THE REJECT SHOP
2015/16
CONTENTS
Key Operational Indicators
Chairman’s Report
Managing Director and Chief Executive Officer’s Report
Board of Directors
The Reject Shop Foundation
Our Promise
The Management Team
Corporate Governance, Environmental,
Social Statement and Financial Report
Directors’ Report
Auditors Independence Declaration
Notice Of Annual General Meeting
Consolidated Balance Sheet
Consolidated Statement of Comprehensive Income
3.30pm Wednesday 19 October 2016
Crowne Plaza, Bridge Room No. 2
1-5 Spencer Street
Melbourne, Vic 3000
The Reject Shop Limited is a company
limited by shares, incorporated and
domiciled in Australia. The address
of the company’s registered office
is 245 Racecourse Road, Kengsington
VIC 3031. The financial statements
are presented in Australian currency
and were authorised for issue by
the directors on 24 August 2016. The
company has the power to amend and
re-issue these financial statements.
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report to the Members
of The Reject Shop Limited
Shareholders’ Information
Corporate Directory
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4
6
8
10
11
12
15
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46
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1
ANNUAL REPORT 2015/16 KEY OPERATIONAL
OVER OVER
6000
$60M
ANNUAL
TEAM
TRANSACTIONS
MEMBERS
14
NEW
STORES
SALES UP IN 2016
$800M
FY16 STORES
341
2
REJECT SHOP
3
ANNUAL REPORT 2015/16 CHAIRMAN’S
Dear Shareholder,
At the last couple of Annual General
Meetings, I have discussed various
elements of the retail economy, and
the likely timelines of required process
improvement following our rapid store
opening programs of 2012-2014. The
discussions also included the changes
in the Management Team to help your
Company move into the next phases of its
growth and development, and our belief
that our direction remained appropriate.
Following on from those conversations,
and after the very strong start to the
2015-2016 financial year which was
reflected in the financial report for
the first-half, I am pleased to report
that the second half has continued the
work towards those improved operating
financial outcomes. The potential
identified some years ago is coming to
fruition, through the continuing action of
Ross Sudano and his team. We remain on
the journey. As we continue through this
period of consolidation, process change
and improvement; I would particularly
like to thank all of our present and our
past employees who have contributed
to the development of the Company.
Ross’s team includes a number of recent
arrivals, and they continue to pursue
further opportunities for improvements
in the financial outcomes. These will
supplement the steady growth of the
Company of the past twelve years which
has been due to the efforts of many.
The Net Profit after Tax for the year
was $17.1 million. The Company’s
balance sheet remains strong, and the
cash flows allow a balanced allocation
between returns to shareholders, and
re-investment into the Company’s future.
While this year’s Net Profit includes
approximately $2.4 million from the
results of a cyclical fifty-third week
of trading, it also includes $6.3 Million
(after tax) of costs associated with the
forthcoming cessation of activity at
our Tullamarine Distribution Centre, as
previously announced. A full analysis of
the results into those associated with
‘underlying’ trading, and those resulting
from structural elements, is set out
in detail in the Overview of Financial
Statements, and in Ross’ commentary.
Significant cash outgoings associated with
the expenses incurred this year in respect
of the upcoming cessation at Tullamarine
(and the move to the new Distribution
Centre at Trugganina in Melbourne’s west)
will occur in this current financial year.
Full efficiency benefits will not be
achieved in its first (part) year of
operations. Nonetheless, the solid 2016
operating cash-flow, and 2017 projections,
enables us to continue a total annual
dividend payout, for the 2015-2016
year, of some 60% of our ‘normalised’
operating result. A final dividend of 19.0
cents per share has been declared, to
add to the interim dividend of 25.0 cents
per share which was paid in April 2016.
This combined annual dividend reflects
a 46.7% increase over the prior year.
Our Chief Executive Ross Sudano,
together with his team, is continuing the
development of the operating processes
that we expect to sustain the continuing
growth and enhanced profitability of
the Company. Growth in sales remains
vital, however significant attention also
continues to be given to steady success
in efficiently reducing our Cost of Doing
Business, and our support costs. While
they believe they still have much to do,
our charter, our core values, and our
mission remain steadfast.
4
REJECT SHOP NET PROFIT
AFTER
TAX
$17.1M
Ross and his team remain committed to
our retailing goals, and our growth; but
undertaken in a manner which ensures
the safety and well-being of our people,
and our customers. This year was also
free of major health and safety incidents,
and the whole team remain committed
to an objective of injury free operations.
We have received resounding support
from those communities, and our
staff, for our established Reject Shop
Foundation. Our Foundation has garnered
funds to assist with the provision
of support to children with medical
difficulties, and the Board thank all
involved for their generous engagement.
We will continue the sensible expansion
of our store numbers across the country,
together with a store refurbishment
program to support our existing staff and
customers, with a strong and enjoyable
retail offer. All of our stores are expected
to achieve sound economic outcomes or
be closed, and we consider the very vast
majority of our stores to be sustainable.
The stores also enable us to have ongoing
contact with many communities.
A great deal of information is set out in
the Director’s Report, the Annual Report,
and its Supplements on our values, our
results; and how the Company operates.
The results are due to the efforts of Ross,
his Management team, and our 6,000
employees. I encourage you to read
it, and to engage with us at the Annual
General Meeting in October with any
of your thoughts.
The Board acknowledges your continuing
support, and we remain confident in the
Company’s outlook.
William J Stevens
CHAIRMAN
5
ANNUAL REPORT 2015/16 MANAGING DIRECTOR
& CHIEF EXECUTIVE OFFICER’S
Dear Shareholders,
I am pleased to report on a year of
major progress at The Reject Shop,
during which we made important
advances towards our goal of restoring
the performance of the business
to its true potential.
Fundamentally, we believe that
The Reject Shop is a robust business
with a great future and we are
committed to continuing to develop
the business so that it delivers a clear
and distinctive value offer to our
customers, generates appropriate
returns for shareholders and is a safe,
rewarding and engaging business to
work in for all our team members.
We have articulated a clear path
to achieving this in a three phase
journey and 2016 has been a year
of significant progress.
Our strategy is underpinned by a focus
on better understanding our customers,
and generating further efficiencies to
enable us to reinvest in driving top line
sales growth, thereby improving returns
to shareholders.
There are four key pillars to this strategy:
1. A clear customer focus to provide
our customer with a differentiated
offer and continue to target new
markets via new stores;
2. Achieving sustainable comparable
store sales growth by increasing
customer transactions from existing
and new customers;
3. Further improving the efficiency of
our operations so that by reducing
our cost of doing business (CODB)
we can fund sales growth and deliver
improved returns to shareholders; and
4. Providing a rewarding and challenging
environment for our teams that
enables them to excel.
The Reject Shop has a powerful and
motivating purpose, “To enable and
inspire more people to do more
with less”. This comes to life for
our customers via a promise to:
“Always get more for your money
through the fun and excitement
of discovering a new bargain”.
When we successfully deliver our
customer promise in store we believe
we deliver a unique retail experience.
In response to feedback from our
customers, we have increased the
number of core products available every
day while continuing a focus on improving
in-store promotional activity to increase
the frequency of new products arriving
to delight our customers.
We have also refined our approach
in terms of our marketing activity to
ensure a clear and consistent message
for our customers.
Further investment is being made
in improving the in-store customer
experience through changes to our
merchandising standards, store
execution and in store navigation.
During the year we have made significant
progress in understanding our core
customers and delivering against our
customer promise. This is a journey that
will take time, however when we do
get the elements of our offer right our
customers have responded positively.
We use a mix of different media to
communicate our customer promise in a
clear and consistent way. This includes a
mix of TV to communicate our customer
promise broadly; catalogues to support
key selling events; and digital marketing
and social media to communicate new
and interesting products arriving in
our stores on a weekly basis.
We continue to develop a data base
of Savvy Shoppers to enable us to
communicate directly on a regular
basis. We now have over 500,000 Savvy
Shoppers on our data base and with
more than 250,000 supporters on social
media we have the capacity to talk
directly to a significant number of our
customers. We continue to see this
as a critical part of our communication
strategy and the development of
a data base is the first step in our
digital strategy.
6
REJECT SHOP We have made significant improvements
to ensure we have a safe work place for
our people, resulting in 36% reduction
in lost time incidents. This remains a key
area of focus for all within the business
to ensure we continue to improve further
in this area. We have reduced the level of
staff turnover in stores by 10%, increased
our level of training on safety and aligned
all performance metrics across the
business. While there remains much to
do to in this area, we are making progress.
I would like to thank all our team at TRS.
They have embraced the many changes
we are making to the way we do business,
and have contributed to a significant
improvement in the performance of
the business for the benefit of all
stakeholders during FY16.
2016 has been a year of considerable
progress against our stated objectives,
and we are pleased with the momentum
that the business is gaining. The steps
that we have taken during the period
are creating a robust, resilient business.
There is still more to do to restore
business performance, and the growing
relevance of the discount sector
underpins our confidence in the
prospects for the Company. There is
an exciting and challenging opportunity
in front of us and we are well positioned
to capitalise on it.
Ross Sudano
MANAGING DIRECTOR
AND CHIEF EXECUTIVE OFFICER
With both variety and availability key
components of our customer offer,
we are investing in new technology and
systems to help us improve product
availability of our core lines in store. We
have established a small project team to
ensure we deliver this project effectively.
4. The Melbourne distribution centre
which is a project to improve
productivity and reduce complexity
via the development of a purpose
built DC utilising technology to lower
our supply chain costs to stores
on the south east of Australia.
Once in place this will provide us with
a platform to improve our convenience
offer to our customers through both
variety and availability. This is expected
to be fully functional in the second
half of FY 17.
During the year, we have been able
to achieve sales growth of 3.7% and
comparable sales growth of 3.0%,
underpinned by both increased
transactions and basket growth. While
a pleasing result, the focus remains
on growing our transaction levels to
underpin future sales growth by more
reliably meeting our customer promise.
During the year we opened 14 new
stores and closed 6 uneconomic stores,
continuing our focus on ensuring each
of our stores is contributing positively
to the financial performance of the
business. This will remain an ongoing
focus as we continually refine our
store portfolio.
To simplify our business and reduce
costs we have also invested in number
of change projects which are underway.
These include:
1. The development of a labour allocation
tool to improve the allocation of labour
hours to tasks in store as a means to
measure and improve productivity.
2. Stock flow from truck to shelf which
is a focus on standardising in store
operations and creating efficiencies
to improve in store productivity.
3. Container freight consolidation
which is a project to simplify and
maximise the benefit of scale and
value added activities off shore by
significantly reducing our number
of consolidation centres.
5. A cost reduction project that
has delivered sustainable savings
to the business.
Our people have responded well to
these change initiatives and while
many of these initiatives are still
being implemented, our people
are contributing strongly to their
development. As a result of these
initiatives our team have been able
to reduce our costs of doing business
by 2.0% of sales during FY16.
We have announced a process to
construct a purpose built distribution
centre in Melbourne to simplify our
operation and utilise technology to
improve our productivity. Toyota
Tshusho Logistics has been engaged
as a third party operator of the site.
The distribution centre is due to be
operational early calendar 2017 and is
expected to deliver operational cost
savings of $2.0 million in the first
full year of operation, FY2018.
As a result of this decision, the team
at our Tullamarine DC will be made
redundant when our current distribution
centre closes and full entitlements will be
provided for from both operating cash
flows and a slight increase in gearing as
can be seen from our reported earnings.
I would like to thank the team for the
many years of service and the way they
have delivered ongoing support for our
expanding operations through a period
of significant personal uncertainty.
Our focus on people and capability
to ensure we have the right capability
in place to deliver the next phase of
growth and change for The Reject
Shop continues. Within the executive
leadership team I have recently
welcomed Allan Molloy as General
Manager of Retail Operations, as well
as consolidated the planning and
supply chain functions under Danielle
Aquilina to create improved visibility
and accountability for the movement
of stock through our total supply chain
to our stores.
