Premier Investments Limited
Annual Report 2020

Plain-text annual report

Annual Report 2020 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 25 July 2020 (“2020”). The year has been an incredibly difficult year for all Australians in the context of the COVID-19 health crisis. While the likely long-term impacts of this global pandemic are yet to be properly understood, your company’s clear priorities continue to be the safety and wellbeing of our employees and customers while also ensuring the continued underlying strength of our business as we deal with the reality of the times and also look forward. Your Directors have always focused their attention on maintaining a strong business to grow long-term sustainable shareholder value. The strategic decisions the Board has taken over the past decade have resulted in year on year record financial results while also maintaining a strong balance sheet to provide security and flexibility. As a result of this approach – and notwithstanding the global health crisis – your company reported Net Profit After Tax (NPAT) of $137.8 million for 2020, up 29% on last year. Our wholly-owned retail businesses (Premier Retail) contributed a record underlying earnings before interest and tax (EBIT) of $187.2 million1 to this result, up 11.9% on 2019. Premier’s 26.73% investment in Breville Group Limited was also a significant contributor to group profits. PREMIER RETAIL – TWO VERY DIFFERENT HALVES The 2020 financial year has been like no other with two very different halves. The first half saw Premier trading through Brexit uncertainty in the United Kingdom, protests in Hong Kong, devastating bushfires in Australia and a continuing fall in the Australian Dollar. Yet Premier Retail was able to deliver record sales and profit. Highlights of the first half included record online sales, record Peter Alexander sales, record Smiggle global sales and strong like-for-like sales growth across all of our apparel brands. Second half trading globally was severely impacted by COVID-19, but Premier Retail’s senior management team proved to be nimble and resilient. In consultation with the Global Stores Trading by week Board, the management team adapted quickly, making very hard decisions for the long-term health of the Group. ONLINE CHANNELS AND PETER ALEXANDER – DELIVERING RECORD SALES The Peter Alexander brand has developed to be an exceptionally powerful brand in Australia and New Zealand and continues to deliver record results. Annual sales of $288.2 million in 2020 were up 16.3% on prior year with positive like-for-like sales growth in both Australia and New Zealand despite the pandemic. To demonstrate the strength of the brand, during the key Mother’s Day trading week (the week ending 2 May 2020) all 122 Peter Alexander stores in Australia were closed, yet Peter Alexander in Australia still delivered sales growth of 18% on prior year – purely through the online channel. This is truly a brand that Australians and New Zealanders love. In fact, Premier Retail’s online businesses across all seven brands went from strength to strength in 2020. Online sales were $220.4 million, up 48.8% on prior year – with second half sales up 70.0% on 2H19. This was partly a response to the pandemic which your Board believes has accelerated the long-term structural shift to online. This strong trading result was facilitated by strategic, decade long investments in both online experience and the critical infrastructure required to deliver a world-class online shopping experience. Overall, in 2020 the online business contributed 18.1% of total Premier Retail sales for the year and 25.5% of the total sales for the second half. COVID-19 IMPACTS ON 2H20 RESULTS The devastating global impact of the COVID-19 health crisis resulted in the very difficult decision to temporarily shut down Premier Retail’s global operations on 26 March 2020 and stand down over 9,000 employees. At the time, there was no certainty of when global stores would be able to reopen, and no wage subsidy scheme was in existence in Australia. 1,400 1,200 1,000 800 600 400 200 - 1 5 2 , 1 0 5 2 , 1 0 5 2 , 1 0 5 2 , 1 7 4 2 , 1 7 4 2 , 1 6 4 2 , 1 0 8 0 , 1 Australia New Zealand Europe Asia Total 6 7 0 , 1 7 7 0 , 1 6 7 0 , 1 6 7 0 , 1 6 7 0 , 1 4 1 1 , 1 2 2 1 , 1 0 6 1 , 1 5 6 0 , 1 4 7 0 , 1 1 7 0 , 1 6 3 5 3 0 2 b e F 1 0 0 2 b e F 8 0 0 2 b e F 5 1 0 2 b e F 2 2 0 2 b e F 9 2 0 2 r a M 7 0 0 2 r a M 4 1 0 2 r a M 1 2 0 2 r a M 8 2 0 2 r p A 4 0 1 1 0 2 r p A 1 1 1 1 0 2 r p A 8 1 1 1 0 2 r p A 5 2 0 9 6 1 0 2 y a M 2 0 0 2 y a M 9 0 0 2 y a M 6 1 0 2 y a M 3 2 0 2 y a M 0 3 0 2 n u J 6 0 0 2 n u J 3 1 0 2 n u J 0 2 0 2 n u J 7 2 0 2 l u J 4 0 0 2 l u J 1 1 0 2 l u J 8 1 0 2 l u J 5 2 1 Refer to page 9 of the Director’s Report for a reconciliation between underlying EBIT and statutory reported operating profit before taxation for the Retail Segment. Annual Report 2020 1 Chairman’s Report continued The financial impact of the COVID-19 was most severe during the period 11 March 2020 to 15 May 2020, with retail stores down 78.4% and global sales down $131.1 million on the comparable period in 2H19. Due to the devastating impact on Premier Retail’s sales resulting from the COVID-19 health crisis, the Group became eligible for a range of global government subsidy programs, across seven countries, designed to keep people connected to their employers and in jobs. Eligible Premier team members received wages subsidies in full while they were not working. In addition, in Australia, many of Premier’s casual and part-time workforce received subsidy payments in excess of their normal wages, in accordance with the rules of the government schemes. The funds Premier received were used to support standing up its employees as stores gradually reopened under COVID-19 safe plans. This public policy initiative ensured that Premier was able to fulfill the respective Governments’ objectives of keeping people in jobs and connected to their employers in the midst of the global pandemic. RETAIL INDUSTRY RESTRUCTURE ACCELERATING DUE TO COVID-19 Globally, the temporary closures of retail stores, “stay at home” health directives and ongoing government implementation of social distancing in each of the countries and markets we operate in, has significantly changed customer shopping behaviour. Customers are increasingly choosing to shop online in this highly uncertain environment. Over the past nine years, Premier has made significant investment in its fully integrated online channel and is well placed to maximise this significant swing in customer shopping preference. Premier Retail today has: • Seven brands each with a strong, distinctive, and competitive market position • A world class customer facing website platform trading in three countries • A fully integrated and owned Australian Distribution Centre • Significant digital capability, online technology and IT infrastructure – including dedicated teams focused on online growth As a result, Premier delivered 2H20 online sales growth of 70% with online contributing 25.5% of total Premier Retail sales in the second half. It is also worth noting that Premier Retail’s online business has a significantly higher EBIT margin than the retail store channel. As a result of this efficiency and the accelerated swing in customer preferences to shopping online, Premier Retail has further increased its focus on individual store profitability. Premier Retail has maximum flexibility in managing its cost 2 Premier Investments Limited base and store footprint, with over 70% of stores in Australia and New Zealand either in holdover or with leases that expire in 2020. While it is not Premier Retail’s objective to close any stores, should landlords not accept the major shift in consumer shopping behaviour and adjust their rents according to customer shopping preferences, store closures will be inevitable. BALANCE SHEET AND DIVIDENDS Throughout the health crisis, Premier has maintained a very strong balance sheet. At year end the Group had $448.8 million of cash on hand. Our year-end balance sheet reflects our holding in Breville Group Limited at $257.4 million in line with Accounting Standards on equity accounting, however the market value of this stake at year-end was $947.9 million. Premier paid its fully franked interim dividend of 34 cents per share on 30 September 2020. In making the decision on the final dividend, the Board considered the impact of wage subsidies on the profit and cash position of the company and determined that the net global government subsidies received were not required for the payment of the final dividend. The Board approved a fully franked final dividend of 36 cents per share, payable on 28 January 2021. Together, 2020 full year dividends of 70 cents per share fully franked are in line with last year. LEADERSHIP AND GOVERNANCE Premier’s Board and management team remain focused, flexible and nimble in response to the current environment. The Board and I are extremely proud of our team’s dedication and commitment during these unprecedented times. On behalf of the Board and all shareholders, I thank Premier Retail CEO Mark McInnes, his senior leadership group and our entire team of employees for their outstanding contribution. 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 all shareholders, I would also like to thank my fellow Directors for their valuable contribution, insights, and counsel throughout this very difficult year. 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. Solomon Lew Chairman and Non-Executive Director 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 Annual Report 2020 3 Brand Performance Premier Retail Peter Alexander, is a powerful brand in Australia and New Zealand and delivered record sales in FY20, up 16.3% to $288.2 million - underpinned by strong like for like (LFL) sales growth. The strength of the brand was clearly demonstrated in Australia during the key Mothers’ Day week (week ended 2 May 2020). Peter Alexander online sales alone with all 122 stores closed due to the COVID-19 health crisis were up 18% on the prior year’s total sales when all stores and online were open. Under the leadership of Judy Coomber, Managing Director Peter Alexander and Dotti, and Peter Alexander, Founder and Creative Director, the growth is set to continue. Peter Alexander is extremely well placed as the leading gift destination for the upcoming Christmas trading period. Just Jeans, under Matthew McCormack’s leadership, delivered exceptional 1H20 results with sales up 9.6% to $134.4 million - a particularly pleasing result for the group’s original brand now celebrating its 50th anniversary. As stores re-opened and most regions of Australia and New Zealand gradually returned to business after the COVID-19 shutdowns, in the final 10 weeks of FY20 Just Jeans delivered sales growth up 26.3% on the comparable period in 2H19 on a LFL basis. Just Jeans has a strong, distinctive and competitive market position and is well positioned for future growth. Jay Jays, under Linda Whitehead’s leadership, has delivered 1H20 sales growth up 4.2% to $96.1 million - a strong result for the brand. As stores re-opened and most regions of Australia and New Zealand gradually returned to business after the COVID-19 shutdowns, in the final 10 weeks of FY20 Jay Jays delivered sales growth up 47.2% on the comparable period in 2H19 on a LFL basis. In a year severely disrupted by the impact of the COVID-19 health crisis, Jay Jays still delivered full year sales growth in FY20, up 0.8% on FY19. Jay Jays has a strong, distinctive and competitive market position and is well positioned for future growth. Dotti, under Deanna Moylan’s leadership, delivered strong results in 1H20 with sales growth up 8.2% to $57.5 million. 1H20 LFL sales up 11.8% were stronger than overall sales, with continued improvement in profit margins being delivered through changes to sourcing strategy. As stores gradually re-opened in regions largely free of COVID-19 social distancing restrictions, Dotti sales in the final 10 weeks of FY20 in Western Australia were up 31% and New Zealand were up 16% on a LFL basis. Online Sales continued to grow ahead of the market with this channel delivering significantly higher EBIT margin than the Brand average. Dotti has a strong, distinctive and competitive market position and is well positioned for future growth. Jacqui E, under the leadership of Nicole Naccarella, delivered strong results in 1H20 with sales growth up 8.1% to $40.0 million. Jacqui E has been significantly impacted by the temporary exodus of workers from CBD areas during the COVID-19 health crisis. As stores gradually re-opened in regions largely free of COVID-19 social distancing restrictions, Jacqui E sales in the final 10 weeks of FY20 in Western Australia were up 17.2% on a LFL basis. Jacqui E has an extremely strong and distinctive market position and is well positioned for future growth. Portmans, delivered strong results in 1H20 with 2 year LFL sales up 11.1% from 1H18 to 1H20. Online Sales continue to drive overall growth at a significantly higher EBIT margin than the store portfolio. Portmans has been significantly impacted by the temporary exodus of workers from CBD areas during the COVID-19 health crisis. As stores gradually re-opened in regions largely free of COVID-19 social distancing restrictions, Portmans sales in the final 10 weeks of FY20 in Western Australia were up 2.2% on a LFL basis. We are delighted to announce that Jade Wyatt and Vicki Skidmore will now lead the Portmans business to drive a step change in Performance. Both Jade and Vicki are already on the company’s executive team and have long track records of creating shareholder value in all roles they have occupied. Smiggle, delivered record 1H20 global retail sales including wholesale partners sales to consumers up 14.2% on 1H19. The impact of COVID-19 was particularly severe on the Smiggle business as schools were closed for extended periods of time, international borders were shut across all Smiggle Retail and Wholesale Markets, and families no longer felt safe shopping with children in stores in the midst of a once in a century global health crisis. Smiggle is a powerful global brand flourishing where children are back at school and is set to rebound and grow in a post-COVID-19 environment. John Cheston, Managing Director Smiggle, continues to lead a strong and focused management team growing a truly unique global brand. 4 Premier Investments Limited Peter Alexander Powerful Brand Delivers a Record Result • Record FY20 sales of $288.2 million, up a record $40.4 million or 16.3% on FY19, underpinned by strong LFL growth both online and in stores • Demonstrating the strength of Peter Alexander and the investment made over the last nine years in the online channel, in Australia during the key Mothers Day week ended 2 May 2020, with all 122 stores closed due to the COVID-19 health crisis, online sales alone were up 18% on the prior year’s total sales when all stores were open • Children’s sleepwear continued to deliver outstanding growth. FY20 sales were up 34% on FY19 on a LFL basis, with 35% of all Children’s sleepwear sales delivered through the online channel • • • P.A. Plus continued to deliver outstanding results. FY20 sales up 48% on FY19 on a LFL basis, with 64% of all P.A. Plus sales delivered through the online channel Peter Alexander is extremely well placed as the leading gift destination for the upcoming Christmas trading period Strong and focused management team led by Judy Coomber (Managing Director: Peter Alexander and Dotti) and Peter Alexander (Founder and Creative Director: Peter Alexander) Peter Alexander Sales m $ D U A s e l a S 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 $288 $248 $219 $191 $167 $140 $122 $101 $86 $73 $61 $50 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Peter Alexander Founder and Creative Director Annual Report 2020 5 Internet Performance Premier Retail Full Year Online Sales Growth 250 225 200 175 150 125 100 75 50 25 0 18.1% 220.4 11.7% 148.2 9.5% 112.5 2.8% 24.6 3.6% 34.4 6.2% 68.1 4.5% 47.2 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Online Sales ($'M) Online Sales as % of Total Sales 2H Online Sales Growth 200 180 160 140 120 100 80 60 40 20 0 2.4% 9.2 3.0% 12.7 4.1% 18.8 5.1% 24.7 7.0% 35.4 25.5% 123.3 12.3% 72.5 10.2% 56.5 2H13 2H14 2H15 2H16 2H17 2H18 2H19 2H20 Online Sales ($'M) Online Sales as % of Total Sales 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 25% 20% 15% 10% 5% 0% • Record online sales of $220.4 million, up 48.4% on a previous record FY19 and contributed 18.1% of total FY20 sales (FY19: 11.7%) • Online sales growth accelerated during 2H20, up 70% on 2H19 and contributed 25.5% of total sales (2H19: 12.3%) • Recently launched New Zealand Websites for Smiggle, Just Jeans, Portmans and Jacqui E, in addition to the rapidly growing Peter Alexander and Dotti Online businesses already in New Zealand, far exceeded expectations in FY20 up 144% on FY19 • 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 both the retail store and group average • Major investment in technology, people and new marketing initiatives continuing to deliver a world class platform and customer experience in FY21 and beyond 6 Premier Investments Limited Smiggle Strong Global Brand Flourishing Where Children are Back at School • Smiggle is a powerful global brand • Record 1H20 global retail sales including wholesale partners sales to consumers up 14.2% on 1H19 • • • • • The impact of COVID-19 was particularly severe on the Smiggle business as schools were closed for extended periods of time, international borders were shut across all Smiggle Retail and Wholesale Markets, and families no longer felt safe shopping with children in stores in the midst of a once in a century global health crisis The key to Smiggle’s success is children attending school In countries and markets where schools have re-opened and these markets are largely free of COVID-19 restrictions the brand is flourishing. Since children have returned to school and stores have reopened, LFL sales are up: 7% in New Zealand, 9% in Western Australia, 11% in South Australia, 37% in Tasmania, 54% in Northern Territory and in the Wholesale channel, up 109% in Qatar Smiggle delivered record global online sales in FY20 of $42.3 million, up 41.8% on FY19, and contributed 16.5% of total Smiggle FY20 sales (FY19: 9.7%) Smiggle is a powerful global brand flourishing where children are back at school and is set to rebound and grow in a post-COVID-19 environment Like for Like sales in markets where schools have reopened and these markets are largely free of COVID-19 restrictions Like for Like sales in Wholesale market where schools have reopened and the market is largely free of COVID-19 restrictions 60% 50% 40% 30% 20% 10% 0% 54% 37% 7% 9% 11% NZ WA SA TAS NT 120% 100% 80% 60% 40% 20% 0% 109% Qatar Annual Report 2020 7 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 Development Reward and recognition • Workplace Safety • • Peter Alexander and RSPCA/PAW JUSTICE Smiggle Community 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. 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 3 Stage Just Getting Started Induction Program. All existing team members complete sales training seasonally online and participate in regular instore H&S training. Leadership and Management Development training is provided for our leaders, and this year 176 workshops were led by our People & Culture and Senior Leadership Teams. % FEMALE EMPLOYEES 91% ATTRACTION AND RETENTION By Christmas 2020, Premier will employ over 10,200 staff in seven countries. 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 FY20, 91% of our total team members are women, who held 75% 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 ecommerce, 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. REWARD AND RECOGNITION We recognise and reward outstanding contributions to our Group results, both individually and for team performance. Our annual Just Excellence Awards recognise our best performing Retail Leaders and salespeople for their excellent performance and contribution to achieving our financial goals. The top performing Regional Managers, Store Managers and Visual Merchandisers for each of our brands are rewarded publicly amongst their peers for their great leadership and delivery of their 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. 8 Premier Investments Limited 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 14 years with the RSPCA in Australia, and for the last six 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 $1,141,000 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 six years have raised almost $125,000. 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 2019, 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 $157,274 to the RSPCA and $15,147 to Paw Justice. Since we’ve been working with RSPCA shelters in Australia and Paw Justice in New Zealand, Peter has raised over $1.2 Million Peter Alexander Founder and Creative Director Annual Report 2020 9 Our Commitment to the Community continued 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 FY20 Smiggle continued to partner 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 $10,000 AUD (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. In the same period, Smiggle also partnered with the Jonathan Thurston Academy, an organisation which provides outstanding initiatives and community programs throughout Australia. Smiggle is proud to sponsor the JTBelieve Kowanyama program, donating $12,000 AUD (RRP) worth of school supplies and prizes for the JTBelieve program awards. The JTBelieve program supports young Australians in Indigenous communities to reach their full potential by providing educational and wellbeing support. The program helps improve kids’ self-belief, confidence and courage in their future abilities and opportunities. Children in the Jonathan Thurston JT Believe Kowanyama program. 10 Premier Investments Limited Our Commitment to the Environment PACKAGING STEWARDSHIP Premier and Just Group are committed to managing and reducing the impact our business operations have on the environment. Just Group 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. Just Group has submitted its Action Plan outlining its objectives in relation to: 1. Having a strategy to improve packaging sustainability; 2. Preparing a procedure that requires the use of the Sustainable Packaging Guidelines or equivalent to evaluate packaging during design or procurement; 3. Developing a documented plan to optimise material efficiency; 4. 5. Investigating opportunities to increase the use of recycled and/or renewable materials in packaging; and Investigating opportunities to improve recoverability in packaging and amount of single use business-to-business packaging. 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. 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 372 stores to LED lighting, all of the DC high bay lighting to LED, and converting over 80% of our support office lighting to LED. In addition to the Support office lighting upgrade the lights are controlled by timers and motion sensors to ensure that they are on only when required. 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. Annual Report 2020 11 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. Premier will publish its full Modern Slavery Statement in March 2021. 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. Our sourcing activities include direct sourcing from fully audited factories across Asia. In addition, we work with known established and trusted Australian importers. We currently source products in the following countries: China, Australia, Bangladesh, India, Pakistan, Taiwan, Turkey and Vietnam. SOURCE COUNTRIES (THE JUST GROUP, UNITS) Rest of the world 13% China 87% 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. 12 Premier Investments Limited 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 ASSURANCES WHICH SUPPORT OUR SOURCING PRINCIPLES Background checks. We conduct thorough and ongoing compliance activities of all direct suppliers by qualified audit firms. Factory inspections. All factories that manufacture for us are audited and inspected. We continue factory visits and ensure audits are up to date throughout our relationship with our suppliers to ensure our principles are strictly adhered to. 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 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. 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 We are a member of the Accord on Fire and Building Safety in Bangladesh (the Accord). 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. Annual Report 2020 13 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 recently reviewed and updated 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 which they need to formally acknowledge. Additionally, they are re-issued with a copy annually and again are asked to formally acknowledge receipt in line with any amendments which may have been made to the Code. 14 Premier Investments Limited Premier Investments Limited A.C.N. 006 727 966 Financial Report For the 52 week period 28 July 2019 to 25 July 2020 Annual Report 2020 15 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 35 36 37 38 39 40 93 94 101 102 DIRECTORS’ 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 25 July 2020. 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 28 July 2019 to 25 July 2020, 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 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 25 July 2020. 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 28 July 2019 to 25 July 2020, 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 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s 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 and turning David Jones into a fashion and financial powerhouse creating in excess of $2billion of Shareholder value in his time as CEO. 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. Since his appointment, Mark, as CEO of Premier Retail, has assembled and led the executive team to completely restructure and rebuild the organisation to deliver long-term strategic competitive advantage and sustainable growth platforms, which has delivered in excess of $2billion of Shareholder value since he joined the group Premier Retail has delivered record underlying Earnings before Interest and Tax each year over the past nine years. Today, the Group has a world-class, fully integrated, and highly profitable online operation, with seven high performing and distinctive brands delivering exceptional results through a highly capable senior leadership team. 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 Suncorp Group Limited and Regis Healthcare. In the not-for-profit sector, she is the Chairman of Cabrini Australia Limited. Ms. Falzon previously served on the board of ASX listed companies Perpetual Limited until October 2019 and 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. 3 3 DIRECTORS’ REPORT (CONTINUED) Sally Herman Non-Executive Director (continued) 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. Company Directors. 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 Bachelor of Arts from the University of New South Wales and is a Graduate of the Australian Institute of 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 Premier Investments Limited DIRECTORS’ REPORT (CONTINUED) Sally Herman Non-Executive Director (continued) 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. 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 Bachelor of Arts 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 Annual Report 2020 DIRECTORS’ REPORT (CONTINUED) Director’s Report continued COMPANY SECRETARY Marinda Meyer 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 approved for 2020 Dividends approved in the year: CENTS 36.00 $’000 57,141 Interim for the half-year ended 25 January 2020 (payable 30 September 2020) 34.00 53,966 previous year corresponding period. The retail segment delivered revenue of $732.1 million during the first half of the Dividends paid in the year: Final for 2019 shown as recommended in the 2019 report 37.00 58,636 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. Just Group is a leading specialty fashion retailer with operations in Australia, New Zealand, Asia and Europe. The 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 continues to deliver results for the Group. 