Super Retail Group Ltd
Annual Report 2005

Plain-text annual report

SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT 2005 S U P E R C H E A P A U T O G R O U P L I M I T E D A N N U A L R E P O R T 2 0 0 5 WWW.SUPERCHEAPAUTO.COM.AU ABN 81 108 676 204 CONTENTS Chairman's Report 07 Managing Director's Report 10 Board of Directors 18 Senior Management Team 20 Corporate Governance Statement 33 Financial Report 37 Directors' Report 38 45 Special Purpose Report Statement of Financial Performance 50 51 Statement of Financial Position 52 Statement of Cash Flow 53 Notes to the Financial Statements 83 Directors' Declaration 84 Independent Audit Report 87 Shareholder Information NAME OF ENTITY Super Cheap Auto Group Limited ABN OR EQUIVALENT COMPANY REFERENCE 81 108 676 204 REGISTERED OFFICE 751 Gympie Road Lawnton QLD 4501 Telephone (07) 3205 8511 Facsimile (07) 3205 8522 SHARE REGISTRY ASX Perpetual Registrars Limited Level 8, 580 George Street SYDNEY NSW 2000 BANKERS Australia and New Zealand Banking Group Limited AUDITORS Grant Thornton SOLICITORS Redmond Van De Graaff Mallesons Stephen Jacques STOCK EXCHANGE LISTING Super Cheap Auto Group Limited shares are quoted on the Australian Stock Exchange. THE ANNUAL GENERAL MEETING The Annual General Meeting of the Shareholders of Super Cheap Auto Group Limited will be held at the Pine Rivers Memorial Bowls Club, Cnr. Sparkes and Francis Roads, Bray Park, Queensland on Thursday 20 October 2005 at 2.00 pm. Formal notice of this meeting and proxy form are enclosed with this report. WELCOME TO THE 2005 SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT. THIS YEAR HAS BEEN AN EXCITING ONE WITH FURTHER STORE EXPANSION AND THE OPPORTUNITY FOR US TO COMPLEMENT OUR EXISTING AUTOMOTIVE BUSINESS WITH THE UPCOMING LAUNCH OF OUR NEW BOATING, CAMPING AND FISHING BUSINESS, BCF. ONCE AGAIN, WE RECOGNISE OUR TEAM MEMBERS AND THEIR VALUABLE CONTRIBUTION TO THE SUCCESS OF OUR COMPANY. WE THANK ALL OUR SHAREHOLDERS AND CUSTOMERS FOR THEIR CONTINUED INTEREST AND SUPPORT IN OUR COMPANY. WE LOOK FORWARD TO SEEING YOU IN THE STORES. SCA2005/1 JULY 04 COMPANY LISTS ON AUSTRALIAN STOCK EXCHANGE DECEMBER 04 CELEBRATED OPENING OF 200TH STORE (STOKE, NZ) AND OPENED 5 ADDITIONAL STORES IN NZ ON THE SAME DAY JAN 05 ACQUIRED THE BUSINESS AND TRADING ASSETS OF THE QUEENSLAND CAMPING AND OUTDOOR LEISURE PRODUCTS RETAILER, CAMPMART (4 QUEENSLAND STORES) ANNOUNCES EXCITING NEW PARTNERSHIP WITH THE DYNAMIC TWO CAR SUPER CHEAP AUTO RACING V8 SUPERCAR TEAM AND AGREEMENT TO ACT AS NAMING RIGHTS SPONSOR FOR THE BATHURST 1000 FOR THE NEXT THREE YEARS. JULY 05 ANNOUNCED THE LAUNCH OF BCF – PLANS TO REBRAND THE RECENTLY ACQUIRED CAMPMART BUSINESS TO BCF ALONG WITH PLANS TO OPEN FURTHER STORES ACROSS AUSTRALIA AND NEW ZEALAND. SCA2005/2 N U M B E R S S T O R E $ M I L L I O N S S A L E S E B I T M E M B E R S T E A M SCA2005/3 GROUP SALES AT $470.1 MILLI THE PRIOR PERIOD, SUPPORTED SALES GROWTH AC SCA2005/4 ON WERE 22.8% HIGHER THAN BY ENCOURAGING LIKE FOR LIKE ROSS AUSTRALIA. SCA2005/5 GROUP EARNINGS GROUP EARNINGS BEFORE INTEREST, BEFORE INTEREST, TAX, TAX, DEPRECIATION AND AMORTISATION DEPRECIATION AND AT $40.8 MILLION GREW BY 27.5% AMORTISATION AT OVER THE PRIOR PERIOD. $40.8 MILLION GREW BY 27.5% OVER THE PRIOR PERIOD. SCA2005/6 CHAIRMAN'S REPORT Fellow Shareholder, I am pleased to be able to confirm that Super Cheap Auto has realised the goals we set for the Company in the first year following its listing on the ASX. We have maintained high growth rates, exceeded prospectus profit forecasts, and embarked on the strategy to extend our customer offering with an acquisition that will form the basis of our presence in the leisure and outdoor market. This combination of achievements and initiatives provides us with an excellent base for future growth. Super Cheap Auto maintained its status as a high growth company by expanding its retail network by 32 stores and delivering sales growth of 22.8% in a market where consumer spending began to wane in the latter part of the year. These outcomes were achieved without reducing sales and profit margins. More importantly, like for like growth was delivered despite the expanded presence in both Australia and New Zealand. Profit exceeded the prospectus forecast before and after the required changes to accounting standards. This reflects well on the management team’s capacity to manage growth without weakening the underlying economics of the business. Bob Thorn, Peter Birtles and the whole team deserve credit for delivering these outcomes. The acquisition of CampMart, and its imminent transformation into BCF, is an exciting initiative. It will underpin the extension of our customer base, and be a platform for future growth. The focus on leisure goods which supplement the interest that our customers have in cars and outdoor activities will take considerable advantage from the infrastructure and knowledge already available within Super Cheap Auto operations. None of this means that Super Cheap Auto is without challenges. A substantial investment in the systems and capacity required by the Company’s distribution and logistics effort will be required as it deals with the ongoing expansion of its operations. We will also need to be mindful of the funding required by the additional inventory, and the store roll-out planned for the Super Cheap Auto and BCF retail networks. The Board remains committed to maintaining growth. This will constrain the Company’s capacity to substantially increase the dividends paid to shareholders within the near term. Nevertheless, we have decided to declare a final dividend of 4.5 cents for a full year payment of 6.5 cents per share. This is 0.7 cents above the amount foreshadowed in the prospectus. Finally, I need to recognise the contribution of my fellow directors. We have a relatively small board which adds to the load when the Company couples rapid organic growth with a strategy to expand its operations through the acquisition and development of new markets. At all times, your Directors have responded quickly and have acted cohesively to ensure that all stakeholders benefit from an aggressive, innovative, and customer focussed business. Dick McIIwain Chairman Super Cheap Auto Group Limited SCA2005/7 FROM THE COMMENCEMENT OF ITS AUTOMO THE SUPER CHEAP AUTO GROUP HAS GROWN TO IN AUSTRALIA AND SCA2005/8 TIVE ACCESSORIES RETAIL BUSINESS IN 1974, 215 STORES ACROSS EVERY STATE AND TERRITORY IN NEW ZEALAND. SCA2005/9 Our first year as a public company is one of which all of our team members can be proud. It is the year where we achieved the milestone of 200 stores across Australia and New Zealand. In addition to this and in spite of tough retail conditions, we have delivered profits and dividends strongly ahead of our IPO prospectus forecasts. Continuing to invest for future growth, we opened another 28 stores in our Super Cheap Auto business and have laid the foundations for the rollout of our new and exciting format, BCF. Building the business for the future Retailing is at the heart of Super Cheap Auto Group. Our capabilities across retail management, category management, procurement and marketing supported by our supply chain, property management and our systems have driven the rapid growth of Super Cheap Auto. We have a team of very strong retail managers who have brought to the business experience of working in leading retail businesses not only in Australasia but in other countries. It is these capabilities that will be critical in growing the Group over the coming years. We have always said that we are in the business of creating and rolling out successful retail concepts and we have proven this in the ’05 year. As has been stated previously, our goal is to develop the Super Cheap Auto business to one of around 300 stores across Australia and New Zealand. At the date of this report, we have 212 stores trading of which 32 stores are in New Zealand. In less than 2 years, we have created a business in New Zealand of the size it took us 25 years to create in Australia. As well as growing sales through store expansion, we need to ensure that our existing stores continue to deliver growth in sales and we can only do this by creating an offer that attracts our target customers not only today but into the future. 2005 has seen an increased MANAGING DIRECTOR’S REPORT SCA2005/10 Our New Concept – BCF Boating, Camping, Fishing The launch of BCF our new Boating, Camping and Fishing products and accessories business in July was an exciting time for the business. In January 2003, we identified a number of retail categories in which no company held a dominant position in the Australian market and in which we believed there was an opportunity to leverage our retail capabilities to build a successful business. We identified that the Camping and Outdoor products market was one of those opportunities. We started to conduct research into this market and we identified that many people who camped also fished and that many people who fished also owned a boat or went boating. Yet no one retailer provided a full offer of boating, camping and fishing products. This led to the creation of a unique retail offer which we have called ‘BCF’. To enable us to create a foothold in the market and to accelerate our understanding of the customers and suppliers, we completed the $7 million acquisition of the CampMart business in January 2005. The CampMart business had been trading for around 25 years and had established 4 successful stores in Brisbane. We are converting these stores to the new BCF format as this Annual Report is issued. Our research indicated that the market for Boating, Camping and Fishing products and accessories is around $2 billion. At this stage, we plan to open 10 new stores in the 2005/06 financial year to add to the four converted CampMart stores. These stores will be based in Queensland and northern New South Wales. In time, we see the potential to open at least 60 stores across Australia and New Zealand, with a total annualised turnover of at least $300 million. Our plans to grow the BCF business, will require around $27.5 million investment in the 2005/06 year of which $5 million represents set up costs and launch advertising which we will expense against pre tax profits in line with our standard conservative accounting policy. emphasis on the “auto” focus in Super Cheap Auto. We are continuing to build our impressive range of products across automotive, spare parts, handyman items, tools and equipment based around products for the car, the house, the boat and the yard and at the same time, we are placing an emphasis on our automotive roots. Over the coming year, you will see some changes in our stores and in our marketing to reflect this. As we grow the business, we need to continually review our supply chain arrangements to ensure that these meet the needs of the business in a cost effective manner. We have determined that as a result of the growth of the business in Victoria and South Australia, we plan to reduce our overall cost of doing business by channelling stock through a logistics facility in Melbourne for the stores in the Southern states rather than freighting stock from our facility in Queensland. The Melbourne operation commences later this year. We continue to work in conjunction with our suppliers to reduce costs associated with handling product through our distribution centres and we are considering the establishment of a consolidation centre for imported product in China. This will allow us to pre- pack and hold stock ready for stores in China, thus avoiding the need to hold some imported lines in our Australian distribution centres. Super Cheap Auto has had an association with Motor Sport for close to 10 years and we are extremely pleased to be taking this to a whole new level with not only our sponsorship of the highly competitive Super Cheap Auto V8 Racing Car team but also through securing the naming rights sponsorship for the Bathurst 1000 for the next three years. Motor Sport and, particularly the V8 Super Cars, are a passion shared by many of our target customer group. We have found our sponsorship of V8 Super Cars as a way of connecting with our customers and particularly in building awareness of our brand in new markets. The sponsorship of a successful two car V8 team means that our brand is in the camera eye for much longer during the races and we were particularly pleased with our lead driver, Greg Murphy and the team’s clean sweep at Pukekohe in New Zealand in March. Our connection with the Bathust 1000 is one that demonstrates the seriousness of our brand across automotive in Australia and New Zealand. We have identified a number of promotional opportunities to drive sales through the Bathurst sponsorship and we are looking forward with excitement to October 9th – the date of the Super Cheap Auto 1000! SCA2005/11 MANAGING DIRECTOR’S REPORT CONTINUED Review of Operations 2004/05 has been another record year for the business. Total Group sales grew by 22.8%, Group EBIT grew by 29.4% and Group Earnings (before non recurring items) by 31.1%. We are particularly pleased that in a tough retail market, we have been successful in managing gross profit and controlling expenses to grow earnings at a higher rate than sales. The much publicised general decline in retail spending did have some impact on sales resulting in lower 2nd half sales growth but we were successful in maintaining sales growth through increasing our advertising programme rather than through aggressive price discounting activity. We believe that this strategy enabled us to improve our margins and to achieve an earnings result some 10% ahead of our IPO Prospectus. Super Cheap Auto delivered total sales of $465 million and operating profit (earnings before interest, tax and amortisation) of $33 million. In Australia, sales performance was pleasing in most parts of the country with sales from like for like stores growing by 3.7% throughout the year. In New Zealand, we have made excellent progress in rolling out our business and acceptance by new customers has given us confidence with our New Zealand expansion. Our research has indicated that unprompted awareness of our brand in the New Zealand market had achieved a scoring of 47% within 15 months of opening our first stores. We continue to finetune our customer offer and our marketing as we grow the business and we have also identified a number of opportunities to increase the average sale from our New Zealand stores in the coming year. As part of our growth strategy we have continued to introduce new products into our stores during the year and, as a result, our car care, car audio/visual and leisure and outdoor categories performed particularly strongly. The continual introduction of new product that attracts and excites our customers and the ongoing development of consistent and credible own brand products are key initiatives to drive sales growth into the future. Overall gross profit margin improved from 38.4% to 39.0% during the year, through initiatives in improving trading terms, through reducing the cost of product returns and shrinkage and through improvements in supply chain operations. We have also been successful in reducing underlying operating costs in many areas of the business which assisted us to fund the increase in advertising costs without a significant increase in overall operating costs. The performance of our supply chain was particularly pleasing during the key promotional periods at Christmas and Easter. However, we have more to do to achieve the consistent level of in stock availability that we need to provide to our customers all year round. We also have further work to do to ensure that we are holding the right amount of inventory in the business to maximise sales and margin whilst also achieving required return on capital. Whilst we have improved our supply chain operations during the year, a major step forward was the implementation of a Distribution Requirements Planning system in February. This, combined with our demand planning and forecasting initiatives, allowed us to better determine customer requirements and ensure SCA2005/12 Team Members As I mentioned at the start of my review, 2004/05 was a year of which all of our team members can be proud. We now have over 3,500 team members across the Group and I am incredibly proud to be leading such a committed group of people. There are always plenty of challenges that arise when you grow a business at the rate we have with the Super Cheap Auto Group but whatever challenges arise our people always take them on and smash through. We will continue to place substantial emphasis on the core values that make up the Super Cheap Auto Culture and the importance of our Team Framework Principles. In line with one of our Team Framework Principles, we always try to recognise and celebrate major achievements. Many Team Members are worthy of recognition, as you will see later in this report, but I would like to thank all team members for their contribution. Looking ahead These are exciting times for the Super Cheap Auto Group. Whilst Super Cheap Auto is on track to establish itself as the clear leader in the retailing of auto parts and accessories across Australia and New Zealand, we look forward to the successful launch of our BCF business. We will continue to improve the functions and systems that support our retail businesses and we will continue to look for further retail opportunities. There is much to do but that is what makes working in this business so enjoyable and rewarding. I look forward to sharing our future successes with you. that we are carrying the right amount of stock in every store. Following implementation, we identified that we needed to embark on a nine month exercise to rebalance stock across our Stores and Distribution Centres. This exercise has meant that average stocks per store are running at just over $550,000 per store at year end as opposed to our target of $500,000. We are planning to reduce inventory and be in line with targets during the ‘06 financial year. Review of Financial Condition We have continued to fund our investment in the growth of the business through debt. During the year, we have negotiated increases in our funding facilities to support the acquisition of CampMart and we are currently in the process of establishing increased facilities to service the requirements of the Group over the next three years. It is envisaged that these new facilities will include a combination of term debt and working capital facilities. Net debt for the Group has increased from $37 million to $74.85 million during the year. Much of this increase is attributable to the timing of our year end balance date, being 2 July 2005. This has resulted in $21.8 million in payments made to vendors and landlords on 1 July 2005 being included in net debt at the end of the year. These payments would normally fall into the beginning of the following financial year. Despite the increase in net debt, the Group has remained comfortably within its facility covenant arrangements. Cash flow from operations was an inflow of $4.1 million and was impacted by the timing issues referred to above. During the year, the Company successfully renegotiated its trading terms with its major inventory suppliers with a resultant benefit of a $15 million reduction in working capital requirements. This benefit offset the increased investment in inventory referred to above. Overall Group capital expenditure was $16.7 million with $5.6 million in new store fit-out, $7.7 million in Supply Chain and IT projects and $3.4 million in ongoing maintenance projects across the Group. SCA2005/13 “BCF – IT’S LIKE A MATE WITH THE MOST AWESOME SHED I’VE EVER SEEN... WELL ORGANISED WITH EVERYTHING I NEED FOR MY BOATING, CAMPING OR FISHING EXPERIENCE.” As outlined in our IPO Prospectus, we believe that the capabilities that we have developed in growing the Super Cheap Auto business can be successfully applied to growing other retail formats. In early 2003, we identified camping and outdoor leisure products as a retail category in which we believed there was an opportunity to develop a new and innovative retail format. This led to the birth of BCF – the one retail format in Australia offering everything you need for your boating, camping and fishing