life_web_25th.fh10 6/23/06 10:46 AM Page 1
C M Y CM MY CY CMY K
LIFE PHARMACY ANNUAL REPORT 2006
Global Reports LLC
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 2
C M Y CM MY CY CMY K
A IT’S YOUR
B
Global ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 3
C M Y CM MY CY CMY K
CONTENTS
4 Results and Achievements 5 Chairman’s Letter to Shareholders 6 Chief Executive’s Report 7 Management Team 8 Corporate Governance 12 Group Entities 13 Report of the Auditors 14 Financial Statements comprising: Income Statement - Page 14 Statement of Changes in Equity - Page 15 Balance Sheet - Page 16 Statement of Cash Flows - Page 17 Statement of Accounting Policies - Pages 18 – 19 C Notes to the Financial Statements - Pages 20 – 33 34 Major Shareholders 37 Company Directory Annual Meeting When: 29 June 2006, starting at 2:30pm Where: Life Pharmacy Central Office, Level 1, Building B, Millenium Centre, 600 Great South Road, Greenlane, Auckland LIFE, ENJOY
D
A - Life Pharmacy Queensgate B - Sylvia Park interior concept C - DRESS-SMART Mall, Onehunga
D - Sylvia Park entrance concept E, F - DRESS-SMART Mall, Onehunga
E F
Global Reports LLC ANNUAL REPORT 2006
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 4
C M Y CM MY CY CMY K
RESULTS AND ACHIEVEMENTS
For the year ended 31 March 2006
PARENT ENTITY CONSOLIDATED GROUP FINANCIAL RESULTS SUMMARY $’000 2006 2005* 2006 2005* Revenue 5,172 2,089 5,494 2,473 EBITDA 1,112 365 943 280 EBIT 1,089 360 891 249 Profit before tax 1,153 451 955 340 Profit for the period 1,276 438 1,096 293
Total assets 39,039 28,263 38,819 28,237 Total liabilities 10,692 704 10,797 823 Shareholders equity (net assets) 28,347 27,559 28,022 27,414
Dividend 766 349 766 349
Basic earnings per share (cents) 4.53 1.56 3.89 1.05 Diluted earnings per share (cents) 4.18 1.55 3.59 1.04 Dividends per share (cents) 2.73 1.23 2.73 1.23 Net assets (cents) 101.20 97.33 100.04 96.81
* trading for six months to 31 March 2005
• Pharmacist investment secured and new format store designed for the new Life Pharmacy to open in Sylvia Park, the largest shopping development in Auckland, in August 2006.
• Life Pharmacy Remuera sold
• The first Life Outlet Store at Dress-Smart, Onehunga, Auckland, opened in November 2005, a joint venture with CS Company Limited
• Life Pharmacy Queensgate relocated and significantly expanded to flagship store status in upgraded and enlarged Westfield Mall, Queensgate, Lower Hutt
• Chief Operating Officer appointed to strengthen operational, merchandising and marketing leadership
• Life Pharmacy central office relocated from shared premises with other pharmacy business to the Millennium Centre, Greenlane, Auckland
• Centralised Information Technology platform implemented to enable data transfer across the business
• Seventeen pharmacy companies transformed from private family business status to adopting “best practice” business processes
Life Pharmacy Sylvia Park, Auckland
Global4 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 5
C M Y CM MY CY CMY K
CHAIRMAN’S LETTER TO SHAREHOLDERS
For the year ended 31 March 2006
The year ended 31 March 2006 was the first full year for Life Pharmacy Life Pharmacy Business Model Limited (LPL) as a listed retail pharmacy group. Overall performance Life Pharmacy is founded on a committed professional ethos. The of our pharmacies did not meet expectations while performance was people who manage Life Pharmacy stores all have a very strong mixed between pharmacies. We faced an increasingly competitive personal stake in the business. And thanks to the transformational environment evidenced by a very flat Christmas trading period and efforts put in by our team over the past year that commitment is now competition from parallel importing in the key fragrance category, supported by sound processes, consistent standards and appropriate and our anticipated acquisitions were not concluded. infrastructure. LPL is now in a position to gain the commercial and market advantages that accrue from enhanced efficiency and improved This masked an otherwise very productive year in transforming performance, competitiveness and accountability. seventeen pharmacy companies from private family business status to adopting best practice business processes and pharmacy growth More importantly, a team is now in place that will enable the group initiatives in particular, Life Pharmacy Sylvia Park, Life Pharmacy to address the Board’s major area of focus: to add value to the business Queensgate store upgrade and the Life Outlet Store commencing through acquisitions, green field developments and other growth- trading. enabling strategies and initiatives.
All of our people have put in considerable effort to effect this The Life Pharmacy Sylvia Park transaction is evidence of one of LPL’s transformation. We now have an operating structure and capability growth initiatives. LPL entered into an agreement with the Sylvia Park that not only addresses day-to-day operational requirements, but also developers, Kiwi Income Property Trust, to lease 560 square metres provides a platform for capturing significant new opportunities. We of retail space in what will be one of New Zealand’s largest retail are positioned to execute our growth strategy to be an innovative developments and we incorporated Life Pharmacy Sylvia Park Limited multi-brand health and beauty retailer at the forefront of the retail to operate a pharmacy there. Continuing legal restrictions on pharmacy experience for our customers. ownership forced LPL to sell down its shareholding in Life Pharmacy Sylvia Park so that pharmacists would hold the majority share. To meet Key Financial Results * this requirement we have sold 51% of Life Pharmacy Sylvia Park to LPL parent revenue, excluding net interest income, for the year was pharmacist investors. $5.17m ($2.09m). For the year ended 31 March 2006, LPL parent company profit is $1,276,000, compared with $438,000 last year. This transaction represents a major innovation which, while complying The trading activities have generated net cash inflows of $211,000 fully with the regulatory ownership restrictions, generates additional ($69,000 outflow). Earnings per share rose to 4.53 cents from 1.56 revenue for LPL while providing an investment opportunity for pharmacy cents last year. owners without compromising NZX’s spread requirements.
The Group result, after consolidating subsidiary losses and the joint To continue to drive innovation and accelerate the rate at which the venture and associate results using the equity method, is a profit for business can further expand, the Chief Operating Officer’s position the period of $1,096,000 ($293,000). was created to lead Life Pharmacy’s operations, marketing, and merchandising functions. Chief Executive Officer, Tim Roper, is now LPL’s consolidated assets are $38.82m ($28.24m). The increase is better placed to focus on the major growth opportunities and expansion primarily as a result of the corporate banking facility borrowings on- projects. lent to associates under back-to-back loan and security agreements with a corresponding increase in total liabilities. Current assets amount One of these projects is to establish a new format pharmacy to meet to $3.29m ($1.37m), whereas total current liabilities are $1.72m the needs of a new market sector. To this end we have entered into ($0.82m). Investment in associates reduced to $24.99m ($25.73m) a lease for retail premises in Porirua and this new store is scheduled which primarily reflects the sale of LPL’s share of Life Pharmacy Remuera. to commence trading in August 2006. There was no impairment of the investments in associates, other than Our People the write-down of goodwill of $51,000 (Nil) arising from the sale of On behalf of the Board, I wish to pay tribute to our people throughout Life Pharmacy Remuera’s operations. the country. They have maintained their commitment to high levels Net indebtedness increased to $7.43m, which reflects the borrowings of customer service while LPL has undergone a challenging on-lent to associates of $8.67m. Net interest-bearing debt to net transformation. Our people have faced enormous challenges to both interest-bearing debt plus equity ratio is 21% as at balance date. improve efficiencies and grow revenue. They have coped admirably with the changes and have demonstrated commendable patience and Shareholders’ equity is higher at $28.02m ($27.4m). team spirit. Dividend Outlook In accordance with its dividend policy, LPL will distribute 60 percent During the next year we will be working to maximise the performance of the parent company’s distributable profits being $766,000 of the group. The Board and management have a strong desire to ($349,000), paying shareholders a final dividend of 2.24¢ per share achieve our growth objectives. (fully imputed), with the payment date set for 28 July 2006.
Waiver LPL was granted a waiver extension from the spread requirements in Listing Rule 5.2.3 for a further six month period from 11 March 2006 to 11 September 2006. This rule requires that securities in a particular class must be held by at least 500 shareholders who are members of the public, and that those holders must hold at least 25% of the number of shares in that class.
As at 30 April 2006 we had over 500 shareholders and associated persons under the NZX rules held 88%, compared with 96% as at 31 March 2005. Liz Coutts * Trading as a listed retail pharmacy company for six months to Chairman 31 March 2005.
Global Reports LLC ANNUAL REPORT 2006 5
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 6
C M Y CM MY CY CMY K
CHIEF EXECUTIVE’S REPORT
For the year ended 31 March 2006
The financial year ended 31 March 2006 has been challenging for Life The second is to establish capability and build relationships in other Pharmacy Limited (LPL). aspects of the health and beauty sector. Our vision specifically requires us to consider opportunities that meet the criteria ‘health and beauty The principal challenge the business faced in the 2006 financial year multi-brand retailer.’ We are convinced that the competencies we was the conversion of a 49% ownership stake, in what were 17 private have developed in operating pharmacies can be transferred to other family businesses, into a single listed entity – the primary objective aligned health and beauty formats. being to capture all the advantages that come from standardisation, scale and centralised co-ordination. The third opportunity is in the area of vertical integration. Introducing exclusive brand products and ranges specific to the requirements of The key to achieving this goal in the short term has been to grow and our customers is one we believe will add significant value to LPL. strengthen the corporate resource particularly in the areas of merchandising and human resource management. Our bank funding facility will allow us to commence these growth strategies in the short term but further capital raising will be inevitable The appointment of Des Flynn, to the newly created role of Chief as we pursue aggressively our growth plan. Operating Officer, in particular, represents a major step towards improving the performance of the stores at an operational level. His Human Resources retail experience is impressive having held senior executive positions The 20 Life Pharmacy stores employ over 700 people. Our human with Deka, Foodtown and more recently as Director of Strategy with resources strategy continues to be focussed on attracting, developing Woolworths. Over the past year he has project managed the opening and retaining the right people. We ensure this with initiatives and of the Life Outlet Store and was overseeing the Life Pharmacy Sylvia programmes that support the development of our people, so that in Park project when appointed to his new role. turn, they can provide a premium quality service to all our customers. We continue to support equal opportunity principles for all our people. In February 2006 the Board agreed to sell the Life Pharmacy Remuera operations to a private owner as this store would not fit the Life We believe in being a responsible employer and investing back into Pharmacy model of the future. the communities where our pharmacies are located. This year we decided to support the Cure Kids charity with our people participating Growth Initiatives in a number of promotional programmes to assist in the generation Life Pharmacy’s growth strategy proceeds out of its vision: To be an of funds for this very worthwhile organisation. innovative health and beauty multi-brand retailer at the forefront of the retail experience for customers. The Year Ahead Our strategy for growth is now firmly fixed. It will be driven by those We see good growth potential in Life Pharmacy’s traditional business. initiatives described above. We have made a considerable investment We continue to pursue greenfield opportunities; after Life Pharmacy in our people over the last year to achieve this and the training Sylvia Park the next store opening will likley be in the Westfield Albany investment this year for all of our people is unprecedented. development on the North Shore of Auckland. We are monitoring all proposed mall developments across New Zealand and it is our aim to We have a firm foundation for moving forward. The people throughout have first option in locations that meet our criteria for opening a Life the organisation are passionate about the business and are committed Pharmacy store. to delivering the returns expected by our shareholders. We will work diligently to deliver our company business objectives over the next Nevertheless, the current Life Pharmacy model needs to evolve and year. to this end we intend to respond to the exciting trends that are occurring in health and well-being. These trends will be demonstrated in the new Life Pharmacy Sylvia Park store.