7
ANNUAL REPORT 2015/16
THE BOARD OF
directors
William (Bill) Stevens
FCA, MAICD
NON-EXECUTIVE CHAIRMAN
Kevin Elkington
LLB, B.JURIS, FGIA
NON-EXECUTIVE DIRECTOR
Bill is a Fellow of the Institute of
Chartered Accountants in Australia
with an extensive career with KPMG
(and Touche Ross) for 37 years. During
his career with KPMG he was the
client service partner for major clients
including BHP Billiton, Santos, Pacific
Dunlop/Ansell and Pacific Brands.
More recently he was CEO of the
Pacific Edge Group. He is also a director
of International Healthcare Investments
Ltd and a number of private company
groups. Bill joined the Board in August
2008 and was appointed Chairman
on 14 July 2010.
Kevin has had a 29 year career as
a corporate lawyer and company
secretary in some of Australia’s leading
public companies including Coles Myer.
Kevin currently provides legal services
and corporate advice to several large
commercial clients and is also a director
of the Myer Stores Community Fund
Ltd. He is also currently a member and
regular lecturer with the Governance
Institute of Australia in the area of
corporate governance. Kevin joined
the Board of The Reject Shop in
February 2008.
Denis Westhorpe
NON-EXECUTIVE DIRECTOR
Denis has significant experience in senior
executive retail roles including 14 years as
an Executive Director of Target Australia
Pty Ltd. During this time Denis occupied
the roles of Store Operations Director,
Buying Director and 2 years as Managing
Director of Target Specialty Stores.
Denis has previously been Chairman of
Charles Parsons (Holdings) Pty Ltd where
he was a Director for 8 years. Denis
joined the Board of The Reject Shop
Limited on 19 August 2010.
8
REJECT SHOP Melinda Conrad
MBA, FAICD
NON-EXECUTIVE DIRECTOR
Ross Sudano
MANAGING DIRECTOR AND
CHIEF EXECUTIVE OFFICER
Melinda has significant experience
in business strategy and marketing
to consumer facing organisations in
a range of sectors including retail,
FMCG, healthcare and government.
In her career she was founder and
CEO of a retail store chain, Conrads
Warehouse. Melinda’s professional
qualifications include an MBA from the
Harvard Business School. She is currently
a Non-Executive Director of ASX Limited,
OFX (formerly OzForex) Group Limited,
The George Institute of Global Health,
and the Centre for Independent Studies.
Melinda was previously a Non-Executive
Director of APN News and Media Limited
and David Jones Limited. Melinda joined
the Board of The Reject Shop Limited
on 19 August 2011.
Ross has 20 years experience in retail
with a range of companies, including: Little
World Beverages, Anaconda Adventure
Stores, Foodland Associated Limited,
Coles and BP Australia. Ross was CEO of
ASX-listed Little World Beverages where
he delivered impressive growth in both
revenue and earnings while building a solid
leadership team, successfully introducing
adjoining brands, and implementing new
merchandising systems. As Joint Chief
Executive Officer of Anaconda Adventure
Stores (a subsidiary of Spotlight Retail
Group), Ross led the Company’s rapid growth
through a deep understanding of customer’s
needs and the ability to develop products
to meet them. Ross also held senior
management roles at Foodland Associated
Limited (now IGA Distribution), including
General Manager Group Buying & Marketing,
and General Manager Franchising and Supply.
Ross was appointed CEO of The Reject Shop
in September 2014 and Managing Director on
19 November 2014
9
ANNUAL REPORT 2015/16 THE REJECT SHOP
June 2014 marked the launch of The
Reject Shop Foundation, a not-for-profit
foundation committed to helping kids in
need. Since its establishment, The Reject
Shop Foundation has donated in excess
of $370,000 to our inaugural charity
partner, Good Beginnings Australia.
This has been made possible by the
generosity of our customers and team
members through the cash collection
boxes available across the Company’s
entire store network and voluntary work
place giving program. The Company
thanks its customers and team members
for their ongoing support.
Whilst our two year partnership with
Good Beginnings Australia proved to
be an outstanding success, we have
recently conducted a process to select
a new national charity partner. We look
forward to announcing The Reject Shop
Foundation’s new national charity partner
and continuing to focus on helping kids
in need.
The Reject Shop Foundation is
administered by Good2Give.
10
REJECT SHOP OUR
promise
AFTER EXTENSIVE CUSTOMER RESEARCH, WE HAVE A FOCUS
FOR OUR BUSINESS TO DELIVER A UNIQUE SHOPPING
EXPERIENCE TO OUR SAVVY CUSTOMER. OUR PROMISE TO THEM
IS “YOU’LL ALWAYS GET MORE FOR YOUR MONEY THROUGH THE
FUN AND EXCITEMENT OF DISCOVERING A NEW BARGAIN.”
11
ANNUAL REPORT 2015/16 THE MANGEMENT
team
Ed Tollinton
CHIEF INFORMATION
OFFICER
Ed has over 20 years
international blue chip
experience in conceiving,
sourcing and implementing
whole of business
technology programs within
large customer centric
organisations, including
periods with Hewlett Packard
(UK, USA and Australia)
and Coles Supermarkets.
Darren Briggs
BCOM, CA, ACIS
CHIEF FINANCIAL OFFICER
& COMPANY SECRETARY
Darren spent over ten years
working with Deloitte in
Australia and the United
States. Darren then spent
the next thirteen years
working in senior finance
roles at large corporations,
most recently ten years at
Skilled Group Limited. Darren
joined The Reject Shop and
was appointed Company
Secretary in May 2008
and was promoted to
Chief Financial Officer
in October 2009.
Dani Aquilina
MBUS (LOGMGT)
GENERAL MANAGER - SUPPLY
CHAIN AND PLANNING
Dani has more than 14 years
experience in retail including
8 years with K-Mart. Since
joining The Reject Shop in
2007, Dani played a key role
in the development of the
Ipswich Distribution Centre
and managing the National
Logistics operation. Dani
has a Masters of Business in
Supply Chain and Logistics
Management. Dani was
appointed General Manager
- Distribution in January 2013
and was promoted to General
Manager - Supply Chain and
Planning in June 2016.
Kelvin Chand
GENERAL MANAGER –
PROPERTY
Kelvin has over 20 years
experience in the Australian
and New Zealand property
market having worked for
companies such as Westpac
Properties, Telecom New
Zealand and Ernst & Young
as well running a successful
property consulting business
prior to joining GPC Asia
Pacific (Repco) in 2011 as
their GM, Property. During
Kelvin’s tenure at GPC Asia
Pacific he managed a national
retail property portfolio that
comprises of 380 plus stores
and 9 Distribution Centres.
12
REJECT SHOP
Robert d’Andrea
GENERAL MANAGER –
HUMAN RESOURCES
Allan Molloy
GENERAL MANAGER -
OPERATIONS
Allan has 25 years’ experience
in retail working with a range
of companies, including Marks
& Spencer, Primark and Target
Australia. Allan’s experience
includes major turnarounds
and change programs. He has
also lead teams through rapid
growth including entering new
markets in Europe and US.
Allan joined The Reject Shop
in July 2016.
Robert has significant
experience in Human
Resources across a number
of industry sectors including
Retail, Supply Chain and
Financial Services. Holding
senior HR roles with Coles,
Linfox and the National
Australia Bank, Robert’s
background covers the full
range of HR management
disciplines as well as project
and change management.
Robert’s experience includes
working in major business
turnarounds and change
programs. Robert joined
The Reject Shop in May 2015.
Allan Penrose
GENERAL MANAGER -
MARKETING
Allan has over 20 years
retail marketing experience,
having held senior marketing
roles at Kmart, Target,
Grey Advertising and George
Patterson Y&R. Prior to
joining The Reject Shop
Allan spent 5 years at The
Solomon Partnership where
he developed a number
of successful integrated
brand campaigns for
Coles Supermarkets.
Allan joined The Reject
Shop in August 2010.
Colleen Grady
B.COM, B.SC, MBA
GENERAL MANAGER -
BUYING
Colleen has 20 years global
professional experience
including senior leadership
positions at Woolworths in
Australia and Tesco in the
UK. Colleen’s commercial
experience includes setting
the 5 year strategy for
supermarkets and establishing
new growth categories.
Colleen holds an MBA from
INSEAD and commenced her
career in strategy consulting
for Bain & Co (Australia and
the USA) and Partners in
Performance. Her experience
in these roles include
corporate turnarounds,
change programmes and
step change improvement.
Colleen joined The Reject
Shop in April 2015.
13
ANNUAL REPORT 2015/16
14
COME ON, GET SAVVYCOME ON, GET SAVVYREJECT SHOP CORPORATE GOVERNANCE
environmental
Social Statement
AND FINANCIAL REPORT
FOR THE FINANCIAL PERIOD ENDED 3 JULY 2016
15
COME ON, GET SAVVYCOME ON, GET SAVVYANNUAL REPORT 2015/16 CORPORATE GOVERNANCE,
ENVIRONMENTAL AND SOCIAL STATEMENT
The Company and the Board have
set and maintained high standards of
corporate governance. The Company
has complied with the Principles and
Recommendations released by the ASX
Corporate Governance Council in March
2014 and any subsequent amendments.
A summary of the Company’s main
corporate governance practices are
outlined below and were in place for the
entire period, unless otherwise stated.
A full copy of the Company’s corporate
governance, environmental and social
policies and charters can be found in
the investors section of the Company’s
website at www.rejectshop.com.au
THE BOARD OF DIRECTORS
The Board operates in accordance with
the Board Charter, which establishes the
composition of the Board and its overall
responsibilities, as summarised below:
Composition of the Board
Under the Company’s Constitution and
the Board Charter the following criteria
must always be met:
∙ The Board must be comprised of at
least 3 directors;
∙ The Board must be comprised of a
majority of independent directors;
∙ The Chairman must be an independent
director; and
∙ The Managing Director and the
Chairman are separate roles and
undertaken by separate people.
There are currently four non-executive
directors and one executive director.
Each non-executive director is
individually assessed, on an annual
basis, for independence based on
the following criteria:
∙ They must not be a substantial
shareholder of the Company or an
officer of, or otherwise associated
directly with, a substantial shareholder
of the Company;
∙ They have not, within the last three
years, been employed in an executive
capacity by the Company, or been
a director after ceasing to hold any
such employment;
∙ They have not, within the last three
years, been a principal of a material
professional adviser or a material
consultant to the Company, or an
employee materially associated
with a service provider;
∙ They must not be a material supplier
or customer of the Company, or an
officer of or otherwise associated
directly or indirectly with a material
supplier or customer;
∙ They must have no material
contractual relationship with the
Company or another group member
other than as a director of the
Company;
∙ They have not served on the Board
for a period which could, or could
reasonably be perceived to, materially
interfere with their ability to act in the
best interests of the Company; and
∙ They must be free from any interest
and any business or other relationship
which could, or could reasonably be
perceived to, materially interfere with
their ability to act in the best interests
of the Company.
Materiality is assessed on both qualitative
and quantitative bases.
The Managing Director position is not
considered an independent director
based on the above criteria. All current
non-executive directors satisfy all criteria
above and are considered independent
directors.
The directors considered as independent
are as follows:
William J Stevens
Kevin Elkington
Denis R Westhorpe
Melinda Conrad
All directors have entered into written
contracts of employment.
Details of each directors’ experience
is contained on page 8 and 9 and their
attendance at Board and Committee
meetings is contained in the Directors’
Report on page 21 in this annual report.
Responsibilities of the Board
The Board delegates responsibility for
the day-to-day management of the
Company to the Managing Director and
senior management, however retains
responsibility for:
∙ Establishing and reviewing the
implementation of strategy;
∙ Monitoring senior management’s
performance and approving
remuneration;
∙ Ensuring appropriate resources are
available to achieve the Company’s
objectives; and
∙ Promoting best practice corporate
governance, including overseeing the
Company’s risk management policies.
To enable the directors to fulfil their
responsibilities, each director may,
at the Company’s expense and after
consultation with the Chairman, seek
independent professional advice.
To assist in meeting its responsibilities
the Board has established the Audit
and Risk Committee and Remuneration
Committee, each with their own separate
charter and structure. Significant matters
arising from these Committee meetings
are tabled at the subsequent Board
meeting. Having regard to the size of
the Board, it has not been considered
necessary to appoint a separate
Nomination Committee at this time.
