to the Company or a related body corporate) that may arise from conversion of these rights to ordinary shares. their position, except where the liability arises out of conduct involving a lack of good faith or indemnification is otherwise not Since the end of the financial year 6,614,876 rights under the LTI permitted under the Corporations Act. Plan converted to 7,012,314 fully paid ordinary shares in the capital of the Company. No money was received by the Company on the Indemnification of Auditors conversion of these rights to ordinary shares. The Constitution of the Company provides that it must indemnify its auditors, Ernst & Young, against any liability incurred in their EVENTS SUBSEQUENT TO REPORTING DATE capacity as auditor in defending any proceedings, whether civil or Transfer of receivables criminal, in which judgement is given in their favour or in which On 1 August 2008, the Consolidated Entity transferred its store they are acquitted or in connection with any application in relation card and credit reserve receivables to American Express. The cash to any such proceedings in which relief is granted under the consideration received from American Express on the assignment Corporations Act.
For personal use only use personal For of receivables of $374.311 million was partly used to repay bank As part of the Company’s terms of engagement with Ernst & finance facilities resulting in a reduction in current interest bearing Young, the Company has agreed to indemnify Ernst & Young liabilities of $241.000 million and a reduction in non-current against certain liabilities to third parties arising from their interest bearing liabilities of $100.000 million. The balance of funds engagement as auditor. The indemnity does not extend to any received from American Express resulted in an increase in cash liability resulting from a negligent, wrongful or wilful act or omission assets of $33.311 million. Further details are disclosed in note 33 to by Ernst & Young. the Financial Statements.
David Jones Annual Report 2008 David Jones Annual Report 2008 34 35 Insurance premiums environmental legislation in any State or Territory. The Company’s The Company has paid insurance premiums for one year of cover approach to environmental matters is further discussed in the in respect of Directors’ and Officers’ liability insurance contracts, Environment section on pages 27 to 29 of this Annual Report. for Officers of the Company and of its controlled entities. The AUDIT SERVICES insurance cover is on standard industry terms and provides cover for loss and liability for wrongful acts in relation to the relevant Auditor’s independence declaration person’s role as an Officer, except that cover is not provided for The auditor’s independence declaration to the Directors of loss in relation to Officers gaining any profit or advantage to which the Company in relation to the auditor’s compliance with the they were not legally entitled, or Officers committing any criminal, independence requirements of the Corporations Act and the dishonest, fraudulent or malicious act or omission, or any knowing professional code of conduct for external auditors, forms part of or wilful violation of any statute or regulation. Cover is also only the Directors’ Report, and is set out on page 118. provided for fines and penalties in limited circumstances and up to a small financial limit. In accordance with commercial practice, No person who was an Officer of the Company during the the insurance policy prohibits disclosure of the terms of the policy financial year was a director or partner of the Consolidated Entity’s including the amount of the premiums. external auditor at a time when the Consolidated Entity’s external auditor conducted an audit of the Consolidated Entity. During the financial year, the Company has not paid any premium in respect of any insurance relating to Ernst & Young. Non-audit services No non-audit services were undertaken by the Consolidated ENVIRONMENTAL REGULATION Entity’s external auditor, Ernst & Young, during the financial year. The Company takes a responsible approach in relation to the management of environmental matters. All significant Audit services environmental risks have been reviewed and the Consolidated During the financial year, the following fees were paid or were due Entity has no legal obligation to take corrective action in respect and payable for services provided by the external auditor of the of any environmental matter. To the best of the knowledge and Company and Consolidated Entity: belief of the Directors, the Company is not in breach of any
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $ $ $ $ Audit and review of the Financial Statements 729,746 550,505 729,746 550,505 Other audit services: − assurance procedures in relation to the total shareholder return for LTI Plan 8,858 8,755 8,858 8,755 − audit of workers compensation wages declaration 3,090 8,755 3,090 8,755 Total other audit services 11,948 17,510 11,948 17,510 Total auditor’s remuneration 741,694 568,015 741,694 568,015
PROCEEDINGS ON BEHALF OF THE COMPANY No proceedings have been brought on behalf of the Company, nor has any application been made in respect of the Company under section 237 of the Corporations Act.
ROUNDING OF AMOUNTS The Company is of a kind referred to in Class Order 98/100 issued by the Australian Securities and Investment Commission and in accordance with that Class Order as in force as at 26 July 2008 amounts in this Report and the accompanying financial statements have been rounded to the nearest one thousand dollars unless otherwise indicated.
Signed in accordance with a resolution of the Directors: For personal use only use personal For
Robert Savage Mark McInnes Chairman Executive Director and Chief Executive Officer 8 October 2008
David Jones Annual Report 2008 David Jones Annual Report 2008 34 35 directors’ report: remuneration report
CONTENTS 1. Scope of the Report 37 2. Remuneration Philosophy and Objectives 37 3. Role of the Remuneration and Nominations Committee 37 4. Remuneration of Executives (including Executive Directors) 38 5. Summary of Employment Contracts 50 6. Remuneration of Non-Executive Directors 51–52 7. Remuneration of Key Management Personnel 52–54
8. Equity Holdings of Kmp 55 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 36 37 1. SCOPE OF THE REPORT 3. ROLE OF THE REMUNERATION AND This Remuneration Report outlines the remuneration arrangements NOMINATIONS COMMITTEE for Key Management Personnel (KMP). The term KMP refers to The Remuneration and Nominations Committee (Committee), those persons having authority and responsibility for planning, a sub-committee of the Board, operates under the delegated directing and controlling the activities of David Jones, directly or authority of the Board. The Committee is currently comprised indirectly. KMP includes Directors, executives (including Executive of three Non-Executive Directors as follows: Directors) and members of senior management of David Jones – Reginald Clairs; (Chairman) who meet these criteria. This Remuneration Report incorporates disclosures required by the Corporations Act (as amended by – Katie Lahey; and CLERP 9) and has been audited. – Robert Savage. 2. REMUNERATION PHILOSOPHY AND OBJECTIVES Details of the meetings attended by each member of the Committee The key principles of the David Jones remuneration philosophy may be found on page 33 of the Annual Report. The full charter of are integral to embedding a culture that is highly results-oriented the Committee is available on the corporate governance section of and is designed to ensure the Company remunerates employees the David Jones website – www.davidjones.com.au. in a way that recognises and rewards performance while upholding the interests of shareholders, the Company and the individual. The Committee is responsible to the Board for ensuring David Jones’ approach to performance and remuneration can be the following: defined as: – remuneration practices for all employees are aligned with David – applying a “pay for performance” philosophy that directly links Jones’ strategy and objectives; employee remuneration to the achievement of individual results – fair, responsible and equitable remuneration of Non-Executive and the Company’s overall performance; Directors, Directors, executives and members of senior – balancing incentives to appropriately reward superior results in management having regard to the performance of David the short-term and sustained performance over the long-term; Jones, the performance of the individual and the external remuneration environment; – ensuring employees are remunerated in a way that recognises and rewards individual performance while upholding the – an appropriate balance between fixed, short and long-term longer term interests of shareholders and continued strong incentive components of remuneration; performance of the Company; and – the review of, and recommendation to the Board on, the nature – providing remuneration that is market competitive and and composition of the STI Scheme and the LTI Plan with enabling the attraction, motivation and retention of high specific emphasis on executives reporting to the CEO; performing employees. – the review of, and recommendation to the Board on, the remuneration of Directors (including Non-Executive Directors) 2.1 The David Jones Competencies and members of the Management Committee and the terms of David Jones’ competencies describe the skills, capabilities and their employment contracts; behaviours required of employees in order to achieve their outcomes. These competencies have been incorporated into every – the review of, and recommendation to the Board on, any annual performance-based program that links to recognition, reward payments to be made to Executive Directors under the STI and remuneration: the annual performance appraisal, the annual Scheme and LTI Plan; remuneration review, the STI Scheme and the LTI Plan. The David – recommendations to the Board in relation to the appointment Jones’ competencies are summarised as follows: or separation of the Company Secretary or any direct reports to the CEO; Universal competencies – apply to all employees and include Live for our Customers, Strive to Achieve, See it Do it and Unite – short-listed candidates are proposed to the Board for the Business. appointments to the Board and to the position of CEO; and Management competencies – apply to line managers in addition – the review of succession plans for the CEO, Chairman and each to the universal competencies and include Results through Others, of the Board sub committees’ chairmen as well as direct reports Business Savvy, Cost Efficiency Leader and Shape our Future. to the CEO.
For personal use only use personal For Senior executive competencies – apply to senior executives in The Committee has access to other Directors, members of senior addition to the universal and management competencies and management and specialist advisers as it may require. David includes Grow, Grow, Grow. Jones has engaged external advisers during the year on matters The high performance culture established at David Jones has of remuneration. All advisers are independent and were engaged been derived from achieving an effective balance between solely on the basis of their expertise in the relevant field. “what” an employee delivers, “how” they go about doing this and the increased focus on aligning Company performance with employee remuneration.
David Jones Annual Report 2008 37 directors’ report: remuneration report
4. REMUNERATION OF EXECUTIVES (INCLUDING EXECUTIVE DIRECTORS) The remuneration structure for senior executives, including the Company Secretary, involves three components: – Fixed remuneration – Short-term incentives (STI) – Long-term incentives (LTI)
4.1 Summary of Remuneration Mix The Company’s remuneration structure is designed to achieve an effective balance between fixed and variable components of remuneration, specifically, to drive decisions and behaviours that focus on achieving short-term annual results, while at the same time giving consideration to the longer term profitability of the Company and sustainable shareholder value. The following table summarises the current targeted remuneration mix of executives:
% of Total Targeted Remuneration Position Fixed Remuneration STI LTI Executive Directors CEO 35% 35% 30% Finance Director 46% 24% 30% Other Executives CEO Direct Reports1 50% 20% 30% 1 Based on average of all CEO Direct Reports As these executives are integral to the formulation and implementation of longer term Company strategy, there has been a steady shift in the weighting of the remuneration mix from fixed remuneration towards variable remuneration components of short-term and long- term incentives.
4.2 Fixed Remuneration 4.3 Short Term Incentive Scheme David Jones’ policy in relation to employees is to provide “at The STI Scheme is a performance-based scheme, designed market“ remuneration for fulfilling target requirements of the to link specific annual targets (predominantly financial) with role and the opportunity for “above market” remuneration for the opportunity to earn cash-based incentives derived from superior performance. a percentage of EC. Fixed remuneration is comprised of Employment Cost (EC) made The objectives of the STI Scheme are to: up of base salary plus superannuation guarantee contributions and – reinforce and embed the “pay for performance” philosophy other benefits provided through salary sacrificing arrangements. underpinning the remuneration philosophy; EC is determined by reference to formal benchmarked information relating to external employment markets, as well as individual – motivate employees towards the achievement of annual performance and position accountabilities, requirements, Company results; qualifications and experience. – reward the results and behaviours consistent with the Any adjustment to fixed remuneration is based on individual Company’s objectives and values; and performance. An annual appraisal process is undertaken on the – reinforce direct and individual accountability for achieving individual performance of all executives. Individual performance is financial targets. assessed against both David Jones competencies and Key Result Areas (KRAs), which are technically based and relevant to the The STI Scheme is currently uncapped for all executives and is employee’s annual objectives. subject to Board approval. To ensure continuous improvement, the STI Scheme performance measures are comprehensively reviewed The result of the executive’s individual appraisal is linked to the and communicated annually. At the beginning of the financial annual remuneration review and determines what, if any, increase year the Committee recommends to the Board the STI Scheme will be received. No increases are guaranteed. If the executive
For personal use only use personal For performance targets and measures for executives. does not meet the target requirements of his or her KRAs or competencies his or her EC is not increased.
David Jones Annual Report 2008 David Jones Annual Report 2008 38 39 4.3.1 Participation and Performance Measures – the number of qualifiers achieved determines the actual Annual participation in the STI Scheme is conditional on achieving percentage of their STI Scheme received; the required level of performance in the annual performance – the employee’s STI Scheme reward quantum is determined by appraisal process. To qualify for annual participation in the STI reference to a percentage of his or her EC; and Scheme, an employee must achieve the KRAs applicable to their role as well as consistently demonstrate the behaviours comprising – the percentage of EC is based on the level of his or her position, the David Jones competencies. If an employee does not achieve accountability, performance and external market data. the Company’s target appraisal score, they do not participate At the end of the financial year, there is a structured and formal in the STI Scheme for that year despite achieving their hurdles STI Scheme evaluation process with a minimum of two review and qualifiers. and sign off points per employee. The Committee compares At the commencement of the financial year eligible employees the audited financial results to the hurdles and qualifiers of the are advised of their potential STI Scheme reward and the hurdles Executive Directors and other executives for the purpose of and qualifiers they need to achieve in order to qualify for an STI validating the level of achievement, STI Scheme calculations and Scheme payment. The nature of STI Scheme hurdles and qualifiers resultant STI Scheme payment. The Committee then makes a is summarised as follows: recommendation to the Board regarding the appropriateness of the STI Scheme payments based on audited financial results. – each employee is allocated a minimum of two hurdles and four Specific information relating to the STI Scheme payments for qualifiers, depending on the function in which they work; Executive Directors and other executives for 2008 is detailed on – all hurdles must be achieved in order to earn an STI page 38 of this Remuneration Report. The following is a summary Scheme payment; of the performance measures for KMP: – when the hurdles are achieved, the employee is further assessed against a number of qualifiers specific to the position they occupy;
STI potential at budget as a percentage KMP STI performance criteria of EC NPAT CAPEX Costs Profit1 Sales GMROI2 Strategic Mark McInnes 3 3 3 3 100% Stephen Goddard 3 3 3 3 50% Damian Eales 3 3 3 3 40% Colette Garnsey 3 3 3 3 3 3 45% Antony Karp 3 3 3 3 40% Patrick Robinson 3 3 3 3 3 3 40% Paul Zahra 3 3 3 3 3 45% 1 Profit relates to functional responsibility and will be Earnings Before Tax, Buying Gross Profit or Stores Net Profit
2 GMROI stands for gross margin return on investment For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 38 39 directors’ report: remuneration report
4.3.2 Payment 4.4 Long Term Incentive Plans Once approved by the Board, unless participants have elected to David Jones currently provides a performance based LTI to its make a pre-tax payment into their superannuation fund, the STI senior executives through the LTI Plan, which provides participants Scheme payments are made to participants in cash, generally in with a number of rights subject to Board approval. The LTI Plan is October of each year. designed to link employee reward to performance measures that drive sustainable growth in shareholder value. 4.3.3 Link to Company Performance As the graph below demonstrates, there is a high correlation The objectives of the LTI Plan are to: between STI Scheme payments and NPAT growth over the last – align the interests of senior executives with shareholder interests; five financial years, particularly since 2003 when the Company restructured its core business. Prior to 2005, NPAT calculations – balance short-term with long-term Company focus; and were based on the previous Australian Generally Accepted – retain high calibre senior employees by providing an attractive Accounting Principles (AGAAP). From 2005 the calculations are equity-based incentive. based on Australian equivalents to International Financial Reporting Standards (AIFRS). NPAT excludes the impact of the unwinding of the sale and leaseback.
140 137.1
120 109.5 100 81.1 80 68.0 65.3 60
40 32.3 22.8
20 15.6
11.0 NPAT 9.5 0 STI 04 05 06 07 08
CorrelationCorrelation ofof STISTI Pa Paymentsyments to to NP NPATAT For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 40 41 Summary of Long Term Incentive and Retention Plans
2005 TO 2007 2006 TO 2008 2007 TO 2009 2008 TO 2010 2009 TO 2012 FEATURE OFFER OFFER OFFER OFFER OFFER OFFERED TO CEO, Finance CEO, Finance CEO, Finance CEO & Finance Senior Executives Director and senior Director and senior Director and senior Director executives executives executives VESTING DATE 31 July 2007 31 July 2008 31 July 2009 31 July 2010 31 July 2012 PERFORMANCE TSR compared to peer group and capital TSR compared to peer group and EPS TSR compared to MEASURES management (ROFE) peer group and NPAT RETESTING The performance period may be extended No retest RULES by one year and retested for the TSR measure PLAN STATUS Fully vested at Fully vested at Performance periods not yet concluded stretch stretch ASX LISTED RETAILERS PEER GROUP Coles Myer Ltd, Harvey Norman Harvey Norman Clive Peeters Ltd, Clive Peeters Ltd, FOR TSR Colorado Group Holdings Ltd, JB Hi-Fi Holdings Ltd, JB Hi-Fi Harvey Norman Harvey Norman COMPARATOR Ltd, Country Road Ltd, Just Group Ltd, Ltd, Metcash Ltd, Holdings Ltd, JB Holdings Ltd, JB Ltd, Harvey Norman Super Cheap Auto Specialty Fashion Hi-Fi Ltd, Metcash Hi-Fi Ltd, Metcash Holdings Ltd, JB Hi-Fi Group Ltd, Metcash Group Ltd, Super Ltd, Nick Scali Ltd, Ltd, Nick Scali Ltd, Ltd, Just Group Ltd, Ltd, Specialty Fashion Cheap Auto Group OrotonGroup Ltd, OrotonGroup Ltd, OrotonGroup Ltd, Group Ltd and Ltd and Woolworths Specialty Fashion Specialty Fashion Metcash Trading Ltd, Woolworths Ltd. Ltd. Group Ltd, Super Group Ltd, Super Miller’s Retail Ltd, Cheap Auto Cheap Auto Strathfield Group Ltd Group Ltd and Group Ltd and
and Woolworths Ltd. Woolworths Ltd. Woolworths Ltd. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 40 41 directors’ report: remuneration report
Summary of Long Term Incentive and Retention Plans (continued)
2005 TO 2007 2006 TO 2008 2007 TO 2009 2008 TO 2010 2009 TO 2012 OFFER OFFER OFFER OFFER OFFER PEER GROUP Businesses in a FOR TSR ‘mature’ industry COMPARATOR with a minimum Non-retailers that demonstrate cyclical patterns (continued) market capitalisation greater than $200 million Adelaide Bank Ltd, APN News & Media APN News & Media APN News & Media APN News & Media Adelaide Brighton Ltd, Austereo Group Ltd, Austereo Group Ltd, Austereo Group Ltd, Austereo Group Ltd, Amalgamated Ltd, Consolidated Ltd, Consolidated Ltd, Consolidated Ltd, Consolidated Holdings Ltd, Bank Media Holdings Media Holdings Media Holdings Media Holdings of Queensland Ltd, Ltd, Fairfax Media Ltd, Fairfax Media Ltd, Fairfax Media Ltd, Fairfax Media Bendigo Bank Ltd, Ltd, Flight Centre Ltd, Flight Centre Ltd, Fisher & Paykel Ltd, Fisher & Paykel Coates Hire Ltd, Ltd, Funtastic Ltd, Ltd, Funtastic Ltd, Appliances Holdings Appliances Holdings Collection House Globe International Globe International Ltd, Flight Centre Ltd, Flight Centre Ltd, Crane Group Ltd, GUD Holdings Ltd, GUD Holdings Ltd, Funtastic Ltd, Ltd, Funtastic Ltd, Ltd, Fairfax Ltd, Ltd, Housewares Ltd, Housewares Globe International Globe International GUD Holdings Ltd, International Ltd, International Ltd, Ltd, GUD Holdings Ltd, GUD Holdings GWA International Kresta Holdings Kresta Holdings Ltd, Housewares Ltd, Housewares Ltd, Hills Industries Ltd, Pacific Brands Ltd, Pacific Brands International Ltd, International Ltd, Ltd, Housewares Ltd, PMP Ltd, Ltd, PMP Ltd, Kresta Holdings Kresta Holdings International Ltd, Salmat Ltd, Seven Salmat Ltd, Seven Ltd, Pacific Brands Ltd, Pacific Brands Ramsay Health Network Ltd, STW Network Ltd, STW Ltd, PMP Ltd, Ltd, PMP Ltd, Care Ltd, Reece Communications Communications Salmat Ltd, Seven Salmat Ltd, Seven Australia Ltd, and Group Ltd, Group Ltd, Network Ltd, STW Network Ltd, STW West Australian Ten Network Ten Network Communications Communications Newspaper Holdings Ltd and Holdings Ltd and Group Ltd, Ten Group Ltd, Ten Holdings Ltd. West Australian West Australian Network Holdings Network Holdings Newspaper Newspaper Ltd, Wesfarmers Ltd, Wesfarmers Holdings Ltd. Holdings Ltd. Ltd, West Australian Ltd, West Australian Newspaper Newspaper
Holdings Ltd. Holdings Ltd. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 42 43 Inputs into the valuation of Long Term Incentive Plan rights The valuations of LTI Plan rights were based on the following inputs:
2006 TO 2008 OFFER 2005 TO 2007 OFFER TO 2005 TO 2007 OFFER TO 2006 TO 2008 OFFER TO TO EXECUTIVE SENIOR EXECUTIVES EXECUTIVE DIRECTORS SENIOR EXECUTIVES DIRECTORS GRANT DATE 30 June 2005 26 November 2004 3 April 2006 2 December 2005 SHARE PRICE $1.88 $2.23 $2.81 $2.40 DIVIDEND YIELD 7.45% 5.83% 5.69% 5.83% RISK-FREE RATE 5.10% 4.98–5.08% 5.37% 5.32% EXERCISE PRICE – – – – VOLATILITY 27% 20–25% 30% 28% VALUATION TSR ROFE TSR ROFE TSR ROFE TSR ROFE $1.37 $1.62 $1.96 $1.92 $3.04 $2.47 $2.39 $2.06 VALUATION TSR – Monte Carlo TSR – Monte Carlo TSR – Monte Carlo TSR – Monte Carlo MODEL USED simulation simulation simulation simulation ROFE – Black Scholes ROFE – Black Scholes ROFE – Black Scholes ROFE – Black Scholes
2007 TO 2009 OFFER TO 2007 TO 2009 OFFER TO 2008 TO 2010 OFFER TO SENIOR EXECUTIVES EXECUTIVE DIRECTORS EXECUTIVE DIRECTORS GRANT DATE 1 March 2007 1 December 2006 23 July 2008 SHARE PRICE $4.37 $3.77 $3.33 DIVIDEND YIELD 5.80% 5.80% 4.90% RISK-FREE RATE 6.00% 6.00% 6.66% EXERCISE PRICE – – – VOLATILITY 28% 28% 33% VALUATION TSR EPS TSR EPS TSR EPS $2.60 $3.80 $2.03 $3.23 $1.69 $3.02 VALUATION TSR – Monte Carlo TSR – Monte Carlo TSR – Monte Carlo MODEL USED simulation simulation simulation
EPS – Black Scholes EPS – Black Scholes EPS – Black Scholes For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 42 43 directors’ report: remuneration report
4.4.1 Participation and an external measure, TSR. In addition, TSR directly aligns the In principle, only senior executives who are able to directly interest of shareholders with executives. influence the long-term success of the Company and who exhibit The measures are reviewed annually to ensure appropriate stretch a consistent level of high performance will be nominated for LTI targets to drive Company performance. TSR is a relative measure Plan participation. Participation in the LTI Plan is subject to annual and the TSR peer group is reviewed annually by the Board prior to Board approval in accordance with the LTI Plan Rules. Participation any LTI Plan grant to ensure the peer group remains relevant. in the plan for Executive Directors is subject to the approval of shareholders in accordance with ASX Listing Rules. 4.4.2.1.1 Capital Management as measured by ROFE ROFE is earnings before interest, tax and goodwill and after The number of rights granted to executives is derived from a significant items as a percentage of average funds employed percentage of EC at target performance. The percentage of EC is (subject to certain potential adjustments at Board discretion). based on the level of their position, accountability, performance Funds employed equals average debt plus average equity (adjusted and external market data. for future income tax benefits, tax provisions, dividend provisions 4.4.2 Performance Measures and restructuring provisions). The funds employed calculation is All offers made are subject to the Corporations Act, ASX Listing equivalent to inventory plus receivables plus fixed assets minus Rules and the terms of the LTI Plan Rules. Pursuant to the LTI Plan trade and other creditors. The ROFE calculation for existing plans Rules, the Board may amend, waive or replace the performance is calculated under previous AGAAP. measures in the event of significant events that were not foreseen 4.4.2.1.2 Total Shareholder Return in the Company’s business plan for the period. TSR measures the return a shareholder obtains from ownership 4.4.2.1 2006–2008 Offer of shares in the Company during a defined period of time and LTI Plan rights vest and convert to ordinary shares at the end of takes into account changes in the market value of the shares the three year performance period subject to the performance and dividends paid. TSR is the share price appreciation over the hurdles being met. Half (50%) is subject to the capital management measurement period plus dividends, expressed as a percentage (ROFE) hurdle and the other 50% will be subject to the TSR of the investment and reflects the increase in value delivered hurdle. For TSR, whilst nothing vests below threshold performance, to shareholders over the performance period. TSR is measured if the TSR threshold is not met at the end of three years, the against a peer group of companies over the relevant performance measure may be retested after twelve months. All grants made period. The Company’s performance is assigned a percentile under the 2006–2008 LTI grant were subject to the following two ranking based on its performance relative to other companies performance measures: comprising the comparator group (the highest ranking company being ranked at the 100th percentile). – capital management as measured by ROFE; and The share prices used for the purpose of the TSR calculation are – TSR. determined as the average daily closing price over the three-month ROFE and TSR were selected as the performance hurdles on the period immediately preceding the start and end of the performance basis that both can be directly linked to the performance of the period. The TSR of all the companies in the peer group, and the Company and offer a balance between an internal measure, ROFE, Company, are ranked at the end of the performance period.
