Boralex
Annual Report 2017

Plain-text annual report

Beacon Lighting Group Limited ANNUAL REPORT 2017 ACN 164 122 785 Contents Chairman’s and Chief Executive Officer’s Report Board of Directors Management Team Corporate Governance Statement Directors’ Report Auditor’s Independence Declaration Index to the Financial Statements Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to Financial Statements Directors’ Declaration Independent Auditor’s Report to the Members of Beacon Lighting Group Limited Shareholders’ Information Corporate Directory Store Locations 1 6 7 8 14 26 28 29 30 31 32 33 69 70 77 78 80 Important Notice This financial report is the consolidated financial report of the consolidated entity consisting Beacon Lighting Group Limited, ACN 164 122 785 and its subsidiaries. Beacon Lighting Group Limited is a Company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is 5 Bastow Place Mulgrave Victoria 3170. A description of the nature of the consolidated entity’s operations and its principal activities is included in the Directors’ report on page 14, which is not part of the financial report. The financial report was authorized for issue by the Directors on 23 August 2017. The Directors have the power to amend and re-issue the financial statements. Chairman’s and Chief Executive Officer’s Report FY2017 was a year of very important milestones for the Beacon Lighting Group. The most significant milestones were: - It has been 50 years since the first Beacon Lighting store opened in Chapel Street, Prahran (VIC) in 1967 - The Group opened the 100th Beacon Lighting store at North Lakes (QLD) in March 2017 - There are now more than 1,000 Associates working for the Group - The annual sales turnover for the Group has now exceeded $200 million for the first time The Board of Directors would like to thank our Customers, Associates, Suppliers and Shareholders for their contribution to the Group’s success over the past 50 years. The Beacon Lighting Group is looking forward to using the first 50 years as the foundation for future success. Key Highlights The key highlights which contributed to the FY2017 results included: Record sales result at $214.4 million increased by 11.0% The opening of 8 new company stores, the purchase of 4 franchise stores and 4 new company stores in the process of being opened Company store retail sales increased by 10.7% Commercial Office sales increased by 16.2% Beacon Solar sales increased by 142.5% Online sales increased by 53.8% Acquired 3 Lights for You stores Acquired the Masson for Light store Acquired the license for the GE Street Light business The establishment of new Beacon International businesses in Germany and the USA Group Overview Throughout FY2017, the Beacon Lighting Group has made a record level of investment in new company stores, a new Commercial office, acquired retail lighting competitors and opened new businesses in new international markets. At the end of FY2017, Beacon Lighting had 96 company stores, 7 franchise stores and 4 stores in the process of being opened. Throughout FY2017, Beacon Lighting opened 8 new company stores in South Melbourne (VIC), Marsden Park (NSW), Brookvale (NSW), Claremont (WA), North Lakes (QLD), Burwood (VIC), Balwyn North (VIC) and Killara (NSW). Beacon Lighting also closed the South Wharf (VIC) store as a relocation to South Melbourne (VIC). The Group also purchased a number of franchise stores being the Jindalee (QLD), Moonah (TAS), Frankston (VIC) and Midland (WA) franchise stores, converting them into company stores. Beacon Lighting now has 5 Commercial offices with the opening of the new office in South Australia. The Beacon International business has had operations in Hong Kong and this year opened up new businesses in Germany and the USA. Beacon Solar continues to grow strongly by offering energy efficient solutions to our commercial customers. The Group non retail lighting capabilities has continued to expand with the acquisition of the GE Street Lighting business. The Masson for Light (VIC) store acquired in FY2017 will continue to target the architecture specification lighting market. Financial Result The Beacon Lighting Group achieved a record sales result in FY2017. However, due to significant investments in new stores and new businesses, as well as the profit impact of the liquidation sale of a major competitor, the profit result fell short of FY2016. Beacon Lighting achieved sales growth of 11.0% to $214.4 million in FY2017. Company store comparative sales increased by 1.2% for the year. QLD, SA and NSW company stores all achieved good comparative sales increases while sales in WA company stores were particularly challenging. In FY2017, gross profit dollars increased by $12.2 million or 9.8% over the underlying gross profit dollars in FY20161. As a percentage of sales, the gross profit percentage was 63.3% in FY2017 compared to underlying gross profit percentage of 63.9% in FY20161. Gross margin recovered in H2 FY2017 to 64.5% after the liquidation sale of the major competitor concluded. Significant investments were made in opening of new stores, new businesses and in growing market share. Against previous trends, Group Operating Expenses increased to 51.8% of sales in FY2017 compared to 50.7% of sales in FY2016. The Group achieved an EBITDA of $27.6 million which was down by $1.5 million or 5.3% down on the underlying profit in FY20161. The Group Net Profit After Tax result of $16.6 million was $1.2 million or 6.5% down on the underlying profit in FY20161. FY2017 was a record investment year for the Beacon Lighting Group with the purchase of 4 franchise stores, the 3 Lights for You stores, the Masson for Light store, the GE Street Light distribution business CHAIRMAN’S AND CHIEF EXECUTIVE OFFICER’S REPORT 1 and Masson Manufacturing. The opening of 8 new company stores, plus having 4 new company stores in the process of being opened at the end of FY2017, resulted in a significantly higher level of investment. Key Growth Strategies The key growth strategies in FY2018 will be to: Outlook Building on the success of the first 50 years for Beacon Lighting, the Group has planned for a year of further growth in FY2018. Beacon Lighting has committed to the following activities for FY2018: • Purchased the Nunawading franchise store in July 2017 • The Carlton (NSW), Bayswater (VIC) and Crows Nest (NSW) stores • Continue to optimise the existing retail business network have already opened in FY2018 • Grow the sales and profits of the emerging businesses • The Gladesville (NSW) store in expected to open in September 2017 The lighting industry continues to go through a period of exciting change with the continuing focus on new technologies, fashion and energy efficient lighting solutions. The recent increase in power prices also continues to drive demand for energy efficient solutions. Given that Beacon Lighting has a strong market position as Australia’s leading lighting retailer and with a number of emerging businesses, the Group remains very well positioned to take advantage of the changes that are occurring. The Beacon Lighting team is looking forward to delivering record sales and profits in FY2018. • Target the opening of approximately 6 new company stores • Be the first to market with the latest fashion, trend and energy efficient products for our customers • Enhance our online and social media presence. • Conservatively investigate new business opportunities closely aligned to our retail and emerging businesses both in Australia and in International markets • Target efficiency gains while continuing to drive business growth Dividends The Directors have declared a fully franked dividend of 2.40 cents per share for H2 FY2017 (2.40 cents per share for H2 FY2016). Along with the H1 FY2017 fully franked dividend of 2.35 cents per share (2.30 cents per share for H1 FY2016), this brings the annual Beacon Lighting dividend for FY2017 to 4.75 cents per share (4.70 cents per share for FY2016). Going forward, the Directors of Beacon Lighting will continue to target a dividend payout ratio of between 50% and 60% of the annual Net Profit After Tax result which will be paid in the months of March and September each year. Ian Robinson Executive Chairman Glen Robinson Chief Executive Officer 1 During FY2016, the Beacon Lighting Group implemented a new inventory valuation system and conducted a review of the supply chain costs to be capitalised into inventory. The effect of this change was to increase inventory by $711,249 and increase the gross profit by $711,249, thereby increasing the statutory profit compared to the underlying profit for FY2016. A reconciliation of the FY2016 statutory profit to the underlying profit can be found in the Operating and Financial Review in the Directors’ Report. 2 BEACON LIGHTING GROUP ANNUAL REPORT 20173 Key Activities of F Y 20 1 7 RECORD SALES $214.4m SALES $m 214.4 193.2 179.4 150.3 132.9 FY20131 FY2014 FY2015 FY20163 FY2017 EBITDA2 $m 20.1 16.6 27.4 29.2 27.6 NPAT4 $m 11.8 9.5 17.8 16.9 16.6 FY20131 FY2014 FY2015 FY20163 FY2017 FY20131 FY2014 FY2015 FY20163 FY2017 4 1 FY2013 – 52 week Pro Forma result in the Prospectus dated 12 March 2014 2 Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) 3 Underlying profit for FY2016 4 Net Profit After Tax (NPAT) OPENED EIGHT NEW COMPANY STORES PURCHASED THREE ‘LIGHTS FOR YOU’ STORES PURCHASED FOUR FRANCHISE STORES PURCHASED THE MASSON FOR LIGHT STORE OPENED NEW BUSINESSES IN GERMANY AND THE USA PURCHASED THE GE STREET LIGHT BUSINESS 5 Board of Directors Ian Robinson Executive Chairman Glen Robinson Chief Executive Officer 43 years of service Ian Robinson purchased the first Beacon Lighting store in 1975. Over the subsequent 43 years, his role has grown from store management, to CEO and in July 2013 to his current role as Executive Chairman. Ian remains actively involved in the operations of the Group. Ian is a Director of Lighting Council of Australia, Carbonetix Pty Ltd and the Large Format Retailers Association. 22 years of service Glen Robinson assumed his current role of Chief Executive Officer in July 2013 after joining the Group in 1994. Glen has a strong understanding of the business having started with the Group on the sales floor, progressing to trainee buyer, merchandising manager and then taking responsibility for Beacon Lighting’s product range from development to in-store presentation. Glen holds a Bachelor of Business (Management). (James) Eric Barr Deputy Chairman Non-Executive Director Neil Osborne Non-Executive Director Eric Barr is Deputy Chairman and Chairman of the Remuneration and Nomination Committee of the Group. Eric retired in 2000 as a Partner with PricewaterhouseCoopers after 20 years of service. Since then he has been a Director of public companies in the United States and Australia, including 10 years as lead director of Reading International Inc. Eric is the Chairman of Austock Group Limited and the Chairman of the Audit Committee. He is a Non-Executive director of Austock Life Limited where he is Chairman of both the Risk Committee and Remuneration Committee. Eric is a Non-Executive director of the Sydney Stock Exchange Limited, holding the positions of Chairman of Directors and Chairman of the Audit Committee. Eric is a Chartered Accountant. Neil Osborne is a Non-Executive Director and is also Chairman of the Group’s Audit Committee. Neil has over 30 years experience in the retail industry. He was formerly an Accenture Partner, leading large strategic projects in Australia and Asia. He also spent 18 years with Coles Myer Ltd in senior positions including finance, operations (including CFO Myer) and strategic planning. Neil is a Non-Executive Director of Vita Group (ASX Listed) and Chairman of their Audit and Risk Committee. He is also Chairman of Australian United Retailers (trading as Foodworks). Neil was previously a Non-Executive Director of Lovisa Holdings. Neil holds a Bachelor of Commerce and is a CPA and a FAICD. 6 BEACON LIGHTING GROUP ANNUAL REPORT 2017Management Team Ian Bunnett Managing Director - Sales Joined Beacon Lighting in 2004 having had extensive retail experience including the GM of Store Operations with Payless Shoes. David Speirs Chief Financial Officer Joined Beacon Lighting in 2003 after six years of business consulting and a career working with various Coles Myer businesses. David holds a BBus (Accounting), MBus (Accounting), Post Grad Dip (Finance) and is a FCPA. Barry Martens Chief Operating Officer Joined Beacon Lighting in 1996 following a retail advertising career with Clemenger Harvey and retail marketing experience with Klein’s Jewellery. Barry holds a Certificate in Business Studies (Advertising). Michael (Mick) Tan Chief Information Officer Joined Beacon Lighting in 2000 and has had 30 years information technology experience including a career with Fujitsu Systems. Mick holds a Dip (Management), an ICL Certificate (Systems Analysts & Design) and an ICL Certificate (Base Computer Concepts & Programming). Prue Robinson Marketing Director Joined Beacon Lighting in 2006 following a variety of roles in Sydney and London and four years in marketing with Spotlight. Prue holds a BBus (Management & Marketing). Elizabeth Mikkelsen Group Human Resources Manager Joined Beacon Lighting in 2003 having had a retail management career which included Myer Stores in Human Resources and line management. Elizabeth holds a BA (Psych(Hons)) and a Dip (Human Resources). Tracey Hutchinson Financial Controller & Company Secretary Joined Beacon Lighting in 2011 having had senior financial management roles with various ASX businesses, including Eyecare Partners. Tracey holds a BBus (Accounting), a MBus (Administration), a Graduate Diploma of Corporate Governance and is a CPA. Rodney Brown General Manager – Supply Chain Joined Beacon Lighting in 2012 with extensive supply chain experience including management roles with Cadbury Schweppes and Fosters Brewing. Rodney holds a Certificate III in Purchasing and Warehouse Management. MANAGEMENT TEAM 7 Corporate Governance Statement The Board of Directors of Beacon Lighting Group Limited is responsible for the corporate governance of the Group. This statement outlines the corporate governance policies and practices formally approved by the Board of Beacon Lighting. This statement is current as at 23 August 2017. These policies and practices are in accordance with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (3rd Edition) unless otherwise stated. The Board considers that the Group’s corporate governance practices and procedures substantially reflect the principles. The full content of the Group’s Corporate Governance policies and charters can be found on the Group’s website (www.beaconlightinggroup.com.au). Principle 1 Lay Solid Foundations for Management and Oversight Principle 2 Structure the Board to Add Value The Board’s responsibilities are defined in the Board Charter and there is a clear delineation between the matters expressly reserved to the Board and those delegated to the Chief Executive Officer and senior management. The Board Charter outlines: The experience and expertise relevant to the position of Director held by each Director in office at the date of the annual report is included in the Directors’ Report. The term in office held by each Director in office at the date of this report is as follows: • The guidelines for Board composition, including the processes around Director appointments and resignations. • The operation of the Board and the Board Committees. • The roles of the Board, the Chairperson, CEO and senior management. • Specifically includes risk management responsibilities (rather than these being delegated to a separate Risk Committee). A copy of the Group’s Board Charter is available on the Group’s website. The Board and Committee Charters sets out the processes for the annual review of the performance of the Board as a whole, each Director and the Board Committees. The Board has established a Remuneration and Nomination Committee which is responsible for reviewing executive remuneration and incentive policies and practices. The Group has a written agreement with each Director and senior executive setting out the terms of their appointment. The Group has adopted a Diversity Policy. The Group does not propose to establish measurable objectives for achieving gender diversity in the foreseeable future as recommended by Recommendation 1.5 of the ASX Corporate Governance Principles and Recommendations as: • The Group is strongly committed to making all selection decisions on the basis of merit and the setting of specific targets for the proportion of men and women at any level would potentially influence decision making to the detriment of the business. The Diversity Policy affirms the commitment of the Group to embrace diversity and sets out the principles and work practices to ensure that all Associates have the opportunity to achieve their full potential. Name Ian Robinson Eric Barr Glen Robinson Neil Osborne Term in office 4 years 3 years 3 years 3 years Note: these terms of office relate to the listed entity Beacon Lighting Group Limited only and do not relate to the subsidiary or operating entities. Ian Robinson is a substantial shareholder. He has been Executive Chairman since July 2013 having previously held the position of Executive Chairman and Chief Executive Officer. Eric Barr and Neil Osborne are shareholders of Beacon Lighting Group Limited. They are Non-Executive Directors and bring objective judgment to bear on Board decisions commensurate with their commercial knowledge, experience and expertise. Glen Robinson is a senior executive of Beacon Lighting and has been Chief Executive Officer since July 2013. Recommendation 2.1 of the ASX Corporate Governance Principles and Recommendations recommends that the Board establishes a nomination committee and that the committee have at least three members, a majority of whom are independent and be chaired by an independent Director. The Remuneration and Nominations Committee has four members. Three are independent: Eric Barr and Neil Osborne, as independent Directors and Andrew Hanson as an external consultant. Ian Robinson, Executive Chairman, is the other member. The Committee is chaired by Eric Barr. A copy of the Remuneration and Nomination Committee Charter is available on the Group’s website. 