FOR IMMEDIATE RELEASE 12 October 2015 Myer Holdings Limited 2015 Annual Report and Notice of Annual General Meeting Myer Holdings Limited today released the following documents: • Annual Report for the year ended 25 July 2015; • Notice of Meeting (including Proxy Form) for the 2015 Annual General Meeting, which will be held at Mural Hall, located on Level 6 of the Myer Melbourne store, Bourke Street Mall, Melbourne, on Friday 20 November 2015 at 11.00am; • Appendix 4G and Corporate Governance Statement. The Annual Report and Notice of Meeting will be dispatched today to shareholders who have elected to receive hard copies. The 2015 Annual Report is available for download from www.myer.com.au/investor For further information please contact: I n v e st o r s Davina Gunn, Investor Relations Manager, +61 (0) 400 896 809 M e d i a Mel Ward, Corporate Affairs Manager, +61 (0) 438 101 078 Page 1 of 1 B R I N G I N G T H E L O V E O F S H O P P I N G T O L I F E A N N U A L R E P O R T 2 0 1 5 CONTENT S Chairman and CEO Report Company Review Management Team Board of Directors Directors’ Report Auditor’s Independence Declaration Remuneration Report Financial Statements Independent Auditor’s Report Shareholder Information Corporate Directory 2 4 18 20 21 37 38 64 117 119 121 The 2015 Myer Annual Report reflects Myer’s financial and sustainability performance for the period 27 July 2014 to 25 July 2015. Content is based on ASX financial and governance reporting guidelines, stakeholder feedback, the Global Reporting Initiative (GRI) G4 sustainability reporting guidelines, and Myer’s business strategy. The Myer Holdings Limited Annual Report is available online at myer.com.au/investor. Hard copies can be obtained by contacting our share registry. Myer is a company with a proud heritage and a bright future. As the retail world and our customers change, we are transforming Myer to deliver a reinvigorated offer and wonderful experiences for our customers who love us today, and for future generations. ANNUAL GENERAL MEETING The sixth Annual General Meeting of Myer Holdings Limited will be held on Friday 20 November 2015 at 11.00am (Melbourne time). Mural Hall Level 6, Myer Melbourne Store Bourke Street Mall, Melbourne VIC 3000 Myer Holdings Limited ABN 14 119 085 602 M Y ER Annual Report 2015 1 CH A I R M A N A ND CEO R EP O R T Q & A Myer Chairman Paul McClintock AO and CEO & Managing Director Richard Umbers provide a review of the past year and discuss future priorities. 2015 was a watershed year for Myer, which saw a strengthened management team chart a new strategy to aggressively tackle the evolving retail environment and return the business to sustainable, profitable growth. The FY2015 result supports the case for our comprehensive change agenda. In the second half of the year the team focused on delivering a thorough review of Myer’s strategy under the leadership of new CEO Richard Umbers. The New Myer strategy that was announced in September is an energetic revitalisation of Australia’s best-loved retailer. The strategy sets out a five year transformation program to bring the love of shopping to life with a renewed focus on Myer’s primary customers, investment in stores and online retailing (known as omni-channel) and a step change in the productivity of our store network. In the coming 12 months and the years ahead we will work diligently across the business to deliver the strategy. What are the most significant achievements from the past year? Richard commenced as CEO in March 2015, replacing Bernie Brookes who stepped down after almost nine years in the position. The Board and the entire Myer team thank Bernie for his significant contribution. During the year, we also welcomed several new executives with a depth and breadth of international retail expertise to further strengthen our Executive Management Group. (NPAT) of $77.5 million which was down 21.3 percent on the prior year (excluding Individually Significant Items). This year also marked one of the largest brand overhauls in Myer’s history as we rolled out a number of wanted brands including French Connection, seed, Nine West, Jack & Jones, Calvin Klein White Label and Tiger Mist. This trend will continue into the new financial year with the launch of our exclusive department store partnership with iconic British brand, TOPSHOP TOPMAN, and many more to come. In June 2015, we successfully refinanced our $600 million debt facility on improved terms, tenor and pricing, giving us a solid financial foundation to begin the new financial year. What were the main factors influencing the FY2015 result? During FY2015, sales increased by 1.7 percent. There was a continued strong performance in the Cosmetics, Childrenswear and Entertainment categories. This was offset by challenging conditions in Womenswear. There has been a positive customer response to the four major refurbishments and two new stores, and we have continued to deliver strong growth in online sales. Continued cost growth ahead of sales growth resulted in net profit after tax Why is Myer changing its strategy, and what is being done to address the Company’s financial performance? The store footprint and margin expansion model from our early years as a listed company led to a cost base that was outgrowing revenue, and our operational model became too inflexible to match the pace of change in retail. Our strategic review, which included a deep and detailed analysis of our customers and store catchments, convinced us that this model was no longer appropriate for the current environment and that broadly flat sales would continue without a significant change in strategic direction. In the context of the strategic review the Board also decided that it would be prudent to raise additional capital to retire debt and provide the necessary balance sheet flexibility to deliver the New Myer strategy. To achieve this, the Company made the decision to raise approximately $221 million of new capital through an accelerated, non-renounceable entitlement offer. In light of the entitlement offer, the Board elected to not declare a final dividend for FY2015. 2 M Y ER Annual Report 2015 How can department stores thrive in the new retail environment? inspiring these customers to shop across the whole store as well as online. How will shareholders be able to measure progress against the strategy? In recent years, a number of international department store retailers have successfully grown sales and profit by investing to stay relevant, innovating in online commerce, localising product offerings, and implementing retail models that are truly customer led. This validates our view that Myer can generate improved returns for shareholders if we successfully deliver the New Myer strategy. As we enter this period of transition, Myer’s fundamentals remain strong. Each year, we receive 130 million customer visits, our omni-channel business is growing rapidly, our store network is a competitive advantage, and we are doing more than ever to engage our five million MYER one members. In addition, we have strong, long-term relationships with our partners and suppliers, and 12,500 dedicated team members who are focused on bringing the love of shopping to life for our customers. How is Myer going to change? The New Myer strategy is all about attracting our primary customers to our stores in greater numbers. Our deep customer analysis has allowed us to understand who our most valuable customers are. These customers already shop at Myer, making regular visits to our cosmetics halls. We are now focused on It is also an appropriate time for the Board to embrace renewal. We recently amended our Board charter to recognise that, generally, the Board will not recommend a Director standing for re-election when that Director has served more than nine years on the Board. Deputy Chairman Rupert Myer AO, a director since 2006, has notified the Board that he does not intend to seek re-election at this year’s Annual General Meeting. Rupert has made a valuable and significant contribution to the Board and Myer and we wish him the very best with his broad portfolio of roles in business, the arts and philanthropy. How does Myer give back to the local community? Myer has a proud heritage of community support, established originally by Sidney Myer, and we continue to give back to our local communities. Through the Myer Stores Community Fund, our customers, suppliers and team members support a large number of local charities and Myer national charity partners to make a real difference. As well as financial donations, Myer also supports these charities through donations of time and products. This year, we contributed more than $2.6 million to charity partners. Management has established clear performance measures against which the delivery of the strategy will be measured. These metrics reflect the timeframes required to achieve a sustainable return to profitable growth. New Myer target metrics include average annual sales growth greater than three percent between 2016 and 2020; greater than 20 percent improvement in sales per square metre; earnings before interest, tax, depreciation, amortisation (EBITDA) growth ahead of sales growth by 2017; and return on funds employed greater than 15 percent by 2020. The journey towards New Myer is an exciting one. There is a significant amount of work to do, and it won’t happen overnight. However, we are confident that we have the management team in place with the expertise and commitment to deliver. We look forward to keeping you updated on our progress towards New Myer. Paul McClintock AO Chairman Richard Umbers Chief Executive Officer and Managing Director M Y ER Annual Report 2015 3 COMPA N Y R E V IE W C O M P A N Y S N A P S H O T Myer is a modern Australian retailer, with more than 100 years of heritage and a dedicated focus to bring the love of shopping to life. Myer is Australia’s largest full-line strategy aims to maximise the positive department store group, with more outcomes and influences we can have than 60 stores located across Australia. on our stakeholders by integrating all Our stores are visited by customers more aspects of sustainability into our ‘every than 130 million times each year, and our day’ business operations. For more loyalty program, MYER one, has more than information, please see page 14. five million members. In addition to our physical Myer stores and our online store, we own womenswear designer brand, sass & bide. This range is available from stand-alone boutiques, Myer stores, overseas retailers, and online. To enable the business to make sound decisions and maximise opportunities, Myer has a comprehensive risk management plan to identify and manage risks and uncertainties. Further details are available in the Directors’ Report We are a significant employer in Australia, on page 31. with 12,500 Myer team members, and we have a strong background in philanthropy. One of our most widely recognised initiatives is the Spirit of Christmas CD, supporting The Salvation Army. This has showcased the very best of Australian musical talent and generated more than $7.4 million since it launched. Since 2004, Myer has a proud Australian history and an exciting future supported by our New Myer strategy, which delivers a fresh interpretation of our brand, a re-energised and relevant range, improved service and in-store experiences complemented by a strong omni-channel offer. our annual Precious Metal Ball has raised While the customer sits at the heart of more than $6 million, with funds going to our strategy, it cannot succeed without organisations such as Redkite, the Olivia our devoted team of employees, and our Newton-John Cancer and Wellness strong relationships with suppliers of high Centre, and SMILE Foundation. quality, wanted brands and products. Myer is committed to responsible business Our strategy brings the best of Myer growth and integrating environmental, to the customers who love us today, social, and ethical considerations into and to future generations. the way we operate. Our sustainability 4 M Y ER Annual Report 2015 M Y ER Annual Report 2015 5 COMPA N Y R E V IE W A T A G L A N C E TOTAL SALES ($B) OPERATING GROSS PROFIT MARGIN (%) 2015 2014 2013 2012 2011 3.2 3.1 3.1 3.1 3.2 2015 2014 2013 2012 2011 40.4 40.9 41.5 41.2 39.5 NET PROFIT AFTER TAX ($M) EARNINGS PER SHARE (CENTS) 2015 2014 2013 2012 2011 77.5* 98.5 127.2 139.3 162.7 2015 2014 2013 2012 2011 13.2* 16.8 21.8 23.9 27.9 FINANCIAL SUMMARY ($M) Total Sales Operating Gross Profit Operating Gross Profit margin Cost of doing business (CODB) Earnings before interest, tax, depreciation, amortisation (EBITDA)* Earnings before interest and tax (EBIT)* Net Profit After Tax (NPAT)* * Excludes Individually Significant Items. See page 27 for further details. FY2015 3,195.6 1,290.4 40.4% FY2014 3,143.0 1,285.9 40.9% (1,067.2) (1,033.3) 223.2 133.5 77.5 252.6 160.3 98.5 Change +1.7% +0.3% (53bps) +3.3% (11.6%) (16.7%) (21.3%) SUSTAINABILITY TEAM MEMBER ENGAGEMENT TOTAL FEMALE EMPLOYEES 84% 79% LOST TIME INJURY FREQUENCY RATE (LTIFR) 7.7 TOTAL CONTRIBUTION REDUCTION IN GREENHOUSE WASTE TO CHARITY PARTNERS $2.6m See page 14 for further details on sustainability. GAS EMISSIONS 3% RECYCLING RATE 58% 6 M Y ER Annual Report 2015 COMPA N Y R E V IE W P E R F O R M A N C E R E V I E W SALES NET FINANCE COSTS INDIVIDUALLY SIGNIFICANT Total sales for the full year (ending AND NET DEBT ITEMS 25 July 2015) increased by 1.7 percent Net debt increased by $40 million to The FY2015 results include a number of to $3,195.6 million, driven by new stores $388 million, reflecting lower profitability Individually Significant Items totalling and refurbishments as well as strong and higher working capital. This was $61.7 million (pre tax) which have primarily growth in the online business. There largely offset by lower capital expenditure, arisen as a result of the strategic review. was continued strong growth in the dividend and tax payments. Cosmetics business as well as in Childrenswear and Entertainment, offset by a poor performance in Womenswear. During Christmas 2014, the rollout of Giftorium, representing dedicated gifting space in all stores, was well received by customers. Customers also responded positively These significant items represent the Net interest costs increased by 3.7 percent commencement of the ‘re-setting’ to $22.7 million as a result of the higher net of the business as we implement the debt position. Offsetting this were savings New Myer strategy. achieved as a result of the re-financing in the second half. FY2016 OUTLOOK CASH FLOW AND BALANCE SHEET FY2016 will represent a transitional year for Myer in which significant investments are being made in our future growth, with to the four major store refurbishments The reduction in operating cash flow the rewards from these investments to that were completed ahead of Christmas by $96 million to $167 million reflected be realised in late FY2016 and thereafter. 2014. In addition, new stores at Mt Gravatt both the reduction in earnings for the Following FY2016, Myer expects to return (QLD) and Joondalup (WA) generated year as well as a negative working capital to sustainable profit growth. additional growth. During the year, two stores were closed in NSW, at Hurstville in January 2015 and Top Ryde in July 2015. movement of $56 million. The negative working capital movement was due to an increase in trading inventory to $22 million compared to FY2014 and lower trade creditors of $19 million. As a result (and including the impact of the entitlement offer), Myer expects NPAT for FY2016 to be in the range of $64 million to $72 million, excluding the impact of implementation costs associated with MARGINS AND CODB As part of our strategy to exit a large New Myer. The operating gross profit margin declined number of brands, the Spring Clean by 53 basis points to 40.4 percent. This Clearance event launched in the first was largely due to the depreciation in the quarter of FY2016 has successfully Australian dollar and increased inventory reduced inventory by approximately provisions. CODB increased by 3.3 percent to $1,067.2 million, driven by costs associated $10 million, with net debt also improving by approximately $20 million since balance date. with refurbishments in four of our top Capital expenditure during FY2015 25 stores as well as two new stores, and decreased by $6 million to $62 million costs associated with the growth in the compared to FY2014 pending the Individually Significant Items in FY2016 are expected to be in the range of $35 million to $45 million (pre tax) and will predominantly comprise costs associated with the New Myer strategy and improving productivity. Capital expenditure is expected to be in the range of $100 million to $120 million in FY2016. omni-channel business. outcomes of the strategic review. Further discussion about Myer’s performance is set out in the Directors’ Report from page 21. M Y ER Annual Report 2015 7 COMPA N Y R E V IE W T H E T R A N S F O R M A T I O N O F M Y E R Our New Myer strategy is a five-year journey, focused on the customers who represent the highest value to our business. We are investing in New Myer over the next five years to deliver a sharper and more focused offer to serve a more OUR FOUR STRATEGIC PRIORITIES Customer led offer Omni-channel valuable customer, driving productivity > Provide the brands that inspire our and growth. Our stores will inspire and primary customers and create a halo > Embrace the new retail environment through a seamless omni-channel delight and become more relevant to effect that attracts and retains other experience, a fusion between physical our customers’ daily lives. customer groups. The New Myer strategy is founded on Wonderful experiences and digital retailing that starts on your device and ends in our store or on your doorstep. > Create stores that surprise and delight, through retail experiences that Productivity step change combine wanted brands and services > Deliver a more productive and with the theatre of shopping that we profitable store network over a smaller know customers love. and more efficient footprint as we work to better align our network with our primary customers. advanced data analytics of Myer’s customer base and store catchments. We’re using this data to better understand our customers and identify the greatest opportunity to achieve higher sales and profit. Our strategy will come to life through the four priorities outlined below, and will be supported by our organisational capability. 8 M Y ER Annual Report 2015 COMPA N Y R E V IE W O U R S T R A T E G Y Our strategy represents an energetic revitalisation of Australia’s best-loved retailer. It is an investment of more than $600 million in capital and implementation costs over five years to deliver improved productivity, a re-energised range, an enhanced in-store experience, and market-leading omni-channel capability. CUSTOMER LED OFFER WONDERFUL EXPERIENCES OMNI-CHANNEL PRODUCTIVITY STEP CHANGE > Re-allocate space to wanted categories and brands. > Focus on a narrower and more powerful range of Myer Exclusive Brands (MEBs). > Fine tune our merchandise offer to allow product and service localisation. > Implement roster optimisation and staff training to improve customer Net Promoter Scores. > Elevate visual merchandising, upgrade fitting rooms and roll out digital hubs and Wi-Fi. > Introduce dwell spaces such as restaurants, cafés and events in priority stores. > Increase Click & Collect as a proportion of online sales. > Reduce fulfilment cost per order. > Leverage store portfolio as a real asset. > Optimise stores to improve sales per square metre. > Drive online > Manage store network infrastructure and supply chain efficiencies to improve delivery times. to improve productivity and alignment with primary customer groups. ORGANISATIONAL CAPABILITY Our strategy is underpinned by our organisational capability. This includes an overhaul of our operating model, the appointment of several key executives, and the establishment of a Transformation Office. M Y ER Annual Report 2015 9 COMPA N Y R E V IE W D E L I V E R I N G T H E N E W M Y E R During FY2015, we embarked on our New Myer strategy by implementing a series of initiatives designed to provide our customers with the inspiring range and experiences they want, while ensuring they can shop with Myer across all retail platforms with ease and convenience. CUSTOMER LED OFFER WONDERFUL EXPERIENCES In developing our strategy, we conducted Our focus is on delivering retail a detailed analysis of 50,000 consumer experiences that combine wanted brands data sets to give us a clear understanding and services with the theatre of shopping of our primary customers’ lifestyles and that we know customers love. values, how they shop with Myer and our competitors. We know from our flagship store in Melbourne that when we get the in-store The forefront of this strategy is a customer offer right, combined with enticing dwell led offer which focuses on offering a spaces and cafés, we can generate great re-energised range delivered through customer experiences. Our Giftorium relevant categories, wanted brands, and concept, which launched in December locally tailored offers. During the year, we made a number of 2014, is testament to the type of unique shopping environments we can create. positive changes to our merchandise Progress is already underway with changes offer including introducing new brands to the mix of our in-store team members (see the opposite page), improving store to create more flexible rosters and ensure layouts and visual merchandising, and we have team members in-store when our streamlining our online range. customers need them most. We have also implemented a number of new training initiatives to upskill our team members, including our Intimate Apparel Fitting School, where we are training team members in the unique skills required to fit and sell this complex product category. This is just one of many training programs we have planned under New Myer. In particular, the introduction of French Connection, seed and Nine West represents one of the largest brand rollouts ever undertaken at Myer, with multiple brands deployed across a number of different categories in large footprints in more than 40 stores. We continue to reinvigorate our brand offer across concessions, national brands, and MEBs, as well as localise the range according to demographic attributes and geographic factors. GIFTORIUM Giftorium is a unique concept in Australian retailing, developed by Myer to bring fun and theatre to Christmas shopping. The heart of Giftorium is about providing a unique set of products, services and experiences to create a new level of engagement with Myer customers shopping for Christmas gifts, personalised products, decorations and festive food. 10 M Y ER Annual Report 2015 GIVING OUR CUSTOMERS WANTED BRANDS Wonderful experiences start with brands that customers know and love. Over the last year, we have launched a number of new brands including White Suede, by Johnny, Maison Scotch, Asilio, Jo Malone, M.J. Bale, Scotch & Soda, Jack & Jones and Pierre Balmain. 1 … and increase space for wanted brands W A N T E D B R A N D S A L R E A D Y S E C U R E D A C T I O N S In June 2015, we announced widely-recognised and renowned new brands seed, Nine West and French Connection, strengthening our fashion offer for Myer customers. - Reallocate space away from over- spaced brands and towards our 40-50 most wanted brands - C. 3.4x greater gross profit in identified brands/space We are also thrilled that Myer is now the exclusive department store home for TOPSHOP TOPMAN in Australia. Our Bondi store will be the first to receive TOPSHOP TOPMAN in November 2015, followed by a progressive rollout to more than 20 Myer stores. 23 ENHANCING THE IN-STORE EXPERIENCE Our team members are critical to providing our customers with great experiences. We continue to invest in our people to ensure that we are delighting our customers at every opportunity. M Y ER Annual Report 2015 11 COMPA N Y R E V IE W THE MYER HUB The Myer Hub in Parramatta (NSW) is Myer’s ‘open kitchen’ of e-commerce and brings together a wide range of current and new services in one convenient place in-store. The Myer Hub makes it easy for customers to access personal shopping and styling, cosmetics consultations, Gift Registry, phone charging and Click & Collect. Free Wi-Fi is available via an app that also provides customers with exclusive promotions and the ability to view current Myer catalogues and the Myer blog. Customers have unprecedented access to innovative digital installations including a digital media wall and an interactive digital touch table featuring information about Myer products and services. CLICK & COLLECT When customers come to collect their Click & Collect order, team members can personalise their experience by offering promotions to accompany the customer’s purchase. 12 M Y ER Annual Report 2015 COMPA N Y R E V IE W OMNI-CHANNEL ORGANISATIONAL MYER ONE SHOPPING CAPABILITY Online shopping is revolutionising retail, Our success is underpinned by our empowering customers, and providing people and organisational capability. new channels to market. We have already made progress in We already have one of the leading online mobilising our business for this offers in Australia, and our online sales transformation, and in April 2015 we continue to grow. We are strengthening established a Transformation Office to our omni-channel proposition to create a promote and co-ordinate the progress seamless shopping experience that starts we are making. on any device and ends in any one of our stores, or at a customer’s door or office. To further strengthen our leadership team, we welcomed a number of senior This can be seen in the Myer Hub, which executives in FY2015. These executives was successfully trialled in our Parramatta possess the right mix of expertise in retail (NSW) store (see the opposite page). and business transformation to help Various elements of the Myer Hub concept successfully deliver the New Myer strategy. will be rolled out to select stores in FY2016. In 2015, we closed our third party operated distribution centre to enable us to streamline our fulfilment model. Our focus is on store-based fulfilment which is more cost effective, enables us to better manage delivery times, and increases the use of our Click & Collect service. PRODUCTIVITY STEP CHANGE Myer’s store network is one of our strongest assets and a real source of competitive advantage. Our store network has been thoroughly reviewed through detailed catchment analysis, store by store, and we understand the potential of each location. With these detailed insights and analytics, we will actively manage our store portfolio to improve store productivity and better align our footprint with our primary customers. During 2015 we have actively demonstrated change, with the closure of two NSW stores at Hurstville and Top Ryde, the decision to not proceed with a store at Greenhills (NSW), and the opening of two new stores in Mt Gravatt (QLD) and Joondalup (WA). We are strengthening our omni-channel proposition to create a seamless shopping experience. Our new operating model puts the customer at the centre of our decision making and provides a framework as to how all departments are working together to achieve the New Myer strategy and improve our business performance. In addition, we have implemented a new governance framework to streamline the decision- making process, prioritise capital, and monitor the returns from investments. The ‘Myer Way of Working’ is a critical component of our operating model, which will build the culture, articulate the desired behaviour and leadership styles, provide a compelling communication strategy, and implement the change capability. These changes will enable us to have a strong execution culture, with robust systems, efficient processes, and the organisational capability to drive Myer forward. Our MYER one loyalty program of more than five million members enables us to engage directly with our omni-channel customers. We plan to reinvigorate the offer available to our premium members in Platinum and Gold tiers. INTRODUCING THE FINDERS Social media is a key channel for engagement with our primary customers. We have more than half a million Myer followers across a range of platforms including Facebook, Twitter, Instagram, YouTube, and Snapchat, which we use to talk about new brands, trends, events and product launches. For the first time ever, we collaborated with leading Australian online style influencers, Amanda Shadforth (Oracle Fox), Carmen Hamilton (Chronicles of Her), Zanita Whittington (Zanita.com), and Jess Arifien and Trevor King (Oliver Grand) to bring our customers a new insight into trends for Spring 2015. These online influencers were featured in our blog, ‘the find’ and across the Myer website and social media channels, as well as in marketing materials, digital display advertising and pop-up shops. M Y ER Annual Report 2015 13 COMPA N Y R E V IE W S U S T A I N A B I L I T Y A T M Y E R Myer is committed to building a socially responsible business and integrating sustainability into everyday business practices. MYER SUSTAINABILITY FRAMEWORK AND MATERIAL ISSUES CUSTOMER PEOPLE COMMUNITY ENVIRONMENT BUSINESS > Customer service and satisfaction > Attraction and engagement > Myer Stores Community Fund > Energy and emissions > Reward and recognition > Workplace safety > Giving our time > Packaging > Strategic community partnerships stewardship > Waste and recycling > Ethical sourcing > Code of Conduct > Shrinkage > Product responsibility Our sustainability strategy has five focus areas: Customer, People, Community, Environment, and Business. Each of these is supported by relevant metrics to enable us to measure our performance. ATTRACTION AND ENGAGEMENT DIVERSITY In FY2015 we achieved our gender diversity Myer provides our team members with target, with a workforce comprised of a rewarding and supportive workplace. 79 percent women. Our other measurable This is reflected in the results of our objectives - proportions of men and The following pages contain key highlights most recent employee survey, ‘My Say’, women on the Board and in the Executive from this financial year. which found that 84 percent of our Management Group, and the Gender For more information on our sustainability strategy and performance, and to view our FY2015 Global Reporting Initiative Index, please visit myer.com.au. team members had a high level of Equality Indicators under the Workplace engagement with Myer. Myer team Gender Equality Act (WGEA) - are set out members are offered a variety of in our Corporate Governance Statement workplace benefits including shopping which is available at myer.com.au/investor. discounts, flexible work arrangements, and additional leave options. We also WORKPLACE SAFETY provide capability development The importance of safety is embedded opportunities through ‘on the job’, in our culture. We are committed to online, and group instructor-led training. reducing hazards, raising team member awareness, and co-ordinating active safety committees at each site. During FY2015, we successfully maintained our self-insurance licence arrangements. The Myer Lost Time Injury Frequency Rate (LTIFR) was 7.7 in FY2015. 14 M Y ER Annual Report 2015 COMPA N Y R E V IE W ENERGY AND EMISSIONS PRODUCT RESPONSIBILITY Energy, packaging and waste are our We take pride in the quality of our key environmental impact areas, and in merchandise. We have extensive quality FY2015 significant positive progress has and compliance processes in place to been made in reducing these impacts. ensure that our merchandise is safe, and Through continued investment and focus on energy efficiency, we have further compliant with labelling and safety requirements. reduced our energy intensity by 2 percent We also continue to develop our product compared to FY2014. This has reduced by responsibility programs. Myer supports a total of 8 percent since FY2013. the government-led ‘SmarterChoice’ Our total energy use for the year decreased by 2 percent to 707,151 GJ, resulting in a 3 percent reduction in program in NSW and VIC, which provides customers with energy efficiency information about electronic products. direct and indirect greenhouse gas To encourage the recycling of clothing, emissions, to a total of 168,809 tonnes. we have partnered with Salvos Stores WASTE AND RECYCLING to deliver the Myer and Salvos Fashion Rescue program. This program rewards Our commitment to reducing waste customers who donate clothing and increasing recycling of packaging to Salvos Stores with a $10 Myer voucher. enabled us to receive co-funding from In addition to preventing clothing from the Australian Packaging Covenant and going to landfill, the program benefits Sustainability Victoria for a recycling Salvos Stores by increasing the quality optimisation project in FY2015. This year and quantity of donations, which assists we recycled 58 percent of our waste in raising funds for the work of The stream, and we expect to see continued Salvation Army in the community. reductions in the next year as the benefits of the project are realised. HIGH PERFORMER AWARD AUSTRALIAN PACKAGING COVENANT 2015 In 2015, we were awarded Highest Score Retailer by the Australian Packaging Covenant. This is a sustainable packaging initiative which encourages businesses to design more sustainable packaging to increase recycling rates and reduce packaging litter. 