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Annual Report 2020

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ANNUAL REPORT 2020 1 Bapcor Limited Annual Report 2020We are Asia Pacific’s leading provider of vehicle parts, accessories, equipment, service and solutions; operating out of over 1000 locations across Australia, New Zealand and Thailand. Bapcor’s core business is the automotive aftermarket. Our businesses span the end-to-end aftermarket supply chain covering Trade, Specialist Wholesale, Retail & Service. Annual General Meeting Date 20 October 2020 Time: 1:30pm Location: Virtual; refer to Bapcor’s website for details www.bapcor.com.au Bapcor Limited ACN 153 199 912 2 Bapcor Limited Annual Report 2020 CONTENTS BAPCOR OPERATIONS Automotive Aftermarket Supply Chain Chairman’s Report Chief Executive Officer’s Report 5 Year Strategic Targets Board of Directors Executive Team SEGMENTS Segment Overview Segment Review Trade Segment Review Bapcor New Zealand Segment Review Specialist Wholesale Segment Review Retail ENVIRONMENTAL, SOCIAL & GOVERNANCE Sustainability Overview Sustainability Framework Ethical Supply Chain/Procurement Environmental Sustainability Practise Good Governance FINANCIAL REPORTING Director’s Report FINANCIAL STATEMENTS Financial Report Shareholder Information Corporate Directory 2 4 6 10 12 14 16 18 20 22 24 26 27 30 31 32 37 77 145 148 Bapcor Limited Annual Report 2020 1 BAPCOR GROUP BUSINESSES Trade Specialist Wholesalers Retail Service Commercial Truck Parts Group Australia’s largest aftermarket distributor of Light and Heavy commercial truck parts and accessories. Comprised of; Don Kyatt Spare Parts (QLD), I Know Parts, H.I.M. Spares, Japanese Commercial Spares, Japanese Trucks Australia, He Knows Truck Parts, Diesel Drive and Truckline. Autobarn The premium retail offering throughout Australia, providing customers with exactly what they want for their car. Autobarn stores also fit what they sell. Autopro Established in 1982, Autopro is Australia’s oldest independent automotive aftermarket parts and accessories retailer. Opposite Lock Four-wheel drive specialist accessory retail chain operating in Australia and selected export markets. Offering a comprehensive range of accessories and equipment to suit all popular 4x4s and SUVs. Sprint Auto Parts A South Australian icon, Sprint outlets provide a full range of quality automotive parts and accessories for both retail and trade customers. ABS One-stop independently operated shops for all servicing needs; spanning logbook services, brake, clutch, cooling system, suspension, steering and all other mechanical repairs or services. Battery Town New Zealand chain of specialist auto electrical services workshops. Midas Australia’s full auto service experts, providing car servicing, brakes, suspension and all general repair requirements for the growing, and increasingly diverse, automotive car parc. The Shock Shop New Zealand’s largest chain of dedicated steering and suspension specialist workshops. Burson Auto Parts Australia’s leading national distributor of automotive parts, accessories and equipment to automotive workshops. Burson Auto Parts Thailand Provides a wide-range of automotive parts and accessories to trade and retail customers through a store network across Bangkok. Brake & Transmission (BNT) New Zealand’s premier supplier of automotive parts to workshops. Precision Equipment Leading trans-tasman supplier of automotive workshop equipment to car dealerships, service and repair workshops. Truck & Trailer Parts Operates in the heavy haulage and general commercial vehicle aftermarket in New Zealand. HCB Technologies Leading New Zealand battery and associated accessories supplier for automotive, commercial, marine and deep cycle applications. JAS Oceania Leading trans-tasman based supplier of quality automotive electrical parts and accessories for passenger cars, commercial vehicles, agricultural machinery and marine applications. MTQ Engine Systems Australia’s largest diesel fuel injection and turbo charger sales and service provider to the trade. Premier Auto Trade Leading importer and wholesaler of electronic fuel injection, engine management and service components. Roadsafe Automotive Products & Toperformance Products A wholesale distributor, specialising in under car and 4WD components, offering Australia’s most comprehensive array of steering and suspension components. Toperformance Products is a specialist high-end suspension distributor to the Australian market. AAD Specialises in the import, re- manufacture and wholesale of premium quality brake, clutch, steering, suspension, cooling, engine and servicing products. AADi Australia Specialist importer/ distributor of driveshaft/CV, wheel bearing and shock absorber products. Autolign New Zealand’s largest specialised steering and suspension product importer and distributor. Baxters One of Australia’s largest automotive electrical parts distributors, specialising in heavy duty and industrial applications. Bearing Wholesalers Australia’s top selling distributor of automotive bearings and provides repairers with a comprehensive range of bearings, oil seals, drive shafts, CV joints and engine belts. Diesel Distributors Leading supplier of spare parts and components for diesel fuel injection systems. Federal Batteries Australian specialist supplier of premium and high-end quality batteries for use across a wide range of passenger and vehicle applications. B A P C O R O P E R A T O N S I 2 Bapcor Limited Annual Report 2020 AUTOMOTIVE AFTERMARKET SUPPLY CHAIN Specialist Wholesalers B A P C O R O P E R A T O N S I Trade Retail Service Consumer Bapcor Limited Annual Report 2020 3 B A P C O R O P E R A T O N S I ANDREW HARRISON CHAIRMAN “Our values – ‘We Give a Damn, We are in it together, We get it done, We do the right thing’ – are at the centre of everything we do and guide our behaviours, interactions and decisions each and every day.” 4 Bapcor Limited Annual Report 2020 CHAIRMAN’S REPORT On behalf of the Board and all Bapcor team members, I am very proud to present Bapcor Limited’s annual report for the year ended 30 June 2020. B A P C O R O P E R A T O N S I The 2020 financial year presented unprecedented challenges for Bapcor and the global community more broadly. The COVID-19 pandemic and the profound economic disruption it brought were compounded by catastrophic bushfires and widespread drought in Australia. Bapcor has navigated these turbulent trading conditions to deliver a record revenue performance, achieve a resilient set of financial results, and emerge in a strong position to drive growth into the future. Many of Bapcor’s businesses are classified as an essential service, reflecting the critical role our businesses play in serving their local communities. Where possible, we moved to ensure our parts supply network coverage and supply chain maintained uninterrupted service especially for essential services. As the potential impacts of the COVID-19 pandemic became evident, we strengthened our balance sheet by completing a well-supported capital raising and implemented a suite of operational initiatives to preserve and manage cash flow. We extended our participation in the commercial vehicle sector with the acquisition of the Truckline and Diesel Drive businesses. The Truckline business creates our heavy commercial vehicle business with operations across Australia, and now uniquely positions Bapcor as the provider of replacement parts for all forms of on-road vehicles. During the year, together with our team members, we articulated Bapcor’s core values to capture the spirit of how we conduct ourselves in business. Our values – ‘We Give a Damn, We are in it together, We get it done, We do the right thing’ – are at the centre of everything we do and guide our behaviours, interactions and decisions each and every day. We made progress toward our strategic targets, outlined on page 10–11, and kept focus on our core strengths and capabilities. The 5 year strategic targets for Bapcor remain unchanged – albeit slightly behind due to delays in the past year. The health and safety of all of the Bapcor family remains our utmost priority. In FY20, we invested in team member well-being, with a primary focus on mental-health, and professional development. We made improvements to our safety processes, including the roll-out of an online compliance and safety portal, and achieved a reduction in lost-time injury frequency rates over the last 12 months. Bapcor recognises a sustainable and successful business is enhanced by the engagement of its stakeholders, not only in the delivery of shareholder wealth but also in creating shared value. In FY20, Bapcor became a signatory to the UN Global Compact joining more than 10,000 companies and organisations that are committed to promoting Global Compact’s Ten Principles on human and workers’ rights, the environment and anti-corruption efforts. We will continue to embed the UN’s guiding principles into our environmental, social and governance (ESG) strategy. Consistent with our progress toward our ESG strategic commitments, outlined on page 26–27, we continued our work in advancing responsible sourcing practices, with a primary focus on modern slavery and human rights within our supply chain. We renewed and expanded our carbon offset program for Burson’s fleet of more than 1,000 vehicles. Our energy-saving LED replacement initiative continued throughout our store network. The Board announced a final dividend of 9.5 cents per share fully franked, resulting in a full year fully franked dividend of 17.5 cents per share, an increase of 2.9% on last year’s fully franked dividend. Given the solid financial position of the company at 30 June 2020 the Board decided to suspend the operation of the Dividend Reinvestment Plan for the FY20 final dividend. That Bapcor was able to achieve a record revenue year, solid financial position and position the business for the future in an operating environment presenting unprecedented challenges, is a testament to the efforts of our CEO, Darryl Abotomey, his leadership team, and the dedication and passion of all Bapcor team members to whom I extend my profound thanks, and the thanks of the Board. As a mark of appreciation, the Board provided a modest bonus to all Bapcor full-time and part-time team members, to acknowledge their contribution as members of the Bapcor family. This is the spirit that Bapcor is built on, and the spirit that we want to take us forward. I would also like to thank shareholders, franchisees, customers and suppliers for their ongoing support and contribution to Bapcor’s continued success. Over the coming financial year, the Board will work to ensure the continued growth and sustained success of the Bapcor Group. While the year ahead will continue to present challenges within an uncertain operating environment, we are well placed to continue our organic growth and network expansion, take advantage of strategic acquisition opportunities, invest in infrastructure, and progress toward our strategic targets. Thank you for your ongoing support. Andrew Harrison Chairman Bapcor Limited Annual Report 2020 5 B A P C O R O P E R A T O N S I DARRYL ABOTOMEY MANAGING DIRECTOR AND CEO “The strong trading results and a successful $236m equity issue, that was supported by our shareholders, places Bapcor in a solid position, ready to drive growth into the future.” 6 Bapcor Limited Annual Report 2020 CHIEF EXECUTIVE OFFICER’S REPORT The 2020 financial year (FY20) was a year unlike any other since Bapcor’s listing in April 2014 – or indeed any I have encountered in my career. B A P C O R O P E R A T O N S I The bushfires and ongoing drought in Australia, the COVID-19 pandemic and accompanying restrictions in Australia, New Zealand and Thailand, and the consequent adverse economic conditions, had a combined impact on Bapcor’s financial performance. In the face of these extraordinary challenges, the outstanding trading results achieved by the Bapcor family – our team members, franchisees, customers and suppliers – is especially pleasing. Bapcor posted record revenue in FY20, powered by record revenue and earnings in our Trade and Retail business segments, and the addition of the Truckline and Diesel Drive business to our Specialist Wholesale segment. The turbulent trading conditions resulted in FY20 earnings falling below FY19 earnings, indicated by EBITDA being down 4.1%. This was the second highest earnings ever reported by Bapcor. The strong trading results and a successful $236m equity issue, that was supported by our shareholders, places Bapcor in a solid position, ready to drive growth into the future. Bapcor’s closing share price on 30 June 2020 was $5.90, up 5.7% on the prior year, providing a market capitalisation in excess of $2b. Revenue Record revenue of $1,462.7m increased by 12.8% in FY20. Includes the addition of the Truckline and Diesel Drive businesses in December 2019 and the full twelve months trading of the Commercial Vehicle Group (CVG). Contributing to this result were record revenue from our Burson Trade, Specialist Wholesale and Retail segments. Earnings before interest, tax, depreciation and amortisation (EBITDA) EBITDA in FY20 decreased by 4.1% to $157.8m. Record EBITDA was achieved by Burson Trade which increased 3.7% to $81.1m, Retail EBITDA of $30.5m which increased 12.8% and Specialist Wholesale which increased 8.7% to $50.3m. Bapcor New Zealand EBITDA decreased by 14.0% to $19.6m as a result of the government-mandated lockdown which heavily affected trading conditions. Group costs increased due to additional support area costs for information technology, human resources, finance and supply chain as well as increased provisions for doubtful debts and inventory. KEY HIGHLIGHTS OF FY20 COMPARED TO THE PRIOR YEAR’S RESULTS For comparative purposes results exclude the impact of the AASB 16 Leases accounting standard changes adopted on 1st July 2019. • Revenue growth of 12.8% to a record $1,462.7m • Record revenue and EBITDA in all three major segments – Burson Trade, Retail and Specialist Wholesale Group. • Same-store sales: • Burson Trade +6.0% (incl. -11.4% in April 2020 – the major period COVID-19 impacted the business) • Autobarn +9.5% (+20.7% in H2) (incl. +14.5% company-owned, franchise stores +6.6% • EBITDA down 4.1% to $157.8m • NPAT down 5.5% to $89.1m, and • $236m equity issue, increasing shares on issue by c.20%. Net Profit After Tax (NPAT) FY20 NPAT was $89.1m, representing a 5.5% decrease on the prior year. Including AASB 16 pro-forma NPAT reduces by $0.4m to $88.7m. Equity Issue In May, $236M was raised through an issue of equity, increasing shares on issue by c.20%. The capital raising was strongly supported with placements substantially oversubscribed. Placements were made with a pro-rata issuing of shares to existing shareholders wherever possible. Earnings Per Share (EPS) EPS for FY20 was 30.36 cents, down 9.2% compared to FY19. This was partially reduced due to the equity raise undertaken in April and May 2020 to strengthen Bapcor’s financial position. Bapcor Limited Annual Report 2020 7 B A P C O R O P E R A T O N S I REVENUE ($M) 1,014 686 1,463 1,237 1,297 FY2016 FY2017 FY2018 FY2019 FY2020 EPS (CPS)* 24.4 17.9 33.4 31.0 30.4 FY2016 FY2017 FY2018 FY2019 FY2020 EBITDA & NPAT* ($M) NPAT* 77.0 43.6 117.4 65.8 150.0 164.6 157.8 86.5 94.3 89.1 FY2016 FY2017 FY2018 FY2019 FY2020 Operational Performance All Bapcor’s business segments performed well in an unusual and unprecedented year. Specific details for each business segment are covered in pages 16 to 25. COVID-19 Impact When the potential impact of the COVID-19 pandemic was first evident Bapcor responded swiftly to, first and foremost, ensure the safety and well-being of its team members, customers and suppliers. We moved quickly to shore up the reliability of our supply chain, and ensure our store network coverage was maintained to provide the continuity of service which the local communities we serve depend on. We adapted business operations to align with the change in trading conditions, resulting in a reduction of approximately 5% of team members across the Group. In addition, we took action to conserve cash by reducing all discretionary expenditure including capital expenditure. In April 2020, Bapcor implemented a share placement and share purchase plan, raising $236m to strengthen the financial position of the Group and ensure we were best-placed to navigate potential impacts of the pandemic. Throughout FY20, Bapcor did not receive any Australian Government support (e.g. JobKeeper) aside from a Queensland Government payroll tax reimbursement. In New Zealand, Bapcor received NZD $3.9m in government support which was passed on in full to team members who otherwise would have been stood down. Bapcor’s landlords supported the business during the worst of the lockdowns, accepting rental payment reductions of $1.5m. Bapcor has supported its suppliers by ensuring payments were made in full and on time. The automotive aftermarket industry fundamentals are as strong as ever, reinforcing the resilience of the industry. There have been record sales of second-hand vehicles since the pandemic hit as travellers seek social distancing and a move away from public transport, and an anticipated flow-on from more people using their vehicles for domestic holidays. Equally, with breakdown parts and services in particular classified as an essential service by both the Australian and New Zealand Governments, the pandemic highlighted the essential role our businesses provide in keeping the economy moving. DIVIDENDS PER SHARE (CENTS) Warehouse Evolution Total Interim 17.0 17.5 15.5 13.0 11.0 5.0 5.5 7.0 7.5 8.0 FY2016 FY2017 FY2018 FY2019 FY2020 * Based on pro-forma results excluding AASB 16 Leases. 8 Bapcor Limited Annual Report 2020 Bapcor continues to plan for the future and the long-term benefit of the Group, with the build of a highly automated, bespoke, state-of-the-art 50,000m2 distribution centre in Tullamarine, Victoria. Construction of the greenfield facility is well underway and completion is expected during FY21. The existing Bapcor Melbourne distribution centres will progressively be transitioned to the new facility, delivering meaningful increases in efficiency and reductions in duplicated inventory holdings. Other Major Projects Bapcor continues to invest in a range of major projects that will drive competitive advantage; • Warehouse management system – a-state-of-the-art warehouse management system was installed into the B A P C O R O P E R A T O N S I Nunawading distribution centre in January 2020 and will progressively be implemented into all distribution centres • Retail point of sale system- a new point of sale system activities, greater supply chain efficiencies, as well as growth in our own brand categories. We continue to be on the look-out for suitable acquisition opportunities as they arise. is being implemented into Autobarn • Technology infrastructure – a major upgrade was completed in December 2019 • Safety Data System – currently being implemented • Category Leadership & Brand Management – first categories underway in vehicle air-conditioning, electrical accessories and off-road 4x4 • New e-Commerce platform to serve B2C and B2B will be launched by March 2021 • New B2B catalogue and customer ordering system is currently being launched in New Zealand Leadership Changes Greg Fox retired from the position of Chief Financial Officer (CFO) & Company Secretary on 2 July 2020, after eight years with Bapcor. I would like to acknowledge Greg’s outstanding contribution in shaping Bapcor to be the business it is today, and on behalf of the Bapcor family, extend him our very best wishes for his retirement. In July 2020, Noel Meehan was appointed to the role of CFO & Company Secretary. Scott Elliott has been appointed to the role of Executive General Manager – Strategic Development and Investor Relations. Outlook We expect the positive market fundamentals to drive profit growth in the future, and are excited about opportunities for network expansion, improvements in our procurement Given the current economic uncertainties, and unknown future impacts the COVID-19 pandemic may have, Bapcor is not in a position to provide a forecast of earnings for the current year. An update on trading conditions will be provided at the Annual General Meeting, scheduled for 20 October 2020. Bapcor’s continued success is made possible by the passion and commitment of its team members and franchisees, and the on-going support of its suppliers and customers. Together, and in the face of extraordinarily challenging circumstances, the Bapcor family has, once again, achieved exceptional results. I express my profound thanks to everyone who has contributed to this achievement, and for making Bapcor the great business it is today. Darryl Abotomey Managing Director and Chief Executive Officer Bapcor Limited Annual Report 2020 9 B A P C O R O P E R A T O N S I 10 BAPCOR 5 YEAR STRATEGIC TARGETS Asia Pacific’s leading provider of vehicle parts, accessories, equipment, service and solutions. TRADE Trade focussed “parts professionals” supplying workshops in Australia & New Zealand SPECIALIST WHOLESALE (EX. COMMERCIAL VEHICLES) #1 or #2 Industry category specialists in parts programs COMMERCIAL VEHICLES: LIGHT (<20T) – HEAVY (>20T) The only choice for commercial vehicle parts and accessories RETAIL Premium retailer of automotive accessories Supplying the independents: parts, accessories & 4WD SERVICES Reliable & trusted car servicing at affordable prices Supporting the independents THAILAND Bringing automotive aftermarket parts to Asia Bapcor Limited Annual Report 2020 240 AUS Target Stores Currently 186 35% Own brand Target Currently 31% 75 NZ Stores Target Currently 73 35% NZ Own brand Target Currently 30% A$600m AUS Target Turnover Currently A$415m A$50m NZ Target Turnover Currently A$30m 55% Own brand Target Currently 45% 40 Light Location Target Currently 16 A$120m Light Turnover Target Currently A$50m 50 Heavy Location Target A$220m Heavy Turnover Target Currently 26 Currently A$105m 200 AUS Autobarn Target Stores Currently 134 (79 Company Owned) 500 AUS Target Stores Currently 102 >80 Locations Target Currently 6 200 Independents Target Stores Currently 188 100 Opposite Lock Stores Target Currently 72 35% Own brand Target Currently 28% 80% Intercompany Sourcing Target 150 NZ Target Stores Currently 126 A$100m Turnover Target Currently A$4m B A P C O R O P E R A T O N S I 11 Bapcor Limited Annual Report 2020 B A P C O R O P E R A T O N S I BOARD OF DIRECTORS Over the coming financial year, the Board will work to ensure the continued growth and sustained success of the Bapcor Group. ANDREW HARRISON Independent, Non-Executive Director Andrew was appointed Chairman of the Bapcor Board in April 2018 after being an Independent Non-Executive Director of the Board since March 2014. Andrew is an experienced company director and corporate advisor with public, private and private equity owned companies. Andrew, holds a Bachelor of Economics from the University of Sydney and a Master of Business Administration from The Wharton School at the University of Pennsylvania, is a Chartered Accountant and a Member of the Australian Institute of Company Directors. JENNIFER MACDONALD Independent, Non-Executive Director Jennifer was appointed to the Board in September 2018 as an Independent, Non Executive Director and Chair of the Audit & Risk Committee. Jennifer is a professional company director and has a strong and extensive background in financial and general management roles across a range of industries and holds a Masters of Entrepreneurship and Innovation from Swinburne University, is a Graduate Member of the Australian Institute of Company Directors and a Member of the Institute of Chartered Accountants ANZ. 12 12 Bapcor Limited Annual Report 2020 Bapcor Limited Annual Report 2020 B A P C O R O P E R A T O N S I MARGARET ANNE HASELTINE Independent, Non-Executive Director THERESE RYAN Independent, Non-Executive Director Therese was appointed to the Board in March 2014 as an Independent, Non-Executive Director. Therese is a professional non-executive director and has extensive experience as a senior business executive and commercial lawyer working in widely diversified businesses in Australia and internationally, holds a Bachelor of Laws from the University of Melbourne and is a Graduate Member of the Australian Institute of Company Directors. Margaret is a professional Non-Executive Director, appointed to the Bapcor Board in May 2016. Margaret brings more than 30 years’ business experience in a broad range of senior positions and 10 years experience in board directorship. Margaret has significant experience in the areas of supply chain and logistics, customer interface in the FMCG sector, change management, governance, and management. Margaret holds a Bachelor of Arts Degree, Diploma in Secondary Teaching from the Auckland University and is a Fellow of the Australian Institute of Company Directors. DARRYL ABOTOMEY Managing Director and Chief Executive Officer Darryl was appointed to the Board in October 2011 as Chief Executive Officer and Managing Director. Darryl has more than 15 years’ experience in the automotive aftermarket industry with extensive experience in business acquisitions, strategy, finance, information technology and general management in distribution and other industrial businesses, Darryl holds a Bachelor of Commerce majoring in accounting and economics from the University of Melbourne and is a Member of the Australian Institute of Company Directors. Bapcor Limited Annual Report 2020 13 B A P C O R O P E R A T O N S I 14 EXECUTIVE TEAM Together, and in the face of extraordinarily challenging circumstances, the Bapcor family has, once again, achieved exceptional results. DARRYL ABOTOMEY Managing Director & Chief Executive Officer Darryl is the Managing Director & CEO of Bapcor Limited, having been appointed in October 2011. He is also Chairman of Bapcor Finance Pty Ltd. Darryl has more than 15 years’ experience in the automotive industry and extensive knowledge in business acquisitions, mergers and strategy. Previous Director and Executive roles have been with Repco, Paperlinx, Amcor, Signcraft and CPI. He holds a Bachelor of Commerce majoring in accounting and economics from the University of Melbourne. GREG FOX Chief Financial Officer & Company Secretary (Retired 2 July 2020) Greg has more than 25 years’ experience in the automotive, industrial and public accounting sectors. Greg joined Bapcor as Chief Financial Officer in 2012 with responsibility for finance, legal, business services, company secretarial and plays a key role in strategic initiatives. Greg was previously Chief Financial Officer at Atlas Steels and at Plexicor, which was a major supplier to the automotive industry. Greg also held various senior financial positions with Amcor after commencing his career as a Chartered Accountant. MATHEW COOPER Executive General Manager - SWG Mechanical Mat has over 20 years’ experience in the automotive, industrial and public accounting sectors throughout Australia and Asia. Mat was appointed to the role of EGM - SWG Mechanical in October 2018. Mat is responsible for Specialist Wholesale Mechanical businesses. Previously, Mat held the role of EGM – Development in Bapcor and General Manager – Commercial in ANA. He holds a Masters of Business Administration, Bachelor of Commerce and Bachelor of Law from Deakin University and is a Chartered Accountant. STEVE DRUMMY Executive General Manager - SWG Engine Management Steve has over 25 years’ experience in the manufacturing, pharmaceutical, industrial, wholesale, retail and health sectors. He was appointed to the role of EGM - SWG Engine Management in February 2019. Previously, Steve held EGM and CFO roles in businesses including Australian Unity, Sonepar, Hagemeyer, Blackwood’s and News Limited. Steve is responsible for Specialist Wholesale businesses including JAS, PAT, Baxter’s, MTQ, Federal Batteries and Opposite Lock. Bapcor Limited Annual Report 2020 JEFF NICOL Chief Operating Officer Jeff joined Bapcor in July 2019. Jeff leads Bapcor’s logistics and centralised IT functions; group procurement; and co-ordination of the group wide branding strategy. Jeff has 20 years experience as a senior executive having operated at Managing Director, CEO and GM level with commercial and consumer-facing companies including Coates Hire and Bunnings. Jeff holds an MBA and completed the Advanced Management Programme at Insead, France. He is a graduate of the Australian Institute of Company Directors. ALISON LAING Executive General Manager - Human Resources Alison joined Bapcor in May 2017. With more than 20 years’ Human Resources experience Alison has spent much of her career partnering with senior leaders to develop team capability and drive business outcomes and has worked with organisations such as Orora, PaperlinX and Coles Myer. Alison holds a Bachelor of Commerce, majoring in management and industrial relations, from the University of Newcastle. CRAIG MAGILL Executive General Manager - Trade Craig has an extensive career in the automotive aftermarket industry spanning more than 25 years. Starting as a management cadet and working through most of the key operational and sales positions in aftermarket parts distributors. Before joining Bapcor, he was the General Manager of RAC’S (WA) automotive workshops, which was preceded by many years at Repco. He holds a Masters in Business from Melbourne University. Craig joined Bapcor in February 2012 and is responsible for all aspects of the Burson Trade segment. TIM COCKAYNE Executive General Manager - Retail Tim joined the Bapcor group in April 2019, and has 30 years of retail experience working across various sectors within specialty and big box retail and is responsible for the Autobarn, Autopro, Sprint, Midas and ABS networks within the Bapcor group. Tim has worked for a number of national retail businesses with his most recent role as CEO of the Total Tools franchise business where he undertook a massive growth program. Tim holds an MBA and is a graduate of the Australian Institute of Company Directors. MARTIN STOREY Executive General Manager - Bapcor New Zealand Martin joined BNT in September 2016, and was appointed as Executive General Manager - Bapcor New Zealand in October 2018 to lead our New Zealand businesses. Martin grew up in the Bay of Plenty, and worked in a number of local and national businesses, as well as spending some time working overseas. In 2001, he joined Fletcher Building, holding several senior sales and general management positions over 15 years. B A P C O R O P E R A T O N S I 15 Bapcor Limited Annual Report 2020 S E G M E N T O V E R V I E W SEGMENT OVERVIEW Bapcor’s businesses provide a critical service for the community in ensuring that replacement and service parts are available for all on road vehicles, including for emergency services vehicles. Revenue EBITDA1 Trade (exc. Asia) Bapcor NZ Specialist Wholesale Retail FY20 $’M 561.7 156.3 520.4 292.7 FY19 $’M 524.5 165.0 413.1 255.3 Unallocated / Head Office (68.4) (61.3) 1 Proforma results excluding AASB 16 2 Not meaningful FY20 was a year unlike any other – the impact of the bushfires and ongoing drought in Australia compounded with the Covid-19 pandemic all combined to have an adverse impact on Bapcor’s financial performance. Despite these impacts Bapcor performed strongly due to the diversity and resilience across its business segments. Bapcor employs more than 4,500 team members in over 1,000 locations across Australia, New Zealand and Thailand. We are proud of our team members dedication to ensuring necessary parts and services are available to keep the nation’s vehicles, including cars, light and heavy duty trucks and emergency vehicles operating. Bapcor is in a very solid financial position to optimize on opportunities as they arise. Bapcor’s Trade businesses located across Australia, New Zealand and Thailand, house amongst the widest range of car parts in the world for over 4,000 makes and models. Our core focus is the distribution of unique parts from over 1,000 suppliers through an extensive distribution network to independent and chain mechanic workshops. In FY20, Bapcor’s Trade businesses continued its network expansion activity across Australia, New Zealand and Thailand, increasing locations by 10. Own brand sales penetration was also a key strategic initiative, providing enhanced margin opportunity across a number of product categories. The Precision Equipment business located in Australia and New Zealand, provides a full range of superior automotive workshop and wheel alignment equipment. The addition to Change % 7.1% (5.2%) 26.0% 14.7% NM2 FY20 $’M 81.1 19.6 50.3 30.5 (23.7) FY19 $’M 78.2 22.9 46.3 27.1 (9.9) Change % 3.7% (14.0%) 8.7% 12.8% NM2 the Australian range of the Hunter brand resulted in sales volumes growing rapidly. Bapcor now has 5 Burson stores and a procurement office operating in Thailand. This business has ramped up to the point where in December 2019 the business made a positive contribution for the month, just 18 months since the first store was opened. There is strong demand in Thailand for the Burson store concept and value proposition and next steps for expansion are being appraised. Intercompany sales across Bapcor grew by 16.6% which mainly reflects increased sales from our Specialist Wholesale segment into our Trade network in Australia and New Zealand. The increase in intercompany sales reflects the strategy to increase the proportion of “own brand” product sold through Trade and Retail to at least 35%. The Specialist Wholesale (SWG) Group has expanded to 14 business units in FY20 including the acquisitions of Truckline and Diesel Drive in December 2019. SWG includes JAS, Baxters, Premier Auto Trade (PAT), Federal Batteries, MTQ Engine Systems, Diesel Distributors and Opposite Lock offering automotive aftermarket products ranges for electrical accessories, lighting, air-conditioning, engine management parts, diesel fuel injection, turbochargers, batteries and 4WD accessories, amongst many others. SW’s mechanically focused business units include AAD, Bearing Wholesalers, AADi, Roadsafe, Toperformance and the Commercial Vehicle Group 16 Bapcor Limited Annual Report 2020 Revenue EBITDA1 FY20 $’M 561.7 156.3 520.4 292.7 FY19 $’M 524.5 165.0 413.1 255.3 Change % 7.1% (5.2%) 26.0% 14.7% NM2 FY20 $’M 81.1 19.6 50.3 30.5 (23.7) FY19 $’M 78.2 22.9 46.3 27.1 (9.9) Change % 3.7% (14.0%) 8.7% 12.8% NM2 Trade (exc. Asia) Bapcor NZ Specialist Wholesale Retail Unallocated / Head Office (68.4) (61.3) 1 Proforma results excluding AASB 16 2 Not meaningful S E G M E N T O V E R V I E W comprising Truckline (heavy vehicle) and the light commercial vehicle business which offer specialist product categories of braking, bearings, suspension, driveshaft, light and heavy commercial truck components. The acquisition of Truckline heralded the entrance into the heavy commercial vehicle category which distinctively positions Bapcor as the only Australian Aftermarket vehicle parts organisation that can supply parts for all on road vehicles. The Retail segment includes Autobarn, Autopro, Sprint Auto Parts, and the Midas and ABS workshop service brands, that all sell direct to the public. In total the segment has 350 outlets of which 75% are franchised. During FY20, Retail grew its Autobarn company owned stores to represent 60% of the total 134 Autobarn stores within the network. Retail is highly focussed on supporting its franchisees and ensuring the brands owned by the Company are well represented. The continued development of digital and online channels, together with enhanced marketing and promotional programs was furthered in FY20, providing further brand recognition and generating record revenue. Bapcor continued to roll-out training, career development, health and safety programs across the group. When COVID-19 was first evident Bapcor management quickly moved to ensure the reliability of its supply chain, as well as to ensure the safety and well-being of its team members, customers and suppliers. This remains the primary consideration for our business leading into FY21. The group invested further in the areas of human resources, finance, information technology, group operations and marketing, to ensure that the business segments are able to continue to grow whilst having adequate functional support. Bapcor Limited Annual Report 2020 17 S E G M E N T – T R A D E SEGMENT REVIEW TRADE Our team members knowledge & expertise are paramount in our Trade segment which is made up of Burson Auto Parts and Precision Automotive Equipment. REVENUE $561.7M EBITDA $81.1M Performance Burson Trade continued to deliver strong growth in FY20 despite the impacts of the Australian bushfires and COVID-19 restrictions. A successful sales promotion as well as disciplined margin management and increases in sourcing of own brand product ranges led to record revenue and record EBITDA. Revenue of $561.7M was up 7.1% on the prior year and EBITDA of $81.1M was up 3.7% on the prior year. Burson same store sales were up 6% on FY19. Own brand sales reached 31% of revenue. The business continued its focus on operational fundamentals including on maintaining high levels of customer service and was rewarded with excellent customer satisfaction feedback and a solid growth in revenue. Continuing its growth strategy, Burson increased its store locations by five in FY20, bringing the total number of Burson Trade stores to 186 across Australia. The addition of Business Development Managers early in the year provided a renewed focus on the various demographics and preferences of the workshop customers. Precision Automotive Equipment (Precision) provides a total workshop & lubrication equipment package to the automotive industry. Precision is capable of providing everything from workshop layout design, supply and installation of all equipment and after installation sales support across Brisbane, Sydney, Melbourne and Perth. Precision achieved record revenue of $39.4M in FY20. Achievements Sales volume from one of the world’s leading wheel service brands, Hunter, exclusively distributed by Precision in Australia grew strongly with a refocusing on major workshop chain clientele. The robust growth in the wheel servicing category was offset by a flat year in the lifting equipment category due to car dealerships slowing their expansion. Burson ran one of its most successful ever customer promotions over a six month period in FY20. This was a major contributor to the revenue growth of 7.1%, however it did have a negative impact on margin, especially in the first half of the year. The margin rebounded in the second half of the year following the end of the promotion. An effective accomplishment was the launch of a virtual Trade show to maintain connection with customers during the disruption caused by COVID-19. While virtual connection will never be the same as a live event it went a long way to supporting the valuable customer network and their businesses while showcasing Bursons growing range of products. Working capital efficiencies were significantly improved with inventory as a percentage of sales improving compared to prior years, in addition to historically low levels of aged debtors, arising from a renewed focus on debtor collections. Learnings Adaption, pivoting and providing extensive support to team members and customers alike has been driven by the COVID-19 impacts on the Burson community. The associated travel restrictions and safety protocols has driven the business to transform its internal and external policies and process. Virtual learning, face to face (where appropriate) and online modules and webinars have been developed to support team members and the Burson network to ensure customer service and support are first class. Community and Sustainability Burson Trade’s partnership with Greenfleet continues to offset carbon emissions related to its fleet of vehicles by planting native biodiverse forests to help fight the impact of climate change. Energy demands have further been reduced after the installation of LEDs in all of the Victorian stores and most of our NSW stores, with QLD transitioning in FY21. Burson Trade continues to be involved in numerous charitable fund-raising efforts in FY20 actively encouraging stores to contribute to their local community sports clubs and charities through monetary and in-kind donations at the grass-roots level throughout the Burson Trade store network. Significant focus was reflected in the Burson Bushfire Appeal raising over $50,000 for affected communities while the continued dedication to supporting the Cerebral Palsy Alliance through participating in the “Steptember” event raised more than $17,000. 