Premier Investments Limited
Annual Report 2019

Plain-text annual report

Annual Report 2019 Solomon Lew Chairman Mark McInnes CEO Premier Retail Chairman’s Report On behalf of the Premier Investments Limited (“Premier”) Board of Directors, it is my pleasure to present the Annual Report for the year ended 27 July 2019 (“2019”). Recognising your company’s strong result, and reflecting our confidence in Premier Retail’s growth strategies, the Directors have declared full year ordinary dividends totalling 70 cents per share, fully franked – a record for Premier and an increase of 12.9% on the prior year. Premier delivered Net Profit After Tax of $106.8 million in 2019, up 27.7%. On an underlying basis, Net Profit Before Tax was $177.6 million with strong contributions from Premier Retail and our investment in Breville Group Limited. Premier also maintains an investment in Myer Holdings Limited and had $190.3 million of free cash on hand as at year end. With an outstanding management team, consistently strong operational performance and a strong balance sheet, your company is well placed to invest in growth opportunities to deliver long term shareholder value. PREMIER RETAIL PERFORMING STRONGLY Premier Retail includes our core brands (Just Jeans, Jay Jays, Dotti, Jacqui E and Portmans) and our unique growth brands (Smiggle and Peter Alexander). During the year the Premier Retail management team, led by Mark McInnes, continued to relentlessly pursue the successful rejuvenation of our apparel brands whilst growing Smiggle, Peter Alexander and our Online businesses. As a result, Premier Retail delivered total global sales of $1.27 billion, up 7.5% on the prior year. Premier Retail reported a record underlying earnings before interest and tax (“EBIT”) of $167.3 million1 for the year, up 11.5% on 2018. These are outstanding results in a tough and competitive retail environment and while consumer sentiment in our core markets remains low. Notwithstanding the environment, by creating a clear market position for each of Premier Retail’s brands and successfully balancing efficiency measures with investment opportunities, we continued to deliver operational outperformance and record financial results for Premier shareholders. Premier Retail’s apparel brands achieved like-for-like sales growth of 7.8% across Australia and New Zealand – well above the market. ONLINE DELIVERS RECORD SALES During 2019, Premier Retail’s online business delivered record sales of $148.2 million, up 31.7% with growth ahead of the market. In the second half of the year, the team launched transactional websites for Just Jeans, Smiggle, Portmans and Jacqui E in New Zealand. These were in addition to the already established and rapidly growing New Zealand Peter Alexander and Dotti transactional websites. The performance of Premier Retail’s online businesses has surpassed expectations. We continue to make major investments in technology, people and new marketing initiatives to deliver a world class platform and customer experience. PETER ALEXANDER AHEAD OF EXPECTATIONS Peter Alexander delivered record sales for the year of $247.8 million, up 13.3% on prior year with positive like-for-like sales growth in both Australia and New Zealand. The brand opened nine new stores and continued its online expansion of P.A. Plus and children’s sleepwear during the year. At the time of writing this report, Peter Alexander had already achieved its aspirational target of $250 million in annual sales – a year ahead of schedule. Pleasingly, Peter Alexander’s growth categories continue to perform, with children’s sleepwear sales up 500% since 2013 and P.A. Plus sales growing by 150% over the past two years. Peter Alexander has further growth plans in place via the expansion of ranges online, expanded stores and new stores. SMIGGLE ACCELERATED GLOBAL GROWTH STRATEGY Smiggle achieved record global sales of $306.5 million in 2019 as the brand commenced the execution of its “Accelerated Global Growth Strategy”. This strategy was announced in September 2018, in recognition of the major structural changes in global consumerism and technology. We anticipated that the true scale opportunity ahead for Smiggle as a globally recognised and sought-after brand is not confined to traditional channels. Our objective is to accelerate Smiggle’s global growth from four major pathways: global wholesale arrangements; online growth (both proprietary and third party); concession partnerships with iconic global retailers; and new store growth where the economics and shareholder returns are attractive. Significantly, these four pathways aim to deliver much higher EBIT margin with materially less capital and far higher cash flows than the originally planned multi-country own-store roll out. 1 Refer to page 9 of the Directors’ Report for a definition and reconciliation of Premier Retail Underlying EBIT. 1 Annual Report 2019Chairman’s Report continued The strategy is currently progressing ahead of expectations with Smiggle recently successfully launched into South Korea, Thailand, Indonesia, Philippines, United Arab Emirates, Canada and Qatar via wholesale partnerships with iconic retailers. Smiggle is now available to consumers in 180 new doors through six best in market retailers. Management believes that there is the potential to grow Smiggle to over 350 doors with existing wholesale partners within the next 12 to 24 months. Advanced discussions are ongoing with new wholesale partners in markets which have been identified as high potential with long runways for future global growth. As I have said previously, your Board believes that we have the most outstanding senior management team of any retail business in Australia, and one which could be successfully benchmarked internationally. On behalf of the Board and all shareholders, I thank Premier Retail CEO Mark McInnes, his senior leadership group and our entire 9,000 plus strong team of employees for their outstanding contribution. I would also like to thank my remarkable fellow Directors for their valuable contribution, insights and counsel throughout the year. Finally, our sincere thanks to the owners of the company, our shareholders, for your continued support and confidence. Smiggle concession performance in Selfridges and Harrods continues to perform ahead of expectations and Smiggle opened its first Asian concession stores during the year, with three concessions trading in Singapore as at July 2019. The brand is in final negotiations for a further three to five concessions which we aim to have trading across Asia by Christmas 2019. Also, in addition to its own successful transactional websites in key markets, Smiggle continued to expand its global footprint through third party websites in France, Italy and Spain. LEADERSHIP AND GOVERNANCE In February 2019, we announced the appointment of Ms Marinda Meyer to the role of Company Secretary following the retirement of Mr Kim Davis. On behalf of the Board, I sincerely thank Mr Davis for his impressive performance over 24 years of service. As we look forward, your Board continues to see strong growth prospects for Premier. We are proud to have built a successful global retail business from a strong local brand portfolio. We have a track record of sustained performance through all economic cycles and are very focused on maintaining flexibility, responding to change and growing a sustainable, long-term business that delivers strong shareholder returns. I encourage all of our shareholders to attend the company’s Annual General Meeting for a further overview on the performance of the Group and strategies for the future. I look forward to seeing many of you there. I would also like to acknowledge that Premier’s robust financial performance would not have been possible without the continuing hard work and commitment of our employees. Solomon Lew Chairman and Non-Executive Director 2 Premier Investments LimitedThe Directors Solomon Lew Chairman and Non-Executive Director David M. Crean Deputy Chairman and Non-Executive Director Timothy Antonie Non-Executive Director Sylvia Falzon Non-Executive Director Sally Herman Non-Executive Director Henry D. Lanzer AM B. COM., LLB (Melb) Non-Executive Director Terrence McCartney Non-Executive Director Mark McInnes Executive Director Michael R.I. McLeod Non-Executive Director 3 Annual Report 2019Strategic Review Premier Retail Management continued the rigorous implementation of the six key initiatives outlined in the 2011 Strategic Review. Focus Area Status 1 Rejuvenate and reinvigorate all five apparel brands. 2 Organisation-wide cost efficiency program. 3 Two phase gross margin expansion program. 4 Expand and grow the internet business. 5 Grow Peter Alexander significantly. 6 Grow Smiggle significantly. 4 The apparel brands delivered exceptional results for the year with total apparel brand sales up 6.9% and even stronger like-for-like (LFL) sales growth of 7.8%. Just Jeans delivered stand out growth performance with sales up 13.7% for the year, and all five apparel brands delivered positive LFL sales growth for the year. The apparel brands have delivered this growth through the ongoing investment in product, strong management and merchandising teams. Costs of doing business decreased 109 bps as a percentage of sales to 48.8% in FY19, whilst strategic investment continues in growth initiatives, including Online, Peter Alexander and Smiggle international expansion. During FY19, Premier Retail has closed 35 stores, taking the total closed over the past 7 years to 138 stores as part of the ongoing program to close unprofitable stores. As consumers continue to increase their online shopping, Premier Retail will continue to focus on store costs and profitability to drive appropriate investment and shareholder returns. Premier Retail’s gross margin of 61.9% for the year in a highly competitive market was delivered through the effective implementation of key gross margin strategies. Direct sourcing initiatives continue to deliver benefits from new suppliers and countries. Ongoing focus on markdown management is expected to support margin going forward and has left the group with a clean inventory position at year end. Online sales of $148.2 million were up 31.7% on FY18. The group surpassed its aspirational target of $100million in global annual online sales in FY18 – two years ahead of schedule. This exceptional outcome has reinforced Premier Retail’s strategies to continue to make major investments in technology, people and new marketing initiatives to deliver a world class platform and customer experience. The online channel continues to deliver significantly higher EBIT margin than the Group average. Peter Alexander delivered record sales for the year of $247.8 million, up 13.3% on FY18, with positive LFL sales growth in both Australia and New Zealand. The brand opened nine new stores and continued its online expansion of P.A. Plus and children’s sleepwear. Peter Alexander’s aspirational target of $250 million in annual sales has now been delivered one year ahead of schedule – with growth set to continue. There is the potential for a further 20 to 30 stores to be opened over the next 18 to 24 months, including five confirmed to open in 1H20. Online continues to be a significant growth channel as Peter Alexander materially increases its online-only options of children’s sleepwear and P.A. Plus. The brand delivered record global sales of $306.5 million in FY19, with a particularly strong performance in Asia. Smiggle’s “Accelerated Global Growth Strategy” announced in September 2018 to accelerate global growth through four major pathways is being successfully delivered with performance to date far exceeding expectations. Smiggle successfully launched its new wholesale channel and is now represented in over 180 new doors through 6 iconic retailers in seven new countries. Premier Investments Limited Brand Performance Premier Retail Smiggle, delivered record global sales of $306.5 million in FY19, with particularly strong performance in Asia. Smiggle’s “Accelerated Global Growth Strategy” announced in September 2018 to accelerate global growth through four major pathways is being successfully delivered with performance to date far exceeding expectations. Smiggle successfully launched its new wholesale channel and is now represented in over 180 new doors through 6 iconic retailers in seven new countries. John Cheston, Managing Director Smiggle, continues to lead a strong and focused management team growing a truly unique global brand. Peter Alexander delivered record sales for the year of $247.8 million, up 13.3% on FY18 with positive LFL sales growth in both Australia and New Zealand. The brand opened nine new stores and continued its online expansion of P.A. Plus and children’s sleepwear. Peter Alexander’s aspirational target of $250 million in annual sales has now been delivered one year ahead of schedule. Under the leadership of Judy Coomber, Managing Director Peter Alexander and Dotti, and Peter Alexander, Creative Director, the growth is set to continue. There is the potential for a further 20 to 30 stores to be opened over the next 18 to 24 months, including five confirmed to open in 1H20. Online continues to be a significant growth channel as Peter Alexander materially increases its online-only options of children’s sleepwear and P.A. Plus. Dotti, following the appointment of Judy Coomber (Managing Director Peter Alexander and Dotti), together with the return of Deanna Moylan (Dotti Group General Manager) in March 2018 reporting to Judy, is delivering a turnaround in performance. FY19 LFL sales were up 2.2% with improvements in profit margins being delivered through changes to sourcing strategy. Capital investment in new store concepts continued in FY19, largely funded by landlords. Online Sales continued to grow ahead of the market with this channel delivering significantly higher EBIT margin than the Brand average. Portmans, under the leadership of Linda Levy, delivered FY19 Sales of $128.4 million in a highly competitive apparel market. FY19 LFL Sales were up 6.1% - stronger than overall sales growth as 4 stores were closed in the last 12 months as part of the ongoing program to close unprofitable stores. FY19 Online Sales continue to drive overall growth at a significantly higher EBIT margin than the store portfolio. Portmans has an extremely strong and distinctive market position, and continued investment in digital marketing and better merchants is expected to drive further growth in FY20. Jacqui E under the leadership of Nicole Naccarella, delivered FY19 Sales up 3.3% to $71.5 million in a highly competitive apparel market. Jacqui E has an extremely strong and distinctive market position, and continued investment in better merchants is expected to drive further growth in FY20. Just Jeans, under Matthew McCormack’s leadership, delivered exceptional results in FY19 with sales growth up 13.7% to $241.9 million in a particularly pleasing result for the group’s original brand. Just Jeans has a strong, distinctive and competitive market position. Differentiation through the international branded denim business where investment in width of range, instock of sizes and personal service continues to deliver a great competitive advantage. Jay Jays, under Linda Whitehead’s leadership, delivered strong results in FY19 with sales of $168.7 million. FY19 LFL Sales were up 6.9% - stronger than overall sales growth as 7 stores were closed in FY19 as part of the ongoing program to close unprofitable stores across the group. Jay Jays has a strong, distinctive and competitive market position, and continued investment in better merchants is expected to drive further growth in FY20. 5 Annual Report 2019Internet Performance Premier Retail 180 160 140 120 100 80 60 40 20 0 13.4% 148.2 11.0% 112.5 7.1% 68.1 14% 12% 10% 8% 6% 4% 2% 0% 5.2% 47.2 4.3% 34.4 3.3% 24.6 2.6% 18.9 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Online Sales ($'M) Online sales as % of the sales in countries & brands with a transactional website • Record Online sales of $148.2 million, up 31.7% on a previous record FY18 • Online sales growing to 13.4% of the respective markets’ sales in FY19 • The Group surpassed its aspirational target of $100 million in global annual online sales in FY18, 2 years ahead of expectations • New Zealand Websites successfully launched and far exceeding expectations in 2H19 for Smiggle, Just Jeans, Portmans and Jacqui E, in addition to the rapidly growing Peter Alexander and Dotti Online businesses already in New Zealand • 2013 investment in centralised and specifically customised Australian Distribution Centre servicing 100% order fulfilment of 100% of Premier Retail products in Australia • Online channel continues to deliver significantly higher EBIT margin than the Group average • All global sites continuing to deliver strong growth with all brands outperforming the market • Major investment continues in technology, people and new marketing initiatives to deliver a world class platform and customer experience Note: FY16 excludes non-comparable 53rd week of sales 6 Premier Investments LimitedSmiggle International Growth Record result with the four global growth platforms far exceeding expectations Another record year for Smiggle, delivering global sales of $306.5 million in FY19, with a particularly strong performance in Asia. Smiggle reaffirms its target of $450 million in annual global retail sales in calendar 2021 or calendar 2022, with the accelerated global growth strategy delivering ahead of expectations. SMIGGLE’S ACCELERATED GLOBAL GROWTH STRATEGY In September 2018, Premier announced Smiggle’s “Accelerated Global Growth Strategy” which aims to accelerate Smiggle’s global growth from four major pathways: • Global wholesale arrangements in markets where Smiggle has a significant opportunity but elects not to or will unlikely operate company-owned standalone stores • Online growth, both proprietary and third party • Concession partnerships with iconic global retailers • New store growth through the continued rollout of standalone stores where the economics and shareholder returns are attractive • Significantly, these four pathways aimed to deliver much higher EBIT margin with materially less capital and far higher cash flows than the originally planned multi-country own store roll out. Wholesale channel is far exceeding expectations, with Smiggle now represented in over 180 doors through 6 iconic retailers across 7 countries with a combined population of over half a billion and with the potential to grow to 350+ doors with the existing 6 partners within 12-24 months. South Korea Thailand Indonesia Philippines U.A.E Qatar Canada Smiggle represented through iconic retailer in Indonesia Smiggle represented through iconic retailer in South Korea 7 Annual Report 2019Peter Alexander Growth Delivers record result with growth set to continue • Record Sales up 13.3% to $247.8 million with strong total and LFL sales growth in both Australia and New Zealand • 2020 Strategic Growth plan announced in September 2017 to increase annual sales to $250 million by FY20 has now been delivered one year ahead of schedule - with growth set to continue • Potential to open a further 20-30 stores over the next 2 years, with 5 new stores already confirmed to open in 1H20 • Additional opportunities exist for landlord funded refurbishments and expansions of existing stores • Significant growth opportunity exists by expanding Children’s sleepwear options online only • Significant growth opportunity exists by expanding P.A. Plus options online only • Strong and focused management team led by Judy Coomber (Managing Director: Peter Alexander and Dotti) and Peter Alexander (Creative Director: Peter Alexander) Peter Alexander Marylands - Opened 14 March 2019 8 Peter Alexander Rhodes - Opened 21 June 2019 Premier Investments LimitedOur Commitment to Business Sustainability Premier acknowledges the importance of respecting our stakeholders, including employees, shareholders, customers and suppliers. PEOPLE COMMUNITY ENVIRONMENT ETHICAL SOURCING • Attraction and retention • Peter Alexander and RSPCA/PAW JUSTICE • Development • Smiggle Community • Reward and recognition • Workplace Safety Partnerships • Packaging Stewardship • Waste and Recycling • Energy efficiency • Our sourcing models, principles & policies • Our Assurances • Membership of the Accord for Bangladesh Worker Safety • Our activities in Bangladesh • Ethical Raw Material Procurement We are committed to a long term goal of delivering sustainable value through the effective use of our resources and relationships. This goal influences how we behave and impacts everything we do. OUR COMMITMENT TO OUR PEOPLE Our goal is for Premier to attract, retain and motivate high calibre employees. Our outstanding leadership team have developed and nurtured a culture that supports our success. We value speed, integrity, energy, and results. We have a ‘can do’ culture in which employees see the difference they make. 9,000+ Total employees 91% % female ATTRACTION AND RETENTION At the end of the financial year, Premier employed approximately 9,000 staff across eight countries. By Christmas 2019, Premier will employ over 10,400 staff. Premier believes that it is important to ensure that all team members enjoy a workplace which is free from discrimination; we believe our staff perform the best when they can be themselves at work and so we strongly support gender, age, sexual orientation, disability and cultural diversity at work. In FY19, 91% of our total team members are women, who held 78% of the positions at management level internationally. We have continued our focus on the development and career trajectory of our very strong team of female executives. Female leaders spearheaded internet and marketing, human resources, and five out of our seven brands, to deliver exceptional results. We rely on the passion and commitment of our employees to achieve the results we do. DEVELOPMENT Premier provides ongoing and regular training throughout the year to support and develop all team members. Upon commencement all new team members complete our comprehensive Just Getting Started Induction Program. Leadership and Management Development training is provided for our leaders and this year 192 workshops were led by our People & Culture and Senior Leadership Teams. REWARD AND RECOGNITION We recognise and reward outstanding contributions to our Group results, both individually and for team performance. Our annual Just Excellence Awards recognised our best performing Retail Leaders and salespeople for their excellent performance and contribution to achieving our FY19 goals. The top performing Regional Managers, Store Managers and Visual Merchandisers for each of our brands were rewarded publicly amongst their peers for their great leadership and delivery of the FY19 results. WORKPLACE SAFETY Premier is committed to the prevention of workplace injury and lost time. We want to create a culture where all employees feel responsible for all aspects of health and safety. ‘Play it Safe’ is part of our culture. Workplace safety is considered in all our business decisions, including workplace design and development, supply chain, visual merchandising and store planning. We have clear and measurable performance targets. However, in the event that a work related injury or illness occurs, we are also committed to fully supporting affected employees to return to work and continuing their career. We will continue to develop Premier as a great place to work, and a great company in which our team build their careers. 9 Annual Report 2019Our Commitment to the Community Premier has a long history of philanthropic support, particularly with our Peter Alexander and Smiggle brands. PETER ALEXANDER AND THE RSPCA PETER ALEXANDER AND PAW JUSTICE As much as Peter Alexander has become famous for his pyjamas, he has also become known for his dogs, and is a huge supporter of animal welfare organisations. Peter Alexander has worked closely for the last 13 years with the RSPCA in Australia, and for the last five years with Paw Justice in New Zealand. Our work has included a variety of fundraising activities which raise awareness for animal charities. Working with the RSPCA, Peter has raised over $984,000 contributing to RSPCA shelters, which care for more than 140,000 animals every year supporting rescue, rehabilitation and rehoming unwanted, stray and injured animals. Peter has been awarded the status of RSPCA Ambassador in recognition of his efforts. In 2014, aligned with the growing presence of Peter Alexander in New Zealand, we partnered with the NZ animal charity Paw Justice, and over the last five years have raised over $109,710. Paw Justice works to stop violent animal abuse; and they have been instrumental in focusing the New Zealand public’s attention on the need for reform of animal welfare laws through youth education and advocacy for pets. During the year Peter Alexander continued its commitment to the prevention of cruelty to animals. The involvement with the RSPCA in Australia and Paw Justice in New Zealand continues to be the key charity supported by the brand. Each year, Peter develops a special product to be made available in store in the lead up to Christmas. In 2018, a range of chocolate bars featuring Peter Alexander prints were sold with 100% of all proceeds donated to these charities. During the year we donated $149,000 to the RSPCA and $15,200 to Paw Justice. Since we’ve been working with RSPCA shelters in Australia and Paw Justice in New Zealand, Peter has raised over $1 million 10 Premier Investments LimitedSMIGGLE COMMUNITY PARTNERSHIPS Premier and our Smiggle brand regularly support a number of children’s charities, organisations and educational programs. Plus countless community fundraising initiatives both locally and abroad, for schools and educational events. In addition, in FY19 Smiggle partnered with the Alannah & Madeline Foundation in Australia, an organisation committed to the safety and well-being of children who have experienced or witnessed violence, including cyber bullying and bullying in schools. Smiggle donated $60,000 (RRP) worth of products for inclusion in the charity’s “Buddy Bag” programme; which provides 10,000 vulnerable children per year with backpacks full of essential home and school supplies. Smiggle campaigned for the charity in the month of May, encouraging Smiggle team members and Smiggle customers to write a kind note to children affected by violence and bullying. Nearly 7,000 notes were written in Smiggle stores nationally over the 7 week period, and each note will now be included in the Buddy Bags distributed to children in 2019 by the Alannah & Madeline Foundation. In the same period, Smiggle also partnered with two children’s charities across the UK and Ireland: The Rainbow Trust (UK) who supports families with life threatening or terminal illnesses, and Temple Street Children’s University Hospital Foundation (IRELAND) who raises funds to provide world class paediatric equipment and facilities for the hospital. Smiggle donated over £65,000 ($113,000 AUD) worth of Smiggle products to these charities. Smiggle also encouraged customers to write a kind note to go alongside the goodies distributed to children in the care of both charities, helping them to smile and giggle during an extremely difficult time. 11 Annual Report 2019Our Commitment to the Environment Across our network of stores, reuse is always our first option. Specific initiatives relate to plastic hangers and carton packaging. In store, plastic hangers are first reused, and if there is an oversupply our supplier collects and repackages hangers for reuse or 100% recycling. Additionally, cartons are reused to facilitate movement of stock between our stores. In the balance of instances we will utilise our shopping centre recycling facilities. ENERGY EFFICIENCY Premier recognises the importance of energy efficient, low environmental impact lighting systems and since 2012 have adhered to new improved lighting standards to efficiently manage our energy consumption in all of our stores. This has resulted in an investment to our store network, Distribution Centre and Support Centre, upgrading 369 stores to LED lighting, all of the DC high bay lighting to LED, and converting over 80% of our head office lighting to LED. This initiative has subsequently meant less heat, thereby reducing the overall heat load on our stores and reduced investment in cooling requirements. In addition this has led to a dramatic reduction in ongoing maintenance and light bulb replacement. This standard has been implemented for all new store fit-outs. With the active participation of our employees, we believe that our focus on environmental issues will make our business more efficient, drive customer and employee connection, and have a positive impact in the communities in which we operate. PACKAGING STEWARDSHIP Premier is committed to managing and reducing the impact our business operations have on the environment. Premier is a signatory to the Australian Packaging Covenant, a voluntary agreement between government and industry which provides companies with tools to be more involved in reducing their impact on the environment through sustainable packaging design, recycling and product stewardship. Premier has submitted its Action Plan outlining its objectives in relation to: 1. Optimising packaging to reduce environmental impact; 2. Increasing the collection and recycling of packaging; 3. Commitment to product stewardship; and 4. Implementation of Sustainable Packaging Guidelines. WASTE AND RECYCLING Premier has extensive recycling and sustainability practices across our network of Stores, Distribution Centres and Support Centre. Our Distribution Centres execute on-site recovery systems for recycling used packaging, following Sustainable Packaging Guidelines. All carton packaging uses recycled content. Cartons are reused to facilitate the replenishment of stock, and where necessary waste packaging is compacted and collected for recycling. We have partnered with Orora, a signatory to the Australian Packaging Covenant, to collect and process waste in line with their recycling procedures. Orora’s recycling waste business specialises in paper and cardboard, among others, which is the major input for their recycled paper mill that produces 100% recycled paper. Our Support Centre recycles all paper and has a continuing co-mingled recycling program for glass and plastics on every floor in our entire building. All paper purchased for our Support Centre is accredited from The Forest Stewardship Council sources, an international network which promotes responsible management of the world’s forests. All necessary printing at our support centre is activated by personalised swipe access only to release print. This initiative has seen a significant reduction in waste paper printing, as it removes non-collection of printouts. All weekly retail reporting, forms, reference and administrative material is stored and accessible via mobile technology, where possible. 12 Premier Investments LimitedOur Commitment to Ethical Sourcing Premier commits to the highest standards of ethical conduct and responsible product sourcing practices. We support this commitment by our models for sourcing products, the principles that back-up those models, together with our policies and assurance program. MODERN SLAVERY Premier has zero tolerance to modern slavery in all its forms, including forced labour, child labour, slavery, people trafficking, deceptive labour recruitment practices, forced marriage and debt bondage. Premier fully supports the introduction of modern slavery legislation in various jurisdictions in which we operate, and will fully comply with the legislative timelines in all relevant markets. OUR SOURCING MODELS, PRINCIPLES & POLICIES We share our customers’ full engagement in understanding where products come from, how products are made and the way that people who manufacture those products are treated. With this in mind, we use the following sourcing models: • direct sourcing from factories with whom we work in close partnership • through Li & Fung, the world’s largest sourcing company for major retailers and brands around the world In addition, we work with known established and trusted Australian importers. We currently source products in the following countries: China, Australia, Bangladesh, India, Indonesia, Pakistan, Sri Lanka, Turkey, and Vietnam. SOURCE COUNTRIES (THE JUST GROUP, UNITS) 13% Rest of the world In each case our model is supported by the following strict sourcing principles: 1. We comply with all laws in the countries we source from and operate 2. We have zero tolerance for modern slavery in all its forms 3. We insist on workers’ legal rights – including worker empowerment and free association 4. We have zero tolerance for bribery and corruption 5. We have zero tolerance for animal cruelty Among other things, we note that our supply terms and the Code: • requires compliance with all laws (and/or requires our suppliers to meet higher standards) • insists on the free association of workers, including the right to collectively bargain and be represented • requires labour to be voluntary, without workers being required to lodge deposits (eg. identity documents; for recruitment fees etc.) • prohibits forced labour (including child labour) • insists on worker rights such as the right to work in safe, hygienic premises where working hours are not excessive • requires the payment of the minimum national legal standards or local benchmark standards (whichever is higher), and, in relation to full time workers, sufficient to meet basic needs and to provide discretionary income • prohibits unauthorised sub-contracting – meaning that we have a fully transparent relationship with our suppliers • prohibits discrimination on the basis of personal attributes as well as union membership or political affiliations 87% China ASSURANCES WHICH SUPPORT OUR SOURCING PRINCIPLES Background checks Our Ethical Sourcing and Supply Code (Code) supports our commitment to sourcing merchandise that is produced according to these principles, regardless of origin. All suppliers must sign our supply terms and conditions, of which the Code is part, prior to any orders being placed. We will not do business with a supplier who does not comply with the Code. We conduct thorough and ongoing compliance activities of all suppliers directly and through Li & Fung and qualified audit firms. Factory inspections Senior management personally inspect all factories that manufacture for us. We continue factory visits throughout our relationship with our suppliers to ensure our principles are strictly adhered to. 13 Annual Report 2019Our Commitment to Ethical Sourcing continued BANGLADESH SOURCING Background Bangladesh’s economic and social development relies on the expansion and strength of the garment sector, including through investment by international retailers. The garment industry comprises around 80% of all Bangladesh export earnings, is a significant contributor to GDP, and employs over 4 million workers, most of whom are women. Premier currently sources a portion of its Just Jeans, Dotti and Jay Jays branded products in Bangladesh and we highlight our program in this country in the interest of full transparency. MEMBERSHIP OF THE ACCORD ON FIRE AND BUILDING SAFETY IN BANGLADESH 2. Prior to placing orders with any factory, we also engage independent, internationally recognised assessment and audit firms to verify compliance with all local laws and safety conditions, in relation to labour and safety issues (including fire and building integrity). 