experience. This business will open to the public later this year. As part of the development of BCF, we made the decision to purchase the four store CampMart business in January 2005. The acquisition of this business, which had been successfully run for 20 years, presented the opportunity to accelerate our understanding of the camping market and its customers’ expectations. We have used this experience to fine tune our BCF concept. SCA2005/14 SCA2005/15 THERE ARE NOW 3,604 TEAM MEMBERS THE DEDICATION OF THE SUPER CHEAP AUTO DRIVER OF SUPER CHEAP AUTO’S GROWTH. CAN BE FOUND AT ALL LEVELS OF SCA2005/16 ACROSS AUSTRALIA AND NEW ZEALAND. TEAM MEMBERS CONTINUES TO BE A KEY A STRONG SENSE OF PRIDE AND TEAMWORK THE SUPER CHEAP AUTO TEAM. SCA2005/17 BOARD OF DIRECTORS DICK MCILWAIN (1), BA, FAICD Independent Non-Executive Chairman Dick McIlwain, aged 58, was appointed a Director of the Company on 19 May 2004. Dick has been the Chief Executive of UNiTAB Limited since 1989 and the Managing Director and Chief Executive since 1999. Prior to joining UNiTAB Limited, Dick held operational roles at Australian Airlines (now the domestic arm of Qantas) and a human resources and industrial relations role at coal miner Utah Development Company. He is a Fellow of the Australian Institute of Company Directors. BOB THORN (4) Managing Director Bob Thorn, aged 50, was appointed a Director of the Company on 8 April 2004. Bob joined Super Cheap Auto Pty Ltd in 1993 as General Manager and in 1996 was appointed Managing Director. He has almost 30 years of retailing experience across a range of retail formats, from high profile department store management to more specialised retail outlets. Prior to joining Super Cheap Auto, Bob was a senior executive with the Lincraft chain and commenced his retail career and held management positions with David Jones Limited. REG ROWE (5) Non-Executive Director Reg Rowe, aged 61, was appointed a Director of the Company on 8 April 2004. Reg and Hazel Rowe founded an automotive accessories mail order business in 1972 which they ran from their Queensland home. In 1974 they commenced retail operations of the business which evolved into Super Cheap Auto. Reg served as Managing Director of Super Cheap Auto Pty Ltd until 1996 and then Chairman from 1996 to 2004. Prior to this, Reg had 13 years experience in various retail roles at Myer Department Stores. DARRYL MCDONOUGH (3), BBus (Acty), LLB (Hons), SJD, FCPA, FAICD Independent Non-Executive Director Darryl McDonough, aged 54, was appointed a Director of the Company on 19 May 2004. Darryl is a practicing solicitor with over 20 years of corporate experience. He is the Chairman of Cellnet Group Limited and the Chair of the Queensland Competition Authority. He has served as a director of a number of public companies in the past including Bank of Queensland Limited. Darryl is a Past-President of the Australian Institute of Company Directors, Queensland Division. ROBERT WRIGHT (2), BCom, FCPA, MAICD Independent Non-Executive Director Mr Robert Wright, aged 56, was appointed a Director of the Company on 19 May 2004. Robert has 30 years’ financial management experience, having held a number of chief financial officer positions, including finance director of David Jones Limited. He is currently the Chairman of Dexion Limited and a director of Australian Pipeline Limited, SAI Global Limited and the reconstructed Harris Scarfe Australia Pty Limited. Robert is the Chairman of the Audit and Risk Management Committee. SCA2005/18 5 4 SCA2005/19 3 2 1 1 2 3 5 7 8 4 6 SCA2005/20 SENIOR MANAGEMENT TEAM GETTING TO GRIPS WITH SOME OF THE COMPANY'S BEST SELLING PRODUCTS PETER BIRTLES (1) – Chief Financial Officer and Company Secretary Peter is a chartered accountant with over 19 years experience. Prior to joining Super Cheap Auto in 2001, Peter spent 12 years working with The Boots Company in the United Kingdom and Australia in a variety of senior finance and information technology roles where he ultimately held the position of Head of Finance and Planning. Prior to joining The Boots Company, Peter worked for Coopers & Lybrand. Peter is responsible for the Company’s financial accounting, planning and reporting, treasury, tax, finance systems, payroll, internal audit and has overall responsibility for business systems. STEVE DOYLE (5) – General Manager – BCF Steve joined Super Cheap Auto in 2002 as Marketing Manager. He subsequently held the positions of General Manager - Retail and General Manager – Merchandising. Earlier this year, following the acquisition of CampMart, Steve was appointed General Manager - CampMart. CampMart was relaunched as BCF in July this year. Steve has 16 years of retail experience in Australia and overseas. Prior to joining Super Cheap Auto, Steve was a National Business Manager in Woolworths Limited’s merchandise team. In 2004, Steve received the Australian Institute of Management Young Manager of the Year Award for Brisbane. DAVID AJALA (3) – General Manager Merchandising – Super Cheap Auto David has over 25 years’ retail experience in Coles Myer. Prior to joining the Super Cheap Auto Group in July 2005, David held a number of senior management positions across several States in Australia, including National buyer, National Promotions Manager, Area and Regional Operations Manager and more recently as a National Business Manager for CML Food and Liquor division, responsible for both the Coles brand and the Bi Lo discount format. David has completed Post Graduate studies with Deakin University as part of his MBA. David’s key responsibilities at Super Cheap Auto include merchandising, procurement, inventory, demand planning and marketing. MARK GRAHAME (2) – Group Procurement Manager Mark joined the Super Cheap Auto Group in May 2005. He is responsible for establishing cost effective and consistent forecasting, replenishment and procurement processes across the Group. In this role, Mark works closely with our Merchandising, Supply Chain and Business Systems teams and with our vendors, both in Australia and Asia. Mark has over twenty years experience in sales, marketing and procurement in information technology, industrial chemicals, automotive tyres, footwear and automotive parts. Mark holds a B Commerce and an MBA (Hons). NICK BINNS (8) – Business Systems Manager Nick joined the Super Cheap Auto Group in 2001. Prior to joining the Company, he had spent seven years at Cambridge Management Consulting with a focus on process, system and change management. Nick has responsibility for process development and information technology across the Group. Recent projects include the implementation of an Advanced Planning and Optimisation application to help improve in-stock position at store and reduce overall inventory holdings and the implementation of a Business Intelligence solution to provide improved analysis capability to assist in satisfying customer needs at a local market level. Nick reports to Peter Birtles. PAM PUGSLEY (6) – General Manager Retail Operations – Super Cheap Auto Pam joined Super Cheap Auto in November 2004. Pam has 22 years of retail experience in Coles Myer Limited. Prior to joining Super Cheap Auto, Pam was a Regional Manager for Coles Supermarkets and Pick’n’Pay, and previously held positions in Merchandising, Store Development, and State Services Management in a variety of locations across Australia. In 2002, Pam completed a Post Graduate qualification through Deakin University in Melbourne. Pam has the responsibility for the day-to-day operations of our stores and for set up of new stores. ROBERT DAWKINS (4) – Property Services Manager Robert has 15 years experience in property management. Prior to joining the Super Cheap Auto Group in 2001, Robert was the Property Manager for the Bank of Queensland Limited. Robert’s key responsibilities include property and facilities management, property leasing and development, project and contract management and asset acquisition and disposal. STEVE TEWKESBURY (7) – Supply Chain Manager Steve joined Super Cheap Auto in 2004. He has in excess of 23 years experience in sales, marketing and logistics. Prior to joining Super Cheap Auto, Steve worked on Global Supply Chain and E-Commerce Strategy for Reckitt & Colman. He holds a degree qualification in E-Commerce from Monash University. Steve is responsible for the Company’s complete supply chain function which spans across Australia and New Zealand. SCA2005/21 SCA2005/22 GROUP EARNINGS BEFORE INTEREST AND TAX OF $29.5 MILLION GREW BY 29.4% OVER THE PRIOR PERIOD. SCA2005/23 2004 ANNUAL AWARDS SUPER CHEAP AUTO CELEBRATES THE ACHIEVEMENTS OF ITS TEAM MEMBERS Each year Super Cheap Auto (“SCA”) celebrates the achievements of its team members at its annual Managers’ Meeting. Throughout the year, team members are nominated by their peers and supervisors as having gone that extra mile, whilst outstanding stores are nominated by their Area Manager leading up to the awards announcement. opened and they needed a casual with experience so Luke transferred stores. In November 2003, after completing school, Luke was offered a full-time position at Kangaroo Flat and quickly accepted. In October 2004, Luke was appointed Assistant Manager at the Bendigo store and in November, attended and successfully completed SCARMA. As always the awards are decided with great difficulty and this year, for the first time, the award for Manager of the Year was presented to two exceptional team members and a special recognition award was presented to a team member for her tireless work throughout the year. The 2004 award winners were: RALDA GROVE (3), Manager of the Year Ralda joined SCA in February 2002 as a Trainee Manager at Caboolture. She quickly climbed the promotion ladder and by December 2002 was appointed Manager of the Deception Bay store. In January 2003, Ralda transferred to the new Burpengary store as Manager and then to our larger store at Chermside in June 2004. In August 2004, Ralda took on the role of Manager of our training academy, SCARMA, giving her the opportunity to share her knowledge and experience with new Managers during the course of their training. Ralda is now responsible for managing the Call Centre at our Head Office. Ralda is a high achiever having won the Manager of the Month award in September 2002 and December 2003. In June 2004, Ralda was again nominated for this award and was successful because of her consistently high results, her strength to influence and motivate the team, her enthusiasm and commitment to the Company and those she works with. Ralda’s June 2004 award led her to win the 2004 Manager of the Year award. DAVID HOCKINGS (1), Manager of the Year David joined SCA in March 2002 as Manager of the Ayr store. In May 2003, David played an integral role as Training Manager in Western Australia during the Marlows/Rocca Bros acquisition (SEP 7). David remained in Western Australia following the SEP 7 transition continuing to build the SCA offer we know today. In March 2005, David was promoted to Area Manager for South Australia. In December 2003, whilst working as Manager of the Midland store, David won Manager of the Month. His nomination was the result of a number of achievements – the huge role he played in SEP 7, including conversion of existing stores to SCA layouts, recruitment and training and because of his efforts in leading and developing his Team at Midland store to become one of WA’s top 3 stores in trade. LUKE OXLADE (2), Team Member of the Year Luke joined SCA in September 2001 at the tender age of 15 whilst still at school. Luke worked as a casual at the newly opened Bendigo store and as his knowledge of cars and products grew so did the demand for him to be regularly in store. In December 2002, the Kangaroo Flat store SCA2005/24 Since 2001, Luke has been nominated 3 times for Team Member of the Month. His successful nomination in July 2003 led to his winning 2004 Team Member of the Year. His award is the result of his self-motivation, dependability, and his tremendous support and commitment to his Kangaroo Flat team. MACKAY STORE (4), Store of the Year In December 1995, Mackay opened as the 21st Super Cheap Auto store. Mackay Store was nominated along with 14 others as the outstanding store in 2004. Mackay won the award because of its consistent performance, both financially and in standard of presentation. The store came in 2% over sales budget, and 7% over on the previous year sales. The Mackay team scored very well at 92%, 12% over the minimum requirement, during its Store Operating Standards audit. With these results the store was well deserving of the award. This store could not have come to where it is today, without its team including: Eric Petersen (Manager), Tim Pratt (Asst. Manager), Christine Lavis, Simone Nash, Della Bartlett, Hayley Sbravati, Danielle Fitzgerald, Laura Calvert, Luke Sydmonds-Smith, Grant Eddy, Dustin Cavanagh, Heather Davies, Daniel Thomas, Sarah Edwards, Emma Marshall and Jack Simpson. SONIA IRWIN (5), Special Recognition Award In March 2000, Sonia joined SCA as a Casual Team Member at one of our larger stores of the day, Toowoomba City. Within 4 weeks she became a full-time team member and spent the next 12 months in various roles from cashiering, becoming a 3IC and acting Assistant Manager. In March 2001, Sonia was asked to join the New Store Opening team and eventually became a leader during the conversion of the Marlows/Rocca’s stores to the SCA format. Not long after, Sonia was asked to be a Set-Up Manager when SCA launched in New Zealand. In January 2004, Sonia was overwhelmed to be asked to take on the role of New Store Opening Manager for SCA and accepted it with great enthusiasm. Sonia has previously won two Team Member of the Month awards and in June 2004 was nominated for Manager of the Month award. This nomination was as a result of the success that Sonia and her team had in meeting challenges and setting new benchmarks – able to do a fantastic set-up in only 5 days and leaving the store in great condition. Sonia has been described as a “powerhouse and an exemplary role model”. Her role is not typical of a SCA manager and it is for these reasons that Sonia was presented with a Special Recognition Award. 1 2 3 4 5 SCA2005/25 SUPER CHEAP AUTO, STOCK EVERY STORE, PRIDES ITSELF O ITS PRODUC SCA2005/26 ING OVER 10,000 ITEMS IN N THE BREADTH AND VALUE OF T OFFERING. SCA2005/27 LOCATION: GYMPIE QLD AUSTRALIA ADDRESS: 19 WICKHAM STREET GYMPIE TEN STORE BUILDDAY START DATE: 09-05-05 FINISH DATE: 19-05-05 GRAND OPENING: 28-05-05 GYMPIE IS SUPER CHEAP AUTO’S 211TH STORE PHOTOGRAPHED BY TEAM MEMBER JO WILLEY SCA2005/28 DAY1 GYMPIE DAY 02 GYMPIE DAY 03 GYMPIE DAY 05 GYMPIE DAY 06 GYMPIE DAY 07 GYMPIE DAY 08 GYMPIE DAY 09 GYMPIE DAY 10 GYMPIE DAY 04 GYMPIE OPENING DAY!!!!! STORE OPENINGS ARE A CULMINATION OF TEAMWORK ACROSS MANY DEPARTMENTS THROUGHOUT THE BUSINESS STARTING AT PROPERTY THEN WORKING THROUGH FINANCE, MERCHANDISING, BUSINESS SYSTEMS AND TECHNOLOGY, HUMAN RESOURCES, LOGISTICS AND RETAIL. WORKING FROM A PROVEN PROCESS, DEVELOPED OVER TIME, ALL AREAS OF THE BUSINESS INTERLINK WITH EACH OTHER TO ENSURE DEADLINES ARE REACHED AND STORES OPEN 8.00 AM SHARP ON THE DESIGNATED DAY. THE PHYSICAL STORE OPENING PROCESS IS ACHIEVED THROUGH THE OUTSTANDING EFFORTS OF A DEDICATED STORE OPENING TEAM THAT COMPRISE A MANAGER AND 8 OTHERS. AT PRESENT, THERE ARE TWO PERMANENT STORE SET-UP TEAMS, ONE FOR SUPER CHEAP AUTO AND THE OTHER FOR BCF. ADDITIONAL TEAMS ARE CREATED AS REQUIRED TO ASSIST WITH MULTIPLE STORE OPENINGS. SCA2005/29 V8 SUPERCAR MUSCLE CAR MANIA Since 1995, sponsorship of Motorsport has played an important role in the growth of the Super Cheap Auto business. Involvement in the V8 Supercar series, which is one of the most widely watched sporting events in Australia, has ensured that the Super Cheap Auto brand name is recognised by its target customers, many of whom are motor sport enthusiasts. This coverage has been a good introduction even in areas where the business has had no stores. This has allowed the business to quickly build customer numbers as it extended its store network. This year the Company has taken its involvement to a whole new level with sponsorship of the 2 car Super Cheap Auto Racing team and becoming the naming rights sponsor of the Bathurst 1000 for the next three years. The Super Cheap Auto Racing team, with its two gifted drivers Greg Murphy and Paul Weel, provides the best opportunity yet to win races and become a dominant force on the track. The Bathurst 1000 is one of Australia’s iconic events which will put the Super Cheap Auto brand name in front of audiences around the world. SCA2005/30 SCA2005/31 SCA2005/32 CORPORATE GOVERNANCE THE COMPANY'S APPROACH TO ESTABLISHING AN EFFECTIVE SYSTEM OF CORPORATE GOVERNANCE EXPLAINED Super Cheap Auto Group Limited (“the Company”) and the Board are committed to achieving and demonstrating high standards of corporate governance. The Directors of Super Cheap Auto Group Limited are accountable to shareholders for the proper management of the business and affairs of the Company. A description of the Company’s main corporate governance practices is set out below. All these practices were established in the three months following the Company’s incorporation. The Board of Directors The Board of Directors, working with senior management, is responsible to shareholders for the overall management of the Company’s business and affairs. The Directors’ overriding objective is to increase shareholder value within an appropriate framework which protects the rights and interests of company shareholders and ensures the Company and its controlled entities are properly managed. The Board delegates responsibility for day-to-day management of the Company to the Managing Director. Composition of the Board The constitution of the Company provides that the number of Directors is to be not less than three nor more than eight. The Board is currently comprised of five Directors, four of whom (including the Chairman) hold their positions in a non-executive capacity. The Board operates in accordance with the broad principles set out in its charter which is available from the Corporate Governance information section of the Company website at www.supercheapauto.com. The composition of the Board is reviewed annually by the Board Nomination and Remuneration Committee to ensure that it has available an appropriate mix of skills and experience to ensure the interests of shareholders are served. Details of the members of the Board, their experience, expertise, qualifications and independent status are profiled in the Directors' Report section on pages 38 to 44. Responsibilities The responsibilities of the Board include: (cid:127) approving the Company’s goals and strategic direction; (cid:127) monitoring financial performance, including adopting annual budgets and approving Super Cheap Auto’s financial statements; (cid:127) ensuring that adequate systems of internal control exist and are appropriately monitored for compliance; (cid:127) selecting the Managing Director and review the performance of senior management; and (cid:127) ensuring significant business risks are identified and appropriately managed. Directors’ Independence As stated there are five Directors, three of whom are Independent Non-Executive Directors (including the Chairman). The predominance of Independent Non-Executive Directors clearly separates the Board from the Company’s executive management and enshrines board independence. The structure also provides the Company with the benefit of a diverse range of experience, qualifications and professional skills. The Board has adopted the independence definition suggested by the ASX Corporate Governance Council and as such three of Super Cheap Auto’s Directors (namely Mr Dick McIlwain, Dr Darryl McDonough and Mr Robert Wright) are considered to be independent by reference to that definition. Independent Professional Advice The Board (and each individual Director) is entitled to seek independent professional advice consistent with Corporate Governance Practices at the Company’s expense (subject to the reasonableness of the costs and Board consent) in the conduct of its duties for the Company. Performance Assessment The Board shall undertake an annual performance evaluation of itself that compares the performance of the Board