4.4.2.1.3 2006–2008 Long Term Incentive Plan Entitlements As noted earlier, rights vest based on threshold, target or stretch performance. The following table summarises how entitlements have been calculated for each of the two performance measures: PERFORMANCE LEVEL BELOW LTI PLAN OFFER WEIGHTING THRESHOLD THRESHOLD TARGET STRETCH TSR 2006–2008 50% <50th%ile 50th%ile 62nd%ile >75th%ile
For personal use only use personal For ROFE 2006–2008 50% <17% 17% 19% 21% REWARD % 2006–2008 100% 0% 50% 100% 150% Should TSR fail to meet the threshold performance requirements it may be retested after 12 months.
4.4.2.1.4 2006–2008 Performance Measures All performance measures have been met and rights fully vested at stretch level on 1 August 2008. Shares were allocated on 30 September 2008.
David Jones Annual Report 2008 David Jones Annual Report 2008 44 45 4.4.2.2 2007–2009 & 2008–2010 Long Term Incentive Plans – EPS as a performance measure is as commonly used as TSR; and 4.4.2.2.1 Review of Performance Measures – TSR and EPS were the most widely used combination of In 2006, a full review of the LTI Plan was undertaken with a focus performance measures based on external benchmarking data. on assessing the ongoing relevance of the current performance In line with prevailing market practice, EPS will be measured as a measures in light of the Company’s strategic business direction Compound Annual Growth Rate (CAGR) from the grant date to and future expectations. The review of ROFE highlighted that as the end of the vesting period. Accordingly, the EPS result for the a measure it had the following disadvantages: final year of the performance period will be compared with the – it is not commonly used by other companies; and EPS result of the base year, which in the case of the 2007–2009 and 2008–2010 LTI Plan grants will be 2006 and 2007 respectively. – under AIFRS, the balance sheet in relation to ROFE There are two significant factors relating to EPS that will impact the changes significantly. EPS result over the period of the Plan grants. The first factor is the In consideration of the above, the Board recommended and Reset Preference Shares (RPS) that were introduced in 2002 to shareholders approved that the ROFE measure be discontinued raise capital to support the Company’s balance sheet as it pursued and replaced with the internal performance measure of EPS. a strategy of growth projects and high capital expenditure. The RPS The performance measure review involved extensive external fully converted on 1 August 2007 and will have an impact on the benchmarking of the LTI Plan measures used by other companies. Company’s EPS in the FY08. The outcome of the review is summarised below. The second factor is the retention plan that was implemented in 4.4.2.2.2 Total Shareholder Return FY06 to protect the Company in a time of industry restructure due The TSR review confirmed that in the general marketplace, to a major competitor changing ownership. The shares underlying shareholders support a measure that is linked to external factors the vested retention rights were allocated on 30 September 2008 and that TSR is the prevailing external measure most used and this will also have an impact on EPS in FY09. by companies and is well regarded by the market. The Board Accordingly, the starting EPS measure will be normalised for factors recommended and shareholders approved the retention of TSR outside the Company’s performance and operational objectives. as a performance measure as it provides a: 4.4.2.2.4 Offer Entitlements – fair reflection of the Company’s performance; and As with prior offers, the LTI Plan rights vest and convert to – truly comparative external benchmark when measured against ordinary shares at the end of the three year performance period a well-selected peer group. subject to the performance hurdles being met. Half (50%) is subject to the EPS hurdle and the other 50% is subject to the TSR hurdle. 4.4.2.2.3 Earnings Per Share There is no re-testing of TSR. EPS represents how much profit has been earned in the last year for shares that have been issued by the Company and is expressed The following table summarises how entitlements will be calculated as NPAT divided by the weighted average number of ordinary for each of the two performance measures. Other than a shares outstanding during the year. EPS is the change, year on year, market alignment for entry-level senior executives, the allocation in earnings per share. The primary reasons for its adoption as a methodology of LTI has not changed however the maximum is performance measure are as follows: now expressed as 100% of the maximum number of rights that may vest, in previous years this was expressed as 150%. – EPS is seen as strongly linked to shareholder wealth, as a consistent payout ratio will lead to dividend growth;
PERFORMANCE LEVEL BELOW WEIGHTING THRESHOLD THRESHOLD TARGET STRETCH TSR 50% <50th %ile 50th %ile 62nd %ile 75th%ile
For personal use only use personal For EPS 50% <5% 5% 7.5% 10% Reward % 100% 0% 50% 75% 100%
David Jones Annual Report 2008 David Jones Annual Report 2008 44 45 directors’ report: remuneration report
4.4.3 After Vesting Once the rights have vested and been converted to shares, the LTI Plan requires the shares to be held in a seven year holding lock. The LTI Plan Rules enable the holding lock to be lifted subject to Board approval. The Company’s Share Trading Policy sets out the basis on which Directors and executives may deal with their shares and LTI rights. A summary of these terms is set out on pages 23 to 24 of this Annual Report. 4.4.4 Link To Company Performance ROFE ROFE numbers are calculated under previous AGAAP. The Board has determined that performance will continue to be measured under previous AGAAP for existing plans to satisfy the requirements of the plan. Company performance for ROFE has been increasing since 2003 and there has been a direct correlation in the David Jones share price over this time. This is a further reflection of a measure that aligns Company performance with shareholder value. TSR The table below shows David Jones’ TSR performance for the completed LTI Plan offers. David Jones’ TSR performance for these offers has exceeded the median of the TSR peer group of companies and has resulted in a performance ranking in the top quartile of the peer group. DAVID JONES’ LTI PLAN OFFER DAVID JONES’ TSR RETURN MEDIAN OF TSR PEER GROUP PERFORMANCE RANKING 2002–2004 80.1% 42.5% Ranked in top quartile 2003–2005 97.6% 71.9% Ranked in top quartile 2004–2006 165.3% 77.5% Ranked in top quartile 2005–2007 280.2% 107.6% Ranked in top quartile 2006–2008 104.2% 22.4% Ranked in top quartile
4.5 Executive Directors’ 2005–2008 Retention Plan 4.5.1 Participation At the 2005 Annual General Meeting, shareholders approved a retention bonus offer for the Executive Directors of David Jones under the LTI Plan Rules. The CEO was granted 1,000,000 rights and the Finance Director was granted 600,000 rights subject to performance and employment conditions. 4.5.2 Performance Measures NPAT has been selected as the performance hurdle on the basis that it is directly linked to the performance of the Company and offers a direct link between performance and reward. Half (50%) of each tranche vests where the CAGR for NPAT is 5%. Maximum vesting (100%) occurs at 10% CAGR. The base year for NPAT calculations is 2004. The employment condition requires the participants to remain continuously employed by David Jones until 31 July 2008. The following table highlights the NPAT required for each tranche or part thereof to vest For each 0.01% CAGR in NPAT, Tranche an additional 0.1% of each Target NPAT Year (50% vests) Threshold NPAT tranche vests (100% vests) FY 2005 1 $68.595m $68.596m–$71.861m $71.862m
For personal use only use personal For FY 2006 2 $72.025m $72.026m–$79.047m $79.048m FY 2007 3 $75.626m $75.627m–$86.952m $86.953m FY 2008 Retest $79.408m $79.409m–$95.647m $95.648m
David Jones Annual Report 2008 David Jones Annual Report 2008 46 47 4.5.3 Full Vesting All performance measures and the employment conditions have been met and all rights fully vested on 1 August 2008. Shares were allocated on 30 September 2008. The Executive Directors receive a cash payment equal to dividends that would have been payable had the rights converted to shares upon each tranche vesting. The payment is made in each dividend period. The last dividend-equivalent payment was made in June 2008. 4.5.4 Valuation of Retention Rights An independent valuer using the Black Scholes option pricing model prepared the valuation of the retention rights. The following inputs were used to determine the valuation per retention right: Grant date 2 December 2005 Share price $2.40 Dividend yield 5.83% Risk free rate 5.32% Exercise price $0.00 Volatility 28% The retention rights were valued at $2.40 per right.
4.6 Other Executives 2006–2008 Retention Plan 4.6.1 Participation In line with the plan approved by shareholders for the Executive Directors, this plan was introduced in April 2006 to protect the ongoing success of David Jones by retaining key employees as a consequence of impending industry restructure. Management recommended and the Board approved the employees selected to participate in the FY06–FY08 Retention Plan, and 4.4 million rights were granted to 43 employees. The rights granted are subject to performance and employment conditions. 4.6.2 Performance Measures The 2006–2008 Retention Plan is also assessed against NPAT. Entitlements under the Retention Bonus Plan occur where the CAGR for NPAT is between 5% (50% vesting of share entitlements) and 10% (100% vesting of share entitlements). The base year for determining NPAT CAGR is 2005. The employment condition requires participants to remain continuously employed by David Jones until 31 July 2008. 4.6.3 Calculation of Entitlement The following table highlights the NPAT required for each tranche or part thereof to vest: For each 0.01% CAGR in NPAT, Tranche an additional 0.1% of each Target NPAT Year (50% vests) Threshold NPAT tranche vests (100% vests) FY 2006 1 $81.755m $81.756m–$85.648m $85.649m FY 2007 2 $85.843m $85.844m–$94.213m $94.214m FY 2008 3 $90.135m $90.136m–$103.634m $103.635m
The above NPAT numbers are calculated under previous AGAAP. The Board has determined that performance will continue to be measured under previous AGAAP to satisfy the requirements of the plan. All performance hurdles have been met and shares will be allocated within three months after the completion of FY08, subject to the employment condition being met. No dividend compensation is paid to plan participants.
4.6.4 Full Vesting For personal use only use personal For All performance measures and the employment conditions have been met and all rights fully vested on 1 August 2008. Shares were allocated on 30 September 2008.
David Jones Annual Report 2008 David Jones Annual Report 2008 46 47 directors’ report: remuneration report
4.6.4 Valuation of Retention Rights An independent valuer using the Black Scholes option pricing model prepared the valuation of the retention rights. The following inputs were used to determine the valuation per retention right: Grant date 3 April 2006 Share price $2.81 Dividend yield 5.69% Risk-free rate 5.37% Exercise price $0.00 Volatility 30% The retention rights were valued at $2.47 per right.
4.7 Executive 2009–2012 Retention Plan Based on the success of the FY06–FY08 Retention Plan where 100% of executive participants were retained, David Jones has implemented a retention plan that operates over a four year period aligned with the Company’s FY09–FY12 strategy. This plan replaces the FY06–FY08 Retention Plan as well as the LTI Plan grants for FY09–FY11 and FY10–FY12. The plan is designed to achieve the following: – ongoing tenure and continuity of the skills and expertise of key executives; – incentivise key executives to maximise shareholder return, particularly during the anticipated downturn across FY09 and FY10; and – ensure delivery of the Company’s FY09–FY12 strategy. 4.7.1 Participation In line with previously approved plans, this plan is designed to protect the ongoing success of David Jones by retaining key executives. Management recommended and the Board approved that 14.5 million rights be granted to 106 employees. The rights granted are subject to performance and certain service conditions. The Board’s recommendation for the CEO and Finance Director’s Retention Plan grants in respect of FY09–FY11 is contained in the 2008 Notice of Meeting and will be subject to shareholder approval at the 2008 Annual General Meeting. 4.7.2 Performance Measures For the FY09–FY12 Retention Plan all participants are assessed based on the performance of NPAT. In addition, some key executives (including all KMP) have an additional assessment based on relative TSR. NPAT and TSR were selected as the performance hurdles on the basis that both measures can be directly linked to the performance of the Company and together offer a balance between internal and external measures. TSR particularly aligns the interest of shareholders and employees, and has been applied when the executive’s role directly influences the Company’s capital management. 4.7.2.1 Net Profit After Tax FY08 is the base year for measurement of NPAT and is on an underlying basis. NPAT targets are set for each year and are independent of each other; the NPAT growth target is set at 5% and stretch at 10% with pro-rata between 5% and 10%. 50% of the tranche vests where NPAT reaches target and the 100% vesting is achieved when NPAT reaches the pre-determined stretch level. There is no further upside for participants for NPAT over this maximum level. Following is a summary vesting schedule where NPAT is the only measure: When shares Tranche FY % Vesting Measure Weighting are allocated 1 FY09 20% NPAT 100% Oct 2010
For personal use only use personal For 2 FY10 20% NPAT 100% Oct 2011 3 FY11 20% NPAT 100% Oct 2011 4 FY12 40% NPAT 100% Oct 2012 Total 100% NPAT 100%
David Jones Annual Report 2008 David Jones Annual Report 2008 48 49 4.7.2.2 Total Shareholder Return In addition to the NPAT measure, selected executives (including all KMP) have relative TSR as an additional performance measure, given the ability of these roles to directly influence capital management. The TSR target is set at the 50th percentile of the Company’s current TSR comparator group and stretch at the 75th percentile, with pro rata between 50th and 75th. Half of the agreed proportion of shares will vest at the 50% percentile of the comparator group, and the maximum vesting occurs when TSR reaches the 75% percentile of the comparator group. Following is a summary vesting schedule incorporating both NPAT and TSR: When shares Tranche FY % Vesting Measure Weighting are allocated 1 FY09 10% NPAT 70% Oct 2010 10% TSR 30% 2 FY10 10% NPAT 70% Oct 2011 10% TSR 30% 3 FY11 10% NPAT 50% Oct 2011 10% TSR 50% 4 FY12 20% NPAT 50% Oct 2012 20% TSR 50% NPAT 58% Total 100% TSR 42%
4.7.3 Vesting Schedule The grant comprises four tranches corresponding to each of the FY09, FY10, FY11 and FY12 years. Whilst the rights vest subject to attaining NPAT and TSR targets (where appropriate), a staggered share allocation (20%/ 20%/ 20%/ 40%) has been introduced to ensure ongoing employee incentivisation during the life of the plan. 4.7.4 Service Conditions Service conditions apply to all tranches. Subject to the employee fulfilling these service conditions and in particular, continuous employment aligned to the date of each share allocation, vested rights will convert to shares. During a period where a participant holds vested shares that are not allocated, the participant is entitled to the cash equivalent of dividends that would otherwise be paid. The Company pays the equivalent grossed up value of these dividends as ordinary earnings and deducts tax as required by the employee’s marginal tax rate. The staggered vesting schedule and service conditions are designed to promote retention across the plan period. 4.7.5 Valuation of FY09–FY12 Retention Rights The valuation of the retention rights was prepared by an independent valuer using the Black Scholes option pricing model. The following inputs were used to determine the valuation per retention right: Tranche 1 Tranche 2 Tranche 3 Tranche 4 Grant date 24 July 2008 24 July 2008 24 July 2008 24 July 2008 Share price $3.44 $3.44 $3.44 $3.44
Dividend yield Expected future dividend payments For personal use only use personal For Risk-free rate 6.57% 6.50% 6.50% 6.43% Volatility 33% 33% 33% 33% Value per right – NPAT $2.97 $2.74 $2.74 $2.51 Value per right – TSR $2.09 $1.64 $1.65 $1.57
David Jones Annual Report 2008 David Jones Annual Report 2008 48 49 directors’ report: remuneration report
4.8 Other Employee Share Plans DESP Shareholders approved the DESP at the Annual General Meeting held on 23 November 1998. This plan gives eligible employees the opportunity to acquire an ownership interest in the Company. Eligible employees may salary sacrifice a minimum of $3,000 per annum to acquire ordinary shares in the capital of the Company each year. In addition, shares may be offered under this plan: – as part of remuneration and incentives subject to terms and conditions determined by the Board; – as part of a special offer to selected employees subject to terms and conditions determined by the Board; and – to Non-Executive Directors, on their election, as part of their remuneration from the Company. Under the rules of the DESP, the Board may impose relevant requirements, being vesting conditions and other conditions before the participant can withdraw shares from the DESP. When a participating employee’s employment ends, they will receive the Company’s shares held on their behalf except where relevant requirements have been imposed by the Board and are not met or where an employee has been dismissed as a result of fraudulent or wrongful conduct in which case the Board has the discretion to require forfeiture of any shares under the plan.
5. SUMMARY OF EMPLOYMENT CONTRACTS The details of KMP remuneration including EC, STI Scheme, LTI Plan and the Retention Plan are disclosed elsewhere in this Remuneration Report. During the past twelve months the Company has continued to focus on aligning contracts of employment and terms and conditions for executives with the intent of securing the leadership team and ensuring continuity of the Company’s performance and shareholder returns. Company exposure has been reduced by the establishment of minimum notice periods for executive initiated termination to 6 months, capping termination payment at either 6 or 12 months and by including restrictive covenants in all contracts. The following summarises the termination provisions of employment contracts for KMP:
EXECUTIVE DIRECTORS TERMINATION BY COMPANY TERMINATION BY EXECUTIVE Mark McInnes Can terminate by giving 12 months’ notice or Can terminate by giving 12 months’ notice. (CEO) payment in lieu. EC: entitled to 12 months’ notice. 2005 contract continues EC: Entitled to 12 months’ notice plus 12 months’ STI Scheme and LTI Plan: entitled to STI Scheme to apply severance payment. and LTI Plan incentives that have accrued to date STI Scheme: receives STI Scheme payment. of termination. LTI Plan 07–09 offer: based on performance, Retention Plan: retention plan rights forfeited. entitled to pro-rata payment for months falling The CEO has a restrictive covenant preventing within notice period. assisting a competitor, directly or indirectly for LTI Plan 08–10 offer: based on performance, 12 months. entitled to pro-rata payment for months falling within notice period. Retention Plan: The Company will issue 1 share for each LTI Plan right that has vested from the first, second, and third tranches as at the date of notice. Subject to shareholder approval at the 2008 Annual General Meeting. Stephen Goddard If termination is without cause, 12 months’ notice The Finance Director can terminate his Finance Director is required. appointment by giving 12 months’ written notice. Rolling contract EC: Entitled to 12 months’ notice. The Finance Director is prevented from resuming employment with specified competitors for a period of 12 months following termination.
For personal use only use personal For Other executives The Company can terminate other executives by Other executives can terminate their Rolling contracts giving 12 months’ notice in writing. EC would be appointment by giving 6 months’ written notice paid for 12 months. unless employment is to be resumed with specified competitors, in which case 12 months’ notice is required. After seeking and considering independent advice, the Board is satisfied that the termination arrangements of Mark McInnes and Stephen Goddard are reasonable, having regard to Australian employment practices.
David Jones Annual Report 2008 David Jones Annual Report 2008 50 51 6. REMUNERATION OF NON-EXECUTIVE DIRECTORS Remuneration Philosophy and Objectives The Company’s remuneration policy is designed to attract and retain appropriately skilled and experienced Non-Executive Directors best able to protect the rights and interests of shareholders and uphold accountability to shareholders for the Company’s performance. The remuneration of Non-Executive Directors is not linked in any way to the performance of the Company thus ensuring Director independence and impartiality is maintained. Remuneration Structure Non-Executive Directors’ fees are recommended by the Remuneration and Nominations Committee and determined by the Board having regard to the following: – the Company’s existing remuneration policies; – independent remuneration advice; – fees paid by comparable companies; – the level of fees required to attract and retain experienced and high calibre Non-Executive Directors; and – both the responsibilities of, and time commitments required from, each Director to carry out their duties. Remuneration and benefits specialists with experience in Board remuneration recommend fee levels, which are considered in detail by the Committee. Recommended fee levels are based on survey data of comparable companies and analysis of fee structures for Non-Executive Directors in a cross-section of companies, including retail. Non-Executive Directors cannot participate in either the STI Scheme or LTI Plan. In accordance with a resolution of shareholders at the 2006 Annual General Meeting, the maximum aggregate amount to be paid to Non- Executive Directors was increased to an aggregate of $1,800,000. Non-Executive Directors base fees are as follows: Remuneration & Board Audit Committee Nominations Committee Deputy Chairman Chairman Member Chairman Member Chairman Member $ $ $ $ $ $ $ 2008 fees 421,000 244,200 157,900 40,000 22,400 26,900 17,900 2007 fees 376,000 218,000 141,000 30,000 20,000 24,000 16,000
Non-Executive Directors may participate in the DESP by electing to sacrifice Directors’ fees and have shares purchased under the plan at
market value. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 50 51 directors’ report: remuneration report
Retirement Benefit Retirement benefits for Non-Executive Directors are closed to participation for directors appointed after 14 October 2003. Contributions to the retirement benefit plan for Non-Executive Directors (other than notional interest adjustments based on the retirement allowance balance) were discontinued from October 2004. Any amounts that had been previously accrued were crystallised to be held until such time as the Director retires from the Board. Details of the accrued retirement allowance balances for each of the Non-Executive Directors are as follows: Balance at Notional Interest Balance at 28 July 2007 to 26 July 2008 26 July 2008 Non-Executive Director $ $ $ Robert Savage 252,528 17,336 269,864 John Coates 300,571 20,634 321,205 Reginald Clairs 155,071 10,646 165,717 John Harvey 103,658 7,114 110,772 Katie Lahey 265,890 18,253 284,143 Total 1,077,718 73,983 1,151,701 Details of the remuneration of the Non-Executive Directors for the financial year ended 26 July 2008 and the previous financial year are set out in section 7 of this Remuneration Report.
7. REMUNERATION OF KEY MANAGEMENT PERSONNEL KMP are persons having the authority and responsibility for planning, directing and controlling the Company’s activities directly or indirectly, including Directors of David Jones. The following persons were KMP of the Consolidated Entity at any time during the financial year: Name Title Period of responsibility Directors Robert Savage Chairman and independent Non-Executive Director 29 July 2007–26 July 2008 John Coates Deputy Chairman and independent Non-Executive Director 29 July 2007–26 July 2008 Mark McInnes Chief Executive Officer and Executive Director 29 July 2007–26 July 2008 Stephen Goddard Finance Director and Executive Director 29 July 2007–26 July 2008 Reginald Clairs Independent Non-Executive Director 29 July 2007–26 July 2008 John Harvey Independent Non-Executive Director 29 July 2007–26 July 2008 Katie Lahey Independent Non-Executive Director 29 July 2007–26 July 2008 Peter Mason Independent Non-Executive Director 28 November 2007–26 July 2008 Executives Damian Eales Group General Manager – Financial Services and Marketing 29 July 2007–26 July 2008 Colette Garnsey Group General Manager – Apparel, Accessories, Footwear and Cosmetics 29 July 2007–26 July 2008 Antony Karp Group General Manager – Retail Development 29 July 2007–26 July 2008 Patrick Robinson Group General Manager – Home and Food 29 July 2007–26 July 2008
Paul Zahra Group General Manager – Stores and Operations 29 July 2007–26 July 2008 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 52 53 The following table shows the remuneration of KMP (including the five highest paid executives) of David Jones and the Consolidated Entity for the year ended 26 July 2008: Other Long- Post-Employment Term Short-Term Employee Benefits Benefits Benefits Share-Based Payment Percentage of Other Long Percentage of Remun- Non Retire- Service Total Remun- eration Cash Salary Cash Bonus Monetary ment Leave LTI Plan Compen- eration in LTI Performance & Fees (STI) Benefits Other Super Benefits1 Accrual Shares2 Rights3 sation Plan Rights Related $ $ $ $ $ $ $ $ $ $ % % Executive Directors Mark 1,912,250 3,088,333 13,063 859 50,000 – 67,486 – 1,739,532 6,871,523 25% 70% McInnes Stephen 969,374 1,269,135 13,063 859 100,000 – 18,200 – 861,117 3,231,748 27% 66% Goddard Non-Executive Directors Robert 336,486 – – 100 13,181 17,336 – 56,400 – 423,503 – – Savage John 222,286 – – 100 13,181 20,634 – – – 256,201 – – Coates Reginald 150,020 – – 100 13,181 10,646 – 15,000 – 188,947 – – Clairs John 157,820 – – 100 13,181 7,114 – – – 178,215 – – Harvey Katie Lahey 156,353 – – 100 13,181 18,253 – – – 187,887 – – Peter 113,296 – – 100 8,975 – – – – 122,371 – – Mason Executives Damian 655,418 733,015 26,240 859 13,181 – 12,106 – 437,906 1,878,725 23% 62% Eales Colette 648,667 559,433 12,174 480 54,781 – 27,711 – 453,468 1,756,714 26% 58% Garnsey Antony 589,330 733,015 12,174 404 50,000 – 5,225 – 437,906 1,828,054 24% 64% Karp Patrick 597,069 483,015 8,193 2,962 50,000 – 20,457 – 443,877 1,605,573 28% 58% Robinson Paul Zahra 723,374 559,433 – 1,853 43,855 – 35,997 – 453,468 1,817,980 25% 56% Total 7,231,743 7,425,379 84,907 8,876 436,697 73,983 187,182 71,400 4,827,274 20,347,441
Notes to the table: 1 ‘Other retirement benefits’ represents an adjustment equivalent to deposit interest paid by trading banks on previously frozen Directors’ retirement allowance. 2 ‘Shares’ represents the dollar value of shares salary sacrificed under the DESP during the financial year. 3 ‘LTI Plan rights’ is the independent value ascribed to LTI Plan rights provided to executives as part of their remuneration. Further details of the LTI Plan
For personal use only use personal For can be found in section 4 of the Remuneration Report.