1 MILLION STARS TO END VIOLENCE In 2015, more than 4,000 Myer team members and customers each wove a paper ribbon star to support the 1 Million Stars to End Violence campaign. Supported by Myer, the campaign was initiated by weaving artist Maryann Talia Pau ‘to bring people together to do something good and beautiful’, and to raise community awareness about violence against women. The aim of the project is to engage communities across Australia in cultural change against violence, with beautiful displays of personally woven stars installed in public spaces until 2018. M Y ER Annual Report 2015 15 COMPA N Y R E V IE W ETHICAL SOURCING Myer is committed to sourcing merchandise These audits identified one zero tolerance that is produced in safe and fair working issue and 14 high rated issues. These conditions, where the human rights of non-conformances have subsequently workers are respected. This commitment been addressed by the relevant suppliers. is supported by our Ethical Sourcing Policy and a framework which measures supplier adherence, identifies breaches, and continuously improves the ethical performance of our supply chain. All Myer continues to work with our suppliers to improve their ethical sourcing procedures and ensure compliance with our Ethical Sourcing Policy. new suppliers must adhere to our Our ethical sourcing framework includes: Ethical Sourcing Policy. > monitoring the factory locations The majority of our MEB merchandise of all new MEB suppliers; is sourced from China through our dedicated global sourcing group, Myer Sourcing Asia Limited, with offices located in Hong Kong and Shanghai. Our external logistics provider, Cargo Services, operates four hubs in Asia to deliver merchandise to Myer’s distribution centres in Australia. In FY2015, we significantly increased the number of ethical sourcing audits undertaken, to a total of 313, including 303 audits of MEB supplier factories, and a review of 10 national brand suppliers. > rating suppliers against a supplier risk profile; > determining which suppliers are to be audited under the Ethical Sourcing Policy and audit cycle; > assessing the risk level of any issues identified during audits; and > implementing remedial action plans or withdrawal of supply for non- compliant suppliers, depending on the severity of the breach. OUR MYER VALUES In October 2014, we launched our new Company values which were updated to reflect our focus on bringing the love of shopping to life. Our values guide our behaviour, underpin our culture, and provide a framework for how we work at Myer. Everyone at Myer has a role to play, from the people who source and buy our products to the people who sell them and everyone in between. The values we share help bind us together, as these are the things that matter the most to our business and our people. Our values are: 1. Be passionate 2. Delight your customer 3. Challenge yourself 4. Be courageous 5. Do what’s right 6. Give something back 7. We are family 16 M Y ER Annual Report 2015 COMPA N Y R E V IE W GIVING BACK Myer has a proud history of community For the coming three years, Myer will investment and, through our Myer Stores align our community investment with Community Fund, we encourage our team ‘empowering and supporting women, members, suppliers and customers to give strengthening families’, to work with key back to the local community. charities to help reduce family violence. Each year we also host the Myer Stores Community Fund Precious Metal Ball, to raise vital funds for our national and local store charity partners. This year, we were able to support Red Kite with $250,000 from funds raised at the Ball. This year, we also launched our first ‘Round Up’ campaigns for Mother’s Day, allowing our customers to round up to the nearest dollar for the Myer Stores Community Fund. We have announced new partnerships with White Ribbon Australia and Global Sisters to support their valuable work in improving outcomes for vulnerable women and children. We will also continue to support The Salvation Army, with a focus on its provision of crisis care to women and children affected by family violence. TOTAL CONTRIBUTION TO CHARITY PARTNERS MYER DIRECT TIME, CASH AND GOODS $2.6m $1.0m FACILITATED FUNDRAISING FROM CUSTOMERS, SUPPLIERS AND TEAM MEMBERS $1.6m SUSTAINABILITY PERFORMANCE AND TARGETS Focus area Customer Key measure Net Promoter Score FY2013 FY2014 FY2015 Performance Performance Performance FY2016 Target Exceeded Achieved target Improvement* Team Employee engagement (%) Diversity (% female) Workplace safety (LTIFR) Community Direct charity contribution (% EBIT) Environment Greenhouse gas emissions reduction (%) Energy intensity (kJ/M2/opening hour) Recycling rate (%) Business New suppliers agreed to Ethical Sourcing Policy (%) Code of Conduct training (% of staff every two years) Shrinkage reduction N/A N/A 78.8 8.6 0.4 4.8 191.2 55 100 75.5 Reduction on target ● 83 ● 79.6 ● 7.0 ● 0.6 ● 5.0 ● 179.8 ● 57 ● 84 79.0 7.7 0.8 2.7 175.5 58 100 ● 100 82 ● ● Reduction on 86.5 Minor ≥83 >75 ≤6.5 ≥0.5 ≥3.0 ≤171.5 ≥60 100 ≥75 Maintain *On comparable stores basis ● Improved/met target ● Did not reach target previous year previous year increase M Y ER Annual Report 2015 17 M A N A G E M E N T T E A M From left to right: Richard Umbers, Louise Tebbutt, Timothy Clark, Tony Sutton, Daniel Bracken, Grant Devonport, Richard Amos and Gary Williams. 18 M Y ER Annual Report 2015 RICHARD UMBERS DANIEL BRACKEN GRANT DEVONPORT RICHARD AMOS Chief Executive Officer and Chief Merchandise and Chief Financial Officer Chief General Counsel Managing Director Marketing Officer, Deputy CEO and Company Secretary Richard was appointed CEO Daniel was appointed Chief Grant was appointed CFO Richard was appointed as and Managing Director of Myer Merchandise and Marketing of Myer in July 2015. As CFO, Chief General Counsel and in March 2015. Officer in September 2014 and Grant’s responsibilities Company Secretary in July was appointed Deputy CEO in cover all financial planning, 2015 and manages the legal March 2015. In this role, Daniel accounting, treasury and company secretarial manages the merchandise management, taxation, functions for the Myer Group. In his role, Richard is responsible for leading the organisation and delivering a significant program of change and reinvigoration to ensure that Myer continues to be an exciting destination for all of our customers. areas of design, sourcing, procurement, compliance, buying, and manufacturing, internal audit and financial as well as advertising, digital, services aspects of the marketing, events and business. Prior to joining execution of the Myer brand Myer, Grant most recently Richard joined Myer in strategy. Daniel has extensive served as CFO of Toll Holdings September 2014 as Chief experience in retail including Limited. He has previously held Information and Supply Chain more than 15 years at Burberry senior finance, commercial, Officer, with responsibility London, and prior to joining and executive roles with Toll for online strategy, financial Myer was the CEO of The in Australia and New Zealand, services and MYER one, as well Apparel Group, owner of as well as senior positions as the logistics and IT functions. Sportscraft, Saba, Willow, with Village Roadshow and the and Jag. National Australia Bank Group. Grant is a Chartered Accountant (CA), Institute of Chartered Accountants in New Zealand. Richard has extensive retail, logistics and IT experience and has held senior roles at Aldi in Europe and Woolworths in Australia and New Zealand. He joined Myer from Australia Post, where he was the Executive General Manager for Parcel and Express Services and CEO of StarTrack. Before joining Myer, Richard worked with leading brewing and consumer dairy business, Lion, for 10 years in a range of executive roles including Corporate Development and Risk Director and General Counsel of Lion Beer, Spirits and Wine Australia and NZ. Richard also worked for international law firm Baker & McKenzie in Sydney, London, and Bangkok for 10 years. TIMOTHY CLARK TONY SUTTON LOUISE TEBBUTT GARY WILLIAMS Executive General Manager Executive General Manager Executive General Manager Chief Transformation Officer Property, Store Development Stores Human Resources, Risk and and Services Safety Tim was appointed as Group Tony was appointed to lead the Louise was appointed Gary was appointed Chief General Manager Property, stores team in September 2012, Executive General Manager Transformation Officer in May Store Development and and in that role he oversees all Human Resources, Risk and 2015, having joined Myer as the Services in January 2011 and of the operations of the Myer Safety in August 2012 and is Executive General Manager is responsible for Myer’s store network, including our responsible for all aspects Strategic Planning and Business property network. This includes customer service strategy of Myer’s human resources Development in August 2014. our store refurbishment and bringing wonderful including organisational In this new role, he plays a program, in-store design experiences to life for our development, sourcing and significant role in driving developments, optimising customers. talent strategies, industrial ownership of initiatives and Tony is a career retailer, joining Myer in 1992, and has worked cross-functionally in a number of senior roles including store and regional management, merchandise, and marketing. the productivity returns of Company space, and the execution of all facilities management requirements. Tim was then appointed as Executive General Manager with the additional responsibilities of the Company Project Management Office. Tim has also held executive roles at Gazman Menswear and Crown Ltd. relations, and risk and safety. facilitating efficient execution. Louise also oversees the In addition to this, he continues Operating Model and Way to be responsible for strategy of Working initiatives aligned and business development. to the new strategy. Louise has over 20 years of industry experience, and prior to joining Myer from the Coles Group in 2006, she held senior roles in a number of businesses including Coles Supermarkets and Target. Louise is also a director of the Myer Stores Community Fund and Chair of the Myer Superannuation Policy Committee. Gary began his career in retail and brings significant global experience to Myer from his work across leading brands including time as Managing Director at Coca-Cola Australia and South Africa, global roles at Puma and Reebok, and more than nine years at Westfield in Australia and the United States. M Y ER Annual Report 2015 19 B O A R D O F D I R E C T O R S From left to right: Chris Froggatt, Ian Cornell, Richard Umbers, Bob Thorn, Paul McClintock AO, Rupert Myer AO and Anne Brennan. Bernie Brookes On 2 March 2015, Bernie Brookes stepped down from the role of CEO and Managing Director. From 2006 Bernie guided Myer through a turnaround under private ownership to a public listing, and through a period of sustained weakness in consumer sentiment, competitive disruption and structural change. The Board thanks Bernie for his dedication and hard work over the past eight years. 20 M Y ER Annual Report 2015 D I R E C T O R S ’ R E P O R T Your directors present their report on the consolidated entity consisting of Myer Holdings Limited ABN 14 119 085 602 (the Company or Myer) and the entities it controlled (collectively referred to as the Group) at the end of, or during the financial period ended 25 July 2015. 1. DIRECTORS The following persons were directors of the Company during the financial period and/or up to the date of this Directors’ Report: Director Position Paul McClintock AO Chairman from 10 October 2012 Independent non-executive director Date appointed 8 August 2012 Rupert Myer AO Deputy Chairman from 8 August 2012 12 July 2006 Bernie Brookes Richard Umbers Anne Brennan Ian Cornell Chris Froggatt Bob Thorn Independent non-executive director Chief Executive Officer (CEO) and Managing Director CEO and Managing Director Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director 12 July 2006 2 March 2015 16 September 2009 6 February 2014 9 December 2010 6 February 2014 Bernie Brookes retired as CEO and Managing Director and Strategic Policy Institute and Perpetual Limited, a Commissioner Richard Umbers was appointed as CEO and Managing Director of the Health Insurance Commission, and a member of the on 2 March 2015. All other directors served as directors of the Company for the whole financial period and until the date of this Directors’ Report. Australia-Malaysia Institute Executive Committee. Paul graduated in Arts and Law from the University of Sydney and is an honorary fellow of the Faculty of Medicine of the University of Sydney and a Life Governor of the Woolcock Institute of Medical Research. Rupert Myer AO has notified the Board that he does not intend Paul resides in New South Wales and is 66 years of age. to seek re-election for a fourth term as a director of the Board at the Company’s 2015 Annual General Meeting. Other current directorships Details of the qualifications, experience, and special responsibilities of each current director are as follows: Paul is chairman of NSW Ports, I-MED Australia and O’Connell Street Associates. He is also a director of St Vincent’s Health Australia and The George Institute for Global Health. PAUL McCLINTOCK AO Chairman > Independent non-executive director > Member of the Board since 8 August 2012 > Appointed Chairman 10 October 2012 > Chairman – Nomination Committee RUPERT MYER AO Deputy Chairman > Independent non-executive director > Member of the Board since 12 July 2006 > Appointed Deputy Chairman 8 August 2012 > Member – Audit, Finance and Risk Committee Paul has held significant chairman and advisory positions across a broad range of industries, as well as government. He is highly regarded for his wide and varied experience, including his role > Member – Human Resources and Remuneration Committee > Member – Nomination Committee as the Secretary to Cabinet and Head of the Cabinet Policy Unit. Rupert serves as a non-executive chairman and director Paul’s former positions include chairman of Thales Australia, Medibank Private Limited, the COAG Reform Council, the Expert Panel of the Low Emissions Technology Demonstration Fund, Intoll Management Limited, Symbion Health, Affinity Health, of a number of public, private, and government entities. His background includes roles in the retail and property sector, healthcare, e-commerce, investment, family office, wealth management, philanthropy services, and the community sector. Ashton Mining, Plutonic Resources, and the Woolcock Institute Rupert serves as a Board member of The Myer Foundation, of Medical Research. He was also a director of the Australian Creative Partnerships Australia, and Jawun – Indigenous M Y ER Annual Report 2015 21 Corporate Partnerships. Rupert is a member of the Business and Economics Advisory Board of the University of Melbourne and ANNE BRENNAN Independent non-executive director The Felton Bequests’ Committee and was formerly the chairman of the Myer Family Group. Rupert holds a Bachelor of Commerce (Honours) degree from the University of Melbourne, and a Master > Member of the Board since 16 September 2009 > Chairman – Audit, Finance and Risk Committee of Arts from the University of Cambridge, and is a Fellow of the > Member – Human Resources and Remuneration Committee Australian Institute of Company Directors. In June 2015, he was > Member – Nomination Committee appointed an Officer of the Order of Australia for distinguished service to the visual and performing arts, through governance roles with leading cultural institutions, as a supporter and benefactor, to the promotion of philanthropy, and to the community. Rupert resides in Victoria and is 57 years of age. Other current directorships Rupert is chair of the Australia Council for the Arts and Nuco Pty Ltd. He is a director of AMCIL Limited, Healthscope Limited, and eCargo Holdings Limited (Hong Kong). RICHARD UMBERS Chief Executive Officer and Managing Director > Member of the Board since 2 March 2015 Richard Umbers was appointed CEO and Managing Director of Myer in March 2015. In his role, Richard is responsible for leading the organisation, and delivering a significant program of change Anne brings strong financial credentials and business acumen to Myer, including her experience from senior management roles in both large corporate organisations and professional services firms. Anne has more than 20 years’ experience in audit, corporate finance, and transaction services including executive roles as the Chief Financial Officer (CFO) at CSR, and Finance Director at the Coates Group. Prior to her executive roles, Anne was a partner in three professional services firms: KPMG, Arthur Andersen, and Ernst & Young. During her time at Ernst & Young, Anne was a member of the national executive team and a board member. Anne was formerly a director of Cuscal Limited. Anne holds a Bachelor of Commerce (Honours) degree from University College Galway. She is a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of the Australian Institute of Company Directors. Anne resides in New South Wales and is 54 years of age. and reinvigoration to ensure that Myer continues to be an Other current directorships exciting destination for all of our customers. Richard joined Myer in September 2014 as Chief Information and Supply Chain Officer, with responsibility for online strategy, financial services and MYER one, as well as the logistics and IT functions. Prior to joining Myer, Richard was Executive General Manager for Parcel and Express Services at Australia Post, and also held the position of CEO for StarTrack. Richard also had responsibility for the enterprise-wide eCommerce program, a major change initiative Anne is a Director of Argo Investments Limited, Charter Hall Group, Nufarm Limited, and Rabobank Limited (Australia and New Zealand). IAN CORNELL Independent non-executive director > Member of the Board since 6 February 2014 designed to position Australia Post to take advantage of the > Member – Human Resources and Remuneration Committee boom in online shopping. Richard has previously held a range of senior and general management positions in fast moving consumer goods (FMCG) retailing with roles at Woolworths in Australia and New Zealand and Aldi in Europe. Richard has a Master of Science degree in Finance from the University of Leicester (UK), and a Bachelor of Science with Ian has extensive experience in the retail industry across a number of senior retail roles including 11 years at Westfield. During his time at Westfield, Ian was Head of Human Resources for seven years and also responsible for retailing relationships in Australia and New Zealand. He also spent three years as the Head of Management and Marketing for Westfield’s shopping centres in Australia and New Zealand and has extensive honours in Geology and Geography from The University of Exeter experience in large scale retail operations and responding to (UK). He is also a graduate of the Australian Institute of Company changing consumer trends. Prior to joining Westfield, Ian was Directors. Richard lives in Victoria and is 48 years of age. chairman and CEO of supermarket chain, Franklins, and earlier spent 22 years at Woolworths, including his role as Chief General Manager Supermarkets. Ian has previously been a director of Goodman Fielder Limited. Ian is also a Fellow of the Institute of Management, a Fellow of the Human Resources Institute, a member of the Institute of Company Directors, and a graduate 22 M Y ER Annual Report 2015 DIRECTORS’ REPORTContinued of the Advanced Management Programme at Harvard. Ian resides in New South Wales and is 61 years of age. BOB THORN Independent non-executive director Other current directorships Ian is a director of Baby Bunting Pty Ltd and Inglis Bloodstock, as > Member of the Board since 6 February 2014 > Member – Audit, Finance and Risk Committee well as of the PKD Foundation of Australia, a charitable foundation Bob brings considerable senior retail management experience raising funds for medical research into kidney disease. CHRIS FROGGATT Independent non-executive director > Member of the Board since 9 December 2010 to Myer from his nine years as Managing Director of Super Retail Group. During his time at the company, Bob drove Australia and New Zealand expansions and led the creation of the Boating Camping Fishing (BCF) business, the market leader in camping and leisure. Prior to Bob’s 13 years with Super Retail Group, he > Chairman – Human Resources and Remuneration Committee was previously General Manager at Lincraft, and held senior roles > Member – Nomination Committee at other major retailers including nine years with David Jones. Bob has also been the chairman of Cutting Edge, and a director Chris has a broad industry background, including experience in at WOW Sight and Sound, Babies Galore, and Unity Water. Bob is consumer branded products, retailing, and hospitality across a member of the Australian Institute of Company Directors and numerous industries such as beverages, food, and confectionery. is currently an adviser to the Board of BMag Pty Ltd. Bob resides She has more than 20 years’ executive experience as a human in Queensland and is 60 years of age. resources specialist in leading international companies including Brambles Industries, Whitbread Group, Mars, Diageo, and Other current directorships Unilever NV. Chris has served on the boards of Britvic, Sports Bob is a director of Rotah Group Pty Ltd and is independent Direct International, and Goodman Fielder Limited; as well as chairman of PWR Holdings Pty Ltd. being a director of the Australian Chamber Orchestra and the Australian Chamber Orchestra Instrument Fund, and as an independent trustee director of Berkeley Square Pension Trustee Company Limited. Chris holds a Bachelor of Arts (Honours) in English Literature from the University of Leeds (United Kingdom). Chris is a Fellow of the Chartered Institute of Personnel Development, and a member of the Australian Institute of Company Directors. Chris resides in New South Wales and is 56 years of age. 2. DIRECTORSHIPS OF OTHER LISTED COMPANIES The following table shows, for each person who served as a director during the financial period and/or up to the date of this Directors’ Report, all directorships of companies that were listed on the ASX, other than the Company, since 31 July 2012, and the period during which each directorship has been held. Director Paul McClintock AO Rupert Myer AO Bernie Brookes Richard Umbers Anne Brennan Ian Cornell Chris Froggatt Bob Thorn Listed entity Perpetual Limited AMCIL Limited Healthscope Limited – – Charter Hall Group Nufarm Limited Period directorship held April 2004 – November 2012 January 2000 – present June 2014 – present – – October 2010 – present February 2011 – present Argo Investments Limited September 2011 – present Echo Entertainment Group Limited March 2012 – October 2014 Goodman Fielder Limited Goodman Fielder Limited – February 2014 – March 2015 August 2009 – March 2015 – M Y ER Annual Report 2015 23 DIRECTORS’ REPORTContinued 3. MEETINGS OF DIRECTORS AND BOARD COMMITTEES The number of meetings of the Board and of each Board Committee held during the period ended 25 July 2015 are set out below. All directors are invited to attend Board Committee meetings. Most Board Committee meetings are attended by all directors; however, only attendance by directors who are members of the relevant Board Committee is shown in the table below. Director of directors and Risk Committee Committee Meetings Audit, Finance and Remuneration Human Resources Paul McClintock AO Rupert Myer AO Bernie Brookes* Richard Umbers* Anne Brennan Ian Cornell Chris Froggatt Bob Thorn Notes: A 13 13 6 6 13 13 13 13 B 13 13 6 6 13 13 13 13 A – 4 – – 4 – – 4 B – 4 – – 4 – – 4 A – 5 – – 5 5 5 – B – 5 – – 5 5 5 - Nomination Committee A 3 3 – – 3 – 3 – B 3 3 – – 3 – 3 – A = Number of meetings attended. B = Number of meetings held during the time the director held office or was a member of the Committee during the year. * = Bernie Brookes retired, and Richard Umbers was appointed, on 2 March 2015. 4. DIRECTORS’ RELEVANT INTERESTS IN SHARES The following table sets out the relevant interests that each director has in the Company’s ordinary shares or other securities as at the date of this Directors’ Report. No director has a relevant interest in a related body corporate of the Company. Director Paul McClintock AO Rupert Myer AO Richard Umbers Anne Brennan Ian Cornell Chris Froggatt Bob Thorn Ordinary shares Options Performance rights 181,000 733,999 Nil 53,658 10,000 10,040 161,000 Nil Nil Nil Nil Nil Nil Nil Nil Nil 568,749 Nil Nil Nil Nil Bernie Brookes retired as a director of the Company on, and with effect from, 2 March 2015. At the date of his retirement, Mr Brookes had a relevant interest of 10,042,399 ordinary shares in the Company. At the Company’s 2014 Annual General Meeting, the relevant terms of Mr Brookes’ employment contract were approved by shareholders, including that he would retain 83,249 performance rights. 5. COMPANY SECRETARY AND OTHER OFFICERS Marion Rodwell was the Company Secretary of the Company from 2008 until she departed on 6 July 2015. Ms Rodwell was also Chief General Counsel. Richard Amos was appointed as Company Secretary of the Company on 6 July 2015, as well as being appointed as Chief General Counsel of the Group. Before joining Myer, Richard Amos worked with leading brewing and consumer dairy business, Lion, for 10 years in a range of executive roles including Corporate Development and Risk Director and General Counsel of Lion Beer, Spirits and Wine Australia and NZ. Richard also worked for international law firm Baker and McKenzie in Sydney, London, and Bangkok for 10 years. Details of other officers of the Company are referred to in section 8 below. 24 M Y ER Annual Report 2015 DIRECTORS’ REPORTContinued 6. PRINCIPAL ACTIVITIES Chief Executive Officer commentary During the financial period, the principal activity of the Group was the operation of the Myer department store business. 7. OPERATING AND FINANCIAL REVIEW FY2015 FINANCIAL RESULTS Summary > Total sales up 1.7% to $3,195.6 million, up 1.1% on a comparable store sales basis “Myer’s FY2015 result supports the case for our comprehensive change agenda. The decisions we have taken to deliver New Myer will lead to changes to both our store network and operations, resulting in a more productive and efficient footprint,” said Mr Umbers. “During the past six months, management has been actively addressing the underlying issues in the business, implementing a series of initiatives that are consistent with the New Myer strategic direction including the introduction of a large number of wanted brands and initiatives to improve flexibility of our > 2H total sales up 1.9%, up 1.3% on a comparable store sales in-store labour to better align our workforce with customer basis demand. > Operating gross profit (OGP) margin down 53 bps to 40.4% The New Myer strategy sets out a defined pathway to return the > Cost of doing business (CODB) up 3.3% to $1,067.2 million > Earnings before interest, tax, depreciation, and amortisation (EBITDA) (excluding Individually Significant Items*) down 11.6% to $223.2 million business to sustainable profit growth. We will achieve this by delivering a sharper and more focused retail offer that attracts more of the customers who represent the highest value to our business. This will be supported by investment in our stores and our omni-channel offer to make them more engaging and > Earnings before interest and tax (EBIT) (excluding Individually productive,” said Mr Umbers. Significant Items*) down 16.7% to $133.5 million The New Myer strategy is discussed in further detail in section 9 > Net profit after tax (NPAT) (excluding Individually Significant below. Items*) $77.5 million, down 21.3% > Basic earnings per share (EPS) (excluding Individually Significant Items*) 13.2 cents (FY2014: 16.8 cents). Statutory basic EPS 5.1 cents (FY2014: 16.8 cents) > Individually Significant Items* (post tax) totalling $47.7 million > NPAT including Individually Significant Items $29.8 million, down 69.7% > There was no final dividend determined by the Board for FY2015 * Certain items have been separately identified and presented as Individually Significant based on the nature and/or impact these items have on the Group’s financial performance for the period. The above overview of the FY2015 financial results is discussed in detail below. M Y ER Annual Report 2015 25 DIRECTORS’ REPORTContinued INCOME STATEMENT FOR THE 52 WEEKS TO 25 JULY 2015 FY2015 FY2014 Change Total sales value Operating gross profit Operating gross profit margin Cost of doing business Cost of doing business/sales EBITDA* EBITDA margin* EBIT* EBIT margin* vs. LY +1.7% +0.3% (53bps) +3.3% +53bps (11.6%) (106bps) $m 3,195.6 1,290.4 40.4% $m 3,143.0 1,285.9 40.9% (1,067.2) (1,033.3) 33.4% 32.9% 252.6 8.0% 223.2 7.0% 133.5 4.2% 160.3 5.1% (16.7%) (92bps) Net profit after tax (NPAT)* 77.5 98.5 (21.3%) *Excluding Individually Significant Items which represent Non-IFRS financial measures. See page 27. Sales In FY2015, the Group’s total sales increased by 1.7% to $3,195.6 million, driven by new stores and refurbishments, as well as strong growth in the online business. Myer has now delivered comparable store sales growth in 12 of the last 13 quarters. There was continued strong growth in the Cosmetics business, as well as in Childrenswear and Entertainment, offset by a poor performance in Womenswear. During Christmas 2014, the rollout of Giftorium, representing dedicated gifting space in all stores, was well received by customers. Customers also responded positively to the four major store refurbishments that were completed ahead of Christmas 2014. In addition, new stores at Mt Gravatt (QLD) and Joondalup (WA) generated further growth. During the period, two stores were closed in NSW, at Hurstville in January 2015 and Top Ryde in July 2015. A large number of new brands were rolled out during the period, many of which performed particularly well, including Menswear brands M.J. Bale, Aquila, Herringbone, Scotch & Soda, and Cosmetics brand Jo Malone. Margins and CODB The operating gross profit margin declined by 53 basis points to 40.4%. This was mainly due to the depreciation in the Australian dollar and increased inventory provisions. Excluding the impact of these factors, operating gross profit margin increased by 32 basis points. CODB increased by 3.3% to $1,067.2 million, driven by costs associated with refurbishments in four of our top 25 stores as well as two new stores, and costs associated with growth in the omni-channel business. 26 M Y ER Annual Report 2015 DIRECTORS’ REPORTContinued Net finance costs and net debt Individually Significant Items In June 2015, the syndicated debt facility, now totalling The FY2015 result includes a number of Individually Significant $600 million, was successfully refinanced, with more favourable Items totalling $61.7 million (pre tax), which have been separately pricing, increased tenor, and improved terms. In addition to a identified and presented as Individually Significant based on lower interest margin, the Fixed Charges Cover Ratio covenant the nature and/or impact that these items have on the Group’s was lowered from 1.65 times to 1.50 times across the facility. financial performance for the period and have primarily arisen Net debt increased by $40 million to $388 million, reflecting as a result of the strategic review. lower profitability and higher working capital. This was largely These significant items represent the commencement of the offset by lower capital expenditure, dividend, and tax payments. ‘re-setting’ of the business as we implement the New Myer Net interest costs increased by 3.7% to $22.7 million as a result strategy, and comprise: of the higher net debt position. Offsetting this were the savings > $24.5 million in costs associated with two store closures achieved as a result of the refinancing in the second half. (Top Ryde and Hurstville), provisions for inventory clearance Cash flow and balance sheet (the exit of brands identified as part of the New Myer strategy), and asset impairments related to brands no longer planned to The reduction in operating cash flow by $96 million to $167 million be ranged in store, as well as the impairment of lease rights; reflected both the reduction in earnings for the year as well as a negative working capital movement of $56 million. The negative working capital movement was due to an increase in trading inventory of $22 million compared to FY2014 and lower trade creditors of $19 million. As part of our strategy to exit a large number of brands, the Spring Clean Clearance event launched in the first quarter of FY2016 has successfully reduced inventory by approximately $10 million, with net debt also improving by approximately $20 million since balance date. Capital expenditure during FY2015 decreased by $6 million to $62 million compared to FY2014, pending the outcomes of the strategic review. > $14.8 million provision for surplus lease space in support office and impairment of associated fitout assets; > $11.8 million in restructuring costs and provisions associated with headcount reduction in support office and supply chain, and a voluntary redundancy program in stores; > $10.6 million in strategic review and implementation costs. M Y ER Annual Report 2015 27 DIRECTORS’ REPORTContinued Non-IFRS financial measures The Company’s results are reported under International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The Company discloses certain non-IFRS measures in this Directors’ Report, which can be reconciled to the Financial Statements as follows: Income Statement reconciliation $ million Statutory reported result Add back: Individually Significant Items Underlying result Operating Cash Flow reconciliation $ million EBITDA Working capital movement Operating cash flow Interest and tax EBITDA 182.6 40.6 EBIT 71.8 61.7 223.2 133.5 Individually Significant NPAT 29.8 47.7 77.5 Statutory Items Underlying 182.6 (32.6) 40.6 (23.9) 223.2 (56.5) 150.0 16.7 166.7 (53.0) – (53.0) Net cash inflow from operating activities 97.0 16.7 113.7 Dividend In light of the Entitlement Offer announced on 1 September, the Board has determined that no final dividend will be declared for FY2015. The Board’s current intention is to declare a dividend following 1H FY2016, subject to Myer’s financial performance in that period. There is currently no intention to change Myer’s target dividend payout ratio of between 70% and 80% of NPAT. FY2015 OPERATIONAL UPDATE During the first half, preparation and execution ahead of the important Christmas trading period was strong, with the new stores in Mt Gravatt and Joondalup trading, four major refurbishments completed, and the opening of additional space in Emporium adjoining the Melbourne flagship store. Two stores were closed in NSW, and it was decided that a proposed store at Greenhills in NSW would no longer proceed. The launch of the unique Christmas ‘Giftorium’ concept, representing dedicated gifting space across all stores, reflected a focus on innovation and was successful in delivering an enhanced customer experience, with positive feedback received from customers and suppliers. A number of new brands were rolled out during the first half including: White Suede, By Johnny, and Alex Perry in Womenswear; M.J. Bale, Herringbone, and Aquila in Menswear; and Calvin Klein Performance in Women’s Active. During the second half of the year, we welcomed a number of new Australian and international brands including: Maison Scotch, Skin and Threads, and Asilio in Womenswear; Jo Malone in Cosmetics; Scotch & Soda, Jack & Jones, and Pierre Balmain in Menswear; and Calvin Klein in handbags. In June 2015, Myer announced it had secured a number of significant new brands that reinforced Myer’s promise to ‘bring the love of shopping to life’, and will contribute to the repositioning of Myer for sustainable future growth. These widely-recognised and renowned new brands are Seed (Womenswear and Childrenswear), Nine West (Footwear and Accessories), and French Connection (Womenswear and Menswear). The introduction of these brands to a significant proportion of the Myer store network from July 2015 strengthens our fashion offer for Myer customers. There was continued strong growth in the Cosmetics business, as well as in Childrenswear and Entertainment, offset by a poor performance in Womenswear. 