8 BEACON LIGHTING GROUP ANNUAL REPORT 2017In relation to nominations, the Remuneration and Nomination Committee is responsible for: In summary, the Code requires associates to always act: • In a professional, fair and ethical manner, in accordance with Group • Assessing current and future Director skills and experiences and values. identifying suitable candidates for succession. • In accordance with applicable legislation and regulations, and internal • Annually enquiring of the Executive Chairman and the Chief Executive policies and procedures. Officer their processes for evaluating their direct reports. An internal process of evaluation is undertaken annually on the performance, skills and knowledge of the Board and its committees, utilising a board skills matrix. The review provides comfort to the Board that its structure and performance is effective and appropriate to Beacon Lighting and that the Board has the range of skills, knowledge and experience to direct the Group. The Board skills matrix sets out the requisite skills, expertise, experience and other desirable attributes for the Board. The following attributes have been identified which Beacon seeks to achieve across its Board membership: other Board experience, retail industry experience, financial management experience and governance experience. The Directors have been selected for their relevant expertise and experience. They bring to the Board a variety of skills and experience, including industry and business knowledge, financial management, accounting, operational and corporate governance experience. The annual report includes details of the Directors, including their specific experience, expertise and term of office. To enable performance of their duties, all Directors: • Are provided with appropriate information in a timely manner and can request additional information at any time; • Have access to the Company Secretary; • Have access to appropriate continuing professional development opportunities; and • Are able to seek independent professional advice at the Group’s expense in certain circumstances. Recommendations 2.4 and 2.5 of the ASX Corporate Governance Principles and Recommendations recommends that the Board comprise a majority of Directors who are independent, and that the Chairperson should be an independent Director. The Board, as currently composed, does not comply with these recommendations. The Board considers that the composition of the Board is appropriate given the Group’s present circumstances. Principle 3 Act Ethically and Responsibly The Group has adopted a written Code of Conduct which applies to the Directors and all associates employed by the Group, including senior management. The objective of this Code is to ensure that high standards of corporate and individual behavior are observed by all associates in the context of their employment. • In a manner that protects the Group interests, reputation, property and resources. The Code also reminds associates of their responsibility to raise any concerns in relation to suspected or actual breaches of the Code. Beacon Lighting has in place a policy concerning trading in Beacon Lighting Group securities. The Securities Trading policy includes detailed requirements for Directors, Officers and senior management regarding when they can trade Beacon Lighting securities. Principle 4 Safeguard Integrity in Corporate Reporting Principle 4.1 of the ASX Corporate Governance Principals and Recommendations, recommends that the Audit Committee consist only of Non-Executive Directors and consists of a majority of independent Directors. The Audit Committee as currently composed does not comply with these recommendations. Beacon Lighting has an Audit Committee comprising of four members, three of whom are considered independent. The Audit Committee presently comprises Neil Osborne (Chairman), Eric Barr, Glen Robinson (Directors) and Andrew Hanson (external consultant). Two of the four members of the committee are Non-Executive Directors and have experience in, and knowledge of, the industry in which Beacon Lighting operates. Neil Osborne, Eric Barr and Andrew Hanson each have accounting qualifications. The details of the number of Audit Committee meetings held and attended are included in the Directors’ Report. Minutes are taken at each Audit Committee meeting, with the minutes tabled in the following full Board meeting. The Audit Committee has adopted a formal charter which outlines its role in assisting the Board in the Group’s governance and exercising of due care, diligence and skill in relation to: • Reporting of financial information; • The application of accounting policies; • Financial risk management; • The Group’s internal control system; and • Its relationship with the external auditor. In accordance with Recommendation 4.2 the Board, before it approves the Group’s statements for a financial period, ensures that it receives from its Chief Executive Officer and Chief Financial Officer a declaration that, in their opinion, the financial records of the Group have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. CORPORATE GOVERNANCE STATEMENT 9 In accordance with Principle 4.3, the Group’s external auditor attends each annual general meeting and is available to answer shareholder questions about the audit. Principle 5 Make Timely and Balanced Disclosure Principle 5.1 of the ASX Corporate Governance Principles and Recommendations recommends that companies should establish a written policy designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance and disclose that policy or a summary of it. The Group has adopted a Continuous Disclosure Policy. This Policy sets out the standards, protocols and the detailed requirements expected of all Directors, Officers, senior management and associates of the Group for ensuring the Group immediately discloses all price-sensitive information in compliance with the Listing Rules and Corporations Act relating to continuous disclosure. Principle 6 Respect the Rights of Security Holders The Group has adopted a Communications Policy governing its approach to communicating with its shareholders, market participants, customers, associates and other stakeholders. This policy specifically includes: • The approach to briefing institutional investors, brokers and analysts. • The approach to communications with investors whether by meetings, via the Group’s websites, electronically or by any other means. Beacon Lighting provides a printed copy of its annual report to all requesting shareholders. The annual report contains relevant information about the Group’s operations during the year, changes in the state of affairs and, other disclosures required by the Corporations Act. The half year report contains summarised financial information and a review of Beacon Lighting operations during the period. The Beacon Lighting Corporate website provides all shareholders and the public access to our announcements to the ASX, and general information about Beacon Lighting and its business. It also includes a section specifically dedicated to governance, which includes links to the Company’s Constitution, Code of Conduct and its various corporate governance charters and policies. The format of general meetings aims to encourage shareholders to actively participate in the meeting through being invited to comment, or raise questions of Directors on any matter relevant to the performance and operation of the Group. Principle 7 Recognise and Manage Risk Principle 7.1 of the ASX Corporate Governance Principles and Recommendations recommends that a listed company either have a committee to oversee risk or otherwise disclose the processes it employs to for overseeing the Company’s risk management framework. The Board does not currently have a committee to oversee risk. Instead, the Board Charter specifically includes risk management responsibilities (rather than these being delegated to a separate Risk Committee). The Board evaluates all risks to the Group on an annual basis. The risk matrix is then reviewed at regular intervals throughout the year to ensure that the Group is not being exposed to any new risks and that all existing risks are being monitored and managed effectively. The Board retains oversight responsibility for assessing the effectiveness of the Group’s systems for the management of material business risks. The Board reviews the Group’s risk management on an annual basis to ensure it continues to be sound. The Board does not consider a separate internal audit function is necessary at this stage. One of the Audit Committee responsibilities is to evaluate compliance with the Group’s risk management and internal control processes. The Board has received written assurances from management as to the effectiveness of the Group’s management of its material business risks. The Chief Executive Officer and Chief Financial Officer provide a written assurance in the form of a declaration in respect of each relevant financial period that, in their opinion, the declaration is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Principle 7.4 of the ASX Corporate Governance Principles and Recommendations requires the Group to disclose details about whether it has any material exposure to economic, environmental and social sustainability risks (if any). The Group has considered the following risks and has risk mitigation strategies in place. Economic Risks include impacts to consumers’ willingness to spend on discretionary retail and lighting products in particular. The Group mitigates the risk through the constant monitoring of the macro- economic environment and adjusting capital expenditure, new projects and operating expenses accordingly. Whilst consumer sentiment was lower in 2017 which affected general retail demand, housing activity remained positive which in part offset the impact of lower consumer sentiment towards discretionary expenditure for the Group. Exchange Rate Volatility can impact upon the Group’s ability to grow margins. The Group can also lock in a forward position for this foreign exchange exposure for a period of up to 12 months. The Board believes this mitigates the Group’s exchange rate volatility risk to an acceptable level. Environmental Sustainability Risks include impacts on the Group’s supply chain from suppliers through to stores. These risks can be reputational, regulatory and financial. The Boards assesses its primary exposure to be in the production of its products. The Group through its supply chain operates responsibly within the community and expects the same from its suppliers. Social Sustainability Risks include workplace health and safety as well as personnel management and corporate conduct. The Group has an extensive workplace health and safety policy incorporating the early identification and correction of potential risks, both in store and at the support offices. The Board is informed of all incidents and material potential risks at each Board meeting and the appropriate action taken. Corporate Conduct Risks could impact regulatory, reputational and financial performance. It includes stock loss and theft. The Group has a dedicated store operations team to regularly monitor and assess store related risks. The Group undertakes regular inventory counts and analysis of store performance to reduce the risk of material loss. 10 BEACON LIGHTING GROUP ANNUAL REPORT 2017Principle 8 Remunerate Fairly and Responsibly Principle 8.1 of the Corporate Governance Principles and Recommendations, recommends that the remuneration committee should comprise a majority of independent Directors. The Remuneration and Nomination Committee as currently composed does not comply with this recommendation. The Remuneration and Nomination Committee has four members. Three are independent: Eric Barr and Neil Osborne, as independent Directors, and Andrew Hanson as an external consultant. Ian Robinson, Executive Chairman, is the other member. The Committee is chaired by Eric Barr. In relation to remuneration, the Remuneration and Nomination Committee is responsible for: • Ensuring the Group has remuneration policies and practices appropriate to attracting and retaining key talent. • Reviewing and making recommendations in relation to the remuneration of Directors and senior management. • Reviewing and recommending the design of any executive incentive plans and approving the proposed awards to each executive under those plans. In accordance with its Charter, the Remuneration and Nomination Committee clearly distinguishes the structure of Non-Executive Directors’ remuneration from that of Executive Directors and senior executives. Details of Directors’ and executives’ remuneration, including the principles used to determine the nature and amount of remuneration, are disclosed in the remuneration report section of the annual report. The Group’s Securities Trading Policy expressly prohibits relevant participants from entering into arrangements that limit the economic risk of participating in the Group’s incentive schemes prior to the relevant securities becoming fully vested. CORPORATE GOVERNANCE STATEMENT 13 Directors’ Report The Directors of Beacon Lighting Group Limited (the ‘Group’) present their report together with the Consolidated Financial Statements of the Group and its controlled entities (the ‘Consolidated Entity’) for the 52 weeks ended 25 June 2017. 1. Directors The Directors of the Group during the whole financial period and up to the date of the report were: Ian Robinson Executive Chairman Chairman of the Board, Member of the Remuneration and Nomination Committee. Glen Robinson Chief Executive Officer Member of the Audit Committee. Eric Barr Non-Executive Director Deputy Chairman of the Board, Chairman of the Remuneration and Nomination Committee and Member of the Audit Committee. Neil Osborne Non-Executive Director Chairman of the Audit Committee and Member of the Remuneration and Nomination Committee. Details of the expertise and experience of the Directors are outlined on page 6 of this annual report. 2. Principal Activities During the financial period the principal continuing activities of the Group consisted of the selling of light fittings, globes, ceiling fans and energy efficient products in the Australian market. 3. Results The consolidated profit for the year attributable to the members of Beacon Lighting Group Limited was: Consolidated Entity Actual FY2017 $’000 Actual FY20161 $’000 Profit before Income Tax 23,370 26,160 to meet the demands of its customers. More than 95% of the lighting and fan products sold by Beacon Lighting businesses are supplied through the Beacon Lighting supply chain and approximately 85% of the products are exclusively branded. At the end of FY2017, Beacon Lighting operated the following trading businesses: • 96 Beacon Lighting company stores • 7 Beacon Lighting franchise stores • 5 Commercial sales offices • 14 Beacon Lighting related websites • Beacon International trading in Hong Kong, Germany and the USA • Light Source Solutions trading in Australia and New Zealand • Masson for Lights FY2017 was a record investment year for the Beacon Lighting Group. These investments included: • Beacon Lighting opened 8 new company stores in South Melbourne (VIC), Marsden Park (NSW), Brookvale (NSW), Claremont (WA), North Lakes (QLD), Burwood (VIC), Balwyn North (VIC) and Killara (NSW) • Beacon Lighting purchased 4 franchise stores being the Jindalee (QLD), Moonah (TAS), Frankston (VIC) and Midland (WA) franchise stores and converted them into company stores • Purchased the Masson for Light architecture lighting design store in Richmond (VIC) • Purchased the Lights for You stores at Killara (NSW), Carlton (NSW) and Crows Nest (NSW) to be converted into Beacon Lighting company stores • Established new Beacon International businesses in Germany and the USA • Purchased the Masson Manufacturing (VIC) business in order to develop bespoke lighting products • Implemented Afterpay on the beaconlighting.com.au website • Designed and developed 450 exclusive new products for Beacon Income Tax Expense 6,726 7,863 Lighting stores Operating profit after tax attributable to the members of Beacon Lighting Group Limited 16,644 18,298 1 Statutory profit for FY2016. 4. Operating and Financial Review 4.1. Overview of Operations Beacon Lighting is Australia’s leading specialist retailer of light fittings, ceiling fans and light globes, offering its customers expert knowledge, service and advice on a wide range of specialist products. As a vertically integrated business, Beacon Lighting develops, designs, sources, imports, distributes, merchandises, promotes and sells its product range 14 At the end of FY2017, Beacon Lighting was also in the process of opening the Carlton (NSW), Bayswater (VIC), Crows Nest (NSW) and Gladesville (NSW) stores. FY2017 was a year of significance for the Beacon Lighting Group. It has been 50 years since the opening of the first Beacon Lighting store. It was the first time that the Group has had over 1,000 Associates and $200 million in sales. FY2017 was also eventful for Beacon Lighting with the closure of a major competitor in H1 FY2017. BEACON LIGHTING GROUP ANNUAL REPORT 20174.2. Financial Summary 4.2.1. Financial Performance A summary of the Beacon Lighting Group FY2017 profit result compared to the underlying FY2016 profit result is presented in the following table: Sales Gross Profit Other Income & Other Revenue Operating Expenses2 EBITDA EBIT Net Profit After Tax 1 Underlying profit for FY2016 (refer to the following table) 2 Operating Expenses excludes interest, depreciation and amortisation FY2017 $’000 214,404 135,640 3,104 (111,128) 27,616 24,624 16,644 FY20161 $’000 193,179 123,483 3,647 (97,965) 29,165 26,619 17,800 Change $’000 Change % 21,225 12,157 (543) (13,163) (1,549) (1,995) (1,156) 11.0% 9.8% (14.9%) 13.4% (5.3%) (7.5%) (6.5%) During FY2016, the Beacon Lighting Group implemented a new inventory valuation system and conducted a review of the supply chain costs to be capitalised into inventory. The effect of this change was to increase inventory by $711,249 and increase the gross profit by $711,249, thereby increasing the statutory profit compared to the underlying profit for FY2016. A reconciliation of the FY2016 statutory profit to the FY2016 underlying profit is presented in the following table: Sales Gross Profit Other Income & Other Revenue Operating Expenses1 EBITDA EBIT Net Profit After Tax Statutory Profit FY2016 $’000 Underlying Profit Adjustments $’000 Underlying Profit FY2016 $’000 193,179 124,194 3,647 (97,965) 29,876 27,330 18,298 (711) (711) (711) (498) 193,179 123,483 3,647 (97,965) 29,165 26,619 17,800 1 Operating Expenses exclude interest, depreciation and amortisation. Throughout the Operating and Financial Review, the underlying profit for FY2016 will be used as the point of comparison for the FY2017 profit result. 