with the requirements of the Board Charter, sets the goals and objectives of the Board for the upcoming year and effects any improvements to the Board Charter that are necessary or desirable. This evaluation is conducted by the Board and includes consideration of the annual assessment of the effectiveness of the Board as conducted by the Board Nomination and Remuneration Committee. SCA2005/33 CORPORATE GOVERNANCE CONTINUED Financial Reporting The Board is provided with monthly reports from management on the financial performance of the Company. The monthly reports include details of all key financial measures reported against budgets approved by the Board. The Company’s financial report preparation and approval process for the 2005 financial year involved both the Managing Director and the Chief Financial Officer making the following certifications to the Board that: (cid:127) the Company’s financial reports and accompanying notes represent a true and fair view in all material respects of the Company’s financial condition and operational results and are in accordance with relevant accounting standards; (cid:127) the above statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and (cid:127) the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. Board Committees The Board has established two Committees to assist it in carrying out its responsibilities, the Board Nomination and Remuneration Committee and the Audit and Risk Committee. Each Committee has its own written charter setting out its role and responsibilities, composition, structure, membership requirements and the manner in which the Committee is to operate. All matters determined by Committees are submitted to the full Board as recommendations for Board decision. Board Nomination and Remuneration Committee The current composition of the Board Nomination and Remuneration Committee is the full Board. The Chairman is the Chairman of the Board. The Managing Director does not have voting rights. The Committee operates in accordance with its charter which is available on the Company’s website. SCA2005/34 The Board has charged the Board Nomination and Remuneration Committee with responsibility to: (cid:127) assist the Board in ensuring that it is comprised of Directors with the appropriate mix of skills, experiences and competencies to discharge its mandate effectively; (cid:127) establish procedures for the selection and recommendation of candidates suitable for appointment to the Board; (cid:127) ensure that the Company has in place appropriate remuneration policies designed to meet the needs of the Company and to enhance corporate and individual performance; (cid:127) reviews the succession planning for the Board and senior management and reports to the Board on such issues. Audit and Risk Committee The existence of the Audit and Risk Committee is considered by the Company to be a key element of its corporate governance program and part of the Company’s commitment to best practice in the area of corporate governance. The Audit and Risk Committee consists of the following Non-Executive Independent Directors: R J Wright (Chairman) R D McIlwain D D McDonough All members of the Audit and Risk Committee are financially literate and have the requisite financial expertise. Some members have an understanding of the industry in which the Company operates. The Audit and Risk Committee operates in accordance with a charter which is available on the Company’s website. The Audit and Risk Committee supports the full Board and essentially acts in a review and advisory capacity. The Committee is considered to be a more efficient forum than the full Board for focusing on particular issues relevant to: (cid:127) verifying and safeguarding the integrity of the Company’s financial reporting including the review, assessment and approval of the half-year financial report, the annual report and all other financial information published by the Company or released to the market; (cid:127) establishing a sound system of risk oversight and management, and, internal control; (cid:127) establishing a sound system of compliance with laws and regulations, internal compliance guidelines, policies, procedures and control systems and prescribed internal standards of behaviour. This committee provides ongoing assurance in the areas of: (cid:127) financial administration and reporting; (cid:127) audit control and independence; (cid:127) legal compliance; (cid:127) accounting policies and standards; (cid:127) internal controls; and (cid:127) risk oversight and management. External Auditors The Company’s and Audit and Risk Committee’s policy is to appoint external auditors who clearly demonstrate quality and independence. The Audit Committee: (cid:127) recommends to the Board the appointment of External Auditors and their fee; (cid:127) reviews the performance of the External Auditors; (cid:127) establishes processes to ensure the independence and competence of the External Auditors' Audit Managers; (cid:127) oversees and appraises the quality of audits conducted by the External Auditors; (cid:127) approves External Audit yearly audit plans for the Company and its subsidiaries and oversees the scope of audits to be conducted; (cid:127) ensuring that no management restrictions are placed upon access to relevant information or personnel by External Auditors. The performance of the External Auditor is reviewed annually. An analysis of fees paid to the External Auditors, including a break-down of fees for non-audit services is provided in Note 27 to the financial statements. It is the policy of the External Auditors to provide an annual declaration of their independence to the Audit and Risk Committee. The External Auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. Code of Conduct The Company has developed a statement of Corporate Governance Principles and a Code of Conduct ("the Code") which has been fully endorsed by the Board and applies to all Directors and team members. In summary, the Code requires that at all times all Company team members act with the utmost integrity, objectivity and in compliance with the letter and the spirit of the law and company policies. A copy of the Code is available on the Company’s website. Dealing in Shares The Company has a formal written policy for Directors and officers with respect to trading in the Company’s securities (“Trading Policy”). Directors and senior management (and their associates) are prohibited from engaging in short-term trading of Company securities. The policy also restricts the selling of Company securities to three “window” periods (between 24 hours and 30 working days following the release of the annual results, the release of the half-yearly results and the close of the annual general meeting) and such other times as the Board permits. In addition, Directors and senior management must notify the Chairman before they buy or sell Company securities and confirm once the transaction is complete. In all instances buying or selling Super Cheap Auto shares is not permitted at any time by any person who possesses price sensitive information not available to the market. A copy of the Trading Policy is available on the Company’s website. Continuous Disclosure and Shareholder Communication The Company has written policies and procedures on information disclosure that focus on continuous disclosure of any information concerning the Company and its controlled entities that a reasonable person would expect to have a material effect on the price of the Company’s securities. These policies and procedures also include the arrangements the Company has in place to promote communication with shareholders and encourage effective participation at general meetings. A summary of these policies and procedures is available on the Company’s website. SCA2005/35 SCA2005/36 WWW.SUPERCHEAPAUTO.COM AUSTRALIAN CAPITAL TERRITORY Belconnen (02) 6253 5660 Fyshwick (02) 6239 2333 Tuggeranong (02) 6293 2233 NORTHERN TERRITORY Alice Springs (08) 8952 7455 Berrimah (08) 8932 9866 Darwin (08) 8927 2888 QUEENSLAND Acacia Ridge (07) 3274 6311 Ashmore (07) 5539 2033 Ayr (07) 4783 7377 Biloela (07) 4992 5299 Booval (07) 3282 6356 Browns Plains (07) 3806 8177 Bundaberg (07) 4151 1111 Burleigh (07) 5576 6000 Burpengary (07) 3888 9366 Caboolture (07) 5499 0488 Cairns (Earlville) (07) 4033 0600 Cannon Hill (07) 3395 8622 Capalaba (07) 3823 1677 Carseldine (07) 3261 4777 Chermside (07) 3359 4930 Cleveland (07) 3286 5777 Currimundi (07) 5437 7400 Dalby (07) 4662 2933 Deception Bay (07) 3204 8100 Enoggera (07) 3855 3188 Gladstone (07) 4976 9133 Goodna (07) 3818 0722 Gympie (07) 5482 7566 Hermit Park (07) 4721 6488 Hervey Bay (Pialba) (07) 4124 1211 Innisfail (07) 4061 4788 Ipswich (07) 3812 2366 Kallangur (07) 3204 4922 Kawana Waters (07) 5478 3555 Keperra (07) 3851 3611 Kingaroy (07) 4162 5733 Labrador (07) 5537 7977 Lawnton (07) 3881 2800 Loganholme (07) 3209 9322 Loganlea (07) 3805 2688 Macgregor (07) 3849 6822 Mackay (07) 4942 2344 Mackay City (07) 4951 0944 Manunda (07) 4053 6912 Maroochydore (07) 5479 4844 Maryborough (07) 4121 3332 Mermaid Beach (07) 5554 6233 Moorooka (07) 3892 2565 Mt Isa (07) 4749 3785 Nerang (07) 5527 3988 Noosa (07) 5455 5444 Nundah (07) 3256 7600 Redcliffe (07) 3284 2055 Rockhampton (07) 4922 5433 Smithfield (Cairns) (07) 4038 1588 Southport (07) 5527 0666 Stones Corner (07) 3394 4844 Taigum (07) 3265 7211 Taringa (07) 3871 3808 Thuringowa (07) 4773 9000 Toowoomba City (07) 4632 0799 Toowoomba South (07) 4635 7577 Townsville (Garbutt) (07) 4725 6866 Underwood (07) 3841 3400 Warwick (07) 4661 7633 Windsor (07) 3857 0677 Yamanto (07) 3294 1033 NEW SOUTH WALES Albury (02) 6041 1866 Auburn (02) 9648 5722 Bankstown (02) 9709 6500 Bathurst (02) 6331 7122 Blacktown (02) 9676 1444 Bondi Junction (02) 9389 3968 Brookvale (02) 9905 5666 Campbelltown (02) 4625 9000 Coffs Harbour (02) 6651 8550 Dubbo (02) 6882 0611 Erina (02) 4367 4850 Fairy Meadow (02) 4225 2366 Glendale (02) 4954 6066 Goulburn (02) 4822 9190 Grafton (02) 6642 7222 Griffith (02) 6962 9566 Inverell (02) 6722 5466 Kotara (02) 4965 5488 Lake Haven (02) 4392 7077 Lake Road (02) 6581 5778 Lakemba (02) 9740 9999 Lismore (02) 6622 7797 Liverpool (02) 9600 7100 Maitland (02) 4933 5133 Mcgraths Hill (02) 4577 8822 Menai (02) 9543 3577 Mt Druitt (02) 9677 1400 Mudgee (02) 6372 7055 Narellan (02) 4647 4533 Newcastle (02) 4968 9833 Nowra (02) 4422 9700 Orange (02) 6369 1066 Penrith (02) 4733 3322 Port Macquarie (02) 6583 2099 Queanbeyan (02) 6299 4099 Rockdale (02) 9567 0966 Shellharbour (02) 4297 6899 Singleton (02) 6571 5955 Tamworth (02) 6762 4433 Taree (02) 6551 6211 Tweed Heads (07) 5524 8911 Ulladulla (02) 4455 3488 Villawood (02) 9632 0877 Wagga Wagga (02) 6921 6922 Warwick Farm (02) 9822 7299 Wentworthville (02) 9896 0166 West Gosford (02) 4323 2044 Wetherill Park (02) 9604 9622 Designed by emeryfrost, Sydney www.emeryfrost.com Photography by Craig Voevodin, Ray Parslow Printing by Lindsay Yates & Partners SOUTH AUSTRALIA Darlington (08) 8358 3566 Elizabeth (08) 8287 6533 Kilkenny (08) 8347 2214 Marion (08) 8296 2210 Noarlunga (08) 8384 2833 Para Hills (08) 8258 2760 Salisbury (08) 8258 4811 Thebarton (08) 8354 0666 TASMANIA Devonport (03) 6424 3244 Glenorchy (03) 6272 9200 Launceston (03) 6333 0511 VICTORIA Bairnsdale (03) 5153 2799 Ballarat (03) 5339 9455 Bendigo (03) 5442 7877 Broadmeadows (03) 9309 2799 Carrum Downs (03) 9782 8305 Cranbourne (03) 5995 7299 Dandenong (03) 9706 7788 Echuca (03) 5480 6788 Epping (03) 9408 4288 Essendon (03) 9379 3600 Frankston (03) 9781 2288 Hoppers Crossing (03) 9748 7277 Kangaroo Flat (03) 5447 9144 Keysborough (03) 9798 8466 Knox City (03) 9800 4722 Maribyrnong (03) 9318 8444 Mentone (03) 9585 0399 Mildura (03) 5022 2588 Moe (03) 5126 1755 North Geelong (03) 5272 3277 Preston (03) 9484 6006 Ringwood (03) 9847 0055 Rowville (03) 9764 1677 Sale (03) 5144 3466 Shepparton (03) 5831 3944 Sunbury (03) 9746 3610 Sunshine (03) 9310 2488 Thomastown (03) 9466 3699 Traralgon (03) 5174 9755 Wangaratta (03) 5722 3244 Warragul (03) 5623 5699 Warrnambool (03) 5561 7660 Watergardens (03) 9390 9699 Waurn Ponds (03) 5241 8947 Werribee (03) 9748 0055 Yarraville (03) 9318 9928 WESTERN AUSTRALIA Balcatta (08) 9240 1566 Belmont (08) 9477 5699 Bunbury (08) 9721 9977 Canning Vale (08) 9455 3411 Fremantle (08) 9335 8633 Gosnells (08) 9398 4822 Joondalup (08) 9300 0744 Kalgoorlie (08) 9021 7145 Mandurah (08) 9581 8588 Midland (08) 9274 5422 Morley (08) 9375 6933 Myaree (08) 9317 7699 O’Connor (08) 9314 3822 Osborne Park (08) 9443 3711 Rockingham (08) 9592 7999 Spearwood (08) 9494 2144 Victoria Park (08) 9361 8422 NEW ZEALAND Albany 0011 64 9 448 2461 Alicetown 0011 64 4 569 1576 Cambridge 0011 64 7 823 7618 Dunedin 0011 64 3 477 2590 Feilding 0011 64 6 323 2074 Gisborne 0011 64 6 868 3760 Hamilton 0011 64 7 834 3586 Hastings 0011 64 6 870 4521 Hawera 0011 64 6 278 3641 Highland Park 0011 64 9 533 3201 Invercargill 0011 64 3 214 4385 Kelston 0011 64 9 813 2091 Manukau 0011 64 9 250 4392 Masterton 0011 64 6 370 3308 Mt Maunganui 0011 64 7 574 1593 Mt Wellington 0011 64 9 574 6435 Napier 0011 64 6 842 1461 New Plymouth 0011 64 6 758 3882 Palmerston North 0011 64 6 354 1743 Paraparaumu 0011 64 4 298 1523 Porirua 0011 64 4 238 2641 Riccarton 0011 64 3 341 5087 Rotorua 0011 64 7 348 5275 Stoke 0011 64 3 547 8394 Tauranga 0011 64 7 579 5436 Tory Street 0011 64 4 801 6072 Upper Hutt 0011 64 4 528 0278 Wairau Park 0011 64 9 442 1905 Wanganui 0011 64 6 348 9407 Whakatane 0011 64 7 308 9072 Whangarei 0011 64 9 459 6440 Woolston 0011 64 3 389 1249 BCF (CAMPMART) QUEENSLAND Capalaba (07) 3245 2220 Keperra (07) 3851 4625 Lawnton (07) 3889 2911 Springwood (07) 3808 2405 SUPER CHEAP AUTO GROUP LIMITED 751 Gympie Road Lawnton Qld 4501 Telephone (07) 3205 8511 Facsimile (07) 3205 8522 www.supercheapauto.com.au FINANCIAL STATEMENTS ––––––––––––––––––––––––––––––––––––––––––––– Super Cheap Auto Group Limited For the period from: ––––––––––––––––––––––––––––––––––––––––––––– 27 JUNE 2004 TO 2 JULY 2005 ––––––––––––––––––––––––––––––––––––––––––––– SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/37 DIRECTORS' REPORT CONTINUED Super Cheap Auto Group Limited For the period from 27 June 2004 to 2 July 2005 FINANCIAL POSITION A review of the financial position of the consolidated entity is set out on pages 10 to 13. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 6 July 2004, the Company's shares were listed on the Australian Stock Exchange. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL PERIOD In the opinion of the Directors, there were no significant matters subsequent to the end of the financial period. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Likely developments in the operations of the consolidated entity in future financial years are referred to in pages 10 to 13. ENVIRONMENTAL REGULATION The consolidated entity’s environmental obligations are regulated under State, Territory and Federal Law. The consolidated entity has a policy of at least complying with its environmental performance obligations. All environmental performance obligations are monitored by the Board. No environmental breaches have been notified to the consolidated entity during the period ended 2 July 2005. DIRECTORS AND DIRECTORS’ INTERESTS The Directors of Super Cheap Auto Group Limited in office at the date of this report are listed below together with details of their relevant interest in the securities of the Company at that date. R D McIlwain, BA, FAICD. Independent Chairman – non-executive. Age 58. Experience and expertise Independent non-executive Chairman for 15 months. Chief Executive Officer of UNiTAB for 10 years to 1999 and then Managing Director and Chief Executive Officer of UNiTAB Limited for 6 years. Fellow of the Australian Institute of Company Directors. Other current directorships Managing Director of UNiTAB Limited since 1999. Former directorships in the last 3 years None. Your Directors present their report on the consolidated entity consisting of Super Cheap Auto Group Limited and the entities it controlled at the end of, or during, the period ended 2 July 2005. DIRECTORS The following persons were Directors of Super Cheap Auto Group Limited during the financial year and up to the date of this report. R D McIlwain R E Thorn R A Rowe D D McDonough R J Wright Information on qualifications and experience of Directors is included on pages 38 to 39. PRINCIPAL ACTIVITIES During the period, the principal continuing activities of the consolidated entity consisted of the retailing of: • auto parts and accessories, tools and equipment. • camping and outdoor leisure products. DIVIDENDS – SUPER CHEAP AUTO GROUP LIMITED The Directors recommended a fully franked dividend of 4.5 cents per share be paid on 12 October 2005 (total dividend, fully franked - $4,789,333). The following fully franked dividends of the parent entity have also been paid, declared or recommended since the end of the preceding financial year: Dividend Payment Date $ 2005 interim fully franked dividend 24 March 2005 2,128,592 REVIEW OF OPERATIONS Revenue from trading operations for the period was $470,061,000. During the period, the consolidated entity opened 28 new stores of which 16 were in Australia and 12 in New Zealand. In January 2005, the entity acquired the CampMart business comprising four stores which are located in the Greater Brisbane area of Queensland. At the end of the financial year, the consolidated entity was trading from 215 stores. The net profit of the consolidated entity for the year ended 2 July 2005, after providing for income tax, amounted to $20,563,000. A review of the operations for the 53 weeks to 2 July 2005 is set out in pages 10 to 13 of this report and in the Special Purpose Report on pages 45 to 48. SCA2005/38 DIRECTORS' REPORT CONTINUED Super Cheap Auto Group Limited For the period from 27 June 2004 to 2 July 2005 Special responsibilities Chairman of the Board Chairman of the Nomination and Remuneration Committee Member of the Audit and Risk Committee. Interests in shares and options 158,882 ordinary shares in Super Cheap Auto Group Limited. R E Thorn. Managing Director. Age 50. Experience and expertise Managing Director for 9 years. Previously General Manager for 4 years. Other current directorships None. Former directorships in the last 3 years None. Special responsibilities Managing Director. Member of the Nomination and Remuneration Committee. Interests in shares and options 4,899,078 ordinary shares in Super Cheap Auto Group Limited. 1,000,000 options over ordinary shares in Super Cheap Auto Group Limited. R A Rowe. Non-Executive Director. Age 61. Experience and expertise Founder of the business in 1972. Non-executive director for 15 months. Previously 8 years as Chairman and 24 years as Managing Director. Other current directorships Director of a number of private family companies. Former directorships in the last 3 years None. Special responsibilities Member of the Nomination and Remuneration Committee. Interests in shares and options 52,402,159 ordinary shares in Super Cheap Auto Group Limited. D D McDonough, BBus (Acty), LLB (Hons), SJD, FCPA, FAICD. Independent Non-Executive Director. Age 54. Experience and expertise. Independent Non-Executive Director for 15 months. Partner of a major legal firm. Past President of the Australian Institute of Company Directors (Queensland Division). Other current directorships Chairman and non-executive director of Cellnet Group Limited (director since 2002) and Queensland Competition Authority (director since 1998). Former directorships in the last 3 years Trustee of Brisbane Cricket Ground Trust from 1997-2002. Non-executive director of Bank of Queensland from 1997-2002. Non-executive director of Bond University Limited from 1998-2003. Special responsibilities Member of the Audit and Risk Committee. Member of the Nomination and Remuneration Committee. Interests in shares and options 50,000 ordinary shares in Super Cheap Auto Group Limited. R J Wright, BCom, FCPA, MAICD. Independent Non-Executive Director. Age 56. Experience and expertise Independent Non-Executive Director for 15 months. Director of a number of major Retail companies over the last 20 years. Member of the Australian Institute of Company Directors. Other current directorships Chairman and non-executive director of Dexion Limited (director since 2005). Non executive director of Australian Pipeline Limited (director since 2000), SAI Global Limited (director since 2003) and the reconstructed Harris Scarfe Australia Limited (director since 2001). Former directorships in the last 3 years None. Special responsibilities Chairman of the Audit and Risk Committee. Member of the Nomination and Remuneration Committee. Interest in shares and options 40,609 ordinary shares in Super Cheap Auto Group Limited. Company Secretary The Company Secretary is Mr P A Birtles, BSc, ACA. Mr Birtles is a Chartered Accountant who has served as Chief Financial Officer since 2001 and was appointed Company Secretary in May 2004. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/39 DIRECTORS' REPORT CONTINUED Super Cheap Auto Group Limited For the period from 27 June 2004 to 2 July 2005 MEETINGS OF DIRECTORS The number of meetings of the Company’s Board of Directors and each Board Committee held during the period ended 2 July 2005 MEETINGS OF COMMITTEES R D McIlwain R E Thorn R A Rowe D D McDonough R J Wright Full meetings directors B A 17 17 17 17 17 17 17 17 17 17 Audit & Risk B A 3 n/a n/a 3 3 3 n/a n/a 3 3 Nomination & Remuneration B A 1 0 1 1 1 1 1 1 1 1 A=Number of meetings attended B=Number of meetings held during the time the Director held office or was a member of the Committee during the year REMUNERATION REPORT Principles used to determine the nature and amount of remuneration The broad remuneration policy is to ensure remuneration properly reflects the relevant person’s duties and responsibilities and that the remuneration is competitive in attracting, retaining and motivating people of the highest quality. The Board believes that the best way to achieve this objective is to provide Senior Executives with a remuneration package consisting of fixed components (salary and superannuation) which reflect the individual’s responsibilities, duties and personal performance and a blend of short and long term incentives which reward both individual and company performance each year. The framework provides a mix of fixed and variable pay. As executives gain seniority within the group, the balance of their mix shifts to a higher proportion of "at risk" rewards. Non-Executive Directors Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Non-Executive Directors’ fees and payments are reviewed annually by the Board. The Chairman’s fees are determined independently to the fees of Non-Executive Directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. Non-Executive Directors do not receive share options. Non-Executive Directors may opt each year to receive a percentage of their remuneration in Super Cheap Auto Group Limited shares, which would be acquired on-market. Directors’ fees The current base remuneration was established on 19 May 2004. The Directors’ fees are inclusive of Committee fees. Non-Executive Directors’ fees are determined within an aggregate Directors’ fee pool limit approved by shareholders. Executive pay The executive pay and reward framework has four components: SCA2005/40 • base pay and benefits • short-term performance incentives • long-term incentives through participation in the Super Cheap Auto Executive Option Plan, and • other remuneration such as superannuation. The combination of these comprises the executive’s total remuneration. Base pay Structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-financial benefits at the executives’ discretion. Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. External remuneration consultants provide analysis and advice to ensure base pay is set to reflect the market for a comparable role. Base pay for senior executives is reviewed annually to ensure the executive’s pay is competitive with the market. An executive’s pay is also reviewed on promotion. There are no guaranteed base pay increases included in any senior executives’ contracts. DIRECTORS' REPORT CONTINUED Super Cheap Auto Group Limited For the period from 27 June 2004 to 2 July 2005 Benefits Executives receive benefits including car allowances and salary continuance insurance. Short-term incentives Should the Company achieve a pre-determined profit target set by the Nomination and Remuneration Committee then a short-term incentive (STI) pool is available for allocation to executives during the annual review. Cash incentives (bonuses) are payable in September each year. Using a profit target ensures variable reward is only available when value has been created for shareholders and when profit is consistent with the business plan. The incentive pool is leveraged for performance above the threshold to provide an incentive for executive out-performance. Each executive has a target STI opportunity depending on the accountabilities of the role and impact on organisation of business unit performance. The maximum target bonus opportunity is between 40% and 70% of total base salary dependent on the seniority of the executive. Each year, the Nomination and Remuneration Committee considers the appropriate targets and key performance indicators (KPIs) to link the STI plan and the level of payout if targets are met. This includes setting any maximum payout under the STI plan, and minimum levels of performance to trigger payment of STI. For the period ended 2 July 2005, the KPIs linked to short term incentive plans were based on group, individual business and personal objectives. Depending on the responsibilities of the executive, these KPIs required performance in sales growth, gross profit improvement, reduction of operating costs and improvement in operating procedures. The Nomination and Remuneration Committee is responsible for assessing whether the KPIs are met. To help make this assessment, the Committee receives reports on performance from management. The STI target annual payment is reviewed annually. Details of remuneration Details of the nature and amount of each element of the emoluments of each Director of Super Cheap Auto Group Limited for the period ended 2 July 2005 are set out in the following table. Directors of Super Cheap Auto Group Limited Primary Cash bonus $ - Cash salary and fees $ 100,000 Post- employment Equity Non- monetary benefits $ Super- annuation $ Options $ Total $ - - - 100,000 548,076 275,000 9,342 31,520 270,326 1,134,264 188,745 54,600 54,600 - - - - - - 5,400 5,400 5,400 - - - 194,145 60,000 60,000 946,021 275,000 9,342 47,720 270,326 1,548,409 Name R D McIlwain R E Thorn R A Rowe1 D D McDonough R J Wright Total (1) Mr R A Rowe resigned as an Executive Officer of the Company on 5 July 2004. Upon resignation he was paid unused leave entitlements of $134,145. This is included in the table above in cash salary and fees. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/41 DIRECTORS' REPORT CONTINUED Super Cheap Auto Group Limited For the period from 27 June 2004 to 2 July 2005 Other executives of the Company and of the consolidated entity The nature and amount of each element of the five officers of the consolidated entity receiving the highest emoluments for the period ended 2 July 2005 are set out in the following table. Primary Cash bonus $ Cash salary and fees $ Post- employment Equity Non- monetary benefits $ Super- annuation $ Options $ Total $ 291,150 135,000 3,396 11,585 63,502 504,633 225,038 75,000 20,221 11,585 160,650 - 18,481 11,585 150,288 44,000 232,000 - - - 11,585 - - - - - 331,844 190,716 205,873 232,000 Name P A Birtles Chief Financial Officer and Company Secretary S J Doyle General Manager – BCF1 T Panic Merchandising Manager – BCF2 N J Binns Business Systems Manager S R Tewkesbury Supply Chain Manager Total 1,059,126 254,000 42,098 46,340 63,502 1,465,066 (1) Mr S J Doyle served as General Manager – Retail Operations from 27 June 2004 to 3 October 2004, General Manager – Merchandising from 4 October 2004 to 15 May 2005 and was appointed General Manager, BCF on 16 May 2005. (2) Mr T Panic served as General Manager – Merchandising from 27 June 2004 to 3 October 2004 and was appointed BCF Merchandising Manager on 4 October 2004. CASH BONUSES Cash bonuses are dependent on the satisfaction of performance conditions as set out in the section headed “short term incentives” above. For each cash bonus included in the above tables, the percentage of the available bonus that was paid and the percentage that was forfeited because the person did not meet the performance criteria are set out below. No part of the bonuses are payable in future years. Name R E Thorn P A Birtles S J Doyle N J Binns Cash Bonus Paid Forfeited % % 71 75 60 69 29 25 40 31 Service agreements Remuneration and other terms of employment for the Managing Director and Chief Financial Officer are formalised in service agreements. The agreements provide for the provision of performance-related cash bonuses, other benefits including car allowances and participation, when eligible, in the Super Cheap Auto Executive Option Plan. R E Thorn, Managing Director • Term of agreement – 5 years commencing 1 July 2004 • Base salary, inclusive of superannuation, for the year ended 30 June 2005 of $550,000 to be reviewed annually by the Nomination and Remuneration Committee. SCA2005/42 DIRECTORS' REPORT CONTINUED Super Cheap Auto Group Limited For the period from 27 June 2004 to 2 July 2005 • Payment of a termination benefit on early termination by the Company, other than for cause, equal to 33 months base salary if the termination is effective more than 12 months before the expiry date or 9 months base salary if the termination is effective within 12 months before the expiry date. P A Birtles, Chief Financial Officer and Company Secretary • Term of agreement – 3 years commencing 1 July 2004 • Base salary, inclusive of superannuation for the year ended 30 June 2005 of $300,000 to be reviewed annually by the Nomination and Remuneration Committee. • Payment of a termination benefit on early termination by the Company, other than for cause, equal to the lesser of 6 months base salary or the base salary in respect of the remainder of the contract. SHARE OPTIONS GRANTED TO DIRECTORS AND THE MOST HIGHLY REMUNERATED OFFICERS Options are granted to Executive Directors and other executives under the Super Cheap Auto Executive Option Plan, details of which are set out in Note 31 to the Financial Statements. No options were issued or granted during the period. SHARES UNDER OPTION Unissued ordinary shares of Super Cheap Auto Group Limited under option at the date of this report are as follows: Date options granted 19 May 2004 19 May 2004 19 May 2004 Exercise date 1 July 2007 1 July 2008 1 July 2009 Issue price of shares $1.97 $1.97 $1.97 Number under option 700,000 250,000 250,000 1,200,000 The exercise of the options is subject to the satisfaction of a qualifying hurdle. The qualifying hurdle requires cumulative annual growth of 10% in Earnings Per Share pre amortisation from the IPO Prospectus forecast Earnings Per Share pre amortisation for the year ending 30 June 2005 (being 17.2 cents) through to each of the years prior to the options being exercised. No option holder has any right under the options to participate in any other share issue of the Company or of any other entity. The amounts disclosed for emoluments relating to options above is the assessed fair value at grant date of options granted to executive directors and other executives, allocated equally over the period from grant date to vesting date. Fair values at grant date are independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. INSURANCE OF OFFICERS During the financial year, Super Cheap Auto Group Limited paid a premium of $85,201 to insure the directors and secretaries of the Company and its controlled entities, and the general managers of each of the divisions of the consolidated entity. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the consolidated entity, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/43 DIRECTORS' REPORT CONTINUED Super Cheap Auto Group Limited For the period from 27 June 2004 to 2 July 2005 NON-AUDIT SERVICES The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company and/or the consolidated entity are important. Details of the amounts paid or payable to the auditor (Grant Thornton) for audit and non-audit services provided during the year are set out below. The Board of Directors has considered the position and, in accordance with the advice received from the Audit and Risk Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor • none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 86. Consolidated Entity 2004 $’000 2005 $’000 During the period the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Assurance Services Remuneration for audit services Remuneration for other assurance services Total remuneration for assurance services Taxation Services Total remuneration for taxation services Advisory Services Total remuneration for advisory services 175,000 0 84,000 28,000 175,000 112,000 4,000 1,000 0 37,000 Rounding of amounts The Company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. This report is made in accordance with a resolution of the Directors. R D McIlwain Chairman Brisbane 25 August 2005 SCA2005/44 R E Thorn Director Prospectus SPECIAL PURPOSE REPORT ––––––––––––––––––––––––––––––––––––––––––––– Comparison of Prospectus Prospectus pro-forma forecast results to pro-forma historical results for the 53 weeks from: ––––––––––––––––––––––––––––––––––––––––––––– 27 JUNE 2004 TO 2 JULY 2005 ––––––––––––––––––––––––––––––––––––––––––––– SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/45 SPECIAL PURPOSE REPORT CONTINUED Super Cheap Auto Group Limited For the 53 weeks to 2 July 2005 INTRODUCTION Super Cheap Auto Group Limited was incorporated on 8 April 2004. On 23 April 2004, the Company acquired all of the shares in Super Cheap Auto Pty Ltd. On 20 May 2004, the Company issued a Prospectus inviting investors to apply for a total of 41,507,568 shares (39% of the issued capital of the Company). Pursuant to the offer of shares, the Company listed on the Australian Stock Exchange on 6 July 2004. The Prospectus included Super Cheap Auto Group Limited’s pro-forma forecast results for the period ended 2 July 2005. This Special Purpose Report contains a comparison of Super Cheap Auto Group Limited’s pro-forma historical results for the 2005 period, to both the pro-forma forecast results for the 2005 year and the pro-forma historical results for the 2001, 2002, 2003 and 2004 years. The pro-forma results set out in this Special Purpose Report are not a substitute for the Super Cheap Auto Group Limited’s consolidated financial report for the period from incorporation to 2 July 2005, which will be included in the Company’s annual report. BASIS OF PREPARATION The pro-forma historical results for the 2001, 2002 and 2003 years have been prepared from the adjusted historical financial information of Super Cheap Auto Pty Ltd. The pro-forma historical results for the 2004 year are based on the unaudited actual historical results of Super Cheap Auto Pty Ltd consolidated group for the 43 weeks ended 23 April 2004 and the audited actual consolidated historical results of the Super Cheap Auto Group Limited for the remaining nine weeks ended 26 June 2004. The pro-forma historical results for the 2005 year are based upon the audited actual consolidated historical results of the Super Cheap Auto Group for the remaining 53 weeks ended 2 July 2005. The adjusted historical financial information adjusts the statutory historical financial information to promote comparability with the pro-forma forecast and historical results for the 2005 year. DISCUSSION OF 2005 PRO-FORMA HISTORICAL VS PRO-FORMA FORECAST RESULTS Pro-forma net profit for Super Cheap Auto of $20.6 million was $5.2 million ahead of the Prospectus forecast of $15.4 million. Pro-forma sales revenue of $470.1 million was slightly below the forecast of $474.3 million. The major factors influencing sales performance were: • The decline in consumer spending in the 2nd half of the year depressing sales in Australian stores. Like for like sales growth in Australian stores was 3.7% versus a forecast of 4.5%. • A number of more recently opened stores trading below expected levels in both Australia and New Zealand. • The benefit of having opened six more Super Cheap Auto stores than was expected in the forecast. Five of these additional stores were in New Zealand. • The $5.1 million contribution from the four CampMart stores acquired in January 2005. Pro-forma EBITDA at $40.8 million was $1 million (2.5%) above prospectus forecast with EBITDA margins at 8.7% strongly ahead of the forecast of 8.4%. This improvement resulted from: • a 0.4% point improvement in gross margin through improvements in purchase costs and in supplier trading terms. Supply chain costs as a % of sales were reduced in line with forecast expectations. • a 0.1% point increase in operating costs as a % of sales arising from an increase in marketing activity partly offset by savings across a number of other key expense categories. Pro-forma amortisation and depreciation of $11.3 million was $0.9 million under forecast mainly through the timing of investment in information technology projects. Pro-forma income tax at $8.4 million was higher than prospectus forecast as a result of improved profit before tax performance. SCA2005/46 SPECIAL PURPOSE REPORT CONTINUED Super Cheap Auto Group Limited For the 53 weeks to 2 July 2005 Pro-forma cash flow from operating activities at $4.1 million was $23.2 million below forecast due to an increase in working capital investment of $23.9 million. • This was primarily the result of payments to stock vendors of $19.3 million and to landlords of $2.5 million on 1 July not being included in the forecasts. • Period end inventory was $14.3 million higher than forecast but this was offset by a $15 million benefit from improved supplier payment terms negotiated during the year. TABLE 1 - STATEMENT OF FINANCIAL PERFORMANCE Adjusted Historical1 Pro-forma Forecast 2000/ 2001 2001/ 2002 2002/ 2003 2003/ 2004 2004/ 2005 2004/ 2005 $m Sales Super Cheap Auto Pty Ltd - Australia - New Zealand BCF Australia Pty Ltd Total COGS Gross Profit Operating Expenses EBITDA Depreciation EBITA Amortisation EBIT Net Borrowing Costs Income Tax 150.4 203.4 275.1 150.4 (90.4) 60.0 (42.9) 17.1 (1.3) 15.8 (1.8) 14.0 203.4 (128.3) 75.1 (57.0) 18.1 (2.6) 15.5 (1.8) 13.7 275.1 (166.9) 108.2 (82.1) 26.1 (4.3) 21.8 (2.0) 19.8 NPAT (Pre specific items) After Tax Share Issue Costs2 After tax benefit arising from change to inventory valuation methodology3 NPAT Earnings per share pre amortisation and share issue costs4 Total Sales Growth Gross Margin EBITA Margin EBITA Growth Store Numbers NA 39.9% 10.5% 71 35.2% 36.9% 7.6% -1.9% 97 35.2% 39.3% 7.9% 40.6% 144 366.7 16.0 382.7 (235.7) 147.0 (115.0) 32.0 (6.4) 25.6 (2.8) 22.8 (3.0) (6.6) 13.2 (11.1) 2.1 15.0¢ 39.1% 38.4% 6.7% 17.4% 183 417.6 47.4 5.1 470.1 (286.8) 183.3 (142.5) 40.8 (8.3) 32.5 (3.0) 29.5 (3.8) (8.4) 17.3 0 3.3 20.6 19.1¢ 22.8% 39.0% 6.9% 27.0% 215 424.9 49.4 0 474.3 (291.1) 183.2 (143.4) 39.8 (9.2) 30.6 (3.0) 27.6 (4.3) (7.9) 15.4 0 0 15.4 17.2¢ 25.2% 38.6% 6.5% 29.1% 205 (1) The Adjusted Historical Financial Information (issued in the Prospectus dated 20 May 2004) is based on the audited results for the years ended 30 June 2001, 2002, 2003, 2004 and 2005. The Company has made various adjustments to the statutory historical information to arrive at the Adjusted Historical Financial Information included in this Section. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/47 SPECIAL PURPOSE REPORT CONTINUED Super Cheap Auto Group Limited For the 53 weeks to 2 July 2005 (2) In the period ending 26 June 2004, the Company incurred share issue costs before tax of $15.8 million comprising of: - Costs of $1.7 million associated with the implementation of the Senior Management Team Share Plan. - Costs of $13.9 million associated with the repayment by Super Cheap Auto Pty Ltd of third party loans made to SCA Equity Plan Pty Ltd, the trustee of the Senior Management Team Share Plan, and to Bob Thorn to assist with the purchase of shares in Super Cheap Auto Pty Ltd; and - Ancillary costs of $0.2 million associated with restructuring Super Cheap Auto in preparation for listing on the ASX. These expenses did not recur in the year ending 2 July 2005. (3) Change of methodology of trading stock valuation has resulted in a one-off credit to the Statement of Financial Performance of $4.7 million pre-tax. The change concerns capitalisation of supply chain costs. This change ensures consistency between accounting and taxable profits following the release of ATO Practice Statement LA 2003/13. (4) Earnings per share pre amortisation and specific items is calculated by using 106,429,622 ordinary shares as the denominator, being the number of shares on issue at the end of the period. TABLE 2 – FINANCIAL CASH FLOWS $m For period ending 2 July 2005 EBITDA Tax Paid Investment in Working Capital Investment in Other Assets Cash Flows from Operating Activities Capital Expenditure Business Acquisition Cash Flows from Investing Activities Net Interest Equity Issuance/(Buyback) Debt Issuance/(Repayment) Dividend Payment to Shareholders1 Management Share Loan Cash Flows from Financing Activities Net Change in Cash Beginning Cash Balance2 Ending Cash Balance Adjusted Historical 2004/2005 Pro-forma Forecast 2004/2005 40.8 (6.0) (30.7) 0 4.1 (16.7) (8.0) (24.7) (3.8) 0 31.5 (7.1) (7.2) 13.4 (7.2) 13.6 6.4 39.8 (6.3) (6.8) 0.6 27.3 (16.4) 0 (16.4) (4.3) 0 7.6 (7.0) (7.2) (10.9) 0.0 5.0 5.0 (1) The dividend payment to shareholders includes the payment of a $5 million dividend payment by Super Cheap Auto Pty Ltd to its shareholders. This dividend was declared prior to Super Cheap Auto Pty Ltd’s acquisition by Super Cheap Auto Group Limited. (2) The bank overdraft is reclassified as debt for balance sheet purposes. For purposes of the cash flow statement, it is included as cash. SCA2005/48 CONSOLIDATED FINANCIAL STATEMENTS ––––––––––––––––––––––––––––––––––––––––––––– Super Cheap Auto Group Limited For the period from: ––––––––––––––––––––––––––––––––––––––––––––– 27 JUNE 2004 TO 2 JULY 2005 ––––––––––––––––––––––––––––––––––––––––––––– SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/49 STATEMENT OF FINANCIAL PERFORMANCE Super Cheap Auto Group Limited For the period 27 June 2004 to 2 July 2005 Notes Consolidated entity Parent entity 2005 $000 2004 $000 2005 $000 2004 $000 Revenue from ordinary activities Sale of goods Other revenues from ordinary activities 470,061 290 70,757 167 Total revenues 3, 4 470,351 70,924 0 9,509 9,509 Expenses from ordinary activities Cost of sales of goods Other expenses from ordinary activities - selling and distribution - marketing - occupancy - administration Borrowing costs expense Total expenses Profit from ordinary activities before related income tax expense Income tax expense relating to ordinary activities Total changes in equity other than those resulting from transactions with owners as owners Basic earnings per share Diluted earnings per share 4 4 5 24 34 34 (281,135) (43,658) 0 (52,091) (7,782) (25,965) (2,532) (4,212) (29,139) (47,032) (7,848) (720) (4,595) (439,957) (66,752) 30,394 4,172 (9,831) (1,405) 0 0 0 (785) (1,180) (1,965) 7,544 587 20,563 2,767 8,131 Cents 19.3 19.3 Cents 4.1 4.1 The above statement of financial performance must be read in conjunction with the accompanying notes. 0 0 0 0 0 0 0 0 0 0 0 0 0 SCA2005/50 STATEMENT OF FINANCIAL POSITION Super Cheap Auto Group Limited As at 2 July 2005 Current assets Cash assets Receivables Inventories Tax Assets Other Total current assets Non-current assets Other financial assets Property, plant and equipment Intangible assets Deferred tax assets Other non-current assets Total non current assets Total assets Current liabilities Payables Interest bearing liabilities Current tax liabilities Provisions Total non-current liabilities Non-current liabilities Interest bearing liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained profits Total Equity Notes Consolidated entity Parent entity 2005 $000 2004 $000 2005 $000 2004 $000 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 24 6,426 6,607 123,183 0 4,725 13,640 5,394 92,513 1,633 1,206 45 62,119 0 0 860 0 0 0 1,678 0 140,941 114,386 63,024 1,678 0 45,016 49,294 3,509 395 0 36,257 45,349 5,006 440 84,234 0 0 3,142 67 84,233 0 0 4,876 0 98,214 87,052 87,443 89,109 239,155 201,438 150,467 90,787 46,417 81,251 696 4,032 46,857 36,184 0 8,643 132,396 91,684 0 341 984 21,600 355 797 1,325 22,752 201 59,650 467 0 60,318 0 174 0 0 0 6,199 0 0 6,199 0 355 0 355 133,721 114,436 60,492 6,554 105,434 87,002 89,975 84,233 84,233 0 21,201 84,233 2 2,767 84,233 0 5,742 84,233 0 0 105,434 87,002 89,975 84,233 The above statement of financial position must be read in conjunction with the accompanying notes. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/51 STATEMENT OF CASH FLOWS Super Cheap Auto Group Limited For the period from 27 June 2004 to 2 July 2005 Notes Consolidated entity 2005 $000 2004 $000 Parent entity 2005 $000 2004 $000 Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Rental payments – external Rental payments – related parties Income taxes paid 517,279 79,092 (470,187) (68,048) (3,116) (31,024) (1,178) (6,002) (156) (6,018) Net cash inflow from operating activities 33 4,048 6,594 0 (588) 0 0 354 (234) Cash flows from investing activities Payments for business acquired Cash acquired from purchase of controlled entity Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from sale of Service Centres in prior year 35 (8,019) 0 (6,699) 0 (17,812) 10,005 (1,781) 45 0 1,084 237 0 0 0 0 Net cash inflow/(outflow) from investing activities (24,702) 8,461 (6,699) Cash flows from financing activities Proceeds from external borrowings Repayment of borrowings Advances to related parties Repayments of advances to related parties External interest paid External interest received Costs of IPO to be reimbursed Dividend paid Repayment of loans re shares 25 17,500 284,100 (253,450) (20,000) 0 7,496 (661) 45 (798) (7,129) (5,000) 0 (7,183) 0 856 (3,751) 0 0 Net cash inflow (outflow) from financing activities 13,443 (1,418) Net increase/(decrease) in cash held Cash at the beginning of the financial period Effects of exchange rate changes on cash (7,211) 13,637 0 13,640 3 (3) Cash at the end of the financial period 6 6,426 13,640 Refer Note 35 for details of non-cash financing and investing activities. The above statement of cash flows must be read in conjunction with the accompanying notes. 220,350 (160,775) (48,447) 0 (2,021) 0 0 (2,129) 0 6,978 45 0 0 45 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SCA2005/52 NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This general purpose financial report has been prepared in accordance with Accounting Standards, other pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus Views and the Corporations Act 2001. This financial report covers the consolidated entity of Super Cheap Auto Group Limited and its controlled entities, and Super Cheap Auto Group Limited as an individual parent entity. Super Cheap Auto Group Limited is a public company listed on the Australian Stock Exchange and is incorporated and domiciled in Australia. This financial report is prepared on an accruals basis in accordance with the historical cost convention which, except for certain assets, as noted, are at valuation. (a) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Super Cheap Auto Group Limited (the “Company” or “parent entity”) as at 2 July 2005 and the results of its controlled entities for the period then ended. Super Cheap Auto Group Limited and its controlled entities comprise the “consolidated entity”. The effects of all transactions between entities in the consolidated entity are fully eliminated. A list of controlled entities is contained in Note 35 to the financial statements. Where control of an entity is acquired during a financial period its results are included in the consolidated statement of financial performance from the date on which control commences. Where control of an entity ceases during a financial year its results are included for that part of the period during which control existed. (b) Income tax The Company adopts the liability method of tax- effect accounting whereby the income tax expense is based on the operating profit adjusted for any permanent differences. Timing differences, which arise due to the different accounting periods in which items of revenue and expense are included in the determination of accounting profit and taxable income, are brought to account as either a provision for deferred income tax or as a future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable. Future income tax benefits are not brought to account unless realisation of the asset is assured beyond any reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the benefit. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income tax legislation, and the anticipation that the Company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (c) Foreign currency translation (i) Transactions Foreign currency transactions are initially translated into Australian dollars at the rate of exchange at the date of the transaction. At balance date amounts payable and receivable in foreign currencies are translated to Australian dollars at rates current at that date. Resulting exchange differences are recognised in determining the profit or loss for the year. (ii) Specific commitments Foreign currency forward exchange contracts are undertaken in order to avoid or minimise the possible adverse financial effects of movements in exchange rates. Gains and losses arising upon entry into a foreign exchange contract intended to hedge the purchase or sale of goods or services, together with the subsequent exchange gains and losses resulting from those transactions are deferred in the statement of financial position from the inception of the forward exchange contract up to the date of the purchase or sale and included in the measurement of the purchase or sale. The net amounts receivable or payable under the forward exchange contract are also recorded in the statement of financial position. Any gains or losses arising on the forward exchange contract after the recognition of the hedged purchase or sale are included in the statement of financial performance. When anticipated purchase or sale transactions have been hedged, actual purchases and sales which occur during the designated forward exchange contract period are accounted for as having been hedged until the amounts of those transactions in the designated period are fully allocated against the amounts of the forward exchange contracts. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 (e) Receivables All trade debtors are recognised at the amounts receivable as the amounts are due for settlement within thirty days of recognition. Recognition of trade debtors is reviewed on an ongoing basis. Known uncollectible debts are written off as and when these become uncollectible. A provision for doubtful debt is raised when doubt as to collection exists and, in any event, when the debt is more than sixty days overdue. (f) Inventories Inventories are measured at the lower of cost and net realisable value. Costs comprise direct purchase costs and an appropriate proportion of supply chain variable and fixed overhead expenditure. Costs are assigned to individual items of stock on the basis of weighted average costs. (g) Property, Plant & Equipment Each class of property, plant and equipment is carried at cost, less, where applicable, any accumulated depreciation or amortisation. Plant and Equipment are measured on the cost basis. 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. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have not been discounted to present values in determining recoverable amounts. (h) Depreciation and amortisation of property, plant and equipment Depreciation and amortisation are calculated on a straight line or diminishing value basis so as to write off the net cost of an item of property, plant and equipment over the expected useful life of each asset to the consolidated entity. Estimates of remaining useful lives are made on a regular basis for all assets, with annual re-assessments for major items. The depreciation rates used for each class of assets are: 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Where a hedged transaction is not expected to occur as originally designated, or if the forward exchange contract is not expected to be effective, any previously deferred gains or losses are immediately recognised as revenue or loss. Where a forward exchange contract is terminated prior to its maturity date and the hedged transaction is still expected to occur as designated, gains or losses arising prior to termination continue to be deferred and are included in the measurement of the hedged transaction. In those circumstances where a forward exchange contract is terminated, as the hedged transaction is not expected to occur as designated, any previously deferred gains and losses are recognised in the statement of financial performance on the date of termination. Where a forward exchange contract is redesignated as the hedge of another commitment because the original purchase or sale transaction is no longer expected to occur as designated, the gains or losses that arise on the forward exchange contract prior to the redesignation are recognised in the statement of financial performance at the date of redesignation. (iii) Foreign controlled entity The foreign controlled entity is self-sustaining and, therefore, its assets and liabilities are translated into Australian dollars at the rate of exchange current at balance date and its revenues and costs are translated at the average of the rates during the period. Exchange differences arising on the translation are taken to the foreign currency translation reserve. Upon disposal or part disposal of a self-sustaining foreign operation the balance of the foreign currency translation relating to the disposal is transferred to retained profits. (d) Revenue recognition Amounts disclosed as revenue are net of returns, trade allowances, duties and taxes paid. Revenue from the sale of goods is recognised upon the delivery of goods to customers pursuant to sales orders and when the associated risks have passed to the carrier or customer. Revenue from rendering a service is recognised upon the delivery of the service to the customer. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. SCA2005/54 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 (k) Trade and other creditors Trade and other creditors are payables for goods and services provided to the consolidated entity prior to the end of the financial period and which are unpaid at that date. The amounts are unsecured and are normally paid within thirty days of recognition. (l) Interest bearing liabilities Loans are carried at the amount that represents the present value of the future cash flows associated with servicing the debt. Interest is accrued over the period it becomes due and is recognised as other creditors. (m) Dividends Provision is made for the amount of any dividend declared by the Directors on or before the end of the financial period but not distributed at balance date. (n) Employee benefits Provision is made for the economic entity’s liability for employee benefits arising from services rendered by employees to balance date. A liability for employee benefits in the form of bonus payments is recognised in other creditors when the bonus criteria have been satisfied and the amount of the bonus can be reliably determined. Employee benefits expected to be settled within one year, together with benefits arising from wages and salaries and annual leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Other employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Plant and equipment Capitalised leased plant and equipment Motor vehicles Computer equipment Depreciation rate 10% - 37.5% 10% – 37.5% 15% 25% – 37.5% (i) Leased non-current assets A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incident to ownership of leased non-current assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised by establishing a lease asset and lease liability at the present value of the minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the interest expense. The lease asset is amortised on a straight line basis over the term of the lease or, where it is likely that the consolidated entity will obtain ownership of the asset, the life of the asset. Lease assets at the reporting date are being amortised at rates ranging from 10% to 37.5%. Operating lease payments are charged to the statement of financial performance in the periods in which these are incurred, as this represents the pattern of benefits derived from the leased assets. (j) Intangible assets and expenditure carried forward (i) Goodwill and brand Goodwill is recorded at the amount by which the purchase price of an entity exceeds the fair value attributed to the identifiable net assets at the date of acquisition. Goodwill is amortised on a straight line basis over a period of twenty years. The balances are reviewed annually and any balance representing future benefits, the realisation of which is considered to no longer be probable, is written off. (ii) Other items of expenditure Significant items of expenditure, such as costs incurred in store set-ups, are expensed in the financial period in which these costs are incurred. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/55 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 (r) Tax consolidation legislation Effective 1 July 2003, for the purposes of income taxation, Super Cheap Auto Group Limited and its wholly-owned Australian controlled entities formed a tax consolidation group. As a consequence, Super Cheap Auto Group Limited as the head entity in the tax consolidated group, recognises current and deferred tax amounts relating to transactions, events and balances of the wholly owned Australian controlled entities in this group as if those transactions, events and balances were its own, in addition to the current and deferred tax amounts in relation to its own transactions, events and balances. Amounts receivable or payable under an accounting tax funding agreement with the tax consolidated entities are recognised separately as tax-related amounts receivable or payable. Expenses and revenues arising under the tax funding agreement are recognised as a component of income tax expenses (revenue). (s) Financial year As allowed under section 323D(2) of the Corporations Act 2001, the Directors have determined the financial year to be a fixed period of 52 calendar weeks or 53 calendar weeks. For the period to 2 July 2005, the Company is reporting on the 53 week period that began 27 June 2004 and ended 2 July 2005. For the period to 26 June 2004, the company is reporting on the period commencing 8 April 2004, being date of incorporation to 26 June 2004. (t) Rounding of amounts The economic entity is of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars. 