Annual Report for the period ended 27 January 2013 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 General Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Top 20 Holder List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Key Facts Audited Audited period ending period ending 29 January 2012 $000 27 January 2013 $000 Audited period ending 30 January 2011 $000 Audited period ending 31 January 2010 $000 Audited period ended 25 January 2009 $000 452,702 438,037 419,294 416,686 388,467 Trading Results Sales Revenue Gross profit margin Earnings before interest and tax (EBIT) Net profit after tax (NPAT) Net cash flows from operating activities Financial Position and Statistics Shareholders' funds Total assets EBIT per share NPAT per share Operating cashflow per share Current ratio 40.0% 40,970 30,468 31,406 39.5% 36,666 27,529 42,030 128,581 191,831 141,212 207,305 19.2c 14.3c 14.7c 2.3:1 17.2c 12.9c 19.7c 2.4:1 Shareholders' funds to total assets 67.0% 68.1% 39.8% 32,755 21,612 45,264 131,886 191,119 15.4c 10.2c 21.3c 2.5:1 69.0% 39.9% 30,118 21,026 14,910 127,621 173,707 14.2c 9.9c 7.0c 2.7:1 73.5% 38.6% 15,113 11,634 28,099 121,550 177,184 7.1c 5.5c 13.2c 2.3:1 68.6% Store Numbers Homeware Sporting Goods Briscoe Group Total Store Area (m2) Homeware Sporting Goods Briscoe Group 48 32 80 47 32 79 54 32 86 58 32 90 57 32 89 93,014 51,884 90,615 51,417 93,964 53,204 94,852 53,714 94,602 53,714 144,898 142,032 147,168 148,566 148,316 1 Chairman’s Review We are pleased to present the Directors’ Reports on the ability to take advantage of acquisition or expansion financial and operational performance of Briscoe Group opportunities should they crystallise. Consequently at Limited for the 52 week period ended 27 January 2013. the company’s Annual Meeting in May 2012 the Board The 2012-13 year was again one of significant growth for the Group and despite a continuation of the very challenging and competitive retail market in which the Group operates, we were delighted to announce, during March, another record full year profit for the Group. This result continues the strong profit growth produced by the Group for the previous three years and reflects a range of initiatives implemented during that time. announced the payment of a special dividend of 10.0 cents per share. This resulted in a payment to shareholders in June 2012 totaling $21,368,750 while retaining cash balances at a level the Board was comfortable with. We continue to seek acquisition and expansion opportunities and this remains the most preferred potential use of surplus cash as has been indicated previously to the market and shareholders. Constant focus on inventory management, cost control, During the previous year we launched fully transactional people development, promotional planning, operational websites for all three of the Group’s brands and during structure and expansion of our online operations has 2012/13 we realised a significant lift in sales for our delivered this consistency in growth and underpins our online stores. Our websites are also having a strongly commitment to continually reinforce our unique value positive impact on in-store sales as increasing numbers proposition. We always strive to drive all our businesses of customers research online ahead of making purchases. to ensure customers have the best possible choice of product and that they have a great in-store experience. It’s clear that to attract customers it is essential to provide a compelling value proposition. The Group remains in a very strong financial position with $78 million of cash balances at year end and no interest-bearing liabilities. During the year we opened two new stores, continued our ongoing store refurbishment This past year provided some important highlights for programme and made increased levels of distributions the Group. Not the least of these was the performance of Rebel Sport given the strong comparatives we were up against from the Rugby World Cup but also the increased competition as a result of the entrance to the market of a new outdoor retailer increasing the competition across the fishing, camping and outdoor categories. For Rebel Sport to deliver positive same store sales as well as significant increases to gross profit margin and earnings before interest and tax is extremely satisfying. Another exceptional highlight for the Group was the celebrations to mark the 150 year anniversary of the Briscoes brand. These culminated in a special dinner to shareholders. We actively pursue and evaluate opportunities to generate increased future returns with expansion through acquisition or store rollout continuing to be evaluated on the basis of the potential to add value to Briscoe Group and its shareholders. Financial performance Sales revenue increased by 3.35 percent to $452.70 million, compared with $438.04 million previously. On a same store basis, sales increased for the year by 2.59 percent. Gross profit increased from $173.10 million to $181.10 million, equating to a gross profit margin of 40.0 percent compared with 39.5 percent for the previous year. attended by a number of present and past employees Net Profit After Tax (NPAT) was $30.47 million compared as well as many of our loyal suppliers. The event was to the $27.53 million for last year, an improvement of combined with our annual fundraising function in 10.7 percent on last year’s reported NPAT. support of our charity of choice, Cure Kids. We are immensely proud of this important milestone for the Briscoes brand making it one of New Zealand’s most recognisable, trusted and indeed iconic retailing brands. During the year the Board recognised that the Group’s cash balances had increased to an extent that a distribution of cash back to shareholders was possible without impeding the Board’s conservative approach to funding and without being an impediment to the Group’s The results were for the 52 week period from 30 January 2012 to 27 January 2013 compared to the 52 week period last year from 31 January 2011 to 29 January 2012. Inventories were $64.57 million at 27 January 2013, being $2.51 million higher than the $62.06 million reported for last year, due to the increase in inventory holding for product directly imported by the Group as well as the two new stores opened during the year. 2 Net cash inflows from operating activities were $31.41 relation to the share options issued by the Group as and million, $10.62 million below those of last year, when options are exercised or lapse. primarily as a result of higher inventory balances due to new store openings and increased payments to suppliers reflecting increased sales volume and timing of creditor payments at year-end. Further details of the Executive Share Options Plan can be found in Note 21 (page 43) of the financial statements contained within this Annual Report. Net cash outflows from investing activities were $5.80 million reflecting investment made in store fit-outs and refurbishments during the year. Community Sponsorship At Briscoe Group we pride ourselves on being a responsible and socially aware corporate citizen. Dividend The directors resolved to pay a final dividend of 7.00 cents per share (cps), fully imputed. When added to the interim dividend of 4.00 cps, this brings the total dividend for the year to 11.00cps, representing 77% of the Group’s tax paid earnings (excluding the special dividend payment made in June 2012). During the last four years the Group has paid out 78% of tax paid earnings in normal dividends and 100% when the special dividend is included. The directors approved the final dividend payment date of 27 March 2013 and the share register closed to determine entitlements to the dividend at 5 pm on 22 March 2013. We are proud to be a key partner of Cure Kids and believe it’s important to put our support and resources behind a cause that fits our values. To date we have raised in excess of $2.8 million to help them fund leading-edge research to enhance the quality of life for thousands of Kiwi children and their families. Alaister Wall, Deputy Managing Director of Briscoe Group continues as a director of Cure Kids, with support for the charity also coming from throughout the Group and from Group suppliers and other parties we work with. In addition to our alignment with Cure Kids we support a wide variety of local community based charities, sports clubs and other initiatives by donating product to support fundraising efforts. Executive Share Option Plan The Board is of the view that all shareholders benefit As part of the recent 150 year celebrations and to recognise that every great organisation is dependent from the issue to key senior executives of long-term, on its great people, we announced our intention for appropriately-priced share options that crystallise only Briscoe Group to establish an Education Foundation on delivery of increased shareholder value. In 2003 the in the form of scholarships to eligible selected Briscoe Group established an Executive Share Option Plan to Group employees or their children. The purpose of issue options to selected senior executives and, subject to the scholarships will be to encourage tertiary level shareholder approval, to Executive Directors. The Board study predominantly in New Zealand among deserving intends to issue up to a further 1,600,000 options in the employees of the Company or their children, in a field current 2013-14 financial year. This will result in the that is important or complementary to a core function of total number of share options issued under the scheme the business. since its inception and still exercisable being equivalent to 2.2 percent of the current issued share capital. The first four tranches of options, issued between 2003 and 2006 have now lapsed with no options being exercised. The fifth tranche expired on 14 December 2011 with 432,500 options being exercised from the original 1,139,000 options issued. The sixth tranche expired on the 28 November 2012 with 1,115,000 being exercised from the original 1,430,000 options issued. The seventh tranche became exercisable at a price of $0.95 each from 27 November 2012. Of the 1,560,000 options issued in that tranche, 313,000 are still exercisable at the time of writing this report. The Directors, Management and Staff In addition to participating in formal monthly Board meetings throughout the year, the directors attended other meetings of directors and regular meetings of the Board’s Audit and Human Resources Committees. On behalf of my fellow directors, I wish to acknowledge the enormous contributions of all employees to the Group’s performance during the year. Their contributions are sincerely appreciated. holders have until 27 November 2013 to exercise them. The necessary disclosures will continue to be made in Dame Rosanne Meo, CHAIRMAN 3 Managing Director’s Review of Operations Introduction We are very pleased to have produced another record The Sales and Service programme, which we piloted and launched early in the year, helped our store based profit for Briscoe Group, achieved in a very competitive business managers to focus their teams on improving the market. The result continues the strong profit growth level of service offered to customers. While recognising produced by the Group for the previous three years and we have more to do to optimise our service offering, reflects a range of initiatives implemented during that we have made excellent progress in most stores during time. Our key drives throughout the year were: • To continually improve the quality and value of