4.2.2. Sales Beacon Lighting achieved sales growth of 11.0% to $214.4 million in FY2017. Company store retail sales grew by 10.7%. Sales for Beacon Lighting comparative company stores grew by 1.2% with strong sales growth in SA, QLD and NSW, while comparative sales in WA were particular challenging. Sales for the Commercial offices increased by 16.2%, Beacon Solar sales increased by 142.5% and online sales increased by 53.8%. Sales to Beacon Lighting franchise stores reduced as a result of purchasing franchise stores and converting them into company stores. DIRECTORS’ REPORT 15 4.2.3. Gross Profit Margin The gross profit dollars generated by Beacon Lighting increased by 9.8% to $135.6 million. The gross profit margin for FY2017 was 63.3% compared to the underlying gross profit margin of 63.9% in FY2016. In H1 FY2017, to compete with the liquidation sale of a major competitor, the Group achieved a lower full year gross profit margin of 62.1%. However, in H2 FY2017, the gross profit margin recovered to a stronger 64.5% of sales. 4.2.4. Other Income & Other Revenue Other Income and Other Revenue has continued to decline as franchise stores have been purchased and converted into company operated stores. In FY2017, Beacon Lighting was able to sell licence fees to the Group’s intellectual property which has helped to provide another source of Other Revenue. In FY2017, Other Income and Other Revenue decreased by 14.9% to $3.1 million. 4.2.5. Operating Expenses Operating Expenses increased by 13.4% to $111.1 million in FY2017. As a percentage of sales, Operating Expenses increased from 50.7% in FY2016 to 51.8% in FY2017. With continued investment in the store network along with significant investments in new company stores and new businesses, the Selling and Distribution Expenses increased from 36.7% of sales in FY2016 to 38.7% of sales in FY2017. Expense productivity improvements were able to be achieved for Marketing and General and Administration Expenses. 4.2.6. Earnings The Beacon Lighting Group achieved an Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) decrease of 5.3% to $27.6 million in FY2017. As a percentage of sales, the EBITDA margin of 12.9% decreased from an underlying EBITDA margin of 15.1% in FY2016. The Net Profit After Tax (NPAT) result has decreased to $16.6 million or 7.8% of sales from an underlying NPAT result of $17.8 million or 9.2% of sales in FY2016. 4.2.7. Dividends The Directors of Beacon Lighting have declared an annual fully franked divided of 4.75 cents per share for FY2017 (4.70 cents per share for FY2016). For H1 FY2017, the Directors have already declared a fully franked dividend of 2.35 cents per share (2.30 cents per share for H1 FY2016) and for H2 FY2017, the Directors have declared a fully franked dividend of 2.40 cents per share (2.40 cents per share for H2 FY2016). As a result the Beacon Lighting Group will have a NPAT dividend payout ratio of 61.4% for FY2017. Going forward, it is expected that the Beacon Lighting Group will continue to have an annual NPAT dividend payout ratio of between 50% and 60%. 4.2.8. Financial Position In FY2017, Beacon Lighting invested an additional $3.5 million in inventory to operate the new stores and new businesses. The increase in the Receivables balance by $0.3 million has been the result of a decline in franchise store receivables which has been more than offset by the increase in receivables from the emerging businesses. Capital Expenditure of $9.9 million includes new stores, asset purchases for new businesses, store refurbishments, new motor vehicles and ongoing IT projects. The Beacon Lighting Group also spent $6.0 million on acquisitions. The additional investments made in FY2017 were funded by retained earnings and also an increase in the borrowings of the Group of $8.1 million. The Beacon Lighting Group banking facilities have not been fully drawn down in FY2017 and the Group has additional funding available to support the ongoing operations. The Beacon Lighting Group continues to operate comfortably within all of its bank covenants. 4.3. Business Strategies Beacon Lighting continues to strengthen its position as Australia’s leading specialist retailer of light fittings, ceiling fans and light globes. The Group also has an emerging presence with the growth in Commercial, Beacon International, Light Source Solutions, Beacon Solar and the Masson for Light businesses. Our current market position ensures that Beacon Lighting remains very well placed to take advantage of the changes that continue to occur in the lighting industry in Australia and the rest of the world. Beacon Lighting intends to drive sales and profit growth through a number of different business strategies. 4.3.1. Continue to Optimise the Existing Retail Network Beacon Lighting believes it is able to grow sales and profits through the continued investment in the existing store retail network. The existing store network is being continually reviewed in order to optimise the marketing plan, product range, merchandising, customer service, training and operations. 4.3.2. Grow the Sales and Profits of the Emerging Businesses Beacon Lighting will continue to grow the sales and profits of the emerging businesses being Commercial, Beacon International, Light Source Solutions, Beacon Solar and Masson for Light. These businesses continue to offer significant growth opportunities for the Group, including synergies with the retail business and strengthen the overall market opportunities for the brand both within Australia and the rest of the world. 4.3.3. New Store Rollout Beacon Lighting will continue to target the opening of approximately 6 new Company operated stores in Australia each year. These store openings are however dependent on the identification of suitable sites, site negotiation and availability. 4.3.4. New Product Ranges Beacon Lighting will offer an extensive range of the latest fashion, on trend, technologically advanced and energy efficient products to our customers. Beacon Lighting has the scope to further improve the product range and aims to refresh approximately 20% of the product range each year. A need for greater energy efficiency is continuing to drive the development of LED technology and continues to represents additional opportunities for the Group. 4.3.5. Online and Social Media Presence Beacon Lighting will continue to enhance its online and social media presence in order to drive incremental sales. Further opportunities involve the optimising of the existing Group websites, utilising third party websites and tools and additional social media activities. 4.3.6. New Business Opportunities Beacon Lighting intends to investigate and pursue local and international business opportunities that complement the core business activities or leverage off existing business capabilities. This may include other lighting stores, franchise stores and other aligned opportunities. 4.3.7. Efficiency Gains Beacon Lighting will continue to target efficiency gains and manage growth of operating expenses through negotiation and in partnership with service providers and through continued investment and refinement in systems, technology and processes. 16 BEACON LIGHTING GROUP ANNUAL REPORT 2017• Grow and optimise the investments the Group has made in new stores and new businesses in FY2017. • In July 2017, the Nunawading (VIC) franchise store was purchased and converted to a company store. • The Carlton (NSW), Bayswater (VIC) and Crows Nest (NSW) stores have already opened in FY2018. • The new company store at Gladesville (NSW) is expected to open in September 2017. Going forward, Beacon Lighting still has a range of exciting retail and emerging business growth opportunities both in Australia and around the world. The Beacon Lighting Group expects the current business strategies to drive growth in FY2018. 5. Significant Changes in the State of Affairs During the financial year there were no significant changes in the state of the affairs of the Group. 6. Directors’ Meetings The numbers of meetings of the Group’s Board of Directors held during the financial period ended 25 June 2017, and the numbers of meetings attended by each Director were: Director’s Meetings H 10 10 10 10 A 10 10 10 10 Committee Meetings Audit Remuneration & Nomination H - 4 4 4 A - 4 4 4 H 4 - 4 4 A 4 - 4 4 DIRECTOR I Robinson G Robinson E Barr N Osborne H = Number of meetings held during the time the Director held office or was a member of the committee during the period. A = Number of meetings attended. 4.4. Business Risks Beacon Lighting is subject to both specific risks to the Group and risks of a general nature which may threaten both the future operating and financial performance of the Group and the outcome of an investment in Beacon Lighting. A number of the Group risks are beyond the control and influence of the Directors and management of Beacon Lighting, but the Group is well positioned to face these challenges compared to our competitors. The specific material business risks faced by Beacon Lighting and how they are managed are set out below. 4.4.1. Retail Environment and General Economic Conditions The Group is sensitive to the current state and future changes in the retail environment and general economic conditions. This includes but is not limited to interest rates, consumer confidence, business confidence, property prices, housing churn, dwelling approvals, government policy and natural disasters. Beacon Lighting plans to manage the Group according to the current environment and maintain a capital structure capable of supporting the Group in any anticipated operating environment. 4.4.2. Competition Beacon Lighting operates in a competitive retail market which is subject to moderate barriers to entry, changing competitor tactics and consumer preferences. Beacon Lighting believes that with its vertically integrated business model and business strategies as previously discussed, the Group remains well positioned to maintain its leading retail marketing position in Australia and to grow the emerging businesses in Australia and around the world. 4.4.3. Foreign Currency Rates The majority of goods purchased and imported by Beacon Lighting into Australia are purchased in US dollars. As a result, the Group is exposed to fluctuations in the AUD/USD exchange rate. Beacon Lighting mitigates this risk by managing selling prices to our customers and from a cost perspective, carrying all domestic stock in Australia in AUD and by using a variety of forward contracts, spot rates and options. 4.4.4. Growth Strategies Beacon Lighting has a number of different growth strategies to support future growth and earnings. There is no guarantee that the planned benefits of these strategies will be realised. Beacon Lighting will continue to invest in and support growth strategies that can continue to increase Group value in the long term. If these opportunities do not have this capability, then resources will be reallocated to other strategies. 4.4.5. Supplier and Buying Agents Beacon Lighting is a vertically integrated business which heavily relies upon third party suppliers and buying agent structures. Beacon Lighting will continue to monitor the performance of our suppliers and buying agents and spread product manufacturing risk across a number of suppliers. 4.4.6. Operating Expenses The Beacon Lighting Group operating expenses continue to increase. The Group’s ability to maintain and improve profitability is based on the economies of scale of the operation, reasonable stock turns and maintaining a reasonable cost structure. 4.5. Trading Outlook Some of the specific strategies that the Beacon Lighting Group already has in place for FY2018 and beyond include: DIRECTORS’ REPORT 17 7. Directors’ Interests in Shares The relevant interest of each Director in the Company, as notified by the Directors to the ASX in accordance with section 205G(l) of the Corporations Act 2001 (Cth), at the date of the report is as follows: Director I Robinson1 G Robinson1 E Barr N Osborne Ordinary Shares in the Company 118,752,739 118,752,739 150,000 300,000 1Heystead Nominees Pty Ltd and other Robinson Family member interests. 8. Directors’ Interests in Contracts Directors’ interests in contracts are disclosed in Note 31 of the financial statements. 9. Dividends Dividends paid to members during the financial period were as follows: Actual FY2017 $'000 Actual FY2016 $'000 10,224 10,111 14. Audit Services Consolidated Entity Fully franked dividends provided or paid during the period 10. Insurance of Officers 10.1. Indemnification of Directors 11. Indemnity of Auditors Beacon Lighting Group Limited has agreed to indemnify their auditors, PricewaterhouseCoopers (PwC), to the extent permitted by law, against any claim by a third party arising from Beacon Lighting Group Limited’s breach of their agreement. The indemnity stipulates that Beacon Lighting Group Limited will meet the full amount of any such liabilities including a reasonable amount of legal costs. 12. 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 Group for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the Corporations Act 2001 (Cth). 13. Events Subsequent to Reporting Date A fully franked dividend of $5,167,513 was declared on August 23, 2017. Other than the above, there has been no other matter or circumstance that has occurred subsequent to period end that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or economic entity in subsequent financial periods. 14.1. Auditor’s Independence Declaration The auditor’s independence declaration to the Directors of the Consolidated Entity in relation to the auditor’s compliance with the independence requirements of the Corporations Act 2001 (Cth) and the professional code of conduct for external auditors, forms part of the Directors’ Report. No person who was an officer of the Consolidated Entity during the financial year was a Director or Partner of the Consolidated Entity’s external auditor. 14.2. Audit and Non-Audit Services Provided by the External Auditor During the 52 weeks ended 25 June 2017, the following fees were paid or were due and payable for services provided by the external auditor, PwC, of the Consolidated Entity: Consolidated Entity Audit & assurance services FY2017 $ FY2016 $ Audit & review of financial statements 229,100 207,300 Other services Tax compliance services 19,200 23,155 Other Services 10,529 101,680 Total remuneration of PwC 258,829 332,135 The Group has indemnified each Director and external consultant referred to in this Report, the Company Secretary and previous Directors and Officers against all liabilities or loss (other than to the Group or a related body corporate) that may arise from their position as Officers of the Group and its controlled entities, except where the liability arises out of conduct involving a lack of good faith or where indemnification is otherwise not permitted under the Corporations Act. The indemnity stipulates that the Group will meet the full amount of any such liabilities, including costs and expenses, and covers a period of seven years after ceasing to be an Officer of the Group. The indemnity is contained in a Deed of Access, Insurance and Indemnity, which also gives each officer access to the Group’s books and records. The Group has also indemnified the current and previous Directors of its controlled entities and certain members of the Company’s senior management for all liabilities or loss (other than to the Group or a related body corporate) that may arise from their position, except where the liability arises out of conduct involving a lack of good faith or where indemnification is otherwise not permitted under the Corporations Act. 10.2. Insurance Premiums During the financial period, Beacon Lighting Group Limited paid a premium of $45,569 to insure the Directors and Officers of the Group against any loss which he/she becomes legally obligated to pay on account of any claim first made against him/her during the policy period. 18 BEACON LIGHTING GROUP ANNUAL REPORT 2017In addition to their statutory audit duties, PwC provided taxation and other assurance related services to the Group. The Board has a review process in relation to non-audit services provided by the external auditor. The Board considered the non-audit services provided by PwC and, in accordance with written advice provided, and endorsed, by a resolution of the Audit Committee, is satisfied that the provision of these non-audit services by the auditor is compatible with, and does not compromise, the auditor independence requirements of the Corporations Act 2001 (Cth) for the following reasons: • All non-audit services are subject to the corporate governance procedures adopted by the Group and are reviewed by the Audit Committee to ensure they do not impact the integrity and objectivity of the auditor. • Non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they do not involve reviewing or auditing the auditor’s own work, aiding in a management or decision making capacity for the Group, acting as an advocate for the Company or jointly sharing risks and rewards with the Group. 15. Auditor PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001 (Cth). 