Super Retail Group Ltd
Annual Report 2011

Plain-text annual report

Super Retail Group Limited (Formerly Super Cheap Auto Group Limited) ANNUAL REPORT 2011 CONTENTS Chairman and Managing Director’s Report Corporate Governance Statement Annual Report Directors’ Report Comprehensive Income Statement Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Audit Report Shareholder Information 3 8 13 14 31 32 33 34 35 84 85 87 WEBSITE www.superretailgroup.com THE ANNUAL GENERAL MEETING The Annual General Meeting of the Shareholders of Super Retail Group Limited will be held at the Kedron Wavell Services Club, Long Tan Room, 375 Hamilton Road, Chermside South, Queensland on Wednesday, 26 October 2011 at 11.30 am. BANKERS Australia and New Zealand Banking Group Limited HSBC Commonwealth Bank of Australia AUDITORS PricewaterhouseCoopers SOLICITORS Redmond Van De Graaff Mallesons Stephen Jaques STOCK EXCHANGE LISTING Super Retail Group Limited shares are quoted on the Australian Stock Exchange. NAME OF ENTITY SUPER RETAIL GROUP LIMITED (Formerly Super Cheap Auto Group Limited) ABN OR EQUIVALENT COMPANY REFERENCE ABN 81 108 676 204 REGISTERED OFFICE 751 Gympie Road LAWNTON QLD 4501 Telephone (07) 3482 7500 Facsimile (07) 3205 8522 SHARE REGISTRY Link Market Services Level 12, 680 George Street SYDNEY NSW 2000 1 ANNUAL REPORT 2011 Super Retail Group Limited828.8 715.4 624.8 525.9 1092.0 938.0 S A L E S ( $ m ) 87.5 65.8 55.1 E B I T ( $ m ) * 45.7 38.1 28.9 June 06 June 07 June 08 June 09 June 10 June 11 June 06 June 07 June 08 June 09 June 10 June 11 *excludes goodwill impairment charge in 2010 43.1 34.0 30.2 E P S ( ¢ ) 15.5 20.9 24.2 13.9 14.1 15.6 17.5 16.8 11.7 June 06 June 07 June 08 June 09 June 10 June 11 June 06 June 07 June 08 June 09 June 10 June 11 117.8 114.7 93.5 80.9 78.8 73.5 29.0 21.5 18.0 13.0 10.5 8.0 N E T D E B T ( $ m ) June 06 June 07 June 08 June 09 June 10 June 11 June 06 June 07 June 08 June 09 June 10 June 11 ANNUAL REPORT 2011 2 P O S T T A X R O C % ( ) I I D V D E N D ( ¢ ) Super Retail Group Limited CHAIRMAN AND MANAGING DIRECTOR’S REPORT We are very pleased to be able to report on another successful year for our Company. Despite the widespread slowing in the growth of retail spending, we have been able to deliver a strong increase in both sales and profit across the Group. Sales grew by 16.4% while profit after tax grew by 46.1%. These results have been achieved through a combination of the continued strong performance of the Supercheap Auto and BCF Boating Camping Fishing businesses and the full year contribution of the Ray’s Outdoors business, which was acquired on 31 May 2010. New stores, solid like for like sales growth and strong improvement in gross margins are the major drivers of the results. This has been delivered through a continued focus on new product introduction, sourcing and supply chain initiatives and the development of business capabilities. The results are particularly creditable given that the 2010/11 financial year was a 52 week period whilst the 2009/10 financial year was a 53 week period, with the extra week contributing an additional $18 million in sales and $800,000 in profit after tax to the prior year’s results. We have continued to invest in future growth with $48.3 million in new and refurbished stores across the Group and $7.1 million in IT and supply chain projects. Despite this investment, net debt was reduced by $5.3 million with a further reduction in net working capital per store a key factor. Underpinning our performance has been the passion and commitment of our team members. We have continued to improve team member retention which has increased from 68% to 70% over the year. On behalf of all shareholders we would like to thank all of our team members for their hard work and contribution throughout the year. The Board has declared a fully franked final dividend of 17.5 cents per share. As a result, the dividends for the full year are 29 cents per share, an increase of 35% (7.5 cents per share) over the prior year. The dividends are fully franked. The current dividend policy enables the Group to continue to gradually pay down debt and to invest in new stores and other growth initiatives whilst also delivering ongoing growth in dividend to shareholders. Auto and Cycle Retailing Divisional sales at $708.2 million were 3.4% higher than the prior period or 6% after adjusting for the extra week sales in the prior period. EBIT at $63.6 million was a very pleasing 32% higher than the prior comparative period. Supercheap Auto continued to perform extremely well with strong like for like sales growth of 4.8% maintaining the rate of growth delivered over the last four years. Like for like growth in both customer numbers and average number of items per transaction were the major drivers of sales growth. The business has continued to focus on new product introduction, with 20% of the product range renewed during the year, and in delivering further improvement in in-store stock presence and merchandising standards. The business also continued its store refurbishment program with a further 34 stores refurbished or relocated during the year, including three stores reconfigured as Superstores. The business completed the rollout of the extended range of tools and garage storage solutions which required a significant relay in many stores. This contributed to particularly strong like for like sales growth in the Tools and Storage categories. The Car Exterior, Carcare and Car Audio/Visual categories also performed particularly well. Gross margin improved by a further 1.7% points over the prior year and has now increased by 3.6% points over the last 3 years. There are many factors contributing to this exceptional result including direct sourcing of imported products, development of own brand ranges, investment in product quality reducing returns, supply chain efficiencies, improvement in trading terms and the stronger Australian dollar. 3 ANNUAL REPORT 2011 Super Retail Group LimitedNine new stores were opened and two stores were closed during the year which resulted in 274 stores across Australia and New Zealand at the end of June 2011. Some disruption to trading was experienced during the Queensland and Victorian floods and the Christchurch earthquakes with a number of short term store closures whilst one store in Sydney was closed for much of the year following a fire. The business has identified the potential for around 320 stores over the medium term. The business has continued to develop its on-line and trade customer offer and has experienced strong growth in both areas albeit from a low base. Both areas represent opportunity for further significant growth in the future. In June 2011, Supercheap Auto was recognised as the Oracle Retail World Australian Retailer of the Year. Performance at Goldcross Cycles, which represents 2% of the Group’s revenue, has continued to fall below expectations. Like for like sales declined by 14% during the year which was in line with trends across the wider bicycle market. More adults are riding bicycles but this has not led to an increase in spending across the domestic retail industry. Industry statistics indicate that approximately 16% of purchases made by Australian consumers in the bicycle market are from international websites – this figure was 7% only 18 months ago. In addition, fewer children are active cyclists. The shortfall in like for like sales was offset by the contribution from two new stores opened during the year, control of operating costs and improvement in gross margin. Overall gross margin increased by 3.0% points through the successful launch of own brand bicycles and various supply chain initiatives, despite the impact of market wide discounting and stock clearance actions. The Board has completed a review of the performance of the business and has determined that the most viable medium term value creating strategy will be to maintain the focus on performance improvement across the existing network of stores. This will be achieved through relocating underperforming stores to smaller lower cost locations, reducing stock holdings, developing a range of own brand parts and accessories, driving supply chain efficiencies and adapting business processes to facilitate a greater focus on customer service. Leisure Retailing The overall results of the division for the 2010/11 year include a full year’s contribution from the Ray’s Outdoors business, compared to one month’s contribution in the prior comparative period. The division performed well with sales at $384.1 million and EBIT at $32.0 million, both 50% higher than the prior comparative period. The $2 million synergy benefits from the acquisition of Ray’s Outdoors, which had been forecast to be delivered in the 2011/12 year, were fully realised in the 2010/11 year. Ray’s Outdoors was completely integrated into the Group’s supply chain and IT systems by October 2010 and the Merchandising and Marketing functions were integrated with BCF Boating Camping Fishing in January 2011. This has allowed both businesses to benefit from the scale of the combined division. The BCF Boating Camping Fishing business has continued to deliver strong sales growth with nine new stores opened during the year and like for like sales growth in existing stores of 4.6%. Like for like sales growth was driven by an increase in both customer numbers and in average item value. All three major categories performed well with Boating benefitting from the introduction of new products in the 4WD and kayak ranges. The business has continued to tailor the range at a store level to local market demand and to develop its range of own brand and exclusive products. Sales growth has been particularly strong in Victoria, South Australia and Western Australia and it was pleasing to see solid growth in North and Central Queensland after the slowdown in this region in the prior year. Sales in Brisbane and the Gold Coast were impacted by adverse weather conditions during the peak summer trading period. Membership of the BCF club has increased to 740,000 with 16,000 members attending in-store club nights during the year. The business has also successfully increased the amount of electronic direct marketing to club members. Visitor numbers to the BCF website have increased by 86% during the year as the business has continued to develop its library of online video content. ANNUAL REPORT 2011 4 Super Retail Group LimitedThe sales contribution from the Ray’s Outdoors business was below expectations. For much of the year, the business suffered from high levels of out of stocks across key merchandise ranges through a loss of focus in the lead up to the acquisition in May of last year and during the integration period post acquisition. The management team have conducted an extensive review of product ranging and pricing policies to bring these into line with customer expectations. New product ranges are being introduced into the business and there is a strong focus on improving product quality. International and domestic branded product trade partners have been invited to have a greater presence in the stores. A new customer value proposition has been developed along with a new marketing campaign and this will be launched in the early part of the 2011/12 year. Good progress has been made in developing the network of Ray’s Outdoors stores across Australia with 12 new stores opened during the year. A key challenge in the coming year will be to build brand awareness in Queensland, New South Wales and Western Australia to match the level in the business’ home state of Victoria. Overall gross margin across the division increased by a very pleasing 2.0% points through the contribution of the higher margin Ray’s Outdoors business and the work undertaken in BCF Boating Camping Fishing to increase the volume of directly sourced product, to improve supply chain processes and to secure improved trading terms. Gross margin in the Ray’s Outdoors business was ahead of expectations at the time of the acquisition which partly offset the sales shortfall. Overall operating costs to sales increased by 2.1% of sales which reflected the impact of the higher cost structures in the Ray’s Outdoors business to support sales of footwear, BBQs and outdoor furniture and the increase in the number of smaller format BCF Boating Camping Fishing stores. During the year, the division developed a third business concept to trade under the name FCO Fishing Camping Outdoors. This new business, which takes elements from both the BCF Boating Camping Fishing and the Ray’s Outdoors businesses, has been designed specifically for the New Zealand market. The business is being developed to provide a destination offer across a full range of outdoor leisure categories (Fishing, Camping, Boating, Kayaks, Outdoor Apparel and Footwear, BBQs) which is a gap in the current New Zealand retail market. Plans are in progress to launch the business in November 2011 with 10 stores across the North Island and a further two stores in the post Christmas period. This will require a net capital investment of circa $12 million. The Board will monitor performance over the initial 12 month period before committing further capital. At the end of June, the division had 78 BCF Boating Camping Fishing stores and 50 Ray’s Outdoors stores trading across Australia. There is the potential for around 185 stores across Australia and New Zealand through the ongoing growth of the existing businesses and the development of the FCO business. Group Costs Group Costs include $1.9 million of integration costs associated with the Ray’s Outdoors business, $0.9 million of non recurring corporate development costs, $0.7 million of multi channel development program costs, $2.1 million of costs associated with unutilised distribution centre, support office and store space (mainly arising from the integration of Ray’s Outdoors) and $2.5 million public company costs. 5 ANNUAL REPORT 2011 Super Retail Group LimitedGroup Logistics and Sourcing The foundations established by the Company during the last four years have served the Group well during the year. The Ray’s Outdoors business was integrated into the Group’s supply chain operations within three months of acquisition. The Group’s five distribution centres are capable of operating as ‘multi-user’ facilities supporting all of the Group’s businesses. The New Zealand distribution centre site will be relocated to a larger facility in the coming year to support the development of the FCO Fishing Camping Outdoors business. In addition to the increase in units flowing through the distribution centres as a result of the growth of the Group’s businesses, the BCF Boating Camping Fishing business was able to achieve gross profit improvements through directing more products through distribution centres rather than direct from trade partners to stores. The value of product sourced by the Group Sourcing Team based in China increased by 150% to more than $70 million. This growth has been a major factor underpinning the increase in gross margins across the Group’s businesses over the last four years. Some additional off-site storage was required during the lead up to peak sales periods and this remains an opportunity for further efficiency savings in coming years as the Group improves its inventory planning capabilities. The Group has continued to improve in stock position across its existing businesses and to reduce average stock holdings. Review of Financial Condition Cash flow from operations was $70.9 million which was $18.3 million higher than the prior period. Underlying cash flow from operations pre investment in new store inventory and set up costs was $95.3 million which was $25.3 million higher than the prior period. This reflected the continued strong control of working capital across the Supercheap Auto and BCF Boating Camping Fishing businesses. The Ray’s Outdoors business has invested in introducing new product ranges which has resulted in a consequential increase in inventory per store. Group capital expenditure was $36.5 million which included $12.9 million in new store fit-out, $10.9 million in store refurbishments, $6.7 million in information technology projects and $5.9 million in general capital projects. The Group fully funded all growth investment and continued to reduce net debt which stood at $73.5 million at the end of June. This represented a decrease of $5.3 million compared to the prior comparative period. The Group has operated comfortably within debt facility limits and with significant head room against all facility covenants throughout the year. Corporate Social Responsibility The Group has continued to support the Sids and Kids, Canteen and Heart Foundation charities. The Group is particularly proud of the work that has been done to support BrAshA-T Ataxia Telangiectasia Limited, a charity raising funds to direct towards research into an extremely rare but very serious degenerative condition. The Group’s sourcing team has developed a range of products which are sold through the Group’s stores with all monies raised donated to the BrAshA-T charity. The Group also supported the Queensland and Victorian flood recovery funds and the Christchurch earthquake recovery fund as well as raising funds for a number of team members affected by these disasters. Supercheap Auto continues to support and market safe driving campaigns, BCF Boating Camping Fishing raises funds for the Coastguard and Ray’s Outdoors has developed a relationship with the Cancer Council to raise funds for and awareness of skin cancer. The Group has now appointed a Sustainability Manager to drive the Group’s environmental initiatives including the reduction of packaging, power consumption and plastic bag usage and the development of recycling arrangements. Further details on the Group’s initiatives are provided in the Group’s Corporate Review which can be found on the Group’s website: superretailgroup.com.au. Team Members The Group now employs close to 6,200 team members at 430 sites across Australia, New Zealand and China. As highlighted earlier in this report, we are particularly pleased that our team member retention has continued to increase. Over the last five years, retention of all team members, inclusive of our casual team members, has increased from 59% to 70% and is now strongly ahead of the average achieved across the retail industry. ANNUAL REPORT 2011 6 Super Retail Group LimitedThe safety performance across the Group continues to be strong with injury rates below retail industry averages. The safety record across the distribution centres is particularly pleasing given the large increase in the volume of product being handled by the Group Logistics team. Our retail teams have increased their focus on safe working practices during the year and safety incidents have fallen as a proportion of total team members. We are reviewing our stock handling practices to ensure that these allow us to safely handle stock throughout the supply chain, particularly given the increase in the weight and size of product being sold in our stores. We continue to invest in improving our learning and development programs and have introduced a number of new management development and product training programs during the year. All store teams across the Group now have a monthly evening training meeting. We would like to acknowledge the team for continuing to demonstrate tremendous levels of passion and commitment. We would also like to particularly recognise the efforts of those team members both in the stores and in the set up teams who were impacted by the natural disasters during the year. There is nothing more discouraging than seeing a store that you have worked hard to present to a high standard being destroyed by flood or earthquake – particularly when this happens more than once. Our team have shown great resilience to bounce back quickly. Looking Forward We have demonstrated over the last two years, during a period of a downturn in the growth in retail spending, that we can continue to deliver strong growth in both revenue and profitability. Although wider economic conditions mean that the short term outlook for retail spending remains uncertain, we are confident of our ability to grow our store network, deliver like for like sales growth and improve gross margins. We also expect to continue to deliver working capital efficiencies across the Group. In the coming year, we plan to open five new stores, convert two stores to Superstores and refurbish another 30 stores in our Supercheap Auto business and to open 20 to 25 stores across the Leisure Retailing division. We will continue to invest in developing our multi channel and customer relationship management capabilities. We plan to be able to offer our customers options to order on-line with either pick up in store or home delivery and we expect to launch a loyalty scheme in the Supercheap Auto business in the coming year. We will also continue to explore opportunities to extend our retail operations into adjacent retail categories through either acquisition or organic development. Thank you for your ongoing support of our company, we look forward to reporting to you on our progress in the coming year. R Wright Chairman P A Birtles Managing Director and Chief Executive Officer ANNUAL REPORT 2011 7 Super Retail Group LimitedCORPORATE GOVERNANCE STATEMENT Super Retail Group Limited (formerly 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 Retail 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. They comply with the ASX Corporate Governance Principles and Recommendations (including 2010 Amendments). The Company has adopted policies relating to diversity, securities trading and briefing of analysts, these are available from the Company website www.superretailgroup.com. The revision and transition of our governance frameworks has commenced and details of our diversity policy are contained in pages 27 to 28 of the report. Other changes in relation to the financial year 3 July 2011 to 30 June 2012 will be disclosed in the next annual report. As at 2 July 2011, and to the date of the signing of this report, the position of the Company is as follows: Principle 1: Lay solid foundations for management and oversight 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. Principle 2: Structure the Board to add value Composition of the Board The constitution of the Company provides that the number of Directors is to be not less than three nor more than eight. The Board is currently comprised of five directors, four of whom (including the Chairman) hold their positions in a non-executive capacity. The Board operates in accordance with the broad principles set out in its charter which is available from the Corporate Governance information section of the Company website at www.superretailgroup.