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. The Group’s reported revenue from contracts with customers, total income and net profit before income tax for the 52 week period ended 25 July 2020 (2019: 52 week period ended 27 July 2019) are summarised below: CONSOLIDATED 52 WEEKS ENDED 25 JULY 2020 $’000 52 WEEKS ENDED 27 JULY 2019 $’000 Revenue from contracts with customers 1,216,316 1,270,958 Total interest income Total other income and revenue Total revenue and other income 2,290 30,356 3,886 709 1,248,962 1,275,553 % CHANGE -4.3% -41.1% nm -2.1% DIRECTORS’ REPORT (CONTINUED) OPERATING AND FINANCIAL REVIEW (CONTINUED) 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 25 July 2020 are highlighted below: RETAIL SEGMENT 52 WEEKS 52 WEEKS ENDED 25 JULY ENDED 27 JULY 2020 $’000 2019 $’000 % CHANGE Revenue from contracts with customers Total segment income 1,216,316 1,230,918 1,270,958 1,271,899 -4.3% -3.2% Segment net profit before income tax 165,776 136,667 +21.3% The Retail Segment contributed $165.8 million to the Group’s net profit before income tax for the 52 week period ended 25 July 2020 (2019: $136.7 million net profit before income tax for the 52 week period ended 27 July 2019). The Retail Segment net profit before income tax was delivered through a very challenging year. The onset of COVID- 19 in early 2020 created an extremely challenging operating environment in the second half of the 2020 financial year. The Retail Segment’s result has been delivered through two very different half-years. For the first 26 weeks ended 25 January 2020, the Retail Segment reported net profit before income tax of $124.4 million – up 11.69% on the year, up 7.63% on the previous year corresponding period. The second half of the year (26 weeks ended 25 July 2020) saw a changed and challenging environment due to the significant global impact of the COVID-19 health crisis. During this time, the Group’s absolute priority has been, and continues to be, the safety and wellbeing of its team members and the broader community in which it operates. With this in mind, the Group made the very difficult decision to temporarily shut down its global operations on 26 March 2020 and stand down over 9,000 employees. At that time, there was no certainty of when global stores would be able to reopen, and no wage subsidy scheme was in existence in Australia. The financial impact of COVID-19 was most severe for the period 11 March 2020 to 15 May 2020, when global sales were down $131.1 million on the prior year comparable period, with retail store sales down 78.4%. Due to the devastating impact on Group Sales resulting from the COVID-19 health crisis, the Group became eligible for global wage subsidies across seven countries (refer to note 5 of the financial statements for further information). Notwithstanding the temporary store closures during the second half of the year, the Retail Segment delivered record online sales of $220.4 million for the 52 weeks ended 25 July 2020 – up 48.8% on the prior year (2019: $148.2 million). The online business contributed 18.1% of the Group’s sales for the financial year ended 25 July 2020 (2019: 11.7%). Peter Alexander delivered an outstanding result, with record sales for the financial year ended 25 July 2020 of $288.2 million (up 16.3% on the prior comparable period). Globally, the temporary closure of retail stores and the ongoing government implementation of social distancing in each of the countries and markets we operate, has significantly changed customer shopping behaviour. Consumers are increasingly choosing to shop online in this highly uncertain environment. Over the past nine years, the Group has made significant investment in its fully integrated online channel and is well placed to maximise this significant swing in customer shopping preference. The Group prides itself on having: - - - - - Seven unique brands, each with a strong and distinctive competitive market position. A world-class customer facing website platform trading in three countries. A fully integrated and owned Australian Distribution Centre. Significant investment in digital capability, online technology and IT infrastructure. Significant investment in dedicated teams focusing on online growth. Reported profit before income tax 195,199 151,742 +28.6% 6 5 5 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) OPERATING AND FINANCIAL REVIEW (CONTINUED) 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 25 July 2020 are highlighted below: RETAIL SEGMENT 52 WEEKS ENDED 25 JULY 2020 $’000 52 WEEKS ENDED 27 JULY 2019 $’000 % CHANGE Revenue from contracts with customers Total segment income 1,216,316 1,230,918 1,270,958 1,271,899 -4.3% -3.2% Segment net profit before income tax 165,776 136,667 +21.3% The Retail Segment contributed $165.8 million to the Group’s net profit before income tax for the 52 week period ended 25 July 2020 (2019: $136.7 million net profit before income tax for the 52 week period ended 27 July 2019). The Retail Segment net profit before income tax was delivered through a very challenging year. The onset of COVID- 19 in early 2020 created an extremely challenging operating environment in the second half of the 2020 financial year. The Retail Segment’s result has been delivered through two very different half-years. For the first 26 weeks ended 25 January 2020, the Retail Segment reported net profit before income tax of $124.4 million – up 11.69% on the previous year corresponding period. The retail segment delivered revenue of $732.1 million during the first half of the year, up 7.63% on the previous year corresponding period. The second half of the year (26 weeks ended 25 July 2020) saw a changed and challenging environment due to the significant global impact of the COVID-19 health crisis. During this time, the Group’s absolute priority has been, and continues to be, the safety and wellbeing of its team members and the broader community in which it operates. With this in mind, the Group made the very difficult decision to temporarily shut down its global operations on 26 March 2020 and stand down over 9,000 employees. At that time, there was no certainty of when global stores would be able to reopen, and no wage subsidy scheme was in existence in Australia. The financial impact of COVID-19 was most severe for the period 11 March 2020 to 15 May 2020, when global sales were down $131.1 million on the prior year comparable period, with retail store sales down 78.4%. Due to the devastating impact on Group Sales resulting from the COVID-19 health crisis, the Group became eligible for global wage subsidies across seven countries (refer to note 5 of the financial statements for further information). Notwithstanding the temporary store closures during the second half of the year, the Retail Segment delivered record online sales of $220.4 million for the 52 weeks ended 25 July 2020 – up 48.8% on the prior year (2019: $148.2 million). The online business contributed 18.1% of the Group’s sales for the financial year ended 25 July 2020 (2019: 11.7%). Peter Alexander delivered an outstanding result, with record sales for the financial year ended 25 July 2020 of $288.2 million (up 16.3% on the prior comparable period). Globally, the temporary closure of retail stores and the ongoing government implementation of social distancing in each of the countries and markets we operate, has significantly changed customer shopping behaviour. Consumers are increasingly choosing to shop online in this highly uncertain environment. Over the past nine years, the Group has made significant investment in its fully integrated online channel and is well placed to maximise this significant swing in customer shopping preference. The Group prides itself on having: - - - - - Seven unique brands, each with a strong and distinctive competitive market position. A world-class customer facing website platform trading in three countries. A fully integrated and owned Australian Distribution Centre. Significant investment in digital capability, online technology and IT infrastructure. Significant investment in dedicated teams focusing on online growth. 6 6 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) OPERATING AND FINANCIAL REVIEW (CONTINUED) Investment Segment: The Group’s balance sheet remains strong, primarily due to the significant asset holding of the investment segment. As at 25 July 2020, the Group continued to reflect its 26.73% (2019: 28.06%) shareholding in Breville Group Limited as an investment in associate, with an equity accounted value of $257.4 million (2019: $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 25 July 2020 was $947.9 million (2019: $691.7 million). Dividends received from Breville Group Limited during the year amounted to $14.2 million (2019: $12.7 million). During the 2017 financial year, the Group acquired a strategic investment of 10.77% in Myer Holdings Limited. At the end of the 2020 financial year the fair value of this listed equity investment is reflected as $18.1 million (2019: $46.9 Premier Investments owns its Australian Distribution Centre, as well as the global head office building of Premier Retail in Melbourne. These properties are carried at a combined written down value at 25 July 2020 of $70.8 million (2019: million). $72.2 million). DIRECTORS’ REPORT (CONTINUED) Director’s Report continued DIRECTORS’ REPORT (CONTINUED) OPERATING AND FINANCIAL REVIEW (CONTINUED) Retail Segment (continued): OPERATING AND FINANCIAL REVIEW (CONTINUED) The accelerated swing in customer preference to shopping online has further increased the Group’s focus on each Retail Segment (continued): store’s profitability. Given these changed consumer behaviours, the Group reviewed each retail store’s future estimated cash flows. Consideration was also given to the fact that the Group has maximum flexibility within its current The accelerated swing in customer preference to shopping online has further increased the Group’s focus on each store portfolio, given that over 70% of its Australian and New Zealand store leases are currently in holdover, or are due store’s profitability. Given these changed consumer behaviours, the Group reviewed each retail store’s future to expire within 2020. As a result of the uncertain future trading environment of traditional bricks-and-mortar stores due estimated cash flows. Consideration was also given to the fact that the Group has maximum flexibility within its current to COVID-19, together with the accelerating growth of the online channel, the Group has recognised an impairment store portfolio, given that over 70% of its Australian and New Zealand store leases are currently in holdover, or are due loss on store plant and equipment during the second half of the year amounting to $26.2 million, and associated costs to expire within 2020. As a result of the uncertain future trading environment of traditional bricks-and-mortar stores due of $2.8 million. In addition, the Group recognised an impairment loss of $2.4 million in relation to the Group’s right-of- to COVID-19, together with the accelerating growth of the online channel, the Group has recognised an impairment use assets. This relates to the closure of Hong Kong retail stores, writing down the associated right-of-use asset to its loss on store plant and equipment during the second half of the year amounting to $26.2 million, and associated costs recoverable amount. of $2.8 million. In addition, the Group recognised an impairment loss of $2.4 million in relation to the Group’s right-of- use assets. This relates to the closure of Hong Kong retail stores, writing down the associated right-of-use asset to its The impact of the COVID-19 health crisis during the second half of the year, resulted in the very difficult decision to recoverable amount. temporarily shut down the Group’s global operations on 26 March 2020, with no certainty at that time as to when the Group would be able to reopen. During this time of uncertainty, the Group closed out of its US Dollar currency hedge The impact of the COVID-19 health crisis during the second half of the year, resulted in the very difficult decision to books. As a result, the Group recognised a net gain on settlement of its cash flow hedges of $13.2 million. temporarily shut down the Group’s global operations on 26 March 2020, with no certainty at that time as to when the Group would be able to reopen. During this time of uncertainty, the Group closed out of its US Dollar currency hedge books. As a result, the Group recognised a net gain on settlement of its cash flow hedges of $13.2 million. Premier Retail Underlying EBIT History Premier Retail Underlying EBIT History $187.2 $200.0 $200.0 $180.0 $160.0 $150.0 $200.0 $140.0 $120.0 $100.0 $150.0 $100.0 $50.0 $100.0 $65.3 $- $50.0 $80.0 $60.0 $40.0 $20.0 Premier Retail Underlying EBIT History $167.3 $150.1 $136.0 $126.7 $83.7 $65.3 $80.4 $83.7 $92.8 $105.7 $80.4 $92.8 $65.3 $80.4 $83.7 $92.8 $105.7 $' MILLIONS $105.7 $126.7 $136.0 $150.1 $126.7 $136.0 $150.1 $187.2 $167.3 $187.2 $167.3 $- FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 $' MILLIONS $- FY 16 underlying EBIT represents a comparable 52 week period. Refer to page 9 for a reconciliation between underlying EBIT and FY16 FY12 FY12 statutory reported operating profit before taxation for the Retail Segment. FY11 FY11 FY15 FY14 FY13 FY14 FY15 FY13 FY17 FY16* FY18 FY17 FY19 FY18 FY19 FY20 FY20 FY 16 underlying EBIT represents a comparable 52 week period. Refer to page 9 for a reconciliation between underlying EBIT and $' millions statutory reported operating profit before taxation for the Retail Segment. Revenue from customers per Geographic Segment for the year ended 25 July 2020 Revenue from customers per Geographic Segment for the year ended 25 July 2020 Revenue from customers per Geographic Segment for the year ended 25 July 2020 Europe 8% Asia 5% 8% Europe New Zealand 10% 5% Asia New Zealand 10% 10% New Zealand Asia 5% Europe 8% 77% Australia Australia 77% Australia 77% 7 7 7 8 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) OPERATING AND FINANCIAL REVIEW (CONTINUED) Investment Segment: The Group’s balance sheet remains strong, primarily due to the significant asset holding of the investment segment. As at 25 July 2020, the Group continued to reflect its 26.73% (2019: 28.06%) shareholding in Breville Group Limited as an investment in associate, with an equity accounted value of $257.4 million (2019: $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 25 July 2020 was $947.9 million (2019: $691.7 million). Dividends received from Breville Group Limited during the year amounted to $14.2 million (2019: $12.7 million). During the 2017 financial year, the Group acquired a strategic investment of 10.77% in Myer Holdings Limited. At the end of the 2020 financial year the fair value of this listed equity investment is reflected as $18.1 million (2019: $46.9 million). Premier Investments owns its Australian Distribution Centre, as well as the global head office building of Premier Retail in Melbourne. These properties are carried at a combined written down value at 25 July 2020 of $70.8 million (2019: $72.2 million). 8 8 Annual Report 2020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 o t t d e 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 S t 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 n t 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 ) 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 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 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 $ ’ 6 1 0 2 0 0 0 ’ $ 7 1 0 2 0 0 0 ’ $ 8 1 0 2 0 0 0 ’ $ 9 1 0 2 0 0 0 ’ $ 0 2 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 7 6 6 , 6 3 1 6 7 7 , 5 6 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 : 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 t a 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 a t 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 l w o e b e b a l t e h T 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 7 4 , 1 4 1 3 3 5 , 8 6 1 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 8 0 8 , 4 7 5 7 , 2 ) s e i t i l i b a i l e s a e l n o t s e r e t n i 6 1 B S A A g n d u c x e ( l i e s n e p x e t s e r e t n I : k c a b d d A : r o f d e t s u d A j I T B E d e u n i t n o c T R O P E R ’ S R O T C E R D I t r o p e R s ’ r D E o U N t T c N O e C r i ) ( I D 9 ) 3 7 6 ( ) 7 6 1 ( - - - - - - - - - - 4 7 1 7 7 , 5 1 - - - - - - - - - - - - - - - - - - - - - - 2 9 1 0 3 - ) 2 8 4 ( 3 9 1 3 , 2 8 4 4 , - - - - - - - - - - - 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 - - - - - - 5 4 3 , 2 5 4 0 , 3 - - - - - - - - - - - - - - - - - 8 5 8 , 5 2 - - - - - - - - - 7 2 4 0 2 4 , 1 3 ) 7 0 2 , 3 1 ( s t s o c d e t a c o s s a d n a i t n e m p u q e & i t n a p l e r o t s f o t n e m r i a p m i 9 1 - D V O C I f f o - e n O k o o b e g d e h w o l f h s a c f o t n e m e l t t e s m o r f n a g i t e n 9 1 - D V O C I f f o - e n O s t l u s e r 0 2 Y F n o 6 1 B S A A f o n o i t p o d a e h t f o t c a p m i t e N e s n e p x e n o i t a g i t i l f f o - e n O s t s o c d e t a c o s s a i d n a i l n o i t a c e r p e d 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 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 n a h c i 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 i l 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 s t n e m t s u d a j t n e m g e s - r e t n I l d o o g - e k a m d n a n o i t a c o e r 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 DIRECTORS’ REPORT (CONTINUED) 9 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. 2020 2019 2018 2017 2016 Closing share price at end of financial year $17.57 $16.28 $17.35 $13.35 $16.22 Basic earnings per share (cents) 86.89 67.51 52.97 Dividend paid per share (cents) 37.01 66.0 56.0 66.8 51.0 66.3 44.0 Return on equity (%) 10.2% 7.9% 8.5%2 7.9% 7.8% Net debt/equity ratio (%) (22.4%)3 (1.7%) (0.2%) 0.2% (13.3%) 1 Excludes the approved interim fully franked dividend of 34 cents per share, which is payable on 30 September 2020. 2 Return on Equity excludes the impact of a non-cash impairment of intangible assets in FY18 ($30 million). 3 Net debt has been calculated as cash and cash equivalents, less interest-bearing liabilities, representing bank loans. 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 25 July 2020. SIGNIFICANT EVENTS AFTER THE REPORTING DATE The Directors of Premier Investments Limited approved a final dividend in respect of the 2020 financial year. The total amount of the dividend is $57,141,000 (2019: $58,636,000) which represents a fully franked dividend of 36 cents per share (2019: 37 cents per share). The Group temporarily closed all of its 165 Melbourne metropolitan stores to customers from 8 July 2020, in direct response to the Victorian Government’s COVID-19 directive whereby Stage 3 “stay at home” restrictions were reinstated. As of 5 August 2020, the Victorian Government introduced Stage 4 restrictions across metropolitan Melbourne for a period of at least 6 weeks. As a result, these Melbourne metropolitan stores remain temporarily closed. In response to the Victorian Government directives, all 47 regional Victorian stores were temporarily closed from 4 August 2020 and reopened on 14 September 2020. 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 25 July 2020 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. 10 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 3 3 3 , 7 6 1 3 7 1 , 7 8 1 ) 6 1 B S A A - e r p ( 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 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 2 . 7 8 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 Premier Investments Limited DIRECTORS’ 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. 2020 2019 2018 2017 2016 Closing share price at end of financial year $17.57 $16.28 $17.35 $13.35 $16.22 Basic earnings per share (cents) 86.89 67.51 52.97 Dividend paid per share (cents) 37.01 66.0 56.0 66.8 51.0 66.3 44.0 Return on equity (%) 10.2% 7.9% 8.5%2 7.9% 7.8% Net debt/equity ratio (%) (22.4%)3 (1.7%) (0.2%) 0.2% (13.3%) 1 Excludes the approved interim fully franked dividend of 34 cents per share, which is payable on 30 September 2020. 2 Return on Equity excludes the impact of a non-cash impairment of intangible assets in FY18 ($30 million). 3 Net debt has been calculated as cash and cash equivalents, less interest-bearing liabilities, representing bank loans. 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 25 July 2020. SIGNIFICANT EVENTS AFTER THE REPORTING DATE The Directors of Premier Investments Limited approved a final dividend in respect of the 2020 financial year. The total amount of the dividend is $57,141,000 (2019: $58,636,000) which represents a fully franked dividend of 36 cents per share (2019: 37 cents per share). The Group temporarily closed all of its 165 Melbourne metropolitan stores to customers from 8 July 2020, in direct response to the Victorian Government’s COVID-19 directive whereby Stage 3 “stay at home” restrictions were reinstated. As of 5 August 2020, the Victorian Government introduced Stage 4 restrictions across metropolitan Melbourne for a period of at least 6 weeks. As a result, these Melbourne metropolitan stores remain temporarily closed. In response to the Victorian Government directives, all 47 regional Victorian stores were temporarily closed from 4 August 2020 and reopened on 14 September 2020. 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 25 July 2020 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. 10 10 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s Report continued DIRECTORS’ REPORT (CONTINUED) SHARE OPTIONS AND SHARES ISSUED DURING THE FINANCIAL YEAR DIRECTOR INTERESTS IN SHARES AND RIGHTS OF THE COMPANY Unissued Shares: At the date of this report, the interests of the Directors in the shares and performance rights of the company were: As at the date of this report, there were 813,410 unissued performance rights. 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 294,579 shares (2019: 330,112) were issued during the year pursuant to the Group’s Performance Rights Plan. No other shares were issued during the year. 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 35. REMUNERATION REPORT 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 31 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. Solomon Lew Chairman 1 October 2020 Solomon Lew Timothy Antonie Sally Herman Henry Lanzer AM Michael McLeod Mark McInnes 4,437,699 ordinary shares** 5,001 ordinary shares 11,500 ordinary shares 27,665 ordinary shares 28,186 ordinary shares 982,100 ordinary shares **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. The number of meetings of the Board of Directors during the financial year, and the number of meetings attended by DIRECTORS’ MEETINGS 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 9 9 9 9 9 9 9 9 9 BOARD MEETINGS AUDIT AND RISK COMMITTEE REMUNERATION AND NOMINATION COMMITTEE MEETINGS HELD NUMBER ATTENDED MEETINGS HELD NUMBER ATTENDED MEETINGS HELD NUMBER ATTENDED 9 8 9 9 9 9 8 9 9 - - 3 3 3 3 - - - 1 1 3 3 3 3 3 1 - - - 4 - - - 4 4 - - - 4 - - - 4 4 - 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. 11 11 12 Premier Investments LimitedDIRECTORS’ REPORT (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 Timothy Antonie Sally Herman Henry Lanzer AM Michael McLeod Mark McInnes 4,437,699 ordinary shares** 5,001 ordinary shares 11,500 ordinary shares 27,665 ordinary shares 28,186 ordinary shares 982,100 ordinary shares **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 9 9 9 9 9 9 9 9 9 9 8 9 9 9 9 8 9 9 - - 3 3 3 3 - - - 1 1 3 3 3 3 3 1 - - - 4 - - - 4 4 - - - 4 - - - 4 4 - 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 1 October 2020 12 12 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s Report continued REMUNERATION REPORT Dear Shareholders, As Chairman of the Remuneration and Nomination Committee, I am pleased to present Premier Investments’ remuneration report for the 52 weeks ended 25 July 2020. This report outlines, in detail, the remuneration outcomes and incentive arrangements, related to our performance. The onset of COVID-19 in early 2020 created an extremely challenging operating environment in the second half of the 2020 financial year. During this global pandemic, the Group’s absolute priority has been, and continues to be, the safety and wellbeing of our teams, our customers, and the broader community in each of the regions in which we operate. The devastating global impact of the COVID-19 health crisis resulted in the very difficult decision to temporarily shut down the Group’s global operations on 26 March 2020 and stand down over 9,000 employees. At the time there was no certainty of when the Group would be able to reopen its retail stores, and there was no government wage subsidy scheme in existence in Australia. The financial impact of COVID-19 was most severe during the period 11 March 2020 to 15 May 2020, with retail store sales down 78.4% and global sales down $131.1 million on the prior year comparable period. Due to the devastating impact on the Group’s sales resulting from the COVID-19 health crisis, the Group became eligible for a range of global government wage subsidy programs, across seven countries, designed to keep people in jobs. Eligible Group employees received wage subsidies whilst they were unable to work. In addition, in Australia, many of the Group’s casual and part time work force received subsidy payments in excess of their normal working arrangements in accordance with the rules of the government scheme. The funds that the Group received were used to support standing up its employees as stores gradually reopened under COVID-19 safe plans. This ensured that the Group was able to fulfill the government’s objectives of keeping people in jobs and connected to their employees amid a global pandemic. In response to the uncertainties surrounding the COVID-19 pandemic, Premier Retail CEO, Mark McInnes, together with the entire Just Group Senior Executive team voluntarily did not receive any remuneration for the month of April 2020, and received only 80% of their monthly gross remuneration for the month of May 2020 as stores gradually reopened. Normal monthly remuneration was restored from June 2020. In addition, Premier’s Non-Executive Directors voluntarily did not receive any remuneration for April 2020 and received 80% of their monthly director’s fees for May 2020 through to July 2020. The Directors believe that the strong result delivered for this financial year, amidst a very challenging global background, was a function of the swift response of the Group’s world-class management team. This has been a year of great turmoil in the retail market, here in Australia as well as for our international operations, which has required the very best executives to deliver the result. Premier Retail CEO, Mark McInnes, has expertly led a talented executive team to deliver reported revenue of $1.22 billion, with statutory reported retail segment operating profit before taxation of $165.8 million and underlying Earnings before Interest and Taxation (“EBIT”) 1, of $187.2 million, up 11.9% on the prior financial year. This year’s result was delivered through two very different halves. Premier announced first half revenue for the 26 weeks ended 25 January 2020 of $733.9 million - up 7.53% on the previous corresponding period. The second half of the year was significantly impacted by temporary store closures resulting from the COVID-19 health crisis. For the 9th consecutive year, Premier Retail has delivered growth in underlying EBIT. DIRECTORS’ REPORT (CONTINUED) DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (CONTINUED) REMUNERATION REPORT (CONTINUED) Underlying EBIT History1 Underlying EBIT History1 $167.3 $187.2 $167.3 $187.2 $150.1 $150.1 $136.0 $136.0 $126.7 $126.7 $80.4 $83.7 $80.4 $83.7 $65.3 $65.3 $105.7 $105.7 $92.8 $92.8 $200.0 $200.0 $150.0 $150.0 $100.0 $100.0 $50.0 $50.0 $- $- FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 $'millions $'millions 1 Refer to page 9 of the Directors’ Report for a definition and reconciliation of underlying EBIT. FY20 Underlying EBIT is presented on a pre-AASB 16 basis. FY16 Underlying EBIT represents a comparable 52 week period 1 Refer to page 9 of the Directors’ Report for a definition and reconciliation of underlying EBIT. FY20 Underlying EBIT is presented on a pre-AASB 16 basis. FY16 Underlying EBIT represents a comparable 52 week period The senior executive team, many of whom are female, are highly skilled, experienced and very well respected within the retail industry. Female senior leaders are responsible for five of our seven retail brands, and two of our major The senior executive team, many of whom are female, are highly skilled, experienced and very well respected within support functions, being Internet and Marketing and People and Culture. 50%2 of the CEO’s direct reports are the retail industry. 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. 50%2 of the CEO’s direct reports are 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 Group’s workforce are Across our over 1,200 stores in Australia, New Zealand, Asia and Europe, the critical support functions within those female. Female management represents approximately 75%2 of management. markets, our fast-growing online business and in the Group’s head office, over 90% of the Group’s workforce are female. Female management represents approximately 75%2 of management. We will continue to encourage and support a business leadership structure that reflects the values of equal We will continue to encourage and support a business leadership structure that reflects the values of equal female. female. opportunity. opportunity. The retail environment in all markets have experienced difficult conditions as the general economic environment has damaged consumer confidence. Global health concerns have brought an accelerated swing in traditional channels of The retail environment in all markets have experienced difficult conditions as the general economic environment has retail. Premier remains well placed to maximise this significant swing in customer shopping preference. The Group damaged consumer confidence. Global health concerns have brought an accelerated swing in traditional channels of benefits from its diversified portfolio of brands, each with a strong and distinctive market position, together with a retail. Premier remains well placed to maximise this significant swing in customer shopping preference. The Group world-class customer facing website platform, currently trading in three countries. The significant investments of the benefits from its diversified portfolio of brands, each with a strong and distinctive market position, together with a past decade in the Group’s fully integrated online channel as well as the Group’s integrated and owned Australian world-class customer facing website platform, currently trading in three countries. The significant investments of the Distribution Centre places the Group in a strong position for the future. past decade in the Group’s fully integrated online channel as well as the Group’s integrated and owned Australian Distribution Centre places the Group in a strong position for the future. Now more than ever, in this rapidly changing global retail world, Premier continues to encourage, incentivise and develop executives who understand this complex retail environment and proactively develop business outcomes that Now more than ever, in this rapidly changing global retail world, Premier continues to encourage, incentivise and build shareholder wealth. With that in mind, the Premier Board is committed to supporting executives to ensure that develop executives who understand this complex retail environment and proactively develop business outcomes that strong financial returns are continued to be enjoyed by our shareholders. 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. 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. 13 13 2 As per the Just Group Limited Australian Workplace Gender Equality Agency Report 2019-2020. 2 As per the Just Group Limited Australian Workplace Gender Equality Agency Report 2019-2020. Terrence McCartney Terrence McCartney Chairman, Remuneration and Nomination Committee Chairman, Remuneration and Nomination Committee 14 14 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) DIRECTORS’ REPORT (CONTINUED) DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (CONTINUED) Underlying EBIT History1 $200.0 REMUNERATION REPORT (CONTINUED) $180.0 REMUNERATION REPORT (CONTINUED) $200.0 Underlying EBIT History1 $187.2 $167.3 $167.3 $187.2 $150.1 Underlying EBIT History1 $136.0 Underlying EBIT History1 $126.7 $105.7 $150.1 $136.0 $150.1 $150.1 $126.7 $126.7 $126.7 $136.0 $136.0 $167.3 $187.2 $167.3 $187.2 $150.0 $200.0 $100.0 $200.0 $150.0 $65.3 $150.0 $100.0 $50.0 $65.3 $100.0 $- $50.0 $80.4 $65.3 $65.3 $80.4 $83.7 $92.8 $105.7 $105.7 $92.8 $92.8 $105.7 $92.8 $80.4 $83.7 $83.7 $80.4 $83.7 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 $50.0 $- $'millions FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 $- $20.0 $'millions FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 1 Refer to page 9 of the Directors’ Report for a definition and reconciliation of underlying EBIT. FY20 Underlying EBIT is presented on a pre-AASB 16 basis. FY16 Underlying EBIT represents a comparable 52 week period $'millions $160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $- FY13 FY12 FY11 FY20 FY18 FY17 FY15 FY16* $' millions FY19 FY14 1 Refer to page 9 of the Directors’ Report for a definition and reconciliation of underlying EBIT. FY20 Underlying EBIT is presented on a pre-AASB 16 basis. FY16 Underlying EBIT represents a comparable 52 week period 1 Refer to page 9 of the Directors’ Report for a definition and reconciliation of underlying EBIT. FY20 Underlying EBIT is presented on a pre-AASB 16 basis. FY16 Underlying EBIT represents a comparable 52 week period We will continue to encourage and support a business leadership structure that reflects the values of equal opportunity. The senior executive team, many of whom are female, are highly skilled, experienced and very well respected within the retail industry. 