Boralex Annual Report 2019

Plain-text annual report

Beacon Lighting Group Limited ANNUAL REPORT 2019 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 Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report to the Members of Beacon Lighting Group Limited Shareholders’ Information Corporate Directory Store Locations 1 4 5 6 12 27 28 29 30 31 32 33 80 82 88 90 92 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 12, which is not part of the financial report. The financial report was authorized for issue by the Directors on 19 August 2019. The Directors have the power to amend and re-issue the financial statements. Chairman’s & Chief Executive Officer’s Report The Beacon Lighting Group is pleased to announce the sales and profit result for FY2019. The Board of Directors would like to thank our Customers, Associates, Suppliers and Shareholders for their support and contribution to our results in FY2019. FY2019 HIGHLIGHTS FINANCIAL RESULT The key highlights which contributed to the 53 weeks ended 30 June 2019 include: Record sales result of $246.3 million. EBITDA result of $29.6 million and NPAT result of $16.0 million. The opening of five new company stores and the purchase of two franchised stores. The purchase of the ex-Masters store in Parkinson (QLD) and transforming it into a new Distribution Centre to service the QLD and NSW markets. Record sales for Beacon Lighting Company stores, Online Sales Channels, Beacon International, Beacon Energy Solutions, Light Source Solutions Roadway and Masson For Light. GROUP OVERVIEW The Beacon Lighting Group finished FY2019 with 109 company stores and 4 franchised stores. During the year, the Group opened new company stores at Warrnambool (VIC), Mackay (QLD), Moore Park (NSW), Modbury (SA) and Craigieburn (VIC). The Beacon Lighting Group also purchased the franchised stores at Underwood (QLD) and Albury (NSW) and converted them to company stores. The Subiaco (WA) store was also closed during FY2019. The Beacon Lighting Commercial team continues to operate sales offices in Brisbane (QLD), Sydney (NSW), Melbourne (VIC), Adelaide (SA) and Perth (WA). Beacon International has sales offices in Hong Kong, Germany and the United States and a support office in China. Light Source Solutions Globes has sales teams in Australia and New Zealand while Light Source Solutions Roadway services customers across Australia. Beacon Energy Solutions has a sales office in Melbourne (VIC) and Masson For Light has one store in Richmond (VIC). The Beacon Lighting Group sales and profit performance was challenging during H2 FY2019. As reported in the trading update to the ASX on 30 April 2019, trading was subdued as a result of a number of factors including a decline in housing prices and churn rates, weak consumer confidence, the federal election and tighter credit availability within the housing sector. All of these factors impacted upon the Beacon Lighting Group result for FY2019. The Beacon Lighting Group achieved a sales result of $246.3 million. The sales result was also reflected in the company comparative sales which declined by 2.3%, on a 52 week comparable basis in FY2019. QLD was the better performing state, whilst sales in NSW, VIC and WA were all disappointing. The sales increases achieved by Beacon International, Beacon Energy Solutions, Light Source Solutions Roadway and Masson For Light were pleasing. Despite the change in the sales mix and the decline in the AUD/USD exchange rate, the Beacon Lighting Group was still able to produce a strong gross profit margin result in FY2019. The gross profit margin result of 64.0% in FY2019 was a good outcome despite it declining from the record gross profit margin result of 65.7% in FY2018. Although having a strong focus on cost control throughout FY2019, Beacon Lighting continued to invest in new stores, Commercial and the emerging businesses. This saw an increase in the Selling and Distribution expenses as a percentage of sales whilst the Marketing and Administration expenses declined as a percentage of sales. As a percentage of sales, operating expenses (which exclude finance costs, depreciation and amortisation) were 52.7% in FY2019. In line with the trading update, the Beacon Lighting Group was able to achieve an EBITDA result of $29.6 million in FY2019. The Beacon Lighting Group also achieved a NPAT result of $16.0 million in FY2019. CHAIRMAN’S AND CHIEF EXECUTIVE OFFICER’S REPORT 1 KEY GROWTH STRATEGIES OUTLOOK The key growth strategies in FY2020 will be: • Continue to enhance the brand and the customer experience in order to increase differentiation and drive incremental sales. • Target the growth of sales and profit through the optimisation of the existing store network. • Target the opening of new company operated stores in Australia. • Offer an extensive range of the latest fashion, on trend, energy efficient and home automation lighting and fan products at great prices to our customers. • Continue to enhance our online presence in order to drive incremental sales. The Beacon Lighting Group remains committed to being at the forefront of the changes that are occurring in the lighting industry and around the world. The Group will continue to focus on new technologies, fashion and energy efficient lighting solutions supported by market leading customer service. Beacon Lighting Group continues to maintain it’s strong market position as Australia’s leading lighting retailer and combined with its emerging businesses the Group remains very well positioned to take advantage of the changes that are occurring in the lighting industry. The Beacon Lighting Group is planning for further growth in FY2020 and has already committed to the following activities: • The opening of new company stores at Virginia (QLD) and Belmont (WA). • The purchase of the Myaree (WA) franchised store and conversion to a company store will occur in September 2019. • Target the growth of sales and profits in the emerging businesses. • The relocation of the Midland (WA) store. • Investigate and pursue local and international business opportunities that complement the core activities of the Group. • Target efficiency gains and productivity improvements as the store network matures. DIVIDENDS The Beacon Lighting Group Directors have declared a fully franked dividend of 2.00 cents per share for H2 FY2019 (compared to 2.50 cents per share for H2 FY2018). Along with the H1 FY2019 fully franked dividend of 2.55 cents per share (compared to 2.50 cents per share for H1 FY2018), this brings the annual Beacon Lighting Group dividend for FY2019 to 4.55 cents per share (compared to 5.00 cents per share in FY2018). The Directors will continue to target a dividend payout ratio of between 50% and 60% of the annual Net Profit After Tax result. • Re-platforming of the beaconlighting.com.au website and online sales channel. • The expansion of Beacon International into new markets in Canada and China. • The introduction of exciting new product ranges for the Beacon Lighting Stores, Beacon International, Light Source Solution Globes, Light Source Solutions Roadway and Masson For Light businesses. The Beacon Lighting Group is encouraged that following the federal election result, interest rate cuts, tax rebates and tax cuts have provided more optimism within the housing industry and market confidence going forward into FY2020. Ian Robinson Executive Chairman Glen Robinson Chief Executive Officer 2 BEACON LIGHTING GROUP ANNUAL REPORT 20193 Board of Directors Ian Robinson Executive Chairman Glen Robinson Chief Executive Officer 45 years of service Ian Robinson purchased the first Beacon Lighting store in 1975. Over the subsequent 44 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. 24 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 Eric 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 a Non-Executive director of Generation Life Limited (formerly known as Austock Group Limited) where he holds the positions of Chairman of the Audit Committee, Chairman of Risk Committee and Chairman of the Remuneration Committee. Eric was previously 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 35 years experience in the retail industry. Neil was formerly an Accenture Partner, leading large strategic projects in Australia and Asia. Neil also spent 18 years with Coles Myer Ltd in senior positions including finance (including CFO Myer), operations and strategic planning. Neil is a Non-Executive Director of Vita Group (ASX Listed) and Chairman of their Audit and Risk Committee. Neil is also Chairman of Australian United Retailers (trading as Foodworks). Neil holds a Bachelor of Commerce, is a CPA and a FAICD. 4 BEACON LIGHTING GROUP ANNUAL REPORT 2019Management Team 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 and Marketing). Lenore Harris Group Human Resources Manager Joined Beacon Lighting in 2017 having had extensive retail management, human resources and communications experience predominantly at Myer and Monash University’s Australian Centre for Retail Studies. Lenore holds a BA (Psych /Sociology) and a Diploma in Investor Relations. 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. 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. Michael (Mick) Tan Chief Information Officer Joined Beacon Lighting in 2000 and has had more than 30 years information technology experience including a career with Fujitsu Systems. Mick holds a Dip (Management). MANAGEMENT TEAM 5 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 19 August 2019. 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 PRINCIPLE 2 Lay Solid Foundations for Management and Oversight 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. 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 TERM IN OFFICE Ian Robinson Eric Barr Glen Robinson Neil Osborne 6 years 5 years 5 years 5 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. 6 BEACON LIGHTING GROUP ANNUAL REPORT 2019The Committee is chaired by Eric Barr. given the Group's present circumstances. A copy of the Remuneration and Nomination Committee Charter is available on the Group’s website. PRINCIPLE 3 In relation to nominations, the Remuneration and Nomination Committee is responsible for: • Assessing current and future Director skills and experiences and identifying suitable candidates for succession. • Annually enquiring of the Executive Chairman and the Chief Executive 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. the ASX Corporate Recommendations 2.4 and 2.5 of 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 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 summary, the Code requires associates to always act: • In a professional, fair and ethical manner, in accordance with Group values. • In accordance with applicable legislation and regulations, and internal policies and procedures. • 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 these as currently composed does not comply with 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. CORPORATE GOVERNANCE STATEMENT 7 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. 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 and Accounting Standards. 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. 8 BEACON LIGHTING GROUP ANNUAL REPORT 2019The 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. Consumer sentiment was lower in 2019 which affected general retail demand, housing activity was also subdued which resulted in 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. impact Corporate Conduct Risks could 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. PRINCIPLE 8 Remunerate Fairly and Responsibly the that recommends Principle 8.1 of the Corporate Governance Principles and remuneration Recommendations, 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. its Charter, the Remuneration and In accordance with 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. 9 10 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 53 weeks ended 30 June 2019. 