S h a v e r S h o p G r o u p L i m i t e d 2 0 1 8 a n n u a L r e p o r t annuaL report 2018 proGreSS Shaver Shop is a leading specialty retailer of personal grooming and beauty appliances with more than 115 stores across Australia and New Zealand. We offer a differentiated customer proposition by being experts in the specialist products we sell and providing customer service excellence through our store network and online. underlying like for like sales growth* ContentS 02 Chairman’s and CEO’s Letter 04 Directors’ Report 28 Auditor’s Independence Declaration 29 Consolidated Statement of Comprehensive Income 30 Consolidated Statement of Financial Position 31 Consolidated Statement of Changes in Equity 32 Consolidated Statement of Cash Flows 33 Notes to the Financial Statements 65 Directors’ Declaration 66 Independent Audit Report 72 Shareholder Information 74 Corporate Information 1.6 Shaver Shop Group Limited 2018 annuaL report Consolidated sales growth operating cashflow up to $15.5m $8.4m net debt conservative balance sheet online sales up * Excludes estimated Daigou channel sales from FY17 and FY18. 01 Chairman’S and Ceo’S Letter On behalf of Shaver Shop’s board of directors, we are pleased to present to shareholders Shaver Shop’s annual report for the financial year ended 30 June 2018. Shaver Shop’s growth strategy is concentrated on three key pillars: 1. Organic growth in our personal grooming and beauty business 2. New store expansion 3. Franchise store buybacks Each of these pillars has a number of discrete objectives that are aligned to achieving our end goals and that we expect to drive enhanced returns for shareholders. In its 2018 financial year, Shaver Shop continued to take significant steps in executing this strategy which position it well to drive sustainable earnings growth and increased value for our shareholders over the long term. Some of the key achievements during the year include: 1. Expanding our relevance to female customers through the addition of luxury brands such as Dyson Supersonic and ghd; 2. Ongoing enhancements to our omni-channel marketing capabilities in Australia and New Zealand which has led to online sales growth in excess of 47% and brand awareness of approximately 87%; 3. Expanding our range of “own-brand” product lines that will improve gross profit margins and increase control over Shaver Shop’s destiny; 4. Investments in technology that enable our leaders and store managers to monitor and optimise sales and customer service metrics in near real-time; 5. Investments in training solutions that ensure our team members are experts in personal grooming solutions and provide unmatched advice and insight to customers; 6. Commencing the implementation of new operational platforms that will drive increased efficiency through automation and compliance; 7. Launching eight new stores in Australia; and 8. Acquiring four franchise outlets. While significant progress was made last year that has improved our competitive positioning, we operate in an attractive market segment and have several initiatives that should further enhance our growth potential which gives us confidence that we are on the right track looking forward to 2019 and beyond. 02 Shaver Shop Group Limited 2018 annuaL report FinanCiaL perFormanCe CuStomer ServiCe eXCeLLenCe Full year sales were up 8.7% in to $154.9 million leading to normalised earnings before interest, tax, depreciation and amortization (EBITDA) of $13.2 million. The growth in sales was driven primarily by the increase in corporate store locations from 95 at the end of last financial year to 106 at 30 June 2018. There are now 7 franchise stores based in NSW and 2 in Victoria and while our strategy continues to involve franchise buy-backs, we will maintain our disciplined investment approach so that we achieve our targeted returns. Sales grew solidly last year despite a significant reduction in contribution from the Daigou reseller channel in comparison to the prior year. We estimate that Daigou channel sales reduced from $12.1million in FY17 to $5.4 million in FY18. The reduction in sales through this channel was primarily due to the loss of supply of a range of female beauty products that resonated very well with these customers in the second half of FY17. If the Daigou channel sales are removed from both periods, underlying sales increased 14.6%. The Daigou reseller channel remains a legitimate opportunity for Shaver Shop, however it is volatile and very difficult to predict. By the end of FY18 it no longer represented a material contributor to the group’s earnings. And while this could change quite rapidly, it’s largely outside Shaver Shop’s control and therefore not receiving significant focus from the business as we move into FY19. Normalised EBITDA decreased approximately $1.7 million in FY18 in comparison to the prior year to $13.2 million. This was primarily due to the reduced contribution from Daigou channel sales discussed earlier. One of the highlights in our financial performance was the $12.1 million increase in operating cash flow to $15.5 million. This significant cash flow improvement, largely generated through a reduction stock levels across the corporate store network, enabled the business to continue to invest in new stores, acquire four franchise locations and pay a healthy dividend whilst at the same time buying back approximately 3% of basic shares on issue. Shaver Shop continues to have a strong balance sheet with conservative gearing. This gives us flexibility to continue investing in and supporting the underlying business as well as consider additional strategic capital management initiatives that may arise. Shaver Shop’s heritage is a service business. This initially started with a store focused on the repairs and maintenance of mens’ electric shavers, but has expanded over time to include both mens and womens personal grooming solutions. Customer service excellence and unparalleled product knowledge remains a core part of our DNA and is now something we can track day to day, hour by hour, with new technology solutions implemented in-store. The data and insight gained from these new management tools are enabling us to influence the service and sales behaviour of our front line staff, achieving a better consistency and quality of service with each customer interaction. We are very proud that our net promoter score (a commonly used measure of customer satisfaction) is consistently at world class levels. We are also using the feedback gained from these tools to implement improvements in store design and merchandising. As our customers’ needs and preferences evolve, we will continue to refine Shaver Shop’s value proposition and product offering so we remain relevant in the market whilst staying true to the core values that have made Shaver Shop successful for over 32 years. inveStinG For Future GroWth As a specialty retailer, we are operating in a highly dynamic environment that requires us to be in tune with ongoing changes in our competitive environment as well as the way people choose to browse and shop for our products. Shaver Shop has made great strides in the last two years in improving and differentiating our in-store and online customer experience and have a number of further improvements in the pipeline for 2019 and beyond. These operational, systems and capability investments are crucial to the ongoing success and scalability of our business. So while these investment decisions may limit the earnings growth we would otherwise expect to see in FY19, we are confident we are taking the right steps in building the foundations for sustainable growth in shareholder value. Finally, on behalf of all Shaver Shop directors, we would like to thank all our people for their passion and dedication to delivering outstanding service for our customers and another solid year of financial results in dynamic operating conditions. We look forward to their ongoing support and commitment as we continue to execute our strategic imperatives that will continue to position Shaver Shop as a category leader in personal grooming solutions for him and her. 03 direCtorS’ report 30 June 2018 Your directors present their report on the consolidated entity consisting of Shaver Shop Group Limited and the entities it controlled at the end of, or during, the year ended 30 June 2018. Throughout the report, the consolidated entity is referred to as the “Group”, the “Company” or “Shaver Shop”. prinCipaL aCtivitieS The principal activities of the Group during the financial year was the retailing of specialist personal grooming products both through Shaver Shop’s corporate owned stores and franchise store networks as well as online through its websites. No significant change in the nature of these activities occurred during the year. direCtorS The following persons were directors of Shaver Shop Group Limited during the whole of the financial year and up to the date of this report: Broderick Arnhold Cameron Fox Craig Mathieson Trent Peterson Brian Singer Melanie Wilson CompanY SeCretarY Lawrence Hamson held the position of Company Secretary during the whole of the financial year and up to the date of this report. direCtorS and direCtorS’ intereStS The following information is current as at the date of this report: Brodie Arnhold Independent Chair Non-Executive Expertise and Experience Brodie has over 15 years domestic and international experience in private equity, investment banking and corporate finance. Prior to his current role as acting-CEO of iSelect Limited, he was CEO of Melbourne Racing Club for four years. He worked for Investec Bank from 2010 to 2013 where he was responsible for building a high net worth private client business. Prior to this, Brodie worked for Westpac Banking Corporation where he grew the institutional bank’s presence in Victoria, South Australia and Western Australia, and from 2006-2010 held the role of Investment Director at Westpac’s private equity fund. 04 Shaver Shop Group Limited 2018 annuaL report Other Current Directorships Non-Executive Director, Endota Group Holdings Pty Ltd Non-Executive Director, iSelect Limited Director, RSN Former Listed Directorships in last 3 years None Special responsibilities Chair of the Board Member of the Audit and Risk Committee Interests in shares and options at 30 June 2018 Ordinary Shares – Shaver Shop Group Limited 2,907,000 Cameron Fox Chief Executive Officer and Managing Director Expertise and Experience Cameron has over 20 years’ experience working across the personal care & grooming industry. Cameron joined Shaver Shop as General Manager in 2006 before being promoted to the position of Chief Executive Officer in July 2008. Cameron previously worked for Gillette Australia for a period of 10 years. During his time at Gillette Australia Cameron held various roles, including Associate Product Manager, Business Analyst, National Account Manager and National Sales Manager. Other Current Directorships None Former Listed Directorships in last 3 years None Special responsibilities Managing Director Chief Executive Officer Interests in shares and options at 30 June 2018 Ordinary Shares – Shaver Shop Group Limited Unvested LTI Shares 2,180,024 1,118,223 Craig Mathieson Non-Executive Director Expertise and Experience Craig became a director of Shaver Shop Pty Ltd in June 2011. For the last 10 years, Craig has been the Chief Executive Officer of the Mathieson Group which has very diverse business interests from company investment to property development. From 2001 to 2007 Craig was the Managing Director of DMS Glass Pty Ltd which was the largest privately owned glass manufacturer in Australia. Other Current Directorships Carlton Football Club Ltd Endota Group Holdings Pty Ltd Former Listed Directorships in last 3 years Abiliene Oil & Gas Ltd Special responsibilities Chair of the Audit and Risk Committee Interests in shares and options at 30 June 2018 Ordinary Shares – Shaver Shop Group Limited 4,660,004 05 direCtorS’ report Brian Singer Non-Executive Director Expertise and Experience Brian became a director of Shaver Shop in June 2011. Brian founded the Rip Curl business with a business partner in 1969 after a career as a high school teacher. He became Chief Executive Officer for Rip Curl Group Pty Ltd in Australia and grew the business into a major manufacturer and distributor of clothing and surfing related products in Australia and internationally. Other Current Directorships Rip Curl Group Pty Ltd – Chairman Endota Group Holdings Pty Ltd Former Listed Directorships in last 3 years None Special responsibilities Member of the Remuneration and Nomination Committee Interests in shares and options at 30 June 2018 Ordinary Shares – Shaver Shop Group Limited 6,258,004 Trent Peterson Non-Executive Director Expertise and Experience Trent is a managing director and partner at Catalyst Investment Managers, and has over 15 years’ experience as a company director and private equity investor. He is currently a Director of Adairs Limited, Cirrus Media Pty Ltd, Max Fashions (New Zealand), Power Farming Group (New Zealand), SkyBus, Dusk Retail Group. He was a former director of Just Group Limited, Global Television Limited, EziBuy, Metro GlassTech, Moraitis, Taverner Hotel Group, and Australian Discount Retail. Other Current Directorships Adairs Limited APH Holdco Pty Ltd (trading as Mr Vitamins) dusk Retail Holdings (trading as dusk) AATS Holdings Pty Ltd (trading as Skybus) Catalyst Investment Managers Pty Ltd (and associated fund entities) Catalyst Direct Capital Management Pty Ltd Former Listed Directorships in last 3 years None Special responsibilities Chair of the Remuneration and Nomination Committee Member of the Audit and Risk Committee Interests in shares and options at 30 June 2018 Ordinary Shares – Shaver Shop Group Limited 347,619 Melanie Wilson Non-Executive Director Expertise and Experience Melanie has more than 15 years’ experience in Senior Management roles across a number of global retail brands including Limited Brands (Victoria’s Secret, Bath & Bodyworks – New York), Starwood Hotels (New York), Woolworths Ltd and Diva/ Lovisa. Her experience extends across all facets of retail operations, including store operations, merchandise systems, online/e commerce, marketing, brand development and logistics/fulfilment. Other Current Directorships iSelect Limited Baby Bunting Limited EML Payments Limited Former Directorships in last 3 years Nil Special responsibilities Member of the Remuneration and Nomination Committee Interests in shares and options at 30 June 2018 06 Ordinary Shares – Shaver Shop Group Limited 47,619 Shaver Shop Group Limited 2018 annuaL report Lawrence Hamson Chief Financial Officer and Company Secretary Expertise and Experience Lawrence joined Shaver Shop in April 2016 immediately prior to the Company’s listing on the ASX. He is a Chartered Accountant (Canada) and Chartered Financial Analyst with more than 20 years experience in both public practice and within industry. For the 9 years prior to joining Shaver Shop, Lawrence acted as Chief Financial Officer for both private and public companies, most recently with Dun & Bradstreet as its CFO for the Asia Pacific region. He has experience across venture capital with Rothschild as well as corporate communications having been Mayne Group Limited’s General Manager Corporate Relations through its demerger into two ASX listed entities – Symbion Healthcare Limited and Mayne Pharma Limited. Interests in shares and options at 30 June 2018 Ordinary Shares – Shaver Shop Group Limited Unvested LTI Shares 581,171 337,767 meetinGS oF direCtorS During the financial year, 18 meetings of directors were held, 5 meetings of the Audit & Risk Committee were held and 2 meetings of the Nomination and Remuneration Committee were held. Attendances by each director who was a member of the Board and relevant subcommittee during the year were as follows: Board of Directors Meetings Audit & Risk Committee Meetings Nom & Rem Committee Meetings Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended 18 18 18 18 18 18 17 18 16 18 17 18 5 n/a 5 5 n/a n/a 5 n/a 5 5 n/a n/a n/a n/a n/a 2 2 2 n/a n/a n/a 2 2 2 Broderick Arnhold Cameron Fox Craig Mathieson Trent Peterson Brian Singer Melanie Wilson dividendS paid or reCommended The Directors declared an interim dividend of 1.8 cents per share fully franked ($2.2 million) in February 2018 (2017: 1.6 cents per share fully franked or $2.0m). The Directors have declared a fully franked final dividend of 2.4 cents per share ($3.0 million) to be paid on 31 October 2018 (2017: 2.4 cents per share fully franked or $3.0m). The combined dividend payments represent the payout of approximately 80% of the Company’s FY2018 reported net profit after tax. 2018 operatinG and FinanCiaL revieW The statutory net profit after income tax (NPAT) amounted to $6.6 million (FY2017: $9.0 million) after subtracting income tax expense of $3.1 million (FY2017: $4.1 million). The decrease in net profit after income tax is primarily due to the reduced contribution from multi-unit reseller channel sales in FY2018 versus the prior financial year. As noted in the FY2017 Director’s Report, in the third quarter of FY2017, a new sales channel to Australian-based customers who purchase in higher quantities for resale emerged which facilitated sales of certain female beauty product lines in high volume and lower average gross margins through its corporate and franchise store network. In early FY2018 Shaver Shop could no longer secure supply of the key product lines sold into this channel and accordingly the earnings contribution from this channel reduced significantly in FY2018. In addition, Shaver Shop was subject to a number of one-off and unusual expenses which reduced its FY2018 profitability. These are discussed in more detail in the report that follows. If these one-off costs are excluded, normalised net profit after tax was $7.2 million. 