Annual Report 2018 — ACCENT GROUP LIMITED ANNUAL REPORT 2018 — Contents Our Brands 2 Chairman and Chief Executive Officers’ Report 6 Directors’ Report 10 Auditor’s Independence Declaration 23 Statement of Profit or Loss and Other Comprehensive Income 24 Statement of Financial Position 25 Statement of Changes in Equity 26 Statement of Cash Flows 27 Notes to the Financial Statements 28 Directors’ Declaration 67 Independent Auditor’s Report 68 Shareholder Information 73 Corporate Directory 75 Accent Group Limited (AX1) is a leading retailer and distributor of performance and lifestyle footwear With over 446 stores across 10 different retail banners and exclusive distribution rights for 10 international brands across Australia and New Zealand, we are a leader in the retail and distribution sectors of performance and lifestyle footwear. Accent Group Limited Annual Report 2018 1 — OUR BR ANDS — Our Brands Accent Group Limited Annual Report 2018 2 Cat Footwear and apparel has been designed and engineered to live up to the hard-working reputation of the Caterpillar brand. Made with uncompromising toughness and style. Merrell is one of the worlds leading brands of performance outdoor and adventure footwear. We operate 22 Merrel stores. Hype DC is a retailer of premium, exclusive and limited edition sneakers, curated from the world’s leading brands. We operate 64 stores across Australia. Dr Martens range of footwear was born in 1960 and it is a representation of rebellion and free-thinking youth culture. We opened 2 stores in FY18. Accent Group Limited Annual Report 2018 3 — OUR BR ANDS — A staple for skaters and surfers, Vans has a strong heritage in action sports, and prides itself on being grounded in youth, authenticity and individual style. We operate 17 Vans stores. Offering a range of fashionable footwear for the urban explorer, Palladium combines authenticity with cutting-edge style. With 143 stores, The Athlete’s Foot is Australia’s largest specialty athletic footwear retailer, known for its exceptional in-store customer service experience. With 98 stores across Australia and New Zealand, Platypus is the region’s largest multi-branded sneaker destination, offering a wide range of iconic sneakers from around the world. Accent Group Limited Annual Report 2018 4 Sperry Top-Sider is the original and authentic boat shoe brand, and is for people drawn to the surf, sun and soul of the ocean. Inspired by the company’s New England heritage, Timberland is a brand true to the outdoor lifestyle. We operate 7 Timberland stores. Skechers is a global leader in lifestyle and performance footwear. We operate 81 Skechers stores across Australia and New Zealand. Dedicated to the spirit of individuality, the Stance range of action-sport socks offers cutting-edge style, extreme comfort and exceptional durability. Saucony exists for runners. This focus and passion drives Saucony to create the world’s best running shoes and apparel. Accent Group Limited Annual Report 2018 5 — CHAIRMAN AND CHIEF EXECUTIVE OFFICERS’ REPORT — Another strong year of trading and profit growth Dear fellow Shareholders We are delighted to report that Accent Group has had another strong year of trading and profit growth, delivering underlying1 EBITDA of $90.8 million, an increase of 16% over the prior year. Your Board has declared a final fully franked dividend of 3.75 cents per share, which represents an increase of 25% on the prior year final dividend. This brings the dividends declared during the year to 6.75 cents per share. It continues to be a great testament to the strength and quality of the Accent Group team that we have been able to consistently deliver excellent results. Over the 5 years from FY13 to FY18, Accent Group has delivered a total shareholder return of 177%, at a compound annual growth rate of over 22% per annum. The investments that the business has continued to make in digital capability, store environment, people and marketing have ensured that the Company is well positioned to continue to deliver a world class customer experience and growth in shareholder value. Overview of operations During the year, the team at Accent Group has implemented many exciting initiatives which we expect will allow our business to deliver further efficiency and growth in the future. We merged our three Sydney offices into one office in Waterloo, Sydney and similarly combined our two Queensland offices into one. We are also pleased to report that we moved our Melbourne distribution facility (and 800,000 pairs of shoes) to a purpose built TOLL distribution centre in Preston, Sydney. This new, fully automated 35,000 square metre facility will allow us to further expand our digital fulfilment capability with speed and efficiency. In FY18, we changed the company name to Accent Group Limited, signalling the completion of the integration of the RCG, Accent and Hype businesses and positioning us as the regional leader in the retail and distribution sector of lifestyle and performance footwear in Australia and New Zealand. Along with this change, Daniel Agostinelli became the sole group CEO. Underlying Financials ($ millions) Total Sales (incl. TAF) Accent Group Sales (company owned) Like for Like retail sales3 Gross Profit % EBITDA NPAT EPS (cents per share) Dividends (cents per share) FY18 Full-year FY17 Pro-forma2 Full-year 860.8 675.6 2% 54.8% 90.8 47.1 8.78 6.75 820.7 617.8 1.5% 52.8% 78.2 39.9 7.48 6.00 Up 5% Up 9% +200bp Up 16% Up 18% Up 17% Up 13% 1 Unless otherwise stated all FY18 results and references to growth are based on FY18 underlying results (52 Weeks to 1 July 2018) and pro-forma underlying FY17 results (53 Weeks to 2 July 2017). The pro-forma underlying results for the full-year to 2 July 2017 include the sales, gross profit and EBITDA for Hype DC for the full period including the period prior to completion (1/7/16 – 3/8/16). Refer to the Accent Group Limited FY18 investor presentation Appendix for reconciliations between underlying and statutory reported results. 2 Underlying pro-forma results (refer to note 1) include FY17 pro-forma sales of $617.8 million (including $10.7 million of sales for the Hype business). Reported sales for the period were $607.1 million. 3 Includes The Athlete’s Foot franchise store sales. Accent Group Limited Annual Report 2018 6 Underlying EBITDA $90.8m Underlying NPAT $47.1m Underlying EPS 8.78c These changes have allowed our team to truly become ONE TEAM, focussed on driving customer satisfaction, the achievement of budgets and cost control. Retail Company owned retail sales grew strongly to $566.9 million, which was 12% up on the prior year. This was driven by strong growth in digital sales and new store rollouts. Like-for-like (‘LFL’) retail sales for the second half of FY18 grew by 3%3 and were up 2%3 for the full year. We opened 31 new stores and closed 15 stores during the year, resulting in a total of 446 stores and online sites in the group. The targeted investment in store concept updates continued with our new (cid:91)next level(cid:92) concepts launched for Hype (QVB Sydney, Queen St Mall Auckland) and Platypus (Bondi Junction), all performing ahead of expectations. In addition, 29 stores were refurbished during the financial year. 3 Includes The Athlete’s Foot franchise store sales. In the retail banners, Skechers, Dr. Martens, Vans and Timberland all traded strongly during the year, with sales in Platypus, Merrell and Hype in line with expectations. Following the restructure and changes in the Hype business in the first half of the year, the improvement in Hype performance has continued, with Hype sales and EBITDA well ahead of last year. Performance in The Athlete’s Foot (‘TAF’) business has improved with the roll out of decentralised eCommerce fulfilment to all stores now complete. TAF online sales are up 100% on last year since this deployment. Corporate store sales have significantly outperformed the broader franchise network, reflecting the investments made in store fit-outs, inventory and people. During the year a number of stores were acquired, and we now have 28 corporate TAF stores in the group. Omnichannel In FY18, total digital sales, including click-and-collect and click-and-dispatch, grew 131%. A range of new initiatives was implemented during the year, including new eCommerce sites for Timberland, Dr. Martens, Platypus New Zealand and Skechers New Zealand, the launch and rollout of click-and-collect and click-and-dispatch in Platypus and Hype and the roll-out of Afterpay instore for all retail banners. During FY19, the group will implement and roll out further new initiatives, including endless aisle in-store, Vans New Zealand, same day delivery (launched July), and in October we will launch The Trybe, a new online business focused on kids shoes. With a nationwide network of 446 stores and online sites, Accent Group is uniquely positioned in our segment to deliver an integrated, seamless customer experience through click-and-collect, click-and-dispatch, endless aisle and same day delivery. Accent Group Limited Annual Report 2018 7 — CHAIRMAN AND CHIEF EXECUTIVE OFFICERS’ REPORT — Wholesale Wholesale sales for the year were $108.7m million with strong performances in Vans, Dr. Martens, Merrell and CAT. Skechers wholesale sales were below last year. As we execute the strategy to grow our Skechers store network we expect moderate declines in Skechers wholesale sales. Wholesale gross profit margins were up strongly on the prior year due to cleaner inventories and improved exchange rates. Accent Group continues to drive the growth of exclusive brands through its retail store network with Vans and Dr. Martens growing strongly in Hype during the year. Growth Plan Update New Stores Based on the continued strength of new store performance, more than 30 new stores will open in FY19 and there is potential for a further 30-40 new stores across the group over the next 2-3 years. As part of our new store program we have secured a lease to open a Platypus Megastore in Melbourne Central. This Megastore is 600 square metres in size and will showcase third party brands and a full range of Accent Group vertical brands and accessories. The Athlete’s Foot corporate (owned) stores The group is implementing a strategy to build a strong network of TAF corporate stores. The expanded corporate network will be built through the acquisition of selected franchisee stores where franchisees are willing sellers, flagship CBD stores and new outlet stores. In FY18 the corporate store network has grown from 12 stores to 28 stores now under TAF corporate ownership. We expect a further 5-10 Australian franchise stores will be acquired in FY19. TAF has also reached agreement to repurchase the New Zealand (‘NZ’) TAF master franchise licence along with 6 NZ corporate stores and 3 franchise stores. This will take effect from the beginning of October 2018. The ownership of a strong network of corporate stores enables the business to provide brand leadership, deliver a contemporary customer experience and react quickly to market and competitive trends. Along with targeted improvements in sales, the full EBITDA margin of these stores will now be captured rather than just franchise fees and royalty payments. Due to the investment required to acquire the stores and develop a strong retail infrastructure, the EBITDA impact of the TAF acquisitions will be broadly profit neutral in FY19 with the benefit growing over time. The investment required in FY19 to acquire TAF corporate stores and the NZ TAF business will be funded from cash on hand, free cashflow and existing debt facilities. Accent Group Limited Annual Report 2018 8 Vertical & Emerging Brands As part of the strategy to drive improved gross margins and product differentiation in-store, a dedicated team has been set up to focus on vertical and emerging brands. During FY19, several exciting product initiatives will launch in Hype, including new exclusive brands, Filling Pieces and ARKK, a range of Hype branded apparel and accessories, the introduction of RM Williams boots and further range expansion of Vans and Dr. Martens. In Platypus, the focus will be on increased penetration of vertically distributed brands and owned accessories and shoe care products. In other product initiatives, we have secured supply of new Nike and Adidas styles from FY19. International As flagged at the half year results release, the company is investigating expansion in a range of international markets. The evaluation of entry opportunities in several markets is ongoing along with in-market review of supplier arrangements, operational requirements and potential store sites. Our preferred model for international expansion is organic direct entry through the Platypus brand. Outlook Like for like retail sales for the first 7 weeks of the second-half are up 4.6%. We have continued our strategy of reduced discounting, which impacted LFL store sales in June as we cycled through a promotions period in the prior year. The company is targeting mid-single digit EBITDA growth in FY19. This is expected to be achieved through low single digit LFL store growth, continued strong growth online, new stores, stores annualising from FY18, continued margin improvement through vertical and emerging brands and reduced discounting, which will primarily benefit margins in H1. We expect the TAF new corporate store program to be broadly earnings neutral after implementation costs in FY19 and there will be some upfront investment and expenditure incurred opening in international markets. The company refinanced its debt facilities on 17 August 2018, in advance of their maturity. The new $154.8 million facility is provided by NAB and HSBC and consists of a combination of 3 and 5 year terms. For the FY19 year, a dividend payout ratio of 75% to 80% of net profit after tax is targeted. Left: David Gordon Chairman Right: Daniel Agostinelli Chief Executive Officer Conclusion Your Board is delighted with the performance of the Company and would like to thank the Accent Group team, franchisees and suppliers for their hard work and results delivered in FY18. In FY19, we intend to continue our strategy of avoiding lazy, discount-driven retailing, and instead drive profitable sustainable sales and margin growth through a world class omnichannel offering, best in class websites and fulfilment infrastructure, exciting store environments and the magic of our in- store customer experience. David Gordon Chairman Daniel Agostinelli Chief Executive Officer Accent Group Limited Annual Report 2018 9 — DIRECTORS’ REPORT — For the year ended 1 July 2018 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Consolidated Entity' or 'Group') consisting of Accent Group Limited (referred to hereafter as the 'Company' or 'Accent Group') and the entities it controlled at the end of, or during, the year ended 1 July 2018. Directors The following persons were directors of Accent Group during the whole of the financial year and up to the date of this report, unless otherwise stated: David Gordon Daniel Agostinelli Michael Hapgood Stephen Kulmar Brett Blundy (appointed effective 6 December 2017) Stephen Goddard (appointed effective 23 November 2017) Donna Player (appointed effective 23 November 2017) Ivan Hammerschlag (resigned effective 23 November 2017) Michael Hirschowitz (resigned effective 28 February 2018) Hilton Brett (resigned effective 31 March 2018) Craig Thompson (resigned effective 31 March 2018) Daniel Gilbert (resigned effective 31 March 2018) Company secretaries The following persons were company secretaries of Accent Group during the whole of the financial year and up to the date of this report, unless otherwise stated: Matthew Durbin (appointed effective 23 January 2018) Celesti Harmse (appointed effective 31 May 2018) Leanne Ralph (resigned effective 31 May 2018) Principal activities Accent Group is a regional leader in the retail and distribution sectors of branded performance and lifestyle footwear, with over 400 stores across 9 different retail banners and exclusive distribution rights for 10 international brands across Australia and New Zealand. The combined Group’s brands include The Athlete’s Foot, Platypus Shoes, Hype DC, Skechers, Merrell, CAT, Vans, Dr. Martens, Saucony, Timberland, Sperry, Palladium and Stance. Dividends Dividends paid during the financial year were as follows: Final dividend for the year ended 2 July 2017 (2017: 26 June 2016) of 3.00 cents (2017: 3.00 cents) per ordinary share Interim dividend for the year ended 1 July 2018 (2017: 2 July 2017) of 3.00 cents (2017: 3.00 cents) per ordinary share Dividends paid to non-controlling interests Consolidated 2018 $'000 2017 $'000 16,269 16,239 16,269 16,239 81 83 32,619 32,561 In respect of the financial year ended 1 July 2018, the directors recommended the payment of a final dividend of 3.75 cents per share franked to 100% at 30% corporate income tax rate to be paid on 27 September 2018 to the registered holders of fully paid ordinary shares as at 13 September 2018. Accent Group Limited Annual Report 2018 10 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Review of operations Profit for the year attributable to the owners of the Group amounted to $43,957,000 (2 July 2017: $29,157,000). The Operating and Financial Review of the Group for the financial year ended 1 July 2018 is provided in the Chairman and Chief Executive Officer’s Report on page 6 and forms part of the Directors Report. Significant changes in the state of affairs On 25 November 2017 the Group changed its name from RCG Corporation Limited to Accent Group Limited. This included the change in the ASX ticker code from RCG to AX1 on 29 November 2017. During the period, the Group issued a net total of 24,050,000 performance rights to employees. The performance rights were granted under the terms and conditions of the Company's Performance Rights Plan. The Performance Rights Plan was approved at the Company’s 2016 Annual General Meeting on 25 November 2016 and the grant of the performance rights to the Executive Directors was approved at the Company’s 2017 Annual General Meeting on 23 November 2017. There were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year The following significant events have arisen since the end of the financial year: Vendor loan notes repayment As part of the purchase consideration for Hype DC, the Company issued vendor loan notes to each of the vendors in proportion to their shareholding in Hype DC. The vendor loan notes of $13,125,000 which were due to be repaid by 4 August 2018 were repaid in full on 13 July 2018 from existing NAB facilities. Release of Shares from Escrow As part of the acquisition of Hype DC Pty Ltd by the Company under a share sale and purchase deed dated 4 July 2016, the Company issued 36,842,105 fully paid ordinary shares to the shareholders of Hype DC Pty Ltd, subject to an escrow period of 2 years. On 4 August 2018 these fully paid ordinary shares were released from Escrow. De(cid:35)t (cid:10)acilit(cid:64) (cid:24)e(cid:41)nancing The Company refinanced its existing debt facilities on 17 August 2018, in advance of its maturity. The Company has taken advantage of favourable loan market conditions to refinance the existing $149,900,000 facility provided by NAB. The new $154,825,000 facility, to be provided by NAB and HSBC, is split between $76,125,000 of senior debt, $58,700,000 multi-option facility and $20,000,000 of permitted indebtedness not yet drawn down. The new facility has a combination of three and five year tenure with maturity dates of August 2021 and August 2023. Apart from the dividend declared as disclosed in note 28 and matters noted above, no other matter or circumstance has arisen since 1 July 2018 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Likely developments and expected results of operations All relevant future developments are outlined in the Chairman and Chief Executive Officer’s Report on page 6. Environmental regulation The Group operates primarily within the retail and wholesale sectors and conducts its business activities with respect for the environment while continuing to meet the expectations of shareholders, customers, employees and suppliers. During the year under review, the Directors are not aware of any particular or significant environmental issues which have been raised in relation to the Group’s operations. The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. Accent Group Limited Annual Report 2018 11 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Information on directors The names and particulars of the directors of the Company during or since the end of the financial year are: Name: Title: David Gordon Non-Executive Chairman (cid:23)(cid:60)ali(cid:41)(cid:36)ations(cid:86) BCom, LLB (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) David was a former Mergers and Acquisitions partner at Freehills and corporate advisory firm Wentworth Associates. He is also the founder of Lexicon Partners, an independent advisory and investment firm. He has over 30 years’ experience advising companies, funds and high net worth individuals on complex corporate transactions. David is also Chairman of the Advisory Board of the Winning Group and Chairman and Director of a number of private companies. He has been a Non-Executive Director of Accent Group since October 2006 and was appointed Non-Executive Chairman in November 2017. (cid:25)(cid:54)e(cid:36)ial (cid:56)es(cid:54)onsi(cid:35)ilities(cid:86) Chairman of the Board and member of the Audit and Risk Committee and Remuneration and Nomination Committee. Name: Title: (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) Daniel Agostinelli Chief Executive Officer Daniel oversees the day to day operations of Accent Group. He has over 30 years of retail experience and was formerly the CEO of Sanity Music and part owner of the Ghetto Shoes sneaker business. Daniel has been with Accent Group since 2006 and CEO of Accent Group since March 