Annual Report 2014 Our customers are at the core of our business Myer strives to be customers’ number one destination when it comes to fashion, cosmetics, and the home. Our strategy provides a clear direction for us to continually delight our customers when they engage with us, whether it is in a store or online. Contents Chairman and CEO Report Page 04 Directors’ Report Page 42 Operating and Financial Review Page 06 Remuneration Report Page 47 Sustainability Page 22 Financial Report Page 68 Board of Directors Page 26 Auditor’s Independence Declaration Page 114 Management Team Page 28 Independent Auditor’s Report Page 115 Corporate Governance Statement Page 30 Shareholder Information Page 117 Corporate Directory IBC Annual General Meeting The fifth Annual General Meeting of Myer Holdings Limited will be held on Friday 21 November 2014 at 11.00am (Melbourne time). Mural Hall Level 6, Myer Melbourne Store Bourke Street Mall, Melbourne VIC 3000 Myer Holdings Limited ABN 14 119 085 602 Front cover image: Myer Adelaide Left page top to bottom: Team member and customer; Homewares, Myer Adelaide; Childrenswear, Myer, Emporium Melbourne. CHAIRMAN AND CEO REPORT Paul McClintock AO and Bernie Brookes was able to maintain total sales of $3,143 million. On a comparable store sales basis, sales increased by 1.2 percent. It is encouraging that comparable store sales have now grown in eight of the last nine quarters, which points to our ability to successfully execute our strategy. Best performing categories for the year were Cosmetics, Women’s Footwear and Handbags, Miss Shop (Youth), and Appliances. Myer Exclusive Brands grew by a further 1.7 percent to $638.2 million. We reported a 22.6 percent fall in net profit after tax (NPAT), Paul McClintock AO (left) and Bernie Brookes (right) reflecting a drop in operating gross profit and a previously During the past year Myer has continued to evolve our flagged increase in the cash cost of doing business strategy, and in parallel, invest in the business to lay strong (cash CODB). The 57 basis point reduction in operating gross foundations for future growth. We have a long history profit margin was predominantly driven by the impact of of serving Australians in stores across the country from the depreciation of the Australian dollar on Myer Exclusive Cairns to Bendigo and a solid track record of nurturing Brands, as well as our increased investment in product Australian fashion and design. With our ongoing investment development. The competitive nature of the market, in key areas such as our store network, online capability, particularly during the second half, restricted our ability merchandise offer, and brand portfolio, we are well placed to pass on these cost increases. Cash CODB increased by to build on our position as a world class department store 3.3 percent to $1,033 million. This increase partly reflects in an increasingly global market place. the annualisation of the transition of our store wages penalty Financial performance structure in accordance with the Fair Work Act, as well as a The full year sales result for the financial year (ended 26 July targeted investment in additional store labour hours. 2014) was encouraging in a challenging year impacted by The results include the acquisition in the first half of the significant planned investment to reposition the business. remaining 35 percent of the sass & bide business for The investment was focused in the areas of our store $33 million. We now own 100 percent of the sass & bide network, omni-channel, and Myer Exclusive Brands. business, which once again delivered sales growth As expected, our investment in the business during the during the year. year adversely affected performance and profitability; Recognising Myer’s continued strong cash generation and however, we look forward to the benefits of our stable balance sheet, the Board has determined a fully investments beginning to be realised in FY2015. franked final dividend of 5.5 cents per share, taking the The external environment was characterised by subdued full year dividend to 14.5 cents per share. This represents consumer sentiment throughout the year due in part to the a payout ratio of 86 percent and reflects the Board’s change in Federal Government and uncertainty surrounding confidence in the outlook for the business in FY2015. subsequent budget measures. In addition, there continued Myer made a confidential and conditional proposal to be strong competition from both international and online to David Jones in October 2013 for a merger of equals, retailers, along with the depreciation in the value of the which at the time we believed had strategic merits and Australian dollar which impacted margins. potential value accretion for both sets of shareholders. Despite four of our top 25 stores undergoing major The bid subsequently became public; however Myer refurbishment and two store closures at Dandenong withdrew in April 2014, following the announcement (Victoria) and Elizabeth (South Australia), the business of Woolworths’ (South Africa) bid for David Jones. 