David Jones Annual Report 2008 David Jones Annual Report 2008 52 53 directors’ report: remuneration report
The following table shows the remuneration of KMP (including the five highest paid executives) of David Jones and the Consolidated Entity for the year ended 28 July 2007: Other Long- Post-Employment Term Short-Term Employee Benefits Benefits Benefits Share-Based Payment Percentage of Other Long Percentage of Remun- Non Retire- Service Total Remun- eration Cash Salary Cash Bonus Monetary ment Leave LTI Plan Compen- eration in LTI Performance & Fees (STI) Benefits Other Super Benefits1 Accrual Shares2 Rights3 sation Plan Rights Related $ $ $ $ $ $ $ $ $ $ % % Executive Directors Mark 1,678,386 3,500,000 12,174 847 125,900 – 77,396 – 1,748,542 7,143,245 24% 73% McInnes Stephen 955,756 1,961,460 16,213 847 75,625 – 47,482 – 865,121 3,922,504 22% 72% Goddard Non-Executive Directors Robert 228,127 – – 100 97,448 14,585 – 38,760 – 379,020 – – Savage John 113,887 – – 100,100 97,447 17,360 – – – 328,794 – 30% Coates4 Reginald 131,920 – – 100 12,582 8,957 – 15,000 – 168,559 – – Clairs Paula 45,648 – – 100 4,106 – – – – 49,854 – – Dwyer5 John 60,577 – – 100 105,123 5,989 – – – 171,789 – – Harvey Katie Lahey 47,111 – – 100 105,224 15,357 – – – 167,792 – – Executives Damian 560,578 632,800 908 847 48,165 – 7,174 – 483,145 1,733,617 28% 64% Eales Colette 573,854 1,007,801 12,020 474 55,151 – 16,862 – 528,434 2,194,596 24% 70% Garnsey Antony 514,692 632,800 14,107 399 45,902 – 2,927 647,227 1,858,054 35% 69% Karp Patrick 558,943 667,604 7,966 2,514 51,637 – 31,971 – 518,843 1,839,478 28% 64% Robinson Paul Zahra 642,782 757,801 – 1,713 56,683 – 33,032 – 528,434 2,020,445 26% 64% Total 6,112,261 9,160,266 63,388 108,241 880,993 62,248 216,844 53,760 5,319,746 21,977,747
Notes to the table: 1 ‘Other retirement benefits’ represents an adjustment equivalent to deposit interest paid by trading banks on previously frozen Directors’ retirement allowance. 2 ‘Shares’ represents the dollar value of shares salary sacrificed under the DESP during the financial year. 3 LTI Plan rights’ is the independent value ascribed to LTI Plan rights provided to executives as part of their remuneration. Further details of the LTI Plan For personal use only use personal For can be found in section 4 of the Remuneration Report. 4 John Coates’ other remuneration included a $100,000 payment for services performed on Company property related matters over and above the requirements of the Non-Executive Directors’ duties role. 5 Paula Dwyer retired as a director on 1 December 2006. The remuneration figures disclosed are for the period 30 July 2006 to 1 December 2006.
David Jones Annual Report 2008 David Jones Annual Report 2008 54 55 8. EQUITY HOLDINGS OF KMP Long Term Incentive Plan Rights Holdings of Key Management Personnel The following table shows the movements in LTI Plan rights holdings of KMP for the current financial year.
For the year ended 26 July 2008
Granted Holding at 28 as Remun- Vested during Holding at 26 Fair Value of Fair Value of Fair Value of Fair Value of July 20071 eration1 the Year1 July 20081 Right – TSR Right – ROFE Right – EPS Right – NPAT Name LTI Plan Number Number Number Number $ $ $ $ Directors2 Mark 05–07 offer 382,653 – (382,653) – 1.96 1.92 – – McInnes 06–08 offer 449,380 – – 449,380 2.39 2.06 – – 05–08 retention offer 1,000,000 – – 1,000,000 – – – 2.40 07–09 offer 489,850 – – 489,850 2.03 – 3.23 – 08–10 offer – 381,737 – 381,737 1.69 – 3.02 – Aggregate value $898,991 $2,829,719 Stephen 05–07 offer 173,469 – (173,469) – 1.96 1.92 – – Goddard 06–08 offer 175,620 – – 175,620 2.39 2.06 – – 05–08 retention offer 600,000 – – 600,000 – – – 2.40 07–09 offer 233,601 – – 233,601 2.03 – 3.23 – 08–10 offer – 173,156 – 173,156 1.69 – 3.02 – Aggregate value $407,782 $1,282,803 Executives Damian 05–07 offer 71,429 – (71,429) – 1.37 1.62 – – Eales 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer 101,787 – – 101,787 2.60 – 3.80 – 09–12 retention offer – Tranche 1 – 200,000 – 200,000 2.09 – – 2.97 – Tranche 2 – 200,000 – 200,000 1.64 – – 2.74 – Tranche 3 – 200,000 – 200,000 1.65 – – 2.74 – Tranche 4 – 400,000 – 400,000 1.57 – – 2.51 Aggregate value $2,278,200 $528,217 Colette 05–07 offer 118,367 – (118,367) – 1.37 1.62 – – Garnsey 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer 116,376 – – 116,376 2.60 – 3.80 – 09–12 retention offer – Tranche 1 – 200,000 – 200,000 2.09 – – 2.97 – Tranche 2 – 200,000 – 200,000 1.64 – – 2.74 – Tranche 3 – 200,000 – 200,000 1.65 – – 2.74 – Tranche 4 – 400,000 – 400,000 1.57 – – 2.51 Aggregate value $2,278,200 $875,324 Antony 05–07 offer 48,112 35,0003 (83,112) – 1.37 1.62 – – Karp 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer 101,787 – – 101,787 2.60 – 3.80 – 09–12 retention offer – Tranche 1 – 200,000 – 200,000 2.09 – – 2.97 – Tranche 2 – 200,000 – 200,000 1.64 – – 2.74
– Tranche 3 – 200,000 – 200,000 1.65 – – 2.74 For personal use only use personal For – Tranche 4 – 400,000 – 400,000 1.57 – – 2.51 Aggregate value $2,457,050 $614,613
David Jones Annual Report 2008 David Jones Annual Report 2008 54 55 directors’ report: remuneration report
Granted Holding at 28 as Remun- Vested during Holding at 26 Fair Value of Fair Value of Fair Value of Fair Value of July 20071 eration1 the Year1 July 20081 Right – TSR Right – ROFE Right – EPS Right – NPAT Name LTI Plan Number Number Number Number $ $ $ $ Patrick 05–07 offer 118,367 – (118,367) – 1.37 1.62 – – Robinson 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer 107,385 – – 107,385 2.60 – 3.80 – 09–12 retention offer – Tranche 1 – 200,000 – 200,000 2.09 – – 2.97 – Tranche 2 – 200,000 – 200,000 1.64 – – 2.74 – Tranche 3 – 200,000 – 200,000 1.65 – – 2.74 – Tranche 4 – 400,000 – 400,000 1.57 – – 2.51 Aggregate value $2,278,200 $875,324 Paul 05–07 offer 118,367 – (118,367) – 1.37 1.62 – – Zahra 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer 116,376 – – 116,376 2.60 – 3.80 – 09–12 retention offer – Tranche 1 – 200,000 – 200,000 2.09 – – 2.97 – Tranche 2 – 200,000 – 200,000 1.64 – – 2.74 – Tranche 3 – 200,000 – 200,000 1.65 – – 2.74 – Tranche 4 – 400,000 – 400,000 1.57 – – 2.51 Aggregate value $2,278,200 $875,324 Notes to the table: 1 The numbers disclosed above are the number of rights allocated to each participant in the plan. The actual number of shares issued could be higher or lower, dependent on Company performance and the conversion ratio of the right to ordinary shares. 2 Non-Executive Directors are not entitled to participate in the LTI Plan and therefore no holdings are disclosed. 3 During the year an additional 35,000 rights were issued to Anthony Karp at $5.11 based on performance.
No LTI Plan rights were forfeited during the year. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 56 57 Shareholdings of Key Management Personnel The following table shows the movements in the number of ordinary shares held in the Company, directly, indirectly or beneficially, by each KMP, including their personally-related entities, for the current year.
For the year ended 26 July 2008 Holding at Granted as Allocated under Net change Holding at 28 July 2007 remuneration1 LTI Plan – other2 26 July 2008 Directors Robert Savage 84,908 14,286 – 4,977 104,171 John Coates 39,616 – – 2,329 41,945 Mark McInnes 1,162,215 – 573,980 (850,000) 886,195 Stephen Goddard 349,540 – 260,204 – 609,744 Reginald Clairs 167,461 3,800 – 4,002 175,263 John Harvey 30,000 – – 939 30,939 Katie Lahey 17,261 – – 4,441 21,702 Peter Mason – – – 102,504 102,504 Executives Damian Eales 244,683 – 107,143 – 351,826 Colette Garnsey 628,078 – 177,551 (800,000) 5,629 Antony Karp 4,375 – 107,168 10,116 121,659 Patrick Robinson 239,591 – 177,551 – 417,142 Paul Zahra 243,107 – 177,551 13 420,671
Notes to the above table 1 Includes shares acquired through the DESP.
2 ‘Net change – other’ includes on-market purchases and sales of ordinary shares and shares acquired under the dividend reinvestment plan. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 56 57 income statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
CONSOLIDATED 2008 2007 2007 2007 Note $000 $000 $000 $000 Before After impact impact of sale Impact of sale of sale and and leaseback and leaseback leaseback transaction transaction transaction Revenue from sale of goods 2,097,999 1,983,220 – 1,983,220 Cost of sales (1,268,227) (1,203,374) – (1,203,374) Gross profit 829,772 779,846 – 779,846 Other income 2 107,517 88,728 – 88,728 Employee benefits expenses (347,460) (348,151) – (348,151) Lease and occupancy expenses (170,906) (160,095) 43,747 (116,348) Depreciation and amortisation expense 3 (41,544) (36,095) – (36,095) Advertising, marketing and visual merchandising expenses (54,439) (56,389) – (56,389) Administration expenses (34,028) (37,155) (231) (37,386) Net financing expenses 3 (41,178) (44,306) 3,949 (40,357) Other expenses (38,119) (27,046) – (27,046) Profit before income tax expense 209,615 159,337 47,465 206,802 Income tax (expense)/credit 5 (62,329) (49,821) 51,653 1,832 Profit after income tax expense attributable to equity holders of the parent entity 24 147,286 109,516 99,118 208,634 Basic earnings per share (cents per share) 7 30.6 46.8 Diluted earnings per share (cents per share) 7 30.0 43.2
The above Income Statement should be read in conjunction with the accompanying notes to the Financial Statements. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 58 59 DAVID JONES LIMITED 2008 2007 2007 2007 Note $000 $000 $000 $000 Before After impact impact of sale Impact of sale of sale and and leaseback and leaseback leaseback transaction transaction transaction Revenue from sale of goods 2,097,999 1,983,220 – 1,983,220 Cost of sales (1,268,227) (1,203,374) – (1,203,374) Gross profit 829,772 779,846 – 779,846 Other income 2 18,286 7,133 – 7,133 Employee benefits expenses (346,063) (348,113) – (348,113) Lease and occupancy expenses (170,913) (160,095) 43,747 (116,348) Depreciation and amortisation expense 3 (41,541) (36,060) – (36,060) Advertising, marketing and visual merchandising expenses (54,103) (56,389) – (56,389) Administration expenses (33,925) (37,137) (231) (37,368) Net financing expenses 3 (162) (4,020) 3,949 (71) Other expenses (51,808) (36,343) – (36,343) Profit before income tax expense 149,543 108,822 47,465 156,287 Income tax (expense)/credit 5 (52,770) (39,852) 51,653 11,801 Profit after income tax expense attributable to equity holders of the parent entity 24 96,773 68,970 99,118 168,088
The above Income Statement should be read in conjunction with the accompanying notes to the Financial Statements. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 58 59 balance sheets
At 26 July 2008 and 28 July 2007 David Jones Limited and its controlled entities
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 Note $000 $000 $000 $000 CURRENT ASSETS Cash and cash equivalents 8 66,564 161,308 10,564 11,308 Receivables 9 414,980 407,187 31,903 17,821 Inventories 10 257,288 280,281 257,288 280,281 Financial assets 11 704 13 598 13 Other assets 12 7,769 9,570 6,479 8,820 Total current assets 747,305 858,359 306,832 318,243 NON-CURRENT ASSETS Financial assets 11 798 153 105,255 105,396 Property, plant and equipment 13 670,687 666,169 670,674 666,152 Intangible assets 14 36,910 39,217 26,605 28,912 Deferred tax assets 15 73,910 70,745 68,862 67,351 Other assets 12 35 – 35 – Total non-current assets 782,340 776,284 871,431 867,811 Total assets 1,529,645 1,634,643 1,178,263 1,186,054 CURRENT LIABILITIES Payables 16 274,608 265,972 588,077 606,622 Interest bearing liabilities 17 242,360 369,994 1,360 33,127 Current tax liabilities 18 22,997 28,468 22,997 28,468 Provisions 19 53,731 63,531 53,731 63,531 Financial liabilities 20 1,009 1,430 1,009 1,430 Other liabilities 21 8,828 1,438 7,473 656 Total current liabilities 603,533 730,833 674,647 733,834 NON-CURRENT LIABILITIES Interest bearing liabilities 17 270,000 350,000 – – Provisions 19 7,904 8,354 7,904 8,354 Financial liabilities 20 695 – 695 – Other liabilities 21 27,723 32,160 27,723 31,634 Total non-current liabilities 306,322 390,514 36,322 39,988 Total liabilities 909,855 1,121,347 710,969 773,822 Net assets 619,790 513,296 467,294 412,232 EQUITY
For personal use only use personal For Contributed equity 22 455,341 392,496 455,341 392,496 Reserves 23 35,460 24,329 34,536 24,329 Retained earnings/(Accumulated losses) 24 128,989 96,471 (22,583) (4,593) Total equity 619,790 513,296 467,294 412,232
The above Balance Sheets should be read in conjunction with the accompanying notes to the Financial Statements.
David Jones Annual Report 2008 David Jones Annual Report 2008 60 61 statements of changes in equity
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 Note $000 $000 $000 $000 Total equity at the beginning of the financial year 513,296 348,277 412,232 287,759 Unrealised gain/(loss) on cash flow hedges 1,281 (1,300) 155 (1,300) Realised loss on cash flow hedges 16 – – – Income tax recognised directly in equity 2,046 – 2,269 – Net profit/(loss) recognised directly in equity 3,343 (1,300) 2,424 (1,300) Profit for the financial year 147,286 208,634 96,773 168,088 Total recognised income for the financial year 150,629 207,334 99,197 166,788 Transactions with equity holders in their capacity as equity holders: Issue of shares: – Employee share plans 97 121 97 121 – Dividend Reinvestment Plan 29,561 20,684 29,561 20,684 Conversion of RPS to ordinary shares 33,187 8,972 33,187 8,972 Dividend provided for or paid: – Cash component 6 (85,204) (59,501) (85,204) (59,501) – Dividend Reinvestment Plan 6 (29,561) (20,684) (29,561) (20,684) Share-based payments 3 7,785 8,093 7,785 8,093 Total equity at the end of the financial year 619,790 513,296 467,294 412,232
The above Statements of Changes in Equity should be read in conjunction with the accompanying notes to the Financial Statements. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 60 61 cash flow statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 Note $000 $000 $000 $000 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) 2,378,346 2,128,796 2,314,385 2,120,620 Payments to suppliers and employees (inclusive of GST) (2,123,152) (1,904,693) (2,140,865) (1,525,661) Interest received 56,967 58,381 188 55 Borrowing costs paid (41,279) (40,485) (264) (198) Income tax paid (68,919) (44,303) (57,481) (34,119) Net cash flows from operating activities 8 201,963 197,696 115,963 560,697 CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (73,289) (434,128) (73,289) (434,128) Payments for software (338) (687) (338) (687) Payments for close out of interest rate swap contracts – (40,830) – (40,830) Payment for acquisition of department store business, net of cash acquired – (20,000) – (20,000) Proceeds from sale of property 42,000 – 42,000 – Net cash flows (used in) / from investing activities (31,627) (495,645) (31,627) (495,645) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loan repayments under employee share plan 97 121 97 121 Dividends paid on ordinary shares (85,204) (59,501) (85,204) (59,501) Interest paid on RPS (1,333) (3,309) (1,333) (3,309) Proceeds from long-term borrowings – 350,000 – – Repayments of long-term borrowings (180,000) – – – Net cash flows (used in)/ from financing activities (266,440) 287,311 (86,440) (62,689) Net (decrease)/increase in cash and cash equivalents (96,104) (10,638) (2,104) 2,362 Cash and cash equivalents at beginning of the financial year 161,308 171,946 11,308 8,946 Cash and cash equivalents at end of the financial year 65,204 161,308 9,204 11,308
Notes: (i) Reconciliation to the Balance Sheet Cash and cash equivalents is comprised of the following: Cash and cash equivalents 8 66,564 161,308 10,564 11,308 Bank overdraft 17 (1,360) – (1,360) – 65,204 161,308 9,204 11,308
(ii) Non-cash financing and investing activities
During the year, the following share transactions occurred: For personal use only use personal For 6,963,393 shares (2007: 4,985,580) were issued under the Dividend Reinvestment Plan. Dividends settled in shares rather than cash during the year were $29.561 million (2007: $20.684 million). On 1 August 2007 the Company exercised its right to convert all RPS outstanding to ordinary shares (refer note 17).
The above Cash Flow Statements should be read in conjunction with the accompanying notes to the Financial Statements.
David Jones Annual Report 2008 62 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
CONTENTS 1 Summary of significant accounting policies 64 18 Current tax liabilities 87 2 Other income 72 19 Provisions 87 3 Profit before income tax 72 20 Financial liabilities 88 4 Segment reporting 74 21 Other liabilities 89 5 Income tax expense 75 22 Contributed equity 89 6 Dividends 76 23 Reserves 90 7 Earnings per share 77 24 Retained earnings / (Accumulated losses) 90 8 Cash and cash equivalents 78 25 Contingent liabilities 91 9 Receivables 79 26 Commitments for expenditure 93 10 Inventories 80 27 Auditors’ remuneration 93 11 Financial assets 80 28 KMP disclosures 94 12 Other assets 81 29 Employee share plans 99 13 Property, plant and equipment 81 30 Consolidated entities 107 14 Intangible assets 83 31 Related party disclosures 108 15 Deferred tax assets and liabilities 84 32 Capital and financial risk management 108 16 Payables 84 33 Events subsequent to reporting date 116
17 Interest bearing liabilities 84 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 62 63 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Inventory valuation: As disclosed in note 1(l), inventory is valued David Jones Limited (Company) is a public company incorporated at the lower of cost and net realisable value at period end. Cost and operating in Australia and is listed on the ASX (trading under is determined using the retail inventory method and estimated the symbol DJS). The consolidated Financial Statements for the average department mark-up ratios. 52 weeks ended 26 July 2008 comprise the Company and its – Impairment of goodwill: As disclosed in note 1(s), the subsidiaries (together referred to as the Consolidated Entity). Consolidated Entity tests annually to determine whether goodwill has suffered any impairment. The recoverable amounts (a) Basis of preparation of cash-generating units have been determined based on a value The Financial Statements have been prepared on an historical cost in use calculation. As disclosed in note 14, these calculations use basis except that derivative financial instruments are stated at their assumptions relating to cash flow projections. fair value. – Provisions: As disclosed in note 19, estimates are used in the The Company is of a kind referred to in ASIC Class order 98/100 calculation of provisions. dated 10 July 1998 (updated by CO 05/641 effective 28 July 2005) and in accordance with the Class Order, amounts in the Financial – Share-based payments: As disclosed in note 29, the Consolidated Statements and Directors’ Report have been rounded to the Entity calculates the share-based payments expense using nearest thousand dollars, unless otherwise stated. assumptions relating to future financial performance against targets, and the retention of eligible employees. The preparation of financial statements in conformity with the Australian Accounting Standards Board requires management The estimates and underlying assumptions are reviewed on an to make judgements, estimates and assumptions that affect the ongoing basis. Revisions to accounting estimates are recognised in application of policies and reported amounts of assets and liabilities, the period in which the estimate is revised if the revision affects income and expenses. The estimates and associated assumptions only that period, or in the period of the revision and future periods are based on historical experience and various other factors that if the revision affects both current and future periods. are believed to be reasonable under the circumstances, the results The accounting policies have been consistently applied by each of which form the basis of making the judgements about carrying entity within the Consolidated Entity for all periods reported in the values of assets and liabilities that are not readily apparent from Financial Statements. other sources. Actual results may differ from these estimates. The key estimates and assumptions that have a significant risk of (b) Statement of compliance causing a material adjustment to the carrying amounts of assets and The financial report complies with Australian Accounting liabilities within the next annual reporting period include: Standards as issued by the Australian Board and International – Income taxes: Significant judgement is required in determining Financial Reporting Standards (IFRSs) as issued by the International the provision for income taxes. There are many transactions and Accounting Standards Board. calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain.
(c) New accounting standards and interpretations The following standards and amendments applicable to the Consolidated Entity were issued but not yet effective, and they have not been applied by the Consolidated Entity and the Company in these Financial Statements:
Application Application Impact on Consolidated date for date of Entity’s Financial Consolidated Reference Title Summary standard Statements Entity AASB 8 Operating Segments Replaces presentation 1 January 2009 Impact on disclosure only. 31 July 2010 requirements of AASB 114 Segment Reporting.
For personal use only use personal For AASB 2007 – 3 Amendments Amendments arising from 1 January 2009 Impact on disclosure only. 31 July 2010 to Australian AASB 8 Operating Segments. Accounting Standards arising from AASB 8
David Jones Annual Report 2008 David Jones Annual Report 2008 64 65 Application Application Impact on Consolidated date for date of Entity’s Financial Consolidated Reference Title Summary standard Statements Entity AASB Determining Outlines methodology for 1 January 2008 No major impact 25 July 2009 Interpretation 4 whether an determining lease classification identified. arrangement and assessment periods. contains a lease AASB Customer Loyalty Deals with accounting for 1 July 2008 No major impact 25 July 2009 Interpretation 13 Programmes customer loyalty programmes, identified. which are used by companies to provide incentives to their customers to buy their products or use their services. AASB 123 Borrowing Costs Requires that all borrowing 1 January 2009 The Consolidated Entity 31 July 2010 (Revised) and and consequential costs associated with a will no longer be able AASB 2007-6 amendments to qualifying asset be capitalised. to expense borrowing other Australian costs associated with a Accounting qualifying asset. Likely Standards impact considered to be insignificant. AASB 101 Presentation of Introduces a Statement of 1 January 2009 Impact on 31 July 2010 (Revised) and Financial Statements Comprehensive Income. presentation only. AASB 2007-8 and consequential Other revisions include amendments to impacts on the presentation other Australian of items in the Statement Accounting of Changes in Equity, new Standards presentation requirements for restatements or reclassifications of items in the financial statements, changes in the presentation requirements for dividends and changes to the titles of the financial statements. AASB 2008-1 Amendments The amendments clarify 1 January 2009 No major impact 31 July 2010 to Australian the definition of ‘vesting identified. Accounting Standard conditions’, introducing the – Share based term ‘non-vesting conditions’ Payments: Vesting and prescribing accounting Conditions and treatment of an award that is Cancellations. effectively cancelled because a non-vesting condition is not satisfied. AASB 3 (Revised) Business A number of changes to 1 July 2009 Applicable for future 31 July 2010 Combinations the accounting for business acquisitions only.
For personal use only use personal For combinations entered into at a non-controlling interest.