16. Rounding of Amounts The Group has relied on the relief provided by ASIC Corporations Instrument 2016/191, and in accordance with that Instrument, amounts in the financial statements have been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar. 17. Remuneration Report 17.1. Remuneration Policy and Link to Performance The Board recognises that the performance of the Group depends on the quality and motivation of our Associates, including the senior management and our more than 1,000 Associates employed by the Group across Australia and Internationally. The Group remuneration strategy therefore seeks to appropriately attract, reward and retain Associates at all levels in the business, but in particular for management and key executives. The Board aims to achieve this by establishing executive remuneration packages that include a mix of fixed remuneration and short term incentives. the Remuneration and Nomination The Board has appointed Committee whose objective is to assist the Board in relation to the Group remuneration strategy, policies and actions. In performing this responsibility, the Committee must give appropriate consideration to the Group’s performance and objectives, employment conditions and external remuneration relativities. The Committee reviews and determines our remuneration policy and structure annually to ensure it remains aligned to business needs and meets the Group’s remuneration principles. No specific advice or recommendations were sought from remuneration consultants during the financial year ended 25 June 2017. The remuneration framework for senior executives comprises a mix of both fixed and variable remuneration components. Variable remuneration may be delivered in the form of cash and performance rights or options, subject to the achievement of short term performance targets. An outline of the remuneration framework is set out below: Remuneration Framework Element Purpose Performance Metrics Potential Value Changes for FY2017 Link to Performance Fixed Remuneration Provide competitive market salary including superannuation and non- monetary benefits Nil Positioned at competitive market rates No change Consolidated Group as well as individual performance are considered during the annual review of fixed remuneration. Short Term Incentive (Cash Bonus) Reward for in year performance Budgeted Earnings before Interest & Tax (EBIT) 200% of the executives on target cash bonus Performance metric formerly Net Profit before Tax (NPBT) EBIT measures as determined by the Board Short Term Incentive (Performance Rights or Options) Reward for in year performance Budgeted Earnings before Interest & Tax (EBIT) 125% of the executives on target cash bonus Performance metric formerly Net Profit before Tax (NPBT) performance Grants are subject to achieving budgeted and vesting is subject to the executive remaining employed by the Group at the vesting date 19 DIRECTORS’ REPORTRemuneration Approach The proportion of fixed and variable remuneration is established for Key Management Personnel (KMP) by the Board following recommendations from the Remuneration and Nomination Committee which are subject to Board approval. For FY2017 these are: Fixed Remuneration % Short Term Incentive (Cash Bonus) % Short Term Incentive (Performance Rights or Options) % Total % Executive Chairman Chief Executive Officer Managing Director – Sales Chief Financial Officer Chief Operating Officer 100.0 71.0 81.1 80.7 78.9 - 11.9 7.6 7.8 8.5 - 100.0 17.1 11.3 11.5 12.6 100.0 100.0 100.0 100.0 The Remuneration and Nomination Committee is responsible for assessing performance against KPIs and determining the STIs to be paid or issued. To assist in this assessment, the Committee receives detailed financial reports from management which are based on independently verifiable financial statements. In the event of serious misconduct or material misstatement in the Group’s financial statements the remuneration committee can cancel performance based remuneration and may also claw back performance based remuneration paid in previous financial years. 17.2. Principles Used to Determine the Nature and Amount of Remuneration (a) Directors’ Fees The Executive Chairman and the Chief Executive Officer do not receive Directors’ fees but are remunerated as executives within the business. The Deputy Chairman and the Non-Executive Director are entitled to receive annual fees of $110,000 and $100,000 respectively. These fees are inclusive of their relevant responsibilities on the various Group Committees, and are also inclusive of superannuation. These fees exclude any additional fees for special services which may be determined from time to time. No additional retirement benefits are payable. The Non-Executive Director fees are reviewed annually to ensure that the fees reflect market rates. There are no guaranteed annual increases in any Directors’ fees. The Executive Chairman and Non-Executive Directors do not participate in the short or long term incentive schemes. (b) Executive Remuneration The current executive salary and reward framework has three components: 1. Fixed Remuneration. 2. Short Term Incentive (Cash Bonus). 3. Short Term Incentive (Performance Rights or Options). The combination of these components comprises the executives’ total remuneration. For the year ended 25 June 2017, the Group did not a have long term incentive program in place. 1. Fixed Remuneration Executive base salaries are structured as a part of the total employment remuneration package which comprises the fixed component of pay and other financial benefits being car allowances. Fixed remuneration includes superannuation which is paid in accordance with legislated amounts. Fixed remuneration for executives is reviewed annually to provide competitiveness with the market, whilst also taking into account capability, experience, value to the organization and performance of the individual. There are no guaranteed base salary increases included in executive contracts. An executive’s remuneration is also reviewed on promotion. In FY2017 fixed remuneration was increased for the five executives at an average of increase of 9.4%. This was done to align remuneration with comparative roles. 2. Short Term Incentive (Cash Bonus) Executives including the Chief Executive Officer but not the Executive Chairman are eligible to participate in an annual short term cash incentive which delivers rewards by way of cash bonuses, subject to the achievement of the Group financial performance targets. The Group’s Earnings before Interest and Tax (EBIT) result has been determined as the appropriate financial performance target to trigger the payment of cash incentives for each period. The amount of any short term cash incentive paid in a year is dependent upon the level of performance achieved against the Group’s EBIT budget for the year. The Board considers EBIT to be an appropriate performance measure as it aligns the Group’s remuneration philosophy with creating value, and is within the scope of influence of participants. 20 BEACON LIGHTING GROUP ANNUAL REPORT 2017Structure of Short Term Cash Incentive Plan 17.3. FY2017 Performance and Impact on Remuneration Feature Description Maximum opportunity 200% of on target cash bonus value Performance metric Budgeted EBIT Delivery of STI Board discretion 100% of STI award is paid in cash after the financial results have been audited and approved by the Board The Board has discretion to adjust remuneration outcomes up or down to prevent any inappropriate reward outcomes, including reducing down to zero if appropriate 3. Short Term Incentive (Performance Rights or Options). During the year ended 25 June 2017 the Group continued with the short term performance rights incentive plan and the short term incentive option plan for selected senior management. The Executive Chairman does not participate in either plan. The Chief Executive Officer (subject to shareholder approval) and one executive are eligible to participate in the annual short term performance rights incentive plan, subject to the achievement of the Group financial performance targets. Other executives are eligible to participate in the annual short term options incentive plan, subject to the achievement of the Group financial performance targets. Performance rights and options provide selected senior executives the opportunity to acquire shares, subject to meeting the relevant conditions for vesting including remaining an employee of the Group at that time, at no cost to the senior executive. 100% of the grants are assessed by financial measures. The financial measure used is the Group’s EBIT result against the Group’s EBIT budget. This is tested annually. The Board considers EBIT to be an appropriate performance measure as it aligns the Group’s remuneration philosophy with creating value, and is within the scope of influence of participants. The Board will review the nature of potential issues of performance incentives moving forward to reflect market practice and to reflect the principles underlying the Group’s remuneration policy. Structure of Short Term Performance Rights and Options Incentive Plans Feature Description Beacon Lighting’s financial performance in FY2017 was below that of the previous year and below the FY2017 budget. For the year ended 25 June 2017, the Group’s financial performance targets were partially met and the annual short term cash incentive is expected to be in the 50% range of the on target cash bonus value and the short term incentive (performance rights or options) is expected to be issued in the range of 50% of the on target bonus value. 17.4. Statutory Performance Indicators Beacon Lighting aims to align executive remuneration to strategic and business objectives and the creation of shareholder wealth. The table below shows measures of the Group’s financial performance over the last two years as required by the Corporations Act 2001 (Cth). However these measures are not necessarily consistent with measures used in determining the variable amounts of remunerations awarded to KMPs. As a consequence there may not always be a direct correlation between the statutory key performance measures and the variable remuneration awarded. Statutory Key Performance Indicators of the Group Profit for the year attributable to owners of Beacon Lighting Group Limited ($’000) FY2017 FY2016 16,644 18,298 Basic earnings per share (cents) 7.73 8.51 Dividend payments ($’000) 10,224 10,111 Share Price (Year End) 1.38 1.29 17.5. Details of Remuneration The following executives along with the Directors are identified as key management personnel with the authority and responsibility for planning, directing and controlling the activities of the Group, directly and indirectly, during the financial year. Ian Robinson Executive Chairman Glen Robinson Chief Executive Officer Maximum opportunity Performance metric Delivery of STI Board discretion 125% of on target cash bonus value Ian Bunnett Managing Director – Sales David Speirs Chief Financial Officer Barry Martens Chief Operating Officer All of the above executives were employed by Beacon Lighting and were key management personnel for the entire year ended 25 June 2017 and year ended 26 June 2016 unless otherwise stated. Budgeted EBIT 100% of STI performance rights and options award vests after the financial results have been audited and approved by the Board if the executive remains an employee of the Group at that time The Board has discretion to adjust remuneration outcomes up or down to prevent any inappropriate reward outcomes, including reducing down to zero if appropriate, subject to the terms of the plan 21 DIRECTORS’ REPORTThe details of the remuneration of the Directors and other key management personnel for the Beacon Lighting Group Limited and the consolidated entity for the current and prior financial periods are set out in the following table: Fixed Remuneration Variable Remuneration Post Employement Super Contributions Cash Salary & Fees Annual & Long Service Leave Cash Performance Based Payment $ $ $ DIRECTORS I Robinson (Executive Chairman) 2017 2016 192,728 17,397 192,728 17,397 (16,398) (15,301) G Robinson (Chief Executive Officer) $ - - Share Based Payments $ Total - - 193,727 194,824 321,111 19,616 871 57,165 82,123 480,886 338,312 19,308 48,295 97,716 6,539 510,170 2017 2016 E Barr (Non-Executive) 2017 2016 N Osborne (Non-Executive) 100,457 9,543 100,457 9,543 2017 2016 100,000 100,000 - - Total Remuneration Directors - - - - - - - - - 110,000 - 110,000 - 100,000 - 100,000 2017 2016 EXECUTIVES 714,296 46,556 (15,527) 57,165 82,123 884,613 731,497 46,248 32,994 97,716 6,539 914,994 I Bunnett (Managing Director – Sales) 2017 2016 246,324 19,616 17,812 26,713 39,685 350,150 226,484 19,308 10,353 45,662 9,510 311,317 D Speirs (Chief Financial Officer) 2017 2016 236,824 19,616 20,643 203,304 19,770 11,251 26,713 45,662 39,685 343,481 9,510 289,497 B Martens (Chief Operating Officer) 2017 2016 221,287 19,616 7,847 26,713 39,685 315,147 213,918 19,308 13,350 45,662 9,510 301,748 Total Remuneration Executives 2017 2016 704,435 58,848 46,302 80,139 119,055 1,008,779 643,706 58,386 34,954 136,986 28,530 902,562 22 BEACON LIGHTING GROUP ANNUAL REPORT 201717.6. Share Based Compensation The number of performance rights over shares in the Group granted to the Chief Executive Officer and other key management personnel during the current financial period, together with prior period grants which vested during the period is set out below: Grant Date Quantity Granted Vest Date Value at Grant Date $ Vest % Quantity Vested Value Expensed this Year $ G Robinson G Robinson G Robinson I Bunnett D Speirs B Martens Total 22/08/2014 30,781 25-Aug-16 24/06/2016 22,107 11-Oct-16 18/08/2016 23,603 11-Oct-16 22/08/2014 43,973 25-Aug-16 22/08/2014 43,973 25-Aug-16 22/08/2014 43,973 25-Aug-16 32,813 43,750 32,100 46,875 46,875 46,875 208,410 249,288 33.0% 67.0% 33.0% 33.0% 33.0% 33.0% 10,260 14,738 7,869 14,658 14,658 14,658 727 41,830 39,566 1,038 1,038 1,038 85,237 The fair value of performance rights granted on 22 August 2014 (grant date) was $1.066, with a final vesting date of 25 August 2016. The fair value of performance rights granted on 24 June 2016 (grant date) was $1.979, with a final vesting date of 20 August 2017. All unvested performance rights will vest on 20 August 2017 provided the executive remains employed by the Group at the vesting date. The fair value of performance rights granted on 18 August 2016 (grant date) was $1.360, with a final vesting date of 25 August 2018. All unvested performance rights will vest on 25 August 2018 provided the executive remains employed by the Group at the vesting date. The performance rights have a zero exercise price. Subject to meeting the relevant vesting conditions, shares will be issued at no cost to the executive. In the event an executive leaves the Group prior to the vesting date the performance rights will generally lapse. The number of options over shares in the Group granted to the key management personnel during the current financial period, together with prior period grants which vested during the period is set out below. Grant Date Quantity Granted Vest Date Value at Grant Date $ Vest % Quantity Vested Value Expensed this Year $ I Bunnett 24/06/2016 31,582 Refer below 18/08/2016 11,029 Refer below D Speirs 24/06/2016 31,582 Refer below 18/08/2016 11,029 Refer below B Martens 24/06/2016 31,582 Refer below 18/08/2016 11,029 Refer below Total 127,833 40,740 15,000 40,740 15,000 40,740 15,000 167,220 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0 0 0 0 0 0 30,777 7,870 30,777 7,870 30,777 7,870 115,941 The fair value of options granted on 24 June 2016 (grant date) was $1.29. 40% vest on 26 June 2017, 30% vest on 25 August 2017 and 30% vest on 25 August 2018, in each case provided that the executive remains employed by the Group at the vesting date. The options expire on 24 June 2031. The fair value of options granted on 18 August 2016 (grant date) was $1.36. 40% vest on 18 August 2017, 30% vest on 18 August 2018 and 30% vest on 18 August 2019, in each case provided that the executive remains employed by the Group at the vesting date. The options expire on 24 June 2031. The options have a zero exercise price. Subject to meeting the relevant vesting conditions, shares will be issued at no cost to the executive. In the event an executive leaves the Group prior to the vesting date the options will generally lapse. DIRECTORS’ REPORT 23 17.7. Share Holdings The numbers of ordinary voting shares in the Company held during the financial year by each director of Beacon Lighting Group and other key management personnel of Beacon Lighting Group, including their personally related parties, are set out below. Balance at Start of Year Received During the Year1 Purchase of Shares Sales of Shares Balance at End of the Year DIRECTORS I Robinson (Executive Chairman)2 2017 2016 G Robinson (Chief Executive Officer) 118,624,921 118,602,329 2017 2016 E Barr (Non-Executive) 2017 2016 N Osborne (Non-Executive) 2017 2016 EXECUTIVES I Bunnett (Managing Director – Sales) 2017 2016 D Speirs (Chief Financial Officer) 2017 2016 B Martens (Chief Operating Officer) 2017 2016 Total 2017 2016 60,520 50,260 150,000 150,000 300,000 300,000 49,316 34,658 59,316 44,658 53,861 39,203 119,297,934 119,221,108 14,432 12,592 32,866 10,260 - - - - 14,658 14,658 14,658 14,658 14,658 14,658 91,272 66,826 20,000 10,000 - - - - - - - - - - - - 20,000 10,000 1 Shares received during the year were a result of performance rights vesting under the STI plan. 2 Heystead Nominees Pty Ltd and other Robinson Family member interests, excluding Glen Robinson. 24 BEACON LIGHTING GROUP ANNUAL REPORT 2017 - - - - - - - - - - - - - - - - 118,659,353 118,624,921 93,386 60,520 150,000 150,000 300,000 300,000 63,974 49,316 73,974 59,316 68,519 53,861 119,409,206 119,297,934 17.8. Service Agreements 17.9. Voting of Shareholders at Last Year’s Annual General Meeting All executives are employed on terms consistent with the remuneration framework outlined in this report. Each of the relevant executive agreements is for a continuing term but may be terminated by either party with a required notice period of 12 weeks. These agreements do not provide for any termination payments other than payment in lieu of notice. Signed in accordance with a resolution of Directors Beacon Lighting Group received more than 90% of yes votes on its remuneration report for the 2016 financial year. The Company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. Ian Robinson Executive Chairman Melbourne, 23 August 2017 Glen Robinson Chief Executive Officer 25 DIRECTORS’ REPORTAuditor’s Independence Declaration 26 BEACON LIGHTING GROUP ANNUAL REPORT 2017Index to the Financial Statements Page Page Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements 1. Summary of Significant Accounting Policies 2. Financial Risk Management 3. Segment Information 4. Revenue from Ordinary Activities and Other Revenue 5. Other Income 6. Expenses 7. Income Tax Expense 8. Cash and Cash Equivalents 9. Trade and Other Receivables 10. Inventories 11. Derivative Financial Instruments 12. Other Current Assets 13. Property, Plant and Equipment 14. Deferred Tax Assets 15. Intangible Assets 16. Trade and Other Payables 17. Current Borrowings 29 30 31 32 33 39 42 42 42 43 44 45 45 46 47 47 48 49 50 51 52 18. Current Provisions 19. Current Tax Liabilities 20. Non Current Borrowings 21. Non Current Provisions 22. Contributed Equity 23. Reserves and Retained Profits 24. Dividends 25. Key Management Personnel Disclosures 26. Share Based Payments 27. Earnings Per Share 28. Remuneration of Auditors 29. Contingencies 30. Commitments 31. Related Party Transactions 32. Subsidiaries 33. Events Occurring After the Reporting Period 34. Reconciliation of Profit After Income Tax to Net Cash Inflow from Operating Activities 35. Non-Cash Investing and Financing Activities 36. Critical Accounting Estimates 37. Business Combinations 38. Parent Entity Financial Information 39. Deed of Cross Guarantee 52 53 54 55 55 56 57 58 58 59 60 60 60 61 62 62 63 63 63 64 65 66 28 BEACON LIGHTING GROUP ANNUAL REPORT 2017 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016 Beacon Lighting Group and its controlled entities Consolidated Entity Notes Revenue from ordinary activities Sale of goods Other revenue Total revenue from ordinary activities and other revenue Other income Expenses Cost of sales of goods Other expenses from ordinary activities Marketing Selling and distribution General and administration Finance costs Profit before income tax Income tax expense Profit for the period attributable to the members of the parent entity Other comprehensive income Items that may be reclassified to profit or loss Changes in the fair value of derivatives Exchange differences on translation of foreign operations Income tax relating to these items Other comprehensive income for the period, net of tax Total comprehensive income for the period attributable to the members of the parent entity Earnings per share Basic earnings per share Diluted earnings per share 4 4 4 5 6 6 7 23(a) 23(a) 27 27 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying Notes. FY2017 $’000 214,404 2,968 217,372 136 FY2016 $’000 193,179 3,484 196,663 163 (78,764) (68,985) (12,839) (85,556) (15,724) (1,254) 23,370 (6,726) 16,644 92 (27) (20) 45 16,689 Cents 7.73 7.73 (12,083) (72,931) (15,498) (1,169) 26,160 (7,863) 18,298 (430) 37 118 (275) 18,023 Cents 8.51 8.50 29 FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEET As at 25 June 2017 and as at 26 June 2016 Beacon Lighting Group and its controlled entities Consolidated Entity Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Current tax receivable Other current assets Total current assets Non-current assets Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Provisions Derivative financial instruments Current tax liabilities Total current liabilities Non-current liabilities Borrowings Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Other reserves Retained earnings Total equity Notes 8 9 10 11 19 12 13 14 15 16 17 18 11 19 20 21 22 23(a) 23(b) FY2017 $’000 12,925 9,613 55,267 63 108 1,004 78,980 28,865 5,890 10,342 45,097 124,077 20,282 23,928 6,428 - - 50,638 6,340 2,981 9,321 59,959 64,118 62,870 (42,965) 44,213 64,118 FY2016 $’000 9,128 9,315 51,737 - - 970 71,150 22,076 4,965 6,063 33,104 104,254 16,171 20,939 5,237 1 323 42,671 1,220 2,940 4,160 46,831 57,423 62,735 (43,105) 37,793 57,423 The above consolidated balance sheet should be read in conjunction with the accompanying Notes. 