16
REJECT SHOP Annual Performance Reviews
The Company conducted an annual
performance evaluation of all directors in
September 2015 with the current review
scheduled for September 2016. Results
of these reviews are announced at the
Annual General Meeting each year.
Role of the Audit and Risk
Committee
The role of the Audit and Risk Committee
is to assist the Board in:
∙ Overseeing the reliability and integrity
of financial and asset management;
BOARD SKILLS AND
EXPERIENCE MATRIX
To assist in identifying areas of focus and
maintining an appropriate and diverse
mix, the Board has developed a ‘Board
Skills and Experience Matrix’ (‘Board
Matrix’) which is represented in the table
below. The Company’s Board Matrix sets
out the mix of skills, experience and
expertise that the Board currently has.
The Board benefits from the combination
of Director’s individual skills, experience
and expertrise in the areas identified
below:
TRS – Board Skills and Experience
Matrix (out of 5 directors)
Rotation of Directors
Under the Company’s constitution
at least one third of the Company’s
directors must retire at each annual
general meeting, as well as any director
who has served for more than three
years since their last election, excluding
the Managing Director.
Legal, Governance & Compliance
AUDIT AND RISK COMMITTEE
Legal
Corporate Governance
Compliance
Operations
Marketing
Retail, buying, sales & distribution
General management experience
Business Development
Strategy
CEO
Property/ store development
Supply chain/ off shore procurement
Finance and Risk
Accounting
Finance
OH&S/ Risk Management
People
Human Resources
Remuneration
Technology
Technology
Digital
4
5
3
3
4
5
3
5
3
2
1
3
3
4
5
5
2
1
The Audit and Risk Committee operates
under the Audit and Risk Committee
Charter which outlines the composition
and responsibilities of the Audit and Risk
Committee as outlined below:
Composition of the Audit and Risk
Committee
The Audit and Risk Committee Charter, in
line with the recommendations outlined
by the Corporate Governance Council,
states that the Committee should
consist of at least three members, all
of whom are non-executive directors
and the majority being independent
directors. The chairperson must be
an independent director and not the
Chairman of the Board. In addition, the
members of the Committee must have
a working familiarity with basic finance
and accounting practices, and at least
one member of the Committee must
have accounting or related financial
management expertise. The Audit and
Risk Committee currently comprises the
following members:
Kevin J Elkington (Chairman)
William J Stevens
Denis R Westhorpe
Melinda Conrad
∙ Ensuring compliance with the
Company’s accounting policies,
financial reporting and disclosure
practices;
∙ Monitoring internal controls including
financial systems integrity and risk
management; and
∙ Maintaining the relationship and
reviewing the work of the external
auditors.
Responsibilities of the Audit and
Risk Committee
∙
Reviewing the integrity of accounting
principles adopted by management in
the presentation of financial reports;
∙ Regularly reviewing, assessing
and updating internal controls,
risk management and regulatory
compliance;
∙ Reviewing, monitoring and assessing
related party transactions; and
∙ Monitoring the effectiveness and
independence of the external auditor.
Role of the External Auditor
PricewaterhouseCoopers was appointed
auditor effective 2 July 2001, and
provides an annual declaration of their
independence to the Audit and Risk
Committee. Whilst not a member of
the Audit and Risk Committee, they are
invited to attend all meetings. In addition,
they will attend the Annual General
Meeting to answer shareholder questions
with regard to the conduct of their audit.
17
ANNUAL REPORT 2015/16 CORPORATE GOVERNANCE,
ENVIRONMENTAL AND SOCIAL STATEMENT
CONTINUED
RISK MANAGEMENT
AND ASSESSMENT
The Board has delegated to the Audit
and Risk Committee the responsibility
for overseeing the implementation
of policies and procedures aimed at
ensuring that the Company conducts
its operations in a manner that manages
risk to protect its people, its customers,
the environment, Company assets and
reputation as well as to realise business
opportunities.
Risk identification and management is
a key focus of the General Management
team. Accordingly, the General
Management team have designed and
implemented a risk management and
internal control system to manage
the Company’s material risks, with a
comprehensive analysis of the material
risks being prepared for review by the
Audit and Risk Committee at the end
of each half.
In addition, the Company’s Internal
Audit and Loss Prevention, and Product
Compliance functions provide ongoing
assurance to the Board and management
that established procedures and
requirements are being met.
The Chief Executive Officer and the
Chief Financial Officer have made the
following certifications to the Board:
∙ The Company’s financial reports are
complete and present a true and fair
view, in all material respects, of the
financial condition and operational
results of the Company and are in
accordance with relevant accounting
standards; and
∙ 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 ensures
that the Company’s risk management
and internal compliance is operating
efficiently and effectively in all material
respects.
Link Market Services (our Registrar)
provide the ability to have these services
provided electronically.
Annual and half year reports, media and
analysts’ presentations, press releases
together with the broader continuous
disclosure policy are available on the
Company’s website.
CODE OF CONDUCT
The Company has an established
corporate code of conduct which
forms the basis for a shared view of the
Company, its mission and its ethical
standards and code of conduct by senior
management and employees. After
approval by the Board this code has
been adopted by all senior executives.
The Company has a Share Trading Policy
which restricts the trading of securities
by directors and employees to specified
windows during the period, namely
between 24 hours and 30 working days
after announcement of the Company’s
half yearly results, and between 24
hours after the announcement of the
Company’s period-end result and 30
working days after the close of the
Company’s annual general meeting.
In addition, with prior approval of the
Chairman, a trading window may be
opened for a period commencing 24
hours after and not exceeding 30 working
days after any formal announcement to
the Australian Stock Exchange.
To enable these certifications to be
made, all functional General Managers
have provided similar certifications to
the Chief Executive Officer and Chief
Financial Officer.
CONTINUOUS
DISCLOSURE POLICY
The Company has a Continuous
Disclosure Policy which establishes
the framework by which the Company
will satisfy its continuous disclosure
obligations as required by the Listing
Rules of the Australian Stock Exchange
and the Corporations Act. This policy
ensures information is disclosed in a
full and timely manner to enable all
shareholders and the market to have an
equal opportunity to obtain and review
information about the Company.
The Company has a Shareholder
Communication Policy which recognises
the right of Shareholders to be informed
of matters, in addition to those required
by law, which affect their investment.
In conjunction with the Company’s
Continuous Disclosure Policy, this policy
ensures that Shareholder and financial
markets are provided with information
about the Company’s activities in a
balanced and understandable way. In
addition the Company is committed
to communicating effectively with
Shareholders and making it easier for
Shareholders to communicate with
the Company.
18
REJECT SHOP DIVERSITY POLICY
The Company recognises the importance of diversity and values the competitive advantage that is gained from a diverse workforce
at all levels of the organisation. Accordingly the Company has developed a Diversity Policy which focuses on respecting the unique
differences that individuals can bring to the business. This policy ensures the Company will continue to foster an environment that
respects differences in age, gender, ethnicity, religion, sexual orientation and cultural background. The Company will continue to
ensure that all employment opportunities are filled and remunerated on the basis of merit and performance and not due to any
known bias.
The Company is committed to building a diverse workforce, with a particular focus on gender and gender equality, and to support
this focus, the following objectives have been set:
∙ Communication of the Company’s Gender Diversity Statement to internal and external stakeholders;
∙ Review the means by which the Company recruits, develops and retains females across the organisation;
∙ Continue to build from our current workplace flexibility options including job sharing and/or part-time employment;
∙ Conduct and report a gender audit to measure progress from baseline data and identify and review any specific areas
of gender inequality; and
∙ Report to the Board on a twice yearly basis.
In accordance with this policy the following table represents the level of gender diversity within the Company and changes
from the prior year.
NO OF
EMPLOYEES -
FEMALE
3 JULY 2016
NO OF
EMPLOYEES -
TOTAL
3 JULY 2016
1
2
11
5
8
29
Board/ CEO
Senior Executives
Middle Management
All Team Members
3,562
5,578
% OF
FEMALES
20.0%
25.0%
37.9%
63.9%
NO OF
EMPLOYEES -
FEMALE
28 JUNE 2015
NO OF
EMPLOYEES -
TOTAL
28 JUNE 2015
1
3
11
5
9
32
3,643
5,806
% OF
FEMALES
20.0%
33.3%
34.4%
62.7%
Senior Executives includes the General Management team reporting to the Managing Director (excludes Board & Managing Director).
Middle Management includes Management reporting to the General Management team or equivalent (excludes Board & Senior Executives).
All Team Members as included in the table above includes all employees of The Reject Shop with the exception of the Board.
On Friday 27 May 2016, The Reject Shop lodged its annual public report with the Workplace Gender Equality Agency.
A copy of this report can be found on the Company’s website at www.rejectshop.com.au
REMUNERATION COMMITTEE
The Remuneration Committee Charter outlines the composition and responsibilities of the Remuneration Committee.
Composition of the Remuneration Committee
Under the Remuneration Charter, and consistent with the Corporate Governance Council recommendations, the Committee
consists of at least three members, a majority of which must be non-executive directors, with the chairperson of the Committee
being a non-executive director.
Each member of the Committee must also be independent of the management of the Company and free from any relationship
that, in the business judgement of the Board, would interfere with the exercise of their independent judgement as a member
of the Committee.
19
ANNUAL REPORT 2015/16 CORPORATE GOVERNANCE,
ENVIRONMENTAL AND SOCIAL STATEMENT
CONTINUED
The Remuneration Committee currently
comprises the following members:
Energy Efficiency Initiative
Lighting
Melinda Conrad (Chairman)
William J Stevens
Kevin J Elkington
Denis R Westhorpe
Role of the Remuneration
Committee
The role of the Remuneration Committee
is to review and make recommendations
to the Board regarding:
∙ The remuneration and appointment of
Senior Executives and Non-Executive
Directors;
∙ Policies for remuneration and
compensation programs of the
Company; and
∙ All equity based compensation plans.
To adequately fulfil their role, the
Remuneration Committee obtains
and considers all relevant advice and
information including industry trends in
remuneration policy, market rates for the
positions of Managing Director, other senior
executives and non-executive directors,
and movements in general wage rates.
Information regarding director and key
management personnel remuneration
is provided in the Directors’ Report and
on pages 69 to 71 of this annual report.
ENVIRONMENTAL AND
SOCIAL STATEMENT
The Company is committed to being
responsible for the impact it has on
our environment and also wherever
possible engaging with our community,
to research and implement positive
environmental outcomes.
The Company is committed to reducing
our environmental footprint and our
greenhouse gas emissions. Our focus is
on the provision of a more sustainable
and holistic approach to energy usage,
waste disposal, recycling and the positive
education of our team members in
relation to the environment.
The Company has reviewed its
electricity usage and is implementing
an optimisation program designed to
significantly reduce electricity usage
and drive savings. At this early stage,
the program is achieving its energy and
financial targets through the centralised
management of its nationwide usage. The
program is currently being implemented
in the eastern states and this is expected
to be finished by June 2017 with benefits
starting to accrue from January 2017.
Air Conditioning
The Company continues with a stringent
maintenance plan to ensure all equipment
is running efficiently and to Australian
Standards. The Company also continues to
work with Landlords to maximise servicing
within any contractual agreements.
Integration of company-controlled air-
conditioning units with the nationwide
electricity optimisation program is also
driving some significant benefits.
Reducing Waste and Recycling
The Company is increasing its
engagement with its contracted waste
company in order to improve its
recycling capabilities. Increased plastic
and cardboard recycling across the
store network has been a focus. Further
reductions in the usage of plastic is also
being sought further up the supply chain.
Sustainable Awarenss and Fit-out
The Company continues to review more
sustainable material options for use in
building, fitting out and refurbishing our
stores. Multiple programs to increase
the efficiency of stock delivery and
reducing packaging wastage are
currently being reviewed.
The Reject Shop Charity Foundation
The Reject Shop Foundation is a not-for-
profit foundation committed to helping
kids in need. Since our establishment in
June 2014, The Reject Shop Foundation
has donated in excess of $370,000 to
our inaugural charity partner, Good
Beginnings Australia, which has brought
us one step closer of being a community-
focused Company.