product ranges, • To generate relevant promotions that have strong impact and that offer customers great product at great prices, the past year. With the programme now firmly fixed in our business we have a vehicle that we can use to drive service improvements and assist us to enhance areas we believe will maximise returns for our shareholders. The Profit Centre structure continues to be refined to ensure the stores have the most suitable people with the best possible use of resources within each profit centre. We made a number of changes at Business • To continue to develop our inventory management Manager level to ensure we are continually up-skilling, processes to improve stock-turn and product refreshing, challenging and developing these important availability for customers, members of the management team. • To keep costs in all areas of business firmly under The business we drive through our transactional control, and • To continually improve the level of service offered to customers every time they choose to purchase from us. The mix of incentives we offer to our management team underpins these retail basics and the progress made in these areas has once again resulted in improved profitability for Briscoe Group against a tough trading background. The increase in profit will result in significant rewards to our key people through the Group’s incentive scheme, which will also motivate and focus the team on maximising profitability as we move through the current financial year. Stock-turn for Briscoe Group improved again during a year in which we increased the amount of product we imported directly, as a result of the margin opportunity websites has continued to grow as we further develop our understanding of the best ways to develop this important sales channel. We are very excited by the opportunities offered through the online channel and will continue to improve the offer by making the online experience more efficient and attractive, and the websites easier to use. Everyone at Briscoe Group was particularly pleased and proud when our Salisbury Street Briscoes Homeware store reopened in August thereby making Briscoe Group one of the first major retailers to rebuild and reopen a large format store since the February 2011 earthquake. In addition to this, the extension and complete refurbishment of the Briscoes Homeware store at Hornby further reinforced the Groups’ commitment to this region and ensures it is well positioned to serve the presented by the strong New Zealand dollar. Improving needs of Christchurch customers. stock-turn, while increasing the mix of imported to non- imported product to drive higher margins, is a credit to the merchandise and management teams. 4 Homeware The use of layered advertising campaigns supporting aggressive, relevant promotions kept Briscoes completed to schedule resulting in better use of space in every case. In addition to the Salisbury Street reopening and the Hornby extension, the Cambridge Homeware in front of target customers throughout the store was extended and completely refurbished and a year. The new ranges of product, which flowed into full refurbishment was also completed at the Blenheim the stores, were supported by hard-hitting price-based Briscoes Homeware store. Both the Cambridge and promotions emphasising the unique quality, range and Blenheim stores service regional catchments and the value combination we offer. The relationships we enjoy improved format has been welcomed by customers. with our suppliers, the analytical capability provided by our SAP merchandise system and the regular international travel undertaken by the merchandise team create an atmosphere in which product ranges are continually challenged and improved. The space realignment project, which was completed during 2011 at Botany Downs, Albany and Henderson, produced benefits in all these stores as a result of the increased space; especially evident over the busy Christmas period. During the year all planned minor works and counter-realignment projects were We believe the future for Living & Giving is for it to be a web-dominated business supported by a small number of bricks and mortar stores. Sporting Goods Our challenge at the beginning of the year for Rebel Sport was to replace the significant sales of product driven by the Rugby World Cup and we are delighted with how the brand performed given the extremely high comparatives we were up against and also given the increased competition in the fishing, camping and 5 outdoor categories. The focus on managing inventories This year will see the completion of the checkout- carefully has helped Rebel Sport to be in the best replacement programme in the balance of Briscoes possible position to take advantage of opportunities Homeware and Rebel Sport stores, which will result as they arise and we have continued to promote in better customer service and additional usable retail aggressively in these categories. space in each of these stores. A number of our older In May 2012 we relocated the Rebel Sport Hamilton store to the Centre Place shopping centre and in December a new Rebel Sport store was opened in Blenheim, which now shares parking, management, stores will receive refurbishments to bring them into line with our latest formats. As always, every development project is required to deliver incremental profit to satisfy our internal requirement for return on investment. storage and office facilities with the adjacent, recently We are not counting on any significant changes during refurbished Briscoes Homeware store. this year to the overall economic retailing environment, People and performance The Sales and Service programme launched earlier and anticipate it will continue to be very competitive, but we are confident we have the focus, people and initiatives in place to continue to strengthen our position in the year is no longer seen as a programme but as New Zealand’s leading retailer of homeware and rather “the way we do things”. It is a great example of sporting goods. Rod Duke GROUP MANAGING DIRECTOR recognising how important it is to value the customer and to continually look for ways to reinforce our unique product quality, range and value combination and to ensure a great in-store experience. We are committed to improving the service we offer and we believe that further improvements in this area during the coming year will contribute to increased sales. Priorities and outlook for 2013/14 Profit growth will continue to be the focus. Our people are critical to our success and by continuing to develop and improve the quality of our people we believe they are better able to drive incremental profit. We will continue to develop our online businesses. Order fulfilment is currently conducted from the Panmure and Salisbury Street stores for Briscoes Homeware, from the Panmure store for Rebel Sport and from a standalone Auckland warehouse for Living & Giving. During the year our fulfilment models will be reviewed with a view to expanding the number of fulfilment locations, which will result in lower freight costs and quicker deliveries to customers. 6 Financial Statements The Board of Directors is pleased to present the Financial Statements for Briscoe Group Limited for the 52 week period ended 27 January 2013. The Financial Statements presented are signed for and on behalf of the Board, and were authorised for issue on the date below. Dame Rosanne Meo Rod Duke CHAIRMAN GROUP MANAGING DIRECTOR 7 March 2013 Income Statements For the 52 week period ended 27 January 2013 Group Parent Period ended 27 January 2013 $000 Notes Period ended Period ended 29 January 2012 27 January 2013 $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 452,702 (271,598) 181,104 221 (86,082) (54,273) 40,970 1,702 42,672 (12,204) 438,037 (264,933) 173,104 81 (82,898) (53,621) 36,666 1,697 38,363 (10,834) – – – 58,888 – (13,758) 45,130 1,199 46,329 (868) 5 5 6 Net profit attributable to shareholders 30,468 27,529 45,461 Period ended 29 January 2012 $000 – – – 35,570 – (14,062) 21,508 1,056 22,564 (806) 21,758 Earnings per share for profit attributable to shareholders: Basic earnings per share (cents) Diluted earnings per share (cents) 7 7 14.3 14.0 13.0 12.6 21.3 20.8 10.2 10.0 The above income statements should be read in conjunction with the accompanying notes. 7 Statements of Comprehensive Income For the 52 week period ended 27 January 2013 Group Parent Period ended Period ended Period ended Period ended 29 January 2012 $000 27 January 2013 $000 27 January 2013 $000 29 January 2012 $000 Notes Net Profit attributable to shareholders 30,468 27,529 45,461 21,758 Other comprehensive income: Fair value loss recycled to income statement Fair value loss 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 other comprehensive income 1,422 (1,744) (398) 488 3,963 (3,103) (1,110) 869 (232) 619 – – – – – – – – – – Total comprehensive income attributable to shareholders 30,236 28,148 45,461 21,758 The above statements of comprehensive income should be read in conjunction with the accompanying notes. 8 Statements of Changes in Equity For the 52 week period ended 27 January 2013 Group Notes capital Share Cashflow hedge reserve $000 $000 Share options reserve $000 Retained earnings Total equity $000 $000 Balance at 30 January 2011 40,625 (1,022) 636 91,647 131,886 Net profit attributable to shareholders Other comprehensive income: Fair value loss recycled to income statement Fair value loss 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 Total comprehensive income for the period Transactions with owners: Dividends paid Share options charged to income statement Share options exercised Transfer for share options lapsed and forfeited – – – – – – – 3,963 (3,103) (1,110) 869 619 – – – – – – 27,529 27,529 – – – – 3,963 (3,103) (1,110) 869 27,529 28,148 20 21 19,21 21 – – 1,107 – – – – – – 406 (166) (216) (20,169) – – 216 (20,169) 406 941 – Balance at 29 January 2012 41,732 (403) 660 99,223 141,212 Net profit attributable to shareholders Other comprehensive income: Fair value loss recycled to income statement Fair value loss 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 Total comprehensive income for the period Transactions with owners: Dividends paid Share options charged to income statement Share options exercised Transfer for share options lapsed and forfeited – – – – – – – 1,422 (1,744) (398) 488 (232) – – – – – – 30,468 30,468 – – – – 1,422 (1,744) (398) 488 30,468 30,236 20 21 19,21 21 – – 585 – – – – – – 458 (104) (92) (43,806) – – 92 (43,806) 458 481 – Balance at 27 January 2013 42,317 (635) 922 85,977 128,581 Parent Balance at 30 January 2011 Net profit attributable to shareholders Total comprehensive income for the period Transactions with owners: Dividends paid Share options charged to income statement Share options exercised Transfer for share options lapsed and forfeited Balance at 29 January 2012 Net profit attributable to shareholders Total comprehensive income for the period Transactions with owners: Dividends paid Share options charged to income statement Share options exercised Transfer for share options lapsed and forfeited Balance at 27 January 2013 capital Share Cashflow hedge reserve $000 $000 Notes 40,625 – – 20 21 – – 19,21 1,107 – 21 41,732 – – – – 585 – 42,317 20 21 19,21 21 – – – – – – – – – – – – – – – Share Retained earnings Total equity options reserve $000 $000 $000 636 11,316 21,758 52,577 21,758 21,758 21,758 – – – 406 (166) (216) (20,169) – – 216 (20,169) 406 941 – 660 13,121 55,513 – – 45,461 45,461 45,461 45,461 – 458 (104) (92) (43,806) – – 92 (43,806) 458 481 – 922 14,868 58,107 The above statements of changes in equity should be read in conjunction with the accompanying notes. 