30 BEACON LIGHTING GROUP ANNUAL REPORT 2017CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016 Beacon Lighting Group and its controlled entities Consolidated Entity Notes Balance as at 26 June 2016 Profit for the year Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Issue of shares to employees Employee share scheme Dividends provided for or paid Total contributions by and distributions to owners Balance as at 25 June 2017 Balance as at 28 June 2015 Profit for the year Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Issue of shares to employees Employee share scheme Dividends provided for or paid Total contributions by and distributions to owners 23(a) 22 23(a) 24 23(a) 22 23(a) 24 Contributed Equity $’000 Reserves $’000 62,735 (43,105) - - - 135 - - 135 - 44 44 - 96 96 Retained Earnings $’000 37,793 16,644 - Total Equity $’000 57,423 16,644 44 16,644 16,688 - - 135 96 (10,224) (10,224) (10,224) (9,995) 62,870 (42,965) 44,213 64,118 62,647 (42,847) - - - 88 - - 88 - (275) (275) - 17 - 17 29,606 18,298 - 49,406 18,298 (275) 18,298 18,023 - - 88 17 (10,111) (10,111) (10,111) (10,006) Balance as at 26 June 2016 62,735 (43,105) 37,793 57,423 The above consolidated statement of changes in equity should be read in conjunction with the accompanying Notes. 31 FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF CASH FLOWS For the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016 Beacon Lighting Group and its controlled entities Consolidated Entity Notes Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest received Borrowing costs Income taxes paid Net cash inflow from operating activities 34 Cash flows from investing activities Payments for acquisitions Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Net cash (outflow) from investing activities Cash flows from financing activities Proceeds from borrowings (net) Dividends paid to Company's shareholders Net cash (outflow) from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 24 8 The above consolidated statement of cash flows should be read in conjunction with the accompanying Notes. FY2017 $’000 238,846 (209,926) 43 (1,254) (6,774) 20,935 (6,025) (9,225) 100 (15,150) 8,109 (10,224) (2,115) 3,670 9,255 12,925 FY2016 $’000 208,300 (187,815) 101 (1,169) (8,849) 10,568 (1,425) (4,559) 85 (5,899) 2,791 (10,111) (7,320) (2,651) 11,779 9,128 32 BEACON LIGHTING GROUP ANNUAL REPORT 20171. Summary of Significant Accounting Policies The principal accounting policies adopted in the preparation of this consolidated financial report is set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The financial report is for the consolidated entity consisting of Beacon Lighting Group Limited and its subsidiaries. (a) Basis of Preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001 (Cth). Beacon Lighting Group Limited is a for-profit entity for the purpose of preparing the financial report. Beacon Lighting Group Limited operates within a retail financial period. The current financial period was a 52 week retail period ending on the 25 June 2017 (2016: 52 week period ending 26 June 2016). This treatment is consistent with section 323D of Corporations Act 2001 (Cth). (i) New and Amended Standards Adopted by the Group A number of new or amended standards became applicable for the current reporting period, however, the Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards. (ii) Impact of Standards Issued but Not Yet Applied by Group AASB 9 Financial Instruments AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. The standard does not need to be applied until 1 July 2018 but is available for early adoption. The Group does not expect the new guidance to have a significant impact on the classification and measurement of its financial assets. There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. The derecognition rules have been transferred from IAS 39 Financial Instruments: Recognition and Measurement and have not been changed. The new hedge accounting rules will align the accounting for hedging instruments more closely with the Group’s risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting. While the Group is yet to undertake a detailed assessment, it would appear that the Group’s current hedge relationships would qualify as continuing hedges upon the adoption of AASB 9. Accordingly, the Group does not expect a significant impact on the accounting for its hedging relationships. The new impairment model requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses as is the case under IAS 39. It applies to financial assets classified at amortised cost, debt instruments measured at fair value through other comprehensive income, contract assets under AASB 15 Revenue from Contracts with Customers, lease receivables, loan commitments and certain financial guarantee contracts. While the Group has not yet undertaken a detailed assessment of how its impairment provisions would be affected by the new model, it may result in earlier recognition of credit losses. The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Group’s disclosures about its financial instruments particularly in the year of the adoption of the new standard. AASB 15 Revenue from Contracts with Customers The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers revenue arising from the sale of goods and the rendering of services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption. The new standard is effective for the first interim period within annual reporting periods beginning on or after 1 July 2018, and will allow early adoption. Management is currently assessing the effects of applying the new standard on the Group’s financial statements however it is not expected to have a significant impact on the results of the Group. At this stage, the Group is not able to estimate the effect of the new rules on the Group’s financial statements. The Group will make more detailed assessments of the effect over the next twelve months. The Group does not expect to adopt the new standard before 1 July 2018. AASB 16 Leases AASB 16 Leases was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the Group’s operating leases. The standard is mandatory for first interim periods within annual reporting periods beginning on or after 1 July 2019. At this stage, the Group does not intend to adopt the standard before its effective date. As at the reporting date, the Group has non-cancellable operating lease commitments of $99,760,000. The Group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group’s profit and classification of cash flows. The Group continues to assess and analyse the options available under the new standard in order to appropriately account for and reflect the changes required by AASB 16. Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to arrangements that will not qualify as leases under AASB 16. (iii) Compliance with IFRS The consolidated the Group also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. financial report of (iv) Historical Cost Convention This financial report has been prepared in accordance with the historical cost convention. (v) Critical Accounting Estimates The preparation of 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. Refer to Note 36 Critical Accounting Estimates for detailed explanation 33 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTSof items requiring assumptions and estimates. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period. (b) Comparative Financial Information Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year. Comparative information is reclassified where appropriate to enhance comparability and provide more appropriate information to users. (c) Principles of Consolidation The consolidated financial report incorporates the assets and liabilities of all subsidiaries of Beacon Lighting Group Limited (‘Group’ or ‘parent entity’) as at 25 June 2017 and the results of all subsidiaries for the period then ended. Beacon Lighting Group Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Subsidiaries are all 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 deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group (refer to Note 1(i)). transactions, balances and unrealised gains on Intercompany transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Where control of an entity is obtained during a financial period, its results are included in the consolidated statement of comprehensive income from the date on which control commences. Where control of an entity ceases during a financial period its results are included for that part of the period during which control existed. Investments in subsidiaries are accounted for at cost in accounting records of Beacon Lighting Group Limited. (d) Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. (e) Foreign Currency Translation (i) Functional and Presentation Currency Items included in the financial report of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial report is presented in Australian dollars, which is Beacon Lighting Group Limited’s functional and presentation currency. (ii) Transactions and Balances Foreign currency transactions are translated into the functional currency 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 year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. (iii) Specific Commitments Hedging is undertaken in order to avoid or minimise possible adverse financial effects of movements in exchange rates. Gains or costs arising upon entry into a hedging transaction intended to hedge the purchase or sale of goods and services, together with subsequent exchange gains or losses resulting from those transactions are deferred in the consolidated statement of comprehensive income from the inception of the hedging transaction up to the date of the purchase or sale and included in the measurement of the purchase or sale. Any gains or losses arising on the hedging transaction after the recognition of the hedge purchase or sale are included in the consolidated statement of comprehensive income. In the case of hedges of monetary items, exchange gains or losses are brought to account in the financial period in which the exchange rates change. Gains or costs arising at the time of entering into such hedging transactions are brought to account in the consolidated statement of comprehensive income over the lives of the hedges. (iv) Group Companies The results and financial position of foreign operations (none of which has the currency of a hyper inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet. • Income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions). • All resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. (f) Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties. (i) Sale of Goods Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably. 34 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 2017Risks and rewards are considered passed to the buyer at the time of control of the goods is passed to the customer. Revenue recognised equals the fair value of the consideration received or receivable. (ii) Trust Distribution Income Trust distribution revenue is recognised when the right to receive a distribution has been established. (iii) Interest Income Interest income is recognised using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. (g) Income Tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. 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. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances related to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Beacon Lighting Group Limited and its wholly-owned Australian controlled entities have not implemented the tax consolidation legislation. (h) Leases Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as non current assets (Note 13). Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases (Note 30). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. (i) Business Combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition-date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss. (j) Impairment of Assets Goodwill and 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 assets are tested for impairment whenever events 35 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS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. The recoverable amount is the higher of an asset’s fair value less cost of disposal and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or Groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. (k) Cash and Cash Equivalents For the purpose of presentation in the consolidated statement of cash flows, 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, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the consolidated balance sheet. (l) Trade Receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are due for settlement no more than 30-60 days from the date of recognition. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the consolidated statement of comprehensive income. The amount of the impairment loss is recognised in profit or loss within general and administration expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. (m) Inventories Finished goods are stated at the lower of cost and net realisable value. Cost comprises direct materials, and an appropriate proportion of variable and fixed overhead expenditure. Costs are assigned to individual items of inventory on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. (n) Derivatives and Hedging Activities 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 the end of each reporting period. 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. The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. Cash Flow Hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss within other income or general and administration expenses. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for instance when the forecast purchase of inventory that is hedged takes place). The gain or loss relating to the effective portion of forward foreign exchange contracts which hedge imported inventory purchases are ultimately recognised in the profit or loss as cost of goods sold. (o) Property, Plant and Equipment All plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term as follows: • Furniture, Fittings & Equipment 4 to 20 years • Computer equipment 4 years • Motor vehicles 5 to 8 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. 36 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 2017(p) Intangible Assets (i) Goodwill (t) Employee Benefits (i) Short-Term Obligations Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. (ii) Patents, Trademarks and Other Rights Patents, Trademarks and Other Rights have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of the patents, trademarks and other rights over their useful life of 25 years. (q) Trade and Other Payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. (r) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. (s) Provisions Provisions for legal claims and product warranties are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of managements best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet. (ii) Other Long-Term Employee Benefit Obligations The liabilities for long service leave and annual leave are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are therefore recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. 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 end of the reporting period of government bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Re-measurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. (iii) Share Based Payments Share based compensation benefits are provided to employees via the Beacon Lighting Short Term Incentive Plan. Information relating to this scheme is set out in the Remuneration Report and Note 26. The fair value of performance rights and options granted under the plan are recognised as an employee benefit expense over the period during which the employees become unconditionally entitled to the rights with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the rights granted, which includes any market performance conditions and the impact of any non-vesting conditions but excludes the impact of any service and non-market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of rights that are expected to vest which are revised at the end of each reporting period. The impact of the revision to original estimates, if any; is recognised in the consolidated statement of comprehensive income, with a corresponding adjustment to equity. The fair value is measured at grant date and the expense recognised over the life of the plan. The fair value is determined using a Black- Scholes pricing model that takes into account the exercise price, the term of the right, 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 rights. (u) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. 