COLLINS FOODS LIMITED
2018
ANNUAL REPORT
Collins Foods Limited
ABN 13 151 420 781
OUR FINANCIAL
PERFORMANCE
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6
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7
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8
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REVENUE
21.7%
TO $770.9m
(FY17: $633.6m)
800
700
600
500
400
300
200
100
0
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5
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3
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7
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9
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$
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35
30
25
20
15
10
5
0
40
35
30
25
20
15
10
5
0
STATUTORY NPAT
16.1%
TO $32.5m
(FY17: $28.0m)
UNDERLYING NPAT
13.3%
TO $38.9m
(FY17: $34.3m)
OUR GROWTH TRAJECTORY CONTINUES
AND WE ARE SUCCESSFULLY INTEGRATING
OUR ACQUISITIONS.
INSIDE THIS REPORT
02 OUR YEAR IN REVIEW
04 CHAIRMAN’S MESSAGE
05 MANAGING DIRECTOR &
CEO’S REPORT
07 FINANCIAL REPORT
08 DIRECTORS’ REPORT
16 REMUNERATION REPORT
35 AUDITOR’S INDEPENDENCE
DECLARATION
36 CONSOLIDATED INCOME STATEMENT
37 CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
38 CONSOLIDATED BALANCE SHEET
39 CONSOLIDATED STATEMENT OF
CASH FLOWS
40 CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
41 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
83 DIRECTORS’ DECLARATION
84 INDEPENDENT AUDITOR’S REPORT
92 SHAREHOLDER INFORMATION
93 CORPORATE DIRECTORY
KFC AUSTRALIA
SAME STORE SALES
1.0%
(FY17: 0.7%)
UNDERLYING EBITDA
16.4%
TO $94.5m
(FY17: $81.3m)
NET OPERATING CASHFLOW
23.1%
TO $74.5m
(FY17: $60.6m)
TOTAL FY18 FULLY
FRANKED DIVIDENDS OF
17.0cps
(FY17: 17.0cps)
KEY DATES
Tuesday, 26 June 2018
Full year results released
Wednesday, 28 November 2018 Half-year results released
Wednesday, 11 July 2018
Final dividend record date
Friday, 7 December 2018
Interim dividend record date
Thursday, 26 July 2018
Final dividend payment date
Friday, 21 December 2018
Interim dividend payment due
Sunday, 14 October 2018
FY19 half-year end
Sunday, 28 April 2019
FY19 end
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 01
OUR YEAR
IN REVIEW
CORE PRODUCT INNOVATION
PROVIDING NEW VARIATIONS ON EXISTING PRODUCTS,
GREAT VALUE, GREATER GEOGRAPHIC DIVERSITY AND
SCALE ADVANTAGE, CONTINUE TO DRIVE EARNINGS GROWTH.
KFC
The KFC Australia network achieved top line
growth, and we are growing the KFC Europe
footprint to drive scale.
TACO BELL
Our first Taco Bell restaurant has
performed strongly and positively
engaged customers.
SIZZLER
Sizzler continues to transition and
deliver positive earnings.
02 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NETHERLANDS
GERMANY
CHINA
JAPAN
THAILAND
AUSTRALIA
COLLINS FOODS HAS ENTERED AN EXCITING NEW
PHASE WITH KFC RESTAURANT ACQUISITIONS IN
AUSTRALIA AND EUROPE, AND THE LAUNCH OF
OUR FIRST TACO BELL RESTAURANT IN AUSTRALIA.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 03
CHAIRMAN’S
MESSAGE
Collins Foods continues to build a platform for
long-term shareholder growth, underpinned
by the expansion of our footprint in Australia
and Europe, and a focus on driving operational
excellence across our network of restaurants.
Through the completion of KFC acquisitions in Australia and
Europe over the past 12 months, Collins Foods has successfully
expanded its footprint in attractive growth markets. The acquired
restaurants are performing to expectations and contributing to the
Group’s growth profile.
Complementing the Group’s expanded footprint, organic growth of
the underlying business has continued due to our focus on driving
operational efficiencies. Together this has resulted in another year
of solid financial performance across the Group.
In FY18, Group revenue increased 21.7% to $770.9 million, and
translated to 16.4% growth in underlying EBITDA to $94.5 million.
This was underpinned by vigilant cost control and a focus on
continued operational efficiency improvements, while still investing
for growth.
As indicated in previous years, the Group remains committed to
maintaining a strong balance sheet. There has been a sustainable
increase in our level of gearing this financial year as we made
accretive acquisitions to provide an additional foundation for long-
term earnings growth. As Collins Foods continues to generate
cash, the Company’s level of debt will decrease.
As our business grows, we are delighted to share its success
with our shareholders. Reflecting this, Collins Foods has paid
shareholders a final fully franked dividend of 9 cents per share,
bringing the full year FY18 dividend to 17 cents per share, fully
franked. The final dividend will be paid on 26 July 2018 and is in
line with the Board’s dividend policy to pay out 50% of full year net
profit.
Our Australian KFC network continues to perform well. As the
largest franchisee of KFC in Australia, Collins Foods is committed
to delivering the highest quality products, at great value, to our
customers.
Our European businesses acquired last year have also been
tracking well, with the restaurants performing to expectations and
contributing to earnings. We are confident the Group’s strategic
decision to expand into Europe provides a significant upside
and will continue to support an attractive long-term platform
for growth.
During the financial year, the Board took the strategic decision to
launch the Taco Bell brand in Australia. The launch of this exciting
brand provides a further growth channel for shareholders.
The restaurant in Annerley, Queensland is the only Taco Bell in
Australia and the initial customer reaction has been strong.
We continue to successfully transition the Sizzler business, with
no further growth capital allocated to this non-core business.
We have maintained a positive EBITDA contribution from Sizzler
Australia, with a reduced restaurant count. At the same time,
the growth of Sizzler Asia continues with solid royalty revenue
generated from restaurants in Thailand, Japan and China.
Following a strategic review, Collins Foods exited the Snag
Stand business during the financial year.
Outlook
With an expanded global footprint, organic growth across the
restaurant network, and the introduction of the Taco Bell brand,
the 2018 financial year has been another successful period for
Collins Foods.
The Board is confident the strategy we are executing will generate
sustainable growth over the long-term for shareholders. We will
work to continue our track record of successfully integrating
our acquisitions, while driving operational excellence across our
business. We are excited by the potential of Taco Bell, and look
forward to establishing this brand across Australia.
Serving the needs of our customers will continue to underpin our
offering. To this end, Collins Foods remains focused on product
innovation and offering great value to customers.
I would like to thank each of my fellow directors for their
contribution to the business, and our management team — led by
Managing Director & CEO, Graham Maxwell — for their leadership.
I also thank our staff for another year of hard work and their very
important contribution to our success.
Once again, I thank shareholders for their ongoing support of
Collins Foods as we continue to execute our strategy to ensure we
remain the market leader in our sector.
Robert Kaye SC
Independent Non-executive Chairman
04 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
MANAGING DIRECTOR
& CEO’S REPORT
During the 2018 financial year (FY18),
Collins Foods continued to deliver growth
across the Group. This was driven by recent
acquisitions as well as improved underlying
performance across our restaurant network.
Building on our track record of successfully integrating
acquisitions, the Company expanded its footprint with the
addition of new restaurants in Australia and the Netherlands.
At the same time, Collins Foods launched its first Taco Bell
during the financial year. The restaurant is performing strongly,
providing a foundation for the further roll out of additional
restaurants.
Expanded KFC footprint
Collins Foods is the largest franchisee of KFC restaurants in
Australia, with strategic acquisitions significantly expanding
our overall KFC footprint. In FY18, 28 KFC restaurants were
acquired from Yum! for cash consideration of $110.2 million.
The acquisition was partly funded by debt and partly by a
heavily oversubscribed $44.1 million, fully-underwritten,
accelerated, non-renounceable entitlement offer.
We have successfully completed the acquisition of 27 Australian
restaurants as part of this transaction, with one restaurant
yet to complete. The acquisition was complemented by five
new restaurant builds and offset by three closures. The new
restaurants provide the Group greater geographic diversity and
scale advantages contributing to sustainable earnings growth.
In Europe, the integration of acquired restaurants in the
Netherlands and Germany has progressed well. At the year
end, Collins Foods had a total of 33 KFC restaurants in Europe
— 15 in Germany and 18 in the Netherlands. These restaurants
complement our Australian portfolio, further expanding our
geographic diversity and scale, and providing another attractive
avenue for long-term growth.
In the period ahead, Collins Foods plans further restaurant
openings in Australia and Europe, and we are confident of our
ability to continue growth momentum in all the markets we
operate in.
Financial performance
FY18 has been another period of strong performance across
the Group. Driven by same store sales growth and an expanded
store footprint, revenue has increased 21.7% to $770.9 million
when compared to the previous period.
Statutory EBITDA has also risen 14.7% to $89.6 million; and
underlying EBITDA increased 16.4% to $94.5 million.
Underlying NPAT grew 13.3% to $38.9 million, driven by solid
performance across the Group.
Collins Foods continues to generate strong cash flows, with
Net Operating cash flow up 23.1% to $74.5 million (FY17:
$60.6 million).
Net debt increased by $94.1 million to $227.2 million, reflecting
the acquisition of 16 KFC Netherlands restaurants and 28 KFC
restaurants in Australia. The net leverage ratio is up to 2.14,
from 1.59. As Collins Foods continues to generate cash flows
from operations, the net leverage ratio is expected to decrease.
Operational performance
KFC Australia
The KFC Australia business has continued its strong growth
trend, with newly integrated restaurants making contributions
in line with expectations.
Revenue from the KFC Australia business increased 13.6%
to $624.1 million. EBITDA rose 10.5% to $99.3 million, with
EBITDA margins contracting slightly to 15.9% (from 16.4% in
FY17) mainly due to a promotional driven shift in product mix
and reduced same store sales in Western Australia. However,
Western Australia same store sales recovered to positive
territory in the fourth quarter of the financial year.
These strong financial results for the KFC Australia business
reflects our continued focus on product innovation and offering
customers high-quality products and great value.
To improve the customer experience, we continue to invest in a
range of initiatives including mobile technology and home delivery.
There continues to be steady growth in our online ordering
App, which now attracts more than 20,000 orders per week
or more than double the level at the end of last financial year.
Feedback from customers is positive and the average ticket
is approximately 20% higher on the App compared to
in-store orders.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 05
Following the recent successful trial of home delivery, we have
expanded this service to 15 restaurants and expect this number
to grow in the near term. We are working closely with Deliveroo
in these restaurants, whilst continuing to trial our own delivery
service at one restaurant in Queensland.
Collins Foods builds strong links in the communities in
which we operate by supporting local charity groups and
organisations. We regularly partner with not-for-profit
organisations and local sporting clubs to raise much needed
funds to support their endeavours.
We also support a number of charities through our employee
giving program Collins Giving. This program creates a strong
link between our Company, employees and the community as
employees have a platform to give back to everyday Australians
in need and make a real difference. During FY18, we donated
over $500,000 to our employee-selected charities. During the
same period, Collins Foods also contributed $70,000 to World
Hunger, raised through in restaurant customer donations and
staff fundraising initiatives.
Conclusion
The 2018 financial year has been particularly successful for
our Company. We have successfully consolidated our acquired
businesses, while continuing to drive operational efficiencies
across our Australian and European footprint.
We believe our strategic acquisitions, and focus on ongoing
operational excellence, provides a platform for sustainable
long-term earnings growth across the Group.
In the year ahead, we will continue to drive organic growth in
our KFC Australia business and offer our customers world-
class quality products and great value.
We will prioritise the expansion of technology across our
KFC network and broaden our home delivery offering. Both
initiatives improve our service offering to customers and
provide a platform for transaction-led sales growth.
We will leverage our experience in Australia to build our
European business, which we believe offers great growth
potential.
Taco Bell offers an exciting new growth opportunity for Collins
Foods and we plan to open further restaurants this year.
In concluding, I would like to thank all of our employees for
their hard work and commitment during the year. Together with
the Board, I look forward to delivering sustainable long-term
growth for our business.
Graham Maxwell
Managing Director & CEO
KFC Europe
Integration of the acquired European businesses is on track and
the restaurants are performing in line with expectations. We
are executing our German transformation plan and have seen
an improvement in sales and margins.
KFC Europe contributed revenue of $91.6 million and
$6.6 million in underlying EBITDA. European same store
sales growth was 0.8% after adjusting for the impact of
cannibalisation following the opening of two new restaurants.
We are focused on driving top line growth through innovation
and value while improving operational effectiveness across the
region to deliver sustainable earnings growth. To support this
strategy and the continuation of the German transformation
plan, we have appointed a Head of Operations for KFC, Europe.
Taco Bell
We were pleased to have launched the first Australian Taco
Bell restaurant in Annerley, Queensland, during the year.
This restaurant has been welcomed by consumers and is
performing strongly. We plan to open further restaurants
over the coming year.
Sizzler
The Sizzler business maintained EBITDA while revenue was
down 22% to $50.8 million as a result of operating two fewer
restaurants compared to last financial year.
Sizzler Asia continues to perform well. Royalty revenue
increased 9.7% due to new restaurant openings and the
introduction of a strong value offering. We opened five net
restaurants during the year, with Sizzler Asia’s restaurant count
now numbering 73 across China, Japan and Thailand.
Making a difference
Collins Foods supports the well being of our young people
in everything we do; from building their confidence and life
skills, investing in their individual development, to creating
a family environment which promotes safety and well-being.
We are uniquely placed to make a big difference to the lives
of the young people who choose to join us, and we take our
responsibility seriously by going beyond what is required of
us as an employer. We put our people first by investing in
individual development to foster Australia’s future leaders.
Recognising that no two people are the same, we constantly
support and encourage our youth by celebrating uniqueness
and individuality in the workplace. In doing so, we are
consciously building their self-confidence and provide a
supportive family environment embracing social inclusion
and interaction.
We are pleased with our ongoing progress towards Zero Harm
in the workplace. While slightly higher than the previous year,
our lost time injury frequency rate has fallen by 9.3% to 20.6 in
the last two years.
Food safety is paramount to Collins Foods which is why we
ensure best practice approaches to storing, preparing and
supplying our food. From the paddock to in-store, we ensure
our supply chain partners have a strong reputation for quality.
06 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
COLLINS FOODS LIMITED
ACN 151 420 781
FINANCIAL REPORT
For the reporting period ended 29 April 2018
Contents
08 DIRECTORS’ REPORT
58 E/ RELATED PARTIES
15 LETTER FROM THE CHAIR OF THE REMUNERATION
AND NOMINATION COMMITTEE
58
59
E1/ Investments accounted for using the equity method
E2/ Related party transactions
16 REMUNERATION REPORT
35 AUDITOR’S INDEPENDENCE DECLARATION
36 CONSOLIDATED INCOME STATEMENT
37 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
38 CONSOLIDATED BALANCE SHEET
39 CONSOLIDATED STATEMENT OF CASH FLOWS
40 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
41 A/ FINANCIAL OVERVIEW
41
42
45
45
A1/ Segment information
A2/ Business combinations
A3/ Revenue and other income
A4/ Expenses
46 B/ CASH MANAGEMENT
46
47
47
48
B1/ Cash and cash equivalents
B2/ Borrowings
B3/ Ratios
B4/ Dividends
49 C/ FINANCIAL RISK MANAGEMENT
49
52
53
C1/ Financial risk management
C2/ Recognised fair value measurements
C3/ Derivative financial instruments
55 D/ REWARD AND RECOGNITION
55
55
57
D1/ Key management personnel
D2/ Share based payments
D3/ Contributed equity
60 F/ OTHER INFORMATION
60
61
61
62
64
67
67
68
69
71
72
F1/ Commitments for expenditure
F2/ Earnings per share
F3/ Receivables
F4/ Property, plant and equipment
F5/ Intangible assets
F6/ Trade and other payables
F7/ Provisions
F8/ Reserves
F9/ Tax
F10/ Auditor’s remuneration
F11/ Contingencies
73 G/ GROUP STRUCTURE
73
G1/ Subsidiaries and Deed of Cross Guarantee
(Amended and Restated)
76
G2/ Parent entity financial information
77 H/ BASIS OF PREPARATION AND OTHER
ACCOUNTING POLICIES
H1/ Basis of preparation
H2/ Other accounting policies
77
81
82
I/ SUBSEQUENT EVENTS
82
I1/ Acquisition of restaurants in Australia
83 DIRECTORS’ DECLARATION
84
INDEPENDENT AUDITOR’S REPORT
92 SHAREHOLDER INFORMATION
93 CORPORATE DIRECTORY
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 07
DIRECTORS’ REPORT
Your Directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of
Collins Foods Limited (the Company) and the entities it controlled at the end of, or during, the period ended 29 April 2018.
Directors
The names of the Directors of the Company during or since the end of the financial period are as follows:
NAME
Robert Kaye SC
Graham Maxwell
Kevin Perkins(1)
Newman Manion
Bronwyn Morris
Russell Tate
DATE OF APPOINTMENT
7 October 2014
25 March 2015
15 July 2011
10 June 2011
10 June 2011
10 June 2011
(1) Kevin Perkins was appointed as Non-executive Director from 19 December 2017.
Principal activities during the period
During the period, the principal activity of the Group was the operation, management and administration of restaurants in Australia,
Europe and Asia. The Group entered into an agreement to acquire 28 KFC restaurants located in Tasmania, South Australia and
Western Australia from Yum! Brands Inc. (Yum!) for cash consideration of $110.2 million and also purchased 16 KFC restaurants in
the Netherlands. A 1:11 fully-underwritten, pro-rata, accelerated non-renounceable entitlement offer to raise $44.1 million was also
completed. Following a strategic review, a decision to exit the Snag Stand business was also made during the period. The Group
opened its first Taco Bell restaurant in November 2017. There were no significant changes in the nature of the Group’s activities this
financial year.
Operating and financial review
GROUP OVERVIEW
The Group’s business is the operation, management and administration of restaurants, currently comprising three restaurant
brands: KFC, Taco Bell and Sizzler.
At the end of the period, the Group operated 223 franchised KFC restaurants in Australia, 15 franchised KFC restaurants in
Germany, 18 franchised KFC restaurants in the Netherlands and one franchised Taco Bell restaurant in Australia, which all
compete in the quick service restaurant market. The Group owns and operates 14 Sizzler restaurants in Australia, which compete
in the casual dining restaurant market. It is also a franchisor of the Sizzler brand in South East Asia, with 73 franchised stores
predominantly in Thailand, but also in China and Japan.
The KFC and Taco Bell brands are two of the world’s largest restaurant chains and are owned globally by Yum!. In Australia,
the Group is the largest franchisee of KFC restaurants and currently the only franchisee of Taco Bell restaurants.
In the casual dining market, Sizzler competes with other casual dining concepts as well as taverns and clubs, fast food and
home cooking.
GROUP FINANCIAL PERFORMANCE
Key statutory financial metrics in respect of the current financial period and the prior financial period are summarised in the
following table:
STATUTORY FINANCIAL METRICS
Total revenue ($m)
Earnings before interest, tax, depreciation, amortisation and impairment (EBITDA) ($m)
Earnings before interest and tax (EBIT) ($m)
Profit before related income tax expense ($m)
Income tax (expense) ($m)
Net profit attributable to members (NPAT) ($m)
Earnings per share (EPS) basic (cents per share)
Total dividends paid/payable in relation to financial period (cents per share)(2)
Net assets ($m)
Net operating cash flow ($m)
2018
770.9
89.6
58.7
48.5
(16.0)
32.5
28.28
17.0
333.0
74.5
2017
633.6
78.1
51.9
44.0
(16.0)
28.0
(1)28.67
17.0
266.8
60.6
CHANGE
137.3
11.5
6.8
4.5
–
4.5
(0.39)
–
66.2
14.0
(1) The comparative earnings per share have been restated for the bonus element of the 1:11 entitlement offer undertaken in July 2017.
(2) Dividends paid/payable is inclusive of dividends declared since the end of the relevant reporting period.
08 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
The Group’s total revenue increased by 21.7% to $770.9 million mainly due to like-for-like sales growth, new restaurant openings and
the acquisition of KFC restaurants.
This increase in total revenue combined with strong business controls flowed through to increased EBITDA for the reporting period
of $89.6 million, up 14.7% on the prior reporting period and significantly improved net operating cash flow of $74.5 million, up 23.1%.
EBITDA, EBIT, NPAT and EPS were impacted by significant items totalling $4.9 million pre-tax, including acquisition costs of $3.9 million
and $1.0 million relating to Snag Stand restructuring costs.
In addition, EBIT, NPAT and EPS were impacted by $0.2 million pre-tax, non-cash impairment charges.
Finally, NPAT and EPS were further impacted by non-cash write-offs of deferred tax assets totalling $1.1 million which were written
off at the time of the Snag Stand closure and $0.7 million relating to the extinguishment of unamortised costs from previous
refinancing. The consolidated NPAT effect of these significant items was $6.4 million.
Underlying financial metrics excluding significant items which occurred in the current period are summarised as follows:
UNDERLYING FINANCIAL METRICS
Total revenue ($m)
Earnings before interest, tax, depreciation, amortisation and impairment
(Underlying EBITDA) ($m)
Net profit attributable to members (Underlying NPAT) ($m)
2018
770.9
94.5
38.9
Earnings per share (Underlying EPS) basic (cents)
(1) The comparative earnings per share have been restated for the bonus element of the 1:11 entitlement offer undertaken in July 2017.
33.84
2017
633.6
81.3
34.3
(1)35.13
CHANGE
137.3
13.2
4.6
(1.29)
The improvement in the underlying financial metrics shown above is a reflection of the revenue growth and strong cost controls
referred to above. These are discussed further in the review of underlying operations below.
Management believe that adjusting the results for significant items allows the Group to more effectively compare underlying
performance against prior periods.
Review of underlying operations
KFC AUSTRALIA
The overall performance across the KFC business in Australia has been positive, with the Company expanding the national footprint
following the acquisition of 28 restaurants from Yum!.
Revenue in KFC Australia was up 13.6% on the prior corresponding period to $624.1 million, driven by increased restaurant numbers
(including by acquisition), as well as same store sales growth. KFC Australia underlying EBITDA grew by 10.5%, up from $89.8 million to
$99.3 million, with an overall EBITDA margin of 15.9%.
Core product offerings, good value offers and product innovation continues to drive strong sales growth across our KFC Australia
network. New products such as the “Triple Bacon Burger” and “The Big Cheese” not only provided customers a great reason to visit
our restaurants but showcased the brand, keeping perceptions high.
The Group launched its own delivery service in KFC Indooroopilly (Queensland) in April 2018 in addition to the small group of trial
delivery restaurants using Foodora as an aggregator. The number of delivery restaurants is expected to grow in the future and have
a positive impact on the brand, sales and profitability.
In order to support growth, $29.1 million was spent on new restaurants as well as the remodelling and maintenance program.
This remains an important driver of traffic to our restaurants, in addition to supporting KFC to meet its restaurant refurbishment
obligations with Yum!
KFC EUROPE
KFC Europe contributed revenue of $91.6 million and $6.6 million in underlying EBITDA. By the end of the period, 33 restaurants
were in operation, with two new restaurants opening in the Netherlands since the acquisition as well as an additional two in
Germany. Netherlands is performing to expectations with some softening of margins due to the cost of store openings. Germany
is seeing improvements due to the transformation plan, albeit with some impact of new restaurant openings.
In order to support growth, $12.1 million was spent on new restaurants, remodels and maintenance during the year.
TACO BELL
The Company’s first Taco Bell restaurant opened in Annerley (Queensland) in November 2017.
The brand continues to have positive customer engagement and is trading well. The loyalty program has seen a strong uptake and
product favourites include “The Cheesy Gordita Crunch” and “Pork Carnitas”.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 09
DIRECTORS’ REPORT
SIZZLER
Revenue in Sizzler was down 22.0% on the prior
corresponding period to $50.8 million, driven by the
closure of two restaurants in Australia. Same store
sales declined in Australia to (0.5%) compared with
0.4% growth in the previous corresponding period.
Sizzler’s underlying EBITDA was $4.6 million the same
as the previous corresponding period.
No growth capital was allocated to the Sizzler Australia
business in this reporting period. There were 14 Sizzler
restaurants at the end of the period. The restaurants will
continue to be assessed on an ongoing basis in relation to
their individual performance and expiry of their leases.
Sizzler franchise operations in Asia contributed an increase
of 9.7% in revenue over the prior corresponding period.
During the current reporting period there were five restaurant
openings in Thailand. There was one restaurant opening
and one restaurant closure in China, bringing the total
restaurant count in Asia to 73 at the end of the period.
Strategy and future performance
GROUP
The near term strategy involves focussing on the integration of
the recent KFC restaurant acquisitions in Europe and Australia,
building new restaurants and developing the Taco Bell brand.
The Group will continue to drive growth across the business
through new product innovation, as well as great value offers
that keep customers coming back. In addition, organisational
capability is continually being strengthened to deliver on
acquisitions and organic growth.
KFC AUSTRALIA
The plan for the core KFC Australia business is firstly to focus
on top line growth and disciplined operational management to
maintain or improve margins. There is also activity to increase
systematisation to ensure high quality, consistent customer
experiences across all Collins Foods restaurants. A further
eight new restaurants are expected to be built in Australia over
the coming reporting period.
KFC EUROPE
The focus for the KFC Europe business will be to grow
the value concept in order to drive transactions and
sales growth. Additionally, the KFC Europe business
will focus on margin improvement, whilst building a
strong efficient back office function. The KFC Europe
business is expecting to build seven to nine restaurants
across Germany and the Netherlands in FY19.
TACO BELL
Taco Bell’s focus will be to introduce new products, great value
and experiences that keep customer engagement high. The
business will continue to build a strong customer following
through a variety of online and in restaurant customer
engagement tools including live music in store on Sunday
afternoons. Further restaurants are scheduled to be opened
prior to the end of the calendar year.
10 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
SIZZLER
The Sizzler Australia business will continue to be assessed on
an ongoing basis, with no further growth capital allocated to the
business. Sizzler Asia is expected to open further restaurants
during the coming financial year.
KEY RISKS
The Group’s risk management program has been designed to
establish a sound system of risk oversight, management and
internal controls by having a framework in place to identify,
assess, monitor and manage risk.
The key risks faced by the Group that have the potential to have
an effect on the financial prospects of the Group, as disclosed
above, and how the Group manages these risks, include:
´ food safety – there is a risk that the health and safety of
the public is compromised from food products.