For 2006 and beyond we intend pursuing three new types of initiative aimed at fulfilling our vision.
The first is to consider new pharmacy formats. The intent is to capitalise on our corporate resources and combined purchasing power to address opportunities not catered for by our large footprint retail stores in high foot traffic malls. The first evidence of this different format will be the opening of a new pharmacy site in Porirua, scheduled for mid August 2006.
Tim Roper Chief Executive Officer
Global6 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 7
C M Y CM MY CY CMY K
MANAGEMENT TEAM
For the year ended 31 March 2006
The Life Pharmacy franchise business and investment in the group entities is overseen by a corporate team based in Auckland. Two new roles have been added to the Management Team during the year, with the direct reporting lines aligned to assist the achievement of LPL’s growth strategies.
Graham Elliott Life Pharmacy Limited Operations Manager Management Team Des Flynn Grant Febery Chief Operating Officer Marketing Manager
Tim Roper Jacquie Dabrowski Chief Executive Officer Category Manager
Derek Anderton Chief Financial Officer
Jan Jones Human Resource Manager
Peter Traynor Information Technology Manager
Profiles on the management appointments made during the year are as follows:
Des Flynn, Chief Operating Officer Des joined LPL in March 2006, taking up the newly created position of Chief Operating Officer. He will oversee the daily operations of LPL, build the Life Pharmacy brand, drive retail performance and manage LPL’s franchise holder relationships. Des is also managing the set-up of Life Pharmacy Sylvia Park. Immediately prior to joining LPL, Des set-up LPL’s joint venture with CS Company Limited with the opening of the Life Outlet Store at Dress-Smart, Onehunga in November 2005. Des has extensive retail management and development experience and will be invaluable in streamlining Life Pharmacy’s day-to-day operations and strengthening its brands. He has held several senior retail positions including Director of Strategic Business Development and Marketing at Woolworths New Zealand Limited and General Manager of Foodtown.
Jacquie Dabrowski, Category Manager Dip.Ret Mktg Jacquie joined LPL in October 2005 as Category Manager and is implementing best practice category management approaches and disciplines to the Life Pharmacy stores. Jacquie is actively building the merchandising business unit including developing long-term supplier relationships, strategic product management and margin enhancement. Jacquie’s appointment to this role (previously outsourced) allows LPL to undertake the strategic merchandise initiatives that are required in today’s competitive retail environment. Jacquie has over 15 years’ retail experience as both a supplier and retailer, predominantly in the FMCG environment. Her most recent role was with Shell New Zealand Limited, including the category management of convenience stores in the New Zealand and Australian markets with exposure into the Asian convenience retail markets. Jacquie has also held positions in the Sales teams of Mainland Products Limited and Nestlé New Zealand Limited.
The other Management Team members are:
Graham Elliott, Operations Manager B.Soc.Sc, B.Sc. (Hons) Graham joined LPL as Operations Manager in June 2002 after 2 years with Unichem as the Business Development Manager and five years with Reckitt and Coleman as Pharmaceuticals Sales Manager and as a FMCG Key Accounts Manager.
Grant Febery, Marketing Manager B.Com, Dip.Com Grant joined LPL in June 2003 as Marketing Manager on his return from the United Kingdom having held different retail marketing positions in optometry and bookshops.
Derek Anderton, Chief Financial Officer B.BS, CA Derek joined LPL in September 2004, having previously been Financial Controller of the Pharmaceutical Society of New Zealand, which was until September 2004 the statutory body responsible for the registration, discipline, professional standards and advocacy for pharmacists.
Jan Jones, Human Resource Manager B.Sc, Dip.Bus (HRM) After four years of involvement with Life Pharmacy as a Human Resource consultant, Jan joined LPL as Human Resource Manager in April 2005. Jan’s previous experience includes sales and marketing management in the pharmaceutical industry and general management of a training resource distributor. Jan is responsible for planning, directing and facilitating policies and practices relating to all facets of Human Resource activity within LPL and to develop human resource management skills in business managers and other senior management in stores.
Peter Traynor, Information Technology Manager Peter joined the former LPL in November 2004 after being engaged as a consultant during 2004 evaluating the options available in implementing a Corporate Information System to support strategic objectives. Peter’s role now has oversight and responsibility for all aspects of LPL’s core ICT infrastructure and business system applications. The scope of these responsibilities is currently extending beyond LPL Central Office and into the retail stores.
Global Reports LLC ANNUAL REPORT 2006 7
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 8
C M Y CM MY CY CMY K
CORPORATE GOVERNANCE
For the year ended 31 March 2006
Role of the Board of Directors The Board of Life Pharmacy Limited (LPL) is elected by the shareholders to represent all of the Company’s shareholders. It is the Board’s responsibility to establish the strategic direction and objectives of LPL and set the policy framework within which LPL must operate. The Chief Executive Officer (CEO) is appointed by the Board, and is delegated authority for the day-to-day operations of LPL.
The Board comprises two independent Directors, three non-executive Directors and an executive Director. The total annual directors’ remuneration approved for each financial year is capped at $250,000, with the fees commencing 1 April 2005. The Directors holding office during the year and the remuneration paid or payable to the Directors is as follows:
DIRECTOR APPOINTED TOTAL FEES
Elizabeth (Liz) Coutts *+ 4 March 2005 80,000 Andrew Davidson *+ 4 March 2005 40,000 Gordon Ritson 22 June 2005 30,000 Mark Vuksich + 4 March 2005 30,000 Neil Webber * 4 March 2005 30,000 Richard (Tim) Roper 4 March 2005 Nil
Total 210,000
* = Audit Committee member + = Remuneration and Nominations Committee member
All remuneration paid to Tim Roper is derived from employee remuneration (salary and benefits) as CEO of LPL as disclosed within Note 10 to the financial statements on page 24.
In conjunction with each Board meeting, the Directors have declared the following interests:
Liz Coutts – EBOS Limited (Director); Industrial Research Limited (Chairman); Ministry of Health (Chairman Audit, Finance & Risk Committee); Public Trust (Deputy Chairman); Reserve Bank of New Zealand (Monetary Policy Advisor); Skellerup Holdings Limited (Director); Sport & Recreation New Zealand (Director); University of Waikato Management Studies Advisory Board (Member).
Andrew Davidson – Kids Help Foundation Trust (What’s Up) Charity (Trustee & Director); Lighthouse Ventures Limited (Director & Shareholder); New Zealand Australian Football League (Inc) (Chairman); Old Fashioned Foods Limited (Director).
Gordon Ritson – Bayfair Pharmacy Limited (Director & Shareholder); Northlands Pharmacy 2003 Limited (Shareholder); Pharmacy 277 Limited (Shareholder); Pharmacy Defence Association (Inc) (Director); PIMS 2005 Limited (Directors & Shareholder); Queensgate Pharmacy Limited (Director & Shareholder); Sinel-Francis Pharmacy Tauranga Limited (Shareholder).
Mark Vuksich – Northlands Pharmacy 2003 Limited (Director and Shareholder); Pharmacy 277 Limited (Director & Shareholder); PIMS 2005 Limited (Director & Shareholder); St Lukes Pharmacy Holdings Limited (Director & Shareholder).
Neil Webber – Ganet Investments Limited (Director & Shareholder); Kroma Colour Prints Limited (Chairman); Minnow Investments Limited (Director & Shareholder); Neil Webber Pharmacy Limited (Director & Shareholder); Northlands Pharmacy 2003 Limited (Shareholder); Pharmacy 277 Limited (Shareholder); PIMS 2005 Limited (Director & Shareholder); Sinel-Francis Pharmacy Limited (Director & Shareholder); Sinel-Francis Pharmacy Tauranga Limited (Director & Shareholder).
Tim Roper – Northlands Pharmacy 2003 Limited (Director and Shareholder); Pharmacy 277 Limited (Director & Shareholder); PIMS 2005 Limited (Director & Shareholder).
Global8 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 9
C M Y CM MY CY CMY K
CORPORATE GOVERNANCE (continued)
For the year ended 31 March 2006
Director Profiles
Liz Coutts, Chairman - Ms Coutts is a Director of listed companies Skellerup Holdings Limited and EBOS Group Limited, a supplier of healthcare, consumer and scientific brands to hospitals and other health care providers. Ms Coutts is Chairman of Industrial Research Limited, Deputy Chairman of Public Trust, Chairman of the Audit, Risk and Finance Committee of the Ministry of Health and a board member of Sports and Recreation New Zealand (SPARC). Ms Coutts is an external Monetary Policy Adviser to the Governor of the Reserve Bank of New Zealand. She was previously Commissioner of both the Commerce Commission and the Earthquake Commission, a Director of the Health Funding Authority, PHARMAC, Air New Zealand Limited, Meritec Group Limited, New Zealand Tennis Incorporated and Trust Bank New Zealand and a member of the Financial Reporting Standards Board of the Institute of Chartered Accountants of New Zealand.
Andrew Davidson, Director - Mr Davidson has had more than 30 years’ experience in local and international food retailing. Mr Davidson is currently a Director and Chief Executive Officer of Lighthouse Ventures Limited, a multi-faceted food marketing company operating in international markets. Prior to this current role, Mr Davidson was Deputy Director of Westfield New Zealand where he was responsible for the management of 11 shopping centres and a commercial property portfolio which had over 1,200 retail tenants. Mr Davidson was previously Chief Executive Officer of Woolworths New Zealand Limited from 1998 to 2002. Woolworths was New Zealand's third largest grocery retailer with turnover of $1.5 billion and over 10,000 employees and Mr Davidson played a key part in the $690 million sale of the Woolworths business to Foodland Australia Limited. During this time he was also a member of The Dairy Farm International operating committee, one of Asia's largest retailers. Mr Davidson has been on a number of industry boards and is a founding board member and trustee of The Kids Help Line Foundation.
