Super Retail Group Ltd
Annual Report 2012

Plain-text annual report

Super Retail Group 2012 ANNUAL REPORT CONTENTS CHAIRMAN AND MANAGING DIRECTOR’S REPORT ......... 3 CORPORATE GOVERNANCE STATEMENT ......................... 8 ANNUAL REPORT ............................................................. 14 DIRECTOR’S REPORT ........................................................ 15 COMPREHENSIVE INCOME STATEMENT .......................... 32 STATEMENT OF FINANCIAL POSITION ............................. 33 STATEMENT OF CHANGES IN EQUITY .............................. 34 STATEMENT OF CASH FLOWS .......................................... 35 NOTES TO THE FINANCIAL STATEMENTS ......................... 36 DIRECTOR’S DECLARATION .............................................. 84 INDEPENDENT AUDIT REPORT ........................................ 85 SHAREHOLDER INFORMATION ........................................ 87 NAME OF ENTITY Super Retail 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 BANKERS Australia and New Zealand Banking Group Limited HSBC Commonwealth Bank of Australia National Australia Bank AUDITORS PricewaterhouseCoopers SOLICITORS Mallesons Stephen Jaques STOCK EXCHANGE LISTING Super Retail Group Limited shares are quoted on the Australian Securities Exchange 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 Community Centre, Kedron Wavell Services Club, 375 Hamilton Road, Chermside South, Queensland on Monday, 22 October 2012 at 11.30am. Super Retail Group Limited ANNUAL REPORT 2012 PERFORMANCE TRENDS 2000 1500 1000 500 0 50 40 30 20 10 0 350 300 250 200 150 100 50 0 SALES ($m) EBIT ($m)* . 1 4 5 6 1 . 3 2 9 0 1 . 0 8 3 9 . 8 8 2 8 . 4 5 1 7 . 8 4 2 6 JUN 07 JUN 08 JUN 09 JUN 10 JUN 11 JUN 12 150 120 90 60 30 0 . 7 0 4 1 . 5 7 8 . 8 5 6 . 1 5 5 . 7 5 4 . 1 8 3 JUN 07 JUN 08 JUN 09 JUN 10 JUN 11 JUN 12 *excludes goodwill impairment charge in 2010 EPS (¢)* POST TAX ROC (%) . . 1 6 6 4 0 1 4 2 3 . . 1 8 6 2 2 2 . . 5 9 1 JUN 07 JUN 08 JUN 09 JUN 10 JUN 11 JUN 12 *historical EPS adjusted to take into account the bonus element in the 2011 entitlement offer NET DEBT ($m) . 0 1 4 3 . 8 7 1 1 . 7 4 1 1 . 5 3 9 . 8 8 7 . 5 3 7 JUN 07 JUN 08 JUN 09 JUN 10 JUN 11 JUN 12 20 15 10 5 0 35 30 25 20 15 10 5 0 . 8 8 1 . 8 6 1 . 5 7 1 . 6 5 1 . 9 3 1 . 1 4 1 JUN 07 JUN 08 JUN 09 JUN 10 JUN 11 JUN 12 DIVIDEND (¢) . 0 2 3 . 0 9 2 . 5 1 0 2 8 1 . . 0 3 1 . 5 0 1 JUN 07 JUN 08 JUN 09 JUN 10 JUN 11 JUN 12 2 Super Retail Group Limited ANNUAL REPORT 2012 CHAIRMAN AND MANAGING DIRECTOR’S REPORT 2012 marks the 40th anniversary of the company that has evolved from distributing battery chargers out of the home of our founders Reg and Hazel Rowe to the group of leading retail businesses it is today. We are proud that in such a milestone year, we have been able to maintain the continued success and progress of our company and to be able to report another strong set of financial results. In 2003, we started to build the foundations to expand the Group’s operations beyond that of our business retailing auto products. Our move into the retailing of outdoor leisure products and most recently the retailing of sports products was foreshadowed at an executive team strategy planning workshop held in that year. performance of our Auto and Leisure Retail businesses which have again enjoyed successful years. We have also made good progress in developing our integrated multi-channel retail capabilities including the Group wide launch of a customer contact centre, dynamic freight costing, a click and collect service and mobile enabled websites. The foundation stone of performance across the Group continues to be the Group’s culture and the commitment and passion of our team members. We now employ around 11,500 team members across the Group and on behalf of all shareholders, we would like to thank all members of the team for their huge efforts and their ongoing contribution to our success. We put in place a plan that included both the ongoing organic development of our existing businesses but also the acquisition of market leading retail businesses in relevant and connected retail categories. Each of our businesses retail products that our customers predominantly use as part of their leisure experiences – in many cases we are selling products to help our customers enjoy their passion whether it’s the car that’s their pride and joy, taking the family fishing or training to take part in a triathlon. We also set about building an organisation in which our various individual retail businesses could derive synergy benefits from the scale and capability of the Group’s sourcing, supply chain, marketing and IT infrastructure and operations. This has allowed each business to develop a stronger offer for its respective group of customers than it would have been able to do as a standalone business. The 2012 Financial Year has seen the Group take a major step forward with the acquisition of the Rebel Sport and Amart All Sports businesses at the end of October 2011. We thank our shareholders for the support of the capital raising to partially fund the acquisition. We are confident that we have acquired a business that, although it is already the clear market leader, has the potential for significant growth over the coming years. The focus on store development, sourcing and range management, supply chain improvements and business capability development has continued to drive the GROUP RESULTS Sales grew by 51.4% to $1.65 billion and profit after tax grew by 50% to $83.5 million. This strong growth has been achieved through a combination of the organic growth of our Auto and Leisure Retail businesses and the post-acquisition contribution of the Sports Retailing businesses, which has been consolidated from 30 October 2011. Costs of $11.7 million associated with the acquisition of the Sports Retailing businesses were expensed during the year. Excluding these non-recurring costs, underlying profit after tax of $95.0 million was 71% higher than the prior year. Solid like for like sales growth, continued underlying improvement in gross margins and further reduction in operating costs as a percentage of sales all contributed to the strong organic growth in profit in our existing businesses. This has been achieved through the continued focus on new product introduction, sourcing and supply chain initiatives, and the further development of our integrated multi-channel customer offer. We invested close to $60 million in capital expenditure projects across the Group, with $13 million invested in our multi-channel capability development projects and $31 million in new and refurbished stores. The total cash amount invested in acquiring the Sports Retailing businesses was $633 million. As a result, Group net debt stood at $341 million at 30 June 2012, an increase of $267 million compared to the prior year. Super Retail Group Limited ANNUAL REPORT 2012 3 The Board has declared a fully franked final dividend of 19.0 cents per share. As a result, the fully franked dividends declared for the full year are 32.0 cents per share, an increase of 3.0 cents per share (10.3%) over the prior year. The current policy of distributing between 55% and 65% of underlying net profit after tax in the form of dividends will enable the Group to balance investing in growth opportunities, gradually paying down debt and increasing dividends to shareholders. AUTO AND CYCLE RETAILING Divisional sales at $755.8 million were 6.7% higher than the prior comparative period with like for like sales growth being 3.7%. Divisional EBIT at $72.2 million was 13.5% higher than the prior comparative period. The Supercheap Auto business has had another strong year with like for like sales growth of 3.9% and further expansion of EBIT margins, which are now running at over 10.5% of sales. Gross margin improvement was again a key contributor to the increase in profitability, growing by 0.3% points over the prior comparative period. The business once again achieved like for like growth in transaction numbers, units sold and average unit value. The work done over the past six years to reposition the Supercheap Auto brand through the store refurbishment program, improved product quality and presentation and through partnering with the world’s best automotive and tool product brands continues to drive this performance. Nine new stores were opened during the year while two stores were closed and 41 stores were refurbished including three as Superstores. At 30 June the business had 281 stores with potential to grow to around 320 stores over the next five years. The business plans to refurbish another 50 stores in the coming two years and to convert another 10 stores to Superstores. The Electrical and Power categories delivered particularly strong growth through a number of new product and ranging initiatives whilst the Car Care and Car Audio/ Visual categories also continued to perform extremely well. Sales growth was relatively consistent across all the states of Australia and in New Zealand, although the business performed most strongly in areas with mining activity. Towards the end of the year, the business launched its loyalty program Supercheap Auto Club Plus in the New Zealand market. This exciting initiative will provide the opportunity for the business to gain a deeper understanding of its customers and to develop another marketing channel to drive sales. It is expected that the loyalty program will be launched in Australia by the final quarter of the 2012 calendar year. At the end of the year, the business announced the launch of its new trade customer offer Auto Trade Direct. This offer is targeted towards auto mechanics and will provide a parts and accessories delivery service operating from a small number of designated hub stores. This offering will again be trialled in New Zealand before being launched in Australia. Although the Goldcross Cycles business continued to track below expectations, many of the initiatives introduced over the last two years have generated positive outcomes. Gross margin improved by 6.4% points to 41.2% while inventory per store reduced by over 20%. This reflected the successful launch of a number of private brand products, improvements in range management and a number of supply chain efficiencies. However, like for like sales continued to decline by 3.2% partly through continued price deflation across the Cycle market and partly through the planned scaling back of clearance promotions. The business EBIT loss was $4.5 million, an improvement of $2.0 million compared to the prior period. The biggest impact on profitability continues to be the weak sales per square metre being achieved in the business, primarily as a result of the number of stores that are oversize. Consequently, we plan to convert the larger Goldcross Cycles stores into Amart All Sports stores and to retain a 130m2 to 150m2 Goldcross Cycles outlet in these stores as a store within a store concept. It is expected that up to six stores will be converted in the coming year, which should see the business move closer to a break even position. The link to the Amart All Sports business and the fact that cycling is predominantly a sport and leisure activity will see the Goldcross Cycles business transfer to the Sports Retailing division in the coming year. LEISURE RETAILING Divisional sales at $456.3 million were 18.8% higher than the comparative period with like for like sales growth across the division at 6.5%. Divisional EBIT at $32.8 million was 2.5% higher than the prior comparative period reflecting the $2.5 million of costs associated with developing and launching the Super Retail Group Limited 4 ANNUAL REPORT 2012 new FCO Fishing Camping Outdoors business in New Zealand in November 2011 and FCO’s post launch trading losses of $1.7 million. Excluding FCO, Divisional EBIT on a comparable basis grew by 15.6%. BCF Boating Camping Fishing continued to perform strongly with high single digit like for like sales growth and an improvement in gross margin. BCF also achieved like for like growth in transaction numbers, units sold and average unit value. There are now close to one million members of the BCF Club – the business’ loyalty program. The Fishing category performed extremely well, benefitting from the high volume of fish stock across the country after the last two years’ wet weather, a number of new product initiatives and the work done to tailor the range to local demand at a store level. The business also performed consistently well across the country. Thirteen new BCF stores were opened during the year taking total store numbers to 91. Expectations for future total store numbers have increased to around 120 as the business expects to be able to operate a number of smaller format stores at around 800m2 in regional locations. The work started last year to refresh the Ray’s Outdoors business continued through the year. The business achieved low single digit like for like sales growth driven by an increase in transaction numbers and average item value. However, gross margin was lower than the prior period as the business introduced a higher proportion of international branded product and cleared aged inventory. The 4x4 category