07 direCtorS’ report non-iFrS meaSureS The Directors’ Report includes references to normalised results. The normalisations relate to the year ended 30 June 2018 and arise as a result of significant and unusual expenses incurred in the year. In 1H FY2018, two of Shaver Shop’s suppliers (the suppliers were affiliated with each other) appointed liquidators. Provisions totalling $491,000 were raised against rebates and other receivables owing from these suppliers to Shaver Shop as well as the remaining stock on hand. The nature and magnitude of this loss is extremely unusual and unlike anything Shaver Shop has experienced. In 2H FY2018, Shaver Shop settled a disputed stamp duty assessment relating to the franchises acquired in South Australia prior to 30 June 2015. Whilst Shaver Shop and its tax advisors remain of the view the assessment of the Stamp Duty was inappropriately applied to the related transactions, Shaver Shop took a commercial decision to settle the dispute rather than incur significant legal costs and be subject to protracted litigation. There is no further risk of stamp duty re-assessments in relation to SA franchise buy-backs as the stamp duty rules applying to these transactions changed in June 2015. Finally, Shaver Shop was the subject of internal fraud in 2H FY2018, in which one of Shaver Shop’s store managers made significant unauthorised transactions to multi-unit reseller customers at prices that were significantly below Shaver Shop’s cost of goods. Whilst Shaver Shop’s financial controls were in place and operating effectively, the manager falsified transactional records to conceal the fraudulent activity. Shaver Shop engaged an external investigator to review circumstances that led to these transactions and in conjunction with this review has implemented additional controls to further reduce the risk of this happening in the future. The normalised results have been derived from Shaver Shop’s statutory accounts and adjusted to a normalised basis to more appropriately reflect the ongoing operations of Shaver Shop. The Directors believe the presentation of non-IFRS financial measures are useful for the users of this financial report as they provide additional and relevant information that reflect the underlying financial performance of the business. Non-IFRS measures contained within this report are not subject to audit or review. The Statutory Earnings before Interest, Tax, Depreciation and Amortisation (“EBITDA”) of the Group for FY2018 was $12.2 million (FY2017: $14.9 million). Profit after income tax from continuing operations (NPAT) Add back: Net finance costs Income tax expense/(benefit) Depreciation and amortisation expense EBITDA1 Consolidated 2017 $000 8,994 407 4,061 1,408 14,870 2018 $000 6,566 451 3,112 2,051 12,180 1 Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) is used as a measure of financial performance by excluding certain variables that affect operating profits but which may not be directly related to the underlying performance of the Group. EBITDA is not a measure of operating income, operating performance or liquidity under A IFRS. Other companies may calculate EBITDA in a different manner to Shaver Shop. The above EBITDA reconciliation has not been audited. The table below reconciles the EBITDA result to the normalised result for FY2018. This shows the full FY2018 year results from operations on a normalised basis and excludes significant and unusual one-off items incurred in the current financial year. There were no normalisation adjustments to the statutory EBITDA for FY2017. EBITDA Add back: Supplier liquidations FY15 SA Stamp Duty franchise buy-back assessment Internal fraud Normalised EBITDA 08 Consolidated 2018 $000 2017 $000 12,180 14,870 491 156 327 – – – 13,154 14,870 Shaver Shop Group Limited 2018 annuaL report The table below reconciles the statutory NPAT result to the normalised result for FY2018 and FY2017. This shows the full year results on a normalised basis. Reported NPAT Add back: Supplier liquidations FY15 SA Stamp Duty franchise buy-back assessment Internal fraud Income tax effect Tax on management IPO incentives Normalised NPAT Consolidated 2017 $000 8,994 – – – – 87 9,081 2018 $000 6,566 491 156 327 (292) – 7,248 The pro-forma adjustment to FY2017 tax expense was not in the Prospectus forecast for FY2017. Shaver Shop receives a tax deduction over five years for the cost of franchise right terminations that occur through its franchise buy-back program. This is recorded as an adjustment to goodwill and therefore leads to income tax payable being lower than income tax expense for the five year tax period following each buy-back. Based on the franchise buy-backs completed to date, the reduction in cash tax payable for FY2018 and each subsequent financial year is set out in the table below. Reduction in income tax payable FY2018 $000 1,788 FY2019 $000 1,566 FY2020 $000 1,038 FY2021 $000 702 FY2022 $000 241 The table below compares the normalised operating performance of Shaver Shop for FY2018 against the results for FY2017. Revenue Gross Profit Gross Margin EBITDA EBITDA Margin NPAT Tax benefit associated with franchise buy-backs NPAT – adjusted for franchise buy-back tax benefit (“Cash NPAT“) Basic weighted average shares (000s) Basic earnings per share – cents Cash earnings per share – cents (Cash NPAT/weighted avg. shares) Normalised FY18 Actual $000 Normalised FY17 Actual $000 154,937 142,568 64,170 41.4% 13,154 8.5% 7,248 1,788 9,036 124,189 5.83 7.27 59,472 41.7% 14,870 10.4% 9,081 1,564 10,645 125,087 7.26 8.51 Consolidated % Change 8.7% 7.9% –0.7% –11.5% –18.3% –20.2% +14.3% –15.1% –19.7% –14.6% 09 direCtorS’ report normaLiSed reSuLtS SummarY In FY2018, the Company grew consolidated revenue by 8.7% to $154.9 million (FY2017 – $142.6 million). The top-line growth was primarily due to the increase in the number of corporate stores in the network (growing from 95 at 30 June 2018 to 106 at 30 June 2018). Shaver Shop opened 8 new locations and bought back 4 franchise outlets during FY2018. In addition, one store has been temporarily closed as the centre goes through a major refurbishment. Total like for like sales for the Corporate Store network declined –3.4% in FY2018 (FY2017 +6.2%) due to the significant decline in sales through the multi-unit reseller channel. If the estimated sales impact of these high volume, lower margin sales are excluded from both years, the estimated underlying like for like sales growth of the Company was +1.6% in FY2018 (FY2017 down –1.5%). Contributing to the growth in underlying like for like sales was continued growth in Shaver Shop’s online sales – up 47.4% in FY2018 over the prior year. Total online sales represented 10.0% of total network sales in FY2018. This follows significant investments in Shaver Shop’s e-commerce systems as well as increased focus on digital marketing activities during the year in comparison to FY2017. Normalised gross profit increased 7.9% to $64.2 million (FY2017 – $59.5 million). Gross profit margin declined approximately 30 basis points to 41.4% (FY2017 – 41.7%). Changes in product mix, discounts to products in the Hair Styling category to make room for new brand additions (Dyson and ghd hair), as well as the deliberate decision to increase promotional activity following a weaker than expected lead into the seasonally higher Christmas and Boxing Day trading period, were the key drivers of the decline in gross margin. Shaver Shop’s normalised cost of doing business (CODB%) (normalised operating expenses divided by total revenue) increased 40 basis points to 34.2% (FY2017 – 33.8%). The increase in CODB% was primarily driven by the impact of the reduced multi-unit reseller channel sales in FY2018 in comparison to the prior year which increased the relative CODB% accordingly. If the impact of these multi-unit reseller sales were removed from both years, CODB% would have declined year over year. The dollar increase in employee benefits expense, occupancy costs, and other expenses was primarily associated with the increase in the average number of corporate stores operated by Shaver Shop across FY2018 in comparison to the prior financial year. Consolidated normalised EBITDA declined ~11.5% to $13.2m (FY2017 – $14.9m) primarily due to the reduced contribution from the multi-unit reseller channel during the year, together with the decline in gross profit margin within the business. The performance of recent franchise buy-backs (mostly in NSW) has also not met expectation. Normalised NPAT declined 20.2% to $7.2m leading to basic earnings per share of 5.83 cents (FY2017 – 7.26 cents). After adjusting for the tax benefit associated with franchise buy-backs, Shaver Shop’s Cash NPAT was 7.27 cents per share (FY2017 – 8.51 cents), a decline of 14.6% over the prior corresponding year. LiQuiditY and CapitaL manaGement In July 2018, Shaver Shop refinanced its existing bank facilities and established a new $20.0 million multi-option debt facility with a $1.0 million facility to support bank guarantees. The new facility has a term of two years, expiring on 31 July 2020. At 30 June 2018, Shaver Shop had gross debt of $11.3 million (FY2017 – $11.8 million). Net debt (gross debt less cash on hand) was $8.4 million at 30 June 2018 (FY2017 – $9.4 million) providing a leverage ratio (Net Debt/Normalised EBITDA) of 0.64X (FY2017 – 0.63X). The Company’s new debt facility has three key covenants: the leverage ratio; the fixed coverage ratio ((Occupancy Costs + EBITDA)/(Occupancy Costs + Interest expense); and the net worth ratio ((Total assets – Total liabilities)/Total assets). All banking covenants were well within the bank’s thresholds for FY2018. Shaver Shop announced an on-market buy-back of its shares on 26 October 2017. In the subsequent period to 30 June 2018, Shaver Shop acquired 3,234,348 ordinary shares for consideration of $1,488,062. StrateGY Shaver Shop offers customers a wide range of quality brands, at competitive prices, supported by excellent staff product knowledge and customer service. Shaver Shop seeks to identify consumer trends and works closely with major manufacturers and suppliers to source products to cater for these changing personal grooming and beauty trends. 10 Shaver Shop Group Limited 2018 annuaL report DIFFERENTIATION IN THE MARKET With more than 30 years of dedicated experience in its core hair removal product categories, Shaver Shop believes it is the only significant pure-play retailer in these categories in Australia and New Zealand. Shaver Shop invests heavily in staff training to ensure that its store managers and customer facing staff are equipped to recommend the best product that meets customer needs. This strong expertise, segment focus and customer experience has enabled Shaver Shop to negotiate exclusive supply arrangements for the majority of its top 50 products by sales. Shaver Shop believes it is this unique customer experience and access to exclusive products at competitive prices that differentiates its business from other retailers that sell personal grooming products in the market. Key drivers of Shaver Shop’s growth are expected to be: Continued product innovation Shaver Shop benefits as consumer trends evolve and require new and changing products to facilitate this. Shaver Shop seeks to work with manufacturers and suppliers to source products that cater to the emerging demands of consumers within the hair removal and personal care categories. In some cases, Shaver Shop seeks and obtains exclusive rights to sell personal grooming and beauty products in the Australian and New Zealand markets which assists with product and range differentiation. Organic growth Shaver Shop will continue to implement a strategic marketing plan and other initiatives to attract new customers to the business and encourage repeat business. Important components of this aspect of the Company’s strategy include continued investment in the e-commerce websites and online marketplaces which continue to grow strongly as well as establishing a loyalty program to attract and support returning customers. Store rollout Shaver Shop aims to grow total store network numbers across Australia and New Zealand to approximately 145 within the next three years. This will be achieved through Greenfield store rollouts. Subject to the forecast financial returns meeting appropriate hurdle rates, the Company expects to open these additional stores. In FY2018, Shaver Shop opened 8 new stores and has identified 5 additional stores it intends to open in the first six months of FY2019. Franchise store buy-backs Shaver Shop also plans to continue its disciplined approach to buying back franchise stores, with transactions to be assessed as they become available. As at 30 June 2018, there were 9 (FY2017 – 13) franchise stores within the Shaver Shop network. KeY BuSineSS riSKS There are a number of factors that could have an effect on the financial performance of Shaver Shop Group Limited. They include: Competition may increase Shaver Shop faces competition from specialty retailers, department stores, discount department stores, grocery chains as well as online only retailers and professional salons. Shaver Shop’s competitive position may deteriorate as a result of actions by existing competitors, the entry of new competitors (including manufacturers and suppliers of products who decide to sell direct to end consumers) or a failure by Shaver Shop to successfully respond to changes in the market. Retail environment and general economic conditions may deteriorate Shaver Shop’s performance is sensitive to the current state of and future changes in the retail environment and general economic conditions in Australia. Australian economic conditions may worsen including as a result of Australia’s economy entering into a recession or another cause of a reduction in consumer spending. This could cause the retail environment to deteriorate as consumers reduce their level of consumption of discretionary items. Changes in international pricing or supply may change local demand for Shaver Shop products Many of the products which Shaver Shop sells are available in many overseas markets. With the increasing propensity for consumers in Australia and overseas to purchase products over the internet, should the comparative price of Shaver Shop’s products be significantly lower than Shaver Shop in overseas markets, this could have an influence on local demand for Shaver Shop’s products. Conversely, if the price for Shaver Shop’s products is significantly lower than the 11 direCtorS’ report comparable price for the same product overseas, this could increase demand and sales of Shaver Shop products. Should suppliers increase (decrease) prices to create global wholesale price parity, this could materially decrease (increase) local demand for Shaver Shop’s products. This is particularly true in relation to bulk sales of products to customers in Australia. Seasonality of trading patterns Shaver Shop’s sales are subject to seasonal patterns. In FY2018, the contribution of sales for the first half to total sales for the full year was approximately 60% driven in part by higher multi-unit reseller channel sales in the first half of the financial year. The seasonality of Shaver Shop’s sales towards the first half of the financial year is largely due to the pre Christmas trading period and Father’s Day (being the first Sunday in September). An unexpected decrease in sales over traditionally high volume trading periods for Shaver Shop could have a material adverse effect on the overall profitability and financial performance of Shaver Shop. In addition, an unexpected decrease in sales over traditionally high volume trading periods could also result in abnormally large amounts of surplus inventory, which Shaver Shop may seek to sell through abnormally high and broad based price discounting to minimise the risk of product becoming aged or obsolete. If Shaver Shop were to sell a significant volume of its products at deep discounts, this would reduce the business’ revenue and would have an adverse impact on the Company’s financial performance. Customer buying habits/trends may change Any adverse change in personal grooming trends and a failure of Shaver Shop to correctly judge the change in consumer preferences or poor quantification of purchase orders for related product may have an adverse impact in the demand for Shaver Shop’s products or the gross margins achieved on these products. Product innovation and exclusivity arrangements Product innovation by suppliers has been a key driver in Shaver Shop’s sales growth. Shaver Shop relies on its suppliers to continue to drive R&D and product innovation in the product category. A material reduction in the frequency or appeal of new product innovations by suppliers may have an adverse impact on sales, performance rebates received and gross margin levels achieved. In addition, a key driver in Shaver Shop’s sales growth has been the ability to secure new innovative products on an exclusive basis. If Shaver Shop is unable to secure new product innovations on an exclusive basis, or if the appeal of an existing product sold by Shaver Shop on an exclusive basis is weakened by a new innovative product made widely available to retailers or on an exclusive basis to one of Shaver Shop’s competitors, Shaver Shop’s sales and gross margin levels may be adversely affected. Product sourcing may be disrupted Shaver Shop’s products are sourced from third party suppliers of major hair removal, hair care, personal care and other shaving brands. In FY2018, approximately 89% (FY2017 – 89%) of Shaver Shop’s total network sales came from products sourced from its top 10 suppliers. Shaver Shop’s largest supplier constitutes approximately 29% (FY2017 – 24%) of all supply purchases, with the next two largest suppliers contributing approximately 19% (FY2017 – 17%) and 15% (FY2017 –15%) of total supply purchases. While Shaver Shop has a diversified supplier base, Shaver Shop is exposed to potential increases in the cost of materials and the cost of manufacturing and foreign exchange rates applicable to its products. There may also be delays in delivery or failure by a supplier to deliver goods. Such increases, delays and failure could significantly increase Shaver Shop’s cost of operations, or lead to a reduction in the available range of products, which may affect Shaver Shop’s operating and financial performance. Supplier relationships and ability to source products exclusively The Company’s relationships with suppliers are often governed by individual purchase orders and invoices. Under those arrangements, suppliers may seek to alter the terms on which products are supplied as well as the range of products available for supply. This may result in changes of pricing levels and a reduction in the range of products made available to Shaver Shop, both of which could adversely impact the Company’s ability to successfully provide customers with a wide range of products at competitive prices. This could reduce Shaver Shop’s overall profitability and adversely impact its financial performance. In addition, Shaver Shop receives income from suppliers in the form of volume rebates and supplier contributions to specific marketing and advertising campaigns. Supplier rebates and contributions are negotiated on a periodic basis. Shaver Shop has a limited number of fixed contracts in place with suppliers relating to rebates and contribution income. Most suppliers who provide Shaver Shop with rebates or marketing contributions may elect to cease such payments at any point in time. Any such action could adversely impact Shaver Shop’s income which would reduce Shaver Shop’s overall profitability and impact its financial performance. Finally, through good relationships 12 Shaver Shop Group Limited 2018 annuaL report with some suppliers, Shaver Shop has been able to secure arrangements with third party distributors and brands for the supply of products to Shaver Shop on an exclusive basis. These arrangements are for specific products and for varying time periods. There is a risk that Shaver Shop may not be able to renew exclusive distribution agreements with the suppliers or that suppliers may enter into exclusive distribution arrangements with Shaver Shop’s competitors. If this occurs, it will have a material adverse impact on the Company’s business and reputation, operational performance as well as its financial results. SiGniFiCant ChanGeS in State oF aFFairS Except as otherwise described in this report, there have been no significant changes in the state of affairs of entities in the Group during the year. matterS or CirCumStanCeS ariSinG aFter the end oF the Year Subsequent to year end, the Directors declared a fully-franked final dividend of 2.4 cents per share to shareholders of record on 17 October 2018. The dividend payment date is 31 October 2018. In July 2018, Shaver Shop refinanced its existing bank facilities and established a new $20.0 million multi-option debt facility with a $1.0 million facility to support bank guarantees. The new facility has a term of two years, expiring on 31 July 2020. No other matters or circumstances have arisen since the end of the financial year which significantly affected or could significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years. Future deveLopmentS and outLooK The key indicators for Shaver Shop’s business remain robust with strong in-store customer service and sales conversion metrics, strong online growth, improved stock turns and significantly improved operating cash flow. To prepare for the next phase of growth in our core business, Shaver Shop is making significant investments in people, systems and processes in FY2019. The investments may not deliver significant earnings upside in FY2019 over the FY2018 Normalised EBITDA result, but are expected deliver incremental sales growth and operational efficiency in the years beyond. So while the Board expects Shaver Shop to deliver underlying like for like sales growth and a restoration to more normal gross profit margins in FY2019, this improvement will be moderated by the incremental, but necessary investments required for sustainable long term growth. environmentaL iSSueS The Group’s operations are not regulated by any significant environmental regulations under a law of the Commonwealth or of a state or territory of Australia. non-audit ServiCeS The Board of Directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: > all non-audit services are reviewed and approved by the audit committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and > the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. 