Gordon Ritson, Non-Executive Director - Mr Ritson has been a pharmacist for over 30 years and is registered in New Zealand, Australia (New South Wales) and the United Kingdom. Mr Ritson was a founding Director and shareholder of the former LPL, and is the owner of Life Pharmacy Queensgate (Lower Hutt) and Life Pharmacy Bayfair (Mt Manganui). Mr Ritson is a past Director of Unichem Chemists Limited (now Pharmacybrands Limited) where he had a strong influence in the re-branding of the Unichem Group and Director of Beauty Direct and Online Limited (now Life Pharmacy Limited). Mr Ritson was an elected member of the New Zealand Pharmaceutical Society and has held other positions in related professional organisations as a Director of the Pharmacy Defence Association (Inc), Chairman of the Pharmacy Industry Training Organisation, a Councillor on the Executive Council of the New Zealand College of Pharmacists (Inc) and he was active in creating a Ten Year Vision for pharmacy in New Zealand.
Mark Vuksich, Non-Executive Director – Mr Vuksich has been a registered pharmacist for 43 years and is a Shareholder and Director of the pharmacy company that operates Life Pharmacy St Lukes and Unichem St Lukes, and has a management role overseeing both pharmacies. Mr Vuksich is the Chairman of the former LPL and was a founding member of the former LPL involved in the creation of the Life Pharmacy brand. Prior to this he was a founding member and General Manager of Unichem Chemists Limited (now renamed Pharmacybrands Limited) and Chairman of the Unichem Board for 12 years.
Neil Webber, Non-Executive Director – Mr Webber plays an active role overseeing various Life Pharmacies in the Group, including Life Pharmacy Glenfield, a pharmacy established by Mr Webber in 1971. Mr Webber has been a registered pharmacist for 34 years and obtained a Masters of Business Administration from Bond University in Australia, gaining high distinctions. Mr Webber has been a member of the Institute of Directors since 1997. Mr Webber was a founding Director and Shareholder of the former LPL and is currently Chairman of Kroma Colour Prints Limited, a leading national photo processing and imaging business. Mr Webber was also a founding member of Unichem Chemists Limited (now renamed Pharmacybrands Limited).
Tim Roper, Executive Director – Mr Roper was appointed CEO of the former LPL in October 2003 and his responsibilities included growing the Life Pharmacy chain in preparation for deregulation and pursuing subsequent developments in the sector that might arise post-deregulation. Mr Roper was previously General Manager of Unichem Chemists Limited (now renamed Pharmacybrands Limited) for 13 years during which time it grew from 59 to 267 pharmacies under the Unichem, Amcal, Dispensary First and Life Pharmacy brands. Originally from England, Mr Roper completed a Bachelor of Pharmacy at Bath University before beginning his pharmacy career at Savory & Moore, a retail pharmacy chain of 85 stores. After 8 years, he immigrated with his family to New Zealand and later joined Boots The Chemist (New Zealand) Limited as Retail Merchandise Manager. Mr Roper is a shareholder and Director of Life Pharmacy Northlands (Christchurch) and is a past Councillor of the Pharmaceutical Society of New Zealand and was Chairman of its Finance and Audit Committee.
Global Reports LLC ANNUAL REPORT 2006 9
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 10
C M Y CM MY CY CMY K
CORPORATE GOVERNANCE (continued)
For the year ended 31 March 2006
Governance Policies The Board has established corporate governance policies and confirmed the following principles:
Code of Ethics The Company has established a Code of Ethics to govern its conduct. The Code addresses ethical issues, establishes compliance standards and procedures, provides mechanisms to report unethical behaviour and provides for disciplinary actions.
Shareholder Relations The Board will ensure that shareholders are informed of major developments affecting the Company. Information is available through the Annual and Interim Reports, with shareholders able to participate at each Annual Meeting. Any material information affecting the Company during the intervening period is announced to the financial markets via the New Zealand Stock Exchange (NZX) under the Board’s policy for continuous disclosure.
Insider Trading Guidelines The Board has issued guidelines to prevent insider trading to all Directors, deemed Directors, officers and employees of the Company. All Directors deemed Directors and Officers of the Company must formally apply for consent to trade the Company’s securities from the Chief Financial Officer before undertaking any sales or purchases.
The Board reviews all consents granted at each Board meeting. The directors, deemed directors and officers of the Company are obliged to complete and submit disclosure notices to the NZX within five days of any trades being settled.
Board Size and Structure The current policy is that the Board will comprise three independent Directors, three non-executive Directors and the Chief Executive Officer, the only executive Director. The independent Directors are selected to ensure that the appropriate skills and experience are available. One of the independent Directors will be appointed as Chairman. There is currently a vacancy for one independent director which the Board has chosen not to fill at this time as the Board considers that they have the appropriate skills required from the existing two independent directors.
The Board meets monthly, and follows procedures that ensure that all directors have the necessary information to participate in an informed discussion on all agenda items and effectively carry out their duties. Senior managers make direct presentations to the Board on a rotational basis to give directors a broad exposure to management philosophies and capabilities.
The Board has instituted a formal system to review the performance of the Board and the individual directors.
Board Committees The Board has two standing committees described as follows. A special projects committee was formed to assist the Chief Executive Officer with acquisitions. The Board annually reviews the performance of the standing committees against written charters.
Remuneration and Nominations Committee This committee comprises two independent directors and one non-executive director. It meets as required to;
• Review the remuneration of the Chief Executive Officer
• Make recommendations to shareholders for non-executive and independent director remuneration
• Recommend Director appointments
Remuneration packages are reviewed annually. Independent external surveys are used as a basis for establishing competitive remuneration.
The composition of the Remuneration and Nominations Committee is Elizabeth Coutts (Chairman), Andrew Davidson and Mark Vuksich.
Global10 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 11
C M Y CM MY CY CMY K
CORPORATE GOVERNANCE (continued)
For the year ended 31 March 2006
Audit Committee The Committee comprises two independent directors and one non-executive director. One of the independent directors is appointed Chairman who is not the Chairman of the Board. The executive director is not entitled to be a member. All other Directors are entitled to attend the meetings.
The Chief Executive Officer and the Chief Financial Officer attend as ex-officio members. The external auditors attend by invitation of the Chairman. The Audit Committee meets privately with the external auditors, that is, without management in attendance. All Audit Committee members must be financially literate, with at least one member having a financial background.
The Committee meets a minimum of four times each year. Its responsibilities include:
• To review the scope and outcome of the external audit
• To review the annual and half yearly statements prior to approval by the Board
• To approve the public releases of financial information
• To assess the performance of financial management and monitoring of material corporate risk assessments and internal controls
• To report the proceedings of each meeting to the Board
• To make recommendations to the Board on the appointment of the external auditors, their independence and their fees
The current composition of the committee is Andrew Davidson (Chairman), Elizabeth Coutts and Neil Webber.
Organisation Structure and Financial Control The Board has delegated to the Chief Executive Officer the management responsibilities of the Company. He is supported by the Chief Operating Officer, who coordinates the marketing, operational and merchandising activities. The Chief Financial Officer is responsible to the Chief Executive Officer for ensuring that all operations within the Company adhere to the Board-approved financial control policies.
The Board satisfies itself that adequate external insurance cover is in place appropriate to the Company’s size and risk profile.
Global Reports LLC ANNUAL REPORT 2006 11
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 12
C M Y CM MY CY CMY K
GROUP ENTITIES
For the year ended 31 March 2006
The current Life Pharmacy Limited (LPL) group structure comprises 22 companies and LPL has appointed a Director of LPL as a Director to each associate pharmacy company board giving LPL a one-third voting right. The group entities are as follows:
GROUP HOLDING ACTIVITY
Parent Life Pharmacy Limited Franchisor & Investment
Controlled entities Beauty Direct Operations Limited 100% Website Life Holdings Botany Limited 100% Retail
Joint Venture entity LPL Investments Limited 50% Retail
Associate entities Life Pharmacy Bayfair 49% Pharmacy Life Pharmacy Birkenhead 49% Pharmacy Life Pharmacy Glenfield 49% Pharmacy Life Pharmacy Henderson 49% Pharmacy Life Pharmacy Johnsonville 49% Pharmacy Life Pharmacy Manukau 49% Pharmacy Life Pharmacy Newmarket 277 49% Pharmacy Life Pharmacy Northlands 49% Pharmacy Life Pharmacy Pakuranga 49% Pharmacy Life Pharmacy Queensgate 49% Pharmacy Life Pharmacy Riccarton 49% Pharmacy Life Pharmacy Rotorua 49% Pharmacy Life Pharmacy St Lukes 49% Pharmacy Life Pharmacy Sylvia Park 49% Non-trading Life Pharmacy Takapuna 49% Pharmacy Life Pharmacy Tauranga 49% Pharmacy Life Pharmacy The Palms 49% Pharmacy Tawharanui Holdings 2006 Limited 49% Non-trading (formerly trading as Life Pharmacy Remuera)
Franchisees Life Pharmacy Botany Life Pharmacy Chartwell Life Pharmacy Centre Place Life Pharmacy James Smith
In accordance with the Life Pharmacy franchise agreement, each pharmacy uses the prefix ‘Life Pharmacy’ and its location as its trading name. For example A H McAulay Limited trades as Life Pharmacy Birkenhead.
Life Pharmacies operate throughout New Zealand, in major metropolitan shopping precincts:
REGION ASSOCIATES FRANCHISEES
Auckland 8 1 Waikato - 2 Bay of Plenty 3 - Wellington 2 1 Christchurch 3 -
Global12 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 13
C M Y CM MY CY CMY K
REPORT OF THE AUDITORS
For the year ended 31 March 2006
To the shareholders of Life Pharmacy Limited
We have audited the financial statements on pages 14 to 33. The financial statements provide information about the past financial performance and financial position of the Company and Group as at 31 March 2006. This information is stated in accordance with the accounting policies set out on pages 18 to 19.
Directors’ responsibilities
The Directors are responsible for the preparation of financial statements which give a true and fair view of the financial position of the Company and Group as at 31 March 2006 and the results of their operations and cash flows for the year ended on that date.
Auditors’ responsibilities
It is our responsibility to express an independent opinion on the financial statements presented by the Directors and report our opinion to you.
Basis of opinion
An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing:
• the significant estimates and judgments made by the Directors in the preparation of the financial statements;
• whether the accounting policies are appropriate to the Company’s and Group’s circumstances, consistently applied and adequately disclosed.
We conducted our audit in accordance with New Zealand Auditing Standards. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
Partners and employees of our firm may deal with the Group on normal terms within the ordinary course of trading activities of the business of the group. These matters have not impaired our independence as auditors of the Company and Group. The firm has no other relationship with, or interest in, the Company or any of its subsidiaries or associates.