We address this risk through robust internal food safety
and sanitation practices, audit programs, customer
complaint processes, supplier partner selection protocols
and communication policy and protocols;
´ workplace health and safety – there is a risk that the
Group does not provide a safe working environment for
its people, contractors and the community. We address
this risk through robust internal work health and safety
practices, the implementation of initiatives and education
programs with a focus on preventative measures with
enhanced dedicated support in high risk areas to ensure
the wellbeing of our key stakeholders;
´ culture and people – there is a risk that the Group’s
culture and people are negatively impacted by new
acquisitions and growth and/or are not aligned or
sustainable to support strategic priorities. We address
this risk through deploying contemporary people
practices, reward and recognition programs, talent
management strategies and designation of appropriate
human resources;
´ brand growth and diversification (non-KFC) –
there is a risk that the Group does not successfully
grow emerging brands and/or acquire and integrate
new brands. We address this risk through having
an experienced management team, robust project
management processes involving trials and staged
rollouts and regular strategic reviews;
´ deterioration of KFC brand – there is a risk that the
global KFC brand and reputation is damaged impacting
the brand’s performance in Australian and European
markets. We address this risk through maintaining a
close working relationship with the franchisor, having our
team members sit on relevant KFC advisory groups and
committees and monitoring compliance with obligations;
´ supply chain disruption – there is a risk that the Group’s
inability to source key food and consumable products
in an ethical manner, at the quality required, within the
prescribed time frames. We address this risk through
use of multiple suppliers where possible with a diverse
geographic base with multiple distribution routes;
´ systems integrity and cyber security – there is a risk that
key systems are not sufficiently stable, integrated and/
or secure to support business operations and decision
making. We address this risk through the increase of
financial and human resources to the systems function
and implementation of a systems and cyber security plan;
´ inability to identify and react to consumer and
competitive behaviour – there is a risk that the demand
for the Group’s products declines as a result of a failure
to understand and adapt to changes in consumer
preferences or expectations and an inability to react
to competitor activity and technological advances.
We address this risk through keeping abreast of
economic and consumer data/research, innovative
product development, broadening of the menu
offering and brand building; and
´ inability to adapt, innovate and change – there is a risk
that the Group’s inability to adapt, innovate and manage
change which negatively influences achievement of
strategic and business priorities. We address this risk
through having an experienced management team, robust
fit for purpose project and change management practices
involving pilots/trials and staged rollouts and regular
strategic reviews.
Additional key risk for the Group’s European operations include:
´ financial reporting and controls – there is a risk
of material error in the management accounts that
requires restatement at half or full year. We address
this risk through the development and monitoring of
key financial controls and testing them in conjunction
with our external auditors.
DIVIDENDS
Dividends paid to members during the financial period were as follows:
Final ordinary dividend for the financial period
ended 30 April 2017
Interim ordinary dividend for the financial period
ended 15 October 2017
Total
CENTS
PER SHARE
9.0
TOTAL
AMOUNT
$000
9,595
FRANKED/
UNFRANKED
Franked
DATE OF
PAYMENT
20 July 2017
8.0
17.0
9,317
Franked
21 December 2017
18,912
In addition to the above dividends, since the end of the financial period, the Directors of the Company have declared the payment
of a fully franked final dividend of 9.0 cents per ordinary share ($10.5 million) to be paid on 26 July 2018 (refer to Note B4 of the
Financial Report).
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL PERIOD
On 7 May 2018 the Group acquired two KFC restaurants located in South Australia that were part of the Yum! acquisition announced
on 26 June 2017. The details of this acquisition are referred to in Note I1 of the Financial Report.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
The Group will continue to pursue the increase of profitability of its major business segments during the next financial period.
Additional comments on expected results of operations of the Group are included in the operating and financial review section of
this Report.
ENVIRONMENTAL REGULATIONS
The Group is subject to environmental regulation in respect of the operation of its restaurant sites. To the best of the Directors’
knowledge, the Group complies with its obligations under environmental regulations and holds all licences required to undertake its
business activities.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 11
DIRECTORS’ REPORT
Information on Directors
DIRECTOR
Robert Kaye SC
LLB, LLM
Graham Maxwell
Newman Manion
EXPERIENCE, QUALIFICATIONS AND DIRECTORSHIPS
Robert Kaye SC is a barrister, mediator and professional Non-executive Director.
Recognised for his strategic and commercially focused advice, Robert has acted
for various commercial enterprises – both public and private – across media,
retail, FMCG, property development, mining and engineering sectors. Drawing
on his experience as a senior member of the NSW Bar, including serving on the
Professional Conduct Committee and Equal Opportunity Committee, Robert
has a strong emphasis on Board governance and is well versed in Board
processes. Robert has significant cross-border experience, including corporate
restructuring and M&A across North America, Europe, Asia, and the Australia
and New Zealand region.
In addition to his role as Non-executive Chairman of Collins Foods Limited
(ASX:CKF), Robert is a Non-executive Director of HT&E Limited (ASX:HT1)
and Magontec Limited (ASX:MGL) and the Chairman of the Macular Disease
Foundation Australia. He was formerly Non-executive Chairman of Spicers
Limited (ASX:SRS) and Non-executive Director of UGL Limited (UGL).
Other listed entity directorships – current or held within last three years:
HT&E Limited (2018 – current)
Magontec Limited (2013 – current)
Spicers Limited (2012 – 2017)
UGL Limited (2015 – 2017)
Graham is an experienced senior executive of corporate and franchise
businesses, predominantly in fast moving consumer goods and fast foods,
both in Australia and internationally. He is a commercially astute management
professional with proven success in leveraging and growing businesses through
their brands.
Prior to his current role, Graham spent more than six years working for Yum!
Brands Inc (Yum!) in a number of capacities. His last position with Yum! was as
Managing Director for KFC Southern Africa.
Other listed entity directorships – current or held within last three years:
None other than Collins Foods Limited
Newman has more than 33 years’ experience in the food franchise industry,
including various roles with Yum! (Franchisor of KFC) since 1982. Previously,
Newman served as a Board member of KFC Japan (from 2005 to 2008), General
Manager of KFC operations in Australia and New Zealand (from 1995 to 2004),
Development Director of PepsiCo restaurants (including KFC) in Australia (from
1990 to 1995) and General Manager of KFC New Zealand (from 1988 to 1990).
Most recently Newman was Vice-President, Operations for Yum!’s Asian
franchise business (from 2004 until 2010).
Other listed entity directorships – current or held within last three years:
None other than Collins Foods Limited
SPECIAL
RESPONSIBILITIES
Independent
Non-executive Chair
Audit and Risk
Committee member
Remuneration and
Nomination Committee
member
Managing Director
& CEO
Independent
Non-executive Director
Remuneration and
Nomination Committee
Chair
Audit and Risk
Committee member
12 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
DIRECTOR
Bronwyn Morris
B. Com, FCA, FAICD
EXPERIENCE, QUALIFICATIONS AND DIRECTORSHIPS
Bronwyn is a Chartered Accountant and a former partner of KPMG. Bronwyn
worked with the firm and its predecessor firms in Brisbane, London and the
Gold Coast.
Kevin Perkins
Russell Tate
B. Com (Econ.)
For more than 20 years, Bronwyn has been a full-time Non-executive Director
and has served on the Boards of a broad range of companies.
She currently serves as Chair of, or a member of, the Audit and Risk Committees
with respect to a number of her Board roles. Bronwyn is a Director of Watpac
Limited (since 2015), Royal Automobile Club of Queensland Limited (since 2008,
Chair since 2017), RACQ Insurance Limited (since 2014), QT Mutual Bank (since
2017), Gold Coast 2018 Commonwealth Games Corporation (since 2016), and
Queensland Urban Utilities (since 2017).
Other listed entity directorships – current or held within last three years:
Watpac Limited (2015 to current)
Kevin is a highly experienced executive in the Quick Service Restaurant (QSR)
and casual dining segments of the Australian restaurant industry. He has had
more than 33 years’ experience with the Collins Foods Group, having overseen its
growth both domestically and overseas over that time.
Kevin is the Non-executive Chairman of Sizzler USA Acquisition, Inc. He holds
approximately 55% of the common stock in Sizzler USA Acquisition, Inc.
Sizzler USA Acquisition, Inc operates or franchises Sizzler restaurants across the
United States and Puerto Rico. The operations of Collins Foods and Sizzler USA
Acquisition, Inc are separate.
Other listed entity directorships – current or held within last three years:
None other than Collins Foods Limited
Russell has more than 32 years’ experience in senior executive and consulting
roles in marketing and media. He was CEO of ASX-listed STW Group Limited,
Australia’s largest marketing communications group from 1997 to 2006,
Executive Chair from 2006 to 2008, and Deputy Chair (Non-executive) from
2008 to 2011.
He was Chair (Non-executive) of Collins Foods Limited from its listing in 2011
until March 2015, and has remained Executive Chair of ASX-listed Macquarie
Radio Network Limited (now Macquarie Media Limited) since 2009. He is also a
Director of One Big Switch Pty Ltd (since 2012).
Other listed entity directorships – current or held within last three years:
Macquarie Media Limited (since 2008, Executive Chair 2009 to 1 July 2018,
Non-executive Chair from 1 July 2018)
SPECIAL
RESPONSIBILITIES
Independent
Non-executive Director
Audit and Risk
Committee Chair
Remuneration and
Nomination Committee
member
Executive Director
(until 19 December
2017)
From 19 December
2017
Non-executive Director
Audit and Risk
Committee member
Remuneration and
Nomination Committee
member
Independent
Non-executive Director
Audit and Risk
Committee member
Remuneration and
Nomination Committee
member
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 13
DIRECTORS’ REPORT
The relevant interest of each Director in the share capital issued by the Company, at the date of this report is as follows:
NAME
Robert Kaye SC
Graham Maxwell
Newman Manion
Bronwyn Morris
Kevin Perkins
Russell Tate
ORDINARY
SHARES
29,913
PERFORMANCE
RIGHTS
–
480,761
21,820
8,456
7,621,484
21,820
251,764
–
–
–
–
COMPANY SECRETARY
Frances Finucan LLB (Hons), BA (Modern Asian Studies), FGIA, MQLS, GAICD
The Company Secretary, Frances Finucan, was appointed to the role on 17 July 2013. Frances has more than 16 years’ experience in
legal, commercial and corporate governance working in legal, regulatory and company secretarial roles in Australia.
MEETINGS OF DIRECTORS
The number of meetings of the Company’s Board of Directors and of each Board Committee held during the period ended
29 April 2018, and the number of meetings attended by each Director, were:
FULL MEETINGS OF DIRECTORS
AUDIT AND RISK COMMITTEE
REMUNERATION AND
NOMINATION COMMITTEE
NUMBER
OF MEETINGS(1)
8
MEETINGS
ATTENDED
8
NUMBER
OF MEETINGS(1)
6
MEETINGS
ATTENDED
6
NUMBER
OF MEETINGS(1)
4
MEETINGS
ATTENDED
4
8
8
8
8
8
7
8
8
8
8
*
2
6
6
6
*
2
6
6
5
*
1
4
4
4
*
1
4
4
4
Robert Kaye SC
Graham Maxwell
Kevin Perkins
Newman Manion
Bronwyn Morris
Russell Tate
(1) Number of meetings represents the number of meetings held during the time the Director held office or membership of a Committee during the period.
*
Not a member of the relevant Committee.
14 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
LETTER FROM THE CHAIR OF THE REMUNERATION
AND NOMINATION COMMITTEE
Dear Shareholder,
Dear Shareholder
I am pleased to present you with Collins Foods Limited’s Remuneration Report for the reporting period ended
Collins Foods’ remuneration strategy is designed to be responsible and sufficiently competitive to attract and retain
30 April 2017. In structuring the remuneration framework for executives and directors, the Remuneration and
valued executives and directors who create value for shareholders whilst maintaining alignment with the short term
Nomination Committee has regard to the recommendations of the ASX Corporate Governance Council and
and long term objectives of the Company.
the expectations of Australian corporate governance stakeholders. An outline of the remuneration framework
The Board continues to give diligent consideration to the introduction of appropriate additional performance incentives.
and related governance documentation is available on the Company website at www.collinsfoods.com under
As a result, an additional performance metric has been identified in the form of the Guest Experience Survey and
Investors and we encourage shareholders to read the material available in here, in conjunction with this report.
specifically, improvement in Overall Satisfaction scores.
The remuneration policy for Collins Foods is designed to be responsible and appropriate, yet sufficiently
The decision to add a Guest Experience Survey improvement metric reflects the Company’s core belief that world
competitive to attract and retain the necessary high calibre of directors and executives, as the Company’s
class customer experiences will grow the KFC and Taco Bell brands for the short term and long term benefits of
circumstances evolve over time. This is supported by the 91.98% of votes cast at the 2016 Annual General
all stakeholders.
Meeting in favour of the adoption of the Remuneration Report for the prior reported period. In designing the
short term and long term incentive arrangements for executives, the intended focus is upon driving long term,
sustainable shareholder wealth creation. In reviewing variable pay outcomes during the reporting period, the
Remuneration and Nomination Committee takes responsibility for ensuring that these payments remain aligned
with the shareholder experience over the reporting period, and this is demonstrably the case in respect of 2017.
The Guest Experience Survey is the global KFC and Taco Bell measure of real customer experiences. It directly relates
to the real customer feedback targeting executional areas such as food quality, speed of service, hospitality, cleanliness
and maintenance of facilities. The Guest Experience Survey program is the franchisor’s global barometer of executional
excellence and is administered by an independent third party provider on a month by month basis.
The Board considers the Guest Experience Survey performance metric is appropriately placed as a second metric
As presented, the short term incentive (STI) and long term incentive (LTI) programs are subject to EBITDA and
to the Collins Foods Short Term Incentive Plan that applies to KMP Executives and, that it will apply from the 2019
earnings per share (EPS) growth measures, respectively, which are regarded to be transparent and key drivers
financial year.
of shareholder wealth outcomes. We are therefore pleased that adjusted EBITDA increased 8.9% to $81.3 million
and underlying EPS increased 10.4% to 35.68 cents in 2017, while delivering a total shareholder return of around
When the Company listed, performance was incentivised with a single metric short term incentive plan. Since listing,
35% during the period. This indicates that the incentives are effectively driving shareholder value creation, as
the Collins Foods Executive and Employee Incentive Plan has been introduced and a decision made to revise the vesting
intended.
scale to reflect the growth of the business.
For the performance rights that will be subject to vesting determination post the release of this report, the
The 2017 reporting period has confirmed the Company’s place as a high performing member of the S&P
Non-executive Directors have deemed it appropriate to exercise discretion. This is discussed in further detail in
ASX300 Index, and the Board has recognised the responsibilities and expectations that fall upon boards that
the report.
hold such a position. With regard to the evolving expectations of company stakeholders, the directors
continually welcome feedback from shareholders around the remuneration framework applied by Collins Foods
In combination with the existing remuneration structure, the Directors remain confident that the outcomes for 2019
and remain open to discussing the appropriateness of the performance metrics and provisions applied.
demonstrate an alignment between remuneration outcomes, and the performance delivered by Collins Foods. This is
supported by the 90.97% of votes cast at the 2017 Annual General Meeting in favour of the adoption of the Remuneration
Report for the prior reported period.
During the reporting period the Board sought feedback on both remuneration practices, and engagement/
communication with shareholders, from independent external experts regarding remuneration practices
appropriate to these new circumstances in which the Company finds itself. As a result, the directors remain
confident that the outcomes for 2017 demonstrate an alignment between remuneration outcomes, and the
performance delivered by Collins Foods, though improvements will continue to be made into 2018 as the
remuneration framework, and mix of remuneration, is continually refined.
On behalf of the Collins Foods Board, I commend this remuneration report to our investors.
Yours sincerely,
Yours sincerely,
Newman Manion
Mr. Newman Manion
Independent Non-executive Director
Independent Non-executive Director
Chair of the Remuneration and Nomination Committee
Chair of the Remuneration and Nomination Committee
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 15
DIRECTORS’ REPORT
Remuneration Report
Persons covered by this report
The Remuneration Report sets out, in accordance with section
300A of the Corporations Act:
´ the Company’s governance relating to remuneration;
´ the policy for determining the nature and amount or value
of remuneration of key management personnel;
´ the various components or framework of that
remuneration;
´ the prescribed details relating to the amount or value paid
to key management personnel, as well as a description of
any performance conditions; and
´ the relationship between the policy and the performance
of the Company.
In addition, the Company has decided to set out such further
information as shareholders may require for them to obtain
an accurate and complete understanding of the Company’s
approach to the remuneration of Key Management
Personnel (KMP).
KMP are the Non-executive Directors, the Managing Director
and CEO and employees who have authority and responsibility
for planning, directing and controlling the activities of the
consolidated entity. On that basis, the roles or individuals
addressed in this report are set out below.
DIRECTORS
On 19 December 2017, Kevin Perkins was appointed to the
role of Non-executive Director. There were no resignations
of Directors during the period. Details of the Directors’
appointment dates, Board and Committee membership and
experience and qualifications are set out in the “Directors” and
“Information on Directors” sections of the Directors’ Report.
EXECUTIVES CLASSIFIED AS KMP OR OTHERWISE
ADDRESSED IN THIS REPORT
NAME
Nigel Williams
Drew O’Malley
Dawn Linaker
TITLE
Group Chief Financial Officer (Group CFO):
since 2015
Chief Operations Officer, Australia
(COO Australia): since September 2017
Chief People Officer (CPO): since 2016,
KMP from 2017
Mark van ‘t Loo
CEO – Collins Foods Europe Ltd (CEO –
CF Europe): commenced 9 March 2017
Martin Clarke
CEO – KFC, Australia (CEO – KFC Aust):
since 1980 to 2017. From 18 September
2017, Martin Clarke performed the role of
Head of Operations Excellence and from
that date, was no longer KMP Executive
16 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
KMP remuneration for FY18
The KMP Executive remuneration structures that appear in this
report prevailed during the reporting period. These structures
were implemented as part of a decision making process last
financial year and included remuneration benchmarking.
The Board continue to make ongoing improvements to
remuneration governance, policies and practices applied to
KMP Executives of the Company, as well as other employees, to
ensure appropriateness to the circumstance of the Company as
it evolves over time.
The Board continues its approach to seek feedback from both
stakeholders and independent consultants about remuneration
governance and practices for all KMP.
KEY REMUNERATION MATTERS IDENTIFIED
AND ADJUSTMENTS MADE SINCE THE
PREVIOUS REPORT
During the reported period, activity focussed primarily upon the
identification of additional, appropriate performance incentives.
Mix of remuneration
As confirmed in previous reported periods, the mix of
remuneration elements offered to KMP Executives has been
transitioned toward a higher weighting on Long Term Incentive
(LTI). The Board considers that the remuneration mix is
correctly weighted.
Short Term Incentive performance metrics
As indicated in the letter from the Chair of the Remuneration
and Nomination Committee, the Board has approved the
inclusion of a second performance metric to the Short Term
Incentive (STI) plan as it relates to KMP Executives.
The Board has introduced a second performance metric
to the STI plan because improvements achieved as a result
of this incentive are directly related to driving positive
business performance.
This has been introduced in consultation with shareholders for
incentive conditions to be more tailored to the Company and to
address a medium term strategic imperative to improve (not
just maintain) customer service. Once the desired customer
service outcomes are achieved, the use of this measure would
be reviewed, and consideration given to making it a gate for
other measures.
Long Term Incentive performance metrics
The Board continues to have regard to prior research to
inform its approach to incentive design. For completeness,
this research revealed that of 18 other ASX listed entities,
approximately one half of the group used a single metric,
and one half of the group used two metrics in relation to LTI
performance measures. Consideration also continues to be
given to commentary in relation to the use of a single metric
LTI and use of earnings as the primary driver of STI, and
the only driver of the LTI provides an incomplete picture of
company performance.
The Board considers that with the introduction of the second
performance metric to the STI plan, that the current mix
of remuneration:
´ aligns executive remuneration practices with accepted
market practices and current best-practices;
´ motivates executives to continuously grow shareholder
value by aligning their interests with those of shareholders
through equity ownership; and
OVERVIEW OF COLLINS FOODS REMUNERATION
GOVERNANCE FRAMEWORK AND STRATEGY
The performance of the Group is contingent upon the calibre
of its Directors and executives. The Group’s remuneration
framework is based upon the following key principles:
´ manages the risk of short-termism inherent to fixed
remuneration and short-term incentives by exposing a
significant proportion of remuneration to the longer term
consequences of decision making, through the ownership
position that is achieved when executives participate in
equity plans.
Setting of Short Term Incentive and Long Term
Incentive amounts
From FY18, discrete amounts of STI and LTI were included in a
competitive and appropriate target total remuneration package
(fixed remuneration plus target STI plus target LTI). Annual
grants of LTI are not linked to STI and will be performance
tested over a measurement period of three years.
Discretion
It is the view of the Board that it is important for the Board
to have the ability to make adjustments, where appropriate,
to ensure the alignment between Company performance
and reward, and that this is not against the interests
of shareholders.
For the performance rights with a performance period
commencing on 4 May 2015 and ended on 29 April 2018 (Vesting
Rights), the Non-executive Directors have given detailed
consideration to the method that vesting will be calculated.
Pursuant to the LTI plan rules and letters of invitation, EPS
growth is to be calculated with reference to the annual
compound growth of the disclosed basic EPS in the Company’s
annual audited financial reports for the base year and the final
financial year of the performance period.
In the base year for the Vesting Rights, the basic EPS
was negative. This was due to a one-off pre-tax non-cash
impairment of Sizzler Australia goodwill, brand and, property,
plan and equipment (Impairment).
One of the options available to the Non-executive Directors
would be to not exercise any discretion other than the
discretion to alter the base year as already documented.
It was considered that the outcome would penalise participants
as no performance rights would vest. The Impairment was a
one-off with no further consequences for the FY18 results
(i.e. the comparison would not be on a “like for like” basis).
The adjustments proposed by management for the FY18 year
accepted by the Board were unamortised costs associated
with refinancing and costs associated with the Australian and
Europe KFC acquisitions. The remaining adjustments associated
with de-recognition of a deferred tax asset, impairment of two
KFC restaurants and a smallwares write off were considered
to be attributable to management and will not be included in
the EPS adjustment relating to the vesting calculation for the
Vesting Rights. Allowing for these adjustments, 35.91% of long
term vesting incentives would be available to vest.
The adjustments will be applied across all performance
rights subject to vesting determination and to the one-off
long term cash incentive disclosed on page 24 that presents
the vesting of LTI that may occur during the next reporting
period (i.e. in relation to the completion of FY18).
´ a policy that enables the Company to attract and
retain valued Directors and executives who create
value for shareholders;
´ motivating executives and the Managing Director and CEO
to pursue long term growth and success of the Group,
aligned with shareholder’s interests;
´ demonstrating a clear relationship between performance
and remuneration;
´ having regard to prevailing market conditions;
´ reflective of short term and long term performance
objectives appropriate to the Company’s circumstances
and goals;
´ transparency; and
´ fairness and acceptability to shareholders.
The Company seeks input regarding the governance of KMP
remuneration from a wide range of sources, including:
´ shareholders;
´ Remuneration and Nomination Committee members;
´ stakeholder groups including proxy advisors;
´ external remuneration consultants;
´ other experts and professionals such as tax advisors and
lawyers; and
´ Company management to understand roles and issues
facing the Company.
The Company’s Remuneration Policy can be obtained from the
Company’s website. The information below outlines a summary
of Collins Foods’ Remuneration Governance Framework.
REMUNERATION AND NOMINATION COMMITTEE
The role of the Remuneration and Nomination Committee is
to ensure that appropriate remuneration policies are in place
which are designed to meet the needs of the Company and to
enhance corporate and individual performance. That is, the
development, maintenance and application of the Remuneration
Governance Framework for the purposes of making
recommendations to the Board regarding KMP remuneration
matters, as well as advising the Board on procedures that must
be undertaken in relation to the governance of remuneration
and communicating such matters to the market (such as the
calculation of grants of incentives, review of performance
conditions and receipt of independent advice, etc.).
More specifically, the Committee is responsible for making
recommendations to the Board on:
´ the Group’s remunerations principles, framework
and policy for executives and Directors;
´ remuneration levels of executives and
Executive Directors;
´ the operation of incentives plans and other employee
benefit programs which apply to executives; and
´ remuneration for Non-executive Directors.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 17
DIRECTORS’ REPORT
Remuneration Report (continued)
In carrying out its responsibilities, the Remuneration and
Nomination Committee is authorised to obtain external
professional advice as it determines necessary. The Board has
ultimate responsibility for signing off on remuneration policies,
practices and outcomes.
The Remuneration and Nomination Committee operated in
accordance with the aims and aspirations of Principle 8 of
the Corporate Governance Principles and Recommendations
(Principles and Recommendations). The role and responsibilities of
the Committee are outlined in the Remuneration and Nomination
Committee Charter, available on the Company’s website.
As at the end of the reporting period, the Remuneration
and Nomination Committee was composed of all of the
Company’s Non-executive Directors only, with a majority
being independent.
EXECUTIVE REMUNERATION
The following outlines the policy that applies to executives
(and does not apply to Non-executive Directors).
The remuneration for executives is structured taking into
consideration the following factors:
´ Group’s remuneration principles;
´ level and structure of remuneration paid to executives of
other publicly listed Australian companies of similar size;
´ position and responsibilities of each executive;
´ appropriate benchmarks and targets to reward executives
for Group and individual performance;
´ remuneration should be reviewed annually and
composed of:
– base package (inclusive of superannuation, allowances,
benefits and any applicable fringe benefits tax (FBT) as
well as any salary sacrifice arrangements);
– STI which provides a reward for performance against
annual objectives;
– LTI which provides an equity-based reward for
performance against indicators of shareholder benefit
or value creation, over a three year period,
in total, the sum of the above elements will constitute a
total remuneration package (TRP);
´ both internal relativities and external market factors
should be considered;
´ that the base package policy mid-points should be set with
reference to relevant market practices;
´ that TRPs should be structured with reference to market
practices and the circumstances of the Company at
the time;
´ remuneration will be managed within a range that allows
for the recognition of individual differences such as the
calibre of the incumbent and the competency with which
they fulfil a role;
18 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
´ exceptions will be managed separately such as when
particular talent needs to be retained or there are
individuals with unique expertise that need to be
acquired; and
´ termination benefits will generally be limited to the default
amount that may be provided for without shareholder
approval, as allowed for under the Corporations Act, and
will be specified in employment contracts.
SECURITIES TRADING POLICY
The Securities Trading Policy is available on the Company’s
website. It contains the standard references to insider
trading restrictions that are a legal requirement under the
Corporations Act, as well as conditions associated with good
corporate governance. The Securities Trading Policy follows
the recommendations set out in ASX Guidance Note 27, “Trading
Policies”. The policy specifies “trading windows” during which
Directors and restricted employees of the Company may
trade in the securities of the Company. It requires Directors
and restricted employees to obtain prior written clearance for
any trading in the Company’s securities and prohibits trading
at all other times unless an exception is granted following
an assessment of the circumstances (for example financial
hardship). Trading windows remain open for 30 days. The first
day of the trading window is the trading day after each of the
following events:
´ announcement to ASX of the Company’s full or
half-year results;
´ Annual General Meeting; or
´ release of a disclosure document offering equity securities
in the Company.
