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DULUXGROUP ANNUAL REPORT 2017
C
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.
Contents
Our Core Purpose
2017 Highlights
DuluxGroup at a Glance
Chairman’s Report
Managing Director’s Report
Operating and Financial Review
Markets and Sectors
Strategy and Growth
Review of Operations
Business Segment Detail
Future Financial Prospects
Material Business Risks
2
4
6
8
10
12
14
16
20
32
34
Our Corporate Sustainability Report
Our Board
Our Executive
Financial Report
Shareholder Statistics
Five Year Financial Statistics
Shareholder Information
Shareholder Timetable
36
60
62
64
129
130
131
132
Statements contained in this Annual
Report, particularly those regarding
possible or assumed future performance,
estimated Company earnings, potential
growth of the Company, industry growth
or other trend projections are or may
be forward looking statements. Such
statements relate to future events and
expectations and therefore involve
unknown risks and uncertainties. Actual
results may differ materially from those
expressed or implied by these forward
looking statements.
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.
DULUXGROUP ANNUAL REPORT 2017
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...
Ivanhoe Grammar Senior Years
and Science Centre by McBride
Charles Ryan, a finalist in this
year's Dulux Colour Awards.
Photographer:
John Gollings.
2
Our Growth Strategy
Our strategy is to develop market leadership positions in premium branded consumer
and trade products, enabled with differentiated technologies.
Within this over-arching strategy there are three specific components:
1. Defend and grow our market-leading Dulux, Selleys and related businesses in Australia,
New Zealand and Papua New Guinea
2. Extend our Selleys and coatings technologies and capabilities into new offshore markets
3. Realise the potential of our 'Other Home Improvement' businesses (Yates, B&D Group
and Lincoln Sentry)
DuluxGroup aims to deliver growth by a combination of organic growth (e.g. continuing
to increase market share whilst maintaining margins), joint ventures and acquisitions.
Our Growth Enablers
All of these elements underpin a strong and sustainable competitive advantage,
a stable earnings profile and a platform for compelling growth options:
Premium brands
and marketing
Innovation and
technology
Leading customer
service
Broad product
portfolio
Our people
and culture
Comprehensive distribution and customers
across trade and retail channels
Financial
discipline
Our Values
We have four key values that guide us in finding smarter, market leading
solutions for consumers and our retail and trade customers.
Be consumer
driven,
customer
focused.
Unleash your
imagination.
• Walk in the shoes of our consumers
& customers
• Ask, listen, learn and act
• Help your customers win
• Use and understand our products
• Think like tomorrow’s consumer
• Challenge the status quo – imagine ‘what if’
• Seek, encourage and support new ideas
• Fight for good ideas and don’t give up
• Embrace change and get on board
• Be brave – make it happen
Value
people, work
safely and
respect the
environment.
• Protect yourself and others – work safe,
home safe
• Work as a team, win as a team for DuluxGroup
• Behave with respect and integrity,
embrace diversity
• Lead, recognise, help others succeed
• Strive to leave our environment better than
we found it
• Participate in our communities
Run the
business
as your own.
• Know your role, be accountable & deliver
• Take a responsible approach to costs
• Plan for tomorrow, act today
• Build partnerships that add value
• Be decisive
DULUXGROUP ANNUAL REPORT 2017
3
2017
Highlights
Strong profit
growth in 2017
was led by all our
market leading
Australian and
New Zealand
businesses, while
we also developed
further growth
opportunities
in the United
Kingdom and Asia
$142.9M
Net profit after tax
(NPAT)*
$214.2M
Earnings before
interest and tax (EBIT)
26.5
cents
Full year dividend
1.4X
Net debt to EBITDA 1.4X
compared with 1.3X in 2016
9.6%
Increase
6.5%
Increase
72%
Payout ratio
10.4%
Increase on the
2016 equivalent
Burleigh Street House
by ME, Winner of Dulux
Colour Awards 2017,
Single Residential Exterior.
Photographer:
Christopher Frederick Jones
* NPAT included a $3.1 million write back of a
tax provision established in previous years.
Excluding the write back, NPAT increased
7.3% to $139.9 million.
** A definition of cash conversion is provided
on page 30.
*** Recordable Injury Rate of 1.62 is at its
second lowest level in 11 years and is a
measure of total number of employee and
contractor injuries requiring time off work,
restricted duties or medical treatment per
200,000 hours.
4
$1.78B
Sales revenue
4.0%
Increase
86%
Cash conversion**
Safety
Injury rate*** at second lowest level in more
than a decade and at top quartile industry
performance levels (there were a total of 69
recordable injuries from our global workforce
of approximately 4,000 employees), and
serious near miss incidents down 45% to
lowest level on record
Investing in Our Three Strategic
Growth Pillars
1. Further grew our market leading Dulux, Selleys and related businesses
in Australia, New Zealand and Papua New Guinea, while investing in key
assets and capability for ongoing growth:
• Strong revenue and EBIT growth for Dulux and Selleys driven by market
share gains and margin management, while delivering solid EBIT growth
in related Parchem business.
• New $165M water-based Dulux paints factory in Melbourne is well into
commissioning, and on time and on budget to commence commercial
production early in the 2018 financial year. This significant investment
will support growth in our Dulux paints business for decades to come.
• Continued investment in marketing and innovation capability,
competence and depth – particularly global experience.
2. Very good progress in realising the potential of our portfolio of other
ANZ home improvement businesses:
• Excellent results in all three businesses – Yates, B&D Group and
Lincoln Sentry – while investing in fundamentals to realise further
upside through share gains, margin improvement and product &
market extension.
3. Good progress in establishing niche offshore growth opportunities for
paints and Selleys
•
In the United Kingdom, we built on the retail presence of premium
paint business Craig & Rose and successfully launched Selleys, with
both now ranged in Bunnings and Homebase stores throughout the
UK and Ireland.
• The PT Avian Selleys Indonesia joint venture was formed and will expand
Selleys' push into the rapidly growing Indonesian market, through a
network of approximately 40,000 hardware retailers
• Chief Operating Officer of DGL International appointed, reporting
to Managing Director and CEO, and based in the UK, with extensive
international experience, including in global paint & coatings.
DULUXGROUP ANNUAL REPORT 2017
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.
Dulux ANZ
Selleys & Parchem ANZ
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 and
commercial construction markets.
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.
$165.0M
5.4%
EBIT
$33.7M
EBIT
14.2%
®
# JV Corporate Logo.
Licensed Brand.
* 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.
**
6
®
B&D Group
Lincoln Sentry
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.
DuluxGroup’s ‘Other businesses’ include:
• Yates – a leading Australian and
New Zealand marketer and manufacturer
of fertilisers, potting mix, pest & disease
control, lawn care, seeds, pots, and
organic gardening products, with origins
dating back to 1883;
• Dulux Papua New Guinea – the clear
market leader;
• DGL International Asia
– the 51% owned DGL Camel paints
business in China and Hong Kong;
and
– the Selleys businesses in other
South East Asian markets including
Malaysia, Singapore and Vietnam; and
• DGL International UK – the Craig & Rose
paints business in the United Kingdom
and Selleys.
$18.2M
EBIT
13.0%
$14.5M
EBIT
16.0%
$11.3M
EBIT
22.1%
*
*
*
*
*
*
**
#
DULUXGROUP ANNUAL REPORT 2017
7
Chairman’s
Report
DuluxGroup
delivered record
profits this year, its
seventh consecutive
year of underlying
net profit growth.
Your company
is well-positioned,
with an excellent
portfolio of
businesses, multiple
streams of growth
both domestically
and offshore,
and a strong
balance sheet.
Group performance
DuluxGroup Net Profit After Tax (NPAT)
increased 9.6% to $142.9 million(1), in markets
that were positive overall.
Diluted earnings per share (EPS) were
36.7 cents, an increase of 9.6%, continuing
our record of year on year EPS growth
since demerger.
Our balance sheet is in very good shape,
with net debt to EBITDA at a healthy 1.4X
and we have capacity in our undrawn debt
facilities to fund future growth opportunities.
Shareholder returns
The Board has declared a final dividend of
13.5 cents per share, fully franked, taking the
full year dividend to 26.5 cents per share,
an increase of 10.4% and representing a
72% payout ratio on NPAT. The record date
for the final dividend is 27 November 2017
and the dividend payment date is
13 December 2017. DuluxGroup’s dividend
reinvestment plan (DRP) will operate in
respect of the final dividend.
Since DuluxGroup listed as a public
company in its own right in July 2010,
total shareholder return has been 270%(2)
compared with 79% for the ASX200. Your
company has grown its market capitalisation
from approximately $900 million to
$2.8 billion(3). DuluxGroup now has a broader
product portfolio and increased growth
options, domestically and offshore.
Investing for growth
DuluxGroup remains on the strategic growth
path that has served our shareholders
well over recent years. Patrick Houlihan
and his management team are focussed
on sustainable profit growth and strong
returns on investment, supported by a
high-performance culture. A focus on
generating strong operating cash flows
and our prudent debt management helps
fund future growth.
Our largest business, Dulux ANZ, has a
consistent record of profitable growth over
recent decades, and continues to lead the
market against large global competitors.
Our new, world class Dulux paint factory
at Merrifield in Melbourne’s north is in the
final stages of commissioning and is on
track to commence commercial production
on time early in the 2018 financial year.
The project is also set to be completed
within its $165 million budget, a significant
achievement given the scale and complexity
of the project. This is a very important
investment that will not only reduce our
risk but will support growth in our Dulux
business for decades to come. Our portfolio
of strong, profitable, domestic businesses
provides the financial capacity to also
invest in growth opportunities offshore. Our
Selleys and Craig & Rose paints businesses
are off to a good start in the UK, having
launched during the year into Bunnings and
Homebase stores in the United Kingdom
and Ireland.
Our Selleys products have been building
a presence in several Asian countries for
over two decades, with particular recent
success in Vietnam. In 2017 we expanded
further with the formation of our new
PT Avian Selleys Indonesia joint venture.
This is a capital light investment that will
enable a range of Selleys products to access
approximately 40,000 retail hardware
outlets via the distribution network of
our JV partner, Avian, one of Indonesia’s
largest paint companies. We are also
continuing to extend Selleys’ long standing
success in Hong Kong into China via our
DGL Camel JV. However, establishing a
meaningful paints position in that region
has been more challenging and we are
undertaking a strategic review of the paints
business there.
(1) This included the benefit of a $3.1 million write back of a tax provision from previous years. Excluding the write back, NPAT was $139.9 million, an increase of 7.3%.
(2) Based on opening share price of $2.50 on 12 July 2010 and closing share price of $7.00 at 30 September 2017
(3) Based on closing share price of $7.45 at 8 November 2017
8
DuluxGroup remains on the strategic growth
path that has served our shareholders well over
recent years.
10.4%
Increase in total
dividend
Community contribution
and participation
In our Corporate Sustainability Report
on page 36 you will see how DuluxGroup
creates wider value throughout the
economy and our community. DuluxGroup
employs approximately 4,000 people.
In 2017, $57 million was contributed in
company income taxes at an effective rate
of approximately 30%, and we are pleased
to adopt voluntary tax transparency
disclosures and publish our annual Tax
Contribution Report. We spend more than
a billion dollars a year throughout our
supply chain, generating further economic
and employment growth. We are also
one of the biggest employers of industrial
chemists in the country and a significant
supporter of science education, research
and development through collaboration
with universities, mentoring, internships and
funding of scholarships.
Being a positive participant in our
communities is central to our sustainability
goals. We made good progress this year
against our key focus areas of product
stewardship, resource efficiency, land
protection and community safety.
In addition, our employees contributed
hundreds of hours volunteering to help out
on community projects, raising funds and
providing mentoring or technical expertise
to help those in need. The Salvation Army,
Beyond Blue, Surf Life Saving Australia,
Men’s Shed and the New Zealand Cancer
Society are just some of the larger
community organisations we supported
this year. However, our products and people
supported hundreds more local, grassroots
community projects throughout the year.
Diversity
Increasing the gender, age and cultural
diversity of our workforce remains a key
priority for the Board and management.
We have increased the representation of
women within our most senior leadership
group to 25% in 2017 compared with 15%
in 2012. DuluxGroup is one of just 37% of
ASX200 companies that has a woman
in a business line role on its executive
team(4). Women also hold three of our
business general manager positions, and
we have a growing number of women
in key functional areas such as the two
largest business marketing roles, which
are with Dulux and Selleys. We clearly still
have a way to go, and there are a number
of recruitment, talent identification and
leadership development initiatives in place
to ensure we maintain momentum towards
more women in leadership roles.
Remuneration and
shareholder alignment
Our employees have a strong sense of
personal ownership in DuluxGroup, with
approximately 70% of eligible employees
choosing to buy shares in their own right.
Likewise, our executives continue to build
their personal shareholdings in DuluxGroup,
and a minimum shareholding requirement
applies to senior managers. This helps
ensure that individual performance is
aligned with the overall interests of
DuluxGroup and our shareholders. As
foreshadowed in last year’s remuneration
report, the Board this year introduced a
deferred component to any short-term
incentive (STI) earned by the DuluxGroup
Executive team, under which 15% of any
STI outcome will be provided in rights to
Company shares.
These awards are subject to forfeiture if an
executive leaves the Group under certain
circumstances during the first two years
after grant. Our Clawback Policy also gives
the Board discretion to reduce or forfeit
an executive’s unvested share award. The
full details of the Remuneration Framework
are outlined in the Remuneration Report
on page 67.
Board succession
The Board Nominations Committee
regularly assesses the skills, experience
and expertise required of directors as
DuluxGroup continues to evolve and grow.
This includes identifying suitable candidates
for vacancies to ensure Board composition
remains optimal for protecting and
enhancing long term shareholder value.
2018 Centenary
DuluxGroup’s origins date back to 1918. Its
iconic brands have endured and grown over
that time, along the way creating jobs for
Australians and our employees elsewhere.
The latest, most noteworthy, example
of this is our new Dulux paint factory at
Merrifield, and we will celebrate its official
opening next year as we mark DuluxGroup’s
100th anniversary.
Thank you
I would like to thank Patrick Houlihan, his
management team and all employees for
their contribution to a very successful
year for DuluxGroup. On behalf of my
fellow Board members, I thank you our
shareholders for your continued support.
I look forward to the next
opportunity to update you on your
company’s performance.
PETER KIRBY
15 NOVEMBER 2017
(4) Source: Chief Executive Women’s 2017 Senior Executive Census
DULUXGROUP ANNUAL REPORT 2017
9
Managing
Director’s
Report
Strong profit growth
in 2017 was led
by all our market
leading Australian
and New Zealand
businesses, while
we also developed
further growth
opportunities in
the United Kingdom
and Asia.
Group performance
Net Profit after Tax (NPAT) for the year
was $142.9 million, an increase of 9.6%.
This included the benefit of a $3.1 million
write back of a tax provision established in
previous years. Excluding the write back,
NPAT increased 7.3% to $139.9 million.
Sales revenue increased by 4% to
$1.78 billion, with all of our reporting
segments growing revenue.
Earnings before interest and tax (EBIT)
increased 6.5% to $214.2 million.
Our businesses continue to generate
excellent cash flow, with cash conversion
at 86%.
Business performance
Record profit was driven by excellent
results across all of our Australian and
New Zealand businesses.
Our largest business Dulux Paints
& Coatings ANZ, which contributes
approximately 70% of Group business EBIT,
delivered a high quality result, increasing
profits by $8.5 million or 5.4%, and growing
market share in positive markets. This was
well supported by double digit earnings
growth in Selleys and Parchem, B&D Group
and the Lincoln Sentry business segments,
which collectively grew EBIT by $8.2 million
or 14.1%.
A weaker result in China reflects ongoing
challenges for our relatively small paints
business there. However, Yates, DGL South
East Asia and Dulux Papua New Guinea all
delivered solid EBIT growth, offsetting the
planned investment in our UK business.
This year’s result was underscored by solid
financial discipline, highlighted by effective
margin management, cost control and a
strong cash performance.
Safety and sustainability
This year our recordable injury rate(1) was
at the second lowest level in more than
a decade and at top quartile industry
performance levels. There were a total
of 69 recordable injuries from our global
workforce of approximately 4,000
employees. Serious near miss incidents
were down 45% to the lowest level on
record. However, the number of serious
injuries, mostly manual handling and strain
injuries, increased 13% and we are focussed
on improving in this area.
Growth underpinned by investment
in the fundamentals
We have continued to invest in the long
term fundamentals of premium brands,
innovation and customer focus, which has
underpinned consistent earnings growth
and remains central to developing further
avenues for growth.
Our largest strategic growth pillar –
the Dulux, Selleys and related businesses
portfolio in Australia, New Zealand and
Papua New Guinea – delivers a return on
net assets (RONA) of more than 35%.
The Dulux and Selleys ANZ businesses
have each continued to extend their market
leadership positions, and they successfully
compete locally against some of the largest
global companies. We see plenty of further
growth opportunities, including through
profitable market share, innovation and
product adjacencies such as Parchem
construction chemicals.
Our other ANZ home improvement
businesses – Yates, B&D Group and Lincoln
Sentry – are all profitable market leaders
with a suite of premium brands. Collectively
they deliver a RONA of 19%. This portfolio
represents the second of our domestic
growth pillars, and we are focussed on
realising the potential of each of these
largely standalone businesses. This year, we
made excellent progress in growing sales
and improving margins in B&D Group.
(1) Recordable Injury Rate of 1.62 is at its second lowest level in 11 years and is a measure of total number
of employee and contractor injuries requiring time off work, restricted duties or medical treatment
per 200,000 hours.
10
Record profit was driven by excellent
results across all of our Australian and
New Zealand businesses.
9.6%
Increase in Group
Net Profit after Tax
Our global marketing and innovation
focus has been central to the promising
start for our DGL UK business, where our
Craig & Rose premium paints and Selleys
range of products have recently launched
throughout the UK and Ireland. Combining
DuluxGroup capability with local UK
consumer insights, our Selleys products
have been specially developed for the UK
consumer. The acquired Craig & Rose paints
business has been relaunched, with the
product range extended using the wide
range of other DuluxGroup technology
and products.
We are taking a similar approach in
Indonesia, where our DGL Asia business has
recently established a joint venture between
Selleys and Avian, one of Indonesia’s
leading paint companies. The joint venture
will draw on Selleys’ global technology and
marketing capability, and use local insights
from trade customers, to manufacture
and market a range of products that will
be distributed through Avian’s network of
approximately 40,000 hardware retailers.
Strengthening capability
We have continued to strengthen our
DuluxGroup Executive and broader senior
leadership team, with a focus on balancing
long-term, deep industry and DuluxGroup
experience with new functional expertise
and global experience.
Richard Stuckes joined the DuluxGroup
Executive in April this year as the Chief
Operating Officer of DGL International,
based in the UK. Richard has extensive
international experience in consumer facing
businesses, including more than eight years
leading Akzo Nobel’s (formerly ICI) paints
business in the UK, Ireland, Europe, Africa,
the Middle East and China.
Earlier this year, Murray Allen was
appointed Executive General Manager of
the B&D Group garage doors and automatic
openers business. Murray previously led
Dulux marketing & innovation and has
decades of experience within DuluxGroup
businesses and outside of DuluxGroup.
World-class employee engagement
This year we conducted our third Employee
Engagement Survey and 94% of our
approximately 4,000 employees took the
opportunity to participate. The survey
revealed that our engagement levels remain
above the Asia Pacific standard and are
in line with the norm for high performing
companies globally.
Thank you
I would like to thank all DuluxGroup
employees – new and long standing – for
their tremendous contribution this year.
They have been critical to delivering record
profits and positioning our businesses for
further profitable growth.
I would also like thank DuluxGroup
Chairman Peter Kirby and the Board for
their ongoing support and counsel. Finally,
I thank you, our shareholders, for your
continued investment in DuluxGroup.
PATRICK HOULIHAN
15 NOVEMBER 2017
DULUXGROUP ANNUAL REPORT 2017
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
(Edinburgh)
Milton Keynes
Our Products
Our Customer Channels
Our End Markets
Paints, specialty coatings and adhesives
account for approximately 70% of
group revenue.
Yates Garden Care 7%
Lincoln Sentry Cabinet and
Architectural Hardware 11%
Retail
Paints 21%
More than half 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.
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.
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 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.
INDICATIVE SALES
BY BUSINESS
SECTORS
Trade 60%
Retail 40%
Trade
Paints 22%
Specialty Coatings 14%
INDICATIVE SALES
BY CUSTOMER
CHANNEL
Approximately one fifth of DuluxGroup’s
business comes from commercial and
engineering construction and industrial markets.
New Housing 15%
Commercial and Engineering 15%
Industrial 5%
Selleys Sealants
and Adhesives 9%
Parchem Construction
Products 6%
A broad portfolio of products
and markets.
DuluxGroup invests in its iconic
brands and focuses on providing
innovative product solutions to
drive growth and success through
its retail and trade customers.
12
INDICATIVE SALES
BY END MARKET
Maintenance and Home
Improvement 65%
DuluxGroup’s primary focus is on
residential markets, with a strong
bias towards existing homes. This
is complemented by a presence in
commercial and industrial markets.
B&D Garage Doors and Openers 10% Milton Keynes
Myanmar
China (Dalian)
Main manufacturing
sites
Dulux Decorative Paints
Merrifield, Victoria, Australia
Rocklea, Queensland, Australia
Mascot, New South Wales,
Australia
Gracefield, Wellington,
New Zealand
Lae, Papua New Guinea
Guangdong Province, China
(Camel Paint)
Edinburgh, Scotland, UK
(Craig & Rose)
China (Guangdong)
Cabot's Woodcare
Parchem Construction
Chemicals
Wyong, New South Wales,
Australia
Yates Garden Care
Wyee, New South Wales,
Australia
Mt Druitt, New South Wales,
Australia
Auckland, New Zealand
B&D Group Garage Doors
Hornby, Christchurch,
New Zealand
East Tamaki, Auckland,
New Zealand
Revesby, New South Wales,
Hong Kong
Vietnam
Malaysia (Selangor)
Singapore
Dandenong, Victoria, Australia
Australia
Dulux AcraTex Texture
Coatings
Beverley, South Australia
Shah Alam, Selangor, Malaysia
Dulux Powder Coatings
Guangdong Province, China
Dandenong, Victoria, Australia
Auckland, New Zealand
Dulux Protective Coatings
Dandenong, Victoria, Australia
Selleys Sealants & Adhesives
Padstow, New South Wales,
Australia
Surabaya, Indonesia (2018)
Clontarf, Queensland, Australia
Kilsyth, Victoria, Australia
Malaga, Western Australia
B&D Group Openers
Dalian, China
Innovation and
Technology Centres
Dulux, Clayton, Victoria,
Australia (Global Headquarters)
Selleys, Padstow, New South
Wales, Australia
Dulux AcraTex, Beverley,
South Australia.
Indonesia (Surabaya)
Papua New Guinea (Lae)
Port Moresby
Regional sales
presence
Hong Kong
Myanmar
Port Moresby,
PNG
Singapore
Vietnam
Milton Keynes,
UK
New Zealand 11%
Malaga
Offshore 7%
Australia 82%
Beverley
Merrifield
Dandenong
Kilsyth
Clayton
Rocklea
Clontarf
Wyee
Wyong
Revesby
Padstow
Mt Druitt
Mascot
Auckland
Wellington
Christchurch
INDICATIVE SALES
BY GEOGRAPHY
DuluxGroup holds market leading
positions in Australia, New Zealand
and Papua New Guinea, with
exposure to higher growth regions
in Asia and a developing presence
in the United Kingdom.
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:
• 22 Main Manufacturing Sites
• 19 Distribution Centres
• approximately 120 company owned trade outlets
DULUXGROUP ANNUAL REPORT 2017
13
Operating and Financial Review
Strategy
and Growth
Our Objective
To deliver long term shareholder value by focussing
on premium branded, innovative products that help
consumers to imagine and create better places and
spaces in which to live and work.
Our 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.
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, typically 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.
Within this over-arching strategy there are three specific components:
1. Defend and Grow our market-leading Dulux, Selleys and related businesses in Australia, New Zealand and Papua New Guinea
2. Extend our Selleys and coatings technologies and capabilities into new offshore markets
3. Realise the potential of our Other Home Improvement businesses (Yates, B&D Group and Lincoln Sentry)
DuluxGroup aims to deliver growth by a combination of organic growth (eg. continuing to increase market share whilst maintaining margins),
joint ventures and acquisitions.
1. Defend and Grow
2. Extend Offshore
DULUX, SELLEYS & PARCHEM ANZ(1)
PAINT, COATINGS, SEALANTS AND ADHESIVES
• Defend & grow in resilient markets, biased to
existing homes
• Good runway of growth through further share gains
(retail and trade), premium product innovation,
product range breadth, margin management
• Global marketing, technology and “capability” hub
• Western retail DIY markets – Succeed in UK and
potentially extend into other markets e.g. Europe &
North America
Transfer:
technology,
marketing,
sales, retail
• China & SE Asia – Selleys focus in trade and
construction markets enhanced by distribution
partnerships in key markets
• Strategic review of China coatings business
69%
Group
sales
84%
Business
EBIT
35+%
RONA(2)
4%
Group
sales
3. Realise the Potential
YATES, LINCOLN SENTRY, B&D GROUP
• Realise potential – from “good” to “great”
• All are profitable, premium, market leaders, primarily biased to existing homes
• Significant opportunity for share gains, margin improvement and product/market extension
27%
Group
sales
19%
Business
EBIT
19%
RONA
(1)
Includes PNG.