18 Bapcor Limited Annual Report 2020 S E G M E N T – T R A D E Bapcor Limited Annual Report 2020 19 Celebrating Australia’s long established automotive history, Burson has continued to support the Victorian Historic Racing Register along with debuting as the major sponsor for the 33rd Summernats Festival in Canberra creating a pop up garage to ensure automotive parts, tools and equipment were available to attendees. A highlight of the year has been the formation of the Burson Auto Parts Racing Team with vehicles prepared by Garry Rogers Motorsport being driven by the father and son team of Jason and Ben Bargwanna. THAILAND Burson Thailand expanded its network to six locations in FY20. Opening a new sourcing office in August 2019 enabled a more proficient supply of emergency orders to its customers and improvement of logistics for online sales. Achievements Rolling out the B2B cataloguing system is a key component of Burson Thailand’s business plans to provide customers with an ordering platform unique in Thailand. The platform was largely finalised in FY20, however deployment was delayed due to COVID-19, with the initiative now to be launched in FY21. Burson Thailand’s strong focus on family and shared responsibilities throughout the COVID-19 crisis ensured that all staff were retained and customer relationships nurtured as the exit out of restrictions continues. Community & Sustainability Concurrently with Bapcors sustainability initiatives, Burson Thailand ensures all Greenfield stores are fitted with LED lighting and has commenced a ‘cool room barrier’ program to reduce the reliance on air conditioning. Continuing to support the local community in which it operates the business engages in charitable activities, including providing orphanages in the MinBuri area with essentials so they can continue their important caregiving services. S E G M E N T – N E W Z E A L A N D SEGMENT REVIEW NEW ZEALAND Comprising trade, service and specialist wholesale businesses the Bapcor NZ segment has enjoyed a sound integration into the wider Bapcor group since their acquisition in 2017. REVENUE $156.3M EBITDA $19.6M In its first full year of operation the Precision Equipment business has firmly established itself in this industry segment as a supplier of quality workshop equipment. Significant investment was made in the development of an online B2B e-commerce platform which will commence rollout in FY21. Learnings The NZ Governments response to COVID-19 saw the whole country enter a heavy five week lockdown. Bapcor adjusted operations quickly to provide support to our customers who provided essential services to the community. Team member levels have been reduced and the company is well placed heading into FY21. Community and Sustainability Bapcor NZ continues to be the cornerstone sponsor of the Auto Super Shoppes Training Academy. The Academy provides whole of industry support through co-ordination of NZQA training programmes for individuals wishing to enter the automotive trade. In FY20 support was provided by way of new workshop equipment and specialist battery training. Performance Bapcor NZ had a challenging year, particularly due to the government enforced lockdown in response to the COVID-19 pandemic. Revenue decreased by 5.2% to $156.3M and EBITDA was down by 14% compared to FY19. Despite the negative impact of the COVID-19 lockdown, the business recovered strongly in June 2020, after the lockdown restrictions were eased to surpass the pre-COVID-19 monthly sales level that had been set in February 2020 showcasing the business’ resilience and ability to bounce back from external challenges. Bapcor NZ consists of Trade and Specialist Wholesale businesses based in New Zealand across 81 locations. BNT, the trade business, has 73 stores supplying automotive parts and accessories to workshops, truck and trailer parts through the Truck and Trailer Parts brand and equipment through Precision Equipment. During the year three new BNT trade locations were opened including the first co-located HCB/ BNT site in Petone, Wellington. The business also consolidated into three “supersites” bringing the various trading brands into one location. Own brand performance continues to grow, with ‘Superiol’, a key own brand program, gaining share volume across both the oil and filtration categories. Own brand now represents 30% of sales. Achievements Bapcor NZ completed the design, construction and relocation of a 6,000m2 National SWG Distribution Centre (incorporating the HCB Auckland branch) to a new facility in Auckland International Airport. The project team, supported by excellent landlord and constructor relationships, delivered both the building and relocation on budget, and on time, with minimal disruption to operations. Some key features of the site include state of art battery charging and handling systems, as well as the incorporation of a high quality, dedicated show room for the Precision Equipment NZ operation. 20 Bapcor Limited Annual Report 2020 S E G M E N T – N E W Z E A L A N D Bapcor Limited Annual Report 2020 21 S E G M E N T – S P E C A L I I S T W H O L E S A L E SEGMENT REVIEW SPECIALIST WHOLESALE The Specialist Wholesale Group (SWG) segment continued to expand during FY20 with the addition of Truckline and Diesel Drive in December 2019. SWG now comprises 14 business units. REVENUE $520.4M EBITDA $50.3M Performance SWG revenue of $520.4m increased 26%, and EBITDA grew 8.7%, compared to FY19. Excluding acquisitions, revenue grew 5.5% and EBITDA declined 7.1%, reflecting the difficult trading conditions with customers reducing inventory levels during the impact of the COVID-19 pandemic, as well as reflecting a greater investment made in our people and marketing our products. We have invested in management, finance, HR, and marketing capability in line with the scale of the segment to support continued growth. Revenue was boosted in the year with the acquisitions of Diesel Drive and Truckline, and the full year revenue contribution of the Don Kyatt (QLD) light commercial vehicle group acquired in December 2018 in addition to the broadening customer diversity across B2B channels, the revitalisation of AAD’s Protex Brake Program and in store merchandise customer support under the ‘hero reseller’ program. The acquisition of Truckline, Australia’s largest retailer and distributor of aftermarket and OE truck and trailer parts and accessories, exceeded expectations in its first seven months as part of the Group. Intercompany sales and own brand programs, which include category leadership positions in vehicle air-conditioning, electrical accessories and off-road 4x4, continue to drive sales and margin growth through our Trade and Retail segments across Australia and New Zealand. Organic branch expansion, acquisitions, new product innovations and own brand development led to a larger product range and provided competitive market alternatives. Achievements There continues to be an extensive focus on own brand development which both broadened the product offer and increased margin. Specific programs launched during the year included a Hose Clamp program, an extensive air conditioning program and a copper free brake pad program. Learnings The Specialist Wholesale segment continues to concentrate on differentiating itself by maintaining true product specialists with exceptional technical knowledge and sourcing expertise. The business is continually assessing and introducing new products and technologies. Safety programs are at the forefront of the SW leaderships mind. National Awareness safety programs have been implemented to increase the visual messaging, daily engagement and emphasis on monthly safety themes. This frequent messaging for team members to focus on their safety and avoid unsafe working situations has led to a reduction in the number of, and severity of, incidents. Sustainability projects/initiatives As a wholesaler and importer the SW group has been very attentive in ensuring its adherence to the Modern Slavery Act through upholding overseas supplier partnerships and audits to deliver sustainable work practices. Product innovation such as the introduction of market leading Copper Free Brake Pad Program at AAD significantly reduces the level of copper braking residue on our roads which may leach into waterways. Recycling and remanufacturing programs across the businesses has not only reduced waste and landfill but added value to customers through these services, and generated proceeds that were contributed to charity. Future innovation in the Hybrid/Electric Vehicle space has been a focus for PAT and Federal Batteries to keep ahead of the product development curve and provide insights to customers on potential environmental and cost impacts. Community & key sponsorships FY20 has seen many challenges affecting the local community and team members Australia wide. The SW team helped support the Red Cross Bushfire relief fundraising via staff donation matching, and local support via team BBQs for volunteer CFA firefighters (as well as 22 Bapcor Limited Annual Report 2020 special leave for our own brave team members). AAD sourced products from bush fire affected small businesses to collate into its thank you hampers for its valued customers. The hampers contained a message akin to the SW spirit: “All good things come from gratitude”. Grass roots motorsport sponsorship through PAT’s Raceworks program helped elevate awareness in the less familiar racing pursuits including circuit, drifting and drag racing while MTQ and Opposite Lock backed the SuperUtes category. As an ambassador for the All 4 Adventure 4WD program, Opposite Lock contributed to the promotion of driver safety and awareness. S E G M E N T – S P E C A L I I S T W H O L E S A L E Bapcor Limited Annual Report 2020 23 S E G M E N T – R E T A I L SEGMENT REVIEW RETAIL Our friendly and attentive customer service is an asset in our Retail segment which offers auto parts and accessories via a network of company-owned and franchise stores. REVENUE $292.7M EBITDA $30.5M Performance The Retail segment consists of Autobarn, AutoPro and Sprint Auto Parts stores, as well as Midas and ABS service workshops. It was an outstanding year for the Retail segment which achieved record revenue and earnings in FY20, led by the Autobarn business. Revenue increased by 14.7% to $292.7m, and EBITDA increased by 12.8% compared to FY19. In addition to the reported company revenue of the retail segment, our franchisees also have revenue from their sales to customers of c$300M. Autobarn same store sales for the year were up 9.5% on last year, with company stores up 14.5% and franchisee stores up 6.6%. In the months of May and June 2020, Autobarn same store sales were up 51% year on year. Autobarn’s exceptional result was driven by changes made by the new management team to ensure consistency in store standards and our customers’ experience, an increase in the number of company operated stores to now represent 59% of the network, higher levels of inventory availability, brand awareness and compliance, and changes in merchandising and promotions, as well as the implementation of a state-of-the-art point-of-sale system. Online sales delivered an impressive growth of more than 240% over the prior year. By year end the online sales growth was up by more than 400%. The other Retail brands of Autopro and Sprint Auto Parts, and Service brands, Midas and ABS, which have 216 branches across Australia performed well during the year despite variable trading conditions. We remain focussed on supporting our independent operators, and ensuring continuity of the essential service they provide to the local communities in which they operate. In FY20 the group invested in a new state of the art retail point-of-sales system. As the system is rolled out it will improve the customer experience while supporting the business to better understand the needs of our customers. Achievements The number of Autobarn company-owned stores increased by 13 to 79 representing over half of the Autobarn store network. In addition there are 55 dedicated and highly committed Autobarn franchise stores. A core focus of the management team is investing in digital channels while also expanding marketing programs and implementing an improved omni-channel marketing experience through catalogue, TVC, radio, digital, social and e-commerce. Expansion of own brand programs has enable increased sales and gross margin for both the Autobarn and AutoPro stores as well as ensuring price competitiveness. Learnings Adapting and supporting the company and franchised stores and service workshops during the Bushfires and COVID-19 solidified the previous year’s efforts to enforce higher standards of compliance throughout the network ensuring customer service, health, safety and wellbeing were a priority. Community and Sustainability Retail and service company and franchisee stores are encouraged to support their local communities at the grass roots level beyond the supply of automotive parts and accessories. The retail logos can be seen on many local football and netball teams, contributing to community golf and automobile clubs, fund raising events and sponsoring numerous events including country wide ‘Show and Shine” spectaculars displaying classic motoring history. Retail team members and franchisees also united to contribute to a wide range of charitable initiatives in particular checking-in with their fellow team members for a meaningful conversation as part of ‘RU OK? Day’ and raising funds to support the Red Cross Bushfire Relief initiative. 24 Bapcor Limited Annual Report 2020 S E G M E N T – R E T A I L S E G M E N T S Bapcor Limited Annual Report 2020 25 A N D G O V E R N A N C E E N V I R O N M E N T A L , S O C A L I SUSTAINABILITY OVERVIEW We are taking real and measurable action in meeting Bapcor’s Environmental, Social and Governance (ESG) commitments. Our Vision Bapcor Limited recognises that a sustainable and successful business is enhanced by engaging stakeholders, delivering shareholder wealth and optimising business operations in a socially and environmentally responsible manner. Bapcor seeks to take an integrated approach towards economic, environmental and social sustainability, aligning company values and strategic direction with positive outcomes for Bapcor’s stakeholders and the wider communities in which we operate. Bapcor’s Risk Appetite Statement Bapcor’s risk appetite guides how much risk we are willing to seek or accept to achieve our long term strategic objectives “When pursing growth and development opportunities in the delivery of its strategic objectives, Bapcor will not compromise the health and wellbeing of its employees or its reputation for being ‘Asia Pacific’s leading provider of vehicle parts, accessories, equipment and service and solutions’. Bapcor aims to balance the risk and reward in the creation of long-term stakeholder value, accepting and managing commercial risks where Bapcor has the willingness and capability to do so.” 26 Bapcor Limited Annual Report 2020 A N D G O V E R N A N C E E N V I R O N M E N T A L , S O C A L I SUSTAINABILITY FRAMEWORK Our approach to sustainability is defined by our Environmental, Social and Governance (ESG) strategic framework. This strategic framework sets out our integrated approach to ESG sustainability as fundamental to what we do, underpinning our corporate Code of Conduct and Our Values. OUR VALUES OUR CODE OF CONDUCT BAPCOR’S ESG STRATEGY Establish governance processes and system of continuous improvement Ethical Supply Chain / Procurement Ethical sourcing, forging strong supplier relationships and enhanced transparency. Environmental Sustainability Practise Good Governance Positively Impact Our Community Efficiently use resources, optimise our fleet and reduce waste. Engaging stakeholders and supporting the communities in which we operate. Upholding our values and code of conduct, prioritising health and safety, training and developing our team members, and fostering a diverse and welcoming workplace. Bapcor Limited Annual Report 2020 27 A N D G O V E R N A N C E E N V I R O N M E N T A L , S O C A L I 28 SUSTAINABILITY FRAMEWORK We are proud of the achievements we have made in FY20 toward our ESG commitments. Our commitment to sustainability Progress on our sustainability journey is tracked against the actions and timeframes set out for each priority area. We are proud of the achievements we have made in FY20 toward our ESG commitments, which include: formalising our commitment to the UN Global Compact Principles; working to mitigate modern slavery risk within our supply chain; renewing, and expanding, our commitment to offset delivery vehicle fleet emissions, and rolling-out LED replacement programs across our store network. We have updated our targets for FY21 and beyond as we continue our work towards our ESG strategic objectives to reduce our environmental footprint; prioritise health and safety, diversity and inclusion; the training and development of our team members; and supporting our local communities. Priority 1: Develop Bapcor’s ESG Strategy Objectives / Commitments: I. Have regard to our responsibility to serve the communities in which our businesses operate. II. Invest in areas viewed as important drivers of long-term performance and value creation. III. The Board annually to set and review objectives in relation to ESG and to assess Bapcor’s progress in achieving the objectives. Actions: 1. Conduct governance process at Board level 2. Formalise our commitment to the UN Global Compact Principles 3. Monitor sustainability risk within the Risk Management Framework 4. Report annually to the UN Global Compact via our Communication on Progress 5. Instigate an Environmental Management System (continuous improvement) Priority 2: Ethical Supply Chain / Procurement Objectives / Commitments: I. Continually focus on our commitment toward ethical sourcing practices. II. Build strong relationships with key suppliers to build on our positive contribution. III. Enhance transparency within our supply chain and with key partners and stakeholders. Actions: 1. Deloitte review of actions taken for compliance with the Modern Slavery Act (MSA) 2. Update Ethical Supply Chain / Procurement (ESC/P) Policy to reflect MSA passing 3. Training Business Procurement Leads on Modern Slavery legislation in Australia 4. Established Bi-annual Modern Slavery Working Group Meeting 5. Preparation of first Modern Slavery Statement Timeline Complete Complete Ongoing Ongoing FY21 Timeline Complete Complete Complete Complete FY21 Bapcor Limited Annual Report 2020 A N D G O V E R N A N C E E N V I R O N M E N T A L , S O C A L I 29 Priority 3: Environmental Sustainability Objectives / Commitments: I. Continuously reduce our environmental footprint and more efficiently use resources such as energy, water, raw materials, packaging and consumables, where practical to do so. II. Develop good recycling practices, minimise waste in offices, stores and warehouses with a goal of creating a greener workplace. III. Develop a pathway toward emissions reductions in our business. Actions 1. Monitor and expand Group-wide initiative toward streamlining waste and recycling 2. Renew and expand carbon offset program to offset vehicle fleet emissions 3. Explore additional LED replacement opportunities across Group sites in Australia and NZ 4. Review opportunities to improve fuel economy of the Bapcor fleet 5. Develop a pathway toward emissions reductions in our business Priority 4: Practise Good Governance - Our People Objectives: I. Commit to upholding Our Values and Code of Conduct. II. Commit to the training and professional development of our team members. III. Promote and encourage health and safety activities and move toward Zero Harm. IV. Foster a diverse, inclusive and accepting workplace. Action 1. Conduct training and/or professional development programs for team members 2. Group-wide Zero Harm reporting 3. Establish, measure and monitor gender and cultural diversity statistics in workforce 4. Monitor and engage with our team members regarding satisfaction and retention Timeline Complete Complete Ongoing Ongoing FY21 Timeline Ongoing Ongoing Ongoing Ongoing Priority 5: Positively Impact the Communities in which We Operate – Our Community Objectives: Proactively identify and engage with our stakeholders. I. II. Provide support for a wide variety of social, charitable and sporting initiatives. III. Encourage employees to support their local community and foster a culture of workplace giving. Action 1. Support a wide variety of social, charitable and sporting initiatives 2. Encourage team members to support their local community and foster a culture of workplace giving and support Timeline Ongoing Ongoing Bapcor Limited Annual Report 2020 A N D G O V E R N A N C E E N V I R O N M E N T A L , S O C A L I 30 ETHICAL SUPPLY CHAIN / PROCUREMENT With the Commonwealth Modern Slavery Act being passed into legislation in 2018 and our first Statement due in FY21, Bapcor continued to take a proactive approach to assessing and mitigating the risks of Modern Slavery in our supply chain. As part of our internal audit service we engaged Deloitte to undertake a review of our preparations for compliance with the Commonwealth Modern Slavery Act 2018 and provide guidance on any amendments and future actions. A number of opportunities were identified, and actions were taken to further strengthen Bapcor’s approach. In preparation for submission of our first Statement under the Modern Slavery act, Bapcor’s 2018 ESC/P Policy and Supplier Trading Agreement have been reviewed and updated to reinforce our commitment to operating ethically and in compliance with the Modern Slavery Act. These reviews will also limit the risk of Modern Slavery occurring within Bapcor, its supply chain or procurement operations, or in any other business relationships. This policy is available on our website and details our expectations on team members, contractors and suppliers with respect to modern slavery. As a further step, Bapcor’s Whistleblower Policy has been reviewed and updated to facilitate people outside our business, in particular former team members and contractors, as well as suppliers and their employees to report any concerns relating to Modern Slavery. The human rights standards that underpin Bapcor’s ESC/P Policy are the key tenets of the Modern Slavery Act. We have now released our Human Rights policy (also available on our website) which sets out Bapcor’s commitment to protect and uphold fundamental human rights in all of our businesses, operations and across all of our locations, by conducting our business with due care pursuant to relevant laws and regulations. To support engagement of all key personnel across Bapcor’s businesses involved in our supply chain, a bi-annual Modern Slavery Working Group Meeting has been established and training delivered on Modern Slavery legislation and the requirements of Bapcor’s related policies. Our approach, and processes, implemented to-date have verified our belief that given the nature of Bapcor’s businesses and the highly technical nature and automated manufacturing processes of the products we sell, the risks to our businesses under the Modern Slavery Act are very low. Many of Bapcor’s reviewed suppliers have existing policies and significant checks in place in regard to their own supply chains. Bapcor’s primary focus is to continue to engage with our supply chain to reinforce our expectations, understand and evaluate risk, and take appropriate action as necessary. Bapcor Limited Annual Report 2020 ENVIRONMENTAL SUSTAINABILITY Bapcor is committed to optimising its business operations in an environmentally responsible manner to make the most efficient use of its resources and reduce its environmental footprint. Carbon Offset In FY20, we expanded our Carbon Offset Program, continued the roll-out of LED replacements across our store network, and realised further positive environmental outcomes through our streamlined for waste and recycling Group initiatives. Bapcor is reducing its carbon footprint and offsetting emissions by contributing to Australian reforestation projects that protect the local environment, capture carbon emissions, improve soil and water quality, and restore habitat for native wildlife. Building on 2019, Bapcor’s partnership with Greenfleet continues its focus on reducing greenhouse gas emissions associated with the Burson Auto Parts company vehicle fleet. In 2020, Bapcor has increased its commitment to offset an additional 99 vehicles with Greenfleet to 1,019 vehicles. Bapcor’s renewed commitment offsets 5,616 tonnes of carbon emissions. Bapcor is pleased to be continuing its work with Greenfleet to plant native biodiverse forests in Australia, which help address the impacts of the recent bushfires, improve land and water quality, provide critical habitat for native wildlife and fight the impacts of climate change. In 2020, Bapcor’s support will enable reforestation projects such as restoring trees at Koala Crossing in Queensland to restore vital habitat for koalas. Since partnering with Greenfleet, Bapcor’s contribution will help plant over 40,000 native trees and revegetate 36 hectares of land, an area equivalent of approximately 20 football fields As part of the initiative, Burson delivery vehicles carry stickers displaying that the vehicle is carbon offset through native reforestation, and Bapcor team members are invited to take part in local revegetation projects. LED Efficiencies Bapcor continued its roll-out of LED replacements and installations throughout its stores, offices and distribution centres. LED lighting provides equivalent light levels with an estimated 60% reduction in energy use and 40% reduction in energy costs. As part of the initiative, all light fittings are required to meet Australian Standards and comply with the Victorian Energy Efficiency Council’s guidelines. In FY20, an additional 18 Autobarn stores across the network now run LED’s as their primary lighting source, contributing an additional $180,000 in cost savings and more than 550,000 kW in energy savings. Over 90 Autobarn stores in total have either converted to or use LED. Following the additional store conversions, Autobarn’s annual energy saving from the initiative is close to three million kW, equating to an associated cost savings estimated to be greater than $900,000 p.a. Burson Auto Parts continued its LED replacement store roll-out across its New South Wales store network in FY20, having completed its Victoria LED replacement store roll-out in FY19. Buron’s 51 stores across NSW are anticipated to provide an additional cost saving of over $200,000 and more than 630,000 kW in energy savings p.a. Across all Victorian and NSW stores, the initiative is estimated to deliver cost savings of approximately $400,000 and 1.3 million kW in energy savings per annum. The LED fitting store roll-out will be extended throughout the country in FY21. Projects Commenced In Prior Years: Nunawading Distribution Centre LED conversion provides energy savings of 800,000 kW annually. Preston Office and Distribution Centre initiative continues to deliver energy savings of 437,000 kW annually, and energy reduction of 80%, following the transition of 1,000 LED fitting replacements. Waste and Recycling Bapcor streamlines its waste and recycling management processes across the business segments to deliver improved environmental outcomes, including higher levels of waste separation, greater quantities of recycling, and fewer truck movements. Through the initiative to date, close to 68,000 metric tonnes, or more than 66% of total waste, has been diverted from landfill. Packaging Bapcor is committed to taking a sustainable approach toward packaging. Bapcor product development teams are encouraged to consider the environmental impact throughout the product lifecycle, and to review and reduce environmental impacts by seeking to understand the types of packaging we use across our businesses. A N D G O V E R N A N C E E N V I R O N M E N T A L , S O C A L I 31 Bapcor Limited Annual Report 2020 A N D G O V E R N A N C E E N V I R O N M E N T A L , S O C A L I PRACTISE GOOD GOVERNANCE At Bapcor our people are at the heart of our success, which is why during FY20 we continued to develop and implement programs to keep our team members safe and healthy, connected and engaged. Keeping Each Other Safe and Well The focus on zero harm to keep each other safe and well continued and accelerated across FY20. We launched the Work Health and Safety (WHS) Policy, aligning the various policies from across the Group, outlining how we honour our commitment to keeping each other safe and well. The WHS Policy is the cornerstone of our Safety Management System (WHSMS) which is the framework that manages our approach to safety, underpinned by a range of policies and safe operating procedures. We also invested in technology to support our approach to safety launching software to ensure our team can easily report and track safety incidents and actions to address risks and hazards. As well as the focus on keeping our team safe at work, we emphasised the importance of wellness launching ‘Thrive’, our wellbeing program. ‘Thrive’ is structured around four pillars of wellbeing – mental, physical, financial and social. With an initial focus on mental health and wellbeing, we are proud to have partnered with The Black Dog Institute to provide on-line learning about the signs and symptoms of mental health issues and how to encourage and support early intervention. As a part of this, team members also have access to a range of apps, tools and information to support their mental health. G o v e r n ance Structure People and commitment Processes and practices Bapcor Health and Safety vision and principles P e r f o r m a n c e M e a Effective Leadership Facilities and equipment s u r e s Continuous improvement in health and safety k r o w e m O p erating Fra 32 Bapcor Limited Annual Report 2020 Launching and Living Our Values In mid 2019 we commenced the important process of articulating our core company values by including more than 100 team members in ten Values Workshops across Australia and New Zealand. Through engaging team members to share their stories and experiences about what makes being a part of Bapcor special, we were able to articulate and launch Our Values in October 2019. Our Values are the common language that capture the spirit of how we have always done things across our businesses. They are used to shape and guide decisions and behaviours across our Group each and every day. Our Values are at the heart of everything we do and continue to be embedded into our language, processes and systems. Supporting Learning and Development We continued to support team members to achieve their full potential in FY20, through various programs which form Bapcor’s training and development suite. As a key component of this we introduced our first ever, Group-wide on-line learning management system with the launch of CORE Learning. Through encouraging team members to “Log in, Learn it, Love it” CORE Learning ensures learning can be accessed anytime, anywhere through a desktop or mobile device. The initial modules on CORE Learning include Code of Conduct, Respect in the Workplace, Understanding Mental Health in the Workplace and Infectious Diseases Control. Further modules are under development and will be rolled out through FY21 and beyond. A N D G O V E R N A N C E E N V I R O N M E N T A L , S O C A L I Creating an Inclusive Workplace Through continuing to foster a diverse and inclusive workplace, Bapcor enhances our ability to attract, retain, develop and motivate team members from the widest possible talent pool. In FY20 Bapcor continued to identify and initiate a range of activities to support diversity and inclusion across the group. This focus saw the Group Leadership Team participate in leadership training to highlight and address unconscious bias. Bapcor has 25% women in the workplace (26% in FY19): 67% in full-time (68% in FY19); 33% part-time or casual work (32% in FY19); and 75% of Non-executive Directors are women (75% in FY19). DIVERSITY STATISTICS • Women in the workplace 25% (26% in FY19) • Full-time 67% (68% in FY19) • Part-time or casual 33% (32% in FY19) • Non-executive Directors 75% (75% in FY19) Bapcor Limited Annual Report 2020 33 POSITIVELY IMPACT OUR COMMUNITY The Bapcor Group engages with the local communities in which we operate. Our team members support a wide variety of social, charitable and sporting initiatives. With the impact of bushfire, drought and the COVID-19 pandemic, the role Bapcor plays in participating in the broader communities in which we operate has never been more important. Bapcor team members in Australia engage in a variety of charitable causes and community initiatives, this was highlighted in FY20 through, the Burson Bushfire Appeal Day to help support firefighters and communities devastated by bushfires, R U OK? Day to join the fight for suicide prevention and promote conversation, and the Dry July foundation with our ‘No Bourbon Burson’ team to raise funds for cancer services. In New Zealand, team members came together to raise funds for children with cerebral palsy with Steptember. The Burson Thailand business continued to engage with its community through charitable initiatives and awareness campaigns, such as its support for MinBuri orphanages and the ‘Kid in Car’ road safety campaign. NO BOURBON BURSON R U OK DAY? AUTO SUPER SHOPPES ACADEMY Burson team members supported and donated to the Burson Dry July team ‘No Bourbon Burson’. The team successfully took on the challenge of an alcohol-free July. Together they raised funds instrumental in helping Dry July Foundation raise over $10 million Australia wide for cancer services, to make a real difference to the lives of people affected by cancer. Pearcedale Baxter Junior Football club Burson sponsors Pearcedale Baxter Junior Football club. The ‘Mighty Dales’ provide boys and girls teams across a broad range of age groups. The club provides an environment for greater community engagement and social networks for its players and parents alike, and plays an important and effective role in providing health and fitness outcomes for young people. On the 12th of September 2019, R U OK? Day events were held across Bapcor offices with guest speakers, Peter Biggs, Lifeline Counsellor, and Davis Schwarz, former AFL player, sharing their story and starting some very meaningful conversations. RU OK? Day is an Australian suicide prevention charity initiative with a mission to inspire and empower everyone to meaningfully connect with those around them and support those struggling with life. The Auto Super Shoppes Academy, founded in 2017, provides its students, who are predominately young people, with a pathway toward work- readiness and provides the automotive industry with a pipeline of passionate, skilled and technically- equipped graduates. The academy provides an industry-led solution to address skill shortages. BNT is proud to be a major supporter of the Auto Super Shoppes Academy. At the end of 2020, 23 students successfully graduated and were placed in full-time employment. Bringing students placed into employment to 66 in full-time employment since the initiative’s inception. A N D G O V E R N A N C E E N V I R O N M E N T A L , S O C A L I 34 Bapcor Limited Annual Report 2020 BURSON BUSHFIRE APPEAL DAY Swan City Youth Service (SCYS) Inc Burson Racing On Tuesday 10th December, Burson Auto Parts team members wore red and collected donations for the Australian Red Cross to help support our brave firefighters and communities facing the devastating fires sweeping Australia, helping raise more than $22,000 and Burson further contributed $25,000 bringing the total funds raised to over $47,000. In our Specialist Wholesale segment, the Engine Management team helped support the Red Cross Bushfire relief fundraising via staff donation matching, and local support via team BBQs for volunteer CFA firefighters (as well as special leave for our own brave team members) Burson supports the SCYS in Midland, WA. For more than 30 years, the SCYS has provided transformational change predominantly working with “at risk” marginalised young people with complex needs, facing challenges across a wide range of areas, including substance abuse, mental health support, and accommodation assistance. Its annual Wine and Cheese Night for community partners and supporters took place on Thursday 13 August and showcased the important role the SCYS plays. Burson Auto Parts supports the future stars of Australian Motorsport. The Australian Young Driver of the Year is awarded to drivers who show potential to progress to the sport’s higher levels, many of whom have achieved significant career milestones in their junior careers. In March 2020, Edan Thornburrow (pictured) took out the honour of 2019 Australian Young Driver of the Year at the Australian Motorsport Awards. Burson Thailand Bapcor in Thailand engaged in supporting the local community in which it operates through charitable activities, including providing orphanages in the MinBuri area with essentials so they can continue their important caregiving services. The Thailand team launched a Road Safety campaign to do their part to help curb the road toll. The campaign’s Road Safety sticker can be seen on the back of cars in the Bangkok area. Salvation Army Christmas Appeal Steptember “Steptember” is an annual fundraising event held throughout the world to raise vital funds for cerebral palsy research and services. 