performed well following the introduction of extended product ranges and the performance of the Footwear category was also encouraging reflecting the partnership with a number of major brands such as Merrell, Columbia and North Face. The Apparel range has also been redesigned and sales of the 2012 Winter range are promising. The business opened seven and closed five stores during the year to bring total stores trading to 52. The business will commence a program of store refurbishments in the next year as the current store fit-out and design has become dated. The business expects to be able to develop a network of 75 stores across Australia. The division launched its new business FCO Fishing Camping Outdoors in New Zealand in November 2011. The business takes elements of both the BCF and Ray’s Outdoors businesses to provide a customer offer designed specifically for the New Zealand market. By the end of the year, the business had opened 13 stores all in the North Island. It is management’s plan to bed down and fine tune the performance of these stores before committing further capital to store roll-out. It is anticipated that there is the potential for up to 25 FCO stores. Early performance was encouraging as the business traded well during the summer period but was slower than expected in the autumn/early winter period. Customer conversion and membership of the FCO loyalty program were pleasing whilst gross margins tracked ahead of expectations. Customer numbers fell below expectations with research indicating that customers’ understanding of the full breadth of products available in the stores is limited so a marketing push is underway to highlight the spread of product categories. SPORTS RETAILING The Rebel Sport and Amart All Sports businesses were acquired with effect from 30 October 2011. The contribution from the businesses during the balance of the year was ahead of expectations at the time of acquisition with divisional sales of $441.9 million and EBIT of $54.5 million. The initial focus of management post acquisition has been to reenergise and engage the team, clear aged inventory, establish a focus on like for like sales growth, rebuild relationships with trade partners, integrate the business within the Group and to develop the strategies to grow the businesses over the next five years. Good progress has been made in all areas. Like for like sales growth in the 35 weeks post acquisition was 5.8% which compared favourably to the 3% decline in like for like sales in the first 17 weeks of the year pre acquisition. A major driver of the improvement in sales was the clearance of aged inventory which was reduced to around 5% of total inventory by the end of the year. Underlying performance was pleasing and reflected the more competitive pricing and promotional position adopted since acquisition. Sales growth was achieved primarily through growth in customer traffic and conversion whilst average transaction value was below the prior period reflecting the changes in pricing and promotion. Super Retail Group Limited ANNUAL REPORT 2012 5 Despite these factors, gross margin at 46.8% were in line with those achieved prior to acquisition. The value of aged inventory at the time of acquisition was identified during due diligence and appropriate valuation adjustments were processed in the acquisition balance sheet. The Footwear and Apparel categories both performed strongly despite the increased competition from international websites. Performance was reasonably strong across all regions with the important New South Wales business improving through the period from quite a depressed position at the time of acquisition. The business closed the two stores trading under the brand Performance Sports with the space being reallocated to the Rebel Sport brand. Two Rebel Sport stores were opened post acquisition whilst one Rebel Sport and one Amart All Sports store were closed. At 30 June, there were 91 Rebel Sport stores and 35 Amart All Sports stores trading across Australia. The business expects to be able to develop a network of around 100 Rebel Sport and 85 Amart All Sports stores. Work has been completed on the brand strategies for both businesses and future store design work is in progress. The business expects to refurbish a number of stores in the coming year and will test a number of new concepts before a wider roll-out. Management believes there are significant opportunities to improve the shopping experience for customers. The synergy benefits anticipated at the time of acquisition are on track with a number of purchasing and supply chain benefits already realised in addition to a reduction in executive management positions. The business will implement Super Retail Group’s Enterprise Resource Planning system in the coming year and will begin to source a number of its own private brand products through the Group’s International Operations team rather than through third party agents. GROUP COSTS Group costs for the period were $18.8 million including $11.7 million associated with the acquisition and integration of the Sports Retailing businesses. The balance of the costs include $1.9 million in unutilised distribution centre, store and office space across the Group, $0.8 million in multi-channel development costs and $4.4 million of public company costs. GROUP LOGISTICS AND SOURCING The Group has continued to invest in developing its logistics operations to provide more efficient support for the Group’s businesses. The warehouse management systems were successfully upgraded and towards the end of the year, the New Zealand logistics operations were successfully relocated into a larger distribution centre. The Group has completed a review of its requirements for the next 10 years and has determined that within the next two years a new distribution centre will be established in Sydney whilst the two Brisbane distribution centres will be relocated into one larger centre. This will enable the Group to fully support the requirements of the Sports Retailing businesses, the anticipated increase in private branded and exclusive product and to generate freight savings for both the Group and its Trade Partners. At the same time, the Group will be able to reduce its requirement for expensive off-site storage at peak times. The Group’s International Operations team based in China has again significantly increased their contribution to the Group with an increase in the value of product sourced directly to around $85 million and through increasing the number of pre shipment inspections managed by the team. The team has also worked with its Australian colleagues to establish scan pack arrangements for apparel items to go direct to store from China. The team has also established a sport products sourcing unit to support the Sports Retailing division. REVIEW OF FINANCIAL POSITION Cash flow from operations was $135.2 million, an increase of $64.3 million over the prior period, reflecting the growth in existing businesses plus the contribution of the Sports Retailing businesses post acquisition. Cash flow from operations pre investment in new store inventory and set up costs was $179.7 million which was $84.4 million higher than the prior period. Despite this pleasing performance, there remains significant opportunity to generate working capital efficiencies particularly in the Leisure Retailing division. Group capital expenditure was $60.2 million which included $30.6 million in new and refurbished store fitout, $13.1 million in multi-channel development projects, $7.3 million in information technology projects, $2.4 million in supply chain development projects, $1.3 million in the Sports Retailing SAP project and $5.5 million in general capital projects. Super Retail Group Limited 6 ANNUAL REPORT 2012 The Group extended its debt facilities to $500 million at the time of the Sport Retailing acquisition and utilised $296 million to partly fund the acquisition. The revised facilities include a number of tranches which are renewable at various intervals over the next two to five years. At the end of June, Group Net Debt was $341 million, comfortably within the Group’s facility limits and associated banking covenants. CORPORATE SOCIAL RESPONSIBILITY The Group has maintained its support for a variety of charities raising funds for research into childhood diseases in particular selling product in store to support BrAshA-T Ataxia Telangiectasia Limited, Sids and Kids, Canteen and @Heart. The Group is particularly passionate about the support it provides to BrAshA-T which raises funds for research into Ataxia Telangiectasia an extremely rare but very serious degenerative condition. Supercheap Auto provides support to a range of safe driving campaigns and is supporting an education program aimed at school age drivers. BCF and Ray’s Outdoors raised funds for the Coastguard and Cancer Council respectively through encouraging their customers to round up for charity. Rebel and Amart All Sports supported a range of national and local charities with Rebel running its annual fund raising dinner. The Group has continued to work on its sustainability initiatives including the reduction and recycling of packaging material, power consumption and plastic bag usage and through the rollout of car battery and engine oil recycling arrangements in its Supercheap Auto business. The Group achieved a 10% improvement in the amount of packaging material recycled and collected nearly over 10,000 car batteries during the year. The Group and its businesses are signatories to the Australian Packaging Covenant (APC) and have developed a series of initiatives to ensure we meet targets committed to under our APC action plan. In 2012, we received a 3.7 star rating from the APC indicating that the Group has made solid progress in meeting its targets. TEAM MEMBERS The Group now employs around 11,500 team members operating from nearly 600 sites across Australia, New Zealand and China. We are very pleased that team retention levels continue to improve and now sit at 71.5% - a big step forward from the 59% achieved in 2006. We conducted a Group wide engagement survey for the first time in 2011 and achieved an engagement score of 60%, which compared to the Retail industry average of 55%. Whilst this is a pleasing result, there is room to improve and areas such as Recognition, Change Management, Career Opportunities and Line Manager capability were identified as areas for focus. The Group’s safety performance has improved through the year benefitting from the increased focus on safe working practices across the Group’s retail teams introduced towards the end of last year. The Group’s five key performance indicators in the area of team members cover the areas of Attraction, Engagement, Retention, Succession and Safety and good progress was made in all areas. We would like to recognise all members of our team for their commitment and contribution to their part of the Group each and every day. LOOKING FORWARD Our focus over the coming year will be to continue the growth in sales and the improvement in margins and working capital efficiency of each of our existing businesses. At the same time, we will continue to work on developing our multi-channel capabilities to enable our businesses to provide our customers with an engaging offer that inspires them to continue to shop with us in store or on line at whatever time of day or at whatever location suits them. We are confident that we can continue to deliver solid like for like sales growth even if retail conditions remain subdued and we expect to be able to open around 10 new stores across all of our divisions. We will continue to develop our loyalty programs across the Group and increasingly use data analytics to develop relevant targeted marketing campaigns. We will plan to launch a new offer for the trade mechanic customer in our Auto Retailing division. We have many initiatives underway to drive the performance of our businesses and to build our capabilities and we look forward to reporting on our progress in the coming years. R J Wright Chairman P A Birtles Managing Director and Chief Executive Officer Super Retail Group Limited ANNUAL REPORT 2012 7 CORPORATE GOVERNANCE STATEMENT The Board of Super Retail Group Limited (the Company) are accountable to shareholders for the proper management of the business of the Company in a manner consistent with the Company’s responsibility to meet its obligations to all stakeholders. The Board is therefore committed to ensuring that the Company’s business is conducted in accordance with the highest standards of corporate governance. In this statement, the Company and its controlled entities together are referred to as the Group. The Board has adopted a corporate governance framework comprising principles and policies which comply in all material respects with the ASX Corporate Governance Council’s Principles and Recommendations (2nd Edition) with 2010 Amendments (ASX Principles) and the Corporations Act 2001 (Cth). All these practices unless otherwise stated were in place for the reported period. The policies and charters referred to in this statement are available from the Corporate Governance page in the Investor Centre section of the Company’s website (www.superretailgroup.com.au/investor-centre). The Board continually reviews developments in corporate governance to ensure its policies and charters remain consistent with current laws and best practice. As at 30 June 2012, and to the date of the signing of this report, the Company’s main corporate governance practices are 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 Group is properly managed. 