3. During manufacturing, our globally independent audit firm Intertek inspects all orders. 4. In addition, we will not conduct business with factories that do not comply with the requirements of the Accord. All factories have been disclosed to the Accord for assessment under its operational processes. ETHICAL RAW MATERIAL PROCUREMENT We are a member of the Accord on Fire and Building Safety in Bangladesh (the Accord). Our sourcing commitment is supported by the following initiatives relating to fibre procurement: • Rabbit angora We confirm that we will not source products containing rabbit angora until we can be completely confident that the ethical standards of rabbit angora farming are assured and independently audited. • Cotton We will not source cotton harvested in Uzbekistan. We will maintain this position until the government of Uzbekistan ends the practice of forced child and adult labour in its cotton sector. To this end, we signed the Pledge against Child and Adult Forced Labour in Uzbek Cotton. • Azo Dyes We have voluntarily adopted the EU standard whereby we prohibit the manufacture and sale of goods which contain prohibited levels of the specific aromatic amines originating from a small number of azo dyes. • Sandblasted denim The harmful practice of ‘sandblasting’ denim with silica based powders has been discontinued in our business since 2011. Prior to joining the Accord, we were (since 2013) a signatory to the Alliance for Bangladesh Worker Safety (the Alliance). The Alliance program was a five-year commitment which ended in June 2018. The Accord, and the Alliance before it, share common priorities including a relentless focus on workers generally, as well as building integrity and safety – all supported by financial commitments and good governance. Together with our international peers in Bangladesh, we have invested in worker safety, improved conditions and transparent reporting in a results-oriented, measurable and verifiable way. All initiatives of the Accord are publicly available at http://bangladeshaccord.org/ OUR ACTIVITIES IN BANGLADESH Our operational processes have included the establishment of our own office in Bangladesh, which we opened in March 2014. Our investment in on the ground infrastructure in Bangladesh, including employing staff at our sourcing office directly, supports our audit and compliance activities in that market with particular focus on social compliance and safety which includes: 1. Senior management personally inspect ALL factories that manufacture for us prior to commencing business. We continue factory visits throughout our relationship with our suppliers to ensure our principles are strictly adhered to. Our Code includes the ability for us to make unannounced visits in Bangladesh for the purposes of our audit and compliance activities. 14 Premier Investments LimitedOur Business CODE OF CONDUCT SHRINKAGE Shrinkage is the loss of merchandise that can be attributed to product theft or through administrative handling process. Premier has a shrinkage reduction strategy in place with processes and education aimed at reducing these losses. Premier continues to deliver low levels of shrinkage and we will continue to maintain this focus into the future. We believe that the ‘what’ and the ‘how’ are both important when it comes to operating. We want great results, and how we go about achieving them is also important. Premier acknowledges the importance of respecting our stakeholders, including team members, shareholders, customers and suppliers. We also know that by respecting and working with the communities in which we operate we can make a positive impact. Our Code of Conduct outlines our legal, moral and ethical obligations which are underpinned by the behaviours we expect of all of our stakeholders. The principles ensure that we: • Foster a culture in which all stakeholders including customers, shareholders and fellow team members are treated with respect • Comply with the law and Premier policies • Protect company assets, information and reputation • Provide a safe workplace for our team members and visitors • Develop a culture where professional integrity and ethical behaviour is valued All team members globally are issued with the Code of Conduct upon commencement with the business and are re-issued a copy and asked to acknowledge receipt as amendments to the Code are made from time to time. In addition, we have an advisory email and a confidential telephone service for all issues and complaints related to this Code. 15 Annual Report 2019Premier Investments Limited A.C.N. 006 727 966 Financial Report For the 52 week period 29 July 2018 to 27 July 2019 Contents Directors’ Report Auditor’s Independence Declaration Statement of Comprehensive Income Statement of Financial Position Statement of Cash Flows Statement of Changes In Equity Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report to the Members of Premier Investments Limited ASX Additional Information Corporate Directory 2 34 35 36 37 38 39 89 90 96 97 1 Annual Report 2019DIRECTORS’ REPORT Director’s Report The Board of Directors of Premier Investments Limited (A.B.N. 64 006 727 966) has pleasure in submitting its report in respect of the financial year ended 27 July 2019. The Directors present their report together with the consolidated financial report of Premier Investments Limited (the “Company” or “Premier") and its controlled entities (the “Group”) for the 52 week period 29 July 2018 to 27 July 2019, together with the independent audit report to the members thereon. DIRECTORS The names and details of the Company’s Directors in office during the financial year and until the date of the report are as follows. Directors were in office for this entire period unless otherwise stated. Solomon Lew Chairman and Non-Executive Director Mr. Lew was appointed as Non-Executive Director and Chairman of Premier on 31 March 2008. Mr. Lew is a director of Century Plaza Investments Pty Ltd, the largest shareholder in Premier and was previously Chairman of Premier from 1987 to 1994. Mr. Lew has over 50 years’ experience in the manufacture, wholesale and retailing of textiles, apparel and general merchandise, as well as property development. His success in the retail industry has been largely due to his ability to read fashion trends and interpret them for the Australasian market, in addition to his demonstrated ability in the timing of strategic investments. Mr. Lew was a Director of Coles Myer Limited from 1985 to 2002, serving as Vice Chairman from 1989, Chairman from 1991 to 1995, Executive Chairman in 1995 and Vice Chairman in 1995 and 1996. Mr. Lew is a member of the World Retail Hall of Fame and is the first Australian to be formally inducted. He is also a former Board Member of the Reserve Bank of Australia and former Member of the Prime Minister’s Business Advisory Council. Mr. Lew was the inaugural Chairman of the Mount Scopus Foundation (1987 – 2013) which supports the Mount Scopus College, one of Australia’s leading private colleges with 2000 students. He has also been the Chairman or a Director of a range of philanthropic organisations. Dr. David M. Crean Deputy Chairman and Non-Executive Director Dr. Crean has been an Independent Non-Executive Director of Premier since December 2009, Deputy Chairman since July 2015 and is currently the Chairman of Premier’s Audit and Risk Committee (appointed August 2010). Dr. Crean was Chairman of the Hydro Electric Corporation (Hydro Tasmania) from September 2004 until October 2014 and was also Chairman of the Business Risk Committee at Hydro Tasmania, member of the Audit Committee and Chairman of the Corporate Governance Committee. Dr. Crean was State Treasurer of Tasmania from August 1998 to his retirement from the position in February 2004. He was also Minister for Employment from July 2002 to February 2004. He was a Member for Buckingham in the Legislative Council from 1992 to February 1999, and then for Elwick until May 2004. From 1989 to 1992 he was the member for Denison in the House of Assembly. From 1993 to 1998 he held Shadow Portfolios of State Development, Public Sector Management, Finance and Treasury. Dr. Crean has been a Non-Executive Director and Deputy Chairman of Moonlake Investments, owner of VDL dairy farms in Tasmania from August 2016 to April 2018. He is also a Board member of the Linfox Foundation. Dr. Crean graduated from Monash University in 1976 with a Bachelor of Medicine and Bachelor of Surgery. 2 2 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) Mark McInnes Executive Director Mr. McInnes is a career retailer with a long track record of success in every role he has occupied. Like many great retailers, Mark started his career from the shop floor as a company cadet for Grace Brothers. Mark has been directly responsible for some of Australia’s greatest retail success stories – including as a co-founder of the Officeworks concept which is today Australia’s largest office supply superstore. Prior to joining Premier, Mark led David Jones to its most successful time as a public listed company. Mark spent 13 years at David Jones – 6 years as Merchandise & Marketing Director and 7 years as CEO. From 2003 to 2010, Mark as CEO and Executive Director of David Jones turned the company into a fashion and financial powerhouse, creating in excess of $2 billion of shareholder value. Mark was appointed CEO of Premier Retail in April 2011 and has set about transforming the company to compete in an industry under great structural pressure. Premier Retail today has a clear path and a clear focus. In December 2012, Mark was appointed as an Executive Director of Premier Investments Limited. Mark holds an MBA from the University of Melbourne. Timothy Antonie Non-Executive Director and Lead Independent Director Mr. Antonie was appointed to the Board of Directors on 1 December 2009. He holds a Bachelor of Economics degree from Monash University and qualified as a Chartered Accountant with Price Waterhouse. He has 20 years’ experience in investment banking and formerly held positions of Managing Director from 2004 to 2008 and Senior Advisor in 2009 at UBS Investment Banking, with particular focus on large scale mergers and acquisitions and capital raisings in the Australian retail, consumer, media and entertainment sectors. Mr. Antonie is also a Non-Executive Director of Village Roadshow Limited, Breville Group Limited and Netwealth Group Limited and is a Principal of Stratford Advisory Group. Sylvia Falzon Non-Executive Director Ms. Falzon was appointed to the Board of Directors on 16 March 2018. She brings to Premier an executive career that spanned over nearly 30 years in Financial Services where she held senior executive positions responsible for institutional and retail funds management businesses, both here in Australia and offshore. As a Non-Executive Director since 2010, Ms. Falzon has experience across a range of sectors and customer driven businesses in financial services, health and aged care. During this time, she has been involved in several business transformations, IPOs, merger and acquisitions and divestment activities. Ms. Falzon is currently an Independent Non- Executive Director of ASX listed companies Regis Healthcare Limited, Perpetual Limited and Suncorp Group Limited. In the not-for-profit sector, she is the Chairman of Cabrini Australia Limited. Ms. Falzon previously served on the board of ASX listed company SAI Global until December 2016. Ms. Falzon holds a Masters Degree in Industrial Relations and Human Resource Management (Hons) from the University of Sydney and a Bachelor of Business from the University of Western Sydney. She is a Senior Fellow of the Financial Services Institute of Australasia and a Fellow of the Australian Institute of Company Directors. Sally Herman Non-Executive Director Ms. Herman is an experienced Non-Executive Director in the fields of financial services, retail, manufacturing and property. She had a successful executive career spanning 25 years in financial services in both Australia and the US, transitioning in late 2010 to a full time career as a Non-Executive Director. Prior to that, she had spent 16 years with the Westpac Group, running major business units in most operating divisions of the Group as well as heading up Corporate Affairs and Sustainability through the merger with St. George and the global financial crisis. 3 3 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) Sally Herman Non-Executive Director (continued) Ms. Herman sits on both listed and not-for-profit Boards, including Suncorp Group Limited, Breville Group Limited, Evans Dixon Limited and Investec Property Limited. She is also a Trustee of the Art Gallery of NSW. Ms. Herman holds a BA from the University of New South Wales and is a Graduate of the Australian Institute of Company Directors. Henry D. Lanzer AM B.COM. LLB (Melb) Non-Executive Director Henry Lanzer AM is Managing Partner of Arnold Bloch Leibler, a leading Australian commercial law firm. Henry has over 35 years’ experience in providing legal, corporate finance and strategic advice to some of Australia’s leading companies. Mr. Lanzer is a Non-Executive Director of Just Group Limited, Thorney Opportunities Limited and previously the TarraWarra Museum of Art and is also a Life Governor of the Mount Scopus College Council. In June 2015, Henry was appointed as a Member of the Order of Australia. Michael R.I. McLeod Non-Executive Director Mr. McLeod is a former Executive Director of the Century Plaza Group and has been involved with the Group since 1996 as an advisor in the areas of corporate strategy, investment and public affairs. He has been a Non-Executive Director of Premier Investments Limited since 2002 and was a Non-Executive Director of Just Group Limited from 2007 to 2013. Past experience includes the Australian Board of an international funds manager, chief of staff to a Federal Cabinet Minister and statutory appointments including as a Commission Member of the National Occupational Health and Safety Commission. He holds a Bachelor of Arts (First Class Honours and University Medal) from the University of New South Wales. Terrence L. McCartney Non-Executive Director Mr. McCartney has had a long and successful career in retail. Mr. McCartney started at Boans Department Stores in Perth then moved to Grace Bros in Sydney. After the acquisition of Grace Bros by Myer, he relocated to the merged Department Stores Group in Melbourne within the merchandise and marketing department. His successful career within Coles Myer meant that Terry then moved to the Kmart discount department stores as Head of Merchandise and Marketing and then Managing Director. Following several years as Managing Director of Kmart Australia and New Zealand, Terry became Managing Director of Myer Grace Bros. For 5 years Terry lead year on year growth in profitability of Australia’s largest department store. Terry’s experience spans the full spectrum of retailing, ranging from luxury goods in department stores to large mass merchandise discount operations. Terry has also been retained by large international accounting and legal firms as an expert witness in relation to Australian retail. In addition to his extensive list of retail experience, he has also been an advisor to large Australian and international mining companies, prior to joining the Just Group Board in 2008. Terry lends his extensive retail and commercial expertise to the Just Group as Non-Executive Director, and by serving on a number of committees, including the Internet Steering Committee of the Group, and through various store and site visits, both locally and overseas. He is also involved in seasonal and trading performance reviews for the Group. Terry is a member of the Remuneration and Nomination Committee of Premier Investments Limited. In August 2017, he was appointed Chairman of the Remuneration and Nomination Committee. 4 4 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) COMPANY SECRETARY Kim F. Davis (resigned 4 February 2019) Mr. Davis has been the Company Secretary of Premier Investments Limited for over 24 years. Prior to holding this position, Mr Davis had 15 years’ experience within the accounting industry as a tax and financial advisor. Mr Davis resigned as Company Secretary effective 4 February 2019. Marinda Meyer (appointed 4 February 2019) Ms. Meyer was appointed as Company Secretary effective 4 February 2019. She is a Chartered Accountant with over 15 years financial experience. She has both local and international experience in financial accounting and reporting, corporate governance and administration of listed companies. PRINCIPAL ACTIVITIES The Group operates a number of specialty retail fashion chains within the specialty retail fashion markets in Australia, New Zealand, Asia and Europe. The Group also has significant investments in listed securities and money market deposits. DIVIDENDS Final Dividend recommended for 2019 Dividends paid in the year: Interim for the half-year ended 26 January 2019 Final for 2018 shown as recommended in the 2018 report CENTS $’000 37.00 33.00 33.00 58,619 52,282 52,201 OPERATING AND FINANCIAL REVIEW Group Overview: Premier Investments Limited acquired a controlling interest in Just Group Limited (“Just Group”), a listed company on the Australian Securities Exchange in August 2008. Subsequent to the acquisition, Just Group delisted from the Australian Securities Exchange. Just Group is a leading specialty fashion retailer with operations in Australia, New Zealand, Asia and Europe. Just Group has a portfolio of well-recognised retail brands, consisting of Just Jeans, Jay Jays, Jacqui E, Portmans, Dotti, Peter Alexander and Smiggle. Currently, these seven unique brands are trading from more than 1,200 stores across seven countries, as well as through wholesale and online. The Group’s key strategic growth initiatives continued to deliver results for the Group. The establishment of a clear market position for the apparel brands delivered exceptional results during the year, with combined total sales growth of the apparel brands of 6.9%. Smiggle’s accelerated growth strategy continues, with the successful launch of global wholesale arrangements during the second half of the year. Peter Alexander has delivered records sales for the year, with an additional 9 stores opened. The Group’s online sales exceeded $148 million, delivering growth of over 30%. The Group’s emphasis is on a range of brands that provide diversification through breadth of target demographic and sufficiently broad appeal to enable a broad footprint. Over 90% of the product range is designed, sourced and sold under its own brands. There is a continuing investment in these brands to ensure they remain relevant to changing customer tastes and remain at the forefront of their respective target markets. 5 5 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) OPERATING AND FINANCIAL REVIEW (CONTINUED) Group Operating Results: The Group’s reported revenue from contracts with customers, total income and net profit before income tax for the 52 week period ended 27 July 2019 (2018: 52 week period ended 28 July 2018) are summarised below: CONSOLIDATED 52 WEEKS ENDED 27 JULY 2019 $’000 52 WEEKS ENDED 28 JULY 2018 $’000 Revenue from contracts with customers 1,270,958 1,182,221 Total interest income Total other income and revenue Total revenue and other income 3,886 709 3,632 3,187 1,275,553 1,189,040 % CHANGE +7.5% +7.0% -77.8% +7.3% Reported profit before income tax 151,742 123,965 +22.4% United Kingdom – accelerated depreciation and other associated expenses Non-cash impairment of intangible assets 25,858 - - 30,000 nm nm Profit before income tax - underlying 177,600 153,965 +15.4% Retail Segment: As Premier’s core business, Just Group was the key contributor to the Group’s operating results for the financial year. Key financial indicators for the retail segment for the 52 week period ended 27 July 2019 are highlighted below: RETAIL SEGMENT 52 WEEKS ENDED 27 JULY 2019 $’000 52 WEEKS ENDED 28 JULY 2018 $’000 % CHANGE Revenue from contracts with customers Total segment income 1,270,958 1,271,899 1,182,221 1,183,715 +7.5% +7.4% Segment net profit before income tax 135,762 142,484 -4.7% Capital expenditure 25,457 45,854 -44.5% The Retail Segment contributed $135.8 million to the Group’s net profit before income tax for the 52 week period ended 27 July 2019 (2018: $142.5 million net profit before income tax for the 52 week period ended 28 July 2018). The Retail Segment net profit before income tax includes accelerated depreciation and associated expenses of $25.9 million, which has arisen due to the reassessment of the Group’s depreciation method and useful life of store assets within the United Kingdom, in line with the earlier of contracted shorter term lease break options or lease end dates, given the uncertainty of the useful life of these store assets beyond these dates. 6 6 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) OPERATING AND FINANCIAL REVIEW (CONTINUED) Group Operating Results (continued): Retail Segment (continued): $180.0 $180.0 $160.0 $160.0 $140.0 $140.0 $120.0 $120.0 $100.0 $100.0 $80.0 $80.0 $60.0 $60.0 $40.0 $40.0 $20.0 $20.0 $- $- Premier Retail Underlying EBIT History Premier Retail Underlying EBIT History $167.3 $167.3 $150.1 $150.1 $136.0 $136.0 $126.7 $126.7 $105.7 $105.7 $92.8 $92.8 $80.4 $80.4 $83.7 $83.7 $65.3 $65.3 FY11 FY12 FY13 FY14 FY15 FY16* FY17 FY18 FY19 FY11 FY12 FY13 FY14 FY15 $' millions $' millions FY16 * FY17 FY18 FY19 * FY16 Underlying EBIT represents a comparable 52 week period. Refer to page 9 for a reconciliation between underlying EBIT and statutory reported operating profit before taxation for the Retail Segment. Growth in sales, combined with tight controls over the total cost of doing business led to the outstanding retail segment underlying EBIT result. The solid result reflects the Group’s continued efforts to transform its apparel brands, the implementation of its organisation-wide cost efficiency program, as well as the focus on its growth initiatives, both locally and internationally. PREMIER RETAIL TRANSFORMATION STRATEGY – OUR FOCUS ON GROWTH AND INVESTMENT GROWTH CORE  Grow Smiggle significantly  Gross margin expansion program  Grow Peter Alexander significantly  Rejuvenation of core apparel brands  Expansion and growth of online businesses  Organisation-wide cost efficiency program The increase in sales is as a result of strong sales growth across the portfolio of brands, with successful growth in both overseas and domestic markets. Online sales were up 31.7% on the prior comparative 52 week period. During the 2019 financial year, the Group continued to invest in technology, people and new marketing initiatives to deliver a world-class online platform and customer experience. The Group launched its New Zealand transactional websites for a further four brands during the year. 7 7 Annual Report 2019DIRECTORS’ REPORT DIRECTORS’ REPORT Director’s Report continued (CONTINUED) (CONTINUED) OPERATING AND FINANCIAL REVIEW (CONTINUED) OPERATING AND FINANCIAL REVIEW (CONTINUED) Group Operating Results (continued): Group Operating Results (continued): Retail Segment (continued): Retail Segment (continued): It has been yet another outstanding year for the growth-focussed brands, being Peter Alexander and Smiggle. It has been yet another outstanding year for the growth-focussed brands, being Peter Alexander and Smiggle. Smiggle reported global sales growth of 4.6% on the previous comparable 52 week period. Peter Alexander recorded Smiggle reported global sales growth of 4.6% on the previous comparable 52 week period. Peter Alexander recorded sales growth of 13.3% on the previous comparable 52 week period. sales growth of 13.3% on the previous comparable 52 week period. The apparel brands delivered excellent sales growth of 6.9% during the year. The apparel brands delivered like-for- The apparel brands delivered excellent sales growth of 6.9% during the year. The apparel brands delivered like-for- like sales growth of 7.8% as a result of a disciplined focus on product and market positioning, as well as the Group’s like sales growth of 7.8% as a result of a disciplined focus on product and market positioning, as well as the Group’s ongoing program to close unprofitable stores. ongoing program to close unprofitable stores. The Group continues to invest in its global presence, with the successful launch of wholesale agreements in six The Group continues to invest in its global presence, with the successful launch of wholesale agreements in six countries during the second half of the year. countries during the second half of the year. Retail segment sales per geographic segment is presented in the graph below: Retail segment sales per geographic segment is presented in the graph below: SALE OF GOODS PER GEOGRAPHIC SEGMENT FOR THE YEAR ENDED SALE OF GOODS PER GEOGRAPHIC SEGMENT FOR THE YEAR ENDED 27 JULY 2019 Sale of Goods per Geographic Segment for the Year Ended 27 JULY 2019 27 July 2019 Europe Europe 10% 10% New Zealand New Zealand 10% 10% Asia Asia 6% 6% 10% Europe 6% Asia 10% New Zealand 74% Australia Australia Australia 74% 74% Investment Segment: Investment Segment: The Group’s balance sheet remains strong, primarily due to the significant asset holding of the investment segment. As The Group’s balance sheet remains strong, primarily due to the significant asset holding of the investment segment. As at 27 July 2019, the Group continued to reflect its 28.06% (2018: 27.49%) shareholding in Breville Group Limited as an at 27 July 2019, the Group continued to reflect its 28.06% (2018: 27.49%) shareholding in Breville Group Limited as an investment in associate, with an equity accounted value of $238.7 million. The fair value of the Group’s interest in investment in associate, with an equity accounted value of $238.7 million. The fair value of the Group’s interest in Breville Group Limited as determined based on the quoted market price for the shares as at 27 July 2019 was Breville Group Limited as determined based on the quoted market price for the shares as at 27 July 2019 was $691.7 million. $691.7 million. During the 2017 financial year, the Group acquired a strategic investment of 10.77% in Myer Holdings Limited. At the During the 2017 financial year, the Group acquired a strategic investment of 10.77% in Myer Holdings Limited. At the end of the 2019 financial year the fair value of this listed equity investment is reflected as $46.9 million. end of the 2019 financial year the fair value of this listed equity investment is reflected as $46.9 million. 8 8 8 Premier Investments Limitede s e h t i s e d v o r p p u o r G e h T . s d r a d n a t s g n i t n u o c c a t n a v e e r l l l a h t i w e c n a d r o c c a n i n a h t r e h t o d e t n e s e r p s i t a h t n o i t a m r o n f i l i a c n a n i f s i n o i t a m r o f n i S R F I - n o N . ) B S A I ( d r a o B s d r a d n a t S 1 1 0 2 0 0 0 ’ $ 2 1 0 2 0 0 0 ’ $ 3 1 0 2 0 0 0 ’ $ 4 1 0 2 0 0 0 ’ $ 5 1 0 2 0 0 0 ’ $ 0 0 0 ’ $ * 6 1 0 2 7 1 0 2 0 0 0 ’ $ 8 1 0 2 0 0 0 ’ $ 9 1 0 2 0 0 0 ’ $ 6 9 7 , 9 3 8 8 9 , 9 6 6 8 6 , 6 7 9 9 2 , 9 7 8 5 9 , 8 9 7 0 2 , 6 2 1 2 8 1 , 6 2 1 4 8 4 , 2 4 1 2 6 7 , 5 3 1 n o i t a x a T e r o f e b t i f o r P g n i t a r e p O t n e m g e S l i a t e R d e t r o p e R 4 1 6 , 9 4 9 1 , 0 1 8 8 9 , 6 1 1 3 , 6 8 3 7 , 5 2 1 9 , 4 4 8 8 , 4 7 6 4 , 5 3 0 6 , 5 e s n e p x e t s e r e t n I : k c a b d d A 0 1 4 , 9 4 2 8 1 , 0 8 4 7 6 , 3 8 0 1 6 , 5 8 6 9 6 , 4 0 1 9 1 1 , 1 3 1 6 6 0 , 1 3 1 1 5 9 , 7 4 1 5 6 3 , 1 4 1 : r o f d e t s u d A j I T B E : s r a e y l i a c n a n i f e h t f o h c a e r o f t l u s e R t n e m g e S l i a t e R d e t r o p e R e h t o t I T B E g n y l r e d n u i l i t a e R i r e m e r P m r e t l i a c n a n i f S R F I - n o N e h t s e l i c n o c e r w o e b l l e b a t e h T . t n e m g e S l i ’ t a e R s p u o r G e h t f o s r e v i r d d n a e c n a m r o f r e p e h t f o s t c e p s a y e k d n a t s r e d n u r e t t e b o t s e r u s a e m l i a c n a n i f S R F I - n o N g n i t n u o c c A l a n o i t a n r e t n I e h t y b d e u s s i s a ) ” S R F I “ ( s d r a d n a S g n t i t r o p e R l i a c n a n F i l a n o i t a n r e t n I d n a s d r a d n a S g n t i t n u o c c A n a i l a r t s u A r e d n u d e t r o p e r e r a s t l u s e r ’ s p u o r G e h T t l u s e R t n e m g e S l i a t e R d e t r o p e R d n a T B E I l i a t e R r e i m e r P g n i y l r e d n u n e e w t e b n o i t a i l i c n o c e R : ) d e u n i t n o c ( s t l u s e R g n i t a r e p O p u o r G ) I D E U N T N O C ( I I I W E V E R L A C N A N F D N A G N T A R E P O I T R O P E R ’ S R O T C E R I D ) D E U N I T N O C ( - - - - - - - 4 7 1 7 7 , 5 1 - - - - - - - - - - - - - - - - 2 9 1 0 3 - ) 2 8 4 ( 3 9 1 , 3 2 8 4 , 4 - - - - - ) 3 7 6 ( ) 7 6 1 ( - - - 4 2 7 , 1 - - - - - - - - - - ) 6 9 5 , 6 ( ) 4 8 ( - 8 1 2 - - - ) 2 9 ( - 7 4 7 - - - 6 8 7 , 1 0 6 4 , 1 - - - - - - 1 1 1 d o o g - e k a m d n a n o i t a c o e r l e c i f f o d a e H o t g n i t a e r l s e s n e p x e f f o - e n O 6 1 0 2 n i k e e w d r 3 5 e h t I r o f n o i t u b i r t n o c T B E e b a r a p m o c - n o N l e s n e p x e n o i t a m r o f s n a r t i n a h c l y p p u s f f o - e n O e r u t n e V i t n o J n a c i r f A h t u o S f o t i x e f f o - e n O e s n e p x e y r t n e t e k r a m w e n e g g m S l i f f o - e n O i w e v e r i c g e t a r t s o t d e t a e r l s t s o c f f o - e n O j s t n e m t s u d a t n e m g e s - r e n t I 5 5 2 , 5 6 4 7 3 , 0 8 4 0 7 , 3 8 3 0 8 , 2 9 7 4 7 , 5 0 1 1 0 7 , 6 2 1 1 3 0 , 6 3 1 6 6 0 , 0 5 1 4 3 3 , 7 6 1 5 4 3 , 2 5 4 0 , 3 - - - - 8 5 8 , 5 2 s t s o c d e t a c o s s a i d n a n o i t a c e r p e d i l d e t a r e e c c a m o d g n K d e t i n U i f f o - e n O I T B E l i a t e R r e i m e r P g n i y l r e d n U e s n e p x e n o i t a g i t i l f f o - e n O 3 . 5 6 4 . 0 8 7 . 3 8 8 . 2 9 7 . 5 0 1 7 . 6 2 1 0 . 6 3 1 1 . 0 5 1 3 . 7 6 1 s n o i l l i m ’ $ n i d e s s e r p x e , I T B E l i a t e R r e i m e r P g n i y l r e d n U 9 . r a e y l i a c n a n i f k e e w 3 5 a d e t n e s e r p e r 6 1 0 2 l y u J 0 3 d e d n e r a e y e h t r o f x a t e r o f e b t i f o r P l i a t e R i r e m e r P d e t r o p e R * 9 Annual Report 2019 DIRECTORS’ REPORT (CONTINUED) Director’s Report continued GROUP PERFORMANCE The Group is pleased to report that despite tough economic conditions, it continued to generate strong returns to shareholders. The dividends declared for the period reaffirm the confidence the Directors have in the future performance and underline Premier’s commitment to enhancing shareholder value through capital management and business investment. 2019 2018 2017 2016 2015 Closing share price at end of financial year $16.28 $17.35 $13.35 $16.22 $13.43 Basic earnings per share (cents) Dividend paid per share (cents) Return on equity (%) 67.51 66.0 9.8%2 52.97 56.0 8.5%1 66.8 51.0 7.9% 66.3 44.0 56.5 50.0 7.8% 6.6% Net debt/equity ratio (%) 1.7% (0.2%) 0.2% (13.3%) (13.2%) 1 Excludes the impact of a non-cash impairment of intangible asset brand names of $30 million. 2 Excludes the impact of the United Kingdom accelerated depreciation and other related expenses of $25.9 million. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There have been no significant changes in the state of affairs of the Group during the financial year ended 27 July 2019. SIGNIFICANT EVENTS AFTER THE REPORTING DATE Directors of Premier Investments Limited declared a final dividend in respect of the 2019 financial year. The total amount of the dividend is $58,619,000 (2018: $52,201,000) which represents a fully franked dividend of 37 cents per share (2018: 33 cents per share). The dividend has not been provided for in the 27 July 2019 financial statements. LIKELY DEVELOPMENTS AND EXPECTED RESULTS Certain likely developments in the operations of the Group and the expected results of those operations in financial years subsequent to the period ended 27 July 2019 are referred to in the preceding operating and financial review. No additional information is included on the likely developments in the operations of the Group and the expected results of those operations as the Directors reasonably believe that the disclosure of such information would be likely to result in unreasonable prejudice to the Group if included in this report, and it has therefore been excluded in accordance with section 299(3) of the Corporations Act 2001. ENVIRONMENTAL REGULATION AND PERFORMANCE The Group’s operations are not subject to any significant environmental obligations or regulations. SHARE OPTIONS AND SHARES ISSUED DURING THE FINANCIAL YEAR Unissued Shares: As at the date of this report, there were 615,637 unissued performance rights (615,637 at the reporting date). Refer to the remuneration report for further details of the options outstanding. Shares Issued as a Result of the Exercise of Options: A total of 330,112 shares (2018: 350,978) were issued during the year pursuant to the Group’s Performance Rights Plan. No other shares were issued during the year. 10 10 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS To the extent permitted by law, the company indemnifies every person who is or has been a director or officer of the company or of a wholly-owned subsidiary of the company against liability for damages awarded or judgments entered against them and legal defence costs and expenses, arising out of a wrongful act, incurred by that person whilst acting in their capacity as a director or officer provided there has been no admission, or judgment, award or other finding by a court, tribunal or arbitrator which establishes improper use of position, or committing of any criminal, dishonest, fraudulent or malicious act. The officers include the Directors, as named earlier in this report, the Company Secretary and other officers, being the executive senior management team. Details of the nature of the liabilities covered or the amount of the premium paid in respect of the Directors, and Officers, liability insurance contracts are not disclosed as such disclosure is prohibited under the terms of the contracts. INDEMNIFICATION OF AUDITORS To the extent permitted by law, the company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. AUDITOR INDEPENDENCE The Directors received a copy of the Auditor’s Independence Declaration in relation to the audit for this financial year and is presented on page 34. NON-AUDIT SERVICES The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that independence was not compromised. Details of non-audit services provided by the Group’s auditor, Ernst & Young, can be found in Note 30 of the Financial Report. ROUNDING The company is a company of the kind specified in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016. In accordance with that ASIC instrument amounts in the financial statements and the Directors’ Report have been rounded to the nearest thousand dollars unless specifically stated to be otherwise. CORPORATE GOVERNANCE STATEMENT To view Premier’s Corporate Governance Statement, please visit www.premierinvestments.com.au/about-us/board- policies. 11 11 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) DIRECTOR INTERESTS IN SHARES AND RIGHTS OF THE COMPANY At the date of this report, the interests of the Directors in the shares and performance rights of the company were: Solomon Lew Sally Herman Henry Lanzer AM Michael McLeod Mark McInnes 4,437,699 ordinary shares** 8,000 ordinary shares 27,665 ordinary shares 28,186 ordinary shares 732,100 ordinary shares and 250,000 performance rights **Mr. Lew is an associate of Century Plaza Investments Pty. Ltd. and Metrepark Pty. Ltd (Associated Entities). The Associated Entities, collectively, have a relevant interest in 59,804,731 shares in the company. However, Mr. Lew does not have a relevant interest in the shares of the company held by the Associated Entities. DIRECTORS’ MEETINGS The number of meetings of the Board of Directors during the financial year, and the number of meetings attended by each director were as follows: DIRECTOR Solomon Lew Mark McInnes Timothy Antonie David Crean Sylvia Falzon Sally Herman Henry Lanzer AM Terrence McCartney Michael McLeod BOARD MEETINGS AUDIT AND RISK COMMITTEE REMUNERATION AND NOMINATION COMMITTEE MEETINGS HELD NUMBER ATTENDED MEETINGS HELD NUMBER ATTENDED MEETINGS HELD NUMBER ATTENDED 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 - - 4 4 4 4 - - - - 1 4 4 4 4 2 2 1 - - 3 - - - 3 3 - - - 3 - - - 3 3 - REMUNERATION REPORT The Remuneration Report, which forms part of this Directors’ Report, is presented from page 13. The Directors’ Report is signed in accordance with a resolution of the Board of Directors. Solomon Lew Chairman 2 October 2019 12 12 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT DIRECTORS’ REPORT (CONTINUED) Dear Shareholders, As Chairman of the Remuneration and Nomination Committee, I am pleased to present Premier Investments’ REMUNERATION REPORT remuneration report for the 52 weeks ended 27 July 2019. This report outlines, in detail, the remuneration outcomes and incentive arrangements, related to our performance. Premier has again successfully managed our retail businesses on behalf of our shareholders for the 2019 financial year. This is in an environment of substantial change in the retail market, here in Australia as well as our international Dear Shareholders, operations, which requires the very best executives to deliver the result. Premier Retail CEO, Mark McInnes has As Chairman of the Remuneration and Nomination Committee, I am pleased to present Premier Investments’ again led a talented executive team to deliver reported revenue of $1.27 billion, with statutory reported retail segment remuneration report for the 52 weeks ended 27 July 2019. This report outlines, in detail, the remuneration outcomes operating profit before taxation of $135.8 million and underlying Earnings before Interest and Taxation (“EBIT”) 1, of and incentive arrangements, related to our performance. $167.3 million, up 11.5% on the prior financial year. Premier has again successfully managed our retail businesses on behalf of our shareholders for the 2019 financial From a shareholder’s perspective, this has again translated into some of the best returns within the ASX200. For the year. This is in an environment of substantial change in the retail market, here in Australia as well as our international 8th consecutive year, Premier Retail has delivered growth in underlying EBIT, resulting in increased ordinary fully operations, which requires the very best executives to deliver the result. Premier Retail CEO, Mark McInnes has franked dividends being declared to our shareholders. again led a talented executive team to deliver reported revenue of $1.27 billion, with statutory reported retail segment operating profit before taxation of $135.8 million and underlying Earnings before Interest and Taxation (“EBIT”) 1, of Underlying EBIT History1 $167.3 million, up 11.5% on the prior financial year. Underlying EBIT History1 Underlying EBIT History1 From a shareholder’s perspective, this has again translated into some of the best returns within the ASX200. For the 8th consecutive year, Premier Retail has delivered growth in underlying EBIT, resulting in increased ordinary fully franked dividends being declared to our shareholders. $180.0 $167.3 $160.0 $180.0 $150.1 $167.3 $136.0 $126.7 $150.1 70 Full year ordinary dividends per share (fully franked) 70 62 53 48 40 42 60 50 40 30 FY14 FY15 FY16 FY17 FY18 FY19 cents per share $100.0 $120.0 $80.4 $83.7 $136.0 $105.7 Underlying EBIT History1 $105.7 $126.7 $92.8 $80.4 $83.7 $92.8 $140.0 $160.0 $120.0 $140.0 $100.0 $80.0 $180.0 $60.0 $160.0 $40.0 $140.0 $80.0 $60.0 $120.0 $40.0 $167.3 $150.1 $136.0 FY17 FY18 FY19 FY12 FY13 FY14 $126.7 FY16 FY15 $105.7 $' millions FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 $92.8 $80.4 $83.7 Full year ordinary dividends per share (fully franked) $' millions FY13 FY14 FY17 FY16 70 FY12 FY15 FY19 Full Year Ordinary Dividends per Share Full year ordinary dividends 62 $' millions (fully franked) per share (fully franked) 53 Full year ordinary dividends per share (fully 48 70 franked) FY18 42 70 62 70 40 60 50 FY14 40 40 30 53 62 48 40 FY15 42 FY16 48 53 FY17 cents per share 42 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19 $180.0 $160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 Underlying EBIT History1 $167.3 $150.1 $136.0 $126.7 $105.7 $92.8 $80.4 $83.7 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 $100.0 $80.0 $60.0 $40.0 70 60 50 40 70 30 60 50 40 $' millions 1 Refer to page 9 of the Directors’ Report for a definition and reconciliation of underlying EBIT. FY16 Underlying EBIT represents a comparable 52 week period. 30 cents per share FY14 FY15 FY16 FY17 FY18 FY19 cents per share 1 Refer to page 9 of the Directors’ Report for a definition and reconciliation of underlying EBIT. FY16 Underlying EBIT represents a comparable 52 week period. 13 13 13 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) REMUNERATION REPORT (CONTINUED) DIRECTORS’ REPORT (CONTINUED) The senior executive team are highly skilled, experienced and very well respected within the retail industry, many of whom are female. Female senior leaders are responsible for five of our seven retail brands, and two of our major support functions, being Internet and Marketing and People and Culture. 53%2 of the CEO’s direct reports are REMUNERATION REPORT (CONTINUED) female. Across our over 1,200 stores in Australia, New Zealand, Asia and Europe, the critical support functions within those markets, our fast-growing online business and in the Group’s head office, over 90% of the approximately 9,000 The senior executive team are highly skilled, experienced and very well respected within the retail industry, many of strong workforce are female. Female management represents 78%2 of management. whom are female. Female senior leaders are responsible for five of our seven retail brands, and two of our major support functions, being Internet and Marketing and People and Culture. 53%2 of the CEO’s direct reports are We will continue to encourage and support a business leadership structure that reflects the values of equal female. opportunity. Across our over 1,200 stores in Australia, New Zealand, Asia and Europe, the critical support functions within those The retail environment in several markets have experienced difficult conditions as political instability and general markets, our fast-growing online business and in the Group’s head office, over 90% of the approximately 9,000 economic environment has damaged consumer confidence. This at a time when traditional channels of retail are strong workforce are female. Female management represents 78%2 of management. rapidly changing. Premier has proactively managed these impacts, with successful expansion into new avenues of growth, throughout Australia, New Zealand, Asia, the Middle East and Europe, be it own stores, concessions, online We will continue to encourage and support a business leadership structure that reflects the values of equal or wholesale. Success in the broader international markets, whilst sustaining profitable growth in the very competitive opportunity. domestic market, requires a highly competent and experienced retail team, a priority for Premier’s remuneration The retail environment in several markets have experienced difficult conditions as political instability and general strategies, as evident in the consistent quality results, even with the domestic and international retail industries economic environment has damaged consumer confidence. This at a time when traditional channels of retail are experiencing accelerated speed of change and the need for an incisive investment response. rapidly changing. Premier has proactively managed these impacts, with successful expansion into new avenues of In this global retail world Premier continues to encourage, incentivise and develop executives who understand this growth, throughout Australia, New Zealand, Asia, the Middle East and Europe, be it own stores, concessions, online complex retail environment and proactively develop business outcomes that build shareholder wealth. With that in or wholesale. Success in the broader international markets, whilst sustaining profitable growth in the very competitive mind, the Premier Board is committed to supporting executives to ensure that strong financial returns are continued domestic market, requires a highly competent and experienced retail team, a priority for Premier’s remuneration to be enjoyed by our shareholders. strategies, as evident in the consistent quality results, even with the domestic and international retail industries experiencing accelerated speed of change and the need for an incisive investment response. The report summarises our remuneration strategies, the way in which incentives are calculated and the connection between those strategies and the achievement of positive returns for shareholders. In this global retail world Premier continues to encourage, incentivise and develop executives who understand this complex retail environment and proactively develop business outcomes that build shareholder wealth. With that in mind, the Premier Board is committed to supporting executives to ensure that strong financial returns are continued to be enjoyed by our shareholders. The report summarises our remuneration strategies, the way in which incentives are calculated and the connection between those strategies and the achievement of positive returns for shareholders. Terrence McCartney Chairman, Remuneration and Nomination Committee Terrence McCartney Chairman, Remuneration and Nomination Committee 2 As per the Just Group Limited Australian Workplace Gender Equality Agency Report 2018-2019. 2 As per the Just Group Limited Australian Workplace Gender Equality Agency Report 2018-2019. 14 14 14 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) This remuneration report for the 52 weeks ended 27 July 2019 outlines the remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 (Cth), as amended (the “Act”) and its regulations. This information has been audited as required by section 308 (3C) of the Act. The remuneration report is presented under the following headings: 1. Introduction 2. Remuneration Governance 3. Executive remuneration arrangements: A. Remuneration principles and strategy B. Approach to setting remuneration C. Fixed remuneration objectives D. Detail of incentive plans 4. Executive remuneration outcomes (including link to performance) 5. Remuneration of CEO Premier Retail, Mr. McInnes 6. Executive service agreements 7. Non-Executive Director remuneration arrangements 8. Remuneration of Key Management Personnel 9. Additional disclosures relating to Rights and Shares 10. Additional disclosures relating to transactions and balances with Key Management Personnel 1. INTRODUCTION The remuneration report details the remuneration arrangements for Key Management Personnel (“KMP”) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. The table below outlines the Group’s KMP during the 52 weeks ended 27 July 2019. Unless otherwise indicated, the individuals were KMP for the entire financial year. KEY MANAGEMENT PERSONNEL (i) Non-Executive Directors Solomon Lew David Crean Chairman and Non-Executive Director Deputy Chairman and Non-Executive Director Timothy Antonie Non-Executive Director and Lead Independent Director Sylvia Falzon Sally Herman Non-Executive Director Non-Executive Director Henry Lanzer AM Non-Executive Director Terrence McCartney Non-Executive Director Michael McLeod Non-Executive Director 15 15 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 1. INTRODUCTION (CONTINUED) KEY MANAGEMENT PERSONNEL (CONTINUED) (ii) Executive Director Mark McInnes Executive Director and Chief Executive Officer Premier Retail (iii) Executives John Bryce Chief Financial Officer, Just Group Limited Marinda Meyer Company Secretary, Premier Investments Limited (appointed 4 February 2019) Kim Davis Company Secretary, Premier Investments Limited (retired 4 February 2019) Other than as noted above, there were no changes to the KMP after the reporting date and before the date the financial report was authorised for issue. 2. REMUNERATION GOVERNANCE Remuneration and Nomination Committee The Remuneration and Nomination Committee (“Committee”) of the Board of Directors of the Group (“Board”) comprises three Non-Executive Directors. The Committee is led by Terrence McCartney, an independent Non-Executive Director, and the majority of its members are independent Non-Executive Directors. This demonstrates an ongoing commitment to the independence of the Committee. The Committee has delegated decision-making authority for some matters related to the remuneration arrangements for KMP and is required to make recommendations to the Board on other matters. Specifically, the Board approves the remuneration arrangements of the Chief Executive Officer Premier Retail (“CEO Premier Retail”) and other executives, including awards made under the short term incentive (“STI”) and long term incentive (“LTI”) plans, following recommendations from the Committee. The Board also sets the aggregate remuneration for Non-Executive Directors (which is subject to shareholder approval) and Non-Executive Director fee levels. The Committee approves, having regard to recommendations made by the CEO Premier Retail, the level of the Group STI pool. The Committee meets regularly. The CEO Premier Retail attends certain Committee meetings by invitation, where management input is required. The CEO Premier Retail is not present during discussions relating to his own remuneration arrangements. Further information relating to the Committee’s role, responsibilities and membership can be seen at www.premierinvestments.com.au. Use of remuneration advisors The Committee may from time to time seek external remuneration advice to ensure it is fully informed when making remuneration decisions. Remuneration advisors are engaged by, and report directly to, the Committee. During the 2019 financial year, the Committee approved the engagement of Egan Associates to review aspects of the Company’s future LTI plans. 16 16 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) DIRECTORS’ REPORT (CONTINUED) 3. EXECUTIVE REMUNERATION ARRANGEMENTS 3A. Remuneration principles and strategy REMUNERATION REPORT (AUDITED) (CONTINUED) The Group’s executive remuneration strategy is designed to attract, motivate and retain high performing individuals, and align the interests of executives with shareholders. 3. EXECUTIVE REMUNERATION ARRANGEMENTS The Group operates mainly in the retail industry, with significant revenues earned in its traditional markets of Australia 3A. Remuneration principles and strategy and New Zealand. The retail industry in these markets has seen marked structural change over recent years, including a prevalence in the use of new and existing technology, an increase in international competitors and significant The Group’s executive remuneration strategy is designed to attract, motivate and retain high performing individuals, changes in general consumer sentiment. and align the interests of executives with shareholders. Complementing its strong market position in Australia and New Zealand, the Group continues to diversify its revenues The Group operates mainly in the retail industry, with significant revenues earned in its traditional markets of Australia by expanding into international markets in Asia and Europe. The Group is committed to growing its existing and New Zealand. The retail industry in these markets has seen marked structural change over recent years, including international presence whilst also exploring expansion into new geographies. During the 2019 financial year, the Group a prevalence in the use of new and existing technology, an increase in international competitors and significant launched its wholesale business internationally, expanding its overseas footprint. changes in general consumer sentiment. REVENUE FROM CUSTOMERS PER GEOGRAPHIC AREA FY19 Revenue from Customers per Geographic Area FY19 Complementing its strong market position in Australia and New Zealand, the Group continues to diversify its revenues by expanding into international markets in Asia and Europe. The Group is committed to growing its existing international presence whilst also exploring expansion into new geographies. During the 2019 financial year, the Group launched its wholesale business internationally, expanding its overseas footprint. Europe 10% 10% Europe Asia 6% REVENUE FROM CUSTOMERS PER GEOGRAPHIC AREA FY19 6% New Zealand Asia 10% 10% New Zealand Asia 6% New Zealand 10% Europe 10% Australia 74% 74% Australia The market for skilled and experienced executives in the retail industry continues to be increasingly competitive and international in nature. The Group’s strong domestic position, as well as global reach, provides exposure to an international pool of talent and access to a diverse range of strategies to respond to industry changes. Australia 74% Given these structural changes and the Group’s growing international business, the Board believes it is both critical to the future success of the business, and in the best interest of shareholders, to attract, retain and develop the best The market for skilled and experienced executives in the retail industry continues to be increasingly competitive and possible executive team through the provision of competitive remuneration packages, and incentive arrangements international in nature. The Group’s strong domestic position, as well as global reach, provides exposure to an which are aligned to growth and performance. international pool of talent and access to a diverse range of strategies to respond to industry changes. The Group’s strategic objective is to be recognised as a leader in the retail industry and build long term value for Given these structural changes and the Group’s growing international business, the Board believes it is both critical to shareholders. It seeks to do this in the following ways: the future success of the business, and in the best interest of shareholders, to attract, retain and develop the best possible executive team through the provision of competitive remuneration packages, and incentive arrangements which are aligned to growth and performance. PREMIER RETAIL TRANSFORMATION STRATEGY – OUR FOCUS ON GROWTH AND INVESTMENT The Group’s strategic objective is to be recognised as a leader in the retail industry and build long term value for shareholders. It seeks to do this in the following ways: GROWTH CORE  Grow Smiggle significantly  Gross margin expansion program  Grow Peter Alexander significantly PREMIER RETAIL TRANSFORMATION STRATEGY – OUR FOCUS ON GROWTH AND INVESTMENT  Rejuvenation of core apparel brands  Expansion and growth of online businesses GROWTH  Organisation-wide cost efficiency program CORE  Grow Smiggle significantly  Gross margin expansion program The Group is committed to ensuring that executive remuneration outcomes are explicitly linked to the overall performance and success of the Group. This section, and in particular the diagram on the following page, illustrates this link between the Group’s strategic objective and its executive remuneration strategies.  Rejuvenation of core apparel brands  Grow Peter Alexander significantly  Expansion and growth of online businesses  Organisation-wide cost efficiency program The Group is committed to ensuring that executive remuneration outcomes are explicitly linked to the overall performance and success of the Group. This section, and in particular the diagram on the following page, illustrates this link between the Group’s strategic objective and its executive remuneration strategies. 17 17 17 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED) 3A. Remuneration principles and strategy (continued) To be recognised as a leader in our industry and build long-term value for our shareholders Group Objective Remuneration strategy linkages to Group objective Align the interests of executives with shareholders  The remuneration framework incorporates “at- risk” components, through STI and LTI plans.  Performance is assessed against a suite of financial and non-financial measures relevant to the success of the Group and generate returns for shareholders. Attract, motivate and retain high performing individuals   Remuneration is competitive as compared to companies of a similar size and complexity. Longer-term remuneration frameworks and “at-risk” components encourage retention, development and a multi-year performance focus. Component Vehicle Purpose Link to performance To provide competitive fixed remuneration with reference to the applicable role, market and relevant executive’s experience. Both the executive’s performance, and the performance of the Group, are considered during regular remuneration reviews. Comprises base salary, superannuation contributions and other benefits Awarded in cash Fixed remuneration STI LTI Rewards executives for their contribution to achievement of Group and business unit annual outputs and performance outcomes. Awarded in performance rights Rewards executives for their contribution to the creation of shareholder value over the long term. Discretionary Bonus Awarded in cash or performance rights Rewards executives in exceptional circumstances linked to long term shareholder outcomes. 18 Key financial metrics based primarily on Premier Retail’s underlying earnings before interest and taxation (“EBIT”) of each business unit, as well as a suite of other internal financial and non- financial measures. Vesting of performance rights is dependent on both a positive total shareholder return (“TSR”) for the Group and testing against the Comparison Peer Group (defined in Section 3D of this report). Granted at the discretion of the Board upon recommendation of the Committee in exceptional circumstances, and when in the best interests of the Group. No discretionary bonuses were made during the 2019 or 2018 financial years. 18 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 3. EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED) 3B. Approach to setting remuneration For the 52 weeks ended 27 July 2019, the executive remuneration framework comprised of fixed remuneration, STI and LTI, as outlined below. Details of Mr. McInnes’ remuneration are provided in section 5 of this report. The Group aims to reward executives with a competitive level and mix of remuneration appropriate to their position and responsibilities, and linked to shareholder value creation. 3C. Fixed remuneration objectives Fixed remuneration is reviewed by the Committee. The process consists of a review of the Group, applicable business unit and executive’s individual performance, relevant comparative remuneration (both externally and internally) and, where appropriate, external advice. The Committee has access to external advice independent of management. 3D. Detail of incentive plans Short term incentive (“STI”) The Group operates an annual STI program which is awarded subject to the attainment of clearly defined financial and non-financial Group and business unit measures. Who participates? Executives who have served a minimum of nine months. How is STI delivered? Cash. What is the STI opportunity? Executives have an STI opportunity of between 0% and 100% of their fixed remuneration. What are the applicable financial performance measures? STI payments awarded to each executive are explicitly aligned to the key value drivers of Premier Retail, such that rewards will only be payable when the following criteria have been met:     budgeted EBIT of Premier Retail has been achieved and an incentive pool has been created; the executive receives a performance appraisal on target or above; the executive’s minimum performance outcomes have been achieved (hurdle); and the executive’s key performance indicators (“KPIs”) have been met (qualifiers). The financial performance measures are chosen with reference to the strategic objective to promote both short term success and provide a framework for delivering long term value. The hurdle criteria are designed to ensure STI outcomes are aligned to the creation of shareholder value. If the hurdles are not met, the STI is not payable. The qualifier criteria aligns the individual activities and focus of the executive to shareholder value. Each executive is set multiple KPIs covering financial, non- financial, Group and business unit measures of performance. The KPIs are quantifiable and weighted according to their value. The budgeted EBIT for each year is expected to incorporate growth on the previous year. As such, in a year in which STI payments are made, executives must exceed the actual result in the prior year to achieve an STI in the following year. This mechanism ensures the STI scheme continues to build shareholder returns over time. 19 19 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 3. EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED) 3D. Detail of incentive plans (continued) Short-term incentive (“STI”) (continued) What are the applicable non-financial performance measures? How is performance assessed? The award of an STI is also dependent on the executive achieving individual aligned non-financial performance indicators, such as:     retention of existing customers through outstanding customer service; implementation of key growth initiatives; demonstrated focus on a continuous improvement in safety performance; and demonstrated focus on the growth and development of leadership and team talent to encourage leadership succession. After the end of the financial year, following consideration of the financial and non- financial performance indicators, the Committee obtains input from the CEO Premier Retail in relation to the amount of STI to be paid to eligible executives. The Committee then provides its recommendations to the Just Group Board for approval. The provision of any STI payments is subject to the sole discretion of the Chairman. Long-term incentive (“LTI”) The Group’s LTI plan seeks to create shareholder value over the long term by aligning executive remuneration with the Group’s strategic objectives. Generally, LTI performance rights are granted annually and are eligible to vest three years from the date of the grant, with the exception of rights awarded to Mr. McInnes. Refer to section 5 for details surrounding Mr McInnes’ LTI arrangements. Who participates? Executives. How is LTI delivered? Performance rights. What were the performance measures for the 2019 and 2018 financial years? LTI rights awarded to each executive are subject to a two-stage performance test - an absolute and relative test - based on the Group’s TSR. Broadly, TSR is the percentage growth achieved from an investment in ordinary shares over the relevant testing period (assuming all dividends are reinvested). The two-stage performance measure approach ensures that the LTI plan operates as a key driver for performance whilst also providing an incentive to executives. The absolute test requires the Group to achieve a positive TSR over the testing period. If the TSR is negative over the testing period, then the performance rights lapse. If the TSR is positive over the testing period, the relative test is undertaken, which compares the Group’s TSR with the S&P/ASX200 excluding overseas and resource companies (“Comparison Peer Group”). The Comparison Peer Group was chosen to reflect the Group’s competitors for both capital and talent. 20 20 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 3. EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED) 3D. Detail of incentive plans (continued) Long-term incentive (“LTI”) (continued) What were the performance measures for the 2019 and 2018 financial years (continued)? The Group’s performance against the Comparison Peer Group measure is determined according to its ranking against the Comparison Peer Group over the performance period. The vesting schedule is as follows: Target Conversion ratio of rights to shares available to vest under the TSR performance condition Below 50th percentile 50th percentile Between 50th and 62.5th percentile 62.5th percentile Between 62.5th and 75th percentile 75th percentile and above 0% 25% Pro Rata 50% Pro Rata 100% The absolute test was introduced to ensure that shareholders and executives are aligned in the goal of absolute wealth creation. The relative test was introduced to provide alignment between comparative shareholder return and reward for executives. The Group considers the suitability of the above performance conditions on an annual basis. How is performance assessed? TSR performance is calculated by an independent external advisor at the end of each performance period. Section 9 of this report, titled “Additional disclosures relating to rights and shares”, provides details of performance rights granted, vested, exercised and lapsed during the year. When does the LTI vest? Generally, the performance rights will vest over a period of three years subject to meeting performance measures. Performance rights have no opportunity to re-test. How are grants treated on termination? Generally, all outstanding unvested rights are forfeited upon an executive resigning from the Group. May participants enter into hedging arrangements? Are there restrictions on disposals? Do participants receive distributions or dividends on unvested LTI grants? Executives are prohibited from entering into transactions to hedge or limit the economic risk of the securities allocated to them under the LTI scheme, either before vesting or after vesting while the securities are held subject to restriction. Executives are only able to hedge securities that have vested but continue to be subject to a trading restriction and a seven-year lock, with the prior consent of the Board. No employees have any hedging arrangements in place. Once rights have been allocated, disposal of performance shares is subject to restrictions whereby Board approval is required to sell shares granted within seven years under the LTI plan. Participants do not receive distributions or dividends on unvested LTI grants. 21 21 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 4. EXECUTIVE REMUNERATION OUTCOMES (INCLUDING LINK TO PERFORMANCE) Group performance and its link to STI 4. EXECUTIVE REMUNERATION OUTCOMES (INCLUDING LINK TO PERFORMANCE) STI payment outcomes are primarily driven by Premier Retail’s underlying EBIT growth. The following chart shows Group performance and its link to STI Premier Retail’s underlying EBIT for the eight years since the appointment of Mr. McInnes as CEO Premier Retail. STI payment outcomes are primarily driven by Premier Retail’s underlying EBIT growth. The following chart shows Premier Retail’s underlying EBIT for the eight years since the appointment of Mr. McInnes as CEO Premier Retail. Premier Retail Underlying EBIT $180.0 $180.0 $160.0 $180.0 $160.0 $140.0 $160.0 $140.0 $120.0 $140.0 $120.0 $100.0 $100.0 $120.0 $80.0 $100.0 Premier Retail Underlying EBIT Premier Retail Underlying EBIT $136.0 $136.0 $136.0 $126.7 $105.7 $126.7 $126.7 $105.7 $105.7 $92.8 $92.8 $92.8 $80.4 $83.7 $65.3 $80.4 $83.7 $83.7 $80.4 $167.3 $167.3 $167.3 $150.1 $150.1 $150.1 $80.0 $60.0 $80.0 $60.0 $40.0 $60.0 $40.0 $20.0 $40.0 $20.0 $- $20.0 $- $- $65.3 $65.3 FY11 FY12 FY13 FY14 FY11 FY11 FY12 FY12 FY13 FY13 FY14 FY14 $'millions * FY16 Underlying EBIT represents a comparable 52 week period. FY15 $'millions FY15 FY15 $'millions FY16 * FY17 FY18 FY19 FY16 * FY16* FY17 FY17 FY18 FY18 FY19 FY19 Note: The term underlying EBIT is not an IFRS defined term. Please refer to page 9 for a reconciliation between underlying EBIT and * FY16 Underlying EBIT represents a comparable 52 week period. statutory reported operating profit before tax for the Retail Segment. Note: The term underlying EBIT is not an IFRS defined term. Please refer to page 9 for a reconciliation between underlying EBIT and statutory reported operating profit before tax for the Retail Segment. 