Super Retail Group Ltd Annual Report 2006

Plain-text annual report

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 Link Market Services Level 12, 680 George Street Sydney NSW 2000 BANKERS Australia and New Zealand Banking Group Limited AUDITORS PricewaterhouseCoopers SOLICITORS Redmond Van De Graaff Mallesons Stephen Jaques 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 26 October 2006 at 12.00 noon. Formal notice of this meeting and proxy form are enclosed with this report. 1 1 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 2 2 CONTENTS Chairman’s Report Managing Director’s Report Board of Directors Senior Management Team Corporate Governance Statement Financial Statements Directors’ Report Annual Financial Report Income Statements Balance Sheets Statements of Changes in Equity Cash Flow Statements Notes to the Financial Statements Directors’ Declaration Independent Audit Report Shareholder Information 04 06 16 18 22 27 28 39 41 42 43 44 45 90 91 93 WELCOME TO THE 2006 SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT 2006 has been a year of change, growth and success for the Group. This report showcases many of our achievements including the opening of our Supercheap Auto concept store at Chermside in Brisbane, the successful establishment of BCF Boating Camping Fishing in the outdoor and leisure market and our sponsorship of the 2005 Supercheap Auto Bathurst 1000. Once again, we recognise our team members, their achievements and 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. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 01 01 HIGHLIGHTS JUL 05 Announced the launch of BCF Boating Camping Fishing – plans to rebrand the recently acquired CampMart business to BCF along with plans to open further stores across Australia and New Zealand. OCT 05 Supercheap Auto Bathurst 1000 hugely successful with more than 6 million viewers across Australia and New Zealand and 166,840 motorsports fans attending the great race. BCF launched with 8 stores. JAN 06 Launch of new look branding for Supercheap Auto. BCF expands over the QLD/NSW border to open its ﬁ rst NSW store in Coffs Harbour - increasing its number of stores to 13. MAY 06 Supercheap Auto unveils its new concept store at Chermside, Queensland. JUN 06 Group sales exceed $500 million. BCF celebrates success at the National Retail Association Awards. JUL 06 First BCF store in Western Australia opens in Midland. 02 02 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT STORE NUMBERS SALES $ MILLIONS 2 4 7 2 1 5 4 7 0 . 1 3 8 2 . 7 2 7 5 . 1 2 0 3 . 4 1 8 3 1 4 4 9 7 5 2 5 . 9 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 , 3 8 4 4 , 3 6 0 4 TEAM MEMBERS , 2 9 6 4 , 2 4 0 8 1 , 5 6 3 3 0 4 * . 2 8 9 . EBIT 1 3 7 . 2 2 8 . 1 9 8 . 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 * Excludes beneﬁ t of one-off inventory revaluation SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 03 03 CHAIRMAN’S REPORT inventory and stafﬁ ng costs, whilst lifting sales. The consequential potential for smaller store footprints has been proven by the work undertaken at Chermside. Meanwhile, Steve Doyle’s sole focus on the BCF diversiﬁ cation strategy is demonstrating that the Company has the opportunity to take greater beneﬁ t from its existing infrastructure and skills. BCF has successfully moved beyond being a small reconnaissance effort into a substantive and fast growing participant in the leisure goods market. Expansion in WA and the NT, and additional stores in NSW will strengthen BCF and reduce the Group’s total dependence on the auto after- market. The Company’s commitment to growth will not be diminished by a renewed focus on proﬁ t margins. The Board does not expect shareholders to accept growth for the sake of growth. The early response to increasing inventory levels, a decision to establish a logistics facility in China and better supplier arrangements are all examples of the increasing importance being placed on maintaining an enduring and sustainable cost structure. Finally, it has been an important year for the Group. Peter Birtles and his team have handled the uncertainty created by top level management changes and the pressure on sales from a tough retail environment without compromising the BCF roll-out and the need to redeﬁ ne and re-invigorate the initial Supercheap Auto business model. In many respects, FY06 was a watershed year which has positioned the Company for the longer term. Dick Mcllwain Chairman Super Cheap Auto Group Limited Fellow Shareholder All segments of the business grew in the 2005/06 ﬁ nancial year (FY06) with annual sales eclipsing $500M for the ﬁ rst time. Underlying operating proﬁ ts (EBITDA), which adjust for one-off inventory revaluation in 2004/05 ($4.7M) and the impact of the Group’s expansion of BCF ($4.8M), also grew by 15%. On a similar underlying basis, net proﬁ t after tax (NPAT) has risen by 9%. These are pleasing outcomes for a year which has laid the foundation for the inevitable shift away from total reliance on the formula that has underpinned the Group’s impressive growth for more than a decade. The changes in FY06 have included the restructuring of the management group, a realisation that the long period of continuous growth through a single retailing model is nearing its potential, and the diversiﬁ cation offered by the ongoing development of the BCF boating ﬁ shing and camping format. The resignation of Bob Thorn precipitated an overhaul of the group’s management structure. Bob’s contribution to the development of the Supercheap Auto business from 8 stores in 1993 to an Australia and New Zealand-wide leader in the auto after-market, and his unique ability to create a highly motivated team, distinguishes Supercheap Auto from most other retailers. Peter Birtles and the team have continued the success of the Group. Peter and his chief operating ofﬁ cers, David Ajala and Steve Doyle, have helped to deliver another year of impressive growth in a difﬁ cult retailing environment, whilst simultaneously developing the strategies required to re-condition the Supercheap Auto retail format, and begin the CampMart conversion and BCF roll-out. The reﬁ nement and reorientation of the Supercheap Auto model under the leadership of David Ajala recognises that the initial format was not going to produce the economic beneﬁ ts needed to improve operating proﬁ t margins or move into smaller local markets. The re-formatted Chermside store in Brisbane has reduced 04 04 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 05 05 MANAGING DIRECTOR’S REPORT 2005/06 has been another signiﬁ cant year in the history of the Super Cheap Auto Group. Much has been achieved with the highlights including: ■ Underlying Group EBIT increasing by 11% over the prior year SUPERCHEAP AUTO Sales increased from $465 million to $482 million during the period. This represents underlying growth of 6% after adjusting for the extra week of trading included in the prior year results. ■ Group sales passing through the half billion dollar mark and recording an underlying increase of 14% on the prior year EBITDA at $42.5 million and EBIT at $32.4 million were respectively 10% and 7% higher than the prior comparative period on an underlying basis. This is a good result in the challenging trading conditions which prevailed during the year. Higher fuel prices have had a negative inﬂ uence on consumer spending in the auto after-market, resulting in a decline of over 2% in market wide expenditure during the year. Supplier data has conﬁ rmed that Supercheap Auto has been successful in growing market share in a number of key categories such as lubricants, car care and interior accessories. The commitment to a consistent and planned marketing and buying strategy has led to an improvement in gross margins and in the business achieving its targets for a 10% reduction in inventory investment per store whilst improving shelf availability in store. We have secured better cost prices, improved trading terms, and reduced logistics costs and shrinkage. 23 new stores were opened during the period bringing the total number of Supercheap Auto stores to 234 of which 196 were in Australia and 38 in New Zealand. We have opened a further 4 stores so far in the current ﬁ nancial year as at the date of this report. ■ The successful launch of BCF with sales and proﬁ t exceeding launch expectations ■ Supercheap Auto gaining market share and at the same time growing gross margins in difﬁ cult trading conditions ■ The average inventory investment across Supercheap Auto stores reducing by over 10% whilst improving product availability on shelf. These achievements highlight the strength of the business model that has been built over the last few years. In particular, we have begun to reap the beneﬁ ts of our investment in developing our merchandising and supply chain management systems. In what have been generally acknowledged as the most challenging trading conditions that discretionary retail businesses have faced for a number of years, we have been able to not only grow sales and proﬁ t in our primary business, Supercheap Auto, but successfully launch a brand new retail concept, BCF Boating Camping Fishing. Our management of working capital has allowed us to fully cover the $37 million invested in opening 23 new Supercheap Auto stores and 13 new BCF stores through funds generated from operating cash ﬂ ow. We have established the framework for future growth in our existing formats and through developing new format opportunities. 06 06 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT We now estimate that the current Supercheap Auto format of a 700m2 standalone store has a potential for around 270 stores across Australia and New Zealand so we are getting closer to that number. With that in mind, we have commenced work on alternative formats for the Supercheap Auto brand which, if successful, will provide the Group with a ﬂ exible footprint to suit local market and demographic conditions. This will open up opportunities for many more Supercheap Auto stores across both countries. We will be trialling these opportunities in the coming months. We have also completed work on refreshing our marketing strategy for the brand. We have updated our brand logo, redesigned the layout of our catalogues and our in-store signage and more recently launched a new set of television commercials. October 2005 was a proud moment for the business with the ﬁ rst running of the Supercheap Auto Bathurst 1000, the most famous and most viewed motor race in Australia. We have recently refurbished our store at Chermside in Brisbane as a Concept store to trial new merchandising displays, new store procedures and new products. The early trials have proved very promising and we will commence a programme of refurbishment of our higher trading stores during the coming year, utilising the most successful attributes of the Chermside concept store. More information on our involvement with the Supercheap Auto Bathurst 1000 and on the Chermside concept store is featured later in this Annual Report. The business has strengthened its position as the leading retailer of automotive parts and accessories across Australia and New Zealand during the period and we are conﬁ dent that the strategies outlined above will further consolidate this position over the coming years. BCF – BOATING CAMPING FISHING BCF was launched to the general public on 15 October 2005, with eight stores trading under the BCF banner across South East Queensland - three refurbished CampMart stores and ﬁ ve new BCF stores. Over the balance of the year, we refurbished the remaining CampMart store, opened three new BCF stores in Queensland and one in Northern New South Wales. We have opened a further two stores so far this ﬁ nancial year, one at Midland in Western Australia and one at West Gosford in New South Wales. At the time of the launch, we set targets for the business of sales of $40 million and an EBIT (pre set up costs) of $1.2 million. We are very pleased to report that actual sales were $44 million and that actual EBIT (pre set up costs) was $1.4 million. This pleasing proﬁ t result was achieved despite the impact of un-forecasted non-cash provisions of $0.7 million, arising from the impact of accounting for property lease costs in accordance with AIFRS. Gross margins have been ahead of original expectations and gross inventory investment has been held to an average of $1.3 million per store compared to the initial target of $1.5 million per store. We anticipate further improvements in gross margins as we build scale and develop our own brand products and leverage the Group’s capabilities in sourcing product from Asia. All components of the business have performed well with the ﬁ shing section being particularly strong. Inventory investment in the boating section has been rebalanced towards higher volume and higher margin product for smaller boats and away from hardware for larger boats and higher value marine electronics to better reﬂ ect trading patterns. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 07 07 We have learnt that the complete Boating, Camping and Fishing offer is most successful in sites that are within 30 minutes of the ocean and we will be concentrating on these type of locations as we move to the next group of new stores. We continue to see an opportunity for up to 60 full BCF stores across Australia and New Zealand. Our experience to date has indicated that there is also the potential to operate successful stores in additional locations using variants of the full offer. SUPPLY CHAIN OPERATIONS We have seen continued improvements in our supply chain operations throughout the period. In addition to the reduction in inventory holdings and improvement in on shelf availability highlighted earlier in my report, we have reduced logistics costs as a % of sales. During the year, the opening of a third party distribution centre in Melbourne has reduced freight costs as we distribute stock for our stores in Victoria and South Australia from this facility rather than from our Brisbane distribution centre. In June, we moved our logistics operation in New Zealand to larger premises in Auckland. This new distribution centre will facilitate the direct importing of product into New Zealand from Asia rather than indirectly via our Brisbane site. We have implemented a number of operational improvements at our Brisbane facility which have enhanced productivity and accuracy. We have recently completed installation of additional material handling equipment which will generate further improvements in the coming year. We are working on a number of initiatives to improve our supply chain and sourcing operations in China: ■ Firstly, we have entered into a logistics partnership with Cargo Services Far East, a Hong Kong based business which is responsible for our logistics and freight forwarding arrangements within China. As part of this new relationship, we have implemented new systems which allow us to track product movements from the manufacturer in China through to our distribution centres in Australia and New Zealand. This will enable us to be more ﬂ exible with our promotional planning and replenishment. ■ Secondly, we have renegotiated our shipping arrangements which have generated signiﬁ cant cost savings. ■ Thirdly, we are in the process of establishing our own direct sourcing operation based in Hangzhou, China. We expect this new team to be in place in October and they will have a focus on reducing sourcing costs and lead times, improving product packaging and quality and generating supply chain efﬁ ciencies. REVIEW OF FINANCIAL CONDITION We continue to fund our investment in growth initiatives through our debt facilities. As highlighted earlier in my report, we have been able to minimise the drawdown of new debt through our management of working capital. We renegotiated our funding facilities during the year, securing new arrangements which are a mixture of term debt and working capital facilities. These new facilities have been secured at a lower cost and provide signiﬁ cant capacity to fund further growth initiatives over the coming years. 08 08 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT Net debt for the Group has increased from $75.2 million to $80.9 million. Under AIFRS a further $1.8 million of net debt relating to a team member share scheme special purpose vehicle has been consolidated into the Group’s balance sheet. Cash ﬂ ow from operations was $26.8 million after accounting for a $7.0 million increase in working capital. This positive result was achieved even though approximately $27 million was invested in working capital to stock new stores opened during the year. The working capital usage is a $26 million improvement on the prior year. Group Capital Expenditure was $21.0 million, with $9.8 million in new store ﬁ t-out, $7.8 million in supply chain and IT projects and $3.4 million in general maintenance and enhancement projects. TEAM MEMBERS I would like to thank all of my fellow team members for their outstanding contribution during the past year. As you can tell from the above, we have a multitude of exciting initiatives in progress across our Group. Each one of these initiatives brings extra workload and new challenges but our team members continue to take these challenges head on. We now have close to 4,000 team members across the Group. Many of our team members are worthy of individual recognition but we can only feature a small number in our Annual Report, as you will see later on in the Report. Innovation, customer service, leadership and executing with discipline are the key themes for our Group as we execute our strategy. These themes are all centred on our team members so we are increasing our investment in their development in these areas. I would also like to take this opportunity to acknowledge the immeasurable contribution of my predecessor, Bob Thorn, to the current success of Super Cheap Auto Group. When Bob joined the business in 1993, he quickly identiﬁ ed the potential to grow Supercheap Auto from a small chain of 8 stores based in South East Queensland to the Trans Tasman retailer it is today. Bob led from the front and was highly passionate about creating a can- do attitude which set the business apart from its competitors. Setting ever more ambitious targets, he galvanized team members into not only achieving their goals but into exceeding them. Bob created a unique team culture in Supercheap Auto which has been central to its success to date and will be pivotal as we continue to grow the Group into the future. On behalf of the Company and on a personal level, thanks Bob. LOOKING AHEAD We anticipate that trading conditions will continue to be quite challenging during the coming year but we are conﬁ dent that the initiatives we have in place will enable our businesses to continue to grow market share and improve proﬁ t margins. We anticipate that Supercheap Auto will open between 10 and 15 new stores in the coming year of which some stores will be tests of the new formats. BCF is also planning to open between 10 and 15 new stores, extending its network throughout Queensland, New South Wales, Western Australia and the Northern Territory. I feel very privileged to have been given the opportunity by the Board to lead the Company through this exciting phase in its development and I look forward to discussing our progress with you over the coming years. Peter Birtles Managing Director Super Cheap Auto Group Limited SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 09 09 1010 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPERCHEAP AUTO CHERMSIDE Supercheap Auto is an exciting and enjoyable place to shop. This environment and culture has been created and supported by a team of dedicated employees that live the core business values and Team Framework Principles. Throughout the past year, the Brand has undergone a re-vitalisation with the development of a new logo. This logo has been designed to not only improve the quality perception of the Brand, but also increase the focus on Auto, ensuring that the business’ core offer to the market is reinforced. Improvements were also made to our catalogue format, in-store ticketing and other marketing and media activities. The team are also looking forward to a smart new team uniform which will be introduced in the early part of this new ﬁ nancial year. In May, we launched a newly refurbished store in the Brisbane suburb of Chermside which has been used as a test bed for a new-look store format. This ‘Concept store’ has an increased focus on the customer with some basic ﬁ tment services, easy to navigate store layout and signage, a service counter and in-store informational touch screens. The internal and external livery was also updated to be more contemporary. The team has enhanced their customer service skills and product knowledge to provide an exceptional shopping experience for all our customers. The early results from Chermside have been very pleasing and it is intended that we will use many elements as we begin rolling out our new stores. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 11 11 SUPERCHEAP AUTO BATHURST 1000 Over 6 Million Viewers Tuned Into The Telecast Crowd Attendance – 166,840 Spectators 1212 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT Supercheap Auto has a long standing commitment to motorsport and the natural extension of this heritage is epitomised by our involvement with the iconic Bathurst 1000. The 2005 Supercheap Auto Bathurst 1000 had a television audience in excess of 6 million people and over 166,000 die hard race fans attending the event. A highlight of the 2005 Supercheap Auto Bathurst 1000 was the hugely successful ‘Track Store’ that not only showcased the Supercheap Auto product offering but also provided fans with some great entertainment and exclusive Bathurst offers. At Bathurst it is the cars that the fans come to see and with the Supercheap Auto Racing V8 Supercar, SCA1000 Special Edition HSV GTO and Ben Bray’s drag car on display at the Track Store, fans were certainly not disappointed. Now a high proﬁ le team in the V8 Supercar series, the Supercheap Auto Racing Team has earned a reputation as genuine contenders at every race meeting. With many podium ﬁ nishes throughout the 2005 season and some promising results in 2006, this committed team will strive to have a strong ﬁ nish to the 2006 season. With plans already emerging for the 2007 season and the introduction of the VE Commodore, the Supercheap Auto Racing Team certainly has the ammunition for a strong 2007 V8 Supercar series. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 13 13 BCF REPORT What an incredible year it has been for the company’s new brand – BCF Boating Camping Fishing (“BCF”). The 300-strong team can be extremely proud of not only the triumphant launch and operation of the new brand, but also their indispensable role in the successful introduction of a new retailing concept to the Australian market. The BCF brand is the ﬁ rst to offer Australian consumers an extensive boating, camping and ﬁ shing retail experience under one roof. Each store follows a bulk-goods retailing format, stocking a wide range of quality brands from trusted manufacturers. As a one-stop shop for all your boating, camping and ﬁ shing needs, the product range of BCF is extensive including 12,000 lures, 600 reels, 1,000 rods, 20kms of rope, more tents than you can poke a peg at and enough coolers and fridges to keep 20,000 cans cool. Our customers have quickly come to rely on the store for their recreational needs. Each store is staffed with up to 20 team members who have all received training in boating, camping and ﬁ shing, enabling them to adequately address customers’ enquiries. 15 October 2005, marked the ofﬁ cial launch of the BCF stores, with eight stores opened throughout Queensland, three of which were re-branded CampMart stores. New South Wales welcomed stores at Coffs Harbour and most recently West Gosford with Western Australia also enjoying the BCF experience at Midland - bringing the total number of stores to 15 as at the date of this report. Marketing, public relations and media campaigns have been integrated to support the opening of each of the stores, ensuring new markets are introduced to the retailing concept of the brand’s range, culture and price offering. The coming year will see the growth strategy continue with plans to open a further 10-15 new stores. 1414 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 15 15 BOARD OF DIRECTORS 2 4 1 3 5 1616 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT Darryl McDonough, BBus (Acty), LLB (Hons), SJD, FCPA, FAICD [1] Independent Non-Executive Director Darryl McDonough, aged 55, was appointed a Director of the Company on 19 May 2004. Darryl is a practicing solicitor with over 20 years of corporate experience. He has served as a director of a number of public companies in the past including Cellnet Group Limited of which he was chairman and Bank of Queensland Limited. Darryl is a Past-President of the Australian Institute of Company Directors, Queensland Division. Robert Wright, BCom, FCPA, MAICD [5] Independent Non-Executive Director Mr Robert Wright, aged 57, was appointed a Director of the Company on 19 May 2004. Robert has 30 years’ ﬁ nancial management experience, having held a number of chief ﬁ nancial ofﬁ cer positions, including ﬁ nance director of David Jones Limited. He is currently the Chairman of Dexion Limited and a director of Australian Pipeline Limited, SAI Global Limited, both Babcock & Brown Residential Land Partners Limited and Babcock & Brown Residential Land Partners Services Limited (jointly Babcock & Brown Residential Land Partners Group) and the reconstructed Harris Scarfe Australia Pty Limited. Robert is the Chairman of the Audit and Risk Management Committee. Dick McIlwain, BA, FAICD [3] Independent Non-Executive Chairman Dick McIlwain, aged 59, 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. Dick is also the Non-Executive Chairman of Wotif.com Limited. He is a Fellow of the Australian Institute of Company Directors. Peter Birtles, BSc, ACA [2] Managing Director Peter Birtles, aged 42, was appointed a Director of the Company on 5 January 2006. Peter joined Super Cheap Auto Pty Ltd in 2001 as Chief Financial Ofﬁ cer and in 2006 was appointed Managing Director. Prior to joining Super Cheap Auto, Peter spent 12 years working with The Boots Company in the United Kingdom and Australia in a variety of senior ﬁ nance, operations 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. Reg Rowe [4] Non-Executive Director Reg Rowe, aged 62, 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. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 17 17 SENIOR MANAGEMENT TEAM PETER BIRTLES [2] Managing Director DAVID KELLEY [4] Company Secretary David joined Super Cheap Auto Group in 2005. Prior to this, David held various management and Internal Audit positions at Adelaide Casino, Woolworths Limited and General Motors – Asia/Paciﬁ c. David has a Bachelors Degree in Economics from the University of Adelaide and an M.B.A. from the Australian Graduate School of Management. In addition to serving as Company Secretary, David is responsible for the Group’s loss prevention, internal audit, stocktake, risk management and compliance functions. GARY CARROLL [8] Chief Financial Ofﬁ cer Gary joined Super Cheap Auto Group in April 2006. He has over 14 years’ experience in accounting, treasury and banking areas across a number of industry sectors. He holds honours degrees in Commerce and Law from the University of Queensland, and is a CPA. After commencing his career with Ernst & Young, Gary held senior management positions with companies such as Citibank, Duke Energy and Flight Centre. Gary is responsible for the management of the ﬁ nance function for the Group. GRAHAM CHAD [1] General Manager – Group Logistics Prior to joining Super Cheap Auto in 2005, Graham spent 19 years with the Masterfoods (Mars) Group in Australia and New Zealand in various senior management roles followed by 5 years in retail general merchandise. He was Chief Logistics Ofﬁ cer for The Warehouse Group, Auckland and spent several years at Woolworths in the Supply Chain Operations Group for grocery distribution. Graham is responsible for the logistics functions that support the Group’s business units incorporating the management of distribution centres, freight and imports. Peter joined Super Cheap Auto in 2001 as Chief Financial Ofﬁ cer and was appointed Managing Director in January 2006. Peter is a chartered accountant with over 20 years experience. Prior to joining Super Cheap Auto, Peter spent 12 years working with The Boots Company in the United Kingdom and Australia in a variety of senior ﬁ nance, operations 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. DAVID AJALA [10] Chief Operating Ofﬁ cer – Supercheap 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 CMF 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 is responsible for the merchandising, marketing and retail operations of the Supercheap Auto business. STEVE DOYLE [7] Chief Operating Ofﬁ cer - BCF Steve joined Super Cheap Auto in 2002 as Marketing Manager. He subsequently held the positions of General Manager – Retail and General Manager – Merchandising. In January 2005, following the acquisition of CampMart, Steve was appointed General Manager – CampMart. CampMart was relaunched as BCF in July 2005. Steve was appointed Chief Operating Ofﬁ cer – BCF in January 2006. He is responsible for the merchandising, marketing and retail operations of the BCF business. 1818 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT STEVE TEWKESBURY [6] General Manager – Overseas Sourcing Steve joined Super Cheap Auto in 2004 as Supply Chain Manager and in 2006 was appointed as General Manager – Overseas Sourcing. He has in excess of 24 years’ experience in sales, marketing and logistics. Prior to joining Super Cheap Auto, Steve worked in Global Supply Chain and E-Commerce Strategy for Reckitt & Colman. He holds a degree qualiﬁ cation in E-Commerce from Monash University. Steve is responsible for establishing the Group’s overseas sourcing operations including establishing our own direct sourcing operation based in China, negotiating international shipping and co-ordinating China logistics partner services. SONIA LA PENNA [5] Group Human Resources Manager Sonia joined Super Cheap Auto in December 2005 as the Group Human Resources Manager. Together with her tertiary qualiﬁ cations, Sonia has over 10 years of Human Resources experience both in Australia and internationally. Prior to joining Super Cheap Auto, Sonia commenced her HR career with Franklins Limited and since then has held senior management positions for companies including Brazin Limited, Royal Caribbean Cruise Lines and Sunglass Hut Australasia. Sonia is responsible for Human Resources Management across the Group. PAM PUGSLEY [11] General Manager Retail Operations Pam joined Super Cheap Auto in November 2004. Pam has 23 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 qualiﬁ cation through Deakin University in Melbourne. Pam has the responsibility for the day- to-day operations of our stores and for the set up of new stores. ROBERT DAWKINS [3] Group Property 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. WAYNE MCMAHON [9] Chief Information Ofﬁ cer Wayne joined Super Cheap Auto Group in 2006. A graduate of Wollongong University, he has over 22 years’ experience in all areas of Information Technology. Wayne was previously based in Hong Kong as CIO for Esquel Enterprises Limited and in Singapore as Director Information Technology, Asia Paciﬁ c for ModusLink. In total he has over 13 years’ experience living and working across Asia, with 11 of those years in the eCommerce enabled Supply Chain industry. Wayne is responsible for process development and information technology across the Group. 3 2 1 4 5 9 10 8 6 7 11 1 3 2020 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 2 4 2005 ANNUAL AWARDS This year we have much to celebrate with SCA team member awards and BCF being presented with 4 awards by the National Retail Association. SUPERCHEAP AUTO AWARDS Each year Supercheap Auto (“SCA”) celebrates the achievements of its team members at the 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. The 2005 award winners were: Mathew Northway, Manager Of The Year (1) Mathew joined SCA in October 2004 as Manager of the Feilding store in New Zealand. Mathew’s award as Manager of the Month in April 2005 came as a result of his ambition for the store to succeed, his integrity, his extensive knowledge of product and willingness to share his skills and knowledge with his peers. Mathew has recently been seconded to the position of Area Manager Central New Zealand. Devonport Store – Store Of The Year (2) In November 2002, Devonport opened as the 113th SCA Store, the third store for Tasmania. 2005 was a great year for the Devonport store. It traded well during the year, sales exceeded budget by 16.9% with a massive 24% increase over the previous year. The Devonport team is committed to very high standards achieving no less than 8/10 store standards at all times. At the time of the awards, the store was managed by Daniel Crabtree who has now taken on the role of Area Manager for Vic and Tas. Assistant Manager at the time, Greg Creely is now managing the store and fellow team members include Ashton Rossington, Kaella Burgess, Daniel Blahut, Ashley Perkins, Jarrod Pearce, Scott Cannan, Lincoln Aherne. Doug Love, Team Member Of The Year (3) Doug Love is a career spare parts expert, having 25 years’ previous experience with Rocca Bros when SCA purchased the Marlows business in 2003. Initially Doug worked at the Thebarton store when the store rebranded to SCA. In 2005, Doug moved to the Salisbury store and shortly after won Team Member of the Month. Whilst Doug is well known for his impressive knowledge of spare parts he is also respected for his positive, professional and passionate approach to his work. Doug is currently working at Blair Athol, being a member of the new team when it opened its doors for the ﬁ rst time in February 2006. 2006 NATIONAL RETAIL ASSOCIATION AWARDS (4) The Super Cheap Auto Group has always strived for industry excellence and this year’s American Express National Retail Association Awards was very successful for the Group. Congratulations to the BCF team on being successful in 4 categories: Winner Westﬁ eld Best New Retail Business/Store Winner Bose Best Recreational Retailer Highly Commended American Express Supreme Reward for Best Retailer Highly Commended American Express Young Retailer of the Year Grant Pearce won the individual award (Highly Commended Young Retailer of the Year). Grant is one of BCF’s retail trainers with responsibilities extending to all BCF stores. Grant’s passion for retail is one of the reasons for his success to date. He thrives on dealing with customers and team members which allows him to maintain his focus on the foundations of retailing - customer service. The NRA acknowledged Grant for his drive to succeed in any environment and commended him for his efforts in the year’s competition. We congratulate Gareth Jones, Manager of the SCA North Parramatta store, on his outstanding performance and succeeding to the top 10 ﬁ nalists of the Young Retailer of the Year category. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 21 21 CORPORATE GOVERNANCE STATEMENT 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 unless otherwise stated were in place for the reported period. 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 ﬁ ve 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 Chairman is responsible for leading the Board, ensuring Directors are properly briefed in all matters relevant to their role and responsibilities, facilitating board discussions and managing the Board’s relationship with the Company’s senior executives. 2222 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT The Managing Director is responsible for implementing Group strategies and policies. The Board Charter speciﬁ es that these are separate roles to be undertaken by separate people. 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, qualiﬁ cations and independent status are proﬁ led in the Directors’ Report on pages 29 and 30. Responsibilities The responsibilities of the Board include: ■ approving the Company’s goals and strategic direction; ■ monitoring ﬁ nancial performance, including adopting annual budgets and approving the Group’s ﬁ nancial statements; ■ ensuring that adequate systems of internal control exist and are appropriately monitored for compliance; ■ selecting the Managing Director and reviewing the performance of senior management; and ■ ensuring signiﬁ cant business risks are identiﬁ ed and appropriately managed. Directors’ Independence As stated there are ﬁ ve 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 beneﬁ t of a diverse range of experience, qualiﬁ cations and professional skills. The Board has adopted the independence deﬁ nition 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 deﬁ nition. 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 undertakes 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. This assessment was undertaken during May 2006. FINANCIAL REPORTING The Board is provided with monthly reports from management on the ﬁ nancial performance of the Company. The monthly reports include details of all key ﬁ nancial measures reported against budgets approved by the Board. The Company’s ﬁ nancial report preparation and approval process for each ﬁ nancial year involves both the Managing Director and the Chief Financial Ofﬁ cer making the following certiﬁ cations to the Board that: ■ the Company’s ﬁ nancial reports and accompanying notes represent a true and fair view in all material respects of the Company’s ﬁ nancial condition and operational results and are in accordance with relevant accounting standards; ■ 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 ■ the Company’s risk management and internal compliance and control system is operating efﬁ ciently 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. Minutes of committee meetings are tabled at the subsequent Board meeting. Additional requirements for speciﬁ c reporting by the committees to the Board are addressed in the charter of the individual committees. BOARD NOMINATION AND REMUNERATION COMMITTEE The current composition of the Board Nomination and Remuneration Committee is the full Board. The Committee 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. The Board has charged the Board Nomination and Remuneration Committee with responsibility to: ■ 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; ■ establish procedures for the selection and recommendation of candidates suitable for appointment to the Board; SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 23 23 ■ 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; Details of these Directors’ qualiﬁ cations and attendance at Audit and Risk Committee meetings are set out in the Director’s Report on pages 29 and 30. ■ review the succession planning for the Board and senior management and report to the Board on such issues. The Committee advises the Board on remuneration and incentive policies and practices generally, and makes speciﬁ c recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non executive directors. Each member of the senior executive team signs a formal employment contract at the time of their appointment covering a range of matters including their duties, rights, responsibilities and any entitlements on termination. The standard contract refers to a speciﬁ c formal job description. 