David Jones Annual Report 2008 David Jones Annual Report 2008 64 65 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (ii) Financial service fees continued Revenue from financial service fees relating to the establishment (d) Basis of consolidation of customer loans is deferred and recognised over the expected life of the instrument on an effective interest rate basis. Other fees (i) Subsidiaries charged by the Consolidated Entity for servicing a customer loan Subsidiaries are entities controlled by the Company. Control exists are recognised as revenue as the services are provided. when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain (iii) Interest benefits from its activities. In assessing control, potential voting Revenue is recognised as the interest accrues using the effective rights that presently are exercisable or convertible are taken into interest method, which is the rate that discounts estimated future account. The financial statements of subsidiaries are included in cash receipts through the expected life of the financial instrument. the consolidated Financial Statements from the date that control commences until the date that control ceases. (f) Expenses (i) Operating lease expenses Investments in subsidiaries are carried at their cost of acquisition in the Company’s Financial Statements. Payments made under operating leases, where the lease agreement includes predetermined fixed rate increases, are recognised in the (ii) Transactions eliminated on consolidation Income Statement on a straight-line basis over the term of the Intra-group balances and any unrealised gains and losses or income lease. Other operating lease payments are expensed as incurred. and expenses arising from intra-group transactions, are eliminated Lease incentives received are recognised in the Income Statement in preparing the consolidated Financial Statements. as an integral part of the total lease expense and spread over the (e) Revenue lease term. Revenue is recognised to the extent that it is probable that (ii) Net financing expenses the economic benefits will flow to the Consolidated Entity and Net financing expenses comprise interest payable on borrowings the revenue can be reliably measured. The following specific calculated using the effective interest method, foreign exchange recognition criteria must also be met before revenue is recognised: gains and losses, gains and losses on hedging instruments that are (i) Sale of goods recognised in the Income Statement, amortisation of transaction costs that are capitalised and amortised over the life of the Revenue from the sale of goods is recognised in the Income borrowings, and dividends relating to reset preference shares (RPS) Statement when the significant risks and rewards of ownership that have been classified as liabilities. have been transferred to the buyer. Risks and rewards are considered as being passed to the buyer at the earlier of delivery (iii) Pre-opening expenses of the goods or the transfer of legal title to the customer. Revenue Pre-opening expenses in connection with new stores are charged from the sale of goods is recognised net of returns. to the Income Statement in the period in which they are incurred. Revenue from the sale of goods on interest-free credit terms is (g) Leases measured at the fair value of the consideration receivable. The fair value of the consideration is determined by discounting all future Leases of property, plant and equipment where the Consolidated receipts at the rate of interest applicable to the Consolidated Entity, as lessee, has substantially all the risks and rewards of Entity’s receivables funding. The unwinding of the difference ownership are classified as finance leases. Finance leases are between the fair value and nominal value of the consideration is capitalised at the lease’s inception at the fair value of the leased recognised as interest revenue. property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations are included in Revenue from customer gift cards is recognised when the card’s other liabilities. balance is partially or fully redeemed by the customer through the purchase of goods using the card. When a revenue transaction involves the issue of a promotional gift card that may be subsequently redeemed, the future expected cost of settling the
obligation is provided for at the time of the revenue transaction. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 66 67 (h) Income tax (j) Cash and cash equivalents Income tax on the profit or loss for the year comprises current and Cash and cash equivalents in the Balance Sheet comprise cash at deferred tax. Income tax is recognised in the Income Statement bank and in hand, and short-term deposits with an original maturity except to the extent that it relates to items recognised directly in of three months or less. equity, in which case it is recognised in equity. For the purposes of the Cash Flow Statement, cash and cash Current tax is the expected tax payable on the taxable income equivalents consist of cash and cash equivalents as defined above, for the year based on the corporate tax rate of 30% and any net of outstanding bank overdrafts. adjustment to tax payable in respect of previous years. (k) Trade and other receivables Deferred tax is provided for using the balance sheet method, Trade and other receivables are stated at amounts to be providing for temporary differences between the carrying amounts received in the future and are disclosed net of any provision for of assets and liabilities for Financial Statements purposes and doubtful debts. the amounts used for taxation purposes, with the exception of goodwill. The amount of deferred tax provided is based on the Collectability of trade and other receivables is reviewed on an expected manner of realisation or settlement of the carrying ongoing basis. Debts that are known to be uncollectible are amount of assets and liabilities, using tax rates enacted or written off. An allowance for doubtful debt is made when there is substantively enacted at the Balance Sheet date. objective evidence that the Consolidated Entity will not be able to collect the debts. Bad debts are written off when identified in the Deferred tax assets are recognised for deductible temporary Income Statement. differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary (l) Inventories differences and losses, except where the deferred income tax Finished goods on hand or in transit are stated at the lower of cost asset relating to the deductible difference arises from the initial and net realisable value with cost primarily being determined by recognition of an asset or liability in a transaction that is not a using the retail inventory method. This method utilises the current business combination and at the time of the transaction, affects selling prices of inventories and reduces prices to cost by the neither the accounting profit nor taxable profit or loss. application of average department mark up ratios. The Company and its wholly owned Australian resident entities Net realisable value is the estimated selling price in the ordinary have formed a tax-consolidated group with effect from 28 July course of business, less estimated costs necessary to make the sale. 2002 and have therefore been taxed as a single entity from that date. The head entity within the tax-consolidated group is David Supplier rebates, discounts and subsidies (to the extent they Jones Limited. exceed the incremental cost for a specific promotion) are recognised as a reduction in the cost of inventory and are Current tax expense, deferred tax liabilities and deferred tax recorded as a reduction in cost of sales when the inventory assets arising from temporary differences of the members of the is sold. Inventories do not include finished goods on hand in tax consolidated group are recognised in the separate financial store departments that are subject to Retail Brand Management statements of the members of the tax consolidated group using the agreements as these goods are purchased from the supplier ‘group allocation’ approach. immediately prior to a sales transaction occurring. Details of the Consolidated Entity’s tax funding agreement and tax sharing agreement are disclosed in note 5. (m) Property, plant and equipment (i) Owned assets (i) Earnings per share Items of property, plant and equipment are stated at cost less (i) Basic earnings per share accumulated depreciation and impairment losses. The cost of self- Basic earnings per share is calculated by dividing the profit constructed assets includes the cost of materials, direct labour and attributable to equity holders of the Company, excluding any costs an appropriate proportion of production overheads. of servicing RPS, by the weighted average number of ordinary The cost of assets includes the costs of dismantling and removing shares outstanding during the financial year. the items (based on best estimates at the time of acquisition) (ii) Diluted earnings per share and restoring the site on which they are located. Changes in the
For personal use only use personal For Diluted earnings per share adjusts the figures used in the measurement of existing liabilities recognised for these costs determination of basic earnings per share to take into account resulting from changes in the timing or outflow of resources the after income tax effect of interest and other financing costs required to settle the obligation, or from changes in the discount associated with dilutive potential ordinary shares and the weighted rate, are also capitalised. average number of shares assumed to have been issued for no Where parts of an item of property, plant and equipment have consideration in relation to dilutive potential ordinary shares. different useful lives, they are accounted for as separate items of plant and equipment.
David Jones Annual Report 2008 David Jones Annual Report 2008 66 67 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (n) Intangibles continued (i) Goodwill (ii) Subsequent costs Goodwill represents the excess of the acquisition cost over the The Consolidated Entity recognises in the carrying amount of fair value of the Consolidated Entity’s share of the net identifiable an item of plant and equipment the cost of replacing part of such assets of the acquired subsidiary or business combination (refer an item when that cost is incurred, if it is probable that the future note 1(o)) at the date of acquisition. Goodwill is included within economic benefits embodied within the item will flow to the intangible assets and is not amortised. Instead, it is tested for Consolidated Entity and the cost of the item can be measured impairment annually, or more frequently if events or changes in reliably. All other repairs and maintenance costs are recognised circumstances indicate that it might be impaired. in the Income Statement as an expense as incurred. Following initial recognition, goodwill is measured at cost less any (iii) Depreciation accumulated impairment losses. For goodwill balances recognised prior to 1 August 2004, the carrying value is net of goodwill Depreciation is charged to the Income Statement on a straight- amortisation up to 31 July 2004. line basis over the estimated useful lives of buildings, plant and equipment. The estimated useful lives in the current and (ii) Software comparative year are as follows: Software is amortised on a straight-line basis over the estimated Leasehold improvements 10–25 years useful life of the asset. It is disclosed within intangible assets and Plant and equipment 5–25 years is assessed annually for any indicators of impairment. The useful Computer equipment 3–5 years life of software assets for the current and comparative year was Fixtures and fittings 5–13 years five years. Buildings 75 years (o) Business combinations The assets’ residual values and useful life are reviewed, and adjusted The purchase method of accounting is used to account for all if appropriate, at each Balance Sheet date. business combinations. Cost is measured as the fair value of the (iv) Impairment assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable The carrying values of plant and equipment are reviewed for to the acquisition. The excess of the cost of acquisition over the impairment when events or changes in circumstances indicate the fair value of the Consolidated Entity’s share of the identifiable net carrying value may not be recoverable. assets acquired is recorded as goodwill. If the cost of acquisition For an asset that does not generate largely independent cash is less than the Consolidated Entity’s share of fair value of the inflows, the recoverable amount is determined for the cash- identifiable net assets of the subsidiary acquired, the difference generating unit to which the asset belongs. is recognised directly in the Income Statement, but only after a reassessment of the identification and measurement of the net If any such indication exists and where the carrying values exceed assets acquired. the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. (p) Derivative financial instruments The recoverable amount of plant and equipment is the greater of The Consolidated Entity holds derivative financial instruments to fair value less costs to sell, and value in use. In assessing value in hedge its foreign currency and interest rate risk exposures. use, the estimated future cash flows are discounted to their present Derivatives are initially recognised at fair value on the date value using a pre-tax discount rate that reflects current market a derivative contract is entered into and are subsequently assessments of the time value of money and the risks specific to remeasured at fair value. The method of recognising the resulting the asset. gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Consolidated Entity designates certain derivatives as either hedges of the fair value of recognised assets or liabilities of a firm commitment (fair value hedges); or hedges of highly probable
forecast transactions (cash flow hedges). For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 68 69 The Consolidated Entity documents at the inception of the (q) Other financial assets transaction the relationship between hedging instruments and The Consolidated Entity classifies its investments in the following hedged items, as well as its risk management objective and strategy categories: financial assets at fair value through the Income for undertaking various hedge transactions. The Consolidated Entity Statement; loans; and receivables. The classification depends on the also documents its assessment, both at hedge inception and on an purpose for which the investments were acquired. Management ongoing basis, of whether the derivatives that are used in hedging determines the classification of its investments at initial recognition. transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. (i) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for (i) Fair value hedge trading; and those designated at fair value through the Income Changes in the fair value of derivatives that are designated and Statement on initial recognition. A financial asset is classified in qualify as fair value hedges are recorded in the Income Statement this category if acquired principally for the purpose of selling in within net financing expenses, together with any changes in the the short-term or if so designated by management. The policy fair value of the hedged asset or liability that are attributable to the of management is to designate a financial asset if there exists the hedged risk. possibility it will be sold in the short-term and the asset is subject (ii) Cash flow hedge to frequent changes in fair value. The effective portion of the changes in the fair value of derivatives (ii) Loans and receivables that are designated and qualify as cash flow hedges are recognised Loans and receivables are non-derivative financial assets with in equity as part of the hedging reserve. The gain or loss relating fixed or determinable payments that are not quoted in an active to the ineffective portion is recognised immediately in the Income market. They are included in current assets, except for those with Statement, within net financing expenses. maturities greater than 12 months after the Balance Sheet date, Amounts accumulated in equity are recycled in the Income which are classified as non-current assets. Loans and receivables Statement in the periods when the hedged item will affect profit or are included in receivables in the Balance Sheet. loss (for instance when the forecast transaction that is hedged takes (r) Fair value estimation place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, The fair value of financial assets and financial liabilities must be inventory) or a non-financial liability, the gains and losses previously estimated for recognition and measurement. deferred in equity are transferred from equity and included in the The fair value of financial instruments traded in active markets measurement of the initial cost or carrying amount of the asset (such as publicly traded derivatives) is based on quoted market or liability. prices at the Balance Sheet date. The quoted market price used for When a hedging instrument expires or is sold or terminated, or financial assets held by the Consolidated Entity is the current bid when a hedge no longer meets the criteria for hedge accounting, price. The appropriate quoted market price for financial liabilities is any cumulative gain or loss existing in equity at that time remains in the current ask price. equity and is recognised when the forecast transaction is ultimately The fair value of financial instruments that are not traded in an recognised in the Income Statement, within net financing expenses. active market (for example, over-the-counter derivatives) is When a forecast transaction is no longer expected to occur, the determined using valuation techniques. The Consolidated Entity cumulative gain or loss that was reported in equity is immediately uses a variety of methods and makes assumptions that are based transferred to the Income Statement. on market conditions existing at each balance date. Quoted market (iii) Derivatives that do not qualify for hedge accounting prices or dealer quotes for similar instruments are used for long- term debt instruments held. Other techniques, such as estimated Certain derivative instruments do not qualify for hedge accounting. discounted cash flows, are used to determine fair value for the Changes in the fair value of any derivative instrument that does remaining financial instruments. The fair value of interest rate swaps not qualify for hedge accounting are recognised immediately in the is calculated as the present value of the estimated future cash Income Statement. flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the Balance Sheet date. The nominal value less estimated impairment adjustments of
For personal use only use personal For trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Consolidated Entity for similar financial instruments.
David Jones Annual Report 2008 David Jones Annual Report 2008 68 69 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES An impairment loss is recognised whenever the carrying amount of continued an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Income Statement, (s) Impairment unless an asset has previously been revalued, in which case the (i) Financial assets carried at amortised cost impairment loss is recognised as a reversal to the extent of that If there is objective evidence that an impairment loss on loans previous revaluation with any excess recognised through the and receivables carried at amortised cost has been incurred, Income Statement. the amount of the loss is measured as the difference between Impairment losses recognised in respect of cash-generating units the asset’s carrying amount and the present value of estimated are allocated first to reduce the carrying amount of any goodwill future cash flows (excluding future credit losses that have not allocated to cash-generating units and then, to reduce the carrying been incurred) discounted at the financial asset’s effective interest amount of the other assets in the unit (group of units) on a pro rate determined at the time of initial recognition. The carrying rata basis. amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in the (t) Trade and other payables Income Statement. Trade and other payables are recognised when the Consolidated The Consolidated Entity first assesses whether objective evidence Entity becomes obliged to make future payments resulting from the of impairment exists for financial assets that are individually purchase of goods and services. The amounts, which are stated at significant, and individually or collectively for financial assets that cost, are unsecured, non interest bearing and usually settled within are not individually significant. If it is determined that no objective 30–90 days of recognition. evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of (u) Interest bearing liabilities financial assets with similar credit risk characteristics and that group Interest bearing liabilities are initially recognised at fair value, net of of financial assets is collectively assessed for impairment. Assets transaction costs incurred. After initial recognition the liabilities are that are individually assessed for impairment and for which an carried at amortised cost using the effective interest method. impairment loss is or continues to be recognised are not included in a collective assessment of impairment. RPS, which were redeemable on a specific date, were classified as liabilities. The dividends on RPS were recognised in the Income If, in a subsequent period, the amount of the impairment loss Statement as a financing expense on an accruals basis. decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously Interest bearing liabilities are classified as current liabilities unless the recognised impairment loss is reversed. Any subsequent reversal Consolidated Entity has an unconditional right to defer settlement of an impairment loss is recognised in the Income Statement, to of the liability for at least 12 months after the reporting date. the extent that the carrying value of the asset does not exceed its (v) Provisions amortised cost at the reversal date. A provision is recognised in the Balance Sheet when the (ii) Other assets Consolidated Entity has a present legal or constructive obligation At each reporting date, the Consolidated Entity assesses whether as a result of a past event, and it is probable that an outflow there is any indication that an asset may be impaired. Where an of economic benefits will be required to settle the obligation. indicator of impairment exists, the Consolidated Entity makes a Provisions are determined by discounting the expected future cash formal estimate of recoverable amount. flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Recoverable amount is the higher of fair value less costs to sell A description of the nature of each provision is disclosed in note 19. 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 (w) Employee benefits less costs to sell and it does not generate cash inflows that are (i) Wages, salaries, annual leave, sick leave and non- largely independent of those from other assets or group of assets, monetary benefits in which case, the recoverable amount is determined for the cash- generating unit to which the asset belongs. Liabilities for wages and salaries (including non-monetary benefits) and annual leave in respect of employees’ services
In assessing value in use, the estimated future cash flows are up to the reporting date are measured at the undiscounted For personal use only use personal For discounted to their present value using a pre-tax discount rate that amounts expected to be paid when the liability is settled including reflects current market assessments of the time value of money on-costs such as payroll tax, superannuation and workers and the risks specific to the asset. compensation insurance. Non accumulating benefits such as sick leave are not provided for and are expensed as the benefits are taken by employees.
David Jones Annual Report 2008 David Jones Annual Report 2008 70 71 (ii) Long service leave (y) Dividends The liability for long service leave is recognised in the provision for Provision is made for the amount of any dividend declared in employee benefits and measured as the present value of expected respect of ordinary shares on or before the end of the period but future payments to be made for services provided by employees not distributed at the Balance Sheet date. up to the reporting date. Consideration is given to expected future Dividends on RPS classified as a liability were recognised as a wage and salary levels, experience of employee departures and liability on an accruals basis and expensed as a net financing periods of service. Expected future payments are discounted using expense in the Income Statement. the rates attached to national government bonds at the balance date that have maturity dates approximating the expected future (z) Foreign currency transactions cash outflows. Transactions in foreign currencies are translated at the foreign (iii) Superannuation contributions exchange rate ruling at the date of the transaction. Monetary assets Contributions to defined contribution funds are recognised as an and liabilities denominated in foreign currencies are translated to expense in the Income Statement as they become payable. Australian dollars at the foreign exchange rate ruling at the Balance Sheet date. (iv) Share based payments Share-based compensation is provided to eligible employees as (aa) Goods and Services Tax (GST) part of their remuneration. The fair value of rights granted to Revenue, expenses and assets are recognised net of the amount employees is recognised as an employee benefits expense with of GST except where the GST incurred on a purchase of goods a corresponding increase to the share based payments reserve. and services is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of The fair value is measured at grant date and recognised as an acquisition of the asset or as part of the expense item as applicable. expense over the period during which the employees become unconditionally entitled to the underlying shares. Receivables and payables are stated inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation The fair value of the rights granted is valued by an external valuer authority is included as part of receivables or payables in the taking into account the terms and conditions upon which the rights Balance Sheet. were granted. Cash flows are included in the Cash Flow Statement on a gross The amount recognised as an expense is adjusted to reflect the basis. The GST component of cash flows arising from investing and actual number of share rights that vest (except in cases where financing activities, which are recoverable from, or payable to, the forfeiture is due to the Total Shareholder Return (TSR) being taxation authority are classified as operating cash flows. below the vesting threshold). Commitments and contingencies are disclosed net of the amount (v) Bonus plans of GST recoverable from, or payable to, the taxation authority. The Consolidated Entity recognises a provision and an expense for bonuses payable under the Short Term Incentive (STI) Plan based (ab) Segment Reporting on a formula that takes into consideration the profit attributable A business segment is a distinguishable component of the to the Company’s shareholders after certain adjustments. The Consolidated Entity that is engaged in providing products or Consolidated Entity recognises a provision when a contractual services that are subject to risks and rewards that are different obligation exists or where there is a past practice that has created a from those of other segments. constructive obligation.
(x) Contributed Equity Ordinary shares are classified as contributed equity. Incremental costs directly attributable to the issue of new shares or options are shown in contributed equity as a deduction, net of tax,
from the proceeds. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 70 71 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000 2. OTHER INCOME Interest income – David Jones store card 51,222 48,561 – – Interest income – other 5,745 9,820 188 55 Financial services fees – David Jones store card 24,152 22,874 – – Profit on sale of property: Little Bourke Street, Melbourne Victoria 12,128 – 12,128 – Sundry income 14,270 7,473 5,970 7,078 TOTAL OTHER INCOME 107,517 88,728 18,286 7,133
3. PROFIT BEFORE INCOME TAX (a) Profit before income tax expense includes the following specific items: Depreciation 38,761 32,225 38,758 32,222 Amortisation 2,783 3,870 2,783 3,838 Total depreciation and amortisation 41,544 36,095 41,541 36,060 Loss on sale of plant and equipment 39 60 39 60 Net financing expenses: Interest and finance charges (gross) 43,936 41,544 154 202 Less: Interest on hedging instrument (2,782) (1,056) – – Interest and finance charges 41,154 40,488 154 202 Net unrealised foreign exchange loss 8 14 8 14 Realised loss/(gain) on hedging instruments recognised in the Income Statement 16 (3,949) – (3,949) Interest on RPS – 2,950 – 2,950 Amortisation of transaction costs relating to RPS – 854 – 854 Total net financing expenses 41,178 40,357 162 71 Share-based payment expense 7,785 8,093 7,785 8,093 Amount set aside to provide for Directors’ retirement allowance 71 62 71 62 Defined contribution superannuation expense 24,970 24,285 24,970 24,285 Rental expense on operating leases: Other persons – minimum lease payments 66,610 61,431 66,610 61,431 Contingent rentals 7,394 7,511 7,394 7,511
Total rental expense 74,004 68,942 74,004 68,942 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 72 73 Profit Before Income Tax Profit After Income Tax (Expense)/ Income Tax Expense Credit Expense $000 $000 $000
3. PROFIT BEFORE INCOME TAX continued (b) Impact of significant non-recurring items:
CONSOLIDATED 52 weeks ended 26 July 2008 Before impact of significant non-recurring item 197,487 (60,433) 137,054 Significant non-recurring item: – Profit on sale of property: Little Bourke Street, Melbourne Victoria 12,128 (1,896) 10,232 After impact of significant non recurring item 209,615 (62,329) 147,286 52 weeks ended 28 July 2007 Before impact of significant non-recurring item 159,337 (49,821) 109,516 Significant non-recurring item: – Unwinding of sale and leaseback transaction 47,465 51,653 99,118 After impact of significant non-recurring item 206,802 1,832 208,634
DAVID JONES LIMITED 52 weeks ended 26 July 2008 Before impact of significant non-recurring item 137,415 (50,874) 86,541 Significant non-recurring item: – Profit on sale of property: Little Bourke Street, Melbourne Victoria 12,128 (1,896) 10,232 After impact of significant non-recurring item 149,543 (52,770) 96,773 52 weeks ended 28 July 2007 Before impact of significant non-recurring item 108,822 (39,852) 68,970 Significant non-recurring item: – Unwinding of sale and leaseback transaction 47,465 51,653 99,118
After impact of significant non-recurring item 156,287 11,801 168,088 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 72 73 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
4. SEGMENT REPORTING Business and geographical segments The Consolidated Entity operates in Australia and was organised into the following divisions by product and service type for the financial year: – Department Stores comprising David Jones department stores, rack stores and corporate head office; and – Financial Services comprising the David Jones store card and other related financial services;
Segment accounting policies Segment accounting policies are the same as the Consolidated Entity’s policies described in note 1. During the financial year, there were no changes in segment accounting policies that had a material effect on segment information.