22 22 22 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 4. EXECUTIVE REMUNERATION OUTCOMES (INCLUDING LINK TO PERFORMANCE) (CONTINUED) DIRECTORS’ REPORT Group performance and its link to LTI (CONTINUED) The performance measure which drives LTI vesting is dependent on an absolute test, being a positive Group TSR performance and a relative test, being a comparison against the Comparison Peer Group (as defined in section 3D of this report). REMUNERATION REPORT (AUDITED) (CONTINUED) The table below illustrates the outcomes of the TSR testing performed during the 2018 and 2019 financial years in relation to KMP: 4. EXECUTIVE REMUNERATION OUTCOMES (INCLUDING LINK TO PERFORMANCE) (CONTINUED) Group performance and its link to LTI Number of Performance Rights The performance measure which drives LTI vesting is dependent on an absolute test, being a positive Group TSR tested for performance and a relative test, being a comparison against the Comparison Peer Group (as defined in section 3D of KMP this report). Share price at end of testing period Share price at start of testing period TSR percentage Dividends paid TSR percentile Testing Period 4 Apr 2014 to 4 Apr 2018 $9.95 $15.93 87.67% 82.57 250,000* The table below illustrates the outcomes of the TSR testing performed during the 2018 and 2019 financial years in relation to KMP: 4 Apr 2014 to 4 Apr 2019 $9.95 $15.65 100.58% 74.53 $1.92 fully franked $2.54 fully franked * Relates to Mr. McInnes, refer to section 5 of this report. Share price at end of testing period The below chart shows the Premier TSR against the S&P/ASX200 Index, from 4 April 2011 to 27 July 2019: Share price at start of testing period TSR percentage Dividends paid TSR percentile Testing Period 250,000* Number of Performance Rights tested for KMP 250,000* 250,000* 4 Apr 2014 to 4 Apr 2018 4 Apr 2014 to 4 Apr 2019 30.00 $9.95 $15.93 Premier Investments Limited TSR against the ASX200 Index from 4 April 2011 to 27 July 2019 Premier Investments Limited TSR Against the ASX200 Index from 4 April 2011 to 27 July 2019 $1.92 fully franked $2.54 fully franked 100.58% 87.67% $15.65 $9.95 82.57 74.53 * Relates to Mr. McInnes, refer to section 5 of this report. 25.00 $167.3 30.00 The below chart shows the Premier TSR against the S&P/ASX200 Index, from 4 April 2011 to 27 July 2019: 20.00 25.00 15.00 30.00 20.00 10.00 25.00 15.00 5.00 20.00 10.00 – 15.00 Apr-11 5.00 10.00 Premier Investments Limited TSR against the ASX200 Index from 4 April 2011 to 27 July 2019 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 PMV ASX 200 +263% +263% +100% +263% +100% +100% 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES – 5.00 Mr. McInnes’ fixed remuneration Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Mr. McInnes’ annual fixed remuneration increased from $2,000,000 to $2,500,000, effective from the beginning of the PMV Apr-15 2016 financial year. This was Mr. McInnes’ first increase in fixed remuneration since joining the Group in 2011. – Apr-11 ASX 200 Apr-19 Apr-14 Apr-12 Apr-16 Apr-13 Apr-17 Apr-18 PMV ASX 200 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES Mr. McInnes’ fixed remuneration 23 Mr. McInnes’ annual fixed remuneration increased from $2,000,000 to $2,500,000, effective from the beginning of the 2016 financial year. This was Mr. McInnes’ first increase in fixed remuneration since joining the Group in 2011. 23 23 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES (CONTINUED) Mr. McInnes’ notice period Upon cessation of his employment, Mr. McInnes is entitled to 12 months’ notice (“Notice Period”) if he resigns or is terminated by Premier for any reason other than for serious misconduct, or for conduct otherwise giving rise to an entitlement at law to summarily dismiss (“Terminated Without Cause”). During the Notice Period, Premier may direct Mr. McInnes to continue in his role, perform no duties, reduced duties or alternative duties during the Notice Period, or elect to provide Mr. McInnes with payment in lieu of the Notice Period. The maximum amount of any payment in lieu of the Notice Period based on Mr. McInnes’ current fixed remuneration is $2,500,000 gross, less applicable tax. If Mr. McInnes is terminated for serious misconduct or Premier is otherwise entitled at law to summarily dismiss Mr. McInnes (“Terminated for Cause”), Premier may terminate Mr. McInnes’ employment without providing the Notice Period (or payment in lieu of the Notice Period). Mr. McInnes’ STI arrangements Mr. McInnes is entitled to receive a STI if the applicable performance targets and conditions set out below are met. Calculation of Mr. McInnes’ STI is based on growth of Premier Retail EBIT, as compared to the previous financial year (“Base Year”). The relevant performance targets and corresponding STI payment amounts are as follows: EBIT growth less than 5% of Base Year No payment. EBIT growth of 5% of Base Year $1,250,000. EBIT growth between 5% and 10% of Base Year $1,250,000 plus a pro rata payment based on the % of the EBIT growth above 5%, up to a maximum of $2,500,000 for 10% EBIT growth. EBIT growth of above 10% of Base Year If Mr. McInnes considers that any additional payment is warranted based on EBIT growth of above 10%, he may make a request for an additional payment to the Chairman of Premier. The Chairman may determine whether or not to make any such payment in his sole and absolute discretion within 30 days of receiving any such request. The maximum payment that Mr. McInnes may receive under the current STI scheme is $2,500,000, unless the Chairman decides to make an additional payment in his absolute discretion to reward EBIT growth of above 10%. The Chairman has not used such discretion during the 2018 or 2019 financial years. The Chairman has absolute discretion to make an additional STI payment if Mr. McInnes would not otherwise be entitled to such a payment under the above table. The amount that Mr. McInnes may receive under the STI scheme in connection with him ceasing employment (for reasons other than being Terminated for Cause) will depend on the financial year in which the Notice Period ends and will be calculated in accordance with the above table (on a pro rata basis for part of a financial year if the Notice Period ends part way through a financial year). If Mr. McInnes resigns from his employment, or is Terminated Without Cause, he remains entitled to continue participating in the STI scheme until the end of the Notice Period. This entitlement will not be impacted by any election by Premier to direct Mr. McInnes to continue in his role, to perform no duties, reduced duties or alternative duties during the Notice Period, or to provide Mr. McInnes with a payment in lieu of the Notice Period. 24 24 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES (CONTINUED) Mr. McInnes’ STI arrangements (continued) If Mr. McInnes’ employment is Terminated for Cause, he is not entitled to participate in the STI scheme for the financial year in which his employment ceases, or any following financial year. Payment of an STI upon Mr. McInnes’ cessation of employment may be considered a termination benefit within the meaning of Part 2D.2 of the Act. Mr. McInnes’ STI payments during the financial years ended 27 July 2019 and 28 July 2018 During the 2019 financial year, an STI payment of $2,500,000 was made to Mr. McInnes which primarily reflected the significant growth achieved in Premier Retail’s EBIT for the 2018 financial year. During the 2018 financial year, an STI payment of $1,840,000 was made to Mr. McInnes which primarily reflected the significant growth achieved in Premier Retail’s EBIT for the 2017 financial year. The historical growth in Premier Retail’s underlying EBIT is detailed in the graph in section 4 of this report. Mr. McInnes’ STI payment for the 2019 financial year will be finalised in December 2019. Mr. McInnes’ LTI arrangements Mr. McInnes is entitled to 1,000,000 performance rights split into four equal tranches. The performance rights were granted at no cost to Mr. McInnes and, conditional on the performance hurdles being met, the performance rights will be exercisable at no cost. Shareholders approved the right of the Group to issue the 1,000,000 performance rights to Mr. McInnes at the 2015 Annual General Meeting of shareholders held on 27 November 2015. The rules pertaining to this grant were approved by shareholders at the Extraordinary General Meeting of shareholders held on 15 June 2016. The performance rights granted will vest in four equal tranches subject to the achievement of both an absolute and relative TSR test. No value will be received by Mr. McInnes if the performance rights lapse prior to the vesting date. Each tranche of performance rights will be tested against the TSR performance measure over different testing periods, as follows:     Tranche A – 4 April 2014 to 4 April 2017 Tranche B – 4 April 2014 to 4 April 2018 (Tested, see further details provided in Section 5) Tranche C – 4 April 2014 to 4 April 2019 (Tested, see further details provided in Section 5) Tranche D – 4 April 2014 to 4 April 2020 (each date being a “Vesting Date”). The share price baseline for each tranche is $9.88, which was the volume weighted average share price (“VWAP”) of the ordinary shares on ASX for the five trading days prior to 4 April 2014. Premier’s TSR will be calculated based on the percentage growth achieved from the share price baseline of $9.88 to the share price on the relevant Vesting Date (calculated by the VWAP of the ordinary shares on ASX for the five trading days prior to the relevant Vesting Date). The first stage absolute test requires that the TSR over the testing period is positive. If the TSR is positive, the second stage relative test requires the TSR to be assessed against the relative performance of the Comparison Peer Group. 25 25 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES (CONTINUED) Mr. McInnes’ LTI arrangements (continued) The relative TSR performance targets and the corresponding vesting percentages are as follows: Target Below the 50th percentile 50th percentile Between 50th and 62.5th percentile 62.5th percentile Between 62.5th and 75th percentile 75th percentile and above Conversion ratio of performance rights to shares available to vest under the TSR performance condition: 0% 25% Pro Rata 50% Pro Rata 100% Premier’s TSR and ranking within the Comparison Peer Group for each testing period will be assessed by an external independent advisor. The performance rights under each tranche lapse if the applicable performance hurdles are not met (unless otherwise determined by the Board in its absolute discretion). If in any year Mr. McInnes has satisfied all performance conditions, other than the TSR being positive, and would otherwise have been entitled to vesting of any performance rights, the Chairman may, in his sole and absolute discretion, elect to enable some or all of the applicable performance rights to vest if circumstances justify such an award. If Mr. McInnes resigns, or is Terminated Without Cause, he will be entitled to continue to participate in the LTI plan until the end of his Notice Period, regardless of any election by Premier to direct Mr. McInnes to continue in his role, to perform no duties, reduced duties or alternative duties during the Notice Period, or to provide Mr. McInnes with a payment in lieu of the Notice Period. If Mr. McInnes’ employment is Terminated for Cause, he is not entitled to participate in the LTI plan for the financial year in which his employment ceases, or any following financial year. If Mr. McInnes resigns, or is Terminated Without Cause, and the final day of the Notice Period is within 14 days prior to a Vesting Date, Mr. McInnes remains entitled to have the performance rights tested against the TSR performance measure on the Vesting Date (“Special Vesting”). The Special Vesting terms will be effective regardless of any election by Premier to direct Mr. McInnes to continue in his role, to perform no duties, reduced duties or alternative duties during the Notice Period, or to provide Mr. McInnes with a payment in lieu of the Notice Period. Provision of a LTI upon Mr. McInnes’ cessation of employment may be considered a termination benefit within the meaning of Part 2D.2 of the Act. 26 26 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES (CONTINUED) Shares issued as a result of vesting of performance rights issued to Mr McInnes for the financial years ended 27 July 2019 and 28 July 2018 During the 2019 financial year, a tranche of 250,000 performance rights (being Tranche C) were tested for the period 4 April 2014 to 4 April 2019. The TSR over this period was 100.58%, placing Premier in the 74.53 percentile of the Comparison Peer Group. Details of this test have been presented in Section 4 of this report. The testing resulted in 98% of the performance rights qualifying for vesting into 245,300 newly issued shares in May 2019. During the 2018 financial year, a tranche of 250,000 performance rights (being Tranche B) were tested for the period 4 April 2014 to 4 April 2018. The TSR over this period was 87.67%, placing Premier in the 82.57 percentile of the Comparison Peer Group. Details of this test have been presented in Section 4 of this report. The testing resulted in 100% of the performance rights qualifying for vesting into 250,000 newly issued shares in April 2018. Mr. McInnes’ post-employment restrictions If Mr. McInnes resigns, is Terminated Without Cause or is Terminated for Cause, Premier may elect to restrict Mr. McInnes from certain conduct in competition with Premier for a period of either 12 months or 24 months from the end of the Notice Period (“Post-employment Restrictions”). If Premier elects to enforce the Post-employment Restrictions, it is required to provide Mr. McInnes with his total fixed remuneration during the relevant period (up to a maximum period of 24 months). If Premier elects to enforce the Post- employment Restrictions for 24 months, Mr. McInnes would receive a total of $5,000,000 gross, less applicable tax based on his current total fixed remuneration. If Premier elects to enforce the Post-employment Restrictions for 12 months, Mr. McInnes would receive a total of $2,500,000 gross, less applicable tax. Premier’s ability to enforce the Post-employment Restrictions will not be impacted by any election by Premier to direct Mr. McInnes to continue in his role, perform no duties, reduced duties or alternative duties during the Notice Period, or to provide Mr. McInnes with a payment in lieu of the Notice Period. If Mr. McInnes’ employment is Terminated for Cause, Premier may elect to enforce the Post-employment Restrictions from the date on which his employment is terminated (as no Notice Period will be provided). The payments outlined above may be considered a termination benefit within the meaning of Part 2D.2 of the Act. Termination benefits The STI, LTI and Post-employment Restrictions payments and benefits outlined above may be considered termination benefits within the meaning of Part 2D.2 of the Act. At an Extraordinary General Meeting held on 15 June 2016, shareholders approved these potential termination benefits for the purposes of Part 2D.2 of the Act. 27 27 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 6. EXECUTIVE SERVICE AGREEMENTS Remuneration and other terms of employment for KMP and other executives are formalised in written service agreements (with the exception of Mr. Davis and Ms. Meyer, whose relevant terms of employment are set out below). Material provisions of the service agreements are set out below: Start date Term of agreement Review period Notice period required from Premier Mr. McInnes 4 April 2011 Open Annual 12 months Mr. Bryce 13 Dec 2016 Open Annual 12 months Termination benefits Upon diminution of role Nil Notice period required from employee 12 months fixed rem. including notice Nil 12 months Premier initiated 12 months fixed rem. including notice 12 months fixed rem. including notice Mr. Davis (retired: 4 February 2019) 17 Nov 1993 Ms. Meyer 4 Feb 2019 Open Annual 3 months Nil Nil 3 months Open Annual 12 months Nil Nil 12 months 7. NON-EXECUTIVE DIRECTOR REMUNERATION ARRANGEMENTS Determination of fees and maximum aggregate Non-Executive Director Remuneration The Board seeks to set Non-Executive Director fees at a level which provides the Group with the ability to attract and retain Non-Executive Directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. The Group’s constitution and the ASX listing rules specify that the Non-Executive Director maximum aggregate remuneration shall be determined from time to time by a general meeting. The most recent determination of this kind was at the 2016 Annual General Meeting held on 2 December 2016 when shareholders approved an aggregate remuneration of an amount not exceeding $1,500,000 per year. The Chairman of the Group, consistent with his past practice, has declined to accept any remuneration for his role as a director or for his role on any committees. Fee policy Non-Executive Director’s fees consist of base fees and committee fees. The payment of committee fees recognises the additional time commitment required by Non-Executive Directors who serve on Board committees. Non-Executive Directors may be reimbursed for expenses reasonably incurred in attending to the Group’s affairs. Non- Executive Directors do not participate in any incentive programs. Premier has not established any schemes for retirement benefits for Non-Executive Directors (other than superannuation). 28 28 Premier Investments Limitede c n a m r o f r e P d e t a l e r l a t o T d e s a b e r a h S m r e t - g n o L s e v i t n e c n i - t s o P r e h t O y r a t e n o M - n o N l t n e m y o p m e - t s o P m r e t - t r o h S t n e m y o p m e l n o i t a u n n a r e p u S s t i f e n e B h s a C e e F / y r a l a S T R O P E R ’ S R O T C E R D I ) D E U N T N O C I 9 1 0 2 ( : s w o l l o f s a e r a r a e y l i a c n a n i f e h t n i i d a p p u o r G e h t f o P M K r o f i s e c v r e s r o f n o i t a s n e p m o c f o l t n e m e e h c a e f o t n u o m a d n a e r u t a n e h t f o s l i a t e D ) P M K ( L E N N O S R E P T N E M E G A N A M Y E K F O N O T A R E N U M E R I . 8 ) I D E U N T N O C ( ) I D E T D U A ( T R O P E R N O T A R E N U M E R I T R O P E R ’ S R O T C E R D I ) D E U N T N O C I ( : s w o l l o f $ - - s a - e r a r a e y l i a c n a n i f $ - - $ - - e h t n i 1 8 8 3 1 , i d a p p u o r G e h t - f o P M K r o f i s e c v r e s ) P M K - $ ) I D E U N T N O C ( $ ) I D E T D U A ( T R O P E R N O T A R E N U M E R I s r o t c e r i D e v i t u c e x E - n o N - - ( L E N N O S R E P T N E M E G A N A M Y E K F O N O T A R E N w U e L M E S R M . 8 . r I . 0 0 0 , 0 2 1 i e n o t n A . 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D J . . r . r M D l 3 n r e o y z e a M F M S . . i 3 n s a v m a D r e H . F S K . . . s s M M . . s r M M 1 r e z n a L s e v i t u c e x D e H l a t o M T . r . . i s e e n n n o I c t n M A M T . . . r . r M M s r o t c e r i D e v i t u c e x E - n o N l a t o T d o e L c M . I . R . M . r M i d a p e r e w s e e f s ’ r o t c e 3 r r i e d y s e ’ r M e z . n M a L . s . r M M s e n n I c M . M . r M e c y r B . S . J . r M s e v i t u c e x E y e n t r a C c M . L . T 9 1 0 2 L A T O T . r M . 9 1 0 2 y r a u r b e F 4 n o y r a t e r c e S y n a p m o C s a d e t n o p p a i s a w r e y e M . s M . 9 1 0 2 y r a u r b e F 4 n o y r a t e r c e S y n a p m o C s a d e r i t e r i s v a D . r M . s e n n I c M . r M r o f t n e m y a p I T S e h t o t g n i t a e r l n o i t a m r o f n i r e h t r u f r o f 5 2 e g a p o t r e f e R i l . r e b e L h c o B d o n r A o t l l i d a p e r e w s e e f s ’ r o t c e r i d s ’ r e z n a L . r M 1 2 3 1 2 3 29 Annual Report 2019 - - - - - - - - - - - - - - - - - - % d e t a l e r - - - 2 4 . 2 - 2 1 . 1 6 - 2 4 . 2 2 1 . 1 6 0 3 0 3 - e c n a m r o f r e P - e c n a m r o f r e P % $ d e t a l e r l a t o T 0 0 $ 0 , 0 6 1 0 0 0 , 0 l 2 a 1 t o T 4 3 6 , 7 3 0 0 - 0 , 0 8 0 0 0 0 0 , 0 0 , 0 0 1 2 1 0 0 0 0 0 , 0 0 , 8 0 6 1 0 0 4 0 3 , 6 0 , 4 7 3 3 0 0 0 0 0 , 0 0 , 2 0 1 8 0 0 0 0 0 , 0 0 , 8 0 0 1 4 3 0 6 0 , 0 7 , 1 0 1 8 , 1 0 0 0 , 0 4 3 7 5 0 , 5 5 4 0 0 0 , 0 8 1 8 4 , 6 2 8 , 6 0 0 0 , 0 2 1 d e s a b e r a h S m r e t - g n o L s e v i t n e c n i $ - - - $ - - - - - - - - - - - - - - - - d e s a b e r a h S m r e t - g n o L s e v i t n e c n i - 2 3 0 , 1 1 - 1 7 0 , 2 3 3 , 2 0 0 4 6 3 , 6 9 , 2 7 5 1 1 , 1 - - 8 3 1 , 1 1 8 , 7 2 7 7 , 8 2 9 , 8 1 8 4 , 6 2 8 , 6 7 5 0 , 5 5 4 0 0 6 , 9 2 5 8 3 1 , 1 1 8 , 7 2 7 7 , 8 2 9 , 8 3 0 1 , 3 4 3 , 2 3 0 1 , 3 4 3 , 2 1 7 0 , 2 3 3 , 2 2 3 0 , 1 1 - 3 0 1 , 3 4 3 , 2 3 0 1 , 3 4 3 , 2 $ - - - $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - t n e m y o p m e l n o i t a u n n a r e p u S s t i f e n e B h s a C $ l t n e m y o p m e - t s o P - t s o P r e h t O - t n e m y o p m e l - n o i t a u n n a r e p u S $ - - y r a t e n o M - n o N s t i f e n e B $ - - m r e t - t r o h S $ ) - D e e E F U / y N r a T l a N S O C I ( h s a C 0 0 0 e , 0 e 2 F 1 / y r a l a S l t n e m y o p m e - t s o P - t s o P r e h t O y r a t e n o M - n o N m r e t - t r o h S ) I D E U N T N O C ( ) I D E T D U A ( T R O P E R N O T A R E N U M E R I d e u n i t n o c t r o T p R e O P R E R s ’ S r R o O D t E T c U C N e E T r N R O i I D C D ’ ( ) I 30 ) I D E U N T N O C ( ) I D E T D U A ( T R O P E R N O T A R E N U M E R I T R O P E R ’ S R O T C E R D I ) I D E U N T N O C ( I P M K F O N O T A R E D N E U U M N E T R N O 8 C ( . ) I 5 6 2 , 3 1 4 - 9 , 6 6 7 - 6 , 8 1 8 $ 8 , 3 1 - 5 6 2 , 3 - 1 8 8 , 3 1 0 0 1 0 4 9 5 2 6 , , 1 4 6 9 7 6 6 8 , , - 4 0 - 7 , 4 6 0 0 0 0 0 0 , 5 2 5 2 , 9 8 0 1 4 9 , 0 2 6 , 9 4 4 0 0 7 0 2 4 6 , , - $ - - - - - - - - - - - - - - - - - - - - - 0 1 4 , 4 5 1 - $ - - - - - - - - - - - - - - - - - - - - - 2 0 0 0 0 4 8 , , 1 8 3 1 , 5 6 0 1 4 , 4 5 1 , 0 0 0 0 4 8 1 , 2 4 8 0 0 0 9 2 1 5 2 , , , 0 1 4 0 1 4 4 5 1 4 5 1 , , 0 0 0 0 4 8 1 2 0 0 0 0 4 8 , , , 1 9 8 0 , 0 2 9 4 0 , 0 2 8 3 1 , 5 6 2 4 8 , 9 2 1 - - 0 1 4 , 4 5 1 0 1 4 , 4 5 1 - - , 0 0 0 0 4 8 1 , , 0 0 0 0 4 8 1 , 9 6 3 , 4 3 9 5 - 0 , 3 7 9 1 $ 1 , 6 4 1 4 2 0 3 0 , 0 1 , 9 0 2 1 0 0 9 0 1 , 1 0 , 8 6 4 1 0 0 9 0 6 , 3 0 , 4 4 3 3 0 0 9 0 5 , 0 5 , 9 3 7 9 5 4 0 2 , 3 3 , 7 1 9 0 3 0 9 0 , 0 2 , 5 0 0 8 , 1 0 0 0 , 0 4 3 6 3 9 , 3 2 4 9 5 0 , 3 7 0 0 0 , 5 9 0 0 0 , 5 7 4 , 2 1 5 0 5 3 , 9 9 , 0 2 5 5 0 , 1 7 8 4 , 8 0 4 , 3 7 1 4 , 1 6 4 , 4 0 0 0 , 5 7 4 , 2 6 3 9 , 3 2 4 1 5 5 , 9 0 5 7 8 4 , 8 0 4 , 3 7 1 4 , 1 6 4 , 4 I P M K F O N O T A R E N U M E 8 R 1 0 2 . 8 s r o t c e r i D e v i t u c e x E - n o N s r o t c e r i D e n v o i z t u l a c F e x . S E - . n s M o N i e n o t n A . T 8 . r 1 M 0 2 w e L . S . r M n a e r C . D . r D 3 x o F w . E e L . L . S M M . r . r i n a e m n r o e t H n A S T . s . M r M . 1 r e z n a n L a . e D r C H D M D . r . r . . y e n t r a C n c o M z a . L F . T S . l . r . M s M d o e L c M 3 x . I o . F R E M . L . r M M . r . . s r o t c e r i D e v i t u c 1 r e e x z E n - a n L o N D l . a H t o . T r M . y e n t r a s C e c v M i t u c e x E M . L T . r . s r o t c e r i D e v i t u c s e v x a E D - n F o N K l a . r t M o T . . i s e v i t u c s e e x v e i t l u a c t o e x T E s e v i t u c e x e l a t o T 8 1 0 2 L A T O T e c y r B . S . J . r M i s v a D . F . K . r M s 8 e 1 n 0 n 2 I c M L A T M O T M . r . i . . 3 s e s c y e r W B S H . J G M D . r . r . . I d o e s L e c n M n I c M R M M M M . r . r . . . i 3 s s n e a W m . r H e H G S . . r . s D M . s e n n I c M . r M r o f t n e m y a p I T S e h t o t g n i t a e r l n o i t a m r o f n i r e h t r u f r o f 5 2 e g a p o t r e f e R . 8 1 0 2 y u J l 8 2 n o d r a o B e h t m o r f d e r i t e r i s s e W . r M d n a x o F . r M i l . r e b e L h c o B d o n r A o t l l i d a p e r e w s e e f s ’ r o t c e r i d s ’ r e z n a L . r M 1 2 3 . s e n n I c M . r M r o f t n e m y a p I T S e h t o t g n i t a e r l n o i t a m r o f n i r e h t r u f r o f 5 2 e g a p o t r e f e R . 8 1 0 2 y u J l 8 2 n o d r a o B e h t m o r f d e r i t e r i s s e W . r M d n a x o F . r M i l . r e b e L h c o B d o n r A o t l l i d a p e r e w s e e f s ’ r o t c e r i d s ’ r e z n a L . r M 1 2 3 Premier Investments Limited DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 9. ADDITIONAL DISCLOSURES RELATING TO RIGHTS AND SHARES OF KMP a) Rights awarded, vested and lapsed during the year: The table below discloses the number of performance rights granted to KMP as remuneration for the financial year ended 27 July 2019, as well as the number of rights vested and lapsed during the year: Terms and conditions Grant date Year granted Rights granted during the year No. Expiry and Exercise date Fair value per right at grant date $ Rights vested and lapsed during 2019 Rights vested Rights lapsed No. No. 2019 Mr. M. McInnes Mr. J.S. Bryce 2016 2019 - 6,188 26 Apr 2016 12 Apr 2019 - 6.81 - 1 Oct 2021 245,300 - 4,700 - b) Value of rights awarded, exercised and lapsed during the year: Value of rights granted during the year 2019 Mr. M. McInnes Mr. J.S. Bryce $ - 42,140 Value of rights exercised during the year $ Value of rights lapsed during the year $ Remuneration consisting of rights for the year % 4,155,382 - 79,618 - 18.75% 6.95% There were no alterations to the terms and conditions of rights awarded as remuneration since their award date. The value of rights exercised and lapsed during the year represent the intrinsic value of the rights based on the share price on the relevant day of vesting/ lapse. c) Shares issued on exercise of rights: 2019 Shares issued No Paid per share $ Unpaid per share $ Mr. M. McInnes 245,300 - - There were no alterations to the terms and conditions of rights awarded as remuneration since their award date. d) Rights holdings of KMP: 2019 Balance at 28 July 2018 Granted as remuneration Rights exercised Rights lapsed Balance at 27 July 2019 Rights not exercisable At 27 July 2019 Mr. M. McInnes Mr. J.S. Bryce 500,000 8,713 - 6,188 (245,300) - (4,700) - 250,000 14,901 250,000 14,901 Rights granted to key management personnel were made in accordance with the provisions of the Group’s Performance Rights Plan. 31 31 Annual Report 2019DIRECTORS’ REPORT Director’s Report continued (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 9. ADDITIONAL DISCLOSURES RELATING TO RIGHTS AND SHARES (CONTINUED) e) Number of Shares held in Premier Investments Limited by KMP: 2019 NON-EXECUTIVE DIRECTORS Mr. S. Lew * Mr. T. Antonie Dr. D.M. Crean Ms. S. Falzon Ms. S. Herman Mr. H.D. Lanzer Mr. T.L. McCartney Mr. M.R.I. McLeod EXECUTIVES Mr. M. McInnes Mr. J.S. Bryce Ms. M. Meyer ** Mr. K.F. Davis ** TOTAL BALANCE 28 JULY 2018 ORDINARY SHARE PURCHASE ORDINARY SHARES ACQUIRED UNDER PERFORMANCE RIGHTS PLAN ORDINARY NET CHANGE - OTHER ORDINARY BALANCE 27 JULY 2019 ORDINARY 4,437,699 - - - 8,000 27,665 - 28,186 486,800 - - - 4,988,350 - - - - - - - - - - - - - - - - - - - - - 245,300 - - - 245,300 - - - - - - - - - - - - 4,437,699 - - - 8,000 27,665 - 28,186 732,100 - - - 5,233,650 * Mr. Lew is an associate of Century Plaza Investments Pty. Ltd. and Metrepark Pty. Ltd (Associated Entities). The Associated Entities, collectively, have a relevant interest in 59,804,731 (2018: 59,804,731) shares in the company. However, Mr. Lew does not have a relevant interest in the shares in the company held by the Associated Entities. ** Mr. Davis retired as Company Secretary on 4 February 2019, and Ms. Meyer was appointed on 4 February 2019. 10. ADDITIONAL DISCLOSURES RELATING TO TRANSACTIONS AND BALANCES WITH KMP Details and terms and conditions of other transactions and balances with KMP and their related parties Mr. Lanzer is the managing partner of the legal firm Arnold Bloch Leibler. Group companies use the services of Arnold Bloch Leibler from time to time. Legal services totalling $1,797,386 (2018: $1,996,754), including Mr. Lanzer's Director fees, GST and disbursements were invoiced by Arnold Bloch Leibler to the Group, with $30,445 (2018: $58,580) remaining outstanding at year-end. The fees paid for these services were at arm's length and on normal commercial terms. 32 32 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 10. ADDITIONAL DISCLOSURES RELATING TO TRANSACTIONS AND BALANCES WITH KMP (CONTINUED) Details and terms and conditions of other transactions and balances with KMP and their related parties (continued) Mr. Lanzer is a director of Loch Awe Pty Ltd. During the year, operating lease payments totalling $330,000 (2018: $330,000) including GST was paid to Loch Awe Pty Ltd. The payments were at arm’s length and on normal commercial terms. Mr. Lew is a director of Voyager Distributing Company Pty Ltd and family companies associated with Mr. Lew have a controlling interest in Playcorp Pty Ltd and Sky Chain Trading Limited. During the year, purchases totalling $22,842,474 (2018: $16,404,781) including GST have been made by Group companies from Voyager Distributing Co. Pty Ltd, Playcorp Pty Ltd and Sky Chain Trading Limited, with $1,882,897 (2018: $1,737,758) remaining outstanding at year-end. The purchases were all at arm’s length and on normal commercial terms. Mr. Lew is a director of Century Plaza Trading Pty. Ltd. The company and Century Plaza Trading Pty Ltd are parties to a Services Agreement to which Century Plaza Trading agrees to provide certain services to the company to the extent required and requested by the company. The company is required to reimburse Century Plaza Trading for costs it incurs in providing the company with the services under the Service Agreement. The company reimbursed a total of $518,650 (2018: $476,379) costs including GST incurred by Century Plaza Trading Pty Ltd. Amounts recognised in the financial report at the reporting date in relation to other transactions: i) Amounts included within Assets and Liabilities Current Liabilities Trade and other payables ii) Amounts included within Profit or Loss Expenses Purchases/ Cost of goods sold Operating lease rental expense Legal fees Other expenses Total expenses 2019 $’000 1,913 1,913 2019 $’000 21,102 300 1,634 519 23,555 33 33 Annual Report 2019Auditor’s Independence Declaration 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Auditor’s Independence Declaration to the Directors of Premier Investments Limited 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au As lead auditor for the audit of the financial report of Premier Investments Limited for the financial year ended 27 July 2019, I declare 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 Auditor’s Independence Declaration to the Directors of Premier Investments Limited 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 Premier Investments Limited and the entities it controlled during the As lead auditor for the audit of the financial report of Premier Investments Limited for the financial year financial period. ended 27 July 2019, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Premier Investments Limited and the entities it controlled during the Ernst & Young financial period. Rob Perry Ernst & Young Partner 02 October 2019 Rob Perry Partner 02 October 2019 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 34 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Premier Investments LimitedSTATEMENT OF COMPREHENSIVE INCOME Statement of Comprehensive Income FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 for the 52 weeks ended 27 July 2019 and 28 July 2018 STATEMENT OF COMPREHENSIVE INCOME FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 CONSOLIDATED NOTES 2019 $’000 2018 $’000 4 4 NOTES 4 4 4 4 5 5 5 5 5 18 5 6 18 6 22 22 22 6 22 22 22 22 6 6 Revenue from contracts with customers Other revenue Total revenue Other income Total revenue and other income Revenue from contracts with customers Other revenue Changes in inventories of finished goods Total revenue Employee expenses Other income Operating lease rental expense Total revenue and other income Depreciation, impairment and amortisation of non-current assets Advertising and direct marketing Changes in inventories of finished goods Finance costs Employee expenses Other expenses Operating lease rental expense Depreciation, impairment and amortisation of non-current assets Total expenses Advertising and direct marketing Share of profit of associate Finance costs Profit from continuing operations before income tax Other expenses Income tax expense Total expenses Net profit for the period attributable to owners Share of profit of associate Other comprehensive income Profit from continuing operations before income tax Income tax expense Items that may be reclassified subsequently to profit or loss Net (loss) gain on cash flow hedges Net profit for the period attributable to owners Foreign currency translation Net movement in other comprehensive income of associates Other comprehensive income Income tax on items of other comprehensive income Items that may be reclassified subsequently to profit or loss Net (loss) gain on cash flow hedges Other comprehensive (loss) income which may be reclassified to profit or loss in subsequent periods, net of tax Items not to be reclassified subsequently to profit or loss Net fair value gain (loss) on listed equity investment Net movement in other comprehensive income of associates Foreign currency translation Income tax on items of other comprehensive income Income tax on items of other comprehensive income Other comprehensive (loss) income which may be reclassified Other comprehensive income (loss) not to be reclassified to to profit or loss in subsequent periods, net of tax profit or loss in subsequent periods, net of tax Items not to be reclassified subsequently to profit or loss TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Net fair value gain (loss) on listed equity investment ATTRIBUTABLE TO THE OWNERS Income tax on items of other comprehensive income Other comprehensive income (loss) not to be reclassified to Earnings per share from continuing operations attributable to profit or loss in subsequent periods, net of tax the ordinary equity holders of the parent: TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO THE OWNERS - basic, profit for the year (cents per share) - diluted, profit for the year (cents per share) Earnings per share from continuing operations attributable to the ordinary equity holders of the parent: 1,270,958 CONSOLIDATED 1,182,221 4,108 2019 1,275,066 $’000 487 1,275,553 1,270,958 4,108 (484,380) 1,275,066 (302,642) 487 (224,393) 1,275,553 (52,315) (15,896) (484,380) (7,687) (302,642) (55,404) (224,393) (1,142,717) (52,315) (15,896) 18,906 (7,687) 151,742 (55,404) (44,935) (1,142,717) 106,807 18,906 151,742 (44,935) (7,937) 106,807 2,936 1,424 2,381 (7,937) (1,196) 2,936 1,424 6,192 2,381 (1,857) 5,626 2018 $’000 1,187,847 1,193 1,189,040 1,182,221 5,626 (443,907) 1,187,847 (282,813) 1,193 (222,978) 1,189,040 (58,904) (15,234) (443,907) (7,551) (282,813) (49,775) (222,978) (1,081,162) (58,904) (15,234) 16,087 (7,551) 123,965 (49,775) (40,327) (1,081,162) 83,638 16,087 123,965 (40,327) 33,343 83,638 5,214 1,424 (10,003) 33,343 29,978 5,214 1,424 (26,978) (10,003) 7,913 (1,196) 4,335 6,192 109,946 (1,857) 29,978 (19,065) (26,978) 94,551 7,913 4,335 (19,065) 109,946 67.51 67.19 94,551 52.97 52.64 22 6 7 7 - basic, profit for the year (cents per share) The accompanying notes form an integral part of this Statement of Comprehensive Income. - diluted, profit for the year (cents per share) 7 The accompanying notes form an integral part of this Statement of Comprehensive Income. 