13 direCtorS’ report Details of the amounts paid to PricewaterhouseCoopers for audit and non-audit services during the year are set out in note 26 to the audited financial statements. auditor’S independenCe deCLaration The lead auditor’s independence declaration for the year ended 30 June 2018 has been received and can be found on page 28 of the consolidated financial report. ShareS under option There have been no unissued shares or interests under option in the Company or a controlled entity during or since reporting date. indemniFiCation and inSuranCe oF oFFiCerS and auditorS During the financial year, the Company paid an insurance premium to insure the directors and senior management of the Company and its subsidiaries. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else to cause detriment to the Company. The terms of the insurance policies prohibit disclosure of the details of the premium paid. proCeedinGS on BehaLF oF CompanY No person has applied for leave of court under Section 237 of the Corporations Act 2001 to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. 14 Shaver Shop Group Limited 2018 annuaL report remuneration report (audited) The Board of Directors of Shaver Shop Group Limited present the Remuneration Report for the Company for the reporting period of 1 July 2017 to 30 June 2018. This Remuneration Report forms part of the Directors’ Report and has been audited in accordance with the Corporations Act 2001. (a) KeY manaGement perSonneL Covered in thiS report This report sets out the remuneration arrangements for Shaver Shop’s key management personnel (KMP) (listed in the table below) who have been KMP during the reporting period. For the remainder of this Remuneration Report, the KMP are referred to as either Non-Executive Directors or Senior Executives. All Non-Executive Directors and Senior Executives have held their positions for the duration of the reporting period unless indicated otherwise. Non-Executive Directors Position Broderick Arnhold Independent, Non-Executive Chairman Craig Mathieson Independent, Non-Executive Director Trent Peterson Independent, Non-Executive Director Brian Singer Independent, Non-Executive Director Melanie Wilson Independent, Non-Executive Director Senior Executives Cameron Fox Chief Executive Officer (CEO) and Managing Director Lawrence Hamson Chief Financial Officer (CFO) and Company Secretary Philip Tine Retail Director (B) remuneration overvieW The Board recognises that the performance of the Group depends to a large extent on the quality and motivation of the Shaver Shop team, including the Senior Executives and our 733 team members (2017: 555) employed by the Group across Australia and New Zealand. Shaver Shop’s remuneration strategy therefore seeks to appropriately attract, reward and retain team members at all levels in the organisation but in particular aligning and motivating key senior executives to create shareholder wealth. By aligning various remuneration mechanisms, the Board seeks to have a structure that incentivises sustainable growth, risk management as well as driving a positive culture across the business. In FY2018, no short term incentive (STI) cash bonuses were paid to Senior Executives, however the Board did approve two small discretionary bonuses. The primary performance mechanism for determining whether Senior Executive STIs are paid, is a pre-determined EBITDA growth rate of the business versus the prior year. In FY2018, the Company’s financial performance was disappointing and as a result the minimum STI target was not met and no STI was awarded. The Board believes the STI outcomes were fair and appropriate and reflect the alignment between shareholders’ interests and the Company’s remuneration practices and policies. In terms of its Long Term Incentive Plan (LTIP), consistent with the terms outlined in the Company’s prospectus, on 22 June 2017 Shaver Shop issued 1,300,000 shares to certain executives within the business. In FY2018, Shaver Shop extended the LTIP to more members of the Company’s leadership and operations teams and issued 1,910,000 shares. Both the FY2017 and FY2018 LTIP share allocations are subject to Service, Total Shareholder Return (TSR) and Earnings Per Share (EPS) vesting conditions which are outlined in further detail below. The Company also offered an offsetting limited recourse loan to assist with the purchase of the LTIP shares. The Nomination and Remuneration Committee will continue to review the remuneration arrangements for Non-Executive Directors and Senior Executives to ensure that they are relevant, competitive and appropriate for a listed company. 15 direCtorS’ report (C) reLationShip BetWeen remuneration poLiCY and CompanY perFormanCe The performance criteria and targets for Executives to realise benefits under both the Company’s STIP and LTIP are aligned to company performance and enhancing shareholder value. The following table provides a summary of the Company’s reported financial performance for FY2018 and FY2017. Revenue EBITDA Net Profit After Tax Dividends Paid Basic earnings per share (cents) Year End Share Price ($) Statutory FY2018 Result $000 Statutory FY2017 Result $000 154,937 142,568 12,180 6,566 5,252 14,870 8,994 2,001 5.3 cents 7.2 cents $0.45 $0.64 For the financial year ended 30 June 2018, the Company’s EBITDA declined. As a result, under the terms of the FY2018 STI Plan, Senior Executives did not receive an STI award under the STI plan. (d) remuneration oBJeCtiveS One of Shaver Shop’s core beliefs is that the success of the business is driven in large part by the skills, motivation and the performance of all of its team members – from Senior Executives to Store Managers to retail assistants on the shop floor. Creating an environment that fosters a high performance culture and aligns the team behind a common set of values and behaviours is core to the Company’s continuing success. Shaver Shop’s commitment to driving high performance is evidenced by its investment in a national training facility at its new head office location as well as the appointment of a National Training Manager with significant experience in the product categories and desired solution sales process. Shaver Shop believes that the knowledge and expertise of its sales staff is a critical differentiating factor for the business and an important factor in its success. As a result, the Company takes pride in promoting high performing staff through the business from the retail shop floor through to national office positions. In addition to building the appropriate culture, Shaver Shop’s philosophy is to provide competitive remuneration arrangements that reward team members for the underlying performance of the company as well as building shareholder value over the short and long term. As such, remuneration for team members can include fixed pay, superannuation, short term incentives, long term incentives as well as support for training and education, relocation assistance, and dues and membership fees that are aligned with Shaver Shop’s needs and objectives. The components of total remuneration for a team member will vary depending on the role, his or her seniority, the team member’s experience as well as their performance. The Remuneration Committee also considers the importance of equity ownership for Senior Executives when setting remuneration packages. Shaver Shop’s key principles underpinning its remuneration plans are set out below: 1. Simplicity: We seek to ensure remuneration arrangements are simple, and can be easily understood by both the Senior Executives and other key stakeholders. 2. Alignment: We seek to ensure material components of the Senior Executive’s remuneration arrangements (including their shareholding as appropriate) contribute to alignment of the interests of the Senior Executives with those of the shareholders. 3. Best practice: We seek to ensure the material aspects of an employee’s remuneration arrangements are sustainable and could withstand tests of precedent and transparency within the organisation and market place. 16 Shaver Shop Group Limited 2018 annuaL report 4. Competitive: We seek to ensure our Senior Executives are remunerated such that (when taken as a whole, and having regard to their particular circumstances, including any risks and opportunities) their individual remuneration arrangements are competitive with relevant comparable positions. 5. Risk Conscious: In considering remuneration arrangements, the Company seeks to manage certain key risk exposures, including the risk of loss of an individual, retention of intellectual property and skills, issues associated with replacement of the individuals, risk of poaching, and the presence and quality of our succession planning. 6. Company First: The Company develops systems, policies, processes and team depth to manage its reliance on any given individual within its leadership team. This extends to remuneration, where we seek to ensure the remuneration architecture and individual arrangements are orderly and deliberate in line with our Core Competencies. 7. Rewards tied to outcome and performance: We back ourselves to identify the outcomes that drive sustainable value creation (or value protection), and seek to reward executives who influence those outcomes most significantly and directly pursuant to business strategy. (e) roLe oF the nomination and remuneration Committee The primary objective of the Nomination and Remuneration Committee is to assist the Board to fulfil its corporate governance and oversight responsibilities in relation to the Company’s people strategy including remuneration components, performance measurements and accountability frameworks, recruitment, engagement, retention, talent management and succession planning. The Committee also works with the CEO in considering the specific situations pertaining to employment terms for individuals or groups of individuals as needed. The Committee undertakes an annual review of the Company’s remuneration strategy and remuneration policy to facilitate understanding of the overall approach to remuneration and to confirm alignment with the Company’s business strategy, high standards of governance and compliance with regulatory standards. The Committee reviews and recommends to the Board for approval, remuneration arrangements for the CEO and other Senior Executives having regard to external remuneration practices, market expectations and regulatory standards. The Committee also establishes the policy for the remuneration arrangements for Non-Executive Directors. Where appropriate the Nomination and Remuneration Committee will seek the advice of independent external remuneration consultants. (F) Senior eXeCutive remuneration StruCture The remuneration framework for Senior Executives is based on a structure that includes: 1. Fixed remuneration – salary and superannuation and non-monetary benefits 2. Short Term Incentives – tied to in year performance against metrics 3. Long Term Incentives – tied to multi year performance against value creation metrics The proportion of remuneration between fixed and variable (i.e. at risk) for a Senior Executive is determined after consideration of the seniority of the role, the responsibilities of the role for driving business performance and responsibilities for developing and implementing business strategy. Element Purpose Fixed Remuneration Provide competitive market salary including super Metrics NIL STI (Cash bonus) Reward superior performance in year EBITDA growth % over FY2017 Potential Value Based on market competitive rates $400,000 LTI (Loan Share Plan) Reward superior long term value creation TSR – 70% EPS growth – 30% Dependent on NPAT and share performance 17 direCtorS’ report The mix of fixed and at risk components of each of the Senior Executives as a percentage of total target remuneration for FY2018 was as follows: Cameron Fox Larry Hamson Philip Tine Fixed Remuneration Fixed Remuneration At Risk STI Maximum Opportunity At Risk LTI Maximum Opportunity 70% 78% 75% 24% 20% 25% 6% 2% 0% Senior Executive base salaries include a fixed component of base salary together with employer superannuation contributions that are in line with statutory obligations. The fixed remuneration component also includes car allowances and other benefits. The fixed remuneration component for Senior Executives is based on market data for comparative companies of the same size and complexity as well as having regard to the experience and expertise of the Senior Executive. Fixed remuneration for executives is reviewed annually to provide competitiveness with the market, whilst also taking into account capability, experience value to the organisation and performance of the individual. There is no guaranteed salary increase in any Senior Executive service contract. Short Term Incentives (STI) FY2018 STIs for Senior Executives are dependent on the percentage growth in EBITDA over FY2017. Senior Executives receive 100% of their targeted STI if the growth rate in EBITDA in FY2018 is greater than or equal to 15%. If the EBITDA growth rate is below 5% Senior Executives are not eligible to receive their STI. STIs are contracted with the Senior Executive and capped to a maximum amount relative to their Fixed Remuneration. The Board of Directors may decide to pay Senior Executives discretionary bonuses depending on individual and Company performance. The Remuneration Committee and Board of Directors chose EBITDA growth as the performance measure because the Company believes this is one of the key business drivers that is understood by stakeholders and is a balanced indicator of the relative performance of the business. Senior Executive Cameron Fox Larry Hamson Philip Tine Target STI ($) 200,000 100,000 100,000 Actual STI Awarded ($) Awarded STI as % of Maximum STI % of Maximum STI Award Forfeited Nil Nil Nil 0% 0% 0% 100% 100% 100% The Board approved two discretionary bonuses with an aggregated value of $28,312 during the year. Long Term Incentives (LTI) Shaver Shop established a Long Term Incentive Plan (LTIP) to assist in the motivation, retention and reward of Shaver Shop executives. The LTIP is designed to align the interests of executives more closely with the interests of shareholders by providing an opportunity for eligible executives to acquire Shares subject to the conditions of the LTIP (Plan Shares). The Plan Shares are issued or transferred to participants in the LTIP at market value based on the volume weighted average price of the shares in the five days following the release of the Company’s annual financial results to the market. Under the terms of the LTIP, the Company, or one of its subsidiaries, may provide a limited recourse loan to executives who are invited to participate in the LTIP to assist them to purchase Plan Shares (Loan). Each Loan will be limited recourse such that a participant’s obligation to repay the Loan will be the lesser of the Loan balance or the relevant Plan Share’s market value. Under the LTIP rules, the Company will retain discretion to waive repayment of all, or part of, any Loan. The after tax value of any dividends paid on the Plan Shares acquired under a Loan will be applied to repay the relevant Loan. 18 Shaver Shop Group Limited 2018 annuaL report Each Plan Share will be issued as a fully paid ordinary share in the Company subject to certain vesting conditions. The holder of a Plan Share must not dispose of the Plan Share until the Plan Share vests and any Loan relating to that Plan Share has been repaid. 