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 Independent Non-Executive Directors: R J Wright (Chairman) R D McIlwain D D McDonough All members of the Audit and Risk Committee are ﬁ nancially literate and have the requisite ﬁ nancial expertise. Some members have an in- depth 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 efﬁ cient forum than the full Board for focusing on particular issues relevant to: ■ verifying and safeguarding the integrity of the Company’s ﬁ nancial reporting including the review, assessment and approval of the half- year ﬁ nancial report, the annual report and all other ﬁ nancial information published by the Company or released to the market; ■ establishing a sound system of risk oversight and management, and internal control; ■ 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: ■ ﬁ nancial administration and reporting; ■ audit control and independence; ■ legal compliance; ■ accounting policies and standards; ■ internal controls; and ■ risk oversight and management. EXTERNAL AUDITORS The Company’s Audit and Risk Committee’s policy is to appoint external auditors who demonstrate quality and independence. The Audit and Risk Committee: ■ recommends to the Board the appointment of External Auditors and their fee; ■ reviews the performance of the External Auditors; 2424 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT ■ establishes processes to ensure the DEALING IN SHARES independence and competence of the External Auditors’ Audit Managers; ■ oversees and appraises the quality of audits conducted by the External Auditors; ■ approves External Audit yearly audit plans for the Company and its subsidiaries and oversees the scope of audits to be conducted; ■ ensures 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 28 to the ﬁ nancial 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 values and a Code of Conduct (‘the Code’) which has been fully endorsed by the Board and applies to all Directors and team members. The Code is reviewed and updated as necessary to ensure it reﬂ ects the highest standards of behaviour and professionalism and the practices necessary to maintain conﬁ dence in the Group’s integrity. In summary, the Code requires that at all times all company personnel 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. The Company has a formal written policy for Directors and ofﬁ cers 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 conﬁ rm 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. The Company Secretary is the person responsible for communications with the Australian Stock Exchange (ASX). SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 25 25 2626 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT FINANCIAL STATEMENTS SUPER CHEAP AUTO GROUP LIMITED FOR THE PERIOD ENDED: 1 JULY 2006 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 27 27 DIRECTORS’ REPORT Super Cheap Auto Group Limited For the period ended 1 July 2006 DIRECTORS’ REPORT 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 1 July 2006. Directors The following persons were Directors of Super Cheap Auto Group Limited during the ﬁ nancial period and up to the date of this report. R D McIlwain R A Rowe D D McDonough R J Wright P A Birtles was appointed a director on 5 January 2006 and became Managing Director on 27 January 2006 and continues in ofﬁ ce at the date of this report. R E Thorn was a director from the beginning of the ﬁ nancial year until his resignation on 27 January 2006. Information on qualiﬁ cations and experience of Directors is included on pages 29 and 30. 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 • boating, camping and ﬁ shing equipment DIVIDENDS – SUPER CHEAP AUTO GROUP LIMITED The Directors recommended a fully franked dividend of 5 cents per share be paid on 11 October 2006 (total dividend, fully franked - $5,321,481). The following fully franked dividends of the parent entity have also been paid, declared or recommended since the end of the preceding ﬁ nancial year: Dividend 2005 ﬁ nal fully franked dividend (4.5¢ per share) 2006 interim fully franked dividend (3¢ per share) Payment Date 12 October 2005 5 April 2006 $ 4,789,333 3,192,889 7,982,222 REVIEW OF OPERATIONS Revenue from trading operations for the year was $525,949,000. During the period, the consolidated entity opened 23 new Supercheap Auto stores of which 16 were in Australia and 7 in New Zealand. The consolidated entity also launched the BCF store concept in Australia - rebadging the 4 existing CampMart stores and opening a further 9 new BCF stores. At the end of the ﬁ nancial year, the consolidated entity was trading from 247 stores. The net proﬁ t of the consolidated entity for the period ended 1 July 2006, after providing for income tax, amounted to $16,510,000. A review of the operations for the 52 weeks to 1 July 2006 is set out in pages 6 to 9 of this report. FINANCIAL POSITION A review of the ﬁ nancial position of the consolidated entity is set out on pages 6 to 9. Matters subsequent to the end of the ﬁ nancial period In the opinion of the Directors, there were no signiﬁ cant matters subsequent to the end of the ﬁ nancial period. Likely developments and expected results of operations Likely developments in the operations of the consolidated entity in future ﬁ nancial years are referred to in pages 6 to 9. 2828 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT DIRECTORS’ REPORT CONTINUED Super Cheap Auto Group Limited For the period ended 1 July 2006 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 notiﬁ ed to the consolidated entity during the period ended 1 July 2006. DIRECTORS AND DIRECTORS’ INTERESTS The Directors of Super Cheap Auto Group Limited in ofﬁ ce 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 59. R A Rowe. Non-Executive Director. Age 62. Experience and expertise Independent non-executive Chairman for 2 years 3 months. Chief Executive Ofﬁ cer of UNiTAB for 10 years to 1999 and then Managing Director and Chief Executive Ofﬁ cer of UNiTAB Limited for 7 years. Fellow of the Australian Institute of Company Directors. Other current directorships Managing Director of UNiTAB Limited since 1999. Chairman of Wotif.com Limited since 2006 Former directorships in the last 3 years None. 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. P A Birtles. BSc, ACA Managing Director. Age 42. Experience and expertise Managing Director for 8 months. Previously Chief Financial Ofﬁ cer for 4 years 8 months and Company Secretary for 1 year 5 months. 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 1,192,089 ordinary shares held on trust and 507 ordinary shares in Super Cheap Auto Group Limited. 200,000 options over ordinary shares in Super Cheap Auto Group Limited. Experience and expertise Founder of the business in 1972. Non-executive director for 2 years 4 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 55. Experience and expertise. Independent Non-Executive Director for 2 years 3 months. Partner of a major legal ﬁ rm. Past President of the Australian Institute of Company Directors (Queensland Division). Other current directorships None Former directorships in the last 3 years Chairman and non-executive director of Queensland Competition Authority (director 1998-2005). Chairman and non-executive director of Cellnet Group Limited (director 2002-2005). 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. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 29 29 DIRECTORS’ REPORT CONTINUED Super Cheap Auto Group Limited For the period ended 1 July 2006 R J Wright, BCom, FCPA, MAICD. Independent Non-Executive Director. Age 57. Former directorships in the last 3 years None. Experience and expertise Independent Non-Executive Director for 2 years 3 months. Director of a number of major Retail companies over the last 20 years. Other current directorships Non-executive director of both Babcock & Brown Residential Land Partners Limited and Babcock & Brown Residential Land Partners Services Limited (jointly Babcock & Brown Residential Land Partners Group) (director since 2006). 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). 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 D J Kelley, B.Ec., MBA, MIIA. Mr Kelley commenced with Super Cheap Auto Group Limited as the Business Audit & Compliance Manager in February 2005 and was appointed Company Secretary in January 2006. Meetings of directors The number of meetings of the Company’s Board of Directors and each Board Committee held during the period ended 1 July 2006 is set out below: R D McIlwain R E Thorn P A Birtles R A Rowe D D McDonough R J Wright Full meetings directors Audit & Risk Nomination & Remuneration Meetings of Committees A 14 8 5 12 13 14 B 14 9 5 14 14 14 A 3 n/a n/a n/a 3 3 B 3 n/a n/a n/a 3 3 A 4 1 4 4 4 4 B 4 2 4 4 4 4 A = Number of meetings attended B = Number of meetings held during the time the Director held ofﬁ ce or was a member of the Committee during the year REMUNERATION REPORT The remuneration report is set out under the following main headings:- • Principles used to determine the nature and amount of remuneration; • Details of remuneration; • Service agreements; • Share-based compensation; and • Additional information. The information provided includes remuneration disclosures that are required under Accounting Standard AASB 124 Related Party Disclosures. These disclosures have been transferred from the ﬁ nancial report and have been audited. 3030 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT DIRECTORS’ REPORT CONTINUED Super Cheap Auto Group Limited For the period ended 1 July 2006 PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION (AUDITED) The broad remuneration policy is to ensure remuneration properly reﬂ ects the relevant person’s duties and responsibilities and that the Group’s 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 ﬁ xed components (salary and superannuation) which reﬂ ect 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 ﬁ xed 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 reﬂ ect 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 beneﬁ ts • 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-ﬁ nancial beneﬁ ts at the executives’ discretion. Executives are offered a competitive base pay that comprises the ﬁ xed component of pay and rewards. External remuneration consultants provide analysis and advice to ensure base pay is set to reﬂ ect 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. Beneﬁ ts Executives receive beneﬁ ts including car allowances and salary continuance insurance. Short-term incentives Should the Company achieve a pre-determined proﬁ t 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 proﬁ t target ensures variable reward is only available when value has been created for shareholders and when proﬁ t 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 50% 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 1 July 2006, 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 proﬁ t improvement, reduction of operating costs and improvement in operating procedures. The targets are set to ensure that reward is only available when value has been created for shareholders and when proﬁ t is consistent with the business plan. 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 (AUDITED) Key management personnel of the Group Amounts of remuneration Details of the remuneration of the directors and key management personnel (as deﬁ ned in AASB 124 Related Party Disclosures) of Super Cheap Auto Group Limited are set out in the following tables. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 31 31 DIRECTORS’ REPORT CONTINUED Super Cheap Auto Group Limited For the period ended 1 July 2006 The key management personnel of the Group includes the directors and the following executive ofﬁ cers, (being those who have responsibility for directing strategy for the Group): • P A Birtles, Managing Director • D F Ajala, Chief Operating Ofﬁ cer, Super Cheap Auto • S J Doyle, Chief Operating ofﬁ cer, BCF • G G Carroll, Chief Financial Ofﬁ cer • G L Chad, General Manager, Group Logistics The highest paid executives for the period ended 1 July 2006 were as follows: • P A Birtles • R E Thorn (until 27 January 2006) • D F Ajala • S J Doyle • G L Chad 2006 Name Short-term beneﬁ ts Cash salary and fees Cash bonus Non- monetary beneﬁ ts Post-employment beneﬁ ts Share-based payment Super- annuation Retirement beneﬁ ts Options $ 25,000 55,046 20,000 55,046 155,092 216,698 617,073 171,939 217,454 234,075 Non-executive directors R D McIlwain Chairman R A Rowe D D McDonough R J Wright Sub-total non-executive directors Executive directors P A Birtles (a) R E Thorn (From 3 July 2005 – 27 January 2006) (b) Other key management personnel P A Birtles (a) D F Ajala (appointed 18 July 2005) S J Doyle G G Carroll (appointed 17 April 2006) G L Chad (appointed 5 September 2005) Totals $ 0 0 0 0 0 0 0 0 $ 0 0 0 0 0 0 $ 75,000 4,954 40,000 4,954 124,908 5,121 17,583 13,200 0 7,019 0 110,000 16,590 14,380 13,869 12,139 47,572 0 0 3,034 179,979 1,839,882 0 110,000 22,138 70,691 32,615 211,905 Total $ 100,000 60,000 60,000 60,000 280,000 $ 0 0 0 0 0 43,626 265,445 (270,326) 377,530 0 178,958 15,346 15,346 263,259 385,940 6,110 56,716 0 (189,898) 234,732 2,042,580 $ 0 0 0 0 0 0 0 0 0 0 0 0 0 (a) Mr P A Birtles was appointed a director on 5 January 2006. Before this appointment he was the company’s Chief Financial Ofﬁ cer and Company Secretary. Amounts shown above include all remuneration during the reporting period, whether as a director or as Chief Financial Ofﬁ cer and Company Secretary. (b) Mr R E Thorn resigned as an executive ofﬁ cer of the Company on 27 January 2006. Upon resignation he was paid unused leave entitlements of $259,140. This is included in the table above in cash salary and fees. All allocated options lapsed upon resignation. 3232 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT DIRECTORS’ REPORT CONTINUED Super Cheap Auto Group Limited For the period ended 1 July 2006 Cash salary and fees $ 100,000 188,745 54,600 54,600 397,945 2005 Name Non-executive directors R D McIlwain Chairman R A Rowe (a) D D McDonough R J Wright Sub-total non-executive directors Executive directors R E Thorn Other key management personnel P A Birtles S J Doyle Totals Short-term employee beneﬁ ts Post-employment beneﬁ ts Share-based payment Cash bonus Non monetary beneﬁ ts Super- annuation Retirement beneﬁ ts Options $ 0 0 0 0 0 $ 0 0 0 0 0 $ 0 5,400 5,400 5,400 16,200 Total $ 100,000 194,145 60,000 60,000 414,145 $ 0 0 0 0 0 548,076 275,000 9,342 31,520 291,150 225,038 1,462,209 135,000 75,000 485,000 3,396 20,221 32,959 11,585 11,585 70,890 270,326 1,134,264 63,502 0 333,828 504,633 331,844 2,384,886 $ 0 0 0 0 0 0 0 0 0 (a) Mr R A Rowe resigned as an Executive Ofﬁ cer 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. SERVICE AGREEMENTS (AUDITED) Remuneration and other terms of employment for key management personnel are formalised in service agreements. Each of these agreements provide for the provision of performance related cash bonuses, other beneﬁ ts and when eligible, participation in the Executive Option Plan. All contracts with executives may be terminated early by either party with three months notice, subject to termination payments as detailed below:- P A Birtles, Managing Director Term of Agreement - 5 years commencing 27 January 2006 Base salary, inclusive of superannuation, for the period ended 1 July 2006 of $550,000 to be reviewed annually by the Nomination and Remuneration Committee. Payment of a termination beneﬁ t on early termination by the Company, other than for cause, equal to 12 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. D F Ajala, Chief Operating Ofﬁ cer, Supercheap Auto Term of Agreement - 5 years commencing 27 January 2006 Base salary, inclusive of superannuation, for the period ended 1 July 2006 of $300,000 to be reviewed annually by the Nomination and Remuneration Committee. Payment of a termination beneﬁ t on early termination by the Company, other than for cause, equal to 6 months base salary if the termination is effective more than 12 months before the expiry date or 3 months base salary if the termination is effective within 12 months before the expiry date. S J Doyle, Chief Operating Ofﬁ cer, BCF Term of Agreement - 5 years commencing 27 January 2006 Base salary, inclusive of superannuation, for the period ended 1 July 2006 of $275,000 to be reviewed annually by the Nomination and Remuneration Committee. Payment of a termination beneﬁ t on early termination by the Company, other than for cause, equal to 6 months base salary if the termination is effective more than 12 months before the expiry date or 3 months base salary if the termination is effective within 12 months before the expiry date. G G Carroll, Chief Financial Ofﬁ cer Term of Agreement - 5 1/4 years commencing 17 April 2006 Base salary, inclusive of superannuation, for the period ended 1 July 2006 of $250,000 to be reviewed annually by the Nomination and Remuneration Committee. Payment of a termination beneﬁ t on early termination by the Company, other than for cause, equal to 6 months base salary if the termination is effective more than 12 months before the expiry date or 3 months base salary if the termination is effective within 12 months before the expiry date. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 33 33 DIRECTORS’ REPORT CONTINUED Super Cheap Auto Group Limited For the period ended 1 July 2006 SHARE BASED COMPENSATION (AUDITED) Shares under option Unissued ordinary shares of Super Cheap Auto Group Limited under option at the date of this report are as follows: Grant date 19 May 2004 27 January 2006 27 January 2006 27 January 2006 17 April 2006 17 April 2006 17 April 2006 Exercise date 1 July 2007 5 January 2009 5 January 2010 5 January 2011 17 April 2009 17 April 2010 17 April 2011 Exercise Price Value per option at grant date Number under option $1.97 $2.44 $2.44 $2.44 $2.25 $2.25 $2.25 $0.68 $0.29 $0.34 $0.38 $0.43 $0.47 $0.51 200,000 400,000 200,000 200,000 75,000 75,000 100,000 1,250,000 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. The options do not have an expiry date. No option holder has any right under the options to participate in any other share issue of the Company or of any other entity. Details of options over ordinary shares in the Company provided as remuneration to each Director of Super Cheap Auto Group Limited and each of the key management personnel of the Group are set out below. Name Directors of Super Cheap Auto Group R D McIlwain R A Rowe D D McDonough R J Wright P A Birtles Other Key Management Personnel D F Ajala S J Doyle G G Carroll G L Chad Number of options granted during the period Number of options vested during the period 2006 2005 2006 2005 0 0 0 0 0 400,000 400,000 250,000 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 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. 3434 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT DIRECTORS’ REPORT CONTINUED Super Cheap Auto Group Limited For the period ended 1 July 2006 ADDITIONAL INFORMATION (UNAUDITED) The level of executive rewards takes into account the performance of the Group with greater emphasis given to the current and future years. Since listing in July 2004, dividends to shareholders have grown by approximately 23%, with revenue and store numbers increasing by 45% and 35% respectively. On a total basis, executive management remuneration has decreased by 16% over the last 2 years, although certain managers have had their remuneration packages increased in line with performance and additional responsibilities. Share-based compensation: Options Further details relating to options are set out below. Name R D McIlwain R A Rowe D D McDonough R J Wright P A Birtles D F Ajala S J Doyle G G Carroll G L Chad A B C D E Remuneration consisting of options Value at grant date Value at exercise date Value at lapse date Total of columns B-D 0% 0% 0% 0% 9.8% 6% 4% 10.7% 0% $ 0 0 0 0 135,400 130,400 130,400 118,450 0 $ 0 0 0 0 0 0 0 0 0 $ 0 0 0 0 0 0 0 0 0 $ 0 0 0 0 135,400 130,400 130,400 118,450 0 A = The percentage of the value of remuneration consisting of options, based on the value at grant date set out in column B, and the associated share-based payment expense for the period ended 1 July 2006. B = The value at grant date calculated in accordance with AASB 2 Share-based Payment of options granted during the year as part of remuneration. C = The value at exercise date of options that were granted as part of remuneration and were exercised during the year. D = The value at lapse date of options that were granted as part of remuneration and that lapsed during the year. Details of remuneration: cash bonuses and options 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. Cash Bonus Options Paid % Forfeited % Year granted Vested % Forfeited % Financial years in which options may vest Minimum total value of grant yet to vest Maximum total value of grant yet to vest ($) Name P A Birtles D F Ajala 0 0 100 100 2004 2006 S J Doyle 84 16 2006 G G Carroll G L Chad 0 0 100 2006 100 - - - - - - - - - - - 2008 2009 2010 2011 2009 2010 2011 2009 2010 2011 - Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 135,400 58,200 34,100 38,100 58,200 34,100 38,100 32,175 35,475 50,800 - SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 35 35 DIRECTORS’ REPORT CONTINUED Super Cheap Auto Group Limited For the period ended 1 July 2006 INSURANCE OF OFFICERS During the ﬁ nancial year, Super Cheap Auto Group Limited paid a premium of $70,236 to insure the directors and secretaries of the Company and its controlled entities, and the general managers of each of the divisions of the Group. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the ofﬁ cers in their capacity as ofﬁ cers of entities in the Group, and any other payments arising from liabilities incurred by the ofﬁ cers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the ofﬁ cers or the improper use by the ofﬁ cers 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. 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 Group are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below. During the 2005 year, audit services were provided by a ﬁ rm other than PricewaterhouseCoopers. The Board of Directors has considered the position and, in accordance with the advice received from the Audit and Risk Committee is satisﬁ ed 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 satisﬁ ed 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. 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 ﬁ rms. During the 2005 period, audit services were provided by Grant Thornton: 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 Consolidated Entity 2006 $’000 2005 $’000 211 85 296 125 159 175 - 175 4 0 3636 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT DIRECTORS’ REPORT CONTINUED Super Cheap Auto Group Limited For the period ended 1 July 2006 AUDITORS INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 38. 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, 24 August 2006 P A Birtles Director SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 37 37 AUDITORS’ INDEPENDENCE DECLARATION Super Cheap Auto Group Limited For the period ended 1 July 2006 3838 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT ANNUAL FINANCIAL REPORT SUPER CHEAP AUTO GROUP LIMITED FOR THE PERIOD ENDED: 1 JULY 2006 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 39 39 ANNUAL FINANCIAL REPORT Super Cheap Auto Group Limited ABN 81 108 676 204 For the period ended 1 July 2006 Income statements Balance sheets Statements of changes in equity Cash ﬂ ow statements Notes to the ﬁ nancial statements Directors’ declaration Independent audit report to the members Page 41 42 43 44 45 90 91 This ﬁ nancial report covers both Super Cheap Auto Group Limited as an individual entity and the consolidated entity consisting of Super Cheap Auto Group Limited and its subsidiaries. The ﬁ nancial report is presented in the Australian currency. Super Cheap Auto Group Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered ofﬁ ce and principal place of business is: 751 Gympie Road, Lawnton, Queensland, 4501 A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations and activities on pages 6 to 9 and in the directors’ report on pages 28 and 29, both of which are not part of this ﬁ nancial report. The ﬁ nancial report was authorised for issue by the directors on 24 August 2006. The company has the power to amend and reissue the ﬁ nancial report. Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally at minimum cost to the company. All press releases, ﬁ nancial reports and other information are available at our Shareholders’ Centre on our website: www.supercheapauto.com.au. 4040 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT INCOME STATEMENTS Super Cheap Auto Group Limited For the period 3 July 2005 to 1 July 2006 Revenue from continuing operations Other income Total revenues and other income Cost of sales of goods Other expenses from ordinary activities - selling and distribution - marketing - occupancy - administration Borrowing costs expense Total expenses Proﬁ t before income tax Income tax expense Consolidated Parent entity Notes 5 6 2006 $’000 526,236 268 526,504 2005 $’000 470,363 214 470,577 (316,860) (281,185) (58,959) (32,586) (36,881) (52,017) (5,836) (52,091) (25,965) (31,083) (44,938) (4,399) (503,139) (439,661) 8 23,365 (6,855) 30,916 (9,192) 2006 $’000 13,000 0 13,000 0 0 0 0 (618) (4,237) (4,855) 8,145 1,456 2005 $’000 9,509 0 9,509 0 0 0 0 (1,024) (1,180) (2,204) 7,305 327 Proﬁ t attributable to Members of Super Cheap Auto Group Limited 16,510 21,724 9,601 7,632 Earnings per share for proﬁ t attributable to the ordinary equity holders of the company: Basic earnings per share Diluted earnings per share 36 36 15.5 15.5 20.4 20.4 The above income statements should be read in conjunction with the accompanying notes. Cents Cents SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 41 41 BALANCE SHEETS Super Cheap Auto Group Limited As at 1 July 2006 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets Other ﬁ nancial assets Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Current tax liabilities Provisions Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained proﬁ ts Total equity Consolidated Parent entity Notes 2006 $’000 2005 $’000 2006 $’000 2005 $’000 9 10 11 12 13 14 15 16 17 18 19 20 22 23 24 25 25 6,372 14,158 135,021 155,551 0 49,797 5,355 58,794 6,902 14,156 123,183 144,241 0 41,511 4,708 58,350 113,946 104,569 132 96,085 0 96,217 84,234 0 0 0 84,234 45 65,909 0 65,954 84,234 0 0 0 84,234 269,497 248,810 180,451 150,188 54,925 19,041 1,725 4,681 80,372 70,000 45 6,150 76,195 50,036 84,528 696 4,032 139,292 0 42 4,879 4,921 156,567 112,930 144,213 104,597 213 16,977 1,725 0 18,915 70,000 45 0 70,045 88,960 91,491 200 59,583 467 0 60,250 0 42 0 42 60,292 89,896 84,233 (11) 28,708 84,233 184 20,180 84,233 84,233 160 7,098 184 5,479 112,930 104,597 91,491 89,896 The above balance sheets should be read in conjunction with the accompanying notes. 4242 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT STATEMENTS OF CHANGES IN EQUITY Super Cheap Auto Group Limited For the period ended 1 July 2006 Total equity at the beginning of the ﬁ nancial year Adjustment on adoption of AASB 132 and AASB 139, net of tax, to: Retained proﬁ ts Reserves Restated total equity at the beginning of the ﬁ nancial year Consolidated Parent entity Notes 25 25 2006 $’000 104,597 0 0 2005 $’000 84,835 0 0 2006 $’000 2005 $’000 89,896 84,226 0 0 0 0 104,597 84,835 89,896 84,226 Changes in the fair value of cash ﬂ ow hedges, net of tax 25 Exchange differences on translation of foreign operations Net income recognised directly in equity Proﬁ t for the year Total recognised income and expense for the year Transactions with equity holders in their capacity as equity holders: Dividends provided for or paid Employee share options 26 28 (129) (101) 16,510 16,409 (7,982) (94) (8,076) 0 0 0 70 0 70 0 0 0 21,724 21,724 9,601 9,671 7,632 7,632 (2,129) 167 (1,962) (7,982) (2,129) (94) 167 (8,076) (1,962) Total equity at the end of the ﬁ nancial year 112,930 104,597 91,491 89,896 Total recognised income and expense for the year is attributable to: Members of Super Cheap Auto Group Limited 16,409 21,724 9,671 7,632 The above statements of changes in equity should be read in conjunction with the accompanying notes. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 43 43 CASH FLOW STATEMENTS Super Cheap Auto Group Limited For the year ended 1 July 2006 Consolidated Parent entity Notes 2006 $’000 2005 $’000 2006 $’000 2005 $’000 581,016 517,279 0 0 (510,000) (470,187) (1,273) (588) Cash ﬂ ows 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 - related parties Income taxes paid Net cash (outﬂ ow) inﬂ ow from operating activities 35 Cash ﬂ ows from investing activities Payment for purchase of subsidiary, net of cash acquired 38 Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from sale of service centres (29,253) (29,024) (8,103) (6,889) 26,771 0 (20,994) 158 50 (8,002) (6,018) 4,048 (8,019) (17,812) 45 1,084 Net cash (outﬂ ow) inﬂ ow from investing activities (20,786) (24,702) Cash ﬂ ows from ﬁ nancing activities Proceeds from borrowings Payments for borrowings Interest paid Dividends paid to company’s shareholders 26 Repayment of loans re shares Advances to related parties Repayments of advances to related parties 264,266 (259,000) (3,927) (7,982) 0 0 55 207,724 (176,598) (3,751) (7,129) (7,183) 0 856 Net cash inﬂ ow (outﬂ ow) from ﬁ nancing activities (6,588) 13,919 0 0 (6,549) (7,822) 0 0 354 (234) 0 0 0 0 0 259,638 (231,950) (3,604) (7,982) 0 (6,699) 0 0 0 (6,699) 134,825 (75,250) (2,021) (2,129) 0 (197,402) (48,447) 189,209 7,909 0 6,978 Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the ﬁ nancial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year 9 (603) (6,735) 6,902 13,640 73 6,372 (3) 6,902 87 45 0 132 45 0 0 45 The above cash ﬂ ow statements should be read in conjunction with the accompanying notes. 4444 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS SUPER CHEAP AUTO GROUP LIMITED FOR THE PERIOD ENDED: 1 JULY 2006 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 45 45 NOTES TO THE FINANCIAL STATEMENTS Super Cheap Auto Group Limited For the period ended 1 July 2006 CONTENTS OF THE NOTES TO THE FINANCIAL STATEMENTS 1 Summary of signiﬁ cant accounting policies 2 Financial risk management 3 Critical accounting estimates and judgements 4 Segment information 5 Revenue 6 Other income 7 Expenses 8 Income tax expense 9 Current assets - Cash and cash equivalents 10 Current assets - Trade and other receivables 11 Current assets - Inventories 12 Non-current assets - Other ﬁ nancial assets 13 Non-current assets - Property, plant and equipment 14 Non-current assets - Deferred tax assets 15 Non-current assets - Intangible assets 16 Current liabilities - Trade and other payables 17 Current liabilities - Borrowings 18 Current liabilities – Current tax liabilities 19 Current liabilities - Provisions 20 Non-current liabilities - Borrowings 21 Financial instruments 22 Non-current liabilities - Deferred tax liabilities 23 Non-current liabilities - Provisions 24 Contributed equity 25 Reserves and retained proﬁ ts 26 Dividends 27 Key management personnel disclosures 28 Remuneration of auditors 29 Contingencies 30 Commitments 31 Related party transactions 32 Investments in controlled entities 33 Net tangible asset backing 34 Deed of cross guarantee 35 Reconciliation of proﬁ t from ordinary activities after income tax to net cash inﬂ ow from operating activities 36 Earnings per share 37 Share-based payments 38 Business combinations 39 Explanation of transition to Australian equivalents to International Financial Reporting Standards (‘IFRS’) 4646 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT Page 47 54 54 55 57 57 58 59 60 60 61 61 61 63 64 65 65 66 66 66 67 71 72 72 73 74 74 78 78 79 79 80 81 81 81 82 82 84 85 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the ﬁ nancial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The ﬁ nancial report includes separate ﬁ nancial statements for Super Cheap Auto Group Limited as an individual entity and the consolidated entity consisting of Super Cheap Auto Group Limited and its subsidiaries. (a) Basis of preparation This general purpose ﬁ nancial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRSs), other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. Compliance with IFRSs Australian Accounting Standards include AIFRSs. Compliance with AIFRSs ensures that the consolidated ﬁ nancial statements and notes of Super Cheap Auto Group Limited comply with International Financial Reporting Standards (IFRSs). The parent entity ﬁ nancial statements and notes also comply with IFRSs except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial Instruments: Presentation and Disclosure. Application of AASB1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards These ﬁ nancial statements are the ﬁ rst Super Cheap Auto Group Limited ﬁ nancial statements to be prepared in accordance with AIFRSs. AASB1 First Time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied in preparing these ﬁ nancial statements. Financial statements of Super Cheap Auto Group Limited until 2 July 2005 had been prepared in accordance with previous Australian Generally Accepted Accounting Policies (AGAAP). AGAAP differs in certain respects from AIFRS. When preparing the interim ﬁ nancial report for the half year ended 31 December 2005, management amended certain accounting and valuation methods applied in the previous AGAAP ﬁ nancial statements to comply with AIFRS. With the exception of ﬁ nancial instruments, the comparative ﬁ gures were restated to reﬂ ect these adjustments. The Group has taken the exemption available under AASB1 to only apply AASB132 Financial Instruments: Disclosure and Presentation and AASB139 Financial Instruments: Recognition and Measurement from 3 July 2005. Reconciliations and descriptions of the effect of transition from previous AGAAP to AIFRS on the Group’s equity and its net income are given in Note 39. Historical cost convention These ﬁ nancial statements have been prepared under the historical cost convention. (b) Principles of consolidation The consolidated ﬁ nancial statements incorporate the assets and liabilities of all entities controlled by Super Cheap Auto Group Limited (the “Company” or “parent entity”) as at 1 July 2006 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. Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the ﬁ nancial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Where control of an entity is acquired during a ﬁ nancial period its results are included in the consolidated statement of ﬁ nancial performance from the date on which control commences. Where control of an entity ceases during a ﬁ nancial year its results are included for that part of the period during which control existed. (c) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments. (d) Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the ﬁ nancial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arise in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting proﬁ t or taxable proﬁ t or loss. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 47 47 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Tax Consolidation Legislation Super Cheap Auto Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003. The head entity, Super Cheap Auto Group Limited and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right. (e) Foreign currency translation (i) Functional and presentation currency Items included in the ﬁ nancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated ﬁ nancial statements are presented in Australian dollars, which is Super Cheap Auto Group Limited’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash ﬂ ow hedges and qualifying net investment hedges. Translation differences on non-monetary items such as equities held at fair value through proﬁ t or loss, are reported as part of the fair value gain or loss. Translation differences on non- monetary items, such as equities classiﬁ ed as available-for-sale ﬁ nancial assets, are included in the fair value reserve in equity. 4848 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT (iii) Group companies The results and ﬁ nancial position of all the Group entities (none of which has the currency of a hyperinﬂ ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • all resulting exchange differences are recognised as a separate component of equity. (f) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. 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 and rewards have passed to the carrier or customer. Revenue from rendering a service is recognised upon the delivery of the service to the customer. (g) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are due for settlement 30 days from the end of the month after sale. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due. (h) 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 ﬁ xed overhead expenditure. Costs are assigned to individual items of stock on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale. (i) Provisions Provisions for legal claims and service warranties are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outﬂ ow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 Where there are a number of similar obligations, the likelihood that an outﬂ ow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outﬂ ow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the liability. The increase in the provision due to the passage of time is recognised as interest expense. (j) Financial assets From 26 June 2004 to 2 July 2005 The Group has taken the exemption available under AASB1 to apply AASB132 and AASB139 only from 3 July 2005. The Group has applied previous AGAAP to the comparative information on ﬁ nancial instruments within the scope of AASB132 and AASB 139. Adjustments on transition date: 3 July 2005 The nature of the main adjustments to make this information comply with AASB132 and AASB139 are that, with the exception of held-to-maturity investments and loans and receivables which are measured at amortised cost (refer below), fair value is the measurement basis. Fair value is exclusive of transaction costs. Changes in fair value are either taken to the income statement or an equity reserve (refer below). At the date of transition (3 July 2005) changes to carrying amounts are taken to retained earnings or reserves. From 3 July 2005 The Group classiﬁ es its investments in the following categories: ﬁ nancial assets at fair value through proﬁ t or loss, loans and receivables, held-to-maturity investments, and available-for-sale ﬁ nancial assets. The classiﬁ cation depends on the purpose for which the investments were acquired. Management determines the classiﬁ cation of its investments at initial recognition and re- evaluates this designation at each reporting date. (i) Financial assets at fair value through proﬁ t or loss This category has two sub-categories: ﬁ nancial assets held for trading, and those designated at fair value through proﬁ t or loss on initial recognition. A ﬁ nancial asset is classiﬁ ed in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classiﬁ ed as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date. (ii) Loans and receivables Loans and receivables are non derivative ﬁ nancial assets with ﬁ xed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classiﬁ ed as non-current assets. Loans and receivables are included in receivables in the balance sheet. (iii) Held-to-maturity investments Held-to-maturity investments are non-derivative ﬁ nancial assets with ﬁ xed or determinable payments and ﬁ xed maturities that the Group’s management has the positive intention and ability to hold to maturity. (iv) Available-for-sale ﬁ nancial assets Available-for-sale ﬁ nancial assets are non-derivatives that are either designated in this category or not classiﬁ ed in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Financial assets are derecognised when the rights to receive cash ﬂ ows from the ﬁ nancial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Available-for-sale ﬁ nancial assets and ﬁ nancial assets at fair value through proﬁ t and loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the ‘ﬁ nancial assets at fair value through proﬁ t or loss’ category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non monetary securities classiﬁ ed as available-for-sale are recognised in equity in the available for sale investments revaluation reserve. When securities classiﬁ ed as available for sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. The Group assesses at each balance date whether there is objective evidence that a ﬁ nancial asset or group of ﬁ nancial assets is impaired. In the case of equity securities classiﬁ ed as available for sale, a signiﬁ cant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale ﬁ nancial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that ﬁ nancial asset previously recognised in proﬁ t and loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 49 49 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 (k) Derivatives From 26 June 2004 to 2 July 2005 The Group has taken the exemption available under AASB1 to apply AASB132 and AASB139 from 3 July 2005. The Group has applied previous AGAAP in the comparative information on ﬁ nancial instruments within the scope of AASB132 and AASB139. Under previous AGAAP derivatives were valued on a mark to market basis and any valuation adjustments were recognised in the Income Statement. Adjustments on transition date: 3 July 2005 The nature of the main adjustments to make this information comply with AASB132 and AASB139 are that derivatives are measured on a fair value basis. Changes in fair value are either taken to the income statement or an equity reserve (refer below). At the date of transition (3 July 2005) changes in the carrying amounts of derivatives are taken to retained earnings or reserves, depending on whether the criteria for hedge accounting are satisﬁ ed at the transition date. From 3 July 2005 Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either; (1) hedges of the fair value of recognised assets or liabilities or a ﬁ rm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash ﬂ ow hedges). The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in cash ﬂ ows of hedged items. (i) Cash ﬂ ow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash ﬂ ow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled in the income statement in the income periods when the hedged item will affect proﬁ t or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-ﬁ nancial asset (for example, inventory) or a non-ﬁ nancial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at the time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. (ii) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement. (l) Fair value estimation The fair value of ﬁ nancial assets and ﬁ nancial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of ﬁ nancial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The fair value of interest rate swaps is calculated as the present value of the estimated future cash ﬂ ows. The fair value of forward exchange contracts is determined using forward exchange market rates at the balance sheet date. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of ﬁ nancial liabilities for disclosure purposes is estimated by discounting the future contractual cash ﬂ ows at the current market interest rate that is available to the Group for similar ﬁ nancial instruments. (m) Property, plant & equipment Each class of property, plant and equipment is carried at historical cost, less any accumulated depreciation or amortisation. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic beneﬁ ts associated with the item will ﬂ ow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the ﬁ nancial period in which they are incurred. (n) Business combinations The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and 5050 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Identiﬁ able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identiﬁ able net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identiﬁ cation or measurement of the net assets acquired. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent ﬁ nancier under comparable terms and conditions. (o) Impairment of assets Assets that have an indeﬁ nite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identiﬁ able cash ﬂ ows (cash generating units). (p) Depreciation and amortisation of property, plant and equipment Depreciation and amortisation are calculated on a straight line or diminishing value basis to allocate the cost of an item of property, plant and equipment net of residual values over the expected useful life of each asset to the consolidated entity. Estimates of remaining useful lives and residual values are reviewed and adjusted, if appropriate, at each balance sheet date. The depreciation rates used for each class of assets are: Plant and equipment Depreciation rate 10% - 37.5% Capitalised leased plant and equipment 10% – 37.5% Motor vehicles Computer systems 15% 25% – 37.5% An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. When revalued assets are sold, it is Group policy to transfer the amounts included in other reserves in respect of those assets to retained earnings. (q) Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classiﬁ ed as ﬁ nance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of ﬁ nance charges, are included in other long term payables. Each lease payment is allocated between the liability and ﬁ nance charges so as to achieve a constant rate on the ﬁ nance balance outstanding. The interest element of the ﬁ nance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under ﬁ nance leases is depreciated over the shorter of the asset’s useful life and the lease term. Leases in which a signiﬁ cant portion of the risks and rewards of ownership are retained by the lessor are classiﬁ ed as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease term. (r) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identiﬁ able assets of the acquired subsidiary or business at the date of the acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicated that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of those cash-generating units represents the Group’s investment in each country of operation by each primary reporting segment. (ii) Other items of expenditure Signiﬁ cant items of expenditure, such as costs incurred in store set-ups, are expensed in the ﬁ nancial period in which these costs are incurred. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 51 51 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 (s) Trade and other payables Trade and other creditors are payables for goods and services provided to the consolidated entity prior to the end of the ﬁ nancial period and which are unpaid at that date. The amounts are unsecured and are normally paid within sixty days of recognition. (t) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. (u) Contributed equity Ordinary shares are classiﬁ ed as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration. (v) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the ﬁ nancial period but not distributed at balance date. (w) Employee beneﬁ ts (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary beneﬁ ts and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised in the provision for employee beneﬁ ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outﬂ ows. (iii) Retirement beneﬁ t obligations Contributions are made by the economic entity to an employee superannuation fund and are charged as expenses when incurred. (iv) Share-based payments Share-based compensation beneﬁ ts are provided to certain employees via the Super Cheap Auto Executive Option Plan. Shares options granted before 7 November 2002 and/or vested before 1 January 2005 No options were granted before 7 November 2002 nor were any vested before 1 January 2005. Shares options granted after 7 November 2002 and vested after 1 January 2005 The fair value of options granted under the Super Cheap Auto Group Limited Executive Option Plan is recognised as an employee beneﬁ t expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is 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. The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, proﬁ tability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee beneﬁ t expense recognised each period takes into account the most recent estimate. Upon exercise of the options, the balance of the share-based payments reserve relating to those options is transferred to share capital. (v) Proﬁ t-sharing and bonus plans The Group recognises a liability and an expense for bonuses and proﬁ t-sharing based on a formula that takes into consideration the proﬁ t attributable to the company’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (x) 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 an effective yield basis over the period of the borrowing. Borrowing costs include: 5252 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 • interest on bank overdrafts and short-term and long-term (ac) Earnings per share borrowings; • amortisation of discounts or premiums relating to borrowings; • amortisation of ancillary costs incurred in connection with the arrangement of borrowings; and • ﬁ nance lease charges; (y) Cash and cash equivalents For the purposes of the cash ﬂ ow statement, cash includes cash on hand, cash at bank and at call deposits with banks or ﬁ nancial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insigniﬁ cant risk of changes in value, and bank overdrafts. (z) 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 Ofﬁ ce. 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 consolidated balance sheet are shown inclusive of goods and services tax. Cash ﬂ ows are presented on a gross basis. The GST components of cash ﬂ ows arising from investing or ﬁ nancing activities which are recoverable from, or payable to, the taxation authority, are presented as operating cash ﬂ ow. (aa) Make good requirements in relation to leased premises. Make good costs arising from contractual obligations in lease agreements are recognised as provisions at the inception of the agreement. A corresponding asset is taken up in property, plant and equipment at that time. Expected future payments are discounted using appropriate market yields at reporting date. (ab) Fair value estimation The fair value of ﬁ nancial assets and ﬁ nancial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of ﬁ nancial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for ﬁ nancial assets held by the Group is the current bid price; the appropriate quoted market price for ﬁ nancial liabilities is the current ask price. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of ﬁ nancial liabilities for disclosure purposes is estimated by discounting the future contractual cash ﬂ ows at the current market interest rate that is available to the Group for similar ﬁ nancial instruments. (i) Basic earnings per share Basic earnings per share is calculated by dividing the proﬁ t attributable to equity holders of the company, by the weighted average number of ordinary shares outstanding during the period. (ii) Diluted earnings per share Diluted earnings per share adjusts the ﬁ gures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other ﬁ nancing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (ad) 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 ﬁ nancial report. Amounts in the ﬁ nancial report have been rounded off in accordance with that Class Order to the nearest thousand dollars. (ae) New accounting standard and UIG interpretations Certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2006 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below. (i) UIG 4 Determining whether an Asset Contains a Lease UIG 4 is applicable to annual periods beginning on or after 1 January 2006. The Group has not elected to adopt UIG 4 early. It will apply UIG 4 in its 2007 ﬁ nancial statements and the UIG 4 transition provisions. The Group will therefore apply UIG 4 on the basis of facts and circumstances that existed as of 1 July 2006. Implementation of UIG 4 is not expected to change the accounting for any of the Group’s current arrangements. (ii) AASB 2005-9 Amendments to Australian Accounting Standards [AASB 4, AASB 1023, AASB 139 & AASB 132] AASB 2005-9 is applicable to annual reporting periods beginning on or after 1 January 2006. The amendments relate to the accounting for ﬁ nancial guarantee contracts. The Group has not elected to adopt the amendments early. It will apply the revised standards in its 30 June 2007 ﬁ nancial statements. The new rules will be implemented retrospectively with a restatement of the comparatives as required by AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. (iii) AASB 7 Financial Instruments: Disclosures and AASB 2005-10 Amendments to Australian Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038] AASB 7 and AASB 2005-10 are applicable to annual reporting periods beginning on or after 1 January 2007. The Group has not SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 53 53 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 adopted the standards early. Application of the standards will not affect any of the amounts recognised in the ﬁ nancial statements, but will impact the type of information disclosed in relation to the Group’s ﬁ nancial instruments. 2 FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of ﬁ nancial risks; market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash ﬂ ow interest rate risk. The Group’s overall risk management program focuses on the unpredictability of ﬁ nancial markets and seeks to minimise potential adverse effects on the ﬁ nancial performance of the Group. The Group uses derivative ﬁ nancial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk exposures. Risk management is carried out by a central treasury department (Group Treasury) under policies approved by the Board of Directors. Group Treasury identiﬁ es, evaluates and hedges ﬁ nancial risks in close co operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering speciﬁ c areas, such as mitigating foreign exchange, interest rate and credit risks, use of derivative ﬁ nancial instruments and investing excess liquidity. (a) Market risk (i) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures to the United States dollar and New Zealand dollar. Forward contracts and currency options are used to manage foreign exchange risk. The Group’s risk management policy is to hedge up to 75% of anticipated transactions (purchases) in US dollars for the subsequent 4 months. (ii) Fair value interest rate risk Refer to (d) below. (b) Credit risk The Group has no signiﬁ cant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high credit quality ﬁ nancial institutions. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufﬁ cient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims at maintaining ﬂ exibility in funding by keeping committed credit lines available. (d) Cash ﬂ ow and fair value interest rate risk As the Group has no signiﬁ cant interest bearing assets, the Group’s income and operating cash ﬂ ows are not materially exposed to changes in market interest rates. The Group’s interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose the Group to cash ﬂ ow interest rate risk. Borrowings issued at ﬁ xed rates expose the Group to fair value interest rate risk. The Group manages its cash ﬂ ow interest rate risk by using ﬂ oating to ﬁ xed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from ﬂ oating rates to ﬁ xed rates. Generally, the Group raises long term borrowings at ﬂ oating rates and swaps them into ﬁ xed rates that are lower than those available if the Group borrowed at ﬁ xed rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at speciﬁ ed intervals (mainly quarterly), the difference between ﬁ xed contract rates and ﬂ oating rate interest amounts calculated by reference to the agreed notional principal amounts. 3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a ﬁ nancial impact on the entity and that are believed to be reasonable under the circumstances. (a) Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by deﬁ nition, seldom equal the related actual results. The estimates and assumptions that have a signiﬁ cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁ nancial year are discussed below. (i) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1(o). The recoverable amounts of cash generating units have been determined based on value in use calculations. These calculations require the use of assumptions. Refer to note 15 for details of these assumptions and the potential impact of changes to the assumptions. 5454 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 4 SEGMENT INFORMATION The consolidated entity is organised on a global basis into the following business segments: Supercheap 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 ﬁ shing equipment. Primary reporting segment – business segment Total continuing operations Inter-segment eliminations/ unallocated Consolidated 2006 Sales to external customers Inter segment sales Total sales revenue Other revenue/income Total revenue and other income Segment result (pre-borrowing costs) Net borrowing costs Proﬁ t before income tax Income tax expense Proﬁ t for the period Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Acquisitions of property, plant and equipment and other non-current segment assets Depreciation and amortisation expense Other non-cash expenses Supercheap Auto $’000 481,781 0 481,781 519 482,300 32,637 BCF $’000 44,168 0 44,168 36 44,204 (3,436) $’000 525,949 0 525,949 555 526,504 29,201 263,465 32,292 295,757 (61,015) (35,031) (96,046) 13,806 6,341 20,147 10,096 (134) 609 0 10,705 (134) $’000 0 0 0 0 0 0 (5,836) (28,410) 2,150 28,410 (88,931) 0 0 0 $’000 525,949 0 525,949 555 526,504 29,201 (5,836) 23,365 (6,855) 16,510 267,347 2,150 269,497 (67,636) (88,931) (156,567) 20,147 10,705 (134) SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 55 55 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 4 SEGMENT INFORMATION (CONTINUED) Total continuing operations Inter-segment eliminations/ unallocated Consolidated 2005 Sales to external customers Inter segment sales Total sales revenue Other revenue/income Total revenue and other income Segment result (pre-borrowing costs) Net borrowing costs Proﬁ t before income tax Income tax expense Proﬁ t for the period Segment assets Unallocated assets Segment liabilities Unallocated liabilities Total liabilities Acquisitions of property, plant and equipment and other non-current segment assets Depreciation and amortisation expense Other non-cash expenses Supercheap Auto $’000 465,048 0 465,048 432 465,480 35,758 BCF $’000 5,097 0 5,097 0 5,097 (443) $’000 470,145 0 470,145 432 470,577 35,315 243,943 10,942 254,885 (58,172) (11,261) (69,433) 17,098 7,529 24,627 8,317 239 27 0 8,344 239 $’000 0 0 0 0 0 0 (4,399) (9,375) 3,300 9,375 (84,155) 0 0 0 $’000 470,145 0 470,145 432 470,577 35,315 (4,399) 30,916 (9,192) 21,724 245,510 3,300 (60,058) (84,155) (144,213) 24,627 8,344 239 Geographical segments 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 ﬁ shing. New Zealand Only Supercheap Auto operates in New Zealand. Secondary Segment – Geographical Segments Segment Revenues from sales to external customers Segment Assets Acquisitions of property, plant and equipment, intangibles and other non-current segment assets 2006 $’000 472,851 53,098 525,949 2005 $’000 422,799 47,346 470,145 2006 $’000 245,566 23,931 269,497 2005 $’000 221,598 27,212 248,810 2006 $’000 18,482 1,665 20,147 2005 $’000 21,773 2,854 24,627 Australia New Zealand 5656 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 5 REVENUE From continuing operations Sales revenue Sale of goods Other revenue Interest Dividends – related party 6 OTHER INCOME Net gain on disposal of property, plant and equipment Other income Consolidated Parent entity 2006 $’000 2005 $’000 2006 $’000 525,949 525,949 470,145 470,145 287 0 287 218 0 218 526,236 470,363 0 0 0 13,000 13,000 13,000 2005 $’000 0 0 9 9,500 9,509 9,509 Consolidated Parent entity 2006 $’000 84 184 268 2005 $’000 0 214 214 2006 $’000 0 0 0 2005 $’000 0 0 0 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 57 57 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 7 EXPENSES Proﬁ t before income tax includes the following speciﬁ c gains and expenses: Gains Change in methodology of inventory valuation to incorporate attributable supply chain costs Expenses Net loss on disposal of property, plant and equipment Depreciation Computer systems Plant and equipment Leasehold improvements Motor vehicles Total depreciation Amortisation Computer software Borrowing costs Interest and ﬁ nance charges Amount capitalised Borrowing costs expensed Employee beneﬁ ts expense Superannuation expense Salaries and wages Rental expense relating to operating leases Lease expenses Equipment hire Total rental expense relating to operating leases Foreign exchange gains and losses Net foreign exchange (gains)/losses Consolidated Parent entity 2006 $’000 2005 $’000 2006 $’000 2005 $’000 0 0 3,434 4,814 0 317 8,565 4,718 147 2,623 3,832 81 268 6,804 2,140 1,540 5,933 (97) 5,836 5,416 85,419 90,835 35,590 991 36,581 4,634 (235) 4,399 4,753 73,459 78,212 31,665 1,035 32,700 745 (356) 0 0 0 0 0 0 0 0 4,312 (75) 4,237 12 280 292 0 0 0 9 0 0 0 0 0 0 0 0 1,415 (235) 1,180 15 296 311 0 0 0 0 5858 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 8 INCOME TAX EXPENSE (a) Income tax expense Current tax Deferred tax Under (over) provided in prior years Deferred income tax (revenue) expense included in income tax expense comprises: Decrease (increase) in deferred tax assets (note 14) (Decrease) increase in deferred tax liabilities (note 22) (b) Numerical reconciliation of income tax expense to prima facie tax payable Proﬁ t from continuing operations before income tax expense Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non-taxable dividends Tax consolidation adjustments re NZ branch Sundry items Difference in overseas tax rates Under (over) provision in prior years Income tax expense (c) Amounts recognised directly in equity Aggregate current and deferred tax arising in the reporting period and not recognised in net proﬁ t or loss but directly debited or credited to equity Net deferred tax - debited (credited) directly to equity (notes 14 and 22) Consolidated Parent entity 2006 $’000 7,538 (666) (17) 6,855 (624) (42) (666) 2005 $’000 8,149 846 197 9,192 869 (23) 846 23,365 30,916 0 (177) 22 6,855 17 (17) 6,855 0 (415) 88 8,948 47 197 9,192 2006 $’000 (1,469) 13 0 (1,456) 13 0 13 8,145 2,444 (3,900) 0 0 (1,456) 0 0 (1,456) 2005 $’000 (550) (37) 260 (327) (37) 0 (37) 7,305 2,192 (2,850) 0 71 (587) 0 260 (327) Tax at the Australian tax rate of 30% (2005 - 30%) 7,010 9,275 28 28 (72) (72) 10 10 (72) (72) (d) Tax consolidation legislation Super Cheap Auto Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003. The accounting policy in relation to this legislation is set out in note 1(d). On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, Super Cheap Auto Group Limited. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Super Cheap Auto Group Limited for any current tax payable assumed and are compensated by Super Cheap Auto Group Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Super Cheap Auto Group Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ ﬁ nancial statements. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 59 59 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each ﬁ nancial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current intercompany receivables or payables (see note 31). 9 CURRENT ASSETS – CASH AND CASH EQUIVALENTS Cash at bank and in hand Deposits at call Consolidated Parent entity 2006 $’000 6,372 0 6,372 2005 $’000 6,850 52 6,902 2006 $’000 132 0 132 2005 $’000 45 0 45 The prior year deposits at call bore interest at variable rates of between 5.2% and 5.6% 10 CURRENT ASSETS – TRADE AND OTHER RECEIVABLES Trade receivables Provision for doubtful receivables (a) Loans to related parties (b) Loans to key management personnel Other receivables Tax receivable Prepayments Consolidated Parent entity 2006 $’000 6,653 (26) 6,627 0 0 2,188 564 4,779 14,158 2005 $’000 5,988 0 5,988 0 44 3,399 0 4,725 14,156 2006 $’000 0 0 0 2005 $’000 0 0 0 95,554 65,046 0 102 0 429 96,085 0 0 0 863 65,909 Further information relating to loans to key management personnel is set out in note 27. (a) Bad and doubtful trade receivables The Group has recognised a loss of $27,000 (2005: $88,000) in respect of bad and doubtful trade receivables during the period ended 1 July 2006. The loss has been included in ‘other expenses’ in the income statement. (b) Loan’s to related parties Super Cheap Auto Group Limited provides funding to its wholly owned subsidiaries in the form of cash loans. These are repaid by the subsidiaries as the funds become available. 6060 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 11 CURRENT ASSETS – INVENTORIES Finished goods - at cost 12 NON-CURRENT ASSETS – OTHER FINANCIAL ASSETS Shares in subsidiaries at cost Name of entity Super Cheap Auto Pty Ltd BCF Australia Pty Ltd Total non-current assets – shares in controlled entities (refer Note 32) Consolidated Parent entity 2006 $’000 2005 $’000 135,021 123,183 2006 $’000 0 2005 $’000 0 Consolidated Parent entity 2006 $’000 2005 $’000 2006 $’000 0 0 0 0 0 0 84,233 1 84,234 2005 $’000 84,233 1 84,234 13 NON-CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT Plant and equipment, at cost Less accumulated depreciation Net plant and equipment Motor vehicles, at cost Less accumulated depreciation Net motor vehicles Computer systems, at cost Less accumulated depreciation Net computer equipment Total net property, plant and equipment Assets pledged as security are detailed in Note 20 Consolidated Parent entity 2006 $’000 55,498 (16,363) 39,135 1,342 (645) 697 20,468 (10,503) 9,965 49,797 2005 $’000 43,274 (11,774) 31,500 1,139 (487) 652 16,467 (7,108) 9,359 41,511 2006 $’000 2005 $’000 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 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 61 61 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 Reconciliations – consolidated entity – 2006 Carrying amounts at 3 July 2005 Additions Disposals Depreciation and amortisation Foreign currency exchange differences Carrying amounts at 1 July 2006 Plant and equipment Capitalised leased plant and equipment Motor vehicles Computer systems $’000 $’000 $’000 $’000 31,500 13,024 (17) (4,814) (558) 39,135 0 0 0 0 0 0 652 412 (40) (317) (10) 697 9,359 4,127 (15) (3,434) (72) 9,965 Plant and equipment Capitalised leased plant and equipment Motor vehicles Computer systems $’000 $’000 $’000 $’000 Reconciliations – consolidated entity – 2005 Carrying amounts at 27 June 2004 Additions Disposals Additions through acquisition Depreciation and amortisation Foreign currency exchange differences Carrying amounts at 2 July 2005 26,569 8,712 (130) 175 (3,832) 6 31,500 81 0 0 0 (81) 0 0 600 353 (58) 25 (268) 0 652 6262 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT Total $’000 41,511 17,563 (72) (8,565) (640) 49,797 Total $’000 34,337 13,958 (189) 203 7,087 4,893 (1) 3 (2,623) (6,804) 0 6 9,359 41,511 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 14 NON-CURRENT ASSETS – DEFERRED TAX ASSETS Consolidated Parent entity The balance comprises temporary differences attributable to: Amounts recognised in proﬁ t or loss Doubtful debts Employee beneﬁ ts Accruals Inventories Deferred borrowing/consulting costs Deferred make good provision Straight line lease adjustment Deferred income Provision for warranties and legal costs Amounts recognised directly in equity Cash ﬂ ow hedges Set off with deferred tax liabilities (note 22) Net deferred tax assets Movements: Opening balance Change on adoption of AASB 132 and AASB 139 Credited/(charged) to the income statement Foreign exchange on translation of NZ subsidiary Credited/(charged) to equity Closing balance Deferred tax assets to be recovered after more than 12 months Deferred tax assets to be recovered within 12 months 2006 $’000 214 1,785 419 889 2 550 1,658 78 20 5,615 18 5,633 (278) 5,355 5,086 0 624 (95) 18 5,633 2,560 3,073 5,633 2005 $’000 139 1,545 721 1,081 4 353 1,145 78 20 5,086 0 5,086 (378) 4,708 5,955 0 (869) 0 0 5,086 1,498 3,588 5,086 2006 $’000 2005 $’000 0 0 24 0 0 0 0 0 0 24 0 24 (24) 0 37 0 (13) 0 0 24 0 24 24 0 0 37 0 0 0 0 0 0 37 0 37 (37) 0 0 0 37 0 0 37 0 37 37 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 63 63 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 15 NON-CURRENT ASSETS – INTANGIBLE ASSETS Consolidated Parent entity 2006 $’000 2005 $’000 Goodwill at cost Less impairment charge Net goodwill Trademarks, at cost Less accumulated depreciation Net trademarks Computer software Less accumulated amortisation Total net intangibles Reconciliations – consolidated entity - 2006 Carrying amounts at 3 July 2005 Additions Impairment/amortisation charge Carrying amounts at 1 July 2006 Reconciliations – consolidated entity - 2005 Carrying amounts at 27 June 2004 Additions Impairment/amortisation charge Carrying amounts at 2 July 2005 2006 $’000 52,112 0 52,112 14 0 14 12,732 (6,064) 6,668 58,794 2005 $’000 52,112 0 52,112 14 0 14 10,143 (3,919) 6,224 58,350 0 0 0 0 0 0 0 0 0 0 Goodwill Trademarks Computer Software $’000 $’000 $’000 52,112 0 0 52,112 14 0 0 14 6,224 2,584 (2,140) 6,668 Goodwill Trademarks Computer Software $’000 $’000 $’000 45,335 6,777 0 52,112 14 0 0 14 3,873 3,892 (1,541) 6,224 0 0 0 0 0 0 0 0 0 0 Totals $’000 58,350 2,584 (2,140) 58,794 Totals $’000 49,222 10,669 (1,541) 58,350 (a) Impairment tests for goodwill Goodwill is allocated to the Group’s cash generating units (CGUs) identiﬁ ed according to business segment and country of operation. The recoverable amount of a CGU is determined based on value in use calculations. These calculations use cash ﬂ ow projections based on ﬁ nancial budgets approved by management covering a ﬁ ve year period. Cash ﬂ ows beyond the ﬁ ve year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the long term average growth rate for the business in which the CGU operates. 6464 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 (b) Key assumptions used for value in use calculations No impairment loss was recognised in the 2006 ﬁ nancial year. The following assumptions have been used for the analysis of each CGU within the business segment. Management determined budgeted gross margin based on past performance and its expectations for the future. The weighted average growth rates used are consistent with forecasts included in industry reports. The discount rates used are pre tax. The factors used by each business segment is shown below. Supercheap Auto BCF Growth rate Discount rate 2006 2005 2006 2005 % 3 5 % 3 5 % 15 15 % 15 15 In the initial two year’s of a store operating growth rate is assumed to be 10%. 16 CURRENT LIABILITIES – TRADE AND OTHER PAYABLES Trade payables Straight line lease adjustment Other payables 17 CURRENT LIABILITIES – BORROWINGS Consolidated Parent entity 2006 $’000 36,412 5,482 13,031 54,925 2005 $’000 33,001 3,733 13,302 50,036 2006 $’000 8 0 205 213 2005 $’000 31 0 169 200 Secured Commercial bill Less borrowing costs capitalised, net Total current liabilities – secured interest bearing liabilities Unsecured Related parties Unsecured bank ﬁ nancing Total current liabilities – unsecured interest bearing liabilities Consolidated Parent entity 2006 $’000 19,400 (469) 18,931 1 109 110 2005 $’000 84,550 (395) 84,155 1 372 373 2006 $’000 17,250 (273) 16,977 0 0 0 2005 $’000 59,650 (67) 59,583 0 0 0 Total current liabilities – interest bearing liabilities 19,041 84,528 16,977 59,583 (a) Bills payable Bills have been drawn as a source of short term ﬁ nancing on a needs basis. (b) Interest rate risk exposures Details of the Group’s exposure to interest rate changes on borrowings are set out in note 21. (c) Fair value disclosures Details of the fair value of borrowings for the Group are set out in note 21. (d) Security Details of the security relating to each of the secured liabilities and further information on the bank overdrafts and bank loans are set out in note 20. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 65 65 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 18 CURRENT LIABILITIES – CURRENT TAX LIABILITIES Income tax payable 19 CURRENT LIABILITIES – PROVISIONS Employee beneﬁ ts - long service leave 20 NON-CURRENT LIABILITIES – BORROWINGS Secured Cash advance Consolidated Parent entity 2006 $’000 1,725 2005 $’000 696 2006 $’000 1,725 2005 $’000 467 Consolidated Parent entity 2006 $’000 4,681 2005 $’000 4,032 2006 $’000 0 2005 $’000 0 Consolidated Parent entity 2006 $’000 70,000 70,000 2005 $’000 0 0 2006 $’000 70,000 70,000 2005 $’000 0 0 The facilities are secured by ﬁ rst registered company charges over all the assets 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 Limited. Financial covenants are provided by Super Cheap Auto Group Limited with respect to leverage, gearing and ﬁ xed charges coverage. The carrying amount of assets pledged as security are equal to those shown in the consolidated balance sheet. Consolidated Parent entity 2006 $’000 2005 $’000 2006 $’000 2005 $’000 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 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 6666 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 128,720 1,338 130,058 89,400 1,287 90,687 39,320 51 39,371 93,720 1,338 95,058 84,550 1,287 85,837 9,170 51 9,221 125,000 1,338 126,338 87,250 0 87,250 37,750 1,338 39,088 90,000 1,338 91,338 59,650 0 59,650 30,350 1,338 31,688 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 20 NON-CURRENT LIABILITIES – BORROWINGS (CONTINUED) In addition, the Company has access to a $37.5 million (2005: $35.3 million) transactional facility for clean credit and foreign currency dealings. Super Cheap Auto Pty Ltd has commercial bills of $17.25 million (2005: $21.6 million) outstanding at year end which are drawn as part of the group facility. The bank facilities may be drawn at any time. Included in the facility above is an amount of $3.72 million for SCA Equity Plan Pty Ltd. This amount was drawn to $2.15 million (2005: $3.3 million) at 1 July 2006. The current interest rates on the ﬁ nancing arrangements are: – Multi Option Facility (including commercial bills, overdraft and cash advance) 6.93%–7.13% (2005: 5.99%–7.23%) 21 FINANCIAL INSTRUMENTS Transition to AASB 132 and AASB 139 The Group has taken the exemption available under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards to apply AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement from 1 July 2005. Derivative ﬁ nancial instruments The parent entity and its controlled entity are parties to derivative ﬁ nancial 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 four 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 Consolidated Parent entity 2006 $’000 3,000 0 2005 $’000 4,000 0 2006 $’000 0 0 2005 $’000 0 0 Weighted average rate of contracts 70 cents 75 cents 0 cents 0 cents The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the cash ﬂ ows occur, the Group adjusts the initial measurement of the component recognised in the balance sheet by the related amount deferred in equity. 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 payables under note 16 (b) Included in other receivables under note 10 0 60 60 0 (101) (101) (41) 0 0 0 0 (7) (7) (7) 0 0 0 0 (101) (101) (101) 0 0 0 0 0 0 0 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 67 67 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 21 FINANCIAL INSTRUMENTS (CONTINUED) Interest rate swap contracts Bank loans of the economic entity currently bear an average variable interest rate of 6.97% (2005: 7.09%). 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 ﬁ xed 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 Group has entered an interest rate swap for nominal value of $15,000,000 which expires on 18 January 2008. 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 17% (2005: 45%) of the loan principal outstanding. The average ﬁ xed interest rate is 6.56% (2005: 6.24%). 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: 2006 Financial assets Cash and deposits Receivables Total ﬁ nancial assets Notes 9 10 Weighted average rate of interest Financial liabilities Trade and other payables 16, 18 Related parties Unsecured ﬁ nancing Commercial bill Employee entitlements Total ﬁ nancial liabilities Weighted average rate of interest Net ﬁ nancial assets/ (liabilities) 17 17 17, 20 19, 23 Fixed interest maturing in Floating interest rate $’000 1 year or less Over 1 to 5 years More than 5 years Non- interest bearing $’000 $’000 $’000 $’000 Total $’000 5,438 0 5,438 5.00% 0 0 0 73,931 0 73,931 6.97% (68,493) 0 0 0 0 0 109 0 0 109 0 0 0 0 0 0 15,000 0 15,000 6.56% (109) (15,000) 0 0 0 0 0 0 0 0 0 0 934 14,158 15,092 6,372 14,158 20,530 51,168 51,168 1 0 0 5,902 57,071 1 109 88,931 5,902 146,111 (41,979) (125,581) 6868 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 21 FINANCIAL INSTRUMENTS (CONTINUED) 2005 Financial assets Cash and deposits Receivables Total ﬁ nancial assets Notes 9 10 Weighted average rate of interest Financial liabilities Trade and other payables 16, 18 Related parties Unsecured ﬁ nancing Commercial bill Employee entitlements Total ﬁ nancial liabilities Weighted average rate of interest 17 17 17, 20 19, 23 Fixed interest maturing in Floating interest rate $’000 1 year or less Over 1 to 5 years More than 5 years Non- interest bearing $’000 $’000 $’000 $’000 Total $’000 5,855 0 5,855 5.11% 0 0 0 58,883 0 58,883 7.09% 0 0 0 0 0 372 25,272 0 25,644 6.24% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,047 14,156 15,203 6,902 14,156 21,058 46,999 46,999 1 0 0 5,016 52,016 1 372 84,155 5,016 136,543 (36,813) (115,485) Net ﬁ nancial assets/(liabilities) (53,028) (25,644) Net fair value of ﬁ nancial assets and liabilities On-balance sheet items The net fair values of cash and cash equivalents and non-interest bearing monetary ﬁ nancial assets and ﬁ nancial liabilities of the consolidated entity approximate the carrying amounts. The net fair values of other monetary ﬁ nancial assets and ﬁ nancial liabilities of the consolidated entity are based upon market prices where a market exists or by discounting the expected future cash ﬂ ows by the current interest rates for assets and liabilities with similar risk proﬁ les. Derivative ﬁ nancial 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 proﬁ les. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 69 69 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 21 FINANCIAL INSTRUMENTS (CONTINUED) Carrying amounts and net fair values of ﬁ nancial assets and ﬁ nancial liabilities at balance sheet date: On-balance sheet ﬁ nancial instruments Financial assets Cash and deposits Receivables Non-traded ﬁ nancial assets Financial liabilities Trade and other payables Commercial bill and other ﬁ nancing Non-traded ﬁ nancial liabilities Off-balance sheet ﬁ nancial instruments Financial assets Forward exchange contracts * Financial liabilities Forward exchange contracts * Consolidated entity Carrying amount Net fair value 2006 $’000 2005 $’000 2006 $’000 2005 $’000 6,372 14,158 20,530 6,902 14,156 21,058 6,372 14,158 20,530 (51,168) (89,041) (46,999) (84,528) (51,168) (89,041) 6,902 14,156 21,058 (46,999) (84,528) (140,209) (131,527) (140,209) (131,527) 60 (101) 0 (7) 0 0 0 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 ﬁ nancial assets and liabilities. None of the ﬁ nancial 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 ﬁ nancial assets is the carrying amount, net of any provisions for doubtful debts of those assets, as disclosed in the statement of ﬁ nancial position, and notes to the ﬁ nancial statements. Credit risk for derivative ﬁ nancial 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. 7070 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 22 NON-CURRENT LIABILITIES – DEFERRED TAX LIABILITIES The balance comprises temporary differences attributable to: Amounts recognised in proﬁ t or loss Prepayments Depreciation Amounts recognised directly in equity Share based payments Cash ﬂ ow hedges Set-off of deferred tax liabilities of parent entity pursuant to set-off provisions Net deferred tax liabilities Movements: Opening balance Change on adoption of AASB 132 and AASB 139 Charged/(credited) to the income statement Charged/(credited) to equity Foreign exchange on translation of NZ subsidiary Closing balance Deferred tax liabilities to be settled after more than 12 months Deferred tax liabilities to be settled within 12 months Consolidated Parent entity 2006 $’000 2005 $’000 2006 $’000 2005 $’000 6 248 254 39 30 323 (278) 45 420 0 (42) (10) (45) 323 317 6 323 0 341 341 79 0 420 (378) 42 371 0 (23) 72 0 420 420 0 420 0 0 0 39 30 69 (24) 45 79 0 0 (10) 0 69 69 0 69 0 0 0 79 0 79 (37) 42 7 0 0 72 0 79 79 0 79 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 71 71 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 23 NON-CURRENT LIABILITIES – PROVISIONS Make good provision Employee beneﬁ ts - long service leave Consolidated Parent entity 2006 $’000 4,929 1,221 6,150 2005 $’000 3,895 984 4,879 2006 $’000 0 0 0 2005 $’000 0 0 0 (a) Make good provision Provision is made for costs arising from contractual obligations in lease agreements at the inception of the agreement. (b) Movements in provisions (consolidated entity) Opening balance as at 3 July 2005 Additional provisions recognised Indexing of provisions Provision released Closing balance as at 1 July 2006 24 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 1 July 2006 Make good $’000 3,895 808 287 (61) 4,929 Consolidated Parent entity 2006 $’000 84,233 2005 $’000 84,233 2006 $’000 84,233 Number of Shares Issue Price 1 49,697,150 56,732,471 106,429,622 1.00 1.69 - 2005 $’000 84,233 $’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. Options over 1,050,000 ordinary shares were issued during the period, with no options being exercised during the period. Options over 1,000,000 shares lapsed during the period. Information relating to options outstanding at the end of the ﬁ nancial period are set out in Note 27. 