SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT 2008 NAME OF ENTITY Super Cheap Auto Group Limited ABN OR EQUIVALENT COMPANY REFERENCE ABN: 81 108 676 204 REGISTERED OFFICE 751 Gympie Road Lawnton QLD 4501 Tel (07) 3205 8511 Fax (07) 3205 8522 SHARE REGISTRY Link Market Services Level 12, 680 George Street Sydney NSW 2000 BANKERS Australia and New Zealand Banking Group Limited Westpac Banking Corporation AUDITORS PricewaterhouseCoopers SOLICITORS Redmond Van De Graaff Mallesons Stephen Jaques STOCK EXCHANGE LISTING Super Cheap Auto Group Limited shares are quoted on the Australian Stock Exchange. THE ANNUAL GENERAL MEETING The Annual General Meeting of the Shareholders of Super Cheap Auto Group Limited will be held at the Kedron Wavell Services Club, Long Tan Room, 375 Hamilton Road, Chermside South, Queensland on Wednesday 29 October 2008 at 11.00 am. Formal notice of this meeting and proxy form are enclosed with this report. CONTENTS 3 Chairman’s Report 4 Managing Director’s Report 9 Board of Directors 10 Group Leadership Team 14 Corporate Governance Statement 18 Financial Statements 19 Directors’ Report 31 Income Statements 32 Balance Sheets 33 Statement of Change in Equity 34 Cash Flow Statement 35 Notes to the Financial Statements 86 Directors’ Declaration 87 Independent Audit Report 89 Shareholder Information HIGHLIGHTS SEP 07 Supercheap Auto Superstore opens at Caboolture. OCT 07 Melbourne Distribution Centre commences set up of operations at Altona. Supercheap Auto renews Bathurst 1000 sponsorship for a further three years. NOV 07 BCF acquires Campbell’s ProTackle located in Perth, WA. FEB 08 Perth Distribution Centre relocates to larger more efficient premises at Forestfield. BCF acquires retail operations of JV Marine located in Melbourne. MAY 08 Melbourne Distribution Centre becomes fully operational. Super Cheap Auto Group announces launch of Bicycle Retailing Business and acquisition of Goldcross Cycles Pty Ltd. JUNE 08 Supercheap Auto opens its 250th store located at Timaru, New Zealand. Supercheap Auto again celebrates success at the National Retail Association Awards. Winner of the Best Designed Store Award (Caboolture Superstore) and Winner of Young Retailer of the Year Award (Wade Johnson). AUG 08 Supercheap Auto crowned the 2008 Australian Retailer of the Year at the Australian Retailers Association Awards. SALES ($m) EBIT ($m) 45.7454 7 38.138.1 715.4 3030.4.4 228.98.9 624.8 525.9 22.822.8 470.1 382.7 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 EPSEPS (cents) Post Tax ROC (%) 14.1 13.9 24.2 13.2 20.9 20.4 11.7 15.5 June 05 June 06 June 07 June 08 2005 2006 2007 2008 Store Numbers Team Members 310 4608 277 4004 3844 247 3604 215 183 2964 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 CHAIRMAN’S2008 ANNUAL REPORT REPORT The relentless effort of the last three years to produce Relatively low average transactions at the Supercheap good results and secure ongoing growth within Super Auto stores add a degree of resilience when economic Cheap Auto Group has emerged again as the defining conditions change. Nevertheless, the company is feature of the 2008 financial year. This has seen the mindful that price increases, more expensive petrol company lift profits by 15.5% from a revenue increase and any sudden increase in unemployment could of 14.5%. overwhelm the benefits available from recent tax cuts and cause consumers to reduce their spending. This remarkable effort was achieved whilst investing in an additional five Supercheap Auto and 17 BCF The current outlook is reasonably positive for retailers stores. The accounting treatment of these investments in the space occupied by Supercheap Auto, BCF reduced operating profit by $6.3 million. and Goldcross. The Board and longstanding holders of Super Cheap Auto Group shares recognise that Like for like growth within the Supercheap Auto the team under Peter Birtles’ leadership continues network of 4.8% was led by the New Zealand stores. to demonstrate the capacity to openly and honestly They achieved 5.5%. Meanwhile, BCF’s network has confront and respond to shifts in consumer demand. grown from four Campmart stores in 2005 turning over $14 million annually to 50 stores throughout Australia The Board has declared a fully franked final dividend producing annual sales of $180 million. of 7.5 cents. This brings the dividend for the full year to 13.0 cents which is an increase of 2.5 cents on the New retail formats have underpinned the Super Cheap 2007 financial year. It recognises that the company Auto Group business strategy since it became a public continues to invest in growth. This strategy is the best company in 2004. This strategy recognises the risk of way to ensure that dividends continue to grow in the relying on a single specialty retailing business within future. The dividend will be paid on 14 October 2008. Australia and New Zealand. Expanding the reach of the company’s retailing activity