28 M Y ER Annual Report 2015 DIRECTORS’ REPORTContinued 8. SIGNIFICANT CHANGES IN THE STATE OF 9. BUSINESS STRATEGIES AND FUTURE AFFAIRS IN FY2015 DEVELOPMENTS In addition to those matters described in section 7 above, in During 2015, the Company has undertaken a comprehensive March 2015, the Company announced that Bernie Brookes was review of its strategy to address the evolving retail landscape stepping down from his position as CEO and Managing Director. and evaluate the strategic direction best suited to the current Richard Umbers, previously Chief Information and Supply Chain environment. The strategy sets the future direction of the Officer, was appointed CEO and Managing Director. Company over a five-year delivery horizon. Richard was appointed to lead a significant program of change During the period in which the review has been undertaken, and reinvigoration to ensure that the Group is well placed to the Company has implemented a series of initiatives which meet the expectations of its current and primary customers, have been consistent with the new strategic direction. and importantly to be able to adapt to a rapidly-evolving retail environment. These included: On the same day, it was announced that Daniel Bracken had been appointed Deputy CEO in addition to his role as Chief Merchandise and Marketing Officer. Also in March 2015, it was announced that Mark Ashby, Chief Financial Officer had resigned to take up an international opportunity. In June 2015, Grant Devonport was appointed as CFO. Grant joined the Company following a career of more than 30 years, including senior roles at listed entities in Australia, New Zealand and the United Kingdom. He most recently served as CFO of Toll Holdings Limited, a position he had held since 2011. Other than the matters above and described in section 7, there were no significant changes in the state of affairs of the Group during the financial year, or up to the date of this Directors’ Report. > the streamlining of support office structures with a reduction of support office roles; > the recent closure of a third-party logistics dedicated online pick and pack facility; > the launch of a number of new brands including White Suede, By Johnny and Alex Perry in Womenswear; M.J. Bale, Herringbone and Aquila in Menswear; Calvin Klein Performance in Women’s Active; Maison Scotch, Skin and Threads, and Asilio in Womenswear; Jo Malone in Cosmetics; Scotch & Soda, Jack & Jones, and Pierre Balmain in Menswear; and Calvin Klein in handbags; > initiatives to improve flexibility of our in-store labour to better align our workforce with customer demand; and > the launch of the digital Myer Hub at the Parramatta store. The New Myer strategy sets out a five-year transformation agenda that defines a clear pathway to restore profitable growth by delivering an inspiring retail offer, with improved productivity. This will put greater focus and investment into the Company’s best stores which serve Myer’s most valuable customers, with a revitalised merchandise offer and transformed shopping experience to better meet customers’ needs in store and online. M Y ER Annual Report 2015 29 DIRECTORS’ REPORTContinued Our strategy is built on providing a sharper and more focused FY2016 OUTLOOK offer to serve a more valuable customer, and improving productivity. Myer stores will inspire and delight and become more relevant to our customers’ daily lives. Our approach will be informed by advanced data analytics of Myer’s customer base and store catchments to build a profile of those customers where there is the greatest opportunity to improve the customer FY2016 will represent a transitional year for Myer in which significant investments are being made in our future growth with the rewards from these investments to be realised in late FY2016 and thereafter. Following FY2016, Myer expects to return to sustainable profit growth. experience and deliver higher sales and profit. ENTITLEMENT OFFER The key elements of the strategic review include: > Enhanced customer led offer including: wanted categories; inspiring brands; and a relevant merchandise offer. On Tuesday 1 September 2015, Myer announced the launch of a fully underwritten 2 for 5 accelerated pro-rata non-renounceable entitlement offer to raise approximately $221 million, at an offer price of $0.94 (Entitlement Offer). > Wonderful Experiences focused on: enhanced and contemporary services; signature experiences; an improved in-store presentation; and a strengthened MYER one program. The proceeds of the Entitlement Offer will be used to reduce core debt and provide balance sheet flexibility to implement the New Myer strategy. Upon completion of the Entitlement Offer, > Omni-channel shopping including: an integrated, seamless Myer will have a net debt/EBITDA of less than 1x based on a experience; efficient Click & Collect; and, improved delivery pro forma 25 July 2015 balance sheet. and fulfilment services. The Entitlement Offer comprises an institutional component and > Productivity step change encompassing: the optimisation of a retail component. Institutional entitlements not taken up by our store network; an emphasis on our Flagship and Premium eligible institutional shareholders and entitlements of ineligible stores; the right sizing of our support office; and, a cost and institutional shareholders will be sold to institutional investors efficiency focus. > Organisational capability underpinned by: the establishment of a Transformation Office; prioritisation of activities and allocation of resources; an execution focused culture; a robust in a bookbuild process managed by the underwriter. Retail entitlements not taken up by eligible retail shareholders and entitlements of ineligible retail shareholders will be placed by the underwriter. governance structure; and, strict investment return hurdles. The institutional component of the Entitlement Offer is Further information on likely developments in the Group’s operations and the expected results of those operations has not been included in this Directors’ Report. The directors believe that the disclosure of such information, including certain business strategies, projects, and prospects would be likely to result in unreasonable prejudice to the Group’s interests. scheduled to close on Wednesday 2 September 2015, and the retail component of the offer will close on Thursday 17 September 2015. 30 M Y ER Annual Report 2015 DIRECTORS’ REPORTContinued 10. KEY RISKS AND UNCERTAINTIES BRAND REPUTATION RISKS The Group’s strategies take into account the expected operating and retail market conditions, together with general economic conditions, which are inherently uncertain. Myer’s strong brand reputation is crucial for building positive relationships with customers, which in turn generates sales and goodwill towards the Company. A significant event or issue could attract strong criticism of the Myer brand which could The Group has structured proactive risk management and impact sales or our share price. Myer has a range of policies internal control systems in place to manage material risks. and initiatives to mitigate brand risk, including a Code of The key risks and uncertainties that may have an effect on Conduct, a Whistleblower Policy, an Ethical Sourcing Policy, the Group’s ability to execute its business strategies and the marketing campaigns, and ongoing environmental and Group’s future growth prospects and how the Group manages sustainability initiatives. these risks are set out below. PEOPLE MANAGEMENT RISKS EXTERNAL ECONOMIC RISKS Safety is a high priority at Myer to ensure the wellbeing of all of Macro-economic factors such as the fluctuation of the Australian our team members, customers, and suppliers. Failure to manage dollar, poor consumer confidence, and weakness in the global health and safety risks could have a negative effect on Myer’s economy could adversely impact the Company’s ability to reputation and performance. We conduct regular detailed risk achieve sales growth. Myer regularly analyses and uses economic assessments at each store, distribution centre, and at our support data to help mitigate the future impact on sales, and has also office, as well as regular team member education sessions. implemented conservative hedging, capital management, and marketing and merchandise initiatives to combat the cyclical nature of the business. COMPETITIVE LANDSCAPE RISKS The Australian retail industry in which Myer operates is highly competitive. The Company’s competitive position may be negatively impacted by new entrants to the market, existing Myer needs to attract and retain talented senior managers to ensure that our leadership team has the right skills and experience to deliver our strategy. Failure to do so may adversely affect Myer’s reputation, performance, and growth. During the year, we made a number of new appointments to our Executive Management Group, and we provide our team members with access to training and development to further develop their skills. competitors, and increased online competition, which could STRATEGIC AND BUSINESS PLAN RISKS impact sales. To mitigate these risks, Myer is implementing our new strategy which is guided by our detailed customer insights and a focus on providing a customer-led offer, wonderful experiences, and omni-channel shopping. TECHNOLOGY RISKS A failure to deliver our strategic plan could impact sales, share price, and our reputation. Our new strategic plan is guided by our detailed external and internal customer insights and will be implemented through three phases – mobilising the business for transformation; resetting the business; and delivering the With Myer’s increasing reliance on technology in a rapidly New Myer. changing digital environment, there is a risk that the malfunction ENTITLEMENT OFFER of IT systems, outdated IT infrastructure, or a cyber-security violation could have a detrimental effect on our sales, business efficiencies, and brand reputation. To offset these risks, Myer continues to invest and develop our in-house technology capabilities and engage with reputable third-party IT service providers to ensure that we have reliable IT systems and issue management processes in place. The underwriting agreement relating to the Entitlement Offer sets out various events, the occurrence of which will entitle the underwriter to terminate the underwriting agreement. Accordingly, there is a risk that the underwriter may terminate its obligations under the underwriting agreement if any such events occur. In those circumstances, if the Entitlement Offer is undersubscribed, Myer may be unable to reduce its core debt to the extent planned, which would reduce the balance sheet flexibility sought to implement the New Myer strategy. M Y ER Annual Report 2015 31 DIRECTORS’ REPORTContinued REGULATORY RISKS From time to time, Myer may be subject to regulatory investigations and disputes, including by the Australian Taxation Office (ATO), Federal or State regulatory bodies including the Australian Competition and Consumer Commission (ACCC), the Australian Securities and Investments Commission (ASIC), and the Australian Securities Exchange (ASX). The outcome of any such investigations or disputes may have a material adverse effect on Myer’s operating and financial performance. Specifically, Myer has received from ASIC enquiries relating to Myer’s continuous disclosure practices during the period of 1 November 2014 to 18 March 2015. ASIC’s enquiries are ongoing, and Myer is fully co-operating with ASIC. Myer is confident that it has at all times complied, and continues to comply, with its continuous disclosure obligations. LITIGATION On 25 March 2015, legal proceedings were served against Myer by a shareholder seeking to bring a group action for itself and on behalf of a defined (but unnamed) group of shareholders. The writ was filed by Portfolio Law Pty Ltd on behalf of Melbourne City Investments Pty Ltd (MCI). MCI alleges loss and damage said to have resulted from a statement made in the context of Myer’s full year FY2014 results. Myer strongly denies any and all allegations made against it and intends to vigorously defend itself against the claims. The Company does not presently know the size of the claims, nor can it, based on the information currently available, quantify any potential financial exposure arising from these litigation proceedings. No provision has been recognised at 25 July 2015 in respect of this matter. 11. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR No matter or circumstance has arisen since the end of the financial year which has not been dealt with in this Directors’ Report or the Financial Report, and which has significantly affected, or may significantly affect: (a) the Group’s operations in future financial years; (b) the results of those operations in future financial years; or (c) the Group’s state of affairs in future financial years. 12. DIVIDENDS The following dividends have been paid to shareholders during the financial year: 2014 final dividend Final dividend for the period ended 26 July 2014 of 5.5 cents per fully paid ordinary share, fully franked, paid on 13 November 2014 2015 interim dividend Interim dividend for the period ended 25 July 2015 of 7.0 cents per fully paid ordinary share, fully franked, paid on 7 May 2015 $’000 32,213 $’000 40,998 There was no final dividend determined by the Board for the full year FY2015. The Board’s current intention is to declare a dividend following 1H 2016, subject to Myer’s financial performance in that period. Further information regarding dividends is set out in the Financial Statements (at note F3). 32 M Y ER Annual Report 2015 DIRECTORS’ REPORTContinued 13. OPTIONS AND PERFORMANCE RIGHTS GRANTED OVER UNISSUED SHARES The Myer Equity Incentive Plan (MEIP) operates for selected senior executives and has been in operation since December 2006. Under the MEIP, the Company has granted eligible executives options and performance rights over unissued ordinary shares of the Company, subject to certain vesting conditions. Shares delivered to senior executives as a result of the vesting and exercise of options and performance rights can be either issued as new shares or purchased on market. Each option or performance right entitles the holder to acquire one ordinary fully paid share in the Company (subject to the adjustments outlined below). OPTIONS No options were granted under the MEIP in the financial year ended 25 July 2015 and no options have been granted since the end of the year. The last remaining grant of options under the MEIP over unissued shares of the Company expired during the financial year ended 25 July 2015 as follows: Date options granted 30 June 2009 Closing balance Expiry date Exercise price of options(1) Number of options(2) 24 October 2014 $2.34 2,186,650 Nil There are no further options which remain on issue as at the date of this Directors’ Report. (1) To calculate the issue price of shares when options are exercised, the Company uses the seven-day volume weighted average price of shares on the date of issue. (2) Each option entitled the holder to receive one fully paid ordinary share in the Company, subject to the satisfaction of the relevant performance conditions and the payment of the exercise price. A holder of an option may only participate in new issues of securities of the Company if the option has been exercised, participation is permitted by its terms, and the shares in respect of the options have been allocated and transferred to the option right holder before the record date for determining entitlements to the new issue. The number of shares that option holders are entitled to receive on the exercise of an option, or the exercise price of those options, may be adjusted in a manner consistent with the ASX Listing Rules if there is: > a pro-rata issue of shares to the Company’s shareholders (such as a bonus issue); or > any reconstruction of the capital of the Company (such as a subdivision or return of capital). If the manner of adjustment is not prescribed by the ASX Listing Rules, the Board can determine the adjustment to ensure that option holders are not advantaged or disadvantaged as a result of any such capital action. Further information about options granted under the MEIP (including the details of the options granted to the Key Management Personnel (KMP) of the Company) is included in the Remuneration Report. M Y ER Annual Report 2015 33 DIRECTORS’ REPORTContinued PERFORMANCE RIGHTS Since 2011, only performance rights were granted under the MEIP. During the financial year, the Company granted a total of 3,370,332 performance rights under the MEIP (CEO Offer) and under the Executive Equity Incentive Plan (EEIP Offer) to selected senior executives. These performance rights to senior executives other than the CEO were granted under the EEIP, which is administered under the overarching terms of the MEIP. Two separate offers were made under the MEIP and EEIP during the financial year: 375,000 performance rights were granted to the CEO; and 2,995,332 performance rights were granted to other executives. In previous years, the Company granted performance rights to senior executives under a MEIP offer; however, no performance rights were granted under that offer during the financial year. The performance rights granted under each offer are subject to different performance conditions. No performance rights have been granted since the end of the financial year ended 25 July 2015. The following table sets out the details of performance rights that have been granted under the MEIP and that remain on issue as at the date of this Directors’ Report. Date performance rights granted 29 January 2013 (grant to senior executives under the EEIP offer) 29 January 2013 (grant to senior executives under the MEIP offer) 27 November 2013 (grant to senior executives under the EEIP offer) Expiry date 31 October 2015 31 October 2015 31 October 2016 15 December 2014 (grant to CEO under the MEIP offer, which is retained on departure) 31 October 2017 15 December 2014 (grant to senior executives under the EEIP offer) 31 October 2017 Closing balance Number of Issue price performance rights (1) Nil Nil Nil Nil Nil 178,167 927,604 226,833 83,249 2,338,710 3,754,563 (1) Each performance right entitles the holder to receive one fully paid ordinary share in the Company, subject to the satisfaction of the relevant performance outcomes. A holder of a performance right may only participate in new issues of securities of the Company if the performance right has been exercised, participation is permitted by its terms, and the shares in respect of the performance rights have been allocated and transferred to the performance right holder before the record date for determining entitlements to the new issue. As with the options, the number of performance rights that a holder is entitled to receive on the exercise of a performance right may be adjusted in a manner consistent with the ASX Listing Rules if there is a pro-rata issue of shares or a reconstruction of the capital of the Company. Further information about performance rights issued under the MEIP (including the performance conditions attached to the performance rights granted under the EEIP offer and the MEIP offer, and the performance rights granted to the KMP of the Company) is included in the Remuneration Report. 34 M Y ER Annual Report 2015 DIRECTORS’ REPORTContinued 14. SHARES ISSUED ON THE EXERCISE 16. INDEMNIFICATION AND INSURANCE OF OPTIONS AND PERFORMANCE RIGHTS OF DIRECTORS AND OFFICERS OPTIONS From time to time, the Company issues fully paid ordinary shares in the Company to the Myer Equity Plans Trust (Trust) for the purpose of meeting anticipated exercises of securities granted under the MEIP. The Company’s Constitution requires the Company to indemnify current and former directors, alternate directors, executive officers and officers of the Company on a full indemnity basis and to the full extent permitted by the law against all liabilities incurred as an officer of the Group, except to the extent covered by insurance. Further, the Company’s Constitution permits the During the period ended 25 July 2015, 5,000 fully paid ordinary Company to maintain and pay insurance premiums for director shares of the Company were issued to the Trust for this purpose. and officer liability insurance, to the extent permitted by law. To calculate the issue price of shares issued to the Trust, the Company uses the seven-day volume weighted average price of the Company’s shares as at the close of trading on the date of issue. Consistent with (and in addition to) the provisions in the Company’s Constitution outlined above, the Company has also entered into deeds of access, indemnity and insurance with all directors of the Company which provide indemnities During the period, 10,000 shares were transferred from the against losses incurred in their role as directors, subject to Trust to participants on the exercise of options under the MEIP certain exclusions, including to the extent that such indemnity as detailed below. Date options granted 30 July 2009 Number of shares Exercise price provided on of options exercise of options is prohibited by the Corporations Act 2001 (Cth) or any other applicable law. The deeds stipulate that the Company will meet the full amount of any such liabilities, costs and expenses (including legal fees). $2.34 10,000 During the financial year, the Company paid insurance premiums Since 25 July 2015, no further shares have been issued to or otherwise acquired by the Trust. for a directors’ and officers’ liability insurance contract that provides cover for the current and former directors, alternate directors, secretaries, executive officers and officers of the Since 25 July 2015, no fully paid ordinary shares of the Company Company and its subsidiaries. The directors have not included held by the Trust were transferred to participants in the MEIP. details of the nature of the liabilities covered in this contract or the amount of the premium paid, as disclosure is prohibited PERFORMANCE RIGHTS under the terms of the contract. No performance rights were eligible to vest or to be exercised during the financial year. Performance rights granted in 2013 under the EEIP have failed to vest; performance rights under the MEIP in 2013 will vest on lodgement of the Company’s audited results for FY2015 and the provision of notification to performance rights holders. 15. REMUNERATION REPORT 17. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the court under section 237 of the Corporations Act for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. The Remuneration Report, which forms part of this Directors’ Report, is presented separately from page 38. No proceedings have been brought or intervened in on behalf of the Company with the leave of the court under section 237 of the Corporations Act. M Y ER Annual Report 2015 35 DIRECTORS’ REPORTContinued 18. ENVIRONMENTAL REGULATION 20. AUDITOR’S INDEPENDENCE DECLARATION The Group is subject to and has complied with the reporting and compliance requirements of the National Greenhouse and A copy of the auditor’s independence declaration as required Energy Reporting Act 2007 (Cth) (NGER Act). No significant under section 307C of the Corporations Act is attached to this environmental incidents have been reported internally, and no Directors’ Report. 21. ROUNDING OF AMOUNTS The Group has taken advantage of ASIC Class Order 98/100 relating to the ‘rounding off’ of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar. The Directors’ Report is made in accordance with a resolution of directors. Paul McClintock, AO Chairman Melbourne, 1 September 2015. CORPORATE GOVERNANCE STATEMENT To view our Corporate Governance Statement please visit myer.com.au/investor. breaches have been notified to the Group by any government agency. The NGER Act requires the Group to report its annual greenhouse gas emissions and energy use. The Group has implemented systems and processes for the collection and calculation of the data required. In compliance with the NGER Act, the Group submitted its sixth report to the Greenhouse and Energy Data Officer in October 2014 and is due to submit its seventh report by 31 October 2015. 19. NON-AUDIT SERVICES The Company may decide to employ its external auditor on assignments additional to its statutory audit duties where the auditor’s expertise and experience with the Company and/or the Group are important. Details of the amounts paid or payable to the auditor (PwC) for audit and non-audit services provided during the year are set out in the Financial Statements (at note H5). The Board has considered the position and, in accordance with advice received from the Audit, Finance and Risk Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The directors are satisfied that the provision of the non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act for the following reasons: > all non-audit services have been reviewed by the Audit, Finance and Risk Committee to ensure that they do not impact on the impartiality and objectivity of the auditor; and > none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. 36 M Y ER Annual Report 2015 DIRECTORS’ REPORTContinued A U D I T O R ’ S I N D E P E N D E N C E D E C L A R A T I O N Auditor’s Independence Declaration As lead auditor for the audit of Myer Holdings Limited for the period ended 25 July 2015, I declare that to the best of my knowledge and belief, there have been: Auditor’s Independence Declaration a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and As lead auditor for the audit of Myer Holdings Limited for the period ended 25 July 2015, I declare b) no contraventions of any applicable code of professional conduct in relation to the audit. that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in This declaration is in respect of Myer Holdings Limited and the entities it controlled during the period. relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Myer Holdings Limited and the entities it controlled during the period. Andrew Mill Partner PricewaterhouseCoopers Andrew Mill Partner PricewaterhouseCoopers Melbourne 1 September 2015 Melbourne 1 September 2015 PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 19 PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au M Y ER Annual Report 2015 37 Liability limited by a scheme approved under Professional Standards Legislation. 19 R E M U N E R A T I O N R E P O R T This report sets out the remuneration strategy, framework and While TFC provides a fixed level of remuneration, the STI other conditions of employment for Myer Holdings Limited Key and LTI components reward executives only when certain Management Personnel (KMP). The report also details the role pre-determined performance conditions and/or service and accountability of the Board and the relevant Committees conditions are met or exceeded. established to support the Board on these matters. The information provided within this report has been audited as required by section 308(3C) of the Corporations Act and forms part of the Directors’ Report. CONTENTS On 2 March 2015, Myer announced the appointment of new CEO and Managing Director Richard Umbers. Mr Umbers joined Myer on 1 September 2014 as Chief Information and Supply Chain Officer and was promoted in March 2015, replacing CEO and Managing Director Bernie Brookes. Mr Brookes remained available for advice and handover arrangements This report provides details on the following matters: to Mr Umbers and the Board until 1 May 2015. The Board is > FY2015 remuneration overview > Human Resources and Remuneration Committee and remuneration governance > Use of remuneration consultants > Policies for remuneration of directors and other KMP > Directors and executives disclosed in this report > CEO and Managing Director arrangements > Equity arrangements with directors and other KMP > Remuneration and Company performance confident that Richard’s leadership credentials and focus on excellence position him well to lead the transformation and further development of Myer. Details of Mr Umbers’ remuneration and Mr Brookes’ termination benefits are outlined on pages 50 and 51. The Board was also pleased to announce the appointment of a number of senior executives in June 2014 and subsequently in June 2015 and August 2015. The Company secured several outstanding executives to join the Company’s senior leadership team, with an excellent combination of new thought leadership and world-class retailing skills obtained both domestically and > Remuneration outcomes for directors and other KMP internationally. FY2015 REMUNERATION OVERVIEW These appointments complement the knowledge and experience Myer continues to review and adapt its remuneration approach to ensure it meets its needs as well as comply with legislation, and aims to be at the forefront of corporate governance in contemporary remuneration practices. Myer also takes into account any feedback from its stakeholders, particularly shareholders. This report outlines remuneration for FY2015. of the existing leadership team. In securing these senior executives, remuneration arrangements were structured to encourage the executives to move from their previous roles where they forfeited significant incentive arrangements upon leaving. Selected sign-on grants have been made in the form of both cash and equity to align the executives’ interests to shareholder interests. These can be clawed back and forfeited if the executive ceases The Board is currently in the process of finalising a broad review employment. of the Remuneration Framework to ensure that it will effectively support the business through the planned transformation program. Any changes to the Remuneration Framework will apply for FY2016. Details will be disclosed in the FY2016 Remuneration Report and, if required, as part of the AGM Notice of Meeting for approval of grants of equity to the CEO. Myer’s executive remuneration is structured as: The senior executives’ total remuneration is generally targeted at the median of comparable positions in comparable companies and is achieved when individual and Company performance targets are met. Myer’s individual and Company performance targets are considered by the Board to be consistently demanding. Achieving these challenging targets requires high calibre executives to be attracted to and retained within the Company. > Total Fixed Compensation (TFC): including base salary and benefits such as superannuation; and The Board continues to take a considered approach to executive remuneration but is mindful that shareholder interests will not > variable remuneration: including at risk short term incentive be served if the Company becomes unable to retain or attract (STI) and long term incentive (LTI) components. skilled executives. This team is key to accelerating the Company’s strategy, supporting transformation, and strengthening succession within its senior leadership group to build a sustainable and successful business for the future. 38 M Y ER Annual Report 2015 Key developments/changes for the year ended 25 July 2015 were: Organisational changes Key development/remuneration outcomes Governance and non-executive director remuneration CEO and Managing Director remuneration Non-executive directors’ fees were not increased in FY2015. Last year, an increase in director base fees for FY2015 was noted in the Annual Report. Subsequently non-executive directors declined the increase. An increase in the Human Resources and Remuneration Chairman’s fee from $15,000 to $22,500 was approved to more closely align fees to market median. Mr Richard Umbers was appointed as CEO Mr Umbers’ fixed remuneration on appointment as and Managing Director on 2 March 2015. CEO is $1.2 million per annum. This is subject to annual performance-based review. > Short term incentive (STI) As Mr Umbers was appointed CEO part way through FY2015, having spent time in the role of Chief Information and Supply Chain Officer, his target STI opportunity for FY2015 has been pro-rated based on the time he has acted in each role, resulting in an STI opportunity of 52.9% of TFC. For the first full year as CEO (i.e. FY2016), Mr Umbers’ target STI will be equivalent to 80% of his TFC for achievement against targeted performance. Subject to shareholder approval, 40% of any annual STI awarded to Mr Umbers will be delivered through a grant of restricted shares. Mr Umbers cannot access, deal or otherwise trade in the restricted shares for a restricted period from the date of grant, which effectively defers this portion of Mr Umbers’ STI reward. > Long term incentive (LTI) Subject to shareholder approval, Mr Umbers’ LTI award will be delivered through a grant of performance rights to the value of 90% of his TFC. Mr Umbers will be eligible to participate in future grants of performance rights under the Executive Equity Incentive Plan (EEIP), with any such grants being subject to shareholder approval. In March 2015, Mr Bernie Brookes and the Board Details of termination benefits for Mr Brookes are mutually agreed that he would step down from outlined on page 50. the role of CEO and Managing Director. M Y ER Annual Report 2015 39 REMUNERATION REPORTContinued R E M U N E R A T I O N R E P O R T Continued Organisational changes Key development/remuneration outcomes Other KMP Richard Umbers was appointed Chief Information Adjustments to total remuneration applied for some remuneration – and Supply Chain Officer commencing on 1 September KMP effective from February 2015 to move closer to KMP consists of 2014, and was subsequently promoted to CEO and market rates for comparable roles. four executives Managing Director on 2 March 2015. at Executive General Manager level Amendment to the performance hurdles introduced Daniel Bracken was appointed Chief Merchandise and to the STI included – EBIT, Total Sales and Personal Marketing Officer commencing on 1 September 2014 Objectives. and was subsequently promoted to Deputy CEO on 2 March 2015. No LTI reward was delivered to KMP as the performance hurdles for the performance rights due to vest in Mark Ashby ceased employment on 22 May 2015. FY2015 were not met. This is the fifth consecutive Grant Devonport was appointed Chief Financial year of non-vesting of options/performance rights. Officer, commencing on 22 July 2015. No STI was rewarded to KMP. This is the fifth consecutive year where no STI has been awarded. Executives were granted new performance rights in FY2015, with 3,370,332 performance rights granted in December 2014. The Board approved a change in comparator group for the purposes of measuring relative TSR performance under the FY2015 EEIP offer. The new comparator group will comprise of Standard & Poor’s/ASX 200 market constituents (with some exclusions). Sign-on arrangements were made with certain KMP to recognise remuneration forgone from previous employers in order to join Myer. HUMAN RESOURCES AND REMUNERATION COMMITTEE AND REMUNERATION GOVERNANCE The Board annually reviews its role, responsibilities, and To ensure the Committee is fully informed when making performance to ensure that the Company continues to maintain remuneration decisions, it draws on the services of independent and improve its governance standards. remuneration advisers. Independent remuneration advisers are The Board is responsible for ensuring the Company’s remuneration strategy is equitable and aligned with Company performance and shareholder interests. The Board conducts engaged by and report directly to the Committee and provide advice and assistance on a range of matters including but not limited to: an annual review of the remuneration strategy of the business. > updates on remuneration trends, regulatory developments To assist with this, the Board has established a Human Resources and shareholder views; and Remuneration Committee (Committee) made up of non-executive directors only. The Committee charter is available on the Company’s website, myer.com.au/investor. > the review, design or implementation of the executive remuneration strategy and its underlying components (such as incentive plans); and > market remuneration analysis and comparative conditions relevant to Myer. When making remuneration decisions, the Committee will also give consideration to the Company’s internal succession plan and capability profile. 