7 67.51 67.19 52.97 52.64 35 35 35 Annual Report 2019STATEMENT OF FINANCIAL POSITION Statement of Financial Position AS AT 27 JULY 2019 AND 28 JULY 2018 as at 27 July 2019 and 28 July 2018 STATEMENT OF FINANCIAL POSITION AS AT 27 JULY 2019 AND 28 JULY 2018 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories ASSETS Other financial instruments Current assets Other current assets Cash and cash equivalents Total current assets Trade and other receivables Non-current assets Inventories Property, plant and equipment Other financial instruments Intangible assets Other current assets Deferred tax assets Total current assets Listed equity investment at fair value Non-current assets Investment in associate Property, plant and equipment Total non-current assets Intangible assets TOTAL ASSETS Deferred tax assets LIABILITIES Listed equity investment at fair value Current liabilities Investment in associate Trade and other payables Total non-current assets Income tax payable TOTAL ASSETS Provisions LIABILITIES Other current liabilities Current liabilities Total current liabilities Trade and other payables Non-current liabilities Income tax payable Interest-bearing liabilities Provisions Deferred tax liabilities Other current liabilities Provisions Total current liabilities Other financial instruments Non-current liabilities Other non-current liabilities Interest-bearing liabilities Total non-current liabilities Deferred tax liabilities TOTAL LIABILITIES Provisions NET ASSETS Other financial instruments EQUITY Other non-current liabilities Contributed equity Total non-current liabilities Reserves TOTAL LIABILITIES Retained earnings NET ASSETS TOTAL EQUITY EQUITY Contributed equity Reserves Retained earnings TOTAL EQUITY NOTES 19 9 NOTES 10 24 11 19 9 10 15 24 16 11 6 17 18 15 16 6 17 18 12 13 14 12 20 13 6 14 13 24 14 20 6 13 24 14 21 22 21 22 The accompanying notes form an integral part of this Statement of Financial Position. The accompanying notes form an integral part of this Statement of Financial Position. 36 CONSOLIDATED 2019 $’000 2018 $’000 CONSOLIDATED 190,255 23,011 2019 $’000 171,165 6,119 14,688 190,255 405,238 23,011 171,165 210,855 6,119 826,639 14,688 40,380 405,238 46,879 238,732 210,855 1,363,485 826,639 1,768,723 40,380 46,879 238,732 81,938 1,363,485 12,571 1,768,723 23,881 26,529 144,919 81,938 12,571 167,493 23,881 63,875 26,529 11,465 144,919 2,548 29,137 167,493 274,518 63,875 419,437 11,465 1,349,286 2,548 29,137 608,615 274,518 (10,858) 419,437 751,529 1,349,286 1,349,286 608,615 (10,858) 751,529 178,618 21,563 2018 $’000 159,313 11,973 15,323 178,618 386,790 21,563 159,313 238,167 11,973 825,949 15,323 36,637 386,790 40,687 223,184 238,167 1,364,624 825,949 1,751,414 36,637 40,687 223,184 84,558 1,364,624 9,947 1,751,414 19,234 21,629 135,368 84,558 9,947 175,684 19,234 63,933 21,629 2,040 135,368 425 29,030 175,684 271,112 63,933 406,480 2,040 1,344,934 425 29,030 608,615 271,112 (16,009) 406,480 752,328 1,344,934 1,344,934 608,615 (16,009) 752,328 1,349,286 1,344,934 36 36 Premier Investments LimitedSTATEMENT OF CASH FLOWS Statement of Cash Flows FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 for the 52 weeks ended 27 July 2019 and 28 July 2018 STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Borrowing costs paid Income taxes paid CASH FLOWS FROM OPERATING ACTIVITIES NET CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) CASH FLOWS FROM INVESTING ACTIVITIES Payments to suppliers and employees (inclusive of GST) Dividends received from listed equity investment Interest received Dividends received from investment in associate Borrowing costs paid Payment for trademarks Income taxes paid Purchase of investments Proceeds from disposal of property, plant and equipment NET CASH FLOWS FROM OPERATING ACTIVITIES 19(b) Payment for property, plant and equipment CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from listed equity investment NET CASH FLOWS USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Dividends received from investment in associate Equity dividends paid Payment for trademarks Proceeds from borrowings Purchase of investments Repayment of borrowings Proceeds from disposal of property, plant and equipment Payment for property, plant and equipment NET CASH FLOWS USED IN FINANCING ACTIVITIES NET CASH FLOWS USED IN INVESTING ACTIVITIES NET INCREASE IN CASH HELD CASH FLOWS FROM FINANCING ACTIVITIES Cash at the beginning of the financial year Equity dividends paid Proceeds from borrowings Net foreign exchange difference Repayment of borrowings CASH AT THE END OF THE FINANCIAL YEAR NET CASH FLOWS USED IN FINANCING ACTIVITIES 19(a) NET INCREASE IN CASH HELD Cash at the beginning of the financial year Net foreign exchange difference CASH AT THE END OF THE FINANCIAL YEAR 19(a) The accompanying notes form an integral part of this Statement of Cash Flows. The accompanying notes form an integral part of this Statement of Cash Flows. CONSOLIDATED NOTES 2019 $’000 2018 $’000 1,397,331 1,303,577 (1,209,685) (1,120,075) 3,919 CONSOLIDATED 3,702 (7,232) 2018 (46,121) $’000 NOTES 19(b) (7,892) 2019 (44,859) $’000 138,814 1,397,331 (1,209,685) - 3,919 12,654 (7,892) (714) (44,859) (7,872) - 138,814 (19,618) - (15,550) 12,654 (104,483) (714) 173,000 (7,872) (181,000) - (19,618) (112,483) (15,550) 10,781 178,618 (104,483) 173,000 856 (181,000) 190,255 (112,483) 10,781 178,618 856 190,255 133,851 1,303,577 (1,120,075) 1,769 3,702 11,267 (7,232) (859) (46,121) - 326 133,851 (53,172) 1,769 (40,669) 11,267 (88,468) (859) 107,000 - (105,000) 326 (53,172) (86,468) (40,669) 6,714 170,631 (88,468) 107,000 1,273 (105,000) 178,618 (86,468) 6,714 170,631 1,273 178,618 37 37 37 Annual Report 2019) 3 2 1 , 3 ( 6 4 9 , 9 0 1 9 3 1 , 3 4 3 9 , 4 4 3 , 1 - 8 2 3 , 2 5 7 ) 3 2 1 , 3 ( 7 0 8 , 6 0 1 - 5 3 3 , 4 5 3 3 , 4 ) 3 4 2 , 3 4 ( - 0 6 3 , 4 7 7 9 , 2 0 6 3 , 4 - 9 5 0 ) 6 5 5 , ) 6 5 5 8 , 5 ( , 5 ( - - - 4 3 7 5 1 , - - - 4 6 4 - 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0 0 0 ’ $ - 0 0 0 ’ $ - 0 0 0 ’ $ 7 7 9 , 2 E V R E S E R I N O T A L S N A R T 9 5 0 , 8 E V R E S E R 4 3 7 5 1 , E V R E S E R - 0 0 0 ’ $ 4 6 4 E V R E S E R - 0 0 0 ’ $ 5 1 6 8 0 6 , 8 1 0 2 l y u J 9 2 t a s a e c n a a b l d e t a t s e R d o i r e p e h t r o f t i f o r p t e N I D E T A D L O S N O C I Y T U Q E N I S E G N A H C F O T N E M E T A T S I I y t i u q E n 8 1 0 2 I Y Y s L T U e J U 8 g 2 Q D n E N A N a 9 1 h 0 S 2 E C Y L G U N J f 7 A 2 o H D E C D t N F n E O S e K T E m N E W E M e 2 5 E t E H T a T A t R T O S S F 8 1 0 2 y l u J 8 2 d n a 9 1 0 2 y l u J 7 2 d e d n e s k e e w 2 5 e h t r o f 38 1 1 8 , 1 4 3 , 1 2 1 0 , 2 9 3 1 , 3 7 0 8 , 6 0 1 6 4 9 , 9 0 1 ) 3 8 4 , 4 0 1 ( 6 8 2 , 9 4 3 , 1 3 2 7 1 6 0 , , 5 2 3 3 , 1 ) 8 3 3 8 6 4 , , 3 4 8 0 1 ( 6 3 8 1 2 9 , , 9 0 4 1 3 , 1 1 5 5 , 4 9 3 7 6 , 5 3 3 , 1 8 3 6 , 3 8 8 7 1 , 3 3 1 9 , 0 1 1 5 5 , 4 9 ) 8 6 4 , 8 8 ( 4 3 9 , 4 4 3 , 1 8 7 1 , 3 ) 8 6 4 , 8 8 ( 4 3 9 , 4 4 3 , 1 8 3 8 3 - - 5 0 2 , 9 4 7 7 0 8 , 6 0 1 9 2 5 , 1 5 7 7 0 8 , 6 0 1 ) 3 8 4 , 4 0 1 ( - 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5 - 1 6 8 0 6 , 5 1 6 , 8 0 6 - - - - - 4 6 4 5 1 6 , 8 0 6 8 1 0 2 l y u J 9 2 d o i r e p e h t 5 1 B S A A f o n o i t a c i l p p a r o f e m o c n i e v i s n e h e r p m o c l a t o T l a i t i n i n o t n e m e t a t s e R r i e h t n i s r e n w o h t i w s n o i t c a s n a r T t a d o i r e p e h t r o f : s r e n w o s a s a e c n a a b l d e t a t s e R y t i c a p a c t i f o r p t e N e m o c n i i e v s n e h e r p m o c r e h t O 8 1 0 2 l y u J 9 2 t A d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c i d a p s d n e d v D i i l a t o T r i e h t n i s r e n w o h t i 9 1 0 2 y l u J 7 2 t a w s n o i t c a s n a r T s a e c n a l a B d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T d e u s s i s t h g 7 i 1 r 0 e 2 c n y a u m J r o 0 3 f r e t A P l d o i r e p e h d t i a r o p f s t d i f o n r e p d i t v e N D i : s r e n w o s a y t i c a p a c i i e 9 m 1 o 0 c 2 n y e l u v J s n 7 e 2 h t e a r p s m a o e c c n r e a h l a t O B r i e h t n i s r e n w o h t i w s n o i t c a s n a r T d o i r e p e h t r o f t i f o r p t e N : s r e n w o s a y t i c a p a c 7 1 0 2 l y u J 0 3 t A e m o c n i d e u s s i s t h g i r i e v s n e h e r p m o c r e h t O e c n a m r o f r e P e m o c n i d e u s s i i e v s n e h e r p m o c s t h g i r e c n a m r o f r e P r e h t O d o i r e p e h t r o f e m o c n i e v i s n e h e r p m o c r i e h t n i 8 1 0 2 y u J s r e n w o h t i l 8 2 t a s a w s n o i t c a s n a r T i d a p s d n e d v D i i l a t o T e c n a l a B - - 4 6 4 - - 5 1 6 , 8 0 6 d e u s s i s t h g i r e c n a m r o f r e P i d a p s d n e d v D i i 8 1 0 2 y u J l 8 2 t a s a e c n a l a B y t i u q E n i s e g n a h C f o t n e m e t a t S s h t i f o t r a p l a r g e t n i n a m r o f i : s s e r t e o n n w g n o y s n a a p y m t i o c c a c p a a e c h T y t i u q E n i s e g n a h C f o t n e m e t a t S s h t i f o t r a p l a r g e t n i n a m r o f i s e t o n g n y n a p m o c c a e h T Premier Investments Limited Notes to the Financial Statements NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 for the 52 weeks ended 27 July 2019 and 28 July 2018 1 GENERAL INFORMATION The financial report contains the consolidated financial statements of the consolidated entity, comprising Premier Investments Limited (the ‘parent entity’) and its wholly owned subsidiaries (‘the Group’) for the 52 weeks ended 27 July 2019. The financial report was authorised for issue in accordance with a resolution of the Directors on 2 October 2019. Premier Investments Limited is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report. The Group has presented the content and structure of its financial report in a manner to improve and clarify the presentation of financial information. The financial report is presented in such a way as to provide users with more clear, understandable and structured financial information, which better explains the financial performance and position of the Group. The notes to the financial statements have been organised into the following sections: (i) Other significant group accounting policies: Summarises the basis of financial statement preparation and other accounting policies adopted in the preparation of these consolidated financial statements. Specific accounting policies are disclosed in the note to which they relate. (ii) Group performance: Contains the notes that focus on the results and performance of the Group. (iii) Operating assets and liabilities: Provides information on the Group’s assets and liabilities used to generate the Group’s performance. (iv) Capital invested: Provides information on the capital invested which allows the Group to generate its performance. (v) Capital structure and risk management: Provides information on the Group’s capital structure and summarises the Group’s Risk Management policies. (vi) Group structure: Contains information in relation to the Group’s structure and related parties. (vii) Other disclosures: Summarises other disclosures which are required in order to comply with Australian Accounting Standards and other authoritative pronouncements. 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES The consolidated financial report is prepared for the 52 weeks from 29 July 2018 to 27 July 2019. Below is a summary of significant group accounting policies applicable to the Group which have not been disclosed elsewhere. The notes to the financial statements, which contain detailed accounting policy notes, should be read in conjunction with the below Group accounting policies. (a) BASIS OF FINANCIAL REPORT PREPARATION The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis, except for other financial instruments and listed equity investments at fair value, which have been measured at fair value as explained in the relevant accounting policies throughout the notes. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000), unless otherwise stated, as the Company is a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016. 39 39 Annual Report 2019Notes to the Financial Statements NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (b) STATEMENT OF COMPLIANCE The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (c) BASIS OF CONSOLIDATION The consolidated financial statements are those of the consolidated entity, comprising Premier Investments Limited and its wholly owned subsidiaries as at the end of each financial year. A list of the Group’s subsidiaries is included in note 26. Subsidiaries are entities that are controlled by the Group. Control is achieved when the Group has: - - - Power over the investee; Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Investments in subsidiaries held by Premier Investments Limited are accounted for at cost in the separate financial statements of the parent entity less any impairment losses. Dividends received from subsidiaries are recorded as a component of other revenue in the separate statement of comprehensive income of the parent entity, and do not impact the recorded cost of the investment. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. (d) COMPARATIVE AMOUNTS The current reporting period, 29 July 2018 to 27 July 2019, represents 52 weeks and the comparative reporting period is from 30 July 2017 to 28 July 2018 which also represents 52 weeks. From time to time, management may change prior year comparatives to reflect classifications applied in the current year. (e) SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the results of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Management has identified certain critical accounting policies for which significant judgements, estimates and assumptions are required. These key judgements, estimates and assumptions have been disclosed as part of the relevant note to the financial statements. Actual results may differ from those estimated under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. (f) OFFSETTING OF FINANCIAL INSTRUMENTS Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. 40 40 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (g) CURRENT VERSUS NON-CURRENT CLASSIFICATION The Group presents assets and liabilities in the statement of financial position based on current versus non-current classification. An asset is current when it is: - - Expected to be realised or intended to be sold in the normal operating cycle, or primarily held for the purpose of trading, or is expected to be realised within twelve months after the reporting period, or; Cash and cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when it is: - - Expected to be settled in the normal operating cycle, or primarily held for the purpose of trading, or is due to be settled within twelve months after the reporting period, or; There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are classified as non- current. (h) FOREIGN CURRENCY TRANSLATION 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’). Both the functional and presentation currency of the parent entity and its Australian subsidiaries is Australian dollars. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All exchange differences are taken to profit or loss in the statement of comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. As at the reporting date the assets and liabilities of the overseas subsidiaries are translated into the presentation currency of the parent entity at the rate of exchange ruling at the reporting date and the statements of comprehensive income are translated at the weighted average exchange rates for the period. Exchange variations resulting from the translations are recognised in the foreign currency translation reserve in equity. (i) GOODS AND SERVICES TAX (GST), INCLUDING OTHER VALUE-ADDED TAXES Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except: - - When the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. 41 41 Annual Report 2019Notes to the Financial Statements NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (j) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS Changes in accounting policies, disclosures, standards and interpretations The accounting policies adopted are consistent with those of the previous financial year except for new and amended Australian Accounting Standards and AASB Interpretations relevant to the Group and its operations that are effective for the current annual reporting period, described below: AASB 15 Revenue from Contracts with Customers: The Group has adopted AASB 15 Revenue from Contracts with Customers from 29 July 2018 which has superseded AASB 118 Revenue. Under AASB 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled to in exchange for the transfer of goods to the customer. In accordance with the transition provisions in AASB 15, the Group has adopted AASB 15 using the modified retrospective approach. The impact of adopting the standard on the Group’s financial statements has been adjusted in opening retained earnings in the Statement of Changes in Equity as at 29 July 2018. Therefore, the comparative information was not restated and continues to be reported under AASB 118 and related Interpretations. For the majority of retail sales (including online sales and concession sales), the adoption of AASB 15 does not have a material impact on the Group’s revenue and Comprehensive Income. Revenue recognition occurs at the point in time when control of the asset is transferred to the customer, generally at the point of sale or on delivery of the goods. The impact of adopting AASB 15 has been noted in the customer’s right of return, customer loyalty programmes and gift card breakage. The effects of adopting AASB 15 as at 29 July 2018 are described below. Right of return 1) Under AASB 15, the Group estimates the value of expected customer returns that will arise as a result of the Group’s returns policy, which entitles the customer to a refund of returned unused products within the specified timeframe for the respective brands. At the same time, the Group recognises a right of return asset, being the former carrying amount of the inventory, less any expected costs to recover the goods the Group expects to be returned by customers as a result of the returns policy. Prior to the adoption of AASB 15, no right of return provision was recognised by the Group. The impact of transition to AASB 15 on the statement of financial position as at 29 July 2018 was to recognise a right of return asset in trade and other receivables of $0.7 million, recognise a refund liability of $2.0 million in provisions, an increase in deferred tax assets of $0.4 million and a decrease in retained earnings of $0.9 million. Customer loyalty programmes 2) The Group operates certain loyalty programmes, which allow customers to accumulate points when products are purchased, and which can be redeemed for free or discounted product once a minimum number of points have been accumulated. Prior to the adoption of AASB 15, a portion of the consideration received from the sale of goods was allocated to the loyalty programme according to the fair value of points issued and recognised in deferred revenue in trade and other payables until the earlier of redemption or expiry. Under AASB 15, loyalty points give rise to a separate performance obligation providing a material right to the customer, therefore a portion of the transaction price is allocated to the loyalty programme based on the relative stand-alone selling prices, resulting in a larger impact on deferred revenue than previously recognised. As a consequence of transition to AASB 15, the contract liability in relation to the customer loyalty programmes at 29 July 2018 has increased by $2.4 million in other current liabilities, with a corresponding increase in deferred tax assets of $0.7 million and a decrease in retained earnings of $1.7 million. 42 42 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (j) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED) AASB 15 Revenue from Contracts with Customers (continued) 3) Gift cards The Group recognises a contract liability upon the sale of gift cards and subsequently derecognises the liability when gift card breakage occurs. Prior to the adoption of AASB 15, gift card breakage was calculated according to the Group’s analysis of historical non-redemption rates. Upon adoption of AASB 15, gift card breakage is estimated and recognised as revenue in proportion to the pattern of rights exercised by customers. On expiry of the gift card, any unused funds are recognised in full as breakage. Whilst the Group’s accounting treatment remains materially consistent, the adoption of AASB 15 as at 29 July 2018 has resulted in an increase of $0.7 million of other current liabilities, an increased deferred tax asset of $0.2 million and a decrease in retained earnings of $0.5 million. The following table summarises the impact of adopting AASB 15 on the Group’s Statement of Financial Position on adoption at 29 July 2018 for each of the line items affected: ASSETS Trade and other receivables Deferred tax assets TOTAL ASSETS LIABILITIES Provisions (current) Other current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Retained earnings TOTAL EQUITY AASB 118 (PREVIOUS STANDARD) $’000 CONSOLIDATED ADJUSTMENTS $’000 21,563 36,637 1,751,414 19,234 21,629 406,480 1,344,934 715 1,338 2,053 2,088 3,088 5,176 (3,123) AASB 15 (ADOPTED STANDARD) $’000 22,278 37,975 1,753,467 21,322 24,717 411,656 1,341,811 752,328 1,344,934 (3,123) (3,123) 749,205 1,341,811 There was no material impact on the Group’s Statement of Comprehensive Income and Statement of Cash Flows for the 52 weeks ended 27 July 2019. The impact on opening asset and liability values as disclosed in the above table have been incorporated in the changes in relevant assets and liabilities in the reconciliation of net cash flows from operating activities, as disclosed in Note 19(b). Accounting Standards and Interpretations issued but not yet effective Recently issued or amended Australian Accounting Standards and Interpretations that have been identified as those which may be relevant to the Group in future reporting periods, but are not yet effective and have not been adopted by the Group for the reporting period ended 28 July 2019, are outlined below: AASB Interpretation 23 Uncertainty over Income Tax Treatments: The Interpretation clarifies the application of the recognition and measurement criteria in AASB 112 Income Taxes when there is uncertainty over income tax treatments. The first application date for the Group will be for the financial year ending 25 July 2020. The Group does not anticipate that the Interpretation will have a material impact on the Group. 43 43 Annual Report 2019Notes to the Financial Statements NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (j) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED) Accounting Standards and Interpretations issued but not yet effective (continued) AASB 16 Leases: AASB 16 Leases is effective for the Group from 28 July 2019. The Standard will replace AASB 117 Leases and related interpretations. The Standard provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements. AASB 16 introduces a new lease accounting model for lessees that require lessees to recognise all leases on balance sheet, except short-term leases and leases of low value assets, if the practical expedients were applied. Under the Standard, the present value of reasonably certain lease payment would be shown as a liability on the balance sheet together with an asset representing the right-of-use. In addition, the current operating lease expense recognised in profit or loss in the statement of comprehensive income will largely be replaced with amortisation and interest expense. The Group will transition to the new Standard using the modified retrospective approach, with no restatement of comparative information. The Group expects to be able to provide supplementary information in investor presentations in the period of initial application to bridge the financial statement disclosures between the old and new standard. In applying the modified retrospective approach, the Group expects to apply a number of practical expedients, which include the use of hindsight in determining the lease term where the contract contains an option to extend, discount rates applied to a portfolio of leases with similar characteristics, and non- lease components will not be separated out from lease components of a lease. The Group is continuing its assessment of the estimated impact that AASB 16 has on its consolidated financial statements as at 28 July 2019. The actual impact of applying AASB 16 on the financial statements in the period of initial application will depend on the composition of the Group’s lease portfolio, the extent to which the Group chooses to use all available practical expedients and recognition exemptions, final discount rates used in calculating the lease liability and final determination of the reasonably certain lease terms for leases with options and leases in holdover. An indicative range of the lease liability on adoption of the new standard is set out below, allowing for these uncertainties. The actual financial impact on the results for the year ending 25 July 2020 will be dependent on the final determination of these highly judgemental areas and will also be contingent on any new leases entered into during the financial year. Estimated impact on consolidated Statement of Financial Position as at 28 July 2019: CONSOLIDATED ESTIMATED IMPACT RANGE $’000 TO $’000 Lease Liability 390,000 to 440,000 The overall impact on the consolidated statement of cashflows as a result of adopting AASB 16 is expected to be nil, as operating lease payments will continue to be paid as previously, however, the cash outflow will largely be reclassified to financing activities rather than operating activities. 44 44 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) GROUP PERFORMANCE 3 OPERATING SEGMENTS Identification of operating segments The Group determines and presents operating segments based on the information that is internally provided and used by the chief operating decision maker in assessing the performance of the Group and in determining the allocation of resources. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The operating segments are identified by management based on the nature of the business conducted, and for which discrete financial information is available and reported to the chief operating decision maker on at least a monthly basis. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly of corporate assets, head office expenses and income tax assets and liabilities. Reportable Segments Retail The retail segment represents the financial performance of a number of speciality retail fashion chains. Investment The investment segment represents investments in securities for both long and short term gains, dividend income and interest. Accounting policies The key accounting policies used by the Group in reporting segments internally are the same as those contained in these financial statements. Income tax expense Income tax expense is calculated based on the segment operating net profit using the Group’s effective income tax rate. It is the Group’s policy that if items of revenue and expense are not allocated to operating segments then any associated assets and liabilities are also not allocated to the segments. This is to avoid asymmetrical allocations within segments which management believe would be inconsistent. Segment capital expenditure Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. The table on the following page presents revenue and profit information for operating segments for the periods ended 27 July 2019 and 28 July 2018. 45 45 Annual Report 2019Notes to the Financial Statements NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued GROUP PERFORMANCE 3 OPERATING SEGMENTS (CONTINUED) (A) OPERATING SEGMENTS RETAIL INVESTMENT ELIMINATION CONSOLIDATED 2019 $’000 2018 $’000 2019 $’000 2018 $’000 2019 $’000 2018 $’000 2019 $’000 2018 $’000 REVENUE AND OTHER INCOME Revenue from contracts 1,270,958 1,182,221 - - - 1,270,958 1,182,221 270 184 487 106 195 1,193 3,616 3,526 - 3,886 98,038 82,799 (98,000) (81,000) - - - - 222 487 3,632 1,994 1,193 - - with customers Interest revenue Other revenue Other income Total revenue and other income 1,271,899 1,183,715 101,654 86,325 (98,000) (81,000) 1,275,553 1,189,040 Total revenue per the statement of comprehensive income 1,275,553 1,189,040 RESULTS Depreciation and amortisation United Kingdom 29,945 27,910 994 994 accelerated depreciation 21,021 355 - - - - - - - - - 30,000 2,084 5,603 5,467 2,084 - - 18,906 16,087 Impairment of property plant and equipment Impairment of intangible asset brand names Interest expense Share of profit of associate Profit before income tax expense Income tax expense Net profit after tax per the statement of comprehensive income - - - - - - - 30,939 28,904 - - - - - 21,021 355 - - - 30,000 7,687 7,551 18,906 16,087 (44,935) (40,327) 106,807 83,638 135,762 142,484 113,980 62,481 (98,000) (81,000) 151,742 123,965 RETAIL INVESTMENT ELIMINATION CONSOLIDATED 2019 $’000 2018 $’000 2019 $’000 2018 $’000 2019 $’000 2018 $’000 2019 $’000 2018 $’000 ASSETS AND LIABILITIES Segment assets 515,217 552,218 1,308,263 1,260,913 (54,757) (61,717) 1,768,723 1,751,414 Segment liabilities 309,573 308,458 111,636 106,637 (1,772) (8,906) 419,437 406,189 Capital expenditure 25,457 45,854 - 4,927 - - 25,457 50,781 46 46 Premier Investments Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) GROUP PERFORMANCE 3 OPERATING SEGMENTS (CONTINUED) (B) GEOGRAPHIC AREAS OF OPERATION AUSTRALIA NEW ZEALAND ASIA EUROPE ELIMINATION CONSOLIDATED 2019 $’000 2019 $’000 2019 $’000 2019 $’000 2019 $’000 2019 $’000 REVENUE AND OTHER INCOME Revenue from contracts with customers 938,052 130,402 78,562 123,942 Other revenue and income 4,377 10 166 42 Total revenue and other income 942,429 130,412 78,728 123,984 - - - 1,270,958 4,595 1,275,553 Segment non-current assets 1,355,983 10,828 9,738 29,455 37,194 1,443,198 Capital expenditure 14,250 3,424 387 7,396 - 25,457 AUSTRALIA NEW ZEALAND ASIA EUROPE ELIMINATION CONSOLIDATED 2018 $’000 2018 $’000 2018 $’000 2018 $’000 2018 $’000 2018 $’000 REVENUE AND OTHER INCOME Revenue from contracts with customers 873,814 124,005 57,820 126,582 Other revenue and income 6,682 135 - 2 Total revenue and other income 880,496 124,140 57,820 126,584 - - - 1,182,221 6,819 1,189,040 Segment non-current assets 1,263,789 8,233 8,363 46,292 37,947 1,364,624 Capital expenditure 33,123 103 2,522 15,033 - 50,781 47 47 Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued GROUP PERFORMANCE 4 REVENUE AND OTHER INCOME REVENUE Revenue from contracts with customers 1,270,958 1,182,221 CONSOLIDATED 2019 $’000 2018 $’000 Disaggregated revenue from contracts with customers is presented in Note 3B, Operating Segments – Geographic areas of operation. OTHER REVENUE Membership program fees Sundry revenue Interest received Dividends received from listed equity investment TOTAL OTHER REVENUE TOTAL REVENUE OTHER INCOME Royalty and licence fees Other TOTAL OTHER INCOME 179 43 3,886 - 4,108 190 35 3,632 1,769 5,626 1,275,066 1,187,847 86 401 487 127 1,066 1,193 TOTAL REVENUE AND OTHER INCOME 1,275,553 1,189,040 REVENUE RECOGNITION ACCOUNTING POLICY As summarised in note 2, the Group has adopted AASB 15 Revenue from Contracts with Customers as of 29 July 2018. The Group adopted AASB 15 using the modified retrospective approach, with the impact of adopting the standard on the Group’s financial statements being adjusted in opening retained earnings in the Statement of Changes in Equity. For the majority of retail sales, including online sales and concession sales, the adoption of AASB 15 has not had a material impact on the Group’s revenue and Other Comprehensive Income. Revenue recognition occurs at the point in time when control of the asset is transferred to the customer, generally at the point of sale or on delivery of the goods. The impact of the adoption of AASB 15 has been noted in the areas of right of return, customer loyalty programmes and revenue resulting from gift cards. Refer to note 2 for a summary of the accounting treatment and policies prior to, and subsequent to the adoption of AASB 15 in these impacted areas. Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Dividend revenue is recognised when the Group’s right to receive the payment is established. 