(2) Net assets adjusted to include new factory capital expenditure.
14
In 2017 the company has made good strategic progress:
Defend & Grow
• Dulux and Selleys delivered excellent revenue and EBIT growth, driven by market share gains and effective margin management;
Parchem also grew EBIT due to successful business re-shaping and a focus on premium products
• The new $165M Merrifield paint factory in Melbourne is now in commissioning phase and remains on time and within budget
Extend Offshore Paint, Coatings, Sealants and Adhesives
• Our Selleys SE Asia business delivered strong growth (off a small base)
• The new UK business achieved ranging in Bunnings for both Selleys and paint (under the Craig & Rose brand) and a new Selleys JV
in Indonesia was formed
• The DGL Camel China JV coatings business had a challenging year financially and is currently under strategic review
Realise the Potential
• Excellent financial results from all three businesses (Yates, B&D Group and Lincoln Sentry)
• Munns acquisition successfully integrated within Yates; Lincoln Sentry online store is in pilot phase with full launch imminent;
B&D brand reinvigoration and re-shaping is progressing well
Our Global Approach
China and
SE Asia
JV approach. Local
partner with distribution
and/or brands
Selleys focus on
sealants & adhesives in
trade markets
North America
Selleys sealants &
adhesives, specialty paint
& coatings
Access to retail DIY
distribution channels will
be critical
UK, Ireland
and Europe
UK base (local Craig &
Rose paint brand and
manufacturing)
Ranging with Bunnings: Selleys
sealant and adhesives range
and Craig & Rose premium
specialty paint range are in
store and doing well
Seek Europe expansion via
Selleys and speciality paint
& coatings
Australia, New Zealand and
Papua New Guinea
Clear market leader with strong brands
• Paints, coatings, sealants, adhesives,
construction chemicals (Dulux,
Cabot’s, Selleys, Parchem)
• Other home improvement (Yates,
B&D Group, Lincoln Sentry)
DULUXGROUP ANNUAL REPORT 2017
15
Operating and Financial Review
Review of
Operations
Result Summary
• Sales revenue of $1,784.5M, increased $68.2M (+4.0%)
– All segments achieved revenue growth
– Strong growth in particular from Dulux ANZ (+5.2%), Selleys ANZ (+5.5%), and Lincoln Sentry (+4.0%)
• EBIT of $214.2M, increased 6.5% or $13.1M
– Dulux ANZ delivered a $8.5M (+5.4%) EBIT increase, continuing its track record of consistent earnings growth
– The other ANZ segments (Selleys & Parchem ANZ, B&D Group and Lincoln Sentry) delivered a combined $8.2M (+14.1%) EBIT
increase, with all achieving double digit growth
– The Other businesses segment’s EBIT was down $3.2M, or 22%, driven by a weaker result in DGL Camel, China and Hong Kong
• Net profit after tax (NPAT) of $142.9M increased 9.6%. NPAT included a $3.1M write back of a tax provision established in previous
years. Excluding the write back, NPAT increased 7.3%
• Operating cash flow was $166.0M, an increase of 7.1% (excluding non-recurring items in the prior period), predominantly due
to higher earnings
• Cash conversion was strong, at 86%
•
Investments in capability and growth, including the Dulux Merrifield paint factory (now in commissioning phase, on time and within
budget), the UK business and the new Selleys joint venture in Indonesia
• Net debt to EBITDA remains healthy at 1.4X
• A final dividend of 13.5 cents per share. Total dividend increased 10.4% to 26.5 cents per share fully franked, representing a dividend
payout ratio of 72%
RESULTS
A$M
Sales revenue
EBITDA
Depreciation and Amortisation
EBIT
Net profit after tax (NPAT)
NPAT excluding write back of tax provision
Operating cash flow
Operating cash flow (excluding non-recurring cash items in 2016)
Cash Conversion (excluding non-recurring cash items in 2016)
Net debt inclusive of USPP hedge value
Net debt to EBITDA
Diluted earnings per ordinary share (EPS) (cents)
Final dividend per share (cents)
Total dividend per share (cents)
Result by Segment
Key components of the result include:
FULL YEAR ENDED 30 SEPTEMBER
2017
2016
% CHANGE
1,784.5
245.5
(31.3)
214.2
142.9
139.9
166.0
166.0
86%
334.2
1.4
36.7
13.5
26.5
1,716.3
233.4
(32.3)
201.1
130.4
130.4
144.9
155.0
87%
300.6
1.3
33.5
12.5
24.0
4.0%
5.2%
3.1%
6.5%
9.6%
7.3%
14.6%
7.1%
(1.0) pts
(11.2%)
(7.7%)
9.6%
8.0%
10.4%
• Consistent EBIT growth from Dulux ANZ driven by good revenue growth, with decorative paint markets returning to historical growth
rates, and good margin management;
• Strong EBIT growth from Selleys & Parchem ANZ. Selleys EBIT growth was primarily driven by revenue growth of 5.5%. Parchem’s EBIT
grew as a result of second half revenue growth and the ongoing business reshaping with lower costs and improved product mix;
• Strong EBIT growth in B&D Group, driven by revenue growth in positive markets and margin improvement (product and channel mix);
• Continued strong EBIT growth from Lincoln Sentry driven by revenue growth in cabinet hardware products;
• EBIT decline in Other businesses primarily due to a weaker result in DGL Camel China and Hong Kong, with EBIT growth in Yates,
SE Asia and PNG offsetting planned investment in the UK; and
• Corporate costs well managed, with cost savings reinvested into growth projects and resources.
Note: Numbers in the report are subject to rounding. ‘nm’ = not meaningful. ‘~’ = approximately
16
Result by Segment (continued)
SALES AND EBIT BY SEGMENT
A$M
Sales revenue
Dulux ANZ
Selleys & Parchem ANZ
B&D Group
Lincoln Sentry
Other businesses
Eliminations
Total sales revenue
EBIT
Dulux ANZ
Selleys & Parchem ANZ
B&D Group
Lincoln Sentry
Other businesses
Business EBIT
Corporate
Total EBIT
Further discussion on the results of the segments follows from page 20.
Other Items
RESULTS
A$M
EBIT
Net finance costs
Tax expense
Non-controlling interests
NPAT
Effective tax rate
Excess tax provision write-back
• All occurred in the first half
• No impact on EBIT
• $0.6M favourable impact on net finance costs
• $2.5M net favourable impact on tax expense
FULL YEAR ENDED 30 SEPTEMBER
2017
2016
% CHANGE
937.3
260.7
182.5
195.2
222.2
(13.5)
890.6
253.9
177.9
187.7
217.0
(11.0)
1,784.5
1,716.3
165.0
33.7
18.2
14.5
11.3
242.6
(28.4)
214.2
156.5
29.5
16.1
12.5
14.5
229.1
(28.0)
201.1
5.2%
2.7%
2.6%
4.0%
2.4%
(22.7%)
4.0%
5.4%
14.2%
13.0%
16.0%
(22.1%)
5.9%
(1.4%)
6.5%
FULL YEAR ENDED 30 SEPTEMBER
2017
2016
% CHANGE
214.2
(17.3)
(57.3)
3.3
142.9
29.1%
201.1
(19.9)
(52.1)
1.4
130.4
28.8%
6.5%
13.1%
(10.0%)
nm
9.6%
Net finance costs
• Total finance costs were $2.6M lower than the prior corresponding period (pcp) due partly to lower prevailing base interest rates
and the tax provision write-back impact of $0.6M
•
Includes:
– a $2.1M (non-cash) charge relating to the unwinding of discounting of provisions (Rocklea restructuring $1.0M, other provisions
$1.1M); and
– $1.8M (non-cash) defined benefit fund interest
• Excludes $2.9M of capitalised interest associated with the new Dulux Merrifield paint factory
• Average all-in net cost of debt(1) of 4.3% (4.8% in the pcp)
Income tax expense
• Effective tax rate of 29.1% (28.8% in the pcp)
• Excluding the tax provision write-back, the effective tax rate was 30.5% for the period
• The base effective rate in FY18 is expected to be ~30%
Non-controlling interests
• Higher non-controlling interest add back due to our joint venture partner’s share of the higher losses in the DGL Camel joint venture
(1)
All-in net cost of debt – calculated as Net finance costs excluding the $3.9M unwinding of the discount on provisions and defined benefit fund interest,
excluding the $0.6M benefit relating to the tax provision write-back and including $2.9M of capitalised interest associated with the new paint factory
DULUXGROUP ANNUAL REPORT 2017
17
Operating and Financial Review
Review of
Operations
Cash Flow
Operating cash flow was $166.0M, $11.0M (7.1%) higher than the pcp (excluding non-recurring items)
The increase in Trade Working Capital (TWC) outflow reflected both business growth and an increase in the year end TWC / sales ratio
from 15.3% to 15.9% (largely timing driven – refer Balance Sheet section). The favourable “Other” cash flow result reflected the prior year
cash payment of the provisions relating to the establishment of our new NSW Dulux and Selleys distribution centre ($10.1M) as well as
favourable timing impacts on other non-trade creditors
Income taxes paid decreased as a result of timing of tax payments
A key driver of the remainder of the cash flow is an increase in major capital expenditure of $36.5M, due to the new Dulux Merrifield
paint factory
Cash conversion was 86%, a strong result and above our target cash conversion of 80%+
STATEMENT OF CASH FLOWS
A$M
Operating cash flows
EBITDA
Trade working capital movement
Other
Income taxes paid
Net interest paid
Operating cash flow
Non-recurring cash items included above
Operating cash flow excluding non-recurring items
Net investing cash flows
Minor capital expenditure
Major capital expenditure (paint factory)
Acquisitions
Disposals
Dividends received
Investing cash flow
Dividends paid and equity movements
Total cash flow before debt movement
Cash conversion excluding non-recurring items
FULL YEAR ENDED 30 SEPTEMBER
2017
2016
% CHANGE
245.5
(25.3)
8.9
(49.7)
(13.4)
166.0
–
166.0
(18.1)
(77.9)
(0.6)
0.2
0.0
(96.5)
(101.6)
(32.0)
86%
233.4
(8.7)
(11.7)
(52.5)
(15.5)
144.9
(10.1)
155.0
(19.5)
(41.4)
(13.3)
0.5
0.5
(73.0)
(93.6)
(21.8)
87%
5.2%
(191%)
nm
5.3%
13.5%
14.6%
nm
7.1%
7.2%
(88.2%)
95.5%
(60.0%)
nm
(32.2%)
(8.5%)
(46.8%)
Refer to glossary on page 30 for definition of terms
18
Balance Sheet
Balance sheet movements are compared to September 2016. Comments by exception are as follows:
• Rolling (or average) TWC as a percent of sales was 15.8%, favourable to 16.0% at September 2016 as we continue to focus on our
working capital management;
• Point in time TWC worsened on a percent to sales basis (15.9% versus 15.3% at September 2016), largely due to the financial year
ending on a weekend, which has a short term timing impact on debtors;
• Property plant & equipment increased, largely due to the investment in the new Dulux Merrifield paint factory;
• The defined benefit fund liability decreased $19.5M following the regular half-yearly actuarial reassessments of the fund liability, with
the majority of the decrease in the first half. The key driver of the change was an increase in the discount rate. This is a balance sheet
adjustment only, with an equal amount reflected in reserves; and
• Net debt inclusive of the USPP hedge value increased by $33.6M during FY17, with expenditure on the new Dulux Merrifield paint
factory a key driver (refer cash flow). Net debt to EBITDA remains comfortable at 1.4X.
A$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
TWC to rolling sales (point in time) %
Rolling TWC to rolling sales %
Net debt to EBITDA
FULL YEAR ENDED 30 SEPTEMBER
2017
2016
229.4
274.5
(220.6)
283.3
12.9
22.3
371.8
228.7
7.8
(44.5)
(37.0)
(18.6)
(90.7)
218.9
252.3
(208.3)
262.9
13.4
31.9
312.0
234.0
6.5
(42.8)
(56.5)
(14.4)
(88.0)
(334.2)
(300.6)
5.5
407.3
15.9%
15.8%
1.4
(4.8)
353.7
15.3%
16.0%
1.3
Refer to glossary on page 30 for definition of terms
DULUXGROUP ANNUAL REPORT 2017
19
Operating and Financial Review
Business
Segment
Detail
Business Segment
Dulux ANZ
Paints and coatings
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 to 1918, Dulux has grown to become the
number one brand for home owners and trade professionals and has
industry leading brand recognition. Dulux is regularly named as one of
Australia’s ‘most trusted’ brands.
DULUX ANZ
A$M
Sales revenue
EBITDA
EBIT
EBIT % Sales
Sales Revenue up $46.7M (+5.2%)
• Revenue grew ~5% in the Australian
business (~90% of segment) and ~6%
in New Zealand
•
In Australia, revenue reflected solid
market growth, good share gains and
positive price benefits, to offset raw
material price increases
• Australian market growth was ~2%
– The decorative paint market grew
at ~1.5%, in line with historical
growth rates:
• The renovation and repaint
market (typically ~75% of market
volume) was flat overall, with
strong second half growth
offsetting the first half decline.
The market impact of the
Masters exit has fully cycled
through with markets reverting
to historical growth rates.
• New housing (~20% of market
volume) grew at ~6%
• Commercial market (~5% of
market volume) grew at ~3.5%
– The texture coatings, powder
coatings and protective coatings
markets also grew
• Market share gains in Australia reflected
our continued focus on marketing
and innovation, the benefits of our
alignment with key retail customers
20
FULL YEAR ENDED 30 SEPTEMBER
EBIT
2017
2016
% CHANGE
937.3
890.6
179.7
165.0
172.8
156.5
17.6%
17.6%
5.2%
4.0%
5.4%
$165.0M
5.4%
Continued strong
performance in positive
markets, consistent with
long term track record
and the ongoing investment in our own
trade distribution network
FY18 Outlook
• Targeting continued revenue and
EBIT growth underpinned by positive
markets and share gains
• We expect the operational
commencement of the Merrifield paint
factory to be fully absorbed within the
Dulux ANZ result in FY18
– First half start-up and
commissioning expenses ~$2M are
expected to be offset by the gain
on sale of the Glen Waverley site
– Incremental depreciation (which
will commence upon beneficial
production) is expected to be offset
by cost savings
• Raw material costs are expected
to increase at well above inflation
rates driven by titanium dioxide
and latex. Consistent with history,
strategies to mitigate the impact are
being implemented
• Full year EBIT margins are expected
to be in line with FY17
• Positive selling price outcome reflected
price increases to offset raw material
price increases and a skew towards
premium products
• Revenue growth in New Zealand driven
by positive markets and share gains
EBIT Growth of $8.5M (+5.4%)
• Strong EBIT growth, reflecting the
sales growth
– Raw material costs increased
modestly driven by second half
increases (primarily titanium dioxide)
– ~$1M of start-up and commissioning
expenses associated with the
new Merrifield paint factory
were absorbed
• Further investment in marketing and
extension of the trade network in both
Australia and New Zealand
• Depreciation was $1.6M lower; $1.2M
lower in the first half as a result of
the FY16 asset useful life review and
$0.4M lower in the second half, due
to deliberately lower minor capital
expenditure levels in FY16 and FY17
during Merrifield construction
• Full year EBIT margins were in line
with FY16, consistent with strategy
and guidance
®
DULUXGROUP ANNUAL REPORT 2017
21
Operating and Financial Review
Business
Segment
Detail
Business Segment
Selleys & Parchem ANZ
Sealants, adhesives, fillers and construction chemicals
Selleys was established in Sydney in 1939 with a focus on invention
and creativity. That legacy has endured, and today Selleys is a leading
choice for Australian and New Zealand consumers and tradespeople
when it comes to household adhesives, sealants, fillers, paint preparation
and other home maintenance products. Parchem’s origins date back
to 1958 and it has grown to be a leader in construction chemicals,
decorative concrete products and related equipment for Australia and
New Zealand’s civil engineering, industrial, commercial and residential
construction markets.
SELLEYS & PARCHEM ANZ
FULL YEAR ENDED 30 SEPTEMBER
EBIT
A$M
Sales revenue
EBITDA
EBIT
EBIT % Sales
2017
2016
% CHANGE
260.7
253.9
2.7%
36.5
33.7
32.6
29.5
12.0%
14.2%
12.9%
11.6%
$33.7M
14.2%
Sales-led earnings growth
in Selleys, cost / margin
improvement earnings
growth in Parchem
Sales Revenue up $6.8M (+2.7%)
• Selleys sales grew 5.5% in mildly
EBIT Growth $4.2M (+14.2%)
• Selleys EBIT increased, largely due
positive markets driven by strong
performance of premium branded
products in key retail customers
• Parchem sales declined slightly with
strong second half growth in the Fosroc
business (share gains in bottoming
markets) largely offsetting first half
declines (weak markets and strategic
decision to exit low margin products)
to sales growth, with margin and costs
generally well managed
• Parchem EBIT increased, reflecting the
benefits of prior year cost reduction
initiatives and ongoing product mix and
distribution optimisation
FY18 Outlook
• Selleys is well positioned for
continued growth
• With its cost base and product
mix greatly improved, and markets
expected to bottom after multi year
declines, Parchem will continue to
be repositioned for growth via an
increased focus on commercial and
civil construction markets and further
optimisation of the distribution model
®
Licensed brand.
22
DULUXGROUP ANNUAL REPORT 2017
23
Operating and Financial Review
Business
Segment
Detail
Business Segment
B&D Group
Garage doors and openers
B&D was founded in Sydney in 1946. Today, B&D Group is a
leading manufacturer and marketer of garage doors and automatic
openers for the Australian and New Zealand residential, commercial
and industrial markets. The B&D Roll-A-Door was originally
launched in 1956 and has been named as one of Australia’s most
successful inventions.
B&D GROUP
A$M
Sales revenue
EBITDA
EBIT
EBIT % Sales
FULL YEAR ENDED 30 SEPTEMBER
EBIT
2017
2016
% CHANGE
182.5
177.9
2.6%
24.9
22.6
10.2%
18.2
16.1
13.0%
10.0%
9.1%
$18.2M
13.0%
Earnings growth driven
by sales and margin
improvement
Sales Revenue up $4.6M (+2.6%)
• Overall market growth of ~3%, with ~2%
growth in the Australian market and a
stronger New Zealand market
• A decision to exit a number of very low
margin legacy new housing contracts
impacted overall share in Australia
but positively impacted average
selling price, as did ongoing product
mix initiatives
EBIT Growth of $2.1M (+13.0%)
• EBIT increase was driven by sales
growth and margin improvement
(product and channel mix) while
increasing marketing spend by $1M
FY18 Outlook
• Targeting profit growth driven by
further business improvement and
growth initiatives in marketing,
innovation and distribution
24
DULUXGROUP ANNUAL REPORT 2017
25
Operating and Financial Review
Business
Segment
Detail
Business Segment
Lincoln Sentry
Cabinet and architectural hardware distribution
The Lincoln Sentry cabinet and architectural hardware distribution
business was established in Brisbane in 1986. Since then, it has
evolved to become one of Australia’s leading distributors of
premium quality hardware and components to the cabinet making,
window, door and glazing industries.
LINCOLN SENTRY
A$M
Sales revenue
EBITDA
EBIT
EBIT % Sales
FULL YEAR ENDED 30 SEPTEMBER
EBIT
2017
2016
% CHANGE
195.2
187.7
4.0%
16.6
14.5
14.8
12.5
12.2%
16.0%
7.4%
6.7%
$14.5M
16.0%
Continued revenue and
profit growth
Sales Revenue up $7.5M (+4.0%)
• Sales growth was led by the cabinet
EBIT Growth of $2.0M (+16.0%)
• EBIT growth was driven by the flow
hardware business, in generally positive
markets, primarily focused on the
renovation of existing homes
• Volumes and share outcomes were
consistent across the year but second
half revenue growth was impacted by
competitive market conditions, which
impacted price
through of the sales growth, together
with good margin and fixed cost control
FY18 Outlook
• The business remains well positioned
for continued share growth, supported
by the launch of its new online store
*
*
*
*
*
* Distributed Brand.
26
* Distributed brand
DULUXGROUP ANNUAL REPORT 2017
27
Operating and Financial Review
Business
Segment
Detail
Business Segment
Other Businesses Yates garden care, DGL Camel China and
Hong Kong (51%-owned), DGL SE Asia, Dulux PNG, DGL UK
DuluxGroup’s ‘Other businesses’ include:
• Yates – a leading Australian and New Zealand marketer and manufacturer
of fertilisers, potting mix, pest & disease control, lawn care, seeds, pots, and
organic gardening products, with origins dating back to 1883
• Dulux Papua New Guinea – the clear market leader;
• DGL International Asia – the 51% owned DGL Camel paints business in China
and Hong Kong, and Selleys businesses in other South East Asian markets
including Malaysia, Singapore and Vietnam; and
• DGL International UK – the Craig & Rose paints business in the United Kingdom
and Selleys
OTHER BUSINESSES
A$M
Sales revenue
EBITDA
EBIT
EBIT % Sales
FULL YEAR ENDED 30 SEPTEMBER
EBIT
2017
2016
% CHANGE
222.2
217.0
2.4%
$11.3M
22.1%
14.3
11.3
5.1%
17.3
14.5
6.7%
(17.3%)
(22.1%)
EBIT decline driven by an
adverse result in DGL Camel.
Growth in Yates, South East
Asia and PNG offset the planned
investment in the UK
FY18 Outlook
• We expect growth from Yates,
South East Asia and PNG to more
than offset the investment in the UK
business and Indonesian joint venture
• A strategic review of the DGL Camel
coatings portfolio is underway
Yates ANZ
• Revenue increased largely due to sales
from the Munns acquisition (from
June 2016) and share gains in flat
markets (weather related, particularly
in the first half). EBIT growth driven by
sales growth and fixed cost control
DGL Camel
• DGL Camel revenue declined and EBIT
fell by A$3.3M to a loss of A$5.4M.
Higher raw material costs impacted
profitability and decisions to scale back
on less profitable parts of the business
adversely impacted second half
revenue and costs
DGL South East Asia
• The DGL South East Asia business grew
revenue and EBIT driven by growth
in Vietnam and Malaysia
Dulux PNG
• The Dulux PNG business increased
revenue and EBIT despite weak
economic conditions
DGL UK
• The DGL UK business made an EBIT
loss due to the planned investment
in sales, marketing and management.
Selleys and Craig & Rose products were
launched into the new Bunnings UK
and Homebase stores during the year
PT Avian Selleys Indonesia
• The PT Avian Selleys Indonesia joint
venture will form part of this segment
from the 2018 financial year
**
28
# JV Corporate logo.
**
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 2017
29
Operating and Financial Review
Review of
Operations
Non-recurring Items
There were no non-recurring items in the period.
Whilst not called out as a non-recurring item, the result included a $3.1M write back of a tax provision, which had no impact on EBIT,
but positively impacted tax ($2.5M) and interest ($0.6M).
Dulux Merrifield Paint Factory
The new Dulux paint factory in Merrifield, Victoria is on time and within its $165M budget. Construction of the factory is now largely
complete, with the commissioning stage underway and progressing well. Scale up to full beneficial production levels is expected to occur
during the first half of the 2018 financial year (most likely early in Q2).
Utilisation of the Rocklea restructuring provision of ~$9M is expected to occur in the first half of the 2018 financial year.
During the 2017 year, capital of $78M was spent on the factory, inclusive of $2.9M of capitalised interest. The schedule below outlines the
remaining estimated capital expenditure associated with the factory (including $11M of accruals at year-end), most of which is expected
to flow in the first half of 2018.
DULUXGROUP MERRIFIELD PAINT FACTORY
A$M
Capital expenditure (cash)
PRE-2016
8
2016
41
2017
78
2018
38
TOTAL
165
Annualised depreciation of the new factory will be ~$7M, with FY18 pro-rated based on the final timing for beneficial production.
Operational savings are expected to offset the incremental depreciation in both FY18 and FY19. Start-up and commissioning expenses in
FY18 of ~$2M are expected to be offset by the gain on sale of the Glen Waverley site.
Growth Strategy
Selleys Indonesian Joint Venture
In August 2017, DuluxGroup and PT Avia Avian Indonesia agreed to form an Indonesian joint venture company, PT Avian Selleys Indonesia.
The joint venture is 50.01% owned by DuluxGroup and will manufacture and market Selleys products in Indonesia. With minimal capital
investment, DuluxGroup will leverage Selleys technology, brand and market capabilities in a large and growing market, by partnering
with Avian, a leading Indonesian paint manufacturer with an extensive local distribution network selling into approximately 40,000 retail
hardware outlets. The joint venture is expected to commence trading in the second half of the 2018 financial year.
Glossary
1. EBITDA – represents EBIT plus
depreciation and amortisation
2. EBIT – represents earnings before
interest and tax
3. Net profit after tax (NPAT) – represents
‘Profit for the year attributable to
ordinary shareholders of DuluxGroup
Limited’ per the financial statements
4. Operating cash flow – the
equivalent of ‘Net cash inflow from
operating activities’
6. 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’,
per the financial statements
7. 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
11. Acquisitions – represents ‘payments
for purchase of businesses, net of
cash acquired’
12. Disposals – represents ‘proceeds from
sale of property, plant and equipment’
13. Cash conversion – is calculated as
EBITDA, less movement in trade working
capital and other operating cash flow
movements excluding interest and tax,
less minor capital expenditure (capital
expenditure less than $5.0M), as a
percentage of EBITDA
5. 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
8. Non trade debtors – represents the
‘other receivables’ portion of ‘trade and
other receivables’, and ‘other assets’, per
the financial statements
9. Non trade creditors – represents
the ‘other payables’ portion of ‘trade
and other payables’, per the financial
statements
10. Capital expenditure – represents the
‘payments for property, plant and
equipment’ and ‘payments for intangible
assets’ per the financial statements
30
Matisse Beach Club
by Oldfield Knott
Architects.
