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For Personal Use Only Use Personal for for Personal Use Only CONTENTS ANNUAL REPORT 2013 For personal use only For personal use only CONTENTS COUNTRY ROAD LIMITED ACN 006 759 182 CHAIRMAN’S REPORT 02 CHIEF EXECUTIVE OFFICER’S REPORT 03 OUR BRANDS 04 THE ORGANISATION Corporate and Social Responsibility 08 Corporate Governance Statement 10 FINANCIAL REPORT Directors’ Report 16 Directors’ Declaration 27 Income Statement 28 Statement of Financial Position 29 Statement of Other Comprehensive Income 30 Statement of Changes in Equity 31 Cash Flow Statement 32 Notes to the Financial Statements 33 Independent Audit Report 65 ASX Additional Information 67 Investor Information 68 For personal use only 1 CHAIRMAN’S REPORT COUNTRY ROAD LIMITED ACN 006 759 182 This was a year of major change and great success for the new Country Road Group. This was a year of major change and great success for the new Country On behalf of the Board, I wish to extend our appreciation to our dedicated Road Group. In October 2012 we successfully acquired Witchery and Mimco and focused people across our stores and in our head office functions that with the strategic rationale of creating one of Australia’s largest specialty have delivered strong profitable and sustainable growth this year whilst fashion retail groups. Along with Country Road and Trenery, we have a enduring the challenges of a business combination and integration program. portfolio of leading complementary and clearly differentiated brands Our underlying cash flow profile and the cash position at year end was strong prominently positioned in the mid to upper tier of the specialty fashion market with all financial covenants associated with the new syndicated debt facilities segment. On behalf of the Board, I thank our shareholders for your achieved during the year. As a result, the Board is pleased to be returning confidence in supporting the acquisition through your participation in the to paying dividends sooner than anticipated, with a total dividend of 43.86 equity raising. I also wish to thank our advisors and financiers for their cents per share, fully franked, being paid to shareholders. This comprises support and counsel during the acquisition process. both a final and special dividend. The final dividend of 26.48 cents per share Whilst the acquisition was a consuming process for the Board and has been determined using our company dividend objective of 1.5 times management, the immediate commencement of the integration and change dividend cover. The Board is pleased to also return a special dividend to management program has required substantial effort across the Group. In shareholders of 17.38 cents per share, conservatively sourced out of cash the investor presentation accompanying the rights issue we targeted that is surplus to our strategic, financing and operational needs. potential cost synergy benefits of circa $10 million per annum to be realised During the year we welcomed Iain Nairn to the Board on his appointment after four years. I am pleased to report that we are well on track to deliver as Chief Executive Officer of the combined Group. Iain had been the Chief this target. The efforts of our project teams to bring our scalable systems Executive Officer of the Witchery Group since 2006, and has over 30 years and processes to Witchery and Mimco have been substantial to date, and of retail experience in Australia and the United Kingdom. We also appointed we have great momentum to continue this program into the next financial Oliver Kysela, Chief Financial Officer, and Zyda Rylands, Executive Director year. The upgrading of our brands to a single proven technology platform is of Woolworths Holdings Limited in South Africa, to the Board. Howard essential to support our future business growth initiatives, including the Goldberg left the Board as a result of the acquisition, and on behalf of the launch of Witchery and Mimco in South Africa in early 2014. Board I thank Howard for his strong contribution and valued leadership Despite the distractions of the acquisition and the ensuing integration during his time with Country Road. workload, the most pleasing aspect of the year was the strong The Board recognises that much work remains to continue to grow our trading underlying trading performance in both Australia and South Africa. operations, improve our operating efficiency and leverage the synergistic Combining this momentum with the integration synergy benefits helped us benefits available from the new combined business. We are confident we have deliver a strong and more efficient profit result, with earnings before finance the strategies and plans in place and are well positioned to deliver the next and tax expenses as a percentage of operating revenue improving from 5.0% phase of growth in returns to shareholders. last year to 8.5% this year. Yet much work remains to achieve our medium- term targeted return on operating revenue of 12%. The Board is committed to improving the operating return on both revenue and assets to support further