37 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS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 taxation authority is included with other receivables or payables in the consolidated balance sheet. 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 taxation authority, are presented as operating cash flows. (v) Store Opening Costs Non-capital costs associated with the setup of a new store are expensed in the period in which they are incurred. (w) Dividends Provision is made for the amount of any dividends declared, determined or publicly recommended by the Directors on or before the end of the financial period but not distributed at balance date. (x) Contributed Equity 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. (y) Earnings Per Share (i) Basic Earnings Per Share Basic earnings per share is determined by dividing net profit after income tax attributable to members of the Group, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial period, adjusted for bonus elements in ordinary shares issued during the period. (ii) Diluted Earnings Per Share Diluted earnings per share adjusts the figure 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 (including performance rights) and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (z) Rounding Amounts The Group has relied on the relief provided by ASIC Corporations Instrument 2016/191, and in accordance with that Instrument, amounts in the financial statements have been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar. 38 (aa) Parent Entity Financial Information The financial information for the parent entity, Beacon Lighting Group Limited, disclosed in Note 38 has been prepared on the same basis as the consolidated financial report, except as set out below. Investments in Subsidiaries Investments in subsidiaries are accounted for at cost in the financial report of Beacon Lighting Group Limited. NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 20172. Financial Risk Management The consolidated entity is exposed to a variety of financial risks comprising: a) Market risk; b) Credit risk; and c) Liquidity risk Risk management is carried out under policies approved by the Chief Executive Officer. The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency 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 foreign exchange contracts and interest rate swaps to hedge certain risk 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 foreign exchange risks and aging analysis for credit risk. The Group holds the following financial instruments: Consolidated Entity Financial Assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Financial Liabilities Trade and other payables Borrowings Derivative financial instruments (a) Market Risk Foreign Exchange Risk FY2017 $’000 FY2016 $’000 12,925 9,613 63 22,601 20,282 30,268 - 50,550 9,128 9,315 - 18,443 16,171 22,159 1 38,331 The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar. Foreign exchange risk arises when future commercial transactions and recognised financial assets and financial liabilities are denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. The Group hedges its foreign exchange risk exposure arising from future commercial transactions and recognised assets and liabilities using forward contracts. The Group has a policy of hedging 100% of the Group’s inventory which is purchased in USD and sold in AUD. The Group can also lock in a forward position for this foreign exchange exposure for a period of up to 12 months. Consolidated Entity Forward exchange and interest rate swap contracts - buy cash flow hedges FY2017 $’000 20,261 FY2016 $’000 26,489 39 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTSInterest Rate Risk The Group’s main interest rate risk arises from short terms borrowings with variable rates, which expose the Group to cash flow interest rate risk. The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. The Group’s exposure to foreign currency and interest rate risk at the end of the reporting period, expressed in Australian dollar, was as follows: Group Sensitivity At 25 June 2017 100% of Beacon Lighting Group’s short term borrowings are hedged using forward exchange contracts and interest rate swaps. Therefore any movements in the Australian dollar against the US dollar or interest rates would have no impact on the Group’s pre-tax profit or equity. Therefore a sensitivity analysis has not been performed. (b) Credit Risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, favorable derivative financial instruments and deposits with banks as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. Individual credit limits are set based on internal or external ratings in accordance with limits set by the Board. The compliance with credit limits by wholesale and retail customers is regularly monitored by line management. Sales to retail customers are required to be settled in cash or using major credit cards, mitigating credit risk. There are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry sectors and/or regions. An analysis of trade receivables is disclosed in Note 9. (c) Liquidity Risk Financing Arrangements The Group had access to the following financing facilities at the end of each reporting period: Consolidated Entity Floating rate – Total facilities Overdraft Inventory finance facility Asset finance facility Loan facility – multi currency Loan facility – floating rate Floating rate – Total undrawn facilities Overdraft Inventory finance facility Asset finance facility Loan facility – multi currency Loan facility – floating rate Maturities of Financial Liabilities FY2017 $’000 FY2016 $’000 500 30,797 7,385 2,801 6,000 500 8,294 6,164 2,057 200 500 27,750 3,500 - - 500 7,916 1,175 - - The tables below analyse the Group’s financial liabilities into relevant maturity groupings as follows:: (a) based on their contractual maturities: (i) all non-derivative financial liabilities, and (ii) net and gross settled derivative financial instruments for which the contractual maturities are essential for an understanding of the timing of the cash flows. (b) based on the remaining period to the expected settlement date: (i) derivative financial liabilities for which the contractual maturities are not essential for an understanding of the timing of the cash flows. 40 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 2017The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. Contractual maturities of financial liabilities: Less Than 6 months $’000 6 - 12 Months $’000 Between 1 and 5 Years $’000 Over 5 Years $’000 Total Contractual Cash Flows $’000 Carrying Amount (Assets) Liabilities $’000 Consolidated Entity At 25 June 2017 Non-derivatives Trade and other payables Borrowings Finance lease liabilities Total non-derivatives Derivatives 20,282 23,247 - 43,529 Net settled (cash flow hedges) (63) At 26 June 2016 Non-derivatives Trade and other payables Borrowings Finance lease liabilities Total non-derivatives Derivatives 16,171 19,834 - 36,005 - - 681 681 - - - - 5,800 540 6,340 - - - 1,105 1,105 1,220 1,220 - - - - - - - - - - 20,282 29,047 1,221 50,550 20,282 29,047 1,221 50,550 (63) (63) 16,171 19,834 2,325 38,330 16,171 19,834 2,325 38,330 1 1 Net settled (cash flow hedges) 1 - - (d) Fair Value Measurements For information about the methods and assumptions used in determining the fair value of derivatives please refer to Note 11. Fair value hierarchy AASB 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following table presents the Group’s financial assets and financial liabilities measured and recognised at fair value at 25 June 2017, on a recurring basis. At 25 June 2017 Derivatives used for hedging - Net Position Level 2 $’000 (63) Total $’000 (63) 41 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTSThe fair value of financial instruments that are not traded in an active market (for example, over–the–counter derivatives) is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. All of the resulting fair value adjustments are included in level 2 and the adjustments are all based on valuations provided by third party banking institutions. There has been no change in valuation techniques during the period. There are no financial assets and liabilities in Level 1 and Level 3, and there are no transfers between the levels. 3. Segment Information The chief operating decision maker for Beacon Lighting Group Limited and its controlled entities (the Group), is the Chief Executive Officer (CEO). The Group determines operating segments based on information provided to the CEO in assessing performance and determining the allocation of resources with the Group. Consideration is given to the manner in which products are sold, nature of the products supplied, the organisational structure and the nature of customers. Reportable segments are based on the aggregated operating segments determined by the manner in which products are sold, similarity of products, nature of the products supplied, the nature of customers and the methods used to distribute the product. The Group purchases goods in USD for sales into Australia. The Group’s one reportable segment is the selling of light fittings, fans and energy efficient products in the Australian market. The total of the reportable segments’ revenue, profit, assets and liabilities, is the same as that of the Group as a whole and as disclosed in the consolidated statement of comprehensive income and consolidated statement of financial position. 4. Revenue from Ordinary Activities and Other Revenue FY2017 $’000 FY2016 $’000 214,404 193,179 2,226 616 126 2,968 217,372 FY2017 $’000 43 93 136 3,087 - 397 3,484 196,663 FY2016 $’000 101 62 163 Consolidated Entity (a) From ordinary activities Sale of goods (b) Other revenue Franchise fees Royalty revenue Sundry revenue 5. Other Income Consolidated Entity Interest Other 42 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 20176. Expenses Consolidated Entity (a) Profit before income tax includes the following specific expenses: Depreciation Plant and equipment Motor vehicles Amortisation Patents, trademarks and other rights Finance costs Interest and finance charges paid/payable Net loss on disposal of property, plant and equipment Rental expense relating to operating leases Minimum lease payments Employee benefits (b) Net foreign exchange gains and losses FY2017 $’000 FY2016 $’000 2,676 296 20 1,254 29 19,736 50,778 2,248 278 20 1,169 78 17,134 40,461 Net foreign exchange (gains)/losses recognised in profit before income tax for the period (as either other income or expense) 106 (20) (c) Individually significant items Profit for the year includes the following items that are significant because of their nature, size or incidence: Change in accounting estimates (gain) relating to inventory valuation - (711) 43 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS7. Income Tax Expense Consolidated Entity (a) Income tax expense Current tax Deferred tax Adjustments for current tax of prior periods Deferred income tax (revenue) included in income tax expense comprises (Note 14): Decrease (increase) in deferred tax assets (Decrease) increase in deferred tax liabilities (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax expense Tax at the Australian tax rate of 30.0% (2016 – 30.0%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Previously unrecognised tax losses now recouped Entertainment Sundry items Income tax expense (c) Aggregate amounts of deferred tax arising in the reporting period not recognised in net profit or other comprehensive income but directly credited to equity (Note 14) FY2017 $’000 FY2016 $’000 6,508 237 (19) 6,726 231 6 237 23,370 7,011 (335) 21 29 6,726 7 7,263 700 (100) 7,863 747 (47) 700 26,160 7,848 (185) 24 176 7,863 - 44 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 20178. Cash and Cash Equivalents Consolidated Entity Cash at bank and in hand Deposits at call (a) (a) Classification as Cash Equivalents FY2017 $’000 11,671 1,254 12,925 FY2016 $’000 6,761 2,367 9,128 Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24 hours notice with no loss of interest. Risk Exposure The Group’s and the parent entity’s exposure to interest rate risk is discussed in Note 2. 9. Trade and Other Receivables Consolidated Entity Trade receivables (a) Provision for impairment of receivables (b) Net amounts receivable from customers Other debtors (c) (a) Ageing of Trade Receivables Trade receivables ageing analysis at period end is: Consolidated Entity Not past due Past due 31-60 days Past due 61-90 days Past due more than 91 days FY2017 $’000 8,677 (233) 8,444 1,169 9,613 FY2017 $’000 6,781 1,151 128 617 8,677 FY2016 $’000 8,905 (288) 8,617 698 9,315 FY2016 $’000 6,814 1,166 395 530 8,905 45 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS(b) Provision for Impairment of Receivables Trade receivables are non-interest bearing with terms that vary between 30 and 60 days end of month terms. An impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. A provision against impairment for the amount of $233,000 (2016: $288,000) has been raised against the balance of trade receivables for 2017. The impairment losses have been included within expenses in the consolidated statement of comprehensive income. Trade receivables that are not impaired are largely expected to be received within trading terms or shortly thereafter. Movements in the provision for impairment of receivables are as follows: Consolidated Entity Opening balance Provision for impairment recognised during the year / (reversal of provision) Receivables written off during the year as uncollectable Closing balance (c) Other Debtors FY2017 $’000 288 (9) (46) 233 FY2016 $’000 239 93 (44) 288 These amounts generally arise from transactions outside the usual operating activities of the Group. Interest may be charged at commercial rates where the terms of repayment exceed six months. Collateral is not normally obtained. Foreign Exchange and Interest Rate Risk Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in Note 2. Fair Value and Credit Risk Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivables mentioned above. Refer to Note 2 for more information on the risk management policy of the Group and the credit quality of the entity’s trade receivables. 10. Inventories Consolidated Entity Inventory at lower of cost and net realizable value Goods in transit - at cost FY2017 $’000 52,536 2,731 55,267 FY2016 $’000 49,583 2,154 51,737 Inventory Expense Inventories recognised as expense during the 52 week period ended 25 June 2017 and included in cost of sales of goods amounted to $77,236,031 (2016: $68,292,916). Write-downs of inventories to net realisable value recognised as an expense during the 52 week period ended 25 June 2017 amounted to $115,004 (2016: $14,696). 46 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 201711. Derivative Financial Instruments Consolidated Entity Derivatives used for hedging - Net Position FY2017 $’000 63 FY2016 $’000 (1) The Group’s risk exposures are provided in Note 2. Forward Exchange Contracts and Interest Rate Swaps– Cash Flow Hedges The Group purchases products in US currency. In order to protect against exchange rate movements, the Group has entered into forward exchange contracts to purchase US dollars and an interest rate swap to hedge against interest rate fluctuations. These contracts are hedging highly probable forecasted purchases for the ensuing financial year. The contracts are timed to mature when payments for major purchases of inventory are scheduled to be made. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income. When the cash flows occur, the Group adjusts the initial measurement of the component recognised in the balance sheet by removing the related amount from other comprehensive income. During the year ended 25 June 2017 there were no gains or losses (2016: nil ) recognised in profit or loss for the ineffective portion of these hedging contracts. 12. Other Current Assets Consolidated Entity Prepayments and other current assets FY2017 $’000 1,004 FY2016 $’000 970 47 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS13. Property, Plant and Equipment Consolidated Entity Year ended 26 June 2016 Opening net book amount Additions Disposals Depreciation charge Closing net book amount At 26 June 2016 Cost Accumulated depreciation Net book amount Year ended 25 June 2017 Opening net book amount Additions Disposals Depreciation charge Closing net book amount At 25 June 2017 Cost Accumulated depreciation Net book amount Furniture, Fittings and Equipment $’000 Vehicles $’000 17,801 5,187 (90) (2,248) 20,650 32,149 (11,499) 20,650 20,650 9,277 (22) (2,676) 27,229 41,394 (14,165) 27,229 1,320 449 (65) (278) 1,426 2,676 (1,250) 1,426 1,426 614 (108) (296) 1,636 3,005 (1,369) 1,636 Total $'000 19,121 5,636 (156) (2,526) 22,076 34,825 (12,749) 22,076 22,076 9,891 (130) (2,972) 28,865 44,399 (15,534) 28,865 48 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 201714. Deferred Tax Assets Consolidated Entity Gross deferred tax assets The balance comprises temporary differences attributable to: Employee benefits Inventory Franchise agreement termination fees Debtor provision Fixed assets IPO capitalised expenses Marketing fund Other provisions/accruals Total deferred tax assets Deferred tax assets expected to be recovered within 12 months Deferred tax assets expected to be recovered after more than 12 months Gross deferred tax liabilities The balance comprises temporary differences attributable to: Other accruals and provisions Total deferred tax liabilities Deferred tax liabilities expected to be settled within 12 months Movements in net deferred tax assets Opening balance Charged/(credited) to the consolidated statement of comprehensive income (Note 7) Charged/(credited) amounts recognised on acquisitions Charged/(credited) amounts recognised directly in equity Net deferred tax assets FY2017 $’000 FY2016 $’000 1,914 753 1,391 70 362 105 624 691 5,910 4,688 1,222 5,910 20 20 20 4,965 (237) 1,155 7 5,890 1,549 770 833 86 381 209 716 585 5,129 4,133 846 4,979 15 15 15 5,481 (700) 184 - 4,965 49 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS15. Intangible Assets Consolidated Entity Year ended 26 June 2016 Opening net book amount Additions Amortisation charge for the year Closing net book amount At 26 June 2016 Cost Accumulated amortisation and impairment Net book amount Year ended 25 June 2017 Opening net book amount Additions Amortisation charge for the year Closing net book amount At 25 June 2017 Cost Accumulated amortisation and impairment Net book amount Goodwill $’000 Patents, Trademarks and Other Rights $’000 4,805 998 - 5,803 5,803 - 5,803 5,803 4,300 - 10,102 10,102 - 10,102 280 - (20) 260 500 (240) 260 260 - (20) 240 500 (260) 240 Total $’000 5,085 998 (20) 6,063 6,303 (240) 6,063 6,063 4,300 (20) 10,342 10,602 (260) 10,342 50 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 2017(a) Impairment Tests for Goodwill Goodwill is allocated to the Group’s one cash generating unit being the selling of light fittings, fans and energy efficient products in the Australian market (refer Note 3). The recoverable amount is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. (b) Key Assumptions Used for Value-In-Use Calculations Gross Margin Growth Rate Discount Rate 2017 % 64.0 2016 % 64.0 2017 % 3.0 2016 % 3.0 2017 % 11.0 2016 % 11.0 Management determined gross margin based on past performance and its expectations for the future. The weighted average growth rates used are consistent with forecasts included in industry reports. Management has considered reasonably possible changes in the key assumptions used in the value- in-use calculations, and has not identified any reasonably possible change that would cause a material impact in the carrying amount of the Group’s cash generating unit. 16. Trade and Other Payables Consolidated Entity Trade payables Customer deposits Sundry creditors Marketing fund Other payables FY2017 $’000 9,011 2,865 5,611 2,079 716 20,282 FY2016 $’000 6,628 2,377 4,141 2,388 637 16,171 (a) Risk Exposure Information about the Group’s exposure to foreign exchange risk is provided in Note 2. (b) Fair Value Trade payables are unsecured and are usually paid within 30 days of recognition. The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their short-term nature. 