Briscoe Group Limited
Annual Report 2010

Plain-text annual report

Annual Report for the period ended 31 January 2010 Contents Key Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Chairman’s Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Managing Director’s Review of Operations . . . . . . . . . . . . . . . . . . . 4 Income Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . 8 Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 13 Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 General Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Top 20 Holder List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Key Facts Trading Results Audited Audited period ending period ending 25 January 2009 $000 31 January 2010 $000 Audited period ended 27 January 2008 $000 period ended Audited Audited year ended 28 January 31 January 2006 $000 2007 $000 Sales Revenue 416,686 388,467 407,750 372,078 343,511 Gross profit margin Earnings before interest and tax (EBIT) Net profit after tax (NPAT) Net cash flows from operating activities 39.9% 30,118 21,026 14,910 38 .6% 15,113 11,634 28,099 Financial Position and Statistics Shareholders' funds Total assets 127,621 173,707 121,550 177,184 EBIT per share NPAT per share Operating cashflow per share Current ratio 14.2c 9.9c 7.0c 2.8:1 Shareholders' funds to total assets 73.5% 7 .1c 5 .5c 13 .2c 2 .3:1 68 .6% 57 32 89 58 32 90 Store Numbers Homeware Sporting Goods Briscoe Group Total Store Area (m2) Homeware Sporting Goods 40 .4% 31,774 22,441 22,672 117,979 180,389 15 .0c 10 .6c 10 .7c 2 .0:1 65 .4% 54 32 86 40 .8% 36,252 26,048 45,802 112,062 172,391 17 .1c 12 .3c 21 .6c 2 .0:1 65 .0% 40 .2% 34,579 24,772 29,331 103,207 142,128 16 .3c 11 .7c 13 .8c 2 .7:1 72 .6% 48 27 75 37 21 58 94,852 53,714 94,602 53,714 92,214 53,812 87,249 47,948 77,058 42,116 Briscoe Group 148,566 148,316 146,026 135,197 119,174 1 Chairman's Review We are pleased to present the Directors’ Reports on the we have a strong foundation in place from which the financial and operational performance of Briscoe Group Group can develop and prosper . Limited for the 53 week period ended 31 January 2010 . The Group remains in a strong financial position to The 2009-10 year was one of substantial growth for the weather the ongoing volatile economic environment . Group, despite a continuation of the very challenging Indeed with no debt and a strong cash balance it and competitive retail environment that had adversely continues to be favorably positioned to take advantage affected retailers so severely the year before . of investment opportunities should they present as well Central to the strong recovery we have achieved as maximising organic growth opportunities that we were several significant structural, strategic and cost- believe would improve shareholder wealth . reduction initiatives we took leading into and during the The Board is keen to pursue further growth initiatives for recession, as well as huge commitment and much hard the homewares and sporting goods operations, and to work to deliver results . extend the Group’s reach into new geographical areas . The major restructuring of operational and Opportunities for further expansion through acquisition merchandising activities provided key managers with or store rollout will continue to be evaluated on the greater ownership of and accountability for their areas basis of their potential to add value to Briscoe Group of responsibility, and they responded with substantial and its shareholders . improvements in operating performance . The profit centre structure for stores is enabling more flexibility Financial performance in the allocation of resources across brands and the Sales revenue was $416 .69 million, compared with “profit-sharing” arrangements that we put in place $388 .47 million previously . On a same-store basis, sales have certainly been a win-win for the high performing increased for the year by 4 .7 percent . managers as well as for the Group and its shareholders . Gross profit increased 10 .9 percent, from $150 .09 Our investment in new technology in 2008 and 2009, million to $166 .46 million, equating to a gross profit has contributed to the success with increased ability margin of 39 .9 percent compared with 38 .6 percent for to control inventories and refine product ranges . the previous year . Net profit after tax (NPAT) was $21 .03 Complementing these has been the streamlining of million, 80 .7 percent higher than the $11 .63 million our marketing operations and a drive to improve the earned in the previous year . shopping experience for customers . The results were for the 53 week period from 26 January Notwithstanding numerous changes we have made 2009 to 31 January 2010 . to Living & Giving, these stores continued to struggle Inventories were $63 .35 million at 31 January 2010, a under the pressure of continued low levels of $5 .89 million increase on the previous year-end total, discretionary spending . Eight Living & Giving stores and reflecting the realignment of inventory levels for the the brand as a whole failed to reach the standards we increased consumer demand experienced during the had set to justify their book values, and consequently second half of 2009-10 as stronger sales trends for the we made an impairment adjustment for the year of Group emerged . $1 .86 million . Net cash inflows from operating activities were $14 .91 While we are proud of what has been achieved, million, $13 .19 million below the previous year, your directors and senior management are far from primarily as a result of increased payments made in complacent . There is still much to do, but we believe relation to GST and to suppliers, arising from the later 2 financial year-end date . the Group . The holders have until 16 October 2010 to Net cash outflows from investing activities were $6 .68 exercise them . Disclosures will continue to be made in million reflecting investment made during the year, primarily relation to the share options issued by the Group as and in relation to property purchased in Palmerston North . when options are exercised or lapse . Dividend Further details of the Executive Share Options Plan can be found in Note 21 (page 43) of the financial The directors have resolved to pay a final dividend of statements contained within this Annual Report . 5 .00 cents per share (cps), fully imputed . When added to the interim dividend of 2 .00 cps, this brings the total Community Sponsorship dividend for the year to 7 .00cps, representing 71% of At Briscoe Group we continue to be aware of the need the Group’s tax paid earnings . During the last four years to be a responsible and socially aware employer . We the Group has paid out 72% of tax paid earnings . have continued our support of Cure Kids as our charity The directors approved a final dividend payment date of of choice as we continue to believe it is a cause that 31 March 2010, earlier than in previous years, to take best fits our values . advantage of the ability to impute the final dividend at During the year Alaister Wall, Deputy Managing 33% rather than the reduced 30% rate that will apply Director of Briscoe Group was appointed to the for any dividends paid after 31 March 2010 . The share Board of Cure Kids, reinforcing our commitment to register closed to determine entitlements to the dividend this incredible charity as it strives to find cures for every at 5 pm on 24 March 2010 . disease affecting kiwi children (and their families) and improve their quality of life along the way . Executive Share Option Plan In addition to our alignment with Cure Kids we support The Board is of the view that all shareholders benefit a wide variety of local community based charities, from the issue to key senior executives of long-term, sports clubs and other initiatives by donating product appropriately-priced share options that crystallise only to support fundraising efforts . on delivery of increased shareholder value . In 2003 the Group established an Executive Share Option Plan to Directors, Management and Staff issue options to selected senior executives and, subject In addition to participating in formal monthly Board to shareholder approval, to Executive Directors . The meetings throughout the year, the directors attended Board intends to issue up to a further 1,505,000 options other meetings of directors and regular meetings of the in the current 2010-11 financial year . This will result in Board’s Audit and Human Resources Committees . the total number of share options issued under the scheme On behalf of my fellow directors, I wish to acknowledge since its inception and still exercisable being equivalent the enormous contributions of all managers, profit to 3 .1% percent of the current issued share capital . partners and other employees to the Group’s The first three tranches of options, issued in 2003, 2004 performance during the year . Their contributions are and 2005, have now lapsed with no options being sincerely appreciated . exercised . The fourth tranche became exercisable at a price of $1 .48 each from 16 October 2009 . Of the 1,090,000 options issued in that tranche, 1,020,000 are still exercisable as the holders remain employed by Rosanne Meo, CHAIRMAN 3 Managing Director's Review of Operations Introduction During the 2009-10 financial year, Briscoe Group Ultimately these improvements have resulted in higher sales and margin . continued to drive benefits from improved cost and For members of the merchandise team the opportunity inventory management initiatives put in place during the to share in incremental gross profit dollars generated second half of the 2008-09 financial year . has resulted in much clearer focus on range reviews, Against a tough economic background it was more product availability, sell through and final margins . important than ever to tailor product ranges and The merchandise team and the store profit partners have promotional offers in all retail brands to provide our the common goal of creating incremental profit and customers with value for money . To achieve this goal through the ‘Buying Steering Committee’ process the every promotion was scrutinised to ensure that the offers most passionate and experienced store operators have presented to potential customers showcased excellent met with the merchandise team throughout the year deals as clearly as possible . with the sole purpose of improving the product ranges By better utilising the data available through our SAP on offer to our customers . merchandise system improvements to starting margins The quality of communication between operations and were made in many categories . The benefit of a stronger merchandise has improved throughout the year and New Zealand dollar also helped to boost margins on improvements driven by the Buying Steering Committees imported products . While much of this margin was are seen as a key method to continue to improve re-invested to enable more aggressive promotions, an performance during the coming year . improvement in margin performance year on year was For the senior management team the change has helped still achieved against a tough trading background . By controlling costs and enhancing margins while to create a much clearer focus on the elimination of non- productive costs and the optimisation of every dollar spent . growing sales through aggressive promotion the Group The senior executive group directly affects the performance has produced a significantly better profit result than the of every function and the way they have driven and previous year . supported the team throughout the year has been a A key contributor to the improved performance has major contributor to the Group’s improved performance . been the positive way management in stores and The amount and quality of analysis that happens on support office have accepted and responded to the profit a day to day basis has increased in every area of our centre structure implemented at the start of the year . business, resulting in better visibility of issues and The opportunity for management to create and share opportunities . incremental profit has changed the way managers view As part of the half year result we reported that our their areas of responsibility . marketing team had been significantly reduced . We For the ‘Senior Profit Partners’ responsible for the store are pleased to report that this change has continued profit centres this change has driven true ownership of to produce positive results . By necessity, the senior sales, margin and costs within their areas of control . managers involved in the marketing process stay We have been encouraged by improved sales driven clearly focused on getting the best result from every by initiatives taken to share best practice across stores . promotional event . The cooperation between marketing, By making better use of the best experts across all stores in a profit centre improvements in costs and merchandise and operations ensures that all promotions are supported by the stores and the merchandise team to operational standards have been achieved . Better use of deliver optimum results . all resources has resulted in improved customer service, Our business is promotionally focused and under this better product presentation and product availability . structure every promotion is evaluated to ensure we 4 are getting the biggest ‘bang’ for the money invested to The performance of the distribution centre continued to promote the business . improve enabling a smoother flow of significantly higher All of the initiatives outlined in last year’s report and volumes of directly imported product into stores . We are those mentioned in the half year report will continue to confident of being able to make further improvements in improve our business in this financial year and beyond . the coming year . The clear and common focus on creating incremental No new Briscoes Homeware stores were opened during EBIT has aligned the goals of the entire management the year as we concentrated on getting the best from our team at Briscoe Group . Our people are empowered to existing locations . make decisions and are comfortable taking ownership of The tough market conditions continued to make trading the outcomes . Homeware Improved value for money and aggressive promotions difficult for our specialty homeware stores, Urban Loft and Living & Giving . As part of the reported first half result an impairment adjustment of $0 .83 million was made for under-performing assets associated with these offering our customers outstanding deals were our drive stores, and we have included in the full year result a throughout the year for Briscoes Homeware . further impairment adjustment of $1 .03 million . All of our competitors continued to discount and During the year we incorporated the Living & Giving promote heavily and it was important for Briscoes product range into the Urban Loft site at Britomart Homeware to retain or grow market share . Management (Downtown Auckland) . This allowed