The success of The Reject Shop
Foundation has been made possible by
the generous support of our customers
and team members. Cash collection
boxes have been placed across the
Company’s entire store network to
facilitate customer donations. A voluntary
work place giving program has been
implemented to allow team members to
donate on a regular basis. The Company
thanks its customers and team members
for their ongoing support.
Whilst our two year partnership with
Good Beginnings Australia proved to be
an outstanding success, we have recently
conducted a comprehensive selection
process to select a new national charity
partner. We look forward to announcing
The Reject Shop Foundation’s new
national charity partner and continuing
to focus on helping kids in need.
The Reject Shop Foundation is
administered by Good2Give.
Local Community Support
The Company allocates funds from
its annual budgets which are used to
support local charities and sporting
organisations, either by way of cash
or gift card donations.
ETHICAL SOURCING POLICY
The Company has developed an Ethical
Sourcing Policy which is available within
the Investors (Corporate Governance)
Section of the Company website
www.rejectshop.com.au
The policy incorporates both
environmental and socioeconomic
criteria for all imported products
sourced directly or through agents.
The policy encourages trade partners
and agents to improve their social and
environmental practices, and protect
our corporate reputation and that of
our individual businesses and brands.
20
REJECT SHOP DIRECTORS’ REPORT
Your directors present their report on the Company and its subsidiaries for the financial period ended 3 July 2016.
DIRECTORS
The directors of The Reject Shop Limited during the whole of the financial period and up to the date of this report,
unless otherwise stated below, were:
William J Stevens Non-executive Director
Chairman of the Board, Member of the Remuneration Committee and Member of the Audit and Risk Committee.
Ross Sudano Executive Director
Managing Director and Chief Executive Officer
Kevin J Elkington Non-executive Director
Chairman of the Audit and Risk Committee and Member of the Remuneration Committee.
Denis R Westhorpe Non-executive Director
Member of the Audit and Risk Committee and Member of the Remuneration Committee.
Melinda Conrad Non-executive Director
Chairman of the Remuneration Committee and Member of the Audit and Risk Committee.
Details of the experience and expertise of the directors and the Company Secretary are outlined on pages 8, 9 and 12
of this annual report.
RETIREMENT OF DIRECTORS
In accordance with the Company’s Constitution, KJ Elkington and DR Westhorpe will retire as directors at the Annual General
Meeting and being eligible, will offer themselves for re-election.
MEETINGS OF DIRECTORS
The number of meetings of the Board of directors and Committees held during the period ended 3 July 2016 and the number
of meetings attended by each director were:
DIRECTOR
DIRECTOR MEETINGS
AUDIT AND RISK COMMITTEE
MEETINGS
REMUNERATION COMMITTEE
MEETINGS
WJ Stevens
R Sudano
KJ Elkington
DR Westhorpe
M Conrad
A
12
13
13
13
13
B
13
13
13
13
13
A
4
XX
4
4
4
B
4
XX
4
4
4
A
3
XX
3
3
3
B
3
XX
3
3
3
A – Number of meetings attended
B – Number of meetings held during the time the director held office during the period
XX - Not a member of relevant Committee
21
ANNUAL REPORT 2015/16 DIRECTORS’ REPORT
CONTINUED
PRINCIPAL ACTIVITIES
The principal activities of the
consolidated entity during the financial
period were the retailing of discount
variety merchandise and no significant
change in the nature of these activities
occurred during the period.
OPERATING AND
FINANCIAL REVIEW
The Operating and Financial Review
forms part of the Directors’ Report.
SIGNIFICANT CHANGES
IN THE STATE OF AFFAIRS
The Company announced on the 17th
March 2016 the selection of Toyota
Tsusho Logistics (Toyota) as the operator
of the company’s new Victorian
Distribution Centre which is currently
under construction. Toyota will be
providing a turnkey solution to manage
all of the operations at the new Victorian
Distribution Centre. The decision to
outsource the operations of the Victorian
Distribution Centre will result in one-
off redundancy costs of approximately
$7.65M which has been provided for
within the 2016 financial year.
MATTERS SUBSEQUENT
TO THE END OF THE
FINANCIAL PERIOD
No other matters or circumstances
have arisen since the end of the financial
period which significantly affect or may
significantly affect the operations of the
consolidated entity, the results of those
operations, or the state of affairs of
the consolidated entity in future
financial periods.
LIKELY DEVELOPMENTS
AND EXPECTED RESULTS
OF OPERATIONS
Likely developments in the operations
of the consolidated entity and the
expected results of those operations
in future financial periods are contained
in the Operating and Financial Review
on pages 23 to 27 of this annual report.
ENVIRONMENTAL
REGULATION
The Company is not involved in any
activities that have a marked influence
on the environment within its area of
operation. As such, the directors are
not aware of any material issues affecting
the Company or its compliance with
the relevant environmental agencies
or regulatory authorities.
DIVIDENDS – THE REJECT
SHOP LIMITED
Dividends paid to members during
the financial period were:
A final ordinary dividend for the financial
year ended 28 June 2015 of 13.5 cents
per share totalling $3,894,710 was paid
on 12 October 2015.
An interim ordinary dividend for the
financial period ended 3 July 2016
of 25.0 cents per share totalling
$7,212,406 was paid on 11 April 2016.
Since the end of the financial period the
directors have declared the payment
of a final ordinary dividend of 19.0 cents
per share. Dividends are fully franked
at a tax rate of 30% and will be paid
on 17 October 2016.
The Company’s dividend reinvestment
plan is not currently active.
INSURANCE OF OFFICERS
The Company has paid premiums to
insure all directors and officers against
liabilities for costs and expenses
incurred by them in defending any legal
proceedings arising out of their conduct
while acting in their capacity as director
or officer of the Company, other than
conduct involving a wilful breach of
duty in relation to the Company.
During the financial period, the Company
paid a premium of $55,850 to insure the
directors and officers of the Company.
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.
ROUNDING OF AMOUNTS
The Company is a kind referred to in
ASIC Corporations (rounding in financial/
directors report) Instrument 2016/191,
issued by the Australian Securities and
Investment Commission, relating to
the “rounding off” of amounts in the
directors’ and financial reports. Amounts
in these reports have been rounded
off in accordance with that Class
Order to the nearest thousand dollars,
or in certain specified cases,
to the nearest dollar.
22
REJECT SHOP
Property is one of the key strengths of
the company providing our customers
with convenient access to our offer.
We expect to continue to open new
stores in locations that provide access
to new customers on a normalized rate
of between 10 and 15 new store openings
per annum. We continue to focus on
capturing improved lease terms and
new store locations for the company to
ensure we are well positioned to meet
the needs of our customers into the
future. The company expects to relocate
a number of stores where we are
currently paying rent above what
our business model can afford. Where
an alternative site is not available and/or
the store profitability is at risk we
will consider closing these stores.
The company opened 14 new stores
during the year and closed 6, resulting
in a National store footprint totalling
341 stores by the end of the year.
“Always get more for your money
through the fun and excitement
of discovering a bargain”.
The second element of our focus on
customers is developing our capability
to communicate key messages, both
in and out of store. We are focussed
on developing a mix of media for out
of store communication that is a blend
of traditional media such as TV and
catalogues as well as an increasing focus
and reliance on the development and
use of a data base of loyal customers. In
store we are focussed on communicating
a sense of urgency, discovery and regular
convenience to our customers.
We are also working on improving the
in store experience for our customers
to enhance their shopping experience.
We have made some early changes to
the way we present our stores with
early positive feedback from customers.
These changes have been incorporated
in the 14 new stores opened during
the year and the business continues
to receive positive feedback from
customers. We are continuing to
innovate and build on the current
new store format.
The delivery of these customer focussed
initiatives is dependent on an efficient
and effective supply chain to service
our stores across Australia. Work
continues on improving our efficiency
and productivity to reshape our cost of
doing business, with the development
of a new purpose built distribution
centre in Melbourne well underway
and a number of efficiency projects
currently being progressed.
OVERVIEW OF OPERATIONS
The company operates in the discount
variety retail sector in Australia, a
segment of the market that continues
to gain relevance with consumers.
The company’s strategy is focussed on
building on the core strengths of the
business that have been put in place
over time to maximise the leverage
of the existing assets to provide an
appropriate level of return for all
stakeholders. The four major goals that
the company is measuring itself on are;
1. Provide our customers with a clearly
differentiated customer offer that is
delivered conveniently via our existing
store network, new stores and new
store formats,
2. Sustainable comparable store sales
growth driven by increasing customer
transactions,
3. A focus to improve our efficiency
of operations to reduce our Cost
of Doing Business (CODB) to fund
our sales growth and to deliver
improved returns to shareholders,
4. To provide a safe, challenging and
rewarding environment to attract
and retain great people and to engage
and support the communities in
which we serve.
The achievement of these goals are
aspirational; we are not consistently
delivering on these objectives today.
However, we have developed out waves
of organisational improvements that
will assist us in achieving these goals
over time.
Our customer focus is built on extensive
work done with customers and non-
customers to better understand who
our key customers are and what they
are looking for from TRS. This work
is ongoing and forms the basis of
all our thinking as we develop out
our customer promise of;
23
ANNUAL REPORT 2015/16 DIRECTORS’ REPORT
CONTINUED
The revised DC operating model will
deliver compelling long term efficiencies
with estimated cost savings of $2.0
million in the first full year of operation
(FY18) alone. This builds on the
efficiencies already being achieved at
the Company’s automated Distribution
Centre at Ipswich, Queensland.
2. 53rd Trading Week
The FY2016 reported results include the
positive effects of a 53rd trading week.
The Company has determined that the
positive impact on its reported Earnings
before Interest and Tax is approximately
$3.49 million, reflecting the net of:
• Additional Gross Profits associated with
the Sales in Week 53 of $15.3 million;
• Additional variable costs associated with
generating such Sales which primarily
include Wages to operate stores,
variable store operating expenses and
the advertising costs of a catalogue
that was launched in Week 53.
Sales Performance
Overall sales increased in FY2015
by 5.7% against the prior year. This
primarily reflects the effect of improved
comparable stores sales growth for
the year of 3.0% (First half: positive
4.4%; Second half: positive 1.3%),
the positive effect of the 53rd trading
week sales, and the net positive effect
of the openings and closed stores over
FY2015 and FY2016.
OVERVIEW OF FINANCIAL
PERFORMANCE
$ AMOUNTS ARE IN ‘000’S / %’S ARE TO SALES
Sales
Gross Profit (i)
Cost of Doing Business (i)
EBITDA
Depreciation and Amortisation
EBIT
Net Interest Expense
Profit Before Tax
Income Tax Expense
Net Profit After Tax
RECONCILIATION OF EBIT
EBIT as reported
Excl. DC Exit Costs
Excl. Impact of 53rd Week (ii)
Underlying EBIT
(i) Non IFRS measure
(ii) Unaudited
FY15
756,800
44.5%
39.1%
40,800
19,127
21,673
1,475
20,198
5,959
14,239
FY16
799,958
42.6%
37.1%
44,246
19,457
24,789
558
24,230
7,130
17,100
FY16
24,789
9,060
(3,490)
30,359
INTERPRETATION OF
FY2016 FINANCIAL
REPORTED RESULTS
There have been two significant events
that have had an impact on the reported
results of the Company in FY2016,
namely:
1. Closure / Relocation of the
Melbourne Distribution Centre
The Company decided to close its
Distribution Centre at Tullamarine, where
the lease is due to expire at the end of
February 2017. The Company has signed
a ten-year lease on a new purpose
built Distribution Centre at Truganina
in Melbourne’s Western Suburbs.
As part of the transition to the new
Distribution Centre, the Company has
also announced the selection of Toyota
Tsusho Logistics (Toyota Tsusho) as the
operator of the facility. Toyota Tsusho
provide logistics services to a number
of major companies throughout Australia
and will be providing a turnkey solution
to manage all of the operations at the
new DC.
The decision to outsource the operations
of the DC will result in redundancy
costs of approximately $7.6 million
which has been recorded in the FY2016
accounts. In addition, the Company has
also recorded an asset write-off of $0.8
million, and a provision for make good
of approximately $0.6 million, in relation
to the exit of the Tullamarine facility.