04 Myer Annual Report 2014 Evolving our strategy who both have extensive retail expertise. In July 2014 we During the year we continued to invest in our strategy, announced the retirement of Peter Hay from the Board, and which places the customer at the core of our business. we would like to thank him for his valuable contribution Our customer service offer was further strengthened with during the past four years. We also continued to strengthen the addition of a new digital customer feedback program, our leadership team with the appointments of Daniel the expansion of personal shopping services from 14 to 29 Bracken as Chief Merchandise and Marketing Officer, Richard stores and into menswear, the delivery of enhanced in-store Umbers as Chief Information and Supply Chain Officer, theatre and experiences, the launch of online booking and Gary Williams as Executive General Manager Strategic services, and additional team member training programs. Planning and Business Development, who will support Another exciting initiative was the rollout of customised the successful execution of our strategy. We look forward iPads to all stores, enabling our team members to offer to leveraging the valuable insights of our strengthened customers a significantly expanded product range via leadership team as we continue to evolve our strategy. a Myer app on the iPads. This year marks 80 years since the passing of our founder During the year we were delighted to attract a significant Sidney Myer. We have ensured that his strong philanthropic number of exciting new Australian and international brands legacy continues throughout the Myer business today. to Myer including Alex Perry, Scotch & Soda, White Suede, Through the Myer Stores Community Fund, we have M.J. Bale, and Herringbone, further reinforcing our position as supported more than 100 local and national charities this customers’ first choice for fashion. Our Myer Exclusive Brands year. The Myer Board and management team continue to remain an integral part of our merchandise strategy, and we foster the well established relationships that exist within our have optimised the range for our customers by consolidating local communities, and we remain committed to minimising some brands, developing key master brands, exiting some our impact on the environment. Our Sustainability Report smaller brands, and enhancing our design, speed to market, is available from our website, myer.com.au/investor, and product development capabilities. and contains further information about our community In August 2014 our loyalty program MYER one celebrated involvement and sustainable business practices. its 10th anniversary. The program is a key competitive We were delighted to re-sign Jennifer Hawkins as advantage for Myer, with more than five million loyalty cards the Face of Myer, and Kris Smith as a Myer brand ambassador. distributed since the program commenced and sales from We also announced international model and television MYER one members representing more than $2 billion of personality, Kate Peck, as a new Myer brand ambassador. overall sales in FY2014. This year, we again distributed a total FY2015 and beyond of over $50 million in Rewards Cards to members, with the As we move into FY2015 we expect to begin realising the average spend on redemption reaching a new high of four benefits of recent investments and a number of strategic times the card value. initiatives. We see this as a time of opportunity and will We invested significantly in improving our omni-channel continue to invest in the important areas of omni-channel, capability to provide customers with more choice in our people, Myer Exclusive Brands, customer service when, where, and how they shop with us. This investment innovation, and refreshing the Myer brand, to position delivered positive results, with online sales growth of more Myer at the forefront of a rapidly changing and competitive than 100 percent during the year, supported by improved retail environment. fulfilment with the opening of our dedicated online We remain confident in the strength of Myer, the quality distribution centre in Melbourne (Victoria). of the Myer team, and in our ability to capitalise on the During the year we continued to invest in our store network to significant opportunities ahead. enhance our customers’ experience. The major refurbishments We thank all our shareholders for their ongoing support at our stores in Adelaide (South Australia), Indooroopilly and look forward to seeing you at our Annual General (Queensland), and Macquarie (New South Wales) are now Meeting in November. complete, and in May 2014 we opened our new space at Emporium Melbourne (Victoria), which adjoins our CBD flagship store. The refurbishment at the Miranda (New South Wales) store is expected to be completed by Christmas this year. In FY2015, we look forward to realising the benefits from our completed refurbishments and new stores at Mt Gravatt (Queensland) which opened in October 2014 and Joondalup (Western Australia), which is scheduled to open before Christmas 2014.