Photographer:
Cado Lee
DULUXGROUP ANNUAL REPORT 2017
31
Operating and Financial Review
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 engineering 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 and 70% are more than 20 years old.
Underlying market demand for this end market is generally 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 is expected to remain relatively strong throughout financial year 2018 due to the solid pipeline
of work. Although the number of annual completions is forecast to decline from a peak of ~222,000(2) in March 2017 to ~209,000(2)
in September 2018, the level of activity is still strong in a historical context. DuluxGroup businesses are strategically less exposed to this
lower margin sector.
Non-residential construction markets are expected to be solid. Engineering construction markets are expected to be flat with increases
in infrastructure spending to largely offset continued weakness in the resources sector. Engineering maintenance markets are expected
to remain solid.
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 titanium dioxide and latex resin, both of which are key ingredients
in paint. Raw material costs are expected to increase at well above inflation rates in financial year 2018 driven by titanium dioxide and latex.
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 growth.
Construction of the new Dulux Merrifield paint factory is now largely complete, with the facility set to commence production on time
and within budget. The plant is now into the commissioning stage and is progressing well. Scale up to full beneficial production levels
is expected to occur during the first half of the 2018 financial year. Details of the capex spend profile are outlined on page 30 of the
Operating and Financial Review.
In August 2017, DuluxGroup and PT Avia Avian Indonesia agreed to form an Indonesian joint venture company, PT Avian Selleys Indonesia.
The joint venture is 50.01% owned by DuluxGroup and will manufacture and market Selleys products in Indonesia. With minimal capital
investment, DuluxGroup will leverage Selleys technology, brand and market capabilities in a large and growing market, by partnering
with Avian, a leading Indonesian paint manufacturer with an extensive local distribution network selling in to approximately 40,000 retail
hardware outlets. The joint venture is expected to commence trading in the second half of the 2018 financial year.
Indicative revenue splits for DuluxGroup
(1)
(2) Source: BIS Oxford Economics
32
Overall Outlook
Subject to economic conditions and excluding non-recurring items, we expect that 2018 net profit after tax will be higher than the 2017
equivalent of $142.9M.
Directors expect to maintain a dividend payout ratio on NPAT before non-recurring items of at least 70% on a full year basis.
Outlook Commentary Related to Specific Business Segments
Dulux ANZ
• Targeting continued revenue and EBIT growth underpinned by positive markets and share gains
• We expect the operational commencement of the Merrifield paint factory to be fully absorbed within the Dulux result in
financial year 2018
– First half start-up and commissioning expenses ~$2M are expected to be offset by the gain on sale of the Glen Waverley site
– Incremental depreciation (which will commence upon beneficial production) is expected to be offset by cost savings
• Full year EBIT margins are expected to be in line with financial year 2017
Selleys & Parchem ANZ
• Selleys is well positioned for continued growth
• With its cost base and product mix greatly improved, and markets expected to bottom after multi year declines, Parchem will continue
to be repositioned for growth via an increased focus on commercial and civil construction markets and further optimisation of the
distribution model
B&D Group
• Targeting profit growth driven by further business improvement and growth initiatives in marketing, innovation and distribution
Lincoln Sentry
• The business remains well positioned for continued share growth, supported by the launch of its new online store
Other Businesses
• We expect growth from Yates, South East Asia and PNG to more than offset the investment in the UK business and Indonesian
joint venture
• A strategic review of the DGL Camel coatings portfolio is underway
Other:
• Corporate costs for the 2018 financial year are expected to be ~$30M
• The base effective tax rate is expected to be ~30%
• Annual depreciation expense for 2018 financial year, excluding Merrifield is expected to be ~$32M. In addition, Merrifield depreciation of
$7M (annualised) is expected to commence on a pro-rated basis early in the second quarter
• DuluxGroup is targeting operating cash conversion of 80%+ for the full year, excluding non-recurring cash flow items
• DuluxGroup is targeting improvements in point in time and rolling trade working capital in financial year 2018
• Financial year 2018 net finance costs are expected to be $1M – $1.5M higher than the 2017 expense of $17.3M (assuming constant
interest rates) after taking into account:
– Expected debt levels;
– Structural changes to financing arrangements (eg. expiry of interest rate swaps);
– Recognition of interest expense associated with the Merrifield factory capital expenditure once full beneficial production commences.
This interest has been capitalised during construction (financial year 2017 Merrifield capitalised interest was $2.9M); and
– The cessation of the unwinding of discounting on the Rocklea restructuring provision ($1.0M in financial year 2017).
• The Glen Waverley site was retained as back-up during construction of the Merrifield factory with an expectation that the site would
be sold in financial year 2018. Given the good progress with the Merrifield factory, the Glen Waverley site was classified as held for sale
at 30 September 2017, and early in financial year 2018 a sale contract was entered into. A profit on sale is expected to be recognised in
the first half of financial year 2018
• Capital expenditure excluding the Merrifield capital is expected to be ~$30M in financial year 2018. This level is less than financial year
2017 depreciation and amortisation (excluding Merrifield) of $31.3M, and is consistent with spend levels prior to the Merrifield project
(during which spend on other capital projects was tightened)
DULUXGROUP ANNUAL REPORT 2017
33
Operating and Financial Review
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
committee, 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.
34
Risk
Growth
Key customer
relationships
Business
continuity
including
catastrophic
event or hazard
in manufacturing
and distribution
operations and/
or IT systems
Competitive
threats / market
disruption
Erosion of brand
equity
Product liability
or other litigation
Key input
volatility
Regulatory –
safety
Industrial
Relations
Nature of Risk
Controls and Further Actions to Mitigate
An inability to identify and execute
sustainable growth opportunities in
local and offshore markets, 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.
DuluxGroup’s operations could
be impacted by accidents, natural
disasters, failure of critical IT systems,
cyber or other catastrophic events
that have potential to materially
disrupt its operations.
• 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 well advanced and will significantly reduce fire and
flood risks
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.
• 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
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.
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, which
could impact operating margins.
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.
DuluxGroup product supply
could be materially impacted by
prolonged industrial disputes related
to the renegotiation of collective
agreements.
• Active product stewardship focus
• Systematic quality assurance and testing process
•
•
Investment in product innovation
Investment in brands
•
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
• Heavy focus on disaster prevention, fatality prevention and
personal safety
• Significant investment in dedicated safety resources, training and audits
• Refer to the Corporate Sustainability Report for further information
• 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)
• Operations management team appointed and working in conjunction
with the project team
DULUXGROUP ANNUAL REPORT 2017
35
Project execution
risk – construction
of new water-based
paint factory
A significant delay or cost overrun
during commissioning could damage
DuluxGroup's reputation to deliver
future large scale projects.
Our Corporate
Sustainability
Report
WE BELIEVE THAT A STRONG CORPORATE
SUSTAINABILITY FRAMEWORK, PRACTICE AND
CULTURE TRANSLATES TO A STRONG COMPANY
THAT DELIVERS FOR ALL ITS STAKEHOLDERS
OVER THE LONG TERM.
36
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 doing business in a responsible and sustainable way is critical
for us to earn and maintain the respect and trust of all stakeholders including
our consumers, customers and communities, our people and our shareholders.
This report has been prepared by reference to the relevant core principles of the globally
recognised reporting framework developed by the Global Reporting Initiative (GRI).
The GRI reporting framework sets out the principles and indicators that organisations can
use to report their environmental, social and governance practices and performance.
Dulux is helping to paint every
Surf Live Saving Club in Australia
DULUXGROUP ANNUAL REPORT 2017
37
Our Corporate
Sustainability
Report
OUR COMMUNITIES
DuluxGroup is committed to being a welcome and positive
participant in our communities.
Our commitment encompasses:
• giving back to our local communities through giving and
volunteering programs to help them thrive;
• ensuring that our products and our operations cause no harm;
• employing thousands of local people;
• supporting the development of science and innovation through
collaboration and investment;
• paying our fair share of taxes in all regions in which we operate;
• contributing positively to public policy debate to best represent
the interests of our shareholders, employees, customers and community
and to advocate for the global competitiveness of Australian industry.
$1.2B
$390M
$98M
$57M
$45M
FROM OPERATING
INCOME OF $1.8B
Expenses
Tax expense
Employee wages
& benefits
Dividends
Retained for capital
and growth
DuluxGroup in the Community 2017
Of our $1.8 billion in revenue this year, approximately: $390 million went to wages and benefits for our 4,000 employees; $57 million was
contributed in company income taxes; $98 million was returned to shareholders in the form of dividends; $1.2 billion was paid in expenses,
including to thousands of suppliers – small, medium and large – some of which rely on DuluxGroup’s businesses for their own viability and
ability to employ. In addition, our employees contributed hundreds of hours volunteering to help out on community projects, to raise funds
and to provide mentoring or technical expertise to help those in need.
Here are just some of the examples of where our people took time out to help their local communities to imagine and create a better place:
• B&D employees in New Zealand building bicycles to donate to children living with cancer
• DuluxGroup employees in Perth volunteering time and donating products to renovate emergency crisis accommodation for women
and children escaping domestic violence
• Yates employees visiting schools to help students build community gardens and learn how to grow their own fruit and vegetables
• The Dulux Trade team raising more than $20,000 for Beyond Blue in partnership with Dulux Accredited Painters
• Cabot’s employees supporting Men’s Sheds throughout the country
• Dulux Australia donating paint and working with local Dulux accredited painters to renovate Cancer Council accommodation in Townsville
• Employees volunteering for Food Bank in Perth, Melbourne, Sydney and Brisbane
• Berger donating product to help young Sydney people brighten up local community spaces
• DuluxGroup New Zealand employees forming a band and putting on a concert to raise more than $NZ2000 for The Cancer Society
LOCAL SCHOOLS ‘LIVE THE JOY
OF THE GARDEN’
BERGER JET DRY GIVES KIDS
SOMETHING TO JUMP ABOUT
Yates employees are driven by a core purpose to help
their consumers and communities to ‘Live the Joy of
the Garden’. In early Spring 2017, more than 20 Yates
employees stepped away from their computers and got
their hands dirty in a Community Give Back Program. The
program saw three schools receive new gardens, which
they won through the Yates ‘Raise A Patch’ competition.
Students learned how to grow their own seedlings and
saw how easy it is to grow their own vegetables at
school and at home. The program is designed help Yates
employees get out into the community and share the
rewards of ‘living the joy of the garden’.
Berger Jet Dry sponsored the Mt Druitt Youth Placemakers
program to create a paving mural in a local shopping precinct.
The mural was designed by a group of 14-15 year olds as a game
for kids, to jump between the lily-pads and flowers. The team
worked with Berger Jet Dry AquaTread paint and colours to
draw the community to a previously unloved space.
Berger is supporting our local communities as they hunt for
more places to bring to life in this way.
38
Our employee volunteer work complements the more formal community support activities
that our businesses undertake each year. Examples include:
• Dulux sponsors the Melbourne School of Design (MSD) at Melbourne University to
foster excellence in architectural education. The Dulux Gallery at MSD hosts a range
of exhibitions designed to inspire innovation in architecture.
• Dulux is helping to paint every Surf Life Saving Club in Australia – helping to protect
the assets that protect and support our community.
• Feast Watson’s ‘Relove’ campaign, which this year raised $3,500 for the Salvation
Army and is now in its fifth year.
• Dulux Australia donating $15,000 to e.motion21, a not-for-profit organisation that
provides innovative dance and fitness programs for children and young adults with
Down syndrome. Dulux’s donation helps fund e.motion21’s annual concert which
takes place on World Down Syndrome Day. Dulux employees volunteer on the day
as marshals and organisers, while the Dulux Dog is on hand as support.
• Yates helped more than 3,000 students across 25 schools throughout Australia
to create outdoor classrooms and gardens as part of the Yates Junior Landcare
Grants for Gardens Program.
• Dulux provides paint to help the National Gallery of Victoria showcase permanent
and temporary exhibitions in colour perfect surroundings.
Dulux supports e.motion21 on
World Down Syndrome Day
SUPPORTING THE NEXT
GENERATION OF ARCHITECTS
The Dulux Study Tour is a coveted
program that inspires and fosters
Australia's next generation of architects.
Now in its tenth year, this year’s five
participants were selected from more than
200 applicants, following assessment by
a panel of esteemed Australian architects.
The talented five embarked on a tour of
Barcelona, London and Prague where they
experienced firsthand some of the best
architectural sites and practices. For the
participants, it’s a back-stage pass to some
of the brightest architectural minds in the
world. Dulux is proud to help foster our
emerging architectural ‘stars’.
Dulux Study Tour participants at the Ludwig
Mies van der Rohe designed ‘Barcelona Pavilion’.
DULUXGROUP ANNUAL REPORT 2017
39
DuluxGroup employs more than 130
scientists and technologists across its
businesses, and is one of Australia’s
largest employers of industrial chemists.
DuluxGroup currently employs 17 graduate
scientists as part of its three year graduate
program. In addition to its formal graduate
program, DuluxGroup has long-standing
collaborations to support university
students through industry projects,
placements and scholarships.
40
Supporting Australian Science and Innovation
DuluxGroup takes fundamental enabling science and, through marketing and innovation,
develops it into market leading brands, products and services.
A number of our businesses, including Dulux, Yates, Selleys and Parchem, have ongoing
collaboration with a range of tertiary institutions. This can include sponsoring PhD
students, offering internships and industry placements and collaborating on research for
broader economic and social benefit. During 2017, our businesses worked with Melbourne
University, the University of New South Wales, Monash University, Charles Sturt University,
the University of Sydney and CSIRO.
Investment in New Manufacturing Technology Delivers
Community Benefit
Dulux’s brand new world-class factory at Merrifield, north of Melbourne, uses the latest
technology and is delivering new jobs and tangible economic and social benefits for
the local community. This investment will have spill-over employment and research &
development benefits throughout our supply chain, including to suppliers of raw materials.
This $165 million investment in new manufacturing technology will have the capacity and
flexibility to support Dulux’s growing Australian business for decades to come..
The 2017 ‘Dulux Prize’ is awarded to
Sonia Poetrodjojo, BSc (Chemistry) Honours
student at the University of Melbourne. Dulux
has sponsored the award since 1987, to foster
academic excellence in chemistry.
With the opening of its new factory, Dulux
is investing in local jobs and manufacturing,
which is benefiting the local community
and broader economy.
TALENTED SCIENTISTS EARN A SUMMER IN THE LAB
Foregoing a well-earned summer break this year, five Monash Pharmaceutical
Science students spent their time undertaking an industry placement at the Dulux
Innovation Centre.
Dulux has a long standing relationship with the Monash Pharmaceutical (formulation)
Science course, providing a range of industry based activities throughout the
year. Industry placements provide valuable hands-on work experience that can be
difficult to obtain prior to graduating. Dulux is always a popular choice for industry
placements amongst students and, over the past few years, several students who
have been placed at Dulux have successfully secured full-time employment at the
Dulux Innovation Centre.
Monash University 3rd year science students participate in the Dulux industry placement,
with Dulux Chemists.
DULUXGROUP ANNUAL REPORT 2017
41
Our Corporate
Sustainability
Report
Ivanhoe Grammar Senior Years
and Science Centre by McBride
Charles Ryan, a finalist in this
year's Dulux Colour Awards.
Photographer:
John Gollings
Contributing to Public Policy and Debate
In 2017 DuluxGroup engaged with Government and contributed to public policy
debate through:
• Regular meetings with political representatives and government officials by our
Managing Director and CEO and senior executives
• Participation in industry forums and delegations through memberships of the
Business Council of Australia, Manufacturing Australia and the Plastics & Chemicals
Industry Association
• Submissions to Government Policy Reviews – specifically, the Australian
Government’s Review of the R&D Tax Incentive
• Hosting of political representatives at DuluxGroup sites to demonstrate the tangible
benefits of local investment in science, innovation and manufacturing
Some of the key issues raised included incentives for Australian industry to invest in
genuine research and development that generates Australian jobs and delivers a long
term economic and community benefit, and policies to ensure energy security and
affordability that allows Australian manufacturers to compete globally.
Tax Transparency
DuluxGroup’s tax culture is driven by our commitment to enrich the communities in which
we operate. Our community expects that DuluxGroup pays its fair share of taxes – and
we do. We manage our tax affairs appropriately and have robust governance, overseen
by senior executives, our Board Audit and Risk Committee and our full Board.
31%
In 2017, DuluxGroup adopted the voluntary Tax Transparency Code. DuluxGroup believes
that increased transparency will enable more informed tax policy debate. It will also build
community confidence in the integrity of Australia’s taxation system and highlight the
significant contribution made by Australian businesses.
24%
36%
2%
7%
Below is a summary of the taxes paid by DuluxGroup in regard to our global operations
in 2017. Please refer to our Tax Contribution Report 2017 for more detailed information,
which is available at www.duluxgroup.com.au.
DULUXGROUP
GLOBAL TAX
CONTRIBUTIONS
31%
24%
2%
7%
36%
DULUXGROUP
GLOBAL TAX
CONTRIBUTIONS
Corporate tax $50M
Fringe benefits tax $5M
Payroll tax $15M
Employee withholding taxes $77M
GST/VAT (net collected) $64M
Corporate tax $50M
Fringe benefits tax $5M
Payroll tax $15M
Employee withholding taxes $77M
GST/VAT (net collected) $64M
42
DULUXGROUP ANNUAL REPORT 2017
43
Our Corporate
Sustainability
Report
Sustainable Products
We are committed to ensuring that our products make a positive impact on our communities and that we minimise the risks throughout
our products’ lifecycles. Our improvement priorities for sustainable products are focussed on ensuring effective identification and
management of the material risks associated with our products. This includes a common strategic framework structured around three
critical risk areas.
Sustainable Products Strategy
Product stewardship
Chemicals of concern
Minimisation of potential harm from products throughout their life cycle, including
formulation, manufacture, distribution, use and disposal
Management of risks for hazardous chemicals used in products, particularly those with
potential long term health or environmental effects
Sourcing
Sourcing of products, raw materials and services in an ethical and responsible manner
Product Stewardship
DuluxGroup conducts an annual risk assessment and improvement process for all products, which is focused on reducing their
sustainability impacts. This includes all facets of products throughout their life cycle (cradle to grave), such as consumer safety, product
misuse, post-consumer waste, non-renewable resources, volatile organic compound (VOC) content, packaging, and distribution. We are
building on our long term focus on improvement in this area, which stems from our heritage under ICI’s global ownership. Our current
process was introduced in 2012 and more than 150 improvement actions continue to be implemented annually.
Chemicals of Concern
Managing the risks associated with hazardous chemicals used in formulation of our products, especially those with potential for long
term health or environmental effects (“chemicals of concern”), is an important priority. Historically this was managed through our product
stewardship process and many improvements have been implemented as a result (e.g. elimination of hazardous solvents from a large
range of paints, sealants and adhesives). A new group standard and management process for chemicals of concern was developed during
2016. This is to ensure we stay abreast of international toxicological and regulatory developments and that we apply a consistent approach
across all businesses. The process focuses on development of comprehensive risk management plans for all chemicals we identify as high
priority or restricted use.
Sourcing
DuluxGroup is committed to sourcing products in an ethical and responsible manner, and to ensuring that risks associated with our
significant expenditure on sourcing are well managed. Our newly developed ‘sustainable procurement policy and standard’ aims to ensure
that environmental, health and safety, labour conditions and human rights considerations (including modern slavery) are embedded in
procurement processes. Our goal is to only work with suppliers that are honest, transparent and committed to continuous improvement.
We do not accept non-conformance with our requirements related to fraud, bribery and corruption, child labour, forced/bonded labour
and illegal labour, and in such circumstances, will not proceed with supply until improvements are made. A formal supplier evaluation
process has been established and was piloted during the year, complementing an existing evaluation process for contract manufacturers,
which commenced in 2016.
Focus Area
2017 Priorities
Product stewardship
Stewardship risks, including:
• Completion of annual product stewardship improvement plans and risk
• post-consumer waste
• renewable resources
• consumer safety
• VOC content
• packaging
• distribution
assessments
• Completion of action plans associated with regulatory commitments,
including Australian Packaging Covenant and waste paint recovery
(Paintback)
Chemicals of concern
Hazardous chemicals used
in products
• Continuing to develop and improve risk management plans for high
priority chemicals of concern
Sourcing
Sourcing of products, raw
materials and services
• Continued evaluation of contract manufacture suppliers to identify
and manage sourcing risks
• Developed a new sustainable procurement policy and piloted completion
of an evaluation process to assess supplier policy compliance
44
2017 Performance
Product stewardship (improvement)
More than 150 improvement actions identified in annual Strategic Business Unit (SBU)
product stewardship plans were implemented. Examples include:
• Dulux Australia continued to be an active, founding member of Paintback, a
recovery scheme for leftover paint and packaging. More than 50 collection points
have been established across Australia (to 30 July 2017), with more than 4 million
kilograms collected.
• Dulux Acratex formulated and trialled a render product containing a Dulux Powders
by-product, while Parchem replaced cement in three Renderoc products with waste
fly ash.
• Yates introduced redesigned packaging for rodenticide products to reduce the
potential for children to access the products, while Dulux, Selleys and Yates introduced
enhanced labelling for safe use and disposal of aerosol products.
• Dulux Australia developed the first independently verified Environmental Product
Declarations (EPDs) for a range of premium architectural decorative paints, providing
comprehensive reporting of their environmental footprint (cradle to grave).
Product stewardship (community safety)
• There were no serious product incidents (Category 3) involving harm during product
use by consumers and customers during the year, compared with two such incidents
in 2016.
• There were no serious distribution incidents (Category 3) involving harm during
distribution of products to customers during the year, compared with one such
incident in 2016. There were no regulatory improvement and/or infringement notices
received compared with one in the prior year.
• Our emergency response service responded to 599 calls during the year, compared
with 555 calls in 2016. 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.
Chemicals of concern
Implementation of the group’s new chemicals of concern standard commenced, with
risk management plans developed for 50% of high priority chemicals. These plans have
identified a range of improvement actions and complement actions identified and
implemented via stewardship assessments. Examples include:
• Selleys developed new formulations for water based gap sealants and adhesives that
eliminate a commonly used chemical with potential for aquatic toxicity. Trials and
commercialisation are planned for 2018.
REDUCING PAINT WASTE
The Dulux Envirosolutions range
provides trade painters with practical
ways to dispose of waste paint,
without harming the environment.
Dulux Envirosolutions Waste Paint
Hardener turns unwanted water
based paints and water based
timber coatings into solid waste
for responsible disposal.
Dulux is also a founding member of
Paintback®, an industry led initiative
that prevents unwanted paint and
packaging going to landfill by
establishing collection and treatment
facilities around Australia. It is
investing in research to find ways to
re-purpose the valuable materials in
leftover paint.
The program is funded by a
15 cent per litre levy on products
sold by Australia's major paint
manufacturers. After 12 months, more
than 50 collection sites have been
established and more than 4 million
kilograms of paint and packaging
has been diverted from landfill (as
at July 30, 2017).
p a i n t b a c k . c o m . a u
®
®
p a i n t b a c k . c o m . a u
®
®
• DGL Camel replaced ethylene glycol in emulsion paints with a non-hazardous
®
®
®
®
alternative and reformulated solvent based wood coatings to eliminate a common
hazardous solvent.
p a i n t b a c k . c o m . a u
p a i n t b a c k . c o m . a u
Sourcing
Dulux, Selleys and Yates continued implementation of an evaluation process for key
contract manufacturers that commenced in 2016, with more than 30% of significant
spend manufacturers now formally evaluated and approved. Lincoln Sentry and Dulux
piloted the new supplier evaluation process for sustainable procurement, with formal
implementation to commence across the group in 2018.
DuluxGroup recognises the importance of a viable and productive network of suppliers,
including the many small businesses who make up our supply chain. In 2017, DuluxGroup
became a signatory to the Australian Supplier Payment Code. This is consistent with
DuluxGroup’s sustainable procurement practices and our already established practice
of paying suppliers in a timely manner.
DULUXGROUP ANNUAL REPORT 2017
45
Our Corporate
Sustainability
Report
OUR ENVIRONMENT
Sustainable Operations
Our improvement priorities for sustainable operations are focussed on ensuring effective identification and management of the material
risks associated with our sites. This includes a common strategic framework structured around three critical risk areas.
Sustainable Operations Strategy
Resource efficiency
Land protection
Compliance
Minimisation of operational resource use and impacts, including waste generation,
water consumption and energy consumption
Management and prevention of soil and groundwater contamination
Management of operational environmental risks (e.g. air, odour, noise, waste, effluent)
to meet regulatory standards and community expectations
Development and implementation of landfill waste reduction plans targeted to the largest waste generating sites has comprised our
primary resource efficiency focus to date. Landfill waste generation levels have declined 25% over the last decade and a number of our
largest sites have achieved significant reductions. This has been offset in recent years by implementation of reporting across acquired
sites. During 2018 we will move to a focus on total waste generation (e.g. landfill, recycling, recovery) and materials efficiency reviews
to identify further reduction opportunities.