2018 LTI Plan Details The Company has offered certain members of the leadership and operations team the right to acquire up to 1,910,000 Plan Shares (representing approximately 1.5% of the Company’s issued share capital). The Plan Shares are divided into three equal tranches have vesting conditions based on a performance condition and a service condition. The three tranches apply to the following performance periods: > Tranche 1 – 1 July 2017 to 30 June 2018 > Tranche 2 – 1 July 2017 to 30 June 2019 > Tranche 3 – 1 July 2017 to 30 June 2020. The performance and service conditions specified for each tranche must be met in order for the relevant Plan Shares to vest. The table on the next page under “FY2018 LTIP Allocation” sets out the number of Plan Shares to be offered to the relevant Senior Executive, including details of the number of Plan Shares per tranche for each Senior Executive. Performance Conditions The performance conditions are to be measured 70% by an absolute total shareholder return (TSR) performance hurdle and 30% by an earnings per share (EPS) performance hurdle. The hurdles will be mutually exclusive such that performance is measured independently of the other hurdle. Where both targets are met, 100% of the Plan Shares which a participant holds for the relevant performance period will vest, subject to the service condition being met. Where only a portion of the EPS and TSR targets are met, the total number of Shares which will vest under the LTIP will be apportioned. Both of the performance hurdles will be expressed as a Compound Annual Growth Rate (CAGR) percentage. TSR Performance Conditions The TSR performance hurdle will be structured as an absolute TSR growth target and will be determined by the Board. TSR is a measure of the performance of the Company’s shares over a period of time. It combines share appreciation and dividends paid to show the total return to Shareholders expressed as an annualised percentage. It is the rate of return of all cash flows to an investor during the holding period of an investment. The starting point for the TSR performance hurdle is the 5 day volume weighted average price (VWAP) per share following the release of the Company’s FY2017 financial results – $0.6829). Each TSR performance period concludes based on the 5 day VWAP of the Company’s shares following the relevant period’s full year results announcement. The following table outlines the TSR performance hurdles which must be met in order for Plan Shares to vest: TSR CAGR across the relevant performance period Proportion of the relevant Plan Shares that satisfy the TSR Vesting Condition TSR CAGR is less than 10% Nil TSR CAGR is greater than 10% and less than or equal to 25% Progressive pro rata vesting from 20% to 100% (i.e. on a straight line basis) TSR CAGR is equal to or greater than 25% 100% EPS Performance Conditions The EPS performance hurdle is a measure of the compound annual growth rate in the Company’s EPS measure over the relevant performance period. The EPS CAGR will be determined by the Board and is the compound annual growth rate (expressed as a percentage) of the Company’s EPS, which is measured by reference to the Group’s underlying net profit for the performance period divided by the weighted average number of shares on issue across the relevant performance period. The Board may from time to time adjust the EPS CAGR to exclude the effects of material business acquisitions or divestments and for certain one-off costs. 19 direCtorS’ report The following table outlines the EPS performance hurdles which must be met in order for Plan Shares to vest: EPS CAGR across the relevant performance period Proportion of the relevant Plan Shares that satisfy the EPS Vesting Condition EPS CAGR is less than 5% Nil EPS CAGR is greater than 5% and less than or equal to 20% Progressive pro rata vesting from 25% to 100% (i.e. on a straight line basis) EPS CAGR is greater than 20% 100% Service Condition In addition to the performance condition, each tranche of Plan Shares is subject to specific service conditions, meaning that if a participant in the LTIP ends their employment with Shaver Shop before the specified service periods the Plan Shares issued to the participant will not vest regardless of whether the performance conditions have been met. The Service conditions attaching to the three tranches of Plan Shares are as follows: > Tranche 1 – a participant must remain a Shaver Shop employee at all times up to (and including) 30 June 2020 before performance qualified number of Plan Shares will vest. > Tranche 2 – a participant must remain a Shaver Shop employee at all times up to (and including) 30 June 2020 before performance qualified number of Plan Shares will vest. > Tranche 3 – a participant must remain a Shaver Shop employee at all times up to (and including) 30 June 2021 before performance qualified number of Plan Shares will vest. FY2018 LTIP Allocation Shaver Shop offered management the right to acquire up to 1,910,000 Shares under the LTIP (Plan Shares) (representing approximately 1.5% of the Company’s issued share capital excluding unvested LTIP shares). Specifically, Senior Executives set out in the table below were granted Plan Shares under the LTIP on 26 October 2017. Management Cameron Fox Managing Director and CEO Lawrence Hamson CFO & Company Secretary Philip Tine, Retail Director Number of Tranche 1 Shares to be issued under LTI Plan Number of Tranche 2 Shares to be issued under LTI Plan Number of Tranche 3 Shares to be issued under LTI Plan Total Number of Shares to be issues under FY2018 LTI Plan 250,000 250,000 250,000 750,000 100,000 100,000 100,000 300,000 33,333 33,333 33,334 100,000 20 Shaver Shop Group Limited 2018 annuaL report The following table sets out the terms and conditions of the share based payment arrangements to Senior Executives. Terms and conditions of share based payments arrangements Grant date Vesting date The terms and conditions of the LTIP are discussed in detail under section (f) (i) of the Remuneration Report: “FY18 Remuneration and Incentive Structure” The Grant Date for the FY18 LTIP Shares is 26 October 2017. The LTIP Shares vest on the satisfaction of the applicable performance, service or other vesting conditions specified at the time of grant. Expiry date There is no expiry date of the LTIP Shares. Exercise price Not applicable. Performance achieved Subject to the service conditions being met for the relevant LTIP tranche, the Total Shareholder Return CAGR and the EPS CAGR over the relevant period will determine the number of LTIP Shares that vest for the relevant LTIP tranche. Vested At the date of this report, none of the LTIP Shares have vested. 2017 LTI Plan Details 1,300,000 Plan Shares were issued under the FY2017 LTIP Allocation. The Plan Shares are divided into three equal tranches and will have vesting conditions based on a performance condition and a service condition. The three tranches apply to the following performance periods: > Tranche 1 – 1 July 2016 to 30 June 2017 > Tranche 2 – 1 July 2016 to 30 June 2018 > Tranche 3 – 1 July 2016 to 30 June 2019. The performance and service conditions specified for each tranche must be met in order for the relevant Plan Shares to vest. The table on the next page under “FY2017 LTIP Allocation” sets out the number of Plan Shares to be offered to the relevant Senior Executive, including details of the number of Plan Shares per tranche for each Senior Executive. Performance Conditions The performance conditions will be measured 70% by an absolute total shareholder return (TSR) performance hurdle and 30% by an earnings per share (EPS) performance hurdle. The hurdles will be mutually exclusive such that performance is measured independently of the other hurdle. Where both targets are met, 100% of the Plan Shares which a participant holds for the relevant performance period will vest, subject to the service condition being met. Where only a portion of the EPS and TSR targets are met, the total number of Shares which will vest under the LTIP will be apportioned. Both of the performance hurdles will be expressed as a Compound Annual Growth Rate (CAGR) percentage. The TSR performance hurdle will be structured as an absolute TSR growth target and will be determined by the Board. TSR is a measure of the performance of the Company’s shares over a period of time. It combines share appreciation and dividends paid to show the total return to Shareholders expressed as an annualised percentage. It is the rate of return of all cash flows to an investor during the holding period of an investment. 21 direCtorS’ report The following table outlines the TSR performance hurdles which must be met in order for Plan Shares to vest: TSR CAGR across the relevant performance period Proportion of the relevant Plan Shares that satisfy the TSR Vesting Condition TSR CAGR is less than 15% TSR CAGR is equal to 15% Nil 20% TSR CAGR is greater than 15% and less than or equal to 20% TSR CAGR is greater than 20% and less than or equal to 25% TSR CAGR is greater than 25% and less than 30% Progressive pro rata vesting from 20% to 40% (i.e. on a straight line basis) Progressive pro rata vesting from 40% to 70% (i.e. on a straight line basis) Progressive pro rata vesting from 70% to 100% (i.e. on a straight line basis) TSR CAGR is equal to or greater than 30% 100% The EPS performance hurdle is a measure of the compound annual growth rate in the Company’s EPS measure over the relevant performance period. The EPS CAGR will be determined by the Board and is the compound annual growth rate (expressed as a percentage) of the Company’s EPS, which is measured by reference to the Group’s underlying net profit for the performance divided by the weighted average number of shares on issue across the relevant performance period. The Board may from time to time adjust the EPS CAGR to exclude the effects of material business acquisitions or divestments and for certain one off costs. For the purposes of calculating the FY16 base year EPS from which the EPS growth rates will be calculated, the Board has agreed that EPS will be calculated using the total number of shares outstanding at 30 June 2016. The following table outlines the EPS performance hurdles which must be met in order for Plan Shares to vest: EPS CAGR across the relevant performance period Proportion of the relevant Plan Shares that satisfy the EPS Vesting Condition EPS CAGR is less than 15% EPS CAGR is equal to 15% Nil 20% EPS CAGR is greater than 15% and less than or equal to 20% EPS CAGR is greater than 20% and less than or equal to 25% EPS CAGR is greater than 25% and less than or equal to 30% Progressive pro rata vesting from 20% to 40% (i.e. on a straight line basis) Progressive pro rata vesting from 40% to 70% (i.e. on a straight line basis) Progressive pro rata vesting from 70% to 100% (i.e. on a straight line basis) EPS CAGR is equal to or greater than 30% 100% Service Conditions In addition to the performance condition, each tranche of Plan Shares is subject to specific service conditions, meaning that if a participant in the LTIP ends their employment with Shaver Shop before the specified service periods the Plan Shares issued to the participant will not vest regardless of whether the performance conditions have been met. The Service conditions attaching to the three tranches of Plan Shares are as follows: > Tranche 1 – a participant must remain a Shaver Shop employee at all times up to (and including) 30 June 2019 before performance qualified number of Plan Shares will vest. > Tranche 2 – a participant must remain a Shaver Shop employee at all times up to (and including) 30 June 2019 before performance qualified number of Plan Shares will vest. > Tranche 3 – a participant must remain a Shaver Shop employee at all times up to (and including) 30 June 2020 before performance qualified number of Plan Shares will vest. 22 Shaver Shop Group Limited 2018 annuaL report FY2017 LTIP Allocation Consistent with the Company’s Prospectus, Shaver Shop offered management the right to acquire up to 1,300,000 Shares under the LTIP (Plan Shares) (representing approximately 1.0% of the Company’s issued share capital at Listing) within 12 months after Listing. Specifically, Senior Executives set out in the table below were granted Plan Shares under the LTIP on 22 June 2017. Management Cameron Fox Managing Director and CEO Lawrence Hamson CFO Number of Tranche 1 Shares to be issued under LTI Plan Number of Tranche 2 Shares to be issued under LTI Plan Number of Tranche 3 Shares to be issued under LTI Plan 325,000 325,000 325,000 33,333 33,333 33,334 The following table sets out the terms and conditions of the share based payment arrangements: Terms and conditions of share based payments arrangements Grant date Vesting date The terms and conditions of the LTIP are discussed in detail under section (f) (i) of the Remuneration Report: “FY17 Remuneration and Incentive Structure” The Grant Date for the FY17 LTIP Shares is 22 June 2017. As noted in the Company’s prospectus, the LTIP Shares were issued to the eligible participants within the first 12 months after the Company’s listing on the Australian Stock Exchange (1 July 2016). The LTIP Shares vest on the satisfaction of the applicable performance, service or other vesting conditions specified at the time of grant. See additional detail under section (f)(i) of the Remuneration Report for the specific metrics that govern vesting for the 2017 LTIP Shares. Expiry date There is no expiry date of the LTIP Shares. Exercise price Not applicable. Performance achieved Subject to the service conditions being met for the relevant LTIP tranche, the Total Shareholder Return CAGR and the EPS CAGR over the relevant period will determine the number of LTIP Shares that vest for the relevant LTIP tranche. Vested At the date of this report, none of the FY2017 LTIP Shares have vested. (G) non-eXeCutive direCtor remuneration Under the Constitution, the Board may decide the remuneration from the Company to which each Non-Executive Director is entitled for their services as a Director. However, the total amount of fees paid to all Non-Executive Directors for their services as Directors must not exceed in aggregate in any financial year the amount fixed by the Company in the annual general meeting. As disclosed in the Company’s prospectus, the pre IPO Shareholders approved $440,000 per annum for this purpose. For FY2018, the annual base Non-Executive Director fees currently agreed to be paid by the Company are $140,000 (FY2017 – $140,000) to the Chairman of the Board (Brodie Arnhold), $80,000 (FY2017 – $80,000) to each of Craig Mathieson (Chair of the Audit and Risk Committee) and Trent Peterson (Chair of the Nomination and Remuneration Committee), and $70,000 (FY2017 – $70,000) to each of Melanie Wilson and Brian Singer. These amounts comprise fees paid in cash. In subsequent years, these figures may vary. The director’s fees for Trent Peterson are paid to Catalyst Direct Capital Management Pty Ltd. The director’s fees for Melanie Wilson are paid to Peandel Pty Limited. Directors may also be reimbursed for travel and other expenses incurred in attending to the Company’s affairs. Directors may be paid additional or special remuneration where a Director performs services outside the ordinary duties of a Non-Executive Director. 23 direCtorS’ report The following tables illustrate LTI performance based remuneration granted and forfeited related to FY2018 and FY2017. LTI Paid or Granted in Relation to FY2018 LTIP Allocation Senior Executives Grant date LTI granted (shares) Value at grant date $ Loan Value at 30 June 2018 % Paid/ vested in the period % Forfeited in period # LTIP Shares Forfeited in period Value Expensed in FY18 $ Cameron Fox 26 October 17 750,000 512,175 501,954 Lawrence Hamson 26 October 17 300,000 204,870 200,781 Philip Tine 26 October 17 100,000 68,290 66,927 0% 0% 0% 0% 0% 0% – – – 11,153 4,461 1,487 The EPS performance condition for Tranche 1 of the FY2018 LTIP allocation was not met. The determination of the TSR performance condition for Tranche 1 is based on the 5 day VWAP of the Company’s shares following the release of the FY2018 results. LTI Paid or Granted in Relation to FY2017 LTIP Allocation Senior Executives Grant date LTI granted (shares) Value at grant date $ Loan Value at 30 June 2018 % Paid/ vested in the period % Forfeited in period # LTIP Shares Forfeited in period Value Expensed in FY18 $ Cameron Fox 22 June 2017 975,000 575,152 544,147 Lawrence Hamson 22 June 2017 100,000 58,990 55,810 0.0% 0.0% 62.2% 606,777 16,746 62.2% 62,233 1,717 The TSR performance hurdle for Tranche 1 was not met. The EPS hurdle for Tranche 1 was met with EPS growth of 21% recorded over FY2016. The performance conditions for Tranche 2 of the FY2017 LTIPs have not been met and accordingly all Tranche 2 LTIP shares have been forfeited. (h) StatutorY remuneration detaiLS and other StatutorY diSCLoSureS The following tables in respect to the FY2017 and FY2018 financial years detail the components of remuneration for each Non-Executive Director and Senior Executive of the Group. FY2018 table of benefits and payments Cash salary/ Director’s fees $ Annual leave and long service leave $ Post- employment benefits $ Share based payments $ STI/Bonus $ 140,000 80,000 80,000 70,000 70,000 – – – – – – – – – – – – – – – – – – – – Total $ 140,000 80,000 80,000 70,000 70,000 Non-Executive Directors Brodie Arnhold Trent Peterson(1) Craig Mathieson Brian Singer Melanie Wilson(2) 24 Shaver Shop Group Limited 2018 annuaL report Cash salary/ Director’s fees $ Annual leave and long service leave $ Post- employment benefits $ Share based payments $ STI/Bonus $ Total $ 550,000 375,000 300,000 14,062 14,250 – (15,598) 30,000 27,899 592,301 (11,318) 25,000 6,179 408,923 1,091 19,616 74,616 1,487 336,444 35,565 1,777,668 1,665,000 28,312 (25,825) Senior Executives Cameron Fox Lawrence Hamson(3) Philip Tine(3) TOTAL (1) The director’s fees paid to Trent Peterson are paid to Catalyst Direct Capital Management Pty Ltd. (2) The director’s fees paid to Melanie Wilson are paid to Peandel Pty Ltd. (3) During the year, the Board approved discretionary bonuses to Lawrence Hamson and Philip Tine. FY2017 table of benefits and payments Cash salary/ Director’s fees $ Annual leave and long service leave $ Post- employment benefits $ Share based payments $ STI/Bonus $ Non-Executive Directors Brodie Arnhold Trent Peterson(1) Craig Mathieson Brian Singer Melanie Wilson(2) Senior Executives Cameron Fox 140,000 80,000 80,000 70,000 70,000 – – – – – 549,613 200,000 Lawrence Hamson 365,296 100,000 26,538 – Philip Tine(3) TOTAL – – – – – – – – – – – – – – – Total $ 140,000 80,000 80,000 70,000 70,000 77,705 12,589 1,960 30,000 34,703 2,521 36,236 893,554 3,716 516,304 – 31,019 1,381,447 300,000 92,254 67,224 39,952 1,880,877 (1) The director’s fees paid to Trent Peterson are paid to Catalyst Direct Capital Management Pty Ltd. (2) The director’s fees paid to Melanie Wilson are paid to Peandel Pty Ltd. (3) Appointed 29 May 2017. (i) additionaL StatutorY inFormation The Board may decide to pay Senior Executives discretionary bonus amounts in addition to their maximum STI amount under the STIP outlined above. The Board rarely exercises this discretion and only does so in exceptional circumstances. 