21 teams from across the Bapcor NZ segment donned pedometers to challenge themselves to walk more than 10,000 steps a day for a month, and along the way raise funds for a great cause. The Bapcor and Burson head office team raised funds, including 79 books and toys, for the Salvation Army and Berry Street Christmas Appeals to support Victoria’s most vulnerable children, and provide hope to all Australian’s battling tough times. Power, Strength and Vulnerability Cricket Cup. In February Bearing Wholesalers pledged its support for the ‘Power, Strength and Vulnerability’ Cup charity cricket match in Victoria. Power, Strength & Vulnerability is an online resource devoted to reducing the stigma around mental health and providing help for those in need. A N D G O V E R N A N C E E N V I R O N M E N T A L , S O C A L I 35 Bapcor Limited Annual Report 2020 F I N A N C A L I R E P O R T I N G DIRECTORS’ REPORT AS AT 30 JUNE 2020 The Directors present their report, together with the financial statements, on the consolidated entity (‘consolidated entity’) consisting of Bapcor Limited (‘company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2020 (‘FY20’). 1. DIRECTORS The following persons were directors of Bapcor Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Andrew Harrison Independent, Non-Executive Chairman Darryl Abotomey Chief Executive Officer and Managing Director Therese Ryan Independent, Non-Executive Director Margaret Haseltine Independent, Non-Executive Director Jennifer Macdonald Independent, Non-Executive Director 2. PRINCIPAL ACTIVITIES During the year the principal activities of Bapcor were the sale and distribution of vehicle parts, accessories, automotive equipment, service and solutions. Bapcor is one of the largest suppliers of vehicle parts, accessories, equipment, service and solutions in Asia Pacific with an operational network covering over 1,000 locations. 3. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS FY20 was a year of unpredicted and unexpected events, including the Australian bushfires and drought as well as the international effect of the COVID-19 pandemic with enforced government lockdowns and restrictions on business. Bapcor, like most other businesses, was impacted negatively by these events. However the resilience of the business was once again shown, with the rapid recovery experienced once COVID-19 lockdowns were eased. When the epidemic was first affecting China, Bapcor took swift action to ensure our supply chain was not adversely affected. Also, when the pandemic started to affect Australia and New Zealand, management quickly took steps to ensure the safety of our team members, customers and suppliers. Discretionary expenditure was minimised as were capital investments. Expenditure was reduced in line with the reduction in sales. In April 2020 Bapcor implemented a share placement and share purchase plan, raising $231.5M (net of costs), to underpin the financial strength of the business and ensure we were well placed during the impacts of the pandemic and to capitalise on opportunities that may arise. The equity issues were solidly supported by shareholders – with both being substantially oversubscribed. Business efficiencies were reviewed in May 2020 across all businesses resulting in a reduction of approximately 5% of team members. The group committed to a new Tullamarine Victoria Distribution Centre – which will be approximately 50,000m2. The state of the art facility will include a highly automated storage system called “goods to person”. This facility is due to be completed by the second half of FY21. Following commissioning of the new facility, all Bapcor’s current Melbourne distribution centres will progressively be transitioned to the new facility, delivering significant increases in efficiency and reductions in duplicated inventory holdings. Bapcor continues to invest in upgrading the technology it utilises. In FY20, a state of the art warehouse management system was implemented in one of the distribution centres and will be progressively rolled out into others. A significant upgrade in the central computer hardware systems was completed and a new “retail point of sale” system launched. Further investments in Bapcor’s digital platforms are underway. On 2 December 2019, Bapcor acquired the business operations of Truckline and Diesel Drive which now form part of the Commercial Truck Parts group and improves the offering of both heavy and Japanese commercial truck spare parts. Throughout the year, Bapcor also acquired the smaller business operations of AFI, Brakeforce, Brookers, and RTS, as well as numerous retail franchised stores and set up new greenfield stores in most of its business segments. Bapcor has also expanded its presence in Thailand and as at 30 June 2020 operates six automotive parts stores around Bangkok. Bapcor Limited Annual Report 2020 37 F I N A N C A L I R E P O R T I N G DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 4. DIVIDENDS Fully franked dividends paid during the financial year were as follows: 26 September 2019 $26,931,000 (9.5 cents per share); $7,274,000 settled via DRP* 13 March 2020 $22,763,000 (8.0 cents per share); $6,770,000 settled via DRP* * Dividend Reinvestment Plan (DRP) The Board has declared a final dividend in respect of FY20 of 9.5 cents per share, fully franked. The final dividend will be paid on 11 September 2020 to shareholders registered on 31 August 2020. The final dividend takes the total dividends declared in relation to FY20 to 17.5 cents per share, fully franked, representing an increase of dividends paid of 2.9% compared to the prior financial year. Dividends paid and declared in relation to FY20 represents 61.7% of pro-forma net profit after tax. 5. REVIEW OF OPERATIONS Statutory: • Revenue increased by 12.8% from $1,296.6M to $1,462.7M • Statutory earnings before interest, taxes, depreciation and amortisation (‘EBITDA’) increased by 26.4% to $211.2M • Statutory net profit after tax (‘NPAT’) decreased by 18.4% to $79.2M • Statutory earnings per share (‘EPS’) decreased by 21.6% to 26.97 cents per share Pro-forma excluding the impact of adopting AASB 16 Leases: • Revenue increased by 12.8% from $1,296.6M to $1,462.7M • Pro-forma EBITDA decreased by 4.1% to $157.8M • Pro-forma NPAT decreased by 5.5% to $89.1M • Pro-forma EPS decreased by 9.2% to 30.36 cents per share Pro-forma including the impact of adopting AASB 16 Leases: • Revenue increased by 12.8% from $1,296.6M to $1,462.7M • Pro-forma EBITDA increased by 31.9% to $217.1M • Pro-forma NPAT decreased by 5.9% to $88.7M • Pro-forma EPS decreased by 9.6% to 30.23 cents per share Net debt: • Pro-forma net debt2 at 30 June 2020 was $109.2M representing a leverage ratio of approximately 0.7X (pro-forma net debt : last twelve months pro-forma EBITDA annualised for new acquisitions, noting that the annualised pro-forma EBITDA for the Truckline acquisition was $1.5M). The tables below reconcile the pro-forma results to the statutory results for FY20 and FY19: $’M Statutory NPAT Victorian DC Consolidation Other activities Other gains adjustment Finance cost adjustment Tax adjustment Pro-forma NPAT inc. AASB 16 AASB 16 Leases adjustment Tax adjustment Pro-forma NPAT exc. AASB 16 Consolidated Note 1 2 3 4 5 6 7 6 FY20 79.2 11.6 1.7 - - (3.8) 88.7 0.6 (0.2) 89.1 FY19 97.0 - 1.7 (4.1) 0.3 (0.6) 94.3 - - 94.3 2. Pro-forma net debt is calculated as statutory net debt excluding the impact of lease liabilities and adjusting for the net derivative financial instruments position which is consistent with banking covenant requirements. Refer to note 18 of the financial report for a reconciliation between statutory and pro-forma net debt. 38 Bapcor Limited Annual Report 2020 DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 5. REVIEW OF OPERATIONS continued $’M Statutory net profit before tax (‘NPBT’) Add back depreciation and amortisation Add back finance costs Statutory EBITDA Victorian DC Consolidation Other activities Other gains adjustment Pro-forma EBITDA inc. AASB 16 AASB 16 Leases adjustment Pro-forma EBITDA exc. AASB 16 F I N A N C A L I R E P O R T I N G Consolidated Note 8 2 3 4 7 FY20 111.4 80.1 19.8 211.2 4.2 1.7 - 217.1 (59.3) 157.8 FY19 134.7 17.1 15.3 167.0 - 1.7 (4.1) 164.6 - 164.6 $’M NPAT Note 1 Weighted average number of ordinary shares Earnings per share (cps) Consolidated FY20 FY19 Stat 79.2 293.6 26.97 Pro-forma inc. AASB 16 Pro-forma exc. AASB 16 88.7 293.6 30.23 89.1 293.6 30.36 Stat Pro-forma 97.0 281.9 94.3 281.9 34.40 33.45 1. NPAT attributable to members of Bapcor Limited. 2. The Victorian DC Consolidation relates to the significant items incurred in relation to the new Tullamarine Victoria Distribution Centre and includes the recognition of provisions for restructure and make good as well as the accelerated depreciation of property, plant and equipment and right-of- use assets. Refer to note 17 of the financial report for further details. 3. The other activities in current and prior period relates to one off consulting costs incurred relating to acquisitions that did not proceed or are considered major acquisitions. 4. The prior period other gains adjustment relates to a one off gain realised on the Baxters acquisition final deferred settlement payment. 5. The prior period finance cost adjustment relates to the write off of borrowing costs performed due to refinancing activities. 6. The tax adjustment reflects the tax effect of the above adjustments based on local effective tax rates. 7. The current period AASB 16 Leases adjustment relates to the adoption of the standard effective 1 July 2019 for which comparatives have not been restated. Refer to note 3 of the financial report for further details. 8. Depreciation in the current period includes the right-of-use assets depreciation from the adoption of AASB 16 Leases of $58.5M. The Directors’ Report includes references to pro-forma results to exclude the impact of the adjustments detailed above. The Directors believe the presentation of non-IFRS financial measures are useful for the users of this financial report as they provide additional and relevant information that reflect the underlying financial performance of the business. Non-IFRS financial measures contained within this report are not subject to audit or review. Revenue and pro-forma EBITDA excluding AASB 16 Leases by segment is as follows: Revenue Pro-forma EBITDA exc. AASB 16 Trade Bapcor NZ Specialist Wholesale Retail FY20 $M 561.7 156.3 520.4 292.7 FY19 $M 524.5 165.0 413.1 255.3 Unallocated / Head Office* (68.4) (61.3) Total 1,462.7 1,296.6 Change % 7.1% (5.2%) 26.0% 14.7% (11.4%) 12.8% FY20 $M 81.1 19.6 50.3 30.5 (23.7) 157.8 FY19 $M 78.2 22.9 46.3 27.1 (9.9) 164.6 Change % 3.7% (14.0%) 8.7% 12.8% (141.9%) (4.1%) * Revenue relates to intersegment sales eliminations and Thailand operations. EBITDA relates to Bapcor head office costs, intersegment EBITDA elimination, acquisition costs and costs associated with the Thailand operations. Bapcor Limited Annual Report 2020 39 DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 5. REVIEW OF OPERATIONS continued 5.1 Operating and financial review – Trade The Trade segment consists of the Burson Auto Parts and Precision Automotive Equipment business units. This segment is a distributor of: • Automotive aftermarket parts and consumables to trade workshops for the service and repair of passenger and commercial vehicles • Automotive workshop equipment such as vehicle hoists and scanning equipment, including servicing of the equipment • Automotive accessories and maintenance products to do-it-yourself vehicle owners. In FY20, Burson Trade was impacted by the Australian bushfires and drought as well as the COVID-19 restrictions, especially in April 2020, however it was still able to deliver record revenue and EBITDA. Compared to FY19, the Trade segment recorded revenue growth of 7.1% and EBITDA growth of 3.7%. The increase in revenue of 7.1% included same store sales growth of 6% (compared to 2.2% in FY19). Burson did record negative same store sales in April 2020 of 11.4% - the major period that COVID-19 impacted this business. Trade’s EBITDA to revenue percentage was 0.5 percentage points below FY19 reflecting the impact of lower gross margin as a result of pricing pressure due to market competition and the impact of a sales promotion to attract new business. During FY20, Burson continued to expand its store network with the number of stores increasing from 181 at 30 June 2019 to 186 at 30 June 2020. The increase of five stores consisted of four greenfield store developments and one acquisition. The average cost per new greenfield store including inventory was $717,000. The new stores are located in Emerald, Kawana Waters and Manunda in Queensland and Wangaratta and Werribee in Victoria. The Precision Equipment business achieved record revenue of $39.4M, despite a fall in demand from new car dealerships, and continues to grow strongly. During the year, inventory holdings decreased by $3.1M (excluding new stores) due to a focus on improving inventory efficiency during the second half of FY20. 5.2 Operating and financial review – Bapcor NZ Bapcor NZ consists of Trade and Specialist Wholesale businesses based in New Zealand operating across 81 locations. BNT is the predominant business with 73 stores supplying automotive parts and accessories to workshops, truck and trailer parts through the Truck and Trailer Parts brand. BNT is similar in nature to Bapcor’s Burson Auto Parts business in Australia. Bapcor NZ also includes the specialist wholesale businesses of HCB – batteries, Autolign – steering and suspension, JAS – auto electrical and Precision Equipment NZ – vehicle workshop equipment. The COVID-19 pandemic had a large impact on Bapcor NZ, with the government required lockdowns heavily affecting trading ability in the second half of FY20. In FY20, revenue declined by 5.2% and EBITDA by 14% compared to FY19. EBITDA to revenue percentage was 1.3 percentage points below FY19. Same store sales growth in FY20 for Bapcor NZ’s largest business, BNT, declined by 9% largely reflecting the impact of the COVID-19 restrictions. Prior to the restrictions being put in place in March 2020, same store sales growth were flat. For the period of March to June 2020, same store sales were down by 26%. During FY20, BNT continued to expand its store network with the number of stores increasing from 70 at 30 June 2019 to 73 at 30 June 2020. The increase of three stores related to greenfield store developments. The average cost per new store including inventory was $483,000. During the year, inventory holdings decreased by $4.8M (excluding new stores and adjusted for foreign currency) due to a focus on improving inventory quality and realignment to reduced demand as a response to the COVID-19 pandemic. 5.3 Operating and financial review – Specialist Wholesale The Specialist Wholesale segment consists of operations that specialise in automotive aftermarket wholesale and include AAD, Bearing Wholesalers, Opposite Lock, Baxters, MTQ, Roadsafe, JAS Oceania, Premier Auto Trade, Federal Batteries, Diesel Distributors, AADi, the Commercial Truck Parts group as well as the recent acquisitions of Truckline and Diesel Drive that occurred 2 December 2019. The Specialist Wholesale segment achieved revenue growth of 26.0% and EBITDA growth of 8.7% compared to FY19. FY20 included the full year impact of the acquisition of the Don Kyatt (Qld) light commercial truck group in December 2018. Excluding this and the Truckline and Diesel Drive acquisitions from FY20, revenue grew by 5.5% and EBITDA declined by 7.1%. These two recent acquisitions have exceeded expectations in the first seven months operating as part of the Bapcor Group. Due to the significant increase in size of the Specialist Wholesale segment, Bapcor has increased the investment in people resources for management, finance, human resources and marketing. EBITDA to revenue percentage declined 1.5 percentage points below FY19 as a result of the Truckline acquisition and the increased investment in people resources. The volume and product groups that the Specialist Wholesale segment supplies into other Bapcor group businesses grew by 16.6% on FY19. During the year, inventory holdings increased by $0.7M (excluding acquisitions). 40 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 5. REVIEW OF OPERATIONS continued 5.4 Operating and financial review – Retail The Retail segment consists of business units that are retail customer focused, and include the Autobarn, Autopro and Sprint Auto Parts brands, and the Midas and ABS workshop service brands. The majority of this segment is franchised stores and workshops, although an increasing proportion of Autobarn stores are now company owned. The Retail segment achieved record revenue and EBITDA for FY20. Revenue increased by 14.7% compared to FY19. Autobarn same store sales growth for company owned stores was 14.5% and for franchise stores was 6.6%. For the second half of FY20, Autobarn achieved same store sales of 20.7%, of which the April to June 2020 quarter delivered same store sales growth of 33%. Company owned store growth was higher than franchise store growth reflecting the maturing of previously opened greenfield stores as well as the performance improvement of franchise stores that were converted to company stores. FY20 EBITDA to revenue percentage of 10.4% was 0.2 percentage points below FY19. EBITDA in FY20 was 12.8% higher compared to FY19, predominately reflecting the improvements in Autobarn company owned stores and increased sales through franchisees. Bapcor has continued to grow the number of company owned Autobarn stores via both greenfield Autobarn stores as well as some select conversion of franchise stores to company owned stores. The total number of Autobarn stores at 30 June 2020 was 134 stores, the same number as at 30 June 2019. The number of company owned stores increased from 66 to 79, with the 13 new stores consisting of two greenfield stores and the conversion of eleven franchise operations. The percentage of company owned Autobarn stores at 30 June 2020 was 59%, up from 49% at 30 June 2019. At 30 June 2020 the total number of company owned and franchise stores in the Retail segment was 350 consisting of Autobarn 134 stores, Autopro 80 stores, Sprint Auto Parts 34 stores and Midas and ABS 102 stores. During the year, inventory holdings increased by $6.2M (excluding new stores) due to product range extensions and a policy of increasing stock holdings in the stores to support increased sales levels. 5.5 Operating and financial review – Unallocated / Head Office The Unallocated / Head Office segment consists of all elimination and head office costs or adjustments that are not in the control of the other segments, as well as the results of the Thailand operations. It also includes the elimination of intercompany sales and EBITDA. Unallocated costs increased from $9.8M in FY19 to $23.7M in FY20 which was primarily due to increased investment in support functions such as human resources, legal, governance and IT as well as additional provisions that have been prudently taken in light of the COVID-19 pandemic for potential impacts to debtor collections and stock obsolescence. Intercompany sales increased by 16.6% compared to FY19, reflecting a higher proportion of sourcing product internally and increasing the volume of “own brand” product. The head office result includes the Thailand operations which recorded revenue of $4.2M and an EBITDA loss of $0.7M with Bapcor’s share of the Thailand business being 51%. During the year, inventory holdings for the Thailand based operations increased by $0.3M. 5.6 Financial Position - Capital Raising and Debt In September 2019, Bapcor issued 1,054,992 shares to participating shareholders under its Dividend Reinvestment Plan, in respect of the FY19 final dividend. In March 2020, Bapcor issued 1,205,595 shares to participating shareholders under its Dividend Reinvestment Plan, in respect of the FY20 interim dividend. During April and May 2020, Bapcor raised $236.1M of share capital in order to strengthen its balance sheet and increase funding flexibility through the issue of 40,909,091 shares under a placement to institutional investors, and the issue of 12,762,225 shares under a share purchase plan offer to existing shareholders. As a result of the issues of shares described above, ordinary shares on issue increased from 283,480,597 as at 30 June 2019 to 339,412,500 as at 30 June 2020. The adoption of AASB 16 Leases increases reportable net debt by the inclusion of $181.8M of lease liabilities as at 30 June 2020. Given this is excluded from a banking covenant perspective, pro-forma net debt has also been disclosed. Pro-forma net debt at 30 June 2020 was $109.2M representing a leverage ratio of approximately 0.7X (pro-forma net debt : last twelve months pro-forma EBITDA annualised for new acquisitions). 41 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 6. STRATEGY Bapcor’s strategy is to be Asia Pacific’s leading provider of vehicle parts, accessories, equipment, service and solutions. Trade Trade consists of the businesses Burson Auto Parts and Precision Automotive Equipment. The business units are trade-focussed “parts professionals” businesses supplying service workshops. Bapcor’s target is to grow Burson Auto Parts’ store numbers via acquisitions and greenfields from 186 stores at the end of June 2020 to 230 stores with at least 35% home brand product content. Bapcor NZ Bapcor NZ’s operations consist of its automotive aftermarket businesses of BNT, Precision Automotive Equipment (NZ), Autolign and Truck and Trailer Parts, as well as the automotive electrical businesses of HCB, JAS Oceania and Diesel Distributors (NZ). The strategy is to grow the BNT business from its current 73 stores to over 85, as well as grow its electrical businesses organically and potentially through acquisition. Bapcor NZ also has a target to grow home brand content to more than 35%. Specialist Wholesale The Specialist Wholesale business strategy is to be the number one or number two industry category specialists in the parts programs in which it operates. The parts programs in which the specialist wholesale segment operates are brake, bearings, electrical, suspension, 4WD, cooling, diesel, engine control systems and parts for light and heavy commercial vehicles. The Specialist Wholesale businesses are focused on maximising internal sales, developing private label product ranges, and the evaluation of its distribution footprint including opportunities for shared facilities. Specialist Wholesale growth may also include acquisitions where they are complementary to the current product group offerings. Retail Autobarn – The premium retailer of automotive accessories, Autobarn had 134 stores at the end of 30 June 2020 including 79 company owned stores. The target is to grow to 200 Autobarn stores, with a majority of growth being company owned stores. Home brand content is also targeted to exceed 35%. Independents – The independents group consists of the franchise stores of Autopro and Sprint Auto Parts. The strategy is to supply the independent parts stores via Bapcor’s extensive supply chain capabilities and brand support. Bapcor’s strategy is to strongly support these independent stores. Service – The service business consists of the brands Midas and ABS and aims to be experts at scheduled car servicing at affordable prices. There were 102 stores at 30 June 2020 of which 100 were franchised. Bapcor considers Service a potential growth area due to the industry consolidation opportunities and the potential to vertically integrate supply of product through its Trade and Specialist Wholesale segments and will actively expand this segment. Asia Bapcor has commenced an expansion into South East Asia, initially into Thailand. Currently there are six greenfield stores selling automotive parts and accessories to workshops and retail customers. Bapcor sees significant potential to grow this footprint, once the concept is proven in Thailand. The initial two years of operations has achieved positive momentum. Competitive advantages Team Members – Our team members are the key to our success. Bapcor has a strong and experienced management team and a proven record of attracting, retaining and growing key talent across the group. Training and development of team members are a priority for the group. Supply Chain – Strength of distribution network ensures fast delivery to trade customers who rely on quick access to parts to improve service time to their customers. Bapcor is investing in technology and new distribution facilities such as the new Distribution Centre at Tullamarine in Victoria to ensure it has a state of the art supply chain. Diversification – Extensive breadth and depth of product range and capability across the group provides multiple revenue streams and continues to drive intercompany sales and margin improvements opportunities, whilst spreading reliance on profitability. 42 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 7. INDUSTRY TRENDS The automotive aftermarket parts market in Australia, NZ and Asia continues to experience growth based on: a. population growth; b. increasing number of vehicles per person; c. change in the age mix and complexity of vehicles (i.e. more vehicles in the four years or older range); and d. an increase in the value of parts sold. Demand for automotive parts, accessories and services is resilient as vehicle maintenance is critical to operating a vehicle. Vehicle servicing is predominately driven by the number of kilometres travelled, with the number of kilometres travelled by passenger and light commercial vehicles not normally significantly impacted by economic conditions. Volatility in new vehicle sales does not directly impact demand as parts distributed by Bapcor are predominantly used to service vehicles that are aged four years or older. With the impact of COVID-19, demand for second hand vehicles has increased as people seek to ensure social distancing with reduced reliance on public transport, as well as the expected increase in domestic holidays utilising motor vehicles. All of these factors lead to more demand for vehicle servicing, replacement parts and maintenance. Online channels to market is now a common medium for retail businesses albeit only a small percentage of automotive retail sales are online. Through our retail businesses Bapcor has online sales channels, including ‘click and collect’ and ‘click and deliver’. In the trade and wholesale channels the group offers electronic ‘B2B’ trading including an extensive parts catalogue. Bapcor is investing in expanding its online capabilities, including in a new eCommerce platform. In the trade business Bapcor’s fast delivery capabilities, wide product range and knowledgeable people are the key to Bapcor’s customer offering which on-line businesses cannot match. Bapcor does not believe online competition will have a material impact on Bapcor’s trade business over the next few years. There is increased interest and production of electric vehicles. As Bapcor’s target market is parts and accessories for vehicles greater than four years old, and due to the large size of the conventional vehicle car parc (approximately 19 million) and how long it would take for electric and hybrid vehicles to become a meaningful percentage of the total number of vehicles on the road (currently less than two percent), Bapcor considers any impact to the Bapcor business within the next ten years as minimal. 8. KEY BUSINESS RISKS There are a number of factors that could have an effect on the financial prospects of Bapcor. These include: Pandemic risk - As has been shown in the past six months, a pandemic which results in restrictions on doing business, will have an impact on Bapcor. Pandemic, as well as other risks such as bushfires are unpredictable by their very nature. Once such situations are evident Bapcor will move swiftly to minimise the impact on its revenue, profitability and cash. Competition risk - The Australian, NZ and Thai automotive aftermarket parts and accessories distribution industries are competitive and Bapcor may face increased competition from existing competitors (including through downward price pressure), new competitors that enter the industry, vehicle manufacturers, and new technologies or technical advances in vehicles or their parts. Increased competition could have an adverse effect on the financial performance, industry position and future prospects of Bapcor. Increased bargaining power of customers - A significant majority of Bapcor’s sales are derived from repeat orders from customers. Bapcor may experience increased bargaining power from customers due to consolidation of existing workshops forming larger chains, greater participation of existing workshops in purchasing and buying groups, and closure of independent workshops resulting in greater market share of larger chains. An increase in bargaining power of customers may result in a decrease in prices or loss of customer accounts, which may in turn adversely affect Bapcor’s sales and profitability. Supplier pressure or relationship damage - Bapcor’s business model depends on having access to a wide range of automotive parts, in particular parts with established brands that drive customer orders. An increase in pricing pressure from suppliers or a damaged relationship with a supplier may increase the prices at which Bapcor procures parts or limit Bapcor’s ability to procure parts from that supplier. If prices of parts increase, Bapcor will be required to pass on or absorb the price increases, which may result in a decreased demand for Bapcor’s products or a decrease in profitability. If Bapcor is no longer able to order parts from a key supplier, Bapcor may lose customer orders and accounts, resulting in lower sales. Any decline in demand, sales or profitability may have an adverse effect on Bapcor’s business and financial performance. Exchange rate risk - A large proportion of Bapcor’s parts are sourced from overseas, either indirectly through local suppliers or directly by Bapcor. This exposes Bapcor to potential changes in the purchase price of products due to exchange rate movements. Historically Bapcor has been able to pass on the majority of the impact of foreign exchange movements through to the market. If the situation arises where Bapcor is not able to recoup foreign exchange driven cost increases, this may lead to a decrease in profitability. To mitigate this risk, Bapcor enters into forward exchange contracts based on expected purchases for the upcoming twelve months. 43 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 8. KEY BUSINESS RISKS continued Managing growth and integration risk - The integration of acquired businesses and the continued strategy of growing the store network will require Bapcor to integrate these businesses and where appropriate upscale its operational and financial systems, procedures and controls and expand and retain, manage and train its employees. There is a risk of a material adverse impact on Bapcor if it is not able to manage its expansion and growth efficiently and effectively, or if the performance of new stores or acquisitions does not meet expectations. Bapcor senior management take an active role in the integration of acquired businesses. Expansion - A key part of Bapcor’s growth strategy is to increase the size of its store network, which it intends to achieve through store acquisitions and greenfield developments. If suitable acquisition targets are not able to be identified; acquisitions are not able to be made on acceptable terms; or suitable greenfield sites are not available, this may limit Bapcor’s ability to execute its growth strategy within its expected timeframe. Further, new stores may not prove to be as successful as Bapcor anticipates including due to issues arising from integrating new businesses. This could negatively impact Bapcor’s financial performance and its capacity to pursue further acquisitions. Bapcor senior management take an active role in the rollout and progress of store expansion. Franchise regulations - Bapcor has a large franchise network within its Retail segment. Changes in franchise law or regulations may have an impact on the responsibilities of the franchisor or the operations of these franchise businesses. Bapcor senior management seek ongoing professional advice to monitor any developments and implement appropriate changes. People risk - Bapcor is a highly focussed customer service business and its staff and senior management are key to maintaining the level of operational service to its customers, as well as executing Bapcor’s strategy. Any significant turnover of staff or loss of key senior management has the potential to disrupt the profitability and growth of the business. Senior management risk is somewhat managed through notice period and non-compete contractual obligations, succession planning and long term incentives. Information technology - All of Bapcor’s business operations rely on information technology platforms. Any sustained unplanned downtime due to system failures, cyber-attack or any other reason has the potential to have a material impact on the ability for Bapcor to service its customers. Bapcor’s business units operate with a number of different operating systems making it less likely that any unplanned downtime will occur across the entire business. 9. LIKELY DEVELOPMENT AND EXPECTED RESULTS OF OPERATIONS In July 2020, all of Bapcor’s businesses performed strongly. Retail same store sales were c50% above the prior year, Burson Trade up c15%, New Zealand up c15% and Specialist Wholesale up c15%. Also, Thailand achieved record revenue. In early August 2020, in relation to the COVID-19 pandemic, the Victorian Government mandated closures of many Melbourne based businesses for six weeks. This included the closure of all of Bapcor’s Melbourne Retail stores, restrictions on all other businesses and a reduction of 30% of warehouse staffing. It is not yet possible to determine the financial impact of such restrictions. This has come at a time when there is strong performance in all of Bapcor’s businesses across Australia, New Zealand and Thailand. 44 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 10. INFORMATION ON DIRECTORS Name: Title: Qualifications: Experience and expertise: Andrew Harrison Independent, Non-Executive Director and Chairman Bachelor of Economics from the University of Sydney Master of Business Administration from The Wharton School at the University of Pennsylvania Member of the Australian Institute of Company Directors Chartered Accountant Andrew is an experienced company director and corporate advisor and has previously held non-executive directorships with public, private and private equity owned companies. Andrews’s former executive positions include Chief Financial Officer of Seven Group Holdings, Group Finance Director of Landis and Gyr, and Chief Financial Officer of Alesco Limited. Andrew has also worked as a corporate advisor in Australia, the United States and the United Kingdom. Other current directorships: Andrew is currently Chairman of WiseTech Global Limited and Vend Limited and is on the board of Moorebank Intermodal Company. Former directorships (last 3 years): Estia Health Limited, Xenith IP Limited and IVE Group Limited Special responsibilities: Chairman Member of the Audit and Risk Committee Member of the Nomination and Remuneration Committee Interests in shares: 85,389 ordinary shares Name: Title: Qualifications: Experience and expertise: Darryl Abotomey Chief Executive Officer and Managing Director Bachelor of Commerce majoring in accounting and economics from the University of Melbourne Member of the Australian Institute of Company Directors Darryl has led Bapcor since 2011 and has more than fourteen years’ experience in the automotive aftermarket industry. Darryl has extensive experience in business acquisitions, strategy, finance, information technology and general management in distribution and other industrial businesses. Darryl was a former Director and Chief Financial Officer of Exego Group (Repco). He has also previously held directorships with The Signcraft Group, PaperlinX Limited, CPI Group Limited and Pinegro Products Pty Ltd. Other current directorships: Former directorships (last 3 years): None None Interests in shares: Interests in rights: 1,431,154 ordinary shares 581,448 performance rights 45 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 10. INFORMATION ON DIRECTORS continued Name: Title: Qualifications: Experience and expertise: Therese Ryan Independent, Non-Executive Director Bachelor of Laws from the University of Melbourne Graduate of the Australian Institute of Company Directors Therese is a professional non-executive director and has extensive experience as a senior business executive and commercial lawyer working in widely diversified businesses in Australia and internationally. Therese has over 20 years’ experience across executive and board appointments within the automotive industry. Previously, she was Vice President and General Counsel of General Motors International Operations based in Shanghai, Assistant Secretary of General Motors Corporation and prior to that General Counsel and Company Secretary of GM Holden. Other current directorships: Therese is currently a board member of VicForests, Gippsland Water, WA Super and Sustainable Timber Tasmania. Former directorships (last 3 years): None Special responsibilities: Chair of the Nomination and Remuneration Committee Member of the Audit and Risk Committee Interests in shares: 40,256 ordinary shares Name: Title: Qualifications: Experience and expertise: Margaret Haseltine Independent, Non-Executive Director Bachelor of Arts Degree Diploma in Secondary Teaching from the Auckland University Fellow of the Australian Institute of Company Directors Margaret has more than 30 years’ business experience in a broad range of senior positions, and ten years’ experience in board directorship. A proven executive leader, Margaret has significant experience in the areas of supply chain and logistics, customer interface in the FMCG sector, change management, governance, and management within a large corporate environment. Previously, she held various senior positions with Mars Food Australia, including CEO, spanning a 20-year career. Other current directorships: Margaret is currently a board member of Bagtrans Pty. Ltd. (Chairman), Droppoint (Chairman) and Newcastle Permanent Building Society. Former directorships (last 3 years): None Special responsibilities: Member of the Audit and Risk Committee Member of the Nomination and Remuneration Committee Interests in shares: 39,849 ordinary shares 46 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 10. INFORMATION ON DIRECTORS continued Name: Title: Qualifications: Experience and expertise: Jennifer Macdonald Independent, Non-Executive Director Masters of Entrepreneurship and Innovation from Swinburne University Graduate Diploma from the Securities Institute of Australia Bachelor of Commerce from Deakin University Graduate of the Australian Institute of Company Directors Chartered Accountant Jennifer is a professional company director currently serving on the board and audit committee of a number of ASX-listed companies. Jennifer has previously held various senior management positions with ASX-listed and global companies, including as CFO and interim CEO at Helloworld Limited, and CFO and General Manager International at REA Group Ltd. Other current directorships: Jennifer is currently a board member of Property Guru Pte. Ltd, Australian Pharmaceuticals Ltd and Redbubble Ltd. Former directorships (last 3 years): Redflow Ltd. Special responsibilities: Chair of the Audit and Risk Committee Member of the Nomination and Remuneration Committee Interests in shares: 23,363 ordinary shares Note; ‘former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities. 