48 48 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) GROUP PERFORMANCE CONSOLIDATED NOTES 2019 $’000 2018 $’000 5 EXPENSES OPERATING LEASE EXPENSES Minimum lease payments – operating leases Contingent rentals TOTAL OPERATING LEASE EXPENSES DEPRECIATION, AMORTISATION AND IMPAIRMENT OF NON-CURRENT ASSETS Depreciation of property, plant and equipment United Kingdom accelerated depreciation of plant and equipment Impairment of property, plant and equipment Amortisation of leasehold premiums Impairment of intangible asset brand names TOTAL DEPRECIATION, AMORTISATION AND IMPAIRMENT OF NON-CURRENT ASSETS 15 15 15 16 16 178,335 46,058 224,393 180,089 42,889 222,978 30,914 28,880 21,021 355 25 - - - 24 30,000 52,315 58,904 FINANCE COSTS Interest on bank loans and overdraft TOTAL FINANCE COSTS OTHER EXPENSES INCLUDE: Foreign exchange losses Net loss on disposal of property, plant and equipment United Kingdom – other expenses associated with review of lease break options 7,687 7,687 153 728 15 4,837 7,551 7,551 989 176 - 49 49 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued GROUP PERFORMANCE 6 INCOME TAX The major components of income tax expense are: (a) INCOME TAX RECOGNISED IN PROFIT OR LOSS CURRENT INCOME TAX Current income tax charge Adjustment in respect of current income tax of previous years DEFERRED INCOME TAX Relating to origination and reversal of temporary differences Adjustments in respect of current income tax of previous years INCOME TAX EXPENSE REPORTED IN THE STATEMENT OF COMPREHENSIVE INCOME (b) STATEMENT OF CHANGES IN EQUITY Deferred income tax related to items credited directly to equity: Net deferred income tax on movements on cash-flow hedges Net deferred income tax on unrealised gain (loss) on listed equity investment at fair value INCOME TAX (BENEFIT) EXPENSE REPORTED IN EQUITY (c) RECONCILIATION BETWEEN TAX EXPENSE AND THE ACCOUNTING PROFIT BEFORE TAX MULTIPLIED BY THE GROUP’S APPLICABLE AUSTRALIAN INCOME TAX RATE CONSOLIDATED 2019 $’000 2018 $’000 47,530 1,065 (3,660) - 40,680 (77) 2,371 (2,647) 44,935 40,327 (2,381) 1,857 (524) 10,003 (7,913) 2,090 Accounting profit before income tax 151,742 123,965 At the Parent Entity’s statutory income tax rate of 30% (2018: 30%) Adjustment in respect of current income tax of previous years Expenditure not allowable for income tax purposes Effect of different rates of tax on overseas income Income not assessable for tax purposes Other AGGREGATE INCOME TAX EXPENSE 45,523 1,065 2,700 (574) (3,717) (62) 44,935 37,190 (2,814) 10,965 (3,368) (1,037) (609) 40,327 50 50 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) GROUP PERFORMANCE 6 INCOME TAX (CONTINUED) (d) RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES DEFERRED TAX RELATES TO THE FOLLOWING: Foreign currency balances Potential capital gains tax on financial investments Deferred gains and losses on financial instruments Inventory provisions Deferred income Employee provisions Other receivables and prepayments Property, plant and equipment Other CONSOLIDATED 2019 $’000 2018 $’000 634 (35,087) (1,083) 498 11,113 6,707 (2,831) (4,935) 1,489 630 (32,794) (3,464) 290 12,572 6,302 (1,902) (6,346) (2,584) NET DEFERRED TAX LIABILITIES (23,495) (27,296) REFLECTED IN THE STATEMENT OF FINANCIAL POSITION AS FOLLOWS: Deferred tax assets Deferred tax liabilities NET DEFERRED TAX LIABILITIES INCOME TAX ACCOUNTING POLICY 40,380 (63,875) (23,495) 36,637 (63,933) (27,296) Income tax expense comprises current tax (amounts payable or receivable within 12 months) and deferred tax (amounts payable or receivable after 12 months). Tax expense is recognised in profit or loss, unless it relates to items that have been recognised in equity as part of other comprehensive income or directly in equity. In this instance, the related tax expense is also recognised in other comprehensive income or directly in equity. Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities based on the current and prior period taxable income. The tax rates and tax laws used to calculate tax amounts are those that are enacted or substantially enacted by the reporting date. Deferred income tax Deferred income tax is recognised on taxable temporary differences at the reporting date between the tax base of the assets and liabilities and their carrying amounts for financial reporting purposes based on the expected manner of recovery of the carrying value of an asset or liability. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date. 51 51 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued GROUP PERFORMANCE 6 INCOME TAX (CONTINUED) INCOME TAX ACCOUNTING POLICY (CONTINUED) Deferred income tax liabilities are recognised for all temporary differences except: - When the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss: and - When the taxable temporary difference is associated with investments in subsidiaries, associates and interest in joint ventures, and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all taxable temporary differences, except for the following: - When the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction affects neither the accounting profit nor taxable profit; - When the deductible temporary difference is associated with investments in subsidiaries, associates and interest in joint ventures, in which case the deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available to utilise the deferred tax asset. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Tax assets and tax liabilities are offset only if a legally enforceable right exists to set off and the tax assets and tax liabilities relate to the same taxable entity and the same taxation authority. Tax consolidation Premier Investments Limited and its wholly owned Australian controlled entities have implemented a tax consolidation group. The head entity, Premier Investments Limited and the controlled entities continue to account for their own current and deferred tax amounts. The Group has applied the Group allocation approach to determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. The agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At reporting date the possibility of default is remote. In addition to its own current and deferred tax amounts, Premier Investments 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. KEY ACCOUNTING ESTIMATES AND JUDGEMENTS Deferred tax assets are recognised for taxable temporary differences as management considers that is it probable that future taxable profits will be available to utilise those temporary differences. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits over the next two years together with future tax planning strategies. 52 52 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) GROUP PERFORMANCE 6 INCOME TAX (CONTINUED) KEY ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) Assumptions about the generation of future taxable profits depend on management's estimates of future cash flows. These depend on estimates of future sales volumes, operating costs, capital expenditure, dividends and other capital management transactions. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised in the statement of financial position and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to profit or loss in the statement of comprehensive income. CONSOLIDATED 2019 $’000 2018 $’000 7 EARNINGS PER SHARE The following reflects the income and share data used in the calculation of basic and diluted earnings per share: Net profit for the period 106,807 83,638 Weighted average number of ordinary shares used in calculating: - basic earnings per share - diluted earnings per share NUMBER OF SHARES ‘000 NUMBER OF SHARES ‘000 158,209 158,969 157,890 158,897 There have been no other conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report. EARNINGS PER SHARE ACCOUNTING POLICY Basic earnings per share are calculated as net profit attributable to members of the parent divided by the weighted average number of ordinary shares. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for costs of servicing equity, the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses, and other non-discretionary changes in revenue or expenses during the period that would result from the dilution of potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares. 53 53 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued GROUP PERFORMANCE 8 A) DIVIDENDS PAID AND PROPOSED DIVIDENDS PAID Declared and paid during the year: Interim franked dividends for 2019: 33 cents per share (2018: 29 cents) Final franked dividends for 2018: 33 cents per share (2017: 27 cents) TOTAL DECLARED AND PAID DURING THE YEAR DIVIDENDS PROPOSED Final franked dividend proposed for 2019: 37 cents per share (2018: 33 cents) CONSOLIDATED 2019 $’000 2018 $’000 52,282 45,849 52,201 104,483 42,619 88,468 58,619 52,201 The Directors of Premier Investments Limited declared a final dividend in respect of the 2018 financial year. The total amount of the dividend is $58,619,000 (2018: $52,201,000) which represents a fully franked dividend of 37 cents per share (2018: 33 cents per share). B) FRANKING CREDIT BALANCE The amount of franking credits available for the subsequent financial year are: franking account balance as at the end of the financial year at 30% (2018: 30%) franking credits that will arise from the payment of income tax payable as at the end of the financial year franking debits that will arise from the payment of dividends as at the end of the financial year TOTAL FRANKING CREDIT BALANCE CONSOLIDATED 2019 $’000 2018 $’000 208,467 215,483 6,965 4,848 (25,122) 190,310 (22,360) 197,971 The tax rate at which paid dividends have been franked is 30% (2018: 30%). Dividends proposed will be franked at the rate of 30% (2018: 30%). 54 54 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) OPERATING ASSETS AND LIABILITIES CONSOLIDATED 2019 $’000 2018 $’000 9 TRADE AND OTHER RECEIVABLES (CURRENT) Sundry debtors TOTAL CURRENT TRADE AND OTHER RECEIVABLES 23,011 23,011 21,563 21,563 (a) Impairment losses Receivables are non-interest-bearing and are generally on 30 to 60 day terms. An allowance for credit losses is recognised based on the expected credit loss from the time the financial asset is initially recognised. Bad debts are written off when identified. No material allowance for credit losses has been recognised by the Group during the financial year ended 27 July 2019 (2018: $nil). During the year, no bad debt expense (2018: $nil) was recognised. It is expected that sundry debtor balances will be received when due. (b) Fair value Due to the short-term nature of these receivables, their carrying value is considered to approximate their fair value. TRADE AND OTHER RECEIVABLES ACCOUNTING POLICY Trade and other receivables are classified as non-derivative financial assets and are recognised initially at fair value. After initial measurement, these assets are measured at amortised cost, less any allowance for any expected credit losses. 10 INVENTORIES Finished goods TOTAL INVENTORIES AT COST INVENTORIES ACCOUNTING POLICY CONSOLIDATED 2019 $’000 2018 $’000 171,165 171,165 159,313 159,313 Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and conditions are accounted for as follows: - Finished goods and work-in-progress - purchase cost plus a proportion of the purchasing department, freight, handling and warehouse costs incurred to deliver the goods to the point of sale. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated direct costs necessary to make the sale. 55 55 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued OPERATING ASSETS AND LIABILITIES 11 OTHER ASSETS (CURRENT) Deposits and prepayments TOTAL OTHER CURRENT ASSETS 12 TRADE AND OTHER PAYABLES (CURRENT) Trade creditors Other creditors and accruals TOTAL CURRENT TRADE AND OTHER PAYABLES (a) Fair values CONSOLIDATED 2019 $’000 2018 $’000 14,688 14,688 35,281 46,657 81,938 15,323 15,323 43,282 41,276 84,558 Due to the short-term nature of these payables, their carrying values approximate their fair values. TRADE AND OTHER PAYABLES ACCOUNTING POLICY Trade and other payables are recognised and carried at original invoice cost, which is the fair value of the consideration to be paid in the future for goods and services received whether or not billed to the Group. Trade liabilities are normally settled on terms of between 7 and 90 days. CONSOLIDATED 2019 $’000 2018 $’000 13 PROVISIONS CURRENT Employee entitlements – Annual Leave Employee entitlements – Long Service Leave Provision for make-good in relation to leased premises Refund liability Other provisions TOTAL CURRENT PROVISIONS NON-CURRENT Employee entitlements – Long Service Leave Provision for make-good in relation to leased premises Other provisions TOTAL NON-CURRENT PROVISIONS 12,518 8,159 695 2,088 421 23,881 2,285 5,392 3,788 11,465 56 12,020 7,214 - - - 19,234 - - 2,040 2,040 56 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) OPERATING ASSETS AND LIABILITIES 13 PROVISIONS (CONTINUED) PROVISIONS ACCOUNTING POLICIES Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time-value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax discount rate that reflects the risks specific to the liability and the time value of money. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. EMPLOYEE ENTITLEMENTS ACCOUNTING POLICIES Current annual leave The provisions for employee entitlements to wages, salaries and annual leave (which are expected to be settled wholly within 12 months of the reporting date) represent the amount which the Group has a present obligation to pay, resulting from employees’ services provided up to the reporting date. The provisions have been calculated at nominal amounts based on current wage and salary rates, and include related on-costs. Long service leave and non-current annual leave The liability for long service leave and non-current annual leave (which are not expected to be settled wholly within 12 months of the reporting date) 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 reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Related on-costs have also been included in the liability. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity that match as closely as possible the estimated cash outflow. Retirement benefit obligations All employees of the Group are entitled to benefits from the Group’s superannuation plan on retirement, disability or death. The Group operates a defined contribution plan. Contributions to the plan are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payment is made available. PROVISION FOR MAKE-GOOD IN RELATION TO STORE PLANT AND EQUIPMENT ACCOUNTING POLICY A provision has been recognised in relation to make-good costs arising from contractual obligations in lease agreements, in regions where the Group has such a present obligation. The provision recognised represents the present value of the estimated expenditure required to remove these store plant and equipment. 57 57 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued OPERATING ASSETS AND LIABILITIES 14 OTHER LIABILITIES CURRENT Deferred income TOTAL CURRENT NON-CURRENT Deferred income TOTAL NON-CURRENT CONSOLIDATED 2019 $’000 2018 $’000 26,529 26,529 29,137 29,137 21,629 21,629 29,030 29,030 DEFERRED INCOME ACCOUNTING POLICY Deferred lease incentives Lease incentives are capitalised in the financial statements when received and credited to rent expense over the term of the store lease to which they relate. Deferred rent Operating lease expenses are recognised on a straight-line basis over the lease term, which includes the impact of annual fixed rate percentage increases. Unredeemed gift cards are expected to be redeemed within a year. 58 58 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL INVESTED 15 PROPERTY, PLANT AND EQUIPMENT CONSOLIDATED LAND $’000 BUILDINGS $’000 PLANT AND EQUIPMENT $’000 LEASED PLANT AND EQUIPMENT $’000 CAPITAL WORKS IN PROGRESS $’000 TOTAL $’000 21,953 54,720 482,337 343 9,977 569,330 - (4,497) (353,635) (343) - (358,475) 21,953 50,223 128,702 21,953 51,591 152,553 - - - - - - - - - 23,612 3,938 (1,368) (29,546) - - - - (21,021) (1,631) (355) 1,152 21,953 50,223 128,702 - - - - - - - - - - 9,977 210,855 12,070 1,845 (3,938) - - - - - 238,167 25,457 - (30,914) (21,021) (1,631) (355) 1,152 9,977 210,855 21,953 54,720 455,266 343 12,070 544,352 - (3,129) (302,713) (343) - (306,185) AT 27 JULY 2019 Cost Accumulated depreciation and impairment NET CARRYING AMOUNT RECONCILIATIONS: Carrying amount at beginning of the financial year Additions Transfers between classes Depreciation United Kingdom accelerated depreciation Disposals Impairment Exchange differences Carrying amount at end of the financial year AT 28 JULY 2018 Cost Accumulated depreciation and impairment NET CARRYING AMOUNT 21,953 51,591 152,553 RECONCILIATIONS: Carrying amount at beginning of the financial year Additions Transfers between classes Depreciation Disposals Exchange differences Carrying amount at end of the financial year 21,953 52,959 134,667 - - - - - - - 40,225 3,285 (1,368) (27,512) - - (502) 2,390 21,953 51,591 152,553 - - - - - - - - 12,070 238,167 4,799 214,378 10,556 (3,285) - - - 50,781 - (28,880) (502) 2,390 12,070 238,167 59 59 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL INVESTED 15 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) LAND AND BUILDINGS The land and buildings with a combined carrying amount of $72,176,000 have been pledged to secure certain interest-bearing borrowings of the Group (refer to note 20). PROPERTY, PLANT AND EQUIPMENT ACCOUNTING POLICY Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a systematic basis over the estimated useful life of the asset as follows: - - - - Buildings 40 years Store plant and equipment 3 to 10 years Leased plant and equipment 2 to 5 years Other plant and equipment 2 to 20 years Freehold land is not depreciated. KEY ACCOUNTING ESTIMATES AND ASSUMPTIONS Estimation of useful lives of assets The estimation of useful lives of assets has been based on historical experience as well as manufacturers’ warranties (for plant and equipment) and lease terms (for leased equipment). In addition, the condition of the assets is assessed at least once per year and considered against the remaining useful life. Adjustments to useful lives are made when considered necessary and are accounted for as a change in accounting estimate, in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. Depreciation methods used reflect the pattern in which the asset’s future economic benefits are expected to be consumed and are reviewed at least at each financial year-end. Adjustments to depreciation methods are made when considered necessary and are accounted for as a change in accounting estimate, in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. As a result of the continued economic and political uncertainty in the United Kingdom, and the impact of these uncertainties on the landlord and retail markets in particular, the Group reviewed its depreciation methods for its United Kingdom store plant and equipment. As part of the Group’s lease agreements in this region, shorter term break options were negotiated for the majority of leases, giving the Group the economic advantage to renegotiate and reassess its United Kingdom leases in an environment with traditionally longer term leases. The Group has reassessed its depreciation methods and useful life of store assets in this region in line with the earlier of contracted shorter term break options or lease end dates, given the uncertainty of the useful life of these store assets beyond these dates. The changed method resulted in an accelerated depreciation charge in the current financial year of $21.0 million. Other expenses associated with the Group’s review of its United Kingdom lease break options amounted to $4.8 million and have been disclosed as “other expenses” (refer note 5). Assuming the assets are held until the end of their estimated useful lives, depreciation of the Group in future years in relation to these assets will increase/ decrease by the following amounts: Year ending July 2020: $3.8 million increase Year ending July 2021: $1.8 million increase Year ending July 2022: $1.4 million decrease 60 60 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL INVESTED 15 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) IMPAIRMENT TESTING OF PROPERTY, PLANT AND EQUIPMENT AND SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS The carrying values of property, plant and equipment are reviewed for impairment annually. If an indication of impairment exists, and where the carrying value of the asset exceeds the estimated recoverable amount, the assets or cash-generating units (CGU) are written down to their recoverable amount. The recoverable amount is the greater of fair value less costs of disposal and value-in-use. Value-in-use refers to an asset’s value based on the expected future cash flows arising from its continued use, discounted to present value using a post-tax discount rate that reflect current market assessments of the risks specific to the asset. These value- in-use calculations use cash flow projections based on financial budgets approved by management, covering a five year period, using a post-tax discount rate of 10.5% (2018: 10.5%). If an asset does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs. The recoverable amount was estimated for certain items of plant and equipment on an individual store basis, as this has been identified as the CGU of the Group’s retail segment. An impairment loss of $355,000 was recognised during the current financial year (2018: $nil). 61 61 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL INVESTED 16 INTANGIBLES RECONCILIATION OF CARRYING AMOUNTS AT THE BEGINNING AND END OF THE PERIOD YEAR ENDED 27 JULY 2019 As at 29 July 2018 net of accumulated amortisation and impairment Trademark registrations Amortisation Exchange differences As at 27 July 2019 net of accumulated amortisation and impairment CONSOLIDATED GOODWILL $’000 BRAND NAMES $’000 TRADEMARKS $’000 LEASEHOLD PREMIUMS $’000 TOTAL $’000 477,085 - 346,179 - - - - - 2,638 713 - - 477,085 346,179 3,351 47 - (25) 2 24 825,949 713 (25) 2 826,639 AS AT 27 JULY 2019 Cost (gross carrying amount) Accumulated amortisation and impairment NET CARRYING AMOUNT 477,085 - 477,085 376,179 (30,000) 346,179 YEAR ENDED 28 JULY 2018 As at 30 July 2017 net of accumulated amortisation and impairment Trademark registrations Amortisation Impairment of brand names Exchange differences 477,085 376,179 - - - - - - (30,000) - 3,351 - 3,351 1,777 861 - - - As at 28 July 2018 net of accumulated amortisation and impairment 477,085 346,179 2,638 979 (955) 24 857,594 (30,955) 826,639 73 - (24) - (2) 47 855,114 861 (24) (30,000) (2) 825,949 AS AT 28 JULY 2018 Cost (gross carrying amount) Accumulated amortisation and impairment NET CARRYING AMOUNT GOODWILL ACCOUNTING POLICY 477,085 - 477,085 376,179 (30,000) 346,179 2,638 - 2,638 977 (930) 47 856,879 (30,930) 825,949 Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing. 62 62 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL INVESTED 16 INTANGIBLES (CONTINUED) GOODWILL ACCOUNTING POLICY (CONTINUED) Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Goodwill acquired in a business combination is, from the date of acquisition, allocated to each of the Group’s cash-generating units (CGUs) that are expected to benefit from the synergies of the combination. Impairment is determined by assessing the recoverable amount of the CGU to which the goodwill relates. Where the recoverable amount of the CGU is less than the carrying amount, an impairment loss is recognised. Impairment losses recognised for goodwill are not subsequently reversed. OTHER INTANGIBLE ASSETS (excluding goodwill) ACCOUNTING POLICY Intangible assets acquired separately are initially measured at cost. Intangible assets acquired in a business combination are initially recognised at fair value. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. A summary of the key accounting policies applied to the Group’s intangible assets are as follows: Brands Leasehold Premiums Trademarks & Licences Useful life assessment? Indefinite Finite Indefinite Method used? Not amortised or revalued Amortised over the term of the lease Not amortised or revalued Internally generated or acquired? Impairment test/recoverable amount testing Acquired Acquired Acquired Annually; for indicators of impairment Amortisation method reviewed at each financial year end; reviewed annually for indicators of impairment Annually; for indicators of impairment Brand names, trademarks and licences are assessed as having an indefinite useful life, as this reflects management’s intention to continue to operate these to generate net cash inflows into the foreseeable future. These assets are not amortised but are subject to impairment testing. Intangible assets are tested for impairment where an indicator of impairment exists, or in the case of indefinite life intangibles, impairment is tested annually or where an indicator of impairment exists. Where the carrying amount of an intangible asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The recoverable amount is the higher of the asset’s value-in-use and fair value less costs of disposal. Value-in use refers to an asset’s value based on the expected future cash flows arising from its continued use, discounted to present value using a post-tax discount rate that reflect current market assessments of the risks specific to the asset. If an asset does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs. 63 63 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL INVESTED 16 INTANGIBLES (CONTINUED) SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS The recoverable amounts of CGUs are determined based on the higher of value-in-use calculations or fair value less costs of disposal. These calculations depend on management estimates and assumptions. In particular, significant estimates and judgements are made in relation to the key assumptions used in forecasting future cash flows and the expected growth rates used in these cash flow projections, as well as the discount rates applied to these cash flows. Management assesses these assumptions each reporting period and considers the potential impact of changes to these assumptions. IMPAIRMENT TESTING OF GOODWILL The key factors contributing to the goodwill relate to the synergies existing within the acquired business and also synergies expected to be achieved as a result of combining Just Group Limited with the rest of the Group. Accordingly, goodwill is assessed at a retail segment level, which is also an operating segment for the Group. The recoverable amount of the CGU has been determined based upon a value-in-use calculation, using cash flow projections as at July 2019 for a period of five years plus a terminal value. The cash flow projections are based on financial estimates approved by senior management and the Board for the 2020 financial year and are projected for a further four years based on estimated growth rates of 2.5% (2018: 2.4%). As part of the annual impairment test for goodwill, management assesses the reasonableness of growth rate assumptions by reviewing historical cash flow projections as well as future growth objectives. Cash flows beyond the five year period are extrapolated using a growth rate of 2.8% (2018: 3%) which reflects the long-term growth expectation beyond the five year projection. The post-tax discount rate applied to these cash flow projections is 9.7% (2018: 10.0%). The discount rate has been determined using the weighted average cost of capital which incorporates both the cost of debt and the cost of capital specific to the asset and adjusted for risks specific to the CGU. Management has considered the reasonably possible changes in expected sales growth, forecast Earnings Before Interest, Tax and Amortisation (EBITA) and discount rates applied to the CGU to which goodwill relates, each of which have been subject to sensitivities. A reasonably possible adverse change in these key assumptions on which the recoverable amount is based would not cause the carrying amount of the CGU to exceed its recoverable amount. IMPAIRMENT TESTING OF BRAND NAMES Brand names acquired through business combinations have been allocated to the following CGU groups ($’000) as no individual brand name is considered significant: - - - Casual wear - $158,975 Women’s wear - $137,744 Non Apparel - $49,460 The recoverable amounts of brand names acquired in a business combination have been determined on an individual brand basis based upon a value-in-use calculation. The value-in-use calculation has been determined based upon the relief from royalty method using cash flow projections as at July 2020 for a period of five years plus a terminal value. The cash flow projections are based on financial estimates approved by senior management and the Board for the 2020 financial year and are projected for a further four years based on estimated growth rates. 64 64 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL INVESTED 16 INTANGIBLES (CONTINUED) IMPAIRMENT TESTING OF BRAND NAMES (CONTINUED) The extrapolated growth rates at which cash flows have been projected for the individual brands within each of the CGU groups have been summarised below. Cash flows beyond the five year period are extrapolated using a growth rate of 2.8% (2018: 3%), which reflects the long-term growth expectation beyond the five year projection. CGU AVERAGE GROWTH RATES APPLIED TO PROJECTED CASH FLOWS Casual wear 2% to 2.5% Women’s wear 1% to 3.5% Non Apparel 3% As part of the annual impairment test for brand names, management assesses the reasonableness of growth rate assumptions by reviewing historical cash flow projections as well as future growth objectives. The post-tax discount rate applied to the cash flow projections for each of the three CGU groups is 8.7% (2018: 8.7%). The discount rate has been determined using the weighted average cost of capital which incorporates both the cost of debt and cost of capital specific to the asset and adjusted for risks specific to the CGU. Royalty rates have been determined for each brand within the CGU groups by considering the brand’s history and future expected performance. Factors such as the profitability of the brand, market share, brand recognition and general conditions in the industry have also been considered in determining an appropriate royalty rate for each brand. Consideration is also given to the industry norms relating to royalty rates by analysing market derived data for comparable brands and by considering the notional royalty payments as a percentage of the divisional earnings before interest and taxation generated by the division in which the brand names are used. Net royalty rates applied across the three CGU groups range between 3.5% and 8% (2018: 3.5% and 8%). Management has considered reasonably possible adverse changes in key assumptions applied to brands within the relevant CGU groups, each of which have been subjected to sensitivities. Key assumptions relate to expected sales growth, net royalty rates and discount rates applied. A reasonably possible adverse change in these key assumptions on which the recoverable amount is based would not cause the carrying amount of the CGU’s to exceed its recoverable amount. In the 2018 financial year, an impairment expense of $30 million was recognised in relation to brand names within the Casual Wear CGU group with a historical carrying value of $112.2 million. The impairment expense decreased the carrying value to $82.2 million, being its recoverable amount at 28 July 2018. In the 2019 financial year, a number of sensitivities have been performed in relation to reasonably possible adverse changes in sales growth rates relating to these brand names within the Casual Wear CGU group. The sensitivities included reducing sales growth rates by 1%. This reasonably possible adverse change in sales growth rates could lead to the brand carrying value approximating its recoverable value. 65 65 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL INVESTED 17 LISTED EQUITY INVESTMENT AT FAIR VALUE INVESTMENT Investment in listed securities at fair value TOTAL INVESTMENTS CONSOLIDATED 2019 $’000 2018 $’000 46,879 46,879 40,687 40,687 FAIR VALUE LISTED EQUITY INVESTMENT ACCOUNTING POLICY The listed equity investment comprises a non-derivative equity instrument not held for trading and relates to an equity investment in Myer Holdings Limited. The Group has made the irrevocable election to designate the listed equity investment as ‘fair value through other comprehensive income’, as it is not held for trading, with only dividends recognised in profit or loss. Accordingly, the investment is accounted for at fair value through other comprehensive income, without subsequent reclassification of gains or losses nor impairment to profit or loss. The fair value of equity investments in listed securities is determined by reference to quoted market bid prices at the close of business on the reporting date. 18 INVESTMENT IN ASSOCIATE Movements in carrying amounts Carrying amount at the beginning of the financial year Acquisition of shares in associate Share of profit after income tax Share of other comprehensive income Dividends received TOTAL INVESTMENT IN ASSOCIATE Breville Group Limited CONSOLIDATED 2019 $’000 2018 $’000 223,184 7,872 18,906 1,424 (12,654) 238,732 216,940 - 16,087 1,424 (11,267) 223,184 As at 27 July 2019, Premier Investments Limited holds 28.06% (2018: 27.5%) of Breville Group Limited (“BRG”), a company incorporated in Australia whose shares are quoted on the Australian Securities Exchange. The principal activities of BRG involves the innovation, development, marketing and distribution of small electrical appliances. As at 27 July 2019, the fair value of the Group’s interest in BRG as determined based on the quoted market price was $691,666,245 (2018: $407,380,401). There were no impairment losses relating to the investment in associate and no capital commitments or other commitments relating to the associate. The Group’s share of the profit after tax in its investment in associate for the year was $18,905,536 (2018: $16,086,873). The financial year end date of BRG is 30 June. For the purpose of applying the equity method of accounting, the financial statements of BRG for the year ended 30 June 2019 have been used. The accounting policies applied by BRG in their financial statements materially conform to those used by the Group for like transactions and events in similar circumstances. 