us to regularly promote believe this goal has been achieved . the Britomart site through the Living & Giving promotional Successful promotions are central to the success of programme and helped to improve performance at this site Briscoes Homeware and the team has worked hard while allowing us to significantly reduce marketing costs . to refresh the promotional programme to ensure We will continue to focus our energies on reducing that promotions stand out in a crowded market . By costs wherever possible while continuing to experiment constantly reviewing the creative treatments and by with product range and promotions to drive specialty maximising the use of Tammy (the ‘face’ of Briscoes) store sales . successful promotional events have been created to which customers have responded enthusiastically . The merchandise team continued to review their ranges Sporting goods This has been a year of recovery for Rebel Sport . every quarter with non-performing product marked Our goal for the year was to source better merchandise down and cleared quickly from stores . ranges while improving the in-store availability of the By continuing to improve the quality and quantity of the most popular size and colour options for customers . merchandise imported directly by the Group, we were The SAP merchandise system has been invaluable in able to present customers with better quality products at supporting the achievement of this goal . better prices while retaining or enhancing margins . By using automated replenishment to order stock on a 5 weekly basis for stores we have consistently achieved performance in all areas . improved availability of top selling product . Regular In addition to the initiatives already in place we will range reviews have forced slow moving product out of invest resource to more accurately challenge the use store ranges . of retail store space . To do this, the Group has recently The promotional programme for Rebel Sport has been purchased leading edge software, which will enable us refreshed to try to enhance the market positioning and to create better plans to optimise the space allocations, presence of the Rebel Sport brand . Our continued layouts and product adjacencies within stores . This sponsorship of the Rebel Sport Super 14 along with initiative will initially focus on Briscoes Homeware the use of high profile sports people like Sebastian stores but will quickly flow into Rebel Sport and Living Chabal and David Tua have helped to keep Rebel Sport’s & Giving . By undertaking this work we aim to improve awareness high in the minds of our target market . returns per square metre . Profit partners will use this People and Performance This has been a year of change for most of the managers information to quickly make changes to the physical layout of the stores within their profit centres to improve the shopping experience for customers . in stores and support functions and we are delighted The Group’s store opening / refurbishment programme with the way they have positively responded to the for 2010-11 will see a step up from last year’s rather challenges we have set them . Having tasted success subdued level as the storm of economic downturn was we are confident they will continue to relish new weathered . By the end of this year the existing Briscoes challenges in the years ahead . Homeware and Rebel Sport stores at Palmerston Through the store profit centre structure there is now a North will be relocated to our newly purchased site smaller number of our most experienced retailers with and full refurbishments are planned for Rebel Sport responsibility for our stores . Their support structure of stores at Botany and Wellington City as well as for ‘Junior Profit Partners’ and ‘Department Managers’ provides Briscoes Homeware stores at Botany and Salisbury an excellent training ground to develop future leaders . Street, Christchurch . We will also continue to look for The formal training programmes available support this opportunities in the main centres to establish large profit centre structure and help to build entrepreneurial format Briscoes Homeware stores, to build on the expertise . successes we are achieving at Panmure . Our focus remains on improving returns to our shareholders . Priorities and outlook for 2010-11 The economic indicators are still difficult to read and The changes we have made to the business over the last year have started to deliver positive results and many of we are cautious about the year ahead but hopeful that the people responsible for driving these changes have conditions will start to improve . started to reap the financial rewards that accompany With an uncertain economic outlook it remains this success . important that the Group continues to focus on We believe that our profit centre structure will continue maximising the return from every resource employed to drive benefits for the business throughout the coming within the business . Our goal remains to offer customers years . excellent value for money across the best ranges of quality branded products that we can source . We believe that the structure now in place and the strong relationships maintained with our supply partners Rod Duke give us a solid base to continue to analyse and improve GROUP MANAGING DIRECTOR 6 Financial Statements The Board of Directors is pleased to present the Financial Statements for Briscoe Group Limited for the 53 week period ended 31 January 2010 . The Financial Statements presented are signed for, and on behalf of, the Board, and were authorised for issue on the date below . Rosanne Meo CHAIRMAN Rod Duke GROUP MANAGING DIRECTOR 9 March 2010 Income Statements For the 53 week period ended 31 January 2010 Group Parent Period ended 31 January 2010 $000 Notes Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Sales revenue Cost of goods sold Gross profit Other operating income Store expenses Administration expenses Operating profit Net finance income Profit before income tax Income tax expense 416,686 (250,227) 388,467 (238,380) 166,459 150,087 116 (86,805) (49,652) 30,118 1,187 31,305 (10,279) 121 (84,188) (50,907) 15,113 1,644 16,757 (5,123) – – – – – – 23,200 – – (10,484) 12,716 945 13,661 (702) 5 5 5 6 Net profit attributable to shareholders 21,026 11,634 12,959 Period ended 25 January 2009 $000 22,689 (10,018) 12,671 1,466 14,137 (827) 13,310 Earnings per share for profit attributable to shareholders: Basic earnings per share (cents) Diluted earnings per share (cents) 7 7 9.9 9.7 5 .5 5 .4 6.1 6.0 6 .3 6 .2 The above income statements should be read in conjunction with the accompanying notes. 7 Statements of Comprehensive Income For the 53 week period ended 31 January 2010 Group Period ended 31 January 2010 $000 Period ended 25 January 2009 $000 Parent Period ended Period ended 25 January 2009 $000 31 January 2010 $000 Notes Net Profit attributable to shareholders 21,026 11,634 12,959 13,310 Other comprehensive income: Fair value loss/(gain) recycled to income statement Fair value (loss)/gain taken to the cashflow hedge reserve Deferred tax on fair value hedge taken to income statement Deferred tax on fair value transfers to cashflow hedge reserve 14 14 1,454 (6,515) (436) 1,954 (1,337) 6,143 397 (1,843) Total other comprehensive income (3,543) 3,360 – – – – – – – – – – Total comprehensive income attributable to shareholders 17,483 14,994 12,959 13,310 The above statements of comprehensive income should be read in conjunction with the accompanying notes. 8 Statements of Changes in Equity For the 53 week period ended 31 January 2010 Group Notes capital Share Cashflow hedge reserve $000 $000 Share options reserve $000 Retained earnings Total equity $000 $000 Balance at 27 January 2008 40,625 (99) 440 77,013 117,979 Net profit attributable to shareholders Other comprehensive income: Fair value loss/(gain) recycled to income statement Fair value (loss)/gain taken to the cashflow hedge reserve Deferred tax on fair value hedge taken to income statement 14 Deferred tax on fair value transfers to cashflow hedge reserve 14 Total comprehensive income for the period Dividends paid Share options charged to income statement Transfer for share options lapsed and forfeited Balance at 25 January 2009 Net profit attributable to shareholders Other comprehensive income: Fair value loss/(gain) recycled to income statement Fair value (loss)/gain taken to the cash hedge reserve Deferred tax on fair value hedge taken to income statement Deferred tax on fair value transfers to hedge reserve Total comprehensive income for the period Dividends paid Share options charged to income statement Transfer for share options lapsed and forfeited 20 21 21 14 14 20 21 21 – – – – – – – – – – (1,337) 6,143 397 (1,843) 3,360 – – – – – – – – – – – – – 1,454 (6,515) (436) 1,954 (3,543) – – – – – 245 (199) 11,634 (11,668) – 199 – – – – – – – – – – 11,634 11,634 – – – – – – – – (1,337) 6,143 397 (1,843) 14,994 (11,668) 245 – 1,454 (6,515) (436) 1,954 17,483 (11,668) 256 – – – 256 (162) 21,026 (11,668) – 162 40,625 3,261 486 77,178 121,550 21,026 21,026 Balance at 31 January 2010 40,625 (282) 580 86,698 127,621 Parent Notes capital Share Cashflow hedge reserve $000 $000 options reserve $000 Share Retained earnings Total equity $000 $000 Balance at 27 January 2008 40,625 Net profit attributable to shareholders Total comprehensive income for the period Dividends paid Share options charged to income statement Transfer for share options lapsed and forfeited Balance at 25 January 2009 Net profit attributable to shareholders Total comprehensive income for the period Dividends paid Share options charged to income statement Transfer for share options lapsed and forfeited – – – – – 40,625 – – – – – 20 21 21 20 21 21 Balance at 31 January 2010 40,625 – – – – – – – – – – – – – 440 6,357 47,422 – 13,310 13,310 – – 245 (199) 13,310 (11,668) – 199 13,310 (11,668) 245 – 486 8,198 49,309 – 12,959 12,959 – – 256 (162) 12,959 (11,668) – 162 12,959 (11,668) 256 – 580 9,651 50,856 The above statements of changes in equity should be read in conjunction with the accompanying notes. 9 Balance Sheets As at 31 January 2010 Group Parent 31 January 2010 $000 25 January 2009 31 January 2010 $000 $000 25 January 2009 $000 Notes EQUITY Share capital Cashflow hedge reserve Share options reserve Retained earnings 19 3(c),8 21 40,625 (282) 580 86,698 40,625 3,261 486 77,178 40,625 – – 580 9,651 40,625 486 8,198 TOTAL EQUITY 127,621 121,550 50,856 49,309 LIABILITIES Non-current liabilities Employee benefits Total non-current liabilities Current liabilities Trade and other payables Provisions Employee benefits Due to related parties Taxation payable Derivative financial instruments Total current liabilities TOTAL LIABILITIES 17 15 16 17 22 14 3(c) 461 461 33,230 53 7,716 – 3,873 753 45,625 46,086 427 427 50,426 49 3,937 – 795 – 55,207 55,634 73 73 957 – – 1,782 – 13 – – 2,752 2,825 66 66 992 716 373 258 2,339 2,405 TOTAL EQUITY AND LIABILITIES 173,707 177,184 53,681 51,714 ASSETS Non-current assets Investments in subsidiaries Property, plant and equipment Intangible assets Deferred tax Total non current assets Current assets Cash and cash equivalents Trade and other receivables Due from related parties Inventories Derivative financial instruments Total current assets TOTAL ASSETS 11 12 13 14 8 9 22 10 3(c) – 44,096 1,412 2,691 48,199 59,250 2,310 – 63,353 595 – 46,330 2,797 381 49,508 63,291 2,629 – 57,460 4,296 125,508 127,676 173,707 177,184 2,783 – – – 183 2,966 37,669 629 12,417 – – 50,715 53,681 2,783 – 186 2,969 48,227 518 – – – 48,745 51,714 The above balance sheets should be read in conjunction with the accompanying notes. 10 Statements of Cash Flows For the 53 week period ended 31 January 2010 OPERATING ACTIVITIES Cash was provided from Receipts from customers Rent received Dividends received Interest received Management fees received Net GST received Cash was applied to Payments to suppliers Payments to employees Interest paid Net GST paid Income tax paid Group Parent Period ended Period ended Period ended Period ended 31 January 2010 25 January 2009 31 January 2010 25 January 2009 Notes $000 $000 $000 $000 417,099 111 5 5 1,251 – – 389,191 116 1,711 – – 418,466 391,023 (338,936) (43,617) (5) (13,006) (7,992) (306,344) (45,486) (7) (8,933) (2,154) – – – – 11,668 1,005 11,455 318 24,446 (3,475) (5,697) (5) – – (944) 11,668 1,530 10,907 407 24,512 (3,613) (5,812) (7) (387) (403,556) (362,924) (10,121) (9,819) Net cash inflows from operating activities 14,910 28,099 14,325 14,693 INVESTMENT ACTIVITIES Cash was provided from Proceeds from sale of property, plant and equipment Cash was applied to Purchase of property, plant and equipment Purchase of intangible assets 12 13 Net cash (outflows) from investment activities FINANCING ACTIVITIES Cash was provided from Repayment of advances from subsidiaries 16 16 (6,358) (335) (6,693) (6,677) – – 51 51 (2,372) (579) (2,951) (2,900) – – – – – – – – – – – – Cash was applied to Advances to subsidiaries Dividends paid 20 – (11,668) – (11,668) (13,215) (11,668) – – – – 7,725 7,725 – (11,668) (11,668) (11,668) (24,883) (11,668) Net cash (outflows) from financing activities (11,668) (11,668) (24,883) (3,943) Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Foreign cash balance cash flow hedge adjustment (3,435) 63,291 (606) Cash and cash equivalents at period end 8 59,250 13,531 49,361 399 63,291 (10,558) 48,227 – – 10,750 37,477 37,669 48,227 11 Statements of Cash Flows continued For the 53 week period ended 31 January 2010 Group Parent Period ended 31 January 2010 $000 RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES TO REPORTED NET PROFIT Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 Reported net profit attributable to shareholders 21,026 11,634 12,959 13,310 Items not involving cash flows Depreciation and amortisation expense Adjustment for fixed increase leases Asset impairment adjustment Bad debts written off and movement in doubtful debts Amortisation of executive share options cost Loss on disposal of assets Impact of changes in working capital items Decrease (increase) in trade and other receivables Decrease (increase) in inventories Increase (decrease) in taxation payable Increase (decrease) in trade payables Increase (decrease) in other payables and accruals 8,435 187 1,857 28 256 3 10,766 291 (5,893) 3,078 (14,523) 165 (16,882) 14,910 8,975 187 – 33 245 55 9,495 1,198 10,366 2,854 (6,087) (1,361) 6,970 28,099 – – – – – – 256 – 256 (111) – – (245) (228) 1,694 1,110 14,325 – – 245 – 245 186 508 (5) 449 1,138 14,693 The above statements of cash flows should be read in conjunction with the accompanying notes. 