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. 50%2 of the CEO’s direct reports are female. The senior executive team, many of whom are female, are highly skilled, experienced and very well respected within the retail industry. Female senior leaders are responsible for five of our seven retail brands, and two of our major The senior executive team, many of whom are female, are highly skilled, experienced and very well respected within support functions, being Internet and Marketing and People and Culture. 50%2 of the CEO’s direct reports are the retail industry. Female senior leaders are responsible for five of our seven retail brands, and two of our major Across our over 1,200 stores in Australia, New Zealand, Asia and Europe, the critical support functions within those female. support functions, being Internet and Marketing and People and Culture. 50%2 of the CEO’s direct reports are markets, our fast-growing online business and in the Group’s head office, over 90% of the Group’s workforce are female. Across our over 1,200 stores in Australia, New Zealand, Asia and Europe, the critical support functions within those female. Female management represents approximately 75%2 of management. markets, our fast-growing online business and in the Group’s head office, over 90% of the Group’s workforce are Across our over 1,200 stores in Australia, New Zealand, Asia and Europe, the critical support functions within those female. Female management represents approximately 75%2 of management. markets, our fast-growing online business and in the Group’s head office, over 90% of the Group’s workforce are female. Female management represents approximately 75%2 of management. We will continue to encourage and support a business leadership structure that reflects the values of equal The retail environment in all markets have experienced difficult conditions as the general economic environment has opportunity. We will continue to encourage and support a business leadership structure that reflects the values of equal damaged consumer confidence. Global health concerns have brought an accelerated swing in traditional channels of opportunity. The retail environment in all markets have experienced difficult conditions as the general economic environment has retail. Premier remains well placed to maximise this significant swing in customer shopping preference. The Group damaged consumer confidence. Global health concerns have brought an accelerated swing in traditional channels of benefits from its diversified portfolio of brands, each with a strong and distinctive market position, together with a The retail environment in all markets have experienced difficult conditions as the general economic environment has retail. Premier remains well placed to maximise this significant swing in customer shopping preference. The Group world-class customer facing website platform, currently trading in three countries. The significant investments of the damaged consumer confidence. Global health concerns have brought an accelerated swing in traditional channels of benefits from its diversified portfolio of brands, each with a strong and distinctive market position, together with a past decade in the Group’s fully integrated online channel as well as the Group’s integrated and owned Australian retail. Premier remains well placed to maximise this significant swing in customer shopping preference. The Group world-class customer facing website platform, currently trading in three countries. The significant investments of the Distribution Centre places the Group in a strong position for the future. benefits from its diversified portfolio of brands, each with a strong and distinctive market position, together with a past decade in the Group’s fully integrated online channel as well as the Group’s integrated and owned Australian world-class customer facing website platform, currently trading in three countries. The significant investments of the Now more than ever, in this rapidly changing global retail world, Premier continues to encourage, incentivise and Distribution Centre places the Group in a strong position for the future. past decade in the Group’s fully integrated online channel as well as the Group’s integrated and owned Australian develop executives who understand this complex retail environment and proactively develop business outcomes that Distribution Centre places the Group in a strong position for the future. Now more than ever, in this rapidly changing global retail world, Premier continues to encourage, incentivise and build shareholder wealth. With that in mind, the Premier Board is committed to supporting executives to ensure that develop executives who understand this complex retail environment and proactively develop business outcomes that strong financial returns are continued to be enjoyed by our shareholders. Now more than ever, in this rapidly changing global retail world, Premier continues to encourage, incentivise and build shareholder wealth. With that in mind, the Premier Board is committed to supporting executives to ensure that develop executives who understand this complex retail environment and proactively develop business outcomes that strong financial returns are continued to be enjoyed by our shareholders. 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. 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. 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 Terrence McCartney Chairman, Remuneration and Nomination Committee 2 As per the Just Group Limited Australian Workplace Gender Equality Agency Report 2019-2020. Chairman, Remuneration and Nomination Committee 2 As per the Just Group Limited Australian Workplace Gender Equality Agency Report 2019-2020. 2 As per the Just Group Limited Australian Workplace Gender Equality Agency Report 2019-2020. 14 14 14 14 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s Report continued REMUNERATION REPORT (AUDITED) This remuneration report for the 52 weeks ended 25 July 2020 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 Group STI pool. 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 25 July 2020. 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 DIRECTORS’ REPORT (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 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 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 Further information relating to the Committee’s role, responsibilities and membership can be seen at remuneration arrangements. 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. No remuneration advisors were engaged during the 2020 financial year. 16 Premier Investments LimitedDIRECTORS’ REPORT (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 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. No remuneration advisors were engaged during the 2020 financial year. 16 16 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s 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. Globally, as a result of the COVID-19 health crisis, temporary store closures and align the interests of executives with shareholders. and the ongoing government implementation of social distancing in each of the countries and markets the Group The Group operates mainly in the retail industry, with significant revenues earned in its traditional markets of Australia operates in, customer shopping behaviour has significantly changed. and New Zealand. The retail industry in these markets has seen marked structural change over recent years, including Complementing its strong market position in Australia and New Zealand, the Group continues to operate in a prevalence in the use of new and existing technology, an increase in international competitors and significant international markets in Asia and Europe. The Group remains committed to growing its existing international presence. changes in general consumer sentiment. Globally, as a result of the COVID-19 health crisis, temporary store closures During the 2019 financial year, the Group launched its wholesale business internationally, expanding its overseas and the ongoing government implementation of social distancing in each of the countries and markets the Group footprint. operates in, customer shopping behaviour has significantly changed. REVENUE FROM CUSTOMERS PER GEOGRAPHIC AREA FY20 Complementing its strong market position in Australia and New Zealand, the Group continues to operate in international markets in Asia and Europe. The Group remains committed to growing its existing international presence. During the 2019 financial year, the Group launched its wholesale business internationally, expanding its overseas footprint. Revenue from Customers per Geographic Area FY20 Europe 8% Asia 5% 8% Europe REVENUE FROM CUSTOMERS PER GEOGRAPHIC AREA FY20 New Zealand 5% 10% Asia 10% New Zealand Asia 5% Europe 8% New Zealand 10% Australia 77% 77% 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 77% Given these structural changes and the Group’s growth focus, 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 possible executive team The market for skilled and experienced executives in the retail industry continues to be increasingly competitive and through the provision of competitive remuneration packages, and incentive arrangements which are aligned to growth international in nature. The Group’s strong domestic position, as well as global reach, provides exposure to an 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 growth focus, the Board believes it is both critical to the future success shareholders. 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 The Group is committed to ensuring that executive remuneration outcomes are explicitly linked to the overall and performance. performance and success of the Group. This section illustrates this link between the Group’s strategic objectives and its executive remuneration strategies. The Group’s strategic objective is to be recognised as a leader in the retail industry and build long term value for shareholders. The Group is committed to ensuring that executive remuneration outcomes are explicitly linked to the overall performance and success of the Group. This section illustrates this link between the Group’s strategic objectives and its executive remuneration strategies. 17 17 17 DIRECTORS’ REPORT (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 Attract, motivate and retain high performing • The remuneration framework incorporates “at- individuals risk” components, through STI and LTI plans. • Remuneration is competitive as compared to • Performance is assessed against a suite of companies of a similar size and complexity. financial and non-financial measures relevant • Longer-term remuneration frameworks and to the success of the Group and generating “at-risk” components encourage retention, returns for shareholders. development and a multi-year performance focus. Component Vehicle Purpose Link to performance Fixed remuneration Comprises base salary, superannuation contributions and other benefits To provide competitive fixed remuneration with Both the executive’s performance, and the performance of the Group, reference to the applicable are considered during regular role, market and relevant executive’s experience. remuneration reviews. STI Awarded in cash Rewards executives for their contribution to Key financial metrics based primarily on Premier Retail’s achievement of Group and underlying earnings before interest business unit annual and taxation (“EBIT”) of each outputs and performance business unit, as well as a suite of outcomes. other internal financial and non- financial measures. LTI Awarded in performance rights Rewards executives for their contribution to the creation of shareholder Vesting of performance rights is dependent on both a positive total shareholder return (“TSR”) Premier value over the long term. and testing against the Comparison Peer Group (defined in Section 3D of this report). Discretionary Awarded in Rewards executives in Granted at the discretion of the Bonus cash or performance rights exceptional circumstances Board upon recommendation of the linked to long term Committee in exceptional shareholder outcomes. circumstances, and when in the best interests of the Group. 18 Premier Investments LimitedDIRECTORS’ REPORT (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 generating 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. 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”) Premier 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. 18 18 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s Report continued REMUNERATION REPORT (AUDITED) (CONTINUED) 3. EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED) 3B. Approach to setting remuneration For the 52 weeks ended 25 July 2020, the executive remuneration framework comprised of fixed remuneration, STI and LTI, as outlined below. Details of Mr. McInnes’ remuneration is 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. In response to the uncertainties surrounding the COVID-19 pandemic, the Just Group Executive team voluntarily did not receive any remuneration for the month of April 2020 and received only 80% of their monthly gross remuneration for the month of May 2020. Normal monthly remuneration was restored from June 2020. 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 DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 3. EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED) 3D. Detail of incentive plans (continued) Short-term incentive (“STI”) (continued) non-financial performance measures? What are the applicable 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. How is performance After the end of the financial year, following consideration of the financial and non- assessed? 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”) Group’s strategic objectives. Premier’s LTI plan seeks to create shareholder value over the long term by aligning executive remuneration with the Refer to section 5 for details surrounding Mr McInnes’ LTI arrangements. Prior to the 2020 financial year, LTI performance rights were granted to executives annually and eligible to vest three years from the date of the grant. During the 2020 financial year, certain amendments were made to LTI performance rights granted to executives, which have been described in more detail below. Who participates? Executives. How is LTI delivered? Performance rights. What were the performance measures for the 2020 and 2019 financial years? LTI rights awarded to each executive are subject to a two-stage performance test - an absolute and relative test - based on Premier’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. lapse. The absolute test requires Premier to achieve a positive TSR over the testing period. If the TSR is negative over the testing period, then the performance rights If the TSR is positive over the testing period, the relative test is undertaken, which compares Premier’s TSR with the S&P/ASX200 Industrials excluding overseas and resource companies (“Comparison Peer Group”). The Comparison Peer Group was chosen to reflect Premier’s competitors for both capital and talent. 20 Premier Investments LimitedDIRECTORS’ REPORT (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”) Premier’s LTI plan seeks to create shareholder value over the long term by aligning executive remuneration with the Group’s strategic objectives. Refer to section 5 for details surrounding Mr McInnes’ LTI arrangements. Prior to the 2020 financial year, LTI performance rights were granted to executives annually and eligible to vest three years from the date of the grant. During the 2020 financial year, certain amendments were made to LTI performance rights granted to executives, which have been described in more detail below. Who participates? Executives. How is LTI delivered? Performance rights. What were the performance measures for the 2020 and 2019 financial years? LTI rights awarded to each executive are subject to a two-stage performance test - an absolute and relative test - based on Premier’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 Premier 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 Premier’s TSR with the S&P/ASX200 Industrials excluding overseas and resource companies (“Comparison Peer Group”). The Comparison Peer Group was chosen to reflect Premier’s competitors for both capital and talent. 20 20 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s 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 2020 and 2019 financial years (continued)? Premier’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 for the 2019 financial year was 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% For LTI rights issued during the 2020 financial year, the vesting schedule has been amended 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 75th percentile 75th percentile and above 0% 50% Pro Rata 100% The absolute test ensures that shareholders and executives are aligned in the goal of absolute wealth creation. The relative test provides alignment between comparative shareholder return and reward for executives. Premier 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. 21 21 DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 3. EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED) 3D. Detail of incentive plans (continued) Long-term incentive (“LTI”) (continued) When does the LTI For rights issued prior to the 2020 financial year, the performance rights will vest? generally vest over a period of three years subject to meeting performance measures. For rights issued during the 2020 financial year, the performance rights will vest in accordance with the following schedule: Tranche A: LTI rights will be tested for vesting from 1 May 2020 to 1 October 2022 Tranche B: LTI rights will be tested for vesting from 1 May 2020 to 1 October 2023 (being the 1st Vesting Date). (being the 2nd Vesting Date). (being the 3rd Vesting Date). Tranche C: LTI rights will be tested for vesting from 1 May 2020 to 1 May 2024 The performance rights issued during the 2020 financial year will be tested for vesting in three equal tranches. The three-tranche performance rights issue replaces the previous annual performance rights issue during the above vesting periods (e.g. additional performance rights will not be granted during the above vesting periods). Performance rights have no opportunity to re-test. How are grants treated Generally, all rights (whether vested or unvested) lapse and terminate on cessation on termination? of employment. May participants enter Executives are prohibited from entering into transactions to hedge or limit the into hedging arrangements? 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. Are there restrictions on disposals? 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. Do participants receive distributions or dividends on unvested LTI grants? 22 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) When does the LTI vest? For rights issued prior to the 2020 financial year, the performance rights will generally vest over a period of three years subject to meeting performance measures. For rights issued during the 2020 financial year, the performance rights will vest in accordance with the following schedule: Tranche A: LTI rights will be tested for vesting from 1 May 2020 to 1 October 2022 (being the 1st Vesting Date). Tranche B: LTI rights will be tested for vesting from 1 May 2020 to 1 October 2023 (being the 2nd Vesting Date). Tranche C: LTI rights will be tested for vesting from 1 May 2020 to 1 May 2024 (being the 3rd Vesting Date). The performance rights issued during the 2020 financial year will be tested for vesting in three equal tranches. The three-tranche performance rights issue replaces the previous annual performance rights issue during the above vesting periods (e.g. additional performance rights will not be granted during the above vesting periods). Performance rights have no opportunity to re-test. How are grants treated on termination? Generally, all rights (whether vested or unvested) lapse and terminate on cessation of employment. 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. 22 22 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s Report continued DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 4. EXECUTIVE REMUNERATION OUTCOMES (INCLUDING LINK TO PERFORMANCE) REMUNERATION REPORT (AUDITED) (CONTINUED) 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. DIRECTORS’ REPORT (CONTINUED) DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 4. EXECUTIVE REMUNERATION OUTCOMES (INCLUDING LINK TO PERFORMANCE) (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) The below chart shows the Premier TSR against the S&P/ASX200 Index, from 4 April 2011 to 25 July 2020: 4. EXECUTIVE REMUNERATION OUTCOMES (INCLUDING LINK TO PERFORMANCE) (CONTINUED) The below chart shows the Premier TSR against the S&P/ASX200 Index, from 4 April 2011 to 25 July 2020: ASX200 Index from 4 April 2011 to 25 July 2020 Premier Investments Limited TSR against the Premier Investments Limited TSR against the ASX200 Index from 4 April 2011 to 25 July 2020 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 Premier Retail Underlying EBIT Premier Retail Underlying EBIT $136.0 $150.1 $126.7 $105.7 $92.8 $136.0 $150.1 $136.0 $126.7 $126.7 $167.3 $187.2 $167.3 $187.2 $167.3 $187.2 $150.1 $80.4 $83.7 $65.3 $80.4 $80.4 $83.7 $83.7 $105.7 $105.7 $92.8 $92.8 $65.3 $65.3 $200.0 $180.0 $160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $- $200.0 $180.0 $160.0 $200.0 $140.0 $180.0 $120.0 $160.0 $100.0 $140.0 $80.0 $120.0 $60.0 $100.0 $40.0 $80.0 $20.0 $60.0 $- $40.0 $20.0 $- FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 $'millions Note: The term underlying EBIT is not an IFRS defined term. Please refer to page 9 for a reconciliation between underlying EBIT and FY11 FY12 FY13 FY14 $'millions FY15 FY16* FY17 FY18 FY19 FY20 statutory reported operating profit before tax for the Retail Segment. FY16 Underlying EBIT represents a comparable 52 week period. $' millions Note: The term underlying EBIT is not an IFRS defined term. Please refer to page 9 for a reconciliation between underlying EBIT and Performance compared to STI payments made during the financial year ended 25 July 2020 statutory reported operating profit before tax for the Retail Segment. FY16 Underlying EBIT represents a comparable 52 week period. During the 2020 financial year, an amount of $215,851 was paid to Mr Bryce and combined both an STI payment and Performance compared to STI payments made during the financial year ended 25 July 2020 discretionary bonus payment. The STI payment was in line with hurdles and qualifiers relating to his 2019 financial year STI plan. This included the achievement of Premier Retail underlying EBIT. No STI was paid to Mr. Bryce during During the 2020 financial year, an amount of $215,851 was paid to Mr Bryce and combined both an STI payment and the 2019 financial year. discretionary bonus payment. The STI payment was in line with hurdles and qualifiers relating to his 2019 financial year STI plan. This included the achievement of Premier Retail underlying EBIT. No STI was paid to Mr. Bryce during Group performance and its link to LTI the 2019 financial year. The performance measure which drives LTI vesting is dependent on an absolute test, being a positive Premier TSR Group performance and its link to LTI performance and a relative test, being a comparison against the Comparison Peer Group (as defined in section 3D of this report). The performance measure which drives LTI vesting is dependent on an absolute test, being a positive Premier TSR performance and a relative test, being a comparison against the Comparison Peer Group (as defined in section 3D of The table below illustrates the outcomes of the TSR testing performed during the 2019 and 2020 financial years in this report). relation to KMP: The table below illustrates the outcomes of the TSR testing performed during the 2019 and 2020 financial years in relation to KMP: Share price at start of testing Share price period at start of testing period $9.95 Share price at end of testing Share price period at end of testing period $15.65 Dividends paid TSR percentage TSR percentile TSR 100.58% percentage TSR 74.53 percentile Number of Performance Rights Number of tested for Performance KMP Rights 250,000* tested for KMP Testing Period 4 Apr 2014 to 4 Apr 2019 Testing Period 4 Apr 2014 to 4 Apr 2019 4 Apr 2014 to 4 Apr 2020 $9.95 $9.95 $15.65 $11.55 $11.55 * Relates to Mr. McInnes, refer to section 5 of this report. 4 Apr 2014 to 4 Apr 2020 $9.95 * Relates to Mr. McInnes, refer to section 5 of this report. 23 Dividends $2.54 fully paid franked $2.54 fully $3.24 fully franked franked $3.24 fully franked 100.58% 54.73% 74.53 68.0 250,000* 250,000* 54.73% 68.0 250,000* 23 23 35.00 35.00 30.00 30.00 25.00 25.00 20.00 20.00 15.00 15.00 10.00 10.00 5.00 5.00 – – Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 Apr-11 Apr-12 Apr-13 Apr-14 PMV Apr-15 Apr-16 ASX 200 Apr-17 Apr-18 Apr-19 Apr-20 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES ASX 200 PMV Mr. McInnes’ fixed remuneration 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES Mr. McInnes’ annual fixed remuneration increased from $2,500,000 to $2,750,000, effective from the beginning of the Mr. McInnes’ fixed remuneration 2020 financial year. This was Mr. McInnes’ first increase in fixed remuneration since the end of the 2015 financial year. In response to the COVID-19 pandemic and to support the Group as a result of these uncertainties, Mr McInnes Mr. McInnes’ annual fixed remuneration increased from $2,500,000 to $2,750,000, effective from the beginning of the voluntarily did not receive any remuneration for the month of April 2020 and received only 80% of his monthly gross 2020 financial year. This was Mr. McInnes’ first increase in fixed remuneration since the end of the 2015 financial year. remuneration for the month of May 2020. Normal monthly remuneration was restored from June 2020 onwards. In response to the COVID-19 pandemic and to support the Group as a result of these uncertainties, Mr McInnes voluntarily did not receive any remuneration for the month of April 2020 and received only 80% of his monthly gross Mr. McInnes’ notice period remuneration for the month of May 2020. Normal monthly remuneration was restored from June 2020 onwards. Upon cessation of his employment, Mr. McInnes is entitled to 12 months’ notice (“Notice Period”) if he resigns or is Mr. McInnes’ notice period 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”). 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 During the Notice Period, Premier may direct Mr. McInnes to continue in his role, perform no duties, reduced duties or entitlement at law to summarily dismiss (“Terminated Without Cause”). 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 During the Notice Period, Premier may direct Mr. McInnes to continue in his role, perform no duties, reduced duties or $2,750,000 gross, less applicable tax. 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 If Mr. McInnes is terminated for serious misconduct or Premier is otherwise entitled at law to summarily dismiss Mr. $2,750,000 gross, less applicable tax. McInnes (“Terminated for Cause”), Premier may terminate Mr. McInnes’ employment without providing the Notice Period (or payment in lieu of the Notice Period). 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). +299% +299% +84% +84% 24 24 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 4. EXECUTIVE REMUNERATION OUTCOMES (INCLUDING LINK TO PERFORMANCE) (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) The below chart shows the Premier TSR against the S&P/ASX200 Index, from 4 April 2011 to 25 July 2020: The below chart shows the Premier TSR against the S&P/ASX200 Index, from 4 April 2011 to 25 July 2020: 4. EXECUTIVE REMUNERATION OUTCOMES (INCLUDING LINK TO PERFORMANCE) (CONTINUED) Premier Investments Limited TSR against the Premier Investments Limited TSR against the ASX200 Index from 4 April 2011 to 25 July 2020 ASX200 Index from 4 April 2011 to 25 July 2020 Premier Investments Limited TSR against the ASX200 Index from 4 April 2011 to 25 July 2020 35.00 35.00 35.00 30.00 30.00 30.00 25.00 25.00 25.00 20.00 20.00 20.00 15.00 15.00 15.00 10.00 10.00 10.00 5.00 5.00 5.00 – Apr-11 – – Apr-11 Apr-11 +299% +299% +299% +84% +84% +84% Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 Apr-12 Apr-12 Apr-13 Apr-13 Apr-14 Apr-14 PMV Apr-15 Apr-15 Apr-16 Apr-16 Apr-17 ASX 200 Apr-17 Apr-18 Apr-18 Apr-19 Apr-19 Apr-20 Apr-20 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES PMV PMV ASX 200 ASX 200 Mr. McInnes’ fixed remuneration 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES Mr. McInnes’ annual fixed remuneration increased from $2,500,000 to $2,750,000, effective from the beginning of the Mr. McInnes’ fixed remuneration 2020 financial year. This was Mr. McInnes’ first increase in fixed remuneration since the end of the 2015 financial year. In response to the COVID-19 pandemic and to support the Group as a result of these uncertainties, Mr McInnes Mr. McInnes’ annual fixed remuneration increased from $2,500,000 to $2,750,000, effective from the beginning of the voluntarily did not receive any remuneration for the month of April 2020 and received only 80% of his monthly gross 2020 financial year. This was Mr. McInnes’ first increase in fixed remuneration since the end of the 2015 financial year. remuneration for the month of May 2020. Normal monthly remuneration was restored from June 2020 onwards. In response to the COVID-19 pandemic and to support the Group as a result of these uncertainties, Mr McInnes voluntarily did not receive any remuneration for the month of April 2020 and received only 80% of his monthly gross Mr. McInnes’ notice period remuneration for the month of May 2020. Normal monthly remuneration was restored from June 2020 onwards. Upon cessation of his employment, Mr. McInnes is entitled to 12 months’ notice (“Notice Period”) if he resigns or is Mr. McInnes’ notice period 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”). 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 During the Notice Period, Premier may direct Mr. McInnes to continue in his role, perform no duties, reduced duties or entitlement at law to summarily dismiss (“Terminated Without Cause”). 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 During the Notice Period, Premier may direct Mr. McInnes to continue in his role, perform no duties, reduced duties or $2,750,000 gross, less applicable tax. 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 If Mr. McInnes is terminated for serious misconduct or Premier is otherwise entitled at law to summarily dismiss Mr. $2,750,000 gross, less applicable tax. McInnes (“Terminated for Cause”), Premier may terminate Mr. McInnes’ employment without providing the Notice Period (or payment in lieu of the Notice Period). 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). 