The Board may suspend all dealings in the Company’s
securities at any time, should it be appropriate.
SECURITIES HOLDING POLICY
The Board currently sees a securities holding policy as
unnecessary since executives receive a significant component
of remuneration in the form of equity. All of the Directors hold
equity in the Company voluntarily. The Company’s constitution
states that Directors are not required to be a shareholder in
order to be appointed as a director. The Board continues to
encourage executives to hold vested LTIs post vesting,
to support ongoing alignment.
REMUNERATION CONSULTANT
ENGAGEMENT POLICY
The Company has adopted a remuneration consultant
(RC) engagement policy which is intended to manage the
interactions between the Company and RCs. This is to support
the independence of the Remuneration and Nomination
Committee and provide clarity regarding the extent of any
interactions between management and the RC. This policy
enables the Board to state with confidence whether the advice
received has been independent, and why that view is held.
The Policy states that RCs are to be approved and engaged
by the Board before any advice is received, and that such
advice may only be provided to an independent Non-executive
Director. Any interactions between management and the RC
must be approved and overseen by the Remuneration and
Nomination Committee.
NON-EXECUTIVE DIRECTOR REMUNERATION
The remuneration for Non-executive Directors is set, taking into
consideration factors including:
´ the level of fees paid to Board members of other publicly
listed Australian companies of similar size;
´ operational and regulatory complexity; and
´ the responsibilities and workload requirements of each
Board member.
Non-executive Directors’ remuneration comprises the
following components:
´ board and committee fees; and
´ superannuation (compulsory contributions).
Board fees are structured by having regard to the
responsibilities of each position within the Board. Board
committee fees are structured to recognise the differing
responsibilities and workload associated with chairing the
Board and each of the committees. The Company’s constitution
allows for additional payments to be made to Directors where
extra or special services are provided.
Specific fee rates are presented elsewhere in the
Remuneration Report.
SHORT TERM INCENTIVE POLICY
Incentives under the Group’s STI plan are at risk components
of remuneration for executives provided in the form of cash.
The STI plan entitles executives to earn an annual cash reward
payment if predefined targets are achieved. The level of the
incentive is set with reference to the accountabilities of the
executive’s role and their ability to impact Group performance.
VARIABLE REMUNERATION – SHORT TERM INCENTIVE PLAN (STIP)
ASPECT
Purpose
Measurement period
Award opportunities
PLAN RULES, OFFERS AND COMMENTS
The STIP’s purpose is to give effect to an element of remuneration. This element of
remuneration constitutes part of a market competitive total remuneration package and
aims to provide an incentive for executives to deliver and outperform annual business
plans that will lead to sustainable superior returns for shareholders. The STIP aims to
reflect current trading conditions experienced by the Company. Target based STIs are also
intended to modulate the cost to the Company of employing executives, such that risk is
shared with the executives themselves and the cost to the Company is reduced in periods
of poor performance.
The Company’s reporting period.
The Managing Director and CEO was offered a target based STI equivalent to 50% of total
fixed remuneration for target performance, with a maximum opportunity of up to 75% of
total fixed remuneration.
Other executives were offered a target based STI equivalent to between 40% and 75% of
their total fixed remuneration for target performance with a stretch opportunity of up to
150% of the target.
For FY19 the STI for other executives will fall between the range of 40% and 50% for on
target performance with a stretch opportunity remaining as up to 150% of the target.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 19
DIRECTORS’ REPORT
Remuneration Report (continued)
Key Performance Indicators (KPIs),
weighting and performance goals
FY18 OFFERS
FY18 saw changes to the STI plan rules for executives as follows:
´ targets set equate to budgeted EBITDA plus bonus value;
´ reduction of the threshold required to trigger the bonus payment
to 95% of the target with a linear scale to 100% of the target
i.e. 95.5% of target equates to 10% of bonus payment;
´ 100% of target equates to 100% bonus payment;
´ over-achievement is also rewarded, for example 1% point of
target equating to an additional 5% of bonus payment i.e. 103%
of target equates to 115% of bonus payment; and
´ maximum is consistent with prior years being 110%
target equating to 150% of bonus payment.
Comments
For FY18, the Board was of the view that EBITDA was the primary driver of
shareholder value creation in the short term, and that the combination of
this measure with individual performance assessments provided a fair and
accurate assessment of performance in the context of a particular executive
role. That said, FY19 has seen the addition of a second metric.
FY19 OFFERS
Following independent external consultation, the Board considered and approved a change
to the FY19 offers. This change has seen the introduction of a secondary measure against
Guest Experience Survey (GES), with a focus on achieving Overall Satisfaction (OSAT)
scores. The breakdown of the offer is consistent for all KMP Executives – EBITDA result:
75% and GES OSAT: 25%.
Whilst the two measures have different targets and thresholds for payment, overarching
hurdle criteria of >95% of EBITDA against budget must be achieved prior to any
STI payment.
The introduction of this measure has seen the removal of the individual performance
(where it may previously have applied).
All other STI plan rules apply as per the FY18 offers.
Calculations are performed following the end of the measurement period and the audit of
Company accounts. Payments are made in cash with PAYG tax deducted, paid following the
completion of the measurement period and audited financial report.
Award determination and payment
Cessation of employment
during a measurement period
In the event of cessation of employment due to dismissal for cause all entitlement in
relation to the measurement period are forfeited.
Plan gate and Board discretion
Fraud, gross misconduct etc.
In the event of cessation of employment for other reasons and the minimum term of
three months of employment has not been satisfied, all entitlement in relation to the
measurement period are forfeited, unless otherwise determined by the Board. No awards
are paid on termination that would breach the default limit on termination benefits for
managerial and executive officers, unless shareholder approval is obtained to do so.
If the Company’s overall performance during the measurement period is substantially
lower than expectations and resulted in significant loss of value for shareholders the Board
may abandon the STIP for the measurement period or adjust STI payouts downward. The
Board also has discretion to modify payouts, however, as noted earlier in this report, it
has been determined that such discretion will only be applied in future when it would be
substantially inappropriate not to do so, due to an anomaly during the measurement period,
or because of exceptional circumstances, which would be explained in detail as part of the
Remuneration Report. An earnings gate is effectively built into the award scale.
If the Board forms the view that a participant has committed fraud, defalcation or gross
misconduct in relation to the Company then all entitlements in relation to the measurement
period will be forfeited by that participant.
20 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
LONG TERM INCENTIVE POLICY
Currently, the LTI plan of the Company is that an annually offered component of remuneration of executives should be at risk
and based on equity in the Company to ensure that executives hold a stake in the Company, to align their interests with those of
shareholders, and that executives share risk with shareholders. Further, the:
´ LTI should be based on performance rights that vest based on assessment of performance against objectives;
´ measurement period should be three years; and
´ measures of long term performance should be the measure or measures which best drives value creation for shareholders,
given the specific circumstances of the Company.
VARIABLE REMUNERATION – LONG TERM INCENTIVE PLAN (LTIP) – PERFORMANCE RIGHTS PLAN
ASPECT
Purpose
Form of equity
LTI value
PLAN RULES, OFFERS AND COMMENTS
The LTIP’s purpose is to give effect to an element of executive remuneration. This element
of remuneration constitutes part of a market competitive total remuneration package and
aims to provide an incentive for executives to deliver Company performance that will lead
to sustainable superior returns for shareholders. Another purpose of the LTIP is to act as
a retention mechanism to maintain a stable team of performance focussed executives, to
create alignment with the interests and experiences of shareholders and to modulate the
cost to the Company of employing executives such that in periods of poor performance the
cost is lesser (applies to non-market measures under AASB2).
The LTIP is in the form of a performance rights plan, which is based on rights that are
subject to vesting conditions, which confer the right (following valid conversion) to the
value of a share at the time, either:
´ settled in shares that may be issued; or
´ settled in the form of cash;
at the discretion of the Board (a feature intended to ensure appropriate outcomes in the
case of a termination).
There is no entitlement to dividends during the measurement period.
The Board retains discretion to determine the value of LTI to be offered each reporting
period, subject to shareholder approval in relation to Directors, when the rights are
to be settled in the form of a new issue of Company shares. The Board may also seek
shareholder approval for grants to directors in other circumstances, at its discretion.
FY18 AND FY19 OFFERS
Comments
Based on the Managing Director and CEO, the following example is given regarding how
the number of performance rights to grant a participant in the LTIP are calculated. This
involves dividing the maximum LTI percentage of the base package (as per the policy at the
time) by the relevant volume weighted average price (VWAP) for shares.
INDICATIVE FOR FY18 AND FY19
Base
LTI Target
LTI Max
Share Price (VWAP)
Number of Rights
50%
100%
$5.18
$800,000
$800,000
154,440
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 21
DIRECTORS’ REPORT
Remuneration Report (continued)
Measurement period
The measurement period will include three reporting periods unless otherwise determined
by the Board.
FY18 OFFERS
Beginning 1 May 2017 and ending 3 May 2020.
FY19 OFFERS
Beginning 30 April 2018 and ending 1 May 2021.
Comments
Measurement periods of three years combined with annual grants will produce
overlapping cycles that will promote a focus on producing long term sustainable
performance/value improvement and mitigates the risk of manipulation and short-termism.
The Board has discretion to set vesting conditions for each offer. Performance rights that
do not vest will lapse.
FY18 AND FY19 OFFERS
The following vesting scale applied to FY18 offers (and is anticipated to apply to
future offers):
PERFORMANCE LEVEL
Stretch/maximum
Between target and stretch
Target
Between threshold and target
Threshold
Below threshold
ANNUALISED EPS GROWTH
(CAGR)
22%
% OF MAX/STRETCH/
GRANT VESTING
100%
>11%, <22%
11%
>5.5%, <11%
5.5%
<5.5%
Pro-rata
50%
Pro-rata
25%
0%
Comments
EPS will be measured on an absolute basis, calculating the compound growth in the
Company’s basic EPS attributable to ordinary equity holders of the Company over the
performance period, with reference to the disclosed EPS in the Company’s annual audited
financial reports.
The plan rules do not contemplate retesting and therefore retesting is not a feature of the
Company’s current LTI offers.
Vesting conditions
Retesting
Plan gate and Board discretion
An effective gate of EPS needing to exceed a threshold level of growth is built into the design
of the vesting scale.
Amount payable for
performance rights
Conversion of vested
performance rights
The Board retains a discretion to adjust the EPS performance condition to ensure that
participants are not penalised nor provided with a windfall benefit arising from matters
outside of management’s control that affect EPS (for example, excluding one-off non-
recurrent items or the impact of significant acquisitions or disposals). Please refer to
discussion regarding the application of such discretions, presented elsewhere in this report.
No amount is payable for performance rights.
The value of rights is included in assessments of remuneration benchmarking and
policy positioning. This is standard market practice and consistent with the nature of
performance rights.
Under the plan rules, the conversion of performance rights to shares occurs automatically
upon vesting conditions being declared by the Board as having been met, except where the
Board exercises its discretion to settle in the form of cash.
No amount is payable by participants to exercise vested performance rights in respect of
any grants.
22 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
Disposal restrictions etc.
The Company may impose a mandatory holding lock on the shares or a participant may
request they be subject to a voluntary holding lock.
Performance rights are not entitled to receive a dividend. Any shares issued or transferred
to a participant upon vesting of performance rights are only entitled to dividends if they
were issued on or before the relevant dividend entitlement date.
Shares issued or transferred under the LTIP rank equally in all respects with other shares
on issue.
In the event of a capital reconstruction of the Company (consolidation, subdivision,
reduction, cancellation or return), the terms of any outstanding performance rights will be
amended by the Board to the extent necessary to comply with the listing rules at the time
of reconstruction.
Any bonus issue of securities by way of capitalisation of profits, reserves or share capital
account will confer on each performance right, the right:
´ to receive on exercise or vesting of those performance rights, not only an allotment
of one share for each of the performance rights exercised or vested but also an
allotment of the additional shares and/or other securities the employee would have
received had the employee participated in that bonus issue as a holder of shares of a
number equal to the shares that would have been allotted to the employee had they
exercised those Incentives or the performance rights had vested immediately before
the date of the bonus issue; and
´ to have profits, reserves or share premium account, as the case may be, applied in
paying up in full those additional shares and/or other securities.
Subject to a reconstruction or bonus issue, performance rights do not carry the right to
participate in any new issue of securities including pro-rata issues.
Performance rights will not be quoted on ASX. The Company will apply for quotation of any
shares issued under the LTIP.
In the event of cessation of employment within 12 months of the date of grant,
unvested performance rights are forfeited. In the event of cessation of employment
after 12 months but before the conclusion of the vesting period, unvested
performance rights are considered forfeited, unless otherwise determined by the
Board, in which case any service condition will be deemed to have been fulfilled
as at the testing date and the performance rights remain subject to performance
testing along with other participants. It is noted that the Board has discretion to
allow “Good Leavers” to retain their participation in the LTIP beyond the date of
cessation of employment when deemed appropriate to the circumstances.
If in the opinion of the Board a change of control event has occurred, or is likely
to occur, the Board may declare a performance right to be free of any vesting
conditions and, if so, the Company must issue or transfer shares in accordance
with the LTIP rules. In exercising its discretion, the Board will consider whether
measurement of the vesting conditions (on a pro-rata basis) up to the date
of the change of control event is appropriate in the circumstances.
Cessation of employment
Change of control of the Company
Non-executive Director fee policy rates and fee limit
Non-executive Director fees are managed within the current annual fees limit (AFL or fee pool) of $900,000 which was approved by
shareholders at the 2016 Annual General Meeting.
The following table outlines the Non-executive Director fee policy rates that were applicable during the reported period:
FUNCTION
Main Board
Audit and Risk Committee
Remuneration and Nomination Committee
ROLE
Chair
Member
Chair
Member
Chair
Member
FEE INCLUDING SUPER
$210,000
$100,000
$20,000
$7,500
$15,000
$7,500
The same fee policy rates are expected to apply for FY19, unless the Board determines to undertake a review during the period.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 23
Graham
Maxwell
Kevin
Perkins(3)
Mark
van ‘t
Loo(4)
Nigel
Williams
Drew
O’Malley(5)
Dawn
Linaker(6)
Martin
Clarke(7)
Group
CFO
Group
CFO
COO
Australia
–
CPO
CPO
CEO -
KFC Aust
CEO -
KFC Aust
DIRECTORS’ REPORT
Remuneration Report (continued)
Remuneration records for FY18 – statutory disclosures
KMP EXECUTIVE REMUNERATION
The following table outlines the remuneration received by KMP Executives of the Company during FY17 and FY18 prepared
according to statutory disclosure requirements and applicable accounting standards:
NAME
ROLE(S)
YEAR
SALARY
CONTRIBUTIONS
BENEFITS
SUPER-
ANNUATION
OTHER
CHANGE IN
ACCRUED
LEAVE(1)
BASE PACKAGE
STI
TOTAL
LTI(2)
REMUNERATION
PACKAGE
TERMINATION
AMOUNT % OF TRP
AMOUNT % OF TRP
AMOUNT % OF TRP
(TRP)
BENEFITS
Managing
Director &
CEO
Managing
Director &
CEO
Non-
executive
Director
Executive
Director
2018 $780,018
$19,982
$13,699
$63,250 $876,950
79%
2017 $728,018
$21,982
$40,308
$4,675 $794,983
83%
2018
$149,721
$13,042
$11,443
($10,620) $163,586
100%
2017 $222,849
$19,568
$31,795
($932) $273,280
100%
CEO -
CF Europe 2018 $412,408
$29,734
CEO -
CF Europe 2017
$65,208
$4,172
–
–
$12,211 $454,353
97%
$6,270
$75,650
100%
2018 $384,891
$19,982
$18,838
($3,447) $420,264
99%
2017 $338,109
$19,568
(8)$76,823
$2,771 $437,271
87%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (11)$234,426
21%
$1,111,376
$160,258
17%
$955,241
$163,586
$11,193
–
–
–
–
$273,280
$16,256
3%
$470,609
–
–
$75,650
$2,141
1%
$422,405
$68,192
13%
$505,463
2018 $244,229
$12,338
$7,980
$3,760 $268,307
85% $30,792
10%
$16,326
2017
–
–
–
–
–
–
2018 $294,634
$19,982
$16,325
$1,692 $332,632
93%
2017
–
–
–
–
–
–
–
–
–
–
–
–
–
$25,233
–
2018 $122,775
$7,644
(9)$24,452
($14,465) $140,407
94% $6,058
4%
$3,403
5%
–
7%
–
2%
$315,426
–
$357,865
–
$149,868
2017 $299,431
$19,568 (10)$73,699
($42,629) $350,069
85%
–
–
$62,236
15%
$412,305
(1) The change in accrued leave includes negative amounts during the reporting periods. The negative amounts reflect leave that has been taken during the reporting
period measured in accordance with AASB 119 Employee Benefits.
(2) The LTI value reported in this table is the amortised accounting charge of all grants that were not lapsed or vested at the start of the reporting period. Where
a market based measure of performance is used such as TSR, no adjustments can be made to reflect actual LTI vesting. However, in relation to non-market
condition, such as EPS, adjustments must be made to ensure the accounting charge matches the vesting.
(3) KMP up until 19 December 2017 and then transitioned to Non-executive Director.
(4) Commenced 9 March 2017. FY18 salary converted at exchange rate of AUD $1: EURO €0.6246 (FY17: EURO €0.7).
(5) Commenced 18 September 2017.
(6) KMP Executive from 1 May 2017.
(7) From 18 September 2017 Martin Clarke transitioned to Head of Operations Excellence and from that date was no longer a KMP Executive.
(8) Other benefits include a discretionary payment of $29,750. The EBITDA target for FY17 was not achieved, however there was a discretionary bonus pool that was
approved by the Board.
(9) Other benefits include a discretionary payment of $17,122.
(10) Other benefits include a discretionary payment of $30,750. The EBITDA target for FY17 was not achieved, however there was a discretionary bonus pool that was
approved by the Board.
(11) Included in the LTI value is a one-off long term cash incentive of $68,865 that may be payable in FY19. Other than cash being the means by which the incentive is
settled, all other terms and conditions (including vesting scale) of the one-off long term cash incentive are identical to the performance rights granted, with the
FY15 as the base.
Both target and awarded values of STI and LTI remuneration are outlined in the relevant sections of the Remuneration Report to
assist shareholders to obtain a more complete understanding of remuneration as it relates to executives.
24 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
–
–
–
–
–
–
–
–
–
–
–
–
–
NON-EXECUTIVE DIRECTOR REMUNERATION
Remuneration received by Non-executive Directors in FY17 and FY18 is disclosed below:
NAME
Robert
Kaye, SC
Newman
Manion
Bronwyn
Morris
ROLE(S)
Independent, Non-executive Chairman
Independent, Non-executive Chairman
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Kevin Perkins(2)
Non-executive Director
Executive Director
Russell Tate
Independent Non-executive Director
Independent Non-executive Director
YEAR
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
BOARD AND
COMMITTEE
FEES
SUPERANNUATION
OTHER
BENEFITS
TERMINATION
BENEFITS
$191,781
$191,781
$111,872
$111,872
$116,438
$116,438
$38,334
–
$115,000
$115,000
$18,219
$18,548
$10,628
$10,628
$11,061
$11,253
$3,642
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
TOTAL
$209,999
(1)$210,329
$122,500
$122,500
$127,499
(1)$127,691
$41,976
–
$115,000
$115,000
(1) The total paid includes 52 weeks of fees and 53 weeks of superannuation.
(2) Transitioned to Non-executive Director as at 19 December 2017. Non-executive Director fees represent period from 19 December 2017 to 29 April 2018.
Refer to KMP Executive Remuneration table for remuneration during 2017.
PLANNED KMP EXECUTIVE REMUNERATION FOR FY18 (NON-STATUTORY DISCLOSURE)
The following table is provided to ensure that shareholders have an accurate understanding of the Board’s intention regarding
the remuneration that was offered to KMP Executives during FY18, for target performance. It should be noted that the table
presents target incentive opportunities for achieving a challenging but achievable target level of performance. In the case of STI,
the maximum incentive may be up to 50% higher (i.e. 150% of the target). The stretch/maximum LTI is 200% of target, as is typical
practice for LTIs.
INCUMBENT
POSITION
Graham
Maxwell
Managing Director
& CEO
BASE
PACKAGE
INCLUDING
SUPER
STI OPPORTUNITY
LTI OPPORTUNITY
FIXED
% TRP
TARGET %
OF BASE
PACKAGE
TARGET
STI
AMOUNT
STI %
TRP
TARGET %
OF BASE
PACKAGE
TARGET
LTI
AMOUNT
LTI %
TRP
TOTAL
REMUNERATION
PACKAGE
AT TARGET
PERFORMANCE
$800,000
40%
50%
$400,000
20%
100%
$800,000
40%
$2,000,000
Kevin Perkins Executive Director(1)
$265,000
100%
Mark van 't Loo CEO – CF Europe
Nigel Williams Group CFO
Drew O’Malley COO Australia
Dawn Linaker CPO
Martin Clarke CEO – KFC Aust(2)
€276,355
$410,000
$420,000
$315,000
$319,000
52%
50%
50%
53%
56%
–
75%
50%
50%
40%
60%
–
€207,266
$205,000
$210,000
$126,000
$191,400
–
39%
25%
25%
21%
33%
–
17%
50%
50%
50%
20%
–
€46,059
$205,000
$210,000
$157,500
$63,800
–
9%
25%
25%
26%
11%
$265,000
€529,680
$820,000
$840,000
$598,500
$574,200
(1) Executive salary shown and includes director fees. From 19 December 2017 to 29 April 2018 Mr Perkins held the role of Non-executive Director.
(2) KMP Executive salary shown. From 18 September 2017, Mr Clarke held the role of Head of Operations Excellence and from that date was no longer KMP Executive.
The LTI presented in the table above represents the fair value of LTI granted during the FY18 period.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 25
DIRECTORS’ REPORT
Remuneration Report (continued)
Performance outcomes for FY17 including STI and LTI assessment
COMPANY PERFORMANCE
The Company’s performance during the reported period and the previous four reporting periods in accordance with the
requirements of the Corporations Act follow:
FY END DATE
FY18
FY17
FY16
FY15
FY14
REVENUE
($M)
$770.94
$633.56
$574.28
$571.59
$440.56
PROFIT AFTER
TAX
($M)
$32.49
$27.99
$29.12
($10.36)
$14.03
SHARE
PRICE
$5.35
$5.25
$4.02
$2.44
$1.91
(1) Dividends used are the cash amount (post franking).
SHORT TERM CHANGE
IN SHAREHOLDER VALUE
OVER 1 YEAR
(SP INCREASE +
DIVIDENDS)
CHANGE
IN SHARE
PRICE DIVIDENDS(1)
AMOUNT
$0.10
$1.23
$1.58
$0.53
$0.02
$0.170
$0.160
$0.125
$0.110
$0.100
$0.270
$1.390
$1.705
$0.640
$0.120
%
5%
35%
70%
34%
6%
LONG TERM (CUMULATIVE)
3 YEARS CHANGE IN
SHAREHOLDER VALUE
AMOUNT
$3.37
$3.74
$2.47
$1.61
%
138%
196%
130%
140%
There was no STI paid under the STIP during the FY18 period relating to performance during the FY17 period.
FY17 COMPANY LEVEL KPI SUMMARY
NAME
Graham Maxwell
POSITION HELD AT
REPORTING PERIOD END
Managing Director
& CEO
Kevin Perkins(1)
Executive Director
Mark van ‘t Loo
CEO – CF Europe
Nigel Williams
Group CFO
Martin Clarke(2)
CEO – KFC Aust
KPI SUMMARY
WEIGHTING
EBITDA TARGET
ACHIEVEMENT
AWARDED
EBITDA
EBITDA
EBITDA
EBITDA
EBITDA
100%
100%
100%
100%
$82,029,965
–
–
$82,029,965
100% $95,520,588
–
–
–
–
–
–
–
–
–
–
AWARD
OUTCOMES
FY17 PAID
FY18(3)
TOTAL STI
AWARD
–
–
–
–
–
(1) From 19 December 2017 to 29 April 2018 Mr Perkins held the role of Non-executive Director.
(2) From 18 September 2017, Mr Clarke held the role of Head of Operations Excellence.
(3) The EBITDA target for FY17 was not achieved, however, there was a discretionary bonus pool that was approved by the Board and made available to all employees
based on their individual performance.
The Board is of the view that EBITDA is the primary driver of value creation for shareholders in the short term.
During the reporting period grants of equity were made in relation to the LTI plan as part of remuneration for FY18 but did not vest
due to the presence of the long-term measurement period and vesting conditions that are yet to be completed/assessed. Details are
given elsewhere in this report in relation to changes in equity interests.
26 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
During the reporting period, grants that were made on 13 November 2014, vested in relation to FY17 being completed, i.e. vesting
during FY18 are noted below:
INCUMBENT
ROLE
TRANCHE WEIGHTING
NUMBER
ELIGIBLE TO
VEST IN FY18
FOR FY17
COMPLETION
% OF MAX/
STRETCH/
GRANT
VESTED
ACTUAL
OUTCOME
NUMBER
VESTED
GRANT DATE
VWAP
$ VALUE OF LTI
THAT VESTED
(AS PER GRANT
DATE VWAP)
EPSG
100%
92,301
24.5%
100%
92,301
$2.166810
$200,000
Managing
Director & CEO
Executive
Director
EPSG
100%
CEO – CF Europe
EPSG
100%
Group CFO
EPSG
100%
COO Australia
EPSG
100%
CPO
EPSG
100%
Graham
Maxwell
Kevin
Perkins(1)
Mark van ‘t
Loo
Nigel
Williams(2)
Drew
O’Malley
Dawn
Linaker
Martin
Clarke
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
CEO – KFC Aust
EPSG
100%
27,690
24.5%
100%
27,690
$2.166810
$60,000
(1) Relates to performance rights granted whilst still performing the role of Managing Director and CEO.
(2) Appointed to Group CFO role on 18 May 2015.
On 11 July 2017 following satisfaction of the vesting conditions the performance rights previously granted under the LTIP converted
to fully paid ordinary shares. Each participant was issued with shares based on the volume weighted average price of $5.72.