has involved careful Finally, John Skippen has accepted an invitation to consideration of management’s capacity to take some join the Board in September. His appointment is both advantage from the capabilities available within the welcome and timely. He was formerly the Finance existing businesses, and the benefits available from Director at Harvey Norman Holdings Limited. It is the the consolidation and aggregation of fragmented retail first non-executive director appointment to the Board markets. since the company listed on the ASX in 2004. The decision to take a position in bicycle retailing through the acquisition of 11 Goldcross Cycle stores follows the well trodden path that Super Cheap Auto Group navigated when it moved into the leisure sector through BCF. Recent shifts in motor vehicle usage, rapidly developing cycling infrastructure by local R D McIlwain governments and the opportunity cycling provides for Chairman fitness all support the view that there is more room in Super Cheap Auto Group Limited this retail segment for large scale retailing. Super Cheap Auto Group is not all about growth through new formats. There is a heightened awareness in the current economic conditions of the need to carefully manage both costs and inventories. Excessive inventory at a time of relatively high interest rates is a concern at a time when higher petrol prices are having an impact on the cost of manufacture and distribution, and the capacity of customers to spend. 3 SUPER CHEAP AUTO GROUP 2008 ANNUAL REPORT 3 SUPER CHEAP AUTO GROUP 2007 ANNUAL REPORT MANAGING2008 ANNUAL REPORT DIRECTOR’S REPORT I am pleased to be able to report another year of SUPERCHEAP AUTO significant progress for the Super Cheap Auto Group. Sales increased by 6.3% to $558.8 million with like for We have delivered record sales and profits at the like sales growth in our existing stores of 4.8%. This same time as investing in growth opportunities and in was the highest level of like for like growth recorded building capability and infrastructure across the Group. for some five years and was particularly pleasing, The highlights for the year included: given the robust like for like growth of 4.1% in the prior comparative period. s¬ %ARNINGS¬PER¬SHARE¬INCREASING¬BY¬¬OVER¬THE¬¬ ¬ prior comparative period EBIT at $41.5 million was 9.8% higher than the prior comparative period. EBIT margins increased from s¬ 3UPERCHEAP¬!UTO¬AND¬"#&¬GROWING¬PROlTS¬AT¬A¬¬ ¬ 7.2% of sales to 7.4% through continued reduction faster rate than sales through improvement in retail in the cost of doing business. Operating costs as a margins and control of support costs % of sales have fallen by 0.7% points over the last s¬ ¬3TRONG¬LIKE¬FOR¬LIKE¬SALES¬GROWTH¬ACROSS¬BOTH¬ two years. Gross margins held steady at 39.3% with businesses benefits derived from sourcing initiatives offsetting the impact of the higher sales growth in lower gross margin s¬ ¬MILLION¬INVESTED¬IN¬NEW¬AND¬REFURBISHED¬STORES categories such as in-car navigation and lubricants. s¬ ¬4HE¬RELOCATION¬AND¬SET¬UP¬OF¬THREE¬DISTRIBUTION¬ centres across Australia Five new stores were opened during the year, one store was closed and two stores were relocated. 30 stores s¬ 4HE¬ACQUISITION¬OF¬THE¬'OLDCROSS¬#YCLES¬BUSINESS were refurbished during the year and the Caboolture In early 2006, we established a strategic agenda for store was refurbished and reformatted as a Superstore. the Group which incorporated a balance of initiatives At the end of June, there were 250 stores trading designed to both expand and increase the profitability across Australia and New Zealand. The refurbished of our existing businesses, to build the systems and stores continue to trade well delivering a significant infrastructure necessary to operate an expanded uplift in sales compared to trend prior to refurbishment. group, to develop and retain our team members and to We intend to refurbish another 30 stores in the next develop new business opportunities. financial year. Some two and a half years later, we are very pleased The two Pitstop shopping centre concept stores are with our progress. The Supercheap Auto and BCF not yet trading at a level that merits further rollout but businesses are not only performing well but are set for we will continue to refine store layout and the product further growth through new stores, merchandising and offering over the next few months. The Caboolture marketing initiatives and procurement opportunities. Superstore is trading very strongly and we expect to The acquisition of Goldcross provides the opportunity convert two existing stores to Superstores in the next to develop the largest chain of bicycle retail stores 12 months. across Australia and New Zealand. We have continued to focus our product range selection around national brand leaders such as Castrol, Bosch, Amorall and Ferodo along with our three tier own brand strategy under our Best Buy, SCA and Calibre own brands.