7272 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 25 RESERVES AND RETAINED PROFITS Reserves Foreign currency translation reserve Share based payments reserve Hedging reserve Movements Foreign currency translation reserve Balance at the beginning of the ﬁ nancial period Net exchange difference on translation of foreign controlled Entity Balance at the end of the ﬁ nancial period Share based payments reserve Balance at beginning of the ﬁ nancial period Options lapsed Option expense Balance at the end of the ﬁ nancial period Hedging reserve Balance of beginning of the ﬁ nancial period Movement in reserve Balance at the end of the ﬁ nancial period Retained earnings Consolidated Parent entity 2006 $’000 (129) 90 28 (11) 0 (129) (129) 184 (270) 176 90 0 28 28 2005 $’000 0 184 0 184 0 0 0 17 0 167 184 0 0 0 2006 $’000 0 90 70 160 0 0 0 184 (270) 176 90 0 70 70 2005 $’000 0 184 0 184 0 0 0 17 0 167 184 0 0 0 Balance at the beginning of the ﬁ nancial period 20,180 585 5,479 (24) Net proﬁ t/(loss) for the ﬁ nancial period attributable to shareholders of Super Cheap Auto Group Limited Dividends provided for or paid Retained proﬁ ts/(losses) at the end of the ﬁ nancial period Nature and purpose of reserves 16,510 (7,982) 21,724 (2,129) 9,601 (7,982) 7,632 (2,129) 28,708 20,180 7,098 5,479 (i) Hedging reserve cash ﬂ ow hedges The hedging reserve is used to record gains or losses on a hedging instrument in a cash ﬂ ow hedge that are recognised directly in equity, as described in note 1(k). Amounts are recognised in proﬁ t and loss when the associated hedged transaction affects proﬁ t and loss. (ii) Share based payments reserve The share based payments reserve is used to recognise the fair value of options issued but not exercised. (iii) Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve, as described in note 1(e). The reserve is recognised in proﬁ t and loss when the net investment is disposed of. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 73 73 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 26 DIVIDENDS Ordinary shares Dividends paid by Super Cheap Auto Group Limited during the reporting period were as follows: Interim dividend for the period ended 31 December 2005 of 3 cents (2005: 2 cents per share) paid on 5 April 2006. Fully franked based on tax paid @ 30% Final dividend for the period ended 2 July 2005 of 4.5 cents per share paid on 12 October 2005. Fully franked based on tax paid @ 30% Total dividends provided and paid Dividends not recognised at year end Subsequent to year end, the Directors have recommended the payment of a ﬁ nal dividend of 5 cents per ordinary share (2005: 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 11 October 2006, out of retained proﬁ ts at 1 July 2006, but not recognised as a liability at year end, is Franking credits The franked portions of dividends paid after 1 July 2006 will be franked out of existing franking credits and out of franking credits arising from the payments of income tax in the periods ending after 1 July 2006. Franking credits remaining at balance date available for dividends declared after the current balance date based on a tax rate of 30% Parent Entity 2006 $’000 3,193 4,789 7,982 2005 $’000 2,129 0 2,129 5,321 4,789 22,805 20,397 The above amounts represent the balance of the franking account as at the end of the ﬁ nancial 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. The impact on the franking account of the dividend recommended by the directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of $2,280,635 (2005: $2,053,573). 27 KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Directors The following persons were directors of Super Cheap Auto Group Limited during the ﬁ nancial year: (i) Chairman (non executive) Richard McIlwain (ii) Executive directors Peter Birtles, Managing Director (director from 5 January 2006) Robert Thorn, Managing Director (from 3 July 2005 – 27 January 2006) (iii) Non executive directors Reginald Rowe Robert Wright Darryl McDonough 7474 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 27 KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) (b) Other key management personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the ﬁ nancial year: Name David Ajala Steven Doyle Gary Carroll Graham Chad Position Employer Chief Operating Ofﬁ cer – Supercheap Auto Super Cheap Auto Group Limited Chief Operating Ofﬁ cer – BCF Chief Financial Ofﬁ cer Super Cheap Auto Group Limited Super Cheap Auto Group Limited General Manager – Group Logistics Super Cheap Auto Pty Limited (c) Key management personnel compensation Short-term employee beneﬁ ts Post-employment beneﬁ ts Share-based payments Consolidated Parent entity 2006 $ 1,982,635 208,636 (189,898) 2,001,373 2005 $ 1,980,168 70,890 333,828 2,384,886 2006 $ 155,092 124,908 0 2005 $ 397,945 16,200 0 280,000 414,145 The key management personnel remuneration in some instances has been paid by a subsidiary. The company has taken advantage of the relief provided by ASIC Class Order 06/50 and has transferred the detailed remuneration disclosures to the directors’ report. The relevant information can be found in the remuneration report on pages 31 to 35. (d) Equity instrument disclosures relating to key management personnel (i) Options provided as remuneration and shares issued on exercise of such options Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in the remuneration report on pages 31 to 35. (ii) Option holdings The numbers of options over ordinary shares in the company held during the ﬁ nancial year by each director of Super Cheap Auto Group Limited and other key management personnel of the Group, including their personally related parties, are set out below. 2006 Name Balance at the start of the year Granted during the year as compensation Exercised during the year Other changes during the year Balance at the end of the year Vested and exercisable at the end of the year Directors of Super Cheap Auto Group Limited R D McIlwain R A Rowe D D McDonough R E Thorn R J Wright P A Birtles 0 0 0 1,000,000 0 200,000 0 0 0 0 0 0 Other key management personnel of the Group D F Ajala S J Doyle G G Carroll G L Chad 0 0 0 0 400,000 400,000 250,000 0 No options are vested and unexercisable at the end of the year. 0 0 0 0 0 0 0 0 0 0 0 0 0 (1,000,000) 0 0 0 0 0 0 0 0 0 0 0 200,000 400,000 400,000 250,000 0 0 0 0 0 0 0 0 0 0 0 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 75 75 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 27 KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) 2005 Name Balance at the start of the year Granted during the year as compensation Exercised during the year Other changes during the year Balance at the end of the year Vested and exercisable at the end of the year Directors of Super Cheap Auto Group Limited R D McIlwain R A Rowe R E Thorn D D McDonough R J Wright 0 0 1,000,000 0 0 Other key management personnel of the Group P A Birtles S J Doyle 200,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,000,000 0 0 200,000 0 0 0 0 0 0 0 0 (iii) Share holdings The numbers of shares in the company held during the ﬁ nancial year by each director of Super Cheap Auto Group Limited and other key management personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation. 2006 Name Directors of Super Cheap Auto Group Limited Ordinary shares R D McIlwain R A Rowe D D McDonough R J Wright R E Thorn (resigned 27 January 2006) P A Birtles Other key management personnel of the Group Ordinary shares D F Ajala S J Doyle G G Carroll G L Chad Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year 158,882 52,402,159 50,000 40,609 4,899,078 1,192,596 0 536,948 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (835,120) 0 0 (43,537) 0 0 158,882 52,402,159 50,000 40,609 4,063,958 1,192,596 0 493,411 0 0 7676 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 27 KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) 2005 Name Directors of Super Cheap Auto Group Limited Ordinary shares R D McIlwain R A Rowe D D McDonough R J Wright R E Thorn Other key management personnel of the Group Ordinary shares P A Birtles S J Doyle Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year 0 93,909,727 0 0 4,835,120 1,192,089 536,441 0 0 0 0 0 0 0 158,882 158,882 (41,507,568) 52,402,159 50,000 40,609 63,958 50,000 40,609 4,899,078 507 507 1,192,596 536,948 Aggregate amounts of each of the above types of other transactions with key management personnel of Super Cheap Auto Group Limited: Amounts paid to key management personnel as shareholders Dividends 2006 $000 4,382 2005 $000 1,175 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 77 77 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 28 REMUNERATION OF AUDITORS 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 ﬁ rms. During the 2005 period, audit services were provided by Grant Thornton. (a) Assurance Services Audit Services Audit and review of ﬁ nancial reports and other audit work under the Corporations Act 2001 Related practices of PricewaterhouseCoopers Australian ﬁ rm Non-PricewaterhouseCoopers audit ﬁ rms for the audit or review of ﬁ nancial reports of any entity in the Group Total remuneration for audit services Other assurance services PricewaterhouseCoopers Australian ﬁ rm IFRS accounting services Total remuneration for other assurance services Total remuneration for assurance services (b) Taxation services PricewaterhouseCoopers Australian ﬁ rm Consolidated Parent entity 2006 $ 2005 $ 2006 $ 2005 $ 211,437 175,468 211,437 143,208 0 0 0 0 211,437 175,468 211,437 143,208 85,230 85,230 0 0 85,230 85,230 0 0 296,667 175,468 296,667 143,208 Tax compliance services, including review of company income tax returns Total remuneration for taxation services (c) Advisory services PricewaterhouseCoopers Australian ﬁ rm Due diligence Total remuneration for advisory services 125,012 125,012 3,500 3,500 125,012 125,012 159,000 159,000 0 0 159,000 159,000 0 0 0 0 It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with the Group are important. These assignments are principally tax advice and due diligence reporting on acquisitions, or where PricewaterhouseCoopers is awarded assignments on a competitive basis. It is the Group’s policy to seek competitive tenders for all major consulting projects. 29 CONTINGENCIES 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: 1,287 1,287 0 0 Consolidated Parent entity 2006 $000 2005 $000 2006 $000 2005 $000 7878 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 30 COMMITMENTS 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 ﬁ ve years Later than ﬁ ve years Total capital commitments 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 ﬁ ve years Later than ﬁ ve years Less lease straight lining adjustment (note 16) Total lease commitments Future minimum lease payments expected to be received in relation to non- cancellable sub-leases of operating leases Remuneration commitments Commitments for the payment of salaries and other remuneration under long-term employment contracts in existence at the reporting date but not recognised as liabilities, payable: Within one year Later than one year and not later than ﬁ ve years Later than ﬁ ve years Consolidated Parent entity 2006 $000 2005 $000 2006 $000 2005 $000 895 0 0 895 1,694 0 0 1,694 35,222 108,548 44,136 (5,482) 28,694 87,217 45,140 (3,733) 182,424 157,318 3,641 3,889 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,375 5,500 0 6,875 850 1,950 0 2,800 1,375 5,500 0 6,875 850 1,950 0 2,800 Amounts disclosed as remuneration commitments include commitments arising from the service contracts of key management personnel referred to in the remuneration report on pages 31 to 35 that are not recognised as liabilities and are not included in the key management personnel compensation. 31 RELATED PARTY TRANSACTIONS Transactions with related parties are at arm’s length unless otherwise stated. (a) Parent entities The parent entity within the Group is Super Cheap Auto Group Limited, which is the ultimate Australian parent. (b) Subsidiaries Interests in subsidiaries are set out in note 32. (c) Key Manaement Personnel Disclosures relating to key management personnel are set out in note 27. (d) Directors The names of the persons who were Directors of Super Cheap Auto Group Limited during the ﬁ nancial period are R D McIlwain, R E Thorn (from 3 July 2005 to 27 January 2006), R A Rowe, R J Wright, D D McDonough and P A Birtles (appointed 5 January 2006). SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 79 79 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 31 RELATED PARTY TRANSACTIONS (CONTINUED) (e) Amounts due from related parties Amounts due from Directors of the consolidated entity and their director-related entities are as follows: Consolidated Parent entity Amount due from: Director – R E Thorn – expenses to be reimbursed Director related entities of R A Rowe – store lease costs to be reimbursed by landlord 2006 $000 0 0 0 2005 $000 18 26 44 (f) Transactions with related parties Aggregate amounts included in the determination of proﬁ t from ordinary activities before income tax that resulted from transactions with related parties: 2006 $000 2005 $000 0 0 0 0 883 13,000 0 0 0 0 1,548 9,500 8,558 6,469 62,116 235,834 (202,395) 95,555 (6,199) 151,754 (83,439) 62,116 7,324 883 6,960 1,548 0 0 0 0 0 0 0 0 0 0 0 0 Country of Incorporation Class of Shares Australia New Zealand Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Equity Holding 2006 % 100 100 100 100 100 2005 % 100 100 100 100 100 Other Transactions - store lease payments – R A Rowe related property entities - remuneration paid to directors of the ultimate Australian parent entity Dividend Revenue - dividends from subsidiaries Tax Consolidation Legislation - current tax payable assumed from wholly owned tax consolidated entities (g) Loans to/from Related Parties Loans to Subsidiaries - beginning of the period - loans advanced - loan repayments received End of year 32 INVESTMENTS IN CONTROLLED ENTITIES Name of Entity Super Cheap Auto Pty Ltd(a) Super Cheap Auto (New Zealand) Pty Ltd(b) Super Retail Group Services Pty Ltd (previously SCA Purchasing Pty Ltd)(b) (c) BCF Australia Pty Ltd(a) SCA Equity Plan Pty Ltd(b) (a) These controlled entities have been granted relief from the necessity to prepare ﬁ nancial 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. (c) During the period SCA Purchasing Pty Ltd changed its name to Super Retail Group Services Pty Ltd. 8080 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 33 NET TANGIBLE ASSET BACKING Net tangible asset per ordinary share Consolidated Entity 2006 Cents 51¢ 2005 Cents 43¢ 34 DEED OF CROSS GUARANTEE Super Cheap Auto Group Limited, Super Cheap Auto Pty Ltd, BCF Australia Pty Ltd and SCA Equity Plan 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 ﬁ nancial 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 ﬁ nancial 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. 35 RECONCILIATION OF PROFIT FROM ORDINARY ACTIVITIES AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES Consolidated Parent entity Proﬁ t from ordinary activities after related income tax Depreciation and amortisation Net (gain)/loss on sale of non-current assets Non-cash employee beneﬁ ts expense/share based payments Net Interest Expense Change in operating assets and liabilities, net of effects from the purchase of controlled entities - (increase)/decrease in receivables - (increase)/decrease in inventories - increase/(decrease) in payables - increase/(decrease) in provisions - increase/(decrease) in deferred tax Net cash inﬂ ow from operating activities 2006 $000 16,510 10,705 (84) (134) 2005 $000 21,724 8,344 147 239 5,549 4,181 2006 $000 9,601 0 0 (134) 4,237 52 (11,838) 4,735 1,920 (644) 26,771 431 (28,669) 130 (3,397) 918 4,048 (22,800) 0 1,271 0 3 (7,822) 2005 $000 7,632 0 0 239 1,180 (8,308) 0 (1,011) 0 34 (234) SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 81 81 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 36 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 Adjustments for calculation of diluted earnings per share options 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 proﬁ t after tax Diluted earnings per share - earnings used in calculating diluted earnings per share – net proﬁ t after tax (a) Information concerning the classiﬁ cation of securities Consolidated Entity 2006 Cents 15.5 15.5 2005 Cents 20.4 20.4 Consolidated Entity 2006 Number 2005 Number 106,429,622 106,429,622 49,188 0 106,478,810 106,429,622 2006 $000 2005 $000 16,510 21,724 16,510 21,724 (i) Options Options granted are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. 37 SHARE-BASED PAYMENTS (a) 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 ofﬁ cial 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. 8282 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 37 SHARE-BASED PAYMENTS (CONTINUED) Set out below are summaries of options granted under the plan: Grant Date Expiry date Exercise price Balance at start of the year Granted during the year Exercised during the year Expired during the year Balance at end of the year Exercisable at end of the year Number Number Number Number Number Number Consolidated and parent entity - 2006 19 May 2004 19 May 2004 19 May 2004 27 Jan 2006 27 Jan 2006 27 Jan 2006 17 April 2006 17 April 2006 17 April 2006 Total 1 July 2007 1 July 2008 1 July 2009 5 Jan 2009 5 Jan 2010 5 Jan 2011 17 April 2009 17 April 2010 17 April 2011 $1.97 $1.97 $1.97 $2.44 $2.44 $2.44 $2.25 $2.25 $2.25 Weighted average exercise price Consolidated and parent entity - 2005 19 May 2004 19 May 2004 19 May 2004 Total 1 July 2007 1 July 2008 1 July 2009 $1.97 $1.97 $1.97 Weighted average exercise price 700,000 250,000 250,000 0 0 0 0 0 0 0 0 0 400,000 200,000 200,000 75,000 75,000 100,000 1,200,000 1,050,000 $1.97 $2.39 700,000 250,000 250,000 1,200,000 $1.97 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 500,000 250,000 250,000 0 0 0 0 0 0 200,000 0 0 400,000 200,000 200,000 75,000 75,000 100,000 200,000 0 0 400,000 200,000 200,000 75,000 75,000 100,000 1,000,000 1,250,000 1,250,000 $1.97 $2.25 $2.25 0 0 0 0 0 700,000 250,000 250,000 700,000 250,000 250,000 1,200,000 1,200,000 $1.97 $1.97 There were no options exercised during the period. The weighted average remaining contractual life of share options outstanding at the end of the period was 3.01 years. Fair value of options granted The assessed fair value at grant date of options granted during the period ended 1 July 2006 was 29 to 68 cents per option. The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, 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. The model inputs for options granted during the period ended 1 July 2006 included: (a) options are granted for no consideration (b) exercise price: $2.25, $2.44 (2005: nil) (c) grant date: 27 January 2006 and 17 April 2006 (2005: nil) (d) expiry date: 5 January 2009, 17 April 2009, 5 January 2010, 17 April 2010, 5 January 2011, 17 April 2011 (2005: nil) (e) share price at grant date: $2.41, $2.32 (2005: nil) (f) expected price volatility of the company’s shares: 20% (2005: nil) (g) expected dividend yield: 3.5% (2005: nil) (h) risk free interest rate: 5.6% (2005: nil). The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 83 83 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 38 BUSINESS COMBINATIONS 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 identiﬁ able net assets acquired: Inventory Plant and equipment Trade creditors Employee entitlements Goodwill Cash consideration (a) (a) Cash consideration of $6,699,000 was paid by the parent, with the remaining $1,320,000 paid by a subsidiary. Goodwill on acquisition relates to the retail footprint and associated customer catchment area of the acquired business. 