The following outlines the vesting scale that was applicable to the above outcomes:
PERFORMANCE LEVEL
Stretch/maximum
Between threshold and stretch
Threshold
Below threshold
ANNUALISED EPS GROWTH (CAGR)
% OF MAX/STRETCH/GRANT VESTING
10%
>6%, <10%
6%
<6%
100%
Pro-rata
20%
0%
In relation to the completion of the reporting period, previous grants of equity made under the LTI plan are eligible to be tested for
vesting in relation to grants that were made on 1 October 2015 and 22 December 2015 (i.e. will be eligible for vesting during FY19 in
relation to the completion of FY18). However, as at the date of drafting of this report, vesting was yet to be determined. Therefore,
the table below presents the vesting of LTI that may occur during the next reporting period i.e. in relation to the completion of FY18.
INCUMBENT
ROLE
TRANCHE
WEIGHTING
Graham Maxwell
Managing Director & CEO
Kevin Perkins(1)
Executive Director
Mark van ‘t Loo
CEO – CF Europe
Nigel Williams(2)
Group CFO
Drew O’Malley
COO Australia
Dawn Linaker
CPO
Martin Clarke
CEO – KFC Aust
EPSG
EPSG
EPSG
EPSG
EPSG
EPSG
EPSG
100%
100%
100%
100%
100%
100%
100%
NUMBER ELIGIBLE
TO VEST IN
FY19 FOR FY18
COMPLETION
% OF MAX/
STRETCH/
GRANT
VESTED
NUMBER
ELIGIBLE TO
VEST
GRANT DATE
VWAP
$ VALUE OF
LTI THAT
VESTED (AS
PER GRANT
DATE VWAP)
33,316
100%
33,316
$3.248406
$108,225
–
–
–
–
–
–
–
–
–
–
40,019
100%
40,019
$3.248406
$130,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1) Eligible participant, however as announced via ASX, did not receive performance rights pursuant to the relevant executive services agreement.
(2) Appointed to Group CFO role on 18 May 2015.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 27
DIRECTORS’ REPORT
Remuneration Report (continued)
All performance rights issued over the historical period ends have the following expiry dates and exercise prices:
REPORTING PERIOD ENDED
29 April 2018
30 April 2017
1 May 2016
EXPIRY DATE
24 July 2020
23 July 2019
24 July 2018
EXERCISE PRICE
Nil
Nil
Nil
There were two tranches of performance rights issued during the reporting period ended 29 April 2018. The fair value at issuance
date was determined using a discounted cash flow model incorporating the assumptions below. It should be noted that fair values
are not used to determine LTI allocations, and a separate methodology appropriate to the purposes is used, as described in the LTI
summary presented earlier.
TRANCHE
7
8
ISSUE DATE
28 September 2017
29 November 2017
FAIR VALUE
$5.30
$5.41
SHARE PRICE AT ISSUANCE
$5.82
TERM
3
DIVIDEND
YIELD
3.27%
RISK FREE
INTEREST
RATE
2.16%
$5.93
3
3.05%
2.16%
The following outlines the vesting scale that was applicable to the performance rights issued to executives during the current
reported period and as part of remuneration for FY19:
PERFORMANCE LEVEL
Stretch/maximum
Between target and stretch
Target
Between threshold and target
Threshold
Below threshold
ANNUALISED EPS GROWTH (CAGR) % OF MAX/STRETCH/GRANT VESTING
100%
22%
>11%, <22%
11%
>5.5%, <11%
5.5%
<5.5%
Pro-rata
50%
Pro-rata
25%
0%
There were two tranches of performance rights issued during the reporting period ended 30 April 2017. The fair value at issuance
date was determined using a discounted cash flow model incorporating the assumptions below.
TRANCHE
5
6
ISSUE DATE
7 September 2016
29 September 2016
FAIR VALUE
$4.20
$4.13
SHARE PRICE AT ISSUANCE
$4.58
TERM
3
DIVIDEND
YIELD
2.83%
RISK FREE
INTEREST
RATE
1.51%
$4.50
3
2.83%
1.51%
The following outlines the vesting scale that was applicable to the above outcomes applicable to the performance rights that have
vested in respect of FY18 being completed:
PERFORMANCE LEVEL
Stretch/maximum
Between target and stretch
Threshold
Below threshold
ANNUALISED EPS GROWTH (CAGR) % OF MAX/STRETCH/GRANT VESTING
100%
10%
>6%, <10%
6%
<6%
Pro-rata
20%
0%
LINKS BETWEEN COMPANY STRATEGY AND REMUNERATION
The Company intends to attract the superior talent required to successfully implement the Company’s strategies at a reasonable
and appropriately variable cost by:
´ positioning Base Packages (the fixed element) around relevant market data benchmarks when they are undertaken;
´ supplementing the Base Package with at-risk remuneration, being incentives that motivate executive focus on:
– short to mid-term objectives linked to the strategy via KPIs and annual performance assessments; and
– long term value creation for shareholders by linking a material component of remuneration to those factors that shareholders
have expressed should be the long term focus of executives and the Board.
28 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
REMUNERATION COMPONENT
Fixed remuneration
VEHICLE
Base pay and benefits
including superannuation
Short Term Incentive Plan
(STIP)
Cash bonus payment
PURPOSE
To provide competitive
fixed remuneration set with
reference to position and
responsibilities in the context of
the market
Rewards executives for their
contribution to the achievement
of Group and/or divisional
outcomes
LINK TO PERFORMANCE
Group and individual
performance assessments
are considered in an annual
remuneration review, and
market capitalisation plays a
role in benchmarking
EBITDA targets must be met in
order for bonus to be paid
Long Term Incentive
Plan (LTIP) (approved by
shareholders at the 2013 and
2016 Annual General Meetings)
Awards in the form of
performance rights
Rewards executives for their
contribution to the creation
of shareholder value over the
longer term
Earnings per share (EPS)
targets over three year period
must be met in order for rights
to vest
The Group’s aim is to reward executives with an appropriate level and mix of remuneration to attract, retain and motivate them to
build long term value for the Group and its shareholders.
The introduction of the LTIP has changed the remuneration mix for executives, resulting in a higher proportion of an executive’s
target pay being at risk. The effect of the introduction of the LTIP is that a percentage of the executive’s remuneration is directly
linked to Group performance in both the short and longer term.
Employment terms for KMP
SERVICE AGREEMENTS
A summary of contract terms in relation to KMP Executives is presented below:
NAME
Graham Maxwell
POSITION HELD AT
CLOSE
OF FY18
Managing Director
& CEO
Nigel Williams
Group CFO
Drew O’Malley
COO Australia
Dawn Linker
CPO
DURATION OF
CONTRACT
Open ended
Open ended
Open ended
Open ended
Mark van 't Loo
CEO – CF Europe
Open ended
PERIOD OF NOTICE(1)
FROM COMPANY
12 months
FROM KMP
12 months
3 months
3 months
3 months
6 months
3 months
3 months
2 months
3 months
TERMINATION
PAYMENTS(2)
Up to 12 months
Up to 12 months
Up to 12 months
Up to 12 months
Up to 12 months
(1) Provision is also made for the Group to be able to terminate these agreements on three months’ notice in certain circumstances of serious ill health or incapacity
of the KMP Executive.
(2) Under the Corporations Act the Termination Benefit Limit is 12 months average Salary (last 3 years) unless shareholder approval is obtained.
The treatment of incentives in the case of termination is addressed in separate sections of this report that give details of
incentive design.
With regards to Mr Maxwell, Mr Williams, Mr van ‘t Loo and Mr O’Malley, there is a restraint of trade period of 12 months.
On appointment to the Board, all Non-executive Directors enter into a service agreement with the Company in the form of
a letter of appointment. The letter summarises the Board policies and terms, including compensation relevant to the
office of the director. Non-executive Directors are not eligible to receive termination payments under the terms
of the appointments.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 29
DIRECTORS’ REPORT
Remuneration Report (continued)
Changes in KMP Executive held equity
The following table outlines the changes in the amount of equity held by KMP Executives over the reporting period:
NUMBER HELD AT
OPEN 2018
356,088
GRANTED AS
COMPENSATION
–
SHARES ISSUED
ON VESTING OF
RIGHTS
92,302
PARTICIPATION IN
RIGHTS ISSUE
32,371
NUMBER
HELD AT
CLOSE 2018
480,761
NAME
Graham Maxwell
SECURITY
Shares
Performance rights
Kevin Perkins(1)
Shares
Performance rights
Mark van ‘t Loo
Shares
Performance rights
Nigel Williams
Shares
206,134
7,444,692
–
–
–
–
Performance rights
53,615
Drew O’Malley
Shares
Performance rights
Dawn Linaker
Shares
Performance rights
Martin Clarke(2)
Shares
Performance rights
–
–
5,000
8,588
161,870
61,295
137,931
(92,301)
–
251,764
–
–
–
36,052
–
35,311
–
36,206
–
27,122
–
–
–
–
–
–
–
–
–
–
–
–
27,690
(27,690)
176,792
7,621,484
–
–
–
–
–
–
–
–
–
–
–
–
–
36,052
–
88,926
–
36,206
5,000
35,710
189,560
33,605
Total
8,297,282
272,622
–
209,163
8,779,068
(1) From 19 December 2017 Mr Perkins held the role of Non-executive Director. The number of securities reported is for the full reported period.
(2) From 18 September 2017, Mr Clarke held the role of Head of Operations Excellence.
The following table outlines the changes in the amount of equity held directly or indirectly by Non-executive Directors over the
reporting period:
NAME
Robert Kaye, SC
Newman Manion
Bronwyn Morris
Kevin Perkins(1)
Russell Tate
Total
SECURITY
Shares
Shares
Shares
Shares
Shares
NUMBER HELD AT
OPEN 2018
10,000
NUMBER HELD AT
CLOSE 2018
29,913
20,001
5,001
7,444,692
20,001
7,499,695
21,820
8,456
7,621,484
21,820
7,703,493
(1) From 19 December 2017 Mr Perkins held the role of Non-executive Director. The number of securities reported is for the full reported period.
30 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
The maximum value of performance rights yet to vest has been determined as the amount of the grant date fair value of the
performance rights that is yet to be expensed:
2018 EQUITY GRANTS
NAME
ROLE
Graham Maxwell
Managing Director & CEO
Kevin Perkins(1)
Executive Director
Mark van 't Loo
CEO - CF Europe
Nigel Williams
Group CFO
Drew O'Malley
COO Australia
Dawn Linaker
CPO
FY IN WHICH
RIGHTS MAY VEST
2019
2020
2021
2019
2020
2021
2019
2020
2021
2019
2020
2021
2019
2020
2021
2019
2020
2021
MAXIMUM VALUE
YET TO VEST
($)
–
84,600
121,245
–
–
–
–
–
32,511
–
14,038
31,845
–
–
32,653
–
8,867
24,459
(1) From 19 December 2017 Mr Perkins held the role of Non-executive Director. The number of securities reported is for the full reported period.
Other remuneration related matters
There were no loans to Directors or other KMP at any time during the reporting period, and no relevant material transactions
involving KMP other than compensation and transactions concerning shares and performance rights as discussed in this report.
Most recent AGM – Remuneration Report comments and voting
At the most recent AGM in 2017, 90.97% of votes cast at the meeting in favour of the adoption of the Remuneration Report.
External remuneration consultant advice
During the reported period, the Board approved and engaged an external remuneration consultant (RC) to provide KMP
remuneration recommendations and advice. The consultants and the amount payable for the information and work that led to their
recommendations are listed below:
Godfrey Remuneration Group Pty Limited
Review of and advice on peer incentive practices evident in the market
$18,500
Subsequent to the end of the reporting period, the RC has also been engaged to assist with improving the Remuneration Report.
Any fees charged in relation to this activity will be disclosed as part of the FY19 Remuneration Report.
So as to ensure that KMP remuneration recommendations were free from undue influence from the KMP to whom they relate,
the Company established policies and procedures governing engagements with external remuneration consultants. The key
aspects include:
´ KMP remuneration recommendations may only be received from consultants who have been approved by the Board.
This is a legal requirement. Before such approval is given and before each engagement the Board ensures that the
consultant is independent of KMP;
´ as required by law, KMP remuneration recommendations are only received by non-executive directors, mainly, the
Chair of the Remuneration and Nomination Committee;
´ the policy seeks to ensure that the Board controls any engagement by management of Board approved remuneration
consultants to provide advice other than KMP remuneration recommendations and any interactions between management
and external remuneration consultants when undertaking work leading to KMP remuneration recommendations.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 31
DIRECTORS’ REPORT
Remuneration Report (continued)
The Board is satisfied that the KMP remuneration recommendations received were free from undue influence from KMP to whom
the recommendations related. The reasons the Board is so satisfied include that it is confident that the policy for engaging external
remuneration consultants is being adhered to and is operating as intended, the Board has been closely involved in all dealings with
the external remuneration consultants and each KMP remuneration recommendation received during the reporting period was
accompanied by a legal declaration from the consultant to the effect that their advice was provided free from undue influence from
the KMP to whom the recommendations related.
Indemnification and insurance of officers
The Company’s Constitution provides that it must in the case of a person who is or has been a Director or Secretary of the Group
and may in the case of an officer of the Company, indemnify them against liabilities incurred (whilst acting as such officers) and
the legal costs of that person to the extent permitted by law. During the period, the Company has entered into a Deed of Indemnity,
Insurance and Access with each of the Company’s Directors, executives and Company Secretary.
No Director or officer of the Company has received benefits under an indemnity from the Company during or since the end of
the period.
The Company has paid a premium for insurance for officers of the Group. The cover provided by the insurance contract is
customary for this type of insurance policy. Details of the nature of the liabilities covered or the amount of the premium paid in
respect of this insurance contract are not disclosed as such disclosure is prohibited under the insurance contract.
Proceedings on behalf of the Company
No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the
Corporations Act 2001.
Non-audit services
During the period, the Company’s Auditor (PricewaterhouseCoopers) performed other services in addition to its audit
responsibilities. Whilst their main role is to provide audit services to the Company, the Company does employ their specialist advice
where appropriate.
The Board of Directors has considered the position and, in accordance with advice received from the Audit and Risk Committee, is
satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed
by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did
not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:
´ all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and
objectivity of the auditor; and
´ none of the services undermine the general principles relating to auditor independence, including not reviewing or auditing the
auditor’s own work, not acting in a management or a decision making capacity for the Company, not acting as advocate for the
Company, or not jointly sharing economic risk or rewards.
32 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
During the period the following fees were paid or payable for non-audit services provided by the auditor of the parent entity,
its related practices and non-related audit firms:
Audit and other assurance services
Audit services:
PricewaterhouseCoopers Australian firm
Audit and review of financial reports and other audit work under the
Corporations Act 2001
Audit and review of financial reports and other audit work for foreign subsidiary
Network firms of PricewaterhouseCoopers Australia
Audit and review of financial reports and other audit work for foreign subsidiary
Other assurance services:
PricewaterhouseCoopers Australian firm
Store sales certificates
Agreed upon procedures for covenant calculations
Due diligence services relating to European and domestic acquisitions
Total remuneration for assurance services
Taxation services
PricewaterhouseCoopers Australian firm
Tax compliance services, including review of company tax returns
International tax consulting and tax advice on acquisitions
Network firms of PricewaterhouseCoopers Australia
Tax compliance services, including review of company tax returns
International tax consulting and tax advice on acquisitions
Total remuneration for taxation services
Other services
PricewaterhouseCoopers Australian firm
Accounting advice
Business process review
Total remuneration for other services
Total remuneration for services
WHOLE DOLLARS
2018
$
2017
$
392,202
45,169
352,142
789,513
11,258
22,096
–
33,354
822,867
88,774
–
11,316
11,822
111,912
–
–
–
346,678
34,145
26,532
407,355
10,930
21,452
575,074
607,456
1,014,811
37,700
521,268
4,785
32,500
596,253
29,580
25,000
54,580
934,779
1,665,644
It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where
PricewaterhouseCoopers’ expertise and experience with the Group are important. These assignments are principally tax advice, due
diligence reporting on acquisitions and capital raisings, or where PricewaterhouseCoopers is awarded assignments on a competitive
basis. It is the Company’s policy to seek competitive tenders for all major consulting projects.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 33
DIRECTORS’ REPORT
Auditor’s Independence Declaration
A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 35.
ROUNDING OF AMOUNTS
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by
the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts
in the Directors’ Report have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain
cases, to the nearest dollar.
AUDITOR
PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in
accordance with a resolution of Directors.
Robert Kaye SC
Chairman
Brisbane
26 June 2018
34 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
AUDITOR’S INDEPENDENCE DECLARATION
Auditor’s Independence Declaration
As lead auditor for the audit of Collins Foods Limited for the reporting period ended 29 April 2018, I
declare that to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Collins Foods Limited and the entities it controlled during the period.
Kim Challenor
Partner
PricewaterhouseCoopers
Brisbane
26 June 2018
PricewaterhouseCoopers, ABN 52 780 433 757
480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 35
CONSOLIDATED INCOME STATEMENT
For the reporting period ended 29 April 2018
Revenue
Cost of sales
Gross profit
Selling, marketing and royalty expenses(1)
Occupancy expenses(1)
Restaurant related expenses(1)
Administration expenses(1)(2)
Other expenses
Other income(3)
Profit from continuing operations before finance income, finance costs and
income tax (EBIT)
Finance income
Finance costs(4)
Share of net profit/(loss) of joint ventures accounted for using the equity method
Profit from continuing operations before income tax
Income tax expense(5)
Profit from continuing operations
Net profit attributable to members of Collins Foods Limited
Basic earnings per share
Diluted earnings per share
Weighted average basic ordinary shares outstanding
Weighted average diluted ordinary shares outstanding
NOTE
A3
A3
A4
A4
F9(a)
F2
F2
F2
F2
2018
$000
770,936
(364,927)
406,009
(159,907)
(62,445)
(72,878)
(46,948)
(6,129)
1,004
58,706
347
(10,856)
301
48,498
(16,009)
32,489
32,489
2017
$000
633,562
(301,250)
332,312
(128,946)
(50,946)
(59,277)
(39,224)
(4,454)
2,395
51,860
357
(8,428)
217
44,006
(16,018)
27,988
27,988
28.28 cps
(6)28.67 cps
28.17 cps
(6)28.52 cps
114,864,101
97,622,731
115,350,131
98,123,170
(1) Selling, marketing and royalty, occupancy, restaurant related and administration expenses include charges of $1,200,000 (2017: $2,136,000) relating to impairment
charges and Snag Stand restructuring costs.
(2) Administration expenses include costs of acquisitions and European set up and integration costs of $3,934,000 (2017: $4,981,000).
(3) Gain on disposal of land and building $nil (2017: $500,000); gain on disposal of property, plant and equipment of $nil (2017: $605,000); and realised foreign exchange
gain of $nil (2017: $734,000).
(4) Finance costs include $1,000,000 (2017: nil) in relation to the extinguishment of unamortised costs from previous refinancing.
(5)
Income tax expense includes $1,105,000 relating to a derecognition of a deferred tax asset (2017: reversal of deferred tax assets associated with restaurant
closures $976,000).
(6) The comparative earnings per share has been restated for the bonus element of the 1:11 entitlement offer undertaken in July 2017.
The above Consolidated Income Statement should be read in conjunction with the accompanying Notes.
36 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the reporting period ended 29 April 2018
Net profit attributable to members of Collins Foods Limited
Items that may be reclassified to profit or loss
Other comprehensive income:
Exchange difference upon translation of foreign operations
Cash flow hedges
Income tax relating to components of other comprehensive income
Other comprehensive income for the reporting period, net of tax
NOTE
F8
F8
F9
2018
$000
32,489
5,608
2,281
(685)
7,204
2017
$000
27,988
771
977
(293)
1,455
Total comprehensive income for the reporting period
39,693
29,443
Total comprehensive income for the reporting period is attributable to:
Owners of the parent
39,693
29,443
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying Notes.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 37
CONSOLIDATED BALANCE SHEET
As at 29 April 2018
Current assets
Cash and cash equivalents
Receivables
Inventories
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets, net
Deferred tax assets
Receivables
Investments accounted for using the equity method
Derivative financial instruments
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Derivative financial instruments
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
NOTE
B1
F3
F4
F5
F9(b)
F3
C3
F6
C3
F7
C2
C3
F9(b)
F7
D3
F8
2018
$000
60,450
6,455
5,975
72,880
165,260
438,361
31,922
523
1,874
63
638,003
710,883
77,132
1,033
1,216
6,146
85,527
2017
$000
104,751
4,241
5,076
114,068
103,380
282,470
28,585
6
1,571
–
416,012
530,080
61,863
4,648
1,773
5,298
73,582
286,258
183,022
–
2,631
3,499
292,388
377,915
332,968
290,328
10,951
31,689
332,968
1,684
1,901
3,098
189,705
263,287
266,793
245,260
3,420
18,113
266,793
The above Consolidated Balance Sheet should be read in conjunction with the accompanying Notes.
38 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
For the reporting period ended 29 April 2018
Cash flows from operating activities:
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
GST paid
Interest received
Interest and other borrowing costs paid
Income tax paid
Net operating cash flows
Cash flows from investing activities:
Payment for acquisition of subsidiary, net of cash acquired (Australia KFC
acquisition)
Payment for acquisition of subsidiary, net of cash acquired (Netherlands
and Germany KFC acquisitions)
Payment for asset acquisition
Net cash acquired upon acquisition of subsidiary (Snag Stand acquisition)
Proceeds from sale of property, plant and equipment
Purchase of franchise rights
Payments for plant and equipment
Net investing cash flows
Cash flow from financing activities:
Proceeds from borrowings – bank loan facilities
Repayment of borrowings and other obligations
Loans advanced – related parties
Refinance fees paid
Proceeds from share placement
Share issuance and placement costs
Dividends paid
Net financing cash flows
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the reporting period
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the reporting period
NOTE
2018
$000
2017
$000
843,260
(702,787)
(39,113)
347
(8,528)
(18,656)
74,523
694,202
(573,356)
(37,009)
358
(8,044)
(15,588)
60,563
(99,744)
(15,322)
(94,121)
(4,150)
–
53
(1,526)
(43,823)
(243,311)
113,518
(16,000)
–
(1,841)
46,065
(1,827)
(18,913)
121,002
(47,786)
104,751
3,485
60,450
(19,250)
–
282
635
(668)
(30,609)
(64,932)
28,592
(10,000)
(200)
(437)
54,484
(2,120)
(15,110)
55,209
50,840
52,464
1,447
104,751
B1
A2
A2
B3
B3
D3
D3
B4
B1
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying Notes.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 39
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the reporting period ended 29 April 2018
NOTE
CONTRIBUTED
EQUITY
RESERVES
RETAINED
EARNINGS
TOTAL EQUITY
2017
Beginning of the reporting period
Profit for the reporting period
Other comprehensive income
Total comprehensive income for the
reporting period
Transactions with owners in their capacity
as owners:
Share based payments
Dividends provided for or paid
Performance rights vested
Shares issued
End of the reporting period
2018
Beginning of the reporting period
Profit for the reporting period
Other comprehensive income
Total comprehensive income for the
reporting period
Transactions with owners in their capacity
as owners:
Share based payments
Dividends provided for or paid
Performance rights vested
Shares issued (net of share issue costs)
$000
182,098
–
–
–
–
–
798
62,364
245,260
$000
245,260
–
–
–
–
–
283
44,785
B4
B4
$000
2,364
–
1,455
1,455
399
–
(798)
–
3,420
$000
3,420
–
7,204
$000
5,235
27,988
–
$000
189,697
27,988
1,455
27,988
29,443
–
(15,110)
–
–
18,113
$000
18,113
32,489
–
399
(15,110)
–
62,364
266,793
$000
266,793
32,489
7,204
7,204
32,489
39,693
611
–
(283)
–
–
(18,913)
–
–
611
(18,913)
–
44,785
332,969
End of the reporting period
290,328
10,952
31,689
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying Notes.
40 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A/ FINANCIAL OVERVIEW
This section provides information that is most relevant to explaining the Group’s performance during the reporting period,
and where relevant, the accounting policies that have been applied and significant estimates and judgements made.
A1/ Segment information
A2/ Business combinations
A3/ Revenue and other income
A4/ Expenses
A1/ Segment information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for allocating resources and assessing the performance of the operating
segments, has been identified as the Managing Director & CEO.
DESCRIPTION OF SEGMENTS
Management has determined the operating segments based on the reports reviewed by the Managing Director & CEO that are
used to make strategic decisions. Hence three reportable segments have been identified: KFC Restaurants Australia and Europe
(competing in the quick service restaurant market) and Sizzler Restaurants (competing in the full service restaurant market).
Other includes Shared Services which performs a number of administrative and management functions for the Group’s KFC
and Sizzler Restaurants, as well as Taco Bell and Snag Stand trading activities. This reporting period, Shared Services has been
grouped with Other as it is not considered a reportable operating segment as it does not generate its own revenues and a support
function of the group.
SEGMENT INFORMATION PROVIDED TO THE MANAGING DIRECTOR & CEO
The following is an analysis of the revenue and results by reportable operating segment for the periods under review:
2018
Total segment revenue
Underlying EBITDA(1)
Depreciation, amortisation and
impairment
Finance costs – net
Income tax expense
2017
Total segment revenue
Underlying EBITDA(1)
Depreciation, amortisation and
impairment
Finance costs – net
Income tax expense
KFC RESTAURANTS
AUSTRALIA
SIZZLER
RESTAURANTS
KFC RESTAURANTS
EUROPE
$000
624,095
99,260
23,094
(4)
$000
549,472
89,849
20,349
(5)
$000
50,762
4,560
1,329
–
$000
65,049
4,575
1,538
(4)
$000
91,561
6,635
4,652
50
$000
14,806
633
616
8
OTHER(2)
$000
4,518
(15,907)
1,213
10,463
$000
4,235
(13,799)
3,329
8,072
TOTAL
$000
770,936
94,548
30,288
10,509
16,009
$000
633,562
81,258
25,832
8,071
16,018
(1) Refer below for a description and reconciliation of Underlying EBITDA.
(2) Other includes: Shared Services; Snag Stand; and Taco Bell.
LOCATION OF NON-CURRENT ASSETS
2018
Revenue
Non-current asset (property, plant and equipment, and intangibles)
2017
Revenue
Non-current asset (property, plant and equipment, and intangibles)
AUSTRALIA
EUROPE
ASIA
TOTAL
$000
675,260
459,908
$000
615,006
352,068
$000
91,561
131,597
$000
14,806
21,047
$000
4,114
12,116
$000
3,749
12,735
$000
770,936
603,621
$000
633,562
385,850
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 41
A1/ Segment information (continued)
OTHER SEGMENT INFORMATION
Segment revenue
There are no sales between segments. The revenue from external parties reported to the Board is measured in a manner consistent
with that in the Consolidated Income Statement.
Revenue from external customers is derived from the sale of food in KFC, Sizzler and Taco Bell Restaurants, and franchise fees and
royalties from Sizzler Asia Restaurants.