12 Notes to the Financial Statements For the 53 week period ended 31 January 2010 1. Summary of significant accounting policies These consolidated financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP) . They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) . The financial statements also comply with International Financial Reporting Standards (IFRS) . (a) Basis of preparation of financial statements The principal accounting policies adopted in the preparation of the financial report are set out below . These policies have been consistently applied to all the periods presented, unless otherwise stated . Entities reporting Briscoe Group Limited (‘Company’ or ‘Parent’) and its subsidiaries together are referred to in these financial statements as the Group or the consolidated entity . The Company and its subsidiaries are designated as profit-oriented entities for financial reporting purposes . The financial statements of the Parent are for the Company as a separate legal entity . Reporting period These financial statements are in respect of the 53 week period 26 January 2009 to 31 January 2010 and provide balance sheets as at 31 January 2010 . The comparative period is in respect of the 52 week period 28 January 2008 to 25 January 2009 . Statutory base Briscoe Group Limited is a company incorporated and domiciled in New Zealand, registered under the Companies Act 1993 and is an issuer in terms of the Securities Act 1978 . The Company is also listed on the New Zealand Stock Exchange (NZSX) . The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act 1993 . Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through profit or loss . Critical accounting estimates, judgements and assumptions The preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting estimates . It also requires management to exercise its judgement in the process of applying the Company’s accounting policies . The Directors regularly review all accounting policies and areas of judgement in presenting the financial statements . Estimates The Group tests annually whether intangible assets have suffered any impairment, in accordance with the accounting policy stated in Note 1(h) and as disclosed in Note 13 . The Group also reviews at each reporting date, whether the provisions for inventory obsolescence and store shrinkage calculated in accordance with the accounting policy stated in Note 1(k), are adequate . 13 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Judgements The Group assesses whether there are indications for certain trigger events which may indicate that an impairment in property, plant and equipment values exist . (b) Principles of consolidation Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Briscoe Group Limited as at balance date of 31 January 2010 and the results of all subsidiaries for the 53 week period then ended . Subsidiaries are all those entities over which the Company has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights . The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity . Subsidiaries are fully consolidated from the date on which control is transferred to the Company . They are deconsolidated from the date that control ceases . The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group . The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition . Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest . The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill . If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement . Intercompany transactions, balances and unrealised gains on transactions between subsidiary companies are eliminated . Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred . Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company . (c) Segment reporting An operating segment is a component of an entity that engages in business activities which earns revenue and incurs expenses and for which the chief operating decision maker (CODM) reviews the operating results on a regular basis and makes decisions on resource allocation . The Group has determined its CODM to be the group of executives comprising the Managing Director, Chief Operating Officer and Chief Financial Officer on the basis that it is this group which determines the allocation of resources to segments and assesses their performance . The reportable operating segments of the Group have been determined based on the components of the Group that the CODM monitors in making decisions about operating matters . Such components have been identified on the basis of internal reports that the CODM reviews regularly in order to allocate resources and to assess the performance of the entity . The Group is organised into two reportable operating segments, namely homeware and sporting goods, reflecting the different retail sectors solely in New Zealand, within which the Group operates . The corporate structure of the Group also reflects these segments with its two trading subsidiaries, Briscoes (NZ) Limited and The Sports Authority Limited . Financial details of these segments are outlined in Note 4 . 14 Notes to the Financial Statements For the 53 week period ended 31 January 2010 (d) Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group’s operations are measured using the currency of the primary economic environment in which it operates (‘the functional currency’) . The financial statements are presented in New Zealand dollars, which is the Company’s functional currency and the Group’s presentation currency . 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 the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges . (e) Revenue recognition Revenue comprises the fair value for the sale of goods and services, net of Goods and Services Tax (GST), rebates and discounts and after eliminating sales within the Group . Revenue is recognised as follows: Sales of goods – retail Sales of goods are recognised when a Group entity sells a product to a customer . Retail sales are usually in cash or by credit card . Interest income Interest income is recognised on a time-proportion basis using the effective interest method . (f) Income tax The income tax expense for the period is the tax payable on the current period’s taxable income based on the income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses . The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the country where the company’s subsidiaries operate and generate taxable income . Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation . It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities . 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 . 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 . 15 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in 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 . Deferred tax is not recognised in relation to brands where they are deemed to have an indefinite life . (g) Leases The Group is the lessee Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases . Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease . The Group is the lessor Assets leased to third parties under operating leases are included in property, plant and equipment in the balance sheet . They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment . Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the period of the lease . (h) Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment . Assets that are subject to amortisation and depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units) . An impairment loss is recognised for the amount by which an asset’s carrying amount exceeds its recoverable amount . The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use . (i) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and 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 . (j) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment . Trade receivables arise from sales made to customers on credit or through the collection of purchasing rebates from suppliers not otherwise deducted from suppliers’ payable accounts . Trade receivable balances are reviewed on an ongoing basis . Debts known to be uncollectible are written off . A provision for impaired receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables . Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and inconsistency in timing of payments are considered indicators that the collection of a particular trade receivable is doubtful . The amount of the provision is the difference between an asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate . The amount of the provision is recognised in the income statement . When a trade receivable is uncollectible, it is written off against the provision . Subsequent recoveries of amounts previously written off are credited against the income statement . 16 Notes to the Financial Statements For the 53 week period ended 31 January 2010 (k) Inventories Inventories are stated at the lower of cost or net realisable value . Cost is determined using a weighted average method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition . Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses . (l) Financial assets Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market . They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable . Loans and receivables are recognised initially at fair value plus transaction costs and are subsequently measured at amortised cost . They are included in current assets, except for those with maturities greater than 12 months after the balance date, which are classified as non-current assets . Loans and receivables are included in receivables in the balance sheet . An assessment is made at each balance date as to whether there is objective evidence that a financial asset or group of financial assets is impaired . Impairment testing of trade receivables is described in Note 9 . (m) Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value . The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged . The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge); or (2) hedges of highly probable forecast transactions (cash flow hedges) . Certain subsidiaries document at the inception of a transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions . These subsidiaries also document their assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be effective in offsetting changes in fair values or cash flows of hedged items . Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk . 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 . The gain or loss relating to the ineffective portion is recognised immediately in the income statement . Amounts accumulated in other comprehensive income are recycled in the income statement in the periods when a hedged item will affect profit or loss (for instance when the forecast purchase that is hedged takes place) . However, when a forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in other comprehensive income are transferred from other comprehensive income and included in the measurement of the initial cost or carrying amount of the asset or liability . 17 Notes to the Financial Statements For the 53 week period ended 31 January 2010 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 other comprehensive income at that time remains in other comprehensive income and is recognised when a 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 other comprehensive income is immediately transferred to the income statement . Derivatives that do not qualify for hedge accounting Hedge accounting has not been adopted for some hedges including certain derivative instruments that do not qualify for hedge accounting . Changes in the fair value of these derivative instruments are recognised immediately in the income statement . (n) Fair value estimation The fair value of financial assets and financial liabilities is estimated for recognition, measurement and disclosure purposes . 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 . The fair value of forward exchange contracts is determined by mark to market valuations using forward exchange market rates at the balance date . (o) Derecognition of financial assets and liabilities Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership . Financial liabilities are derecognised when the obligations for payment of cash flows have expired or have been transferred and the Group has transferred substantially all of the obligations . (p) Property, plant and equipment All property, plant and equipment is stated at historical cost less depreciation and any impairment adjustments . Historical cost includes expenditure that is directly attributable to the acquisition of property, plant and equipment . Subsequent costs are included in an asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with an item will flow to the Group and the cost of an item can be measured reliably . All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred . Land is not depreciated . Depreciation on other assets is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: • Freehold Buildings • Plant and equipment 33 years 2 – 15 years • Furniture, fittings and office equipment 8 – 15 years Assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date . An asset’s carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than its estimated recoverable amount . Gains and losses on disposals are determined by comparing proceeds with carrying amounts . These gains and losses are included in the income statement . 18 Notes to the Financial Statements For the 53 week period ended 31 January 2010 (q) Intangible assets Brands Brands are valued independently as part of the fair value of a business acquired from third parties where the brand has a value which is substantial and long-term and where the brand can be sold separately from the rest of the business acquired . Brands are amortised over their estimated lives, except where it is considered that the economic useful life is indefinite . Indefinite life brands are subject to an annual impairment review . Software Software costs have a finite useful life . Software costs are capitalised and amortised over the estimated useful economic life of 2 to 5 years . (r) Trade and other payables Trade and other payable amounts represent liabilities for goods and services provided to the Group prior to the end of a financial period, which are unpaid . The amounts are unsecured and are usually paid within 60 days of recognition . They are initially recognised at fair value then subsequently recognised at amortised cost using the effective interest method . (s) Goods and Services Tax (GST) The income statement, statement of comprehensive income and statement of cash flow have been prepared exclusive of GST . All items in the balance sheet are stated net of GST, with the exception of trade receivables and trade payables, which include GST invoiced . (t) Provisions Provisions are recognised when: • the Group has a present legal or constructive obligation as a result of past events; • it is more likely than not 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 . (u) Share capital Ordinary shares are classified as capital . 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 . 