2015. (cid:25)(cid:54)e(cid:36)ial (cid:56)es(cid:54)onsi(cid:35)ilities(cid:86) None Name: Title: (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) (cid:17)i(cid:36)(cid:44)ael (cid:12)a(cid:54)goo(cid:38) Co-Founder and Non-Executive Director A founding director and shareholder of Accent Group, Michael has extensive knowledge of the processes required to effectively launch, source and manage global brands within the Australasian market. From Accent Group’s inception, Michael has been intimately involved in the development of all major strategic initiatives for the business initially from 1988 as marketing director before becoming CEO in 1998 until the sale to RCG Group in May 2015. Michael then became Accent Group’s Chairman until August 2016 when all ongoing executive roles were relinquished. He continues as a Non-Executive Director and shareholder of Accent Group. (cid:25)(cid:54)e(cid:36)ial (cid:56)es(cid:54)onsi(cid:35)ilities(cid:86) None Name: Title: (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) (cid:25)(cid:59)e(cid:54)(cid:44)en (cid:15)(cid:60)l(cid:49)a(cid:56) Non-Executive Director Stephen is the former CEO of IdeaWorks and is currently the CEO of Retail Oasis, a retail marketing consultancy business. Stephen has over 40 years’ experience in advertising and has extensive experience in retail strategy, brand strategy, channel to market strategy, business re-engineering and new retail business development. Stephen sits on a number of boards as a Non-Executive Director, including Thorn Group Limited. He has been a director since August 2007. (cid:25)(cid:54)e(cid:36)ial (cid:56)es(cid:54)onsi(cid:35)ilities(cid:86) Chairman of the Remuneration and Nomination Committee. Name: Title: (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) (cid:5)(cid:56)e(cid:295) (cid:5)l(cid:60)n(cid:38)(cid:64) (cid:108)a(cid:54)(cid:54)oin(cid:59)e(cid:38) e(cid:248)e(cid:36)ti(cid:61)e (cid:164) De(cid:36)e(cid:49)(cid:35)e(cid:56) (cid:137)(cid:135)(cid:136)(cid:141)(cid:109) Non-Executive Director Brett is one of Australia’s best known and most successful retailers and entrepreneurs. He is the Chairman and Founder of BBRC, a private investment group with diverse global interests across retail, capital management, retail property, beef, and other innovative ventures. BBRC’s Retail presence extends to over 800 stores across more than 15 countries, and its Capital Management business has offices in Sydney & New York. Brett was appointed Non-Executive Director in December 2017. (cid:25)(cid:54)e(cid:36)ial (cid:56)es(cid:54)onsi(cid:35)ilities(cid:86) Member of the Audit and Risk Committee. Accent Group Limited Annual Report 2018 12 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Name: Title: (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) (cid:25)(cid:59)e(cid:54)(cid:44)en (cid:11)o(cid:38)(cid:38)a(cid:56)(cid:38) (cid:108)a(cid:54)(cid:54)oin(cid:59)e(cid:38) e(cid:248)e(cid:36)ti(cid:61)e (cid:137)(cid:138) (cid:18)o(cid:61)e(cid:49)(cid:35)e(cid:56) (cid:137)(cid:135)(cid:136)(cid:141)(cid:109) Non-Executive Director Stephen is currently a non-executive director and Chair of the Audit and Risk Committee of GWA Group Limited and a non-executive director of JB Hi-Fi Limited and Nick Scali Limited. Stephen is a former non-executive director and Chair of the Audit and Risk Committee of both Pacific Brands Limited and Surfstitch Group Limited. He was also formerly the Finance Director and Operations Director for David Jones Limited and the founding Managing Director of Officeworks. Stephen is the Chairman of the Audit and Risk Committee and has extensive retail, finance, and board experience. Stephen was appointed Non-Executive Director in November 2017. (cid:25)(cid:54)e(cid:36)ial (cid:56)es(cid:54)onsi(cid:35)ilities(cid:86) Chairman of the Audit and Risk Committee. Name: Title: (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) Donna (cid:22)la(cid:64)e(cid:56) (cid:108)a(cid:54)(cid:54)oin(cid:59)e(cid:38) e(cid:248)e(cid:36)ti(cid:61)e (cid:137)(cid:138) (cid:18)o(cid:61)e(cid:49)(cid:35)e(cid:56) (cid:137)(cid:135)(cid:136)(cid:141)(cid:109) Non-Executive Director Donna has over 35 years’ experience in retail including senior executive positions in merchandising, planning and marketing with Big W and David Jones. Donna is currently a non-executive director of Baby Bunting Group Limited, a member of The Iconic advisory board and Merchandise Director of Camilla, Australia. Donna has a proven track record in developing and delivering retail strategy and business transformation. Donna was appointed Non-Executive Director in November 2017. (cid:25)(cid:54)e(cid:36)ial (cid:56)es(cid:54)onsi(cid:35)ilities(cid:86) Member of the Remuneration and Nomination Committee. Name: Title: (cid:13)(cid:61)an (cid:12)a(cid:49)(cid:49)e(cid:56)s(cid:36)(cid:44)lag (cid:108)(cid:56)esigne(cid:38) e(cid:248)e(cid:36)ti(cid:61)e (cid:137)(cid:138) (cid:18)o(cid:61)e(cid:49)(cid:35)e(cid:56) (cid:137)(cid:135)(cid:136)(cid:141)(cid:109) Former Non-Executive Chairman (cid:23)(cid:60)ali(cid:41)(cid:36)ations(cid:86) BCom, CTA (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) Ivan has had over 35 years of specialist retail experience, including as CEO and shareholder in Freedom Furniture prior to its Initial Public Offering. He has also chaired, managed and invested in a number of other successful retail and other businesses. Ivan was Chairman of Accent Group from October 2006 until 23 November 2017. Name: Title: (cid:17)i(cid:36)(cid:44)ael (cid:12)i(cid:56)s(cid:36)(cid:44)o(cid:62)i(cid:59)(cid:65) (cid:108)(cid:56)esigne(cid:38) e(cid:248)e(cid:36)ti(cid:61)e (cid:137)(cid:165) (cid:10)e(cid:35)(cid:56)(cid:60)a(cid:56)(cid:64) (cid:137)(cid:135)(cid:136)(cid:165)(cid:109) Former Group Chief Financial Officer and Former Finance Director (cid:23)(cid:60)ali(cid:41)(cid:36)ations(cid:86) BCom, BAcc (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) Michael has extensive experience in retail. He joined The Athlete’s Foot in 1996 and worked in various capacities before becoming Commercial Director in 2002. On the formation of RCG (now Accent Group) he became Chief Financial Officer and later the Group Chief Financial Officer until 28 February 2018. Name: Title: (cid:12)il(cid:59)on (cid:5)(cid:56)e(cid:295) (cid:108)(cid:56)esigne(cid:38) e(cid:248)e(cid:36)ti(cid:61)e (cid:138)(cid:136) (cid:17)a(cid:56)(cid:36)(cid:44) (cid:137)(cid:135)(cid:136)(cid:165)(cid:109) Former Co-Chief Executive Officer (cid:23)(cid:60)ali(cid:41)(cid:36)ations(cid:86) BCom, PGDA (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) Name: Title: (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) Hilton has extensive retailing and franchising experience and proven skills in maximising opportunities in acquiring, growing, re-engineering and selling businesses. Hilton joined Accent Group as an Executive Director in December 2006 and assumed day-to-day responsibility for re-engineering the business through rationalisation and acquisition. Hilton was CEO from July 2012 and Co-CEO with Daniel Agostinelli from August 2016 until 31 March 2018. Daniel (cid:11)il(cid:35)e(cid:56)(cid:59) (cid:108)(cid:56)esigne(cid:38) e(cid:248)e(cid:36)ti(cid:61)e (cid:138)(cid:136) (cid:17)a(cid:56)(cid:36)(cid:44) (cid:137)(cid:135)(cid:136)(cid:165)(cid:109) Former Non-Executive Director Daniel was the co-founder of Hype DC which he established together with his wife, Cindy, 20 years ago with the opening of their first store in the Sydney suburb of Mosman. They have since built a substantial business which has become Australia's premier destination for premium, exclusive and limited-edition sneakers. Name: Title: (cid:6)(cid:56)aig (cid:26)(cid:44)o(cid:49)(cid:54)son (cid:108)(cid:56)esigne(cid:38) e(cid:248)e(cid:36)ti(cid:61)e (cid:138)(cid:136) (cid:17)a(cid:56)(cid:36)(cid:44) (cid:137)(cid:135)(cid:136)(cid:165)(cid:109) Former Non-Executive Director (cid:23)(cid:60)ali(cid:41)(cid:36)ations(cid:86) BCA, LLB, Dip Acc, ACA (cid:9)(cid:63)(cid:54)e(cid:56)ien(cid:36)e an(cid:38) e(cid:63)(cid:54)e(cid:56)tise(cid:86) Craig was a co-founder of Accent Group and was appointed Chairman upon its inception. Craig is a widely experienced company director and has been intimately involved in business in multiple sectors. Craig has held directorships in listed and private companies in media, insurance, finance, retirement villages, retailing and on-line trading sectors. Accent Group Limited Annual Report 2018 13 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Information on Company Secretaries (cid:17)a(cid:295)(cid:44)e(cid:62) D(cid:60)r(cid:35)in (cid:108)a(cid:54)(cid:54)ointed e(cid:248)ecti(cid:61)e (cid:137)(cid:138) (cid:14)an(cid:60)ar(cid:64) (cid:137)(cid:135)(cid:136)(cid:165)(cid:109) Matthew is Group Chief Financial Officer and joint Company Secretary. Matthew is a qualified accountant (FCPA) with 29 years’ of experience in retail. Prior to joining Accent Group he was the CFO and COO of The PAS Group and has also held executive roles with David Jones in strategy, financial services and merchandise planning. (cid:6)elesti (cid:12)armse (cid:108)a(cid:54)(cid:54)ointed e(cid:248)ecti(cid:61)e (cid:138)(cid:136) (cid:17)a(cid:64) (cid:137)(cid:135)(cid:136)(cid:165)(cid:109) Celesti is General Counsel and joint Company Secretary with over 15 years’ experience practicing law across a range of industries. Celesti started her career at Minter Ellison and, prior to joining Accent Group, she held senior legal positions in the retail, distribution and technology sectors. (cid:16)eanne (cid:24)al(cid:54)(cid:44) (cid:108)resigned e(cid:248)ecti(cid:61)e (cid:138)(cid:136) (cid:17)a(cid:64) (cid:137)(cid:135)(cid:136)(cid:165)(cid:109) Leanne has a wealth of experience in Company Secretarial activities particularly with listed companies. She is currently the Company Secretary of numerous listed companies as well as a number of unlisted companies. Leanne is a member of the Governance Institute. Meetings of directors The following table sets out the number of directors meetings (including meetings of Committees of directors) held during the year ended 1 July 2018 and the number of meetings attended by the members of the Board or the relevant committee. During the financial year, 7 Board Meetings, 4 Audit and Risk Committee meetings and 4 Remuneration and Nomination Committee meetings were held. David Gordon Daniel Agostinelli Michael Hapgood Stephen Kulmar Brett Blundy Stephen Goddard Donna Player Ivan Hammerschlag Michael Hirschowitz Hilton Brett Craig Thompson Daniel Gilbert Full Board Audit and Risk Committee Attended (cid:12)eld Attended (cid:12)eld Remuneration and Nomination Committee Attended (cid:12)eld 7 5 4 7 2 2 3 4 5 5 4 6 7 7 7 7 2 3 3 4 6 6 6 6 4 – – – – 1 – 3 – – 4 – 4 – – – – 1 – 3 – – 4 – 4 – – 4 – – 2 2 – – 3 – 4 – – 4 – – 2 2 – – 3 – Held: represents the number of meetings held during the time the director held office. Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: – Principles used to determine the nature and amount of remuneration – Details of remuneration – Service agreements – Share-based compensation – Additional information – Additional disclosures relating to key management personnel Accent Group Limited Annual Report 2018 14 — DIRECTORS’ REPORT — For the year ended 1 July 2018 (cid:22)rinci(cid:54)les (cid:60)sed to determine t(cid:44)e nat(cid:60)re and amo(cid:60)nt o(cid:40) rem(cid:60)neration Remuneration policy Remuneration policy is determined and executed on behalf of the Board by the Remuneration and Nomination Committee ('RNC'). The RNC consists of Stephen Kulmar (Chairman), David Gordon and Donna Player, all non-executive directors. The RNC makes recommendations to the Board on matters relating to remuneration for the entities within the Group. The RNC considers recruitment, retention and termination policies and procedures, non-executive directors’ remuneration, executive directors and senior managements’ remuneration and incentive policy and awards, and contractual arrangements with senior managers and executives. More detail on the Company’s remuneration policy is provided in the Corporate Governance Statement. The Group’s remuneration reviews take place within three months of the end of each financial year. Prior to these reviews, the Chief Executive Officer makes recommendations to the RNC regarding the remuneration of each of his direct reports and the overall remuneration framework for all employees. The RNC meets to discuss the remuneration of the Chief Executive Officer. The Group’s remuneration policy is designed to attract, motivate and retain employees, while ensuring that the interests of employees are in line with the interests of shareholders. The Board recognises that the success of the Group hinges on the performance and abilities of its employees. Therefore, as a matter of policy, employees of the Group are remunerated on the following basis: Base remuneration Base remuneration is set with reference to prevailing market rates for similar positions, adjusted to account for the experience, ability and productivity of the individual employee. Base remuneration provides fixed remuneration on a total cost-to-company basis, which includes any fringe benefits to the employee as well as superannuation at 9.50% of the base remuneration up to the statutory cap. Salary packaging options are available for some employees. Short Term Incentives (STI) The Board believes that well designed STI plans are essential elements of remuneration as they provide tangible incentives for employees to strive for excellence. Relevant employees are eligible to earn STIs if certain pre-determined measurable financial targets are achieved. The STIs for all non-store employees are linked to base remuneration and the maximum amount that can be earned is a fixed percentage of that base remuneration. Senior Executives are eligible for bonuses, of between 20% and 100% of their base remuneration, based on the same pre-determined measurable financial targets. Senior executives have a significant proportion of their STI tied directly to the achievement of pre-determined profit targets, either for the Group as a whole or a relevant business unit or both as the case may be. During the financial year ended 1 July 2018 the percentage of STI tied directly to these profit targets ranged between 50% and 100%. The remainder of the available STI is dependent on other measurable objectives. The RNC signs off all bonuses paid to senior executives. This STI drives a contribution to the short-term performance of the Company by being tied to the annual profit targets. Long Term Incentives (LTI) The Company has implemented an LTI under the Employee Option Plan ('EOP'), the Employee Share Scheme ('ESS') and the Performance Rights Plan ('PRP'). The purpose of these plans is to encourage employees to share in the ownership of the Company in order to promote the long-term success of the Company as a goal shared by the employees and to align employees’ interest to that of shareholders. The EOP, which was implemented during the 2007 financial year, operates under the rules approved by shareholders at the 19 December 2006 Extraordinary General Meeting. As at 1 July 2018, no options issued under the EOP were outstanding. The ESS, which was implemented during the 2013 financial year, is part of the Company’s long-term retention and corporate alignment strategy. As at 1 July 2018, 6,040,000 shares issued under the ESS were outstanding. The PRP operates under the rules approved by shareholders at the Company's 2016 Annual General Meeting, held on 25 November 2016. The Board intends for the PRP to replace the ESS. As at 1 July 2018, 25,260,552 rights issued under the plan were outstanding. Remuneration of non-executive directors On an annual basis the RNC considers the fees payable to non-executive directors. When considering the level of fees, the Committee undertakes a survey of the market and accesses independent advice as well as drawing on the knowledge and experience of its members. The remuneration committee makes recommendations on non-executive director fees to the Board. Non-executive directors can choose, subject to certain restrictions, the amount of their fees allotted to superannuation. In summary, the Board believes that the remuneration policies in place align the interests of all employees with those of the Company’s shareholders while at the same time enabling the Group to retain a high-quality team of executives. Performance rights The objective of the PRP is to align the interests of employees of the Group with those of the shareholders and provide employees of the Group who are considered to be key to the future success of the Group with an opportunity to receive shares in order to reward and retain the services of those persons and recognise the employees of the Group for their contribution to the future success of the Group. Accent Group Limited Annual Report 2018 15 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Eligibility and grant of performance rights The Board may, from time to time, grant performance rights to an employee of the Group who the Board determines to be eligible to participate in the PRP. The performance rights granted are under the terms and conditions of the PRP and may include additional terms and conditions, including any performance conditions, as the Board determine. The Board may only grant performance rights where an employee continues to satisfy any relevant conditions imposed by the Board. The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years are as follows: Name D Agostinelli M Durbin Performance condition (cid:18)(cid:60)m(cid:35)er o(cid:40) rig(cid:44)ts granted Grant date Vesting date Expiry date (cid:10)air (cid:61)al(cid:60)e (cid:54)er rig(cid:44)t at grant date (cid:26)otal (cid:61)al(cid:60)e o(cid:40) rig(cid:44)ts granted TSR EPS EPS EPS 185,763 11/01/2017 09/09/2019 09/11/2019 185,763 11/01/2017 09/09/2019 09/11/2019 $0.76 $1.28 141,180 237,777 5,500,000 27/12/2017 31/08/2022 30/10/2022 $0.55 3,025,000 3,000,000 03/10/2017 31/08/2022 30/10/2022 $0.55 1,650,000 The Group recognises the fair value at the grant date of equity settled shares above as an employee benefit expense proportionally over the vesting period with a corresponding increase in equity. Fair value is measured at grant date using Monte-Carlo simulation and Binomial option pricing models where applicable. For the performance rights to vest, the Company’s compound annual growth in adjusted diluted earnings per share (‘ADEPS’) must equal or exceed 10% over a five-year period. If the performance condition is met, 100% of the performance rights vest at the end of the five-year period. If the performance condition is not met, 0% of the performance rights vest. Non-market vesting conditions are determined with reference to the underlying financial or non-financial performance measures to which they relate. Use of remuneration consultants During the year, the Company did not engage independent consultants to provide information on remuneration matters. Voting and comments made at the Company's 2017 Annual General Meeting ('AGM') held on 23 November 2017 At the 2017 AGM, 82.42% of the votes received supported the adoption of the remuneration report for the year ended 2 July 2017. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Amounts of remuneration The key management personnel of the Group consisted of the following directors of Accent Group Limited: – David Gordon – Daniel Agostinelli – Michael Hapgood – Stephen Kulmar – Brett Blundy (appointed effective 6 December 2017) – Stephen Goddard (appointed effective 23 November 2017) – Donna Player (appointed effective 23 November 2017) – Ivan Hammerschlag (resigned effective 23 November 2017) – Michael Hirschowitz (resigned effective 28 February 2018) – Hilton Brett (resigned effective 31 March 2018) – Craig Thompson (resigned effective 31 March 2018) – Daniel Gilbert (resigned effective 31 March 2018) And the following person: – Matthew Durbin – Chief Financial Officer (appointed effective 18 December 2017) Accent Group Limited Annual Report 2018 16 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Details of the remuneration of key management personnel of the Group are set out in the following tables. Cash salary and fees $ Short-term benefits Cash (cid:35)on(cid:60)s $ Other monetary** $ (cid:16)ea(cid:61)e benefits $ Post- employment benefits (cid:25)(cid:60)(cid:54)er(cid:102) ann(cid:60)ation $ Share-based payments E(cid:55)(cid:60)it(cid:64)(cid:102) settled $ (cid:136)(cid:141)(cid:141)(cid:84)(cid:135)(cid:139)(cid:139) 96,813 (cid:142)(cid:165)(cid:84)(cid:136)(cid:141)(cid:139) (cid:140)(cid:164)(cid:84)(cid:141)(cid:137)(cid:135) (cid:140)(cid:142)(cid:84)(cid:139)(cid:142)(cid:142) (cid:140)(cid:165)(cid:84)(cid:138)(cid:138)(cid:136) (cid:136)(cid:136)(cid:141)(cid:84)(cid:138)(cid:139)(cid:142) (cid:165)(cid:138)(cid:84)(cid:137)(cid:137)(cid:135) (cid:164)(cid:165)(cid:84)(cid:139)(cid:142)(cid:138) – – – – – – – – – – – – – – – – – – – – – – – – – – – 16,819 – (cid:142)(cid:84)(cid:138)(cid:137)(cid:141) – (cid:140)(cid:84)(cid:164)(cid:140)(cid:137) – – – (cid:164)(cid:84)(cid:140)(cid:135)(cid:141) – – – – – – – – – Total $ 193,863 96,813 (cid:136)(cid:135)(cid:141)(cid:84)(cid:140)(cid:135)(cid:136) (cid:140)(cid:164)(cid:84)(cid:141)(cid:137)(cid:135) (cid:164)(cid:140)(cid:84)(cid:136)(cid:140)(cid:136) (cid:140)(cid:165)(cid:84)(cid:138)(cid:138)(cid:136) (cid:136)(cid:136)(cid:141)(cid:84)(cid:138)(cid:139)(cid:142) (cid:165)(cid:138)(cid:84)(cid:137)(cid:137)(cid:135) (cid:141)(cid:140)(cid:84)(cid:135)(cid:135)(cid:135) 2018 Non-Executive Directors: D Gordon M Hapgood S Kulmar B Blundy S Goddard D Player I Hammerschlag C Thompson D Gilbert Executive Directors: D Agostinelli* (cid:142)(cid:136)(cid:164)(cid:84)(cid:136)(cid:142)(cid:135) (cid:142)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) (cid:138)(cid:164)(cid:84)(cid:139)(cid:139)(cid:139) M Hirschowitz** (cid:137)(cid:165)(cid:165)(cid:84)(cid:139)(cid:141)(cid:137) – (cid:141)(cid:135)(cid:137)(cid:84)(cid:135)(cid:142)(cid:138) H Brett** (cid:140)(cid:142)(cid:138)(cid:84)(cid:138)(cid:165)(cid:137) (cid:164)(cid:141)(cid:140)(cid:84)(cid:135)(cid:135)(cid:135) (cid:136)(cid:84)(cid:135)(cid:136)(cid:136)(cid:84)(cid:164)(cid:164)(cid:136) (cid:138)(cid:140)(cid:84)(cid:139)(cid:141)(cid:141) (cid:137)(cid:139)(cid:84)(cid:136)(cid:142)(cid:139) (cid:140)(cid:140)(cid:84)(cid:138)(cid:164)(cid:165) (cid:137)(cid:140)(cid:84)(cid:135)(cid:135)(cid:135) (cid:138)(cid:164)(cid:142)(cid:84)(cid:142)(cid:139)(cid:137) (cid:137)(cid:84)(cid:137)(cid:165)(cid:138)(cid:84)(cid:135)(cid:140)(cid:138) (cid:136)(cid:165)(cid:84)(cid:165)(cid:140)(cid:139) (cid:136)(cid:165)(cid:84)(cid:141)(cid:140)(cid:135) – (cid:136)(cid:84)(cid:135)(cid:138)(cid:138)(cid:84)(cid:164)(cid:136)(cid:138) (cid:108)(cid:137)(cid:139)(cid:84)(cid:139)(cid:141)(cid:142)(cid:109) 2,329,682 Other Key Management Personnel: M Durbin* (cid:137)(cid:140)(cid:138)(cid:84)(cid:138)(cid:135)(cid:165) (cid:137)(cid:136)(cid:165)(cid:84)(cid:141)(cid:140)(cid:135) – (cid:140)(cid:84)(cid:141)(cid:136)(cid:139) (cid:136)(cid:135)(cid:84)(cid:165)(cid:137)(cid:135) (cid:137)(cid:139)(cid:136)(cid:84)(cid:137)(cid:138)(cid:138) (cid:141)(cid:137)(cid:142)(cid:84)(cid:165)(cid:137)(cid:140) (cid:137)(cid:84)(cid:165)(cid:164)(cid:164)(cid:84)(cid:142)(cid:142)(cid:140) (cid:136)(cid:84)(cid:141)(cid:142)(cid:138)(cid:84)(cid:141)(cid:140)(cid:135) (cid:136)(cid:84)(cid:141)(cid:140)(cid:135)(cid:84)(cid:136)(cid:142)(cid:165) (cid:136)(cid:137)(cid:135)(cid:84)(cid:141)(cid:140)(cid:138) (cid:136)(cid:136)(cid:136)(cid:84)(cid:141)(cid:137)(cid:142) (cid:140)(cid:165)(cid:164)(cid:84)(cid:164)(cid:142)(cid:164) (cid:141)(cid:84)(cid:137)(cid:138)(cid:135)(cid:84)(cid:136)(cid:137)(cid:136) * Cash bonuses relate to STI bonuses issued on the basis of the achievement of relevant performance measures for the year ended 1 July 2018 and were approved by the Remuneration and Nomination Committee in August 2018. Share based payments represent performance rights issued during the year. The fair value of performance rights is measured at grant date and progressively allocated to profit and loss over a five-year period. The amount included in remuneration above may not be indicative of the benefit (if any) that key management personnel may ultimately realise should the performance rights vest. ** Other monetary short term benefits represents payments and entitlements upon retirement from the Group. Accent Group Limited Annual Report 2018 17 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Cash salary and fees $ Short-term benefits Cash (cid:35)on(cid:60)s $ Other monetary $ (cid:16)ea(cid:61)e benefits $ Post- employment benefits (cid:25)(cid:60)(cid:54)er(cid:102) ann(cid:60)ation $ Share-based payments E(cid:55)(cid:60)it(cid:64)(cid:102) settled $ 2017 Non-Executive Directors: D Gordon M Hapgood S Kulmar I Hammerschlag C Thompson D Gilbert Executive Directors: D Agostinelli H Brett M Hirschowitz D Gilbert M Cooper 98,174 96,445 98,174 250,000 96,445 26,344 – – – – – – 565,000 300,000 560,000 540,800 454,000 212,400 – – – – – – 33,198 10,000 16,000 – – – – – – – 40,010 38,923 33,123 – – 9,326 – 9,326 – – 2,502 37,500 30,000 30,000 19,038 30,000 298,269 679,523 – 23,542 7,405 Total $ 107,500 96,445 107,500 250,000 96,445 28,846 – – – – – – 24,479 1,000,187 24,479 1,204,202 – – – 745,523 317,307 740,470 3,222,374 1,076,742 66,603 112,056 167,692 48,958 4,694,425 The proportion of the cash bonus paid/payable or forfeited is as follows: Name Executive Directors: Daniel Agostinelli Michael Hirschowitz Hilton Brett** Other Key Management Personnel: Matthew Durbin** STI Cash bonus paid/payable 2018 STI Cash bonus paid/payable* 2017 STI Cash bonus forfeited STI Cash bonus forfeited 2018 2017 (cid:136)(cid:135)(cid:135)(cid:166) – (cid:141)(cid:140)(cid:166) (cid:141)(cid:140)(cid:166) – – – – – – – – 100% 100% 100% – * Executive directors did not meet their STI targets for FY17. The amounts shown above were discretionary and not part of any STI or LTI plan. ** STI cash bonus payable for FY18 have been pro-rated based on length of employment. Service agreements The remuneration and other terms of employment for key management personnel are set out in individual Company employment agreements that are not fixed term contracts. Termination of Daniel Agostinelli is subject to 12 months' notice in writing provided by either party and the termination of Matthew Durbin is subject to 6 months’ notice in writing provided by either party. Share-based compensation Issue of shares There were no shares issued to directors and other key management personnel as part of compensation during the year ended 1 July 2018. Options There were no options over ordinary shares granted to or vested by directors and other key management personnel as part of compensation during the year ended 1 July 2018. Accent Group Limited Annual Report 2018 18 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Performance rights The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of directors and other key management personnel in this financial year or future reporting years is detailed in 'Principles used to determine the nature and amount of remuneration' section above. Performance rights granted carry no dividend or voting rights. Additional information The following tables show the gross revenue, profits and dividends for the last five years for the listed entity, as well as the share price capitalisation at the end of the respective financial years. The earnings of the Group for the five years to 1 July 2018 are summarised below: Revenue (cid:141)(cid:135)(cid:138)(cid:84)(cid:136)(cid:165)(cid:136) 636,153 442,723 135,872 2018 $'000 2017 $'000 2016 $'000 2015 $'000 Net profit from continuing operations Net profit attributable to owners of the company Dividends Share price at financial year end ($) Shares on issue ('000) (cid:139)(cid:139)(cid:84)(cid:135)(cid:135)(cid:135) (cid:139)(cid:138)(cid:84)(cid:142)(cid:140)(cid:141) 32,619 2018 (cid:136)(cid:87)(cid:164)(cid:140) 29,352 29,157 32,561 2017 0.86 30,183 29,924 23,513 2016 1.48 10,549 10,323 11,963 2015 1.21 (cid:140)(cid:139)(cid:136)(cid:84)(cid:141)(cid:142)(cid:136) 542,291 490,304 436,265 254,094 2014 $'000 81,190 11,770 11,696 10,942 2014 0.63 The tables above show that there has been a general trend of increasing net profit from continuing operations. The share price is subject to share market volatility and is beyond the control of the Company. The Board is of the opinion that these results can be attributed in part to the previously described remuneration policy and is satisfied that it has contributed to increasing shareholder wealth over the past five years. A(cid:38)(cid:38)itional (cid:38)is(cid:36)los(cid:60)(cid:56)es (cid:56)elating (cid:59)o (cid:48)e(cid:64) (cid:49)anage(cid:49)en(cid:59) (cid:54)e(cid:56)sonnel Shareholding The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at the start of the year (cid:24)ecei(cid:61)ed as part of rem(cid:60)neration Additions/ (cid:108)dis(cid:54)osals(cid:109) Other** Balance at the end of the year Ordinary shares David Gordon Daniel Agostinelli Michael Hapgood Stephen Kulmar Brett Blundy* Stephen Goddard Donna Player (cid:13)(cid:61)an (cid:12)a(cid:49)(cid:49)e(cid:56)sc(cid:44)lag Michael Hirschowitz Hilton Brett Craig Thompson Daniel Gilbert (cid:164)(cid:84)(cid:140)(cid:142)(cid:142)(cid:84)(cid:135)(cid:138)(cid:139) (cid:136)(cid:139)(cid:84)(cid:137)(cid:165)(cid:140)(cid:84)(cid:141)(cid:136)(cid:137) (cid:137)(cid:165)(cid:84)(cid:140)(cid:141)(cid:136)(cid:84)(cid:139)(cid:137)(cid:140) (cid:165)(cid:135)(cid:138)(cid:84)(cid:141)(cid:140)(cid:135) (cid:142)(cid:141)(cid:84)(cid:140)(cid:138)(cid:142)(cid:84)(cid:164)(cid:142)(cid:138) – – (cid:164)(cid:84)(cid:139)(cid:139)(cid:140)(cid:84)(cid:165)(cid:165)(cid:136) (cid:139)(cid:84)(cid:164)(cid:136)(cid:138)(cid:84)(cid:140)(cid:137)(cid:135) (cid:138)(cid:84)(cid:165)(cid:137)(cid:140)(cid:84)(cid:142)(cid:141)(cid:137) (cid:141)(cid:136)(cid:84)(cid:139)(cid:137)(cid:165)(cid:84)(cid:140)(cid:164)(cid:137) (cid:136)(cid:137)(cid:84)(cid:165)(cid:142)(cid:139)(cid:84)(cid:141)(cid:138)(cid:141) (cid:137)(cid:139)(cid:141)(cid:84)(cid:135)(cid:135)(cid:165)(cid:84)(cid:137)(cid:165)(cid:164) – – – (cid:137)(cid:84)(cid:136)(cid:135)(cid:138)(cid:84)(cid:135)(cid:135)(cid:135) – (cid:108)(cid:136)(cid:139)(cid:84)(cid:135)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135)(cid:109) (cid:142)(cid:164)(cid:84)(cid:137)(cid:140)(cid:135) – (cid:140)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) – – – – – – – – – (cid:108)(cid:164)(cid:84)(cid:139)(cid:139)(cid:140)(cid:84)(cid:165)(cid:165)(cid:136)(cid:109) (cid:108)(cid:137)(cid:84)(cid:140)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135)(cid:109) (cid:108)(cid:137)(cid:84)(cid:136)(cid:136)(cid:138)(cid:84)(cid:140)(cid:137)(cid:135)(cid:109) – (cid:108)(cid:138)(cid:84)(cid:165)(cid:137)(cid:140)(cid:84)(cid:142)(cid:141)(cid:137)(cid:109) – (cid:108)(cid:138)(cid:164)(cid:84)(cid:135)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135)(cid:109) (cid:108)(cid:138)(cid:140)(cid:84)(cid:139)(cid:137)(cid:165)(cid:84)(cid:140)(cid:164)(cid:137)(cid:109) – (cid:108)(cid:136)(cid:137)(cid:84)(cid:165)(cid:142)(cid:139)(cid:84)(cid:141)(cid:138)(cid:141)(cid:109) – – – – – – – – – (cid:164)(cid:84)(cid:140)(cid:142)(cid:142)(cid:84)(cid:135)(cid:138)(cid:139) (cid:136)(cid:164)(cid:84)(cid:138)(cid:165)(cid:165)(cid:84)(cid:141)(cid:136)(cid:137) (cid:136)(cid:139)(cid:84)(cid:140)(cid:141)(cid:136)(cid:84)(cid:139)(cid:137)(cid:140) (cid:142)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) (cid:142)(cid:141)(cid:84)(cid:140)(cid:138)(cid:142)(cid:84)(cid:164)(cid:142)(cid:138) (cid:140)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) – – – – – – (cid:108)(cid:140)(cid:135)(cid:84)(cid:137)(cid:140)(cid:135)(cid:84)(cid:141)(cid:140)(cid:135)(cid:109) (cid:108)(cid:164)(cid:135)(cid:84)(cid:141)(cid:135)(cid:165)(cid:84)(cid:164)(cid:141)(cid:137)(cid:109) (cid:136)(cid:138)(cid:164)(cid:84)(cid:135)(cid:139)(cid:165)(cid:84)(cid:165)(cid:164)(cid:139) 'Balance at start of the year' is balance as at date of appointment for directors appointed during the financial year. * ** Other represents the key management personnel that have resigned during the period and, therefore, any shareholding associated with them has been removed from this table. Accent Group Limited Annual Report 2018 19 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Option holding There were no options in the Company held during the financial year by a director or other members of key management personnel of the Group, including their personally related parties. Performance rights holding The number of performance rights over ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Performance rights over ordinary shares Daniel Agostinelli Hilton Brett Michael Hirschowitz Matthew Durbin Balance at the start of the year Granted Vested Expired/ forfeited/ other* Balance at the end of the year 371,526 5,500,000 371,526 5,500,000 247,684 – – 3,000,000 990,736 14,000,000 – – – – – – 5,871,526 (5,871,526) (247,684) – – – 3,000,000 (6,119,210) 8,871,526 * Other represents the key management personnel that have resigned during the period and, therefore, any performance rights holding associated with them has been removed from this table. Loans to key management personnel and their related parties The following loans were held by key management personnel at the beginning and end of the year: Loans to/(from) key management personnel: – Ivan Hammerschlag (interest free)* – Craig Thompson (interest free)*** – Daniel Gilbert (interest at 6% per annum)** Consolidated 2018 $ 2017 $ – – 78,200 (200,000) (cid:108)(cid:139)(cid:84)(cid:140)(cid:142)(cid:138)(cid:84)(cid:141)(cid:140)(cid:135)(cid:109) (4,593,750) (cid:108)(cid:139)(cid:84)(cid:140)(cid:142)(cid:138)(cid:84)(cid:141)(cid:140)(cid:135)(cid:109) (4,715,550) * Under the EOP approved by the shareholders at the Extraordinary General Meeting held on 19 December 2006, the Company provided loans to option recipients in respect of the option fees payable for the right to acquire the options. ** Relates to vendor finance component of Hype DC acquisition. *** Relates to vendor finance component of Accent acquisition outstanding at balance date. Loan is repayable at call. This concludes the remuneration report, which has been audited. Accent Group Limited Annual Report 2018 20 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Shares under option and issued under the Employee Share Scheme and other Treasury shares There were no unissued ordinary shares of Accent Group under option. Unvested ordinary shares of Accent Group Limited under the ESS at the date of this report are as follows: Grant date 28/02/2013 03/12/2013 02/10/2014 30/03/2015 27/05/2015 27/05/2015 28/08/2015 13/05/2016 Expiry date 28/08/2018 03/06/2019 30/03/2020 30/09/2020 30/09/2020 30/09/2020 30/08/2020 28/02/2021 Exercise price (cid:18)(cid:60)m(cid:35)er (cid:60)nder option $0.490 $0.690 993,333 66,666 $0.590 1,083,334 $0.730 146,667 $0.730 1,750,000 $1.010 500,000 $1.140 1,100,000 $1.490 400,000 6,040,000 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate. Shares under performance rights Unissued ordinary shares of Accent Group under performance rights at the date of this report are as follows: Grant date 11/01/2017 03/10/2017 27/12/2017 20/06/2018 Expiry date 09/11/2019 30/10/2022 30/10/2022 30/10/2022 (cid:18)(cid:60)m(cid:35)er (cid:60)nder rig(cid:44)ts 1,210,552 16,950,000 6,700,000 400,000 25,260,552 No person entitled to exercise the performance rights had or has any right by virtue of the performance right to participate in any share issue of the Company or of any other body corporate. Shares issued on the exercise of options There were no ordinary shares of Accent Group issued on the exercise of options during the year ended 1 July 2018 and up to the date of this report. Shares issued on the exercise of performance rights There were no ordinary shares of Accent Group Limited issued on the exercise of performance rights during the year ended 1 July 2018 and up to the date of this report. Indemnity and insurance of officers The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Accent Group Limited Annual Report 2018 21 — DIRECTORS’ REPORT — For the year ended 1 July 2018 Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. During the year no proceedings were brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 32 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 32 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and – none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Officers of the Company who are former partners of Deloitte Touche Tohmatsu There are no officers of the Company who are former partners of Deloitte Touche Tohmatsu. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. Auditor Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Da(cid:61)id (cid:11)ordon Chairman 28 August 2018 Melbourne Accent Group Limited Annual Report 2018 22 — AUDITOR’S INDEPENDENCE DECLAR ATION — Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au The Board of Directors Accent Group Limited 719 Elizabeth Street Waterloo NSW 2017 28 August 2018 Dear Board Members, Accent Group Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Accent Group Limited. As lead audit partner for the audit of the financial statements of Accent Group Limited for the year ended 1 July 2018, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely, DELOITTE TOUCHE TOHMATSU David White Partner Deloitte Touche Tohmatsu Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited. 19 Accent Group Limited Annual Report 2018 23 — STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME — For the year ended 1 July 2018 Revenue Other income/(expenses) (cid:9)(cid:63)(cid:54)enses Finished goods used Changes in inventories of finished goods Employee benefits expense Depreciation and amortisation expense Impairment of brand name Write off-of assets Rental expense on operating leases Advertising and promotion expenses Travel and telecommunication expenses Warehousing and freight expenses Other expenses Finance costs (cid:22)(cid:56)o(cid:40)i(cid:59) (cid:35)e(cid:40)o(cid:56)e in(cid:36)o(cid:49)e (cid:59)a(cid:63) e(cid:63)(cid:54)ense Income tax expense (cid:22)(cid:56)o(cid:40)i(cid:59) a(cid:40)(cid:59)e(cid:56) in(cid:36)o(cid:49)e (cid:59)a(cid:63) e(cid:63)(cid:54)ense (cid:40)o(cid:56) (cid:59)(cid:44)e (cid:64)ea(cid:56) (cid:19)(cid:59)(cid:44)e(cid:56) (cid:36)o(cid:49)(cid:54)(cid:56)e(cid:44)ensi(cid:61)e in(cid:36)o(cid:49)e Items that may be reclassified subsequently to profit or loss Net change in the fair value of cash flow hedges taken to equity, net of tax Foreign currency translation Other comprehensive income for the year, net of tax (cid:26)o(cid:59)al (cid:36)o(cid:49)(cid:54)(cid:56)e(cid:44)ensi(cid:61)e in(cid:36)o(cid:49)e (cid:40)o(cid:56) (cid:59)(cid:44)e (cid:64)ea(cid:56) Profit for the year is attributable to: Non-controlling interest Owners of Accent Group Limited Total comprehensive income for the year is attributable to: Non-controlling interest Owners of Accent Group Limited Note 5 6 7 7 7 7 8 Consolidated 2018 $'000 2017 $'000 (cid:141)(cid:135)(cid:138)(cid:84)(cid:136)(cid:165)(cid:136) 636,153 2 (51) (cid:108)(cid:137)(cid:142)(cid:137)(cid:84)(cid:136)(cid:135)(cid:135)(cid:109) (320,332) (cid:108)(cid:136)(cid:138)(cid:84)(cid:138)(cid:142)(cid:135)(cid:109) 33,408 (cid:108)(cid:136)(cid:139)(cid:140)(cid:84)(cid:140)(cid:135)(cid:165)(cid:109) (129,671) (cid:108)(cid:137)(cid:139)(cid:84)(cid:136)(cid:138)(cid:138)(cid:109) (21,665) – (cid:108)(cid:164)(cid:140)(cid:109) (cid:108)(cid:165)(cid:136)(cid:84)(cid:164)(cid:139)(cid:139)(cid:109) (cid:108)(cid:137)(cid:139)(cid:84)(cid:139)(cid:137)(cid:140)(cid:109) (cid:108)(cid:140)(cid:84)(cid:142)(cid:164)(cid:137)(cid:109) (cid:108)(cid:137)(cid:137)(cid:84)(cid:136)(cid:135)(cid:141)(cid:109) (cid:108)(cid:137)(cid:165)(cid:84)(cid:138)(cid:140)(cid:135)(cid:109) (cid:108)(cid:139)(cid:84)(cid:140)(cid:165)(cid:136)(cid:109) (cid:164)(cid:135)(cid:84)(cid:142)(cid:136)(cid:165) (9,714) – (70,904) (20,697) (4,447) (19,938) (26,663) (4,055) 41,424 (cid:108)(cid:136)(cid:164)(cid:84)(cid:142)(cid:136)(cid:165)(cid:109) (12,072) (cid:139)(cid:139)(cid:84)(cid:135)(cid:135)(cid:135) 29,352 (cid:141)(cid:84)(cid:139)(cid:138)(cid:139) (cid:108)(cid:139)(cid:139)(cid:135)(cid:109) (cid:164)(cid:84)(cid:142)(cid:142)(cid:139) (cid:140)(cid:135)(cid:84)(cid:142)(cid:142)(cid:139) (cid:139)(cid:138) (cid:139)(cid:138)(cid:84)(cid:142)(cid:140)(cid:141) (cid:139)(cid:139)(cid:84)(cid:135)(cid:135)(cid:135) (cid:139)(cid:138) (cid:140)(cid:135)(cid:84)(cid:142)(cid:140)(cid:136) (cid:140)(cid:135)(cid:84)(cid:142)(cid:142)(cid:139) 1,431 43 1,474 30,826 195 29,157 29,352 195 30,631 30,826 Basic earnings per share Diluted earnings per share 42 42 (cid:6)en(cid:59)s (cid:6)en(cid:59)s 8.23 (cid:165)(cid:87)(cid:137)(cid:135) 5.54 5.49 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes Accent Group Limited Annual Report 2018 24 — STATEMENT OF FINANCIAL POSITION — As at 1 July 2018 Asse(cid:59)s (cid:6)(cid:60)rrent assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other current assets Total current assets (cid:18)on(cid:102)c(cid:60)rrent assets Receivables Derivative financial instruments Property, plant and equipment Intangibles Deferred tax Total non-current assets Total assets (cid:16)ia(cid:35)ili(cid:59)ies (cid:6)(cid:60)rrent lia(cid:35)ilities Trade and other payables Borrowings Derivative financial instruments Provision for income tax Employee benefits Deferred lease incentives Total current liabilities (cid:18)on(cid:102)c(cid:60)rrent lia(cid:35)ilities Borrowings Derivative financial instruments Deferred tax Employee benefits Deferred lease incentives Total non-current liabilities Total liabilities Net assets (cid:9)(cid:55)(cid:60)i(cid:59)(cid:64) Issued capital Reserves Accumulated losses Equity attributable to the owners of Accent Group Limited Non-controlling interest (cid:26)otal e(cid:55)(cid:60)it(cid:64) Note Consolidated 2018 $'000 2017 $'000 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (cid:138)(cid:165)(cid:84)(cid:141)(cid:141)(cid:137) (cid:136)(cid:165)(cid:84)(cid:138)(cid:141)(cid:135) (cid:142)(cid:165)(cid:84)(cid:140)(cid:140)(cid:164) (cid:139)(cid:84)(cid:164)(cid:136)(cid:139) (cid:136)(cid:84)(cid:138)(cid:164)(cid:141) 46,279 19,856 111,946 – 3,259 (cid:136)(cid:164)(cid:136)(cid:84)(cid:164)(cid:141)(cid:142) 181,340 (cid:138)(cid:139)(cid:136) (cid:164)(cid:141)(cid:164) (cid:141)(cid:139)(cid:84)(cid:164)(cid:164)(cid:139) (cid:138)(cid:139)(cid:140)(cid:84)(cid:135)(cid:140)(cid:136) (cid:137)(cid:137)(cid:84)(cid:138)(cid:136)(cid:135) (cid:139)(cid:139)(cid:138)(cid:84)(cid:135)(cid:139)(cid:137) (cid:164)(cid:135)(cid:139)(cid:84)(cid:141)(cid:137)(cid:136) (cid:165)(cid:135)(cid:84)(cid:142)(cid:164)(cid:140) (cid:137)(cid:137)(cid:84)(cid:164)(cid:137)(cid:140) (cid:137)(cid:140)(cid:136) (cid:136)(cid:135)(cid:84)(cid:139)(cid:142)(cid:141) (cid:164)(cid:84)(cid:136)(cid:135)(cid:141) (cid:141)(cid:84)(cid:136)(cid:141)(cid:139) 705 – 74,800 347,758 18,501 441,764 623,104 88,849 15,097 5,054 7,990 4,893 4,949 (cid:136)(cid:137)(cid:141)(cid:84)(cid:164)(cid:136)(cid:142) 126,832 (cid:140)(cid:136)(cid:84)(cid:135)(cid:135)(cid:135) 88,625 (cid:136)(cid:165)(cid:139) 710 (cid:136)(cid:140)(cid:84)(cid:139)(cid:139)(cid:141) 13,685 (cid:164)(cid:139) (cid:136)(cid:165)(cid:84)(cid:139)(cid:142)(cid:139) (cid:165)(cid:140)(cid:84)(cid:136)(cid:165)(cid:142) (cid:137)(cid:136)(cid:137)(cid:84)(cid:165)(cid:135)(cid:165) 391,913 613 21,987 125,620 252,452 370,652 26 (cid:138)(cid:165)(cid:164)(cid:84)(cid:142)(cid:141)(cid:138) 385,310 (cid:136)(cid:137)(cid:84)(cid:136)(cid:140)(cid:136) (cid:108)(cid:165)(cid:84)(cid:136)(cid:165)(cid:139)(cid:109) 3,208 (19,603) (cid:138)(cid:142)(cid:135)(cid:84)(cid:142)(cid:139)(cid:135) 368,915 27 (cid:142)(cid:141)(cid:138) 1,737 391,913 370,652 The above statement of financial position should be read in conjunction with the accompanying notes Accent Group Limited Annual Report 2018 25 — STATEMENT OF CHANGES IN EQUITY — For the year ended 1 July 2018 Consolidated Iss(cid:60)ed ca(cid:54)ital $'000 (cid:10)oreign c(cid:60)rrenc(cid:64) translation reser(cid:61)e $'000 (cid:12)edging reser(cid:61)e (cid:103) cas(cid:44) flow (cid:44)edges $'000 (cid:25)(cid:44)are(cid:102)(cid:35)ased payments reser(cid:61)e $'000 Acc(cid:60)m(cid:60)lated losses $'000 (cid:18)on(cid:102) controlling interest $'000 (cid:26)otal e(cid:55)(cid:60)it(cid:64) $'000 Balance at 26 June 2016 319,319 3,135 (5,466) 3,721 (16,282) 1,860 306,287 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments Exercise of options Issue of shares for acquisition Treasury share payments Non-controlling interest on disposals Dividends paid (note 28) – – – – 995 62,926 2,070 – – – 43 43 – – – – – – – 1,431 1,431 – – – – – – – – – 344 – – – – – Balance at 2 July 2017 385,310 3,178 (4,035) 4,065 29,157 195 29,352 – – 1,474 29,157 195 30,826 – – – – – (32,478) (19,603) – – – – (235) (83) 1,737 344 995 62,926 2,070 (235) (32,561) 370,652 Consolidated (cid:10)oreign c(cid:60)rrenc(cid:64) translation reser(cid:61)e $'000 Iss(cid:60)ed capital $'000 (cid:12)edging reser(cid:61)e (cid:103) cas(cid:44) (cid:40)lo(cid:62) (cid:44)edges $'000 (cid:25)(cid:44)are(cid:102)(cid:35)ased payments reser(cid:61)e $'000 Acc(cid:60)m(cid:60)lated losses $'000 (cid:18)on(cid:102) controlling interest $'000 (cid:26)otal e(cid:55)(cid:60)it(cid:64) $'000 Balance at 3 July 2017 385,310 3,178 (4,035) 4,065 (19,603) 1,737 370,652 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments – – – – Treasury share payments 1,663 Non-controlling interest on disposals Dividends paid (note 28) – – – – (440) 7,434 (440) 7,434 – – – – – – – – – – – 1,949 – – – Balance at 1 July 2018 386,973 2,738 3,399 6,014 43,957 43 44,000 – 43,957 – – – (32,538) (8,184) – 43 – – (726) (81) 973 6,994 50,994 1,949 1,663 (726) (32,619) 391,913 The above statement of changes in equity should be read in conjunction with the accompanying notes Accent Group Limited Annual Report 2018 26 — STATEMENT OF CASH FLOWS — For the year ended 1 July 2018 Note Consolidated 2018 $'000 2017 $'000 (cid:6)as(cid:44) (cid:40)lo(cid:62)s (cid:40)(cid:56)o(cid:49) o(cid:54)e(cid:56)a(cid:59)ing a(cid:36)(cid:59)i(cid:61)i(cid:59)ies Receipts from customers and franchisees (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest and other finance costs paid Income taxes paid Net cash from operating activities (cid:6)as(cid:44) (cid:40)lo(cid:62)s (cid:40)(cid:56)o(cid:49) in(cid:61)es(cid:59)ing a(cid:36)(cid:59)i(cid:61)i(cid:59)ies Payment for purchase of businesses, net of cash acquired and minority interest 40 37 Net acquisition of franchise stores Payments for property, plant and equipment Payments for intangibles Proceeds from disposal of property, plant and equipment Net cash used in investing activities (cid:6)as(cid:44) (cid:40)lo(cid:62)s (cid:40)(cid:56)o(cid:49) (cid:40)inan(cid:36)ing a(cid:36)(cid:59)i(cid:61)i(cid:59)ies Proceeds from issue of shares, net of transaction costs Proceeds from borrowings Repayment of loans from option recipients Repayment of borrowings Dividends paid Net cash from/(used in) financing activities (cid:18)e(cid:59) in(cid:36)(cid:56)ease(cid:99)(cid:108)(cid:38)e(cid:36)(cid:56)ease(cid:109) in (cid:36)as(cid:44) an(cid:38) (cid:36)as(cid:44) e(cid:55)(cid:60)i(cid:61)alen(cid:59)s Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial year 9 The above statement of cash flows should be read in conjunction with the accompanying notes (cid:141)(cid:165)(cid:137)(cid:84)(cid:141)(cid:137)(cid:138) 705,267 (cid:108)(cid:164)(cid:165)(cid:142)(cid:84)(cid:137)(cid:138)(cid:138)(cid:109) (637,777) (cid:165)(cid:135)(cid:139) (cid:108)(cid:139)(cid:84)(cid:140)(cid:165)(cid:136)(cid:109) (cid:108)(cid:136)(cid:142)(cid:84)(cid:164)(cid:139)(cid:140)(cid:109) (cid:141)(cid:135)(cid:84)(cid:135)(cid:164)(cid:165) 986 (4,055) (19,002) 45,419 – (cid:108)(cid:139)(cid:137)(cid:139)(cid:109) (30,579) – (cid:108)(cid:136)(cid:140)(cid:84)(cid:142)(cid:137)(cid:141)(cid:109) (23,885) – 33 (288) – (cid:108)(cid:136)(cid:164)(cid:84)(cid:138)(cid:136)(cid:165)(cid:109) (54,752) 1,663 – (cid:136)(cid:165)(cid:139) (cid:108)(cid:137)(cid:142)(cid:84)(cid:140)(cid:135)(cid:135)(cid:109) (cid:108)(cid:138)(cid:137)(cid:84)(cid:164)(cid:136)(cid:142)(cid:109) (cid:108)(cid:164)(cid:135)(cid:84)(cid:137)(cid:141)(cid:137)(cid:109) (cid:108)(cid:164)(cid:84)(cid:140)(cid:137)(cid:137)(cid:109) (cid:139)(cid:140)(cid:84)(cid:164)(cid:165)(cid:137) (cid:108)(cid:138)(cid:165)(cid:165)(cid:109) (cid:138)(cid:165)(cid:84)(cid:141)(cid:141)(cid:137) 2,809 42,000 256 (2,000) (32,561) 10,504 1,171 44,573 (62) 45,682 Accent Group Limited Annual Report 2018 27 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 1. General information The financial statements cover Accent Group Limited ('Company', 'parent entity' or 'Accent') as a Group consisting of Accent Group Limited and the entities it controlled at the end of, or during, the year ('Group'). The financial statements are presented in Australian dollars, which is Accent Group Limited's functional and presentation currency. Accent Group Limited is a listed public company limited by shares, listed on the Australian Securities Exchange (‘ASX’), incorporated and domiciled in Australia. Its registered office and principal place of business is: 719 Elizabeth Street Waterloo NSW 2017 A description of the nature of the Group's operations and its principal activities are included in the Directors' Report, which is not part of the financial statements. On 25 November 2017 the Group changed its name from RCG Corporation Limited to Accent Group Limited. This included the change in the ASX ticker code from RCG to AX1 on 29 November 2017. The financial statements were authorised for issue, in accordance with a resolution of directors, on 28 August 2018. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (cid:18)e(cid:62) or amended Acco(cid:60)nting (cid:25)tandards and Inter(cid:54)retations adopted In the current year, the Group has adopted all of the following new and revised Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are relevant to its operations and mandatory for the current annual reporting period: – AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses – AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 – AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2014-2016 – AASB 1048 Interpretations of Standards The Group has applied the amendments to AASB 107 for the first time in the current year. The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. The Group’s liabilities arising from financing activities consist of borrowing. A reconciliation between the opening and closing balances of these items is provided in Note 20 and 23. Consistent with the transition provision of the amendments, the Group has not disclosed comparative information for the prior period. The adoption of these new and revised Standards and Interpretations did not have any material financial impact on the amounts recognised and the disclosures presented in the financial statements of the Group. Basis o(cid:40) (cid:54)re(cid:54)aration These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, derivative financial instruments and share-based payments which have been measured at fair value at grant date. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 3. (cid:22)arent entit(cid:64) in(cid:40)ormation In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in Note 36. (cid:22)rinci(cid:54)les o(cid:40) consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Accent Group Limited as at 1 July 2018 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised gains and losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses incurred by the Group are attributed to the non-controlling interest in full, even if that results in a deficit balance. Accent Group Limited Annual Report 2018 28 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 2. Significant accounting policies (continued) Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. (cid:10)oreign c(cid:60)rrenc(cid:64) translation Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. (cid:24)e(cid:61)en(cid:60)e recognition Revenue is recognised when it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Sale of goods This comprises revenue earned from sale of goods to customers, net of actual returns, and is recognised when control of the goods passes to the customer. Franchise establishment fees Franchise establishment fees are recognised as income in the period when all services are completed in accordance with the Franchise Agreement. Marketing levies Marketing levies are recognised in the period the sales are recorded by the The Athletes Foot ('TAF') stores. Marketing levies are collected by the Group for specific use within the TAF Marketing Fund, which is operated on behalf of the TAF stores. Expenses in relation to the marketing of TAF stores are recorded within advertising and promotion expenses in profit or loss. Royalty fees Royalty fees are recognised as income on an accruals basis in the same period that the sales on which royalties are charged are recognised by franchisees. Supplier rebate Supplier rebates generated on purchases made by franchisees are accounted for on an accruals basis and are recognised as income in the same period to which the supplier invoice relates. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: – When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or – When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Accent Group Limited Annual Report 2018 29 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 2. Significant accounting policies (continued) Accent Group Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. (cid:6)(cid:60)rrent and non(cid:102)c(cid:60)rrent classi(cid:41)cation Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. (cid:6)as(cid:44) and cas(cid:44) e(cid:55)(cid:60)i(cid:61)alents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. (cid:26)rade and ot(cid:44)er recei(cid:61)a(cid:35)les Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 to 60 days of statement date. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short- term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment. In(cid:61)entories Finished goods are stated at the lower of cost and net realisable value on an average costing basis. Cost comprises of the purchase price and associated delivery costs. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Deri(cid:61)ati(cid:61)e (cid:41)nancial instr(cid:60)ments The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange risk, including foreign exchange forward contracts and interest rate swaps. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Derivatives are classified as current or non-current depending on the expected period of realisation. Cash flow hedges Cash flow hedges are used to cover the Group's exposure to variability in cash flows that is attributable to particular risks associated with a recognised asset or liability or a firm commitment which could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income through the cash flow hedges reserve in equity, whilst the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction when the forecast transaction occurs. Cash flow hedges are tested for effectiveness on a regular basis both retrospectively and prospectively to ensure that each hedge is highly effective and continues to be designated as a cash flow hedge. If the forecast transaction is no longer expected to occur, the amounts recognised in equity are transferred to profit or loss. If the hedging instrument is sold, terminated, expires, exercised without replacement or rollover, or if the hedge becomes ineffective and is no longer a designated hedge, the amounts previously recognised in equity remain in equity until the forecast transaction occurs. Accent Group Limited Annual Report 2018 30 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 2. Significant accounting policies (continued) In(cid:61)estments and ot(cid:44)er (cid:41)nancial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the asset is derecognised or impaired. Impairment of financial assets The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows. The amount of the impairment allowance for loans and receivables carried at amortised cost is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. If there is a reversal of impairment, the reversal cannot exceed the amortised cost that would have been recognised had the impairment not been made and is reversed to profit or loss. (cid:22)ro(cid:54)ert(cid:64)(cid:84) (cid:54)lant and e(cid:55)(cid:60)i(cid:54)ment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Plant and equipment Assets under construction 5 to 8 years Not depreciated The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Depreciation commences once the asset is available for use as intended. Plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Intangi(cid:35)le assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Brands and trademarks Brands and trademarks are recognised at cost on acquisition. Brands and trademarks have indefinite useful lives and are carried at cost less any accumulated impairment loss. Brands and trademarks are tested for impairment annually and wherever there is an indication that they may be impaired. Any impairment is recognised immediately in profit or loss. Licence fees The TAF Licence Fee intangible asset arose on the acquisition of a 249 year royalty-free licence for the use of the TAF branding and trademarks. This intangible is being amortised on a straight line basis over the license term. Distribution rights Distribution rights arising on the acquisition of Accent Group are being amortised on a straight line basis over the remaining term of the respective distribution agreements. Im(cid:54)airment o(cid:40) non(cid:102)(cid:41)nancial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Accent Group Limited Annual Report 2018 31 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 2. Significant accounting policies (continued) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Borro(cid:62)ings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Em(cid:54)lo(cid:64)ee (cid:35)ene(cid:41)ts Short-term employee benefits Liabilities for wages and salaries and other employee benefits expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits Employee benefits not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either a Monte Carlo simulation or the Black-Scholes option pricing model, as appropriate, that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with any market-based performance conditions and non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. (cid:10)air (cid:61)al(cid:60)e meas(cid:60)rement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market, or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Accent Group Limited Annual Report 2018 32 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 2. Significant accounting policies (continued) (cid:24)eser(cid:61)es Foreign currency translation reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Hedging reserve – cash flow hedges The reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments that is determined to be an effective hedge. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. Iss(cid:60)ed ca(cid:54)ital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Di(cid:61)idends Dividends are recognised when declared during the financial year. B(cid:60)siness com(cid:35)inations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. If the initial accounting for a business contribution is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for items for which the accounting is incomplete. Earnings (cid:54)er s(cid:44)are Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Accent Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (cid:11)oods and (cid:25)er(cid:61)ices (cid:26)a(cid:63) (cid:108)(cid:121)(cid:11)(cid:25)(cid:26)(cid:121)(cid:109) and ot(cid:44)er similar ta(cid:63)es Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. (cid:24)o(cid:60)nding o(cid:40) amo(cid:60)nts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Accent Group Limited Annual Report 2018 33 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 2. Significant accounting policies (continued) (cid:18)e(cid:62) Acco(cid:60)nting (cid:25)tandards and Inter(cid:54)retations not (cid:64)et mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 1 July 2018. The Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 9 Financial Instruments AASB 9 ‘Financial Instruments’ replaces AASB 39 ‘Financial Instruments: Recognition and Measurement’. The standard is effective for periods beginning on or after 1 January 2018 and therefore will be effective in the Group financial statements in the year ending on or around 30 June 2019. The standard introduces changes to three key areas: – new requirements for the classification and measurement of financial instruments; – a new impairment model based on expected credit losses for recognising provisions; and – simplified hedge accounting through closer alignment with an entity’s risk management methodology. The Group is yet to undertake a detailed assessment of the impact of AASB 9. However, based on the entity’s preliminary assessment, the Standard is not expected to have a material impact on the transactions and balances recognised in the financial statements from the application date of 2 July 2018. AASB 15 Revenue from Contracts with Customers AASB 15 ‘Revenue from Contracts with Customers’ is effective for periods beginning on or after 1 January 2018 and therefore will be effective in the Group financial statements on or around 30 June 2019. The standard establishes a principles-based approach for revenue recognition and is based on the concept of recognising revenue for performance obligations only when they are satisfied and the control of goods or services is transferred. In doing so, the standard applies a five-step approach to the timing of revenue recognition and applies to all contracts with customers, except those in the scope of other standards. It replaces the separate models for goods, services and construction contracts under the current accounting standards. The Group has completed its assessment of the impact of AASB 15 and based on the straightforward nature of the Group’s revenue streams with the recognition of the majority of its revenue at the point of sale and the absence of significant judgement required in determining the timing of transfer of control, the adoption of AASB 15 will not have a material impact on the timing or nature of the Group’s revenue recognition. AASB 16 Leases AASB 16 ‘Leases’ is effective for periods beginning on or after 1 January 2019 and therefore will be effective in the Group financial statements in the year ended on or around 30 June 2020. The standard introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees and will replace the current lease accounting requirements. For lessees, AASB 16 removes distinctions between operating leases and finance leases. These are replaced by a model where a right of use asset and a corresponding liability are recognised for all leases except for short-term leases and low value assets. In contrast to lessee accounting, AASB 16 continues to require a lessor to classify a lease either as an operating lease or a finance lease. The Group has established a committee which includes members from finance, treasury and property functions to oversee the governance of the implementation of this standard and the financial implications upon implementation. During the current period the Group has made progress in a number of areas including the identification of leases and contracts that could be determined to include a lease; the collation of lease data required for the calculation of the impact assessment; identification of areas of complexity or judgement relevant to the Group; identification of necessary changes to systems and processes required to enable reporting and accounting in accordance with AASB 16. From the work performed to date and based on the undiscounted lease commitments presented in Note 34, it is anticipated that implementation of the new standard will have a significant impact on the reported assets and liabilities of the Group. In addition, the implementation of the standard will impact the income statement and classification of cash flows. A reliable estimate of the financial impact on the Group’s consolidated results is dependent on a number of unresolved areas, including; choice of transition option and refinement of approach to discount rates. In addition, the financial impact is dependent on the facts and circumstances at the time of transition. For these reasons, it is not yet practicable to determine a reliable estimate of the financial impact on the Group. IASB revised Conceptual Framework for Financial Reporting The revised Conceptual Framework has been issued by the International Accounting Standards Board ('IASB'), but the Australian equivalent has yet to be published. The revised framework is applicable for annual reporting periods beginning on or after 1 January 2020 and the application of the new definition and recognition criteria may result in future amendments to several accounting standards. Furthermore, entities who rely on the conceptual framework in determining their accounting policies for transactions, events or conditions that are not otherwise dealt with under Australian Accounting Standards may need to revisit such policies. The group will apply the revised conceptual framework from 1 July 2020 and is yet to assess its impact. Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. (cid:25)(cid:44)are(cid:102)(cid:35)ased (cid:54)a(cid:64)ment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either a Monte-Carlo simulation model or the Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity- settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Accent Group Limited Annual Report 2018 34 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 3. Critical accounting judgements, estimates and assumptions (continued) (cid:22)ro(cid:61)ision (cid:40)or im(cid:54)airment o(cid:40) in(cid:61)entories The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence. To the extent that these judgements and estimates prove incorrect, the Group may be exposed to potential additional inventory write-downs or reversals in future periods. (cid:11)ood(cid:62)ill and ot(cid:44)er inde(cid:40)(cid:1418)inite li(cid:40)e intangi(cid:35)le assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in Note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates and assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. There are a number of key estimates made which require significant judgement in determining the inputs into these models which include: – Revenue growth; – Operating margins; – Royalty rates (used in relief from royalty brand valuation model); and – Discount rates applied to the projected future cash flows. Note 4. Operating segments During the financial year, the Group continued the restructure of its operations which included the integration of the RCG Brands, Accent and The Athlete’s Foot businesses into a single integrated multi-channel retailer of performance and lifestyle footwear. As a result of the restructure, the information reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources was also restructured, with information used for decision making based on the consolidated Group. Accordingly, reporting of segment information in the format of that in the year ended 2 July 2017 is no longer appropriate. The operating segment information for the current year is the same information as provided throughout the financial statements. The CODM assesses the performance of the operations based on EBITDA (earnings before interest, tax, depreciation and amortisation) of the Group on a monthly basis. The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. Note 5. Revenue Sales revenue Sales to customers Royalties and other franchise related income Other revenue Marketing levies received from TAF stores Interest Other revenue Revenue Consolidated 2018 $'000 2017 $'000 (cid:164)(cid:141)(cid:140)(cid:84)(cid:140)(cid:141)(cid:136) 607,107 16,269 17,120 (cid:164)(cid:142)(cid:136)(cid:84)(cid:165)(cid:139)(cid:135) 624,227 (cid:141)(cid:84)(cid:139)(cid:165)(cid:141) (cid:165)(cid:135)(cid:139) (cid:138)(cid:84)(cid:135)(cid:140)(cid:135) 8,371 986 2,569 (cid:136)(cid:136)(cid:84)(cid:138)(cid:139)(cid:136) 11,926 (cid:141)(cid:135)(cid:138)(cid:84)(cid:136)(cid:165)(cid:136) 636,153 Accent Group Limited Annual Report 2018 35 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 6. Other income/(expenses) Net foreign exchange gain/(loss) Net gain on disposal of property, plant and equipment Other income/(expenses) Note 7. Expenses Profit before income tax includes the following specific expenses: Depreciation Plant and equipment Amortisation Licence fee Distribution rights Other intangible assets TAF Partnership store closure Total amortisation Total depreciation and amortisation Impairment of brand names Hype DC brand name Write-off of assets Instride brand Finance costs Interest and finance charges paid/payable Superannuation expense Defined contribution superannuation expense Share-based payments expense Share-based payments expense Consolidated 2018 $'000 2017 $'000 2 – 2 (65) 14 (51) Consolidated 2018 $'000 2017 $'000 (cid:137)(cid:136)(cid:84)(cid:139)(cid:142)(cid:136) 18,434 31 2,323 288 – (cid:137)(cid:84)(cid:164)(cid:139)(cid:137) (cid:137)(cid:139)(cid:84)(cid:136)(cid:138)(cid:138) 31 2,791 144 265 3,231 21,665 – 9,714 (cid:164)(cid:140) – (cid:139)(cid:84)(cid:140)(cid:165)(cid:136) 4,055 (cid:136)(cid:135)(cid:84)(cid:140)(cid:140)(cid:165) 7,159 (cid:136)(cid:84)(cid:142)(cid:139)(cid:142) 344 Accent Group Limited Annual Report 2018 36 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 8. Income tax expense Income tax expense Current tax Deferred tax – origination and reversal of temporary differences Adjustment recognised for prior periods Aggregate income tax expense Deferred tax included in income tax expense comprises: Increase in deferred tax assets (Note 18) Increase/(decrease) in deferred tax liabilities (Note 25) Deferred tax – origination and reversal of temporary differences Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Entertainment expenses Share-based payments Sundry items Adjustment recognised for prior periods Difference in overseas tax rates Income tax expense Amounts charged directly to equity Deferred tax assets (Note 18) Deferred tax liabilities (Note 25) Deferred tax assets not recognised Deferred tax assets not recognised comprises temporary differences attributable to: Capital losses Total deferred tax assets not recognised Consolidated 2018 $'000 2017 $'000 (cid:137)(cid:138)(cid:84)(cid:138)(cid:139)(cid:140) 21,543 (cid:108)(cid:140)(cid:84)(cid:137)(cid:141)(cid:140)(cid:109) (cid:108)(cid:136)(cid:84)(cid:136)(cid:140)(cid:137)(cid:109) (8,716) (755) 16,918 12,072 (cid:108)(cid:140)(cid:84)(cid:140)(cid:165)(cid:135)(cid:109) (cid:138)(cid:135)(cid:140) (7,849) (867) (cid:108)(cid:140)(cid:84)(cid:137)(cid:141)(cid:140)(cid:109) (8,716) (cid:164)(cid:135)(cid:84)(cid:142)(cid:136)(cid:165) 41,424 (cid:136)(cid:165)(cid:84)(cid:137)(cid:141)(cid:140) 12,427 (cid:164)(cid:139) (cid:140)(cid:165)(cid:140) (cid:108)(cid:164)(cid:141)(cid:141)(cid:109) 57 103 319 (cid:136)(cid:165)(cid:84)(cid:137)(cid:139)(cid:141) 12,906 (cid:108)(cid:136)(cid:84)(cid:136)(cid:140)(cid:137)(cid:109) (cid:108)(cid:136)(cid:141)(cid:141)(cid:109) (755) (79) 16,918 12,072 Consolidated 2018 $'000 2017 $'000 (cid:136)(cid:84)(cid:141)(cid:141)(cid:136) (cid:136)(cid:84)(cid:139)(cid:140)(cid:141) 3,228 – – – Consolidated 2018 $'000 2017 $'000 (cid:141)(cid:84)(cid:136)(cid:142)(cid:142) (cid:141)(cid:84)(cid:136)(cid:142)(cid:142) 7,198 7,198 The above potential tax benefit, which excludes tax losses, for deductible temporary differences has not been recognised in the statement of financial position as the recovery of this benefit is uncertain. Accent Group Limited Annual Report 2018 37 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 9. Current assets – cash and cash equivalents Cash on hand Cash at bank Reconciliation to cash and cash equivalents at the end of the financial year The above figures are reconciled to cash and cash equivalents at the end of the financial year as shown in the statement of cash flows as follows: Balances as above Bank overdraft (Note 20) Balance as per statement of cash flows Note 10. Current assets – trade and other receivables Trade receivables Less: Provision for impairment of receivables Other receivables Refer to Note 29 for further information on financial instruments. Note 11. Current assets – inventories Finished goods held at lower of cost or net realisable value Note 12. Current assets – derivative financial instruments Forward foreign exchange contracts – cash flow hedges Refer to Note 30 for further information on fair value measurement. Note 13. Current assets – other current assets Prepayments Other current assets Accent Group Limited Annual Report 2018 38 Consolidated 2018 $'000 186 (cid:138)(cid:165)(cid:84)(cid:140)(cid:165)(cid:164) (cid:138)(cid:165)(cid:84)(cid:141)(cid:141)(cid:137) 2017 $'000 191 46,088 46,279 (cid:138)(cid:165)(cid:84)(cid:141)(cid:141)(cid:137) 46,279 – (597) (cid:138)(cid:165)(cid:84)(cid:141)(cid:141)(cid:137) 45,682 Consolidated 2018 $'000 (cid:136)(cid:165)(cid:84)(cid:142)(cid:164)(cid:135) (cid:108)(cid:136)(cid:84)(cid:137)(cid:137)(cid:142)(cid:109) (cid:136)(cid:141)(cid:84)(cid:141)(cid:138)(cid:136) 639 (cid:136)(cid:165)(cid:84)(cid:138)(cid:141)(cid:135) 2017 $'000 17,732 (1,180) 16,552 3,304 19,856 Consolidated 2018 $'000 2017 $'000 (cid:142)(cid:165)(cid:84)(cid:140)(cid:140)(cid:164) 111,946 Consolidated 2018 $'000 (cid:139)(cid:84)(cid:164)(cid:136)(cid:139) 2017 $'000 – Consolidated 2018 $'000 (cid:136)(cid:84)(cid:137)(cid:136)(cid:141) (cid:136)(cid:140)(cid:135) (cid:136)(cid:84)(cid:138)(cid:164)(cid:141) 2017 $'000 2,383 876 3,259 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 14. Non-current assets – receivables Loans to outside shareholders in TAF Partnership stores Consolidated 2018 $'000 (cid:138)(cid:139)(cid:136) 2017 $'000 705 The loans to outside shareholders in TAF Partnership stores are secured over the minority shareholders’ share in the underlying TAF Partnership store entities. Note 15. Non-current assets – derivative financial instruments Forward foreign exchange contracts – cash flow hedges Refer to Note 30 for further information on fair value measurement. Note 16. Non-current assets – property, plant and equipment Plant and equipment – at cost Less: Accumulated depreciation Assets under construction – at cost Consolidated 2018 $'000 (cid:164)(cid:141)(cid:164) 2017 $'000 – Consolidated 2018 $'000 2017 $'000 (cid:136)(cid:140)(cid:135)(cid:84)(cid:135)(cid:141)(cid:136) 120,445 (cid:108)(cid:141)(cid:141)(cid:84)(cid:135)(cid:165)(cid:139)(cid:109) (cid:141)(cid:137)(cid:84)(cid:142)(cid:165)(cid:141) (cid:136)(cid:84)(cid:164)(cid:141)(cid:141) (cid:141)(cid:139)(cid:84)(cid:164)(cid:164)(cid:139) (46,947) 73,498 1,302 74,800 (cid:24)econciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 26 June 2016 Additions* Additions through business combinations (Note 37) Disposals Exchange differences Depreciation expense Balance at 2 July 2017 Additions* Disposals Exchange differences Depreciation expense (cid:5)alan(cid:36)e a(cid:59) (cid:136) (cid:14)(cid:60)l(cid:64) (cid:137)(cid:135)(cid:136)(cid:165) Plant and e(cid:55)(cid:60)i(cid:54)ment $'000 Assets (cid:60)nder constr(cid:60)ction $'000 41,877 39,637 11,747 (1,248) (81) (18,434) 73,498 22,771 (1,740) (51) (21,491) (cid:141)(cid:137)(cid:84)(cid:142)(cid:165)(cid:141) 743 559 – – – – 1,302 375 – – – (cid:136)(cid:84)(cid:164)(cid:141)(cid:141) Total $'000 42,620 40,196 11,747 (1,248) (81) (18,434) 74,800 23,146 (1,740) (51) (21,491) (cid:141)(cid:139)(cid:84)(cid:164)(cid:164)(cid:139) * Contributions of $7,219,000 (2017: $15,423,000) to store fit-out costs have been received from landlords and suppliers. These amounts have been netted off against actual fit-out costs incurred by the Group for cash flow disclosure purposes. Accent Group Limited Annual Report 2018 39 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 17. Non-current assets – intangibles Goodwill – at cost Brands and trademarks – at cost Less: Accumulated impairment Licence fees – The Athlete's Foot – at cost Less: Accumulated amortisation Distribution rights – at cost Less: Accumulated amortisation Other intangible assets – The Athlete's Foot – at cost Less: Accumulated amortisation Consolidated 2018 $'000 2017 $'000 (cid:137)(cid:142)(cid:138)(cid:84)(cid:142)(cid:141)(cid:140) 294,328 (cid:139)(cid:139)(cid:84)(cid:165)(cid:137)(cid:140) (cid:108)(cid:142)(cid:84)(cid:141)(cid:136)(cid:139)(cid:109) (cid:138)(cid:140)(cid:84)(cid:136)(cid:136)(cid:136) (cid:141)(cid:84)(cid:165)(cid:138)(cid:137) (cid:108)(cid:137)(cid:164)(cid:140)(cid:109) (cid:141)(cid:84)(cid:140)(cid:164)(cid:141) (cid:136)(cid:164)(cid:84)(cid:165)(cid:135)(cid:135) (cid:108)(cid:165)(cid:84)(cid:164)(cid:142)(cid:135)(cid:109) (cid:165)(cid:84)(cid:136)(cid:136)(cid:135) (cid:141)(cid:137)(cid:135) (cid:108)(cid:139)(cid:138)(cid:137)(cid:109) 288 44,825 (9,714) 35,111 7,832 (234) 7,598 16,800 (6,367) 10,433 432 (144) 288 (cid:138)(cid:139)(cid:140)(cid:84)(cid:135)(cid:140)(cid:136) 347,758 (cid:24)econciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Goodwill $'000 Brands and trademarks $'000 Licence fees $'000 Distri(cid:35)(cid:60)tion rig(cid:44)ts $'000 Other intangi(cid:35)le assets $'000 Balance at 26 June 2016 210,455 14,566 Additions – – Additions through business combinations (Note 37) Disposals Impairment of assets Amortisation expense Balance at 2 July 2017 Write off of assets Other Amortisation expense (cid:5)alan(cid:36)e a(cid:59) (cid:136) (cid:14)(cid:60)l(cid:64) (cid:137)(cid:135)(cid:136)(cid:165) 7,630 61 – – – 13,224 – – – – (93) (2,791) 84,138 30,259 (265) – – – (9,714) – 294,328 35,111 7,598 10,433 (65) (288) – – – – (cid:137)(cid:142)(cid:138)(cid:84)(cid:142)(cid:141)(cid:140) (cid:138)(cid:140)(cid:84)(cid:136)(cid:136)(cid:136) – – (31) (cid:141)(cid:84)(cid:140)(cid:164)(cid:141) – – (2,323) (cid:165)(cid:84)(cid:136)(cid:136)(cid:135) Total $'000 245,875 493 114,397 (265) (9,714) (3,028) 347,758 (65) – (2,642) (cid:138)(cid:139)(cid:140)(cid:84)(cid:135)(cid:140)(cid:136) – 432 – – – (144) 288 – 288 (288) 288 Im(cid:54)airment testing o(cid:40) good(cid:62)ill The accounting standards state that an impairment test must be performed annually for goodwill. Further, companies must also assess at each reporting date whether there is any indication that the asset may be impaired and, if so, perform an impairment test. In the current year, management restructured the business with the eventual goal of achieving a fully integrated wholesale and retail footwear business. Following these changes, the Chief Operating Decision Makers, being the board of directors, assess the results of the business and allocate resources on a Group basis. As the divisional operations are no longer monitored as separate businesses by management, and the synergies within the business are shared between the brands, goodwill is tested and monitored on a group basis. Consequently, the goodwill that originated from the Accent, The Athlete’s Foot and RCG Brands businesses has been combined into a single CGU for impairment testing purposes. Management conduct impairment tests annually (or more frequently if impairment indicators exist) to assess the recoverability of the carrying value of goodwill and indefinite useful life intangible assets. Accent Group Limited Annual Report 2018 40 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 17. Non-current assets – intangibles (continued) The impairment tests at 1 July 2018 were carried out based on value in use calculations. The recoverable amounts were determined using estimated cash flows that were based on the Groups five year strategic plan which was presented to the Board of Directors on 1 June 2018. The strategic plan included calculations and assumptions on sales growth, gross margin and cost of doing business ('CODB'). The assumptions were based on past experience and the Company’s forecast operating and financial performance. The cash flows beyond the five year period have been extrapolated using a steady state 3.0% long term growth rate (2017: 2.5% to 3.0%). Cash flows were discounted to present value using a mid-point pre-tax discount rate of 10.5%. The discount rate was derived from the Group’s weighted average cost of capital. There is no indication of impairment at balance date. Brand names and trademarks The Group recognises the following brands and trademarks as indefinite life intangible assets: Carrying amount of brand names and trademarks: The Athlete's Foot Accent Group Hype DC Brands and trademarks Consolidated 2018 $'000 2017 $'000 (cid:138)(cid:84)(cid:139)(cid:164)(cid:164) (cid:136)(cid:136)(cid:84)(cid:136)(cid:135)(cid:135) (cid:137)(cid:135)(cid:84)(cid:140)(cid:139)(cid:140) (cid:138)(cid:140)(cid:84)(cid:136)(cid:136)(cid:136) 3,466 11,100 20,545 35,111 Im(cid:54)airment testing o(cid:40) (cid:35)rands and trademar(cid:48)s The accounting standards state that an impairment test must be performed annually for indefinite life intangible assets such as brands and trademarks. Further, companies must also assess at each reporting date whether there is any indication that the asset may be impaired and, if so, perform an impairment test. The recoverable amount was determined independently using the Relief from Royalty (‘RFR’) valuation method at acquisition date. The calculations reflect a five year revenue forecast and requires the use of assumptions, including estimated royalty rates, tax rate, estimated discount rates and expected useful life. The five year revenue forecast is based on the Group’s five year strategic plan which was presented to the Board of Directors on 1 June 2018. The five year strategic plan was based on past experience and the Company’s forecast operating and financial performance. As part of the impairment test for brand valuation, management assesses the reasonableness of growth rate assumptions by reviewing revenue projections against actual revenue. Revenue beyond the five year period applied a terminal growth rate of 2.0% for store revenue growth and 5.0% to 7.5% for online revenue growth. The royalty rates used in the valuation model are based on rates observed in the market. Royalty rates applied in the valuation model for the current year were brand specific: Accent Group 2.0%, Hype 2.15% and The Athlete's Foot 2.0% and 6.0% for franchise revenue. The tax rate applied in the valuation model is based on the corporate tax rate in Australia of 30.0%. There is no indication of impairment at balance date. In 2017, the Group recognised an impairment against the Hype DC brand of $9,714,000. No additional impairment or reversal of impairment was required at 1 July 2018. Accent Group Limited Annual Report 2018 41 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 18. Non-current assets – deferred tax Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Tax losses Provision for doubtful debts Provision for shrinkage and stock obsolescence Provision for employee entitlements Other provisions and accrued expenses Business capital expenditure Difference in accounting and tax depreciation Borrowing costs Landlord and supplier contributions Other Amounts recognised in equity: Derivative financial instruments Deferred tax asset Movements: Opening balance Credited to profit or loss (Note 8) Charged to equity (Note 8) Closing balance Note 19. Current liabilities – trade and other payables Trade payables Goods and services tax payable Accrued expenses Other payables Refer to Note 29 for further information on financial instruments. Consolidated 2018 $'000 2017 $'000 (cid:136)(cid:140)(cid:137) (cid:138)(cid:139)(cid:164) (cid:137)(cid:84)(cid:137)(cid:142)(cid:135) (cid:138)(cid:84)(cid:140)(cid:138)(cid:136) 238 (cid:136)(cid:141)(cid:141) 6,696 (cid:141)(cid:142) (cid:141)(cid:84)(cid:142)(cid:139)(cid:140) (cid:165)(cid:140)(cid:164) 197 337 2,252 1,648 1,453 302 2,362 121 8,200 (100) (cid:137)(cid:137)(cid:84)(cid:138)(cid:136)(cid:135) 16,772 – (cid:137)(cid:137)(cid:84)(cid:138)(cid:136)(cid:135) 1,729 18,501 (cid:136)(cid:165)(cid:84)(cid:140)(cid:135)(cid:136) (cid:140)(cid:84)(cid:140)(cid:165)(cid:135) (cid:108)(cid:136)(cid:84)(cid:141)(cid:141)(cid:136)(cid:109) 10,652 7,849 – (cid:137)(cid:137)(cid:84)(cid:138)(cid:136)(cid:135) 18,501 Consolidated 2018 $'000 (cid:138)(cid:142)(cid:84)(cid:141)(cid:137)(cid:135) 3,138 (cid:137)(cid:141)(cid:84)(cid:140)(cid:135)(cid:165) (cid:136)(cid:135)(cid:84)(cid:140)(cid:142)(cid:142) (cid:165)(cid:135)(cid:84)(cid:142)(cid:164)(cid:140) 2017 $'000 55,939 4,149 21,586 7,175 88,849 Accent Group Limited Annual Report 2018 42 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 20. Current liabilities – borrowings Bank overdraft Bank loans Working capital facility Vendor loan notes (cid:17)o(cid:61)ements in (cid:35)orro(cid:62)ings Movements in current borrowings during the current financial year is set out below: Carrying amount at start of the year Repayments Amounts transferred from non-current (Note 23) Carrying amount at end of the year Consolidated 2018 $'000 – (cid:142)(cid:84)(cid:140)(cid:135)(cid:135) 2017 $'000 597 4,500 – 10,000 (cid:136)(cid:138)(cid:84)(cid:136)(cid:137)(cid:140) (cid:137)(cid:137)(cid:84)(cid:164)(cid:137)(cid:140) – 15,097 Borro(cid:62)ings $'000 15,097 (15,097) 22,625 22,625 Vendor loan notes As part of the purchase consideration for Hype DC, the Group issued vendor loan notes to each of the vendors. The vendor loan notes were issued to each of Daniel Gilbert, Cindy Gilbert and Pittman Pty Ltd in proportion to their shareholding in Hype DC. The vendor loan notes are unsecured and subordinated to the senior bank debt pursuant to a subordination deed. Interest is paid at 6% per annum. The vendor loan notes were repaid in July 2018 in their entirety. Refer to Note 23 for further information on assets pledged as security and financing arrangements. Refer to Note 29 for further information on financial instruments. Note 21. Current liabilities – derivative financial instruments Forward foreign exchange contracts – cash flow hedges Interest rate swap contracts – cash flow hedges Refer to Note 29 for further information on financial instruments. Refer to Note 30 for further information on fair value measurement. Note 22. Current liabilities – provision for income tax Provision for income tax Consolidated 2018 $'000 – (cid:137)(cid:140)(cid:136) (cid:137)(cid:140)(cid:136) 2017 $'000 5,054 – 5,054 Consolidated 2018 $'000 (cid:136)(cid:135)(cid:84)(cid:139)(cid:142)(cid:141) 2017 $'000 7,990 Accent Group Limited Annual Report 2018 43 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 23. Non-current liabilities – borrowings Bank loans Capex facility Vendor loan notes (cid:17)o(cid:61)ements in (cid:35)orro(cid:62)ings Movements in non-current borrowings during the