9 Balance Sheets As at 27 January 2013 Group Parent 27 January 2013 $000 29 January 2012 27 January 2013 $000 $000 29 January 2012 $000 Notes EQUITY Share capital Cashflow hedge reserve Share options reserve Retained earnings TOTAL EQUITY LIABILITIES Non-current liabilities Employee benefits Total non-current liabilities Current liabilities Trade and other payables Due to related parties Provisions Employee benefits Taxation payable Derivative financial instruments Total current liabilities TOTAL LIABILITIES 19 3(c),8 21 17 15 22 16 17 14 3(c) 42,317 (635) 922 85,977 41,732 (403) 660 99,223 128,581 141,212 575 575 50,532 – 89 7,638 3,561 855 62,675 63,250 572 572 54,674 – 84 7,109 3,001 653 65,521 66,093 42,317 – 922 14,868 58,107 150 150 992 7 – 2,281 – – 3,280 3,430 TOTAL EQUITY AND LIABILITIES 191,831 207,305 61,537 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 Taxation receivable Derivative financial instruments Total current assets TOTAL ASSETS 11 12 13 14 8 9 22 10 14 3(c) – 44,563 1,307 1,237 47,107 77,541 2,534 – 64,573 – 76 – 45,144 1,254 770 47,168 95,337 2,622 – 62,057 – 121 144,724 160,137 191,831 207,305 2,783 – – 280 3,063 52,696 1,110 4,288 – 380 – 58,474 61,537 The above balance sheets should be read in conjunction with the accompanying notes. 41,732 – 660 13,121 55,513 170 170 1,297 7,280 – 2,061 – – 10,638 10,808 66,321 2,783 – – 267 3,050 24,005 1,039 38,011 – 216 – 63,271 66,321 10 Statements of Cash Flows For the 52 week period ended 27 January 2013 Group Parent Period ended Period ended 27 January 2013 29 January 2012 27 January 2013 29 January 2012 $000 Period ended Period ended $000 $000 $000 Notes OPERATING ACTIVITIES Cash was provided from Receipts from customers Rent received Dividends received Interest received Insurance recovery Management fees received Net GST received Cash was applied to Payments to suppliers Payments to employees Interest paid Net GST paid Income tax paid 452,904 46 4 1,778 171 – – 454,903 (347,420) (49,581) (12) (14,463) (12,021) 437,516 76 5 1,690 – – – 439,287 (327,816) (46,157) (33) (13,059) (10,192) – – 43,781 1,195 – 15,790 343 61,109 (6,003) (8,488) (8) – (1,045) – – 20,169 1,080 – 15,214 382 36,845 (5,231) (7,742) (4) – (847) (423,497) (397,257) (15,544) (13,824) Net cash inflows from operating activities 31,406 42,030 45,565 23,021 INVESTING 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 investing activities FINANCING ACTIVITIES Cash was provided from Net advances from subsidiaries Issue of new shares Cash was applied to Net advances to subsidiaries Dividends paid 19 20 24 24 (5,175) (651) (5,826) (5,802) – 481 481 82 82 (9,340) (1,178) (10,518) (10,436) – – – – – – – 941 941 26,451 481 26,932 – (43,806) – (20,169) – (43,806) (43,806) (20,169) (43,806) Net cash (outflows) from financing activities (43,325) (19,228) (16,874) Net increase (decrease) in cash and cash equivalents (17,721) Cash and cash equivalents at beginning of period Foreign cash balance cash flow hedge adjustment Cash and cash equivalents at period end 8 95,337 (75) 77,541 12,366 82,794 177 95,337 28,691 24,005 – 52,696 – – – – – – – 941 941 (11,443) (20,169) (31,612) (30,671) (7,650) 31,655 – 24,005 11 Statements of Cash Flows continued For the 52 week period ended 27 January 2013 Group Parent Period ended 27 January 2013 $000 RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES TO REPORTED NET PROFIT Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Reported net profit attributable to shareholders 30,468 27,529 45,461 21,758 Items not involving cash flows Depreciation and amortisation expense Adjustment for fixed increase leases Impact of statutory change in depreciation on buildings Bad debts and movement in doubtful debts Inventory adjustments Amortisation of executive share options cost (Gain)/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 6,128 (78) – 37 211 458 202 6,958 51 (2,727) 560 (4,176) 272 (6,020) 6,203 (143) (95) 27 601 406 (34) 6,965 (787) 519 1,109 3,498 3,197 7,536 – – – – – 458 – 458 (71) – (164) 56 (175) (354) – – – – – 406 – 406 (352) – 67 256 886 857 The above statements of cash flows should be read in conjunction with the accompanying notes. 31,406 42,030 45,565 23,021 12 Notes to the Financial Statements For the 52 week period ended 27 January 2013 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 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 52 week period 30 January 2012 to 27 January 2013 and provide balance sheets as at 27 January 2013. The comparative period is in respect of the 52 week period 31 January 2011 to 29 January 2012. The Group operates on a weekly trading and reporting cycle resulting in 52 weeks for most years with a 53 week year occurring once every 5-6 years. 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 tangible and intangible assets have suffered any impairment, in accordance with the accounting policy stated in Note 1(h) and as disclosed in Notes 12 and 13. 13 Notes to the Financial Statements For the 52 week period ended 27 January 2013 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. If outcomes within the next financial year are significantly different from assumptions, this could result in adjustments to carrying amounts of the asset or liability affected. 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 as disclosed in Note 12. (b) Principles of consolidation Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Briscoe Group Limited as at 27 January 2013 and the results of all subsidiaries for the 52 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 Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration agreement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this 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. 14 Notes to the Financial Statements For the 52 week period ended 27 January 2013 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 CODM reviews finance income on a net basis. 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 Parent holding company is not considered to be a reportable operating segment and as such eliminations and unallocated amounts within Note 4 are primarily attributable to the Parent. The corporate structure of the Group also reflects these segments with its two trading subsidiaries, Briscoes (NZ) Limited and The Sports Authority Limited (trading as Rebel Sport). Financial details of these segments are outlined in Note 4. (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 period-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 of consideration 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-proportionate basis using the effective interest method. Dividend income Dividend income is recognised when the right to receive the dividend is established. (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. 15 Notes to the Financial Statements For the 52 week period ended 27 January 2013 The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in New Zealand, being 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. 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 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 and whenever there is an indication of an impairment. Assets that are subject to amortisation 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. 16 Notes to the Financial Statements For the 52 week period ended 27 January 2013 (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. (k) Inventories Inventories are stated at the lower of cost and 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. Regular purchases and sales of financial assets are recognised on the date on which the Group commits to purchase or sell the asset. (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). At the inception of a transaction the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions is documented. An assessment is also documented, 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. 17 Notes to the Financial Statements For the 52 week period ended 27 January 2013 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. 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 Certain derivative instruments 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. 18 Notes to the Financial Statements For the 52 week period ended 27 January 2013 (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 estimated residual values, over their estimated useful lives, as follows: • Freehold Buildings • Plant and equipment 33 years 3 – 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. (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 tested for impairment annually and whenever there is an indication that the brand may be impaired. Software Software costs have a finite useful life. Software costs are capitalised and amortised on a straight-line basis over the estimated useful economic life of 2 to 5 years. All software has been acquired externally. (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 statements, statements of comprehensive income and statements of cash flows have been prepared exclusive of GST. All items in the balance sheets are stated net of GST, with the exception of trade receivables and trade payables, which include GST invoiced. 19 Notes to the Financial Statements For the 52 week period ended 27 January 2013 (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. (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. 20 Notes to the Financial Statements For the 52 week period ended 27 January 2013 (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. (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 (Note 1(i)); • 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 were applied during the period; • FRS 44: New Zealand Additional Disclosures and Harmonisation Amendments (effective for annual periods beginning on or after 1 July 2011) FRS 44 sets out New Zealand specific disclosures for entities reporting under NZIFRS. These disclosures have been relocated from NZ IFRSs to clarify that these disclosures are additional to those required by IFRSs. The Group has elected to include additional comparative information as it is considered to provide relevant information to the users of the financial statements. The Harmonisation Amendments amend various NZ IFRSs for the purpose of harmonising financial reporting standards in Australia and New Zealand to bring them more in line with the source IFRS. Certain new standards, amendments and interpretations of existing standards have been published that are mandatory for later periods and which the Group has not early adopted. These will be applied by the Group in the mandatory periods listed below. The key items applicable to the Group are: • NZ IFRS 9: Financial Instruments (mandatory for annual periods beginning on or after 1 January 2015) This replaces the multiple classification and measurements models in IAS 39 Financial Instruments: Recognition and measurements with a single model that has only two classification categories: amortised cost and fair value. The classification model is driven by the entity’s business model for managing the financial assets and the contractual cashflow characteristics of the financial assets. This will affect future financial statements through disclosure only as the recognition and measurement guidance relating to financial liabilities is unchanged from NZ IAS 39. The Group intends to apply this standard in the 2015/16 financial year. 21 Notes to the Financial Statements For the 52 week period ended 27 January 2013 • NZ IFRS 13: Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013) NZ IFRS 13 explains how to measure fair value and aims to enhance fair value disclosures. The Group has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the financial statements. The Group intends to apply this standard in the 2013/14 financial year. There are no other standards, amendments or interpretations to existing standards which have been issued, but are not yet effective, which are expected to impact the Group. 