40 M Y ER Annual Report 2015 Ms Chris Froggatt chairs the Human Resources and USE OF REMUNERATION CONSULTANTS Remuneration Committee. Other members of the Committee are Ms Anne Brennan, Mr Ian Cornell and Mr Rupert Myer AO. In performing its role, the Committee has the responsibility to make recommendations to the Board on: > non-executive director fees; > executive remuneration (for the Managing Director and CEO and other executives) including specific recommendations on To ensure it is fully informed when making remuneration decisions, the Committee draws on services from a range of external sources, including remuneration consultants where appropriate. The Company’s guidelines on the use of remuneration consultants aim to ensure the independence of remuneration consultants from Myer’s management, and include the process for the selection of consultants and the terms of engagement. remuneration packages and other terms of employment for Remuneration consultants are engaged by the Committee the Chairman, non-executive directors, the CEO and other Chairman, and report directly to the Committee. As part of this senior executives; > the over-arching remuneration framework including the engagement, an agreed set of protocols to be followed by the consultants, the Committee, and management have been policy, strategy and practices for fixed reward and both short devised that determine the way in which remuneration and long term incentive plans and performance hurdles; and > the regular and continuing review of executive succession planning and executive development activities to ensure appropriate plans are in place for succession for business recommendations are developed and provided to the Board. This process is intended to ensure that any recommendation made by the remuneration consultant is free from undue influence by the KMP to whom any recommendations may relate. critical roles. The Committee has been established under rule 8.15 of the Constitution of the Company. Further information on the role of During FY2015, the Committee continued to engage Ernst & Young (EY) to provide independent advice to the Board in its review of remuneration arrangements. the Committee, its membership and meetings held throughout Throughout FY2015, the information received from EY in respect the year are set out in the Corporate Governance Statement of the CEO and executives related to: (available on the Company’s website) and the Directors’ Report. The Committee has regard to the following policy objectives: > to ensure that the Company’s remuneration structures are equitable and aligned with the long-term interests of the Company and its shareholders; > to attract and retain skilled executives; > to structure short and long term incentives that are challenging and linked to the creation of sustainable shareholder returns; and > to ensure that any termination benefits are justified and appropriate. The Chairman, the CEO, and the head of the Human Resources > regulatory reforms; > current market practices; > review of variable remuneration framework; > considerations with regard to the CEO appointment; and > benchmarking to support the annual remuneration review for the CEO and executives. Any remuneration information provided by EY and relating to the CEO was disclosed directly to the Committee Chairman who considered the recommendation, in consultation with the Committee and the Chairman of the Board. No recommendation was provided in FY2015. Market data provided by EY is also used to inform the CEO to propose adjustments to KMP remuneration function are regular attendees at the Committee meetings. The to the Committee for their approval. CEO was not present during any Committee or Board meetings when his remuneration was considered or discussed during the financial period. The Committee must at all times have regard to, and notify the Board as appropriate, of all legal and regulatory requirements, including any shareholder approvals required in connection with remuneration matters. The Committee Chairman or if she is not available, a Committee member, will attend the Annual General Meeting and be available to answer any questions from shareholders about the Committee’s activities or, if appropriate, the Company’s remuneration arrangements. During FY2015, the Board approved the engagement of EY to provide remuneration advice, benchmarking data, market commentary and professional guidance regarding Myer’s executive remuneration and incentive plans. During this engagement, no remuneration recommendations (as defined by the Corporations Act) were provided to the Company by EY. M Y ER Annual Report 2015 41 REMUNERATION REPORTContinued POLICIES FOR REMUNERATION OF DIRECTORS AND OTHER KMP $ 400,000 150,000 30,000 30,000 – 22,500 – – – NON-EXECUTIVE DIRECTOR REMUNERATION Fees and payments to non-executive directors reflect the demands upon and responsibilities of those directors. The Board, on recommendation of the Committee, reviews non- executive directors’ fees and payments at least once a year. As part of that review, the Board considers the advice of independent remuneration consultants in relation to: > Chairman’s fees and payments; > non-executive directors’ fees and payments; and > payments made in relation to the Chairman of committees or for other specific tasks that may be performed by directors. Non-executive directors who chair a committee also receive additional yearly fees for their role in serving that committee. The following yearly fees applied in FY2015: Base annual fees Chairman Other non-executive directors Additional annual fees Deputy Chairman Audit, Finance and Risk Committee – Chairman Audit, Finance and Risk Committee – member Human Resources and Remuneration Committee – Chairman Non-executive directors’ fees are determined within an Human Resources and Remuneration aggregate directors’ fee pool limit as approved from time to time Committee – member by Myer shareholders at the Annual General Meeting. The maximum aggregate limit includes superannuation contributions for the benefit of non-executive directors and any fees which Nomination Committee – Chairman Nomination Committee – member a non-executive director agrees to sacrifice for other benefits. Non-executive directors do not receive performance-based pay. It does not include reimbursement of genuine out-of-pocket However, they are able to purchase shares in the Company, expenses, genuine special exertions fees paid in accordance which can be acquired on market during approved ‘windows’ with the Company’s constitution, or certain issues of securities for share trading consistent with the Company’s Guidelines for under ASX Listing Rule 10.11 or 10.14, with the approval of Dealing in Securities. shareholders. The current maximum aggregate fee pool limit is $2,150,000 per annum. The aggregate fee pool limit has not changed since the Company was listed in November 2009. Non-executive directors are not entitled to any additional remuneration upon retirement. Superannuation contributions required by legislation are made from the fee paid to directors An increase in the Human Resources and Remuneration and fall within the aggregate fee pool limit. Chairman’s fees from $15,000 to $22,500 was approved by the Board from the commencement of FY2015. Last year, an increase in non-executive director base fees for FY2015 was noted in the EXECUTIVE DIRECTOR AND OTHER KMP REMUNERATION Annual Report. This was subsequently declined by directors. The remuneration structure seeks to ensure that executive rewards deliver an appropriate balance between shareholder and executive interests. The remuneration structure provides a mix of fixed and variable (or ‘at risk’) pay, and a blend of short and longer-term incentives. As executives gain seniority within the Company, the balance of this mix shifts to a higher proportion of ‘at risk’ pay. The diagram below illustrates how Myer’s remuneration strategy and the structures the Board has put in place to achieve this strategy, align with the Company’s business objectives. 42 M Y ER Annual Report 2015 REMUNERATION REPORTContinued Customer Led Offer Wonderful Experiences Omni-Channel Shopping Productivity Step Change OPERATIONAL STRATEGY REMUNERATION STRATEGY Attract and retain high calibre executives Align executive rewards with Myer’s performance > reward competitively in the markets in which Myer operates > assess rewards against objective financial measures > provide a balance of fixed and ‘at risk’ remuneration > make short term and long term components of remuneration ‘at risk’ > remunerate or reward based on performance REMUNERATION COMPONENTS Fixed annual remuneration Short term incentive Long term incentive > provides ‘predictable’ base level of reward > focused on financial and non-financial targets linked to objective measures > set at market median using external benchmark data > varies based on employee’s experience, skills and performance > consideration given to both external and internal relativities > delivered in equity to align executives with shareholder interests > tested after three years > focused on long term business strategy and aligns KMP and shareholder interests to support the creation of long term shareholder value > full vesting when Myer achieves top quartile TSR performance when the EPS Hurdle and transformation objectives are achieved In order to align shareholder and executive interests and attract and retain talent, the remuneration structure is designed to: > encourage a performance-based workplace culture and recognition for contribution to meeting business objectives; > have profit as a core component of reward design; > through long term incentive, focus on sustained growth in shareholder returns, which consist of dividends, share price growth, growth in earnings per share and the achievement of transformation objectives; > deliver consistent financial returns as well as focusing the executives on key non-financial drivers of value; > attract and retain high-calibre executives; and > reward capability and performance. As a general guide, the Company targets a median fixed remuneration position having regard to a comparator group of companies. EXECUTIVE REMUNERATION The Company’s remuneration principles and policies have been applied during the year to ensure remuneration outcomes for executives reflect the prevailing market conditions, the need to attract and retain talented executives, and Company performance. The executive pay and reward framework has three components: > TFC – base pay and benefits, including superannuation; > STI; and > LTI through participation in the offers under the EEIP. M Y ER Annual Report 2015 43 REMUNERATION REPORTContinued The combination of these three components comprises an executive’s total remuneration mix at target of performance reflected by percentage in the following charts. CEO Deputy CEO & Chief Merchandise and Marketing Officer CFO Other KMP Fixed Remuneration STI STI (Deferred stock) LTI 37.0% 17.8% 11.9% 33.3% Fixed Remuneration STI Cash LTI 40.0% 24.0% 36.0% Fixed Remuneration STI Cash LTI 40.0% 24.0% 36.0% Fixed Remuneration STI Cash LTI 45.5% 27.3% 27.3% TOTAL FIXED COMPENSATION Fixed remuneration is determined by assessing an individual’s competency level and experience against the requirements of the respective position relative to business unit/functional alignment and external market conditions, with flexibility to recognise individual performance and value to the organisation. Feature Description What is included in TFC? TFC is structured as a total fixed employment compensation package, made up of base salary, superannuation and other benefits. Some of the benefits include the opportunity to receive a portion of their fixed remuneration in a variety of forms, including fringe benefits such as motor vehicles, or to make additional contributions to superannuation or retirement plans (as permitted by relevant legislation). How is TFC reviewed? Base salary levels for each executive are set with reference to the market conditions and the scope and nature of each individual’s role, the experience of the individual and performance in that role. The Committee reviews and makes recommendations to the Board regarding TFC for KMP and senior executives annually in July, having regard to Company and individual performance and relevant comparative remuneration in the market. Annual adjustments approved by the Board are effective 1 February. The Board may also approve adjustments to executive remuneration as recommended by the CEO, such as on promotion or as a result of additional duties performed by the executive. Where new senior executives join the Company or existing executives are appointed to new roles, a review and benchmarking of fixed and total remuneration is conducted for each individual prior to the issue of an offer and execution of a new employment contract. Annual adjustments to the remuneration of executives and employees who are not KMP or senior executives are determined based upon guidelines approved by the CEO and advised to the Committee. Which benchmarks are used? Remuneration for KMP is benchmarked against both a peer group of companies and companies from the ASX 200, with a market capitalisation of between 50% and 200% of that of Myer (excluding companies from the financial and mining sectors). EY provided benchmarking data to the Committee in connection with the Committee’s review of TFC for members of the Group executive in March 2015. Remuneration reviews are conducted annually and effective 1 February. The review conducted in FY2015 identified that fixed remuneration levels for executives were generally competitively positioned within the market, and where they were not, appropriate adjustments were made (noting there was a freeze on base pay in FY2014). The EGM of Stores received a performance and market-related adjustment off a low base for his initial appointment. 44 M Y ER Annual Report 2015 REMUNERATION REPORTContinued SHORT TERM INCENTIVE The quantum of short term variable rewards for the CEO and other KMP payable in a particular year are determined based on the extent to which key performance indicators (KPIs) are satisfied in the relevant year. These KPIs are set by reference to the Company’s overall performance and individual performance objectives established for the year. In the case of the CEO, these objectives are set by the Chairman and endorsed by the Board. KPIs for the other KMP are set by the CEO and endorsed by the Committee for approval by the Board. Myer’s STI plan for KMP and other senior executives operates on an annual basis subject to Board review and approval. The FY2015 STI applied to all eligible executives including the KMP, subject to certain conditions and performance criteria being met which are reviewed and approved annually by the Board. Despite a number of strategic and operational objectives being met, the Board determined that Company metrics of EBIT and sales growth were not met and no reward of STI to any of the Myer management team was provided against these metrics. In FY2015, a select number of executives received an STI award for the delivery of personal objectives. The total amount payable was $246,100. No KMP received an STI award. Feature Description What is the STI plan? The STI plan is the cash-based component of a senior executive’s at risk reward opportunity, based on achieving pre-determined performance measurement criteria. What is the value of the STI In respect of FY2015: As stated above, subject to obtaining shareholder approval, up to 40% of any annual STI rewarded to Mr Umbers from FY2016 onwards may be delivered through a grant of restricted shares. opportunity? > As the CEO was appointed part way through FY2015, having spent time in the role of Chief Information and Supply Chain Officer, the CEO’s STI opportunity for FY2015 will be pro-rated based on the time he has acted in each role equivalent to 52.9% of his TFC. > The remaining members of the senior executive team had the opportunity to earn a STI reward equivalent to between 45% and 60% of their TFC for at target performance. What was the FY2015 To incentivise performance and bring about positive change, three metrics were considered to performance measure? determine any incentive reward for FY2015: EBIT was the main metric, weighted at 50% of the total potential reward; sales growth was the second metric, weighted at 30%; and the final metric was the achievement of personal objectives established for each KMP and other executives, weighted at 20%. Each measure was assessed in isolation without a ‘gate’ applying before any reward was made against individual metrics. Why was the performance EBIT growth is one of the primary measures that the Board uses to assess the operating measure selected? performance of the Company, with an aim to maintain a focus on the Company’s operating results and associated cash generation. It reflects the contribution from individual assets to the Company’s operating performance and focuses on elements of the result that management can influence to drive improvements in short term earnings. Sales growth was chosen principally because of the impact it has on NPAT, which is a significant contributor to the achievement of satisfactory returns to shareholders. Personal objectives relate to specific individual quantitative targets set by the CEO (and approved by the Human Resources and Remuneration Committee and the Board). These targets relate to aspects of the business which align to our strategic goals, and over which the relevant executive had significant influence. The measures selected for each executive were determined by reference to the specific objectives of the executive’s role for FY2015. Company financial measures were allocated to all executives to ensure an alignment between executive reward outcomes and Company performance. Given that STI rewards are contingent on performance across a range of measures, maximum STI rewards can only be achieved for performance that is strong on all measures. As in previous years, the Board has 100% discretion with the STI outcome. M Y ER Annual Report 2015 45 REMUNERATION REPORTContinued Feature Description How is performance measured? The Committee determines whether, or the extent to which, each target is satisfied following the end of the financial period, once the Company’s annual accounts have been approved by the directors and audited. If the hurdle is satisfied, STI will be paid to participating KMP and other executives. The quantum of any STI reward provided will depend on the extent to which the target reward is achieved. A minimum threshold is also set, below which no STI reward will be provided. Once it has been determined whether, and the extent to which, each target has been satisfied, the Committee will make a recommendation to the Board for approval of the STI rewards to be paid to the CEO and individual executives. When are incentives paid? STI rewards approved by the Board are paid to participating KMP and executives in the month following the release of the Company’s results to the ASX. Does a ‘clawback’ apply? The STI plan allows the Board to take any steps that it determines appropriate to recover from the individual executive any STI reward that was incorrectly provided as a result of a material misstatement in, or omission from, the Company’s financial statements. The provision applies only to those executives who were KMP of the Group Executive at the time the financial statements were approved by the Board and issued by the Company. The Committee is responsible for assessing whether the performance criteria are met. To help make this assessment, the Committee receives reports on the Company’s performance from management. All proposed STI rewards are verified by internal audit review prior to any reward being made. The Committee has the discretion to recommend to the Board an adjustment to STIs in light of unexpected or unintended circumstances. There has been no discretion applied. DETAILS OF REMUNERATION: STI REWARD For each STI reward referred to in this report, the percentage of the available STI reward that was paid in the financial year, and the percentage and value that was forfeited because the relevant KMP did not meet the service and performance criteria is set out below. STI rewards are payable in the year following the period in which they are earned. SHORT-TERM PERFORMANCE AND STI REWARDS FOR FY2015 The FY2015 STI program relevant to the KMP can be summarised as follows: Name R Umbers(2) B Brookes(3) M Ashby(4) D Bracken(5) A Sutton STI/Reward(1) Achieved Forfeited Target value Forfeited 2015 % 2015 % 2015 $ value 2015 $ 0 0 0 0 0 100 100 100 100 100 634,274 1,827,945 393,205 491,260 360,000 634,274 1,827,945 393,205 491,260 360,000 (1) The % of STIs achieved and forfeited for 2015 are based on performance against ’at target’ performance as explained above. (2) R Umbers was appointed as Chief Information and Supply Chain Officer on 1 September 2014 and promoted to CEO and Managing Director on 2 March 2015. (3) B Brookes was appointed as CEO and Managing Director on 17 April 2006 and ceased employment on 1 May 2015. (4) M Ashby was appointed as CFO on 14 January 2008 and ceased employment on 22 May 2015. (5) D Bracken was appointed as Chief Merchandise and Marketing Officer on 1 September 2014 and promoted to Deputy CEO on 2 March 2015. 46 M Y ER Annual Report 2015 REMUNERATION REPORTContinued LONG TERM INCENTIVE Myer’s LTI plan, the Myer Equity Incentive Plan (MEIP) has been in operation since December 2006. Features of the MEIP are outlined in the table below. In FY2015, the Board granted performance rights under the MEIP to participating and eligible KMP and other senior executives. This FY2015 offer of performance rights was made under the EEIP offer, which was an LTI offer specifically designed for eligible KMP and other senior executives. The EEIP offer was administered under the overarching terms of the MEIP. The Committee regards it as an important principle that performance rights will be forfeited by the individual in specific circumstances, including if they resign from the Company within the three-year performance period or where the clawback arrangements would apply. MEIP (LTI plan) Feature Description What is the LTI plan? Under the MEIP, performance rights (being rights to be provided with shares in the Company) may be offered annually to the CEO and nominated executives. The employees entitled to participate in the plan include executives who are considered to play a leading role in achieving the Company’s long term strategic and operational objectives. In FY2015, KMP and other senior executives received performance rights under the EEIP offer. A grant of performance rights for each executive through the EEIP offer is determined as part of the calculation of total remuneration for an executive role. The Committee determines LTI awards by assessing the quantum required to provide a market competitive total remuneration reward structure including base salary and STI amounts. The MEIP is a retention incentive that is intended to promote alignment between executive and shareholder interests over the longer term. Each right offered is an entitlement to one fully paid ordinary share in the Company on terms and hurdles determined by the Board, including performance hurdles linked to both service (through a three-year performance period for each offer) and Company performance. Instrument Performance rights: each performance right entitles a participating executive to be provided with one Myer share in the Company, subject to the satisfaction of the performance hurdles set out below. The number of performance rights that vest is not determined until after the end of the performance period (being 29 July 2017). The performance right will therefore not provide any value to the holder between the date the performance right is granted until after the end of the performance period and then only if the performance hurdles are satisfied. Performance rights do not carry entitlements to ordinary dividends or other shareholder rights until the performance rights vest and shares are provided. Accordingly, participating executives do not receive dividends during the performance period. Determining the number The number of performance rights allocated depends on each executive’s LTI target (see diagram of performance rights on page 44 for an explanation of target remuneration). The value of the performance rights at the time they are granted is calculated based on the Volume Weighted Average Price (VWAP) of the Company’s shares for the five days prior to the closing date of the offer. Performance period The performance period commences at the beginning of the financial year in which the performance rights are granted. For the performance rights granted under the FY2015 EEIP, the performance period started on 27 July 2014 and ends after three years on 29 July 2017. Following the end of the performance period for the performance rights and after the Company has lodged its full year audited financial results for FY2017 with the ASX, the Board will test the performance hurdles that apply to the FY2015 EEIP offer and will determine how many performance rights (if any) are eligible to vest. There will be no retesting of the performance hurdles at a later date if they are not fully satisfied. M Y ER Annual Report 2015 47 REMUNERATION REPORTContinued MEIP (LTI plan) Feature Description Performance hurdles FY2015 EEIP offer (performance period 27 July 2014 – 29 July 2017): Consistent with prior years, the financial performance measures approved by the Board for the FY2015 EEIP offer were TSR performance, the Company’s EPS and the Business Transformation Hurdle (introduced in FY2014). > 50% of each award is subject to a performance hurdle, which measures the Company’s TSR performance relative to a set peer group. The Board approved a change in comparator group for the purposes of measuring relative TSR performance under the FY2015 EEIP offer. The new comparator group will comprise of Standard & Poor’s/ASX 200 market constituents (with some exclusions). This peer group is considered more appropriate to benchmark the Company’s relative performance, being a broader and more appropriate comparator group, given Myer’s size and position in the ASX 200. > 25% of each award is subject to a performance hurdle that measures the Company’s EPS. The EPS Hurdle is based on the compound annual growth rate in the Company’s fully diluted EPS over the performance period. > 25% of each award is subject to a Business Transformation Hurdle. The purpose of the Business Transformation Hurdle is to assess the way in which Myer is transforming due to the structural realignment of the retail industry. Why were the performance The Board decided to continue with a market-based performance measure for the FY2015 offer measures selected? and a relative TSR measure was selected to ensure an alignment between comparative shareholder return and reward for executives. This also provides a direct comparison of the Company’s performance over the three-year performance period against a comparator group of companies that would, broadly, be expected to be similarly impacted by changes in market conditions. EPS was selected as it is considered to be an effective measure for determining the underlying profitability of the business. The Business Transformation Hurdle was selected to assess the way in which the Company is transforming in a time of continued structural realignment of the retail industry. Vesting framework The number of performance rights that vest will depend on how well Myer has performed during the performance period. For superior performance, 100% of the performance rights will vest. Only a percentage of performance rights will vest for performance below that level. If Myer does not achieve certain minimum thresholds then all the applicable performance rights will lapse and no performance rights can vest. For the FY2015 EEIP offer, the following vesting hurdles applied: > TSR (50% of the award) TSR percentile ranking % of TSR performance rights that will vest Below 50th Nil From 50th to 75th Pro rata with a linear progression between 50% and up to 100% of the number of TSR performance rights 75th and above 100% > EPS (25% of the award) EPS Hurdle rate (CAGR over the performance period) % of EPS performance rights that will vest Less than 2% Nil Between 2% and 7% Pro rata with a linear progression between 50% and up to 100% of the pro rata vesting of rights number of EPS performance rights 7% or greater 100% of the number of EPS performance rights 48 M Y ER Annual Report 2015 REMUNERATION REPORTContinued MEIP (LTI plan) Feature Description > Business Transformation (25% of the award) At the end of the performance period, the Board will compare Myer’s actual performance against the target performance for the Business Transformation Hurdle metrics as set out in Myer’s business plan. The Board will then determine, in its absolute discretion, the percentage of the Business Transformation performance rights that are eligible to vest on the basis of the results of the comparison of Myer’s actual performance against the target performance for the Business Transformation Hurdle metrics as set out in Myer’s business plan. Each performance hurdle will be assessed separately, meaning that all hurdles do not need to be satisfied for any of an executive’s performance rights to vest. This means that it is possible for some or all of the performance rights with an EPS Hurdle to vest, while none of the performance rights with a TSR or Business Transformation Hurdle vest (and vice versa). Cessation of employment Generally, any performance rights granted will lapse on cessation of employment if they have not been exercised (whether vested or unvested before that time). Subject to applicable law, the Board has the power to allow an executive to keep some, or all of their performance rights on cessation of employment (although the discretion is only likely to be exercised in exceptional circumstances). Does a ‘clawback’ apply? The LTI plan includes provisions for unvested rights to lapse and rights or interests in shares allocated or to be allocated under the EEIP to be forfeited, at the Board’s discretion, if any performance rights were incorrectly granted as a result of a material misstatement in, or omission from, the Company’s financial statements. The provision applies only to those executives who were KMP of the Company at the time the financial statements were approved by the Board and issued by the Company. Board discretion The rights and entitlements attaching to performance rights may be adjusted if the Company undertakes a bonus or rights issue or a capital reconstruction in relation to the Company’s shares. Expiry At the end of the applicable performance period, any performance rights that have not vested will lapse and no shares will be provided for those performance rights. OTHER REMUNERATION In addition to standard remuneration arrangements, Mr Umbers, Mr Bracken and Mr Devonport were provided with additional cash and equity as part of their original sign-on arrangements to recognise significant incentive arrangements forfeited upon leaving their previous employers to join Myer. Mr Umbers received $590,000 on his commencement in cash and $400,000 in performance rights vesting in 2017. These performance rights are subject to a condition of continuous employment with the Company through to the end of the performance period for the FY2015 EEIP. This equated to a total of 250,000 Myer shares at the time of grant when the Volume Weighted Average Price (VWAP) share price was $1.60. The value attributed to a performance right was determined by the VWAP of Myer shares for the five days prior to the closing date of the offer. Mr Bracken received $390,000 on his commencement in cash and $200,000 in performance rights vesting in 2017. These performance rights are subject to a condition of continuous employment with the Company through to the end of the performance period for the FY2015 EEIP. This equated to a total of 125,000 Myer shares at the time of grant when the VWAP share price was $1.60. The value attributed to a performance right was determined by the VWAP of Myer shares for the five days prior to the closing date of the offer. Mr Devonport will receive $400,000 in cash upon the completion of his first year of employment. This payment would be waived if Mr Devonport were to resign during the first 12 months of his employment with the Company. In addition, Mr Devonport will be awarded additional performance rights to the value of $200,000 in the EEIP granted in each of FY2016 and FY2017. These performance rights are subject to a condition of continuous employment with the Company through to the end of the performance period for the FY2016 EEIP and the FY2017 EEIP. M Y ER Annual Report 2015 49 REMUNERATION REPORTContinued The Board considers the changes made to each of the elements > any short term incentive Mr Brookes was eligible to receive of reward for the KMP to be appropriate for FY2015, taking into in respect of the FY2015 year (subject to satisfying the account the Company’s overall reward objectives, relevant performance measures) is reduced by a pro-rata amount market comparators and the interests of shareholders. (i.e. to take into account the fact that he served as CEO DIRECTORS AND EXECUTIVES DISCLOSED IN THIS REPORT Name Position Non-executive directors P McClintock Chairman, and Managing Director for part of the performance period). Mr Brookes will not receive any STI payments as the performance hurdles were not met; > Mr Brookes was entitled to retain a pro-rata number of performance rights based on his completed months of service over the relevant performance period. R Myer Deputy Chairman, as follows: Independent non-executive director As a result, Mr Brookes retained 83,249 performance rights A Brennan I Cornell C Froggatt R Thorn Executive directors R Umbers(1) B Brookes(2) Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director — 41,625 TSR rights; — 20,812 EPS rights; — 20,812 Business Transformation rights. Mr Brookes will not be entitled to exercise any retained performance rights early. So long as the retained performance CEO and Managing Director rights have vested by passing the performance hurdles, Former CEO and Managing Director Mr Brookes’ retained performance rights may only be exercised Other Key Management Personnel M Ashby(3) D Bracken(4) Former Chief Financial Officer Chief Merchandise and Marketing Officer, Deputy CEO G Devonport(5) Chief Financial Officer A Sutton Executive General Manager Stores (1) R Umbers was appointed as Chief Information and Supply Chain Officer on 1 September 2014 and promoted to CEO and Managing Director on 2 March 2015. (2) B Brookes was appointed as CEO and Managing Director on 17 April 2006 and ceased employment on 1 May 2015. (3) M Ashby was appointed as CFO on 14 January 2008 and ceased employment on 22 May 2015. (4) D Bracken was appointed as Chief Merchandise and Marketing Officer on 1 September 2014 and promoted to Deputy CEO on 2 March 2015. (5) G Devonport was appointed as CFO on 22 July 2015. at the same time as all other executives participating in the performance rights offer for the year ending 29 July 2017 (i.e. after Myer has lodged its audited results for Financial Year ending 29 July 2017). Mr Brookes is, however, entitled to request in writing, addressed to the Chairman, approval to exercise such number of his retained performance rights that are sufficient to meet a liability to pay a tax on the number of retained performance rights arising from the cessation of his employment. R UMBERS — CEO AND MANAGING DIRECTOR APPOINTMENT On 2 March 2015, the Board announced the appointment of Mr Umbers as CEO and Managing Director. The key terms and conditions of Mr Umbers’ appointment are outlined below: B BROOKES — FORMER CEO AND MANAGING DIRECTOR TERM On 2 March 2015, Myer announced to the ASX that Mr Brookes had agreed to step down as CEO and Managing Director. REMUNERATION PACKAGE The provision of termination benefits to Mr Brookes was approved by shareholders at the 2014 Annual General Meeting. Mr Umbers’ remuneration includes his TFC (being cash salary and superannuation), an annual STI delivered in cash and equity in the form of restricted shares, and a LTI delivered in equity in The contract is in the form of an ‘open term’ contract. In accordance with Mr Brookes’ employment arrangements, on the form of performance rights. the basis that Mr Brookes’ role as CEO and Managing Director ceased on 2 March 2015: > TFC > Mr Brookes worked out a two-month notice period and he was entitled to 10 months payment in lieu of notice on cessation of his role as CEO and Managing Director, representing $1,553,720.53; Mr Umbers’ TFC is subject to an annual performance-based review. His fixed remuneration is $1.2 million per annum. 