2005 $’000 2,000 203 (914) (46) 1,243 6,776 8,019 8484 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 39 EXPLANATION OF TRANSITION TO AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) a. Reconciliation of equity reported under previous Australian Generally Accepted Accounting Principles (AGAAP) to equity under Australian equivalents to IFRS (AIFRS). (i) At the date of transition to AIFRS : 27 June 2004 Consolidated Effect of Transition to AIFRS Previous AGAAP Notes $’000 $’000 (xi) (xi) (ii)(vii) (vi)(vii) (x) 13,640 5,394 92,513 1,633 1,206 114,386 36,257 45,349 0 5,006 0 86,612 28 5,270 0 0 0 5,298 (1,920) 3,873 0 585 0 2,538 Parent entity Effect of Transition to AIFRS Previous AGAAP $’000 $’000 0 0 0 1,678 0 1,678 0 0 84,233 4,876 0 89,109 0 0 0 0 0 0 0 0 0 (4,876) 0 (4,876) AIFRS $’000 13,668 10,664 92,513 1,633 1,206 119,684 34,337 49,222 0 5,591 0 89,150 AIFRS $’000 0 0 0 1,678 0 1,678 0 0 84,233 0 0 84,233 Current assets Cash assets Receivables Inventories Tax Assets Other Total current assets Non-current assets Property, plant and equipment Intangible assets Investments Deferred tax assets Other non-current assets Total non-current assets Total assets 200,998 7,836 208,834 90,787 (4,876) 85,911 Current liabilities Payables Interest bearing liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Deferred tax liabilities Interest bearing liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained proﬁ ts Total Equity (x)(iii)(iv) (viii)(xi) (ii) (x) (ii) (x)(i)(v) (xii) 46,857 35,744 0 8,643 91,244 355 21,600 797 22,752 113,996 87,002 84,233 2 2,767 87,002 2,231 5,298 0 0 7,529 (348) 0 2,822 2,474 49,088 41,042 0 8,643 98,773 7 21,600 3,619 25,226 6,199 0 0 0 6,199 355 0 0 355 (4,521) 0 0 0 (4,521) (348) 0 0 (348) 1,678 0 0 0 1,678 7 0 0 7 10,003 123,999 6,554 (4,869) 1,685 (2,167) 84,835 84,233 (7) 84,226 0 15 (2,182) (2,167) 84,233 17 585 84,835 84,233 0 0 84,233 0 17 (24) (7) 84,233 17 (24) 84,226 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 85 85 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 39 EXPLANATION OF TRANSITION TO AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (CONTINUED) (ii) At the end of last reporting period under previous AGAAP : 2 July 2005 Consolidated Effect of Transition to AIFRS Previous AGAAP Notes $’000 $’000 (xi) (x)(xi) 6,426 6,607 123,183 0 4,725 140,941 476 2,824 0 0 0 3,300 AIFRS $’000 6,902 9,431 123,183 0 4,725 144,241 Parent entity Previous AGAAP $’000 45 62,979 0 0 0 63,024 Effect of Transition to AIFRS $’000 0 2,930 0 0 0 2,930 AIFRS $’000 45 65,909 0 0 0 65,954 (ii)(vii) 45,016 (3,505) 41,511 0 0 0 (vi)(vii) (x) 49,294 0 3,509 0 97,819 9,056 0 1,199 0 6,750 58,350 0 4,708 0 104,569 0 84,234 3,142 0 87,376 0 0 (3,142) 0 (3,142) 0 84,234 0 0 84,234 Current assets Cash assets Receivables Inventories Tax Assets Other Total current assets Non-current assets Property, plant and equipment Intangible assets Investments Deferred tax assets Other non-current assets Total non-current assets Total assets 238,760 10,050 248,810 150,400 (212) 150,188 Current liabilities Payables Interest bearing liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Deferred tax liabilities Interest bearing liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained proﬁ ts Total Equity (iii)(iv) (viii)(xi) (ii) (x) (ii) (x)(i)(v) (xii) 46,045 81,228 696 4,032 132,001 341 0 984 1,325 133,326 105,434 84,233 2 21,199 105,434 3,991 3,300 0 0 7,291 (299) 0 3,895 3,596 50,036 84,528 696 4,032 139,292 42 0 4,879 4,921 10,887 144,213 (837) 104,597 0 182 (1,019) 84,233 184 20,180 (837) 104,597 200 59,583 467 0 60,250 175 0 0 175 60,425 89,975 84,233 0 5,742 89,975 0 0 0 0 0 (133) 0 0 (133) (133) 200 59,583 467 0 60,250 42 0 0 42 60,292 (79) 89,896 0 184 (263) 84,233 184 5,479 (79) 89,896 8686 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 39 EXPLANATION OF TRANSITION TO AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (CONTINUED) b. Reconciliation of proﬁ t under previous AGAAP to proﬁ t under Australian equivalents to IFRS (AIFRS) (i) Reconciliation of proﬁ t for the 53 weeks ended 2 July 2005 Consolidated Parent entity Previous AGAAP Effect of Transition to AIFRS AIFRS Previous AGAAP Effect of Transition to AIFRS AIFRS Notes $’000 $’000 $’000 $’000 $’000 $’000 (iv) 470,279 214 470,493 84 0 84 470,363 214 470,577 0 9,509 9,509 (iv) 281,135 50 281,185 0 (ii)(iii) (v)(vi) (ii) 52,091 25,965 29,139 47,530 4,239 440,099 0 0 1,944 (2,592) 160 (438) 52,091 25,965 31,083 44,938 4,399 439,661 0 0 0 785 1,180 1,965 0 0 0 0 0 0 0 239 0 239 0 9,509 9,509 0 0 0 0 1,024 1,180 2,204 30,394 522 30,916 7,544 (239) 7,305 (x) (9,831) 639 (9,192) 327 0 327 20,563 1,161 21,724 7,871 (239) 7,632 Revenue from ordinary activities Sale of goods Other income Total revenues 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 Proﬁ t from continuing operations before income tax Income tax expense relating to ordinary activities Proﬁ t attributable to members of Super Cheap Auto Group Limited c. Reconciliation of cash ﬂ ow statement for the 53 weeks ended 2 July 2005. The adoption of AIFRS has not resulted in any material adjustments to the cash ﬂ ow statement. d. Notes to the reconciliations (i) Foreign currency translation reserve – consolidated only The Group has elected to apply the exemption in AASB1 First Time Adoption of Australian Equivalents to International Financial Reporting Standards. The cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to AIFRS. The effect is: (a) At 27 June 2004 For the Group, the balance of the $2,000 credit in the foreign currency translation reserve is reduced to nil. Retained earnings is increased by $2,000. (b) At 2 July 2005 For the Group, the balance of the $2,000 credit in the foreign currency translation reserve is reduced to nil. Retained earnings is increased by $2,000. (ii) Provision for ‘make-good’ requirements in relation to leased premises – consolidated only Under previous AGAAP, the group accounted for make good costs in relation to leased premises as they were incurred. Under AASB137 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. The effect is: (a) At 27 June 2004 For the Group there has been an increase in property, plant and equipment of $1,953,000, an increase in liabilities of $2,822,000 and a decrease in retained earnings of $869,000. (b) At 2 July 2005 For the Group there has been an increase in property, plant and equipment of $2,719,000 and an increase in liabilities of $3,895,000 and a decrease in retained earnings of $869,000, an increase in occupancy costs of $147,000 and an increase in borrowing costs of $160,000. SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 87 87 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 39 EXPLANATION OF TRANSITION TO AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (CONTINUED) (iii) Leases – consolidated only Under AASB117 Leases, there is a requirement to account for ﬁ xed rate increases in operating leases on a straight line basis. The effect is: (a) At 27 June 2004 For the Group there has been an increase in straight line lease adjustment of $1,939,000 and a decrease in retained earnings of $1,939,000. (b) At 2 July 2005 For the Group there has been an increase in straight line lease adjustment of $3,733,000 and a decrease in retained earnings of $1,949,000, and an increase in occupancy costs of $1,794,000. (iv) Deferred revenue – consolidated only Under AASB118 Revenue, revenue from the sale of goods shall be recognised if an entity retains only an insigniﬁ cant risk of ownership. Under AIFRS, it is appropriate to recognise a liability for future returns based on previous experience and other relevant factors. The effect is: (a) At 27 June 2004 For the Group there has been an increase in deferred revenue liability of $292,000 and a decrease in retained earnings of $292,000. (vii) Intangible assets – software capitalised – consolidated only Under AASB138 Intangible Assets, software costs are to be shown as intangibles. The effect is: (a) At 27 June 2004 For the Group there has been an increase in intangibles of $3,873,000 and a decrease in property, plant and equipment of $3,873,000. (b) At 2 July 2005 For the Group there has been an increase in intangibles of $6,224,000 and a decrease in property, plant and equipment of $6,224,000. (viii) Interest bearing liabilities – borrowings – consolidated and parent The Group has elected to apply the exemption from restatement of comparatives for AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement. It has therefore continued to apply the previous AGAAP rules to derivatives, ﬁ nancial assets and ﬁ nancial liabilities and also to hedge relationships for the period ended 2 July 2005. The adjustments required for differences between previous AGAAP and AASB 132 and AASB 139 have been determined and recognised at 2 July 2005. In accordance with AASB139 Financial Instruments, prepaid interest expense and capitalised transaction costs have been netted against gross borrowings. The effect is: (b) At 2 July 2005 For the Group there has been an increase in deferred revenue liability of $258,000 and a decrease in retained earnings of $92,000, a decrease in sales of $84,000 and a decrease in cost of sales of goods of $50,000. (a) At 27 June 2004 No impact. (b) At 2 July 2005 No impact. (v) Share-based payments – consolidated and parent Under AASB2 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. The effect is: (a) At 27 June 2004 For the Group and parent there has been an increase in reserves of $24,000 and a decrease in retained earnings of $24,000. (b) At 2 July 2005 For the Group and parent there has been an increase in reserves of $263,000 and a decrease in retained earnings of $24,000, and an increase in administration costs of $239,000. (vi) Intangible assets – goodwill impairment – consolidated only Under AASB3 Business Combinations, amortisation of goodwill is prohibited and is replaced by annual impairment testing focussing on the cash ﬂ ows of the related cash generating unit. The effect is: (a) At 27 June 2004 No impact. (b) At 2 July 2005 For the Group there has been an increase in intangibles of $2,832,000 and a decrease in administration costs of $2,832,000. 8888 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT (c) At 3 July 2005 For the Group there has been decrease in borrowings of $1,450,000 and a decrease in prepayments of $1,450,000. (ix) Business combinations In accordance with AASB3 Business Combinations, the group has elected not to restate business combinations occurring prior to the transition date. (x) Deferred tax assets and deferred tax liabilities – consolidated and parent Under AASB112 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 balance sheet and their associated tax basis. The effect is: (a) At 27 June 2004 For the Group there has been an increase in deferred tax assets of $1,542,000, an increase in deferred tax liabilities of $609,000, an increase in retained earnings of $940,000 and an increase in reserves of $7,000. For the parent there has been an increase in deferred tax liabilities of $7,000 and a decrease in reserves of $7,000. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 (b) At 2 July 2005 For the Group there has been an increase in deferred tax assets of $2,422,000, an increase in deferred tax liabilities of $924,000, an increase in retained earnings of $940,000 and decrease in reserves of $79,000, and a decrease in tax expense of $639,000. (b) At 2 July 2005 There is no effect on the Group. For the parent entity, deferred tax liabilities decreased by $1,750,000, deferred tax assets decreased by $3,105,000 and inter company receivables increased by $2,930,000. For the parent there has been an increase in deferred tax liabilities of $79,000 and a decrease in reserves of $79,000. Under AIFRS, deferred tax assets and liabilities are offset for matching tax jurisdictions. The effect of this is as follows: Super Cheap Auto Group Limited and its wholly-owned Australian controlled entities implemented the tax consolidation legislation as of 1 July 2003. Under previous AGAAP, the parent entity recognised current and deferred tax amounts relating to transactions, events and balances of the tax consolidated entities as if those transactions, events and balances were its own. Under AIFRS, the parent entity only recognises the current tax payable and deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The effect is: (a) At 27 June 2004 There is no effect on the Group. For the parent entity, deferred tax liabilities decreased by $355,000, deferred tax assets decreased by $4,876,000 and inter company payables decreased by $4,521,000. (a) At 27 June 2004 For the Group, deferred tax liabilities decreased by $957,000 and deferred tax assets decreased by $957,000. For the parent, there was no effect. (b) At 2 July 2005 For the Group, deferred tax liabilities decreased by $378,000 and deferred tax assets decreased by $378,000. For the parent, deferred tax liabilities decreased by $37,000 and deferred tax assets decreased by $37,000. (xi) SCA Equity Plan Pty Ltd – consolidated only Under UIG112, SCA Equity Plan Pty Ltd is required to be included in the Group consolidation. The effect is: (a) At 27 June 2004 Increase in cash of $28,000, increase in receivables of $5,270,000, and an increase in interest bearing liabilities of $5,298,000. (b) At 2 July 2005 Increase in cash of $476,000, increase in receivables of $2,824,000 and an increase in interest bearing liabilities of $3,300,000. (xii) Retained earnings. The effect on retained earnings of the charges set out above are as follows: Foreign currency translation reserve Straight line lease provision Lease make-good provisions Share-based payments Deferred tax balances Deferred revenue Goodwill Total adjustment Group Parent 26 June 2004 $’000 2 (1,939) (869) (17) 933 (292) 0 Notes (i) (iii) (ii) (v)(x) (x) (iv) (vi) 2 July 2005 $’000 2 (3,733) (1,176) (184) 1,498 (258) 2,832 (2,182) (1,019) 26 June 2004 $’000 0 0 0 (17) (7) 0 0 (24) 2 July 2005 $’000 0 0 0 (184) (79) 0 0 (263) SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 89 89 DIRECTOR’S DECLARATION Super Cheap Auto Group Limited For the period ended 1 July 2006 In the directors’ opinion: (a) the ﬁ nancial statements and notes set out on pages 39 to 89 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the company’s and consolidated entity’s ﬁ nancial position as at 1 July 2006 and of its performance, as represented by the results of their operations, changes in equity and their cash ﬂ ows, for the ﬁ nancial period ended on that date; 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) the audited remuneration disclosures set out on pages 31 to 35 of the directors’ report comply with Accounting Standards AASB 124 Related Party Disclosures and the Corporations Regulations 2001; and (d) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identiﬁ ed in note 34 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 34. The directors have been given the declarations by the managing director and chief ﬁ nancial ofﬁ cer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. RD McIlwain Director Brisbane, 24 August 2006 P A Birtles Director 9090 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT AUDIT REPORT Super Cheap Auto Group Limited For the period ended 1 July 2006 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 91 91 AUDIT REPORT (CONTINUED) Super Cheap Auto Group Limited For the period ended 1 July 2006 9292 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SHAREHOLDER INFORMATION Super Cheap Auto Group Limited For the period ended 1 July 2006 The shareholder information set out below was applicable as at 24 August 2006. A. Distribution of equity securities Analysis of numbers of equity security holders by size of holding: 1 – 1000 1,001 – 5,000 5, 001 – 10,000 10, 001 – 100,000 100, 001 and over Ordinary Shareholders Optionholders 983 1,336 314 269 49 2,951 3 3 There were 81 holders of less than a marketable parcel of ordinary shares. B. Equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Name SCA FT Pty Ltd Westpac Custodian Nominees Limited ANZ Nominees Limited (Cash Income A/C) J P Morgan Nominees Australia Limited National Nominees Limited Suncorp Custodian Services Pty Limited (AET) SCA Equity Plan Pty Ltd Robert Edward Thorn Citicorp Nominees Pty Ltd (CFS Developing Companies A/C) UBS Wealth Management Australia Nominees Pty Ltd Geomar Superannuation Pty Ltd Cogent Nominees Pty Limited (SMP Accounts) HSBC Custody Nominees (Australia) Limited Victorian Workcover Authority Mr Rakesh Tulshyan & Mrs Seema Tulshyan (BTML A/C) Ankit Pty Ltd (Tulshyan Family Account) Bond Street Custodians Limited (SJM - 143800 A/C) Bond Street Custodians Limited (SJM - 143796 A/C) Bond Street Custodians Limited (SJM - 143825 A/C) Bond Street Custodians Limited (SJM - 143812 A/C) Ordinary shares Number held 52,402,159 Percentage of issued shares 49.24% 4,125,523 3,889,803 3,440,353 3,387,796 3,311,930 2,719,628 2,499,493 1,703,720 1,620,000 1,470,000 1,329,569 970,220 712,800 709,637 703,918 535,391 535,391 535,391 535,391 3.88% 3.65% 3.23% 3.18% 3.11% 2.56% 2.35% 1.60% 1.52% 1.38% 1.25% 0.91% 0.67% 0.67% 0.66% 0.50% 0.50% 0.50% 0.50% 87,138,113 81.87% SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 93 93 9494 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT Cairns (Earlville) (07) 4033 0600 VICTORIA SUPERCHEAP AUTO AUSTRALIAN CAPITAL TERRITORY Belconnen (02) 6253 5660 Fyshwick (02) 6239 2333 Tuggeranong (02) 6293 2233 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 Dapto (02) 4260 9120 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 Grifﬁ th (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 Moree (02) 6752 4755 Mt Druitt (02) 9677 1400 Mudgee (02) 6372 7055 Narellan (02) 4647 4533 Newcastle (02) 4968 9833 North Parramatta (02) 9683 4188 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 NORTHERN TERRITORY Alice Springs (08) 8952 7455 Berrimah (08) 8932 9866 Darwin (08) 8985 4898 QUEENSLAND Acacia Ridge (07) 3274 6311 Airlie Beach (07) 4948 3644 Ashmore (07) 5539 2033 Ayr (07) 4783 7377 Beenleigh (07) 3287 2777 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 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 Oxenford (07) 5573 4422 Redcliffe (07) 3284 2055 Rockhampton (07) 4922 5433 Smithﬁ eld (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 Victoria Point (07) 3207 9262 Warwick (07) 4661 7633 Windsor (07) 3857 0677 Yamanto (07) 3294 1033 SOUTH AUSTRALIA Blair Athol (08) 8269 7122 Darlington (08) 8358 3566 Elizabeth (08) 8287 6533 Kilkenny (08) 8347 2214 Marion (08) 8296 2210 Munno Para (08) 8254 7999 Noarlunga (08) 8384 2833 Para Hills (08) 8258 2760 Port Adelaide (08) 8447 6088 Salisbury (08) 8258 4811 Thebarton (08) 8354 0666 Whyalla (08) 8645 5159 TASMANIA NEW ZEALAND Burnie (03) 6432 4855 Devonport (03) 6424 3244 Glenorchy (03) 6272 9200 Albany 0011 64 9 448 2461 Alicetown 0011 64 4 569 1576 Blenheim 0011 64 3 579 3480 Launceston (03) 6333 0511 Botany 0011 64 9 273 8160 Bairnsdale (03) 5153 2799 Ballarat (03) 5339 9455 Bendigo (03) 5442 7877 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 Broadmeadows (03) 9309 2799 Hastings 0011 64 6 870 4521 Carrum Downs (03) 9782 8305 Hawera 0011 64 6 278 3641 Cranbourne (03) 5995 7299 Dandenong (03) 9706 7788 Echuca (03) 5480 6788 Epping (03) 9408 4288 Essendon (03) 9379 3600 Frankston (03) 9781 2288 Highland Park 0011 64 9 533 3201 Invercargill 0011 64 3 214 4385 Kelston 0011 64 9 813 2091 Levin 0011 64 6 368 3195 Lyall Bay 0011 64 4 387 1092 Manukau 0011 64 9 250 4392 Hoppers Crossing (03) 9748 7277 Masterton 0011 64 6 370 3308 Horsham (03) 5382 5000 Kangaroo Flat (03) 5447 9144 Keysborough (03) 9798 8466 Knox City (03) 9800 4722 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 Maribyrnong (03) 9318 8444 Palmerston North 0011 64 6 354 1743 Mentone (03) 9585 0399 Mildura (03) 5022 2588 Moe (03) 5126 1755 Papanui 0011 64 3 354 8123 Paraparaumu 0011 64 4 298 1523 Porirua 0011 64 4 238 2641 Narre Warren (03) 9705 9199 Pukekohe 0011 64 9 239 2073 North Geelong (03) 5272 3277 Riccarton 0011 64 3 341 5087 Preston (03) 9484 6006 Ringwood (03) 9847 0055 Rowville (03) 9764 1677 Rotorua 0011 64 7 348 5275 Stoke 0011 64 3 547 8394 Takanini 0011 64 9 299 8615 Roxburgh Park (03) 8339 0765 Tauranga 0011 64 7 579 5436 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 Cannington (08) 9258 7294 Fremantle (08) 9335 8633 Geraldton (08) 9921 8244 Gosnells (08) 9398 4822 Joondalup (08) 9300 0744 Kalgoorlie (08) 9021 7145 Mandurah (08) 9581 8588 Midland (08) 9274 5422 Mirrabooka (08) 9344 8478 Morley (08) 9375 6933 Myaree (08) 9317 7699 O’Connor (08) 9314 3822 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 NEW SOUTH WALES Coffs Harbour (02) 6651 6500 West Gosford (02) 4322 5833 QUEENSLAND Browns Plains (07) 3800 1733 Cairns (07) 4051 8155 Capalaba (07) 3245 2220 Cannon Hill (07) 3890 2744 Keperra (07) 3851 4625 Labrador (07) 5500 5700 Lawnton (07) 3889 2911 Mackay (07) 4942 3499 Maroochydore (07) 5479 2390 Springwood (07) 3808 2405 Toowoomba (07) 4638 7511 Townsville (07) 4775 6300 WESTERN AUSTRALIA Osborne Park (08) 9443 3711 Midland (08) 9250 2166 Rockingham (08) 9592 7999 Spearwood (08) 9494 2144 Victoria Park (08) 9361 8422 Whitford (08) 9403 0444 SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT SUPER CHEAP AUTO GROUP LIMITED 2006 ANNUAL REPORT 95 95 WWW.SUPERCHEAPAUTO.COM.AU WWW.BCF.COM.AU

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