11. COMPANY SECRETARY AND OFFICERS Previous Chief Financial Officer and Company Secretary Gregory Lennox Fox (2 March 2012 – 2 July 2020) Greg retired on 2 July 2020, after a successful eight years as Chief Financial Officer and Company Secretary. Greg joined Bapcor in 2012 with responsibility for finance, legal, company secretarial and played a key role in strategic initiatives. Greg was previously Chief Financial Officer at Atlas Steels and at Plexicor, which was a major supplier to the automotive industry. Greg also held various senior financial positions with Amcor Ltd after commencing his career as a chartered accountant. Current Chief Financial Officer and Company Secretary Noel Meehan (2 July 2020 – present) Noel joined Bapcor on 2 July 2020 as Chief Financial Officer and Company Secretary following a successful career as Chief Financial Officer at Toll Group, Chief Finance Officer at Treasury Wines Estates Limited, Executive Director Finance and other roles at Orica Limited and various positions at Qantas. Noel is a Fellow of the Australian Society of Certified Practising Accountants and a Member of the Australian Institute of Company Directors. 12. MEETINGS OF DIRECTORS The number of meetings of the company’s Board of Directors (‘the Board’) and of each Board committee held during the year ended 30 June 2020, and the number of meetings attended by each director were: Full Board Nomination and Remuneration Committee* Audit and Risk Committee* Attended Held Attended Held Attended Held Andrew Harrison Darryl Abotomey* Therese Ryan Margaret Haseltine Jennifer Macdonald 12 12 12 11 12 12 12 12 12 12 3 - 3 3 3 3 - 3 3 3 4 - 4 3 4 4 - 4 4 4 Held: represents the number of meetings held during the time the director held office or was a member of the relevant committee. * The members of the Audit and Risk Committee are Jennifer Macdonald (Chair), Andrew Harrison, Therese Ryan and Margaret Haseltine. Darryl Abotomey, whilst not a member of the Audit and Risk Committee, attended all Audit and Risk Committee meetings by invitation from the Committee. The members of the Nomination and Remuneration Committee are Therese Ryan (Chair), Andrew Harrison, Margaret Haseltine and Jennifer Macdonald. Darryl Abotomey, whilst not a member of the Nomination and Remuneration Committee, attended all Nomination and Remuneration Committee meetings by invitation from the Committee. 47 Bapcor Limited Annual Report 2020FINANCIAL REPORTING DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 13. REMUNERATION REPORT The Bapcor Board is pleased to share with you our Remuneration Report for the financial year ended 30 June 2020. Since listing on the Australian Securities Exchange (‘ASX’) in 2014, Bapcor, its executive and team members have consistently performed and delivered growth. This continued in FY20, even with the business being impacted by a number of unpredicted and unprecedented events including the ongoing drought in Australia and the bushfires across the Australian eastern seaboard during what is typically one of the busiest trading periods. The enormity of these events and their impact on the business was then surpassed by the COVID-19 global pandemic. COVID-19 initially disrupted much of our supply chain from China then having the most significant impact on Bapcor’s businesses in Australia, New Zealand and Thailand with government imposed lockdowns, especially in New Zealand where the restrictions were the most severe requiring our business to effectively shut down with 48 hours’ notice. Despite the impact of the drought, bushfires and COVID-19 we consider that Bapcor and its executive leadership team has continued to perform strongly delivering a 12.8% increase in revenue to $1,463M and pro-forma net profit after tax (‘NPAT’) of $89.1M (excluding the impact of AASB 163) which is a 5.5% reduction from the prior year. Statutory NPAT was $79.2M, which included expensing $11.7M of transition costs relating to the new consolidated DC being built at Tullamarine in Victoria. The following chart shows total return to shareholders over the previous five years: 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: KPMG Bapcor Comp. Group (Average) ASX 100 (Average) ASX 200 (Average) FY20 was a year unlike any other – the impact of the COVID-19 restrictions in Australia, New Zealand and Thailand, the bushfires in Australia and the ongoing drought across Australia. Each of these events had a negative impact on the Bapcor business, as they did on the economy generally. However, in spite of the impact of these events Bapcor’s businesses have performed incredibly strongly. The Burson Trade business achieved record revenue and record earnings, the Retail business delivered record sales and record earnings, and the new truck parts businesses have performed strongly. Bapcor has also invested in updating its digital capabilities with investments in computer infrastructure, implementing a tier one warehouse management system, and a new retail point of sale system as well as expansion of stores in Thailand and the development of a new mega distribution centre which is underway in Tullamarine, Victoria. This is in addition to the 43 new locations that were added to Bapcor’s network during FY20 bringing the network to approximately 1,040 sites throughout Australia, New Zealand and Thailand. When COVID-19 impacted China in January 2020 and had the potential to disrupt the group’s supply chain, management moved swiftly to ensure availability of product. When COVID-19 impacted Australia and New Zealand, management acted quickly to ensure the safety of team members, customers and suppliers. Steps were taken to conserve cash by minimising discretionary expenditure, ceasing capital and expansion investment where sensible, reducing people resources in line with forecasted sales reduction and positioning the business for the duration of the government mandated restrictions. In addition the company’s gearing was reviewed, with the decision to undertake a share placement and share purchase plan 3. On 1 July 2019, Bapcor adopted AASB 16 Leases and as per the transition provisions the comparative periods have not been adjusted. The pro-forma results excluding AASB 16 Leases include an adjustment to remove the impact of this standard adoption allowing comparability with prior periods. Refer to details contained within the Directors’ Report. 48 FINANCIAL REPORTINGBapcor Limited Annual Report 2020DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 13. REMUNERATION REPORT continued to underpin the company’s financial strength. All these steps were put into place, at the same time as guiding the business through the challenges of operating an essential service of providing replacements vehicle parts to keep cars and trucks operating. To be able to consistently deliver strong results and navigate through times of increasing economic uncertainty, it is essential that Bapcor attracts and retains a talented leadership team that can envision and deliver the strategy. The Board is very mindful that to attract and retain a talented and committed leadership team, executive key management personnel (‘KMP’) should be appropriately rewarded for their achievements as well as their skills and experience. Bapcor’s approach to remuneration to ensure this includes: Setting fixed remuneration that is appropriate and market competitive to attract, retain and motivate our talented team in a highly competitive market at a time when there is increasing economic uncertainty. In FY20 modest fixed remuneration increases were made to KMP. These increases were based on independent market remuneration benchmarking which, as in previous years, targeted the 50th percentile of the benchmark, with a range of plus or minus 20%. Given the economic challenges and uncertainty created by COVD-19, all executive KMP and Directors voluntarily took a reduction in their base remuneration of up to 30% for two months in the latter part of FY20. Providing incentives to propel outperformance is the purpose of the other elements of our remuneration approach. These are underpinned by targets, established each year after in-depth consideration by the Bapcor Board, that will deliver the strategy and provide shareholder growth. The Short Term Incentive (‘STI’) plan is structured by the Board to reward our executive KMP for delivering on our growth strategy with aggressive targets for both financial and non-financial indicators. To realise an STI, executive KMP need to face into challenges and take measured risks that will benefit our investors in the short term and continue to build the foundations and capital investments for long term sustainability. Primarily, STI payments are awarded for achieving and exceeding the NPAT or earnings before interest and tax (‘EBIT’) targets as well as improvements in working capital levels. Normally, these financial targets are set at levels greater than prior year. The targets that were set for FY20 obviously did not take account of the unforeseen circumstances of COVID-19, the bushfires or the drought – all of which are beyond the control of management. Taking into consideration these unforeseen circumstances and reflecting the extraordinary achievements of the executive leadership team in the face of this, the Board has exercised its discretion in accordance with the rules of the STI plan and has revised the minimum threshold at which payment for achievement of these financial targets is made – noting that the targets themselves have not changed from those set at the beginning of FY20 which were set above the prior year and with consideration of market expectations at that time. In addition to financial targets, the STI includes non-financial targets for each executive KMP designed to drive key elements such as safety, people, long term strategy, compliance and governance. The Board also considered whether to defer FY20 STI payments and determined not to amend the normal payment process where only above target achievements are deferred for twelve months. Bapcor has a variety of short term incentive plans across the business units, all aimed at driving solid results and to encourage engagement by all team members. The contribution of all team members during FY20 is acknowledged and appreciated, with a once off special “thank you” incentive of $300 to be given to full time permanent team members and $150 to part time permanent team members, by way of Bapcor gift cards. Since Bapcor’s initial public offering (‘IPO’) in 2014, the Long Term Incentive (‘LTI’) has consistently measured relative shareholder return (‘TSR’) and statutory earnings per share (‘EPS’) growth. The view of the Board continues to be that this is a reliable and transparent way to measure long term shareholder value aligning the interests of our executive KMP with the interests of our investors. As an incentive intended to drive long term shareholder value there have been no changes made or discretion applied to the LTI in FY20 despite the economic conditions. Once again, we believe our investors will be pleased with a compound annual statutory EPS growth rate over five years of 10.9% and that the executive team that achieves such strong and consistent results over the long term should be rewarded for its efforts. The Board also reports that 49.5% of the FY18 LTI plan allocated to the CEO and KMP’s vested. As well as a capable and committed executive leadership team, Bapcor needs engaged, high calibre team members in every part of the Group to enact the strategy, accomplish financial targets and provide shareholder value. Ensuring all Bapcor team members are safe, engaged and able to realise their full potential remains, as it has always been, essential to the Group’s success. In FY20 the focus on team member engagement and development continued, at the heart of which was articulating and embedding Our Values. To establish the shared language for Our Values, Bapcor engaged more than 100 team members in cross-business unit workshops across Australia and New Zealand. This culminated in October 2019 when we launched Our Values of: • We give a damn … • We are in it together … • We get it done … • We do the right thing … 49 FINANCIAL REPORTINGBapcor Limited Annual Report 2020DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 13. REMUNERATION REPORT continued Our Values guide our decision making across the Group and are brought to life through being embedded in processes such as performance reviews. In the spirit of Our Values, safety has continued to be a priority across the Group with a range of improvements, programs and initiatives. A new Bapcor Work, Health and Safety (‘WHS’) Policy was launched in September 2019 to align the various policies from across the Group. The new WHS Policy is the cornerstone of the framework to lead and manage our approach to safety risks and is underpinned by a range of policies and safe operating procedures that form part of our Safety Management System. Pleasingly, the ongoing focus on keeping each other safe and well has seen a reduction of 9% in our twelve month rolling lost time injury frequency rate (‘LTIFR’) from 6.51 in June 2019 to 5.92 in June 2020. Part of our focus on safety also includes wellbeing and we were pleased to launch the Thrive Wellbeing Program in May 2020. Thrive provides training, tools, resources and information across four pillars of mental, physical, financial and social wellness. Our initial focus is on mental health and as a part of this, in addition to our existing Employee Assistance Program (EAP), we were pleased to provide all team members with on-line training and tools from the Black Dog Institute. After launching our Group-wide intranet, CORE, in December 2018 to connect and communicate with all team members regardless of their role, business or location, we continued to develop this throughout FY20 and were pleased to launch CORE Learning in May 2020 as our platform for on-line learning. With the issues and uncertainty created by COVID-19, bushfires and drought, FY20 has been a year unlike any ever experienced by Bapcor. The Board is extremely pleased with the efforts, focus and determination of the executive team, and the Bapcor team more broadly, to achieve the financial and non-financial results that consistently improve returns to our shareholders and support all our stakeholders, even in the face of the unprecedented economic uncertainty. As we move into FY21, the Board has approved a special short term incentive plan for achieving financial targets in the first quarter of the year. The purpose of this special incentive plan is to ensure a strong start to the new financial year especially in light of the uncertain and challenging circumstances around COVID-19 and the underlying economic conditions. This plan is in addition to the standard full year short term incentive plan. The full year FY21 STI targets have been set and are in line with current market expectations, however these will be reviewed at the end of the first quarter based on the prevailing market conditions. 50 FINANCIAL REPORTINGBapcor Limited Annual Report 2020DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14. REMUNERATION REPORT (AUDITED) The Directors present the Remuneration Report setting out the principles, policy and practices adopted by the Bapcor Board in respect of remuneration for the Group’s non-executive and executive Key Management Personnel (‘KMP’) in accordance with the requirements of the Corporations Act 2001 and its Regulations. The Remuneration Report is set out under the following main headings: 14.1 Overview 14.2 Remuneration governance 14.3 Remuneration framework 14.4 Key management personnel 14.5 Executive remuneration 14.6 Cash and realisable remuneration (non-statutory) 14.7 Statutory details of remuneration The information provided in this Remuneration Report, which forms part of the Directors’ Report, has been audited as required by section 308(3C) of the Corporations Act 2001. 14.1 Overview 14.1.1 Financial performance and remuneration over the last six years Bapcor has continued to grow in size and complexity since it listed on the ASX in 2014. Over these six years financial performance has consistently improved as have the returns delivered to shareholders. REMUNERATION ANALYSIS FY14 - FY20 % increases of Market Cap, Revenue, Pro-forma NPAT and Executive KMP Fixed Remuneration Market Cap NPAT Revenue E-KMP Fixed Rem e s a e r c n i % 500% 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% E-KMP fixed $M E-KMP roles at year end Avg fixed $000’s FY14 1.66 5 333 FY15 1.87 6 312 FY16 2.87 7 410 FY17 3.91 9 435 FY18 4.96 9 551 FY19 4.89 9 543 FY20 5.07 9 564 51 Bapcor Limited Annual Report 2020FINANCIAL REPORTING DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.1.2 Key Questions Key Questions How is FY20 executive remuneration different from FY19? Were there any changes in to executive remuneration during FY20 in response to COVID-19 and other events? Our Approach The approach to executive remuneration remains consistent with FY19. Modest adjustments were made to executive remuneration based on independent market benchmarks with executive remuneration remaining positioned at around 90% of the median of the comparator peer companies, based on the information obtained from the independent advisor retained by the Board, Godfrey Remuneration Group. Yes. All executive KMP volunteered a remuneration reduction of up to 30% for two months in the latter part of FY20. Were there any increases to non-executive directors in FY20? Yes. Non-executive directors’ base fees were increased by 3% at the beginning of FY20. Were there any changes to executive remuneration in FY20? Were there any changes to non-executive director fees during FY20 in response to COVID-19 and other events? How much STI was earned by the executives for FY20 and what were the reasons for the level of payment? The last time Directors base fees were increased was 1 July 2016. Committee fees have not been increased since 1 July 2016. Increases in executive remuneration were made in line with recommendations provided by the independent advisors – Godfreys. The CEO received a 3% increase in his fixed remuneration. Other KMP increases varied depending on the benchmarking. The target STI for KMP (excluding the CEO) was increased from 40% to 50% of Total Fixed Remuneration (‘TFR’) and the maximum increased from 70% to 75% of TFR. These changes were as recommended based on the benchmarking data provided by Godfreys. Yes. All non-executive directors volunteered a 30% base fee reduction for two months in the latter part of FY20. STIs earned by executive KMP are based on targets established by the Board at the beginning of the financial year. The STIs at target level are 70% financial measures and 30% personal objectives with payment for achievement greater than target deferred for one year. At maximum level, the STIs are weighted 83.5% and 80% to financial measures respectively for the CEO and other executives. The aggregate of STI paid to the executive KMP for performance in FY20 was $2,220,926 which is 52.8% of the maximum that could have been paid. The Board’s view is that executive KMP have performed extremely well in navigating the economic impacts of COVID-19, bushfires and drought and, as such, has exercised its discretion by reducing the threshold at which payment for STI financial targets are made to 75% of target from 95% of target. Incentives are based on various components of the company’s financial performance including: • Revenue increase • Pro-forma EBIT • Group pro-forma NPAT • Working Capital to sales percentage • Inventory to sales percentage As no awards exceeded the target value, there has been no deferred components in FY20. Each executive KMP also has specific personal objectives agreed at the beginning of the year that align to the strategic goals of Bapcor. All executive KMP have personal objectives relating to safety, talent and succession, team member development, team member engagement, strategic growth and corporate governance. Given their area of accountability other personal objectives include new store and same store sales growth, customer satisfaction, own brand development, improvements in IT systems and investor relations. 52 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.1.2 Key Questions continued Key Questions Did the Board exercise discretion when determining the payments under the STI plan? Our Approach Yes. The Board exercised its discretion reducing the threshold at which payment for STI financial targets are made from 95% to 75% of the original target given the unexpected economic impacts of the COVID-19 pandemic in Australia, New Zealand and Thailand, and the bushfires and drought in Australia. In addition, the Chief Financial Officer, Greg Fox, was deemed to be a good leaver given his significant contribution to the growth and success of Bapcor and his FY20 STI payment will be made. Also, as in prior financial years, the STIs are structured to include personal objectives that contribute to the longer-term strategy and sustainability of the business and may be non-financial or not numeric in nature. As such, some judgement is required by the Board to assess the achievement of these personal objectives. What were the FY20 STI performance measures for KMP’s? Section 14.5.1 and 14.5.2 of this report provides more details of the performance measures for FY20. How did the Board establish the STI performance measures for FY20? How did the Board determine the 75% threshold that was applied in FY20 for STI’s? The Board has again determined that the focus of the executive team should be on growing NPAT for the CEO and CFO and Revenue and EBIT for all other executive KMP as well as targets for reducing working capital. Therefore 70% of the target STI award is tied to financial measures. Any above target STI awards are entirely based on the financial measures. Achievement of the non-financial measures aligns to the strategy and underpins the future growth and sustainability of the Company. NPAT target took into consideration analysts’ consensus expectations at the start of the financial year. Refer to 14.5.2 for more details. The unexpected and unforeseen impact of the bushfires and the COVID-19 pandemic contributed to analysts’ consensus forecasts of Bapcor’s NPAT reducing to approximately 75% of their original forecasts for FY20. The Board considered that this was a reasonable proxy for market expectations, and based the threshold for STI’s on this expectation. The Board did not amend the NPAT target for FY20 that was set at the beginning of the financial year. Did Bapcor receive any government incentives or support during COVID-19 – e.g. Jobkeeper In Australia no Bapcor business has received any subsidy such as Jobkeeper or benefit such as deferred payments of tax except for a Queensland payroll tax reimbursement. No benefits have been received in Thailand. In New Zealand Bapcor received a wage subsidy of $3.9M, of which 100% was paid to team members. In addition, Bapcor topped up the wages of New Zealand team members to pre-COVID levels although there was no obligation to do so. This ensured we retained our talented team allowing the New Zealand business to re-open swiftly once restrictions were lifted. During the twelve week period the subsidy was applicable to, Bapcor paid an additional $4.1M to team members. The subsidy did not contribute to NPAT. Bapcor NZ’s revenue fell by up to 80% during the lockdown. Yes. Under the rules of the plan the component of the STI that is above target is deferred for twelve months. In FY20, there was no achievement above target and therefore no deferred amounts. There are also no deferred amounts from FY19 requiring payment in August 2020. Is there provision for deferral of STI and what if any has been deferred? 53 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.1.2 Key Questions continued Key Questions What LTI grants have vested in FY20? What was the basis for the vesting of those grants? Did the Board exercise any discretion in the vesting of LTIs in FY20 given the economic impacts of COVID-19 and other events? What is the performance period for the LTIs? How does the company determine the number of LTI Performance Rights to grant? What clawback provisions are in place? Did the Board make any one-off payment to executive KMPs in FY20? Has the company made any loans to the executives in FY20? Are any STI’s paid to other team members? Our Approach The three year tranche of the LTI granted to 9 executives on 4 December 2017 being 76.2% of the total number granted, was independently tested by a third party against the company’s FY20 TSR and EPS performance. The extent to which they vested is as follows: Relative TSR Rights: Bapcor’s TSR performance ranked at the 64.2% percentile of the comparator group. This resulted in 78.4% of TSR rights vesting. Compound annual growth rate (‘CAGR’) of EPS: Bapcor’s CAGR of EPS was 7.6%. This resulted in 20.6% of the tranche vesting. Shares from vested Performance Rights remain under a restriction on sale for a further twelve months, reflecting further alignment of executive and shareholder interests. No. As a long-term plan designed to achieve long-term outcomes for investors and consistent with the approach since the IPO, the Board has not exercised any discretion or made any amendments to the vesting of LTIs. The Chief Financial Officer, Greg Fox, was deemed to be a good leaver given his significant contribution to the growth and success of Bapcor and will receive the LTI which vested in FY20. LTI opportunity is subject to a performance period of three years with a further twelve month restriction on sale for vested LTI. The Board continues with the view that three years is the appropriate performance period to drive a sustainable business, grow shareholder value and retain talented executive KMP. The weighted average face value of shares is used to calculate the number of LTI Performance Rights granted. The Board has absolute discretion where it is determined a change in circumstances has occurred including material financial misstatements or some other event or series of events. Further, the Board has absolute discretion where a participant has engaged in fraudulent or dishonest conduct, or has engaged in or is being investigated for conduct which may adversely affect Bapcor’s financial position or reputation. No. There were no one-off payments to executive KMPs in FY20. No loans were provided to any executive KMP in FY20. Bapcor has a range of incentive plans to encourage and reward performance. These incentive plans apply to all levels of the organisation. In FY20 Bapcor will make a discretionary payment to acknowledge all eligible team members contribution during the challenging events in FY20. 54 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.2 Remuneration governance l s r e d o h e k a t s y e k r e h t o d n a s r e d o h e r a h s h t i w n o i t a t l u s n o C l Bapcor Board • Overall accountability for Bapcor’s remuneration approach • Determines remuneration quantum and structure for executive and non-executive KMP after considering recommendations made by the NRC • Has ultimate discretion in determining the outcomes of incentive arrangements to ensure anomalous outcomes do not arise. This discretion may be exercised for both positive and negative adjustments to incentive outcomes to ensure these outcomes reflect the experience of shareholders. • Has discretion to exercise clawback provisions should any material financial misstatements arise. Nomination and Remuneration Committee (NRC) Meets regularly to: • understand and review the effectiveness of the remuneration arrangements • review the remuneration framework to ensure it remains fit for purpose • make recommendations to the Board on the structure of the remuneration framework • make recommendations to the Board regarding in fixed remuneration, STI awards and outcomes, and LTI awards and outcomes • has absolute discretion in recommending to the Board the outcomes of incentive arrangements to ensure anomalous outcomes do not arise. This discretion may be exercised for both positive and negative adjustments to incentive outcomes to ensure these outcomes reflect the experience of shareholders. • assess executive KMP performance • NRC’s charter can be found at www.bapcor.com.au/about/ governance. External Advisors • NRC seeks external advice and assistance from independent remuneration consultants as it considers appropriate. • Protocols are in place with the Board and NRC to ensure the engagement of remuneration advisors is independent of management and is able to be carried out free of any undue influence • During FY20 the NRC engaged Godfrey Remuneration Group to provide benchmarking reports in respect of executive KMP remuneration and NED fees. This resulted in Godfrey Remuneration Group providing remuneration recommendations as defined in section 9B of the Corporations Act 2001 in respect of the quantum and mix of the executive KMP remuneration and in respect of the NED fees. Godfrey Remuneration Group was paid $35,000 excluding GST and disbursements for these services. Guerdon Associates provided during FY20 a review of the remuneration plans with a focus on the impact of COVID-19, and were paid $23,550 excluding GST and disbursements for their services. 55 Bapcor Limited Annual Report 2020FINANCIAL REPORTING DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.3 Remuneration framework 14.3.1 Executive remuneration structure Fixed Annual Reward (FAR) + Total Remuneration = Short Term Incentive (STI) Purpose Attract, motivate and retain high calibre talent Motivate and reward performance in current year Method of payment Cash and benefits Annual cash payment Payment for achievement beyond target deferred for twelve months + Long Term Incentive (LTI) Reward long term sustainable performance that delivers shareholder returns Performance Rights which do not attract dividends or voting rights Vest after three years with sale of vested shares restricted for twelve months Structure Measures Base salary, superannuation and non-cash benefits such as motor vehicles 70% financial targets 30% personal objectives (which may be non-financial) 50% TSR 50% EPS Annual performance review and independent market based remuneration benchmarks Financial targets are NPAT for CEO/CFO and EBIT for all executive KMP. Revenue and working capital targets apply to all KMP. Personal objectives include safety, team, talent, strategic growth, governance and investor relations. Drives growth as financial targets are set at a growth level to the previous year and personal targets reward the actions that build a sustainable business TSR > 50% companies in comparable peer group Compound annual growth rate of EPS ≥ 7.5% with maximum vesting at 15%. Motivates executives to take a long-term view of company performance and links reward the investors’ experience. Link to strategy and performance Business complexity requires highly skilled executives to deliver performance that meets shareholder expectations 14.3.2 FY20 remuneration mix FY20 EXECUTIVE KMP POTENTIAL MAXIMUM PAY MIX CEO 35% 35% 30% Fixed remuneration Maximum STI Other KMP 45% 33% 22% Maximum LTI 0% 20% 40% 60% 80% 100% 56 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.4 Key management personnel As defined by AASB 124 Related Party Disclosures, Bapcor’s Key Management Personnel (‘KMP’) are those leaders with the authority and responsibility for planning, directing and controlling the activities of the consolidated entity, directly or indirectly. This includes non-executive and executive directors as well as executive leaders. The KMP during FY20 and their positions are those in the following table. Name Non-executive Directors (‘NED’) Andrew Harrison Therese Ryan Margaret Haseltine Jennifer Macdonald Executive Director Darryl Abotomey Executive KMP Greg Fox Craig Magill Martin Storey Mathew Cooper Steve Drummy Tim Cockayne Jeff Nicol Alison Laing Position Board Chair Member Audit and Risk Committee Member Nomination and Remuneration Committee Chair Nomination and Remuneration Committee Member Audit and Risk Committee Member Nomination and Remuneration Committee Member Audit and Risk Committee Chair Audit and Risk Committee Member Nomination and Remuneration Committee Managing Director and Chief Executive Officer Chief Financial Officer and Company Secretary (resigned 2 July 2020)* Executive General Manager, Burson Trade Executive General Manager, Bapcor NZ Executive General Manager, Specialist Wholesale – Mechanical Executive General Manager, Specialist Wholesale – Engine Management Executive General Manager, Retail Chief Operating Officer (appointed 8 July 2019) Executive General Manager, Human Resources * On Greg Fox’s resignation, Noel Meehan was appointed Chief Financial Officer and Company Secretary and as such was not considered a KMP during FY20 but will be included from FY21. 57 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.5 FY20 executive remuneration The following sections explain FY20 executive KMP remuneration: 14.5.1 Financial performance over the last six years 14.5.2 STI performance metrics and outcomes 14.5.3 STI payment, deferral and clawback 14.5.4 LTI plan 14.5.5 LTI outcomes 14.5.1 Financial performance over the last six years Bapcor’s financial performance over the last six years will assist readers to understand the context of the remuneration framework, management’s performance and how the Company’s performance impacts the remuneration outcomes for the executive KMP. The table below shows measures of Bapcor’s financial performance over the six complete financial years since it listed on 23 April 2014. The table excludes the impact of AASB 16 Leases. Revenue from continuing operations $m Increase/(decrease) in revenue Pro-forma NPAT from continuing operations $m2,3 Increase/(decrease) in pro-forma NPAT Pro-forma EPS from continuing operations (cents)1,3 2015 375.3 9.9% 23.1 19.7% 13.62 Increase/(decrease) in pro-forma EPS – TERP adjusted 19.1% Statutory NPAT $m2 19.5 2016 685.6 82.7% 43.6 88.7% 17.85 31.0% 43.6 65.8 50.9% 24.40 36.7% 64.0 Increase/(decrease) in statutory NPAT 1,581.6% 123.4% 47.0% Statutory EPS – TERP adjusted (cents)1 13.62 Increase/(decrease) in statutory EPS – TERP adjusted 19.1% Dividend declared (cents per share) Increase/(decrease) in dividend declared Share price 30 June $ 8.7 n/a 3.40 17.85 31.0% 11.0 23.76 33.1% 13.0 26.4% 18.2% 5.52 5.49 2017 2018 2019 2020 1,013.6 1,236.7 1,296.6 1,462.7 47.8% 22.0% 86.5 31.6% 30.97 26.9% 94.7 47.8% 33.88 42.6% 15.5 19.2% 6.55 4.8% 94.3 9.0% 33.45 8.0% 97.0 2.4% 12.8% 89.1 (5.5%) 30.36 (9.2%) 79.2 (18.4%) 34.40 26.97 1.5% 17.0 9.7% 5.58 (21.6%) 17.5 2.9% 5.90 5.7% Increase/(decrease) in share price 60.4% 62.4% (0.5%) 19.3% (14.8%) Market capitalisation $m 30 June 746.9 1,357.1 1,529.7 1,835.6 1,581.8 2,002.5 1. Where appropriate, EPS has been adjusted to take into consideration the impact of rights issues performed and the impact on the number of shares as per AASB 133 Earnings Per Share 2. NPAT attributable to members of Bapcor Limited 3. Excludes the impact of AASB 16 Leases 14.5.2 FY20 STI performance metrics and outcomes Participants in the STI Plan have a target cash payment that is a percentage of their fixed annual remuneration with financial and non-financial targets established by the Board each year. Actual STI payments may be below, at or above that target depending on the achievement of these financial and non-financial objectives. Given the economic impact of the COVID-19 pandemic and other events in FY20 such as bushfires and drought, the Board has exercised its discretion and reduced the threshold for payment of financial objectives from 95% to 75% of the target performance. This has been done to recognise the achievement and commitment of executive KMP in delivering results for all stakeholders during unprecedented conditions. 