Unqualified opinion
We have obtained all the information and explanations we have required.
In our opinion:
• proper accounting records have been kept by the Company as far as appears from our examination of those records;
• the financial statements on pages 14 to 33:
• comply with New Zealand generally accepted accounting practice;
• give a true and fair view of the financial position of the Company and Group as at 31 March 2006 and the results of their operations and cash flows for the year ended on that date.
Our audit was completed on 18 May 2006 and our unqualified opinion is expressed as at that date.
Auckland
Global Reports LLC ANNUAL REPORT 2006 13
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 14
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS INCOME STATEMENT
For the year ended 31 March 2006
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 Note $’000 $’000 $’000 $’000
Operating Revenue Associate revenue 4 1,066 600 903 432 Franchise revenue 5 3,439 1,485 3,439 1,485 Other revenue 6 667 4 1,152 556 Total operating revenue 5,172 2,089 5,494 2,473
Operating expenditure Governance and accountability 7 380 242 380 242 Marketing expenses 8 2,194 981 2,194 981 Impaired assets 9 51 45 51 - Other expenditure 10 1,458 461 1,978 1,001 Total operating expenditure 4,083 1,729 4,603 2,224
Operating profit before interest and tax 1,089 360 891 249
Interest income 478 91 478 91 Interest expense (414) - (414) - Net interest income 64 91 64 91
Profit before tax 1,153 451 955 340
Tax income/(expense) 11 123 (13) 141 (47)
Profit for the period 1,276 438 1,096 293
Basic earnings per share (cents) 12 4.53 1.56 3.89 1.05 Diluted earnings per share (cents) 12 4.18 1.55 3.59 1.04 Dividend per share (cents) 2.73 1.23 2.73 1.23
The accompanying Statement of Accounting Policies and Notes to the Financial Statements on pages 18 to 33 form part of the financial statements.
The Directors are responsible for the preparation of financial statements which give a true and fair view of the financial position of the Company and Group as at 31 March 2006 and the results of their operations and cash flows for the year ended on that date, and that comply with New Zealand International Financial Reporting Standards (NZ IFRS).
E M Coutts A J Davidson R T Roper Chairman Director Executive 18 May 2006 18 May 2006 18 May 2006
Global14 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 15
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2006
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
Profit for the period 1,276 438 1,096 293 Total recognised income for the period 1,276 438 1,096 293
Directors’ share options issued - 144 - 144 Total contributions from owners - 25,446 - 25,446 Total distribution to owners (488) - (488) - Total movements recognised directly in equity (488) 25,590 (488) 25,590
Total changes in equity 788 26,028 608 25,883
Equity at the beginning of the period 27,559 1,531 27,414 1,531
Equity at the end of the period 28,347 27,559 28,022 27,414
The accompanying Statement of Accounting Policies and Notes to the Financial Statements on pages 18 to 33 form part of the financial statements.
G K Ritson M S Vuksich N W Webber Non-Executive Non-Executive Non-Executive 18 May 2006 18 May 2006 18 May 2006
Global Reports LLC ANNUAL REPORT 2006 15
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 16
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS BALANCE SHEET
As at 31 March 2006
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 Note $’000 $’000 $’000 $’000
Equity Dividend reserve 13 627 349 627 349 Retained deficits 14 (1,910) (2,420) (2,235) (2,565) Share capital 15 29,630 29,630 29,630 29,630
Total equity 28,347 27,559 28,022 27,414
Current assets Cash and bank balances 506 127 506 129 Receivables and accruals 16 2,700 1,124 2,710 1,157 Inventory - - 78 80 Total current assets 3,206 1,251 3,294 1,366
Non-current assets Investment securities 17 1,000 1,075 1,000 1,075 Fixed assets 18 602 21 619 67 Deferred tax asset 11 123 - 141 - Group advances 19 8,687 19 8,675 - Group investments 20 25,421 25,897 25,090 25,729 Total non-current assets 35,833 27,012 35,525 26,871
Total assets 39,039 28,263 38,819 28,237
Current liabilities Bank overdraft - - 43 - Payables and accruals 21 582 691 634 776 Current income tax 11 -131047 Group advance 20 1,033 - 1,033 - Total current liabilities 1,615 704 1,720 823
Non-current liabilities Unamortised future income 185 - 185 - Borrowings 22 8,892 - 8,892 - Total non-current liabilities 9,077 - 9,077 -
Total liabilities 10,692 704 10,797 823
Net assets 28,347 27,559 28,022 27,414
The accompanying Statement of Accounting Policies and Notes to the Financial Statements on pages 18 to 33 form part of the financial statements.
Global16 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 17
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS
For the year ended 31 March 2006
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 Note $’000 $’000 $’000 $’000
Cash flows from operating activities Associate dividend received 945 - 945 - Franchise and other income received 3,225 1,204 3,689 1,738 Interest received 478 87 478 87 Supplier payments (2,873) (1,120) (3,249) (1,536) Directors and employee remuneration (1,137) (235) (1,239) (281) Interest paid (414) - (414) - Income taxes paid (13) (5) (37) (20) Net cash inflow/(outflow) from operating activities 23 211 (69) 173 (12)
Cash flows from investing activities Decrease/(increase) in investment securities 75 (1,000) 75 (1,000) Decrease in advances to subsidiaries 7 13 - - Increase in advances from associates 1,033 - 1,033 - Fixed asset purchases (374) (26) (374) (72) Capitalised transaction costs (265) (208) (265) (208) Acquisition of investment in associates 24 ---- Acquisition of investment in joint venture (100) - (100) - Increase in associate borrowings (8,675) - (8,675) - Net cash outflow from investing activities (8,299) (1,221) (8,306) (1,280)
Cash flows from financing activities Increase in borrowings 8,955 - 8,955 - Shares issued 24 ---- Dividends paid (488) - (488) - Net cash inflow from financing activities 8,467 - 8,467 -
Net increase/(decrease) in cash equivalents 379 (1,290) 334 (1,292)
Add opening cash equivalents 127 1,417 129 1,421
Closing cash equivalents 506 127 463 129
Reconciliation of closing cash equivalents to the balance sheet: Cash and bank balances 506 127 506 129 Bank overdraft - - (43) - Closing cash equivalents 506 127 463 129
The accompanying Statement of Accounting Policies and Notes to the Financial Statements on pages 18 to 33 form part of the financial statements.
Global Reports LLC ANNUAL REPORT 2006 17
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 18
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS STATEMENT OF ACCOUNTING POLICIES
For the year ended 31 March 2006
Basis of preparation Associates are entities in which the Parent has significant influence Life Pharmacy Limited (formerly Beauty Direct and Online Limited (but not control) over operating and financial policies. (BDO)) is a New Zealand company (the Parent) registered under Investments in subsidiaries, joint ventures and associates are stated the Companies Act 1993 (WN/941210). The consolidated group at cost in the Parent’s financial statements. comprises the Parent, its subsidiaries and interests in its joint venture and associates (the Group). Joint ventures and associates are accounted for using the equity method such that the Group’s net joint venture or associate revenue The Parent is an issuer pursuant to the Financial Reporting Act 1993 is the Group’s share of the net operating surplus or deficits of the (the Act) and the financial statements of the Parent and the Group joint venture or associates and dividends received from the joint have been prepared in accordance with the Act. Annual financial ventures or associates are deducted from the Group’s investment in statements are also required under the NZX’s Listing Rule 10.5.1 associates. and were authorised for issue by the Board on 18 May 2006. Goodwill arising on acquisition is included in the carrying amount The financial statements comprise the income statement; statement of the associates and is not separately recognised. Goodwill represents of changes in equity; balance sheet; statement of cash flows; statement the excess purchase consideration over the fair value of the net of significant accounting policies and notes to the financial statements. identifiable tangible and intangible assets at the time of acquisition. The reporting currency is New Zealand dollars. After application of the equity method in accounting for associates, The Parent and Group have adopted and comply with New Zealand the carrying amount of the investment in associates is subject to International Financial Reporting Standards (NZ IFRS) for the financial impairment testing by comparing the recoverable amount with the year ending 31 March 2006. As these financial statements are the carrying amount of the investment in associates. The goodwill Parent and Group’s first NZ IFRS annual financial statements, the included in the carrying amount of the investment in associates is financial statements comply with NZ IFRS 1 – First-time Adoption allocated to the relevant cash generating units and tested for of New Zealand Equivalents to International Financial Reporting impairment. The impairment testing is completed annually, or earlier Standards. at any interim reporting dates if there are indicators of impairment. Measurement base If the recoverable amount is less than the carrying amount of the The financial statements for the Parent and the Group have been investment in associates, then an impairment loss is recognised in prepared using accounting principles recognised as appropriate for the income statement and the carrying amount of the asset is written the measurement of financial performance and position on an down. An impairment loss in respect of goodwill is not reversed in accruals basis as a going concern in accordance with historical cost a subsequent period should the recoverable amount exceed the concepts. carrying amount of the investment in associates previously written Under NZ IFRS 1, reporting entities must recognise certain assets down due to an impairment loss. and liabilities derecognise certain assets and liabilities reclassify certain The relative value of the goodwill allocated to the relevant cash items and re-measure certain recognised assets and liabilities. generating unit is included in the determination of any gain or loss In order to establish an opening balance sheet position under NZ on disposal of an operation or associate. IFRS, the opening statements of financial position 1 April 2004 and Equity 31 March 2005 and income statement for the period ended 31 Equity is the shareholder’s interest in the Parent and the Group and March 2005 have been restated in accordance with NZ IFRS (refer is measured as the difference between total assets and total liabilities. note 1). Equity is disaggregated and classified into components to enable Specific Accounting Policies identification of the specified contributions to or uses of equity. The The following specific accounting policies that materially affect the components of equity are share capital, retained deficits and a measurement of the financial performance and position have been dividend reserve. applied. Share capital issued is recognised in the balance sheet at the fair Group Investments and Consolidation value of consideration due. Share options issued by the Parent entitle Subsidiaries, joint ventures or associates are recognised in the financial the Independent Directors to subscribe for share capital of the Parent. statements from the date at which control or significant influence The fair value of the option at grant date is recognised in the income commenced until the date at which control or significant influence statement and the balance sheet on the date, or over the period, ceases. in which the options vest with the Director.
Subsidiaries are entities controlled by the Parent and are accounted A provision for dividends payable to the Parent’s shareholders can for using the purchase method, whereby corresponding revenues, only be recognised as a liability in the balance sheet in the period expenditures, assets, and liabilities are included on a line-by-line that the dividends are authorised and declared. Until such time, basis within the Group’s financial statements. All Parent/subsidiary the intended dividend distribution is transferred from the current transactions and balances are eliminated on consolidation. periods’ earnings to a dividend reserve within equity.
Joint ventures are entities in which the Parent has joint-control (but not control) over operating and financial policies.
