ANNUAL
REPORT
2016
Front Cover:
‘Hamptons House,
Brighton’ by Austin
Design Associates.
Photographer:
Derek Swalwell
DuluxGroup Limited is an
Australian company that owns
the Dulux® trade mark in Australia,
New Zealand, Papua New Guinea,
Samoa and Fiji only and the Cabot’s®
trade mark in Australia, New Zealand,
Papua New Guinea and Fiji only.
DuluxGroup Limited is not associated
with, and has no connection to, the
owners of the Dulux® and Cabot’s®
trade marks in any other countries,
nor does it sell Dulux® and Cabot’s®
products in any other countries.
DuluxGroup is a leading
marketer and manufacturer
of premium branded
products that enhance,
protect and maintain the
places and spaces in which
people live and work.
Contents
Our Core Purpose 2
2016 Highlights 4
DuluxGroup at a Glance 6
Chairman’s Report 8
Managing Director’s Report 10
Operating and Financial Review 12
– Markets and Sectors 12
– Strategy and Growth 14
– Review of Operations 16
– Business Segment Detail 20
– Future Financial Prospects 32
– Material Business Risks 34
Safety and Sustainability Report 36
Our Board 44
Our Executive 46
Corporate Governance Statement 48
Financial Report 60
Shareholder Statistics 130
Five Year Financial Statistics 131
Shareholder Information 132
Shareholder Timetable 133
DULUXGROUP ANNUAL REPORT 2015
1
Our Core Purpose
At DuluxGroup we help our consumers to imagine and create
better places and spaces in which to live and work. We call this...
Our Values
We have four key values that guide us in finding
smarter, market leading solutions for consumers
and our retail and trade customers.
Our Growth Strategy
We seek above-market growth rates by:
• continuing to seek low risk ways to
• extending our market leading
Dulux paints & coatings and Selleys
sealants & adhesives businesses
in Australia, New Zealand and Papua
New Guinea;
• transferring our core marketing,
sales and supply chain capabilities to
other home improvement categories
in Australia and New Zealand; and
develop positions offshore, including
those we have seeded in Asia and the
United Kingdom.
DuluxGroup aims to deliver growth
through a combination of organic
growth and acquisitions.
2
Our growth
enablers
Premium brands
and marketing
Innovation and
technology
Leading
customer service
Our people
and culture
Comprehensive
distribution
across retail and
trade channels
Broad product
portfolio
Financial
discipline
All of these elements underpin a strong and sustainable competitive advantage,
a stable earnings profile and a platform for compelling growth options.
DULUXGROUP ANNUAL REPORT 2016
3
1.3X
NET DEBT TO EBITDA
ONLY SLIGHT INCREASE
ON 1.2X IN 2015, DESPITE
INVESTMENT IN THE NEW
DULUX PAINT FACTORY
2016 Highlights
A solid operating result, driven by profit growth
in Dulux, Selleys, Yates and Lincoln Sentry.
on a
statutory basis
NET PROFIT AFTER TAX (NPAT)
$130.4m
15.6%
4.6%
$1.72b
SALES REVENUE
on an
underlying basis*
$201.1m
EARNINGS BEFORE
INTEREST AND TAX (EBIT)
2015 equivalent
EBIT* of
$192.4 million
4.5%
87%
CASH CONVERSION
**
1.7%
Safety
INJURY RATES DOWN 11%, WITH
SERIOUS INJURIES DOWN 40%
AND SERIOUS 'NEAR MISS'
INCIDENTS DOWN 11%, REFLECTING
STEADY PROGRESS TOWARDS
'A FUTURE WITHOUT HARM'.
4pts
24.0cents
ANNUAL DIVIDEND,
FULLY FRANKED
6.7%
71% payout
ratio on NPAT
* Excludes non-recurring items incurred
in FY15, which are outlined on page 19.
** A definition of cash conversion is
provided in page 31.
4
• Acquired the Munns lawn care
business in Australia, providing
Yates an expanded product
category presence
• New, state-of-the art, water-based
paints factory on track to open in
Melbourne in late 2017, which will use
the next generation in manufacturing
automation and paint technology
to support growth in our world
class Dulux paints business for
decades to come
• Opened a new third-party operated
distribution centre to support
ongoing growth in our Dulux and
Selleys businesses in New South
Wales, further improving our
customer service in a cost and
capital effective way
INVESTING FOR GROWTH
• Continuing to invest in the
fundamentals of brands, innovation
and customer service to build on
our premium branded, market
leading positions in core markets.
A number of new products were
launched during the year, and
our iconic brands and businesses
were recognised in a number
of ways, including:
– Dulux and Yates voted Australia’s
most trusted brands again in their
respective categories
– Customer service awards including
Dulux Paints Australia winning
Mitre 10 Supplier of the Year
and State Hardware Association
Awards, and Dulux Paints
New Zealand winning Guthrie
Bowron Supplier of the Year
• Acquired Craig & Rose paints,
a premium paint business in the
United Kingdom. For a modest
investment, it provides a local brand,
R&D, manufacturing and distribution
capability from which to grow in
the UK over the longer term
DULUXGROUP ANNUAL REPORT 2016
5
DuluxGroup
at a Glance
DuluxGroup’s brands have been trusted and
relied upon for generations. Brands such as
Dulux, Selleys, Yates, Cabot’s and B&D are
household names with the highest consumer
awareness in their respective markets.
PAINTS AND COATINGS ANZ
CONSUMER AND
CONSTRUCTION PRODUCTS
***
®
®
*
One of Australia and New Zealand’s
leading marketers and manufacturers
of premium branded decorative paints,
woodcare coatings, texture coatings,
protective coatings, industrial and
powder coatings products.
Selleys is one of Australia and
New Zealand’s leading marketers and
manufacturers of adhesives, sealants,
fillers, paint preparation and other
general maintenance products for the
residential home improvement market.
EBIT
$156.5m 6.6%1
Parchem is a leading manufacturer
and supplier of construction chemicals,
decorative concrete products and
related equipment for Australia and
New Zealand’s civil engineering,
industrial, commercial and residential
construction markets.
EBIT
$29.5m
1.0%1
*** Geelong Library and Heritage Centre
by ARM Architecture
Photo by: John Gollings
6
GARAGE DOORS
AND OPENERS
CABINET AND
ARCHITECTURAL HARDWARE
OTHER BUSINESSES
*
*
*
*
*
*
**
A leading manufacturer and
marketer of garage doors and
automatic openers for the Australian
and New Zealand residential,
commercial and industrial markets.
Lincoln Sentry is one of Australia’s
leading distributors of premium quality
hardware and components to the
cabinet making, window, door and
glazing industries. It is a proud supplier
of quality brands including Blum, Hera,
SecureView, Assa Abloy and Breezway.
EBIT
$16.1m
5.8%
EBIT
$12.5m
38.9%
* Distributed Brand.
** DuluxGroup Limited is an Australian company that owns the Dulux® trade
mark in Australia, New Zealand, Papua New Guinea, Samoa and Fiji only and
the Cabot’s® trade mark in Australia, New Zealand, Papua New Guinea and
Fiji only. DuluxGroup Limited is not associated with, and has no connection
to, the owners of the Dulux® and Cabot’s® trade marks in any other countries,
nor does it sell Dulux® and Cabot’s® products in any other countries.
1. Excluding non-recurring items incurred in FY15, which are outlined on page 19.
DuluxGroup’s ‘Other businesses’ include:
• Yates, which is one of Australia and
New Zealand’s leading manufacturers
and marketers of products for
home gardening and small scale
commercial horticulture;
• the paints business in Papua
New Guinea, where Dulux is a
clear market leader;
• the DGL Camel business in China and
Hong Kong and the DGL International
business in South East Asia, which
have targeted niche positions across
categories, including decorative
and specialty coatings, adhesives,
sealants and paint accessories; and
• Craig & Rose, a niche premium,
paint company in the United
Kingdom, acquired by DuluxGroup
in August 2016.
EBIT
$14.5m
8.8%
DULUXGROUP ANNUAL REPORT 2016
7
Chairman’s
Report
I am pleased to report that DuluxGroup has
continued to grow and increase profits this year.
During our sixth consecutive year of underlying
profit growth, we also reinvested for ongoing
growth in our principal Australian and
New Zealand markets and further developed
niche offshore growth opportunities.
Market conditions
Underlying demand fundamentals
remained generally strong in
DuluxGroup’s core market – the
maintenance and improvement of
existing homes. Underpinned by an
existing stock of approximately
10 million homes in Australia, of which
about 70% are older than 20 years,
this market accounts for two thirds
of DuluxGroup revenue. Low interest
rates, stable GDP growth and high
house prices further reinforced the
long term resilience of this market.
Changes in retail hardware channels,
including the closure of Masters,
delivered some short term revenue
challenges. However, our heritage
Dulux, Selleys and Yates businesses
effectively managed these, delivering
excellent results and growing margins,
despite this short term pressure.
Although of less significance to
DuluxGroup, the new housing segment
continued to grow strongly. Approvals
have peaked, however a solid pipeline
of work is yet to be commenced and
completed. DuluxGroup is deliberately
less exposed to this lower margin
segment of the market.
While commercial markets were
positive, other non-residential
construction continued to be
negatively affected by declining
investment in resources infrastructure.
With civil infrastructure investment yet
to fill the gap, there was some revenue
impact on those parts of our business
more exposed to these sectors.
The New Zealand market was generally
favourable, but our Papua New Guinea
business, in particular, was significantly
affected by deteriorating economic
conditions in the wake of continuing
downturn in major resource projects.
The result
A 4.6%1 increase in group net
profit after tax (NPAT) was driven
by solid earnings growth across
most businesses. Diluted earnings
per share (EPS) growth was 3.7%1,
continuing year-on-year EPS growth
since DuluxGroup emerging as an
independent company in 2010.
Our net debt to EBITDA ratio
increased slightly. Strong cash
conversion was slightly offset by
the increased capital expenditure
related to our new water-based paint
factory, which is scheduled to open in
Melbourne in late 2017. However, our
debt levels remain at the lower end of
our range, providing a comfortable level
of flexibility to fund capital expenditure
in targeted growth projects.
Shareholder returns
The Board has declared a final
dividend of 12.5 cents per share,
fully franked, taking the total dividend
for the year to 24.0 cents per share,
which represents a 6.7% increase on
the 2015 equivalent, and a 71% pay-out
ratio on NPAT. The record date for the
final dividend is 17 November 2016
and the dividend payment date is
9 December 2016. DuluxGroup’s
Dividend Reinvestment Plan (DRP) will
operate in respect of the final dividend.
Since DuluxGroup listed as an
independent company in July 2010
total shareholder return has been 235%
compared with 64% for the ASX200
Accumulation Index2.
Growth and investment focus
This above-market TSR has been
delivered alongside reinvestment
to secure longer term growth
for DuluxGroup.
The new Dulux and Selleys distribution
centre opened in Sydney in June this year.
It has replaced our outgrown existing
warehouses and has capacity to support
the strong growth ahead for these two
businesses. This purpose-built facility is
owned and operated by a specialist third
party logistics provider, and has a strong
financial payback.
Construction is well underway
on Dulux’s new state-of-the art,
water-based paints factory in
Melbourne. At $165 million, this
is DuluxGroup’s largest capital
expenditure project to date and sets
up our world-class Australian paints
and coatings business for growth for
decades to come. It will provide a
solid financial payback through cost
savings and operational efficiencies.
It will also produce more advanced
paint products, reduce the level
of waste and significantly reduce
the fire and flood risk in our paint
production. It is on track to begin
production in late 2017.
During the year, we continued to
profitably grow our existing paints,
specialty coatings and adhesives
businesses in Australia and New
Zealand. These businesses represent
approximately two thirds of DuluxGroup
revenue. Dulux and Selleys are high
quality performers, and this year they
again did well despite some of the
market pressures I mentioned earlier.
Considerable progress was made in
reshaping the Parchem Construction
Products business to be more exposed
to projected growth in civil infrastructure
markets, reducing Parchem’s focus on
resource sector related construction.
Our core paints, specialty coatings
and adhesives focus is supplemented by
DuluxGroup’s presence in other home
improvement categories in Australia
and New Zealand including garden care,
garage doors & openers and cabinet
& architectural hardware. In June
DuluxGroup acquired the Munns lawn
care business in Australia, expanding
Yates’ brand portfolio.
We are also continuing to seed
niche offshore growth opportunities,
focussed primarily on our paints
and Selleys businesses. In August
DuluxGroup acquired Craig & Rose,
a small UK-based paints business.
8
1. Excluding non-recurring items in FY15, which are outlined on page 19.
2. Based on closing prices at 30 September 2016.
6.7%
INCREASE IN
TOTAL DIVIDEND
Thank you
I would also like to thank Patrick
Houlihan, his management team and
all employees for their contribution to
another successful year at DuluxGroup.
On behalf of Board members,
I thank you our shareholders for your
continued support.
With DuluxGroup well positioned
for ongoing profit growth, the
outlook for your company remains
very strong. I look forward to the
next opportunity to update you
on DuluxGroup’s performance.
PETER KIRBY
8 NOVEMBER 2016
DULUXGROUP ANNUAL REPORT 2016
9
For a modest investment we have
secured a premium paint brand
combined with local manufacturing
capability. It provides a solid
foundation for measured growth in
the UK over the medium to long term.
Safety and sustainability
Our people and Board remain
focussed on continuously improving
the safety and sustainability of
our operations. Central to this is
identifying and managing significant
risks to ensure that we prevent harm
and make a positive contribution
to the communities where we
operate. During the year we made
good progress against our four
focus areas of disaster prevention,
fatality prevention, injury prevention
and sustainability. The number of
serious near misses involving fatality
risks and the number of recordable
injuries both fell 11%. Our recordable
injury rate is very good by industry
standards and it was pleasing to also
see a 40% reduction in the most
serious injuries. It has been more than
three decades since a major incident
or disaster occurred in our chemical
manufacturing processes. Given the
likely high consequence of any such
incident, constant vigilance is a priority.
Product stewardship improvement
remained our key sustainability
priority and all businesses made
good progress during the year.
Our people and operations
DuluxGroup employs approximately
4,000 people throughout the globe,
with more than 3,000 of those located
here in Australia.
Our employees at all levels feel a
strong sense of ownership for our
businesses and iconic brands, which is
reflected in the vast majority of eligible
employees choosing to hold shares
in DuluxGroup in their own right.
Likewise, our executive remuneration
structure is designed to focus executive
effort on the long term strength
and prosperity of the company, and
provides clear and direct alignment
with shareholder interests through share
ownership. This is demonstrated by the
high levels of share ownership amongst
our Executive team and our requirement
that all senior managers build a
meaningful shareholding in DuluxGroup
in addition to their long term incentive
scheme shares. The full details of the
Remuneration Framework are outlined
in the Remuneration Report on page 67.
Diversity
Increasing the gender, cultural and age
diversity of DuluxGroup’s workforce
remains a key priority for the Board
and management. We are employing
proportionally more women than
ever before, including at the graduate
level, and more women are in senior
management roles than at any time in
our history. Four of our business units
are now led by women, twice as many
as last year, and in the traditionally male
dominated sales area six state managers
are women. We still have some way
to go, but the growing representation
amongst graduates, middle and senior
management provides a pipeline of
candidates for future general business
manager and executive roles.
Board renewal
In June, Graeme Liebelt joined the
Board. All of the other directors were
appointed at the time of, or soon after,
DuluxGroup’s demerger from Orica
six years ago. It is a key part of our
succession planning that we identify
candidates with the desired skills to
ensure renewal and orderly succession
when the need arises. Graeme is clearly
one such candidate and I am pleased
to welcome him to the DuluxGroup
Board. I would also like to express my
thanks, on behalf of all shareholders,
to Gaik Hean Chew, who will retire from
the Board at the upcoming Annual
General Meeting. Amongst her many
valuable contributions, Gaik Hean has
provided an important international
perspective to our deliberations over
the past six years and we wish her well
in her future endeavours.
Managing
Director’s
Report
I am pleased to report that
DuluxGroup has delivered another
year of solid profit growth.
Group performance
2016 Net Profit After Tax (NPAT)
was $130.4 million, an increase
of 4.6% compared with the 2015
equivalent NPAT of $124.7 million.
Sales revenue increased 1.7% to
$1.72 billion. Otherwise solid growth
was offset by the short term impact
from changes in our Australian and
New Zealand retail channels, combined
with ongoing decline in Australian
resources infrastructure and Papua
New Guinea markets.
Earnings before interest and tax
(EBIT) was $201.1 million, an increase
of 4.5% excluding non-recurring items
incurred in the prior year1.
The result was underpinned by strong
financial discipline to effectively
manage margins and retain strong
cash flow performance.
Business performance
The result was driven by consistent
earnings growth in Australia and
New Zealand from DuluxGroup’s
heritage businesses: Dulux Paints
& Coatings, Selleys Consumer
Products and Yates Garden Care.
Dulux, Selleys and Yates makes up more
than two thirds of DuluxGroup revenue
and collectively grew earnings by 6.2%,
and individually delivered record profits.
The Dulux trade and specialty coatings
parts of these businesses performed
particularly well, which demonstrates the
value of our broad end-market approach.
B&D Garage Doors & Openers,
Parchem Construction Products and
Lincoln Sentry Cabinet & Architectural
Hardware, which were acquired in late
2012, collectively delivered EBIT growth
of 8.6% in mixed market conditions.
These businesses make up about 25%
of DuluxGroup’s revenue. They are
all profitable market leaders and are
together delivering a solid return on
the original cost of acquisition.
Lincoln Sentry delivered excellent
revenue and profit growth and Parchem
managed margins and costs to
maintain profit in very tough markets.
B&D is proving more challenging and
we have more work to do to take this
from a good business to a consistently
strong performing business.
Earnings in DuluxGroup’s offshore
businesses, which represent around 5%
of DuluxGroup’s revenue, were down
by $2.7 million, solely due to market
decline in Papua New Guinea, with
China and South East Asia improving.
Growth driven by consistent
investment in premium brands,
innovation and customer focus
Profitable growth has been delivered
amidst ongoing competition from
global competitors and ongoing
changes in retail customer channels.
For our Dulux, Selleys and Yates
businesses, the past 18 months have
been marked by a number of changes
in Australian and New Zealand retail
customer channels. The fall-out from
the Masters stores closures, the
consolidation in the independent
hardware segment in Australia and
the transition of our paints brands
out of Mitre 10 in New Zealand
have all presented challenges.
Our businesses have responded
well, delivering solid results and
continuing to build their market leading
positions. This success has been
driven by ongoing investment in our
premium brands through marketing,
new product innovation and relentless
focus on customer service. A number
of new products were launched onto
the market and we have significantly
stepped-up our digital capability to
interact with our consumers in real time
to help them ‘imagine and create a
better place.’
It was pleasing to see that Dulux
was again voted Australia’s most trusted
paint brand and is this year’s fourth
most trusted brand overall across any
surveyed product category, and Yates
was once again voted Australia’s most
trusted garden care brand.
4.6%
INCREASE IN GROUP
NET PROFIT
10
EARNINGS BEFORE
INTEREST AND TAX (EBIT)
WAS $201.1 MILLION, AN
INCREASE OF 4.5% EXCLUDING
NON‑RECURRING ITEMS
INCURRED IN THE PRIOR YEAR.1
Senior management changes
In February this year Siobhan McHale
joined the DuluxGroup Executive
Team as Executive General Manager
of Human Resources.
We also increased the gender
diversity in our senior management
ranks, through both external
appointment and internal promotion
of women to the roles of: Director
of Dulux Marketing ANZ; Selleys
Global Marketing Director; General
Manager of Automatic Technology;
General Manager of Cabot’s; and
Technology Manager for Dulux ANZ.
Thank you
Employees at all levels have
contributed to another successful
year of profit growth and I thank each
of them for their ongoing commitment.
I would also like to thank Peter Kirby
and the rest of the DuluxGroup Board.
Finally, I thank you our shareholders for
continuing to invest in DuluxGroup.
PATRICK HOULIHAN
8 NOVEMBER 2016
We are continuing to build B&D, Lincoln
Sentry and Parchem, which are already
profitable market leaders, into better
businesses. We have strengthened
sales, marketing and customer service
capability to take these businesses to
a higher level of performance.
Lincoln Sentry has developed into
a consistently strong performer since
acquisition, growing earnings by 19% on
a compound annual basis. It continues
to grow its position as one of Australia’s
leading distributors of premium branded
cabinet and architectural hardware with
incremental market share growth.
Parchem’s topline growth has been
challenged by the decline in infrastructure
markets, particularly resources
related. It has made good progress on
restructuring the business, reshaping
its distribution strategy, reducing costs
and increasing its focus on the stronger
civil infrastructure and commercial
construction market segments.
B&D now has a fit for purpose
customer sales and service structure
and has invested to ensure it has the
right product mix to deliver profitable
growth. It has built a new brand
position – ‘Home Safe Home’ – based
on consumer insights, and has invested
in new products, advertising and
digital marketing to support it. The
foundations are strong, and the focus
is now on profitable revenue growth,
whilst managing costs and margins,
and continuing to build its premium
brand position.
We are transferring capability into
our more recently acquired businesses,
including Porter’s which has now
extended its distribution reach with
bespoke displays now installed in 40
stores across the Dulux Trade Store and
independent paint specialist network
throughout Australia and New Zealand.
Offshore, we have recently acquired
the Craig & Rose paint company in
the United Kingdom (UK). This is a
small business with a premium brand
and good growth potential from
investment in marketing and better
distribution. This acquisition also gives
us a good physical base to potentially
launch other brands and ranges into
the UK market, for example Selleys
and Porter’s.
Success driven by culture
A major focus for the Executive
Team this year has been ensuring
that we have the right culture to be a
truly consumer driven and innovative
company. Six years of consecutive
profit growth is a healthy platform
from which to build an even stronger
company. Our people at all levels are
embracing opportunities to live the
Values that will guide our success:
• Be consumer driven,
customer focused.
• Unleash your imagination.
• Value people, work safely
and respect the environment.
• Run the business as your own.
Our people are motivated
to continuously improve their
understanding of our consumers
and to be imaginative in finding better
and smarter ways to deliver what they
need. In doing so, the fundamentals of
financial discipline, customer service
and ensuring the safety of ourselves
and others have not changed.
An unwavering safety focus is
consistently nominated by our
employees as one of the things
they most value about working
at DuluxGroup. We encourage and
reward proactive reporting of anything
that could potentially cause injury, and
I am pleased that the level of reporting
increased to record levels this year.
This marks six years of continuous
improvement in this area.
1. Non-recurring items in FY15 are outlined on Page 19.
DULUXGROUP ANNUAL REPORT 2016
11
OPERATING AND FINANCIAL REVIEW
Markets
and Sectors
DuluxGroup is predominantly an Australian
and New Zealand paints, specialty coatings
and adhesives company. DuluxGroup’s primary
end‑market focus is on residential homes, with a
bias towards the maintenance and improvement
of existing homes and a smaller focus on new
residential construction.
Scotland
OUR LOCATIONS
DuluxGroup employs approximately 4,000 people
in Australia, New Zealand, Papua New Guinea, South
East Asia, China and the United Kingdom. It has:
• 20 main manufacturing sites
• 19 distribution centres
• approximately 120 company owned trade outlets
MAIN MANUFACTURING SITES
DECORATIVE PAINTS
Rocklea, Queensland, Australia
Gracefield, Wellington, New Zealand
Guangdong Province, China
Lae, Papua New Guinea
Edinburgh, Scotland, UK
WOODCARE
Dandenong, Victoria, Australia
TEXTURE COATINGS
Beverley, South Australia
Shah Alam, Selangor, Malaysia
POWDER COATINGS
Guangdong Province, China
Dandenong, Victoria, Australia
Auckland, New Zealand
PROTECTIVE COATINGS
Dandenong, Victoria, Australia
SELLEYS CONSUMER PRODUCTS
Padstow, New South Wales, Australia
PARCHEM CONSTRUCTION
PRODUCTS
Wyong, New South Wales, Australia
12
YATES GARDEN CARE
Wyee, New South Wales, Australia
Mt Druitt, New South Wales, Australia
Auckland, New Zealand
B&D GARAGE DOORS
Hornby, Christchurch, New Zealand
East Tamaki, Auckland, New Zealand
Revesby, New South Wales, Australia
Clontarf, Queensland, Australia
Kilsyth, Victoria, Australia
Malaga, Western Australia
AUTOMATIC OPENERS
Dalian, China
INNOVATION AND
TECHNOLOGY CENTRES
(DuluxGroup Head Office)
Clayton, Victoria, Australia
Padstow, New South Wales, Australia
Beverley, South Australia.
New Zealand 11%
Offshore 7%
Australia 82%
DuluxGroup holds market leading
positions in Australia, New Zealand
and Papua New Guinea, with exposure
to higher growth regions in Asia and a
small presence in the United Kingdom.
2016
SALES BY
GEOGRAPHY
OUR PRODUCTS:
Paints, specialty coatings and
adhesives account for more than
70% of group revenue.
“ A broad portfolio of
products and markets.”
Yates Garden Care 7%
Lincoln Sentry Cabinet and
Architectural Hardware 11%
Retail
Paints 21%
2016 SALES
BY BUSINESS
SECTORS
Trade
Paints 22%
Specialty Coatings 14%
Selleys Consumer
Products 9%
Parchem Construction
Products 6%
OUR END MARKETS:
Approximately two thirds of
DuluxGroup’s business is focused on
the maintenance and improvement of
existing homes. Throughout economic
cycles consumers have continued
to invest in making their homes ‘a
better place’, whether it be through
do-it-yourself (DIY) projects or
engaging a trade professional.
DuluxGroup also has some focus
on new housing, with a bias towards
the premium end of the market where
consumer choice of brands plays a
greater role. When consumers are
deciding which products to use in
their own living spaces – whether it
be in an existing or a new home – they
seek out brands they know and trust.
Approximately one fifth of
DuluxGroup’s business comes from
commercial, infrastructure and
industrial markets.
“ DuluxGroup’s primary
focus is on residential
markets, with a
strong bias towards
existing homes. This is
complemented by a
presence in commercial
and infrastructure markets.”
OUR CUSTOMER CHANNELS:
Almost two thirds of DuluxGroup’s
business is delivered via trade channels,
comprising an extensive network of
customers including, painters, specifiers,
architects, engineers, designers,
builders, concreters, cabinet makers,
garage door dealers, project and
facilities managers.
In addition to our own extensive
company trade store network,
DuluxGroup’s products are sold through
thousands of retail customer outlets
ranging from large national home
improvement and grocery retailers to
specialist paint and decorating stores,
smaller family-owned hardware stores
and garden centres.
“ DuluxGroup invests in its
iconic brands and focuses
on providing innovative
product solutions to
drive growth and success
through its retail and
trade customers.”
Trade 60%
Retail 40%
New Housing 15%
Commercial and Infrastructure 15%
Industrial 5%
2016 SALES
BY CUSTOMER
CHANNEL
2016 SALES
BY END
MARKET
* Note: Indicative DuluxGroup revenue
splits based on FY16 revenue
Maintenance and Home
Improvement 65%
DULUXGROUP ANNUAL REPORT 2016
13
B&D Garage Doors and Openers 10%
Strategy
and Growth
OUR OBJECTIVE
To deliver long term shareholder value by focussing on premium branded,
innovative products that enable consumers to imagine and create better places
and spaces in which to live and work.
• Deliver the upside value in
B&D, Parchem and Lincoln Sentry
by transforming their marketing,
sales and supply chain capabilities;
• Lock down medium-term growth
opportunities, for example in
domestic construction chemicals,
and in low risk but sensible
offshore positions; and
• Pursue business enhancement
opportunities, including the new
paint factory, distribution centre
projects and company-wide
projects to improve productivity.
HOW WE PLAN TO GROW
We seek above-market growth rates by:
• extending our market leading Dulux
paints & coatings and Selleys sealants
& adhesives businesses in Australia
and New Zealand;
• transferring our core marketing, sales
and supply chain capabilities to other
home improvement categories in
Australia and New Zealand; and
• continuing to seek low risk ways
to develop positions offshore in
the paint and Selleys businesses,
including those we have seeded
in Asia and United Kingdom.
DuluxGroup aims to deliver growth
by a combination of organic growth
and acquisitions.
The company’s key priorities are:
• Extend the market leadership
positions of our established
and profitable Dulux, Selleys
and Yates businesses, by both
improving the base business
and seeking close to the core
opportunities beyond this base;
STRATEGY
Our strategy is to develop market
leadership positions in premium
branded consumer and trade
products, enabled with differentiated
technologies. We aim to leverage our
core capabilities to be the ‘natural
owner’ of a portfolio of businesses
that generates sustainable growth.
Our enabling capabilities are in:
marketing and consumer engagement;
innovation and technology; retail
and trade customer service and
experience; architectural and
engineering specification; and
supply chain excellence.
WHERE WE PLAY
Our major focus is on markets
and market segments that deliver
consistent growth and strong returns,
with an emphasis on the relatively
stable existing home renovation and
maintenance markets (65% of Group
revenue). As context, Australia has
about 10 million existing residential
dwellings, and approximately
70% are more than 20 years old.
This focus is complemented by
exposure to new housing (15% of
Group revenue), and commercial,
infrastructure and industrial
sectors (20% of Group revenue).
We focus on well structured markets
where our ability to leverage our
position, brands and technology
allows us achieve premium margins
and returns on capital employed and
to continually improve the utilisation
rates of existing assets and cost base.
14
DULUXGROUP ANNUAL REPORT 2016
15
Review of Operations
RESULT SUMMARY
• Sales revenue of $1,716.3M, increased by $28.5M (+1.7%)
– Heritage DuluxGroup ANZ (Dulux, Selleys, Yates) up 2% ($18.0M), in overall flat markets
– B&D, Lincoln Sentry and Parchem businesses collectively up 2% ($9.9M) in mixed markets
– Offshore (Papua New Guinea, Asia and UK) down 3% ($3.5M) driven by weak markets in PNG
• EBIT of $201.1M, increased by 14.7%. Excluding the impact of non-recurring items in FY15 (relating to our key supply chain
projects), EBIT increased $8.7M (+4.5%)
– Heritage DuluxGroup ANZ up $11.2M or 6.2%
– B&D, Lincoln Sentry and Parchem businesses collectively up $2.7M or 8.6%
– Offshore down $2.7M due to PNG market decline
– Corporate increased $2.4M due to additional growth expenditure (primarily UK related)
– Depreciation and amortisation declined by $2.6M, primarily due to a group wide review of useful asset lives
• Net profit after tax (NPAT) of $130.4M increased by 15.6%. Excluding the impact of non-recurring items in FY15, NPAT
increased by $5.7M or 4.6%
• Cash conversion was strong at 87%, favourable to the prior year’s 83%
• Operating cash flow was $144.9M, a decrease of 7.4%. Excluding the cash impact of non-recurring items, operating cash
flow declined 1.0%, primarily due to higher tax payments
• A final dividend of 12.5 cents per share, taking total dividends for the year to 24.0 cents per share, fully franked, an
increase of 6.7% on the prior corresponding period (pcp) and represents a dividend payout ratio of approximately 70%
RESULTS
A$M
Sales revenue
EBITDA
EBITDA excluding non-recurring items
Depreciation and Amortisation
EBIT
EBIT excluding non-recurring items
Net profit after tax (NPAT)
NPAT excluding non-recurring items
Operating cash flow
Operating cash flow excluding non-recurring items
Cash conversion excluding non-recurring items
Net debt inclusive of USPP hedge value
Net debt to EBITDA
Diluted earnings per ordinary share (EPS) (cents)
Diluted EPS excluding non-recurring items (cents)
Final dividend per share (cents)
Total dividend per share (cents)
Refer to glossary on page 31 for definition of terms
Note: Numbers in this report are subject to rounding. ‘nm’ = not meaningful.
Non-recurring items are outlined on page 19.
FULL YEAR ENDED 30 SEPTEMBER
2016
1,716.3
233.4
233.4
(32.3)
201.1
201.1
130.4
130.4
144.9
155.0
87%
300.6
1.3
33.5
33.5
12.5
24.0
2015
1,687.8
210.2
227.3
(34.9)
175.3
192.4
112.8
124.7
156.5
156.5
83%
276.9
1.2
29.2
32.3
11.5
22.5
% CHANGE
1.7%
11.0%
2.7%
7.4%
14.7%
4.5%
15.6%
4.6%
(7.4%)
(1.0%)
4.0 pts
(8.6%)
(8.3%)
14.7%
3.7%
8.7%
6.7%
16
RESULT BY SEGMENT
Key components of the result include:
• Consistent EBIT growth from Paints and Coatings ANZ on solid revenue growth, impacted by retail market timing
dynamics and the impact of the FY15 Dulux paints exit from Mitre 10 NZ;
• EBIT growth from Consumer and Construction Products ANZ with growth from Selleys, and Parchem flat despite lower
revenue (weak resources infrastructure markets);
• EBIT decline in Garage Doors and Openers, driven by one-off costs in the first half and weaker markets in the second half;
• Very strong EBIT growth from Cabinet and Architectural Hardware driven by continued 8%+ revenue growth and benefits
from margin improvement initiatives;
• Decline in EBIT in Other businesses driven by weak markets in PNG, partly offset by EBIT improvements in Yates,
DGL Camel China and SE Asia; and
• Increase in Corporate costs, reflecting increased investment in growth activities, including costs associated with the
acquisition of Craig & Rose in the UK in the second half. Corporate Costs for FY17 are expected to be in line with FY16.
SALES AND EBIT BY SEGMENT
A$M
Sales revenue
Paints & Coatings ANZ
Consumer & Construction Products ANZ
Garage Doors & Openers
Cabinet & Architectural Hardware
Other businesses
Eliminations
Total sales revenue
EBIT, excluding non‑recurring items
Paints & Coatings ANZ
Consumer & Construction Products ANZ
Garage Doors & Openers
Cabinet & Architectural Hardware
Other businesses
Business EBIT
Corporate
Total EBIT, excluding non‑recurring items
Further discussion on the results of the segments follows from page 20.
OTHER ITEMS
RESULTS
A$M
EBIT excluding non‑recurring items
Net finance costs
Tax expense
Non-controlling interests
NPAT excluding non‑recurring items
Non-recurring items (net of tax)
NPAT
Effective tax rate excluding non-recurring items
FULL YEAR ENDED 30 SEPTEMBER
2016
2015
% CHANGE
890.6
253.9
177.9
187.7
217.0
(11.0)
1,716.3
156.5
29.5
16.1
12.5
14.5
229.1
(28.0)
201.1
870.8
266.2
169.5
172.8
221.6
(13.1)
1,687.8
146.8
29.2
17.1
9.0
15.9
217.9
(25.6)
192.4
2.3%
(4.6%)
5.0%
8.6%
(2.1%)
16.0%
1.7%
6.6%
1.0%
(5.8%)
38.9%
(8.8%)
5.1%
(9.4%)
4.5%
FULL YEAR ENDED 30 SEPTEMBER
2016
201.1
(19.9)
(52.1)
1.4
130.4
–
130.4
28.8%
2015
192.4
(21.3)
(47.9)
1.5
124.7
11.9
112.8
28.0%
% CHANGE
4.5%
6.6%
(8.8%)
nm
4.6%
nm
15.6%
• Net finance costs included a $2.6M (non-cash) charge relating to the unwinding of discounting of the supply chain and
other provisions. The total was $1.4M lower than the pcp due primarily to lower prevailing base interest rates, with an
average all-in net cost of debt1 of 4.8% (5.2% in the pcp)
• Income tax expense reflected an effective tax rate of 28.8% (28.0% in the pcp excluding non-recurring items). The effective
tax rate for FY17 is expected to be in the range of 29% to 30%
• Non‑recurring items in FY15 related to the supply chain project provisions – refer page 19
1. All-in net cost of debt – calculated as net finance costs excluding the unwinding of the discount on provisions and defined benefit
fund interest and includes $0.9M of capitalised interest associated with the new paint factory.
DULUXGROUP ANNUAL REPORT 2016
17
REVIEW OF
OPERATIONS
BALANCE SHEET
Balance sheet movements are compared to September 2015. Comments by exception are as follows:
• Trade working capital (TWC) was adversely impacted during the year by stock building activity in preparation for
industrial action at Rocklea and higher inventory balances in businesses impacted by softer sales, such as Parchem. As a
result, rolling (or average) TWC as a percentage of sales was 16.0%, compared to 15.2% in FY15. However, given the strong
focus on working capital improvement initiatives in the second half, year-end TWC as a percentage of sales was broadly
in line with prior year, at 15.3%. We are targeting improvement in rolling TWC in FY17;
• Property plant & equipment increased largely due to the investment in the new paint factory and acquisitions;
• The defined benefit fund liability increased by $34.4M from September 2015, following a regular actuarial
reassessment of the fund liability during FY16. Key changes include a reduction in the discount rate and an increase
in assumed pension take-up rate; and
• Net debt inclusive of the USPP hedge value increased by $23.7M during FY16, reflecting cash flow performance,
in particular, expenditure on the new paint factory.
FULL YEAR ENDED 30 SEPTEMBER
2016
218.9
252.3
(208.3)
262.9
13.4
43.4
312.0
234.0
6.5
(42.8)
(56.5)
(14.4)
(88.0)
(300.6)
(4.8)
365.2
2015
216.0
253.2
(212.6)
256.6
12.6
37.3
261.9
232.1
6.3
(38.3)
(22.1)
(19.5)
(98.3)
(276.9)
(0.4)
351.2
BALANCE SHEET
A$M
Inventories
Trade debtors
Trade creditors
Total trade working capital
Non trade debtors
Deferred tax balances (net)
Property, plant & equipment
Intangible assets
Investments
Non trade creditors
Defined benefit fund liability
Provision for income tax
Provisions (excluding tax)
Net debt inclusive of USPP hedge value
Other
Net Assets
Refer to glossary on page 31 for definition of terms.
18
CASH FLOW
Operating cash flow excluding non-recurring items was $155.0M, $1.5M (1.0%) lower than the pcp. The key drivers offsetting
higher EBITDA were:
• Income taxes paid ($13.0M unfavourable compared to the pcp) – largely due to the flow on impact of prior period growth
in taxable income; and
• TWC movement ($9.9M favourable compared to the pcp) – reflects a relatively flat performance in TWC as a % of sales
in FY16 compared to an increase in the pcp
Key drivers of the remainder of the cash flow are:
• Investing cash outflows increased by $32.4M, due primarily to increased capital expenditure relating to the new paint
factory ($41M in FY16 compared to $5M in FY15).
Cash conversion excluding non-recurring items was 87%, 4% points favourable to the pcp, with lower maintenance capital
expenditure and lower TWC outflow the key drivers.
STATEMENT OF CASH FLOWS
A$M
Operating cash flows excluding non‑recurring items
EBITDA
Trade working capital movement
Other
Income taxes paid
Net interest paid
Operating cash flow
Less non-recurring cash items included above
Operating cash flow excluding non-recurring items
Net investing cash flows
Capital expenditure
Acquisitions
Disposals
Dividends received
Investing cash flow
Financing cash flow before debt movement
Total cash flow before debt movement
Cash conversion excluding non‑recurring items
Refer to glossary on page 31 for definition of terms.
FULL YEAR ENDED 30 SEPTEMBER
2016
2015
% CHANGE
233.4
(8.7)
(11.7)
(52.5)
(15.5)
144.9
(10.1)
155.0
(60.8)
(13.3)
0.5
0.5
(73.0)
(93.6)
(21.8)
87%
227.3
(18.6)
4.2
(39.5)
(16.9)
156.5
–
156.5
(29.4)
(11.5)
0.3
0.0
(40.6)
(57.0)
58.9
83%
2.7%
53.2%
nm
(32.9%)
8.3%
(7.4%)
nm
(1.0%)
(107%)
(15.7%)
66.7%
nm
(79.8%)
(64.2%)
nm
NON‑RECURRING ITEMS
There were no non-recurring items impacting EBIT or NPAT in FY16. However, cash flow was adversely impacted by the
utilisation of the supply chain restructuring provisions (provided for in FY15).