Benchmarking indicates that our energy and water consumption levels are not highly significant compared with peer organisations and
this is consistent with the nature of our manufacturing operations. A number of sites have implemented improvements in this area over
time and we have recently completed a review of energy efficiency. LED lighting and solar in selected locations were identified as the
key improvement opportunities and these are currently being pursued.
Prevention and management of soil and groundwater contamination is an important priority, particularly for our sites handling chemicals.
We apply a targeted assessment and monitoring approach to our existing and acquired sites to ensure any risks are identified and
managed. Localised, stable contamination associated with historic activities exists on some older sites, however no remediation is
currently required.
Ensuring operational environmental compliance in order to meet regulatory standards and community expectations is a foundation of
our approach to risk management. A new program of specialist audits has recently commenced to ensure this is achieved and sustained.
Focus Area
2017 Priorities
Resource efficiency Resource efficiency
•
Implementation of waste reduction improvement actions for priority sites
(waste, water, energy)
• Review of energy efficiency improvement opportunities and development of plans
Land protection
Soil and groundwater
• Continued monitoring and investigation of soil and groundwater contamination risks
Compliance
Environmental
compliance
• Commenced a new environmental specialist audit program
46
2017 Performance
Waste generation
Waste to landfill (kilograms per tonne of production) decreased 1% to
14.7 kg/t. Significant waste reductions were achieved across some businesses,
including decreases of 41% across Parchem and 11% across B&D Group. These
improvements were largely offset by increased waste generation at Selleys
Padstow, associated with operation of a waste water treatment plant.
Water consumption
Water consumption (kilolitres per tonne of production), including water used
in production processes and in products as a raw material, increased 2%
to 0.62 kL/t, due to increased consumption at DGL Camel Dongguan. The
paints and coatings businesses account for more than 75% of group water
consumption, with approximately 40% of this water used as raw material in
formulation of water based products. Excluding DGL Camel, water consumption
across the Dulux paints and coatings businesses declined 9%.
Energy consumption and Greenhouse gas emissions
DuluxGroup is not an energy intensive manufacturer. Total energy consumption
(gigajoules per tonne of production) decreased 5% to 0.73 GJ/t. This reduction
was associated with a plant shutdown at Yates Wyee for a major project and
closure of the Dulux Padstow and Selleys Moorebank warehouses in late 2016.
DuluxGroup meets the Australian National Greenhouse and Energy Reporting
Scheme (NGERS) reporting criteria, primarily 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 31,100 tonnes (CO2-e or
equivalent carbon dioxide emissions), 7% lower than 2016. Total energy consumed
was 547,000 GJ, 13% higher than 2016. These variations were due to changes in
solvent raw material mix and changes in calculation methodologies.
20
15
10
5
0
.
9
8
1
.
4
4
1
.
6
3
1
.
8
4
1
.
7
4
1
.
8
3
1
8
.
1
1
2011
2012 2013 2014 2015 2016 2017
Waste to Landfill (kg/t)
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
8
7
0
.
8
6
0
.
4
6
0
.
1
6
0
.
2
6
0
.
3
5
0
.
9
4
0
.
2011
2012 2013 2014 2015 2016 2017
Water Consumption (kL/t)
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
7
7
0
.
4
7
0
.
5
7
0
.
1
7
0
.
7
7
0
.
7
7
0
.
3
7
0
.
2011
2012 2013 2014 2015 2016 2017
Energy Consumption (GJ/t)
Land protection
A number of soil and groundwater investigations have been undertaken in prior years. Further monitoring was completed
during the year and no significant issues were identified.
Compliance
A new program of environmental specialist audits commenced, with four factories completed during the year.
Community
There were no serious community or environmental incidents (Category 3) during the year, consistent with none in 2016.
There were no regulatory improvement and/or infringement notices received compared with two in the prior year.
DULUXGROUP ANNUAL REPORT 2017
47
Our Corporate
Sustainability
Report
Climate Change
DuluxGroup is committed to operating efficiently to limit our own climate change impact
while adapting to the effects of climate change.
Reducing our Impact on the Climate
While our operations are not resource intensive relative to other benchmarked
manufacturing organisations, our focus on resource efficiency ensures that we optimise
energy and water use to limit the impacts of our activities on the environment.
DuluxGroup reports energy use and scope 1 and scope 2 greenhouse gas emissions
under the National Greenhouse Energy Reporting Scheme (NGERS). More than 80% of
our greenhouse gas emissions arise from electricity consumption with the remainder
associated with use of natural gas, diesel and LPG fuels. DuluxGroup will continue to
report NGER and corporate resource efficiency performance as a means of tracking
improvements in energy efficiency and water consumption.
An assessment of the footprint of raw materials and services in 2017 has identified the
most carbon-intensive inputs to our business. This information will be utilised in our
Product Stewardship program to identify opportunities to reduce the life-cycle carbon
footprint of our products.
Reducing the Impact of Climate Change on Our Operations
It is recognised that rising energy prices, declining reliability of energy supply and water
scarcity could impact on our operations and put upward pressure on the price of utilities
and raw materials. We use a combination of procurement strategy and operational
efficiency to reduce our exposure to rising utility prices.
Climate change forecasts show a likely increase in the intensity of extreme rain events and
harsher fire weather in southern and eastern Australia (CSIRO and Bureau of Meteorology,
Climate Change in Australia 2015). DuluxGroup manages this risk through business
continuity risk planning, infrastructure design and risk assessment processes and site
emergency planning.
48
DULUXGROUP ANNUAL REPORT 2017 49
Our Corporate
Sustainability
Report
OUR PEOPLE
At DuluxGroup, we believe that our diverse,
skilled and engaged workforce is critical
to our success. As a growing, multi-brand,
increasingly global organisation, with
more than 4000 employees in Australia,
New Zealand, Europe, Papua New Guinea,
South East Asia and China, our people
are bound together with a common
purpose: “To Imagine a Better Place for
our Consumers”.
Our Values and Behaviours
Our values are the foundation of the way
that we work, internally and with all our
stakeholders. They are reinforced to all
our new employees who attend a values
workshop, as part of their induction. We
celebrate those who are outstanding
examples of Living our Values through
quarterly and annual values awards.
Be consumer
driven,
customer
focused.
Unleash your
imagination.
• Walk in the shoes of our consumers
& customers
• Ask, listen, learn and act
• Help your customers win
• Use and understand our products
• Think like tomorrow’s consumer
• Challenge the status quo – imagine ‘what if’
• Seek, encourage and support new ideas
• Fight for good ideas and don’t give up
• Embrace change and get on board
• Be brave – make it happen
Value
people, work
safely and
respect the
environment.
• Protect yourself and others – work safe,
home safe
• Work as a team, win as a team for DuluxGroup
• Behave with respect and integrity,
embrace diversity
• Lead, recognise, help others succeed
• Strive to leave our environment better than
we found it
• Participate in our communities
Run the
business
as your own.
• Know your role, be accountable & deliver
• Take a responsible approach to costs
• Plan for tomorrow, act today
• Build partnerships that add value
• Be decisive
Employee Engagement
Our DuluxGroup Vales and Behaviours underpin our world class levels of employee engagement. We measure our employee engagement
every two years using KornFerry HayGroup’s global engagement survey. We invite all our people to respond and enjoy a very high
response rate of above 90%. This year, our engagement was 72%, which is above the Asia Pacific standard and in line with the norm
for high performing companies globally.
The survey highlights that our people recognise and value that DuluxGroup is a caring place to work, where we support each other and
place a high value on safety and reducing our impact on the environment. It also reinforces the high value our employees place on our
strong customer focus, where they can be proud to showcase our premium brands and provide first class products and service.
Safety at Work
Our safety improvement priorities are focussed on ensuring effective identification and management of the material risks associated
with our operations and people. This includes a common strategic framework structured around three differentiated risk areas.
Safety Strategy
Disaster prevention
Fatality prevention
Injury prevention
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
This differentiated strategic approach recognises that a singular management focus on everyday injuries does not prevent high
consequence events such as major fires or fatalities. 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 of safety risk management is achieved via regular management reviews and due diligence processes that focus on
both safety and sustainability (products, environment).
50
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
All members of our Group Executive are on the Safety and Sustainability Council,
which 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. The role of
leadership, and therefore culture, is recognised as critical to achieving success and we continue to invest in a differentiated development
approach. Since introduction commenced in 2012, more than 200 managers have completed our safety and sustainability leadership
program (focused on how to influence and create culture) and over 400 managers have completed our safety and sustainability
management program (focused on how to effectively manage risks).
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).
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 33 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.
A global best practice review of our process safety management framework by external specialists in 2016 rated our approach at 83% versus
342 organisations and operating sites with similar risk profiles (that is, we are operating in the top 17%). While several elements of the group
framework were rated as excellent, some best practice improvement opportunities were identified and we are focused on addressing these
in order to further enhance our approach.
Focus Area
Process safety
Manufacturing with
flammable solvents
and combustible dusts
2017 Priorities
• Completion of new Periodic Hazard Studies at three factories (Yates Wyee, Selleys
Padstow, Dulux Glenfield)
• Continued implementation of improvement plans at all factories where studies have
previously been completed, including six-monthly progress reviews and use of lead
indicator scorecards
• Disaster prevention protocol reviews at all relevant factories and implementation
of actions to address any identified significant gaps
• Commenced implementation of best practice improvements identified during the
2016 external specialist review of our management framework
Dangerous goods Storage, handling and
• Completion of specialist dangerous goods audits and associated improvement
distribution of dangerous
goods
actions at a number of sites
2017 Performance
Process safety
There were no major process safety near miss incidents (Category 4) during the year, following one such incident in 2016 (Parchem
Wyong solvent spill). More than seven years has now elapsed since the last major near miss incident across our heritage Dulux,
Selleys and Yates businesses, and more than three years at DGL Camel in China. This represents significant improvement over time.
Dangerous goods
There were no serious incidents involving storage and handling of dangerous goods (e.g. loss of containment) across the business
during the year. There were no regulatory improvement and/or infringement notices received, compared with one in 2016.
DULUXGROUP ANNUAL REPORT 2017
51
Our Corporate
Sustainability
Report
Fatality Prevention
DuluxGroup has been fatality-free for more than 23 years. 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 2017 we continued this improvement work in order to protect our people and ensure we sustain our current fatality-free
performance. From further benchmarking with peer organisations in similar risk sectors, we continue to recognise that this is
an exceptional safety performance, however it cannot be taken for granted and the imperative for constant improvement in our
management of significant fatality risks remains.
2017 Priorities
• Continued further implementation and verification of fatality prevention protocols
that commenced in prior years. This included actions relating to electrical safety, falls
prevention, traffic management and lifting equipment.
•
Introduced new protocol best practice reviews of the 14 largest sites, designed to
drive full compliance to protocol requirements and identify best practice solutions
for sharing across sites.
Focus Area
Fatality risks
Common fatality risks,
including:
•
forklifts
• racking
falls
•
• electrical safety
• machine guarding
•
lifting equipment
• traffic management
• driving
2017 Performance
Near misses
There were no major near miss incidents (Category 4) involving fatality risks during the year, with more than two years having elapsed
since the last such incident. Serious near miss incidents (Category 3) decreased 45% to the lowest level on record since our focus on
near miss reporting first started in 2007.
Reporting
Steady progress was made in ensuring we sustain a proactive culture for identification and
reporting of all hazards and near misses (“Total General Learning Incidents”), with total
numbers increasing 11% to a positive, historic high level of 3.9 per employee.
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
9
3
.
5
3 3
3
.
.
9
2
.
6
2
.
2
2
.
9
.
1
2011
2012 2013 2014 2015 2016 2017
Total General Learning Incidents
52
Injury Prevention
During 2017 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 hazard reporting.
Focus Area
Injuries and
health
Common non-fatal injury
risks and associated
compensation claims,
including:
• manual handling
• sharp objects/tools
• chemicals
• noise
• slips, trips and falls
• health and well-being
2017 Priorities
• Continued implementation of targeted reduction plans for the 20 sites/areas that
account for the majority of injuries
• Continued improvements in management of compensation claims and premiums
• Completed over 1,200 health assessments and over 500 hygiene tests to monitor
employees working with chemicals or high-risk activities
• Conducted various well-being activities, such as health initiatives (e.g. walking, diet)
and piloting of a new mental health awareness program
2017 Performance
Injuries
Our Recordable Case Rate, or the total number of employee and contractor injuries
requiring time off work, restricted duties or medical treatment per 200,000 hours,
decreased 1% to 1.62 (representing 69 recordable injuries). This was in line with our
2016 injury performance and represents our second lowest level in the last 11 years.
Additionally, benchmarking shows that this is top quartile performance for our industry.
Our serious injuries (Category 3), involving more than 10 days of lost and/or restricted
time, increased 13% and involved 34 injuries. These injuries were predominantly manual
handling related strain injuries and the 2017 level remains 32% below our peak level
recorded in 2015.
6
9
.
1
5
8
.
1
1
8
.
1
4
8
.
1
3
5
.
1
3
6
.
1
2
6
.
1
2.0
1.5
1.0
0.5
0.0
2011
2012 2013 2014 2015 2016 2017
Recordable Case Rate
Claims
Compensation claims performance was positive, with claim numbers and compensation premiums reducing 26% and 8% respectively
to historic low levels.
Compliance
There were no regulatory prosecutions or prohibition notices received during the year, consistent with none in 2016. There were
three improvement and/or infringement notices received compared with one in the prior year, all of which were fully addressed.
DULUXGROUP ANNUAL REPORT 2017
53
Our Corporate
Sustainability
Report
Diversity and Inclusion
Building a diverse and inclusive workforce to deliver our business strategy continues to be a key priority for DuluxGroup’s management
team and the Board.
12%
18% 1%
69%
EMPLOYEES
BY LOCATION
We recognise that diverse and inclusive workplaces deliver engaged employees, innovative thinking and improved results. We think about
diversity in terms of gender, culture and age, as well as diversity of experience, skills and thinking. We aim to create a culture where each
individual can bring their unique perspective to the work, share ideas, feel heard and achieve their potential. This is reflected in our value
of ‘embracing diversity’.
A copy of our diversity policy can be found on our website at www.duluxgroup.com.au.
12%
18% 1%
69%
Building a Diverse and Inclusive Culture
DuluxGroup currently operates in ANZ, Asia and the UK with more than 4,000
employees from diverse backgrounds.
We are focused on building an inclusive culture through:
• recruiting for diversity of experience and background
•
incorporating inclusive leadership principles in all our leadership programs
• celebrating initiatives that encourage diverse and inclusive work cultures.
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 2017
• Women make up 33% of our workforce in ANZ and 31% globally.
• Women make up 38% of our applicants to DuluxGroup, up from 31% in 2016.
• Women make up 25% of our senior leadership roles, up from 23% in 2016.
• Three of our business units are run by women.
EMPLOYEES
BY LOCATION
Australia
New Zealand
Asia
UK
Australia
New Zealand
Asia
UK
• We have commenced quarterly tracking of the percentage of women on our business leadership teams.
We report our progress on gender diversity to the Workplace Gender Equality Agency on an annual basis. Our Gender Equality Indicators
as defined by the Workplace Gender Equality Act can be found on the WGEA website at www.wgea.gov.au/report/public-reports.
Increasing the Percentage of Women in Leadership
Our gender diversity strategy has a focus on increasing the percentage of women in leadership in DuluxGroup. We recognise that
providing flexible work is a key factor in retaining talented women through the crucial middle years of their careers. DuluxGroup has
long supported employees with flexible work arrangements, including part time, job share, working remotely, and staggered hours.
Women currently represent 25% of our senior leadership, up from 23% in 2016 and just 15% in 2012. We continue to increase our women
in leadership by attracting talented women, retaining women in the middle years of their career through flexible working and active career
pathing, and identifying and accelerating high potential women in our talent acceleration program.
In particular, we are focused on developing women in roles with ultimate ownership of business profitability. We are one of the 37% of
ASX200 companies with a woman in a line role on our Executive team. (Source: Chief Executive Women’s 2017 Senior Executive Census)
Our key business areas run by women include: Dulux Retail, Yates, Cabot's, Dulux Marketing and Innovation and Selleys Global
Marketing Director.
From left: Jennifer Tucker
(Executive General Manager
– Yates), Natalie Ruuska
(General Manager – Cabot's),
Dorothy Grouios (General
Manager – Dulux Retail),
Helen Fitzpatrick (Director, Dulux
Marketing and Innovation) and
Joanne Smith, (Global Marketing
Director, Selleys).
Attracting and Retaining Women to DuluxGroup
Our sector is viewed as traditionally male-dominated. However, we have had good success attracting women to work at DuluxGroup
by promoting our employee value proposition. In 2017, 38% of applicants were female, up from 31% in 2016. 72% of roles had women
on shortlists, with 57% of these roles filled by women.
We offer 12 weeks paid parental leave for the primary care-giver. While on parental leave, we encourage parents to keep in touch with
the organisation, resulting in an 89% return rate of women after parental leave.
Gender Pay Equity
DuluxGroup is committed to gender pay equity. We conduct an annual pay equity analysis. Our process ensures that all roles are
rewarded at competitive market rates and that there is no gender differential when setting salary levels or awarding incentives to
employees. All employees are considered against job size, merit, and experience to ensure that any pay inconsistencies that do not
relate to job performance are rectified.
54
Our Dulux Merrifield site is a state of the art $165 million
manufacturing facility in the northern suburbs of Melbourne.
As a greenfield site, it provided us with a unique opportunity
to create a culturally and gender diverse workforce,
representative of the community that we operate in.
The team built a recruiting process that minimised bias and
tapped into diverse talent pools.
• We tapped into non-traditional talent pools by
understanding the intrinsic qualities required for the role
and recruiting for those (rather than experience in paint
manufacturing or operator work).
• We attracted diverse applicants by: engaging directly
with community groups and residents including the local
council careers teams and the Hume Council Immigrant
Women’s Association; and showcased women and
culturally diverse employees on the Dulux Merrifield
website, billboards, and in other recruitment material.
• The recruitment process had a strong focus on removing
opportunities for unconscious bias through utilising
extensive objective, online testing and assessment
centres, rather than a standard CV and interview.
This resulted in diverse team with a range of cultural
backgrounds and experience, as well as a large
percentage of women.
DULUXGROUP ANNUAL REPORT 2017
55
Our Corporate
Sustainability
Report
NAWO INTERNSHIP
DuluxGroup is committed to increasing the number of women in supply chain,
traditionally male dominated. We participate in the National Association of Women in
Operations (NAWO) Path4Graduates intern program which offers project based, paid
internships to female university students. This initiative aims to attract talented women
to operational careers.
“During my internship, I’ve had the opportunity to gain insights into what’s involved
in large scale production; from supply chain planning, to procurement, logistics
coordination, engineering and production floor operations. Learning not just about
the procedures that go into production but the people behind them and how they
implement DuluxGroup values daily has been invaluable, and provided a fantastic
example of what I can expect from my career with DuluxGroup.”
Carly, NAWO intern at DuluxGroup who has recently been offered a role in our graduate
program in Supply Chain.
Gender Diversity Key Statistics
Number and Percentage of Women
Board
Non-Executive Directors
DuluxGroup Executive
Senior Leadership*
Organisation**
Graduates (ANZ)
2017
2016
Number
Percentage
Number
Percentage
1 of 7
1 of 5
2 of 9
2 of 8
2 of 6
3 of 10
14
20
22
25
31
46
25
33
30
23
30
46
* 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.
** Inclusive of our global workforce.
Diversity and Inclusion Governance
Board
Board Committee
Executive Council
The Board is responsible for setting the diversity objectives.
A Board Remuneration and HR Committee meets four times per year to review
performance against objectives.
All members of our Group Executive are on the Diversity Council, which meets three
times per year to review performance, approve strategy and lead implementation, in
addition to regular reviews at Group Executive meetings.
DULUX TRADE CENTRES: CELEBRATING DIVERSITY
Dulux has a network of 89 Trade Centres
across Australia. Our employees in the
Trade Centres are drawn from their local
communities and represent the cultural
diversity of our customers. We have a
number of initiatives to recognise and
celebrate the diversity within our business
and our customer base.
These include events such as 'Harmony
Day', where our Dulux Trade Centres hold
a morning tea with store staff to celebrate
their cultural diversity. All employees are
encouraged to bring in an international
dish to share with colleagues and to learn
a little of their heritage.
56
Developing our Next Generation of Leaders
Graduate Development
Our three-year Graduate Development Program offers recent university graduates work in real jobs, while providing them with structured
development opportunities. Graduates join across our business, including as graduate chemists, marketing product managers, site
engineers and business analysts. Over the course of the program, they move between functional areas, locations, businesses and brands.
The Graduate Development program delivers much more than technical skills and knowledge – DuluxGroup is developing our graduates
to be leaders of the future. During the three-year development program, they experience skills and development programs on finance,
project management, presentation skills, communication skills and a variety of business simulations. The graduates do field work, spend
time in various parts of the business and develop a holistic view of DuluxGroup. Our Executive team and other senior leaders actively
sponsor and mentor graduates.
Talent Acceleration
We offer a number of leadership programs to support our people to progress their careers through the organisation. This includes our
talent acceleration program for ‘Future Leaders’. The program offers focused development in people leadership skills, business acumen
through a 10 week business simulation program, and mentoring by our senior leaders.
Employee Relations
We operate under many jurisdictions with differing workplace laws. We are committed to complying with our legal obligations in relation
to our employees, and use both individual and collective arrangements. We recognise and respect the right of our employees to have
representation of their choice.
Top: DuluxGroup Graduates from around the globe gather at the annual Graduate dinner with Managing Director and CEO Patrick Houlihan
Bottom: Regular workshops help Graduates develop skills and knowledge
DULUXGROUP ANNUAL REPORT 2017
57
Our Corporate
Sustainability
Report
OUR GOVERNANCE
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. 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.
Our corporate governance framework includes:
An experienced
and engaged Board
of directors and
management team.
Clear and transparent
communication with our
shareholders.
Strong risk management
and assurance processes
and culture.
Our Values and Behaviours
and supporting policies
that underpin how
we do business.
DuluxGroup’s corporate governance framework complies with the 3rd edition of the ASX Corporate Governance Council’s Corporate
Governance Principles and Recommendations (ASX Principles). For more information, read our latest Corporate Governance Statement
at www.duluxgroup.com.au.
Board and Committees
The Board’s primary role is to ensure the protection and enhancement of long term shareholder value taking into account the interests
of all stakeholders. The Board has four standing committees that assist the Board in discharging its responsibilities. These cover audit
and risk, remuneration and human resources, safety and sustainability, and Board succession and performance. Read our Board and
Committee Charters at www.duluxgroup.com.au.
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.
Board Skills, Experience and Diversity
Strategy
and Growth
7
Remuneration
5
Leadership
7
7
6
5
4
3
2
1
Financial
Acumen
7
Governance
and Risk
Management
7
5 Industry
Experience
Experienced
CEO
6
5
Safety and
Sustainability
6
Mergers and
Acquisitions
7
International
Experience
5
Marketing
and Innovation
6
Manufacturing
and Supply Chain
Number of Directors
GENDER
%
14 Female
86 Male
AGE
%
43 40–50years
57 60+years
Tenure
No. of Directors
5
1
1
7 years
6 years
1 year
58
The Board has an active continuous education program in place. During 2017, this program included:
• a visit to Dulux Australia’s new $165M paint manufacturing facility in Merrifield, Melbourne;
• tours of the USA, the United Kingdom and broader Europe to give the Board insight into growth opportunities, DuluxGroup’s
operations and the relevant markets; and
• presentations from key customers as well as subject matter experts on issues including marketing, technology, remuneration,
capital markets and accounting developments.
More information on our Board members can be found on pages 60 to 61. Also, read our Corporate Governance Statement at
www.duluxgroup.com.au for more information about our Board including our appointment, evaluation and succession planning
processes, our independence policy and our expectations about managing conflicts of interests.
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. This includes operational, financial and strategic delivery, risk management, leadership and
oversight of people and culture. 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. More information on our DuluxGroup executive team can be found on pages 62 to 63.
Shareholder Engagement
DuluxGroup is committed to open, clear and timely communications with its shareholders. Our Shareholder Communications Policy and
investor relations program encompasses our commitment to provide two-way communications through a number of channels including
our website, AGM, Annual Report, ASX disclosures and engagement with investors, governance bodies and the media. We are also
committed to encouraging greater online and electronic communications, including through improving the functionality of our website.
Read our Corporate Governance Statement and our Shareholder Communications Policy for more information at www.duluxgroup.com.au.
Risk Management Framework
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.
We also have robust crisis management and disaster recovery plans in place, demonstrated by our response to the Queensland floods
in 2011. By understanding and managing risk, greater certainty and confidence is provided to all our stakeholders.
• The Board’s Audit and Risk Committee reviews the company’s overall risk management framework each year and regularly meets
with representatives from various business units to discuss the key risks affecting their businesses
• Our key business units and functions, together with the DuluxGroup Executive and the Board, review and update the Company’s
risk register on an annual basis
• The top 20 risks on the register are then systematically reviewed by the DuluxGroup Executive during the course of each year including
controls and mitigating actions
• We also carry out theoretical and company-specific crisis management exercises from time to time with the assistance of external
specialists to test our crisis management plans.