1. DIRECTORS 4. OPERATING AND FINANCIAL REVIEW 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 4 of this annual report. 2. PRINCIPAL ACTIVITIES 4.1. Overview of Operations Beacon Lighting is Australia’s leading lighting retailer and also an emerging supplier of lighting and energy efficient products to the commercial industry throughout Australia and other international markets. As a vertically integrated business, Beacon Lighting designs, develops, sources, imports, distributes, merchandises, promotes and sells its own product range to meet the demands of its retail and commercial customers. More than 95% of the lighting and fan products sold by the Beacon Lighting Group are supplied through the Beacon Lighting supply chain with approximately 85% of the products are exclusively branded. At the end of FY2019, Beacon Lighting operated the following trading businesses: • 109 Beacon Lighting company stores • 4 Beacon Lighting franchised stores • 5 Commercial sales offices • Beacon International Hong Kong, Germany, USA and China • Light Source Solutions Globes Australia and New Zealand 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. • Light Source Solutions Roadway • Masson For Light • Beacon Lighting Wholesale 3. RESULTS The consolidated profit for the year attributable to the members of Beacon Lighting Group Limited was: CONSOLIDATED ENTITY Actual FY2019 $’000 Actual FY2018 $’000 Profit before Income Tax 23,118 27,705 Income Tax Expense 7,074 8,115 Operating profit after tax attributable to the members of Beacon Lighting Group Limited 16,044 19,590 During FY2019, Beacon Lighting continued to invest in the growth of the Group. These investments included: • The opening of five new company stores at Warrnambool (VIC), Mackay (QLD), Moore Park (NSW), Modbury (SA) and Craigieburn (VIC). • The Underwood (QLD) and Albury (NSW) franchised stores were purchased and converted to company stores. • The purchase of the ex-Masters site in Parkinson (QLD) and then transformed it into a Distribution Centre to service the QLD and NSW markets. • Designed, developed and released 600 new products for Beacon Lighting stores. 12 BEACON LIGHTING GROUP ANNUAL REPORT 20194.2. Financial Summary 4.2.1. Financial Performance A summary of the Beacon Lighting Group FY2019 statutory result compared to the FY2018 statutory result is presented in the following table: Consolidated Entity Sales Gross Profit Other Income Operating Expenses (1) EBITDA EBIT Net Profit After Tax Statutory FY2018 $’000 235,964 155,065 1,819 (123,712) 33,172 29,308 19,590 Statutory FY2019 $’000 246,304 157,711 1,655 (129,768) 29,598 25,088 16,044 Change Change 10,340 2,646 (164) (6,056) (3,574) (4,220) (3,546) 4.4% 1.7% (9.0%) 4.9% (10.8%) (14.4%) (18.1%) (1) Operating Expenses excludes interest, depreciation and amortisation It is difficult to compare the FY2019 statutory result to the FY2018 statutory result because the FY2019 statutory result had 53 weeks and the FY2018 statutory result had 52 weeks. Additionally, there were also one-off set up costs associated with the establishment of the Parkinson (QLD) Distribution Centre. A reconciliation of the FY2019 statutory result to the FY2019 underlying result is presented in the following table: Consolidated Entity Sales Gross Profit Other Income Operating Expenses (4) EBITDA EBIT Net Profit After Tax Statutory FY2019 $’000 246,304 157,711 1,655 (129,768) 29,598 25,088 16,044 Less 53rd week(1) $’000 Less Parkinson DC (2) $’000 Underlying FY2019 (3) $’000 4,520 2,966 25 (2,522) 469 375 241 - - - (605) (605) (605) (424) 241,784 154,745 1,630 (126,641) 29,734 25,318 16,227 (1) Eliminating 53rd week in FY2019 based on the alignment to the retail marketing program to FY2018 (2) Eliminating one off non recurring costs associated with the establishment of the new Parkinson (QLD) Distribution Centre (3) FY2019 52 Week Proforma result to be used as comparison to the FY2018 Statutory Result (4) Operating Expenses excludes interest, depreciation and amortisation DIRECTORS’ REPORT 13 4.2.2. Sales Beacon Lighting achieved a sales result of $246.3 million in FY2019. The best sales increases were achieved by the Online Sales Channels, Beacon International, Beacon Energy Solutions, Light Source Solutions Roadway and Masson For Light. Company Store sales and Commercial sales were disappointing with Company comparative sales declining by 2.3% in FY2019 on a 52 week comparable basis. 4.2.3. Gross Profit Margin The gross profit margin was 64.0% for FY2019 compared to the gross profit margin of 65.7% for FY2018. The decline in the margin was a result of the change in the margin mix of the Beacon Lighting Group and the decline in the AUD/USD exchange rate. 4.2.4. Other Income & Other Revenue Other income was $1.6 million in FY2019. Other income received from franchised stores continues to decline as franchised stores are purchased and converted to company operated stores. 4.2.5. Operating Expenses Operating Expenses were $129.8 million in FY2019. As a percentage of sales, Operating Expenses were 52.7% for FY2019. With the continued investment in new stores and the emerging businesses, the Selling and Distribution Expenses increased as a percentage of sales in FY2019. Expense productivity for Marketing Expenses and General and Administration Expenses. improvements were achieved 4.2.6. Earnings The Beacon Lighting Group Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) was $29.6 million in FY2019. As a percentage of sales, the EBITDA margin of 12.0% in FY2019 decreased from the EBITDA margin of 14.1% in FY2018. The Net Profit After Tax (NPAT) result decreased to $16.0 million or 6.5% of sales from a NPAT result of $19.6 million or 8.3% of sales in FY2018. 4.2.7. Dividends The Directors of Beacon Lighting have declared an annual fully franked divided of 4.55 cents per share for FY2019. For H1 FY2019, the Directors declared a fully franked dividend of 2.55 cents per share and for H2 FY2019, the Directors declared a fully franked dividend of 2.50 cents per share. Going forward, it is expected that the Beacon Lighting Group will target an annual NPAT dividend payout ratio of between 50% and 60%. 4.2.8. Financial Position In FY2019, the Beacon Lighting Group made the first property acquisition for the Group with the purchase of the ex-Masters site in Parkinson (QLD). This facility has been converted into a distribution centre to service the QLD and NSW markets. The purchase price of the property was $11.8 million plus purchasing on costs and was funded by additional finance from the ANZ Bank. In FY2019, the Beacon Lighting Group has increased the investment in inventory by $6.3 million, particularly to support the growth opportunities of the emerging businesses. Trade receivables have increased by $2.2 million, also reflecting the growth in sales of the emerging businesses. Excluding the land and building investment associated with Parkinson (QLD) Distribution Centre, the Group has increased capital expenditure by $5.0 million in FY2019. Beyond the new finance associated with the Parkinson (QLD) Distribution Centre and additional inventory finance, the additional investments in FY2019 have been funded by retained earnings which has been supported by the Beacon Lighting Group dividend reinvestment program. In FY2019, the Beacon Lighting Group continued to operate comfortably within all of its bank covenants. 4.3. Business Strategies Beacon Lighting continues to strengthen its market position as Australia’s leading specialist retailer of light fittings, ceiling fans and light globes. The Group has also continued to expand in the wholesale / commercial lighting industry with growth in the Beacon Lighting Commercial, Beacon International, Light Source Solutions (Globes and Roadway), Beacon Energy Solutions and the Masson For Light businesses. Beacon Lighting intends to drive sales and profit growth through a number of different business strategies. 4.3.1. Brand and Customer Beacon Lighting will continue to enhance the brand and the customer experience in order to increase differentiation and drive incremental sales. Beacon Lighting continues to design, develop and release uniquely branded products with a core range of more than 3,000 products. With over 300 Accredited Lighting Design Consultants across the store network and 28 Premium Lighting Design Studios, Beacon Lighting are able to offer a unique customer service experience. Our VIP and Trade Club customers also enjoy additional offers and benefits. A fan installation service is also available to our customers. The 113 retail stores and online web presence provides an omni-channel offering making it easy for customers to shop at Beacon Lighting any time. 4.3.2. Store Optimisation Beacon Lighting will target the growth of sales and profits through the optimisation of the existing store network. Since FY2014, Beacon Lighting has opened 31 new company stores which are yet to reach full maturity and consequently increased sales growth from these stores. The Group closed the Subiaco (WA) store and expects to maintain the majority of those sales through other stores within the state. Ongoing operational refinements including the marketing plans, roster management, merchandise changes and refurbishments all provide the store network with further optimisation opportunities. 4.3.3. New Store Rollout Beacon Lighting plans to open new company stores in Australia each year. In FY2019, Beacon Lighting opened five new company stores and closed one store. Currently with 113 Beacon Lighting stores and with the Store Network Plan from August 2018 identifying 175 store opportunities, Beacon Lighting still has the opportunity for the planned store roll out for a number of years to come. 14 BEACON LIGHTING GROUP ANNUAL REPORT 20194.3.4. New Product Ranges and how they are managed are set out below. Beacon Lighting will offer an extensive range of the latest fashion, on trend, technologically advanced and energy efficient products to our customers. With the introduction of more than 600 new products in FY2019, Beacon Lighting aims to refresh its core product range in all stores each year, complemented by the online range extension. The continuing demand for greater energy efficiency, along with the growth of internet enabled smart lighting, continues to represent additional opportunities for the Beacon Lighting Group. 4.3.5. Online and Social Media Presence Beacon Lighting will continue to enhance our online and social media presence in order to drive incremental sales. The introduction of store stock on hand balances on the website plus the splitting of online orders based on stock availability has enhanced our customer online experience. A variety of online and social media channels continue to offer significant growth opportunities for the Group which are closely aligned to the 113 Beacon Lighting stores. Beacon Lighting continues to nurture strong relationships with social influencers who engage and endorse Beacon Lighting. 4.3.6. Emerging Businesses Beacon Lighting will continue to target the growth of sales and profits of the emerging businesses. Beacon International, Light Source Solutions (Globes and Roadway), Beacon Energy Solutions and Masson For Lights continue to offer significant growth opportunities for the Group, including synergies with the retail businesses and to strengthen the market opportunities for the Beacon Lighting brand within Australia and internationally. 4.3.7. New Business Opportunities investigate and pursue Beacon Lighting will local and international business opportunities that complement the core business activities of the Group. During FY2019, the Beacon Lighting Group purchased the Underwood (QLD) and Albury (NSW) franchised stores and converted them into company stores. New business opportunities may include other lighting stores, franchised stores, wholesaling and other opportunities. 