Underlying EBITDA
The Board assesses the performance of the operating segments based on a measure of Underlying EBITDA. This measurement
basis excludes the effects of costs associated with acquisitions (refer to Note A2). Additionally, impairment of property, plant,
equipment, franchise rights, brand assets and goodwill are also excluded to the extent they are isolated, non-recurring events.
Net finance costs (including the impact of derivative financial instruments) are not allocated to segments as this type of activity is
driven by the central treasury function, which manages the cash position of the Group.
A reconciliation of Underlying EBITDA to profit from continuing operations before income tax is provided as follows:
Underlying EBITDA
Finance costs – net
Realised foreign exchange gain
Performance rights
Costs of acquisitions expensed
Depreciation
Amortisation
Impairment of property, plant and equipment
Impairment of KFC franchise rights
Impairment of Snag Stand goodwill
Write-off of restaurant smallwares
Other one-off costs
Gain on disposal of land and building
Share of net profit/(loss) of joint ventures accounted for using the equity method
Profit from continuing operations before income tax
2018
$000
94,548
(10,509)
–
(611)
(3,933)
(28,307)
(1,746)
(191)
(44)
–
–
(1,010)
–
301
48,498
2017
$000
81,258
(8,071)
734
(399)
(4,981)
(22,150)
(1,546)
(1,212)
–
(924)
(25)
–
1,105
217
44,006
A2/ Business combinations
KFC RESTAURANTS (AUSTRALIA) – SUMMARY OF ACQUISITION
On 26 June 2017, Collins Foods South Pty Ltd, a wholly owned subsidiary of Collins Foods Limited entered into binding agreements
to acquire 28 KFC restaurants from Yum! Brands Inc. subsidiaries located in Western Australia, South Australia and Tasmania. The
following acquisitions were completed:
´ acquisition of five restaurants in Western Australia on 9 October 2017;
´ acquisition of five restaurants in South Australia on 23 October 2017; and
´ acquisition of 14 restaurants in Tasmania on 4 December 2017.
The remaining restaurants are to be completed in FY19.
The primary reason for the acquisition was to expand operations in the quick service restaurant market and consolidate the
Company’s position as the largest KFC franchisee in Australia.
As part of the Group’s ongoing franchisee relationship with Yum!, there were other agreements entered into.
42 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Purchase consideration – cash paid
The fair values of the assets and liabilities of the business acquired as at the date of acquisition are as follows:
Cash
Prepaid expenses
Inventories
Property, plant and equipment
Intangible assets
Deferred tax asset, net
Trade and other payables
Provisions
Net identifiable assets acquired
Goodwill
Net assets acquired
$000
99,826
FAIR VALUE
$000
82
115
322
26,698
1,518
3,616
(17)
(1,739)
30,595
69,231
99,826
The goodwill is attributable to the workforce and access to an established market with opportunities for future expansion.
Acquisition – related costs
Acquisition related costs of $2.9 million have been recognised in the Consolidated Income (other expenses)
and in operating cash flows in the Consolidated Statement of Cash Flows (payments to suppliers and employees).
PURCHASE CONSIDERATION – CASH FLOW
Cash consideration
Less balances acquired
Inflow of cash – investing activities
AS AT ACQUISITION DATE
$000
99,826
82
99,744
The acquired business contributed revenues of $39.1 million and underlying EBITDA of $6.7 million to the Group for the period the
stores were owned by Collins Foods, up to 29 April 2018.
KFC RESTAURANTS (NETHERLANDS) – SUMMARY OF ACQUISITION
On 31 August 2017, Collins Foods Netherlands Limited, a subsidiary of the Company, acquired 16 KFC Restaurants located in the
Netherlands from subsidiaries of Yum! Brands Inc. The purchase price was €62.3 million plus franchise fees and adjusted down for
employee liabilities accrued prior to completion. The acquisition provides a strategic entry into the KFC Netherlands market which
further support the growth platform for Collins Foods’ KFC operations outside of Australia.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Purchase consideration – cash paid
$000
94,224
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 43
A2/ Business combinations (continued)
The provisional fair values of the assets and liabilities of the business acquired as at the date of acquisition are as follows:
Cash
Inventories
Property, plant and equipment
Intangible assets
Net identifiable assets acquired
Goodwill
Net assets acquired
FAIR VALUE
$000
103
393
15,230
1,005
16,731
77,493
94,224
The goodwill represents the value of markets with an established business name that has a strong reputation and market presence.
Acquisition – related costs
Acquisition related costs of $0.7 million have been recognised in the Consolidated Income Statement (other expenses)
and in operating cash flows in the Consolidated Statement of Cash Flows (payments to suppliers and employees).
PURCHASE CONSIDERATION – CASH FLOW
Cash consideration
Less balances acquired
Outflow of cash – investing activities
AS AT ACQUISITION DATE
$000
94,224
103
94,121
The acquired business contributed revenues of $48.8 million and an underlying EBITDA of $7.2 million to the Group for the period
31 August 2017 to 29 April 2018.
If all of the acquisitions had occurred on 1 May 2017, consolidated revenue and consolidated Underlying EBITDA for the reporting
period ended 29 April 2018 would have been $841.7 million and $106.6 million respectively.
At the time the financial statements were approved and issued, the Group has not yet completed the accounting for the acquisition.
In particular, the property, plant and equipment have been determined provisionally as the valuation has not yet been finalised
ACCOUNTING POLICY
The acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments or
other assets are acquired. Cost is measured as the fair value of the assets given, shares issued, or liabilities incurred or assumed
at the date of exchange. Where equity instruments are issued in an acquisition, the value of the instruments is their published
market price as at the date of exchange. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest
in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.
Transaction costs arising on the issue of equity instruments are recognised directly in equity. Transaction costs arising from
business combinations 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, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition
over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is
less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Consolidated Income
Statement, but only after a reassessment of the identification and measurement of the net assets acquired.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present
value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar
borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are
subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
44 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A3/ Revenue and other income
Revenue from continuing operations
Sales revenue:
Sale of goods
Other revenue:
Franchise revenue from external parties
Total revenue
Other income
Net gain on disposal of property, plant and equipment
Realised foreign exchange gain
Traineeship income
Other
Total other income
2018
$000
2017
$000
766,822
629,813
4,114
770,936
3,749
633,562
15
–
80
909
1,004
837
734
143
681
2,395
ACCOUNTING POLICY
Revenue is measured at the fair value of the consideration received or receivable. Revenue from the sale of goods is recognised
when the Group has passed control of the goods to the customer. Interest income is recognised on a time proportion basis using
the effective interest method and traineeship income is recognised as revenue when the right to receive payment is established.
A4/ Expenses
Profit from continuing operations before income tax includes the following specific expenses:
Depreciation, amortisation and impairment
Depreciation
Amortisation
Impairment
Total depreciation, amortisation and impairment
Finance income and costs
Finance income
Finance costs
Net finance costs
Employee benefits expense
Wages and salaries
Defined contribution superannuation expense
Employee entitlements
Total employee benefits expense
Operating lease rentals
Inventories recognised as an expense
Costs of acquisitions expensed
Performance rights
Write-off of restaurant smallwares
Bank transaction fees
Loss on disposal of property, plant and equipment
2018
$000
2017
$000
28,307
1,746
235
30,288
(347)
10,856
10,509
186,072
15,735
13,811
215,618
43,793
250,879
3,933
611
–
3,251
240
22,150
1,546
2,136
25,832
(357)
8,428
8,071
151,628
11,559
10,780
173,967
35,290
209,243
4,981
399
25
2,393
–
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 45
B/ CASH MANAGEMENT
Collins Foods Limited has a focus on maintaining a strong balance sheet with the strategy incorporating the Group’s
expenditure, growth and acquisition requirements, and the desire to return dividends to shareholders.
B1/ Cash and cash equivalents
B2/ Borrowings
B3/ Ratios
B4/ Dividends
B1/ Cash and cash equivalents
Cash at bank and on hand(1)
2018
$000
60,450
2017
$000
104,751
(1)
Included in cash at bank and on hand is an amount of $1.4 million (2017: $0.8 million) that is held under lien by the bank as security for Europe lease agreements
and are therefore not available for use by the Group.
Reconciliation of profit from continuing operations to net cash inflow from operating activities
Profit from continuing operations
Adjustments for non-cash income and expense items:
Depreciation, amortisation and impairment
Loss/(gain) on disposal of property, plant and equipment
Amortisation of borrowing costs
Non-cash employee benefits expense share based payments expense
Transfer to/(from) provisions:
Provision for inventory write-offs
Provision for employee entitlements
Changes in assets and liabilities:
(Increase)/decrease in assets:
Receivables
Inventory
Prepayments and other assets
Share of profits of joint ventures
Increase in liabilities:
Trade payables and accruals
Movement in:
Income tax payable
Deferred tax balances – costs associated with acquisitions
Fringe benefits tax payable
Goods and services tax payable
Net operating cash flows
46 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
2018
$000
32,489
30,288
225
1,407
611
(52)
19
(250)
(91)
(2,346)
(301)
2017
$000
27,988
25,832
(226)
238
399
43
(829)
(1,305)
(200)
2,826
(217)
15,032
4,731
(3,506)
844
(54)
208
517
(81)
33
814
74,523
60,563
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICY
For the purposes of the Consolidated Statement of Cash Flows, cash includes cash on hand, at call deposits with banks or financial
institutions, and other short-term, highly liquid investments in money market instruments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
B2/ Borrowings
AVAILABLE FINANCING FACILITIES
Used
Unused
Total
2018
2017
WORKING
CAPITAL
FACILITY
$000
640
35,370
36,010
REVOLVING
BANK LOANS
$000
287,650
42,402
330,052
WORKING
CAPITAL
FACILITY
$000
807
14,193
15,000
REVOLVING
BANK LOANS
$000
183,981
63,838
247,819
A subsidiary of the Company, CFG Finance Pty Limited, is the primary borrower under a Syndicated Facility Agreement (Syndicated
Facility) and a Working Capital Facility Agreement (Working Capital Facility). On 26 June 2017, the Group entered into a new
Syndicated Facility Agreement of $270 million and €60 million, including working capital facilities. The new term of the facility is a
blend of maturities with $175 million, expiring on 31 October 2020, and the remaining $95 million together with €60 million expiring
on 31 October 2022.
Facilities
The Syndicated Facility and Working Capital Facility are subject to certain financial covenants and restrictions such as net
leverage ratios, interest coverage ratios and others which management believe are customary for these types of loans.
During the reporting period ended 29 April 2018, the Group maintained compliance with the financial covenants and
restrictions of these facilities. The Company and its subsidiaries (other than subsidiaries outside of the Closed Group)
were registered guarantors of all the obligations in respect of these loan facilities.
ACCOUNTING POLICY
Bank loans are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in
the Consolidated Income Statement over the period of the borrowings using the effective interest method. Fees paid on the
establishment of loan facilities, which are not transaction costs relating to the actual draw-down of the facility, are capitalised and
amortised on a straight-line basis over the term of the facility.
Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to
complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.
B3/ Ratios
CAPITAL MANAGEMENT
The Group manages its capital by maintaining a strong capital base. The Group assesses its capital base by reference to its
gearing ratio, which it defines as net debt divided by total capital. Net debt is calculated as borrowings (excluding capitalised fees)
less cash and cash equivalents. Total capital is calculated as total equity as shown in the balance sheet plus net debt. At balance
date, the gearing ratio was 41% (2017: 23%).
NET DEBT
Cash at bank and on hand
Borrowings
Net debt
NOTE
B1
B2
2018
$000
60,450
287,650
227,200
2017
$000
104,751
183,981
79,230
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 47
B3/ Ratios (continued)
RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
Borrowings
Total liabilities from financing activities
NET LEVERAGE
Net debt
EBITDA per Syndicated Facility Agreement
Net leverage
2017
$000
183,981
183,981
CASH FLOWS
$000
97,518
97,518
FX
$000
6,151
6,151
2018
$000
287,650
287,650
2018
$000
227,200
106,114
2.14
2017
$000
79,230
83,932
(1)0.94
(1) The net proceeds raised from the share placement of ordinary shares to partially fund the acquisition of KFC restaurants in the Netherlands is included in
net debt. Excluding these proceeds the net leverage ratio is 1.59.
B4/ Dividends
DIVIDENDS
Dividends paid of $0.17 (2017: $0.16) per fully paid share
FRANKING CREDITS
Franking credits available for the subsequent reporting period based on a tax rate of 30%
2018
$000
18,913
2018
$000
80,414
2017
$000
15,110
2017
$000
74,199
The above amount represents the balance of the franking account as at the end of the reporting period, adjusted for:
´ franking credits that will arise from the payment of income tax payable as at the end of the reporting period;
´ franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
´ franking credits that may be prevented from being distributed in the subsequent reporting period.
The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries
were paid as dividends.
Since the end of the reporting period, the Directors of the Company have declared the payment of a fully franked final dividend of
9.0 cents per ordinary share ($10.5 million) to be paid on 26 July 2018. The aggregate amount of the dividend to be paid on that date,
but not recognised as a liability at the end of the reporting period is $10,482,087.
ACCOUNTING POLICY
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the
Company, on or before the end of the reporting period but not distributed at balance date.
48 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C/ FINANCIAL RISK MANAGEMENT
This section provides information relating to the Group’s exposure to financial risks, how they affect the financial position and
performance, and how the risks are managed.
C1/ Financial risk management
C2/ Recognised fair value measurements
C3/ Derivative financial instruments
C1/ Financial risk management
The Board of Directors has delegated specific authorities to the central finance department in relation to financial risk management.
The finance department identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The
Board has provided written policies covering the management of interest rate risk and the use of derivative financial instruments.
All significant decisions relating to financial risk management require specific approval by the Board of Directors.
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest risk and price risk), credit
risk and liquidity risk. In addition, the Group manages its capital base. The Group’s overall risk management program focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The
Group’s activities expose it primarily to the financial risk of changes in interest rates and it utilises Swap Contracts to manage its
interest rate risk exposure. The use of financial instruments is governed by the Group’s policies approved by the Board of Directors
and are not entered into for speculative purposes.
Market risk
CURRENCY RISK
Foreign exchange risk
During 2018 and 2017, the financial instruments of the Group and the parent entity were denominated in Australian dollars apart
from certain bank accounts, trade receivables and trade payables in respect of the Group’s Asian operations and European
operations which were denominated in foreign currencies at the Group level. Management has decided not to hedge the foreign
exchange risk exposure for Asia. In respect of its European operations the Group aims to reduce balance sheet translation exposure
by borrowing in the currency of its assets (Euro €) as far as practical (disclosed in Note B2). The Group’s exposure to foreign
currency risk is disclosed in the tables below.
Hedge of net investment in foreign entity
As at 25 August 2017, €48.3 million of the Euro denominated loan of €48.5 million was designated as the hedging instrument of a net
investment hedge for the foreign currency risk exposure of €48.3 million of the equity invested in Collins Foods Europe Limited (and
subsidiaries). As at inception this hedge was considered to be completely effective.
Cash flow and interest rate risk
The Group’s main interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose the Group to cash
flow interest rate risk while borrowings issued at fixed rates expose the Group to fair value interest rate risk.
It is the policy of the Group to protect a designated portion of the loans from exposure to increasing interest rates. Accordingly, the
Group has entered into interest rate swap contracts (Swap Contracts) under which it is obliged to receive interest at variable rates
and to pay interest at fixed rates.
Information about the Group’s variable rate borrowings, outstanding Swap Contracts and an analysis of maturities at the reporting
date is disclosed below and in C3.
Price risk
The Group manages commodity price risk by forward contracting prices on key commodities and by being actively involved in
relevant supply co-operatives.
CREDIT RISK
Credit risk arises from cash and cash equivalents, derivative financial instruments, deposits with banks, other trade receivables
and receivables from related parties. The Group has adopted a policy of only dealing with creditworthy counterparties and in the
situation of no independent rating being available, will assess the credit quality of the customer taking into account its financial
position, past experience and other factors.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 49
C1/ Financial risk management (continued)
Trade receivables consist of a small number of customers and ongoing review of outstanding balances is conducted on a periodic
basis. The balance outstanding (disclosed in Note F3) is not past due, nor impaired (2017: nil past due). The credit risk on liquid funds
and derivative financial instruments is limited as the counterparties are banks with high credit ratings assigned by international
credit rating agencies.
Related party transactions are conducted on commercial terms and conditions. Recoverability of these transactions are assessed
on an ongoing basis.
Credit risk further arises in relation to financial guarantees given to certain parties (refer to Notes B2 and G1 for details).
LIQUIDITY RISK
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve banking facilities by continuously
monitoring forecast and actual cash flows. This approach enables the Group to manage short, medium and long term funding and
liquidity management as reported in Note B2. Non-interest bearing liabilities are due within six months. For maturities of interest
bearing liabilities and Swap Contracts of the Group, refer below and in C3.
MATURITIES OF FINANCIAL LIABILITIES
The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for:
´ all non-derivative financial liabilities; and
´ net and gross settled derivative financial instruments for which the contractual maturities are essential for an understanding of
the timing of the cash flows.
The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying
balances as the impact of discounting is not significant. For Swap Contracts the cash flows have been estimated using forward
interest rates applicable at the end of each reporting period.
CONTRACTUAL MATURITIES OF
FINANCIAL LIABILITIES
NOTE
LESS THAN
1 YEAR
BETWEEN 1
AND 2 YEARS
BETWEEN 2
AND 5 YEARS
2018
Non-derivatives
Trade and other payables
Borrowings
Total non-derivatives
Derivatives
F6
C2
Net settled (Swap Contracts)
C3
2017
Non-derivatives
Trade and other payables
Borrowings
Total non-derivatives
Derivatives
F6
C2
$000
$000
$000
77,132
10,638
87,770
1,219
$000
61,863
9,207
71,070
–
9,739
9,739
316
$000
–
69,823
69,823
–
298,193
298,193
(405)
$000
–
130,927
130,927
Net settled (Swap Contracts)
C3
1,814
1,227
545
TOTAL
CONTRACTUAL
CASH FLOWS
CARRYING
AMOUNT
(ASSETS)/
LIABILITIES
$000
$000
OVER
5 YEARS
$000
–
–
–
–
$000
–
–
–
–
77,132
318,570
395,702
1,130
$000
61,863
210,002
271,865
77,132
286,258
363,390
1,153
$000
61,863
183,022
244,885
3,586
3,457
50 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk and foreign
exchange risk only, as the Group is not exposed to other market risks:
INTEREST RATE RISK AND FOREIGN EXCHANGE RISK
CARRYING
AMOUNT
$000
63,126
366,968
$000
107,177
253,949
INTEREST RATE RISK
FOREIGN CURRENCY RISK
–1%
+1%
–1%
+1%
PROFIT
EQUITY
PROFIT
EQUITY
PROFIT
EQUITY
PROFIT
EQUITY
$000
(423)
838
415
$000
(733)
415
(318)
$000
–
(1,545)
(1,545)
$000
–
(2,350)
(2,350)
$000
423
(838)
(415)
$000
733
(415)
318
$000
–
1,545
1,545
$000
–
2,350
2,350
$000
205
(61)
144
$000
668
(16)
652
$000
–
–
–
$000
–
–
–
$000
(205)
61
(144)
$000
(668)
16
(652)
$000
–
–
–
$000
–
–
–
2018
Financial assets
Financial liabilities
Total increase/(decrease)
2017
Financial assets
Financial liabilities
Total increase/(decrease)
INTEREST RATE RISK EXPOSURES – LIABILITIES
The following table summarises interest rate risk for the Group, together with effective interest rates as at the end of the
reporting period.
WEIGHTED
AVERAGE
EFFECTIVE RATE
2018
Trade and other payables
Borrowings – unhedged
Borrowings – hedged(1)
2017
Trade and other payables
Borrowings – unhedged
Borrowings – hedged(1)
NOTES
F6
B2
B2
F6
B2
B2
FLOATING
INTEREST
RATE
$000
–
119,650
–
119,650
$000
–
59,231
–
59,231
FIXED INTEREST MATURING IN:
5 YEARS
OR LESS
MORE THAN
5 YEARS
NON-INTEREST
BEARING
$000
–
–
168,000
168,000
$000
–
–
124,750
124,750
$000
–
–
–
–
$000
–
–
–
–
$000
77,132
–
–
77,132
$000
61,863
–
–
61,863
TOTAL
$000
77,132
119,650
168,000
364,782
$000
61,863
59,231
124,750
245,844
(1) Refer Note C3 for details of derivative financial instruments.
INTEREST RATE RISK EXPOSURES – CURRENT ASSETS (RECEIVABLES)
The Group’s exposure to interest rate risk and the average interest rate by maturity period is set out in the following table:
2018
Trade and other receivables
2017
Trade and other receivables
NOTES
F3
F3
FLOATING
INTEREST
RATE
$000
–
–
$000
–
–
FIXED INTEREST MATURING IN:
5 YEARS
OR LESS
MORE THAN
5 YEARS
NON-INTEREST
BEARING
$000
–
–
$000
–
–
$000
–
–
$000
–
–
$000
3,199
3,199
$000
2,432
2,432
2.1%
4.6%
2.7%
4.9%
TOTAL
$000
3,199
3,199
$000
2,432
2,432
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 51
C2/ Recognised fair value measurements
CREDIT RISK
There is no concentration of credit risk with respect to external current and non-current receivables.
FAIR VALUE HIERARCHY
Judgements and estimates are made in determining the fair values of assets and liabilities that are recognised and measured at fair
value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group
has classified such assets and liabilities into the three levels prescribed under the accounting standards.
The fair values of derivative instruments are determined as the estimated amount that the Group and the Company would receive or
pay to terminate the interest rate swap at the end of the reporting period, taking into account the current interest rate.
The Directors consider that the carrying amount of financial assets and financial liabilities recorded in the financial statements
approximate their fair values.
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into Levels 1 to 3, based on the
degree to which the fair value is observable. The different levels have been identified as follows:
´ quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
´ inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices)
or indirectly (derived from prices) (Level 2); and
´ inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
As at 29 April 2018, the Group has derivative financial instruments which are classified as Level 3 financial instruments. There are
no Level 1 or Level 2 financial instruments. As at 30 April 2017, the Group had derivative financial instruments which were classified
as Level 3 financial instruments. There were no Level 1 or Level 2 financial instruments.
DISCLOSED FAIR VALUES
The Group also has assets and liabilities which are not measured at fair value, but for which fair values are disclosed in the notes to
the financial statements.
Receivables
Due to the short term nature of the current receivables, their carrying amount is assumed to be the same as their fair value. For the
majority of non-current receivables, the fair values are not materially different to their carrying amounts, since the interest on those
receivables is close to current market rates.
Trade and other payables
Due to the short term nature of the trade and other payables, their carrying amount is assumed to be the same as their fair value.
Borrowings
The fair value of borrowings is as follows:
Bank Loan (net of borrowing costs)
CARRYING
AMOUNT
$000
286,258
2018
FAIR VALUE
$000
261,904
DISCOUNT
RATE
%
5.6
CARRYING
AMOUNT
$000
183,022
2017
FAIR VALUE
$000
175,892
DISCOUNT
RATE
%
5.8
The fair value of non-current borrowings is based on discounted cash flows using the rate disclosed in the table above. They are
classified as Level 3 values in the fair value hierarchy due to the use of unobservable inputs, including the credit risk of the Group.
VALUATION PROCESSES
The finance department of the Group engages a third party expert valuation firm to value the derivative financial instruments that
are required to be measured, recognised and disclosed in the financial statements, at fair value. This includes Level 3 fair values.
The finance department reports directly to the Group CFO and the Audit and Risk Committee (ARC). Discussions of valuation
processes and results are held between the Group CFO, ARC and the finance department at least once every six months, in line with
the Group’s half-year reporting periods.
The main Level 3 inputs used by the Group are discount rates for financial assets and financial liabilities that are determined using a
capital asset pricing model to calculate a pre-tax rate that reflects current market assessments of the time value of money and the
risk specific to the asset.
Changes in Level 2 and Level 3 fair values are analysed at the end of each reporting period during the half-year valuation discussion
between the Group CFO, ARC and finance department. As part of this discussion the finance department presents a report that
explains the reason for the fair value movements.
52 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICY
Investments and other financial assets
The Group classifies its financial assets in the following categories: loans and receivables, held-to-maturity investments and
available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management
determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date.
All investments and other financial assets with the exception of held-to-maturity investments and loans and receivables are
measured at fair value. Held-to-maturity investments and loans and receivables are measured at amortised cost. At initial
recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit
or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets
carried at fair value through profit or loss are expensed in profit or loss. Changes in fair value are either taken to the Consolidated
Income Statement or an equity reserve.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date
which are classified as non-current assets. Loans and receivables are included in current receivables (Note F3) and non-current
receivables (Note F3) in the Consolidated Balance Sheet.
Available-for-sale financial assets are included in non-current assets unless management intend to dispose of the investment within
12 months of the end of the reporting period. Investments are designated as available-for-sale if they do not have determinable
payments and management intends to hold them for the medium to long term.
C3/ Derivative financial instruments
Non-current assets
Interest rate swap contracts – cash flow hedges
Current liabilities
Interest rate swap contracts – cash flow hedges
Non-current liabilities
Interest rate swap contracts – cash flow hedges
2018
$000
63
1,216
–
2017
$000
–
1,773
1,684
INSTRUMENTS USED BY THE GROUP
The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in
interest rates in accordance with the Group’s financial risk management policies.
INTEREST RATE SWAP CONTRACTS – CASH FLOW HEDGES
During the reporting period ended 29 April 2018 the Group entered into the following Swap Contracts to hedge a designated portion
of the interest rate exposure of the facility:
´ $15.25 million commenced on 4 December 2017, with a maturity date of 31 October 2018;
´ $28.0 million commenced on 4 December 2017, with a maturity date of 31 October 2022; and
´ $65.0 million commencing on 31 October 2018, with a maturity date of 31 October 2020.
Swap Contracts currently in place cover approximately 80% (2017: 80%) of the Australian dollar denominated loan principal
outstanding and are timed to expire as each loan repayment falls due. The variable rates are Bank Bill Swap Bid Rate (BBSY) which
at balance date was 1.90% (2017: 1.675%). The notional principal amounts, periods of expiry and fixed interest rates applicable to the
Swap Contracts are as follows:
Less than 1 year
1–2 years
2–3 years
3–4 years
4–5 years
2018
WEIGHTED
AVERAGE FIXED
INTEREST RATE
2.9%
–
2.4%
–
2.2%
2018
$000
140,000
–
140,000
–
28,000
308,000
2017
WEIGHTED
AVERAGE FIXED
INTEREST RATE
–
3.1%
–
2.7%
–
2017
$000
–
124,750
–
75,000
–
199,750
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 53
C3/ Derivative financial instruments (continued)
The Swap Contracts require settlement of net interest receivable or payable each month. The settlement dates coincide with the
dates on which interest is payable on the underlying debt. The Swap Contracts are settled on a net basis. The derivative financial
instruments were designated as cash flow hedges at inception.