The non-recurring items recognised are outlined below:
NON‑RECURRING ITEMS
A$M
Supply chain provision payments
Total 2016
Supply chain restructuring provisions
Total 2015
FULL YEAR ENDED 30 SEPTEMBER
EBIT
NPAT OPERATING CASH FLOW
–
(17.0)
(17.0)
–
(11.9)
(11.9)
(10.1)
(10.1)
–
–
DULUXGROUP ANNUAL REPORT 2016
19
BUSINESS SEGMENT DETAIL
Paints and Coatings
Australia and New Zealand
One of Australia and New Zealand’s leading marketers and manufacturers
of premium branded decorative paints, woodcare coatings, texture coatings,
protective coatings, industrial and powder coatings products. With a heritage
dating back almost a century, Dulux has grown to become the number one
brand for home owners and trade professionals. Strong investment in marketing
and new product innovation is reflected in industry leading brand recognition.
Dulux is regularly named as one of Australia’s ‘most trusted’ brands.
PAINTS & COATINGS ANZ
FULL YEAR ENDED 30 SEPTEMBER
A$M
Sales revenue
EBITDA*
EBIT*
EBIT % Sales*
Non-recurring items
2016
2015
% CHANGE
2.3%
4.7%
6.6%
890.6
870.8
172.8
156.5
17.6%
165.1
146.8
16.9%
–
(13.8)
* measures exclude non-recurring items in 2015.
Sales revenue up $19.8M (+2.3%)
• Revenue grew 3%1 in the Australian
business and was flat in New Zealand
• In Australia, revenue growth largely
reflected broadly flat markets overall
and modest price benefits reflecting
a shift toward premium products (eg.
new Dulux Wash & Wear)
• Overall markets were broadly flat
with the adverse impact of short
term, retail market timing dynamics
offsetting growth in other sectors
(trade renovation and repaint,
new housing and commercial)
– Within the Australian decorative
paint market:
• The renovation and repaint
market (typically 75% of
market volume) declined 4.5%
(compared to 5% market growth
in FY15 and long term average of
1.0–1.5%). The trade sector of this
market grew strongly. However,
the retail sector declined, largely
reflecting the sell-in to retail
channels of cheap paint in the
prior year, the promotional sell-in
of Dulux’s new Wash & Wear
range in the second half of 2015
and to a lesser extent, the
impact of the closure of Masters.
Excluding these impacts, we
estimate ‘sales out’ from retail
channels was positive, led by
Bunnings
• New housing (typically 20%
of market volume) grew at 5%,
reflecting growth in completions,
and the commercial market
(5% of market volume) also
grew at 5%
– The texture and powder
coatings markets grew strongly
(new housing driven)
– The protective coatings market
declined (soft construction and
mining markets)
• Market share in Australia
was maintained despite strong
growth in the new housing sector,
in which DuluxGroup’s share is
strategically lower
• Consistent with guidance, New
Zealand sales were flat, with strong
growth in H2 offsetting the revenue
decline in H1. The impact of the
Dulux exit from Mitre 10 New Zealand
(which impacted H2 FY15 and H1
FY16) has fully cycled through.
The NZ market grew modestly.
1. Percentages shown are approximations only.
20
EBIT
$156.5m
UP $9.7M OR 6.6%
(EXCLUDING NON‑RECURRING
ITEMS IN PRIOR PERIOD)
STRONG PERFORMANCE
IN AUSTRALIA AND STRONG
SECOND HALF PERFORMANCE
IN NEW ZEALAND
EBIT growth of $9.7M (+6.6%)
before non‑recurring items
• Strong EBIT growth in Australia,
reflecting the sales growth together
with good fixed cost control and
lower depreciation costs
• Input costs increased modestly,
reflecting a skew to more
premium products
• New Zealand EBIT was effectively flat
with a stronger second half largely
offsetting the first half decline
• The EBITDA margin improvement
was within the trade and specialty
coatings businesses, with EBITDA
margin flat in the retail businesses
FY17 Outlook
• The fundamentals for the Paints
and Coatings ANZ business remain
sound. The Masters stock liquidation
sale may have a minor transitional
impact on the market in the first half
of FY17, but we expect underlying
demand, particularly in the renovation
and repaint market, to continue to
grow in line with the historical 1.0–1.5%
growth in volume terms
• Input costs are expected to
increase in line with inflation
• We expect some minor
commissioning costs associated
with the new paint factory in late
FY17, which we aim to absorb
• EBIT margins are not expected
to increase in FY17
®
DULUXGROUP ANNUAL REPORT 2016
21
BUSINESS SEGMENT DETAIL
Consumer and Construction
Products Australia and New Zealand
This segment consists of Selleys sealants, adhesives, fillers and other consumer
home improvement products and Parchem construction chemicals and related
products in Australia and New Zealand.
Selleys was established in Sydney in 1939 with a focus on invention and creativity.
That legacy has endured, and today Selleys is a leading choice for Australian and
New Zealand consumers and tradespeople when it comes to household adhesives,
sealants, fillers, paint preparation and other home maintenance products.
Parchem’s origins date back to 1958. Since that time, it has grown to be a
leader in the manufacture and supply of construction chemicals, decorative
concrete products and related equipment for Australia and New Zealand’s
civil engineering, industrial, commercial and residential construction markets.
CONSUMER & CONSTRUCTION PRODUCTS ANZ
FULL YEAR ENDED 30 SEPTEMBER
A$M
Sales revenue
EBITDA*
EBIT*
EBIT % Sales*
Non-recurring items
* measures exclude non-recurring items in 2015
2016
253.9
32.6
29.5
2015 % CHANGE
266.2
(4.6%)
32.6
29.2
0.0%
1.0%
11.6%
11.0%
–
(3.2)
EBIT up $0.3M excluding
non‑recurring items (1.0%)
• Selleys EBIT increased,
reflecting good cost control
and depreciation benefits
• Parchem EBIT was flat, with the
impact of the lower revenue offset by
the benefit of gross margin initiatives
and the cost reduction programs
undertaken in FY15 and FY16
Sales revenue down
$12.3M (‑4.6%)
• Selleys sales were marginally below
the prior year, with strong growth
in strategic hardware and other
partners offset by de-stocking
activities across the Woolworths
hardware group and lower internal
sales (eg. exports to our Asian
businesses, as we switch to locally
sourced products). Excluding these
issues, Selleys grew underlying
revenue by more than 4%
• Parchem sales were (as expected)
adversely impacted by weak
markets, particularly the resources
infrastructure market in Australia
EBIT
$29.5m
EXCLUDING NON‑RECURRING
ITEMS, UP $0.3M OR 1.0%
GROWTH FOR SELLEYS
AND A FLAT RESULT
FOR PARCHEM DESPITE
CHALLENGING MARKETS
FY 17 Outlook
• The fundamentals for Selleys
remain strong, underpinned by
a recent step up in new product
development and marketing. The
majority of the Woolworths hardware
group de-stocking activities now
appears to have been absorbed by
the business
• Market conditions remain challenging
for Parchem. The annualised
impact of the structural and margin
initiatives implemented over the
last two years, together with a
continued re-focus towards civil
infrastructure and commercial
construction markets, should provide
a buffer against some continued
market weakness. Further work on
optimising the product portfolio,
distribution and costs is also likely
to be undertaken in FY17
®
*
*
22
Distributed brand
Gisborne War Memorial Theatre, New Zealand,
Dulux Colour Awards entrant
By: Shand Shelton
Photographer: Doug Mountain
DULUXGROUP ANNUAL REPORT 2016
23
BUSINESS SEGMENT DETAIL
Garage Doors and Openers
B&D was founded in Sydney in 1946. Ten years later, the B&D Roll‑A‑Door
debuted at the Sydney Home Show to immediate success. An icon of the
suburban landscape was born. Today DuluxGroup’s Garage Doors and
Openers business is one of the leading marketers and manufacturers of
garage doors and automatic openers for the Australian and New Zealand
residential, commercial and industrial markets. The B&D Roll‑A‑Door has
gone on to be named one of Australia’s most successful inventions.
GARAGE DOORS & OPENERS
FULL YEAR ENDED 30 SEPTEMBER
A$M
Sales revenue
EBITDA
EBIT
EBIT % Sales
2016
177.9
22.6
16.1
9.1%
2015
169.5
%
5.0%
23.4
(3.4%)
17.1
(5.8%)
10.1%
EBIT decline of $1.0M (‑5.8%)
• EBIT decline was largely attributable
to one-off costs including the first
half centralisation of customer
service centres from state based
to a national centre (approximately
$0.5M) and the impact of the
second half market weakness, which
impacted fourth quarter revenue and
margins. Costs were generally well
managed in the second half
Sales revenue up $8.4M (+5.0%)
• Australian markets were flat overall,
with growth in the first half offset
by weakness in the second half,
particularly in the last quarter. New
Zealand markets were positive with
growth across all end markets,
particularly new housing
• Share outcomes were positive,
driven by New Zealand, the openers
business and the WA acquisition
(Gliderol’s WA business was acquired
in November 2015). Price increases
were achieved to largely offset
input cost increases
• Excluding Gliderol WA, sales
increased 2.2%. Growth in new
housing was largely offset by a
decline in the renovation and repair
dealer channel
EBIT
$16.1m
DOWN $1.0M OR 5.8%
CHALLENGING SECOND HALF
MARKETS AND ONE-OFF
COSTS IMPACTED RESULT
FY 17 Outlook
• The business has been investing
in growth initiatives, including
the release of new products
(eg. Auto-Lock) and the relaunch
of the B&D brand towards the
end of FY16
• Given the lower than expected result,
and notwithstanding these growth
initiatives and the lower cost base
following second half restructuring,
improvement of this business remains
work in progress
24
DULUXGROUP ANNUAL REPORT 2016
25
BUSINESS SEGMENT DETAIL
Cabinet and Architectural Hardware
The Lincoln Sentry cabinet and architectural hardware distribution business
was established in Brisbane in 1986. Since then, it has evolved to become one
of Australia’s leading distributors of premium quality hardware and components
to the cabinet making, window, door and glazing industries. It supplies quality
brands including Blum, Hera, SecureView, Assa Abloy and Breezway.
CABINET & ARCHITECTURAL HARDWARE
FULL YEAR ENDED 30 SEPTEMBER
A$M
Sales revenue
EBITDA
EBIT
EBIT % Sales
2016
187.7
14.8
12.5
2015 % CHANGE
172.8
8.6%
11.4
9.0
29.8%
38.9%
6.7%
5.2%
EBIT
$12.5m
UP $3.5M OR 38.9%.
CONTINUED STRONG
REVENUE GROWTH AND
IMPACT OF MARGIN
IMPROVEMENT INITIATIVES.
EBIT growth of $3.5M (+38.9%)
• EBIT growth was driven by the flow
FY 17 Outlook
• The business remains well positioned
through of the sales growth, together
with fixed cost leverage and margin
improvement initiatives
for continued growth
Sales revenue up $14.9M (+8.6%)
• Sales growth was led by the cabinet
hardware business, in solid markets,
primarily focused on the renovation
of existing homes
• Share outcomes were positive,
particularly in cabinet hardware
• Positive price outcomes were
consistent with supplier price
increases together with improved
pricing discipline
*
*
*
*
*
*
*
26
Distributed brand
DULUXGROUP ANNUAL REPORT 2016
27
BUSINESS SEGMENT DETAIL
Other businesses
DuluxGroup’s ‘Other businesses’ include:
• Yates, which is one of Australia and New Zealand’s leading manufacturers
and marketers of products for home gardening and small scale commercial
horticulture. Products include seeds, pest & disease control, lawn care, fertilisers,
pots, potting mix and organic gardening products. From its inception in 1883,
Yates has grown into the fabric of the Australian and New Zealand community
and is regularly named one of its ‘most trusted’ brands.
• The paints business in Papua New Guinea, where Dulux has been manufacturing
since 1968 and is a clear market leader.
• The Craig & Rose paints business in the United Kingdom, a niche manufacturer
and marketer of premium paint products, which was acquired by DuluxGroup
in August 2016.
• The DGL Camel business in China and Hong Kong (51% owned by DuluxGroup)
and the DGL International business in South East Asia. DuluxGroup has been
operating in Asia for more than two decades. These businesses have targeted
niche positions across categories, including decorative and specialty coatings,
adhesives, sealants and paint accessories.
OTHER BUSINESSES
FULL YEAR ENDED 30 SEPTEMBER
A$M
Sales revenue
EBITDA
EBIT
EBIT % Sales
2016
217.0
17.3
14.5
6.7%
2015 % CHANGE
221.6
(2.1%)
(9.4%)
(8.8%)
19.1
15.9
7.2%
EBIT
$14.5m
DOWN $1.4M OR 8.8%
EBIT IMPROVEMENT IN YATES,
CHINA AND SOUTH EAST ASIA
WAS MORE THAN OFFSET BY A
DECLINE IN PNG DUE TO WEAK
ECONOMIC CONDITIONS
• Yates ANZ revenue declined
modestly due to soft markets,
driven by poor weather conditions
in peak selling periods and lower
sales to Masters, partly offset by
sales from the Munns acquisition
(from June 2016). EBIT growth was
supported by favourable product
mix and good cost control
• DGL Camel revenue grew modestly
in soft markets due to market
share gains associated with the
Camel Professional paint relaunch
in Hong Kong and China. Modest
EBIT improvement reflected
margin improvement initiatives
• The South East Asian business
produced higher sales and EBIT
largely driven by strong growth
in Vietnam
• The PNG business was significantly
impacted by weaker economic
conditions, which deteriorated
further in the second half. For the
full year, EBIT declined by more
than $3M due to lower sales and a
weakening Kina. Despite this, the
PNG business remains profitable
• The Craig & Rose UK paints business
acquired in August now forms part of
this segment. No material contribution
was made during the year
FY17 Outlook
• We expect growth in Yates, China
and South East Asia to more than
offset the management, sales and
marketing investment we plan to
make in the UK
• The outlook for the PNG economy
remains weak, with an improvement
in economic conditions dependent
on international investment in
major resources projects. Costs are
being reduced within the business
with the objective to mitigate any
further short term market weakness
*
28
* DuluxGroup Limited is an Australian company
that owns the Dulux® trade mark in Australia,
New Zealand, Papua New Guinea, Samoa and Fiji
only and the Cabot’s® trade mark in Australia, New
Zealand, Papua New Guinea and Fiji only. DuluxGroup
Limited is not associated with, and has no connection
to, the owners of the Dulux® and Cabot’s® trade marks
in any other countries, nor does it sell Dulux® and
Cabot’s® products in any other countries.
DULUXGROUP ANNUAL REPORT 2016
29
SUPPLY CHAIN INVESTMENTS
The first of the two supply chain investment projects, the NSW distribution centre, successfully commenced operation in July. The
new paint factory remains on time and budget.
NSW Dulux and Selleys distribution centre
The new distribution centre was completed on schedule and budget in early June. Transition from the Selleys Moorebank and Dulux
Padstow distribution centres occurred during June and July and the new centre was fully operational from 25th July 2016. The centre
is owned and operated by Linfox.
New Dulux water‑based paint factory
The new paint factory remains on track to be delivered on time and budget ($165M).
Substantial progress has been made on construction of the new factory during the year. Site works commenced in December 2015
and as at the end of October 2016 the main building is complete and installation of major plant and equipment has commenced.
During the year, capital of $41M was spent on the new paint factory which is below the previous estimate for this financial year of
$60M. The lower spend reflects minor delays on non-critical path items and payment terms.
The project is due for commissioning in mid-2017, with production in late calendar 2017. A schedule outlining the latest estimated
capital expenditure associated with the new paint factory, together with an outlook for other group capital expenditure follows:
DULUXGROUP CAPITAL EXPENDITURE
A$M
New paint factory1
Other Projects
Total
2015
5
25
30
2016
41
20
61
2017
90
25-30
115‑120
2018
29
25-30
54‑59
TOTAL
165
Once the factory opens, the annualised depreciation increase will be approximately $7M. For the first full year of operation of the new
paint factory (FY19), we expect a neutral EBIT outcome, with operational savings offsetting incremental depreciation. During FY17 and
FY18 minor commissioning costs will be incurred.
1. New paint factory capital expenditure includes capitalised interest.
30
REVIEW OF
OPERATIONS
DURING THE YEAR THREE
ACQUISITIONS WERE
COMPLETED, FOR TOTAL
CONSIDERATION OF $13.5M.
ACQUISITIONS
Craig & Rose
In August 2016 DuluxGroup acquired
Craig & Rose, a small UK-based paint
business. The acquisition of a premium
paint brand in the UK combined
with local manufacturing capability
is consistent with DuluxGroup’s
strategy of growing niche positions
in offshore markets.
Gliderol WA
In November 2015 DuluxGroup
acquired Gliderol’s Western Australian
garage door and openers business.
The rationale for the acquisition
was to obtain a Western Australian
sectional door line, and to increase
WA market share (given B&D’s share
in WA has historically been lower
than in other states).
Munns
In June 2016 DuluxGroup acquired
the Munns lawn care business. The
acquisition expands the Yates brand
portfolio in the lawn care segment
and provides growth opportunities
through Yates’ more extensive sales
and distribution network.
GLOSSARY
• Acquisitions – represents ‘payments
for purchase of businesses’.
• Capital expenditure – represents
the ‘payments for property, plant and
equipment’ and ‘payments for intangible
assets’ per the financial statements.
• Cash conversion – is calculated as
EBITDA excluding non-recurring items,
less movement in trade working capital
and other operating cash flow movements
excluding interest and tax, less minor
capital spend (capital expenditure
less than $5.0M), as a percentage of
EBITDA excluding non-recurring items.
• Diluted EPS excluding non‑recurring
items – represents diluted EPS adjusted
for the non-recurring items outlined
on page 19.
• Disposals – represents ‘proceeds
from disposal of property, plant
and equipment’.
• EBIT excluding non‑recurring items
and EBITDA excluding non‑recurring
items – refer to note 2 in the financial
statements. Directors believe that the
result excluding these items provides
a better basis for comparison from
period to period.
• EBITDA – represents EBIT plus
depreciation and amortisation.
• Net debt – refer to note 14 in the
financial statements.
• Net debt inclusive of USPP hedge value
and Net debt to EBITDA – are calculated
by taking closing net debt, adjusted to
include the asset balance relating to the
cross currency interest rate swap and
interest rate swap established to hedge
the United States dollar (USD) currency
and interest rate exposures relating to the
US Private Placement (USPP) debt. Net
Debt to EBITDA reflects this measure as a
multiple of the most recent twelve months
of EBITDA before non-recurring items.
• Net profit after tax (NPAT) – represents
‘Profit for the year attributable to ordinary
shareholders of DuluxGroup Limited’
per the financial statements.
• Non trade creditors – represents the
‘other payables’ portion of ‘trade and
other payables’. Balances reflect the
management balance sheet, which is
based on different classification and
groupings than the balance sheet in
the financial statements.
• Non trade debtors – represents the ‘other
receivables’ portion of ‘trade and other
receivables’, and ‘other assets’. Balances
reflect the management balance sheet,
which is based on different classification
and groupings than the balance sheet
in the financial statements.
• NPAT excluding non‑recurring items
– represents NPAT, excluding the
non-recurring items outlined on page 19.
Directors believe that the result excluding
these items provides a better basis for
comparison from period to period.
• Operating cash flow excluding
non‑recurring items – the equivalent
of ‘Net cash inflow from operating
activities’, less the cash component of the
non-recurring items outlined on page 19.
• Rolling TWC to rolling sales – calculated
as the 12 month rolling average of month
end TWC balances divided by the most
recent 12 months sales revenue. This
figure is not directly extracted from
the financial statements.
• Trade working capital (TWC) – represents
the net trade receivables portion of ‘trade
and other receivables’ plus ‘inventory’,
less the trade payables portion of ‘trade
and other payables’. Balances reflect
the management balance sheet, which
is based on different classification and
groupings than the balance sheet in
the financial statements.
DULUXGROUP ANNUAL REPORT 2016
31
Future Financial Prospects
DuluxGroup considers a range of external indicators in assessing outlook.
These include the performance of the markets in which DuluxGroup’s
businesses operate, raw material prices and other cost drivers.
MARKET
Overall, DuluxGroup’s end market
exposure is biased to the existing
home, with 65%1 of revenue relating to
maintenance and home improvement.
DuluxGroup also has a meaningful
exposure to new construction, with 15%1
of revenue relating to new residential
housing and 15%1 relating to commercial
and infrastructure construction.
The remaining 5%1 of revenue
relates to industrial markets.
Lead indicators for our key markets
remain largely positive, supported
by GDP growth in Australia and
New Zealand, high property prices
and low interest rates.
Renovation and improvement to
existing homes tends to be impacted
by factors such as gross domestic
product, interest rates, house
prices, consumer confidence and
housing churn. Renovation statistics
themselves, whilst an important
measure, do not capture all the activity
relevant to DuluxGroup, as many of
the projects relevant to DuluxGroup
are below any recordable threshold.
The key existing homes segment is
expected to continue providing resilient
and profitable growth, underpinned by:
• 10 million existing dwellings in
Australia, of which two thirds
are detached homes
• 70% of these are more
than 20 years old
Underlying market demand for
this end market is generally resilient
and consistent given that many of
the projects that use our products
focus on maintenance activities of
the existing home, are individually of
relatively small value and often are,
or can be, do-it-yourself in nature.
The new housing construction market,
which has experienced strong growth
over the past three years, is expected
to remain strong throughout financial
year 2017. Although housing approvals
have peaked, the lag between
approvals and completions should
provide a solid pipeline of work, though
biased to the multi-residential market.
DuluxGroup businesses are
strategically less exposed to this
lower margin sector. DuluxGroup’s
exposure to this segment is late cycle.
The outlook for commercial and
infrastructure markets is expected to be
subdued overall. In Australia, commercial
construction and maintenance markets
are expected to remain solid. Engineering
construction projects are expected to
continue declining throughout financial
year 2017, particularly in the resources
sector, before stabilising in financial
year 2018. Although the pipeline of
public infrastructure projects is building,
particularly in major urban transport,
increased spending is not sufficient
to offset the decline in private sector
engineering construction expenditure.
In New Zealand, markets are expected
to remain strong, underpinned by the
new housing construction market.
Growth rates in the Chinese and Hong
Kong paints, coatings and adhesives
markets are expected to be relatively
subdued. The outlook for the PNG
economy remains weak, with an
improvement in economic conditions
dependent on international investment
in major resources projects.
RAW MATERIALS
AND OTHER COSTS
DuluxGroup has a wide range of raw
materials. The two largest are latex resin
and titanium dioxide, both of which are
key ingredients in paint. Input costs are
expected to increase in line with inflation
for paint and coatings in 2017.
Approximately 30-40% of input costs
have a direct or indirect link to other
currencies, such as the US dollar, the
Euro and Chinese Renminbi. If there is
a material weakening of the Australian
dollar during the year, then input costs
may be adversely affected.
In general, and over a number of years,
DuluxGroup has mitigated input cost
variation, particularly in its paint and
coatings businesses, through a number
of cost and price-related mechanisms.
DuluxGroup will endeavour to continue
to achieve this outcome in future.
INVESTMENT
DuluxGroup has a strong history
of continuing to invest in marketing
and innovation. We aim to continue
to invest in marketing in line with
top line sales growth.
Significant capital expenditure
for construction of the new paint
factory will continue over the next
two financial years. Details of this
expenditure profile are outlined
on page 30 of the Operating
and Financial Review.
OVERALL OUTLOOK
Subject to economic conditions
and excluding non-recurring items,
we expect that 2017 net profit after
tax will be higher than the 2016
equivalent of $130.4M.
Directors expect to maintain a
dividend payout ratio on NPAT before
non-recurring items of approximately
70% on a full year basis.
Outlook commentary related
to specific business segments
Paints and Coatings ANZ
• The fundamentals for the
Paints and Coatings ANZ business
remain sound. The Masters stock
liquidation sale may have a minor
transitional impact on the market
in the first half of FY17, but we
expect underlying demand,
particularly in the renovation and
repaint market, to continue to
grow in line with the historical
1.0-1.5% growth in volume terms
• Input costs are expected to
increase in line with inflation
• We expect some minor
commissioning costs associated
with the new paint factory in late
FY17, which we aim to absorb
• EBIT margins are not expected
to increase in FY17
32
1. Indicative revenue splits for DuluxGroup
Other businesses
• We expect growth in Yates, China
and South East Asia to more than
offset the management, sales and
marketing investment we plan to
make in the UK
• The outlook for the PNG economy
remains weak, with an improvement
in economic conditions dependent
on international investment in major
resources projects. Costs are being
reduced within the business with
the objective to mitigate any further
short term market weakness
Other
• Corporate costs for the FY17 year
are expected to be in line with FY16
• The effective tax rate is expected
to be 29-30%
• DuluxGroup is targeting operating
cash conversion of 80%+, excluding
non-recurring cash flow items
(e.g. utilisation of the Rocklea
restructuring provision)
Consumer and
Construction Products ANZ
• The fundamentals for Selleys
remain strong, underpinned by
a recent step up in new product
development and marketing.
The majority of the Woolworths
hardware group de-stocking
activities now appears to have
been absorbed by the business
• Market conditions remain
challenging for Parchem. The
annualised impact of the structural
and margin initiatives implemented
over the last two years, together
with a continued re-focus towards
civil infrastructure and commercial
construction markets, should provide
a buffer against some continued
market weakness. Further work
on optimising the product portfolio,
distribution and costs is also likely
to be undertaken in FY17
Garage Doors and Openers
• The business has been investing
in growth initiatives, including
the release of new products
(eg. Auto–Lock) and the relaunch
of the B&D brand towards the end
of FY16
• Given the lower than expected
result, and notwithstanding these
growth initiatives and the lower
cost base following second half
restructuring, improvement of this
business remains work in progress
Cabinet and
Architectural Hardware
• The business remains well
positioned for continued growth
DULUXGROUP ANNUAL REPORT 2016
33
Material Business Risks
The DuluxGroup Board and management have established controls
that are designed to safeguard the Company’s interests and the integrity
of its reporting. These include accounting, financial reporting, safety and
sustainability, crisis management, fraud and corruption control, delegations
of authority and other internal control policies and procedures.
The Board has also established practices for the oversight and management of key business risks. In particular,
DuluxGroup maintains a risk management framework that includes the development and maintenance of risk registers
within each business and at a consolidated group level for the most material risks. The Board reviews this consolidated
risk register annually, with input as appropriate from the relevant Board committees, and individual risks are discussed
by the Group Executive on a rotating basis across the year. The material business risks that have the potential to impact
the Company’s future financial prospects and strategic imperatives, are outlined below, together with mitigating actions
undertaken to minimise these risks.
The risks outlined are not in any particular order and do not include generic risks that affect all companies
(eg execution risk, key person risk) or macro risks such as significant changes in economic growth, inflation,
interest rates, employment, consumer sentiment or business confidence, which could have a material impact
on the future performance of the Company.
NATURE OF RISK
ACTION/PLANS TO MITIGATE
RISK
Growth
Key customer
relationships
An inability to identify and
execute sustainable growth
opportunities, and/or the risks
associated with pursuing further
growth, could impact the
Company’s long term profitability.
DuluxGroup’s largest
retail customers represent
a significant portion of total
revenue. Loss of revenue from
key customers could impact
the Company’s profitability.
Business continuity
including catastrophic
event or hazard in
manufacturing and
distribution operations
and/or IT systems
DuluxGroup’s operations
could be impacted by
accidents, natural disasters,
failure of critical IT systems or
other catastrophic events that
have the potential to materially
disrupt its operations.
Competitive threats/
market disruption
There is a risk that
DuluxGroup’s multinational
competitors or new disruptive
entrants could bring product
innovations or lower cost to the
Australian market, threatening
DuluxGroup’s market share
and/or operating margins.
34
• Experienced internal growth and M&A capability
supported by external advisers as appropriate
• Board oversight of growth activities
• Ongoing investment in iconic brands
(marketing and innovation) to drive
consumer activity into our key retail channels
and to assist our customers in succeeding
• Continued focus on providing superior
customer service
• A broad base of retail and trade
customers maintained
• Disaster recovery plans in place for all
major sites and critical IT systems
• Increased focus on addressing cyber
security threats
• Rigorous safety and hazard identification,
audits and prevention systems at key sites, with
significant ongoing investment in these systems
• Insurance policies; including business
interruption cover
• Construction of the new water-based decorative
paint factory in Melbourne is progressing and
will significantly reduce fire and flood risks
• Strong, established brands supported by
ongoing marketing investment
• Significant investment in local innovation
and product formulation capability, to
ensure products and services are well-suited
to our markets
• Use of multinational suppliers for key
decorative paint raw materials to reduce
potential technology exposure
• Active international product
benchmarking program
RISK
NATURE OF RISK
ACTION/PLANS TO MITIGATE
Erosion of brand equity
Product liability
or other litigation
Key input volatility
Regulatory – safety
Industrial relations
DuluxGroup’s iconic brands
are relied upon for their quality
and premium performance. A
significant loss of brand equity
could have a material adverse
effect on revenue and profit.
• Active product stewardship focus
• Systematic quality assurance and
testing process
• Investment in product innovation
• Investment in brands
Litigation relating to
product liability, product
recall, regulatory controls
or environmental practices
could result in a materially
adverse financial impact.
Supply disruption and/or
non-availability of key input
materials could impact revenue
and/or price volatility, including
the effect of foreign exchange
fluctuations, could impact
operating margins.
• Investment in quality assurance
and governance practices
• Well developed customer service and
complaints response processes
• Insurance policies
• Utilisation of a range of suppliers
• Robust supplier selection processes
• Contingency supply arrangements
• Insurance policies including business interruption
• Active raw material cost and gross margin
forecasting processes
• Foreign exchange hedging program
A death or major injury
in the workplace would be
devastating for employees and
families and could jeopardise
the Company’s reputation as
a first-choice employer.
• Heavy focus on disaster prevention, fatality
prevention and personal safety
• Significant investment in dedicated safety
resources, training and audits
• Refer to the Safety & Sustainability Report
for further information
DuluxGroup product
supply could be materially
impacted by prolonged
industrial disputes related
to the renegotiation of
collective agreements.
Project execution
risk – construction
of new water‑based
paint factory
A significant delay or
cost overrun to the project
could limit available capital
resources for the Company
and/or damage DuluxGroup’s
reputation to deliver future
large scale projects.
• DuluxGroup has multiple manufacturing
and distribution sites
• Ongoing development of industrial
relations capability
• Continual focus on site based productivity
improvement and positive employee relations
• Enterprise agreement negotiations are
conducted within established governance
structures including defined negotiation
frameworks and steering committee oversight
• Rocklea manufacturing facility can
continue to manufacture water-based paint
so that in the event of a delay there is no threat
to customer supply
• Experienced project management team
supported by good project governance
(e.g. steering committee, Board oversight)
• Robust contractor selection processes
• Detailed design work completed prior
to project commencement
• Regular independent project audits
• Contract works insurance policies
DULUXGROUP ANNUAL REPORT 2016
35
Safety and Sustainability Report
Welcome to the 2016 DuluxGroup Safety and Sustainability Report. During
the year we continued our focus on improving management of significant
risks to prevent harm, with good outcomes achieved in a number of areas.
These outcomes included:
• Disaster prevention: No major incidents (e.g. fire) involving disaster risks, although a major near miss involving a solvent
spill at Parchem Wyong occurred. A thorough investigation was completed and corrective actions implemented.
• Fatality prevention: We remained fatality free and our serious near misses involving fatality risks decreased 11%,
while our total hazard and near miss reporting increased 8% to a positive, historic high level.
• Injury prevention: An 11% reduction in recordable injuries, including a 40% reduction in serious injuries. Workers
compensation performance remained positive, with claims and premiums sustained at historic low levels.
• Sustainability: Continued product stewardship improvements (e.g. product reformulation) to prevent potential
harm to our customers, consumers and the environment. A further 5% reduction in water consumption, while
waste to landfill increased 9% due to improved cleanup and data capture across newer sites.
STRATEGY
In order to achieve DuluxGroup’s safety and sustainability vision of ’A Future Without Harm‘, our improvement priorities are
focussed on ensuring effective identification and management of the material risks associated with our products, operations
and people. This includes all facets of our business activities to ensure we meet the expectations of all stakeholders, including
our customers and consumers. An integrated approach to management of our risks means that all DuluxGroup businesses
operate within a common safety and sustainability strategic framework that is focussed on four differentiated risk areas.
SAFETY & SUSTAINABILITY STRATEGY
Disaster prevention
Fatality prevention
Injury prevention
Sustainability
Prevention of disasters such as a major fire or explosion from manufacturing
process safety risks and handling of dangerous goods
Prevention of fatalities from common significant hazards such as forklifts,
working at height and driving
Prevention of non-fatal injuries and illnesses from everyday hazards such
as manual handling, sharp objects and exposure to noise or chemicals
Prevention of community and environmental harm from all activities,
including product stewardship, resource efficiency and land protection
This differentiated strategic approach recognises that a singular management focus on everyday injuries does not prevent high
consequence events such as major fires, fatalities or environmental legacies. These strategies are underpinned by a focus on risk
management basics (e.g. incident reporting, change management) and most importantly, leadership and culture. The strategies
are linked to a continuous improvement focus, reinforced by targeted improvement plans and measurable performance indicators.
GOVERNANCE
Safety and sustainability governance across DuluxGroup is achieved via regular management reviews and due diligence processes.
SAFETY & SUSTAINABILITY GOVERNANCE
Board Committee
Executive Council
Assurance process
Audit program
A Board Safety and Sustainability Committee that meets four times per year
to review performance, objectives and strategies, in addition to reviews at
each Board meeting
A Group Executive Safety and Sustainability Council that meets three times
per year to review performance, approve strategy and lead implementation,
in addition to reviews at each Group Executive meeting
An annual safety and sustainability assurance process whereby all businesses
report on improvement progress and develop prioritised plans
A safety and sustainability audit program for all businesses to assess
effectiveness of risk management and identify improvement priorities
All line managers are responsible for managing safety and sustainability risks, supported by a number of dedicated
specialists. Senior management remuneration is linked to safety and sustainability performance, including leading
improvement activities (e.g. implementation of specific improvement actions for effective management of process
safety, fatality and product stewardship risks) and lagging performance indicators (e.g. injury rates).
36
PERFORMANCE
1. Disaster Prevention
Our priority focus on prevention of high consequence incidents such as a major fire or explosion from manufacturing
process safety risks in our factories (e.g. flammable solvents, combustible dusts) or from handling of dangerous goods
continued during the year. More than 32 years has elapsed since our last major incident (fire) involving a chemical process
safety risk, however we know from the regular occurrence of such high consequence events in similar industries around the
world that continuous vigilance and improvement action is required.
The key improvement activity in this area is our in-depth Periodic Hazard Study process, which involves a deep multi-month
hazard analysis to ensure that effective critical risk controls are being implemented and sustained. Specialist progress
reviews are conducted every six months, including updating of each site’s process safety lead indicator scorecard, to ensure
improvement actions are effective. This is further supported by Disaster Prevention Protocols that specify the minimum,
generic control standards for management of flammable solvent and combustible dust risks.
Following a near miss incident involving solvents at Parchem Wyong in October 2015, external specialist consultants were
engaged to complete a global best practice review of the group’s process safety management framework. The review
rated our framework at 83% versus 342 organisations and operating sites with similar risk profiles (that is, we are operating
in the top 17%). Several elements of the group framework were rated as excellent and a number of best practice improvement
opportunities were also identified. Overall the best practice review confirmed that our framework is appropriate and
reinforced the need to continue focus on improving effective implementation, especially at more recently acquired sites.
FOCUS AREA
2016 PRIORITIES
Process safety
Manufacturing with
flammable solvents
and combustible dusts
• Completion of Periodic Hazard Studies at two more
factories (DGL Camel Dongguan Powders and Dulux
Dandenong South Powders)
• Continued implementation of improvement plans at all nine
factories where studies have previously been completed,
including six-monthly progress reviews and use of lead
indicator scorecards
• Internal disaster prevention protocol reviews at all relevant
factories and implementation of actions to address any
identified significant gaps
• External specialist global best practice review of our
process safety management framework to identify
improvement opportunities
Dangerous
goods
Storage, handling
and distribution of
dangerous goods
• Completion of specialist dangerous goods audits and associated
actions at a number of sites, together with review of our group
standard to ensure minimum standards are clearly defined
2016 PERFORMANCE
• There was one major process safety near miss incident during the year, involving a 700L spill of flammable
solvent at Parchem Wyong. Our emergency response ensured no solvent was lost to drains, however evaporation
of some solvent to atmosphere did occur. Dispersion modelling confirmed that there was no exceedance of health
or environmental criteria beyond the site boundary, although odour thresholds may have been exceeded for a
short period of time. The NSW EPA subsequently issued a $15k infringement notice. A thorough investigation
of the incident was completed and corrective actions implemented, including learning for other sites.
• There were no serious process safety near miss incidents across our remaining factories and more than six
years has elapsed since the last incident in Australia, New Zealand or PNG, and more than two years in China.
This represents significant improvement over time.
• There were no serious incidents involving storage and handling of dangerous goods (e.g. loss of containment)
across the business during the year.
2. Fatality Prevention
Our focus on prevention of fatalities also remained a key priority during the year. The foundations of our fatality prevention
strategy are hazard and near miss reporting, auditing of significant risks, risk management basics (e.g. permit to work,
management of change), and implementation of protocols that prescribe higher levels of mandatory risk controls than
traditional, historic standards. Our hazard and near miss reporting (‘Total General Learning Incidents’) is a foundation
of maintaining risk awareness, especially for high consequence risks, so that we can take action before harm occurs.
During 2016 we continued this improvement work in order to protect our people and ensure we sustain our current
fatality-free performance of more than 22 years. From further benchmarking with peer organisations in similar risk
sectors we continue to recognise that this is exceptional safety performance, however it cannot be taken for granted
and the imperative for constant improvement in our management of significant fatality risks remains.
DULUXGROUP ANNUAL REPORT 2016
37
SAFETY AND
SUSTAINABILITY
REPORT
FOCUS AREA
2016 PRIORITIES
Fatality risks
Common fatality risks, including:
• forklifts
• racking
• falls
• electrical safety
• machine guarding
• lifting equipment
• traffic management
• driving
2016 PERFORMANCE
• Serious near miss incidents involving fatality risks
decreased 11%. Across our heritage Dulux, Selleys and
Yates businesses, serious near misses remained 48%
below peak levels recorded in 2011. Similarly across
the B&D, Parchem and Lincoln Sentry businesses,
serious near misses were 45% lower than the peak
number recorded in 2013 following acquisition.
• Good progress was made in continuing to drive
proactive identification and reporting of all hazards
and near misses (‘Total General Learning Incidents’)
with total numbers increasing 8% to a positive historic
high level of 3.51 per employee.
• Continued implementation and verification of forklift,
racking and machine guarding protocols across DGL
Camel. This included investment to improve racking
and segregate pedestrians.
• Continued implementation of electrical and falls
protocols across all businesses. This included
improvements to upgrade electrical installations,
ensure effective isolation and improve training.
• Commenced implementation of new protocols for traffic
management and lifting equipment, plus completion
of further significant risk audits and associated actions
Total General Learning Incidents
2016
2015
2014
2013
2012
2011
3.51
3.25
2.90
2.56
2.22
1.92
3. Injury Prevention
During 2016 we maintained our focus on prevention of common injuries and associated compensation claims from non-fatal
risks such as manual handling, hazardous chemicals and slips, trips and falls. Manual handling risks are our major source of
injuries and we continue to invest in reducing these risks via changes to workplace and equipment design. This is supported
by risk assessments, training in standard operating procedures, health assessments and monitoring, and near miss reporting.
FOCUS AREA
Injuries
and health
Common non-fatal injury risks
and associated compensation
claims, including:
• manual handling
• sharp objects and tools
• chemicals
• noise
• slips, trips and falls
• health and well-being
2016 PRIORITIES
• Continued implementation of targeted injury reduction
plans for the 10 largest sites, plus development of plans
for the next 10 sites
• Continued improvements in management
of compensation claims and premiums
• Completed over 1,900 health assessments and
over 400 hygiene tests to monitor employees
working with chemicals or high-risk activities
• Conducted various well-being activities across
all businesses, such as walking and fitness programs,
and a variety of health initiatives (e.g. mental health,
skin health, diet)
38
2016 PERFORMANCE
• Our Recordable Case Rate, or the number of
employee and contractor injuries requiring time
off work, restricted duties or medical treatment per
200,000 hours, decreased 11% to 1.63. Our serious
injuries, involving more than 10 days of lost and/or
restricted time, decreased 40%.
• Compensation claims performance remained positive
with premiums and claims (numbers and costs)
sustained at historic low levels of 30% and 12% less
respectively than three years ago.