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. The Board delegates responsibility for day-to-day management of the Company to the Managing Director. EVALUATION OF SENIOR EXECUTIVES All senior executives complete a performance and development review every six months. The review process is conducted by the Managing Director and includes the following: • assessment against a set of key performance criteria, including both financial and non-financial performance measures; • feedback on their performance over the review period and a rating based on that performance; and • monitoring and revision as appropriate of the executive’s development plan which is tailored to support the executive’s ongoing contribution to the Company. The Managing Director provides a summary of the performance evaluation of senior executives to the Human Resources and Remuneration Committee. The performance evaluation in accordance with the abovementioned process has taken place during this reporting period. 8 Super Retail Group Limited ANNUAL REPORT 2012 PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE with the benefit of a diverse range of experience, qualifications and professional skills. 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 on the Company’s website. 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. The Board Nomination Committee charter, which is available on the Company’s website, includes the Company’s policy and procedure for selection and appointment of new directors. Details of the members of the Board, their experience, expertise, qualifications and independent status are profiled in the Directors’ Report on pages 15 to 29. 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 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 commenced in June 2012 and was concluded in August 2012. The evaluation of individual Board Committees is carried out as and when needed. 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 / Chief Executive Officer Super Retail Group Limited ANNUAL REPORT 2012 9 and the Chief Financial Officer making the following certifications to the Board that: necessary to maintain confidence in the Company’s integrity. • 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 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. 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 trading 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 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 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 Super Retail Group Limited 10 ANNUAL REPORT 2012 environmental practices, and protect our corporate reputation and that of our individual businesses and brands. with a charter and in a manner compliant with ASX Listing Rule 12.7. The charter is available on the Company’s website. Diversity Policy The Board recognises the many benefits that may be derived by companies that successfully foster a culture of diversity and is committed to creating a fair and inclusive environment. Information on diversity, including gender diversity is set out in the Directors’ Report under the heading ‘Remuneration and Diversity report’. A copy of the Diversity Policy is available on the Company’s website. 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 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 15 to 29. The Audit and Risk Committee operates in accordance 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. 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 Super Retail Group Limited ANNUAL REPORT 2012 11 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. In 2012 the Group undertook a tender in relation to external audit services to ensure audit services provided to the Group are in line with market benchmarks in terms of scope, quality and cost effectiveness. Based on this process PWC, the incumbent auditor had its contract extended for three more years. 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 Securities 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 executives 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 Group Risk Manager is responsible 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 Group Risk Manager reports directly to the Group’s Chief Financial Officer with an indirect reporting line to the Chairman of the Audit and Risk Committee. 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. Super Retail Group Limited 12 ANNUAL REPORT 2012 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 684 team members participated in one or both plans. 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. 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. Super Retail Group Limited ANNUAL REPORT 2012 13 ANNUAL REPORT Super Retail Group Limited for the period ended 30 June 2012 Super Retail Group Limited 14 ANNUAL REPORT 2012 Super Retail Group Limited Directors' report for the period ended 30 June 2012 Directors’ Report Your Directors present their report on the consolidated entity consisting of Super Retail Group Limited and the entities it controlled at the end of, or during, the period ended 30 June 2012. 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 Information on qualifications and experience of Directors is included on pages 16 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 retailing of sporting equipment and apparel Dividends – Super Retail Group Limited The Directors declared a fully franked dividend of 19.0 cents per share be paid on 3 October 2012 (total dividend, fully franked - $37,269,064). This will take the total dividends paid and payable to 32.0 cents for the 2012 year which is a 3.0 cent per share increase on 2011. 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 $ 2011 final fully franked dividend (17.5¢ per share) 2012 interim fully franked dividend (13¢ per share) 19 September 2011 3 April 2012 22,833,786 25,331,097 48,164,883 Review of operations Revenue from trading operations for the year was $1,655,474,000 (2011: $1,093,398,000). During the year, the consolidated entity opened nine new Supercheap Auto stores and closed two stores in Australia, this resulted in Supercheap Auto trading with 281 stores at the end of the period. BCF opened 13 stores during the period taking total trading stores to 91; Goldcross Cycles closed one store during the period taking total trading stores to 19 at the end of the period and Ray’s Outdoors opened seven stores and closed five stores taking Ray’s Outdoors total trading stores to 52. In addition, the Group launched the FCO Fishing Camping Outdoors business in New Zealand with 13 stores trading by 30 June 2012. At the end of the financial year, the Group was trading from 582 stores. Rebel Group Limited was acquired with an effective date of 30 October 2011 for a net cash outlay of $620.4 million. The acquisition comprised 90 Rebel stores, 36 A-Mart All Sports stores and two Performance Sports stores. The acquisition was funded through a $334 million entitlement offer and an increase in the Group’s debt facilities of $310 million. Acquisition costs of $11.1 million were expensed in the current period and transaction costs of $7.8 million relating to capital raising were booked against equity. 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 30 June 2012, after providing for income tax, amounted to $83,521,000 (2011: $55,599,000). A review of the operations for the 52 weeks to 30 June 2012 is set out in pages 3 to 7 of this report. Significant changes in the state of affairs Contributed equity increased by $326,421,067 for capital raising relating to the Rebel acquisition and $18,872,410 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. Page 15 Super Retail Group Limited Directors' report for the period ended 30 June 2012 Matters subsequent to the end of the financial year Since 30 June 2012 Super Retail Group Limited does not have any matters subsequent to the end of the financial year to be disclosed. 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 30 June 2012. 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 63 Experience and expertise Appointed Chairman on 28 October 2009 and has been an Independent Non-Executive Director for 8 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 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 (March 2005 – August 2010) and RCL Group (formerly Babcock & Brown Residential Land Partners Group) (May 2006 – February 2012). Special responsibilities Chairman of the Board Chairman of the Board Nomination Committee Member of the Audit and Risk Committee Member of the Human Resources and Remuneration Committee Interest in shares and options 71,149 ordinary shares in Super Retail Group Limited P A Birtles. BSc, ACA Managing Director and Chief Executive Officer. Age 48 Experience and expertise Managing Director and Chief Executive Officer for 6 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 Board Nomination Committee Interests in shares and options 1,892,596 ordinary shares in Super Retail Group Limited 300,000 performance rights over ordinary shares in Super Retail Group Limited Page 16 Super Retail Group Limited Directors' report for the period ended 30 June 2012 R A Rowe. Non-Executive Director. Age 68 Experience and expertise Founder of the business in 1972. Non-executive director for 8 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 Board Nomination Committee Member of the Human Resources and Remuneration Committee Interests in shares and options 56,954,670 ordinary shares in Super Retail Group Limited. R J Skippen, ACA Independent Non-Executive Director. Age 64 Experience and expertise Independent Non-Executive Director for 3 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 Flexigroup Limited and Emerging Leaders Investment Limited. Chairman and Non-Executive Director of Slater & Gordon Limited. Former directorships in the last 3 years Non-Executive Director of Mint Wireless Limited (November 2007 – September 2008) and Briscoe Group Limited (NZ) (March 2004 – September 2011). Special responsibilities Chairman of the Audit and Risk Committee Member of the Board 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 53 Experience and expertise Independent Non-Executive Director for 2 years. Sally is an experienced Non-Executive Director and lawyer and a former partner of Clayton Utz. Other current directorships Non-Executive Director of Billabong International Limited Former directorships in the last 3 years Aristocrat Limited (June 2005 – May 2011) Special responsibilities Chair of the Human Resources and Remuneration Committee Member of the Audit and Risk Committee Member of the Board Nomination Committee Interest in shares and options 25,053 ordinary shares in Super Retail Group Limited Company Secretary The Company Secretary is Mr R W Dawkins, B.Bus (Acct), Grad. Dip. AppCorpGov, ACIS, ACSA. Mr Dawkins commenced with Super Retail Group Limited as the Property Services Manager in July 2001 and was appointed Company Secretary in December 2010. Page 17 Super Retail Group Limited Directors' report for the period ended 30 June 2012 Meetings of directors The number of meetings of the Company’s Board of Directors and each Board Committee held during the period ended 30 June 2012 is set out below: Full meetings directors B 11 11 11 11 11 A 11 11 11 11 11 Audit & Risk A 3 n/a n/a 3 3 B 3 n/a n/a 3 3 Meetings of Committees Board Nomination Human Resource & Remuneration A 1 1 1 1 1 B 1 1 1 1 1 A 2 2 2 2 2 B 2 2 2 2 2 R J Wright P A Birtles R A Rowe R J Skippen S A Pitkin A = Number of meetings attended B = Number of meetings held during the time the Director held office or was a member of the Committee during the year Proceedings on behalf of the Company No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. 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. 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 Total remuneration for assurance services Taxation Services Total remuneration for taxation services Advisory Services Total remuneration for advisory services Auditors Independence Declaration Consolidated Entity 2011 2012 $ $ 568,314 568,314 424,468 424,468 236,005 269,749 0 144,157 A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 30. Loans to directors and executives There are no loans to directors or executives as at 30 June 2012 and no loans were made during the period. Page 18 Super Retail Group Limited Directors' report for the period ended 30 June 2012 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 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. 