CREDIT RISK EXPOSURES
At 29 April 2018, the Swap Contracts gave rise to payables for unrealised losses on derivative instruments of $1.2 million
(2017: $3.5 million) for the Group. Management has undertaken these contracts with the Australia and New Zealand Banking
Group Limited which is an AA rated financial institution.
ACCOUNTING POLICY
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.
At the start of a hedge relationship, the Group formally designates and documents the hedge relationship, including the risk
management strategy for undertaking the hedge. This includes identification of the hedging instrument, the hedged item or
transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness. Hedge
accounting is only applied where effective tests are met on a prospective basis.
The Group utilises interest rate swap contracts which are designated as cash flow hedges. The effective portion of changes in the
fair value of swap contracts is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss
relating to the ineffective portion is recognised immediately in the Consolidated Income Statement. Changes in fair value of any
derivative instrument that does not qualify for hedge accounting are recognised immediately in the Consolidated Income Statement.
Amounts accumulated in equity are recycled in the Consolidated Income Statement in the periods when the hedged item will affect
profit or loss.
The Group will discontinue hedge accounting prospectively only when the hedging relationship, or part of the hedging relationship
no longer qualifies for hedge accounting, which includes where there has been a change to the risk management objective and
strategy for undertaking the hedge and instances when the hedging instrument expires or is sold, terminated or exercised. For this
purpose, the replacement or rollover of a hedging instrument into another hedging instrument is not an expiration or termination if
such a replacement or rollover is consistent with our documented risk management objective.
When hedge accounting is discontinued any cumulative gain or loss existing in equity at that time remains in equity and is
recognised when the forecast transaction is ultimately recognised in the Consolidated Income Statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to
the Consolidated Income Statement.
54 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS D/ REWARD AND RECOGNITION
These programs also result in changes to the Group’s contributed equity.
D1/ Key management personnel
D2/ Share based payments
D3/ Contributed equity
D1/ Key management personnel
KMP COMPENSATION
Short term employee benefits
Long term employee benefits
Post employment benefits
Long term incentive (share based payments and long term cash incentive)
Total KMP compensation
Note: FY17 Short term employee benefits includes discretionary payments.
2018
$
3,094,277
49,792
166,254
297,785
WHOLE DOLLARS
2017
$
2,520,372
(58,016)
130,179
290,686
3,608,109
2,883,221
Detailed remuneration disclosures are provided in the Remuneration Report included in the Directors’ Report.
D2/ Share based payments
LONG TERM INCENTIVE PLAN – PERFORMANCE RIGHTS
The Company has a Long Term Incentive Plan (LTIP) designed to provide long term incentives for certain employees, including
executive directors. Under the plan, participants are granted performance rights over shares. The number of performance rights is
calculated by dividing the dollar value of the participant’s long term incentive by the Australian Securities Exchange (ASX) volume
weighted average price of the shares for the five trading days prior to the date of offer of the performance rights.
Unless otherwise determined by the Board in its discretion, performance rights are issued for nil consideration. The amount
of performance rights that will vest depends upon the achievement of certain vesting conditions, including the satisfaction of a
minimum 12 month term of employment and the achievement of earnings per share (EPS) growth targets by the Company. In the
event of cessation of employment within 12 months of the date of grant, unvested performance rights are forfeited. In the event
of cessation of employment after 12 months but before the conclusion of the vesting period, unvested performance rights are
considered forfeited, unless otherwise determined by the Board, in which case any service condition will be deemed to have been
fulfilled as at the testing date the performance rights remain and subject to performance testing along with other participants. It
is noted that the Board has discretion to allow “Good Leavers” to retain their participation in the LTIP beyond the date of cessation
of employment when deemed appropriate to the circumstances. The EPS growth targets must be achieved over a three year
performance period. Performance rights will automatically vest on the business day after the Board determines the vesting
conditions have all been satisfied and is a date that is no later than 5.00pm (Brisbane time) on the day that is four weeks after
the public release of the audited financial report of the Company for the final year of the three year performance period (Vesting
Determination Date).
The performance rights will automatically exercise on the Vesting Determination Date unless that date occurs outside a trading
window permitted under the Company’s Securities Trading Policy, in which case the performance rights will exercise upon the first
day of the next trading window. Upon exercise of the performance rights, the Company must issue or procure the transfer of one
share for each performance right, or alternatively may in its discretion elect to pay the cash equivalent value to the participant.
Performance rights will lapse on the first to occur of:
´ the expiry date;
´ the vesting conditions not being satisfied by the Vesting Determination Date;
´ unless the Board otherwise determines, by the cessation of the employment of the employee to whom the offer of performance
rights was made. The Board determination will depend upon the reason for employment ceasing (resignation, dismissal for cause,
death or illness).
Performance rights when issued under the LTIP are not entitled to receive a dividend and carry no voting rights.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 55
D2/ Share based payments (continued)
Set out below are summaries of performance rights issued under the LTIP:
Balance at the beginning of the reporting period
Vested and exercised during the reporting period
Issued during the reporting period
Lapsed during the reporting period
Balance at the end of the reporting period
2018
446,105
(149,527)
329,412
(270)
2017
803,548
(531,163)
176,403
(2,683)
625,720
446,105
On 11 July 2017, following the satisfaction of the vesting conditions, 149,527 performance rights previously granted under the LTIP
converted to fully paid ordinary shares. Each participant was issued with shares based on the volume weighted average price of $5.72.
All performance rights issued during the reporting period ended 29 April 2018 have an expiry date of 26 July 2020 and were issued
with an exercise price of nil. All performance rights issued during the reporting period ended 30 April 2017 have an expiry date of
23 July 2019 and were issued with an exercise price of nil.
FAIR VALUE OF PERFORMANCE RIGHTS ISSUED
There were two tranches of performance rights issued during the reporting period ended 29 April 2018:
´ The assessed fair value of performance rights issued on 28 September 2017 was an average of $5.27. The fair value at
issuance date was determined using a discounted cash flow model incorporating the share price at issuance date of $5.82,
the term of the performance right, the expected dividend yield of 3.27% and the risk free interest rate for the term of the
performance rights of 2.16%.
´ The assessed fair value of performance rights issued on 29 November 2017 was an average of $5.41. The fair value at issuance
date was determined using a discounted cash flow model incorporating the share price at issuance date of $5.93, the term of the
performance right, the expected dividend yield of 3.05% and the risk free interest rate for the term of the performance rights
of 2.16%.
There were two tranches of performance rights issued during the reporting period ended 30 April 2017:
´ The assessed fair value of performance rights issued on 7 September 2016 was an average of $4.20. The fair value at issuance
date was determined using a discounted cash flow model incorporating the share price at issuance date of $4.58, the term of
the performance right, the expected dividend yield of 2.83% and the risk free interest rate for the term of the performance
rights of 1.51%.
´ The assessed fair value of performance rights issued on 29 September 2016 was an average of $4.13. The fair value at issuance
date was determined using a discounted cash flow model incorporating the share price at issuance date of $4.50, the term of
the performance right, the expected dividend yield of 2.83% and the risk free interest rate for the term of the performance rights
of 1.51%.
ACCOUNTING POLICY
Equity settled share based payments are measured at the fair value of the equity instrument at the date of grant. The fair
value of performance rights granted is recognised as an employee benefits expense with a corresponding increase in equity.
The determination of fair value includes consideration of any market performance conditions and the impact of any non-vesting
conditions but excludes the impact of any service and non-market performance vesting conditions.
Non-market vesting conditions are included in assumptions about the number of performance rights that are expected to vest.
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to
be satisfied. At the end of each period, the entity revises its estimates of the number of performance rights that are expected to vest
based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit and loss,
with a corresponding adjustment to equity.
56 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS D3/ Contributed equity
EQUITY OF PARENT COMPANY
Balance
Share purchase plan
Institutional Entitlement Offer
Senior Executive Performance Rights Plan
Retail Entitlement Offer
Less capital raising costs
Balance
(1) Net of tax effect.
PARENT ENTITY
NUMBER OF
ORDINARY
SHARES
– FULLY PAID
106,251,049
371,145
5,681,930
149,527
4,013,986
–
SHARE CAPITAL
$000
TOTAL EQUITY
$000
245,260
245,260
1,949
25,853
283
18,264
(1)(1,281)
1,949
25,853
283
18,264
(1,281)
DATE
1 May 2017
5 May 2017
5 July 2017
11 July 2017
18 July 2017
18 July 2017
29 April 2018
116,467,637
290,328
290,328
ORDINARY SHARES
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the
number of shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy is entitled to
one vote. Upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited
amount of authorised capital.
ACCOUNTING POLICY
Debt and equity instruments are classified as either liabilities or equity in accordance with the substance of the contractual
arrangement. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from proceeds.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 57
E/ RELATED PARTIES
This section provides information relating to the Group’s related parties and the extent of related party transactions within
the Group and the impact they had on the Group’s financial performance and position.
E1/ Investments accounted for using the equity method
E2/ Related party transactions
E1/ Investments accounted for using the equity method
INTERESTS IN INDIVIDUALLY IMMATERIAL JOINT VENTURES
% OF OWNERSHIP INTEREST
NAME OF ENTITY
Sizzler China Pte Ltd
PLACE OF INCORPORATION
Singapore
ACRONYM
SCP
2018
50
INDIVIDUALLY IMMATERIAL ASSOCIATES
Aggregate carrying amount of the investment of individually
immaterial associates
Aggregate amounts of the Group's share of:
Profit from continuing operations
Total comprehensive income
2018
$000
2,064
301
301
2017
50
2017
$000
1,766
217
217
ACCOUNTING POLICY
Under AASB 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures.
The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint
arrangement. Investments in joint ventures are accounted for using the equity method of accounting, after initially being recognised
at cost in the Consolidated Balance Sheet.
Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the
Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other
comprehensive income of the investee in other comprehensive income. Dividends received or receivable from joint ventures are
recognised as a reduction in the carrying amount of the investment.
When the Group’s share of losses in an equity accounted investment equals or exceeds its interest in the entity, including any other
unsecured long term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments
on behalf of the other entity.
Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the
entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies
adopted by the Group.
58 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS E2/ Related party transactions
PARENT ENTITY
The parent entity and ultimate parent entity within the Group is Collins Foods Limited.
KEY MANAGEMENT PERSONNEL
Disclosures relating to the compensation of KMP are included in Note D1 and in the Remuneration Report included in the
Directors’ Report.
SUBSIDIARIES
The ownership interests in subsidiaries are set out in Note G1.
Transactions between entities within the Group during the reporting period consisted of loans advanced and repaid, interest
charged and received, operating expenses paid, non-current assets purchased and sold, and tax losses transferred. These
transactions were undertaken on commercial terms and conditions.
TRANSACTIONS WITH RELATED PARTIES
All transactions with related parties are conducted on commercial terms and conditions.
TRANSACTION TYPE
Loans to related parties
CLASS OF RELATED PARTY
WHOLE DOLLARS
2018
$
2017
$
Interest received or receivable
Related entity – joint venture
–
38,000
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 59
F/ OTHER INFORMATION
F1/ Commitments for expenditure
F2/ Earnings per share
F3/ Receivables
F7/ Provisions
F8/ Reserves
F9/ Tax
F4/ Property, plant and equipment
F10/ Auditor’s Remuneration
F5/ Intangible assets
F6/ Trade and other payables
F11/ Contingencies
F1/ Commitments for expenditure
Capital commitments
Property, plant and equipment:
2018
$000
2017
$000
Aggregate capital expenditure contracted for at balance date but not recognised
as liabilities, payable
2,330
8,307
Operating leases
Operating leases relate to land, buildings and equipment with lease terms ranging from
1 to 20 years and expire on varying dates through 2038. The Company has the right to extend
many of these leases and many contain market review clauses. Certain leases require contingent
rent, determined as a percentage of sales, when annual sales exceed specified levels.
Operating lease commitments:
Aggregate lease expenditure contracted for at balance date but not recognised
as liabilities, payable:
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years
Less recoverable Goods and Services Tax
Minimum lease payments
52,436
153,749
93,143
299,328
(19,723)
279,605
40,598
117,615
60,963
219,176
(22,482)
196,694
ACCOUNTING POLICY
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership, are classified
as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property
and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included
in other current and non-current payables. Finance lease payments are allocated between interest expense and reduction of lease
liability over the term of the lease. The interest expense is determined by applying the interest rate implicit in the lease to the
outstanding lease liability at the beginning of each lease payment period. Finance leased assets are depreciated on a straight line
basis over the shorter of the asset’s estimated useful life and the lease term.
Where the risks and rewards of ownership are retained by the lessor, leased assets are classified as operating leases and are not
capitalised. Rental payments are charged to the Consolidated Income Statement on a straight line basis over the period of the lease.
60 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F2/ Earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
Earnings used in the calculation of basic and diluted earnings per share from continuing
operations ($000)
Weighted average number of ordinary shares for the purpose of basic earnings
per share (number)
Weighted average number of ordinary shares for the purpose of diluted earnings
per share (number)
2018
28.28
28.17
2017
(1) 28.67
(1) 28.52
32,489
27,988
114,864,101
97,622,731
115,350,131
98,123,170
(1) The comparative earnings per share has been restated for the bonus element of the 1:11 entitlement offer undertaken in July 2017.
WEIGHTED AVERAGE NUMBER OF SHARES USED AS THE DENOMINATOR
Weighted average number of ordinary shares used in the denominator in calculating basic
earnings per share
Adjustments for calculation of diluted earnings per share:
Performance rights
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share
2018
2017
114,864,101
97,622,731
486,030
500,439
115,350,131
98,123,170
ACCOUNTING POLICY
Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number
of ordinary shares outstanding during the financial period. Diluted earnings per share adjusts the figures used in the determination
of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with
dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding
assuming the conversion of all dilutive potential ordinary shares.
F3/ Receivables
CURRENT ASSETS – RECEIVABLES
Trade receivables
Prepayments
NON-CURRENT ASSETS – RECEIVABLES
Security deposits
2018
$000
2,676
3,779
6,455
2018
$000
523
523
2017
$000
2,426
1,815
4,241
2017
$000
6
6
ACCOUNTING POLICY
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less any provision
for doubtful debts. Trade receivables are generally due for settlement no more than 30 days from the date of recognition.
Collectability of trade and other receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are
written off. A provision for doubtful debts is raised when there is objective evidence that the Group will not be able to collect
all amounts due. The amount of the impairment loss is recognised in the Consolidated Income Statement within other expenses.
When a receivable for which an impairment allowance has been recognised becomes uncollectable in a subsequent period, it is
written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other
expenses in the Consolidated Income Statement.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 61
F4/ Property, plant and equipment
LAND & BUILDINGS
LEASEHOLD
IMPROVEMENTS
PLANT &
EQUIPMENT
CONSTRUCTION
IN PROGRESS
$000
$000
$000
$000
At 2 May 2016
Cost
Accumulated depreciation
Net book amount at 2 May 2016
Additions
Transfers from construction in progress
Depreciation expense
Impairment charge
Disposals – cost
Disposals – accumulated depreciation
Acquisition through controlled entity
purchased
Exchange differences
5,475
(1,710)
3,765
13
–
(23)
–
(1,620)
1,620
–
–
127,458
(80,164)
47,294
1,254
17,376
(12,315)
(667)
(5,060)
5,006
5,698
32
87,459
(60,674)
26,785
3,396
8,204
(9,812)
(545)
(6,217)
5,875
5,903
39
10,156
–
10,156
22,775
(25,580)
–
–
(13)
–
41
–
TOTAL
$000
230,548
(142,548)
88,000
27,438
–
(22,150)
(1,212)
(12,910)
12,501
11,642
71
Net book amount at 30 April 2017
3,755
58,618
33,628
7,379
103,380
At 1 May 2017
Cost
Accumulated depreciation (including
impairment)
Net book amount at 1 May 2017
Additions
Transfers from construction in progress
Depreciation expense
Impairment charge
Net disposals – cost
Net disposals – accumulated depreciation
Acquisition through controlled entity
purchased
Adjustment to purchase accounting
relating to prior period(1)
Exchange differences
3,868
146,726
98,745
7,379
256,718
(113)
3,755
2
2,882
(28)
–
(17)
17
–
–
–
(88,108)
58,618
6,263
16,400
(15,801)
(75)
(3,335)
3,288
(65,117)
33,628
6,099
9,230
(12,478)
(116)
(6,895)
6,685
33,484
12,420
(71)
1,080
99,851
(153)
599
49,019
–
7,379
30,792
(28,512)
–
–
(21)
–
–
–
141
9,779
(153,338)
103,380
43,156
–
(28,307)
(191)
(10,268)
9,990
45,904
(224)
1,820
165,260
Net book amount at 29 April 2018
6,611
At 29 April 2018
Cost (including purchase accounting
adjustment)
Accumulated depreciation (including
impairment)
Net book amount at 29 April 2018
6,735
199,467
119,446
9,638
335,286
(124)
6,611
(99,616)
99,851
(70,427)
49,019
141
9,779
(170,026)
165,260
(1) This adjustment relates to a change in the provisional fair value at acquisition date for the KFC Germany acquisition completed in FY17.
62 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICY
All property, plant and equipment is recorded at historical cost less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group
and the cost of the item can be measured reliably.
Property, plant and equipment, excluding freehold land, is depreciated at rates based upon the expected useful economic life
as follows:
Buildings
Leasehold improvements:
Buildings
METHOD
Straight line
2018 AVERAGE LIFE
20 years
2017 AVERAGE LIFE
20 years
Straight line
20 years or term of the lease(1)
Primary term of lease
Other leasehold improvements
Straight line
Primary term of lease(2)
Primary term of lease
Plant and equipment
Motor vehicles
Straight line
Straight line
8 years
4 years
8 years
4 years
(1) Estimated useful life is the shorter of 20 years or the full term of the lease including renewal periods that are intended to be exercised.
(2)
If primary term of the lease differs significantly from the estimated useful life of the asset, judgement is applied to the estimated useful life and an individual
rate is applied.
The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
The Group reviews annually whether the triggers indicating a risk of impairment exist. The recoverable amounts of cash generating
units have been determined based on value-in-use calculations. These calculations require the use of estimates (refer Note F5).
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount.
The gain or loss on disposal of all non-current assets is determined as the difference between the carrying amount of the asset
at the time of disposal and the proceeds on disposal, and is included in the Consolidated Income Statement of the Group in the
reporting period of disposal.
REVISION OF USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT
During the reporting period, the estimated useful lives of leasehold improvements were revised. The net difference to the
depreciation expense for all assets held in prior financial period was a decrease in the depreciation expense of ($531,000).
Assuming the assets are held until the end of their estimated useful lives, the depreciation expense for the next five years in relation
to these assets will have the following net (decrease):
PERIOD ENDED APRIL
2019
2020
2021
2022
$000
(403)
(261)
(261)
(261)
IMPAIRMENT OF ASSETS
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised in the Consolidated Income Statement for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash generating units). If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be
related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment
loss is recognised in the Consolidated Income Statement.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 63
F5/ Intangible assets
GOODWILL
FRANCHISE
RIGHTS
SIZZLER BRAND
AUSTRALIA
SIZZLER BRAND
ASIA
$000
$000
$000
$000
OTHER
$000
TOTAL
$000
At 2 May 2016
Cost
257,087
7,789
11,261
16,795
Accumulated amortisation (including
accumulated impairment losses and
foreign currency translation)
Net book amount at 2 May 2016
(27,146)
229,941
Purchase of controlled entities
34,721
Additions
Amortisation
Impairment charge
Net foreign currency translation – cost
Net foreign currency translation
– accumulated
–
–
(924)
186
–
(2,565)
5,224
1,160
658
(685)
–
–
10
Net book amount at 30 April 2017
263,924
6,367
(11,261)
–
–
–
–
–
–
–
–
(4,008)
12,787
–
–
(857)
–
292
(67)
12,155
–
–
–
28
–
(4)
–
–
–
292,932
(44,980)
247,952
35,909
658
(1,546)
(924)
478
(57)
24
282,470
At 1 May 2017
Cost
291,994
9,607
11,261
17,087
28
329,949
Accumulated amortisation (including
accumulated impairment losses and
foreign currency translation)
Net book amount at 1 May 2017
(28,070)
263,924
Purchase of controlled entities
146,390
Additions
Amortisation
Impairment charge
Adjustment to purchase accounting
relating to prior year(1)
Net foreign currency translation – cost
Net foreign currency translation
– accumulated
Net book amount at 29 April 2018
At 29 April 2018
Cost
Accumulated amortisation (including
accumulated impairment losses and
foreign currency translation)
Net book amount at 29 April 2018
(3,240)
6,367
2,655
1,526
(891)
(44)
–
247
(70)
9,790
(11,261)
–
–
–
–
–
–
–
–
–
(4,932)
12,155
–
–
(831)
–
–
(95)
8
11,237
(4)
24
–
–
(24)
–
–
–
–
–
(47,503)
282,470
149,045
1,526
(1,746)
(44)
334
6,838
(62)
438,361
–
–
–
334
6,686
–
417,334
445,404
14,035
11,261
16,992
28
487,720
(28,070)
417,334
(4,245)
9,790
(11,261)
–
(5,755)
11,237
(28)
–
(49,359)
438,361
(1) This adjustment relates to a change in the provisional fair value at acquisition date for the KFC Germany acquisition completed in FY17.
64 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
IMPAIRMENT TEST FOR GOODWILL
Allocation of goodwill
CASH GENERATING UNIT
KFC RESTAURANTS AUSTRALIA
KFC RESTAURANTS EUROPE
SIZZLER ASIA
Carrying value
2018
$000
319,564
2017
$000
250,332
2018
$000
96,542
2017
$000
12,357
2018
$000
1,228
2017
$000
1,235
Goodwill is tested for impairment at a cash generating unit level. The recoverable amount of a cash generating unit is determined
based on value-in-use calculations. Management recognises that there are various reasons that the estimates used in the
assumptions may vary. For the KFC and Sizzler Asia cash generating units, there are no reasonable and likely changes in
assumptions which would result in an impairment. Goodwill relating to Sizzler Australia Restaurants is recorded at nil balance
as a result of accumulated impairment.
The allocation of goodwill to cash generating units (CGUs) was revisited in the current year. Following the appointment of the
COO Australia to manage the KFC Australia Restaurants, the KFC business is no longer monitored on a regional basis, but on a
national basis for KFC Australia as a whole. Furthermore, as franchise acquisitions in recent years have been predominantly at
a national level rather than a regional level, the synergies and cash generating activities associated with the acquisitions benefit
the KFC business at a national level and it is no longer possible to allocate goodwill to a regional level on a non-arbitrary basis.
Consequently, management have determined that it is now appropriate to allocate goodwill to KFC Australia as a whole for
impairment testing purposes.
During the reporting period ended 29 April 2018, the above CGUs were tested for impairment in accordance with AASB 136. During
the reporting period ended 29 April 2018, individual restaurant assets were also tested for impairment in accordance with AASB
136. In the event that the carrying value of these assets was higher than the recoverable amount (measured as the higher of fair
value less costs to sell and value in use) an impairment charge was recognised in the Consolidated Income Statement as set out in
the table below.
IMPAIRMENT OF ASSETS RECOGNISED DURING THE REPORTING PERIOD
Goodwill allocated to Snag Stand
KFC franchise rights
Restaurants:
Sizzler Australia
Leasehold improvements
Plant and equipment
KFC Australia
Leasehold improvements
Plant and equipment
2018
$000
–
44
41
49
34
67
235
2017
$000
924
–
24
158
643
387
2,136
KEY ASSUMPTIONS USED FOR VALUE-IN-USE CALCULATIONS
KFC Australia restaurants
The cash flows by restaurant have been estimated after applying growth rates from the commencement of 2019 through to the end
of the 2023 reporting period which average 2.5% (2017: 2.9%). The year one projections have been aligned to the division’s specific
cash flows reflected in the 2019 budget.
Management believe that these growth percentages are reasonable considering the growth that has been seen in this operating
segment during the 2018 and prior reporting periods. A pre-tax discount rate of 14.7% (2017: 12.0%) has been applied to the cash
flows. An indefinite terminal cash flow calculation has been applied for cash flows beyond 2023, using that year’s cash flow as a
base. The growth rate of 2.50% (2017: 2.75%) has been used in determining the terminal value, which does not exceed the long term
average growth rate for the industry segment in which the restaurants operate.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 65
F5/ Intangible assets (continued)
KFC Europe Restaurants
The cash flows by restaurant have been estimated after applying growth rates from the commencement of 2019 through to the end
of the 2023 reporting period which average 4.0%. The year one projections have been aligned to the division’s specific cash flows
reflected in the 2019 budget.
Management believe that these growth percentages are reasonable considering the growth that has been seen in this operating
segment together with initiatives intended to improve operating margins. A pre-tax discount rate of 8.4% has been applied to the
cash flows. An indefinite terminal cash flow calculation has been applied for cash flows beyond 2023, using that year’s cash flow
as a base. The growth rate of 2.5% has been used in determining the terminal value, which does not exceed the long term average
growth rate for the industry segment in which the restaurants operate.
Sizzler Australia Restaurants
The cash flows for the Sizzler Australia Restaurants from the beginning of 2019 to the end of the 2023 reporting period have been
estimated at an average decline of 5.0% (2017: 5.0%) reflecting the recent trends experienced in this operating segment together
with initiatives intended to improve operating margins. The projection for 2019 has been aligned to the division’s specific cash flows
reflected in the 2019 budget.
A pre-tax discount rate of 22.2% (2017: 20.0%) has been applied to the cash flows. An indefinite terminal cash flow calculation
has been applied for cash flows beyond 2023, using that year’s cash flow as a base. No growth has been used in determining the
terminal value, which is less than the long term average growth rate for the industry.
Sizzler Asia
The cash flows for the Sizzler Asia cash generating unit have been estimated after applying growth rates from the commencement
of 2019 through to the end of the 2023 reporting period which average 3.0% (2017: 4.0%). The year one projections have been aligned
to the cash flows reflected in the 2019 budget.
Management believe that these growth percentages are reasonable considering the growth that has been seen in this cash
generating unit during the 2018 and prior reporting periods. A pre-tax discount rate of 14.0% (2017: 13.9%) has been applied to the
cash flows. An indefinite terminal cash flow calculation has been applied for cash flows beyond 2023, using that year’s cash flow as
a base.
The growth rate of 3.0% (2017: 4.0%) has been used in determining the terminal rate which does not exceed the long term average
growth rate for the casual dining industry segment.
ACCOUNTING POLICY
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of
the acquired subsidiary at the date of acquisition. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or
more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated
impairment losses. Goodwill is allocated to cash generating units for the purpose of impairment testing.