current financial year is set out below: Carrying amount at start of the year Repayments Amounts transferred to current (Note 20) Carrying amount at end of the year Refer to Note 29 for further information on financial instruments. (cid:26)otal sec(cid:60)red lia(cid:35)ilities The total secured liabilities (current and non-current) are as follows: Bank overdraft Bank loans Working capital facility Capex facility Consolidated 2018 $'000 (cid:140)(cid:136)(cid:84)(cid:135)(cid:135)(cid:135) – – (cid:140)(cid:136)(cid:84)(cid:135)(cid:135)(cid:135) 2017 $'000 60,500 15,000 13,125 88,625 Borro(cid:62)ings $'000 88,625 (15,000) (22,625) 51,000 Consolidated 2018 $'000 – (cid:164)(cid:135)(cid:84)(cid:140)(cid:135)(cid:135) – – (cid:164)(cid:135)(cid:84)(cid:140)(cid:135)(cid:135) 2017 $'000 597 65,000 10,000 15,000 90,597 Assets (cid:54)ledged as sec(cid:60)rit(cid:64) The senior bank debt made available by National Australia Bank and Bank of New Zealand is secured by cross-guarantees and all assets of Accent Group Limited and each of its wholly-owned subsidiaries, excluding TAF Partnership Stores Pty Limited (refer to Note 38 for a list of wholly-owned subsidiaries). Total secured assets amounted to $602,683,000 at 1 July 2018 (2017: $612,000,000). (cid:10)inancing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Accent Group Limited Annual Report 2018 44 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 23. Non-current liabilities – borrowings (continued) Total facilities available Bank overdraft Bank loans Working capital facility Capex facility Bank guarantee and letters of credit Used at the reporting date Bank overdraft Bank loans Working capital facility Capex facility Bank guarantee and letters of credit Unused at the reporting date Bank overdraft Bank loans Working capital facility Capex facility Bank guarantee and letters of credit Consolidated 2018 $'000 2017 $'000 (cid:136)(cid:135)(cid:84)(cid:164)(cid:135)(cid:135) (cid:164)(cid:136)(cid:84)(cid:135)(cid:135)(cid:135) (cid:138)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) (cid:136)(cid:140)(cid:84)(cid:135)(cid:135)(cid:135) (cid:138)(cid:138)(cid:84)(cid:138)(cid:135)(cid:135) 10,600 70,000 30,000 15,000 23,300 (cid:136)(cid:139)(cid:142)(cid:84)(cid:142)(cid:135)(cid:135) 148,900 – (cid:164)(cid:135)(cid:84)(cid:140)(cid:135)(cid:135) – – (cid:142)(cid:84)(cid:139)(cid:135)(cid:136) 597 65,000 10,000 15,000 11,793 (cid:164)(cid:142)(cid:84)(cid:142)(cid:135)(cid:136) 102,390 (cid:136)(cid:135)(cid:84)(cid:164)(cid:135)(cid:135) (cid:140)(cid:135)(cid:135) (cid:138)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) (cid:136)(cid:140)(cid:84)(cid:135)(cid:135)(cid:135) 23,899 (cid:141)(cid:142)(cid:84)(cid:142)(cid:142)(cid:142) 10,003 5,000 20,000 – 11,507 46,510 The Company refinanced its existing debt facilities on 17 August 2018, in advance of its maturity. The new $154,825,000 facility, to be provided by NAB and HSBC, is split between $76,125,000 of senior debt, $58,700,000 multi option facility and $20,000,000 of permitted indebtedness not yet drawn down. Note 24. Non-current liabilities – derivative financial instruments Interest rate swap contracts – cash flow hedges Refer to Note 29 for further information on financial instruments. Refer to Note 30 for further information on fair value measurement. Consolidated 2018 $'000 (cid:136)(cid:165)(cid:139) 2017 $'000 710 Accent Group Limited Annual Report 2018 45 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 25. Non-current liabilities – deferred tax Deferred tax liability comprises temporary differences attributable to: Amounts recognised in profit or loss: Unealised foreign currency exchange Difference in accounting and tax depreciation Trademarks, brand names and distribution rights Other Amounts recognised in equity: Derivative financial instruments Deferred tax liability Movements: Opening balance Charged/(credited) to profit or loss (Note 8) Charged to equity (Note 8) Additions through business combinations (Note 37) Closing balance Note 26. Equity – issued capital Ordinary shares – fully paid Less: Treasury shares Consolidated 2018 $'000 2017 $'000 9 (cid:137)(cid:84)(cid:135)(cid:140)(cid:139) (cid:136)(cid:136)(cid:84)(cid:142)(cid:137)(cid:141) – – 829 12,624 232 (cid:136)(cid:138)(cid:84)(cid:142)(cid:142)(cid:135) 13,685 (cid:136)(cid:84)(cid:139)(cid:140)(cid:141) – (cid:136)(cid:140)(cid:84)(cid:139)(cid:139)(cid:141) 13,685 (cid:136)(cid:138)(cid:84)(cid:164)(cid:165)(cid:140) (cid:138)(cid:135)(cid:140) (cid:136)(cid:84)(cid:139)(cid:140)(cid:141) – 7,314 (867) – 7,238 (cid:136)(cid:140)(cid:84)(cid:139)(cid:139)(cid:141) 13,685 2018 Shares Consolidated 2017 Shares 2018 $'000 2017 $'000 (cid:140)(cid:139)(cid:136)(cid:84)(cid:141)(cid:142)(cid:136)(cid:84)(cid:137)(cid:137)(cid:139) 542,291,224 391,896 392,747 (cid:108)(cid:164)(cid:84)(cid:135)(cid:139)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135)(cid:109) (9,501,665) (cid:108)(cid:139)(cid:84)(cid:142)(cid:137)(cid:138)(cid:109) (7,437) (cid:140)(cid:138)(cid:140)(cid:84)(cid:141)(cid:140)(cid:136)(cid:84)(cid:137)(cid:137)(cid:139) 532,789,559 (cid:138)(cid:165)(cid:164)(cid:84)(cid:142)(cid:141)(cid:138) 385,310 Accent Group Limited Annual Report 2018 46 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 26. Equity – issued capital (continued) (cid:17)o(cid:61)ements in ordinar(cid:64) s(cid:44)are ca(cid:54)ital Details Balance Treasury shares – loans repaid Treasury shares – loans repaid Exercise of options Date 27 June 2016 6 July 2017 6 July 2017 27 July 2016 Issue of shares on acquisition of Hype DC Pty Limited 4 August 2016 36,842,105 Shares Iss(cid:60)e (cid:54)rice $'000 490,304,120 233,333 500,000 445,000 $0.490 $0.520 $0.570 $1.708 $0.570 $0.490 $0.520 $0.400 $0.660 $0.490 $0.690 $0.730 $0.570 319,319 114 260 254 62,926 171 16 130 280 264 595 46 365 570 31 August 2016 26 September 2016 26 September 2016 28 September 2016 15 December 2016 1 March 2017 1 March 2017 1 March 2017 2 March 2017 300,000 33,333 250,000 700,000 400,000 1,215,001 66,667 500,000 1,000,000 2 July 2017 532,789,559 385,310 24 August 2017 06 February 2018 02 March 2018 02 March 2018 02 March 2018 27 March 2018 27 March 2018 12 May 2018 18 May 2018 29 May 2018 29 May 2018 29 May 2018 29 May 2018 29 May 2018 (cid:136) (cid:14)(cid:60)l(cid:64) (cid:137)(cid:135)(cid:136)(cid:165) 466,667 500,000 868,332 83,333 100,000 73,333 10,000 200,000 50,000 160,000 66,667 83,333 50,000 250,000 (cid:140)(cid:138)(cid:140)(cid:84)(cid:141)(cid:140)(cid:136)(cid:84)(cid:137)(cid:137)(cid:139) $0.490 $0.730 $0.490 $0.590 $0.520 $0.730 $0.590 $0.600 $0.590 $0.490 $0.690 $0.590 $0.590 $0.520 229 365 425 49 52 54 6 120 30 78 46 49 30 130 (cid:138)(cid:165)(cid:164)(cid:84)(cid:142)(cid:141)(cid:138) Exercise of options Treasury shares – loans repaid Treasury shares – loans repaid Treasury shares – loans repaid Treasury shares – loans repaid Employee Share Scheme – loans repaid Employee Share Scheme – loans repaid Employee Share Scheme – loans repaid Exercise of options Balance Employee Share Scheme – loans repaid Employee Share Scheme – loans repaid Employee Share Scheme – loans repaid Employee Share Scheme – loans repaid Treasury shares – loans repaid Employee Share Scheme – loans repaid Employee Share Scheme – loans repaid Treasury shares – loans repaid Employee Share Scheme – loans repaid Employee Share Scheme – loans repaid Employee Share Scheme – loans repaid Employee Share Scheme – loans repaid Employee Share Scheme – loans repaid Treasury shares – loans repaid (cid:5)alan(cid:36)e Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. (cid:26)reas(cid:60)r(cid:64) s(cid:44)ares During the year, no shares were issued to employees under the Employee Share Scheme (2017: nil). Details of the scheme are set out in Note 43. The shares issued have been deducted from equity as the scheme is treated as an in-substance option and accounted for as a share-based payment. (cid:25)(cid:44)are (cid:35)(cid:60)(cid:64)(cid:102)(cid:35)ac(cid:48) There is no current on-market share buy-back. (cid:6)a(cid:54)ital ris(cid:48) management Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. Accent Group Limited Annual Report 2018 47 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 27. Equity – non-controlling interest Issued capital Retained profits Note 28. Equity – dividends Di(cid:61)idends Dividends paid during the financial year were as follows: Final dividend for the year ended 2 July 2017 (2017: 26 June 2016) of 3.00 cents (2017: 3.00 cents) per ordinary share Interim dividend for the year ended 1 July 2018 (2017: 2 July 2017) of 3.00 cents (2017: 3.00 cents) per ordinary share Dividends paid to non-controlling interests Consolidated 2018 $'000 (cid:139)(cid:142)(cid:142) (cid:139)(cid:141)(cid:139) (cid:142)(cid:141)(cid:138) 2017 $'000 1,225 512 1,737 Consolidated 2018 $'000 2017 $'000 16,269 16,239 16,269 16,239 81 83 32,619 32,561 In respect of the financial year ended 1 July 2018, the directors recommended the payment of a final dividend of 3.75 cents per share franked to 100% at 30% corporate income tax rate to be paid on 27 September 2018 to the registered holders of fully paid ordinary shares as at 13 September 2018. (cid:10)ran(cid:48)ing credits Consolidated 2018 $'000 2017 $'000 Franking credits available for subsequent financial years based on a tax rate of 30% (cid:137)(cid:142)(cid:84)(cid:165)(cid:137)(cid:139) 18,117 New Zealand imputation credits available to New Zealand residential shareholders amount to NZ$1,819,000. Note 29. Financial instruments (cid:10)inancial ris(cid:48) management o(cid:35)(cid:47)ecti(cid:61)es The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as forward foreign exchange contracts to hedge foreign currency exposures and interest rate swaps to hedge interest rate exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and ageing analysis for credit risk. Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group's operating units. Finance reports to the Board on a periodic basis. Market risk Foreign currency risk The Group undertakes certain transactions denominated in foreign currencies that are different to the functional currency of the respective entities undertaking the transactions, hence exposure to exchange rate fluctuations arise. The Group manages these risks through forward currency contracts (refer below). The main exposure relates to inventory purchases which are usually denominated in US Dollars. Accent Group Limited Annual Report 2018 48 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 29. Financial instruments (continued) The Group's exposure to foreign currency risk as at the end of the reporting period, expressed in Australian dollars, is shown below: Consolidated (cid:10)oreign (cid:6)(cid:60)rrenc(cid:64) (cid:24)is(cid:48) US dollars New Zealand dollars Assets 2018 $'000 2017 $'000 Liabilities 2018 $'000 2017 $'000 (cid:140)(cid:84)(cid:141)(cid:138)(cid:135) (cid:139)(cid:136)(cid:84)(cid:136)(cid:140)(cid:142) (cid:139)(cid:164)(cid:84)(cid:165)(cid:165)(cid:142) – 310 310 (cid:137)(cid:140)(cid:84)(cid:142)(cid:164)(cid:138) (cid:141)(cid:84)(cid:137)(cid:138)(cid:135) 33,193 25,550 – 25,550 Foreign currency sensitivity analysis (assessed by management based on 10% movement) Consolidated (cid:10)oreign (cid:6)(cid:60)rrenc(cid:64) (cid:25)ensiti(cid:61)it(cid:64) Anal(cid:64)sis US dollars New Zealand dollars Profit or loss 2018 $'000 2017 $'000 Equity 2018 $'000 (cid:136)(cid:139)(cid:137) – (cid:136)(cid:139)(cid:137) – 31 31 (cid:108)(cid:164)(cid:84)(cid:135)(cid:141)(cid:137)(cid:109) (cid:108)(cid:138)(cid:84)(cid:135)(cid:165)(cid:139)(cid:109) (cid:108)(cid:142)(cid:84)(cid:136)(cid:140)(cid:164)(cid:109) 2017 $'000 2,555 – 2,555 The majority of US dollar sensitivity impacts Equity as a result of the fact that a high percentage of US Dollar foreign currency liabilities are hedged as at 1 July 2018 and 2 July 2017 respectively (refer below). In management’s opinion, the above sensitivity analysis is not fully representative of the inherent foreign exchange risk as the year end exposure does not necessarily reflect the exposure during the course of the year. In addition, the Group includes certain subsidiaries whose functional currencies are different to the Group’s presentation currency of Australian Dollars. As stated in the Group’s Accounting Policies Note 2, on consolidation the assets and liabilities of these entities are translated into Australian dollars at exchange rates prevailing on the balance date. The income and expenses of these entities are translated at the average exchange rates for the year. Exchange differences arising are classified as equity and are transferred to a foreign exchange translation reserve. The main operating entities outside of Australia are based in New Zealand. The Group’s future reported profits could therefore be impacted by changes in rates of exchange between the Australian Dollar and the New Zealand Dollar. As noted above the Group manages its foreign currency risk through forward currency contracts. The maturity, settlement amounts and the average contractual exchange rates of the Group's outstanding forward foreign exchange contracts at the reporting date were as follows: (cid:5)(cid:60)(cid:64) (cid:27)(cid:25) (cid:38)olla(cid:56)s Maturity: 0 – 3 months 3 – 6 months 6 – 12 months > 12 months Price risk The Group is not exposed to any significant price risk. Sell Australian dollars Average exchange rates 2018 $'000 2017 $'000 2018 2017 (cid:139)(cid:136)(cid:84)(cid:142)(cid:137)(cid:142) (cid:138)(cid:164)(cid:84)(cid:135)(cid:164)(cid:138) (cid:138)(cid:138)(cid:84)(cid:139)(cid:136)(cid:142) (cid:136)(cid:137)(cid:84)(cid:165)(cid:135)(cid:139) 39,151 (cid:130)(cid:135)(cid:87)(cid:141)(cid:140)(cid:165)(cid:140) $0.7179 26,772 85,318 (cid:130)(cid:135)(cid:87)(cid:141)(cid:141)(cid:164)(cid:140) $0.7470 (cid:130)(cid:135)(cid:87)(cid:141)(cid:141)(cid:165)(cid:136) $0.7501 – (cid:130)(cid:135)(cid:87)(cid:141)(cid:165)(cid:136)(cid:135) $0.0000 Accent Group Limited Annual Report 2018 49 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 29. Financial instruments (continued) Interest rate risk The Group's main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group maintains approximately 58% of long-term borrowings at fixed rates using interest rate swaps to achieve this when necessary. As at the reporting date, the Group had the following cash and cash equivalents, variable rate borrowings and interest rate swap contracts outstanding: Consolidated Bank loans Interest rate swap* Working capital facility Capex facility Net exposure to cash flow interest rate risk * For the interest rate swaps outstanding at 1 July 2018: 2018 2017 (cid:29)eig(cid:44)ted a(cid:61)erage interest rate % (cid:138)(cid:87)(cid:165)(cid:136)(cid:166) (cid:139)(cid:87)(cid:139)(cid:137)(cid:166) – – (cid:29)eig(cid:44)ted a(cid:61)erage interest rate % 3.99% 4.42% 3.22% 3.22% Balance $'000 (cid:108)(cid:164)(cid:135)(cid:84)(cid:140)(cid:135)(cid:135)(cid:109) (cid:138)(cid:140)(cid:84)(cid:137)(cid:140)(cid:135) – – (cid:108)(cid:137)(cid:140)(cid:84)(cid:137)(cid:140)(cid:135)(cid:109) Balance $'000 (65,000) 40,000 (10,000) (15,000) (50,000) – Outstanding interest rate swap contracts maturity is May 2020 – Average contracted fixed interest rate of 4.42% is inclusive of the margin applicable to the variable rate borrowings – Notional principal value is $35,250,000 – Fair value at 1 July 2018 is $434,593 (liability) (2 July 2017 is $710,000 (liability)) Sensitivity impact of interest rate changes has not been shown as a 0.5% change in interest rates would have an immaterial profit or loss impact based on the net exposure to cash flow interest rate risk at balance date. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. Impairment of receivables The Group has recognised a loss of $194,000 (2017: $234,000) in profit or loss in respect of impairment of receivables for the year ended 1 July 2018. Movements in the provision for impairment of receivables are as follows: Opening balance Additional provisions recognised Receivables written off during the year as uncollectable Closing balance Consolidated 2018 $'000 (cid:136)(cid:84)(cid:136)(cid:165)(cid:135) (cid:136)(cid:142)(cid:139) (cid:108)(cid:136)(cid:139)(cid:140)(cid:109) 1,229 2017 $'000 1,125 55 – 1,180 Accent Group Limited Annual Report 2018 50 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 29. Financial instruments (continued) Past due but not impaired Customers with balances past due but without provision for impairment of receivables amount to $670,898 as at 1 July 2018 ($1,720,000 as at 2 July 2017). The Group did not consider a credit risk on the aggregate balances after reviewing the credit terms of customers based on recent collection practices. The ageing of the past due but not impaired receivables are as follows: 30 to 90 days overdue Over 90 days overdue Consolidated 2018 $'000 (cid:140)(cid:142)(cid:140) (cid:141)(cid:164) (cid:164)(cid:141)(cid:136) 2017 $'000 1,280 440 1,720 (cid:16)i(cid:55)(cid:60)idit(cid:64) ris(cid:48) Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements Unused borrowing facilities at the reporting date: Bank overdraft Bank loans Working capital facility Capex facility Bank guarantee and letters of credit Consolidated 2018 $'000 (cid:136)(cid:135)(cid:84)(cid:164)(cid:135)(cid:135) (cid:140)(cid:135)(cid:135) (cid:138)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) (cid:136)(cid:140)(cid:84)(cid:135)(cid:135)(cid:135) 23,899 (cid:141)(cid:142)(cid:84)(cid:142)(cid:142)(cid:142) 2017 $'000 10,003 5,000 20,000 – 11,507 46,510 Accent Group Limited Annual Report 2018 51 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 29. Financial instruments (continued) Remaining contractual maturities The following tables detail the Group's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid, and therefore these totals may differ from their carrying amount in the statement of financial position. (cid:29)eig(cid:44)ted a(cid:61)erage interest rate % 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 (cid:19)(cid:61)er (cid:140) (cid:64)ears $'000 (cid:24)emaining contract(cid:60)al mat(cid:60)rities $'000 – – (cid:138)(cid:142)(cid:84)(cid:141)(cid:137)(cid:135) (cid:136)(cid:135)(cid:84)(cid:140)(cid:142)(cid:142) – – (cid:138)(cid:87)(cid:165)(cid:136)(cid:166) (cid:136)(cid:136)(cid:84)(cid:164)(cid:141)(cid:141) (cid:140)(cid:137)(cid:84)(cid:141)(cid:137)(cid:136) (cid:164)(cid:87)(cid:135)(cid:135)(cid:166) (cid:136)(cid:138)(cid:84)(cid:136)(cid:140)(cid:138) (cid:141)(cid:140)(cid:84)(cid:136)(cid:139)(cid:142) – (cid:140)(cid:137)(cid:84)(cid:141)(cid:137)(cid:136) – – – – – – – – – – – – – – – – (cid:138)(cid:142)(cid:84)(cid:141)(cid:137)(cid:135) (cid:136)(cid:135)(cid:84)(cid:140)(cid:142)(cid:142) (cid:164)(cid:139)(cid:84)(cid:138)(cid:142)(cid:165) (cid:136)(cid:138)(cid:84)(cid:136)(cid:140)(cid:138) (cid:136)(cid:137)(cid:141)(cid:84)(cid:165)(cid:141)(cid:135) (cid:139)(cid:138)(cid:140) (cid:108)(cid:140)(cid:84)(cid:139)(cid:139)(cid:137)(cid:109) (cid:108)(cid:140)(cid:84)(cid:135)(cid:135)(cid:141)(cid:109) (cid:29)eig(cid:44)ted a(cid:61)erage interest rate % 1 year or less $'000 Between 1 and 2 years $'000 Between 2 and 5 years $'000 (cid:19)(cid:61)er 5 years $'000 (cid:24)emaining contract(cid:60)al mat(cid:60)rities $'000 Interest rate swaps net settled (cid:139)(cid:87)(cid:139)(cid:137)(cid:166) (cid:137)(cid:140)(cid:136) (cid:136)(cid:165)(cid:139) Forward foreign exchange contracts net settled Total derivatives – (cid:108)(cid:139)(cid:84)(cid:141)(cid:136)(cid:137)(cid:109) (cid:108)(cid:139)(cid:84)(cid:139)(cid:164)(cid:136)(cid:109) (cid:108)(cid:141)(cid:138)(cid:135)(cid:109) (cid:108)(cid:140)(cid:139)(cid:164)(cid:109) – – 55,939 7,175 615 7,087 10,322 483 3.22% 3.99% 3.22% 3.22% 6.00% – – – – – – 11,881 53,001 – 483 – 15,483 13,913 95,534 – – 12,364 68,484 – – – – – – – – – – – 55,939 7,175 615 71,969 10,322 16,449 13,913 176,382 710 5,054 5,764 De(cid:56)i(cid:61)ati(cid:61)es Interest rate swaps net settled Forward foreign exchange contracts net settled Total derivatives – – – 5,054 5,054 710 – 710 – – – The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Accent Group Limited Annual Report 2018 52 (cid:6)onsolidated (cid:103) (cid:137)(cid:135)(cid:136)(cid:165) (cid:18)on(cid:102)(cid:38)e(cid:56)i(cid:61)a(cid:59)i(cid:61)es Non-interest bearing Trade payables Other payables Interest-bearing – variable Term loans Interest-bearing – fixed rate Vendor loan notes Total non-derivatives De(cid:56)i(cid:61)a(cid:59)i(cid:61)es (cid:6)onsolidated (cid:103) (cid:137)(cid:135)(cid:136)(cid:141) (cid:18)on(cid:102)(cid:38)e(cid:56)i(cid:61)ati(cid:61)es Non-interest bearing Trade payables Other payables Interest-bearing – variable Bank overdraft Term loans Working capital facility Capex facility Interest-bearing – fixed rate Vendor loan notes Total non-derivatives — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 29. Financial instruments (continued) (cid:6)a(cid:54)ital ris(cid:48) management The Group manages its capital to ensure that all the entities within the Group are able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of cash and cash equivalents, trade and other receivables, inventories, intangibles and net working capital. The equity attributable to equity holders of the parent entity comprises issued capital, reserves and accumulated losses. Management effectively manage the Group’s capital by assessing the Group’s financial risks and adjusting the Group’s capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. None of the Group entities are subject to externally-imposed capital requirements. The capital risk management policy has not changed since the 2 July 2017 year. Note 30. Fair value measurement (cid:10)air (cid:61)al(cid:60)e (cid:44)ierarc(cid:44)(cid:64) The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability (cid:6)onsolidated (cid:103) (cid:137)(cid:135)(cid:136)(cid:165) Assets Forward foreign exchange contracts – cash flow hedges Total assets Liabilities Interest rate swap contracts – cash flow hedges Total liabilities (cid:6)onsolidated (cid:103) (cid:137)(cid:135)(cid:136)(cid:141) Liabilities (cid:16)e(cid:61)el (cid:136) $'000 (cid:16)e(cid:61)el (cid:137) $'000 (cid:16)e(cid:61)el (cid:138) $'000 Total $'000 – – – – 5,290 5,290 435 435 – – – – (cid:16)e(cid:61)el (cid:136) $'000 (cid:16)e(cid:61)el (cid:137) $'000 (cid:16)e(cid:61)el (cid:138) $'000 5,290 5,290 435 435 Total $'000 5,054 710 5,764 Forward foreign exchange contracts – cash flow hedges Interest rate swap contracts – cash flow hedges Total liabilities – – – 5,054 710 5,764 – – – There were no transfers between levels during the financial year. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Accent Group Limited Annual Report 2018 53 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 30. Fair value measurement (continued) Val(cid:60)ation tec(cid:44)ni(cid:55)(cid:60)es (cid:40)or (cid:40)air (cid:61)al(cid:60)e meas(cid:60)rements categorised (cid:62)it(cid:44)in le(cid:61)el (cid:137) and le(cid:61)el (cid:138) The fair values of the above financial assets and financial liabilities are determined using the following valuation techniques: Forward foreign exchange contracts – Discounted cash flow Future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties. Interest rate swap contracts – Discounted cash flow Future cash flows are estimated based on forward interest rates (from observable yield curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk of various counterparties. Note 31. Key management personnel disclosures (cid:6)om(cid:54)ensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Share-based payments Consolidated 2018 $'000 (cid:164)(cid:84)(cid:140)(cid:138)(cid:136) 112 (cid:140)(cid:165)(cid:141) 2017 $'000 4,477 168 49 (cid:141)(cid:84)(cid:137)(cid:138)(cid:135) 4,694 Note 32. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the auditor of the Company: Audit services – Deloitte Touche Tohmatsu Audit or review of the financial statements Other services – Deloitte Touche Tohmatsu Acquisition due diligence Consolidated 2018 $'000 2017 $'000 (cid:139)(cid:140)(cid:138) 480 – (cid:139)(cid:140)(cid:138) 110 590 Accent Group Limited Annual Report 2018 54 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 33. Contingent liabilities The Group has bank guarantees outstanding as at 1 July 2018 of $1,959,874 (2017: $4,133,064). The Group also has open letters of credit of $7,441,483 (2017: $7,651,710). These guarantees and letters of credit entered into in relation to the debts of its subsidiaries. The Athletes Foot has entered into operating lease commitments with landlords in its capacity as head lessor for stores operated by the franchisees. However, the franchisees have simultaneously undertaken to meet the rental commitments through back-to-back licence agreements. In addition, some franchisees have provided bank guarantees (generally for a maximum period of three months’ rent) and in some instances personal guarantees to the landlords of the properties. The Company and its subsidiaries would become liable in the event of a default by any franchisee. The maximum possible exposure would be $55,291,644 (2017: $55,200,000) and comprises: De(cid:40)a(cid:60)l(cid:59) (cid:35)(cid:64) (cid:40)(cid:56)an(cid:36)(cid:44)isee Maximum possible exposure comprising: Less than one year Between one and five years More than five years Total maximum exposure This cumulative above amount would arise only in the event that all franchisees defaulted at the same time. Note 34. Commitments Consolidated 2018 $'000 2017 $'000 (cid:136)(cid:139)(cid:84)(cid:139)(cid:135)(cid:140) (cid:138)(cid:164)(cid:84)(cid:139)(cid:136)(cid:165) (cid:139)(cid:84)(cid:139)(cid:164)(cid:142) (cid:140)(cid:140)(cid:84)(cid:137)(cid:142)(cid:137) 16,750 34,700 3,750 55,200 Capital commitments Committed at the reporting date but not recognised as liabilities, payable: Property, plant and equipment Lease commitments – operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years Consolidated 2018 $'000 2017 $'000 (cid:165)(cid:84)(cid:137)(cid:164)(cid:135) 18,509 (cid:164)(cid:142)(cid:84)(cid:165)(cid:141)(cid:164) 63,099 (cid:136)(cid:142)(cid:138)(cid:84)(cid:137)(cid:139)(cid:165) 187,312 (cid:137)(cid:141)(cid:84)(cid:136)(cid:135)(cid:142) 32,418 (cid:137)(cid:142)(cid:135)(cid:84)(cid:137)(cid:138)(cid:138) 282,829 Operating lease commitments includes contracted amounts for various retail outlets and corporate headquarters under non- cancellable operating leases expiring within one to five years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. Accent Group Limited Annual Report 2018 55 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 35. Related party transactions (cid:22)arent entit(cid:64) Accent Group Limited is the parent entity. (cid:25)(cid:60)(cid:35)sidiaries Interests in subsidiaries are set out in Note 38. (cid:15)e(cid:64) management (cid:54)ersonnel Disclosures relating to key management personnel are set out in Note 31 and the remuneration report included in the directors' report. Entities associated (cid:62)it(cid:44) (cid:48)e(cid:64) management (cid:54)ersonnel Rivan Pty Limited, a shareholder, is a company associated with David Gordon. 2 Como Pty Limited, a shareholder, is a company associated with Daniel Agostinelli. BBRC International Pte Ltd, a shareholder, is a company associated with Brett Blundy. Tidereef Pty Limited, a shareholder, is a company associated with Ivan Hammerschlag. Omniday Pty Limited, a shareholder, is a company associated with Michael Hirschowitz. Rastana Holdings Pty Limited, a shareholder, is a company associated with Hilton Brett.. (cid:26)ransactions (cid:62)it(cid:44) related (cid:54)arties The following transactions occurred with related parties: Retail Oasis Pty Limited, a company associated with Stephen Kulmar, provided consultancy services to the Company's subsidiaries amounting to $12,000 (2017: $8,777). These services were provided on an arm's length basis. Loan repayments paid/(received) from directors: – Stephen Kulmar – Daniel Gilbert* * Vendor loans provided by shareholders of Hype DC as part of acquisition consideration. (cid:16)oans to(cid:99)(cid:40)rom related (cid:54)arties The following balances are outstanding at the reporting date in relation to loans with related parties: Loans to/(from) key management personnel: – Ivan Hammerschlag (interest free)* – Craig Thompson (interest free)*** – Daniel Gilbert (interest at 6% per annum)** Consolidated 2018 $'000 2017 $'000 – – – (6) 4,594 4,588 Consolidated 2018 $'000 2017 $'000 – – (cid:108)(cid:139)(cid:84)(cid:140)(cid:142)(cid:139)(cid:109) (cid:108)(cid:139)(cid:84)(cid:140)(cid:142)(cid:139)(cid:109) 78 (200) (4,594) (4,716) * Under the EOP approved by the shareholders at the Extraordinary General Meeting held on 19 December 2006, the Company provided loans to option recipients in respect of the option fees payable for the right to acquire the options. ** Relates to vendor finance component of Hype DC acquisition. *** Relates to vendor finance component of Accent acquisition outstanding at balance date. Loan is repayable at call. Accent Group Limited Annual Report 2018 56 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 36. Parent entity information Set out below is the supplementary information about the parent entity. (cid:25)tatement o(cid:40) (cid:54)ro(cid:41)t or loss and ot(cid:44)er com(cid:54)re(cid:44)ensi(cid:61)e income Profit / (Loss) after income tax Other comprehensive income for the year, net of tax Total comprehensive income (cid:25)tatement o(cid:40) (cid:41)nancial (cid:54)osition Total current assets Total non-current assets Total assets Total current liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Hedging reserve – cash flow hedges Share-based payments reserve Accumulated losses Total equity Parent 2018 $’000 2017 $’000 (cid:138)(cid:164)(cid:84)(cid:141)(cid:139)(cid:139) (1,129) – – (cid:138)(cid:164)(cid:84)(cid:141)(cid:139)(cid:139) (1,129) Parent 2018 $’000 2017 $’000 (cid:164)(cid:135)(cid:84)(cid:142)(cid:165)(cid:142) 55,025 (cid:138)(cid:141)(cid:141)(cid:84)(cid:141)(cid:140)(cid:142) 380,957 (cid:139)(cid:138)(cid:165)(cid:84)(cid:141)(cid:139)(cid:165) 435,982 (cid:138)(cid:139)(cid:84)(cid:141)(cid:141)(cid:135) (cid:164)(cid:137)(cid:84)(cid:142)(cid:140)(cid:139) (cid:142)(cid:141)(cid:84)(cid:141)(cid:137)(cid:139) (cid:138)(cid:139)(cid:136)(cid:84)(cid:135)(cid:137)(cid:139) 29,928 73,493 103,421 332,561 (cid:138)(cid:165)(cid:164)(cid:84)(cid:142)(cid:141)(cid:138) 385,310 – (cid:164)(cid:84)(cid:135)(cid:136)(cid:138) (954) 4,065 (cid:108)(cid:140)(cid:136)(cid:84)(cid:142)(cid:164)(cid:137)(cid:109) (55,860) (cid:138)(cid:139)(cid:136)(cid:84)(cid:135)(cid:137)(cid:139) 332,561 (cid:6)ontingent lia(cid:35)ilities The parent entity had no contingent liabilities as at 1 July 2018 and 2 July 2017, other than those disclosed in Note 33, which apply to Accent Group Limited as parent of the Group. (cid:6)a(cid:54)ital commitments (cid:103) (cid:22)ro(cid:54)ert(cid:64)(cid:84) (cid:54)lant and e(cid:55)(cid:60)i(cid:54)ment The parent entity had no capital commitments for property, plant and equipment as at 1 July 2018 and 2 July 2017. (cid:25)igni(cid:41)cant acco(cid:60)nting (cid:54)olicies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in Note 2, except for the following: – Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. – Investments in associates are accounted for at cost, less any impairment, in the parent entity. – Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Accent Group Limited Annual Report 2018 57 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 37. Business combinations 2018 There were no new business combinations in the year. 2017 Hype DC Pty Limited On 4 August 2016, the Group completed the acquisition of 100% of the ordinary shares of Hype DC Pty Limited, an Australian retailed of branded athleisure and style footwear, for the total consideration transferred of $109,853,000. Goodwill of $84,107,000 was recognised on acquisition. The acquired business contributed revenues of $120,284,602 and profit after tax of $4,757,880 to the Group for the period from 4 August 2016 to 2 July 2017. If the acquisition occurred on 27 June 2016, the full year contributions would have been revenues of $131,111,341 and profit after tax of $5,676,500. Details of the acquisition are as follows: Cash and cash equivalents Inventories Property, plant and equipment Hype DC brand name Trade and other payables Provision for income tax Deferred tax liability Employee benefits Other current liabilities Lease liability Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Accent Group Limited shares issued to vendor Vendor note Interest paid to vendors Acquisition costs expensed to profit or loss in prior year Cash used to acquire business, net of cash acquired: Acquisition-date fair value of the total consideration transferred Less: cash and cash equivalents Less: payments to be made in future periods Less: shares issued by Company as part of consideration Net cash used Accent Group Limited Annual Report 2018 58 (cid:10)air (cid:61)al(cid:60)e $'000 2,846 10,964 11,747 30,259 (14,914) (1,055) (7,238) (1,057) (1,015) (4,822) 25,715 84,138 109,853 33,425 62,926 13,125 377 109,853 700 Consolidated 2018 $'000 2017 $'000 – – – – – 109,853 (2,846) (13,502) (62,926) 30,579 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 38. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 2: Ownership interest Name (cid:22)rinci(cid:54)al (cid:54)lace o(cid:40) (cid:35)(cid:60)siness(cid:99)(cid:6)o(cid:60)ntr(cid:64) o(cid:40) incor(cid:54)oration The Athlete's Foot Australia Pty Limited Australia TAF Constructions Pty Limited[a] RCG Brands Pty Limited RCG Retail Pty Limited TAF eStore Pty Limited[a] TAF Partnership Pty Ltd[a] TAF Rockhampton Pty Ltd[b] TAF Eastland Pty Ltd[b] TAF The Glen Pty Ltd[b] TAF Hornsby Pty Ltd[b] TAF Hobart Pty Ltd[b] TAF Booragoon Pty Ltd[b] Accent Group Limited[c] Platypus Shoes Limited[d] Accent Footwear Limited[d] Hype DC Limited[d] Accent Brands Pty Limited[c] Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand New Zealand New Zealand Australia Platypus Shoes (Australia) Pty Limited[c] Australia 42K Pty Ltd[e] RCG Grounded Pty Ltd Australia Australia RCG Accent Group Holdings Pty Limited Australia Hype DC Pty Ltd Australia [a] Indirectly held through The Athlete's Foot Australia Pty Ltd [b] Indirectly held through TAF Partnership Stores Pty Ltd [c] Indirectly held through RCG Accent Group Holdings Pty Ltd [d] Indirectly held through Accent Group Limited (New Zealand) [e] Indirectly held through Accent Brands Pty Ltd 2018 % 100% 100% 100% 100% 100% 100% 80% 80% 60% 80% 80% 60% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2017 % 100% 100% 100% 100% 100% 100% 80% 80% 60% 80% 80% 60% 100% 100% 100% – 100% 100% 100% 100% 100% 100% Accent Group Limited Annual Report 2018 59 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 39. Deed of cross guarantee The following entities are party to a deed of cross guarantee, entered into on 23 February 2017, under which each company guarantees the debts of the others: Accent Group Limited (formerly known as RCG Corporation Limited) (ACN 108 096 251) RCG Brands Pty Ltd (ACN 125 433 972) The Athlete's Foot Australia Pty Limited (ACN 001 777 582) RCG Retail Pty Ltd (ACN 144 955 117) RCG Accent Group Holdings Pty Ltd (ACN 613 017 422) Hype DC Pty Limited (ACN 081 432 313) TAF Partnership Stores Pty Ltd (ACN 164 791 048) TAF eStore Pty Ltd (ACN 158 031 040) T.A.F Constructions Pty Ltd (ACN 097 684 430) Accent Brands Pty Ltd (ACN 001 742 552) Platypus Shoes (Australia) Pty Ltd (ACN 122 726 907) 42K Pty Limited RCG Grounded Pty Ltd (ACN 169 043 145) (ACN 611 621 482) By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare financial statements and directors' report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission. The above companies represent a 'Closed Group' for the purposes of the Corporations Instrument, and as there are no other parties to the deed of cross guarantee that are controlled by Accent Group Limited, they also represent the 'Extended Closed Group'. Set out below is a consolidated statement of profit or loss and other comprehensive income and statement of financial position of the 'Closed Group'. (cid:25)tatement o(cid:40) (cid:54)ro(cid:40)it or loss and ot(cid:44)er com(cid:54)re(cid:44)ensi(cid:61)e income Revenue Other income/(expenses) Finished goods used Changes in inventories of finished goods Employee benefits expense Depreciation and amortisation expense Impairment of brand name Write off of assets Rental expense on operating leases Advertising and promotion expenses Travel and telecommunication expenses Warehousing and freight expenses Other expenses Finance costs (cid:22)(cid:56)o(cid:40)i(cid:59) (cid:35)e(cid:40)o(cid:56)e in(cid:36)o(cid:49)e (cid:59)a(cid:63) e(cid:63)(cid:54)ense Income tax expense (cid:22)(cid:56)o(cid:40)i(cid:59) a(cid:40)(cid:59)e(cid:56) in(cid:36)o(cid:49)e (cid:59)a(cid:63) e(cid:63)(cid:54)ense Other comprehensive income for the year, net of tax (cid:26)o(cid:59)al (cid:36)o(cid:49)(cid:54)(cid:56)e(cid:44)ensi(cid:61)e in(cid:36)o(cid:49)e (cid:40)o(cid:56) (cid:59)(cid:44)e (cid:64)ea(cid:56) Accent Group Limited Annual Report 2018 60 2018 $’000 2017 $’000 (cid:164)(cid:138)(cid:139)(cid:84)(cid:137)(cid:165)(cid:139) 576,253 2 14 (cid:108)(cid:137)(cid:140)(cid:164)(cid:84)(cid:141)(cid:139)(cid:164)(cid:109) (290,462) (cid:108)(cid:137)(cid:135)(cid:84)(cid:137)(cid:136)(cid:165)(cid:109) 33,408 (cid:108)(cid:136)(cid:138)(cid:141)(cid:84)(cid:165)(cid:164)(cid:138)(cid:109) (121,949) (cid:108)(cid:137)(cid:137)(cid:84)(cid:136)(cid:135)(cid:140)(cid:109) (19,702) – (cid:108)(cid:164)(cid:140)(cid:109) (cid:108)(cid:141)(cid:140)(cid:84)(cid:137)(cid:140)(cid:141)(cid:109) (cid:108)(cid:136)(cid:140)(cid:84)(cid:140)(cid:142)(cid:137)(cid:109) (cid:108)(cid:140)(cid:84)(cid:164)(cid:136)(cid:136)(cid:109) (cid:108)(cid:137)(cid:135)(cid:84)(cid:136)(cid:164)(cid:141)(cid:109) (cid:108)(cid:137)(cid:139)(cid:84)(cid:137)(cid:140)(cid:165)(cid:109) (cid:108)(cid:139)(cid:84)(cid:140)(cid:164)(cid:164)(cid:109) (cid:140)(cid:136)(cid:84)(cid:165)(cid:138)(cid:165) (9,714) – (64,896) (19,388) (4,011) (17,647) (21,300) (3,218) 37,388 (cid:108)(cid:136)(cid:139)(cid:84)(cid:138)(cid:139)(cid:142)(cid:109) (10,825) (cid:138)(cid:141)(cid:84)(cid:139)(cid:165)(cid:142) (cid:164)(cid:84)(cid:139)(cid:140)(cid:140) (cid:139)(cid:138)(cid:84)(cid:142)(cid:139)(cid:139) 26,563 – 26,563 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 39. Deed of cross guarantee (continued) E(cid:55)(cid:60)it(cid:64) (cid:103) acc(cid:60)m(cid:60)lated losses Accumulated losses at the beginning of the financial year Profit after income tax expense Dividends paid Accumulated losses at the end of the financial year Statement of financial position (cid:6)(cid:60)(cid:56)(cid:56)en(cid:59) asse(cid:59)s Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other current assets (cid:18)on(cid:102)(cid:36)(cid:60)(cid:56)(cid:56)en(cid:59) asse(cid:59)s Receivables Other financial assets Property, plant and equipment Intangibles Deferred tax (cid:26)o(cid:59)al asse(cid:59)s (cid:6)(cid:60)(cid:56)(cid:56)en(cid:59) lia(cid:35)ili(cid:59)ies Trade and other payables Borrowings Derivative financial instruments Provision for income tax Employee benefits Deferred lease incentives (cid:18)on(cid:102)(cid:36)(cid:60)(cid:56)(cid:56)en(cid:59) lia(cid:35)ili(cid:59)ies Borrowings Derivative financial instruments Deferred tax Employee benefits Deferred lease incentives (cid:26)o(cid:59)al lia(cid:35)ili(cid:59)ies (cid:18)e(cid:59) asse(cid:59)s (cid:9)(cid:55)(cid:60)i(cid:59)(cid:64) Issued capital Reserves Accumulated losses (cid:26)o(cid:59)al e(cid:55)(cid:60)i(cid:59)(cid:64) Accent Group Limited Annual Report 2018 61 2018 $’000 (cid:108)(cid:139)(cid:139)(cid:84)(cid:137)(cid:164)(cid:140)(cid:109) (cid:138)(cid:141)(cid:84)(cid:139)(cid:165)(cid:142) (cid:108)(cid:138)(cid:137)(cid:84)(cid:140)(cid:138)(cid:165)(cid:109) (cid:108)(cid:138)(cid:142)(cid:84)(cid:138)(cid:136)(cid:139)(cid:109) 2017 $’000 (38,351) 26,563 (32,477) (44,265) 2018 $’000 2017 $’000 (cid:137)(cid:142)(cid:84)(cid:142)(cid:140)(cid:142) – 41,033 7,119 (cid:142)(cid:136)(cid:84)(cid:141)(cid:137)(cid:165) 101,663 (cid:139)(cid:84)(cid:164)(cid:136)(cid:139) 1,162 – 3,207 (cid:136)(cid:137)(cid:141)(cid:84)(cid:139)(cid:164)(cid:138) 153,022 (cid:138)(cid:139)(cid:136) (cid:164)(cid:141)(cid:164) 705 – (cid:164)(cid:142)(cid:84)(cid:141)(cid:142)(cid:165) 69,749 (cid:138)(cid:139)(cid:137)(cid:84)(cid:142)(cid:135)(cid:137) 345,462 (cid:137)(cid:135)(cid:84)(cid:165)(cid:139)(cid:136) (cid:139)(cid:138)(cid:139)(cid:84)(cid:140)(cid:140)(cid:165) (cid:140)(cid:164)(cid:137)(cid:84)(cid:135)(cid:137)(cid:136) 17,073 432,989 586,011 (cid:141)(cid:164)(cid:84)(cid:140)(cid:165)(cid:140) (cid:137)(cid:137)(cid:84)(cid:164)(cid:137)(cid:140) (cid:137)(cid:140)(cid:136) (cid:142)(cid:84)(cid:141)(cid:140)(cid:141) (cid:140)(cid:84)(cid:142)(cid:135)(cid:140) (cid:164)(cid:84)(cid:165)(cid:141)(cid:139) 80,980 15,097 5,054 7,882 4,771 4,949 (cid:136)(cid:137)(cid:136)(cid:84)(cid:142)(cid:142)(cid:141) 118,733 (cid:140)(cid:136)(cid:84)(cid:135)(cid:135)(cid:135) 88,625 (cid:136)(cid:165)(cid:139) (cid:136)(cid:140)(cid:84)(cid:139)(cid:139)(cid:141) (cid:164)(cid:139) (cid:136)(cid:141)(cid:84)(cid:139)(cid:138)(cid:164) (cid:165)(cid:139)(cid:84)(cid:136)(cid:138)(cid:136) (cid:137)(cid:135)(cid:164)(cid:84)(cid:136)(cid:137)(cid:165) (cid:138)(cid:140)(cid:140)(cid:84)(cid:165)(cid:142)(cid:138) 710 13,685 540 21,585 125,145 243,878 342,133 (cid:138)(cid:165)(cid:138)(cid:84)(cid:137)(cid:164)(cid:140) 382,859 (cid:136)(cid:136)(cid:84)(cid:142)(cid:139)(cid:137) (cid:108)(cid:138)(cid:142)(cid:84)(cid:138)(cid:136)(cid:139)(cid:109) 3,539 (44,265) (cid:138)(cid:140)(cid:140)(cid:84)(cid:165)(cid:142)(cid:138) 342,133 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 40. Reconciliation of profit after income tax to net cash from operating activities Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Impairment of Hype DC brand name Write-off of assets Share-based payments Foreign exchange differences Rental expenses Change in assets and liabilities:* Receivables Inventories Trade creditors and provisions Tax assets and liabilities Net cash from operating activities Consolidated 2018 $’000 2017 $’000 (cid:139)(cid:139)(cid:84)(cid:135)(cid:135)(cid:135) 29,352 (cid:137)(cid:139)(cid:84)(cid:136)(cid:138)(cid:138) 21,665 – (cid:164)(cid:140) (cid:136)(cid:84)(cid:142)(cid:139)(cid:142) (cid:140)(cid:136) (cid:108)(cid:141)(cid:84)(cid:138)(cid:136)(cid:139)(cid:109) 9,714 – 344 65 – (cid:138)(cid:84)(cid:141)(cid:139)(cid:135) 5,353 (cid:136)(cid:138)(cid:84)(cid:138)(cid:142)(cid:135) (22,460) (cid:108)(cid:141)(cid:84)(cid:137)(cid:136)(cid:142)(cid:109) (cid:108)(cid:137)(cid:84)(cid:141)(cid:137)(cid:141)(cid:109) (cid:141)(cid:135)(cid:84)(cid:135)(cid:164)(cid:165) 8,403 (7,017) 45,419 * Changes in assets and liabilities are net of those acquired in the acquisition of Hype DC Pty Limited in the comparative period. Note 41. Changes in liabilities arising from financing activities Consolidated Balance at 26 June 2016 Net cash from financing activities Changes through business combinations (Note 37) Balance at 2 July 2017 Net cash used in financing activities Balance at 1 July 2018 Bank loans $'000 (cid:29)or(cid:48)ing ca(cid:54)ital facility $'000 Capex facility $'000 Vendor loan notes $'000 40,000 25,000 – 65,000 (4,500) 60,500 5,000 5,000 – 10,000 (10,000) – 5,000 10,000 – 15,000 (15,000) – – 13,125 13,125 – – 13,125 Total $'000 50,000 40,000 13,125 103,125 (29,500) 73,625 Accent Group Limited Annual Report 2018 