4.3.8. Efficiency Gains Beacon Lighting will continue to target expense efficiency gains and manage the growth of expenses. However, the Group still plans to invest in the opening of new stores and emerging businesses. The Beacon Lighting Group has installed solar systems on 50 Beacon Lighting locations and continue with a cost-conscious approach to operating expenses. 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 current and 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 has in place mitigation strategies to manage the impact of the risks should those risks occur. The specific material business risks faced by Beacon Lighting 4.4.1. Retail Environment and General Economic Conditions The Beacon Lighting 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. 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 adjusting prices, releasing new products, negotiating with manufactures and carrying all domestic stock in Australia in AUD and by using FX forward contracts to secure future FX positions. 4.4.3. Growth Strategies Beacon Lighting has a number of different growth strategies to generate 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. 4.4.4. Operating Expenses As the Beacon Lighting Group continues to grow, the Group’s 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 suitable cost structure. 4.4.5. 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 its business strategies, the Group remains well positioned to maintain its leading retail market position and emerging commercial position in Australia and other international markets. 4.4.6. Management Systems The Beacon Lighting Group has a number of management systems which are critical to the ongoing operations of the Group. It is critical that these management systems are secure and fit for purpose. The Group needs to ensure that there are appropriate security and disaster recovery capabilities are in place to ensure the ongoing operations of our management systems. DIRECTORS’ REPORT 15 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 30 June 2019, and the numbers of meetings attended by each Director were: DIRECTOR’S MEETINGS COMMITTEE MEETINGS AUDIT REMUNERATION & NOMINATION DIRECTOR I Robinson G Robinson E Barr N Osborne H 11 11 11 11 A 11 11 11 11 H - 4 4 4 A - 4 4 4 H 4 - 4 4 A 4 - 4 4 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. 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 Robinson (1) G Robinson (1) E Barr N Osborne Ordinary Shares in the Company 121,054,088 121,054,088 200,000 300,000 (1) Heystead Nominees and other Robinson Family member interests 8. DIRECTORS’ INTERESTS IN CONTRACTS Directors’ interests in contracts are disclosed in Note 32 of the financial statements. 9. DIVIDENDS Dividends paid to members during the financial period were as follows: Consolidated Entity Actual FY2019 $'000 Actual FY2018 $'000 Fully franked dividends provided or paid during the period 10,986 10,577 16 BEACON LIGHTING GROUP ANNUAL REPORT 201910. INSURANCE OF OFFICERS 12. PROCEEDINGS ON BEHALF OF THE 10.1. Indemnification of Directors COMPANY 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 $139,500 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. 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 In July 2019 the Group entered into an agreement to purchase a property for the value of $1,580,000 located in Epping, Victoria for Masson Manufacturing. In July 2019 both the Sunshine (Vic) and Mandurah (WA) stores were closed. In September 2019 the Group will be purchasing the Myaree (WA) franchisee store. A fully franked dividend of $4,384,299 was declared on 19 August, 2019. 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. 11. INDEMNITY OF AUDITORS 14. AUDIT SERVICES 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. 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. DIRECTORS’ REPORT 17 14.2. Audit and Non-Audit Services Provided by the External Auditor During the 53 weeks ended 30 June 2019, 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 Audit & review of financial statements Other assurance services Other Services Tax compliance services Other Services Total Remuneration of PwC FY2019 $ 236,900 - 22,390 10,000 269,290 FY2018 $ 222,100 69,580 28,235 49,489 369,404 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 Board has appointed the Remuneration and Nomination 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 53 weeks ended 30 June 2019. 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 on page 19. 18 BEACON LIGHTING GROUP ANNUAL REPORT 2019Remuneration Framework Element Purpose Performance Metrics Potential Value Changes for FY2019 Link to Performance Fixed Remuneration Nil Provide competitive market salary including superannuation and non-monetary benefits 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 No change 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 No change Grants are subject to achieving budgeted performance and vesting is subject to the executive remaining employed by the Group at the vesting date 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 FY2019 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% 80.2% 86.8% 86.2% 85.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 19.8% 100.0% 13.2% 100.0% 13.8% 100.0% 14.8% 100.0% 19 DIRECTORS’ REPORT 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. Structure of Short Term Cash Incentive Plan 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 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 their relevant respectively. These 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. inclusive of fees are 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 executives’ total remuneration. these components comprises the For the 53 weeks ended 30 June 2019, 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 FY2019 fixed remuneration was increased for the five executives at an average of increase of 3.81%. 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. 20 BEACON LIGHTING GROUP ANNUAL REPORT 20193. Short Term Incentive (Performance Rights or Options). 17.3 FY2019 Performance and Impact on Remuneration During the 53 weeks ended 30 June 2019 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 or potentially be cash settled, 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 FY2019 was below that of the FY2019 budget. For the 53 weeks ended 30 June 2019, the Group's financial performance targets were not met. The annual short term cash incentive and the short term incentive (performance rights or options) targets were not achieved for the financial year. 17.4 Statutory Performance Indicators to align executive remuneration Beacon Lighting aims 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 remuneration awarded to executives. 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) Basic earnings per share (cents) FY2019 FY2018 16,044 19,590 7.37 9.09 Maximum Opportunity Performance Metric Delivery of STI Board Discretion 125% of on target cash bonus value Dividend payments ($’000) 10,986 10,577 Share Price (Year End) 1.04 1.54 Budgeted EBIT 17.5. Details of Remuneration 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 following executives along with the Directors are The 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 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 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018 unless otherwise stated. 21 DIRECTORS’ REPORTThe 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 Cash Salary & Fees Non- Monetary Benefits $ $ Post Employment Super Contributions $ Annual & Long Service Leave $ Cash Performance Based Payment $ (8,522) 109,140 46,557 519,501 Share Based Payments Total $ - - 202,539 181,959 93,939 473,871 - - - - - - - - - - - 110,000 110,000 100,000 100,000 93,939 886,410 17,397 (7,586) 17,397 (28,166) 20,531 20,048 9,543 9,543 - - 2,444 - - - - 47,471 (5,142) 46,988 (36,688) 109,140 46,557 911,460 20,531 25,345 - 48,207 365,711 20,049 (3,556) 51,000 24,068 353,567 20,531 20,049 9,169 3,015 - 48,207 350,132 51,000 24,068 360,488 20,531 18,602 - 48,207 324,711 20,049 (9,069) 51,000 24,068 314,222 61,593 53,116 - 144,621 1,040,554 60,147 (9,610) 153,000 72,204 1,028,277 DIRECTORS I Robinson (Executive Chairman) 2019 2018 192,728 192,728 G Robinson (Chief Executive Officer) 2019 2018 E Barr (Non-Executive) 2019 2018 N Osborne (Non-Executive) 2019 2018 356,957 352,278 100,457 100,457 100,000 100,000 Total Remuneration Directors 2019 2018 EXECUTIVES 750,142 745,463 I Bunnett (Managing Director – Sales) 2019 2018 271,628 262,006 D Speirs (Chief Financial Officer) 2019 2018 272,225 262,356 B Martens (Chief Operating Officer) 2019 2018 237,371 228,174 Total Remuneration Executives 2019 2018 781,224 752,536 - - - - - - - - - - - - - - - - - - 22 BEACON LIGHTING GROUP ANNUAL REPORT 2019 17.6. Share Based Compensation The number of performance rights over shares in the Group granted to the Chief Executive Officer during the current financial period, together with prior period grants which vested during the period are set out below: Grant Date Quantity Granted Vest Date Value at Grant Date $ Vest % Quantity Vested Quantity Unvested Value Expensed this Year $ G Robinson 24/06/2016 22,107 28-Aug-17 43,750 100.00% 22,107 G Robinson 18/08/2016 23,603 28-Aug-17 32,100 100.00% 23,603 0 0 - 753 G Robinson 24/08/2017 39,338 13-Oct-17 53,500 66.67% 26,227 13,111 11,332 G Robinson 16/08/2018 71,333 09-Oct-18 109,140 33.34% 23,783 47,550 81,854 Total 156,381 238,490 93,939 The fair value of performance rights granted on 24 June 2016 (grant date) was $1.979, with a final vesting date of 28 August 2017. 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 fair value of performance rights granted on 24 August 2017 (grant date) was $1.360, with a final vesting date of 25 August 2020. All unvested performance rights will vest on 25 August 2020 provided the executive remains employed by the Group at the vesting date. The fair value of performance rights granted on 16 August 2018 (grant date) was $1.530, with a final vesting date of 16 August 2020. All unvested performance rights will vest on 16 August 2020 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. DIRECTORS’ REPORT 23 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 are set out below. Grant Date Quantity Granted Vest Date Value at Grant Date $ Vest % Quantity Vested & Exercisable Quantity Unvested Value Expensed this Year $ I Bunnett 24/06/2016 31,582 Refer below 40,740 100.00% 31,582 - 797 18/08/2016 11,029 Refer below 15,000 70.00% 7,720 3,309 1,696 24/08/2017 18,382 Refer below 25,000 40.00% 7,353 11,029 7,465 16/08/2018 33,333 Refer below 51,000 33.33% 11,110 22,223 38,249 D Speirs 24/06/2016 31,582 Refer below 40,740 100.00% 31,582 - 797 18/08/2016 11,029 Refer below 15,000 70.00% 7,720 3,309 1,696 24/08/2017 18,382 Refer below 25,000 40.00% 7,353 11,029 7,465 16/08/2018 33,333 Refer below 51,000 33.33% 11,110 22,223 38,249 B Martens 24/06/2016 31,582 Refer below 40,740 100.00% 31,582 - 797 18/08/2016 11,029 Refer below 15,000 70.00% 7,720 3,309 1,696 24/08/2017 18,382 Refer below 25,000 40.00% 7,353 11,029 7,465 16/08/2018 33,333 Refer below 51,000 33.33% 11,110 22,223 38,249 Total 282,978 395,220 144,621 The fair value of options granted on 24 June 2016 (grant date) was $1.290. 40% vested on 26 June 2017, 30% vested 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 $1.360. 40% vested 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 fair value of options granted on 24 August 2017 (grant date) was $1.360. 40% vest on 24 August 2018, 30% vest on 24 August 2019 and 30% vest on 24 August 2020, 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 16 August 2018 (grant date) was $1.530. 33.33% vest on 16 August 2018, 33.33% vest on 16 August 2019 and 33.33% vest on 16 August 2020, 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. 