Recordable Case Rate
2016
2015
2014
2013
2012
2011
1.63
1.53
1.84
1.81
1.85
1.96
4. Sustainability
Sustainability priorities during the year remained product stewardship, resource efficiency, land protection, and
prevention of community harm. Our annual product stewardship assessment and improvement process is focussed on
enabling all businesses to deliver product enhancements that reduce our sustainability impacts and ensure we continue
building on our strong heritage in this area. Management of operating site impacts and community safety are focussed
on continuous improvement in management of relevant significant risks and ensuring we meet community expectations.
Participating in, and engaging with, the communities where we work continued to be an important priority during the
year. Our focus is on supporting these communities with our products and resources to jointly enable our safety and
sustainability vision of ’A Future Without Harm’.
FOCUS AREA
Products
Product stewardship risks, including:
• post-consumer waste
• renewable resources
• consumer safety
• chemicals of concern
• packaging
2016 PRIORITIES
• Completion of annual product stewardship
improvement plans and product group risk
assessments across all SBUs
• Review of chemicals of concern management
and development of a new group standard
• Implementation of a new contract (toll) manufacture
evaluation process to manage significant sourcing risks
Operations
Resource efficiency (waste, water,
energy) and land protection
• Development of new landfill waste and liquid waste
reduction plans for the largest generating sites
Community
Community safety, regulatory
compliance and community
engagement
• Continued monitoring and investigation of historic
soil and groundwater contamination risks
• Continued management of all significant risks to
prevent community harm and ensure compliance
• Conduct of a broad range of community
engagement activities across all businesses
DULUXGROUP ANNUAL REPORT 2016
39
SAFETY AND
SUSTAINABILITY
REPORT
2016 PERFORMANCE – PRODUCTS
Post consumer
waste
• Dulux Australia worked with the Australian Paint Manufacturers’ Federation in launching the new
waste paint recovery scheme, Paintback. Implementation commenced in May, with 70 collection
points to be established across Australia.
• Dulux Envirosolutions developed and released new paint brush storage and cleaning systems
that eliminate cleaning solvents and extend brush life
Renewable
resources
Consumer
safety and
chemicals
of concern
Packaging
and labelling
Sourcing
• Dulux Acratex developed new lightweight render products containing recycled raw materials
that also deliver benefits to applicators via reduced weight
• Parchem reformulated a joint sealant product to replace the traditional polyurethane
formulation with non-hazardous silicone technology
• Selleys trialled new products based on non-hazardous silicone technologies and/or MCCP
free polyurethanes, with commercialisation expected in 2017
• Dulux Auto Refinish reformulated primer and tinter products to eliminate a common
hazardous aromatic solvent
• Yates proactively phased out a range of fungicides, encouraging customers to adopt
less hazardous alternatives
• DuluxGroup PNG provided safety training and auditing for key customers supplied
with chlorine, anhydrous ammonia and phosphine products
• Dulux, Selleys and Yates continued a major project to update labels and safety data sheets
to ensure GHS compliance by the end of 2016
• Lincoln Sentry reviewed LED lighting supplier life cycle assessments, certification and applications,
plus engaged with installers to provide education
• Group Procurement commenced implementation of a new evaluation process for key contract
manufacture suppliers to identify and manage sourcing risks
2016 PERFORMANCE – OPERATIONS
• Waste generation: Waste to landfill (kilograms
per tonne of production) increased 9% to 14.8 kg/t,
primarily due to a one-off cleanup at Parchem Wyong
and improved waste provider data collection across
Lincoln Sentry. These increases offset a 20% reduction
across B&D from introduction of recycling programs and
a further 11% reduction at Dulux Rocklea associated with
the full impact of bulk bag recycling introduced in 2015.
• Water consumption: Water consumption (kilolitres
per tonne of production), including water used in
production processes and in products as a raw
material, decreased 5% to 0.60 kL/t, primarily due to
further efficiency improvements across DGL Camel
China who have reduced consumption by more than
60% since 2013. More than 40% of water consumed
across our coatings manufacturing sites is used as raw
material in water based products.
Waste to Landfill (kg/t)
2016
2015
2014
2013
2012
2011
Water Consumption (kL/t)
2016
2015
2014
2013
2012
2011
14.8
13.6
14.4
11.8
13.8
0.60
0.64
0.68
0.49
0.53
18.9
0.78
• Energy consumption: Total energy consumption (gigajoules per tonne of production) remained steady
at 0.77 GJ/t. DuluxGroup meets the Australian National Greenhouse and Energy Reporting System (NGERS)
reporting criteria, due to use of solvents in formulation of products. Excluding this raw material use, the operational
energy consumption and greenhouse gas emissions from our Australian sites and businesses are below the reporting
thresholds. The total greenhouse gas emissions (Scope 1 and 2) from our Australian sites and business activities
were 33,400 tonnes (CO2-e or equivalent carbon dioxide emissions), 2% lower than 2015, primarily due to lower
fleet fuel emissions. Total energy consumed was 485,000 GJ, 7% lower than 2015, primarily due to decreased
solvent consumption at Dulux Rocklea.
• Land protection: The company has undertaken a number of investigations in prior years to ensure potential soil
and groundwater contamination issues are identified and managed. Further monitoring was completed during
the year and no significant issues were identified.
40
2016 PERFORMANCE – COMMUNITY
Community
safety
• The company’s emergency response service responded to 555 calls during the year, compared
with 614 calls in 2015. This service provides emergency support 24 hours a day, with more than
98% of calls involving minor human and animal exposures to products during use.
Regulatory
compliance
Community
engagement
• There was one serious distribution incident during the year, compared with one such incident
in 2015. The incident involved a spill and exposure to nitric acid at a customer site in PNG during
delivery of a 200L drum. The incident was fully investigated and corrective actions implemented.
• There were no regulatory prosecutions or prohibition notices received during the year, compared
with none in 2015. There were five improvement and/or infringement notices received compared
with five in the prior year, all of which were fully investigated and addressed.
• Yates launched the Raise A Patch initiative to promote a healthy approach to fundraising
via sale of seed packets and encourage home gardening
• Dulux Australia continued its partnership with Surf Life Saving Clubs Australia, with more
than 145 clubs painted to date
• Dulux New Zealand continued its conservation partnership with the Department
of Conservation to paint and protect 973 lodges and huts across the country
• DuluxGroup businesses and employees donated time and resources to support
a wide variety of community projects
5. Integration and Leadership
Integration of acquisitions to ensure effective management and targeted improvement of all significant safety and
sustainability risks remained an important priority during the year. Continuing to develop the safety and sustainability
leadership capability of our managers, and thereby ensure we maintain and support the optimum culture, also remained
an important priority during the year. This focus recognises that our culture ultimately determines the degree of success
we can achieve in aspiring to prevent all harm and that our leaders create the culture.
FOCUS AREA
2016 PRIORITIES
Acquisition integration
Leadership and culture
Effective management
of significant risks in
acquired businesses
Continuous development
of leadership capability
and culture
• Continued integration of the Porter’s Paints business
• Continued delivery of our Safety and Sustainability
Management and Leadership Programs, which provide
managers with the contemporary understanding
of how to effectively manage risks and how their
actions influence and create culture
• Commenced development of advanced leadership,
management refresher, and employee leadership
programs for introduction in 2017.
2016 PERFORMANCE
• Acquisition integration: Across Porter’s Paints we continued implementation of prioritised improvement
and integration actions to address findings from 2015 significant risk audits of all sites and ensure medium term
alignment of standards, processes and culture
• Leadership and culture: We delivered Safety and Sustainability Leadership Programs to 20 senior managers and Safety
and Sustainability Management Programs to 70 operations and commercial managers. More than 170 managers have
now completed the leadership program and more than 350 managers have completed the management program.
DULUXGROUP ANNUAL REPORT 2016
41
SAFETY AND
SUSTAINABILITY
REPORT
6. Key Focus Areas 2017
DuluxGroup’s key priorities during 2017 will be the continued focus on our four primary improvement strategies
and the supporting elements to those strategies.
2017
PLANNED
IMPROVEMENTS
Injury
prevention
Continued implementation
of targeted risk reduction
plans for the 20 operating
sites and areas that account
for the majority of non-fatal
injuries and workers
compensation claims
Disaster
prevention
Completion of new five
yearly periodic hazard studies
at three sites, comprising
identification of process safety
risks. Continued implementation
and review of improvement
actions from studies at sites
completed in prior years
Fatality
prevention
Continued focus on near miss
reporting and implementation
of fatality prevention protocols,
with particular focus on
traffic management and
lifting equipment
Sustainability
Continued implementation
of product stewardship,
chemicals of concern
management, and waste
reduction plans
Leadership
Continued delivery of our
leadership and management
programs across all levels of
the organisation
42
RIGHT: Marcoola Surf
Life Saving Club in
Queensland, protected by
Australia’s leading paint.
DULUX IS PARTNERING
WITH SURF LIFE
SAVING AUSTRALIA
TO REPAINT SURF
CLUBS THROUGHOUT
AUSTRALIA WITH
AUSTRALIA’S LEADING
PAINT BRAND
DULUXGROUP ANNUAL REPORT 2016 43
Our Board
GAIK HEAN CHEW
BPharm (Hons)
Non-Executive Director since
August 2010. Chair of the Safety
and Sustainability Committee and
member of the Remuneration and
Nominations Committee.
Director of KCA International.
Former Director of CPS Color Group
of Finland. Gaik Hean has more than
32 years’ experience in the paints and
chemicals sectors, most recently as
Chief Executive of ICI Paints Asia from
1995 until 2008 and also as the former
Managing Director of ICI Singapore.
PATRICK HOULIHAN
BSc (Hons), MBA
Managing Director and Chief Executive
Officer since July 2010. Member of the
Safety and Sustainability Committee.
Former CEO of Orica Limited’s
DuluxGroup division and member
of Orica Limited’s Group Executive
from February 2007 to July 2010.
Patrick was also the Yates General
Manager, Selleys Sales Director and
Dulux Marketing Director. Patrick has
been an employee of DuluxGroup
since 1989. Patrick is a Director of the
Murdoch Childrens Research Institute.
GARRY HOUNSELL
BBus (Accounting) FCA, CPA
Non-Executive Director since July 2010.
Chair of the Audit and Risk Committee
and member of the Remuneration and
Nominations Committee.
Chairman of Helloworld Limited
since October 2016 and Director
of Treasury Wine Estates Limited
since September 2012, Spotless Group
Holdings Limited since March 2014
and Integral Diagnostics Limited since
October 2015. Garry was Chairman of
PanAust Limited from 2008 to 2015 and
was a Director of Qantas Airways Limited
from 2005 until 2015, Director of Orica
Limited from 2004 until 2013, Director of
Mitchell Communication Group Limited
from 2006 until 2010, Director of Nufarm
Limited from 2004 until 2012, and is a
former Senior Partner of Ernst & Young
and Chief Executive Officer and Country
Managing Partner of Arthur Andersen.
STUART BOXER
BEng (Hons)
Executive Director and Chief
Financial Officer since July 2010.
Former CFO and General Manager
Strategy of Orica Limited’s DuluxGroup
division from October 2008 to
July 2010. Stuart was previously
CFO of Southern Cross Broadcasting
(Australia) Limited and, prior to that,
held various senior strategy and
finance roles at Village Roadshow
Limited and LEK Consulting.
PETER KIRBY
BEc (Hons), MA (Econ), MBA
Chairman and Non-Executive
Director since July 2010. Chair of
the Remuneration and Nominations
Committee and member of the
Audit and Risk Committee.
Former Director of Macquarie Group
Limited August 2007 to July 2014
and of Macquarie Bank June 2003
to July 2014. Former Director of
Orica Limited from July 2003 to July
2010 and former Managing Director
and Chief Executive Officer of CSR
Limited from 1998 to March 2003.
Peter was also Chairman and Director
of Medibank Private Limited, a member
of the Board of the Business Council of
Australia and the Chairman/CEO of
ICI Paints and member of the Executive
Board of ICI PLC.
44
ANDREW LARKE
LLB, BCom, Grad Dip
(Corporations & Securities Law)
Non-Executive Director since
October 2010. Member of the
Audit and Risk Committee and
member of the Remuneration
and Nominations Committee.
Chairman of IXOM Limited (formerly
the Chemicals Division of Orica Limited)
since October 2015 and non-executive
Director of Diversified United Investment
Limited since March 2015. Andrew was
Managing Director and Chief Executive
of IXOM Limited prior to his appointment
as Chairman. Andrew was also Group
General Manager, Mergers & Acquisitions,
Strategy and Technology at Orica for
12 years and Group General Manager
of Orica’s Chemicals Division from
2012 until 2014. Prior to that he was
General Manager of Strategy and
Mergers & Acquisitions at North Limited.
GRAEME LIEBELT
BEc (Hons)
Non-Executive Director since June 2016.
Member of the Remuneration and
Nominations Committee and member of
the Safety and Sustainability Committee.
Chairman of Amcor Limited
since December 2013, Director of
Amcor Limited since April 2012, Director
of ANZ Banking Group Limited since
July 2013 and Director of the Australian
Foundation Investment Company
Ltd since June 2012. Graeme is also
a Director of Carey Baptist Grammar
School. He is a Fellow of the Australian
Institute of Company Directors and of
the Australian Academy of Technological
Sciences and Engineering. He was
the Managing Director and CEO of
Orica Limited from 2005 to 2012 and
Executive Director of Orica Limited
from 1997 to 2012. Graeme has also
held a number of senior roles, including
CEO of Orica Mining Services from
2000 to 2005 and Managing Director
of Orica Limited’s DuluxGroup division
from 1995 to 1997.
JUDITH SWALES
BSc
Non-Executive Director since
April 2011. Member of the Audit and
Risk Committee and member of the
Safety and Sustainability Committee.
Chief Operating Officer Transformation
and Innovation for Fonterra
Co-operative Limited. Former director
of Foster’s Group Limited from May
2011 to December 2011. Judith has
more than 21 years’ experience in
high profile, global, consumer facing
companies. Previous roles include
Managing Director of Heinz Australia
and Chief Executive Officer and
Managing Director for Goodyear &
Dunlop Tyres ANZ. Judith is also a former
Managing Director of Angus & Robertson
and has held positions at UK retailers
WH Smith plc and Marks & Spencer plc.
SIMON BLACK
LLB, BCom, Cert Gov
(Admin), CSA (Cert)
Company Secretary and General
Counsel since July 2010.
Former Senior Legal Counsel at
Orica Limited’s DuluxGroup division
from January 2006 to July 2010. Former
Senior Legal Counsel for Orica Limited’s
Chemicals division from October 2004
to January 2006 and former Senior Legal
and Business Affairs Adviser at Universal
Pictures International, London, UK.
DULUXGROUP ANNUAL REPORT 2016 45
Our Executive
BRAD HORDERN
BEng (Hons)
Executive General Manager
– DuluxGroup Supply Chain
Brad was appointed to his current
role in November 2006. Before joining
DuluxGroup, Brad held a number of
senior operational roles including
Group Manufacturing Manager for
SCA Australasia, Logistics Director
for Campbell’s Arnott’s Australia
and National Operations Manager
for Snack Brands Australia
(previously Frito-Lay Australia).
STUART BOXER
BEng (Hons)
Executive Director and
Chief Financial Officer
Stuart joined the DuluxGroup business
in October 2008 as CFO and General
Manager Strategy. Prior to joining
DuluxGroup, Stuart held a number
of senior positions including CFO of
Southern Cross Broadcasting (Australia)
Limited and various senior strategy
and finance roles at Village Roadshow
Limited and LEK Consulting. Stuart was
appointed to his current role upon the
demerger of the DuluxGroup division
from Orica Limited in July 2010.
JULIA MYERS
BSc (Hons)
Executive General Manager
– Selleys Australia and New Zealand
Julia was appointed to her current
role in January 2014. Julia joined
DuluxGroup in 1990 as a business
analyst based in Slough, UK.
Since then, Julia has undertaken
a variety of functional, commercial
and business management roles
including Group IT Manager, Sales
Force Effectiveness Manager, Dulux
Independents Business Manager
and Cabot’s Business Manager. Most
recently, Julia was Executive General
Manager of Dulux Paints New Zealand.
PATRICK JONES
BBus (Hons), CPA
Executive General Manager
– Dulux Paints and Coatings
Patrick joined ICI in 1995 and moved
into the DuluxGroup business in 1999.
He was appointed to his current position
in May 2011. Patrick has undertaken a
variety of commercial and business
management roles including General
Manager of the Paints New Zealand
Business from May 2008. Other roles
previously held by Patrick include
National Retail Manager for Dulux Paints
Australia, Bunnings Business Manager,
Independents Business Manager and
State Sales Manager.
PATRICK HOULIHAN
BSc (Hons), MBA
Managing Director and
Chief Executive Officer
Patrick joined the DuluxGroup business
in 1989 as a research chemist and has
since progressed through a succession
of technical, commercial and senior
leadership roles including Selleys Sales
Director, Dulux Marketing Director,
and Yates General Manager. Patrick
was appointed CEO of Orica Limited’s
DuluxGroup division and a member
of the Orica Group Executive in
February 2007. Patrick was appointed
to his current role upon the demerger
of the DuluxGroup division from
Orica Limited in July 2010.
46
JENNIFER TUCKER
LLB, BCom
Executive General Manager – Yates
Jennifer was appointed to her
current role in July 2014. Jennifer
joined DuluxGroup in 2005 as a
senior brand manager for Selleys.
She has since progressed through
a succession of sales, marketing and
business development roles, including
Yates Marketing Manager, Selleys
Channel Business Manager and Paint
Accessories Business Manager. Prior
to joining DuluxGroup, Jennifer held
sales and marketing roles at Luxaflex
and Rheem Australia.
MARTIN WARD
Executive General Manager
– Consumer and Construction Products
Martin was appointed to his current
role in April 2014. He has extensive
business leadership and management
experience, including as General
Manager Strategic Marketing for
DuluxGroup, Managing Director of
Selleys, General Manager of Cabot’s,
as well as other senior strategic
planning and brand marketing roles
during more than 20 years with
DuluxGroup. Martin was also a partner
at Origin Capital Group in the merchant
banking sector and Company Director
at retailer Inspirations Paint Stores.
SIOBHAN MCHALE
BA(Hons), MSc
Executive General Manager
– DuluxGroup Human Resources
Siobhan joined DuluxGroup in
her current role in February 2016.
Prior to that she has held a number
of senior human resources positions
including Executive General Manager
Culture, Change and Executive
Learning at Transfield Services,
Group General Manager of Culture
and Change at ANZ Bank, and Senior
Executive Development Manager at
Ansett Airlines. Prior to that, Siobhan
held senior management consultancy
roles in Australia and the UK.
STEVEN LEIGHTON
Executive General Manager
– B&D Garage Doors and Openers
Steven joined DuluxGroup in his current
role in November 2015. Prior to joining
DuluxGroup, Steven held various roles at
20th Century Fox Home Entertainment,
Inc including Executive Vice President of
Northern Europe, Asia Pacific and Latin
America, Managing Director of UK and
Managing Director of Australia. Steven
was also Chief Executive Officer of the
Hawthorn Football Club in Melbourne
from 2003 to 2004, Managing Director
for Heinz (Australia and then Asia) and
has held General Manager positions
at Mayne Nickless Express, Berrivale
Orchards and Cadbury.
RICHARD HANSEN
BBus (Marketing and
Management)
Executive General Manager
– Dulux Paints New Zealand
Richard was appointed to his current
role in January 2014. During more than
15 years with DuluxGroup, Richard has
held a range of sales, marketing and
business management roles in the
Dulux, Selleys and Yates businesses.
Most recently he was Business Manager
for Selleys Australia and New Zealand.
DULUXGROUP ANNUAL REPORT 2016 47
Corporate Governance Statement
AS AT 8 NOVEMBER 2016
As a Board, we believe that a strong corporate governance
framework and culture translates to a strong company that
delivers for its shareholders.
Our corporate governance framework includes:
• An engaged Board of directors with a diverse range of skills and experience supported by an effective Board
Committee structure.
• Clear and transparent communication with our shareholders.
• Strong risk management and assurance processes and culture.
• Our Values and Behaviours and supporting policies that underpin the way we behave and meet our strategic objectives.
At DuluxGroup, we help our consumers
to imagine and create better places and
spaces in which to live and work. We do
this by manufacturing and marketing a
wide range of products that enhance,
protect and maintain those places and
spaces. We recognise that the way
we do business is critical in order for
us to earn and maintain the respect
and trust of all stakeholders including
our employees, customers, suppliers,
shareholders and the community.
DuluxGroup’s directors and
management are committed to
conducting business in an ethical, fair
and transparent manner in accordance
with high standards of corporate
governance. The Board, together
with the management team, leads by
example. We have a robust corporate
governance framework in place and we
are committed to fostering a culture of
compliance that values personal and
corporate integrity, accountability and
continuous improvement.
DuluxGroup’s corporate governance
framework complies with the 3rd
edition of the ASX Corporate
Governance Council’s Corporate
Governance Principles and
Recommendations (ASX Principles).
1. OUR BOARD
1.1 The role and responsibilities
of the Board and management
The Board
The Board’s primary role is to ensure
the protection and enhancement of
long term shareholder value taking
into account the interests of other
stakeholders including employees,
customers, suppliers and the wider
community. The Board is accountable
to shareholders for the performance
of the company. It directs and
48
monitors the business and affairs of
the company on behalf of shareholders
and is responsible for the company’s
overall corporate governance.
In particular, the Board’s
responsibilities include:
• approving the strategic
objectives and direction of
the company and overseeing
management’s implementation
of those strategic objectives;
• monitoring the company’s
operational performance generally
including its financial state and the
effectiveness of the company’s
safety and sustainability strategy;
• approving major expenditures,
transactions, budgets, funding plans
and capital management initiatives;
• monitoring the integrity,
effectiveness and consistency
of the company’s risk management
framework, controls and systems;
• setting the overall
remuneration framework for
the company and overseeing
executive succession planning;
• appointing, assessing the
performance and setting the
remuneration of the CEO, as well
as approving the appointment and
remuneration of senior management
and overseeing their performance;
• influencing the corporate culture,
ethical standards and reputation
of the company; and monitoring
the effectiveness of the company’s
governance practices including
overseeing shareholder reporting and
engagement as well as compliance
with the company’s continuous
disclosure obligations.
The Board has adopted a Board
Charter, which details its role and
responsibilities. The Board Charter
can be found in the corporate
governance/charters section of our
website at www.duluxgroup.com.au.
Management
The CEO, together with the DuluxGroup
executive team, is responsible for the
development and implementation of
strategy and the overall day-to-day
running of the company. Consistent
with the company’s primary objective
to enhance long term shareholder
value, this includes operational,
financial and strategic delivery,
risk management and compliance,
leadership and organisational culture,
and the provision of accurate, timely
and clear information to enable the
Board to perform its responsibilities.
A formal delegation of authority is in
place that sets out the powers that are
reserved to the Board and those that
are delegated to the CEO. This can be
found in the corporate governance/
governance policies section of our
website at www.duluxgroup.com.au.
There is also a formal structure setting
out the delegations from the CEO to
management and other employees.
DuluxGroup has employment contracts
in place with senior executives, which
set out the terms of their employment.
1.2 Board composition
and succession
DuluxGroup is committed to ensuring
that the composition of the Board
continues to comprise directors who,
as a whole, possess the diversity of skills
and experience required to fulfil the role
and responsibilities of the Board.
The Board currently comprises
8 directors, including 6
non-executive directors.
NON‑EXECUTIVE DIRECTORS
APPOINTED
EXECUTIVE DIRECTORS
APPOINTED
Mr Peter Kirby, Chairman
July 2010
Ms Gaik Hean Chew
Mr Garry Hounsell
Mr Andrew Larke
Mr Graeme Liebelt
Ms Judith Swales
August 2010
July 2010
October 2010
June 2016
April 2011
Mr Patrick Houlihan, CEO
Mr Stuart Boxer, CFO
July 2010
July 2010
Details of the qualifications and experience of our directors are set out on pages 44 and 45 of DuluxGroup’s 2016 Annual Report.
Skills and Diversity
In considering the composition of the Board, directors take into account the appropriate characteristics needed by
the Board to maximise its effectiveness and the blend of skills, knowledge and experience necessary for the present
and future needs of the company.
The Board believes that having a range of different skills, backgrounds, experience and diversity ensures a broad range
of viewpoints which facilitate effective governance and decision making.
The Board’s Remuneration and Nominations Committee has primary responsibility for conducting assessments of the
current mix of skills and experience of directors, taking into account the business and strategic needs of the company,
as well as broader succession planning issues for both the Board and management.
During the 2016 financial year, the Board’s Remuneration and Nominations Committee, and the Board itself, undertook
a detailed review of the general and specialist skills, knowledge and experience necessary for the Board to properly
perform its role and to achieve the company’s strategy and growth agenda. As a result of this process, an enhanced
Board skills matrix was created as follows.
BOARD SKILLS MATRIX
BOARD REPRESENTATION
Leadership
Successful leadership at a senior executive level in a large business
Strategy and Growth
Senior executive experience in developing and delivering successful strategies
and meaningful business growth outcomes in a large business
Financial Acumen
Senior executive experience and understanding of accounting, financial reporting,
corporate finance and financial controls in a large business
Governance and Risk Management
Senior executive experience in a large business that is subject to rigorous governance
and risk management standards
Industry Experience
Senior executive experience in a large paints and coatings business
Marketing and Innovation
Senior executive experience in consumer and customer marketing and delivering growth
through commercialising innovative products and services
Manufacturing and Supply Chain
Senior executive experience in manufacturing, supply chain or quality operations
within a large business
International Experience
Senior executive experience to a range of geographic, political, cultural, regulatory
and business environments
Mergers and Acquisitions
Successful track record of delivering strategically sound and value adding mergers
and acquisitions as an enabler of corporate strategy
Safety and Sustainability
Board safety committee membership or senior executive experience in a large business
related to work safety, environmental and social responsibility
Experienced CEO
Successful track record as a Chief Executive Office of a listed entity or an equivalent
large business enterprise
Remuneration
Board remuneration committee membership or senior executive remuneration
experience in a large business enterprise
8
8
8
8
6
6
7
8
7
6
7
6
The Board also considers that additional skills, including science and technology, information technology and digital, legal
and strategic human resources, are valuable to its decision making. To the extent that any skills are not directly represented
on the Board, they are augmented through management and external advisers.
DULUXGROUP ANNUAL REPORT 2016 49
CORPORATE
GOVERNANCE
STATEMENT
Further information on the company’s diversity policy and progress against the company’s diversity objectives
is provided in section 6 of this corporate governance statement.
Board Skills, Experience and Diversity
Remuneration
6
Leadership
8
8
7
6
5
4
3
2
1
Strategy
and Growth
8
Financial
Acumen
8
GENDER
%
25 Female
75 Male
Governance
and Risk
Management
8
6 Industry
Experience
AGE
%
50 40–50years
50 60+years
Experienced
CEO
7
6
Safety and
Sustainability
7
Mergers and
Acquisitions
8
International
Experience
6
Marketing
and Innovation
7
Manufacturing
and Supply Chain
Number of Directors
Our Chairman
Our Chairman, Mr Peter Kirby, is an independent non-executive director. He has been an independent non-executive director
and Chairman of DuluxGroup since July 2010. The Chairman’s overarching responsibilities include providing leadership for
the Board, facilitating the effective contribution of all directors, managing the dynamics of Board discussion, setting the
Board agenda and ensuring adequate time is available for discussion on all agenda items, in particular, on strategic issues.
The Chairman is also responsible for fostering constructive relations between directors and between Board and management,
and promoting the interests of the company with shareholders and other key external stakeholders. Importantly, the roles of
Chairman and CEO of DuluxGroup are not fulfilled by the same person.
Details of the qualifications and experience of our Chairman are set out on page 44 of DuluxGroup’s 2016 Annual Report.
Our Company Secretary
Our Company Secretary, Mr Simon Black, reports directly to the Board through the Chairman, and all directors have access
to the Company Secretary. The Company Secretary’s role in respect of matters relating to the proper functioning of the
50
Board includes: (a) advising the Board
and its Committees on governance
matters, (b) monitoring that Board
and Committee policies and procedures
are followed, (c) coordinating all
Board business including the timely
despatch of Board and Committee
papers, (d) acting as a point of
reference for dealings between the
Board and management, (e) retaining
independent professional advisors
as required, (f) helping to organise
and facilitate the induction and
professional development of directors,
and (g) ensuring proper compliance
with relevant statutory requirements
relating to DuluxGroup’s registered
office, annual returns and lodgement
of other documents with ASIC and ASX.
Details of the qualifications and
experience of our Company Secretary
are set out on page 45 of DuluxGroup’s
2016 Annual Report.
Independence
Directors are expected to bring
independent views and judgement to
the Board’s deliberations. The Board
recognises the special responsibility of
non-executive directors for monitoring
executive management and providing
independent views.
Under the Board Charter, the
Board must maintain a majority
of non-executive directors and
have a non-executive independent
Chairman (with different persons
filling the roles of Chairman and
Managing Director/CEO).
The Board has determined that,
in respect of the 2016 financial year,
the Chairman and all non‑executive
directors are independent of
executive management and free of
any business or other relationship
that could materially interfere
with the exercise of unfettered
and independent judgement or
compromise their ability to act in
the best interests of the company.
The Board has adopted guidelines
based on the factors set out in the ASX
Principles in assessing the independent
status of a director. The independence
of each director is considered on a case
by case basis from the perspective of
both the company and the director.
Materiality is assessed by reference to
each director’s individual circumstances,
rather than by applying general
materiality thresholds. In summary,
the test of whether a relationship could,
or could be perceived to, materially
interfere with the independent exercise
of a director’s judgement is based on
the nature of the relationship and the
circumstances of that director. The
Board may determine that a director
is independent notwithstanding the
existence of an interest, position,
association or relationship of the
type described in Box 2.3 of the ASX
Principles. However, in such a case,
the Board will disclose why it is of
the opinion that the interest, position,
association or relationship does not
compromise the independence of
the director.
The Board assesses the independence
of its new directors upon appointment
and otherwise on an annual basis. Each
director is obliged to immediately
inform the company of any fact or
circumstance which may affect the
director’s independence.
Succession
As part of its annual review, the
Board continues to consider the issue
of Board succession driven partly by
the fact that a majority of directors
were all appointed on, or shortly after,
DuluxGroup’s demerger from Orica
Limited in 2010. In addition, the Board’s
succession plan is focused on continually
identifying suitable candidates for
future appointment to the Board, having
regard to the Board’s current skills mix
and desirable future skills, to ensure that
Board remains proactive and renewal
occurs in an orderly manner over time.
Where a need is identified or
arises, the Remuneration and
Nominations Committee considers
potential candidates based on the
skills required by the Board and
the qualities and experience of the
candidate. The Committee, with the
assistance of professional consultants
if necessary, will undertake a search
process and shortlisted candidates
will be interviewed by the Chairman
and other directors before being
recommended to the full Board
for appointment. Nominations
for appointment to the Board are
considered by the Remuneration
and Nominations Committee and
approved by the Board as a whole.
Appropriate checks are undertaken
on any potential candidates before
a person is appointed by the Board
or put forward to shareholders as a
candidate for election as a director.
1.3 Director appointment,
induction and professional
development
Directors (other than the Managing
Director/CEO) appointed by the
Board must stand for election at
the Annual General Meeting (AGM)
following their appointment and are
subject to shareholder re-election by
rotation at least every three years.
Further, re-appointment of non-executive
directors to the Board at the conclusion
of their three year term is not automatic.
Prior to the Board endorsing a
director for re-election, the individual’s
performance as a director is reviewed
in accordance with processes agreed
by the Board from time to time. The
company provides shareholders with
all material information in its possession
relevant to a decision on whether or
not to elect or re-elect a director.
New directors are provided with a
formal letter of appointment that sets
out the key terms and conditions of
appointment including, among other
things, duties, rights and responsibilities,
DULUXGROUP ANNUAL REPORT 2016
51
CORPORATE
GOVERNANCE
STATEMENT
the time commitment envisaged and
the Board’s expectations regarding
involvement with Board Committee
work. New directors also participate in a
formal induction program which includes
site visits, one-on-one meetings with
relevant members of management and
provision of relevant policies, charters
and other materials.
1.4 Board meetings
The Board typically holds at least
eight meetings per year, unless the
business of the company requires
additional meetings. In addition, the
Board sets aside a two day meeting
annually to comprehensively review
company strategy.
Directors receive comprehensive
papers in advance of the Board
meetings. Directors also receive
regular updates in relation to key issues
facing DuluxGroup’s businesses from
time to time including management
reports during the months when
a Board meeting is not scheduled.
The Board calendar also includes
site visits to DuluxGroup operations
to meet with employees, customers
and other stakeholders.
The Board recognises the importance
of the non-executive directors meeting
without the presence of management
to discuss company matters and it is the
Board’s practice that the non-executive
directors meet separately in conjunction
with the scheduled Board meetings.
1.5 Conflicts of Interest
Directors are required to avoid
conflicts of interest and immediately
inform their fellow directors should a
conflict of interest arise. Directors are
also required to advise the company
of any relevant interest that may result
in a conflict. The Board has adopted
the use of formal declarations of
interests that are tabled at Board
meetings where directors disclose
any new material personal interests
or if there is any change in the nature
or extent of a previously disclosed
interest. This includes a director’s
appointment or retirement from
boards of other companies.
Where a matter in which a director
has a material personal interest is being
considered by the Board, that director
must not be present when the matter is
being considered or vote on the matter
unless all of the directors have passed
a resolution to enable that director to
do so or the matter comes within a
statutory exception.
During the 2016 financial
year, the Board’s professional
development program included,
among other things:
• focussed sessions at each Board
meeting addressing topical
issues facing one or more of
the business units or functions;
• a visit to the Melbourne
School of Design at
Melbourne University;
• visits to the Acratex
manufacturing site in Beverley,
South Australia, and the Selleys
manufacturing site in Padstow,
New South Wales;
• tours of the United
Kingdom, China, Hong
Kong and New Zealand to
give the Board insight into
DuluxGroup’s operations,
growth opportunities and
the relevant markets; and
• presentations from subject
matter experts on issues
including digital, science and
technology, industrial relations,
capital markets, architecture
and accounting developments.
An active professional development
program is also in place for directors
and is incorporated as part of the
annual Board cycle. This comprises
internal presentations, discussions
with key external subject matter
experts, customers and/or suppliers
as well as visits to DuluxGroup
sites and other places of interest.
The purpose of this program is to
provide appropriate opportunities
for directors to develop and maintain
their skills and knowledge needed to
perform their role as directors.
52
1.6 Access to management,
information and
professional advice
All directors have unrestricted
access to the senior executives
and other employees of DuluxGroup
through the Chairman, CEO or the
Company Secretary. Directors may
seek briefings from senior executives
outside the regular presentations made
by senior executives at Board meetings.
Subject to prior consultation with
the Chairman, each director may seek
independent professional advice at the
company’s expense to assist the director
in the proper exercise of powers and
discharge of duties as a director or
as a member of a Board Committee.
Pursuant to a deed executed by the
company and each director, a director
also has the right to have access to all
documents which have been presented
to meetings or made available to the
Board or any Board Committee whilst
in office, including materials referred
to in those documents.
1.7 Board and executive
performance and remuneration
The Board is committed to a
performance culture and to ensuring
that a range of formal processes are
in place to evaluate the performance
of the Board, Board Committees,
each director and senior executives.
Board review
The Board has a formal Board
Evaluation Policy, under which
it carries out an evaluation of its
performance each year. This process
is overseen by the Chairman. It is the
Board’s general practice that this is
externally facilitated every third year.
During the 2016 financial year, the
Board undertook a comprehensive
review of its performance and the
performance of individual directors.
This review was externally facilitated
and included feedback from directors
and senior management. This review
concluded that the Board continues to
operate effectively in the discharge of
its duties and oversight of DuluxGroup.
2. OUR BOARD COMMITTEES
The Board has three standing
Committees that play an important
role in assisting the Board perform its
role and discharge its responsibilities.
As at the date of this statement, and
for all of the 2016 financial year, the
following Committees assist the Board
by focussing in more detail on specific
areas of DuluxGroup’s operations and
governance framework:
• Audit and Risk Committee;
• Remuneration and Nominations
Committee; and
• Safety and Sustainability Committee.
These Committees, generally, review
matters on behalf of the Board and
refer matters to the Board for decision
with a recommendation from the
Committee. The Committee papers,
including minutes of meetings, are
circulated to the Board members.
Additionally, any director is welcome
to attend any Committee meeting.
The review also concluded that the
Board comprises directors with an
effective mix of skills and experience
whilst acknowledging the importance
of addressing Board succession
among other matters. A number of
improvement actions were identified
most of which have been implemented
and some of which are ongoing.
Management review
The non-executive directors are
responsible for regularly evaluating
the performance of the CEO based
on specific criteria including the
company’s business performance, short
and long term strategic objectives and
the achievement of personal objectives
that are approved annually.
All DuluxGroup executives are subject
to an annual performance review.
These reviews, which were conducted
in the 2016 financial year, involve an
executive being evaluated by their
immediate superior by reference to
their specific performance objectives
for the year, including the completion
of key performance indicators and
contribution to specific business and
company plans. This review is aligned
to the company’s remuneration
framework and is considered for,
among other things, the purposes
of determining any increases to fixed
remuneration and outcomes under the
company’s short term incentive plan.
The Remuneration Report contained
in the DuluxGroup 2016 Annual
Report sets out details regarding the
company’s remuneration policy, fees
paid to directors and specific details
of executive remuneration.
The Board evaluated the
performance of Mr Andrew Larke
who is standing for re‑election
at the Company’s 2016 AGM,
prior to the Board endorsing his
nomination for re‑election.
Board Committee review
Each Board Committee also reviews
its performance against its annual
objectives. As appropriate, the Board
may also provide feedback from
time to time as to the effectiveness
with which it considers the Board
Committees assist the Board in
the discharge of its functions. The
Board’s Audit and Risk Committee
and Remuneration and Nominations
Committee undertook a review of
its performance against its annual
objectives during the 2016 financial
year. The Board’s Safety and
Sustainability Committee reviewed
its performance against its annual
objectives during its meeting in
October 2016.
Director review
The Board undertakes performance
evaluations of individual directors
prior to the Board endorsing them
for re-election. The Board considers
the skills, knowledge and experience
of the individual director, their overall
performance, their attendances and
participation at Board and Committee
meetings, and their contributions to
matters discussed.
DULUXGROUP ANNUAL REPORT 2016
53
CORPORATE
GOVERNANCE
STATEMENT
An overview of the membership, composition and responsibilities of each standing Committee as at the date
of this statement is as follows:
Membership
Mr Garry Hounsell (Chair)
Mr Peter Kirby (Chair)
Ms Gaik Hean Chew (Chair)
AUDIT & RISK
REMUNERATION & NOMINATIONS
SAFETY & SUSTAINABILITY
Mr Peter Kirby
Mr Andrew Larke
Ms Judith Swales
Ms Gaik Hean Chew
Mr Garry Hounsell
Mr Andrew Larke
Mr Graeme Liebelt *
Mr Patrick Houlihan
Ms Judith Swales
Mr Graeme Liebelt *
Composition
The committee is to
comprise of at least three
non-executive directors, all
of whom satisfy the criteria
for independence and who,
between them, have relevant
financial, commercial and risk
management experience. The
committee is to be chaired by
an independent director who
is not chair of the Board.
The committee is to comprise
of at least three non-executive
directors, the majority of
whom satisfy the criteria for
independence. The committee
is to be chaired by an
independent director.
The committee is to comprise
at least two directors including
at least one non-executive
director and the Chief
Executive Officer.
Responsibilities
• Review the full year and
• Review and make
half year financial reports
of the group, including the
accounting policies and
practices of the group.
• Monitor and assess the
adequacy of the internal
systems for financial
and operating controls,
risk management and
legal compliance.
• Oversee the scope,
conduct and outcomes
of internal and external
audits (including audit
programs, external audit
independence and auditor
performance).
• Make recommendations
to the Board on the
appointment, performance
and remuneration of the
company’s auditors.
• Review and assess non-audit
services provided by the
external auditor.
recommendations to the
Board on the remuneration
of directors and senior
executives, including
fixed annual remuneration,
short term and long term
incentive arrangements
and performance targets.
• Monitor and review the
company’s organisational
strategy including employee
relations, performance
evaluation, talent
management and senior
leadership succession.