The Group determines whether goodwill with indefinite useful lives are impaired at least on an annual basis. This requires an
estimation of the recoverable amount of the cash generating units to which the goodwill with indefinite useful lives relate.
Deferred franchise rights
Costs associated with franchise licences which provide a benefit for more than one reporting period are deferred and amortised
over the remaining term of the franchise licence. Capitalised costs associated with renewal options for franchise licences are
deferred and amortised over the renewal option period. The unamortised balance is reviewed each balance date and charged to
the Consolidated Income Statement to the extent that future benefits are no longer probable.
Other intangibles – Sizzler brand
Sizzler brand intangibles which are owned and registered by the Group are considered to have a useful life of 20 years and are
amortised accordingly. These intangibles are tested for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. Sizzler brand intangibles are carried at amortised cost less impairment losses.
66 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F6/ Trade and other payables
Trade payables and accruals – unsecured
Other payables
Total payables
2018
$000
62,015
15,117
77,132
2017
$000
48,167
13,696
61,863
ACCOUNTING POLICY
These amounts represent liabilities for goods and services provided prior to the end of the reporting period and which are unpaid.
The amounts are unsecured and are usually paid within 30 days of recognition.
F7/ Provisions
CURRENT LIABILITIES
Employee entitlements(1)
Make good provision
Total current liabilities – provisions
NON-CURRENT LIABILITIES
Employee entitlements(1)
Make good provision
2018
$000
5,549
597
6,146
2018
$000
3,247
252
2017
$000
4,626
672
5,298
2017
$000
2,873
225
3,098
Total non-current liabilities – provisions
(1) Provision for employee entitlements includes long service leave. Annual leave is classified under trade and other payables as it is a guaranteed settlement.
3,499
ACCOUNTING POLICY
Employee entitlements
Provision has been made for benefits accruing to employees up to balance date, such as annual leave, long service leave and
incentives. Annual leave and incentive provisions that are expected to be settled wholly within 12 months after the end of the
reporting period are measured at their nominal amounts using the remuneration rates expected to apply at the time of settlement
and are classified in provisions.
Long service leave, annual leave and incentive provisions that are not expected to be settled wholly within twelve months after
the end of the reporting period are measured as the present value of expected future payments to be made in respect of services
provided by employees up to reporting date.
Long service leave provisions relating to employees who have not yet completed the required period of service are classified as
non-current. All other employee provisions are classified as a current liability.
All on-costs, including superannuation, payroll tax and workers’ compensation premiums are included in the determination
of provisions.
Make good provision
Provisions for legal claims and make good obligations are recognised when the Group has a present legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be
reliably estimated. Provisions are not recognised for future operating losses.
The Group is required to restore the leased premises of certain retail stores to their original condition upon exit, however,
as leases are traditionally renewed, the Group only recognises a provision for those restaurants where make good costs
will result in a probable outflow of funds. An annual review of leased sites is conducted to determine the present value
of the estimated expenditure required to remove any leasehold improvements and decommission the restaurant.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 67
F8/ Reserves
Hedging – cash flow hedges
Share based payments
Foreign currency translation
Movements in hedging reserve – cash flow hedges:
Opening balance
Revaluation – gross
Transfer to net profit – gross
Net deferred tax (Note F9)
Closing balance
Movements in share based payments reserve:
Opening balance
Valuation of performance rights
Performance rights vested
Closing balance
Movements in foreign currency translation reserve:
Opening balance
Exchange fluctuations arising on net assets of foreign operations
Exchange fluctuations arising on net investment in hedge
Closing balance
2018
$000
(736)
970
10,717
10,951
(2,332)
2,304
(23)
(685)
(736)
643
611
(284)
970
5,109
11,727
(6,119)
10,717
2017
$000
(2,332)
643
5,109
3,420
(3,016)
974
3
(293)
(2,332)
1,042
399
(798)
643
4,338
1,157
(386)
5,109
NATURE AND PURPOSE OF RESERVES
Hedging reserve – cash flow hedges
The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised in other
comprehensive income. Amounts are recognised in profit and loss when the associated hedged transaction affects profit and loss.
Share based payments reserve – performance rights
The share based payments reserve is used to recognise the issuance date fair value of performance rights issued to employees
under the Long Term Incentive Plan but not yet vested.
Foreign currency translation reserve
Exchange differences arising on translation of foreign operations and of a hedge of the net investment in foreign operations are
recognised in other comprehensive income and accumulated in a separate reserve within equity.
68 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F9/ Tax
A) INCOME TAX EXPENSE
Income tax expense
Current tax
Deferred tax
(Over) provided in prior reporting periods
Income tax expense is attributable to:
Profit from continuing operations
Aggregate income tax expense
Deferred income tax expense included in income tax expense comprises:
Increase in deferred tax assets
(Increase)/decrease in deferred tax liabilities
Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
Tax at the Australian tax rate of 30%
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Other non-deductible expenses
Difference in foreign taxation rates
Provision transfers
Non-assessable income received
Carried forward capital losses
Amounts (over)/under provided in prior reporting periods
Income tax expense
Tax expense relating to items of other comprehensive income
Cash flow hedges (Note F8)
Tax losses
Unused revenue tax losses for which no deferred tax asset has been recognised
Unused capital tax losses for which no deferred tax asset has been recognised
Potential tax benefit @ 30%
2018
$000
15,280
889
(160)
16,009
16,009
16,009
(1,210)
2,099
889
48,498
14,549
2,114
(139)
634
(869)
(120)
16,169
(160)
16,009
2017
$000
16,286
(62)
(206)
16,018
16,018
16,018
(43)
(19)
(62)
44,006
13,201
3,179
–
597
(753)
–
16,224
(206)
16,018
685
293
3,283
65,090
20,512
–
64,892
19,468
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 69
F9/ Tax (continued)
B) DEFERRED TAX BALANCES
Deferred tax assets (DTA)
The balance comprises temporary differences attributable to:
Depreciation
Employee benefits
Provisions
Carried forward revenue losses
Capitalised costs
Cash flow hedges
Other
Total deferred tax assets
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax assets
All movements in DTA were recognised in the Consolidated Income Statement and the
Consolidated Statement of Comprehensive Income
Deferred tax liabilities (DTL)
The balance comprises temporary differences attributable to:
Inventories
Intangibles
Prepayments
Total deferred tax liabilities
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax liabilities
All movements in DTL were recognised in the Consolidated Income Statement
2018
$000
2017
$000
25,532
5,447
2,354
1,478
1,252
313
56
36,432
(4,510)
31,922
752
6,387
2
7,141
(4,510)
2,631
22,186
4,863
1,920
1,160
614
998
–
31,741
(3,156)
28,585
637
4,417
3
5,057
(3,156)
1,901
ACCOUNTING POLICY
Income tax
The income tax benefit or revenue for the period is the tax payable on the current period’s taxable income based on the national
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.
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 in the
respective jurisdiction.
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 controlled entities where the parent entity 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 assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and
when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset where the entity
has a legally enforceable right to offset and intends to settle on a net basis.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.
Tax consolidation
The Company, as the head entity in the tax consolidated group and its wholly-owned Australian controlled entities continue to
account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated
group continues to be a stand-alone taxpayer in its own right.
70 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In addition to its own current and deferred tax amounts, the Company also recognises the current tax liabilities (or assets) and the
deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated
group. Assets or liabilities arising under the tax funding agreement with the tax consolidated entities are recognised as amounts
receivable from or payable to other entities in the Group.
The entities in the Tax Consolidated Group entered into a tax sharing agreement which, in the opinion of the Directors, limits the joint
and several liability of the wholly-owned entities within the Tax Consolidated Group in the case of a default by the Company.
The entities in the Tax Consolidated Group have also entered into a Tax Funding Agreement under which the wholly-owned entities
of that group fully compensate the Company for any current tax payable assumed and are compensated by the Company for any
current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to the
Company under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in
the wholly-owned entities’ financial statements.
F10/ Auditor’s remuneration
During the reporting period the following fees were paid or payable for services provided by the auditor of the parent entity, its
related practices and non-related audit firms:
Audit and other assurance services
Audit services:
PricewaterhouseCoopers Australian firm
Audit and review of financial reports and other audit work under the
Corporations Act 2001
Audit and review of financial reports and other audit work for foreign subsidiary
Network firms of PricewaterhouseCoopers Australia
Audit and review of financial reports and other audit work for foreign subsidiary
Other assurance services:
PricewaterhouseCoopers Australian firm
Store sales certificates
Agreed upon procedures for covenant calculations
Due diligence services relating to European and domestic acquisitions
Total remuneration for assurance services
Taxation services
PricewaterhouseCoopers Australian firm
Tax compliance services, including review of company tax returns
International tax consulting and tax advice on acquisitions
Network firms of PricewaterhouseCoopers Australia
Tax compliance services, including review of company tax returns
International tax consulting and tax advice on acquisitions
Total remuneration for taxation services
Other services
PricewaterhouseCoopers Australian firm
Accounting advice
Business process review
Total remuneration for other services
Total remuneration for services
WHOLE DOLLARS
2018
$
2017
$
392,202
45,169
352,142
789,513
11,258
22,096
–
33,354
822,867
88,774
–
11,316
11,822
111,912
–
–
–
346,678
34,145
26,532
407,355
10,930
21,452
575,074
607,456
1,014,811
37,700
521,268
4,785
32,500
596,253
29,580
25,000
54,580
934,779
1,665,644
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 71
F10/ Auditor’s remuneration (continued)
It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where
PricewaterhouseCoopers’ expertise and experience with the Group are important. These assignments are principally tax advice,
due diligence reporting on acquisitions and capital raisings, or where PricewaterhouseCoopers is awarded assignments on a
competitive basis. It is the Company’s policy to seek competitive tenders for all major consulting projects.
F11/ Contingencies
The parent entity and certain controlled entities indicated in Note G1 have entered into a Deed of Cross Guarantee (Amended and
Restated) under which the parent entity has guaranteed any deficiencies of funds on winding up of the controlled entities which are
party to the Deed. At the date of this statement there are reasonable grounds to believe that the Company will be able to meet any
obligations or liabilities to which it is, or may become, subject by virtue of the Deed.
As described in Note B2, CFG Finance Pty. Limited (a subsidiary) and several other related entities entered into Syndicated and
Working Capital credit facilities. As a consequence of this, the Company and its subsidiaries (other than subsidiaries outside the
Closed Group) became registered guarantors of all the obligations in respect of these loan facilities.
72 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
G/ GROUP STRUCTURE
G1/ Subsidiaries and Deed of Cross Guarantee (Amended and Restated)
G2/ Parent entity financial information
G1/ Subsidiaries and Deed of Cross Guarantee (Amended and Restated)
The Consolidated Financial Statements at 29 April 2018 include the following subsidiaries. The reporting period end of all
subsidiaries is the same as that of the parent entity(a).
NAME OF CONTROLLED ENTITY
CFG Finance Pty Limited
Collins Foods Holding Pty. Limited
Collins Foods Finance Pty. Limited
Collins Foods Group Pty. Ltd.
Collins Restaurants Queensland Pty. Ltd.
Collins Restaurants NSW Pty. Ltd.
Collins Restaurants West Pty. Ltd.
Fiscal Nominees Company Pty. Ltd.
Sizzler Restaurants Group Pty. Ltd.
Collins Restaurants Management Pty. Ltd.
Collins Restaurants South Pty. Ltd.
Collins Foods Subsidiary Pty Ltd
Snag Stand Leasing Pty Ltd
Snag Stand Corporate Pty Limited
Snag Stand Franchising Pty Ltd
Snag Stand International Pty Ltd
Snag Holdings Pty Ltd
Collins Property Development Pty. Ltd
Club Sizzler Pty. Ltd.
Collins Foods Australia Pty. Ltd.
Collins Finance and Management Pty. Ltd.
Sizzler South Pacific Pty. Ltd.
SingCo Trading Pte Ltd
Sizzler International Marks LLC
Sizzler Asia Holdings LLC
Sizzler South East Asia LLC
Sizzler New Zealand LLC
Sizzler Restaurant Services LLC
Collins Foods Europe Limited
Collins Foods Europe Services Limited
Collins Foods Europe Finco Limited
Collins Foods Germany Limited
Collins Foods Netherlands Limited
NOTES
(b)
PLACE OF
INCORPORATION
Australia
ACRONYM
CFGF
2018
100
2017
100
% OF SHARES HELD
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(c)
(d)
(d)
(d)
(d) (e)
(d) (e)
(d) (e)
(d)
(d)
(d)
(d)
(d)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Nevada, USA
Singapore
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
CFH
CFF
CFG
CRQ
CRN
CRW
FNC
SRG
CRM
CRS
CFS
SSL
SSC
SSF
SSI
SNG
CPD
CSP
CFA
CFM
SSP
SingCo
SIM
SAH
SSEA
SNZ
SRS
CFEL
CFESL
CFEFL
CFGL
CFNL
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
100
(a) Collins Foods Limited is domiciled in Brisbane, Australia. The Registered office is located at Level 3, KSD1, 485 Kingsford Smith Drive, Hamilton Queensland 4007.
(b) These companies have entered into a Deed of Cross Guarantee (Amended and Restated), dated 27 April 2017, with Collins Foods Limited which provides that all
parties to the deed will guarantee to each creditor payment in full of any debt of each company participating in the deed on winding up of that company. As a result
of the new ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (ASIC Instrument 2016/785) which has replaced ASIC Class Order CO 98/1418,
these companies are relieved from the requirement to prepare financial statements.
(c) Sizzler South Pacific Pty. Ltd. This company was dissolved on 24 May 2017 in Australia and 6 June 2017 in Nevada.
(d) These companies are not Australian registered companies and are not covered by the ASIC Instrument 2016/785.
(e) Originally incorporated in Nevada, upon conversion to a Limited Liability Company (LLC) became registered in Delaware.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 73
G1/ Subsidiaries and Deed of Cross Guarantee (Amended and Restated) (continued)
The Consolidated Income Statement, Consolidated Statement of Comprehensive Income and summary of movements in consolidated
retained profits of the entities in the ASIC Instrument 2016/785 ‘Closed Group’ are as follows.
As there are no other parties to the Deed of Cross Guarantee (Amended and Restated), that are controlled by Collins Foods Limited,
the below also represents the ‘Extended Closed Group’.
CONSOLIDATED INCOME STATEMENT
Sales revenue
Cost of sales
Gross profit
Selling, marketing and royalty expenses
Occupancy expenses
Restaurant related expenses
Administration expenses
Other expenses
Share of net profit of joint ventures accounted for using the equity method
Other income
Finance income
Finance costs
Profit from continuing operations before income tax
Income tax expense
Profit from continuing operations
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Profit from continuing operations
Other comprehensive income:
Cash flow hedges
Income tax relating to components of other comprehensive income
Other comprehensive income for the reporting period, net of tax
Total comprehensive income for the reporting period
Total comprehensive income for the reporting period is attributable to:
Owners of the parent
SUMMARY OF MOVEMENTS IN CONSOLIDATED RETAINED EARNINGS/(ACCUMULATED LOSSES)
Retained earnings/(accumulated losses) at the beginning of the reporting period
Profit for the reporting period
Dividends provided for or paid
Retained earnings/(accumulated losses) at the end of the reporting period
2018
$000
675,261
(323,296)
351,965
(139,330)
(53,278)
(60,901)
(38,660)
(5,240)
–
367
353
(10,812)
44,464
(15,196)
29,268
CLOSED GROUP
2017
$000
615,007
(294,341)
320,666
(125,609)
(49,489)
(57,226)
(36,333)
(4,378)
(112)
2,395
362
(8,428)
41,848
(15,501)
26,347
29,268
26,347
2,281
(685)
1,596
30,864
977
(293)
684
27,031
30,864
27,031
16,472
29,268
(18,913)
26,826
(376)
26,347
(9,499)
16,472
74 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Balance Sheet of all entities in the ASIC Instrument 2016/785 ‘Closed Group’ as at the end of the reporting period
is as follows:
Current assets
Cash and cash equivalents
Receivables
Inventories
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets, net
Deferred tax assets, net
Receivables
Derivative financial instrument
Other financial assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Derivative financial instruments
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
2018
$000
41,173
3,461
5,196
49,830
132,731
325,187
31,589
225
63
134,302
624,097
673,927
64,822
1,129
1,216
6,145
73,312
CLOSED GROUP
2017
$000
38,257
3,822
4,793
46,872
95,536
254,504
28,983
6
–
91,783
470,812
517,684
58,515
4,644
1,773
5,298
70,230
286,258
183,022
–
3,499
289,757
363,069
310,858
290,328
(6,296)
26,826
1,684
3,098
187,804
258,034
259,650
245,260
(2,082)
16,472
310,858
259,650
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 75
G2/ Parent entity financial information
SUMMARY FINANCIAL INFORMATION
The individual financial statements for the parent entity show the following aggregate amounts:
Balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Shareholder’s equity:
Issued capital(1)
Reserves
Retained earnings
Profit for the reporting period
Total comprehensive income
2018
$000
2017
$000
139
391,082
391,221
1,344
50,945
52,289
338,932
123
330,192
330,315
4,857
31,725
36,582
293,733
336,659
291,588
967
1,306
338,932
18,716
18,716
642
1,503
293,733
14,477
14,477
(1) Represents share capital of the parent entity. This differs from the share capital of the Group due to the capital reconstruction of the Group treated as a reverse
acquisition in the 2012 reporting period.
GUARANTEES ENTERED INTO BY THE PARENT ENTITY
The parent entity has provided unsecured financial guarantees in respect of bank loan facilities amounting to $270 million and
€60 million as stated in Note B2. In addition, there are cross guarantees given by the parent entity as described in Note G1. All
controlled entities will together be capable of meeting their obligations as and when they fall due by virtue to the Deed of Cross
Guarantee (Amended and Restated) dated 27 April 2017. No liability was recognised by the parent entity in relation to these
guarantees, as their fair value is considered immaterial.
CONTINGENT LIABILITIES OF THE PARENT ENTITY
Except as described above in relation to guarantees, the parent entity did not have any contingent liabilities as at 29 April 2018.
76 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
H/ BASIS OF PREPARATION AND OTHER ACCOUNTING POLICIES
H1/ Basis of preparation
H2/ Other accounting policies
H1/ Basis of preparation
COMPLIANCE
These financial statements have been prepared as a general purpose financial report in accordance with Australian Accounting
Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations
and the Corporations Act 2001.
The Consolidated Financial Statements of the Group comply with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB).
MEASUREMENT
Collins Foods Limited is a for profit entity for the purpose of preparing the Consolidated Financial Statements. The financial
statements have also been prepared under the historical cost convention, as modified by the revaluation of financial assets and
liabilities (including derivative instruments).
GOING CONCERN
The financial report has been prepared on a going concern basis. The Directors are of the opinion that the Group will be able to
continue to operate as a going concern having regard to available non-current debt facilities and the Group’s internally generated
cash resources.
CONSOLIDATION
The Consolidated Financial Statements include the financial statements of the parent entity, Collins Foods Limited (the Company)
and its subsidiaries (together referred to as the ‘Group) (see Note G1 on subsidiaries). All transactions and balances between
companies in the Group are eliminated on consolidation. Subsidiaries are all those entities over which the Company has the power
to govern the financial and operating results and policies and often accompanies a shareholding of more than one-half of the voting
rights. The results of subsidiaries acquired or disposed of during the reporting period are included in the consolidated statement
of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Consistent
accounting policies are employed in the preparation and presentation of the consolidated financial statements.
REPORTING PERIOD
The Group utilises a fifty-two, fifty-three week reporting period ending on the Sunday nearest to 30 April. The 2018 reporting
period comprised the fifty-two weeks which ended on 29 April 2018 (2017 was a fifty-two week reporting period which ended
on 30 April 2017).
FOREIGN CURRENCIES
Items included in the financial statements of each of the Group entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The Consolidated Financial Statements are presented in
Australian dollars, which is the functional and presentation currency of the Company.
Transactions in foreign currencies are converted at the exchange rates in effect at the dates of each transaction. Amounts payable
to or by the Group in foreign currencies have been translated into Australian currency at the exchange rates ruling on balance date.
Gains and losses arising from fluctuations in exchange rates on monetary assets and liabilities are included in the Consolidated
Income Statement in the period in which the exchange rates change, except when deferred in equity as qualifying cash flow hedges.
The foreign currency results and financial position of foreign operations are translated into Australian dollars as follows:
´ assets and liabilities at the exchange rate at the end of the reporting period;
´ income and expenses at the average exchange rates for the reporting period; with
´ all resulting exchange differences recognised in other comprehensive income and accumulated in equity.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings
and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the
foreign operation and translated at the exchange rate at the end of the reporting period.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 77
H1/ Basis of preparation (continued)
SIGNIFICANT ACCOUNTING JUDGEMENTS,
ESTIMATES AND ASSUMPTIONS
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that may have a financial impact
on the Group and that are believed to be reasonable under
the circumstances.
The carrying amounts of certain assets and liabilities are
often determined based on estimates and assumptions of
future events. The key estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying
amounts of certain assets and liabilities within the next annual
reporting period are included in the following notes:
´ Note A2 Business combinations
´ Note F4 Property, plant and equipment
´ Note F5 Intangible assets
ROUNDING OF AMOUNTS
The Company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument
2016/191, issued by the Australian Securities and Investments
Commission, relating to the ‘rounding off’ of amounts in the
financial report. Amounts in the financial report have been
rounded off in accordance with that Instrument to the nearest
thousand dollars, or in certain cases, the nearest dollar.
COMPARATIVES AND RESTATEMENTS OF PRIOR
YEAR BALANCES
Comparatives have been reclassified where appropriate to
enhance comparability.
NEW AND AMENDED STANDARDS ADOPTED BY
THE GROUP
The Group has adopted all of the new and revised Standards
and Interpretations issued by the Australian Accounting
Standards Board (AASB) that are relevant to their operations
and effective for the first time for their annual reporting period
commencing 1 May 2017.
Outlined below are the new and revised Standards and
amendments and interpretations effective for the current
reporting period that are relevant to the Group, and the impact
of their application:
AASB 1048 Interpretation of Standards
The Group has applied the new principal version of AASB 1048
providing an up-to-date listing of Australian Interpretations,
including Interpretation 22 Foreign Currency Transactions and
Advance Consideration and Interpretation 23 Uncertainty over
Income Tax Treatments.
The application of these amendments has had no impact on the
Group’s consolidated financial statements as this is a service
standard that ensures there is no difference between the status
of Interpretations in the hierarchy between IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors and
AASB 108 Accounting Policies, Changes in Accounting Estimates
and Errors.
78 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
AASB 2016-1 Amendments to Australian Accounting
Standards – Recognition of Deferred Tax Assets for
Unrealised Losses
The amendments clarify AASB 112 Income Taxes in regard to:
´ Unrealised losses on debt instruments measured at fair
value and measured at cost for tax purposes give rise to
a deductible temporary difference regardless of whether
the debt instrument’s holder expects to recover the
carrying amount of the debt instrument by sale or by use.
´ The carrying amount of an asset does not limit the
estimation of probable future taxable profits.
´ Estimates for future taxable profits exclude tax
deductions resulting from the reversal of deductible
temporary differences.
´ An entity assesses a deferred tax asset in combination
with other deferred tax assets. Where tax law restricts the
utilisation of tax losses, an entity would assess a deferred
tax asset in combination with other deferred tax assets of
the same type.
The application of these amendments has had no impact on the
Group’s consolidated financial statements as the Group already
assesses the sufficiency of future taxable profits in a way that
is consistent with these amendments.
AASB 2016-2 Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendments to AASB 107
Amends AASB 107 Statement of Cash Flows to require entities
to provide disclosures that enable users of financial statements
to evaluate changes in liabilities arising from financing
activities, including both changes arising from cash flows and
non-cash changes.
The Group’s liabilities arising from financing activities consist
of borrowings (Note C2). A reconciliation between the opening
and closing balances is provided in Note B3. Consistent with
the transition provisions of the amendments, the Group has
not disclosed comparative information for the prior period.
Apart from the additional disclosure in Note B3, the application
of these amendments has had no impact on the Group’s
consolidated financial statements.
AASB 2017-2 Amendments to Australian Accounting
Standards – Further Annual Improvements 2014-2016 Cycle
Amends AASB 12 Disclosure of Interests in Other Entities to
clarify that an entity need not provide summarised financial
information for interests in subsidiaries, associates or joint
ventures that are classified (or included in a disposal group
that is classified) as held for sale. The amendments clarify that
this is the only concession from the disclosure requirements of
IFRS 12 for such interests.
The application of these amendments has had no effect on
the Group’s consolidated financial statements as none of the
Group’s interests in these entities are classified, or included in a
disposal group that is classified, as held for sale.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NEW STANDARDS AND INTERPRETATIONS NOT
YET ADOPTED
Certain new accounting standards and interpretations have
been published that are not mandatory for 29 April 2018
reporting periods and have not been early adopted by the
Group. The Group’s assessment of the impact of these new
standards and interpretations is set out below. At this stage the
Group does not intend to adopt any of the following standards
before the effective dates.
Standards and Interpretations effective from the 2019
reporting period onwards:
AASB 9 Financial Instruments
This standard and the related subsequent amendments
replaces AASB 139 Financial Instruments: Recognition and
Measurement and applies to the classification, measurement
and derecognition of financial instruments. The standard
includes a single approach for the classification and
measurement of financial assets, based on cash flow
characteristics and the business model used for the
management of the financial instruments. It introduces the
expected credit loss model for impairment of financial assets
which replaces the incurred loss model used in AASB 139.
Lastly, the standard amends the rules on hedge accounting
to more closely align the accounting treatment with the risk
management practices of the business.
The Group has conducted a detailed assessment of the impacts
of the new standard, and the results of the impact are:
´ There is no change to the financial assets falling under
the scope of AASB 139 and subsequently under the scope
of AASB 9. These assets are classified as amortised cost
under both standards, therefore there is insignificant
impact the classification and measurement of the Group’s
financial assets.
´ The financial liabilities at fair value through profit and loss
currently held by the Group are almost fully designated
as hedge instruments, therefore any impact of the new
standard on financial liabilities is minimised by the hedge
accounting treatment.
´ As a general rule, under the new standard more hedge
relationships may be eligible for hedge accounting.
Existing hedge relationships within the Group appear to
qualify as continuing hedge relationships upon adoption of
the new standard.
´ The new impairment model requires the recognition of
impairment provisions based on expected credit losses
rather than incurred credit losses. The assets impacted by
this change are immaterial to the Group and are disclosed
in Note F3. In the future this change may result in earlier
recognition of credit loss provisions, however the impact
when the new standard is first adopted is expected to
be insignificant due to the nature of the Group’s trade
receivables, the business relationship with the debtors,
and having a solid history of minimal credit losses.