Read our Corporate Governance Statement on our website for more information.
Governance Policies
DuluxGroup people are united by shared values that underpin the way we ultimately deliver our core purpose. These values are supported
by our Code of Conduct and policy framework. It is expected that all our people observe the highest ethical standards of corporate and
business behaviour.
• Code of Conduct: This sets out the standards of business conduct required of all our people. This also includes a commitment
to comply with all applicable laws and regulations. A Speak Up line has been established to enable our people to report (on an
anonymous and confidential basis) breaches of the Code of Conduct. Our Speak Up line is available to all DuluxGroup employees
around the world and can be reached any time, day or night. If a report is made, it is escalated for investigation and action.
We prohibit retaliatory action against any employee, officer or director who reports a possible violation.
• Fraud, Bribery and Corruption Control: We have a zero tolerance stance towards fraud, bribery and other improper behaviour.
We are committed to the prevention and detection of fraud and bribery (including in both local and foreign jurisdictions) through
the development and implementation of our Fraud, Bribery and Corruption Control Policy and Framework along with our Gifts and
Entertainment Policy. We recently refreshed these policies, as well as our training and monitoring programs, to ensure they meet the
highest standards globally including those required under the relevant UK and US legislation.
• Political Donations: From time to time, we attend events hosted by political parties where relevant topics are being discussed,
however, we do not make political donations. Our policy is that all political donations must be authorised by the DuluxGroup CEO
and CFO. Any donation proposed by the CEO or CFO must be approved by the Chairman of the Board. All political donations must
be disclosed as required by law, and appropriately recorded in the DuluxGroup accounts.
• Competition and Consumer Law: We take our legal obligations in relation to promoting competition and protecting consumers
very seriously. We have robust policies, systems and training programs in place. Each of our people is responsible for compliance –
no employee, whatever his or her position, is permitted to contravene this policy, and ignorance is no excuse.
• Privacy: The privacy of our consumers’ personal information is of the utmost importance to us. We are committed to protecting all
personal information that we collect and we have policies and procedures in place to ensure we meet the Australian Privacy Principles.
Other policies and procedures relevant to our corporate governance practices can be found on our website.
DULUXGROUP ANNUAL REPORT 2017
59
Our Board
Peter Kirby
Patrick Houlihan
BEc (Hons), MA (Econ), MBA
BSc (Hons), MBA
Chairman and Non-executive Director
since July 2010. Chair of the Remuneration
and Human Resources Committee and
Chair of Nominations Committee. 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.
Managing Director and Chief Executive
Officer since July 2010. Member of the
Safety and Sustainability Committee and
Nominations Committee.
Former CEO of Orica Limited’s
DuluxGroup division and member of
Orica Limited’s Group Executive from
February 2007 to July 2010. Patrick joined
DuluxGroup in 1989 as a research chemist,
where he worked for the first nine years.
Patrick was also the Yates General
Manager, Selleys Sales Director and Dulux
Marketing Director. Patrick is a Director of
the Murdoch Children’s Research Institute.
Andrew Larke
LLB, BComm, Grad Dip
(Corporations & Securities Law)
Non-executive Director since
October 2010. Member of the Audit
and Risk Committee, member of the
Remuneration and Human Resources
Committee and member of the
Nominations Committee.
Director of Diversified United Investment
Limited since March 2015. Director of Ixom
Limited (formerly the Chemicals division
of Orica) since March 2015. He was the
Managing Director and CEO of Ixom from
2013 to 2015 and was Global Head of
Group Strategy, Mergers & Acquisitions
at Orica for 12 years. Prior to that, he was
General Manager of Strategy, Mergers &
Acquisitions at North Limited.
Graeme Liebelt
BEc (Hons)
Non-executive Director since June 2016.
Chair of the Safety and Sustainability
Committee and member of the
Remuneration and Human Resources
Committee and member of the
Nominations Committee.
Chairman of Amcor Ltd since
December 2013, Director of Amcor Ltd
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 DuluxGroup from 1995 to 1997.
60
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.
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 Human Resources
Committee and Nominations Committee.
Chairman of Helloworld Limited since
October 2016, Director of Treasury Wine
Estates Limited since September 2012 and
Director of Myer Holdings Limited from
September 2017. A former director of Spotless
Group Holdings Limited from March 2014 to
August 2017 and Chairman from February
2017, Chairman of PanAust Limited from
2008 to 2015, Director of Integral Diagnostics
Limited from October 2015 to March 2017,
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.
Judith Swales
Simon Black
BSc Microbiology and Virology
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.
Non-executive Director since April 2011.
Member of the Audit and Risk Committee,
member of the Safety and Sustainability
Committee and member of the
Nominations 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.
DULUXGROUP ANNUAL REPORT 2017
61
Our Executive
62
Patrick Houlihan
BSc (Hons), MBA
Managing Director and
Chief Executive Officer.
Stuart Boxer
BEng (Hons)
Executive Director and
Chief Financial 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.
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.
Martin Ward
Jennifer Tucker
Executive General Manager – Selleys
LLB, BCom
Martin was appointed to his current
role in April 2014. He leads the Global
Selleys and Parchem business units
and has extensive business leadership
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,
marketing and operational roles over
25 years with DuluxGroup. Martin was
also a partner at Origin Capital Group in
the merchant banking sector, Company
Director at retailer Inspirations Paint
and Board Member at the Camp Quality
Children’s Cancer Charity.
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.
Patrick Jones
BBus (Hons), CPA
Chief Operating Officer
– 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.
Richard Stuckes
Chief Operating Officer
– DGL International.
Richard joined DuluxGroup in his current
role in April 2017. Richard has broad
international experience and expertise
in consumer facing businesses, built
over a 25 year career working in the
UK, Europe, Asia and the United States.
He joined ICI Paints (now Akzo Nobel)
in 2005 and was Managing Director of
the business in the UK, Ireland, Europe,
Middle East, Africa and China during
more than eight years with the company.
Prior to that, during a 13 year career
with Philips Lighting, he was Managing
Director of the Philips business in regions
including the UK, Spain and Portugal.
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).
Murray Allen
Siobhan McHale
B App Sc, Dip Ed, DBus, MBA
BA (Hons), MSc
Executive General Manager
– B&D Group.
Executive General Manager
– DuluxGroup Human Resources.
Murray was appointed to his current role
on 1 January 2017. He joined DuluxGroup
in 1989 and has progressed through
a series of sales and marketing roles,
including National Sales Manager for
Cabot’s and General Manager of Retail
Channels for Dulux. Most recently
Murray was General Manager of DGL
International Paints. Prior to that he
was Marketing & Technical Director for
Dulux Paints ANZ and General Manager
of Consumer Focus DuluxGroup. For
a period from July 2005 to February
2010, Murray held senior roles outside
of DuluxGroup, including CEO of Sabco
Australia and General Manager of
Stanley Australia.
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.
DULUXGROUP ANNUAL REPORT 2017
63
Financial Report
Directors’ Report
As at 15 November 2017
Contents
Directors’ Report
Directors’ Report – Remuneration Report (Audited)
Auditor’s Independence Declaration
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report
64
67
83
84
85
86
87
88
89
124
125
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 2017
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 67 to 82;
• the Operating and Financial Review on pages 12 to 35;
• details of the current Directors and the Company Secretary
on pages 60 to 61;
• Note 22 (Director and executive disclosures) to the financial
statements accompanying this report; and
• Note 27 (Auditor's Remuneration) 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 (resigned effective
from 14 December 2016)
Garry Hounsell – Non-executive Director
Andrew Larke – Non-executive Director
Judith Swales – Non-executive Director
Graeme Liebelt – 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 60 to 61 of
the Annual Report.
Company Secretary
Simon Black is the Company Secretary and General Counsel.
64
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:
DIRECTOR
Peter Kirby
Patrick Houlihan
Stuart Boxer
Gaik Hean Chew
Garry Hounsell
Andrew Larke
Judith Swales
Graeme Liebelt
SCHEDULED BOARD
MEETINGS(1)
AUDIT AND RISK
COMMITTEE
REMUNERATION AND
HUMAN RESOURCES
COMMITTEE(2)
SAFETY AND
SUSTAINABILITY
COMMITTEE
NOMINATIONS
COMMITTEE(3)
HELD ATTENDED HELD ATTENDED HELD ATTENDED HELD ATTENDED HELD ATTENDED
8
8
8
3
8
8
8
8
8
8
8
3
8
8
8
8
4
–
–
–
4
4
4
–
4
–
–
–
4
4
4
–
4
–
–
1
4
4
–
4
4
–
–
1
4
4
–
4
–
4
–
1
–
–
4
4
–
4
–
1
–
–
4
4
2
2
2
–
2
2
2
2
2
2
2
–
2
2
2
2
(1)
Shows the number of meetings held and attended by each Director during the period the Director was a member of the Board.
(2) This committee was known as the Remuneration and Nominations Committee before 1 January 2017.
(3) This committee was established with effect from 1 January 2017.
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
FULLY PAID
ORDINARY
SHARES (1)
NUMBER OF SHARE
RIGHTS HELD PURSUANT
TO THE DULUXGROUP
SALARY SACRIFICE
NUMBER OF SHARES
HELD PURSUANT TO
THE 2014 DULUXGROUP
LONG TERM EQUITY
INCENTIVE PLAN
NUMBER OF SHARES
HELD PURSUANT
TO THE 2015 AND 2016
DULUXGROUP LTEIP
SHARE PLAN (1)
(LTEIP) OFFER (2)
OFFERS (3)
180,095
154,762
172,156
21,054
60,000
1,067,018
388,085
31,055
–
–
15,521
–
–
–
–
–
–
–
–
–
–
–
–
–
443,582
169,565
872,839
333,660
Peter Kirby
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 15 November 2017. The restriction on
trading these shares will be lifted upon repayment of the loan. The loan must be repaid during the period from 28 November 2017 to 2 February 2018.
(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 60 to
61 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 2017
In respect of the 2016 financial year, a fully franked final dividend
of 12.5 cents per ordinary share was paid on 9 December 2016.
The financial effect of this dividend has been included in the
financial statements for the year ended 30 September 2017.
DULUXGROUP ANNUAL REPORT 2017
65
In respect of the 2017 financial year, a fully franked interim
dividend of 13 cents per ordinary share was paid on 9 June 2017.
The financial effect of this dividend has been included in the
financial statements for the year ended 30 September 2017.
Since the end of the financial year, the Directors have determined
a final dividend to be paid at the rate of 13.5 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 2017 are
as follows:
• Total assets of $1,262.1 million increased by $66.3 million on the
prior year.
• Year end net debt of $334.2 million increased by $33.6 million
on the prior year.
• Total equity attributable to the ordinary shareholders of
DuluxGroup Limited of $410.7 million increased by $56.9 million
on the prior year.
Events subsequent to balance date
On 15 November 2017, the Directors determined that a final
dividend of 13.5 cents per ordinary share will be paid in respect
of the 2017 financial year. The dividend will be fully franked
and payable on 13 December 2017. The financial effect of this
dividend is not included in the financial statements for the year
ended 30 September 2017 and will be recognised in the 2018
financial statements.
The Directors have not become aware of any other matter or
circumstance that has arisen since 30 September 2017, 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 Corporate Sustainability Report on pages
36 to 59 of the Annual Report 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.
66
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.
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.
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 83 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 27 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,
15 November 2017
Directors’ ReportAs at 15 November 2017 Remuneration Report (Audited)
Dear shareholders,
On behalf of the Board, I am pleased to introduce DuluxGroup’s
2017 Remuneration Report, for which we seek your support at
our Annual General Meeting this December.
Performance alignment
We are proud of the high degree of alignment in outcomes for
shareholders and for management. Group results for the year have
been strong, and both shareholders and executives will benefit.
In 2017 there was strong growth in earnings across our key
businesses, with Group EBIT increasing by 6.5 per cent from
last year. This has led to an increase of 9.6 per cent in NPAT, to
$142.9 million in 2017.
Since our demerger from Orica in 2010 with a share price of $2.50,
we have exceeded ASX200 index growth to a 30 September 2017
share price of $7.00, whilst maintaining a dividend payout ratio
of approximately 70 per cent of NPAT. Our strong and consistent
year on year increase in shareholder value has continued in 2017
with dividends of 26.5c per share declared in relation to the 2017
financial year (an increase of 10.4 per cent on the prior year),
accompanied by strong share price growth.
Our business success is reflected in the outcomes for executives
under the Group’s short-term and long-term incentive programmes.
Short-term incentives
It is an important underpinning of the executive short-term incentive
programme that no payments would be made if NPAT (before non-
recurring items) for 2017 did not exceed NPAT (before non-recurring
items) for the previous year.
Once this hurdle is achieved, 70 per cent of any payments to
executives covered in this report are based directly on financial
performance. The average short-term incentive outcome of
73 per cent of Stretch compares to 53 per cent of Stretch last year,
and 64 per cent of Stretch in 2015, with the variability in outcomes
each year demonstrating the strong alignment between our actual
financial performance and executive remuneration.
It is equally important that the balance of the measures which
determine short-term incentive outcomes are real and challenging.
At least 10 per cent of the outcome for each executive (and twice
this amount for the Executive General Manager – Supply Chain)
is based on achievement of quantitative safety and sustainability
targets. Each individual’s performance on these measures in 2017
was between 50 per cent and 91 per cent of Stretch – a range
which demonstrates the challenging nature of the targets set,
given our good performance.
Short-term incentive outcomes importantly also reflect the delivery
of key projects which are essential to long term business success,
and to the sustainable growth and international expansion of the
Group. Each individual’s performance on these measures in 2017
has been assessed as between 50 and 80 per cent of Stretch –
a range which demonstrates that the targets set are challenging,
and are subject to robust and objective assessment.
The Board retains overarching discretion (both up and down) in
order to ensure that short-term incentive outcomes appropriately
reflect the performance of the Group and of the individual
(including to reflect any misalignment of values or behaviours).
More information on the Group’s 2017 performance and resulting
short-term incentive outcomes is provided in sections 3.2 and 3.3
of this report.
Long-term incentives
Sustained Company performance will also be reflected in the
benefits for executives through long term incentives.
The vesting of the awards relies on achievement of threshold
earnings per share growth over the three-year performance period
of the awards since 2014. The threshold of 4 per cent per annum
has been significantly over-achieved, with diluted statutory earnings
per share compound annual growth of 10.1 per cent (7.7 per cent per
annum when calculated excluding non-recurring items).
The actual benefit for executives will rely on our three-year Total
Shareholder Return performance, calculated in the week following
the Company results announcement on 15 November 2017. This
is a relative measure, which compares our Company share price
and dividend performance against that of peer companies over
the same timeframe. Subject to Board approval, this performance
will determine the portion of loan forgiveness (from zero to a
maximum of 30 per cent) that may be applied to the awards. Any
loan forgiveness is only provided where we outperform our peers
in providing benefits to shareholders.
More information on the long-term incentive programme, including
the 2016 Total Shareholder Return calculation is provided in section
3.4 of this report.
Management and shareholder alignment
Encouraging share ownership continues to be a key aspect of the
Group’s culture, so that all employees think like shareholders and
‘run the business as their own’.
As foreshadowed in my letter to you last year, we have introduced
a deferred component to the short-term incentive programme for
the DuluxGroup executive team, and 15 per cent of each executive’s
short-term incentive outcome for 2017 (as described above and
in this report) will be deferred in rights to Company shares. These
awards are subject to forfeiture for two years after they are
allocated this December, if the executive leaves the Group in certain
circumstances (such as on dismissal for misconduct, or where an
executive resigns or retires without a managed transition approved
by the Board).
The deferral of short-term incentives in rights to shares will increase
executives’ exposure to the DuluxGroup share price and dividends.
It enhances the alignment to shareholder interests already
provided by the Company’s long-term incentive programme,
under which executives hold ordinary, restricted, shares (rather
than rights to future shares) from the time that the awards are
granted. Executives can additionally choose to sacrifice pre-tax
remuneration to purchase more Company shares. Collectively these
programmes assist executives to meet the Company’s minimum
shareholding requirements, which set a target of 100% of gross
fixed remuneration to be held in unrestricted ordinary shares by the
CEO, the CFO and the Chief Operating Officer – Dulux Paints and
Coatings. These individuals currently hold shares well in excess of
the requirements, as do the majority of directors.
Information on minimum shareholding requirements and the
current shareholdings of directors and executives is provided
in section 4 of this report.
Broad-based share ownership
The Company’s long-standing all employee share programme has
run every year since demerger, and was recognised in April 2017
with an award for Best Share Plan for Fostering Long-Term Share
Ownership from Equity Ownership Australia. The programme has
helped approximately 70 per cent of employees in Australia and
New Zealand to become shareholders in the Company.
DULUXGROUP ANNUAL REPORT 2017
67
The DuluxGroup Values and Behaviours underpin our world class
level of employee engagement, which is measured every two years
using Korn Ferry Hay Group’s global engagement survey. We invite
all of our people to respond, and enjoy a very high response rate
of above 90 per cent. This year our engagement was 72 per cent,
which is above the Asia Pacific standard and in line with the norm
for high performing companies globally.
More information on the engagement survey results is provided
in Our Corporate Sustainability Report.
The 2017 Remuneration Report
Following the reshaping of the structure of our Remuneration
Report last year, we have minimised the level of change for 2017,
and focussed on ensuring that the link between our strategy, our
performance, and our executive remuneration outcomes is clearly
and simply articulated.
As was the case last year, a separate document on the operation of
our short and long term incentive programmes has been published
on the Group’s website for shareholders who would prefer more
detail (www.duluxgroup.com.au/investors).
The DuluxGroup Remuneration Report has received strong
support from shareholders in the past. 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
15 November 2017
The opportunity to participate in this year’s December 2017 offer
will be extended to our employees in Papua New Guinea and in
the United Kingdom.
Review and changes in 2017
Review of remuneration arrangements
The Remuneration and Human Resources Committee continues to
be actively informed about changes made by Australian companies
in executive remuneration. It has considered market trends and
the emerging practice of peers in the context of our existing
approach to remuneration, and the strategy, context and direction
of DuluxGroup. The Committee and the Board strongly believe that
our current remuneration framework is robust, focuses executive
effort on the long term strength of the Company, and provides
clear and direct alignment with the interests of our shareholders
through share ownership.
More information on the remuneration framework, demonstrating
the strong links from the Group’s strategy and performance to
remuneration outcomes, is provided in section 2.1 of this report.
Malus and clawback
In addition, the Board has undertaken a comprehensive review
of our malus and clawback policy and provisions, and has
strengthened our existing arrangements. We have a strong
and aligned company culture, and we do not believe that any
uncertainty exists in regard to our Company values or expected
behaviours. However, the changes made will help to ensure that
no individual receives an unfair benefit (or detriment) in cases
where there is material reputational damage to the company
or any of its businesses (even where there is no intentional
misbehaviour or fraud).
More information on the Company’s clawback policy is provided
in section 5.2 of this report.
Fixed remuneration increases
During 2017 fixed remuneration for executives was generally
adjusted in line with salary increases across the Australian market.
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.
In order to remain competitive for talent, the Board conducts a
comprehensive review of market remuneration levels for executive
roles every second year. This review has taken place during recent
months, with any recommendations for change to be considered
by the Board and effective in 2018.
More information on fixed remuneration changes in 2017 is provided
in section 3.1 of this report.
Diversity strategy and employee engagement
The Remuneration and Human Resources Committee is responsible
for other Human Resources matters across the Group.
Our gender diversity strategy has a focus on increasing women
in leadership as we believe that this is the most impactful way to
influence gender diversity across the Group. In particular, we are
focused on developing women in commercial roles. We are proud
to be one of just 37 per cent of ASX200 companies with any
women in a line role on our Executive team. A number of our key
business and functional areas are run by women, including Dulux
Retail, Yates and Cabot’s.
68
Directors’ ReportAs at 15 November 2017 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 individual KMP.
As foreshadowed in last year’s remuneration report, the Board
has introduced a deferred short-term incentive component from
the 2017 performance year, intended to further enhance retention,
and the alignment between executives and shareholders. This is
now included in the remuneration framework as below. The Board
will continue to conduct ongoing reviews of the remuneration
framework, and is satisfied that it continues to align with the
Group’s strategic objectives. No significant changes to the key
elements of the remuneration framework are anticipated in 2018.
SECTION CONTENTS
PAGE
1.
2.
3.
4.
5.
6.
7.
Introduction
Remuneration strategy – driving a
performance culture
Performance and remuneration
outcomes for 2017
Run the business as your own
Remuneration governance
Details of executive remuneration
Non-Executive Directors’ remuneration
69
69
73
75
77
79
81
1. Introduction
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 2017 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 2017
financial year. In this report, ‘executives’ collectively refers to
those individuals shown as Executive Directors or as Other KMP
in the table.
Key Management Personnel
NAME
ROLE
Non Executive Directors
Peter Kirby
Chairman and Non-Executive Director
Gaik Hean Chew(1)
Non-Executive Director
Garry Hounsell
Andrew Larke
Graeme Liebelt
Judith Swales
Executive Directors
Patrick Houlihan
Stuart Boxer
Other KMP
Patrick Jones
Brad Hordern
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Managing Director and Chief Executive
Officer (CEO)
Executive Director and Chief Financial
Officer (CFO)
Chief Operating Officer – Dulux Paints
and Coatings
Executive General Manager –
DuluxGroup Supply Chain
Martin Ward
Executive General Manager – Selleys
(1)
Gaik Hean Chew retired from the DuluxGroup Board on 14th December 2016.
DULUXGROUP ANNUAL REPORT 2017
69
Remuneration framework
Fixed Annual
Remuneration
(FAR)
Salary and
other benefits
(including statutory
superannuation).
Refer Section 3.1 for
more details
Short Term
Incentive (STI)
Annual incentive
opportunity
delivered 85 per
cent in cash and
15 per cent in rights
to deferred and
restricted shares
(Deferred STI).
Refer sections 3.2
and 3.3 for more
details
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.
Refer section 3.4
for more details
PERFORMANCE CONDITIONS
REMUNERATION STRATEGY/PERFORMANCE LINK
Considerations
• Scope of individual’s role
• Individual’s level of knowledge, skills and
expertise
• Individual performance
• Market benchmarking
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 a maximum of
70 per cent 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 a
maximum of 10 per cent of STI award)
• Lead improvement objectives for disaster and
fatality prevention
• Sustainability
• Recordable Personal Injury Case Rate targets
Personal objectives (generally a maximum of
20 per cent of STI award) aligned to strategic
objectives
‘Gateway’ Earnings Per Share (EPS) growth
condition – minimum 4 per cent 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 per cent
loan forgiveness at the 51st percentile up
to a maximum of 30 per cent at the 75th
percentile, on a straight-line sliding scale)
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.
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.
The allocation of 15 per cent of any actual STI in the
form of Deferred STI awards encourages executives to
‘behave like shareholders’ from the grant date. The shares
are restricted and subject to forfeiture on cessation of
employment in certain circumstances within the first two
years (such as on dismissal for misconduct, or where an
executive resigns or retires without a managed transition
approved by the Board).
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 per cent) 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.
70
Directors’ ReportAs at 15 November 2017 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.
Sections 3.2 to 3.4 describe 2017 performance outcomes and how this has impacted remuneration outcomes for the 2017 financial year.
Variable remuneration as a percentage of FAR effective 30 September 2017
Executive Directors
Patrick Houlihan
Stuart Boxer
Other KMP
Patrick Jones
Brad Hordern
Martin Ward
FIXED ANNUAL
REMUNERATION
(FAR)
SHORT TERM INCENTIVE (1)
AS % OF FAR
IF THE STRETCH LEVEL
OF PERFORMANCE
IS ACHIEVED
LONG TERM INCENTIVE
ALLOCATION VALUE
AS % OF FAR
1,177,000
675,000
644,000
600,000
464,000
100%
70%
70%
70%
70%
90%
60%
60%
40%
40%
(1)
Stretch STI opportunities have increased in FY17 with the implementation of the Deferred STI programme as described in the 2016 Remuneration Report and in the
framework diagram in section 2.1.
Relative weighting of elements in the remuneration mix
31%
34%
34%
Patrick Houlihan
Fixed Annual Remuneration (FAR)
Short Term Incentive – Stretch
Long Term Incentive – Allocation value
26%
30%
43%
Stuart Boxer/
Patrick Jones
19%
33%
48%
Martin Ward/
Brad Hordern
DULUXGROUP ANNUAL REPORT 2017
71
2.3 Our sustained performance track record
The Company has demonstrated consistently strong performance in the last five years as shown in the graphs below.
Over this period, the Company’s share price has increased from $3.30 (opening share price as at 1 October 2012) to $7.00
(as at 30 September 2017). In addition, the Company has maintained a dividend payout ratio of approximately 70 per cent
of NPAT excluding non-recurring items during this period.
The graph shows the Company’s TSR performance since 1 October 2012, compared with TSR performance at the median and 75th
percentile of those companies in the S&P/ASX 200 Index as at 1 October 2012 that remained listed to 30 September 2017.