DEPARTMENT STORES FINANCIAL SERVICES CONSOLIDATED PRIMARY REPORTING 2008 2007 2008 2007 2008 2007 – BUSINESS SEGMENTS $000 $000 $000 $000 $000 $000 REVENUE Sales to customers outside the Consolidated Entity 2,097,999 1,983,220 – – 2,097,999 1,983,220 Other revenues from customers outside the Consolidated Entity 16,254 6,614 88,792 75,036 105,046 81,650 Total segment revenues 2,114,253 1,989,834 88,792 75,036 2,203,045 2,064,870 Unallocated revenue 2,471 7,078 Total consolidated revenue 2,205,516 2,071,948 RESULT Segment result 169,749 168,022 38,385 36,114 208,134 204,136 Unallocated items 1,481 2,666 Profit before income tax expense 209,615 206,802 ASSETS Segment assets 1,008,513 1,013,533 383,091 389,383 1,391,604 1,402,916 Unallocated assets 138,041 231,727 Total assets 1,529,645 1,634,643 LIABILITIES Segment liabilities 458,028 658,226 357,098 349,407 815,126 1,007,634 Unallocated liabilities 94,729 113,713 Total liabilities 909,855 1,121,347 OTHER SEGMENT INFORMATION Acquisition of non-current assets 73,627 495,645 – – 73,627 495,645 Depreciation and amortisation 41,544 36,095 – – 41,544 36,095 Significant non-cash expenses other than
depreciation and amortisation 7,785 8,093 14,552 8,361 22,337 16,454 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 74 75 CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
5. INCOME TAX EXPENSE Recognised in the Income Statement Current tax expense Current year 65,981 60,110 54,499 49,926 (Over) provision in prior years (187) (889) (187) (889) 65,794 59,221 54,312 49,037 Deferred tax (benefit)/expense Origination and reversal of temporary differences (3,330) (61,135) (1,407) (60,920) (Over)/under provision in prior years (135) 82 (135) 82 (3,465) (61,053) (1,542) (60,838) Total income tax expense/(benefit) in Income Statement 62,329 (1,832) 52,770 (11,801)
Reconciliation between prima facie tax on net profit before tax to tax expense Profit before income tax expense 209,615 206,802 149,543 156,287 Tax at the corporate tax rate of 30% (2007: 30%) 62,885 62,041 44,863 46,887 Increase in income tax expense due to: − non-deductible interest expense on RPS – 885 – 885 − non-deductible entertainment 257 324 257 324 − non-deductible share-based payment expense 2,336 2,428 2,336 2,428 − assessable income on disposal of property 3,601 – 3,601 – Decrease in income tax expense due to: − acquisition of shares for LTI Plan (954) – (954) – − utilisation of capital losses (4,004) (286) (4,004) (286) − depreciation of buildings (1,050) (841) (884) (674) − release of deferred tax liability relating to sale and leaseback transaction – (65,893) – (65,893) − tax consolidation – group allocation – – 8,297 5,018 − net other (420) 317 (420) 317 62,651 (1,025) 53,092 (10,994) Income tax expense over provided in prior years (322) (807) (322) (807) Income tax expense 62,329 (1,832) 52,770 (11,801)
Current tax recognised directly in equity (2,346) – (2,346) –
Deferred tax recognised directly in equity 300 (557) 75 (557) For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 74 75 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
5. INCOME TAX EXPENSE CONTINUED Tax consolidation The Company and its wholly owned Australian resident subsidiaries have formed a tax-consolidated group for income tax purposes with effect from 28 July 2002 and have therefore been taxed as a single entity from that date. The head entity within the tax-consolidated group is David Jones Limited. This entity is legally liable for the income tax liabilities of the tax-consolidated group. The accounting policies dealing with the accounting treatment of the tax consolidation are set out in note 1. Nature of tax funding agreement and tax sharing agreement The members of the tax-consolidated group have entered into a tax funding agreement which sets out the funding obligations of members of the tax consolidated group in respect of tax amounts. The tax funding agreement requires payments to/(from) the head entity equal to the current tax liability/(asset) assumed by the head entity, and for any deferred tax assets arising from tax losses assumed by the head entity, resulting in the head entity recognising an inter-entity payable/(receivable) equal to the amount of the tax liability/(asset) assumed. The members of the tax-consolidated group have also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the Financial Statements in respect of this agreement, as payment of any amounts under the tax sharing agreement is considered remote. In preparing the accounts for the Company for the current year, the following amounts have been recognised as tax-consolidation contribution adjustments: DAVID JONES LIMITED 2008 2007 $000 $000 Total (reduction) to tax expense of David Jones Limited (11,482) (10,184) Total increase to inter-company assets of David Jones Limited 11,482 10,184 – –
Total Cents Amount Per Share $000 Date of Payment
6. DIVIDENDS Dividends recognised by the Company: 2008 Final 2007 ordinary 13.0 61,940 8 November 2007 Interim 2008 ordinary 11.0 52,825 7 May 2008 Total dividends recognised 114,765
2007 Final 2006 ordinary 9.0 39,864 8 November 2006 Interim 2007 ordinary 9.0 40,321 8 May 2007 Total dividends recognised 80,185
All dividends paid in the current and prior financial year were fully franked at the tax rate of 30%.
Subsequent event
For personal use only use personal For Since the end of the financial year, the Directors have declared the following dividend on ordinary shares, fully franked at the tax rate of 30%: Total Cents Amount Per Share $000 Date of Payment Final 2008 ordinary 16.0 78,476 5 November 2008
The financial effect of the final ordinary dividend for 2008 has not been recognised in the Financial Statements for the year ended 26 July 2008 and will be recognised in subsequent financial statements.
David Jones Annual Report 2008 David Jones Annual Report 2008 76 77 DAVID JONES LIMITED 2008 2007 $000 $000
6. DIVIDENDS continued Dividend franking account Franking credits available to shareholders of the Company for subsequent financial years based on a tax rate of 30% (2007: 30%) 92,747 78,243
The above amounts represent the balance of the franking account as at the end of the financial period, adjusted for: (a) franking credits that will arise from the payment of the current tax liability; (b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and (c) franking credits that may be prevented from being distributed in subsequent financial years. The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the franking account of the dividend recommended by the Directors since the end of the financial year, but not recognised as a liability at year-end, will be a reduction in the franking account of $33.633 million (2007: $26.546 million). For income tax purposes, the Company has formed a tax consolidated group. As a result, one franking account is now maintained by the Company for the tax-consolidated group. CONSOLIDATED 2008 2007 Cents Cents
7. EARNINGS PER SHARE Before impact of significant items Basic earnings per share 28.4 24.6 Diluted earnings per share 27.9 22.7 Impact of significant items Basic earnings per share 2.1 22.2 Diluted earnings per share 2.1 20.5 After impact of significant items Basic earnings per share 30.6 46.8 Diluted earnings per share 30.0 43.2
CONSOLIDATED 2008 2007 $000 $000 The following data was used in calculating basic and dilutive earnings per share: Profit after income tax expense 147,286 208,634
Earnings used in calculating dilutive earnings per share 147,286 208,634 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 76 77 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
CONSOLIDATED 2008 2007 Number Number
7. EARNINGS PER SHARE continued Weighted average number of ordinary shares used in the calculation of basic earnings per share 481,817,069 445,828,138 Effect of dilution: RPS – 25,562,006 LTI Plan 9,579,930 11,090,898 Weighted average number of ordinary shares used in the calculation of diluted earnings per share 491,396,999 482,481,042 Weighted average number of converted, lapsed or cancelled potential ordinary shares included in diluted earnings per share 447,401 3,714,744 There have been no other material transactions involving ordinary shares or potential ordinary shares since the Balance Sheet date and before the completion of these Financial Statements.
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
8. CASH AND CASH EQUIVALENTS Cash at bank and on hand 10,564 11,308 10,564 11,308 Short-term deposits 56,000 150,000 – – 66,564 161,308 10,564 11,308
Short-term deposits are for various terms maturing within 7 days at a floating interest rate of 7.25% per annum (2007: maturing within 60 days at interest rates from 6.25% to 6.62% pa). The Consolidated Entity’s exposure to interest rate risk, including a sensitivity analysis for financial assets and liabilities, is disclosed in note 32.
Reconciliation of profit after income tax to the net cash flows from operations Profit after income tax 147,286 208,634 96,773 168,088 Adjusted for other non-cash items and transfers: – Depreciation and amortisation expense 41,544 36,095 41,541 36,060 – Net (gain)/loss on disposal of assets (12,128) 59 (12,128) 59 – Share-based payments expense 7,785 8,093 7,785 8,093 – Hedge reserve 1,297 (743) 153 (743) – Interest classified as financing activity 1,333 3,309 1,333 3,309 Changes in assets and liabilities: – Receivables (7,793) (6,396) (14,082) (625) – Inventories 22,993 (6,553) 22,993 (6,553) – Other assets 430 27,054 1,862 27,804 – Payables 8,636 29,261 (18,547) 415,144
– Interest bearing liabilities 4,193 (10,325) 60 805 For personal use only use personal For – Other liabilities 3,227 (62,480) 3,181 (62,649) – Provisions (10,250) 18,937 (10,250) 18,937 – Taxation (6,590) (47,249) (4,711) (47,032) Net cash from operating activities 201,963 197,696 115,963 560,697
David Jones Annual Report 2008 David Jones Annual Report 2008 78 79 CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 Note $000 $000 $000 $000
9. RECEIVABLES CURRENT Store card and credit reserve receivables (i), (iii) 383,077 399,414 – – Less: Allowance for doubtful debts – (10,048) – – 383,077 389,366 – – Amounts receivable from suppliers (ii), (iii) 15,121 7,023 15,121 7,023 Other debtors 16,782 10,798 16,782 10,797 414,980 407,187 31,903 17,820
Notes: (i) All Store card and credit reserve receivables are interest bearing, with the exception of receivables relating to interest free sales promotions. The payment terms vary between each credit option and include the following: Standard credit option The minimum payment for each statement period is the greater of $10 or 2.00% of the adjusted closing balance plus any unpaid minimum payments from earlier statement periods. Instalment credit option For each purchase under an instalment credit option, the purchase is divided into a number of equal monthly instalments. The number of instalments is equal to the number of months specified for the credit option. In each of the months specified for the credit option, an instalment is added to the minimum payment. The first instalment is included in the statement of account for the period which includes the date of purchase. The minimum payment in relation to a statement period for an instalment credit option is the sum of the monthly instalments for that statement period, the interest charges for the statement period, and any unpaid minimum payments from earlier statement periods. Credit reserve loans The minimum payment due for each statement period is the greater of $10 or 1.95% of the closing balance plus any unpaid minimum payments from earlier statement periods. (ii) Refunds receivable from suppliers and other debtors are non-interest bearing and are generally on 30 to 90 day terms. (iii) Details of the effective interest rate and credit risk of current receivables are disclosed in note 32.
Allowance for Doubtful Debts As at 26 July 2008, no provision was held against store card and credit reserve receivables for impaired assets (2007: $10.048 million). Movements in the allowance for doubtful debts for store card and credit reserve receivables are as follows:
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
Movements in the allowance for doubtful debts Balance at the beginning of the year (10,048) (9,482) – – Charge for the year (13,738) (7,304) – –
Written off 23,786 6,738 – – For personal use only use personal For Balance at the end of the year – (10,048) – –
David Jones Annual Report 2008 David Jones Annual Report 2008 78 79 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
9. RECEIVABLES continued Aged Analysis of Receivables The aged analysis of store card and credit reserve receivables at balance date is as follows:
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
Aged analysis of receivables Neither past due nor impaired 383,077 329,319 – – Less than 30 days overdue – 34,799 – – More than 30 days but less than 90 days overdue – 17,340 – – More than 90 days overdue – 7,908 – – Total store card and credit reserve receivables 383,077 389,366 –– ––
For the year ended 26 July 2008, the store card and credit reserve receivables balance was classified as current (neither past due nor impaired) as the receivables were transferred to American Express Australia Limited (American Express) on 1 August 2008. The Consolidated Entity derecognised its store card and credit reserve receivables on the date of transfer. In relation to all other receivables no amounts are impaired, nor are any amounts past due. Based on the credit history of other receivables, it is expected that these amounts will be received when due. The credit quality of all financial assets that are neither past due nor impaired is consistently monitored with reference to historical default rates, payment history, account aging, borrower specific events, consumer credit bureau and other publicly available information so as to identify any potential adverse changes in credit quality. The credit quality of receivables at balance date is considered satisfactory. The Consolidated Entity’s accounting policy for impairment is disclosed in note 1(s).
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
10. INVENTORIES Retail inventories 257,288 280,281 257,288 280,281 257,288 280,281 257,288 280,281
11. FINANCIAL ASSETS CURRENT Forward exchange contracts 598 13 598 13 Interest rate swaps 106 – – – 704 13 598 13
NON-CURRENT Shares in controlled entities – at recoverable amount – – 105,243 105,243 Shares in other corporations – at cost 12 12 12 12
Interest rate swaps 786 141 – 141 For personal use only use personal For 798 153 105,255 105,396
Forward exchange contracts and interest rate swaps are designated as cash flow hedges. Information in relation to the Consolidated Entity’s exposure to forward exchange and interest rate risks are disclosed in note 32.
David Jones Annual Report 2008 David Jones Annual Report 2008 80 81 CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
12. OTHER ASSETS CURRENT Prepayments 7,769 9,570 6,479 8,820 7,769 9,570 6,479 8,820
NON-CURRENT Prepayments 35 – 35 – 35 – 35 –
13. PROPERTY, PLANT AND EQUIPMENT The movements in the Consolidated Entity’s property, plant and equipment balances are as follows: Land and Leasehold Plant and Computer Fixtures Work in Buildings Improvements Equipment Equipment and Fittings Progress Total Consolidated $000 $000 $000 $000 $000 $000 $000 Year ended 26 July 2008 At 29 July 2007, net of accumulated depreciation 411,608 88,960 20,362 3,646 113,163 28,430 666,169 Additions – 5,121 3,155 1,537 19,577 43,899 73,289 Disposals and write-downs (23,286) (2,803) (289) (31) (3,463) – (29,872) Transfers and reclassifications – 3,367 3,785 3,121 18,354 (28,765) (138) Depreciation charge for the year (2,342) (6,450) (4,209) (1,890) (23,870) – (38,761) At 26 July 2008, net of accumulated depreciation 385,980 88,195 22,804 6,383 123,761 43,564 670,687 At 28 July 2007 Cost 413,552 197,360 51,172 44,566 265,740 28,430 1,000,820 Accumulated depreciation (1,944) (108,400) (30,810) (40,920) (152,577) – (334,651) Net carrying amount 411,608 88,960 20,362 3,646 113,163 28,430 666,169 At 26 July 2008 Cost 390,073 185,807 64,093 45,971 279,402 43,564 1,008,910 Accumulated depreciation (4,093) (97,612) (41,289) (39,588) (155,641) – (338,223) Net carrying amount 385,980 88,195 22,804 6,383 123,761 43,564 670,687 Year ended 28 July 2007 At 30 July 2006, net of accumulated depreciation – 90,541 22,945 5,770 103,917 4,468 227,641 Additions 413,552 3,649 1,449 511 17,190 38,608 474,959 Disposals and write-downs – (15) (11) (17) (1) – (44) Transfers and reclassifications – 1,783 390 (643) 8,954 (14,646) (4,162) Depreciation charge for the year (1,944) (6,998) (4,411) (1,975) (16,897) – (32,225) At 28 July 2007, net of accumulated depreciation 411,608 88,960 20,362 3,646 113,163 28,430 666,169 At 29 July 2006
For personal use only use personal For Cost – 193,604 49,791 45,747 244,372 4,468 537,982 Accumulated depreciation – (103,063) (26,846) (39,977) (140,455) – (310,341) Net carrying amount – 90,541 22,945 5,770 103,917 4,468 227,641 At 28 July 2007 Cost 413,552 197,360 51,172 44,566 265,740 28,430 1,000,820 Accumulated depreciation (1,944) (108,400) (30,810) (40,920) (152,577) – (334,651) Net carrying amount 411,608 88,960 20,362 3,646 113,163 28,430 666,169
David Jones Annual Report 2008 David Jones Annual Report 2008 80 81 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
13. PROPERTY, PLANT AND EQUIPMENT CONTINUED The movements in the Company’s property, plant and equipment balances are as follows: Land and Leasehold Plant and Computer Fixtures Work in Buildings Improvements Equipment Equipment and Fittings Progress Total David Jones Limited $000 $000 $000 $000 $000 $000 $000 Year ended 26 July 2008 At 29 July 2007, net of accumulated depreciation 411,608 88,960 20,155 3,646 113,353 28,430 666,152 Additions – 5,121 3,155 1,537 19,577 43,899 73,289 Disposals and write-downs (23,286) (2,803) (289) (31) (3,463) – (29,872) Transfers and reclassifications – 3,367 3,976 3,121 18,164 (28,765) (137) Depreciation charge for the year (2,342) (6,450) (4,206) (1,890) (23,870) – (38,758) At 26 July 2008, net of accumulated depreciation 385,980 88,195 22,791 6,383 123,761 43,564 670,674 At 28 July 2007 Cost 413,552 197,360 50,957 44,566 265,532 28,430 1,000,397 Accumulated depreciation (1,944) (108,400) (30,802) (40,920) (152,179) – (334,245) Net carrying amount 411,608 88,960 20,155 3,646 113,353 28,430 666,152 At 26 July 2008 Cost 390,073 185,807 64,055 45,971 279,402 43,564 1,008,872 Accumulated depreciation (4,093) (97,612) (41,264) (39,588) (155,641) – (338,198) Net carrying amount 385,980 88,195 22,791 6,383 123,761 43,564 670,674
Year ended 28 July 2007 At 30 July 2006, net of accumulated depreciation – 90,541 22,735 5,770 104,107 4,468 227,621 Additions 413,552 3,649 1,449 511 17,190 38,608 474,959 Disposals and write-downs – (15) (11) (17) (1) – (44) Transfers and reclassifications – 1,783 390 (643) 8,954 (14,646) (4,162) Depreciation charge for the year (1,944) (6,998) (4,408) (1,975) (16,897) – (32,222) At 28 July 2007, net of accumulated depreciation 411,608 88,960 20,155 3,646 113,353 28,430 666,152 At 29 July 2006 Cost – 193,605 49,576 45,747 244,164 4,468 537,560 Accumulated depreciation – (103,064) (26,841) (39,977) (140,057) – (309,939) Net carrying amount – 90,541 22,735 5,770 104,107 4,468 227,621 At 28 July 2007 Cost 413,552 197,360 50,957 44,566 265,532 28,430 1,000,397 Accumulated depreciation (1,944) (108,400) (30,802) (40,920) (152,179) – (334,245)
For personal use only use personal For Net carrying amount 411,608 88,960 20,155 3,646 113,353 28,430 666,152
David Jones Annual Report 2008 David Jones Annual Report 2008 82 83 CONSOLIDATED DAVID JONES LIMITED Software Goodwill Total Software Goodwill Total $000 $000 $000 $000 $000 $000
14. INTANGIBLE ASSETS Year ended 26 July 2008 At 29 July 2007, net of accumulated amortisation 8,912 30,305 39,217 8,912 20,000 28,912 Additions 338 – 338 338 – 338 Transfers and reclassifications 138 – 138 138 – 138 Amortisation charge for the year (2,783) – (2,783) (2,783) – (2,783) At 26 July 2008, net of accumulated amortisation 6,605 30,305 36,910 6,605 20,000 26,605 At 28 July 2007 Cost (gross carrying amount) 30,936 30,305 61,241 30,708 20,000 50,708 Accumulated amortisation (22,024) – (22,024) (21,796) – (21,796) Net carrying amount 8,912 30,305 39,217 8,912 20,000 28,912 At 26 July 2008 Cost 31,412 30,305 61,717 31,184 20,000 51,184 Accumulated amortisation (24,807) – (24,807) (24,579) – (24,579) Net carrying amount 6,605 30,305 36,910 6,605 20,000 26,605
Year ended 28 July 2007 At 30 July 2006, net of accumulated amortisation 7,948 10,305 18,253 7,915 – 7,915 Additions 687 20,000 20,687 687 20,000 20,687 Disposals and write-downs (15) – (15) (15) – (15) Transfers and reclassifications 4,162 – 4,162 4,162 – 4,162 Amortisation charge for the year (3,870) – (3,870) (3,837) – (3,837) At 28 July 2007, net of accumulated amortisation 8,912 30,305 39,217 8,912 20,000 28,912 At 29 July 2006 Cost (gross carrying amount) 26,739 10,305 37,044 26,510 – 26,510 Accumulated amortisation (18,791) – (18,791) (18,595) – (18,595) Net carrying amount 7,948 10,305 18,253 7,915 – 7,915 At 28 July 2007 Cost 30,936 30,305 61,241 30,708 20,000 50,708 Accumulated amortisation (22,024) – (22,024) (21,796) – (21,796) Net carrying amount 8,912 30,305 39,217 8,912 20,000 28,912
On 10 April 2007, the Company acquired an existing store operation at Burwood for $20 million. The arrangement involved the acquisition of the store as a going concern and accordingly is considered a business combination. Rental payments under the lease are at market rates. The fair value of other assets and liabilities arising from the acquisition were inconsequential. The acquisition resulted in the recognition of goodwill of $20 million, which relates to the incremental customer base and anticipated synergies that will be achieved under the David
Jones business model. For personal use only use personal For Impairment test for goodwill and other assets The goodwill balance relates to the acquisition of a group of department stores in Western Australia ($10.305 million) and a department store in New South Wales ($20.000 million). The recoverable amount of these cash generating units is determined based on a value in use calculation. The calculation uses a discounted cash flow projection over the remaining term of each store lease, using a pre-tax discount rate of 14.43%. The cash flows are based on financial projections determined by the Company, extrapolated into the future based on a sales growth rate of 1% for the remaining lease period, and reflect both past experience and market expectations.
David Jones Annual Report 2008 David Jones Annual Report 2008 82 83 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
15. DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets are attributable to the following items: Inventory 6,923 5,959 6,923 5,959 Plant and equipment 15,990 14,136 16,263 14,149 Accrued expenses 8,329 5,324 8,329 5,324 Provisions for: – Directors retirement allowance 345 323 345 323 – Doubtful debts 6,263 4,144 1,349 1,129 – Employee benefits 16,757 19,624 16,757 19,624 – Warranties – 17 – 17 – Sales returns 812 727 812 727 Revenue received in advance 407 460 – 68 Interest-free sales 2,067 1,651 2,067 1,651 Straight-lining of lease rentals 8,492 8,036 8,492 8,036 Hedge accounting 7,414 10,163 7,414 10,163 Other amounts 111 181 111 181 73,910 70,745 68,862 67,351
Reconciliation of movement of deferred tax assets: Opening balance 70,745 9,135 67,351 5,957 Charges recognised in income statement 3,465 61,053 1,542 60,837 Amounts recognised against equity (300) 557 (31) 557 73,910 70,745 68,862 67,351
Deferred tax assets not recognised: Capital tax losses – 5,791 – –
16. PAYABLES Trade payables 140,791 149,963 140,835 150,010 Other payables and accruals 133,817 116,009 124,591 108,742 Intercompany payables – – 322,651 347,870 274,608 265,972 588,077 606,622
17. INTEREST BEARING LIABILITIES CURRENT Bank overdraft 1,360 – 1,360 – Securitisation facility – 336,867 – – Receivables purchase facility 241,000 – – –
For personal use only use personal For RPS – 33,127 – 33,127 242,360 369,994 1,360 33,127
NON-CURRENT Unsecured bank bridging loan – 350,000 – – Unsecured bank loan 270,000 – – – 270,000 350,000 – –
David Jones Annual Report 2008 David Jones Annual Report 2008 84 85 17. INTEREST BEARING LIABILITIES CONTINUED RPS Information in relation to the Consolidated Entity’s exposure to RPS, which were redeemable on a specific date, were classified interest rate risk is disclosed in note 32. as a liability.
Securitisation Facility Terms and conditions of RPS Under the securitisation facility receivables from David Jones Dividends cardholders were sold to an unrelated special purpose entity RPS entitled the holder to receive a fully franked non-cumulative that provided a third party multi conduit funding arrangement. dividend of 8.1% per annum, fixed until the first reset date of As the risks and rewards of the receivables remained with the 1 August 2007, if a dividend was declared or otherwise resolved Consolidated Entity, the special purpose entity was consolidated to be paid by the Directors. in the Consolidated Entity’s Financial Statements. The facility was cancelled in December 2007. Dividends on RPS were paid at the discretion of the Directors in priority to any dividends declared on ordinary shares. Receivables Purchase Facility If any RPS dividend was not paid in full in any period, then no Following the cancellation of the securitisation facility, the dividend or return of capital could be paid or conducted in relation receivables purchase facility was established through a bank to to ordinary shares unless and until either the: partially fund the Consolidated Entity’s store card receivables. – Company had paid two consecutive RPS dividends in full or had The facility was repaid and cancelled on 1 August 2008 after the paid a shortfall dividend to make up for the unpaid amount; or transfer of receivables to American Express. Under this facility the risks and rewards relating to the receivables remained with the – holders of RPS passed a special resolution approving the paying Consolidated Entity. of the dividend or return of capital.
Unsecured Bank Bridging Loan The RPS did not confer on holders any right to participate in the As part of the unwinding of the previously existing sale and David Jones Shareholder Rewards Scheme. leaseback arrangement, a bridging loan of $350 million was Conversion established to enable the Consolidated Entity to acquire its flagship All RPS were converted to ordinary shares on 1 August 2007, CBD stores in Sydney and Melbourne from Deutsche Bank AG. resulting in a decrease in interest bearing liabilities of $33.19 million The bridging loan was subject to a negative pledge that imposed and a corresponding increase in equity. certain covenants on the Consolidated Entity, all of which were Voting complied with up to the date of repayment and cancellation of the RPS holders were not entitled to speak or to vote at general facility in September 2007. meetings of the Company, except in certain circumstances, in Unsecured Bank Loan which case holders had one vote per RPS held. An unsecured syndicated bank loan in the form of a revolving cash RPS holders had the same rights as ordinary shareholders to advance facility was established in July 2007 and drawn down on receive accounts, reports and notices of meetings of the Company 28 September 2007 following the repayment of the unsecured and to attend any general meetings of the Company. bank bridging loan. Ranking The unsecured syndicated loan facility has two tranches: RPS were subordinated to all creditors of the Company. – $350 million core term tranche repayable on On a winding up of the Company, the RPS ranked ahead of 28 September 2012; and ordinary shares for a return of capital (equal to the issue price) and – $100 million short-term tranche repayable on for the payment of any accrued dividend on the RPS. 27 September 2008. Borrowing covenants The short-term tranche is for funding working capital requirements. Under the Syndicated Facility Agreement (as amended) between a The facility is subject to a negative pledge that imposes certain controlled entity, David Jones Finance Pty Limited, and participating covenants on the Consolidated Entity. All covenants were banks, the proceeds from the issue of RPS were specifically complied with throughout the year. excluded from the definition of Financial Indebtedness that is used to calculate financial ratios and limits in relation to the financing For personal use only use personal For At 26 July 2008 $100 million of the core term tranche facility had facilities set out in this note. been drawn down to partially fund store card receivables. This amount was repaid following the transfer of store card receivables to American Express on 1 August 2008. Further information in relation to this finance facility is disclosed in note 32.
