Annual Report 2019 Shriro continues its global growth strategy 1 2 4 5 6 8 10 12 14 17 83 2019 Highlights Our Brands Chairman’s Letter CEO Report Business at a Glance Business review – Australia Business review – New Zealand Business review – Export Board of Directors Financial Report Corporate Directory AGM Notice is given that the 2020 Annual General Meeting of Shriro Holdings Limited (Shriro or the Company) will be held online at, https://agmlive.link/SHM20, on Thursday, 28 May 2020 at 2.00pm (AEST). SHRIRO HOLDINGS LIMITED | ABN 29 605 279 329 1 2019 HIGHLIGHTS $172.1m REVENUE $6.0m NET CASH $18.0m EBITDA 7.0 cps CENTS PER SHARE FULLY FRANKED SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 2 OUR BRANDS Shriro is a leading Kitchen Appliances and Consumer Products marketing and distribution group operating out of Australia and New Zealand, and expanding globally. Shriro markets and distributes an extensive range of products under company-owned brands (including Omega, Robinhood, Everdure and Omega Altise), and third-party brands (Casio, Blanco and Pioneer). BLANCO Since 1925 we’ve had only one goal, and that’s to deliver a premium experience by approaching all that we create with impeccable style and intelligence. ROBINHOOD Robinhood is a leading Australasian brand of kitchen and laundry products. Range includes rangehoods, and ducting solutions; laundry tubs and ironing centres; waste disposers and related accessories. EVERDURE BY HESTON BLUMENTHAL Whether you love the convenience of cooking on gas, or want to reconnect with the primal beauty of cooking on charcoal – home, or away, Everdure by Heston Blumenthal will help you unleash your creativity and bring out the best in BBQ food. OMEGA At Omega, we’re driven by balance. The perfect balance between beautiful design and brilliant capability. Our products are designed to enhance your life by transforming your kitchen into a stylish and simple environment to delight and satisfy. EVERDURE KITCHENS Cooking up great ideas since 1935. Proudly Australian owned, Everdure Appliances continues to combine clever technology and functionality with stylish design. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 3 OMEGA ALTISE Bringing the ease and convenience of comfortable living into Australian homes for over 25 years. Designed to seamlessly satisfy a range of decors and requirements. G-SHOCK Born from the pursuit to create an unbreakable watch, G-SHOCK have been providing Absolute Toughness to men who need the most from their watches, for over 35 years! CASIO EMI Casio dominates the digital piano and portable keyboard markets in Australia, with innovative products such as the Grand Hybrid Piano range, a collaborative effort between Casio and European manufacturer, C.Bechstein. BABY-G EDIFICE 25 years ago BABY-G became known for its ‘Pretty Tough’ watches. Today they are as practical as it is pretty, embracing all shapes, colours and sizes for all women and lifestyles. A dynamic and high performing men’s watch that is ever evolving in design and technology. Unchained from restraints, Casio Edifice is built so that time knows no limits. CASIO CALCULATORS Casio produces a wide selection of products ranging from school calculators, desktop calculators, printer calculators, and label printers. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 4 CHAIRMAN’S LETTER Outlook As I am writing this, we are surrounded by changing and challenging times as governments and communities work towards resolving the economic, personal and financial hardship that most of us are experiencing as a result of the response to the COVID-19 outbreak. Our number one priority at Shriro is to ensure the health and wellbeing of our staff and as a result the Board and Management support the Governments of Australia and New Zealand in their efforts to protect the community from the spread of the virus. Whilst our New Zealand business is in total lockdown, the vast majority of the management and staff of our Australian operations are working diligently from home. Everyone is making personal and financial sacrifices to ensure the financial health and sustainability of the company. Whilst times may seem a little uncertain, the one thing that we can be certain of is future change. Change can be confusing and sometimes confronting but it also brings opportunity. On behalf of the Board I’d like to extend my thanks to our CEO, Tim, the management and staff for their efforts and commitment throughout the year, their passion for growing the Company and their clarity of thought, care and compassion for each other in how they have managed the recent changes. Finally, on behalf of the Board, I would like to thank you, our shareholders, for your continued support and I wish you health and stability during the journey to economic recovery. STEPHEN HEATH Chairman 2019 was as a year that can best be summarised as one of mixed financial results and the building of a platform for future productivity improvement and strategic review. Group Sales Revenue declined 5% to $172.1 million and Net Profit after Tax declined 11% to $6.5 million over the prior year. Net Profit Before Tax declined 1.1% to 9.4 million. However, improved working capital management delivered $23.5 million of operating cash flow, an improvement of $12 million, providing the company with a healthy Balance Sheet with no debt and $6 million of cash on hand. Revenue Despite many of our brands performing well, particularly in New Zealand, the revenue decline in the year emanated largely from the Australian Appliance Division which was impacted by challenges in managing the distribution channel in the down cycle of the property development market and slower than expected BBQ sales associated with the expansion into the US market. Operating Margins Despite Net Profit before Tax declining 1.1%, our CEO, Tim Hargreaves, and his management team have been able to reduce operating costs to ensure the Net Profit before Tax margin of 5.4%, slightly improved over the prior year result of 5.2%. Dividends On 27 February 2020, the Directors declared a fully franked final dividend of 3 cents per share, which was paid on the 30th of March 2020. Combined with the interim dividend of 3 cents per share, which was also fully franked, the total dividend for 2019 of 6 cents per share, represents a payout ratio of approximately 87.8%, which is 1.5% higher than the previous year. The Company maintains sufficient financial resources to implement planned initiatives in the current year. The Board Subsequent to the year end, our former Chairman, John Ingram, retired. Sadly, fellow Director and Chair of Audit and Risk, Greg Laurie, passed away just prior to his intended retirement. Both gentlemen contributed significantly to the Company during their stewardship. Cheryl Hayman and myself joined the Board late in 2019 to facilitate the succession planning process and the Board intends to recruit a further Non Executive Director who can fulfil the role of Chair of Audit and Risk. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 CEO REPORT 5 2019, being my second year as CEO, has been a combination of focused effort in navigating some domestic market challenges, reviewing and assessing the effectiveness of our U.S expansion strategy, and the execution of our productivity improvement plans, primarily targeting operational costs and working capital, to ensure we have operational resource alignment in a challenging market going forward. At the group level, revenue declined 5.0%, however through our productivity improvement plans, operating expenses have been managed well, decreasing by 5.6%. As a result, the Net Profit Before Tax decreased 1.1% to $9.4 million. Underlying Net profit After Tax decreased 5.8% to $6.5 million. Operating cash flow improved to $23.5 million through working capital improvements and our Balance Sheet closed the year out with no debt and $6 million of cash on hand. The Australian business recorded a revenue decline of 5.1% to $127.2 million. At a divisional level, G-Shock watches had a record year whilst musical instruments and BBQ’s both recorded growth over the prior year. However, the declines in appliances and cooling (to a lesser extent), were the primary reason for the overall decline. Despite the revenue decline, EBITDA improved 10.3% to $15.3 million as a result of the operational cost improvements made. The New Zealand business recorded revenue growth of 3% to $41.5 million which was underpinned by growth in Robinhood Appliances, G-Shock watches and Pioneer DJ equipment. The disproportionate growth of 10.7% in EBITDA to $4.3 million was driven by an improved cost structure. The Export division recorded a revenue decline of 49.7% to $3.4 million and recorded an EBITDA loss of $2.9 million. The decline in revenue was caused by a lower than expected rate of sale post the launch of the brand in the USA. The rate of sale was impacted by the unforeseen 25% tariff imposed by the US government resulting in retail price point pressure against locally manufactured US brands. The pricing and subsequent margin and distribution challenges have encouraged us to rethink our operating model from the original third party distribution agreement to a new wholly owned subsidiary, at least until we can achieve our planned market penetration and growth aspirations over the next three years. On a more positive note we have been successful in renegotiating our royalty agreement with the entities and management representing Heston Blumenthal, which will result in ongoing savings of $1 million per year. Whilst Shriro is committed to its long term strategy of international expansion and growth, the immediate focus is on managing the short term impact of the Government responses and economic impact of COVID-19 in each of the markets in which we trade and to ensure the safety and health of our staff and customers. Our Business Continuity Plans vary from country to country to comply with the new laws and health recommendations imposed on those markets by their respective governments. These laws and recommendations have lead to either full or partial operational shutdowns in Shriro’s businesses and that of its distribution and retail customers. As a result, we have moved quickly to reduce operational costs to compensate for the short term revenue impact the government regulations will have on the business. Some of these initiatives involve personal and financial sacrifices made by our employees and the teamwork, tenacity, work ethic and resolve of the senior leadership team and staff during this time of uncertainty is humbling. Both New Zealand and the State of California (USA) have been impacted by government enforced shutdowns of non- essential businesses which impacts a significant portion of the group’s revenue and growth aspirations in the short term. All variable costs have been reduced accordingly, negotiations have been entered into with landlords and unfortunately our staff have been impacted by short term stand downs. Whilst Australia has avoided a government enforced shutdown of retail businesses, the directive to the community to stay at home unless absolutely necessary has dramatically impacted retail foot traffic which has in turn led to retailers electing to close their doors for the foreseeable future. The retail shutdowns will impact Shriro’s sales particularly in discretionary products such as G-Shock watches. We are hopeful that the Government stimulus packages will soften the economic impact and help business to return to relative normality soon. In closing and on a personal note, I would like to thank John Ingram for his leadership of the company during his tenure as Chairman, and to pass on my sympathies to the family of our fellow director Greg Laurie on his recent passing. My deepest thanks go to all staff for their sacrifice for the good of the Company and their fellow employees. I also wish to thank the entire Board for their support and extend a warm welcome to the new Board members. Finally I wish to thank you, our shareholders for your continued support. TIM HARGREAVES Chief Executive Officer SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 6 BUSINESS AT A GLANCE Shriro’s customers include most retailers in Australia and New Zealand KITCHEN Oven, cooktops, rangehoods, dishwashers, sinks, tapware, waste disposal and ducting solutions. HEATING | COOLING Fans and heaters. AUDIO | ENTERTAINMENT Projectors, electronic musical instruments, car audio, professional DJ equipment, Hi-Fi products and speakers. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 7 OUTDOOR COOKING Barbeques. LAUNDRY Laundry tubs, ironing centre and dryers. PERSONAL Watches and musical instruments. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 8 AUSTRALIA SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 9 BUSINESS REVIEW AUSTRALIA • Casio division performed well highlighted by record G-Shock watch sales and strong demand for Musical Instruments. • Major improvements in operating costs. • Australian BBQ sales increase. • Appliance sales down on the prior year. Omega Appliances undergoing a major brand and product refresh. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 10 BUSINESS REVIEW NEW ZEALAND • Robinhood strong sales growth of 20%. • Initial costs of establishing the Auckland Airport watch store were incurred. • Appliances entered a strategic partnership with Mitre 10, expected to drive growth once the market conditions allow. • Strong demand for Pioneer DJ products. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 11 NEW ZEALAND SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 12 EXPORT SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 13 BUSINESS REVIEW EXPORT • Company product now sold in 9 export countries. • New financial agreement with Heston Blumenthal to channel royalty payments to brand investment. • US subsidiary opened to deliver on US expansion plans. 14 BOARD OF DIRECTORS STEPHEN HEATH Chairman Member of the Audit, Risk and Compliance Committee Member of the Remuneration and Nomination Committee • Stephen Heath was appointed Chairman to the Board of Shriro Holdings Limited in October 2019. • Stephen is a specialist in consumer goods brand management with over 25 years of consumer goods brand marketing and vertically integrated retail experience. • Stephen’s Board experience includes the Chairmanship of Temple and Webster Limited & Glasshouse Fragrances along with Non-Executive Directorships of Total Tools Pty Ltd, Shriro Holdings Limited and Redhill Education Limited. • He is also a member of the Investment Committee of a prominent Family Office overseeing property and consumer brand assets both in Australia and the USA. • Stephen’s executive career included being CEO of some of Australia’s best-known consumer brands companies including Rebel Sport Limited, Godfrey’s and Fantastic Holdings Limited with operations experience in Australia, New Zealand, and Asia. • Prior he was a Franchisee and Steering Committee member of Harvey Norman Limited for 8 years. Member of the Audit, Risk and Compliance Committee Member of the Remuneration and Nomination Committee • Director since 14 April 2015. • Currently serves as Chairman of ASX listed Nick Scali Limited. Previously, John was a Non-Executive Director of United Group Limited and a Trustee Director of Australian Super. • Mr Ingram is an Emeritus Councillor of the Australian Industry Group and a past National President. JOHN INGRAM Non-Executive Chairman (Resigned 27 February 2020) • Mr Hargreaves was appointed CEO of Shriro Australia and Monaco Corporation 1 January 2018. • Mr Hargreaves was appointed General Manager of Casio Division in June 2001 and Divisional Manager of CASIO Office products for 8 years from 1990 – 1998, before leaving to join Canon Australasia as head of retail operations. • Mr Hargreaves rejoined Shriro as General Manager overseeing all CASIO divisions (Office Products, Timepiece, Electronic Musical Instruments, Data Projectors, Electronic Cash Registers and Digital Cameras). TIM HARGREAVES Chief Executive Officer • With the acquisition of Robinhood brands in September 2013, Mr Hargreaves was appointed General Manager of Robinhood, whilst retaining management of the CASIO division. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 15 VASCO FUNG Non-Executive Director Member of the Audit, Risk and Compliance Committee Member of the Remuneration and Nomination Committee • Director since 14 April 2015. • Vasco has been a director of Shriro since 30 December 1997 and has over 30 years’ experience in various industries. • Vasco is the Group Chief Executive Officer of Shriro Pacific Ltd, an international investment group with distribution, manufacturing and retail businesses in Asia Pacific, North America and Europe. • Vasco is a member of the Institute of Chartered Accountants in England and Wales and the Hong Kong Institute of Certified Public Accountants. Member of the Audit, Risk and Compliance Committee Chairman of the Remuneration and Nomination Committee • Cheryl Hayman was appointed to the Board of Shriro Holdings Limited in October 2019. • Cheryl is a professional non-executive director and a marketing specialist. She has served on ASX Listed, Public unlisted and NFP Boards. Having keen financial and people skills, Cheryl has experience in Chairing Nomination and Remuneration committees. Cheryl’s skills are able to adapt across a breadth of industry sectors, demonstrated over 13 years as a non-executive director. CHERYL HAYMAN Non-Executive Director • Cheryl had a lengthy and successful global marketing career in multi-national organisations Unilever (Aust and UK), Yum Restaurants (Australia and NZ), Time Warner and George Weston Foods. • Cheryl’s specialisation brings to a board a depth of expertise in building compelling brand and consumer propositions, a passion for driving innovation, deep understanding of digital communications and profitable strategy development. • Cheryl is a Fellow of the Australian Institute of Company Directors. • Current Directorships Clover Corporation Ltd, HGL Ltd, Chartered Accountants Australia and New Zealand, Peer Support Australia, The Darlinghurst Theatre Company. Chairman of the Audit, Risk and Compliance Committee Chairman of the Remuneration and Nomination Committee • Director since 14 April 2015. • Greg has extensive experience in a number of manufacturing and distribution industries. • He is presently an independent Non-Executive Director and Chairman of the Audit Committee of Nick Scali Limited and was Chairman of ASX listed Big River Industries Limited until 1 August 2019. • Greg holds a Bachelor of Commerce Degree from the University of New South Wales and an advanced management qualification from the University of Pittsburgh. • Greg was previously an independent Non-Executive Director and Chairman of the audit and risk committee of Bradken Limited. • Shane Booth joined Shriro in March 2010. • Prior to joining Shriro, Shane was a Senior Executive of Allomak Limited for two years and Senior Executive of Objective Corporation Limited for three years. In these roles, Shane undertook restructuring activities and drove efficiencies. • Shane prior to this worked at PKF Australia in their corporate services segment (Audit). • Shane is a Chartered Accountant (CA) and holds a Bachelor of Business in Accounting. GREG LAURIE Non-Executive Director (Vale 23 March 2020) SHANE BOOTH Chief Financial Officer and Company Secretary SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 16 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 17 FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2019 18 19 32 33 38 39 40 41 42 43 44 Corporate Governance Statement Director’s Report Auditor’s Independence Declaration Auditor’s Independent Report Director’s Declaration Consolidated Statement of Profit or Loss Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 18 CORPORATE GOVERNANCE STATEMENT Shriro Holdings Limited aims to follow best practice recommendations as set out by the ASX Corporate Governance Council. Where the company has not followed best practice for any recommendation, further clarification relating to all current corporate governance policies can be found on the company’s website at http://www.shriro.com.au/investor/corporate_ governance. All policies and practices remain under ongoing review. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 DIRECTORS’ REPORT 19 The Directors present their report in compliance with the provisions of the Corporations Act 2001 on the consolidated entity (referred to hereafter as the “Group”) consisting of Shriro Holdings Limited (“Shriro” or the “Company”) and the entities it controlled at the end of, or during, the year ended 31 December 2019. DIRECTORS Directors of Shriro Holdings Limited during and since the year ended 31 December 2019 unless otherwise stated below are: John Ingram – Independent Chairman Tim Hargreaves – Non-independent Executive Director Vasco Fung – Non-independent non-executive Director Greg Laurie – Independent non-executive Director Cheryl Hayman – Independent non-executive Director (appointed 24 October 2019) Stephen Heath – Independent non-executive Director (appointed 24 October 2019) The chairman has the casting vote which ensures the boards independence through its control by independent non- executive directors. COMPANY SECRETARY Shane Booth is Company Secretary. PRINCIPAL ACTIVITIES The Group is a leading kitchen appliances and consumer products marketing and distribution Group operating in Australia and New Zealand. The Group markets and distributes an extensive range of company-owned brands (including Omega, Neil Perry Kitchen by Omega, Everdure including ‘Everdure by Heston Blumenthal’, Robinhood and Omega Altise) and third party owned brands (such as Casio, Blanco and Pioneer). Products include calculators, watches, cash registers, musical instruments, audio products, kitchen appliances, sinks & taps, laundry products, consumer electronics, car audio, amplifiers, professional DJ, Hi-Fi/speakers, fashion, lighting, gas heaters and gas and charcoal barbeques, electric heaters and cooling products. REVIEW OF OPERATIONS A summary of the revenues and results is as follows: Results summary Revenue Gross Margin Operating Expenses EBITDA Depreciation and amortisation Interest Profit Before Tax Profit After Tax 2019 $ million 172.1 39.1% 49.3 18.0 6.3 2.3 9.4 6.5 2018 (restated) $ million 181.1 39.4% 52.2 19.2 7.0 2.7 9.5 7.3 Change % (5.0%) (5.6%) (6.3%) (10.0%) (14.8%) (1.1%) (11.0%) SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 20 NPAT Statutory Tax benefit on 2017 LTI cash payment paid in 2018 Underlying NPAT Operating and Financial Review 31 December 2019 $’000 31 December 2018 (restated) $’000 6,484 – 6,484 7,326 (441) 6,885 Shriro Holdings Limited today announced its results for the year ended 31 December 2019. Net Profit after Tax for the year ended 31 December 2019 decreased 11% to $6.5 million. NPBT decreased 1.1% in to $9.4 million, compared with the previous year, of $9.5 million. Revenue performance by Division was mixed, although the Australian Appliance Division has suffered the most as a result of the subdued housing development cycle and increased market competition in the sector. 2019 was a year of consolidation by reducing the company’s operating cost structure to ensure sustainable EBITDA margins on the Company’s current lower revenue run-rate. Operating expenses reduced on the prior year by 5.6%. A reduction in excess showroom capacity, improved productivity in the staff structure and overhead have been the major contributors to the productivity improvements. Whilst cost improvements have been achieved in the operating model, management will continue to invest strategically to ensure long-term success of the Brands. Gross Margin for the year was 39.1%, which was slightly lower than the previous year, despite challenging currency headwinds. Currency hedging, improved product ranging and sourcing as well as market pricing increases have contributed to offset the currency pressure. Margin performance for the year was impacted by a pre-tax $1.8 million provision for inventory obsolescence and costs relating to sales to clear superseded Omega products. This was undertaken to ensure a smooth transition to new models due for release in the second quarter of 2020. The new lease standard AASB16 reduced the current years NPAT by $456K (prior year reduced the profit by $372K), due to a timing difference. Shriro’s NPBT will benefit from the new standard in future years as the principal portion of the lease repayments will increase and the interest and depreciation portion will reduce over the term of the leases. There will be no impact on net cash flows as the underlying lease agreements have not changed. The Company maintained its strong balance sheet and sound cash flows despite the lower profit and the payment of a total of 7.0 cents per share dividend in the financial year. Shriro has no Net Debt, and as at 31 December 2019 had $6 million cash on hand. The Directors have declared a fully franked final dividend of 3.0 cents per share, with a record date of 9th March 2020 and payable on 30th March 2020. This is in line with the comparative full year dividend. Shriro is able to hold its dividend due to its strong balance sheet. Operating Expenses: ($million) $60m $50m $40m $30m $20m $10m $0m 2015 2016 2017 2018 2019 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019DIRECTORS’ REPORT 21 Outlook With the core Casio business and New Zealand territory performing well, a more productive organisational structure, new terms agreed with Heston Blumenthal and regional growth opportunity with ‘Everdure by Heston Blumenthal’, management are encouraged by the prospects for the year ahead in those business segments. Macro risks include the property development cycle which impacts the demands for products in the Appliance Division and short term supply chain disruption as a result of the Coronavirus. Notwithstanding the slowness of the property development market, management have restructured the architect/developer service model in an effort to improve market share in a flat market. The outcome of the Coronavirus is still developing and at this point the impact to the supply chain and product sourcing is yet to be fully established. Management will provide a further market update if it establishes that business operations will be materially impacted. Finally, management and the Board will continue to evaluate earnings accretive acquisition opportunities. Employees During this financial year, the number of employees ranged between 239 and 258 and was 239 at year end. (2018: 255). The Directors wish to recognise the contribution made by all employees during the year. Earnings per share The basic and diluted earnings per share are calculated using the weighted average number of shares. This shows the basic earnings per share at 6.8 cents (2018: 7.7 cents) and diluted earnings per share at 6.7 cents (2018: 7.6 cents). DIVIDEND On 5th April 2019, the Group paid the 2018 financial year end dividend of 3.0 cents per share fully franked. On 16th September 2019, the Group paid an interim dividend for the half year ended 30 June 2019 of 4.0 cents per share fully franked. On 27th February 2020 the Directors declared a final dividend of 3.0 cents per share fully franked with an ex-dividend date of the 8th March 2020, record date of the 9th March 2020 and payable on 30th March 2020. DIRECTORS’ ATTENDANCE AT MEETINGS Attendance at Meetings The following table sets out the number of meetings held during the financial year that the individual was a director and the number of meetings attended. John Ingram Tim Hargreaves Vasco Fung1 Greg Laurie1 Stephen Heath Cheryl Hayman1 Directors Meetings Audit and Risk Committee Meetings Remuneration Committee Meetings Held Attended Held Attended Held Attended 10 10 10 10 3 3 10 10 10 10 3 3 4 4 4 4 1 1 4 4 4 4 1 1 1 1 1 1 0 0 1 1 1 1 0 0 1. Vasco Fung, Greg Laurie and Cheryl Hayman attended some meetings via teleconference. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 22 BUSINESS STRATEGIES AND RISK Strategies Shriro believes its investment in brands, supply chain and distribution capabilities has positioned the Group to benefit from ongoing growth and increased market share within its product categories. Shriro aims to continue to grow through: • continual product development and range extensions • geographic expansion including: – International expansion of the new ‘everdure by heston blumenthal’ charcoal BBQ range • continued assessment of value enhancing acquisition opportunities targeting brand ownership, cost rationalisation opportunities and channel diversification. Risks The key risks for the business are: • change in consumer spending patterns throughout the year; • deterioration in economic conditions; • changing tax and tariff rates in the US; • foreign exchange movements; and • further reduced housing construction. INFORMATION ON DIRECTORS Information on the Directors who held office during and since the end of the financial year is as follows: Directors John Ingram Member of the Audit, Risk and Compliance Committee Member of the Remuneration and Nomination Committee Qualifications, Experience and Special Responsibilities Independent Non-Executive Chairman Director since 14 April 2015 Currently serves as Chairman of ASX listed Nick Scali Limited. Previously John was a Non-Executive Director of United Group Limited and a Trustee Director of Australian Super. Mr Ingram is an Emeritus Councillor of the Australian Industry Group and a past National President. Relevant Interest in Shares 210,000 Tim Hargreaves Non-Independent Managing Director 278,312 Director since 14 February 2018 Tim Hargreaves joined Shriro in 1990 as the Segmental Manager of Casio Australia. After eight years he briefly left the Group to join Canon Australasia as Head of Retail operation before re-joining Shriro as the General Manager in June 2001 overseeing all Casio segments (Office Products, Timepiece, Electronic Musical Instruments, Data Projectors, Electronic Cash Registers and Digital Cameras). Vasco Fung Non-Independent Non-Executive Director 3,321,937 Member of the Audit, Risk and Compliance Committee Member of the Remuneration and Nomination Committee Director since 14 April 2015 Vasco has been a director of Shriro since 30 December 1997 and has over 30 years’ experience in various industries. Vasco is the Group Chief Executive Officer of Shriro Pacific Ltd, an international investment group with distribution, manufacturing and retail businesses in Asia Pacific, North America and Europe. Vasco is a member of the Institute of Chartered Accountants in England and Wales and the Hong Kong Institute of Certified Public Accountants. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019DIRECTORS’ REPORT 23 Relevant Interest in Shares 20,000 – – Directors Greg Laurie Chairman of the Audit, Risk and Compliance Committee Chairman of the Remuneration and Nomination Committee Qualifications, Experience and Special Responsibilities Independent Non-Executive Director Director since 14 April 2015 Greg has extensive experience in a number of manufacturing and distribution industries. He is presently an independent Non-Executive Director and Chairman of the Audit Committee of Nick Scali Limited and was Chairman of ASX listed Big River Industries Limited until 1 August 2019 Greg holds a Bachelor of Commerce Degree from the University of New South Wales and an advanced management qualification from the University of Pittsburgh. Greg was previously an independent Non-Executive Director and Chairman of the audit and risk committee of Bradken Limited. Cheryl Hayman Independent Non-Executive Director Member of the Audit, Risk and Compliance Committee Member of the Remuneration and Nomination Committee Director since 24 October 2019 Cheryl had a lengthy and successful global marketing career in multi- national organisations Unilever, Yum Restaurants, Time Warner and George Weston Foods. Cheryl is currently a Non-Executive Director of Clover Corporation Ltd, HGL Ltd, Chartered Accountants Australia and New Zealand, Peer Support Australia and The Darlinghurst Theatre Company. Stephen Heath Chairman Member of the Audit, Risk and Compliance Committee Member of the Remuneration and Nomination Committee Director since 24 October 2019 Stephen’s Board experience includes the Chairmanship of Temple and Webster Limited & Glasshouse Fragrances along with Non-Executive Directorships of Total Tools Pty Ltd, and Redhill Education Limited. Stephen’s executive career included being CEO of some of Australia’s best-known consumer brands companies including Rebel Sport Limited, Godfrey’s and Fantastic Holdings Limited. AUDITED REMUNERATION REPORT This remuneration report, which forms part of the Directors’ report, details the key management personnel remuneration arrangements for the Company, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Principles used to determine the nature and amount of remuneration The objective of the Company’s remuneration framework is to ensure reward for performance whilst maintaining competitiveness with the market and appropriateness for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms to market best practice for delivery of reward. Remuneration and Nomination Committee To assist the Board in the remuneration framework objective, a Remuneration and Nomination Committee has been established as a Committee of the Board. The main responsibilities of the Committee, in relation to remuneration, include: • Reviewing remuneration arrangements for the CEO, CFO and other senior executives. • Reviewing Non-Executive Director fees. • Reviewing and making recommendations on the over-arching executive remuneration framework and incentive plans. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 24 Its objective is to ensure that remuneration policies and structures are fair and competitive and aligned with the long term interests of the Company. In doing this, the Remuneration and Nomination Committee seeks advice from independent remuneration consultants. The Board is responsible for reviewing and resolving on recommendations from the Remuneration and Nomination Committee. In addition the Board: • Considers matters relating to remuneration of Executives reporting to the CEO. • Approves the establishment of or amendment to employee shares, performance rights and any other deferred incentive plan. • Considers matters related to Executive succession planning. • Considers recommendations from the Nomination Committee in relation to Board succession planning, to ensure an appropriate mix of skills, experience, expertise and diversity (subject to the power of shareholders in General Meeting to elect or re-elect directors). Additional details on the Board charter, Audit Risk and Compliance Committee Charter and the Remuneration and Nomination Committee Charter can be found on the company’s website at: https://www.shriro.com.au/investor/corporate_governance Key Management Personnel The Key Management Personnel of Shriro Holdings Limited are the non-executive Directors of the Company and: Tim Hargreaves Chief Executive Officer and Managing Director, and Shane Booth Company Secretary, Chief Financial Officer Non-Executive Director Remuneration The non-executive Directors at the date of this Report are: John Ingram – Chairman Vasco Fung Greg Laurie Stephen Heath Cheryl Hayman Non-executive Directors are paid an annual fee which is reviewed annually by the Remuneration and Nomination Committee and the Board. The Board uses the advice of independent remuneration consultants, as appropriate, to ensure non-executive director fees are appropriate and in line with the market. Non-executive director fees include, where applicable, compulsory superannuation contributions. The non-executive Directors do not participate in the Company’s Long Term Incentive Plan. Total aggregate remuneration for all non-executive Directors, in accordance with the Prospectus dated 27 May 2015, is not to exceed $600,000. Non-executive director’s base fees are presently $90,000 per annum. The Chairman’s fee is presently $140,000 per annum. Committee fees are: Chair of Audit, Risk and Compliance Committee $10,000 p.a. Chair of Remuneration and Nomination Committee $ 5,000 p.a. Member of Audit, Risk and Compliance Committee $ 5,000 p.a. Member of Remuneration and Nomination Committee $ 3,000 p.a. The Chairman does not receive Committee fees. Executive Remuneration The remuneration of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) comprise base pay, at-risk short term bonus (STI) and participation in the Company’s Long Term Incentive Plan (LTIP). Details of each executive’s remuneration is set out below. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019DIRECTORS’ REPORT 25 Chief Executive Officer (CEO) and Chief Financial Officer (CFO) The CEO and CFO are remunerated on a salary package basis which is a component of a formal employment contract. The salary package is considered to be appropriate for the experience and expertise needed for the position and is comparable to other similar sized companies and business units of larger companies. The salary package contains a fixed component and a short term incentive (STI) component. The STI is determined by the Board annually, based on performance against a range of targets. The CEO and CFO are also participants in the Company’s long term incentive plan (LTIP). Short Term Incentive A short term incentive (STI) forms a component of the remuneration of executive Directors and key management personnel in addition to their base remuneration. The STI for 2019 was structured on the following basis: In 2019 Tim Hargreaves is entitled to an STI award equivalent to 60% of his total fixed annual employment cost ($360,000) for target performance or up to 120% of his total fixed annual employment cost ($720,000) for stretch performance, measured against the CY2019 financial year’s budgeted profit after tax. Shane Booth is entitled to an STI award equivalent to 40% of his total fixed annual employment cost ($156,000) for target performance or up to 80% of his total fixed annual employment cost ($312,000) for stretch performance, measured against the CY2019 financial year’s budgeted profit after tax. If the Group’s profit after tax is between the STI target and the stretch target, Tim Hargreaves will be entitled to a cash STI reward of between 60% and 120% of his total fixed annual employment cost and Shane Booth will be entitled to a cash STI reward of between 40% and 80% of his total fixed annual employment cost, calculated on a straight line basis. If the Group’s profit after tax is at least 95% of the STI target, Tim Hargreaves will be entitled to a cash STI reward equivalent to 30% of his total fixed annual employment cost ($180,000) and Shane Booth will be entitled to an STI award equivalent to 20% of his total fixed annual employment cost ($78,000). In addition to the above Tim Hargreaves is entitled to a bonus of up to 10% of his fixed annual employment cost ($60,000) and Shane Booth is also entitled to a bonus of up to 10% of his fixed annual employment cost ($39,000) for the successful completion of the Strategic Plan for the Company (as assessed by and at the discretion of the Board). STI targets are expected to be set by the Board for the 2020 year for CEO Tim Hargreaves and CFO Shane Booth. STI awards are expected to be paid in cash following the Board’s approval of the Company’s financial statements for the relevant year. Long Term Incentive A Long Term Incentive Plan (LTIP) has been implemented in accordance with Shriro’s Employee Share Scheme Rules. The LTIP allows participants to be issued with Performance Rights (Rights) which have associated performance hurdles that are tested at the end of three years from the effective issue date to determine vesting. Subsequent to vesting, each Right can be exercised and converted to an equivalent number of shares of the Company, or cash at the Board’s discretion. Tim Hargreaves has been issued with 415,225 Rights in respect of the 2019 year with an effective date of 1 January 2019 (2018: 150,000; 2017: 44,427). Testing for achievement of the performance hurdle will occur following Board approval of the Company’s financial statements three years after the Rights effective issue date. On exercise the Board will decide whether to settle the exercised Rights in cash or via an on-market purchase of Shares. It may be expected that exercised Rights will generally be settled in Shares, however, if the exercise occurs following cessation of employment with the Group and when the market value of a Share is lower at the time of exercise than it was at the date of cessation of employment with the Group then the exercised Rights will be settled in cash, only. Where shares are to be allocated, this will be achieved by an on-market purchase of the relevant number of shares and will not be by way of an issue of new shares. The rights have been granted free of charge. Shane Booth has been issued with 202,422 Rights in respect of the 2019 year (2018: 73,125; 2017: 87,698). Testing for achievement of the performance hurdle will occur following Board approval of the Company’s financial statements three years after the Rights effective issue date. It is expected that Shane Booth will be invited, at the Director’s discretion, to apply for Rights in respect of the 2020 financial year. The performance hurdle relating to the Rights issued to both Tim Hargreaves and Shane Booth is for the compound annual growth rate (CAGR) of the Company’s earnings per share (EPS) to be no less than 5% for the three years for 50% of the Rights to vest (threshold performance) and 10% or higher for 100% of Rights to vest (target performance). EPS performance between 5% and 10% will result in a pro rata proportion of Rights to vest between 50% and 100%. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 26 Key Terms of Employment Contracts CEO The Company entered into an executive service agreement with Tim Hargreaves as Managing Director and CEO effective 1 January 2018. The remuneration component of the new agreement is considered to be appropriate and in line with relevant industry comparables. For the 2019 year, the short term variable component (STI) can range between 0% and 120% of the fixed component, based on performance measured against a profit after tax target, set annually by the Directors. The long term variable component (LTIP) can range between 0% and 40% of the fixed component based on performance measured against an EPS target over a three year period set by the Directors. Term: No fixed term. Annual Salary: Total fixed remuneration of $600,000, subject to annual adjustment. Notice Period: Twelve months’ notice by either party. CFO The Company entered into an executive service agreement with Shane Booth as Company Secretary and CFO effective 23 June 2015. The remuneration component of the new agreement is considered to be appropriate and in line with relevant industry comparables. For the 2019 year, the short term variable component (STI) can range between 0% and 80% of the fixed component, based on performance measured against a profit after tax target. Based on the initial issue of Rights, the long term variable component (LTIP) can range between 0% and 30% of the fixed component based on the achievement of a performance hurdle that is measured after three years, as determined by the Board and included in any invitation to apply for participation in the LTIP. Term: No fixed term Annual Salary: Total fixed remuneration of $390,000, subject to annual adjustment Notice Period: Six months’ notice by either party Relationship between Remuneration Policy and Group Performance The remuneration of executive officers includes an annual short term incentive (STI). The total STI paid in a year is discretionary, and is closely related to and determined mainly by the current profit levels of the Group but can also include a component of non-financial targets. Executive officers remuneration is further aligned with the long term Group performance via the long term incentive plan (LTIP) and the current shareholdings certain executives retain in the Group. The tables below set out summary information about the Group’s earnings for 31 December 2019. Revenue Net profit before tax Net profit after tax Share price at start of year Share price at end of year Basic earnings per share Diluted earnings per share 31 December 2019 $’000 31 December 2018 (restated) $’000 172,101 181,105 9,399 6,484 9,485 7,326 31 December 2019 cents 31 December 2018 (restated) cents 55 70 6.8 6.7 160 55 7.7 7.6 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019DIRECTORS’ REPORT 27 Particulars of Key Management Personnel interests during the year ended 31 December 2019 Fully paid ordinary shares of Shriro Holdings Limited Non-executive Directors John Ingram Vasco Fung Greg Laurie Stephen Heath Cheryl Hayman TOTAL Executive Officers Tim Hargreaves Shane Booth1 TOTAL 31 December 2018 Received on exercise of rights during 2019 Net other changes during 2019 31 December 2019 Number Number Number Number 210,000 3,321,937 20,000 – – 3,551,937 278,312 2,303,125 2,581,437 – – – – – – – – – – – – – – – – – – 210,000 3,321,937 20,000 – – 3,551,937 278,312 2,303,125 2,581,437 1. Shane Booth’s immediate family hold his shares. Remuneration of Executive Officers and Key Management Personnel Short-term Benefits Post- employment Benefits Long-term Benefits 2019 Cash Fees/Salary Cash Bonus Termination Benefits Super- annuation Long service leave Share rights1 $ Non-executive Directors John Ingram 127,854 Vasco Fung Greg Laurie Stephen Heath2 Cheryl Hayman2 98,000 95,890 16,983 16,983 TOTAL 355,710 $ – – – – – – Executive Officers Tim Hargreaves 575,000 60,000 Shane Booth 369,232 39,000 TOTAL 944,232 99,000 $ – – – – – – – – – $ 12,146 – 9,110 1,613 1,613 24,482 25,000 20,768 45,768 Percentage of remuneration related to performance % – – – – – – Total $ 140,000 98,000 105,000 18,596 18,596 380,192 $ – – – – – – $ – – – – – – 10,480 92,534 763,014 10,790 23,396 463,186 21,270 115,930 1,226,200 20.0% 13.5% 17.5% 1. Performance rights as an LTIP award in respect of the 2019 financial year is recognised in accordance with AASB 2. These rights will vest subject to the satisfaction of performance conditions. 2. Stephen Heath and Cheryl Hayman were appointed to the Board effective from the 24th of October 2019. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 28 Short-term Benefits Post- employment Benefits Long-term Benefits 2018 Cash Fees/Salary Cash Bonus Termination Benefits Super- annuation Long service leave Share rights1 $ Non-executive Directors John Ingram 127,854 Vasco Fung Greg Laurie TOTAL 98,000 95,890 321,744 Executive Officers Tim Hargreaves 575,000 Shane Booth TOTAL 369,709 944,709 $ – – – – – – – $ – – – – – – – $ 12,146 – 9,110 21,256 25,000 20,291 45,291 Percentage of remuneration related to performance % – – – – Total $ 140,000 98,000 105,000 343,000 $ – – – – $ – – – – 64,221 29,395 693,615 22,010 2,654 414,665 86,231 32,049 1,108,280 4.2% 0.6% 2.9% 1. Performance rights as an LTIP award in respect of the 2018 financial year is recognised in accordance with AASB 2. These rights will vest subject to the satisfaction of performance conditions. No director or senior management person appointed during the year received a payment as part of his remuneration for agreeing to hold the position. Non-executive Directors have no further entitlement to cash bonus or non-monetary benefits. Bonuses and share-based payments granted as compensation for the current financial year Cash Bonuses Both Tim Hargreaves and Shane Booth achieved 8.8% of their 2019 structured short term incentives. Tim Hargreaves was granted $60,000 and Shane Booth was granted $39,000 in relation to the successful completion of the Strategic Plan for the Company. Employee Long Term Incentive plan The Company established the employee long term incentive plan (LTIP) to assist in the motivation, retention and reward of senior management. The Plan is designed to align the interests of employees and senior management with the interests of Shareholders by providing an opportunity for employees to receive an equity interest in the Company. From time to time the Board will approve invitations to certain executives and employees to participate in the LTIP on conditions and performance hurdles determined by the Board. The Plan Rules provide flexibility for the Company to grant performance rights, options and/or restricted shares, subject to the terms of individual offers. Performance rights have been granted to the CEO, CFO and other members of senior management of the Company in accordance with the rules of the employee long term incentive plan. It is expected that an invitation to apply for performance rights in respect of the 2020 year will be approved by the Board. Tim Hargreaves was granted 415,225 performance rights to be settled, at the Board’s discretion, either in cash or via an on-market purchase of the relevant number of shares and will not be by way of an issue of new shares (2018: 150,000). Shane Booth was granted 202,422 performance rights (2018: 73,125) under the LTIP during the financial year ended 31 December 2019. No non-executive director received any shares in the current or previous years and no non-executive director can participate in the LTIP. Shriro Holdings Limited has not issued any options. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019DIRECTORS’ REPORT 29 The key terms of the awards under the employee long term incentive plan are summarised in the table below. Performance conditions, performance period and vesting Performance rights will vest subject to the satisfaction of performance conditions. The performance period for LTIP awards will generally be 3 years. The grants have a performance period ending on 31 December three years subsequent to the effective issue date. The grants of performance rights are subject to a performance condition (hurdle) based on the achievement of a target of 10% compound annual growth rate (CAGR) of EPS over three years from the effective date of the performance review. The percentage of performance rights that vest, if any, will be determined by reference to the following vesting schedule, subject to any adjustments for abnormal or unusual profit items considered appropriate by the Board: Target CAGR of the Company’s EPS over the three year period % of performance rights that vest Less than threshold performance (less than 5%) Threshold performance (5%) Nil 50% Between threshold and target performance (5%-10%) 50-100% on a straight line pro rata Target performance (10% or above) 100% Any performance rights that remain unvested at the end of the performance period will lapse immediately. The Board has chosen this LTIP structure, as it believes it provides an appropriate management incentive, it is within management’s achievable control, and is of a timespan relevant to the Company’s industry. Testing of the EPS Hurdle will occur shortly after the end of the Performance Period and release of the Company’s full year audited results for the preceding financial year. The number of Rights that vest (if any) will be determined at that point. Any Rights that remain unvested will lapse immediately. The performance rights do not carry dividends or voting rights prior to vesting. The participant must not sell, transfer, encumber, hedge or otherwise deal with performance rights. The participant will be free to deal with any shares allocated on vesting of the performance rights, subject to the requirements of the Company’s policy for dealing in securities. Rights associated with performance rights Restrictions on dealing Cessation of employment If the participant’s employment is terminated for cause or the participant resigns, unless the Board determines otherwise, any unvested performance rights will automatically lapse. Where the participant ceases employment in any other circumstances, unless the Board determines otherwise: • a pro-rata portion of the performance rights (calculated by reference to the portion of the performance period that has elapsed up to the date of cessation) will remain on foot and will vest or lapse in due course, as though the participant had not ceased employment; and • the remaining portion of the performance rights will automatically lapse. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 30 Name Tim Hargreaves1 Commencement date of performance measurement period Percentage of grant Vested % Percentage of grant forfeited % Effective grant date Future financial years that Grant will be payable Grant date fair value $ Number Granted Financial Year 44,427 Shane Booth 87,698 Tim Hargreaves 150,000 Shane Booth 73,125 Tim Hargreaves2 415,225 Shane Booth 202,422 Total 2017 2017 2018 2018 2019 2019 01/01/2017 01/01/2017 01/01/2017 01/01/2017 01/01/2018 01/01/2018 01/01/2018 01/01/2018 01/01/2019 01/01/2019 01/01/2019 01/01/2019 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 2020 2020 2021 2021 2022 2022 43,824 86,506 223,500 108,956 209,675 102,216 774,677 1. Rights issued before Tim Hargreaves was appointed CEO. 2. If the hurdles are satisfied and at the Board discretion, rights will either be settled in cash or by an on-market purchase of the relevant number of shares and will not be by way of an issue of new shares. CHANGES IN STATE OF AFFAIRS There were no other significant changes in the state of affairs of the Group during the financial year. SUBSEQUENT EVENTS Subsequent to the year ended 31 December 2019, the Group’s banking facilities have been renegotiated. There were no material changes to the terms and conditions. There has not been any other matter or circumstance, not already disclosed, occurring subsequent to the end of the financial year that has significantly affected, or may 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 Disclosure of other information regarding likely developments in the operations of the Group in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the Group. Accordingly, this information has not been disclosed in this report. INDEMNIFICATION OF OFFICERS AND AUDITORS During the financial year, the Group paid a premium in respect of a contract insuring Directors of the Group, the Group secretary, and all executive officers of the Group and of any related body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Group has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the company or of any related body corporate against a liability incurred as such an officer or auditor. NON-AUDIT SERVICES Details of amounts paid or payable to the auditor for non-audit services in the prior year are outlined in note 6.2 to the financial statements. The directors are satisfied that the provision of non-audit services by the auditor (or by another person or firm on the auditor’s behalf) during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019DIRECTORS’ REPORT 31 The directors are of the opinion that the services as disclosed in note 6.2 to the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit Committee, for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 ‘Code of Ethics for Professional Accountants’ issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration is included on page 15 of the annual report. EXTENSION OF AUDIT ROTATION PERIOD The Directors, via a company resolution, have granted approval to extend the tenure of Xenia Delaney as the lead Audit Partner for a sixth consecutive year to 31 December 2020. The Board is satisfied that the extension will maintain the quality of the audit and not give rise to any conflicts of interest as extending the engagement period of the audit partner will provide transparency to the financial reporting process given the Board succession next financial year with the recent appointment of two new independent Directors. Changing the audit partner during the first full financial year of the new independent Board will impose an unreasonable burden on Shriro Holdings Limited and its Board of Directors as Xenia Delaney has extensive historical knowledge of the business having been Audit partner since the year Shriro Holdings Limited was listed on the ASX. ROUNDING OFF OF AMOUNTS The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. This Directors’ report is signed in accordance with a resolution of Directors made pursuant to s298(2) of the Corporations Act 2001. On behalf of the Directors JOHN INGRAM Director TIM HARGREAVES Director Sydney, 27th of February 2020 Sydney, 27th of February 2020 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 32 AUDITOR’S INDEPENDENCE DECLARATION Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 Eclipse Tower Level 19 60 Station Street Parramatta NSW 2150 PO Box 38 Parramatta NSW 2124 Australia Tel: +61 (0) 2 9840 7000 www.deloitte.com.au The Board of Directors Shriro Holdings Limited 104 Vanessa Street KINGSGROVE, NSW 2208 27 February 2020 Dear Board Members Shriro Holdings Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Shriro Holdings Limited. As lead audit partner for the audit of the financial statements of Shriro Holdings Limited for the year ended 31 December 2019, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU X Delaney Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT 33 Deloitte Touche Tohmatsu ABN 74 490 121 060 Eclipse Tower 60 Station Street Parramatta Sydney, NSW, 2150 Australia Phone: +61 2 9840 7000 www.deloitte.com.au Independent Auditor’s Report to the members of Shriro Holdings Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Shriro Holdings Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 31 December 2019, the consolidated statement of profit or loss, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 31 December 2019 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 34 Key Audit Matter How the scope of our audit responded to the Key Audit Matter Provision for rebates Our procedures included, but were not limited to: As at 31 December 2019, the total value of the Group’s provision for rebates is $6.8 million as disclosed in Notes 1.1 and 2.1. Shriro has rebate agreements with certain customers in line with industry practice. The provision for volume and stretch rebates has a direct impact on revenue recognition. Accounting for these rebates is complex, requiring an understanding of the contractual arrangements, and requiring complete and accurate source data to which the arrangements apply, including consideration of the timing of recognition and the presentation thereof. · · · · · · · the stretch appropriateness rebates within Holding discussions with management and other company personnel to understand the rebate structures in place and the manner in which the system processes and accounts for the rebates; Understanding and testing key controls over the recording of rebates; Challenging of management’s rebate policy to assess if they are in accordance with the relevant accounting standards; Comparing the rates relevant to volume and the computations to those included in sales contracts and agreements with third parties (retail and wholesale customers); Reviewed a sample of rebate invoices received from customers and credit notes issued during the year in order to assess the accuracy of management’s estimate for rebates; Recalculating on a sample basis the rebate provision to test the accuracy of the formula by reference to actual and forecast sales volumes; and Performing a retrospective review of the balance to assess the historical accuracy of management’s estimation. Provision for warranties As at 31 December 2019 the provision for warranties is $2.5 million as disclosed in Note 2.5. Significant judgement is involved in determining the appropriate level for the warranty provision. This is estimated by management using a cost accrual approach based on historical actual payment experience, historical relationship to gross sales, estimated time to failure and a prediction period. We also assessed the appropriateness of the disclosures in Notes 1.1 and 2.1 to the financial statements. Our procedures included, but were not limited to: · · · · Understanding and testing key controls over the recording of warranties; Assessing whether the warranty provision was consistent with the prior year, and if there were any changes to statutory and/or contractual obligations; Testing on a sample basis the inputs in the formula/model used the warranty provision to assess the accuracy of the computation; Challenging management’s policy to assess if they are in accordance with the relevant accounting standards and statutory and/or contractual obligations; to calculate · Developing an independent expectation of the provision utilising historic warranty claims settled as a proportion of related sales; SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019INDEPENDENT AUDITOR’S REPORT 35 Provision for inventory obsolescence As at 31 December 2019 the provision for inventory obsolescence is $3.1 million as disclosed in Note 2.2. Significant judgement is involved in determining the appropriate level for the provision for inventory obsolescence and slow-moving stock. This is estimated by reference to inventory ageing and consideration of historical inventory losses, recent sales experience and other factors that effect inventory obsolescence. · · Performing a sensitivity analysis by varying key inputs and assumptions within the formula; and Performing a retrospective review of the balance to assess the historical accuracy of management’s estimation of the warranty provision. We also assessed the appropriateness of the disclosures in Note 2.5 to the financial statements. Our procedures included, but were not limited to: · · · · Understanding and testing key controls over the recording of the provision for inventory obsolescence; Assessing the adequacy of the inventory obsolescence provision as a proportion of stock on hand; Challenging management’s assumptions and judgements regarding the slow moving inventory provision; Assessing historical accuracy of inventory provisioning with reference to inventory write-offs during the year; · · Developing an independent expectation of the provision utilising historic inventory clearance and exposure rates; and Assessing whether inventory items with specific recoverability concerns have been provided for appropriately based on recent sales information. We also assessed the appropriateness of the disclosures in Note 2.2 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the Directors’ Report, Corporate Governance Statement, Appendix 4E and the Additional ASX Information, which we obtained prior to the date of this auditor’s report, and also includes the following information which will be included in the Group’s annual report (but does not include the financial report and our auditor’s report thereon): Chairman’s Report, CEO’s Report, Business at a Glance, Business – Review – Kitchen appliances and Business Review – Consumer products, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not and will not express 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 Chairman’s Report, CEO’s Report, Business at a Glance, Business – Review – Kitchen appliances and Business Review – Consumer products, 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. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 36 Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 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 has 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 this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: · Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as intentional omissions, involve collusion, fraud may misrepresentations, or the override of internal control. forgery, · Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. · · · Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. · Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019INDEPENDENT AUDITOR’S REPORT 37 We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 23 to 30 of the Directors’ Report for the year ended 31 December 2019. In our opinion, the Remuneration Report of Shriro Holdings Limited, for the year ended 31 December 2019, 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. DELOITTE TOUCHE TOHMATSU X Delaney Partner Chartered Accountants Parramatta, 27 February 2020 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 38 DIRECTORS’ DECLARATION The Directors declare that: a. 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; b. in the Directors’ opinion the attached financial statements are in compliance with International Financial Reporting Standard, as stated in the notes to the financial statements; c. in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated Group, and d. the Directors have been given the declarations required by s.295A of the Corporations Act 2001. At the date of this declaration, the company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the Directors’ opinion, there are reasonable grounds to believe that the company and the companies to which ASIC Corporations (Wholly owned Companies) Instrument 2016/785 applies, as detailed in note 5.1 to the financial statements will, as a Group, be able to meet any obligations or liabilities to which they are, or may become, subject because of the deed of cross guarantee. Signed in accordance with a resolution of the Directors made pursuant to s295(5) of the Corporations Act 2001. On behalf of the Directors JOHN INGRAM Director TIM HARGREAVES Director Sydney, 27th of February 2020 Sydney, 27th of February 2020 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2019 Revenue from ordinary activities Raw materials and consumables used Employee benefits expense Advertising and promotion expenses Freight and delivery expenses Depreciation and amortisation expenses Rental costs Finance costs Other expenses Profit before tax Income tax expense Profit for the year Earnings per share Basic (cents per share) Diluted (cents per share) 39 2019 $’000 2018 (restated)1 $’000 172,101 181,105 (104,818) (109,702) (24,062) (24,692) (6,168) (7,167) (6,342) (1,600) (2,426) (6,831) (6,930) (6,982) (2,266) (2,922) (10,119) (11,295) 9,399 (2,915) 9,485 (2,159) 6,484 7,326 6.8 6.7 7.7 7.6 Note 1.1 1.2 1.2 1.5 4.2 4.2 1. The Comparative information has been restated as a result of the initial application of AASB 16 as discussed in note 6.1. The consolidated statement of profit or loss should be read in conjunction with the Notes to the financial statements. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 40 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2019 Profit for the year Items that may be reclassified subsequently to profit or loss Net change in the fair value of cash flow hedges taken to equity Exchange differences on translation of foreign operations Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Shriro Holdings Limited Note 2019 $’000 6,484 (775) 158 (617) 2018 (restated)1 $’000 7,326 321 671 992 5,867 8,318 1. The Comparative information has been restated as a result of the initial application of AASB 16 as discussed in note 6.1. The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the Notes to the financial statements. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 Current assets Cash and cash equivalents Trade and other receivables Inventories Other assets Current tax receivable Derivative receivable Total current assets Non-current assets Right of use assets Property, plant and equipment Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Lease liability Current tax liabilities Provisions Derivative payable Total current liabilities Non-current liabilities Borrowings Lease liability Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Note 1.4 2.1 2.2 2.3 3.1 1.5 2.4 3.3 2.5 3.3 2.5 4.1 4.5 4.4 41 31 December 2019 $’000 31 December 2018 (restated)1 $’000 1 January 2018 (restated)1 $’000 5,970 26,179 34,761 753 975 240 1,372 32,924 38,869 926 2,023 859 3,450 36,333 42,151 1,028 – 578 68,878 76,973 83,540 17,151 19,790 23,544 6,843 6,937 7,691 6,064 9,677 6,017 30,931 33,545 39,238 99,809 110,518 122,778 16,476 17,120 23,159 – 3,454 – 5,162 963 1,344 2,344 – 5,520 524 4,466 2,597 1,746 6,513 419 26,055 26,852 38,900 – 20,617 2,560 23,177 6,000 23,576 2,883 32,459 1,000 26,167 1,934 29,101 49,232 59,311 68,001 50,577 51,207 54,777 94,617 94,617 94,541 (77,261) (76,803) (76,291) 33,221 50,577 33,393 51,207 36,527 54,777 1. The Comparative information has been restated as a result of the initial application of AASB 16 as discussed in note 6.1. The consolidated statement of financial position should be read in conjunction with the Notes to the financial statements. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 42 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR 31 DECEMBER 2019 Issued capital $’000 Group Reorganisation Reserve $’000 Cash Flow Hedging Reserve $’000 Foreign Currency Translation Reserve $’000 Equity Settled Benefits Reserve $’000 Restated Retained Earnings $’000 Total $’000 Balance at 31 December 2017 94,541 (78,585) AASB 16 restatement impact1 – – Balance at 1 January 2018 (restated)1 Profit for the year Other comprehensive income for the year Total comprehensive income Dividends paid Share Issue Share-based payments reserve (net of tax) Balance at 31 December 2018 (restated)1 Profit for the year Other comprehensive income for the year Total comprehensive income Dividends paid Share-based payments reserve (net of tax) 87 – 87 – 321 321 – – – 1,206 1,001 38,923 57,173 – – (2,396) (2,396) 1,206 1,001 36,527 54,777 – 671 671 – – – – – – – – (1,504) 7,326 7,326 – 992 7,326 8,318 (10,460) (10,460) – – 76 (1,504) 94,541 (78,585) – – – – 76 – – – – – – – 94,617 (78,585) 408 1,877 (503) 33,393 51,207 – – – – – – – – – – – (775) (775) – – – 158 158 – – – – – – 6,484 6,484 – (617) 6,484 5,867 (6,656) (6,656) 159 – 159 Balance at 31 December 2019 94,617 (78,585) (367) 2,035 (344) 33,221 50,577 1. The Comparative information has been restated as a result of the initial application of AASB 16 as discussed in note 6.1 The consolidated statement of changes in equity should be read in conjunction with the Notes to the financial statements. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR 31 DECEMBER 2019 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Finance costs paid Income taxes paid 43 Note 2019 $’000 2018 (restated)1 $’000 196,057 202,624 (167,437) (182,183) (2,408) (2,742) (2,884) (5,962) Net cash provided by operating activities 1.4.2 23,470 11,595 Cash flows from investing activities Proceeds from sale of property, plant and equipment Payment for property, plant and equipment Net cash used in investing activities Cash flows from financing activities Payments for the principal portion of lease liabilities Proceeds from/(repayment of) borrowings Dividends paid Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash 102 85 (2,491) (2,429) (2,389) (2,344) (2,468) (7,344) (6,656) (2,844) 1,878 (10,460) (16,468) (11,426) 4,613 (2,175) 1,372 (15) 3,450 97 Cash and cash equivalents at the end of the financial year 1.4.1 5,970 1,372 1. The Comparative information has been restated as a result of the initial application of AASB 16 as discussed in note 6.1. The consolidated statement of cash flows should be read in conjunction with the Notes to the financial statements. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 44 NOTES TO THE FINANCIAL STATEMENTS 1. TRADING OPERATIONS 1.1 Revenue Revenue from continuing operations consisted of the following items: Sales revenue Advertising and marketing contributions 2019 $’000 2018 $’000 171,037 179,930 1,064 1,175 172,101 181,105 Accounting policies Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Revenues and expenses are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense, Sale of goods Revenue from the sale of goods is recognised when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Revenue will be recognised at the point in time when control over the corresponding goods is transferred to the customer. Rebates Revenue from the sale of goods is recorded after deducting any variable consideration for future rebates payable in relation to each sale. 1.2 Profit for the year Profit before tax has been arrived at after charging the following expenses: Depreciation of property, plant, equipment Depreciation of right of use assets Increase in inventory obsolescence provision Increase/(decrease) in warranty provision provided Employee benefits expense: LTIP share based payments Termination benefits Other employee benefits Bad and doubtful debts write back Finance costs Interest on bank overdrafts and loans Bank charges Interest expense on lease liabilities 2019 $’000 2018 (restated) $’000 3,083 3,259 1,198 (412) 159 63 3,697 3,285 144 (114) 41 391 23,840 24,260 (43) (1) 309 152 584 182 1,965 2,156 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 45 1.3 Segment information 1.3.1 Establishment of new primary operating segments Following changes to the Group’s structure with the establishment of the Group’s second wholly-owned subsidiary Shriro USA, INC and in line with AASB 8 “Operating Segments” the Group’s operating segment reporting has been reviewed and redefined, providing the chief operating decision makers more relevant information to make decisions about resources to be allocated to each segment and assess its performance. Operating segments are reported in a manner which is consistent with the internal reporting provided to the chief operating decision makers. The chief operating decision makers have been identified as the Board of Directors for the Group. The internal reports reviewed by the Board, which are used to make strategic decisions, are separated into the Group’s primary operating segments: • Australia – ovens, cooktops, rangehoods, dishwashers, sinks, taps, ironing systems, laundry tubs, ducting solutions, watches, calculators, electronic musical instruments, projectors, point of sale terminals, barbeques, heaters, fans, air purifiers/ dehumidifiers, • New Zealand – ovens, cooktops, rangehoods, dishwashers, sinks, taps, ironing systems, laundry tubs, waste disposal, ducting solutions, watches, calculators, electronic musical instruments, projectors, point of sale terminals, barbeques, heaters, fans, air purifiers/ dehumidifiers, fashion, car audio, professional DJ, amplifiers and Hi Fi products and speakers. • Export markets – barbeques and accessories The information regarding these segments is presented below. The accounting policies of the reportable segments are the same as Group’s accounting policies. Full year ended 31 December 2019 Revenue from ordinary activities Earnings before Interest, Tax, Depreciation and Amortisation Depreciation and amortisation expense Profit before interest and income tax Australia $’000 New Zealand $’000 Export Markets1 $’000 Total $’000 127,214 41,481 3,406 172,101 15,321 (5,096) 10,225 5,561 (1,233) 4,328 (2,867) 18,015 (13) (6,342) (2,880) 11,673 Interest expense Profit before income tax Income tax expense Net profit after income tax Full year ended 31 December 2018 Revenue from ordinary activities (2,274) 9,399 (2,915) 6,484 Total $’000 Australia $’000 New Zealand $’000 Export Markets1 $’000 134,058 40,271 6,776 181,105 Earnings before Interest, Tax, Depreciation and Amortisation 13,885 Depreciation and amortisation expense Profit before interest and income tax (5,775) 8,110 5,024 (1,207) 3,817 298 19,207 – (6,982) 298 12,225 Interest expense Profit before income tax Income tax expense Net profit after income tax 1. Export Markets relate to sales from entities within the Group outside of Australia and New Zealand. (2,740) 9,485 (2,159) 7,326 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 46 1.3.2 Secondary operating segments The segment disclosure note for the year ended 31 December 2019 has been amended as the Group’s primary operating segments have been redefined in line with AASB 8 “Operating Segments” per the details disclosed in note 1.3.1. Secondary operating segments have been defined as: • Kitchen Appliances – ovens, cooktops, rangehoods, dishwashers, sinks, taps, ironing systems, laundry tubs, waste disposal and ducting solutions. • Consumer Products – watches, calculators, electronic musical instruments, projectors, point of sale terminals, cameras, barbeques, heaters, fans, air purifiers/ dehumidifiers, fashion, car audio, professional DJ, amplifiers and Hi Fi products and speakers. For transparency on the change in the Group’s primary operating segments, secondary operating segment information has been prepared on the basis of the primary operating segments presented in the previous financial report for the year ended 31 December 2018. The accounting policies of the reportable secondary segments are the same as Group’s accounting policies. Full year ended 31 December 2019 Revenue from external customers Other revenue/income Kitchen Appliances $’000 Consumer Products $’000 Total $’000 70,098 100,939 171,037 59 1,005 1,064 Total revenue from ordinary activities 70,157 101,944 172,101 Earnings before Interest, Tax, Depreciation and Amortisation 2,019 15,996 18,015 Depreciation and amortisation expense Interest expense Segment profit before income tax Income tax expense Net profit after income tax Full year ended 31 December 2018 Revenue from external customers Other revenue/income (6,342) (2,274) 9,399 (2,915) 6,484 Total $’000 Kitchen Appliances $’000 Consumer Products $’000 74,232 105,698 179,930 66 1,109 1,175 Total revenue from ordinary activities 74,298 106,807 181,105 Earnings before Interest, Tax, Depreciation and Amortisation 3,246 15,961 19,207 Depreciation and amortisation expense Interest expense Segment profit before income tax Income tax expense Net profit after income tax (6,982) (2,740) 9,485 (2,159) 7,326 The Group’s assets are not split by reportable operating segment as the chief operating decision makers do not utilise this information for the purposes of resource allocation and assessment of segment performance. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 47 1.3.3 Information about major customers Included in kitchen appliances revenue from ordinary activities are revenues of approximately $21 million (2018: $24 million) which arose from sales to the Group’s largest customer. No other single customer contributed 10% or more to the Group’s revenue for both 2019 and 2018. Reporting changes Changes to reportable segments Following changes to the Group’s structure with the establishment of the Group’s second wholly-owned subsidiary Shriro USA,INC and in line with AASB 8 “Operating Segments”, the Group’s operating segment reporting has been reviewed and redefined, providing the chief operating decision makers more relevant information to make decisions about resources to be allocated to each segment and assess its performance. The change to the Group’s structure aligned the Group’s strategy and focus on continual geographical expansion. The reporting change provides the chief operating decision makers more relevant information to make decisions about resources to be allocated to each segment and assess its performance. 1.4 Notes to the Statement of Cash Flows 1.4.1 Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents consist of cash balances. Bank overdrafts are considered to be financing activities as they are used interchangeably to fund the operations, and are not repayable on demand. Cash and cash equivalents at the end of the reporting period as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of financial position as follows: Cash and bank balances Accounting policies 2019 $’000 5,970 2018 $’000 1,372 Cash and cash equivalents includes cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. 1.4.2 Reconciliation of profit for the year to net cash flows from operating activities Profit for the year Add non-cash and non-operating cash items Depreciation and amortisation Net loss on sale of assets LTIP rights Changes in assets and liabilities: 2019 $’000 6,484 2018 (restated) $’000 7,326 6,342 6,982 153 159 631 41 Decrease in trade payables & other payables (1,246) (6,652) (Decrease)/increase in provisions Decrease in inventory Decrease in trade receivables Decrease/(increase) in other current assets Increase/(decrease) in tax assets/liabilities Net cash provided by operating activities (681) 4,108 6,745 1,231 175 300 3,282 3,409 (74) (3,650) 23,470 11,595 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 48 Accounting policies For the purposes of the statement of cash flows, cash and cash equivalents consist of cash balances. Bank overdrafts and debtor facilities are considered to be financing activities as they are used interchangeably to fund the operations, and are not repayable on demand. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST components of investing and financing activities, which are disclosed as operating cash flows. 1.5 Income tax Income taxes relating to continuing operations 1.5.1 Income tax recognised in profit or loss Current tax In respect of the current year In respect of prior years Deferred tax In respect of the current year In respect of prior years Total tax expense 2019 $’000 3,777 2 3,779 (611) (253) (864) 2018 (restated) $’000 3,319 (148) 3,171 (1,202) 190 (1,012) Total income tax expense recognised in the current year relating to continuing operations 2,915 2,159 Total income tax expense for the year can be reconciled to the accounting profit as follows: Profit before tax from continuing operations Income tax expense calculated at 30% (2018:30%) Effect of expenses that are not deductible in determining taxable profit Effect of share based payments Effect of different tax rates of subsidiaries operating in other jurisdictions Other Total tax expense Adjustments recognised in the current year in relation to the current tax of prior years Income tax attributable to profit 2019 $’000 9,399 2,820 200 – (79) (28) 2018 (restated) $’000 9,485 2,846 244 (441) (70) (272) 2,913 2,307 2 2,915 (148) 2,159 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 49 Accounting policies Current Tax The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit before tax as reported in the consolidated statement of profit and loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using rates that have been enacted by the end of the reporting period. Deferred Tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Offsetting tax balances Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 1.5.2 Deferred Tax Balances The deferred tax expense above is itemised as follows: 2019 Deferred tax assets Property, plant and equipment Prepayments Superannuation payable Provisions Credit loss allowance Net deferred tax asset Recognised in total comprehensive income $’000 Opening balance $’000 (6) (9) 44 5,980 55 6,064 25 (4) (3) 834 21 873 Closing balance $’000 19 (13) 41 6,814 76 6,937 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 50 2018 (restated) Deferred tax assets Property, plant and equipment Prepayments Superannuation payable Provisions Credit loss allowance Deferred revenue Net deferred tax asset Recognised in total comprehensive income $’000 Opening balance $’000 30 (5) 64 5,872 54 2 6,017 (36) (4) (20) 108 1 (2) 47 Closing balance $’000 (6) (9) 44 5,980 55 – 6,064 The Deferred tax asset has been accounted for as it is probable that sufficient taxable profits will be available against which deductible temporary differences can be utilised. 