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Equity based compensation benefit are provided to certain employees via the Super Cheap Auto Executive Option Plan. Information on this scheme is set out in Note 31. The amounts disclosed for remuneration of Directors and executives in Note 31 include the assessed fair value of options, using the Black- Scholes option pricing model, at the date they were granted. Contributions are made by the economic entity to an employee superannuation fund and are charged as expenses when incurred. (o) Borrowing costs Borrowing costs are recognised in the period in which these are incurred and are expensed in the period to which the costs relate. Generally costs such as discounts and premiums incurred in raising borrowings are amortised on a straight line basis over the period of the borrowing. Borrowing costs include: • interest on bank overdrafts and short-term and long-term borrowings; • amortisation of discounts or premiums relating to borrowings; • amortisation of ancillary costs incurred in connection with the arrangement of borrowings; • finance lease charges; and • certain exchange differences arising from foreign currency borrowings. (p) Cash For the purposes of the statement of cash flows, cash includes cash on hand, cash at bank and at call deposits with banks or financial institutions. (q) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of goods and services tax, except where the amount of goods and services tax incurred is not recoverable from the Australian Tax Office. In these circumstances the goods and services tax is recognised as part of the cost of acquisition of the asset or as part of the item of expense. Receivables and payables in the statement of financial position are shown inclusive of goods and services tax. SCA2005/56 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 02 SEGMENT INFORMATION The consolidated entity is organised on a global basis into the following business segments. Business Segments The consolidated entity is organised on a global basis into the following divisions by product and service type. Super Cheap Auto; Retail and distribution of motor vehicle spare parts and accessories, tools and equipment. BCF (Boating, Camping and Fishing); Retail and distribution of boating, camping and fishing equipment. The consolidated entity’s divisions are operated in two main geographical areas; Australia The home country of the parent entity. The areas of operation are automotive as well as boating, camping and fishing. New Zealand Only Super Cheap Auto operates in New Zealand. PRIMARY SEGMENT – BUSINESS SEGMENTS – 2 JULY 2005 Super Cheap Auto 2005 $’000 464,972 0 464,972 283 465,255 34,765 0 34,765 Inter-Segment eliminations/ unallocated 2005 $’000 0 0 0 0 0 (3,836) (3,836) BCF 2005 $’000 5,089 0 5,089 7 5,096 (535) 0 (535) Sales to external customers Inter-segment sales Total sales revenue Other revenue Total segment revenue Segment result (pre interest) Net borrowing costs Segment result Unallocated revenue less unallocated expenses Profit from ordinary activities before related income tax expense Income tax expense Net profit/(loss) Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities 228,475 10,680 121,916 11,109 Acquisitions of property, plant and equipment, intangibles and other non-current segment assets Depreciation and amortisation expense Other non-cash expenses 16,232 10,799 0 7,635 175 0 0 0 0 Consolidated 2005 $’000 470,061 0 470,061 290 470,351 34,230 (3,836) (30,394) 0 30,394 (9,831) 20,563 239,155 0 241,728 133,025 0 133,025 23,867 10,974 0 SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/57 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 02 SEGMENT INFORMATION CONTINUED PRIMARY SEGMENT – BUSINESS SEGMENTS – 26 JUNE 2004 Super Cheap Auto Sales to external customers Inter-segment sales Total sales revenue Other revenue Total segment revenue Segment result (pre-interest) Net borrowing costs Segment result Unallocated revenue less unallocated expenses Profit from ordinary activities before related income tax expense Income tax expense Net profit/(loss) Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities 2004 $’000 70,757 0 70,757 167 70,924 4,825 0 4,825 201,438 114,436 Acquisitions of property, plant and equipment, intangibles and other non-current segment assets 83,114 Depreciation and amortisation expense Other non-cash expenses 1,554 7,154 SECONDARY SEGMENT – GEOGRAPHICAL SEGMENTS – 2 JULY 2005 Inter-Segment eliminations/ unallocated 2004 $’000 BCF 2004 $’000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (653) (653) 0 0 0 0 0 0 Consolidated 2004 $’000 70,757 (0) 70,757 167 70,924 4,825 (653) 4,172 0 4,172 (1,405) 2,767 201,438 0 201,438 114,436 0 114,436 83,114 1,554 7,154 Segment revenues sales to external customers 2005 $’000 422,718 47,343 2004 $’000 65,760 4,997 Segment Assets 2005 $’000 2004 $’000 233,090 26,541 187,058 14,380 Aquisitions of plant, plant and equipment, intangibles and other non-current segment assets 2005 $’000 21,208 2,659 2004 $’000 79,81 3,197 470,061 70,757 259,631 201,438 23,867 83,088 Australia New Zealand Notes to and forming part of the segment information Accounting policies Segment information is prepared in conformity with the accounting policies of the entity as disclosed in Note 1 and accounting standard AASB 1005, Segment Reporting. SCA2005/58 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 02 SEGMENT INFORMATION CONTINUED Inter-segment transfers Segment revenues, expenses and results include transfers between segments. Such transfers are priced on an “arm’s-length” basis and are eliminated on consolidation. 03 REVENUE Consolidated entity Parent entity 2005 $000 2004 $000 2005 $000 2004 $000 Revenue from operating activities Sale of goods Revenue from outside the operating activities Other revenue Interest revenue – other corporations Dividend – related party Total revenue from outside the operating activities 470,061 70,757 72 218 0 290 122 45 0 167 Total revenue from ordinary activities 470,351 70,924 0 0 9 9,500 9,509 9,509 04 PROFIT FROM ORDINARY ACTIVITIES Net gains and expenses Profit from ordinary activities before income tax expense includes the following specific gains and expenses: Net gains Net gain on disposal of property, plant and equipment Net foreign exchange gains for the period Change in methodology of inventory valuation to incorporate attributable supply chain costs Expenses Net loss on disposal of property, plant and equipment Depreciation - Plant and equipment - Capitalised leased plant and equipment - Motor vehicles - Computer systems 3,630 81 268 4,164 475 27 41 586 0 0 0 0 96 543 0 356 4,718 0 0 147 0 0 0 0 Total depreciation Amortisation – goodwill Other charges against assets - write down of inventories to net realisable value - scrapping of property, plant and equipment - minor assets expensed on acquisition Total other charges against assets Borrowing costs – other corporations - interest and finance charges - lease finance costs - amortisation of ancillary costs of borrowings Total borrowing costs – other corporations Rental expenses - operating lease costs - equipment hire Total rental expenses 8,143 2,831 1,129 425 811 0 180 991 4,054 0 185 4,239 117 0 45 162 698 0 22 720 29,846 0 29,846 3,776 14 3,790 0 0 0 0 0 0 1,172 0 8 1,180 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/59 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 05 INCOME TAX Income tax expense The income tax expense for the financial period differs from the amount calculated on the profit. The differences are reconciled as follows: Profit/(loss) from ordinary activities before income tax expense Income tax calculated at 30% (2004 – 30%) Tax effect of permanent differences: - amortisation of goodwill - other non-allowable items Dividend – related party Tax consolidation adjustments re NZ branch Difference in NZ tax rate Income tax adjusted for permanent differences Under/(over) provision from prior year Aggregate income tax expense 06 CURRENT ASSETS - CASH ASSETS Cash on hand Cash at bank Deposits at call Total current assets – cash assets 07 CURRENT ASSETS - RECEIVABLES Trade debtors Sundry debtors Security deposits Related parties Total current assets – receivables 08 CURRENT ASSETS - INVENTORIES Finished goods, at cost 09 TAX ASSETS Income tax receivable 10 CURRENT ASSETS Prepayments SCA2005/60 Consolidated entity Parent entity 2005 $'000 2004 $'000 2005 $'000 2004 $'000 30,394 4,172 9,118 1,252 849 35 0 (415) 47 9,634 197 9,831 127 26 0 0 0 1,405 0 1,405 373 6,001 52 727 12,863 50 6,426 13,640 5,988 448 127 44 2,840 1,481 113 960 6,607 5,394 7,544 2,263 0 0 (2,850) 0 0 (587) 260 (327) 0 45 0 45 0 3 0 62,116 62,119 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 123,183 92,513 0 0 1,633 0 1,678 4,725 1,206 860 0 The deposits at call bear interest at variable rates of between 5.2% and 5.6% (2004: 4.6% and 5.3%) NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 11 NON-CURRENT ASSETS - OTHER FINANCIAL ASSETS Name of entity Super Cheap Auto Pty Ltd BCF Australia Pty Ltd Total – non-current assets – shares in controlled entities (refer Note 35) 12 NON CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT Plant and equipment, at cost Less accumulated depreciation Net plant and equipment Capitalised leased plant and equipment Less accumulated depreciation Net capitalised leased plant and equipment Motor vehicles Less accumulated depreciation Net motor vehicles Computer systems Less accumulated depreciation Net computer equipment Total net property, plant and equipment Reconciliations – consolidated entity Carrying amounts at 27 June 2004 Additions Disposals Additions through acquisition Depreciation and amortisation Foreign currency exchange differences Carrying amounts at 2 July 2005 Reconciliations – parent entity Carrying amounts at 27 June 2004 Additions Disposals Additions through acquisition Depreciation and amortisation Foreign currency exchange differences Carrying amounts at 2 July 2005 Plant and equipment $'000 24,616 7,750 (130) 175 (3,630) 0 28,781 0 0 0 0 0 0 0 Consolidated entity Parent entity 2005 $'000 2004 $'000 2005 $'000 2004 $'000 0 0 0 0 0 0 84,234 1 84,233 0 84,234 0 84,233 38,771 31,010 (9,990) (6,394) 28,781 24,616 1,039 (1,039) 1,039 (958) 0 81 1,139 (487) 996 (396) 652 600 26,610 17,825 (11,027) (6,865) 15,583 10,960 45,016 36,257 Capitalised leased plant and Motor equipment vehicles $'000 $'000 81 0 0 0 (81) 0 0 0 0 0 0 0 0 0 600 353 (58) 25 (268) 0 652 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Computer equipment $'000 Total $'000 10,960 8,785 (1) 3 (4,164) 0 36,257 16,888 (189) 203 (8,143) 0 15,583 45,016 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/61 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 13 NON CURRENT ASSETS – INTANGIBLES Consolidated entity Parent entity Goodwill and brand, at cost Less accumulated amortisation Net goodwill Trademarks, at cost Less accumulated depreciation Net trademarks Total net intangibles Reconciliations – consolidated entity Carrying amounts at 27 June 2004 Additions Disposals Additions through acquisition Depreciation and amortisation Foreign currency exchange differences Carrying amounts at 2 July 2005 Reconciliation – parent entity Carrying amounts at 27 June 2004 Additions Disposals Additions through acquisition Depreciation and amortisation Foreign currency exchange differences Carrying amounts at 2 July 2005 2005 $'000 2004 $'000 60,347 53,570 (11,067) (8,235) 49,280 45,335 14 0 14 14 0 14 49,294 45,349 2005 $'000 2004 $'000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Goodwill $'000 Brand names $'000 Trade marks $'000 45,335 0 0 6,776 (2,831) 0 49,280 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 14 0 0 0 0 0 14 0 0 0 0 0 0 0 Totals $'000 45,349 0 0 6,776 (2,831) 0 49,294 0 0 0 0 0 0 0 14 NON CURRENT ASSETS – DEFERRED TAX ASSETS Consolidated entity Parent entity 2005 $'000 2004 $'000 2005 $'000 2004 $'000 Future income tax benefits 3,509 5,006 3,142 4,876 SCA2005/62 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 15 NON-CURRENT ASSETS – OTHER NON-CURRENT ASSETS Consolidated entity Parent entity Borrowing costs, at cost Less accumulated amortisation Net borrowing costs 16 CURRENT LIABILITIES – PAYABLES Trade creditors Other creditors Total current liabilities – payables 17 CURRENT LIABILITIES – INTEREST BEARING LIABILITIES Secured Commercial bill Total current liabilities – secured interest bearing liabilities Unsecured Related parties Total current liabilities – unsecured interest bearing Liabilities Total current liabilities – interest bearing liabilities 2005 $'000 2004 $'000 703 (308) 395 616 (176) 440 33,373 13,044 29,733 17,124 46,417 46,857 2005 $'000 2004 $'000 67 0 67 32 169 201 0 0 0 0 0 0 0 0 81,250 29,000 59,650 81,250 29,000 59,650 1 1 7,184 7,184 0 0 6,199 6,199 81,251 36,184 59,650 6,199 The details of the security for the secured liabilities are set out in Note 20. 18 CURRENT TAX LIABILITIES Income tax payable 696 0 467 19 CURRENT LIABILITIES – PROVISIONS Dividends (see Note 25) Employee benefits (refer Note 30) Total current liabilities – provisions Movements in provisions – dividends Carrying amount at the start of the financial period Provisions recognised as part of acquisition of Super Cheap Auto Pty Ltd Payments/other sacrifices of economic benefits 0 4,032 4,032 5,000 3,643 8,643 5,000 0 0 10,000 (5,000) (5,000) Carrying amount at the end of the financial period 0 5,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/63 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 NON-CURRENT LIABILITIES – 20 INTEREST BEARING LIABILITIES Consolidated entity Parent entity 2005 $'000 2004 $'000 2005 $'000 2004 $'000 Secured Commercial bill 0 21,600 0 Secured liabilities Total secured liabilities (current and non-current) are: Commercial bills Total current liabilities 81,250 50,600 81,250 50,600 59,650 59,650 0 0 0 The facilities are secured by first registered company charges over all the asssets and undertakings of Super Cheap Auto Group Limited, Super Cheap Auto Pty Ltd, Super Cheap Auto (New Zealand) Pty Ltd and BCF Australia Pty Ltd in favour of ANZ Banking Group Limited and by Cross guarantees and indemnities between Super Cheap Auto Pty Ltd and Super Cheap Auto (New Zealand) Pty Ltd and between Super Cheap Auto Group Limited, Super Cheap Auto Pty Ltd, SCA Equity Plan and BCF Australia Pty Ltd in favour of ANZ Banking Group Ltd. Financial covenants are provided by Super Cheap Auto Group Ltd with respect to lease adjusted debt to capitalisation, balance sheet debt to capitalisation, fixed charges cover and lease adjusted debt to EBITDAL. In addition, Super Cheap Auto undertakes not to make distributions of more than 60% of NPAT without ANZ Banking Group Limited’s prior consent. Financing arrangements Unrestricted access was available at balance date to the following lines of credit: Total facilities - Multi-Option Facility (including commercial bill, overdraft and cash advance) - Indemnity/Guarantee Facility 63,120 1,300 90,000 1,338 Totals Facilities used at balance date - Multi-Option Facility (including commercial bill, overdraft and cash advance) - Indemnity/Guarantee Facility Totals Unused balance of facilities at balance date - Multi-Option Facility (including commercial bill, overdraft and cash advance) - Indemnity/Guarantee Facility Totals 91,338 64,420 81,250 1,287 50,600 1,287 82,537 51,887 8,750 51 12,520 13 8,801 12,533 90,000 1,388 91,338 59,650 0 59,650 30,350 1,338 31,688 0 0 0 0 0 0 0 0 0 In addition, the Company has access to a $35.3 million (2004: $20.3 million) transactional facility for clean credit and foreign currency dealings. Super Cheap Auto has commercial bills of $21.6 million (2004: $50.6 million) outstanding at year end which are drawn as part of the group facility. The current interest rates on the financing arrangements are: - Multi Option Facility (including commercial bills, overdraft and cash advance) 5.99%-7.23% (2004:6.19%-7.43%) 21 NON-CURRENT LIABILITIES – DEFERRED TAX LIABILITIES Deferred tax liabilities 341 355 174 355 SCA2005/64 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 22 NON-CURRENT LIABILITIES – PROVISIONS Employee benefits (refer Note 29) 23 CONTRIBUTED EQUITY Ordinary shares fully paid Movement in ordinary share capital Issue of shares on incorporation (8 April 2004) Issue of shares on 23 April 2004 Share split on 19 May 2004 Closing balance 2 July 2005 Consolidated entity Parent entity 2005 $’000 984 2004 $’000 797 2005 $’000 0 2004 $’000 0 84,233 84,233 84,233 84,233 Number of Shares 1 49,697,150 56,732,471 106,429,622 Issue Price 1.00 1.69 - $’000 0 84,233 0 84,233 The ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present, in person or by proxy, at a meeting of shareholders of the parent entity is entitled to one vote and, upon a poll, each share is entitled to one vote. No options were issued, exercised nor lapsed during the period. Information relating to options outstanding at the end of the financial year are set out in Note 31. 24 RESERVES AND RETAINED EARNINGS Reserves Foreign currency translation reserve Movements Balance at the beginning of the financial period Net exchange difference on translation of foreign controlled Entity Reserves at the end of the financial period Retained earnings Balance at the beginning of the financial period Net profit/(loss) for the financial period attributable to shareholders of Super Cheap Auto Group Limited Dividends provided for or paid Retained profits/(losses) at the end of the financial period Consolidated entity Parent entity 2005 $'000 2004 $'000 2005 $'000 2004 $'000 0 2 (2) 0 2,767 2 0 2 2 0 0 0 0 0 0 20,563 (2,129) 2,767 0 7,871 (2,129) 21,201 2,767 5,742 0 0 0 0 0 0 0 0 Nature and purpose of reserves Foreign currency translation reserve Exchange differences which arise on translation of the foreign controlled entity are taken to the foreign currency translation reserve (refer Note 1(c)(iii)). SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/65 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 25 DIVIDENDS Ordinary shares Dividends paid by Super Cheap Auto Group Limited during the reporting period were as follows: Interim dividend for the period ended 2 July 2005 of 2 cents per share paid on 24 March 2005. Fully franked based on tax paid @ 30% Total dividends provided and paid Parent entity 2005 $'000 2004 $'000 2,129 2,129 0 0 During the period, Super Cheap Auto Pty Ltd paid a $5 million dividend which had been declared at 26 June 2004. Dividends not recognised at year end Subsequent to year end, the Directors have recommended the payment of a final dividend of 4.5 cents per ordinary share, fully franked based on tax paid at 30%. The aggregate amount of the dividend expected to be paid on 12 October 2005, out of retained profits at 2 July 2005, but not recognised as a liability at year end, is 4,789 0 Franking credits The franked portions of dividends paid after 2 July 2005 will be franked out of existing franking credits and out of franking credits arising from the payments of income tax in the years ending after 2 July 2005. Franking credits remaining at balance date available for dividends declared after the current balance date based on a tax rate of 30% 22,539 15,926 The above amounts represent the balance of the franking account as at the end of the financial period, adjusted for: - franking credits that will arise from the payment of the current tax liability; and, - franking debits that will arise from the payment of the dividend as a liability at the reporting date. The amount recorded above as the franking credit amount is based on the amount of Australian income tax paid or to be paid in respect of the liability for income tax at the balance date. SCA2005/66 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 26 FINANCIAL INSTRUMENTS Consolidated entity Parent entity 2005 $'000 2004 $'000 2005 $'000 2004 $'000 Derivative financial instruments The parent entity and its controlled entity are parties to derivative financial instruments in the normal course of business in order to hedge exposures to foreign exchange and interest rate changes. Foreign exchange contracts The economic entity retails products including some that have been imported from South East Asia. In order to protect against exchange rate movements, the economic entity has entered into forward exchange rate contracts to purchase United States Dollars. The contracts are timed to mature in line with forecasted payments for imports and cover forecast purchases for the coming 3 months on a rolling basis. At balance date the following amounts were committed on foreign currency forward exchange contracts: Buy United States dollars and sell Australian dollars with maturity - 0 to 6 months - 7 to 12 months Weighted average rate of contracts 4,000 0 8,000 0 75 cents 70 cents 0 0 0 0 0 0 These forward exchange contracts are hedging future purchases and unrealised gains and losses on the contracts, together with the costs of the contracts, are deferred and will be recognised in the measurement of the underlying transaction provided the underlying contract is still expected to occur as originally designated. Gains and losses arising from hedging contracts terminated prior to maturity are also carried forward until the designated hedged transaction occurs. The following gains, losses and costs have been deferred as at the balance date: - realised gains - unrealised gains - total gains (a) - realised losses and costs - unrealised losses and costs - total losses and costs (b) Net gains/(losses and costs) (a) Included in other creditors under note 16 (b) Included in sundry debtors under note 7 0 0 0 0 (7) (7) (7) 0 16 16 0 0 0 16 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Interest rate swap contracts Bank loans of the economic entity currently bear an average variable