Global18 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 19
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS STATEMENT OF ACCOUNTING POLICIES
For the year ended 31 March 2006 (continued)
Revenue recognition Subsequent expenditure that extends or expands the useful life of All revenue is recognised in the income statement when earned on a fixed asset or service potential is capitalised. All other costs are an accruals basis. recognised in the income statement as expenditure when incurred.
Expenditure recognition Any resulting gain or loss on disposal of a fixed asset is recognised All expenditure is recognised in the income statement when an in the income statement in the period in which the fixed asset is obligation arises on an accruals basis. disposed of.
Leases Employee entitlements The Group is party to operating leases as a lessee. The lessors retain Employee entitlements for salaries, bonuses and annual leave are substantially all of the risks and rewards of ownership of the leased provided for and recognised as a liability when benefits are earned fixed assets. Operating lease payments are recognised and included by employees but not paid at the reporting date. in the income statement in the period in which they are incurred. Financial instruments Lease incentives received are recognised in the income statement The Group is party to financial instruments as part of its day-to-day as an integral part of the total lease expense, over the life of the operations. Financial instruments are monetary assets and liabilities lease with any unamortised incentive recognised as a liability in the and include cash and bank balances, investment securities, receivables balance sheet. and payables and are accounted for on a trade date basis.
Taxation Financial instruments are initially recognised at their fair value and Income tax expense is charged in the income statement in respect subsequently measured at their amortised cost. of the current period’s surplus and comprises current tax and deferred Options to acquire or issue equity interests are recognised at fair tax. value, except when the fair value cannot be reliably measured and Current tax is the estimated tax payable on the current period’s are then held at cost. taxable income using current tax rates, adjusted for any under or Statement of cash flows over accrual in respect of prior periods. The statement of cash flows has been prepared using the direct Deferred tax assets are only recognised when realisation is probable method subject to the netting of certain cash flows. using the balance sheet liability method, after allowing for temporary Cash flows in respect of investments and borrowings that have been differences between the carrying amounts of assets and liabilities rolled-over under arranged banking facilities have been netted in for accounting purposes and the carrying amounts for tax purposes. order to provide meaningful disclosures. Accounts receivable Operating activities include all cash received from all revenue sources Trade receivables are stated at estimated realisable value after and all cash disbursed for all expenditure sources including taxation providing for debts where collection is doubtful. All known bad refund or payments and other transactions that are not classified as debts are written off and charged to the income statement in the investing or financing activities. period in which they are identified. Investing activities reflect the acquisition and disposal of fixed assets. Inventories Inventories are stated at the lower of cost or net realisable value Financing activities reflect changes in liabilities and equity. determined on a first in first out basis. The cost of inventories includes all expenditure incurred in acquiring the inventories and Segmental Reporting until the inventories are available for sale. The net realisable value Segments are separately identifiable lines of business of the Parent reflects the estimated selling price obtained in the ordinary course and Group (business segments) which are subject to different risks of business, less any direct selling expenses. and rewards.
Fixed assets Comparatives Fixed assets comprise property, plant or equipment owned by the To ensure consistency with the current period, comparative Group and are stated at cost less accumulated depreciation and any information has been reclassified where appropriate. impairment losses. To provide more meaningful information and alignment with reported Fixed assets acquired in stages are not depreciated until the fixed segments, supplier commissions (31/03/06 $341,000; 31/03/05 asset is ready for its intended use. $134,000) have been reclassified from other income to franchise revenue. Depreciation is provided on a straight-line basis on all fixed asset components to allocate the cost of the asset (less any residual value) Changes in accounting policies and transition to NZ IFRS over its useful life. The residual values and remaining useful lives all There have been no changes in accounting policies during the period fixed asset components are reviewed at least annually. except in adopting NZ IFRS (refer note 1).
Estimated useful lives of the asset classes are: The accounting polices have been applied consistently throughout the year for all group entities for the purposes of preparing group Corporate office 3 – 10 years financial statements. Shop furniture and fittings 3 – 7 years
Global Reports LLC ANNUAL REPORT 2006 19
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 20
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006
1 First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards and NZ IFRS Impacts The Parent and Group have adopted NZ IFRS for the financial year ending 31 March 2006. Accordingly, the financial statements for the year ended 31 March 2006 include the Parent and Group’s first annual financial statements prepared under NZ IFRS. The financial statements specifically comply with NZ IFRS 1 – First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards.
The accounting policies adopted in accordance with NZ IFRS have been applied for the current reporting period to 31 March 2006 and retrospectively for the comparative period ended 31 March 2005.
In adopting NZ IFRS for the comparative period, the income statement, statement of changes in equity, balance sheet and statement of cash flows have been restated.
There have been no changes to the equity previously reported at the transition date of 1 March 2004.
The net impact of all restatements is a decrease in the Parent’s profit after tax of $144,000 with no impact on equity and an increase in the Group’s profit after tax of $369,000 and equity of $513,000.
The most significant restatement is that in accordance with NZ IFRS 3, goodwill included in the carrying amount of group investments (associates) is no longer systematically amortised, but is subject to periodic impairment testing.
The Directors’ share option expense, and corresponding equity value, is now recognised at the date on which the options are granted (for options which vest immediately). Prior to NZ IFRS, recognition of a charge to expenses and an increase in equity for share based payments was not required.
The restatements to the Parent and Group’s profit after tax and equity are as follows:
PARENT ENTITY CONSOLIDATED GROUP 2005 2005 $’000 $’000
Previously reported profit /(loss) for the period 582 (76) Directors’ share option expense (144) (144) Goodwill amortisation restatement - 561 Equity accounted earnings restatement - (48) Restated profit for the period 438 293
Previously reported equity 27,559 26,901 Directors’ share option expense (144) (144) Directors’ share options issued 144 144 Goodwill amortisation restatement - 561 Equity accounted earnings restatement - (48) Restated equity 27,559 27,414
With the Parent and Group adopting NZ IFRS for the financial year ending 31 March 2006, the interim financial report for the period ended 30 September 2005 included the Parent and Group’s first financial statements prepared under NZ IFRS.
Global20 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 21
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
2 Accounting estimates and judgements In authorising the financial statements for the year ended 31 March 2006, the Directors have ensured that the specific accounting policies necessary for the proper understanding of the financial statements have been disclosed and that all accounting policies adopted are appropriate for the Parent and Group’s circumstances and have been consistently applied throughout the year for all group entities for the purposes of preparing group financial statements.
Inherent in the application of certain accounting policies, judgements and estimates are required. The Directors, through the Audit Committee, have considered the appropriateness of the following critical judgements and estimates.
Impairment testing of the carrying amount of Investments in Associates The investment in associates is recognised in the Parent’s financial statements at cost (31/03/06 $25,421,000; 31/03/05 $25,897,000) and in the Group’s financial statements using the equity method (31/03/06 $24,990,000; 31/03/05 $25,729,000) and comprises LPL’s share of net tangible assets acquired and goodwill on acquisition.
Any material impairment in the carrying value of the investment in associates will result in a material impairment loss in the income statement as the asset is written down.
The recoverable amount of the investment in associates must be calculated at least annually using discounted cash flow techniques, with impairment losses arising if the recoverable amount is less than the carrying amount of the investments recognised on the balance sheet. Any impairment losses are applied firstly to the goodwill included in the carrying amount of the investment in associates.
Any impairment losses recognised in one period can not be reversed in a subsequent period should the recoverable amount as calculated subsequently exceed the carrying amount of the investment in associates.
The impairment testing is also undertaken at any interim reporting periods if there are indicators of possible impairment in the carrying amount of the investment in associates. Indicators can include current associate performance; changes in the retail/pharmacy sector from macro- economic impacts, increased competition to regulatory changes; and changes in the group structures (acquisitions or disposals).
Under LPL’s impairment testing, goodwill is allocated to the relevant cash generating units and is tested for impairment using an internal discounted cash flow model.
The model is based on the approved budgets for the year ending 31 March 2007. Subsequent years’ cash flows have been extrapolated out to 20 years using standard growth rates for each associate ranging from 3.0% to 4.0%.
The discount rates applied are the reciprocal of the price earnings multipliers used in determining the fair value of the investment in associates ranging from 10.0% to 12.5%.
The budget information used as the base for the cash flow extrapolations are drawn from the budgets approved by each associate company’s Board for the year ending 31 March 2007. LPL has peer reviewed each individual budget and aggregate sales and expenses to ensure the reliability of the information prior to the LPL Board adopting LPL’s budget for the year ending 31 March 2007.
Any adverse changes in the actual performance of the associates for the year ending 31 March 2007, or future rates of growth, will reduce the calculated recoverable amount and this may result in the recognition of impairment losses and a write-down of the carrying amount of the investment in associates.
Global Reports LLC ANNUAL REPORT 2006 21
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 22
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
3 Segmental reporting
Segmental operating revenue Corporate 580 24 1,065 576 Franchise 3,526 1,465 3,526 1,465 Group investments 1,066 600 903 432 Total segment operating revenue 5,172 2,089 5,494 2,473
The group investments business segment is made up of the equity accounted earnings of the associates on consolidation.
Segmental profit before interest and tax Corporate (627) (479) (662) (467) Franchise 701 284 701 284 Group investments 1,015 555 852 432 Total segment profit before interest and tax 1,089 360 891 249
The group investments business segment includes impairment losses due to the writedown of associate goodwill (31/03/06 $51,000) and bad-debts on loans (31/03/05 $45,000)
Segmental assets Corporate 11,653 1,373 11,764 1,515 Franchise 696 393 696 393 Group investments 26,690 26,497 26,359 26,329 Total segment assets 39,039 28,263 38,819 28,237
Segmental liabilities Corporate 10,300 485 10,405 604 Franchise 392 219 392 219 Group investments ---- Total segment liabilities 10,692 704 10,797 823
The segmental reporting includes all of the Group’s legal entities, which operate solely within New Zealand. The Group is a profit entity. The Parent operates the Life Pharmacy franchise and brand comprising 20 (31/03/05 21) Life Pharmacies and has an ownership interest in 16 (31/03/05 17) associate pharmacy companies (operating 16 Life Pharmacies and 1 Unichem branded pharmacy licensed annually under the Medicines Act 1981).
Established in 1995, the Life Pharmacy brand is defined as a major retailer of prestige brands in health, beauty and fragrance with team members who are passionate about the business of providing leading products and outstanding service.
Life Pharmacies are large format pharmacies (over 400 sqm) providing full pharmacy services including prescription services (25% of turnover) and retail sales (75% of turnover) ranging from health care, vitamins, cough and cold remedies, cosmetics, fragrances, and hair care to photography.
Life Pharmacies are generally located in major shopping malls in major metropolitan areas (Auckland, Hamilton, Tauranga, Mt Maunganui, Rotorua, Wellington and Christchurch).