70% of the target STI opportunity of the executive KMP is contingent on meeting financial objectives of a combination of annual Revenue, NPAT, EBIT, working capital to sales percentage and inventory to sales percentage. The FY20 objectives set by the Board were at levels higher than the previous year’s achievement. The remaining 30% of target STI is subject to meeting other annual personal objectives which are non-financial measures. The unexpected and unforeseen impact of the bushfires and the COVID-19 pandemic contributed to analysts’ consensus forecasts of Bapcor’s NPAT reducing to approximately 75% of their original forecasts for FY20. The Board considered that this was a reasonable proxy for market expectations, and based the threshold for STI’s on this expectation. The Board did not amend the NPAT target for FY20 that was set at the beginning of the financial year – which took into consideration analysts’ consensus at that time. 58 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 The Board considered whether the FY20 STI payments should be deferred in part or full however determined that as no KMP earned above the target incentive that they would not be deferred which is consistent with Bapcor’s policy. Type of performance measure and weighting at target Financial 70% KMP Performance measure FY20 performance CEO and CFO is Group Revenue, Group EBIT, Group NPAT and working capital to sales percentage. Other Group executives is Revenue, Group EBIT and working capital to sales percentage. Business segment executives is Revenue and EBIT of the business segment they lead and Group EBIT. All KMP have targets for reducing working capital mainly measured through inventory to sales percentage. The Group target was set higher than the FY19 actual result and was set in the context of the business strategy and growth objectives. The target took into consideration analysts’ consensus for Bapcor at that time. Pro-forma NPAT for FY20 was $89.1M, a 5.5% reduction over FY19. Pro-forma EBIT of $138.7M was down by 6.0% compared to FY19. EBIT by business segment varied as detailed in the financial report. Group working capital to sales percentage reduced to 17.9% from 21.0% in the prior year. Inventory to sales percentage was reduced in most of the business segments. A detailed explanation of the group’s achievements in the non-financial areas are contained in section 5 of the Directors’ Report. Percentage of FAR CEO 38.5% 83.5% CFO 35% 60% Other KMP 35% 60% Target Maximum There are a range of metrics across the following criteria that are applicable to the executive KMP depending on their role and accountabilities, several objectives are shared across all executive KMP: • Safety: various objectives including the development and introduction of a new Work, Health and Safety Policy, including a safety management system to underpin the policy. The introduction of a safety risk registers in each business with action items and quarterly review of the progress on action items. A reduction in the LTIFR (actual was down on prior year by 9%). Introduction of a Wellbeing program, including an Employee Assistance Program. Implementation of improved and reliable safety metrics was a core focus and will be for the coming year. • People: with objectives requiring individual and team development, engagement strategies, talent management and succession planning, and training and development outcomes. A group wide intranet was also launched as a focal point for information to team members. A major target was the introduction of “Bapcor’s Values.” • Customer engagement: including objectives to measure and improve customer sentiment. Significant improvements were made as evidenced by independent customer surveys undertaken during the year. • Strategic acquisitions: with objectives requiring the identification of suitable businesses for acquisition, implementation of the business case and results regarding achieving the business case. A number of acquisitions were successfully completed during the year, with the major one being the acquisition of Truckline in December 2019. This strategic expansion positions Bapcor in the heavy commercial truck market and expands our core truck parts business so we now cover all forms of vehicles on road – the only business in Australia that covers all facets. The Truckline acquisition is already exceeding the targets set at time of acquisition. Personal (which may be non-financial) 30% 59 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 Type of performance measure and weighting at target Personal (which may be non-financial) 30% KMP Performance measure FY20 performance A detailed explanation of the group’s achievements in the non-financial areas are contained in section 5 of the Directors’ Report. • Organic growth: for each business segment objectives are set to deliver organic growth and market share gains. The main measure of same store sales was exceeded in FY20 with Burson trade being over 6% for the year and Autobarn 9.5%. NZ was behind the prior year due to COVID-19 lockdowns. • New stores: the number of new stores required in business units to achieve growth targets. These targets were impacted in FY20 by COVID-19 with the targets not being achieved. • Systems and processes: with objectives focused on the long term sustainability of the company in areas such as information technology and logistics. In this area key targets were around implementation of a retail “point of sale” system to replace the 25 year old legacy system; upgrade of the central computing infrastructure to ensure reliability; achieve savings on telecommunications costs. • Compliance, governance and risk management: requiring processes and procedures to ensure achievement of compliance requirements and the identification and management of risk Continued • Major projects: for the achievement of milestones, deliverables and benefits of major projects such as the Warehouse Management System (WMS) implementation into Nunawading warehouse and achieve efficiency gains as well as prove them system for the new Victorian central DC. The new Victorian DC at Tullamarine is our other significant project. It will feature a state of the art automated storage system and will consolidate over 10 warehouses into one highly efficient facility, resulting in significant reductions in operating costs and inventory holdings. This project needs to be delivered effectively, efficiently and to achieve the operation efficiency improvements.feature a state of the art automated storage system and will consolidate over 10 warehouses into one highly efficient facility, resulting in significant reductions in operating costs and inventory holdings. This project needs to be delivered effectively, efficiently and to achieve the operation efficiency improvements. 60 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 The following table shows the actual STI outcomes for each of the executive KMP for FY20: KMP D Abotomey G Fox C Magill M Storey M Cooper S Drummy T Cockayne J Nicol A Laing Total Target STI as a % of FAR Maximum STI as a % of FAR Actual STI as a % of maximum STI forfeited as a % of maximum Actual STI awarded $ Deferred STI $ 55% 50% 50% 50% 50% 50% 50% 50% 50% 100.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 45.2% 57.2% 64.9% 51.3% 52.4% 53.9% 58.9% 53.1% 54.7% 54.8% 42.8% 35.1% 48.7% 47.6% 46.1% 41.1% 46.9% 45.3% 593,070 302,438 280,025 159,216 192,568 175,738 198,902 163,207 155,762 2,220,926 - - - - - - - - - - The STI performance measures are tested after the end of the relevant financial year. The resulting figures may differ from the amounts shown above. 14.5.3 STI payment, deferral and clawback Where STI awards have been achieved, payments under the STI Plan are made after the release of full year financial results to the ASX with the exception of any portion of an award above the target up to the maximum award. The amount of any STI award above target is deferred for a period of twelve months. Any deferred amount is payable to the executive after the release of the year ending 30 June 2021 financial results. In FY20 there were no deferred STI amounts. All STI payments are in cash. Awards are subject to claw back for any material financial misstatements that are subsequently determined in respect of Bapcor’s performance for the relevant period. The Board has absolute discretion where it is determined a change in circumstances has occurred including material financial misstatements or some other event or series of events. The Board also has absolute discretion where a participant has engaged in fraudulent or dishonest conduct, or has engaged in or is being investigated for conduct which may adversely affect Bapcor’s financial position or reputation. 61 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.5.4 LTI plan The LTI is contingent on company performance over a three year performance period. Payments are rights to acquire shares (‘Performance Rights’). Performance Rights are granted at the start of the performance period. Vesting of Performance Rights varies with the extent that performance requirements have been met. On vesting, the Performance Rights entitle the executive to receive fully paid shares in the company at no cost to the participant. The key terms of the LTI under which grants were made in FY20 and prior years are as follows: Administration Who participates? What is the LTI opportunity? Performance Rights The LTI is administered by the Board. In FY20 executive KMP who were employed at the commencement of the financial year were invited to participate. The LTI opportunity is the grant of Performance Rights that will vest on satisfaction of the applicable performance, service or other vesting conditions specified in the Offer at the time of the grant. The Board sets the terms and conditions on which it will offer Performance Rights under the LTI, including the vesting conditions, at the time of the offer. The LTI opportunity granted to participants in FY20 provides for the Performance Rights, upon satisfaction of the vesting conditions, to convert into a fully paid ordinary share for each vested right. The Performance Rights do not carry any voting rights or dividend entitlements. How was the number of Performance Rights determined? For the grants made in FY20, the number of Performance Rights was determined by dividing the executive’s LTI value by the face value of a Bapcor share at the time of grant. Performance period Performance is assessed over a performance period specified at the time of the grant. The performance period for the LTI opportunities granted in FY20 are set out following this table. Performance measures Each executive is granted two tranches of Performance Rights. Shares Participation in new issues Limitations Trustee Quotation Amendments 50% of the total grant value of Performance Rights granted to the executive under each tranche are subject to the satisfaction of a TSR performance hurdle for the relevant performance period (‘TSR Rights’), and 50% are subject to satisfaction of an EPS performance hurdle for the relevant performance period (‘EPS Rights’). These are described in more detail in the section following this table. Fully paid ordinary shares allocated on conversion of Performance Rights rank equally with the other issued ordinary shares and carry the same rights and entitlements, including dividend and voting rights. Shares may be issued by Bapcor or acquired on or off market by a nominee or trustee on behalf of Bapcor, then transferred to the participant. Performance Rights granted in FY20 and earlier do not confer on a participant the right to participate in new issues of shares or other securities in Bapcor, including by way of bonus issues, rights issues or otherwise. The number of shares to be received by participants on the conversion of the Performance Rights must not exceed 5% of the total number of issued shares over a five year period. Bapcor may appoint a trustee for the purpose of administering the LTI, including to acquire and hold shares, or other securities of the company, on behalf of participants or otherwise for the purposes of the LTI. Performance Rights are not quoted on the ASX. Bapcor will apply for official quotation of any shares issued under the LTI, in accordance with the ASX Listing Rules, and having regard for any disposal restrictions in place under the LTI. To the extent permitted by the ASX Listing Rules, the Board retains the discretion to vary the terms and conditions of the LTI. This includes varying the number of Performance Rights or the number of shares to which a participant is entitled upon a reorganisation of the capital of Bapcor. No discretion to vary LTI terms and conditions was made in FY20 or prior years. 62 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 Clawback Other terms The Board has absolute discretion where it is determined a change in circumstances has occurred including material financial misstatements or some other event or series of events. Further, the Board has absolute discretion where a participant has engaged in fraudulent or dishonest conduct, or has engaged in or is being investigated for conduct which may adversely affect Bapcor’s financial position or reputation. Shares acquired on the conversion of vested Performance Rights cannot be sold for a period of twelve months from vesting date. Performance Rights cannot be transferred, encumbered or hedged. The LTI contains other terms relating to the administration, variation, suspension and termination of the LTI. In relation to FY20 an offer to participate was made to 9 of Bapcor’s executive KMPs. These allocated Performance Rights have a performance period ending 30 June 2022 at which time the performance hurdles are tested. A summary of the terms are in the following table: Grant date 6/09/2019 1/11/2019 Performance hurdle Relative TSR EPS Relative TSR EPS Performance period 1/07/2019 to 30/06/2022 1/07/2019 to 30/06/2022 Test date Expiry date Quantity granted Exercise price 30/06/2022 16/09/2034 30/06/2022 16/09/2034 177,794 177,794 104,780 104,780 Nil Nil Fair value at grant date $5.64 $5.64 $5.64 $5.64 Other conditions Restriction on sale to 30/06/2023 Restriction on sale to 30/06/2023 Share price on valuation date Volatility Dividend yield Risk free rate $6.78 25.52% 2.51% 0.83% Relative total shareholder return hurdle $7.04 25.21% 2.41% 0.79% Fifty per cent of the Performance Rights granted to a participant will vest subject to a TSR performance hurdle that assesses performance by measuring capital growth in the share price together with income returned to shareholders, measured over the performance period against a Comparator Group of companies. The Performance Rights will vest by reference to Bapcor’s TSR performance ranking against this Comparator Group of companies, as follows: Bapcor’s TSR relative to the Comparator Group over the performance period Percentage of TSR Rights vesting Less than 50th percentile Equal to 50th percentile Nil 50% Greater than 50th percentile and less than 75th percentile Pro-rata straight-line vesting Equal to or greater than 75th percentile 100% TSR for Bapcor and the companies in the Comparator Group will be calculated as follows: • TSR will be measured between 30 June 2019 and 30 June 2022 (the Performance Period); • For the purpose of this measurement, dividends will be assumed to have been re-invested on the ex-dividend date; • Tax and any franking credits (or equivalent) will be ignored; and • For the purpose of this measurement, the share price of Bapcor and the Comparator Group companies will be averaged over the ten trading days up to and including 30 June at the start and end date of the Performance Period. 63 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 The Comparator Group for the FY19 LTI is set out below. The Board has the discretion to adjust the Comparator Group to take into account events including but not limited to takeovers, suspensions, mergers or demergers that might occur during the Performance Period. ASX Code Company Name APE ARB BGP BRG CKF CTD DMP FLT GUD HVN IEL IVC JBH KGN KMD PMV RBD SLK SUL TPW WEB AP Eagers ARB Corporation Briscoe Group Australasia Breville Group Collins Foods Corporate Travel Management Ltd Domino's Pizza Enterprises Ltd Flight Centre Travel Group Ltd GUD Holdings Ltd Harvey Norman Holdings Ltd IDP Education Ltd InvoCare Ltd JB Hi-Fi Ltd Kogan.com Ltd Kathmandu Holdings Premier Investments Restaurant Brands New Zealand SeaLink Travel Group Super Retail Group Temple & Webster Group Webjet Ltd Earnings per share growth Fifty per cent of the Performance Rights granted to a participant will vest by reference to an EPS performance hurdle that measures the basic EPS on a normalised basis over the performance period. Each tranche of Performance Rights subject to an EPS hurdle will vest as follows: • The Board has determined that the EPS hurdle will be based on a compound annual growth rate (‘CAGR’) of basic EPS of between 7.5% and 15%, respectively, over the Performance Period. • The starting point for these EPS rights is the FY19 actual statutory EPS of 34.4 cents per share. • Basic EPS is calculated in accordance with AASB 133 Earnings Per Share. • The proportion of the EPS Rights that vest at the end of the Performance Period will be determined as follows: Bapcor's compound annual EPS growth over the performance period Percentage of EPS Rights Vesting Less than 7.5% 7.5% Nil 20% Greater than 7.5% and less than 15% Pro-rata straight-line vesting Equal to or greater than 15% 100% If vesting conditions are met, Performance Rights granted in FY20 will convert into fully paid ordinary shares of the company. Shares that are allocated in respect of each tranche will be subject to a restriction on sale for twelve months from vesting of the Performance Rights. 14.5.5 LTI outcomes During FY20 the following Performance Rights were independently tested by third parties: The LTI granted to 5 executives on 4 December 2017, was independently tested by a third party against the company’s FY20 TSR and EPS performance. The extent to which they vested is as follows: 64 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 Relative TSR Rights: Bapcor’s TSR performance ranked at the 64.2 percentile of the comparator group. This resulted in 78.4% of the tranche vesting. Compound annual growth rate (‘CAGR’) of EPS: Bapcor’s CAGR of EPS was 7.6%. This resulted in 20.6% of the tranche vesting. The LTI granted to the CEO on 4 December 2017, was independently tested by a third party against the company’s FY20 TSR and EPS performance. The extent to which they vested is as follows: Relative TSR Rights: Bapcor’s TSR performance ranked at the 64.2 percentile of the comparator group. This resulted in 78.4% of the tranche vesting. CAGR of EPS: Bapcor’s CAGR of EPS was 7.6%. This resulted in 20.6% of the tranche vesting. Shares from vested Performance Rights remain under a restriction on sale for a further twelve months, reflecting further alignment of executive and shareholder interests. 14.6 Cash and realisable remuneration (non-statutory) The following table shows the total cash remuneration received by executive KMP in respect of financial year. The total cash payments received are made up of fixed remuneration inclusive of superannuation and benefits and the amount of the FY20 STI award that is not deferred and is paid in August 2020. The table also includes the value of previous years’ deferred STI and LTI awards that vested during FY20 and became realisable. These values differ from the values in the table in section 14.7.1 that shows the accounting expense for both vested and unvested awards. The table does not show values for vested LTI that are not realisable because they remain under restriction from sale for twelve months after vesting. Executive KMP Fixed remuneration1 $ FY20 cash STI2 $ Total cash in respect of FY20 $ D Abotomey 1,251,000 593,070 1,844,070 G Fox C Magill M Storey M Cooper S Drummy T Cockayne J Nicol A Laing Total 671,000 547,000 393,000 467,000 421,000 429,000 391,000 362,000 302,438 280,025 159,216 192,568 175,738 198,902 163,207 155,762 973,438 827,025 552,216 659,568 596,738 627,902 554,207 517,762 4,932,000 2,220,926 7,152,926 Previous year awards that vested during FY20 Prior year deferred STI received3 $ Vested and unrestricted LTI4 $ Total received and realisable during FY20 $ - - - - - - - - - - 663,303 449,753 262,450 - 249,891 - - - - 2,507,373 1,423,191 1,089,475 552,216 909,459 596,738 627,902 554,207 517,762 1,625,397 8,778,323 1. Fixed remuneration is the aggregate of cash salary, superannuation and fringe benefits and has been adjusted for the term of the KMP within the financial year. This includes the voluntary reductions taken by the KMP during the year. 2. FY20 cash STI is the amount accrued and payable in respect of FY20 STI opportunity. It is the cash amount to be paid in August 2020. It will differ to the amount in section 14.7.1 as it doesn’t include any adjustment relating to prior year under or over accrual. 3. There is no prior year deferred STI. 4. Vested and unrestricted LTI is the value of the vested LTI on the day it is no longer under restriction from sale. The value is the closing share price on the date the LTI is no longer subject to restriction from sale which was $6.27 per share. 14.7 Statutory details of remuneration The statutory remuneration disclosures for the year ended 30 June 2020 are detailed below under the following headings and are prepared in accordance with Australian Accounting Standards (AASBs). 14.7.1 Remuneration of KMP 14.7.2 Service agreements 14.7.3 NED remuneration 14.7.4 Share-based compensation 14.7.5 Equity instrument disclosures relating to KMP 14.7.6 Total shares under option or right to KMP 14.7.7 Loans to KMP 65 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 n o i t a r e n u m e r f o e g a t n e c r e P k s i r t a d n a d e x fi - k s i r t A - k s i r t A I T L % I T S % d e x F i % l a t o T $ d e s a b e r a h S s t n e m y a p m r e t g n o L s t fi e n e b y t i u q E d e l t t e s $ g n o L i e c v r e s e v a e l $ n o i t a u n n a r e p u S $ 2 s u n o B $ - - - - % 4 3 % 6 2 % 2 2 % 7 1 % 3 2 % 0 1 % 0 1 % 1 1 % 2 2 - - - - % 1 2 % 2 2 % 6 2 % 5 2 % 2 2 % 7 2 % 8 2 % 5 2 % 3 2 % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 % 5 4 % 2 5 % 2 5 % 8 5 % 5 5 % 3 6 % 2 6 % 4 6 % 5 5 , 6 1 0 0 7 2 0 4 0 7 3 1 , 2 7 4 , 7 2 1 0 4 0 7 3 1 , - - - - - - - - 3 0 0 , 1 2 2 8 2 , 2 1 5 2 4 , 1 1 2 8 2 , 2 1 - - - - 4 2 8 , 3 3 8 , 2 0 1 8 , 5 5 9 8 3 6 , 0 2 0 0 0 , 5 2 0 7 0 , 3 9 5 6 0 3 , 9 3 2 , 1 1 1 6 , 9 2 7 1 9 8 , 4 2 1 - 5 0 5 , 2 6 3 , 1 8 4 8 , 4 5 3 8 7 9 , 3 9 0 , 1 4 4 5 , 6 3 2 0 0 4 , 1 1 3 3 2 , 9 9 2 2 , 0 7 8 8 5 8 7 9 1 , 6 2 3 , 0 9 6 2 2 9 , 1 7 1 7 5 , 0 2 7 3 1 4 , 4 4 6 6 4 8 9 6 6 , 2 0 4 , 4 7 9 8 7 , 7 6 , 1 6 7 9 4 1 6 1 8 7 , 0 0 9 , 6 0 5 1 , 7 3 8 4 , 6 3 8 9 , 5 3 0 0 , 1 2 3 0 0 , 1 2 2 0 0 , 6 1 3 0 0 , 1 2 3 0 0 , 1 2 3 0 0 , 1 2 3 0 0 , 1 2 3 0 0 , 1 2 8 3 4 , 2 0 3 , 5 2 0 0 8 2 7 2 9 , 1 8 1 8 6 5 , 2 9 1 8 7 8 , 3 8 1 2 0 9 , 8 9 1 7 0 2 , 3 6 1 2 6 7 , 5 5 1 6 1 8 , 2 7 6 3 7 1 , 7 4 5 1 9 7 , 6 0 4 , 4 8 9 0 5 4 3 2 6 , 6 0 4 4 1 1 , 9 1 4 1 3 9 , 5 8 3 7 3 3 7 3 3 , 1 7 8 , 6 8 2 , 0 1 5 2 8 , 3 3 2 , 2 3 0 6 , 5 7 5 1 0 , 5 4 2 7 7 7 , 1 5 2 , 2 1 5 6 , 0 8 4 , 5 h s a C d n a y r a a s l 2 s e e f $ , 3 1 0 9 4 2 8 5 7 , 4 2 1 7 4 0 , 6 1 1 8 5 7 , 4 2 1 l d a n o d c a M J e n i t l e s a H M n o s i r r a H A n a y R T 0 2 0 2 D E N r o t c e r i D e v i t u c e x E y e m o t o b A D P M K r e h t O l l i g a M C y e r o t S M x o F G r e p o o C M y m m u r D S e n y a k c o C T 3 l o c N J i i g n a L A l a t o T t s o P s t fi e n e b t n e m y o p m e l 1 s t fi e n e b m r e t t r o h S P M K f o n o i t a r e n u m e R 1 . 7 4 1 . 66 o t p u y b s e e f d n a y r l a a s e s a b r i e h t d e c u d e r y l i r l ’ a t n u o v s P M K s h t n o m o w t r o F . i d a p h s a c l a u t c a s u s r e v e t a m i t s e l a u r c c a r o f e c n a i r a v r a e y r o i r p y n a s e d u c n l i s u n o B . e v a e l l a u n n a d e u r c c a s e d u c n l i s e e f d n a y r l a a s h s a C . 0 2 Y F n i P M K o t s t fi e n e b y r a t e n o m - n o n o n e r e w e r e h T . 1 . 2 . I 9 1 - D V O C o t e u d % 0 3 . l 9 1 0 2 y u J 8 d e t n o p p a s a w i l i o c N J . 3 Bapcor Limited Annual Report 2020FINANCIAL REPORTING DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 - - - - I T L % - k s i r t A - k s i r t A n o i t a r e n u m e r f o e g a t n e c r e P k s i r t a d n a d e x fi I T S % d e x F i % l a t o T $ n o i t a u n n a r e p u S $ 2 s u n o B $ d e s a b e r a h S s t n e m y a p m r e t g n o L s t fi e n e b y t i u q E d e l t t e s $ g n o L i e c v r e s e v a e l $ t s o P s t fi e n e b t n e m y o p m e l 1 s t fi e n e b m r e t t r o h S - - - - % 0 0 1 % 0 0 1 % 0 0 1 % 0 0 1 9 9 7 , 2 9 2 0 0 0 0 4 1 , 2 1 3 , 0 3 1 6 3 8 , 5 1 1 - - - - - - - - 1 3 5 , 0 2 6 4 1 , 2 1 9 7 2 , 1 1 4 6 7 9 , - - - - h s a C d n a y r a a s l 2 s e e f $ 8 6 2 , 2 7 2 4 5 8 7 2 1 , 3 3 0 9 1 1 , 2 7 0 , 6 0 1 % 0 3 % 0 2 % 0 5 5 5 3 , 6 9 6 , 2 9 9 3 , 9 0 8 0 0 0 0 2 , 1 6 9 , 5 2 6 4 6 , 1 4 5 9 4 3 , 9 9 2 , 1 % 4 2 % 9 1 - % 0 1 - % 9 1 - % 2 2 - % 3 1 % 6 1 % 9 1 % 1 2 ) % 3 1 ( % 3 2 ) % 8 1 ( % 0 2 % 6 1 % 9 - % 6 1 % 0 2 % 7 5 % 0 6 % 3 1 1 % 7 6 % 8 1 1 % 1 6 % 4 8 % 9 6 % 0 0 1 % 1 7 % 4 6 8 1 9 , 8 6 1 , 1 0 6 6 , 9 7 2 1 1 8 , 8 3 9 6 5 0 , 4 9 - 3 0 2 , 9 7 1 9 0 4 , 4 2 4 5 0 7 0 4 , 4 0 4 7 1 1 , 8 9 6 , 9 8 7 8 3 6 , 1 9 1 1 3 7 , 1 9 5 9 5 2 , 3 8 1 3 2 , 1 3 5 1 9 4 , 4 5 5 - - 3 1 9 , 1 5 1 8 7 0 2 3 1 , - 3 3 0 , 8 6 3 0 8 9 8 , - - 4 7 0 , 1 1 1 9 9 , 8 3 1 4 , 2 1 9 4 7 , 5 3 3 , 2 1 1 0 , 6 6 1 2 , 1 2 9 8 , 5 8 0 4 , 5 1 2 3 , 1 2 1 3 5 , 0 2 7 1 2 , 8 1 8 3 8 , 8 4 4 8 , 6 3 9 7 , 5 1 6 3 7 0 1 , 0 1 1 , 7 1 2 2 4 , 3 9 9 3 , 5 1 1 2 3 , 1 2 0 7 5 , 1 2 2 9 6 1 , 7 9 1 ) 6 5 0 2 1 ( , 9 8 6 , 5 9 ) 0 2 1 , 1 2 ( 5 6 2 , 1 6 1 8 5 1 , 1 3 6 3 8 , 5 5 - 3 8 6 , 6 8 8 1 9 , 1 1 1 3 9 2 , 5 3 6 7 1 9 , 2 3 5 5 9 8 7 8 , 7 7 1 , 9 7 2 7 6 2 , 9 2 1 6 3 2 , 3 5 4 9 0 4 7 4 1 , 6 9 6 , 0 8 3 1 2 6 , 8 7 4 2 2 , 5 5 3 1 4 0 , 6 2 3 , 8 4 9 0 6 8 , 8 4 9 7 , 0 5 7 , 1 1 3 8 , 0 7 3 1 2 , 9 3 2 8 5 7 , 9 6 4 , 1 2 5 3 , 0 3 3 , 5 3 l d a n o d c a M J e n i t l e s a H M n o s i r r a H A n a y R T r o t c e r i D e v i t u c e x E D E N 9 1 0 2 y e m o t o b A D P M K r e h t O l l i g a M C l 5 y a D C 4 x o F G 6 l l e r b m u D P 5 y e r o t S M r e p o o C M 7 y m m u r D S 7 y e l l i T P 8 e n y a k c o C T 9 t t e r r a J G i g n a L A l a t o T r e p o o C M d n a l l e r b m u D P , l l i g a M C , x o F G , y e m o t o b A D f o s t n u o m a s u n o b e h T . i d a p h s a c l a u t c a s u s r e v e t a m i t s e l a u r c c a r o f e c n a i r a v r a e y r o i r p y n a s e d u c n l i s u n o B . e v a e l l a u n n a d e u r c c a s e d u c n l i s e e f d n a y r l a a s h s a C . 9 1 Y F n i P M K o t s t fi e n e b y r a t e n o m - n o n o n e r e w e r e h T . s e r u s o c s d l i r a e y l i a c n a n fi 8 1 0 2 e h t n i d e d u c n l i n e e b y d a e r l a d a h y e h t s a y l t c e r r o c n i d e d u c n l i e r e w s t n u o m a s u n o b d e r r e f e d y b e r e h w r o r r e n a o t e u d r a e y r o i r p m o r f d e t a t s e r n e e b e v a h . 8 1 0 2 r e b m e t p e S 1 r o t c e r i D e v i t u c e x E - n o N , t n e d n e p e d n I i n a s a d e t n o p p a s a w d a n o d c a M J l . 9 1 Y F g n i r u d y a p t u o h t i w e v a e l . s k e e w 3 2 k o o t d n a 8 1 0 2 r e b o t c O 3 2 d e n g s e r i l l e r b m u D P . i d e t n o p p a s a w e n y a k c o C T n e h w 9 1 0 2 l i r p A 9 2 n o P M K s a d e s a e c y e l l i T P . 9 1 0 2 y r a u r i b e F 2 2 d e t n o p p a s a w y m m u r D S . 9 1 0 2 l i r p A 0 3 n o P M K s a d e s a e c t t e r r a J G . 8 1 0 2 r e b o t c O 1 n o y e r o t S M y b d e c a p e r l s a w d n a 8 1 0 2 r e b m e t p e S 4 1 d e n g s e r y a D C l i . 9 1 Y F g n i r u d y a p t u o h t i w e v a e l . s k e e w 0 3 k o o t x o F G . 1 . 2 . 3 . 4 . 5 . 6 . 7 . 8 . 9 67 Bapcor Limited Annual Report 2020FINANCIAL REPORTING DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.7.2 Service agreements Remuneration and other terms of employment for KMP are formalised in service agreements. Details of these agreements are as follows. Name: Title: Darryl Abotomey Chief Executive Officer and Managing Director Agreement commenced: 1 May 2019 Term of agreement: 3 years (to 30 April 2022) Details: Other KMP Fixed annual remuneration was increased to $1,313,250 (inclusive of superannuation). This is adjusted annually. Fixed remuneration and incentives are based on independent advice from Godfrey Remuneration Group. Bapcor or Darryl may terminate his employment contract by giving the other twelve months’ written notice before the proposed date of termination, or in Bapcor’s case, payment in lieu of notice. Bapcor may terminate Darryl’s employment immediately and without payment in lieu of notice in certain circumstances including for any serious misconduct. Darryl’s employment contract also includes a restraint of trade period of twelve months. Each of Bapcor’s executive KMP is employed under an individual employment agreement. The provisions of the employment agreements include: Contract terms The commencement dates vary and all contracts are open ended. Fixed annual remuneration Review of FAR Variable pay Notice period Confidentiality Leave Restraint of trade Each executive’s contract specifies the FAR inclusive of superannuation, motor vehicle, non-cash benefits and FBT thereon. The amount for each executive is as set out earlier in this report. The executives’ FAR is subject to annual review with no obligation on the company to make changes. Each executive is eligible to participate in the company’s incentive arrangements that can vary from time to time. The maximum STI opportunity is 75% of the executive’s FAR and the maximum LTI opportunity is between 50% and 60% of the executive’s FAR. The executive KMP are subject to a three to six month notice period both by the company and by the executive. Each contract includes provisions requiring the executive to maintain the confidentiality of company information. Each contract provides for leave entitlements, as a minimum, in accordance with respective legislation Each contract includes restraint of trade provisions for a period after termination of employment. 68 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.7.3 NED remuneration Fees and payments to NEDs reflect the demands and the responsibilities of the directors. NED fees and payments are reviewed annually by the NRC. The NRC seeks to set fees at a level that will attract and retain high calibre NEDs who have a diverse range of experience, skills and qualifications to enable effective oversight of management and the company. The NRC may, from time to time, receive advice from independent remuneration consultants to ensure NED fees and payments are competitive, appropriate and in line with the market. The maximum aggregate fee pool of $1,200,000 was approved by shareholders at the AGM on 29 October 2018. The following fee policy for the Board and Committees took effect from 1 July 2019. NED type Chairman Member Board $ 288,400 113,300 Nomination and Remuneration Committee $ Audit & Risk Committee $ 20,000 10,000 20,000 10,000 All fee amounts are inclusive of compulsory superannuation obligations. Fees paid to NEDs in FY20 are set out in the following table. Fees are paid in cash and NEDs were not granted options or share rights. NEDs are not entitled to any payment on retirement or resignation from the Board. Directors may also be reimbursed for expenses properly incurred by the director in connection with the affairs of Bapcor including travel and other expenses whilst attending to company affairs. Note – for two months during FY20 NED’s voluntary reduced their base remuneration by 30% due to COVID-19. NED A Harrison M Haseltine T Ryan J Macdonald1 Financial year Board fees $ Committee fees $ Superannuation $ 2020 2019 2020 2019 2020 2019 2020 2019 249,013 272,268 98,636 100,720 98,640 100,457 98,640 83,342 - - 17,411 18,313 26,118 27,397 26,118 22,730 21,003 20,531 11,425 11,279 12,282 12,146 12,282 9,764 Total $ 270,016 292,799 127,472 130,312 137,040 140,000 137,040 115,836 1. J Macdonald was appointed as an Independent, Non-Executive Director 1 September 2018. Shares held by NEDs The Board has a policy of encouraging directors to increase their holding of shares in the company so that over time it reaches a minimum level of one times the base board fees. The current shareholding interests of the NEDs is set out in section 14.7.5. 69 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 l l d e t a u c a c e u a v r i l a f i f o s s a b e h t n o e r e w 7 1 Y F o t e d a m s t n a g r I T L . l i n s i t s e v o t t e y n o i t p o e h t l f o e u a v m u m n m e h t i i , d e fi s i t a s t o n e r a s n o i t i d n o c e c n a m r o f r e p e h t f i t s e v t o n l l i w s n o i t p o 8 2 8 7 5 2 , 3 4 9 7 8 2 , 9 3 0 0 1 4 , - 7 8 8 , 3 9 6 8 0 , 1 2 1 5 7 8 9 3 1 , 1 4 0 , 3 3 1 8 9 , 8 5 3 9 4 , 2 8 0 7 0 5 9 , 2 2 6 , 4 5 9 6 2 0 7 , - 4 5 5 , 0 5 8 8 2 , 6 6 6 1 0 , 1 8 l e u a V d e s n e p x e r a e y s i h t 2 $ / d e t i e f r o F d e s p a l % % d e t s e V % 0 5 % 0 5 - y t i t n a u Q i i g n n a m e r - - - % 2 % 1 6 - - - % 2 % 1 6 - - - - - % 2 % 1 6 - - - - - - % 8 9 % 9 3 - - - % 8 9 % 9 3 - - - - - % 8 9 % 9 3 - - - 2 0 0 , 1 0 2 6 8 8 , 0 7 1 0 6 5 , 9 0 2 - - - - 4 9 1 , 3 7 6 0 2 , 1 6 0 0 0 5 7 , 1 8 9 , 5 4 8 9 6 , 1 4 6 7 9 0 5 , 0 1 6 7 2 , 8 7 6 7 3 , - - 2 1 4 9 3 , 7 0 5 3 3 , 0 4 4 3 4 , y t i t n a u Q / d e t i e f r o f d e s p a l y t i t n a u Q d e t s e v t a e u a V l e t a d t n a r g 1 $ e s i c r e x E e c i r p $ e t a d t s e V y t i t n a u Q d e t n a r g e t a d t n a r G P M K - - 1 - 0 8 , 8 8 3 3 4 2 5 8 , 8 2 - - - 2 - 0 8 , 8 8 - - 2 7 1 , 4 2 3 4 1 , 8 1 - - - 9 4 2 9 5 6 , 6 1 7 5 9 , 3 1 6 7 4 , 0 1 - - - - - - - - - - - - - - - - 4 3 2 6 5 6 , 5 1 7 1 1 , 3 1 5 4 8 9 , 9 6 3 , 4 6 5 , 1 9 2 8 , 3 6 8 7 1 1 , 0 3 2 , 1 3 9 3 7 0 3 , 2 5 0 , 4 0 3 8 5 2 , 3 6 3 5 2 6 9 1 4 , 5 8 4 7 7 1 , 8 0 0 , 1 9 1 8 7 4 7 4 2 , 1 1 2 , 5 8 2 5 6 8 , 3 6 1 8 0 8 0 1 2 , 9 9 7 , 6 6 1 9 1 7 , 3 6 1 5 6 8 8 9 1 , 7 4 0 3 4 2 , - - - - - - - - - - - - - - - - - - 0 2 / 6 0 / 0 3 2 1 4 9 3 , 7 1 / 2 1 / 4 1 2 / 6 0 / 0 3 7 0 5 3 3 , 8 1 / 9 0 / 6 2 2 2 / 6 0 / 0 3 0 4 4 3 4 , 9 1 / 9 0 / 6 0 2 / 6 0 / 0 3 2 0 0 , 1 0 2 2 2 / 6 0 / 0 3 0 6 5 , 9 0 2 9 1 / 1 1 / 1 1 2 / 6 0 / 0 3 6 8 8 , 0 7 1 8 1 / 0 1 / 9 2 9 1 / 6 0 / 0 3 3 0 6 7 7 1 , 7 1 / 2 1 / 4 y e m o t o b A D 8 1 / 6 0 / 0 3 9 1 / 6 0 / 0 3 5 0 6 , 4 2 5 9 9 , 6 4 6 1 / 2 1 / 0 2 x o F G 0 2 / 6 0 / 0 3 4 9 1 , 3 7 7 1 / 2 1 / 4 1 2 / 6 0 / 0 3 6 0 2 , 1 6 8 1 / 9 0 / 6 2 2 2 / 6 0 / 0 3 0 0 0 5 7 , 9 1 / 9 0 / 6 8 1 / 6 0 / 0 3 9 1 / 6 0 / 0 3 6 0 2 , 4 1 5 3 1 , 7 2 6 1 / 2 1 / 0 2 l l i g a M C 0 2 / 6 0 / 0 3 1 8 9 , 5 4 7 1 / 2 1 / 4 1 2 / 6 0 / 0 3 8 9 6 , 1 4 8 1 / 9 0 / 6 2 2 2 / 6 0 / 0 3 6 7 9 0 5 , 9 1 / 9 0 / 6 2 2 / 6 0 / 0 3 8 7 6 7 3 , 9 1 / 9 0 / 6 1 2 / 6 0 / 0 3 0 1 6 7 2 , 8 1 / 9 0 / 6 2 y e r o t S M 8 1 / 6 0 / 0 3 9 1 / 6 0 / 0 3 1 5 3 , 3 1 1 0 5 , 5 2 6 1 / 2 1 / 0 2 r e p o o C M . r a e y e h t g n i r u d s n o i t p o f o t n a g e h t o t n o i t a e r n r l i P M K m o r f e u d i r o g n d n a t s t u o s t n u o m a o n e r e w e r e h t d n a d a p s t n u o m a o n e r e w e r e h T i . i r d e t n a g s t h g R e c n a m r o f r e P I T L f o r e b m u n l l e h t e t a u c a c o t d e s u s i s e r a h s l f o e u a v e c a i f e g a r e v a d e t h g e w e h t 8 1 Y F m o r F . s t n e m e t a t s l i a c n a n fi e h t f o 6 3 e t o n n i d e s s u c s d s a y c i i l o p g n i t n u o c c a s ’ r o c p a B h t i w e c n a d r o c c a n i s A . r a e y e h t n i s t h g i r e c n a m r o f r e p d n a s n o i t p o n i s t n e m e v o m r e h t o d n a t n a p c i t r i a p P M K e v i t u c e x e h c a e r o f i g n d n a t s t u o s t n a g r I T L e h t f o s l i a t e d e h t s e n l i l t u o e b a t g n w o i l l o f e h T n o i t a s n e p m o c d e s a b - e r a h S 4 7 4 1 . . 70 Bapcor Limited Annual Report 2020FINANCIAL REPORTING DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 l e u a V d e s n e p x e r a e y s i h t 2 $ 1 1 1 , 6 3 2 2 8 , 0 5 8 2 8 2 6 , 2 0 4 4 7 , 2 2 9 , 1 7 9 8 7 7 6 , 5 2 8 , 3 3 2 , 2 - - - - - - / d e t i e f r o F d e s p a l % % d e t s e V y t i t n a u Q i i g n n a m e r y t i t n a u Q / d e t i e f r o f d e s p a l y t i t n a u Q d e t s e v t a e u a V l e t a d t n a r g 1 $ e s i c r e x E e c i r p $ - - - - - - 2 5 1 , 8 2 9 8 6 , 5 2 8 8 6 3 3 , 4 9 8 9 3 , 4 6 5 8 3 , 8 4 3 , 6 3 - - - - - - - - - - - - 5 4 9 , 6 1 1 5 6 4 , 2 5 1 4 8 4 8 8 1 , 7 0 2 3 2 2 , 6 6 7 5 1 2 , , 7 6 3 3 0 2 - - - - - - 0 2 / 6 0 / 0 3 2 5 1 , 8 2 7 1 / 2 1 / 4 1 2 / 6 0 / 0 3 9 8 6 , 5 2 8 1 / 9 0 / 6 2 e t a d t s e V y t i t n a u Q d e t n a r g e t a d t n a r G 2 2 / 6 0 / 0 3 8 8 6 3 3 , 2 2 / 6 0 / 0 3 4 9 8 9 3 , 2 2 / 6 0 / 0 3 4 6 5 8 3 , 2 2 / 6 0 / 0 3 8 4 3 , 6 3 9 1 / 9 0 / 6 9 1 / 9 0 / 6 9 1 / 9 0 / 6 9 1 / 9 0 / 6 5 8 4 , 3 1 3 , 1 4 8 8 , 0 5 1 2 1 5 , 8 7 1 2 6 1 , 1 0 2 , 8 1 8 8 , 2 4 6 , 1 i g n a L A P M K e n y a k c o C T y m m u r D S l i o c N J l a t o T s d r a d n a t S g n i t n u o c c A e h t y b d e r i u q e r s a d o i r e p g n i t s e v t n a v e e r e h t l r e v o , s t h g i r e c n a m r o f r e p e h t f o , ) t n a r g t a d e n m r e t e d i ( l e u a v r i a f e h t g n i t a c o l l l l a y b d e t a u c a c e s n e p x e s r a e y t n e r r u c e h t s i r i a e y s h t d e s n e p x e e u a V l . 0 2 Y F g n i r u d P M K a g n e b t n a p c i t r i i a p e h t f o m r e t e h t r o f d e t s u d a s j i e t a i r p o r p p a e r e h w d n a t n a r g t a s t h g i r e c n a m r o f r e p f o e u a v r i l a f e h t i s a d e n m r e t e d n e e b s a h e t a d t n a r g t a e u a V l . 1 . 2 71 Bapcor Limited Annual Report 2020FINANCIAL REPORTING DIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.7.5 Equity instrument disclosures relating to KMP The numbers of ordinary voting shares in the company held during the financial year by each director and other KMP, including their personally related parties, are set out below. Balance at start of the year Received during the year Dividend reinvestment plan Purchase of shares Sale of shares Resigned / Ceased to be KMP Balance at the end of the year 2020 Directors A Harrison T Ryan M Haseltine J Macdonald 68,570 34,730 32,125 10,254 - - - - D Abotomey 1,641,323 88,802 Other KMP G Fox C Magill M Cooper 390,553 631,424 62,306 18,143 10,476 9,845 - 980 905 290 - - - - 16,819 4,546 6,819 12,819 6,819 6,819 6,819 9,173 Total 2,871,285 127,266 2,175 70,633 2019 Directors A Harrison T Ryan M Haseltine J Macdonald 56,869 33,868 31,327 - - - - - 1,701 862 798 254 10,000 - - 10,000 D Abotomey 1,535,533 105,790 Other KMP G Fox C Magill C Daly 518,823 589,566 - P Dumbrell 1,785,230 M Cooper P Tilley G Jarrett 22,451 13,180 14,719 71,730 41,858 7,837 59,816 39,855 38,378 40,487 - - - - - - - - - - - - - - - - - - - - (305,790) (182,518) (200,000) (53,806) (742,114) - - - - - (200,000) - - - - - - - - - - - - - - - - - - - - - - (7,837) (1,845,046) 85,389 40,256 39,849 23,363 1,431,154 232,997 448,719 27,518 2,329,245 68,570 34,730 32,125 10,254 1,641,323 390,553 631,424 - - - 62,306 (51,558) (55,206) - - Total 4,601,566 405,751 3,615 20,000 (200,000) (1,959,647) 2,871,285 72 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 14.7.6 Total shares under option or right to KMP Date granted Vest date Expiry date Exercise price of rights Quantity Performance rights plans 4/12/17 26/09/18 29/10/18 6/09/19 1/11/19 Total shares under option of right 30/06/20 30/06/21 30/06/21 30/06/22 30/06/22 n/a n/a n/a n/a n/a $0.00 $0.00 $0.00 $0.00 $0.00 387,741 189,710 170,886 355,588 209,560 1,313,485 14.7.7 Loans to executive KMP No loans were made to executive KMP in FY20 and there are no outstanding loans to any KMP. 73 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 15. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR In early August 2020, in relation to the COVID-19 pandemic, the Victorian Government mandated closures of many Melbourne based businesses for six weeks. As discussed in section 9 of the Directors’ Report, it is not yet possible to determine the financial impact of these restrictions. Any further government restrictions may also affect the operations and earnings of Bapcor, of which the impact cannot be determined at this time. On 11 August 2020, Bapcor announced the appointment of two new Non-Executive Directors effective 1 September 2020, Mr James Todd and Mr Mark Powell. Apart from these matters and the dividend declared as per section 4 of the Directors’ Report, no other matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future financial years. 