interest rate of 7.09% (2004: 7.26%). It is policy to protect part of the loans from exposure to increasing interest rates. Accordingly, the economic entity has entered into interest rate swap contracts, under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. The contracts are settled on a net basis and the net amount receivable or payable at the reporting date is included in other debtors or other creditors. The contracts require settlement of net interest receivable or payable each 90 days. The settlement dates coincide with the dates on which interest is payable on the underlying debt. Swaps currently in place cover approximately 45% (2004: 49%) of the loan principal outstanding. The fixed interest rate is 6.24% (2004: 6.19%). SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/67 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 26 FINANCIAL INSTRUMENTS CONTINUED Interest rate risk exposures The economic entity’s exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out in the following table: Fixed interest maturing in Floating interest rate $’000 Notes 1 year or less $’000 Over 1 to 5 years $’000 More Non- than interest bearing $’000 5 years $’000 Total $’000 2005 Financial assets Cash and deposits Receivables Total financial assets Weighted average rate of interest Financial liabilities Trade and other creditors Related parties Hire purchase creditors Commercial bill Employee entitlements Total financial liabilities Weighted average rate of interest Net financial assets/(liabilities) 2004 Financial assets Cash and deposits Receivables Total financial assets Weighted average rate of interest Financial liabilities Trade and other creditors Related parties Hire purchase creditors Commercial bill Employee entitlements 0 0 0 0 0 0 0 0 0 0 0 0 0 6 7, 10 5,379 0 5,379 5.11% 0 0 0 16 17 17, 20 19, 22 0 0 0 59,650 0 0 0 0 21,600 0 59,650 21,600 7.09% 6.24% (54,271) (21,600) 6 7, 10 16 17 17, 20 19, 22 11,947 0 11,947 3.69% 0 0 0 26,000 0 0 0 0 0 0 0 3,000 0 0 0 0 21,600 0 0 0 0 0 0 0 0 0 0 1,047 11,332 6,426 11,332 12,379 17,758 46,417 1 0 0 5,016 46,417 1 0 81,250 5,016 51,434 132,684 0 (39,055) (114,926) 0 0 0 0 0 0 0 0 0 1,693 6,600 13,640 6,600 8,293 20,240 46,857 7,184 0 0 4,440 46,857 7,184 0 50,600 4,440 58,481 109,081 Total financial liabilities 26,000 3,000 21,600 Weighted average rate of interest Net financial assets/(liabilities) 7.26% (14,053) 6.19% (3,000) (21,600) 6.19% 0 (50,188) (88,841) Net fair value of financial assets and liabilities On-balance sheet items The net fair values of cash and cash equivalents and non-interest bearing monetary financial assets and financial liabilities of the consolidated entity approximate the carrying amounts. The net fair values of other monetary financial assets and financial liabilities of the consolidated entity are based upon market prices where a market exists or by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles. SCA2005/68 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 26 FINANCIAL INSTRUMENTS CONTINUED Derivative financial instruments The net fair values of forward exchange contracts is taken as the unrealised gain or loss at balance date calculated by reference to the current forward rates for contracts with similar maturity profiles. Carrying amounts and net fair values of financial assets and financial liabilities at balance sheet date: On-balance sheet financial instruments Financial assets Cash and deposits Receivables Non-traded financial assets Financial liabilities Trade and other creditors Bank overdrafts Hire purchase creditors Commercial bill Carrying amount 2004 2005 $'000 $'000 Net fair value 2004 2005 $'000 $'000 6,426 11,332 13,640 6,600 6,426 11,332 13,640 6,600 17,758 20,240 17,758 20,240 (46,418) (54,041) 0 0 (81,250) (50,600) 0 0 (46,418) (54,041) 0 0 (81,250) (50,600) 0 0 Non-traded financial liabilities (127,688) (104,641) (127,668) (104,641) Off-balance sheet financial instruments Financial assets Forward exchange contracts * Financial liabilities Forward exchange contracts * 0 16 (7) 0 * These amounts are unrealised gains and losses which have been included in the net carrying amount and net fair value of the on-balance sheet financial assets and liabilities. None of the financial assets and liabilities are readily traded on organised markets in the standardised form. Where assets are carried at amounts above the net fair value these amounts have not been written down as it is intended to hold these assets to maturity. Net fair value is exclusive of costs that would be incurred on realisation of an asset and inclusive of costs that would be incurred on settlement of a liability. Credit risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount, net of any provisions for doubtful debts of those assets, as disclosed in the statement of financial position, and notes to the financial statements. Credit risk for derivative financial instruments arises from the potential failure by counterparties to the contract to meet their obligations. The credit risk exposure to forward exchange contracts and interest rate swaps is the net fair value of these contracts. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/69 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 27 REMUNERATION OF AUDITORS During the period the auditor of the parent entity and its related practices earned the following remunerations: Grant Thornton – Australian firm Audit or review of financial reports of the entity and any entity in the consolidated entity Other audit related work Other assurance services Total audit and assurance services Advisory services Taxation services Total remuneration Related entities of Grant Thornton – Australian firm Audit or review of financial reports of the entity and any entity in the consolidated entity Other audit related work Other assurance services Total audit and assurance services Advisory services Taxation services Total remuneration 28 CONTINGENT LIABILITIES Guarantees Guarantees issued by the bankers of Super Cheap Auto Pty Ltd in support of various rental arrangements for certain retail outlets. The maximum future rental payments guaranteed amount to: 29 COMMITMENTS FOR EXPENDITURE Capital commitments Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities payable: Within one year Later than one year but not later than five years Later than five years Total capital commitments Consolidated entity Parent entity 2005 $'000 2004 $'000 2005 $'000 2004 $'000 175 0 0 175 0 4 179 0 0 0 0 0 0 0 84 28 0 112 37 1 150 0 0 0 0 0 0 0 143 0 0 143 0 0 143 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,287 1,287 0 0 1,694 0 0 1,694 786 0 0 786 0 0 0 0 0 0 0 0 SCA2005/70 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 29 COMMITMENTS FOR EXPENDITURE CONTINUED Consolidated entity Parent entity 2005 $'000 2004 $'000 2005 2004 $'000 $'000 Lease commitments Commitments in relation to operating lease payments under non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years Total lease commitments Future minimum lease payments expected to be received in relation to non-cancellable sub-leases of operating leases 29,249 87,119 46,171 25,280 80,181 53,141 162,539 158,602 3,874 4,668 30 EMPLOYEE BENEFITS Employee benefits and related on-costs liabilities Included in other creditors – current (refer Note 16) Provision for employee benefits – current (refer Note 19) Provision for employee benefits – non-current (refer Note 22) 850 761 4,032 3,643 984 797 Total employee benefit and related on-costs liabilities 5,866 5,201 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Employee numbers Number of employees at reporting date Long service leave Amounts provided for long service leave, as stated in note 1(n), that are expected to be settled more than twelve months after the reporting date, are measured at the present value of the expected settlement amount. The following assumptions have been adopted in measuring the present values: Weighted average rates of increase in annual employee benefits until the settlement of the liabilities Weighted average discount rates Consolidated entity 2005 Number 2004 Number Parent entity 2004 2005 Number Number 3,604 2,964 0 0 2.0% 5.6% 2.0% 5.6% SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/71 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 31 DIRECTOR AND EXECUTIVE DISCLOSURES Principles used to determine the nature and amount of remuneration The broad remuneration policy is to ensure remuneration properly reflects the relevant person’s duties and responsibilities and that the remuneration is competitive in attracting, retaining and motivating people of the highest quality. The Board believes that the best way to achieve this objective is to provide Senior Executives with a remuneration package consisting of fixed components (salary and superannuation) which reflect the individual’s responsibilities, duties and personal performance and a blend of short and long term incentives which reward both individual and company performance each year. The framework provides a mix of fixed and variable pay. As executives gain seniority within the group, the balance of this mix shifts to a higher proportion of “at risk” rewards. Non-Executive Directors Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Non-Executive Directors’ fees and payments are reviewed annually by the Board. The Chairman’s fees are determined independently to the fees of Non-Executive Directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. Non-Executive Directors do not receive share options. Non-Executive Directors may opt each year to receive a percentage of their remuneration in Super Cheap Auto Group Limited shares, which would be acquired on-market. Directors’ fees The current base remuneration was established on 19 May 2004. The Directors’ fees are inclusive of Committee fees. Non-Executive Directors’ fees are determined within an aggregate Directors’ fee pool limit approved by shareholders. Executive pay The executive pay and reward framework has four components: • base pay and benefits • short-term performance incentives • long-term incentives through participation in the Super Cheap Auto Executive Option Plan, and • other remuneration such as superannuation. The combination of these comprises the executive’s total remuneration. Base pay Structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-financial benefits at the executives’ discretion. Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. External remuneration consultants provide analysis and advice to ensure base pay is set to reflect the market for a comparable role. Base pay for senior executives is reviewed annually to ensure the executive’s pay is competitive with the market. An executive’s pay is also reviewed on promotion. There are no guaranteed base pay increases included in any senior executives’ contracts. Benefits Executives receive benefits including car allowances and salary continuance insurance. Short-term incentives Should the Company achieve a pre-determined profit target set by the Nomination and Remuneration Committee then a short-term incentive (STI) pool is available for allocation to executives during the annual review. Cash incentives (bonuses) are payable in September each year. Using a profit target ensures variable reward is only available when value has been created for shareholders and when profit is consistent with the business plan. The incentive pool is leveraged for performance above the threshold to provide an incentive for executive out-performance. SCA2005/72 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 31 DIRECTOR AND EXECUTIVE DISCLOSURES CONTINUED Each executive has a target STI opportunity depending on the accountabilities of the role and impact on organisation of business unit performance. The maximum target bonus opportunity is between 40% and 70% of total base salary dependent on the seniority of the executive. Each year, the Nomination and Remuneration Committee considers the appropriate targets and key performance indicators (KPIs) to link the STI plan and the level of payout if targets are met. This includes setting any maximum payout under the STI plan, and minimum levels of performance to trigger payment of STI. For the period ended 2 July 2005, the KPIs linked to short term incentive plans were based on group, individual business and personal objectives. Depending on the responsibilities of the executive, these KPIs required performance in sales growth, gross profit improvement, reduction of operating costs and improvement in operating procedures. The Nomination and Remuneration Committee is responsible for assessing whether the KPIs are met. To help make this assessment, the Committee receives reports on performance from management. The STI target annual payment is reviewed annually. Details of Remuneration Details of the nature and amount of each element of the emoluments of each director of Super Cheap Auto Group Limited for the period ended 2 July 2005 are set out in the following table. Directors of Super Cheap Auto Group Limited Primary Cash bonus $ - 275,000 - - - Cash salary and fees $ 100,000 548,076 188,745 54,600 54,600 946,021 275,000 Post- employment Equity Non- monetary benefits $ - 9,342 - - - 9,342 Super- annuation $ - 31,520 5,400 5,400 5,400 Options $ - 270,326 - - - Total $ 100,000 1,134,264 194,145 60,000 60,000 47,720 270,326 1,584,409 Name R D McIlwain R E Thorn R A Rowe D D McDonough R J Wright Total (1) Mr R A Rowe resigned as an Executive Officer of the Company on 5 July 2004. Upon resignation he was paid unused leave entitlements of $134,145. This is included in the table above in cash salary and fees. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/73 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 31 DIRECTOR AND EXECUTIVE DISCLOSURES CONTINUED Other executives of the Company and of the consolidated entity The nature and amount of each element of the five officers of the consolidated entity with the greatest authority for strategic direction and management of the consolidated entity for the period ended 2 July 2005 are set out in the following table: Primary Post- employment Equity Cash salary and fees $ Cash bonus $ Non- monetary benefits $ Super- annuation $ Options $ Total $ 291,150 135,000 3,396 11,585 63,502 504,633 225,038 75,000 20,221 11,585 91,450 21,200 5,593 6,758 150,288 44,000 232,000 - - - 11,585 - - - - - 331,844 125,001 205,873 232,000 Name P A Birtles Chief Financial Officer and Company Secretary S J Doyle General Manager – BCF1 P M Pugsley General Manager – Retail Operations2 N J Binns Business Systems Manager S R Tewkesbury Supply Chain Manager Total 989,926 275,200 29,210 41,513 63,502 1,399,351 (1) Mr S J Doyle served as General Manager - Retail Operations from 27 June 2004 to 3 October 2004, General Manager – Merchandising from 4 October 2004 to 15 May 2005 and was appointed General Manager, BCF on 16 May 2005. (2) Ms P Pugsley was appointed as General Manager – Retail Operations on 29 November 2004. Cash bonuses Cash bonuses are dependent on the satisfaction of performance conditions as set out in the section headed “short term incentives” above. For each cash bonus included in the above tables, the percentage of the available bonus that was paid and the percentage that was forfeited because the person did not meet the performance criteria are set out below. No part of the bonuses are payable in future years. Name R E Thorn P A Birtles S J Doyle N J Binns P M Pugsley CASH BONUS Paid % Forfeited % 71 75 60 69 57 29 25 40 31 43 Service agreements Remuneration and other terms of employment for the Managing Director and Chief Financial Officer are formalised in a service agreement. The agreement provides for the provision of performance-related cash bonuses, other benefits including car allowances and participation, when eligible, in the Super Cheap Auto Executive Option Plan. SCA2005/74 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 31 DIRECTOR AND EXECUTIVE DISCLOSURES CONTINUED R E Thorn, Managing Director • Term of agreement – 5 years commencing 1 July 2004 • Base salary, inclusive of superannuation, for the year ended 30 June 2005 of $550,000 to be reviewed annually by the Nomination and Remuneration Committee. • Payment of a termination benefit on early termination by the Company, other than for cause, equal to 33 months base salary if the termination is effective more than 12 months before the expiry date or 9 months base salary if the termination is effective within 12 months before the expiry date. P A Birtles, Chief Financial Officer and Company Secretary • Term of agreement – 3 years commencing 1 July 2004 • Base salary, inclusive of superannuation for the year ended 30 June 2005 of $300,000 to be reviewed annually by the Nomination and Remuneration Committee. • Payment of a termination benefit on early termination by the Company, other than for cause, equal to the lesser of 6 months base salary or the base salary in respect of the remainder of the contract. Super Cheap Auto Executive Option Plan The Company has established the Super Cheap Auto Executive Share Option Plan (“Option Plan”) to assist in the retention and motivation of executives of Super Cheap Auto (“Participants”). It is intended that the Option Plan will enable the Company to retain and attract skilled and experienced executives and provide them with the motivation to enhance the success of the Company. Under the Option Plan, options may be offered to Participants selected by the Board. Unless otherwise determined by the Board, no payment is required for the grant of options under the Option Plan. Subject to any adjustment in the event of a bonus issue, each option is an option to subscribe for one Share. Upon the exercise of an option by a Participant, each Share issued will rank equally with other Shares of the Company. Options issued under the Option Plan may not be transferred unless the Board determines otherwise. The Company has no obligation to apply for quotation of the options on ASX. However, the Company must apply to ASX for official quotation of Shares issued on the exercise of the options. At any one time, the total number of options on issue under the Option Plan that have neither been exercised nor lapsed will not exceed 5.0% of the total number of shares in the capital of the Company on issue. The Company has granted to R E Thorn and P A Birtles options under the plan as set out in the following table. These options were granted on 19 May 2004 and are exercisable subject to satisfaction of a qualifying hurdle. The qualifying hurdle requires cumulative annual growth of 10% in earnings per share (pre-amortisation) from a base of 17.2 cents for the year ending 30 June 2005 through to each of the years prior to the options being exercised. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/75 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 31 DIRECTOR AND EXECUTIVE DISCLOSURES CONTINUED Option holdings The number of options over ordinary shares in the Company held during the period by the directors of Super Cheap Auto Group Limited and the five specified executives of the consolidated entity, including their personally-related entities are set out below: Name Directors of Super Cheap Auto Group Limited R E Thorn Specified executives of the consolidated entity P A Birtles Date options granted 19 May 2004 19 May 2004 19 May 2004 Balance at and fees the year Granted during the year as remuneration Exercised during the year Balance at the end of the year Vested and exercisable at the end of the year 1,000,000 200,000 - - - - Exercise date 1 July 2007 1 July 2008 1 July 2009 1,000,000 200,000 Issue price of shares $1.97 $1.97 $1.97 - - Number under option 700,000 250,000 250,000 1,200,000 Shareholdings The number of ordinary shares in the Company held during the financial year by each director of Super Cheap Auto Group Limited and each of the five specified executives of the consolidated entity, including their personally related entities are set out below: Name Balance at the start of the year Received during the year on the exercise of options Directors of Super Cheap Auto Group Limited R D McIlwain R E Thorn R A Rowe D D McDonough R J Wright - 4,835,120 93,909,727 - - Specified executives of the consolidated entity P A Birtles S J Doyle N J Binns P M Pugsley S R Tewkesbury 1,192,089 536,441 238,418 - - - - - - - - - - - - Other changes during the year 158,882 63,958 (41,507,568) 50,000 40,609 507 507 - - - Balance at the end of the year 158,882 4,899,078 52,402,159 50,000 40,609 1,192,596 536,948 238,418 - - SCA2005/76 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 32 RELATED PARTIES Transactions with related parties are at arm’s length unless otherwise stated. Directors The names of the persons who were Directors of Super Cheap Auto Group Limited during the financial period are R D McIlwain, R E Thorn, R A Rowe, R J Wright and D D McDonough. Amounts due from Directors and director-related entities Amounts due from Directors of the consolidated entity and their director-related entities which are included under related parties in Note 8 are as follows: Consolidated entity Parent entity 2005 '000 2004 $'000 2005 $'000 2004 $'000 Amount due from: Director – R E Thorn – expenses to be reimbursed Director related entities of R A Rowe – costs of IPO to be reimbursed – Store lease costs to be reimbursed by landlord (see below) The amounts due above have been repaid subsequent to the end of the period Other transactions with Directors and director-related entities Aggregate amounts included in the determination of profit from ordinary activities before income tax that resulted from transactions with Directors and director-related entities: - store lease payments – R A Rowe related property entities 33 RECONCILIATION OF PROFIT FROM ORDINARY ACTIVITIES AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES 18 0 26 44 8 798 154 960 0 0 0 0 6,960 1,157 0 Profit from ordinary activities after related income tax Cash flows excluded from profit on ordinary activities attributed to operating activities Depreciation and amortisation Net (gain)/loss on sale of non-current assets (Gain)/loss on disposal of service entity Cash flow attributed to investing and financing activities Interest paid - net IPO costs to be reimbursed GST credit claims for fixed asset purchases Change in operating assets and liabilities, net of effects from the purchase of controlled entities and the sale of the service entity - (increase) in receivables - (increase) in inventories - increase/(decrease) in payables - (decrease)/increase in provisions - (decrease) in deferred tax Net cash inflow from operating activities 20,563 2,767 7,871 11,023 147 0 1,554 20 (96) 3,751 0 1,615 616 798 162 (4,732) (28,669) (48) 531 (133) (673) (103) 2,484 (650) (285) 4,048 6,594 8 0 0 2,021 0 0 (15,467) 0 589 0 4,484 (234) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/77 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 34 EARNINGS PER SHARE Basic earnings per share Diluted earnings per share Weighted average number of shares used as the denominator Weighted average number of shares used as the denominator in calculating basic earnings per share Weighted average potential ordinary shares used as the denominator in calculating diluted earnings per share Reconciliations of earnings used in calculating earnings per share Basic earnings per share - earnings used in calculating basic earnings per share net profit after tax Diluted earnings per share - earnings used in calculating diluted earnings per share net profit after tax Consolidated Entity 2005 Cents 19.3 19.3 Parent entity 2004 Cents 4.1 4.1 Consolidated entity 2005 Number 2004 Number 106,429,622 67,550,020 106,429,622 67,550,020 Consolidated entity 2005 $'000 2004 $'000 20,563 2,767 20,563 2,767 Information on the classification of securities The options over 1,200,000 ordinary shares remaining unconverted at year end is not included in basic or dilutive EPS as the issue of shares is contingent upon future events. As at reporting date, conditions which would result in the issue of shares had not been obtained. 35 INVESTMENTS IN CONTROLLED ENTITIES Name of Entity Super Cheap Auto Pty Ltd (a) Super Cheap Auto (New Zealand) Pty Ltd (b) Super Cheap Auto Purchasing Pty Ltd (b) BCF Australia Pty Ltd (a) SCA Equity Plan Pty Ltd (b) Country of Incorporation Class of Shares Australia New Zealand Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Equity Holding 2005 % 100 100 100 100 100 (a) These controlled entities have been granted relief from the necessity to prepare financial reports in accordance with Class Order 98/1418 issued by the Australian Securities and Investments Commission. (b) Investment is held directly by Super Cheap Auto Pty Ltd. SCA2005/78 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 35 INVESTMENTS IN CONTROLLED ENTITIES CONTINUED Acquisition by controlled entity On 17 January 2005, BCF Australia Pty Ltd acquired certain assets and assumed certain liabilities of the CampMart business from an entity external to the group. Details of the acquisition are as follows: Fair value of identifiable net assets acquired Inventory Plant and equipment Trade creditors Employee entitlements Goodwill Consideration 36 NET TANGIBLE ASSET BANKING Net tangible asset per ordinary share $’000 2,000 203 (914) (46) 1,243 6,776 8,019 Consolidated entity 2005 Cents 53¢ 2004 Number 39¢ 37 DEED OF CROSS GUARANTEE Super Cheap Auto Group Limited, Super Cheap Auto Pty Ltd and BCF Australia Pty Ltd are parties to a Deed of Cross Guarantee under which each company guarantees the debts of the others. By entering into the Deed, the wholly owned entities have been relieved from the requirement to prepare a financial report and directors’ report under Class Order 98/1418 (as amended by Class Orders 98/2017, 00/0321, 01/1087, 02/0248 and 02/1017) issued by the Australian Securities and Investments Commission. The above companies represent a ‘Closed Group’ for the purposes of the Class Order, and as there are no other parties to the Deed of Cross Guarantee that are controlled by Super Cheap Auto Group Limited, they also represent the ‘Extended Closed Group’. As the consolidated financial statements cover all parties to the Deed of Cross Guarantee and the members of the Extended Closed Group are the same as the Closed Group, no separate disclosure of consolidated information for the Closed Group has been shown. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/79 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 IMPACTS OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS 38 The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS, and the Urgent Issues Group has issued interpretations corresponding to International Accounting Standards Board (IASB) interpretations. These Australian equivalents to IFRS are referred to hereafter as AIFRS. The adoption of AIFRS will be first reflected in the consolidated entity’s financial statements for the half-year ending 31 December 2005 and the year ending 1 July 2006. Entities complying with AIFRS for the first time will be required to restate their comparative financial statements to amounts reflecting the application of AIFRS to that comparative period. Most adjustments required on transition to AIFRS will be made, retrospectively, against opening retained earnings at 26 June 2004. The consolidated entity has established a project team to manage the transition to AIFRS. The project team is chaired by the Chief Financial Officer and reports to the Audit and Risk Committee. The project team has analysed all of the AIFRS and has identified the accounting policy changes that will be required. In some cases, choices of accounting policies are available, including elective exemptions under Accounting Standard AASB 1 First time Adoption of Australian Equivalents to International Financial Reporting Standards. These choices have been analysed to determine the most appropriate accounting policy for the consolidated entity. The known or reliably estimable impacts on the financial report for the period ended 2 July 2005 had it been prepared using AIFRS are set out below. No material impacts are expected in relation to the Statements of Cash Flows. Although the adjustments discussed below are based on management’s best knowledge of expected standards and interpretations, and current facts and circumstances, these may change. For example, amended or additional standards or interpretations may be issued by the AASB and the IASB. Therefore, until the consolidated entity prepares its first full AIFRS financial statements, the possibility cannot be excluded that the accompanying disclosures may have to be adjusted. Notes explaining the impacts on the Statements of Financial Performance and Statements of Financial Position: (a) Intangible assets – goodwill/impairment Under AASB 3 Business Combinations, amortisation of goodwill will be prohibited and will be replaced by annual impairment testing focusing on the cash flows of the related cash generating unit. If the policy required by AASB 3 had been applied during the period ended 2 July 2005, consolidated goodwill at 2 July 2005 would have been $2.8 million higher and consolidated amortisation expense for the period would have been $2.8 million lower. There would have been no impact on the parent entity’s financial statements. (b) Share based payments Under AASB 2 Share Based Payment, from 1 July 2004, the group is required to recognise an expense for those options that were issued to employees under the Share Option Plan but that had not vested by 1 January 2005. If the policy required by AASB 2 had been applied during the period ended 2 July 2005, consolidated and parent entity share based payment reserve at 2 July 2005 would have been $0.3 million higher, with a corresponding decrease in the opening retained earnings of $0.1 million and a decrease in 2005 earnings of $0.2 million. SCA2005/80 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 IMPACTS OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS CONTINUED 38 (c) Financial instruments The group will be taking advantage of the exemption available under AASB 1 to apply AASB 1 to AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement only from 1 July 2005. This allows the group to apply previous Australian generally accepted accounting principles (Australian GAAP) to the comparative information of financial instruments within the scope of AASB 132 and AASB 139 for the 30 June 2006 financial report. (d) Provision for ‘make good’ requirements in relation to leased premises Under AASB 137 Provisions, Contingent Liabilities and Contingent Assets, estimates of the costs of make-good provisions that are contractually required as part of lease agreements should be appropriately estimated and provided for, with a corresponding asset created for the deferred expenditure being amortised over the term of the lease. If the policy required by AASB 137 had been applied during the period ended 2 July 2005 the net impact would be to increase property, plant and equipment by $2.6 million and increase provision liabilities by $3.8 million with a corresponding decrease in opening retained earnings of $0.8 million and 2005 earnings of $0.4 million. There would have been no impact on the parent entity’s financial statements. (e) Deferred revenue Under AASB 118 Revenue, revenue from the sale of goods shall be recognised if an entity retains only an insignificant risk of ownership, when a refund is offered to a customer if they are not satisfied, then revenue is recognised at the time of sale provided the seller can reliably estimate future returns and recognises a liability for returns based on previous experience and other relevant factors. If the policy required by AASB 118 had been applied during the period ended 2 July 2005, returns liability would have been $0.2 million higher, with a corresponding decrease in opening returned earnings of $0.2 million. There would have been no impact on the parent entity’s financial statements. (f) Impairment of assets Under AASB 136 Impairment of Assets, discounted cash flows are used to calculate the recoverable amount of assets. The assessment is required on a Cash Generating Unit basis. Assessments to date have not resulted in changes to the carrying value of applicable assets. (g) Leases Under AASB 117 Leases, there is a requirement to account for fixed rate increases in operating leases on a straight line basis. This will result in a change to current accounting policy under which lease payments are charged to the statement of Financial Performance in the period in which they are incurred. If the policy required by AASB 117 had been applied during the period ended 2 July 2005, lease liability would have been $3.3 million higher with a corresponding decrease in opening retained earnings of $1.2 million and a decrease in 2005 earnings of $2.1 million. There would have been no impact on the parent entity’s financial statements. These numbers do not take into account discounting of future costs to present value. The project team, in conjunction with its advisors, is considering discounting to present value to ensure consistency with other AIFRS. SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/81 NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 IMPACTS OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS CONTINUED 38 (h) Income Tax Under AASB 112 Income Taxes, deferred tax balances are determined using the balance sheet method which calculates temporary differences based on the carrying amounts of an entity’s assets and liabilities in the statement of financial position and their associated tax basis. In addition, current and deferred taxes attributable to amounts recognised directly in equity are also recognised directly in equity. This will result in a change to the current accounting policy under which deferred tax balances are determined using the income statement method, items are only tax-effected if they are included in the determination of pre-tax accounting profit or loss and/or taxable income or loss and current and deferred taxes cannot be recognised directly in equity. If the policy required by AASB 112 had been applied during the period ended 2 July 2005, deferred tas assets would have decreased by $0.7 million, and deferred tax liabilities would have not changed materially. (i) Summary of impacts Adjustments required on first time adoption of AIFRS are generally recognised directly in retained earnings (with the exception of share based payments) of the date of transition. The effect of these adjustments for the consolidated entity will be a decrease in retained earnings (pre-tax) of $2.3 million and an increase in pre-tax 2005 earnings of $0.1 million (increase of $0.8 million in earnings after tax). SCA2005/82 DIRECTORS' DECLARATION Forming part of the Consolidated Financial Statements For the period from 27 June 2004 to 2 July 2005 The Directors declare that the financial statements and notes of the consolidated entity (a) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (b) give a true and fair view of the Company’s and consolidated entity’s financial position as at 2 July 2005 and of their performance, as represented by the results of their operations and their cash flows, for the financial year ended on that date. In the Directors’ opinion: (a) the financial statements and notes are in accordance with the Corporations Act 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in Note 37 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee described in Note 37. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Offer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. R D McILWAIN Chairman R E THORN Director Brisbane 25 August 2005 SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/83 AUDITOR'S REPORT Chartered Accountants Business Advisers and Consultants INDEPENDENT AUDIT REPORT TO MEMBERS OF SUPER CHEAP AUTO GROUP LIMITED Scope The financial report and directors’ responsibility The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors’ declaration for both Super Cheap Auto Group Limited (the company) and the consolidated entity for the period ended 2 July 2005. The consolidated entity comprises both the company and the entities it controlled during that period. The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report. Audit approach We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing and Assurance Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgment, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company’s and the consolidated entity’s financial position, and of their performance as represented by the results of their operations and cash flows. We formed our audit opinion on the basis of these procedures, which included: (cid:131) examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report; and (cid:131) assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors. While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. A queensland Partnership – A Member of Grant Thornton Association Inc.-The Australian Member of Grant Thornton International. Partners: DJ Carroll SG Hancox LR Jones RG Lunney MG McCann MJ O’Hare DS Skirving Level 4, Grant Thornton House King George Square 102 Adelaide Street Brisbane Qld 4000 Australia GPO Box 1008 Brisbane Qld 4001 Australia Tel: 61 (0)7 3222 0200 Fax: 61 (0)7 3222 0444 www.grantthornton.com.au SCA2005/84 AUDITOR'S REPORT INDEPENDENT AUDIT REPORT TO MEMBERS OF SUPER CHEAP AUTO GROUP LIMITED (cont) Independence In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. Audit opinion In our opinion, the financial report of Super Cheap Auto Group Limited is in accordance with: (a) the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 2 July 2005 and of its performance for the period ended on that date; and (ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australian. GRANT THORNTON Chartered Accountants L R JONES Partner Brisbane 25 August 2005 SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/85 AUDITOR'S INDEPENDENCE DECLARATION Chartered Accountants Business Advisers and Consultants AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF SUPER CHEAP AUTO GROUP LIMITED In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Super Cheap Auto Group Limited for the period ended 2 July 2005, I declare that, to the best of my knowledge and belief, there have been: (a) (b) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON Chartered Accountants L R JONES Partner Brisbane Dated this 25th day of August 2005 Level 4, Grant Thornton House King George Square 102 Adelaide Street Brisbane Qld 4000 Australia GPO Box 1008 Brisbane Qld 4001 Australia Tel: 61 (0)7 3222 0200 Fax: 61 (0)7 3222 0444 www.grantthornton.com.au SCA2005/86 A Queensland Partnership – A Member of Grant Thornton Association Inc.-The Australian Member of Grant Thornton International. Partners: DJ Carroll SG Hancox LR Jones RG Lunney MG McCann MJ O’Hare DS Skirving SHAREHOLDER INFORMATION DISTRIBUTION OF SHAREHOLDINGS AS AT 25 AUGUST 2005 Size of Holding 1-1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 Number of Shareholders with less than a marketable parcel Ordinary Shareholders 646,229 4,455,555 3,484,568 6,602,825 91,240,445 106,429,622 22 Voting Rights All ordinary shares issued by Super Cheap Auto Group Limited carry one vote per share. TWENTY LARGEST SHAREHOLDERS AS AT 25 AUGUST 2005 Number of Ordinary Shares Shareholder 52,402,159 4,835,120 4,730,454 4,057,375 3,880,984 3,516,816 3,408,315 2,884,370 1,441,497 752,000 731,599 678,301 620,000 535,391 535,391 535,391 535,391 400,000 380,710 371,910 87,233,174 SCA FT Pty Ltd Robert Edward Thorn SCA Equity Plan Pty Ltd Westpac Custodian Nominees Limited Citicorp Nominees Pty Limited (CFS Future Leaders Fund A/C> ANZ Nominees Limited J P Morgan Nominees Australia Limited Suncorp Custodian Services Pty Limited Queensland Investment Corporation GIO General Ltd National Nominees Limited Suncorp General Insurance Limited Geomar Superannuation Pty Ltd Bond Street Custodians Limited Bond Street Custodians Limited Bond Street Custodians Limited Bond Street Custodians Limited Seymour Group Pty Ltd Geomar Superannuation Pty Ltd Mr Rakesh Tulshyan & Mrs Seema Tulshyan Total held by twenty largest shareholders as a percentage 81.96% SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT SCA2005/87 SCA2005/88 SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT 2005 S U P E R C H E A P A U T O G R O U P L I M I T E D A N N U A L R E P O R T 2 0 0 5 WWW.SUPERCHEAPAUTO.COM.AU ABN 81 108 676 204 

Continue reading text version or see original annual report in PDF format above