25 direCtorS’ report (J) Kmp SharehoLdinGS The number of ordinary shares (excluding unvested LTIP shares) in Shaver Shop Group Limited held by each KMP of the Group during the financial year is as follows: 30 June 2017 Directors Broderick Arnhold Cameron Fox Craig Mathieson Brian Singer Trent Peterson Melanie Wilson Senior Executives Lawrence Hamson Philip Tine TOTAL LTIP holdings of KMP Balance at beginning of year On Market sale of shares On market purchase of shares Shares vested as remuneration Balance at end of year 2,407,000 1,980,024 4,660,004 6,258,004 247,619 237,619 581,171 – – – – – – (190,000) – – 500,000 200,000 – – 100,000 – – – 16,371,441 (190,000) 800,000 – – – – – – – – – 2,907,000 2,180,024 4,660,004 6,258,004 347,619 47,619 581,171 – 16,981,441 The following table details the LTIP holding and the movements in the LTIP shares for KMP during FY2018. Senior Executives Balance at 30 June 2017 LTI Shares granted as remuneration Vested/ exercisable Forfeited Unvested balance at 30 June 2018 Exercisable/ vested at 30 June 2018 Cameron Fox 975,000 750,000 Lawrence Hamson Philip Tine 100,000 – 300,000 100,000 – – – (606,777) 1,118,223 (62,233) 337,767 – 100,000 – – – During FY2018, 750,000 LTIP shares with a fair value of $0.6829 per share were granted to Cameron Fox with a grant date of 26 October 2017. The options vest upon the satisfaction of the performance and service conditions noted earlier in this remuneration report. During FY2018, 300,000 LTIP shares with a fair value of $0.6829 per share were granted to Lawrence Hamson with a grant date of 26 October 2017. The options vest upon the satisfaction of the performance and service conditions noted earlier in this remuneration report. During FY2018, 100,000 LTIP shares with a fair value of $0.6829 per share were granted to Philip Tine with a grant date of 26 October 2017. The options vest upon the satisfaction of the performance and service conditions noted earlier in this remuneration report. (K) ContraCtuaL arranGementS With Senior eXeCutiveS The remuneration and other terms of employment for the CEO and senior executives are set out in formal service agreements as summarised below. In FY2018 the CEO was entitled to fixed remuneration of $580,000 (FY2017: $580,000) whilst the fixed remuneration for other Senior Executives was in the range of $300,000 to $400,000. 26 Shaver Shop Group Limited 2018 annuaL report All service agreements are for an unlimited duration. The Chief Executive Officer’s contract may be terminated by giving six months’ notice (except in the case of serious or wilful misconduct). The Chief Financial Officer’s contract may be terminated by giving four weeks’ notice where continuous employment has been less than 18 months or eight weeks’ notice thereafter. No contracted retirement benefits are in place with any of the Company’s Senior Executives. (L) LoanS made to Kmp The following information relates to KMP loans made, guaranteed or secured during the reporting period on an aggregate basis. Balance at beginning of the year $ Balance at the end of the year $ Provision for bad debts expense $ Employee Share Plan Loans 56,189 56,189 – Loans to KMP arise as a result of the early Shaver Shop long-term incentive plans. KMP loans are repayable after a maximum period of six years or upon disposal of the shares. (m) tranSaCtionS With Kmp (eXCLudinG LoanS) There were no other material transactions or contracts with KMP except as disclosed elsewhere in the remuneration report. KMP No. 1 Signed in accordance with a resolution of the Board of Directors: Broderick Arnhold Director Melbourne 23 August 2018 27 auditor’S independenCe deCLaration under Section 307C of the Corporations Act 2001 to the Directors of Shaver Shop Group Limited and Controlled Entities Auditor’s Independence Declaration As lead auditor for the audit of Shaver Shop Group Limited for the year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in 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 Shaver Shop Group Limited and the entities it controlled during the period. Daniel Rosenberg Partner PricewaterhouseCoopers Melbourne 23 August 2018 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 28 ConSoLidated Statement oF ComprehenSive inCome For the Year Ended 30 June 2018 Shaver Shop Group Limited 2018 annuaL report Revenue from continuing operations Cost of goods sold Gross profit from corporate owned retail stores Franchise and other revenue Employee benefits expense Consolidated Note 2018 $ 2017 $ 4(a) 154,936,604 142,567,549 (90,920,438) (83,095,092) 64,016,166 59,472,457 4(b) 2,024,093 3,569,733 (22,694,562) (20,905,725) Depreciation and amortisation expense 5 (2,051,702) (1,407,599) Marketing and advertising expenses Occupancy expenses Other expenses Finance costs (net) Profit before income tax Income tax expense Profit for the year (7,808,791) (7,672,767) (14,210,565) (12,508,996) (9,145,885) (7,085,316) (450,798) (406,719) 9,677,956 13,055,068 (3,112,061) (4,061,112) 6,565,895 8,993,956 5 6 Items that may be reclassified to profit or loss Exchange differences on translating foreign operations 20(a) Other comprehensive income for the year Total comprehensive income for the year Profit attributable to: Members of the parent entity Total comprehensive income attributable to: 35,382 35,382 (3,469) (3,469) 6,601,277 8,990,487 6,565,895 8,993,956 Members of the parent entity 6,601,277 8,990,487 Earnings per share for profit attributable to the ordinary equity holders of the company Basic earnings per share (weighted average shares) Diluted earnings per share (weighted average shares) Cents Cents 21 21 5.3 5.3 7.2 7.2 29 ConSoLidated Statement oF FinanCiaL poSition As at 30 June 2018 Note 2018 $ 2017 $ 9 10 11 25 12 25 13 14 16 15 25 17 16 17 18 20 22 2,926,951 2,389,271 2,532,400 1,896,146 23,894,168 29,122,762 1,627,119 – 30,980,638 33,408,179 10,279,854 8,001,348 5,850,250 6,726,586 42,655,014 39,848,539 58,785,118 54,576,473 89,765,756 87,984,652 14,583,929 13,014,382 11,324,267 – 1,162,671 1,130,040 – 131,606 602,012 344,330 27,672,879 14,620,358 – 11,824,267 3,098,700 2,457,455 3,098,700 14,281,722 30,771,579 28,902,080 58,994,177 59,082,572 48,897,435 50,385,497 376,974 290,942 9,719,768 8,406,133 58,994,177 59,082,572 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Current tax receivable TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Deferred tax assets Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Borrowings Employee benefits Current tax payable Other liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Other liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained earnings TOTAL EQUITY 30 ConSoLidated Statement oF ChanGeS in eQuitY For the Year Ended 30 June 2018 Shaver Shop Group Limited 2018 annuaL report 2018 Balance at 1 July 2017 Profit for the period Other comprehensive income Total comprehensive income Transactions with owners in their capacity as owners Share buy-backs Dividends provided for or paid Employee share schemes – value of employee services Ordinary shares $ Retained earnings $ Other reserves $ Note Total $ 50,385,497 8,406,133 290,942 59,082,572 – – – 6,565,895 – 6,565,895 – 35,382 35,382 6,565,895 35,382 6,601,277 (1,488,062) – (5,252,260) – – (1,488,062) (5,252,260) 18 19 32 – – – 50,650 50,650 Balance at 30 June 2018 48,897,435 9,719,768 376,974 58,994,177 2017 Balance at 1 July 2016 Profit for the period Other comprehensive income Total comprehensive income Transactions with owners in their capacity as owners Dividends paid or provided for 19 Share based payments – value of employee services Ordinary shares $ Retained earnings $ Other reserves $ Note Total $ 50,385,497 1,413,570 246,096 52,045,163 – – – – – 8,993,956 – 8,993,956 – (3,469) (3,469) 8,993,956 (3,469) 8,990,487 (2,001,393) – (2,001,393) – 48,315 48,315 Balance at 30 June 2017 50,385,497 8,406,133 290,942 59,082,572 31 ConSoLidated Statement oF CaSh FLoWS For the Year Ended 30 June 2018 CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers (inclusive of GST) Note 2018 $ 2017 $ 169,794,010 156,959,868 (150,871,676) (149,559,487) Payments to suppliers and employees (inclusive of GST) 18,922,335 7,400,381 Interest received Interest paid Income taxes paid Payments for IPO transaction costs 42,526 36,996 (493,324) (443,715) (2,926,657) (1,773,573) – (1,804,469) Net cash inflow from operating activities 31 15,544,880 3,415,620 CASH FLOWS FROM INVESTING ACTIVITIES: Payments for property, plant and equipment (3,072,293) (2,039,734) Payments for acquisition of corporate stores 7 (4,694,585) (8,019,165) Net cash outflows from investing activities (7,766,878) (10,058,899) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayment of) borrowings Payments for share buy-backs Dividends paid Net cash inflows from financing activities Net increase/(decrease) in cash and cash equivalents held Cash and cash equivalents at beginning of financial year 18 19 (500,000) 6,700,000 (1,488,062) – (5,252,260) (2,001,393) (7,240,322) 4,698,607 537,680 (1,944,672) 2,389,271 4,333,943 Cash and cash equivalents at end of financial year 9 2,926,951 2,389,271 32 Shaver Shop Group Limited 2018 annuaL report noteS to the FinanCiaL StatementS For the Year Ended 30 June 2018 1 BaSiS oF preparation The consolidated financial report covers Shaver Shop Group Limited and its controlled entities (‘the Group’). Shaver Shop Group Limited is a for profit Company limited by shares, incorporated and domiciled in Australia. The general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. CompLianCe With iFrS These financial statements and associated notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Each of the entities within the Group prepare their financial statements based on the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. The financial report was authorised for issue by the Directors on 23 August 2018. Comparatives are consistent with prior years, unless otherwise stated. 2 SummarY oF SiGniFiCant aCCountinG poLiCieS (a) BaSiS For ConSoLidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Shaver Shop Group Limited (‘Company’ or ‘parent entity’) as at 30 June 2018 and the results of all subsidiaries for the period then ended. Shaver Shop Group Limited and its subsidiaries together are referred to in these financial statements as the Group or the consolidated entity. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. A list of controlled entities is contained in Note 27 to the financial statements. (B) neW aCCountinG StandardS and interpretationS not Yet mandatorY or earLY adopted The AASB has issued new and amended Accounting Standards and Interpretations that have mandatory application dates for future reporting periods. The Group has decided not to early adopt these standards. The following table summarises those future requirements, and their impact on the Group where the standard is relevant: AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. The Group will adopt this standard from 1 July 2018. The Group has commenced the assessment of the impact of its adoption and have not identified any changes from the either the classification and measurement for financial assets or hedge accounting requirements changes that will have a material impact on the transactions and balances recognised in the financial statements. However, the Group are still assessing any potential impact for the impairment changes under an expected credit losses method which may impact the calculation of the provision for doubtful debts. 33 noteS to the FinanCiaL StatementS 2 SummarY oF SiGniFiCant aCCountinG poLiCieS CONTINUED AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. This new standard will replace AASB 118 Revenue which covers revenue arising from the sale of goods and the rendering of services and AASB 111 Construction Contracts which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer and permits either a full retrospective or a modified retrospective approach for the adoption. The Group will adopt this standard using the modified retrospective approach from 1 July 2018 and has performed an initial assessment of the impact of this change. Given that majority of the Group revenue is derived from over the counter sale of goods it is not expected that this adoption will have a material impact. AASB 16 Leases AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the group’s operating leases. The Group will adopt this standard from 1 July 2019 and has engaged with an external provider to consolidate the required leasing information in order to perform quantification of this change which is still underway. As at the reporting date, the group has non-cancellable operating lease commitments $32,467,363 and it is expected that this change will have a material impact. However, the group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the group’s balance sheet, profit and classification of cash flows. The Group will continue to work with the external provider to assess the quantification of this change and the impact of its adoption. (C) BuSineSS ComBinationS The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre existing equity interest in the subsidiary. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition by acquisition basis, the Group recognises any non controlling interest in the acquiree either at fair value or at the non controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred and the amount of any non controlling interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a gain from a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. (d) SeGment reportinG Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Group operates within one reportable segment, being retail store sales of a variety of specialist personal grooming products through their corporate stores, and royalty income from franchise stores. 34 Shaver Shop Group Limited 2018 annuaL report (e) ForeiGn CurrenCY tranSaCtionS and BaLanCeS Functional and presentation currency Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The financial statements are presented in Australian dollars, which is Shaver Shop Group Limited’s functional and presentation currency. Transaction and balances Foreign currency transactions are recorded at the spot rate on the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit and loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. (F) revenue and other inCome Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are presented net of returns, trade allowances, discounts, rebates and amounts collected on behalf of third parties. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised for the major business activities using the methods outlined below: Sale of goods Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and cessation of all involvement in those goods. Interest income Interest is recognised using the effective interest method, which, for floating rate financial assets is the rate inherent in the instrument. Franchise royalty fee income Franchise royalty fee income includes advertising contributions, which is generally earned based upon a percentage of sales, is recognised on an accrual basis. (G) inCome taX The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. However, deferred tax liabilities are recognised in respect of any adjustments to goodwill subsequent to initial recognition. On that basis, deferred tax liabilities have been recognised in the year in respect of additions to goodwill in respect of franchise buy-back activities, to the extent that they are deductible in calculating current tax expense in the year. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax 35 noteS to the FinanCiaL StatementS 2 SummarY oF SiGniFiCant aCCountinG poLiCieS CONTINUED rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount of tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit and loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive or directly in equity, respectively. (h) GoodS and ServiCeS taX (GSt) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case, it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (i) LeaSeS Leases of property, plant and equipment where the company, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short term and long term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the company will obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight line basis over the period of the lease. (J) propertY, pLant and eQuipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. 36 Shaver Shop Group Limited 2018 annuaL report Depreciation on assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the shorter of the lease term and the assets’ useful life as follows: Fixed asset class Plant and Equipment Computer Equipment Leasehold Improvements 2 12 years 1-7 years 10 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying value is written down immediately to its recoverable amount if the asset’s carrying value is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying value. These are included in profit or loss. (K) impairment oF aSSetS Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. At the end of each reporting period the Group determines whether there is an evidence of an impairment indicator for non-financial assets. (L) intanGiBLe aSSetS Goodwill Goodwill is measured as described in note 2(b). Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose, are identified according to operating segments. Brand names Brand names have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate the cost of the brand names over their useful life of 20 years. (m) CaSh and CaSh eQuivaLentS For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. 37 noteS to the FinanCiaL StatementS 2 SummarY oF SiGniFiCant aCCountinG poLiCieS CONTINUED (n) trade reCeivaBLeS Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision of impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payment (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of impairment loss is recognised in profit or loss within other expenses. When a trade receivable for which an impairment allowance has been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. (o) inventorieS Inventories are stated at the lower of cost and net realisable value. Cost comprises cost of purchases and direct shipping costs to bring the inventories into their current location. Costs are assigned to individual items of inventory on the basis of weighted average costs. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (p) trade and other paYaBLeS Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 60 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. (Q) empLoYee BeneFitS Short term obligations Liabilities for wages and salaries, including non monetary benefits, annual leave expected to be settled within 12 months after the end of the reporting period in which the employees render the related service are recognised in respect of employee’s services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits. All other short term employee benefit obligations are presented as payables. Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be wholly settled within one year have been measured at the amounts expected to be paid when the liability is settled. Other long term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the reporting period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on high quality corporate bond rates with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. 38 Shaver Shop Group Limited 2018 annuaL report The obligations are presented as current liabilities in the consolidated statement of financial position if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. Share based payments Share based compensation benefits are provided to employees via the LTI Plan. LTI Plan The fair value of shares granted under the Shaver Shop Group Limited Long Term Incentive Plan (LTIP) is recognised as an employee benefit expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted: > Including any market performance conditions (for example the entity’s share price) > Excluding the impact for any service and non market performance vesting conditions (for example, sales growth targets, profitability and an employee remaining an employee of the entity over a specified time period), and > Including the impact of non vesting conditions (for example the requirement for employees to hold shares for a specified period of time). The total expense is recognised over the vesting period, which is the period over which all of the specific vesting conditions are to be satisfied. At the end of each period, the entity revises estimates of the number of shares that are expected to vest based on the non market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. (r) BorroWinGS Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probably that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. (S) BorroWinG CoStS Borrowing costs are recognised as an expense in the period in which they are incurred. (t) proviSionS Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. 