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. Page 19 Super Retail Group Limited Directors' report for the period ended 30 June 2012 Remuneration and Diversity report (continued) 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 engaged the services of Deloittes as an independent remuneration consultant to prepare comparative information for review to ensure that fees 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 $800,000 was approved on 26 October 2011. Non Executive Directors’ fees are inclusive of superannuation contributions. Non Executive Directors do not receive shares, performance rights 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 29 June 2013 were approved on 26 July 2012, while fees for the year to 30 June 2012 were approved on 17 August 2011. The following fees apply: Chairman Other Non Executive Directors Committee Chair Senior Executive Remuneration Structure 2012 $ 160,000 90,500 10,000 2013 $ 200,000 105,000 10,000 The Senior 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. Senior 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 years to 30 June 2012 and 29 June 2013, the following mix of remuneration applies. Fixed STI LTI Chief Executive Officer Divisional Managing Directors Chief Financial Officer General Manager Group Logistics 40% 45% 50% 55% 28% 27% 25% 22% 32% 28% 25% 23% Page 20 Super Retail Group Limited Directors' report for the period ended 30 June 2012 Remuneration and Diversity report (continued) Senior Executive Remuneration Structure (continued) 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 senior 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 senior 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 senior executive base salary proposals are reviewed and assessed by the Human Resources and Remuneration Committee. Using this information the Human Resources and Remuneration Committee then make recommendations to the Board. Short Term Incentive (STI) Senior 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 recommends to the Board 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. For the year to 30 June 2012, the profit before tax target of $112.5 million was 45% higher than the profit before tax achieved in the period to 2 July 2011. This target reflected the budgeted contribution of the Rebel Group which was acquired on 30 October 2011. The target reflected an underlying increase in Group profit of circa 10%, 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. Senior 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 Senior 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. Page 21 Super Retail Group Limited Directors' report for the period ended 30 June 2012 Remuneration and Diversity report (continued) 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 are subject to the following performance conditions over a three year period ending 30 June: 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 22 Super Retail Group Limited Directors' report for the period ended 30 June 2012 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 2007 2008 2009 2010 2011 2012 Sales ($m) 624.8 715.4 828.8 938.0 1,092.3 1,654.1 Profit before tax ($m) Post Tax ROC (%) Earnings Per Share (¢) Dividends Per Share (¢) 30 June Share Price ($) 31.3 13.9 19.5 10.5 4.20 36.8 14.1 22.6 13.0 2.33 Remuneration Paid to Key Management Personnel Base Salary Package Short Term Incentive Long Term Incentive Total 1.8 0.8 0.2 2.8 1.9 0.2 0.2 2.3 41.9 15.6 28.1 18.0 3.61 2.1 0.8 0.2 3.1 53.9 16.8 32.1 21.5 5.27 2.2 1.1 0.4 3.7 77.7 17.5 40.6 29.0 7.00 2.5 1.0 0.7 4.2 120.1 18.8 46.1 32.0 7.19 3.0 1.0 1.1 5.1 Since 2007 earnings per share have increased by 136%, dividends per share have increased by 205% and the share price has increased by 71%. During the same period, total remuneration paid to key management personnel has increased by 82% whilst Base Salary has increased by 67%. 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 4.3% in 2012. 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 six 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, Managing Director - Auto & Cycle Retailing S J Doyle, Managing Director - Leisure Retailing E A Berchtold, Managing Director – Sports Retailing G G Carroll, Chief Financial Officer G L Chad, General Manager, Group Logistics The highest paid executives for the period ended 30 June 2012 were as follows: • • • • • • P A Birtles D F Ajala S J Doyle E A Berchtold G G Carroll G L Chad Page 23 Super Retail Group Limited Directors' report for the period ended 30 June 2012 Remuneration and Diversity report (continued) 2012 Name Non-executive directors R J Wright Chairman R A Rowe 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 E A Berchtold G G Carroll G L Chad Totals 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 E A Berchtold G G Carroll G L Chad Totals Short-term benefits Post- employment benefits Share-based payment Cash bonus $ Non- monetary benefits $ Super- annuation $ Options $ Performance Rights $ Cash salary and fees $ 146,789 35,881 91,743 91,743 366,156 0 0 0 0 0 0 0 0 0 0 13,211 54,119 8,257 8,257 83,844 856,810 367,500 2,415 15,775 425,100 387,492 219,901 359,225 309,128 2,923,812 184,500 128,650 118,663 116,250 100,100 1,015,663 0 11,733 19,615 0 27,132 60,895 24,900 15,775 17,508 15,775 48,740 222,317 Total $ 160,000 90,000 100,000 100,000 450,000 0 0 0 0 0 477,180 1,719,680 193,354 177,500 0 129,260 128,730 1,103,024 827,854 721,150 375,687 617,510 613,830 5,325,711 0 0 0 0 0 0 0 0 0 0 0 0 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 0 307,801 292,007 2,458,974 195,500 179,400 0 119,510 135,975 1,047,010 5,104 14,954 0 0 27,893 50,366 26,949 15,199 0 15,199 47,600 231,763 3,992 3,992 0 8,096 3,010 40,622 115,187 105,413 0 73,917 83,784 685,468 739,679 678,804 0 524,523 590,269 4,514,203 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 E A Berchtold G G Carroll G L Chad Fixed Remuneration 2012 2011 52.54% 50.88% 57.46% 54.36% 57.45% 57.55% - 68.41% 61.58% 60.73% 62.26% 62.72% At Risk – STI At Risk – LTI 2012 21.37% 22.29% 17.84% 31.59% 18.83% 16.31% 2011 26.53% 26.43% 26.43% - 22.78% 23.04% 2012 27.75% 23.35% 24.61% - 20.44% 20.97% 2011 20.93% 16.11% 16.12% - 15.64% 14.70% Page 24 Super Retail Group Limited Directors' report for the period ended 30 June 2012 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 Performance Rights and Option Plans. 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 30 June 2012 of $875,000 to be reviewed annually by the Human Resource 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, Managing Director - Auto & Cycle Retailing Term of Agreement - 3 years and 8 months commencing 27 January 2011 Base salary, inclusive of superannuation, for the period ended 30 June 2012 of $450,000 to be reviewed annually by the Human Resource 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, Managing Director - Leisure Retailing Term of Agreement - 4 years and 8 months commencing 27 January 2011 Base salary, inclusive of superannuation, for the period ended 30 June 2012 of $415,000 to be reviewed annually by the Human Resource 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. E A Berchtold, Managing Director – Sports Retailing Term of Agreement – 4 years and 11 months commencing 5 November 2011 Base salary, inclusive of superannuation, for the period ended 30 June 2012 of $430,000 to be reviewed annually by the Human Resource and Remuneration Committee. 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 30 June 2012 of $375,000 to be reviewed annually by the Human Resource 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 30 June 2012 of $385,000 to be reviewed annually by the Human Resource 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 25 Super Retail Group Limited Directors' report for the period ended 30 June 2012 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 E A Berchtold G G Carroll G L Chad Share based compensation Short Term Incentives Forfeited % 40 32 48 32 38 35 Paid % 60 68 52 68 62 65 Performance Rights Performance rights vest progressively from 3 to 5 years after the date of grant. The issues of Performance Rights are subject to achieving two performance conditions over a three year period ending 30 June (i) 10% cumulative earnings per share growth and (ii) return on capital of more than 15%. 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 R J Skippen S A Pitkin P A Birtles Other Key Management Personnel D F Ajala S J Doyle E A Berchtold G G Carroll G L Chad Number of Performance Rights granted during the period 2012 0 0 0 0 100,000 45,977 42,401 0 30,788 26,437 Value of Performance Rights at Grant Date 2012 0 0 0 0 609,000 280,000 258,222 0 187,499 161,001 Number of Performance Rights vested during the period 2012 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 $6.09. 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 No options were granted or vested during the period. Page 26 Super Retail Group Limited Directors' report for the period ended 30 June 2012 Remuneration and Diversity report (continued) 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 S J Doyle G G Carroll G L Chad Date of Exercise of Options 27/09/2011 5/3/12-12/3/2012 11/08/2011 16/08/2011 Number of Ordinary Shares Issued on Exercise of Options During the Year 200,000 200,000 100,000 50,000 Market Value at Exercise Date* 722,800 930,400 395,000 197,600 * 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 1 September 2011 * * * $5.15 $5.85 $6.09 339,683 347,758 453,151 1,140,592 * 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. 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 23 August 2007 1 August 2008 5 January 2011 24 July 2010 1 August 2011 $2.44 $4.37 $2.49 $0.38 $0.93 $0.65 50,000 60,000 40,000 150,000 Shares issued on the exercise of options The following ordinary shares of Super Retail Group Limited were issued during the year ended 30 June 2012 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 1 August 2008 Issue price of shares Number of shares issued $2.44 $2.25 $2.25 $2.44 $4.37 $2.49 200,000 100,000 300,000 200,000 40,000 140,000 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. Page 27 Super Retail Group Limited Directors' report for the period ended 30 June 2012 Insurance of officers During the financial year, Super Retail Group Limited paid a premium of $75,735 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. 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:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) 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 38% of the workforce at 30 June 2012. 35% of middle and senior management positions and 22% of senior management positions are held by females at 30 June 2012. 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 Page 28 Super Retail Group Limited Directors' report for the period ended 30 June 2012 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 J Wright Chairman Brisbane 21 August 2012 P A Birtles Director Page 29 Super Retail Group Limited for the period ended 30 June 2012 Auditor’s Independence Declaration As lead auditor for the audit of Super Retail Group Limited for the year ended 30 June 2012, 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 21 August 2012 PricewaterhouseCoopers, ABN 52 780 433 757 Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO BOX 150, BRISBANE QLD 4001 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 30 Super Retail Group Limited ABN 81 108 676 204 Annual financial report – 30 June 2012 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 consolidated financial statements Directors' declaration Independent auditor’s report to the members Page 32 33 34 35 36 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 15 to 29, which is not part of this financial report. The financial report was authorised for issue by the directors on 21 August 2012. 