2. WORKING CAPITAL Working Capital: ($million) $90m $75m $60m $45m $30m $15m $0m 2014 2015 2016 2017 2018 2019 Current Assets Current Liabilities Net Working Capital SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 2.1 Trade and other receivables Trade receivables (net of discounts and rebates) Credit loss allowance Other debtors Trade receivables Age of receivables that are past due but not impaired 60-90 days 90-120+ days Total 51 2019 $’000 2018 $’000 26,063 32,920 (268) (197) 25,795 32,723 384 201 26,179 32,924 66 169 235 103 84 187 The average credit period on sales of goods is 45 days. No interest is charged on trade receivables. With the implementation of the new standard AASB 9, impairment losses should be recognised using the expected credit loss (ECL) model. This involves a three-stage approach in which financial assets move through the three stages as their credit quality changes however a simplified approach is permitted for financial assets that don’t have a significant financing component, such as trade receivables. The Group has applied the simplified approach which requires expected lifetime losses to be recognised from initial recognition of the receivables. The calculation of impairment losses under this approach impacts the allowance for doubtful debts, now termed the credit loss allowance. A provision matrix is determined based on historic credit losses, adjusted for any material expected changes to the future credit risk. On this basis the credit loss allowance as at 31 December 2018 was determined as follows: Current Sum of 0 - 30 days Sum of 31 - 60 days Sum of 61 - 90 days Sum of 90+ Total receivables Allowance based on historic credit losses Adjustment for expected changes in credit risk Credit loss allowance $’000 Receivables $’000 3,725 11,859 9,542 1,049 272 26,447 0.1% 0.1% 0.2% 3.5% 0.1% 0.1% 0.2% 2.6% 28.6% 21.5% 7 25 37 63 136 268 The Group holds an active credit insurance policy which, as at the reporting date, provided coverage for 90% of debtors, including all debtors with a balance owing equal to or greater than $40,000. The maximum exposure under this policy is 10% of the irrecoverable amount. Movement in the credit loss allowance Balance at beginning of the year Impairment loss recognised Amounts w/o during year as uncollectable Amounts recovered during the year Other debtors Balance at the end of the year 2019 $’000 (197) (105) 74 (40) – 2018 $’000 (195) (4) 4 – (2) (268) (197) SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 52 Accounting policies Receivables in the statement of financial position are shown inclusive of GST. A rebate accrual is maintained for rebates not yet paid to customers, and forms part of the trade and other receivables balance. Based on historical data and analysis the accrual is reviewed at the end of each reporting period. Key estimates and judgments Rebates provision The provision for rebates requires a degree of estimation and judgment in relation to whether the customer will achieve the hurdles required to earn a rebate. The level of the provision is assessed by taking into account past rebates payment history and contractual arrangements. 2.2 Inventories Finished goods Stock in transit Allowance for inventory obsolescence Balance at the end of the year 2019 $’000 30,404 7,495 2018 $’000 31,031 9,779 (3,138) (1,941) 34,761 38,869 The cost of inventories recognised as an expense during the year in respect of continuing operations was $104,818,000 (2018: $109,702,000) Stock aged over 3 years amount to 2.7% of the inventory balance. Accounting policies Inventory on hand is valued at the lower of cost and net realisable value using the weighted average cost method and includes all costs associated with its acquisition. Inventory in transit is valued at the lower of cost and net realisable value. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Key estimates and judgments In the preparation of the financial report the directors are required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. The provision for obsolescence of inventories assessment requires a degree of estimation and judgment. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 2.3 Other assets Prepayments 2.4 Trade and other payables Current Trade payables GST Payable Employee related payables Sundry creditors 53 2019 $’000 753 2018 $’000 926 2019 $’000 2018 $’000 9,126 9,863 956 647 990 469 5,747 5,798 16,476 17,120 The majority of trade payables relate to purchases of inventory from Asia and Europe. The average credit period on purchases from Asia is 45 days. The average credit period for purchases from Europe is 90 days. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. Accounting policies Payables in the statement of financial position are shown inclusive of GST. 2.5 Provisions Employee benefits (i) Other provisions (see below) Current Non-current Other Provisions Balance as at 1 January 2019 (Reduction)/additional provision recognised 2019 $’000 3,723 3,999 7,722 5,162 2,560 7,722 Provision for warranty(ii) $’000 Make good(iii) (restated) $’000 2,880 (412) 2,468 1,502 29 1,531 2018 (restated) $’000 4,021 4,382 8,403 5,520 2,883 8,403 Total $’000 4,382 (383) 3,999 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 54 Accounting policies Employee benefits i. The provision for employee benefits represents annual leave and long service leave entitlements accrued. The discount rate adopted at 31 December 2019 and 31 December 2018 is the High Quality Corporate Bond Rate. A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. The discount rate adopted at 31 December 2019 is the High Quality Corporate Bond Rate. Warranty ii. The provision for warranty claims represents the present value of the Directors’ best estimate of the future sacrifice of economic benefits that will be required under the Group’s warranty program as outlined in the below accounting policies. The estimate has been made on the basis of historical warranty trends and other events affecting product quality discounted to present value with the exclusion of net margin on spares sold. The Group sells goods or services to a client and provides a formal warranty or guarantee that any defects will be repaired or rectified and provides assurance that the product complies with agreed-upon specifications. A provision is recorded for the related liability to an amount of the expected costs to be incurred for repair and rectification. The Group provides warranties ranging from one to five years, with the majority being less than two years. Make good iii. The provision for make-good represents management’s best estimate of future cash outlays required to refit leased premises in line with the requirements of each operating lease agreement. Key estimates and judgments In the preparation of the financial report the directors are required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. Warranty provision In determining the level of provision required for warranties, the Group has made judgments in respect of the products, the number of customers who will actually use the warranty and how often, and the costs of fulfilling the conditions of the warranty. The provision is based on estimates made from historical warranty data associated with similar products and services. 2.6 Financial instruments The Group has four significant categories of financial instruments which are described below together with the accounting policies and risk management processes which the Company utilises: a. Cash and cash equivalents The Group deposits its cash and cash equivalents with Australian, New Zealand and US banks. Funds can be deposited in cheque accounts and cash management accounts. On call cash accounts are the only allowable investment instruments authorised for use. b. Debtors and credit risk management The Group has a credit risk policy to protect against the risk of debtor default. The majority of the Group’s debtors are long term customers and are large Australian corporations where the credit risk is considered to be generally lower. New customers are assessed for credit risk using credit references and reports from credit agencies as necessary. The Group holds an active credit insurance policy which, as at the reporting date, provided coverage for 90% of debtors, including all debtors with a balance owing equal to or greater than $40,000. The maximum exposure under this policy is 10% of the irrecoverable amount. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 55 c. Bank guarantees and letters of credit The Group has a preference to provide bank guarantees to customers, and letters of credit to suppliers in lieu of cash retention. d. Foreign currency forward contracts The Group hedges its cash flows by using forward exchange contracts to minimise the impacts of currency movements. Derivative financial instruments such as foreign currency forward contracts, which are used purely for hedging purposes, are measured and recognised at fair value and are included in level 2 of the fair value measurement hierarchy. Categories of financial instruments Financial assets Cash and cash equivalents Trade and other receivables Forward exchange contracts receivable Current Tax receivable Financial liabilities Trade payables and other payables Bank loans Forward exchange contracts payable Current Tax Liabilities 2019 $’000 2018 $’000 5,970 26,179 240 975 16,476 – 963 – 1,372 32,924 859 2,023 17,120 7,344 524 – The Directors consider the fair value of the financial assets and financials liabilities to approximate their carrying amounts. Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short- term receivables when the effect of discounting is immaterial. Financial risk management objectives The company’s exposure to market risk is mainly arising from interest rate risk, foreign currency risk, operating expenditure risk and price risk (sales and margin). Key sensitivities Sales (+/- 1%) Gross profit margin (+/- 1%) Other operating c osts (+/- 1%) Interest expense (+/- 1%) *AUD/NZD (+/- 5%) Impact on NPAT $’000 Impact on NPAT % 231 1,179 392 16 141 3.6% 18.2% 6.0% 0.2% 2.2% SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 56 Foreign currency risk management The Group undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. It is the policy of the Group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts to 100% of the exposure generated. The Group also enters into forward foreign exchange contracts to manage the risk associated with anticipated purchase transactions out to 9 months with 80% of the expected exposure hedged. Forward foreign exchange contracts The Group’s exposure through foreign currency hedges at the reporting date was as follows: Outstanding contracts maturity profile Buy Currency: Less than 3 months 3 to 6 months Greater than 6 months Sell Currency: Less than 3 months 3 to 6 months 6 to 9 months Buy Currency: USD EURO JPY AUD Sell Currency: USD 2019 $’000 2018 $’000 7,053 14,201 13,620 8,253 25,650 12,526 206 48 – 1,217 4,849 16,125 12,683 262 – – 16,207 9,342 19,024 1,856 254 262 Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, who have built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term liquidity management requirements. The Company manages liquidity risk by continually monitoring and maintaining adequate banking facilities. Liquidity and interest risk tables The following tables detail the Company’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to receive or pay. The table includes both interest and principal cash flows. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 57 2019 Variable interest rate instruments 2018 Variable interest rate instruments Weighted average effective interest rate % Less than 1 month $’000 1 to 3 months $’000 3 months to 1 years $’000 1 to 5 years $’000 Total $’000 2.47% – 2.89% 1,344 – – – – – – 6,000 7,344 Interest rate sensitivity analysis The sensitivity analysis has been determined based on exposure to interest rates for cash and cash equivalents that were subject to interest rate fluctuations at the reporting date. At reporting date, if interest rates had been 1% higher or lower and all other variables were held constant, the Company’s profit or loss before tax would increase or decrease by $125,000 (2018: $202,000). Capital Management The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from 2017. The capital structure of the Group consists of net debt (borrowings as detailed in note 3.3 offset by cash and bank balances) and equity of the Group (comprising issued capital, reserves, retained earnings as detailed in notes 4.1, 4.4 and 4.5). The Group is not subject to any externally imposed capital requirements. Accounting policies Financial assets and financial liabilities are recognised when a Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. 2.6.1 Financial assets Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short- term receivables when the effect of discounting is immaterial. Trade receivables are regularly reviewed and the Group applies the simplified approach to providing for expected credit losses as per AASB 9. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Interest income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 58 Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For AFS equity instruments, including listed or unlisted shares, objective evidence of impairment includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment for unlisted shares classified as available-for-sale. For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets. For certain categories of financial assets, such as trade receivables, assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, age of receivables as well as observable changes in national or local economic conditions that correlate with default on receivables. The Group applies the simplified approach to providing for expected credit losses from initial recognition of the trade receivable as per AASB 9. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. For financial assets measured at amortised cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Derecognition of financial assets The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. 2.6.2 Financial liabilities Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’ Derivative financial instruments The Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risk, including forward foreign exchange contracts. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event, the timing of the recognition in profit or loss depends on the nature of the hedge relationship. Derivatives are classified as a non-current asset or a non-current liability if the remaining maturity of the hedge relationship is more than 12 months after the reporting period and as a current asset or a current liability if the remaining maturity of the hedge relationship is less than 12 months after the reporting period. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 59 Hedge accounting Hedges of foreign exchange risk on firm commitments are designated as cash flow hedges. At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss as part of other expenses or other income. Amounts recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss in the same line of the income statement as the recognised hedge item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss deferred in equity remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. However, if all or a portion of a loss recognised directly in equity is not expected to be recovered in one or more future periods, the amount that is not expected to be recovered is recognised immediately in the profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. Hedge Strategy Shriro reports internally on all outstanding foreign purchase orders already place with suppliers. Shriro hedges all confirmed purchase orders and will also cover up to 80% of the remaining outstanding forecast purchases not yet ordered for between 3 months to 9 months. Shriro also holds between 4 to 6 months stock which acts like a natural hedge. The hedging of currency gives Shriro time to react should the Australian dollar depreciation against the USD, YEN or EUR. 3. INVESTMENT AND FINANCING 3.1 Plant and equipment Leasehold improvements Plant and equipment Fixtures and fittings Office equipment Motor vehicles Display Assets Total capitalised plant and equipment Capital work in progress Total Plant and Equipment 2019 $’000 985 2,674 228 572 794 1,408 6,661 182 6,843 2018 $’000 1,411 1,861 267 837 787 1,909 7,072 619 7,691 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 60 Cost Balance at 31 December 2018 Additions Disposals FX Translation gain Balance at 31 December 2019 Leasehold improvements $’000 Plant and equipment $’000 Fixtures and fittings $’000 Office equipment $’000 Motor vehicles $’000 Display assets $’000 Total $’000 4,020 60 (29) 3 4,381 1,478 – 2 627 4,741 1,821 9,672 25,262 1 – 3 57 (3) 9 281 (553) 9 1,047 2,924 (1,715) (2,300) 8 34 4,054 5,861 631 4,804 1,558 9,012 25,920 Accumulated depreciation and impairment Balance at 31 December 2018 Additions Disposals FX Translation loss Balance at 31 December 2019 (2,609) (2,520) (486) (665) 29 (3) – (2) (360) (41) – (2) (3,904) (1,034) (7,763) (18,190) (322) 3 (9) (263) 541 (8) (1,306) (3,083) 1,472 2,045 (7) (31) (3,069) (3,187) (403) (4,232) (764) (7,604) (19,259) The following average useful lives are used in the calculation of depreciation. Leasehold improvements Plant and equipment Fixtures and fittings Office equipment Motor vehicles Display assets Accounting policies 8 years 8 years 10 years 6 years 5 years 3 years Each class of plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment are measured at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributed to the acquisition. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from those assets. Depreciation The depreciable amount of plant and equipment is depreciated on a straight line basis over their estimated useful lives to the Group commencing from the time the asset is held ready for use. Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 61 Impairment At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 3.2 Lease arrangements 3.2.1 The Group as lessee The leases relate to the leasing of premises with lease terms of between 1 and 10 years. The Group does not have an option to purchase the leased land or buildings at the expiry of the lease periods. The Group does not have any short-term leases less than 1 year. 3.2.2 Payments recognised as an expense Depreciation charge for right-of-use assets Interest expense on lease liabilities Variable lease payments not included in the measurement of lease liabilities 3.2.3 Right of use assets Cost Opening balance Additions Disposals Revaluation FX Translation gain Closing balance 2019 $’000 3,259 1,965 – 2018 (restated) $’000 3,285 2,156 – 2019 $’000 2018 (restated) $’000 30,462 31,968 650 – (55) 55 – (1,730) – 224 31,112 30,462 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 62 Accumulated depreciation and impairment Opening balance Additions Disposals FX Translation loss Closing balance Carrying amount Opening balance Closing balance 3.2.4 Lease commitments Maturity profile of lease liability Less than 1 year 1 – 2 years 2 – 5 years 5 – 10 years Greater than 10 years 2019 $’000 (10,672) (3,259) – (30) 2018 (restated) $’000 (8,424) (3,285) 1,113 (76) (13,961) (10,672) 2019 $’000 19,790 17,151 2018 (restated) $’000 23,544 19,790 2019 $’000 3,454 3,735 8,651 8,231 – 2018 $’000 2,344 3,250 9,654 9,830 842 A number of the Group’s leases have extension options. The Group assumes that all lease options, if available will be exercised at the inception of each lease. The Group is not party to any finance lease liabilities. As at 31 December 2019 there were no other material liabilities. Accounting policies The Group as a lessee assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the Group’s incremental equivalent borrowing rate. Lease payments included in the measurement of the lease liability compromise: • Fixed lease payments (including in-substance fixed payments), less any lease incentives • Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date • The amount expected to be payable by the lessee under residual value guarantees • The exercise price of purchase options, if the lessee is reasonably certain to exercise the options • Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. • Payment of onerous leases. The Group assumes that all lease options, if available will be exercised at the inception of each lease. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 63 The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use assets) whenever: • The lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liabilities is remeasured by discounting the revised lease payments using a revised discount rate • The lease payments change due to changes in an index or rate or a change in expected payment under guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised leased payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used) • A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under AASB 137 Provisions, Contingent Liabilities and Contingent Assets. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are presented as a separate line in the consolidated statement of financial position. The Group applies AASB 136 Impairment of Assets to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the ‘Property, plant and equipment’ policy. Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right- of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in the line ‘Rental costs ’ in the statement of profit or loss. As a practical expedient, AASB 16 permits a lessee not to separate non-lease components, and instead account for any lease and associates non-lease component as a single arrangement. The Group has not used this practical expedient. Secured – at amortised cost Overdraft facility(i) Trade finance facility(i) Current Non-current 2019 $’000 – – – – – – 2018 $’000 1,344 6,000 7,344 1,344 6,000 7,344 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 64 3.3.1 Facility During the financial year end 31 December 2019, the Group had the following banking facilities: i. The Group has a trade finance facility available to meet working capital requirements. To account for seasonality in working capital requirements, on the 1st September each year, the facility limit for the combination of the overdraft facility and trade finance facility increases to $21,000,000 and reduces back to $16,000,000 between 1 January and 31 August each year. ii. The Group has a non-cash guarantees facility of $11,000,000. Under the terms of this facility, financial institutions provide guarantees to the Group’s suppliers and property owners in the form of Letters of Credit and Bank Guarantees. These Letters of Credit and Bank Guarantees act like insurance and provide assurance to suppliers and property owners that payment up to the amount of the guarantees will be made if certain documentary conditions are met. The Group has no obligation to make any payments under this non-cash facility. The Group’s facilities are denominated in Australian dollars and variable interest rates apply. The facilities have financial covenants relating to fixed charge cover ratio, borrowing base cover ratio and leverage ratio. Borrowing facility Overdraft facility(i) Trade finance facility(i) Total borrowing facility Non-cash guarantees facility(ii) Total Group facility Usage of borrowing facility Drawn – cash Less cash and bank balances Undrawn limit available for use Total borrowing facility Utilisation of non-cash guarantees facility Utilised – non-cash Unutilised limit available for use Total non-cash guarantees facility Total Group facility 2019 $’000 2018 $’000 15,000 6,000 21,000 11,000 32,000 15,000 11,000 26,000 11,000 37,000 2019 $’000 2018 $’000 – (5,970) 26,970 21,000 7,344 (1,372) 20,028 26,000 7,392 3,608 7,663 3,337 11,000 11,000 32,000 37,000 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 65 Net Debt/(Net Cash): ($million) $70m $60m $50m $40m $30m $20m $10m $0m -$10m 2014 2015 2016 2017 2018 2019 Net Debt (Net Cash) Total Group Facility Due to the Group’s favourable net debt positions over the past 6 years the total Group facility limits have been reduced by 49% since 31 December 2014. The ability to reduce the facility limit has resulted in significant cost savings for the Group whilst also maintaining good relations with the bank due to the strong cash inflows. The Group continues to have significant headroom within the current facility. Banks Security: ($million) $120m $100m $80m $60m $40m $20m $0m -$20m 2014 2015 2016 2017 2018 2019 Trade and other receivables Inventories All other Assets Total Group Facility Net Debt/(Net Cash) All assets of the Group have been pledged to secure the borrowings of the Group with ANZ. Accounting policies Borrowing costs are recognised in profit or loss in the period in which they are incurred. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 66 4. SHAREHOLDER EQUITY 4.1 Issued capital 95,087,500 fully paid ordinary shares (2018: 95,087,500) Date Details 1 January 2019 Opening balance 31 December 2019 Closing Balance 4.2 Earnings per share Basic earnings per share Diluted earnings per share Reconciliation of earnings used in calculating earnings per share Net profit Reconciliation of shares used in calculating earnings per share Opening balance of shares for the financial year Issue of shares Closing balance of shares for the financial year Weighted average number of ordinary shares used in the calculation of basic earnings per share Shares deemed to be issued for no consideration in respect of: 2019 $’000 2018 $’000 94,617 94,617 Value of shares $’000 Number of Shares 94,617 95,087,500 94,617 95,087,500 2019 Cents per share 6.8 6.7 2018 (restated) Cents per share 7.7 7.6 2019 $’000 6,484 2018 (restated) $’000 7,326 2019 No. 2018 No. 95,087,500 95,000,000 – 87,500 95,087,500 95,087,500 95,087,500 95,078,630 Employee performance rights 1,196,3271 1,090,389 Closing number of shares deemed to be issued for the financial year 96,283,827 96,177,889 Number of ordinary shares used in the calculation of diluted earnings per share 96,349,781 96,271,588 1. Note, Tim Hargreaves performance rights for 2019 are excluded from the calculation, as they are only able to be settled, at the Board’s discretion, in cash or by an on-market purchase of the relevant number of shares and will not be by way of an issue of new shares. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 67 Accounting policies Basic and diluted earnings per share is calculated on profit after taxation attributable to members of Shriro Holdings Limited and the weighted average number of shares on issue during the year. Refer to note 4.2 for the calculation of the weighted average number of ordinary shares used in calculating basic and diluted earnings per share. Return on Equity (%) 30% 25% 20% 15% 10% 5% 0% 2015 2016 2017 2018 2019 4.3 Dividends On 27th February 2020 the Directors declared a final dividend of 3.0 cents per share fully franked with an ex-dividend date of the 8th March 2020, record date of the 9th March 2020 and payable on 30th March 2020. Franking account balance Shareholder returns s t n e C 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2019 $’000 3,410 2018 $’000 3,232 120% 100% 80% 60% 40% 20% 0% % e g a t n e c r e P 2015 2016 2017 2018 2019 Earnings per share Fully franked dividends per share Dividends Payout Ratio SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 68 4.4 Retained earnings Balance at beginning of financial year Profit for the year Dividends paid Balance at end of financial year 4.5 Reserves Cash flow hedging reserve Foreign currency translation reserve Equity settled employee benefits reserve Group reorganisation reserve Balance at end of financial year 4.5.1 Cash flow hedging reserve Balance at the beginning of the financial year Forward exchange contracts Balance at end of financial year 2019 $’000 33,393 6,484 2018 (restated) $’000 36,527 7,326 (6,656) (10,460) 33,221 33,393 2019 $’000 (367) 2,035 (344) 2018 $’000 408 1,877 (503) (78,585) (78,585) (77,261) (76,803) 2019 $’000 408 (775) (367) 2018 $’000 87 321 408 The cash flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognised and accumulated under the heading of cash flow hedging reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss, or is included as a basis adjustment to the nonfinancial hedged item, consistent with the relevant accounting policy. 4.5.2 Foreign currency translation reserve Balance at the beginning of the financial year Exchange differences arising on translating the foreign operation Balance at end of financial year 2019 $’000 1,877 158 2,035 2018 $’000 1,206 671 1,877 Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency (i.e. Australian dollars) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve (in respect of translating both the net assets of foreign operations and hedges of foreign operations) are reclassified to profit or loss on the disposal of the foreign operation. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 4.5.3 Equity settled employee benefits reserve Balance at the beginning of the financial year Arising on share-based payments Balance at end of financial year Accounting policies 69 2019 $’000 (503) 159 (344) 2018 $’000 1,001 (1,504) (503) Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Fair value is measured by use of a binomial model. The expected life used in the model is adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioral considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest with a corresponding adjustment to reserves. 4.5.4 Group reorganisation reserve Balance at beginning of financial year Balance at end of financial year 2019 $’000 2018 $’000 (78,585) (78,585) (78,585) (78,585) The Group reorganisation reserve arose from reorganisation of the Group structure at the time of the Initial Public Offering. 5. GROUP STRUCTURE AND KEY MANAGEMENT 5.1 Subsidiaries Name of subsidiary Principal activity Place of incorporation and operation Proportion of ownership interest and voting power held by the Group Shriro Australia Pty Limited1 Wholesaler of consumer goods and appliances Australia Monaco Corporation Limited Wholesaler of consumer goods and appliances New Zealand Shriro USA,INC Wholesaler of consumer goods and appliances USA 2019 100% 100% 100% 2018 100% 100% 100% 1. This wholly-owned subsidiary is a member of the tax-consolidated group and has entered into a deed of cross guarantee with Shriro Holdings Limited pursuant to ASIC Class Order 98/1418 and are relieved from the requirement to prepare and lodge an audited financial report. Accounting policies For the purpose of the financial statements, the results and financial position of the Group are expressed in Australian dollars, which is the functional currency of the company and the presentation currency for the consolidated financial statements. In preparing the financial statements, transactions in currencies other than the Group’s functional currency (foreign currencies) are recognised at the rates prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 70 Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for: • exchange differences on transactions entered into in order to hedge certain foreign currency risks (see note 2.6.2 for hedging accounting policies); and • exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items. For the purpose of presenting the consolidated financial statements, the assets and liabilities of the Company’s foreign operations are translated into Australian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average monthly exchange rates during the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non- controlling interests as appropriate). The consolidated income statement and consolidated statement of financial position of entities party to the deed of cross guarantee are: Statement of Profit or Loss and Other Comprehensive Income Revenue from ordinary activities Raw materials and consumables used Employee benefits expense Advertising and promotion expenses Freight and delivery expenses Depreciation and amortisation expenses Rental costs Finance costs Other expenses Profit before tax Income tax expense Profit for the year Other comprehensive income, net of income tax Items that may be reclassified subsequently to profit or loss Net change in the fair value of cash flow hedges taken to equity Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Shriro Holdings Limited 1. The Comparative information has been restated as a result of the initial application of AASB 16 as discussed in note 6.1. 2019 $’000 2018 (restated)1 $’000 134,042 145,301 (78,799) (86,346) (18,635) (19,768) (5,160) (5,376) (5,096) (946) (1,944) (8,166) 9,920 (1,801) 8,119 (5,918) (5,326) (6,290) (1,670) (2,428) (8,756) 8,799 (1,161) 7,638 (619) (619) 379 379 7,500 8,017 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 71 2019 $’000 2018 (restated)1 $’000 2,819 19,090 25,085 1,906 407 424 238 7 24,388 29,011 – 551 1,916 834 49,969 56,707 13,802 5,730 5,956 12,553 38,041 16,372 6,595 12,553 5,184 40,704 88,010 97,411 11,542 12,380 – 2,735 4,496 665 1,344 1,925 4,815 354 19,438 20,818 – 16,685 2,308 18,993 6,000 19,395 2,621 28,016 38,431 48,834 49,579 48,577 94,617 94,617 (79,005) (78,545) 33,967 49,579 32,505 48,577 Consolidated Statement of Financial Position Current assets Cash and bank balances Trade and other receivables Inventories Loan to related entities Other current assets Current tax receivable Derivative receivable Total current assets Non-current assets Right of use assets Property, plant and equipment Deferred tax assets Investments Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Lease liabilities Provisions Derivative payable Total current liabilities Non-current liabilities Borrowings Lease liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 1. The Comparative information has been restated as a result of the initial application of AASB 16 as discussed in note 6.1. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 72 5.2 Related party transactions Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Significant Influence In accordance with AASB128 Shriro Pacific Limited is deemed to have significant influence in the Group as it holds 20% or more of the voting power in Shriro Holdings Limited. 