Five year TSR performance
200%
150%
100%
50%
0%
1/10/12
1/10/13
1/10/14
1/10/15
1/10/16
1/10/17
DuluxGroup
TSR Comparator
Group – Median
TSR Comparator
Group – 75th Percentile
Historical Company Performance
NPAT attributable to ordinary shareholders of DuluxGroup
Limited ($m)
NPAT before non-recurring items ($m)(1)
Diluted EPS (cents)
Diluted EPS before non-recurring items (cents)(1,2)
Recordable injury case rate (RCR)(3)
Dividends declared per share (cents)(4)
Opening share price for the financial year ($)
Closing share price for the financial year ($)
DuluxGroup Indicative TSR %(5)
Median TSR for S&P/ASX 200 Index %(6)
2013
2014
2015
2016
2017
75.0
92.2
20.1
24.7
1.81
17.5
3.30
5.28
66.7%
22.3%
104.5
111.9
27.5
29.4
1.53
20.5
5.28
5.56
10.4%
0.8%
112.8
124.7
29.2
32.2
1.84
22.5
5.56
5.35
0.8%
(3.3%)
130.4
130.4
33.5
33.5
1.63
24.0
5.35
6.60
26.1%
21.6%
142.9
142.9
36.7
36.7
1.62
26.5
6.60
7.00
10.6%
8.8%
NPAT before non-recurring items ($million)(1)
Diluted EPS before non-recurring items (cents)(1,2)
2017
2016
2015
2014
2013
142.9
130.4
124.7
111.9
92.2
2017
2016
2015
2014
2013
36.7
33.5
32.2
29.4
24.7
(1)
(2)
(3)
Profit and earnings excluding non-recurring income and expenses are considered by the Board to be a better basis for comparison from period to period. It is also the
primary measure of earnings considered by management in operating the business and by the Board in determining dividends. Non-recurring items in 2013, 2014 and 2015.
included one-off costs related to the acquisition of the Alesco businesses, impairments relating to the China joint venture, and Supply Chain related provisions, with full
details provided in each Annual Report. There were no non-recurring items in 2016 and 2017.
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.
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 system),
which is equivalent to the hours worked by 100 people in a year. It includes both the Group’s employees and contractors.
(4) Dividends shown are the interim and full year dividend declared by the company in relation to each financial year’s performance.
DuluxGroup’s Indicative TSR performance has been calculated based on the change in the share price for the period and dividends paid (assuming dividends are
reinvested into DuluxGroup shares).
Indicative TSR performance at the median of those companies in the S&P/ASX 200 Index on 1 October 2012 that remained listed on 30 September 2017 (excluding mining,
financial services, listed property trusts and overseas domiciled companies). This five-year measurement period is used only for the purposes of the comparisons provided
in the table and will not actually affect any long-term incentive outcomes for executives under the three year DuluxGroup programme.
(5)
(6)
72
Directors’ ReportAs at 15 November 2017
3. Performance and remuneration outcomes for 2017
3.1 Fixed Annual Remuneration outcomes
When determining any changes to the remuneration paid to individuals during 2017, the Board considered the Group’s continued growth
and strong performance, changes in individual roles and responsibilities given the Company’s focus on international growth, and the
individual performance of executives.
Following its last comprehensive review of remuneration in the 2016 financial year, the Remuneration and Human Resources Committee
(RHC) conducted a high level review in 2017 and adjusted executive remuneration effective 1 January 2017 to reflect general increases in
the market. An exception was considered appropriate for the Executive General Manager – DuluxGroup Supply Chain where a significant
increase in fixed remuneration was approved by the Committee in the context that the executive’s total remuneration package was not
market competitive, the role has been expanded to include Group IT, and the executive having skills and experience in high demand.
3.2 Short-term incentive performance measures and outcomes for 2017
The STI plan is designed to place 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. Along with executives, other members of the DuluxGroup
Executive and senior management also participate in the STI plan, ensuring consistency of purpose and focus on performance measures.
The tables below detail the structure of the STI performance measures for executives in 2017, 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.
PERFORMANCE CONDITIONS FOR STI
P HOULIHAN/
S BOXER
P JONES/
M WARD
B HORDERN (1)
DuluxGroup financial
Business unit financial
Safety & Sustainability
Personal objectives
70%
–
10%
20%
10%
60%
10%
20%
70%
–
20%
10%
(1)
The greater weighting on Safety & Sustainability in the scorecard for Brad Hordern reflects his responsibility for manufacturing and supply chain activities. His
accountability for the successful delivery of supply chain projects to schedule and budget (and with seamless business continuity) is unchanged, but has been reclassified
as financial objectives (rather than a personal objective) due to the impact of these projects on current year DuluxGroup financial results.
CEO
CEO
CFO and Other KMP
CFO and Other KMP
HURDLE
STRETCH
HURDLE
STRETCH
Financial
Safety &
Sustainability
Personal
Group Financial
Business Unit
Financial
Safety &
Sustainability
Personal
FY17 performance
FY17 Range of performance
The NPAT gateway, and NPAT and EBIT targets and performance 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 2017.
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 2017 was set at the prior year’s NPAT, being $130.4 million in 2016, and was achieved with DuluxGroup NPAT for 2017 of $142.9 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, 70 per cent of any STI outcome for each executive is based on the achievement of financial results.
The primary financial measures used in the executive STI scorecards include NPAT and EBIT for the Group, and EBIT for the relevant business
for each individual. Group EBIT increased 6.5 per cent from last year, which was in the higher end of the targeted performance range,
reflecting continued consistent earnings growth for Dulux Paints and Coatings, and double-digit growth in Selleys & Parchem ANZ, B&D
Group and Lincoln Sentry. This is reflected in the financial component of the STI outcomes for the relevant business executives.
This EBIT growth has delivered an Above-Average stretch outcome for NPAT which grew by 9.6 per cent to $142.9 million in 2017, assisted
by the write-back of prior year tax provisions of $3.1 million.
DULUXGROUP ANNUAL REPORT 2017
73
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 particularly strong, with outcomes
close to Stretch achieved for Dulux Paints and Coatings and
the Group.
We measure our performance across the four key areas of disaster
prevention, fatality prevention, injury prevention, and sustainability
(which includes both the stewardship of sustainable products
and the reduction of waste and efficient use of resources in 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 in which we operate.
In 2017 an additional measure was included in executive STI
scorecards to focus attention on revenue growth for the Group and
relevant businesses. The performance of Dulux, Selleys and Lincoln
Sentry in regard to this new measure was strong.
The successful delivery of the Merrifield paint factory in Melbourne
to schedule and budget, comprised a substantial 40 per cent
of the financial measures for the Executive General Manager –
DuluxGroup Supply Chain in 2017. The categorisation of this project
as a financial objective in 2017 reflects its potentially substantial
impact on DuluxGroup level financial results. The excellent
outcomes from this project as it approaches completion are
reflected in the STI outcome for this executive.
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.
The number of serious near misses involving fatality risks fell
45 per cent to a record low for 2017. The number of recordable
injuries is at the second lowest level in more than a decade, and
represents top quartile industry performance. STI outcomes for
individuals as shown in the graphs above, reflect the level of
challenge in the targets that were set for executives on these
measures. 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, chemicals of concern and ethical sourcing
were our key sustainability priorities in 2017 and all businesses
made good progress during the year.
Personal measures
Personal measures vary by role and from year to year for each
individual. They are not ‘soft’ measures, and are primarily linked
to the successful achievement of material and strategic growth
projects with long term impact on Company success. For the
CEO and CFO in 2017, these measures were in regard to investing
for growth outcomes for the Group both domestically and
internationally. Individual executives have delivered performance
ranging from 50 to 80 per cent of Stretch performance on these
objectives in 2017.
3.3 STI awards
2017 STI awards
The performance against STI measures in 2017 as described above resulted in the following individual awards, which ranged from 68.0 to
77.7 per cent of the maximum potential award under the STI plan (only earned for Stretch performance on all measures).
2017 STI outcomes
NAME
Executive Directors
Patrick Houlihan
Stuart Boxer (4)
Other KMP
Patrick Jones
Brad Hordern
Martin Ward
2017 STI
AWARD (1)
$
MAXIMUM
(STRETCH)
STI (2)
$
STI AWARDED
STI AWARDED
IN 2017 (3)
IN 2016 (3)
% OF STRETCH
% OF STRETCH
STI FORFEITED (3)
% OF STRETCH
AWARD AS %
OF FAR (2)
800,261
350,000
350,490
256,006
230,657
1,177,000
472,500
450,800
350,000
324,800
68.0%
74.1%
77.7%
73.1%
71.0%
48.3%
47.9%
67.3%
75.3%
27.9%
32.0%
25.9%
22.3%
26.9%
29.0%
68.0%
51.9%
54.4%
51.2%
49.7%
STI award earned during the 2017 financial year. In December 2017, 85 per cent of this amount will be paid in cash. The remaining 15 per cent will be provided under the
Deferred STI programme which was introduced from 2017 (i.e. provided as rights to receive shares in the Company with forfeiture conditions applying during the two-year
deferral period such as on dismissal for misconduct, or where an executive resigns or retires without a managed transition approved by the Board.) The Deferred STI is
intended to further enhance shareholder alignment and retention. The maximum STI opportunity for each individual increased by 10 per cent of FAR in FY17 as a result of
this change.
The maximum STI payable and awarded as a percentage of FAR based on FAR as at 1 January 2017. The minimum STI payable is $NIL.
The STI award and STI forfeited are expressed as a percentage of the maximum STI potentially available (for Stretch performance). The comparative 2016 STI awarded
figures are a percentage of the maximum STI available (for Stretch performance) in 2016, as published in the 2016 Remuneration Report.
In addition to the STI outcome calculated as a result of Stuart Boxer’s performance against his 2017 STI scorecard (as outlined above), the Board applied its discretion
under the STI programme to provide Mr Boxer with an additional amount of $28,740 to recognise his contribution on business transformation projects which emerged
during the year as strategic priorities (and were therefore not included in his scorecard at the beginning of the year).
(1)
(2)
(3)
(4)
74
Directors’ ReportAs at 15 November 2017 3.4 Long term incentive performance measures
and outcomes
The EPS gateway is calculated using NPAT excluding non-
recurring items in order to provide a better measure of
underlying performance of the Group. No non-recurring items
were excluded from Group NPAT in 2017.
2013 LTEIP grant – vesting determined during FY 2017
The performance conditions for the LTEIP granted in December
2013 were tested for vesting during the 2017 financial year.
As reported in the Company’s 2016 remuneration report, the
EPS growth gateway condition was exceeded (measured at
30 September 2016) and this grant subsequently vested. Relative
TSR performance was tested during the one week following the
release of the 2016 Group results to determine the percentage of
the related loans to be forgiven. The Company’s TSR was 25.49 per
cent over the period from November 2013 to November 2016. This
was at the 57th percentile of the comparator group, resulting in the
loan forgiveness of 14.9 per cent being applied.
2014 LTEIP grant – performance condition measured
to the end of 2017
The performance condition for the LTEIP granted in December
2014 was measured for vesting as at 30 September 2017.
For the 2014 LTEIP, the baseline EPS based on 2014 NPAT
was 29.4 cents per share. The corresponding calculation as at
30 September 2017 was an EPS of 36.7 cents per share, and the
Company’s compound annual EPS growth over the performance
period was 10.1 per cent when calculated using diluted EPS on a
statutory basis and 7.7 per cent using EPS excluding non-recurring
items. The EPS growth gateway of four per cent compound annual
growth over the performance period was therefore exceeded.
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 2017
results in November 2017, 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 2017
Annual General Meeting and full details set out in the Company’s
2018 remuneration report.
Changes to LTEIP awards from 2017
As detailed in last year’s remuneration report, the Board approved
a change to the loan repayment period effective from the 2016
LTEIP grant allocated in December 2016.
Prior to the change, participants were 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 Company. This still applies for the 2014
LTEIP, and for the 2015 LTEIP if and when it vests. Participants
generally sell a portion of their LTEIP shares in this short window,
to fund the loan repayment.
For the 2016 LTEIP grant and subsequent awards, the timeframe
for repayment was extended by a further 24 months. Participants
are now 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 2017
LTEIP award will be tested for vesting and loan forgiveness after
the end of the 2020 performance year, and the non-recourse loan
will be due for repayment in January/February 2023 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 of the
longer loan period. The benefit to the Company from this change
is that it is expected that management will retain their shareholding
for longer.
Section 5.3 provides more information on the operation of LTEIP
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 Chief
Operating Officer – Dulux Paints and Coatings,
• 40 per cent of FAR for other executives.
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
newly-introduced mandatory deferral of a portion of any STI
awarded into rights to shares (Deferred STI) that will be subject
to forfeiture on leaving employment with the Group for two years
in certain circumstances such as on dismissal for misconduct, or
where an executive resigns or retires without a managed transition
approved by the Board.
DULUXGROUP ANNUAL REPORT 2017
75
4.2 Sacrifice Share Acquisition Plan (SSAP)
The SSAP was implemented in the 2016 financial year. This 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 rights do not have performance conditions
and 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. Shares provided to the participants are restricted from trading for a period chosen by the participant (which can be
from 2 to 15 years) or until they leave the DuluxGroup (if earlier). Approval was sought at the 2016 AGM to allow for future shares for
Non-Executives Directors under this plan to be either purchased on market or newly issued. A similar approval (but for a three-year time
period) will also be requested at the 2017 Annual General Meeting.
4.3 Current shareholdings
A summary of current KMP shareholdings in DuluxGroup Limited as at 30 September 2017 is shown in the table below.
All directors’ and executives’ holdings were in excess of the minimum shareholding policy on 30 September 2017, other than:
• Graeme Liebelt, who commenced with DuluxGroup on 14 June 2016 and has since chosen to salary sacrifice a portion of his fees into
DuluxGroup Limited shares under the SSAP plan which is described in section 4.2.; and
• Martin Ward, who commenced his current employment with DuluxGroup in FY14. Mr Ward purchased some shares on market with
post-tax remuneration in 2016, and had the restrictions removed on some LTEIP shares during 2017, as a result of the 2013 LTEIP vesting.
KMP Shareholdings
NAME
Non-Executive Directors
Peter Kirby
Gaik Hean Chew(6)
Garry Hounsell
Andrew Larke
Graeme Liebelt
Judith Swales
Executive Directors
Patrick Houlihan
Stuart Boxer
Other KMP
Patrick Jones
Brad Hordern
Martin Ward
NUMBER OF SHARES (OR RIGHTS TO SHARES)
OPENING
BALANCE (1)
SSAP
RIGHTS/
LTEIP
GRANT (2)
SHARE
DEALINGS
IN RELATION
TO THE
NET
OTHER
LTEIP (3)
MOVEMENT (4)
CLOSING
BALANCE (2)
TOTAL
UNRE-
STRICTED
SHARES (2,5)
UNRE-
STRICTED
SHARE-
HOLDING
TARGET
UNRE-
STRICTED
SHARE-
HOLDING
% (5)
% (5)
145,829
113,056
148,822
152,156
5,898
60,000
65,321
–
–
–
30,677
–
2,313,681
866,802
456,498
(386,740)
174,508
(150,000)
689,188
455,812
209,676
166,576
88,135
80,027
(92,950)
(47,499)
(35,000)
–
–
5,940
20,000
–
–
–
–
–
–
–
211,150
180,095
113,056
154,762
172,156
36,575
113,056
154,762
172,156
21,054
60,000
60,000
2,383,439
1,067,018
891,310
388,085
762,814
496,448
254,703
320,117
257,542
23,906
296%
390%
515%
628%
73%
219%
635%
402%
348%
361%
36%
100%
100%
100%
100%
100%
100%
100%
100%
100%
40%
40%
(1)
(2)
(3)
(4)
(5)
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, joint control or significant influence, as at 1 October 2016 (opening balance) and
30 September 2017 (closing balance) respectively.
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. Mr Kirby received 34,266 rights and Mr Liebelt received 15,156 rights under the SSAP on
16 November 2016, at a price of $6.07 per right, which vested into shares on 25 May 2017. Mr Kirby received 31,055 rights and Mr Liebelt received 15,521 rights under the
SSAP on 25 May 2017, at a price of $6.95 per right, which will vest into shares in November 2017. The minimum value of each right is equal to the purchase price paid for
that right and the maximum value of each right is equal to the price of an ordinary share in the Company. Once ordinary shares are received in relation to the rights those
ordinary shares count toward the holder’s achievement of their Target unrestricted shareholding. Further information on the LTEIP is located in sections 2.1, 3.4 and 5.3 and
LTEIP awards are not provided to Non-Executive Directors.
Reports the sale of shares to repay loans in accordance with the LTEIP rules.
Reports the impact of acquisition and disposal transactions other than those covered in the previous column of the table.
The current and target unrestricted shareholding for each individual excludes unconverted rights 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 2017. The calculation assumes a share price
of $7.00, being the closing share price on 30 September 2017.
(6)
Ms Chew retired from the DuluxGroup Board effective 14 December 2016, she remains a director of DGL Camel. This figure represents the closing balance at this date.
76
Directors’ ReportAs at 15 November 2017 5. Remuneration governance
5.1 Role of the Remuneration and Human Resources
Committee (RHC)
The RHC 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.
Cessation of employment
Participants are not eligible for any STI cash payment or any
Deferred STI rights or shares which are subject to restriction if
they are terminated due to misconduct or poor performance, nor
in general, if they resign or retire without a managed transition
approved by the Board. In certain appropriate circumstances (such
as redundancy), the Board may consider eligibility for a pro-rata
cash payment in respect of the current performance year and may
determine that Deferred STI previously awarded is retained.
The RHC 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 RHC are
set out in our Corporate Governance Statement available on our
website (www.duluxgroup.com.au).
To assist in performing its duties and making recommendations
to the Board, the RHC seeks independent advice from external
consultants on various remuneration related matters. During
the financial year ended 30 September 2017, the Group
engaged independent remuneration consultants to provide
insights on remuneration trends, regulatory updates, market
practices 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 2017.
5.2 Board discretion
The RHC 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 Board retains discretion to adjust the calculation EPS
performance (for the purposes of the LTEIP gateway) for
individually material non-recurring items on a case by case basis to
ensure that the EPS measurement correctly reflects the underlying
performance of the Group.
Comparator group for the LTEIP TSR performance condition
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.
The Board has discretion to adjust the comparator group for the
LTEIP TSR performance condition to ensure that it remains an
appropriate comparator for the Group. 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.
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, material reputational
damage to the company or any of its businesses, or where there
is serious misconduct by a participant. 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 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 a default level of
debt forgiveness (which is currently set at 20 per cent).
5.3 Operation of LTEIP
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’.
DULUXGROUP ANNUAL REPORT 2017
77
LTEIP examples
Initial Loan
75,000
75,000
75,000
CASE A
$
CASE B
$
CASE C
$
Less net dividends applied
to loan balance
Less loan forgiveness(1,2)
Outstanding Loan Balance
Value of shares awarded
at vesting
(1,284)
(13,125)
60,591
(1,284)
(1,284)
–
–
73,716
73,716
120,000
90,000
Less outstanding loan balance
(60,591)
(73,716)
Value of LTEIP to the executive
as at valuation date
59,409
16,284
(1) This amount is determined net of interest charges.
(2) The Group incurs fringe benefits tax on the loan forgiveness.
NIL
NIL
NIL
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:
Executive service agreements
TERM OF
AGREEMENT
NOTICE
PERIOD BY
EXECUTIVE
GROUP NOTICE
PERIOD AND
TERMINATION
BENEFITS (1)
NAME
Executive Directors
Patrick Houlihan(2)
Stuart Boxer(2)
Other KMP
Patrick Jones
Brad Hordern
Martin Ward
Open
Open
Open
Open
Open
6 months
12 months FAR
6 months
12 months FAR
6 months
12 months FAR
6 months
12 months FAR
6 months
12 months FAR
(1)
(2)
Termination payment (inclusive of any payment in lieu of notice) if the Group
terminates the executive’s employment other than for cause.
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.
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 above, in
relation to these restraints.
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 to the right 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 per cent to cover the
participants’ individual tax obligations (note that as dividends
tend to be fully franked, participants receive the difference
between the 46.5 per cent 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 per cent 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.
78
Directors’ ReportAs at 15 November 2017 %
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(
DULUXGROUP ANNUAL REPORT 2017
79
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 2017 is set out in the table below.
Awards granted under LTEIP
NUMBER OF LTEIP AWARDS
OPENING
BALANCE (1)
GRANTED
DURING
THE YEAR (2)
EXERCISED
DURING
THE YEAR
LAPSED
DURING
THE YEAR
CLOSING
BALANCE
VALUE OF
OPTIONS
AT GRANT
DATE
ISSUED
DURING
THE YEAR
VESTED AND
EXERCIS-
ABLE AT 30
SEPTEMBER
2017 (3)
$ (4)
VALUE OF
OPTIONS
INCLUDED
IN COMPEN-
SATION
FOR THE
YEAR $ (5)
NAME
Executive Directors
Patrick Houlihan
Stuart Boxer
Other KMP
Patrick Jones
Brad Hordern
Martin Ward
1,313,681
503,997
456,498
174,508
(453,758)
(175,280)
422,188
230,621
200,676
166,576
88,135
80,027
(146,067)
(79,850)
(49,906)
–
–
–
–
–
1,316,421
503,225
443,582
169,565
789,742
301,899
777,884
297,492
442,697
238,906
230,797
142,434
77,774
77,773
288,176
152,474
138,447
259,379
140,285
134,225
(1)
(2)
(3)
(4)
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.
2016 LTEIP awards were granted on 7 December 2016. The share price on that grant date was $5.89 and the fair value of each award for accounting purposes was $1.73.
This fair value takes into account the performance conditions, along with other factors as set out Note 21 of the financial statements.
Since the end of the reporting period, the 2014 LTEIP awards granted on 28 November 2014 have met the applicable EPS vesting condition and will vest. The restriction
on trading these shares will be lifted upon repayment of the loan. The loan must be repaid during the period from 28 November 2017 to 2 February 2018. The number of
options that have vested and are not exercisable is NIL.
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 2017 are set out
in the table below.
Executive LTEIP loans
NAME
Executive Directors
Patrick Houlihan
Stuart Boxer
Other KMP
Patrick Jones
Brad Hordern
Martin Ward
OPENING
BALANCE
$
ADVANCES
DURING
THE YEAR
$
LOAN
FORGIVE-
NESS
GRANTED
DURING
THE YEAR
REPAYMENTS
DURING
THE YEAR
$ (1)
$ (2)
CLOSING
BALANCE
$
INTEREST
FREE
VALUE
$
HIGHEST
INDEBTED-
NESS
$
7,362,169
2,693,338
(361,037)
(2,078,791)
2,823,500
1,029,597
(139,463)
(802,407)
7,615,679
2,911,227
613,532
229,971
9,606,617
3,679,929
2,365,835
1,292,290
1,141,114
982,798
519,997
472,159
(116,220)
(670,444)
(63,533)
(39,708)
(366,282)
(238,373)
2,561,969
1,382,472
1,335,192
171,354
110,795
88,875
2,592,759
1,733,331
1,351,244
(1) Loan forgiveness amounts under LTEIP in relation to the 2013 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.
80
Directors’ ReportAs at 15 November 2017
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 minimum shareholding policy for Non-Executive Directors, and their current shareholdings, are detailed in section 4.
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 $1,800,000 per annum as approved by shareholders at the 2016 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.
Following a comprehensive review of Non-Executive Director fees during the 2016 financial year, during 2017 fees were increased effective
to reflect general market movements. The Board is confident that fees remain competitive with comparable companies and to reflect the
calibre, increased time commitment and responsibilities of the Non-Executive Directors as the Group continues to grow.
Base fees
The Board approved the following base fees effective 1 January 2017 (inclusive of statutory superannuation):
Non-Executive Director fees
Non-Executive Chairman(1)
Non-Executive Director
Committee Chair
Committee Member
AUDIT AND
RISK COMMITTEE
REMUNERATION
AND HUMAN
RESOURCES
COMMITTEE
SAFETY AND
SUSTAINABILITY
COMMITTEE
–
–
$36,850
$18,450
–
–
n/a (1)
$14,850
–
–
$29,700
$14,850
BASE FEES
$425,400
$158,500
–
–
(1)
The Non-Executive Chairman chairs the Remuneration and Human Resources 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.
DULUXGROUP ANNUAL REPORT 2017
81
7.2 Remuneration for 2017
Details of Non-Executive Director remuneration for the financial year ended 30 September 2017 are set out in the table below.
Non-Executive Director remuneration
FINANCIAL
YEAR
DIRECTORS
BASE
FEES
$
AUDIT
AND RISK
COMMITTEE
$
SAFETY
AND
SUSTAIN-
ABILITY
COMMITTEE
$
REMUNER-
ATION AND
HUMAN
RESOURCES
COMMITTEE
$
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
423,050
397,285
28,954
140,525
143,950
140,525
147,763
144,287
155,893
43,899
143,950
140,525
–
–
–
–
33,459
32,648
18,338
17,875
–
–
18,338
17,875
–
–
5,417
26,256
–
–
–
–
29,525
–
11,890
11,577
–
–
2,709
13,128
13,482
13,128
14,763
14,375
11,138
–
–
–
NAME
Peter Kirby
Gaik Hean Chew(3)
Garry Hounsell
Andrew Larke
Graeme Liebelt(4)
Judith Swales
SUPER-
ANNUATION (1)
OTHER
BENEFITS (2)
$
–
16,115
3,523
17,091
18,135
17,699
9,862
9,588
–
1,896
16,547
16,148
$
10,000
7,500
32,453
134,495
10,000
7,500
10,000
7,500
5,000
–
5,000
7,500
TOTAL
$
433,050
420,900
73,056
331,495
219,026
211,500
200,726
193,625
201,556
45,795
195,725
193,625
(1)
(2)
(3)
Directors’ base and committee fees are inclusive of superannuation contributions and any amounts sacrificed under the SSAP. The superannuation entitlements for each
Director are dependent on their individual arrangements and the timing of payment of their fees.