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 (such as 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. (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. 22 Notes to the Financial Statements For the 52 week period ended 27 January 2013 The table below analyses the Group’s financial liabilities and gross-settled forward foreign exchange contracts 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 and affects profit when the underlying inventory to which the derivatives relate, is sold. 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 27 January 2013 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 (50,532) – – – (50,532) (50,532) Forward foreign exchange contracts Cash flow hedges: – outflow – inflow (14,209) 13,799 (12,029) 11,768 (15,290) 15,175 (1,212) 1,219 (42,740) 41,961 – Net (410) (261) (115) 7 (779) (779) As at 29 January 2012 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 (54,674) – – – (54,674) (54,674) Forward foreign exchange contracts Cash flow hedges: – outflow – inflow (14,326) 13,730 (9,499) 9,516 (3,029) 3,079 (313) 310 (27,167) 26,635 – Net (596) 17 50 (3) (532) (532) The cash flow hedges inflow amounts use the forward rate at balance date. Parent As at 27 January 2013 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 (992) – – – (992) (992) As at 29 January 2012 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 (1,297) – – – (1,297) (1,297) There are no financial derivative liabilities or assets in the name of the Parent. 23 Notes to the Financial Statements For the 52 week period ended 27 January 2013 (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 rated, Board approved 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 foreign denominated currency bank accounts, with major financial institutions only, to hedge its foreign exchange risk arising from future purchases. 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 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $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 76 76 855 855 121 121 653 653 – – – – – – – – 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. 24 Notes to the Financial Statements For the 52 week period ended 27 January 2013 At balance date these contracts are represented by assets of $76,201 (2012: $121,038) and liabilities of $855,369 (2012: $653,339) and together are included in equity as part of the cash flow hedge reserve, net of deferred tax, as a net loss of $561,001 (2012: net loss $383,257). 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 $74,128 (2012: net loss of $20,157), refer Note 8. The total of these net losses amounts to $635,129 (2012: $403,414) 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 (2012: 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 (2012: level 2) as all significant inputs required to ascertain the fair value of these derivatives are observable (refer Note 1(n)). The carrying value is a reasonable approximation for fair value for trade and other receivables, trade and other payables and related parties payables and receivables. 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 term liquidity position is monitored daily by management and reported to the Board monthly. Surplus funds are placed on call or short-term deposit with high credit rated, Board approved financial institutions only. 25 Notes to the Financial Statements For the 52 week period ended 27 January 2013 Sensitivity analysis Based on historical movements and volatilities and review of current economic commentary the following movements are considered reasonably possible over the next 12 month period: • Proportional foreign exchange rate movement of -15% (depreciation of NZD) and +10% (appreciation of NZD) against the USD, from the year-end rate of 0.8356, • A shift of between +1% and -0.5% in market interest rates from the year-end weighted average deposit rate of 3.48%. If these movements were to occur, the positive / (negative) impact before tax on consolidated profit and consolidated equity for each category of financial instrument held at balance date is presented below. Carrying amount $000 Interest rate -0.5% +1% Profit $000 Equity $000 Profit $000 Equity $000 -15% Foreign exchange rate +10% Profit Equity $000 $000 Equity $000 Profit $000 77,541 (279) (279) 558 558 – 344 – (177) 76 – – – – – 2,563 – (1,299) As at 27 January 2013 Group Financial Assets: Cash and cash equivalents1. Derivatives – designated as cashflow hedges (Forward foreign exchange contracts)2. Financial liabilities: Derivatives – designated as cashflow hedges (Forward foreign exchange contracts)2. Total increase / (decrease) (279) (279) 558 558 855 – – – – – – 4,942 – (2,535) 7,849 – (4,011) Receivables and payables have not been included above as they are denominated in NZD and are non-interest bearing and therefore not subject to market risk. 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 $558,293. For a -0.5% movement in interest rates the sensitivity is ($279,146). 2. Derivatives designated as cashflow hedges are foreign exchange contracts and foreign currencies 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 -15% / +10% shift in the NZD:USD foreign exchange rate has an impact of $7,848,777 / ($4,010,864) on derivative and cash valuation. There is no profit and loss sensitivity as the hedges are 100% effective. As at 27 January 2013 Parent Carrying amount $000 Interest rate -0.5% +1% Profit $000 Equity $000 Profit $000 Equity $000 Financial assets: Cash and cash equivalents 52,696 (190) (190) Total increase / (decrease) (190) (190) 379 379 379 379 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 $379,415. For a -0.5% movement in interest rates the sensitivity is ($189,707). 26 Notes to the Financial Statements For the 52 week period ended 27 January 2013 As at 29 January 2012 Group Financial assets: Cash and cash equivalents Derivatives – designated as cashflow hedges (Forward foreign exchange contracts) Financial liabilities: Derivatives – designated as. cashflow hedges (Forward foreign exchange contracts) Carrying amount Interest rate -0.5% +1% Foreign exchange rate +10% -15% $000 Profit $000 Equity $000 Profit $000 Equity $000 Profit $000 Equity $000 Profit $000 Equity $000 95,337 (477) (477) 953 953 – 87 – (45) 121 – – – – – 1,482 – (695) Total increase / (decrease) (477) (477) 953 953 653 – – – – – – 3,446 – (1,672) 5,015 – (2,412) Receivables and payables have not been included above as they are denominated in NZD and are non-interest bearing and therefore not subject to market risk. 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 $953,367. For a -0.5% movement in interest rates the sensitivity is ($476,684). 2. Derivatives designated as cashflow hedges are foreign exchange contracts and foreign currencies 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 -15% / +10% shift in the NZD:USD foreign exchange rate has an impact of $5,014,799 / ($2,412,139) on derivative and cash valuation. There is no profit and loss sensitivity as the hedges are 100% effective. As at 29 January 2012 Parent Carrying amount Interest rate -0.5% +1% $000 Profit $000 Equity $000 Profit $000 Equity $000 Financial assets: Cash and cash equivalents 24,005 (120) (120) 240 Total increase / (decrease) (120) (120) 240 240 240 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 $240,051. For a -0.5% movement in interest rates the sensitivity is ($120,026). 27 Notes to the Financial Statements For the 52 week period ended 27 January 2013 Financial instruments by category The accounting policies for financial instruments have been applied to the line items below: As at 27 January 2013 Assets as per balance sheet Cash and cash equivalents Trade receivables Due from related parties Derivative financial instruments Total Group Loans and Derivatives used for receivables hedging $000 $000 77,541 1,510 – – 79,051 – – – 76 76 Total $000 77,541 1,510 – 76 79,127 Parent Loans and Derivatives used for receivables hedging $000 $000 Total $000 52,696 213 4,288 – 57,197 – – – – – 52,696 213 4,288 – 57,197 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 Derivative financial instruments 50,532 – – – – 855 50,532 – 855 Total 50,532 855 51,387 992 7 – 999 – – – – As at 29 January 2012 Group Loans and Derivatives used for receivables hedging $000 $000 Total $000 Parent Loans and Derivatives used for receivables hedging $000 $000 Total $000 992 7 – 999 Total $000 Assets per balance sheet Cash and cash equivalents Trade receivables Due from related parties Derivative financial instruments 95,337 1,678 – – – – – 121 95,337 1,678 – 121 Total 97,015 121 97,136 24,005 202 30,731 – 54,938 – – – – – 24,005 202 30,731 – 54,938 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 54,674 – – 653 54,674 653 Total 54,674 653 55,327 1,297 – 1,297 – – – Total $000 1,297 – 1,297 28 Notes to the Financial Statements For the 52 week period ended 27 January 2013 3.2 Capital risk management The Group’s objective when managing capital is to optimise the balance between maximising shareholder wealth and ensuring the Group is able to operate competitively with the flexibility to take advantage of growth opportunities as they arise. In order to meet these objectives the Group may adjust the amount of dividend payment made to shareholders and/or seek to raise capital through debt and/or equity. 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 solely 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 (2012: Nil). The accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 1(c). Information regarding the operations of each reportable operating segment is included below. 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 (trading as Rebel Sport). 