16. ENVIRONMENTAL REGULATION The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. 17. INDEMNITY AND INSURANCE OF OFFICERS During the FY20 financial year, the company paid a premium of $400,000 in respect of a contract to insure the directors and executives of the company against a liability for costs that may be incurred in defending civil or criminal proceedings that may be brought against the directors, in their capacity as a director, except where there is a lack of good faith. 18. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. 19. AUDITOR PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. 20. NON-AUDIT SERVICES Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 37 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 37 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. 21. 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 76 of the directors’ report. 22. INDEMNITY OF AUDITOR The company has agreed to indemnify their auditors, PricewaterhouseCoopers, to the extent permitted by law, against any claim by a third party arising from the company’s breach of their agreement with PricewaterhouseCoopers. The indemnity stipulates that the company will meet the full amount of any such liabilities including a reasonable amount of legal costs. 74 Bapcor Limited Annual Report 2020FINANCIAL REPORTINGDIRECTORS’ REPORT Continued AS AT 30 JUNE 2020 23. ROUNDING OF AMOUNTS The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Andrew Harrison Chairman 19 August 2020 Melbourne Darryl Abotomey Chief Executive Officer and Managing Director 75 Bapcor Limited Annual Report 2020FINANCIAL REPORTING AUDITOR’S INDEPENDENCE DECLARATION Auditor’s Independence Declaration As lead auditor for the audit of Bapcor Limited for the year ended 30 June 2020, 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 Bapcor Limited and the entities it controlled during the period. Jason Perry Partner PricewaterhouseCoopers Melbourne 19 August 2020 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 76 Bapcor Limited Annual Report 2020 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ declaration Independent auditor’s report to the members of Bapcor Limited Shareholder information Corporate directory 78 79 80 81 82 137 138 145 148 GENERAL INFORMATION The financial statements cover Bapcor Limited as a consolidated entity consisting of Bapcor Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Bapcor Limited’s functional and presentation currency. Bapcor Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: 61 Gower Street, Preston VIC 3072 AUSTRALIA A description of the nature of the consolidated entity’s operations and its principal activities are included in the Directors’ Report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 19 August 2020. The directors have the power to amend and reissue the financial statements. F I N A N C A L I S T A T E M E N T S CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 Revenue from continuing operations Note Other income and gains Expenses Cost of sales Employee benefits expense Freight Advertising Administration Motor vehicles IT & communications Occupancy Acquisition costs Depreciation and amortisation expense Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year Other comprehensive income Items that may be reclassified to profit or loss Foreign currency translation Changes in the fair value of cash flow hedges Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Non-controlling interest Owners of Bapcor Limited Total comprehensive income for the year is attributable to: Non-controlling interest Owners of Bapcor Limited Basic earnings per share Diluted earnings per share 5 6 7 7 7 8 Consolidated 2020 $’000 2019 $’000 1,462,747 1,296,582 3,222 4,053 (782,473) (688,811) (321,565) (276,491) (21,762) (30,885) (19,632) (27,599) (60,846) (43,556) (12,001) (18,393) (5,028) (1,827) (80,052) (19,765) (12,077) (14,127) (50,384) (932) (17,100) (15,267) 111,372 134,659 (32,655) (38,127) 78,717 96,532 (4,640) (3,216) 8,947 (632) (7,856) 8,315 70,861 104,847 24 (455) 79,172 (446) 96,978 78,717 96,532 159 (164) 70,702 105,011 70,861 104,847 Cents Cents 27 27 26.97 26.85 34.40 34.27 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes 78 Bapcor Limited Annual Report 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other assets Total current assets Non-current assets Trade and other receivables Property, plant and equipment Right-of-use assets Intangibles Deferred tax Other assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Lease liabilities Derivative financial instruments Income tax Provisions Total current liabilities Non-current liabilities Borrowings Lease liabilities Derivative financial instruments Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained profits Equity attributable to the owners of Bapcor Limited Non-controlling interest Total equity Consolidated Note 2020 $’000 2019 $’000 F I N A N C A L I S T A T E M E N T S 10 11 20 12 10 14 13 15 8 12 16 19 20 17 18 19 20 17 22 23 24 25 126,300 163,993 363,049 131 297 47,610 162,494 326,147 897 - 653,770 537,148 - 75,179 157,990 757,437 34,710 881 1,026,197 48 60,745 - 734,529 18,424 2,412 816,158 1,679,967 1,353,306 222,204 183,645 58,672 4,652 2,030 41,871 - 494 2,856 47,208 329,429 234,203 229,072 380,376 123,136 - 16,271 - 349 16,191 368,479 396,916 697,908 631,119 982,059 722,187 869,418 623,536 1,397 109,432 980,247 1,812 7,308 89,110 719,954 2,233 982,059 722,187 The above consolidated statement of financial position should be read in conjunction with the accompanying notes Bapcor Limited Annual Report 2020 79 F I N A N C A L I S T A T E M E N T S CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Consolidated Contributed equity $’000 Other $’000 Reserves $’000 Retained earnings $’000 Non- controlling Interests $’000 Total equity $’000 Balance at 1 July 2018 610,951 (4,495) (3,645) 37,138 2,397 642,346 Profit/(loss) after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 22) Share-based payments (note 23) Treasury shares (note 22) Dividends paid (note 26) - - - 20,746 - - - - - - - - (3,666) - - 96,978 (446) 96,532 8,033 - 282 8,315 8,033 96,978 (164) 104,847 - 2,920 - - - - - (45,006) - - - - 20,746 2,920 (3,666) (45,006) Balance at 30 June 2019 631,697 (8,161) 7,308 89,110 2,233 722,187 Consolidated Contributed equity $’000 Other $’000 Reserves $’000 Retained earnings $’000 Non- controlling Interests $’000 Total equity $’000 Balance at 1 July 2019 631,697 (8,161) 7,308 89,110 2,233 722,187 Adjustment for change in accounting policy (note 3) - - - (9,156) - (9,156) Balance at 1 July 2019 - restated 631,697 (8,161) 7,308 79,954 2,233 713,031 Profit/(loss) after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 22) Share-based payments (note 23) Treasury shares (note 22) Dividends paid (note 26) - - - 246,955 - - - - - - - - (1,073) - - 79,172 (455) 78,717 (7,890) - 34 (7,856) (7,890) 79,172 (421) 70,861 - 1,979 - - - - - (49,694) - - - - 246,955 1,979 (1,073) (49,694) Balance at 30 June 2020 878,652 (9,234) 1,397 109,432 1,812 982,059 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 80 Bapcor Limited Annual Report 2020 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Net cash converted Payments for new store initial inventory purchases Payments relating to restructuring activities Borrowing costs Transaction costs relating to acquisition of business Income taxes paid F I N A N C A L I S T A T E M E N T S Consolidated Note 2020 $’000 2019 $’000 1,616,318 1,421,923 (1,364,672) (1,291,290) 251,646 130,633 (2,023) (449) (11,607) (1,827) (12,093) (1,041) (14,487) (932) (35,487) (36,439) Net cash from operating activities 28 200,253 65,641 Cash flows from investing activities Payment for purchase of business, net of cash and cash equivalents Payment for deferred settlements Payments for property, plant and equipment Payments for intangibles Proceeds from disposal of property, plant and equipment Proceeds from divestment of businesses, net of expenses Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Share issue transaction costs Purchase of treasury shares Net proceeds/(repayments) from borrowings Dividends paid Repayment of lease liabilities Borrowing transaction costs Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents 31 14 15 22 22 22 26 (55,697) (16,911) (30,528) (8,020) 1,334 - (43,731) (18,061) (21,667) (7,600) 1,468 14,394 (109,822) (75,197) 236,147 (4,623) (1,073) (152,200) - - (3,666) 54,100 (35,650) (33,410) (54,552) - - (1,545) (11,951) 15,479 78,480 47,610 210 5,923 40,154 1,533 Cash and cash equivalents at the end of the financial year 126,300 47,610 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes Bapcor Limited Annual Report 2020 81 Basis of preparation Note 1. Significant accounting policies Note 2. Critical accounting judgements, estimates and assumptions Note 3. Adoption of AASB 16 Leases Group performance Note 4. Segment information Note 5. Revenue Note 6. Other income and gains Note 7. Expenses Note 8. Income tax Note 9. Discontinued operations Assets and liabilities Note 10. Trade and other receivables Note 11. Inventories Note 12. Other assets Note 13. Right-of-use assets Note 14. Property, plant and equipment Note 15. Intangibles Note 16. Trade and other payables Note 17. Provisions Note 18. Borrowings Note 19. Lease liabilities Note 20. Derivative financial instruments Note 21. Fair value measurement Capital structure, financing and risk management Note 22. Issued capital Note 23. Reserves Note 24. Retained profits Note 25. Non-controlling interest Note 26. Dividends Note 27. Earnings per share Note 28. Reconciliation of profit after income tax to net cash from operating activities Note 29. Financial risk management Group structure Note 30. Related party transactions Note 31. Business combinations Note 32. Deed of cross guarantee Note 33. Parent entity information Note 34. Interests in subsidiaries Other Note 35. Related party transactions - key management personnel disclosures Note 36. Share-based payments Note 37. Remuneration of auditors Note 38. Commitments and contingent liabilities Note 39. Events after the reporting period 82 83 85 85 88 9 1 92 92 93 96 97 99 100 100 102 103 107 107 109 1 1 1 1 1 2 113 114 1 1 6 1 1 7 1 1 7 118 1 1 9 120 1 2 1 125 125 128 130 1 3 1 132 133 135 136 136 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 1. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective notes or below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Refer to note 3 for details of the adoption of AASB 16 Leases. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the AASB and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 33. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Bapcor Limited (‘company’ or ‘parent entity’) as at 30 June 2020 and the results of all subsidiaries for the year then ended. Bapcor Limited and its subsidiaries together are referred to in these financial statements as the ‘consolidated entity’. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. 83 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 1. SIGNIFICANT ACCOUNTING POLICIES continued Foreign currency translation The financial statements are presented in Australian dollars, which is Bapcor Limited’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within twelve months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the consolidated entity’s normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within twelve months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Impairment of assets Goodwill and other 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 for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Rounding of amounts The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 84 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 2. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are included in the following notes to the consolidated financial statements: • Note 10 - Trade and other receivables • Note 11 - Inventories • Note 14 - Property, plant and equipment • Note 15 - Intangibles • Note 17 - Provisions • Note 19 - Lease liabilities • Note 31 - Business combinations • Note 36 - Share-based payments NOTE 3. ADOPTION OF AASB 16 LEASES This note explains the impact of the adoption of AASB 16 Leases on the consolidated entity’s financial statements and discloses the new accounting policies and critical accounting judgements, estimates and assumptions that have been applied from 1 July 2019. Leasing activities and how these are accounted for The consolidated entity leases various properties, equipment and vehicles. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes. Prior to 1 July 2019, leases of property and equipment were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to the income statement, within occupancy expenses. From 1 July 2019, the consolidated entity applied a single recognition and measurement approach for all leases of which it is the lessee, except for low-value assets. The consolidated entity recognised lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the consolidated entity. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Impact on the financial statements The consolidated entity has adopted AASB 16 Leases using the modified retrospective method from 1 July 2019, and has not restated comparatives, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 July 2019. In applying AASB 16 Leases for the first time, the consolidated entity has used the following practical expedients permitted by the standard: • • • • • the use of a single discount rate to a portfolio of leases with reasonably similar characteristics; reliance on previous assessments on whether leases are onerous; the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of the initial application; the accounting for operating leases for low value leases; and the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. On adoption of AASB 16 Leases, the consolidated entity recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of AASB 117 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 July 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 4.0%. The associated right-of-use assets for leases were measured on a retrospective basis as if the AASB 16 Leases standard had been applied since the commencement date, but discounted using the lessee’s incremental borrowing rate at the date of initial application. 85 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 3. ADOPTION OF AASB 16 LEASES continued The change in accounting policy affected the following items in the balance sheet on 1 July 2019 (a positive number reflects an increase): Assets Property, plant and equipment (note 14) Deferred tax assets (note 8) Right-of-use assets (note 13) Total assets Liabilities Trade and other payables Provisions (note 17) Deferred tax liabilities (note 8) Lease liabilities Total liabilities Equity Retained earnings (note 24) The recognised right-of use assets relate to the following types of assets: Properties Motor vehicles Changes in Consolidated 1 July 2019 $’000 (691) 47,204 145,064 191,577 (862) (1,349) 43,295 159,649 200,733 (9,156) Consolidated 1 July 2019 $’000 142,250 2,814 145,064 A reconciliation of the operating leases commitments note provided in the 30 June 2019 accounts to the adopted lease liability is as follows: Operating lease commitments as at 1 July 2019 (note 38) Add: adjustments as a result of a different treatment of options included Less: discounting impact Add: adjustments for changes in underlying lease composition Lease liability on adoption Of which are: Current lease liabilities Non-current lease liabilities Consolidated 1 July 2019 $’000 138,967 31,293 (18,532) 7,921 159,649 53,013 106,636 159,649 86 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 3. ADOPTION OF AASB 16 LEASES continued Segment EBITDA, assets and liabilities for June 2020 all changed as a result of the change in accounting policy. The following table shows the impact of the adoption (a positive number reflects an increase to the financial measure): Changes in Consolidated – 30 Jun 2020 Trade $’000 Bapcor NZ $’000 Specialist Wholesale $’000 Retail $’000 Unallocated / Head Office $’000 Total $’000 EBITDA Intersegment EBITDA Depreciation and amortisation Finance costs Acquisition costs Profit before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities 15,565 7,258 12,639 23,794 - 59,255 - 53,458 6,324 - (527) (154) (373) 168,970 168,970 181,808 181,808 40,256 25,670 28,410 68,744 5,890 45,901 26,808 30,778 78,321 - Earnings per share for the 30 June 2020 financial year decreased by 0.13 cents per share as a result of the adoption of AASB 16 Leases. COVID-19-related rent concessions The consolidated entity has elected to apply AASB 2020-4 Amendments to Australian Accounting Standards – COVID-19- Related Rent Concessions which provides a practical expedient that permits lessees not to assess whether rent concessions that occur as a direct consequence of the COVID-19 pandemic and meet specified conditions are lease modifications and, instead, to account for those rent concessions as if they were not lease modifications. This has been applied to all rent concessions that meet the requirements of the practical expedient and has been quantified as a benefit of $1.5M in the FY20 financial year. 87 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 4. SEGMENT INFORMATION Description of segments The consolidated entity has identified four operating segments based on the internal reports that are reviewed and used by the CEO and Managing Director (who is identified as the Chief Operating Decision Maker (‘CODM’)) and is supported by the other members of the Board of Directors where required in assessing performance and in determining the allocation of resources including capital allocations. The operating results of the consolidated entity are currently reviewed by the CODM and decisions are based on four operating segments which also represent the four reporting segments, as follows: Trade Represents the trade focused automotive aftermarket parts distribution to independent and chain mechanic workshops. Includes the operations of Burson Auto Parts and Precision Automotive Equipment. Bapcor NZ Represents the operations of Brake & Transmission, Autolign and HCB Technologies. Specialist Wholesale Includes the specialised wholesale distribution areas of the organisation that focus on a specific automotive area. Includes the operations of AAD, Baxters, Bearing Wholesalers, MTQ Engine Systems, Roadsafe, Diesel Distributors, Federal Batteries, JAS Oceania, Premier Auto Trade, Toperformance, Commercial Truck Parts group including the recently acquired operations of Diesel Drive and Truckline. Retail Represents the retail focused accessory stores that are positioned as the first choice destination for both the everyday consumer and automotive enthusiast as well as the service areas of Bapcor. Includes the operations of Autobarn, Autopro, Sprint Auto Parts, Midas and ABS. The consolidated entity’s Thailand based operations have been included in the Unallocated/Head Office supporting segment as they are considered immaterial in nature for the financial periods. Segment revenue Intersegment transactions are carried out at arm’s length and eliminated on consolidation. The revenue from external parties reported to the CODM is measured in a manner consistent with that in the statement of comprehensive income. Segment EBITDA Segment performance is assessed on the basis of segment EBITDA. Segment EBITDA comprises expenses which are incurred in the normal trading activity of the segments and excludes the impact of depreciation, amortisation, interest, share-based payments and other items which are determined to be outside of the control of the respective segments. Operating segment information AASB 16 Leases was adopted using the modified retrospective approach and as such the comparatives have not been restated (refer to note 3). Therefore, the current and comparative operating segment information are not directly comparable. 88 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. SEGMENT INFORMATION continued Consolidated - 2020 Revenue Sales Total segment revenue Intersegment sales Total revenue EBITDA Intersegment EBITDA Depreciation and amortisation Finance costs Acquisition costs Profit before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities Consolidated - 2019 Revenue Sales Total segment revenue Intersegment sales Total revenue EBITDA Intersegment EBITDA Depreciation and amortisation Finance costs Acquisition costs Profit before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities Trade $’000 Bapcor NZ $’000 Specialist Wholesale $’000 Retail $’000 Unallocated / Head Office $’000 Total $’000 561,651 561,651 156,317 156,317 520,359 292,685 520,359 292,685 4,185 4,185 96,678 26,903 62,694 57,647 (29,804) 1,535,197 1,535,197 (72,450) 1,462,747 214,118 ( 1 ,1 02 ) (80,052) (19,765) (1,827) 111,372 (32,655) 78,717 336,050 268,829 557,039 378,845 139,204 1,679,967 147,398 63,358 118,598 133,801 234,753 1,679,967 697,908 697,908 Trade $’000 Bapcor NZ $’000 Specialist Wholesale $’000 Retail $’000 Unallocated / Head Office $’000 Total $’000 524,531 524,531 164,965 164,965 413,119 413,119 255,253 255,253 860 860 1,358,728 1,358,728 (62,146) 1,296,582 78,247 22,854 45,466 27,065 (4,978) 168,654 (696) (17,100) (15,267) (932) 134,659 (38,127) 96,532 306,765 244,890 461,586 299,144 40,921 1,353,306 101,946 39,954 70,161 48,145 370,913 1,353,306 631,119 631,119 89 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 4. SEGMENT INFORMATION continued Geographical information Australia New Zealand Other Geographical non-current assets 2020 $’000 800,310 189,908 1,269 2019 $’000 626,801 169,858 1,075 991,487 797,734 The geographical non-current assets above are exclusive of, where applicable, financial instruments, deferred tax assets and balances such as intercompany and investments that are eliminated on consolidation. Significant accounting policies Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. 90 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 5. REVENUE Revenue from contracts with customers Sales revenue Total revenue Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Geographical regions Australia New Zealand Thailand Intersegment sales Timing of revenue recognition4 Goods transferred at a point in time Services transferred over time Intersegment sales Consolidated 2020 $’000 2019 $’000 1,462,747 1,296,582 1,462,747 1,296,582 Consolidated 2020 $’000 2019 $’000 1,374,695 1,192,903 156,317 164,965 4,185 860 (72,450) (62,146) 1,462,747 1,296,582 1,506,734 1,330,637 28,463 (72,450) 28,091 (62,146) 1,462,747 1,296,582 Significant accounting policies Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Sale of goods Revenue from the sale of goods is recognised at the point in time when the customer obtains control of the goods, which is generally at the time of delivery. Rendering of services - franchise and service fees Revenue from services are recognised over time as the services are rendered in line with the customer contract terms. 4. The prior year split for timing of revenue recognition has been restated to reflect current disclosure methodology and allow comparability. 91 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 6. OTHER INCOME AND GAINS Gain on settlement of deferred consideration Rental income Other income and gains Consolidated 2020 $’000 2019 $’000 - 4,053 3,222 3,222 - 4,053 In the prior year the consolidated entity completed the Baxters acquisition deferred settlement which resulted in a gain of $4,053,000 being recognised in the statement of comprehensive income. The current year rental income relates to rental recoveries from franchise locations. This was previously offset against rental expense within occupancy expenses pre-adoption of AASB 16 Leases. NOTE 7. EXPENSES Profit before income tax includes the following specific expenses: Depreciation and amortisation expense Plant and equipment Motor vehicles Properties right-of-use assets Motor vehicles right-of-use assets Amortisation Make good provision Acquisition and divestment costs Professional consultant costs Other transaction costs Finance costs Interest and finance charges paid/payable Interest and finance charges paid/payable on lease liabilities Borrowing cost write offs due to refinancing process Leases Minimum lease payments Short-term and low value lease payments Superannuation expense Consolidated 2020 $’000 2019 $’000 10,818 5,126 57,116 1,431 3,640 1,921 80,052 766 1,061 1,827 13,441 6,324 - 9,356 4,331 - - 2,946 467 17,100 824 108 932 15,009 - 258 19,765 15,267 - 220 220 42,208 - 42,208 Defined contribution superannuation expense 20,502 18,065 92 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 8. INCOME TAX Income tax expense Current tax on profits for the year Deferred tax expense Adjustment recognised for prior periods Total income tax expense Deferred tax included in income tax expense comprises: Decrease/(increase) in deferred tax assets Increase/(decrease) in deferred tax liabilities Deferred tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Acquisition costs Gain on deferred settlement Adjustment recognised for prior periods Difference in overseas tax rates Other Income tax expense Consolidated 2020 $’000 2019 $’000 36,685 38,930 (2,929) (1,101) (299) (504) 32,655 38,127 (6,045) 3,116 (2,929) 200 (499) (299) 111,372 134,659 33,412 40,398 548 - (1,101) (347) 143 280 (1,216) (504) (421) (410) 32,655 38,127 93 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 8. INCOME TAX continued Deferred tax asset Deferred tax asset comprises temporary differences attributable to: Amounts recognised in profit or loss: Property, plant and equipment Employee benefits Trade and other receivables Inventory Lease liabilities Other Amounts recognised in equity: Transaction costs on share issue Cash flow hedge Share-based payment Deferred tax asset Set off deferred tax liabilities pursuant to set-off provisions Net deferred tax asset Movements: Opening balance Credited/(charged) to profit or loss Credited/(charged) to equity Additions through business combinations (note 31) Charged to other comprehensive income Derecognised on divestment Adjustment for change in accounting policy (note 3) Other Closing balance Consolidated 2020 $’000 2019 $’000 1,155 12,765 3,144 18,584 53,908 10,974 1,954 11,714 1,985 15,084 - 8,708 100,530 39,445 1,366 1,351 1,425 4,142 830 191 1,665 2,686 104,672 42,131 (69,962) (23,707) 34,710 18,424 42,131 6,045 536 7,836 920 - 47,204 41,936 (200) (471) 2,590 866 (943) - - (1,647) 104,672 42,131 94 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 8. INCOME TAX continued Deferred tax liability Deferred tax liability comprises temporary differences attributable to: Amounts recognised in profit or loss: Customer contracts Trademarks Right-of-use assets Other Amounts recognised in equity: Cash flow hedge Deferred tax liability Set off deferred tax liabilities pursuant to set-off provisions Net deferred tax liability Movements: Opening balance Charged/(credited) to profit or loss Charged/(credited) to equity Adjustment on change in accounting policy (note 3) Closing balance Consolidated 2020 $’000 2019 $’000 5,206 17,514 47,242 - 5,642 17,565 - 344 69,962 23,551 - 156 69,962 23,707 (69,962) (23,707) - - 23,707 3,116 (156) 43,295 24,181 (499) 25 - 69,962 23,707 Significant accounting policies The income tax expense or benefit for the period is the tax payable on that period’s taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 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. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. 95 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 9. DISCONTINUED OPERATIONS Description The discontinued operations in the prior financial period relate to the sale of the TRS business unit of the Bapcor NZ segment that occurred 3 July 2018. Given the timing of the disposal, there was no profit or loss or cash flow contribution to the consolidated entity in the prior financial period. Carrying amounts of assets and liabilities disposed Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Property, plant and equipment Intangibles Deferred tax asset Total assets Trade and other payables Income tax Provisions Total liabilities Net assets Details of the disposal Net cash sale consideration, net of divestment costs paid Carrying amount of net assets disposed Derecognition of equity reserves Gain on disposal before income tax Gain on disposal after income tax Consolidated 2020 $’000 2019 $’000 - - - - - - - - - - - - - 1,243 2,404 5,497 218 123 10,012 943 20,440 1,497 709 451 2,657 17,783 Consolidated 2020 $’000 2019 $’000 - - - - - 18,238 (17,783) (455) - - Significant accounting policies A discontinued operation is a component of the consolidated entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of comprehensive income. 96 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 10. TRADE AND OTHER RECEIVABLES Current assets Trade receivables Less: Allowance for credit notes Less: Allowance for expected credit losses (trade receivables) Customer loans Less: Allowance for expected credit losses (customer loans) Other receivables Prepayments Non-current assets Customer loans Less: Allowance for expected credit losses Consolidated 2020 $’000 2019 $’000 147,925 143,352 (1,623) (8,522) (1,325) (5,560) 137,780 136,467 562 (562) - 17,436 8,777 26,213 933 (605) 328 18,268 7,431 25,699 163,993 162,494 - - - 118 (70) 48 163,993 162,542 Trade receivables are non-interest bearing and repayment terms vary by business unit. The total allowance for expected credit losses including the amount held in non-current receivables is $9,084,000 (2019: $6,235,000). This includes specifically identified provisions of $7,562,000 (2019: $5,471,000) and an estimated credit loss provision of $1,522,000 (2019: $764,000). The increase is due to the current level of economic uncertainty in light of the COVID-19 pandemic. Customer loans relate to loans with franchisees. Loans with repayment terms of less than twelve months are classified as current. Non-current customer loans are discounted to their present value. Of the total customer loans balance including the non-current portion, $343,000 (2019: $633,000) are non-interest bearing. $219,000 (2019: $418,000) of loans have a weighted average annual interest rate of 10.5% (2019: 9.8%). Other receivables relate to rebate and other non-trading receivables which are non-interest bearing. Receivables with repayment terms of less than twelve months are classified as current. These receivables are all neither past due nor impaired. The ageing of the net trade receivables and loans above are as follows: Current and not due 31 - 60 days 61 - 90 days 91+ days Consolidated 2020 $’000 2019 $’000 98,709 32,246 5,202 1,623 75,952 43,386 10,619 6,886 137,780 136,843 97 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 10. TRADE AND OTHER RECEIVABLES continued Movements in the allowance for expected credit losses of trade receivables and customer loans are as follows: Opening balance Net additional provisions recognised Additions through business combinations Amounts utilised for debt write-off Foreign currency translation Derecognised on divestment Closing balance Consolidated 2020 $’000 2019 $’000 6,235 3,882 1,080 (2,102) (11) - 6,918 158 576 (1,360) (20) (37) 9,084 6,235 Bapcor recognised a loss of $3,882,000 (2019: $158,000) in respect of impaired receivables during the financial year. Significant accounting policies Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for specific debtors and general expected credit losses. Trade receivables are generally due for settlement within 30 to 60 days. Other receivables are recognised at amortised cost, less any allowance for specific debtors and general expected credit losses. Impairment The impairment methodology applied depends on whether there has been a significant increase in credit risk, whereby specific provision will be applied to trade and other receivables not expected to be collected and expected credit losses associated with the trade and other receivables. In assessing the expected credit losses, the consolidated entity first considers any specific debtors that have objective evidence that the consolidated entity will not be able to collect all amounts due according to the original terms of the receivables, taking into consideration the indicators of significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default or delinquency in payments. The consolidated entity then applies the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance, on the balance of receivables. To measure the expected credit losses, trade receivables have been grouped based on aging. Critical accounting judgements, estimates and assumptions The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is assessed by taking into account the ageing of receivables, historical collection rates and specific knowledge of the individual debtor’s financial position. 98 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 11. INVENTORIES Current assets Stock in transit - at cost Stock on hand - at cost Less: Provision for slow moving inventory Consolidated 2020 $’000 2019 $’000 23,863 14,341 395,039 355,453 (55,853) 339,186 (43,647) 311,806 363,049 326,147 Total stock on hand and in transit has increased by $49.1M since 30 June 2019, of which new greenfield stores, business acquisitions, absorption costing and foreign currency translation account for $49.7M. The remaining ($0.6M) decrease relates to investment in new and existing ranges and the impact of cyclical purchases as discussed in the ‘Operating and financial review’ section of the Directors’ Report. Movements in provision for slow moving inventory Opening balance Additional provisions recognised against profit Additions through business combinations Inventory written off against provision Foreign currency translation Derecognised on divestment Closing balance Consolidated 2020 $’000 2019 $’000 (43,647) (46,839) (4,857) (9,333) 1,844 140 - (580) (3,505) 4,155 236 2,886 (55,853) (43,647) The additional provisions recognised against profit has increased compared to prior financial year due to the current level of economic uncertainty in light of the COVID-19 pandemic. Significant accounting policies Stock in transit is stated at the lower of cost and net realisable value. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Stock on hand is stated at the lower of cost and net realisable value. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Critical accounting judgements, estimates and assumptions The provision for slow moving inventory assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence. 99 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 12. OTHER ASSETS Current assets Employee loans Non-current assets Make good asset Employee loans Consolidated 2020 $’000 2019 $’000 297 - 881 - 881 1,178 1,170 1,242 2,412 2,412 Employee loans were made to key management personnel and other personnel to assist in the purchase of shares. These loans are secured by the underlying shares acquired. The loans are interest bearing and are repayable on the earlier of sale of the underlying shares, termination of employment or five years from the date of the loan in cash, and cannot be settled by the employees returning the shares to the company. There are no loans outstanding to key management personnel as at 30 June 2020. NOTE 13. RIGHT-OF-USE ASSETS Non-current assets Properties - right-of-use Less: Accumulated depreciation Motor vehicles - right-of-use Less: Accumulated depreciation Consolidated 2020 $’000 2019 $’000 210,573 (55,055) 155,518 3,786 (1,314) 2,472 157,990 - - - - - - - 100 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 13. RIGHT-OF-USE ASSETS continued Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 30 June 2019 Adjustment for change in accounting policy (note 3) Restated balance at 1 July 2019 Additions Additions through business combinations (note 31) Disposals Remeasurement Exchange differences Depreciation expense Accelerated depreciation expense* Property $’000 Motor vehicles $’000 Total $’000 - 142,250 142,250 24,731 16,150 (2,945) 32,982 (534) (52,027) (5,089) - 2,814 2,814 557 1,042 (13) (474) (23) - 145,064 145,064 25,288 17,192 (2,958) 32,508 (557) (1,431) (53,458) - (5,089) Balance at 30 June 2020 155,518 2,472 157,990 * Accelerated depreciation relates to the Victorian DC Consolidation project and is based on the estimated exit dates of each site. Refer to note 17 for more information. Significant accounting policies A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The consolidated entity has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of twelve months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. 101 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 14. PROPERTY, PLANT AND EQUIPMENT Non-current assets Plant and equipment - at cost Less: Accumulated depreciation Motor vehicles - at cost Less: Accumulated depreciation Consolidated 2020 $’000 2019 $’000 99,960 (45,114) 54,846 36,963 (16,630) 20,333 76,415 (35,065) 41,350 34,093 (14,698) 19,395 75,179 60,745 The amount of work in progress included in plant and equipment is $11,663,000 (2019: $3,586,000) and relates to projects that are not yet completed and therefore are not being depreciated. Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2018 Additions Additions through business combinations Disposals Divested Foreign currency translation Transfers in/(out) Depreciation expense Balance at 30 June 2019 Plant and equipment $’000 Motor vehicles $’000 Total $’000 34,795 14,902 513 (429) (119) 107 937 (9,356) 17,795 6,765 526 (934) (4) 48 (470) (4,331) 52,590 21,667 1,039 (1,363) (123) 155 467 (13,687) 41,350 19,395 60,745 Adjustment for change in accounting policy (note 3) - (691) (691) Restated balance at 1 July 2019 41,350 18,704 60,054 Additions Additions through business combinations (note 31) Disposals Transfers in/(out) Foreign currency translation Accelerated depreciation expense* Depreciation expense Balance at 30 June 2020 22,621 1,204 (436) 988 (63) (983) 7,907 30,528 130 (824) (419) (39) - 1,334 (1,260) 569 (102) (983) (9,835) (5,126) (14,961) 54,846 20,333 75,179 * Accelerated depreciation relates to the Victorian DC Consolidation project and is based on the estimated exit dates of each site. Refer to note 17 for more information. 102 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 14. PROPERTY, PLANT AND EQUIPMENT continued Significant accounting policies Plant and equipment is stated at historical cost less accumulated depreciation and impairment. 