Includes international travel allowances.
Ms Chew retired from the DuluxGroup Board on 14 December 2016. The table includes her remuneration to this date. Ms Chew’s other benefits include: allowance for
international travel totalling $5,000 (2016 $30,000), her fees of $14,869 (2016 $43,750) as a Director of DGL Camel International Limited (a subsidiary of the Group),
remuneration of $12,584 (2016 $43,750) in respect of an ongoing consulting services agreement to assist the Group in seeking strategic growth opportunities in Asia.
No amounts were paid during the current period for the preparation of her annual tax returns in either Australia or Hong Kong (2016 $16,995).
(4)
Mr Liebelt became a Non-Executive Director of DuluxGroup Limited on 14 June 2016. The table includes his remuneration from this date.
82
Directors’ ReportAs at 15 November 2017 Auditor’s Independence Declaration
DULUXGROUP ANNUAL REPORT 2017
83
83
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 ProfessionalStandards Legislation.Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of DuluxGroup Limited I declare that, to the best of my knowledge and belief, in relation to the audit of DuluxGroup Limited for the financial year ended 30 September 2017 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 ii.no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Gordon Sangster Partner Melbourne 15 November 2017
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
Depreciation and amortisation
Repairs and maintenance
Operating leases
Outgoing freight
Other expenses (1)
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
3
4
19
4
13
5
5
The above consolidated income statement should be read in conjunction with the accompanying notes.
(1) Largely comprises of advertising and marketing expenditure, commissions, royalties and other fixed and variable costs.
2017
$’000
1,784,468
4,227
(6,339)
726,836
389,791
31,282
13,281
52,436
73,070
295,363
(1,235)
1,574,485
214,210
189
(17,483)
(17,294)
196,916
(57,255)
139,661
142,941
(3,280)
139,661
2016
$’000
1,716,259
3,221
(3,608)
701,027
385,785
32,267
13,901
47,306
68,172
274,197
(676)
1,518,371
201,109
224
(20,122)
(19,898)
181,211
(52,150)
129,061
130,417
(1,356)
129,061
CENTS
CENTS
37.3
36.7
34.1
33.5
84
Consolidated Statement of Comprehensive Income
For the financial year ended 30 September
Profit for the year
Other comprehensive income/(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 (expense)/benefit
Foreign currency translation reserve
Foreign currency translation loss 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 gains/(losses) on defined benefit plan
Income tax (expense)/benefit
Total items that will not be reclassified to the income statement, net of tax
Other comprehensive income/(loss) 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
2017
$’000
2016
$’000
139,661
129,061
1,991
(597)
(2,945)
883
(4,344)
(2,950)
(697)
(2,759)
21,759
(6,528)
15,231
12,281
151,942
(32,551)
9,765
(22,786)
(25,545)
103,516
155,240
(3,298)
151,942
104,584
(1,068)
103,516
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
DULUXGROUP ANNUAL REPORT 2017
85
85
Consolidated Balance Sheet
As at 30 September
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial assets
Other assets
Assets held for sale
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
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
2017
$’000
2016
$’000
7
7
15
8
7
15
19
9
10
13
7
14
15
12
7
14
13
12
20
16
16
38,974
277,677
229,394
3,847
6,613
6,814
39,068
256,315
218,873
3,269
5,180
–
563,319
522,705
35
36,945
7,753
371,805
228,670
50,436
3,138
65
57,040
6,518
312,041
234,047
59,231
4,155
698,782
673,097
1,262,101
1,195,802
264,912
16,570
619
18,567
77,369
250,766
12,904
3,229
14,386
65,124
378,037
346,409
249
398,116
28,096
13,339
36,964
270
388,679
27,335
22,913
56,466
476,764
495,663
854,801
407,300
842,072
353,730
277,282
(22,286)
(101,444)
257,101
410,653
(3,353)
264,886
(10,658)
(97,852)
197,409
353,785
(55)
407,300
353,730
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 26.
86
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DULUXGROUP ANNUAL REPORT 2017
87
87
Consolidated Statement of Cash Flows
For the financial year ended 30 September
Cash flows from operating activities
Profit before income tax expense
Adjustments for:
Depreciation and amortisation
Amortisation of prepaid supply agreements
Share-based payments expense
Defined benefit service cost
Research and development grant income
Share of net profit of equity accounted investment
Impairment of inventories, trade and other receivables
Net loss on sale of property, plant and equipment
Net foreign exchange (gains)/losses on operating items
Net finance cost
Changes in assets and liabilities:
Increase in trade, other receivables and other assets
Increase in inventories
Increase/(decrease) in trade and other payables and provisions
Cash generated from operations
Interest received
Interest paid
Income taxes paid
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 borrowings
Repayments of 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 increase/(decrease) in cash held
Cash at the beginning of the year
Effects of exchange rate changes on cash
Cash at the end of the year
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
88
2017
$’000
2016
$’000
196,916
181,211
31,282
1,296
3,185
5,750
(962)
(1,235)
3,380
234
(1,792)
17,294
32,267
1,081
3,727
4,965
(1,599)
(676)
2,209
1,043
2,732
19,898
255,348
246,858
(26,740)
(13,338)
13,840
229,110
189
(13,628)
(49,701)
165,970
(95,546)
(527)
(571)
–
191
(3,772)
(2,523)
(27,591)
212,972
224
(15,740)
(52,542)
144,914
(57,072)
(3,732)
(13,276)
500
537
(96,453)
(73,043)
2,890,779
2,584,489
(2,857,650)
(2,567,174)
(18,002)
(18,313)
8
8,551
(92,114)
32
5,773
(81,123)
(68,428)
(76,316)
1,089
39,068
(1,183)
38,974
(4,445)
46,270
(2,757)
39,068
Notes to the Consolidated Financial Statements
For the financial year ended 30 September
NOTE CONTENTS
1.
About this report
Financial Performance
2.
3.
4.
5.
6.
Segment report
Other income
Expenses
Earnings per share (EPS)
Dividends
Operating Assets and Liabilities
7.
8.
9.
10.
11.
12.
Working capital
Assets held for sale
Property, plant and equipment
Intangible assets
Impairment testing
Provisions
Taxation
13.
Income tax
Capital and Risk Management
14.
15.
16.
Interest-bearing liabilities
Financial and capital management
Contributed equity
Group Structure
17.
18.
19.
Subsidiaries
Businesses acquired
Equity accounted investment
Other Disclosures
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
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
PAGE
90
91
93
94
94
94
95
96
97
98
99
100
102
104
105
111
112
113
114
115
116
118
119
119
120
122
122
123
123
DULUXGROUP ANNUAL REPORT 2017
89
89
Notes to the Consolidated Financial Statements
About this report
For the financial year ended 30 September 2017
1. About this report
DuluxGroup Limited (the Company) is a company incorporated and
domiciled in Australia which has shares that are publicly traded on
the Australian Securities Exchange.
The Company’s registered office is at 1956 Dandenong Rd, Clayton
Victoria 3168 Australia. Its principal activities are the marketing
and manufacturing of products that protect, maintain and enhance
the spaces and places in which we live and work. 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 28. 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 15 November 2017 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 year 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 11 Impairment testing
• Note 12 Provisions
• Note 13 Income tax
• Note 20 Superannuation
90
Notes to the Consolidated Financial Statements
Financial Performance
For the financial year ended 30 September 2017
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
Dulux ANZ
Selleys & Parchem ANZ
B&D Group
Lincoln Sentry
Other businesses
Dulux decorative paints, woodcare, texture, protective, powder and industrial coatings in Australia
and New Zealand for both consumer and professional trade markets.
Selleys adhesives, sealants and other household repair and maintenance products for the consumer
and professional trade markets in Australia and New Zealand; 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, DGL International
specialty coatings and adhesives businesses in South East Asia, Dulux Papua New Guinea coatings
business and Craig & Rose paints and Selleys businesses in the United Kingdom. Also includes the
51%-owned DGL Camel business in China and Hong Kong.
DULUXGROUP ANNUAL REPORT 2017
91
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Notes to the Consolidated Financial StatementsFinancial PerformanceFor the financial year ended 30 September 2017
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
2017
$’000
2016
$’000
2017
$’000
2016
$’000
1,468,431
1,408,410
543,019
485,852
199,280
116,757
190,358
117,491
44,086
16,508
47,370
17,021
1,784,468
1,716,259
603,613
550,243
b) Accounting policies
i) 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 two to four years after the initial sale.
Other income
Other income includes profit on sale of property, plant and equipment and businesses, rental income, royalty income, grant income and
net foreign exchange gains.
Profit and loss from sale 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.
ii) 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.
3. Other income
Royalty income
Rental income
Research and development grant income
Other
2017
$’000
805
994
962
1,466
4,227
2016
$’000
300
477
1,599
845
3,221
DULUXGROUP ANNUAL REPORT 2017
93
93
4. Expenses
Profit before income tax 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
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
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
2017
$’000
24,164
7,118
31,282
15,410
2,073
17,483
234
413
20,608
2016
$’000
25,111
7,156
32,267
17,455
2,667
20,122
1,043
757
20,827
2017
CENTS PER
SHARE
2016
CENTS PER
SHARE
37.3
36.7
34.1
33.5
$’000
$’000
142,941
130,417
NUMBER
NUMBER
382,868,053
382,582,772
6,158,229
6,379,665
389,026,282
388,962,437
(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.
6. Dividends
Dividends paid
Final dividend for 2016 of 12.5 cents per share fully franked (2015: Final dividend of
11.5 cents per share fully franked)
Interim dividend for 2017 of 13.0 cents per share fully franked (2016: Interim dividend of
11.5 cents per share fully franked)
Dividend franking account
Franking credits available to shareholders for subsequent financial years based
on a tax rate of 30% (2016: 30%)
2017
$’000
2016
$’000
48,278
44,340
50,202
98,480
44,406
88,746
28,745
23,391
a) Dividends declared after balance date
On 15 November 2017, the Directors determined that a final dividend of 13.5 cents per ordinary share will be paid in respect of the 2017
financial year. The dividend will be fully franked and payable on 13 December 2017. The financial effect of this dividend is not included in
the financial statements for the year ended 30 September 2017 and will be recognised in the 2018 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 29 November 2017 to
5 December 2017 inclusive. Ordinary shares issued under the DRP will rank equally with all other ordinary shares.
94
Notes to the Consolidated Financial StatementsFinancial PerformanceFor the financial year ended 30 September 2017 Notes to the Consolidated Financial Statements
Operating Assets and Liabilities
For the financial year ended 30 September 2017
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
2017
$’000
2016
$’000
277,677
256,315
(264,912)
(250,766)
37,758
6,697
184,939
229,394
33,558
5,398
179,917
218,873
242,159
224,422
35
(249)
(214)
65
(270)
(205)
241,945
224,217
(1)
Current receivables is net of $20,036,000 (2016: $17,612,000) 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
2017
GROSS
$’000
2016
GROSS
$’000
2017
ALLOWANCE
$’000
2016
ALLOWANCE
$’000
2017
NET
$’000
2016
NET
$’000
249,448
230,120
15,201
3,207
3,275
2,316
7,110
15,826
3,082
2,347
3,090
4,829
280,557
259,294
33
6
10
22
173
2,601
2,845
32
–
16
60
570
2,236
2,914
249,415
230,088
15,195
3,197
3,253
2,143
4,509
15,826
3,066
2,287
2,520
2,593
277,712
256,380
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
2017
$’000
2,914
1,796
(1,819)
(46)
2,845
2016
$’000
6,146
836
(3,623)
(445)
2,914
DULUXGROUP ANNUAL REPORT 2017
95
95
7. Working capital (continued)
b) Accounting policies
i) 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 receivables is assessed continuously and at balance date specific allowances are made for any doubtful trade
receivables based on a review of all outstanding amounts. Bad debts are written off during the year in which they are identified.
The expected impairment loss calculation for trade receivables considers the impact of past events and exercises judgment over the
impact of current and future economic conditions. The calculation is based on:
• 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
• knowledge of debtor insolvency or other credit risk.
Subsequent changes in economic and market conditions may result in the provision for impairment losses increasing or decreasing
in future periods.
ii) 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.
iii) 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) 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.
8. Assets held for sale
In August 2017, management commenced the sale process of the Glen Waverley site. The net book value of the site is $6,813,558 inclusive
of both land and machinery, plant and equipment. Accordingly, the asset associated to the Glen Waverley site is presented as an asset
held for sale within the Consolidated Balance Sheet.
96
Notes to the Consolidated Financial StatementsOperating Assets and LiabilitiesFor the financial year ended 30 September 2017 9. Property, plant and equipment
2017
Cost
Less accumulated depreciation and impairment
Net book value
Balance at 1 October 2016
Additions
Additions – business acquisitions
Fair value adjustment on business acquisitions
Disposals
Depreciation expense
Reclassification to assets held for sale
Foreign currency exchange differences
Balance at 30 September 2017
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
BUILDINGS AND
LEASEHOLD
IMPROVEMENTS
$’000
LAND
$’000
MACHINERY,
PLANT AND
EQUIPMENT
$’000
45,254
–
45,254
51,685
–
–
–
–
–
(6,425)
(6)
45,254
51,685
–
51,685
38,557
12,825
245
–
–
58
51,685
117,937
(42,697)
75,240
78,717
95
–
(490)
(12) (1)
(2,738)
–
(332)
75,240
118,295
(39,578)
78,717
56,994
21,903
2,258
(203)(1)
(2,874)
639
78,717
485,663
(234,352)
251,311
181,639
92,920
44
–
(425)
(21,426)
(389)
(1,052)
251,311
398,562
(216,923)
181,639
166,314
36,772
2,471
(1,445)
(22,237)
(236)
181,639
TOTAL
$’000
648,854
(277,049)
371,805
312,041
93,015
44
(490)
(437)
(24,164)
(6,814)
(1,390)
371,805
568,542
(256,501)
312,041
261,865
71,500
4,974
(1,648)
(25,111)
461
312,041
(1)
Includes an amount of $12,000 (2016: $68,000) 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 2017 of $145,300,000 (2016: $71,311,000),
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 11). 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 leasehold improvements
Machinery, plant and equipment
10 to 40 years
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) 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 2017
97
97
10. Intangible assets
2017
Cost
Less accumulated amortisation
Net book value
Balance at 1 October 2016
Additions
Additions – business acquisitions
Fair value adjustment on business acquisitions
Amortisation expense
Foreign currency exchange differences
PATENTS,
TRADEMARKS
AND RIGHTS
$’000
GOODWILL
$’000
BRAND
NAMES
$’000
SOFTWARE
$’000
CUSTOMER
CONTRACTS
$’000
TOTAL
$’000
144,637
–
8,193
(5,976)
65,894
38,276
(1,312)
(32,898)
29,299
(17,443)
286,299
(57,629)
144,637
2,217
64,582
143,665
2,354
64,759
–
194
790
–
(12)
–
–
–
(131)
(6)
–
–
–
(117)
(60)
5,378
7,376
789
–
–
11,856
228,670
15,893
234,047
–
–
–
789
194
790
(7,118)
(32)
(2,829)
(4,041)
42
4
Balance at 30 September 2017
144,637
2,217
64,582
5,378
11,856
228,670
2016
Cost
Less accumulated amortisation
Net book value
Balance at 1 October 2015
Additions
Additions – business acquisitions
Amortisation expense
Transfers between classes
Foreign currency exchange differences
143,665
–
143,665
138,160
–
5,460
–
–
45
8,324
(5,970)
2,354
2,378
–
–
(277)
242
11
65,973
(1,214)
64,759
65,140
–
–
(217)
–
(164)
Balance at 30 September 2016
143,665
2,354
64,759
37,503
(30,127)
29,300
(13,407)
284,765
(50,718)
7,376
6,818
3,732
–
(2,915)
(249)
(10)
7,376
15,893
234,047
19,633
232,129
–
–
(3,747)
7
–
3,732
5,460
(7,156)
–
(118)
15,893
234,047
a) Intangibles under development
Included in the closing balance above are software assets under development at 30 September 2017 of $1,441,000 (2016: $3,596,000).
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 or under development, 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
Brand names
Software
Customer contracts
10 to 20 years
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 11) and are carried at cost less accumulated impairment.
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 11).
98
Notes to the Consolidated Financial StatementsOperating Assets and LiabilitiesFor the financial year ended 30 September 2017
c) 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 is as follows:
Dulux ANZ
Selleys & Parchem ANZ
Yates
B&D Group
Lincoln Sentry
DGL International UK
GOODWILL
BRAND NAMES
30 SEPTEMBER
2017
$’000
30 SEPTEMBER
2016
$’000
30 SEPTEMBER
2017
$’000
30 SEPTEMBER
2016
$’000
29,272
43,285
10,039
39,537
18,193
4,311
29,078
43,299
10,058
39,537
18,193
3,500
144,637
143,665
26,900
3,400
14,858
15,000
2,400
–
62,558
26,900
3,400
14,858
15,000
2,400
–
62,558
11. Impairment testing
The review for impairment at 30 September 2017 did not result in impairment charges being recognised by the Group (2016: $NIL).
For all Cash-Generating Units (CGUs) apart from the China CGU (part of the Other Businesses segment), a reasonable possible change
to impairment model inputs would not cause the recoverable amount to be below their respective carrying amount. For the China CGU,
trading results for the business continue to be weaker than expected. The recoverable amount has been determined using a fair value
less costs of disposal based approach. If there was a negative variation in a key assumption, in the absence of other factors, this may
lead to an impairment of the China CGU. The China CGU includes $3,900,000 of non-current assets and $25,100,000 of total assets at
30 September 2017.
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 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. CGUs to which goodwill has been allocated are
aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal
reporting purposes. The test of goodwill and its impairment is undertaken at the level noted above in note 10(d). 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 2017
99
99
11. Impairment testing (continued)
a) Accounting policies (continued)
The pre-tax discount rates applied in the discounted cash flow models range between 10% and 15% (2016: 10% and 15%). The sales revenue
compound annual growth rates applied in the discounted cash flow models range between 0% and 7% (2016: 0% and 7%).
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.
Reversals of impairment
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) 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.
12. Provisions
2017
Current
Non-current
Total provisions
Balance at 1 October 2016
Provisions made (net of amounts written back)
Provisions utilised
Unwind of discounting
Foreign currency exchange differences
Balance at 30 September 2017
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
EMPLOYEE
ENTITLE-
MENTS
$’000
63,503
4,598
68,101
59,834
5,512
65,346
RESTRUC-
TURING (1)
$’000
LEASED
PROPERTIES
$’000
OTHER
$’000
TOTAL
$’000
77,369
13,339
90,708
65,124
22,913
88,037
9,710
–
9,710
8,258
809
(379)
1,022
–
714
7,729
8,443
9,566
(1,116)
(808)
848
(47)
3,442
1,012
4,454
4,867
5,080
(5,649)
171
(15)
9,710
8,443
4,454
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
(1) At 30 September 2017 and 30 September 2016 the balance largely comprises the redundancy costs recognised in association with the Group’s supply chain projects.
100
Notes to the Consolidated Financial StatementsOperating Assets and LiabilitiesFor the financial year ended 30 September 2017 Current employee benefit liabilities include $26,046,000 in respect of long service leave due at 30 September 2017. Amounts expected
to be settled during the 2018 financial year amount to approximately $2,100,000. Historically, the Group has presented only those amounts
of long service leave expected to be settled in the following year as a current employee benefit liability. To accord with the current year
classification, prior year comparative balances have been restated, resulting in an increase in current employee benefit liabilities and total
current liabilities of $23,692,000 and a corresponding decrease in non-current employee benefit liabilities and total non-current liabilities.
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) 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 2017
101
101
Notes to the Consolidated Financial Statements
Taxation
For the financial year ended 30 September 2017
13. Income tax
a) Income tax expense
Current tax expense
Deferred tax expense
Income tax expense
Deferred tax expense/(benefit) included in income tax expense comprises:
Decrease/(increase) in deferred tax assets
Increase/(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
Amounts over provided in prior years
Income tax expense
b) Deferred tax assets and liabilities
2017
$’000
55,195
2,060
57,255
1,611
449
2,060
2016
$’000
47,313
4,837
52,150
4,976
(139)
4,837
196,916
59,075
181,211
54,363
396
(1,962)
(370)
1,422
1,399
(2,705)
57,255
(829)
(2,174)
(203)
886
1,200
(1,093)
52,150
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
Adjustment – prior year acquisitions
Credited to profit or loss
Charged to profit or loss
(Charged)/credited to other comprehensive income
Foreign currency exchange differences
Balance at 30 September
DEFERRED TAX ASSETS
DEFERRED TAX LIABILITIES
2017
$’000
2016
$’000
2017
$’000
2016
$’000
424
3,549
4,840
2,669
671
6,196
31,019
249
819
50,436
20,502
29,934
50,436
59,231
–
36
–
(1,611)
(7,126)
(94)
50,436
552
3,704
5,035
4,196
1,256
6,479
36,100
222
1,687
59,231
18,633
40,598
59,231
53,286
441
–
–
(4,976)
10,648
(168)
59,231
–
–
3,786
22,719
91
–
–
–
1,500
28,096
1,592
26,504
28,096
–
–
2,998
23,847
61
–
–
–
429
27,335
490
26,845
27,335
27,335
27,543
–
336
–
449
–
(24)
–
–
(139)
–
–
(69)
28,096
27,335
As a consequence of an IFRS Interpretation Committee (IFRIC) agenda decision issued in November 2016, management has adjusted
the deferred tax liabilities (with an offset in the common control reserve) as at the beginning of the earliest comparative period by
$11,508,000 to recognise a deferred tax liability on all indefinite life intangibles acquired as part of a business combination prior to the
demerger from the Orica Limited business in 2010.
102
c) Unrecognised deferred tax assets and liabilities
Tax losses and other deferred tax assets not recognised in:
Australia (1)
China (2)
Hong Kong
Malaysia
United Kingdom
(1) Capital losses.
2017
$’000
2016
$’000
1,086
7,918
577
237
620
10,438
1,086
9,229
539
327
–
11,181
(2) Expiration dates between 2017 and 2022 (2016: between 2016 and 2021).
A deferred tax liability of $1,000,000 (2016: $2,303,000) 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 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) 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 2017
103
103
Notes to the Consolidated Financial Statements
Capital and Risk Management
For the financial year ended 30 September 2017
14. 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)
2017
$’000
2016
$’000
10,040
6,530
16,570
10,873
2,031
12,904
156,427
241,689
126,686
261,993
398,116
388,679
(1)
(2)
(3)
The current Chinese Renminbi (RMB) unsecured bank loan amount comprises of RMB 52,500,000 (AUD 10,040,000) (2016: RMB 55,325,000 (AUD 10,873,000)) drawn
under an overseas bank loan facility.
The current Hong Kong Dollar (HKD) unsecured bank loan amount comprises of HKD 40,000,000 (AUD 6,531,000) (2016: HKD 12,000,000 (AUD 2,031,000)) drawn under
an overseas bank loan facility.
The non-current AUD denominated unsecured bank loan amount comprises of AUD 157,000,000 (2016: AUD 128,000,000) drawn under the Group’s syndicated bank loan
facilities, net of unamortised prepaid loan establishment fees of AUD 573,000 (2016: AUD 1,314,000).
(4)
The carrying value of the USPP is net of unamortised prepaid loan establishment fees of AUD 865,000 (2016: AUD 960,000).
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
2017
$’000
2016
$’000
241,689
261,993
865
(38,275)
(3,214)
960
(56,018)
(5,870)
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 17.
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
15. 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
Gross interest-bearing liabilities
Less:
Prepaid loan establishment fees
▼
USPP derivatives(1)
Cash and cash equivalents
Net debt to
EBITDA
Net debt
EBITDA
EBITDA
Net finance costs
Less:
METRIC/RATIO
1.4 times
(2016: 1.3 times)
2017
$’000
2016
$’000
416,124
403,857
(1,438)
(2,274)
(41,489)
(38,974)
334,223
(61,888)
▼
(39,068)
300,627
245,492
233,376
245,492
233,376
17,294
19,898
Amortisation of prepaid loan establishment fees
Interest
cover ratio
▼
Unwind of discounting
Defined benefit fund interest
(987)
(2,073)
(1,812)
(806)
(2,667)
▼
(828)
16.0 times
(2016: 14.1 times)
Addback:
Capitalised interest
Adjusted net finance costs
2,922
15,344
904
16,501
Accounting
gearing ratio
Net debt(2)
▼
Net debt plus total equity(3)
334,223
300,627
741,522
654,357
▼
45%
(2016: 46%)
(1) Foreign currency and interest rate hedges relating to the USPP notes.
(2) Refer calculation of net debt presented above for the Net Debt to EBITDA metric.
(3) Net debt plus total equity comparative has been restated to account for deferred tax liability on indefinite life intangibles, refer to note 13.
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 15(c) to 15(e).
DULUXGROUP ANNUAL REPORT 2017
105
105
15. Financial and capital management (continued)
c) Market risk
i)
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.
Interest rate risk
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 2017. As at 30 September
2017, the Group had no interest rate hedging in place.
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)
2017
$’000
38,974
374,635
2016
$’000
39,068
341,969
2017
% P.A
0.6
3.8
2016
%P.A
0.7
4.3
(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)
2017
$’000
857
(857)
2016
$’000
470
(470)
2017
$’000
857
(857)
2016
$’000
463
(463)
(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.
ii) 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 or EUR.