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. The Managing Director is responsible for implementing Group strategies and policies. The composition of the Board is reviewed annually by the Board Nomination Committee to ensure that it has available an appropriate mix of skills and experience to ensure the interests of shareholders are served. Details of the members of the Board, their experience, expertise, qualifications and independent status are profiled in the Directors’ Report on pages 14 to 28. Responsibilities The responsibilities of the Board include: • • • • • approving the Company’s goals and strategic direction; monitoring financial performance, including adopting annual budgets and approving the Group’s financial 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 significant business risks are identified and appropriately managed. ANNUAL REPORT 2011 8 Super Retail Group LimitedDirectors’ Independence As stated there are five Directors, three of whom are Independent Non-Executive Directors (including the Chairman). The predominance of Independent Non-Executive Directors clearly separates the Board from the Company’s executive management and enshrines board independence. The structure also provides the Company with the benefit of a diverse range of experience, qualifications and professional skills. The Board has adopted the independence definition suggested by the ASX Corporate Governance Council and as such three of the Company’s Directors (namely Mr Robert Wright, Ms Sally Pitkin and Mr R John Skippen) are considered to be independent by reference to that definition. Independent Professional Advice The Board (and each individual Director) is entitled to seek independent professional advice consistent with Corporate Governance Practices at the Company’s expense (subject to the reasonableness of the costs and Board consent) in the conduct of its duties for the Company. Performance Assessment The Board 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. This assessment was undertaken during June 2011. Financial Reporting The Board is provided with monthly reports from management on the financial performance of the Company. The monthly reports include details of all key financial measures reported against budgets approved by the Board. The Company’s financial report preparation and approval process for each financial year involves both the Managing Director and the Chief Financial Officer making the following certifications to the Board that: • • • the Company’s financial reports and accompanying notes represent a true and fair view in all material respects of the Company’s financial condition and operational results and are in accordance with relevant accounting standards; 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 efficiently and effectively in all material respects. Board Committees The Board has established three committees to assist it in carrying out its responsibilities, the Board Nomination Committee, the Human Resources 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 specific reporting by the committees to the Board are addressed in the charter of the individual committees. Principle 3: Promote ethical and responsible decision making 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 reflects the highest standards of behaviour and professionalism and the practices necessary to maintain confidence in the Company’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. This is supported by the Company’s integrity policy and system of reporting activity suspected of breaching the Code to the Company Secretary. 9 ANNUAL REPORT 2011 Super Retail Group LimitedA copy of the Code is available on the Company’s website. Dealing in Shares The Company has a formal written policy for Directors and officers with respect to trading in the Company’s securities (“Trading Policy”). Directors and senior management (and their associates) are prohibited from engaging in short-term trading of Company securities. The policy also restricts the selling of Company securities to three “window” periods (between 24 hours and 30 working days following the release of the annual results, the release of the half-yearly results and the close of the annual general meeting) and such other times as the Board permits. In addition, Directors must notify the Chairman before they buy or sell Company securities and confirm once the transaction is complete. In all instances, buying or selling Company 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. Ethical Sourcing Policy The Company has developed an Ethical Sourcing Policy that applies to all its businesses and brands. The policy incorporates both environmental and socioeconomic criteria for all imported products sourced directly or through agents. The policy encourages trade partners and agents to improve their social and environmental practices, and protect our corporate reputation and that of our individual businesses and brands. Principle 4: Safeguard integrity in financial reporting 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 Skippen (Chairman) R J Wright S A Pitkin D D McDonough (resigned 31 August 2010) All members of the Audit and Risk Committee are financially literate and have the requisite financial expertise. Some members have an in-depth understanding of the industry in which the Company operates. Details of these Directors’ qualifications and attendance at Audit and Risk Committee meetings are set out in the Director’s Report on pages 14 to 28. The Audit and Risk Committee operates in accordance with a charter which is available on the Company’s website. The Audit and Risk Committee supports the full Board and essentially acts in a review and advisory capacity. The Committee is considered to be a more efficient forum than the full Board for focusing on particular issues relevant to: • • • verifying and safeguarding the integrity of the Company’s financial reporting including the review, assessment and approval of the half-year financial report, the annual report and all other financial information published by the Company or released to the market; establishing a sound system of risk oversight and management, and internal control; and establishing a sound system of compliance with laws and regulations, internal compliance guidelines, policies, procedures and control systems and prescribed internal standards of behaviour. ANNUAL REPORT 2011 10 Super Retail Group Limited This Committee provides ongoing assurance in the areas of: • • • financial administration and reporting; audit control and independence; and accounting policies and standards. 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; establishes processes to ensure the 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; and 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 financial statements. It is the policy of the External Auditors to provide an annual declaration of their independence to the Audit and Risk Committee. The External Auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. Principle 5 and 6: Make timely and balanced disclosures and respects the rights of shareholders 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). Principle 7: Recognise and manage risk The Audit and Risk Committee provides oversight and direction to the Company’s risk management, compliance and internal control systems, including: • • • legal compliance; internal controls; and risk oversight and management. Risk Management The Managing Director and senior management team are instructed and empowered by the Board to implement risk management strategies, report to the Board and the Audit and Risk Committee on developments related to risk, and suggest to the Board new and revised strategies for mitigating risk. The General Manager – Risk Management is a senior role with responsibility for providing counsel and direction in risk management across the Group. This includes counsel on the refinement, implementation and monitoring of a comprehensive and integrated risk management framework based on unit manager ownership of risk with independent monitoring. The General Manager – Risk Management reports directly to the Group’s Chief Financial Officer with an indirect reporting line to the Chairman of the Audit and Risk Committee. 11 ANNUAL REPORT 2011 Super Retail Group LimitedInternal Audit The role of Internal Audit as part of the Group’s risk management framework is to understand the key risks of the organisation and to examine and evaluate the adequacy and effectiveness of the system of risk management and internal controls used by management. Internal Audit carries out regular systematic monitoring of control activities and reports to both relevant business unit management and the Audit and Risk Committee. Typically, the audit methodology includes performing risk assessments of the area under review, undertaking audit tests, including selecting and testing audit samples, reviewing progress made on previously reported audit findings and discussing internal control or compliance issues with line management, and reaching agreement on the actions to be taken. Health and Safety The Company aims to provide and maintain a safe and healthy work environment. The Company acts to meet this commitment by implementing work practices and procedures throughout the Group that comply with the relevant regulations governing the workplace. Team Members are expected to take all practical measures to ensure a safe and healthy working environment in keeping with their defined responsibilities and applicable law. Principle 8: Remunerate fairly and responsibly Human Resources and Remuneration Committee The Human Resources and Remuneration Committee is comprised of the non-executive directors. The Committee operates in accordance with its charter which is available on the Company’s website, and described in the Remuneration and Diversity report. The Board has charged the Human Resources and Remuneration Committee with corporate governance and oversight responsibilities in relation to the Company’s people strategy including remuneration components, performance measurements and accountability frameworks, recruitment, retention, talent management and succession planning. This Committee was established by the Board in May 2011. Prior to this time, matters of remuneration were the addressed by the Board’s Nomination and Remuneration Committee. 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 specific formal job description. Further information on directors’ and executives’ remuneration is set out in the Directors’ Report under the heading ‘Remuneration and Diversity report’. In accordance with Company policy, participants in equity-based remuneration plans are not permitted to enter into any transactions that would limit the economic risk of options or other unvested entitlements. Details of this policy can be found on the Company’s website. Employee Share Plans The Company considers share plans to be an effective ownership, long-term performance and team retention vehicle. It encourages all Team Members to participate in its schemes, which offer the ability to acquire shares via: • • an externally administered tax exempt plan which makes on market purchases; and an internally administered rights (including options) plan offered to select executives. At the time of this report, approximately 500 team members participated in one or both plans. ANNUAL REPORT 2011 12 Super Retail Group LimitedANNUAL REPORT Super Retail Group Limited (Formerly Super Cheap Auto Group Limited) FOR THE PERIOD ENDED 2 JULY 2011 ` ANNUAL REPORT 2011 13 Super Retail Group Limited Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Directors’ Report Your Directors present their report on the consolidated entity consisting of Super Retail Group Limited (formerly Super Cheap Auto Group Limited) and the entities it controlled at the end of, or during, the period ended 2 July 2011. Directors The following persons were Directors of Super Retail Group Limited during the period and up to the date of this report. R A Rowe R J Wright P A Birtles R J Skippen S A M Pitkin D D McDonough (resigned 31 August 2010) Information on qualifications and experience of Directors is included on pages 15 to 17. Principal activities During the period, the principal continuing activities of the Group consisted of: • • • retailing of auto parts and accessories, tools and equipment retailing of boating, camping, outdoor entertainment and fishing equipment and apparel wholesale, retail and distribution of bicycles and bicycle accessories Dividends – Super Retail Group Limited The Directors declared a fully franked dividend of 17.5 cents per share be paid on 26 September 2011 (total dividend, fully franked - $22,753,279). The following fully franked dividends of the parent entity have also been paid, declared or recommended since the end of the preceding period: Dividend Payment Date $ 2010 interim fully franked dividend (13.0¢ per share) 2011 interim fully franked dividend (11.5¢ per share) 1 October 2010 5 April 2011 16,618,245 14,843,901 31,462,146 Review of operations Revenue from trading operations for the year was $1,093,398,000 (2010: $938,602,000). During the period, the consolidated entity opened nine new Supercheap Auto stores, of which eight were in Australia and one in New Zealand, and closed one store in each of Australia and New Zealand. This resulted in Supercheap Auto trading with 274 stores at the end of the period. BCF opened nine stores during the period taking total trading stores to 78. Goldcross Cycles opened a further two stores during the period taking total trading stores to 20 at the end of the period. During the period Ray’s Outdoors opened 12 stores taking the total trading stores to 50. At the end of the financial year, the Group was trading from 422 stores. The net profit of the Group (consisting of Super Retail Group Limited and the entities it controlled at the end of, or during, the period) for the period ended 2 July 2011, after providing for income tax, amounted to $55,599,000 (2010: $38,053,000). A review of the operations for the 52 weeks to 2 July 2011 is set out in pages 3 to 7 of this report. Significant changes in the state of affairs Contributed equity increased by $12,383,000 as the result of dividend reinvestment plan and share options plan. Details of the changes in contributed equity are disclosed in note 24 to the financial statements. On 1 December 2010 the company changed its name to Super Retail Group Limited from Super Cheap Auto Group Limited. Matters subsequent to the end of the financial year Since 2 July 2011 Super Retail Group Limited does not have any matters subsequent to the end of the financial year to be disclosed. Page 14 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Likely developments and expected results of operations Information on likely developments in the operations of the Group and the expected results of operations have not been included in this annual financial report because the directors believe it would be likely to result in unreasonable prejudice to the Group. Environmental regulation The Group’s environmental obligations are regulated under State, Territory and Federal Law. The Group has a policy of complying with its environmental performance obligations. All environmental performance obligations are monitored by the Board. No environmental breaches have been notified to the consolidated entity during the period ended 2 July 2011. Directors and Directors’ interests The Directors of Super Retail Group Limited in office at the date of this report are listed below together with details of their relevant interest in the securities of the Company at that date. R J Wright, BCom, FCPA, MAICD. Independent Chairman Non-Executive. Age 62 Experience and expertise Appointed Chairman on 28 October 2009 and has been an Independent Non-Executive Director for 7 years 3 months. Director of a number of major Retail companies over the last 20 years. Other current directorships Chairman and Non-executive director of RCL Group (formerly Babcock & Brown Residential Land Partners Group) (director since 2006). Chairman and Non-executive director of SAI Global Limited (director since 2003). Chairman and Non– executive director of APA Ethane Limited (director since 2008) which is the responsible entity of the registered investment schemes that comprise Ethane Pipeline Income Fund, the securities in which are quoted on the ASX. Non–executive director of Australian Pipeline Limited since 2000. Former directorships in the last 3 years Chairman and non-executive director of Dexion Limited. Special responsibilities Chairman of the Board Chairman of the Nomination Committee* Member of the Audit and Risk Committee Member of the Human Resources and Remuneration Committee* Interest in shares and options 46,048 ordinary shares in Super Retail Group Limited P A Birtles. BSc, ACA Managing Director and Chief Executive Officer. Age 47 Experience and expertise Managing Director and Chief Executive Officer for 5 years and 8 months. Previously Chief Financial Officer for 4 years 8 months and Company Secretary for 1 year 5 months. Other current directorships Non-executive director of GWA Group Limited Former directorships in the last 3 years None Special responsibilities Managing Director and Chief Executive Officer Member of the Nomination Committee* Interests in shares and options 1,692,596 ordinary shares in Super Retail Group Limited 200,000 options over ordinary shares in Super Retail Group Limited 200,000 performance rights over ordinary shares in Super Retail Group Limited Page 15 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 R A Rowe. Non-Executive Director. Age 67 Experience and expertise Founder of the business in 1972. Non-executive director for 7 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 Committee.* Member of the Human Resources and Remuneration Committee* Interests in shares and options 53,671,326 ordinary shares in Super Retail Group Limited. R J Skippen, ACA Independent Non-Executive Director. Age 63 Experience and expertise Independent Non-Executive Director for 2 years 9 months. John was the former Finance Director of Harvey Norman Holdings Ltd for 12 years and has over 30 years' experience as a chartered accountant. Other current directorships Non-Executive Director of Briscoe Group Limited (NZ), Flexigroup Limited, Slater & Gordon Limited and Emerging Leaders Investment Limited. Former directorships in the last 3 years Non-Executive Director of Mint Wireless Limited. Special responsibilities Chairman of the Audit Committee Member of the Nomination Committee* Member of the Human Resources and Remuneration Committee* Interest in shares and options Nil. S A Pitkin, LLM, LLB FAICD Independent Non-Executive Director. Age 52 Experience and expertise Independent Non-Executive Director for 1 year. Sally is a lawyer and a former partner of Clayton Utz. Other current directorships Former directorships in the last 3 years Aristocrat Limited Chandler Macleod Limited Special responsibilities Chair of the Human Resources and Remuneration Committee* Member of the Audit Committee Member of the Nomination Committee* Interest in shares and options 10,000 ordinary shares in Super Retail Group Limited Page 16 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 D D McDonough, BBus (Acty), LLB (Hons), SJD, FCPA, FAICD. Independent Non-Executive Director. Age 59 Experience and expertise. Resigned 31 August 2010 Independent Non-Executive Director for 6 years 3 months. Partner of a major legal firm. Other current directorships Non-executive director of GWA Group Limited. Former directorships in the last 3 years None. Special responsibilities Member of the Audit and Risk Committee. Member of the Nomination and Remuneration Committee*. Interests in shares and options 62,083 ordinary shares in Super Retail Group Limited Company Secretary The Company Secretary is Mr D J Kelley, B.Ec., Grad. Dip. AppCorpGov, MBA, MIIA, ACIS. Mr Kelley commenced with Super Retail 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 2 July 2011 is set out below: Meetings of Committees Full meetings directors B 11 11 11 2 A 11 11 10 2 11 11 11 11 Audit & Risk A 3 n/a n/a 1 3 3 B 3 n/a n/a 1 3 3 Nomination & Remuneration* B 2 2 2 1 A 2 2 2 1 2 2 2 2 Human Resource & Remuneration* A 0 0 0 0 0 0 B 0 0 0 0 0 0 = Number of meetings attended B = Number of meetings held during the time the Director held office or was a member of the Committee during the year R J Wright P A Birtles R A Rowe D D McDonough (resigned 31 August 2010) R J Skippen S A Pitkin A * The Human Resources and Remuneration Committee was established by the Board in May 2011. Prior to this time, matters of remuneration were the addressed by the Board’s Nomination and Remuneration Committee. 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. The Board of Directors has considered the position and, in accordance with the advice received from the Audit and Risk Committee is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, 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. Page 17 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 During the period the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Assurance Services PricewaterhouseCoopers Australian firm 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 2010 2011 $ $ 424,468 0 424,468 405,321 0 405,321 269,749 292,272 144,157 573,308 Loans to directors and executives Information on loans to directors and executives are set out in note 31 to the financial statements. 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 29. Remuneration and Diversity report Introduction One of Super Retail Group’s core principles is that the attraction, development and retention of loyal and passionate team members provide a competitive advantage which is fundamental to the long term success of the Group. The maintenance of a workplace culture and the development of people practices that support this principle are strategic priorities for the Group. The development of people practices covers a number of areas including attraction, diversity, learning and development, engagement, workplace health and safety, talent and succession management and remuneration and benefits. Remuneration and benefits practices are set in the context of an overall policy to provide market competitive remuneration arrangements which support the attraction, development and retention of loyal and passionate team members and that are aligned with the interests of shareholders. Remuneration Policy The Super Retail Group is committed to creating a high performance culture. Our philosophy is to provide flexible and competitive market based total remuneration arrangements that are linked to the performance of the Group and its businesses and support services. The key elements of the policy are: • • • • • • To provide competitive total remuneration arrangements that enables the Group to attract and retain high performing team members and to reward them for their contribution to the success of the Group. To align remuneration arrangements with the delivery of sustainable value to the Group’s shareholders. To maintain a pay for performance environment through linking incentive pay opportunities to the achievement of specific, measurable business goals. To position our base salaries at or around the median and our performance incentives in the 2nd quartile of relevant market remuneration levels. To provide arrangements with the flexibility to recognise individuals based on performance, experience and qualifications. To provide equitable, fair and consistent pay arrangements across the Group through a systematic methodology involving job value and market positioning. Remuneration can include a number of different elements such as base pay, superannuation, short term incentives, long term incentives, tools of trade, study and relocation assistance, share plans and novated lease arrangements. The elements of the total remuneration package may vary according to the job role, team members experience and performance and market practice. Page 18 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Remuneration and Diversity report (continued) Role of the Human Resources and Remuneration Committee The primary objective of the Committee is to assist the Board to fulfil its corporate governance and oversight responsibilities in relation to the Group’s people strategy including remuneration components, performance measurements and accountability frameworks, recruitment, retention, talent management and succession planning. The Committee undertakes an annual review of the Group’s remuneration strategy and remuneration policy to facilitate understanding of the overall approach to remuneration and to confirm alignment with the Group’s business strategy and compliance with regulatory standards. The Committee reviews and recommends to the Board for approval remuneration arrangements for the Chief Executive Officer and other senior Executives. The Committee will review the arrangements on an annual basis, obtaining independent external remuneration advice where appropriate. The Committee undertakes an annual review of the Group’s performance management system to confirm the integrity of systems and processes in making incentive based payments. The Committee will also verify compliance with vesting or exercise requirements for equity based rewards. The Committee establishes the policy for the remuneration arrangements for Non Executive Directors, reviewing remuneration arrangements annually, obtaining independent external