• Oversee the effectiveness
of the company’s diversity
policy including monitoring
performance against agreed
diversity objectives.
• Review the size and
composition of the Board
and Board Committees
including the mix of
skills and experience
of directors as well as
succession planning.
• Review the effectiveness of
the company’s safety and
sustainability strategies,
objectives and targets.
• Monitor and review
safety and sustainability
issues that have
strategic, financial and/or
reputational implications
for the company,
including significant
safety incident reports.
• Oversee compliance
with legal and regulatory
safety and sustainability
requirements.
• Monitor best practice safety
standards, procedures and
management approaches
and assess implications
for the company.
• Foster appropriate
safety and sustainability
leadership and culture.
* Graeme Liebelt was appointed to the Remuneration and Nominations Committee and the Safety and Sustainability Committee with effect
from 1 October 2016.
54
The Shareholder Communications
Policy can be found in the
corporate governance/governance
policies section of our website at
www.duluxgroup.com.au.
The company values effective two-way
communication with shareholders
and recognises that it is important not
only to provide relevant information as
quickly and efficiently as possible, but
to listen, understand and respond to
the perspectives of those shareholders.
To promote this two way dialogue,
shareholders are encouraged to
attend and ask questions at the AGM to
ensure accountability and identification
with DuluxGroup’s strategy and goals.
For those shareholders who are unable to
attend in person, the company webcasts
its AGM on its website and provides
a full transcript of the Chairman’s and
the CEO’s speeches on its website.
DuluxGroup is committed to
continually improving its online and
electronic communications, including
improving the functionality of its
website. We encourage shareholders
to communicate with us and our share
registry, Computershare, electronically.
Further details on how to do this can
be found in the investor centre section
of our website at www.duluxgroup.com.
au. Shareholders are also encouraged
to lodge direct votes or proxies for
the company’s AGMs electronically.
4. OUR RISK MANAGEMENT
PRACTICES
Effective assurance and risk
management practices help
DuluxGroup to achieve its strategic
objectives, ensure compliance with
its legal obligations and protect the
best interests of the company and
its shareholders.
4.1 Integrity of Reporting
The Board and management have
established controls which are designed
to safeguard the company’s interests
and the integrity of its reporting. These
include accounting, financial reporting,
safety and sustainability and other
internal control policies and procedures
which are directed at monitoring whether
the company complies with regulatory
requirements and community standards.
Details of the qualifications,
experience and meeting attendances
of each Committee member, as well
as the number of Committee meetings
held during the 2016 financial year,
are set out in the Directors’ Report
contained in the DuluxGroup 2016
Annual Report. Full details of the
role and responsibilities of each
Committee are set out in the relevant
Committee’s Charter which can be
found in the corporate governance/
charters section of our website
at www.duluxgroup.com.au.
In addition to the standing committees,
the Board may also establish special
or ad hoc committees to oversee
or implement significant projects
as they arise.
3. OUR SHAREHOLDERS
DuluxGroup is committed to open,
clear and timely communications
with its shareholders.
The company has a Shareholder
Communications Policy and
investor relations program in place
that encompasses the company’s
commitment to providing transparent
two-way communications with all
shareholders through a number
of channels. These include:
• the company’s website at
www.duluxgroup.com.au;
• the company’s AGM;
• the company’s Annual Report,
which is available in hard copy
or on the company’s website;
• disclosures and other major
announcements released to the
Australian Securities Exchange
(ASX); and
• communications with analysts,
investors and governance bodies
as well as media briefings.
In accordance with the company’s system
of internal sign offs prior to approval
of its financial statement for a relevant
period, both the CEO and the CFO
provide declarations to the Board that,
having made appropriate enquiries,
in their opinion:
• the financial records of the Group
have been properly maintained; and
• the financial statements of the
Group comply with the appropriate
accounting standards and give a true
and fair view of the financial position
and performance of the Group; and
that the opinion has been formed
on the basis of a sound system
of risk management and internal
control that is operating effectively.
These assurances are based on a
financial letter of assurance process
that cascades down through
management and includes sign-off
by business general managers,
business finance managers and
functional managers who are
responsible for implementing,
maintaining and reporting on
the effectiveness of the systems.
In addition, comprehensive practices
have been adopted to require that:
• capital expenditure, transaction and
other commitments above a certain
size obtain CEO and Board approval
(as required under the company’s
formal delegation of authority);
• safety and sustainability standards
and management systems achieve
high standards of performance
and compliance; and
• business transactions are properly
authorised and executed.
DULUXGROUP ANNUAL REPORT 2016
55
CORPORATE
GOVERNANCE
STATEMENT
The company’s full year financial
statements are subject to an external
audit by an independent, professional
auditor who also reviews the company’s
half-yearly financial statements.
DuluxGroup currently engages
KPMG as its independent external
auditor. In accordance with statutory
requirements, the lead partner on the
company’s audit is required to rotate
at the completion of a five year term.
The lead partner also attends the
company’s AGM and is available to
answer questions from shareholders
relevant to their audit of the company.
The Audit and Risk Committee is
responsible for overseeing the audit
process on behalf of the Board.
4.2 Risk Identification
and Management
The Board has established policies
for the oversight and management
of material business risks and internal
controls. The Audit and Risk Committee
oversees the policies, internal controls
and procedures that the company uses
to identify business risks and ensure
compliance with relevant regulatory
and legal requirements. The design and
implementation of the risk management
and internal control systems to manage
the company’s material business risks
is the responsibility of management.
The Board has adopted the following
key elements for the oversight and
management of material business risks.
• The Audit and Risk Committee
reviews DuluxGroup’s risk
management framework on
an annual basis to ensure that it
remains sound. Such a review took
place in the 2016 financial year.
• Material financial and non-financial
business risks are systematically
and formally reviewed by the Board,
Board Committees, DuluxGroup
Executive and key business and
functional units within the company
on an annual basis. These reviews
were conducted in the 2016
financial year.
• The key identified risks are then
systematically reviewed by the
DuluxGroup Executive during the year
to ensure controls remain sound and
improvement actions are progressed.
56
The results of these risk reviews are
then reported to the relevant Board
Committee tasked with oversight of the
relevant risk. The outcomes of these
Committee reviews are then reported
to the Audit and Risk Committee and
the Board.
• Formal risk reporting is provided
to the Board on an ongoing basis.
• Risk assessments are performed
for individual material projects,
capital expenditure, products
and country risks as required.
The company’s internal audit function
comprises a Risk Manager who is
supported by an independent external
firm of accountants in designing and
conducting a specific internal audit
program. The role that the internal
audit function performs is to bring a
systematic and disciplined approach to
managing risk. This includes reviewing
and recommending improvements to
controls, processes and procedures
used by the company across its
corporate and business activities.
Any material exposures to economic,
environmental and social sustainability
risks, and how the company manages
those risks, are disclosed in the
Operating and Financial Review.
4.3 Safety and Sustainability
The Board and management are
committed to ensuring that DuluxGroup’s
operations reflect sustainable business
practices. The company has a strong
heritage of continuous improvement
in sustainability impacts and the Board
acknowledges that proper management
of DuluxGroup’s financial, environmental
and social impacts is fundamental
to the success and well-being of the
business and its stakeholders. The
company therefore aspires to deliver
on its safety and sustainability vision
of ‘A Future Without Harm’.
The Board has instituted a process
whereby the directors receive a report
on current safety and sustainability
issues and performance at each Board
meeting. In addition, the Safety and
Sustainability Committee is responsible
for reviewing and monitoring safety
and sustainability issues in more detail.
This is supported by the Company’s
remuneration framework that links at
least 10% of senior executives’ short
term incentive award opportunities to
the achievement of challenging safety
and sustainability targets.
The actions being undertaken
by DuluxGroup to continuously
improve its safety and sustainability
performance are further detailed in
the Safety and Sustainability Report.
5. OUR CODE OF CONDUCT
DuluxGroup people are united by
shared values which underpin the way
we meet our strategic objectives and
ultimately deliver our core purpose.
These values are:
• Be consumer driven,
customer focused
• Unleash your imagination
• Value people, work safely
and respect the environment
• Run the business as your own
The Board acknowledges that these
values are supported by our Code of
Conduct and policy framework. It is
expected that directors, executives,
employees and contractors observe
the highest ethical standards of
corporate and business behaviour.
DuluxGroup’s Code of Conduct
and policy framework includes the
following policies. These policies are
consistent with the recommendations
set out in the ASX Principles.
• Code of Conduct, which sets out
the standards of business conduct
required of all employees (including
directors and senior managers)
and contractors of the company.
A Speak Up line has been established
to enable employees to report (on
an anonymous basis) breaches of
the Code of Conduct. If a report is
made, it is escalated as appropriate
for investigation and action. A
management committee monitors
and reviews the effectiveness of the
Speak Up line on a periodic basis. A
report is also prepared for review by
the Remuneration and Nominations
Committee on a quarterly basis.
BUILDING A DIVERSE AND
INCLUSIVE WORKFORCE
REMAINS A KEY PRIORITY FOR
DULUXGROUP’S MANAGEMENT
TEAM AND THE BOARD.
• Share Trading Policy, which reinforces
the requirements of the Corporations
Act 2001 in relation to the prohibition
against insider trading. Outside of
the trading windows set out in the
Policy and as determined by the
Board from time to time, directors
and senior executives must obtain
consent to trade in DuluxGroup
shares. The policy also provides
that, among other things, employees
are not permitted to: (a) enter into
or otherwise deal in securities via
a margin loan arrangement; or
(b) create a derivative or other
transaction that limits the economic
risk, in relation to securities which
are unvested, held ‘at risk’ or held
subject to restrictions under a
DuluxGroup employee share plan.
• Continuous Disclosure, which
establishes detailed procedures for
identifying and disclosing material
and price sensitive information in
accordance with the Corporations
Act 2001 and the ASX Listing Rules.
A formal program is in place whereby
senior executives are provided
training to ensure appropriate
awareness of how the continuous
disclosure obligations apply to
DuluxGroup, including consideration
of materiality guidelines relevant to
the company. In addition, specific and
targeted training is provided on a case
by case basis as the need arises and
advice is also cascaded to the broader
organisation on a periodic basis.
Additional information about our
Code of Conduct and policy framework
(including full details of these and other
relevant policies) can be found in the
corporate governance/governance
policies section of our website at
www.duluxgroup.com.au.
charters section of our website
at www.duluxgroup.com.au. The
Diversity Policy requires the Board
to set diversity objectives, and for
the Remuneration and Nominations
Committee to monitor performance
against objectives.
During 2016, responsibility for the
diversity and inclusion agenda was
allocated to the DuluxGroup Executive
team. The DuluxGroup Executive
team monitors the diversity strategy,
promotes diversity initiatives and
reinforces our expectations of our
leaders to lead inclusively.
Gender diversity
Our gender diversity objectives
1. To increase the number of women
in DuluxGroup
2. To increase the number of women in
leadership positions in DuluxGroup
3. To build awareness of the business
case for diversity in DuluxGroup
Our progress in 2016
• Women make up 32% of
DuluxGroup’s workforce
• Of the six non-executive directors
of the DuluxGroup Board, two are
women (33%)
• Three of the ten members of the
DuluxGroup Executive team are
women, including two of our six
commercial leadership roles
• Women hold 20% of
management team roles
• Four of our business units are
now led by women, twice as
many as last year
• Six state sales managers are
female, three of whom operate
in trade facing business units
6. DIVERSITY
AT DULUXGROUP
Building a diverse and inclusive
workforce remains a key priority
for DuluxGroup’s management
team and the Board.
DuluxGroup’s commitment to diversity
encompasses differences in gender,
age and cultural background. The
company’s Diversity Policy can be
found in the corporate governance/
We believe that growing the
representation of women among
graduates, middle management
and senior management will provide
a pipeline of women for future general
management and executive roles. We
continue to build and develop this talent
pipeline of female leaders in DuluxGroup,
through external appointments and
internal promotions. During 2016 we
have recruited highly qualified women
into the following senior roles:
• Director of Marketing & Innovation,
Dulux Australia and New Zealand
• Selleys Global Marketing Director
• General Manager,
Automatic Technology
• Executive General Manager
Human Resources
We have also promoted women from
within DuluxGroup to key senior roles
during 2016:
• General Manager, Cabot’s
• Technology Manager, Dulux
Australia and New Zealand.
DuluxGroup is a silver member
of the National Association of
Women in Operations (NAWO),
an industry body that supports and
promotes female participation in
non‑traditional roles. Membership
provides DuluxGroup employees
with opportunities to participate
in forums, seminars and education.
Functional specialists were
also recruited in Organisational
Development and Remuneration and
Benefits. Each of these women brings
a new perspective to DuluxGroup as
a result of not only their gender but
also their varied senior management
experience in large organisations.
In supply chain, which has traditionally
been a male dominated area, we have
appointed two female operations
managers, one production manager
and a distribution site manager.
These appointments demonstrate the
readiness of managers to hire qualified
women where they appear on short
lists (which in 2016 happened in 75%
of roles). Females represent 31% of
applicants, whereas appointments
made are at 44% female.
DULUXGROUP ANNUAL REPORT 2016
57
CORPORATE
GOVERNANCE
STATEMENT
Natalie is an example of one of our
outstanding young female leaders.
Natalie joined DuluxGroup in 2007
as a graduate and worked through
a number of marketing roles before
moving into her first commercial
role in the Cabot’s business. Natalie
was appointed to the role of General
Manager, Cabot’s in December 2015,
our youngest ever General Manager.
In 2015 Natalie participated in the
Williamson Community leadership
program, a highly selective state-wide
program that focuses on a broader
approach to leadership. Natalie is the
third DuluxGroup senior leader to
undertake this program. Natalie is Vice
Chair of the Global Women’s Project,
a not-for-profit that is focused on
developing partnerships with grassroots
organisations to deliver vocational
education and livelihood programs
for women in developing countries.
Communications and events
During 2016 DuluxGroup continued
to present diversity and inclusion events
and to communicate with employees
on the subject of diversity. This includes
events on International Women’s Day on
major sites featuring internal and external
speakers, stories to celebrate cultural
and age diversity and highlighting
women in non-traditional roles.
Other diversity
Age and cultural diversity are
important aspects of our culture in
DuluxGroup. We continue to find ways
to attract and retain employees with
diverse cultural backgrounds to help us
to meet customer and consumer needs.
We celebrate the mix of cultures in our
business regularly on specific sites with
different events such as Harmony Day.
The recruitment of graduates is a strong
source of gender and cultural diversity.
Above: Natalie Ruuska, General
Manager, Cabot’s
Developing our next
generation of leaders
In 2016, Natalie Ruuska was named
as one of the six Young Executives
of the Year by the Australian Financial
Review BOSS magazine.
Managing Director and CEO Patrick Houlihan with DuluxGroup Graduates at the 2016 graduate dinner.
58
Key gender diversity statistics
NUMBER AND PERCENTAGE OF WOMEN
Board
Non-Executive Directors
DuluxGroup Executive
Senior Leadership*
Organisation
Graduates
2016
2015
NUMBER
PERCENTAGE
NUMBER
PERCENTAGE
2 of 8
2 of 6
3 of 10
2 of 7
2 of 5
2 of 10
25%
33%
30%
23%
32%
46%
29%
40%
20%
19%
30%
41%
*Leadership is defined as DuluxGroup senior managers (employees at CEO – 3 roles and above). These employees work in a variety of roles
including business management, sales, supply chain, research and development, marketing and functional roles such as finance, IT, legal and
human resources. They are responsible for delivering substantial commercial and operational outcomes and for leading people.
7. OTHER INFORMATION
This Corporate Governance Statement was approved by the Board of DuluxGroup on 8 November 2016 and
the information contained in it is current as at that date, unless stated otherwise.
This statement (as part of DuluxGroup’s 2016 Annual Report), together with our 2016 ASX Appendix 4G (which
is a checklist that cross‑references the ASX Principles to the relevant disclosures in this statement and our website)
have both been lodged with the ASX and can also be found in the corporate governance/key corporate governance
documents section of our website at www.duluxgroup.com.au.
More information on governance at DuluxGroup, including Board and Executive member profiles, Board and
Committee charters, DuluxGroup’s constitution and key governance policies, can be found in the corporate
governance section of our website.
DULUXGROUP ANNUAL REPORT 2016
59
Financial Report
CONTENTS
Directors’ Report 61
Directors’ Report – Remuneration Report (Audited) 64
Auditor’s Independence Declaration 82
Consolidated Income Statement 83
Consolidated Statement of Comprehensive Income 84
Consolidated Balance Sheet 85
Consolidated Statement of Changes in Equity 86
Consolidated Statement of Cash Flow 87
Notes to the Consolidated Financial Statements 88
Directors’ Declaration 125
Independent Auditor’s Report 126
60
Directors’ Report
AS AT 8 NOVEMBER 2016
The Directors of DuluxGroup Limited (the Company) present the financial report for the Company and its subsidiaries
(collectively ‘the consolidated entity’ or ‘the Group’ or ‘DuluxGroup’) for the financial year ended 30 September 2016 and the
auditor’s report thereon.
The information referred to below forms part of and is to be read in conjunction with this Directors’ Report:
• the Remuneration Report appearing on pages 64 to 81;
• the Operating and Financial Review on pages 12 to 35;
• details of the current Directors and the Company Secretary on pages 44 to 45; and
• Note 21 (Director and executive disclosures) to the financial statements accompanying this report.
DIRECTORS
The Directors of the Company during the financial year and up to the date of this report are:
• Peter Kirby – Chairman and Non-Executive Director
• Patrick Houlihan – Managing Director and Chief Executive Officer
• Stuart Boxer – Executive Director and Chief Financial Officer
• Gaik Hean Chew – Non-Executive Director
• Garry Hounsell – Non-Executive Director
• Andrew Larke – Non-Executive Director
• Graeme Liebelt – Non-Executive Director (appointment effective from 14 June 2016)
• Judith Swales – Non-Executive Director
Particulars of the current Directors’ and the Company Secretary’s qualifications, experience, period of appointment and special
responsibilities are detailed on pages 44 to 45 of the Annual Report.
COMPANY SECRETARY
Simon Black is the Company Secretary and General Counsel.
DIRECTORS’ MEETINGS
The number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attended by
each of the Directors of the Company during the financial year are listed below:
SCHEDULED BOARD
MEETINGS(1)
AUDIT AND RISK COMMITTEE
REMUNERATION AND
NOMINATIONS COMMITTEE
SAFETY AND
SUSTAINABILITY COMMITTEE
DIRECTOR
HELD ATTENDED
HELD ATTENDED
HELD ATTENDED
HELD ATTENDED
Peter Kirby
Patrick Houlihan
Stuart Boxer
Gaik Hean Chew
Garry Hounsell
Andrew Larke
Graeme Liebelt
Judith Swales
9
9
9
9
9
9
2
9
9
9
9
9
9
9
2
9
4
–
–
–
4
4
–
4
4
–
–
–
4
4
–
4
4
–
–
4
4
4
–
–
4
–
–
4
4
4
–
–
–
4
–
4
–
–
–
4
–
4
–
4
–
–
–
4
(1) Shows the number of meetings held and attended by each Director during the period the Director was a member of the Board. The Scheduled Board
Meetings include the 2015 Annual General Meeting.
DULUXGROUP ANNUAL REPORT 2016
61
Directors’ Report continued
DIRECTORS’ INTERESTS IN SHARE CAPITAL
The relevant interest of each Director in the share capital of the Company as at the date of this Directors’ Report is set out below:
NUMBER OF
SHARE RIGHTS
HELD PURSUANT
TO THE
DULUXGROUP
SALARY SACRIFICE
NUMBER OF
FULLY PAID
ORDINARY
NUMBER OF
SHARES HELD
PURSUANT TO
THE 2013
DULUXGROUP
LONG TERM
EQUITY INCENTIVE
PLAN (LTEIP)
SHARES (1)
SHARE PLAN (1)
OFFER (2)
NUMBER OF
SHARES HELD
PURSUANT TO THE
2014 AND 2015
DULUXGROUP
LTEIP OFFERS (3)
130,000
113,056
148,822
152,156
–
60,000
1,000,000
362,805
15,829
–
–
–
5,898
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
453,758
175,280
859,923
328,717
Peter Kirby
Gaik Hean Chew
Garry Hounsell
Andrew Larke
Graeme Liebelt
Judith Swales
Patrick Houlihan
Stuart Boxer
(1) Unrestricted shares or share rights beneficially held in own name or held indirectly including in the name of a trust, superannuation fund, nominee
company, close member of their family or private company.
(2) Since the end of the financial year, these shares have met the applicable DuluxGroup LTEIP performance condition and vested on 8 November 2016.
The restriction on trading these shares will be lifted upon repayment of the loan. The loan must be repaid during the period from 18 November 2016
to 20 January 2017.
(3) These shares are held pursuant to the terms of the DuluxGroup LTEIP (details of which are set out in the Remuneration Report) and are subject
to a restriction on trading until the relevant performance condition is met and the loans have been repaid.
PRINCIPAL ACTIVITIES
The principal activities of the consolidated entity in the
course of the financial year were the manufacture, marketing,
sale and distribution of premium branded paint, coatings,
adhesives, garden care and other building products to the
residential home improvement, commercial and infrastructure
markets across Australia, New Zealand and Papua New
Guinea, with niche positions in China, South East Asia and the
United Kingdom. There have been no significant changes in
the nature of those activities during the year.
BUSINESS STRATEGIES, PROSPECTS AND LIKELY
DEVELOPMENTS
The Operating and Financial Review (OFR) on pages 12 to 35
of the Annual Report sets out information on the business
strategies and prospects for future financial years, and refers
to likely developments in DuluxGroup’s operations and the
expected results of those operations in future financial years.
Information in the OFR is provided to enable shareholders to
make an informed assessment about the business strategies
and prospects for future financial years of DuluxGroup.
Information that could give rise to likely material detriment
to DuluxGroup, for example, information that is commercially
sensitive, confidential or could give a third party a
commercial advantage, has not been included. Other than the
information set out in the OFR, information about other likely
developments in DuluxGroup’s operations and the expected
results of these operations in future financial years has not
been included.
REVIEW AND RESULTS OF OPERATIONS
A review of the operations of the consolidated entity during
the financial year, the results of those operations and the
financial position of the consolidated entity are contained
on pages 12 to 35 of the Annual Report.
DIVIDENDS PAID IN THE YEAR ENDED
30 SEPTEMBER 2016
In respect of the 2015 financial year, a fully franked final
dividend of 11.5 cents per ordinary share was paid on
15 December 2015. The financial effect of this dividend
has been included in the financial statements for the year
ended 30 September 2016.
In respect of the 2016 financial year, a fully franked interim
dividend of 11.5 cents per ordinary share was paid on
10 June 2016. The financial effect of this dividend has
been included in the financial statements for the year
ended 30 September 2016.
Since the end of the financial year, the Directors have
determined a final dividend to be paid at the rate of 12.5 cents
per share, details of which are set out in the section below
entitled ‘Events subsequent to balance date’.
CHANGES IN THE STATE OF AFFAIRS
Particulars of significant changes in the state of affairs of the
consolidated entity during the year ended 30 September 2016
are as follows:
• Total assets of $1,195.8 million increased by $36.7 million
on the prior year.
• Year end net debt1 of $300.6 million increased by
$23.7 million on the prior year.
• Total equity attributable to the ordinary shareholders
of DuluxGroup Limited of $365.3 million increased
by $15.1 million on the prior year.
1 Net debt inclusive of USPP hedge value – refer to note 14 in the financial
statements.
62
EVENTS SUBSEQUENT TO BALANCE DATE
On 8 November 2016, the Directors determined that a final
dividend of 12.5 cents per ordinary share will be paid in
respect of the 2016 financial year. The dividend will be fully
franked and payable on 9 December 2016. The financial effect
of this dividend is not included in the financial statements for
the year ended 30 September 2016 and will be recognised
in the 2017 financial statements.
The Company has paid a premium in respect of a contract
insuring officers of the Company and its subsidiaries against
all liabilities that they may incur as an officer of the Company,
including liability for costs and expenses incurred by them
in defending civil or criminal proceedings involving them as
such officers, with some exceptions. Due to confidentiality
obligations and undertakings of the policy, no further details
in respect of the premium or the policy can be disclosed.
The Directors have not become aware of any other matter
or circumstance that has arisen since 30 September 2016,
that has significantly affected or may significantly affect the
operations of the consolidated entity, the results of those
operations, or the state of affairs of the consolidated entity in
subsequent years, which has not been covered in this report.
ENVIRONMENTAL REGULATIONS
The Company recognises that a commitment to the
sustainable management of our financial, environmental and
social impacts is fundamental to the success and well-being of
both our business and our stakeholders. More specific details
about the Company’s safety and sustainability initiatives and
performance can be found in the Safety and Sustainability
Report on pages 36 to 43 and at the Company’s website:
www.duluxgroup.com.au.
The activities of the Company are subject to environmental
regulations in the jurisdictions in which it operates. Where
applicable, manufacturing licences and consents are in place
in respect of each DuluxGroup site. The Board has oversight
of the Company’s environmental practices and performance.
From time to time, the Company receives notices
from relevant authorities pursuant to local environmental
legislation and in relation to the Company’s environmental
licences. On receiving such notices, the Company
investigates to determine the cause and ensure the risk
of recurrence is minimised, and works with appropriate
authorities to address any issues arising, which may include
ongoing reporting obligations and/or development of an
environmental management plan. At the date of this report,
any costs associated with remediation or changes to comply
with regulations in the jurisdictions in which Group entities
operate are not considered material.
The Directors are not aware of any material breaches
of Australian or international environmental regulations
during the year.
INDEMNIFICATION OF OFFICERS
The Company’s Constitution requires the Company to
indemnify any person who is, or has been, an officer of the
Company, including the Directors, the Company Secretary
and other executive officers, against liabilities incurred whilst
acting as such officers to the extent permitted by law.
In accordance with the Company’s Constitution, the
Company has entered into a Deed of Indemnity, Insurance
and Access with each of the Company’s Directors.
No Director or officer of the Company has received
benefits under an indemnity from the Company during
or since the end of the financial year.
NON-AUDIT SERVICES AND AUDITOR’S
INDEPENDENCE
During the year, KPMG, the Company’s auditor, has performed
certain other services in addition to its audit responsibilities.
The Board, in accordance with advice received from
the Board’s Audit and Risk Committee, is satisfied that the
provision of non-audit services during the year by the auditor
is compatible with, and did not compromise, the auditor
independence requirements of the Corporations Act 2001
for the following reasons:
• all non-audit services were subject to the corporate
governance procedures adopted by the Company
to ensure that they do not impact the integrity and
objectivity of the auditor; and
• the non-audit services provided did not undermine
the general principles relating to auditor independence
as set out in APES 110 Code of Ethics for Professional
Accountants as they did not involve reviewing
or auditing the auditor’s own work, acting in a
management or decision making capacity of the
Company, acting as an advocate of the Company
or jointly sharing risks or rewards.
No officer of the Company was a partner or director of
KPMG during the financial year. A copy of the auditor’s
independence declaration as required under Section 307C of
the Corporations Act 2001 is contained on page 82 and forms
part of this Directors’ Report.
Details of the amounts paid to KPMG and its related practices
for audit and non-audit services provided during the year are
disclosed in note 26 of the financial statements accompanying
this report.
ROUNDING
The amounts shown in this report and in the financial
statements have been rounded off, except where otherwise
stated, to the nearest thousand dollars, with the Company
being in a class specified in the ASIC Corporations (Rounding
in Financial/Directors’ Reports) Instrument 2016/191.
Signed on behalf of the Board in accordance with a resolution
of the Directors of the Company.
Peter M. Kirby
Chairman
8 November 2016
DULUXGROUP ANNUAL REPORT 2016
63
REMUNERATION REPORT (AUDITED)
Dear shareholders,
On behalf of the Board, I am pleased to introduce DuluxGroup’s
2016 Remuneration Report, for which we seek your support at
our Annual General Meeting in December 2016.
DuluxGroup has maintained a largely unchanged approach
to remuneration since the Company established its current
framework following the demerger from Orica in 2010.
The Board strongly believes that the current remuneration
framework is robust, focuses executive effort on the long
term strength of the Company, and provides clear and direct
alignment with shareholder interests through share ownership.
Executives are rewarded when shareholders are rewarded.
More information on the remuneration framework is provided
in section 2.1 of this report, clearly demonstrating the
strong links from the Group’s strategy and performance to
remuneration outcomes.
In order to remain competitive for talent, during 2016 fixed
remuneration for executives was adjusted generally in line with
salary increases across the Australian market. However, fixed
remuneration for our executives remains modest compared
with peers, reflecting our strong focus on long term outcomes
and rewarding performance through ‘at risk’ incentives.
2016 performance
The Group’s net profit after tax was $130.4 million in 2016,
an increase of 4.6% on the prior year, and Group earnings
before interest and tax was $201.1 million, an increase of
4.5% on the prior year. Although there were no adjustments
for non-recurring items in 2016, the growth rates exclude
non-recurring items in 2015. These results were driven by
consistent earnings growth in our heritage businesses in
Australia and New Zealand, and a solid collective improvement
from the businesses which were acquired in late 2012.
Our businesses continue to generate strong cash flow and
our debt ratios remain steady. This is despite the acquisition
of the Craig & Rose paint business to provide a platform for
growing a market position in the UK, and the continuing on-
budget and on-time construction of our new paint factory in
Melbourne. These projects clearly demonstrate the Group’s
ongoing investment in future growth. The new Dulux and
Selleys distribution centre in New South Wales was completed
on schedule and budget in June 2016 and is now fully
operational, supporting the strong growth in these businesses.
The total fully franked dividend for the 2016 year is 24 cents
per share, which is a 6.7% increase on 2015 and a payout ratio
of approximately 70% on net profit after tax.
This performance is reflected in both short term and long term
remuneration outcomes.
Short term incentive outcomes
Short term incentive outcomes for executives are generally
lower than in 2015, reflecting lower growth in net profit after
tax and variability of performance across the businesses.
On average the executives have achieved 53% of Stretch,
compared with 64% of Stretch in 2015.
These outcomes reflect DuluxGroup’s proven approach
to setting performance measures and assessing annual
performance:
• No short term incentive is payable until net profit after
tax (before non-recurring items) exceeds the prior year’s
performance.
• Financial results drive 70% of short term incentives for
both of the Executive Directors and for executives with
responsibility for commercial business results.
• The remaining STI measures reflect the Group’s
commitment to safety and sustainability (10%), and the
delivery of customer-focused and sustainable growth and
development objectives intended to produce shareholder
return over the longer term (20%). Objective targets
ensure that performance against these measures can be
robustly determined.
• The Board retains overarching discretion (both up
and down) in order to ensure that short term incentive
outcomes appropriately reflect the performance of the
Company and the individual (including to reflect any
misalignment of values or behaviours).
More information on the Group’s 2016 performance and
resulting short term incentive outcomes is provided in sections
3.3 and 3.4.
Long term incentive outcomes
The Company’s share price has increased from $2.50 on
demerger in 2010 to $6.60 on 30 September 2016, exceeding
the ASX200 index growth, whilst maintaining a dividend
payout ratio of approximately 70% of net profit after tax. Long
term incentive outcomes reflect this share price and dividend
performance relative to peers in the Australian market:
• the 2012 award under the Long Term Equity Incentive
Plan vested in November 2015 as reported last year.
DuluxGroup’s Total Shareholder Return was 104.8%
over the performance period from November 2012 to
November 2015, and as this was at the 85th percentile
of our peer companies, the maximum loan forgiveness
of 30% was applied to the 2012 award.
• the earnings gateway (requiring a compound annual
growth of 4% per annum) for the 2013 award has
been met and the award has vested. The relative Total
Shareholder Return performance condition for this award
will be tested in the week following the release of the
2016 Group results in November 2016 to determine if
any loan forgiveness is to apply.
More information on long term incentive awards and
outcomes is provided in section 3.5.
64
Directors’ Report continued It remains our intention to encourage open dialogue with
shareholders, particularly around our remuneration practices
and disclosures, and accordingly I welcome any feedback you
may have.
Yours faithfully
Peter M Kirby
Chairman
8 November 2016
Further enhancing shareholder alignment
Encouraging share ownership continues to be a key
aspect of the Group’s culture so that executives think like
shareholders and ‘run the business as their own’. With a
number of new executive appointments, the Board has
decided to further facilitate share ownership and drive
shareholder alignment through:
• implementing a new share acquisition plan that allows
Australian based Non-Executive Directors, executives,
and employees to purchase Company shares with their
pre-tax fees, salary, or earned cash short term incentives,
at no cost to shareholders (details in section 4.2);
• extending the period over which the loan under the long
term incentive programme may be repaid, to encourage
executives to retain more of the shares arising from the
award for an extended period (details in section 3.5); and
• introducing deferral of some short term incentive
in Company shares for members of the DuluxGroup
Executive, to be effective from the 2017 performance
year. The Board’s intention is to enhance the alignment
and retention already provided by the Company’s long
standing long term incentive programme.
Where shareholder approval is required for any awards, this
approval will be sought from shareholders at the relevant time.
The DuluxGroup Remuneration Report has received strong
support from shareholders in the past, and the content of the
2016 report remains largely consistent with prior years. We
have, however, reduced the length and updated the format
of the report in response to shareholder feedback and to
more clearly communicate the link between our strategy, our
performance and our executive remuneration outcomes.
In order to reduce repetition within the report, the changes
have included the removal of the traditional Question and
Answer section covering our short and long term incentive
programmes. Shareholders who would prefer more detail,
particularly on the operation of our Long Term Equity
Incentive Plan, will find this in a separate document published
in the Investor Centre on the Group’s website.
DULUXGROUP ANNUAL REPORT 2016
65
SECTION CONTENTS
PAGE
1
2
3
4
5
6
7
Introduction
Remuneration strategy – driving a
performance culture
Performance and remuneration
outcomes for 2016
Run the business as your own
Remuneration governance
Details of executive remuneration
Non-Executive Directors’ remuneration
66
66
69
73
75
78
80
INTRODUCTION
1.
The Directors of DuluxGroup Limited (the Company) present the Remuneration Report for the Company and its controlled
entities (collectively ‘the Group’) for the financial year ended 30 September 2016 prepared in accordance with the requirements
of the Corporations Act 2001 and its regulations.
This report outlines the remuneration arrangements in place for the Key Management Personnel (KMP) of the Group which
comprises all Directors (executive and non-executive) and those other members of the DuluxGroup Executive who have
authority and responsibility for planning, directing and controlling the activities of the Group.
The following table details the Group’s KMP during the 2016 financial year. In this report, ‘executives’ collectively refers to those
individuals shown as Executive Directors or as Other KMP in the table.
NAME
ROLE
NON-EXECUTIVE DIRECTORS
Peter Kirby
Chairman and Non-Executive Director
Gaik Hean Chew
Garry Hounsell
Andrew Larke
Graeme Liebelt(1)
Judith Swales
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
EXECUTIVE DIRECTORS
Patrick Houlihan
Stuart Boxer
OTHER KMP
Patrick Jones
Brad Hordern
Martin Ward
Managing Director and Chief Executive Officer (CEO)
Executive Director and Chief Financial Officer (CFO)
Executive General Manager – Dulux Paints and Coatings
Executive General Manager – DuluxGroup Supply Chain
Executive General Manager – Consumer and Construction Products
(1) Graeme Liebelt commenced 14 June 2016
2. REMUNERATION STRATEGY – DRIVING A PERFORMANCE CULTURE
2.1 Remuneration strategy and framework
The remuneration strategy sets the direction for the remuneration framework, and drives the design and application of
remuneration programmes across the Group, including for executives.
The remuneration strategy is to:
• Encourage a strong focus on financial and operational performance and motivate executives to deliver outstanding
business results and returns to the Company’s shareholders over short and long term horizons;
• Attract, motivate and retain appropriately qualified and experienced individuals; and
• Align executive and stakeholder interests through share ownership.
The Board believes that remuneration of executives should include a fixed component and at-risk or performance-related
components, including both short term and long term incentives. This remuneration framework is shown in the diagram
following, including how performance outcomes will impact remuneration outcomes for individuals.
The Board reviewed the remuneration framework and associated programmes in 2016, and is satisfied that it continues to align
with the Group’s strategic objectives. As a result, no significant changes to the key elements of the remuneration framework
were made this year. Some minor changes will be implemented in 2017 as outlined in the Chairman’s letter.
66
Directors’ Report continued Remuneration framework
PERFORMANCE CONDITIONS
REMUNERATION STRATEGY/
PERFORMANCE LINK
Fixed Annual
Remuneration (FAR)
Salary and
other benefits
(including statutory
superannuation)
Considerations
• Scope of individual’s role
• Individual’s level of knowledge, skills
and expertise
• Individual performance
• Market benchmarking
Set to attract, retain and motivate the right talent
to deliver on our strategy and contribute to the
Group’s financial and operational performance.
For executives who are new to their roles, the
aim is to set fixed remuneration at relatively
modest levels compared to their peers and to
progressively increase as they gain experience and
prove themselves in their roles. In this way fixed
remuneration is linked to individual performance
and effectiveness.
Short Term Incentive
(STI)
Annual incentive
opportunity delivered
in cash
Net Profit After Tax (NPAT) ‘gateway’ –
minimum NPAT threshold performance level that
must be achieved before any STI is payable
• Ensures a minimum acceptable level of
Group profit before executives receive any
STI award
• Determined by the Board each year with
reference to factors including prior year NPAT,
economic conditions and industry trends.
Financial measures (generally 70% of STI award,
incorporating some or all of the following metrics)
• Group NPAT
• Group earnings before interest and tax (EBIT)
• Business / Region EBIT (where appropriate)
• Cash flow
• Trade working capital
Safety and Sustainability measures
(generally 10% of STI award)
• Lead improvement objectives for disaster
and fatality prevention
• Sustainability
• Recordable Personal Injury Case Rate targets
Personal objectives (generally 20% of STI award)
aligned to strategic objectives.
Performance conditions are designed to support
the financial and strategic direction of the Group
(the achievement of which is intended to translate
through to shareholder return), and are clearly
defined and measureable.
A large proportion of outcomes are subject to
earnings targets of the Group or business unit,
depending on the role of the executive to ensure
line of sight. The Board maintains discretion
to exclude non-recurring items (e.g. in order
to provide a better comparison from period
to period and to ensure a better measure of
underlying performance). Other financial targets
ensure strong operational discipline is maintained.
Non-financial targets are aligned to core values
(including safety and sustainability) and key
strategic and growth objectives.
Hurdle and Stretch targets for each measure are
set by the Board to ensure that a challenging but
meaningful incentive is provided.
The Board has discretion to adjust STI outcomes
up or down to ensure that individual outcomes
are appropriate – e.g. to ensure that ‘how’ results
are achieved is aligned with the Group’s values.
Long Term Equity
Incentive Plan
(LTEIP)
Three-year incentive
opportunity delivered
through restricted
Company shares –
allocated upfront,
pursuant to a sole
purpose, non-
recourse company
loan. The loan
needs to be repaid
(following vesting)
before the participant
will have access to
any shares.
Earnings Per Share (EPS) growth ‘gateway’ –
minimum 4% compound annual EPS growth to
be achieved before any shares will vest.
TSR performance condition – A portion of the
loan may be forgiven at the end of the period
• No loan forgiveness applies if the
Company’s 3-year Total Shareholder Return
(TSR) performance (defined as the total
return to shareholders over the period,
taking into account share price growth and
dividends paid) is below the 51st percentile
relative to a comparator group of companies
in the S&P/ASX 200 Index(1)
• Loan forgiveness is applied for superior
relative TSR performance (from 10% loan
forgiveness at the 51st percentile up to
a maximum of 30% at the 75th percentile,
on a straight-line sliding scale)
Allocation of shares upfront encourages executives
to ‘behave like shareholders’ from the grant date.
The shares are restricted and subject to risk of
forfeiture during the vesting/performance periods
and while the loan remains outstanding.
The performance gateway and condition are
designed to encourage executives to focus on
the key performance drivers which underpin
sustainable growth in shareholder value. The
EPS gateway provides a ‘counterbalance’ to the
relative TSR performance condition, designed to
ensure the quality of the share price growth is
supported by the Group’s earnings performance,
and not market factors alone.
Key benefits to participants under the plan are:
• capital appreciation in Company shares
consistent with shareholder interests;
• the partial value of after tax dividends applied
towards repaying the loan thereby increasing
equity over the loan period; and
• potential loan forgiveness (on a sliding scale
to a maximum of 30%) if the Group’s TSR
outperforms the comparator group.