19 Notes to the Financial Statements For the 53 week period ended 31 January 2010 (v) Deferred landlord contributions Landlord contributions to fit-out costs are capitalised as deferred contributions and amortised to the income statement over the period of the lease . (w) Employee benefits Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled . Liabilities for non- accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable . Long service leave The liability for long service leave is 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 reporting date using the projected unit credit method . Consideration is given to expected future wage and salary levels, history of employee departure rates and periods of service . Expected future payments are discounted using market yields at the reporting date on government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows . Equity settled share based compensation The Executive Share Option Plan allows Group employees to be granted options to acquire shares of the Parent . The fair value of options granted is recognised as an employee expense in the income statement with a corresponding increase in the share options reserve . The fair value is measured at grant date and spread over the vesting periods . The fair value of the options granted is measured using the Black Scholes valuation model, taking into account the terms and conditions upon which the options are granted . When options are exercised the amount in the share options reserve relating to those options, together with the exercise price paid by an employee, is transferred to share capital . (x) Dividends Provision is made for the amount of any dividend declared on or before the balance date but not distributed at balance date . (y) Earnings per share Basic earnings per share is computed by dividing net profit attributable to shareholders by the weighted average number of ordinary shares on issue during the period . Diluted earnings per share is computed by dividing net profit attributable to shareholders by the weighted average number of ordinary shares on issue during the period, adjusted to include the potentially dilutive effect if share options to issue ordinary shares were exercised and converted into shares . 20 Notes to the Financial Statements For the 53 week period ended 31 January 2010 (z) Statements of cash flows The following are the definitions of the terms used in the statements of cash flows: • Cash comprises cash and bank balances; • Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment and investments; • Financing activities are those activities which result in changes in the size and composition of the capital structure of the Group . This includes both equity and debt not falling within the definition of cash . Loans to and from the Parent and subsidiaries are treated as financing cash flows . Dividends paid are included in financing activities; and • Operating activities include all transactions and other activities that are not investing or financing activities. 2. Accounting standards The following new standards and amendments to standards are mandatory and are required to be applied for the first time for financial years beginning on or after 1 January 2009 . • NZ IAS 1: Presentation of Financial Statements (revised) The revised standard requires ‘non-owner changes in equity’ to be presented separately from owner changes in equity . All ‘non-owner changes in equity’ are required to be shown in a performance statement . Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income) . The Group has elected to present two statements; an income statement and a statement of comprehensive income . • NZ IFRS 8: Operating Segments NZ IFRS 8 replaces NZ IAS 14 Segment reporting . It requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes . Application of NZ IFRS 8 did not identify any new operating segments . Refer Note 4 for further information . • NZ IFRS 7: Financial instruments – Disclosures (amendment) The amendment requires enhanced disclosures about fair value measurement and liquidity risk . In particular, the amendment requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1), • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2), • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3) . This change in accounting policy results in additional disclosure only (refer Note 3 .1(c)) . 21 Notes to the Financial Statements For the 53 week period ended 31 January 2010 The following are standards, amendments and interpretations to existing standards applicable to the Group but are not yet effective and have not been early adopted by the Group: • NZ IFRS 3: Business Combinations (Revised) and NZ IAS 27: Consolidated and Separate Financial Statements (Revised) Effective for annual periods on or after 1 July 2009 . The amendment includes a number of updates including the requirement that all costs relating to a business combination must be expensed and subsequent re-measurement of the business combination must be put through the income statement . Both standards must be adopted at the same time . Impact is dependent on acquisition activity . This standard has been amended in a number of areas, of which the significant amendments are as follows; • Transaction costs incurred in connection with the business combination are expensed when incurred and are no longer included in the cost of the acquisition . • An acquirer must recognise contingent consideration at fair value at the acquisition date. Subsequent changes in the fair value of such contingent consideration will often affect the income statement . • The acquirer must recognise either the entire goodwill inherent in the acquiree, independent of whether a 100% interest is acquired (full goodwill method), or only the portion of the total goodwill which corresponds to the proportionate interest acquired (as currently the case under NZ IFRS 3) . • NZ IAS 1: Presentation of financial statements (amendment) The amendment is part of the IASB's annual improvements project published in April 2009 . The amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non-current . By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time . The Group will apply NZ IAS 1 (amendment) from 1 February 2010 . It is not expected to have a material impact on the Group's financial statements . 3. Financial risk management 3.1 Financial risk factors The Group's activities expose it to various financial risks including, liquidity risk, credit risk and market risk (including currency risk and cash flow interest rate risk) . The Group's overall risk management programme seeks to minimise potential adverse effects on the Group's financial performance . The Group uses certain derivative financial instruments to hedge certain risk exposures . 22 Notes to the Financial Statements For the 53 week period ended 31 January 2010 (a) Liquidity risk Liquidity risk is the risk that an unforeseen event or miscalculation in the required liquidity level will result in the Group foregoing investment opportunities or not being able to meet its obligations in an orderly manner, and therefore gives rise to lower investment income or to higher borrowing costs than otherwise . Prudent liquidity risk management includes maintaining sufficient cash, and ensuring the availability of adequate amounts of funding from credit facilities . The Group's liquidity exposure is managed by ensuring sufficient levels of liquid assets and committed facilities are maintained based on regular monitoring of a rolling 3-month daily cash requirement forecast . Taking into account the present levels of cash held by the business, this risk is considered by management to be low . The Group's liquidity position fluctuates throughout the year, being strongest immediately after the end of year trading period . The months leading up to Christmas trading put the greatest strain on Group cash flows due to the build up of inventory as well as the interim dividend payment . The Group has an overdraft facility of $500,000 but to date this has not been utilised . The table below analyses the Group's financial liabilities and gross-settled derivatives into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date . The cash flow hedge 'outflow' amounts disclosed in the table are the contractual undiscounted cash flows liable for payment by the Group in relation to all forward foreign exchange contracts in place at balance date . The cash flow hedge 'inflow' amounts represent the corresponding injection of foreign currency back to the Group as a result of the gross settlement on those contracts, converted using the forward rate at balance date . The carrying value shown is the net amount of derivative financial liabilities and assets as shown in the balance sheet . Trade payables are shown at carrying value in the table . No discounting has been applied as the impact of discounting is not significant . Group As at 31 January 2010 Less than 3 months $000 3-5 months $000 6-8 months $000 9-12 months $000 Total $000 Carrying Value $000 Trade and other payables (33,230) – – – (33,230) (33,230) Forward foreign exchange contracts Cash flow hedges: – outflow – inflow (8,748) 8,185 (5,913) 6,085 (8,413) 8,646 (145) 145 (23,219) 23,061 – – – Net (563) 172 233 – (158) (158) As at 25 January 2009 Less than 3 months $000 3-5 months $000 6-8 months $000 9-12 months $000 Total $000 Carrying Value $000 Trade and other payables (50,426) – – – (50,426) (50,426) Forward foreign exchange contracts Cash flow hedges: – outflow – inflow (5,193) 7,313 (4,030) 5,240 (4,967) 5,744 (3,665) 3,854 (17,855) 22,151 – – – Net 2,120 1,210 777 189 4,296 4,296 The cash flow hedges inflow amounts use the forward rate at balance date . 23 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Parent As at 31 January 2010 Less than 3 months $000 3-5 months $000 6-8 months $000 9-12 months $000 Carrying Value $000 Total $000 Trade and other payables (957) – – – (957) (957) As at 25 January 2009 Less than 3 months $000 3-5 months $000 6-8 months $000 9-12 months $000 Carrying Value $000 Total $000 Trade and other payables (992) – – – (992) (992) There are no financial derivative liabilities or assets in the name of the Parent . (b) Credit risk Credit risk refers to the risk of a counterparty failing to discharge an obligation . In the normal course of its business, Briscoe Group incurs credit risk from trade receivables and transactions with financial institutions . The Group places its cash, short- term investments and derivative financial instruments with only high credit quality financial institutions . Sales to retail customers are settled predominantly in cash or by using major credit cards . Less than 1% of reported sales give rise to trade receivables . The Group holds no collateral over its trade receivables . (Refer also to Notes 1 .(j) and 9) . (c) Market risk Foreign exchange risk The Group is exposed to foreign exchange risk arising from currency exposures primarily to the US dollar, in respect of purchases of inventory directly from overseas suppliers . Management work to Board-approved Group Treasury Risk Management Policies to manage the Group’s foreign exchange risk . The current policy requires hedging of both committed and forecasted foreign currency payment levels across the current and subsequent three calendar quarters . The policy is to cover 100% of committed purchases but lower levels of coverage for forecasted purchases depending on which quarter the forecasted exposure relates to . Hedging is reviewed regularly by management and reported to the Board monthly . The Group uses forward foreign exchange contracts and maintains short-term holdings of foreign currencies in denominated foreign currency bank accounts, with major financial institutions only, to hedge its foreign exchange risk arising from future purchases . 24 Notes to the Financial Statements For the 53 week period ended 31 January 2010 The following table shows the fair value of forward foreign exchange contracts held by the Group as derivative financial instruments at balance date: Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 Current assets Forward foreign exchange contracts Total current derivative financial instrument assets Current liabilities Forward foreign exchange contracts Total current derivative financial instrument liabilities 595 595 753 753 4,296 4,296 – – – – – – – – – – Forward foreign exchange contracts – cash flow hedges Forward foreign exchange contracts are used for hedging committed or highly probable forecast purchases of inventory for the ensuing financial year . The contracts are timed to mature when major shipments of inventory are scheduled to be dispatched and the liability settled . The cash flows are expected to occur at various dates within one year from balance date . Where forward foreign exchange contracts have been designated and tested as an effective hedge the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in other comprehensive income . These gains or losses are released to the income statement at various dates over the subsequent financial year as the inventory for which the hedge exists, is sold . At balance date these contracts are represented by assets of $594,584 (2009: $4,295,583) and liabilities of $753,426 (2009: Nil) and together are included in equity as part of the cash flow hedge reserve, net of deferred tax, as a net loss of $111,189 (2009: net gain $3,006,908) . The cash flow hedge reserve also consists of gains and losses, net of deferred tax, from foreign currencies used as hedges, as a net loss of $170,354 (2009: net gain of $254,094), refer Note 8 . When forward foreign exchange contracts are not designated and tested as an effective hedge, the gain or loss on the forward foreign exchange contract is recognised in the income statement . At balance date there are no such contracts in place (2009: Nil) . Fair value hierarchy The only financial instruments held by the Group in relation to fair value measurements are over the counter derivatives . These derivatives have all been determined to be within level 2 of the fair value hierarchy as all significant inputs required to ascertain the fair value of these derivatives are observable (refer Note 1(n) and Note 2) . Interest rate risk The Group has no interest-bearing liabilities therefore its exposure to interest rate risk arises only from the impact on income and operating cash flows as a result of interest-bearing assets, such as cash deposits . The Group’s short to medium liquidity position is monitored daily by management and surplus funds placed on call or short-term deposit with major financial institutions only . 