remuneration advice where appropriate. The Committee reviews and recommends to the Board for approval the Remuneration Report and any other report required to be produced for shareholders to meet regulatory requirements. Non Executive Directors Remuneration Structure Fees to Non Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. The level of fees are reviewed annually by the Human Resources and Remuneration Committee and are based on the median of fees paid for comparative Non Executive Director roles in similarly sized publicly listed companies operating in the retail and consumer goods industry. The Human Resources and Remuneration Committee engage the services of an independent remuneration consultant to prepare the information for review and to advise on the appropriate amount of fees to ensure that they are market based and fairly represent the responsibilities and time spent by the Directors on Company matters. Additional fees are paid to the Chairs of the Audit and Risk and the Human Resources and Remuneration Committees. This reflects the additional time commitment required by the Chairs of these committees. Non Executive Director Fees are determined within an aggregate Directors’ fee pool approved by shareholders. The current pool of $600,000 was approved on 26 October 2006. Non Executive Directors’ fees are inclusive of superannuation contributions. Non Executive Directors do not receive preference shares or share options as part of their remuneration. Non Executive Directors may opt each year to receive a proportion of their remuneration in Super Retail Group Limited shares, which would be acquired on market. Directors Fees The Directors’ fees are inclusive of Committee fees. Fees for year to 2 July 2011 were approved on 29 July 2010, while fees for the year to 1 July 2012 were approved on 17 August 2011. The following fees apply: Chairman Other Non Executive Directors Committee Chair 2011 $ 140,000 82,500 8,500 2012 $ 160,000 90,000 10,000 The Directors intend that the General Meeting of Shareholders on 26 October 2011 consider increasing the total aggregate annual remuneration payable to non-Executive Directors of the Company by way of Directors’ fees from $600,000 per annum to a maximum of $800,000. Page 19 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Remuneration and Diversity report (continued) Executive Remuneration Structure The Executive Remuneration Structure is reviewed annually by the Human Resources and Remuneration Committee. The Committee ensure that the Remuneration Structure is consistent with market practice. Executive Remuneration consists of 3 elements: • Base Salary Package (inclusive of superannuation contributions, car allowance and other benefits) • Short Term Incentive (STI) Long Term Incentive (LTI) • The mix of remuneration between fixed and variable components is varied in line with the seniority of the role and the relative responsibilities of the role for driving business performance and for developing and implementing business strategy. For the year to 2 July 2011, the following mix of remuneration was applied. Fixed STI LTI Chief Executive Officer Chief Operating Officers Chief Financial Officer General Manager Group Logistics 45% 50% 55% 55% 25% 25% 22% 22% 30% 25% 23% 23% For the year to 30 June 2012, the following mix of remuneration will apply: Fixed STI LTI Chief Executive Officer Chief Operating Officers Chief Financial Officer General Manager Group Logistics 40% 45% 50% 55% 28% 27% 25% 22% 32% 28% 25% 23% The tables assume that a full STI is received and that the LTI fully vests – the actual reward is dependant on the achievement of performance targets. The LTI component is based on the notional monetary value at the time of grant. This notional valuation may differ from the accounting valuation which considers probability of vesting and other factors. Base Salary Package The Group’s intent is to offer executives a base salary package that reflects the median market base salary package for a comparable role in a similarly sized publicly listed company operating in the retail and consumer goods industry. The Executive’s performance and experience are also considered in determining the base salary package. The base salary package consists of base pay and superannuation and may include prescribed non-financial benefits at the executives’ discretion on a salary sacrifice basis. Base salary packages are reviewed annually. There is no guaranteed base salary increase in any senior executive’s service contract. Market information is sourced from market remuneration surveys and from a review of the annual reports of benchmark listed companies. All executive base salary proposals are reviewed and approved by the Human Resources and Remuneration Committee. Short Term Incentive (STI) Executives are invited to participate in a short term incentive scheme that rewards executives for the achievement of performance targets that are consistent with the Group’s approved business plan and that are aligned to delivering sustainable value to shareholders. The Human Resources and Remuneration Committee set an annual profit before tax target. In setting this target, the Committee considers the profit projections set out in the Group’s approved business plan and investor expectations. Page 20 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Remuneration and Diversity report (continued) For the year to 2 July 2011, the profit before tax target was set at 28% higher than the profit before tax achieved in the period to 3 July 2010. This target reflected the budgeted contribution of the Ray’s Outdoors business acquired on 31 May 2010. The target reflected an underlying increase in Group profit of circa 13%, which was determined to be an appropriately demanding target in the context of the existing retail environment. Should profit before tax exceed the profit target, an STI bonus pool is created to a value of 20% of the amount that company profit exceeds the target. Executives have the opportunity to share in the STI bonus pool up to the maximum value of between 40% and 70% of their base salary in accordance with the Executive Remuneration Structure outlined above. The level of participation is dependant on the achievement of 12 Key Performance Indicators (KPIs) relevant to their area of responsibility. The 12 KPIs cover the achievement of financial and operational results and the successful implementation of strategic and people development initiatives. The KPIs are consistent with the overall performance targets set out in the Group’s business plan. The Human Resources and Remuneration Committee is responsible for assessing whether the KPIs are achieved and for approving short term incentive payments. The Committee receives reports from management to assist in the assessment. Long Term Incentive (LTI) The Group’s remuneration structure aims to align long term incentives for senior executives with the delivery of sustainable value to shareholders. The alignment of interests is important in ensuring that senior executives are focused on delivering sustainable returns to shareholders, whilst allowing the Group to attract and retain senior executives of a high calibre. In October 2009, the Group’s shareholders approved the establishment of the Super Retail Group Limited Performance Rights Plan (PRP). The PRP links the long term remuneration of senior executives with the economic benefit derived by shareholders over a three to five year period. Participation in the PRP is by invitation only and only those senior executives invited by the Board are able to participate. The PRP allows for the annual grant of Performance Rights to senior executives. The grant of Performance Rights entitles the senior executive to be granted an equivalent number of shares upon vesting of those Performance Rights. The vesting of Performance Rights is subject to the satisfaction of performance conditions. The performance conditions will be satisfied if the Group achieves both certain earnings per share increases and return on capital hurdles over a three year period as determined by the Board or its nominee. The Board consider that the combination of earnings per share growth and maintenance of return on capital ensure that executives maintain a focus on value creating growth which will deliver sustainable returns for shareholders. The issues of Performance Rights in 2009, 2010 and 2011 are subject to the following performance conditions over the three year period ending 30 June 2012, 30 June 2013 and 30 June 2014 respectively: a) 10% cumulative earnings per share growth; and b) Return on capital of more than 15% If a Performance Right has not lapsed and the performance conditions have been satisfied, Performance Rights will vest in accordance with the following schedule: Time after grant of Performance Right % of Performance Rights that vest 3 years 4 years 5 years 50% 25% 25% The notional value of Performance Rights granted to each senior executive is based on the share price of the Group at the time of grant. The number of Performance Rights granted to each senior executive is determined in accordance with the Executive Remuneration Structure outlined above and have a value of between 42% and 80% of their base salary. This value of Performance Rights for grant purposes may differ from the accounting valuation which considers probability of vesting and other factors. Page 21 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Remuneration and Diversity report (continued) Relationship of Remuneration to Company Performance The performance of the Group and remuneration paid to key management personnel over the last 6 years is summarised in the following table: Company Performance 2006 2007 2008 2009 2010 2011 Sales ($m) 525.9 624.8 715.4 828.8 938.0 1,092.3 Profit before tax ($m) Post Tax ROC (%) Earnings Per Share (¢) Dividends Per Share (¢) 30 June Share Price ($) 23.4 11.7 15.5 8.0 1.55 31.3 13.9 20.9 10.5 4.20 Remuneration Paid to Key Management Personnel Base Salary Package Short Term Incentive Long Term Incentive Total 1.8 0.1 0.4 2.3 1.8 0.8 0.2 2.8 36.8 14.1 24.2 13.0 2.33 1.9 0.2 0.2 2.3 41.9 15.6 30.2 18.0 3.61 2.1 0.8 0.2 3.1 53.9 16.8 34.0 21.5 5.27 2.2 1.1 0.4 3.7 77.7 17.5 43.1 29.0 7.00 2.5 1.0 0.7 4.2 Over the last 5 years, earnings per share have increased by 178%, dividends per share have increased by 262% and the share price has increased by 352%. During the same period, total remuneration paid to key management personnel has increased by 83% whilst Base Salary has increased by 39%. The major driver of increase in total remuneration has been incentive pay reflecting the strong performance of the Group over the last five years. Total remuneration paid to key management personnel as a proportion of profit before tax was 10% in 2006 and had reduced to 5.4% in 2011. Details of remuneration of the Group Amounts of remuneration Details of the remuneration of the directors and key management personnel of the Group (as defined in AASB 124 Related Party Disclosures) and the five highest paid executives of Super Retail Group Limited are set out in the following tables. The key management personnel of the Group includes the directors and the following executive officers, (being those who are responsible for developing and implementing the Group’s strategy): • • • • • P A Birtles, Managing Director D F Ajala, Chief Operating Officer, Auto & Cycle Retailing S J Doyle, Chief Operating Officer, Leisure Retailing G G Carroll, Chief Financial Officer G L Chad, General Manager, Group Logistics The highest paid executives for the period ended 2 July 2011 were as follows: • • • • • P A Birtles D F Ajala S J Doyle G G Carroll G L Chad Page 22 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Remuneration and Diversity report (continued) 2011 Name Non-executive directors R J Wright Chairman R A Rowe D D McDonough (resigned 31 August 2010) R J Skippen S A Pitkin Sub-total non-executive directors Executive directors P A Birtles Other key management personnel D F Ajala S J Doyle G G Carroll G L Chad Totals 2010 Name Non-executive directors R J Wright Chairman R D McIlwain Chairman (resigned) R A Rowe D D McDonough R J Skippen S A Pitkin Sub-total non-executive directors Executive directors P A Birtles Other key management personnel D F Ajala S J Doyle G G Carroll G L Chad Totals Short-term benefits Post- employment benefits Share-based payment Cash salary and fees $ Cash bonus $ Non- monetary benefits $ Super- annuation $ Options $ Performance Rights $ 127,659 31,932 5,208 71,000 75,688 311,487 0 0 0 0 0 0 0 0 0 0 0 0 12,341 50,568 9,396 20,000 6,812 99,117 0 0 0 0 0 0 0 0 0 0 0 0 Total $ 140,000 82,500 14,604 91,000 82,500 410,604 794,886 416,625 2,415 27,699 21,532 307,167 1,570,324 392,947 359,846 307,801 292,007 2,458,974 195,500 179,400 119,510 135,975 1,047,010 5,104 14,954 0 27,893 50,366 26,949 15,199 15,199 47,600 231,763 3,992 3,992 8,096 3,010 40,622 115,187 105,413 73,917 83,784 685,468 739,679 678,804 524,523 590,269 4,514,203 Short-term benefits Cash salary and fees $ Cash bonus $ Non- monetary benefits $ Post-employ ment benefits Share-based payment Super- annuation $ Options $ Performance Rights $ 89,871 30,051 25,000 40,479 32,083 0 217,484 0 0 0 0 0 0 0 0 0 0 0 0 0 0 18,462 3,282 50,000 31,521 45,834 0 149,099 0 0 0 0 0 0 0 0 0 0 0 0 0 0 727,262 426,250 2,508 45,230 56,356 143,771 1,401,377 342,935 334,416 295,538 280,426 2,198,062 200,000 182,500 124,000 140,000 1,072,750 30,104 16,123 0 25,189 73,924 26,961 14,461 14,461 44,384 294,597 12,187 12,187 17,220 5,383 103,333 55,833 50,948 36,190 40,860 327,602 668,020 610,635 487,410 536,242 4,070,267 Total $ 108,333 33,333 75,000 72,000 77,917 0 366,583 The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name P A Birtles D F Ajala S J Doyle G G Carroll G L Chad Fixed Remuneration 2010 2011 $ $ 52.54% 57.46% 57.45% 61.58% 62.26% 55.30% 59.88% 59.77% 63.60% 65.27% At Risk – STI At Risk – LTI 2011 $ 26.53% 26.43% 26.43% 22.78% 23.04% 2010 $ 30.42% 29.94% 29.89% 25.44% 26.11% 2011 $ 20.93% 16.11% 16.12% 15.64% 14.70% 2010 $ 14.28% 10.18% 10.34% 10.96% 8.62% Page 23 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Remuneration and Diversity report (continued) Service Agreements 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 benefits 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 – 2 years and 11 months commencing 27 January 2011 Base salary, inclusive of superannuation, for the period ended 2 July 2011 of $825,000 to be reviewed annually by the Nomination and Remuneration Committee. Payment of a termination benefit on early termination by the Company, other than for cause, equal to 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 Officer, Auto & Cycle Retailing Term of Agreement - 3 years and 8 months commencing 27 January 2011 Base salary, inclusive of superannuation, for the period ended 2 July 2011 of $425,000 to be reviewed annually by the Nomination and Remuneration Committee. Payment of a termination benefit on early termination by the Company, other than for cause, equal to 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 Officer, Leisure Retailing Term of Agreement - 4 years and 8 months commencing 27 January 2011 Base salary, inclusive of superannuation, for the period ended 2 July 2011 of $390,000 to be reviewed annually by the Nomination and Remuneration Committee. Payment of a termination benefit on early termination by the Company, other than for cause, equal to 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 Officer Term of Agreement - 5 years and 5 months commencing 17 April 2011 Base salary, inclusive of superannuation, for the period ended 2 July 2011 of $323,000 to be reviewed annually by the Nomination and Remuneration Committee. Payment of a termination benefit on early termination by the Company, other than for cause, equal to 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 L Chad, General Manager Group Logistics Base salary, inclusive of superannuation, for the period ended 2 July 2011 of $367,500 to be reviewed annually by the Nomination and Remuneration Committee. Payment of a termination benefit on early termination by the Company, other than for cause, equal to 3 months base salary. Page 24 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Remuneration and Diversity report (continued) Details of remuneration: Short Term Incentives Cash bonuses are dependent on the satisfaction of performance conditions as set out in the section headed “short term incentives” above. For each cash bonus included in the above tables, the percentage of the available bonus that was paid and the percentage that was forfeited because the person did not meet the performance criteria are set out below. No part of the bonuses are payable in future years. Name P A Birtles D F Ajala S J Doyle G G Carroll G L Chad Share based compensation Short Term Incentives Forfeited % 8 8 8 7 7 Paid % 92 92 92 93 93 Performance Rights Performance rights vest progressively from 3 to 5 years after the date of grant. The exercise of performance rights is subject to the achievement of the two qualifying hurdles. The first qualifying hurdle is a 10% cumulative growth in Earnings per Share (pre amortisation) over the 3 year period ending 30 June 2012. The second qualifying hurdle is a Return of Capital of greater than 15% over the 3 year period ending 30 June 2012. The performance rights do not give the right to participate in any other share issue of the Company or any other entity. The table below lists the performance rights provided as remuneration to each Director of Super Retail Group Limited and each of the key management personnel of the Group. There were no lapsed performance rights in the period. Name Directors of Super Retail Group Limited R J Wright R A Rowe D D McDonough (resigned 31 August 2010) R J Skippen S A Pitkin P A Birtles Other Key Management Personnel D F Ajala S J Doyle G G Carroll G L Chad Number of Performance Rights granted during the period 2011 0 0 0 0 0 100,000 36,325 33,333 23,089 26,270 Value of Performance Rights at Grant Date 2011 0 0 0 0 0 585,300 212,610 195,098 135,140 153,758 Number of Performance Rights vested during the period 2011 0 0 0 0 0 0 0 0 0 0 The above performance rights are valued using the share price at time of granting. The performance rights granted in the current reporting period were valued using a share price of $5.85. The performance rights are expensed over a 5-year period in-line with the vesting conditions of the rights. Plan participants may not enter into any transaction designed to remove the “at risk” aspect of the performance rights before they vest. Shares under option Details of options over ordinary shares in the Company provided as remuneration to each Director of Super Retail Group Limited and each of the key management personnel of the Group are set out below. There were no lapsed options during the period. Page 25 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Remuneration and Diversity report (continued) Name Number of options granted during the period Number of options vested during the period Directors of Super Retail Group Limited R J Wright R A Rowe D D McDonough (resigned 31 August 2010) R J Skippen S A Pitkin P A Birtles Other Key Management Personnel D F Ajala S J Doyle G G Carroll G L Chad 2011 0 0 0 0 0 0 0 0 0 0 2011 0 0 0 0 0 200,000 100,000 100,000 100,000 50,000 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 Binomial 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. Shares provided on exercise of remuneration options The table below lists the ordinary shares in the Company issued during the year as a result of the exercise of remuneration options. No performance rights were exercisable during the year. Name P A Birtles D F Ajala D F Ajala S J Doyle G G Carroll G L Chad Date of Exercise of Options Number of Ordinary Shares Issued on Exercise of Options During the Year 17/11/2010 03/09/2010 05/01/2011 28/10/2010 23/08/2010 06/10/2010 150,000 35,000 100,000 50,000 75,000 37,500 Market Value at Exercise Date* 936,600 203,980 613,600 331,600 426,150 243,225 * The value at exercise date of options exercised during the period was determined using the 5-day average Group share price. Unissued shares under performance rights and options plans Unissued ordinary shares of Super Retail Group Limited under the performance rights plan at the date of this report are as follows: Grant date Vesting Date* Value per Performance Right at Grant Date Number of Performance Rights 1 September 2009 1 September 2010 * * $5.15 $5.85 356,738 363,427 720,165 * Performance rights vest progressively 3 to 5 years after grant date and have no expiry date. Plan participants may not enter into any transaction designed to remove the “at risk” aspect of performance rights on share options. Page 26 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Remuneration and Diversity report (continued) Unissued ordinary shares of Super Retail Group Limited under option at the date of this report are as follows: Grant date Exercise date Exercise Price Value per option at grant date Number under option 27 January 2006 27 January 2006 27 January 2006 17 April 2006 1 July 2006 26 October 2006 23 August 2007 1 August 2008 5 January 2009 5 January 2010 5 January 2011 17 April 2011 1 July 2011 1 February 2011 24 July 2010 1 August 2011 $2.44 $2.44 $2.44 $2.25 $2.25 $2.44 $4.37 $2.49 $0.29 $0.34 $0.38 $0.51 $0.30 $0.79 $0.93 $0.65 50,000 100,000 100,000 100,000 300,000 200,000 100,000 180,000 1,130,000 Shares issued on the exercise of options The following ordinary shares of Super Retail Group Limited were issued during the year ended 2 July 2011 on the exercise of options granted under the Super Retail Group Employee Option Plan. No further shares have been issued since that date. No amounts are unpaid on any of the shares. Date options granted 27 January 2006 17 April 2006 1 July 2006 26 October 2006 23 August 2007 Issue price of shares Number of shares issued $2.44 $2.25 $2.25 $2.44 $4.37 185,000 75,000 280,000 150,000 80,000 The exercise of the options is subject to the satisfaction of a qualifying hurdle. For the options granted prior to 23 August 2007, 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. For the options granted in August 2007 and August 2008, the relevant start dates for measurement of the 10% cumulative annual growth in Earnings Per Share are 30 June 2007 and 28 June 2008 respectively. Exercise of options is subject to being employed by the Group. No option holder has any right under the options to participate in any other share issue of the Company or of any other entity. Insurance of officers During the financial year, Super Retail Group Limited paid a premium of $76,250 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 officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Diversity Super Retail Group recognises its talented and diverse workforce as a key competitive advantage. Our business performance is a reflection of the quality and skill of our people and behaviours that are aligned to our Group Values. We are firmly committed to developing policies, practices and ways of working that support diversity. We strive to ensure strong business growth and performance whilst providing an environment that makes the Super Retail Group a great place to work. Central to achieving this goal is an inclusive work environment and culture that allows Team Members to contribute their full potential, through recognising and supporting their diverse strengths and needs. We want to be known as a diversity conscious employer recognising, appreciating, valuing and utilising the unique talents and contributions of all individuals. Page 27 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) Directors' report for the period ended 2 July 2011 Remuneration and Diversity report (continued) The company has developed a diversity policy that links directly to the company’s corporate vision and strategies. The objectives of the policy are: (cid:131) (cid:131) (cid:131) (cid:131) (cid:131) (cid:131) (cid:131) (cid:131) (cid:131) (cid:131) For our workforce to be representative of our customer base To recognise, value and engage the diverse skills, cultural values and backgrounds of our Team Members To enhance the opportunities for Team Members to participate and contribute to the work of the Super Retail Group To maintain a focus on workplace health and safety by providing appropriate employment arrangements To proactively prevent and eliminate harassment and unlawful discrimination in the workplace To ensure that workplace structures, conditions, systems and procedures, foster diversity and allow Team Members to manage work and personal life To promote awareness of the value of diversity in the workplace To enhance attraction, development and retention of Team Members To be recognised as a great place to work and a preferred employer in the specialty retail sector and; To provide suitable employment opportunities for disabled and disadvantaged Team Members Gender Diversity The nature of the products that are sold through the Group’s stores attracts a customer base that is significantly skewed towards male customers. Across the Group around 80% of customers are males. The company is proud that its culture and inclusive policies have created a workforce in which females represent 37% of the workforce at 2 July 2011. 