AASB 15 Revenue from Contracts with Customers
AASB 15 establishes a comprehensive framework for
determining the timing and quantum of revenue recognised.
It replaces existing guidance around revenue recognition
requirements, including those set out in AASB 118 Revenue.
The core principle of AASB 15 is that an entity shall recognise
revenue when control of a good or service transfers to a
customer. The standard permits either a full retrospective
or a modified retrospective approach for the adoption.
The Group is in the final stages of completing the assessment of
the impact on its consolidated financial statements as a result
of the application of the new standard.
Of the total revenue disclosed in Note A3, the following impact
is expected:
´ Sale of goods: The new standard will not result in
a change of the timing of recognition of sale of
goods revenue.
´ Franchise revenue from external parties: This revenue
stream is made up of sales-based royalties (FY18: 97.5%)
and franchise fees (FY18: 2.5%) payable for acquiring or
renewing a franchise agreement.
´ Under the new standard, sales-based royalties will
continue to be recognised over time based on when the
sales occur that the royalties are derived from. This is not
a change from the existing treatment.
´ Franchise fees are currently recognised in full at the
commencement of a franchise agreement or renewal of an
agreement. Within a franchise agreement there are several
separate performance obligations throughout the term of
the agreement. As revenue is required to be allocated to
each performance obligation and recognised on transfer of
control, the allocation of this revenue will result in a change
of the timing of revenue recognition to various points
across the term of the agreement.
The impact of the standard will alter the timing of revenue
recognition of 2.5% of the franchise revenue from external
parties and less than 1% of the Group’s total revenue, resulting
in an immaterial impact to revenue and the financial statements
of the Group.
The new standard requires certain additional disclosures in
relation to revenue derived from contracts, key judgements and
future revenue expected to be granted.
The Group expects to adopt the modified retrospective
approach to implementation, where the cumulative impact of
the adoption will be recognised in retained earnings at the date
of implementation of the standard (the first day of the 2019
reporting period), and comparatives will not be restated. The
new standard will only be applied to contracts that remain in
force at the transition date.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
H1/ Basis of preparation (continued)
AASB 2016-5 Amendments to Australian Accounting
Standards – Classification and Measurement of Share based
Payment Transactions
The amendments clarify the following:
In estimating the fair value of a cash-settled share based
payment, the accounting for the effects of vesting and non-
vesting conditions should follow the same approach as for
equity-settled share based payments.
Where tax law or regulation requires an entity to withhold a
specified number of equity instruments equal to the monetary
value of the employee’s tax obligation to meet the employee’s
tax liability which is then remitted to the tax authority, i.e.
the share based payment arrangement has a ‘net settlement
feature’, such an arrangement should be classified as equity-
settled in its entirety, provided that the share based payment
would have been classified as equity-settled had it not included
the net settlement feature.
A modification of a share based payment that changes the
transaction from cash-settled to equity-settled should be
accounted for as follows:
´ The original liability is derecognised.
´ The equity-settled share based payment is recognised at
the modification date fair value of the equity instrument
granted to the extent that services have been rendered up
to the modification date.
´ Any difference between the carrying amount of the liability
at the modification date and the amount recognised in
equity should be recognised in profit or loss immediately.
The application of the amendments in the future are not
anticipated to have a significant impact on the Group’s
consolidated financial statements as the Group does not have
any cash-settled share based payment arrangements or any
withholding tax arrangements with tax authorities in relation to
share based payments.
Interpretation 22 Foreign Currency Transactions and Advance
Considerations
This interpretation clarifies how to determine the date of the
transaction for the purpose of determining the exchange rate
to use on initial recognition of an asset, expense or income,
when consideration for that item has been paid or received in
advance in a foreign currency which resulted in the recognition
of a non-monetary asset or non-monetary liability. (e.g. Non-
refundable deposit or plant and equipment).
The Interpretation specifies that the date of transaction is the
date on which the entity initially recognises the non-monetary
asset or non-monetary liability arising from the payment or
receipt of advance consideration. If there are multiple payments
or receipts in advance, the Interpretation requires an entity to
determine the date of transaction for each payment or receipt
of advance consideration.
Entities can apply the Interpretation either retrospectively
or prospectively. Specific transition provisions apply to
prospective application.
The Group is currently in the process of evaluating the impact
of this pronouncement.
Standards and Interpretations effective from the 2020
reporting period onwards:
AASB 16 Leases
The introduction of AASB 16 will result in almost all leases
being recognised on the balance sheet, as the distinction
between operating and finance leases is removed. Under
the new standard, an asset (the right to use the leased item)
and a financial liability to pay rentals are recognised, with the
exception of short-term and low-value leases, which are instead
recognised on a straight-line basis as an expense in
the Income Statement.
The liability recognised will initially be measured at present
value of future lease payments for the lease term. Where a
lease contains an extension option, the lease payments for the
extension period will be included in the lease liability if the
Group is reasonably certain that it will exercise the option.
The liability includes variable lease payments that depend on
an index or a rate, but excludes other variable lease payments,
such as payments contingent on the performance of the asset
e.g. Payments based on percentage of sales of the store.
The right of use asset reflects the lease liability, initial direct
costs and any lease payments made before the commencement
date of the lease less any lease incentives and, where
applicable, provision for dismantling and restoration.
Depreciation of the right of use assets and interest on the lease
liabilities will be recognised in the Income Statement over the
lease term.
The total amount of cash paid relating to leases will be
separated in the Statement of Cash Flows into a principal
portion (within cashflows from financing activities) and an
interest portion (within cashflows from operating activities).
The net increase/decrease in cash and cash equivalents will
remain the same.
The Standard will primarily affect the accounting for the
Group’s operating leases. The majority of these leases are
expected to fall under the scope of AASB 16. This will result in
higher assets and liabilities on the Balance Sheet. Information
on the amount of the Group’s non-cancellable operating lease
commitments is disclosed in Note F1. The disclosed amounts
are not discounted and do not include amounts payable for
renewal options not yet exercised. It is anticipated that more
than 80% of the Group’s leases will have reasonable certainty
that the renewal options will be taken up.
Underlying EBITDA, as disclosed in Note A1 (Segment Note) will
increase as the current lease treatment under AASB 117 Leases
results in the operating lease cost being charged against
EBITDA, while under AASB 16 the charge will be included in
depreciation and interest which are excluded from EBITDA
(although included in profit before income tax).
The standard must be implemented retrospectively, either
with the full retrospective approach where comparatives are
restated, or with the modified retrospective approach where
the cumulative impact of application is recognised as at the
first date of the financial year the standard is applied to. The
Group expects to use the modified retrospective approach
and will not restate comparative amounts for the year prior to
first adoption.
80 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
H2/ Other accounting policies
GOODS AND SERVICES TAX
Revenues, expenses and assets are recognised net of the
amount of goods and services tax (GST) except:
´ where the amount of GST incurred is not recoverable
from the taxation authority, it is recognised as part of
the cost of acquisition of an asset or as part of an item
of expense; or
´ for receivables and payables which are recognised
inclusive of GST.
The net amount of GST payable to the taxation authority is
included as part of trade and other payables (see Note F6).
Cash flows are included in the Consolidated Statement of
Cash Flows on a gross basis. The GST component of cash
flows arising from investing and financing activities which
is recoverable from, or payable to, the taxation authority is
classified as operating cash flows.
COST OF SALES
For the purposes of the Consolidated Income Statement, cost of
sales includes the carrying amount of inventories sold during
the reporting period and an estimated allocation of labour
incurred in relation to preparing those inventories for sale.
OCCUPANCY EXPENSES
Occupancy expenses include: fixed rentals, contingent rentals,
land tax, outgoings and depreciation relating to buildings and
leasehold improvements.
RESTAURANT RELATED EXPENSES
Restaurant related expenses include: utilities, maintenance,
labour and on-costs (except those allocated to cost of sales),
cleaning costs, depreciation of plant and equipment (owned
and leased) located in restaurants and amortisation of KFC
franchise rights.
INVENTORIES
Inventories are valued at the lower of cost and net realisable
value. Cost is assigned on a first-in first-out basis and includes
expenditure incurred in acquiring the stock and bringing it to
the existing condition and location.
The Standard contains a number of practical expedients, one
of which permits the retention of the classification of existing
contracts as leases under current accounting standards instead
of reassessing whether existing contracts are or contain a lease
at the date of initial application of the new standard. At this
stage in the impact assessment, the Group intends on applying
this practical expedient.
AASB 16 is expected to be the most significant of the new
accounting pronouncements for the Group in terms of impact
on the primary statements and on systems and processes.
To date, work has focused on understanding the provisions
of the standard, how it will impact the Group, establishing
the population of lease contracts that will extend beyond the
first date of adoption, and a review of system requirements.
In FY2019, a detailed impact analysis will be completed, along
with discount rate determination, and system and accounting
process updates required will be addressed.
Interpretation 23 Uncertainty over Income Tax Treatments
Interpretation 23 clarifies the accounting for uncertainties in
income taxes.
The interpretation is to be applied to the determination
of taxable profit (tax loss), tax bases, unused tax losses,
unused tax credits and tax rates (‘tax amounts’), when there
is uncertainty over income tax treatments under AASB 112
Income Taxes.
The Interpretation requires an entity to:
´ Use judgement to determine whether each tax treatment
should be considered independently or whether some tax
treatments should be considered together.
´ Assume that a taxation authority with the right to examine
any amounts reported to it will examine those amounts
and will have full knowledge of all relevant information
when doing so.
´ Determine tax amounts on a basis that is consistent with
the tax treatment included in its income tax filings if an
entity concludes that it is probable that a particular tax
treatment will be accepted by the taxation authorities.
´ Determine tax amounts using the most likely amount or
expected value of the tax treatment (whichever provides
better predictions of the resolution of the uncertainty) If an
entity concludes that it is not probable that a particular tax
treatment will be accepted by the taxation authorities.
The Group does not anticipate that the application of the
Interpretation will have a material impact on the Group’s
consolidated financial statements.
There are no other standards that are not yet effective and
that would be expected to have a material impact on the entity
in the current or future reporting periods and on foreseeable
future transactions.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
I/ SUBSEQUENT EVENTS
I1/ Acquisition of restaurants in Australia
I1/ Acquisition of restaurants in Australia
On 7 May 2018 the Group acquired two KFC restaurants located in South Australia that were part of the Yum! acquisition announced
on the 26 June 2017. The acquisition further strengthens the growth platform of the Group as it provides a footprint from which to
grow in these new areas.
The financial effects of this transaction have not been recognised at 29 April 2018. The operating results and assets and liabilities of
the acquired company will be consolidated from 7 May 2018.
Purchase consideration – cash paid
$000
4,267
The provisional fair values of the assets and liabilities of the business acquired as at the date of acquisition are as follows:
Cash
Inventories
Property, plant and equipment
Intangible assets
Deferred tax asset, net
Provisions
Net identifiable assets acquired
Goodwill
Net assets acquired
FAIR VALUE
$000
5
21
921
133
299
(67)
1,312
2,955
4,267
The goodwill is attributable to the workforce and access to an established market with opportunities for future expansion.
Acquisition – related costs
The acquisition related costs have been recognised in the Consolidated Income Statement (other expenses) and in operating cash
flows in the Consolidated Statement of Cash Flows (payments to suppliers and employees). Refer to the KFC Australia acquisition for
details of the acquisition related costs.
At the time the financial statements were approved and issued, the Group has not yet completed the accounting for the acquisition.
In particular, the fair values of the assets and liabilities disclosed above have only been determined provisionally as property, plant
and equipment and the associated DTA are based on a draft valuation.
82 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
DIRECTORS’ DECLARATION
In the Directors’ opinion:
´ the financial statements and notes set out on pages 36 to 82 are in accordance with the Corporations Act 2001, including:
– complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements; and
– giving a true and fair view of the consolidated entity’s financial position as at 29 April 2018 and of its performance for the period
ended on that date;
´ there are reasonable grounds to believe that Collins Foods Limited will be able to pay its debts as and when they become due
and payable; and
´ at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified
in Note G will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross
Guarantee (Amended and Restated) described in Note G.
Note H confirms that the financial statements also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The Directors have been given the declarations by the Chief Executive Officer and the Chief Financial Officer required by section
295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
This report is made in accordance with a resolution of Directors.
Robert Kaye SC
Chairman
Brisbane
26 June 2018
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 83
INDEPENDENT AUDITOR’S REPORT
Independent auditor’s report
To the members of Collins Foods Limited
INDEPENDENT AUDITOR’S REPORT
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Collins Foods Limited (the Company) and its controlled entities
(together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 29 April 2018 and of its
financial performance for the reporting period then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
the consolidated balance sheet as at 29 April 2018
the consolidated statement of comprehensive income for the reporting period then ended
the consolidated statement of changes in equity for the reporting period then ended
the consolidated statement of cash flows for the reporting period then ended
the consolidated income statement for the reporting period then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
84 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
The Group operates across Australia, Asia and Europe. Its key segments are KFC Restaurants in
Australia and Europe, and Sizzler Restaurants in Australia and Asia. The Group has a corporate
accounting function based in Brisbane.
Materiality of the Group
For the purpose of our audit we used overall Group materiality of $2.4 million, which represents
approximately 5% of the Group’s profit before tax.
We applied this threshold, together with qualitative considerations, to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the
financial report as a whole.
We chose Group profit before tax because, in our view, it is the benchmark against which the performance
of the Group is most commonly measured.
We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly
acceptable thresholds.
Audit scope of the Group
Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
In establishing the overall approach to the Group audit, we determined the type of audit work that needed
to be performed. Full scope audit procedures were performed over the Australian operations and the
Collins Foods Europe business, assisted by local component auditors in the Netherlands. Site visits were
conducted at KFC and Sizzler Restaurants in Queensland, Western Australia, Germany and the
Netherlands.
To be satisfied that sufficient audit evidence has been obtained on the Collins Foods Europe business for
our opinion on the Group financial report as a whole, the group audit engagement team had active
dialogue throughout the reporting period with the local component auditors, including issuing written
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 85
INDEPENDENT AUDITOR’S REPORT
instructions, receiving formal interoffice reporting, as well as attending final audit clearance meetings with
management and the board in the Netherlands and United Kingdom respectively.
Due to the nature of the Group's business, our IT systems specialists assisted us with developing our
understanding of the Group's IT systems and complex revenue generation processes.
As part of our audit, we also utilised the expertise of our Valuations experts and Tax specialists to assist
with our audit procedures on the Group's impairment models and tax calculations.
Key audit matters
Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk
Committee:
Assessment of the carrying value of goodwill
Carrying value of other non-current assets
Accounting for business combinations
These are further described in the Key audit matters section of our report.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context.
Key audit matter
How our audit addressed the key audit matter
Assessment of the carrying value of goodwill
(Refer to note F5) [$417.3m]
We performed a number of audit procedures in relation
to goodwill, including:
Collins Foods Limited recorded goodwill of $417.3m as
at 29 April 2018, allocated between 3 cash generating
units (‘CGUs’) being KFC Restaurants Australia, KFC
Restaurants Europe and Sizzler Asia. As noted in Note
F5 to the financial report, goodwill previously allocated
to individual states for KFC Australia has since been
aggregated at the KFC Restaurants Australia CGU level.
As required by Australian Accounting Standards, at 29
April 2018, management performed an impairment
assessment over the goodwill balance by calculating the
value in use for each CGU using a discounted cash flow
model. Refer to Note F5, for details of the impairment
test and assumptions.
Assessing the appropriateness of the Group’s
determination of cash generating units
(CGUs) following the reassessment
performed.
Evaluating the cash flow forecasts including
assessing the assumptions they were based on
and testing the mathematical accuracy of the
underlying calculations.
Comparing the cash flow forecasts for the
reporting period ending 28 April 2019
(‘FY2019’) in the calculations to the Board
approved budget for FY2019.
We focused on this area due to the size of the goodwill
balance which has increased substantially due to
business acquisitions during the period, the restructure
Comparing the actual results for the reporting
period ending 29 April 2018 (‘FY2018’) with
prior year forecasts to assess the historical
86 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
Key audit matter
How our audit addressed the key audit matter
in CGUs during the period and because the directors’
assessment of the ‘value in use’ of the Group’s CGUs
involved judgement about the future results of the
Group and the discount rate and long term growth
rates applied to future cash flows.
accuracy of the Group’s forecasting processes.
With assistance from our Valuations experts, we also
evaluated:
Key assumptions for long-term growth rates in
the forecasts by comparing them to historical
results and economic and industry forecasts;
and
The discount rate used in the models by
comparing the cost of capital for the Group to
market data and industry research.
We found that the long-term growth rate assumptions
were consistent with historical results adjusted for the
economic outlook and industry forecasts.
We performed a sensitivity analysis on the models by
adopting other assumptions which we viewed as
reasonably possible for the FY2019 cash flow forecasts,
the long term growth rate and the discount rate.
We also compared the Group’s net assets as at 29 April
2018 of $332.97m to its market capitalisation of
$617.3m as at 29 April 2018.
Carrying value of other non-current assets
(Refer to note F4 and F5) [$165.3m]
Our audit procedures in relation to management’s
review of each restaurant included the following
procedures amongst others:
Collins Foods Limited recorded fixed assets of $165.3m
as at 29 April 2018.
Management have followed their formal policy to
prepare a value-in-use calculation for all restaurants
and consider them for fixed asset impairment at an
individual restaurant level.
Following management’s assessment, a fixed asset
impairment of $0.2m was recorded in the financial
report for KFC and Sizzler Australia stores.
We focused on this area due to the size of the fixed
asset balance, the judgement involved in determining
the value in use calculations for each restaurant and the
Evaluating the cash flow forecasts in the
models for each individual restaurant
including assessing the assumptions they were
based on and testing the mathematical
accuracy of the underlying calculations.
Comparing the cash flow forecasts for FY2019
in the calculations to the Board approved
budget for FY2019.
Comparing the FY2018 actual results with
prior year forecasts to assess the historical
accuracy of the Group’s forecasting processes.
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 87
INDEPENDENT AUDITOR’S REPORT
Key audit matter
How our audit addressed the key audit matter
associated risk of impairment.
Performing sensitivity analysis on
assumptions within the detailed calculations.
Evaluating the adequacy of the disclosures
made in Note F5, including those regarding
the key assumptions and sensitivities to
changes in such assumptions, in light of the
requirements of Australian Accounting
Standards.
With assistance from our Valuations experts, we also
evaluated:
Key assumptions for long-term growth rates in
the forecasts by comparing them to historical
results and economic and industry forecasts;
and
The discount rate used in the calculations by
comparing the cost of capital for the Group to
market data and industry research.
Accounting for business combinations
(Refer to note A2)
Our procedures in relation to the accounting for the
business combinations included, amongst others:
Collins Foods Limited completed a number of
acquisitions during the period, which included:
Acquisition of 16 Netherlands Restaurants
which completed on 31 August 2017, for
purchase consideration of $94.2m. The
provisional fair value of the net assets
acquired was $16.7m and goodwill of $77.5m
was recognised as part of the acquisition.
Acquisition of 5 KFC Restaurants in Western
Australia, 5 KFC Restaurants in South
Australia, and 14 KFC Restaurants in
Tasmania which completed on 9 October
2017, 23 October 2017 and 4 December 2017
respectively for purchase consideration of
$99.8m. The provisional fair value of the net
assets acquired was $30.6m and goodwill of
$69.2m was recognised as part of the
Assessment of fair value adjustments of assets
and liabilities performed by management
against a third party valuation, taking into
consideration the methodology utilised,
expertise and independence of the third party
valuation expert;
Assessment of the allocation of goodwill to the
cash generating unit and consideration of
operating and reporting segments.
Assessment of the accuracy and completeness
of business combination disclosures in the
financial statements. This included
consideration of the aggregation of the
completion of individual tranches in the one
disclosure. We found that the disclosures
provided the users with appropriate
information to understand the nature of the
88 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
Key audit matter
How our audit addressed the key audit matter
acquisition.
acquisitions.
To assist in funding, a share capital raising and debt
refinance occurred.
We also note per note I1 that 2 additional KFC
Restaurants were acquired subsequent to period end
and settled on 7 May 2018.
We focused on each of these acquisitions because they
are material, the accounting is considered to be
complex and because of the judgements made by
management with respect to the allocation of fair value
to the assets and liabilities acquired.
Consideration of the completeness of the
recognition of intangible assets by evaluating
the assets purchased on acquisition.
Testing of the consideration paid for the
acquisitions to bank statement, loan
documents and the purchase agreement.
Assessment of any provisional accounting
updates processed during the period since
acquisition.
Our procedures in relation to the share capital raising
and debt refinance were as follows:
Testing the inputs in the retrospectively
adjusted basic and diluted Earnings per Share
(‘EPS’) for all financial reporting periods
presented in the period end financial
statements.
Testing a sample of equity raising costs
recognised in equity net of tax to supporting
documents including invoices, and share
capital raising proceeds to bank statements.
Assessment of the treatment of the refinance
in light of the Australian Accounting
Standards, and giving consideration to the
newly signed loan agreement.
Assessment of whether previously capitalised
costs were expensed in the P&L upon
refinance, and tested a sample of debt
refinance costs newly capitalised to supporting
documents including invoices.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the Group's annual report for the reporting period ended 29 April 2018, but
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 89
INDEPENDENT AUDITOR’S REPORT
does not include the financial report and our auditor’s report thereon. Prior to the date of this
auditor's report, the other information we obtained included the Directors' Report, Shareholder
Information and the Corporate Directory. We expect the remaining other information to be made
available to us after the date of this auditor's report, including CEO's Report, Letter to Shareholders
and Chairman's Message.
Our opinion on the financial report does not cover the other information and we do not and will not
express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
When we read the other information not yet received as identified above, if we conclude that there is a
material misstatement therein, we are required to communicate the matter to the directors and use
our professional judgement to determine the appropriate action to take.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and Corporations Act 2001 and
for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
90 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 16 to 33 of the directors’ report for the
reporting period ended 29 April 2018.
In our opinion, the remuneration report of Collins Foods Limited for the reporting period ended 29
April 2018 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the remuneration report, based on our audit conducted in accordance with
Australian Auditing Standards.
Matters relating to the electronic presentation of the audited financial
report
This auditor’s report relates to the financial report of Collins Foods Limited for the reporting period
ended 29 April 2018 included on Collins Foods Limited's web site. The directors of the Company are
responsible for the integrity of Collins Foods Limited's web site. We have not been engaged to report
on the integrity of this web site. The auditor’s report refers only to the financial report named above.
It does not provide an opinion on any other information which may have been hyperlinked to/from the
financial report. If users of this report are concerned with the inherent risks arising from electronic
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PricewaterhouseCoopers
Kim Challenor
Partner
Brisbane
26 June 2018
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 91
SHAREHOLDER INFORMATION
Shareholder information not stated elsewhere in the Annual
Report is set out below. The shareholder information set out
below was applicable as at the close of trading on 22 June 2018.
Distribution of equity securities
Analysis of numbers of equity security holders by size
of holding:
HOLDING
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
NUMBER OF
SHAREHOLDERS
OF ORDINARY
SHARES
2,363
NUMBER OF
HOLDERS OF
PERFORMANCE
RIGHTS
–
2,964
746
516
45
6,634
14
-
8
1
23
There were 195 holders of less than a marketable parcel of
ordinary shares.
Equity security holders
The names of the 20 largest holders of the only class of quoted
equity securities are listed below:
ORDINARY SHARES
NUMBER
HELD
550,000
480,761
478,801
473,076
414,196
412,268
405,741
85,673,600
PERCENTAGE
OF ISSUED
SHARES
%
0.47
0.41
0.41
0.41
0.36
0.35
0.35
73.56
Brazil Farming Pty Ltd
Graham Maxwell
Heather Lynnette Grace
UBS Nominees Pty Ltd
CS Third Nominees Pty Limited
Aust Executor Trustees Ltd
AMP Life Limited
TOTAL
Substantial holders
Substantial holders (including associate holdings) in the
Company, based on the most recent substantial holder notices
lodged with the Company and ASX, are set out below:
ORDINARY SHARES
PERCENTAGE
OF ISSUED
SHARES
%
NUMBER
HELD
BT Investment
Management Limited
Kevin Perkins
ORDINARY SHARES
NUMBER
HELD PERCENTAGE
7,639,366
7,621,484
6.56
6.54
HSBC Custody Nominees
(Australia) Limited
J P Morgan Nominees Australia
Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Kevin Perkins
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees Pty Ltd
Chrikim Pty Ltd
Leendert Hoeksema and Aaltje
Hoeksema
BNP Paribas Noms (NZ) Ltd
Hooks Enterprises Pty Ltd
Chrikim Pty Ltd
Ecapital Nominees Pty Limited
24,503,084
21,537,862
9,482,726
9,138,142
7,146,715
2,898,017
2,530,177
1,477,580
920,000
863,086
840,000
569,421
551,947
21.04
18.49
8.14
7.85
6.14
2.49
2.17
1.27
0.79
0.74
0.72
0.49
0.47
Restricted securities and share
buy-backs
There are no restricted fully paid shares on issue in the
Company. A voluntary holding lock will be applied in relation to
65,181 fully paid ordinary shares, if they are issued, upon the
vesting of 65,181 performance rights in accordance with the
rules of the LTIP.
The Company is not currently conducting an on-market
share buy-back.
Voting rights
FULLY PAID ORDINARY SHARES
On a show of hands, every member present at a meeting in
person or by proxy shall have one vote. Upon a poll, each share
shall have one vote.
PERFORMANCE RIGHTS
The performance rights do not have any voting rights. The
fully paid ordinary shares to be allotted on the exercise of the
performance rights will have the voting rights noted above for
fully paid ordinary shares.
92 ANNUAL REPORT 2018 COLLINS FOODS LIMITED
CORPORATE DIRECTORY
DIRECTORS
Robert Kaye SC, Chairman
Graham Maxwell, Managing Director & CEO
Newman Manion
Bronwyn Morris
Kevin Perkins
Russell Tate
COMPANY SECRETARY
Frances Finucan
PRINCIPAL REGISTERED OFFICE IN AUSTRALIA
Level 3, KSD1, 485 Kingsford Smith Drive
Hamilton QLD 4007
SHARE REGISTER
Computershare Investor Services Pty Ltd
Level 1, 200 Mary Street
Brisbane QLD 4000 Australia
Telephone number: 1300 850 505
Outside Australia: +61 3 9415 4000
AUDITOR
PricewaterhouseCoopers
480 Queen Street
Brisbane QLD 4000
SECURITIES EXCHANGE LISTING
Collins Foods Limited shares are listed on the Australian Securities Exchange. (ASX:CKF)
WEBSITE ADDRESS
www.collinsfoods.com
ANNUAL REPORT 2018 COLLINS FOODS LIMITED 93