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 31 CONSOLIDATED COMPREHENSIVE INCOME STATEMENT Super Retail Group Limited For the period ended 30 June 2012 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 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 Consolidated Notes 5 6 2012 $'000 1,655,474 916 1,656,390 2011 $'000 1,093,398 1,359 1,094,757 (927,679) (598,067) (208,154) (76,891) (124,584) (176,982) (21,995) (1,536,285) 120,105 (36,584) 83,521 360 301 661 84,182 8 25 25 (138,415) (51,188) (90,307) (128,155) (10,973) (1,017,105) 77,652 (22,053) 55,599 (3,414) (1,200) (4,614) 50,985 84,182 50,985 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 46.1 45.8 40.6 40.1 The above consolidated comprehensive income statement should be read in conjunction with the accompanying notes. Page 32 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Super Retail Group Limited As at 30 June 2012 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 Total equity attributable to equity holders of Super Retail Group Limited Consolidated Notes 2012 $'000 2011 $'000 9 10 11 12 13 14 15 16 17 18 19 20 22 23 24 25 25 47,043 28,532 416,719 492,294 170,863 0 722,350 893,213 25,697 22,160 292,874 340,731 109,277 10,789 111,251 231,317 1,385,507 572,048 197,888 8 9,199 19,832 226,927 17,527 388,009 54,718 9,463 469,717 122,373 32 11,013 12,286 145,704 15,538 99,143 0 7,983 122,664 696,644 268,368 688,863 303,680 541,835 (706) 147,734 688,863 194,541 (3,239) 112,378 303,680 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. Page 33 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Super Retail Group Limited For the period ended 30 June 2012 Contributed Equity Reserves Notes $’000 $’000 Retained Earnings $’000 Total $’000 Balance at 3 July 2010 182,158 158 88,241 270,557 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 2 July 2011 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 (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) 194,541 (3,239) 112,378 303,680 0 0 0 0 661 661 83,521 0 83,521 83,521 661 84,182 347,294 0 0 347,294 0 0 1,872 1,872 0 (48,165) 0 (48,165) 347,294 (48,165) 1,872 301,001 Balance at 30 June 2012 541,835 (706) 147,734 688,863 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Page 34 CONSOLIDATED STATEMENT OF CASH FLOWS Super Retail Group Limited For the period ended 30 June 2012 Consolidated Notes 2012 $'000 2011 $'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) 1,825,528 1,207,864 (1,506,423) (1,023,148) 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 (140,200) (9,350) (34,308) 135,247 (60,380) 171 (621,704) (681,913) 998,405 (710,860) (16,720) (31,692) 328,820 567,953 21,287 25,697 59 47,043 36 26 9 (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 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. Page 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SUPER RETAIL GROUP LIMITED FOR THE PERIOD ENDED 30 JUNE 2012 Page 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Super Retail Group Limited For the period ended 30 June 2012 Contents of the notes to the consolidated financial statements Summary of significant accounting policies .............................................................................................................................. 38 1 Financial risk management ....................................................................................................................................................... 47 2 Critical accounting estimates and judgements .......................................................................................................................... 51 3 Segment information ................................................................................................................................................................. 52 4 Revenue ................................................................................................................................................................................... 54 5 Other Income ............................................................................................................................................................................ 54 6 Expenses .................................................................................................................................................................................. 54 7 Income tax expense .................................................................................................................................................................. 55 8 Current assets - Cash and cash equivalents ............................................................................................................................ 56 9 10 Current assets - Trade and other receivables ........................................................................................................................... 56 11 Current assets – Inventories ..................................................................................................................................................... 57 12 Non-current assets – Property, plant and equipment ................................................................................................................ 57 13 Non-current assets - Deferred tax assets ................................................................................................................................. 58 14 Non-current assets – Intangible assets ..................................................................................................................................... 59 15 Current liabilities - Trade and other payables ........................................................................................................................... 61 16 Current liabilities – Borrowings ................................................................................................................................................. 61 17 Current liabilities – Current tax liabilities ................................................................................................................................... 61 18 Current liabilities – Provisions ................................................................................................................................................... 62 19 Non-current liabilities – Trade and Other Payables .................................................................................................................. 62 20 Non-current liabilities – Borrowings .......................................................................................................................................... 62 21 Derivative Financial instruments ............................................................................................................................................... 63 22 Non-current liabilities - Deferred tax liabilities ........................................................................................................................... 66 23 Non-current liabilities – Provisions ............................................................................................................................................ 66 24 Contributed equity ..................................................................................................................................................................... 67 25 Reserves and retained profits ................................................................................................................................................... 69 26 Dividends .................................................................................................................................................................................. 70 27 Key management personnel disclosures .................................................................................................................................. 71 28 Remuneration of auditors.......................................................................................................................................................... 74 29 Contingencies ........................................................................................................................................................................... 74 30 Commitments ............................................................................................................................................................................ 75 31 Related party transactions ........................................................................................................................................................ 76 32 Investments in controlled entities .............................................................................................................................................. 76 33 Business Combinations ............................................................................................................................................................ 77 34 Net tangible asset backing ........................................................................................................................................................ 77 35 Deed of cross guarantee........................................................................................................................................................... 78 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 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 30 June 2012 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 Divisional Managing Directors, 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 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 (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 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 Depreciation and amortisation of property, plant and equipment Depreciation and amortisation are calculated on a straight line basis for accounting and on a diminishing value basis for tax. Depreciation and amortisation allocates 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 at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non- controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, 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 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 (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 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 (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 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 30 June 2012, the Group is reporting on the 52 week period that began 3 July 2011 and ended 30 June 2012. For the period to 2 July 2011, the Group is reporting on the period commencing 4 July 2010 and ended 2 July 2011. (ad) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2012 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 from 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. When adopted, the standard will affect in particular the group’s accounting for its available-for-sale financial assets, since AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. 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 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 not yet decided when to adopt AASB 9. AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in other Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in Associates and Joint Ventures and AASB 2011- 7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards (effective 1 January 2013) AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements, and Interpretation 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. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. Control exists when the investor can use its power to affect the amount of its returns. There is also new guidance on participating and protective rights and on agent/principal relationships. While Page 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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. AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces the disclosure requirements currently found in AASB 127 and AASB 128. 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. The Group does not expect to adopt the new standards before their operative date. They would therefore be first applied in the financial statements for the annual reporting period ending 30 June 2014. AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 (effective 1 January 2013) AASB 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. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. The Group does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2014. AASB 2012-5 Amendments to Australian Accounting Standard arising from Annual Improvements 2009-2011 cycle (effective for annual periods beginning on or after 1 January 2013). The Group does not expect that any adjustments will be necessary as the result of applying the revised rules. AASB 2012-3 Amendments to Australian Accounting Standard - Offsetting Financial Assets and Financial Liabilities and AASB 2012-2 Disclosures -Offsetting Financial Assets and Financial Liabilities (effective 1 January 2014 and 1 January 2013 respectively) The AASB approved amendments to the application guidance in AASB 132 Financial Instruments: Presentation, to clarify some of the requirements for offsetting financial assets and financial liabilities in the balance sheet. These amendments are effective from 1 January 2014. They are unlikely to affect the accounting for any of the entity's current offsetting arrangements. However, the AASB has also introduced more extensive disclosure requirements into AASB 7 which will apply from 1 January 2013. When they become applicable, the Group will have to provide a number of additional disclosures in relation to its offsetting arrangements. The Group intends to apply the new rules for the first time in the financial year commencing 1 July 2013. There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions (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. 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. Page 46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 30 June 2012 USD $'000 2 July 2011 USD $'000 917 10,670 60,000 779 9,763 64,000 Based on the financial instruments held at 30 June 2012, 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 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 2 Financial risk management (continued) Equity would have been $5,858,000 lower/$7,160,000 higher (2011: $2,951,000 lower/$3,606,000 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 2012 and 2011, 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. 