25 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Sensitivity analysis Based on historical movements and volatilities and review of current economic commentary management believes that the following movements are reasonably possible over the next 12 month period: • Proportional foreign exchange rate movement of -10% (depreciation of NZD) and +10% (appreciation of NZD) against the USD, from the year-end rate of 0 .7049, • A shift of between +1% and -0.5% in market interest rates from the year-end deposit rate of 2.50%. If these movements were to occur, the positive / (negative) impact on consolidated profit and on consolidated equity for each category of financial instrument held at balance date is presented below . Financial Assets: Cash and cash equivalents1 . Trade receivables2 . Derivatives – designated as cashflow hedges (Forward foreign exchange contracts)3 . Financial liabilities: Trade and other payables4 . Derivatives – designated as cashflow hedges (Forward foreign exchange contracts)3 . Carrying amount -0.5% +1% -10% +10% Interest rate Foreign exchange rate $000 Profit $000 Equity $000 Profit $000 Equity $000 Profit $000 Equity $000 Profit Equity $000 $000 59,250 1,063 (296) – (296) – 593 – 593 – – – – – – – – – 595 33,230 753 – – – – – – – – – – – – – 2,107 – (1,703) – – – – – – 492 – (406) 2,599 – (2,109) Total increase / (decrease) (296) (296) 593 593 1. Cash and cash equivalents include deposits at call which are at floating interest rates. The sensitivity to a +1% movement in interest rates is $592,503. For a -0.5% movement in interest rates the sensitivity is ($296,252). 2. All trade receivables are denominated in NZD and are non-interest bearing. 3. Derivatives designated as cashflow hedges are foreign exchange contracts used to hedge against the NZD:USD foreign exchange risk arising from foreign denominated future purchases. Based on outputs from a derivative valuation model, a -/+10% shift in the NZD:USD foreign exchange rate has an impact of $2,598,819 / ($2,109,044) on derivative valuation. There is no profit and loss sensitivity as the hedges are 100% effective. 4. All trade and other payables are denominated in NZD and are non-interest bearing. Product imported directly by the Group is prepaid before inventory is receipted and therefore does not give rise to a foreign currency liability. 26 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Financial instruments by category The accounting policies for financial instruments have been applied to the line items below: As at 31 January 2010 Group Loans and Derivatives used for receivables hedging $000 $000 Total $000 Parent Loans and Derivatives used for receivables hedging $000 $000 Assets as per balance sheet Cash and cash equivalents Trade receivables Due from related parties Derivative financial instruments 59,250 1,063 – – – – – 595 59,250 1,063 – 595 Total 60,313 595 60,908 37,669 – 12,417 – 50,086 – – – – – Other financial Derivatives used for hedging $000 liabilities at amortised cost $000 Total $000 Other financial Derivatives used for hedging $000 liabilities at amortised cost $000 Liabilities as per balance sheet Trade and other payables Derivative financial instruments 33,230 – – 753 33,230 753 Total 33,230 753 33,983 As at 25 January 2009 Group Loans and Derivatives used for receivables hedging $000 $000 Total $000 957 – 957 – – – Parent Loans and Derivatives used for receivables hedging $000 $000 Total $000 37,669 – 12,417 – 50,086 Total $000 957 – 957 Total $000 Assets per balance sheet Cash and cash equivalents Trade receivables Derivative financial instruments 63,291 1,642 – – – 4,296 63,291 1,642 4,296 Total 64,933 4,296 69,229 48,227 – – 48,227 – – – – 48,227 – – 48,227 Other financial Derivatives used for hedging $000 liabilities at amortised cost $000 Total $000 Other financial Derivatives used for hedging $000 liabilities at amortised cost $000 Liabilities as per balance sheet Trade and other payables Due to related parties Total 50,426 – 50,426 – – – 50,426 – 50,426 992 373 1,365 – – – Total $000 992 373 1,365 27 Notes to the Financial Statements For the 53 week period ended 31 January 2010 3.2 Capital risk management The Group’s objectives when managing capital are to maximise shareholder wealth whilst ensuring that the Group continues to safeguard its ability to continue as a going concern . In order to meet these objectives the Group may adjust the amount of dividend payment made to shareholders . There are no specific banking or other arrangements which require the Group to maintain specified equity levels . 4. Segment information The Group has two reportable operating segments that are defined by the retail sectors within which the Group operates, namely homeware and sporting goods . The following is an analysis of the Group’s revenue and results by operating segment . Revenue reported below is generated purely in New Zealand from sales to external customers and due to the nature of the retail businesses there is no reliance on any individual customer . There were no inter-segment sales in the period . (2009: Nil) . The accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 1 . Information regarding the operations of each reportable operating segment is included over the page . Segment profit represents the profit earned by each segment and reflects the income statements associated with the two trading subsidiary companies, Briscoes (NZ) Limited and The Sports Authority Limited . 28 Notes to the Financial Statements For the 53 week period ended 31 January 2010 For the period ended 31 January 2010 Homewares INCOME STATEMENT Total sales revenue Gross profit Earnings before interest and tax Finance income Income tax expense Net profit after tax BALANCE SHEET Assets Liabilities Other segmental items: Acquisitions of property, plant and equipment, intangibles and investments Depreciation and amortisation Impairment of property, plant and equipment, intangibles and investments $000 286,149 115,221 23,399 84 (7,728) 15,755 88,830 40,747 6,293 5,530 1,857 For the period ended 25 January 2009 Homewares INCOME STATEMENT Total sales revenue Gross profit Earnings before interest and tax Finance income Income tax expense Net profit after tax BALANCE SHEET Assets Liabilities Other segmental items: Acquisitions of property, plant and equipment, intangibles and investments Depreciation and amortisation expense $000 267,398 104,421 14,403 65 (4,341) 10,127 86,128 38,335 2,644 5,901 Sporting goods $000 Eliminations/ Unallocated $000 Total Group $000 130,537 51,238 5,670 158 (1,849) 3,979 47,160 15,696 400 2,905 – – – 1,049 945 (702) 1,292 416,686 166,459 30,118 1,187 (10,279) 21,026 37,716 173,706 (10,358) 46,085 – – – 6,693 8,435 1,857 Sporting goods $000 Eliminations/ Unallocated $000 Total Group $000 388,467 150,087 15,113 1,644 (5,123) 11,634 – – 1,003 1,466 (827) 1,642 121,069 45,666 (293) 113 45 (135) 43,526 15,936 307 3,074 47,530 177,184 1,363 55,634 – – 2,951 8,975 29 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Group Parent Period ended 25 January 2009 $000 11,668 11,021 1,474 78 19 160 245 6,341 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 116 5 – 1,652 26,026 119 78 19 – 160 245 46,005 55 2,192 8 7,729 1,246 – – – – 11,668 11,532 950 – – – – 80 20 6 – 160 256 6,771 – – – – 5 8 – – – – – – – – 5. Income and expenses Profit before income tax includes the following specific income and expenses: Income Rental income Dividends received Management fees Finance income Expenses Period ended 31 January 2010 $000 111 5 – 1,192 Operating lease rental expense 28,409 Bad debts written off Amounts paid to auditors: Statutory Audit Half year review Other assurance services Directors' fees Share options expense Wages, salaries and other short term benefits Loss on disposal of property, plant and equipment Inventory writedown expense Finance expense Depreciation of property, plant and equipment Amortisation of software costs Fixed asset impairment adjustment Intangible asset impairment adjustment 83 80 20 6 160 256 47,430 3 1,361 5 7,153 1,282 1,424 433 30 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Group Parent Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 6. Income tax expense (a) Income tax expense Current tax expense: Current tax Adjustments for prior years Period ended 31 January 2010 $000 10,157 914 11,071 Deferred tax expense: (Increase) / Decrease in future tax benefit current year (97) Reduction in tax rate Adjustments for prior years – (695) (792) Total income tax expense 10,279 5,123 (b) Reconciliation of income tax expense to tax rate applicable to profits 4,610 398 5,008 422 91 (398) 115 521 178 699 160 – (157) 3 702 781 114 895 33 11 (112) (68) 827 Profit before income tax expense 31,305 Tax at the corporate rate of 30% (2009: 30%) 9,392 16,757 5,027 13,661 4,098 14,137 4,241 Tax effect of amounts which are either non-deductible or non-assessable in calculating taxable income: Income not subject to tax Expenses not deductible for tax Prior period adjustments (17) 685 219 (18) 114 – Total income tax expense 10,279 5,123 (3,500) (3,500) 83 21 702 84 2 827 The Group has no tax losses (2009: Nil) and no unrecognised temporary differences (2009: Nil) . 31 Notes to the Financial Statements For the 53 week period ended 31 January 2010 7. Earnings per share Basic earnings per share is computed by dividing net profit attributable to shareholders by the weighted average number of ordinary shares on issue during the period . Diluted earnings per share is computed by dividing net profit attributable to shareholders by the weighted average number of ordinary shares on issue during the period, adjusted to include the potentially dilutive effect if share options to issue ordinary shares were exercised and converted into shares . Group Parent Period ended 31 January 2010 Period ended Period ended 25 January 2009 31 January 2010 Period ended 25 January 2009 Net profit attributable to shareholders ($000) 21,026 11,634 12,959 13,310 Basic Weighted average number of ordinary shares on issue (thousands) 212,150 212,150 212,150 212,150 Basic earnings per share 9.9 cents 5 .5 cents 6.1 cents 6 .3 cents Diluted Weighted average number of ordinary shares on issue adjusted for share options issued but not exercised (thousands) 216,545 215,736 216,545 215,736 Diluted earnings per share 9.7 cents 5 .4 cents 6.0 cents 6 .2 cents 8. Cash and cash equivalents Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 Cash at bank or in hand 59,250 63,291 37,669 48,227 The carrying amount for cash and cash equivalents equals the fair value . At 31 January 2010 the Group had purchased foreign currency equivalent of NZD 3 .626 million (2009: NZD 1 .441 million) which is included in the table above . The foreign currency in which the Group primarily deals is the US dollar . Foreign currency cash – cash flow hedges (cash flow hedge reserve) These cash balances are used for hedging committed or highly probable forecast purchases of inventory for the ensuing financial year . The foreign currency purchases are held and allocated by calendar quarter to the highly probable forecast purchases which are timed to mature when major shipments of inventory are scheduled to be dispatched and the liability settled . The cash flows are expected to occur at various dates within one year from balance date . 32 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Where foreign currency balances have been designated and tested as an effective hedge, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in other comprehensive income . These gains or losses are released to the income statement at various dates over the subsequent financial year as the inventory for which the hedge exists, is sold . At balance date foreign currency losses of $243,363 (2009: gains of $362,892) in relation to foreign currency balances, were included in equity as part of the cash flow hedge reserve, net of deferred tax, as a net loss of $170,354 (2009: net gain of $254,094) . The cash flow hedge reserve also consists of gains and losses, net of deferred tax, from forward foreign exchange contracts used as hedges, as a net loss of $111,189 (2009: net gain of $3,006,908), refer note 3(c) . When foreign currency balances are not designated and tested as an effective hedge, the gain or loss as at balance date is recognised in the income statement . At balance date there are no such balances (2009: Nil) . 9. Trade and other receivables Group Parent Trade receivables Provision for impaired receivables Net trade receivables Other receivables Period ended 31 January 2010 $000 1,069 (6) 1,063 1,247 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 1,668 (26) 1,642 987 2,629 – – – 629 629 – – – 518 518 Total trade and other receivables 2,310 The fair value of trade and other receivables approximates their carrying value . No interest is charged on trade receivables . As at 31 January 2010, trade receivables of $180,807 (2009: $177,171) were past due but not considered impaired . These relate to a number of accounts for which there is no recent history of default . The aging analysis of these receivables is shown below: Receivables past due not impaired Group Parent Months past due: 0-3 4-6 6 + Total Period ended 31 January 2010 $000 180 1 – 181 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 171 3 3 177 – – – – – – – – There are no receivables that would otherwise be past due or impaired whose terms have been renegotiated . Period ended 25 January 2009 $000 33 Notes to the Financial Statements For the 53 week period ended 31 January 2010 As at 31 January 2010, trade receivables of $6,072 (2009: $25,960) were considered impaired . The amount of the provision is $6,072 (2009: $25,960) . The individually impaired receivables mainly relate to debtors who are experiencing financial difficulties . The aging of these impaired receivables which have been provided for is shown below: Receivables impaired Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 Months past due: 0-3 4-6 6 + Total 4 – 2 7 15 4 – – – – – – 6 26 – – Movements in the provision for impaired receivables are shown below: Group Parent Opening balance Provision for impaired receivables Receivables written off during the year Unused amounts reversed Closing balance Period ended 31 January 2010 $000 26 6 (21) (5) 6 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 60 80 (68) (46) 26 – – – – – – – – – – The creation and release of provision for impaired receivables have been included in ‘store expenses’ in the income statement . Amounts charged to the provision are generally written off when there is no expectation of recovering additional cash . The maximum exposure to credit risk at the reporting date is the fair value of receivables mentioned above . The Group does not hold any collateral as security . 34 Notes to the Financial Statements For the 53 week period ended 31 January 2010 10. Inventories Finished goods Inventory adjustments Net inventories Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 66,727 (3,374) 63,353 60,006 (2,546) 57,460 – – – – – – Inventory adjustments are provided at period end for stock obsolescence and store inventory shrinkage . 11. Investments in subsidiaries Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 (a) Investments Shares in subsidiaries Total Investments (b) Principal subsidiaries Name – – – – 2,783 2,783 2,783 2,783 Activity 2010 Interest 2009 Interest Briscoes (New Zealand) Limited The Sports Authority Limited (trading as Rebel Sport) Rebel Sport Limited Living and Giving Limited Homeware retail Sporting goods retail Name protection Name protection 100% 100% 100% 100% 100% 100% 100% 100% All companies above were incorporated in New Zealand and have a balance date consistent with that of the Parent as outlined in the accounting policies . 