30% of middle and senior management positions and 22% of senior management positions are held by females at 2 July 2011. The company has set targets of 33% of middle and senior management positions and 30% of senior management and Board positions to be held by females by June 2015. To promote diversity, the company has implemented the following initiatives: • Paid maternity leave • Parental leave information packs • Part time work opportunities • Monitoring of remuneration for gender differences • Appointment of females into senior non traditional roles – e.g., General Manager Retail Operations, Retail Operations Manager, Distribution Centre Manager. The following initiatives are being implemented in the coming year: • Shortlisting of candidates for middle and senior management vacancies in line with 2015 diversity targets • Participation in leadership development programs to be in line with 2015 diversity targets • • Development of childcare and aged-care information packs • Quarterly reporting and review of diversity performance • Inclusion of diversity in induction and management development programs Further development of flexible work practices 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 Wright Chairman Brisbane 18 August 2011 P A Birtles Director Page 28 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) for the period ended 2 July 2011 Auditor’s Independence Declaration As lead auditor for the audit of Super Retail Group Limited for the year ended 2 July 2011, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Super Retail Group Limited and the entities it controlled during the period. Cameron Henry Partner PricewaterhouseCoopers Brisbane 18 August 2011 PricewaterhouseCoopers, ABN 52 780 433 757 Riverside Centre, 123 Eagle Street, GPO BOX 150, BRISBANE QLD 4001 DX 77 Brisbane, Australia T +61 7 3257 5000, F +61 7 3257 5999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation Page 29 Super Retail Group Limited (formerly Super Cheap Auto Group Limited) ABN 81 108 676 204 Annual financial report - 2 July 2011 Contents Financial report Consolidated comprehensive income statement Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements Directors' declaration Independent auditor’s report to the members Page 31 32 33 34 35 84 85 These financial statements are the consolidated financial statements of the consolidated entity consisting of Super Retail Group Limited and its subsidiaries. The financial report is presented in the Australian currency. Super Retail Group Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office 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 directors’ report on pages 14 to 28, which is not part of this financial report. The financial report was authorised for issue by the directors on 18 August 2011. The company has the power to amend and reissue the financial 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, financial reports and other information are available at our Shareholders’ Centre on our website: www.superretailgroup.com.au. Page 30 CONSOLIDATED COMPREHENSIVE INCOME STATEMENT Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 Consolidated 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 Finance costs expense Total expenses Profit before income tax Income tax (expense)/benefit Profit attributable to Members of Super Retail Group Limited Other comprehensive income Cash flow hedges Exchange differences on translation of foreign operations Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income for the year is attributable to: Owners of Super Retail Group Limited Notes 5 6 8 25 25 2011 $'000 1,093,398 1,359 1,094,757 (598,067) (138,415) (51,188) (90,307) (128,155) (10,973) (1,017,105) 77,652 (22,053) 55,599 (3,414) (1,200) 0 (4,614) 50,985 2010 $'000 938,602 163 938,765 (535,825) (112,502) (43,462) (74,716) (107,903) (10,477) (884,885) 53,880 (15,827) 38,053 (1,274) 526 0 (748) 37,305 50,985 37,305 Cents Cents Earnings per share for profit attributable to the ordinary equity holders of the company: Basic earnings per share Diluted earnings per share 37 37 43.1 42.5 34.0 33.0 The above consolidated comprehensive income statement should be read in conjunction with the accompanying notes. Page 31 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Super Retail Group Limited (formerly Super Cheap Auto Group Limited) As at 2 July 2011 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Current tax liabilities Provisions Total current liabilities Non-current liabilities Trade and other payables Borrowings Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Capital and reserves attributable to equity holders of Super Retail Group Limited Consolidated Notes 2011 $'000 2010 $'000 9 10 11 12 13 14 15 16 17 18 19 20 22 23 24 25 25 25,697 22,160 292,874 340,731 109,277 10,789 111,251 231,317 30,200 22,195 253,101 305,496 105,309 7,611 103,830 216,750 572,048 522,246 122,373 32 11,013 12,286 145,704 15,538 99,143 0 7,983 122,664 99,563 10,096 7,694 11,781 129,134 13,217 98,912 0 10,426 122,555 268,368 251,689 303,680 270,557 194,541 (3,239) 112,378 303,680 182,158 158 88,241 270,557 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. Page 32 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 Balance at 27 June 2009 84,627 42 71,685 156,354 Contributed Equity Reserves Notes $’000 $’000 Retained Earnings $’000 Total $’000 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs Dividends provided for or paid Employee share options and performance rights Balance at 3 July 2010 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs Dividends provided for or paid Employee share options and performance rights 24 26 25 24 26 25 0 0 0 0 (748) (748) 38,053 0 38,053 38,053 (748) 37,305 97,531 0 0 97,531 182,158 0 0 864 864 158 0 (21,497) 0 (21,497) 97,531 (21,497) 864 76,898 88,241 270,557 0 0 0 0 (4,614) (4,614) 55,599 0 55,599 55,599 (4,614) 50,985 12,383 0 0 12,383 0 0 1,217 1,217 0 (31,462) 0 (31,462) 12,383 (31,462) 1,217 (17,862) Balance at 2 July 2011 194,541 (3,239) 112,378 303,680 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Page 33 CONSOLIDATED STATEMENT OF CASH FLOWS Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 Consolidated Notes 2011 $'000 2010 $'000 Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) 1,207,864 1,040,615 (1,023,148) (891,068) Rental payments - external - related parties Income taxes paid Net cash (outflow) inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments for purchase of subsidiary, net of cash acquired Net cash (outflow) inflow from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Interest paid Dividends paid to company’s shareholders Proceeds from issue of shares Net cash inflow (outflow) from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year (82,519) (10,384) (20,911) 70,902 (37,647) 1,129 0 (36,518) 241,591 (251,667) (9,894) (20,797) 1,966 (38,801) (4,417) 30,200 (86) 25,697 36 26 9 (72,736) (10,346) (13,905) 52,560 (27,136) 86 (52,943) (79,993) 313,920 (336,358) (10,714) (14,395) 88,390 40,843 13,410 16,810 (20) 30,200 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. Page 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SUPER RETAIL GROUP LIMITED (Formerly Super Cheap Auto Group Limited) FOR THE PERIOD ENDED 2 JULY 2011 Page 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 Contents of the notes to the consolidated financial statements Summary of significant accounting policies .............................................................................................................................. 37 1 Financial risk management ....................................................................................................................................................... 46 2 Critical accounting estimates and judgements.......................................................................................................................... 50 3 Segment information................................................................................................................................................................. 51 4 Revenue ................................................................................................................................................................................... 53 5 Other Income ............................................................................................................................................................................ 53 6 Expenses .................................................................................................................................................................................. 53 7 Income tax expense.................................................................................................................................................................. 54 8 9 Current assets - Cash and cash equivalents ............................................................................................................................ 55 10 Current assets - Trade and other receivables........................................................................................................................... 55 11 Current assets – Inventories ..................................................................................................................................................... 56 12 Non-current assets – Property, plant and equipment................................................................................................................ 56 13 Non-current assets - Deferred tax assets ................................................................................................................................. 57 14 Non-current assets – Intangible assets..................................................................................................................................... 58 15 Current liabilities - Trade and other payables ........................................................................................................................... 60 16 Current liabilities – Borrowings ................................................................................................................................................. 60 17 Current liabilities – Current tax liabilities ................................................................................................................................... 60 18 Current liabilities – Provisions................................................................................................................................................... 61 19 Non-current liabilities – Trade and Other Payables .................................................................................................................. 61 20 Non-current liabilities – Borrowings .......................................................................................................................................... 61 21 Derivative Financial instruments ............................................................................................................................................... 62 22 Non-current liabilities - Deferred tax liabilities ........................................................................................................................... 65 23 Non-current liabilities – Provisions............................................................................................................................................ 65 24 Contributed equity..................................................................................................................................................................... 66 25 Reserves and retained profits ................................................................................................................................................... 68 26 Dividends .................................................................................................................................................................................. 69 27 Key management personnel disclosures .................................................................................................................................. 70 28 Remuneration of auditors.......................................................................................................................................................... 73 29 Contingencies ........................................................................................................................................................................... 73 30 Commitments............................................................................................................................................................................ 74 31 Related party transactions ........................................................................................................................................................ 75 32 Investments in controlled entities.............................................................................................................................................. 75 33 Business Combinations ............................................................................................................................................................ 76 34 Net tangible asset backing........................................................................................................................................................ 77 35 Deed of cross guarantee .......................................................................................................................................................... 77 36 Reconciliation of profit from ordinary activities after income tax to net cash inflow from operating activities ............................ 80 37 Earnings per share ................................................................................................................................................................... 80 38 Share-based payments............................................................................................................................................................. 81 39 Events occurring after balance date ......................................................................................................................................... 83 40 Parent entity financial information............................................................................................................................................. 83 Page 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 1 Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Super Retail Group Limited and its subsidiaries. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. Compliance with IFRS Consolidated financial statements and notes of Super Retail Group Limited comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Historical cost convention These financial statements have been prepared under the historical cost convention, unless otherwise stated. (b) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all entities controlled by Super Retail Group Limited (the “Company” or “parent entity”) as at 2 July 2011 and the results of its controlled entities for the period then ended. Super Retail 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 financial 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 financial period its results are included in the consolidated statement of financial performance from the date on which control commences. Where control of an entity ceases during a financial year its results are included for that part of the period during which control existed. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Officers, who are responsible for allocating resources and assessing performance of the operating segments. (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 financial 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 profit or taxable profit or loss. 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. Page 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 A deferred tax liability is recognised in relation to some of the Group’s indefinite life intangibles. The tax base assumed in determining the amount of the deferred tax liability is the capital cost base of the assets. As the assets are indefinite life in nature it was determined the assets would not be recovered through use but rather through sale. Tax Consolidation Legislation Super Retail Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003. The head entity, Super Retail 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. Investment allowances Companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets (investment allowances). The Group accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense. A deferred tax asset is recognised for unclaimed tax credits that are carried forward. (e) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Super Retail 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 flow hedges and qualifying net investment hedges. Translation differences on non-monetary items such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity. (iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • • assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; 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. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised for the major business activities as follows: (i) Sale of goods – retail Revenue from the sale of goods is recognised when a Group entity sells a product to the customer pursuant to sales orders and when the associated risk and rewards have passed to the customer. Retail sales are usually by credit card or in cash. Page 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 (ii) Interest income Interest income is recognised using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument. Interest income on impaired loans is recognised using the original effective interest rate. (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. The amount of any impairment loss is included within “Administration” in the income statement. (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 fixed 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, service warranties and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the statement of financial position date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. (j) Financial assets Classification The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. Financial assets at fair value through profit or loss (i) This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss on initial recognition. A financial asset is classified 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 classified as current assets if they are either held for trading or are expected to be realised within 12 months of the statement of financial position date. Loans and receivables (ii) Loans and receivables are non derivative financial assets with fixed 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 statement of financial position date which are classified as non-current assets. Loans and receivables are included in receivables in the statement of financial position. Recognition and derecognition (iii) Regular purchases and sales of financial assets are recognised on trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Subsequent measurement (iv) Loans and receivables are carried at amortised cost using the effective interest method. Page 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 Financial assets at fair value through profit and loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within other income or “Administration” in the period in which they arise. (k) Derivatives 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 firm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash flow 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 flows of hedged items. Cash flow hedge (i) The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow 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 profit 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-financial asset (for example, inventory) or a non-financial 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. Net investment hedges (ii) Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within other income or other expenses. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed of or sold. Derivatives that do not qualify for hedge accounting (iii) 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 financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial 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 flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the statement of financial position date. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial 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 benefits associated with the item will flow 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 financial period in which they are incurred. Page 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 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 statement of financial position date. The depreciation rates used for each class of assets are: Plant and equipment Capitalised leased plant and equipment Motor vehicles Computer systems Depreciation rate 10% - 37.5% 10% – 37.5% 25% 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. (n) Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values as the acquisition date. On an acquisition- by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or debt. Contingent payments classified as debt are subsequently remeasured through profit or loss. Acquisition-related costs are expensed as incurred. (o) Impairment of assets Assets that have an indefinite 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 goodwill, this is the cash generating unit level. (p) Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other long term payables. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance 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 finance leases is depreciated over the shorter of the asset’s useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified 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. Page 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 (q) Intangible assets Goodwill (i) Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary or business at the date of the acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill and intangibles acquired in business combinations are not amortised. Instead, they are 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. The allocation is made to those cash- generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segments. Trademarks and licences (ii) Trademarks and licences have an indefinite useful life and are carried at cost less impairment losses. Computer software (iii) Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include external direct costs of materials and service and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight-line basis over periods generally ranging from 3 to 5 years. Brand names (iv) Brand names that are acquired as part of a business combination are recognised separately from goodwill. These assets are carried at their fair value at the date of acquisition less impairment losses. Brand names are valued using the relief from royalty method. Amortisation is calculated based on the timing of projected cash flows of the assets over their estimated useful lives, which is 20 years or indefinite. Supplier Agreements (v) Supplier agreements are acquired as part of a business combination and are recognised separately from goodwill. These assets are carried at their fair value at the date of acquisition less accumulated amortisation and impairment losses. Supplier agreements have been valued using the multi-period excess earnings method. Amortisation is calculated based on timing of projected cash flows of the assets over their estimated useful lives which is 20 years. (vi) Other items of expenditure Significant items of expenditure, such as costs incurred in store set-ups, are expensed in the financial period in which these costs are incurred. (r) 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 financial period and which are unpaid at that date. The amounts are unsecured and are normally paid within sixty days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. (s) 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. (t) Contributed equity Ordinary shares are classified 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. (u) 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 financial period but not distributed at balance date. Page 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 (v) Employee benefits Wages and salaries, annual leave and sick leave (i) Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised 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. Long service leave (ii) The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date 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 outflows. (iii) Retirement benefit 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 benefits are provided to certain employees via the Super Retail Group Executive Option Plan and Super Retail Group Performance Rights Plan. The fair value of options and performance rights granted under these plans are recognised as an employee benefit 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. For share options, the fair value at grant date is determined using a Binomial 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, profitability 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 statement of financial position date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Performance rights are valued using the 3 month weighted average share price as at the grant date. Upon exercise of the options and performance rights, the balance of the share-based payments reserve relating to those options remains in the share based reserve. Profit-sharing and bonus plans (v) The Group recognises a liability and an expense for bonuses and profit-sharing based on a formula that takes into consideration the profit 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. (w) Finance costs Finance 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. Finance costs include: - interest on bank overdrafts and short-term and long-term borrowings; - amortisation of discounts or premiums relating to borrowings; - amortisation of ancillary costs incurred in connection with the arrangement of borrowings; and - finance lease charges; (x) Cash and cash equivalents For the purposes of the cash flow statement, cash includes cash on hand, cash at bank and at call deposits with banks or financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. (y) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of goods and services tax, except where the amount of goods and services tax incurred is not recoverable from the Australian Tax Office. In these circumstances the goods and services tax is Page 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 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 statement of financial position are shown inclusive of goods and services tax. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority, are presented as operating cash flow. (z) 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. (aa) Earnings per share Basic earnings per share (i) Basic earnings per share is calculated by dividing:- • • the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares; by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares (note 37). Diluted earnings per share (ii) Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (ab) Rounding of amounts The economic entity is of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars. (ac) Financial year As allowed under Section 323D(2) of the Corporations Act 2001, the Directors have determined the financial year to be a fixed period of 52 calendar or 53 calendar weeks. For the period to 2 July 2011, the Group is reporting on the 52 week period that began 4 July 2010 and ended 2 July 2011. For the period to 3 July 2010, the Group is reporting on the period commencing 27 June 2009 and ended 3 July 2010. (ad) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for the 2 July 2011 reporting period. The Group’s assessment of the impact of these new standards and interpretations is set out below. AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (effective for annual reporting periods beginning on or after 1 January 2013] AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. There will be no impact on the group's accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated as at fair value through profit or loss and the group does not have any such liabilities. The derecognition rules have been transferred from AASB 139 Financial Instruments: Recognition and Measurement and have not been changed. The group has notyet decided when to adopt AASB 9. Revised AASB 124 Related Party Disclosures and AASB 2009-12 Amendments to Australian Accounting Standards (effective for annual reporting periods beginning on or after 1 January 2011) In December 2009 the AASB issued a revised AASB 124 Related Party Disclosures. It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The amendment clarifies and simplifies the definition of a related party and removes the requirement for government related entities to disclose details of all transactions with the government and other government related entities. The Group will apply the amended standard from 3 Jul 2011. When the amendments are applied, the Group will need to disclose any transactions between its subsidiaries and its associates. However, there will be no impact on any of the amounts recognised in the financial statements. AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements (effective 1 July 2013) On 30 June 2010 the AASB officially introduced a revised differential reporting framework in Australia. Under this framework, a two-tier differential reporting regime applies to all entities that prepare general purpose financial statements. The Group is listed on the ASX and is therefore not eligible to adopt the new Australian Accounting Standards – Reduced Disclosure Requirements. As a consequence, the two standards will have no impact on the financial statements of the entity. Page 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and revised IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures (effective 1 January 2013) In May 2011, the IASB issued a suite of five new and amended standards which address the accounting for joint arrangements, consolidated financial statements and associated disclosures. The AASB is expected to issue equivalent Australian standards shortly. IFRS 10 replaces all of the guidance on control and consolidation in IAS 27 Consolidated and Separate Financial Statements, and SIC-12 Consolidation – Special Purpose Entities. The core principle that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged, as do the mechanics of consolidation.,However the standard introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns before control is present. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. There is also new guidance on participating and protective rights and on agent/principal relationships. While the group does not expect the new standard to have a significant impact on its composition, it has yet to perform a detailed analysis of the new guidance in the context of its various investees that may or may not be controlled under the new rules. IFRS 12 sets out the required disclosures for entities reporting under the two new standards, IFRS 10 and IFRS 11, and replaces the disclosure requirements currently found in IAS 28. Application of this standard by the group will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the group's investments. IAS 27 is renamed Separate Financial Statements and is now a standard dealing solely with separate financial statements. Application of this standard by the group will not affect any of the amounts recognised in the financial statements. Amendments to IAS 28 provide clarification that an entity continues to apply the equity method and does not remeasure its retained interest as part of ownership changes where a joint venture becomes an associate, and vice versa. The amendments also introduce a “partial disposal” concept. The group is still assessing the impact of these amendments. IFRS 13 Fair Value Measurement (effective 1 January 2013) IFRS 13 was released in May 2011. The AASB is expected to issue an equivalent Australian standard shortly. IFRS 13 explains how to measure fair value and aims to enhance fair value disclosures. The group has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the financial statements. Revised IAS 1 Presentation of Financial Statements (effective 1 July 2012) In June 2011, the IASB made an amendment to IAS 1 Presentation of Financial Statements. The AASB is expected to make equivalent changes to AASB 101 shortly. The amendment requires entities to separate items presented in other comprehensive income into two groups, based on whether they may be recycled to profit or loss in the future. It will not affect the measurement of any of the items recognised in the statement of financial position or the profit or loss in the current period. The group intends to adopt the new standard from 1 July 2012. AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (effective 1 July 2013) In July 2011 the AASB decided to remove the individual key management personnel (KMP) disclosure requirements from AASB 124 Related Party Disclosures, to achieve consistency with the international equivalent standard and remove a duplication of the requirements with the Corporations Act 2001. While this will reduce the disclosures that are currently required in the notes to the financial statements, it will not affect any of the amounts recognised in the financial statements. The amendments apply from 1 July 2013 and cannot be adopted early. The Corporations Act requirements in relation to remuneration reports will remain unchanged for now, but these requirements are currently subject to review and may also be revised in the near future. (ae) Parent entity financial information The financial information for the parent entity, Super Retail Group Limited, disclosed in note 40 has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries (i) Investments in subsidiaries are accounted for at cost in the financial statements of Super Retail Group Limited. (ii) Tax consolidation legislation Super Retail Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Super Retail Group Limited, and the controlled entities in the tax consolidated group 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. In addition to its own current and deferred tax amounts, Super Retail Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Page 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Super Retail Group Limited for any current tax payable assumed and are compensated by Super Retail 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 Retail Group Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. 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 financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. (iii) Financial guarantees Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. 2 Financial risk management The Group's activities expose it to a variety of financial risks; market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial 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 identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The Board has approved written policies covering specific areas, such as mitigating foreign exchange, interest rate and credit risks, use of derivative financial instruments and investing excess liquidity. (a) Market risk Foreign exchange risk (i) The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures to the United States dollar and New Zealand dollar. 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’s risk management policy is to hedge between 40% and 75% of anticipated US dollar purchases for the subsequent 4 months and up to 40% of anticipated US dollar purchases for the subsequent 5 to 12 month period. Forward contracts and currency options are used to manage foreign exchange risk. The Group’s exposure to foreign currency risk at the end of the reporting period is: Trade receivables Trade payables Forward exchange contracts - buy foreign currency (cash flow hedges) Group sensitivity 2 July 2011 USD $'000 3 July 2010 USD $'000 779 9,763 64,000 508 5,541 8,000 Based on the financial instruments held at 2 July 2011, had the Australian dollar weakened/strengthened by 10% against other currencies with all other variables held constant, the impact on the Group’s post-tax profit would have been nil, on the basis that the financial instruments would have been designated as cash flow hedges and the impact upon the foreign exchange movements of other financial assets and liabilities is negligible. Page 46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 2 Financial risk management (continued) Equity would have been $2,951,000 lower/$3,606,000 higher (2010: $676,000 lower/$826,000 higher) had the Australian dollar weakened/strengthened by 10% against other currencies, arising mainly from forward foreign exchange contracts designated as cash flow hedges. The impact on other Group assets and liabilities as a result of movements in exchange rates are not material. A sensitivity of 10% was selected following review of historic trends. (ii) Cash flow and fair value interest rate risk Group sensitivity The Group’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During 2011 and 2010, the Group’s borrowings were at variable rates and were denominated in Australian dollars. As at the reporting date, the Group had the following variable rate borrowings and interest rate swap contracts outstanding: Bank overdrafts and bank loans Interest rate swaps An analysis by maturities is provided in (c) below. 2 July 2011 Balance $'000 3 July 2010 Balance $'000 100,000 40,000 110,000 80,000 The Group risk management policy is to maintain fixed interest rate hedges between 40% to 75% of anticipated debt levels over a 3 year period. The Group utilises interest rate swaps and swaptions to hedge its interest rate exposure on borrowings. At 2 July 2011, if interest rates had changed by +/- 100 basis points from the year-end rates with all other variables held constant, post-tax profit and equity for the year would have been $560,000 lower/higher (2010: $211,000 lower/higher), mainly as a result of higher/lower interest expense on bank loans. (b) Credit risk The Group has no significant 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 financial institutions. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient 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 flexibility in funding by keeping committed credit lines available. Financing arrangements The Group entity had access to the following undrawn borrowing facilities at the reporting date. These funds can be drawn in Australian dollars at any time subject to the continuing compliance with specified bank covenants. Floating rate - Cash advances (expiring within one year) 2011 $'000 90,000 Consolidated 2010 $'000 80,000 Page 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 2 Financial risk management (continued) Maturities of financial liabilities The tables below analyse the Group’s financial liabilities and gross settled derivative financial instruments into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. For interest rate swaps the cash flows have been calculated using spot rates applicable at the reporting date. Group – at 2 July 2011 Less than 6 months $’000 6-12 months Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years Non-derivatives Trade & other payables Borrowings (excluding finance leases) Finance lease liabilities Total non-derivatives Derivatives Net settled (IRS) Gross settled - (inflow) - outflow Total derivatives Group – at 3 July 2010 Non-derivatives Trade & other payables Borrowings (excluding finance leases) Finance lease liabilities Total non-derivatives Derivatives Net settled (IRS) Gross settled - (inflow) - outflow Total derivatives 122,373 0 0 3,413 3,413 106,825 16 125,802 16 3,429 8 106,833 (78) (61) (44,298) 48,001 3,625 (15,388) 16,340 891 34 0 0 34 0 0 0 0 0 0 0 0 Less than 6 months $’000 6-12 months Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years 99,563 0 0 3,163 3,162 116,325 48 102,774 48 3,210 0 116,325 (623) (9,470) 8,867 (1,226) (623) 0 0 (623) 313 0 0 313 0 0 0 0 0 0 0 0 Total contractual cash flows $’000 Carrying amount (assets) / liabilities 122,373 122,373 113,651 100,000 40 236,064 40 222,413 (105) (59,686) 64,341 4,550 (142) 0 0 (142) Total contractual cash flows $’000 Carrying amount (assets) / liabilities 99,563 99,563 122,650 110,000 96 222,309 96 209,659 (933) (9,470) 8,867 (1,536) (282) 0 0 (282) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (d) Fair value measurements The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of forward exchange contracts is determined using forward exchange market rates at the statement of financial position date. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. Page 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 2 Financial risk management (continued) The following tables present the Group’s entity’s assets and liabilities measured and recognised at fair value at 2 July 2011. Group – at 2 July 2011 Assets Derivatives used for hedging Total assets Liabilities Derivatives used for hedging Total liabilities Group – at 3 July 2010 Assets Derivatives used for hedging Total assets Liabilities Derivatives used for hedging Total liabilities Level 1 $'000 Level 2 $'000 Level 3 $'000 0 0 0 0 142 142 (4,115) (4,115) 0 0 0 0 Level 1 $'000 Level 2 $'000 Level 3 $'000 0 0 0 0 904 904 0 0 0 0 0 0 Total $'000 142 142 (4,115) (4,115) Total $'000 904 904 0 0 The fair value of financial 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 end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. The fair value of financial instruments that are not traded in an active market (for example, over the counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. Quoted market prices or dealer quotes for similar instruments are used to estimate fair value for long term debt for disclosure purposes. Other techniques, such as estimated discounted cash flows are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the end of the reporting period. These instruments are included in level 2 and comprise debt investments and derivative financial instruments. In the circumstances where a valuation technique for these instruments is based on significant observable inputs, such instruments are included in level 3. The carrying amounts of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The fair value of the current borrowings approximates the carrying amount, as the impact of discount is not significant. (e) Cash flow and fair value interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows 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 flow interest-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk. The Group manages its cash flow interest-rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed at fixed rates directly. Under the interest-rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional principal amounts. Page 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 2 Financial risk management (continued) Carrying amounts and fair values of financial assets and financial liabilities at statement of financial position date: Financial assets Cash and deposits Receivables Forward exchange contracts * Interest rate swaps * Non-traded financial assets Financial liabilities Trade and other payables Commercial bill and other financing Forward exchange contracts * Non-traded financial liabilities Consolidated entity Carrying amount Fair value 2011 $’000 2010 $’000 2011 $’000 2010 $’000 25,697 22,018 0 142 47,857 (133,386) (99,175) (4,115) (236,676) 30,200 22,195 622 282 53,299 25,697 22,018 0 142 47,857 30,200 22,195 622 282 53,299 (107,257) (109,008) 0 (216,265) (133,386) (99,175) (4,115) (236,676) (107,257) (109,008) 0 (216,265) *These amounts are unrealised gains and losses which have been included in the carrying amount and fair value of the on-statement of financial position financial assets and liabilities. With the exception of the forward exchange contracts and interest rate swaps, none of the financial assets and liabilities are readily traded on organised markets in the standardised form. Where assets are carried at amounts above the fair value these amounts have not been written down as it is intended to hold these assets to maturity. Fair value is exclusive of costs that would be incurred on realisation of an asset and inclusive of costs that would be incurred on settlement of a liability. Credit risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount, net of any provisions for doubtful debts of those assets, as disclosed in the statement of financial position, and notes to the financial statements. Credit risk for derivative financial instruments arises from the potential failure by counterparties to the contract to meet their obligations. The credit risk exposure to forward exchange contracts and interest rate swaps is the fair value of these contracts. 