50 M Y ER Annual Report 2015 REMUNERATION REPORTContinued > STI Mr Umbers is entitled to participate in Myer’s short term incentive plan. As Mr Umbers was appointed CEO part way through FY2015, having spent time in the role of Chief Information and Supply Chain Officer, Mr Umbers’ STI opportunity for FY2015 will be pro-rated based on the time he has acted in each role equivalent to 52.9% of his TFC. For the first full year as CEO (i.e. FY2016), Mr Umbers’ target annual STI reward will be 80%. For all future years, Mr Umbers’ target STI reward will be as determined by the Board in its absolute discretion. 60% of any annual STI reward will be provided in cash. Subject to obtaining shareholder approval, the balance of 40% will be delivered as restricted shares, although the Board will have the discretion to reward cash in lieu of some or all of the restricted shares. Mr Umbers must not deal with any restricted shares for a prescribed restriction period determined by the Board. During the restriction period, the restricted shares will be held on trust. However, Mr Umbers will be entitled to earn dividends on the shares and, subject to any applicable voting restrictions, instruct the trustee to vote the restricted shares. > LTI Subject to any required shareholder approval, Mr Umbers will be entitled to an annual offer of performance rights under the EEIP, to a value determined by the Board in its absolute discretion. For the first offer (i.e. in respect of FY2016 grant), the offer value will be 90% of Mr Umbers’ TFC, reflecting an amount of $1,080,000. As Mr Umbers was granted performance rights prior to his appointment as CEO and Managing Director, as a continuing employee, Mr Umbers’ existing grants of performance rights remain on issue, subject to satisfaction of the applicable service and/or performance hurdles. TOTAL REMUNERATION Under Mr Umbers’ contract, his total remuneration (including TFC, STI and LTI) at target is $3.24 million. TERMINATION PROVISIONS Myer may terminate Mr Umbers’ employment at any time by providing 12 months’ written notice or payment in lieu of notice (or a combination of these). Mr Umbers may terminate his employment by providing the Company with six months’ written notice. M Y ER Annual Report 2015 51 REMUNERATION REPORTContinued EQUITY ARRANGEMENTS WITH DIRECTORS AND OTHER KMP FY2015 EEIP GRANT In FY2015, KMP (other than the CEO) and other senior executives received LTI awards under the MEIP through the EEIP offer. The awards granted may deliver value to executives at the end of the three-year performance period, subject to satisfaction of performance hurdles as set out in the diagram below: Total Shareholder Return Hurdle = 50% Performance rights granted Three-year performance period Earnings Per Share Hurdle = 25% Business Transformation Hurdle = 25% The following table summarises the FY2015 performance right grants made to KMP in December 2014. Value of Valuation of each performance performance Number of End of rights at grant right at KMP R Umbers(2) date $910,000 B Brookes(3) $600,000 M Ashby(4) $480,000 D Bracken(5) $710,000 A Sutton $360,000 grant date EPS $1.08 TSR $0.30 BT $1.08 Service $1.08 EPS $1.08 TSR $0.30 BT $1.08 EPS $1.08 TSR $0.30 BT $1.08 EPS $1.08 TSR $0.30 BT $1.08 Service $1.08 EPS $1.08 TSR $0.30 BT $1.08 performance rights granted(1) 79,687 159,375 79,687 250,000 93,750 187,500 93,750 75,000 150,000 75,000 79,687 159,375 79,687 125,000 56,250 112,500 56,250 Exercise Applicable performance price Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil hurdles EPS Hurdle TSR Hurdle BT Hurdle Sign-on 3-year Service Hurdle EPS Hurdle TSR Hurdle BT Hurdle EPS Hurdle TSR Hurdle BT Hurdle EPS Hurdle TSR Hurdle BT Hurdle Sign-on 3-year Service Hurdle EPS Hurdle TSR Hurdle BT Hurdle period 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 29 July 2017 (1) The VWAP price used for the allocation of the FY2015 grant was $1.60. (2) R Umbers was appointed as Chief Information and Supply Chain Officer on 1 September 2014 and promoted to CEO and Managing Director on 2 March 2015. (3) B Brookes was appointed as CEO and Managing Director on 17 April 2006 and ceased employment on 1 May 2015. (4) M Ashby was appointed as CFO on 14 January 2008 and ceased employment on 22 May 2015. (5) D Bracken was appointed as Chief Merchandise and Marketing Officer on 1 September 2014 and promoted to Deputy CEO on 2 March 2015. 52 M Y ER Annual Report 2015 REMUNERATION REPORTContinued THE TSR PEER GROUP The Board approved a change in comparator group for the purposes of measuring relative TSR performance under the FY2015 EEIP offer. The new comparator group will comprise Standard & Poor’s/ASX 200 market constituents (with some exclusions). This peer group is considered appropriate to benchmark the Company’s relative performance, being a broader and more appropriate comparator group, given Myer’s size and position within the ASX 200. ADDITIONAL GRANT TO CEO AND CHIEF MERCHANDISE AND MARKETING OFFICER Additional performance rights were offered to the new CEO and Chief Merchandise and Marketing Officer in FY2015 as part of their original sign-on arrangements to recognise remuneration forgone from previous employers in order to join Myer. The potential value of the performance rights granted under the EEIP offer was equivalent to $400,000 for the CEO and $200,000 for the Chief Merchandise and Marketing Officer. These additional performance rights are subject to a condition of continuous employment with the Company until the end of the vesting period (being 29 July 2017). OPTIONS AND PERFORMANCE RIGHTS Details of options granted under the MEIP that remain unvested as at 25 July 2015 are set out in the table below. No options have been granted under the MEIP since 2009. Grant type (options/ performance rights) Options Rights (CEO only EPS Hurdle) Rights (CEO only TSR Hurdle) Rights (EPS Hurdle) Rights (TSR Hurdle) Rights (EPS Hurdle) Rights (TSR Hurdle) Rights (Service Hurdle) Rights (EPS Hurdle) Rights (TSR Hurdle) Grant date 30 Jun 2009 FY2011 9 Dec 2011 9 Dec 2011 21 Oct 2011 21 Oct 2011 29 Jan 2013 29 Jan 2013 29 Jan 2013 27 Nov 2013 27 Nov 2013 Rights (Business Transformation 27 Nov 2013 Hurdle) Rights (CFO only Service Hurdle) 27 Nov 2013 Rights (EPS Hurdle) Rights (TSR Hurdle) 15 Dec 2014 15 Dec 2014 Rights (Business Transformation 15 Dec 2014 Hurdle) Number of options/ performance rights(1) 0 0 0 0 0 89,083 89,084 927,604 56,707 113,418 56,708 0 480,488 960,983 480,488 Rights (Service Hurdle) 15 Dec 2014 500,000 Total 3,754,563 Value per Exercise option/right Vesting date (if holder remains employed by a Myer Group price at grant date company) Expiry date $2.34 $0.49 31 Jul 2014 24 Oct 2014 No grants were made Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil $1.67 $1.08 $1.67 $1.08 $2.08 $1.56 $2.08 $2.36 End of Perf. Period 31 Oct 2014 End of Perf. Period 31 Oct 2014 End of Perf. Period 31 Oct 2014 End of Perf. Period 31 Oct 2014 End of Perf. Period 31 Oct 2015 End of Perf. Period 31 Oct 2015 End of Perf. Period 31 Oct 2015 End of Perf. Period 31 Oct 2016 $1.57 End of Perf. Period 31 Oct 2016 $2.36 End of Perf. Period 31 Oct 2016 $2.36 $1.08 End of Perf. Period 31 Oct 2016 End of Perf. Period 31 Oct 2017 $0.30 End of Perf. Period 31 Oct 2017 $1.08 End of Perf. Period 31 Oct 2017 $1.08 End of Perf. Period 31 Oct 2017 (1) Of the options noted above, zero options have vested and remain unexercised as at 25 July 2015. Refer to Financial Statements (note H4) for details. M Y ER Annual Report 2015 53 REMUNERATION REPORTContinued ASSESSMENT At the end of each performance period, the Committee reviews the Company’s audited financial results and the results of the other performance measures and assesses performance against each measure to determine the percentage of the options (if any) that will vest. Performance rights granted in 2013 subject to a TSR or EPS hurdle are not likely to vest as the EPS and TSR targets are unlikely to be achieved. The performance rights granted in 2013 subject to a continuous service hurdle will vest following the lodgment of the Company’s audited results for FY2015. Details of options and performance rights over ordinary shares in the Company currently provided as remuneration and granted during the current year to each director and each KMP are set out below. Further information on the MEIP is set out in note H4 of the Financial Statements. Summary of options and performance rights granted, vested and lapsed for the reporting period Number of Value of performance performance Number of Number of rights granted during the period(1) rights at grant date(2) $ 568,749 375,000 300,000 443,749 225,000 910,000 600,000 480,000 710,000 360,000 options options Value at vested during lapsed during lapsed date the period the period – – – – – – 291,751 673,611 – – $ – 204,226 491,736 – – Name KMP of the Company R Umbers(3) B Brookes(4) M Ashby(5) D Bracken(6) A Sutton (1) No options or rights were granted to any director of the Company during the reporting period. (2) The VWAP price used for the allocation of the FY2015 grant was $1.60. (3) R Umbers was appointed as Chief Information and Supply Chain Officer on 1 September 2014 and promoted to CEO and Managing Director on 2 March 2015. (4) B Brookes was appointed as CEO and Managing Director on 17 April 2006 and ceased employment on 1 May 2015. (5) M Ashby was appointed as CFO on 14 January 2008 and ceased employment on 22 May 2015. (6) D Bracken was appointed as Chief Merchandise and Marketing Officer on 1 September 2014 and promoted to Deputy CEO on 2 March 2015. The assessed fair value at grant date of options granted to KMP is allocated equally over the period from grant date to vesting date and the amount is included in the remuneration tables on pages 57 and 58. Fair values at grant date are independently determined using an option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, and the risk-free interest rate for the term of the option. SHARES PROVIDED ON EXERCISE OF OPTIONS There were no ordinary shares in the Company provided as a result of the exercise of options to any director of the Company and KMP. No amounts are unpaid on any shares provided on the exercise of options. 54 M Y ER Annual Report 2015 REMUNERATION REPORTContinued LONG TERM INCENTIVES ON ISSUE Details of remuneration: share-based compensation benefits. For each grant of options or grant of performance rights included in this report, the percentage of the grant that was paid, or that vested, in the financial year, and the percentage and value that was forfeited because the person did not meet the service and performance criteria is set out below. Options and performance rights vest provided the vesting conditions or performance hurdles are met (see pages 47 to 49). No options or performance rights will vest if the hurdles (either service or performance) are not satisfied, therefore the minimum value of the options or performance rights yet to vest is nil. The maximum value of the options or performance rights yet to vest has been determined as the amount of the grant date fair value of the options or performance rights that is yet to be expensed. The following equity grants were made to KMP: Share-based compensation benefits (performance rights) Name R Umbers(1) B Brookes(2) M Ashby(3) D Bracken(4) A Sutton Year granted Vested % 2015 2015 2015 2014 2013 2015 2015 2014 2013 - – – – – – – – – The remaining Maximum financial total value of years in which Forfeited performance % - 77.8 100 100 100 - – – – rights may vest 2017 2017 2017 2016 2015 2017 2017 2016 2015 grant yet to vest $ 348,480 36,027 - - - 243,212 97,373 50,305 5,359 (1) R Umbers was appointed as Chief Information and Supply Chain Officer on 1 September 2014 and promoted to CEO and Managing Director on 2 March 2015. (2) B Brookes was appointed as CEO and Managing Director on 17 April 2006 and ceased employment on 1 May 2015. (3) M Ashby was appointed as CFO on 14 January 2008 and ceased employment on 22 May 2015. (4) D Bracken was appointed as Chief Merchandise and Marketing Officer on 1 September 2014 and promoted to Deputy CEO on 2 March 2015. SERVICE AGREEMENTS On appointment to the Board, all non-executive directors sign a letter of appointment. The letter summarises the Board’s policies and terms relevant to the office of director (including remuneration). Remuneration and other terms of employment for the CEO and the other KMPs are formalised in service agreements. Each of these agreements prescribes a base or fixed remuneration amount, a STI reward, other benefits including salary sacrificing for vehicle leasing and, when eligible, LTI reward through participation in the MEIP through the EEIP offer. The termination provisions for the KMP are described below: Name R Umbers(1) D Bracken(2) G Devonport(3) A Sutton Termination Termination Termination notice period payment where notice period initiated by initiated by the Contract type initiated by KMP Rolling contract Rolling contract Rolling contract Rolling contract 6 months 3 months 6 months 3 months Company 12 months 6 months 6 months 6 months Company 12 months 6 months 6 months 6 months (1) R Umbers was appointed as Chief Information and Supply Chain Officer on 1 September 2014 and promoted to CEO and Managing Director on 2 March 2015. (2) D Bracken was appointed as Chief Merchandise and Marketing Officer on 1 September 2014 and promoted to Deputy CEO on 2 March 2015. (3) G Devonport was appointed as CFO on 22 July 2015. M Y ER Annual Report 2015 55 REMUNERATION REPORTContinued REMUNERATION AND COMPANY PERFORMANCE The following graph shows the average individual total STI reward (as a percentage of each individual’s target STI, where 100% is the target for the KMP group and its relationship to Group EBITDA and NPAT outcomes over five financial years). s n o i l l i m $ 350 300 250 200 150 100 50 0 50 40 30 20 10 0 d i a p P I T S t e g r a t f o % s e v i t u c e x e r o n e s o t i EBITDA EBITDA NPAT NPAT STIP STIP FY2010 FY2010 FY2011 FY2011 FY2012 FY2012 FY2013 FY2013 FY2014 FY2014 FY2015 FY2015 The following table shows the Company’s annual performance against a range of metrics since 2010. The table shows the impact of Company performance on shareholder returns, taking into account dividend payments, share price changes, and other capital adjustments during the period. Basic EPS (cents)(1) NPAT ($’000) Dividends (cents per share) Share price at beginning of year(2) ($) Share price at end of year ($) FY2010 29.0 FY2011 27.9 FY2012 23.9 168,702(3) 162,657(4) 139,365 22.0 4.10 3.45 22.5 3.45 2.31 19.0 2.31 1.83 FY2013 21.8 127,212 18.0 1.83 2.66 FY2014 16.8 98,499 14.5 2.66 2.24 FY2015 13.2(5) 77,504 (6) 7.0 2.24 1.18 (1) 2010 Basic EPS is calculated using pro forma NPAT and divided by the closing shares on issue. 2011 Basic EPS is calculated using normalised NPAT and divided by the weighted average shares. (2) 2010 share price at the beginning of the year is the share price at listing. (3) 2010 NPAT is pro forma NPAT excludes Individually Significant Items. (4) 2011 NPAT excludes IPO and Individually Significant Items. (5) 2015 Basic EPS excludes Individually Significant Items. (6) 2015 NPAT excludes Individually Significant Items. REMUNERATION OUTCOMES FOR DIRECTORS AND OTHER KMP The following tables have been prepared in accordance with section 300A of the Corporations Act. They show details of the nature and amount of each element of the remuneration paid or awarded for services provided in this period. In the case of share-based payments and retention incentives, the amounts disclosed reflect the amount expensed during the year in accordance with relevant accounting standards and accordingly this does not necessarily reflect the amount actually paid to the individual during the year, which may be more or less than the amount shown in the tables on the following pages. 56 M Y ER Annual Report 2015 REMUNERATION REPORTContinued $ 0 0 0 0 0 4 , 0 0 0 0 0 4 , 0 0 0 0 8 1 , 0 0 0 0 8 1 , 0 0 0 0 8 1 , 0 0 0 0 8 1 , 5 2 6 0 6 , 0 0 0 0 5 1 , 5 7 8 , 1 7 1 0 0 0 5 6 1 , – 5 6 5 4 4 1 , 5 2 6 0 6 , 0 0 0 0 5 1 , $ - – – – – – – – – – – – – – $ 0 0 0 0 0 4 , 0 0 0 0 0 4 , 0 0 0 0 8 1 , 0 0 0 0 8 1 , 0 0 0 0 8 1 , 0 0 0 0 8 1 , 5 2 6 0 6 , 0 0 0 0 5 1 , 5 7 8 , 1 7 1 0 0 0 5 6 1 , – 5 6 5 4 4 1 , 5 2 6 0 6 , 0 0 0 0 5 1 , – – – 9 6 1 , 0 1 5 , 1 6 2 4 8 9 , 3 4 7 , 1 1 4 , 1 $ - – – – – – – – – – – – – – – – , 4 5 9 3 5 2 4 , 8 4 3 , 1 7 5 2 , 9 6 0 2 8 , , 5 1 6 4 8 4 3 3 7 , 6 8 0 2 , – 5 8 8 , 1 7 1 , 4 1 2 7 , 3 5 5 , 1 $ - – – – – – – – – – – – – – – – – – l a t o T n o i t a r e n u m e r e s n e p x e ) 6 ( s n o i t p O i g n d u l c x E ) 5 ( s t n e m y a p d e s a b - e r a h s r e h t o d n a s t n e m y a p n o i t a n m i r e T s u n o b n o i t n e t e R g n o L e v a e l e c i v r e s s t n e m y a p e s n e p x e d e s a b - e r a h S n o i t a r e n u m e r l a t o T s t fi e n e b m r e t - g n o L $ - – – – – – – – – – – – – – $ l a t o t b u S $ - r e p u S - t s o P s t fi e n e b t n e m y o p m e l ) ( 4 n o i t a u n n a 0 0 0 0 0 4 , 0 0 0 0 0 4 , 3 8 7 , 8 1 5 7 7 , 7 1 0 0 0 0 8 1 , 0 0 0 0 8 1 , 0 0 1 , 7 1 0 5 6 6 1 , 0 0 0 0 8 1 , 0 0 0 0 8 1 , 0 0 1 , 7 1 0 5 6 6 1 , 5 2 6 0 6 , 0 0 0 0 5 1 , 0 5 2 4 1 , 8 0 6 5 , 5 7 8 , 1 7 1 0 0 0 5 6 1 , 8 2 3 6 1 , 2 6 2 5 1 , – – 5 6 5 4 4 1 , 3 1 4 3 1 , 5 2 6 0 6 , 8 0 6 5 , 0 0 0 0 5 1 , 0 5 3 8 2 , 7 9 1 , 3 , 6 4 5 8 0 4 , 1 5 4 0 5 2 , – – 7 9 8 0 6 , – – 4 6 1 , 8 1 6 2 , 1 1 5 4 3 , , 6 3 8 5 2 0 2 , 4 4 4 9 2 , - n o N s t fi e n e b y r a t e n o m ) 3 ( r e h t O $ - – – – – – – – – – – – – – – – – – $ - – – – – – – – – – – – – – – 2 7 3 , 1 7 9 5 , 5 4 2 6 3 3 3 5 1 , s t fi e n e b e e y o p m e m l r e t - t r o h S $ ) 2 ( I T S / s u n o B e v i t n e c n i $ ) 1 ( s e e f d n a y r a l a s h s a C e m a N s r o t c e r i d e v i t u c e x e - n o N k c o t n i l C c M P - – – – – – – – – – – – – – 7 1 2 , 1 8 3 , 5 2 2 2 8 3 0 0 9 2 6 1 , 0 5 3 3 6 1 , 0 0 9 2 6 1 , 0 5 3 3 6 1 , 7 1 0 5 5 , 0 5 7 , 5 3 1 7 4 5 , 5 5 1 8 3 7 , 9 4 1 – 2 5 1 , 1 3 1 0 5 6 , 1 2 1 7 1 0 5 5 , 0 0 0 0 9 5 , 9 2 1 , 2 9 7 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 r e y M R 5 1 0 2 n a n n e r B A 4 1 0 2 5 1 0 2 4 1 0 2 ) 7 ( l l e n r o C I 5 1 0 2 t t a g g o r F C 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 ) ( 8 y a H P ) ( 9 n r o h T R s r o t c e r i d e v i t u c e x E 5 1 0 ) 2 0 1 ( 4 1 0 2 s r e b m U R 1 1 ( 5 1 0 ) 2 s e k o o r B B – – – – , 6 5 0 8 3 3 2 , , 6 5 0 3 4 8 , 1 4 1 0 2 M Y ER Annual Report 2015 57 . e g a p g n w o i l l o f e h t n o e r a s e t o n t o o F . d o i r e p e h t n i s t n e m e t a t s l a i c n a n fi e h t n i d e d r o c e r s t n u o m a n o i t a r e n u m e r e h t l s w o h s e b a t w o e b e h T l REMUNERATION REPORTContinued $ $ $ 8 9 8 , 1 0 7 7 7 5 6 1 9 , 8 2 5 , 1 5 1 - 8 2 3 , 1 8 1 , 6 2 4 3 5 8 9 4 2 5 3 7 , , 8 2 2 3 1 2 , 1 3 9 6 8 6 , , 5 3 5 4 4 1 , 1 – – – 6 1 3 9 , – – – – – – – 6 1 3 9 , , 1 0 4 4 7 3 6 1 9 , 1 0 1 – , 7 1 3 6 7 4 0 9 1 , 3 3 6 8 6 2 , 1 3 5 3 2 2 , 7 0 1 0 4 8 6 9 , , 7 6 9 5 2 5 , 8 2 4 4 3 4 – – – 6 3 3 , 7 9 5 1 0 2 , 1 4 1 – , 7 3 5 8 3 7 $ – – – – – – – – – – – – 5 4 7 , 1 8 1 , 6 6 6 6 , 9 1 5 9 7 0 , 2 6 6 , 5 – 0 3 6 , 3 5 5 , 9 3 8 8 , 4 0 2 7 4 7 , 8 4 3 , 9 1 2 7 , 3 5 5 , 1 $ – – – – – – – – – – – – – – l a t o T n o i t a r e n u m e r e s n e p x e ) 6 ( s n o i t p O i g n d u l c x E ) 5 ( s t n e m y a p d e s a b - e r a h s r e h t o d n a s t n e m y a p n o i t a n m i r e T s u n o b n o i t n e t e R g n o L e v a e l e c i v r e s s t n e m y a p e s n e p x e d e s a b - e r a h S n o i t a r e n u m e r l a t o T s t fi e n e b m r e t - g n o L $ – 8 9 5 , 5 2 $ l a t o t b u S $ - r e p u S - t s o P s t fi e n e b t n e m y o p m e l ) ( 4 n o i t a u n n a , 6 2 4 3 5 8 , 1 5 6 9 0 7 5 7 1 , 8 2 5 7 1 , 7 7 6 5 6 2 , 9 7 8 , 1 4 1 , 1 0 4 7 , 9 2 – – – – – – – 6 1 3 9 , 0 1 2 – – – – , 7 1 3 6 7 4 6 7 6 3 2 , 1 1 1 , 8 7 8 6 0 3 , 0 8 2 5 9 4 , , 7 1 3 6 2 4 0 4 7 , 9 2 5 7 7 , 7 1 – – – – , 7 3 5 8 3 7 7 4 9 4 1 , 0 4 5 , 6 3 6 0 6 , 4 9 6 8 4 , 8 5 7 , 7 2 3 3 , 9 5 2 3 7 4 , 7 6 5 , 5 3 8 9 , 3 5 2 $ – – – – – – – – – – – – – – - n o N s t fi e n e b y r a t e n o m 7 1 3 , 1 3 2 3 4 1 , – – 8 2 9 0 1 8 , 9 5 1 , 1 3 6 5 1 0 2 4 1 0 2 s t fi e n e b e e y o p m e m l r e t - t r o h S $ ) 3 ( r e h t O $ ) 2 ( I T S / s u n o B e v i t n e c n i $ ) 1 ( s e e f d n a y r a l a s h s a C e m a N l e n n o s r e P t n e m e g a n a M y e K ) 2 1 ( y b h s A M 2 7 3 , 1 0 0 0 0 9 3 , 7 6 7 , 0 2 7 – 5 1 – – 7 1 3 , 1 7 0 6 4 , 7 1 3 , 1 – 7 1 3 , 1 – – – – – – – – – – – – 1 9 0 9 , 4 2 3 , 1 5 4 , 3 3 9 0 6 4 5 2 2 , 7 0 4 – 3 7 2 2 2 7 , 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 ) 4 1 ( t r o p n o v e D G ) 3 1 ( n e k c a r B D ) 5 1 ( l n o t e p a t S A 5 1 0 2 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 ) 2 6 1 ( 4 1 0 2 n o t t u S A s r e v a r T G 6 8 2 , 7 6 2 0 0 0 , 0 8 9 8 6 8 , 1 5 2 , 6 5 1 0 2 s l a t o T 4 0 6 , 8 5 1 – 6 8 8 , 4 5 1 , 5 4 1 0 2 s l a t o T 58 M Y ER Annual Report 2015 REMUNERATION REPORTContinued (1) (2) (3) Cash salary includes short-term compensated absences, consideration for vehicle salary sacrifice and fees including allowances for Committee ‘chairman’ responsibilities for A Brennan and C Froggatt and Deputy Chairman fee for R Myer. STI payments relate to program performance and conditions for the year they were earned, not the year of actual payment. Due to performance, no STI payments were earned in the FY2015 year under the STI. Other payments for B Brookes include payments for rental subsidy and certain other services in relation to provision of accommodation. Other payments also include Company-paid FBT expenses. (4) There were no post-employment benefits paid other than superannuation. (5) (6) Total remuneration expense excluding share-based payments reflects the accounting expense treatment of base salary, any bonuses or short term incentive payments, Fringe Benefit Tax expenses, superannuation, the balance of long service leave accruals, retention payments and any termination benefits in the reporting period. Remuneration in relation to share options and performance rights represents the amount expensed for the period based on valuations determined under AASB 2 Share-based Payment. This expense is based on the fair value at grant date, and reflects expectations of the number of options expected to vest. Where expectations change in relation to vesting, adjustment is made in the current period to reflect this change. As the equity grant may fully vest, partially vest or not vest at all, the benefit that the KMP ultimately realises is likely to be different to the amount disclosed in a particular year. The amount disclosed does not represent cash payments received in the period, and if vesting conditions are not met may result in reversal of the remuneration amount in a future period. There were no other equity-settled share-based payments and there were no cash-settled share-based payments. (7) I Cornell was appointed as a non-executive director on 6 February 2014. (8) P Hay retired as a non-executive director effective from 14 July 2014. (9) R Thorn was appointed as a non-executive director on 6 February 2014. (10) R Umbers was appointed as Chief Information and Supply Chain Officer on 1 September 2014 and promoted to CEO and Managing Director on 2 March 2015. Remuneration represents earnings from 1 September 2014. (11) B Brookes was appointed as CEO and Managing Director on 17 April 2006 and ceased employment on 1 May 2015. (12) M Ashby was appointed as CFO on 14 January 2008 and ceased employment on 22 May 2015. (13) D Bracken was appointed as Chief Merchandise and Marketing Officer on 1 September 2014 and promoted to Deputy CEO on 2 March 2015. (14) G Devonport was appointed as CFO on 22 July 2015. (15) A Stapleton was promoted to Executive General Manager Merchandise on 4 February 2013 and ceased employment on 18 July 2014. (16) G Travers was appointed as Executive General Manager Business Services on 1 November 2010 and ceased employment on 2 May 2014. M Y ER Annual Report 2015 59 REMUNERATION REPORTContinued Name Executive directors R Umbers(2) B Brookes(3) 2015 2014 2015 2014 D Bracken(5) G Devonport(6) A Stapleton(7) A Sutton G Travers(8) 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 STI AND LTI REMUNERATION The table below sets out the relative proportion of remuneration for the executive directors and other KMP that is linked to performance and the proportion which is fixed. Total remuneration Total fixed At risk - LTI(1) expense remuneration At risk - STI(9) Share options Retention incentive $ $ % $ % $ % 1,510,169 821,743 54% 590,000 - - 0% 4,253,954 4,171,885 2,571,348 2,086,733 98% 81% 39% 0% 98,426 - 0% 82,069 0% 484,615 7% 0% 2% 19% 0% 0% -151,528 181,328 -22% 20% - - - - - Key Management Personnel M Ashby(4) 701,898 853,426 916,577 735,249 122% 80% 1,213,228 754,535 62% 390,000 - - 0% 9,316 9,316 - - - - 374,401 476,317 633,190 525,967 531,268 434,428 - - 597,336 738,537 100% 0% 0% 127% 83% 82% 0% 124% - - - - - - - - - 32% 0% 0% 0% 0% 0% 0% 0% 0% 0% 68,693 - - - - -101,916 107,223 96,840 - -141,201 6% 0% 0% 0% 0% -27% 17% 18% 0% -24% 2% 10% Totals 2015 8,321,755 7,136,872 86% 980,000 12% 204,883 Totals 2014 4,990,930 4,471,264 90% - 0% 519,666 (1) LTI was provided through the issue of options and performance rights to individual executives under the MEIP. LTI allotments have been independently valued as at the date the option was granted to the executive. The proportions shown represent the amount expensed for the period under AASB 2 Share-based Payment as a proportion of total remuneration expense for the period. This amount also includes the current expense in relation to the retention bonuses. It does not reflect a cash payment to the executive under MEIP. (2) R Umbers was appointed as Chief Information and Supply Chain Officer on 1 September 2014 and promoted to CEO and Managing Director on 2 March 2015. (3) B Brookes was appointed as CEO and Managing Director on 17 April 2006 and ceased employment on 1 May 2015. (4) M Ashby was appointed as CFO on 14 January 2008 and ceased employment on 22 May 2015. (5) D Bracken was appointed as Chief Merchandise and Marketing Officer on 1 September 2014 and promoted to Deputy CEO on 2 March 2015. (6) G Devonport was appointed as CFO on 22 July 2015. (7) A Stapleton was promoted to Executive General Manager Merchandise on 4 February 2013 and ceased employment on 18 July 2014. (8) G Travers was appointed as Executive General Manager Business Services on 1 November 2010 and ceased employment on 2 May 2014. (9) Includes cash sign-on bonuses received. 60 M Y ER Annual Report 2015 $ - - - - - - - - - - - - - - - - - - % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% REMUNERATION REPORTContinued The number of options and rights over ordinary shares in the Company held during the financial period by each director of Myer Holdings Limited and other KMP of the Group, including their personally-related parties, are set out below. Opening balance Granted as compen- sation(1) Exercised Other changes(2) Closing balance Vested and exercisable(3) Unvested 2015 Directors of Myer Holdings Limited Paul McClintock AO Rupert Myer AO - - - - Bernard Brookes(4) 2,058,383 375,000 Anne Brennan Chris Froggatt Ian Cornell Robert Thorn Richard Umbers(5) - - - - - - - - - 568,749 Other Key Management Personnel of the Group Mark Ashby(6) Daniel Bracken(7) Grant Devonport(8) Anthony Sutton 2014 634,339 300,000 - - 443,749 - 457,279 225,000 Directors of Myer Holdings Limited Paul McClintock AO Rupert Myer AO Bernard Brookes - - 9,438,777 Anne Brennan Chris Froggatt Ian Cornell(9) Peter Hay(10) Robert Thorn(9) - - - - - - - - - - - - - Other Key Management Personnel of the Group Mark Ashby Adam Stapleton(11) Anthony Sutton Greg Travers(12) 450,773 326,073 483,119 450,773 183,566 99,650 89,160 146,853 - - - - - - - - - - - - - - - - - - - - (15,000) (115,000) - - - - (2,350,134) 83,249 - - - - - (934,339) - - - - - - - - - 568,749 - 443,749 - 682,279 - - (7,380,394) 2,058,383 - - - - - - (410,723) - - - - - 634,339 - - 457,279 - (597,626) - - - - - - - - - - - - - - - - - - - - - - - - - - 83,249 - - - - 568,749 - 443,749 - 682,279 - - 2,058,383 - - - - - 634,339 - 457,279 - (1) Options and performance rights granted during the year are outlined on page 53. (2) Other changes comprise of (i) options and rights which have expired or forfeited during the period, (ii) balances held by new Key Management Personnel from the date of appointment and (iii) removes balances for those no longer regarded as Key Management Personnel. (3) All vested options are exercisable at the end of the period. (4) B Brookes was appointed as CEO and Managing Director on 17 April 2006 and ceased employment on 1 May 2015. (5) R Umbers was appointed as Chief Information and Supply Chain Officer on 1 September 2014 and promoted to CEO and Managing Director on 2 March 2015. (6) M Ashby was appointed as CFO on 14 January 2008 and ceased employment on 22 May 2015. (7) D Bracken was appointed as Chief Merchandise and Marketing Officer on 1 September 2014 and promoted to Deputy CEO on 2 March 2015. (8) G Devonport was appointed as CFO on 22 July 2015. (9) I Cornell and R Thorn were appointed directors on 6 February 2014. (10) P Hay retired as director effective 14 July 2014. (11) A Stapleton was promoted to Executive General Manager Merchandise on 4 February 2013 and ceased employment on 18 July 2014. (12) G Travers was appointed as Executive General Manager Business Services on 1 November 2010 and ceased employment on 2 May 2014. M Y ER Annual Report 2015 61 REMUNERATION REPORTContinued The number of shares in the Company held during the financial period by each director of Myer Holdings Limited and other KMP of the Group, including their personally-related parties, are set out below. There were no shares granted during the reporting period as compensation. 2015 Directors of Myer Holdings Limited Paul McClintock AO Rupert Myer AO Bernard Brookes(2) Anne Brennan Chris Froggatt Ian Cornell Robert Thorn Richard Umbers(3) Other Key Management Personnel of the Group Mark Ashby(4) Daniel Bracken(5) Grant Devonport(6) Anthony Sutton 2014 Directors of Myer Holdings Limited Paul McClintock AO Rupert Myer AO Bernard Brookes Anne Brennan Chris Froggatt Ian Cornell(7) Peter Hay(8) Robert Thorn(7) Other Key Management Personnel of the Group Mark Ashby Adam Stapleton(9) Anthony Sutton Greg Travers(10) Opening Exercise of Ceased balance options employment Other changes(1) Closing balance 181,000 733,999 10,178,952 53,658 10,040 10,000 - - 245,257 - - - 106,000 733,999 10,178,952 53,658 10,040 - 12,195 - 245,257 - - - - - - - - - - - - - - - - - - - - - - - 15,000 115,000 - - (10,178,952) - - - - - (245,257) - - - - - - - - - (12,195) - - - - 1,325,808 - (1,325,808) - - - - - - 181,000 733,999 - 53,658 10,040 10,000 161,000 161,000 - - - - 50,000 50,000 - - 25,000 25,000 75,000 - - - - 10,000 - - - (15,000) (115,000) - 181,000 733,999 10,178,952 53,658 10,040 10,000 - - 245,257 - - - (1) Other changes comprise of (i) shares which have been purchased or sold during the period, (ii) balances held by new Key Management Personnel from the date of appointment and (iii) removes balances for those no longer regarded as Key Management Personnel. (2) B Brookes was appointed as CEO and Managing Director on 17 April 2006 and ceased employment on 1 May 2015. (3) R Umbers was appointed as Chief Information and Supply Chain Officer on 1 September 2014 and promoted to CEO and Managing Director on 2 March 2015. (4) M Ashby was appointed as CFO on 14 January 2008 and ceased employment on 22 May 2015. (5) D Bracken was appointed as Chief Merchandise and Marketing Officer on 1 September 2014 and promoted to Deputy CEO on 2 March 2015. (6) G Devonport was appointed as CFO on 22 July 2015. (7) I Cornell and R Thorn were appointed directors on 6 February 2014. (8) P Hay retired as director effective 14 July 2014. (9) A Stapleton was promoted to Executive General Manager Merchandise on 4 February 2013 and ceased employment on 18 July 2014. (10) G Travers was appointed as Executive General Manager Business Services on 1 November 2010 and ceased employment on 2 May 2014. 