24
REJECT SHOP Gross Margin
Gross margin, as a percentage of sales,
was down 1.9% to sales on the prior year.
This was primarily the result of:
(i) The non-recurring impact of the $9.06
million in costs to exit the Tullamarine
DC (all DC Costs are reported within
the Gross Profit line); and
(ii) The combination of managing a 10%
decline in the Australian Dollar versus
the US Dollar whilst still maintaining
everyday low prices for our value
conscious customer base.
Excluding the DC Exit Costs, the
underlying Gross Profit for FY2016 was
approximately 43.7% (FY15: 44.5%).
Cost of Doing Business (CODB)
CODB (excluding depreciation and
amortisation) as a percent to sales fell
by 2.0% of sales in FY2016, reflecting
the early benefits of the Company’s
drive to more efficiently deliver its
value offering to customers.
This reduction in CODB was underpinned
by a reduction in its Store Expenses,
which fell by 2.1% to 32.1%.
Other than the improved comparable
store sales performance of the business,
some of the key elements behind this
improved in-store efficiency included:
Store Wages (incl. on-costs) reduced
by 0.35% to sales which was primarily
the reflection of:
• improved budgeting and rostering
at stores; and
• a continued reduction in workers’
compensation premiums across
most states due to improved
claims management processes
over recent years.
Occupancy costs reduced by 0.62%
to sales which reflected the continuing
positive effect of closing uneconomic
stores which could not be improved
during both FY2015 and FY2016 and
moving other challenged stores to a
more sustainable footing.
The Company’s Store Expenses have
also benefited from a more normalised
level of new store opening and
refurbishment costs in FY2016 compared
to the prior period. In addition, the
improved performance by a number of
the underperforming stores within the
portfolio has meant the Company has
not had to book any impairment charges
or onerous lease provisions in FY2016,
a significant positive compared to the
past two years.
Administrative Expenses have risen
slightly on prior year to 4.9% of Sales,
primarily reflecting the impact of the
operational costs of a number strategic
projects that have been launched
throughout FY2016.
Depreciation and amortisation, as a
percentage of sales, remained relatively
flat when compared to the prior year.
Earnings
The Company has a reported EBIT of
$24.8m, an increase of 14.4% on the
prior year, which primarily reflects a
combination of the improved comparable
store sales in FY2016 and the significant
reduction in the CODB as a % to sales
during the period.
Excluding the impact of both the
53rd Trading Week and the Melbourne
DC Exit Costs, the Company’s underlying
EBIT was $30.4 million, which represents
an EBIT to Sales ratio of 3.9%. The
Company has set itself a target over
the next few years of returning to an
EBIT to Sales ratio of 5.0% and this
underlying result demonstrates the
Company is progressing well towards
this operational objective.
DIVIDENDS
Total dividends declared of 44.0 cents
per share (FY15: 30.0 cents per share)
represents a payout ratio of 60% of the
Company’s underlying full year earnings
per share of 72.8cps (i.e. excluding
53rd Trading Week and DC Exit Costs).
An interim ordinary dividend of 25.0
cents per share has been paid and a
final dividend of 19.0 cents per share
will be paid on 17 October 2016.
All dividends are fully franked.
The Board intends to maintain a
minimum dividend payout ratio of 60%
of Net Profit after Tax. Consideration of
the appropriate payout ratio is assessed
each half based on the underlying
profitability and financial needs of
the business going forward.
Financial Position and Capital
Investment
The Company’s Gearing has remained
in a consistent healthy Net Cash position
at year-end of $3.1m (Net Cash: $5.3m
in FY15).
The Company’s operational performance
has resulted in a significant improvement
in all its gearing ratios and covenant
measures, with the business having
in excess of $11.0 million in EBITDA
Headroom over its fixed-charge cover
covenant at year-end.
The Company expects to increase
its Net Debt slightly during FY2017,
particularly in the second half, once
the cash payments for all redundancy
and other employee entitlements for
the Melbourne DC workforce have
been settled.
Net interest expense decreased by
$0.9m on FY2015 which reflects a
combination of the reduced net
debt position of the business and
the more moderate interest rates
ruling in the market during the year.
25
ANNUAL REPORT 2015/16 DIRECTORS’ REPORT
CONTINUED
OUTLOOK
Underlying Trading
Sales momentum in Q1 FY2017 has
continued in line with Q4 FY2016, with
the positive comparable store sales
trends across the Eastern Seaboard
and Tasmania being moderated by
the relative underperformance across
the lesser Company populated Store
Networks in Western and South Australia.
During FY2016, the Company has
commenced a number of further
initiatives designed to reduce its cost of
doing business. Whilst some of the early
successes of these initiatives are evident
within the reduced CODB reported in
the FY2016 financial results, there are a
number of cost-out initiatives that are
only just starting to land, the benefits
of these are expected to build during
the first half of FY2017.
The Australian Dollar continues to be a
challenge, though the company remains
confident that its current hedge book
which extends out well over six months
will put it in a reasonable position to
manage margins during FY2017.
The Company remains steadfast in its
stated aim to improving its profitability
each reported half and notwithstanding
the challenges presented by the busy
pre-Christmas peak seasonal trading
period. The Company is planning to
achieve an improved level of profit for
the first half of FY2017 compared to
the prior corresponding period, while
continuing to provide a most competitive
offer to our customers.
INVESTMENTS FOR
FUTURE GROWTH
Replenishment tool currently
being trialled;
The Company has long stated that
Australian demographics should allow it
to operate around 400 stores nationally.
It has invested early to support such
planned growth with distribution and IT
capacity in place to support 400 stores
and an organisational structure in place
to support an ever increasing business.
The Company will continue to increase
its store portfolio and anticipates by the
end of FY2017 to have at least 350 stores
open and trading.
While continuing to open new stores and
close uneconomic stores, the business
is also planning to increase its Capital
Spend on the existing store network in
two main ways:
• An increased level of refurbishments,
which will include new fixturing layouts
and POS marketing initiatives, with
stores selected being those expected
to have the most upside in sales; and
• A continuation of the roll-out of the
National Energy System Optimisation
Program, where new lighting and energy
monitoring systems will continue to see
reduced spend on electricity across
our Store network.
These initiatives will assist in providing
a better experience for our customers.
During the early months of FY2017, the
Company’s new Melbourne Distribution
Centre at Truganina will commence its
fit-out process, although this facility is
not expected to be fully servicing the
southern stores until early in calendar
2017, after a well-planned transitioning
process has been completed.
In addition to the investment in the
new stores and Distribution Centres,
the Company continues to invest in
areas of strategic importance to
support future growth, including:
• Enhancing its merchandise planning
processes and systems, with an
advanced Demand Planning and
• The Truck to Shelf project, which
includes investments in fixed assets
aimed at making the process of getting
stock from our DC Network onto shelf
more efficient
• Investing in marketing initiatives as well
as its social media and digital platforms
to support brand awareness; and
• Reviewing its overseas sourcing
practices to improve visibility in supply
and flow to its Distribution centres.
OVERVIEW OF RETAIL
INDUSTRY TRENDS
The Discount Variety sector remains
very competitive, with many regionally
based chains as well as single owner-
operator businesses.
The availability of stores previously
occupied by Dick Smith, has provided
the opportunity to the Company and
Discount Variety competitors based in
Western Australia and South Australia,
to expand their store network over the
last twelve months. Nonetheless, this
has been challenging as those markets
have generally been the least buoyant
during that period.
Price competition continues to be
a challenge, particularly with the
larger National supermarket chains
and some of the larger National
Discount Department stores often
engaging in direct competition with
the Company on certain product
offerings. Notwithstanding, the Company
remains determined to be a leader
on providing everyday low prices
on its core merchandise offerings.
The Company is finding its performance
in the Eastern Seaboard and in Tasmania
is outperforming the West Coast, which
has been for some time battling to
maintain the growth levels experienced
during the resources boom.
26
REJECT SHOP The specific material business risks faced
by the Company, and how the Company
manages these risks, are set out below.
• Competition – The Company operates
a retail model where price and value
are critical to the customers it serves.
The Company closely monitors price
and quality against a range of retailers
to ensure it maintains its competitive
stance.
• Consumer Discretionary Spending –
The Company is exposed to consumer
spending patterns but operates an
everyday low price proposition and
positions itself in convenient locations
to maximise sales potential at all times.
• Increased Cost of Doing Business
– The Company has established
Enterprise Agreements for its store
and distribution centre staff and also
has lease agreements for both stores
and DC’s – all of which have inbuilt
annual cost escalations. The Company’s
increasing scale as well as improving
operating efficiencies and strong lease
negotiations have to some extent
offset some of these cost increases.
• Property Portfolio Management – The
Company’s stores are leased and
therefore subject to negotiation at the
end of each lease term. The Company
actively manages its portfolio against
established financial and operational
criteria which must be met for both
new and existing stores. There is no
guarantee any store will be renewed
at the end of each lease on terms
acceptable to the Company, however
the potential impact of a single store
closure is mitigated by the number of
stores the Company now operates.
The Company has demonstrated during
the past two years that it is prepared
to either close or relocate a store
that it believes it cannot operate at an
acceptable level of commercial return.
• Exchange Rate – The Company relies
significantly on imported products
(either directly purchased by the
Company or indirectly through local or
overseas wholesalers) and as a result
the cost of product and retail sales
price can be subject to movements in
Exchange Rates. The Company mitigates
against movements in exchange rates
through the use of forward cover.
• Product Liability Exposure – The
Company purchases and sells over
7,000 different products on an
annual basis, all of which must be
fit for purpose and in compliance
with Australian Consumer Legislation.
The Company has a National Product
Compliance function that has the
responsibility of ensuring all products
sold by the Company adhere to
legal requirements. The Company is
subject to an external review of its
Compliance function by an independent
Compliance firm on an annual basis,
with any recommendations noted and
implemented as soon as possible.
In addition, the Company’s legal
advisors run an annual update
session at which changes to relevant
Consumer law are discussed.
• Occupational Health & Safety (OH&S)
– The Company has over 5,500
employees across its stores and
distribution centre network, as well as
thousands of customers who visit its
stores nationwide. The Company has
a National OH&S function, supported
by OH&S representatives in appropriate
geographic locations (including in
all Distribution Centres) to oversee
the application of OH&S policies and
Worksafe procedures across the
Company. The Company’s focussed
attention on returning injured workers
back to the workplace more quickly
has resulted in reduced levels of
workers’ compensation premium
during the past two years.
Changes to the Store Portfolio
The Company will continue with its stated
intention of having a more moderated
new store rollout strategy and as such
has identified and already secured
opening dates for 10 new stores in
the first half of FY2016, and is working
towards securing a handful of other
sites for the second half. In addition,
the Company will be relocating another
few stores early in FY2017 either due
to redevelopments, or because nearby
sites have been secured at more
commercial rent levels.
The Company continues to work with
landlords on mutually sensible rental
outcomes and will continue to consider
exiting stores where suitable terms
cannot be reached. Wherever possible,
and where the business has taken the
decision to close a store, it will look
to relocate to a store nearby, in order
to ensure its diverse geographic
customer base is not disappointed.
Business Risks
There are a number of factors, both
specific to the Company and of a
general nature, which may threaten
both the future operating and financial
performance of the Company and
the outcome of an investment in the
Company. There can be no guarantee
that the Company will achieve its stated
objectives, that it will meet trading
performance expectations, or that
any forward looking statements
contained in this report will be
realised or otherwise eventuate.
The operating and financial performance
of the Company is influenced by
a variety of general economic and
business conditions, including levels of
consumer spending, inflation, interest
and exchange rates, access to debt
and capital markets and government
fiscal, monetary and regulatory policies.
A prolonged deterioration in general
economic conditions, including increases
in interest rates or a decrease in
consumer and business demand,
may have an adverse effect on the
Company’s business or financial position.
27
ANNUAL REPORT 2015/16 DIRECTORS’ REPORT
CONTINUED
REMUNERATION REPORT
The remuneration report is set out
in the following sections and includes
remuneration information for The Reject
Shop Limited’s non-executive directors,
executive directors and key management
personnel:
A – Principles used to determine the
nature and amount of remuneration
B – Details of remuneration
C – Service agreements
D – Share-based compensation
E – Additional information
The information provided in this
remuneration report has been audited
as required by section 308 (3C) of the
Corporations Act 2001.