39 noteS to the FinanCiaL StatementS 2 SummarY oF SiGniFiCant aCCountinG poLiCieS CONTINUED (u) (i) earninGS per Share Basic earnings per share Basic earnings per share is determined by dividing net profit after income tax attributable to members of the Group, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial period, adjusted for bonus elements in ordinary shares issued during the period. (ii) Diluted earnings per share Diluted earnings per share adjusts the figure used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares (including performance rights) and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (v) adoption oF neW and reviSed aCCountinG StandardS The Group has adopted all of the new, revised or amended accounting standards and interpretations issued by the Australian Accounting Standards Board (AASB) that are mandatory for the current reporting period. The adoption of these accounting standards and interpretations did not have any significant impact on the financial performance or position of the Group. Any new, revised or amended Accounting Standards or Interpretations that are not mandatory have not been early adopted 3 CritiCaL aCCountinG eStimateS and JudGmentS The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving significant estimates or judgements are estimates of goodwill impairment, refer to Note 13, and recoverable amount of inventory, refer to Note 11. 4 revenue and other inCome (a) revenue From ContinuinG operationS 2018 $ 2017 $ 154,936,604 142,567,549 154,936,604 142,567,549 Sales revenue Retail sales Total Revenue 40 (B) FranChiSe and other revenue and other GainS/(LoSSeS) Franchise revenue Franchise royalties Other revenue Advertising contributions Other revenue Other gains/(losses) (Loss) on disposal of Property, Plant & Equipment Total franchise and other revenue 5 eXpenSeS The result for the year includes the following specific expenses: Finance Costs (net) Interest and finance charges Interest income Finance Costs (net) Amortisation Brand names Depreciation Property, plant & equipment Depreciation and amortisation expense Rental expense relating to operating leases Minimum lease payments Shaver Shop Group Limited 2018 annuaL report 2018 $ 2017 $ 1,976,916 3,310,061 – 222,315 47,295 37,357 (118) – 47,177 259,672 2,024,093 3,569,733 2018 $ 2017 $ 493,324 443,715 (42,526) (36,996) 450,798 406,719 72,488 72,628 1,979,214 1,334,971 2,051,702 1,407,599 11,361,076 10,174,805 41 noteS to the FinanCiaL StatementS 6 inCome taX eXpenSe (a) the maJor ComponentS oF taX eXpenSe (inCome) CompriSe: Current tax expense Current tax on profits for the year 1,065,725 2,792,149 2018 $ 2017 $ Deferred tax expense Movement in deferred tax assets Movement in deferred tax liabilities Income tax expense relating to continuing operations (B) reConCiLiation oF inCome taX to aCCountinG proFit: Profit from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2017 30%) Add: Tax effect of: > non deductible depreciation and amortisation > non-deductible IPO exit incentives expense > other non deductible items Less/(Add): Tax effect of: > Other Income tax attributable to parent entity Income tax expense Franchise Buy-backs 2,085,098 1,288,272 (38,762) (19,309) 3,112,061 4,061,112 2018 $ 2017 $ 9,677,956 13,055,069 2,903,387 3,916,521 20,038 – 29,608 21,059 87,588 34,006 2,953,033 4,059,174 159,028 1,938 3,112,061 4,061,112 3,112,061 4,061,112 Shaver Shop has received a private ruling from the Australian Tax Office in respect of deductions for the amount relating to the termination of the franchise licence forming part of the purchase consideration paid for the buy back of franchise stores. The tax ruling confirms that this amount is to be deducted in equal portions over a five year period following the date of purchase. For each franchise store, a portion of the purchase consideration equal to the total tax benefit to be received over five years is recognised as a deferred tax asset and included in the calculation of goodwill. The deferred tax asset is then released over five years in accordance with the deduction schedule for each acquired franchise store with the effect of reducing income tax payable for each period. 42 Shaver Shop Group Limited 2018 annuaL report 7 BuSineSS ComBinationS The Company acquired one franchise store on 28 September 2017, one on 1 November 2017 and two on 29 November 2017 for a total purchase consideration $4,694,585. The acquisitions are expected to increase the Group’s retail sales and synergies are expected to arise after the Company’s acquisition of these stores. Details of the purchase consideration, the net assets acquired and the resulting goodwill are as follows: Purchase consideration: Cash Total purchase consideration Assets or liabilities acquired: Inventories Payables Deferred tax assets Total net identifiable assets acquired and liabilities assumed Goodwill Total $ 4,694,585 4,694,585 1,051,957 (409,709) 1,170,000 1,812,248 2,882,337 The goodwill is attributable to the retail stores bought back, strong profitability in trading personal grooming products and synergies expected to arise after the Company’s acquisition of these stores. The goodwill is not expected to be deductible for tax purposes. Revenue of the acquired franchise stores included in the consolidated revenue of the Group since the respective acquisition dates amounted to $3.97 million. Had the results of the acquired franchise stores been consolidated from 1 July 2017, additional revenue of the Group would have been $2.27 million for the year ended 30 June 2018. Acquisition related costs for the franchise buy-backs were not material and are included in other expenses in the profit and loss statement. 8 operatinG SeGmentS SeGment inFormation The Group operates within one reportable segment, being retail sales of specialist personal grooming products through their corporate and online stores and royalty income from franchise stores. The chief operating decision maker for the Company is the Chief Executive Officer. The retail stores and franchise royalty income has been aggregated into one reportable segment, as they have similar growth rates. Total revenue disclosed in the consolidated statement of comprehensive profit and loss all relates to this one reportable segment. The Group is not reliant on any single customer. At 30 June 2018, the Group operated 100 Corporate stores in Australia (2017: 89) and 6 Corporate Stores in New Zealand (2017: 6). Sales and profit derived from outside Australia are not material to disclose. 9 CaSh and CaSh eQuivaLentS Cash at bank and on hand 2018 $ 2017 $ 2,926,951 2,389,271 43 noteS to the FinanCiaL StatementS 10 trade and other reCeivaBLeS CURRENT Trade receivables Prepayments Accrued income Related party receivables Other receivables Note 2018 $ 2017 $ 1,689,732 1,171,011 481,447 243,592 81,377 36,252 482,480 – 81,377 161,278 30(c) Total current trade and other receivables 2,532,400 1,896,146 The carrying value of trade receivables is considered a reasonable approximation of fair value due to the short term nature of the balances. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable in the financial statements. 11 inventorieS Finished goods 2018 $ 2017 $ 23,894,168 29,122,762 amountS reCoGniSed in proFit and LoSS Inventories recognised as an expense during the year ended 30 June 2018 amounted to $90,920,438 (2017: $83,095,092). These were recognised in cost of goods sold. The Company has created a provision for slow moving inventories. At 30 June 2018, this amounted to $688,412 (2017: $594,352). Any movement in the slow moving stock provision for the year is recognised in cost of goods sold. CritiCaL aCCountinG eStimateS and JudGementS – reCoveraBLe amount oF inventorY Management has assessed the value of inventory that requires a provision due to the inventory being slow moving, using past experience and judgement on the likely sell through rates of various items of inventory. To the extent that these judgements and assumptions prove incorrect, the Group may be exposed to potential additional inventory write- downs or write-backs in future periods. 44 12 propertY, pLant and eQuipment Capital works in progress At cost Plant and equipment At cost Accumulated depreciation Total plant and equipment Computer equipment At cost Accumulated depreciation Total computer equipment Improvements At cost Accumulated depreciation Total improvements Shaver Shop Group Limited 2018 annuaL report 2018 $ 2017 $ 1,508,131 380,759 12,104,009 9,785,512 (4,232,959) (2,975,641) 7,871,050 6,809,871 1,503,801 1,137,419 (614,416) (339,468) 889,385 797,951 14,798 (3,510) 11,288 14,798 (2,031) 12,767 Total property, plant and equipment 10,279,854 8,001,348 movementS in CarrYinG amountS oF propertY, pLant and eQuipment Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year: Consolidated Year ended 30 June 2018 Balance at the beginning of the year Additions Disposals Transfers Leasehold improvements in progress $ Plant and equipment $ Computer equipment $ Improvements $ Total $ 380,759 6,809,871 797,951 12,767 8,001,348 4,280,483 – 2,308 (118) – – (3,153,111) 2,720,134 432,977 1 – – 4,282,792 (118) – Depreciation expense Foreign exchange movements – – (1,636,577) (341,156) (1,480) (1,979,213) (24,568) (387) – (24,955) Balance at the end of the year 1,508,131 7,871,050 889,385 11,288 10,279,854 45 noteS to the FinanCiaL StatementS 12 propertY, pLant and eQuipment CONTINUED Consolidated Year ended 30 June 2017 Balance at the beginning of the year Additions Transfers Leasehold improvements in progress $ Plant and equipment $ Computer equipment $ Improvements $ Total $ 949,392 5,083,418 2,952,631 28,787 (3,521,294) 2,889,687 271,082 40,366 631,607 14,186 6,318,078 – – 3,021,784 – Depreciation expense Foreign exchange movements – 30 (1,188,665) (144,964) (1,419) (1,335,048) (3,356) (140) – (3,466) Balance at the end of the year 380,759 6,809,871 797,951 12,767 8,001,348 13 intanGiBLe aSSetS movementS in CarrYinG amountS oF intanGiBLe aSSetS Year ended 30 June 2018 Opening net book value Brand names $ Goodwill $ Total $ 1,041,612 38,806,927 39,848,539 Additions through business combinations – 2,882,337 2,882,337 Amortisation Foreign exchange movements Closing value at 30 June 2018 Year ended 30 June 2017 Opening net book value (72,488) (3,374) – – (72,488) (3,374) 965,750 41,689,264 42,655,014 1,114,527 33,295,797 34,410,324 Additions through business combinations – 5,511,130 5,511,130 Amortisation Foreign exchange movements Closing value at 30 June 2017 (72,628) (287) – – (72,628) (287) 1,041,612 38,806,927 39,848,539 For the purpose of impairment testing, goodwill is monitored as one operating segment. Significant estimate: key assumptions used for value in use calculations The Group performed its annual impairment testing as at 30 June 2018. The Group considers the relationship between its market capitalisation and its carrying value, among other factors, when reviewing for indicators of impairment. The recoverable amount of the relevant CGUs has been determined based on the value in use calculation using cash flow projections from budgets approved by senior management and presented to the Board of Directors covering a five year period. Cash flows beyond the five year period are extrapolated using estimated growth rates of 2.5% (2017:3%). The pre tax discount rate applied to cash flow projected is 12.9%. 46 Shaver Shop Group Limited 2018 annuaL report The value in use calculation is most sensitive to the following key assumptions: > Gross margin > Growth rate > Discount rate Gross margin: Gross margin is based on average values achieved in the past. Margins are not increased over the forecast timeline. The gross margin used in the forecast period is 42.3%. Growth rate: Sales growth rates are based on management’s best estimates of anticipated growth in the short to medium term and consider the historical average like for like sales growth achieved in the past. The growth rate in the terminal year is 2.5% (2017: 3.0%) and the same store sales growth rate used for the five year forecast period is 4.0%. Discount rate: The discount rate is specific to the Group’s circumstances and is derived from its average weighted average cost of capital (WACC). The WACC takes into account the cost of both debt and equity. The cost of equity is determined by the expected return on investment by the Group’s shareholders. The cost of debt is based on the average cost of interest bearing debt that the Group is committed to service. Sensitivity analysis: Management recognises that the recoverable amount of goodwill is sensitive to the assumptions used in the model. A one percent change in the discount rate changes the recoverable amount by approximately $17 million. A one percent change in the terminal growth rate and five year growth rate changes the recoverable amount by approximately $35 million. 14 trade and other paYaBLeS CURRENT Unsecured liabilities Trade payables Deferred consideration GST payable Sundry payables and accrued expenses 2018 $ 2017 $ 12,971,973 10,294,280 – 490,569 50,000 371,267 1,121,387 2,298,835 14,583,929 13,014,382 All amounts are short term and the carrying values are considered to be a reasonable approximation of fair value. 15 empLoYee BeneFitS Current liabilities Provision for employee benefits 2018 $ 2017 $ 1,162,671 1,130,040 The provision for employee benefits includes accrued annual leave and long service leave. For long service leave it covers all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro rata payments in certain circumstances. The entire amount of the provision is presented as current, since the Group does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be taken or paid within the next 12 months. 47 noteS to the FinanCiaL StatementS 15 empLoYee BeneFitS CONTINUED Leave obligations expected to be settled after 12 months 16 BorroWinGS CURRENT Secured liabilities: Bank loans Total current borrowings NON-CURRENT Secured liabilities: Bank loans Total non-current borrowings Total borrowings 2018 $ 2017 $ 228,809 141,345 2018 $ 2017 $ 11,324,267 11,324,267 – – – – 11,824,267 11,824,267 11,324,267 11,824,267 In July 2018, Shaver Shop refinanced its existing bank facilities and established a new $20.0 million multi-option debt facility with a $1.0 million facility to support bank guarantees. The new facility has a term of two years, expiring on 31 July 2020. (a) CoLLateraL The carrying amounts of current and non-current assets pledged as collateral for liabilities are: FIXED AND FLOATING CHARGE: Cash and cash equivalents Trade receivables Inventories Plant and equipment 2018 $ 2017 $ 2,926,951 2,389,271 1,689,732 1,171,011 23,894,168 29,122,762 10,279,854 8,001,348 Under the terms of the major borrowing facilities, as at 30 June 2018, the Group was required to comply with the following financial covenants: a) the ratio of debt to EBITDA must be less than or equal to 2.0; b) the ratio of interest expense to EBIT must be greater than 3.0; and c) the ratio of total assets less total liabilities to total assets must be greater than 0.5. During the current and prior year, there were no defaults on borrowings or breaches of debt covenants. 48 17 other LiaBiLitieS CURRENT Deferred lease incentive liabilities NON-CURRENT Deferred lease incentive liability Deferred rent liability Total non-current other liabilities Total 18 iSSued CapitaL Shaver Shop Group Limited 2018 annuaL report 2018 $ 2017 $ 602,012 344,330 1,979,481 1,475,813 1,119,219 981,642 3,098,700 2,457,455 3,700,712 2,801,785 2018 $ 2017 $ 125,062,692 (2017: 126,387,040) Ordinary shares 48,897,435 50,385,497 Shaver Shop has issued 3,210,000 (FY2017: 1,300,000) shares (LTI Plan Shares) under its Long Term Incentive Plan (LTI Plan). The LTI Plan Shares have vesting criteria and are therefore only included, if appropriate, in diluted share calculations and are not included in the calculation of basic weighted average shares outstanding. (a) movementS in Share CapitaL At the beginning of the reporting period Shares bought back through on market buy-back At the end of the reporting period Number of shares outstanding At the beginning of the reporting period Unvested LTIP shares issued in period Shares bought back through on market buy-back At the end of the reporting period Share buy-back 2018 $ 2017 $ 50,385,497 50,385,497 (1,488,062) – 48,897,435 50,385,497 2018 No. 2017 No. 126,387,040 125,087,040 1,910,000 1,300,000 (3,234,348) – 125,062,692 126,387,040 On 26 October 2017, the Company announced an on-market share buy-back of up to 12.5 million shares, which commenced in November 2017. During the year ended 30 June 2018, the Company bought back and cancelled 3,234,348 shares at an average price per share of $0.46. 49 noteS to the FinanCiaL StatementS 18 iSSued CapitaL CONTINUED Calculation of weighted average number of diluted shares 2018 No. 2017 No. Weighted average number of ordinary shares used for calculating basic earnings per share 124,189,119 125,087,040 Adjustment for weighted average number of LTI Plan Shares issued (unvested shares) – 28,493 Weighted average number of ordinary shares and potential ordinary shares used in calculating diluted earnings per share 124,189,119 125,115,533 The LTI Plan Shares are not included in the calculation of the weighted average number of fully diluted shares outstanding because the average market price of the Company’s shares was below the exercise price of the LTP Plan Shares for the year ended 30 June 2018. The LTI Plan Shares could potentially be included in the number of fully diluted shares outstanding in the future. The holders of ordinary shares are entitled to participate in dividends and the proceeds on winding up of the Company. On a show of hands at meetings of the Company, each holder of ordinary shares has one vote in person or by proxy, and upon a poll each share is entitled to one vote. The Company does not have authorised capital or par value in respect of its shares. (B) CapitaL manaGement Capital of the Group is managed in order to safeguard the ability of the Group to continue as a going concern, to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure. The Group monitors capital through the gearing ratio, which is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is defined as equity per the consolidated statement of financial position plus net debt. There are no externally imposed capital requirements. 