30 June 2012 Balance $'000 2 July 2011 Balance $'000 390,000 140,000 100,000 40,000 The Group risk management policy is to maintain fixed interest rate hedges of approximately 40% of anticipated debt levels over a 3 year period. The Group utilises interest rate swaps to hedge its interest rate exposure on borrowings. At 30 June 2012, 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 $1,750,000 lower/higher (2011: $560,000 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 2012 $'000 110,000 Consolidated 2011 $'000 90,000 Page 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 30 June 2012 Less than 6 months $’000 6-12 months $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 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 2 July 2011 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 197,888 0 0 12,488 12,488 414,976 7 210,383 1 12,489 0 414,976 (759) (759) (1,239) (39,374) 39,389 (744) (19,687) 20,005 (441) 0 0 (1,239) 0 0 0 0 0 0 0 0 Less than 6 months $’000 6-12 months $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 122,373 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 Total contractual cash flows $’000 Carrying amount (assets) / liabilities $’000 197,888 197,888 439,952 390,000 8 637,848 8 587,896 (2,757) (282) (59,061) 59,394 (2,424) 0 310 28 Total contractual cash flows $’000 Carrying amount (assets) / liabilities $’000 122,373 122,373 113,651 100,000 40 236,064 40 222,413 (105) (59,686) 64,341 4,550 (142) 0 0 (142) 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 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 2 Financial risk management (continued) The following tables present the Group’s entity’s assets and liabilities measured and recognised at fair value at 30 June 2012. Group – at 30 June 2012 Assets Derivatives used for hedging Total assets Liabilities Derivatives used for hedging Total liabilities Group – at 2 July 2011 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 0 418 418 (3,877) (3,877) 0 0 0 0 Level 1 $'000 Level 2 $'000 Level 3 $'000 0 0 0 0 142 142 (4,115) (4,115) 0 0 0 0 Total $'000 418 418 (3,877) (3,877) Total $'000 142 142 (4,115) (4,115) 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 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 * Interest rate swaps * Non-traded financial liabilities Consolidated entity Carrying amount Fair value 2012 $’000 2011 $’000 2012 $’000 2011 $’000 47,043 28,114 418 0 75,575 (203,211) (388,017) (107) (3,769) (595,104) 25,697 22,018 0 142 47,857 47,043 28,114 418 0 75,575 25,697 22,018 0 142 47,857 (129,271) (99,175) (4,115) 0 (232,561) (203,211) (388,017) (107) (3,769) (595,104) (129,271) (99,175) (4,115) 0 (232,561) *These amounts are unrealised gains and losses which have been included in the carrying amount and fair value in the statement of financial position as 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 $2m release. Page 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 4 Segment information (a) Description of segments Following the acquisition of the Rebel Group, the Board has determined the operating segments based on the reports reviewed by the Divisional Managing Directors that are used to make strategic decisions. This results in 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. Sports Retailing: Retail and distribution of sporting equipment and apparel (as a result of the Rebel Group acquisition). (b) Segment information provided to the Divisional Managing Directors The segment information provided to the Divisional Managing Directors for the reportable segments for the year ended 30 June 2012 is as follows: Auto & Cycle Retailing $’000 Leisure Retailing $’000 Sports Retailing $’000 Total continuing operations $’000 Inter-segment eliminations/ unallocated $’000 Consolidated $’000 2012 Segment Revenue Sales to external customers 757,949 456,271 441,909 1,656,129 119 1,656,248 Inter segment sales Total sales revenue Other revenue/income (2,139) 755,810 51 0 456,271 22 0 441,909 703 (2,139) 1,653,990 776 0 119 1,505 (2,139) 1,654,109 2,281 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 755,861 456,293 442,612 1,654,766 1,624 1,656,390 72,186 32,832 54,477 159,495 (17,318) 142,177 (77) (21,995) (77) 120,105 (36,584) 83,521 Segment assets 428,062 234,346 186,966 849,374 536,133 1,385,507 Unallocated assets Total assets 0 0 1,385,507 Segment liabilities (277,899) (178,161) (148,539) (605,599) 16,706 (588,893) Unallocated liabilities Total liabilities Acquisitions of property, plant and equipment and other non- current segment assets Depreciation and amortisation expense (107,751) (107,751) (696,644) 17,755 15,097 656,238 689,090 21,815 710,905 17,628 9,188 8,395 35,211 193 35,404 Goodwill impairment Other non-cash expenses 77 77 1,873 Page 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 The segment information provided to the Divisional Managing Directors for the reportable segments for the year ended 2 July 2011 is as follows: Auto & Cycle Retailing $’000 Leisure Retailing $’000 Sports Retailing $’000 Total continuing operations $’000 Inter-segment eliminations/ unallocated $’000 Consolidated $’000 2011 Segment Revenue Sales to external customers 713,332 384,368 Inter segment sales Total sales revenue Other revenue/income (5,099) 708,233 1,772 (280) 384,088 391 Total revenue and other income Segment result (pre-borrowing costs and impairment) 710,005 384,479 63,611 32,042 0 0 0 0 0 0 1,097,700 (5,379) 1,092,321 2,163 0 0 0 273 1,097,700 (5,379) 1,092,321 2,436 1,094,484 273 1,094,757 95,653 (7,028) 88,625 Finance costs Impairment of goodwill Profit before income tax Income tax expense Profit for the period Segment Assets & Liabilities (10,973) 0 77,652 (22,053) 55,599 Segment assets 366,253 171,597 0 537,850 34,198 572,048 Unallocated assets Total assets 0 0 572,048 Segment liabilities (206,162) (115,187) 0 (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 (c) Other information (107,606) (107,606) (268,368) 13,673 13,067 (15,797) (6,860) 0 0 26,740 11,889 38,629 (22,657) (145) (22,802) 0 1,222 The consolidated entity’s divisions are operated in two main geographical areas. Australia The home country of the parent entity. The three areas of operation are (i) automotive, bicycles and accessories (ii) boating, camping, outdoor entertainment and fishing (iii) sporting equipment and apparel. New Zealand Supercheap Auto and FCO operate in New Zealand. Page 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 Plant and equipment Motor vehicles Computer systems Total depreciation Amortisation and Impairment Computer software Brand name Goodwill Supplier agreement Finance costs Interest and finance charges 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 2012 $'000 1,654,109 1,654,109 1,365 1,365 Consolidated 2011 $'000 1,092,321 1,092,321 1,077 1,077 1,655,474 1,093,398 2012 $'000 916 916 2012 $'000 786 23,409 244 6,844 30,497 4,685 125 77 20 4,907 22,335 (340) 21,995 19,038 270,519 289,557 137,408 8,146 145,554 Consolidated Consolidated 2011 $'000 1,359 1,359 2011 $'000 294 13,864 30 5,306 19,200 3,457 125 0 20 3,602 10,859 114 10,973 12,273 192,436 204,709 90,879 4,907 95,786 250 1,419 Page 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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) (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2011 - 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Tax consolidation adjustments re NZ branch Business acquisition costs Goodwill impairment R & D credits Sundry items Difference in overseas tax rates 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 2012 $'000 35,089 1,505 (10) 36,584 (396) 1,901 1,505 120,105 36,032 (382) 3,371 23 (2,672) 51 36,423 171 (10) 36,584 (1,328) (1,328) 154 154 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 0 (115) 22,053 (1,228) (1,228) (1,463) (1,463) 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 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 2012 $'000 2011 $'000 47,043 25,697 Consolidated 2012 $'000 18,051 (219) 17,832 4,219 703 5,778 28,532 2011 $'000 13,176 (268) 12,908 3,777 1,818 3,657 22,160 As at 30 June 2012 current trade receivables of the Group with a nominal value of $219,000 (2011: $268,000) were impaired and provided for. The individually impaired receivables mainly relate to wholesalers who the Group no longer trade with. Movements in the provision for impairment of receivables are as follows: As at 30 June 2012 Provision for impairment recognised during the year Receivables written off during the year as uncollectible Consolidated 2012 $'000 (268) (14) 63 (219) 2011 $'000 (210) (236) 178 (268) 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 30 June 2012, trade receivables of $4,009,000 (2011: $3,586,000) 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 2012 $'000 3,230 297 482 4,009 2011 $'000 2,435 668 483 3,586 Page 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 11 Current assets – Inventories Finished goods - at lower of cost or net realisable value (a) Inventory expense Consolidated 2012 $'000 2011 $'000 416,719 292,874 Inventories recognised as expense during the year ended 30 June 2012 amounted to $897,904,000 (2011: $583,164,000). Write-downs of inventories to net realisable value recognised as an expense/(benefit) during the year ended 30 June 2012 amounted to ($735,000) (2011: ($1,388,000)). 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 2012 $'000 237,903 (85,354) 152,549 1,588 (367) 1,221 52,426 (35,333) 17,093 2011 $'000 160,141 (63,964) 96,177 266 (240) 26 45,805 (32,731) 13,074 Total net property, plant and equipment 170,863 109,277 Assets pledged as security are detailed in Note 20 Reconciliations - consolidated entity Carrying amounts at 3 July 2011 Additions Business acquisitions Disposals Depreciation and amortisation Foreign currency exchange differences Carrying amounts at 30 June 2012 Reconciliations - consolidated entity Carrying amounts at 4 July 2010 Additions Business acquisitions Disposals Depreciation and amortisation Foreign currency exchange differences Carrying amounts at 2 July 2011 Plant and equipment $’000 Motor vehicles $’000 Computer systems $’000 26 62 1,499 (122) (244) 0 1,221 661 0 (413) (197) (30) 5 26 13,074 6,902 4,011 (66) (6,844) 16 17,093 14,683 4,522 (668) (157) (5,306) 0 13,074 96,177 48,928 33,485 (2,736) (23,409) 104 152,549 89,965 23,084 185 (3,390) (13,864) 197 96,177 Page 57 Total $’000 109,277 55,892 38,995 (2,924) (30,497) 120 170,863 105,309 27,606 (896) (3,744) (19,200) 202 109,277 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 13 Non-current assets - Deferred tax assets The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Doubtful debts Prepayments Employee benefits Accruals Inventories Deferred make good provision Straight line lease adjustment Deferred income Depreciation Provision for warranties and legal costs Tax losses Amounts recognised directly in equity Cash flow hedges Foreign exchange revaluation reserve 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 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 2012 $'000 2011 $'000 66 275 8,765 1,206 1,858 1,584 5,024 86 5,782 0 844 25,490 1,131 32 1,836 28,489 (28,489) 0 17,473 396 1,410 9,210 28,489 23,835 4,654 28,489 85 0 5,779 312 2,137 257 4,662 127 2,512 13 0 15,884 1,235 0 354 17,473 (6,684) 10,789 14,559 1,771 1,000 143 17,473 14,543 2,930 17,473 Page 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 2012 $’000 440,264 (2,077) 438,187 14 0 14 41,808 (24,979) 16,829 267,500 (500) 267,000 400 (80) 320 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 Goodwill $’000 Trademarks $’000 Computer Software $’000 Brand Name $’000 Supplier Agreement $’000 Totals $’000 722,350 111,251 Reconciliations – consolidated entity – 2012 Carrying amounts at 3 July 2011 Additions Business acquisitions Disposals/Revision in provisional accounting Amortisation/Impairment charge Carrying amounts at 30 June 2012 76,452 0 361,812 0 (77) 438,187 14 0 0 0 0 14 12,320 6,842 2,364 (12) (4,685) 16,829 22,125 0 245,000 0 (125) 267,000 340 0 0 0 (20) 320 111,251 6,842 609,176 (12) (4,907) 722,350 Reconciliations – consolidated entity – 2011 Carrying amounts at 4 July 2010 Additions Disposals/Revision in provisional accounting Amortisation/Impairment charge Carrying amounts at 2 July 2011 Goodwill $’000 Trademarks $’000 Computer Software $’000 Brand Name $’000 Supplier Agreement $’000 Totals $’000 74,701 0 1,751 0 76,452 14 0 0 0 14 6,505 9,455 (183) (3,457) 12,320 22,250 0 0 (125) 22,125 360 0 0 (20) 340 103,830 9,455 1,568 (3,602) 111,251 Amortisation of $4,907,000 (2011: $3,602,000) is included in “Administration” in the consolidated income statement. (a) Impairment tests for goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to the group of assets based on acquisition. Page 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 14 Non-current assets – Intangible assets (continued) A CGU level summary of the goodwill allocation is presented below:- 2012 Goodwill 2011 Goodwill Supercheap Auto $’000 BCF $’000 Goldcross Cycles $’000 Ray’s Outdoors $’000 Rebel Group $’000 Total $’000 45,336 12,950 7,877 11,002 361,022 438,187 Supercheap Auto $’000 BCF $’000 Goldcross Cycles $’000 Ray’s Outdoors $’000 Total $’000 45,336 