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 financial impact on the entity and that are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions (a) The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Estimated impairment of goodwill (i) 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 14 for details of these assumptions. Estimated value of intangible assets relating to acquisitions (ii) The Group has allocated portions of the cost of acquisition to various intangible assets, such as brand names and supply agreements. Brand names have been valued using the relief from royalty method. Supplier agreements have been valued using the multi-period excess earnings method. The calculations require the use of assumptions. In addition, the value of liability of put options granted as part of acquisitions has been estimated. Estimated value of make good provision (iii) The Group has estimated the present value of the estimated expenditure required to remove any leasehold improvements and return leasehold premises to their original state, in addition to the likelihood of this occurring. These costs have been capitalised as part of the cost of the leasehold improvements. This provision was re-assessed during the year which resulted in a $3m release. Page 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 4 Segment information (a) Description of segments Management has determined the operating segments based on the reports reviewed by the Chief Operating Officers that are used to make strategic decisions. The Chief Operating Officers consider the business from the following business segments: Auto & Cycle Retailing: Retail and distribution of motor vehicle spare parts and bicycle accessories, tools and equipment. Leisure Retailing: Retail and distribution of boating, camping, fishing, outdoor equipment and apparel. (b) Segment information provided to the Chief Operating Officers The segment information provided to the Chief Operating Officers for the reportable segments for the year ended 2 July 2011 is as follows: Auto & Cycle Retailing $’000 Leisure Retailing $’000 Total continuing operations $’000 Inter-segment eliminations/ unallocated $’000 Consolidated $’000 2011 Segment Revenue Sales to external customers 713,332 384,368 1,097,700 Inter segment sales Total sales revenue Other revenue/income (5,099) 1,772 (280) 391 (5,379) 2,163 0 0 273 1,097,700 (5,379) 1,092,321 2,436 1,094,757 63,611 32,042 96,653 (7,028) 88,625 (10,973) 0 77,652 (22,053) 55,599 Total revenue and other income Segment result (pre-borrowing costs and impairment) Finance costs Impairment of goodwill Profit before income tax Income tax expense Profit for the period Segment Assets & Liabilities Segment assets 366,253 171,597 537,850 34,198 572,048 Unallocated assets Total assets 0 0 572,048 Segment liabilities (206,162) (115,187) (321,349) 160,587 (160,762) Unallocated liabilities Total liabilities Acquisitions of property, plant and equipment and other non- current segment assets Depreciation and amortisation expense Goodwill impairment Other non-cash expenses (107,606) (107,606) (268,368) 13,673 13,067 26,740 11,889 38,629 (15,797) (6,860) (22,657) (145) (22,802) 0 1,222 Page 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 The segment information provided to the Chief Operating Officers for the reportable segments for the year ended 3 July 2010 is as follows: Auto & Cycle Retailing $’000 Leisure Retailing $’000 Total continuing operations $’000 Inter-segment eliminations/ unallocated $’000 Consolidated $’000 2010 Segment Revenue Sales to external customers 687,856 254,005 941,861 Inter segment sales Total sales revenue Other revenue/income (3,061) 284 (792) 130 (3,853) 414 0 0 343 941,861 (3,853) 938,008 757 938,765 48,180 21,290 69,470 (3,113) 66,357 (2,000) 0 (2,000) (10,477) 0 (10,477) (2,000) 53,880 (15,827) 38,053 Total revenue and other income Segment result (pre-borrowing costs and impairment) Finance costs Impairment of goodwill Profit before income tax Income tax expense Profit for the period Segment Assets & Liabilities Segment assets 319,796 154,766 474,562 47,684 522,246 Unallocated assets Total assets 0 0 522,246 Segment liabilities (161,422) (96,563) (257,985) 115,208 (142,777) Unallocated liabilities Total liabilities Acquisitions of property, plant and equipment and other non- current segment assets Depreciation and amortisation expense (108,912) (108,912) (251,689) 16,605 48,809 65,414 5,420 70,834 (15,609) (4,976) (20,585) (145) (20,730) Goodwill impairment Other non-cash expenses (2,000) (c) Other information The consolidated entity’s divisions are operated in two main geographical areas. Australia (2,000) 784 The home country of the parent entity. The two areas of operation are (i) automotive, bicycles and accessories (ii) boating, camping, outdoor entertainment and fishing. New Zealand Supercheap Auto and FCO operate in New Zealand. Page 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 5 Revenue From continuing operations Sales revenue Sale of goods Other revenue Interest 6 Other Income Other income 7 Expenses Profit before income tax includes the following specific gains and expenses: Expenses Net loss on disposal of property, plant and equipment Depreciation Computer systems Plant and equipment Motor vehicles Total depreciation Amortisation and Impairment Computer software Brand name Goodwill Supplier agreement Finance costs Interest and finance charges Other finance costs (a) Accretion of put option Finance costs expensed Employee benefits 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 2011 $'000 1,092,321 1,092,321 1,077 1,077 Consolidated 2010 $'000 938,008 938,008 594 594 1,093,398 938,602 2011 $'000 1,359 1,359 2011 $'000 294 5,306 13,864 30 19,200 3,457 125 0 20 3,602 10,859 0 114 10,973 12,273 192,436 204,709 90,879 4,907 95,786 Consolidated Consolidated 2010 $'000 163 163 2010 $'000 516 5,402 12,275 35 17,712 2,873 125 2,000 20 5,018 12,564 (2,201) 114 10,477 10,749 158,895 169,644 71,832 4,174 76,006 (1,419) 2,323 Page 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 (a) Other finance costs A market-to-market loss on a $60,000,000 swap was $2,201,000 as at 27 June 2009 and was included as a finance cost expense in the 2009 year as the swap was deemed to be ineffective as a cash flow hedge for the period. The loss was reversed in the 2010 year due to the expiry of the swap, reducing finance cost expense by $2,201,000 in 2010. 8 Income tax expense Income tax expense (a) Current tax Deferred tax Adjustments for current tax of prior period Deferred income tax (revenue) expense included in income tax expense comprises: Decrease (increase) in deferred tax assets (note 13) (Decrease) increase in deferred tax liabilities (note 22) Numerical reconciliation of income tax expense to prima facie tax (b) payable Profit from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2010 - 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Tax consolidation adjustments re NZ branch Investment allowance Goodwill impairment R & D credits Sundry items Adjustments for current tax of prior periods Income tax expense Amounts recognised directly in equity Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss but directly debited or credited to equity Net deferred tax – debited/(credited) directly to equity (notes 13 and 22) Tax expense (income) relating to items of other comprehensive income Cash flow hedges (c) Tax consolidation legislation Consolidated 2011 $'000 23,975 (1,807) (115) 22,053 (1,771) (36) (1,807) 77,652 23,296 (44) 0 0 (1,207) 123 22,168 (115) 22,053 (1,228) (1,228) (1,463) (1,463) 2010 $'000 17,867 (1,652) (388) 15,827 (1,614) (38) (1,652) 53,880 16,164 (39) (199) 600 (434) 123 16,215 (388) 15,827 (1,137) (1,137) (548) (548) Super Retail 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 Retail Group Limited. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Super Retail Group Limited for any current tax payable assumed and are compensated by Super Retail 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 Retail Group Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. 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 financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. Page 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 9 Current assets - Cash and cash equivalents Cash at bank and in hand 10 Current assets - Trade and other receivables Trade receivables Provision for impairment of receivables (a) Other receivables Tax receivable Prepayments (a) Impaired trade receivables Consolidated 2011 $'000 2010 $'000 25,697 30,200 Consolidated 2011 $'000 13,176 (268) 12,908 3,777 1,818 3,657 22,160 2010 $'000 10,969 (210) 10,759 2,030 548 8,858 22,195 As at 2 July 2011 current trade receivables of the Group with a nominal value of $268,000 (2010: $210,000) were impaired. The amount of the provision was $268,000 (2010: $210,000). The individually impaired receivables mainly relate to wholesalers who are in unexpectedly difficult economic situations. Movements in the provision for impairment of receivables are as follows: As at 3 July 2010 Provision for impairment recognised during the year Receivables written off during the year as uncollectible Consolidated 2011 $'000 (210) (236) 178 (268) 2010 $'000 (347) (947) 1,084 (210) The creation and release of the provision for impaired receivables has been included in “Administration” in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. (b) Past due but not impaired As of 2 July 2011, trade receivables of $3,586,000 (2010: $3,009,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: 0 to 3 months 3 to 6 months Over 6 months Consolidated 2011 $'000 2,435 668 483 3,586 2010 $'000 1,588 333 1,088 3,009 Page 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 11 Current assets – Inventories Finished goods - at lower of cost or net realisable value (a) Inventory expense Consolidated 2011 $'000 2010 $'000 292,874 253,101 Inventories recognised as expense during the year ended 2 July 2011 amounted to $583,164,000 (2010: $518,626,000). Write-downs of inventories to net realisable value recognised as an expense/(benefit) during the year ended 2 July 2011 amounted to ($1,388,000) (2010: ($1,323,000)). The benefit has been included in ‘costs of sales of goods’ in the income statement. 12 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 Consolidated 2011 $'000 160,141 (63,964) 96,177 266 (240) 26 45,805 (32,731) 13,074 2010 $'000 141,546 (51,581) 89,965 912 (251) 661 42,377 (27,694) 14,683 Total net property, plant and equipment 109,277 105,309 Assets pledged as security are detailed in Note 20 Reconciliations - consolidated entity Carrying amounts at 4 July 2010 Additions Disposals Business acquisitions Depreciation and amortisation Foreign currency exchange differences Carrying amounts at 2 July 2011 Reconciliations - consolidated entity Carrying amounts at 28 June 2009 Additions Disposals Business acquisitions Depreciation and amortisation Foreign currency exchange differences Carrying amounts at 3 July 2010 Plant and equipment $’000 Motor vehicles $’000 Computer systems $’000 661 0 (197) (413) (30) 5 26 70 0 (32) 658 (35) 0 661 14,683 4,522 (157) (668) (5,306) 0 13,074 14,678 4,467 (118) 1,079 (5,402) (21) 14,683 89,965 23,084 (3,390) 185 (13,864) 197 96,177 73,200 18,643 (439) 10,965 (12,275) (129) 89,965 Page 56 Total $’000 105,309 27,606 (3,744) (896) (19,200) 202 109,277 87,948 23,110 (589) 12,702 (17,712) (150) 105,309 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 13 Non-current assets - Deferred tax assets The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Doubtful debts Employee benefits Accruals Inventories Deferred make good provision Straight line lease adjustment Deferred income Depreciation Provision for warranties and legal costs Amounts recognised directly in equity Cash flow hedges Share placement costs Set off with deferred tax liabilities (note 22) Net deferred tax assets Movements: Opening balance Credited/(charged) to the income statement Credited/(charged) to equity Foreign exchange on translation of NZ subsidiary Acquired in acquisition Closing balance Deferred tax assets to be recovered after more than 12 months Deferred tax assets to be recovered within 12 months Consolidated 2011 $'000 2010 $'000 85 5,779 312 2,137 257 4,662 127 2,512 13 15,884 1,235 354 17,473 (6,684) 10,789 14,559 1,771 1,000 0 143 17,473 14,543 2,930 17,473 63 4,569 103 2,100 1,175 3,965 107 1,875 13 13,970 0 589 14,559 (6,948) 7,611 11,206 1,614 589 0 1,150 14,559 12,013 2,546 14,559 Page 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 14 Non-current assets – Intangible assets Consolidated Goodwill at cost Less accumulated impairment charge Net goodwill Trademarks, at cost Less accumulated depreciation Net trademarks Computer software Less accumulated amortisation Net computer software Brand names at cost Less amortisation Net brand names Supplier agreement Less amortisation Net supplier agreement Total net intangibles 2011 $’000 78,452 (2,000) 76,452 14 0 14 32,614 (20,294) 12,320 22,500 (375) 22,125 400 (60) 340 2010 $’000 76,701 (2,000) 74,701 14 0 14 23,356 (16,851) 6,505 22,500 (250) 22,250 400 (40) 360 Goodwill $’000 Trademarks $’000 Computer Software $’000 Brand Name $’000 Supplier Agreement $’000 Totals $’000 111,251 103,830 Reconciliations – consolidated entity – 2011 Carrying amounts at 4 July 2010 Additions Disposals/Revision in provisional accounting Amortisation/Impairment charge Foreign currency exchange differences Carrying amounts at 2 July 2011 74,701 0 1,751 0 0 76,452 14 0 0 0 0 14 6,505 9,455 (183) (3,457) 0 12,320 22,250 0 0 (125) 0 22,125 360 0 0 (20) 0 340 103,830 9,455 1,568 (3,602) 0 111,251 Amortisation of $3,602,000 (2010: $5,018,000) is included in “Administration” in the consolidated income statement. Goodwill $’000 Trademarks $’000 Computer Software $’000 Brand Name $’000 Supplier Agreement $’000 Totals $’000 Reconciliations – consolidated entity – 2010 Carrying amounts at 28 June 2009 Acquisitions Additions Disposals/Revision in provisional accounting Amortisation/Impairment charge Foreign currency exchange differences Carrying amounts at 3 July 2010 67,280 9,421 0 0 (2,000) 0 74,701 (a) Impairment tests for goodwill 14 0 0 0 0 0 14 5,358 0 4,033 (24) (2,873) 11 6,505 2,375 20,000 0 0 (125) 0 22,250 380 0 0 0 (20) 0 360 75,407 29,421 4,033 (24) (5,018) 11 103,830 Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to the group of assets based on acquisition. Page 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 14 Non-current assets – Intangible assets (continued) A CGU level summary of the goodwill allocation is presented below:- 2011 Goodwill 2010 Goodwill Supercheap Auto $’000 BCF $’000 Goldcross Cycles $’000 Ray’s Outdoors $’000 Total $’000 45,336 12,950 7,954 10,212 76,452 Supercheap Auto $’000 BCF $’000 Goldcross Cycles $’000 Ray’s Outdoors $’000 Total $’000 45,336 12,950 7,954 8,461 74,701 The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by the Board of Directors covering a five-year period. Cash flows beyond the five-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. Goodwill allocation presented for Goldcross Cycles includes goodwill for Victor Cycles and Riders Cycles. (b) Key assumptions used for value-in-use calculations 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 Goldcross Cycles Ray’s Outdoors Growth rate Discount rate 2011 % 3.0 5.0 10.0 10.0 2010 % 3.0 5.0 7.5 - 2011 % 15 15 15 15 2010 % 15 15 15 - The initial two year’s of a store operating growth rate is assumed to be 10% for Supercheap Auto, BCF, Ray’s Outdoors and Goldcross Cycles. (c) Impairment charge An impairment charge of $2,000,000 arose in the Goldcross Cycles CGU for the period ended 3 July 2010 following a review of sales and gross margin performance against business plan expectations in December 2009. No class of asset other than goodwill was impaired. This has been included in the Auto & Cycle Retailing segment in note 4. (d) Useful life for brands The Goldcross Cycles brand has been determined to have a 20 year life and is amortised over this period. No amortisation is provided against the carrying value of the purchased Ray’s Outdoors brand on the basis that it is considered to have an indefinite useful life. Key factors taken into account in assessing the useful life of brands were: • • the strong recognition of the Ray’s Outdoors brand; and there are currently no legal, technical or commercial factors indicating that the life should be considered limited. Page 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 15 Current liabilities - Trade and other payables Trade payables Other payables Loans from related parties 16 Current liabilities – Borrowings Secured Finance leases Cash advance Total current liabilities – secured interest bearing liabilities Unsecured Related parties Unsecured bank financing Total current liabilities – unsecured interest bearing liabilities Total current liabilities – interest bearing liabilities Consolidated 2011 $'000 83,050 39,305 18 122,373 2010 $'000 70,459 29,084 20 99,563 Consolidated 2011 $'000 32 0 32 0 0 0 32 2010 $'000 96 10,000 10,096 0 0 0 10,096 (a) Cash Advances Cash advances have been drawn as a source of short-term financing 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. 17 Current liabilities – Current tax liabilities Income tax payable Consolidated 2011 $'000 11,013 2010 $'000 7,694 Page 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 18 Current liabilities – Provisions Put option provision(a) Provision for warranties(b) Make good provision(c) Employee benefits(d) (a) Put Option Provision Consolidated 2011 $'000 871 44 460 10,911 12,286 2010 $'000 758 44 346 10,633 11,781 The put option relates to the acquisition of Oceania Bicycles Pty Ltd. As part of this acquisition, Super Retail Group Limited has granted the vendor an option to sell the remaining 50% to the Group at an agreed EBITA multiple. This option can be exercised at any time up to 10 years from acquisition. (b) Provision for Warranties Provision is made for the estimated warranty claims in respect of products sold which are still under warranty at balance date. These claims are expected to be settled in the next financial year. Management estimates the provision based on historical warranty claim information and any recent trends. (c) Make good provision Provision is made for costs arising from contractual obligations in lease agreements at the inception of the agreement. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold improvements. These costs have been capitalised as part of the cost of the leasehold improvements and are amortised over the shorter of the term of the lease or the useful life of the assets. (d) Employee benefits The current provision for employee benefits includes accrued annual leave and long service leave. For long service leave it covers all unconditional entitlements where employees have completed the required period of service. 19 Non-current liabilities – Trade and Other Payables Straight line lease adjustment 20 Non-current liabilities – Borrowings Secured Finance lease Cash advance Less borrowing costs capitalised, net Consolidated 2011 $'000 15,538 2010 $'000 13,217 Consolidated 2011 $'000 8 100,000 (865) 99,143 2010 $'000 0 100,000 (1,088) 98,912 The facilities are secured by first registered floating company charges over all the assets and undertakings of Super Retail Group Limited and all its wholly-owned subsidiaries in favour of ANZ Banking Group Limited, HSBC and Commonwealth Bank of Australia and by cross guarantees and indemnities between Super Retail Group Limited and all its wholly-owned subsidiaries in favour of ANZ Banking Group Limited, HSBC and Commonwealth Bank of Australia. Financial covenants are provided by Super Retail Group Limited with respect to leverage, gearing, fixed charges coverage and tangible net worth. Page 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 20 Non-current liabilities – Borrowings (continued) The carrying amount of assets pledged as security are equal to those shown in the consolidated statement of financial position. Financing arrangements Unrestricted access was available at balance date to the following lines of credit: Total facilities - Bank debt funding facility - Multi-option facility (including indemnity/guarantee) Totals Facilities used at balance date - Bank debt funding facility - Multi-option facility (including indemnity/guarantee) Totals Unused balance of facilities at balance date - Bank debt funding facility - Multi-option facility (including indemnity/guarantee) Totals Consolidated 2011 $’000 2010 $’000 190,000 7,000 197,000 100,000 3,030 103,030 90,000 3,970 93,970 190,000 7,000 197,000 110,096 2,689 112,785 79,904 4,311 84,215 In addition, the Company has access to a $132 million (2010: $122 million) transactional facility for clean credit and foreign currency dealings. The current interest rates on the financing arrangements are: - Bank debt funding facility 3.97%- 5.08% (2010: 3.97%-7.09%) Fair Value Refer to Note 2 for the carrying amounts and fair values of borrowings at the end of reporting period. Risk exposures Information about the group’s exposure to interest rate and foreign currency changes is provided in Note 2. 21 Derivative Financial instruments Derivative financial instruments The Group is party to derivative financial instruments in the normal course of business in order to hedge exposures to foreign exchange and interest rate changes. Foreign exchange contracts The economic entity retails products including some that have been imported from South East Asia. In order to protect against exchange rate movements, the economic entity has entered into forward exchange rate contracts to purchase United States Dollars. The contracts are timed to mature in line with forecasted payments for imports and cover forecast purchases for the coming four months on a rolling basis. Page 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 21 Derivative Financial instruments (continued) 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 entity 2011 $000 47,500 16,500 2010 $000 8,000 0 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 flows occur, the Group adjusts the initial measurement of the component recognised in the statement of financial position by the related amount deferred in equity. In the year ended 2 July 2011, no hedges were designated as ineffective (2010: nil). 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: - unrealised gains/(losses) on foreign exchange contracts (a) - unrealised gains/(losses) on interest rate swaps (b) - total gains/(losses) - realised losses and costs - unrealised losses and costs on interest rate swaps - total losses and costs Net gains/(losses and costs) (a) (b) Included in other payables under note 15 Included in other receivables under note 10 (4,115) 142 (3,973) 0 0 (3,973) 622 282 904 0 0 904 Interest rate swap contracts Bank loans of the economic entity currently bear an average variable interest rate of 6.83% (2010: 7.28%). It is policy to protect part of the loans from exposure to increasing interest rates. Accordingly, the economic entity has entered into interest rate swap contracts, under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. The contracts are settled on a net basis and the net amount receivable or payable at the reporting date is included in other debtors or other creditors. During the year the Group was a party to two interest rate swaps for a total nominal value of $80,000,000 (2010: $80,000,000) of which $60,000,000 expired on 30 May 2011 and $20,000,000 will be expiring on 16 January 2012. The Group also entered into a $20,000,000 one year interest swap with a start date of 31 January 2012. This swap is for a fixed interest rate of 4.92%. The Group has also entered into a $20,000,000 two year interest rate swap with a start date of 31 October 2011. This swap is for a fixed interest rate of 4.64%. 