19 dividendS The following dividends were declared and paid: Fully franked FY2017 final dividend of 2.4 cents per share (2017: nil) 3,009,666 – 2018 $ 2017 $ Fully franked FY2018 interim dividend of 1.8 cents per share (2017: 1.6 cents per share) Total dividends per share declared and paid 2,242,594 2,001,393 2018 $ 0.042 2017 $ 0.016 50 Shaver Shop Group Limited 2018 annuaL report FranKinG aCCount 2018 $ 2017 $ The franking credits available for subsequent financial years at a tax rate of 30% 595,267 1,664,459 The above available balance is based on the dividend franking account at year end adjusted for: (a) Franking credits that will arise from the payment/(receipt) of the current tax liabilities/(receivable); (b) Franking debits that will arise from the payment of dividends recognised as a liability at the year end; (c) Franking credits that will arise from the receipt of dividends recognised as receivables at the end of the year. The ability to use the franking credits is dependent upon the Company’s future ability to declare dividends. 20 reServeS Foreign currency translation reserve Opening balance Currency translation differences arising during the year Balance at 30 June Share based payments reserve Opening balance Transfers in Balance at 30 June Total 2018 $ 2017 $ (28,686) (25,217) 35,382 6,696 (3,469) (28,686) 319,628 50,650 370,278 376,974 271,313 48,315 319,628 290,942 (a) ForeiGn CurrenCY tranSLation reServe Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income foreign currency translation reserve. The cumulative amount is reclassified to profit or loss when the net investment is disposed of. (B) Share BaSed paYmentS reServe This reserve records the cumulative value of employee service received for the issue of share options. When the option is exercised the amount in the share option reserve is transferred to share capital. 51 noteS to the FinanCiaL StatementS 21 earninGS per Share Profit from continuing operations 2018 $ 2017 $ 6,565,895 8,993,956 Earnings used to calculate basic EPS from continuing operations 6,565,895 8,993,956 Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS and diluted EPS: Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS Weighted average number of ordinary shares outstanding during the year used in calculating fully diluted EPS 2018 No. 2017 No. 124,189,119 125,087,040 124,189,119 125,115,533 inFormation ConCerninG CLaSSiFiCation oF SeCuritieS LTI Plan shares granted to participants are considered to be potential ordinary shares. They have been included in the determination of diluted earnings per share if the required TSR and EPS hurdle would have been met based on the company’s performance up to the reporting date, and to the extent to which they are dilutive. The LTI shares have not been included in the determination of basic earnings per share. The 1,300,000 LTI shares granted on 22 June 2017 and the 1,910,000 LTI shares granted on 26 October 2017 and 10 November 2017 are not included in the calculation of diluted earnings per share because they are not dilutive for the year ended 30 June 2018. 22 retained earninGS Retained earnings at beginning of the financial year Net profit for the year Dividends paid Retained earnings at end of the financial year 23 CapitaL and LeaSinG CommitmentS (a) operatinG LeaSeS Minimum lease payments under non-cancellable operating leases: > not later than one year > between one year and five years > later than five years 52 2018 $ 2017 $ 8,406,133 1,413,570 6,565,895 8,993,956 (5,252,260) (2,001,393) 9,719,768 8,406,133 2018 $ 2017 $ 9,934,870 8,854,729 21,001,659 19,557,383 1,530,834 1,751,926 32,467,363 30,164,038 Shaver Shop Group Limited 2018 annuaL report Operating leases have been taken out for retail stores and head office. Lease payments are increased on an annual basis to reflect market rentals. The Company has Bank Guarantees in place as security for rental payments on several of its locations. As at 30 June 2018, $721,916, was drawn under the Company’s bank guarantee facility. The AASB has issued a new standard to govern accounting for leases. This will replace AASB 117 which previously governed the accounting and disclosure of leases. AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the group’s operating leases. As at the reporting date, the group has non-cancellable operating lease commitments of $32,467,363. However, the group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the group’s profit and classification of cash flows. Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to arrangements that will not qualify as leases under AASB 16. The standard is mandatory for first interim periods within annual reporting periods beginning on or after 1 January 2019. At this stage, the group does not intend to adopt the standard before its effective date. 24 FinanCiaL riSK manaGement The Group is exposed to a variety of financial risks through its use of financial instruments. The Group‘s overall risk management plan seeks to minimise potential adverse effects due to the unpredictability of financial markets. The Group does not speculate in derivative financial instruments. The most significant financial risks to which the Group is exposed to are described below: Risk Liquidity risk Credit risk Exposure arising from Borrowings, bank overdrafts and other liabilities Cash at bank and trade receivables Market risk currency risk Recognised assets and liabilities not denominated in Australian dollars Market risk interest rate risk Borrowings at variable rates oBJeCtiveS, poLiCieS and proCeSSeS Risk management is carried out by the Group’s senior management and the Board of Directors. The Chief Financial Officer has primary responsibility for the development of relevant policies and procedures to mitigate the risk exposure of the Group, these policies and procedures are then approved by the risk management committee and tabled at the board meeting following their approval. Reports are presented to the Board regarding the implementation of these policies and any risk exposure which the Risk Management Committee believes the Board should be aware of. Specific information regarding the mitigation of each financial risk to which the Group is exposed is provided below. LiQuiditY riSK Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities as and when they fall due. The Group maintains cash to meet its liquidity requirements for up to 30 day periods. Funding for long term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long term financial assets. 53 noteS to the FinanCiaL StatementS 24 FinanCiaL riSK manaGement CONTINUED The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long term financial liabilities as well as cash outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day to day and week to week basis, as well as on the basis of a rolling six-week projection. Long term liquidity needs for an 180-day and a 360-day period are identified monthly. (i) Financing arrangements The Group had access to the following undrawn borrowing facilities at the end of the reporting period: Commercial advance facilities Bank guarantee facility Total 2018 $ 2017 $ 11,675,733 11,175,733 1,278,084 1,188,637 12,953,817 12,364,370 The multi-option facility has a limit of $23.0 million and was drawn to $11.3 million as at 30 June 2018. In addition, Shaver Shop has access to a bank guarantee facility with a limit of $2.0 million was drawn to $0.7 million as at 30 June 2018. The multi-option facility bears an interest rate of BBSY +1.65%. Both facilities were renegotiated in July 2018. The new multi-option facility has a borrowing limit of $20.0 million and the bank guarantee facility has a limit of $1.0 million. Both facilities mature on 31 July 2020. The new multi-option facility has interest rates varying from BBSY +1.10% to BBSY +1.55% depending on the sub facility being utilised. (ii) Maturities of financial liabilities The Group‘s liabilities have contractual maturities which are summarised below: Not later than 1 month 1 month to 1 year 1 to 2 years 2018 $ Bank loans 11,324,267 2017 $ – Trade payables Total 12,971,973 10,344,280 24,296,240 10,344,280 2018 $ 2017 $ 2018 $ 2017 $ – – – – – – – – – 11,824,267 – 11,824,267 The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward. The amounts disclosed in the table are the undiscounted contracted cash flows and therefore the balances in the table may not equal the balances in the consolidated statement of financial position due to the effect of discounting. The timing of expected outflows is not expected to be materially different from contracted cashflows. Credit riSK Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in a financial loss to the Group. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposure to certain customers, including outstanding receivables and committed transactions. The Group has adopted a policy of only dealing with creditworthy counter parties as a means of mitigating the risk of financial loss from defaults. In addition, sales to retail customers are required to be settled in cash or through the use of major credit cards, reducing credit risk associated with sales. 54 Shaver Shop Group Limited 2018 annuaL report Trade receivables consist mainly of supplier rebates and franchise royalty income owing to the Group. Ongoing credit evaluation is performed on the financial condition of accounts receivable. No impairment exists within trade receivables at year end. There are no balances within trade receivables that contain assets that are overdue but not impaired. It is expected that these balances will be received when due. The credit risk for liquid funds and other short term financial assets is considered negligible, since the counter parties are reputable banks with high quality external credit ratings. Credit quality The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. Cash at bank AA (Standard & Poors) Accounts receivable Counter parties with no external credit rating 2018 $ 2017 $ 2,926,951 2,389,271 Group 1* 1,689,732 1,171,011 * Group 1: Existing counter parties (more than 12 months) with no defaults in the past. marKet riSK (i) Foreign currency risk Most of the Group transactions are carried out in Australian Dollars. Exposures to currency exchange rates arise from the Group’s New Zealand operations which are denominated in New Zealand Dollars. Whilst the Group’s exposure to foreign currency is not considered to be material, the Group’s exposure to non Australian Dollar cash flows is monitored in accordance with the Group’s risk management policies. Shaver Shop Pty Ltd has an inter-company receivable of $3.9 million at 30 June 2018 (30 June 2017: $4.0 million). This balance represents the initial and ongoing investment in Shaver Shop’s New Zealand operations. Based on the year end balance, a 1% appreciation in the NZ dollar has approximately a $35,000 impact on the company’s pre-tax profit. (ii) Interest rate risk The Group is exposed to interest rate risk arising from both short term and long term variable rate borrowings. The Group does not hedge against interest rate movements and monitors the exposure to interest rate risk in accordance with the Group’s risk management policy. All of the Group’s borrowings are denominated in Australian Dollars. As at the end of the reporting period, the Group had the following variable rate borrowings outstanding: Floating rate instruments Bank loans Total Weighted average interest rate % Weighted average interest rate % 2018 $ 2017 $ 3.92 3.92 11,324,267 11,324,267 3.43 3.43 11,824,267 11,824,267 Management considers that interests rates could reasonably increase by 1% or decrease by 0.5% (2017: increase of 1%, decrease of 0.5%). As these movements would not have a material impact on either the net result for the year or equity, no sensitivity analysis has been performed. 55 noteS to the FinanCiaL StatementS 25 taX aSSetS and LiaBiLitieS (a) Current taX aSSetS and LiaBiLitieS Income tax receivable Income tax payable (B) reCoGniSed deFerred taX aSSetS and LiaBiLitieS Deferred tax assets 2018 $ 1,627,119 2017 $ – – 131,606 2018 $ 2017 $ 5,850,250 6,726,586 Opening balance $ Charged to income $ Charged directly to equity $ Acquisition of franchise stores $ Deferred tax assets Provisions – employee benefits Accruals Lease incentive liability Cancellation of franchise fee on acquisition IPO costs Other 323,207 301,608 382,277 63,614 156,124 166,353 3,390,600 (1,564,500) 1,529,632 (387,164) 99,371 (274,301) Set off Deferred Tax Liability (345,646) 19,309 Balance at 30 June 2017 5,681,049 (1,268,963) Provisions – employee benefits Accruals 386,821 457,732 11,790 (62,290) Lease incentive liability 548,630 200,046 Cancellation of franchise fee on acquisition IPO costs Other 4,143,600 (1,766,115) 1,142,468 (380,822) 373,672 (87,707) Set off Deferred Tax Liability (326,337) 38,762 – – – – – – – – – – – – – Closing balance $ 386,821 457,732 548,630 – – – 2,317,500 4,143,600 1,142,468 373,672 (326,337) – – 2,317,500 6,726,586 – – – 398,611 395,442 748,676 1,170,000 3,547,485 – – – 761,646 285,965 (287,575) Balance at 30 June 2018 6,726,586 (2,046,336) 1,170,000 5,850,250 56 Shaver Shop Group Limited 2018 annuaL report 26 auditorS’ remuneration During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non related audit firms: (a) priCeWaterhouSeCooperS auStraLia (i) Audit and other assurance services Audit of financial statements Total remuneration for audit and other assurance services (ii) Taxation services Tax compliance services Tax consulting services Total remuneration for taxation services (iii) Other Services Other consulting services Total remuneration for other services 2018 $ 2017 $ 170,000 170,000 61,329 38,760 100,089 54,192 54,192 206,000 206,000 48,552 10,200 58,752 49,100 49,100 Total remuneration of PricewaterhouseCoopers Australia 324,281 313,852 (B) netWorK FirmS oF priCeWaterhouSeCooperS auStraLia (i) Taxation services Tax compliance services Total remuneration for taxation services Total remuneration of network firms of PricewaterhouseCoopers Australia 27 intereStS in SuBSidiarieS The Group’s subsidiaries as at 30 June 2018 are set out below. 2018 $ – – – 2017 $ 3,155 3,155 3,155 Subsidiaries: Lavomer Riah Pty Ltd Shaver Shop Pty Ltd Shaver Shop (New Zealand) Limited Rasoirs Pty Ltd Principal place of business/ Country of Incorporation Percentage Owned (%)* 2018 Percentage Owned (%)* 2017 Australia Australia New Zealand Australia 100 100 100 – 100 100 100 100 * The percentage of ownership interest held is equivalent to the percentage voting rights for all subsidiaries. 57 noteS to the FinanCiaL StatementS 28 deed oF CroSS Guarantee Shaver Shop Group Limited, Lavomer Riah Pty Ltd and Shaver Shop Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts of the others. Under ASIC class order 98/1418 there is no requirement for these subsidiaries to prepare or lodge a consolidated financial report and directors’ report as a result of entering into the deed. These companies represent a closed Group for the purposes of the class order. The consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position, comprising the closed group, after eliminating all transactions between parties to the deed of cross guarantee are shown below: 2018 $ 2017 $ 150,060,139 138,174,651 (87,719,101) (80,241,920) 62,341,038 57,932,731 2,065,991 3,606,286 (53,876,571) (47,641,876) (493,324) (443,715) 10,036,991 13,453,426 (3,112,061) (4,061,112) 6,924,930 9,392,314 6,924,930 9,392,314 2018 $ 2017 $ 9,554,148 2,163,227 6,924,930 9,392,314 (5,252,260) (2,001,393) 11,226,824 9,554,148 11,226,824 9,554,148 Consolidated Statement of Comprehensive Income Revenue Cost of Sales Gross Profit Other revenue Operating expenses Finance costs Profit before income tax Income tax (expense)/credit Profit after income tax Profit attributable to members of the parent entity Retained earnings: Retained earnings at the beginning of the year Profit after income tax Dividends recognised Retained earnings at the end of the year Attributable to: Equity holders of the company 58 Consolidated Statement of Financial Position Current Assets Cash and cash equivalents Trade and other receivables Inventories Current tax receivables Total Current Assets Non-Current Assets Property, plant and equipment Intangible Assets Deferred Tax Assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Current tax payables Borrowings Total Current Liabilities Non-Current Liabilities Long-term borrowings Other liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued Capital Reserves Retained Earnings Total Equity Shaver Shop Group Limited 2018 annuaL report 2018 $ 2017 $ 2,379,234 1,870,811 2,434,327 1,890,216 22,560,555 27,471,643 1,627,119 – 29,001,235 31,232,670 9,709,811 7,234,274 42,557,765 39,742,222 5,850,250 6,726,586 58,117,826 53,703,082 87,119,061 84,935,752 12,322,057 10,096,562 – 131,606 11,324,267 – 23,646,324 10,228,168 – 11,824,267 2,978,200 2,624,044 2,978,200 14,448,311 26,624,524 24,676,479 60,494,537 60,259,273 48,897,435 50,385,497 370,278 319,628 11,226,824 9,554,148 60,494,537 60,259,273 59 noteS to the FinanCiaL StatementS 29 ContinGenCieS ContinGent LiaBiLitieS There are no contingent liabilities recognised by the Group. 30 reLated partieS (a) SuBSidiarieS Interests in subsidiaries are set out in Note 27. (B) KeY manaGement perSonneL Key management personnel remuneration (excluding Directors Fees) included within employee expenses for the year is shown below: Short-term employee benefits Post-employment benefits Share-based payments 2018 $ 2017 $ 1,227,487 1,333,701 74,616 35,565 67,224 39,952 1,337,668 1,440,877 Detailed remuneration disclosures are provided in the Remuneration Report. (C) LoanS to/From reLated partieS The following balances are outstanding at the end of the reporting period in relation to transactions with related parties: Opening balance $ Closing balance $ Interest not charged $ Interest paid/payable $ Impairment $ Loans to KMP and related parties 2018 2017 81,377 81,377 81,377 81,377 – – – – – – The loans to KMP resulted from a share incentive scheme implemented prior to the Shaver Shop Employee Share Plan (refer Note 32). Interest is payable on the KMP loans based on the Australian Taxation Office benchmark rate from time to time. KMP loans are repayable after a maximum period of six years or upon disposal of the shares. 