A – PRINCIPLES USED TO
DETERMINE THE NATURE AND
AMOUNT OF REMUNERATION
The objective of the Company’s
Remuneration Committee is to ensure
that directors and executives are
remunerated fairly and within accepted
market and industry ranges. The
composition, role and responsibility
of this Committee is outlined in the
Corporate Governance Statement
on page 16 of this annual report.
Officers and executive
remuneration structure
The executive remuneration and reward
framework has four components:
∙ Base pay and benefits;
∙ Other remuneration such as
superannuation payments;
∙ Short term cash rewards;
∙ Long-term rewards via participation
in the Company’s Performance
Rights Plan.
The framework aligns executive
reward with achievement of strategic
objectives and the creation of value for
shareholders and emphasises cross-
functional collaboration. The objective
of the Company’s executive reward
framework is to ensure every payment,
either monetary or in the form of
equity, is on the basis of reward for
performance and is appropriate for the
results delivered. The Board ensures the
Company follows appropriate corporate
governance in establishing executive
remuneration including reference to
external remuneration consultants
and/or available market information.
Base pay and benefits
Executive salaries are structured
as a total employment cost package
which may be delivered as a mix
of cash and non-monetary benefits
at the executive’s discretion.
Executives are offered a competitive
base pay that comprises the fixed
component of pay and rewards. External
remuneration consultants provide
analysis and advice to ensure base
pay is set to reflect the market for a
comparable role. Base pay for senior
executives is reviewed annually to
ensure competitiveness with the
market. There are no guaranteed base
pay increases in any senior executive’s
contracts. The Company has a formal
process by which the performance
of all senior executives is reviewed.
An executive’s pay is also reviewed
on promotion.
Executive benefits made available are
car allowances, private use of Company
owned vehicles (disclosed as non-
monetary benefits) and salary sacrifice
superannuation arrangements.
Short term cash rewards (STR)
STR for key management personnel is
a weighting of 90% of the STR on offer
for achievement of budgeted EBIT, and
an additional 10% of the STR based on the
achievement of improved safety metrics.
If these STR targets are achieved,
payments of between 22% - 30%
of total Fixed Remuneration (varying
by executive) are made. The audited
financial report remains the basis for
measuring achievement against the
financial performance targets.
For FY2016 the Remuneration Committee
has determined that 100% of contracted
short-term rewards will be payable
to Key Management Personnel on the
basis that Key Management Personnel
achieved and exceeded budgeted EBIT
and safety metrics. These amounts are
included as remuneration in the 2016
remuneration tables. The Board has also
awarded the nine member Executive
KMP group additional discretionary
amounts (totalling $375,000 for the
nine members), and these amounts
are also included in the 2016
Remuneration table data.
Long Term Rewards
Performance Rights Plan
The Company implemented the
Performance Rights Plan on 27 April 2004,
to form the basis of The Reject Shop’s
ongoing long-term incentive scheme
for selected senior employees. These
performance rights involve the payment
of a $1.00 exercise price per exercise on
a particular day, regardless of the number
of rights exercised on that day.
The financial criteria upon which the
performance rights are eligible to
vest consist of the following hurdles
measured over a three year period:
∙ Weighting of 50% – Earnings Per
Share compound growth of at least
10% per annum;
∙ Weighting of 25% – Improved
Earnings Before Interest, Income
Tax, Depreciation and Amortisation
(EBITDA) of at least 0.15% to sales
per annum; and
∙ Weighting of 25% – Return on
Average Capital Employed of at
least 20% per annum.
28
REJECT SHOP The Board retain the right to assess
all aspects of the vesting conditions
for future performance rights grants.
The number of performance rights
issued if hurdles are met is based on
a percentage of between 22.5% and
30% of the total fixed remuneration
(varying by executive) divided by the
weighted average share price for the
period 30 days before and 31 days after
the end of the financial period in which
the rights are granted. For financial
reporting purposes the value of each
right granted at grant date is measured
using a Black-Scholes option pricing
model. The audited financial report is
the basis for measuring achievement
against the financial performance target.
In respect of the performance rights
tranche granted in respect of the 2012
and 2013 financial years and due to
vest 1st July 2016, the Remuneration
Committee has determined in July 2016
that an amount equivalent to 25% of the
performance rights available at ‘Target
Performance’ be issued to the remaining
participants on the basis that a number
of elements of the non-financial criteria
were achieved. This saw an issue of
9,925 shares, 5,425 of which were
issued to Key Management Personnel.
Use of Remuneration Consultants
KPMG were engaged to provide
remuneration benchmarking data
(fee for service of $20,000).
B – DETAILS OF
REMUNERATION
Directors’ fees
The current aggregate limit for directors’
fees is $950,000 per annum with a base
fee payable (including superannuation)
to the Chairman of $195,315 p.a. (FY2015:
$190,551) and to a non-executive director
currently $114,022p.a. (FY2015: $111,241).
The Chairman’s remuneration is inclusive
of Committee fees while non-executive
directors who take on additional
responsibilities receive additional fees
(Chairman of Audit and Risk Committee
$6,000 (FY2015: $6,000), Chairman
of Remuneration Committee $5,000
(FY2015: $5,000)). The Managing Director
does not receive directors’ fees.
Directors’ fees are reviewed annually,
with external remuneration consultants
providing advice, as the need arises,
to ensure fees reflect market rates.
There are no guaranteed annual
increases in any director’s fees. Any
increase in the aggregate limit for
directors’ fees must be approved at
the company’s Annual General Meeting.
Non-executive directors do not
participate in the short or long
term incentive schemes.
The following persons along with the
directors, as detailed on page 21 of
the Directors’ report, were the key
management personnel with the
authority and responsibility for planning,
directing and controlling the activities
of the Company and consolidated
entity, directly or indirectly, during
the financial period.
Executive Remuneration
The following executives along with the
Directors (as detailed on page 21) were
the Key Management Personnel with the
responsibility and authority for planning,
directing and controlling activities of the
company, during the financial period.
Colleen Grady
General Manager, Merchandise Buying
Darren R Briggs
Chief Financial Officer and
Company Secretary
Danielle Aquilina
General Manager, Supply Chain
and Planning
Ed Tollinton
Chief Information Officer
Michael Robertson
General Manager, Retail Operations
(Resigned on 31 May 2016)
Allan J Penrose
General Manager, Marketing
Kelvin Chand
General Manager, Property
Robert d’Andrea
General Manager, Human Resources
Allison Batten
General Manager, Merchandise Planning
(Resigned on 1 July 2016)
Geoff W Pearce
General Manager, Business
Transformation (Resigned on 1 July 2015)
All of the above persons were employed
by The Reject Shop Limited and were
key management personnel for the
entire period ended 3 July 2016 and
the period ended 28 June 2015 unless
otherwise stated.
Details of the remuneration of the
directors and other key management
personnel of The Reject Shop Limited
and the consolidated entity, including
related parties, for the current and
prior financial periods are set out
in the following tables:
29
ANNUAL REPORT 2015/16
DIRECTORS’ REPORT
CONTINUED
2016
SHORT-TERM BENEFITS
POST-EMPLOYMENT
BENEFITS
OTHER
BENEFITS
SHARE-BASED PAYMENTS
CASH
SALARY
AND FEES
$
CASH
REWARDS
$
NON-
MONETARY
BENEFITS
$
NAME
SUPER-
ANNUATION
$
RETIREMENT
BENEFIT
$
OTHER
$
PERFORMANCE
RIGHTS
$
OTHER
$
TOTAL
$
PROPORTION ON
OF ANNUALISED
REMUNERATION
AS PERFORMANCE
RELATED %
Non-executive Directors
WJ Stevens
KJ Elkington
178,370
109,914
DR Westhorpe
104,130
M Conrad
Total Non-
executive
Directors
108,949
501,363
Executive Directors
-
-
-
-
-
-
-
-
-
-
16,945
10,442
9,892
10,350
47,629
R Sudano
Total
Directors
646,942
298,661
43,555
19,308
1,148,305
298,661
43,555
66,937
Other Key Management Personnel
C Grady (i)
349,492
123,992
DR Briggs
D Aquilina
310,692
110,947
280,692
100,861
2,255
E Tollinton
300,693
107,585
-
-
24,554
-
615
6,556
4,482
3,227
-
-
19,308
19,308
19,308
19,308
19,308
19,308
19,308
19,308
19,308
-
M Robertson
(ii)
AJ Penrose
K Chand
R d’Andrea
322,631
235,692
287,567
269,567
85,732
94,767
97,121
A Batten (iii)
320,158
114,077
GW Pearce (iv)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
195,315
120,356
114,022
119,299
-
548,992
260,452
1,268,918
260,452
1,817,910
62,203 30,000
584,995
99,549
86,962
53,955
-
-
-
-
-
-
-
-
-
541,111
490,078
481,541
391,191
425,790
452,436
437,805
421,069
53,099
- 58,368
(33,670)
-
-
-
-
-
-
-
-
- 53,099
78,502
46,312
48,582
(32,474)
-
-
-
-
-
-
44.1
-
31.8
38.9
38.3
33.5
-
38.6
31.2
33.3
19.4
-
Total
Other Key
Management
Personnel
2,677,184
835,082
41,689
173,772
- 111,467
409,921 30,000 4,279,115
Total
3,825,489
1,133,743
85,244
240,709
- 111,467
670,373 30,000 6,097,025
The remuneration in the table above only reflects the amounts paid to the individuals for the time they were key management
personnel.
∙
∙
∙
∙
(i) The Company has agreed to pay C Grady a LTI to the value of $90,000, payable in either shares or cash (at the discretion
of the Company) over a three year period. As a result, $30,000 has been included in the above table.
(ii) M Robertson was General Manager, Operations until 31 May 2016. As a result, M Robertson was paid in cash $32,846 of annual
leave entitlements which are excluded from the table above and $58,368 in lieu of a three month notice period paid out upon his
resignation which is included in ‘other benefits’ above.
(iii) A Batten was General Manager, Planning until 1 July 2016. As a result, A Batten was paid in cash $2,494 of annual leave
entitlements which are excluded from the table above.
(iv) GW Pearce was General Manager, Business Transformation until 1 July 2015. As a result, GW Pearce was paid in cash $47,138 of
annual leave entitlements, $47,922 of long service leave entitlements which are excluded from the table above and a redundancy
of $53,099 paid out upon his resignation which is included in ‘other benefits’ above.
30
REJECT SHOP 2015
SHORT-TERM BENEFITS
POST-EMPLOYMENT
BENEFITS
OTHER
BENEFITS
SHARE-BASED PAYMENTS
CASH
SALARY
AND FEES
$
CASH
REWARDS
$
NON-
MONETARY
BENEFITS
$
NAME
SUPER-
ANNUATION
$
RETIREMENT
BENEFIT
$
OTHER
$
PERFORMANCE
RIGHTS
$
OTHER
$
TOTAL
$
PROPORTION ON
OF ANNUALISED
REMUNERATION
AS PERFORMANCE
RELATED %
Non-executive Directors
WJ Stevens
174,019
DR Westhorpe
(i)
KJ Elkington
M Conrad
Total Non-
executive
Directors
151,878
107,233
106,292
539,422
Executive Directors
R Sudano
Total
Directors
507,400
1,046,822
Other Key Management Personnel
M Robertson
341,717
DR Briggs
D Aquilina
AJ Penrose
GW Pearce
DJ O’Connor
(iii)
K Chand (iv)
J Pileio (v)
280,370
218,734
205,453
230,105
228,211
138,965
141,054
MJ Shields (vi)
136,070
E Tollinton (vii)
C Grady (viii)
A Batten (ix)
R d’Andrea (x)
69,910
65,109
64,252
49,170
P Nutbean (xi)
66,330
Total
Other Key
Management
Personnel
Total
2,235,450
3,282,272
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,532
14,428
10,187
10,098
51,245
11,381
15,653
11,381
66,898
25,703
466
3,065
6,124
-
18,784
18,784
18,784
18,784
18,784
2,775
14,088
-
2,481
1,505
-
-
-
-
16,905
9,392
10,957
7,827
5,202
3,781
3,781
3,131
7,827
190,551
166,306
117,420
116,390
590,667
-
-
-
-
-
619,704
13.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
96,488
-
-
-
-
-
-
85,270
85,270
33,670
8,179
19,179
6,858
(43,154)
(67,857)
-
(29,145)
(50,878)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,210,371
419,874
307,799
259,762
237,219
205,735
177,217
148,357
125,347
191,012
75,112
- 80,505
- 10,000
159,395
-
-
-
-
-
32,474
-
58,263
(48,944)
-
-
-
100,507
52,301
100,381
8.0
2.7
7.4
2.9
-
-
-
-
-
-
6.3
10.1
-
-
59,024
159,906
- 235,256
(139,618) 10,000 2,560,018
70,455
226,804
- 235,256
(54,348) 10,000 3,770,389
∙ The remuneration in the table above only reflects the amounts paid to the individuals for the time they were key management
personnel.