29 Notes to the Financial Statements For the 52 week period ended 27 January 2013 For the period ended 27 January 2013 Homeware INCOME STATEMENT Total sales revenue Gross profit Earnings before interest and tax Net finance income Income tax expense Net profit after tax BALANCE SHEET ITEMS: Assets Liabilities INCOME STATEMENT Total sales revenue Gross profit Earnings before interest and tax Net finance income Income tax expense Net profit after tax BALANCE SHEET ITEMS: Assets Liabilities $000 307,051 123,686 29,251 – (8,284) 20,967 Sporting goods $000 Eliminations/ Unallocated $000 Total Group $000 145,651 57,418 10,370 503 (3,052) 7,821 – – 1,349 1,199 (868) 1,680 452,702 181,104 40,970 1,702 (12,204) 30,468 88,183 40,736 50,146 24,336 53,502 (1,822) 191,831 63,250 $000 294,442 117,589 26,169 11 (7,267) 18,913 Sporting goods $000 Eliminations/ Unallocated $000 Total Group $000 143,595 55,515 9,158 630 (2,761) 7,027 – – 1,339 1,056 (806) 1,589 438,037 173,104 36,666 1,697 (10,834) 27,529 124,555 79,704 65,147 21,517 17,603 (35,128) 207,305 66,093 OTHER SEGMENTAL ITEMS: Acquisitions of property, plant and equipment, intangibles and investments Depreciation and amortisation 4,431 4,027 1,395 2,101 – – 5,826 6,128 For the period ended 29 January 2012 Homeware OTHER SEGMENTAL ITEMS: Acquisitions of property, plant and equipment, intangibles and investments Depreciation and amortisation expense 8,185 4,072 2,333 2,131 – – 10,518 6,203 30 Notes to the Financial Statements For the 52 week period ended 27 January 2013 5. Income and expenses Group Parent Period ended 27 January 2013 $000 Profit before income tax includes the following specific income and expenses: Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Income Rental income Dividends received Insurance recovery Management fees Finance income Expenses 46 4 171 – 76 5 – – 1,714 1,730 Operating lease rental expense 26,740 26,736 Bad debts written off Amounts paid to auditors: Statutory Audit Half year review Other assurance services Directors’ fees Share options expense (refer Note 21) 37 90 24 – 150 458 Wages, salaries and other short term benefits 50,569 (Gain) / loss on disposal of property, plant and equipment Inventory writedown expense Finance expense Depreciation of property, plant and equipment Amortisation of software costs 202 1,454 12 5,530 598 27 80 20 – 170 406 48,122 (34) 1,580 33 5,760 443 – 43,781 – 15,107 1,207 – – 90 24 – 150 458 – 20,169 – 15,401 1,060 – – 80 20 – 170 406 9,147 8,720 – – 8 – – – – 4 – – 31 Notes to the Financial Statements For the 52 week period ended 27 January 2013 6. Income tax expense (a) Income tax expense Current tax expense: Current tax Adjustments for prior years Deferred tax expense: (Increase) / Decrease in future tax benefit current year Adjustments for prior years Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 11,931 650 12,581 171 (548) (377) 10,648 653 11,301 143 (610) (467) 713 168 881 148 (161) (13) 868 753 161 914 42 (150) (108) 806 Total income tax expense 12,204 10,834 (b) Reconciliation of income tax expense to tax rate applicable to profits Profit before income tax expense Tax at the corporate rate of 28% (2012: 28%) 42,672 11,948 38,363 10,742 46,329 12,972 22,564 6,318 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 (16) 170 102 (16) 160 (52) Total income tax expense 12,204 10,834 (12,258) 147 7 868 (5,648) 125 11 806 The Group has no tax losses (2012: Nil) and no unrecognised temporary differences (2012: Nil) 32 Notes to the Financial Statements For the 52 week period ended 27 January 2013 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 27 January 2013 Period ended Period ended 29 January 2012 27 January 2013 Period ended 29 January 2012 Net profit attributable to shareholders ($000) 30,468 27,529 45,461 21,758 Basic Weighted average number of ordinary shares on issue (thousands) 213,647 212,460 213,647 212,460 Basic earnings per share 14.3 cents 13.0 cents 21.3 cents 10.2 cents Diluted Weighted average number of ordinary shares on issue adjusted for share options issued but not exercised (thousands) 218,401 217,790 218,401 217,790 Diluted earnings per share 14.0 cents 12.6 cents 20.8 cents 10.0 cents 8. Cash and cash equivalents Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Cash at bank or in hand 77,541 95,337 52,696 24,005 The carrying amount for cash and cash equivalents equals the fair value. At 27 January 2013 the Group had purchased foreign currency equivalent of NZ$ 1.950 million (2012: NZ$ 0.494 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) Foreign currency 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. 33 Notes to the Financial Statements For the 52 week period ended 27 January 2013 In respect of foreign currency balances that 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 $102,955 (2012: losses of $27,996) 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 $74,128 (2012: net loss of $20,157). The cash flow hedge reserve, net of deferred tax, from forward foreign exchange contracts used as hedges, represents a net loss of $561,001 (2012: net loss of $383,257), refer note 3(c). The total of these net losses amounts to $635,129 (2012: $403,414). In respect of foreign currency balances that 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 (2012: Nil). 9. Trade and other receivables Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Trade receivables Provision for impaired receivables Net trade receivables Prepayments Other receivables Total trade and other receivables 583 (12) 571 1,024 939 2,534 692 (2) 690 944 988 – – – 897 213 – – – 837 202 2,622 1,110 1,039 The fair value of trade and other receivables approximates their carrying value. No interest is charged on trade receivables. As at 27 January 2013, trade receivables of $35,839 (2012: $20,126) 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 Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Months past due: 0 – 3 4 – 6 6 + Total 36 – – 36 20 – – 20 – – – – – – – – There are no receivables that would otherwise be past due or impaired whose terms have been renegotiated. 34 Notes to the Financial Statements For the 52 week period ended 27 January 2013 As at 27 January 2013, trade receivables of $11,976 (2012: $1,756) were considered impaired. The amount of the provision is $11,976 (2012: $1,756). 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 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Months past due: 0 – 3 4 – 6 6 + Total 12 – – 12 – – 2 2 – – – – – – – – Movements in the provision for impaired receivables are shown below: Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Opening balance Provision for impaired receivables Receivables written off during the year Unused amounts reversed Closing balance 2 12 (1) (1) 12 7 2 (7) – 2 – – – – – – – – – – 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 stated above. The Group does not hold any collateral as security. 35 Notes to the Financial Statements For the 52 week period ended 27 January 2013 10. Inventories Finished goods Inventory adjustments Net inventories Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 67,810 (3,237) 64,573 65,144 (3,087) 62,057 – – – – – – Inventory adjustments are provided at period end for stock obsolescence and store inventory shrinkage. 11. Investments in subsidiaries (a) Investments Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Shares in subsidiaries Total Investments in subsidiaries – – – – 2,783 2,783 2,783 2,783 (b) Principal subsidiaries Name Activity 2012 Interest 2011 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. 36 Notes to the Financial Statements For the 52 week period ended 27 January 2013 12. Property, plant and equipment Group Freehold land $000 Freehold buildings $000 Plant and equipment $000 At 30 January 2011 Cost Accumulated depreciation Accumulated impairment Net book value Period ended 29 January 2012 Opening net book value Additions Disposals Depreciation charge Transfers Closing net book value At 29 January 2012 Cost Accumulated depreciation Accumulated impairment Net book value Period ended 27 January 2013 Opening net book value Additions Disposals Depreciation charge Closing net book value At 27 January 2013 Cost Accumulated depreciation Accumulated impairment Net book value 13,249 – – 13,249 13,249 2,869 – – – 16,118 16,118 – – 16,118 16,118 – – – 16,118 16,118 – – 16,118 Total $000 102,964 (59,644) (1,119) 12,947 (2,831) – 76,768 (56,813) (1,119) 10,116 18,836 42,201 10,116 1,671 – (409) (90) 18,836 4,800 (637) (5,351) 90 11,288 17,738 14,453 (3,165) – 75,878 (57,761) (379) 42,201 9,340 (637) (5,760) – 45,144 106,449 (60,926) (379) 11,288 17,738 45,144 11,288 – – (434) 17,738 5,175 (226) (5,096) 10,854 17,591 14,453 (3,599) – 76,397 (58,584) (222) 45,144 5,175 (226) (5,530) 44,563 106,968 (62,183) (222) 10,854 17,591 44,563 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 $39.60 million (2012: $36.66 million). 37 Notes to the Financial Statements For the 52 week period ended 27 January 2013 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. Based on impairment testing carried out by management, no CGUs (other than those previously identified as requiring an impairment adjustment) within the Group’s operating segments 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 no impairment adjustment has been recognised in the income statement (2012: Nil). 13. Intangible assets Group At 30 January 2011 Cost Accumulated amortisation Accumulated impairment Net book amount Period ended 29 January 2012 Opening net book amount Additions Disposals Amortisation charge Closing net book amount At 29 January 2012 Cost Accumulated amortisation Accumulated impairment Net book amount Period ended 27 January 2013 Opening net book amount Additions Disposals Amortisation charge Closing net book amount At 27 January 2013 Cost Accumulated amortisation Accumulated impairment Net book amount 38 Computer Software $000 5,326 (4,806) – 520 520 1,178 (1) (443) 1,254 6,474 (5,220) – 1,254 1,254 651 – (598) 1,307 7,044 (5,737) – 1,307 Notes to the Financial Statements For the 52 week period ended 27 January 2013 14. Taxation (a) Deferred tax benefit Group At 30 January 2011 Charged to the income statement Net credited to other comprehensive income At 29 January 2012 Credited to the income statement Net charged to other comprehensive income At 27 January 2013 Parent At 30 January 2011 Charged to the income statement At 29 January 2012 Credited to the income statement At 27 January 2013 Depreciation $000 Provisions $000 (1,086) 109 – (977) 203 – (774) 1,232 358 – 1,590 174 – 1,764 Depreciation $000 Provisions $000 – – – – – 159 108 267 13 280 Deritative financial instruments $000 398 – (241) 157 – 90 247 Derivative financial instruments $000 – – – – – Total $000 544 467 (241) 770 377 90 1,237 Total $000 159 108 267 13 280 Net deferred tax asset / (liability) Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $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) 1,878 1,826 3,704 (366) (2,101) (2,467) 1,237 1,309 1,763 3,072 (106) (2,196) (2,302) 770 238 42 280 – – – 220 47 267 – – – 280 267 39 Notes to the Financial Statements For the 52 week period ended 27 January 2013 (b) Taxation (payable)/receivable Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Movements: Balance at beginning of period Current tax Tax paid Foreign investor tax credit (FITC) (3,001) (12,581) 11,682 339 (1,892) (11,301) 9,923 269 Balance at end of period (3,561) (3,001) 216 (881) 706 339 380 283 (914) 578 269 216 15. Trade and other payables Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Trade payables Other payables and accruals Total trade and other payables 39,322 11,210 50,532 43,498 11,176 54,674 510 482 992 454 843 1,297 The fair value of trade and other payables approximates their carrying value. No interest is paid on payables. 16. Provisions Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Balance at beginning of period Charged to income statement Used during the period Balance at end of period 84 89 (84) 89 92 84 (92) 84 – – – – – – – – Provisions shown above relate to returns in relation to sales of goods directly imported by the Group. Provisions relating to inventory, receivables and employee benefits have been treated as part of those specific balances. There are no other provisions relating to these financial statements. Provisions have been classified as current as they are expected to be fully utilised in the next twelve months. 40 Notes to the Financial Statements For the 52 week period ended 27 January 2013 17. Employee Benefits Employee benefits include provision for annual leave, long service leave, sick leave and bonuses. Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 (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 18. Imputation credits 572 128 (125) 575 7,109 8,621 (8,092) 7,638 518 135 (81) 572 5,604 7,851 (6,346) 7,109 170 24 (44) 150 2,061 2,254 (2,034) 2,281 102 78 (10) 170 1,557 1,997 (1,493) 2,061 Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Imputation credits available for use in subsequent accounting periods 43,099 45,347 7,171 22,901 The above amounts represent the balance of the imputation account as at the end of the reporting period, adjusted for: a) b) c) Imputation credits that will arise from the payment of the provision for income tax Imputation debits that will arise from the payment of dividends recognised as a liability at the reporting date and; Imputation credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The consolidated amounts include imputation credits that would be available to the parent if subsidiaries paid dividends. Imputation credit account movements: Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Balance at beginning of period Tax payments, net of refunds Credits attached to dividends received Distributed and disposed 45,347 16,186 1 (18,435) 43,746 9,769 2 (8,170) 22,901 (15,340) 18,045 (18,435) Balance at end of period 43,099 45,347 7,171 Period ended 29 January 2012 $000 6,010 16,648 8,413 (8,170) 22,901 41 Notes to the Financial Statements For the 52 week period ended 27 January 2013 19. Share capital 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 and no par value. No. of authorised shares Share capital Group and Parent Period ended 27 January 2013 Shares Period ended Period ended 29 January 2012 27 January 2013 $000 Shares Period ended 29 January 2012 $000 Opening ordinary shares 213,047,500 212,150,000 41,732 40,625 Issue of ordinary shares during the period: Exercise of options 650,000 897,500 5851. Balance at end of period 213,697,500 213,047,500 42,317 1,1071. 41,732 1. When options are exercised the amount in the share options reserve relating to those options exercised, together with the exercise price paid by the employee, is transferred to share capital. The amounts transferred for the 650,000 shares issued during the period ended 27 January 2013 were $104,390 and $481,000 respectively (2012: $165,937 and $940,950 respectively for the 897,500 shares issued). 20. Dividends paid Group and Parent Period ended 27 January 2013 Cents per share Period ended Period ended 29 January 2012 27 January 2013 $000 Cents per share Period ended 29 January 2012 $000 Interim dividend for the period ended 27 January 2013 Special dividend for the period ended 27 January 2013 Final dividend for the period ended 29 January 2012 Interim dividend for the period ended 29 January 2012 Final dividend for the period ended 30 January 2011 4.00 10.00 6.50 – – 20.50 – – – 3.50 6.00 9.50 8,548 21,369 13,889 – – 43,806 – – – 7,440 12,729 20,169 All dividends paid were fully imputed. Supplementary dividends of $339,331 (2012: $269,480) 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 52 week period ended 27 January 2013 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 within 5 days of the date they are exercised. During the financial year the Company issued 1,437,000 options (2012: 1,437,000) to senior executives. The fair value of these options is estimated at $755,862 (2012: $312,260) under the Black Scholes valuation model using the following inputs and assumptions: • Risk free interest rate • Expected dividend yield • Expected life (years) • Share price at grant date • Exercise price 2.65% 5.16% 3.39 $2.13 $1.55 (2012: 3.31%) (2012: 7.26%) (2012: 3.48) (2012: $1.40) (2012: $1.38) • Expected share volatility 26.50% (2012: 32.50%) The expected share volatility is derived by analysing the historic volatility over a recent historical period similar to the term of the options. 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 $458,282 (2012: $406,025) 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 27 January 2013 Period ended 29 January 2012 Average exercise price $ per share Options 000 Average exercise price $ per share 1.14 1.55 1.25 0.74 0.74 1.30 4,953 1,437 (145) (650) (170) 5,425 1.08 1.38 1.10 1.05 1.38 1.14 Options 000 5,457 1,437 (489) (898) (554) 4,953 Weighted average share price for options exercised during the period $1.53 (2012: $1.40) Of the 5,425,000 outstanding options, 1,318,000 are currently exercisable (2012: 820,000). 43 Notes to the Financial Statements For the 52 week period ended 27 January 2013 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 Period ended 27 January 2013 000 Period ended 29 January 2012 000 November 2012 November 2013 2014 October 2015 October 2016 October November 2011 November 2012 2013 October 2014 October 2015 October Total share options outstanding $0.74 $0.95 $1.30 $1.38 $1.55 – 1,318 1,273 1,397 1,437 5,425 820 1,348 1,348 1,437 – 4,953 The weighted average remaining contractual life of options outstanding at the end of the period was 2.31 years (2012: 2.47) Share options reserve Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Balance at beginning of year Current year amortisation Options forfeited and lapsed transferred to retained earnings Options exercised transferred to share capital Balance at end of year 660 458 (92) (104) 922 636 406 (216) (166) 660 660 458 (92) (104) 922 636 406 (216) (166) 660 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. No interest is charged on internal current accounts. 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: Management fees charged by the Company to: Briscoes (NZ) Limited The Sports Authority Limited (trading as Rebel Sport) Total management fees Dividends received by the Company from: Briscoes (NZ) Limited The Sports Authority Limited (trading as Rebel Sport) Total dividends received 44 Period ended 27 January 2013 $000 Period ended 29 January 2012 $000 10,164 4,943 15,107 18,138 25,643 43,781 10,260 5,141 15,401 20,169 – 20,169 Notes to the Financial Statements For the 52 week period ended 27 January 2013 Material amounts outstanding between the Company and its subsidiaries at year end were: Loan from the Company to Briscoes (NZ) Limited Loan to the Company from The Sports Authority Limited (trading as Rebel Sport) Total loans from the Company to subsidiaries Period ended 27 January 2013 $000 Period ended 29 January 2012 $000 4,288 (7) 4,281 38,011 (7,280) 30,731 In addition the Group undertook transactions with the following related parties as detailed below: • The RA Duke Trust, of which RA Duke and AJ Wall are trustees, as owner of the Rebel Sport premises at Panmure, Auckland, received rental payments of $580,000 (2012: $574,500) from the Group, under an agreement to lease premises to The Sports Authority Limited (trading as Rebel Sport). • The RA Duke Trust received dividends of $34,255,057 (2012: $15,158,369). • P Duke, spouse of the Managing Director, received payments of $65,000 (2012: $65,000) in relation to her employment as an overseas buying specialist with Briscoe Group Limited and rental payments of $223,304 (2012: Nil) as owner of the Briscoes Homeware premises at Panmure, Auckland under an agreement to lease premises to Briscoes (NZ) Limited. • The Hualien Trust, of which P Duke is a trustee, received dividends of $259,325 (2012: $120,175). Directors received directors’ fees and dividends in relation to their personally held shares as detailed below: Executive Director RA Duke AJ Wall Non Executive Directors SH Johnstone RPO’L Meo RJ Skippen1. Period ended 27 January 2013 Period ended 29 January 2012 Directors’ Fees $000 Dividends $000 Directors’ Fees $000 Dividends $000 – – 59 91 – 150 – 45 205 – – 250 – – 52 88 30 170 – 21 95 – – 116 45 Notes to the Financial Statements For the 52 week period ended 27 January 2013 The following Directors received dividends in relation to their non-beneficially held shares as detailed below: Executive Director RA Duke2. AJ Wall2.,3. Non Executive Directors SH Johnstone RPO’L Meo RJ Skippen Period ended 27 January 2013 $000 Period ended 29 January 2012 $000 34,255 34,507 15,158 15,275 – 21 – – 10 – 1. RJ Skippen resigned as a director of Briscoe Group Limited effective from 30 September 2011. 2. The RA Duke Trust, of which RA Duke and AJ Wall are trustees, received dividends of $34,255,057 during the period (2012: $15,158,369) 3. The Tunusa Trust, of which AJ Wall is a trustee, received dividends of $252,150 during the period (2012: $116,850). Key management compensation was as follows: Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Salaries and other short term employee benefits Share options benefit Directors’ fees Total benefits 3,391 130 150 3,671 3,094 121 170 3,385 3,391 130 150 3,671 3,094 121 170 3,385 Key management includes the Directors of the Company and those employees who the Company has deemed to have disclosure obligations under Section 19T of the Securities Markets Act 1988 Key management did not receive any termination benefits during the period (2012: Nil). In addition key management did not receive and are not entitled to receive any post employment or long term benefits (2012: Nil). 46 Notes to the Financial Statements For the 52 week period ended 27 January 2013 23. Capital expenditure commitments Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Commitments in relation to fit-out and property projects at the end of the period not provided for in the financial statements 247 863 – – 24. Operating lease rental commitments Group Parent Period ended 27 January 2013 $000 Period ended Period ended 29 January 2012 27 January 2013 $000 $000 Period ended 29 January 2012 $000 Lease commitments expire as follows: Within one year One to two years Two to five years Beyond five years Total operating lease rental commitments 22,645 18,333 31,633 21,130 93,741 22,339 18,740 29,268 9,530 79,877 – – – – – – – – – – 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 27 January 2013 (2012: Nil). 26. Events after balance date On 7 March 2013 the Directors resolved to provide for a final dividend to be paid in respect of the year ended 27 January 2013. The dividend will be paid at a rate of 7.00 cents per share, for all shares on issue as at 22 March 2013, with full imputation credits attached. Since balance date and up to the date of these financial statements a further 465,000 ordinary shares have been issued under the Executive Share Option Plan as a result of executives exercising share options. 