51 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS17. Current Borrowings Consolidated Entity Secured Inventory finance (a) Multi currency finance (b) Hire purchase liability (c) FY2017 $’000 22,503 744 681 23,928 FY2016 $’000 19,834 - 1,105 20,939 (a) Inventory Finance The Group utilises inventory finance facilities to fund inventory. (b) Multi Currency Finance The Group utilises multi currency finance facilities to fund inventory purchases for international operations. (c) Hire Purchase Liability The Group utilises hire-purchase plans to acquire assets (i.e. fixtures and fittings and motor vehicles). The terms range from one to four years. Details on the accounting for these hire-purchase plans is disclosed in Note 1(h) of this report. Security and Fair Value Disclosures Information about the security relating to each of the secured liabilities and the fair value of each of the borrowings is provided in Note 20. Risk Exposures Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in Note 2. 18. Current Provisions Consolidated Entity Employee benefits (a) Warranty provision (b) Other provisions (c) (a) Employee Benefits FY2017 $’000 4,993 1,300 135 6,428 FY2016 $’000 3,990 1,137 110 5,237 The current provision for employee benefits includes accrued annual leave and long service leave. For long service leave it covers all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount of the provision is presented as current, since the Group does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be taken or paid within the next 12 months. Consolidated Entity Leave obligations not expected to be settled within 12 months FY2017 $’000 3,647 FY2016 $’000 3,237 52 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 2017(b) Warranty Provision The Group generally offers 12 months warranty on its products. Provision is made for estimated warranty claims in respect of products sold which are still under warranty at the end of the reporting period. These claims are expected to be settled in the next financial year. Management estimates the provision based on historical warranty claim information and any recent trends that may suggest claims could differ from historical amounts. Factors that could impact the estimated claim information include the success of the Group’s product and quality initiatives, as well as parts and labor costs. If claim costs to differ by 10% from management’s estimates, the warranty provision would be an estimated $130,000 (2016: $113,000) higher or lower. Movement in Warranty Provision Consolidated Entity Carrying amount at the start of the year Charged/(credited) to profit or loss - amount incurred and charged Carrying amount at end of period (c) Other Provisions Provision is made for the fringe benefit tax payable at the end of the reporting period. Movements in Other Provisions Consolidated Entity Carrying amount at the start of the year Charged/(credited) to profit or loss - amount incurred and charged Amounts used during the year Carrying amount at end of period 19. Current Tax Liabilities Consolidated Entity Provision for income tax FY2017 $’000 1,138 163 1,300 FY2017 $’000 110 535 (510) 135 FY2017 $’000 (108) FY2016 $’000 870 268 1,138 FY2016 $’000 108 505 (503) 110 FY2016 $’000 323 53 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS20. Non Current Borrowings Consolidated Entity Secured Loan facility floating rate (a) Hire purchase plan (b) FY2017 $’000 5,800 540 6,340 FY2016 $’000 - 1,220 1,220 (a) Loan Facility Floating Rate The Group utilises floating rate loan facilities to fund business acquisitions. (b) Hire Purchase Plan The Group utilises hire purchase plans to acquire assets (i.e. furniture and fittings and motor vehicles), with one to four year terms. Details on the accounting for these hire-purchase plans is disclosed in Note 1(h) of this report. Secured Liabilities and Asset Security The Group’s liabilities are secured by general security agreements and deed of cross guarantee and indemnity over certain entities within the Group. Under the letter of offer the security arrangements cover entities that generate a minimum 85% EBITDA and hold a minimum 85% total assets. Compliance with Covenants The Group has complied with the financial covenants of its borrowing facilities during the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016. Risk Exposures Information about the Group’s exposure to interest rate and foreign exchange risk is provided in Note 2. 54 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 201721. Non Current Provisions Consolidated Entity Lease liabilities Employee benefits Total non current provisions 22. Contributed Equity Consolidated Entity Number of ordinary shares, fully paid Consolidated Entity Movements in ordinary share capital Balance at the beginning of the year Performance rights vesting into shares Balance at the end of the year FY2017 $’000 2,068 913 2,981 FY2016 $’000 2,027 913 2,940 FY2017 FY2016 215,262,753 215,157,117 FY2017 $’000 62,735 135 62,870 FY2016 $’000 62,647 88 62,735 Consolidated Entity FY2017 FY2016 Movements in the number of ordinary shares Balance at the beginning of the year Performance rights vesting into shares Balance at the end of the year Ordinary Shares 215,157,117 215,075,927 105,636 81,190 215,262,753 215,157,117 Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Group in proportion to the number of and amounts paid on the shares held. All shares carry one vote per share. Ordinary shares have no par value and the Group does not have a limited amount of authorised capital. Capital Risk Management The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Consistently with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt (borrowings less cash) divided by total equity. 55 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS23. Reserves and Retained Profits Consolidated Entity (a) Other reserves Cash flow hedges reserve Share based payment reserve Foreign currency translation reserve Common control reserve Movement in cash flow hedges Opening balance Revaluation (net of tax effect) Closing balance Movement in share based payments reserve Opening balance Transactions arising from share based payments Closing balance Movement in foreign currency translation reserve Opening balance Revaluation (net of tax effect) Closing balance Movement in common control reserve Opening balance Transactions arising from share capital restructure Closing balance FY2017 $’000 63 210 434 (43,672) (42,965) (1) 64 63 115 95 210 454 (20) 434 FY2016 $’000 (1) 115 454 (43,672) (43,105) 299 (300) (1) 97 17 115 429 25 454 (43,672) - (43,672) (43,672) - (43,672) Nature and Purpose of Other Reserves Cash Flow Hedges Foreign Currency Translation Reserve The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised in other comprehensive income, as described in Note 1(n). Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or loss. Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed of. Share Based Payments Reserve Common Control Reserve The share based payments reserve is used to recognise: • the grant date fair value of rights issued to employees but not exercised This reserve is used to record the differences which may arise as a result of transactions with non-controlling interests that do not result in a loss of control. • the grant date fair value of shares issued to employees 56 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 2017Consolidated Entity (b) Retained earnings Movements in retained earnings were as follows: Opening balance Net profit for the period Dividends paid 24. Dividends (a) Ordinary Shares Consolidated Entity Final dividend for year ended 26 June 2016 of 2.4 cents (2016 - 2.4 cents) per fully paid share Interim dividend for year ended 25 June 2017 of 2.35 cents (2016 – 2.3 cents) per full paid share Total dividends paid (b) Dividends Not Recognized At The End Of The Reporting Period Consolidated Entity FY2017 $’000 FY2016 $’000 37,793 16,644 (10,224) 44,213 FY2017 $’000 5,166 5,058 10,224 FY2017 $’000 29,606 18,298 (10,111) 37,793 FY2016 $’000 5,163 4,948 10,111 FY2016 $’000 In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 2.4 cents per fully paid ordinary share (2016 - 2.4 cents), fully franked based on tax paid at 30%. The proposed dividend is to be paid out of retained earnings at 25 June 2017, but not recognised as at liability at year end. 5,168 5,166 (c) Franked Dividends The franked portions of the final dividends recommended after 25 June 2017 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the 52 week period ended 25 June 2017. Consolidated Entity Franking credits available for subsequent reporting periods based on a tax rate of 30.0% (2016 - 30.0%) FY2017 $’000 30,080 FY2016 $’000 28,279 The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for: • franking credits that will arise from the payment of the amount of the provision for income tax, • franking debits that will arise from the payment of dividends recognised as a liability at the reporting date, and • franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends. 57 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS25. Key Management Personnel Disclosures Consolidated Entity Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Performance based cash benefits Performance based share benefits FY2017 $ FY2016 $ 1,218,274 1,174,746 95,860 30,775 137,304 201,178 95,091 67,948 234,702 35,069 1,683,391 1,607,556 Detailed remuneration disclosures are provided in the remuneration report on pages 19 to 25. 26. Share Based Payments (a) Executive Short Term Incentive Scheme Under the Group’s short-term incentive (STI) plan, executives received 40% of the annual STI in cash and 60% in the form of performance rights and options to ordinary shares of Beacon Lighting Group Limited for the year ended 25 June 2017. Performance rights were granted on 22 August 2014, which in part vested immediately, one year after the grant date and two years after the grant date. Under the plan, participants are granted performance rights which only vest if certain requirements are met. Options were granted on 24 June 2016. 40% vest on 26 June 2017, 30% vest on 25 August 2017 and 30% vest on 25 August 2018, in each case provided that the executive remains employed by the Group at the vesting date. The options expire on 24 June 2031. The options have a zero exercise price. Options were granted on 18 August 2016. 40% vest on 18 August 2017, 30% vest on 18 August 2018 and 30% vest on 18 August 2019, in each case provided that the executive remains employed by the Group at the vesting date. The options expire on 24 June 2031. The options have a zero exercise price. Subject to meeting the relevant vesting conditions, shares will be issued at no cost to the executive. In the event an executive leaves the Group prior to the vesting date the options will generally lapse. Participation in the plan is at the discretion of the Board and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. The number of rights and options to be granted is determined based on the average share price at 30 June (averaged over + / - 30 days). Number of performance rights granted Fair Value of performance rights at grant date Number of options granted Fair Value of options at grant date FY2017 23,603 $1.36 FY2017 33,087 $1.36 FY2016 22,107 $1.97 FY2016 94,746 $1.29 (b) Fair Value of Performance Rights Granted The fair value of the rights at the grant date was estimated using the Black Scholes Model which takes into account the share price at grant date, the impact of dilution (where material), expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate. 58 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 2017The model inputs for the performance rights granted during the year ended 25 June 2017 included: Exercise price Grant date Share Price at grant date Expected dividend yield FY2017 $0.00 FY2016 $0.00 18 August 2016 20 August 2015 $1.62 3.45% $2.10 2.0% The expected volatility of the Company’s shares and the risk free interest rate do not have a material impact on the fair value calculation of the performance rights granted. (c) Fair Value of Options Granted The fair value of the options at the grant date was estimated using the Black Scholes Model which takes into account the share price at grant date, the impact of dilution (where material), expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate. The model inputs for the options granted: Exercise price Grant date Share Price at grant date Expected dividend yield FY2017 $0.00 FY2016 $0.00 18 August 2016 24 June 2016 $1.62 3.45% $1.29 3.64% The expected volatility of the Company’s shares and the risk free interest rate do not have a material impact on the fair value calculation of the options granted. (d) Expenses Arising from Share Based Payment Transactions Total expenses arising from share based payment transactions recognised during the period as part of employee benefits expense were as follows: Consolidated Entity Performance rights and options issued under employee STI plans FY2017 $’000 223 FY2016 $’000 105 27. Earnings Per Share Consolidated Entity Basic earnings per share - cents Diluted earnings per share - cents Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share FY2017 FY2016 7.73 7.73 8.51 8.50 215,224,437 215,110,924 215,283,871 215,180,919 59 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS28. Remuneration of Auditors During the period the following fees were paid or payable for services provided by PricewaterhouseCoopers, auditor of the parent entity. Consolidated Entity Audit and assurance services Audit and review of financial statements Other services: Taxation services Other services Total remuneration of PwC 29. Contingencies FY2017 $ FY2016 $ 229,100 207,300 19,200 10,529 258,829 23,155 101,680 332,135 There were no significant or material contingent liabilities including legal claims at 25 June 2017 or 26 June 2016. 30. Commitments (a) Non-Cancellable Operating Leases: Lessee Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Consolidated Entity Within one year Later than one year but not later than five years Later than five years FY2017 $’000 20,975 59,886 18,899 99,760 FY2016 $’000 17,627 47,868 10,246 75,741 The Group leases various offices, warehouses and retail stores under non-cancellable operating leases expiring within one to seven years. The leases have varying terms, with rent payable monthly in advance. Various options exist to renew the leases at expiry for an additional term. On renewal, the terms of the leases are renegotiated. (b) Hire Purchase Commitments Commitments in relation to finance leases are payable as follows: Consolidated Entity Within one year Later than one year but not later than five years Minimum lease payments Future finance charges Total lease liabilities Representing lease liabilities: Current (Note 17) Non-current (Note 20) FY2017 $’000 FY2016 $’000 720 567 1,287 (66) 1,221 681 540 1,221 1,197 1,287 2,484 (159) 2,325 1,105 1,220 2,325 (c) Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is $1.2m (2016: $1.2m). 60 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 201731. Related Party Transactions (a) Subsidiaries Interests in subsidiaries are set out in Note 32. (b) Key Management Personnel Disclosures relating to key management personnel are set out in Note 25. (c) Transactions with Other Related Parties Consolidated Entity The following transactions occurred with related parties: Purchases of goods FY2017 $ FY2016 $ Purchases of goods and supply of services from other related parties 58,196 3,227 Other transactions Income received from other related parties Rent paid to other related parties 61,707 1,553,818 36,493 1,455,881 The Robinson family has a 100% interest as the owner of the Derrimut distribution centre leased by Beacon Lighting on arms length commercial terms. The current rent is $977,028 per annum increasing by 3% annually. The lease expires in March 2021 with two further rights of renewal for periods of seven years each. The Robinson family has a 100% interest as owner of the Heidelberg store leased by Beacon Lighting on arms length terms. The current rent is $167,489 per annum increasing by 3% annually. The lease expires in 2021 with one further right of renewal for a period of seven years. The Robinson family has a 100% interest as owner of the Fyshwick store leased by Beacon Lighting on arms length terms. The current rent is $224,944 per annum increasing by 3% annually. The lease expires in 2024 with one further right of renewal for a period of seven years. The Robinson family has a 100% interest as owner of the Bendigo store leased by Beacon Lighting on arms length terms. The current rent is $88,000 per annum increasing by CPI annually. The lease expires in 2019 with one further right of renewal for a period of seven years. These disclosures are made due to Beacon Lighting having obtained, at the time of listing, a waiver from Listing Rule 10.1 permitting the lease arrangements described above continuing without shareholder approval conditional on disclosure being made in the Annual Report as set out here. Ian Robinson has a 100% interest in Carbonetix Pty Ltd. Carbonetix Pty Ltd and Beacon Solar have an arms length working alliance whereby business opportunities are jointly explored. Beacon Lighting subleases office space to Carbonetix Pty Ltd at an arms length fee. (d) Outstanding Balances As at 25 June 2017 Carbonetix Pty Ltd owed the Group $73,610 (2016: $40,263). No provisions for doubtful debts have been raised in relation to any out- standing balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties. 61 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS32. Subsidiaries The consolidated financial report incorporate the assets, liabilities and results of the following principal subsidiaries in accordance with the accounting policy described in Note 1(b): Name of Entity Incorporation Shares Equity Holding1 2017 % 2016 % Beacon Lighting Corporation Pty Ltd Beacon Lighting Group Incentive Plan Pty Ltd Brightlite Unit Trust Beacon Lighting Wholesalers Unit Trust Beacon Lighting Franchising Unit Trust Tanex Unit Trust Enviro Renew Pty Ltd Manrob Investments Pty Ltd Masson Manufacturing Pty Ltd (formerly Beacon Solar Pty Ltd) Australia Australia Australia Australia Australia Australia Australia Australia Australia Light Source Solutions New Zealand Limited New Zealand Beacon Lighting Europe GmbH Beacon Lighting Corporation USA Inc. Beacon Lighting America Inc. Light Source Solutions Limited Beacon International Limited Beacon Lighting International Fanaway International Trading Limited (deregistered 26 May 2017) Germany United States of America United States of America Hong Kong Hong Kong Hong Kong Hong Kong 1The proportion of ownership interest is equal to the proportion of voting power held. 33. Events Occurring After the Reporting Period A fully franked dividend of $5,167,513 was declared on August 23, 2017. Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 - - - 100 100 100 100 Other than the above, there has been no other matter or circumstance that has occurred subsequent to period end that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or economic entity in subsequent financial periods. 62 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 201734. Reconciliation of Profit After Income Tax to Net Cash Inflow from Operating Activities Consolidated Entity Profit for the period Depreciation Net loss on disposal of non-current assets Amortisation Share based payments Net exchange differences Change in operating assets and liabilities: (Increase) decrease in receivables (Increase) decrease in inventories (Increase) decrease in deferred tax assets (Increase) decrease in other operating assets (Decrease) increase in payables (Decrease) increase in provision for income taxes payable (Decrease) increase in other provisions Net cash inflow from operating activities 35. Non-Cash Investing and Financing Activities Consolidated Entity Acquisition of plant and equipment by means of finance leases 36. Critical Accounting Estimates FY2017 $’000 16,644 3,170 29 20 223 106 (423) (3,531) (198) (32) 4,126 (431) 1,232 20,935 FY2017 $’000 - FY2016 $’000 18,299 2,526 78 20 105 (20) (2,298) (7,081) 516 (274) (128) (2,249) 1,074 10,568 FY2016 $’000 1,077 The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting policies. The areas that involves a higher degree of judgement or complexity, and items which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong are detailed in Note 18. The Group has assessed the calculation of the warranty provisions to be a critical accounting estimate. 63 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS37. Business Combinations The Company acquired four franchise stores (12 January 2017), three Lights for You stores (26 May 2017), the Masson for Light store (1 August 2016), the GE Street Light distribution business (23 February 2017) and Masson Manufacturing (18 January 2017) during FY17 with a total purchase consideration of: $6,025,265. The acquisitions are expected to increase the Group’s retail sales and synergies are expected to arise after the Company’s acquisition of these stores. Revenue of the acquired stores has not been disclosed as it is impracticable to determine. Details of the purchase consideration, the net assets acquired and the resulting goodwill are as follows: Consolidated Entity Purchase consideration Cash Total purchase consideration Assets or liabilities acquired: Inventories Fixtures and fittings Payables Deferred tax assets Total net identifiable assets acquired and liabilities assumed Purchase consideration Less: Identifiable assets acquired Goodwill Total $’000 6,025 6,025 2,260 726 (2,416) 1,155 1,725 6,025 1,725 4,300 The goodwill is attributable to the retail stores purchased, strong profitability in trading and synergies expected to arise after the Company’s acquisition of these stores. 64 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 2017 38. Parent Entity Financial Information (a) Summary Financial Information The individual financial report for the parent entity show the following aggregate amounts: Beacon Lighting Group Limited FY2017 $’000 FY2016 $’000 Balance sheet Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained profits Total equity Profit / (Loss) for the period Total comprehensive income (b) Contingent Liabilities of the Parent Entity The parent entity did not have any contingent liabilities as at 25 June 2017 or 26 June 2016. 21,977 88,583 110,560 1,406 22 1,428 15,411 88,604 104,015 1,397 15 1,412 109,132 102,603 87,187 191 21,754 109,132 1,404 1,404 87,052 (23) 15,574 102,603 1,653 1,653 65 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTS39. Deed of Cross Guarantee Beacon Lighting Group Limited and Beacon Lighting Corporation are parties to a deed of cross guarantee under which each Group guarantees the debts of the others. By entering into the deed, the wholly owned entities have been relieved from the requirement to prepare a financial report and directors report under ASIC Corporations Instrument 2016/914 issued by the Australian Securities and Investment Commission. The above companies represent a closed Group for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by Beacon Lighting Group Limited, they also represent the extended closed Group. Set out below is a consolidated income statement, a consolidated statement of comprehensive income and a summary of movements in consolidated retained earnings for the year ended 25 June 2017 of the closed Group consisting of Beacon Lighting Group Limited and Beacon Lighting Corporation. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF THE CLOSED GROUP Beacon Lighting Group Limited and Beacon Lighting Corporation Pty Ltd Distribution income Expenses General and administration Profit before income tax Income tax expense Profit for the period attributable to the members of the closed Group Other comprehensive income Items that may be reclassified to profit or loss Changes in the fair value of derivatives Income tax relating to these items Other comprehensive income for the period, net of tax FY2017 $’000 25,770 (3,888) 21,882 (6,591) 15,291 169 (51) 118 FY2016 $’000 29,041 (3,073) 25,968 (7,816) 18,152 44 (13) 31 Total comprehensive income for the period attributable to the members of the closed Group 15,409 18,183 66 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 2017CONSOLIDATED BALANCE SHEET OF THE CLOSED GROUP Beacon Lighting Group Limited and Beacon Lighting Corporation Pty Ltd FY2017 $’000 FY2016 $’000 Current assets Cash and cash equivalents Trade and other receivables Current tax asset Other current assets Related party receivables Total current assets Non-current assets Deferred tax assets Investment in subsidiaries Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Derivative financial instruments Provisions Current tax liabilities Total current liabilities Non-current liabilities Provisions Non-current liabilities Total liabilities Net assets Equity Contributed equity Other reserves Retained earnings Total equity 926 457 148 16 51,996 53,543 5,817 70,633 76,450 129,993 590 744 20 673 - 2,027 2,025 2,025 4,052 125,941 62,864 191 62,886 125,941 627 278 - 286 45,696 46,887 4,936 70,633 75,569 122,456 - - 138 632 296 1,066 863 863 1,929 120,527 62,730 (23) 57,820 120,527 67 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesNOTES TO THE FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF CHANGES IN EQUITY OF THE CLOSED GROUP Beacon Lighting Group Ltd and Beacon Lighting Corporation Pty Ltd Balance as at 28 June 2015 Profit for the year Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Issue of shares to employees Employee share scheme Dividends provided for or paid Total contributions by and distributions to owners Balance as at 26 June 2016 Balance as at 26 June 2016 Profit for the year Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Issue of shares to employees Employee share scheme Dividends provided for or paid Total contributions by and distributions to owners Balance as at 25 June 2017 Contributed equity $’000 62,642 Reserves $’000 (71) - - - 88 - - 88 62,730 62,730 - - - 134 - - 134 62,864 - 31 31 - 17 - 17 (23) (23) - 118 118 - 95 - 95 191 Retained earnings $’000 49,779 18,152 18,152 - - (10,111) (10,111) 57,820 57,820 15,291 15,291 - - (10,224) (10,224) 62,886 Total equity $’000 112,350 18,152 31 18,183 88 17 (10,111) (10,006) 120,527 120,527 15,291 118 15,409 134 95 (10,224) (9,995) 125,941 68 NOTES TO THE FINANCIAL STATEMENTSFor the 52 weeks ended 25 June 2017 and the 52 weeks ended 26 June 2016Beacon Lighting Group and its controlled entitiesBEACON LIGHTING GROUP ANNUAL REPORT 2017Directors’ Declaration In the opinion of the Directors: (a) the Financial Statements, notes and the additional disclosures set out on pages 29 to 68 are in accordance with the Corporations Act 2001 (Cth), including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity’s financial position as at 25 June 2017 and of its performance for the 52 weeks ended on that date. (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, (c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed Group identified in note 39 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, (d) note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board and (e) the Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by the section 295A of the Corporations Act 2001 (Cth). This declaration is made in accordance with a resolution of the Directors. Signed in accordance with a resolution of Directors. Ian Robinson Executive Chairman Melbourne, 23 August 2017 Glen Robinson Chief Executive Officer 69 DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BEACON LIGHTING GROUP LIMITED 70 BEACON LIGHTING GROUP ANNUAL REPORT 2017INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BEACON LIGHTING GROUP LIMITED 71 INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BEACON LIGHTING GROUP LIMITED 72 BEACON LIGHTING GROUP ANNUAL REPORT 2017INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BEACON LIGHTING GROUP LIMITED 73 INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BEACON LIGHTING GROUP LIMITED 74 BEACON LIGHTING GROUP ANNUAL REPORT 201776 BEACON LIGHTING GROUP ANNUAL REPORT 2017Shareholders’ Information In accordance with Section 4.10 of the Australian Stock Exchange Limited Listing Rules, the Directors provide the following information. SHAREHOLDING ANALYSIS (a) Distribution of Shareholders (c) Class of Shares and Voting Rights At 14 July 2017, the distribution of shareholdings was as follows: Size of Shareholding Number of Shareholders At 14 July 2017, there were 1,549 holders of ordinary shares of the Company. All of the issued shares in the capital of the parent entity are ordinary shares and each shareholder is entitled to one vote per share. Twenty Largest Shareholders as at 14 July 2017: 1 - 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 Over 100,000 Total number of shareholders Holdings of less than a marketable parcel 178 414 340 577 40 1549 - (b) Substantial Shareholdings The number of shares held by the substantial shareholders listed in the Company’s register of substantial shareholders as at 14 July 2017 were: Number of Shares % Held 118,752,739 55.15% Shareholder Heystead Nominees Pty Ltd (including Robinson Family members) Rank Name Number of Shares % Holding 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Heystead Nominees Proprietary Limited 118,250,000 54.92% Hsbc Custody Nominees (Australia) Limited 39,009,111 18.12% Citicorp Nominees Pty Limited 11,482,927 5.33% J P Morgan Nominees Australia Limited 6,570,965 3.05% National Nominees Limited 5,103,029 2.37% Hsbc Custody Nominees (Australia) Limited 2,195,143 1.02% Mirrabooka Investments Limited 2,000,000 0.93% Amcil Limited 1,624,141 0.75% Reliable Business Co Ltd 1,363,636 0.63% Kja Holdings Pty Ltd 1,092,993 0.51% Bond Street Custodians Limited Truebell Capital Pty Ltd Wask Management Pty Ltd Dr David John Ritchie + Dr Gillian Joan Ritchie 867,314 0.40% 700,000 0.33% 510,748 0.24% 350,000 0.16% Bnp Paribas Noms Pty Ltd 343,636 0.16% Mr N Osborne Mrs Ellen Jane Gray Invia Custodian Pty Limited Adrian Hugh Kelly + Philippa June Kelly Mr William Patrick Howey + Mrs Sarah Elizabeth Howey 300,000 0.14% 268,727 0.12% 268,379 0.12% 244,000 0.11% 217,227 0.10% Top 20 holders of issued capital 192,761,976 89.51% Total remaining holders balance 22,551,059 10.49% Total shareholders 215,313,035 100.00% 77 SHAREHOLDERS’ INFORMATIONLEGAL ADVISORS Baker & McKenzie Level 19 181 William Street Melbourne Victoria AUDITORS PricewaterhouseCoopers 2 Riverside Quay Southbank Victoria SHARE REGISTRY Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford Victoria STOCK EXCHANGE LISTING Beacon Lighting Group Limited (BLX) shares are listed on the ASX Corporate Directory DIRECTORS Ian Robinson Glen Robinson (James) Eric Barr Neil Osborne Executive Chairman Chief Executive Officer Deputy Chairman Non-Executive Director COMPANY SECRETARY Tracey Hutchinson REGISTERED OFFICE 5 Bastow Place Mulgrave Victoria WEBSITE Corporate site www.beaconlightinggroup.com.au Retail site www.beaconlighting.com.au Other business websites www.beaconlightingtradeclub.com.au www.beaconsolar.com.au www.beaconlightingcommercial.com.au www.beaconinternational.com www.lightsourcesolutions.com.au www.lightsourcesolutions.com.nz www.fanaway.com www.lucciair.com www.lucciair.com www.massonforlight.com.au www.beaconlighting.us www.beaconlighting.eu 78 BEACON LIGHTING GROUP ANNUAL REPORT 201779 Store Locations VIC Abbotsford 250 Hoddle St Ballarat Wendouree Homemaker Centre 333 Gillies St Balwyn North 304 Doncaster Rd Bayswater 216 Canterbury Rd Bayswater Nth Bendigo 285 High St Kangaroo Flat Burwood 110 Burwood Hwy Camberwell 347 Camberwell Rd Chirnside Park Showroom Centre 286 Maroondah Hwy Coburg Lincoln Mills Homemaker Centre 64-74 Gaffney St Cranbourne Cranbourne Home Cnr Sth Gippsland Hwy & Thompsons Rd Essendon DFO Homemaker Hub 120 Bulla Rd Strathmore Fountain Gate Casey Lifestyle Centre 430 Princes Hwy Frankston 22 McMahons Rd Geelong 354 Melbourne Rd Heidelberg 2-4 Dora St Hoppers Crossing 283 Old Geelong Rd Maribyrnong Harvey Norman Centre 169 Rosamond Rd Moorabbin 867 Nepean Hwy Nunawading 262 Whitehorse Rd Oakleigh 807 Warrigal Rd Pakenham Lifestyle Centre 825 Princes Hwy Preston 23 Bell St Scoresby 1391 Ferntree Gully Rd South Melbourne 50-56 York St Springvale IKEA Homemaker Centre 917 Princes Hwy 80 St Kilda 366 St Kilda Rd Sunshine 497 Ballarat Rd Thomastown Homemaker Centre Cnr Dalton and Settlement Rds Watergardens Homemaker Centre 440 Keilor-Melton Hwy Taylors Lakes Waurn Ponds Homemaker Centre 235 Colac Rd (Princes Hwy) TAS Launceston 40 William St Moonah 7-9 Derwent Park Rd NSW Albury Wodonga Harvey Norman Centre 94 Borella Rd Albury Alexandria Style Homemaker Centre Cnr O’Riordan & Doody Sts Artarmon Home HQ North Shore Cnr Reserve Rd & Frederick St Bankstown Home Central 9 - 67 Chapel Rd South Belrose Supa Centa Belrose 4-6 Niangala Cl Brookvale 577-579 Pittwater Rd Carlton 367 Princes Hwy Campbelltown Homebase 24 Blaxland Rd Castle Hill Home Hub Hills Cnr Victoria & Hudson Ave Crossroads Homemaker Centre Parkers Farm Place Casula Crows Nest 118 Falcon St Gosford West Hometown 356 Manns Rd Hornsby Cnr Pacific Hwy & Yardley Ave Waitara Killara 694 Pacific Hwy Kotara Kotara Home 108 Park Ave Lake Haven Home Mega Centre Cnr Pacific Hwy & Lake Haven Drv Marsden Park Home Hub Marsden Park Richmond Rd McGraths Hill Home Central 264-272 Windsor Rd Mittagong Highlands Homemaker Centre 205 Old Hume Hwy Parramatta Cnr Church and Daking Sts Penrith Homemaker Centre 2 Patty’s Place Port Macquarie 180 Lake Rd Prospect Homebase 19 Stoddart Rd Rutherford Harvey Norman Centre 366 New England Hwy Shellharbour 146 New Lake Entrance Rd Taren Point 105 Parraweena Rd Warners Bay Warners Bay Home 240 Hillsborough Rd ACT Fyshwick 175 Gladstone St Gungahlin 10 Gribble St QLD Bundall 61 Upton St Burleigh Stockland Centre 177-207 Reedy Creek Rd Cairns 331 Mulgrave Rd Cannon Hill Homemaker Centre 1881 Creek Rd Capalaba Freedom Home Centre 67 Redland Bay Rd Carseldine Homemaker Centre 1925 Gympie Rd Bald Hills Cannington 21 William St Clarkson Ocean Keys Homemaker Centre 61 Key Largo Drv Claremont 201-207 Stirling Hwy Jandakot South Central Cockburn 87 Armadale Rd Joondalup 3 Sundew Rise Malaga Home Centre 655 Marshall Rd Mandurah 28 Gordon Rd Mandurah Home City 430 Pinjarra Rd Midland Midland Central Cnr Clayton & Lloyd Sts Myaree Melville Square Cnr Leach Hwy & Norma Rd Osborne Park Hometown 381 Scarborough Beach Rd Subiaco 320 Hay St SA Churchill Churchill Centre South 252 Churchill Rd Kilburn Gepps Cross Home HQ 750 Main North Rd Melrose Park Melrose Plaza 1039 South Rd Mile End Mile End Home 121 Railway Tce Munno Para Harvey Norman Centre 600 Main North Rd Smithfield Noarlunga Harvey Norman Centre 2 Seaman Dr NT Darwin Homemaker Village 356-362 Bagot Rd Millner Fortitude Valley Homemaker City North 650 Wickham St Helensvale Homeworld 502 Hope Island Rd Hervey Bay 140 Boat Harbour Drv Ipswich Ipswich Riverlink Shopping Centre Cnr The Terrace & Downs Sts Jindalee Homemaker City 182 Sinnamon Rd Kawana 2 Eden St Minyama Macgregor 550 Kessels Rd Maroochydore Sunshine Homemaker Centre 72 Maroochydore Rd Morayfield Supa Centre 344 Morayfield Rd Noosa Noosa Civic Eenie Creek Rd Northlakes Primewest Northlakes Cnr Northlakes Drv Mason St & Stapylton St Rockhampton Red Hill Homemaker Centre Cnr Yaamba & Richardson Rds Southport Bunnings Complex 542 Olsen Ave Toowoomba Harvey Norman Centre 910 Ruthven St Townsville - Fairfield Homemaker Centre 1 D’Arcy Dr Idalia Townsville - Garbutt Mega Centre Cnr Dalrymple Rd & Duckworth St Underwood Homemaker HQ 1-21 Kingston Rd Windsor Homemaker City 190 Lutwyche Rd WA Baldivis Safety Bay Rd Bunbury Homemaker Centre 42 Strickland St BEACON LIGHTING GROUP ANNUAL REPORT 2017www.beaconlighting.com.au 

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