David Jones Annual Report 2008 David Jones Annual Report 2008 84 85 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
17. INTEREST BEARING LIABILITIES CONTINUED NUMBER OF SHARES $000
Movements in RPS Balance at 30 July 2006 421,590 42,148 Movement in RPS Interest Rate Swap – (49) Conversion to ordinary shares (89,719) (8,972) Balance at 28 July 2007 331,871 33,127 Movement in RPS Interest Rate Swap – 60 Conversion to ordinary shares on 1 August 2007 (331,871) (33,187) Balance at 26 July 2008 – –
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 Note $000 $000 $000 $000
Financing facilities Access to the following lines of credit was available at balance date:
Total facilities (i) Bridge facility – 350,000 – – Unsecured bank loan 350,000 350,000 – – Overdraft and trade finance facility (ii) 29,600 29,600 29,600 29,600 Working capital facility 100,000 100,000 – – Receivables purchase facility (iii) 250,000 – – – Securitisation facility – 420,000 – – Bank guarantees (iv) 1,182 973 1,182 973 730,782 1,250,573 30,782 30,573 Used at balance date Bridge facility – 350,000 – – Unsecured bank loan 270,000 – – – Overdraft and trade finance facility 1,360 – 1,360 – Working capital facility – – – – Receivables purchase facility 241,000 – – – Securitisation facility – 336,867 – – Bank guarantees 1,182 973 1,182 973
513,542 687,840 2,542 973 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 86 87 17. INTEREST BEARING LIABILITIES CONTINUED CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000 Unused at balance date Bridge facility – – – – Unsecured bank loan 80,000 350,000 – – Overdraft and trade finance facility 28,240 29,600 28,240 29,600 Working capital facility 100,000 100,000 – – Receivables purchase facility 9,000 – – Securitisation facility – 83,133 – – Bank guarantees – – – – 217,240 562,733 28,240 29,600
Notes: (i) All facilities are denominated in Australian dollars, unsecured and subject to borrowing covenants, which have been met. (ii) The overdraft and trade finance facilities are subject to annual review in February each year. (iii) The receivables purchase facility was repaid and cancelled on 1 August 2008. (iv) The bank guarantee facility is available until November 2008. CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
18. CURRENT TAX LIABILITIES Movements during the year were as follows: Balance at beginning of year 28,468 13,550 28,468 13,550 Over provision from prior year (187) (889) (187) (889) Current period income tax provision recognised in income statement 65,981 60,110 65,981 60,110 Current period income tax provision recognised in equity (2,346) – (2,346) – Income tax paid (68,919) (44,303) (68,919) (44,303) 22,997 28,468 22,997 28,468
19. PROVISIONS CURRENT Employee entitlements 50,140 59,777 50,140 59,777 Dismantling and restoration 884 1,300 884 1,300 Sales returns 2,707 2,424 2,707 2,424 Warranties – 30 – 30 53,731 63,531 53,731 63,531
For personal use only use personal For NON-CURRENT Employee entitlements 5,717 5,637 5,717 5,637 Dismantling and restoration 1,039 1,613 1,039 1,613 Directors’ retirement allowance 1,148 1,078 1,148 1,078 Warranties – 26 – 26 7,904 8,354 7,904 8,354
David Jones Annual Report 2008 David Jones Annual Report 2008 86 87 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
19. PROVISIONS CONTINUED Movement Movement in the carrying amount of each class of provision, excluding employee benefits and Directors’ retirement allowance, are set out below. The numbers disclosed are for the Consolidated Entity and the Company. Dismantling Sales Returns Warranties and Restoration Total $000 $000 $000 $000 Balance at 29 July 2007 2,424 56 2,913 5,393 Provisions made during the year 3,224 – 110 3,334 Provisions used during the year (2,941) (56) (1,100) (4,097) Balance at 26 July 2008 2,707 – 1,923 4,630 Current 2,707 – 884 3,591 Non-current – – 1,039 1,039 Total 2,707 – 1,923 4,630
Service warranties A provision is recognised for the estimated liability relating to warranty claims on electrical goods covered by the Consolidated Entity’s one year warranty extension program. The provision is estimated with reference to the level of sales of eligible products, the manufacturer’s warranty period and the historical level of warranty claims. The Consolidated Entity’s warranty extension program applies to sales made on eligible products prior to September 2003.
Sales returns A provision is recognised for the estimated cost of sales returns, which have occurred during the year. The provision is estimated with reference to actual sales during the period and the historical level of sales returns processed in accordance with the Consolidated Entity’s returns policy.
Dismantling and restoration A provision is recognised in respect of existing lease contracts for the estimated present value of expenditure required to complete dismantling and site restoration obligations under those contracts at balance date. Future dismantling and restoration costs are reviewed annually and any changes are reflected in the present value of the dismantling and restoration provision at the end of the reporting period. The amount of the provision for future dismantling costs is capitalised and amortised in accordance with the policy set out in note 1(m). The unwinding of the effect of discounting of the provision is recognised as a finance expense.
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
20. FINANCIAL LIABILITIES CURRENT Forward exchange contracts 1,009 1,370 1,009 1,370 Interest rate swaps – 60 – 60 1,009 1,430 1,009 1,430
NON-CURRENT For personal use only use personal For Forward exchange contracts 695 – 695 – 695 – 695 –
Forward exchange contracts and interest rate swaps are designated as cash flow hedges. Information in relation to the Consolidated Entity’s exposure to forward exchange and interest rate risks are disclosed in note 32.
David Jones Annual Report 2008 David Jones Annual Report 2008 88 89 CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
21. OTHER LIABILITIES CURRENT Unearned revenue 1,355 782 – – Discount on deferred payment of interest-free sales 6,891 – 6,891 – Straight-lining of lease rentals 582 656 582 656 8,828 1,438 7,473 656
NON-CURRENT Unearned revenue – 526 – – Discount on deferred payment of interest-free sales – 5,504 – 5,504 Straight-lining of lease rentals 27,723 26,130 27,723 26,130 27,723 32,160 27,723 31,634
22. CONTRIBUTED EQUITY Ordinary shares, fully paid 455,341 392,496 455,341 392,496 455,341 392,496 455,341 392,496
Movements in ordinary share capital Balance at the beginning of the year 392,496 362,719 392,496 362,719 Employee share plan 97 121 97 121 Dividend reinvestment plan 29,561 20,684 29,561 20,684 Conversion of RPS 33,187 8,972 33,187 8,972 Balance at the end of the year 455,341 392,496 455,341 392,496
DAVID JONES LIMITED 2008 2007 Number Number of Shares of Shares
Movements in the number of ordinary shares Balance at the beginning of the year 451,021,398 437,081,878 Shares issued under the LTI Plan 2,180,219 2,657,972 Dividend reinvestment plan 6,963,393 4,985,580 Conversion of RPS 23,287,851 6,295,968 Balance at the end of the year 483,452,861 451,021,398
Terms and conditions of ordinary shares The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at For personal use only use personal For meetings of the Company. In the event of the winding up of the Company, ordinary shareholders rank after all other shareholders and creditors, and are fully entitled to any proceeds of liquidation.
David Jones Annual Report 2008 David Jones Annual Report 2008 88 89 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
23. RESERVES Share-based payments reserve 35,310 25,180 35,310 25,180 Cash flow hedge reserve 150 (851) (774) (851) 35,460 24,329 34,536 24,329
Movements: Share-based payments reserve Balance at beginning of the year 25,180 17,087 25,180 17,087 Share based payments expense for the year 7,785 8,093 7,785 8,093 Income tax recognised directly in equity 2,345 – 2,345 – Balance at the end of the year 35,310 25,180 35,310 25,180
Cash flow hedge reserve Balance at beginning of the year (851) 449 (851) 449 Movement during the year 1,001 (1,300) 77 (1,300) Balance at the end of the year 150 (851) (774) (851)
Share-based payments reserve The share-based payments reserve is used to recognise the fair value of LTI Plan rights issued and the income tax effect of amounts recognised directly in equity.
Cash flow hedge reserve The cash flow hedge reserve comprises the effective portion of the cumulative net change in fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
24. RETAINED EARNINGS/(ACCUMULATED LOSSES) Retained earnings/(accumulated losses) at the beginning of the year 96,471 (31,978) (4,593) (92,496) Net profit attributable to members of the parent entity 147,286 208,634 96,773 168,088 Dividends recognised on ordinary shares during the year (114,765) (80,185) (114,765) (80,185)
Retained earnings/(accumulated losses) at the end of the year 128,989 96,471 (22,583) (4,593) For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 90 91 25. CONTINGENT LIABILITIES The Directors are of the opinion that provisions are not required in respect of the matters disclosed below, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of being reliably measured.
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000 Indemnities Indemnities to third parties given in the ordinary course of business 1,182 973 1,182 973
Litigation In the ordinary course of business, the Consolidated Entity becomes involved in litigation. Provision has been made for known obligations where the existence of the liability is probable and can be reasonably measured. As the outcomes of these matters remain uncertain, contingent liabilities exist for possible amounts eventually payable that are in excess of the amounts provided for. The financial estimate of these amounts is impracticable.
Finance facilities David Jones Finance Pty Limited, a controlled entity within the Group, is the borrower of certain finance facilities. The borrowings of David Jones Finance Pty Limited are guaranteed by the Company and each of its controlled entities.
Deed of cross guarantee Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation, audit, and lodgement of financial statements and Directors’ reports. It is a condition of the Class Order that the Company and each of the participating subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed, dated 22 March 2005, is that the Company guarantees to each creditor, payment in full, of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act. If a winding up occurs under other provisions of the Corporations Act, the Company will only be liable in the event that, after six months, any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. The subsidiaries subject to the Deed are: – David Jones Financial Services Limited; – David Jones Finance Pty Limited; – 299–307 Bourke Street Pty Limited; and – David Jones Properties Pty Limited. The Company and the above subsidiaries represent a Closed Group for the purposes of the Class Order. Set out below is a consolidated Income Statement and a consolidated Balance Sheet comprising the Company and the controlled entities that are party to the Deed, after eliminating all transactions between these parties at balance date.
CONSOLIDATED 2008 2007 Summarised Income Statement $000 $000 Profit before related income tax expense 206,714 205,387 Income tax (expense)/credit (62,405) 1,766 Profit after income tax expense 144,309 207,153
Summary of movements in consolidated retained earnings/ (accumulated losses) For personal use only use personal For Retained earnings/(accumulated losses) at the beginning of the year 91,473 (35,495) Dividends recognised during the year (114,765) (80,185) Net profit attributable to parties of the Closed Group 144,309 207,153 Retained earnings at the end of the year 121,017 91,473
David Jones Annual Report 2008 David Jones Annual Report 2008 90 91 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
CONSOLIDATED 2008 2007 Balance Sheet $000 $000
25. CONTINGENT LIABILITIES CONTINUED CURRENT ASSETS Cash and cash equivalents 66,564 161,308 Receivables 414,980 406,469 Inventories 257,288 280,281 Financial assets 704 13 Other assets 7,769 10,292 Total current assets 747,305 858,363 NON-CURRENT ASSETS Financial assets 106,041 105,396 Property, plant and equipment 670,687 666,169 Intangible assets 26,605 28,912 Deferred tax assets 73,910 70,744 Other assets 35 – Total non-current assets 877,278 871,221 Total assets 1,624,583 1,729,584 CURRENT LIABILITIES Payables 343,873 332,219 Interest bearing liabilities 342,360 336,867 Current tax liabilities 22,997 28,468 Provisions 53,731 63,531 Financial liabilities 1,009 1,370 Other liabilities 7,473 656 Total current liabilities 771,443 763,111 NON-CURRENT LIABILITIES Interest bearing liabilities 170,000 383,127 Provisions 7,904 8,354 Financial liabilities 695 – Other liabilities 27,723 31,694 Total non-current liabilities 206,322 423,175 Total liabilities 977,765 1,186,286 Net assets 646,818 543,298
For personal use only use personal For EQUITY Contributed equity 490,341 427,496 Reserves 35,460 24,329 Retained earnings 121,017 91,473 Total equity 646,818 543,298
David Jones Annual Report 2008 David Jones Annual Report 2008 92 93 CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $000 $000 $000 $000
26. COMMITMENTS FOR EXPENDITURE Capital expenditure commitments Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as a liability in the Financial Statements, payable: Within one year 10,199 4,103 10,199 4,103 Later than one year but not later than five years – – – – Later than five years – – – – 10,199 4,103 10,199 4,103
Operating lease commitments Future operating lease rentals payable: Within one year 71,888 62,810 71,888 62,810 Later than one year but not later than five years 269,602 264,039 269,602 264,039 Later than five years 847,290 934,336 847,290 964,336 1,188,780 1,261,185 1,188,780 1,291,185
The Consolidated Entity leases retail premises and warehousing facilities. Generally, the operating lease agreements are for an initial average term of 23 years and include renewal options. Under most leases, the Consolidated Entity is responsible for property taxes, insurance, maintenance and other expenses related to the leased properties. The operating lease commitments set out above comprise base rental payments plus agreed percentage increases.
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $ $ $ $
27. AUDITOR’s REMUNERATION During the financial year, the following fees were paid or payable for services provided by Ernst & Young, the auditor of David Jones Limited and it’s Controlled Entities: Audit services: − audit and review of Financial Statements 729,746 550,505 729,746 550,505 − assurance procedures in relation to the calculation of total shareholder return for LTI Plan 8,858 8,755 8,858 8,755 − audit of workers compensation wages declaration 3,090 8,755 3,090 8,755 Total auditor’s remuneration 741,694 568,015 741,694 568,015
There were no non-audit services undertaken by the Consolidated Entity’s external auditors during the financial year. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 92 93 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
28. KMP DISCLOSURES Key Management Personnel (KMPs) are persons having the authority and responsibility for planning, directing and controlling the Company’s activities directly or indirectly, including Directors of David Jones Limited.
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $ $ $ $ Compensation by category for KMP Short-term employee benefits 14,750,905 15,444,156 14,750,905 15,444,156 Post employment benefits 510,680 943,241 510,680 943,241 Other long-term benefits 187,182 216,844 187,182 216,844 Share-based payment 4,898,674 5,373,506 4,898,674 5,373,506 Total compensation 20,347,441 21,977,747 20,347,441 21,977,747
The Remuneration Report (section 7) includes disclosures of the individual components of remuneration for each KMP.
EQUITY HOLDINGS OF KMP Long Term Incentive (LTI) Plan rights holdings of KMP The following tables show the movements in LTI Plan rights holdings of KMP for the current and prior financial year.
For the year ended 26 July 2008
Granted Holding at 28 as Remun- Vested during Holding at 26 Fair Value of Fair Value of Fair Value of Fair Value of July 20071 eration1 the Year1 July 20081 Right – TSR Right – ROFE Right – EPS Right – NPAT Name LTI Plan Number Number Number Number $ $ $ $ Directors2 Mark 05–07 offer 382,653 – (382,653) – 1.96 1.92 – – McInnes 06–08 offer 449,380 – – 449,380 2.39 2.06 – – 05–08 retention offer 1,000,000 – – 1,000,000 – – – 2.40 07–09 offer 489,850 – – 489,850 2.03 – 3.23 – 08–10 offer – 381,737 – 381,737 1.69 – 3.02 – Aggregate value $898,991 $2,829,719 Stephen 05–07 offer 173,469 – (173,469) – 1.96 1.92 – – Goddard 06–08 offer 175,620 – – 175,620 2.39 2.06 – – 05–08 retention offer 600,000 – – 600,000 – – – 2.40 07–09 offer 233,601 – – 233,601 2.03 – 3.23 – 08–10 offer – 173,156 – 173,156 1.69 – 3.02 – Aggregate value $407,782 $1,282,803 Executives Damian 05–07 offer 71,429 – (71,429) – 1.37 1.62 – – Eales 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer 101,787 – – 101,787 2.60 – 3.80 – 09–12 retention offer – Tranche 1 – 200,000 – 200,000 2.09 – – 2.97 – Tranche 2 – 200,000 – 200,000 1.64 – – 2.74 – Tranche 3 – 200,000 – 200,000 1.65 – – 2.74
For personal use only use personal For – Tranche 4 – 400,000 – 400,000 1.57 – – 2.51 Aggregate value $2,278,200 $528,217
David Jones Annual Report 2008 David Jones Annual Report 2008 94 95 Granted Holding at 28 as Remun- Vested during Holding at 26 Fair Value of Fair Value of Fair Value of Fair Value of July 20071 eration1 the Year1 July 20081 Right – TSR Right – ROFE Right – EPS Right – NPAT Name LTI Plan Number Number Number Number $ $ $ $ Colette 05–07 offer 118,367 – (118,367) – 1.37 1.62 – – Garnsey 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer 116,376 – – 116,376 2.60 – 3.80 – 09–12 retention offer – Tranche 1 – 200,000 – 200,000 2.09 – – 2.97 – Tranche 2 – 200,000 – 200,000 1.64 – – 2.74 – Tranche 3 – 200,000 – 200,000 1.65 – – 2.74 – Tranche 4 – 400,000 – 400,000 1.57 – – 2.51 Aggregate value $2,278,200 $875,324 Antony 05–07 offer 48,112 35,0003 (83,112) – 1.37 1.62 – – Karp 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer 101,787 – – 101,787 2.60 – 3.80 – 09–12 retention offer – Tranche 1 – 200,000 – 200,000 2.09 – – 2.97 – Tranche 2 – 200,000 – 200,000 1.64 – – 2.74 – Tranche 3 – 200,000 – 200,000 1.65 – – 2.74 – Tranche 4 – 400,000 – 400,000 1.57 – – 2.51 Aggregate value $2,457,050 $614,613 Patrick 05–07 offer 118,367 – (118,367) – 1.37 1.62 – – Robinson 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer 107,385 – – 107,385 2.60 – 3.80 – 09–12 retention offer – Tranche 1 – 200,000 – 200,000 2.09 – – 2.97 – Tranche 2 – 200,000 – 200,000 1.64 – – 2.74 – Tranche 3 – 200,000 – 200,000 1.65 – – 2.74 – Tranche 4 – 400,000 – 400,000 1.57 – – 2.51 Aggregate value $2,278,200 $875,324 Paul 05–07 offer 118,367 – (118,367) – 1.37 1.62 – – Zahra 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer 116,376 – – 116,376 2.60 – 3.80 – 09–12 retention offer – Tranche 1 – 200,000 – 200,000 2.09 – – 2.97 – Tranche 2 – 200,000 – 200,000 1.64 – – 2.74 – Tranche 3 – 200,000 – 200,000 1.65 – – 2.74 – Tranche 4 – 400,000 – 400,000 1.57 – – 2.51 Aggregate value $2,278,200 $875,324 Notes: 1 The numbers disclosed above are the number of rights allocated to each participant in the plan. The actual number of shares issued could be higher or lower, dependent on Company performance and the conversion ratio of the right to ordinary shares. 2 Non-Executive Directors are not entitled to participate in the LTI Plan and therefore no holdings are disclosed.
3 During the year an additional 35,000 rights were issued to Anthony Karp at $5.11 based on performance. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 94 95 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
28. KMP DISCLOSURES CONTINUED Long Term Incentive (LTI) Plan rights holdings of KMP For the year ended 28 July 2007
Granted as Holding at 29 Remun- Vested during Holding at Fair Value of Fair Value of Fair Value of Fair Value of Name LTI Plan July 20061 eration1 the Year1 28 July 20071 Right – TSR Right – ROFE Right – EPS Right – NPAT Number Number Number Number $ $ $ $ Directors2 Mark 04–06 offer 263,014 – (263,014) – 1.36 1.49 – – McInnes 04–06 supplementary 250,685 – (250,685) – 2.32 2.03 – – 05–07 offer 382,653 – – 382,653 1.96 1.92 – – 06–08 offer 449,380 – – 449,380 2.39 2.06 – – 05–08 retention offer 1,000,000 – – 1,000,000 – – – 2.40 07–09 offer – 489,850 – 489,850 2.03 – 3.23 – Aggregate value $1,288,306 $2,735,447 Stephen 04–06 offer 158,219 – (158,219) – 1.36 1.49 – – Goddard 04–06 supplementary 74,658 – (74,658) – 2.32 2.03 – – 05–07 offer 173,469 – – 173,469 1.96 1.92 – – 06–08 offer 175,620 – – 175,620 2.39 2.06 – – 05–08 retention offer 600,000 – – 600,000 – – – 2.40 07–09 offer – 233,601 – 233,601 2.03 – 3.23 –
Aggregate value $614,371 $1,240,070 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 96 97 Granted as Holding at 29 Remun- Vested during Holding at Fair Value of Fair Value of Fair Value of Fair Value of Name LTI Plan July 20061 eration1 the Year1 28 July 20071 Right – TSR Right – ROFE Right – EPS Right – NPAT Number Number Number Number $ $ $ $ Executives Damian 04–06 offer 51,199 – (51,199) – 1.36 1.49 – – Eales 04–06 supplementary 44,691 – (44,691) – 2.32 2.03 – – 05–07 offer 71,429 – – 71,429 1.37 1.62 – – 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer – 101,787 – 101,787 2.60 – 3.80 – Aggregate value $325,718 $510,614 Colette 04–06 offer 68,527 – (68,527) – 1.36 1.49 – – Garnsey 04–06 supplementary 90,377 – (90,377) – 1.36 1.49 – – 05–07 offer 118,367 – – 118,367 1.37 1.62 – – 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer – 116,376 – 116,376 2.60 – 3.80 – Aggregate value $372,403 $846,164 Antony 05–07 offer 48,112 – – 48,112 1.37 1.62 – – Karp 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer – 101,787 – 101,787 2.60 – 3.80 – Aggregate value $325,718 – Patrick 04–06 offer 67,740 – (67,740) – 1.36 1.49 – – Robinson 04–06 supplementary 91,164 – (91,164) – 1.36 1.49 – – 05–07 offer 118,367 – – 118,367 1.37 1.62 – – 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer – 107,385 – 107,385 2.60 – 3.80 – Aggregate value $343,632 $846,164 Paul 04–06 offer 67,740 – (67,740) – 1.36 1.49 – – Zahra 04–06 supplementary 91,164 – (91,164) – 1.36 1.49 – – 05–07 offer 118,367 – – 118,367 1.37 1.62 – – 06–08 retention offer 400,000 – – 400,000 – – – 2.47 07–09 offer – 116,376 – 116,376 2.60 – 3.80 – Aggregate value $372,403 $846,164
Notes: 1 The numbers disclosed above are the number of rights allocated to each participant in the plan. The actual number of shares issued could be higher or lower, dependent on Company performance and the conversion ratio of the right to ordinary shares. 2 Non-Executive Directors are not entitled to participate in the LTI Plan and therefore no holdings are disclosed.
No LTI Plan rights were forfeited during the year. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 96 97 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
28. KMP DISCLOSURES CONTINUED Shareholdings of KMP The following table shows the movements in the number of ordinary shares held in the Company, directly, indirectly or beneficially, by each KMP, including their personally-related entities, for the current and prior financial years.
For the year ended 26 July 2008 Holding at Granted as Allocated under Net change Holding at 28 July 2007 remuneration1 LTI Plan – other2 26 July 2008 Directors Robert Savage 84,908 14,286 – 4,977 104,171 John Coates 39,616 – – 2,329 41,945 Mark McInnes 1,162,215 – 573,980 (850,000) 886,195 Stephen Goddard 349,540 – 260,204 – 609,744 Reginald Clairs 167,461 3,800 – 4,002 175,263 John Harvey 30,000 – – 939 30,939 Katie Lahey 17,261 – – 4,441 21,702 Peter Mason – – – 102,504 102,504 Executives Damian Eales 244,683 – 107,143 – 351,826 Colette Garnsey 628,078 – 177,551 (800,000) 5,629 Antony Karp 4,375 – 107,168 10,116 121,659 Patrick Robinson 239,591 – 177,551 – 417,142 Paul Zahra 243,107 – 177,551 13 420,671
Notes: 1 Includes shares acquired through the DESP. 2 ‘Net change – other’ includes on-market purchases and sales of ordinary shares and shares acquired under the dividend reinvestment plan.