47 Independent Auditors’ Report to the shareholders of Briscoe Group Limited Report on the Financial Statements We have audited the fi nancial statements of Briscoe Group Limited (“the Company”) on pages 7 to 47, which comprise the balance sheets as at 27 January 2013, the income statements, statements of comprehensive income, statements of changes in equity and statements of cash fl ows for the period then ended, and the notes to the fi nancial statements that include a summary of signifi cant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 27 January 2013 or from time to time during the fi nancial year. Directors’ Responsibility for the Financial Statements The Directors are responsible for the preparation of these fi nancial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the Directors determine are necessary to enable the preparation of the fi nancial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company and Group’s preparation of fi nancial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Company and Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. We have no relationship with, or interests in, Briscoe Group Limited or any of its subsidiaries other than in our capacities as auditors and providers of other assurance services. These services have not impaired our independence as auditors of the Company and the Group. PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz 48 Independent Auditors’ Report Briscoe Group Limited Opinion In our opinion, the fi nancial statements on pages 7 to 47: (i) comply with generally accepted accounting practice in New Zealand; and (ii) comply with International Financial Reporting Standards; and (iii) give a true and fair view of the fi nancial position of the Company and the Group as at 27 January 2013, and their fi nancial performance and cash fl ows for the period then ended. Report on Other Legal and Regulatory Requirements We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the fi nancial statements for the period ended 27 January 2013: (i) (ii) we have obtained all the information and explanations that we have required; and in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records. Restriction on Distribution or Use 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 work has been undertaken so that we might state to the Company’s shareholders those matters which 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 opinions we have formed. Chartered Accountants 7 March 2013 Auckland 49 Corporate Governance Role of the Board The Board of Directors (“the Board”) of Briscoe Group meetings. On a monthly basis, the Board receives operational reports summarising the Company’s Limited (“the Company”) is elected by shareholders activities including key performance indicators. In to oversee the management of the Company and its addition, the Board receives regular briefings from the subsidiaries and to direct performance in the long term management team on key strategic and performance best interests of the Company and its shareholders. issues either as part of regular Board meetings or in The focus of the Board is the creation of company specific briefing sessions. and shareholder value and ensuring the Company is managed in accordance with best practice. Corporate governance is continually reviewed and updated in Board Membership The Company’s constitution sets out policies and accordance with good business practice. procedures on the operation of the Board including the appointment and removal of Directors. The NZSX The principal responsibilities of the Board are to: Listing Rules and the Company’s constitution provide • establish the Company’s objectives and review the that a minimum of three Directors is required, of whom major strategies for achieving these objectives; at least two shall be independent. Currently the Board • establish an overall policy framework within which comprises four Directors, being an independent Non- the Company conducts its business; Executive Chairman, the Group Managing Director, the • review the company’s performance including Deputy Managing Director and one independent Non- approval of and monitoring against budget; Executive Director. • ensure that Group financial statements are prepared The Board acknowledges the importance of and presented to give a true and fair view of the independent Directors in ensuring an optimal balance Group’s financial position, financial performance and between Board members who are able to bring a wide cash flows; range of business experience and skills and those • review performance of senior executive against with direct company knowledge and operational approved objectives and key performance indicators; responsibility. • ensure effective policies and procedures are in place Under the constitution, one third of Directors must to safeguard the integrity of the Company’s financial retire by rotation at the annual meeting each year reporting; but, if eligible, may offer themselves for re-election. • ensure that any significant risks facing the Company The Group Managing Director, in his capacity as an are identified and that appropriate risk management executive director, is exempt from the requirement to programmes are in place to control and report on 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; and prior to the closing date and the closing date must be • report to shareholders and other key stakeholders. not more than two months prior to the annual meeting. The Board undertakes to meet at least ten times during The Board has delegated day-to-day management of the financial year. For the year ending 27 January 2013 the Company to the Group Managing Director and the Board met twelve times. other executives of the Company. Operational and Profiles of the current Directors appear on page 53 of administrative policies relative to the Company’s this report. 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 The Chairman, Managing Director and Deputy of Board committees, to ensure that the Board and its Managing Director determine the agenda for Board committees are performing satisfactorily and meeting 50 their respective objectives. In addition, the performance The Chief Financial Officer is responsible for the of individual Directors is also subject to review with a Company’s day-to-day relationship with the auditors, 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 – Dame Rosanne Meo provide specific input and guidance to particular areas (Chairman) and Stuart Johnstone, as well as the Group of corporate governance; the Audit Committee and the Managing Director, Rod Duke. Human Resources Committee. The Human Resources Committee is responsible for The committees meet as required and operate under ensuring the Company has a sound employment policy specific charters which are reviewed and approved by framework, that there is an effective and stimulating the Board annually, setting out committees’ roles and workplace and that there is an environment within responsibilities. In order to fulfil its responsibilities, which management talent and potential can be each committee is empowered to seek any information identified, assessed and developed. it requires from employees and to obtain such independent legal or other professional advice it may deem necessary. The proceedings of the committees are Nominations and Governance Briscoe Group does not have a formally constituted reported to the Board. These charters are published on Nominations and Governance Committee. The Board our website at www.briscoegroup.co.nz views the responsibilities usually associated with this Audit Committee The Audit Committee comprises two independent committee as a collective responsibility and those matters are included as part of its primary role of overseeing the management and performance of the Directors – Stuart Johnstone (Chairman) and Dame Company. Each director undertakes to ensure they have Rosanne Meo, as well as the Group Managing Director, the necessary time and resources required to enable Rod Duke. The Committee assists the Board in fulfilling them to meet the responsibilities associated with their its responsibilities for Company financial statements and directorship. Specific requirements of governance are external financial reporting. addressed at Board meetings during the course of the The Audit Committee is responsible to the Board for year. These specific requirements include ensuring reviewing the Company’s accounting policies and the Board contains an appropriate mix of skills and financial statements, promoting integrity in financial experience, making recommendations to the Board reporting, reviewing the adequacy and effectiveness of on new Directors for nomination, determining the the Company’s internal controls and recommending the independence of Directors, and ensuring the Company appointment of, as well as reviewing the performance maintains a high level of corporate governance. and recommendations of the external auditors. In turn, the Company’s management team makes representations to the Audit Committee and the Board, as to the Independent Directors Under the Corporate Governance requirements of NZX completeness and accuracy of the Company’s financial Limited (“NZX”), a listed company must identify which statements. of its Directors are determined by the Board to be The Audit Committee is responsible for determining independent. whether potential engagements of the auditors are The current board and committee memberships appropriate in the context of seeking to prevent audit are detailed below together with the independence independence from being impaired (or being seen to be classification as determined by the Board, in accordance impaired). with the guidelines issued by NZX. As a relatively small 51 Board Composition as at April 2013 Director Classification Committee membership Audit committee Human Resources committee Dame Rosanne Meo Independent (Chair) Rod Duke Stuart Johnstone Alaister Wall Executive Independent Executive Member Member Chair – Chair Member Member – board, there is a clear understanding of the required It covers: roles and expectations of the Independent Directors. • Conflicts of interest; • Confidentiality; Board Remuneration Shareholders are asked to approve the level of Directors’ • Payments, gifts and entertainment; • Trading in company securities; fees from time to time. In keeping with its views in • Workplace principles; relation to nominations, rather than have a separate • Use of company information and assets; Remuneration Committee (governed by a charter), the • Obligations to act honestly and in the best interests of Board as a whole takes responsibility for monitoring the Company as required by law; developments in the New Zealand market and • Delegation of authority; recommending remuneration packages for Directors to • Accuracy of records; the Company’s shareholders. Fees are established to be • Compliance with any applicable laws, regulations and in line with those of New Zealand based organisations rules; and of a similar scope and size to the Company. • Fair dealing with customers, employees, suppliers and Diversity A breakdown of gender composition of directors and The Board is responsible for reviewing the Code of officers as at April 2013 is shown below: Conduct and adherence to it. competitors. Directors Officers1,2 Female Male 1 2 3 3 1. Excludes Managing Director and Deputy Managing Director (included in breakdown of Directors). 2. Officers includes only those employees who the directors have deemed to have disclosure obligations under section 19T of the Securities Market Act 1988 and is consistent with that used for the Key management compensation disclosure in the Financial Statements (Note 22). The Company does not have a formal Diversity policy. Code of Conduct The Board has adopted a corporate Code of Conduct, available on our website www.briscoegroup.co.nz. The Code of Conduct defines the levels of ethical business practice expected of the Board and within the Company (including employees and contractors). The Company ensures that all new employees are aware of the Code of Conduct and are provided with relevant training. In addition, the Code of Conduct addresses compliance standards and procedures, provides mechanisms for reporting unethical behaviour and ensures that disciplinary measures are available to address any violations. Trading in Briscoe Group Securities The Company has adopted a formal procedure governing the sale and purchase of the Company’s securities by Directors and employees. All Directors and employees must act in accordance with this procedure and the requirements of the Securities Markets Act 1988. The procedure requires employees to obtain the written consent of a Director, or in the case of a Director, of the Chairman of the Board, prior to trading in the Company’s shares. Generally, this consent will only be given in respect of trading in the 60 day period following the announcement of the Company’s half year and annual results. 