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 consolidated entity and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. Depreciation is calculated on a straight-line basis to write off the net cost of each item of plant and equipment over their expected useful lives as follows: Plant and equipment Motor vehicles 2-15 years 3-7 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits. Critical accounting judgements, estimates and assumptions The consolidated entity determines the estimated useful lives and related depreciation charges for its property, plant and equipment assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. NOTE 15. INTANGIBLES Non-current assets Goodwill Trademarks Customer contracts Less: Accumulated amortisation Software Less: Accumulated amortisation Consolidated 2020 $’000 2019 $’000 665,712 646,442 59,069 59,194 25,872 (8,450) 17,422 24,150 (8,916) 15,234 25,606 (6,688) 18,918 17,010 (7,035) 9,975 757,437 734,529 The amount of work in progress included in software is $12,679,000 (2019: $6,457,000) and relates to projects that are not yet completed and therefore are not being amortised. 103 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTE 15. INTANGIBLES continued Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Goodwill $’000 Trademarks $’000 Customer contracts $’000 Computer software $’000 Total $’000 594,118 58,979 20,560 Consolidated Balance at 1 July 2018 Additions Additions through business combinations Disposals Divested Foreign currency translation Transfers in/(out) Amortisation expense - 55,778 - (9,983) 6,529 - - - - - - 215 - - Balance at 30 June 2019 646,442 59,194 Additions Additions through business combinations (note 31) Disposals Foreign currency translation Transfers in/(out) Amortisation expense - 23,113 (179) (3,664) - - - - - (125) - - 92 - - - - - (1,734) 18,918 267 - - - - (1,763) 4,079 7,508 15 (1) (29) 82 (467) (1,212) 9,975 7,753 - (23) (25) (569) (1,877) 677,736 7,600 55,793 (1) (10,012) 6,826 (467) (2,946) 734,529 8,020 23,113 (202) (3,814) (569) (3,640) Balance at 30 June 2020 665,712 59,069 17,422 15,234 757,437 Impairment testing Impairment testing of assets including goodwill and other intangible assets occurs each year on 31 March balances or when impairment indicators arise. The recoverable amount of assets including goodwill and other indefinite useful life intangible assets is determined based on value-in-use calculations at an individual or a combination of cash-generating units (‘CGU’) up to the operating segment level. These calculations require the use of key assumptions on which management has based its cash flow projections, as well as pre-tax discount rates. The testing was regularly updated and assessed up until the date of this financial report. Cash flow projections were based on management forecast expectations based on the FY21 budget and the latest five year strategic plan. This has been compiled based on past experience, current performance and market position as well as structural changes and economic factors which have been derived based on external data and internal analysis. A weighted average scenario approach was used for the cash flows in order to account for further uncertainty introduced by the unexpected COVID-19 pandemic. The following key assumptions were used in testing for impairment: • Pre-tax discount rate: 12.66% (2019: 12.71%5) which reduced due to the inclusion of the lease liabilities into the gearing calculation from the adoption of AASB 16 Leases • Terminal value growth rate beyond 5 years: 1.80% (2019: 1.80%) • Forecast year on year revenue and EBITDA margin growth ranges as follows: CGU Trade Bapcor NZ* Specialist Wholesale* Retail Revenue growth EBITDA margin growth 2.1% - 2.8% 4.5% - 12.2% 1.8% - 8.0% 1.7% - 3.7% 0.1 - 0.4 percentage points 0.3 - 2.3 percentage points 0 - 0.9 percentage points (0.2) – (0.1) percentage points * First year growth is reflective of a comparison to the base year of FY20, which was impacted by COVID-19. 5. The 2019 Annual Report disclosed a pre-tax discount rate of 11.81%. The difference is due to a computational error in converting the 2019 discount rate from post-tax to pre-tax for disclosure purposes only. 104 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 15. INTANGIBLES continued A reasonable possible change in assumptions would not cause the carrying value of the CGUs to exceed its recoverable amount in the Trade, Specialist Wholesale and Bapcor NZ CGU’s. The Retail CGU, Autopro brand and ABS brand are relatively more sensitive to changes in trading conditions. The following tables show sensitivities of a +5%/-5% change to the major financial metrics within the calculations. Retail CGU The recoverable amount of the Retail CGU is estimated to exceed its carrying amount at 30 June 2020 by $1.6M. This decreased from $5.1M at 31 December 2019 due to a higher asset base. Financial metric Discount rate + 5% change - 5 % change Impairment of $15.1M Increase headroom to $20.6M Revenue growth (average) Increase headroom to $5.7M Impairment of $2.5M EBITDA margin (average) Increase headroom to $17.5M Impairment of $14.3M Terminal growth rate Increase headroom to $3.7M Impairment of $0.5M Autopro brand The recoverable amount of the Autopro brand is estimated to approximate its carrying amount at 30 June 2020. This has not changed since previously reported. Financial metric Discount rate + 5% change - 5 % change Impairment of $0.3M Increase headroom by $0.4M Revenue growth (average) No material change Terminal growth rate No material change Impairment of $0.1M No material change ABS brand The recoverable amount of the ABS brand is estimated to approximate its carrying amount at 30 June 2020. Financial metric Discount rate + 5% change Impairment of $0.2M Revenue growth (average) No material change Terminal growth rate No material change - 5 % change No material change Impairment of $0.1M No material change There have been no further indicators of impairment after the impairment testing date of 31 March 2020 up until the date of this report. The balances of goodwill and other intangible assets excluding computer software allocated to each segment as at 30 June were: Goodwill: Trade Bapcor NZ Specialist Wholesale Retail Consolidated 2020 $’000 2019 $’000 111,274 149,857 110,762 158,339 268,348 243,438 136,233 133,903 665,712 646,442 105 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 15. INTANGIBLES continued Other intangible assets: Bapcor NZ Specialist Wholesale Retail Unallocated Consolidated 2020 $’000 2019 $’000 5,448 20,804 50,172 67 5,569 20,903 51,554 86 76,491 78,112 Significant accounting policies Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Tradenames Tradenames (including brands) are recognised as intangible assets where a registered trademark is acquired with attributable value. They are valued using a relief from royalty method and are considered indefinite life intangibles and are not amortised unless there is an intention to discontinue their use in which it is amortised over the estimated remaining useful life. Customer contracts Customer contracts acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite life which is currently between 10 and 20 years. Software Costs incurred in acquiring, developing, and implementing new software are recognised as intangible assets only when it is probable that future economic benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, licenses and direct labour. Software is amortised on a straight-line basis over the period of their expected benefit, being their finite life which is currently between 2 and 5 years. Large scale projects are individually assessed as part of the approval process and determination of finite life may exceed this range. Critical accounting judgements, estimates and assumptions The consolidated entity determines the estimated useful lives and related amortisation charges for its finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. The consolidated entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy above. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. 106 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 16. TRADE AND OTHER PAYABLES Current liabilities Trade payables Accrued expenses Consolidated 2020 $’000 2019 $’000 171,478 50,726 142,444 41,201 222,204 183,645 Refer to note 29 for further information on financial risk management. Significant accounting policies The trade payable and accrued expense amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 to 90 days of recognition. NOTE 17. PROVISIONS Current liabilities Employee benefits Deferred settlements Make good provision Onerous lease provision Restructuring provision Non-current liabilities Employee benefits Deferred settlements Make good provision Onerous lease provision Consolidated 2020 $’000 2019 $’000 34,896 969 2,017 - 3,989 29,464 16,946 - 798 - 41,871 47,208 3,306 1,500 11,465 - 4,065 2,434 9,141 551 16,271 16,191 58,142 63,399 Deferred settlements This provision represents the obligation to pay consideration following the acquisition of a business. It is measured at the present value of the estimated liability. As at 30 June 2020, the following deferred settlements are provided for: • Toperformance; currently provided at nil (2019: $500,000) • Tricor; currently provided at nil (2019: $477,000) • AADi; currently provided at $969,000 (2019: $1,903,000) • Commercial Truck Parts group of entities; currently provided at $1,500,000 (2019: $16,500,000) During the previous financial year, the consolidated entity completed the Baxters acquisition deferred settlement payment for $16,926,000 which resulted in the remaining provision of $4,053,000 being released to profit. This was presented in the statement of comprehensive income as ‘other gains’. 107 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 17. PROVISIONS continued Make good provision The provision represents the present value of the estimated costs to make good the premises leased by the consolidated entity at the end of the respective lease terms. During FY20 an incremental $1.4M was provided for the locations involved in the Victorian DC Consolidation project. Refer to ‘Restructuring provision’ below for further information. Onerous lease provision In the previous year, this provision represented the present value of the estimated costs, net of any sub-lease revenue that would be incurred until the end of the lease terms where the obligation is expected to exceed the economic benefit to be received. Onerous lease provisions are now accounted for under AASB 16 Leases and have been reclassified on adoption of the standard. Refer to note 3 for further details. Restructuring provision On the 10th February 2020, Bapcor approved a new state of the art 50,000m2 distribution centre to be built at Tullamarine in Victoria to consolidate its Melbourne warehouses. Construction of the facility is underway and includes state of the art goods to person technology with completion expected during FY21. This provision represents the estimated termination costs relating to the potential closure of a number of sites for this project. As well as the $4.0M restructuring provision, other items recognised within the FY20 financial year relating to this project include: • $1.0M accelerated depreciation relating to property, plant and equipment (refer to note 14), • $5.1M accelerated depreciation relating to the property right-of-use assets (refer to note 13), • $1.4M make good provision (refer to ‘Make good provision’ above), and • $0.2M of consultant and legal fees. Movements in provisions Movements in each class of provisions during the current financial year, other than employee benefits, are set out below: Consolidated - 2020 Carrying amount at the start of the year Adjustment for change in accounting policy (note 3) Restated balance at 1 July 2019 Additional provisions recognised Additions through business combinations (note 31) Amounts used Foreign currency translation Deferred settlements $’000 Make good $’000 Onerous lease $’000 Restructure $’000 19,380 - 19,380 74 - (16,985) - 9,141 - 9,141 1,694 3,277 (593) (37) 1,349 (1,349) - - - - - - - - - 3,989 - - - 3,989 Carrying amount at the end of the year 2,469 13,482 Amounts not expected to be settled within the next twelve months The current provision for employee benefits includes all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current, since the consolidated entity does not have an unconditional right to defer settlement. However, based on past experience, the consolidated entity does not expect all employees to take the full amount of accrued leave or require payment within the next twelve months. The following amounts reflect leave that is not expected to be taken within the next twelve months: Employee benefits obligation expected to be settled after twelve months 5,982 6,158 Consolidated 2020 $’000 2019 $’000 108 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 17. PROVISIONS continued Significant accounting policies Provisions Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result of a past event, it is probable the consolidated entity will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within twelve months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Long-term employee benefits The liability for annual leave and long service leave not expected to be settled within twelve months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Critical accounting judgements, estimates and assumptions The deferred settlements liability is the difference between the total purchase consideration, usually on an acquisition of a business combination, and the amounts paid or settled up to the reporting date, discounted to net present value. The consolidated entity applies provisional accounting for any business combination. Any reassessment of the liability during the provisional period is adjusted for retrospectively as part of the fair value of consideration. Thereafter, at each reporting date, the deferred settlement liability is reassessed against revised estimates and any increase or decrease in the net present value of the liability will result in a corresponding gain or loss to profit or loss. The increase in the liability resulting from the passage of time is recognised as a finance cost. NOTE 18. BORROWINGS Non-current liabilities Secured bank loans Less: unamortised transaction costs capitalised Consolidated 2020 $’000 2019 $’000 230,982 382,960 (1,910) (2,584) 229,072 380,376 Refer to note 29 for further information on financial risk management. Bapcor has a $520M debt facility with ANZ, Westpac, MUFG Bank, HSBC and MetLife. The debt facility comprises funding in three, five and seven year tranches commencing from June 2019 as follows: • $200M three year tranche, available for general corporate purposes; • $150M five year tranche, available for general corporate purposes; • $100M seven year tranche, available for general corporate purposes; and • $70M three year tranche, available for working capital purposes The facility is secured by way of a fixed and floating charge over Bapcor’s assets. There were no changes to the debt covenants with the net leverage ratio required to be less than 3.0X and the fixed cover charge ratio required to be greater than 1.75X. 109 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 18. BORROWINGS continued Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Bank loans including overdraft * Used at the reporting date Bank loans including overdraft * Unused at the reporting date Bank loans including overdraft * Consolidated 2020 $’000 2019 $’000 517,500 517,500 230,982 382,960 286,518 134,540 • Total facilities available at 30 June was $520M (2019: $520M). The amount used in the above table excludes $2.5M (2019: $2.5M) of facility which relates to bank guarantees under the working capital tranche. Net debt reconciliations Cash and cash equivalents Lease liabilities Borrowings excluding unamortised transaction costs capitalised Statutory net debt Add: Lease liabilities Add/(less): Net derivative financial instruments Pro-forma net debt as per debt facility agreement6 Consolidated 2020 $’000 2019 $’000 126,300 (181,808) 47,610 - (230,982) (382,960) (286,490) (335,350) 181,808 (4,521) - 54 (109,203) (335,296) A reconciliation of statutory net debt at the beginning and end of the current and previous financial year is set out below: Consolidated Balance at 30 June 2018 Cash flows Foreign currency translation Balance at 30 June 2019 Cash $’000 Lease liabilities $’000 Borrowings $’000 Total $’000 40,154 5,923 1,533 47,610 - - - - (328,391) (368,545) (54,100) (469) (48,177) 1,064 (382,960) (335,350) Adjustment for change in accounting policy (note 3) - (159,649) - (159,649) Restated balance at 1 July 2019 47,610 (159,649) (382,960) (494,999) Cash flows Additions through business combinations (note 31) Foreign currency translation 78,481 - 209 (2,791) (19,368) - 152,200 227,890 - (222) (19,368) (13) Balance at 30 June 2020 126,300 (181,808) (230,982) (286,490) 6. During the second half of FY20 it was agreed with the facility lenders to exclude the cash adjustment relating to non-controlling interest. Hence, the FY19 pro-forma net debt has been restated from $336.3M to $335.3M due to this change in methodology. 110 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 18. BORROWINGS continued Significant accounting policies Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Where there is an unconditional right to defer settlement of the liability for at least twelve months after the reporting date, the loans or borrowings are classified as non-current. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is amortised on a straight-line basis over the term of the facility. NOTE 19. LEASE LIABILITIES Current liabilities Lease liability - Properties Lease liability - Motor vehicles Non-current liabilities Lease liability - Property Lease liability - Motor vehicles Consolidated 2020 $’000 2019 $’000 57,149 1,523 58,672 122,173 963 123,136 181,808 - - - - - - - Refer to note 29 for further information on financial risk management. Significant accounting policies A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the consolidated entity’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Critical accounting judgements, estimates and assumptions In determining the lease term, the consolidated entity considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed on an ongoing basis as well as if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) any option to renew. 111 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 20. DERIVATIVE FINANCIAL INSTRUMENTS Current assets Forward foreign exchange contracts - cash flow hedges 131 897 Consolidated 2020 $’000 2019 $’000 Current liabilities Forward foreign exchange contracts - cash flow hedges Interest rate swap contracts - cash flow hedges Non-current liabilities Interest rate swap contracts - cash flow hedges Refer to note 29 for further information on financial risk management. Refer to note 21 for further information on fair value measurement. (4,576) (76) (4,652) - (4,521) (459) (35) (494) (349) 54 Significant accounting policies Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Derivatives are classified as current or non-current depending on the expected period of realisation. Cash flow hedges Cash flow hedges are used to cover the consolidated entity’s exposure to variability in cash flows that is attributable to particular risks associated with a recognised asset or liability or a firm commitment which could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income through the cash flow hedges reserve in equity, whilst the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction when the forecast transaction occurs. Cash flow hedges are tested for effectiveness on a regular basis both retrospectively and prospectively to ensure that each hedge is highly effective and continues to be designated as a cash flow hedge. If the forecast transaction is no longer expected to occur, the amounts recognised in equity are transferred to profit or loss. If the hedging instrument is sold, terminated, expires, exercised without replacement or rollover, or if the hedge becomes ineffective and is no longer a designated hedge, the amounts previously recognised in equity remain in equity until the forecast transaction occurs. 112 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 21. FAIR VALUE MEASUREMENT Fair value hierarchy The following tables detail the consolidated entity’s financial instruments, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. • Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3: Unobservable inputs for the asset or liability. Consolidated - 2020 Assets Derivative financial instruments Total assets Liabilities Derivative financial instruments Deferred settlements Total liabilities Consolidated - 2019 Assets Derivative financial instruments Total assets Liabilities Derivative financial instruments Deferred settlements Total liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 Level 1 $’000 - - - - - - - - - - 131 131 4,652 - 4,652 - - - 2,469 2,469 131 131 4,652 2,469 7,121 Level 2 $’000 Level 3 $’000 Total $’000 897 897 843 - 843 - - - 19,380 19,380 897 897 843 19,380 20,223 There were no transfers between levels during the financial year. Derivative financial instruments carried at fair value are forward foreign exchange contracts and floating interest rate to fixed interest rate swaps. These are considered to be Level 2 financial instruments because their measurement is derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Deferred settlements are considered to be a Level 3 financial instrument because inputs in valuing this instrument are not based on observable market data. The fair value of this instrument is determined based on an estimated discounted cash flow analysis. Significant accounting policies When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. 113 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 21. FAIR VALUE MEASUREMENT continued Significant accounting policies (continued) Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. NOTE 22. ISSUED CAPITAL Ordinary shares Treasury shares Movements in ordinary share capital Details Balance Issue for Dividend Reinvestment Plan Issue on acquisition Consolidated 2020 Shares 2019 Shares 2020 $’000 2019 $’000 339,412,500 283,480,597 878,652 631,697 - - (9,234) (8,161) 339,412,500 283,480,597 869,418 623,536 Date 1 July 2018 27 September 2018 4 December 2018 Shares $’000 280,244,752 610,951 830,414 1,396,952 1,008,479 6,039 9,150 5,557 Issue for Dividend Reinvestment Plan 12 April 2019 Balance Issue for Dividend Reinvestment Plan Issue for Dividend Reinvestment Plan 30 June 2019 283,480,597 631,697 26 September 2019 13 March 2020 1,054,992 1,205,595 7,274 6,770 Issue from Capital Raising - Institutional Placement 22 April 2020 40,909,091 180,000 Issue from Capital Raising - Retail Placement 25 May 2020 12,762,225 Share issue transactions costs April - June 2020 Deferred tax credit recognised directly in equity April - June 2020 - - 56,147 (4,623) 1,387 Balance 30 June 2020 339,412,500 878,652 During April and May 2020, Bapcor raised $236.1M of share capital to strengthen its balance sheet and increase funding flexibility through the issue of 40,909,091 shares under a placement to institutional investors, and the issue of 12,762,225 shares under a share purchase plan offer to existing shareholders. The total cost of this capital raising was $4,623,000 which was recognised as a reduction to the proceeds in equity. 114 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 22. ISSUED CAPITAL continued Movements in treasury shares Details Balance Return of employee shares Purchase of treasury shares Date 1 July 2018 1 July 2018 Shares $’000 - (800) (4,495) - 12-13 September 2018 (490,201) (3,666) Utilisation of treasury shares for LTI 14 September 2018 491,001 - Balance Purchase of treasury shares Utilisation of treasury shares for LTI Balance Ordinary shares 30 June 2019 9-12 September 2019 17 September 2019 - (154,875) 154,875 (8,161) (1,073) - 30 June 2020 - (9,234) Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Treasury shares The average purchase price of treasury shares during the period was $6.94 (2019: $7.48) per share. Significant accounting policies Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 115 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 23. RESERVES Foreign currency reserve Cash flow hedge reserve Share-based payments reserve Foreign currency reserve Consolidated 2020 $’000 2019 $’000 (6,140) (3,181) 10,718 (1,466) 35 8,739 1,397 7,308 This reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. Cash flow hedge reserve This reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments that is determined to be an effective hedge. Share-based payments reserve This reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2018 Revaluation Deferred tax Share-based payment expense Foreign currency translation Cancellation on divestment Balance at 30 June 2019 Revaluation Deferred tax Share-based payment expense Foreign currency translation Foreign currency reserve $’000 Cash flow hedge reserve $’000 Share-based payments reserve $’000 Total $’000 (10,131) - - - 7,714 951 (1,466) - - - (4,674) 667 (685) 201 - 8 (156) 35 (4,543) 1,327 - - 5,819 - 1,068 1,852 - - 8,739 - (240) 2,219 (3,645) (685) 1,269 1,852 7,722 795 7,308 (4,543) 1,087 2,219 - (4,674) Balance at 30 June 2020 (6,140) (3,181) 10,718 1,397 116 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 24. RETAINED PROFITS Retained profits at the beginning of the financial year Adjustment for change in accounting policy (note 3) Retained profits at the beginning of the financial year - restated Profit after income tax expense for the year Dividends paid (note 26) Retained profits at the end of the financial year NOTE 25. NON-CONTROLLING INTEREST Investment in Car Bits Asia, Thailand Opening balance Non-controlling interest loss for the financial year Foreign currency revaluation Closing balance Consolidated 2020 $’000 2019 $’000 89,110 (9,156) 79,954 37,138 - 37,138 79,172 96,978 (49,694) (45,006) 109,432 89,110 Consolidated 2020 $’000 2019 $’000 2,233 (455) 34 2,397 (446) 282 1,812 2,233 In March 2018, the consolidated group entered into a tri-party joint venture in Thailand holding 51% of the shares of the incorporated entity Car Bits Asia., Co. Ltd for the purposes of opening the Burson stores in Thailand. The consolidated group is considered to have effective control. 117 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 26. DIVIDENDS Dividends Dividends paid during the financial year were as follows: Final dividend for the year ended 30 June 2019 (2019: 30 June 2018) of 9.5 cents (2019: 8.5 cents) per ordinary share * Interim dividend for the year ended 30 June 2020 (2019: 30 June 2019) of 8.0 cents (2019: 7.5 cents) per ordinary share ** Consolidated 2020 $’000 2019 $’000 26,931 23,821 22,763 21,185 49,694 45,006 * $7,274,000 (2019: $6,039,000) of the final dividend for the year ended 30 June 2019 (2019: 30 June 2018) was settled under the Dividend Reinvestment Plan. ** $6,770,000 (2019: $5,557,000) of the interim dividend for the year ended 30 June 2020 (2019: 30 June 2019) was settled under the Dividend Reinvestment Plan. The Board has declared a final dividend in respect of FY20 of 9.5 cents per share, fully franked. The final dividend will be paid on 11 September 2020 to shareholders registered on 31 August 2020. The final dividend takes the total dividends declared in relation to FY20 to 17.5 cents per share, fully franked, representing an increase of dividends paid of 2.9% compared to the prior financial year. Dividends paid and declared in relation to FY20 represents 61.7% of pro-forma net profit after tax. Franking credits Consolidated 2020 $’000 2019 $’000 Franking credits available for subsequent financial years based on a tax rate of 30% 90,797 80,460 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: • • • franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date franking debits that will arise from the payment of dividends recognised as a liability at the reporting date franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date Significant accounting policies Dividends are recognised when declared during the financial year and no longer at the discretion of the company. 118 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 27. EARNINGS PER SHARE Profit after income tax Non-controlling interest Consolidated 2020 $’000 2019 $’000 78,717 455 96,532 446 Profit after income tax attributable to the owners of Bapcor Limited 79,172 96,978 Basic earnings per share Diluted earnings per share Cents Cents 26.97 26.85 34.40 34.27 Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 293,608,644 281,885,783 Adjustments for calculation of diluted earnings per share: Options over ordinary shares 1,291,262 1,113,893 Weighted average number of ordinary shares used in calculating diluted earnings per share 294,899,906 282,999,676 Significant accounting policies Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Bapcor Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year and excluding treasury shares. Diluted earnings per share 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 shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. 119 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 28. RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH FROM OPERATING ACTIVITIES Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Net gain on disposal of property, plant and equipment Unwinding of the discount on deferred settlements Amortisation of capitalised borrowing costs Write off of capitalised borrowing costs Non-cash share-based payment expense Finance lease interest unwind Other gain Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Increase in inventories Decrease/(increase) in other operating assets Increase/(decrease) in trade and other payables Increase/(decrease) in provision for income tax Increase in other operating liabilities Net cash from operating activities Consolidated 2020 $’000 2019 $’000 78,717 96,532 80,052 17,100 (50) 134 670 - 2,219 6,324 (104) 86 604 258 1,852 - - (4,053) 3,605 (6,892) (10,574) (32,856) 1,234 33,732 (1,190) 5,380 (2,201) (7,015) 1,122 1,208 200,253 65,641 Significant accounting policies Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 120 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 29. FINANCIAL RISK MANAGEMENT Financial risk management objectives The consolidated entity’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The consolidated entity’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 consolidated entity. The consolidated entity uses derivative financial instruments such as forward foreign exchange contracts to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market risk. Risk management is carried out by senior finance executives (‘finance’) under policies approved by the Board of Directors (‘the Board’). These policies include identification and analysis of the risk exposure of the consolidated entity and appropriate procedures, controls and risk limits. Finance identifies, evaluates and manages financial risks within the consolidated entity’s operating units. Finance reports to the Board on a monthly basis. The consolidated entity holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables* Derivative financial instruments Total financial assets Financial liabilities Trade and other payables Derivative financial instruments Deferred settlements Borrowings ** Lease liabilities Total financial liabilities Consolidated 2020 $’000 2019 $’000 126,300 155,216 131 47,610 155,111 897 281,647 203,618 222,204 183,645 4,652 2,469 843 19,380 230,982 382,960 181,808 - 642,115 586,828 * Trade and other receivables in the table excludes prepayments which are not classified as financial instruments ** Borrowings excludes any unamortised transaction costs capitalised Market risk Foreign currency risk The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations, primarily with respect to the United States dollar and the New Zealand dollar. Foreign exchange risk arises from future commercial transactions, primarily the purchase of inventory for sales, recognised financial assets and financial liabilities and net investments in foreign operations. In order to protect against exchange rate movements, the consolidated entity has entered into forward foreign exchange contracts. These contracts are hedging highly probable forecasted cash flows for the ensuing financial year. Management has a risk management policy to hedge between 25% and 100% of anticipated foreign currency transactions for the subsequent twelve months. The following table demonstrates the sensitivity to a change in the Australian dollar against other currencies, with all other variables held constant. The impact on profit before tax is due to changes in the fair value of monetary assets and liabilities. The pre-tax impact on equity is due to changes in the fair value of forward exchange contracts designated as cash flow hedges as well as foreign currency loans designated as net investment hedges. 121 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTE 29. FINANCIAL RISK MANAGEMENT continued Consolidated - 2020 % change AUD strengthened AUD weakened Effect on profit before tax $’000 Effect on equity $’000 Effect on profit before tax $’000 Effect on equity $’000 % change Derivative financial instruments Other financial assets Other financial liabilities 1% 1% 1% - (500) 567 67 666 - - 666 (1%) (1%) (1%) - 510 (579) (69) (681) - - (681) AUD strengthened AUD weakened Consolidated - 2019 % change Effect on profit before tax $’000 Effect on equity $’000 Effect on profit before tax $’000 Effect on equity $’000 % change Derivative financial instruments Other financial assets Other financial liabilities 1% 1% 1% - (372) 329 (43) 333 - - 333 (1%) (1%) (1%) - 380 (336) 44 (340) - - (340) Price risk The consolidated entity is not exposed to any significant price risk. Interest rate risk The consolidated entity’s main interest rate risk arises from long-term borrowings. The interest rate and term for bank borrowings is determined at the date of each drawdown. Borrowings obtained at variable rates expose the consolidated entity to cash flow interest rate risk. The consolidated entity, from time to time, enters into interest rate swap contracts under which it receives interest at variable rates and pays interest at fixed rates to manage the risk of adverse fluctuations in the floating interest rate on its borrowings. As at the reporting date, the consolidated entity had the following variable rate borrowings and interest rate swap contracts outstanding: Consolidated Borrowings (principal) Less: amounts covered by interest rate swaps 2020 2019 Weighted average interest rate % Balance $’000 Weighted average interest rate % Balance $’000 2.56% 2.54% 230,982 (20,000) 3.47% 2.44% 382,960 (40,000) Net exposure to cash flow interest rate risk 210,982 342,960 As at 30 June, if the weighted average interest rate of the bank borrowings had changed by a factor of + / - 10%, interest expense would increase / decrease by $590,000 (2019: $1,329,000). The amount recognised in other comprehensive income net of tax in relation to interest rate swaps was $104,000 (2019: ($32,000)). 122 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 29. FINANCIAL RISK MANAGEMENT continued Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. Credit risk is managed in the following ways: 1. The consolidated entity has a strict code of credit for all customers, including obtaining agency credit information, confirming references and setting appropriate credit limits. 2. Derivative counterparties and cash transactions are limited to high quality independently rated financial institutions with a minimum rating of ‘A’. 3. Concentrations of credit risk are minimised by undertaking transactions with a large number of customers. 4. In some instances the consolidated entity holds collateral over its trade receivables and loans in the form of personal guarantees and charges under the Personal Property Securities Register. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and note 10. No trade receivables have an external credit rating, and management classify trade receivables on aging profiles. As well as identifying specific expected credit losses, the consolidated entity has adopted a lifetime expected loss allowance in estimating expected credit losses on the remaining trade receivable balances through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the consolidated entity based on recent sales experience, historical collection rates and forward-looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than one year. Liquidity risk Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements Unused borrowing facilities at the reporting date: Bank loans including overdraft * Consolidated 2020 $’000 2019 $’000 286,518 134,540 * The unused facility value excludes any facility that relates to bank guarantees. Refer to note 18 for further information. Remaining contractual maturities The following tables detail the consolidated entity’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. 