12,950 7,954 10,212 76,452 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 Riders Cycles. Goodwill allocation presented for Rebel Group includes Rebel Sport and A-Mart All Sports. (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 Rebel Group Growth rate Discount rate 2012 % 3.0 5.0 5.0 10.0 * 2011 % 3.0 5.0 10.0 10.0 * 2012 % 12 12 12 12 * 2011 % 15 15 15 15 * * A value-in-use calculation was not performed for the Rebel Group due to an external valuation being performed as at the date of acquisition. As with the other business segments, performance of the Rebel Group will be assessed on an ongoing basis. The initial two year’s of a store operating growth rate is assumed to be 10% for Supercheap Auto, BCF and Ray’s Outdoors and 5% for Goldcross Cycles. (c) 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, Rebel Sport and A-Mart All Sports brands on the basis that they are 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, Rebel Sports and A-Mart All Sports brands; and there are currently no legal, technical or commercial factors indicating that the life should be considered limited. Page 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 15 Current liabilities - Trade and other payables Trade payables Other payables Loans from related parties 16 Current liabilities – Borrowings Secured Finance leases 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 2012 $'000 130,672 67,200 16 197,888 2011 $'000 83,050 39,305 18 122,373 Consolidated 2012 $'000 2011 $'000 8 8 0 0 0 8 32 32 0 0 0 32 (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 2012 $'000 9,199 2011 $'000 11,013 Page 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 18 Current liabilities – Provisions Put option provision(a) Provision for warranties(b) Make good provision(c) Employee benefits(d) (a) Put Option Provision Consolidated 2012 $'000 409 0 119 19,304 19,832 2011 $'000 871 44 460 10,911 12,286 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. (e) Movements in provisions Refer to Note 23 for a consolidated movement in provisions analysis. 19 Non-current liabilities – Trade and Other Payables Straight line lease adjustment 20 Non-current liabilities – Borrowings Secured Finance lease Bank debt funding facility Less borrowing costs capitalised, net Consolidated 2012 $'000 17,527 2011 $'000 15,538 Consolidated 2012 $'000 0 390,000 (1,991) 388,009 2011 $'000 8 100,000 (865) 99,143 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, Commonwealth Bank of Australia and National Australia Bank 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, Commonwealth Bank of Australia and National Australia Bank. Financial covenants are provided by Super Retail Group Limited with respect to leverage, gearing, fixed charges coverage and shareholder funds. Page 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 2012 $’000 2011 $’000 500,000 17,000 517,000 390,000 8,264 398,264 110,000 8,736 118,736 190,000 7,000 197,000 100,000 3,350 103,350 90,000 3,650 93,650 In addition, the Company has access to a $89.5 million (2011: $132 million) transactional facility for clean credit and foreign currency dealings. Current interest rates on bank loans of the economic entity are 5.63% - 6.62% (2011: 6.71% - 6.88%). 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 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 2012 $000 40,000 20,000 2011 $000 47,500 16,500 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 30 June 2012, no hedges were designated as ineffective (2011: 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) 310 (3,769) (3,459) 0 0 0 (3,459) (4,115) 142 (3,973) 0 0 0 (3,973) (a) (b) Included in other receivables under note 10 Included in other payables under note 15 Interest rate swap contracts Bank loans of the economic entity currently bear an average variable interest rate of 6.40% (2011: 6.83%). 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 multiple interest rate swaps for a total nominal value of $160,000,000 (2011: $80,000,000) of which $20,000,000 expired on 15 January 2012. The Group also entered into a $20,000,000 three year interest swap with a start date of 15 January 2013. This swap is for a fixed interest rate of 3.53%. 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 36% (2011: 20%) of the loan principal outstanding. The average fixed interest rate is 4.49% (2011: 3.97%). Page 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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: Notes 9 10 15, 17 16, 20 18, 23 2012 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) 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) Floating interest rate $’000 45,482 0 45,482 3.17% 0 388,017 0 388,017 6.40% (342,535) Floating interest rate $’000 24,743 0 24,743 4.28% 0 79,135 0 79,135 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 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,561 28,532 30,093 47,043 28,532 75,575 207,087 0 24,168 231,255 207,087 388,017 24,168 619,272 (201,162) (543,697) 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) 6.83% 5.77% 12.37% (54,392) (20,032) (8) Page 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 22 Non-current liabilities - Deferred tax liabilities The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Prepayments Brand values Goodwill Other receivables Depreciation Amounts recognised directly in equity Foreign exchange revaluation reserve Cash flow hedges Consolidated 2012 $'000 2011 $'000 9 80,196 126 280 2,471 83,082 125 0 83,207 3 6,638 0 0 0 6,641 0 43 6,684 Set-off of deferred tax liabilities of parent entity pursuant to set-off provisions Net deferred tax liabilities (28,489) 54,718 (6,684) 0 Movements: Opening balance Charged/(credited) to the income statement Charged/(credited) to equity 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) 6,684 1,901 82 74,540 83,207 82,793 414 83,207 Consolidated 2012 $'000 4,467 4,864 132 9,463 6,948 (36) (228) 0 6,684 6,681 3 6,684 2011 $'000 4,899 2,952 132 7,983 (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 3 July 2011 Additional provisions recognised Indexing of provisions Provision released Acquisitions Closing balance as at 30 June 2012 Put option $’000 871 0 0 (462) 0 409 Warranties $’000 44 0 0 (44) 0 0 Make good $'000 5,359 143 55 (1,955) 984 4,586 Oceania future dividend $’000 132 0 0 0 0 132 Total $’000 6,406 143 55 (2,461) 984 5,127 Page 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 24 Contributed equity (a) Share Capital Ordinary shares fully paid (b) Movement in ordinary share capital Issue of shares on incorporation (8 April 2004) Issue of shares on 23 April 2004 Share split on 19 May 2004 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 Dividend reinvestment plan issue on 26 September 2011 Institutional equity raising – 17 October 2011 Retail equity raising – 21 November 2011 Dividend reinvestment plan issue on 3 April 2012 Shares issued under share option Less transaction costs on share issue Deferred tax credit recognised directly in equity Closing balance 30 June 2012 Parent Entity 2012 $'000 2011 $'000 541,835 194,541 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 5.94 5.34 5.34 7.04 2.45 0 84,233 0 394 3,821 3,279 76,320 1,346 12,143 448 1,548 4,637 6,028 1,966 8,385 283,907 50,349 8,088 2,399 (9,810) 2,354 541,835 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 1,411,206 53,166,176 9,428,472 1,148,378 980,000 196,152,971 The October 2011 and November 2011 institutional and retail equity raisings were done to finance the acquisition of Rebel Group Limited. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. 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. 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 (2011: nil) ordinary shares were issued during the period, with 980,000 (2011: 770,000) options being exercised during the period. Performance rights over 453,151 (2011: 363,427) 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. Page 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 24 Contributed equity (continued) (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 2012 the Group’s strategy, which was unchanged from 2011, 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 30 June 2012 and 2 July 2011 were as follows: Total borrowings Less: Cash & cash equivalents Net Debt Total Equity Total Capital Gearing Ratio Consolidated 2012 $'000 388,017 (47,043) 340,974 688,863 1,029,837 33.1% 2011 $'000 99,175 (25,697) 73,478 303,680 377,158 19.5% The increase in the gearing ratio was due to the acquisition of Rebel Group Limited. 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 2012 the Group’s strategy, which was unchanged from 2011, was to maintain a fixed charge cover ratio of around 2.0 times. The fixed charge cover ratios at 30 June 2012 and 2 July 2011 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 2012 $’000 83,521 36,584 21,995 35,404 135,844 313,348 21,995 135,844 157,839 1.99 2011 $’000 55,599 22,053 10,973 22,802 84,486 195,913 10,973 84,486 95,459 2.05 The slight reduction in the fixed charge cover ratio in 2012 reflects the financing costs associated with the acquisition of Rebel Group Limited. Page 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 25 Reserves and retained profits Consolidated Reserves Foreign currency translation reserve Share based payments reserve Hedging reserve TOTAL 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 2012 $'000 (3,306) 5,021 (2,421) (706) (3,607) 301 (3,306) 3,149 0 1,872 5,021 (2,781) 514 (154) (2,421) 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) 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 112,378 88,241 83,521 (48,165) 147,734 38,053 (31,462) 112,378 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 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 26 Dividends Parent Entity 2012 $’000 2011 $’000 Ordinary shares Dividends paid by Super Retail Group Limited during the reporting period were as follows: Interim dividend for the period ended 31 December 2011 of 13 cents (2011: 11.5 cents per share) paid on 27 March 2012. Fully franked based on tax paid @ 30% 25,331 14,844 Final dividend for the period ended 2 July 2011 of 17.5 cents per share (2011: 13.0 cents per share) paid on 19 September 2011. Fully franked based on tax paid @ 30% Total dividends provided and paid 22,834 48,165 16,618 31,462 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 19.0 cents per ordinary share (2011: 17.5 cents per ordinary share), fully franked based on tax paid at 30%. 31,692 16,473 48,165 20,797 10,665 31,462 The aggregate amount of the dividend expected to be paid on 3 October 2012, out of retained profits at 30 June 2012, but not recognised as a liability at year end, is 37,269 22,753 Franking credits The franked portions of dividends paid after 30 June 2012 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 30 June 2012. Franking credits remaining at balance date available for dividends declared after the current balance date based on a tax rate of 30% 58,030 52,124 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 $15,972,456 (2011: $9,751,405). Page 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 27 Key management personnel disclosures (a) Key management personnel compensation Short-term employee benefits Post-employment benefits Share-based payments Consolidated 2012 $ 2011 $ 4,000,370 222,317 1,103,024 5,325,711 3,556,350 231,763 726,090 4,514,203 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 19 to 29. (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 19 to 29. 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. 2012 Balance at the start of the year Granted during the year as compensation 0 0 0 0 200,000 Name Directors of Super Retail Group R J Wright R A Rowe R J Skippen S A Pitkin P A Birtles Other key management personnel of the Group D F Ajala S J Doyle E A Berchtold G G Carroll G L Chad 75,160 68,770 0 48,261 54,690 0 0 0 0 100,000 45,977 42,401 0 30,788 26,437 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 0 300,000 121,137 111,171 0 79,049 81,127 0 0 0 0 0 0 0 0 0 0 Page 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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. 