60 Shaver Shop Group Limited 2018 annuaL report 31 CaSh FLoW inFormation (a) reConCiLiation oF reSuLt For the Year to CaShFLoWS From operatinG aCtivitieS Reconciliation of net income to net cash provided by operating activities: Profit for the year Cash flows excluded from profit attributable to operating activities Non-cash flows in profit: Depreciation and amortisation Net loss on disposal of property, plant & equipment Share based payments expense Net exchange differences Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries: > > > > > (increase)/decrease in trade and other receivables (increase)/decrease in inventories (increase)/decrease in deferred tax assets increase/(decrease) in trade and other payables increase/(decrease) in income taxes payable Cashflow from operations 32 Share-BaSed paYmentS 2018 $ 2017 $ 6,565,895 8,993,956 2,051,702 1,407,599 118 50,650 63,711 – 48,315 48,676 (636,254) 135,564 6,280,550 (9,954,101) 2,046,336 1,606,321 880,897 116,967 (1,758,725) 1,012,323 15,544,880 3,415,620 In FY2017, the Company established a Long Term Incentive Plan (LTI Plan) to assist in the motivation, retention and reward of senior executives. The LTIP is designed to align the interests of senior executives more closely with the interests of Shareholders by providing an opportunity for eligible Shaver Shop managers and executives to acquire shares (Plan Shares) in the Company subject to the conditions of the LTIP. Plan Shares that are granted under the plan may be funded by a limited recourse loan to the eligible participant from the Company or one of its subsidiaries. The Plan Shares rank pari passu in all respects with the ordinary shares of the Company. Under the terms of the LTIP and relevant offer letters, vesting of the LTIP shares is subject to the achievement of performance conditions as well as service conditions. Vesting of 70% of the LTIP shares is subject to the achievement of a minimum Total Shareholder Return (TSR) and 30% of the LTIP shares is subject to the achievement of EPS conditions. If the minimum TSR and EPS performance conditions are achieved, then the relevant service condition attaching to the shares must also be met. In the event the participant leaves the Company prior to the vesting date, the options will generally lapse. In FY2017, the Company issued 1,300,000 Plan Shares to eligible participants. In FY2018, the Company broadened the eligible participant base with 1,910,000 shares issued to eligible participants. The Plan Shares have been treated as equity-settled share-based payment transactions in the Company’s financial accounts. 61 noteS to the FinanCiaL StatementS 32 Share-BaSed paYmentS CONTINUED Details of the number of Plan Shares granted and the fair value of the Plan Shares at on the relevant Grant Date is set out below. Grant Date Number of Plan Shares Granted Issue Price of Plan Shares Limited recourse loan value Financial Year 2018 2018 2017 10 Nov 17 26 Oct 17 22 June 17 210,000 1,700,000 1,300,000 $0.6829 $0.6829 $0.5899 $143,409 $1,160,930 $766,870 The number of LTIP shares outstanding and the relative exercise price of the LTIP shares is set out below. Outstanding at the beginning of the year Granted during the year Vested during the year Forfeited during the year FY17 LTIP (Shares) 1,300,000 – – (809,035) FY18 LTIP (Shares) Total – 1,300,000 1,910,000 1,910,000 – – – (809,035) Outstanding at the end of the year 490,965 1,910,000 2,400,965 Average exercise price $0.5899 $0.6829 $0.6639 The fair value at grant date of the LTIP shares is independently determined using an adjusted form of Black Scholes Model. The model takes into account the vesting criteria, the current share price, the expected dividend yield, the risk free interest rate, the expected volatility of the shares and the correlations and volatilities of peer group companies. The assessed fair value at grant date of Plan Shares granted during the year ended 30 June 2018 varied from $0.03 per Plan Share to $0.16 per Plan Share depending on the Grant Date and the relevant vesting criteria (FY17 – $0.06 to $0.23). The key assumptions used in the valuation models are: Grant Date Financial Year 2018 2018 2017 10 Nov 17 26 Oct 17 22 June 17 Closing share price on Grant Date $0.50 $0.465 $0.59 Exercise price Volatility Dividend yield (Nil as used to pay off loan value) Risk-free rate $0.6829 $0.6829 $0.5899 45% Nil 2.19% 45% Nil 45% Nil 2.30% 2.00% Total expenses arising from share based payment transactions recognised during the period as part of Employment Benefits Expense were as follows: Plan Shares issued under LTI Plan 62 Financial Year 2018 $ 2017 $ $50,650 $48,315 Shaver Shop Group Limited 2018 annuaL report 33 eventS oCCurrinG aFter the reportinG date The consolidated financial report was authorised for issue on 23 August 2018 by the board of directors. Subsequent to year end, the Directors declared a fully-franked final dividend of 2.4 cents per share to shareholders of record on 17 October 2018. The dividend payment date is 31 October 2018. In July 2018, Shaver Shop refinanced its existing bank facilities and established a new $20.0 million multi-option debt facility with a $1.0 million facility to support bank guarantees. The new facility has a term of two years, expiring on 31 July 2020. No other matters or circumstances have arisen since the end of the financial year which significantly affected or could significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 34 parent entitY The following information has been extracted from the books and records of the parent, Shaver Shop Group Limited and has been prepared in accordance with Accounting Standards. The financial information for the parent entity, Shaver Shop Group Limited has been prepared on the same basis as the consolidated financial statements. Summary financial information Assets Current assets Non-current assets Total Assets Liabilities Current liabilities Total Liabilities Equity Contributed equity Reserves Retained losses Total Equity Profit for the period Total comprehensive income Opening retained losses Profit for the period Dividends paid or provided for Closing retained losses 2018 $ 2017 $ 16,544,578 16,544,578 29,476,444 29,857,267 46,021,022 46,401,845 – – – – 48,897,434 50,385,496 370,277 319,628 (3,246,689) (4,303,279) 46,021,022 46,401,845 6,287,234 1,520,055 6,287,234 1,520,055 (4,303,279) (3,821,941) 6,308,850 1,520,055 (5,252,260) (2,001,393) (3,246,689) (4,303,279) 63 noteS to the FinanCiaL StatementS 34 parent entitY CONTINUED ContinGent LiaBiLitieS The parent entity did not have any contingent liabilities as at 30 June 2018 or 30 June 2017. ContraCtuaL CommitmentS The parent entity did not have any commitments as at 30 June 2018 or 30 June 2017. 35 CompanY detaiLS The registered office of and principal place of business of the Company is: Shaver Shop Group Limited Level 1, Chadstone Tower One 1341 Dandenong Road CHADSTONE VIC 3148 64 Shaver Shop Group Limited 2018 annuaL report direCtorS’ deCLaration The directors of the Company declare that: 1. the consolidated financial statements and notes for the year ended 30 June 2018 are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards, which, as stated in basis of preparation Note 1 to the consolidated financial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and b. give a true and fair view of the financial position and performance of the consolidated Group; 2. In the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. Broderick Arnhold Director Melbourne 23 August 2018 65 independent audit report Independent auditor’s report To the members of Shaver Shop Group Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Shaver Shop Group Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: 1. 2. giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year then ended complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: the consolidated statement of financial position as at 30 June 2018 the consolidated statement of comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the notes to the consolidated financial statements, which include a summary of significant accounting policies the directors’ declaration. 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. 69 66 Shaver Shop Group Limited 2018 annuaL report We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. Materiality Audit scope Key audit matters Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk Committee: Carrying value of goodwill Carrying value of inventory Accounting for supplier rebates These are further described in the Key audit matters section of our report. For the purpose of our audit we used overall Group materiality of $487,000 million, which represents approximately 5% of the Group’s profit before tax. We applied this threshold, Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. The Group sells personal grooming and beauty appliances to customers across Australia and New Zealand, through retail stores and the Group’s website. The products are predominately held in the Group’s warehouse in Melbourne, and across the retail stores. The accounting processes are structured around a group finance function located at the head office in Melbourne where the majority of our audit procedures were performed. together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. We chose Group profit before tax because, in our view, it is the metric against which the performance of the Group is most commonly measured. We selected 5% based on our professional judgement, noting it is within the range of commonly accepted thresholds. 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 for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. 70 67 independent audit report Key audit matter How our audit addressed the key audit matter Carrying value of goodwill (Refer to note 13) [$41.7m] Our audit procedures included: At 30 June 2018 the Group recognised a balance of $41.7million of goodwill in the financial report. Making an assessment of whether the CGU identified by the Group was consistent with our knowledge of the Group’s operations and internal reporting. Australian Accounting Standards require the Group to assess the carrying value of goodwill each year for impairment at the Cash Generating Unit (CGU) level. Assessing whether the CGU appropriately included all directly attributable assets, liabilities, corporate overheads and cash flows. We focussed on the impairment assessment due to the size of the goodwill balance and the significant judgements and assumptions required in estimating the future performance of the Group in the Group’s discounted cashflow impairment model (the impairment model). Testing that forecast cash flows used in the impairment model were consistent with the most up-to-date budgets and business plans presented to the Board of Directors Evaluating the Group’s track record of forecasting future results within impairment models based on a comparison of budgets with reported actual results for the previous year. Considered the Group’s sensitivity analysis on the key assumptions used in the impairment model. We assessed the assumptions with our view on other reasonably possible outcomes in light of the industry the Group operates in and past performance. With the assistance of our valuation experts, evaluating the appropriateness of the discount rate by assessing the reasonableness of the relevant inputs to the calculation against industry and market factors. Testing of the mathematical accuracy of the impairment model’s calculations. Evaluation of the adequacy and accuracy of disclosures in note 13, including those regarding the key assumptions and sensitivities to changes in such assumptions, in light of the requirements of Australian Accounting Standards. 71 68 Shaver Shop Group Limited 2018 annuaL report Carrying value of inventory (Refer to note 11) [$23.9m] At 30 June 2018 the Group recognised inventory of $23.9 million in the financial report. The Group also recognised a provision for obsolete inventory of $688,000. The Group estimate the required provision using past experience and judgement to determine the likely sales volumes and expected future selling prices and associated costs. We have focused on this matter because of the significant judgement and estimation involved in determining the net realisable value of inventory and the potentially material impact on the financial report. Our procedures included the following: Testing to verify that all inventory balances were included in the provision calculation. An evaluation of whether the methodology applied to calculate the provision was consistent with that applied in the prior year and if not we have considered whether the changes in the methodology are reasonable and in line with Australian Accounting Standards. Assessing the Group’s historical ability to make estimates by testing a sample of products included in the prior year inventory provision, including comparing the estimated recoverable amount to the actual gain or loss earned on those products sold in the financial year. Testing of the mathematical accuracy of the provision calculation. Evaluating whether the provision for inventory was adequate by assessing: - the gross margins recognised by the Group - the inventory turnover ratio and ageing, including a comparison to the prior year. Accounting for supplier rebates (Refer to note 2(O)) [$1.6m] The Group has entered into a number of arrangements with various suppliers under which they receive rebates for purchasing goods. These rebates are known as supplier volume rebates and vary dependent on the specific terms agreed with each supplier in relation to the rebate rate(s) and the range of products included. We have focused on this matter because of the magnitude and number of rebates received during the year, and the different terms applicable to each rebate agreement. Our audit procedures included the following: Obtained confirmations from a sample of suppliers of the quantity of relevant inventory purchased and the terms of rebate and compared these to the information used in the Group’s calculations. Tested the mathematical accuracy of the Group’s rebate calculations For a sample of rebates not subject to confirmation procedures, we have obtained evidence of payment and a valid arrangement. 72 69 independent audit report Other information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the Directors report. We expect the remaining other information to be made available to us after the date of this auditor's report, including Operational Highlights, Chairman’s and CEO’s Report, Shareholder Information, Corporate Information. Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above 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. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the other information not yet received as identified above, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the 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. 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 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 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 the financial report. 73 70 Shaver Shop Group Limited 2018 annuaL report A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's report. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 15 to 27 of the directors’ report for the year ended 30 June 2018. In our opinion, the remuneration report of Shaver Shop Group Limited for the year ended 30 June 2018 complies with section 300A of the Corporations Act 2001. 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 responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Daniel Rosenberg Partner Melbourne 23 August 2018 74 71 SharehoLder inFormation For the year ended 30 June 2018 The Shareholder information set out below is based on information in the Company’s share register as at 12 September 2018. diStriBution oF hoLdinGS oF FuLLY paid ordinarY ShareS Range 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Securities 104,363,139 18,352,714 1,568,502 689,400 33,437 % No. of holders 83.49 14.68 1.25 0.55 0.03 72 537 180 227 79 % 6.58 49.04 16.44 20.73 7.21 125,007,192 100.00 1,095 100.00 As at 12 September 2018, there were 88 holders of an unmarketable parcel of shares. SuBStantiaL SharehoLderS The following is a summary of the substantial shareholder in Shaver Shop Group Limited (the Company) pursuant to notices lodged with the ASX in accordance with Section 671B of the Corporations Act as at 12 September 2018. Name of Shareholder Perpetual Limited Alsop Pty Limited ATF the Johnston Trust Microequities Asset Management Pty Ltd Brian Singer (1) % of issued capital specified in the relevant notice. No. of Shares % of Issued Capital (1) 19,199,155 14,277,125 9,385,069 6,258,040 15.35% 11.00% 7.34% 5.00% 72 Shaver Shop Group Limited 2018 annuaL report 12 Sep 2018 21,907,645 14,277,125 12,127,383 11,154,746 5,408,004 4,160,004 3,498,104 3,210,000 2,907,000 2,773,336 2,495,000 1,800,024 1,250,000 866,822 850,000 803,916 716,342 645,000 603,333 600,000 92,053,784 32,953,408 %IC 17.53 11.42 9.70 8.92 4.33 3.33 2.80 2.57 2.33 2.22 2.00 1.44 1.00 0.69 0.68 0.64 0.57 0.52 0.48 0.48 73.64 26.36 125,007,192 100.00 top 20 SharehoLderS Rank Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED ALSOP PTY LTD J P MORGAN NOMINEES AUSTRALIA LIMITED NATIONAL NOMINEES LIMITED KATANI PTY LTD ZARA HOLDINGS PTY LTD ANACACIA PTY LIMITED PACIFIC CUSTODIANS PTY LIMITED MR BRODIE ERNST ARNHOLD DOVALI PTY LTD MR TONY GANDEL & MRS HELEN GANDEL MR CAMERON FOX CLAYDON SUPER PTY LTD BNP PARIBAS NOMINEES PTY LTD ARKINDALE PTY LTD NEWECONOMY COM AU NOMINEES PTY LIMITED MS ANDREA ATAMIAN MR DAMIAN MARIO CIFONELLI MOSKA HOLDINGS PTY LIMITED 20 JE & FJ CUNNINGHAM SUPERANNUATION PTY LTD Total Balance of register Grand total unQuoted eQuitY SeCuritieS There are currently no unquoted equity securities of the Company. Shaver Shop WeBSite www.shavershop.com.au Corporate GovernanCe inFormation Copies of the Company’s Policies and Charters, including its Corporate Governance Statement are available at the Corporate Governance section of Shaver Shop’s Investor Relations website: investors.shavershop.com.au 73 SharehoLder inFormation votinG riGhtS For FuLLY paid ordinarY ShareS The Constitution provides for votes to be cast at a meeting of members: (1) on a show of hands, each member has 1 vote; and (2) on a poll: (a) for each fully paid share held by a member, 1 vote; and (b) for each partly paid share, a fraction of a vote equivalent to the proportion which the amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited). on-marKet BuY-BaCK On 26 October 2017, the Board announced an on-market buy-back of the Company’s shares that would continue for 12 months, subject to changes in share price and market conditions. inveStor reLationS inFormation Larry Hamson CFO and Company Secretary +61 3 9840 5900 investors.shavershop.com.au Corporate inFormation ABN 78 150 747 649 direCtorS Broderick Arnhold Cameron Fox Craig Mathieson Trent Peterson Brian Singer Melanie Wilson CompanY SeCretarY Lawrence Hamson reGiStered oFFiCe Level 1, Chadstone Tower One 1341 Dandenong Road, Chadstone, Victoria, 3148 Australia prinCipaL pLaCe oF BuSineSS Level 1, Chadstone Tower One 1341 Dandenong Road, Chadstone, Victoria, 3148 Australia Phone: +61 (0) 3 9840 5900 74 Share reGiStrY Link Market Services Limited Tower 4 727 Collins Street Melbourne Victoria 3008 Phone: 1300 554 474 auditorS PricewaterhouseCoopers SoLiCitorS Norton Rose Fulbright BanKerS Bankwest Inside back cover – TBC When Exporting, use this as the page range... A-B,01-74,C,D No-rejuggling of pdf pages, everything is in the right order. (This is a non-printing/non-PDF text box – DO NOT DELETE) Last spellcheck done: 03.10.18 – @ p5a (This is a non-printing/non-PDF text box – DO NOT DELETE) S h a v e r S h o p G r o u p L i m i t e d 2 0 1 8 a n n u a L r e p o r t shavershop.com.au