35 Notes to the Financial Statements For the 53 week period ended 31 January 2010 12. Property, plant and equipment Group Freehold land $000 Freehold buildings $000 Plant and equipment $000 At 27 January 2008 Cost Accumulated depreciation Accumulated impairment Net book value Period ended 25 January 2009 Opening net book value Additions Disposals Depreciation charge Closing net book value At 25 January 2009 Cost Accumulated depreciation Accumulated impairment Net book value Period ended 31 January 2010 Opening net book value Additions Disposals Depreciation charge Impairment adjustment Closing net book value At 31 January 2010 Cost Accumulated depreciation Accumulated impairment Net book value 9,324 – – 9,324 9,324 – – – 9,324 9,324 – – 9,324 9,324 3,722 – – – 13,046 13,046 – – 13,046 Total $000 94,604 (42,717) (148) 11,016 (1,755) – 74,264 (40,962) (148) 9,261 33,154 51,739 9,261 39 – (340) 8,960 11,055 (2,095) – 33,154 2,333 (52) (7,389) 28,046 75,555 (47,368) (141) 51,739 2,372 (52) (7,729) 46,330 95,934 (49,463) (141) 8,960 28,046 46,330 8,960 1,170 – (354) – 9,776 12,225 (2,449) – 28,046 1,466 (15) (6,799) (1,424) 21,274 76,989 (54,234) (1,481) 46,330 6,358 (15) (7,153) (1,424) 44,096 102,260 (56,683) (1,481) 9,776 21,274 44,096 The Parent has no property, plant and equipment . The Directors, having taken into consideration purchase offers, independent and government valuations and other known factors, have assessed the fair market value of freehold land and buildings to be $31 .90 million (2009: $28 .76 million) . 36 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Impairment tests For the purposes of assessing impairment, a cash generating unit (‘CGU’) is defined as the property, plant and equipment that can be grouped at the lowest level for which there are separately identifiable cash flows . Typically a CGU will represent a group of assets directly attributable to a specific store . An impairment loss is recognised for the amount by which an asset’s carrying amount exceeds its recoverable amount . Impairment testing is performed when certain trigger events indicate that an impairment in asset values may exist . The primary impairment indicator is the significant underperformance of a CGU in relation to management’s expectations . During this financial period the economic downturn has resulted in a number of CGUs significantly underperforming . For these CGUs, value-in-use is calculated using pre-tax cash flow projections based on financial forecasts and assumptions prepared by management covering a five year period . A terminal growth rate in perpetuity is adopted to take account of cash flows beyond the five year period . The key assumptions used for the value-in-use calculations are as follows: • Revenue growth 3.0% to 9.9% (2009: 2.7% to 16.1%) • Pre-tax discount rate 15.6% (2009: 13.0%) • Terminal growth rate 2.5% (2009: 3.0%) The revenue growth rates adopted reflect management’s expectations . The discount rate used reflects management’s estimate of the company’s weighted average cost of capital and the terminal growth rate reflects management’s estimate of the future rate of inflation . Based on the indicators and assumptions outlined above, eight CGUs associated with Living & Giving stores were determined to have asset carrying values in excess of the greater of either the CGU’s value-in-use calculation or the fair value less costs to sell of the CGU’s assets . Therefore an impairment adjustment equal to each of the impaired CGU’s asset carrying values, totaling $1,424,016 (2009: Nil) has been recognised in the income statement and is included within ‘store expenses’ . As part of the impairment testing process management have considered reasonably possible changes to key assumptions and believe that no further impairment adjustment to any other CGU is required . 37 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Computer Software $000 Brands $000 4,552 (1,467) 3,085 3,085 579 (54) (1,246) 2,364 4,853 (2,489) 2,364 2,364 335 (5) (1,282) – 1,412 5,107 (3,695) – 1,412 433 – 433 433 – – – 433 433 – 433 433 – – – (433) – 433 – (433) – Total $000 4,985 (1,467) 3,518 3,518 579 (54) (1,246) 2,797 5,286 (2,489) 2,797 2,797 335 (5) (1,282) (433) 1,412 5,540 (3,695) (433) 1,412 13. Intangible assets Group At 27 January 2008 Cost Accumulated amortisation Net book amount Period ended 25 January 2009 Opening net book amount Additions Disposals Amortisation charge Closing net book amount At 25 January 2009 Cost Accumulated amortisation Net book amount Period ended 31 January 2010 Opening net book amount Additions Disposals Amortisation charge Impairment adjustment Closing net book amount At 31 January 2010 Cost Accumulated amortisation Accumulated impairment Net book amount The Parent has no intangible assets . 38 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Impairment tests for indefinite life brands For the purposes of assessing impairment in relation to a brand value with an indefinite life, the carrying amount of the brand is compared to its recoverable amount . An impairment loss is recognised for the amount by which the carrying value exceeds its recoverable amount . On an annual basis, the recoverable amount of a brand is determined based on value-in-use calculations specific to the cash generating unit (CGU) associated with that brand . The defined CGU for the Living & Giving brand incorporates all Living & Giving stores . These calculations use pre-tax cash flow projections based on financial budgets and forecasts prepared by management covering a five year period . A terminal growth rate in perpetuity is adopted to take account of cash flows beyond the five year period . The key assumptions used for the value-in-use calculations for this brand are as follows: • Revenue growth rate: 3.0% to 9.9% (2009: 2.7% to 16.1%) • Pre-tax discount rate: 15.6% (2009: 13.0%) • Terminal growth rate: 2.5% (2009: 3.0%) The growth rates adopted reflect management’s expectations . The discount rate used reflects management’s estimate of the company’s weighted average cost of capital and the terminal growth rate reflects management’s estimate of the future rate of inflation . Based on the indicators and assumptions outlined above, the Living & Giving brand value was determined to have a carrying value in excess of the CGU’s value-in-use calculation . Therefore an impairment adjustment of $433,130 (2009: Nil) has been recognised in the income statement and is included within ‘store expenses’ . 14. Taxation (a) Deferred tax benefit Group At 27 January 2008 Credited/(charged) to the income statement Charged to other comprehensive income At 25 January 2009 Credited to the income statement Credited to other comprehensive income At 31 January 2010 Depreciation $000 Provisions $000 296 33 – 329 769 – 1,098 1,597 (148) – 1,449 23 – 1,472 Deritative financial instruments $000 49 – (1,446) (1,397) – 1,518 121 Total $000 1,942 (115) (1,446) 381 792 1,518 2,691 39 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Parent At 27 January 2008 Credited to the income statement At 25 January 2009 Charged to the income statement At 31 January 2010 Depreciation $000 Provisions $000 – – – – – 118 68 186 (3) 183 Derivative financial instruments $000 – – – – – Total $000 118 68 186 (3) 183 Net deferred tax asset / (liability) Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Deferred tax assets – to be recovered within 12 months – to be recovered after more than 12 months Deferred tax liabilities – to be settled within 12 months – to be settled after more than 12 months Deferred tax asset (net) 1,062 1,811 2,873 (182) – (182) 2,691 927 851 1,778 (1,397) – (1,397) 381 Period ended 25 January 2009 $000 186 186 161 22 – 183 – – – – – – 183 186 (b) Taxation payable Group Parent Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 2,059 (5,008) 2,044 110 (795) (258) (699) 828 116 (13) 250 (895) 277 110 (258) Movements: Balance at beginning of period Current tax Tax paid Foreign investor tax credit (FITC) Balance at end of period Period ended 31 January 2010 $000 (795) (11,071) 7,877 116 (3,873) 40 Notes to the Financial Statements For the 53 week period ended 31 January 2010 15. Trade and other payables Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 Trade payables Other payables and accruals Total trade and other payables 22,472 10,758 33,230 36,995 13,431 50,426 60 897 957 288 704 992 The fair value of trade and other payables approximates their carrying value . No interest is paid on payables . 16. Provisions Balance at beginning of period Charged to income statement Used during the period Balance at end of period Group Parent Period ended 31 January 2010 $000 49 53 (49) 53 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 35 49 (35) 49 – – – – – – – – The returned inventory provision relates to sales made to customers for goods directly imported by the Group, which are subsequently returned by customers . 17. Employee benefits Employee benefits include provision for annual leave, long service leave, sick leave and bonuses . Group Parent (a) Non-current liabilities Balance at beginning of period Charged to income statement Used during the period Balance at end of period (b) Current liabilities Balance at beginning of period Charged to income statement Used during the period Balance at end of period Period ended 31 January 2010 $000 427 82 (48) 461 3,937 8,639 (4,860) 7,716 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 349 141 (63) 427 3,741 4,996 (4,800) 3,937 66 7 – 73 716 1,758 (692) 1,782 39 48 (21) 66 459 632 (375) 716 41 Notes to the Financial Statements For the 53 week period ended 31 January 2010 18. Imputation credits Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 Imputation credit account balance 39,671 37,332 5,051 4,169 Imputation credit account movements: Balance at beginning of period Tax payments, net of refunds Credits attached to dividends received Distributed and disposed 37,332 7,968 2 2 (5,631) 40,936 2,027 (5,633) Balance at end of period 39,671 37,332 4,169 766 5,747 (5,631) 5,051 3,742 313 5,747 (5,633) 4,169 19. Share capital Group and Parent No. of authorised shares Share capital Period ended 31 January 2010 Shares Period ended Period ended 25 January 2009 31 January 2010 $000 Shares Period ended 25 January 2009 $000 Opening ordinary shares 212,150,000 212,150,000 Balance at end of period 212,150,000 212,150,000 40,625 40,625 40,625 40,625 All shares on issue are fully paid . All ordinary shares rank equally with one vote attached to each fully paid ordinary share and have equal dividend rights . No shares were issued during the period ended 31 January 2010 (2009: Nil) . 20. Dividends Group and Parent Period ended 31 January 2010 Cents per share Period ended Period ended 25 January 2009 31 January 2010 $000 Cents per share Period ended 25 January 2009 $000 Interim dividend for the period ended 31 January 2010 Final dividend for the period ended 25 January 2009 Interim dividend for the period ended 25 January 2009 Final dividend for the period ended 27 January 2008 2.00 3.50 – – 5.50 – – 1 .00 4 .50 5 .50 4,243 7,425 – – – – 2,121 9,547 11,668 11,668 All dividends paid were fully imputed . Supplementary dividends of $116,280 (2009: $110,314) were provided to shareholders not tax resident in New Zealand, for which the Group received a Foreign Investor Tax Credit entitlement . 42 Notes to the Financial Statements For the 53 week period ended 31 January 2010 21. Executive share options On 25 July 2003 the Board approved an Executive Share Option Plan to issue options to selected senior executives and, subject to shareholder approval, to Executive Directors . Options may be exercised in part or in full by the holder three years after the date of issue, and lapse after four years if not exercised . Each option entitles the holder to one ordinary share in the capital of the Company . The exercise price is determined by the Board but is generally set by reference to the weighted average market price of ordinary shares in the Company for the period of five business days before and five business days after, as the Board in its discretion sees fit, either: (a) the date on which allocations are decided by the Board; or (b) the date on which allocations are made . Payment must be made in full for all options exercised on the dates they are exercised . During the financial year the Company issued 1,560,000 options (2009: 1,430,000) to senior executives . The fair value of these options is estimated at $564,876 (2009: $229,658) under the Black Scholes valuation model using the following inputs and assumptions: • Risk free interest rate 4.77% (2009: 5.32%) • Expected dividend yield 5.07% (2009: 5.07%) • Expected life (years) 3.38 (2009: 3) • Expected share volatility 41.00% (2009: 34.50%) • Share price at grant date $1.18 (2009: $0.74) • Exercise price $0.95 (2009: $0.74) The estimated fair value for each tranche of options issued is amortised over the vesting period of three years, from the grant date . The Company has recognised a compensatory expense in the income statement of $256,159 (2009: $245,237) which represents this amortisation . Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: Balance at beginning of year Issued Forfeited Exercised Lapsed Balance at end of year Period ended 31 January 2010 Period ended 25 January 2009 Average exercise price $ per share Options 000 Average exercise price $ per share 1.16 0.95 1.38 – 1.24 1.09 4,159 1,560 (2) – (615) 5,102 1 .39 0 .74 1 .41 – 1 .38 1 .16 Options 000 3,634 1,430 (95) – (810) 4,159 Of the 5,102,000 outstanding options, 1,020,000 are currently exercisable (2009: 615,000) . 