106
Notes to the Consolidated Financial StatementsCapital and Risk ManagementFor the financial year ended 30 September 2017 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
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Reported exchange rate
0.78
0.76
1.09
1.05
5.23
5.09
6.12
5.91
0.67
0.68
2.51
2.50
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Cash and cash equivalents
Trade and other receivables
1,513
1,399
1,307
1,398
6
24
3
161
Trade and other payables
Interest-bearing liabilities
(6,503) (4,506)
(740)
–
(942)
(1,787)
–
–
Net exposure
(3,591)
(2,541)
(912)
(1,623)
–
–
–
–
–
–
–
–
–
(1,903)
(307)
–
19
–
65
(265) (1,426)
–
–
–
–
20
62
–
30
–
522
(1,632) (5,819) (5,937)
–
–
–
(1,903)
(307)
(265) (1,342) (1,550) (5,789) (5,415)
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 in to 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
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
Increase/(decrease) in profit
after income tax expense(1)
Foreign exchange rates -10%
Foreign exchange rates +10%
(279)
(198)
228
162
(71)
58
(126)
103
Increase/(decrease) in total equity (1)
Foreign exchange rates -10%
Foreign exchange rates +10%
(279)
(198)
228
162
(71)
58
(126)
103
–
–
–
–
(148)
121
(24)
20
(21)
(137)
(140)
455
482
17
112
115
(372)
(394)
(148)
121
(24)
20
(21)
(137)
(140)
455
482
17
112
115
(372)
(394)
(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 2017 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 2017, the Group did not have any outstanding derivative instruments pertaining to foreign currency
earnings (2016: NIL).
iii) 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 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 2017
107
107
15. 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 facilities available
Amount of facilities undrawn
UNCOMMITTED BANK
OVERDRAFT FACILITIES (1)
COMMITTED STANDBY AND
LOAN FACILITIES (2,3)
2017
$’000
10,439
10,439
2016
$’000
22,695
22,695
2017
$’000
620,989
246,354
2016
$’000
619,923
277,954
(1) The bank overdrafts are payable on demand and are subject to an annual review.
(2)
(3)
As at the 30 September 2017, the maturity dates of the committed loan facilities range from 7 January 2018 to 19 September 2026 (2016: 8 November 2017 to
19 September 2026).
Includes AUD 250,000,000 (2016: AUD 400,000,000) unsecured multi-currency syndicated bank loan facility, AUD 100,000,000 unsecured bilateral loan facility, AUD
50,000,000 unsecured overdraft facility and notes issued under the USPP of AUD 201,065,000 (2016: AUD 201,065,000). Includes the RMB 60,000,000 (AUD 11,473,000)
(2016: RMB 60,000,000 (AUD 11,793,000)) unsecured bank loan facility established in China and the unsecured bank loan facility established in Hong Kong for HKD
51,750,000 (AUD 8,449,000) (2016: HKD 41,750,000 (AUD 7,065,000)).
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
2017
$’000
2016
$’000
265,161
264,912
251,036
250,766
67
210
136
65
205
207
2017
$’000
416,743
29,228
165,529
60,477
177,685
2016
$’000
407,086
27,344
135,573
61,962
183,506
2017
$’000
681,904
294,140
165,596
60,687
177,821
2016
$’000
658,122
278,110
135,638
62,167
183,713
265,325
251,243
432,919
408,385
698,244
659,628
(1) Excludes the impact of the prepaid loan establishment fees.
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 2017, it is not expected that any counterparty will
fail to meet its obligations.
108
Notes to the Consolidated Financial StatementsCapital and Risk ManagementFor the financial year ended 30 September 2017 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
Measured at
fair value(1)
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
Forward foreign exchange
contracts
Other financial instruments
(including Interest bearing
liabilities)
Fair value is determined using prevailing forward exchange rates
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.
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
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’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
38,974
39,068
–
–
–
–
–
277,712
256,380
–
–
–
38,974
39,068
277,712
256,380
–
–
–
–
–
–
–
–
–
–
–
38,974
39,068
–
277,712
256,380
40,792
60,309
40,792
60,309
40,792
60,309
357,478
355,757
–
–
–
–
–
–
–
–
–
–
–
–
–
265,161
251,036
–
414,686(1) 401,583(1)
–
–
–
265,161
251,036
–
414,686
401,583
–
–
–
–
679,847
652,619
619
619
3,229
619
3,229
3,229
680,466
655,848
(1) The fair value of the USPP is $242,550,000 (2016: $262,679,000).
DULUXGROUP ANNUAL REPORT 2017
109
109
15. Financial and capital management (continued)
h) Accounting policies
i) 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.
ii) 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.
110
Notes to the Consolidated Financial StatementsCapital and Risk ManagementFor the financial year ended 30 September 2017 16. Contributed equity
Movements in contributed equity since 1 October 2016 were as follows:
DETAILS
Balance at 1 October 2016
Purchase of treasury shares
Shares allocated under the DRP (1)
Sale of treasury shares
Shares vested under the LTEIP and ESIP
ORDINARY SHARES
TREASURY SHARES
TOTAL CONTRIBUTED EQUITY
NUMBER
OF SHARES
2017
$’000
NUMBER
OF SHARES
2017
$’000
NUMBER
OF SHARES
2017
$’000
389,250,252
264,886
(1,685,960)
(10,658) 387,564,292
254,228
–
–
–
–
–
–
–
(2,967,305)
(18,002)
(2,967,305)
(18,002)
992,998
6,366
992,998
1,107
1,107
6,366
8
12,396
2,123,697
2,123,697
12,396
8
–
Balance at 30 September 2017
389,250,252
277,282
(1,535,463)
(22,286) 387,714,789
254,996
(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 2016 are as follows:
DETAILS
Balance at 1 October 2016
Shares purchased under the 2016 LTEIP
Shares vested under the LTEIP and ESIP
Balance at 30 September 2017
NUMBER OF SHARES
ISSUED
ORDINARY
CAPITAL
TREASURY
TOTAL
4,858,174
1,685,960
6,544,134
–
–
1,973,200
1,973,200
(2,123,697)
(2,123,697)
4,858,174
1,535,463
6,393,637
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 $32,211,399.
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.
DULUXGROUP ANNUAL REPORT 2017
111
111
Notes to the Consolidated Financial Statements
Group Structure
For the financial year ended 30 September 2017
17. 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)
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 (1,4)
Lincoln Sentry Group Pty Ltd (1,2)
Concrete Technologies Pty Ltd
Pargone Pty Ltd (1)
DGL Camel Coatings (Shanghai) Limited (3)
DGL Camel Coatings (Dongguan) Limited (3)
Countermast Technology (Dalian) Company Limited
DGL Camel Powder Coatings (Dongguan) Limited (3)
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
China
China
China
China
DGL Camel International Limited (3)
DGL Camel Powder Coatings Limited (3)
DGL Camel (Hong Kong) Limited (3)
DGL Camel (China) Limited (3)
Countermast Limited
PT Avian Selleys Indonesia (6)
DGL International (Malaysia) Sdn Bhd
Alesco New Zealand Limited
B&D Doors (NZ) Limited (2)
Concrete Plus Limited (2)
Lincoln Sentry Limited
Robinhood Limited
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Indonesia
Malaysia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Dulux Holdings (PNG) Ltd
Papua New Guinea
DGL Camel (Singapore) Pte Ltd (3)
DuluxGroup (PNG) Pte Ltd (2)
DGL International (Singapore) Pte Ltd
Singapore
Singapore
Singapore
Craig & Rose Limited
United Kingdom
DGL International (Myanmar) Co Ltd (5)
Automatic Technology America LLC (5)
DGL International (Vietnam) Limited Company
Myanmar
USA
Vietnam
(1)
(2)
(3)
(4)
(5)
(6)
These subsidiaries have each entered into a Deed of Cross Guarantee with DuluxGroup Limited in respect of relief granted from specific accounting and financial reporting
requirements in accordance with the ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
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.
These entities form part of the DGL Camel International Group, in which the Group has a 51% equity holding.
This entity was deregistered during the year ended 30 September 2017.
These entities were incorporated during the year ended 30 September 2017.
This entity is in the process of incorporation as at 30 September 2017.
112
18. Businesses acquired
2017
On 28 November 2016, the Group acquired the Venetian Plaster business in Australia. The business manufactures and markets distinctive
texture finishes for both residential and commercial settings.
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. During the period the provisional net assets acquired as a result of the Craig & Rose acquisition
were adjusted downward by $790,000, resulting in a final goodwill balance of $6,250,000.
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
Deferred tax liabilities
Trade and other payables
Provision for employee entitlements
Provision for leased properties
Other provisions
Net identifiable assets acquired
Goodwill on acquisition (1)
PROVISIONAL
FAIR VALUE
$’000S
ADJUSTMENT
$’000S
FAIR VALUE
$’000S
13,215
250
13,465
630
3,006
59
4,974
441
–
(69)
(85)
(897)
(54)
8,005
5,460
–
–
–
–
–
–
(490)
36
(336)
–
–
–
–
(790)
790
13,215
250
13,465
630
3,006
59
4,484
477
(336)
(69)
(85)
(897)
(54)
7,215
6,250
(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.
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.
DULUXGROUP ANNUAL REPORT 2017
113
113
18. Businesses acquired (continued)
b) 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.
19. 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
2017
$’000
2016
$’000
50%
6,518
1,235
–
7,753
50%
6,342
676
(500)
6,518
(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
2017
$
2016
$
340,963
375,851
7,044,441
3,851,840
–
500,000
36,255
80,146
1,902,544
1,500,405
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 2017 (2016: $NIL).
114
Notes to the Consolidated Financial StatementsGroup StructureFor the financial year ended 30 September 2017 Notes to the Consolidated Financial Statements
Other Disclosures
For the financial year ended 30 September
20. 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 2017 was $20,586,000 (2016: $21,050,000).
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 4.3% (2016: 3.3%),
pension take up rate of 40% (2016: 40%), future salary increases of 3.8% (2016: 3.8%) and future inflation of 2.5% (2016: 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 (gains)/losses (1)
Current service cost (2)
Interest cost (2)
Employer contributions (3)
Balance at 30 September
2017
$’000
2016
$’000
190,823
(153,859)
200,841
(144,375)
36,964
56,466
56,466
(21,759)
5,750
1,812
(5,305)
36,964
22,107
32,551
4,965
828
(3,985)
56,466
(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 $5,746,000 for the financial year ending
30 September 2018.
DULUXGROUP ANNUAL REPORT 2017
115
115
20. Superannuation (continued)
c) Defined benefit pension plans (continued)
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
d) Accounting estimates and judgements
2017
32%
35%
17%
16%
2016
31%
40%
15%
14%
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.
21. 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
2017
$
2016
$
3,185,263
2,754,934
–
972,453
3,185,263
3,727,387
(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 (2016: $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.
116
Notes to the Consolidated Financial StatementsOther DisclosuresFor the financial year ended 30 September 2017 Details of shares issued under these plans are as follows:
LIFE OF
SHARE
OPTIONS
(YEARS)
3.1
3.1
3.1
3.1
EXPIRY
DATE
Jan 17
Jan 18
Jan 19
Jan 20
GRANT
DATE
SHARE
PRICE
FAIR
VALUE AT
GRANT
DATE
RISK
FREE
INTEREST
RATE
$5.45
$5.71
$6.30
$5.89
$1.71
$1.72
$1.92
$1.73
3.0%
2.5%
2.1%
1.9%
GRANT DATE
29 Nov 13
28 Nov 14
27 Nov 15
07 Dec 16
NUMBER OF SHARES
SHARE
PRICE
VOLATILITY
BALANCE
AT START
OF YEAR
GRANTED
DURING
YEAR
LAPSED
DURING
YEAR
EXERCISED
DURING
YEAR
BALANCE
AT END
OF YEAR
22.5% 1,747,980
22.5% 1,824,647
22.5% 1,870,900
–
–
–
(92,729)
(161,049)
20.0%
– 2,102,569
(37,877)
– (1,747,980)
–
–
–
1,731,918 (1)
1,709,851
– 2,064,692
(1)
Since the end of the financial year, these shares have met the applicable DuluxGroup LTEIP performance condition and vested on 15 November 2017. The restriction
on trading these shares will be lifted upon repayment of the loan. The loan must be repaid during the period from 28 November 2017 to 2 February 2018.
b) DuluxGroup ESIP
In December 2016, eligible Australian employees of the Group were invited to acquire DuluxGroup ordinary shares to the value of
$1000 through salary sacrifice with no matching from the Group (December 2015: $500 with $500 matching). Eligible employees in
New Zealand were invited to acquire ordinary shares to the value of NZD $780 through salary sacrifice with the Group providing no
matching (December 2015: NZD $390 with NZD $390 matching). A share allocated to a participating employee under the ESIP has trade
restrictions attached until the earlier of the end of three years after the date of allocation and the time when the participant ceases to
be employed by DuluxGroup Limited or any of its subsidiaries. At the end of the restriction period, the employee will be able to sell or
otherwise deal with their DuluxGroup shares.
Details of restricted shares issued under these plans is as follows:
ALLOCATION DATE
19 December 2014
17 December 2015
16 December 2016
NUMBER OF SHARES
UNVESTED AT
30 SEPTEMBER 2017
247,412
252,026
213,015
c) Accounting policies
i) DuluxGroup LTEIP
Shares issued/allocated under the LTEIP in conjunction with non-recourse loans are accounted for as options and as such the amounts
receivable from employees in relation to these loans are not recognised in the financial statements. Settlement of share loans upon vesting
are recognised as contributed equity.
The options are externally measured at fair value at the date of grant using an option valuation model being an adjusted form of the
Black-Scholes option pricing model. This valuation model generates possible future share prices based on similar assumptions that
underpin relevant option pricing models to calculate the fair value (as at grant date) of options granted.
The assumptions underlying the options valuations are:
• exercise price of the option;
• life of the option;
• current price of the underlying securities;
• expected volatility of the share price;
• dividends expected on the shares ($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.
ii) 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.
DULUXGROUP ANNUAL REPORT 2017
117
117
22. 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 (1)
Other long term benefits (2)
Post employment benefits
Share-based payments
Total
2017
$
2016
$
7,024,479
6,858,794
73,583
146,687
100,603
175,462
1,708,636
1,559,265
8,953,385
8,694,124
(1) Short term employee benefits includes the movement in the annual leave entitlement for the period of $(12,018) (2016: $(34,799)).
(2) Other long term benefits includes the movement in the long service leave entitlement for the period of $73,583 (2016: $100,603).
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
2017
NUMBER
2016
NUMBER
2,778,622
2,692,890
2,757,791
2,468,030
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. There were no
other transactions during the financial year nor balances owing to or from KMP as at 30 September 2017.
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.
118
Notes to the Consolidated Financial StatementsOther DisclosuresFor the financial year ended 30 September 2017 23. Commitments
a) Capital expenditure commitments
Capital expenditure on property and plant and equipment contracted but not provided for and payable:
– New paint factory
– Other
2017
$’000
2016
$’000
5,035
338
5,373
41,516
480
41,996
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
2017
$’000
2016
$’000
46,390
112,513
47,574
206,477
47,339
105,530
58,908
211,777
6,713
6,285
24. 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.
DULUXGROUP ANNUAL REPORT 2017
119
119
25. Deed of cross guarantee
Entities which are party to a Deed of Cross Guarantee (Closed Group), entered into in accordance with ASIC Corporations (Wholly-owned
Companies) Instrument 2016/785 are disclosed in note 17. 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 gains/(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 income/(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 (expense)/benefit
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 (expense)/benefit
Total items that will not be reclassified to the income statement, net of tax
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income for the year
2017
$’000
196,348
(53,412)
142,936
158,642
142,936
15,231
(98,519)
218,290
2016
$’000
172,573
(48,301)
124,272
145,974
124,272
(22,786)
(88,818)
158,642
2017
$’000
2016
$’000
142,936
124,272
1,991
(597)
(2,945)
883
(2,863)
(1,469)
3,885
1,823
21,759
(6,528)
15,231
13,762
156,698
(32,551)
9,765
(22,786)
(20,963)
103,309
120
Notes to the Consolidated Financial StatementsOther DisclosuresFor the financial year ended 30 September 2017 c) Consolidated balance sheet
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial assets
Other assets
Assets held for sale
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
Deferred tax liabilities
Provisions
Defined benefit liability
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
2017
$’000
2016
$’000
19,823
294,798
204,491
3,847
5,896
6,814
18,678
271,894
196,956
3,269
4,496
–
535,669
495,293
8
36,945
62,485
7,753
353,392
227,624
48,528
3,138
8
57,040
62,485
6,518
295,925
229,882
56,632
4,155
739,873
712,645
1,275,542
1,207,938
243,901
13,674
619
17,233
74,529
232,089
8,354
3,229
14,359
62,882
349,956
320,913
236
398,116
26,944
11,798
36,964
259
388,679
26,669
21,681
56,466
474,058
493,754
824,014
451,528
814,667
393,271
293,413
(60,175)
218,290
451,528
292,481
(57,852)
158,642
393,271
DULUXGROUP ANNUAL REPORT 2017
121
121
26. 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
2017
$’000
2016
$’000
93,341
229,263
125,381
229,263
322,604
354,644
15,750
15,750
9,661
9,661
306,854
344,983
293,413
–
7,093
6,348
292,481
40,358
7,751
4,393
306,854
344,983
59,074
1,053
60,127
60,127
75,834
950
76,784
76,784
(1)
(2)
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.
Profit before income tax expense includes dividend income of $62,585,000 declared by DuluxGroup (New Zealand) Pty Ltd ($54,000,000) and DuluxGroup (Nominees)
Pty Ltd ($8,585,000) during the year ended 30 September 2017 (2016: DuluxGroup (New Zealand) Pty Ltd $79,000,000).
b) Guarantees
Details of guarantees entered into by the parent entity in relation to external banking facilities as at 30 September 2017 are set out in
note 17. 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 2017 (2016: $NIL).
d) Contingent liabilities
Refer to note 24 for information relating to contingent liabilities of the parent entity.
27. 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
Board and executive remuneration services – KPMG Australia
Other assurance services – Overseas KPMG firms (2)
2017
$
2016
$
663,000
461,334
676,500
469,742
1,124,334
1,146,242
106,742
128,500
16,737
251,979
68,608
–
14,690
83,298
(1)
(2)
(3)
Includes fees paid or payable for overseas subsidiaries’ local statutory lodgement purposes and other regulatory compliance requirements.
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.
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.
122
Notes to the Consolidated Financial StatementsOther DisclosuresFor the financial year ended 30 September 2017 28. 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 2016.
The Group has adopted the following new and amended accounting standards.
REFERENCE
TITLE
AASB 2014-4
AASB 2017-1
Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of
Depreciation and Amortisation
Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual
Improvements 2014–2016 Cycle and Other Amendments
APPLICATION
1 Oct 2016
1 Oct 2016
The adoption of these standards did not have a significant impact on the consolidated financial statements and has impacted disclosures only.
a) 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 2016-2
Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107
AASB 2017-2
Amendments to Australian Accounting Standards – Further Annual Improvements 2014–2016 Cycle
AASB 15
Revenue from Contracts with Customers
AASB 2014-5
Amendments to Australian Accounting Standards arising from AASB 15
AASB 2015-8
Amendments to Australian Accounting Standards–Effective Date of AASB 15
AASB 2016-3
Amendments to Australian Accounting Standards–Clarifications to AASB 15
AASB 16
Leases
AASB 2017-4
Amendments to Australian Accounting Standards–Uncertainty over Income Tax Treatments
APPLICATION
1 Oct 2017
1 Oct 2017
1 Oct 2018
1 Oct 2018
1 Oct 2018
1 Oct 2018
1 Oct 2019
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 (ROU) and a lease liability. The lease liability represents the present value of future lease payments
with the exception of short-term and low value leases. An interest expense will be recognised on the lease liabilities and a depreciation
charge will be recognised for the ROU assets. There will also be additional disclosure requirements under the new standard.
AASB 16 is mandatory for annual reporting periods beginning after 1 January 2019, but is available for early adoption. A project team,
including members from finance, treasury and property functions has been established to perform a detailed assessment of the impact
of the new standard and to ensure a high quality implementation.
As at 30 September 2017 the Group has non-cancellable undiscounted lease commitments as disclosed in note 23. These commitments
predominantly relate to property, equipment and vehicle leases and will require ROU assets and associated lease liabilities.
The Group is continuing to assess the impact of the new standard, however it is expected that the Group’s consolidated balance sheet will
be materially “grossed-up” and in turn key financial ratios will be impacted. More detailed quantitative and qualitative disclosures will be
provided during 2018 as the impact assessment continues.
AASB 15 Revenue from Contracts with Customers
AASB 15 Revenue from Contracts with Customers was released in December 2015 by the AASB and requires the identification of discrete
performance obligations within a transaction and an allocation of an associated transaction price to these obligations. Under the new
standard revenue is recognised based on the transfer of control of ownership, rather than the transfer of risk and reward of ownership
under the previous standard.
AASB 15 is mandatory for reporting periods beginning after 1 January 2018, but is available for early adoption. The Group has performed
an initial assessment of the impact of the new standard by undertaking an analysis of a cross-section of material customer contracts.
Based upon this initial assessment, the impact of AASB 15 is not expected to be material. More detailed quantitative and qualitative
disclosures will be provided during 2018 as the impact assessment continues.
29. 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 2017, 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.
DULUXGROUP ANNUAL REPORT 2017
123
123
Directors’ Declaration
For the financial year ended 30 September 2017
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 2017 set out on pages 84
to 123, 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 2017 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 17 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 25; 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 2017.
This declaration is made in accordance with a resolution of the directors.
Peter M Kirby
Chairman
Melbourne
15 November 2017
124
Independent Auditor’s Report
To the members of DULUXGROUP Limited
DULUXGROUP ANNUAL REPORT 2017
125
125
64 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 ProfessionalStandards Legislation.Independent Auditor’s Report To the Members of DuluxGroup Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of DuluxGroup Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: •giving a true and fair view of the Group’s financial position as at 30 September 2017 and of its financial performance for the year ended on that date; and •complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: •The consolidated balance sheet as at 30 September 2017; •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 including a summary of significant accounting policies; and •Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the Financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
Independent Auditor’s Report
To the members of DULUXGROUP Limited
126
65 Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The carrying value of property, plant and equipment, and intangible assets ($600.5m) Refer to Notes 10 and 11 in the Financial Report The key audit matter How the matter was addressed in our audit The Group’s Cash Generating Units (CGUs) operate in a broad range of market segments and regions which range from the domestic consumer market through to industrial and commercial markets across Australia, New Zealand and Asia. These markets and regions are subject to cyclical demand characteristics which can significantly impact the financial performance of each CGU. Given the variability in the strength of each market that the Group participates in, and the associated impact this has on the assumptions used in the Group’s impairment testing models, the value of goodwill and intangible assets is a key audit matter. The financial statements disclose that the China CGU is sensitive to impairment on the basis that a reasonable possible unfavourable change in one or more of the assumptions used to determine its ‘fair value less costs of disposal’ may result in its carrying value exceeding its recoverable amount. These assumptions were the subject of particular focus during our audit. Our procedures included, amongst others: •We tested the goodwill and intangible assets impairment assessment process and tested key controls such as the review of forecasts by management. •We assessed the Group’s determination of CGUs based on our understanding of the nature of the Group’s business units. We examined the internal reporting of the Group to assess how the CGUs are monitored and reported, and we considered the implications for the Group’s identification of CGUs in accordance with the accounting standards requirements. •We compared cash flows in the value in use models to Board approved budgets. •We assessed key inputs into 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 applied increased scepticism to current period forecasts in areas where previous forecasts were not achieved and/or where future uncertainty is greater or volatility is expected. •We challenged the discount rate used by the Group for the Australian and New Zealand CGUs through DULUXGROUP ANNUAL REPORT 2017
127
127
66 using specialists to independently determine a benchmark discount rate. •For the China CGU, we performed sensitivity analyses on the potential transaction prices and revenue and earnings multiples used in the Group’s models and also compared these assumptions to relevant external data points. •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 regarding reasonable possible changes that may impact the valuation of the China CGU, by comparing these disclosures to our business understanding and accounting standards requirements. Other Information Other Information is financial and non-financial information in DuluxGroup Limited’s annual reporting 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 Chairman’s Report, Managing Director’s Report, Operating and Financial Review, Corporate Sustainability Report, Tax Contribution Report, Corporate Governance Statement 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: •preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; •implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and •assessing the Group’s and Company’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.
Independent Auditor’s Report
To the members of DULUXGROUP Limited
128
67 Auditor’s responsibilities for the audit of the Financial Report Our objective is: •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. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of DuluxGroup Limited for the year ended 30 September 2017, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in the Directors’ Report for the year ended 30 September 2017. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Gordon Sangster Partner Melbourne 15 November 2017 James Dent Partner Shareholder Statistics
As at 24 October 2017
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
17,729
16,540
2,876
1,602
77
8,894,695
37,746,787
20,408,871
33,904,552
288,295,347
38,824
389,250,252
2.29
9.70
5.24
8.71
74.06
0.00
100.00
Included in the above total are 708 shareholders holding less than a marketable parcel of 70 shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 70.43% 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
BNP PARIBAS NOMS PTY LTD
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