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: • Operational Risks: risks associated with the Company’s normal business operations, including normal day-to- day exposures relating to customers, stores, employees, systems, suppliers and regulatory bodies; 52 General Disclosures • Funding Risks: risks associated with the funding of the Board of Directors Company’s operations, including exposures relating to investment of surplus cash, and to interest rate and exchange movements; • Environmental Risks: risks associated with the environment in which the Company operates that are outside the Company’s control, including exposures Dame Rosanne Meo, OBE: Chairman (Non-Executive) Chairman of AMP Staff Superannuation and The Real Estate Institute of New Zealand. Director of Overland Footwear Limited and James Dunlop Textiles Limited. Trustee of the Kelliher Charitable Trust and the to natural disasters and to changes in social trends, Middlemore Foundation. economic conditions and customer preferences; and • Strategic Risks: risks associated with Company initiatives Rod Duke: Group Managing Director and that are outside the normal course of business, including Deputy Chairman exposures relating to initiatives to expand into new brands, markets, regions and business activities, and to Group Managing Director since 1991. Director of Pumpkin Patch Limited. adopt new systems. Alaister Wall: Deputy Managing Director Executive of Group since 1982. Director of Cure Kids. Stuart Johnstone: Director (Non-Executive) Investment Banker and Company Director. 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, Living and Giving Limited. Stuart Johnstone is a Director of The Sports Authority Limited. Financial Statements The financial statements for the Parent and Group for the year ended 27 January 2013 are shown on pages 7 to 47 in this report. Changes in Accounting Policies In preparing these financial statements the accounting policies outlined in Note 1 to the financial statements have been applied. There were no significant changes in accounting policies during the year. Effective Communication The Board places great importance on effective communications to the Company’s shareholders and employees and the market generally. As a result, in addition to making the required release of annual and half-yearly results, the Company makes quarterly sales 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 of the Company’s website. The Board encourages shareholder attendance at the Company’s annual meeting and welcomes shareholder debate on all matters of significance affecting the Company and its business. NZX Corporate Governance Best Practice Code The Company’s corporate governance practices conform with the guidelines set down in the NZX Corporate Governance Best Practice Code in almost all 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 lack of a Nominations Committee and the absence of Director remuneration by means of a performance- based equity remuneration plan. The Board as a whole takes responsibility for monitoring developments in the New Zealand market and recommending remuneration packages for Directors to the Company’s shareholders rather than delegating this function to a Remuneration Committee pursuant to a written charter. 53 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. 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 Limited. There were no changes in company structure during the year. Review of Operations SH Johnstone AJ Wall As at 22 March 2013 1,000,000 220,000 Non-Beneficially Held As at 22 March 2013 RA Duke and AJ Wall each as Trustees of the RA Duke Trust AJ Wall* RPO’L Meo SH Johnstone 168,466,838 1,230,000 100,000 5,000 * Other than in relation to the RA Duke Trust. For further details refer to Substantial Security Holders information on page 55 of this report. A. Results for the Year Ended 27 January 2013 C. Share dealings Group $000 452,702 42,672 (12,204) 30,468 Parent $000 – 46,329 (868) 45,461 Sales Revenue Profit Before Income Tax Income Tax Profit After Income Tax B. Dividends Subsequent to balance date, the Directors have declared a final dividend of 7.00 cents per share payable 27 March 2013. Non resident shareholders of the Group will also receive a supplementary dividend of 1.2353 cents per share. Dividends are fully imputed to New Zealand resident shareholders. Directors A. Remuneration and all other benefits relating to the year ending 27 January 2013 ($000) Non Executive Directors RPO’L Meo SH Johnstone Executive Directors RA Duke (Managing Director) AJ Wall (Deputy Managing Director) Executive Directors do not receive Directors’ fees. 91 59 928 607 During the year ended 27 January 2013 the following Directors acquired shares in the Company: R A Duke and A J Wall each as trustees of the R A Duke Trust: Date of transaction 13 March 2012 14 March 2012 15 March 2012 19 March 2012 21 March 2012 Number of shares acquired 6,714,239 231,000 142,469 55,000 25,000 Consideration $10,071,359 $346,500 $213,704 $82,500 $37,500 D. Interests in contracts During the year the following Directors have declared pursuant to Section 140 (1) of the Companies Act 1993 that they be regarded as having an interest in the following transactions: • Payment of rental of $580,000 (2012: $574,500) on the retail property of which the RA Duke Trust is the owner. (Refer to Note 22 of the financial statements). E. Directors’ Insurance As provided by the Group’s Constitution and in accordance with Section 162 of the Companies Act 1993 the Group has arranged Directors’ and Officers’ Liability Insurance which ensures Directors will incur no monetary loss as a result of actions undertaken by them as Directors provided they act within the law. 54 F. Directors’ and Officers’ use of Company Information During the period the Board received no notices pursuant Remuneration to Auditors The fee for the audit of the Group and subsidiaries paid to to Section 145 of the Companies Act 1993 relating to use PricewaterhouseCoopers was $90,000 (2012: $80,000). of Company information. Fees paid to the auditors for other services provided, including a half yearly review, amounted to $23,600 State of Affairs The Directors are of the opinion that the state of affairs (2012: $19,500). of the Group is satisfactory. Details of the period under Shareholders Information 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 27 January 2013, 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 $170,000 – 179,999 $210,000 – 219,999 $230,000 – 239,999 $250,000 – 259,999 $260,000 – 269,999 $310,000 – 319,999 $370,000 – 379,999 $410,000 – 419,999 $590,000 – 599,999 $620,000 – 629,999 7 4 5 4 7 1 3 4 2 2 1 1 1 1 1 1 1 Holding Range at 22 March 2013 No. Investors Total Holdings 1-1,000 931 677,215 1,001-5,000 1,499 4,463,907 5,001-10,000 10,001-100,000 474 373 3,849,312 9,634,218 % 0.31 2.08 1.79 4.49 100,001 and over 39 196,077,848 91.33 3,316 214,702,500 100% Substantial Security Holders The following information is given pursuant to section 35F of the Securities Markets Act 1988. The persons who, according to the records of the company maintained pursuant to the Securities Markets Act 1988, are substantial security holders of the company as at 22 March 2013 are as follows: Substantial Security Holder Last SSH Notice (3) Current Holding (4) R A Duke (1) 166,644,369 168,466,838 A J Wall (2) 168,094,369 169,916,838 (1) R A Duke has a relevant interest as a trustee of the R A Duke Trust which was disclosed in the SSH notice dated 13 March 2012, in respect of 166,644,369 shares. As at 22 March 2013 this interest was in respect of 168,466,838 shares. (2) A J Wall has three relevant interests, which were disclosed in the SSH notice dated 13 March 2012. These were (i) as a trustee of the R A Duke Trust, in respect of 166,644,369 shares; (ii) as a trustee of the Tunusa Trust, in respect of 1,230,000 shares; and (iii) legal and beneficial title, in respect of 220,000 shares. As at 22 March 2013 the relevant interest as a trustee of the R A Duke Trust was in respect of 168,466,838 shares. The other interests remain unchanged. (3) This information reflects the most recently lodged substantial security holder notice, in accordance with the Securities Markets Act 1988. (4) This information reflects the most recent understanding of the company of each of the substantial security holders’ positions. 55 Top 20 Holder List As at 22 March 2013 Rank Holder’s Name Total % 1 JB Were (NZ) Nominees Limited (RA Duke Trust) . . . . . . . . . . . . . . . . 168,466,838 . . . . . . . 78.47 2= Gerald Harvey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,250,000 . . . . . . . . 2.45 2= Harvey Norman Properties (NZ) Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,250,000 . . . . . . . . 2.45 4 5 6 7 8 9 New Zealand Central Securities Depository Limited . . . . . . . . . . . . . . . . 4,821,113 . . . . . . . . 2.25 FNZ Custodians Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,318,674 . . . . . . . . 0.61 JB Were (NZ) Nominees Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,265,000 . . . . . . . . 0.59 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 . . . . . . . . 0.57 Stuart Hamilton Johnstone and Lorraine Rose Johnstone . . . . . . . . . . . . . 1,000,000 . . . . . . . . 0.47 Graham John Paull and Owen Brent Ennor . . . . . . . . . . . . . . . . . . . . . . . . 775,000 . . . . . . . . 0.36 10 Investment Custodial Services Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . 632,414 . . . . . . . . 0.29 11 Geoffrey Peter Scowcroft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513,000 . . . . . . . . 0.24 12 New Zealand Central Securities Depository Limited . . . . . . . . . . . . . . . . . 466,966 . . . . . . . . 0.22 13 Keith Arthur William Brunt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365,000 . . . . . . . . 0.17 14 Peter William Burilin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345,000 . . . . . . . . 0.16 15 Carla Zwart Brockman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336,300 . . . . . . . . 0.16 16 Custodial Services Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,482 . . . . . . . . 0.14 17 Gemscott Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,000 . . . . . . . . 0.12 18 Alaister John Wall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,000 . . . . . . . . 0.10 19 Forsyth Barr Custodians Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,000 . . . . . . . . 0.10 20 John Fraser Collins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,538 . . . . . . . . 0.10 A number of the registered holders listed above hold shares as nominees for, or on behalf of, other parties. 56 Directory Calendar Directors Dame Rosanne PO’L Meo (Chairman) Rodney A Duke Stuart H Johnstone 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 Level 16 19 Victoria Street PO Box 91976 Auckland 1142 Telephone +64 9 375 5999 Websites www.briscoegroup.co.nz www.briscoes.co.nz www.rebelsport.co.nz www.livingandgiving.co.nz Annual Balance Date . . . . . . . . . . . . January Preliminary Profit Announcement. . . March Annual Report Published . . . . . . . . April Final Dividend . . . . . . . . . . . . . . . . . 27 March 2013 Annual Meeting . . . . . . . . . . . . . . . . 16 May 2013 Half Year Results . . . . . . . . . . . . . . . September Interim Dividend . . . . . . . . . . . . . . . October 57