Total Remuneration The combination of these elements is designed to attract, retain and motivate appropriately qualified
and experienced individuals, encourage a strong focus on performance, support the delivery of outstanding returns to
shareholders and align executive and stakeholder interests through share ownership.
(1) The LTEIP comparator group comprises those companies that remain listed in the S&P/ASX 200 Index for the duration of the performance period.
Companies classified as mining, financial services, listed property trusts and overseas domiciled companies have been excluded as they operate in very
different markets and are not considered by the Board to be relevant competitors for capital.
DULUXGROUP ANNUAL REPORT 2016
67
2.2 Our focus on performance
The weighting of the at-risk remuneration components reflects the Board’s commitment to performance-based reward.
The table and graphs below illustrate the mix of remuneration components for executives, firstly as a percentage of FAR and
then as a proportion of total potential remuneration.
Section 3 describes 2016 performance outcomes relative to the Hurdle and Stretch set for each performance measure, and how
this has impacted remuneration outcomes for the 2016 financial year.
Variable remuneration as a percentage of FAR
NAME
EXECUTIVE DIRECTORS
Patrick Houlihan
Stuart Boxer
OTHER KMP
Patrick Jones
Brad Hordern
Martin Ward
SHORT TERM INCENTIVE AS % OF FAR
FIXED ANNUAL
REMUNERATION
(FAR) $
IF THE ‘TARGET’ LEVEL
OF PERFORMANCE
IS ACHIEVED
IF THE STRETCH LEVEL
OF PERFORMANCE
IS ACHIEVED
LONG TERM INCENTIVE
ALLOCATION VALUE
AS A % OF FAR
1,151,000
660,000
630,000
454,000
454,000
50%
30%
30%
30%
30%
90%
60%
60%
60%
60%
90%
60%
60%
40%
40%
Relative weighting of elements in the remuneration mix
32%
36%
32%
Patrick Houlihan
27%
27%
46%
Stuart Boxer /
Patrick Jones
20%
30%
50%
Brad Hordern /
Martin Ward
Fixed Annual Remuneration (FAR)
Short Term Incentive – Maximum % of FAR which may be earned
Long Term Incentive – Maximum allocation value as a % of FAR
68
Directors’ Report continued 3. PERFORMANCE AND REMUNERATION OUTCOMES FOR 2016
3.1 Group performance outcomes
The Company has demonstrated consistently strong performance in the last five years as shown in the following graphs and table.
Over this period, the Company’s share price has increased from $2.52 (opening share price as at 1 October 2011) to $6.60 (as at
30 September 2016). In addition, the Company has maintained a dividend payout ratio of approximately 70% of NPAT excluding
non-recurring items during this period.
The graph shows the Company’s TSR performance since 1 October 2011, compared with TSR performance at the median and
75th percentile of those companies in the S&P/ASX 200 Index as at 1 October 2011 that remained listed to 30 September 2016.
Five year TSR performance
250%
200%
150%
100%
50%
0%
1/10/11
1/10/12
1/10/13
1/10/14
1/10/15
30/9/16
DuluxGroup
TSR Comparator
Group – 75th Percentile
TSR Comparator Group – Median
DULUXGROUP ANNUAL REPORT 2016 69
Historical Company performance
NPAT attributable to ordinary shareholders
of DuluxGroup Limited ($m)
NPAT before non-recurring items ($m)(1)
Diluted EPS (cents)
Diluted EPS before non-recurring items (cents)(1,2)
Recordable injury case rate (RCR)(3)
Dividends paid per share (cents)
Opening share price for the financial year ($)
Closing share price for the financial year ($)
DuluxGroup Indicative TSR %(4)
Median TSR for S&P/ASX 200 Index %(5)
2011
2012
2013
2014
2015
2016
93.2
77.6
25.7
21.2
1.96
10.5
2.73
2.52
89.5
79.6
24.3
21.6
1.85
15.0
2.52
3.30
75.0
92.2
20.1
24.7
1.81
16.0
3.30
5.28
(4.7%)
(14.1%)
37.4%
16.0%
66.7%
22.3%
104.5
111.9
27.5
29.4
1.53
19.5
5.28
5.56
10.4%
0.8%
112.8
124.7
29.2
32.2
1.84
21.5
5.56
5.35
0.8%
(3.3%)
130.4
130.4
33.5
33.5
1.63
23.0
5.35
6.60
26.1%
21.6%
NPAT before non-recurring items ($million)(1)
Diluted EPS before non-recurring items (cents)(1,2)
2016
2015
2014
2013
2012
2011
130.4
124.7
111.9
92.2
79.6
77.6
2016
2015
2014
2013
2012
2011
33.5
32.2
29.4
24.7
21.6
21.2
2016
2014
2013
2012
(1) Earnings excluding non-recurring income and expenses are considered by the Board to be a better basis for comparison from period to period as well
as more comparable with future performance. This is also the primary measure of earnings considered by management in operating the business and
by the Board in determining dividends. Non-recurring items that were excluded were positive in 2012 ($9.9 million), and negative in 2013 ($17.2 million),
2014 ($7.4 million) and 2015 ($11.9 million). There were no non-recurring items in 2016.
Dividends paid per share (cents)
23.0
2015
(2) Diluted EPS before non-recurring items is calculated based on the weighted average number of shares outstanding at balance date and includes all
allocated LTEIP shares. This number of shares may differ from the statutory number of shares used for a diluted EPS calculation, in which ‘out of the
money’ LTEIP shares are excluded.
21.5
19.5
(3) The RCR is the number of injuries and illnesses resulting in lost time, restricted duties, or medical treatment per 200,000 hours worked (US OHSA
16.0
15.0
system), which is equivalent to the hours worked by 100 people in a year. It includes both the Group’s employees and contractors.
(4) DuluxGroup’s Indicative TSR performance has been calculated based on the change in the share price for the period and dividends paid (assuming
2011
(5)
dividends are reinvested into DuluxGroup shares).
10.5
Indicative TSR performance at the median of those companies in the S&P/ASX 200 Index at the beginning of the period that remained listed for the
duration of the period. Companies classified as mining, financial services, listed property trusts and overseas domiciled companies are excluded as they
are not considered by the Board to be relevant competitors for capital.
70
Directors’ Report continued
3.2 FAR outcomes
A review of remuneration for executives was undertaken by the Remuneration and Nominations Committee (RNC) in the 2016
financial year. Considerations included the Group’s continued growth and strong performance as well as individual performance
and market benchmarks (based on independent external advice regarding remuneration paid by ASX listed companies of a
comparable market capitalisation and our key industry peers). The Board resolved to increase FAR for all executives by 2.5%
from 1 January 2016, with the exception of Patrick Jones, who received a larger adjustment to FAR to better align his salary
with market peers.
Fixed remuneration levels for all executives are now considered to be comparable to those in peer companies.
3.3 STI performance measures and outcomes for 2016
The STI plan is designed to put a meaningful proportion of executives’ remuneration at risk, to be delivered based on the
achievement of performance measures linked to the Group’s annual business objectives. Other members of the DuluxGroup
Executive and senior management also participate in the STI plan, ensuring consistency of purpose and focus on the
performance measures.
The tables below detail the structure of the STI performance measures for executives in 2016, which were determined by the
Board at the beginning of the financial year, and performance against each measure as assessed at the end of the financial year.
Performance for each measure is assessed on a range from Hurdle to Stretch. Stretch is set by the Board for each measure at a
level that ensures maximum STI is payable only where performance has truly and substantially exceeded expectations.
2016 STI performance measures
2016 Performance outcomes
PERFORMANCE
CONDITIONS
FOR STI
DuluxGroup financial
Business unit financial
Safety & Sustainability
Personal objectives
P HOULIHAN/
S BOXER
P JONES/
M WARD B HORDERN (1)
70%
–
10%
20%
15%
55%
10%
20%
HURDLE
STRETCH
MEASURE
Financial
Safety & Sustainability
Personal objectives
Total
30%
–
20%
50%
100%
Total
100%
100%
(1) The increased weighting of 50% for B Hordern’s personal objectives in
2016 is described in more detail in the Personal Measures section below.
The diagram above presents the range of achievement affecting
executive STI in 2016, and the average outcome (indicated by a circle).
The NPAT gateway, and NPAT and EBIT targets and performance upon which STI outcomes are based exclude non-recurring
items in order to provide a better comparison from period to period and a better measure of underlying performance. There
were no non-recurring items excluded from Group NPAT and EBIT in 2016. Non-recurring items excluded from 2015 Group
NPAT and EBIT were detailed in section 3.2 of the 2015 Remuneration Report.
STI gateway
The STI plan has a gateway which requires a minimum level of NPAT growth to be achieved before any STI can be awarded.
The gateway for 2016 was set at the prior year’s NPAT, being $124.7 million in 2015, and was achieved with actual DuluxGroup
NPAT for 2016 of $130.4 million. It is important to note that the gateway is a minimum threshold measure only and, once met,
performance against the following measures determines actual individual STI outcomes for executives.
Financial measures
As shown in the table above, a significant proportion of the STI outcome for each executive is based on the achievement of
financial results.
The primary financial measures used in the executive STI scorecards are NPAT and EBIT for the Group, and EBIT for the relevant
business for each individual. The Group’s NPAT and EBIT results were in the middle of the performance range between Hurdle
and Stretch, with NPAT increasing 4.6% and EBIT increasing 4.5% from the 2015 equivalent results. EBIT for Dulux Paints
and Coatings was particularly strong, with more variable EBIT results for the businesses within Consumer and Construction
Products, and this is reflected in the STI outcomes for the relevant business executives.
Cash Conversion and Rolling Trade Working Capital are included as secondary financial measures (for the Group or businesses
as relevant). These are critical metrics of the sustainable and efficient management of operating cash and working capital within
the Company. Cash Conversion was strong across the Group, and the achievement of procurement savings is also reflected in
the STI outcome for the Executive General Manager – DuluxGroup Supply Chain.
DULUXGROUP ANNUAL REPORT 2016
71
Safety and sustainability
The nature of the Group’s business operations demands a strong focus on Safety and Sustainability performance and
improvement each and every year. The role that our focus on safety plays in supporting our company culture is core to our
business success, and to the way that we work with and value our customers and consumers.
We measure our performance across the four key areas of disaster prevention, fatality prevention, injury prevention, and
sustainability. Central to this is identifying and managing significant risks to ensure that we prevent harm and make a positive
contribution to the communities in which we operate.
The number of serious near misses involving fatality risks and the number of recordable injuries both fell 11% in 2016. Our
recordable injury rate is very good by industry standards and it was pleasing to also see a 40% reduction in the most
serious injuries.
It has been more than three decades since a major incident or disaster occurred in our chemical manufacturing processes. Given
the likely high consequence of any such incident, constant vigilance is a priority. It is therefore disappointing that we had one
process safety ‘near miss’ involving the handling of solvents at our Parchem site in Wyong, New South Wales. A thorough investigation
into the causes has resulted in corrective action at this site and informed learning at our other sites. This has affected the STI outcome
for the Executive General Manager – Consumer and Construction Products.
Product stewardship improvement remained our key sustainability priority and all businesses made good progress during
the year.
Personal measures
Personal measures vary by role and from year to year for each individual, and are primarily linked to the successful achievement
of strategic projects with long term impact on Company success. Individual executives have achieved different outcomes in
regard to their personal objectives, but all have delivered in the top half of the performance range.
For the CEO and CFO in 2016, these measures were primarily in regard to investing for growth outcomes for the Group both
domestically and internationally. The acquisition of Craig & Rose in the United Kingdom was one outcome of this focus for
2016 – providing a platform to grow a position in the United Kingdom for a modest investment in a premium local brand and
operational capability.
Successful delivery of the supply chain projects to schedule and budget (and with seamless business continuity) was a
substantial part of the personal measures for the Executive General Manager – DuluxGroup Supply Chain in 2016. The weighting
of personal measures in his scorecard was increased from 10% to 50% for 2016 in recognition of this responsibility, and the
importance of these projects at the current time. The new Dulux and Selleys distribution centre in New South Wales is now
fully operational and supporting the strong growth in those businesses. Construction of the new paint factory in Melbourne
is progressing well, and remains on budget and on time, with production scheduled for late 2017.
3.4 2016 STI awards
The performance against STI measures in 2016 as described above resulted in the following individual awards, which ranged
from 27.9% to 75.3% of the maximum potential award under the STI plan (which is only earned for Stretch performance on
all measures).
NAME
EXECUTIVE DIRECTORS
Patrick Houlihan
Stuart Boxer
OTHER KMP
Patrick Jones
Brad Hordern
Martin Ward
2016 STI
AWARD (1)
$
MAXIMUM
STI (2)
$
STI
AWARDED
IN 2016(3)%
STI
AWARDED
IN 2015(3)%
STI
FORFEITED
IN 2016(3)%
500,433
189,738
1,035,900
396,000
254,300
205,046
75,891
378,000
272,400
272,400
48.3%
47.9%
67.3%
75.3%
27.9%
61.5%
60.7%
86.3%
59.1%
53.4%
51.7%
52.1%
32.7%
24.7%
72.1%
2016
AWARD
AS % OF
FAR (2)
43.5%
28.7%
40.4%
45.2%
16.7%
(1) STI award earned during the 2016 financial year which is expected to be paid in December 2016.
(2) The maximum STI payable and award as a percentage of FAR have been calculated based on FAR as at 30 September 2016. As a result of the recent
benchmarking exercise (as outlined in section 3.2) the Board intends in 2017 to defer 15% of all STI awards into Company shares with forfeiture applying
during the two year deferral period. This is intended to enhance shareholder alignment and retention. The maximum STI opportunity for each individual
will increase by 10% of FAR from 2017 as a result of this change.
(3) The STI award and STI forfeited are expressed as a percentage of the maximum STI potentially available (for Stretch performance). The comparative 2015
STI awarded figures are a percentage of the maximum STI available (for Stretch performance) in 2015, as published in the 2015 Remuneration Report.
72
Directors’ Report continued
3.5 Long term incentive performance measures
and outcomes
The EPS gateway for determining vesting is calculated using
NPAT excluding non-recurring items in order to provide a better
measure of underlying performance of the Group. However, no
non-recurring items were excluded from Group NPAT in 2016.
Non-recurring items excluded from 2015 Group NPAT was
detailed in section 3.2 of the 2015 Remuneration Report.
2012 LTEIP grant – vesting determined during 2016
The performance conditions for the LTEIP granted in
December 2012 were tested for vesting during the 2016
financial year.
As reported in the Company’s 2015 remuneration report, the
EPS growth gateway condition was exceeded (measured at
30 September 2015), and this grant subsequently vested.
Relative TSR performance was tested during the one week
following the release of the 2015 Group results to determine
the percentage of the related loans to be forgiven. The
Company’s TSR was 104.81% over the period from November
2012 to November 2015. This was at the 85th percentile of the
comparator group, resulting in the maximum loan forgiveness
of 30% being applied.
2013 LTEIP grant – performance condition measured
to the end of 2016
The performance condition for the LTEIP granted in December
2013 was measured for vesting as at 30 September 2016.
For the 2013 LTEIP, the baseline EPS based on 2013 NPAT
was 24.7 cents per share. The corresponding calculation
as at 30 September 2016 was an EPS of 33.5 cents per
share, and the Company’s compound annual EPS growth
over the performance period was 19.3% when calculated
using diluted EPS on a statutory basis and 10.7% using EPS
excluding non-recurring items. The EPS growth gateway of
4% compound annual growth over the performance period
was therefore exceeded and the 2013 LTEIP awards vested
on 8 November 2016.
Loans became repayable by participants to the Company
following vesting. The relative TSR performance condition
will be tested during the one week following the release of
the Group’s 2016 results in November 2016, to determine
the extent (if any) of loan forgiveness to be applied. The
Company’s relative TSR performance against the comparator
group will be determined and verified by an independent
advisor. The result will be communicated at the 2016 Annual
General Meeting and full details set out in the Company’s 2017
remuneration report.
Changes to LTEIP awards from 2017
As mentioned in the Chairman’s letter, the Board has approved
an alteration to LTEIP awards which will be effective from the
2016 LTEIP grant (to be allocated in December 2016).
Currently, participants are required to repay their loan under
the LTEIP during the share trading window (of approximately
two months) which follows vesting and the full-year results
announcement by the Group. Many participants sell a portion
of their LTEIP shares to fund the loan repayment.
In respect of the 2016 LTEIP grant and subsequent awards,
the timeframe for repayment will be extended by a further 24
months. Participants will be able to consider selling shares to
fund the repayment of their loan during any of the subsequent
four biannual share trading windows (following the Group’s
half and full year results announcements each year). They
could also choose to employ subsequent dividend payments,
their own funds, sell some shares or use a combination of
funding for the loan repayment.
The 2016 award will be tested for vesting and loan forgiveness
after the end of the 2019 performance year, and the non-
recourse loan will be due for repayment in January 2022 if
it is not repaid earlier.
This is not a fundamental change to the nature or purpose
of the programme. The cost to shareholders will be a
small incremental expense related to the increased benefit
to the employee (and cost to the Company) of the longer
loan period.
Section 5.3 provides more information on LTEIP governance
and the nature of the loans.
4. RUN THE BUSINESS AS YOUR OWN
4.1 Alignment of interests through shareholding
A core value of the Group is to run the business as your own.
The Board believes that the interests of KMP should be closely
aligned to those of shareholders through significant exposure
to the Company’s share price and dividends.
Accordingly, the following minimum shareholding guidelines
are in place:
• the value of one times pre-tax Board and Committee fees
for each Non-Executive Director,
• the value of one times FAR for the CEO, CFO and
Executive General Manager – Dulux Paints and Coatings,
• 40% of FAR for other executives (and other members of
the DuluxGroup Executive).
Non-Executive Directors have three years from their
appointment in which to establish this shareholding level.
Executives are expected to grow their shareholding on a
progressive basis to the minimum unrestricted shareholding
over a period of five years from the later of 14 August
2013 (the date of adoption of the minimum shareholding
guidelines) and their appointment. Voluntary application of
remuneration to Company shares as described in section 4.2
may assist Non-Executive Directors in achieving this target.
For executives, the LTEIP is an important mechanism to drive
the Group’s employee ownership culture as executives acquire
shares through the vesting of successive LTEIP awards. A
progressive balance of unrestricted shareholdings may also be
built by executives through investment in shares on market,
through voluntary application of remuneration to Company
shares (as described in section 4.2) and, from 2017, through
the mandatory deferral of a portion of any STI awarded into
shares that will be subject to forfeiture on leaving employment
with the Group for two years.
DULUXGROUP ANNUAL REPORT 2016
73
4.2 Sacrifice Share Acquisition Plan (SSAP)
In August 2016 the Board approved implementation of the SSAP. This new contribution-based share plan allows Australian-
based Non-Executive Directors, executives, and other employees to voluntarily sacrifice their pre-tax fees, salary or earned cash
short term incentives toward the purchase of Company shares.
The purpose of this tax deferral plan is to encourage greater levels of share ownership across the Company at no cost to
shareholders, and to specifically support the achievement of the minimum shareholding guidelines for Non-Executive Directors
and executives.
Two of the Non-Executive Directors, including the Chairman, are currently contributing fees on a monthly basis toward share
purchases under the plan, and have received rights under the plan (as shown in section 4.3). These will be exchanged for shares
in November and May of each year in the trading window following the full-year and half-year release of Group results.
Approval will be sought at the 2016 AGM to allow for future shares for Non-Executive Directors under this plan to be either
purchased on market or newly issued.
4.3 Current shareholdings
A summary of current KMP shareholdings in DuluxGroup Limited as at 30 September 2016 is shown in the table below.
NUMBER OF SHARES (OR RIGHTS TO SHARES)
NAME
OPENING
BALANCE (1)
SSAP
RIGHTS/
LTEIP
GRANT (2)
SHARE
DEALINGS IN
RELATION
TO THE
LTEIP (3)
NET OTHER
MOVEMENT (4)
CLOSING
BALANCE (1)
UNRESTRICTED
SHARES (5)
TOTAL
UN-
RESTRICTED
SHARE-
TARGET
UN-
RESTRICTED
SHARE-
HOLDING % (5)
HOLDING % (5)
NON-EXECUTIVE DIRECTORS
Peter Kirby
130,000
15,829
Gaik Hean Chew
Garry Hounsell
Andrew Larke
Graeme Liebelt(6)
Judith Swales
111,030
143,580
152,156
–
–
–
–
5,898
60,000
–
EXECUTIVE DIRECTORS
Patrick Houlihan
2,309,361
Stuart Boxer
807,650
416,341
159,152
(412,021)
(100,000)
OTHER KMP
Patrick Jones
Brad Hordern
Martin Ward(7)
613,602
431,855
136,679
133,687
72,997
72,997
(58,101)
(49,040)
–
–
2,026
5,242
–
–
–
–
–
–
–
–
145,829
113,056
148,822
152,156
5,898
60,000
130,000
113,056
148,822
152,156
–
60,000
2,313,681
1,000,000
866,802
362,805
689,188
455,812
209,676
267,000
225,191
9,000
206%
376%
478%
536%
–
211%
573%
363%
280%
327%
13%
100%
100%
100%
100%
100%
100%
100%
100%
100%
40%
40%
(1) The opening and closing balances include: (a) shares allocated and restricted pursuant to the LTEIP (in the case of executives); (b) rights to shares
allocated under the SSAP (in the case of Non-Executive Directors); and (c) unrestricted shares held directly, indirectly or beneficially by each individual
or close members of their family or an entity over which the person or the family member has either direct or indirect control, joint control or significant
influence, as at 1 October 2015 and 30 September 2016 respectively.
(2) Total unrestricted shareholdings exclude (unconverted) rights held under the SSAP, and awards held under the LTEIP. Further information on the SSAP
is located in section 4.2 and SSAP rights are currently held only by Non-Executive Directors. Once ordinary shares are received in relation to the rights
(in November and May each year following the Group’s full and half year results announcements) those ordinary shares will count toward the holder’s
achievement of their Target unrestricted shareholding. Further information on the LTEIP is located in sections 2.1, 3.5 and 5.3 and LTEIP awards are not
provided to Non-Executive Directors.
(3) Reports the sale of shares to repay loans in accordance with the LTEIP rules.
(4) Reports the impact of acquisition and disposal transactions other than those covered in the previous column of the table.
(5) The current and target unrestricted shareholding for each individual excludes holdings under the SSAP and the LTEIP and is calculated as a percentage
of FAR for executives or as a percentage of annual base board and committee fees for Non-Executive Directors as at 30 September 2016. The calculation
assumes a share price of $6.60, being the closing share price on 30 September 2016.
(6) Mr Liebelt commenced in his role on 14 June 2016 and is currently acquiring rights to shares through the SSAP. Mr Liebelt has three years from his
appointment date to establish the required minimum shareholding.
(7) Mr Ward commenced in his role on 1 April 2014, and unlike other executives has not yet accrued any shares as a result of LTEIP vesting. He has purchased
an unrestricted ordinary shareholding in DuluxGroup Limited from his personal funds in order to start a share holding accumulation.
74
Directors’ Report continued Comparator group for the LTEIP TSR performance
condition
The Board has considered the reasonableness of the
comparator group given the Group’s growth over recent years,
and believes that it remains appropriate for assessing relative
TSR performance. The Board will continue to monitor this, as
for all aspects of the LTEIP awards. The performance condition
is only tested once at the end of the performance period.
Cessation of employment
Participants are not eligible for any STI payment if they are
terminated due to misconduct or poor performance, nor in
general, if they resign. In certain appropriate circumstances
(such as redundancy), the Board may consider eligibility for a
pro-rata payment in respect of the current performance year.
In general, all LTEIP shares are forfeited and surrendered in
full settlement of the loan if a participant ceases employment
prior to the end of the performance period. The Board,
however, has absolute discretion in appropriate circumstances
to determine that some or all of a participant’s LTEIP shares
may vest and that some or the entire loan forgiveness amount
may be granted.
Clawback of STI and LTEIP awards
The Group has a formal Clawback Policy that provides the
Board with broad discretion to ensure that no unfair benefit
or detriment is derived by any participant in the case of a
material misstatement in Group financial results or serious
misconduct by a participant, including where the Group
suffers material reputational damage. This includes discretion
to reduce, forfeit or reinstate unvested awards, or reset or alter
the performance conditions applying to any award.
Change of Control
The Board has absolute discretion in relation to STI and LTEIP
awards in the event of a change of control, which it would
exercise in the best interests of the Group.
Unless the Board determines otherwise, the STI awards
will be considered to have been met at the midway point
between Hurdle and Stretch for the full performance year,
notwithstanding the date of change of control.
If the Board does not exercise its discretion, the LTEIP rules
provide that all shares vest and all loans become immediately
repayable, with the outstanding loan balances reduced by
the default level of debt forgiveness (which is currently set
at 20%).
5. REMUNERATION GOVERNANCE
5.1 Role of the Remuneration and Nominations
Committee (RNC)
The RNC is responsible for ensuring that the Group’s
remuneration strategy for executives aligns with both
short and longer term business objectives. It reviews and
makes recommendations to the Board on the remuneration
arrangements for the Non-Executive Directors, the executives
and the other members of the DuluxGroup Executive.
The RNC also ensures the Group’s management team adopts
appropriate people programmes that improve overall bench
strength, identify and accelerate high potential talent,
enhance our diversity and develop the core capabilities
of our employees.
Details of the composition and accountabilities of the RNC
are set out on page 54.
To assist in performing its duties and making
recommendations to the Board, the RNC seeks independent
advice from external consultants on various remuneration
related matters. During the financial year ended 30 September
2016, the Group engaged independent remuneration
consultants to provide insights on remuneration trends,
regulatory updates, and market data in relation to the
remuneration of Non-Executive Directors and the DuluxGroup
Executive. No remuneration recommendations as defined in
section 9B of the Corporations Act 2001 were obtained during
the financial year ended 30 September 2016.
5.2 Board discretion
The RNC and the Board consider it vital that they exercise
appropriate discretion in order to ensure that remuneration
outcomes for executives are not formulaic, appropriately
reflect the performance of the Group and individuals, and
meet the expectations of shareholders. Some ways in which
this discretion is exercised are set out below.
STI outcomes
The Board has discretion to adjust STI outcomes up or down
to ensure that they accurately reflect the achievement of
results that are consistent with the Group’s strategic priorities,
are in line with Group values, and enhance shareholder value.
The Board retains complete discretion to adjust any STI
award (e.g. such discretion may be exercised in the event
of a fatality).
EPS performance gateway for LTEIP vesting
The EPS performance gateway for the LTEIP vesting measures
the growth in earnings on a per share basis, calculated by
dividing NPAT by the weighted average number of ordinary
shares on issue during the relevant period. The Board retains
discretion to adjust EPS for individually material non-recurring
items on a case by case basis when determining whether the
EPS performance gateway condition has been met. In this
way, the Board is able to ensure that the EPS measurement
correctly reflects the underlying performance of the Group.
DULUXGROUP ANNUAL REPORT 2016
75
5.3 LTEIP governance
Loan arrangements
The loan amount provided to each participant is based on
their long term incentive target amount (LTI percentage of
FAR) multiplied by an externally determined ‘loan value’
(calculated using an adjusted Black-Scholes option pricing
valuation model).
The loan is ‘interest free’ in that there is no annual interest
charge to the participant on the loan. However, the notional
value of this interest is taken into account in the overall
structure of the programme.
The participant is obliged to pay a portion of the post-tax
value of any dividends received during the loan term toward
repayment of the loan amount.
To access the shares, participants must repay their loan in
full. Following the end of the vesting period, assuming the
earnings ‘gateway’ is achieved, the participant can either
repay the loan directly or sell some or all of their shares and
apply the proceeds to repay the loan. Shares remain restricted
until the loan is repaid.
Why is a non-recourse loan provided?
If the value of the shares is less than the outstanding loan
balance at the end of the performance period, or if the
‘earnings gateway’ is not achieved, the participant surrenders
and forfeits the shares to the Company in full settlement of
the loan balance and no benefit accrues to the participant.
This is known as a ‘non-recourse loan’.
The Board has structured the remuneration policy to include
a significant proportion of ‘at risk’ pay under the LTEIP.
Accordingly, where the outstanding loan at the end of the
performance period exceeds the value of the shares, or if
the ‘earnings gateway’ is not achieved, the Board believes
the loss of any remuneration value from the LTEIP in these
circumstances is a sufficient penalty to the participant.
Restrictions on LTEIP shares prior to vesting
The Group has a policy that prohibits participants from
entering into any arrangement to limit the risk attached to
(i.e. hedging) LTEIP shares prior to vesting (i.e. prior to the
relevant performance conditions being met) or while they
continue to be subject to restrictions under the LTEIP.
The Company treats compliance with this policy as a serious
issue and takes appropriate measures to ensure policy
adherence.
5.4 Illustrative example of how LTEIP operates
The table below is designed to illustrate a range of Company
performance outcomes, and how the LTEIP remuneration
outcomes for the participant are aligned to that performance
in each case.
Assumptions:
• The participant is resident in Australia throughout the
performance period.
• The initial share price at grant date is $5 and 15,000
shares are allocated (i.e. initial loan of $75,000).
• Total dividends paid are $2,400 less 46.5% to cover
the participants’ individual tax obligations (note that
as dividends are fully franked, participants receive the
difference between the 46.5% to cover the tax and the
actual tax payable).
• Case A – EPS gateway achieved and relative TSR ranks
at the 60th percentile (i.e. 17.5% loan forgiveness), share
price at the vesting date is $8.
• Case B – EPS gateway achieved but relative TSR ranks
below the 51st percentile (i.e. no loan forgiveness), share
price at vesting date is $6.
• Case C – EPS gateway not achieved and relative TSR
ranks above the 75th percentile, share price at the vesting
date is $8.
CASE A
$
CASE B
$
CASE C
$
Initial Loan
75,000
75,000
75,000
Less net dividends
applied to loan balance
Less loan forgiveness(1,2)
Outstanding Loan
Balance
Value of shares awarded
at vesting
Less outstanding loan
balance
Value of LTEIP to
the executive as at
valuation date
(1,284)
(13,125)
(1,284)
(1,284)
–
–
60,591
73,716
73,716
120,000
90,000
(60,591)
(73,716)
NIL
NIL
59,409
16,284
NIL
(1) This amount is determined net of interest charges.
(2) The Group incurs fringe benefits tax on the loan forgiveness.
76
Directors’ Report continued 5.5 Executive service agreements
Remuneration and other terms of employment for executives are formalised in service agreements. Specific information relating
to the terms of the service agreements of the current executives are set out in the table below.
Each of the executives has agreed to restraints which will apply upon cessation of their employment to protect the legitimate
business interests of the Group. No separate amount is payable, over and above the contractual entitlements outlined below,
in relation to these restraints.
NAME
EXECUTIVE DIRECTORS
Patrick Houlihan(2)
Stuart Boxer(2)
OTHER KMP
Patrick Jones
Brad Hordern
Martin Ward
TERM OF
AGREEMENT
NOTICE PERIOD
BY EXECUTIVE
GROUP NOTICE
PERIOD AND
TERMINATION
BENEFITS (1)
Open
Open
Open
Open
Open
6 months
6 months
12 months FAR
12 months FAR
6 months
6 months
6 months
12 months FAR
12 months FAR
12 months FAR
(1) Maximum termination payment (inclusive of any payment in lieu of notice) if the Group terminates the executive’s employment other than for cause.
(2) Mr Houlihan and Mr Boxer may also terminate their agreement in the event of a ‘fundamental change’, which includes circumstances where there has
been a substantial diminution of role and responsibility of the executive, in which event they will be entitled to a payment equivalent to 12 months FAR.
DULUXGROUP ANNUAL REPORT 2016
77
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Directors’ Report continued
6.2 Equity instruments granted to executives under LTEIP
Under the LTEIP, executives acquire shares in DuluxGroup Limited funded by a non-recourse loan from the Group. These loans
are provided for the sole purpose of executives acquiring shares in the Company.
Australian Accounting Standards require the shares be treated as options for accounting purposes due to the structure of the
plan. The shares are not subject to an exercise price and the amounts receivable from participants in relation to these loans are
not recognised in the consolidated financial statements. The number and value of notional options held by executives under the
LTEIP during the financial year ended 30 September 2016 is set out in the table below.
NAME
OPENING
BALANCE (1)
GRANTED
DURING
THE YEAR (2)
EXERCISED
DURING
THE YEAR
LAPSED
DURING
THE YEAR
CLOSING
BALANCE
VESTED AND
EXERCISABLE
AT
30 SEPTEMBER
2016 (3)
VALUE OF
OPTIONS AT
GRANT DATE
ISSUED
DURING THE
YEAR $ (4)
VALUE OF
OPTIONS
INCLUDED IN
COMPENSA-
TION FOR
THE YEAR $ (5)
NUMBER OF LTEIP AWARDS
EXECUTIVE DIRECTORS
Patrick Houlihan
1,509,361
Stuart Boxer
499,440
416,341
159,152
(612,021)
(154,595)
OTHER KMP
Patrick Jones
Brad Hordern
Martin Ward
421,171
268,651
127,679
133,687
(132,670)
72,997
72,997
(111,027)
–
–
–
–
–
–
1,313,681
503,997
453,758
175,280
799,375
305,572
771,823
292,746
422,188
230,621
200,676
146,067
79,850
49,906
256,679
140,154
140,154
245,351
135,650
113,695
(1) The combination of shares and the non-recourse loan provided to fund those shares constitutes an option under Australian Accounting Standards. These
options vest over a period of approximately three years. Under the terms of the LTEIP, the loan must be repaid before the executives can sell or transfer
the shares. Accordingly, the exercise period of these options is the loan repayment period, which commences following the testing of the performance
condition typically in November after the full-year results announcement and continues through to the end of the trading window in January of the
following year. The options expire if the loan is not repaid within the repayment window.
(2) 2015 LTEIP awards were granted on 27 November 2015. The share price on that grant date was $6.30 and the fair value of each award for accounting
purposes was $1.92. This fair value takes into account the performance conditions, along with other factors as set out Note 20 of the financial statements.
(3) Since the end of the reporting period, the 2013 LTEIP awards granted on 29 November 2013 have met the applicable EPS vesting condition and vested
on 8 November 2016. The restriction on trading these shares will be lifted upon repayment of the loan. The loan must be repaid during the period from
18 November 2016 to 20 January 2017. The number of options that have vested and are not exercisable is NIL.
(4) The option valuation is determined with regard to valuation advice from PwC. The valuation methodology utilises an adjusted form of the Black-Scholes
option pricing model which reflects the value (as at grant date) of options held. The minimum potential future value of grants under LTEIP is $NIL.
(5) The amortised value for accounting purposes, as the grant date fair value is spread evenly over the vesting period.
6.3 Loans to executives under LTEIP
The details of non-recourse loans provided to executives under the LTEIP during the financial year ended 30 September 2016
are set out in the table below.
NAME
OPENING
BALANCE $
ADVANCES
DURING
THE YEAR $
LOAN
FORGIVE-
NESS
GRANTED
DURING
THE YEAR
REPAY-
MENTS
DURING
THE YEAR
$ (1)
$ (2)
CLOSING
BALANCE
$
INTEREST
FREE
VALUE
$
HIGHEST
INDEBTED-
NESS
$
EXECUTIVE DIRECTORS
Patrick Houlihan
6,975,126
2,627,112
(679,343)
(1,560,726)
7,362,169
576,690
8,830,032
Stuart Boxer
2,402,950
1,004,249
(171,600)
(412,099)
2,823,500
216,778
3,204,871
OTHER KMP
Patrick Jones
Brad Hordern
Martin Ward
2,022,095
1,237,260
700,705
843,565
460,611
460,611
(147,264)
(123,240)
(352,561)
2,365,835
(282,341)
1,292,290
-
(20,202)
1,141,114
153,615
101,816
83,199
2,391,810
1,558,102
1,153,461
(1) Loan forgiveness amounts under LTEIP in relation to the 2012 LTEIP grant.
(2) Repayments by the participants, including after tax dividends paid on the shares applied against the loan and repayment of the loan on vesting of LTEIP.
DULUXGROUP ANNUAL REPORT 2016
79
7. NON-EXECUTIVE DIRECTORS’ REMUNERATION
7.1 Policy and approach to setting fees
Non-Executive Directors receive a base fee in relation to their service as a director of the Board, and an additional fee for
membership of, or for chairing, a committee. The Chairman, taking into account the greater time commitment required, receives
a higher fee but does not receive any additional payment for service on the committees.
Based on external professional advice, the Board’s policy is to pay fees that are competitive with comparable companies (those
with a similar market capitalisation), at a level to attract and retain directors of the appropriate calibre and recognising the
anticipated time commitments and responsibilities of directors.
In order to maintain independence and impartiality, Non-Executive Directors are not entitled to any form of incentive payments
and the level of their fees is not set with reference to measures of Company performance.
Alignment with shareholders
The Board has adopted a minimum shareholding policy that applies to Non-Executive Directors, details of which are set out in
section 4.1. All Non-Executive Directors’ holdings were in excess of the minimum shareholding policy on 30 September 2016 as
shown in section 4.3, other than Graeme Liebelt, who commenced on 14 June 2016 and has since chosen to salary sacrifice a
portion of his fees into DuluxGroup Limited shares under the new SSAP plan which is described in section 4.2.
Annual review of fees within the maximum approved by shareholders
The Non-Executive Directors’ fees (comprising base and committee fees inclusive of superannuation) have been set by the
Board within the maximum aggregate amount of $1,650,000 per annum as approved by shareholders at the 2014 AGM.
Non-Executive Director fees are reviewed annually and set and approved by the Board based on independent advice received
from external remuneration consultants from time to time.
A review of Non-Executive Director fees was undertaken during 2016, based on comparative market data provided by external
experts. Within the shareholder approved maximum aggregate fee amount, the Board approved an increase of 3% to the base
fees for Non-Executive Directors to ensure fees remain competitive with comparable companies (utilising benchmark data
provided by EY), and to reflect the calibre, increased time commitment and responsibilities of the Non-Executive Directors
as the Group continues to grow.
Base and committee fees
Following the review as described above, the Board approved the following base and committee fees effective 1 January 2016
(inclusive of statutory superannuation):
Non-Executive Chairman(1)
Non-Executive Director
Committee Chair
Committee Member
BASE FEES
$416,000
$155,000
AUDIT AND
RISK
COMMITTEE
REMUNERATION
AND
NOMINATIONS
COMMITTEE
SAFETY AND
SUSTAINABILITY
COMMITTEE
$36,000
$18,000
n/a (1)
$14,500
$29,000
$14,500
(1) The Non-Executive Chairman chairs the Remuneration and Nominations Committee and is a member of the Audit and Risk Committee. He receives a
base fee only. No separate committee fees are paid.
Allowances
Non-Executive Directors are paid a travel allowance of $2,500 per return trip for international travel where the journey includes
a one way international trip between six and 12 hours; and $5,000 where the journey includes a one-way international trip over
12 hours.
The Non-Executive Directors do not receive any retirement allowances.
80
Directors’ Report continued 7.2 Remuneration for 2016
Details of Non-Executive Director remuneration for the financial year ended 30 September 2016 are set out in the table below.
NAME
Peter Kirby
Gaik Hean Chew(3)
Garry Hounsell
Andrew Larke
Graeme Liebelt(4)
Judith Swales
FINANCIAL
YEAR
DIRECTORS
BASE FEES
$
AUDIT AND
RISK
COMMITTEE
$
SAFETY
AND
SUSTAINA-
BILITY
COMMITTEE
$
REMUNER-
ATION
AND NOM-
INATIONS
COMMITTEE
$
SUPER-
ANNUA-
TION (1)
$
OTHER
BENEFITS (2)
$
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
397,285
385,933
140,525
136,416
140,525
136,416
144,287
139,918
43,899
–
140,525
136,416
–
–
–
–
–
–
26,256
23,459
32,648
30,628
17,875
16,638
–
–
17,875
16,638
–
–
–
–
–
–
11,577
10,816
–
–
13,128
12,260
13,128
12,260
14,375
13,425
–
–
–
–
16,115
16,567
17,091
16,353
17,699
17,034
9,588
9,457
1,896
–
16,148
15,568
7,500
2,500
134,495
116,124
7,500
2,500
7,500
2,500
–
–
7,500
2,500
TOTAL
$
420,900
405,000
331,495
304,612
211,500
198,838
193,625
181,938
45,795
–
193,625
181,938
(1) Directors’ base and committee fees are inclusive of superannuation contributions. The superannuation entitlements for each Director are dependent on
their individual arrangements and the timing of payment of their fees.