24 24 24 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s Report continued REMUNERATION REPORT (AUDITED) (CONTINUED) 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES (CONTINUED) Mr. McInnes was 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 Mr. McInnes’ STI arrangements be exercisable at no cost. Mr. McInnes is entitled to receive a STI if the applicable performance targets and conditions set out below are met. Shareholders approved the right of the Group to issue the 1,000,000 performance rights to Mr. McInnes at the 2015 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 $1,375,000. EBIT growth between 5% and 10% of Base Year $1,375,000 plus a pro rata payment based on the % of the EBIT growth above 5%, up to a maximum of $2,750,000 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 $2,750,000, 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 2019 or 2020 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. 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 25 July 2020 and 27 July 2019 During the 2020 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 2019 financial year. 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. 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 2020 financial year will be finalised in December 2020. 25 25 DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES (CONTINUED) Mr. McInnes’ LTI arrangements 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 vested 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 has been 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 • • • • (each date being a “Vesting Date”). Tranche C – 4 April 2014 to 4 April 2019 (Tested in FY19, see further details provided in Section 5) Tranche D – 4 April 2014 to 4 April 2020 (Tested in FY20, see further details provided in Section 5) The share price baseline for each tranche was $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 was 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 required that the TSR over the testing period is positive. If the TSR is positive, the second stage relative test required the TSR to be assessed against the relative performance of the Comparison Peer Group. The relative TSR performance targets and the corresponding vesting percentages were as follows: Conversion ratio of performance rights to shares available to vest under the TSR performance condition: 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 0% 25% Pro Rata 50% Pro Rata 100% Premier’s TSR and ranking within the Comparison Peer Group for each testing period was 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 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. 26 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES (CONTINUED) Mr. McInnes’ LTI arrangements Mr. McInnes was 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 vested 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 has been 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 Tranche C – 4 April 2014 to 4 April 2019 (Tested in FY19, see further details provided in Section 5) Tranche D – 4 April 2014 to 4 April 2020 (Tested in FY20, see further details provided in Section 5) (each date being a “Vesting Date”). The share price baseline for each tranche was $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 was 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 required that the TSR over the testing period is positive. If the TSR is positive, the second stage relative test required the TSR to be assessed against the relative performance of the Comparison Peer Group. The relative TSR performance targets and the corresponding vesting percentages were 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 was 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 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. 26 26 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s Report continued REMUNERATION REPORT (AUDITED) (CONTINUED) 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES (CONTINUED) Mr. McInnes’ LTI arrangements (continued) 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. Shares issued as a result of vesting of performance rights issued to Mr McInnes for the financial years ended 25 July 2020 and 27 July 2019 During the 2020 financial year, the final tranche of 250,000 performance rights (being Tranche D) were tested for the period 4 April 2014 to 4 April 2020. The TSR over this period was 54.73%, placing Premier in the 68.0 percentile of the Comparison Peer Group, resulting in vesting of 72% of the performance rights. Details of this test have been presented in Section 4 of this report. The Board, in its absolute discretion under the Performance Rights Plan, performed an indicative TSR test over two alternative testing periods, being 4 April 2014 to 29 April 2020, and 4 April 2014 and 28 February 2020, to provide the Board with further clarity on the impact on the short-term global share price volatility on the Premier’s TSR resulting from the COVID-19 pandemic. The results of these two TSR tests reflected an indicative percentile ranking of 75.7 percentile and 78.6 percentile, respectively. Therefore, both indicative tests would have resulted in 100% of the performance rights qualifying for vesting into newly issued shares. Based on the circumstances surrounding the testing period for Tranche D, the results of the extended indicative TSR tests and the Group’s compounding growth achieved over the testing period, the Board exercised its discretion provided under the Performance Rights Plan. As a result, 250,000 performance rights vested into newly issued shares in May 2020. This is the first incidence where the Board has exercised its discretion under the Performance Rights Plan in relation to performance rights for members of Premier’s KMP. 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. 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”). 27 27 DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES (CONTINUED) Mr. McInnes’ post-employment restrictions (continued) 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 $5,500,000 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 $2,750,000 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. 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 Ms. Meyer, whose relevant terms of employment are set out below). Material provisions of the service agreements are set out below: Termination benefits Notice period required Upon Notice period required Start date Term of Review from agreement period Premier Premier initiated diminution from of role employee Mr. McInnes Open Annual 12 months Nil Mr. Bryce Open Annual 12 months Nil 12 months Ms. Meyer Open Annual 12 months Nil Nil 12 months 12 months fixed rem. including notice 12 months fixed rem. including notice 12 months fixed rem. including notice 4 April 2011 13 Dec 2016 4 Feb 2019 28 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 5. REMUNERATION OF CEO PREMIER RETAIL, MR. MCINNES (CONTINUED) Mr. McInnes’ post-employment restrictions (continued) 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 $5,500,000 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 $2,750,000 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. 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 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 Open Annual 12 months Mr. Bryce Ms. Meyer 13 Dec 2016 4 Feb 2019 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 Open Annual 12 months Nil Nil 12 months 28 28 Annual Report 2020DIRECTORS’ REPORT (CONTINUED) Director’s Report continued REMUNERATION REPORT (AUDITED) (CONTINUED) 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. The Non-Executive Directors voluntarily did not receive any remuneration for the month of April 2020 and reduced their fees by 20% for the months of May – July 2020 to support the Group as a result of the severe uncertainty surrounding the COVID-19 pandemic. 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). 29 29 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 0 2 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 t n e m e e l 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 ) D E U N T N O C I ( T R O P E R ’ S R O T C E R D I % - - - - - - - - - % 3 3 . 4 5 % 2 5 . 0 4 0 3 $ - 3 3 3 , 1 2 1 0 0 0 , 6 5 1 0 0 0 , 4 0 1 0 0 0 , 4 0 1 0 0 0 , 4 0 1 7 6 6 , 4 9 2 3 3 3 , 1 2 1 3 3 3 , 5 0 0 , 1 6 3 5 , 1 8 6 5 8 9 , 9 3 3 4 4 4 , 9 1 4 , 5 5 6 9 , 0 4 4 , 6 8 9 2 , 6 4 4 , 7 $ - - - - - - - - - - 8 7 2 , 0 6 4 4 4 , 4 4 4 2 2 7 , 4 0 5 2 2 7 , 4 0 5 $ - - - - - - - - - - - - - - $ - - 8 3 3 , 4 8 3 3 , 4 4 3 5 , 3 1 - - 0 0 0 , 5 2 0 1 2 , 7 4 7 1 9 , 2 2 0 1 3 , 9 1 1 3 7 , 3 2 8 5 9 , 5 6 8 6 1 , 3 1 1 $ - - - - - - - - - - - - - - $ - - - - - - - - - - 1 5 8 , 5 1 2 0 0 0 , 0 0 5 , 2 1 5 8 , 5 1 7 , 2 1 5 8 , 5 1 7 , 2 $ - 3 3 3 , 1 2 1 6 6 4 , 2 4 1 2 6 6 , 9 9 2 6 6 , 9 9 0 0 0 , 4 0 1 7 6 6 , 4 9 2 3 3 3 , 6 9 3 2 1 , 8 5 9 7 9 0 , 6 8 3 4 5 2 , 6 1 3 , 3 8 0 2 5 4 , 2 , 4 3 4 4 5 1 , 3 , 7 5 5 2 1 1 , 4 s r o t c e r i D e v i t u c e x E - n o N y e n t r a C c M . L . T . r M d o e L c M . I . R . M . r M 1 r e z n a L . D . H . r M i e n o t n A . T . r M n a e r C . D . r D n o z a F l . S . s M n a m r e H S . s M w e L . S . r M 2 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 3 s e n n I c M . M . r M 4 e c y r B . S . J . r M s e v i t u c e x E r e y e M . M . s M s e v i t u c e x e l a t o T 0 2 0 2 L A T O T . 0 2 0 2 y u J – l y a M f o s h t n o m e h t r o f n o i t a r e n u m e r l t y h n o m r i e h t f o % 0 8 d e v e c e r i d n a 0 2 0 2 l i r p A r o f n o i t a r e n u m e r y n a i e v e c e r t o n i d d y l i r a t n u o v l s r o t c e r i D e v i t u c e x E - n o N l l A 2 l i . 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 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 . 0 2 0 2 y a M r o f n o i t a r e n u m e r s s o r g y h l t n o m s h i f o % 0 8 i d e v e c e r d n a 0 2 0 2 l i r p A r o f n o i t a r e n u m e r y n a e v e c e r i t o n d d i y l i r a t n u o v l s e n n I c M . r M . e c y r B . r M r o f t n e m y a p s u n o b 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 3 2 e g a p o t r e f e R . 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 l a e r 3 4 . 30 Annual Report 2020 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 9 1 0 2 ) I D E U N T N O C ( I P M K F O N O T A R E N U M E R . 8 % - - - - - - - - - - % 5 9 . 6 % 7 3 . 9 5 $ - 0 0 0 , 0 2 1 0 0 0 , 0 6 1 0 0 0 , 0 0 1 0 0 0 , 0 0 1 0 0 0 , 0 8 0 0 0 , 0 4 3 0 0 0 , 0 2 1 , 0 0 0 0 2 0 , 1 4 2 5 , 1 6 4 2 3 8 , 8 4 1 8 5 4 , 5 7 2 , 4 2 6 3 5 1 , 6 , 8 3 4 9 3 0 , 7 , 8 3 4 9 5 0 , 8 $ - - - - - - - - - - - 5 9 0 , 2 3 , 4 2 6 3 5 1 , 1 , 9 1 7 5 8 1 , 1 , 9 1 7 5 8 1 , 1 $ - - - - - - - - - - - - - - - $ - - 5 7 6 , 8 5 7 6 , 8 1 8 8 , 3 1 - - 0 0 0 , 5 2 1 3 2 , 6 5 0 0 0 , 5 2 0 7 5 , 0 2 8 0 8 , 7 1 6 6 2 , 0 1 4 4 6 , 3 7 5 7 8 , 9 2 1 $ - - - - - - - - - - - - - - - $ - - - - - - - - - $ - 0 0 0 , 0 2 1 9 1 1 , 6 4 1 5 2 3 , 1 9 5 2 3 , 1 9 0 0 0 , 0 8 0 0 0 , 5 9 0 0 0 , 0 4 3 9 6 7 , 3 6 9 2 0 0 0 , 0 0 5 , 2 0 0 0 , 5 7 4 , 2 - - - 0 0 0 , 0 0 5 , 2 0 0 0 , 0 0 5 , 2 9 5 8 , 8 0 4 4 2 0 , 1 3 1 2 9 1 , 5 6 2 5 7 0 , 0 8 2 , 3 4 4 8 , 3 4 2 , 4 s r o t c e r i D e v i t u c e x E - n o N y e n t r a C c M . L . T . r M d o e L c M . I . R . M . r M 1 r e z n a L . D . H . r M i e n o t n A . T . r M n a e r C . D . r D n o z a F l . S . s M n a m r e H S . s M w e L . S . r 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 s e n n I c M . M . r M e c y r B . S . J . r M 3 r e y e M . M . s M i 3 s v a D . F . K . r M s e v i t u c e x E s e v i t u c e x e l a t o T 9 1 0 2 L A T O T ) d e D u E n U N i t I T n N o O C c ( ) I D t E r T o D U p A ( e T R R O P E s ’ R r N o O T t A c R e E N r U i M E R D I 31 T R O P E R ’ S R O T C E R D I ) D E U N T N O C I ( DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 1 3 a) Rights awarded, vested and lapsed during the year: 9. ADDITIONAL DISCLOSURES RELATING TO RIGHTS AND SHARES OF KMP The table below discloses the number of performance rights granted to KMP as remuneration for the financial year ended 25 July 2020, as well as the number of rights vested and lapsed during the year: Terms and conditions Grant year granted during the year No. Rights Grant date Fair value Expiry and Exercise per right at grant date $ date Rights vested and lapsed during 2020 Rights vested Rights lapsed No. No. 2020 dates. Mr. M. McInnes Mr. J.S. Bryce 2016 2020 - 26-Apr-16 - - 250,000 25,548 * 1-May-20 8.33 1-Oct-22, 1-Oct-23, - - - 1-May-24 * * The total number of rights granted equals 25,548, to be tested for vesting in 3 equal tranches on the relevant vesting b) Value of rights awarded, exercised and lapsed during the year: Value of rights granted Value of rights Value of rights during the year exercised during lapsed during the 2020 $ the year $ year $ Mr. M. McInnes Mr. J.S. Bryce - 212,815 3,825,000 - Remuneration consisting of rights for the year % 8.20% 8.84% There were no alterations to the terms and conditions of rights awarded as remuneration since their award date. The value of rights exercised during the year represent the intrinsic value of the rights based on the share price on the relevant day of vesting. c) Shares issued on exercise of rights: 2020 Mr. M. McInnes Shares issued Paid per share Unpaid per share No $ $ 250,000 - There were no alterations to the terms and conditions of rights awarded as remuneration since their award date. - - - 32 . 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 l i . 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 25 July 2020, as well as the number of rights vested and lapsed during the year: Terms and conditions Grant year Rights granted during the year No. Grant date Fair value per right at grant date $ 2020 Mr. M. McInnes Mr. J.S. Bryce 2016 2020 - 25,548 * 26-Apr-16 1-May-20 - 8.33 Rights vested and lapsed during 2020 Expiry and Exercise date Rights vested Rights lapsed No. No. - 250,000 - - - 1-Oct-22, 1-Oct-23, 1-May-24 * * The total number of rights granted equals 25,548, to be tested for vesting in 3 equal tranches on the relevant vesting dates. b) Value of rights awarded, exercised and lapsed during the year: Value of rights granted during the year 2020 $ Value of rights exercised during the year $ Value of rights lapsed during the year $ Remuneration consisting of rights for the year % Mr. M. McInnes Mr. J.S. Bryce - 212,815 3,825,000 - - - 8.20% 8.84% There were no alterations to the terms and conditions of rights awarded as remuneration since their award date. The value of rights exercised during the year represent the intrinsic value of the rights based on the share price on the relevant day of vesting. c) Shares issued on exercise of rights: 2020 Mr. M. McInnes Shares issued No Paid per share $ Unpaid per share $ 250,000 - - There were no alterations to the terms and conditions of rights awarded as remuneration since their award date. 32 32 Annual Report 2020 DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) Director’s Report continued DIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 9. ADDITIONAL DISCLOSURES RELATING TO RIGHTS AND SHARES OF KMP (CONTINUED) 10. ADDITIONAL DISCLOSURES RELATING TO TRANSACTIONS AND BALANCES WITH KMP d) Rights holdings of KMP: 2020 Balance at 27 July 2019 Granted as remuneration Rights exercised Rights lapsed Balance at 25 July 2020 Rights not exercisable At 25 July 2020 Mr. M. McInnes Mr. J.S. Bryce 250,000 14,901 - 25,548 (250,000) - - - - 40,449 - 40,449 Rights granted to key management personnel were made in accordance with the provisions of the Group’s Performance Rights Plan. e) Number of Ordinary Shares held in Premier Investments Limited by KMP: 2020 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 TOTAL Balance at 27 July 2019 Share Purchase Shares acquired under performance rights plan Balance at 25 July 2020 4,437,699 - - - 11,500 27,665 - 28,186 732,100 - - - 5,001 - - - - - - - - - - - - - - - - - 4,437,699 5,001 - - 11,500 27,665 - 28,186 250,000 982,100 - - - - 5,237,150 5,001 250,000 5,492,151 * 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 (2019: 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. 33 33 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 $2,396,209 (2019: $1,797,386), including Mr. Lanzer's Director fees, GST and disbursements were invoiced by Arnold Bloch Leibler to the Group, with $713,866 (2019: $30,445) 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 $223,293 (2019: $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 $17,273,036 (2019: $22,842,474) including GST have been made by Group companies from Voyager Distributing Co. Pty Ltd, Playcorp Pty Ltd and Sky Chain Trading Limited, with $4,058,067 (2019: $1,882,897) 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. Premier 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 Premier. Premier is required to reimburse Century Plaza Trading for costs it incurs in providing the Company with the services under the Service Agreement. Premier reimbursed a total of $512,600 (2019: $518,650) 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 2020 $’000 4,772 4,772 2020 $’000 15,923 203 2,178 513 18,817 34 Premier Investments LimitedDIRECTORS’ REPORT (CONTINUED) REMUNERATION REPORT (AUDITED) (CONTINUED) 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 $2,396,209 (2019: $1,797,386), including Mr. Lanzer's Director fees, GST and disbursements were invoiced by Arnold Bloch Leibler to the Group, with $713,866 (2019: $30,445) 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 $223,293 (2019: $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 $17,273,036 (2019: $22,842,474) including GST have been made by Group companies from Voyager Distributing Co. Pty Ltd, Playcorp Pty Ltd and Sky Chain Trading Limited, with $4,058,067 (2019: $1,882,897) 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. Premier 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 Premier. Premier is required to reimburse Century Plaza Trading for costs it incurs in providing the Company with the services under the Service Agreement. Premier reimbursed a total of $512,600 (2019: $518,650) 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 2020 $’000 4,772 4,772 2020 $’000 15,923 203 2,178 513 18,817 34 34 Annual Report 2020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 Auditor’s Independence Declaration Auditor’s Independence Declaration to the Directors of 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 As lead auditor for the audit of the financial report of Premier Investments Limited for the financial period ended 25 July 2020, 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. Auditor’s Independence Declaration to the Directors of Premier This declaration is in respect of Premier Investments Limited and the entities it controlled during the Investments Limited financial period. As lead auditor for the audit of the financial report of Premier Investments Limited for the financial period ended 25 July 2020, I declare to the best of my knowledge and belief, there have been: Ernst & Young 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 financial period. Glenn Carmody Ernst & Young Partner 1 October 2020 Glenn Carmody Partner 1 October 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 35 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation CONSOLIDATED NOTES 2020 $’000 2019 $’000 STATEMENT OF COMPREHENSIVE INCOME FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 Revenue from contracts with customers Other revenue Total revenue Other income Total revenue and other income Changes in inventories Employee expenses Lease rental expenses Advertising and direct marketing Finance costs Other expenses Total expenses Share of profit of associate Depreciation, impairment and amortisation of non-current assets Profit from continuing operations before income tax Income tax expense Net profit for the period attributable to owners Other comprehensive (loss) income Items that may be reclassified subsequently to profit or loss Net loss on cash flow hedges Foreign currency translation Net movement in other comprehensive (loss) income of associates Income tax on items of other comprehensive (loss) income Other comprehensive loss 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 (loss) gain on listed equity investment Income tax on items of other comprehensive (loss) income Other comprehensive (loss) income not to be reclassified to profit or loss in subsequent periods, net of tax TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO THE OWNERS Earnings per share from continuing operations attributable to the ordinary equity holders of the parent: - basic, profit for the year (cents per share) - diluted, profit for the year (cents per share) 4 4 4 5 5 5 5 20 6 24 24 24 6 24 6 7 7 The accompanying notes form an integral part of this Statement of Comprehensive Income. 1,216,316 2,464 1,218,780 30,182 1,248,962 (474,582) (247,612) (17,532) (250,060) (14,171) (16,716) (50,786) 17,696 195,199 (57,446) 137,753 (9,886) (868) (688) 2,964 (8,478) (28,747) 8,623 (1,071,459) (1,142,717) (20,124) 4,335 109,151 109,946 86.89 86.56 67.51 67.19 1,270,958 4,108 1,275,066 487 1,275,553 (484,380) (302,642) (224,393) (52,315) (15,896) (7,687) (55,404) 18,906 151,742 (44,935) 106,807 (7,937) 2,936 1,424 2,381 (1,196) 6,192 (1,857) 36 Premier Investments LimitedSTATEMENT OF COMPREHENSIVE INCOME Statement of Comprehensive Income FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 for the 52 weeks ended 25 July 2020 and 27 July 2020 CONSOLIDATED NOTES 2020 $’000 2019 $’000 Revenue from contracts with customers Other revenue Total revenue Other income Total revenue and other income Changes in inventories Employee expenses Lease rental expenses Depreciation, impairment and amortisation of non-current assets Advertising and direct marketing Finance costs Other expenses Total expenses Share of profit of associate Profit from continuing operations before income tax Income tax expense Net profit for the period attributable to owners Other comprehensive (loss) income Items that may be reclassified subsequently to profit or loss Net loss on cash flow hedges Foreign currency translation Net movement in other comprehensive (loss) income of associates Income tax on items of other comprehensive (loss) income Other comprehensive loss 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 (loss) gain on listed equity investment Income tax on items of other comprehensive (loss) income Other comprehensive (loss) income not to be reclassified to profit or loss in subsequent periods, net of tax TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO THE OWNERS Earnings per share from continuing operations attributable to the ordinary equity holders of the parent: - basic, profit for the year (cents per share) - diluted, profit for the year (cents per share) 4 4 4 5 5 5 5 20 6 24 24 24 6 24 6 7 7 1,216,316 2,464 1,218,780 30,182 1,248,962 (474,582) (247,612) (17,532) (250,060) (14,171) (16,716) (50,786) 1,270,958 4,108 1,275,066 487 1,275,553 (484,380) (302,642) (224,393) (52,315) (15,896) (7,687) (55,404) (1,071,459) (1,142,717) 17,696 195,199 (57,446) 137,753 (9,886) (868) (688) 2,964 (8,478) (28,747) 8,623 18,906 151,742 (44,935) 106,807 (7,937) 2,936 1,424 2,381 (1,196) 6,192 (1,857) (20,124) 4,335 109,151 109,946 86.89 86.56 67.51 67.19 The accompanying notes form an integral part of this Statement of Comprehensive Income. 36 36 Annual Report 2020STATEMENT OF FINANCIAL POSITION Statement of Financial Position AS AT 25 JULY 2020 AND 27 JULY 2019 as at 25 July 2020 and 27 July 2019 STATEMENT OF CASH FLOWS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 CONSOLIDATED NOTES 2020 $’000 2019 $’000 CONSOLIDATED NOTES 2020 $’000 2019 $’000 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial instruments Other current assets Total current assets Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Deferred tax assets Listed equity investment at fair value Investment in associate Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Income tax payable Lease liabilities Provisions Other financial instruments Other current liabilities Total current liabilities Non-current liabilities Interest-bearing liabilities Deferred tax liabilities Lease liabilities Provisions Other financial instruments Other non-current liabilities Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained earnings TOTAL EQUITY 21 9 10 25 11 17 12 18 6 19 20 13 14 15 25 16 22 6 14 15 25 16 23 24 448,832 30,320 156,590 - 10,531 646,273 155,134 231,790 826,888 66,924 18,132 257,391 190,255 23,011 171,165 6,119 14,688 405,238 210,855 - 826,639 40,380 46,879 238,732 1,556,259 2,202,532 1,363,485 1,768,723 NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES 208,979 66,172 189,221 38,297 4,008 8,588 515,265 146,659 65,427 114,668 10,603 2,316 146 339,819 855,084 81,938 12,571 - 23,881 - 26,529 144,919 167,493 63,875 - 11,465 2,548 29,137 274,518 419,437 1,347,448 1,349,286 608,615 (37,847) 776,680 608,615 (10,858) 751,529 1,347,448 1,349,286 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Borrowing costs paid Interest on lease liabilities Income taxes paid CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from investment in associate Payment for trademarks Purchase of investments Payment for property, plant and equipment NET CASH FLOWS FROM OPERATING ACTIVITIES 21(b) Equity dividends paid Payment of lease liabilities Proceeds from borrowings Repayment of borrowings NET CASH FLOWS USED IN FINANCING ACTIVITIES 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 21(a) 1,344,202 (829,742) 2,436 (5,422) (11,080) (16,812) 483,582 14,235 (273) - (7,316) 6,646 (58,636) (150,958) 137,000 (158,000) (230,594) 259,634 190,255 (1,057) 448,832 1,397,331 (1,209,685) 3,919 (7,892) - (44,859) 138,814 12,654 (714) (7,872) (19,618) (15,550) (104,483) - 173,000 (181,000) (112,483) 10,781 178,618 856 190,255 The accompanying notes form an integral part of this Statement of Cash Flows. The accompanying notes form an integral part of this Statement of Financial Position. 37 37 38 Premier Investments LimitedSTATEMENT OF CASH FLOWS Statement of Cash Flows FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 for the 52 weeks ended 25 July 2020 and 27 July 2019 CONSOLIDATED NOTES 2020 $’000 2019 $’000 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Borrowing costs paid Interest on lease liabilities Income taxes paid NET CASH FLOWS FROM OPERATING ACTIVITIES 21(b) CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from investment in associate Payment for trademarks Purchase of investments Payment for property, plant and equipment NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Equity dividends paid Payment of lease liabilities Proceeds from borrowings Repayment of borrowings NET CASH FLOWS USED IN FINANCING ACTIVITIES 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 21(a) 1,344,202 (829,742) 2,436 (5,422) (11,080) (16,812) 483,582 14,235 (273) - (7,316) 6,646 (58,636) (150,958) 137,000 (158,000) (230,594) 259,634 190,255 (1,057) 448,832 1,397,331 (1,209,685) 3,919 (7,892) - (44,859) 138,814 12,654 (714) (7,872) (19,618) (15,550) (104,483) - 173,000 (181,000) (112,483) 10,781 178,618 856 190,255 The accompanying notes form an integral part of this Statement of Cash Flows. 38 38 Annual Report 2020L A T O T I S T F O R P I D E N A T E R E V R E S E R E U L A V R A F I I N G E R O F Y C N E R R U C E G D E H 0 0 0 ’ $ , 6 8 2 9 4 3 , 1 3 5 7 , 7 3 1 ) 2 0 6 , 8 2 ( 1 5 1 , 9 0 1 - 0 0 0 ’ $ 9 2 5 , 1 5 7 3 5 7 , 7 3 1 3 5 7 , 7 3 1 - 0 0 0 ’ $ ) 8 0 9 , 8 3 ( ) 4 2 1 , 0 2 ( ) 4 2 1 , 0 2 ( - 0 0 0 ’ $ 7 3 3 , 7 ) 6 5 5 , 1 ( ) 6 5 5 , 1 ( - 0 0 0 ’ $ 3 0 5 , 2 ) 2 2 9 , 6 ( ) 2 2 9 , 6 ( E V R E S E R I N O T A L S N A R T E V R E S E R 3 1 6 , 1 - ) 2 0 6 , 2 1 1 ( ) 2 0 6 , 2 1 1 ( - - - - - - , 8 4 4 7 4 3 , 1 0 8 6 , 6 7 7 ) 2 3 0 , 9 5 ( 1 8 7 , 5 ) 9 1 4 , 4 ( ) 3 2 1 , 3 ( , 4 3 9 4 4 3 , 1 7 0 8 , 6 0 1 , 1 1 8 1 4 3 , 1 9 3 1 , 3 6 4 9 , 9 0 1 - 8 2 3 , 2 5 7 ) 3 2 1 , 3 ( 5 0 2 , 9 4 7 7 0 8 , 6 0 1 7 0 8 , 6 0 1 2 1 0 , 2 ) 3 8 4 , 4 0 1 ( , 6 8 2 9 4 3 , 1 - 9 2 5 , 1 5 7 ) 3 8 4 , 4 0 1 ( ) 3 4 2 , 3 4 ( 7 7 9 , 2 - 5 3 3 , 4 5 3 3 , 4 - ) 3 4 2 , 3 4 ( - - - - 7 7 9 , 2 0 6 3 , 4 0 6 3 , 4 - - - 9 5 0 , 8 - 9 5 0 , 8 ) 6 5 5 , 5 ( ) 6 5 5 , 5 ( - - ) 8 0 9 , 8 3 ( 7 3 3 , 7 3 0 5 , 2 - - - 0 0 0 ’ $ 6 4 7 , 7 1 S T H G R I E V R E S E R - 3 1 6 , 1 9 5 3 , 9 1 - 4 3 7 , 5 1 4 3 7 , 5 1 - - - - 2 1 0 , 2 6 4 7 , 7 1 - - - - - 4 6 4 - 4 6 4 4 6 4 - - - - - - - - - - - - - - - 5 1 6 , 8 0 6 - 5 1 6 , 8 0 6 5 1 6 , 8 0 6 4 6 4 0 0 0 ’ $ 0 0 0 ’ $ 5 1 6 , 8 0 6 I L A T P A C I S T F O R P E V R E S E R I Y T U Q E I D E T U B R T N O C 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 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 e u s s i s t h g i r e c n a m r o f r e P : s r e n w o s a y t i c a p a c s s o l i e v s n e h e r p m o c r e h t O d o i r e p e h t r o f t i f o r p t e N 9 1 0 2 l y u J 8 2 t A l e b a y a p d n a i d a p s d n e d v D i i 0 2 0 2 y l u J 5 2 t a s a e c n a l a B 5 1 B S A A f o n o i t a c i l p p a l a i t i n i n o t t n e m e a t s e R 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 l a t o T 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 8 1 0 2 l y u J 9 2 t a s a e c n a a b l t d e a t s e R e m o c n i i e v s n e h e r p m o c r e h t O d o i r e p e h t r o f t i f o r p t e N d e u s s i s t h g i r e c n a m r o f r e P : s r e n w o s a y t i c a p a c i d a p s d n e d v D i i 4 6 4 5 1 6 , 8 0 6 9 1 0 2 y l u J 7 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 s e t o n i g n y n a p m o c c a e h T W O L F H S A C E C N A M R O F R E P I D E T A D L O S N O C 9 1 0 2 Y 9 L 1 U 0 J 2 7 y 2 l u D J N 7 A 2 0 d 2 n 0 a 2 0 Y 2 L 0 U 2 J y 5 l u 2 J D 5 E 2 D d N e E d n S e K E s k E e W e w 2 5 2 E 5 H e T h t R r O o F f I I y t i u q E Y T s U e Q g E n N a S h E C G N A f H o C t F n O e T m N E M e E t T a A t T S S NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) 9 3 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 25 July 2020. The financial report was authorised for issue in accordance with a resolution of the Directors on 1 October 2020. 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 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 (iv) Capital invested: Provides information on the capital invested which allows the Group to generate its generate the Group’s performance. 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 28 July 2019 to 25 July 2020. 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. (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). 39 40 Premier Investments Limited NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 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 25 July 2020. The financial report was authorised for issue in accordance with a resolution of the Directors on 1 October 2020. 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 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 28 July 2019 to 25 July 2020. 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. (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). 40 40 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (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 27. 