43 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Share options outstanding at the end of the year have the following expiry dates, exercise dates and exercise prices: Expiry Month Exercise Month Exercise Price November 2009 October 2010 December 2011 December 2012 November 2013 November October December December November 2008 2009 2010 2011 2012 Total share options outstanding $1 .24 $1 .48 $1 .38 $0 .74 $0 .95 Period ended 31 January 2010 000 Period ended 25 January 2009 000 – 1,020 1,092 1,430 1,560 – 5,102 615 1,020 1,094 1,430 4,159 Share options reserve Group Parent Period ended 31 January 2010 $000 Period ended Period ended Period ended 25 January 2009 31 January 2010 25 January 2009 $000 $000 $000 Balance at beginning of year Current year amortisation Options forfeited and lapsed transferred to retained earnings Balance at end of year 486 256 (162) 580 440 245 (199) 486 486 256 (162) 580 440 245 (199) 486 22. Related party transactions During the period the Company advanced and repaid loans to its subsidiaries by way of internal current accounts . In presenting the financial statements of the Group, the effect of transactions and balances between fellow subsidiaries and those with the Parent have been eliminated . All transactions with related parties were in the normal course of business and provided on commercial terms . Material transactions between the Company and its subsidiaries were: Period ended 31 January 2010 $000 Period ended 25 January 2009 $000 Management fees charged by the Company to: Briscoes (NZ) Limited The Sports Authority Limited Total management fees 7,825 3,707 11,532 Dividends received by the Company from Briscoes (NZ) Limited 11,668 7,554 3,467 11,021 11,668 44 Notes to the Financial Statements For the 53 week period ended 31 January 2010 Material amounts outstanding between the Company and its subsidiaries at year end were: Loan (to) / from the Company (from) / to Briscoes (NZ) Limited Loan (to) / from the Company (from) / to The Sports Authority Limited Total loans (to) / from the Company (from) / to subsidiaries Period ended 31 January 2010 $000 10,808 1,609 12,417 Period ended 25 January 2009 $000 (300) (73) (373) In addition the Group undertook transactions with the related interests of the majority shareholder as detailed below: • The RA Duke Trust, of which Mr RA Duke and Mr AJ Wall are trustees, as owner of the Rebel Sport premises at Panmure, Auckland, received rental payments of $547,999 (2009: $535,479) from the Group, under an agreement to lease premises to The Sports Authority Limited . • The RA Duke Trust received dividends of $8,750,225 (2009: $8,749,275). • Patricia Duke, spouse of the Managing Director, received payments of $65,000 (2009: $65,000) in relation to her employment as an overseas buying specialist with Briscoe Group Limited . • The Hualian Trust, of which Patricia Duke is a trustee, received dividends of $69,575 (2009: $69,228) Directors received directors’ fees and dividends in relation to their personally held shares as detailed below: Executive Director Mr RA Duke Mr AJ Wall Non Executive Directors Mr SH Johnstone Ms RP Meo Mr RJ Skippen Period ended 31 January 2010 Period ended 25 January 2009 Directors’ Fees $000 Dividends $000 Directors’ Fees $000 Dividends $000 – – 40 80 40 160 – 12 55 – – 67 – – 40 80 40 160 – 12 55 – – 67 45 Notes to the Financial Statements For the 53 week period ended 31 January 2010 The following Directors received dividends in relation to their non-beneficially held shares as detailed below: Executive Director Mr RA Duke1 . Mr AJ Wall2 . Non Executive Directors Mr SH Johnstone Ms RP Meo3 . Mr RJ Skippen Period ended 31 January 2010 $000 Period ended 25 January 2009 $000 8,750 68 8,749 68 – – 6 6 – – 8,824 8,823 1. The RA Duke Trust, of which Mr RA Duke and Mr AJ Wall are trustees, received dividends of $8,750,225 during the period (2009: $8,749,275) 2. The Tunusa Trust, of which Mr AJ Wall is a trustee, received dividends of $67,650 during the period (2009: $67,650). 3. Shares previously personally held by Ms RP Meo are now held in trust. Key management compensation was as follows: Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 Salaries and other short term employee benefits Share options benefit Directors’ fees Total benefits 2,673 111 160 2,944 1,924 114 160 2,198 2,673 111 160 2,944 1,924 114 160 2,198 Key management includes the Directors of the Company and those employees who the Company have deemed to have disclosure obligations under Section 19T of the Securities Markets Act 1988 . The amounts disclosed reflect the changes made to Section 19T effective from 9 October 2008 . Comparatives have been amended to also reflect this . In the 2009 Annual Report Directors’ fees were disclosed separately from key management compensation in the related party transactions note . Key management did not receive any termination benefits during the period (2009: Nil) . In addition key management did not receive and are not entitled to receive any post employment or long term benefits (2009: Nil) . 46 Notes to the Financial Statements For the 53 week period ended 31 January 2010 23. Capital expenditure commitments Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 Commitments at the end of the period not provided for in the financial statements 25 185 – – 24. Operating lease rental commitments Group Parent Period ended 31 January 2010 $000 Period ended Period ended 25 January 2009 31 January 2010 $000 $000 Period ended 25 January 2009 $000 Lease commitments expire as follows: Within one year One to two years Two to five years Beyond five years 24,837 21,464 39,808 15,050 24,247 21,036 43,381 23,827 Total operating lease rental commitments 101,159 112,491 – – – – – – – – – – The Group leases various retail outlets under non-cancellable operating lease agreements . The leases reflect normal commercial arrangements with varying terms, escalation clauses and renewal rights . 25. Contingent liabilities There were no contingent liabilities as at 31 January 2010 (2009: Nil) . 26. Events after balance date On 9 March 2010 the Directors resolved to provide for a final dividend to be paid in respect of the year ended 31 January 2010 . The dividend will be paid at a rate of 5 .00 cents per share on issue as at 24 March 2010, with full imputation credits attached . 47 Auditors’ Report Auditors’ Report To the shareholders of Briscoe Group Limited We have audited the financial statements on pages 7 to 47. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the period ended 31 January 2010 and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 13 to 21. This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205 (1) of the Companies Act 1993. Our audit has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinion we have formed. Directors’ Responsibilities The Company’s Directors are responsible for the preparation and presentation of the financial statements which give a true and fair view of the financial position of the Company and Group as at 31 January 2010 and their financial performance and cash flows for the period ended on that date. Auditors’ Responsibilities We are responsible for expressing an independent opinion on the financial statements presented by the Directors and reporting our opinion to you. Basis of Opinion An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: (a) the significant estimates and judgements made by the Directors in the preparation of the financial statements; and (b) whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently applied and adequately disclosed. We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacity as auditors and providers of other assurance services. Unqualified Opinion We have obtained all the information and explanations we have required. In our opinion: (a) proper accounting records have been kept by the Company as far as appears from our examination of those records; and (b) the financial statements on pages 7 to 47: (i) (ii) (iii) give a true and fair view of the financial position of the Company and Group as at 31 January 2010 and their comply with generally accepted accounting practice in New Zealand; comply with International Financial Reporting Standards; and financial performance and cash flows for the period ended on that date. Our audit was completed on 9 March 2010 and our unqualified opinion is expressed as at that date. Chartered Accountants Auckland 48 Corporate Governance Role of the Board The Board of Directors (“the Board”) of Briscoe Group operational reports summarising the Company’s activities including key performance indicators . In Limited (“the Company”) is elected by shareholders addition, the Board receives regular briefings from the to oversee the management of the Company and its management team on key strategic and performance subsidiaries and to direct performance in the long term issues either as part of regular Board meetings or in best interests of the Company and its shareholders . specific briefing sessions . The focus of the Board is the creation of company and shareholder value and ensuring the Company is managed in accordance with best practice . Corporate Board Membership The Company’s constitution sets out policies and governance is continually reviewed and updated in procedures on the operation of the Board including accordance with good business practice . the appointment and removal of Directors . The NZSX Listing Rules and the Company’s constitution provide The principal responsibilities of the Board are to: that a minimum of three Directors is required, of whom • establish the Company’s objectives and review the at least two shall be independent . Currently the Board major strategies for achieving these objectives; comprises five Directors, being an independent Non- • establish an overall policy framework within which Executive Chairman, the Group Managing Director, the the Company conducts its business; Deputy Managing Director and two independent Non- • review management’s performance including Executive Directors . approval of and monitoring against budget; The Board acknowledges the importance of independent • ensure that Group financial statements are prepared and Directors in ensuring an optimal balance between Board presented to give a true and fair view of the Group’s members who are able to bring a wide range of business financial position, financial performance and cash flows; experience and skills and those with direct company • ensure effective policies and procedures are in place knowledge and operational responsibility . to safeguard the integrity of the Company’s financial Under the constitution, one third of Directors must retire reporting; by rotation at the Annual Meeting each year but, if eligible, • ensure that any significant risks facing the Company may offer themselves for re-election . The Group Managing are identified and that appropriate risk management Director, in his capacity as an executive director, is programmes are in place to control and report on exempt from the requirement to retire by rotation . these risks; Pursuant to NZSX Listing Rule 3 .3 .5, the Company • ensure that the Group operates in accordance is required to make an announcement to the market with New Zealand laws, regulations, the listing advising the closing date for Director nominations . That rules (including the continuous disclosure regime), announcement must be no less than 10 business days professional standards and contractual obligations; prior to the closing date and the closing date must be and not more than 2 months prior to the Annual Meeting . • report to shareholders and other key stakeholders. The Board undertakes to meet at least ten times during the financial year . For the year ending 31 January 2010 The Board has delegated day-to-day management of the Board met twelve times . the Company to the Group Managing Director and Profiles of the current Directors appear on page 52 of other executives of the Company . Operational and this report . administrative policies relative to the Company’s business are in place and the Company has an internal audit system for monitoring the Company’s operational policies and practices . Board Review The Board annually reviews its performance, and that of Board committees, to ensure that the Board and its The Chairman, Managing Director and Deputy committees are performing satisfactorily and meeting Managing Director determine the agenda for Board their respective objectives . In addition, the performance meetings . On a monthly basis, the Board receives of individual Directors is also subject to review with a 49 particular emphasis on those Board members who are including for ensuring that the Company’s business due to retire by rotation and wish to seek re-election . divisions provide the auditors with timely and accurate The review process also assists with the process of information and full access to the Company’s records . In identifying the training needs, if any, of Board members addition, the auditors are able to communicate directly to ensure that they remain current on how to best with the chairman of the Audit Committee at any time . perform their duties as a director . Board Committees There are two formally constituted committees to Human Resources Committee The Human Resources Committee comprises two independent Directors – Rosanne Meo (Chairman) provide specific input and guidance to particular areas and Stuart Johnstone, as well as the Group Managing of corporate governance; the Audit Committee and the Director, Rod Duke . Human Resources Committee . The Committee is responsible for ensuring the Company The committees meet as required and operate under has a sound remuneration policy framework and that specific charters which are reviewed and approved by there is an environment within which management talent the Board annually, setting out committees’ roles and and potential can be identified, assessed and developed . responsibilities . In order to fulfil its responsibilities, each committee is empowered to seek any information it requires from employees and to obtain such Nominations and Governance Briscoe Group does not have a formally constituted independent legal or other professional advice it may Nominations and Governance Committee . The Board deem necessary . The proceedings of the committees are views the responsibilities usually associated with this reported to the Board . These charters are published on committee as a collective responsibility and those our website at www .briscoegroup .co .nz . matters are included as part of its primary role of Audit Committee The Audit Committee comprises three independent overseeing the management and performance of the Company . Each director undertakes to ensure they have the necessary time and resources required to enable Directors – Stuart Johnstone (Chairman), Rosanne Meo them to meet the responsibilities associated with their and John Skippen . The Committee assists the Board directorship . Specific requirements of governance are in fulfilling its responsibilities for Company financial addressed at Board meetings during the course of the statements and external financial reporting . year . These specific requirements include ensuring The Committee is responsible to the Board for reviewing the Board contains an appropriate mix of skills and the Company’s accounting policies and financial experience, making recommendations to the Board statements, promoting integrity in financial reporting, on new Directors for nomination, determining the reviewing the adequacy and effectiveness of the independence of Directors, and ensuring the Company Company’s internal controls and recommending the maintains a high level or corporate governance . appointment of, as well as reviewing the performance and recommendations of the external auditors . In turn, the Company’s management team makes representations Independent Directors Under the Corporate Governance requirements of NZX to the Audit Committee and the Board, as to the Limited (“NZX”), a listed company must identify which completeness and accuracy of the Company’s financial of its Directors are determined by the Board to be statements . independent . The Audit Committee is responsible for determining whether The current board and committee memberships potential engagements of the auditors are appropriate in are detailed below together with the independence the context of seeking to prevent audit independence from classification as determined by the Board, in accordance being impaired (or being seen to be impaired) . with the guidelines issued by NZX . As a relatively small The Chief Financial Officer is responsible for the board, there is a clear understanding of the required Company’s day to day relationship with the auditors, roles and expectations of the Independent Directors . 