24 BEACON LIGHTING GROUP ANNUAL REPORT 2018 BEACON LIGHTING GROUP ANNUAL REPORT 2019 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 Year(1) Purchase of Shares DRP Issue(2) Sales of Shares Balance at End of the Year DIRECTORS I Robinson (Executive Chairman)(3) 2019 2018 119,584,748 - - 1,343,584 118,659,353 10,779 41,500 873,116 G Robinson (Chief Executive Officer) 124,264 - 93,386 28,352 2019 2018 E Barr (Non-Executive) 2019 2018 N Osborne (Non-Executive) 2019 2018 EXECUTIVES I Bunnett (Managing Director – Sales) 2019 2018 D Speirs (Chief Financial Officer) 2019 2018 B Martens (Chief Operating Officer) 200,000 150,000 300,000 300,000 63,974 63,974 76,473 73,974 68,519 68,519 2019 2018 Total 2019 2018 - - - 50,000 - - - - - - - - 1,492 2,526 - - - - - - 3,108 2,499 - - - 1,348,184 - - - - - - - - - - - 120,417,978 119,409,206 39,131 91,500 878,141 (1) Shares received during the year were a result of performance rights vesting under the STI plan. (2) Shares received during the year as a result of participating in the Dividend re-investment plan. (3) Heystead Nominees Pty Ltd and other Robinson Family member interests, excluding Glen Robinson. - - - - - - - - - - - - - - - - 120,928,332 119,584,748 125,756 124,264 200,000 200,000 300,000 300,000 63,974 63,974 79,581 76,473 68,519 68,519 121,766,162 120,417,978 25 DIRECTORS’ REPORT17.8 Service Agreements 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. 17.9 Voting of Shareholders at Last Year’s Annual General Meeting Beacon Lighting Group received more than 90% of yes votes on its remuneration report for the 2018 financial year. The Company did not receive any specific feedback at the Annual General Meeting or throughout the year on its remuneration practices. Signed in accordance with a resolution of Directors Ian Robinson Executive Chairman Melbourne, 19 August 2019 Glen Robinson Chief Executive Officer 26 BEACON LIGHTING GROUP ANNUAL REPORT 2019Auditor’s Independence Declaration 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. Changes in Accounting Policies 3. Financial Risk Management 4. Segment Information 5. Revenue from Ordinary Activities and Other Revenue 6. Other Income 7. Expenses 8. Income Tax Expense 9. Cash and Cash Equivalents 10. Trade and Other Receivables 11. Inventories 12. Derivative Financial Instruments 13. Other Current Assets 14. Property, Plant and Equipment 15. Deferred Tax Assets 16. Intangible Assets 17. Trade and Other Payables 29 30 31 32 33 39 40 46 47 47 48 49 50 50 52 53 54 55 56 57 58 18. Current Borrowings 19. Current Provisions 20. Current Tax Liabilities 21. Non Current Borrowings 22. Non Current Provisions 23. Contributed Equity 24. Reserves and Retained Profits 25. Dividends 26. Key Management Personnel Disclosures 27. Share Based Payments 28. Earnings Per Share 29. Remuneration of Auditors 30. Contingencies 31. Commitments 32. Related Party Transactions 33. Subsidiaries 34. Events Occurring After the Reporting Period 35. Cash Flow Information 36. Critical Accounting Estimates 37. Parent Entity Financial Information 38. Deed of Cross Guarantee 59 59 61 61 62 63 64 66 67 68 71 71 71 72 73 74 74 75 76 76 77 28 BEACON LIGHTING GROUP ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. 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 5 5 5 6 7 7 8 24(a) 24(a) 28 28 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying Notes. FY2019 $’000 246,304 1,375 247,679 280 FY2018 $’000 235,964 1,716 237,680 103 (88,592) (80,899) (13,738) (104,211) (16,329) (1,971) 23,118 (7,074) 16,044 (1,499) 239 377 (883) (13,722) (97,243) (16,611) (1,603) 27,705 (8,115) 19,590 483 176 (198) 461 15,161 20,051 CENTS CENTS 7.37 7.37 9.09 9.09 29 FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEET As at 30 June 2019 and as at 24 June 2018. Beacon Lighting Group and its controlled entities. Consolidated Entity Notes CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments 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 Derivative financial instruments Provisions 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 9 10 11 12 13 14 15 16 17 18 12 19 20 21 22 23 24(a) 24(b) The above consolidated balance sheet should be read in conjunction with the accompanying Notes. 30 FY2019 $’000 18,305 12,053 68,698 - 2,277 101,333 46,009 5,834 11,646 63,489 164,822 17,848 31,480 649 7,667 658 58,302 19,459 3,881 23,340 81,642 83,180 68,229 (43,333) 58,282 83,180 FY2018 $’000 10,671 10,091 62,446 401 2,324 85,933 29,862 5,941 10,870 46,673 132,606 18,166 19,965 - 6,978 1,436 46,545 6,365 3,367 9,732 56,277 76,329 65,690 (42,587) 53,226 76,329 BEACON LIGHTING GROUP ANNUAL REPORT 2019CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities. Consolidated Entity Notes Contributed Equity $’000 Reserves $’000 Retained Earnings $’000 Total Equity $’000 Balance as at 24 June 2018 65,690 (42,587) 53,226 76,329 Profit for the year Other comprehensive income 24(a) Total comprehensive income for the period Transactions with owners in their capacity as owners: Issue of shares to employees Issue of shares via dividend re-investment plan Employee share scheme Treasury share reserve Dividends provided for or paid 23 23 24(a) 24(a) 25 - - - 2,539 - - - - 16,044 16,044 (883) (883) - - 329 (192) - (883) 16,044 15,161 - - - - - 2,539 329 (192) - (10,986) (10,986) Total contributions by and distributions to owners 2,539 136 (10,986) (8,312) Balance as at 30 June 2019 68,229 (43,333) 58,284 83,180 Balance as at 25 June 2017 62,870 (42,965) 44,213 64,118 Profit for the year Other comprehensive income 24(a) Total comprehensive income for the period Transactions with owners in their capacity as owners: Issue of shares to employees Issue of shares via dividend re-investment plan Employee share scheme Treasury share reserve Dividends provided for or paid 23 23 24(a) 24(a) 25 - - - 251 2,569 - - - - 461 461 - - (83) - - 19,590 19,590 - 461 19,590 20,051 - - - - 251 2,569 (83) - (10,577) (10,577) Total contributions by and distributions to owners 2,820 (83) (10,577) (7,840) Balance as at 24 June 2018 65,690 (42,587) 53,226 76,329 The above consolidated statement of changes in equity should be read in conjunction with the accompanying Notes. 31 FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities. CONSOLIDATED STATEMENT OF CASH FLOWS Consolidated Entity CASH FLOWS FROM OPERATING ACTIVITIES Notes FY2019 $’000 FY2018 $’000 Receipts from customers (inclusive of goods and services tax) 269,876 259,833 Payments to suppliers and employees (inclusive of goods and services tax) (247,766) (236,360) Interest received Borrowing costs Income taxes paid Net cash inflow from operating activities 35 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 (Repayment)/Proceeds from borrowings (net) Dividends paid to Company's shareholders 25 Net cash inflow / (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 9 The above consolidated statement of cash flows should be read in conjunction with the accompanying Notes. 45 (2,014) (7,393) 12,748 (1,138) (20,146) 8 (21,276) 24,609 (8,447) 16,162 7,634 10,671 18,305 43 (1,603) (6,370) 15,543 (782) (5,075) 6 (5,851) (3,938) (8,008) (11,946) (2,254) 12,925 10,671 32 BEACON LIGHTING GROUP ANNUAL REPORT 20191. 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 53 week retail period ending on the 30 June 2019 (2018: 52 week period ending 24 June 2018). This treatment is consistent with section 323D of Corporations Act 2001 (Cth). (i) New, revised or amended accounting standards and interpretations adopted by the group The company has applied the following standards and amendments for first time in their annual reporting period commencing 25 June 2018. • AASB 9 Financial Instruments centres, retail stores and support office facilities. The nature of expenses related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets and interest expense on lease liabilities. Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised. Based on the information currently available, the Group estimates that it will recognise right-of-use assets within a range of approximately $83.0 million to $85.0 million on 1 July 2019, lease liabilities within a range of $101.0 million to $103.0 million and lease receivables within a range of $2.5 million to $3.5 million. The estimated impact was calculated using a discount rate derived from the incremental borrowing rate when the interest rate implicit in the lease was not readily available. The Group does not expect the adoption of AASB 16 to impact its ability to comply with its financial covenants. The Group plans to apply AASB 16 on 1 July 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting AASB 16 will be recognised as a reduction to the opening balance of retained earnings at 1 July 2019 within a range of $14.5 million to $16.5 million, with no restatement of comparative information. There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. • AASB 15 Revenue from Contracts with Customers (iii) Compliance with IFRS The company had to change its accounting policies following the adoption of AASB 9 & 15, refer to Note 2 for further information. The adoption of the new Standards and amendments did not have any impact on the amounts recognised in prior years, did not impact the current year and is not expected to significantly affect future years. (ii) Impact of Standards Issued but Not Yet Applied by Group The Group is required to adopt AASB 16 Leases from 1 July 2019. AASB 16 replaces existing leases guidance, including AASB 117 Leases and related Interpretations. The Group has assessed the estimated impact that initial application of AASB 16 will have on its consolidated financial statements, as described below. introduces a single, on-balance sheet AASB 16 lease accounting model for lessees. A lessee recognises a right of- use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. The Group will recognise new assets and liabilities for its operating leases of distribution The consolidated financial report of the Group also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. (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 of items requiring assumptions and estimates. (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. 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.NOTES TO THE FINANCIAL STATEMENTS(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 30 June 2019 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)). Intercompany transactions, balances and unrealised gains on 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 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 within 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, the methods used to distribute the product and materiality. 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. (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. (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. (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 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019on 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 The Group operates a chain of retail stores and sells a range of lighting products direct to customers. Revenue from the sale of goods is recognised when a group entity sells a product to the customer. Payment of the transaction price is due immediately when the customer purchases the lighting products and takes delivery in store. It is the group’s policy to sell its products to the end customer with a right of return within 30 days. The refund liability and a right to the returned goods is not material for the products expected to be returned. The group’s obligation to repair or replace faulty products under the standard warranty terms is recognised as a provision, see note 19. The revenue relating to the sale of solar systems is recognised upon practical completion or based on milestone progress payments under the building contract. 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. Franchise Royalty Fee Income Franchise royalty fee income includes advertising contributions and management fee, which is generally earned based upon a percentage of sales, is recognised on an accrual basis. (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 realise 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. 