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, 28 July 2019 to 25 July 2020, represents 52 weeks and the comparative reporting period is from 29 July 2018 to 27 July 2019 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. During the second half of the 2020 financial year, the Group’s operations were impacted as a direct result of the ongoing COVID-19 pandemic. In particular, the Group experienced a disruption to trading conditions, mainly due to widespread temporary retail store closures. In respect of the financial statements for the 2020 financial year, the impact of COVID-19 is particularly relevant to estimates of future performance. This, in turn, has an impact on areas of impairment of assets as well as the estimation of the expected lease term of retail store leases in holdover. The extent of the impact of the pandemic on future trading performance is unclear, and estimations in this environment entail a great degree of uncertainty. In response to these estimation uncertainties, key assumptions have been critically assessed and incorporate the possibility of continued COVID-19 restrictions and regulations, along with the Group’s proposed responses in these circumstances. Assumptions have been based on management’s best estimates and information available in respect of conditions that existed at the reporting date, amidst a once in a century global health crisis. 41 41 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (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. (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- (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 current. 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. - - - - - - 42 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (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. (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. 42 42 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (i) GOODS AND SERVICES TAX (GST), INCLUDING OTHER VALUE-ADDED TAXES (continued) the use of hindsight in determining the lease term where the contract contains options to extend or 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. (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 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 Group has adopted the Interpretation from 28 July 2019, with no material impact on the consolidated financial statements of the Group. AASB 16 Leases The Group has adopted AASB 16 Leases from 28 July 2019, which replaces AASB 117 Leases and related interpretations. AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model. The impact of the adoption of AASB 16 on the Group’s financial statements and a summary of the new accounting policies that have been applied from 28 July 2019 have been noted below. (i) Initial application and nature of the effect of adoption of AASB16 Prior to the adoption of AASB 16, the Group classified leases of property, plant and equipment as operating leases under AASB 117. Payments made under operating leases were expensed in profit or loss in the statement of comprehensive income on a straight-line basis over the lease term. Operating lease incentives were recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and a reduction of the liability, over the term of the store lease to which it related. Upon the adoption of AASB 16, the Group recognises lease liabilities in relation to its contracted obligation to make future lease payments, and a right-of-use asset representing the future economic benefit associated with the right to use the underlying asset. The Group recognises a lease liability and a right-of- use asset for all leases where it is the lessee, except for leases of low-value assets. The Group has adopted AASB 16 using a modified retrospective approach. Under the transition provisions of the Standard, comparative information has not been restated and continues to be reported under AASB 117. As at 28 July 2019 (being the date of initial application), the Group has measured the right-of-use asset at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately prior to the date of initial application. The Group recognised lease liabilities in relation to leases which had previously been classified as operating leases under AASB 117. The Group has measured these lease liabilities at the present value of the remaining future lease payments, discounted using the Group’s weighted average incremental borrowing rate of 3.15% as at 28 July 2019. In applying AASB 16 for the first time, the Group has applied the following practical expedients permitted by the Standard: - - 43 the use of a single discount rate to a portfolio of leases with reasonably similar characteristics; reliance on previous assessments on whether leases are onerous immediately before the date of initial application as an alternative to performing an impairment review; 43 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (j) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED) (i) Initial application and nature of the effect of adoption of AASB16 (continued) the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial AASB 16 Leases (continued) - - application, and; terminate the lease. The following table summarises the impact of adopting AASB 16 on the Group’s Statement of Financial Position on adoption at 28 July 2019 for each of the line items affected: AASB 117 (PREVIOUS STANDARD) $’000 CONSOLIDATED ADJUSTMENTS $’000 AASB 16 (ADOPTED STANDARD) $’000 1,768,723 364,643 364,643 364,643 2,133,366 ASSETS Right-of-use asset TOTAL ASSETS LIABILITIES Current liabilities Other current liabilities Lease liability Total current liabilities Non-current liabilities Other non-current liabilities Lease liability Total non-current liabilities TOTAL LIABILITIES NET ASSETS - - - 26,529 144,919 29,137 274,518 419,437 1,349,286 Operating lease expenditure commitments as disclosed in the financial statements for the 52 weeks ended 27 July 2019 can be reconciled to the lease liabilities recognised in the statement of financial position as at 28 July 2019 as follows: Operating lease commitments disclosed as at 27 July 2019 Impact of discounting using the Group’s weighted average incremental borrowing Adjustments for changes in leases (reasonably certain options, leases in holdover) Total lease liability recognised as at 28 July 2019 Comprising of: Current lease liability Non-current lease liability Total lease liability recognised as at 28 July 2019 (16,738) 177,086 160,348 (28,812) 233,107 204,295 364,643 - 1,349,286 CONSOLIDATED 9,791 177,086 305,267 325 233,107 478,813 784,080 $’000 304,969 (20,405) 125,629 410,193 177,086 233,107 410,193 44 Premier Investments Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (j) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED) AASB 16 Leases (continued) (i) Initial application and nature of the effect of adoption of AASB16 (continued) - - the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and; the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The following table summarises the impact of adopting AASB 16 on the Group’s Statement of Financial Position on adoption at 28 July 2019 for each of the line items affected: ASSETS Right-of-use asset TOTAL ASSETS LIABILITIES Current liabilities Other current liabilities Lease liability Total current liabilities Non-current liabilities Other non-current liabilities Lease liability Total non-current liabilities TOTAL LIABILITIES NET ASSETS AASB 117 (PREVIOUS STANDARD) $’000 CONSOLIDATED ADJUSTMENTS $’000 AASB 16 (ADOPTED STANDARD) $’000 - 1,768,723 364,643 364,643 364,643 2,133,366 26,529 - 144,919 29,137 - 274,518 419,437 1,349,286 (16,738) 177,086 160,348 (28,812) 233,107 204,295 364,643 9,791 177,086 305,267 325 233,107 478,813 784,080 - 1,349,286 Operating lease expenditure commitments as disclosed in the financial statements for the 52 weeks ended 27 July 2019 can be reconciled to the lease liabilities recognised in the statement of financial position as at 28 July 2019 as follows: Operating lease commitments disclosed as at 27 July 2019 Impact of discounting using the Group’s weighted average incremental borrowing Adjustments for changes in leases (reasonably certain options, leases in holdover) Total lease liability recognised as at 28 July 2019 Comprising of: Current lease liability Non-current lease liability Total lease liability recognised as at 28 July 2019 CONSOLIDATED $’000 304,969 (20,405) 125,629 410,193 177,086 233,107 410,193 44 44 Annual Report 2020 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (j) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED) AASB 16 Leases (continued) (i) Initial application and nature of the effect of adoption of AASB16 (continued) As at 25 July 2020, the right-of-use asset amounted to $231.8 million and the total lease liability amounted to $303.9 million in the statement of financial position as a result of applying AASB 16 in the current financial year. Furthermore, for the 52 weeks ended 25 July 2020 the Group has recognised depreciation and interest expense, instead of operating lease expenses in relation to leases under AASB 16. For the 52 weeks ended 25 July 2020, the Group recognised $172.7 million of depreciation charges and $11.1 million of interest expenses in the statement of other comprehensive income in relation to leases. (ii) Summary of new accounting policies The Group has applied the practical expedient where non-lease components are not separated out from the lease components of a lease. The below sets out a summary of the new accounting policies under AASB 16. Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease, being the date that the underlying asset is available for use. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date of the lease less any lease incentives received and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment. Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate initially measured using the index or rate as at the commencement date, and amount expected to be paid under residual value guarantees. The variable lease payments which are not included in the measurement of the lease liability are recognised as an expense in the period on which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date, if the rate implicit in the lease cannot be readily determined, using inputs such as government bond rates for the lease period and the Group’s expected borrowing margin. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments, a change in the assessment to purchase the underlying asset, or a change in the amounts expected to be payable under a residual value guarantee. Leases of low-value assets The Group applies the low-value assets recognition exemption to leases of certain office equipment that are considered of low value. Lease payments on low-value assets are recognised as a lease expense on a straight-line basis over the lease term. 45 45 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (j) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED) AASB 16 Leases (continued) (ii) Summary of new accounting policies (continued) Significant judgement in determining the lease term The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After the lease commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew. Where a lease enters holdover, the Group estimates the expected lease term based on reasonably certain information available as at balance date. Any adjustments required due to changes in estimates or entering into a new lease agreement are recognised in the period in which the adjustments are made. Significant judgement in determining the incremental borrowing rate The Group has applied judgement to determine the incremental borrowing rate, which affects the amount of lease liabilities and right-of-use assets recognised. The Group assesses and applies the incremental borrowing rate on a lease by lease basis at the relevant lease commencement date, based on the term of the lease. The incremental borrowing rate is determined using inputs including the Group’s expected lending facility margin and applicable government bond rates at the time of entering into the lease, which reflects the expected lease term. 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, have not been early adopted by the Group for the reporting period ended 25 July 2020. The Group does not anticipate that the below amended standards and interpretations will have a material impact on the Group: AASB 2019-1: Amendments to Australian Accounting Standards: References to Conceptual Framework; - - and AASB 2018-7: Amendments to Australian Accounting Standards: Definition of Material. 46 Premier Investments Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) 2 OTHER SIGNIFICANT GROUP ACCOUNTING POLICIES (CONTINUED) (j) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (CONTINUED) AASB 16 Leases (continued) (ii) Summary of new accounting policies (continued) Significant judgement in determining the lease term The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After the lease commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew. Where a lease enters holdover, the Group estimates the expected lease term based on reasonably certain information available as at balance date. Any adjustments required due to changes in estimates or entering into a new lease agreement are recognised in the period in which the adjustments are made. Significant judgement in determining the incremental borrowing rate The Group has applied judgement to determine the incremental borrowing rate, which affects the amount of lease liabilities and right-of-use assets recognised. The Group assesses and applies the incremental borrowing rate on a lease by lease basis at the relevant lease commencement date, based on the term of the lease. The incremental borrowing rate is determined using inputs including the Group’s expected lending facility margin and applicable government bond rates at the time of entering into the lease, which reflects the expected lease term. 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, have not been early adopted by the Group for the reporting period ended 25 July 2020. The Group does not anticipate that the below amended standards and interpretations will have a material impact on the Group: - - AASB 2019-1: Amendments to Australian Accounting Standards: References to Conceptual Framework; and AASB 2018-7: Amendments to Australian Accounting Standards: Definition of Material. 46 46 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (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 25 July 2020 and 27 July 2019. 47 47 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP PERFORMANCE 3 OPERATING SEGMENTS (CONTINUED) (A) OPERATING SEGMENTS RETAIL INVESTMENT ELIMINATION CONSOLIDATED 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 REVENUE AND OTHER INCOME Revenue from contracts Interest revenue Other revenue Other income Total revenue and other with customers 1,216,316 1,270,958 - - 1,216,316 1,270,958 159 147 14,296 270 184 487 15,886 2,131 3,616 2,290 3,886 53,027 98,038 (53,000) (98,000) 174 30,182 222 487 income 1,230,918 1,271,899 71,044 101,654 (53,000) (98,000) 1,248,962 1,275,553 Total revenue per the statement of comprehensive income 1,248,962 1,275,553 RESULTS Depreciation and amortisation Impairment – property, Depreciation – right-of- use asset Impairment – right-of- use asset Interest expense Share of profit of associate Profit before income tax expense Income tax expense plant and equipment 31,254 355 31,254 355 42,337 50,592 1,368 1,368 43,705 51,960 - - - 175,932 2,420 - - (3,251) 172,681 - - 2,420 14,057 4,808 2,879 2,879 (220) 16,716 7,687 - - 17,696 18,906 - 17,696 18,906 165,776 136,667 82,343 113,322 (52,920) (98,247) 195,199 151,742 Net profit after tax per the statement of comprehensive income (57,446) (44,935) 137,753 106,807 - - - - - - - - - - - - - - - - - - - RETAIL INVESTMENT ELIMINATION CONSOLIDATED 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 ASSETS AND LIABILITIES Segment assets 970,254 537,684 1,381,509 1,324,521 (149,231) (93,482) 2,202,532 1,768,723 Segment liabilities 733,215 299,299 242,195 130,636 (120,326) (10,498) 855,084 419,437 Capital expenditure 19,024 25,457 - - - - 19,024 25,457 48 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP PERFORMANCE 3 OPERATING SEGMENTS (CONTINUED) (A) OPERATING SEGMENTS RETAIL INVESTMENT ELIMINATION CONSOLIDATED 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 REVENUE AND OTHER INCOME Revenue from contracts with customers 1,216,316 1,270,958 - - 159 147 14,296 270 184 487 2,131 3,616 - - - 1,216,316 1,270,958 - 2,290 3,886 53,027 98,038 (53,000) (98,000) 174 15,886 - - - 30,182 222 487 Interest revenue Other revenue Other income Total revenue and other income 1,230,918 1,271,899 71,044 101,654 (53,000) (98,000) 1,248,962 1,275,553 Total revenue per the statement of comprehensive income 1,248,962 1,275,553 RESULTS Depreciation and amortisation Impairment – property, 42,337 50,592 1,368 1,368 plant and equipment 31,254 355 - - (3,251) - - - - - - - - - - - - 43,705 51,960 31,254 355 172,681 2,420 - - 16,716 7,687 175,932 2,420 - - 14,057 4,808 2,879 2,879 (220) - - 17,696 18,906 - - 17,696 18,906 165,776 136,667 82,343 113,322 (52,920) (98,247) 195,199 151,742 Depreciation – right-of- use asset Impairment – right-of- use asset 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 (57,446) (44,935) 137,753 106,807 RETAIL INVESTMENT ELIMINATION CONSOLIDATED 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 ASSETS AND LIABILITIES Segment assets 970,254 537,684 1,381,509 1,324,521 (149,231) (93,482) 2,202,532 1,768,723 Segment liabilities 733,215 299,299 242,195 130,636 (120,326) (10,498) 855,084 419,437 Capital expenditure 19,024 25,457 - - - - 19,024 25,457 48 48 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) GROUP PERFORMANCE 3 OPERATING SEGMENTS (CONTINUED) (B) GEOGRAPHIC AREAS OF OPERATION AUSTRALIA NEW ZEALAND ASIA EUROPE ELIMINATION CONSOLIDATED 4 REVENUE AND OTHER INCOME 2020 $’000 2020 $’000 2020 $’000 2020 $’000 2020 $’000 2020 $’000 Revenue from contracts with customers 1,216,316 1,270,958 REVENUE AND OTHER INCOME Revenue from contracts with customers 929,747 126,507 Other revenue and income 49,250 6 61,709 14,594 98,353 - 1,216,316 296 (31,500) 32,646 Total revenue and other income 978,997 126,513 76,303 98,649 (31,500) 1,248,962 Segment non-current assets 1,420,303 33,522 17,767 47,281 37,386 1,556,259 Capital expenditure 15,633 2,221 1,139 31 - 19,024 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 1,276,270 10,828 9,738 29,455 37,194 1,363,485 Capital expenditure 14,250 3,424 387 7,396 - 25,457 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP PERFORMANCE (Disaggregated revenue from contracts with customers is presented in Note 3B, Operating Segments) REVENUE OTHER REVENUE Membership program fees Sundry revenue Interest received TOTAL OTHER REVENUE TOTAL REVENUE OTHER INCOME Net gain from settlement of cash flow hedges Gain on investment in associate resulting from equity raising Other TOTAL OTHER INCOME CONSOLIDATED 2020 $’000 2019 $’000 1,218,780 1,275,066 144 30 2,290 2,464 13,207 15,886 1,089 30,182 179 43 3,886 4,108 - - 487 487 TOTAL REVENUE AND OTHER INCOME 1,248,962 1,275,553 REVENUE RECOGNITION ACCOUNTING POLICY Revenue recognition occurs at the point in time when control of the goods is transferred to the customer, generally at the point of sale or on delivery of the goods. 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. 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. 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. The Group recognises a contract liability upon the sale of gift cards and subsequently derecognises the liability when gift card breakage occurs. 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. 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. 49 49 50 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP PERFORMANCE 4 REVENUE AND OTHER INCOME REVENUE CONSOLIDATED 2020 $’000 2019 $’000 Revenue from contracts with customers 1,216,316 1,270,958 (Disaggregated revenue from contracts with customers is presented in Note 3B, Operating Segments) OTHER REVENUE Membership program fees Sundry revenue Interest received TOTAL OTHER REVENUE TOTAL REVENUE OTHER INCOME Net gain from settlement of cash flow hedges Gain on investment in associate resulting from equity raising Other TOTAL OTHER INCOME 144 30 2,290 2,464 179 43 3,886 4,108 1,218,780 1,275,066 13,207 15,886 1,089 30,182 - - 487 487 TOTAL REVENUE AND OTHER INCOME 1,248,962 1,275,553 REVENUE RECOGNITION ACCOUNTING POLICY Revenue recognition occurs at the point in time when control of the goods is transferred to the customer, generally at the point of sale or on delivery of the goods. 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. 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. 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. The Group recognises a contract liability upon the sale of gift cards and subsequently derecognises the liability when gift card breakage occurs. 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. 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. 50 50 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) GROUP PERFORMANCE CONSOLIDATED NOTES 2020 $’000 2019 $’000 5 EXPENSES LEASE RENTAL EXPENSES Variable lease expenses Other lease expenses NET LEASE RENTAL EXPENSES DEPRECIATION, AMORTISATION AND IMPAIRMENT OF NON-CURRENT ASSETS Depreciation of property, plant and equipment Depreciation of right-of-use assets Impairment of right-of-use asset Impairment of property, plant and equipment Amortisation of leasehold premiums TOTAL DEPRECIATION, AMORTISATION AND IMPAIRMENT OF NON-CURRENT ASSETS 17 12 12 17 18 FINANCE COSTS Interest on lease liabilities Interest on bank loans and overdraft TOTAL FINANCE COSTS OTHER EXPENSES INCLUDE: Net loss on disposal of property, plant and equipment United Kingdom – other expenses associated with review of lease break options 17 EMPLOYEE EXPENSES 12,011 5,521 17,532 43,682 172,681 2,420 31,254 23 19,935 204,458 224,393 51,935 - - 355 25 250,060 52,315 (b) STATEMENT OF CHANGES IN EQUITY Deferred income tax related to items credited directly to equity: 11,080 5,636 16,716 982 - - 7,687 7,687 728 4,837 The Group’s absolute priority during this time has been the safety and wellbeing of its team members and the broader community. With this in mind, the Group made the very difficult decision to temporarily shut down its global operations on 26 March 2020 and stand down over 9,000 employees. At that time, there was no certainty of when global stores would be able to reopen, and no wage subsidy scheme was in existence in Australia. The financial impact of COVID-19 was most severe for the period 11 March 2020 to 15 May 2020, when global sales were down $131.1 million on the prior year comparable period, with retail store sales down 78.4%. Due to the devastating impact on Group sales resulting from the COVID-19 health crisis, the Group became eligible for $68.7 million of global wage subsidies across seven countries (of which $49 million was received as at 25 July 2020). Of the total amount, $35.5 million was passed directly through to eligible employees unable to work. In addition, in Australia, many of the Group’s casual and part time work force received subsidy payments in excess of their normal working arrangements in accordance with the rules of the government scheme. The funds received were used to support standing up the Group’s employees as stores gradually re-opened under COVID-19 safe plans. This ensured that the Group was able to fulfill the government’s objectives of keeping people in jobs and connected to their employees in the midst of a global pandemic. 51 51 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP PERFORMANCE 5 EXPENSES (CONTINUED) EMPLOYEE EXPENSES (CONTINUED) Government grants are recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. The Government wage subsidies are recorded as a reduction in employee expenses in the statement of comprehensive income. 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 DEFERRED INCOME TAX Adjustment in respect of current income tax of previous years CONSOLIDATED 2020 $’000 2019 $’000 68,047 (479) 47,530 1,065 Relating to origination and reversal of temporary differences (10,122) (3,660) INCOME TAX EXPENSE REPORTED IN THE STATEMENT OF COMPREHENSIVE INCOME 57,446 44,935 Net deferred income tax on movements on cash-flow hedges (2,964) (2,381) Net deferred income tax on unrealised gain (loss) on listed equity investment at fair value INCOME TAX BENEFIT REPORTED IN EQUITY (8,623) (11,587) 1,857 (524) (c) RECONCILIATION BETWEEN TAX EXPENSE AND THE ACCOUNTING PROFIT BEFORE TAX MULTIPLIED BY THE GROUP’S APPLICABLE AUSTRALIAN INCOME TAX RATE Accounting profit before income tax At the Parent Entity’s statutory income tax rate of 30% (2019: 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 Effect of tax losses not recognised Income not assessable for tax purposes Other AGGREGATE INCOME TAX EXPENSE 195,199 151,742 58,560 (479) 544 2,203 693 (4,175) 100 57,446 45,523 1,065 2,700 (574) - (3,717) (62) 44,935 52 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP PERFORMANCE 5 EXPENSES (CONTINUED) EMPLOYEE EXPENSES (CONTINUED) Government grants are recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be complied with. The Government wage subsidies are recorded as a reduction in employee expenses in the statement of comprehensive income. 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 CONSOLIDATED 2020 $’000 2019 $’000 68,047 (479) 47,530 1,065 Relating to origination and reversal of temporary differences (10,122) (3,660) INCOME TAX EXPENSE REPORTED IN THE STATEMENT OF COMPREHENSIVE INCOME 57,446 44,935 (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 (2,964) (2,381) Net deferred income tax on unrealised gain (loss) on listed equity investment at fair value INCOME TAX BENEFIT REPORTED IN EQUITY (8,623) (11,587) 1,857 (524) (c) RECONCILIATION BETWEEN TAX EXPENSE AND THE ACCOUNTING PROFIT BEFORE TAX MULTIPLIED BY THE GROUP’S APPLICABLE AUSTRALIAN INCOME TAX RATE Accounting profit before income tax 195,199 151,742 At the Parent Entity’s statutory income tax rate of 30% (2019: 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 Effect of tax losses not recognised Income not assessable for tax purposes Other AGGREGATE INCOME TAX EXPENSE 58,560 (479) 544 2,203 693 (4,175) 100 57,446 45,523 1,065 2,700 (574) - (3,717) (62) 44,935 52 52 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (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 Lease arrangements Deferred income and deferred rent Employee provisions Other receivables and prepayments Property, plant and equipment Impairment of store plant and equipment Other provisions Other NET DEFERRED TAX ASSETS (LIABILITIES) REFLECTED IN THE STATEMENT OF FINANCIAL POSITION AS FOLLOWS: Deferred tax assets Deferred tax liabilities NET DEFERRED TAX ASSETS (LIABILITIES) INCOME TAX ACCOUNTING POLICY CONSOLIDATED 2020 $’000 2019 $’000 1,162 (30,654) 1,910 878 11,001 - 7,519 (1,679) (3,195) 6,822 3,461 4,272 1,497 66,924 (65,427) 1,497 634 (35,087) (1,083) 498 - 11,113 6,707 (2,831) (4,935) - - 1,489 (23,495) 40,380 (63,875) (23,495) 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. 53 53 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP PERFORMANCE 6 INCOME TAX (CONTINUED) INCOME TAX ACCOUNTING POLICY (CONTINUED) 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. 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 it is probable that future taxable profits will be available to utilise those temporary differences. 54 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP PERFORMANCE 6 INCOME TAX (CONTINUED) INCOME TAX ACCOUNTING POLICY (CONTINUED) 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. 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 it is probable that future taxable profits will be available to utilise those temporary differences. 54 54 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) GROUP PERFORMANCE 6 INCOME TAX (CONTINUED) KEY ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) 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 together with future tax planning strategies. 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 2020 $’000 2019 $’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 137,753 106,807 Weighted average number of ordinary shares used in calculating: - basic earnings per share - diluted earnings per share NUMBER OF SHARES ‘000 NUMBER OF SHARES ‘000 158,540 159,134 158,209 158,969 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. NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP PERFORMANCE 8 A) DIVIDENDS DIVIDENDS APPROVED AND/ OR PAID Approved during the year: Interim franked dividends: 2020 Approved: 34 cents per share 2019 Approved and paid: 33 cents per share Paid during the year: Final franked dividends for 2019: 37 cents per share (2018: 33 cents) TOTAL APPROVED AND/ OR PAID DURING THE YEAR DIVIDENDS APPROVED AND NOT RECOGNISED AS A LIABILITY: Final franked dividend for 2020: 36 cents per share (2019: 37 cents) CONSOLIDATED 2020 $’000 2019 $’000 53,966 - - 52,282 58,636 112,602 52,201 104,483 CONSOLIDATED 2020 $’000 2019 $’000 196,701 208,467 17,761 6,965 (47,630) 166,832 (25,122) 190,310 The Directors of Premier Investments Limited approved a final dividend in respect of the 2020 financial year. The total amount of the dividend is $57,141,000 (2019: $58,636,000) which represents a fully franked dividend of 36 cents per share (2019: 37 cents per share). The 2020 interim dividend is payable on 30 September 2020. 57,141 58,636 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% (2019: 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 The tax rate at which paid dividends have been franked is 30% (2019: 30%). Dividends proposed will be franked at the rate of 30% (2019: 30%). 55 55 56 Premier Investments Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP PERFORMANCE 8 A) DIVIDENDS DIVIDENDS APPROVED AND/ OR PAID Approved during the year: Interim franked dividends: 2020 Approved: 34 cents per share 2019 Approved and paid: 33 cents per share Paid during the year: Final franked dividends for 2019: 37 cents per share (2018: 33 cents) TOTAL APPROVED AND/ OR PAID DURING THE YEAR DIVIDENDS APPROVED AND NOT RECOGNISED AS A LIABILITY: Final franked dividend for 2020: 36 cents per share (2019: 37 cents) CONSOLIDATED 2020 $’000 2019 $’000 53,966 - - 52,282 58,636 112,602 52,201 104,483 57,141 58,636 The Directors of Premier Investments Limited approved a final dividend in respect of the 2020 financial year. The total amount of the dividend is $57,141,000 (2019: $58,636,000) which represents a fully franked dividend of 36 cents per share (2019: 37 cents per share). The 2020 interim dividend is payable on 30 September 2020. 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% (2019: 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 2020 $’000 2019 $’000 196,701 208,467 17,761 6,965 (47,630) 166,832 (25,122) 190,310 The tax rate at which paid dividends have been franked is 30% (2019: 30%). Dividends proposed will be franked at the rate of 30% (2019: 30%). 