2012 Balance at the start of the year Name Directors of Super Retail Group Limited R J Wright R A Rowe R J Skippen S A Pitkin P A Birtles Other key management personnel of the Group D F Ajala S J Doyle E A Berchtold G G Carroll G L Chad 0 0 0 0 200,000 0 250,000 0 100,000 50,000 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 0 200,000 0 200,000 0 100,000 50,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 50,000 0 0 0 No options are vested and unexercisable at the end of the year. 2011 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 Name start of the year 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 E A Berchtold G G Carroll G L Chad 135,000 300,000 0 175,000 87,500 0 0 0 350,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 150,000 135,000 50,000 0 75,000 37,500 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 200,000 0 250,000 0 100,000 50,000 Vested and exercisable at the end of the year 0 0 0 0 0 0 50,000 0 0 0 Vested and exercisable at the end of the year 0 0 0 0 0 200,000 0 250,000 0 100,000 50,000 No options are vested and unexercisable at the end of the year. (iv) Share holdings 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 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 27 Key management personnel disclosures (continued) 2012 Name Directors of Super Retail Group Limited Ordinary shares R J Wright R A Rowe R J Skippen S A Pitkin P A Birtles Other key management personnel of the Group Ordinary shares D F Ajala S J Doyle E A Berchtold G G Carroll G L Chad 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 E A Berchtold 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 46,048 53,671,326 0 10,000 1,692,596 108,436 23,411 0 0 75,000 0 0 0 0 200,000 25,101 3,926,416 0 15,053 0 71,149 56,954,670 0 25,053 1,892,596 0 200,000 0 100,000 50,000 0 (188,910) 0 (10,000) 0 108,436 34,501 0 90,000 125,000 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 44,274 53,028,254 62,083 0 0 1,542,596 165,136 23,411 0 0 37,500 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 1,692,596 135,000 50,000 0 75,000 37,500 (191,700) (50,000) 0 (75,000) 0 108,436 23,411 0 0 75,000 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 2012 $000 2011 $000 17,479 13,510 Page 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 2012 $ 2011 $ 568,314 568,314 568,314 198,373 37,632 236,005 424,468 424,468 424,468 257,749 12,000 269,749 0 0 144,157 144,157 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 2012 $000 2011 $000 2012 $000 2011 $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: 8,109 3,365 2,341 1,469 Page 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 2012 $000 2011 $000 2,303 0 0 2,303 150,936 424,728 96,734 (17,527) 654,421 1,481 854 0 0 854 81,370 226,318 72,291 (15,538) 364,441 1,861 2,826 6,404 560 9,790 2,270 6,056 444 8,770 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 19 to 29 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 (2011: $199,000) 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 2012 $000 2011 $000 8 0 8 (0) 8 8 0 8 34 8 42 (2) 40 32 8 40 Page 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 31 Related party transactions Transactions with related parties are at arm’s length unless otherwise stated. Parent entities (a) The parent entity within the Group is Super Retail Group Limited, which is the ultimate Australian parent. Subsidiaries (b) 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. Directors (d) The names of the persons who were Directors of Super Retail Group Limited during the financial period are R J Wright, R A Rowe, R J Skippen, S A M Pitkin and P A Birtles. Amounts due from related parties (e) 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 2012 $ 2011 $ 9,437,318 2,169,680 9,439,979 1,980,928 Other Transactions - store lease payments – R A Rowe (Director) 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 $17,560 (2011: $18,168) (g) Loans to/(from) Related Parties Loans to/(from) Directors There are no loans to or from related parties at 30 June 2012 (2011 :$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) Super Retail Commercial Pty Ltd Rebel Group Limited Country of Incorporation Class of Shares 2012 % 2011 % Equity Holding Australia New Zealand Australia Australia Australia Australia Australia Australia China New Zealand Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 - - (a) These controlled entities have been granted relief from the necessity to prepare financial reports in accordance with Class Order 98/1418 issued by the Australian Securities and Investments Commission. (b) Investment is held directly by Super Cheap Auto Pty Ltd. Page 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 33 Business Combinations (a) Rebel Group Limited Effective from 30 October 2011, Super Retail Group Limited acquired 100% of the issued share capital of Rebel Group Limited, a retailer of sporting equipment and apparel. Total consideration for the acquisition was $625m, comprising a $610m purchase price, a $10.4m working capital adjustment and $4.5m net cash acquired. The initial purchase price has been determined provisionally pending the completion of the final valuation of the fair value of net assets acquired. The provisional acquisition note is shown below. Net assets acquired and goodwill are as follows: Purchase consideration Cash Paid Direct costs relating to the acquisition Total purchase consideration Provisional allocation of Fair value of net identifiable assets acquired (refer below) Goodwill The goodwill is attributable to Rebel Group Limited position and profitability in the sporting goods market and synergies expected to arise after the Group’s acquisition Cash Other receivables Prepayments Inventory (net of provisions) Plant and equipment Computer software Tax assets Brand name Trade payables Other payables Provisions Deferred tax liability $’000 624,954 0 624,954 263,932 361,022 $’000 4,517 415 1,695 102,152 38,851 2,364 10,011 245,000 (35,206) (20,645) (10,682) (74,540) 263,932 Acquisition related costs of $11.1 million are included in Administration expenses in the income statement. The acquired Group contributed revenues of $441.9 million for the period 30 October 2011 to 30 June 2012. If the acquisition had occurred on 3 July 2011, the contribution to the group revenue would have been $619.0 million, while the contribution to Group net profit after tax would have been $50.8 million. 34 Net tangible asset backing Net tangible asset per ordinary share Consolidated Entity 2012 Cents $0.24 2011 Cents $1.40 Page 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 35 Deed of cross guarantee 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, Super Retail Commercial Pty Ltd, Rebel Group Limited 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 25 June 2012 to include Super Retail Commercial Pty Ltd and Rebel Group Limited and its subsidiaries. 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 30 June 2012 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, Super Retail Commercial Pty Ltd, Rebel Group Limited and its subsidiaries and SCA Equity Plan Pty Ltd. 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 Retained profits at the end of the financial year Page 78 Consolidated 2012 $'000 2011 $'000 1,570,473 871 1,571,344 1,020,152 1,343 1,021,495 (868,892) (547,326) 197,400 (73,228) (117,272) (170,588) (19,792) (1,447,172) 124,172 (37,376) (130,895) (49,136) (84,189) (120,780) (8,712) (941,038) 80,457 (22,574) 86,796 57,883 86,796 661 0 661 87,457 57,883 (3,414) 0 (3,414) 54,469 109,311 86,796 (48,165) 147,942 82,890 57,883 (31,462) 109,311 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 35 Deed of cross guarantee (continued) (b) Statement of Financial Position Set out below is a consolidated statement of financial position as at 30 June 2012 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, Super Retail Commercial Pty Ltd, Rebel Group Limited and its subsidiaries 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 2012 $'000 2011 $'000 43,238 46,838 377,927 468,003 401 155,210 0 722,340 877,951 1,343,954 160,083 0 10,132 18,752 188,967 16,523 388,009 55,814 9,096 469,442 658,409 687,545 541,662 (2,059) 147,942 687,545 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 Page 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 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 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 - increase in payables - (decrease) in provisions - (decrease)/increase 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 2012 $000 83,521 35,404 786 1,872 20,630 (4,047) (21,279) 17,655 (1,317) 2,022 135,247 2011 $000 55,599 22,802 294 1,222 10,973 (675) (40,138) 24,914 (2,268) (1,821) 70,902 Consolidated Entity 2012 Cents 46.1 45.8 2011 Cents 40.6 40.1 Consolidated Entity 2012 Number 2011 Number 181,036,618 1,290,592 136,787,821 1,792,920 182,327,210 138,580,740 2012 $’000 2011 $000 83,521 55,599 83,521 55,599 (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 For the period ended 30 June 2012 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 – 2012 1 September 2009 1 September 2010 1 September 2011 (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) 356,738 363,427 0 720,165 0 0 453,151 453,151 0 0 0 0 17,055 15,669 0 32,724 339,683 347,758 453,151 1,140,592 339,683 347,758 453,151 1,140,592 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 For the period ended 30 June 2012 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 – 2012 27 Jan 2006 27 Jan 2006 27 Jan 2006 17 April 2006 1 July 2006 26 Oct 2006 23 Aug 2007 5 Jan 2009 5 Jan 2010 5 Jan 2011 17 April 2011 1 July 2011 1 Feb 2011 24 Jul 2010 1 August 2008 1 August 2011 Total $2.44 $2.44 $2.44 $2.25 $2.25 $2.44 $4.37 $2.49 50,000 100,000 100,000 100,000 300,000 200,000 100,000 180,000 1,130,000 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 0 100,000 0 50,000 0 100,000 0 300,000 0 200,000 0 40,000 0 140,000 980,000 0 0 0 0 0 0 0 0 0 0 0 0 50,000 0 0 0 60,000 40,000 150,000 0 0 0 0 0 0 0 0 0 Weighted average exercise price $2.55 Nil $2.45 Nil $3.23 Nil 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 50,000 0 0 35,000 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 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 2012 $000 1,860 12 1,872 2011 $000 1,107 115 1,222 Page 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Super Retail Group Limited For the period ended 30 June 2012 39 Events occurring after balance date No matter or circumstance has arisen since 30 June 2012 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 Parent entity contingencies are disclosed in Note 29. 2012 $’000 284,261 1,056,024 83,038 475,542 541,835 5,021 (2,639) 36,265 580,482 48,208 48,208 2011 $’000 199,109 346,862 13,569 112,859 194,541 3,149 100 36,213 234,003 41,284 41,284 Page 83 DIRECTORS’ DECLARATION Super Retail Group Limited For the period ended 30 June 2012 In the directors’ opinion: (a) (b) (c) the financial statements and notes set out on pages 31 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 30 June 2012 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 J Wright Director P A Birtles Director Brisbane 21 August 2012 Page 84 AUDIT REPORT Super Retail Group Limited For the period 30 June 2012 (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 statement of financial position as at 30 June 2012 and comprehensive income statement, 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 (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. 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. 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. PricewaterhouseCoopers, ABN 52 780 433 757 Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO BOX 150, BRISBANE QLD 4001 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 For the period 30 June 2012 (continued) 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 30 June 2012 and of its performance for the year 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 report included in pages 19 to 27 of the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of Super Retail Group Limited for the year ended 30 June 2012, complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Cameron Henry Partner 21 August 2012 Page 86 SHAREHOLDER INFORMATION Super Retail Group Limited For the period ended 30 June 2012 The shareholder information set out below was applicable as at 21 August 2012. A. Distribution of equity securities Analysis of numbers of equity security holders by size of holding: Ordinary Shareholders Performance Rights & Option holders 1-1000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 and over 1,616 1,633 317 265 45 There were 277 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 BNP PARIBAS NOMS PTY LTD CITICORP NOMINEES PTY LIMITED JP MORGAN NOMINEES AUSTRALIA LIMITED MR PETER ALAN BIRTLES BNP PARIBAS NOMS PTY LTD RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED CITICORP NOMINEES PTY LIMITED AMP LIFE LIMITED GEOMAR SUPERANNUATION PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR ROBERT EDWARD THORN QUEENSLAND INVESTMENT CORPORATION EQUITAS NOMINEES PTY LIMITED EQUITAS NOMINEES PTY LIMITED EQUITAS NOMINEES PTY LIMITED 3 3 0 12 3 Ordinary shares Number held Percentage of issued shares 56,954,670 33,684,229 26,533,413 25,060,914 12,723,890 6,248,801 2,778,595 1,690,000 1,560,570 1,191,853 1,079,649 1,026,412 964,761 884,882 696,165 648,368 626,403 556,128 549,155 547,135 29.03% 17.17% 13.53% 12.77% 6.49% 3.19% 1.42% 0.86% 0.80% 0.61% 0.55% 0.52% 0.49% 0.45% 0.35% 0.33% 0.32% 0.28% 0.28% 0.28% 176,005,993 89.72% 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 21 August 2012 were:- Name SCA FT PTY LTD NATIONAL NOMINEES LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BNP PARIBAS NOMS PTY LTD Ordinary shares Number held Percentage of issued shares 56,954,670 33,684,229 26,533,413 25,060,914 12,723,890 29.03% 17.17% 13.53% 12.77% 6.49% C. Voting rights The voting rights relating to each class of equity securities is as follows: a) Ordinary Shares 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 [This page has been left intentionally blank] www.superretailgroup.com.au 

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