Global22 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 23
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
4 Associate revenue Associate dividends 1,066 600 - - Profits after tax - - 903 432 Total associate revenue 1,066 600 903 432
5 Franchise revenue Franchise fees 735 317 735 317 Marketing levies 1,406 527 1,406 527 Supplier advertising 957 507 957 507 Supplier commissions 341 134 341 134 Total franchise revenue 3,439 1,485 3,439 1,485
Marketing levies and franchise fees include revenues from associates (31/03/06 $1,777,000; 31/03/05 $700,000) pursuant to commercial franchise agreements.
6 Other income Retail sales - - 485 532 Sale of shares (refer note 20) 572 - 572 - Sundry 95 4 95 24 Total other income 667 4 1,152 556
Global Reports LLC ANNUAL REPORT 2006 23
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 24
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
7 Governance and accountability Audit fees 75 65 75 65 Directors fees 210 - 210 - Directors’ share option expense - 144 - 144 Reporting 18 - 18 - Secretarial and board expenses 38 9 38 9 Stock exchange and registry fees 39 24 39 24 Total governance and accountability 380 242 380 242
Audit fees comprises fees paid to KPMG for: Annual audit of financial statements 55 55 55 55 Audit related fees 20 10 20 10
8 Marketing expenses Franchise marketing 1,193 607 1,193 607 Supplier advertising 502 195 502 195 Sundry 499 179 499 179 Total marketing expenses 2,194 981 2,194 981
9 Impaired assets Write-down of associate goodwill (refer note 20) 51 - 51 - Provision for doubtful loans - (1,575) - - Bad-debts written off - 1,620 - - Total impaired assets 51 45 51 -
10 Other expenditure Cost of sales - - 306 347 Depreciation 23 5 52 31 Personnel 974 267 1,076 313 Leases 46 16 120 16 Sundry 415 173 424 294 Total other expenditure 1,458 461 1,978 1,001
Key management remunerations comprises: Short-term employee benefits 774 235 774 235
Employee annual remuneration bands: $100,000 - $110,000 2222 $110,000 - $120,000 3131 $120,000 - $130,000 1 - 1 - $140,000 - $150,000 1 - 1 -
Executive Director annual remuneration: $130,000 - $140,000 - 1 - 1 $190,000 - $200,000 1 - 1 -
Global24 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 25
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
11 Tax (income)/expense Profit before tax 1,153 451 955 340
Income tax on profit at 33% 380 149 315 112
Add/(deduct) the tax effect of permanent differences: Fully imputed dividends/associate results (352) (198) (298) (143) Non-assessable revenue (189) - (189) - Non-deductible expenses 38 62 31 48 Permanent consolidation differences - - - 530 Previously unrecognised tax losses - - - (500) Total income tax (income)/expense (123) 13 (141) 47
Income tax (income)/expense comprises: Current income tax (asset)/liability - 13 - 47 Deferred tax asset (123) - (141) - Income tax (income)/expense (123) 13 (141) 47
Imputation credit account: Opening balance 5 - 20 - Income tax paid 13 5 37 20 Resident withholding tax deducted 25 - 25 - Imputation credits on dividends received 465 - 465 - Imputation credits on dividends paid (240) - (240) - Other adjustments (2) - (2) - Closing balance 266 5 305 20
Deferred tax asset Temporary differences arising from the Parent’s tax losses of $373,000 (31/03/05 Nil) with a tax effect of $123,000 (31/03/05 Nil) and the Group’s tax losses of $427,000 (31/03/05 Nil) with a tax effect of $141,000 (31/03/05 Nil) have been recognised in the balance sheet. Forecast projections for the Parent’s franchise income support the recognition of the deferred tax asset.
Current income tax assets and liabilities The Parent’s current tax asset of $500 (31/03/05 liability $13,000) and Group’s current tax asset of $500 (31/03/05 liability $47,000) represents the amount of income taxes recoverable (31/03/05 payable) in respect of the current and prior periods.
Tax losses Tax losses of $493,650 (tax effect $162,905) were forfeited during the year ended 31 March 2005 due to changes in ownership continuity. Therefore there were no tax losses available to be carried forward from 31 March 2005.
Global Reports LLC ANNUAL REPORT 2006 25
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 26
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
12 Earnings per share Basic earnings per share comprises: Profit for the period 1,276 438 1,096 293 Surplus attributable to ordinary shareholders 1,276 438 1,096 293
Opening number of shares 28,315,698 28,000,000 28,315,698 28,000,000
Add/(deduct) the effect of: Shares issued and consolidated (March 2005) - 17,346 - 17,346 Shares cancelled (October 2005) (165,228) - (165,228) - Deferred shares issued (January 2006) 16,958 - 16,958 - Weighted average number of shares 28,167,428 28,017,346 28,167,428 28,017,346
The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders and a weighted average number 4.53 1.56 3.89 1.05 of ordinary shares issued during the year.
Diluted earnings per share comprises: Profit for the period 1,276 438 1,096 293 Surplus attributable to ordinary shareholders 1,276 438 1,096 293
Opening number of shares 28,315,698 28,000,000 28,315,698 28,000,000
Add/(deduct) the effect of: Shares issued and consolidated (March 2005) - 17,346 - 17,346 Options and deferred shares (March 2005) 2,326,351 209,348 2,326,351 209,348 Shares cancelled (October 2005) (165,228) - (165,228) - Deferred shares issued (January 2006) 16,958 - 16,958 - Weighted average number of shares 30,493,779 28,226,694 30,493,779 28,226,694
The calculation of diluted earnings per share is based on the profit attributable to ordinary 4.18 1.55 3.59 1.04 shareholders and a weighted average number of ordinary shares whether issued or able to be issued during the year.
The calculation of dividends per share (which is disclosed at the foot of the income statement) is based on the total dividend paid and or declared for the year attributable to ordinary shareholders and the closing number of ordinary shares at the end of the year.
Global26 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 27
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
13 Dividend reserve Opening balance 349 - 349 - Transfer from retained deficits 766 349 766 349 Distribution to owners (488) - (488) - Total dividend reserve 627 349 627 349
An interim dividend of 0.5c per share ($139,000, fully imputed) was declared on 2 December 2005 and paid on 27 January 2006. A dividend of 1.23c per share ($349,000, fully imputed) for the year ended 31 March 2005 was declared on 19 May 2005 and paid on 2 September 2005.
14 Retained deficits Opening balance (2,420) (2,509) (2,565) (2,509) Net surplus for the period 1,276 438 1,096 293 Transfer to dividend reserve (766) (349) (766) (349) Total retained deficits (1,910) (2,420) (2,235) (2,565)
15 Share capital Opening balance 29,630 4,040 29,630 4,040 Share capital issued - 25,446 - 25,446 Directors share options issued - 144 - 144 Total share capital 29,630 29,630 29,630 29,630
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005
Shares on issue comprises: Opening number of shares 28,315,698 28,000,000 28,315,698 28,000,000 Shares issued 85,967 538,313,443 85,967 538,313,443 Consolidation of shares - (537,997,745) - (537,997,745) Shares cancelled (391,611) - (391,611) - Closing number of shares 28,010,054 28,315,698 28,010,054 28,315,698
Consolidation of shares Following the close of share trading on 11 March 2005, the Parent’s shareholding was consolidated on the basis of 1 share for every 20 shares held, resulting in a reduction of the total number of shares issued.
Shares cancelled In accordance with the terms of the sale and purchase agreement to acquire certain associate pharmacy interests and issue of shares in Life Pharmacy Limited as consideration, 391,611 shares issued have been subsequently cancelled.
Shares issued Pursuant to the agreements for the acquisition of each associate, 10% of the consideration (being 2,730,136 shares in aggregate) was deferred until the associate (or specified groups of associates) achieve warranted profit or turnover levels in either the financial years ended 31 March 2006 or ending 31 March 2007 and therefore does not form part of the share capital issued during the year ended 31 March 2005. Two associates achieved warranted turnover levels within the financial year ending 31 March 2006, with 85,967 shares issued.
Except for the deferred shares above, the Parent’s share capital is fully issued and fully paid. The issued shares have no par value, and are all ordinary shares and all have the same rights.
Shareholders PIMS 2005 Limited (formerly Life Pharmacy Limited) and associated persons hold an aggregate shareholding in the Parent as at 31 March 2006 comprising 88% (31/03/05 96%) of the issued and paid up capital.
Global Reports LLC ANNUAL REPORT 2006 27
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 28
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
16 Receivables and accruals Accrued income 381 168 381 168 Receivables 928 225 938 249 Sundry receivables 63 82 63 91 Group receivables 1,268 600 1,268 600 Prepayments 60 49 60 49 Total receivables and accruals 2,700 1,124 2,710 1,157
Accrued income includes amounts contractually due from associates (31/03/06 $288,000; 31/03/05 $118,000) pursuant to commercial franchise agreements. Group receivables represent dividends due from associates, which are contractually payable in accordance with shareholder agreements entered into with each owner of the associate.
17 Investments Stock exchange security deposit - 75 - 75 Registered bank term deposit 1,000 1,000 1,000 1,000 Total investments 1,000 1,075 1,000 1,075
The registered bank term deposit has an effective interest rate of 7.48% (31/03/05 7.00%) with an ultimate maturity term of 90 days. The Parent has the intent and ability to hold the investment for the long term.
18 Fixed assets Corporate Office 602 21 602 21 Shop furniture and fittings - - 17 46 Total fixed assets 602 21 619 67
Total fixed assets comprises assets at cost less accumulated depreciation as follows: Opening cost 44 18 151 79 Acquisitions 564 26 564 72 Vested assets 40 - 40 - Closing cost 648 44 755 151
Opening accumulated depreciation 23 18 84 53 Depreciation for the period 23 5 52 31 Closing accumulated depreciation 46 23 136 84
No shop furniture and fittings were acquired during the period; depreciation for the period is $29,000 (31/03/05 $26,000).
19 Group advances Loans to associates (current) 1,603 - 1,603 - Loans to associates (non-current) 7,072 - 7,072 - Loan to subsidiary 12 19 - - Total group advances 8,687 19 8,675 -
The loans to associates are advanced under a revolving debt facility (refer note 22 for loan terms and security details) with interest charged at 8.20% (31/03/05 Nil).