123 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 29. FINANCIAL RISK MANAGEMENT continued Consolidated - 2020 Trade and other payables Borrowings * Deferred consideration Lease liabilities Total non-derivatives Derivatives Interest rate swaps Forward foreign exchange contracts Total derivatives Consolidated - 2019 Trade and other payables Borrowings * Deferred settlements Total non-derivatives Derivatives Interest rate swaps Forward foreign exchange contracts Total derivatives 1 year or less $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 Remaining contractual maturities $’000 222,204 8,345 1,000 59,490 291,039 76 4,576 4,652 183,645 13,345 16,985 213,975 35 459 494 - - - 222,204 120,327 32,507 103,770 264,949 1,500 49,317 171,144 - 68,110 100,617 - 17,419 121,189 2,500 194,336 683,989 - - - - 13,345 2,500 15,845 349 - 349 - - - - - - 76 4,576 4,652 Between 2 and 5 years $’000 Over 5 years $’000 Remaining contractual maturities $’000 - - 183,645 310,658 107,540 444,888 - - 19,485 310,658 107,540 648,018 - - - - - - 384 459 843 1 year or less $’000 Between 1 and 2 years $’000 * Borrowings contractual cash flows includes an interest component based on the drawn/undrawn ratio and interest rate applicable as at reporting date until maturity of the loan facility Fair value of financial instruments The fair value of financial assets and liabilities disclosed in the statement of financial position do not differ materially from their carrying values. Capital risk management The consolidated entity’s policy is to maintain a capital structure for the business which ensures sufficient liquidity and support for business operations, maintains shareholder and market confidence, provides strong stakeholder returns, and positions the business for future growth. In assessing capital management both equity and debt instruments are taken into consideration. The ongoing maintenance of this policy is characterised by: • ongoing cash flow forecast analysis and detailed budgeting processes which, combined with continual development of banking relationships, is directed at providing a sound financial positioning for the consolidated entity’s operations and financial management activities; and • a capital structure that provides adequate funding for potential acquisition and investment strategies, building future growth in shareholder value. The loan facility can be partly used to fund significant investments as part of this growth strategy. The consolidated entity is not subject to externally imposed capital requirements, other than contractual banking covenants and obligations. All bank lending requirements have been complied with during the year and at the date of this report, which include the following covenants: • Net leverage ratio not exceeding 3.00:1 (Net Debt : EBITDA); • Fixed charge cover ratio not below 1.75:1 (EBITDA plus Rent : Net Total Cash Interest plus Rent) 124 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 30. RELATED PARTY TRANSACTIONS Parent entity Bapcor Limited is the parent entity. Refer to note 33 for supplementary information about the parent entity including internal dividends received. Subsidiaries Interests in subsidiaries are set out in note 34. Key management personnel Disclosures relating to key management personnel are set out in note 35 and the remuneration report included in the directors’ report. NOTE 31. BUSINESS COMBINATIONS Current financial year acquisitions The consolidated entity acquired the net assets of the following businesses: • Autobarn Albury • Autobarn Bayswater • Autobarn Browns Plains • Autobarn Capalaba • Autobarn Coffs Harbour • Autobarn Dural • Autobarn Preston • Autobarn Shepparton • Autobarn Tweed Heads • Autobarn Wagga Wagga • Autobarn Warriewood • Autopro Emerald • Australian Fuel Injection South • Brakeforce • Brookers • Diesel Drive • Opposite Lock Adelaide • Regional Transport Spares • Truckline These acquisitions were made to strengthen the Bapcor offering as well as increase the company store network presence. 125 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTS NOTE 31. BUSINESS COMBINATIONS continued The assets and liabilities recognised as a result of these acquisitions are set out below. The store and smaller business combinations have been aggregated. These are provisional at the time of this report and the fair values are to be finalised within the acquisition period of twelve months from acquisition date. Cash and cash equivalents Trade and other receivables Inventories Plant and equipment Motor vehicles Right-of-use assets Deferred tax asset Trade and other payables Provisions Lease liability Net assets acquired Goodwill Truckline Fair value $’000 Diesel Drive Fair value $’000 Other acquisitions Fair value $’000 Total $’000 18 11,679 22,513 837 - 9,360 4,023 (9,247) (2,683) (11,536) 24,964 4,414 - 1,392 4,769 63 115 839 900 (462) (225) (839) 6,552 12,207 7 331 3,904 304 15 6,993 2,913 (1,905) (842) (6,993) 4,727 6,492 25 13,402 31,186 1,204 130 17,192 7,836 (11,614) (3,750) (19,368) 36,243 23,113 Acquisition-date fair value of the total consideration transferred 29,378 18,759 11,219 59,356 Representing: Cash paid Debt forgiven Cash used to acquire business, net of cash acquired: Cash consideration Less: cash and cash equivalents 29,378 18,758 - 1 29,378 18,759 29,378 18,758 (18) - 7,586 3,633 11,219 7,586 (7) 55,722 3,634 59,356 55,722 (25) Net cash used 29,360 18,758 7,579 55,697 Goodwill in relation to these acquisitions relates to the anticipated future probability of their contribution to the consolidated entity’s total business. The Diesel Drive acquisition contributed revenue of $7,260,000 and net profit after tax of $924,000 to the consolidated group since acquisition on 2 December 2019. Based on historical management results that have not been reviewed or audited and excluding any transitional impacts, the contribution to revenue and net profit after tax if the Diesel Drive acquisition had occurred on 1 July 2019 is estimated to have been $13,007,000 and $1,799,000 respectively. The Truckline acquisition contributed revenue of $57,367,000 and net profit after tax of $1,880,000 to the consolidated group since acquisition on 2 December 2019. Based on historical management results that have not been reviewed or audited and excluding any transitional impacts, the contribution to revenue and net profit after tax if the Truckline acquisition had occurred on 1 July 2019 is estimated to have been $101,159,000 and $3,186,000 respectively. Each of the other acquisitions took place on different dates and are heavily integrated into the consolidated entity’s operations and as such it is impractical to disclose the amount of revenue or profit since acquisition date. Refer to note 7 for details on acquisition related costs incurred. Prior financial year acquisitions No material changes have occurred to the prior financial year acquisitions. 126 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 31. BUSINESS COMBINATIONS continued Significant accounting policies The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition-date. On an acquisition-by-acquisition basis, any non-controlling interest in the acquiree is recognised either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. Critical accounting judgements, estimates and assumptions Business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the consolidated entity taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported 127 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 32. DEED OF CROSS GUARANTEE The following entities are party to a deed of cross guarantee entered into in June 2017 under which each company guarantees the debts of the others. The companies below represent a ‘Closed Group’ for the purposes of the class order outlined below. Bapcor Limited Bapcor Finance Pty Ltd Bapcor Services Pty Ltd Burson Automotive Pty Ltd Car Bitz & Accessories Pty Ltd Aftermarket Network Australia Pty Ltd Automotive Brands Group Pty Ltd Midas Australia Pty Ltd Specialist Wholesalers Pty Ltd MTQ Engine Systems (Aust) Pty Ltd Baxters Pty Ltd Diesel Distributors Australia Pty Ltd Ryde Batteries (Wholesale) Pty Ltd Federal Batteries Qld Pty Ltd Premier Auto Trade Pty Ltd JAS Oceania Pty Ltd Australian Automotive Electrical Wholesale Pty Ltd Low Voltage Pty Ltd Bapcor Australia Pty Ltd By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare financial statements and directors’ report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission. Set out below is a consolidated statement of comprehensive income and statement of financial position of the Closed Group. Statement of comprehensive income Revenue Expenses Profit before income tax expense Income tax expense Profit after income tax expense Other comprehensive income for the year, net of tax Total comprehensive income for the year Equity - retained profits Retained profits at the beginning of the financial year Profit after income tax expense Dividends paid Retained profits at the end of the financial year 2020 $’000 2019 $’000 1,242,725 1,101,430 (1,159,734) (994,221) 82,991 (24,493) 107,209 (30,486) 58,498 76,723 (7,890) 7,921 50,608 84,644 2020 $’000 2019 $’000 41,404 58,498 9,687 76,723 (49,694) (45,006) 50,208 41,404 128 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 32. DEED OF CROSS GUARANTEE continued Statement of financial position Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other Non-current assets Trade and other receivables Property, plant and equipment Right-of-use assets Intangibles Deferred tax Other assets Intercompany 7 Investments Total assets Current liabilities Trade and other payables Lease liabilities Derivative financial instruments Income tax Provisions Non-current liabilities Borrowings Lease liabilities Derivative financial instruments Provisions Total liabilities Net assets Equity Issued capital Reserves7 Retained profits Total equity 2020 $’000 2019 $’000 103,714 134,479 303,065 89 297 31,647 133,414 269,893 801 - 541,644 435,755 - 64,804 129,627 536,510 31,988 881 17,631 48 54,430 - 511,005 15,403 2,412 13,138 451,859 427,035 1,233,300 1,023,471 1,774,944 1,459,226 195,487 50,046 4,341 1,569 38,669 290,112 217,090 100,827 - 14,755 332,672 154,850 - 249 1,988 44,162 201,249 368,616 - 349 13,146 382,111 622,784 583,360 1,152,160 875,866 869,418 232,534 50,208 623,536 210,926 41,404 1,152,160 875,866 7. The prior year comparative has been restated to reclassify between intercompany and reserves, reflecting a correction to the treatment of the reinstatement of the investment and subsequent removal of goodwill and assets of the entities not included in the Closed Group. 129 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 33. PARENT ENTITY INFORMATION Set out below is the supplementary information about the parent entity. Statement of comprehensive income Loss after income tax Internal dividend income Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Other reserves Current year profits/(losses) Dividends paid Prior years retained earnings Total equity Parent 2020 $’000 2019 $’000 (13,830) - (5,626) 18,753 (13,830) 13,127 Parent 2020 $’000 2019 $’000 - - 853,543 669,207 - - - - 869,418 623,537 10,718 (13,830) (49,694) 36,931 8,739 13,127 (45,006) 68,810 853,543 669,207 130 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 34. INTERESTS IN SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policies of the consolidated entity: Principal place of business / Country of incorporation Ownership interest 2020 2019 Name Bapcor Finance Pty Ltd Bapcor Services Pty Ltd Bapcor International Pty Ltd Car Bits Asia Co. Ltd Burson Automotive Pty Ltd Car Bitz & Accessories Pty Ltd Aftermarket Network Australia Pty Ltd Automotive Brands Group Pty Ltd Midas Australia Pty Ltd Specialist Wholesalers Pty Ltd MTQ Engine Systems (Aust) Pty Ltd Baxters Pty Ltd AADi Australia Pty Ltd A&F Drive Shaft Repair Queensland Pty Ltd Diesel Distributors Australia Pty Ltd Ryde Batteries (Wholesale) Pty Ltd Federal Batteries Qld Pty Ltd Premier Auto Trade Pty Ltd JAS Oceania Pty Ltd Australia Australia Australia Thailand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australian Automotive Electrical Wholesale Pty Ltd Australia Low Voltage Pty Ltd Don Kyatt Spare Parts (Qld) Pty Ltd He Knows Truck Parts Pty Ltd I Know Parts and Wrecking Pty Ltd Commercial Spares Pty Ltd Commercial Parts Pty Ltd Bapcor New Zealand Ltd Bapcor Automotive Ltd Brake & Transmission NZ Ltd Diesel Distributors Ltd Bapcor Services New Zealand Ltd HCB Technologies Ltd Renouf Corporation International Benequity Properties, LLC Bapcor Australia Pty Ltd * Precision Equipment New Zealand (previously Hellaby Investment No 8 Ltd) * Hellaby Resource Services Ltd ** Australia Australia Australia Australia Australia Australia New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand United States United States Australia New Zealand New Zealand These subsidiaries are non-trading. * ** These subsidiaries are non-trading and are in the process of being wound up. 100.0% 100.0% 100.0% 51.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 51.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 131 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 35. RELATED PARTY TRANSACTIONS - KEY MANAGEMENT PERSONNEL DISCLOSURES Compensation Short-term employee benefits8 Post-employment benefits Long-term benefits Share-based payments Loans Opening balance Amounts repaid Amounts recovered by deferred STI Closing balance Consolidated 2020 $’000 2019 $’000 7,733 6,800 245 76 2,234 239 71 1,751 10,288 8,861 Consolidated 2020 $’000 2019 $’000 601 (601) - - 642 (59) 18 601 Refer to the audited Remuneration Report within the Directors’ Report for further details on key management personnel compensation, as well as note 12 for further details on the loans made to key management personnel. There are no other transactions with key management personnel. 8. The prior year short-term employee benefits has been restated from the previously reported $7,407,000 due to the deferred bonus from FY18 being incorrectly included. This has been restated in the Remuneration Report as well. 132 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 36. SHARE-BASED PAYMENTS The Long Term Incentive (‘LTI’) plan is intended to assist in the motivation, retention and reward of nominated senior executives. The LTI is a payment contingent on three year performance and the payments are rights to acquire shares (‘Performance Rights’). Refer to the audited Remuneration Report within the Directors’ Report for further information on the LTI. In relation to the FY20 year an offer to participate in the LTI was made to nine of Bapcor’s senior executives. These allocated Performance Rights have a performance period that ends on 30 June 2022 at which time the performance hurdles are tested. A summary of the terms for the Performance Rights granted in the current financial year is in the following table: Grant date 6/09/19 1/11/19 Performance hurdle Relative TSR EPS Relative TSR EPS Performance period 1/07/19 to 30/06/22 1/07/19 to 30/06/22 Test date Expiry date Quantity granted Exercise price 30/06/22 16/09/34 30/06/22 16/09/34 177,794 177,794 104,780 104,780 Nil Nil Fair value at grant date* $4.87 $6.32 $5.13 $6.61 Other conditions Restriction on sale to 30/06/23 Restriction on sale to 30/06/23 Share price on valuation date Volatility Dividend yield Risk free rate $6.78 25.52% 2.51% 0.83% $7.04 25.21% 2.41% 0.79% * The fair value represents the value used to calculate the accounting expense as required by accounting standards. Relative total shareholder return (‘TSR’) hurdle Fifty per cent of the Performance Rights granted to a participant will vest subject to a TSR performance hurdle that assesses performance by measuring capital growth in the share price together with income returned to shareholders, measured over the performance period against a Comparator Group of companies. The Performance Rights will vest by reference to Bapcor’s TSR performance ranking against this Comparator Group of companies, as follows: Bapcor’s TSR relative to the Comparator Group over the performance period Percentage of TSR Rights vesting Less than 50th percentile Equal to 50th percentile Nil 50% Greater than 50th percentile and less than 75th percentile Pro-rata straight-line vesting Equal to or greater than 75th percentile 100% Earnings per share (‘EPS’) growth Fifty per cent of the Performance Rights granted to a participant will vest by reference to an EPS performance hurdle that measures the basic EPS on a normalised basis over the performance period. Each tranche of Performance Rights subject to an EPS hurdle will vest as follows: Bapcor's compound annual EPS growth over the performance period Percentage of EPS Rights Vesting Less than 7.5% 7.5% Nil 20% Greater than 7.5% and less than 15% Pro-rata straight-line vesting Equal to or greater than 15% 100% Performance Rights issued up to 30 June 2017 are exercised as soon as the vesting conditions are met. If vesting conditions are met, Performance Rights will automatically convert into fully paid ordinary shares of the Company. For Performance Rights issued on or after 1 July 2017, if vesting conditions are met, the Performance Rights are converted into fully paid ordinary shares of the Company at the election of the Participant. 133 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSNOTE 36. SHARE-BASED PAYMENTS continued Where there is no specific expiry date, the Performance Rights lapse if the vesting conditions are not met. Shares will be subject to a restriction on sale for twelve months from vesting of the Performance Rights. Set out below are summaries of Performance Rights granted under the LTI: 2020 Grant date Vesting date 20/12/2016 30/06/2019 04/12/2017 30/06/2019 04/12/2017 30/06/2020 26/09/2018 30/06/2021 29/10/2018 30/06/2021 06/09/2019 30/06/2022 01/11/2019 30/06/2022 2019 Grant date Vesting date 02/12/2015 30/06/2018 24/12/2015 30/06/2018 20/12/2016 30/06/2018 15/08/2017 30/06/2019 20/12/2016 30/06/2019 15/08/2017 30/06/2019 04/12/2017 30/06/2019 04/12/2017 30/06/2020 26/09/2018 30/06/2021 29/10/2018 30/06/2021 Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 182,220 177,603 466,097 226,195 170,886 - - - - - - - 355,588 209,560 (66,073) (88,802) - - - - - (116,147) (88,801) (40,351) (36,485) - - - - - 425,746 189,710 170,886 355,588 209,560 1,223,001 565,148 (154,875) (281,784) 1,351,490 Exercise price Balance at the start of the year Granted Exercised $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 223,734 146,574 114,872 7,977 219,408 15,236 177,603 567,067 - - 1,472,471 - - - - - - - - 226,195 170,886 397,081 Expired/ forfeited/ other Balance at the end of the year - - (2,016) (140) (37,188) (15,236) - - - - 182,220 - - 177,603 (100,970) 466,097 - - 226,195 170,886 (223,734) (146,574) (112,856) (7,837) - - - - - - (491,001) (155,550) 1,223,001 The weighted average exercise price for the Performance Rights exercised in the current financial year was $6.94 (2019: $7.48). The weighted average contractual lives are 1.76 years (2019: 1.63 years). The expense arising from share-based payment transactions relating to the LTI during the year as part of employee benefits expense was $2,219,000 (2019: $1,852,000). Note: The numbers in the disclosures above include amounts relating to employees that are not key management personnel and therefore differ to those presented in audited Remuneration Report within the Directors’ Report. Employee Salary Sacrifice Share Plan During the financial year, Bapcor issued shares to employees via an Employee Salary Sacrifice Share Plan (‘ESSSP’). The ESSSP allowed eligible employees to acquire up to $1,000 of shares from their pre-tax wages. The value of this share-based payment transaction is deemed immaterial to the financial statements. 134 Bapcor Limited Annual Report 2020FINANCIAL STATEMENTS30 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 36. SHARE-BASED PAYMENTS continued Significant accounting policies Share-based compensation benefits are provided to employees via the Long-Term Incentive (‘LTI’) plan. The fair value of performance rights granted under the LTI is recognised as an employee benefit expense over the period during which the employees become unconditionally entitled to the rights and options with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the rights and options granted, which includes any market performance conditions and the impact of any non-vesting conditions but excludes the impact of any service and non-market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest which are revised at the end of each reporting period. The impact of the revision to original estimates, if any, is recognised in profit or loss, with a corresponding adjustment to equity. The fair value is measured at grant date and the expense recognised over the life of the plan. The fair value is independently determined using a Black-Scholes or similar option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. Critical accounting judgements, estimates and assumptions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. NOTE 37. REMUNERATION OF AUDITORS During the financial year the following fees were paid or payable for services provided by PricewaterhouseCoopers, the auditor of the company, and its network firms: Audit services - PricewaterhouseCoopers Audit or review of the financial statements Other services - PricewaterhouseCoopers Tax compliance services Consulting services Other services - network firms Tax compliance services Consulting services Consolidated 2020 2019 603,502 596,502 - - - 25,850 7,000 32,850 603,502 629,352 - - - 105,762 15,218 120,980 Total auditor remuneration 603,502 750,333 135 Bapcor Limited Annual Report 202030 JUNE 2020NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTSF I N A N C A L I S T A T E M E N T S NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2020 NOTE 38. COMMITMENTS AND CONTINGENT LIABILITIES Commitments Commitments Committed at the reporting date but not recognised as liabilities, payable: Guarantees in relation to leases Guarantees in relation to performance of contracts* Supply of equipment* Operating lease commitments Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years Operating lease receivables Committed at the reporting date and recognised as assets, receivable: Within one year One to five years More than five years Consolidated 2020 $’000 2019 $’000 4,454 5,130 12,718 3,391 - - 22,302 3,391 - - - - - - - - 47,450 84,727 6,790 138,967 2,908 5,650 239 8,797 * The commitments of guarantees in relation to performance of contracts and supply of equipment relate to the Victorian DC Consolidation project. Operating lease commitments includes contracted amounts for various retail outlets, warehouses, offices and plant and equipment under non-cancellable operating leases with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. In the current year, these have been replaced by the disclosures required under AASB 16 Leases. Contingent liabilities There are no contingent liabilities (2019: Nil). The divestment of the non-core businesses of Footwear and Contract Resources as well as the TRS business unit in previous financial years include standard indemnity and warranty clauses as is customary in these type of transactions. NOTE 39. EVENTS AFTER THE REPORTING PERIOD In early August 2020, in relation to the COVID-19 pandemic, the Victorian Government mandated closures of many Melbourne based businesses for six weeks. As discussed in section 9 of the Directors Report, it is not yet possible to determine the financial impact of such restrictions. Any further government restrictions may also affect the operations and earnings of Bapcor, of which the impact cannot be determined at this time. On 11 August 2020, Bapcor announced the appointment of two new Non-Executive Directors effective 1 September 2020, Mr James Todd and Mr Mark Powell. Apart from these matters and the dividend declared as disclosed in note 26, no other matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future financial years. 136 Bapcor Limited Annual Report 2020 DIRECTOR’S DECLARATION 30 JUNE 2020 In the directors’ opinion: • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the consolidated entity’s financial position as at 30 June 2020 and of its performance for the financial year ended on that date; there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and • • • I ’ D R E C T O R S D E C L A R A T O N I • at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 32 to the financial statements. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors Andrew Harrison Chairman 19 August 2020 Melbourne Darryl Abotomey Chief Executive Officer and Managing Director Bapcor Limited Annual Report 2020 137 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAPCOR LIMITED Independent auditor’s report To the members of Bapcor Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Bapcor 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 30 June 2020 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: ● ● ● ● ● ● the consolidated statement of financial position as at 30 June 2020 the consolidated statement of comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year 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 (including Independence Standards) (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 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 138 Bapcor Limited Annual Report 2020 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAPCOR LIMITED continued 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. Materiality ● For the purpose of our audit we used overall Group materiality of $6.1 million, which represents approximately 5% of the Group’s profit before tax adjusted for the Victorian DC Consolidation costs. ● 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 adjusted 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 ● Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. ● Audit procedures were performed on the Australian and New Zealand operations assisted by local component auditors in New Zealand under the supervision of the Group engagement team. 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 Bapcor Limited Annual Report 2020 139 procedure is made in that context. We communicated the key audit matters to the Audit and Risk Committee. Key audit matter How our audit addressed the key audit matter Carrying value of goodwill and intangible assets with indefinite lives (Refer to note 15) $724.8m At 30 June 2020, the Group recognised $665.7 million of goodwill and $59.1 million of intangible assets with indefinite lives. At least annually, an impairment test is performed by the Group over the goodwill and intangible assets with indefinite lives, in each of the Group’s cash generating units (CGUs) based on a ‘value in use’ discounted cash flow models (the models). Impairment losses for identified shortfalls in value are recognised in the consolidated statement of comprehensive income. Significant judgement is required by the Group to estimate the key assumptions in the models to determine the recoverable amount of the goodwill and intangible assets with indefinite lives, and the amount of any resulting impairment (if applicable). The key assumptions applied by the Group include: ● ● cash flow forecasts, including the terminal value forecasts short-term and future growth rates in revenue and EBITDA margin ● the discount rate adopted in the models ● application of probability weightings to cash flow forecasts representing different recovery scenarios post COVID-19. The rapidly developing COVID-19 pandemic has meant assumptions regarding the economic outlook and the impacts on the Group’s estimates are uncertain, increasing the degree of judgement required in determining the recoverable amount of goodwill and intangible assets with indefinite lives. Specifically, this includes judgements regarding the impact of COVID-19 on forward looking information, including short term and future growth rates, terminal value forecasts and application of probability weightings to cash flow forecasts. Our audit procedures included, amongst others: ● ● ● ● ● ● ● ● Assessing whether the allocation of the Group’s goodwill and intangible assets into CGUs was consistent with our knowledge of the Group’s operations and internal Group reporting Assessing whether the grouping of CGUs appropriately included the assets, liabilities and cash flows directly attributable to each CGU and an allocation of corporate assets and overheads Evaluating forecast cash flows used in the models for consistency with the Group’s most up-to-date budgets and business plans formally approved by the Board of Directors Assessing the Group’s historical ability to forecast cash flows by comparing budgets to reported actual results for the past 3 years Considering whether the cash flows used in the model were reasonable and based on supportable assumptions by comparing actual cash flows for previous years to forecast cash flows and evaluating the support available from the Group for significant differences in actual and forecast cash flows Considering whether the application of probability weightings to the cash flow forecasts was reasonable and consistent with the Group’s post COVID-19 recovery scenario planning Assessing the sensitivity to change of key assumptions used in the models that either individually or collectively would result in the impairment of assets Together with PwC valuation experts, evaluating whether: o discount rates used in the models appropriately reflected the risks of the 140 Bapcor Limited Annual Report 2020INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAPCOR LIMITED continued Key audit matter How our audit addressed the key audit matter Given the level of judgement applied by the Group, and the financial significance of the goodwill and intangible assets with indefinite lives recognised in the Group’s consolidated statement of financial position, we determined that this continues to be a key audit matter. CGUs by considering relevant industry and market factors o the models applied to test goodwill and intangible assets with indefinite lives for impairment included the appropriate inputs as required under Australian Accounting Standards ● Testing the mathematical accuracy of the models on a sample basis. We also considered the adequacy of disclosures in note 15, including those regarding the key assumptions, in accordance with the requirements of the Australian Accounting Standards. Carrying value of Inventory (Refer to note 11) $363.0m Our audit procedures included the following, amongst others: At 30 June 2020, the Group recorded a provision for aged and slow-moving inventory of $55.9 million. The provision is calculated by applying judgemental provisioning rates to aged and slow-moving inventory categories. Specific provision is also recorded for items where the known net realisable value is lower than cost. We considered this to be a key audit matter because of the significant judgement required by the Group in determining the net realisable value of inventory and the potentially material impact that changes in the provision could have on the financial report. ● ● ● Considering whether all the necessary inventory balances were included in the inventory provision calculation Evaluating whether the methodology applied to the provision calculation was consistent with that applied in the prior year and was in accordance with Australian Accounting Standards Testing the movement in the inventory provision, including agreeing a sample of inventory written off to supporting documentation such as Board approvals ● Considering the adequacy of disclosures in note 11 in light of the requirements of the Australian Accounting Standards. Lease accounting and adoption of new Australian Accounting Standard AASB 16 Leases (AASB 16) (Refer to notes 3, 13 and 19) On 1 July 2019, the Group adopted AASB 16 and as a result, applied new accounting policies for leasing from that date. As at 30 June 2020, the Group recognised the following: We performed the following procedures amongst others: ● ● For a sample of lease agreements, we tested the mathematical accuracy of the Group’s calculations of the relevant RoU asset and lease liability. For a sample of lease agreements, agreed key inputs, including the lease term, fixed and variable payments and termination and 141 Bapcor Limited Annual Report 2020INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAPCOR LIMITED continued Key audit matter How our audit addressed the key audit matter ● Right-of-use (RoU) assets: $158.0 million ● Lease liabilities (current and non-current): $181.8 million We considered this to be a key audit matter given: ● ● ● The financial year ended 30 June 2020 is the first year of reporting under AASB 16 and the Group has a number of lease arrangements the financial significance of RoU assets and Lease liabilities the judgement required by the Group in determining the lease term where a lease contract contains an option to extend or terminate the lease ● the complexity of applying the requirements of AASB 16 to lease contracts with variable lease payments. ● ● ● ● ● ● extension options, to the supporting lease contracts For a sample of lease contracts that contain an option to extend or terminate the lease, we assessed whether the key assumptions used by the Group to determine the lease term were reasonable in the context of the requirements of Australian Accounting Standards For a sample of lease agreements, assessed the appropriateness of the accounting treatment of the variable lease payments in the context of the requirements of the Australian Accounting Standards Considered whether the calculation of incremental borrowing rates is consistent with the requirements of the Australian Accounting Standards For a sample of lease agreements, assessed whether the application of incremental borrowing rates is consistent with the requirements of the Australian Accounting Standards For a sample of lease agreements, performed a recalculation of RoU assets and lease liabilities Considered whether all lease contracts were included in the Group’s calculation of the RoU asset and the Lease liability by considering whether all known warehouse and store locations were included in the calculation ● Evaluated the adequacy of the disclosures in notes 3, 13 and 19 in light of the requirements of Australian Accounting Standards. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2020, but 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 and Corporate directory. We expect the remaining other information to be made available to us after the date of this auditor's report. 142 Bapcor Limited Annual Report 2020INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAPCOR LIMITED continued 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 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, 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 the 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report. 143 Bapcor Limited Annual Report 2020INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAPCOR LIMITED continued INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAPCOR LIMITED continued Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 48 to 73 of the directors’ report for the year ended 30 June 2020. In our opinion, the remuneration report of Bapcor Limited for the year ended 30 June 2020 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. PricewaterhouseCoopers Jason Perry Partner Melbourne 19 August 2020 144 Bapcor Limited Annual Report 2020 SHAREHOLDER INFORMATION In accordance with ASX Listing Rule 4.10, the Company provides the following information to shareholders not elsewhere disclosed in this Annual Report. The information provided is current as at 19 August 2020 (‘Reporting Date’). 1. CORPORATE GOVERNANCE STATEMENT Bapcor (‘the Company’) has prepared a Corporate Governance Statement which sets out the corporate governance practices that were in operation throughout the financial year for the Company. In accordance with ASX Listing Rule 4.10.3, the Corporate Governance Statement will be available for review on the Company’s website www.bapcor.com.au, and will be lodged with ASX at the same time that this Annual Report is lodged with ASX. 2. DISTRIBUTION AND NUMBER OF SHAREHOLDERS OF EQUITY SECURITIES The distribution and number of holders of equity securities on issue in the Company as at the Reporting Date, and the number of holders holding less than a marketable parcel of the Company’s ordinary shares, based on the closing market price as at the Reporting Date, is as follows: 2.1 Distribution of ordinary shareholders Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 + Total Total holders Shares % of Issued Capital 8,528 3,756,863 8,089 20,096,142 1,869 1,132 13,211,644 23,979,684 53 278,371,167 19,671 339,412,500 1.11 5.92 3.89 7.07 82.01 100.00 % - - - 22.61 77.39 100% Holders of less than a marketable parcel of $500 included in above total 341 5,498 2.2 Distribution of holders of performance rights Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 + Total Total holders Performance Rights - - - 6 4 - - - 305,628 1,045,862 10 1,351,490 Bapcor Limited Annual Report 2020 145 FINANCIAL REPORTING3. TWENTY LARGEST QUOTED EQUITY SECURITY HOLDERS The Company only has one class of quoted securities, being ordinary shares. The names of the twenty largest holders of ordinary shares, the number of ordinary shares and the percentage of capital held by each holder is as follows: Name HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited National Nominees Limited BNP Paribas Nominees Pty Ltd Garrmar Investments Pty Ltd Sandhurst Trustees Ltd Netwealth Investments Limited D Abotomey AMP Life Limited Equity Trustees Wealth Services Limited UBS Nominees Pty Ltd Schram Investments Pty Ltd C Magill JMB Family Investments Pty Ltd Gwynvill Trading Pty Ltd R Carpenter Sir Moses Montefiore Jewish Home P Ruffy Nulis Nominees (Australia) Limited Other Shareholders Total Shareholders 4. SUBSTANTIAL HOLDERS Ordinary Shares Number Held % of Issued Capital 107,354,226 62,430,410 40,239,102 28,545,609 20,662,078 6,522,699 2,704,656 1,646,710 1,431,154 964,665 893,334 527,888 510,619 448,719 356,819 318,726 275,255 263,319 248,415 245,935 276,590,338 62,822,162 31.63 18.39 11.86 8.41 6.09 1.92 0.80 0.49 0.42 0.28 0.26 0.16 0.15 0.13 0.11 0.09 0.08 0.08 0.07 0.07 81.49 18.51 339,412,500 100.00 As at the Reporting Date, the names of the substantial holders of the Company and the number of equity securities in which those substantial holders and their associates have a relevant interest, as disclosed in substantial holding notices given to the Company, are as follows: Name Challenger Limited Vanguard Group Number Held 18,340,351 16,974,862 % of Issued Capital 5.40 5.00 146 Bapcor Limited Annual Report 2020SHAREHOLDER INFORMATION ContinuedFINANCIAL REPORTING5. VOTING RIGHTS The voting rights attaching to each class of equity securities are set out below: 5.1 Ordinary shares At a general meeting of the Company, every holder of ordinary shares present in person or by proxy, attorney or representative has one vote on a show of hands and on a poll, one vote for each ordinary share held. 5.2 Performance rights Performance rights do not carry any voting rights. 6. UNQUOTED EQUITY SECURITIES 1,351,490 unlisted performance rights have been granted to 10 persons. There are no persons who hold 20% or more of performance rights that were not issued or acquired under an employee incentive scheme. 7. VOLUNTARY ESCROW There are no securities subject to voluntary escrow in the Company as at the Reporting Date. 8. ON-MARKET BUY-BACK The Company is not currently conducting an on-market buy-back. 147 Bapcor Limited Annual Report 2020SHAREHOLDER INFORMATION ContinuedFINANCIAL REPORTINGDirectors Andrew Harrison (Independent, Non-Executive Director and Chairman) Darryl Abotomey (Chief Executive Officer and Managing Director) Therese Ryan (Independent, Non-Executive Director) Margaret Haseltine (Independent, Non-Executive Director) Jennifer Macdonald (Independent, Non-Executive Director) Company secretary Noel Meehan Notice of annual general meeting The details of the annual general meeting of Bapcor Limited are: Date: 20 October 2020 Time: 1:30pm Location: Virtual; refer to Bapcor’s website for details. Registered office 61 Gower Street Preston VIC 3072 Australia Share register Computershare Investor Services Pty Ltd 452 Johnston Street Abbotsford VIC 3067 Australia Ph: +61 3 9415 4000 Auditor PricewaterhouseCoopers 2 Riverside Quay Southbank VIC 3006 Australia Stock exchange listing Bapcor Limited shares are listed on the Australian Securities Exchange (ASX code: BAP) Website www.bapcor.com.au 148 CORPORATE INFORMATION30 JUNE 2020Bapcor Limited Annual Report 2020

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