For the year ended 28 July 2007 Holding at Granted as Allocated under Net change Holding at 30 July 2006 remuneration1 LTI Plan – other2 28 July 2007 Directors Robert Savage 73,318 9,314 – 2,276 84,908 John Coates 38,589 – – 1,027 39,616 Mark McInnes 1,191,667 – 770,548 (800,000) 1,162,215 Stephen Goddard 659,947 – 349,315 (659,722) 349,540 Reginald Clairs 162,277 3,449 – 1,735 167,461 Paula Dwyer 30,000 – – (30,000) – John Harvey 30,000 – – – 30,000 Katie Lahey 10,565 – – 6,696 17,261 Executives Damian Eales 100,847 – 143,836 – 244,683 Colette Garnsey 389,722 – 238,356 – 628,078 Antony Karp 4,190 – – 185 4,375 Patrick Robinson 390,957 – 238,356 (389,722) 239,591
Paul Zahra 354,747 – 238,356 (349,996) 243,107 For personal use only use personal For Notes: 1 Includes shares acquired through the DESP. 2 ‘Net change – other’ includes on-market purchases and sales of ordinary shares, shares acquired under the dividend reinvestment plan and the closing shareholding for Directors who retired during the period.
David Jones Annual Report 2008 David Jones Annual Report 2008 98 99 28. KMP DISCLOSURES CONTINUED Other transactions and balances with KMP David Jones employees, including KMPs, are entitled to a staff discount on purchases made from the Consolidated Entity. The discount varies depending on the merchandise purchased and does not exceed 10%.
Loans to KMP There were no loans between the Consolidated Entity and KMPs during the current or prior financial year except for amounts due for purchases made on an arm’s length basis on the David Jones store card.
29. EMPLOYEE SHARE PLANS Share-based payment arrangements The Consolidated Entity provides share-based payment arrangements to employees under the following plans: – LTI Plan – Employee Share Plan – EESP – DESP
LTI Plan Rights to ordinary shares are granted to senior executives under the LTI Plan. Offers are generally made annually to key executives. The performance period of the rights is typically three years and it is a requirement that the executive stays in continued employment for the full period. The number of rights that vest is dependent upon the achievement of specified performance conditions. The rights can only be
equity settled in ordinary shares. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 98 99 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
29. EMPLOYEE SHARE PLANS CONTINUED LTI Plan continued Movements in the LTl Plan rights for the 52 weeks ended 26 July 2008:
Number of Lti Plan Rights Fair Value Per Right Balance Granted Forfeited Vested Exercisable Fair Value Rofe/ Eps Offer Description / at start of during during during Balance at at end of Per Right / Npat Performance Period Date of Grant Expiry Date the year period period period end of year year Tsr Hurdle Hurdle Consolidated and David Jones Limited – 2008 05–07 OFFER 26 November 31 July 2007 556,122 – – 556,122 – – $1.96 $1.92 EXECUTIVE 2004 DIRECTORS 1 August 2004 – 31 July 2007 05–07 OFFER 30 June 2005 31 July 2007 874,021 23,333 – 897,354 – – $1.37 $1.62 1 August 2004 – 31 July 2007 06–08 OFFER 2 December 31 July 2008 625,000 – – – 625,000 625,000 $2.39 $2.06 EXECUTIVE 2005 DIRECTORS 1 August 2005 – 31 July 2008 06–08 OFFER 3 April 2006 31 July 2008 164,551 13,358 8,033 – 169,876 169,876 $3.04 $2.47 1 August 2005 – 31 July 2008 RETENTION OFFER 2 December 31 July 2008 1,600,000 – – – 1,600,000 1,600,000 – $2.40 – EXECUTIVE 2005 DIRECTORS 1 August 2004 – 31 July 2007 RETENTION OFFER 3 April 2006 31 July 2008 4,220,000 – – – 4,220,000 4,220,000 – $2.47 1 August 2005 – 31 July 2008 07–09 OFFER 1 December 31 July 2009 723,451 – – – 723,451 – $2.03 $3.23 EXECUTIVE 2006 DIRECTORS 1 August 2006 – 31 July 2009 07–09 OFFER 1 March 2007 31 July 2009 1,342,463 – 29,970 – 1,312,493 – $2.60 $3.80 1 August 2006 – 31 July 2009 08–10 OFFER 23 July 2008 31 July 2010 – 554,894 – – 554,894 – $1.69 $3.02 EXECUTIVE DIRECTORS 1 August 2007 – 31 July 2010
For personal use only use personal For 09–12 RETENTION 24 July 2008 October – 2,901,000 – – 2,901,000 – $2.09 $2.97 OFFER – TRANCHE 1 2010 1 August 2008 – 31 July 2009 09–12 RETENTION 24 July 2008 October – 2,901,000 – – 2,901,000 – $1.64 $2.74 OFFER – TRANCHE 2 2011 1 August 2009 – 31 July 2010
David Jones Annual Report 2008 David Jones Annual Report 2008 100 101 Number of Lti Plan Rights Fair Value Per Right Balance Granted Forfeited Vested Exercisable Fair Value Rofe/ Eps Offer Description / at start of during during during Balance at at end of Per Right / Npat Performance Period Date of Grant Expiry Date the year period period period end of year year Tsr Hurdle Hurdle 09–12 RETENTION 24 July 2008 October – 2,901,000 – – 2,901,000 – $1.65 $2.74 OFFER – TRANCHE 3 2011 1 August 2010 – 31 July 2011 09–12 RETENTION 24 July 2008 October – 5,802,000 – – 5,802,000 – $1.57 $2.51 OFFER – TRANCHE 4 2012 1 August 2011 – 31 July 2012
Movements in the LTl Plan rights for the 52 weeks ended 28 July 2007: Consolidated and David Jones Limited – 2007 04–06 OFFER 8 July 2004 31 July 2006 1,323,831 – – 1,323,831 – – $1.36 $1.49 1 August 2003 – 31 July 2006 04–06 26 November 31 July 2006 448,150 – – 448,150 – – $2.32 $2.03 SUPPLEMENTARY 2004 OFFER 1 August 2003 – 31 July 2006 05–07 OFFER 26 November 31 July 2007 556,122 – – – 556,122 556,122 $1.96 $1.92 EXECUTIVE 2004 DIRECTORS 1 August 2004 – 31 July 2007 05–07 OFFER 30 June 2005 31 July 2007 1,031,540 – 157,519 – 874,021 874,021 $1.37 $1.62 1 August 2004 – 31 July 2007 06–08 OFFER 2 December 31 July 2008 625,000 – – – 625,000 – $2.39 $2.06 EXECUTIVE 2005 DIRECTORS 1 August 2005 – 31 July 2008 06–08 OFFER 3 April 2006 31 July 2008 220,686 – 56,135 – 164,551 – $3.04 $2.47 1 August 2005 – 31 July 2008 RETENTION OFFER 2 December 31 July 2008 1,600,000 – – – 1,600,000 – – $2.40 – EXECUTIVE 2005 DIRECTORS 1 August 2004 – 31 July 2007 RETENTION OFFER 3 April 2006 31 July 2008 4,400,000 – 180,000 – 4,220,000 – – $2.47 1 August 2005 – 31 July 2008
07–09 OFFER 1 December 31 July 2009 – 723,451 – – 723,451 – $2.03 $3.23 For personal use only use personal For EXECUTIVE 2006 DIRECTORS 1 August 2006 – 31 July 2009 07–09 OFFER 1 March 2007 31 July 2009 – 1,373,564 31,101 – 1,342,463 – $2.60 $3.80 1 August 2006 – 31 July 2009
David Jones Annual Report 2008 David Jones Annual Report 2008 100 101 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 Number Number Number Number
29. EMPLOYEE SHARE PLANS CONTINUED Shares issued under the plan to participating employees on 4 October 2007 (2007: 27 September 2006) 2,180,219 2,657,972 2,180,219 2,657,972
CONSOLIDATED DAVID JONES LIMITED 2008 2007 2008 2007 $ $ $ $ Market price of David Jones Limited shares on the date of issue 4.93 3.55 4.93 3.55
For both years, stretch targets were achieved and therefore the number of shares issued were greater than the number of rights outstanding. The numbers disclosed above are the number of rights allocated to all participants in the plan. The actual number of shares issued could be higher or lower, dependent on Company performance and the conversion ratio of the right to ordinary shares.
Summary of Long Term Incentive and Retention Plans
2005 TO 2007 2006 TO 2008 2007 TO 2009 2008 TO 2010 2009 TO 2012 FEATURE OFFER OFFER OFFER OFFER OFFER OFFERED TO CEO, Finance CEO, Finance CEO, Finance CEO & Finance Senior Executives Director and senior Director and senior Director and senior Director executives executives executives VESTING DATE 31 July 2007 31 July 2008 31 July 2009 31 July 2010 31 July 2012 PERFORMANCE TSR compared to peer group and capital TSR compared to peer group and EPS TSR compared to MEASURES management (ROFE) peer group and NPAT RETESTING The performance period may be extended No retest RULES by one year and retested for the TSR measure PLAN STATUS Fully vested at Fully vested at Performance periods not yet concluded stretch stretch ASX LISTED RETAILERS PEER GROUP Coles Myer Ltd, Harvey Norman Harvey Norman Clive Peeters Ltd, Clive Peeters Ltd, FOR TSR Colorado Group Holdings Ltd, JB Hi-Fi Holdings Ltd, JB Hi-Fi Harvey Norman Harvey Norman COMPARATOR Ltd, Country Road Ltd, Just Group Ltd, Ltd, Just Group Ltd, Holdings Ltd, JB Holdings Ltd, JB Ltd, Harvey Norman Super Cheap Auto Metcash Ltd Specialty Hi-Fi Ltd, Just Group Hi-Fi Ltd, Just Group Holdings Ltd, JB Hi-Fi Group Ltd, Metcash Fashion Group Ltd, Ltd, Metcash Ltd, Ltd, Metcash Ltd, Ltd, Just Group Ltd, Ltd, Specialty Fashion Super Cheap Auto Nick Scali Ltd, Nick Scali Ltd, OrotonGroup Ltd, Group Ltd, and Group Ltd, and OrotonGroup Ltd, OrotonGroup Ltd, Metcash Trading Ltd, Woolworths Ltd. Woolworths Ltd. Specialty Fashion Specialty Fashion Miller’s Retail Ltd, Group Ltd, Super Group Ltd, Super Strathfield Group Ltd Cheap Auto Cheap Auto and Woolworths Ltd. Group Ltd, and Group Ltd and
Woolworths Ltd. Woolworths Ltd. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 102 103 Summary of Long Term Incentive and Retention Plans (continued)
2005 TO 2007 2006 TO 2008 2007 TO 2009 2008 TO 2010 2009 TO 2012 FEATURE OFFER OFFER OFFER OFFER OFFER PEER GROUP Businesses in a FOR TSR ‘mature’ industry COMPARATOR with a minimum Non-retailers that demonstrate cyclical patterns (continued) market capitalisation greater than $200 million Adelaide Bank Ltd, APN News & Media APN News & Media APN News & Media APN News & Media Adelaide Brighton Ltd, Austereo Group Ltd, Austereo Group Ltd, Austereo Group Ltd, Austereo Group Ltd, Amalgamated Ltd, Consolidated Ltd, Consolidated Ltd, Consolidated Ltd, Consolidated Holdings Ltd, Bank Media Holdings Media Holdings Media Holdings Media Holdings of Queensland Ltd, Ltd, Fairfax Media Ltd, Fairfax Media Ltd, Fairfax Media Ltd, Fairfax Media Bendigo Bank Ltd, Ltd, Flight Centre Ltd, Flight Centre Ltd, Fisher & Paykel Ltd, Fisher & Paykel Coates Hire Ltd, Ltd, Funtastic Ltd, Ltd, Funtastic Ltd, Appliances Holdings Appliances Holdings Collection House Globe International Globe International Ltd, Flight Centre Ltd, Flight Centre Ltd, Crane Group Ltd, GUD Holdings Ltd, GUD Holdings Ltd, Funtastic Ltd, Ltd, Funtastic Ltd, Ltd, Fairfax Ltd, Ltd, Housewares Ltd, Housewares Globe International Globe International GUD Holdings Ltd, International Ltd, International Ltd, Ltd, GUD Holdings Ltd, GUD Holdings GWA International Kresta Holdings Kresta Holdings Ltd, Housewares Ltd, Housewares Ltd, Hills Industries Ltd, Pacific Brands Ltd, Pacific Brands International Ltd, International Ltd, Ltd, Housewares Ltd, PMP Ltd, Ltd, PMP Ltd, Kresta Holdings Kresta Holdings International Ltd, Salmat Ltd, Seven Salmat Ltd, Seven Ltd, Pacific Brands Ltd, Pacific Brands Ramsay Health Network Ltd, STW Network Ltd, STW Ltd, PMP Ltd, Ltd, PMP Ltd, Care Ltd, Reece Communications Communications Salmat Ltd, Seven Salmat Ltd, Seven Australia Ltd, and Group Ltd, Ten Group Ltd, Ten Network Ltd, STW Network Ltd, STW West Australian Network Holdings Network Holdings Communications Communications Newspaper Ltd andand Ltd andand Group Ltd, Ten Group Ltd, Ten Holdings Ltd. West Australian West Australian Network Holdings Network Holdings Newspaper Newspaper Ltd, Wesfarmers Ltd, Wesfarmers Holdings Ltd. Holdings Ltd. Ltd, West Australian Ltd, West Australian Newspaper Newspaper
Holdings Ltd. Holdings Ltd. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 102 103 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
29. EMPLOYEE SHARE PLANS CONTINUED Inputs into the valuation of LTI Plan rights The valuations of LTI Plan rights were based on the following inputs:
2006 TO 2008 OFFER 2005 TO 2007 OFFER TO TO EXECUTIVE 2005 TO 2007 OFFER EXECUTIVE DIRECTORS 2006 TO 2008 OFFER DIRECTORS GRANT DATE 30 June 2005 26 November 2004 3 April 2006 2 December 2005 SHARE PRICE $1.88 $2.23 $2.81 $2.40 DIVIDEND YIELD 7.45% 5.83% 5.69% 5.83% RISK-FREE RATE 5.10% 4.98–5.08% 5.37% 5.32% EXERCISE PRICE – – – – VOLATILITY 27% 20–25% 30% 28% VALUATION TSR ROFE TSR ROFE TSR ROFE TSR ROFE $1.37 $1.62 $1.96 $1.92 $3.04 $2.47 $2.39 $2.06 VALUATION TSR – Monte Carlo TSR – Monte Carlo TSR – Monte Carlo TSR – Monte Carlo MODEL USED simulation simulation simulation simulation ROFE – Black Scholes ROFE – Black Scholes ROFE – Black Scholes ROFE – Black Scholes
2007 TO 2009 OFFER 2007 TO 2009 OFFER TO 2008 TO 2010 OFFER TO EXECUTIVE DIRECTORS EXECUTIVE DIRECTORS GRANT DATE 1 March 2007 1 December 2006 23 July 2008 SHARE PRICE $4.37 $3.77 $3.33 DIVIDEND YIELD 5.80% 5.80% 4.90% RISK-FREE RATE 6.00% 6.00% 6.66% EXERCISE PRICE – – – VOLATILITY 28% 28% 33% VALUATION TSR EPS TSR EPS TSR EPS $2.60 $3.80 $2.03 $3.23 $1.69 $3.02 VALUATION TSR – Monte Carlo TSR – Monte Carlo TSR – Monte Carlo MODEL USED simulation simulation simulation EPS – Black Scholes EPS – Black Scholes EPS – Black Scholes
The valuation of LTI Plan 05–08 retention rights issued to executive directors: The valuation of the retention rights was prepared by an independent valuer using the Black Scholes option pricing model. The following inputs were used to determine the valuation per retention right: Grant date 2 December 2005 Share price $2.40 Dividend yield 5.83% Risk-free rate 5.32%
For personal use only use personal For Exercise price $0.00 Volatility 28% The retention rights were valued at $2.40 per right. The valuation of LTI Plan 06–08 retention rights issued to other executives:
David Jones Annual Report 2008 David Jones Annual Report 2008 104 105 29. EMPLOYEE SHARE PLANS CONTINUED The valuation of the retention rights was prepared by an independent valuer using the Black Scholes option pricing model. The following inputs were used to determine the valuation per retention right: Grant date 3 April 2006 Share price $2.81 Dividend yield 5.69% Risk-free rate 5.37% Exercise price $0.00 Volatility 30% The retention rights were valued at $2.47 per right. The valuation of 09–12 retention rights to executives: The valuation of the retention rights was prepared by an independent valuer using the Black Scholes option pricing model. The following inputs were used to determine the valuation per retention right:
Tranche 1 Tranche 2 Tranche 3 Tranche 4 Grant date 24 July 2008 24 July 2008 24 July 2008 24 July 2008 Share price $3.44 $3.44 $3.44 $3.44 Dividend yield Expected future dividend payments Risk-free rate 6.57% 6.50% 6.50% 6.43% Volatility 33% 33% 33% 33% Value per right – NPAT $2.97 $2.74 $2.74 $2.51 Value per right – TSR $2.09 $1.64 $1.65 $1.57
Employee Share Plan (ESP) The ESP provides employees with an interest-free loan to enable the purchase of ordinary shares in the Company. Shares under the ESP were acquired by a trustee on behalf of the employee. Dividends and other distributions on the shares are applied to repay the outstanding loan balance. The shares vest with the employee after three years. Each shareholder loan is limited in recourse to the proceeds on sale of the shares acquired. The ESP is divided into a General and Executive division. General division This division was open to all full-time and permanent part-time employees with more than twelve months continuous service and casual employees whose service was deemed by the Company to be more than five years’ continuous service. The Company had discretion to offer shares to particular employees with lesser periods of service. In 1995 each eligible employee received between 500 and 5,000 shares, depending upon their position within the Company. A total of 2,571,500 shares ($5,143,000) were issued under the initial offer to employees under this division of the ESP on 27 November 1995. No shares have been issued under the general division since the initial offer. Executive division No shares under the Executive Division remain on issue to executives as they have all been forfeited by executives and sold by the Trustee.
Exempt Employee Share Plan (EESP) The EESP provides eligible employees the opportunity to acquire an ownership interest in the Company. Non-Executive Directors of the Company are not eligible to participate in the EESP. Eligible employees may be offered up to $1,000 worth of the Company’s ordinary shares each year, provided specific financial and qualitative corporate objectives are met to the satisfaction of the Board. Shares acquired For personal use only use personal For under the offer must remain in the EESP until the earlier of three years after allocation, or termination of employment of the participant. The Plan Trustee will use funds it receives from the Company to either subscribe to a new issue of shares in the Company on behalf of the participating employees or purchase shares on the ASX on behalf of the participating employees. These shares will be registered in the name of the Plan Trustee on behalf of the EESP participants. No shares were issued to eligible employees during the period and no shares were purchased by the Trustee on behalf of participants under the Plan.
David Jones Annual Report 2008 David Jones Annual Report 2008 104 105 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
29. EMPLOYEE SHARE PLANS CONTINUED Deferred Employee Share Plan (DESP) Shareholders approved the DESP at the AGM held on 23 November 1998. This plan enables Directors, senior executives, management and other employees invited by the Board to participate in the DESP to acquire ordinary shares in the Company. Eligible employees may salary sacrifice a minimum of $3,000 per annum to acquire ordinary shares in the capital of the company each year. In addition, shares may be offered under this plan: – as part of remuneration and incentives subject to terms and conditions determined by the Board; – as part of a special offer to selected employees subject to terms and conditions determined by the Board; and – to Non-Executive Directors, on their election, as part of their remuneration from the Company. Each share purchase must remain in the DESP for at least 12 months and must be withdrawn after 10 years or on termination of employment of the participant. Under the rules of the plan the Board may impose relevant requirements, being vesting conditions and other conditions before the participant can withdraw shares from the DESP. When a participating employee’s employment ends, they will receive the Company’s shares held on their behalf except where relevant requirements have been imposed by the Board and not met or where an employee has been dismissed as a result of fraud or wrongful conduct in which case the Board has the discretion to require forfeiture of any shares under the plan. Details of the shares in each plan for the year are as follows: ESP EESP DESP Number Number Number Shares held in plan at 29 July 2007 399,500 291,695 275,364 Shares purchased during the year – – 24,499 Share issued from DRP – 4,124 10,136 Shares disposed during the year 34,500 12,419 20,864 Shares held in plan at 26 July 2008 365,000 283,400 289,135
ESP EESP DESP $ $ $ David Jones share price at 26 July 2008 3.34 3.34 3.34 Market value of shares 1,219,100 946,556 965,711 Loan balance at 28 July 2007 400,850 – – Loan repayments 97,455 – –
Loan balance at 26 July 2008 303,395 – – For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 106 107 Class of Share Interest Held 2008 2007 % %
30. CONSOLIDATED ENTITIES Parent entity: David Jones Limited (i) Subsidiaries: (ii) Aherns Holdings Pty Ltd (investor) Ordinary 100 100 Ahern’s (Suburban) Pty Ltd (retailer) (iii) Ordinary 100 100 Akitin Pty Ltd (investor) Ordinary 100 100 Helland Close Pty Ltd (liquor licence holder) Ordinary 100 100 299–307 Bourke Street Pty Ltd (property owner) (iv) Ordinary 100 100 David Jones Credit Pty Ltd (investor) Ordinary 100 100 John Martin Retailers Pty Ltd (non-operating) Ordinary 100 100 David Jones Financial Services Ltd (financial services) Ordinary 100 100 David Jones Insurance Agency Pty Limited (financial services) Ordinary 100 100 David Jones Finance Pty Limited (finance company) Ordinary 100 100 David Jones (Adelaide) Pty Limited (investor) (v) Ordinary 100 100 Buckley & Nunn Pty Limited (investor) Ordinary 100 100 David Jones Properties (South Australia) Pty Limited (investor) Ordinary 100 100 David Jones Properties (Victoria) Pty Limited (property owner) Ordinary 100 100 David Jones Properties (Queensland) Pty Limited (property owner) Ordinary 100 100 Speertill Pty Limited (liquor licence holder) Ordinary 100 100 David Jones Properties Pty Limited (property owner) Ordinary 100 100 David Jones Employee Share Plan Pty Limited (corporate trustee) Ordinary 100 100 David Jones Share Plans Pty Limited (corporate trustee) Ordinary 100 100 Controlled Entities: Abel Tasman Holdings Pty Ltd (vi) – Not – applicable
Notes: (i) David Jones Limited is the ultimate parent entity. (ii) All subsidiaries are incorporated in Australia and carry on business in their country of incorporation. (iii) Issued capital is owned by Aherns Holdings Pty Ltd. (iv) Issued capital is owned by David Jones Finance Pty Limited. (v) Issued capital of the entity is owned 50% by David Jones Limited and 50% by David Jones Properties (South Australia) Pty Limited. (vi) In 2007, receivables from David Jones cardholders were sold to a special purpose entity of a third party multi conduit arrangement administered by Abel Tasman Holdings Pty Ltd. As the risks and rewards remained with the Company, the special purpose entity was
consolidated in the Financial Statements. This financing arrangement ceased in December 2007. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 106 107 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
31. RELATED PARTY DISCLOSURES (a) Transactions between Directors and the Company From time to time Directors may purchase goods from the Company. These purchases are on the same terms and conditions as those entered into by senior management. Details of indemnification and insurance of Directors and Officers are disclosed in the Directors’ Report.
(b) Interest in controlled entities Information relating to controlled entities is set out in notes 5, 11, 16, 24, 25 and 30.
(c) Superannuation plans The Company contributes to several defined contribution superannuation plans. All superannuation contributions are made in accordance with the relevant trust deeds and the Superannuation Guarantee Charge.
(d) Other related party transactions Interest on borrowings between entities is charged at commercial rates, which are at the discretion of David Jones Limited
32. CAPITAL AND FINANCIAL RISK MANAGEMENT Capital Risk Management The Consolidated Entity’s key objective when managing capital is to minimise its weighted average cost of capital while retaining flexibility to pursue growth and capital management opportunities. In managing its capital structure, the Consolidated Entity also seeks to safeguard it’s ability to continue as a going concern so that it can continue to provide appropriate returns to shareholders and benefits for other stakeholders. Total capital of the Consolidated Entity consists of debt, which includes interest bearing liabilities (refer note 17), cash and cash equivalents (refer note 8), and equity comprising issued capital, reserves and retained earnings (refer notes 22, 23 and 24 respectively and the Statement of Changes in Equity). The capital structure of the Consolidated Entity is monitored using a gearing ratio based on balances at year end. The gearing ratio is calculated as net debt divided by the sum of net debt plus equity. In view of the transaction completed on 1 August 2008 in relation to receivables (refer note 33), net debt is calculated as total interest bearing liabilities (excluding the amount attributable to the funding of receivables) less cash and cash equivalents, and equity is calculated with reference to the amount of equity shown in the Balance Sheet
(excluding the amount attributable to the Financial Services segment). For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 108 109 32. CAPITAL AND FINANCIAL RISK MANAGEMENT continued The calculation of the Consolidated Entity’s gearing ratio at the Balance Sheet date of 15.3% (2007: 32.3%) is shown below:
CONSOLIDATED 2008 2008 2007 2007 $000 % $000 % Gearing Ratio1 Net debt 104,796 15.3 221,819 32.3 Equity 580,803 84.7 464,388 67.7 Capital employed 685,599 100.0 686,207 100.0
Note: 1 The gearing ratio for the Company is not shown as all debt and cash deposits are transacted by a subsidiary company.