growth in the return on equity for shareholders. We have confidence in the Group’s strategic and risk management plans to achieve this objective over time, as well as confidence in management’s ability to deliver these plans. IAN MOIR CHAIRMAN For personal use only 2 CHIEF EXECUTIVE OFFICER’S REPORT COUNTRY ROAD LIMITED ACN 006 759 182 We delivered a strong consolidated profit before tax of $55.9 million for the period ended 29 June 2013, up 172.6% from $20.5 million last year. 2012. Total Australasian sales for the period were 77.7% up on last year, with sales in comparable Country Road and Trenery stores increasing by 12.0%. Total sales in South Africa for the period were up by 18.1% on last year in Australian dollar terms, with sales in comparable stores increasing by 5.3%. In constant currency terms (ie: in local currency) total sales in South Africa increased by 32.2% against last year with sales in comparable stores up by 17.7%, providing a better reflection of the true underlying trading performance in South Africa. Most pleasingly, all four brands grew market share and improved gross margins and cost efficiency relative to last year. Optimising inventory flow and reductions in markdowns were key drivers in improving gross margins across our retail network. We also reached an online penetration of 6% of total sales this year, and expect this to improve with the migration of the Witchery and Mimco brands to our proven e-commerce platform in conjunction with ongoing enhancements for the benefit of all brands. During the period and since acquisition we increased our store base with an additional 12 Country Road A YEAR IN REVIEW stores, 6 Witchery stores, 3 Mimco stores and 2 Trenery stores. We also closed The new Country Road Group is now one of Australia’s largest specialty fashion 13 under performing concession stores and 2 seconds stores. retailers with a market leading position in the mid to upper tier of specialty The achievements of this year were only made possible by the outstanding fashion. Behind us there is a history of fierce rivalry and ahead of us the commitment and energy of our people across our retail network and from our opportunity to grow into a significant multi-brand omni-channel presence in central head office teams. On behalf of the Executive Management Committee the southern hemisphere. We have four great differentiated brands that will we thank our people across the business in Australasia and South Africa for a soon be served by a single platform of systems and processes, providing the pleasing year of improvement in trading and profitability, and the desire to opportunity for both top line and productivity growth. embrace and deliver significant change through the business combination and The external environment has been challenging. The specialty fashion retail ensuing integration program. market in which we compete is becoming more complex and has been OutlooK subjected to major disruption. Competition is expanding rapidly both in store and online with internationally renowned retailers entering our market at a We expect the market to remain highly competitive with cautious consumer growing rate. The online economy is burgeoning with international pureplays and business confidence and growth in market share of new entrants to rising rapidly to prominence, and business and consumer confidence has been continue into the next financial year. We are focused and confident in our subdued for a sustained period of time. Despite this the opportunities for strategic and risk mitigation plans to continue to grow the business in both growth remain attractive, and we now have a more sustainable and scalable Australasia and South Africa, and to improve the productivity of our asset and business model that better positions us to compete and grow through clearer cost base so that we can further improve returns to our shareholders. brand positioning and differentiation, an enhanced understanding of the The key strategic initiatives in the new financial year are: customer, and proven channels to reach our customers conveniently and efficiently. • Expansion of the Witchery and Mimco brands in South Africa to complement further growth in Country Road and Trenery stores and concessions. The internal environment has also seen significant disruption from the • Continuation of the integration and change program to fully realise the acquisition and subsequent integration program. We have focused considerable synergistic benefits of the business combination and deliver robust, efficient effort in establishing and planning our integration and change program and scalable systems and process platforms as a key enabler of our framework, and the project teams have delivered outstanding results within strategic plans. this framework to date. Significant milestones were achieved over July and August 2013 where the Witchery and Mimco businesses were migrated to our • Continued development of our omni-channel focus incorporating growth proven merchandise and e-commerce system platforms.
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