35 FINANCIAL STATEMENTS(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 14). Finance leases and hire purchase arrangements 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 31). 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 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 amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement between 30 and 60 days end of month and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The company holds the trade receivables with the 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. The company applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. (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 each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. At inception of the hedge relationship, the group documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The group documents its risk management objective and strategy for undertaking its hedge transactions. Fair value is determined with reference to quoted market prices. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. The method of recognising the resulting gain or loss depends on whether the derivative is designated and effective as a hedging instrument, and if so, the nature of the item being hedged. 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 the hedging reserve in equity. The gain or loss relating to the ineffective portion is recognised in the income statement in other income or other 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 interest rate swaps hedging variable rate borrowings is recognised in the income statement within finance costs. 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. to hedge forward contracts are used When forecast transactions, the group generally designates only the change in fair value of the forward contract related to the spot component as the hedging instrument. Gains or losses relating to the effective portion of the change in the spot component of the forward contracts are recognised in the cash flow hedge reserve within equity. The change in the forward element of the contract that relates to the hedged item (‘aligned forward element’) is recognised within Other Comprehensive Income (OCI) within the cash flow hedge reserve. In some cases, the entity may designate the full change in fair value of the forward contract (including forward points) as the hedging instrument. In such cases, the gains or losses relating to the effective portion of the change in fair value of the entire forward contract are recognised in the cash flow hedge reserve within equity. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. (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. 37 FINANCIAL STATEMENTSDepreciation 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 leased plant and equipment, the shorter lease term as follows: improvements and certain 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. • Furniture, Fittings & Equipment 4 to 20 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. (p) Intangible Assets (i) Goodwill 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. (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 (s) Provisions for Provisions 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. (t) Employee Benefits (i) Short-Term Obligations 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. 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019The 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 27. 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. 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. (aa) Parent Entity Financial Information The financial information for the parent entity, Beacon Lighting Group Limited, disclosed in Note 37 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. 39 FINANCIAL STATEMENTSThe core of AASB 15 is that revenue is recognised when control of the goods or services passes to customers at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. At the time of AASB 15 adoption, the Group has reviewed its arrangements with customers to identify potential changes in: timing of revenue recognition, measurement of the amount of revenue and note disclosure between the previously applied standard AASB 118 and newly adopted standard AASB 15. The Group is providing goods to its customers based on contracts that reflect a performance obligation. Revenue is recognised at a point in time when the customer obtains control over the goods, which is not materially different from revenue recognition under AASB 118. Management has assessed the effects of applying the new standard on the Group’s financial statements and has concluded that its application did not result in any material changes to the Group’s financial performance, financial position or material adjustment to the comparative financial information. 3. 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. 2. CHANGES IN ACCOUNTING POLICIES (a) AASB 9 Financial Instruments AASB 9 replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of financial assets and financial liabilities derecognition of financial instruments, impairment of financial assets and hedge accounting. While the adoption of AASB 9 Financial Instruments from 25 June 2018 resulted in changes in accounting policies the application of the new standard did not have a material impact on the classification, recognition and measurement of the Group’s financial instruments, accounts receivable or hedge accounting. The new accounting policies are set out in Note 1. Derivatives and hedging activities The foreign currency forwards and interest rate swaps in place as at 24 June 2018 qualified as cash flow hedges under AASB 9. The group’s risk management strategies and hedge documentation are aligned with the requirements of AASB 9 and these relationships are therefore treated as continuing hedges. Where the hedge relationship has ended before the date of initial application, but the inventory is still held at that date, the group has decided not to restate this inventory. Impairment of financial assets The company has the following type of financial assets that are subject to AASB 9’s new expected credit loss model: • Receivables - Trade receivables • Receivables - Receivables from related parties • Cash and cash equivalents to its revise required The company was impairment methodology under AASB 9 for each of these assets. There was no material impact as a result of the change in impairment methodology. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, an impairment loss was not required. The company applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. There was no material impact noted. (b) AASB 15 Revenue from Contracts with Customers AASB 15 Revenue from Contracts with Customers establishes a comprehensive framework for determining the quantum and timing of revenue recognition. The AASB equivalent of IFRS 15 Revenue from Contract with Customers replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019The 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 FY2019 $’000 FY2018 $’000 18,305 13,188 - 31,493 17,853 50,939 649 69,441 10,671 10,945 401 22,017 18,166 26,330 - 44,496 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. At 30 June 2019 the average term of outstanding foreign exchange contracts is two months with an average forward rate for AUD/ USD of 0.6986. The Group holds the following foreign exchange derivatives: Consolidated Entity Forward exchange contracts - buy cash flow hedges (notional amount) FY2019 $’000 8,446 FY2018 $’000 13,894 41 FINANCIAL STATEMENTSInterest Rate Risk The Group’s main interest rate risk arises from short term 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. Interest rate swaps currently in place cover approximately 38% (2018: 39%) of the variable loan principal outstanding. The fixed interest rate of the swaps used to hedge are 2.28% and 2.47% (2018: 2.28%) and the variable rates of the loans are between 1.17% and 1.90% (2018: 2.47% and 2.62%). The swap contracts require settlement of net interest receivable or payable every 30 days. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The Group’s exposure to interest rate risk at the end of the reporting period, expressed in Australian dollar is per below: Consolidated Entity Interest rate swap contracts - buy cash flow hedges (notional amount) FY2019 $’000 482 FY2018 $’000 451 Amounts recognised in profit or loss and other comprehensive income During the year, the following gains / (losses) were recognised in profit or loss and other comprehensive income in relation to forward exchange contracts and interest rate swaps. Consolidated Entity Gain / (Loss) recognised in other comprehensive income FY2019 $’000 (1,050) FY2018 $’000 338 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019Group Sensitivity At 30 June 2019 55.3% (2018: 100%) of Beacon Lighting Group’s short term borrowings are hedged using forward exchange contracts and interest rate swaps. The sensitivity of profit or loss to changes in the exchange rates arises mainly from US-dollar denominated financial instruments and the impact on other components of equity arises from foreign forward exchange contracts designated as cash flow hedges. Consolidated Entity Forward exchange contracts USD / AUD exchange rate – increase 10% USD / AUD exchange rate – decrease 10% Interest rate swap contracts Floating interest rate – increase 10% Floating interest rate – decrease 10% Effects of hedge accounting on the financial position and performance Consolidated Entity Forward exchange contracts Carrying amount - asset / (liability) Notional amount Maturity Date Hedge Ratio Change in intrinsic value of outstanding hedging instruments Impact on other components of equity FY2019 $’000 (844) 844 48 (48) FY2019 $’000 (43) 8,446 July 2019 1:1 43 FY2018 $’000 (1,389) 1,389 51 (51) FY2018 $’000 454 13,894 April 2018 to June 2018 1:1 (454) Weighted average strike rate for the year USD$0.7021 : AUD$1 USD$0.7404 : AUD$1 Interest rate swap contracts Carrying amount - asset / (liability) Notional amount Maturity Date Hedge Ratio Change in intrinsic value of outstanding hedging instruments Weighted average strike rate for the year (606) 482 (53) 451 15 September 2020 15 November 2023 15 September 2020 1:1 552 2.64% 1:1 34 2.80% 43 FINANCIAL STATEMENTS(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 10. (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 FY2019 $’000 FY2018 $’000 500 37,414 7,385 3,046 27,500 500 6,659 6,444 3,046 8,256 500 37,202 7,385 2,924 15,000 500 17,512 6,845 2,924 8,900 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. 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019The amounts disclosed in the table are the contractual undiscounted cash flows. Contractual maturities of financial liabilities: Consolidated Entity 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 At 30 June 2019 NON-DERIVATIVES Trade and other payables Borrowings Finance lease liabilities Total non-derivatives DERIVATIVES Forward exchange contracts Interest rate swap contract Net settled (cash flow hedges) At 24 June 2018 NON-DERIVATIVES Trade and other payables Borrowings Finance lease liabilities Total non-derivatives DERIVATIVES Forward exchange contracts Interest rate swap contract Net settled (cash flow hedges) 17,853 31,058 - 48,911 (43) (606) (649) 18,166 19,944 - 38,110 454 (53) (401) - - 453 453 - - - - - 296 296 - - - - 21,087 543 21,630 - - - - 6,483 271 6,754 - - - - - - - - - - - - - - - - - 17,853 52,145 996 17,853 49,998 941 70,994 68,792 (43) (606) (649) (43) (606) (649) 18,166 26,427 567 18,166 25,790 540 45,160 44,496 454 (53) (401) 454 (53) (401) 45 FINANCIAL STATEMENTS(d) Fair Value Measurements For information about the methods and assumptions used in determining the fair value of derivatives please refer to Note 12. 