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 20% (2010: 73%) of the loan principal outstanding. The average fixed interest rate is 3.97% (2010: 6.31%). Page 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 21 Derivative Financial instruments (continued) Interest rate risk exposures The economic entity’s exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out in the following table: Floating interest rate $’000 24,743 0 24,743 4.28% 0 79,135 0 79,135 Floating interest rate $’000 21,360 0 21,360 2.7% 0 29,008 0 29,008 Notes 9 10 15, 17 16, 20 18, 23 Notes 9 10 15, 17 16, 20 18, 23 2011 Financial assets Cash and deposits Receivables Total financial assets Weighted average rate of interest Financial liabilities Trade and other payables Commercial bill/cash advance Employee entitlements Total financial liabilities Weighted average rate of interest Net financial assets/ (liabilities) 2010 Financial assets Cash and deposits Receivables Total financial assets Weighted average rate of interest Financial liabilities Trade and other payables Commercial bill/cash advance Employee entitlements Total financial liabilities Weighted average rate of interest Net financial assets/ (liabilities) Fixed interest maturing in 1 year or less $’000 Over 1 to 5 years $’000 More than 5 years $000 Non- interest bearing $’000 Total $’000 0 0 0 0 20,032 0 20,032 0 0 0 0 8 0 8 0 0 0 0 0 0 0 0 954 22,160 23,114 25,697 22,160 47,857 133,386 0 13,863 147,249 133,386 99,175 13,863 246,424 (124,135) (198,567) 5.0% 3.97% 12.37% (54,392) (20,032) (8) Fixed interest maturing in 1 year or less $’000 Over 1 to 5 years $’000 More than 5 years $000 Non- interest bearing $’000 Total $’000 0 0 0 0 0 0 0 0 8,840 22,195 31,035 30,200 22,195 52,395 107,257 0 12,840 120,097 107,257 109,008 12,840 229,105 (89,062) (176,710) 0 0 0 0 0 0 0 60,000 0 60,000 0 20,000 0 20,000 7.3% 7.09% 3.97% (7,648) (60,000) (20,000) Page 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 22 Non-current liabilities - Deferred tax liabilities The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Prepayments Brand values Amounts recognised directly in equity Foreign exchange revaluation reserve Cash flow hedges Consolidated 2011 $'000 2010 $'000 3 6,638 6,641 0 43 6,684 2 6,675 6,677 0 271 6,948 Set-off of deferred tax liabilities of parent entity pursuant to set-off provisions Net deferred tax liabilities (6,684) 0 (6,948) 0 Movements: Opening balance Charged/(credited) to the income statement Charged/(credited) to equity Foreign exchange on translation of NZ subsidiary Acquired in acquisition Closing balance Deferred tax liabilities to be settled after more than 12 months Deferred tax liabilities to be settled within 12 months 23 Non-current liabilities – Provisions Make good provision Employee benefits Provision for Oceania future dividend (a) 6,948 (36) (228) 0 0 6,684 6,681 3 6,684 1,534 (38) (548) 0 6,000 6,948 6,946 2 6,948 Consolidated 2011 $'000 4,899 2,952 132 7,983 2010 $'000 8,087 2,207 132 10,426 (a) Provision for Oceania future dividend A provision has been recognised for the present value of the estimated cost of the future dividend required to be paid with respect to Oceania. (b) Movements in provisions (consolidated entity) (notes 18 & 23) Opening balance as at 4 July 2010 Additional provisions recognised Indexing of provisions Provision released Acquisitions Closing balance as at 2 July 2011 Put option $’000 758 0 113 0 0 871 Warranties $’000 44 0 0 0 0 44 Make good $'000 8,433 0 0 (3,074) 0 5,359 Oceania future dividend $’000 132 0 0 0 0 132 Total $’000 9,367 0 113 (3,074) 0 6,406 Page 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 24 Contributed equity (a) Share Capital Ordinary shares fully paid Movement in ordinary share capital (b) Issue of shares on incorporation (8 April 2004) Issue of shares on 23 April 2004 Share split on 19 May 2004 Issue of shares on 8 March 2008 Dividend reinvestment plan issue on 14 October 2009 Dividend reinvestment plan issue on 17 March 2010 Issue of shares on 4 May 2010 Shares issue under share option Share placement plan on 27 May 2010 Shares issue under share option Shares issued on 31 May 2010 as consideration for Ray’s Outdoors Pty Ltd Dividend reinvestment plan issue on 1 October 2010 Dividend reinvestment plan issue on 5 April 2011 Shares issue under share option Less transaction costs on share issue Deferred tax credit recognised directly in equity Closing balance 2 July 2011 Parent Entity 2011 $'000 2010 $'000 194,541 182,158 Issue Price $’000 1.00 1.69 0 1.97 5.35 4.96 4.80 2.36 4.80 2.42 5.16 5.98 6.40 2.55 0 84,233 0 394 3,821 3,279 76,320 1,346 12,143 448 1,548 4,637 6,028 1,966 196,163 (1,976) 354 194,541 Number of Shares 1 49,697,150 56,732,471 200,000 714,234 661,137 15,900,000 612,500 2,529,809 185,000 300,000 775,040 941,397 770,000 130,018,739 The purpose of the issue on 27 April 2010 was to finance the acquisition of Ray’s Outdoors and provide additional funds to meet capital expenditure and working capital requirements associated with growing the Ray’s Outdoors store network. Dividend reinvestment plan The company has established a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash. Shares issued under the plan at a 2.5% discount to the market price. 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 nil (2010: nil) ordinary shares were issued during the period, with 770,000 (2010: 797,500) options being exercised during the period. Performance rights over 363,427 (2010: 375,165) ordinary shares were issued during the period. Nil performance rights were exercised during the period. Information relating to options outstanding at the end of the financial period are set out in Note 38. (c) Capital risk management The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group monitors overall capital on the basis of the gearing ratio. The ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the statement of financial position (including minority interest) plus net debt. During 2011 the Group’s strategy, which was unchanged from 2010, was to ensure that the gearing ratio remained below 50%. This target ratio range excludes the short-term impact of acquisitions. The gearing ratios at 2 July 2011 and 3 July 2010 were as follows: Page 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 24 Contributed equity (continued) Total borrowings Less: Cash & cash equivalents Net Debt Total Equity Total Capital Gearing Ratio Consolidated 2011 $'000 99,175 (25,697) 73,478 303,680 377,158 19.5% 2010 $'000 109,008 (30,200) 78,808 270,557 349,365 22.6% The decrease in the gearing ratio was due to dividend reinvestment plan in place for shareholders as well as a small reduction in debt levels. The Group now has significant capacity to fund its growth plans, including continued expansion of the store network. The Group monitors ongoing capital on the basis of the fixed charge cover ratio. The ratio is calculated as earnings before finance costs, tax, depreciation, amortisation and store and DC rental expense divided by fixed charge obligations (being finance costs and store and DC rental expenses). Rental expenses are calculated net of straight line lease adjustments, while finance costs exclude non-cash mark-to-market losses or gains on interest rate swaps. During 2011 the Group’s strategy, which was unchanged from 2010, was to maintain a fixed charge cover ratio of around 2.0 times. The fixed charge cover ratios at 2 July 2011 and 3 July 2010 were as follows: Earnings Add: Taxation expense Finance costs Depreciation and amortisation Rental expense EBITDAR Finance costs (excluding MTM adjustment) Rental expense Fixed charges Fixed charge cover ratio Consolidated 2011 $’000 55,599 22,053 10,973 22,802 84,486 195,913 10,973 84,486 95,459 2.05 2010 $’000 38,053 15,827 10,477 22,730 69,833 156,920 12,678 69,833 82,511 1.90 The improvement in the fixed charge cover ratio was due to the increased profitability of the Group. Page 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 25 Reserves and retained profits Consolidated Reserves Foreign currency translation reserve Share based payments reserve Hedging reserve Movements Foreign currency translation reserve Balance at the beginning of the financial period Net exchange difference on translation of foreign controlled Entity Balance at the end of the financial period Share based payments reserve Balance at beginning of the financial period Options lapsed Options and performance rights expense Balance at the end of the financial period Hedging reserve Balance of beginning of the financial period Revaluation – gross Deferred tax Balance at the end of the financial period 2011 $'000 (3,607) 3,149 (2,781) (3,239) (2,407) (1,200) (3,607) 1,932 0 1,217 3,149 633 (4,877) 1,463 (2,781) 2010 $'000 (2,407) 1,932 633 158 (2,933) 526 (2,407) 1,068 0 864 1,932 1,907 (1,822) 548 633 Retained earnings Balance at the beginning of the financial period Net profit/(loss) for the financial period attributable to shareholders of Super Retail Group Limited Dividends provided for or paid Retained profits/(losses) at the end of the financial period 88,241 71,685 55,599 (31,462) 112,378 38,053 (21,497) 88,241 Nature and purpose of reserves (i) Hedging reserve - cash flow hedges The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in equity, as described in note 1(k). Amounts are recognised in profit and loss when the associated hedged transaction affects profit and loss. (ii) Share-based payments reserve The share-based payments reserve is used to recognise the fair value of options and performance rights 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 profit and loss when the net investment is disposed of. Page 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 26 Dividends Parent Entity 2011 $’000 2010 $’000 Ordinary shares Dividends paid by Super Retail Group Limited during the reporting period were as follows: Interim dividend for the period ended 1 January 2011 of 11.5 cents (2010: 8.5 cents per share) paid on 5 April 2011. Fully franked based on tax paid @ 30% 14,844 9,182 Final dividend for the period ended 3 July 2010 of 13.0 cents per share (2010: 11.5 cents per share) paid on 1 October 2010. Fully franked based on tax paid @ 30% Total dividends provided and paid 16,618 31,462 12,315 21,497 Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan were as follows: Paid in cash Satisfied by issue of shares Dividends not recognised at year end Subsequent to year end, the Directors have declared the payment of a final dividend of 17.5 cents per ordinary share (2010: 13.0 cents per ordinary share), fully franked based on tax paid at 30%. 20,797 10,665 31,462 14,395 7,102 21,497 The aggregate amount of the dividend expected to be paid on 26 September 2011, out of retained profits at 2 July 2011, but not recognised as a liability at year end, is 22,753 16,579 Franking credits The franked portions of dividends paid after 2 July 2011 will be franked out of existing franking credits and out of franking credits arising from the payments of income tax in the years ending after 2 July 2011. Franking credits remaining at balance date available for dividends declared after the current balance date based on a tax rate of 30% 52,124 47,147 The above amounts represent the balance of the franking account as at the end of the financial period, adjusted for: - franking credits that will arise from the payment of the current tax liability; and, - franking debits that will arise from the payment of the dividend as a liability at the reporting date. The amount recorded above as the franking credit amount is based on the amount of Australian income tax paid or to be paid in respect of the liability for income tax at the balance date. 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 $9,751,405 (2010: $7,105,371). Page 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 27 Key management personnel disclosures (a) Key management personnel compensation Short-term employee benefits Post-employment benefits Share-based payments Consolidated 2011 $ 2010 $ 3,556,350 231,763 726,090 4,514,203 3,344,736 294,597 430,935 4,070,268 The key management personnel remuneration in some instances has been paid by a subsidiary. (b) 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 and Diversity Report on pages 18 to 28. (ii) Performance Rights Details of performance rights provided as remuneration and shares issued on the exercise of such performance rights, together with terms and conditions of the performance rights, can be found in the Remuneration and Diversity Report on pages 18 to 28. The number of performance rights over ordinary shares in the Company held during the financial year by each Director of Super Retail Group Limited and other key management personnel of the Group, including their personally related parties, are set out below. 2011 Balance at the start of the year Granted during the year as compensation 0 0 0 0 Name Directors of Super Retail Group R J Wright R A Rowe D D McDonough (resigned 31 August 2010) R J Skippen S A Pitkin P A Birtles Other key management personnel of the Group D F Ajala S J Doyle G G Carroll G L Chad 0 0 0 100,000 38,835 35,437 25,172 28,420 0 0 0 100,000 36,325 33,333 23,089 26,270 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 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 200,000 75,160 68,770 48,261 54,690 0 0 0 0 0 0 0 0 0 0 Page 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 27 Key management personnel disclosures (continued) (iii) Option holdings The numbers of options over ordinary shares in the Company held during the financial year by each Director of Super Retail Group Limited and other key management personnel of the Group, including their personally related parties, are set out below. 2011 0 0 Balance at the start of the year Name Directors of Super Retail Group Limited R J Wright R A Rowe D D McDonough (resigned 31 August 2010) R J Skippen S A Pitkin P A Birtles Other key management personnel of the Group D F Ajala S J Doyle G G Carroll G L Chad 0 0 0 350,000 135,000 300,000 175,000 87,500 Granted during the year as compensation Exercised during the year Other changes during the year Balance at the end of the year 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 150,000 135,000 50,000 75,000 37,500 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 200,000 0 250,000 100,000 50,000 No options are vested and unexercisable at the end of the year. 2010 Granted during the year as compensation Exercised during the year Other changes during the year Balance at the end of the year 0 0 Balance at the start of the year Name Directors of Super Retail Group Limited R J Wright R A Rowe D D McDonough (resigned 31 August 2010) R J Skippen P A Birtles Other key management personnel of the Group D F Ajala S J Doyle G G Carroll G L Chad 400,000 400,000 250,000 125,000 0 0 500,000 0 0 0 0 0 0 0 0 0 0 0 0 0 150,000 265,000 100,000 75,000 37,500 0 0 0 0 0 0 0 0 0 0 0 0 0 350,000 135,000 300,000 175,000 87,500 Vested and exercisable at the end of the year 0 0 0 0 0 200,000 0 250,000 100,000 50,000 Vested and exercisable at the end of the year 0 0 0 0 150,000 35,000 200,000 75,000 37,500 No options are vested and unexercisable at the end of the year. Share holdings (iii) The numbers of shares in the Company held during the financial year by each director of Super Retail 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. Page 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 27 Key management personnel disclosures (continued) 2011 Name Directors of Super Retail Group Limited Ordinary shares R J Wright R A Rowe D D McDonough (resigned 31 August 2010) R J Skippen S A Pitkin P A Birtles Other key management personnel of the Group Ordinary shares D F Ajala S J Doyle G G Carroll G L Chad 2010 Name Directors of Super Retail Group Limited Ordinary shares R J Wright R A Rowe D D McDonough (resigned 31 August 2010) R J Skippen P A Birtles Other key management personnel of the Group Ordinary shares D F Ajala S J Doyle G G Carroll G L Chad Loans to key management personnel There were no loans to individuals at any time. 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 44,274 53,028,254 62,083 0 0 1,542,596 0 0 0 0 0 150,000 1,774 643,072 0 0 10,000 0 46,048 53,671,326 62,083 0 10,000 1,692,596 165,136 23,411 0 37,500 135,000 50,000 75,000 37,500 (191,700) (50,000) (75,000) 0 108,436 23,411 0 75,000 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 40,609 52,402,159 60,000 0 1,392,596 0 0 0 0 150,000 3,665 626,095 2,083 0 0 44,274 53,028,254 62,083 0 1,542,596 281 143,411 0 50,000 265,000 100,000 75,000 37,500 (100,145) (220,000) (75,000) (50,000) 165,136 23,411 0 37,500 Other transactions with key management personnel Aggregate amounts of each of the above types of other transactions with key management personnel of Super Retail Group Limited: Amounts paid to key management personnel as shareholders Dividends 2011 $000 2010 $000 13,510 10,891 Page 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 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 firms. (a) Assurance services Audit services PricewaterhouseCoopers Australian firm Audit and review of financial reports and other audit work under the Corporations Act 2001 Total remuneration for audit services Total remuneration for assurance services (b) Taxation services PricewaterhouseCoopers Australian firm Tax compliance services, including review of company income tax returns Customs Advice Total remuneration for taxation services (c) Advisory services PricewaterhouseCoopers Australian firm Business Consulting Total remuneration for advisory services Consolidated 2011 $ 2010 $ 424,468 424,468 424,468 257,749 12,000 269,749 405,321 405,321 405,321 213,272 79,000 292,272 144,157 144,157 573,308 573,308 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 Consolidated Parent 2011 $000 2010 $000 2011 $000 2010 $000 Guarantees Guarantees issued by the bankers of the Group in support of various rental arrangements for certain retail outlets. The maximum future rental payments guaranteed amount to: 3,030 2,689 1,469 1,392 Page 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 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 five years Later than five 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 five years Later than five years Less lease straight lining adjustment (note 19) Total lease commitments Future minimum lease payments expected to be received in relation to non- cancellable sub-leases of operating leases The Group leases various offices, warehouses and retail stores under non-cancellable operating leases. The leases have varying terms, escalation clauses and renewal rights. On renewal the terms of the leases are renegotiated. 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 five years Later than five years Consolidated 2011 $000 2010 $000 854 0 0 854 81,370 226,318 72,291 (15,538) 364,441 487 0 0 487 76,045 211,782 76,250 (13,217) 350,860 1,861 1,194 2,270 6,056 444 8,770 2,120 1,374 0 3,494 Amounts disclosed as remuneration commitments include commitments arising from the service contracts of key management personnel referred to in the Remuneration and Diversity Report on pages 18 to 28 that are not recognised as liabilities and are not included in the key management personnel compensation. Finance leases The Group leases various plant and equipment with a carrying amount of $199,000 (2010: $605,000) under finance leases expiring within three to five years. Commitments in relation to finance leases are payable as follows: Within one year Later than one year but not later than five years Minimum lease payments Future finance charges Total lease liabilities Representing lease liabilities: Current (note 16) Non-current Consolidated 2011 $000 2010 $000 34 8 42 (2) 40 32 8 40 104 0 104 (8) 96 96 0 96 Page 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 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 Retail Group Limited, which is the ultimate Australian parent. (b) Subsidiaries Interests in subsidiaries are set out in note 32. (c) Key Management 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 Retail Group Limited during the financial period are R J Wright, R A Rowe, D D McDonough (resigned 31 August 2010), R J Skippen, S A M Pitkin and P A Birtles. (e) Amounts due from related parties Amounts due from Directors of the consolidated entity and their director-related entities are shown below in note 31(g) Transactions with related parties (f) Aggregate amounts included in the determination of profit from ordinary activities before income tax that resulted from transactions with related parties: Consolidated 2011 $ 2010 $ 9,439,979 1,980,928 9,405,863 1,767,960 Other Transactions - store lease payments – R A Rowe related property entities - remuneration paid to directors of the ultimate Australian parent entity Rent payable on R A Rowe related properties at year-end was $18,168 (2010: $19,617) (g) Loans to/(from) Related Parties Loans to/(from) Directors There are no loans to or from related parties at 2 July 2011 (2010 :$nil) 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(a) SRG Leisure Retail Pty Ltd (formerly BCF Australia Pty Ltd(a)) SCA Equity Plan Pty Ltd(b) Goldcross Cycles Pty Ltd(a) Oceania Bicycles Pty Ltd Ray’s Outdoors Pty Ltd(a) Super Retail Group Trading (Shanghai) Ltd FCO New Zealand Limited SRGS Pty Ltd(a) Country of Incorporation Class of Shares 2011 % 2010 % Equity Holding Australia New Zealand Australia Australia Australia Australia Australia Australia China New Zealand Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 50 100 0 0 0 (a) These controlled entities have been granted relief from the necessity to prepare financial reports in accordance with Class Order 98/1418 issued by the Australian Securities and Investments Commission. (b) Investment is held directly by Super Cheap Auto Pty Ltd. Page 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 33 Business Combinations (a) Ray’s Outdoors (prior period) (i) Summary of acquisition On 31 May 2010, the parent entity acquired 100% of the issued share capital of Ray’s Outdoors Pty Ltd. Details of the fair value of the assets and liabilities acquired and goodwill are as follows: $'000 Purchase consideration Cash paid Consideration in shares Total purchase consideration (referred to (ii) below) Less: Provisional allocation of fair value of net identifiable assets acquired (see below) Goodwill recognised on acquisition (ii) Purchase considerations The assets and liabilities recognised as a result of the acquisition are as follows: Cash Other Receivables Inventory (net of provisions) Plant & Equipment Brand name Deferred make good Tax Assets Trade Payables Provision for Employee Entitlements Make-good provision Other Payables Deferred tax liability Net Identifiable Assets Acquired Outflow of cash to acquire subsidiary, net of cash acquired Total purchase consideration Less: Consideration in shares Less: Balances acquired Cash Outflow of cash 51,685 1,548 53,233 (43,021) 10,212 Fair Value $’000 70 346 26,874 11,104 20,000 702 1,503 (7,500) (1,864) (1,389) (614) (6,211) 43,021 Consolidated 2010 $’000 53,233 (1,548) (70) (1,618) 51,615 The Ray’s Outdoor acquisition was disclosed provisionally in the financial report for the year ended 3 July 2010. Since this date, the completion statement has been reviewed and adjustments were made to inventory (decrease of $266,000), provisions for employee entitlements (increase of $217,000), plant and equipment (decrease of $896,000), a corresponding increase to tax assets of $143,000 and gift voucher liability increase of $515,000. A corresponding increase has been recognised in goodwill of $1,751,000. The goodwill is attributable to Ray’s Outdoors strong position and profitability in the outdoor and leisure market and the synergies expected to arise from the acquisition. Page 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 33 Business Combinations (continued) (b) Explore Outdoors (prior period) Acquisition by controlled entity On 27 October 2009, BCF Australia Pty Ltd acquired certain assets and assumed certain liabilities of the Explore Outdoors Dubbo business from an entity external to the Group. Net assets acquired are as follows: Purchase consideration Cash Paid Total purchase consideration Less: Provisional allocation of fair value of net identifiable assets acquired (refer below) Goodwill recognised on acquisition The goodwill is attributable to Explore Outdoors Dubbo strong position and profitability in the leisure market and synergies expected to arise after the company’s acquisition Fair value of identifiable net assets acquired Inventory (net of provisions) Gift voucher liability Employee entitlements Other creditors Net identifiable assets acquired $’000 1,331 1,331 371 960 $’000 387 (6) (8) (2) 371 The amounts recognised by the vendor immediately before acquisition for each class of asset and liability are not significantly different from the fair values included in the table above. 