Includes international travel allowances.
(2)
(3) Ms Chew’s other benefits include: allowance for international travel totalling $30,000 (2015 $17,500), her fees of $43,750 (2015 $43,750) as a Director
of DGL Camel International Limited (a subsidiary of the Group), remuneration of $43,750 (2015 $43,750) in respect of an ongoing consulting services
agreement to assist the Group in seeking strategic growth opportunities in Asia and support totalling $16,995 for the preparation of her annual tax
returns in both Australia and Hong Kong (2015 $11,124).
(4) Mr Liebelt became a Non-Executive Director of DuluxGroup Limited on 14 June 2016. The table includes his remuneration from this date.
DULUXGROUP ANNUAL REPORT 2016
81
ABCD
Auditor’s Independence Declaration
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
ABCD
To: the directors of DuluxGroup Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year
ended 30 September 2016 there have been:
(i)
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the
audit.
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
(ii)
To: the directors of DuluxGroup Limited
KPM_INI_01
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year
PAR_SIG_01
ended 30 September 2016 there have been:
PAR_NAM_01
PAR_DAT_01
PAR_POS_01
PAR_CIT_01
(i)
(ii)
KPMG
KPM_INI_01
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the
audit.
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
KPMG
Gordon Sangster
Partner
Melbourne
8 November 2016
Gordon Sangster
Partner
Melbourne
8 November 2016
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
82
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
Liability limited by a scheme approved under
International Cooperative (“KPMG International”), a Swiss entity.
Professional Standards Legislation.
Consolidated Income Statement
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER:
Revenue
Other income
Expenses
Changes in inventories of finished goods and work in progress
Raw materials and consumables used and finished goods purchased for resale
Employee benefits(1)
Depreciation and amortisation
Repairs and maintenance
Operating leases
Outgoing freight
Other expenses(1,2)
Share of net profit of equity accounted investment
Earnings before interest and income tax expense (EBIT)
Finance income
Finance expenses
Net finance costs
Profit before income tax expense
Income tax expense
Profit for the year
Attributable to:
Ordinary shareholders of DuluxGroup Limited
Non-controlling interest in controlled entities
Profit for the year
Earnings per share
Attributable to the ordinary shareholders of DuluxGroup Limited:
Basic earnings per share
Diluted earnings per share
NOTES
2016
$’000
2015
$’000
1,716,259
1,687,834
3
2,726
3,581
4
18
4
12
(3,608)
700,532
385,785
32,267
13,901
47,306
68,172
274,197
(676)
(8,628)
703,216
391,360
34,898
12,233
49,116
66,828
267,968
(919)
1,517,876
1,516,072
201,109
175,343
224
(20,122)
(19,898)
181,211
(52,150)
129,061
355
(21,610)
(21,255)
154,088
(42,784)
111,304
130,417
(1,356)
129,061
112,773
(1,469)
111,304
CENTS
CENTS
5
5
34.1
33.5
29.6
29.2
The above consolidated income statement should be read in conjunction with the accompanying notes.
(1) Prior year comparative includes restructuring costs relating to the two supply chain projects, which are reported as part of employee benefits expense
($15,918,000) and other expenses ($1,112,000).
(2) Largely comprises of advertising and marketing expenditure, commissions, royalties and other fixed and variable costs.
DULUXGROUP ANNUAL REPORT 2016
83
Consolidated Statement of Comprehensive Income
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER:
Profit for the year
Other comprehensive (loss)/income
Items that may be reclassified to the income statement
Cash flow hedge reserve
Effective portion of changes in fair value of cash flow hedges
Income tax benefit/(expense)
Foreign currency translation reserve
Foreign currency translation (loss)/gain on foreign operations
Total items that may be reclassified to the income statement, net of tax
Items that will not be reclassified to the income statement
Retained earnings
Actuarial losses on defined benefit plan
Income tax benefit
Total items that will not be reclassified to the income statement, net of tax
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive income for the year
Attributable to:
Ordinary shareholders of DuluxGroup Limited
Non-controlling interest in controlled entities
Total comprehensive income for the year
2016
$’000
2015
$’000
129,061
111,304
(2,945)
883
(697)
(2,759)
(32,551)
9,765
(22,786)
(25,545)
103,516
344
(103)
6,201
6,442
(6,599)
1,980
(4,619)
1,823
113,127
104,584
(1,068)
103,516
114,045
(918)
113,127
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
84
Consolidated Balance Sheet
AS AT 30 SEPTEMBER:
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial assets
Other assets
Total current assets
Non-current assets
Other receivables
Derivative financial assets
Equity accounted investment
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest-bearing liabilities
Derivative financial liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Other payables
Interest-bearing liabilities
Derivative financial liabilities
Deferred tax liabilities
Provisions
Defined benefit liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Treasury shares
Reserves
Retained earnings(1)
Total equity attributable to ordinary shareholders of DuluxGroup Limited
Non-controlling interest in controlled entities
Total equity
NOTES
2016
$’000
2015
$’000
7
7
14
7
14
18
8
9
12
7
13
14
11
7
13
14
12
11
19
15
15
39,068
256,315
218,873
3,269
5,180
46,270
257,854
216,036
5,207
7,085
522,705
532,452
65
57,040
6,518
312,041
234,047
59,231
4,155
673,097
1,195,802
250,766
12,904
3,229
14,386
41,432
85
70,026
6,342
261,865
232,129
53,286
2,924
626,657
1,159,109
252,781
14,650
1,271
19,492
48,069
322,717
336,263
270
388,679
–
15,827
46,605
56,466
507,847
830,564
365,238
276
381,558
1,382
16,035
50,243
22,107
471,601
807,864
351,245
264,886
256,483
(10,658)
(86,344)
197,409
(159)
(84,616)
178,524
365,293
350,232
(55)
1,013
365,238
351,245
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
(1) The retained earnings of the Group includes the profits reserve of the parent entity, DuluxGroup Limited. For details of the parent entity’s stand alone
profits reserve, refer to note 25.
DULUXGROUP ANNUAL REPORT 2016
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Consolidated Statement of Cash Flows
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER:
Cash flows from operating activities
Profit for the year
Depreciation and amortisation
Amortisation of prepaid supply agreements
Share-based payments expense
Defined benefit service cost
Defined benefit interest cost
Unwind of discounting
Share of net profit of equity accounted investment
Impairment/(reversal) of impairment of inventories
Impairment of trade and other receivables
Net loss on disposal of property, plant and equipment
Net foreign exchange losses/(gains) on operating items
Amortisation of prepaid loan establishment fees
Operating cash flows before changes in working capital and provisions
Increase in trade and other receivables
Increase in inventories
Increase in other assets
Increase/(decrease) in deferred taxes payable
(Decrease)/increase in trade and other payables and provisions
(Decrease)/increase in current tax liabilities
Net cash inflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangible assets
Payments for purchase of businesses
Proceeds from joint venture distribution
Proceeds from disposal of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from short term borrowings
Repayments of short term borrowings
Proceeds from long term borrowings
Repayments of long term borrowings
Payments for purchase of treasury shares
Proceeds from sale of treasury shares
Proceeds from employee share plan repayments
Dividends paid (net of shares allocated/issued as part of the DRP)
Net cash outflow from financing activities
Net (decrease)/increase in cash held
Cash at the beginning of the year
Effects of exchange rate changes on cash
Cash at the end of the year
Supplementary information
Interest received
Interest paid
Income taxes paid
2016
$’000
2015
$’000
129,061
32,267
111,304
34,898
1,081
3,727
4,965
828
2,667
(676)
1,373
836
1,043
2,732
806
180,710
(1,625)
(2,523)
(2,295)
4,768
(28,961)
(5,160)
144,914
(57,072)
(3,732)
(13,276)
500
537
1,060
3,628
4,455
469
2,049
(919)
(447)
3,922
250
(233)
1,399
161,835
(28,896)
(10,172)
(428)
(5,132)
30,862
8,443
156,512
(26,438)
(2,998)
(11,518)
–
317
(73,043)
(40,637)
8,489
(8,592)
17,195
(19,707)
2,576,000
1,333,000
(2,558,582)
(1,378,398)
(18,313)
32
5,773
(81,123)
–
–
4,856
(61,834)
(76,316)
(104,888)
(4,445)
46,270
(2,757)
39,068
224
(15,740)
(52,542)
10,987
35,118
165
46,270
355
(17,224)
(39,491)
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
DULUXGROUP ANNUAL REPORT 2016
87
PAGE
89
90
93
93
93
94
95
97
98
99
100
102
104
105
112
113
114
115
116
117
119
119
120
121
123
123
124
124
NOTE
1
About this report
Financial Performance
Segment report
2
3
4
5
6
Other income
Expenses
Earnings per share (EPS)
Dividends
Operating Assets and Liabilities
7
8
9
10
11
Working capital
Property, plant and equipment
Intangible assets
Impairment testing
Provisions
Taxation
12
Income tax
Capital and Risk Management
13
14
15
Interest-bearing liabilities
Financial and capital management
Contributed equity
Group Structure
16
17
18
Subsidiaries
Businesses acquired
Equity accounted investment
Other Disclosures
Superannuation
Share-based payments
Director and executive disclosures
Commitments
Contingent liabilities
Deed of cross guarantee
Parent entity disclosures
Auditors’ remuneration
New accounting standards and interpretations
Subsequent events
19
20
21
22
23
24
25
26
27
28
88
Notes to the Consolidated Financial StatementsFOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2016 1. ABOUT THIS REPORT
DuluxGroup Limited (the Company) is a company domiciled
in Australia which has shares that are publicly traded on the
Australian Securities Exchange.
The significant accounting policies adopted in preparing the
consolidated financial statements of the Company and its
subsidiaries (collectively ‘the Group’ or ‘DuluxGroup’) have
been consistently applied to all the years presented, unless
otherwise stated.
Accounting policies specific to one note are described in the
note in which they relate. The impact of new and upcoming
accounting standards and interpretations are set out in note
27. Accounting policies that are relevant to understanding the
financial statements as a whole are set out below.
a) Basis of preparation
The consolidated financial statements have been prepared
on a historical cost basis, except for derivative financial
instruments, investments in financial assets (other than
subsidiaries and joint ventures) and defined benefit
obligations which have been measured at fair value.
The consolidated financial statements were approved by the
Board of Directors on 8 November 2016 and are presented
in Australian dollars, which is the Company’s functional and
presentation currency.
The consolidated financial statements are general purpose
financial statements which have been prepared in accordance
with the requirements of applicable Australian Accounting
Standards including Australian Interpretations and the
Corporations Act 2001 and comply with International Financial
Reporting Standards (IFRS) and interpretations as issued by
the International Accounting Standards Board. DuluxGroup
is a for-profit entity for the purpose of preparing the
consolidated financial statements.
b) Comparatives
Where not significant, reclassifications of comparatives are
made to disclose them on the same basis as current financial
period figures.
c) Consolidation
The Group’s consolidated financial statements are prepared
by combining the financial statements of all the entities that
comprise the Group, being the Company (the parent entity)
and its subsidiaries as defined in AASB 10 Consolidated
Financial Statements. Consistent accounting policies are
employed in the preparation and presentation of the
consolidated financial statements. The consolidated financial
statements include the information and results of each
subsidiary from the date on which the Company obtains
control until such time as the Company ceases to control such
entity. In preparing the consolidated financial statements, all
intercompany balances, transactions and unrealised profits
arising within the Group are eliminated in full.
d) Foreign currency
Functional currency
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which the entity operates
(the functional currency).
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are translated to the functional currency
of the entity at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on translation are
recognised in the income statement, except when they are
deferred in equity as qualifying cash flow hedges.
Non-monetary assets and liabilities that are measured at
historical cost in a foreign currency are translated using the
exchange rate ruling at the date of the transaction.
Foreign currency receivables and payables outstanding at
balance date are translated at the exchange rates ruling
at that date. Exchange gains and losses on retranslation
of outstanding unhedged receivables and payables are
recognised in the income statement.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation,
are translated to Australian dollars at foreign exchange rates
ruling at the balance date.
The revenues and expenses of foreign operations are
translated to Australian dollars at rates approximating the
foreign exchange rates ruling at the dates of the transactions.
Foreign exchange differences arising on translation are
recognised directly in other comprehensive income.
e) Rounding
The amounts shown in this financial report have been rounded
off, except where otherwise stated, to the nearest thousand
dollars with the Company being in a class specified in ASIC
Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191.
f) Key accounting estimates and judgements
Management determines the development, selection,
disclosure and application of the Group’s key accounting
policies, estimates and judgements. Management
necessarily makes estimates and judgements that have a
significant effect on the amounts recognised in the financial
statements. Estimates and judgements are continually
evaluated and are based on historical experience and other
factors, including reasonable expectations of future events.
Changes in the assumptions underlying the estimates may
result in a significant impact on the financial statements.
Management believes the estimates used in preparing the
financial statements are reasonable and in accordance with
accounting standards.
The key assumptions and judgements pertaining to this report
are set out in the following notes:
• Note 7 Working capital
• Note 8 Property, plant and equipment
• Note 9 Intangible assets
• Note 10 Impairment testing
• Note 11 Provisions
• Note 12 Income tax
• Note 17 Businesses acquired
• Note 19 Superannuation
DULUXGROUP ANNUAL REPORT 2016
89
Notes to the Consolidated Financial Statements
Financial Performance
For the financial year ended 30 September 2016
2. SEGMENT REPORT
The operating segments are reported in a manner which is consistent with the internal reporting provided to the Chief Operating
Decision Maker. The Chief Operating Decision Maker has been identified as the Managing Director and Chief Executive Officer.
The major products and services from which DuluxGroup’s segments derive revenue are:
DEFINED REPORTABLE SEGMENTS
PRODUCTS/SERVICES
Paints and Coatings Australia and
New Zealand (ANZ)
Dulux decorative paints, woodcare, texture, protective, powder and industrial coatings in
Australia and New Zealand for both consumer and professional trade markets.
Consumer and Construction
Products ANZ
Garage Doors and Openers
Cabinet and Architectural
Hardware
Other businesses
Selleys adhesives, sealants and other household repair and maintenance products for the
consumer and professional trade markets; and Parchem construction chemicals, decorative
concrete solutions and related equipment in Australia and New Zealand.
B&D garage doors and electronic openers for residential, commercial and industrial use in
Australia and New Zealand.
Lincoln Sentry, a specialist trade distributor of premium branded cabinet hardware and
architectural hardware to the cabinet making industry, and the window, door and glazing
industries in Australia.
Yates garden care and home improvement products in Australia and New Zealand, South
East Asia specialty coatings and adhesives businesses, Papua New Guinea coatings
business and Craig & Rose paints business in the United Kingdom. Also includes the
51%-owned DGL Camel business in China and Hong Kong.
90
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DULUXGROUP ANNUAL REPORT 2016
91
2. SEGMENT REPORT (CONTINUED)
a) Geographical information
Revenue from external customers is attributed to geographic location based on the location of customers. The revenue
from external customers by geographical location for the year ended 30 September is set out below. The location of non-
current assets other than financial assets, investments accounted for using the equity method, and deferred tax assets as at
30 September is set out below.
Australia
New Zealand
Other countries
REVENUE
NON-CURRENT ASSETS
2016
$’000
2015
$’000
2016
$’000
2015
$’000
1,408,410
1,382,304
485,852
440,607
190,358
117,491
183,186
122,344
47,370
17,021
44,252
12,059
1,716,259
1,687,834
550,243
496,918
b) Accounting policies
Revenue recognition
Revenue from sale of goods
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns,
trade discounts and customer rebates. External sales are recognised when the significant risks and rewards of ownership are
transferred to the purchaser, recovery of the consideration is probable, the possible return of goods can be estimated reliably,
there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. For the
purpose of segment reporting, the Group’s policy is to transfer products internally at negotiated commercial prices.
Customer loyalty programme
The Group operates a number of loyalty programmes under which customers accumulate points for purchases made which they
are entitled to redeem for items from a catalogue. The award points are recognised as a separately identifiable component of
the initial sale transaction, by allocating the fair value of the consideration received between the award points and the other
components of the sale, such that the award points are recognised at their fair value. Revenue from the award points is deferred
and recognised when the points are redeemed. The amount of revenue is based on the number of points redeemed relative to
the total number expected to be redeemed. Award points generally expire three to four years after the initial sale.
Other income
Other income includes profit on disposal of property, plant and equipment and businesses, rental income, royalty income, grant
income and net foreign exchange gains.
Profit and loss from disposal of businesses, subsidiaries and other non-current assets are recognised when there is a signed
unconditional contract of sale. Rental income is recognised in the income statement on a straight-line basis over the term of the
lease. Royalty income is recognised on sale of licensed product to the final customer. A grant is initially recognised as deferred
income at fair value when there is a reasonable assurance that the Group will comply with the conditions of the grant and the
amount will be received. The grant is then either recognised in the income statement over the useful life of the associated asset,
or where the grant compensates the Group for incurred expenses, the income is recognised in the income statement in the
period in which the associated expenses are recognised.
Finance income and expenses
Finance income
Finance income comprises of interest income earned on funds invested. Finance income is recognised in the income statement
using the effective interest method.
Finance expenses
Finance expenses include interest, unwind of the effect of discounting on provisions, amortisation of discounts or premiums
relating to borrowings and amortisation of ancillary costs incurred in connection with the arrangement of borrowings. Finance
expenses are recognised in the income statement as incurred unless they relate to qualifying assets.
Where funds are borrowed specifically for the production of a qualifying asset, the interest on those funds is capitalised, net
of any interest earned on those borrowings. Where funds are borrowed generally, finance expenses are capitalised using a
weighted average interest rate.
92
Notes to the Consolidated Financial StatementsFinancial Performance (Continued)For the financial year ended 30 September 2016 3. OTHER INCOME
Royalty income
Rental income
Grant income
Other
2016
$’000
300
477
1,599
350
2,726
2015
$’000
416
467
2,497
201
3,581
4. EXPENSES
Profit before income tax expense includes the following expense items not otherwise detailed in this financial report:
Depreciation
Amortisation
Depreciation and amortisation
Interest and finance charges paid/payable for financial liabilities
not at fair value through profit and loss
Provisions: unwinding of discounting
Finance expenses
Net loss on disposal of property, plant and equipment
Net foreign exchange losses
Cost of goods sold
Research and development expense
5. EARNINGS PER SHARE (EPS)
Attributable to the ordinary shareholders of DuluxGroup Limited
Basic earnings per share
Diluted earnings per share
Earnings used in the calculation of basic and diluted earnings per share
Profit for the year attributable to ordinary shareholders of DuluxGroup Limited
2016
$’000
25,111
7,156
2015
$’000
27,971
6,927
32,267
34,898
17,455
2,667
20,122
1,043
757
19,561
2,049
21,610
250
393
958,755
20,827
956,686
19,818
2016
CENTS PER
SHARE
2015
CENTS PER
SHARE
34.1
33.5
29.6
29.2
$’000
$’000
130,417
112,773
NUMBER
NUMBER
Weighted average number of ordinary shares outstanding used as the denominator:
Number for basic earnings per share
Effect of the potential vesting of shares under the LTEIP and ESIP(1)
Number for diluted earnings per share
382,582,772 380,362,446
5,273,875
6,379,665
388,962,437
385,636,321
(1) The calculation of the weighted average number of shares has been adjusted for the effect of these potential shares from the date of issue or the
beginning of the financial year.
DULUXGROUP ANNUAL REPORT 2016
93
6. DIVIDENDS
Dividends paid
Final dividend for 2015 of 11.5 cents per share fully franked (2014: Final dividend of 10.5 cents per
share fully franked)
Interim dividend for 2016 of 11.5 cents per share fully franked (2015: Interim dividend of 11.0 cents
per share fully franked)
Dividend franking account
Franking credits available to shareholders for subsequent financial years
based on a tax rate of 30% (2015: 30%)
a) Dividends declared after balance date
2016
$’000
2015
$’000
44,340
39,918
44,406
88,746
42,350
82,268
23,391
23,950
On 8 November 2016, the Directors determined that a final dividend of 12.5 cents per ordinary share will be paid in respect
of the 2016 financial year. The dividend will be fully franked and payable on 9 December 2016. The financial effect of this
dividend is not included in the financial statements for the year ended 30 September 2016 and will be recognised in the 2017
financial statements. The Company’s DRP will operate with respect to the final dividend. The DRP pricing period will be the
five trading days from 21 November 2016 to 25 November 2016 inclusive. Ordinary shares issued under the DRP will rank
equally with all other ordinary shares.
94
Notes to the Consolidated Financial StatementsFinancial Performance (Continued)For the financial year ended 30 September 2016 Operating Assets and Liabilities
For the financial year ended 30 September 2016
7. WORKING CAPITAL
Current
Trade and other receivables(1)
Trade and other payables
Inventories:
Raw materials
Work in progress
Finished goods
Total current
Non-current
Other receivables
Other payables
Total non-current
Total working capital
2016
$’000
2015
$’000
256,315
(250,766)
257,854
(252,781)
33,558
5,398
179,917
218,873
224,422
65
(270)
(205)
35,287
5,412
175,337
216,036
221,109
85
(276)
(191)
224,217
220,918
(1) Current receivables is net of $17,612,000 (2015: $22,087,000) rebates payable. The Group has the legal right to offset such balances as they are with the
same customers and it is the Group’s intention to net settle any outstanding balances.
a) Trade and other receivables and allowance for impairment
The ageing of current and non-current trade and other receivables according to their due date is as follows:
Not past due
Past due 0 – 30 days
Past due 31 – 60 days
Past due 61 – 90 days
Past due 91 – 120 days
Past 120 days
2016
GROSS
$’000
230,120
15,826
3,082
2,347
3,090
4,829
2015
GROSS
$’000
2016
ALLOWANCE
$’000
2015
ALLOWANCE
$’000
2016
NET
$’000
2015
NET
$’000
228,850
17,027
3,762
2,968
6,083
5,395
32
–
16
60
570
2,236
2,914
198
25
38
104
2,614
3,167
6,146
230,088
15,826
228,652
17,002
3,066
2,287
2,520
2,593
3,724
2,864
3,469
2,228
256,380
257,939
259,294
264,085
There are no individually significant receivables that have had renegotiated terms that would otherwise, without that
renegotiation, have been past due or impaired. No material security is held over trade receivables.
The movement in allowance for impairment of trade and other receivables is as follows:
Opening balance
Allowances made (net of amounts written back)
Allowances utilised
Foreign currency exchange differences
Balance at 30 September
2016
$’000
6,146
836
(3,623)
(445)
2,914
2015
$’000
4,149
3,922
(2,213)
288
6,146
DULUXGROUP ANNUAL REPORT 2016
95
7. WORKING CAPITAL (CONTINUED)
b) Accounting policies
Trade and other receivables
Trade and other receivables are carried at amounts due. Receivables that are not past due and not impaired are considered
recoverable. Payment terms are generally 30 days from the end of the month in which the invoice is issued. A risk assessment
process is used for all accounts, with a stop credit process in place for most long overdue accounts.
The collectability of trade and other receivables is assessed continuously and at balance date specific allowances are made for
any doubtful trade and other receivables based on a review of all outstanding amounts. Bad debts are written off during the
year in which they are identified.
The following basis has been used to assess the allowance for doubtful trade and other receivables:
• a statistical approach to determine the historical allowance rate for various tranches of receivables;
• an individual account by account assessment based on past credit history; and/or
• prior knowledge of debtor insolvency or other credit risk.
Trade and other payables
Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the period,
which remain unpaid at balance date. Trade payables are normally settled within 60 days from invoice date or within the agreed
payment terms with the supplier.
Inventories
Inventories are valued at the lower of cost or net realisable value, where cost is based on the first-in, first-out or weighted average
method according to the type of inventory. For manufactured goods, cost includes direct labour, direct material and fixed
overheads based on normal operating capacity. For finished goods purchased from external suppliers, cost is net cost into store.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and
selling expenses.
c) Key accounting estimates and judgements
Net realisable value of inventory
Management uses its judgement in establishing the net realisable value of inventories. Provisions are established for obsolete
or slow moving inventories, taking into consideration the ageing and seasonal profile of inventories, discontinued lines, sell
through history and forecast sales.
Customer rebates
Management uses its judgement in determining the amount accrued for customer rebates where the timing of the rebate
period does not align with the Group’s financial year end. In calculating the accrual management in particular takes account
of forecast purchases pertaining to the rebate period.
96
Notes to the Consolidated Financial StatementsOperating Assets and Liabilities (Continued)For the financial year ended 30 September 2016 8. PROPERTY, PLANT AND EQUIPMENT
2016
Cost
Less accumulated depreciation and impairment
Net book value
Balance at 1 October 2015
Additions
Additions – business acquisitions
Disposals
Depreciation expense
Foreign currency exchange differences
Balance at 30 September 2016
2015
Cost
Less accumulated depreciation and impairment
Net book value
Balance at 1 October 2014
Additions
Additions – business acquisitions
Disposals
Depreciation expense
Foreign currency exchange differences
Balance at 30 September 2015
BUILDINGS
AND
LEASEHOLD
IMPROVE-
MENTS
$’000
LAND
$’000
MACHINERY,
PLANT AND
EQUIPMENT
$’000
TOTAL
$’000
51,685
118,295
398,562
568,542
–
(39,578)
(216,923)
(256,501)
51,685
78,717
181,639
312,041
38,557
12,825
245
–
–
58
56,994
21,903
2,258
(203) (1)
(2,874)
639
166,314
36,772
2,471
(1,445)
(22,237)
(236)
261,865
71,500
4,974
(1,648)
(25,111)
461
51,685
78,717
181,639
312,041
38,557
94,144
370,948
503,649
–
(37,150)
(204,634)
(241,784)
38,557
56,994
166,314
261,865
37,148
1,343
–
–
–
66
58,638
1,405
–
(128)(1)
(3,242)
321
166,208
23,242
294
(567)
(24,729)
1,866
261,994
25,990
294
(695)
(27,971)
2,253
38,557
56,994
166,314
261,865
(1)
Includes an amount of $68,000 (2015: $128,000) relating to the reassessment of the leased properties restoration provision.
a) Assets under construction
Included in the closing balances above are assets under construction at 30 September 2016 of $70,350,000
(2015: $19,509,000), with the majority of the assets under construction relating to the new paint factory.
b) Accounting policies
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses (refer to note 10).
Cost includes expenditure that is directly attributable to the acquisition of the item. Subsequent costs are included in the asset’s
carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Group and that the cost of the item can be reliably measured.
Property, plant and equipment, other than freehold land, is depreciated on a straight-line basis over the useful life of each asset
to the Group. Estimated useful lives of each class of asset are as follows:
Buildings and improvements
10 to 40 years
Machinery, plant and equipment
3 to 20 years
Assets under construction are not depreciated until ready for use.
Profits and losses on disposal of property, plant and equipment are recognised in the income statement.
Where the occupation of a leased property gives rise to an obligation for site closure or restoration, the Group recognises a
provision for the costs associated with restoration.
c) Key accounting estimates and judgements
Management reviews, and adjusts as appropriate, the useful lives of property, plant and equipment at least annually. Any
changes to useful lives affect prospective depreciation rates and asset carrying values.
DULUXGROUP ANNUAL REPORT 2016
97
9. INTANGIBLE ASSETS
PATENTS,
TRADEMARKS
AND RIGHTS
$’000
GOODWILL
$’000
BRAND
NAMES
$’000
SOFTWARE
$’000
CUSTOMER
CONTRACTS
$’000
TOTAL
$’000
2016
Cost
Less accumulated amortisation
Net book value
143,665
–
143,665
8,324
(5,970)
2,354
65,973
(1,214)
64,759
Balance at 1 October 2015
138,160
2,378
65,140
Additions
Additions – business acquisitions
Amortisation expense
Transfers between classes
Foreign currency exchange differences
–
5,460
–
–
45
–
–
(277)
242
11
–
–
(217)
–
(164)
Balance at 30 September 2016
143,665
2,354
64,759
2015
Cost
Less accumulated amortisation
Net book value
Balance at 1 October 2014
Additions
Additions – business acquisitions
Disposals
Amortisation expense
Foreign currency exchange differences
138,160
–
138,160
130,838
–
7,301
–
–
21
Balance at 30 September 2015
138,160
8,145
(5,767)
2,378
2,801
100
–
–
(530)
7
2,378
66,176
(1,036)
65,140
61,495
–
3,400
–
(179)
424
65,140
37,503
(30,127)
29,300
(13,407)
284,765
(50,718)
7,376
6,818
3,732
–
(2,915)
(249)
(10)
7,376
33,754
(26,936)
6,818
6,712
2,898
–
(26)
(2,781)
15
6,818
15,893
234,047
19,633
232,129
–
–
(3,747)
7
–
3,732
5,460
(7,156)
–
(118)
15,893
234,047
29,300
(9,667)
19,633
275,535
(43,406)
232,129
23,070
224,916
–
–
–
(3,437)
–
2,998
10,701
(26)
(6,927)
467
19,633
232,129
a) Intangibles under development
Included in the closing balance above are software assets under development at 30 September 2016 of $3,596,000
(2015: $2,428,000).
b) Accounting policies
Identifiable intangibles
Amounts paid for the acquisition of software are capitalised at the fair value of consideration paid. Amounts paid for the
acquisition of other identifiable intangible assets (except for software) are capitalised at the fair value of consideration paid
determined by reference to independent valuations. Subsequent expenditure on capitalised identifiable intangible assets is
capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other
expenditure is expensed as incurred.
Intangible assets, other than intangible assets with indefinite lives, are amortised on a straight-line basis over their useful lives.
Estimated useful lives of each class of asset are as follows:
Patents, trademarks and rights
10 to 20 years
Brand names
Software
Customer contracts
10 to 20 years
3 to 5 years
5 to 10 years
Identifiable assets with an indefinite life (selected brand names) are not amortised but the recoverable amount of these assets
is tested for impairment at least annually (refer to note 10).
Unidentifiable intangibles
Where the fair value of the consideration paid for a business acquisition exceeds the fair value of the identifiable assets,
liabilities and contingent liabilities acquired, the difference is treated as goodwill. Goodwill is not amortised but the recoverable
amount is tested for impairment at least annually (refer to note 10).
98
Notes to the Consolidated Financial StatementsOperating Assets and Liabilities (Continued)For the financial year ended 30 September 2016
c) Key accounting estimates and judgements
Management use judgement in determining whether an individual brand name will have a finite life or an indefinite life.
Management make this determination on the basis of brand strength, expectations of continuing profitability and future
business commitments to these brands. If a brand is assessed to have a finite life, management will use judgement in
determining the useful life.
Management reviews, and adjusts as appropriate, the useful lives of intangible assets at least annually. Any changes to
useful lives affect prospective amortisation rates and asset carrying values.
d) Allocation of goodwill and intangible assets with indefinite useful lives
The allocation of goodwill and brand names with indefinite useful lives to cash-generating units is as follows:
Paints Australia
Consumer and Construction Products ANZ
Yates ANZ
Garage Doors and Openers
Cabinet and Architectural Hardware
DGL International UK
GOODWILL
BRAND NAMES
2016
$’000
29,078
43,299
10,058
39,537
18,193
3,500
2015
$’000
29,078
43,280
8,143
39,466
18,193
–
2016
$’000
26,900
3,400
14,858
15,000
2,400
–
2015
$’000
26,900
3,400
14,858
15,000
2,400
–
143,665
138,160
62,558
62,558
10. IMPAIRMENT TESTING
The review for impairment at 30 September 2016 did not result in impairment charges being recognised by the Group
(2015: $NIL). For all CGUs apart from Parchem Australia (part of Consumer and Construction Products ANZ segment),
a reasonable possible change to impairment model inputs would not cause the recoverable amount to be below their
respective carrying amount.
For the Parchem Australia CGU the market outlook remains challenging, observable market data around transaction
multiples for similar businesses has reduced, and trading conditions for the business continues to be weaker than expected.
The recoverable amount has been determined using a discounted cash flow model prepared under a value-in-use based
approach and a sensitivity analysis has been undertaken to examine the effect of any changes in the key variables, which would
result in a change in the assessed value in use. If there was a negative variation in a key variable, it could, in the absence of other
factors, lead to an impairment of the Parchem Australia CGU.
a) Accounting policies
Goodwill and indefinite life intangible assets are tested for impairment at least annually. The carrying amount of the Group’s
other non-current assets, excluding any deferred tax assets and financial assets is reviewed at each reporting date to determine
whether there are any indicators of impairment. If such indicators exist, the asset is tested for impairment by comparing its
recoverable amount to its carrying amount.
The recoverable amount of an asset is determined as the higher of fair value less costs of disposal and value in use.
The recoverable amount is estimated for each individual asset or where it is not possible to estimate for individual assets, it is
estimated for the Cash-Generating Unit (CGU) to which the asset belongs. A CGU is the smallest identifiable group of assets
that generate cash inflows largely independent of the cash inflows of other assets or group of assets, with each CGU being
no larger than a reportable segment. When determining fair value less costs of disposal, information from recent market
transactions of a similar nature is taken into account. If no such transactions can be identified, an appropriate valuation
model is used. These are corroborated by other available market based information.
In calculating recoverable amount using a valuation model, estimated future cash flows based on Board approved budgets, four
year business plans and related strategic reviews are discounted to their present values using a pre-tax discount rate. Cash flow
projections beyond the four year period are extrapolated using estimated growth rates, which are not expected to exceed
the long term average growth rates in the applicable markets. Cash flows used for value in use calculations are estimated for
the asset in its present condition and therefore do not include cash inflows or outflows that improve or enhance the asset’s
performance or that may arise from future restructuring.
The pre-tax discount rate used for a:
• value in use calculation is derived based on an independent external assessment of the Group’s post-tax weighted
average cost of capital in conjunction with risk specific factors to the countries in which the CGU operates.
• fair value less costs of disposal calculation is based on an independent external assessment of the cost of capital
of a willing buyer taking into account risk specific factors to the countries in which the CGU operates.
DULUXGROUP ANNUAL REPORT 2016 99
10. IMPAIRMENT TESTING (CONTINUED)
a) Accounting policies (continued)
The pre-tax discount rates applied in the discounted cash flow models range between 10% and 15% (2015: 10% and 15%).
The sales revenue compound annual growth rates applied in the discounted cash flow models range between 0% and 7%
(2015: 0% and 8%).
An impairment loss is recognised whenever the carrying amount of an asset or its CGU exceeds its recoverable amount.
Impairment losses are recognised in the income statement as part of ‘other expenses’. Impairment losses recognised in respect
of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to CGUs and then to reduce the carrying
amount of the other assets in the unit.
An impairment loss is reversed if the subsequent increase in recoverable amount can be related objectively to an event
occurring after the impairment loss was recognised. An impairment loss in respect of goodwill or other indefinite life intangible
assets is not reversed. An impairment loss in other circumstances is reversed only to the extent that the asset’s carrying amount
does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
b) Key accounting estimates and judgements
In making the assessment for impairment, management applies its judgement in allocating assets that do not generate
independent cash inflows to appropriate CGUs. Subsequent changes to the CGU allocation or to the timing and quantum
of cash flows may impact the carrying value of the respective assets.
The determination of recoverable amount on a value in use basis requires the estimation and discounting of future cash
flows. The estimation of cash flows considers all information available at balance date which may deviate from actual
developments. This includes, amongst other things, changes in discount rates, terminal value growth rates applied in
perpetuity, expected sales revenue growth rates in the forecast period, and earnings varying from the assumptions and
forecast data used. Management also applies judgement when determining the recoverable amount using fair value less costs
of disposal. This judgement is based on available data from binding sales transactions, conducted at arm’s length, for similar
assets or observable market based information less incremental costs for disposing of the assets.
11. PROVISIONS
2016
Current
Non-current
Total provisions
Balance at 1 October 2015
Provisions made (net of amounts written back)
Provisions utilised
Unwind of discounting
Additions – business acquisition
Foreign currency exchange differences
Balance at 30 September 2016
2015
Current
Non-current
Total provisions
Balance at 1 October 2014
Provisions made (net of amounts written back)
Provisions utilised
Unwind of discounting
Foreign currency exchange differences
Balance at 30 September 2015
EMPLOYEE
ENTITLE-
MENTS
$’000
36,142
29,204
65,346
36,426
30,074
66,500
RESTRUC-
TURING (1)
$’000
LEASED
PROPERTIES
$’000
OTHER
$’000
TOTAL
$’000
41,432
46,605
88,037
48,069
50,243
98,312
750
7,508
8,258
18,078
(778)
(10,587)
1,545
–
–
817
8,749
9,566
9,149
563
(1,908)
896
897
(31)
3,723
1,144
4,867
4,585
5,946
(5,912)
180
54
14
8,258
9,566
4,867
7,828
10,250
18,078
349
17,030
(416)
1,048
67
18,078
680
8,469
9,149
10,597
(1,798)
(600)
827
123
9,149
3,135
1,450
4,585
6,574
2,874
(5,187)
174
150
4,585
(1) At 30 September 2016 and 30 September 2015 the balance largely comprises the redundancy costs recognised in association with the Group’s supply
chain projects. Refer to note 2 for further details.
100
Notes to the Consolidated Financial StatementsOperating Assets and Liabilities (Continued)For the financial year ended 30 September 2016 a) Accounting policies
A provision is recognised when there is a legal or constructive obligation as a result of a past event and it is probable that a
future sacrifice of economic benefits will be required to settle the obligation and the amount can be reliably estimated.
If the effect is material, a provision is determined by discounting the expected future cash flows (adjusted for expected future
risks) required to settle the obligation at a pre-tax rate that reflects current market assessments of the time value of money and
the risks specific to the liability. The unwind of the effect of discounting on provisions is recognised as a finance expense.
Employee entitlements
Liabilities for annual leave are accrued based on statutory and contractual requirements, including related on-costs. They are
measured using the rates expected to be paid when the obligations are settled.
Liabilities for long service leave are accrued at the present value of expected future payments to be made resulting from
services provided by employees. Liabilities for long service leave entitlements, which are not expected to be paid or settled
within 12 months, are accrued at the present value of future amounts expected to be paid.
Liabilities for bonuses are recognised on the achievement of predetermined bonus targets and the benefit calculations are
formally documented and determined before signing the financial statements.
Restructuring
Provisions for restructuring and employee termination benefits are only recognised when a detailed plan has been approved
and the restructuring and/or termination has either commenced or been publicly announced or firm contracts related to the
restructuring or termination benefits have been entered into. Costs related to ongoing activities are not provided for.
Leased properties
The Group is required to restore certain leased premises to their original condition at the end of the respective lease terms.
A provision has been recognised for the estimated expenditure required to restore these premises to an acceptable condition.
These costs have been capitalised as part of the cost of buildings and leasehold improvements. Where this provision is
reassessed in subsequent reporting periods, to the extent possible, an equal and offsetting adjustment is made to the
corresponding asset balance. Where the reassessment results in a decrease to the provision which exceeds the carrying value
of the corresponding asset, any excess is recognised in the income statement.
Payments to be made under leases with fixed rent escalation clauses are recognised in the income statement on a straight-line
basis over the term of the lease contract.
The Group has also identified certain leased sites that were surplus to its requirements. Where these sites have non-cancellable
leasing arrangements and the Group is unable to sub-lease the sites at a rate that would allow it to recover its rental costs,
a provision is recognised for the shortfall in rental income.
Other
Other provisions largely comprises of amounts for customer loyalty programmes, warranties and sales returns.
b) Key accounting estimates and judgements
Management uses its judgement in determining its future obligations for employee entitlements, restructuring and leased
properties.
Employee entitlements
Provision for long service leave is based on the following key assumptions: future salary and wages increases; future on cost
rates; and future probability of employee departures and period of service.
Restructuring
The provision for restructuring is based on expected future payments for existing employees under the current employment
agreements. Changes to employee numbers, their employment conditions or timing of the projects’ completion dates could
impact estimated future payments.
Leased properties
The provision for leased premises restoration is based on estimates of the future costs, and the timing of those costs,
required to restore those sites to original condition.