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 30 June 2019, on a recurring basis. At 30 June 2019 Derivatives used for hedging - Net Position Level 2 $’000 (649) Total $’000 (649) 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. 4. SEGMENT INFORMATION Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. 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 within 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, the methods used to distribute the product and materiality. 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. 46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019 5. REVENUE FROM ORDINARY ACTIVITIES AND OTHER REVENUE The company derives revenue from the transfer of goods and services over time and at a point in time as follows: • Sale of goods - point in time • Interest Income - point in time • Franchise Royalty Fee Income - point in time • Solar system revenue - the revenue relating to the sale of solar systems is recognised upon practical completion or based on milestone progress payments under the building contract. Consolidated Entity From Ordinary Activities Sale of goods Other Revenue Franchise fees Sundry revenue 6. OTHER INCOME Consolidated Entity Interest Other FY2019 $’000 FY2018 $’000 246,304 235,964 1,295 80 1,375 1,627 89 1,716 247,679 237,680 FY2019 $’000 - 280 280 FY2018 $’000 43 60 103 47 FINANCIAL STATEMENTS7. 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 FY2019 $’000 FY2018 $’000 4,133 355 3,518 326 20 20 1,971 234 1,603 36 25,016 22,703 59,394 56,010 Net foreign exchange (gains)/losses recognised in profit before income tax for the period (as either other income or expense) (257) (222) 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 20198. 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 15): 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% (2018: 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 15) FY2019 $’000 FY2018 $’000 7,314 (448) 208 7,074 393 55 448 23,118 6,935 - 30 109 7,074 - 8,257 (181) 39 8,115 (191) 10 (181) 27,705 8,312 (285) 27 61 8,115 (3) 49 FINANCIAL STATEMENTS9. CASH AND CASH EQUIVALENTS Consolidated Entity Cash at bank and in hand Deposits at call (a) FY2019 $’000 17,034 1,271 18,305 FY2018 $’000 9,391 1,280 10,671 (a) Classification as Cash Equivalents 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 3. 10. TRADE AND OTHER RECEIVABLES Consolidated Entity Trade receivables (a) Provision for impairment of receivables (b) Net amounts receivable from customers Other debtors (c) (a) Aging 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 50 FY2019 $’000 12,106 (377) 11,729 324 12,053 FY2019 $’000 7,899 619 518 3,070 12,106 FY2018 $’000 9,906 (312) 9,594 497 10,091 FY2018 $’000 6,892 1,203 512 1,299 9,906 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019(b) Provision for Impairment of Receivables Trade receivables are non-interest bearing with terms that vary between 30 and 60 days end of month terms. The company applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of 36 month before 30 June 2018 or 24 June 2018 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. On that basis, the loss allowance as at 30 June 2019 and 24 June 2018 (on adoption of AASB 9) was determined as follows for both trade receivables: 30 June 2019 Expected loss rate Gross carrying amount - trade receivables ($’000) Loss allowance ($’000) Current 31-60 days past due 61 - 90 days past due More than 90 days past due Total 0.1% 7,899 8 0.5% 5.11% 11.06% 619 3 518 26 3,070 12,106 340 377 25 June 2018 Expected loss rate Gross carrying amount - trade receivables ($’000) Loss allowance ($’000) Current 31-60 days past due 61 - 90 days past due More than 90 days past due Total 1.0% 6,892 69 1.0% 1,203 12 10.0% 13.81% 512 51 1,299 9,906 180 312 Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the group, and a failure to make contractual payments for a period of greater than 120 days past due. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item. 51 FINANCIAL STATEMENTS(c) Other Debtors 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 3. 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 3 for more information on the risk management policy of the Group and the credit quality of the entity’s trade receivables. 11. INVENTORIES Consolidated Entity Inventory at lower of cost and net realizable value Goods in transit - at cost FY2019 $’000 67,259 1,439 68,698 FY2018 $’000 60,814 1,632 62,446 Inventory Finance The Group utilises inventory finance facilities to fund inventory. The term of the facility is two years. Inventory Expense Inventories recognised as expense during the 53 week period ended 30 June 2019 and included in cost of sales of goods amounted to $86,249,607 (2018: $79,402,493). Write-downs of inventories to net realisable value recognised as an expense during the 53 week period ended 30 June 2019 amounted to $28,234 (2018: $94,537). Included in the valuation of inventory is a provision for stock obsolescence of $1,033,297 (2018: $1,291,000). 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 201912. DERIVATIVE FINANCIAL INSTRUMENTS Consolidated Entity Current assets Forward foreign exchange contracts – cash flow hedges Total current derivative financial instrument assets Current liabilities Forward foreign exchange contracts – cash flow hedges Interest rate swap contracts – cash flow hedges Total current derivative financial instrument liabilities Net current derivative financial instrument assets FY2019 $’000 FY2018 $’000 - - (43) (606) (649) (649) 454 454 - (53) (53) 401 The Group’s risk exposures are provided in Note 3. 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 53 weeks ended 30 June 2019 there were no gains or losses (2018: nil) recognised in profit or loss for the ineffective portion of these hedging contracts. Hedge ineffectiveness Hedge effectiveness is determined at the inception of the hedge relationship and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. For hedges of foreign currency purchases, the group enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item. The group therefore performs a qualitative assessment of effectiveness. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the group uses the hypothetical derivative method to assess effectiveness. In hedges of foreign currency purchases, ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated, or if there are changes in the credit risk of Australia or the derivative counterparty. The group enters into interest rate swaps that have similar critical terms as the hedged item, such as reference rate, reset dates, payment dates, maturities and notional amount. Hedge ineffectiveness for interest rate swaps is assessed using the same principles as for hedges of foreign currency purchases. It may occur due to: • the credit value/debit value adjustment on the interest rate swaps which is not matched by the loan, and • differences in critical terms between the interest rate swaps and loans. There was no ineffectiveness during 2019 or 2018 in relation to the interest rate swaps. 53 FINANCIAL STATEMENTSHedge reserves The group’s hedging reserves disclosed in note 24 relate to the following hedging instruments: Consolidated Entity Opening balance 26 June 2017 Add Change in fair value of hedging instrument recognised in Other Comprehensive Income Less Deferred Tax Closing balance 24 June 2018 Add Change in fair value of hedging instrument recognised in Other Comprehensive Income Less Deferred Tax Closing balance 30 June 2019 13. OTHER CURRENT ASSETS Consolidated Entity Prepayments and other current assets Currency Forwards $'000 Interest Rate Swaps $'000 Total Hedge Reserves $'000 83 531 160 454 (708) (212) (42) (20) (47) (14) (53) (791) (237) (607) 63 484 146 401 (1,499) (449) (649) FY2019 $’000 2,277 FY2018 $’000 2,324 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 201914. PROPERTY, PLANT AND EQUIPMENT Consolidated Entity Year ended 24 June 2018 Opening net book amount Additions Disposals Depreciation charge Closing net book amount At 24 June 2018 Cost Accumulated depreciation Net book amount Year ended 30 June 2019 Opening net book amount Additions Disposals Depreciation charge Closing net book amount At 30 June 2019 Cost Accumulated depreciation Net book amount Furniture, Fittings and Equipment $’000 Vehicles $’000 Land and Buildings $’000 27,229 1,636 4,820 (231) (3,518) 28,300 45,504 (17,204) 28,300 255 (3) (326) 1,562 3,175 (1,613) 1,562 28,300 1,562 - - - - - - - - - Total $'000 28,865 5,075 (234) (3,844) 29,862 48,679 (18,817) 29,862 29,862 7,762 (241) (4,114) 31,707 52,820 (21,113) 31,707 530 (4) (355) 1,733 3,530 (1,797) 1,733 12,588 20,880 - (19) (245) (4,488) 12,569 46,009 12,588 68,938 (19) (22,929) 12,569 46,009 55 FINANCIAL STATEMENTS15. 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 Marketing fund Other provisions/accruals Total deferred tax assets GROSS DEFERRED TAX LIABILITIES The balance comprises temporary differences attributable to: Other accruals and provisions Total deferred tax liabilities MOVEMENTS IN NET DEFERRED TAX ASSETS Opening balance Charged/(credited) to the consolidated statement of comprehensive income (Note 8) Charged/(credited) amounts recognised on acquisitions Charged/(credited) amounts recognised directly in equity Net deferred tax assets FY2019 $’000 FY2018 $’000 2,092 1,065 961 113 413 326 929 1,987 1,075 1,145 94 314 563 773 5,899 5,951 65 65 5,941 (448) 341 - 5,834 10 10 5,890 (181) 235 (3) 5,941 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 201916. INTANGIBLE ASSETS Consolidated Entity Year ended 24 June 2018 Opening net book amount Additions Amortisation charge for the year Closing net book amount At 24 June 2018 Cost Accumulated amortisation Net book amount Year ended 30 June 2019 Opening net book amount Additions Amortisation charge for the year Closing net book amount At 30 June 2019 Cost Accumulated amortisation Net book amount Goodwill $’000 Patents, Trademarks and Other Rights $’000 10,102 548 - 10,650 10,650 - 10,650 10,650 796 - 11,446 11,446 - 11,446 240 - (20) 220 500 (280) 220 220 - (20) 200 500 (300) 200 Total $’000 10,342 548 (20) 10,870 11,150 (280) 10,870 10,870 796 (20) 11,646 11,946 (300) 11,646 The current year acquisition is not material hence, has not been disclosed separately as a business combination. Also the prior year acquisition accounting has been finalised in the current year and there were no changes to the amounts previously reported. 57 FINANCIAL STATEMENTS(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 (refer Note 4). 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 2019 % 64.0 2018 % 64.0 2019 % 3.0 2018 % 3.0 2019 % 11.0 2018 % 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. 17. TRADE AND OTHER PAYABLES Consolidated Entity Trade payables Customer deposits Sundry creditors Marketing fund Other payables FY2019 $’000 6,568 3,300 6,168 1,087 725 FY2018 $’000 6,007 2,767 6,699 2,058 635 17,848 18,166 (a) Risk Exposure Information about the Group’s exposure to foreign exchange risk is provided in Note 3. (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. 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 201918. CURRENT BORROWINGS Consolidated Entity Secured Inventory finance (a) Loan facility floating rate (b) Hire purchase liability (c) FY2019 $’000 FY2018 $’000 30,754 19,689 300 426 - 276 31,480 19,965 (a) Inventory Finance The Group utilises inventory finance facilities to fund inventory. The term of the facility is two years. (b) Loan Facility – Floating Rate The Group utilises floating rate loan facilities to fund business acquisitions. The term of the facility is two years. (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 21. Risk Exposures Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in Note 3. 