50 Board Composition as at April 2010 Director Classification Committee membership Rosanne Meo Rod Duke Stuart Johnstone John Skippen Alaister Wall Independent (Chair) Executive Independent Independent Executive Audit committee Member – Chair Member – Human Resources committee Chair Member Member – – Board Remuneration Shareholders are asked to approve the level of Director’s • Accuracy of records; • Compliance with any applicable laws, regulations fees from time to time . In keeping with its views in and rules; and relation to nominations, rather than have a separate • Fair dealing with customers, employees, suppliers Remuneration Committee (governed by a charter), the and competitors . Board as a whole takes responsibility for monitoring developments in the New Zealand market and The Board is responsible for reviewing the Code of recommending remuneration packages for Directors to Conduct and adherence to it . the Company’s shareholders . Fees are established to be in line with those of New Zealand based organisations of a similar scope and size to the Company . Trading in Briscoe Group Securities The Company has adopted a formal procedure governing the sale and purchase of the Company’s Code of Conduct The Board has adopted a corporate Code of Conduct, securities by Directors and employees . All Directors and employees must act in accordance with this procedure available on our website www .briscoegroup .co .nz . The and the requirements of the Securities Markets Act 1988 . Code of Conduct defines the levels of ethical business The procedure requires employees to obtain the written practice expected of the Board and within the Company consent of a Director, or in the case of a Director, (including employees and contractors) . The Company of the Chairman of the Board, prior to trading in the ensures that all new employees are aware of the Code Company’s shares . Generally, this consent will only of Conduct and are provided with relevant training . In be given in respect of trading in the 60 day period addition, the Code of Conduct addresses compliance following the announcement of the Company’s half year standards and procedures, provides mechanisms and annual results . for reporting unethical behaviour and ensures that disciplinary measures are available to address any violations . It covers: • Conflicts of interest; • Confidentiality; • Payments, gifts and entertainment; • Trading in company securities; • Workplace principles; • Use of company information and assets; Risk Management As an integral part of its role of overseeing the management of the Company and its subsidiaries, the Board approves the Company’s risk management policies and receives regular reports to monitor the Company’s risk management performance relative to these policies, with particular emphasis on the following categories of risk: • Obligations to act honestly and in the best interests • Operating Risks: risks associated with the Company’s of the Company as required by law; • Delegation of authority; business operations and the personnel conducting those operations; 51 General Disclosures • Business Risks: risks associated with the markets Board of Directors and business activities conducted by the Company (including compliance with regulatory requirements); Rosanne Meo: Chairman (Non-Executive) and Director of AMP Life Limited, Overland Footwear Limited • External Risks: risks associated with external forces and Kelliher Charitable Trust . Chairman of the Auckland such as interest rate and foreign exchange exposure . Philharmonia Orchestra . Effective Communication The Board places great importance on effective Rod Duke: Group Managing Director and Deputy Chairman communications to the Company’s shareholders and Group Managing Director since 1991 . employees and the market generally . As a result, in addition to making the required release of annual and Alaister Wall: Deputy Managing Director half-yearly results, the Company makes quarterly sales Executive of Group since 1982 . Director of Cure Kids . releases . The Company regularly reviews its practices to ensure it clearly communicates its goals, strategies and performance . This information is made available to the NZX and also to a variety of media, including by means Stuart Johnstone: Director (Non-Executive) Investment Banker and Company Director . of the Company’s website . John Skippen: Director (Non-Executive) The Board encourages shareholder attendance at the Non-Executive Director of Australian listed companies, Company’s Annual Meeting and welcomes shareholder Flexi Group Limited and Super Cheap Auto Group Limited . debate on all matters of significance affecting the Company and its business . NZX Corporate Governance Best Practice Code The Company’s corporate governance practices Subsidiary Companies Rod Duke and Alaister Wall are Directors of the following subsidiaries: Briscoes (NZ) Limited, The Sports Authority Limited trading as Rebel Sport, Rebel Sport Limited, conform with the guidelines set down in the NZX Living and Giving Limited . Stuart Johnstone is a Director Corporate Governance Best Practice Code in almost all of The Sports Authority Limited . respects . The areas in which the Company’s practices depart from that Code are confined to the absence of specific training requirements for Directors, the Financial Statements The financial statements for the Parent and Group for the lack of a Nominations Committee and the absence of year ended 31 January 2010 are shown on pages 7 to 47 Director remuneration by means of a performance- in this report . based equity remuneration plan . The Board as a whole takes responsibility for monitoring developments in the New Zealand market and recommending remuneration Changes in Accounting Policies In preparing these financial statements the accounting packages for Directors to the Company’s shareholders policies outlined in Note 1 to the financial statements rather than delegating this function to a Remuneration have been applied . Committee pursuant to a written charter . There were no significant changes in accounting policies during the year . 52 Principal Activities of the Group Briscoe Group Limited is a non-trading holding company, B. Shareholdings Beneficially Held but provides management services to its subsidiaries . SH Johnstone Limited . There were no changes in company structure RJ Skippen The principal trading subsidiaries are Briscoes (New Zealand) Limited, a specialist homeware retailer selling leading branded products, and The Sports Authority Limited, trading as Rebel Sport, New Zealand’s largest retailer of most leading brands of sporting goods . The subsidiaries are 100% owned by Briscoe Group during the year . Review of Operations A. Results for the Year Ended 31 January 2010 Sales Revenue Group $000 416,686 Parent $000 – AJ Wall As at 12 March 2010 1,000,000 220,000 Non-Beneficially Held As at 12 March 2010 RA Duke and AJ Wall as Trustees of the RA Duke Trust 159,095,000 AJ Wall RP Meo SH Johnstone C. Share dealings – 1,230,000 100,000 5,000 During the year the Directors did not acquire or dispose of any shares in the Company . Profit Before Income Tax 31,305 13,661 Income Tax (10,279) (702) D. Interests in contracts Profit After Income Tax 21,026 12,959 During the year the following Directors have declared B. Dividends pursuant to Section 140 (1) of the Companies Act 1993 that they be regarded as having an interest in the Subsequent to balance date, the Directors have declared following transactions: a final dividend of 5 .00 cents per share payable • Payment of rental of $547,999 (2009: $535,479) on the 31 March 2010 . Non resident shareholders of the Group retail property of which the RA Duke Trust is the owner . will also receive a supplementary dividend of 0 .8824 (Refer to Note 22 of the financial statements) . cents per share . Dividends are fully imputed to New Zealand resident shareholders . E. Interests in Executive Share Options Executive Share Options Plan (refer to Note 21 of the financial statements) . Options outstanding as at balance date are as follows: Expiry Exercise Exercise No. Date Date Price AJ Wall: Oct 2010 Oct 2009 $1 .48 150,000 Dec 2011 Dec 2010 $1 .38 150,000 Dec 2012 Dec 2011 $0 .74 150,000 Directors A. Remuneration and all other benefits relating to the year ending 31 January 2010 ($000) Non Executive Directors RP Meo SH Johnstone RJ Skippen Executive Directors RA Duke (Managing Director) AJ Wall (Deputy Managing Director) 80 40 40 631 432 Executive Directors do not receive Directors’ fees . 53 F. Directors’ Insurance As provided by the Group’s Constitution and in Remuneration to Auditors The fee for the audit of the Group and subsidiaries paid to accordance with Section 162 of the Companies Act 1993 PricewaterhouseCoopers was $80,000 (2008: $78,000) . the Group has arranged Directors’ and Officers’ Liability Fees paid to the auditors for other services provided Insurance which ensures Directors will incur no monetary amounted to $26,000 (2009: $18,500) . loss as a result of actions undertaken by them as Directors provided they act within the law . Shareholders Information G. Directors’ and Officers’ use of Company Information Holding Range at 12 March 2010 During the period the Board received no notices pursuant to Section 145 of the Companies Act 1993 relating to use of Company information . State of Affairs The Directors are of the opinion that the state of affairs No. Investors Total Holdings % 1-1,000 977 706,244 0 .33 1,001-5,000 1,322 3,846,052 1 .81 5,001-10,000 10,001-100,000 340 244 2,779,204 1 .31 6,569,753 3 .10 of the Group is satisfactory . Details of the period under 100,001 and over 29 198,248,747 93 .45 2,912 212,150,000 100% Substantial Security Holders The following information is given pursuant to section 26 of the Securities Markets Act 1988 . The persons who, according to the records of the company maintained pursuant to section 25 of the Securities Markets Act 1988, are substantial security holders of the Company as at 12 March 2010 are as follows: Substantial Security Holders No. of shares Percentage RA Duke and AJ Wall as Trustees of the RA Duke Trust 159,095,000 75 .0% review are included in the Chairman’s Review, the Managing Director’s Review of Operations and the audited financial statements . Employee Remuneration The number of employees within the Group (other than Directors) receiving remuneration and benefits above $100,000, relating to the period ending 31 January 2010, are indicated in the following table: Number of Employees $100,000 – 109,999 $110,000 – 119,999 $120,000 – 129,999 $130,000 – 139,999 $140,000 – 149,999 $150,000 – 159,999 $160,000 – 169,999 $200,000 – 209,999 $220,000 – 229,999 $230,000 – 239,000 $250,000 – 259,000 $280,000 – 289,999 $290,000 – 299,000 $320,000 – 329,999 $360,000 – 369,999 $480,000 – 489,000 $510,000 – 519,000 7 6 6 4 3 5 1 1 2 1 1 1 1 1 1 1 1 54 Top 20 Holder List As at 12 March 2010 Rank Holder’s Name Total % 1 2 3 Portfolio Custodian Limited (RA Duke Trust) . . . . . . . . . . . . . . . . . . . . 159,095,000 . . . . . . . . 74 .99 New Zealand Central Securities Depository Limited . . . . . . . . . . . . . . . 11,557,001 . . . . . . . . . 5 .45 Portfolio Custodian Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,964,239 . . . . . . . . 3 .28 4= Gerald Harvey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,250,000 . . . . . . . . . 2 .47 4= Harvey Norman Properties (NZ) Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,250,000 . . . . . . . . 2 .47 6 7 Portfolio Custodian Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,265,000 . . . . . . . . . 0 .60 Alaister John Wall, Beverley Ann Wall and Benedict Douglas Tauber as Trustees of the Tunusa Trust established for the benefit of the family of AJ and BA Wall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,230,000 . . . . . . . . 0 .58 8 Custodial Services Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,010,000 . . . . . . . . . 0 .48 9= Stuart Hamilton Johnstone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 . . . . . . . . . 0 .47 9= Hugh Green Investments Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 . . . . . . . . . 0 .47 11 FNZ Custodians Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 761,167 . . . . . . . . . 0 .36 12 Gemscott Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 . . . . . . . . 0 .24 13 Investment Custodial Services Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,096 . . . . . . . . . 0 .19 14 Keith Arthur William Brunt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 . . . . . . . . . 0 .14 15 Invia Custodian Pty Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299,997 . . . . . . . . . 0 .14 16 Alaister John Wall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,000 . . . . . . . . 0 .10 17 Advertising Works Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206,833 . . . . . . . . . 0 .10 18 Jontee Farms Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,684 . . . . . . . . 0 .09 19= Douglas Gordan Brown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 . . . . . . . . 0 .09 19= Keith A W Brunt and Glenda Brunt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 . . . . . . . . 0 .09 A number of the registered holders listed above hold shares as nominees for, or on behalf of, other parties. 55 Calendar Annual Balance Date . . . . . . . . . . . . January Preliminary Profit Announcement . . . March Annual Report Published . . . . . . . . April Final Dividend . . . . . . . . . . . . . . . . . 31 March 2010 Annual Meeting . . . . . . . . . . . . . . . . 20 May 2010 Half Year Results . . . . . . . . . . . . . . . September Interim Dividend . . . . . . . . . . . . . . . October Directory Directors Rosanne P Meo (Chairman) Rodney A Duke Stuart H Johnstone R John Skippen Alaister J Wall Registered Office 36 Taylors Road Morningside Auckland Telephone (09) 815 3737 Facsimile (09) 815 3738 Postal Address PO Box 884 Auckland Mail Centre Auckland Solicitors Simpson Grierson Bankers Bank of New Zealand Auditors PricewaterhouseCoopers Share Registrars Link Market Services Limited National Bank Chambers 138 Tancred Street PO Box 384 Ashburton Telephone (03) 308 8887 Websites www .briscoegroup .co .nz www .briscoes .co .nz www .rebelsport .co .nz www .livingandgiving .co .nz 56 

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