56 56 Annual Report 2020 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) OPERATING ASSETS AND LIABILITIES OPERATING ASSETS AND LIABILITIES 9 TRADE AND OTHER RECEIVABLES (CURRENT) Sundry debtors TOTAL CURRENT TRADE AND OTHER RECEIVABLES 30,320 30,320 23,011 23,011 11 OTHER ASSETS (CURRENT) Deposits and prepayments TOTAL OTHER CURRENT ASSETS CONSOLIDATED 2020 $’000 2019 $’000 (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 25 July 2020 (2019: $nil). During the year, no bad debt expense (2019: $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 their transaction 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 2020 $’000 2019 $’000 156,590 156,590 171,165 171,165 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. CONSOLIDATED 2020 $’000 2019 $’000 10,531 10,531 14,688 14,688 364,643 43,700 (172,681) (2,420) (1,452) 231,790 - - - - - - 12 RIGHT-OF-USE ASSETS Recognition of right-of-use asset on initial application of AASB 16 Additions Depreciation expense Impairment expense Exchange differences TOTAL RIGHT-OF-USE ASSETS RIGHT-OF-USE ASSETS ACCOUNTING POLICY As summarised in note 2, the Group has adopted AASB 16 Leases as of 28 July 2019 using the modified retrospective approach. The new accounting policies under AASB 16 have been summarised in note 2. KEY ACCOUNTING ESTIMATES AND ASSUMPTIONS Impairment of right-of-use assets The carrying values of the right-of-use assets 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. The recoverable amount was estimated on an individual store basis, as this has been identified as the CGU of the Group’s retail segment. An impairment loss of $2,420,000 was recognised in relation to the Group’s right-of-use assets during the current financial year. The impairment loss relates to the closure of certain retail stores ahead of their contracted lease end dates, therefore writing down the associated right-of-use assets to their recoverable amount. 57 57 58 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) OPERATING ASSETS AND LIABILITIES 11 OTHER ASSETS (CURRENT) Deposits and prepayments TOTAL OTHER CURRENT ASSETS 12 RIGHT-OF-USE ASSETS Recognition of right-of-use asset on initial application of AASB 16 Additions Depreciation expense Impairment expense Exchange differences TOTAL RIGHT-OF-USE ASSETS CONSOLIDATED 2020 $’000 2019 $’000 10,531 10,531 14,688 14,688 364,643 43,700 (172,681) (2,420) (1,452) 231,790 - - - - - - RIGHT-OF-USE ASSETS ACCOUNTING POLICY As summarised in note 2, the Group has adopted AASB 16 Leases as of 28 July 2019 using the modified retrospective approach. The new accounting policies under AASB 16 have been summarised in note 2. KEY ACCOUNTING ESTIMATES AND ASSUMPTIONS Impairment of right-of-use assets The carrying values of the right-of-use assets 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. The recoverable amount was estimated on an individual store basis, as this has been identified as the CGU of the Group’s retail segment. An impairment loss of $2,420,000 was recognised in relation to the Group’s right-of-use assets during the current financial year. The impairment loss relates to the closure of certain retail stores ahead of their contracted lease end dates, therefore writing down the associated right-of-use assets to their recoverable amount. 58 58 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) OPERATING ASSETS AND LIABILITIES 13 TRADE AND OTHER PAYABLES (CURRENT) Trade creditors Interim dividend payable Other creditors and accruals TOTAL CURRENT TRADE AND OTHER PAYABLES (a) Fair values CONSOLIDATED 2020 $’000 2019 $’000 69,637 53,966 85,376 208,979 35,281 - 46,657 81,938 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. The interim dividend is payable on 30 September 2020. 14 LEASE LIABILITIES Recognition of lease liability on initial application of AASB 16 Additions Interest expense Payments COVID-19 related rent concessions Exchange rate differences TOTAL LEASE LIABILITIES COMPRISING OF: Current lease liability Non-current lease liability TOTAL LEASE LIABILITIES CONSOLIDATED 2020 $’000 2019 $’000 410,193 50,315 11,080 (150,958) (15,013) (1,728) 303,889 189,221 114,668 303,889 - - - - - - - - - - LEASE LIABILITIES ACCOUNTING POLICY As summarised in note 2, the Group has adopted AASB 16 Leases as of 28 July 2019 using the modified retrospective approach. The new accounting policies under AASB 16 have been summarised in note 2. COVID-19 RELATED RENT CONCESSIONS The Group has adopted the practical expedient issued by the Australian Accounting Standards Board whereby it has not accounted for rent concessions which are a direct consequence of the COVID-19 pandemic as lease modifications. Instead, the Group recognised these concessions in the statement of comprehensive income for the year ended 25 July 2020 as a variable amount as and when incurred. 59 59 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) OPERATING ASSETS AND LIABILITIES 14 LEASE LIABILITIES (CONTINUED) COVID-19 RELATED RENT CONCESSIONS (continued) The practical expedient may be applied where the following conditions apply: The changed lease payments were substantially the same or less than the payments prior to the rent concession; - - - The reductions only affect payments which fall due before 30 June 2021; and There has been no substantive change in the terms and conditions of the lease. CONSOLIDATED 2020 $’000 2019 $’000 15 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 MOVEMENT IN PROVISIONS Provision for make-good in relation to leased premises Opening balance Charged to profit or loss Utilised during the period CLOSING BALANCE (CURRENT AND NON-CURRENT) 12,591 9,297 13,091 2,088 1,230 38,297 2,061 4,764 3,778 10,603 6,087 11,988 (220) 17,855 12,518 8,159 695 2,088 421 23,881 2,285 5,392 3,788 11,465 6,087 - - 6,087 60 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) OPERATING ASSETS AND LIABILITIES 14 LEASE LIABILITIES (CONTINUED) COVID-19 RELATED RENT CONCESSIONS (continued) The practical expedient may be applied where the following conditions apply: - - - The changed lease payments were substantially the same or less than the payments prior to the rent concession; The reductions only affect payments which fall due before 30 June 2021; and There has been no substantive change in the terms and conditions of the lease. 15 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 MOVEMENT IN PROVISIONS Provision for make-good in relation to leased premises Opening balance Charged to profit or loss Utilised during the period CLOSING BALANCE (CURRENT AND NON-CURRENT) CONSOLIDATED 2020 $’000 2019 $’000 12,591 9,297 13,091 2,088 1,230 38,297 2,061 4,764 3,778 10,603 6,087 11,988 (220) 17,855 12,518 8,159 695 2,088 421 23,881 2,285 5,392 3,788 11,465 - 6,087 - 6,087 60 60 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) OPERATING ASSETS AND LIABILITIES 15 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. NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) OPERATING ASSETS AND LIABILITIES 16 OTHER LIABILITIES CURRENT Deferred income TOTAL CURRENT NON-CURRENT Deferred income TOTAL NON-CURRENT CONSOLIDATED 2020 $’000 2019 $’000 8,588 8,588 146 146 26,529 26,529 29,137 29,137 DEFERRED INCOME ACCOUNTING POLICY Unredeemed gift cards are expected to be redeemed within a year. Deferred lease incentives and deferred rent included in prior comparative amounts The prior year comparative amounts include lease incentives and deferred rent in relation to operating lease expenses. Upon the adoption of AASB 16, the Group adjusted the right-of-use asset by the amount of accrued lease payments, lease incentives and deferred rent recognised in the statement of financial position immediately prior to the date of initial application. Prior to the adoption of AASB 16, lease incentives have been capitalised in the financial statements when received and was credited to rent expense over the term of the store lease to which they related. Operating lease expenses were recognised on a straight-line basis over the lease term, which included the impact of annual fixed rate percentage increases. 61 61 62 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) OPERATING ASSETS AND LIABILITIES 16 OTHER LIABILITIES CURRENT Deferred income TOTAL CURRENT NON-CURRENT Deferred income TOTAL NON-CURRENT CONSOLIDATED 2020 $’000 2019 $’000 8,588 8,588 146 146 26,529 26,529 29,137 29,137 DEFERRED INCOME ACCOUNTING POLICY Unredeemed gift cards are expected to be redeemed within a year. Deferred lease incentives and deferred rent included in prior comparative amounts The prior year comparative amounts include lease incentives and deferred rent in relation to operating lease expenses. Upon the adoption of AASB 16, the Group adjusted the right-of-use asset by the amount of accrued lease payments, lease incentives and deferred rent recognised in the statement of financial position immediately prior to the date of initial application. Prior to the adoption of AASB 16, lease incentives have been capitalised in the financial statements when received and was credited to rent expense over the term of the store lease to which they related. Operating lease expenses were recognised on a straight-line basis over the lease term, which included the impact of annual fixed rate percentage increases. 62 62 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) CAPITAL INVESTED 17 PROPERTY, PLANT AND EQUIPMENT CONSOLIDATED as follows: AT 25 JULY 2020 Cost Accumulated depreciation and impairment NET CARRYING AMOUNT RECONCILIATIONS: Carrying amount at beginning of the financial year Additions Transfers between classes Depreciation Disposals Impairment Exchange differences Carrying amount at end of the financial year AT 27 JULY 2019 Cost Accumulated depreciation and impairment LAND $’000 BUILDINGS $’000 PLANT AND EQUIPMENT $’000 LEASED PLANT AND EQUIPMENT $’000 CAPITAL WORKS IN PROGRESS $’000 TOTAL $’000 21,953 54,720 500,069 343 11,460 588,545 - (5,865) (427,203) (343) - (433,411) 21,953 48,855 72,866 21,953 50,223 128,702 - - - - - - - - 15,696 1,845 (1,368) (42,314) - - - (982) (31,254) 1,173 21,953 48,855 72,866 - - - - - - - - - 11,460 155,134 9,977 3,328 (1,845) - - - - 210,855 19,024 - (43,682) (982) (31,254) 1,173 11,460 155,134 21,953 54,720 482,337 343 9,977 569,330 Group’s review of its United Kingdom lease break options amounted to $4.8 million and have been disclosed - (4,497) (353,635) (343) - (358,475) NET CARRYING AMOUNT 21,953 50,223 128,702 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 LAND AND BUILDINGS 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 12,070 238,167 1,845 (3,938) - - - - - 25,457 - (30,914) (21,021) (1,631) (355) 1,152 9,977 210,855 shop online in this highly uncertain macro-environment. The land and buildings with a combined carrying amount of $70,808,000 have been pledged to secure certain interest-bearing borrowings of the Group (refer to note 22). 63 63 64 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL INVESTED 17 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) 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 - - - Buildings 40 years Store plant and equipment 3 to 10 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). 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. In the prior year, as a result of the 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. The changed method resulted in an accelerated depreciation charge in the previous financial year of $21.0 million. Other expenses associated with the as “other expenses” in the prior year (refer note 5). Impairment testing of Property, Plant and Equipment and key 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 estimated 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. 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. A total impairment loss of $31,254,000 was recognised during the current financial year (2019: $355,000). The COVID-19 health crisis has accelerated the retail industry restructure already underway. The temporary global closures of stores and ongoing government implementation of social distancing measures due to COVID-19 has significantly impacted customer shopping behaviour. Customers are increasingly choosing to Premier Investments Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL INVESTED 17 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) 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 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). 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. In the prior year, as a result of the 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. The changed method resulted in an accelerated depreciation charge in the previous 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” in the prior year (refer note 5). Impairment testing of Property, Plant and Equipment and key 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 estimated 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. 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. A total impairment loss of $31,254,000 was recognised during the current financial year (2019: $355,000). The COVID-19 health crisis has accelerated the retail industry restructure already underway. The temporary global closures of stores and ongoing government implementation of social distancing measures due to COVID-19 has significantly impacted customer shopping behaviour. Customers are increasingly choosing to shop online in this highly uncertain macro-environment. 64 64 Annual Report 2020 NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) CAPITAL INVESTED 17 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Impairment testing of Property, Plant and Equipment and key accounting estimates and assumptions (continued) Given these changed consumer behaviours, the Group reviewed each retail store’s future estimated cash flows, using financial estimates covering a period of up to five years, discounted using a post-tax discount rate of 10.5% (2019: 10.5%). These estimated cash flows consider the possibility of a continued adverse impact on future estimated cash flows as a result of the COVID-19 pandemic. Furthermore, consideration was given to the fact that the Group has maximum flexibility within its current retail store portfolio, given that over 70% of its Australian and New Zealand store leases are currently in holdover, or are due to expire within 2020. As a result of the uncertain future trading environment of traditional bricks-and-mortar stores due to COVID-19, together with the accelerating growth of the online channel the Group has recognised an impairment loss on store plant and equipment during the second half of the year of $26,229,000. 18 INTANGIBLES RECONCILIATION OF CARRYING AMOUNTS AT THE BEGINNING AND END OF THE PERIOD YEAR ENDED 25 JULY 2020 As at 28 July 2019 net of accumulated amortisation and impairment Trademark registrations Amortisation Exchange differences As at 25 July 2020 net of accumulated amortisation and impairment CONSOLIDATED GOODWILL $’000 BRAND NAMES $’000 TRADEMARKS $’000 LEASEHOLD PREMIUMS $’000 TOTAL $’000 477,085 - 346,179 - - - - - 3,351 273 - - 24 - (23) (1) 826,639 273 (23) (1) 477,085 346,179 3,624 - 826,888 AS AT 25 JULY 2020 Cost (gross carrying amount) Accumulated amortisation and impairment NET CARRYING AMOUNT 477,085 - 477,085 376,179 (30,000) 346,179 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 AS AT 27 JULY 2019 Cost (gross carrying amount) Accumulated amortisation and impairment NET CARRYING AMOUNT 3,624 - 3,624 2,638 713 - - 979 (979) - 857,867 (30,979) 826,888 47 - (25) 2 825,949 713 (25) 2 477,085 346,179 - - - - - - 477,085 346,179 3,351 24 826,639 477,085 - 477,085 376,179 (30,000) 346,179 3,351 - 3,351 979 (955) 24 857,594 (30,955) 826,639 65 65 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL INVESTED 18 INTANGIBLES (CONTINUED) GOODWILL ACCOUNTING POLICY (CONTINUED) 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. 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 Indefinite Finite Indefinite Method used? Not amortised or revalued Not amortised or revalued Amortised over the term of the lease Acquired Acquired Acquired Annually or more Amortisation method Annually or more frequently if there are reviewed at each financial frequently if there are indicators of impairment year end; reviewed 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. Useful life assessment? Internally generated or acquired? Impairment test/recoverable amount testing 66 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL INVESTED 18 INTANGIBLES (CONTINUED) GOODWILL ACCOUNTING POLICY (CONTINUED) 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. 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? Acquired Acquired Acquired Impairment test/recoverable amount testing Annually or more frequently if there are indicators of impairment Amortisation method reviewed at each financial year end; reviewed annually for indicators of impairment Annually or more frequently if there are 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. 66 66 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) CAPITAL INVESTED 18 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 COVID-19 pandemic has had a significant impact on the recent trading performance of the Group. The extent of the impact of the pandemic on future trading performance is unclear, and an assessment of the impacts as they relate to estimated future cash flow projections entail a significant degree of estimation uncertainty. In response to these estimation uncertainties, the recoverable amount of the CGU has been determined based upon a range of value-in-use calculations, using estimated cash flow scenarios for a period of five years plus a terminal value. The value-in-use calculations have been determined based on scenarios of cash flows using financial estimates for the 2021 financial year (FY21) and are projected for a further four years (FY22 – FY25) based on estimated growth rates. As part of the annual impairment test for goodwill, management assesses the reasonableness of profit margin assumptions by reviewing historical cash flow projections as well as future growth objectives. The financial estimates for FY21 include a COVID-19 overlay, whereby the cash flow estimates have been adjusted to reflect the possibility of a continued adverse impact in FY21 on the Group’s Sales and Earnings Before Interest, Tax and Amortisation (EBITA). These financial estimates are projected for a further four years based on average annual estimated growth rates for FY22 to FY25 ranging between 0.6% to 1.6% (2019: 2.5%). Cash flow estimates beyond the five year period have been extrapolated using a growth rate ranging from 2% to 2.5% (2019: 2.8%), which reflects the long-term growth expectations beyond the five year period. The post-tax discount rate applied to these cash flow projections is 9.5% (2019: 9.7%). 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. In determining the possible scenarios of cash flows, management considered the reasonably possible changes in estimated sales growth, estimated EBITA and discount rates applied to the CGU to which goodwill relates. These reasonably possible adverse change in 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 67 67 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL INVESTED 18 INTANGIBLES (CONTINUED) IMPAIRMENT TESTING OF BRAND NAMES (CONTINUED) The recoverable amounts of brand names acquired in a business combination have been determined on an individual brand basis based upon value-in-use calculations. The value-in-use calculations have been determined based upon the relief from royalty method using cash flow estimates for a period of five years plus a terminal value The COVID-19 pandemic has had a significant impact on the recent trading performance of the Group as a whole, as well as on an individual brand level. The extent of the impact of the pandemic on future trading performance is unclear, and an assessment of the impacts as they relate to estimated future cash flow projections entail a significant degree of estimation uncertainty. In response to these estimation uncertainties, the recoverable amount of brand names has been determined based upon a range of value-in-use calculations, using estimated cash flow scenarios for a period of five years plus a terminal value. The value-in-use calculations have been determined based on scenarios of cash flows using financial estimates for the 2021 financial year (FY21) and are projected for a further four years (FY22 – FY25) based on estimated growth rates. The financial estimates for FY21 include a COVID-19 overlay, whereby the cash flow estimates have been adjusted to reflect the possibility of a continued adverse impact in FY21 in relation to sales. These financial estimates are projected for a further four years based on average annual estimated growth rates for FY22 to FY25. These extrapolated growth rate ranges at which cash flows have been estimated for the individual brands within each of the CGU groups have been summarised below. CGU RANGE OF AVERAGE GROWTH RATES APPLIED TO ESTIMATED CASH FLOW SCENARIOS (FY22 – FY25) Casual wear 0.6% - 2.5% Women’s wear 0.6% - 6.1% Non Apparel 0.6% - 3% The range of growth rates are a function of the COVID-19 overlay included in FY21 financial estimates. The higher end of the above growth rate ranges reflects the impact of COVID-19 on FY20 performance, widespread store closures experienced during FY20, and economic conditions. These growth rates incorporate a cautious estimated return to pre-COVID-19 average sales levels for individual brands within each CGU by FY23. Cash flow estimates beyond the five year period have been extrapolated using a growth rate ranging from 2% to 2.5% (2019: 2.8%), which reflects the long-term growth expectations beyond the five year period. The post-tax discount rate applied to the cash flow projections for each of the three CGU groups is 8.5% (2019: 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% (2019: 3.5% and 8%). 68 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL INVESTED 18 INTANGIBLES (CONTINUED) IMPAIRMENT TESTING OF BRAND NAMES (CONTINUED) The recoverable amounts of brand names acquired in a business combination have been determined on an individual brand basis based upon value-in-use calculations. The value-in-use calculations have been determined based upon the relief from royalty method using cash flow estimates for a period of five years plus a terminal value The COVID-19 pandemic has had a significant impact on the recent trading performance of the Group as a whole, as well as on an individual brand level. The extent of the impact of the pandemic on future trading performance is unclear, and an assessment of the impacts as they relate to estimated future cash flow projections entail a significant degree of estimation uncertainty. In response to these estimation uncertainties, the recoverable amount of brand names has been determined based upon a range of value-in-use calculations, using estimated cash flow scenarios for a period of five years plus a terminal value. The value-in-use calculations have been determined based on scenarios of cash flows using financial estimates for the 2021 financial year (FY21) and are projected for a further four years (FY22 – FY25) based on estimated growth rates. The financial estimates for FY21 include a COVID-19 overlay, whereby the cash flow estimates have been adjusted to reflect the possibility of a continued adverse impact in FY21 in relation to sales. These financial estimates are projected for a further four years based on average annual estimated growth rates for FY22 to FY25. These extrapolated growth rate ranges at which cash flows have been estimated for the individual brands within each of the CGU groups have been summarised below. CGU RANGE OF AVERAGE GROWTH RATES APPLIED TO ESTIMATED CASH FLOW SCENARIOS (FY22 – FY25) Casual wear 0.6% - 2.5% Women’s wear 0.6% - 6.1% Non Apparel 0.6% - 3% The range of growth rates are a function of the COVID-19 overlay included in FY21 financial estimates. The higher end of the above growth rate ranges reflects the impact of COVID-19 on FY20 performance, widespread store closures experienced during FY20, and economic conditions. These growth rates incorporate a cautious estimated return to pre-COVID-19 average sales levels for individual brands within each CGU by FY23. Cash flow estimates beyond the five year period have been extrapolated using a growth rate ranging from 2% to 2.5% (2019: 2.8%), which reflects the long-term growth expectations beyond the five year period. The post-tax discount rate applied to the cash flow projections for each of the three CGU groups is 8.5% (2019: 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% (2019: 3.5% and 8%). 68 68 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) CAPITAL INVESTED 18 INTANGIBLES (CONTINUED) IMPAIRMENT TESTING OF BRAND NAMES (CONTINUED) In addition to the range of cash flow scenarios, 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 estimate sales growth, net royalty rates and discount rates applied. A brand within the Casual Wear CGU group with a carrying value of $82.2 million, indicated sensitivity to possible adverse changes to the post-tax discount rate applied to the cash flow estimates, as well as indicating sensitivity to a possible adverse change in long-term growth expectations. The sensitivities included reducing the long-term growth expectation to 2% and increasing the post-tax discount rate applied to cash flow estimates to 8.7%. These reasonably possible adverse changes could result in a potential impairment of up to $5 million. The potential impairment loss as a result of the reasonably possible adverse change to these key assumptions are not considered material to the overall recoverable amount of the CGU to which the brand relates. In addition, a brand within the Women’s Wear CGU group with a carrying value of $31.7 million, indicated sensitivity to possible adverse changes to the post-tax discount rate applied to the cash flow estimates, as well as indicating sensitivity to a possible adverse change in long-term growth expectations. The sensitivities included reducing the long-term growth expectation to 2% and increasing the post-tax discount rate applied to cash flow estimates to 8.7%. These reasonably possible adverse changes could result in a potential impairment of up to $2 million. The potential impairment loss as a result of the reasonably possible adverse change to these key assumptions are not considered material to the overall recoverable amount of the CGU to which the brand relates. 19 LISTED EQUITY INVESTMENT AT FAIR VALUE INVESTMENT Investment in listed securities at fair value TOTAL INVESTMENTS CONSOLIDATED 2020 $’000 2019 $’000 18,132 18,132 46,879 46,879 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. NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL INVESTED 20 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 Gain resulting from associate equity raising Share of other comprehensive income Dividends received TOTAL INVESTMENT IN ASSOCIATE CONSOLIDATED 2020 $’000 2019 $’000 238,732 - 17,696 15,886 (688) (14,235) 257,391 223,184 7,872 18,906 - 1,424 (12,654) 238,732 As at 25 July 2020, Premier Investments Limited holds 26.73% (2019: 28.06%) 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. 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 $17,695,527 (2019: $18,905,536). As at 25 July 2020, the fair value of the Group’s interest in BRG as determined based on the quoted market price was $947,893,002 (2019: $691,666,245). 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 2020 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. 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 2020 $’000 30 JUNE 2019 $’000 Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities NET ASSETS 443,328 200,836 644,164 (181,517) (36,247) (217,764) 426,400 367,988 141,779 509,767 (143,400) (56,032) (199,432) 310,335 Group’s share of BRG net assets 113,977 87,080 EXTRACT OF BRG’S STATEMENT OF COMPREHENSIVE INCOME Revenue Profit after income tax Other comprehensive income 30 JUNE 2020 $’000 30 JUNE 2019 $’000 952,244 66,201 62 759,967 67,385 6,839 Group’s share of BRG profit after income tax 17,696 18,906 69 69 70 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL INVESTED 20 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 Gain resulting from associate equity raising Share of other comprehensive income Dividends received TOTAL INVESTMENT IN ASSOCIATE CONSOLIDATED 2020 $’000 2019 $’000 238,732 - 17,696 15,886 (688) (14,235) 257,391 223,184 7,872 18,906 - 1,424 (12,654) 238,732 As at 25 July 2020, Premier Investments Limited holds 26.73% (2019: 28.06%) 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. 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 $17,695,527 (2019: $18,905,536). As at 25 July 2020, the fair value of the Group’s interest in BRG as determined based on the quoted market price was $947,893,002 (2019: $691,666,245). 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 2020 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. 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 2020 $’000 30 JUNE 2019 $’000 Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities NET ASSETS 443,328 200,836 644,164 (181,517) (36,247) (217,764) 426,400 367,988 141,779 509,767 (143,400) (56,032) (199,432) 310,335 Group’s share of BRG net assets 113,977 87,080 EXTRACT OF BRG’S STATEMENT OF COMPREHENSIVE INCOME Revenue Profit after income tax Other comprehensive income 30 JUNE 2020 $’000 30 JUNE 2019 $’000 952,244 66,201 62 759,967 67,385 6,839 Group’s share of BRG profit after income tax 17,696 18,906 70 70 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) CAPITAL INVESTED 20 INVESTMENT IN ASSOCIATE (CONTINUED) 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. NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 21 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 of non-current assets Share of profit of associate Gain on investment in associate resulting from equity raising 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 in trade and other receivables Decrease in other current assets Decrease (increase) in inventories Decrease in other financial assets Increase in deferred tax assets Increase in provisions Increase (decrease) in deferred tax liabilities Increase (decrease) in trade and other payables Increase in other financial liabilities (Decrease) increase in deferred income Increase in income tax payable NET CASH FLOWS FROM OPERATING ACTIVITIES CONSOLIDATED 2020 $’000 2019 $’000 305,960 142,872 448,832 59,426 130,829 190,255 137,753 106,807 23 216,363 33,674 (17,696) (15,886) 166 982 1,613 (6,922) 188 (7,309) 4,157 14,575 6,119 (16,626) 1,786 1,552 73,075 3,776 (1,382) 53,601 483,582 25 51,935 355 (18,906) - (191) 728 2,012 (5,556) 2,078 (733) 635 (11,852) 5,854 (4,262) 5,897 (58) (2,620) 2,123 1,919 2,624 138,814 71 71 72 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 21 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 of non-current assets Share of profit of associate Gain on investment in associate resulting from equity raising 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 in trade and other receivables Decrease in other current assets Decrease (increase) in inventories Decrease in other financial assets Increase in deferred tax assets Increase in provisions Increase (decrease) in deferred tax liabilities Increase (decrease) in trade and other payables Increase in other financial liabilities (Decrease) increase in deferred income Increase in income tax payable NET CASH FLOWS FROM OPERATING ACTIVITIES CONSOLIDATED 2020 $’000 2019 $’000 305,960 142,872 448,832 59,426 130,829 190,255 137,753 106,807 23 216,363 33,674 (17,696) (15,886) 166 982 1,613 (6,922) 188 (7,309) 4,157 14,575 6,119 (16,626) 1,786 1,552 73,075 3,776 (1,382) 53,601 483,582 25 51,935 355 (18,906) - (191) 728 2,012 (5,556) 2,078 (733) 635 (11,852) 5,854 (4,262) 5,897 (58) (2,620) 2,123 1,919 2,624 138,814 72 72 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT CAPITAL STRUCTURE AND RISK MANAGEMENT 21 NOTES TO THE STATEMENT OF CASH FLOWS 22 INTEREST-BEARING LIABILITIES CONSOLIDATED 2020 $’000 2019 $’000 (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 - 9,800 9,800 147,000 82,000 229,000 - 200 200 6,169 6,831 13,000 153,169 98,831 252,000 - 11,800 11,800 168,000 61,000 229,000 - 200 200 7,588 5,412 13,000 175,588 78,412 254,000 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. CONSOLIDATED 2020 $’000 2019 $’000 77,659 69,000 146,659 98,493 69,000 167,493 NON-CURRENT Bank loans* unsecured Bank loans ** secured TOTAL INTEREST-BEARING LIABILITIES * 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. The carrying values of the Group’s current and non-current interest-bearing liabilities approximate their fair (a) Fair values 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 CONSOLIDATED 27 JULY 2019 $’000 CASH FLOWS $’000 OTHER $’000 25 JULY 2020 $’000 Non-current interest-bearing liabilities TOTAL INTEREST-BEARING LIABILITIES 167,493 167,493 (21,000) (21,000) 166 166 146,659 146,659 ‘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. 