66 66 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL INVESTED 18 INVESTMENT IN ASSOCIATE (CONTINUED) The following table illustrates summarised financial information relating to the Group’s investment in BRG: EXTRACT OF BRG’S STATEMENT OF FINANCIAL POSITION 30 JUNE 2019 $’000 30 JUNE 2018 $’000 Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities NET ASSETS 367,988 141,779 509,767 (143,400) (56,032) (199,432) 310,335 315,705 129,644 445,349 (108,801) (53,313) (162,114) 283,235 Group’s share of BRG net assets 87,068 77,861 EXTRACT OF BRG’S STATEMENT OF COMPREHENSIVE INCOME Revenue Profit after income tax Other comprehensive income 30 JUNE 2019 $’000 30 JUNE 2018 $’000 759,967 67,385 6,839 652,348 58,519 5,181 Group’s share of BRG profit after income tax 18,906 16,087 INVESTMENT IN ASSOCIATE ACCOUNTING POLICY An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries. The Group accounts for its investments in associate using the equity method of accounting in the consolidated financial statements. Under the equity method, the investment in the associate is initially recognised at cost. Thereafter, the carrying amount of the investment is adjusted to recognise the Group’s share of profit after tax of the associate, which is recognised in profit or loss, and the Group’s share of other comprehensive income, which is recognised in other comprehensive income in the statement of comprehensive income. Dividends received from the associate generally reduces the carrying amount of the investment. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in an associate. At each reporting period, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, then recognises the impairment loss in profit or loss in the statement of comprehensive income. 67 67 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL STRUCTURE AND RISK MANAGEMENT 19 NOTES TO THE STATEMENT OF CASH FLOWS (a) RECONCILIATION OF CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term deposits TOTAL CASH AND CASH EQUIVALENTS (b) RECONCILIATION OF NET PROFIT AFTER INCOME TAX TO NET CASH FLOWS FROM OPERATIONS Net profit for the period Adjustments for: Amortisation Depreciation Impairment and write-off of non-current assets Foreign exchange losses Share of profit of associate Dividends received from listed equity investment Borrowing costs Net loss on disposal of property, plant and equipment Share-based payments expense Gross movement in cash flow hedge reserve Net exchange differences Changes in assets and liabilities: (Increase) decrease in trade and other receivables Decrease (increase) in other current assets Increase in inventories Decrease (increase) in other financial assets (Increase) decrease in deferred tax assets Increase in provisions (Decrease) increase in deferred tax liabilities Increase in trade and other payables Increase (decrease) in other financial liabilities Increase in deferred income Increase (decrease) in income tax payable NET CASH FLOWS FROM OPERATING ACTIVITIES 68 CONSOLIDATED 2019 $’000 2018 $’000 59,426 130,829 190,255 47,020 131,598 178,618 106,807 83,638 25 51,935 355 153 (18,906) - (191) 728 2,012 (5,556) 1,925 (733) 635 (11,852) 5,854 (4,262) 5,897 (58) (2,620) 2,123 1,919 2,624 138,814 24 28,880 30,000 989 (16,087) (1,769) 209 176 3,178 23,340 2,954 2,119 (3,751) (18,558) (11,792) 7,048 81 5,146 13,030 (21,686) 14,671 (7,989) 133,851 68 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 19 NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED) (c) FINANCE FACILITIES Working capital and bank overdraft facility Used Unused Finance facility Used Unused Bank guarantee facility Used Unused Interchangeable facility Used Unused Total facilities Used Unused TOTAL CONSOLIDATED 2019 $’000 2018 $’000 - 11,800 11,800 168,000 61,000 229,000 - 200 200 7,588 5,412 13,000 175,588 78,412 254,000 - 11,800 11,800 176,000 53,000 229,000 51 149 200 7,790 5,210 13,000 183,841 70,159 254,000 CASH AND CASH EQUIVALENTS ACCOUNTING POLICY Cash and cash equivalents in the statement of financial position comprise cash on hand and in banks, money market investments readily convertible to cash within two working days and short-term deposits with an original maturity 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. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. 69 69 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL STRUCTURE AND RISK MANAGEMENT 20 INTEREST-BEARING LIABILITIES NON-CURRENT Bank loans* unsecured Bank loans ** secured TOTAL INTEREST-BEARING LIABILITIES CONSOLIDATED 2019 $’000 2018 $’000 98,493 69,000 167,493 106,684 69,000 175,684 * Bank loans are subject to a negative pledge and cross guarantee within the Just Group Ltd group. Premier Investments Limited is not a participant or guarantor of the Just Group Ltd financing facilities. ** Premier Investments Limited obtained bank borrowings amounting to $69 million. A $19 million borrowing is secured by a mortgage over Land and Buildings, representing the National Distribution Centre in Truganina, Victoria, and is repayable in full in January 2022. Premier Investments Limited obtained a further $50 million borrowing which is secured by a mortgage over Land and Buildings, representing an office building in Melbourne, Victoria, and is repayable in full in December 2021. (a) Fair values The carrying values of the Group’s current and non-current interest-bearing liabilities approximate their fair values. (b) Defaults and breaches During the current and prior years, there were no defaults or breaches on any of the loans. (c) Changes in interest-bearing liabilities arising from financing activities Non-current interest-bearing liabilities TOTAL INTEREST-BEARING LIABILITIES CONSOLIDATED 28 JULY 2018 $’000 175,684 175,684 CASH FLOWS $’000 (8,000) (8,000) OTHER $’000 27 JULY 2019 $’000 (191) (191) 167,493 167,493 ‘Other’ includes the effect of the amortisation of the capitalised borrowing costs, which are amortised over the life of the facility. INTEREST-BEARING LIABILITIES ACCOUNTING POLICY Interest-bearing liabilities are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, such items are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Fees paid on the establishment of loan facilities are amortised over the life of the facility while on-going borrowing costs are expensed as incurred. 70 70 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 21 CONTRIBUTED EQUITY Ordinary share capital 608,615 608,615 CONSOLIDATED 2019 $’000 2018 $’000 (a) MOVEMENTS IN SHARES ON ISSUE Ordinary shares on issue 29 July 2018 Ordinary shares issued during the year (i) Ordinary shares on issue at 27 July 2019 Ordinary shares on issue 30 July 2017 Ordinary shares issued during the year (i) Ordinary shares on issue at 28 July 2018 NO. (‘000) $‘000 158,099 331 158,430 157,748 351 158,099 608,615 - 608,615 608,615 - 608,615 Fully paid ordinary shares carry one vote per share and carry the rights to dividends. (i) A total of 330,112 ordinary shares (2018: 350,978) were issued in relation to the performance rights plan. (b) CAPITAL MANAGEMENT The Group’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders. The Group also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The capital structure of the Group consists of debt which includes interest-bearing borrowings, cash and cash equivalents and equity attributable to the equity holders of Premier Investments Limited, comprising of contributed equity, reserves and retained earnings. The Group operates primarily through its two business segments, investments and retail. The investments segment is managed and operated through the parent company. The retail segment operates through subsidiaries established in their respective markets and maintains a central borrowing facility through a subsidiary, to meet the retail segment’s funding requirements and to enable the Group to find the optimal debt and equity balance. The Group’s capital structure is reviewed on a periodic basis in the context of prevailing market conditions, and appropriate steps are taken to ensure the Group’s capital structure and capital management initiatives remain in line with the Board’s objectives. The Group maintains that the dividend paid will represent at least 65% of net profit after tax. (c) EXTERNALLY IMPOSED CAPITAL REQUIREMENTS Just Group Ltd, a subsidiary of Premier Investments Limited, is subject to a number of financial undertakings as part of its financing facility agreement. These undertakings have been satisfied during the period. The Group is not subject to any capital requirements imposed by regulators or other prudential authorities. 71 71 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL STRUCTURE AND RISK MANAGEMENT CONSOLIDATED 2019 $’000 2018 $’000 22 RESERVES RESERVES COMPRISE: Capital profits reserve Foreign currency translation reserve (a) Cash flow hedge reserve (b) Performance rights reserve (c) Fair value reserve (d) TOTAL RESERVES (a) FOREIGN CURRENCY TRANSLATION RESERVE Nature and purpose of reserve Reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. - Movements in the reserve Opening balance Foreign currency translation of overseas subsidiaries Net movement in associate entity’s reserves CLOSING BALANCE (b) CASH FLOW HEDGE RESERVE Nature and purpose of reserve Reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. - Movements in the reserve Opening balance Net (loss) gain on cash flow hedges Transferred to statement of financial position/ profit or loss Deferred income tax movement on cash flow hedges CLOSING BALANCE 464 7,337 2,503 17,746 (38,908) (10,858) 2,977 2,936 1,424 7,337 8,059 (18,024) 10,087 2,381 2,503 72 464 2,977 8,059 15,734 (43,243) (16,009) (3,661) 5,214 1,424 2,977 (15,281) 21,370 11,973 (10,003) 8,059 72 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT CONSOLIDATED 2019 $’000 2018 $’000 15,734 2,012 17,746 12,556 3,178 15,734 (43,243) (24,178) 6,192 (26,978) (1,857) (38,908) 7,913 (43,243) 22 RESERVES (CONTINUED) (c) PERFORMANCE RIGHTS RESERVE Nature and purpose of reserve Reserve is used to record the cumulative amortised value of performance rights issued to key senior employees, net of the value of performance shares acquired under the performance rights plan. - Movements in the reserve Opening balance Performance rights expense for the year CLOSING BALANCE (d) FAIR VALUE RESERVE Nature and purpose of reserve Reserve is used to record unrealised gains and losses on fair value revaluation of listed equity investment at fair value. - Movements in the reserve Opening balance Unrealised gain (loss) on revaluation of listed investment at fair value Net deferred income tax movement on listed equity investment at fair value CLOSING BALANCE 23 EXPENDITURE COMMITMENTS OPERATING LEASE EXPENDITURE COMMITMENTS Payable within one year Payable within one to five years Payable in more than five years TOTAL OPERATING LEASES 116,517 172,491 15,961 304,969 114,149 228,593 61,091 403,833 The Group has entered into commercial operating leases on certain land and buildings, motor vehicles and items of plant and equipment. These leases have an average life of five years. LEASES ACCOUNTING POLICY Operating lease payments are recognised as an expense in profit or loss in the statement of comprehensive income on a straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability. 73 73 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL STRUCTURE AND RISK MANAGEMENT 24 OTHER FINANCIAL INSTRUMENTS CURRENT ASSETS Derivatives designated as hedging instruments Forward currency contracts – cash flow hedges TOTAL CURRENT FINANCIAL INSTRUMENTS NON –CURRENT LIABILITIES Derivatives designated as hedging instruments Interest rate swaps – cash flow hedges TOTAL NON-CURRENT FINANCIAL INSTRUMENTS (a) DERIVATIVE INSTRUMENTS USED BY THE GROUP (i) Forward currency contracts – cash flow hedges CONSOLIDATED 2019 $’000 2018 $’000 6,119 6,119 11,973 11,973 2,548 2,548 425 425 The majority of the Group’s inventory purchases are denominated in US Dollars. In order to protect against exchange rates movements, the Group has entered into forward exchange contracts to predominantly purchase US Dollars. The forward currency contracts are considered to be highly effective hedges as they are matched against forecast inventory purchases and are timed to mature when payments are scheduled to be made. Any gain or loss on the contracts attributable to the hedge risk are recognised in other comprehensive income and accumulated in the hedge reserve in equity. The cash flows are expected to occur between one to twelve months from 27 July 2019 and the profit or loss within cost of sales will be affected over the next couple of years as the inventory is sold. (ii) Interest rate swaps – cash flow hedges The Group has entered into interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts on certain of its interest-bearing liabilities. These interest rate swap contracts are designated as cash flow hedges in order to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the interest rate payments on the loans occur simultaneously. The amount accumulated in the hedge reserve in equity is reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or loss. 74 74 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 24 OTHER FINANCIAL INSTRUMENTS (CONTINUED) (a) DERIVATIVE INSTRUMENTS USED BY THE GROUP (CONTINUED) At reporting date, the details of outstanding forward currency contracts are: Buy USD / Sell AUD Maturity < 6 months Maturity 6 – 12 months Buy USD / Sell NZD Maturity < 6 months Maturity 6 – 12 months Buy USD / Sell GBP Maturity < 6 months Maturity 6 – 12 months Buy AUD / Sell NZD Maturity < 6 months Buy USD / Sell SGD Maturity < 6 months Maturity 6 – 12 months CONSOLIDATED 2019 $’000 2018 $’000 2019 2018 NOTIONAL AMOUNTS $AUD AVERAGE EXCHANGE RATE 114,426 - 90,902 93,367 0.7292 - 0.7892 0.7637 NOTIONAL AMOUNTS $NZD AVERAGE EXCHANGE RATE 19,892 10,585 15,284 17,742 0.6863 0.6707 0.7299 0.6916 NOTIONAL AMOUNTS £GBP AVERAGE EXCHANGE RATE 7,762 - 7,697 3,485 1.2509 - 1.4033 1.4414 NOTIONAL AMOUNTS $NZD AVERAGE EXCHANGE RATE 4,465 3,863 1.0455 1.098 NOTIONAL AMOUNTS $SGD AVERAGE EXCHANGE RATE 6,352 - 4,179 4,150 0.7415 - 0.7650 0.7504 75 75 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL STRUCTURE AND RISK MANAGEMENT 24 OTHER FINANCIAL INSTRUMENTS (CONTINUED) OTHER FINANCIAL INSTRUMENTS AND HEDGING ACCOUNTING POLICY The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its foreign currency risks and interest rate risks. These derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value at subsequent reporting dates. Derivatives are carried as financial assets when their fair value is positive and as financial liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as cash flow hedges and are considered to be effective, are taken directly to profit or loss for the period. Cash flow hedges Cash flow hedges are hedges of the Group’s exposure to variability in cash flows that is attributable to highly probable future purchases as well as cash flows attributable to a particular risk associated with a recognised asset or liability that is a firm commitment and that could affect the statement of comprehensive income. The Group’s cash flow hedges that meet the strict criteria for hedge accounting are accounted for by recognising the effective portion of the gain or loss on the hedging instrument directly in other comprehensive income and accumulated in the cash flow hedge reserve in equity, while the ineffective portion due to counterparty credit risk is recognised in profit or loss. Amounts taken to equity are reclassified out of equity and included in the measurement of the hedge transaction (finance costs or inventory purchases) when the forecast transaction occurs. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked (due to being ineffective), amounts previously recognised in equity remain in equity until the forecast transaction occurs. 25 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES The Group’s principal financial instruments comprise cash and cash equivalents, derivative financial instruments, listed equity investments at fair value, receivables, payables, bank overdrafts and interest- bearing liabilities. RISK EXPOSURES AND RESPONSES The Group manages its exposure to key financial risks in accordance with Board-approved policies which are reviewed annually and includes liquidity risk, foreign currency risk, interest rate risk and credit risk. The objective of the policy is to support the delivery of the Group’s financial targets whilst protecting future financial security. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include, monitoring levels of exposure to interest rate and foreign exchange risk and assessment of market forecasts for interest rate and foreign exchange prices. Liquidity risk is monitored through development of future cash flow forecast projections. 76 76 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 25 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) CREDIT RISK The overwhelming majority of the Group’s sales are on cash terms with settlement within 24 hours. As such, the Group’s exposure to credit risk is minimal. Receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. There are no significant concentrations of credit risk within the Group and financial instruments are spread amongst a number of financial institutions. With respect to credit risk arising mainly from cash and cash equivalents and certain derivative instruments, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Since the Group trades only with recognised creditworthy third parties, there is no requirement for collateral by either party. Credit risk for the Group also arises from financial guarantees that members of the Group act as guarantor. At 27 July 2019, the maximum exposure to credit risk of the Group is the amount guaranteed as disclosed in note 33. INTEREST RATE RISK The Group’s exposure to market interest rates relates primarily to its cash and cash equivalents that it holds and interest-bearing liabilities. At reporting date, the Group had the following mix of financial assets and liabilities exposed to variable interest rate risk that are not designated in cash flow hedges: Financial Assets Cash and cash equivalents Financial Liabilities Bank loans AUD NET FINANCIAL ASSETS NOTES 19 20 CONSOLIDATED 2019 $’000 190,255 190,255 167,493 167,493 22,762 2018 $’000 178,618 178,618 175,684 175,684 2,934 Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s objective of managing interest rate risk is to minimise the Group’s exposure to fluctuations in interest rates that might impact its interest revenue, interest expense and cash flow. The Group manages this by locking in a portion of its cash and cash equivalents into term deposits. The maturity of term deposits is determined based on the Group’s cash flow forecast. The Group manages its interest rate risk relating to interest-bearing liabilities by having access to both fixed and variable rate debt which can be drawn down. The Group also entered into interest rate swaps, in which it agreed to exchange, at specific intervals, the difference between fixed and variable interest amounts, calculated on an agreed-upon notional principal amount. 77 77 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL STRUCTURE AND RISK MANAGEMENT 25 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) INTEREST RATE RISK (CONTINUED) Interest rate sensitivity i) The following table demonstrates the sensitivity to a reasonably possible change in interest rates on the portion of cash and cash equivalents and interest-bearing liabilities affected. A 100 (2018:100) basis point increase and decrease in Australian interest rates represents management's assessment of the reasonably possible change in interest rates. The table indicates an increase or decrease in the Group’s profit before tax. Impacts of reasonably possible movements: CONSOLIDATED +1.0% (100 basis points) -1.0% (100 basis points) POST-TAX PROFIT TO INCREASE (DECREASE) BY: 2019 $000 55 (159) 2018 $000 356 (21) Significant assumptions used in the interest rate sensitivity analysis include: - Reasonably possible movements in interest rates were determined based on the Group’s current credit rating and mix of debt in Australian and foreign countries, relationships with financial institutions, the level of debt that is expected to be renewed as well as a review of the last two years’ historical movements and economic forecasters’ expectations. - The net exposure at reporting date is representative of what the Group was and is expecting to be exposed to in the next twelve months. - The sensitivity analysis assumes all other variables are held constant, and the change in interest rates take place at the beginning of the financial year and are held constant throughout the reporting period. FOREIGN OPERATIONS The Group has operations in Australia, New Zealand, Singapore, Hong Kong, Malaysia, The Republic of Ireland and the United Kingdom. As a result, movements in the Australian Dollar and the currencies applicable to these foreign operations affect the Group’s statement of financial position and results from operations. From time to time the Group obtains New Zealand Dollar denominated financing facilities from a financial institution to provide a natural hedge of the Group’s exposure to movements in the Australian Dollar and New Zealand Dollar (AUD/NZD) on translation of the New Zealand statement of financial position. In addition, the Group, on occasion, hedges its cash flow exposure to movements in the AUD/NZD. The Group also on occasion, hedges its cash flow exposure in movements in the AUD/SGD and AUD/GBP. FOREIGN CURRENCY TRANSACTIONS The Group has exposures to foreign currencies principally arising from purchases by operating entities in currencies other than their functional currency. Over 80% of the Group’s purchases are denominated in United States Dollar (USD), which is not the functional currency of any Australian entities or any of the foreign operating entities. The Group considers its exposure to USD arising from the purchases of inventory to be a long-term and ongoing exposure. In order to protect against exchange rate movements, the Group enters into forward exchange contracts to purchase US Dollars. These forward exchange contracts are designated as cash flow hedges that are subject to movements through equity and profit or loss respectively as foreign exchange rates move. 78 78 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 25 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) FOREIGN CURRENCY TRANSACTIONS (CONTINUED) The Group’s foreign currency risk management policy provides guidelines for the term over which foreign currency hedging will be undertaken for part or all of the risk. This term cannot exceed two years. Factors taken into account include: - - - - the implied market volatility for the currency exposure being hedged and the cost of hedging, relative to long-term indicators; the level of the base currency against the currency risk being hedged, relative to long-term indicators; the Group’s strategic decision-making horizon; and other factors considered relevant by the Board The policy requires periodic reporting to the Audit and Risk Committee, and its application is subject to oversight from the Chairman of the Audit and Risk Committee or the Chairman of the Board. The policy allows the use of forward exchange contracts and foreign currency options. At reporting date, the Group had the following exposures to movements in the United States Dollar (USD), New Zealand Dollar (NZD), Singapore Dollar (SGD), Pound Sterling (GBP), Hong Kong Dollar (HKD), Malaysian Ringgit (MYR), and Euro (EUR): 2019 CONSOLIDATED FINANCIAL ASSETS Cash and cash equivalents Trade and other receivables Derivative financial assets FINANCIAL LIABILITIES USD NZD SGD GBP HKD $’000 $’000 $’000 $’000 $’000 MYR $’000 EUR $’000 1,130 4,617 6,120 3,312 3,160 10,387 906 14,734 1,129 - - - - - - - - - - - - 11,867 3,312 3,160 10,387 906 14,734 1,129 Trade and other payables 21,518 3,135 Derivative financial liabilities - - 21,518 3,135 565 - 565 286 - 286 NET EXPOSURE (9,651) 177 2,595 10,101 134 - 134 772 - - - - - - 14,734 1,129 2018 CONSOLIDATED FINANCIAL ASSETS USD NZD SGD GBP HKD $’000 $’000 $’000 $’000 $’000 MYR $’000 EUR $’000 Cash and cash equivalents 157 4,482 908 5,707 581 10,540 Derivative financial assets 11,973 - - - - - 12,130 4,482 908 5,707 581 10,540 FINANCIAL LIABILITIES Trade and other payables 23,240 3,341 Derivative financial liabilities - - 23,240 3,341 71 - 71 4 - 4 49 - 49 - - - 553 - 553 - - - NET EXPOSURE (11,110) 1,141 837 5,703 532 10,540 553 79 79 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL STRUCTURE AND RISK MANAGEMENT 25 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) FOREIGN CURRENCY RISK The following sensitivity is based on the foreign exchange risk exposures in existence at the reporting date: POST-TAX PROFIT HIGHER/(LOWER) OTHER COMPREHENSIVE INCOME HIGHER/(LOWER) CONSOLIDATED Impacts of reasonably possible movements: CONSOLIDATED AUD/USD + 2.5% AUD/USD – 10.0% AUD/NZD + 2.5% AUD/NZD – 10.0% AUD/SGD + 2.5% AUD/SGD –10.0% AUD/GBP + 2.5% AUD/GBP –10.0% AUD/HKD + 2.5% AUD/HKD –10.0% AUD/MYR + 2.5% AUD/MYR –10.0% AUD/EUR + 2.5% AUD/EUR –10.0% 2019 $000 376 (1,596) 2 (162) (63) 288 (224) 1,020 (26) 116 (1,021) 883 (28) 121 2018 $000 (46) 189 (28) 127 (20) 93 (139) 634 (43) 194 (257) 1,171 (53) 17 2019 $000 (862) 15,620 2018 $000 (4,161) 16,959 - - - - - - - - - - - - - - - - - - - - - - - - Significant assumptions used in the foreign currency exposure sensitivity analysis include: - Reasonably possible movements in foreign exchange rates were determined based on a review of the last two years historical movements and economic forecasters’ expectations. - The net exposure at reporting date is representative of what the Group was and is expecting to be exposed to in the next twelve months from reporting date. - The effect on other comprehensive income is the effect on the cash flow hedge reserve. - The sensitivity does not include financial instruments that are non-monetary items as these are not considered to give rise to currency risk. LIQUIDITY RISK Liquidity risk refers to the risk of encountering difficulties in meeting obligations associated with financial liabilities and other cash flow commitments. Liquidity risk management is ensuring that there are sufficient funds available to meet financial commitments in a timely manner and planning for unforeseen events which may curtail cash flows and cause pressure on liquidity. The Group keeps its short, medium and long term funding requirements under constant review. Its policy is to have sufficient committed funds available to meet medium term requirements, with flexibility and headroom to make acquisitions for cash in the event an opportunity should arise. 80 80 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 25 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) LIQUIDITY RISK (CONTINUED) The Group has, at reporting date, $59.4 million (2018: $47.0 million) cash held in deposit with 11am at call and the remaining $130.8 million (2018: $131.6 million) cash held in deposit with maturity terms ranging from 30 to 180 days (2018: 30 to 180 days). Hence management believe there is no significant exposure to liquidity risk at 27 July 2019 and 28 July 2018. The Group aims to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and bank loans with a variety of counterparties. At reporting date, the remaining undiscounted contractual maturities of the Group’s financial liabilities are: 2019 CONSOLIDATED FINANCIAL LIABILITIES Trade and other payables Bank loans Forward currency contracts 2018 CONSOLIDATED FINANCIAL LIABILITIES Trade and other payables Bank loans Forward currency contracts MATURITY < 6 MONTHS MATURITY 6 – 12 MONTHS MATURITY 12 - 24 MONTHS MATURITY > 24 MONTHS $’000 $’000 $’000 $’000 81,938 - 164,934 246,872 - - 10,229 10,229 - - 98,493 69,000 - - 98,493 69,000 MATURITY < 6 MONTHS MATURITY 6 – 12 MONTHS MATURITY 12 - 24 MONTHS MATURIT > 24 MONTHS $’000 $’000 $’000 $’000 84,558 - 134,779 219,337 - - 123,784 123,784 - 106,684 447 107,131 - 69,000 - 69,000 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The Group measures financial instruments, such as derivatives and listed equity investments at fair value, at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place in either the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability, which is accessible to the Group. In determining the fair value of an asset or liability, the Group uses market observable data, to the extent possible. The fair value of financial assets and financial liabilities is based on market prices (where a market exists) or using other widely accepted methods of valuation. 81 81 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued CAPITAL STRUCTURE AND RISK MANAGEMENT 25 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED) Fair value hierarchy All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the following fair value hierarchy, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 – the fair value is calculated using quoted price in active markets for identical assets or liabilities. Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. The following table provides the fair value measurement hierarchy of the Group’s financial assets and liabilities: CONSOLIDATED FINANCIAL YEAR ENDED 27 JULY 2019 FINANCIAL YEAR ENDED 28 JULY 2018 LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 1 LEVEL 2 LEVEL 3 $’000 $’000 $’000 $’000 $’000 $’000 FINANCIAL ASSETS Listed equity investment at fair value 46,879 - Foreign Exchange Contracts - 6,119 46,879 6,119 FINANCIAL LIABILITIES Interest Rate Swaps - - 2,548 2,548 - - - - - 40,687 - - 11,973 40,687 11,973 - - 425 425 - - - - - There have been no transfers between Level 1, Level 2 and Level 3 during the financial year. At 27 July 2019 and 28 July 2018, the fair values of cash and cash equivalents, short-term receivables and payables approximate their carrying values. The carrying value of interest bearing liabilities is considered to approximate the fair value, being the amount at which the liability could be settled in a current transaction between willing parties. Foreign exchange contracts and interest rate swaps are initially recognised in the statement of financial position at fair value on the date which the contract is entered into, and subsequently remeasured to fair value. Accordingly, the carrying amounts of forward exchange contracts and interest rate swaps approximate their fair values at the reporting date. Foreign exchange contracts are measured based on observable spot exchange rates, the yield curves of the respective currencies as well as the currency basis spread between the respective currencies. Interest rate swaps are measured based on forward interest rates from observable yield curves at the end of the respective reporting period, and contract interest rates, which have been discounted at a rate that incorporates the credit risk of the counterparties. 82 82 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) GROUP STRUCTURE 26 SUBSIDIARIES The consolidated financial statements include that of Premier Investments Limited (ultimate parent entity) and the subsidiaries listed in the following table. (* Indicates not trading as at the date of this report) Kimtara Investments Pty Ltd Premfin Pty Ltd Springdeep Investments Pty Ltd Prempref Pty Ltd Metalgrove Pty Ltd Just Group Limited Just Jeans Group Pty Limited Just Jeans Pty Limited Jay Jays Trademark Pty Limited Just-Shop Pty Limited Peter Alexander Sleepwear Pty Limited Old Blues Pty Limited Kimbyr Investments Limited Jacqui E Pty Limited Jacqueline-Eve Fashions Pty Limited * Jacqueline-Eve (Hobart) Pty Limited * Jacqueline-Eve (Retail) Pty Limited * Jacqueline-Eve (Leases) Pty Limited * Sydleigh Pty Limited * Old Favourites Blues Pty Limited * Urban Brands Retail Pty Ltd * Portmans Pty Limited Dotti Pty Ltd Smiggle Pty Limited Just Group International Pty Limited * Smiggle Group Holdings Pty Limited * Smiggle International Pty Limited * Smiggle Singapore Pte Ltd Just Group International HK Limited* Smiggle HK Limited Just Group USA Inc.* Peter Alexander USA Inc.* Smiggle USA Inc.* Just UK International Limited* Smiggle UK Limited Peter Alexander UK Limited* Smiggle Ireland Limited Smiggle Netherlands B.V.* ETI Holdings Limited* Roskill Hill Limited* RSCA Pty Limited* RSCB Pty Limited* Just Group Singapore Private Ltd * Peter Alexander Singapore Private Ltd * Smiggle Stores Malaysia SDN BHD COUNTRY OF INCORPORATION Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 2019 INTEREST 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2018 INTEREST 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Australia Australia New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Singapore Hong Kong Hong Kong USA USA USA UK UK UK Ireland Netherlands New Zealand New Zealand Australia Australia Singapore Singapore Malaysia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 83 83 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued GROUP STRUCTURE 27 PARENT ENTITY INFORMATION The accounting policies of Premier Investments Limited, being the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements. (a) Summary financial information Statement of financial position Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Issued capital Reserves: - Foreign currency translation reserve - Performance rights reserve - Cash flow hedge reserve Retained earnings Net profit for the period Total comprehensive income for the period, net of tax (b) Guarantees entered into by the parent entity 2019 $’000 2018 $’000 164,212 1,383,336 7,780 78,958 163,694 1,367,975 4,837 75,138 608,615 608,615 5,129 17,746 (508) 673,395 113,008 1,002 3,705 15,734 (86) 664,869 90,118 1,427 The parent entity has provided no financial guarantees in respect of bank overdrafts and loans of subsidiaries (2018: $nil). The parent entity has also given no unsecured guarantees in respect of finance leases of subsidiaries or bank overdrafts of subsidiaries (2018: $nil). (c) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 27 July 2019 (2018: $nil). (d) Contractual commitments for the acquisition of property, plant or equipment The parent entity did not have any contractual commitments to purchase property, plant and equipment as at 27 July 2019 or 28 July 2018. 