19. CURRENT PROVISIONS Consolidated Entity Employee benefits (a) Warranty provision (b) Other provisions (c) FY2019 $’000 6,079 1,452 136 7,667 FY2018 $’000 5,379 1,468 131 6,978 59 FINANCIAL STATEMENTS(a) Employee Benefits 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 FY2019 $’000 4,325 FY2018 $’000 3,813 (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 $145,000 (2018: $147,000) 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 to profit or loss - amount incurred and charged Amounts used during the year Carrying amount at end of period FY2019 $’000 1,468 (16) 1,452 FY2019 $’000 131 571 (566) 136 FY2018 $’000 1,300 168 1,468 FY2018 $’000 135 689 (693) 131 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 201920. CURRENT TAX LIABILITIES Consolidated Entity Provision for income tax 21. NON CURRENT BORROWINGS Consolidated Entity Secured Loan facility floating rate (a) Hire purchase plan (b) FY2019 $’000 658 FY2018 $’000 1,436 FY2019 $’000 FY2018 $’000 18,944 515 19,459 6,100 265 6,365 (a) Loan Facility Floating Rate The Group utilises floating rate loan facilities to fund business acquisitions. The term of the facility is two years. (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 Under the terms of the major borrowing facilities the Group is required to comply with the following financial covenants: • the interest cover ratio is not less than 3.5:1; • the debt to EBITDA ratio is not more than 2.25:1; • the fixed charge cover ratio is not less than 1.5:1 and • the borrowing base is not more than 60% and • the distribution does not exceed 70% of NPAT. The Group has complied with the financial covenants of its borrowing facilities during the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Risk Exposures Information about the Group’s exposure to interest rate and foreign exchange risk is provided in Note 3. 61 FINANCIAL STATEMENTS22. NON CURRENT PROVISIONS Consolidated Entity Lease liabilities Employee benefits FY2019 $’000 2,987 894 3,881 FY2018 $’000 2,389 978 3,367 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 201923. 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 Dividend reinvestment plan share issue Balance at the end of the year FY2019 FY2018 219,214,930 217,162,678 FY2019 $’000 65,690 - 2,539 68,229 FY2018 $’000 62,870 251 2,569 65,690 Consolidated Entity FY2019 FY2018 Movements in the number of ordinary shares Balance at the beginning of the year Performance rights vesting into shares Dividend reinvestment plan share issue Balance at the end of the year Ordinary Shares 217,162,678 215,262,753 - 144,680 2,052,252 1,755,245 219,214,930 217,162,678 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. 63 FINANCIAL STATEMENTS24. RESERVES AND RETAINED PROFITS Consolidated Entity (a) Other reserves Cash flow hedges reserve Share based payment reserve Foreign currency translation reserve Treasury shares reserve Common control reserve Movement in cash flow hedges reserve 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 treasury shares reserve Opening balance Transactions arising from share based payments Closing balance Movement in common control reserve Opening balance Transactions arising from share capital restructure Closing balance 64 FY2019 $’000 FY2018 $’000 (649) 456 724 (192) (43,672) (43,333) 401 (1,050) (649) 127 329 456 557 167 724 - (192) (192) 401 127 557 - (43,672) (42,587) 63 338 401 210 (83) 127 434 123 557 - - - (43,672) (43,672) - - (43,672) (43,672) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019Nature and Purpose of Other Reserves Cash Flow Hedges 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. Share Based Payments Reserve The share based payments reserve is used to recognise: • the grant date fair value of rights issued to employees but not exercised • the grant date fair value of shares issued to employees Foreign Currency Translation Reserve 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. Treasury Shares Reserve This reserve is used to record the elimination of shares in Beacon Lighting Group held by the incentive plan trust entity on behalf of the participants of the Groups incentive plan. Common Control Reserve 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. Consolidated Entity (b) Retained earnings Movements in retained earnings were as follows: Opening balance Net profit for the period Dividends paid FY2019 $’000 FY2018 $’000 53,226 16,044 (10,986) 58,284 44,213 19,590 (10,577) 53,226 65 FINANCIAL STATEMENTS25. DIVIDENDS a) Ordinary Shares Consolidated Entity Final dividend for period ended 24 June 2018 of 2.50 cents (2017: 2.40 cents) per fully paid share Interim dividend for period ended 30 June 2019 of 2.55 cents (2018: 2.50 cents) per full paid share Total dividends paid Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan Dividends paid in cash Dividends satisfied by the issue of shares under the dividend reinvestment plan FY2019 $’000 FY2018 $’000 5,429 5,169 5,557 10,986 8,447 2,539 10,986 5,408 10,577 8,008 2,569 10,577 Dividend reinvestment plan The Group has established a dividend reinvestment plan under which eligible shareholders may elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash. Shares are issued under the plan at a 5% discount to the market price. b) Dividends not Recognised at the End of the Reporting Period Consolidated Entity In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 2.00 cents per fully paid ordinary share (2018: 2.50 cents), fully franked based on tax paid at 30%. The proposed dividend is to be paid out of retained earnings at 30 June 2019, but not recognised as at liability at year end. FY2019 $’000 FY2018 $’000 4,384 5,169 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019c) Franked Dividends The franked portions of the final dividends recommended after 30 June 2019 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the 53 week period ended 30 June 2019. Consolidated Entity Franking credits available for subsequent reporting periods based on a tax rate of 30.0% (2018: 30.0%) FY2019 $’000 FY2018 $’000 35,043 33,362 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. 26. KEY MANAGEMENT PERSONNEL DISCLOSURES Consolidated Entity Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits – movements in leave provisions Performance based cash benefits Performance based share benefits FY2019 $ FY2018 $ 1,330,909 1,297,542 99,521 47,974 - 238,560 97,592 (46,298) 262,140 118,761 1,716,964 1,729,737 Detailed remuneration disclosures are provided in the remuneration report on pages 18 to 26. 67 FINANCIAL STATEMENTS27. SHARE BASED PAYMENTS (a) Executive Short Term Incentive Scheme Under the Group’s short-term incentive (STI) plan, executives received 0% of the annual STI in cash and 100% in the form of performance rights and options to ordinary shares of Beacon Lighting Group Limited which vested during the 53 weeks ended 30 June 2019. Performance rights were granted on 16 August 2018, 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. Grant Date Quantity Granted Vest Date Value at Grant Date $ Vested % Quantity Vested Quantity Unvested Value Expensed this Year $ G Robinson 24/06/2016 22,107 28-Aug-17 43,750 100.00% 22,107 G Robinson 18/08/2016 23,603 28-Aug-17 32,100 100.00% 23,603 - - - 753 G Robinson 24/08/2017 39,338 13-Oct-17 53,500 66.67% 26,227 13,111 11,332 G Robinson 16/08/2018 71,333 09-Oct-18 109,140 33.34% 23,783 47,550 81,854 Total 156,381 238,490 93,939 The fair value of performance rights granted on 24 June 2016 (grant date) was $1.979, with a final vesting date of 28 August 2017. 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 fair value of performance rights granted on 24 August 2017 (grant date) was $1.360, with a final vesting date of 25 August 2020. All unvested performance rights will vest on 25 August 2020 provided the executive remains employed by the Group at the vesting date. The fair value of performance rights granted on 16 August 2018 (grant date) was $1.530, with a final vesting date of 16 August 2020. All unvested performance rights will vest on 16 August 2020 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. 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019 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 are set out below. Grant Date Quantity Granted Vest Date Value at Grant Date $ Vest % Quantity Vested & Exercisable Quantity Unvested Value Expensed this Year $ I Bunnett 24/06/2016 31,582 Refer below 40,740 100.00% 31,582 - 797 18/08/2016 11,029 Refer below 15,000 70.00% 7,720 3,309 1,696 24/08/2017 18,382 Refer below 25,000 40.00% 7,353 11,029 7,465 16/08/2018 33,333 Refer below 51,000 33.33% 11,110 22,223 38,249 D Speirs 24/06/2016 31,582 Refer below 40,740 100.00% 31,582 - 797 18/08/2016 11,029 Refer below 15,000 70.00% 7,720 3,309 1,696 24/08/2017 18,382 Refer below 25,000 40.00% 7,353 11,029 7,465 16/08/2018 33,333 Refer below 51,000 33.33% 11,110 22,223 38,249 B Martens 24/06/2016 31,582 Refer below 40,740 100.00% 31,582 - 797 18/08/2016 11,029 Refer below 15,000 70.00% 7,720 3,309 1,696 24/08/2017 18,382 Refer below 25,000 40.00% 7,353 11,029 7,465 16/08/2018 33,333 Refer below 51,000 33.33% 11,110 22,223 38,249 Total 282,978 395,220 144,621 Options were granted on 24 June 2016. 40% vested on 26 June 2017, 30% vested 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% vested 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. Options were granted on 24 August 2017. 40% vest on 24 August 2018, 30% vest on 24 August 2019 and 30% vest on 24 August 2020, 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 16 August 2018. 33.33% vest immediately, 33.33% vest on 16 August 2019 and 33.33% vest on 16 August 2020, 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. 69 FINANCIAL STATEMENTS 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 (b) Fair Value of Performance Rights Granted FY2019 71,333 $1.53 FY2018 39,338 $1.36 FY2019 FY2018 99,999 $1.53 55,146 $1.36 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. The model inputs for the performance rights granted during the 53 weeks ended 30 June 2019 included: Exercise price Grant date Share Price at grant date Expected dividend yield FY2019 $0.00 FY2018 $0.00 16 August 2018 1 August 2017 $1.53 3.27% $1.35 3.52% 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 FY2019 $0.00 FY2018 $0.00 16 August 2018 24 August 2017 $1.53 3.27% $1.35 3.52% 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. 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019(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: FY2019 $’000 FY2018 $’000 Performance rights and options issued under employee STI plans 312 156 28. EARNINGS PER SHARE Consolidated Entity FY2019 FY2018 Basic earnings per share - cents Diluted earnings per share - cents 7.37 7.37 9.09 9.09 Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 217,720,179 215,436,971 Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 217,773,536 215,617,458 29. REMUNERATION OF AUDITORS Consolidated Entity Audit and assurance services Audit and review of financial statements Other assurance services Other services: Taxation services Other services FY2019 $ FY2018 $ 236,900 - 22,390 10,000 222,100 69,580 28,235 49,489 Total remuneration of PwC 269,290 369,404 30. CONTINGENCIES There were no significant or material contingent liabilities including legal claims at 30 June 2019 or 24 June 2018. 71 FINANCIAL STATEMENTS31. 