73 73 74 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 22 INTEREST-BEARING LIABILITIES NON-CURRENT Bank loans* unsecured Bank loans ** secured TOTAL INTEREST-BEARING LIABILITIES CONSOLIDATED 2020 $’000 2019 $’000 77,659 69,000 146,659 98,493 69,000 167,493 * 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 CONSOLIDATED 27 JULY 2019 $’000 CASH FLOWS $’000 OTHER $’000 25 JULY 2020 $’000 Non-current interest-bearing liabilities TOTAL INTEREST-BEARING LIABILITIES 167,493 167,493 (21,000) (21,000) 166 166 146,659 146,659 ‘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. 74 74 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT CAPITAL STRUCTURE AND RISK MANAGEMENT CONSOLIDATED 2020 $’000 2019 $’000 CONSOLIDATED 2020 $’000 2019 $’000 23 CONTRIBUTED EQUITY Ordinary share capital 608,615 608,615 (a) MOVEMENTS IN SHARES ON ISSUE Ordinary shares on issue 28 July 2019 Ordinary shares issued during the year (i) Ordinary shares on issue at 25 July 2020 Ordinary shares on issue 29 July 2018 Ordinary shares issued during the year (i) Ordinary shares on issue at 27 July 2019 NO. (‘000) $‘000 158,430 294 158,724 158,099 331 158,430 608,615 - 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 294,579 ordinary shares (2019: 330,112) 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 Group. 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 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. 24 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 Reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an CLOSING BALANCE (b) CASH FLOW HEDGE RESERVE Nature and purpose of reserve effective hedge. - Movements in the reserve Opening balance Net loss on cash flow hedges Transferred to statement of financial position/ profit or loss Deferred income tax movement on cash flow hedges CLOSING BALANCE 464 5,781 (4,419) 19,359 (59,032) (37,847) 7,337 (868) (688) 5,781 2,503 (3,387) (6,499) 2,964 (4,419) 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 75 75 76 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 24 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 on cash flow hedges Transferred to statement of financial position/ profit or loss Deferred income tax movement on cash flow hedges CLOSING BALANCE CONSOLIDATED 2020 $’000 2019 $’000 464 5,781 (4,419) 19,359 (59,032) (37,847) 7,337 (868) (688) 5,781 2,503 (3,387) (6,499) 2,964 (4,419) 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 76 76 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT CAPITAL STRUCTURE AND RISK MANAGEMENT 24 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 (loss) gain on revaluation of listed investment at fair value Net deferred income tax movement on listed equity investment at fair value CLOSING BALANCE CONSOLIDATED 2020 $’000 2019 $’000 17,746 1,613 19,359 15,734 2,012 17,746 (38,908) (43,243) (28,747) 6,192 8,623 (59,032) (1,857) (38,908) 25 OTHER FINANCIAL INSTRUMENTS CURRENT ASSETS Derivatives designated as hedging instruments Forward currency contracts – cash flow hedges TOTAL CURRENT ASSETS CURRENT LIABILITIES Derivatives designated as hedging instruments Forward currency contracts – cash flow hedges TOTAL CURRENT LIABILITIES NON –CURRENT LIABILITIES Derivatives designated as hedging instruments Interest rate swaps – cash flow hedges TOTAL NON-CURRENT LIABILITIES CONSOLIDATED 2020 $’000 2019 $’000 - - 6,119 6,119 4,008 4,008 2,316 2,316 - - 2,548 2,548 (a) DERIVATIVE INSTRUMENTS USED BY THE GROUP (i) Forward currency contracts – cash flow hedges 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 25 July 2020 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. 77 77 78 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 25 OTHER FINANCIAL INSTRUMENTS CURRENT ASSETS Derivatives designated as hedging instruments Forward currency contracts – cash flow hedges TOTAL CURRENT ASSETS CURRENT LIABILITIES Derivatives designated as hedging instruments Forward currency contracts – cash flow hedges TOTAL CURRENT LIABILITIES NON –CURRENT LIABILITIES Derivatives designated as hedging instruments Interest rate swaps – cash flow hedges TOTAL NON-CURRENT LIABILITIES CONSOLIDATED 2020 $’000 2019 $’000 - - 6,119 6,119 4,008 4,008 2,316 2,316 - - 2,548 2,548 (a) DERIVATIVE INSTRUMENTS USED BY THE GROUP (i) Forward currency contracts – cash flow hedges 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 25 July 2020 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. 78 78 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) CAPITAL STRUCTURE AND RISK MANAGEMENT 25 OTHER FINANCIAL INSTRUMENTS (CONTINUED) (a) DERIVATIVE INSTRUMENTS USED BY THE GROUP (CONTINUED) At reporting date, the details of outstanding forward currency contracts are: CONSOLIDATED 2020 $’000 2019 $’000 2020 2019 NOTIONAL AMOUNTS $AUD AVERAGE EXCHANGE RATE 128,198 114,909 114,426 - 0.6938 0.7049 0.7292 - NOTIONAL AMOUNTS $NZD AVERAGE EXCHANGE RATE 21,876 21,149 19,892 10,585 0.6479 0.6573 0.6863 0.6707 NOTIONAL AMOUNTS £GBP AVERAGE EXCHANGE RATE - - 7,762 - - - 1.2509 - NOTIONAL AMOUNTS $NZD AVERAGE EXCHANGE RATE 4,602 4,465 1.0365 1.0455 NOTIONAL AMOUNTS $SGD AVERAGE EXCHANGE RATE bearing liabilities. - - 6,352 - - - 0.7415 - 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 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 25 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. 26 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- 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. 79 79 80 Premier Investments Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 25 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. 26 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. 80 80 Annual Report 2020 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) Notes to the Financial Statements for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) CAPITAL STRUCTURE AND RISK MANAGEMENT 26 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 25 July 2020, the maximum exposure to credit risk of the Group is the amount guaranteed as disclosed in note 34. 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: CONSOLIDATED FOREIGN OPERATIONS Financial Assets Cash and cash equivalents Financial Liabilities Bank loans AUD NET FINANCIAL ASSETS NOTES 21 22 2020 $’000 448,832 448,832 146,659 146,659 302,173 2019 $’000 190,255 190,255 167,493 167,493 22,762 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. 81 81 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 26 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) INTEREST RATE RISK (CONTINUED) i) Interest rate sensitivity 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 (2019:100) 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: 2020 $000 1,934 (2,552) 2019 $000 55 (159) 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. to in the next twelve months. - The net exposure at reporting date is representative of what the Group was and is expecting to be exposed - 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. 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. 82 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 26 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 (2019:100) 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: 2020 $000 1,934 (2,552) 2019 $000 55 (159) 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. 82 82 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 26 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT FOREIGN CURRENCY RISK 26 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) The following sensitivity is based on the foreign exchange risk exposures in existence at the reporting date: 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): 2020 CONSOLIDATED FINANCIAL ASSETS USD NZD SGD GBP HKD $’000 $’000 $’000 $’000 $’000 MYR $’000 EUR $’000 Cash and cash equivalents 14,076 27,477 14,787 12,669 1,802 5,124 904 Trade and other receivables Derivative financial assets 755 - - - 48 - - - - - - - - - 14,831 27,477 14,835 12,669 1,802 5,124 904 FINANCIAL LIABILITIES Trade and other payables 44,954 5,876 191 3,297 Derivative financial liabilities 4,008 - - - 48,962 5,876 191 3,297 257 - 257 - - - - - - NET EXPOSURE (34,131) 21,601 14,644 9,372 1,545 5,124 904 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 6,119 3,312 3,160 10,387 906 14,734 1,129 - - - - - - - - - - - - 11,866 3,312 3,160 10,387 906 14,734 1,129 to meet medium term requirements, with flexibility and headroom to make acquisitions for cash in the Trade and other payables 21,518 3,135 Derivative financial liabilities - - 21,518 3,135 565 - 565 286 - 286 NET EXPOSURE (9,652) 177 2,595 10,101 134 - 134 772 - - - - - - 14,734 1,129 83 83 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% POST-TAX PROFIT HIGHER/(LOWER) OTHER COMPREHENSIVE INCOME HIGHER/(LOWER) 2020 $000 (5,015) 21,836) 2019 $000 (862) 15,620 2020 $000 685 (3,129) (527) 3,285 (357) 1,627 (229) 1,041 (50) 229 (125) 569 (22) 100 2019 $000 376 (1,596) 2 (162) (63) 288 (224) 1,020 (26) 116 (1,021) 883 (28) 121 - - - - - - - - - - - - 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 event an opportunity should arise. - - - - - - - - - - - - 84 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 26 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% 2020 $000 685 (3,129) (527) 3,285 (357) 1,627 (229) 1,041 (50) 229 (125) 569 (22) 100 2019 $000 376 (1,596) 2 (162) (63) 288 (224) 1,020 (26) 116 (1,021) 883 (28) 121 2020 $000 (5,015) 21,836) 2019 $000 (862) 15,620 - - - - - - - - - - - - - - - - - - - - - - - - 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. 84 84 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) CAPITAL STRUCTURE AND RISK MANAGEMENT 26 FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (CONTINUED) LIQUIDITY RISK (CONTINUED) The Group has, at reporting date, $306.0 million (2019: $59.4 million) cash held in deposit with 11am at call and the remaining $142.8 million (2019: $130.8 million) cash held in deposit with maturity terms ranging from 30 to 90 days (2019: 30 to 180 days). Hence management believe there is no significant exposure to liquidity risk at 25 July 2020 and 27 July 2019. 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: 2020 CONSOLIDATED FINANCIAL LIABILITIES Trade and other payables Bank loans Lease liabilities Forward currency contracts 2019 CONSOLIDATED FINANCIAL LIABILITIES Trade and other payables Bank loans Forward currency contracts MATURITY 0 - 12 MONTHS MATURITY > 12 MONTHS $’000 $’000 208,979 - 189,221 283,742 681,942 - 146,659 114,668 - 261,327 MATURITY 0 - 12 MONTHS MATURITY > 12 MONTHS $’000 $’000 81,938 - - 167,493 175,163 257,101 - 167,493 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. 85 85 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 26 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 The following table provides the fair value measurement hierarchy of the Group’s financial assets and market data. liabilities: FINANCIAL YEAR ENDED 25 JULY 2020 FINANCIAL YEAR ENDED 27 JULY 2019 CONSOLIDATED 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 18,132 46,879 - Foreign Exchange Contracts - 6,119 18,132 46,879 6,119 - - - 2,316 4,008 6,324 - - - - - - - - - - - - - 2,548 - 2,548 FINANCIAL LIABILITIES Interest Rate Swaps Foreign Exchange Contracts There have been no transfers between Level 1, Level 2 and Level 3 during the financial year. At 25 July 2020 and 27 July 2019, 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. - - - - - - 86 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) CAPITAL STRUCTURE AND RISK MANAGEMENT 26 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: FINANCIAL YEAR ENDED 25 JULY 2020 FINANCIAL YEAR ENDED 27 JULY 2019 CONSOLIDATED 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 18,132 Foreign Exchange Contracts - 18,132 - - - FINANCIAL LIABILITIES Interest Rate Swaps Foreign Exchange Contracts - - - 2,316 4,008 6,324 - - - - - - 46,879 - - 6,119 46,879 6,119 - - - 2,548 - 2,548 - - - - - - There have been no transfers between Level 1, Level 2 and Level 3 during the financial year. At 25 July 2020 and 27 July 2019, 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. 86 86 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) GROUP STRUCTURE 27 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) NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP STRUCTURE 28 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. 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 2020 INTEREST 100% 100% 100% 100% 100% 2019 INTEREST 100% 100% 100% 100% 100% Australia Australia Australia Australia Australia 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% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% (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 2020 $’000 2019 $’000 608,615 608,615 225,111 1,461,108 114,731 190,029 4,442 19,359 (449) 639,112 78,319 (628) 164,212 1,383,336 7,780 78,958 5,129 17,746 (508) 673,395 113,008 1,002 Net profit for the period Total comprehensive (loss) income for the period, net of tax (b) Guarantees entered into by the parent entity The parent entity has provided no financial guarantees in respect of bank overdrafts and loans of subsidiaries (2019: $nil). The parent entity has also given no unsecured guarantees in respect of finance leases of subsidiaries or bank overdrafts of subsidiaries (2019: $nil). (c) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 25 July 2020 (2019: $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 25 July 2020 or 27 July 2019. 87 87 88 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) GROUP STRUCTURE 28 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 (loss) income for the period, net of tax (b) Guarantees entered into by the parent entity 2020 $’000 2019 $’000 225,111 1,461,108 114,731 190,029 164,212 1,383,336 7,780 78,958 608,615 608,615 4,442 19,359 (449) 639,112 78,319 (628) 5,129 17,746 (508) 673,395 113,008 1,002 The parent entity has provided no financial guarantees in respect of bank overdrafts and loans of subsidiaries (2019: $nil). The parent entity has also given no unsecured guarantees in respect of finance leases of subsidiaries or bank overdrafts of subsidiaries (2019: $nil). (c) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 25 July 2020 (2019: $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 25 July 2020 or 27 July 2019. 88 88 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) GROUP STRUCTURE 29 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. 30 RELATED PARTY TRANSACTIONS (a) PARENT ENTITY AND SUBSIDIARIES The ultimate parent entity is Premier Investments Limited. Details of subsidiaries are provided in note 28. (b) KEY MANAGEMENT PERSONNEL COMPENSATION FOR KEY MANAGEMENT PERSONNEL Short-term employee benefits Post-employment benefits Share-based payments TOTAL CONSOLIDATED 2020 $ 2019 $ 6,828,408 113,168 504,722 7,446,298 6,743,844 129,875 1,185,719 8,059,438 (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 $2,396,209 (2019: $1,797,386), including Mr. Lanzer's Director fees, GST and disbursements were invoiced by Arnold Bloch Leibler to the Group, with $713,866 (2019: $30,445) 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 $223,293 (2019: $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 $17,273,036 (2019: $22,842,474) including GST have been made by Group companies from Voyager Distributing Co. Pty Ltd, Playcorp Pty Ltd and Sky Chain Trading Limited, with $4,058,067 (2019: $1,882,897) 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 $512,600 (2019: $518,650) costs including GST incurred by Century Plaza Trading Pty Ltd. NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) OTHER DISCLOSURES 31 AUDITOR’S REMUNERATION The auditor of Premier Investments Limited is Ernst & Young (Australia). Amounts received, or due and receivable, by Ernst & Young (Australia) for: Audit or review of the statutory financial report of the parent covering the group and auditing the statutory financial reports of any controlled entities Other assurance services or agreed-upon-procedures under other legislation or contractual arrangements not required to be performed by the auditor Other non-audit services SUB-TOTAL Amounts received, or due and receivable, by overseas member firms of Ernst & Young (Australia) for: Audit of the financial report of any controlled entities TOTAL AUDITOR’S REMUNERATION 32 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 2020 $ 2019 $ 804,262 608,982 38,696 29,144 872,102 100,432 40,695 750,109 225,209 1,097,311 201,407 951,516 CONSOLIDATED 2020 $’000 1,613 2019 $’000 2,012 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. 89 89 90 Premier Investments LimitedNOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) OTHER DISCLOSURES 31 AUDITOR’S REMUNERATION The auditor of Premier Investments Limited is Ernst & Young (Australia). Amounts received, or due and receivable, by Ernst & Young (Australia) for: Audit or review of the statutory financial report of the parent covering the group and auditing the statutory financial reports of any controlled entities Other assurance services or agreed-upon-procedures under other legislation or contractual arrangements not required to be performed by the auditor Other non-audit services SUB-TOTAL Amounts received, or due and receivable, by overseas member firms of Ernst & Young (Australia) for: Audit of the financial report of any controlled entities TOTAL AUDITOR’S REMUNERATION 32 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 2020 $ 2019 $ 804,262 608,982 38,696 29,144 872,102 100,432 40,695 750,109 225,209 1,097,311 201,407 951,516 CONSOLIDATED 2020 $’000 1,613 2019 $’000 2,012 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. 90 90 Annual Report 2020NOTES TO THE FINANCIAL STATEMENTS Notes to the Financial Statements FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) for the 52 weeks ended 25 July 2020 and 27 July 2019 (continued) OTHER DISCLOSURES 32 SHARE-BASED PAYMENT PLANS (CONTINUED) (b) TYPE OF SHARE-BASED PAYMENT PLANS (CONTINUED) Performance rights (continued) 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 the Monte-Carlo simulation pricing model 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. 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) 24/02/2016 26/04/2016 10/04/2017 19/02/2018 12/04/2019 01/05/2020 NUMBER OF RIGHTS GRANTED 123,647 1,000,000 120,124 148,237 124,472 544,809 SHARE ISSUE PRICE OPTION LIFE DIVIDEND YIELD VOLATILITY RISK-FREE RATE FAIR VALUE $12.89 $9.88 $15.70 $12.91 $18.18 2.6 years 3-6 years 2.5 years 2.5 years 2.5 years $13.21 2.5 – 4 years 5% 5.5% 5% 3.4% 3.4% 3.5% 40% 30% 30% 16% 30% 36% 1.75% $12.89 2.06% 1.79% 2.14% 1.44% 0.40% $9.96 $6.89 $7.85 $6.81 $8.33 (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 (i) Forfeited during the year Exercised during the year (ii) Expired during the year Balance at the end of the year 2020 No. 615,637 544,809 - (294,579) (52,457) 813,410 2020 WAEP 2019 No. 2019 WAEP - - - - - - 862,271 124,472 (15,878) (330,112) (25,116) 615,637 - - - - - - (i) The 544,809 performance rights granted in relation to the grant date 1 May 2020 were issued since the end of the financial year, but before the date of this report. No other performance rights were granted since the end of the financial year but up to the date of this report. (ii) The weighted average share price at the date of exercise of rights exercised during the year was $15.86 (2019: $16.78). 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 forfeited and no performance rights have expired. 91 91 NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) OTHER DISCLOSURES 32 SHARE-BASED PAYMENT PLANS (CONTINUED) (d) WEIGHTED AVERAGE FAIR VALUE The weighted average fair value of performance rights granted during the year was $8.33 (2019: $6.81). 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: the grant date fair value of the award, the extent to which the vesting period has expired, and 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. 33 EVENTS AFTER THE REPORTING DATE The Directors of Premier Investments Limited approved a final dividend in respect of the 2020 financial year. The total amount of the dividend is $57,141,000 (2019: $58,636,000) which represents a fully franked dividend of 36 cents per share (2019: 37 cents per share). The Group temporarily closed all of its 165 Melbourne metropolitan stores to customers from 8 July 2020, in direct response to the Victorian Government’s COVID-19 directive whereby Stage 3 “stay at home” restrictions were reinstated. As of 5 August 2020, the Victorian Government introduced Stage 4 restrictions across metropolitan Melbourne for a period of at least 6 weeks. As a result, these Melbourne metropolitan stores remain temporarily closed. In response to the Victorian Government directives, all 47 regional Victorian stores were temporarily closed from 4 August 2020 and reopened on 14 September 2020. 34 CONTINGENT LIABILITIES The Group has bank guarantees and outstanding letters of credit totalling $6,168,632 (2019: $7,587,926). 92 Premier Investments Limited NOTES TO THE FINANCIAL STATEMENTS FOR THE 52 WEEKS ENDED 25 JULY 2020 AND 27 JULY 2019 (CONTINUED) OTHER DISCLOSURES 32 SHARE-BASED PAYMENT PLANS (CONTINUED) (d) WEIGHTED AVERAGE FAIR VALUE The weighted average fair value of performance rights granted during the year was $8.33 (2019: $6.81). 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: the grant date fair value of the award, the extent to which the vesting period has expired, and 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. 33 EVENTS AFTER THE REPORTING DATE The Directors of Premier Investments Limited approved a final dividend in respect of the 2020 financial year. The total amount of the dividend is $57,141,000 (2019: $58,636,000) which represents a fully franked dividend of 36 cents per share (2019: 37 cents per share). The Group temporarily closed all of its 165 Melbourne metropolitan stores to customers from 8 July 2020, in direct response to the Victorian Government’s COVID-19 directive whereby Stage 3 “stay at home” restrictions were reinstated. As of 5 August 2020, the Victorian Government introduced Stage 4 restrictions across metropolitan Melbourne for a period of at least 6 weeks. As a result, these Melbourne metropolitan stores remain temporarily closed. In response to the Victorian Government directives, all 47 regional Victorian stores were temporarily closed from 4 August 2020 and reopened on 14 September 2020. 34 CONTINGENT LIABILITIES The Group has bank guarantees and outstanding letters of credit totalling $6,168,632 (2019: $7,587,926). 92 92 Annual Report 2020 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 25 July 2020 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 25 July 2020 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 25 July 2020. On behalf of the Board Solomon Lew Chairman 1 October 2020 93 93 Ernst & Young 8 Exhibition Street Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 Melbourne VIC 3000 Australia ey.com/au GPO Box 67 Melbourne VIC 3001 Independent Auditor's Report to the Members of Premier Investments Report on the Audit of the Financial 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 position as at 25 July 2020, 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' In our opinion, the accompanying financial report of the Group is in accordance with the Corporations giving a true and fair view of the consolidated financial position of the Group as at 25 July 2020 and of its consolidated financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Limited Opinion Declaration. Act 2001, including: a) b) Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We 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 Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis the Code. for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current 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. 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 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 accompanying financial report. Premier Investments Limited 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 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 25 July 2020, 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. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) b) giving a true and fair view of the consolidated financial position of the Group as at 25 July 2020 and of its consolidated financial performance for the year ended on that date; and 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 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 Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. 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 judgement, 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. 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 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 accompanying financial report. 94 Annual Report 2020 Independent Auditor’s Report continued 1. Carrying value of intangible assets 1. Carrying value of intangible assets Why significant Why significant As at 25 July 2020 the Group held $826.6 million (or 37.8% of total assets) in goodwill and As at 25 July 2020 the Group held $826.6 indefinite-life brand names recognised from million (or 37.8% of total assets) in goodwill and historical business combinations. indefinite-life brand names recognised from As outlined in Note 18 of the financial report, the historical business combinations. goodwill and brand names are tested by the As outlined in Note 18 of the financial report, the Group for impairment annually. goodwill and brand names are tested by the The recoverable amount of these assets was Group for impairment annually. determined based on a value in use model The recoverable amount of these assets was referencing discounted cash flows of the retail determined based on a value in use model segment for goodwill, and the casual wear, referencing discounted cash flows of the retail women’s wear and non-apparel cash generating segment for goodwill, and the casual wear, units (CGUs) for brand names. The model women’s wear and non-apparel cash generating contains estimates and significant judgements units (CGUs) for brand names. The model regarding future cash flow projections which are contains estimates and significant judgements critical to the assessment of impairment, regarding future cash flow projections which are particularly planned sales growth in the casual critical to the assessment of impairment, wear and women’s wear CGUs and discount rates particularly planned sales growth in the casual applied. wear and women’s wear CGUs and discount rates At 25 July 2020 the Group’s performance and applied. the economy as a whole, were impacted by the At 25 July 2020 the Group’s performance and restrictions and economic uncertainty resulting the economy as a whole, were impacted by the from the COVID-19 pandemic. Significant restrictions and economic uncertainty resulting assumptions used in the impairment testing from the COVID-19 pandemic. Significant referred to above are inherently subjective and assumptions used in the impairment testing in times of economic uncertainty the degree of referred to above are inherently subjective and subjectivity is higher than it might otherwise be. in times of economic uncertainty the degree of Changes in certain assumptions can lead to subjectivity is higher than it might otherwise be. significant changes in the recoverable amount of Changes in certain assumptions can lead to these assets. significant changes in the recoverable amount of Accordingly, given the significant judgements these assets. and estimates involved in assessing impairment Accordingly, given the significant judgements of intangible assets we considered this a key and estimates involved in assessing impairment audit matter. For the same reasons we consider of intangible assets we considered this a key it important that attention is drawn to the audit matter. For the same reasons we consider information in Note 18. it important that attention is drawn to the information in Note 18. How our audit addressed the key audit matter How our audit addressed the key audit matter Our audit procedures included the following: ► Assessed the application of the valuation Our audit procedures included the following: methodologies applied. ► Assessed the application of the valuation ► Evaluated whether the determination of CGUs was ► Evaluated whether the determination of CGUs was methodologies applied. in accordance with Australian Accounting Standards. in accordance with Australian Accounting ► Agreed the cashflows within the impairment Standards. model to forecast cashflows. ► Agreed the cashflows within the impairment ► Considered the impact of COVID-19 on the cash model to forecast cashflows. flow assumptions used in the impairment model. ► Considered the impact of COVID-19 on the cash ► Considered the historical accuracy of the Group’s flow assumptions used in the impairment model. cash flow forecasting process. ► Assessed key inputs being discount rates, relief ► Assessed key inputs being discount rates, relief ► Considered the historical accuracy of the Group’s ► Compared the forecast cash flows used in the cash flow forecasting process. value in use model to the actual current year ► Compared the forecast cash flows used in the financial performance of the underlying CGUs for value in use model to the actual current year reasonability. financial performance of the underlying CGUs for reasonability. from royalty rates and sales growth rates adopted in the value in use model including comparison to from royalty rates and sales growth rates adopted available market data for comparable businesses. in the value in use model including comparison to ► Performed sensitivity analysis on key inputs and available market data for comparable businesses. assumptions included in the forecast cashflows ► Performed sensitivity analysis on key inputs and and impairment models including the discount assumptions included in the forecast cashflows rates, to assess the risk of the CGU carrying value and impairment models including the discount exceeding the recoverable amount. rates, to assess the risk of the CGU carrying value ► Compared earnings multiples derived from the exceeding the recoverable amount. Group’s value in use model to those observable ► Compared earnings multiples derived from the from external market data of comparable listed Group’s value in use model to those observable entities. from external market data of comparable listed entities. included in the financial report. ► Assessed the adequacy of the disclosures included in the financial report. ► Assessed the adequacy of the disclosures Our valuation specialists were involved in the conduct of these procedures where considered Our valuation specialists were involved in the relevant. conduct of these procedures where considered relevant. 