62 M Y ER Annual Report 2015 REMUNERATION REPORTContinued LOANS Details of loans made to directors of Myer Holdings Limited and other KMP of the Group, including their personally-related parties, are set out below. Aggregates for KMP (i) In 2015 and 2014 there were no loans to individuals at any time. Individuals with loans above $100,000 during the financial period (ii) In 2015 and 2014 there were no loans to individuals that exceeded $100,000 at any time. OTHER TRANSACTIONS There were no transactions with KMP or entities related to them, other than compensation. DEALING IN SECURITIES Under the Company’s Guidelines for Dealing in Securities, directors and senior executives are prohibited from entering into hedging arrangements with respect to the Company’s securities. A copy of the Guidelines for Dealing in Securities is available on the Myer website, myer.com.au/investor. M Y ER Annual Report 2015 63 REMUNERATION REPORTContinued F I N A N C I A L S T A T E M E N T S for the period ended 25 July 2015 E. Risk management E1 Financial risk management E2 Derivative financial instruments F. Equity F1 Contributed equity F2 Retained earnings and reserves F3 Dividends G. Group structure G1 Subsidiaries G2 Deed of cross guarantee G3 Parent entity financial information H. Other information H1 Contingencies H2 Commitments H3 Related party transactions H4 Share-based payments H5 Remuneration of auditors H6 Events occurring after the reporting period I. Other accounting policies Directors’ declaration 89 93 96 98 99 100 101 104 106 106 107 108 110 110 111 116 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 A. Group performance A1 Segment information A2 Revenue A3 Expenses A4 Income tax A5 Earnings per share B. Working capital B1 Trade and other receivables and prepayments B2 Inventories B3 Trade and other payables C. Capital employed C1 Property, plant and equipment C2 Intangible assets C3 Provisions C4 Deferred income D. Net debt D1 Cash and cash equivalents D2 Reconciliation of profit after income tax to net cash inflow from operating activities D3 Borrowings 65 66 67 68 69 70 70 72 73 75 76 77 77 78 80 83 86 86 87 87 64 M Y ER Annual Report 2015 CONSOLIDATED INCOME STATEMENT for the period ended 25 July 2015 Total sales value (excluding GST) Concession sales Sale of goods (excluding GST) Sales revenue deferred under customer loyalty program Revenue from sale of goods (excluding GST) Other operating revenue (excluding finance revenue) Cost of goods sold Operating gross profit Other income Selling expenses Administration expenses Strategic review, restructuring, store and brand exit costs and impairment of assets Earnings before interest and tax Finance revenue Finance costs Net finance costs Profit before income tax Income tax expense Profit for the period Profit is attributable to: Owners of Myer Holdings Limited Non-controlling interests Earnings per share attributable to the ordinary equity holders of the Company: Basic earnings per share Diluted earnings per share 2015 2014 52 weeks 52 weeks Notes $’000 $’000 A2 3,195,626 3,143,027 (501,153) (491,482) A2 2,694,473 2,651,545 (40,122) (39 ,378) A2 A2 2,654,351 2,612,167 131,423 128,769 A3 A2 A3 A4 (1,495,382) (1,455,066) 1,290,392 1,285,870 108 (828,906) 6,356 (811,718) (328,138) (320,204) (61,687) 71,769 753 (23,488) (22,735) 49,034 (19,208) 29,826 – 160,304 1,025 (22,931) (21,906) 138,398 (39,856) 98,542 29,826 98,499 – 43 29,826 98,542 Cents Cents A5 A5 5.1 5.1 16.8 16.6 The above consolidated income statement should be read in conjunction with the accompanying notes. M Y ER Annual Report 2015 65 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the period ended 25 July 2015 Profit for the period Other comprehensive income Items that may be reclassified to profit or loss: Cash flow hedges Exchange differences on translation of foreign operations Income tax relating to components of other comprehensive income Other comprehensive income for the period, net of tax Total comprehensive income for the period Total comprehensive income for the period is attributable to: Owners of Myer Holdings Limited Non-controlling interests Notes F2 F2 F2 2015 2014 52 weeks 52 weeks $’000 29,826 $’000 98,542 14,514 (2,875) – 11,639 41,465 (13,320) 110 (349) (13,559) 84,983 41,465 85,078 – (95) 41,465 84,983 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 66 M Y ER Annual Report 2015 CONSOLIDATED BAL ANCE SHEE T as at 25 July 2015 Notes 2015 $’000 2014 $’000 ASSETS Current assets Cash and cash equivalents Trade and other receivables and prepayments Inventories Derivative financial instruments Total current assets Non-current assets Property, plant and equipment Deferred tax assets Intangible assets Other non-current assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Derivative financial instruments Current tax liabilities Provisions Deferred income Other liabilities Total current liabilities Non-current liabilities Borrowings Derivative financial instruments Provisions Deferred income Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Retained earnings Reserves Capital and reserves attributable to owners of Myer Holdings Limited Non-controlling interests Total equity The above consolidated balance sheet should be read in conjunction with the accompanying notes. D1 B1 B2 E2 C1 A4 C2 B3 E2 C3 C4 D3 E2 C3 C4 F1 F2 F2 53,323 30,363 381,907 15,211 73,564 30,133 376,763 – 480,804 480,460 469,006 18,016 916,108 2,614 502,881 13,698 932,598 3,027 1,405,744 1,452,204 1,886,548 1,932,664 387,182 428,066 99 512 85,728 6,997 871 5,253 7,321 82,167 6,045 2,029 481,389 530,881 441,179 422,030 4,654 21,198 75,112 3,401 14,039 68,900 542,143 508,370 1,023,532 1,039,251 863,016 893,413 524,755 335,366 2,895 863,016 – 524,732 378,751 (10,070) 893,413 – 863,016 893,413 M Y ER Annual Report 2015 67 CONSOLIDATED STATEMENT OF CHANG E S IN EQUIT Y for the period ended 25 July 2015 Contributed Retained Non- controlling earnings Reserves interests Balance as at 27 July 2013 Net profit for the period Other comprehensive income for the period Total comprehensive income for the period Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs Acquisition of non-controlling interests Dividends paid Employee share schemes Balance as at 26 July 2014 Net profit for the period Other comprehensive income for the period Total comprehensive income for the period Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs Dividends paid Employee share schemes Notes F1 F3 F2 F1 F3 F2 equity $’000 520,216 – – – 4,516 – – – 4,516 524,732 – – – 23 – – 23 $’000 379,722 98,499 – 98,499 – – (99,470) – (99,470) 378,751 29,826 – 29,826 – (73,211) – (73,211) $’000 (4,024) – (13,421) (13,421) – 6,029 – 1,346 7,375 (10,070) – 11,639 11,639 – – 1,326 1,326 2,895 $’000 9,728 43 (138) (95) – (9,633) – – (9,633) – – – – – – – – – Total $’000 905,642 98,542 (13,559) 84,983 4,516 (3,604) (99,470) 1,346 (97,212) 893,413 29,826 11,639 41,465 23 (73,211) 1,326 (71,862) 863,016 Balance as at 25 July 2015 524,755 335,366 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 68 M Y ER Annual Report 2015 CONSOLIDATED STATEMENT OF C A SH FLOWS for the period ended 25 July 2015 Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Other income Interest paid Tax paid Net cash inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Acquisition of business Payment for brands acquisition Payments for intangible assets Payment for acquisition of non-controlling interests Lease incentives and contributions received Interest received Net cash outflow from investing activities Cash flows from financing activities Proceeds from borrowings, net of transaction costs Proceeds from the issue of shares Dividends paid to equity holders of the parent Other Net cash outflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial period Cash and cash equivalents at end of period 2015 2014 52 weeks 52 weeks Notes $’000 $’000 D2 3,096,099 3,042,312 (2,946,252) (2,785,366) 149,847 256,946 108 (22,601) (30,439) 96,915 (63,099) – (1,000) (17,276) 6,356 (22,443) (49,283) 191,576 (50,112) (2,999) (1,000) (26,157) – (33,363) 18,225 800 8,375 1,006 (62,350) (104,250) 17,927 23 – 4,516 F3 (73,211) (99,470) 455 (54,806) (20,241) 73,564 53,323 (278) (95,232) (7,906) 81,470 73,564 D1 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. M Y ER Annual Report 2015 69 A. GROUP PERFORMANCE This section provides additional information regarding lines in the financial statements that are most relevant to explaining the performance of the Group during the period, including the applicable accounting policies applied and significant estimates and judgements made. A1 SEGMENT INFORMATION Management has determined the operating segments based on the reports reviewed by the Chief Executive Officer that are used to make strategic decisions about the allocation of resources. The Chief Executive Officer considers the business based on total store and product portfolio, and has identified that the Group operates in Australia in the department store retail segment. The Group also undertakes activities outside the department store retail business through its subsidiaries, sass & bide and FSS Retail Pty Ltd. On the basis that this aspect of the business represents less than 10% of the total Group’s operations and has similar economic characteristics to the department store retail business, it has not been disclosed as a separate reporting segment. ACCOUNTING POLICY Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. A2 REVENUE Sales revenue Total sales value (excluding GST) Concession sales Sale of goods (excluding GST) Sales revenue deferred under customer loyalty program Revenue from sale of goods (excluding GST) Other operating revenue Concessions revenue Other Finance revenue Interest revenue Total revenue 2015 2014 52 weeks 52 weeks $’000 $’000 3,195,626 3,143,027 (501,153) (491,482) 2,694,473 2,651,545 (40,122) (39,378) 2,654,351 2,612,167 118,019 13,404 131,423 116,616 12,153 128,769 753 1,025 2,786,527 2,741,961 Other includes revenue in relation to the gift card non-redemption income and forfeited lay-by deposits. 70 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 A2 REVENUE (CONTINUED) ACCOUNTING POLICY Total sales value presented in the income statement represents proceeds from sale of goods (both from the Group and concession operators) and prior to the deferral of revenue under the Myer customer loyalty program. Concession sales presented in the income statement represents sales proceeds of concession operators within Myer stores. Total sales value is disclosed to show the total sales generated by the Group and provide a basis of comparison with similar department stores. Revenue from the sale of goods, excluding lay-by transactions, is recognised at the point of sale and is after deducting taxes paid, and does not include concession sales. Allowance is made for expected sales returns based on past experience of returns and expectations about the future. A provision for sales returns is recognised based on this assessment. Revenue from lay-by transactions is recognised as part of revenue from the sale of goods at the date upon which the customer satisfies all payment obligations and takes possession of the merchandise. Revenue from sale of goods excludes concession sales in Myer stores on the basis that the inventory sold is owned by the concession operator at the time of sale and not the Group. The Group’s share of concession sales is recognised as income within other operating revenue at the time the sale is made. Interest income is recognised on a time proportion basis using the effective interest method. Dividends are recognised as revenue when the right to receive payment is established. Critical accounting estimates and judgements – customer loyalty program The Group operates a loyalty program where customers accumulate award points for purchases made which entitle them to discounts on future purchases. 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 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 expire 24 months after the initial sale. M Y ER Annual Report 2015 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 A3 EXPENSES Profit before income tax includes the following specific expenses: Employee benefits expenses Defined contribution superannuation expense Other employee benefits expenses Total employee benefits expenses Depreciation, amortisation and write-off expense Finance costs Interest and finance charges paid/payable Fair value losses on interest rate swap cash flow hedges, transferred from equity Finance costs expensed Rental expense relating to operating leases Minimum lease payments Contingent rentals Total rental expense relating to operating leases Net foreign exchange gains 2015 2014 52 weeks 52 weeks $’000 $’000 41,561 443,662 485,223 89,743 21,808 1,680 23,488 225,552 4,210 229,762 40,002 435,099 475,101 92,320 21,408 1,523 22,931 216,084 5,339 221,423 (7,595) (1,377) Strategic review, restructuring, store and brand exit costs and impairment of assets The following individually significant items are included within strategic review, restructuring, store and brand exit costs and impairment of assets in the consolidated income statement: Strategic review and implementation costs1 Restructuring and redundancy costs2 Store and brand exit costs and other asset impairments3 Support office onerous lease expense and impairment of assets4 Income tax benefit Strategic review, restructuring, store and brand exit costs and impairment of assets, net of tax 10,591 11,828 24,488 14,780 61,687 (14,009) 47,678 – – – – – – – 1. 2. 3. 4. The Group has incurred costs associated with the development of the New Myer strategy, as well as subsequent costs associated with its implementation. These costs relate primarily to fees incurred with consultants engaged to assist the Group with the review. The Group has completed several restructuring programs during the period resulting in redundancy and other costs being incurred or committed but not yet incurred. Refer to note C3 for more information. Store and brand exit costs and other asset impairments includes costs associated with the closure of stores (Top Ryde and Hurstville) during or after the end of the period that have been committed to prior to the end of the period, as well as provision for the exit of brands from our stores identified as part of the New Myer strategy. Also included in this amount are asset impairments related to brands no longer planned to be ranged in store, as well as the impairment of lease rights. Refer to note B2, C1, C2 and C3 for more information. The Group recognised a $12.2 million onerous lease provision relating to surplus space identified at the support office due to restructuring completed during the period. This provision expense is offset by the write-back of the fixed lease rental increase provision and deferred income associated with this space. The assets associated with this surplus space have been impaired and are included in this amount. Refer to note C1, C3 and C4 for more information. 72 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 A3 EXPENSES (CONTINUED) ACCOUNTING POLICY The expenses disclosed above are also disclosed in the following sections of the financial statements: > Employee benefits expenses – refer to note C3 > Depreciation and amortisation expense – refer to note C1 and C2 > Finance costs – refer to note D3 and E2 > Rental expense relating to operating leases – refer to note H2 > Net foreign exchange gains – refer to note I(c) > Impairment of assets – inventory – refer to note B2 Individually Significant Items Certain items have been separately disclosed and presented as Individually Significant based on the nature and/or impact these items have on the Group’s financial performance for the period. A4 INCOME TAX (a) Income tax expense (i) Income tax expense Current tax Deferred tax Income tax expense1 Deferred income tax expense included in income tax expense comprises: (Increase)/decrease in deferred tax assets Increase/(decrease) in deferred tax liabilities (ii) Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax expense Tax at the Australian tax rate of 30% (2014: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non-deductible asset impairments Sundry items Adjustments for current tax of prior periods Income tax expense1 2015 2014 52 weeks 52 weeks $’000 $’000 23,526 (4,318) 19,208 (4,344) 26 (4,318) 37,058 2,798 39,856 2,140 658 2,798 49,034 14,710 138,398 41,520 4,593 (157) 19,146 62 – (1,777) 39,743 113 19,208 39,856 1. Income tax expense includes an income tax benefit of $14 million (2014: nil) attributable to the strategic review, restructuring, store and brand exit costs and impairment of assets recorded during the period. Refer to note A3 for more information. M Y ER Annual Report 2015 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 A4 INCOME TAX (CONTINUED) (b) Deferred tax assets Deferred tax assets comprise temporary differences attributable to: Employee benefits Non-employee provisions and accruals Amortising deductions Trading stock Tax losses Total deferred tax assets Set off of deferred tax liabilities pursuant to set off provisions Net deferred tax assets Movement: Carrying amount at beginning of period Credited/(charged) to income statement Credited/(charged) to other comprehensive income Carrying amount at end of period (c) Deferred tax liabilities Deferred tax liabilities comprise temporary differences attributable to: Property, plant, equipment and software Brand names Deferred income Sundry items Set off of deferred tax liabilities pursuant to set off provisions Net deferred tax liabilities Movement: Carrying amount at beginning of period Charged/(credited) to income statement Charged/(credited) to other comprehensive income Carrying amount at end of period 2015 $’000 2014 $’000 18,398 17,468 1,218 5,496 1,797 44,377 (26,361) 18,016 40,033 4,344 – 20,076 12,609 837 4,990 1,521 40,033 (26,335) 13,698 42,872 (2,140) (699) 44,377 40,033 14,111 8,465 2,968 817 26,361 (26,361) – 13,118 8,465 2,594 2,158 26,335 (26,335) – 26,335 26,026 26 – 658 (349) 26,361 26,335 74 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 A4 INCOME TAX (CONTINUED) ACCOUNTING POLICY The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exemption is made for certain temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised in other comprehensive income or directly in equity are also recognised directly in other comprehensive income or equity. A5 EARNINGS PER SHARE (a) Basic earnings per share Total basic earnings per share attributable to the ordinary equity holders of the Company (b) Diluted earnings per share Total diluted earnings per share attributable to the ordinary equity holders of the Company 2015 cents 2014 cents 5.1 5.1 16.8 16.6 2015 $’000 2014 $’000 (c) Reconciliation of earnings used in calculating earnings per share Earnings used in calculation of basic and diluted EPS attributable to ordinary shareholders 29,826 98,499 (d) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options and performance rights Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 2015 2014 Number Number 585,683,950 585,253,946 4,640,752 6,748,120 590,324,702 592,002,066 M Y ER Annual Report 2015 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 A5 EARNINGS PER SHARE (CONTINUED) (e) Information concerning the classification of securities Options and performance rights Options and performance rights granted to employees under the Myer Equity Incentive Plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The options and performance rights granted have not been included in the determination of basic earnings per share. Details relating to options and performance rights are set out in note H4. All options and performance rights outstanding at period end have been included in the calculation of diluted earnings per share because no options or rights are considered antidilutive for the period ended 25 July 2015. ACCOUNTING POLICY Basic earnings per share Basic earnings per share is calculated by dividing: > the profit attributable to owners of the Company > by the weighted average number of ordinary shares outstanding during the financial period, adjusted for bonus elements in ordinary shares issued during the period and excluding treasury shares. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account: > the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares; and > the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. B. WORKING CAPITAL This section provides additional information regarding lines in the financial statements that are most relevant to explaining the assets used to generate the Group’s trading performance during the period and liabilities incurred as a result, including the applicable accounting policies applied and significant estimates and judgements made. B1 TRADE AND OTHER RECEIVABLES AND PREPAYMENTS Trade receivables Provision for impairment Other receivables Prepayments Fair value and risk exposure 2015 $’000 4,314 (1,311) 3,003 10,580 16,780 27,360 30,363 2014 $’000 5,357 (1,120) 4,237 12,615 13,281 25,896 30,133 Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivables mentioned above. Information about the Group’s exposure to credit risk, foreign currency risk and interest rate risk in relation to trade and other receivables and the Group’s financial risk management policy is provided in note E1. 76 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 B1 TRADE AND OTHER RECEIVABLES AND PREPAYMENTS (CONTINUED) ACCOUNTING POLICY Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of receivables) is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised as an expense in the income statement. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement. B2 INVENTORIES Retail inventories 2015 $’000 2014 $’000 381,907 376,763 Write-downs of inventories to net realisable value amounted to $11.4 million (2014: $9.8 million). This was recognised as an expense during the period and included in cost of sales in the income statement. In addition to this, a write-down of inventories to net realisable value relating to exit brands amounting to $3.8 million (2014: nil) was recognised as an expense during the period and included in strategic review, restructuring, store and brand exit costs and impairment of assets in the income statement. ACCOUNTING POLICY Inventories are valued at the lower of cost and net realisable value. Cost is determined using the weighted average cost method, after deducting any purchase settlement discount and including logistics expenses incurred in bringing the inventories to their present location and condition. Volume-related supplier rebates and supplier promotional rebates are recognised as a reduction in the cost of inventory and are recorded as a reduction of cost of goods sold when the inventory is sold. Critical accounting estimates and judgements – recoverable amount of inventory Management has assessed the value of inventory that is likely to be sold below cost using past experience and judgement on the likely sell through rates of various items of inventory, and booked a provision for this amount. To the extent that these judgements and assumptions prove incorrect, the Group may be exposed to potential additional inventory write-downs in future periods. B3 TRADE AND OTHER PAYABLES Trade payables Other payables Trade and other payables are non-interest bearing. ACCOUNTING POLICY 2015 $’000 191,713 195,469 387,182 2014 $’000 203,473 224,593 428,066 These amounts represent liabilities for goods and services provided to the Group prior to the end of financial period which are unpaid. The amounts are unsecured and are usually paid within 30 to 90 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. M Y ER Annual Report 2015 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 C. CAPITAL EMPLOYED This section provides additional information regarding lines in the financial statements that are most relevant to explaining the capital investment made that allows the Group to generate its trading performance during the period and liabilities incurred as a result, including the applicable accounting policies applied and significant estimates and judgements made. C1 PROPERTY, PLANT AND EQUIPMENT At 27 July 2013 Cost Accumulated depreciation Net book amount Period ended 26 July 2014 Freehold Freehold Fixtures Plant and works in land buildings and fittings equipment progress $’000 $’000 $’000 $’000 $’000 Total $’000 Capital 10,100 – 10,100 19,500 (3,494) 16,006 410,474 357,863 25,330 823,267 (182,151) (128,648) – (314,293) 228,323 229,215 25,330 508,974 Carrying amount at beginning of period 10,100 16,006 228,323 Additions Additions – acquisition Transfer between classes Assets written off – cost Assets written off – accumulated depreciation Assets disposal Depreciation charge Exchange differences – – – – – (500) – – – – – – – – 7,391 162 16,012 (11,831) 10,584 – 229,215 8,542 – 25,330 43,787 – 22,679 (38,136) (7,401) 6,467 – – – – – 508,974 59,720 162 555 (19,232) 17,051 (500) (63,685) (164) (488) (34,605) (28,592) – 1 (4) (161) Carrying amount at end of period 9,600 15,518 216,037 230,906 30,820 502,881 At 26 July 2014 Cost Accumulated depreciation Net book amount Period ended 25 July 2015 9,600 19,500 422,209 381,679 30,820 863,808 – 9,600 (3,982) 15,518 (206,172) (150,773) – (360,927) 216,037 230,906 30,820 502,881 Carrying amount at beginning of period 9,600 15,518 216,037 230,906 Additions Transfer between classes Assets written off – cost Assets written off – accumulated depreciation Impairment1 Depreciation charge Exchange differences – – – – – – – – – – – – 15,796 14,689 (7,469) 5,524 (9,624) 9,107 23,812 (6,309) 4,193 – (488) (33,799) (27,732) – (271) 122 30,820 16,375 (37,861) – – – – 60 502,881 41,278 640 (13,778) 9,717 (9,624) (62,019) (89) Carrying amount at end of period 9,600 15,030 200,883 234,099 9,394 469,006 At 25 July 2015 Cost 9,600 19,500 444,954 408,411 9,394 891,859 Accumulated depreciation and impairment – (4,470) (244,071) (174,312) – (422,853) Net book amount 9,600 15,030 200,883 234,099 9,394 469,006 1. Impairment relates to assets associated with store closures, brand exits and support office onerous lease provision. Refer to note A3 for more information. 78 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 C1 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) ACCOUNTING POLICY Property, plant and equipment is stated at cost less depreciation. Cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate the cost net of their residual values, over their estimated useful lives, as follows: > Buildings > Fixtures and fittings 40 years (2014: 40 years) 3 – 12.5 years (2014: 3 – 12.5 years) > Plant and equipment, including leasehold improvements 10 – 20 years (2014: 10 – 20 years) The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (refer to note C2). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. M Y ER Annual Report 2015 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 C2 INTANGIBLE ASSETS At 27 July 2013 Cost Accumulated amortisation Net book amount Period ended 26 July 2014 Brand names and Goodwill trademarks Software $’000 $’000 $’000 Lease rights $’000 Total $’000 376,631 428,520 200,632 48,540 1,054,323 – (2,218) 376,631 426,302 (87,073) 113,559 (34,015) (123,306) 14,525 931,017 Carrying amount at beginning of period 376,631 426,302 Additions Additions – acquisition Transfer between classes Assets written off – cost Assets written off – accumulated amortisation Amortisation charge2 Exchange differences – – – – – – – – 1,438 – – – (14) – 113,559 27,234 – (555) (2,822) 918 14,525 – – – – – 931,017 27,234 1,438 (555) (2,822) 918 (20,853) (3,683) (24,550) (82) – (82) Carrying amount at end of period 376,631 427,726 117,399 10,842 932,598 At 26 July 2014 Cost Accumulated amortisation Net book amount Period ended 25 July 2015 376,631 429,958 224,489 48,540 1,079,618 – (2,232) (107,090) (37,698) (147,020) 376,631 427,726 117,399 10,842 932,598 Carrying amount at beginning of period 376,631 427,726 Additions Transfer between classes Assets written off – cost Assets written off – accumulated amortisation Impairment1 Amortisation charge2 Exchange differences – – – – – – – – – – – (1,150) (301) – 117,399 19,010 (640) (6,524) 5,244 (514) (21,035) 262 Carrying amount at end of period 376,631 426,275 113,202 10,842 932,598 – – 19,010 (640) (22,754) (29,278) 22,754 (9,795) (1,047) – – 27,998 (11,459) (22,383) 262 916,108 At 25 July 2015 Cost 376,631 429,958 236,335 25,786 1,068,710 Accumulated amortisation and impairment – (3,683) (123,133) (25,786) (152,602) Net book amount 376,631 426,275 113,202 – 916,108 1. Impairment relates to the impairment of the Charlie Brown brand and the impairment of lease right asset associated with one of our stores. Refer to note A3 for more information. 2. Amortisation of $22.4 million (2014: $24.5 million) is included in administration and selling expenses in the income statement. 80 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 C2 INTANGIBLE ASSETS (CONTINUED) Impairment tests for goodwill and intangibles with an indefinite useful life The goodwill arising on the acquisition of the Myer business amounting to $349.5 million (2014: $349.5 million) cannot be allocated to the Group’s individual cash generating units (the Group’s stores), and hence has been allocated to the Myer business as a whole. Similarly, brand names which have an indefinite useful life and amounting to $402.8 million (2014: $402.8 million) have been allocated to the Myer business as a whole. AASB 136 Impairment of Assets requires goodwill and intangible assets with an indefinite useful life to be tested annually for impairment. In testing these assets for impairment, the recoverable amount has been determined using a value in use calculation. This calculation uses cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond five-year periods are extrapolated using a terminal growth rate of 2.5%. Key assumptions used in the calculation were as follows: > discount rate (pre-tax) 14.4% (2014: 14.4%) > terminal growth rate 2.5% (2014: 2.5%) > operating gross profit margin 40% (2014: 41%) The goodwill arising on the acquisition of the sass & bide business amounting to $27.1 million (2014: $27.1 million) cannot be allocated to the individual cash generating units (the sass & bide stores), and hence has been allocated to the sass & bide business as a whole. Similarly, the sass & bide brand name, which has an indefinite useful life and amounting to $23.5 million (2014: $23.5 million) has been allocated to the sass & bide business as a whole. In testing these assets for impairment, the recoverable amount has been determined using a value in use calculation. This calculation uses cash flow projections based on financial budgets approved by management covering a five-year period. The discount rate and terminal growth rate assumptions used in the calculation are consistent with those noted above. Neither goodwill nor indefinite lived intangibles were impaired at the end of the reporting period. Sensitivity analysis on reasonably possible changes in assumptions did not result in an outcome where an impairment would be required. During the period, a review of the carrying value of the assets for each Myer store was undertaken and where indicators of impairment were identified, the recoverable amount of these store assets was determined using a value in use calculation. This calculation uses cash flow projections based on financial budgets approved by management covering a five-year period. The key assumptions in the calculation are consistent with those noted above. Based on this, an impairment charge of $9.8 million (2014: nil) was identified relating to lease right asset held. Refer to note A3 for more information on other impairment charges recorded during the period. M Y ER Annual Report 2015 81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 C2 INTANGIBLE ASSETS (CONTINUED) ACCOUNTING POLICY (i) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or group of assets (cash generating units). For store assets, the appropriate cash generating unit is an individual store. Non-financial assets other than goodwill that have previously suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (ii) Goodwill Goodwill is measured as described in note I(d). Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. (iii) Brand names and trade marks The useful life of brands are assessed on acquisition. The brands which are not considered to have foreseeable brand maturity dates have been assessed as having indefinite useful lives as there is a view that there is no foreseeable limit to the period over which key brands are expected to generate net cash inflows for the entity. These brands are therefore not amortised. Instead, these brand names are tested for impairment annually, or more frequently if events or changes in circumstances indicate that they might be impaired, and are carried at cost less accumulated impairment losses. Brands with a limited useful life are amortised over 5 years using the straight-line method and are carried at cost less accumulated amortisation and impairment losses. (iv) Computer software All costs directly incurred in the purchase or development of major computer software or subsequent upgrades and material enhancements, which can be reliably measured and are not integral to a related asset, are capitalised as intangible assets. Direct costs may include internal payroll and on-costs for employees directly associated with the project. Costs incurred on computer software maintenance or during the planning phase are expensed as incurred. Computer software is amortised over the period of time during which the benefits are expected to arise, being 5 to 10 years. (v) Lease rights Lease rights represent the amount paid up front to take over store site leases from the existing lessee where such payments are in addition to the ongoing payment of normal market lease rentals. Lease rights are amortised over the term of the lease plus any renewal options reasonably certain to be utilised at the time of acquisition of the lease rights. Critical accounting estimates and judgements – impairment The Group tests annually whether goodwill and indefinite lived intangibles have suffered any impairment, in accordance with the accounting policy noted above. The recoverable amount of cash generating units have been determined based on value-in-use calculations at a store level. Goodwill and certain intangibles are tested for impairment at the level of the Group as a whole, using calculations based on the use of assumptions. 