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 FY2019 $’000 24,338 63,869 14,985 FY2018 $’000 22,768 64,391 16,176 103,192 103,335 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 18) Non-current (Note 21) FY2019 $’000 FY2018 $’000 453 543 996 (55) 941 426 515 941 296 271 567 (27) 540 275 265 540 (c) Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is $0.7m (2018: $0.5m) 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 201932. RELATED PARTY TRANSACTIONS (a) Subsidiaries Interests in subsidiaries are set out in Note 33. (b) Key Management Personnel Disclosures relating to key management personnel are set out in Note 27. (c) Transactions With Other Related Parties Consolidated Entity The following transactions occurred with related parties: Purchases of goods FY2019 $ FY2018 $ Purchases of goods and supply of services from other related parties 54,169 28,307 Other transactions Income received from other related parties Rent paid to other related parties 14,488 50,515 1,602,456 1,676,951 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 $1,035,468 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 $188,510 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 $231,692 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 $90,200 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 Energy Solutions have an arms length working alliance whereby business opportunities are jointly explored. (d) Outstanding Balances As at 30 June 2019 Carbonetix Pty Ltd owed the Group $64,916 (2018: $150,861). No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties. 73 DIRECTORS’ DECLARATION33. 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(c): Name of Entity Incorporation Shares Equity Holding(1) 2019 % 2018 % 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 Beacon Property Company Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Light Source Solutions New Zealand Limited New Zealand Beacon Lighting Europe GmbH Germany Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Beacon Lighting Corporation USA Inc. United States of America Ordinary Beacon Lighting America Inc. United States of America Ordinary Beacon Lighting Solutions (Zhongshan) Co. Ltd China Light Source Solutions Limited Beacon International Limited Beacon Lighting International Hong Kong Hong Kong Hong Kong Ordinary Ordinary Ordinary Ordinary (1) The proportion of ownership interest is equal to the proportion of voting power held. 34. EVENTS OCCURRING AFTER THE REPORTING PERIOD 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 - 100 100 100 100 - 100 100 100 In July 2019 the Group entered into an agreement to purchase a property for the value of $1,580,000 located in Epping, Victoria for Masson Manufacturing. In July 2019 both the Sunshine (Vic) and Mandurah (WA) stores were closed. In July 2019, the Group entered into an agreement to purchase the Myaree (WA) franchised store and convert it into a company store in September 2019. A fully franked dividend of $4,384,299 was declared on 19 August 2019. 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. 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 201935. CASH FLOW INFORMATION (a) 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 (b) Reconciliation of Liabilities Arising from Financing Activities FY2019 $’000 16,044 4,489 234 20 312 (257) (1,962) (6,252) 1 46 (354) (778) 1,205 12,748 FY2018 $’000 19,590 3,844 36 20 156 (222) (1,229) (7,178) 869 (571) (2,251) 1,544 935 15,543 Total $’000 Consolidated Entity Balance as at 25 June 2017 Cash flows Balance as at 24 June 2018 Balance as at 24 June 2018 Cash flows Balance as at 30 June 2019 Finance Leases due within 1 year $’000 Finance Leases due after 1 year $’000 Borrowings due within 1 year $’000 Borrowings due after 1 year $’000 (681) 405 (276) (276) (150) (426) (540) 275 (265) (265) (250) (515) (23,247) (5,800) (30,268) 3,558 (300) 3,938 (19,689) (6,100) (26,330) (19,689) (6,100) (26,330) (10,285) (13,144) (23,831) (29,976) (19,244) (50,160) 75 DIRECTORS’ DECLARATION36. 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. There are no areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements. 37. PARENT ENTITY FINANCIAL INFORMATION (a) Summary Financial Information The individual financial report for the parent entity show the following aggregate amounts: Consolidated Entity 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 FY2019 $’000 FY2018 $’000 26,371 88,464 114,835 1,797 - 1,797 17,152 88,452 105,604 2,037 26 2,063 113,038 103,541 92,546 85 20,407 113,038 2,933 2,933 90,007 74 13,460 103,541 2,283 2,283 (b) Contingent Liabilities of the Parent Entity The parent entity did not have any contingent liabilities as at 30 June 2019 or 24 June 2018. 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 201938. 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 53 weeks ended 30 June 2019 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 FY2019 $’000 24,295 (3,541) 20,754 (6,595) 14,159 (144) 43 (101) FY2018 $’000 29,584 (3,709) 25,875 (7,886) 17,989 (49) 15 (34) Total comprehensive income for the period attributable to the members of the closed Group 14,058 17,955 77 DIRECTORS’ DECLARATIONCONSOLIDATED BALANCE SHEET OF THE CLOSED GROUP Beacon Lighting Group Limited and Beacon Lighting Corporation Pty Ltd FY2019 $’000 FY2018 $’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 78 451 1,926 - 13 67,356 69,746 5,699 70,633 76,332 146,078 581 - 155 656 328 1,720 2,578 2,578 4,298 102 885 - 19 63,640 64,646 5,831 70,633 76,464 141,110 829 - 54 588 1,320 2,791 2,263 2,263 5,054 141,780 136,056 68,224 85 73,471 141,780 65,684 74 70,298 136,056 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities.BEACON LIGHTING GROUP ANNUAL REPORT 2019CONSOLIDATED STATEMENT OF CHANGES IN EQUITY OF THE CLOSED GROUP Beacon Lighting Group Ltd and Beacon Lighting Corporation Balance as at 25 June 2017 Profit for the year Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Issue of shares via dividend re-investment plan Issue of shares to employees Employee share scheme Treasury shares Dividends provided for or paid Total contributions by and distributions to owners Balance as at 24 June 2018 Balance as at 24 June 2018 Profit for the year Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Contributed equity $’000 62,864 - - - 2,569 251 - - - 2,820 65,684 65,684 - - - Issue of shares via dividend re-investment plan 2,540 Issue of shares to employees Employee share scheme Treasury shares Dividends provided for or paid Total contributions by and distributions to owners Balance as at 30 June 2019 - - - - 2,540 68,224 Reserves $’000 Retained earnings $’000 Total equity $’000 191 - (34) (34) - - (83) - - (83) 74 74 - (101) (101) - - 312 (200) 62,886 125,941 17,989 17,989 - (34) 17,989 17,955 - - - - 2,569 251 (83) - (10,577) (10,577) (10,577) (7,840) 70,298 136,056 70,298 136,056 14,159 14,159 - (101) 14,159 14,057 - - - - 2,540 - 312 (200) - (10,986) (10,986) (112) (10,986) (8,335) 85 73,471 141,780 79 DIRECTORS’ DECLARATIONDirectors’ Declaration In the opinion of the Directors: (a) the Financial Statements, notes and the additional disclosures set out on pages 29 to 79 are in accordance with the Corporations Act 2001 (Cth), including: (i) (ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and giving a true and fair view of the consolidated entity’s financial position as at 30 June 2019 and of its performance for the 53 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 38 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 38, (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. Ian Robinson Executive Chairman Melbourne, 19 August 2019 Glen Robinson Chief Executive Officer 80 BEACON LIGHTING GROUP ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BEACON LIGHTING GROUP LIMITED 82 BEACON LIGHTING GROUP ANNUAL REPORT 201983 INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BEACON LIGHTING GROUP LIMITED 84 BEACON LIGHTING GROUP ANNUAL REPORT 201985 INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BEACON LIGHTING GROUP LIMITED 86 BEACON LIGHTING GROUP ANNUAL REPORT 2019Shareholders’ 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 (b) Substantial Shareholdings At 24 July 2019, the distribution of shareholdings was as follows: The number of shares held by the substantial shareholders listed in the Company’s register of substantial shareholders as at 24 July 2019 were: Size of Shareholding Number of Shareholders Shareholder Number of Shares % Held Heystead Nominees Pty Ltd (including Robinson Family members) 121,054,088 55.22% 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 189 331 252 563 52 1,387 - 88 BEACON LIGHTING GROUP ANNUAL REPORT 2019(c) Class of Shares and Voting Rights At 24 July 2019, there were 1,387 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 24 July 2019: Rank Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HEYSTEAD NOMINEES PROPRIETARY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CITICORP NOMINEES PTY LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED NATIONAL NOMINEES LIMITED MIRRABOOKA INVESTMENTS LIMITED KJA HOLDINGS PTY LTD RELIABLE BUSINESS CO LTD ANACACIA PTY LTD + WATTLE FUND A/C BNP PARIBAS NOMS PTY LTD BARRIJAG PTY LIMITED BANJO SUPERANNUATION FUND PTY LTD MR ROBERT BRYAN DR DAVID JOHN RITCHIE + DR GILLIAN JOAN RITCHIE NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT> MR NEIL OSBORNE ADRIAN HUGH KELLY + PHILIPPA JUNE KELLY TRUEBELL CAPITAL PTY LTD MR ALISTAIR CAMPBELL INVIA CUSTODIAN PTY LIMITED Top 20 holders of issued capital Total remaining holders balance Total shareholders Number of Shares 120,453,057 41,079,374 10,585,335 7,772,299 4,357,047 1,608,476 1,482,739 1,429,479 1,066,973 985,041 887,150 479,000 400,000 400,000 376,888 300,000 283,057 277,418 276,700 268,379 % Holding 54.95% 18.74% 4.83% 3.55% 1.99% 0.73% 0.68% 0.65% 0.49% 0.45% 0.40% 0.22% 0.18% 0.18% 0.17% 0.14% 0.13% 0.13% 0.13% 0.12% 194,768,412 24,446,518 88.85% 11.15% 219,214,930 100.00% 89 SHAREHOLDERS’ INFORMATION Corporate Directory 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 DIRECTORS Ian Robinson Executive Chairman Glen Robinson Chief Executive Officer (James) Eric Barr Deputy Chairman Neil Osborne 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.co.nz www.fanaway.com www.lucciair.com www.massonforlight.com.au www.beaconlighting.us www.beaconlighting.eu 90 BEACON LIGHTING GROUP ANNUAL REPORT 201991 Store Locations Hoppers Crossing 283 Old Geelong Rd Maribyrnong Harvey Norman Centre 169 Rosamond Rd Mentone 27-29 Nepean Hwy Moorabbin 867 Nepean Hwy Nunawading 262 Whitehorse Rd Oakleigh 1402-1404 Dandenong Rd Pakenham Lifestyle Centre 825 Princes Hwy Preston 23 Bell St Scoresby 1391 Ferntree Gully Rd South Melbourne 50-56 York St South Morang 825 Plenty Rd Springvale IKEA Homemaker Centre 917 Princes Hwy St Kilda 366 St Kilda Rd Thomastown Homemaker Centre Cnr Dalton and Settlement Rds Warrnambool 14, 1-49 Raglan St Watergardens Homemaker Centre 440 Keilor-Melton Hwy Taylors Lakes Waurn Ponds Homemaker Centre 235 Colac Rd (Princes Hwy) 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 Gladesville Wharf Sqaure 8 Wharf Rd 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 Hollinsworth Rd McGraths Hill Home Central 264-272 Windsor Rd Mittagong Highlands Homemaker Centre 205 Old Hume Hwy Moore Park Supa Centa Moore Park Cnr Sth Dowling St & Todman Ave 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 14/5 Hibberson St 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 Craigieburn 440 Craigieburn Rd 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 92 NT Darwin Homemaker Village 356-362 Bagot Rd Millner TAS Launceston 40 William St Moonah 7-9 Derwent Park Rd QLD Bundal 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 Fortitude Valley Homemaker City North 111 McLachlan St Helensvale Homeworld 502 Hope Island Rd Hervey Bay 140 Boat Harbour Drv Ipswich Ipswich Riverlink Shopping Centre Cnr The Terrace & Downs Sts 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 Jindalee Homemaker City 182 Sinnamon Rd WA Kawana 2 Eden St Minyama Macgregor 550 Kessels Rd Mackay 2/2 Heaths Rd Maroochydore Sunshine Homemaker Centre 72 Maroochydore Rd Morayfield Supa Centre 344 Morayfield Rd Baldivis Safety Bay Rd Bunbury Homemaker Centre 42 Strickland St 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 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 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 Modbury 985 North East Rd Munno Para Harvey Norman Centre 600 Main North Rd Smithfield Noarlunga Harvey Norman Centre 2 Seaman Dr 93 www.beaconlighting.com.au

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