34 Net tangible asset backing Net tangible asset per ordinary share 35 Deed of cross guarantee Consolidated Entity 2011 Cents $1.40 2010 Cents $1.28 Super Retail Group Limited, Super Cheap Auto Pty Ltd, SRG Leisure Retail Pty Ltd (formerly BCF Australia Pty Ltd), Super Retail Group Services Pty Ltd, Goldcross Cycles Pty Ltd, Ray’s Outdoors Pty Ltd, SRGS 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. This Deed of Cross Guarantee was amended on 8 June 2010 to include Ray’s Outdoors Pty Ltd. By entering into the Deed, the wholly owned entities have been relieved from the requirement to prepare a financial report and directors’ report under Class Order 98/1418 (as amended by Class Orders 98/2017, 00/0321, 01/1087, 02/0248 and 02/1017) issued by the Australian Securities and Investments Commission. (a) Consolidated Income Statement, Statement of Comprehensive Income and a summary of movements in consolidated retained earnings 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 Retail Group Limited, they also represent the ‘Extended Closed Group’. Set out below is a consolidated income statement and a summary of movements in consolidated retained profits for the period ended 2 July 2011 of the Closed Group consisting of Super Retail Group Limited, Super Cheap Auto Pty Ltd, SRG Leisure Retail Pty Ltd (formerly BCF Australia Pty Ltd), Super Retail Group Services Pty Ltd, Goldcross Cycles Pty Ltd, Ray’s Outdoors Pty Ltd and SCA Equity Plan Pty Ltd. Page 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 35 Deed of cross guarantee (continued) Income Statement 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 Profit before income tax Income tax (expense)/benefit Profit for the period Statement of comprehensive income Profit for the year Other comprehensive income Cash flow hedgings Income tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax Total comprehensive income for the year Summary of movements in consolidated retained earnings Retained profits at the beginning of the financial year Profit for the period Dividends provided for or paid Consolidated 2011 $'000 2010 $'000 1,020,152 1,343 1,021,495 862,697 149 862,846 (547,326) (484,194) (130,895) (49,136) (84,189) (120,780) (8,712) (941,038) 80,457 (22,574) (104,255) (41,402) (68,241) (103,231) (8,689) (810,012) 52,834 (15,531) 57,883 37,303 57,883 (3,414) 0 (3,414) 54,469 37,303 (1,274) 0 (1,274) 36,029 82,890 57,883 (31,462) 67,084 37,303 (21,497) Retained profits at the end of the financial year 109,311 82,890 Page 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 35 Deed of cross guarantee (continued) (b) Statement of Financial Position Set out below is a consolidated statement of financial position as at 2 July 2011 of the Closed Group consisting of Super Retail Group Limited, Super Cheap Auto Pty Ltd, SRG Leisure Retail Pty Ltd (formerly BCF Australia Pty Ltd), Super Retail Group Services Pty Ltd, Goldcross Cycles Pty Ltd, Ray’s Outdoors Pty Ltd, SRGS Pty Ltd and SCA Equity Plan Pty Ltd. ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets Other financial 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 Trade and other payables Borrowings Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Total equity Consolidated 2011 $'000 2010 $'000 23,521 18,916 267,963 310,400 401 101,117 10,546 111,242 223,306 533,706 89,551 0 11,013 11,051 111,615 15,538 99,135 0 7,983 122,656 234,271 299,435 194,541 (4,417) 109,311 299,435 29,106 17,075 227,910 274,091 401 98,043 7,293 103,781 209,518 483,609 66,335 8,912 7,989 9,979 93,215 13,217 100,000 0 10,426 123,643 216,858 266,751 182,158 1,703 82,890 266,751 Page 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 36 Reconciliation of profit from ordinary activities after income tax to net cash inflow from operating activities Consolidated Profit from ordinary activities after related income tax Depreciation and amortisation Net (gain)/loss on sale of non-current assets Non-cash employee benefits expense/share based payments Finance costs Other non cash items Change in operating assets and liabilities, net of effects from the purchase of controlled entities and the sale of the service entity - (increase) /decrease in receivables - (increase) in inventories - (decrease)/increase in payables - (decrease)/increase in provisions - (decrease) in deferred tax Net cash inflow from operating activities 37 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 profit after tax Diluted earnings per share - earnings used in calculating diluted earnings per share – net profit after tax (a) Information concerning the classification of securities 2011 $000 55,599 22,802 294 1,222 10,973 0 (675) (40,138) 24,914 (2,268) (1,821) 70,902 2010 $000 38,053 22,730 516 784 10,477 96 1,128 (2,756) (18,226) 2,664 (2,906) 52,560 Consolidated Entity 2011 Cents 43.1 42.5 2010 Cents 34.0 33.0 Consolidated Entity 2011 Number 2010 Number 128,987,743 1,792,920 111,859,967 2,303,494 130,780,663 114,163,461 2011 $’000 2010 $000 55,599 38,053 55,599 38,053 (i) Options and Performance Rights Options and performance rights 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. Page 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 38 Share-based payments (a) Executive Performance Rights The Company has established the Super Retail Group Executive Performance Rights Plan (“Performance Rights”) to assist in the retention and motivation of executives of Super Retail Group (“Participants”). It is intended that the Performance Rights 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 Performance Rights, rights may be offered to Participants selected by the Board. Unless otherwise determined by the Board, no payment is required for the grant of rights under the Rights Plan. Subject to any adjustment in the event of a bonus issue, each right is an option to subscribe for one Share. Upon the exercise of a right by a Participant, each Share issued will rank equally with other Shares of the Company. Performance Rights issued under the plan may not be transferred unless approved by the Board. The table below summarises rights granted under the plan. Number of Rights Issued Grant Date Consolidated – 2011 1 September 2009 1 September 2010 (b) Executive Option Plan Balance at start of the year (Number) Granted during the year (Number) Exercised during the year (Number) Forfeited during the year (Number) Balance at the end of the year (Number) Unvested at the end of the year (Number) 375,165 0 375,165 0 374,823 374,823 0 0 0 18,427 11,396 29,823 356,738 363,427 720,165 356,738 363,427 720,165 The Company has established the Super Retail Group Executive Share Option Plan (“Option Plan”). The Company had established the Option Plan to assist in the retention and motivation of executives of Super Cheap Auto (“Participants”). It is intended that the Option Plan will enable the Company to retain and attract skilled and experienced executives and provide them with the motivation to enhance the success of the Company. Under the Option Plan, options may be offered to Participants selected by the Board. Unless otherwise determined by the Board, no payment is required for the grant of options under the Option Plan. Subject to any adjustment in the event of a bonus issue, each option is an option to subscribe for one Share. Upon the exercise of an option by a Participant, each Share issued will rank equally with other Shares of the Company. Options issued under the Option Plan may not be transferred unless the Board determines otherwise. The Company has no obligation to apply for quotation of the options on ASX. However, the Company must apply to ASX for official quotation of Shares issued on the exercise of the options. At any one time, the total number of options on issue under the Option Plan that have neither been exercised nor lapsed will not exceed 5.0% of the total number of shares in the capital of the Company on issue. Page 81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 38 Share-based payments (continued) Set out below are summaries of options granted under the plan: Grant Date Exercise date Exercise price Balance at start of the year Number Consolidated – 2011 27 Jan 2006 27 Jan 2006 27 Jan 2006 17 April 2006 17 April 2006 1 July 2006 1 July 2006 1 July 2006 26 Oct 2006 26 Oct 2006 23 Aug 2007 5 Jan 2009 5 Jan 2010 5 Jan 2011 17 April 2010 17 April 2011 1 July 2009 1 July 2010 1 July 2011 1 Feb 2010 1 Feb 2011 24 Jul 2010 1 August 2008 1 August 2011 Total $2.44 $2.44 $2.44 $2.25 $2.25 $2.25 $2.25 $2.25 $2.44 $2.44 $4.37 $2.49 100,000 135,000 200,000 75,000 100,000 55,000 225,000 300,000 150,000 200,000 180,000 220,000 1,940,000 Granted during the year Exercised during the year Number Number Number Forfeited during the year Balance at end of the year Number Unvested at end of the year Number 0 50,000 35,000 0 0 100,000 75,000 0 0 0 0 55,000 0 225,000 0 0 0 150,000 0 0 80,000 0 0 0 770,000 0 50,000 0 100,000 0 100,000 0 0 0 100,000 0 0 0 0 0 300,000 0 0 0 200,000 0 100,000 0 40,000 180,000 40,000 1,130,000 0 0 0 0 0 0 0 0 0 0 0 180,000 180,000 Weighted average exercise price $2.55 Nil $2.55 $2.55 $2.49 Consolidated – 2010 27 Jan 2006 27 Jan 2006 27 Jan 2006 17 April 2006 17 April 2006 17 April 2006 1 July 2006 1 July 2006 1 July 2006 26 Oct 2006 26 Oct 2006 26 Oct 2006 23 Aug 2007 5 Jan 2009 5 Jan 2010 5 Jan 2011 17 April 2009 17 April 2010 17 April 2011 1 July 2009 1 July 2010 1 July 2011 1 Feb 2009 1 Feb 2010 1 Feb 2011 24 Jul 2010 1 August 2008 1 August 2011 Total $2.44 $2.44 $2.44 $2.25 $2.25 $2.25 $2.25 $2.25 $2.25 $2.44 $2.44 $2.44 $4.37 $2.49 400,000 200,000 200,000 75,000 75,000 100,000 262,500 262,500 350,000 150,000 150,000 200,000 180,000 220,000 2,825,000 300,000 0 65,000 0 0 0 75,000 0 0 0 0 0 0 207,500 0 0 0 0 0 150,000 0 0 0 0 0 0 0 0 797,500 0 0 0 0 0 0 0 0 37,500 50,000 0 0 0 0 0 100,000 0 135,000 0 200,000 200,000 0 0 75,000 0 100,000 100,000 55,000 0 225,000 0 300,000 300,000 0 0 150,000 0 200,000 200,000 180,000 180,000 220,000 220,000 87,500 1,940,000 1,200,000 Weighted average exercise price $2.32 Nil $2.38 $2.55 $2.66 Fair value of options granted The fair value at grant date is independently determined using a Binomial 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. No options have been granted in the past two financial years. 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. Expenses arising from share based payments transactions: Executive Performance Rights Executive Option Plan 2011 $000 1,107 115 1,222 2010 $000 539 245 784 Page 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 39 Events occurring after balance date No matter or circumstance has arisen since 2 July 2011 that has significantly affected, or may significantly affect: (a) (b) (c) the Group’s operations in future financial years; or the results of those operations in future financial years; or the Group’s state of affairs in future financial years. 40 Parent entity financial information Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Statement of Financial Position Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Issued capital Reserves Share-based payments Cash flow hedges Retained earnings Profit or loss for the year Total comprehensive income Consolidated 2011 $’000 199,109 346,862 13,569 2010 $’000 178,818 326,295 15,461 112,859 115,616 194,541 3,149 100 36,213 234,003 41,284 41,284 182,158 1,932 198 26,391 210,679 32,551 32,551 Page 83 DIRECTORS’ DECLARATION Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 In the directors’ opinion: (a) (b) (c) the financial statements and notes set out on pages 30 to 83 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 giving a true and fair view of the consolidated entity's financial position as at 2 July 2011 and of its performance for the financial period ended on that date; and (ii) 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 at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in note 35 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 35. Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the managing director and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. R Wright Director P A Birtles Director Brisbane 18 August 2011 Page 84 AUDIT REPORT Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period 2 July 2011 (continued) Independent auditor’s report to the members of Super Retail Group Limited Report on the financial report We have audited the accompanying financial report of Super Retail Group Limited (the company), which comprises the balance sheet as at 2 July 2011 and the income statement, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for the Super Retail Group Limited (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at the period’s end or from time to time during the financial period. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. PricewaterhouseCoopers, ABN 52 780 433 757 Riverside Centre, 123 Eagle Street, GPO BOX 150, BRISBANE QLD 4001 DX 77 Brisbane, Australia T +61 7 3257 5000, F +61 7 3257 5999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation Page 85 AUDIT REPORT Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period 2 July 2011 (continued) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of Super Retail Group Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the consolidated entity’s financial position as at 2 July 2011 and of its performance for the period ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration and Diversity Report We have audited the remuneration and diversity report included in pages 18 to 28 of the directors’ report for the year ended 2 July 2011. The directors of the company are responsible for the preparation and presentation of the remuneration and diversity report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration and diversity report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration and diversity report of Super Retail Group Limited for the year ended 2 July 2011, complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Cameron Henry Partner Brisbane 18 August 2011 Page 86 SHAREHOLDER INFORMATION Super Retail Group Limited (formerly Super Cheap Auto Group Limited) For the period ended 2 July 2011 The shareholder information set out below was applicable as at 18 August 2011. 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 10,001-50,000 50,001-100,000 100,001 and over Ordinary Shareholders Option holders 1,482 1,408 267 182 27 42 11 8 3 1 There were 246 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 NATIONAL NOMINEES LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED COGENT NOMINEES PTY LIMITED CITICORP NOMINEES PTY LIMITED COGENT NOMINEES PTY LIMITED SUNCORP CUSTODIAN SERVICES PTYLIMITED & SUNCORP CUSTODIAN SERVICES PTY LIMITED MR PETER ALAN BIRTLES GEOMAR SUPERANNUATION PTY LTD MR ROBERT EDWARD THORN AMP LIFE LIMITED GRAHGER CAPITAL SECURITIES PTY LTD EQUITAS NOMINEES PTY LIMITED EQUITAS NOMINEES PTY LIMITED EQUITAS NOMINEES PTY LIMITED EQUITAS NOMINEES PTY LIMITED CITICORP NOMINEES PTY LIMITED JP MORGAN NOMINEES AUSTRALIA LIMITED UBS NOMINEES PTY LTD RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED Ordinary shares Number held Percentage of issued shares 53,671,326 14,129,240 13,029,724 11,149,057 6,487,572 4,646,729 1,752,021 1,369,970 1,240,000 1,170,000 723,368 567,904 560,000 548,220 543,931 543,931 535,391 528,151 493,978 467,900 453,915 41.16% 10.84% 9.99% 8.55% 4.98% 3.56% 1.34% 1.05% 0.95% 0.90% 0.55% 0.44% 0.43% 0.42% 0.42% 0.42% 0.41% 0.41% 0.38% 0.36% 0.35% 114,612,328 87.89% Super Retail Group Limited wishes to confirm that, in accordance with ASX Listing Rule 4.10.4, the substantial holders in the company as at 18 August 2011 were:- Name SCA FT PTY LTD NATIONAL NOMINEES LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED C. Voting rights The voting rights relating to each class of equity securities is as follows: a) Ordinary Shares Ordinary shares Number held Percentage of issued shares 53,671,326 14,129,240 13,029,724 11,149,057 41.16% 10.84% 9.99% 8.55% On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. b) Options and Performance Rights No voting rights. Page 87 STORE LISTING SUPERCHEAP AUTO AUSTRALIAN CAPITAL TERRITORY BELCONNEN (02) 6253 5660 FYSHWICK (02) 6239 2333 GUNGAHLIN (02) 6241 0387 TUGGERANONG (02) 6293 2233 NEW SOUTH WALES ALBURY (02) 6041 1866 ARMIDALE (02) 6771 1955 AUBURN (02) 9648 5722 BALLINA (02) 6681 4755 BANKSTOWN (02) 9709 6500 BATHURST (02) 6331 7122 BELLA VISTA (02) 8814 6335 BENNETTS GREEN (02) 4947 4088 BLACKTOWN (02) 9676 1444 BONDI JUNCTION (02) 9389 3968 BROOKVALE (02) 9905 5666 CAMPBELLTOWN (02) 4625 9000 CESSNOCK (02) 4990 1037 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 GRIFFITH (02) 6962 9566 INVERELL (02) 6722 5466 KEMPSEY (02) 6562 1996 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 MITTAGONG (02) 4872 3820 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 TUGGERAH (02) 4355 4055 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 89 ANNUAL REPORT 2011 BOOVAL (07) 3282 6356 BOWEN (07) 4786 4543 BROWNS PLAINS (07) 3806 8177 BUNDABERG (07) 4151 1111 BURLEIGH (07) 5576 6000 BURPENGARY (07) 3888 9366 CABOOLTURE (07) 5499 0488 CAIRNS (Earlville) (07) 4033 0600 CANNON HILL (07) 3395 8622 CAPALABA (07) 3823 1677 CARSELDINE (07) 3261 4777 CHERMSIDE (07) 3359 4930 CLEVELAND (07) 3286 5777 CURRIMUNDI (07) 5437 7400 DALBY (07) 4662 2933 DECEPTION BAY (07) 3204 8100 EMERALD (07) 4982 0088 ENOGGERA (07) 3855 3188 GATTON (07) 5462 4398 GLADSTONE (07) 4976 9133 GOODNA (07) 3818 0722 GYMPIE (07) 5482 7566 HERMIT PARK (07) 4721 6488 HERVEY BAY (Pialba) (07) 4124 1211 INGHAM (07) 4776 1635 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 OXLEY (07) 3379 4066 REDCLIFFE (07) 3284 2055 ROBINA (07) 5578 8477 ROCKHAMPTON (07) 4922 5433 SMITHFIELD (Cairns) (07) 4038 1588 SOUTHPORT (07) 5527 0666 STONES CORNER (07) 3394 4844 TAIGUM (07) 3265 7211 TARINGA (07) 3871 3808 THE PINES (07) 5534 5633 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 WYNNUM (07) 3348 2044 YAMANTO (07) 3294 1033 YEPPOON (07) 4930 2166 SOUTH AUSTRALIA BLAIR ATHOL (08) 8269 7122 DARLINGTON (08) 8358 3566 ELIZABETH (08) 8287 6533 HECTORVILLE (08) 8165 0813 KILKENNY (08) 8347 2214 MARION (08) 8296 2210 MELROSE PARK (08) 8177 0048 MUNNO PARA (08) 8254 7999 NOARLUNGA (08) 8384 2833 PARA HILLS (08) 8258 2760 PORT ADELAIDE (08) 8447 6088 PORT PIRIE (08) 8633 1197 SALISBURY (08) 8258 4811 THEBARTON (08) 8354 0666 WHYALLA (08) 8645 5159 TASMANIA BURNIE (03) 6432 4855 CAMBRIDGE (03) 6248 4655 DEVONPORT (03) 6424 3244 GLENORCHY (03) 6272 9200 LAUNCESTON (03) 6333 0511 VICTORIA BAIRNSDALE (03) 5153 2799 BALLARAT (03) 5339 9455 BENDIGO (03) 5442 7877 BLACKBURN (03) 9894 7377 BRIMBANK (03) 8390 2611 BROADMEADOWS (03) 9309 2799 CARRUM DOWNS (03) 9782 8305 COLAC (03) 5231 4099 CRANBOURNE (03) 5995 7299 DANDENONG (03) 9706 7788 ECHUCA (03) 5480 6788 EPPING (03) 9408 4288 ESSENDON (03) 9379 3600 FRANKSTON (03) 9781 2288 GLEN WAVERLEY (03) 9803 5298 HOPPERS CROSSING (03) 9748 7277 HORSHAM (03) 5382 5000 KANGAROO FLAT (03) 5447 9144 KEYSBOROUGH (03) 9798 8466 KNOX CITY (03) 9800 4722 MARIBYRNONG (03) 9318 8444 MELTON (03) 8746 2302 MENTONE (03) 9585 0399 MILDURA (03) 5022 2588 MOE (03) 5126 1755 MORNINGTON (03) 5976 4611 NARRE WARREN (03) 9705 9199 NORTH GEELONG (03) 5272 3277 PAKENHAM (03) 5940 8120 PRESTON (03) 9484 6006 RINGWOOD (03) 9847 0055 ROWVILLE (03) 9764 1677 ROXBURGH PARK (03) 8339 0765 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 WODONGA (02) 6024 3733 YARRAVILLE (03) 9318 9928 WESTERN AUSTRALIA ALBANY (08) 9842 5400 BALCATTA (08) 9240 1566 BELMONT (08) 9477 5699 BUNBURY (08) 9721 9977 BUSSELTON (08) 9751 1611 CANNING VALE (08) 9455 3411 CANNINGTON HOMETOWN (08) 9258 7294 CLARKSON (08) 9407 9533 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 3255 MORLEY (08) 9375 6933 MYAREE (08) 9317 7699 O’CONNOR (08) 9314 3822 Super Retail Group LimitedOSBORNE PARK (08) 9443 3711 ROCKINGHAM (08) 9592 7999 SPEARWOOD (08) 9494 2144 VICTORIA PARK (08) 9361 8422 WHITFORD (08) 9403 0444 NEW ZEALAND ALBANY 0011 64 9 448 2461 ALICETOWN 0011 64 4 569 1576 ASHBURTON 0011 64 3 307 2960 BLENHEIM 0011 64 3 579 3480 BOTANY 0011 64 9 273 8160 CAMBRIDGE 0011 64 7 823 7618 DUNEDIN 0011 64 3 477 2590 EASTGATE 0011 64 3 389 1249 GISBORNE 0011 64 6 868 3760 HAMILTON 0011 64 7 834 3586 HASTINGS 0011 64 6 870 4521 HAWERA 0011 64 6 278 3641 HENDERSON 0011 64 9 984 9001 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 MASTERTON 0011 64 6 370 3308 MT MAUNGANUI 0011 64 7 574 1593 MT WELLINGTON 0011 64 9 574 6435 NAPIER 0011 64 6 842 1461 NEW PLYMOUTH 0011 64 6 758 3882 ONEHUNGA 0011 64 9 634 1267 PALMERSTON NORTH 0011 64 6 354 1743 PAPANUI 0011 64 3 354 8123 PARAPARAUMU 0011 64 4 298 1523 PORIRUA 0011 64 4 238 2641 PUKEKOHE 0011 64 9 239 2073 RICCARTON 0011 64 3 341 5087 ROTORUA 0011 64 7 348 5275 STOKE 0011 64 3 547 8394 TAKANINI 0011 64 9 299 8615 TAUPO 0011 64 7 376 5023 TAURANGA 0011 64 7 579 5436 TE RAPA 0011 64 7 848 1270 TIMARU 0011 64 3 686 9068 UPPER HUTT 0011 64 4 528 0278 WAIRAU PARK 0011 64 9 442 1905 WANGANUI 0011 64 6 348 9407 WESTGATE 0011 64 9 832 1830 WHAKATANE 0011 64 7 308 9072 WHANGAREI 0011 64 9 459 6440 BCF AUSTRALIAN CAPITAL TERRITORY FYSHWICK (02) 6280 8888 TUGGERANONG (02) 6293 1855 NEW SOUTH WALES ALBURY (02) 6023 6877 AUBURN (02) 9648 4366 BANKSTOWN (02) 9707 1699 BATHURST (02) 6331 4188 BENNETTS GREEN (02) 4947 4066 CAMPBELLTOWN (02) 4620 4855 CASTLE HILL (02) 9680 7833 COFFS HARBOUR (02) 6651 6500 DUBBO (02) 6882 0233 MCGRATHS HILL (02) 4587 9870 NOWRA (02) 4421 2668 PENRITH (02) 4733 0110 PORT MACQUARIE (02) 6583 2455 RUTHERFORD (02) 4931 9346 TAMWORTH (02) 6762 0133 TAREN POINT (02) 9525 0346 TUGGERAH (02) 4351 7655 TWEED HEADS (07) 5513 1244 WAGGA WAGGA (02) 6921 2155 WARRAWONG (02) 4274 1955 WEST GOSFORD (02) 4322 5833 NORTHERN TERRITORY DARWIN (08) 8948 0099 QUEENSLAND BROWNS PLAINS (07) 3800 1733 BUNDABERG (07) 4151 6566 BURLEIGH (07) 5593 8600 CAIRNS (07) 4051 8155 CALOUNDRA (07) 5438 9400 CANNON HILL (07) 3890 2744 CAPALABA (07) 3245 2220 GLADSTONE (07) 4978 0611 HERVEY BAY (07) 4194 1366 IPSWICH (07) 3202 4455 KEPERRA (07) 3851 4625 LABRADOR (07) 5500 5700 LAWNTON (07) 3889 2911 LOGANHOLME (07) 3801 3900 MACKAY (07) 4942 3499 MAROOCHYDORE (07) 5479 2390 MORAYFIELD (07) 5433 0499 MT ISA (07) 4743 0212 NOOSA (07) 5440 5866 PIALBA (07) 4194 1366 ROCKHAMPTON (07) 4926 5055 TOOWOOMBA (07) 4638 7511 TOWNSVILLE (07) 4775 6300 UNDERWOOD (07) 3808 2405 VIRGINIA (07) 3216 5077 SOUTH AUSTRALIA GEPPS CROSS (08) 8260 3716 NOARLUNGA (08) 8186 5754 RICHMOND (08) 8352 3533 VICTORIA BALLARAT (03) 5339 8011 BAYSWATER (03) 9729 2175 BENDIGO (03) 5447 3751 BRAESIDE (03) 9701 8200 COBURG (03) 9350 1177 CORIO (03) 5275 0238 EPPING (03) 9408 9323 GEELONG (03) 5275 0238 LAVERTON (03) 9360 9433 MILDURA (03) 5023 2107 MORNINGTON (03) 5976 8424 SHEPPARTON (03) 5822 4963 TAYLORS LAKES 03 8361 6559 TRARALGON (03) 5176 5211 WARRNAMBOOL (03) 5561 0405 WESTERN AUSTRALIA ALBANY (08) 9841 2133 BALCATTA (08) 9240 1700 BUNBURY (08) 9791 5233 CAMPBELL’S PROTACKLE (08) 9444 3710 CANNINGTON (08) 9350 5888 GERALDTON (08) 9921 3144 JOONDALUP (08) 9301 4011 MANDURAH (08) 9581 6399 MIDLAND (08) 9250 2166 MYAREE (08) 9317 6011 OSBORNE PARK (08) 9204 1022 ROCKINGHAM (08) 9527 9005 GOLDCROSS CYCLES QUEENSLAND BRISBANE CITY (07) 3211 0111 BROWNS PLAINS (07) 3809 4056 BURLEIGH (07) 5576 3772 CANNON HILL (07) 3902 1663 FORTITUDE VALLEY (07) 3852 5808 LABRADOR (07) 5529 1500 LAWNTON (07) 3205 1096 MAROOCHYDORE (07) 5479 4200 RIDERS MACGREGOR (07) 3849 5333 VICTORIA CAMBERWELL (03) 9882 0400 CHADSTONE (03) 9563 2322 CHIRNSIDE PARK (03) 9727 3110 CRANBOURNE (03) 5991 4550 EPPING (03) 9408 0011 FOUNTAIN GATE (03) 9705 3333 HOPPERS CROSSING (03) 9369 9556 KNOX CITY (03) 9887 0833 MOONEE PONDS (03) 9370 7033 RICHMOND (03) 9427 8844 WAURN PONDS (03) 5245 7222 RAY’S OUTDOORS AUSTRALIAN CAPITAL TERRITORY FYSHWICK (02) 6280 4066 NEW SOUTH WALES ALBURY (02) 6041 5333 CAMPBELLTOWN (02) 4628 9299 CAMPERDOWN (02) 9557 9333 CARINGBAH (02) 9542 8988 CASTLE HILL (02) 8850 7544 ERINA (02) 4365 3688 KOTARA (02) 4957 2700 LAKE HAVEN (02) 4392 0788 LIDCOMBE (02) 9647 1488 PENRITH (02) 4733 5744 PROSPECT (02) 9636 9266 QUEENSLAND BROWNS PLAINS (07) 3800 0016 BURLEIGH (07) 5525 5995 CAIRNS (07) 4041 0808 GREENSLOPES (07) 3324 0055 MACGREGOR (07) 3219 4553 MAROOCHYDORE (07) 5443 1551 ROTHWELL (07) 3204 9075 TOOWOOMBA (07) 4638 4015 SOUTH AUSTRALIA ADELAIDE CITY (08) 8231 3633 ELIZABETH (08) 8252 0166 ENFIELD (08) 8359 5866 HARBOUR TOWN (08) 8355 4333 MODBURY (08) 8263 0611 VICTORIA BALLARAT (03) 5331 1888 BENDIGO (03) 5442 1103 BRIGHTON (03) 9596 3816 DANDENONG (03) 9706 9050 FOUNTAIN GATE (03) 9704 1254 FRANKSTON (03) 9770 0012 GEELONG (03) 5229 3278 HOPPERS CROSSING (03) 9749 4129 MARIBYRNONG (03) 9318 4499 MELBOURNE CITY (03) 9347 7666 MENTONE (03) 9584 6644 MILDURA (03) 5021 0100 NORTH GEELONG (03) 5278 7633 NUNAWADING (03) 9877 8455 PRESTON (03) 9484 1422 SHEPPARTON (03) 5821 8900 SOUTH MORANG (03) 9404 1977 TAYLORS LAKES (03) 9449 4333 WARRNAMBOOL (03) 5562 9588 WAURN PONDS (03) 5241 8855 WESTERN AUSTRALIA BALCATTA (08) 9204 3436 CANNINGTON (08) 9451 6044 KELMSCOTT (08) 9495 2851 MANDURAH (08) 9534 9267 MYAREE (08) 9317 8277 FCO NEW ZEALAND MANUKAU 0011 64 9 261 2682 NEW PLYMOUTH 0011 64 9 758 3786 WHANGAREI 0011 64 9 438 2350 ANNUAL REPORT 2011 90 Super Retail Group LimitedSuper Retail Group Limited www.superretailgroup.com 

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