∙
(i) DR Westhorpe took on additional duties as the Chief Executive Officer from 30 June 2014 to 11 September 2014 and was paid
31
ANNUAL REPORT 2015/16 DIRECTORS’ REPORT
CONTINUED
The ‘fair value’ is determined using a
Black Scholes model and will generally
be different to the “volume weighted
average market price (VWAP)” which is
used to determine the number of rights
that are granted. No adjustment to the
reported remuneration amounts is made
in the event that actual market price of
shares on the vesting of Performance
Rights exceeds the fair value of those
Performance Rights on their grant
date. Similarly, no reduction is made to
remuneration where the market price
of shares on the vesting of Performance
Rights is lower than the market price of
shares on the date that performance
Rights are granted.
No other long term or remuneration
benefits were paid or are payable with
respect to the current and prior period.
C - SERVICE AGREEMENTS
All key management personnel are on
employment terms consistent with the
remuneration framework outlined in
this note.
In addition, all key management
personnel have service agreements
which provide that a period of notice of
3 months is required by the Company
or the senior executive to terminate
employment.
∙
∙
∙
(ix) A Batten was appointed General
Manager, Merchandise Planning on 20
April 2015. Prior to this appointment,
A Batten was employed as a
contractor. Amounts shown above
include all remuneration received
from 20 April 2015.
(x) R d’Andrea was appointed General
Manager, Human Resources on 27 April
2015.
(xi) P Nutbean was General Manager,
Property until 13 October 2014. As
a result, P Nutbean was paid in cash
$14,305 of annual leave entitlements,
$52,210 of long service leave
entitlements which are excluded from
the table above and $58,263 in lieu of
a three month notice period which is
included in ‘other benefits’ above.
∙
(xii) G Pearce was General Manager,
Business Transformation until 1 July
2015.
For Remuneration report purposes,
the amount reported as “Share Based
Payments” represents the expenses
recognised under the following basis:
∙ The percentage of the fair value of
the Performance Rights granted in a
particular year for each of the years
in the vesting period to the extent
that such Performance Rights remain
available for vesting; less
∙ Any value previously reflected
as remuneration in regard to
Performance Rights, where those
Performance Rights have lapsed
or have been forfeited and will
not vest with the employee.
∙
∙
∙
∙
∙
∙
∙
an amount of $50,288 for this
which is included in his cash salary
and fees above.
(ii) R Sudano was appointed Chief
Executive Officer on 11 September
2014.
(iii) DJ O’Connor was Chief Information
Officer until his resignation on 27
March 2015. As a result, DJ O’Connor
was paid in cash $35,566 of annual
leave entitlements and $60,871 of long
service leave entitlements which are
excluded from the above table.
(iv) K Chand was appointed General
Manager, Property on 5 January 2015.
(v) J Pileio was General Manager,
Human Resources until her resignation
on 30 January 2015. As a result, J Pileio
was paid in cash $20,151 of annual
leave entitlements which are excluded
from the table above.
(vi) MJ Shields was General Manager,
Merchandise Buying until 7 November
2014. As a result, MJ Shields was
paid in cash $53,782 of annual leave
entitlements which are excluded from
the table above and $96,488 in lieu of
a three month notice period which is
included in ‘other benefits’ above.
(vii) E Tollinton was appointed Chief
Information Officer on 23 March 2015.
(viii) C Grady was appointed General
Manager, Merchandise Buying on 20
April 2015. The Company has agreed
to pay C Grady a LTI to the value of
$90,000, payable in either shares
or cash (at the discretion of the
Company) over a three year period. As
a result, $10,000 has been included in
the above table. C Grady also received
a $65,000 sign on bonus and a $15,505
relocation allowance which is included
in the above table.
32
REJECT SHOP D – SHARE-BASED COMPENSATION
The number of performance rights over shares in the Company granted to executive directors and other key management
personnel during the current financial period, together with prior period grants which vested during the period is set out below:
NUMBER OF
RIGHTS GRANTED
DURING THE
PERIOD
DATES
EXERCISABLE
EXPIRY DATE
TOTAL FAIR VALUE
OF PERFORMANCE
RIGHTS AT GRANT
DATE $
NUMBER OF
PERFORMANCE RIGHTS
GRANTED IN PRIOR
PERIODS VESTED
DURING THE PERIOD
2016
GRANT DATE
Executive Directors
R Sudano
14 Oct 2015
62,400
1 Jul 2018
14 Oct 2019
537,874
-
-
1,225
-
-
-
825
-
-
-
Other Key Management Personnel
C Grady
DR Briggs
D Aquilina
14 Oct 2015
14 Oct 2015
14 Oct 2015
E Tollinton
14 Oct 2015
M Robertson
14 Oct 2015
AJ Penrose
14 Oct 2015
K Chand
A Batten
14 Oct 2015
14 Oct 2015
R d’Andrea
14 Oct 2015
Total
27,400
1 Jul 2018
14 Oct 2019
22,200
22,300
23,700
26,700
18,900
1 Jul 2018
14 Oct 2019
1 Jul 2018
14 Oct 2019
1 Jul 2018
14 Oct 2019
1 Jul 2018
14 Oct 2019
1 Jul 2018
14 Oct 2019
20,400
1 Jul 2018
14 Oct 2019
25,100
21,400
270,500
1 Jul 2018
14 Oct 2019
1 Jul 2018
14 Oct 2019
236,182
191,359
192,221
204,289
230,148
162,914
175,843
216,356
184,463
2,331,649
2,050
The fair value of performance rights granted on 14 October 2015 (grant date) with an expiry date of 14 October 2019 was $8.62.
All performance rights granted during the current period will vest on the exercise dates above provided the required performance
hurdles are achieved and the employee remains employed with the Company at the vesting date. In the event an employee
leaves the company prior to the vesting date the performance rights will lapse. The total payable on the exercise of one or more
performance rights on a particular day is $1.00 regardless of the number exercised on that day. The minimum possible value
to be received by executive directors or other key management personnel under each grant of performance rights is $Nil.
Subsequent to period end there has been no grant of performance rights to key management personnel, however, 5,425
performance rights granted to key management personnel in prior years vested subsequent to period end, of which 5,425
have been exercised. These performance rights were vested on the basis that a number of elements of the non-financial
criteria relevant to that tranche were achieved. The remaining performance rights issued in that tranche were forfeited.
33
ANNUAL REPORT 2015/16 DIRECTORS’ REPORT
CONTINUED
Shares Issued to Directors and Other Key Management Personnel on Exercise of Options or Performance Rights
The number of shares issued to Executive Directors and other key management personnel on exercise of performance rights during
the current financial period are outlined in the following tables:
2016
TYPE
DATE GRANTED
DATE VESTED
AND EXERCISED
NUMBER OF
SHARES ISSUED
EXERCISE PRICE
Executive Directors
R Sudano
Other Key Management Personnel
C Grady
DR Briggs
D Aquilina
E Tollinton
M Robertson
AJ Penrose
K Chand
A Batten
R d’Andrea
Total
-
-
-
-
-
-
-
-
Rights
18 Oct 2011
1 Jul 2015
1,225
-
-
-
-
-
-
-
-
-
Rights
18 Oct 2011
1 Jul 2015
-
-
-
-
-
-
-
-
-
-
-
-
825
-
-
-
2,050
-
-
-
-
-
-
-
-
-
-
No shares were issued to non-executive directors as a result of an exercise of performance rights in the current or prior period.
34
REJECT SHOP E – ADDITIONAL INFORMATION
Cash Incentives and Performance Rights
For each cash incentive and grant of performance rights included in the table below, the percentage of the grant that vested, in
the financial period, and the percentage that was forfeited because the performance criteria were not achieved or the person did
not meet the service criteria is as listed. The performance rights vest over several years provided the vesting conditions are met.
No performance rights will vest if the conditions are not satisfied, hence the minimum value of each performance right yet to vest is
$Nil. The maximum value of performance rights yet to vest has been determined as the total number of performance rights still to
vest multiplied by the fair value of each performance right at grant date. The fair value for accounting purposes is determined using
the Black-Scholes option pricing model.
CASH INCENTIVE
PERFORMANCE RIGHTS
NAME
PAID
%
FORFEITED
%
DATE
GRANTED
VESTED
%
FORFEITED#
%
NO.
FINANCIAL PERIODS
IN WHICH RIGHTS
MAY VEST
MAXIMUM TOTAL
NUMBER OF
RIGHTS MAY VEST
MAXIMUM TOTAL
VALUE OF GRANTS
YET TO VEST
$
Executive Directors
R Sudano
100
0
FY2016
Other Key Management Personnel
C Grady
DR Briggs
100
100
0
0
FY2015
FY2016
FY2016
FY2015
D Aquilina
100
0
FY2016
FY2015
M Robertson
0
100
FY2016
FY2015
A J Penrose
100
0
FY2016
K Chand
E Tollinton
R d’Andrea
A Batten
100
100
100
100
0
0
0
0
FY2015
FY2016
FY2016
FY2016
FY2016
FY2015
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
26,700
16,900
0
0
0
0
0
25,100
16,300
0
0
0
0
0
0
0
100
100
0
0
0
0
0
100
100
FY2019
FY2018
FY2019
FY2019
FY2018
FY2019
FY2018
FY2019
FY2018
FY2019
FY2018
FY2019
FY2019
FY2019
FY2019
FY2018
62,400
42,800
27,400
22,200
13,900
22,300
10,600
-
-
18,900
10,100
20,400
23,700
21,400
-
-
537,874
322,853
236,182
191,359
104,806
192,221
79,924
-
-
162,914
76,154
175,843
204,289
184,463
-
-
# Performance rights vesting conditions are tested each year and to the extent that the conditions are not expected to be met, the Committee has
the discretion to cancel or forfeit the performance rights yet to vest.
35
ANNUAL REPORT 2015/16 DIRECTORS’ REPORT
CONTINUED
Performance Rights Holdings
The number of performance rights over shares in the Company held during the current and prior financial period by each
director and other key management personnel of The Reject Shop Limited and the consolidated entity, including related parties,
are set out below:
BALANCE AT THE
START OF THE
PERIOD
PERFORMANCE
RIGHTS GRANTED
DURING THE
PERIOD
PERFORMANCE
RIGHTS VESTED &
EXERCISED DURING
THE PERIOD
OTHER CHANGES
DURING THE
PERIOD
BALANCE AT END
OF THE PERIOD
2016
Directors
WJ Stevens
KJ Elkington
DR Westhorpe
M Conrad
Executive Director
-
-
-
-
-
-
-
-
R Sudano
42,800
62,400
Other Key Management Personnel
M Robertson (i)
DR Briggs
D Aquilina
AJ Penrose
K Chand
E Tollinton
C Grady
A Batten (i)
R d’Andrea
Total
16,900
18,425
12,550
13,250
-
-
-
16,300
-
120,225
26,700
22,200
22,300
18,900
20,400
23,700
27,400
25,100
21,400
-
-
-
-
-
-
(1,225)
-
(825)
-
-
-
-
-
-
-
-
-
-
(43,600)
(900)
(600)
(650)
-
-
-
(41,400)
-
-
-
-
-
105,200
-
38,500
34,250
30,675
20,400
23,700
27,400
-
21,400
301,525
270,500
(2,050)
(87,150)
(i) M Robertson and A Batten resigned during the year and all non-vested performance rights were lapsed prior to June 2016.