5.3 Parent entity information Financial Position Assets Current Assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Financial Performance Profit/(loss) for the year Total comprehensive income 2019 $’000 2018 $’000 424 88,585 1,916 88,585 89,009 90,501 1,061 – 1,061 7,261 – 7,261 87,948 83,240 94,617 94,617 (345) (503) (6,324) (10,874) 87,948 83,240 2019 $’000 2018 $’000 11,206 21,434 11,206 21,434 5.4 Directors and key management personnel compensation The Board of Directors approves on an annual basis the amounts of compensation for Directors up to the shareholder approved cap limit and key management personnel with reference to the company’s performance and general compensation levels in equivalent companies and industries. Remuneration of Directors and Key Management Personnel Short-term employee benefits Long-term employee benefits Post-employment benefits 2019 $’000 2018 $’000 1,399 1,266 137 70 118 67 1,606 1,451 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 73 Accounting policies Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. The discount rate adopted at 31 December 2019 is the High Quality Corporate Bond Rate. 5.5 Share-based payments 5.5.1 LTI Plan The Company established an equity incentive plan (LTI Plan) to assist in the motivation, retention and reward of senior management. The Plan is designed to align the interests of employees and senior management with the interests of Shareholders by providing an opportunity for employees to receive an equity interest in the Company. Long term incentives are established under the Plan. The Plan Rules provide flexibility for the Company to grant performance rights, options and/or restricted shares, subject to the terms of individual offers. Performance rights have been granted to the CEO, CFO and other senior management. No non-executive director holds any performance rights over the shares in Shriro Holdings Limited. Tim Hargreaves has been issued with 415,225 performance rights (2018: 150,000), these are excluded from the table below as any shares issued will be acquired by an on-market purchase of the relevant number of shares and will not be by way of an issue of new shares. Shane Booth was granted 202,422 performance rights (2018: 73,125) under the LTIP during the financial year ended 31 December 2019. Other senior management have been issued with 332,217 of performance rights in respect of the 2019 year (2018: 174,785) in line with the long term incentives plan during the financial year ended 31 December 2018. The amortised LTIP performance rights recognised in consolidated statement of profit or loss for the financial year ended 31 December 2019 was $159,000 (2018: $41,000). No director received any shares under the employee gift offer in the current or previous years. The following share-based payment arrangements were in existence during the current reporting periods: Performance rights series Effective grant date Series 1 Series 2 Series 3 01/01/2017 01/01/2018 01/01/2019 Accounting policies Grant date fair value Number Granted Expiry date Vesting Testing $289,432 293,420 31/12/2019 31/12/2019 $548,720 368,268 31/12/2020 31/12/2020 $269,976 534,639 31/12/2021 31/12/2021 Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Fair value is measured by use of a binomial model. The expected life used in the model is adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioral considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest with a corresponding increase in equity. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 74 5.5.2 Fair value of performance rights granted Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects of non-transferability, performance hurdles (including the probability of meeting market conditions attached to the rights), and behavioural considerations. Performance rights series Series 1 Series 2 Series 3 Grant date fair value $0.99 $1.49 $0.58 Rights life 3 years 3 years 3 years Dividend yield Risk-free interest rate 8.20% 6.88% 12.64% 3.44% 3.44% 3.44% 5.5.3 Performance rights outstanding at the end of the year The performance rights outstanding at the end of the year had no exercise price and a weighted average remaining contractual life of 0.98 years. 6. Other Information 6.1 Restatement impact of new accounting standard AASB 16 ‘Leases’ Impact of the new definition of a lease The change to the definition of a lease mainly relates to the concept of control. AASB 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for the period of time in exchange for consideration. The Group has made use of the practical expedient available on transition to AASB 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those contracts entered or modified before 1 January 2019. The Group applies the definition of a lease and related guidance set out in AASB 16 to all contracts entered into or changed on or after 1 January 2019. In preparation for the first-time application of AASB 16, the Group has carried out an implementation project. The project has shown that the new definition in AASB 16 will not significantly change the scope of contracts that meet the definition of a lease for the Group. Former operating leases AASB 16 changes how the Group accounts for leases previously classified as operating leases under AASB 117, which were off-balance sheet. Applying AASB 16, for all leases (except as noted below), the Group: • Recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of future lease payments • Recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss • Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows. Lease incentives (e.g. free rent period) are recognised as part of the measurement of the right-of-use assets and lease liabilities, whereas under AASB 117 they resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expense on a straight-line basis. Under AASB 16, right-of-use assets are tested for impairment in accordance with AASB 136 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts. For short-term leases (lease term of 12 months or less) and leases of low value asset (such as personal computers and office furniture), the Group has opted to recognise a lease expense on a straight-line basis as permitted by AASB 16. This expense is presented within other expenses in the consolidated statement of profit or loss. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 75 Financial impact of the initial application of AASB 16 The tables below show the amount of adjustment for each financial statement line item affected by the application of AASB 16 for the current and prior periods. Impact on profit or loss Impact of profit/(loss) for the year Increase in depreciation and amortisation expenses Increase in finance costs Increase in other expenses Decrease in rental costs Decrease in income tax expense Impact on earnings per share Decrease in earnings per share from continuing operations: Basic Diluted Impact on assets, liabilities and equity as at 1 January 2018 Deferred tax assets Right of use assets Net impact on total assets Provisions Lease liability Net impact on total liabilities Retained earnings 31 December 2019 $’000 31 December 2018 $’000 (3,259) (1,965) – 4,573 195 (456) (3,285) (2,156) (128) 5,043 154 (372) 31 December 2019 (cents per share) 31 December 2018 (cents per share) (0.5) (0.5) (0.4) (0.4) As previously reported $’000 AASB 16 adjustments $’000 As restated $’000 5,019 – 998 23,544 24,542 3,760 (1,826) – 28,764 26,938 6,017 23,544 1,934 28,764 38,923 (2,396) 36,527 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 76 Impact on assets, liabilities and equity as at 31 December 2018 Deferred tax assets Right of use assets Net impact on total assets Provisions Lease liability Net impact on total liabilities Reserves Retained earnings Net impact on total equity Impact on assets, liabilities and equity as at 31 December 2019 Deferred tax assets Right of use assets Net impact on total assets Provisions Lease liability Net impact on total liabilities Retained earnings As previously reported $’000 AASB 16 adjustments $’000 As restated $’000 4,900 – 1,164 19,790 20,954 5,053 (2,170) – 25,920 23,750 6,064 19,790 2,883 25,920 (76,775) 36,161 (28) (76,803) (2,768) (2,796) 33,393 Under AASB 117 $’000 AASB 16 adjustments $’000 As restated $’000 5,483 – 1,454 17,151 18,605 4,802 (2,242) – 24,071 21,829 6,937 17,151 2,560 24,071 36,445 (3,224) 33,221 Impact on the statement of cash flows The application of AASB 16 has an impact on the consolidated statement of cash flows of the Group. Under AASB 16, leases must present: • Short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liabilities as part of the operating activities (the Group has included these payments as part of payments to suppliers and employees) • Cash paid for the interest portion of lease liabilities as either operating activities or financing activities, as permitted by AASB 107 Statement of Cash Flows (the Group has opted to include interest paid as part of operating activities) • Cash payments for the principal portion of leases liabilities, as part of financing activities. Under AASB 117, all lease payments on operating leases were presented as part of cash flows from operating activities. Consequently, the net cash generated by operating activities has increased by $2,468,000 (2018: $2,844,000) and net cash used in financing activities increased by the same amount. The adoption of AASB 16 did not have an impact on net cash flows. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 77 Accounting policies Changes in accounting policies and disclosures In the current period, the Group has applied the new and revised AASB 16 ‘Leases’ issued by the Australian Accounting Standards Board (AASB). AASB 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to the lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right- of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lease accounting, the requirements for lessor accounting have remained largely unchanged. The date of initial application of AASB 16 for the Group is 1 January 2019. The Group has applied AASB 16 using the full retrospective approach, with restatement of the comparative information. 6.2 Remuneration of auditor Audit and review Other services 2019 $’000 190 – 2018 (restated)1 $’000 190 28 The auditor of Shriro Holdings Limited is Deloitte Touche Tohmatsu. 6.3 Events after the reporting date Subsequent to the year ended 31 December 2019, the Group’s banking facilities have been renegotiated. There were no material changes to the terms and conditions. There has not been any other matter or circumstance, not already disclosed, occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 6.4 Statement of accounting policies Statement of Compliance These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Group comply with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (IASB). Consequently, this financial report has been prepared in accordance with and complies with IFRS as issued by the IASB. The financial statements were authorised for issue by the Directors on 27 February 2020. Basis of preparation The consolidated financial statements have been prepared on the basis of historical cost, except for the measurement of certain financial instruments at fair value. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars, unless otherwise noted. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2 ‘Share-based Payment’, leasing transactions that are within the scope of AASB 16 ‘Leases’, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 2 ‘Share-based Payment’ or value in use in AASB 136 ‘Impairment of assets’. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 78 In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • L evel 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and • Level 3 inputs are unobservable inputs for the asset or liability. The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. Changes in the Group’s ownership interests in existing subsidiaries Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. Tax consolidation The company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 23 June 2015 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Shriro Holdings Limited. The members of the tax-consolidated group are Shriro Australia Pty Limited and Shriro Pty Limited. This resulted in the closure of the previous multiple entry consolidated group which consisted of Shriro Pty Limited and Shriro Chaplin Drive Lane Cove Pty Ltd. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated group are recognised by the company (as head entity in the tax-consolidated group). SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 79 Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, the company and each of the entities in the tax-consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Under the terms of the tax funding arrangement, amounts are recognised as payable to or receivable by the company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax consolidated group. The effect of the tax sharing agreement is that each member’s liability for tax payable by the tax-consolidated group is limited to the amount payable to the head entity under the tax funding arrangement. Standards and interpretations in issue not yet adopted The Group is in the process of assessing the impact of these new and revised standards, and interpretations, and has not yet reached a determination as to the impact on the accounting policies detailed below. Standard/Interpretation AASB 2018-6 Amendments to Australian Accounting Standards - Definition of a Business AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework 6.5 Additional company information Principal activities Effective for Annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2020 31 December 2020 1 January 2020 31 December 2020 1 January 2020 31 December 2020 The Group is a leading kitchen appliances and consumer products marketing and distribution group operating in Australia and New Zealand. The Group markets and distributes an extensive range of company-owned brands (including Omega, Robinhood, Everdure including ‘everdure by heston blumenthal’ and Omega Altise) and third party owned brands (such as Casio, Blanco and Pioneer). Products include calculators, watches, cash registers, musical instruments, audio products, kitchen appliances, sinks & taps, laundry products, consumer electronics, car audio, amplifiers, professional DJ, Hi-Fi/speakers, fashion, lighting, gas heaters, gas and charcoal barbeques, electric heaters and cooling products. General Information Shriro Holdings Limited is incorporated and operating in Australia. Shriro Holdings Limited’s registered office and its principal place of business is as follows: Registered office and Principal place of business 104 Vanessa Street Kingsgrove NSW 2208 Tel: +61 2 9415 5000 Shriro Holdings Limited’s Annual General Meeting will be held on the 28th of May 2020. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 80 6.6 Additional ASX information Number of holders of equity securities There are 95,087,500 fully paid ordinary shares held by 1,696 individual shareholders. Substantial share holders Shriro Pacific Limited Twenty largest holders of quoted equity securities SHRIRO PACIFIC LIMITED NATIONAL NOMINEES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED PORTFOLIO SERVICES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED MISS AMANDA BERNADETTE DE ANGELIS HANDS HOLDING CO PTY LTD HORRIE PTY LTD NEWECONOMY COM AU NOMINEES PTY LIMITED MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED ANACACIA PTY LIMITED MR DERMOT FRANCIS MCGARRY & MRS CHRISTINE MCGARRY HILLMORTON CUSTODIANS PTY LTD MR JOHN ANDREW SWEET & MRS CHARMAINE LOUISE SWEET PORTFOLIO SERVICES PTY LTD MR HUNG-VI CHUNG MR GREGORY VICTOR SHALIT & MS MIRIAM FAINE EVERCITY PTY LTD Fully Paid Ordinary Shares 23,004,750 Fully Paid Ordinary Shares Number Percentage 23,004,750 15,859,963 24.19% 16.68% 4,956,462 4,587,779 4,217,017 3,271,227 2,995,479 2,303,125 1,870,000 1,273,426 1,019,742 896,627 822,229 576,292 540,000 467,586 372,406 354,477 350,000 285,000 5.21% 4.82% 4.43% 3.44% 3.15% 2.42% 1.97% 1.34% 1.07% 0.94% 0.86% 0.61% 0.57% 0.49% 0.39% 0.37% 0.37% 0.30% 70,023,587 73.62% Category – Number of shares Number of Shareholders 1 – 1000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over 446 446 261 484 59 1,696 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019NOTES TO THE FINANCIAL STATEMENTS 81 Voting rights As at 27 February 2020, there were 1,696 holders of ordinary shares of the Company. Holders of ordinary shares are entitled to vote as follows: a. Every shareholder may vote; b. On a show of hands every shareholder has one vote; and c. On a poll every shareholder has one vote for each fully paid share. As at 27 February 2020 there were no unquoted options over unissued ordinary shares. Shareholders with less than a marketable parcel As at 27 February 2020, there were 141 shareholders holding less than a marketable parcel of 704 ordinary shares ($0.71 on 27 February 2020) in the Company totaling 50,294 ordinary shares. Company secretary Shane Booth Share registry Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 82 This page has been left blank intentionally. SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019 CORPORATE DIRECTORY Directors Stephen Heath Non-Executive Chairman Tim Hargreaves Managing Director Vasco Fung Non-Executive Director Cheryl Hayman Non-Executive Director Company Secretary Shane Booth Chief Financial Officer and Company Secretary 83 Registered Office and Principal Place of Business 104 Vanessa Street Kingsgrove NSW 2208 P: (02) 9415 5000 Auditors Deloitte Touche Tohmatsu Share Registry Link Market Services Level 12 680 George Street Sydney NSW 2000 RIFLE MEDIA #SHM-20001 SHRIRO HOLDINGS LIMITED | ANNUAL REPORT 2019