84 84 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) GROUP STRUCTURE 28 DEED OF CROSS GUARANTEE Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, dated 17 December 2016, relief has been granted to certain wholly-owned subsidiaries in the Australian Group from the Corporations law requirements for preparation, audit and lodgement of financial reports. As a condition of this instrument, Just Group Limited, a subsidiary of Premier Investments Limited, and each of the controlled entities of Just Group Limited entered into a Deed of Cross Guarantee as at 25 June 2009. Premier Investments Limited is not a party to the Deed of Cross Guarantee. 29 RELATED PARTY TRANSACTIONS (a) PARENT ENTITY AND SUBSIDIARIES The ultimate parent entity is Premier Investments Limited. Details of subsidiaries are provided in note 26. (b) KEY MANAGEMENT PERSONNEL COMPENSATION FOR KEY MANAGEMENT PERSONNEL Short-term employee benefits Post-employment benefits Share-based payments TOTAL CONSOLIDATED 2019 $ 2018 $ 6,743,844 129,875 1,185,719 8,059,438 6,455,827 129,842 2,343,103 8,928,772 (c) RELATED PARTY TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL Mr. Lanzer is the managing partner of the legal firm Arnold Bloch Leibler. Group companies use the services of Arnold Bloch Leibler from time to time. Legal services totalling $1,797,386 (2018: $1,996,754), including Mr. Lanzer's Director fees, GST and disbursements were invoiced by Arnold Bloch Leibler to the Group, with $30,445 (2018: $58,580) remaining outstanding at year-end. The fees paid for these services were at arm's length and on normal commercial terms. Mr. Lanzer is a director of Loch Awe Pty Ltd. During the year, operating lease payments totalling $330,000 (2018: $330,000) including GST was paid to Loch Awe Pty Ltd. The payments were at arm’s length and on normal commercial terms. Mr. Lew is a director of Voyager Distributing Company Pty Ltd and family companies associated with Mr. Lew have a controlling interest in Playcorp Pty Ltd and Sky Chain Trading Limited. During the year, purchases totalling $22,842,474 (2018: $16,404,781) including GST have been made by Group companies from Voyager Distributing Co. Pty Ltd, Playcorp Pty Ltd and Sky Chain Trading Limited, with $1,882,897 (2018: $1,737,758) remaining outstanding at year-end. The purchases were all at arm’s length and on normal commercial terms. Mr. Lew is a director of Century Plaza Trading Pty. Ltd. The company and Century Plaza Trading Pty Ltd are parties to a Services Agreement to which Century Plaza Trading agrees to provide certain services to the company to the extent required and requested by the company. The company is required to reimburse Century Plaza Trading for costs it incurs in providing the company with the services under the Service Agreement. The company reimbursed a total of $518,650 (2018: $476,379) costs including GST incurred by Century Plaza Trading Pty Ltd. 85 85 Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued OTHER DISCLOSURES 30 AUDITOR’S REMUNERATION The auditor of Premier Investments Limited is Ernst & Young. Amounts received, or due and receivable, by Ernst & Young (Australia) for: - An audit or review of the financial report of the entity and any other entity in the consolidated group. Other services in relation to the entity and any other entity in the consolidated group: - Other non-audit services TOTAL AUDITOR’S REMUNERATION 31 SHARE-BASED PAYMENT PLANS (a) RECOGNISED SHARE-BASED PAYMENT EXPENSE TOTAL EXPENSE ARISING FROM EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS (b) TYPE OF SHARE-BASED PAYMENT PLANS Performance rights CONSOLIDATED 2019 $ 2018 $ 791,459 577,732 160,057 951,516 82,438 660,170 CONSOLIDATED 2019 $’000 2,012 2018 $’000 3,178 The Group grants performance rights to executives, thus ensuring that the executives who are most directly able to influence the Group’s performance are appropriately aligned with the interests of shareholders. A performance right is a right to acquire one fully paid ordinary share of the Group after meeting a three or four year performance period, provided specific performance hurdles are met. The number of performance rights to vest is determined by a vesting schedule based on the performance of the Company. These performance hurdles have been discussed in the Remuneration Report section of the Directors’ Report. The fair value of the performance rights has been calculated as at the respective grant dates using an appropriate valuation technique. The valuation model applied, being either the Black Sholes European option pricing model (for performance rights granted prior to the end of the 2015 financial year) or the Monte-Carlo simulation pricing model (for performance rights granted in the 2016 financial year and onwards) is dependent on the assumptions underlying the performance rights granted to ensure these are appropriately factored into the determination of fair value. In determining the share-based payments expense for the period, the number of instruments expected to vest has been adjusted to reflect the number of executives expected to remain with the Group until the end of the performance period, as well as the probability of not meeting the Total Shareholder Return (“TSR”) performance hurdles. 86 86 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) OTHER DISCLOSURES 31 SHARE-BASED PAYMENT PLANS (CONTINUED) (b) TYPE OF SHARE-BASED PAYMENT PLANS (CONTINUED) The following table shows the share-based payment arrangements in existence during the current and prior reporting periods, as well as the factors considered in determining the fair values of the performance rights in existence: GRANT DATE (DD/MM/YYYY) 22/06/2015 24/02/2016 NUMBER OF RIGHTS GRANTED 169,365 123,647 26/04/2016 1,000,000 10/04/2017 19/02/2018 12/04/2019 120,124 148,237 124,472 SHARE ISSUE PRICE OPTION LIFE DIVIDEND YIELD VOLATILITY RISK-FREE RATE FAIR VALUE $10.34 $12.89 $9.88 $15.70 $12.91 $18.18 2.3 years 2.6 years 3-6 years 2.5 years 2.5 years 2.5 years 5% 5% 5.5% 5% 3.4% 3.4% 40% 40% 30% 30% 16% 30% 1.95% $10.34 1.75% $12.89 2.06% 1.79% 2.14% 1.44% $9.96 $6.89 $7.85 $6.81 (c) SUMMARY OF RIGHTS GRANTED UNDER PERFORMANCE RIGHTS PLANS The following table illustrates the number (No.) and weighted average exercise prices (“WAEP”) of, and movements in, performance rights issued during the year: Balance at beginning of the year Granted during the year Forfeited during the year Exercised during the year (i) Expired during the year Balance at the end of the year 2019 No. 862,271 124,472 (15,878) (330,112) (25,116) 615,637 2019 WAEP 2018 No. 2018 WAEP - - - - - - 1,149,837 148,237 (42,805) (350,978) (42,020) 862,271 - - - - - - (i) The weighted average share price at the date of exercise of rights exercised during the year was $16.78 (2018: $15.01). Since the end of the financial year and up to the date of this report, no performance rights have been exercised, no performance rights have been issued, no performance rights have been forfeited and no performance rights have expired. (d) WEIGHTED AVERAGE FAIR VALUE The weighted average fair value of performance rights granted during the year was $6.81 (2018: $7.85). 87 87 Annual Report 2019 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 27 JULY 2019 AND 28 JULY 2018 (CONTINUED) for the 52 weeks ended 27 July 2019 and 28 July 2018 continued OTHER DISCLOSURES 31 SHARE-BASED PAYMENT PLANS (CONTINUED) SHARE-BASED PAYMENT ACCOUNTING POLICIES The Group provides benefits to its employees in the form of share-based payments, whereby employees render services in exchange for rights over shares (equity-settled transactions). The plan in place to provide these benefits is a long-term incentive plan known as the performance rights plan (“PRP”). The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instrument at the date at which they are granted. The cost of equity-settled transactions is recognised in profit or loss, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to profit or loss in the statement of comprehensive income is the product of: (i) The grant date fair value of the award; (ii) The extent to which the vesting period has expired; and (iii) The current best estimate of the number of awards that will vest as at the grant date. The charge to profit or loss for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding entry to equity. No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market or non-vesting condition. These are treated as vested, irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and service conditions are met. KEY ACCOUNTING ESTIMATES AND ASSUMPTIONS The fair value of share-based payment transactions is determined at the grant date using an appropriate valuation model, which takes into account the terms and conditions upon which the instruments were granted to key executives. The terms and conditions require estimates to be made of the number of equity instruments expected to vest, as well as the probabilities of meeting the relevant TSR performance hurdles. These accounting estimates and assumptions would have no impact on the carrying amounts of assets or liabilities within the next annual reporting period, but may impact the share-based payment expense and performance rights reserve within equity. 32 EVENTS AFTER THE REPORTING DATE The Directors of Premier Investments Limited declared a final dividend in respect of the 2019 financial year. The total amount of the dividend is $58,619,000 (2018: $52,173,000) which represents a fully franked dividend of 37 cents per share (2018: 33 cents per share). 33 CONTINGENT LIABILITIES The Group has bank guarantees and outstanding letters of credit totalling $7,587,926 (2018: $7,790,046). 88 88 Premier Investments LimitedDirectors’ Declaration DIRECTORS’ DECLARATION In accordance with a resolution of the Directors of Premier Investments Limited, I state that: In the opinion of the Directors: (a) the financial statements and notes of Premier Investments Limited for the financial year ended 27 July 2019 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and giving a true and fair view of the consolidated entity’s financial position as at 27 July 2019 and of its performance for the financial year ended on that date, and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. in the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the 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. (b) (c) Note 2(b) 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 declaration by the Chief Financial Officer required by section 295A of the Corporations Act 2001 for the financial year ended 27 July 2019. On behalf of the Board Solomon Lew Chairman 2 October 2019 89 89 Annual Report 2019Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Independent Auditor’s Report Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Independent Auditor's Report to the Members of Premier Investments Limited Report on the Audit of the Financial Report Opinion Independent Auditor's Report to the Members of Premier Investments Limited We have audited the financial report of Premier Investments Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 27 July 2019, the consolidated statement of comprehensive income, consolidated Report on the Audit of the Financial Report statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the Opinion directors' declaration. We have audited the financial report of Premier Investments Limited (the Company) and its In our opinion: subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 27 July 2019, the consolidated statement of comprehensive income, consolidated the accompanying financial report of the Group is in accordance with the Corporations Act 2001, statement of changes in equity and consolidated statement of cash flows for the year then ended, including: notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. giving a true and fair view of the consolidated financial position of the Group as at 27 July a) 2019 and of its consolidated financial performance for the year ended on that date; and In our opinion: complying with Australian Accounting Standards and the Corporations Regulations 2001. b) the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: Basis for Opinion a) giving a true and fair view of the consolidated financial position of the Group as at 27 July We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities 2019 and of its consolidated financial performance for the year ended on that date; and under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the complying with Australian Accounting Standards and the Corporations Regulations 2001. b) auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Basis for Opinion Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Financial Report section of our report. We are independent of the Group in accordance with the for our opinion. auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Key Audit Matters Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis our audit of the financial report as a whole, and in forming our opinion thereon, but we do not for our opinion. provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 90 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Premier Investments LimitedErnst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of Independent Auditor's Report to the Members of Premier material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the Investments Limited accompanying financial report. Report on the Audit of the Financial Report 1. Assessment of impairment of intangible assets Opinion Why significant How our audit addressed the key audit matter As at 27 July 2019 the Group held $826.6 million (or 46.7% of total assets) in goodwill and indefinite-life brand names recognised from historical business combinations. We have audited the financial report of Premier Investments Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 27 July 2019, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. ► Agreed the cashflows within the impairment model to board approved forecast cashflows. Our audit procedures included the following: ► Assessed the application of valuation methodologies applied. the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: ► Considered the historical reliability of the Group’s cash flow forecasting process. ► Compared the forecast cash flows used in the value in use model to the actual current year financial performance of the underlying CGUs for reasonability. As outlined in Note 16 of the financial report, the goodwill and brand names are tested by the Group for impairment annually. In our opinion: a) b) The recoverable amount of these assets has been determined based on a value in use model referencing discounted cash flows of the retail segment for goodwill, and the casual wear, women’s wear and non-apparel cash generating units (CGUs) for brand names. The model contains estimates and significant judgments regarding future cash flow projections which are critical to the assessment of impairment, particularly planned sales growth in the casual wear and women’s wear CGUs and discount rates applied. Basis for Opinion giving a true and fair view of the consolidated financial position of the Group as at 27 July 2019 and of its consolidated financial performance for the year ended on that date; and ► Assessed key inputs being discount rates, relief complying with Australian Accounting Standards and the Corporations Regulations 2001. from royalty rates and sales growth rates adopted in the value in use model through comparing to available market data for comparable businesses. ► Evaluated whether the determination of CGUs was We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Accordingly, given the significant judgements and estimates involved in assessing impairment of intangible assets we considered this a key audit matter. ► Performed sensitivity analysis on key inputs and assumptions included in the board approved forecast cashflows and impairment models including the discount rates, to determine if the CGU carrying value was in excess of the recoverable amount. in accordance with Australian Accounting Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ► Compared earnings multiples derived from the Group’s value in use model to those observable from external market data of comparable listed entities. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. Our valuation specialists were involved in the conduct of these procedures where considered relevant. ► Assessed the adequacy of the disclosures included in the financial report. A member firm of Ernst & Young Global Limited A member firm of Ernst & Young Global Limited A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Liability limited by a scheme approved under Professional Standards Legislation Liability limited by a scheme approved under Professional Standards Legislation 91 Annual Report 2019Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Independent Auditor’s Report continued 2. Existence and valuation of inventories ► Assessed the application of valuation Our audit procedures included the following: How our audit addressed the key audit matter Why significant Independent Auditor's Report to the Members of Premier Investments Limited As at 27 July 2019 the Group held $171.2 million in inventories. Report on the Audit of the Financial Report Inventories are held at several distribution centres, as well as at over 1,200 retail stores. Opinion As detailed in Note 10 of the financial report, inventories are valued at the lower of cost and We have audited the financial report of Premier Investments Limited (the Company) and its net realisable value. subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 27 July 2019, the consolidated statement of comprehensive income, consolidated The cost of finished goods inventories includes a statement of changes in equity and consolidated statement of cash flows for the year then ended, recalculated standard costs based on supporting proportion of purchasing department costs, as notes to the financial statements, including a summary of significant accounting policies, and the invoices and assessed the allocation of costs well as freight, handling, and warehouse costs directors' declaration. absorbed from the purchasing department, incurred to deliver the goods to the point of sale. freight and warehouse costs. ► Assessed, by testing a sample, the effectiveness of relevant controls over the determination of standard costs methodologies applied for compliance with AASB 102 Inventories. ► Attended store and distribution centre inventory counts on a sample basis and assessed the stock counting process which addressed inventory quantity and condition. Provisions are recorded for matters such as aged In our opinion: and slow moving inventory to ensure inventory is recorded at the lower of cost and net realisable the accompanying financial report of the Group is in accordance with the Corporations Act 2001, value. This requires a level of judgment with including: regard to changing consumer demands and fashion trends. Such judgments include the a) Group’s expectations for future sales and inventory mark downs. b) Accordingly, the existence and valuation of inventory was considered to be a key audit Basis for Opinion matter. ► Assessed the basis for inventory provisions, including the rationale for recording specific provisions. In doing so we examined the ageing profile of inventory, considered how the Group identified specific slow-moving inventories, assessed future selling prices and historical loss rates. giving a true and fair view of the consolidated financial position of the Group as at 27 July 2019 and of its consolidated financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. ► Selected a sample of inventory lines and We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. ► Considered the completeness of inventory ► Tested the slow-moving inventory reports for accuracy and completeness. provisions by identifying mark down sales at or subsequent to year end, completing gross margin analysis to assess movements impacting net realisable value during the year and subsequent to year end, and comparing sale prices against the value of inventories at balance date. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 92 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Premier Investments LimitedErnst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au 3. Accounting for the Group’s interest in Breville Group Limited Why significant Independent Auditor's Report to the Members of Premier Investments Limited How our audit addressed the key audit matter Our audit procedures included the following: At 27 July 2019 the Group held a 28.1% stake in the ASX-listed entity Breville Group Limited (“Breville”). Report on the Audit of the Financial Report ► Enquired with Breville’s auditors to discuss the audit procedures they completed including significant areas of audit focus, and subsequent events. Opinion As detailed in Note 18 of the financial report, this investment was equity-accounted in accordance with Australian Accounting Standards. At balance date the Group held an equity accounted investment of $238.7 million and recorded an equity accounted profit of $18.9 million in the overall profit after tax of the Group. We have audited the financial report of Premier Investments Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 27 July 2019, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. ► Examined the audit work completed by Breville’s auditors for the 30 June 2019 audit prepared in forming their audit opinion over the Breville financial report. ► Considered whether the accounting policies of Breville were consistent with those of the Group. In our opinion: The Group’s accounting for the investment in Breville was considered to be a key audit matter due to the quantum of the contribution to the Group’s result. the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: dividends for the year to be equity accounted in accordance with AASB 128 Investments in associates. ► Recalculated the Group’s share of profit and a) giving a true and fair view of the consolidated financial position of the Group as at 27 July 2019 and of its consolidated financial performance for the year ended on that date; and evidence. ► Agreed Premier’s shareholding to supporting b) Information Other than the Financial Report and Auditor’s Report Thereon complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion The directors are responsible for the other information. The other information comprises the information included in the Group’s 2019 Annual Report, but does not include the financial report and our auditor’s report thereon. We obtained the Directors’ Report that is to be included in the We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities Annual Report, prior to the date of this auditor’s report, and we expect to obtain the remaining under those standards are further described in the Auditor’s Responsibilities for the Audit of the sections of the Annual Report after the date of this auditor’s report. Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of Our opinion on the financial report does not cover the other information and accordingly we do not the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for express any form of assurance conclusion thereon, with the exception of the Remuneration Report Professional Accountants (the Code) that are relevant to our audit of the financial report in and our related assurance opinion. Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. In connection with our audit of the financial report, our responsibility is to read the other We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis information and, in doing so, consider whether the other information is materially inconsistent with for our opinion. the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. Key Audit Matters If, based on the work we have performed on the other information obtained prior to the date of this Key audit matters are those matters that, in our professional judgment, were of most significance in auditor’s report, we conclude that there is a material misstatement of this other information, we are our audit of the financial report of the current year. These matters were addressed in the context of required to report that fact. We have nothing to report in this regard. our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 93 Annual Report 2019Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Independent Auditor’s Report continued In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to Independent Auditor's Report to the Members of Premier cease operations, or have no realistic alternative but to do so. Investments Limited Auditor's Responsibilities for the Audit of the Financial Report Report on the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report Opinion that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a We have audited the financial report of Premier Investments Limited (the Company) and its material misstatement when it exists. Misstatements can arise from fraud or error and are subsidiaries (collectively the Group), which comprises the consolidated statement of financial considered material if, individually or in the aggregate, they could reasonably be expected to position as at 27 July 2019, the consolidated statement of comprehensive income, consolidated influence the economic decisions of users taken on the basis of this financial report. statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the As part of an audit in accordance with the Australian Auditing Standards, we exercise professional directors' declaration. judgment and maintain professional scepticism throughout the audit. We also: In our opinion: · Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain the accompanying financial report of the Group is in accordance with the Corporations Act 2001, audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of including: not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, giving a true and fair view of the consolidated financial position of the Group as at 27 July misrepresentations, or the override of internal control. 2019 and of its consolidated financial performance for the year ended on that date; and Obtain an understanding of internal control relevant to the audit in order to design audit complying with Australian Accounting Standards and the Corporations Regulations 2001. procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. a) · b) Basis for Opinion · Evaluate the appropriateness of accounting policies used and the reasonableness of We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities accounting estimates and related disclosures made by the directors. under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the · Conclude on the appropriateness of the directors’ use of the going concern basis of auditor independence requirements of the Corporations Act 2001 and the ethical requirements of accounting and, based on the audit evidence obtained, whether a material uncertainty exists the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for related to events or conditions that may cast significant doubt on the Group’s ability to Professional Accountants (the Code) that are relevant to our audit of the financial report in continue as a going concern. If we conclude that a material uncertainty exists, we are Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis based on the audit evidence obtained up to the date of our auditor’s report. However, future for our opinion. events or conditions may cause the Group to cease to continue as a going concern. Key Audit Matters · Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of We communicate with the directors regarding, among other matters, the planned scope and timing our audit of the financial report as a whole, and in forming our opinion thereon, but we do not of the audit and significant audit findings, including any significant deficiencies in internal control provide a separate opinion on these matters. For each matter below, our description of how our that we identify during our audit. audit addressed the matter is provided in that context. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 94 A member firm of Ernst & Young Global Limited A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Liability limited by a scheme approved under Professional Standards Legislation Premier Investments LimitedErnst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public Independent Auditor's Report to the Members of Premier disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would Investments Limited reasonably be expected to outweigh the public interest benefits of such communication. Report on the Audit of the Financial Report Report on the Audit of the Remuneration Report Opinion Opinion on the Remuneration Report We have audited the financial report of Premier Investments Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial We have audited the Remuneration Report included in the directors' report for the year ended 27 position as at 27 July 2019, the consolidated statement of comprehensive income, consolidated July 2019. statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the In our opinion, the Remuneration Report of Premier Investments Limited for the year ended 27 July directors' declaration. 2019, complies with section 300A of the Corporations Act 2001. In our opinion: Responsibilities the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our giving a true and fair view of the consolidated financial position of the Group as at 27 July a) responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in 2019 and of its consolidated financial performance for the year ended on that date; and accordance with Australian Auditing Standards. b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Ernst & Young Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Rob Perry Partner Key Audit Matters Melbourne 02 October 2019 Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 95 Annual Report 2019ASX ADDITIONAL SHAREHOLDER INFORMATION ASX Additional Information AS AT 23 SEPTEMBER 2019 ASX ADDITIONAL SHAREHOLDER INFORMATION as at 23 September 2019 AS AT 23 SEPTEMBER 2019 TWENTY LARGEST SHAREHOLDERS NAME TWENTY LARGEST SHAREHOLDERS CENTURY PLAZA INVESTMENTS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NAME J P MORGAN NOMINEES AUSTRALIA LIMITED CENTURY PLAZA INVESTMENTS PTY LTD CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED METREPARK PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED SL SUPERANNUATION NO 1 PTY LTD CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED SL SUPERANNUATION NO 1 PTY LTD NATIONAL NOMINEES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED A/C> LINFOX SHARE INVESTMENT PTY LTD NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD UBS NOMINEES PTY LTD LINFOX SHARE INVESTMENT PTY LTD ARGO INVESTMENTS LIMITED BNP PARIBAS NOMS PTY LTD MARK MCINNES UBS NOMINEES PTY LTD MILTON CORPORATION LIMITED ARGO INVESTMENTS LIMITED MR CON ZEMPILAS MARK MCINNES WARBONT NOMINEES PTY LTD MILTON CORPORATION LIMITED AMP LIFE LIMITED MR CON ZEMPILAS BNP PARIBAS NOMINEES PTY LTD WARBONT NOMINEES PTY LTD GEOMAR SUPERANNUATION PTY LTD AMP LIFE LIMITED TOTAL FOR TOP 20: BNP PARIBAS NOMINEES PTY LTD GEOMAR SUPERANNUATION PTY LTD SUBSTANTIAL SHAREHOLDERS TOTAL FOR TOP 20: NAME SUBSTANTIAL SHAREHOLDERS CENTURY PLAZA INVESTMENTS PTY LTD AND ASSOCIATES PERPETUAL LIMITED AND ITS SUBSIDIARIES NAME TOTAL % IC RANK 51,569,400 32.55% 1 26,445,647 TOTAL 16.69% % IC 2 RANK 18,178,448 51,569,400 11,874,263 26,445,647 8,235,331 18,178,448 4,437,699 11,874,263 8,235,331 3,726,754 4,437,699 3,098,128 2,663,040 3,726,754 2,577,014 3,098,128 2,301,063 2,663,040 1,644,123 2,577,014 1,250,000 2,301,063 732,100 1,644,123 590,321 1,250,000 470,000 732,100 382,627 590,321 362,620 470,000 353,000 382,627 250,000 362,620 11.47% 32.55% 7.49% 16.69% 5.20% 11.47% 2.80% 7.49% 5.20% 2.35% 2.80% 1.96% 1.68% 2.35% 1.63% 1.96% 1.45% 1.68% 1.04% 1.63% 0.79% 1.45% 0.46% 1.04% 0.37% 0.79% 0.30% 0.46% 0.24% 0.37% 0.23% 0.30% 0.22% 0.24% 0.16% 0.23% 141,141,578 353,000 89.08% 0.22% 250,000 0.16% 141,141,578 89.08% 3 1 4 2 5 3 6 4 5 7 6 8 9 7 10 8 11 9 12 10 13 11 14 12 15 13 16 14 17 15 18 16 19 17 20 18 19 20 TOTAL UNITS % IC 58,552,420 42.43% TOTAL UNITS 18,398,231 % IC 11.63% AIRLIE FUNDS MANAGEMENT PTY LTD ON ITS OWN BEHALF AND ON BEHALF OF MAGELLAN CENTURY PLAZA INVESTMENTS PTY LTD AND ASSOCIATES FINANCIAL GROUP LIMITED AND RELATED BODIES CORPORATE PERPETUAL LIMITED AND ITS SUBSIDIARIES 58,552,420 10,279,271 18,398,231 42.43% 6.50% 11.63% AIRLIE FUNDS MANAGEMENT PTY LTD ON ITS OWN BEHALF AND ON BEHALF OF MAGELLAN DISTRIBUTION OF EQUITY SHAREHOLDERS FINANCIAL GROUP LIMITED AND RELATED BODIES CORPORATE 10,279,271 6.50% DISTRIBUTION OF EQUITY SHAREHOLDERS 1 TO 1,000 1,001 TO 5,000 Holders Ordinary Fully Paid Shares 1 5,659 TO 2,197,105 1,000 1,001 2,641 TO 5,946,572 5,000 5,001 TO 10,000 5,001 338 TO 2,446,953 10,000 10,001 TO 100,000 10,001 223 TO 4,991,758 100,000 100,001 TO (MAX) 100,001 29 TO 142,847,468 (MAX) TOTAL 8,890 158,429,856 TOTAL Holders The number of investors holding less than a marketable parcel of 27 securities ($19.17 on 23 September 2019) Ordinary Fully Paid Shares 5,946,572 is 194 and they hold 797 securities. 142,847,468 2,197,105 4,991,758 2,446,953 5,659 2,641 223 338 29 8,890 158,429,856 The number of investors holding less than a marketable parcel of 27 securities ($19.17 on 23 September 2019) VOTING RIGHTS is 194 and they hold 797 securities. All ordinary shares carry one vote per share without restriction. VOTING RIGHTS All ordinary shares carry one vote per share without restriction. 96 Premier Investments LimitedCorporate Directory A.C.N. 006 727 966 DIRECTORS Mr. Solomon Lew (Chairman) Dr. David M. Crean (Deputy Chairman) Mr. Timothy Antonie (Lead Independent Director) Ms. Sylvia Falzon Ms. Sally Herman Mr. Henry D. Lanzer AM Mr. Terrence L. McCartney Mr. Mark McInnes Mr. Michael R.I. McLeod COMPANY SECRETARY Ms. Marinda Meyer (appointed 4 February 2019) Mr. Kim Davis (retired 4 February 2019) REGISTERED OFFICE Level 53 101 Collins Street Melbourne Victoria 3000 Telephone (03) 9650 6500 Facsimile (03) 9654 6665 AUDITOR Ernst & Young 8 Exhibition Street Melbourne Victoria 3000 SHARE REGISTER AND SHAREHOLDER ENQUIRIES Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford Victoria 3067 Telephone (03) 9415 5000 LAWYERS Arnold Bloch Leibler Level 21 333 Collins Street Melbourne Victoria 3000 Telephone (03) 9229 9999 WEBSITE www.premierinvestments.com.au EMAIL info@premierinvestments.com.au 

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