DULUXGROUP ANNUAL REPORT 2016
101
Notes to the Consolidated Financial Statements
Taxation
For the financial year ended 30 September 2016
12. INCOME TAX
a) Income tax expense
Current tax expense
Deferred tax expense/(benefit)
Over provision in prior years
Income tax expense
Deferred tax expense/(benefit) included in income tax expense comprises:
Decrease/(increase) in deferred tax assets
Decrease in deferred tax liabilities
Reconciliation of prima facie tax expense to income tax expense
Profit before income tax expense
Prima facie income tax expense calculated at 30% of profit before income tax expense
Tax effect of items which (decrease)/increase tax expense:
Foreign tax rate differential
Non-taxable income and profits, net of non-deductible expenditure
Share of net profit of equity accounted investment
Tax losses not recognised
Sundry items
Income tax expense
b) Deferred tax assets and liabilities
2016
$’000
48,406
4,837
(1,093)
52,150
4,976
(139)
4,837
2015
$’000
49,973
(5,143)
(2,046)
42,784
(3,070)
(2,073)
(5,143)
181,211
54,363
154,088
46,226
(829)
(2,174)
(203)
886
107
(790)
(3,396)
(276)
1,147
(127)
52,150
42,784
DEFERRED TAX ASSETS
DEFERRED TAX LIABILITIES
2016
$’000
2015
$’000
2016
$’000
2015
$’000
552
3,704
5,035
4,196
1,256
6,479
36,100
222
1,687
779
3,513
5,855
4,352
2,443
9,494
26,160
174
516
59,231
53,286
18,633
40,598
59,231
20,229
33,057
53,286
–
–
2,998
12,339
61
–
–
–
429
15,827
490
15,337
15,827
53,286
48,046
16,035
441
–
(4,976)
10,648
(168)
59,231
84
3,070
–
1,877
209
53,286
–
(139)
–
–
(69)
15,827
–
–
2,412
13,456
60
–
–
–
107
16,035
168
15,867
16,035
16,972
1,020
(2,073)
–
–
116
16,035
The balance comprises temporary differences attributable to:
Trade and other receivables
Inventories
Property, plant and equipment
Intangible assets
Trade and other payables
Provisions
Employee entitlements
Tax losses
Other
Total
Expected to be recovered/settled:
Within 12 months
After more than 12 months
Movements:
Opening balance
Additions – business acquisitions
Credited to profit or loss
Charged to profit or loss
Credited to other comprehensive income
Foreign currency exchange differences
Balance at 30 September
102
c) Unrecognised deferred tax assets and liabilities
Tax losses and other deferred tax assets not recognised in:
China(1)
Hong Kong
Malaysia
2016
$’000
2015
$’000
9,229
539
327
10,095
9,435
545
–
9,980
(1) Expiration dates between 2016 and 2021 (2015: between 2015 and 2020).
A deferred tax liability of $2,303,000 (2015: $2,512,000) has not been recognised in respect of temporary differences arising as
a result of the translation of the financial statements of the Company’s subsidiaries. The deferred tax liability will only be realised
in the event of disposal of the Company’s subsidiaries and no such disposal is expected in the foreseeable future.
d) Accounting policies
Income tax
Income tax on the profit or loss for the financial year comprises of current and deferred tax and is recognised in the income statement.
Current tax is the expected tax payable or receivable on taxable income for the financial year, using tax rates enacted or
substantively enacted at reporting date, and any adjustments to tax payable or receivable in respect of previous years.
Deferred tax balances are determined using the balance sheet method which calculates temporary differences based on the
carrying amounts of an entity’s assets and liabilities in the balance sheet and their associated tax bases. The amount of deferred
tax provided is based on the expected manner of realisation of the asset or settlement of the liability, using tax rates enacted
or substantively enacted at reporting date. A deferred tax asset is recognised only to the extent that it is probable that future
taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent it is no
longer probable that the related tax benefit will be realised.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the associated tax is also recognised in other comprehensive income
or directly in equity.
Tax consolidation
DuluxGroup Limited is the head entity of the Australian tax consolidated group. The head entity and the members of the tax
consolidated group have entered into a tax funding arrangement which sets out the funding obligations of members in respect
of tax amounts. The head entity recognises the tax effects of its own transactions and the current tax liabilities and the deferred
tax assets arising from unused tax losses and unused tax credits assumed from the subsidiary entities. Members of the tax
consolidated group have also entered into a tax sharing agreement that provides for the allocation of income tax liabilities
between the entities should the head entity default on its tax payment obligations.
e) Key accounting estimates and judgements
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is
required in determining the worldwide provision for income taxes. There are transactions and calculations undertaken during
the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities
based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is different from the
amounts initially recorded, such differences will impact the current and deferred income tax provision in the period in which
such determination is made.
In addition, deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable profits are available to utilise those temporary differences and losses, and the tax losses
continue to be available having regard to the nature and timing of their origination and compliance with the relevant tax
legislation associated with their recoupment.
Assumptions are also made about the application of income tax legislation. These assumptions are subject to risk and
uncertainty and there is a possibility that changes in circumstances will alter expectations which may impact the amount of
deferred tax assets and deferred tax liabilities recorded on the consolidated balance sheet and the amount of tax losses and
timing differences not yet recognised. In these circumstances, the carrying amount of deferred tax assets and liabilities may
change, resulting in an impact on the earnings of the Group.
DULUXGROUP ANNUAL REPORT 2016 103
Notes to the Consolidated Financial Statements
Capital Risk Management
For the financial year ended 30 September 2016
13. INTEREST-BEARING LIABILITIES
Current
Unsecured
Bank loan – RMB denominated(1)
Bank loan – HKD denominated(2)
Non-current
Unsecured
Bank loan – AUD denominated(3)
United States Private Placement (USPP)(4)
2016
$’000
2015
$’000
10,873
2,031
12,904
10,039
4,611
14,650
126,686
261,993
388,679
108,540
273,018
381,558
(1) The current Chinese Renminbi (RMB) unsecured bank loan amount comprises of RMB 55,325,000 (AUD 10,873,000) (2015: RMB 44,624,000
(AUD 10,039,000)) drawn under an overseas bank loan facility.
(2) The current Hong Kong Dollar (HKD) unsecured bank loan amount comprises of HKD 12,000,000 (AUD 2,031,000) (2015: HKD 25,000,000
(AUD 4,611,000)) drawn under an overseas bank loan facility.
(3) The non-current AUD denominated unsecured bank loan amount comprises of AUD 128,000,000 (2015: AUD 110,000,000) drawn under the Group’s
syndicated bank loan facilities, net of unamortised prepaid loan establishment fees of AUD 1,314,000 (2015: AUD 1,460,000).
(4) The carrying value of the USPP is net of unamortised prepaid loan establishment fees of AUD 960,000 (2015: AUD 1,038,000).
a) United States Private Placement (USPP)
The USPP comprises of notes with a face value of USD 149,500,000 and AUD 40,000,000. The Group has entered into Cross
Currency Interest Rate Swaps (CCIRS) and Interest Rate Swaps (IRS) to manage its exposure to the USD exchange rate (on both
the principal and interest payments) and to convert the interest rate basis for the total borrowing from a fixed basis to floating.
A summary of the USPP debt, net of associated hedging is as follows:
USPP – carrying amount
add back USPP prepaid loan establishment fees
CCIRS
IRS
Net USPP debt
2016
$’000
261,993
960
(56,018)
(5,870)
2015
$’000
273,018
1,038
(69,016)
(3,975)
201,065
201,065
b) Assets pledged as security
While there were no assets pledged as security by DuluxGroup Limited and its subsidiaries, some of the Group’s entities have
provided a guarantee in relation to the Group’s syndicated bank loan facilities and other overseas bank facilities as detailed
in note 16.
c) Defaults and breaches
During the current and prior year, there were no defaults or breaches of covenants on any loans.
d) Accounting policies
Interest-bearing liabilities are initially recognised at fair value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing liabilities are stated at amortised cost with any difference between cost and redemption value
being recognised in the income statement over the period of the liabilities on an effective interest method basis.
Amortised cost is calculated by taking into account any issue costs and any discount or premium on issuance. Gains and losses
are recognised in the income statement in the event that the liabilities are derecognised.
104
14. FINANCIAL AND CAPITAL MANAGEMENT
a) Capital management
The Group’s objectives when managing capital (net debt and total equity) are to safeguard the Group’s ability to continue as
a going concern whilst optimising its debt and equity structure.
The Group manages its capital through various means including:
Raising or
returning capital
+
Raising or
repaying a mix
of long and short
term borrowings
+
Adjusting the
amount of
dividends paid to
shareholders
+
Operating a DRP
+
Issuing new or
buying existing
capital to satisfy
the DRP and
employee share
plans
The Group monitors capital using various credit metrics and accounting gearing ratios. The key metrics and ratios are set
out below:
CALCULATION
2016
$’000
2015
$’000
METRIC/RATIO
Gross interest-bearing liabilities
403,857
398,706
Net debt to
EBITDA
▼
Less:
Prepaid loan establishment fees
USPP derivatives(1)
Cash and cash equivalents
Net debt
EBITDA excluding non-recurring items(2)
(2,274)
(61,888)
(39,068)
300,627
233,376
(2,498)
(72,991)
(46,270)
276,947
227,271
▼
1.3 times
(2015: 1.2 times)
Interest
cover ratio
EBITDA excluding non-recurring items(2)
Net finance costs
233,376
19,898
227,271
21,255
Less:
Amortisation of prepaid loan establishment fees
▼
Unwind of discounting
Defined benefit fund interest
Addback:
Capitalised interest
Adjusted net finance costs
(806)
(2,667)
(828)
904
16,501
(1,399)
(2,049)
(469)
–
17,338
▼
14.1 times
(2015: 13.1 times)
Accounting
gearing ratio
Net debt(3)
▼
Net debt plus total equity
300,627
665,865
276,947
628,192
▼
45%
(2015: 44%)
(1) Foreign currency and interest rate hedges relating to the USPP notes.
(2) Prior year comparative is after excluding restructuring costs relating to supply chain projects. Refer to note 2 for further details.
(3) Refer calculation of net debt presented above for the Net Debt to EBITDA metric.
b) Financial risk management
The Group has exposure to the following principle financial risks:
• Market risk (interest rate, foreign exchange and commodity price risks);
• Liquidity risk; and
• Credit risk.
The Group’s overall risk management program seeks to mitigate these risks and reduce the volatility of the Group’s financial
performance. All financial risk management is carried out or monitored centrally by the Treasury department and is undertaken
in accordance with various treasury risk management policies (the Treasury Policy) approved by the Board.
The Group enters into derivative transactions for risk management purposes only. Derivative transactions are entered into
to hedge financial risk relating to underlying physical exposures arising from business activities. Types of derivative financial
instruments used to hedge financial risks (such as changes to interest rates and foreign currencies) include interest rate options,
interest rate swaps, foreign exchange options, forward exchange contracts and CCIRS contracts.
The Group’s approach to managing its principle financial risks is set out in sections 14(c) to 14(e) below.
DULUXGROUP ANNUAL REPORT 2016 105
14. FINANCIAL AND CAPITAL MANAGEMENT (CONTINUED)
c) Market risk
Interest rate risk
Interest rate risk refers to the risk that the value of a financial instrument or the associated cash flows will fluctuate due to
changes in market interest rates.
The Group is primarily exposed to interest rate risk on outstanding long term interest-bearing liabilities. Interest rate risk on
long term interest-bearing liabilities is managed by adjusting the ratio of fixed interest debt to variable interest debt. Under
the Treasury Policy, a maximum of 90% of debt with a maturity of less than five years can be fixed and a maximum 50% of
debt with a maturity of five years or greater can be fixed. The Group operated within this range during the financial year ended
30 September 2016. As at 30 September 2016, the Group has fixed the base interest rate applicable on AUD 150,000,000 of
debt to August 2017, using interest rate swap transactions.
The Group’s exposure to interest rate risk and the weighted average effective interest rates on financial assets and liabilities at
30 September are set out below:
Cash at bank and on hand
Net interest bearing liabilities(1)
2016
$’000
39,068
341,969
2015
$’000
46,270
325,715
2016
% P.A
0.7
4.3
2015
%P.A
0.7
4.5
(1) Excludes the impact of the prepaid loan establishment fees, and is net of hedges relating to the USPP notes.
The table below shows the effect on profit after income tax expense and total equity had interest rates (based on the
relevant interest rate yield curve applicable to the underlying currency in which the Group’s financial assets and liabilities are
denominated) been 10% higher or lower than the year end rate. Whilst directors cannot predict movements in interest rates,
a sensitivity of 10% on the Group’s effective interest rate is considered reasonable taking into account the current level of both
short term and long term interest rates.
Interest rates were -10%
Interest rates were +10%
INCREASE/(DECREASE) IN PROFIT
AFTER INCOME TAX EXPENSE(1)
INCREASE/(DECREASE)
IN TOTAL EQUITY(1)
2016
$’000
470
(470)
2015
$’000
473
(473)
2016
$’000
463
(463)
2015
$’000
219
(219)
(1) All other variables held constant, taking into account all underlying exposures and related hedges and does not take account of the impact of any
management action that might take place if these events occurred.
Foreign exchange risk
Foreign exchange risk – transactional
Transactional foreign exchange risk refers to the risk that the value of a financial commitment, recognised asset or liability or
cash flow will fluctuate due to changes in foreign currency rates. The primary foreign currency exposures are USD, NZD, RMB,
HKD, EUR and PGK.
The Group’s policy allows hedging to be undertaken to protect against unfavourable foreign currency movements on purchases,
however there is flexibility as to when hedging is initiated and the instrument used to hedge the risk (typically forward exchange
options or forward exchange contracts). In determining which instrument to use, consideration is given to the ability of the
Group to participate in favourable movements in exchange rates.
The Group is exposed to foreign exchange risk primarily due to purchases and sales being denominated, either directly or
indirectly in currencies other than the functional currencies of the Group’s subsidiaries. Approximately 30% to 40% of the
Group‘s purchases are denominated in, or are directly linked to the USD, RMB and EUR.
106
Notes to the Consolidated Financial StatementsCapital Risk Management (Continued)For the financial year ended 30 September 2016 The Group’s net exposure, after taking account of relevant hedges, from a balance sheet perspective including external and
internal balances (eliminated on consolidation) for the major currency exposures at 30 September are set out below (Australian
dollar equivalents):
AUD/USD
AUD/NZD
AUD/RMB
AUD/HKD
AUD/EUR
AUD/PGK
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Reported exchange rate
0.76
0.70
1.05
1.10
5.09
4.45
5.91
5.42
0.68
0.62
2.50
2.06
$’000
$’000 $’000
$’000 $’000
$’000 $’000
$’000 $’000
$’000 $’000
$’000
Cash and cash equivalents
1,307
Trade and other receivables 1,398
Trade and other payables
Interest-bearing liabilities
2,507
–
(4,506) (5,370) (1,787) (1,225) (1,903)
–
(740)
(601)
161
73
–
–
3,073
3
1,543
–
–
–
–
–
(236)
(265)
–
–
187
20
257
–
–
–
62
99
–
(316) (1,632) (1,987) (5,937) (2,996)
–
522
–
–
–
–
Net exposure
(2,541)
(391) (1,623)
391 (1,903)
(236)
(265)
(129) (1,550) (1,631) (5,415) (2,996)
The table below shows the effect on profit after income tax expense and total equity from the major currency exposures, had
the rates been 10% higher or lower than the year end rate. Whilst directors cannot predict movements in foreign exchange rates,
a sensitivity of 10% is considered reasonable taking into account the current level of exchange rates and the volatility observed
on a historical basis.
AUD/USD
AUD/NZD
AUD/RMB
AUD/HKD
AUD/EUR
AUD/PGK
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
Increase/(decrease) in profit after income tax expense(1)
Foreign exchange rates -10%
(30)
(198)
(126)
30
(148)
Foreign exchange rates +10%
162
25
103
(25)
121
Increase/(decrease) in total equity(1)
Foreign exchange rates -10%
(198)
(30)
(126)
Foreign exchange rates +10%
162
25
103
30
(25)
(148)
121
(18)
15
(18)
15
(21)
17
(10)
(140)
8
115
(127)
104
482
(394)
208
(170)
(21)
17
(10)
(140)
8
115
(127)
104
482
(394)
208
(170)
(1) All other variables held constant, and taking into account all underlying exposures and related hedges.
In addition, the Group has a number of pricing arrangements with suppliers for purchases in EUR and USD that allow the Group
to be invoiced in the AUD equivalent value of these purchases. Although the Group’s balance sheet at 30 September 2016 is not
exposed to these arrangements, the fluctuations of the AUD/EUR and AUD/USD exchange rate will impact on the AUD amount
ultimately invoiced to the Group.
Foreign exchange risk – translational
Translational foreign exchange risk refers to the risk that the value of foreign earnings (primarily NZD, PGK and RMB) translated
to AUD will fluctuate due to foreign currency rates. The Group’s policy allows for economic hedging to be undertaken to reduce
the volatility of full year earnings. At 30 September 2016, the Group did not have any outstanding derivative instruments
pertaining to foreign currency earnings (2015: NIL).
Commodity price risk
The Group is exposed to commodity price risk from a number of commodities, including titanium dioxide, tin plate, hot rolled
coil steel and some petroleum based inputs, for example latex and resin. The cost of these inputs is impacted by changes in
commodity prices, foreign currency movements and industry specific factors. To the extent that any increases in these costs
cannot be passed through to customers in a timely manner, the Group’s profit after income tax expense and shareholder’s
equity could be adversely impacted. For major suppliers, this impact is managed through a range of contractual mechanisms
which reduce the impact, or provide sufficient visibility over when these impacts will affect the Group’s profit.
DULUXGROUP ANNUAL REPORT 2016
107
14. FINANCIAL AND CAPITAL MANAGEMENT (CONTINUED)
d) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. The Group
manages liquidity risk by:
Maintaining adequate
levels of undrawn
committed facilities in
various currencies that
can be drawn upon at
short notice
+
Retaining appropriate
levels of cash and cash
equivalents
+
Spreading the maturity
dates of long term debt
facilities (to the extent
practicable)
+
Monitoring liquidity
requirements taking
account of forecast
business performance
and critical assumptions
(e.g. input costs, sales
price and volumes,
exchange rates)
Facilities available and the amounts drawn and undrawn as at 30 September are as follows:
Amount of committed facilities
Amount of committed facilities undrawn
UNSECURED BANK
OVERDRAFT FACILITIES(1)
COMMITTED STANDBY AND
LOAN FACILITIES(2,3)
2016
$’000
22,695
22,695
2015
$’000
22,455
22,455
2016
$’000
619,923
277,954
2015
$’000
619,913
294,198
(1) The bank overdrafts are payable on demand and are subject to an annual review.
(2) As at the 30 September 2016, the maturity dates of the committed loan facilities range from 8 November 2017 to 19 September 2026
(3)
(2015: 8 November 2016 to 19 September 2026).
Includes AUD 400,000,000 (2015: AUD 400,000,000) unsecured multi-currency syndicated bank loan facility, and notes issued under the USPP of AUD
201,065,000 (2015: AUD 201,065,000). Includes the RMB 60,000,000 (AUD 11,793,000) (2015: RMB 60,000,000 (AUD 13,498,000)) unsecured bank loan
facility established in China and the unsecured bank loan facility established in Hong Kong for HKD 41,750,000 (AUD 7,065,000) (2015: HKD 19,000,000
(AUD 3,505,000), HKD 10,000,000 (AUD 1,845,000)).
The contractual maturity of the Group’s fixed and floating rate financial liabilities and derivatives, based on the drawn financing
arrangements in place at 30 September are shown in the table below. The amounts shown represent the future undiscounted
principal and interest cash flows:
FINANCIAL LIABILITIES
Carrying amount
Less than 1 year
1 to 2 years
2 to 5 years
Over 5 years
Total
TRADE AND OTHER PAYABLES
BANK LOANS AND DERIVATIVE
FINANCIAL LIABILITIES(1)
TOTAL
2016
$’000
2015
$’000
2016
$’000
251,036
250,766
253,057
252,781
65
205
207
63
200
276
407,086
28,416
135,996
62,261
183,987
251,243
253,320
410,660
2015
$’000
401,359
28,232
118,631
24,405
235,542
406,810
2016
$’000
658,122
279,182
136,061
62,466
184,194
661,903
2015
$’000
654,416
281,013
118,694
24,605
235,818
660,130
(1) Excludes the impact of the prepaid loan establishment fees.
108
Notes to the Consolidated Financial StatementsCapital Risk Management (Continued)For the financial year ended 30 September 2016 e) Credit risk
Credit risk is the risk that a customer or counterparty to a financial asset fails to meet its contractual obligations. Credit risk
arises principally from the Group’s cash and receivables from customer sales and derivative financial instruments. The maximum
exposure to credit risk is the carrying value of receivables. No material collateral is held as security over any of the receivables.
The Group has policies in place to ensure customers who wish to trade on credit terms are subject to credit verification
procedures, including an assessment of their independent credit rating, financial position, past experience and industry
reputation. The Group has some major customers who represent a significant proportion of its revenue (refer note 2). In these
instances the customer’s size, credit rating and long term history of full debt recovery are indicators of lower credit risk.
Credit risk from derivative financial instruments and cash arises from balances held with counterparty financial institutions.
To manage this risk, the Group restricts dealings to highly rated counterparties approved within its credit limit policy.
The allowable exposure to the counterparty is directly proportional to their credit rating. The Group does not hold any
credit derivatives or collateral to offset its credit exposures. Given the high credit ratings of the Group’s counterparties at
30 September 2016, it is not expected that any counterparty will fail to meet its obligations.
f) Fair value estimation
The carrying amounts and estimated fair values of the Group’s financial instruments recognised in the financial statements are
materially the same.
The methods and assumptions used to estimate the fair value of the financial instruments are as follows:
INSTRUMENTS
VALUATION TECHNIQUE
Carrying amount
approximates
fair value
Cash
Carrying amount is fair value due to the liquid nature of
these assets
Receivables/payables
Carrying amount approximates fair value due to the short
term nature of these financial instruments
Interest rate swaps and
interest rate options
Fair value is determined using present value of estimated
future cash flows based on observable yield curves and
market implied volatility
Measured at
fair value(1)
Forward foreign
exchange contracts
Fair value is determined using prevailing forward exchange rates
Other financial
instruments (including
Interest bearing liabilities)
Fair value is determined using discounted cash flow
(1) The Group uses the measurement hierarchy as set out in the accounting standards to value and recognise financial instruments measured at fair value.
The Group only holds Level 2 financial instruments which are valued using observable market data.
DULUXGROUP ANNUAL REPORT 2016 109
14 FINANCIAL AND CAPITAL MANAGEMENT (CONTINUED)
g) Financial instruments
The Group held the following financial instruments as at 30 September:
CASH AND CASH
EQUIVALENTS
FINANCIAL
ASSETS AT
AMORTISED COST
FINANCIAL
LIABILITIES AT
AMORTISED COST
DERIVATIVE
INSTRUMENTS
DESIGNATED AS
HEDGES
TOTAL CARRYING
AMOUNT
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
2016
$’000
2015
$’000
Financial assets
Cash at bank and
on hand
Trade and other receivables
Derivative financial assets
Financial liabilities
Trade and other payables
Interest-bearing liabilities
Derivative financial liabilities
39,068
–
–
46,270
–
–
– 256,380 257,939
–
–
–
39,068
46,270 256,380 257,939
–
–
–
–
–
–
–
–
–
–
60,309
39,068
–
46,270
– 256,380 257,939
75,233
60,309
75,233
60,309
75,233 355,757 379,442
–
–
–
–
–
–
–
–
–
–
–
–
– 251,036 253,057
– 401,583(1) 396,208(1)
–
–
–
–
–
3,229
– 251,036 253,057
– 401,583 396,208
2,653
3,229
2,653
– 652,619 649,265
3,229
2,653 655,848
651,918
(i) The fair value of the USPP is $262,679,000 (2015: $272,247,000).
h) Accounting policies
Financial instruments
The Group classifies its financial instruments into three measurement categories, being:
• financial assets and liabilities at amortised cost;
• financial assets and liabilities at fair value through profit and loss; and
• financial assets at fair value through other comprehensive income.
The classification depends on the purpose for which the instruments were acquired.
All financial assets are initially recognised at the fair value of consideration paid. Subsequently, financial assets are carried at fair
value or amortised cost less impairment.
Where non-derivative financial assets are carried at fair value, gains and losses on remeasurement are recognised directly in
equity unless the financial assets have been designated as being held at fair value through profit or loss or held for trading, in
which case the gains and losses are recognised directly in the income statement.
For financial assets carried at amortised cost, the amount of any impairment loss is measured as the extent to which the asset’s
carrying amount exceeds the present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the
amount of the loss is recognised in the income statement.
All financial liabilities other than derivatives are initially recognised at the fair value of consideration received net of transaction
costs as appropriate (initial cost). All financial liabilities are subsequently carried at amortised cost, with the exception of
financial liabilities which have been designated in fair value hedging relationships, in which case these gains and losses are
recognised directly in the income statement.
110
Notes to the Consolidated Financial StatementsCapital Risk Management (Continued)For the financial year ended 30 September 2016 Financial instruments – hedging
The Group uses financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational,
financing and investment activities.
Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at
their fair value. The method of recognising the resulting gain or loss on remeasurement depends on whether the derivative is
designated as a hedging instrument, and, if so, the nature of the item being hedged. The measurement of fair value is based on
quoted market prices.
Interest rate options, interest rate swaps, cross currency interest rate swaps, foreign exchange options and forward exchange
contracts held for hedging purposes are accounted for as either cash flow and/or fair value hedges.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the
income statement. Amounts accumulated in equity are recycled to the income statement in the periods when the hedged item
affects profit or loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset
(for example, plant and equipment or inventory purchases) or a non-financial liability, the gains and losses previously deferred
in equity are transferred from equity and included in the measurement of the initial carrying amount of the asset or liability.
When a hedging instrument expires or is sold or terminated, or when a hedge ceases to meet the criteria for hedge accounting,
any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction
is ultimately recognised in the income statement. When a hedged forecast transaction is no longer expected to occur, the
cumulative hedge gain or loss that was reported in equity is immediately transferred to the income statement.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income
statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
Derivatives that do not qualify for hedge accounting
The Group does not hold or issue financial instruments for trading purposes. Certain derivative instruments, however, do not
qualify for hedge accounting, despite being commercially valid economic hedges of the relevant risks. Changes in the fair value
of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.
DULUXGROUP ANNUAL REPORT 2016
111
15. CONTRIBUTED EQUITY
Movements in contributed equity since 1 October 2015 were as follows:
Balance at 1 October 2015
389,250,252
256,483
(54,646)
(159) 389,195,606
256,324
ORDINARY SHARES
TREASURY SHARES
TOTAL CONTRIBUTED
EQUITY
NUMBER
OF SHARES
2016
$’000
NUMBER
OF SHARES
2016
$’000
NUMBER
OF SHARES
2016
$’000
Purchase of treasury shares
Shares allocated under the DRP(1)
Sale of treasury shares
Shares vested under the LTEIP and ESIP
–
–
–
–
–
–
–
8,403
(2,890,381)
(18,313)
(2,890,381)
(18,313)
1,199,318
7,623
1,199,318
5,103
54,646
32
159
5,103
7,623
32
54,646
8,562
Balance at 30 September 2016
389,250,252
264,886
(1,685,960)
(10,658) 387,564,292
254,228
(1) The Company has established a DRP under which holders of ordinary shares may be able to elect to have all or part of their dividend entitlements
satisfied by the issue of new fully paid ordinary shares or shares purchased on-market.
a) Shares issued to subsidiaries
The Group has formed a trust to administer the Group’s employee share schemes. Movements in shares held by the trust since
1 October 2015 are as follows:
Balance at 1 October 2015
Shares purchased under the 2015 LTEIP
Shares vested under the LTEIP and ESIP
Balance at 30 September 2016
NUMBER OF SHARES
ISSUED
ORDINARY
CAPITAL
TREASURY
TOTAL
7,267,723
54,646
7,322,369
–
1,685,960
1,685,960
(2,409,549)
(54,646)
(2,464,195)
4,858,174
1,685,960
6,544,134
In the event that all shares held by the trust vest in full with no debt forgiveness, the maximum outstanding proceeds expected
to be received from employee share plan repayments is $30,893,471.
b) Accounting policies
Ordinary shares in DuluxGroup Limited are classified as contributed equity for the Group, except to the extent that the new
capital is issued and continues to be held at balance date by a subsidiary.
When share capital recognised as contributed equity is repurchased by the Company or its subsidiaries, the amount of the
consideration paid, including directly attributable costs is recognised as a deduction from total equity and held as treasury shares.
Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit.
The Group has formed a trust to administer the Group’s employee share schemes. This trust is consolidated, as the substance of
the relationship is that the trust is controlled by the Company. Shares held by the trust for the purpose of the employee share
schemes are either recognised as treasury shares if they were originally purchased on-market, or where new ordinary share
capital is issued to the trust and continues to be held at balance date, this ordinary share capital is not recognised in contributed
equity on consolidation.
112
Notes to the Consolidated Financial StatementsCapital Risk Management (Continued)For the financial year ended 30 September 2016 Group Structure
For the financial year ended 30 September 2016
16. SUBSIDIARIES
The consolidated financial statements at 30 September incorporate the assets, liabilities and results of DuluxGroup Limited and
the following subsidiaries in accordance with the accounting policies. The Group has a 100% ownership interest in the following
entities in the current and prior year, except where noted.
NAME OF ENTITY
DuluxGroup (Investments) Pty Ltd(1,2)
DuluxGroup (Finance) Pty Ltd(1,2)
DuluxGroup (New Zealand) Pty Ltd(1,2)
DuluxGroup (Australia) Pty Ltd(1,2)
Dulux Holdings Pty Ltd(1,2)
DuluxGroup (Employee Share Plans) Pty Ltd(1)
DuluxGroup Employee Share Plan Trust
DuluxGroup (Nominees) Pty Ltd(1,2)
Alesco Corporation Limited (1,2)
Alesco Finance Pty Ltd(1,2)
Alesco Holdings Pty Ltd(4)
Alesco No. 1 Pty Ltd(4)
Alesco No. 2 Pty Ltd(4)
B&D Australia Pty Ltd(1,2)
Automatic Technology (Australia) Pty Ltd(1,2)
Parchem Construction Supplies Pty Ltd(1,2)
Robinhood Australia Pty Ltd(1)
Lincoln Sentry Group Pty Ltd(1,2)
Concrete Technologies Pty Ltd
Pargone Pty Ltd(1)
ACN 009 130 858 Pty Ltd(4)
ACN 000 639 252 Pty Ltd(4)
Alesco Management Share Plan Trust(4)
ATA Innovations Pty Ltd(4)
Joinery Products Hardware Supplies Pty Ltd(4)
COUNTRY OF
INCORPORATION
NAME OF ENTITY
COUNTRY OF
INCORPORATION
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
DGL Camel Coatings (Shanghai) Limited(3)
DGL Camel Powder Coatings (Dongguan) Limited(3)
DGL Camel Coatings (Dongguan) Limited(3)
Countermast Technology (Dalian) Company Limited
DGL International (Hong Kong) Limited(4)
DGL Camel International Limited(3)
DGL Camel Powder Coatings Limited(3)
DGL Camel (Hong Kong) Limited(3)
DGL Camel (China) Limited(3)
Countermast Limited
DGL International (Malaysia) Sdn Bhd
Alesco New Zealand Limited
Alesco NZ Trustee Limited(4)
B&D Doors (NZ) Limited(2)
Concrete Plus Limited(2)
Easy Iron Limited(4)
Lincoln Sentry Limited
Robinhood Limited
Supertub Limited(4)
China
China
China
China
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Malaysia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Dulux Holdings (PNG) Ltd
DGL Camel (Singapore) Pte Ltd(3)
DuluxGroup (PNG) Pte Ltd(2)
DGL International (Singapore) Pte Ltd
Craig & Rose Limited(5)
Papua New Guinea
Singapore
Singapore
Singapore
United Kingdom
DGL International (Vietnam) Limited Company
Vietnam
(1) These subsidiaries have each entered into a Deed of Cross Guarantee with DuluxGroup Limited in respect of relief granted from specific accounting and
(2)
financial reporting requirements in accordance with the ASIC Class Order 98/1418.
In addition to DuluxGroup Limited, these subsidiaries have provided a guarantee in relation to the Group’s syndicated bank loan facilities and other
overseas bank facilities.
(3) These entities form part of the DGL Camel International Group, in which the Group has a 51% equity holding.
(4) These entities were deregistered during the year ended 30 September 2016.
(5) This entity was incorporated during the year ended 30 September 2016.
DULUXGROUP ANNUAL REPORT 2016
113
Notes to the Consolidated Financial Statements
Group Structure (Continued)
For the financial year ended 30 September 2016
17. BUSINESSES ACQUIRED
2016
On 16 November 2015, the Group acquired the Gliderol business in Western Australia. The business manufactures a range of
garage doors, solely for the Western Australian market.
On 1 June 2016, the Group acquired the Munns business in Australia. The business manufacturers a range of premium and
specialty lawn care products.
On 10 August 2016, the Group acquired the Craig & Rose business in the United Kingdom. The business manufacturers and
markets a range of niche premium paint products.
The acquisition accounting for these transactions is considered provisional due to ongoing work to be carried out on the
valuation of the assets acquired. Therefore, the amounts recognised may be subject to change before the 12 month anniversary
date of these acquisitions. The assets and liabilities recognised as a result of these acquisitions are as follows:
Cash consideration
Deferred consideration
Total consideration
Net assets of business acquired
Trade and other receivables
Inventories
Other assets
Property, plant and equipment
Deferred tax assets
Trade and other payables
Provision for employee entitlements
Provision for leased properties
Other provisions
Net identifiable assets acquired
Goodwill on acquisition(1)
FAIR VALUE
$’000
13,215
250
13,465
630
3,006
59
4,974
441
(69)
(85)
(897)
(54)
8,005
5,460
(1) None of the goodwill recognised is expected to be deductible for tax purposes.
2015
On 9 June 2015 the Group acquired Porter’s Paints, a manufacturer and marketer of a range of high quality architectural and
decorative paints, wallpaper and finished timber floor and wall coverings, predominately targeted at architects and designers.
The assets and liabilities recognised as a result of this acquisition are as follows:
Total cash consideration
Net assets of business acquired
Inventories
Property, plant and equipment
Intangible assets – brand name
Deferred tax assets
Trade and other payables
Provision for employee entitlements
Deferred tax liabilities
Net identifiable assets acquired
Goodwill on acquisition(1)
FAIR VALUE
$’000
11,458
1,678
294
3,400
84
(110)
(169)
(1,020)
4,157
7,301
(1) None of the goodwill recognised is expected to be deductible for tax purposes.
a) 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 of the fair
values of the assets transferred (including cash), the liabilities incurred and the equity interests issued by the Group (if any).
Acquisition related transaction costs are expensed as incurred.
114
Other than acquisitions under common control, identifiable assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair values at the acquisition date.
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, the difference is recognised directly in profit or loss as a bargain purchase.
On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value
or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.
For acquisitions occurring while under common control and for consolidation purposes, the assets and liabilities acquired continue
to reflect the carrying values in the accounting records of the consolidated group prior to the business combination occurring.
Where a subsidiary elects to apply purchase accounting in its own books and records, on consolidation the effect of this policy
difference will result in recognition of a common control reserve to the extent that the fair values of the business assets and
liabilities exceed their carrying value at acquisition date.
Key accounting estimates and judgements
The consolidated financial statements include the information and results of each subsidiary from the date on which the
Company obtains control until such time as the Company ceases to control such entity. The determination as to the existence
of control or significant influence over an entity necessarily requires management judgement to assess the Group’s ability to
govern the financial and operating activities of an investee. In making such an assessment, a range of factors are considered
including voting rights in an investee and Board and management representation.
A business acquisition also requires judgement with respect to the determination of the fair value of purchase consideration
given and the fair value of net identifiable assets and liabilities acquired. Many of these assets and liabilities either given up
or acquired are not normally traded in active markets, and thus management judgement is required in determining their
fair values. Management judgement is also required in ascertaining the assets and liabilities which should be recognised,
in particular with respect to intangible assets such as brand names, customer relationships, patents and trademarks and
contingent liabilities.
18. EQUITY ACCOUNTED INVESTMENT
The Yates garden care business (reported as part of the ‘other businesses’ segment) has an interest in the following joint
venture arrangement:
Pinegro Products Pty Ltd
Percentage of ownership interest held(1)
Opening balance
Share of net profit
Proceeds from joint venture distribution
Balance at 30 September
2016
2015
50%
$’000
6,342
676
(500)
6,518
50%
$’000
5,423
919
–
6,342
(1) Acquired on 1 December 2009 and incorporated on 10 April 1979.
a) Transactions and balances with joint venture
Transactions during the financial year and outstanding balances at reporting date with Pinegro Products Pty Ltd are:
Sales of goods
Purchases of goods
Distributions received
Current receivables
Current payables
2016
$
2015
$
375,851
363,682
3,851,840
3,108,527
500,000
80,146
1,500,405
–
123,805
720,728
All transactions with Pinegro Products Pty Ltd are made on normal commercial terms and conditions and in the ordinary course
of business. No provisions for doubtful debts have been raised against amounts receivable from Pinegro Products Pty Ltd.
There were no commitments and contingent liabilities in Pinegro Products Pty Ltd as at 30 September 2016 (2015: $NIL).
DULUXGROUP ANNUAL REPORT 2016
115
Notes to the Consolidated Financial Statements
Other Disclosures
For the financial year ended 30 September 2016
19. SUPERANNUATION
a) Superannuation plans
The Group contributes to a number of superannuation plans that exist to provide benefits for employees and their dependants
on retirement, disability or death. The Group is required to contribute (to the extent required under Superannuation Guarantee
legislation) to any choice fund nominated by employees, including self-managed superannuation funds.
Company sponsored plans
The principal benefits are pensions or lump sum payments for members on resignation, retirement, disability or death.
The benefits are provided on either a defined benefit basis or a defined contribution basis. Employee contribution rates are
either fixed by the rules of the plans or selected by members from time to time from a specified range of rates. The employing
entities contribute the balance of the cost required to fund the defined benefits or, in the case of defined contribution plans, the
amounts required by the rules of the plan. The contributions made by the employing entities to defined contribution plans are
in accordance with the requirements of the governing rules of such plans or as required under law.
Government plans
Some subsidiaries participate in government plans on behalf of certain employees. These plans provide pension benefits.
There exists a legally enforceable obligation on employer entities to contribute as required by legislation.
Industry plans
Some subsidiaries participate in industry plans on behalf of certain employees. These plans operate on an accumulation basis
and provide lump sum benefits for members on resignation, retirement, disability or death. The employer entities have a legally
enforceable obligation to contribute a regular amount for each employee member of these plans. The employer entities have
no other legal liability to contribute to the plans.
b) Defined contribution pension plans
The Group contributes to several defined contribution pension plans on behalf of its employees. Contributions are taken to
the income statement in the year in which the expense is incurred. The amount recognised as an expense for the financial year
ended 30 September 2016 was $21,050,000 (2015: $20,467,000).
c) Defined benefit pension plans
DuluxGroup (Australia) Pty Ltd is the sponsoring employer of the defined benefit post-employment section of The DuluxGroup
Super Fund (the Fund) in Australia. Funding for post-employment benefits is carried out in accordance with the requirements
of the Trust Deed for the Fund and the advice of the Fund’s actuarial adviser. The fund is closed to new members.
The plan exposes the Group to a number of risks, asset volatility, changes in bond yields and inflation risks. Derivatives are not
used to manage risk, instead investments are well diversified, such that failure of any single investment would not reasonably
be expected to have a material impact on the overall level of assets. The process used to manage risk has not changed from
previous periods. The principal actuarial assumptions used to calculate the net defined benefit liability are a discount rate
(corporate bond rate) of 3.3% (2015: 4.1%), pension take up rate of 40% (2015: 20%), future salary increases of 3.8% (2015: 3.8%)
and future inflation of 2.5% (2015: 2.5%).
The amounts recognised in the balance sheet and a reconciliation of the movement in the net defined liability are as follows:
Present value of the defined benefit obligations
Fair value of defined benefit plan assets
Net defined benefit liability at 30 September
Opening balance
Actuarial losses(1)
Current service cost(2)
Interest cost(2)
Employer contributions(3)
Balance at 30 September
2016
$’000
200,841
(144,375)
56,466
22,107
32,551
4,965
828
(3,985)
56,466
2015
$’000
167,558
(145,451)
22,107
14,468
6,599
4,455
469
(3,884)
22,107
(1) Actuarial losses are recognised in other comprehensive income.