2. Existence and valuation of inventory 2. Existence and valuation of inventory Why significant Why significant As at 25 July 2020 the Group held $156.6 As at 25 July 2020 the Group held $156.6 million in inventories. million in inventories. Inventories are held at several distribution How our audit addressed the key audit matter How our audit addressed the key audit matter Our audit procedures included the following: Our audit procedures included the following: ► Assessed the application of valuation ► Assessed the application of valuation methodologies applied for compliance with Inventories are held at several distribution centres, as well as at over 1,200 retail stores. methodologies applied for compliance with Australian Accounting Standards. centres, as well as at over 1,200 retail stores. As detailed in Note 10 of the financial report, Australian Accounting Standards. ► Assessed the effectiveness of relevant controls As detailed in Note 10 of the financial report, inventories are valued at the lower of cost and ► Assessed the effectiveness of relevant controls over the determination of standard costs inventories are valued at the lower of cost and net realisable value. net realisable value. The cost of finished goods inventories is over the determination of standard costs ► Selected a sample of inventory lines and ► Selected a sample of inventory lines and recalculated standard costs based on supporting The cost of finished goods inventories is determined using a standard cost approach and recalculated standard costs based on supporting supplier invoices and assessed the allocation of determined using a standard cost approach and includes a proportion of purchasing department supplier invoices and assessed the allocation of costs absorbed from the purchasing department, includes a proportion of purchasing department costs, as well as freight, handling, and costs absorbed from the purchasing department, freight and warehouse costs. costs, as well as freight, handling, and warehouse costs incurred to deliver the goods to warehouse costs incurred to deliver the goods to the point of sale. the point of sale. Provisions are recorded for matters such as aged freight and warehouse costs. ► Attended store and distribution centre inventory ► Attended store and distribution centre inventory counts on a sample basis and assessed the stock counts on a sample basis and assessed the stock counting process which addressed inventory Provisions are recorded for matters such as aged and slow moving inventory to ensure inventory is counting process which addressed inventory quantity and condition. and slow moving inventory to ensure inventory is recorded at the lower of cost and net realisable recorded at the lower of cost and net realisable value. This requires a level of judgement with value. This requires a level of judgement with regard to changing consumer demands and regard to changing consumer demands and fashion trends. Such judgements include the fashion trends. Such judgements include the Group’s expectations for future sales and Group’s expectations for future sales and inventory mark downs. inventory mark downs. Accordingly, the existence and valuation of Accordingly, the existence and valuation of inventory was considered to be a key audit inventory was considered to be a key audit matter. matter. quantity and condition. ► Assessed the basis for inventory provisions, ► Assessed the basis for inventory provisions, including the rationale for recording specific including the rationale for recording specific provisions. In doing so we examined the ageing provisions. In doing so we examined the ageing profile of inventory, considered how the Group profile of inventory, considered how the Group identified specific slow-moving inventories, identified specific slow-moving inventories, assessed future selling prices and historical loss assessed future selling prices and historical loss rates. rates. ► Tested the slow-moving inventory reports for ► Tested the slow-moving inventory reports for accuracy and completeness. accuracy and completeness. ► Considered the completeness of inventory ► Considered the completeness of inventory provisions by identifying mark down sales at or provisions by identifying mark down sales at or subsequent to year end, completing gross margin subsequent to year end, completing gross margin analysis to assess movements impacting net analysis to assess movements impacting net realisable value during the year and subsequent realisable value during the year and subsequent to year end, and comparing sale prices against the to year end, and comparing sale prices against the value of inventories at balance date. value of inventories at balance date. 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 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 Premier Investments Limited 2. Existence and valuation of inventory 2. Existence and valuation of inventory Why significant Why significant As at 25 July 2020 the Group held $156.6 As at 25 July 2020 the Group held $156.6 million in inventories. million in inventories. Inventories are held at several distribution Inventories are held at several distribution centres, as well as at over 1,200 retail stores. centres, as well as at over 1,200 retail stores. As detailed in Note 10 of the financial report, As detailed in Note 10 of the financial report, inventories are valued at the lower of cost and inventories are valued at the lower of cost and net realisable value. net realisable value. The cost of finished goods inventories is The cost of finished goods inventories is determined using a standard cost approach and determined using a standard cost approach and includes a proportion of purchasing department includes a proportion of purchasing department costs, as well as freight, handling, and costs, as well as freight, handling, and warehouse costs incurred to deliver the goods to warehouse costs incurred to deliver the goods to the point of sale. the point of sale. Provisions are recorded for matters such as aged Provisions are recorded for matters such as aged and slow moving inventory to ensure inventory is and slow moving inventory to ensure inventory is recorded at the lower of cost and net realisable recorded at the lower of cost and net realisable value. This requires a level of judgement with value. This requires a level of judgement with regard to changing consumer demands and regard to changing consumer demands and fashion trends. Such judgements include the fashion trends. Such judgements include the Group’s expectations for future sales and Group’s expectations for future sales and inventory mark downs. inventory mark downs. Accordingly, the existence and valuation of Accordingly, the existence and valuation of inventory was considered to be a key audit inventory was considered to be a key audit matter. matter. How our audit addressed the key audit matter How our audit addressed the key audit matter Our audit procedures included the following: Our audit procedures included the following: ► Assessed the application of valuation ► Assessed the application of valuation methodologies applied for compliance with methodologies applied for compliance with Australian Accounting Standards. Australian Accounting Standards. ► Assessed the effectiveness of relevant controls ► Assessed the effectiveness of relevant controls over the determination of standard costs over the determination of standard costs ► Selected a sample of inventory lines and ► Selected a sample of inventory lines and recalculated standard costs based on supporting recalculated standard costs based on supporting supplier invoices and assessed the allocation of supplier invoices and assessed the allocation of costs absorbed from the purchasing department, costs absorbed from the purchasing department, freight and warehouse costs. freight and warehouse costs. ► Attended store and distribution centre inventory ► Attended store and distribution centre inventory counts on a sample basis and assessed the stock counts on a sample basis and assessed the stock counting process which addressed inventory counting process which addressed inventory quantity and condition. quantity and condition. ► Assessed the basis for inventory provisions, ► Assessed the basis for inventory provisions, including the rationale for recording specific including the rationale for recording specific provisions. In doing so we examined the ageing provisions. In doing so we examined the ageing profile of inventory, considered how the Group profile of inventory, considered how the Group identified specific slow-moving inventories, identified specific slow-moving inventories, assessed future selling prices and historical loss assessed future selling prices and historical loss rates. rates. ► Tested the slow-moving inventory reports for ► Tested the slow-moving inventory reports for accuracy and completeness. accuracy and completeness. ► Considered the completeness of inventory ► Considered the completeness of inventory provisions by identifying mark down sales at or provisions by identifying mark down sales at or subsequent to year end, completing gross margin subsequent to year end, completing gross margin analysis to assess movements impacting net analysis to assess movements impacting net realisable value during the year and subsequent realisable value during the year and subsequent to year end, and comparing sale prices against the to year end, and comparing sale prices against the value of inventories at balance date. value of inventories at balance date. 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 96 Annual Report 2020 Independent Auditor’s Report continued 3. Investment in associate – Breville Group Limited 3. Investment in associate – Breville Group Limited Why significant Why significant How our audit addressed the key audit matter How our audit addressed the key audit matter At 25 July 2020 the Group held a 26.73% stake At 25 July 2020 the Group held a 26.73% stake in the ASX-listed entity Breville Group Limited in the ASX-listed entity Breville Group Limited (“Breville”). (“Breville”). The Group did not participate in the equity The Group did not participate in the equity raising conducted by Breville during the year, raising conducted by Breville during the year, which resulted in the dilution of its interest to which resulted in the dilution of its interest to this level. this level. As detailed in Note 20 of the financial report, As detailed in Note 20 of the financial report, this investment was equity-accounted in this investment was equity-accounted in accordance with Australian Accounting accordance with Australian Accounting Standards. Standards. At balance date the Group’s investment in At balance date the Group’s investment in Breville was carried at $257.4 million. The Breville was carried at $257.4 million. The Group’s results included an equity accounted Group’s results included an equity accounted profit of $17.7 million and a gain of $15.9 profit of $17.7 million and a gain of $15.9 million on the dilution in shareholding in the million on the dilution in shareholding in the overall profit after tax of the Group. overall profit after tax of the Group. The Group’s accounting for the investment in The Group’s accounting for the investment in Breville was considered a key audit matter due to Breville was considered a key audit matter due to the significance of the contribution to the the significance of the contribution to the Group’s result. Group’s result. Our audit procedures included the following: Our audit procedures included the following: ► Enquired with Breville’s auditors to discuss the ► Enquired with Breville’s auditors to discuss the audit procedures they completed including audit procedures they completed including significant areas of audit focus, and subsequent significant areas of audit focus, and subsequent events. events. ► Examined the audit work completed by Breville’s ► Examined the audit work completed by Breville’s auditors for the 30 June 2020 audit prepared in auditors for the 30 June 2020 audit prepared in forming their audit opinion over the Breville forming their audit opinion over the Breville financial report. financial report. ► Considered whether the accounting policies of ► Considered whether the accounting policies of Breville were materially consistent with those of Breville were materially consistent with those of the Group. the Group. ► Recalculated the Group’s share of profit and ► Recalculated the Group’s share of profit and dividends for the year equity accounted in dividends for the year equity accounted in accordance with Australian Accounting accordance with Australian Accounting Standards. Standards. ► Recalculated the gain recognised on dilution in ► Recalculated the gain recognised on dilution in ► Agreed the Group’s shareholding to supporting ► Agreed the Group’s shareholding to supporting shareholding. shareholding. evidence. evidence. 4. Adoption of new accounting standard for leases 4. Adoption of new accounting standard for leases Why significant Why significant The 25 July 2020 financial year was the first year of adoption of Australian Accounting The 25 July 2020 financial year was the first Standard AASB 16 - Leases (“AASB 16”). The year of adoption of Australian Accounting Group holds a significant volume of leases by Standard AASB 16 - Leases (“AASB 16”). The number and value over retail sites as lessee. Group holds a significant volume of leases by number and value over retail sites as lessee. Note 2 describes the accounting for the transition and describes the accounting policy Note 2 describes the accounting for the for leases on an ongoing basis. transition and describes the accounting policy for leases on an ongoing basis. Upon transition a lease liability of $410.2 million and right of use asset of $364.6 million were Upon transition a lease liability of $410.2 million recognised on the statement of financial and right of use asset of $364.6 million were position. The volume of leases and the recognised on the statement of financial quantitative impact of the transition adjustments position. The volume of leases and the quantitative impact of the transition adjustments How our audit addressed the key audit matter How our audit addressed the key audit matter Our audit procedures included the following: Our audit procedures included the following: ► Considered whether the Group’s new accounting ► Considered whether the Group’s new accounting policies as set out in Note 2, satisfied the policies as set out in Note 2, satisfied the requirements of AASB 16 including the adoption requirements of AASB 16 including the adoption of any of the available practical expedients of any of the available practical expedients selected by the Group as part of the transition selected by the Group as part of the transition process. process. ► Assessed the mathematical accuracy of the ► Assessed the mathematical accuracy of the Group’s AASB 16 lease calculation model. Group’s AASB 16 lease calculation model. ► For a sample of leases, agreed the Group’s inputs ► For a sample of leases, agreed the Group’s inputs in the AASB 16 lease calculation model in relation in the AASB 16 lease calculation model in relation to those leases, such as, key dates, fixed and to those leases, such as, key dates, fixed and variable rent payments, renewal options and variable rent payments, renewal options and 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 97 make the impact of this new standard significant make the impact of this new standard significant to the financial statements of the Group. to the financial statements of the Group. In addition, the complexity in the modelling of In addition, the complexity in the modelling of the accounting for the leases including the the accounting for the leases including the calculation of the incremental borrowing rate calculation of the incremental borrowing rate and the judgement involved in the treatment of and the judgement involved in the treatment of the option to extend and the lease term under the option to extend and the lease term under holdover is significant. holdover is significant. Given the financial significance to the Group of Given the financial significance to the Group of its leasing arrangements, the complexity and its leasing arrangements, the complexity and judgements involved in the application of AASB judgements involved in the application of AASB 16, and the transition requirements of the 16, and the transition requirements of the standard, this was considered to be a key audit standard, this was considered to be a key audit matter. matter. incentives, to the relevant terms of the underlying incentives, to the relevant terms of the underlying signed lease agreements signed lease agreements ► Considered the Group’s assumptions in relation to ► Considered the Group’s assumptions in relation to the treatment of the option to extend and lease the treatment of the option to extend and lease term under holdover. term under holdover. ► Assessed whether the Group had included all of its ► Assessed whether the Group had included all of its leases taking into consideration the modified leases taking into consideration the modified retrospective transition approach and practical retrospective transition approach and practical expedients adopted by the Group. expedients adopted by the Group. ► Assessed the rates used to discount future lease ► Assessed the rates used to discount future lease payments to present value. payments to present value. ► Assessed the adequacy of the disclosures ► Assessed the adequacy of the disclosures included in the financial report. included in the financial report. Information Other than the Financial Report and Auditor’s Report Thereon Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the The directors are responsible for the other information. The other information comprises the information included in the Group’s 2020 Annual Report other than the financial report and our information included in the Group’s 2020 Annual Report other than the financial report and our auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the date of this auditor’s report. Annual Report after the date of this auditor’s report. Our opinion on the financial report does not cover the other information and accordingly we do not Our opinion on the financial report does not cover the other information and accordingly we do not and will not express any form of assurance conclusion thereon, with the exception of the and will not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report 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 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 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 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 financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to 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 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 cease going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. operations, or have no realistic alternative but to do so. 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 Premier Investments Limited make the impact of this new standard significant make the impact of this new standard significant to the financial statements of the Group. to the financial statements of the Group. In addition, the complexity in the modelling of In addition, the complexity in the modelling of the accounting for the leases including the the accounting for the leases including the calculation of the incremental borrowing rate calculation of the incremental borrowing rate and the judgement involved in the treatment of and the judgement involved in the treatment of the option to extend and the lease term under the option to extend and the lease term under holdover is significant. holdover is significant. Given the financial significance to the Group of Given the financial significance to the Group of its leasing arrangements, the complexity and its leasing arrangements, the complexity and judgements involved in the application of AASB judgements involved in the application of AASB 16, and the transition requirements of the 16, and the transition requirements of the standard, this was considered to be a key audit standard, this was considered to be a key audit matter. matter. incentives, to the relevant terms of the underlying incentives, to the relevant terms of the underlying signed lease agreements signed lease agreements ► Considered the Group’s assumptions in relation to ► Considered the Group’s assumptions in relation to the treatment of the option to extend and lease the treatment of the option to extend and lease term under holdover. term under holdover. ► Assessed whether the Group had included all of its ► Assessed whether the Group had included all of its leases taking into consideration the modified leases taking into consideration the modified retrospective transition approach and practical retrospective transition approach and practical expedients adopted by the Group. expedients adopted by the Group. ► Assessed the rates used to discount future lease ► Assessed the rates used to discount future lease payments to present value. payments to present value. ► Assessed the adequacy of the disclosures ► Assessed the adequacy of the disclosures included in the financial report. included in the financial report. Information Other than the Financial Report and Auditor’s Report Thereon Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the The directors are responsible for the other information. The other information comprises the information included in the Group’s 2020 Annual Report other than the financial report and our information included in the Group’s 2020 Annual Report other than the financial report and our auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual auditor’s report thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the Report, prior to the date of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the date of this auditor’s report. Annual Report after the date of this auditor’s report. Our opinion on the financial report does not cover the other information and accordingly we do not Our opinion on the financial report does not cover the other information and accordingly we do not and will not express any form of assurance conclusion thereon, with the exception of the and will not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report 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 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 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 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 financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to 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 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 cease going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. operations, or have no realistic alternative but to do so. 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 98 Annual Report 2020 Independent Auditor’s Report continued Auditor's Responsibilities for the Audit of the Financial Report Auditor's Responsibilities for the Audit of the Financial Report Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: judgement and maintain professional scepticism throughout the audit. We also: • • • Identify and assess the risks of material misstatement of the financial report, whether due to 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 audit 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 audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. 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. opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the 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 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. disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. responsible for our audit opinion. • • • • • • • • • • • • • • • We communicate with the directors regarding, among other matters, the planned scope and timing of We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical We also provide the directors with a statement that we have complied with relevant ethical 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 requirements regarding independence, and to communicate with them all relationships and other requirements regarding independence, and to communicate with them all relationships and other 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 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 99 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 matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. 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 From the matters communicated to the directors, we determine those matters that were of most matters. We describe these matters in our auditor’s report unless law or regulation precludes public significance in the audit of the financial report of the current year and are therefore the key audit disclosure about the matter or when, in extremely rare circumstances, we determine that a matter matters. We describe these matters in our auditor’s report unless law or regulation precludes public should not be communicated in our report because the adverse consequences of doing so would disclosure about the matter or when, in extremely rare circumstances, we determine that a matter reasonably be expected to outweigh the public interest benefits of such communication. should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Audit of the Remuneration Report Report on the Audit of the Remuneration Report Opinion on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 25 July 2020. We have audited the Remuneration Report included in the directors' report for the year ended 25 July 2020. In our opinion, the Remuneration Report of Premier Investments Limited for the year ended 25 July 2020, complies with section 300A of the Corporations Act 2001. In our opinion, the Remuneration Report of Premier Investments Limited for the year ended 25 July 2020, complies with section 300A of the Corporations Act 2001. Responsibilities Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our The directors of the Company are responsible for the preparation and presentation of the responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our accordance with Australian Auditing Standards. responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Ernst & Young Glenn Carmody Partner Glenn Carmody Melbourne Partner 1 October 2020 Melbourne 1 October 2020 Premier Investments Limited matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. 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 From the matters communicated to the directors, we determine those matters that were of most matters. We describe these matters in our auditor’s report unless law or regulation precludes public significance in the audit of the financial report of the current year and are therefore the key audit disclosure about the matter or when, in extremely rare circumstances, we determine that a matter matters. We describe these matters in our auditor’s report unless law or regulation precludes public should not be communicated in our report because the adverse consequences of doing so would disclosure about the matter or when, in extremely rare circumstances, we determine that a matter reasonably be expected to outweigh the public interest benefits of such communication. should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Audit of the Remuneration Report Report on the Audit of the Remuneration Report Opinion on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 25 July 2020. We have audited the Remuneration Report included in the directors' report for the year ended 25 July 2020. In our opinion, the Remuneration Report of Premier Investments Limited for the year ended 25 July 2020, complies with section 300A of the Corporations Act 2001. In our opinion, the Remuneration Report of Premier Investments Limited for the year ended 25 July 2020, complies with section 300A of the Corporations Act 2001. Responsibilities Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our The directors of the Company are responsible for the preparation and presentation of the responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our accordance with Australian Auditing Standards. responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Ernst & Young Glenn Carmody Partner Glenn Carmody Melbourne Partner 1 October 2020 Melbourne 1 October 2020 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 100 Annual Report 2020ASX ADDITIONAL SHAREHOLDER INFORMATION ASX Additional Information AS AT 25 SEPTEMBER 2020 as at 25 September 2020 TWENTY LARGEST SHAREHOLDERS NAME TOTAL % IC RANK CENTURY PLAZA INVESTMENTS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED METREPARK PTY LTD SL SUPERANNUATION NO 1 PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD LINFOX SHARE INVESTMENT PTY LTD BNP PARIBAS NOMS PTY LTD ARGO INVESTMENTS LIMITED MARK MCINNES UBS NOMINEES PTY LTD MILTON CORPORATION LIMITED MR CON ZEMPILAS HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2 AMP LIFE LIMITED BRISPOT NOMINEES PTY LTD GEOMAR SUPERANNUATION PTY LTD 51,569,400 32.49% 25,328,341 15.96% 22,651,331 14.27% 10,357,723 8,235,331 4,437,699 3,946,310 3,275,126 3,120,452 2,577,014 1,525,192 1,250,000 982,100 868,175 590,321 470,000 353,334 282,229 259,815 250,000 6.53% 5.19% 2.80% 2.49% 2.06% 1.97% 1.62% 0.96% 0.79% 0.62% 0.55% 0.37% 0.30% 0.22% 0.18% 0.16% 0.16% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 TOTAL FOR TOP 20: 142,329,893 89.67% SUBSTANTIAL SHAREHOLDERS NAME CENTURY PLAZA INVESTMENTS PTY LTD AND ASSOCIATES PERPETUAL LIMITED AND ITS SUBSIDIARIES AIRLIE FUNDS MANAGEMENT PTY LTD ON ITS OWN BEHALF AND ON BEHALF OF MAGELLAN FINANCIAL GROUP LIMITED AND RELATED BODIES CORPORATE DISTRIBUTION OF EQUITY SHAREHOLDERS TOTAL UNITS % IC 58,552,420 42.43% 15,817,595 9.97% 12,381,525 7.80% Holders 1 TO 1,000 5,952 1,001 TO 5,000 2,439 5,001 TO 10,000 298 10,001 TO 100,000 206 100,001 TO (MAX) 29 TOTAL 8,924 Ordinary Fully Paid Shares 2,181,615 5,405,536 2,166,435 4,982,790 143,988,059 158,724,435 The number of investors holding less than a marketable parcel of 27 securities ($19.00 on 25 September 2020) is 240 and they hold 1,135 securities. VOTING RIGHTS All ordinary shares carry one vote per share without restriction. 101 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 REGISTERED OFFICE Level 7 417 St Kilda Road Melbourne Victoria 3004 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 102 Annual Report 2020C Annual Report 2020

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