Global28 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 29
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
20 Group investments Joint venture at cost 100 - 100 - Associates at cost 25,321 25,897 - - Equity accounted associates - - 24,990 25,729 Total group investments 25,421 25,897 25,090 25,729
The movement in equity accounted associates comprises: Acquisition cost brought forward 25,729 25,897 Additional acquisition costs 23 - Write-down of associate goodwill (51) - Disposal of associate operations (548) - Share of net surpluses after tax 903 432 Less associate dividend (1,066) (600) Total equity accounted associates 24,990 25,729
Equity accounted associates includes goodwill less accumulated impairment losses as follows: Goodwill brought forward 22,571 22,571 Additional acquisition costs 23 - Disposal adjustment (548) - Total gross goodwill 22,046 22,571
Opening accumulated impairment losses -- Impairment loss for the period 51 - Total accumulated impairment losses 51 -
Total net goodwill 21,995 22,571
Joint venture acquired during the period: LPL Investments Limited (October 2004)
Associate acquired during the period: Life Pharmacy Sylvia Park Limited (March 2006)
Associates held for the period: A H McAulay Limited Bayfair Pharmacy Limited Guthries Pharmacy Limited J-Mall Pharmacy Limited Murray Dunn Pharmacy Limited Neil Webber Pharmacy Limited Northlands Pharmacy 2003 Limited Pharmacy 277 Limited Queensgate Pharmacy Limited Riccarton Mall 2000 Limited Shirley Pharmacy Limited Shore City Pharmacy Limited Sinel-Francis Pharmacy Limited Sinel-Francis Pharmacy Tauranga Limited St Lukes Pharmacy Holdings Limited Tawharanui Holdings 2006 Limited (formerly Wylies Pharmacy Limited) West City Pharmacy Limited
Global Reports LLC ANNUAL REPORT 2006 29
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 30
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
Controlled entities Beauty Direct Operations Limited (website) and Life Holdings Botany Limited (retail) are wholly owned subsidiary companies (New Zealand registered companies incorporated under the Companies Act 1993) of the Parent.
Joint venture LPL Investments Limited (a New Zealand registered company incorporated under the Companies Act 1993) was incorporated in October 2005 as a joint venture with CS Company Limited trading as Life Outlet Store. Pursuant to the joint venture agreement, the joint venture partners have an equal right to and obligation for all revenues, expenses, assets, liabilities and voting rights. The store commenced trading in November 2005.
Associate entities The Parent acquired and holds a 49% ownership interest in each associate (New Zealand registered companies incorporated under the Companies Act 1993) with the Parent entity holding a one-third voting right on the Board of each of the associates.
Life Pharmacy Sylvia Park Limited was incorporated in March 2006, as a wholly owned subsidiary company of the Parent. However, in order to be able to apply and obtain a licence to operate a pharmacy pursuant to the Medicines Act 1983, the Parent is not permitted to hold an ownership interest greater than 49% and has accordingly sold 51% of the share capital to registered pharmacists. A gain on the sale of shares for the year ended 31 March 2006 of $572,000 (31/03/05 Nil) has been recognised in the Parent and Group’s income statements.
Effective 28 February 2006, Tawharanui Holdings 2006 Limited (formerly Wylies Pharmacy Limited) sold the pharmacy operations previously trading as Life Pharmacy Remuera. An impairment loss for the year ended 31 March 2006 of $51,000 (31/03/05 Nil) has been recognised as the net sale proceeds (recoverable amount) is less than the carrying amount of the investment in associate including the relative goodwill allocated to the cash generating unit. The dividend receivable from the associate has been offset against the carrying value of the investment in the Parent.
As LPL still held a 49% ownership interest in Tawharanui Holdings 2006 Limited as at 31 March 2006, the company is still an associate and as such, LPL has not discontinued the equity accounting method. As at 31 March 2006, Tawharanui Holdings 2006 Limited advanced $1,033,000 (31/03/05 Nil) to LPL by way of a group loan.
Reporting dates The controlled entities, the joint venture and all associates have a 31 March reporting date.
Associate accounting policies The accounting policies adopted by the associates are materially consistent with those of the Parent. The associates are qualifying reporting entities under the framework for differential reporting and the financial statements for the associates are prepared on the basis of the permitted differential reporting concessions.
Summary associate financial information The aggregate results of the associates financial position and operations for the reporting period are as follows:
ASSETS EQUITY REVENUE PROFIT $’000 $’000 $’000 $’000
As at and for the year ended 31 March 2006 29,755 12,638 91,937 1,843
As at and for the six months ended 31 March 2005 28,480 10,795 54,102 882
Under the shareholders agreement executed with for each associate, dividend distributions are capped at the current years’ profit after tax subject to each associate company complying with any applicable banking covenants and being solvent in accordance with the solvency test requirements under the Companies Act 1993.
Global30 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 31
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
21 Payables and accruals Accruals 201 330 205 338 Employee entitlements 10 - 10 - Payables 366 292 414 403 Sundry payables 5 69 5 35 Total payables and accruals 582 691 634 776
22 Borrowings Current 1,603 - 1,603 - Non-current 7,289 - 7,289 - Total borrowings 8,892 - 8,892 -
Borrowings and Loans to Associates Borrowings and loans to associates reflect bank borrowings obtained by LPL from ANZ National Bank Limited (ANZNB) and on-lent to each individual associate under a group borrowing facility comprising a $10.0 million revolving credit facility and a $2.0 million overdraft facility allocated directly to the associates. Interest is payable monthly on all borrowings at an effective interest rate of 7.90% (on call).
LPL obtained a waiver from the New Zealand Stock Exchange’s Listing Rule 9.2.5(b) in relation to the need to get an appraisal report for the resolution to approve the related party funding.
The revolving credit facility is used to fund each associate’s capital expenditure with $943,000 un-drawn as at 31 March 2006. Line fees are charged at 0.25% per annum on the un-drawn balance. The overdraft facility is used as part of each associate’s day-to-day cash management. All principal and interest repayments are ultimately borne by the associates.
The current portion of the group advances and total borrowings represents the intended loan repayments to be paid by the associates and on- paid to the ANZNB over the next year in accordance with the terms of the loan agreements entered into between LPL and each associate.
The associate advances and borrowings are secured pursuant to back-to-back general security agreements over the assets of LPL and each associate. The security provided by the associates is several. LPL has provided aggregate guarantees in favour of ANZNB for $12.0 million, with back-to-back guarantees received from each pharmacist shareholding limiting LPL’s ultimate exposure to $5.88 million, commensurate with LPL’s 49% shareholding in each associate.
While back-to-back loan and guarantee agreements have been executed between ANZNB, LPL and each associate, LPL does not have a legal right of set-off and accordingly both the associate advances and borrowings are separately recognised in the balance sheet.
LPL entered into a $5.0 million credit facility with ANZNB on 29 August 2005 (un-drawn during the period to 31 March 2006 and as at 31 March 2006) to be used to fund acquisitions of group entities. Line fees are charged at 0.25% per annum on the un-drawn balance.
Global Reports LLC ANNUAL REPORT 2006 31
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 32
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
PARENT ENTITY CONSOLIDATED GROUP
2006 2005 2006 2005 $’000 $’000 $’000 $’000
23 Operating cash flows reconciliation Profit for the period 1,276 438 1,096 293
Add/(deduct) non-cash items: Amortised income (15) - (15) - Bad debts - 45 - - Deferred tax (123) - (141) - Depreciation 23 5 52 31 Equity accounted losses - - 163 168 Write-down of associate goodwill 51 - 51 - Directors share option expense - 144 - 144
Add/(deduct) changes in working capital items: Receivables and accruals (1,092) (1,118) (1,069) (1,145) Inventory - - 2 (73) Payables and accruals 91 417 34 570 Net cash inflow/(outflow) from operating activities 211 (69) 173 (12)
24 Non-cash investing and financing activities Acquisition of group investments - 25,446 - 25,446 Less share capital issued - (25,446) - (25,446) Total non-cash investing and financing activities ----
25 Non-cancellable operating leases Due within one year 210 16 300 106 Due between one and five years 773 28 953 298 Due after five years 814 - 814 - Total non-cancellable operating leases 1,797 44 2,067 404
The future lease payments comprise leased office equipment, vehicles and premises.
Office space has been leased for a term of 10 years commencing 1 January 2006, with one right of renewal for a further 5 years. The rental is reviewable every 2 years and upon renewal.
26 Commitments Corporate Information System 31 - 31 - Total commitments 31 - 31 -
Global32 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 33
C M Y CM MY CY CMY K
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2006 (continued)
27 Financial instruments The Parent and Group is party to financial instruments as part of their normal operations. Financial instruments are monetary assets and liabilities and include bank accounts, receivables, investment securities, group advances, bank overdrafts, payables, borrowings and off-balance sheet financial instruments including the Independent Directors’ share option scheme and the put and call option to acquire the remaining 51% ownership interest in the associate pharmacies.
Risk management policies are used to mitigate the Parent and Groups’ exposures to credit risk, liquidity risk and market risk that arise in the normal course of operations.
The Parent and Group’s maximum credit risk resulting from a third party defaulting on its obligations to the Parent and the Group is represented by the carrying amount of each financial asset on the balance sheet and the face value of off-balance sheet instruments. The Parent and the Group are not exposed to any material concentrations of credit risk other than its exposure within the retail pharmacy sector and banking facilities. The Parent and Group monitor credit limits on a monthly basis. All credit facilities to external parties are provided on normal trade terms (unsecured, to a maximum of 50 days). At any one time, the Parent and Group generally has amounts owed to and amounts owed by the same counterparty, although no legal right of set-off exists. The Parent holds direct debit authorities for all amounts payable under the contractual terms of its franchise agreements. The Parent regularly monitors the credit ratings issued, and any qualifications to those ratings, to the financial institutions (and those of the ultimate parent financial institution) used by the Parent and Group.
Liquidity risk is the risk arising from unmatched cash flows and maturities of financial instruments. The Parent and Group maintain financial assets that are realisable within 90 days in excess of its financial liabilities as at 31 March 2006 and 31 March 2005.
As interest rates change, the fair value of financial instruments may change. The Parent and Group maintains its interest earning and interest bearing financial instruments in matched maturities and interest rate re-pricing terms.
The carrying amount of the Parent and Group’s on-balance sheet financial instruments closely approximate their fair values as at 31 March 2006 and 31 March 2005.
On 14 February 2005 the shareholders of the Parent passed a resolution establishing an Independent Director’s Option Scheme (the scheme). The options to subscribe for ordinary shares (800,000 in aggregate) are non transferable and each option will entitle the Independent Directors to subscribe for one share. The ordinary shares issued following the exercise of the options will rank equally with all other ordinary shares.
No amount was payable on the granting of the options and the exercise price for each option under the scheme is based on the volume weighted average price calculated over the 40 trading days ending 1 June 2005 ($1.30), increasing by 12% compounding on the anniversary in each year commencing on 4 March 2005, adjusted for any dividends paid.
Subject to insider trading legislation, any other applicable laws and LPL’s code of corporate governance, one third of the option became exercisable on 4 March 2006. The remaining options are exercisable on the second anniversary (one third) and third anniversary (one third) of the scheme. No options have been exercised during the year ended 31 March 2006.