The Company utilises its Dividend Reinvestment Plan to assist with raising equity for the expansion of its retail store portfolio. The Company’s policy for dividend payments to shareholders is to maintain a payout ratio of not less than 85% of profit after tax. Franking credits available for distribution after 26 July 2008 are estimated to be $59.114 million (following payment of the 2008 final dividend). Financial Risk Management The Consolidated Entity’s key objective of financial risk management is to drive profitable growth while limiting its exposure to adverse financial impacts arising from exposures to market, credit and liquidity risks. By setting and implementing appropriate policies, creating transparent limits on risks exposures, optimising investment decision making and developing analytical capabilities, risk management contributes to the Consolidated Entity’s efforts to create shareholder and customer value. In addition to business risk, the Consolidated Entity recognises four fundamental sources of risk: – Interest rate risk – Foreign currency risk – Credit risk – Liquidity risk The Consolidated Entity seeks to manage the effects of these risks using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by written policies approved by the Company’s Board of Directors, including the Treasury Policy and Delegations Manual. The level of exposure to the above sources of risk is routinely monitored by the Company’s Board of Directors. The Consolidated Entity’s Treasury department is responsible for the management of these risks, with the exception of consumer credit risk
which is managed by Financial Services. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 108 109 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
32. CAPITAL AND FINANCIAL RISK MANAGEMENT continued A summary of the underlying economic positions as represented by the carrying values and fair values of the Consolidated Entity’s financial assets and financial liabilities is shown below:
CONSOLIDATED DAVID JONES LIMITED CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE 2008 2007 2008 2007 2008 2007 2008 2007 $000 $000 $000 $000 $000 $000 $000 $000 Financial Assets Cash and cash equivalents 66,564 161,308 66,564 161,308 10,564 11,308 10,564 11,308 Receivables 414,980 407,187 414,980 407,187 31,903 17,821 31,903 17,821 Forward exchange contracts 598 13 598 13 598 13 598 13 Interest rate swap contracts 892 141 892 141 – 141 – 141 Shares in other corporations 12 12 12 12 12 12 12 12 Total financial assets 483,046 568,661 483,046 568,661 43,077 29,295 43,077 29,295
Financial Liabilities Payables 274,608 265,947 274,608 265,947 588,077 606,622 588,077 606,622 Current tax liabilities 22,997 28,468 22,997 28,468 22,997 28,468 22,997 28,468 Interest bearing liabilities: – Bank overdraft 1,360 – 1,360 – 1,360 – 1,360 – – Securitisation facility – 336,867 – 336,867 – – – – – Receivables purchase facility 241,000 – 241,000 – – – – – – Unsecured bank loan 270,000 – 270,000 – – – – – – Unsecured bank bridging loan – 350,000 – 350,000 – – – – – RPS – 33,127 – 33,127 – 33,127 – 33,127 Forward exchange contracts 1,704 1,370 1,704 1,370 1,704 1,370 1,704 1,370 Interest rate swap contracts – 60 – 60 – 60 – 60 Total financial liabilities 811,669 1,015,839 811,669 1,015,839 614,138 669,647 614,138 669,647
Significant accounting policies in relation to the financial assets and financial liabilities are disclosed in note 1. Unless otherwise stated, all calculations and methodologies are unchanged from prior reporting periods.
A description of each of the fundamental sources of risk recognised by the Consolidated Entity is shown below. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 110 111 32. CAPITAL AND FINANCIAL RISK MANAGEMENT continued (a) Interest rate risk Interest rate risk refers to the risks that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. The Consolidated Entity’s exposure to the risk of changes in market interest rates relates primarily to the funding of store card receivables and unsecured bank loans. The Consolidated Entity’s policy is to manage its interest cost using a mix of fixed and variable rate debt and to enter into interest rate swap contracts in respect of these underlying transactions. At balance date, the fixed rate was 6.85% (2007: 5.98% to 6.62%) and the floating rates were at bank bill rates plus the Consolidated Entity’s credit margin. The table below shows the level of exposure to interest rate risk at balance date for financial assets and financial liabilities. CONSOLIDATED DAVID JONES LIMITED Average Average Non Interest Non Interest Interest Interest- Rate Interest Interest- Rate Bearing Bearing Total % Per Bearing Bearing Total % Per $000 $000 $000 annum $000 $000 $000 annum
2008 Financial Assets Cash and cash equivalents 56,000 10,564 66,564 7.25 – 10,564 10,564 – Receivables 383,077 31,903 414,980 15.70 – 31,903 31,903 – Interest rate swap contracts – 892 892 – – – – – 439,077 43,359 482,436 – 42,467 42,467 Financial Liabilities Payables – 274,608 274,608 – – 588,077 588,077 – Bank overdraft 1,360 – 1,360 11.60 1,360 – 1,360 11.60 Receivables purchase facility 241,000 – 241,000 7.92 – – – – Unsecured bank loan 270,000 – 270,000 8.01 – – – – 512,360 274,608 786,968 1,360 588,077 589,437
2007 Financial Assets Cash and cash equivalents 150,678 10,630 161,308 6.35 678 10,630 11,308 5.49 Receivables 399,414 7,773 407,187 14.60 – 17,821 17,821 – Interest rate swap contracts – 141 141 – – 141 141 – 550,092 18,544 568,636 678 28,592 29,270 Financial Liabilities Payables 1,333 264,639 265,972 8.10 1,333 605,289 606,622 8.1 Securitisation facility 336,867 – 336,867 6.34 – – – –
RPS 33,127 – 33,127 8.10 33,127 – 33,127 8.1 For personal use only use personal For Unsecured bank bridging loan 350,000 – 350,000 6.63 – – – – Interest rate swap contracts – 60 60 – – 60 60 – 721,327 264,699 986,026 34,460 605,349 639,809
David Jones Annual Report 2008 David Jones Annual Report 2008 110 111 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
32. CAPITAL AND FINANCIAL RISK MANAGEMENT continued (a) Interest rate risk continued Interest rate sensitivity analysis The table below shows the effect on profit before tax and equity, if interest rates at balance date had been 100 basis points (bps) higher or lower with all other variables remaining constant. A sensitivity interval of 100 bps has been selected based on an analysis of historical rates and market expectations of the direction of future interest rates in Australia. A 100 bps upward shift would move short-term interest rates at balance date from 7.66% to 8.66% (2007: 6.61% to 7.61%) and from 7.66% to 6.66% (2007: 6.61% to 5.61%) for a downwards shift. The sensitivity interval of 100 bps is considered reasonable in view of the current level of volatility in credit markets.
CONSOLIDATED Profit before Tax Equity 2008 2007 2008 2007 $000 $000 $000 $000 Interest rates 100bps higher: increase/(decrease) in: (2,860) (2,034) 1,026 3,186 Interest rates 100bps lower: increase/(decrease) in: 2,860 2,034 (1,045) (3,229)
There is no sensitivity analysis for the Company as it is not directly subject to interest rate risk. The sensitivity analysis shown above is based on unhedged interest bearing liabilities at 26 July 2008 relating to the funding of store card and credit reserve receivables. Interest rate swap contracts hedging the Receivables Purchase Facility of $241.000 million and $100.000 million of the non current unsecured bank loan facility were terminated in July 2008 in anticipation of the sale of receivables to American Express. As disclosed in note 33, on 1 August 2008 the receivables were sold to American Express and total interest bearing liabilities of $341.000 million were repaid. Throughout the financial year, interest bearing liabilities relating to the funding of Store Card and credit reserve receivables were close to 100% hedged. Had the interest rate swap contracts relating to the receivables not been terminated prior to 26 July 2008, the impact of a 100 bps upwards shift in interest rates would have increased consolidated profit before tax by $0.53 million and a 100 bps downwards shift in interest rates would have decreased consolidated profit before tax by $0.53 million, asssuming all other variables remained constant.
(b) Foreign currency risk Foreign currency risk refers to the risk that the value or the cash flows arising from a financial commitment, or recognised asset or liability will fluctuate due to changes in foreign currency rates. The Consolidated Entity has exposure to movements in foreign exchange rates in relation to forecast purchases of imported goods denominated in foreign currencies. The Consolidated Entity enters into forward foreign exchange contracts to hedge its anticipated foreign currency risk. Currencies utilised to purchase imported goods are denominated in Euro, United States Dollars, Hong Kong Dollars and Pounds Sterling. It is the Consolidated Entity’s policy not to enter into forward contracts until a firm commitment is in place and to negotiate the terms of the hedge derivative instrument to match the terms of the hedged item so as to maximise hedge effectiveness. All forward currency contracts are in the same currency as the hedged item. At balance date, the Consolidated Entity had hedged 99% (2007: 100%) of its foreign currency purchases for which firm commitments existed. The following table sets out the gross value to be paid under foreign currency contracts and the weighted average contracted exchange rates of contracts outstanding at balance date. All contracts expire by 2010. The information shown is for the Consolidated Entity and
the Company. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 112 113 32. CAPITAL AND FINANCIAL RISK MANAGEMENT continued
AUSTRALIAN DOLLAR EXCHANGE RATE EQUIVALENT 2008 2007 2008 2007 $000 $000
Gross Value Payable Under Foreign Currency Contracts Buy United States Dollars 0.8443 0.8162 24,246 7,228 Buy Pounds Sterling 0.4686 0.4145 576 905 Buy Hong Kong Dollars 6.9979 – 114 – Buy Euro 0.6136 0.6009 28,164 22,764 53,100 30,897
As these contracts are hedging firm purchase commitments, any unrealised gains and losses on the contracts, together with the cost of the contracts, will be recognised in the Financial Statements at the time the underlying transaction occurs. The mark to market loss on the contracts at balance date was $1.106 million (2007: Loss $1.356 million). The Consolidated Entity also enjoys a natural hedge for adverse foreign currency fluctuations relating to the purchase of imported goods through its ability to set the retail price of this merchandise. Foreign currency exchange rate sensitivity analysis The table below shows the effect on both the profit before tax and equity if foreign exchange rates at balance date had been 10% higher or lower with all other variables remaining constant. The information shown is for the Consolidated Entity and the Company. A sensitivity interval of 10% is considered reasonable based on an analysis of historical exchange rate movements over the last five years, and expectations of potential future movements in the exchange rate. Profit before Tax Equity 2008 2007 2008 2007 $000 $000 $000 $000
Foreign Currency Exchange Rate Sensitivity Analysis Foreign exchange rates 10% higher: increase/(decrease) in: 38 96 (4,530) (2,620)
Foreign exchange rates 10% lower: increase/(decrease) in: (46) (117) 5,557 3,205 For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 112 113 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
32. CAPITAL AND FINANCIAL RISK MANAGEMENT (d) Liquidity risk continued Liquidity risk is the risk that the Consolidated Entity will not be able (c) Credit risk to meet its financial obligations as and when they fall due. Credit risk is the risk that a contracting entity or counterparty will The Consolidated Entity’s approach to managing liquidity is to not complete its obligations under a financial instrument and cause ensure, as far as possible, that it will always have sufficient liquidity the Consolidated Entity to incur a financial loss. The Consolidated to meet its liabilities when due, under both normal and stressed Entity has exposure to credit risk on all financial assets in its conditions, without incurring unacceptable losses or risking damage Balance Sheet. to its reputation. Credit risks can be divided into two broad categories: consumer Various factors are considered by the Consolidated Entity in credit risk; and institutional credit risk. determining its liquidity needs including economic and financial market conditions, the retail industry cycle, seasonality in business Consumer credit risk operations, growth in business segments, cost and availability of Consumer credit risk arises principally from the David Jones store alternative liquidity sources. credit card and associated financial loan products. As this portfolio consists of hundreds of thousands of borrowers across multiple The Consolidated Entity’s Treasury Policy requires it to have geographies, occupations and social segments, its risk is substantially readily accessible funding arrangements in place, and to maintain a reduced through diversification. Store card holders are typically minimum liquidity reserve of $40 million at all times in the form of domiciled in Australia. un-drawn standby facilities. The balance of the liquidity reserve at balance date was $273.1 million (2007: $151.2 million). The level of consumer credit risk losses is affected by general economic conditions and borrowing specific events. Consumer credit risk is managed by Financial Services according to policies covering new card approvals, credit limits, extensions and authorisations, collections and fraud prevention. Institutional credit risk Institutional credit risk arises principally from short-term deposits, derivative financial instruments and other receivables between the Consolidated Entity and a counterparty. Unlike consumer credit risk, institutional credit risk is characterised by a lower loss frequency but higher severity. Under the Company’s Treasury Policy, credit risk on short- term deposits and derivative hedge instruments is mitigated, as counterparties are required to be pre approved financial institutions, with a minimum Standard & Poor’s long-term credit rating of A. Dealing limits are also applied to each counterparty. The maximum exposure to credit risk of the Consolidated Entity at balance sheet date, by class of financial asset is represented by the carrying amount of the financial assets presented in the Balance Sheet and notes to the Financial Statements. The Consolidated Entity does not have any significant credit risk exposure to a single or group of customers or institutions. At 26 July 2008, the Consolidated Entity had 100% of its aggregate institutional credit risk spread over four counterparties, with a
Standard & Poor’s long-term credit rating of A to AA. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 114 115 32. CAPITAL AND FINANCIAL RISK MANAGEMENT continued (d) Liquidity risk continued The contractual maturities of financial liabilities is set out below: CONSOLIDATED DAVID JONES LIMITED Maturing in Maturing in Over Over 0–6 6–12 1 Year to 0–6 1 Year 1 Year to Months Months 5 Years Total Months or Less 5 Years Total $000 $000 $000 $000 $000 $000 $000 $000
2008 Financial Liabilities Payables 274,608 – – 274,608 588,077 – – 588,077 Current tax liabilities 22,997 – – 22,997 22,997 – – 22,997 Bank overdraft 1,415 – – 1,415 1,415 – – 1,415 Receivables purchase facility 248,583 – – 248,583 – – – – Unsecured bank loan 10,814 10,814 338,732 360,360 – – – – Forward exchange contracts 19,238 21,629 12,233 53,100 19,238 21,269 12,233 53,100 577,655 32,443 350,965 961,063 631,727 21,629 12,233 665,589
2007 Financial Liabilities Payables 265,947 – – 265,947 606,622 – – 606,622 Current tax liabilities 28,468 – – 28,468 28,468 – – 28,468 Securitisation facility 10,839 10,839 369,384 391,062 – – – – RPS 33,127 – – 33,127 33,127 – – 33,127 Unsecured bank bridging loan 11,789 11,789 448,244 471,822 – – – – Forward exchange contracts 27,303 23,101 – 50,404 27,303 23,101 – 50,404 Interest rate swap contracts 60 – – 60 60 – – 60 377,533 45,729 817,628 1,240,890 695,580 23,101 – 718,681
The cash flows presented above are contractual and calculated on an undiscounted basis. They are based on interest rates at balance date and may not therefore reconcile to the carrying amounts shown in the Balance Sheet. The interest rate swap contracts are classified as being effective hedging instruments and therefore all cash flow movements will be recognised in the Balance Sheet.
As disclosed in note 33, all financial liabilities attributable to the funding of store card and related receivables were repaid on 1 August 2008. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 114 115 notes to the financial statements
For the 52 weeks ended 26 July 2008 and 52 weeks ended 28 July 2007 David Jones Limited and its controlled entities
33. EVENTS SUBSEQUENT TO REPORTING DATE Dividends Subsequent to 26 July 2008 the Company received dividends of $130.000 million from a subsidiary company, resulting in an increase in retained earnings of $130.000 million and a reduction in payables (current) of the same amount. Dividends declared after 26 July 2008 are disclosed in note 6.
General Purpose Credit Card On 19 February 2008, the Consolidated Entity entered into agreements with American Express relating to the assignment of all store card and credit reserve receivables on 1 August 2008, and the launch of a general purpose credit card. The transfer of receivables was completed on 1 August 2008, resulting in the legal assignment of all contractual rights to cash flows from store card and credit reserve receivables to American Express. The cash consideration received from American Express on the assignment of receivables of $374.311 million was partly used to repay bank finance facilities resulting in a reduction in current interest bearing liabilities of $241.000 million and a reduction in non-current interest bearing liabilities of $100.000 million. The balance of funds received from American Express resulted in an increase in cash assets of $33.311 million. On 1 August 2008 the Consolidated Entity derecognised $374.3 million of store card and other related receivables on the basis that it no longer holds the contractual right to receive cash flows from the receivables, and substantially all of the risks and rewards associated with
the variability in cash flows from the receivables have been transferred to American Express. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 116 117 directors’ declaration
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 financial position as at 26 July 2008 and performance for the year ended on that date of the Company and the Consolidated Entity; and (ii) complying with Australian 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. As at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in note 25 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee. 3. This declaration has been made after receiving the declaration required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ending 26 July 2008. Signed in accordance with a resolution of the Directors:
Robert Savage Mark McInnes Chairman Executive Director and Chief Executive Officer
Sydney, 8 October 2008 For personal use only use personal For
David Jones Annual Report 2008 117 auditor’s independence declaration
Auditor’s Independence Declaration to the Directors of David Jones Limited
In relation to our audit of the financial report of David Jones 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 Craig M Jackson Partner
8 October 2008 For personal use only use personal For
Liability limited by a scheme approved under Professional Standards Legislation
David Jones Annual Report 2008 David Jones Annual Report 2008 118 119 independent audit report
Independent auditor’s report to the members of David Jones Limited
Report on the Financial Report We have audited the accompanying financial report of David Jones 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 52 weeks 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 1, 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 judgment, 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.
Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the
For personal use only use personal For Company a written Auditor’s Independence Declaration, a copy of which is set out on page 118 and forms part of the Directors’ Report.
Liability limited by a scheme approved under Professional Standards Legislation
David Jones Annual Report 2008 David Jones Annual Report 2008 118 119 independent audit report
Auditor’s Opinion In our opinion: 1. the financial report of David Jones Limited is in accordance with the Corporations Act 2001, including: i giving a true and fair view of the financial position of David Jones Limited and the consolidated entity at 26 July 2008 and of their performance for the 52 weeks 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.
Report on the Remuneration Report We have audited the Remuneration Report included in pages 36 to 57 of the directors’ report for the year ended 26 July 2008. The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
Auditor’s Opinion In our opinion the Remuneration Report of David Jones Limited for the year ended 26 July 2008, complies with section 300A of the Corporations Act 2001.
Ernst & Young Craig M Jackson Partner
8 October 2008 For personal use only use personal For
Liability limited by a scheme approved under Professional Standards Legislation
David Jones Annual Report 2008 David Jones Annual Report 2008 120 121 shareholder information
As at 24 September 2008 David Jones Limited and its controlled entities
Current shareholder information is available on the Company’s website which is updated regularly.
Top 20 Ordinary shareholders SHAREHOLDER NUMBER OF SHARES % 1 National Nominees Limited 48,481,870 10.03 2 J P Morgan Nominees Australia Limited 41,097,279 8.50 3 Hsbc Custody Nominees (Australia) Limited 31,371,516 6.49 4 Cogent Nominees Pty Limited 17,968,774 3.72 5 Anz Nominees Limited (Cash Income A/C) 14,719,710 3.04 6 UBS Nominees Pty Ltd 6,017,894 1.24 7 Argo Investments Limited 4,193,829 0.87 8 Citicorp Nominees Pty Limited 3,824,348 0.79 9 Queensland Investment Corporation 2,838,446 0.59 10 Australian Reward Investment Alliance 2,439,854 0.50 11 UBs Wealth Management Australia Nominees Pty Ltd 2,135,495 0.44 12 Yanawe Investments Pty Limited 2,046,100 0.42 13 Rbc Dexia Investor Services Australia Nominees Pty Limited (Pipooled A/C) 1,883,978 0.39 14 Anz Nominees Limited (Sl Cash Income A/C) 1,818,295 0.38 15 UBS nominees Pty Ltd (116C A/C) 1,580,000 0.33 16 Citicorp Nominees Pty Limited (Cfsil Cwlth Aust Shs 6 A/C) 1,368,400 0.28 17 Gwynvill Investments Pty Limited 1,330,700 0.28 18 Cogent Nominees Pty Limited (SL Non Cash Collateral A/C) 1,096,000 0.23 19 Mr Mark McInnes 886,195 0.18 20 Invia Custodian Pty Limited (GSJBW Managed A/C) 752,799 0.16 187,851,482 38.86
The 20 largest ordinary shareholders hold 38.86% of the ordinary shares of the Company. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 120 121 shareholder information
As at 24 September 2008 David Jones Limited and its controlled entities
SUBSTANTIAL SHAREHOLDINGS Substantial Shareholder Notices received up to 24 September 2008 Ordinary Extent of Date of Last Shares Interest Notification Ausbil Dexia Limited 41,394,372 8.56% 17.09.2008
CLASS OF SHARES AND VOTING RIGHTS At 24 September 2008 there were 76,604 holders of the ordinary shares of the Company. The voting rights attaching to the ordinary shares set out in clause 5.8 of the Company’s Constitution are on a show of hands, every member present has one vote; and on a poll, every member present has one vote for each fully paid share held by the member and in respect of which the member is entitled to vote.
DIVIDEND SCHEDULE Details of dividends paid on ordinary shares and reset preference shares (RPS)* during the current and previous financial year are set out in the Directors’ Report on page 32. For a full up to date schedule of all dividends paid by the Company, since listing in 1995, see the “For Investors” section of the David Jones website. *On 26 June 2007, the Company issued a Company Conversion Notice to convert all its remaining RPS into fully paid ordinary shares in the Company (effective 1 August 2007) in accordance with the RPS Terms of Issue. A total of 331,871 RPS were converted on 1 August 2007 into 23,287,851 fully paid ordinary shares.
DISTRIBUTION OF SHAREHOLDERS Holders of Holders of Ordinary Shares Ordinary Shares as at as at Category 24 September 2008 14 September 2007 1 – 1000 11,012 9,616 1,001 – 5,000 54,874 56,174 5,001 – 10,000 6,828 6,417 10,001 – 100,000 3,745 3,594 100,001 and over 145 132 76,604 75,933 Less than a marketable parcel 1,728 1,268
SHAREHOLDER REWARDS SCHEME On 24 September 2008, the Board announced its decision to conclude the Company’s shareholder rewards program effective from 1 February 2009. In return, current members of the Company’s shareholder rewards program (as at that date) will receive an exclusive offer relating to the David Jones American Express card in addition to a number of attractive benefits under the new David Jones
American Express card when it is launched in early October 2008. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 122 123 corporate directory
PRINCIPAL REGISTERED OFFICE 2008 DAVID JONES LIMITED ANNUAL REPORT 86–108 Castlereagh Street, Sydney, NSW 2000 This year’s Annual Report and the Notice of Meeting can be accessed at http://www.davidjones.com.au/corp/company_ Telephone reports_2008/annual_report08.jsp. The Annual Report is also (02) 9266 5544 available, free of charge, on request from the Share Registry by calling 1800 652 207. Facsimile Previous years’ Annual Reports, announcements made to (02) 9261 5717 – Corporate ASX during the year and general shareholder information can (02) 9267 3895 – General Retail be accessed on the David Jones website. Upon accessing the Telephone number for all Stores David Jones website, click on ‘For Investors’ at the bottom of the screen to go through to releases and reports. 133 357 SHARE REGISTRY LOCATIONS OF ALL STORES Computershare Investor Services Pty Limited David Jones stores are located in New South Wales, Australian Level 3, 60 Carrington Street, Sydney, NSW 2000 Capital Territory, Victoria, Queensland, South Australia and GPO Box 7045, Sydney, NSW 2001 Western Australia. Details of individual stores are shown in the ‘Stores’ section of the David Jones website. Telephone WEBSITE 1800 652 207 – Toll Free www.davidjones.com.au Facsimile COMPANY SECRETARY (02) 8235 8150 Caroline Waldron LLB (Hons) ACIS Share Registry Website www.computershare.com Shareholders can access information and services relevant to their holding, including dividend payment history details, from the David Jones website under “For Investors”. Anyone can visit the Share Registry website to access a range of information about David Jones including the closing price of David Jones shares, graphs showing market prices over a requested period and graphs showing volumes traded over a requested period. Shareholders can register their email address through the Share Registry website to receive shareholder communications electronically.
STOCK EXCHANGE David Jones Limited is listed on the ASX.
The Home Exchange is Sydney. For personal use only use personal For
David Jones Annual Report 2008 David Jones Annual Report 2008 122 123
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David Jones Annual Report 2008 124 DESIGNED BY SPATCHURST.COM.AUFor personal use only
For Corporate and Customer information please visit us at www.davidjones.com.au For personal use only use personal For