82 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 C3 PROVISIONS Current Employee benefits Support office onerous lease (i) Restructuring (ii) Workers’ compensation (iii) Sales returns (iv) Other Non-current Employee benefits Support office onerous lease (i) Fixed lease rental increases (v) Other (i) Support office onerous lease 2015 $’000 2014 $’000 56,022 60,802 3,418 8,267 11,838 2,772 3,411 85,728 4,786 8,880 7,478 54 21,198 – – 15,883 2,763 2,719 82,167 5,811 – 8,186 42 14,039 The support office onerous lease provision relates to excess office space identified, due to changes completed during the period, and is estimated based on the discounted future contractual cash flows under a non-cancellable lease expiring in 2022, net of future expected rental income. Refer to note A3 for more information. (ii) Restructuring The restructuring provision relates to redundancy costs associated with restructuring of our store labour force, as well as costs of implementation of our store and brand exit program committed but not yet incurred. Refer to note A3 for more information. (iii) Workers’ compensation The amount represents a provision for workers’ compensation claims in certain states, for which the Group is self insured. (iv) Sales returns The amount represents a provision for expected sales returns under the Group’s returns policy. (v) Fixed lease rental increases The Group is a party to a number of leases that include fixed rental increases during their term. In accordance with AASB 117 Leases, the total rentals over these leases are being expensed over the lease term on a straight-line basis. The above provision reflects the difference between the future committed payments under these leases and the total future expense. Due to the provision for onerous support office lease recognised during the period, a portion of this provision has been written-back to reflect the realigned total future expense expected over the remaining lease term. Refer to note A3 for more information. M Y ER Annual Report 2015 83 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 C3 PROVISIONS (CONTINUED) Movement in provisions Movement in each class of provision during the financial period, other than employee benefits, are set out below: Support office onerous Workers’ Sales rental Fixed lease lease Restructuring compensation returns increases $’000 $’000 $’000 $’000 $’000 Other $’000 Total $’000 2015 Carrying amount at beginning of period – Additional provisions recognised 12,298 Provisions reversed Amounts utilised – – – 8,267 – – Carrying amount at end of period 12,298 8,267 Amounts not expected to be settled within the next 12 months 15,883 – (489) (3,556) 11,838 2,763 2,772 – (2,763) 2,772 8,186 1,166 (1,681) (193) 7,478 2,761 3,187 – (2,483) 3,465 29,593 27,690 (2,170) (8,995) 46,118 The current provision for employee benefits includes accrued annual leave and long service leave. For long service leave it covers all unconditional entitlements where employees have completed the required period of service. The entire annual leave amount and current portion of the long service leave provision is presented as current since the Group does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Group does not expect all employees to take the full amount of accrued long service leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be taken or paid within the next 12 months. Current long service leave obligations expected to be settled after 12 months 2015 $’000 25,415 2014 $’000 28,301 ACCOUNTING POLICY Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The Group is self-insured for costs relating to workers’ compensation and general liability claims in certain states. Provisions are recognised based on claims reported, and an estimate of claims incurred but not yet reported, prior to balance date. These provisions are determined utilising an actuarially determined method, which is based on various assumptions including but not limited to future inflation, average claim size and claim administrative expenses. These assumptions are reviewed annually and any reassessment of these assumptions will affect the workers’ compensation expense. 84 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 C3 PROVISIONS (CONTINUED) Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. (ii) Other long-term employee benefit obligations The liability for long service leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected to occur. (iii) Profit sharing and bonus plans The Group recognises a liability and an expense for bonuses and profit sharing based on a formula that takes into consideration the profit attributable to the Group’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (iv) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value. M Y ER Annual Report 2015 85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 C4 DEFERRED INCOME Current Lease incentives and contributions Non-current Lease incentives and contributions 2015 $’000 2014 $’000 6,997 6,045 75,112 82,109 68,900 74,945 During the period, an onerous contract provision was recorded relating to excess office space identified under a non-cancellable lease. This lease agreement included cash landlord contributions that the Group recorded as deferred income and has been amortising on a straight-line basis over the term of the lease. The deferred income relating to the onerous space has been written-back as part of the net support office onerous lease expense. Refer to note A3 for more information. ACCOUNTING POLICY A number of lease agreements for stores include cash contributions provided by the lessor for fit-outs as a lease incentive or lease contribution. The asset additions from the fit-outs completed are recognised as fixtures and fittings at cost and depreciated on a straight-line basis over the asset’s useful life. The lease incentive or lease contribution is presented as deferred income and reversed on a straight-line basis over the lease term. D. NET DEBT This section provides additional information regarding lines in the financial statements that are most relevant to explaining the net debt position and structure of the Group’s borrowings for the period, which are key to financing the Group’s activities both now and for the future. The net debt of the Group as at 25 July 2015 and 26 July 2014 is as follows: Total borrowings Less: cash and cash equivalents Net debt D1 CASH AND CASH EQUIVALENTS Cash on hand Cash at bank ACCOUNTING POLICY 2015 $’000 441,179 (53,323) 2014 $’000 422,030 (73,564) 387,856 348,466 2015 $’000 2,937 50,386 53,323 2014 $’000 2,837 70,727 73,564 For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. 86 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 D2 RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES Profit for the period Depreciation and amortisation, including lease incentives and contributions Interest income Interest expense Share-based payments expense Net exchange differences Change in operating assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in inventories (Increase)/decrease in deferred tax asset (Increase)/decrease in derivative financial instruments (Decrease)/increase in trade and other payables (Decrease)/increase in current tax payable Increase/(decrease) in provisions (Decrease)/increase in other liabilities Net cash inflow from operating activities D3 BORROWINGS Non-current borrowings Bank loans Total borrowings (a) Structure of debt 2015 2014 52 weeks 52 weeks $’000 29,826 101,697 (753) 1,221 1,445 (2,875) (4,107) (6,615) (4,437) (2,797) (19,494) (6,809) 10,720 (107) 96,915 $’000 98,542 86,305 (1,025) 1,233 1,850 110 (6,418) (11,049) 2,294 1,924 31,151 (11,721) (1,345) (275) 191,576 2015 $’000 2014 $’000 441,179 441,179 422,030 422,030 The debt funding of the Group at 25 July 2015 comprised of a revolving cash advance syndicated facility of $600 million. This facility was established on 29 October 2009, drawn down on 6 November 2009 and amended and restated on 3 June 2011 and 9 July 2013. On 23 June 2015, the facility went through a third amendment and restatement which included extending the tenure and reducing the limit. At balance date the following amounts were drawn: Bank loans Less: transaction costs Borrowings 2015 $’000 2014 $’000 445,000 425,000 (3,821) (2,970) 441,179 422,030 M Y ER Annual Report 2015 87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 D3 BORROWINGS (CONTINUED) The terms and conditions of the Group’s revolving cash advance facility is as follows: Revolving cash advance facility – Tranche A Revolving cash advance facility – Tranche B Revolving cash advance facility – Tranche C Amount $145 million $180 million $275 million Term 4 years 2 years 4 years Expiry date 21 August 2019 21 August 2017 21 August 2019 As the facility is revolving, amounts repaid may be redrawn during their terms. (b) Security The revolving cash advance facility in place at 25 July 2015 is unsecured, subject to various representations, undertakings, events of default and review events which are usual for a facility of this nature. (c) Fair value The fair value of existing borrowings approximates their carrying amount, as the impact of discounting is not significant. (d) Risk exposures Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in note E1. ACCOUNTING POLICY Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. 88 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 E. RISK MANAGEMENT This section provides information relating to the Group’s exposure to various financial risks, how they could affect the Group’s financial position and performance and how these risks are managed. E1 FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, cash flow and fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and foreign exchange risk, and an aging analysis for credit risk. Risk management is carried out by the Company under policies approved by the Board of Directors. The Company identifies, evaluates and hedges financial risks. The Board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, and use of financial instruments and non-derivative financial instruments. (a) Market risk (i) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group sources inventory purchases overseas and is exposed to foreign exchange risk, particularly in relation to currency exposures to the US dollar. To minimise the effects of a volatile and unpredictable exchange rate, Group policy is to enter into forward exchange contracts in relation to the Group’s overseas purchases for any 12-month period. The actual level of cover taken fluctuates depending on the period until settlement of the foreign currency transaction, within the Board approved hedging policy. This policy allows cover to be taken on a sliding scale between 25 – 100% depending on the period to maturity (up to 12 months). The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollars, was as follows: Trade payables Forward exchange contracts Group sensitivity USD $’000 18,016 172,803 2015 EURO $’000 433 6,637 GBP $’000 89 – USD $’000 26,425 183,151 2014 EURO $’000 585 – GBP $’000 44 – The Group applies a prudent cash flow hedging policy approach whereby all forward exchange contracts in relation to the Group’s overseas purchases are designated as cash flow hedges at inception. Subsequent testing of effectiveness ensures that all effective hedge movements flow through the cash flow hedge reserve within equity. Consistent with this approach, the sensitivity for movements in foreign exchange rates for US dollar and Euro denominated financial instruments held at 25 July 2015, as detailed in the above table, will flow through equity and will therefore have minimal impact on profit. Other components of equity would have been $14.8 million lower/$17.9 million higher (2014: $14.4 million lower/$17.0 million higher) had the Australian dollar strengthened/weakened by 10% against the US dollar and Euro, arising from foreign exchange contracts designated as cash flow hedges. The Group’s exposure to other foreign exchange movements is not material. These sensitivities were calculated based on the Group’s period end spot rate for the applicable reporting period. M Y ER Annual Report 2015 89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 E1 FINANCIAL RISK MANAGEMENT (CONTINUED) (ii) Cash flow and fair value interest rate risk The Group is exposed to interest rate risk as it borrows funds at floating interest rates. Borrowings issued at floating rates expose the Group to cash flow interest rate risk. The risk is managed by the use of floating to fixed interest rate swap contracts. During the period, the Group policy was to fix the rates between 0 and 50% of its average gross debt. The Group complied with this policy during the period. Interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them into fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. As at the end of the reporting period, the Group had the following variable rate borrowings and interest rate swap contracts outstanding: Borrowings – variable Interest rate swaps (notional principal amount) Net exposure to cash flow interest rate risk 2015 Weighted average interest rate Balance % 3.6% 5.0% $’000 441,179 (200,000) 241,179 2014 Weighted average interest rate % 4.1% 4.7% Balance $’000 422,030 (200,000) 222,030 The weighted average interest rates noted above for both borrowings and swaps are inclusive of margins applicable to the underlying variable rate borrowings. An analysis by maturities is provided in section (c) below. Interest rate exposure is evaluated regularly to confirm alignment with Group policy and to ensure the Group is not exposed to excess risk from interest rate volatility. At 25 July 2015, if interest rates had changed by +/– 10% from the period end rates with all other variables held constant, post-tax profit for the period would have been $0.4 million lower/$0.4 million higher (2014: $0.4 million lower/$0.4 million higher), mainly as a result of higher/lower interest expense on borrowings. Other components of equity would have been $0.6 million higher/$0.6 million lower (2014: $0.6 million higher/$0.6 million lower) mainly as a result of an increase/decrease in the fair value of the cash flow hedges of borrowings. The range of sensitivities has been assumed based on the Group’s experience of average interest rate fluctuations in the applicable reporting period. (b) Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. Sales to retail customers are primarily required to be settled in cash or using major credit cards, mitigating credit risk. Where transactions are settled by way of lay-by arrangements, revenue is not recognised until full payment has been received from the customer and goods collected. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of the financial assets as disclosed in notes B1, D1 and E2. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings as detailed below, historical information about receivables default rates and current trading levels. 90 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 E1 FINANCIAL RISK MANAGEMENT (CONTINUED) Based on the credit history of these classes, it is expected that these amounts will be received and are not impaired. Cash at bank and short-term bank deposits AAA AA A Derivative financial assets AAA AA A (c) Liquidity risk 2015 $’000 2014 $’000 – – 53,323 73,564 – – 53,323 73,564 – 15,211 – 15,211 – – – – Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and due to close out market positions. Due to the seasonal nature of the retail business, the Group has in place flexible funding facilities to ensure liquidity risk is minimised. Financing arrangements The Group had access to the following undrawn borrowing facilities at the end of the reporting period: Floating rate Expiring within one year (revolving cash advance facility) Expiring beyond one year (revolving cash advance facility) 2015 $’000 2014 $’000 – 155,000 155,000 – 200,000 200,000 The long-term revolving cash advance facility comprises the following three tranches totalling $600 million with $445 million drawn at period end: > Tranche A $145 million, fully drawn expires on 21 August 2019 > Tranche B $180 million, fully drawn expires on 21 August 2017 > Tranche C $275 million, $120 million drawn expires on 21 August 2019 Maturities of financial liabilities The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities for: (a) all non-derivative financial liabilities; and (b) net and gross settled derivative financial instruments for which the contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying amounts as the impact of discounting is not significant. For interest rate swaps, the cash flows have been estimated using forward interest rates applicable at the end of the reporting period. M Y ER Annual Report 2015 91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 E1 FINANCIAL RISK MANAGEMENT (CONTINUED) Between Between Carrying Total amount Less than 6 months $’000 6 – 12 months $’000 1 and 2 2 and 5 Over contractual (assets)/ years $’000 years $’000 5 years cash flows liabilities $’000 $’000 $’000 Contractual maturities of financial liabilities 2015 Non-derivatives Non-interest bearing Variable rate Total non-derivatives Derivatives 280,872 7,203 288,075 – 7,706 7,706 – 15,738 15,738 – 469,061 469,061 Net settled (interest rate swaps) 1,262 1,219 1,932 Gross settled – (inflow) – outflow Total derivatives 2014 Non-derivatives Non-interest bearing Variable rate Total non-derivatives Derivatives (137,697) (56,917) 125,722 (10,713) 53,718 (1,980) 326,840 8,449 335,289 – 7,533 7,533 – – 1,932 – 89,817 89,817 Net settled (interest rate swaps) 596 766 1,329 Gross settled – (inflow) – outflow Total derivatives (d) Fair value measurements (106,066) 110,108 4,638 (71,539) 73,043 2,270 – – 1,329 403 – – 403 – 357,576 357,576 925 – – 925 – – – – – – – – – – – – – – 280,872 499,708 780,580 280,872 441,179 722,051 4,816 4,753 (194,614) 179,440 (15,211) – (10,358) (10,458) 326,840 463,375 790,215 326,840 422,030 748,870 3,616 3,401 (177,605) 183,151 9,162 – 5,253 8,654 The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); (b) inputs other than quoted prices included within level 1 that are observable for the asset or liabilities either directly (as prices) or indirectly (derived from prices) (level 2); and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). 92 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 E1 FINANCIAL RISK MANAGEMENT (CONTINUED) The following tables present the Group’s assets and liabilities measured and recognised at fair value at 25 July 2015 and 26 July 2014: 2015 Assets Derivatives used for hedging Total assets Liabilities Derivatives used for hedging Total liabilities 2014 Assets Derivatives used for hedging Total assets Liabilities Derivatives used for hedging Total liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 – – – – – – – – 15,211 15,211 4,753 4,753 – – 8,654 8,654 – – – – – – – – 15,211 15,211 4,753 4,753 – – 8,654 8,654 The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the end of the reporting period. These derivative financial instruments are included in level 2 as the significant inputs to fair value the instruments are observable. The carrying amounts of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. E2 DERIVATIVE FINANCIAL INSTRUMENTS Current assets Forward foreign exchange contracts (i) Total current derivative financial instrument assets Current liabilities Forward foreign exchange contracts (i) Interest rate swap contracts (ii) Total current derivative financial instrument liabilities Non-current liabilities Interest rate swap contracts (ii) Total non-current derivative financial instrument liabilities (a) Instruments used by the Group 2015 $’000 2014 $’000 15,211 15,211 – 99 99 4,654 4,654 – – 5,253 – 5,253 3,401 3,401 The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest and foreign exchange rates in accordance with the Group’s financial risk management policies (refer to note E1). (i) Forward exchange contracts – cash flow hedges The Group makes purchases in numerous currencies, primarily US dollars. In order to protect against exchange rate movements, the Group has entered into forward exchange contracts to purchase US dollars and Euro. M Y ER Annual Report 2015 93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 E2 DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) These contracts are hedging highly probable forecasted purchases for the ensuing financial period. The contracts are timed to mature when payments for shipments of inventory are scheduled to be made. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the cash flows occur, the Group adjusts the initial measurement of the inventory recognised in the balance sheet by the related amount deferred in equity. During the period ended 25 July 2015 nil (2014: nil) was reclassified from equity and included in the cost of inventory. There was no hedge ineffectiveness in the current or prior period. (ii) Interest rate swap contracts Bank loans of the Group currently bear an average variable interest rate of 3.56% (2014: 4.12%). It is the Group’s policy to protect part of the loans from exposure to increasing interest rates. Accordingly, the Group has entered into interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. Swaps currently in place cover approximately 44.9% (2014: 47.1%) of the Group’s drawn debt facility (refer to note D3 for details of the Group’s borrowings). The notional principal amounts used in the swap agreements match the terms of the debt facilities. Under the swap agreements, the fixed interest rates range between 2.97% and 3.9% (2014: 2.97% and 3.99%) and the variable rates are based on the Bank Bill Swap Rate bid (BBSY Bid). The contracts require settlement of net interest receivable or payable each three months. The contracts are settled on a net basis. The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent that the hedge is effective, and reclassified into the income statement when the hedged interest expense is recognised. In the period ended 25 July 2015, $1.7 million was reclassified in profit and loss (2014: $1.5 million) and included in finance cost. There was no hedge ineffectiveness in the current period. (b) Risk exposures Information about the Group’s exposure to credit risk, foreign exchange and interest rate risk is provided in note E1. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of derivative financial assets mentioned above. ACCOUNTING POLICY Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: > hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); or > hedges of the cash flows or recognised assets or liabilities and highly probable forecast transactions (cash flow hedges). The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessments, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. 94 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 E2 DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) ACCOUNTING POLICY (CONTINUED) The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months. It is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. (i) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in profit or loss within finance costs, together with changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk. The gain or loss relating to the ineffective portion is recognised in profit or loss. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedge item for which the effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate. (ii) Cash flow hedge The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational and financing activities. 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 profit or loss. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. When the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets) the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in profit or loss as cost of goods sold in the case of inventory, or as depreciation in the case of fixed assets. The gain or loss relating to the effective portion of the interest rate swaps hedging variable rate borrowings is recognised in profit or loss within finance costs. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss. (iii) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss. M Y ER Annual Report 2015 95 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 F. EQUITY This section provides additional information regarding lines in the financial statements that are most relevant to explaining the equity position of the Group at the end of the period, including the dividends declared and/or paid during the period. F1 CONTRIBUTED EQUITY Opening balance 2015 2014 Number of Number of shares shares 2015 $’000 2014 $’000 585,684,551 583,594,551 564,246 558,728 Shares issued to Myer Equity Plans Trust at market value 5,000 2,090,000 12 5,518 Treasury shares Opening balance Shares issued to Myer Equity Plans Trust at market value Shares allocated on exercise of options at $2.14 Shares allocated on exercise of options at $2.34 Closing balance of Treasury shares Closing balance Ordinary shares 585,689,551 585,684,551 564,258 564,246 (9,200) (29,700) (39,514) (38,512) (5,000) (2,090,000) – 2,110,500 – 10,000 (4,200) (12) – 23 (5,518) 4,516 – (9,200) (39,503) (39,514) 585,685,351 585,675,351 524,755 524,732 The ordinary shares issued are fully paid. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands, every holder of ordinary shares present at a meeting in person, or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Treasury shares Treasury shares are shares in Myer Holdings Limited that are held by the Myer Equity Plans Trust for the purposes of issuing shares under the Equity Incentive Plans. Refer to note H4 for more information. Employee share and option schemes Information relating to the employee share-based payment schemes, including details of shares issued under the schemes, is set out in note H4. Capital risk management The Group’s key objective when managing capital is to minimise its weighted average cost of capital while maintaining appropriate financing facilities. This provides the opportunity to pursue growth and capital management initiatives. In managing its capital structure, the Group also seeks to safeguard its ability to continue as a going concern in order to provide appropriate returns to shareholders and benefits for other stakeholders. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of various balance sheet ratios including the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the balance sheet plus net debt. 96 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 F1 CONTRIBUTED EQUITY (CONTINUED) The gearing ratios at 25 July 2015 and 26 July 2014 were as follows: Total borrowings (note D3) Less: cash and cash equivalents (note D1) Net debt Total equity Total capital Gearing ratio 2015 $’000 441,179 (53,323) 387,856 863,016 2014 $’000 422,030 (73,564) 348,466 893,413 1,250,872 1,241,879 31% 28% The increase in the gearing ratio during 2015 was primarily driven by an increase in net debt and a decrease in equity associated with dividends paid during the year being higher than profits following the decline in profit for the year. ACCOUNTING POLICY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company purchases the Company’s equity instruments; for example, as the result of a share buy-back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the owners of Myer Holdings Limited as treasury shares until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the owners of Myer Holdings Limited. M Y ER Annual Report 2015 97 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 F2 RETAINED EARNINGS AND RESERVES (a) Retained earnings Movements in retained earnings were as follows: Balance at beginning of period Profit for the period Dividends Balance at end of period (b) Reserves Share-based payments (i) Cash flow hedges (ii) Other reserve (iii) Foreign currency translation (iv) Movements in reserves were as follows: Share-based payments Balance at beginning of period Share-based payments expense recognised (note H4) Income tax (note A4) Balance at end of period Cash flow hedges Balance at beginning of period Net gain/(loss) on revaluation Transfer to net profit Deferred tax (note A4) Balance at end of period Other reserve Balance at beginning of period Acquisition of non-controlling interests Balance at end of period Foreign currency translation Balance at beginning of period Currency translation differences arising during the period Balance at end of period (i) Share-based payments 2015 $’000 2014 $’000 378,751 29,826 (73,211) 335,366 24,857 7,045 (25,621) (3,386) 2,895 23,531 1,445 (119) 24,857 (7,469) 17,760 (3,246) – 7,045 (25,621) – (25,621) (511) (2,875) (3,386) 379,722 98,499 (99,470) 378,751 23,531 (7,469) (25,621) (511) (10,070) 22,185 1,850 (504) 23,531 6,039 (17,190) 4,031 (349) (7,469) (31,650) 6,029 (25,621) (598) 87 (511) The share-based payments reserve is used to recognise the fair value of options and rights granted to employees under the employee share plans. Further information on share-based payments is set out in note H4. (ii) Cash flow hedges The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in equity, as described in note E2. Amounts are recognised in the income statement when the associated hedged transaction affects profit or loss. (iii) Other reserve Under the shareholders’ agreement entered into with the non-controlling shareholders at the time of acquisition in 2011, the Group held a call option over the non-controlling shareholders’ 35% interest in Boogie & Boogie Pty Ltd, the owner of sass & bide, and the non-controlling shareholders had a corresponding put option. These options became exercisable in 2014, two years from acquisition 98 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 F2 RETAINED EARNINGS AND RESERVES (CONTINUED) date, at a market value of the shares at that time based on a formula contained within the shareholders’ agreement. The potential liability of the Group under the put option was estimated at acquisition date based on expectations on the timing of exercise and the exercise price at that future point in time, discounted to present value using the Group’s incremental borrowing rate. The recognition of the put option liability at acquisition date resulted in the recognition of an amount to the other reserve within shareholders’ equity and a financial liability within non-current liabilities other, reclassified to current liabilities in 2013 when it became payable. On acquisition of the remaining 35% of sass & bide, the cash payment of $33.4 million was recorded against the current financial liability and non-controlling interests balances were recorded against other reserve. (iv) Foreign currency translation Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income as described in note I(c) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to the income statement when the net investment is disposed of. F3 DIVIDENDS (a) Ordinary shares Final fully franked dividend for the period ended 26 July 2014 of 5.5 cents (2013: 8.0 cents) per fully paid share paid 13 November 2014 (2013: 14 November 2013) Interim fully franked dividend for the period ended 25 July 2015 of 7.0 cents (2014: 9.0 cents) per fully paid share paid 7 May 2015 (2014: 8 May 2014) Total dividends paid (b) Dividends not recognised at the end of the reporting period The directors have not recommended the payment of a final dividend (2014: 5.5 cents per fully paid ordinary share fully franked based on tax paid at 30%). The aggregate amount of the proposed dividend expected to be paid after period end, but not recognised as a liability at period end, is: (c) Franked dividends 2015 $’000 2014 $’000 32,213 46,759 40,998 73,211 52,711 99,470 – 32,212 The franked portions of the final dividends recommended after 25 July 2015 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the period ending 30 July 2016. Franking credits available for subsequent financial periods based on a tax rate of 30% (2014: 30%) 9,266 17,175 The above amounts represent the balance of the franking account as at the reporting date, adjusted for: (a) franking credits that will arise from the payment of the amount of the provision for income tax; (b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and (c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends. The impact on the franking account of the dividend recommended by the directors since the end of the reporting period, but not recognised as a liability at the reporting date, will be a reduction in the franking account of nil (2014: reduction of $14 million). ACCOUNTING POLICY Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial period but not distributed at balance date. M Y ER Annual Report 2015 99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 G. GROUP STRUCTURE This section summarises how the Group structure affects the financial position and performance of the Group as a whole. G1 SUBSIDIARIES The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note I(b): Name of entity NB Elizabeth Pty Ltd NB Russell Pty Ltd NB Lonsdale Pty Ltd NB Collins Pty Ltd Warehouse Solutions Pty Ltd Myer Group Pty Ltd Myer Pty Ltd Myer Group Finance Limited The Myer Emporium Pty Ltd ACT Employment Services Pty Ltd Myer Employee Share Plan Pty Ltd Myer Travel Pty Ltd Myer Sourcing Asia Ltd Shanghai Myer Service Company Ltd Boogie & Boogie Pty Ltd sass & bide Pty Ltd sass & bide Retail Pty Ltd sass & bide Retail (NZ) Pty Ltd sass & bide UK Limited sass & bide USA inc. sass & bide inc. FSS Retail Pty Ltd Notes (1), (3) (2), (3) (2), (3) (1), (3) (2), (3) (1), (3) (1), (3) (1), (3) (1), (3) (2) (2) (2) (1), (3) (2), (3) (2), (3) (2), (3) Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Hong Kong China Australia Australia Australia Australia United Kingdom USA USA (2), (3) Australia Class of shares Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Equity holdings(4) 2015 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Equity holdings(4) 2014 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (1) Each of these entities has been granted relief from the necessity to prepare financial statements in accordance with Class Order 98/1418 issued by the Australian Securities and Investments Commission (ASIC). (2) Each of these entities is classified as small proprietary and therefore relieved from the requirement to prepare and lodge financial reports with ASIC. (3) Each of these entities is party to a deed of cross guarantee, refer to note G2. (4) The proportion of ownership interest is equal to the proportion of voting power held. 100 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 G2 DEED OF CROSS GUARANTEE The following entities are parties to a deed of cross guarantee under which each company guarantees the debts of the others: > Myer Holdings Limited > NB Elizabeth Pty Ltd > NB Russell Pty Ltd > Myer Group Pty Ltd > NB Lonsdale Pty Ltd > NB Collins Pty Ltd > Warehouse Solutions Pty Ltd > Myer Group Pty Ltd > Myer Pty Ltd > Myer Group Finance Limited > The Myer Emporium Pty Ltd > Boogie & Boogie Pty Ltd > sass & bide Pty Ltd > sass & bide Retail Pty Ltd > sass & bide Retail (NZ) Pty Ltd > FSS Retail Pty Ltd By entering into the deed, the wholly-owned entities have been relieved from the requirements to prepare a financial report and directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. The above companies represent a ‘closed group’ for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by Myer Holdings Limited, they also represent the ‘extended closed group’. M Y ER Annual Report 2015 101 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 G2 DEED OF CROSS GUARANTEE (CONTINUED) (a) Consolidated income statement, statement of comprehensive income and summary of movements in consolidated retained earnings Set out below is a consolidated income statement, statement of comprehensive income and a summary of movements in consolidated retained earnings for the closed group for the year ended 25 July 2015: Income statement Total sales value (excluding GST) Concession sales Sale of goods (excluding GST) Sales revenue deferred under customer loyalty program Revenue from sale of goods (excluding GST) Other operating revenue (excluding finance revenue) Cost of goods sold Operating gross profit Other income Selling expenses Administration expenses Strategic review, restructuring, store and brand exit costs and