The Parent and each associate have entered into a 10 year put and call option commencing March 2005 in respect of the 51% shareholding in each associate held by the pharmacist owners. The option is only exercisable upon legislative changes within 10 years from the commencement date allowing total non-pharmacist ownership and control of pharmacies. The fair value of the put and call option cannot be reliably determined as required for recognition of the put and call option in the financial statements, and the options are accordingly measured at a nil cost.
28 Contingencies LPL holds preferential rights to establish pharmacies in two shopping centres currently under development or still to be developed. LPL also has the first option to establish any additional pharmacies within these same shopping centres.
29 Events Subsequent to the Reporting Date Pursuant to the agreements for the acquisition of each associate, 10% of the consideration (being 2,730,136 shares in aggregate) was deferred until the associate (or specified groups of associates) achieve warranted profit or turnover levels in and does not form part of the share capital issued by the Parent during the year ended 31 March 2005.
Two associates achieved warranted performance levels for their years ended 31 March 2006, with 392,550 shares to be issued by the Parent subsequent to balance date. In accordance with the terms of the sale and purchase agreement to acquire certain associate pharmacy interests and issue of shares in Life Pharmacy Limited as consideration, 105,409 shares issued are to be cancelled to resolve discrepancies in the values of two associates interests acquired in March 2005.
In accordance with current accounting practice a final dividend of 2.24c per share ($627,000), fully imputed, declared on 18 May 2006 payable on 28 July 2006 has not been recognised in the financial statements.
LPL has leased retail space for a new format pharmacy in Porirua for a term of 10 years commencing July 2006, with two rights of renewal for a further 5 years each. The rental is reviewable every 2 years and upon renewal.
Global Reports LLC ANNUAL REPORT 2006 33
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 34
C M Y CM MY CY CMY K
MAJOR SHAREHOLDERS
As at 30 April 2006
In accordance with the New Zealand Stock Exchange (NZX) Listing Rules (10.5.3), Life Pharmacy Limited (LPL) must disclose information on LPL’s major shareholders, shareholding spread and Directors’ shareholding in LPL as at a date not more than two months before the publication of LPL’s annual report. As such, the following shareholding information is drawn from LPL’s share registry as at 30 April 2006.
Major Shareholders The 40 largest individual shareholders, including associated persons and substantial security holders as at 30 April 2006 are:
Major shareholders Holding %
PIMS 2005 Limited 4,294,085 15.33 *++ M Fleet 2,074,394 7.41 *++ M Dunn & Fortune Manning Trustees 1,872,758 6.69 *++ G Ritson 1,625,437 5.80 *++ Ganet Investments Limited 1,556,529 5.56 *++ B Fordyce, F Dragicevich & C Hutton 1,170,172 4.18 * I Letica, M Beckman & BBR Trustee Company Limited 1,049,232 3.75 * T Lai, C Lai & K Yee 899,850 3.21 * M Vuksich, F Vuksich & W Yovich 879,850 3.14 * J Guthrie 837,761 2.99 * P Guthrie 778,630 2.78 * Watt Land Company Limited 770,000 2.75 M Bullock 698,712 2.49 * D Milne, J Milne & L Lambert 696,200 2.49 * N Bullock 670,764 2.39 * E McAulay 654,058 2.34 * A McAulay 627,896 2.24 * First NZ Capital Securities Limited 574,765 2.05 J Begovic, K Begovic & K Palin 569,804 2.03 * F Walker, E Walker & N Comerford 562,067 2.01 * S Thompson & A Garner 437,361 1.56 * K Crawford 372,076 1.33 * Forbar Custodians Limited 357,095 1.27 * S Irvine, P Irvine & P Phillips 350,000 1.25 Calderpharm Limited 344,614 1.23 * R Roper, J Roper & R Toplis 272,076 0.97 * B Evans & J Fanselow 264,400 0.94 A Yee 245,886 0.88 * GYW Trustees No1 Limited 175,000 0.62 * Seajay Securities 128,852 0.46 C Young & Fortune Manning Trustee 116,187 0.41 * SCW Trustees Limited 114,630 0.41 * D Gibson, R Gibson & W Macdonald 100,000 0.36 * C Young 91,897 0.33 * W Flaunty 80,929 0.29 R Graney & D Graney 77,000 0.27 * Challenge Securities Limited 75,000 0.27 Girdlestone Group Limited 75,000 0.27 S Wallace and J Simpson 75,000 0.27 Ross Asset Management Limited 55,000 0.20 * = associated persons D Alderslade & A Davidson 50,000 0.18 ++ = substantial security holders Custodial Services Limited 50,000 0.18 W Sarginson 48,850 0.17 F Dixon 42,500 0.15 Major shareholders sub-total 26,862,317 95.90
All other shareholders 1,147,737 4.10 Total issued share capital 28,010,054 100.00
2006 deferred consideration 1,526,305 Total deferred share capital 1,526,305
The NZX has granted a waiver to Listing Rule 7.3.2 (b) allowing up to 2.7 million shares to be issued up until December 2006, being 10% of the consideration issued in March 2005 which was withheld as a warranty subject to the associated pharmacy companies achieving future profit levels.
Global34 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 35
C M Y CM MY CY CMY K
MAJOR SHAREHOLDERS (continued)
As at 30 April 2006
Shareholding spread To be quoted, Listing Rule 5.2.3 requires that securities in a particular class must be held by at least 500 shareholders who are members of the public, and that those holders must hold at least 25% of the number of shares in that class.
While LPL has over 500 shareholders who are members of the public, only 12.12% of LPL’s total issued share capital is held by non-associated persons.
Under the terms of the sale and purchase agreement for each associated Life Pharmacy, and pursuant to the NZX granting a waiver from Listing Rule 11.1.1, the pharmacist owners are not permitted to sell or transfer more than 50% of the shares received as consideration for the ownership interest in the pharmacy for a period of two years following the date at which they acquired their shares (11 March 2005).
The NZX granted a 12 month waiver from Listing Rule 5.2.3 in January 2005 as certain associated shareholders committed to selling down their shareholding within one year from the date at which they were issued their shares. A further 6 month waiver to 11 September 2006 was granted by the NZX in February 2006.
LPL’s shareholding spread as at 30 April 2006 is as follows:
Size of Holding Holders % Securities %
1 – 999 299 50.1% 111,777 0.4% 1,000 – 9,999 221 37.0% 506,756 1.8% 10,000 – 99,999 44 7.4% 1,250,380 4.5% 100,000 – 249,999 6 1.0% 880,555 3.1% 250,000 – 499,000 7 1.2% 2,397,622 8.6% 500,000 – 1,000,000 13 2.1% 9,220,357 32.9% 1,000,000 and over 7 1.2% 13,642,607 48.7% Total 597 100% 28,010,054 100%
Directors’ shareholding and trades The following table summarises all shares held and traded (whether directly or indirectly) by the Directors of LPL during the year ended 30 April 2006.
Directors Holding Cancelled Issued Net trades Holding 1 May 2005 October 2005 January 2006 in the year 30 April 2006
E Coutts - - - 50,000 50,000 A Davidson - - - 50,000 50,000 G Ritson 1,973,478 (48,411) - 10,000 1,935,067 R Roper 372,076 - - (100,000) 272,076 M Vuksich 924,978 (25,128) - (20,000) 879,850 N Webber 1,687,012 (133,908) 13,701 - 1,566,805 Total 4,957,544 (207,447) 13,701 (10,000) 4,753,798
With the approval of the NZX, by way of a waiver from the requirements of Listing Rule 7.6.1, LPL acquired a total of 391,611 shares from certain shareholders at nil value, including 207,447 shares from Directors, for the purpose of resolving discrepancies in the values of three pharmacy companies acquired in March 2005. The shares were then immediately cancelled after being acquired.
E Coutts and A Davidson acquired 50,000 shares each from R Roper on 2 December 2005 at 89cents per share (total consideration $89,000). G Ritson indirectly acquired 10,000 shares during December 2005 at 90cents per share (total consideration $9,000). M Vuksich sold 20,000 shares on 21 September 2005 at $1.08 per share (total consideration $21,600).
Independent Directors’ Share Option Scheme The terms and conditions of the Directors’ Share Option Scheme are disclosed within Note 27 to the financial statements on page 33. Options on issue as at 31 March 2005 and 31 March 2006 are as follows:
Director Options
E M Coutts 400,000 A J Davidson 200,000 Unallocated 200,000 Total Directors’ share options 800,000
Global Reports LLC ANNUAL REPORT 2006 35
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 36
C M Y CM MY CY CMY K
NOTES
Global36 ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 37
C M Y CM MY CY CMY K
COMPANY DIRECTORY
For the year ended 31 March 2006
Registered Office Life Pharmacy Limited Auditors Level 1, Building B KPMG 600 Great South Road KPMG Centre Greenlane 18 Viaduct Harbour Avenue Auckland Auckland City Auckland Telephone: +64 9 580 1900 Facsimilie: + 64 9 580 1907
Share registry & Investor enquiries Computershare Investor Services Limited Board Level 2, 159 Hurstmere Road E M Coutts BMS, CA Takapuna Chairman Auckland A J Davidson Computershare Investor Services Limited Independent Director Private Bag 92119 G K Ritson MPS Auckland 1020 Non-Executive Telephone: +64 9 488 8777 M S Vuksich MPS Facsimilie: + 64 9 488 8787 Non-Executive [email protected] N W Webber MBA, MPS Non-Executive Legal advisors R T Roper BPharm, MPS Buddle Findlay Executive PricewaterhouseCoopers Tower 188 Quay Street Auckland City Board Secretary Auckland J H Greenwood BCom, FCA Life Pharmacy Limited PO Box 17-141 Tax advisors Greenlane Toovey Eaton & Macdonald Limited Auckland Shed 21 Waterloo Quay Wellington City Management Wellington R T Roper BPharm, MPS Chief Executive Officer [email protected] Bankers D C Flynn ANZ National Bank Limited Chief Operating Officer The National Bank Tower [email protected] 209 Queen Street Auckland City D R Anderton BBS, CA Auckland Chief Financial Officer [email protected]
Websites For corporate information on Life Pharmacy Limited, details on current Life Pharmacy in-store promotions and employment opportunities visit www.lifepharmacy.co.nz.
For online beauty retail offers visit www.beautydirect.co.nz.
Global Reports LLC ANNUAL REPORT 2006 37
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 38
C M Y CM MY CY CMY K
G
I
H
Global ReportsLIFE LLC PHARMACY
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 39
C M Y CM MY CY CMY K
I
G, H, I, J, K - Life Pharmacy Queensgate
L - Sylvia Park instore concept
J K
L
Global Reports LLC ANNUAL REPORT 2006
Composite life_web_25th.fh10 6/23/06 10:46 AM Page 40
C M Y CM MY CY CMY K
Global Reports LLC
Composite