62 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 42. Earnings per share Profit after income tax Non-controlling interest Profit after income tax attributable to the owners of Accent Group Limited Consolidated 2018 $'000 2017 $'000 (cid:139)(cid:139)(cid:84)(cid:135)(cid:135)(cid:135) 29,352 (cid:108)(cid:139)(cid:138)(cid:109) (195) (cid:139)(cid:138)(cid:84)(cid:142)(cid:140)(cid:141) 29,157 (cid:18)(cid:60)m(cid:35)er (cid:18)(cid:60)m(cid:35)er Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share (cid:140)(cid:138)(cid:138)(cid:84)(cid:165)(cid:139)(cid:141)(cid:84)(cid:165)(cid:139)(cid:136) 526,571,720 Adjustments for calculation of diluted earnings per share: Options and loan funded shares (cid:137)(cid:84)(cid:137)(cid:136)(cid:140)(cid:84)(cid:140)(cid:165)(cid:138) 4,270,982 Weighted average number of ordinary shares used as the denominator in calculating diluted earnings per share (cid:140)(cid:138)(cid:164)(cid:84)(cid:135)(cid:164)(cid:138)(cid:84)(cid:139)(cid:137)(cid:139) 530,842,702 Basic earnings per share Diluted earnings per share Note 43. Share-based payments (cid:19)(cid:54)tion (cid:22)lans Cents Cents 8.23 (cid:165)(cid:87)(cid:137)(cid:135) 5.54 5.49 Employee Option Plan Options issued under the Employee Option Plan ('EOP') convert into one ordinary share in the Company on exercise. In addition to the exercise price of each option, an option fee is payable for all options. The option fee varies depending on the date on which the options were issued, but have all been calculated with reference to the Volume Weighted Average Price of Accent Group shares on the ASX for the seven days leading up to the date on which the options were issued. Employee Share Scheme Shares have been issued under the Accent Group Employee Share Scheme ('ESS') and are held in escrow until certain vesting conditions are met. The shares were issued at market value at the date of the offer and the Company has provided employees with a limited recourse loan to acquire the shares. Interest on the loan is equivalent to the value of franked dividends paid in respect of the shares. The shares are treated in substance as options and accounted for as share-based payments. Set out below are summaries of options granted under the plans: 2018 Grant date Expiry date Exercise price 27/08/2015 27/08/2018 27/08/2015 27/08/2018 $0.400 $0.589 Balance at the start of the year 350,000 200,000 28/02/2013 28/08/2018 $0.490 2,488,332 03/12/2013 03/06/2019 $0.690 133,333 02/10/2014 30/03/2020 $0.590 1,360,000 30/03/2015 30/09/2020 $0.730 220,000 27/05/2015 30/09/2020 $0.730 2,250,000 27/05/2015 30/09/2020 $1.010 500,000 28/08/2015 30/08/2020 $1.140 1,600,000 13/05/2016 28/02/2021 $1.490 400,000 9,501,665 Balance at the end of the year – – 993,333 66,666 1,083,334 146,667 1,750,000 500,000 – – – – – – Granted Exercised Expired/ forfeited/other – – (350,000) (200,000) – – – – – – – – – – – (1,494,999) (66,667) (276,666) (73,333) (500,000) – – – (500,000) 1,100,000 – 400,000 (2,411,665) (1,050,000) 6,040,000 Accent Group Limited Annual Report 2018 63 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 43. Share-based payments (continued) 2017 Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/other Balance at the end of the year 24/08/2011 24/08/2016 $0.570 1,745,000 12/01/2015 28/08/2018 $0.345 700,000 27/08/2015 27/08/2018 $0.400 1,100,000 27/08/2015 27/08/2018 28/02/2013 28/08/2018 03/12/2013 03/06/2019 $0.589 $0.490 $0.690 600,000 3,969,999 200,000 02/10/2014 30/03/2020 $0.590 1,360,000 30/03/2015 30/09/2020 $0.730 220,000 27/05/2015 30/09/2020 $0.730 2,900,000 27/05/2015 30/09/2020 $1.010 500,000 28/08/2015 30/08/2020 $1.140 1,600,000 13/05/2016 28/02/2021 $1.490 400,000 15,294,999 – – – – – – – – – – – – – (1,745,000) – – – – (1,481,667) (66,667) – – – – (700,000) (750,000) 350,000 (400,000) 200,000 – – – – 2,488,332 133,333 1,360,000 220,000 (500,000) (150,000) 2,250,000 – – – – – – 500,000 1,600,000 400,000 (3,793,334) (2,000,000) 9,501,665 The weighted average share price during the financial year was $1.092 (2017: $1.146). The weighted average remaining contractual life of options outstanding at the end of the financial year was 1.8 years (2017: 2.6 years). (cid:22)er(cid:40)ormance rig(cid:44)ts On 14 October 2016, the Board approved a performance rights plan called the RCG Performance Rights Plan ('PRP'). The PRP has been introduced following a review by the Board of the existing remuneration arrangements of the Company. The Board intends for the PRP to replace the ESS. The objective of the PRP is to align the interests of employees of the Group with those of the shareholders and provide employees of the Group who are considered to be key to the future success of the Company with an opportunity to receive shares in order to reward and retain the services of those persons and recognise the employees of the Group for their contribution to the future success of the Company. Eligibility and grant of performance rights The Board may, from time to time, grant performance rights to an employee of the Group who the Board determines to be eligible to participate in the PRP, this may include an executive director of the Company, but may not include a non-executive director of the Company. The performance rights granted are under the terms and conditions of the PRP and may include additional terms and conditions, including any performance conditions, as the Board determine. The Board may only grant performance rights where an employee continues to satisfy any relevant conditions imposed by the Board. Vesting of performance rights Vesting of performance rights are subject to prescribed performance conditions. Performance rights granted during the year ended 1 July 2018 are subject to an adjusted diluted earnings per share (‘ADEPS’) performance condition. For the performance rights to vest, the Company’s compound ADEPS must equal or exceed 10%. The ADEPS performance conditions are measured over a five-year period and vesting is subject to the recipients of the performance rights remaining in employment with the Company. Accent Group Limited Annual Report 2018 64 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 43. Share-based payments (continued) Lapsing of performance rights An unvested performance right will lapse in various prescribed circumstances, unless the Board determines otherwise. Such circumstances include: – the circumstances specified by the Board on or before the grant of the performance right; – if a participant ceases to be an employee and/or director of a Group company for any reason or they cease to satisfy any other relevant conditions imposed by the Board at the time of the grant of the performance rights; – failure to meet the performance conditions attaching to the performance right or any performance condition no longer, in the opinion of the Board, being capable of being satisfied in accordance with their terms; and – in in the opinion of the Board a participant acts fraudulently or dishonestly, is in breach of their material duties or obligations to any Group company, has committed an act of harassment or discrimination or has done any act which has brought the Group or any Group company into disrepute. The Group recognises the fair value at the grant date of equity settled shares above as an employee benefit expense proportionally over the vesting period with a corresponding increase in equity. Fair value is measured at grant date using Monte-Carlo simulation and Binomial option pricing models where applicable. Non-market vesting conditions are determined with reference to the underlying financial or non-financial performance measures to which they relate. Key inputs to the pricing models include: Share price at grant date Volatility Dividend yield Risk-free interest rate Share price at grant date Volatility Dividend yield Risk-free interest rate Set out below are summaries of the performance rights granted: (cid:136) (cid:14)(cid:60)l(cid:64) (cid:137)(cid:135)(cid:136)(cid:165) (cid:130)(cid:135)(cid:87)(cid:165)(cid:135) (cid:137)(cid:140)(cid:87)(cid:135)(cid:166) (cid:141)(cid:87)(cid:140)(cid:166) (cid:136)(cid:87)(cid:140)(cid:135)(cid:166) (cid:137) (cid:14)(cid:60)l(cid:64) (cid:137)(cid:135)(cid:136)(cid:141) $1.47 44.0% 5.0% 1.95% 2018 Grant date 11/01/2017 03/10/2017 27/12/2017 20/06/2018 2017 Grant date 11/01/2017 Expiry date Balance at the start of the year Granted Exercised Expired/ forfeited/other Balance at the end of the year 09/11/2019 (cid:137)(cid:84)(cid:136)(cid:136)(cid:142)(cid:84)(cid:138)(cid:136)(cid:140) – – – – (cid:136)(cid:142)(cid:84)(cid:139)(cid:140)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) (cid:136)(cid:137)(cid:84)(cid:137)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) (cid:139)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) (cid:137)(cid:84)(cid:136)(cid:136)(cid:142)(cid:84)(cid:138)(cid:136)(cid:140) (cid:138)(cid:137)(cid:84)(cid:135)(cid:140)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) – – – – – (cid:108)(cid:142)(cid:135)(cid:165)(cid:84)(cid:141)(cid:164)(cid:138)(cid:109) (cid:136)(cid:84)(cid:137)(cid:136)(cid:135)(cid:84)(cid:140)(cid:140)(cid:137) (cid:108)(cid:137)(cid:84)(cid:140)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135)(cid:109) (cid:136)(cid:164)(cid:84)(cid:142)(cid:140)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) (cid:108)(cid:140)(cid:84)(cid:140)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135)(cid:109) (cid:164)(cid:84)(cid:141)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) – (cid:139)(cid:135)(cid:135)(cid:84)(cid:135)(cid:135)(cid:135) (cid:108)(cid:165)(cid:84)(cid:142)(cid:135)(cid:165)(cid:84)(cid:141)(cid:164)(cid:138)(cid:109) (cid:137)(cid:140)(cid:84)(cid:137)(cid:164)(cid:135)(cid:84)(cid:140)(cid:140)(cid:137) Balance at the start of the year Granted Exercised Expired/ forfeited/other Balance at the end of the year – – 2,119,315 2,119,315 – – – – 2,119,315 2,119,315 30/10/2022 30/10/2022 30/10/2022 Expiry date 09/11/2019 The weighted average remaining contractual life of performance rights outstanding at the end of the financial year was 4.2 years (2017: 2.5 years). Accent Group Limited Annual Report 2018 65 — NOTES TO THE FINANCIAL STATEMENTS — For the year ended 1 July 2018 Note 44. Events after the reporting period The following significant events have arisen since the end of the financial year: Vendor loan notes repayment As part of the purchase consideration for Hype DC, the Company issued vendor loan notes to each of the vendors in proportion to their shareholding in Hype DC. The vendor loan notes of $13,125,000 which were due to be repaid by 4 August 2018 were repaid in full on 13 July 2018 from existing NAB facilities. Release of Shares from Escrow As part of the acquisition of Hype DC Pty Ltd by the Company under a share sale and purchase deed dated 4 July 2016, the Company issued 36,842,105 fully paid ordinary shares to the shareholders of Hype DC Pty Ltd, subject to an escrow period of 2 years. On 4 August 2018 these fully paid ordinary shares were released from Escrow. De(cid:35)t (cid:10)acilit(cid:64) (cid:24)e(cid:41)nancing The Company refinanced its existing debt facilities on 17 August 2018, in advance of its maturity. The Company has taken advantage of favourable loan market conditions to refinance the existing $149,900,000 facility provided by NAB. The new $154,825,000 facility, to be provided by NAB and HSBC, is split between $76,125,000 of senior debt, $58,700,000 multi-option facility and $20,000,000 of permitted indebtedness not yet drawn down. The new facility has a combination of three and five year tenure with maturity dates of August 2021 and August 2023. Apart from the dividend declared as disclosed in Note 28 and matters noted above, no other matter or circumstance has arisen since 1 July 2018 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Accent Group Limited Annual Report 2018 66 — DIRECTORS' DECLAR ATION — For the year ended 1 July 2018 In the directors' opinion: – the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; – the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in Note 2 to the financial statements; – the attached financial statements and notes give a true and fair view of the Group's financial position as at 1 July 2018 and of its performance for the financial year ended on that date; – there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and – at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in Note 39 to the financial statements. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Da(cid:61)id (cid:11)ordon Chairman 28 August 2018 Melbourne Accent Group Limited Annual Report 2018 67 — INDEPENDENT AUDITOR’S REPORT — Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au Independent Auditor’s Report to the Members of Accent Group Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Accent Group Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 1 July 2018, the consolidated income statement, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 1 July 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited. 69 Accent Group Limited Annual Report 2018 68 — INDEPENDENT AUDITOR’S REPORT — Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How the scope of our audit responded to the Key Audit Matter In conjunction with our valuation specialists, our procedures included, but were not limited to: Assessing the basis of allocation of goodwill and indefinite useful life intangible assets to identified CGUs or CGU groups; Evaluating the principles and integrity of the models used by management to calculate the value-in-use of the CGUs or CGU groups and the brand names to ensure they comply with the applicable accounting standards; the cash Challenging management with respect to the revenue growth rates and operating margins underlying to determine whether they are reasonable and supportable based on historical performance, management’s strategic growth plans for the CGUs, and other known industry factors; forecasts flow Assessing the reasonableness of the basis adopted by management in determining the other key inputs and assumptions underlying the calculations in the models including: Royalty rates; and o o Discount rates Performing sensitivity analysis on the key model inputs and assumptions; and Assessing disclosures statements. appropriateness of the in Note 17 to the the financial Carrying value of goodwill and indefinite useful life intangible assets Goodwill and indefinite useful life intangible assets (principally brand names) of $345.1m have been recognised in the consolidated statement of financial position as a consequence of acquisitions undertaken in the past periods. In the current year, management has continued to restructure the business with the eventual goal of achieving a fully integrated wholesale and retail footwear business. Following these changes, the Chief Operating Decision Makers, being the board of directors, assess the results of the business and allocate resources on a Group basis. As the divisional operations are no longer monitored as separate businesses by management, and the synergies within the business are shared between the brands, goodwill is monitored on a group basis. Consequently the goodwill that originated from the Accent, The Athlete’s Foot and RCG Brands businesses has been combined into testing a single CGU purposes. impairment for Management conducts impairment tests annually (or more frequently if impairment indicators exist) to assess the recoverability of the carrying value of goodwill and indefinite useful life intangible assets. This is performed through value-in-use discounted cash flow models. As disclosed in Note 3 to the financial statements, there are a number of key estimates made which require significant judgement in determining the inputs into these models which include: Revenue growth; Operating margins; Royalty rates (used in the relief from royalty brand valuation model); and Discount rates applied to the projected future cash flows. 70 Accent Group Limited Annual Report 2018 69 — INDEPENDENT AUDITOR’S REPORT — Key Audit Matter How the scope of our audit responded to the Key Audit Matter Valuation of inventory and provision for impairment of inventories The Group has recognised $98.6m in inventories on the consolidated statement of financial position as at 1 July 2018. Our audit procedures included, but were not limited to: to in Note 3 Inventories are recognised net of a provision for impairment where the net realisable value of inventories is less than cost. As disclosed financial statements, this assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories, and broader industry and other factors that affect inventory obsolescence. the To the extent that these judgements and estimates prove incorrect, the Group may be exposed to potential additional inventory write-downs or reversals in future periods. Testing on a sample basis inventory items in each significant component and comparing the selected items to their current selling prices; Challenging management’s estimate of the provision by considering, amongst others, the following sources of information to assess net realisable value: o o o o Aging of inventory; Actual losses incurred in the financial period due to inventory sold below cost and inventory written off; Inventory not sold during the period; and The likelihood of current inventory to become aged and/or impaired in the future based on internal and external industry factors. Recalculating the inventory provision to test compliance with the Group’s accounting policy and Assessing disclosures statements. appropriateness of the in Note 11 to the the financial Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 1 July 2018, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 71 Accent Group Limited Annual Report 2018 70 — INDEPENDENT AUDITOR’S REPORT — In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as intentional omissions, involve collusion, fraud may misrepresentations, or the override of internal control. forgery, Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 72 Accent Group Limited Annual Report 2018 71 — INDEPENDENT AUDITOR’S REPORT — From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 14 to 20 of this Report for the year ended 1 July 2018. In our opinion, the Remuneration Report of Accent Group Limited, for the year ended 1 July 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU David White Partner Chartered Accountants Sydney, 28 August 2018 73 Accent Group Limited Annual Report 2018 72 — SHAREHOLDER INFORMATION — The shareholder information set out below was applicable as at 2 August 2018. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders (cid:26)(cid:62)ent(cid:64) largest (cid:55)(cid:60)oted e(cid:55)(cid:60)it(cid:64) sec(cid:60)rit(cid:64) (cid:44)olders The names of the twenty largest security holders of quoted equity securities are listed below: BBRC INTERNATIONAL PTE LTD (BB FAMILY INTERNATIONAL A/C) HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED CRAIG JOHN THOMPSON BNP PARIBAS NOMS PTY LTD (DRP) CITICORP NOMINEES PTY LIMITED DANIEL GILBERT JAMES WILLIAM DUELL MICHAEL JOHN HAPGOOD CINDY GILBERT PITTMAN PTY LIMITED (THE PITT FAMILY A/C) NATIONAL NOMINEES LIMITED RIVAN PTY LTD (DAVID GORDON SUPER FUND A/C) AUTHENTICS AUSTRALIA PTY LTD (AUTHENTICS AUSTRALIA A/C) VAMICO PTY LIMITED (VAMICO A/C) GRAHGER CAPITAL SECURITIES PTY LTD GRAHGER RETAIL SECURITIES PTY LTD MR GEOFFREY WILLIAM WEBSTER UBS NOMINEES PTY LTD LYMGRANGE PTY LIMITED (cid:18)(cid:60)m(cid:35)er of holders of ordinary shares 884 2,227 1,355 2,069 186 6,721 168 Ordinary shares (cid:18)(cid:60)m(cid:35)er (cid:44)eld 97,539,693 86,880,241 43,982,877 35,428,562 28,979,375 20,957,242 15,394,737 14,571,425 14,571,425 12,894,737 11,052,631 9,284,456 6,599,034 3,364,694 3,050,000 3,000,000 3,000,000 1,505,642 1,501,573 1,500,000 % of total shares iss(cid:60)ed 18.00 16.04 8.12 6.54 5.35 3.87 2.84 2.69 2.69 2.38 2.04 1.71 1.22 0.62 0.56 0.55 0.55 0.28 0.28 0.28 415,058,344 76.61 Accent Group Limited Annual Report 2018 73 — SHAREHOLDER INFORMATION — Substantial holders Substantial holders in the Company are set out below: BBRC International Pte Ltd Craig John Thompson Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares (cid:18)(cid:60)m(cid:35)er (cid:44)eld 97,539,693 35,428,562 % of total shares iss(cid:60)ed 18.00 6.54 Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. Restricted securities Class Ordinary shares subject to the RCG Employee Share Scheme restrictions Securities subject to voluntary escrow Class Expiry date (cid:18)(cid:60)m(cid:35)er of shares Various 6,040,000 Expiry date (cid:18)(cid:60)m(cid:35)er of shares Ordinary shares issued in connection with the acquisition of Hype DC 4 August 2018 36,842,105 Accent Group Limited Annual Report 2018 74 Directors — CORPOR ATE DIRECTORY — David Gordon – Chairman Daniel Agostinelli – Chief Executive Officer Brett Blundy Stephen Goddard Michael Hapgood Stephen Kulmar Donna Player Joint company secretaries Matthew Durbin Celesti Harmse Registered office and principal place of business 2/64 Balmain Street Richmond VIC 3121 Telephone: 03 9427 9422 Email: investors@accentgr.com.au Share register Computershare Investor Services Pty Limited Auditor GPO Box 2975 Melbourne VIC 3001 Telephone: 1300 850 505 Deloitte Touche Tohmatsu Grosvenor Place 225 George Street Sydney NSW 2000 Bankers National Australia Bank Stock exchange listing Accent Group Limited shares are listed on the Australian Securities Exchange (ASX code: AX1) Website www.accentgr.com.au Corporate Governance Statement www.accentgr.com.au/for-investors/corporate-governance Accent Group Limited Annual Report 2018 75 Accent Group Limited (ABN: 85 108 096 251) 2/64 Balmain Street, Richmond VIC 3121 +61 2 8310 0000 (cid:62)(cid:62)(cid:62)(cid:87)a(cid:36)(cid:36)en(cid:59)g(cid:56)(cid:87)(cid:36)o(cid:49)(cid:87)a(cid:60)
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