impairment of assets Earnings before interest and tax Finance revenue Finance costs Net finance costs Profit before income tax Income tax expense Profit for the period Profit is attributable to: Deed of Cross Guarantee group Non-controlling interests Statement of comprehensive income Profit for the period Other comprehensive income Items that may be reclassified to profit or loss: Cash flow hedges Exchange differences on translation of foreign operations Income tax relating to components of other comprehensive income Other comprehensive income for the period, net of tax Total comprehensive income for the period Summary of movements in retained earnings Opening balance sass & bide opening retained earnings Profit for the period Dividends paid Closing balance 102 M Y ER Annual Report 2015 2015 2014 52 weeks 52 weeks $’000 $’000 3,194,597 3,141,961 (501,153) (491,482) 2,693,444 2,650,479 (40,122) (39,378) 2,653,322 131,423 2,611,101 128,769 (1,494,144) (1,454,015) 1,290,601 1,285,855 76 (828,432) (327,743) (61,687) 72,815 734 (23,487) (22,753) 50,062 (19,452) 30,610 6,356 (810,112) (319,771) – 162,328 991 (22,930) (21,939) 140,389 (40,106) 100,283 30,610 100,240 – 43 30,610 100,283 30,610 100,283 14,514 (13,320) (817) – 13,697 44,307 248 (349) (13,421) 86,862 384,022 379,398 – 30,610 (73,211) 3,854 100,240 (99,470) 341,421 384,022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 G2 DEED OF CROSS GUARANTEE (CONTINUED) (b) Consolidated balance sheet Set out below is a consolidated balance sheet as at 25 July 2015 of the closed group: ASSETS Current assets Cash and cash equivalents Trade and other receivables and prepayments Inventories Derivative financial instruments Total current assets Non-current assets Property, plant and equipment Deferred tax assets Intangible assets Other non-current assets Other financial assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Derivative financial instruments Current tax liabilities Provisions Deferred income Other liabilities Total current liabilities Non-current liabilities Borrowings Derivative financial instruments Provisions Deferred income Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Retained earnings Reserves Total equity 2015 $’000 2014 $’000 52,647 43,608 378,518 15,211 71,185 42,497 372,853 – 489,984 486,535 468,573 15,556 915,525 2,628 1,463 502,327 12,001 932,138 2,932 1,462 1,403,745 1,450,860 1,893,729 1,937,395 385,523 427,167 99 889 85,383 6,997 871 5,253 7,516 81,616 6,045 2,029 479,762 529,626 441,179 422,030 4,654 21,144 75,112 542,089 3,401 13,997 68,900 508,328 1,021,851 1,037,954 871,878 899,441 524,755 341,421 5,702 871,878 524,732 384,022 (9,313) 899,441 M Y ER Annual Report 2015 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 G3 PARENT ENTITY FINANCIAL INFORMATION (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Balance sheet Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Issued capital Reserves Cash flow hedges Other reserve Share-based payments Retained earnings Profit for the period Total comprehensive income (b) Guarantees entered into by the parent entity Carrying amount included in current liabilities 2015 $’000 2014 $’000 241,111 1,166,215 22,271 208,420 1,129,970 29,136 468,103 454,567 524,755 524,732 (4,769) (2,653) 18,458 162,321 96,685 94,572 (3,418) (1,891) 17,133 138,847 128,721 126,952 – – The parent entity is the borrowing entity under the Group’s financing facilities. Under these facilities, the parent entity is party to a cross-guarantee with various other Group entities, who guarantee the repayment of the facilities in the event that the parent entity is in default. The parent entity is also party to a deed of cross guarantee entered into on 10 May 2010. The details of the deed of cross guarantee are set out in note G2. At balance date, no liability has been recognised in relation to these guarantees on the basis that the potential exposure is not considered material. (c) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 25 July 2015 or 26 July 2014. (d) Contractual commitments for the acquisition of property, plant or equipment The parent entity did not have any contractual commitments for the acquisition of property, plant or equipment as at 25 July 2015 or 26 July 2014. (e) Events subsequent to balance date Refer to note H6 for additional events which have occurred after the financial reporting date. 104 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 G3 PARENT ENTITY FINANCIAL INFORMATION (CONTINUED) ACCOUNTING POLICY The financial information that is disclosed for the parent entity, Myer Holdings Limited, has been prepared on the same basis as the consolidated financial statements, except as set out below. (i) Investments in subsidiaries Investments in subsidiaries are accounted for at cost in the financial statements of Myer Holdings Limited. (ii) Tax consolidation legislation Myer Holdings Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Myer Holdings Limited, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. In addition to its own current and deferred tax amounts, Myer Holdings Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Myer Holdings Limited for any current tax payable assumed and are compensated by Myer Holdings Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Myer Holdings Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. The funding amounts are recognised as current intercompany receivables or payables. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. M Y ER Annual Report 2015 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 H. OTHER INFORMATION This section of the notes includes other information that must be disclosed to comply with the accounting standards and other pronouncements, but that is not immediately related to individual line items in the financial statements. This section also provides information about items that are not recognised in the financial statements as they do not (yet) satisfy the recognition criteria. H1 CONTINGENCIES Contingent liabilities The Group had contingent liabilities at 25 July 2015 in respect of: Guarantees The Group has issued bank guarantees amounting to $44.6 million (2014: $49.4 million), of which $26 million (2014: $30.5 million) represents guarantees supporting workers’ compensation self insurance licences in various jurisdictions. For information about other guarantees given by entities within the Group, including the parent entity, please refer to notes G2 and G3. While the amount and timing of any contingencies are uncertain, no material losses are anticipated in respect of the above contingent liabilities. H2 COMMITMENTS (a) Capital commitments Capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows: Property, plant, equipment and software Payable: Within one year Later than one year but not later than five years Later than five years (b) Operating lease commitments 2015 $’000 2014 $’000 2,132 10,553 – – – – 2,132 10,553 The Group leases the majority of its stores and warehouses under non-cancellable operating leases expiring within one to 30 years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years 225,595 878,427 225,526 880,983 2,069,321 2,145,696 3,173,343 3,252,205 Not included in the above commitments are contingent rental payments that may arise in the event that sales made by certain leased stores exceed a pre-determined amount. The contingent rentals payable as a percentage of sales revenue and the relevant thresholds vary from lease to lease. A number of lease agreements for stores include cash contributions provided by the lessor for fit-outs and referred to as a lease incentive or lease contribution. Refer to note C4 for more information. 106 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 H2 COMMITMENTS (CONTINUED) ACCOUNTING POLICY Leases of property, plant and equipment in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Lease incentives received on entering into operating leases are recognised as deferred income and are amortised over the lease term. Payments made under operating leases (net of any amortised deferred income) are charged to the income statement on a straight-line basis over the period of the lease. Leases where the Group has substantially all the risks and rewards of ownership are classified as finance leases. H3 RELATED PARTY TRANSACTIONS (a) Parent entities The parent entity within the Group is Myer Holdings Limited, a listed public company, incorporated in Australia. (b) Subsidiaries Interests in subsidiaries are set out in note G1. (c) Key Management Personnel (i) Compensation Key Management Personnel compensation for the period ending 25 July 2015 is set out below. The Key Management Personnel of the Group are persons having the authority for planning, directing and controlling the Company’s activities directly or indirectly, including the directors of Myer Holdings Limited. Short-term employee benefits Post employment benefits Long-term benefits Termination and other payments Share-based payments 2015 $ 2014 $ 7,499,154 5,313,490 259,332 36,540 1,553,721 204,883 253,983 94,606 – 519,666 9,553,630 6,181,745 Detailed remuneration disclosures are provided in the Remuneration Report on pages 38 to 63. (ii) Loans In 2015 and 2014 there were no loans made to directors of Myer Holdings Limited and other Key Management Personnel of the Group, including their related parties. (iii) Other transactions There were no transactions with Key Management Personnel or entities related to them, other than compensation. (d) Transactions with other related parties There were no transactions with other related parties during the current period. M Y ER Annual Report 2015 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 H4 SHARE-BASED PAYMENTS (a) Equity Incentive Plans The Myer Equity Incentive Plan (MEIP) and Executive Equity Incentive Plan (EEIP) were established to help ensure retention of senior management and key staff and to provide incentives for the delivery of both short and long-term shareholder returns. Options and rights are granted under the plan for no consideration, and carry no dividend or voting rights. When exercisable, each option or right is convertible into one ordinary share in the Company. Participation in the plan is at the Board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. Set out below is a summary of options and rights granted under the plan: 2015 Total Balance Expired and Balance Vested and 26 July 2014 Granted Exercised lapsed 25 July 2015 exercisable 8,734,292 3,370,332 (10,000) (8,340,061) 3,754,563 – Weighted average exercise price $0.60 $0.00 $2.34 $0.62 $0.00 $0.00 2014 Total Balance Expired and Balance Vested and 27 July 2013 Granted Exercised lapsed 26 July 2014 exercisable 19,325,268 868,789 (2,110,500) (9,349,265) 8,734,292 315,600 Weighted average exercise price $2.33 $0.00 $2.14 $3.77 $0.60 $2.34 The number of options which expired during the period was 2,176,650 (2014: 158,813). The weighted average share price at the date of exercise of options exercised during the period ended 25 July 2015 was $2.44 (2014: $2.61). The weighted average remaining contractual life of share options and rights outstanding at the end of the period was 1.6 years (2014: 0.6 years). Fair value of performance rights granted The assessed fair value at grant date of rights granted during the period is noted below. Fair value varies depending on the period to vesting date. The fair values at grant dates were independently determined using a Monte Carlo simulation pricing model that takes into account the exercise price, the term of the rights, the impact of dilution, the fair value of shares in the Company at grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the right. The fair values and model inputs for performance rights granted during the period included: 2015 EEIP Rights (Business 2015 EEIP 2015 EEIP 2015 EEIP Transfor- Rights Rights (EPS) Rights (TSR) mation) (Service) $1.08 $0.00 $0.30 $0.00 $1.08 $0.00 $1.08 $0.00 15-Dec-14 15-Dec-14 15-Dec-14 15-Dec-14 31-Oct-17 31-Oct-17 31-Oct-17 31-Oct-17 $1.35 32% 8.9% $1.35 32% 8.9% $1.35 32% 8.9% $1.35 32% 8.9% 2.30% 2.30% 2.30% 2.30% (a) Fair value of performance rights granted (b) Exercise price at grant date (c) Grant date (d) Expiry date (e) Share price at grant date (f) Expected price volatility of the Group’s shares (g) Expected dividend yield (h) Risk-free interest rate 108 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 H4 SHARE-BASED PAYMENTS (CONTINUED) The expected price volatility is based on the historic volatility (based on the remaining life of the performance rights), adjusted for any expected changes to future volatility due to publicly available information. Where rights are issued to employees of subsidiaries within the Group, the subsidiaries compensate the Company for the amount recognised as expense in relation to these rights. (b) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: Options and rights issued under the MEIP and EEIP 2015 $’000 1,445 2014 $’000 1,850 Share-based payment transaction expenses represent the amount recognised in the period in relation to share-based remuneration plans. Where expectations of the number of options or rights expected to vest changes, the life to date expense is adjusted, which can result in a negative expense for the period due to the reversal of amounts recognised in prior periods. ACCOUNTING POLICY Share-based compensation benefits are provided to employees via the Myer Equity Incentive Plan. The fair value of options granted under the plan is recognised as an employee benefit expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted, which includes any market performance conditions but excludes the impact of any services and non-market performance vesting conditions and the impact of any non-vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of revisions to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. The Myer Equity Incentive Plan is administered by the Myer Equity Plan Trust (see note I(b)(ii)). When options are exercised, the trust transfers the appropriate number of shares to the employee. The proceeds received net of any directly attributable transaction costs are credited directly to equity. M Y ER Annual Report 2015 109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 H5 REMUNERATION OF AUDITORS During the period, the following fees were paid or payable for services provided by the auditor of the Group, and its related practices: (a) PwC Australia (i) Assurance services Audit services Audit and review of financial statements Other assurance services Audit of rent certificates Total remuneration for audit and other assurance services (ii) Taxation services Tax compliance services Total remuneration of PwC Australia (b) Overseas practices of PwC (i) Assurance services Audit services Audit and review of financial statements (ii) Taxation services Tax compliance services Total remuneration for overseas practices of PwC 2015 $ 2014 $ 396,380 392,530 46,970 443,350 44,250 436,780 46,900 46,900 490,250 483,680 72,717 68,109 8,958 81,675 25,331 93,440 H6 EVENTS OCCURRING AFTER THE REPORTING PERIOD Dividends on the Company’s ordinary shares The directors have determined that no final dividend will be payable for the period ended 25 July 2015. Entitlement offer On 1 September 2015, the Company announced the launch of a fully underwritten 2 for 5 accelerated pro-rata non-renounceable entitlement offer to raise approximately $221 million, at an offer price of $0.94 (Entitlement Offer). 110 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 I. OTHER ACCOUNTING POLICIES This section provides a list of other accounting policies adopted in the preparation of these consolidated financial statements. Specific accounting policies are disclosed in their respective notes to the financial statements. This section also provides information on the impacts of new accounting standards, amendments and interpretations, and whether they are effective in 2015 or later years. The principal accounting policies adopted in the preparation of these consolidated financial statements (‘financial statements’ or ‘financial report’) are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Myer Holdings Limited and its subsidiaries (‘Group’). (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. Myer Holdings Limited is a for-profit entity for the purpose of preparing the financial statements. Compliance with IFRS The consolidated financial statements of Myer Holdings Limited group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention These financial statements have been prepared under the historical cost convention, except for financial assets and liabilities (including derivative instruments), which have been measured at fair value through profit or loss. Critical accounting estimates The preparation of financial statements in conformity with accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in notes A4, B2 and C2. (b) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Myer Holdings Limited (‘Company’ or ‘parent entity’) as at 25 July 2015 and the results of all subsidiaries for the period then ended. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group (refer note I(d)). Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement, statement of comprehensive income, balance sheet and statement of changes in equity respectively. M Y ER Annual Report 2015 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 I. OTHER ACCOUNTING POLICIES (CONTINUED) (ii) Employee Share Trust The Group has formed the Myer Equity Plans Trust to administer the Group’s employee share scheme. This trust is consolidated, as the substance of the relationship is that the trust is controlled by the Group. Shares in Myer Holdings Limited held by the trust are disclosed as treasury shares and deducted from contributed equity. (c) Foreign currency translation (i) Functional and presentation 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’). The consolidated financial statements are presented in Australian dollars, which is Myer Holdings Limited’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognised in other comprehensive income. (iii) Group companies The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: > assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; > income and expenses for each income statement and statement of comprehensive income are translated at the rates prevailing on the transaction dates; and > all resulting exchange differences are recognised in other comprehensive income. On consolidation, when a foreign operation is sold, the associated exchange difference is reclassified to profit or loss, as part of the gain or loss on sale. (d) Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, 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 identifiable net assets. The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. 112 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 I. OTHER ACCOUNTING POLICIES (CONTINUED) Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. (e) Investments and other financial assets Classification The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, and available for sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held to maturity, re-evaluates this designation at the end of each reporting period. (i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading which are acquired principally for the purpose of selling in the short term with the intention of making a profit. Derivatives are also categorised as held for trading unless they are designated as hedges. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the reporting period, which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet (refer to note B1). (iii) Held to maturity investments Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. (iv) Available for sale financial assets Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the end of the reporting period. Recognition and derecognition Purchases and sales of investments are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Measurement Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value, unless they are equity securities that do not have a market price quoted in an active market and whose fair value cannot be reliably measured. In that case they are carried at cost. Loans and receivables and held to maturity investments are carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category, including interest and dividend income, are presented in profit or loss within other income or other expenses in the period in which they arise. Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences are recognised in profit or loss and other changes in carrying amount are recognised in equity. Changes in the fair value of other monetary and non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in profit or loss as gains and losses from investment securities. Details on how the fair value of financial instruments is determined are disclosed in note E1. M Y ER Annual Report 2015 113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 I. OTHER ACCOUNTING POLICIES (CONTINUED) Impairment The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available for sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is reclassified from equity and recognised in profit or loss as a reclassification adjustment. Impairment losses recognised in profit or loss on equity instruments classified as available for sale are not reversed through profit or loss. (f) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities, which are recoverable from, or payable to, the taxation authority, are presented as operating cash flow. (g) Rounding of amounts The Group has taken advantage of Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar. (h) New accounting standards and interpretations (i) New and amended standards adopted by the Group The Group has applied the following standards and amendments for the first time in the annual reporting period commencing 27 July 2014: > AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting > AASB 2014-1 Amendments to Australian Accounting Standards – Part A: Annual Improvements 2010-2012 and 2011-13 Cycles > AASB 2014-1 Amendments to Australian Accounting Standards – Part C: Materiality These revised standards did not affect any of the Group’s accounting policies or any of the amounts recognised and affected only the disclosures in the notes to the financial statements. 114 M Y ER Annual Report 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 I. OTHER ACCOUNTING POLICIES (CONTINUED) (ii) New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for the 25 July 2015 reporting period. The Group’s assessment of the impact of these new standards and interpretations, that were considered relevant for the consolidated entity, is set out below: Reference Title Summary Application date of standard Application date for Group Impact on Group’s for financial financial statements year ending AASB 9 Financial AASB 9 includes requirements for the 1 January 2017 There will be no material 27 July 2019 Amendments were made to this and other standards via AASB 2010-7, AASB 2010-10 Instruments classification and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for impact on the Group’s accounting for financial liabilities, as the new requirements only affect financial liabilities. The main changes the accounting for are described below: financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. The Group also does not have any available for sale financial assets. The Group has not yet assessed how its hedging arrangements would be affected by the new rules; however, it does not expect the impact to be material. Increased disclosures may be required in the financial statements. and AASB 2013-9 > The standard will affect the accounting of available for sale financial assets, since AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. > Where the fair value option is used for financial liabilities, the change in fair value is accounted for in other comprehensive income if it relates to changes in credit risk. The remaining change is presented in the income statement. In December 2013, a revised Standard was issued and sets out the new rules for hedge accounting. The main changes are described below: > New hedge accounting requirements including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures. > Expanded disclosure requirements and changes in presentation. IFRS 15 Revenue from The core principle of the new revenue 1 January 2017 The Group does not 28 July 2018 Contracts with recognition standard is that revenue expect the new Customers must be recognised when the control of goods or services are transferred to the customer, at the transaction price. accounting standard to have a significant impact. There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. M Y ER Annual Report 2015 115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the period ended 25 July 2015 D I R E C T O R S ’ D E C L A R A T I O N In the directors’ opinion: (a) the financial statements and notes set out on pages 65 to 115 are in accordance with the Corporations Act 2001, including: i. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and ii. giving a true and fair view of the consolidated entity’s financial position as at 25 July 2015 and of its performance for the financial period ended on that date; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note G2. Note I.(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the Chief Executive Officer and the Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Paul McClintock, AO Chairman Melbourne, 1 September 2015. 116 M Y ER Annual Report 2015 I N D E P E N D E N T A U D I T O R ’ S R E P O R T Independent auditor’s report to the members of Myer Holdings Limited Report on the financial report We have audited the accompanying financial report of Myer Holdings Limited (the company), which comprises the consolidated balance sheet as at 25 July 2015, the consolidated income statement and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the period 27 July 2014 to 25 July 2015, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for the Myer Holdings Group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at year’s end or from time to time during the period. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note I, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au M Y ER Annual Report 2015 117 Liability limited by a scheme approved under Professional Standards Legislation. INDEPENDENT AUDITOR’S REPOR T Continued Independent auditor’s report to the members of Myer Holdings Limited Auditor’s opinion In our opinion: Report on the financial report We have audited the accompanying financial report of Myer Holdings Limited (the company), which comprises the consolidated balance sheet as at 25 July 2015, the consolidated income statement and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the period 27 July 2014 to 25 July 2015, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for the Myer Holdings Group (the consolidated entity). The consolidated entity comprises the company and the the financial report of Myer Holdings Limited is in accordance with the Corporations Act 2001, entities it controlled at year’s end or from time to time during the period. including: (a) (i) (b) (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. giving a true and fair view of the consolidated entity's financial position as at 25 July 2015 and of its performance for the period ended on that date; and Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note I, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial the financial report and notes also comply with International Financial Reporting Standards as Statements, that the financial statements comply with International Financial Reporting Standards. disclosed in Note I. Auditor’s responsibility Report on the Remuneration Report Our responsibility is to express an opinion on the financial report based on our audit. We conducted We have audited the remuneration report included in pages 38 to 63 of the directors’ report for the our audit in accordance with Australian Auditing Standards. Those standards require that we comply period ended 25 July 2015. The directors of the company are responsible for the preparation and with relevant ethical requirements relating to audit engagements and plan and perform the audit to presentation of the remuneration report in accordance with section 300A of the Corporations Act obtain reasonable assurance whether the financial report is free from material misstatement. 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the Auditor’s opinion assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated In our opinion, the remuneration report of Myer Holdings Limited for the period ended 25 July 2015 entity’s preparation and fair presentation of the financial report in order to design audit procedures complies with section 300A of the Corporations Act 2001. that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. PricewaterhouseCoopers We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence Andrew Mill Melbourne In conducting our audit, we have complied with the independence requirements of the Corporations Partner 1 September 2015 Act 2001. PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 118 M Y ER Annual Report 2015 S H A R E H O L D E R I N F O R M A T I O N As at 22 September 2015. Myer has one class of shares on issue (being ordinary shares). All the Company’s shares are listed on the Australian Securities Exchange. Issued capital* Number of shareholders Minimum parcel price Number 690,360,533 54,068 $0.87 Holders with less than a marketable parcel 16,781 (5,796,084 shares) * On 25 September 2015, approximately 130,918,282 additional shares will be issued under the retail component of the entitlement offer, referred to on page 30. Distribution of shareholders and shareholdings Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Rounding Total Unmarketable parcels Total holders Units capital % of issued 25,120 18,365 4,685 5,563 335 12,280,918 43,196,974 37,035,648 149,495,863 448,351,130 1.78 6.26 5.36 21.65 64.94 0.01 54,068 690,360,533 100.00 Minimum Parcel Size Holders Units Minimum $500.00 parcel at $0.87 per unit 575 16,781 5,796,084 Twenty largest shareholders Rank Name Units % of Units 1. 2. 3. 4. 5. 6. 7. 8. 9. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS PTY LTDHSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA UBS NOMINEES PTY LTD 10. SPACETIME PTY LTD 11. 12. 13. 14. 15. 16. 17. 18. 19. WARBONT NOMINEES PTY LTD BERNARD JOSEPH BROOKES CS FOURTH NOMINEES PTY LTD RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED UBS NOMINEES PTY LTD MR BERNARD JOSEPH BROOKES + MRS SUSIE HEIDI BROOKES BAINPRO NOMINEES PTY LIMITED CITICORP NOMINEES PTY LIMITED AMP LIFE LIMITED 20. BAINPRO NOMINEES PTY LIMITED Totals: Top 20 holders of FULLY PAID ORDINARY SHARES (TOTAL) Total Remaining Holders Balance 91,332,337 76,354,634 57,463,637 39,352,649 19,404,072 12,838,065 9,217,689 8,867,222 8,253,182 6,500,000 6,458,233 5,446,372 4,459,075 4,002,667 2,300,501 2,096,060 1,900,000 1,843,670 1,677,421 1,655,519 361,423,005 328,937,528 13.23 11.06 8.32 5.70 2.81 1.86 1.34 1.28 1.20 0.94 0.94 0.79 0.65 0.58 0.33 0.30 0.28 0.27 0.24 0.24 52.35 47.65 M Y ER Annual Report 2015 119 SHAREHOLDER INFORMATION Continued Substantial shareholders As at 22 September 2015, there are five substantial shareholders that Myer is aware of: Name Deutsche Bank AG Goldman Sachs Group Inc. Perpetual Limited UBS Group AG Dimensional Fund Advisors VOTING RIGHTS Date of most recent notice Relevant interest 21 September 2015 18 September 2015 17 September 2015 16 September 2015 19 March 2015 35,177,309 57,851,477 79,035,491 48,575,914 35,285,313 Shareholders may vote at a meeting of shareholders in person, directly or by proxy, attorney or representative, depending on whether the shareholder is an individual or a company. Subject to any rights or restrictions attaching to shares, on a show of hands each shareholder present in person or by proxy, attorney or representative has one vote and, on a poll, has one vote for each fully paid share held. Presently, Myer has only one class of fully paid ordinary shares and these do not have any voting restrictions. If shares are not fully paid, on a poll the number of votes attaching to the shares is pro-rated accordingly. Options and performance rights do not carry any voting rights. OPTIONS AND PERFORMANCE RIGHTS Myer has unlisted performance rights on issue. As at 22 September 2015, there were 11 holders of performance rights; and there are no longer any options on issue. AMERICAN DEPOSITARY RECEIPT PROGRAM Myer Holdings has a Sponsored Level I American Depositary Receipt (ADR) program. Myer ADRs are not listed on an exchange and are only traded in the United States over-the-counter (OTC) market under the code: ‘MYRSY’ and the CUSIP number: 62847V 207. One ADR represents four existing ordinary Myer shares. Deutsche Bank Trust Company Americas (DBTCA) is the Depositary for the Company’s ADR program in the United States. Holders of the Company’s ADRs should deal directly with DBTCA on all matters relating to their ADR holdings on the contact details below: Deutsche Bank Shareholder Services American Stock Transfer & Trust Company Operations Centre 6201 15th Avenue Brooklyn NY 11219 Email: DB@amstock.com Toll-free number: +1 800 937 5449 Direct Dial: +1 718 921 8124 120 M Y ER Annual Report 2015 B R I N G I N G T H E L O V E O F C O R P O R A T E D I R E C T O R Y S H O P P I N G T O L I F E REGISTERED OFFICE Myer Holdings Limited Level 7 800 Collins Street Docklands VIC 3008 MYER CUSTOMER SERVICE CENTRE WEBSITES myer.com.au Phone: 1800 811 611 (within Australia) myer.com.au/investor Fax: +61 ( 0) 3 8667 6091 SHAREHOLDER ENQUIRIES myerone.com.au blog.myer.com.au SHOP ONLINE MYER POSTAL ADDRESS Share Registry Myer Holdings Limited PO Box 869J Melbourne VIC 3001 Computershare Investor Services Pty Ltd myer.com.au GPO Box 2975 Melbourne VIC 8060 FIND US HERE COMPANY SECRETARY MYER SHAREHOLDER Richard Amos INFORMATION LINE Chief General Counsel and 1300 820 260 facebook.com/myer Company Secretary +61 ( 0) 3 9415 4332 (outside Australia) instagram.com/myer INVESTOR RELATIONS Davina Gunn Investor Relations Manager Phone: +61 ( 0) 3 8667 7879 Mobile: +61 ( 0) 400 896 809 investorcentre.com AUDITOR PricewaterhouseCoopers Level 19, Freshwater Place 2 Southbank Boulevard Email: myer.investor.relations@myer.com.au Southbank VIC 3006 twitter.com/myer youtube.com/myer MEDIA RELATIONS SECURITIES EXCHANGE pinterest.com/myermystore Melanie Ward Corporate Affairs Manager Phone: +61 ( 0) 3 8667 7596 Mobile: +61 ( 0) 438 101 078 Email: myer.corporate.affairs@myer.com.au LISTING Myer Holdings Limited (MYR) shares are listed on the Australian Securities Exchange (ASX) SUSTAINABILITY Fiona Baxter National Sustainability Manager Phone: +61 ( 0) 3 8667 7587 Email: sustainability@myer.com.au P O S I T I O N A L O N L Y M Y ER Annual Report 2015 121 M Y E R H O L D I N G S L I M I T E D A B N 1 4 1 1 9 0 8 5 6 0 2 A N N U A L R E P O R T 2 0 1 5 A N N U A L R E P O R T 2 0 1 5 B R I N G I N G T H E L O V E O F S H O P P I N G T O L I F E A M Y ER Annual Report 2015