(2) Current service cost and interest cost are recognised in the consolidated income statement as part of employee benefits and finance expenses respectively.
(3) Employer contributions are cash payments which are recognised as part of movement in trade and other payables and provisions in the cash flow statement.
The Group’s external actuaries have forecasted total employer contributions to the Fund of $3,656,000 for the financial year
ending 30 September 2017.
116
The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:
Cash and other assets
Equity instruments
Fixed interest securities
Property
2016
31%
40%
15%
14%
2015
28%
41%
17%
14%
d) Key accounting estimates and judgements
Defined benefit pension plans
In calculating the net defined benefit liability, management judgement is required in determining the following key
assumptions: future salary and wages increases; pension take up rates; and rates of exits. Management uses external
actuaries to assist in determining these assumptions and in valuing the net defined benefit liability, and any movements
in these assumptions will impact the valuation of this liability.
20. SHARE-BASED PAYMENTS
Total expenses arising from share-based payment (SBP) transactions recognised during the financial year as part of employee
benefit expense were as follows:
DuluxGroup LTEIP(1)
DuluxGroup ESIP
2016
$
2015
$
2,754,934
2,672,737
972,453
955,063
3,727,387
3,627,800
(1)
In accordance with AASB 2 Share-based Payment, represents the expense incurred during the year in respect of current incentive allocations to
executives. These amounts are therefore not amounts actually received by executives during the year. Whether an executive receives any value from the
allocation of long term incentives in the future will depend on the performance of the Company’s shares. The minimum potential future value of grants
under LTEIP is $NIL (2015: $NIL).
a) DuluxGroup LTEIP
The LTEIP has been established to incentivise executives to generate shareholder wealth. Detailed remuneration disclosures,
including the link between the LTEIP and shareholder wealth, are provided in the Remuneration Report section of the
Directors’ Report.
Under the LTEIP, eligible executives are provided with an interest free, non-recourse loan from the Group for the sole purpose of
acquiring shares in the Company. Executives may not deal with the shares while the loan remains outstanding and any dividends
paid on the shares are applied (on an after-tax basis) towards repaying the loan. Executives are entitled to exercise the voting
rights attaching to their DuluxGroup ordinary shares from the date of allocation of those shares. If the executive leaves the
Group within the vesting period the shares allocated are returned to the Group, subject to discretion retained by the Directors.
The Board has implemented a gateway level of minimum performance for the DuluxGroup LTEIP below which no benefit
accrues, being a Board determined compound annual EPS growth over the three year period calculated from the 30 September
preceding the grant date. The gateway for the unvested plans is 4%. This gateway is a minimum level of acceptable performance
for any of the LTEIP shares to vest.
Where the gateway EPS level of performance is met, the relative Total Shareholder Return (TSR) performance hurdle is used
to determine the level of loan forgiveness which may apply (the forgiveness amount). There is no loan forgiveness amount if
the Group’s relative TSR is below the 51st percentile against a comparator group. If the Group’s relative TSR is greater than or
equal to the 51st percentile, a proportion of the initial loan balance (on a ‘sliding scale’ from 10% at the 51st percentile up to a
maximum of 30% at or above the 75th percentile) is forgiven.
DULUXGROUP ANNUAL REPORT 2016
117
20. SHARE-BASED PAYMENTS (CONTINUED)
a) DuluxGroup LTEIP (continued)
Details of shares issued under these plans are as follows:
LIFE OF
SHARE
OPTIONS
(YEARS)
3.1
2.6
3.1
3.1
3.1
GRANT
DATE
30 Nov 12
28 Jun 13
29 Nov 13
28 Nov 14
27 Nov 15
EXPIRY
DATE
Jan 16
Jan 16
Jan 17
Jan 18
Jan 19
GRANT
DATE
SHARE
PRICE
$3.50
$ 4.21
$ 5.45
$ 5.71
$6.30
FAIR
VALUE
AT
GRANT
DATE
$0.99
$ 1.26
$ 1.71
$ 1.72
$ 1.92
NUMBER OF SHARES
RISK
FREE
INTEREST
RATE
SHARE
PRICE
VOLA-
TILITY
BALANCE
AT START
OF YEAR
GRANTED
DURING
YEAR
LAPSED
DURING
YEAR
EXER-
CISED
DURING
YEAR
BALANCE
AT END
OF YEAR
2.6%
2.8%
3.0%
2.5%
2.1%
22.5% 1,922,559
22.5% 178,480
22.5% 1,906,525
22.5% 1,998,351
–
–
–
–
(158,545)
(173,704)
22.5%
– 1,936,022
(65,122)
(22,926) (1,899,633)
–
(178,480)
–
–
– 1,747,980(1)
– 1,824,647
– 1,870,900
(1) Since the end of the financial year, these shares have met the applicable DuluxGroup LTEIP performance condition and vested on 8 November 2016.
The restriction on trading these shares will be lifted upon repayment of the loan. The loan must be repaid during the period from 18 November 2016 to
20 January 2017.
b) DuluxGroup ESIP
In December 2015, eligible Australian employees of the Group were invited to acquire DuluxGroup ordinary shares to the value of
$500 (through salary sacrifice) with the Group matching this participation up to a further $500 (December 2014: $500 with $500
matching). Eligible employees in New Zealand were invited to acquire ordinary shares to the value of NZD 390 (through salary
sacrifice) with the Group matching this participation up to a further NZD 390 (December 2014: NZD 390 with NZD 390 matching).
A share allocated to a participating employee under the ESIP has trade restrictions attached until the earlier of the end of three
years after the date of allocation and the time when the participant ceases to be employed by DuluxGroup Limited or any of its
subsidiaries. At the end of the restriction period, the employee will be able to sell or otherwise deal with their DuluxGroup shares.
Details of restricted shares issued under these plans is as follows:
ALLOCATION DATE
20 Dec 13
19 Dec 14
17 Dec 15
NUMBER OF SHARES
UNVESTED AT
30 SEPTEMBER 2016
256,726
274,312
281,754
c) Accounting policies
DuluxGroup LTEIP
Shares issued/allocated under the LTEIP in conjunction with non-recourse loans are accounted for as options and as such the
amounts receivable from employees in relation to these loans are not recognised in the financial statements. Settlement of share
loans upon vesting are recognised as contributed equity.
The options are externally measured at fair value at the date of grant using an option valuation model being an adjusted
form of the Black-scholes option pricing model. This valuation model generates possible future share prices based on similar
assumptions that underpin relevant option pricing models to calculate the fair value (as at grant date) of options granted.
The assumptions underlying the options valuations are:
• exercise price of the option;
• life of the option;
• current price of the underlying securities;
• expected volatility of the share price;
• dividends expected on the shares ($Nil is adopted where participants will fully benefit from dividend receipts during the
life of the investments);
• risk-free interest rate for the life of the option;
• specific factors relating to the likely achievement of performance hurdles;
• employment tenure; and
• vesting and performance conditions (including the potential to be awarded loan forgiveness).
The fair value determined at the grant date of the award is recognised as a SBP expense in the income statement on a straight-
line basis over the relevant vesting period. The expense recognised is reduced to take account of the costs attributable to
participating employees who do not remain in the employment of the Group throughout the vesting period.
118
Notes to the Consolidated Financial StatementsOther Disclosures (Continued)For the financial year ended 30 September 2016 DuluxGroup ESIP
Where shares are issued under the ESIP at a discount, a SBP expense for the fair value of the discount on the granted shares
is recognised.
21. DIRECTOR AND EXECUTIVE DISCLOSURES
a) Key Management Personnel (KMP) compensation summary
In accordance with the requirements of AASB 124 Related Party Disclosures, the KMP include Non-Executive Directors and
members of the Group Executive Team who have authority and responsibility for planning, directing and controlling the
activities of DuluxGroup. A summary of KMP compensation is set out in the table below.
Short term employee benefits
Other long term benefits
Post employment benefits
Share-based payments
Total
2016
$
2015
$
6,858,794
6,622,771
100,603
175,462
57,481
168,894
1,559,265
1,347,967
8,694,124
8,197,113
Information regarding the compensation of individual KMP and some equity instruments disclosure as required by Corporation
Regulation 2M.3.03 is provided in the Remuneration Report section of the Directors’ Report.
b) KMP transactions in shares and options
The total relevant interests of KMPs, including their related parties, in the share capital and options of the Company at
30 September are set out in the table below:
Number of options and rights for fully paid ordinary shares
Number of fully paid ordinary shares
2016
NUMBER
2015
NUMBER
2,692,890
2,826,302
2,468,030
2,069,611
c) Other transactions and balances with KMP
All transactions with KMPs are made on normal commercial terms and conditions and in the ordinary course of business. At
30 September 2016, travel expense claims, consulting and subsidiary board fees of $43,750 (2015: $48,750) remain unpaid to
Ms Chew. There were no other transactions during the financial year nor balances owing to or from KMP as at 30 September 2016.
In the normal course of business, the Group occasionally enters into transactions with various entities that have Directors in
common with the Group. Transactions with these entities are made on commercial arm’s-length terms and conditions. The
relevant Directors do not participate in any decisions regarding these transactions.
22. COMMITMENTS
a) Capital expenditure commitments
Capital expenditure on property and plant and equipment contracted
but not provided for and payable:
New paint factory
Other
2016
$’000
2015
$’000
41,516
480
41,996
13,287
1,553
14,840
DULUXGROUP ANNUAL REPORT 2016
119
22. COMMITMENTS (CONTINUED)
b) Lease commitments – non-cancellable operating leases
The Group leases offices, warehouses, retail bulky goods and manufacturing sites under non-cancellable operating leases.
The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated.
There are no restrictions placed upon the lessee by entering into these leases. Excess space is sub-let to third parties also under
non-cancellable operating leases. Not included in the commitments below are contingent rental payments which may arise as
part of rental increases indexed to the Consumer Price Index (CPI), or the higher of a fixed rate or CPI.
Commitments for minimum lease payments in relation to non-cancellable operating leases are
payable as follows:
No later than one year
Later than one, no later than five years
Later than five years
Future minimum lease payments expected to be received in relation to non-cancellable
sub-leases of operating leases
2016
$’000
2015
$’000
47,339
105,530
58,908
211,777
39,321
115,023
72,337
226,681
6,285
7,226
23. CONTINGENT LIABILITIES
The nature of the Group’s consumer products business and its geographic diversity means that the Company or Group receives
a range of claims from various parties and is from time to time required to make its own assessment of obligations arising from
legislation across the jurisdictions in which it operates. These claims, and actual or potential obligations, are evaluated on a
case-by-case basis considering the information and evidence available as well as specialist advice as required to assess the
appropriate outcome.
The outcome of any pending or future litigation cannot be predicted with certainty. Accordingly, an adverse decision in a
lawsuit could result in additional costs that are not covered, either wholly or partially, under insurance policies and that could
materially affect the financial position, results of operations or cash flows of the Company or Group. Litigation and other judicial
proceedings raise difficult legal issues and are subject to many complexities. Upon resolution of a legal matter, the Company
or Group may incur charges in excess of the presently established provisions and related insurance coverage. Where it is
considered probable that a future obligation will result in a material outflow of resources, then this is accounted for accordingly
by the Company or Group.
120
Notes to the Consolidated Financial StatementsOther Disclosures (Continued)For the financial year ended 30 September 2016 24. DEED OF CROSS GUARANTEE
Entities which are party to a Deed of Cross Guarantee (Closed Group), entered into in accordance with ASIC Class Order
98/1418 are disclosed in note 16. A consolidated income statement, consolidated statement of comprehensive income and
consolidated balance sheet for the Closed Group are disclosed below.
a) Consolidated income statement and retained earnings
Profit before income tax expense
Income tax expense
Profit for the year
Retained earnings
Opening balance
Profit for the year
Actuarial losses on defined benefit plan recognised directly in retained earnings (net of tax)
Dividends paid – ordinary shares
Balance at 30 September
b) Consolidated statement of comprehensive income
Profit for the year
Other comprehensive loss
Items that may be reclassified to the income statement
Cash flow hedge reserve
Effective portion of changes in fair value of cash flow hedges
Income tax benefit/(expense)
Foreign currency translation reserve
Foreign currency translation gain on foreign operations
Total items that may be reclassified to the income statement, net of tax
Items that will not be reclassified to the income statement
Retained earnings
Actuarial losses on defined benefit plan
Income tax benefit
Total items that will not be reclassified to the income statement, net of tax
Other comprehensive loss for the year, net of tax
Total comprehensive income for the year
2016
$’000
172,573
(48,301)
124,272
145,974
124,272
(22,786)
(88,818)
158,642
2015
$’000
144,922
(38,072)
106,850
126,065
106,850
(4,619)
(82,322)
145,974
2016
$’000
2015
$’000
124,272
106,850
(2,945)
883
3,885
1,823
344
(103)
1,258
1,499
(32,551)
9,765
(22,786)
(20,963)
103,309
(6,599)
1,980
(4,619)
(3,120)
103,730
DULUXGROUP ANNUAL REPORT 2016
121
24. DEED OF CROSS GUARANTEE (CONTINUED)
c) Consolidated balance sheet
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial assets
Other assets
Total current assets
Non-current assets
Other receivables
Derivative financial assets
Investment in controlled entities
Equity accounted investment
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest-bearing liabilities
Derivative financial liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Other payables
Interest-bearing liabilities
Derivative financial liabilities
Deferred tax liabilities
Provisions
Defined benefit liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
122
2016
$’000
2015
$’000
18,678
271,894
196,956
3,269
4,496
23,482
279,064
193,875
5,207
6,094
495,293
507,722
8
57,040
62,485
6,518
295,925
229,882
56,632
4,155
8
70,026
52,286
6,342
248,915
229,822
50,384
2,924
712,645
660,707
1,207,938
1,168,429
232,089
239,317
8,354
3,229
14,359
39,190
5,465
1,271
17,665
45,961
297,221
309,679
259
276
388,679
381,558
–
15,161
45,373
56,466
505,938
803,159
404,779
292,481
(46,344)
158,642
404,779
1,382
15,343
48,851
22,107
469,517
779,196
389,233
292,745
(49,486)
145,974
389,233
Notes to the Consolidated Financial StatementsOther Disclosures (Continued)For the financial year ended 30 September 2016 25. PARENT ENTITY DISCLOSURES
a) Summary financial information
The financial statements for the parent entity, DuluxGroup Limited, show the following aggregate amounts:
Current assets
Non-current assets
Total assets
Current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Profits reserve(1)
Other reserves
Retained earnings
Profit before income tax expense(2)
Income tax benefit
Profit for the year
Total comprehensive income of the parent entity
2016
$’000
125,381
229,263
354,644
9,661
9,661
2015
$’000
141,510
229,268
370,778
14,816
14,816
334,983
355,962
292,481
40,358
7,751
4,393
292,745
55,000
6,432
1,785
344,983
355,962
75,834
950
76,784
76,784
87,112
881
87,993
87,993
(1) Represents an appropriation of amounts from retained earnings for the payment of future dividends. On consolidation, this reserve is included as part of
the consolidated retained earnings.
(2) Profit before income tax expense includes dividend income of $79,000,000 declared by DuluxGroup (New Zealand) Pty Ltd during the financial year
ended 30 September 2016 (2015: $90,000,000).
b) Guarantees
Details of guarantees entered into by the parent entity in relation to external banking facilities as at 30 September 2016 are set
out in note 16. In addition, the parent entity is a party to the deed of cross guarantee.
c) Capital commitments
There were no capital commitments entered into by the parent entity as at 30 September 2016 (2015: $NIL).
d) Contingent liabilities
Refer to note 23 for information relating to contingent liabilities of the parent entity.
26. AUDITORS’ REMUNERATION
Audit services – audit and review of financial reports
KPMG Australia
Overseas KPMG firms(1,2)
Other services(3)
Other assurance services – KPMG Australia
Other assurance services – Overseas KPMG firms(2)
2016
$
2015
$
676,500
469,742
725,500
546,363
1,146,242
1,271,863
68,608
14,690
83,298
106,275
11,856
118,131
Includes fees paid or payable for overseas subsidiaries’ local statutory lodgement purposes and other regulatory compliance requirements.
(1)
(2) Fees for overseas services are determined locally, and as such when reported in Australian dollars are subject to fluctuation due to the effect of foreign
exchange rates.
(3) Other services (primarily assurance based engagements undertaken for compliance and governance) are subject to the Group’s internal corporate
governance procedures and are approved by the Audit and Risk Committee.
DULUXGROUP ANNUAL REPORT 2016
123
27. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
Except as described below, the accounting policies applied by the Group in these consolidated financial statements are the
same as those applied by the Group in its financial statements for the financial year ended 30 September 2015.
New and amended accounting standards
The Group has adopted the following new and amended accounting standards.
REFERENCE
TITLE
AASB 2015-9
AASB 2015-10
AASB 2016-1
AASB 2016-5
Amendments to Australian Accounting Standards – Scope and Application
Paragraphs [AASB 8, AASB 133 & AASB 1057]
Amendments to Australian Accounting Standards – Effective Date of
Amendments to AASB 10 and AASB 128
Amendments to Australian Accounting Standards – Recognition of Deferred Tax
Assets for Unrealised Losses
Amendments to Australian Accounting Standards – Classification and
Measurement of Share-based Payment Transactions
APPLICATION
1 Oct 2015
1 Oct 2015
1 Oct 2015
1 Oct 2015
The adoption of these standards did not have a significant impact on the consolidated financial statements and has impacted
disclosures only.
Issued but not yet effective
The following Australian Accounting Standards have recently been issued or amended but are not yet effective and have not
been adopted for this annual reporting period. Other than the implications of AASB 16 Leases outlined below, these standards
are not expected to have a material impact on the Group’s financial position and performance. However, increased disclosures
will be required in the Group’s financial statements.
REFERENCE
TITLE
AASB 2015-8
Amendments to Australian Accounting Standards – Effective Date of AASB 15
AASB 2016-2
Amendments to Australian Accounting Standards – Disclosure Initiative:
Amendments to AASB 107
AASB 15
Revenue from Contracts with Customers
AASB 2014-5
Amendments to Australian Accounting Standards arising from AASB 15
AASB 2016-3
Amendments to Australian Accounting Standards – Clarifications to AASB 15
AASB 2014-3
AASB 2014-4
Amendments to Australian Accounting Standards – Accounting for Acquisitions
of Interests in Joint Operations
Amendments to Australian Accounting Standards – Clarification of Acceptable
Methods of Depreciation and Amortisation
AASB 16
Leases
APPLICATION
1 Oct 2018
1 Oct 2017
1 Oct 2018
1 Oct 2018
1 Oct 2018
1 Oct 2016
1 Oct 2016
1 Oct 2019
AASB16 Leases
AASB 16 Leases was released in February 2016 by the Australian Accounting Standards Board. AASB 16 requires companies
to bring on-balance sheet most leases, in particular those leases that were previously classified as operating leases under the
previous standard, by recognising a right-of-use asset and a lease liability. As a result there is likely to be changes to the timing,
amounts and nature of items recognised in the consolidated income statement. The new standard is mandatory for annual
reporting periods beginning on or after 1 January 2019, but may in some circumstances be early adopted. The Group is yet to
assess the impact of the standard on its financial statements and would expect to make a more detailed assessment of the
effect over the next 12 months.
28. SUBSEQUENT EVENTS
Details of the final dividend declared since balance date is set out in note 6.
The Directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2016,
that has affected or may affect the operations of the Group, the results of those operations, or the state of affairs of the Group in
subsequent years, which has not been covered in this report.
124
Notes to the Consolidated Financial StatementsOther Disclosures (Continued)For the financial year ended 30 September 2016 Directors’ Declaration
For the financial year ended 30 September 2016
The directors of DuluxGroup Limited declare that:
(a) in the directors’ opinion the financial statements and notes of DuluxGroup for the year ended 30 September 2016 set
out on pages 83 to 124, are in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 September 2016
and of their performance for the financial year ended on that date; and
(ii) complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001;
(b) in the directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and
when they become due and payable;
(c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed
group identified in note 16 will be able to meet any obligations or liabilities to which they are, or may become, subject
to by virtue of the deed of cross guarantee described in note 24; and
(d) a statement of compliance with the International Financial Reporting Standards as issued by the International
Accounting Standards Board has been included in note 1 to the financial statements.
The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by
section 295A of the Corporations Act 2001 for the financial year ended 30 September 2016.
This declaration is made in accordance with a resolution of the directors.
Peter M. Kirby
Chairman
Melbourne
8 November 2016
DULUXGROUP ANNUAL REPORT 2016
125
Independent Auditor’s Report
TO THE MEMBERS OF DULUXGROUP LIMITED
ABCD
ABCD
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DULUXGROUP LIMITED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DULUXGROUP LIMITED
REPORT ON THE FINANCIAL REPORT
REPORT ON THE FINANCIAL REPORT
Opinion
Opinion
We have audited the accompanying Financial Report of DuluxGroup Limited (the Company), which comprises
the consolidated balance sheet as at 30 September 2016, the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated statement of changes in equity and the consolidated
statement of cash flows for the year then ended, notes 1 to 28, comprising a summary of significant accounting
policies and other explanatory information, and the Directors’ Declaration of the Group, comprising the
Company and the entities it controlled at the year’s end or from time to time during the financial year.
We have audited the accompanying Financial Report of DuluxGroup Limited (the Company), which comprises
the consolidated balance sheet as at 30 September 2016, the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated statement of changes in equity and the consolidated
statement of cash flows for the year then ended, notes 1 to 28, comprising a summary of significant accounting
policies and other explanatory information, and the Directors’ Declaration of the Group, comprising the
Company and the entities it controlled at the year’s end or from time to time during the financial year.
In our opinion:
In our opinion:
(a)
(a)
(b)
the accompanying Financial Report of DuluxGroup Limited is in accordance with the Corporations Act
2001, including:
the accompanying Financial Report of DuluxGroup Limited is in accordance with the Corporations Act
2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 September 2016 and of its
financial performance for the year ended on that date; and
giving a true and fair view of the Group’s financial position as at 30 September 2016 and of its
financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
the Financial Report also complies with International Financial Reporting Standards as disclosed in note
1 (a).
the Financial Report also complies with International Financial Reporting Standards as disclosed in note
1 (a).
(i)
(ii)
(b)
Basis for Opinion
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance about whether the Financial Report is free from material misstatement.
We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance about whether the Financial Report is free from material misstatement.
Our responsibilities under those Standards are further described in the Auditor’s Responsibility section of our
report.
Our responsibilities under those Standards are further described in the Auditor’s Responsibility section of our
report.
We are independent of the Group in accordance with the Corporations Act 2001 and the relevant ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
We are independent of the Group in accordance with the Corporations Act 2001 and the relevant ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the Financial Report of the current period.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the Financial Report of the current period.
This matter was 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 this matter.
This matter was 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 this matter.
The key audit matter
How the matter was addressed in our audit
The key audit matter
How the matter was addressed in our audit
Carrying value of property, plant and equipment, and intangible assets ($546.1m). Refer to notes 8 & 9 in
the Financial Report
Carrying value of property, plant and equipment, and intangible assets ($546.1m). Refer to notes 8 & 9 in
the Financial Report
126
62
62
ABCD
The Group’s Cash Generating Units (CGUs) are
subject to the cyclical nature of expenditure in
the sectors in which those CGUs operate which
include infrastructure, construction, and mining.
These sectors have experienced the impacts of
reductions in capital expenditure, constrained
government spending, cost reduction mandates
and project cancellations and deferrals, along
with volatile commodity prices.
The level of activity in those sectors impacts the
current performance and the forecast cash flows
used in the value in use models of the Group’s
CGUs that operate in those sectors. Given the
reduced level of activity, the value of goodwill
and intangible assets is a key audit matter. Other
conditions giving rise to our focus on this area
included the significant level of judgement in
respect of inputs such as:
• The determination of CGUs;
• Budgeted future revenue and cost cash flows;
• Discount rates; and
• Terminal growth rate.
Management have identified the Parchem CGU
as having sensitivity to impairment due to the
fact that a reasonably possible negative change
in projected cash flows may result in the
carrying value of the CGU exceeding its
recoverable amount. We paid particular
attention to these conditions.
Our procedures included, amongst others:
• We assessed the goodwill and intangible assets
impairment assessment process and tested controls
such as the review of forecasts by management.
• We assessed management’s determination of the
Group’s CGUs based on our understanding of the
nature of the Group’s business units. We also analysed
the internal reporting of the Group to assess how the
CGUs are monitored and reported, and the implications
to CGU
the
accounting standards.
in accordance with
identification
• We compared the cash flows in the value in use models
to the FY17 budget and the FY18- FY19 business plan.
• For the Parchem CGU, we performed a range of
sensitivity analyses including the discount rate and
growth inputs to inform the focus of our further testing.
• We assessed key inputs to the value in use models
including forecast revenue, costs, discount rates and
terminal growth rates. We challenged these key inputs
by corroborating market growth rates to external
analyst and industry reports, and compared the discount
rate to comparable companies. For non-market based
inputs, such as revenue and costs, we compared
forecasts
to actual performance currently being
achieved.
• We assessed the historical accuracy of the Group’s
forecasts, by comparing the forecasts used in the prior
year models to the actual performance of the business
in the current year. These procedures enabled us to
determine the accuracy of the forecasting process. We
to current period
applied
forecasts in areas where previous forecasts were not
achieved and/or where future uncertainty is greater or
volatility is expected.
increased scepticism
• We evaluated the competence of the external expert
management engaged to assist them in determining the
discount rates.
• We assessed the allocation of corporate overheads to
CGUs by comparing the allocation methodology to our
understanding of the business.
• We assessed the Group’s disclosures for the valuation
of goodwill and intangible assets, by comparing these
disclosures to our business understanding and
accounting standards requirements.
DULUXGROUP ANNUAL REPORT 2016
127
63
Independent Auditor’s Report continued
TO THE MEMBERS OF DULUXGROUP LIMITED
ABCD
Other Information
Other Information is financial and non-financial information in the annual report which is provided in addition
to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information.
The Other Information we obtained prior to the date of this Auditor’s Report was the Operating and Financial
Review, Safety and Sustainability Report, Corporate Governance Report and Directors’ Report. The remaining
Other Information is expected to be made available to us after the date of the Auditor's Report.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will
not express an audit 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. In
doing so, we 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.
Directors’ Responsibility 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 note 1 (a),
the Directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of
Financial Statements, that the Financial Report complies with International Financial Reporting Standards.
In preparing the Financial Report, the Directors are responsible for assessing the Group’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Financial Report based on our audit. 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 Australian
Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error. They 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 this Financial Report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and
maintain professional scepticism throughout the audit.
An audit involves performing procedures to obtain audit evidence about amounts and disclosures in the
Financial Report. The procedures selected depend on the auditor’s judgement, including the assessment of the
risks of material misstatement of the Financial Report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation of the Financial Report
that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error. This is because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the Directors, as well as evaluating the overall
presentation of the Financial Report.
128
64
ABCD
We conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our Auditor’s Report to the related disclosures in the
Financial Report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our Auditor’s Report. However, future events or conditions may
cause the Group to cease to continue as a going concern.
We evaluate the overall presentation, structure and content of the Financial Report, including the disclosures,
and whether the Financial Report represents the underlying transactions and events in a manner that achieves
fair presentation.
We obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the Financial Report. We are responsible for the direction,
supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control identified during our
audit.
The Auditing Standards require that we comply with relevant ethical requirements relating to audit
engagements. We also provide the Directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Directors, we determine those matters that were of most significance
in the audit of the Financial Report of the current period and are therefore the Key Audit Matters. We describe
these matters in our Auditor’s Report unless law or regulation precludes public disclosure about the matter; or
when, in extremely rare circumstances, we determine that a matter should not be communicated because the
adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
REPORT ON THE REMUNERATION REPORT
We have audited the Remuneration Report included in the Director’s Report for the year ended 30 September
2016. 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.
Opinion
In our opinion, the Remuneration Report of DuluxGroup Limited for the year ended 30 September 2016,
complies with Section 300A of the Corporations Act 2001.
KPMG
Gordon Sangster
Partner
Melbourne
8 November 2016
James Dent
Partner
DULUXGROUP ANNUAL REPORT 2016
129
65
Shareholder Statistics
AS AT 21 OCTOBER 2016
DISTRIBUTION OF ORDINARY SHAREHOLDERS AND SHAREHOLDINGS
RANGE
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 or more
Rounding
Total
TOTAL
HOLDERS
UNITS
% OF
ISSUED CAPITAL
17,956
15,642
2,606
1,466
91
8,973,033
35,297,032
18,534,435
30,441,140
296,004,612
37,761
389,250,252
2.31
9.07
4.76
7.82
76.04
0.0
100.00
Included in the above total are 738 shareholders holding less than a marketable parcel of 77 shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 71.00% of that class of shares.
TWENTY LARGEST ORDINARY FULLY PAID SHAREHOLDERS
RANK NAME
UNITS
% OF UNITS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
CITICORP NOMINEES PTY LIMITED
ARGO INVESTMENTS LIMITED
BNP PARIBAS NOMINEES PTY LTD
87,268,603
70,274,253
39,220,910
23,050,366
14,818,918
8,613,669
6,073,824
3,881,512
3,801,768
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
2,617,942
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
MR PATRICK HOULIHAN
NETWEALTH INVESTMENTS LIMITED
BNP PARIBAS NOMINEES PTY LTD
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
MILTON CORPORATION LIMITED
CS FOURTH NOMINEES PTY LTD
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD
IOOF INVESTMENT MANAGEMENT LIMITED
2,556,058
2,313,681
2,305,658
1,734,000
1,664,465
1,655,184
1,250,879
1,235,930
1,095,086
999,332
20.
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD
TOTAL
276,432,038
71.02
REGISTER OF SUBSTANTIAL SHAREHOLDERS
The names of substantial shareholders in the Company, and the number of fully paid ordinary shares in which each has an
interest, as disclosed in substantial shareholder notices to the Company on the respective dates are as follows:
DATE
NAME
SHARES % OF TOTAL
7 July 2016
PERPETUAL LIMITED AND SUBSIDIARIES
17 December 2015
WESTPAC BANKING CORPORATION AND SUBSIDIARIES
27,940,706
23,718,350
20,930,760
COMMONWEALTH BANK OF AUSTRALIA
SCHRODER INVESTMENT MANAGEMENT AUSTRALIA LIMITED
20,408,193
BT INVESTMENT MANAGEMENT LIMITED
19,477,009
4 May 2016
12 August 2016
31 May 2016
130
22.42
18.05
10.08
5.92
3.81
2.21
1.56
1.00
0.98
0.67
0.66
0.59
0.59
0.45
0.43
0.43
0.32
0.32
0.28
0.26
7.1 8
6.09
5.37
5.24
5.00
Five Year Financial Statistics
A$M
NOTES
2016
2015
2014
2013
2012
INCOME STATEMENT
Sales revenue (reported)
EBITDA (reported)
EBITDA (excluding non-recurring items)
EBIT (reported)
EBIT (excluding non-recurring items)
NPAT (reported)
NPAT (excluding non-recurring items)
Non-recurring items (post-tax)
EBIT margin (excluding non-recurring items)
Diluted EPS (reported) (cents)
Diluted EPS (excluding non-recurring items) (cents)
Dividends per share – fully franked (cents)
Dividend payout ratio (%)
Interest cover (times)
Effective interest rate
Effective tax rate (excluding non-recurring items)
BALANCE SHEET
Trade working capital
Non trade working capital
Property, plant & equipment
Intangible assets
Net other assets/ (liabilities)
Capital employed
Net debt
Net Assets/Total Shareholders’ Equity
Shareholders’ Equity attributable to DLX shareholders
Rolling trade working capital %
Net debt/equity %
Net debt/EBITDA
Return on capital employed (%)
Return on equity, attributable to DLX shareholders
(excluding non-recurring items) %
CASH FLOW
Reported net operating cash flow
Net operating cash flow (excluding non-recurring items)
Minor capital expenditure
Major capital expenditure
Acquisitions/ divestments
Cash conversion (excluding non-recurring items) %
1
1
2
1
2
1
2
7
8
3
6
4
5
1,716.3
233.4
233.4
201.1
201.1
130.4
130.4
–
11.7%
33.5
33.5
24.0
71.6%
10.1
4.3%
28.8%
262.9
(173.8)
312.0
234.0
92.6
727.8
(362.5)
365.2
365.3
16.0%
1.0
1.3
1,687.8
210.2
227.3
175.3
192.4
112.8
124.7
(11.9)
11.4%
29.2
32.3
22.5
1,611.5
210.3
219.0
175.1
183.8
104.5
111.9
(7.3)
11.4%
27.5
29.4
20.5
70.2%
70.2%
9.0
4.5%
28.0%
256.6
(146.1)
261.9
232.1
96.7
701.2
(349.9)
351.2
350.2
15.2%
1.0
1.2
7.0
4.9%
30.1%
234.2
(121.8)
262.0
224.9
38.1
637.4
(345.7)
291.7
289.7
15.1%
1.2
1.5
1,484.6
157.2
1,067.8
155.5
186.2
124.9
153.9
75.0
92.2
(17.2)
10.4%
20.1
24.7
17.5
71.6%
5.5
5.3%
29.2%
224.4
(125.4)
263.8
235.8
21.2
619.7
(388.7)
231.0
226.2
15.0%
1.7
2.0
148.6
132.2
125.3
89.5
79.6
9.9
11.7%
24.3
21.6
15.5
71.9%
5.8
6.4%
28.2%
132.5
(83.9)
199.1
96.8
68.7
413.2
(230.3)
182.9
169.9
13.3%
1.3
1.6
27.6%
27.4%
28.8%
24.8%
30.3%
35.7%
35.6%
38.6%
40.8%
46.9%
144.9
155.0
(19.5)
(41.4)
(12.7)
87%
156.5
156.5
(24.7)
(4.8)
(11.2)
83%
120.2
143.5
(30.6)
–
11.0
83%
118.2
133.8
(28.8)
(0.2)
(132.9)
85%
116.5
101.7
(23.7)
(3.8)
(39.7)
86%
Items shown as ‘reported’ are equivalent to statutory amounts disclosed in Annual Reports.
Items shown as ‘excluding non-recurring items’ are equivalent to statutory amounts disclosed in Annual Reports, adjusted for non-recurring items.
Notes:
1.
2.
3. Non trade working capital consists of non-trade debtors, non-trade creditors and total provisions, as disclosed in the Balance Sheet commentary in Profit Reports.
4. Minor capital expenditure is capital expenditure on projects that are less than A$5M.
5. Major capital expenditure is capital expenditure on projects that are greater than A$5M.
6. Net Debt/EBITDA is calculated by taking closing net debt (adjusted to include the asset balance relating to the cross currency interest rate swap established
to hedge the USD currency and interest rate exposures relating to the US Private Placement debt), as a percentage of the most recent twelve months of
EBITDA before non-recurring items. For 2013, this has been calculated on a pro forma basis (i.e. taking twelve months EBITDA from the Alesco businesses).
7. Effective interest rate is the effective interest rate on bank loans and the US Private Placement bond.
8. There has been a change in the classification between trade working capital and non trade working capital in FY16. FY15 has been restated to reflect
a comparative basis.
DULUXGROUP ANNUAL REPORT 2016
131
Shareholder Information
Stock Exchange Listing
DuluxGroup’s shares are listed on the Australian Securities
Exchange (ASX) and are traded under the code DLX.
DuluxGroup Share Registry
Computershare Investor Services Pty Limited
Yarra Falls
452 Johnston Street
Abbotsford, Victoria 3067, Australia
Telephone (within Australia): 1300 090 835
Telephone (international): +613 9415 4183
Facsimile: +613 9473 2500
Website: www.computershare.com
Tax and Dividend Payments
For Australian registered shareholders who have not quoted
their Tax File Number (TFN) or Australian Business Number
(ABN), the company is obliged to deduct tax at the top
marginal rate plus Medicare levy from unfranked and/or
partially franked dividends. If you have not already quoted
your TFN/ABN, you may do so by contacting our Share
Registry (see above for contact details).
Dividend Payments
Your dividends will be paid in Australian dollars by cheque
mailed to the address recorded on the share register,
unless you have elected to be paid by direct credit or are a
participant in the Dividend Reinvestment Plan (DRP). If you
have not elected to be paid by direct credit or fully participate
in the DRP, why not have us bank your dividend payments
for you so you can have immediate access to your dividend
payment? Your dividend payments can be credited directly
into any nominated bank, building society or credit union
account in Australia.
Dividends paid by direct credit appear in your account as
cleared funds, thus allowing you to access them on payment
date. You may elect to receive your dividends by way of
direct credit by going to our Share Registry’s website
www.investorcentre.com.
Dividend Reinvestment Plan (DRP)
The DRP enables DuluxGroup’s fully paid ordinary
shareholders (having a registered address or being resident
in Australia or New Zealand) to reinvest all or part of their
dividends in additional DuluxGroup fully paid ordinary shares.
Applications are available by going to our Share Registry
website www.investorcentre.com.
Consolidation of Multiple Holdings
If you have multiple issuer sponsored holdings that you wish
to consolidate into a single account, please notify the Share
Registry in writing, quoting your full registered names and
Securityholder Reference Number (SRN) for these accounts
and nominating the account to which the holdings are to
be consolidated.
Change of Name and/or Address
For issuer sponsored holdings: please notify the Share
Registry in writing if you change your name and/or address
(please supply details of your new/previous name, your
new/previous address and your SRN), or change the
details online by going to our Share Registry website
www.investorcentre.com. For CHESS holdings: please notify
your sponsor (usually your broker) in writing if you change
your name and/or address.
Share Enquiries
Shareholders seeking information about their shareholding
should contact the DuluxGroup Share Registry,
Computershare Investor Services Pty Limited. Contact
details are above. Before you call, make sure you have your
SRN or Holder Identification Number (HIN) handy. You can
do so much more online via the internet by visiting our
Share Registry website www.investorcentre.com. You can
access a wide variety of holding information and make some
changes online or download forms including:
• Check your current and previous holding balances
• Choose your preferred annual report option
• Update your address details (Issuer Sponsored holdings)
• Update your bank details
• Confirm whether you have lodged your TFN or ABN or
exemption
• Register your TFN/ABN/exemption
• Check transaction and dividend history
• Enter your email address
• Check share prices and graphs
• Download a variety of instruction forms
• Subscribe to email announcements
You can access this information via a security login using your
SRN or HIN as well as your surname (or company name) and
postcode/Country code (must be the postcode/Country code
recorded for that holding).
132
A
Shareholder
Timetable*
31 March 2017
17 May 2017
DuluxGroup 2017 Half Year End
Announcement of Half Year
Financial Results
30 September 2017
DuluxGroup 2017 Year End
15 November 2017
Announcement of Full Year
Financial Results
21 December 2017
Annual General Meeting 2017
* Timing of events is subject to change
DuluxGroup Communications
DuluxGroup’s website www.duluxgroup.com.au offers
shareholders details of the latest share price, announcements
to the ASX, investor and analyst presentations, webcasts and
the Chairman’s and Managing Director’s AGM addresses. The
website also provides further information about the company
and offers insights into DuluxGroup’s businesses.
DuluxGroup’s printed communications include the Annual
Report, however, we can now provide all communications
electronically including dividend statements, notices of
meeting and proxy forms. Electronic transmission enhances
shareholder communication, results in significant cost
savings for the Company and is more environmentally
friendly. Shareholders wishing to receive all communications
electronically should visit the Share Registry website
www.investorcentre.com to register their preference.
Shareholders may elect to receive a copy of the Annual
Report or notification by email when the Annual Report is
available online at www.duluxgroup.com.au. If you do not
make an Annual Report election you will not receive a copy
of the Annual Report. If you wish to change your Annual
Report election, you may do so at any time, please go to
www.investorcentre.com or contact our Share Registry.
Copies of reports are available on request.
Telephone: +613 9263 5678
Facsimile: +613 9263 5030
Email: company.info@duluxgroup.com.au
Auditors
KPMG
DuluxGroup Limited
ABN 42 133 404 065
Registered address and head office
1956 Dandenong Road
Clayton, Victoria 3168
Australia
Postal address
PO Box 60
Clayton South, Victoria 3169
Telephone: +613 9263 5678
Facsimile: +613 9263 5030
Email: company.info@duluxgroup.com.au
Website: www.duluxgroup.com.au
Investor Relations
Telephone: +613 9263 5678
Email: company.info@duluxgroup.com.au
DULUXGROUP ANNUAL REPORT 2016
133