Non-executive directors do not participate in long term incentives and have not been granted performance rights in any period.
Subsequent to period end there have been no performance rights granted to key management personnel. However, during the
period ended 3 July 2016, 9,925 performance rights vested, of which 9,925 have been exercised since year end; 5,425 of these
performance rights related to key management personnel.
36
REJECT SHOP Share Holdings
The number of shares in the Company held during the current and prior financial period by each director and other key
management personnel of The Reject Shop Limited and the consolidated entity, including related parties, is set out below:
2016
Non-executive Directors
WJ Stevens
KJ Elkington
DR Westhorpe
M Conrad
Executive Director
R Sudano
Key Management Personnel
M Robertson (i)
DR Briggs
D Aquilina
AJ Penrose
GW Pearce (i)
K Chand
E Tollinton
C Grady
A Batten
R d’Andrea
Total
BALANCE AT
THE START OF
THE PERIOD
RECEIVED DURING THE
PERIOD ON THE EXERCISE
OF PERFORMANCE RIGHTS
OTHER CHANGES
DURING THE PERIOD
BALANCE AT END OF
THE PERIOD
3,500
6,000
3,000
-
-
-
-
-
1,200
3,037
-
-
-
-
-
-
-
-
-
-
-
1,225
-
825
-
-
-
-
-
-
1,000
2,500
-
4,000
-
-
(1,225)
890
(1,424)
(3,037)
-
-
-
-
-
4,500
8,500
3,000
4,000
-
-
-
890
601
-
-
-
-
-
-
16,737
2,050
2,704
21,491
(i) M Robertson and GW Pearce’s share holdings have been shown as nil at the end of the period as they are no longer key management personnel of
the Company.
37
ANNUAL REPORT 2015/16 DIRECTORS’ REPORT
CONTINUED
2015
Non-executive Directors
WJ Stevens
KJ Elkington
DR Westhorpe
M Conrad
Executive Director
R Sudano
Key Management Personnel
M Robertson
DR Briggs
D Aquilina
AJ Penrose
GW Pearce
DJ O’Connor (i)
K Chand
J Pileio (i)
MJ Shields
E Tollinton
C Grady
A Batten
R d’Andrea
S Blakeney (i)
P Nutbean (i)
Total
BALANCE AT
THE START OF
THE PERIOD
RECEIVED DURING THE
PERIOD ON THE EXERCISE
OF PERFORMANCE RIGHTS
OTHER CHANGES
DURING THE PERIOD
BALANCE AT END OF
THE PERIOD
3,500
4,615
-
-
-
-
-
-
666
2,137
-
-
270
-
-
-
-
-
-
2,260
13,448
-
-
-
-
-
-
1,700
-
1,200
900
1,700
-
-
-
-
-
-
-
900
1,100
7,500
-
1,385
3,000
-
-
-
(1,700)
-
(666)
-
(1,700)
-
(270)
-
-
-
-
-
(900)
(3,360)
(4,211)
3,500
6,000
3,000
-
-
-
-
-
1,200
3,037
-
-
-
-
-
-
-
-
-
-
16,737
(i) DJ O’Connor, J Pileio, S Blakeney and P Nutbean’s share holdings have been shown as nil at the end of the period as they are no longer key
management personnel of the Company.
Loans to or other transactions with Key Management Personnel
No loans were made to or from directors of The Reject Shop Limited or to or from other key management personnel of the
consolidated entity, including related parties or are outstanding as of 3 July 2016 (FY2015 - $Nil).
No other transactions were undertaken with directors or other key management personnel, including related parties during the
period (FY2015 - $Nil).
38
REJECT SHOP Company Performance
The Managing Director and other key management personnel have an at risk component of their remuneration based on
a number of performance rights criteria including the Company’s overall financial performance and shareholder returns.
Refer to the performance rights plan on page 28 for the performance rights criteria.
The following table outlines the Company’s earnings and share performance since its listing on 1 June 2004:
NPAT
GROWTH
EPS CENTS
PER SHARE
EPS
GROWTH
SHARE PRICE
AT START OF
PERIOD
SHARE PRICE
AT END OF
PERIOD
SHARE PRICE
GROWTH
ORDINARY
& SPECIAL
DIVIDENDS PAID
OR DECLARED
PER SHARE
PERIOD
FY2005
FY2006(i)
FY2007
FY2008(ii)
FY2009
FY2010
FY2011
FY2012(ii)(iii)
FY2013
FY2014
FY2015
FY2016(ii)
NPAT
$6.5m
$9.1m
$12.3m
$16.7m
$19.0m
$23.4m
21.4%
38.7%
35.8%
35.6%
13.9%
22.9%
$16.2m
(30.8%)
$21.9m
$19.5m
35.6%
(11.0%)
$14.5m
(25.4%)
$14.2m
$17.1m
(1.9%)
20.1%
26.7
35.9
48.1
64.9
73.6
90.0
62.1
84.1
73.4
50.3
49.4
59.3
16.2%
34.5%
34.0%
34.9%
13.4%
22.3%
(31.0%)
35.4%
(12.7%)
(31.5%)
(1.8%)
20.0%
$2.00
$2.99
$5.95
$12.80
$9.37
$11.62
$16.42
$11.66
$9.15
$17.19
$8.82
$5.40
$2.99
$5.95
$12.80
$9.37
$11.62
$16.42
49.5%
99.0%
115.1%
(26.8)%
24.0%
41.3%
$11.66
(29.0%)
$9.15
$17.19
$8.82
$5.40
(21.5%)
87.9%
(48.7%)
(38.8%)
$12.45
130.6%
$0.17
$0.31
$0.31
$0.48
$0.55
$0.67
$0.31
$0.42
$0.37
$0.30
$0.30
$0.44
(i) In FY2006 a special dividend of 7.5 cents was also paid.
(ii) 53 week period.
(iii) In FY2012 a special dividend of 8.5 cents was also paid.
A detailed review of performance and operations can be found in the Operating and Financial review on pages 23 to 27 of this
annual report.
Shares under performance rights
Unissued ordinary shares of the Company under performance rights at the date of this report are as follows:
DATE OF GRANT
EXPIRY DATE
VESTING DATE
13 Oct 2014
13 Oct 2018
1 Jul 2017
14 Oct 2015
14 Oct 2019
1 Jul 2018
*Nominal exercise price of $1.00 is payable each exercise.
VALUE AT
GRANT DATE $
EXERCISE*
PRICE $
NUMBER ON ISSUE
NUMBER ON ISSUE TO
KEY MANAGEMENT
PERSONNEL
7.54
8.62
-
-
77,400
218,700
77,400
218,700
Subsequent to period end, the Board has not granted any further performance rights under the Performance Rights Plan.
39
ANNUAL REPORT 2015/16
DIRECTORS’ REPORT
CONTINUED
Shares issued and the exercise of options and performance rights
The following shares of the Company were issued during the period ended 3 July 2016 and to the date of this report on the exercise
of options and performance rights:
DATE GRANTED
17 October 2013
10 January 2013
18 October 2012
18 October 2011
Total
VESTING DATE
ISSUE PRICE OF
SHARES
TOTAL NUMBER OF
SHARES ISSUED
NUMBER OF SHARES ISSUED
TO KEY MANAGEMENT
PERSONNEL
1 Jul 2016
1 Jul 2016
1 Jul 2016
1 Jul 2015
-
-
-
-
-
3,700
750
5,475
4,975
14,900
2,150
750
2,525
2,050
7,475
No amounts are unpaid on any of these shares.
Remuneration of Auditors
During the period the following fees for services were paid or payable
to PricewaterhouseCoopers and its related parties as the auditor:
Audit and Accounting Related Services
Audit and review work
Tax Compliance and Consulting Services
Tax compliance
Tax consulting advice
Other Services
Other assurance services
Total Remuneration
CONSOLIDATED ENTITY
2016
$
2015
$
303,892
303,892
35,712
25,000
60,712
25,060
389,664
286,206
286,206
42,500
35,500
78,000
20,406
384,612
40
REJECT SHOP
DIRECTORS’ REPORT
CONTINUED
Independence of Auditors
PricewaterhouseCoopers was appointed auditor in FY2002 and whilst their main role is to provide audit services to the Company,
the Company does employ their specialist advice where appropriate. In each instance, the Board has considered the nature of
the advice sought in the context of the audit relationship and in accordance with the advice received from the Audit and Risk
Committee, does not consider these services compromise the auditor’s independence requirements of the Corporations Act
for the following reasons:
∙ No non-audit services provided to the Company and reviewed by the Board were considered to impact upon the impartiality
and objectivity of the auditor; and
∙ None of the services undermined the general principles relating to auditor independence as set out in APES 110 – Code of Ethics
for Professional Accountants, including not reviewing or auditing the auditor’s own work, not acting in a management or a decision
making capacity for the Company, not acting as advocate for the Company or not jointly sharing economic risk or rewards.
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is contained on
page 42 of this annual report.
This report is made in accordance with a resolution of the directors:
WJ Stevens
Chairman
24 August 2016
ANNUAL REPORT 2015/16
41
AUDITORS INDEPENDENCE
DECLARATION
42
REJECT SHOP CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
FOR THE 53 WEEK FINANCIAL PERIOD ENDED 3 JULY 2016
Revenues from continuing operations
Sales revenue
Other revenue
Expenses
Cost of sales
Store expenses
Administrative expenses
Finance costs
Profit before income tax
Income tax expense
Profit for the period attributable to shareholders
of The Reject Shop Limited
Other comprehensive income
Items that may be reclassified to Profit or Loss
Changes in the fair value of cash flow hedges
Income tax relating to components of other
comprehensive income
Other comprehensive income for the period, net of tax
Total comprehensive income attributable to shareholders
of The Reject Shop Limited
Earnings per Share
Basic earnings per share
Diluted earnings per share
Note
2
2
3
4
CONSOLIDATED ENTITY
2016
$’000
799,958
105
800,063
461,938
270,911
42,320
775,169
664
24,230
7,130
17,100
(8,831)
2,649
(6,182)
2015
$’000
756,800
57
756,857
422,922
273,111
39,094
735,127
1,532
20,198
5,959
14,239
10,627
(3,188)
7,439
10,918
21,678
Cents
Cents
27
27
59.3
58.8
49.4
49.2
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
43
ANNUAL REPORT 2015/16 CONSOLIDATED
BALANCE SHEET
AS AT 3 JULY 2016
CURRENT ASSETS
Cash
Inventories
Derivative financial instruments
Other
TOTAL CURRENT ASSETS
NON CURRENT ASSETS
Property, plant and equipment
Deferred tax assets
TOTAL NON CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Payables
Borrowings
Tax liabilities
Provisions
Derivative financial instruments
Other
TOTAL CURRENT LIABILITIES
NON CURRENT LIABILITIES
Borrowings
Provisions
Other
TOTAL NON CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Retained profits
TOTAL EQUITY
Note
5
6
22
7
8
9
10
11
12
22
13
14
12
15
16
17
18
CONSOLIDATED ENTITY
2016
$’000
2015
$’000
15,068
98,515
-
10,983
124,566
89,942
16,087
106,029
230,595
33,118
12,000
2,479
22,416
3,398
10,394
83,805
-
1,832
9,616
11,448
95,253
135,342
46,247
2,857
86,238
135,342
17,326
100,240
5,433
1,477
124,476
94,132
9,700
103,832
228,308
43,004
-
1,534
12,981
-
11,677
69,196
12,000
1,995
10,444
24,439
93,635
134,673
46,247
8,180
80,246
134,673
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
44
REJECT SHOP CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
FOR THE 53 WEEK FINANCIAL PERIOD ENDED 3 JULY 2016
CONSOLIDATED ENTITY 2016
CONTRIBUTED
EQUITY
$’000
CAPITAL
PROFITS
$’000
SHARE BASED
PAYMENTS
$’000
HEDGING
RESERVE
$’000
RETAINED
EARNINGS
$’000
TOTAL
$’000
Balance as at 29 June 2015
46,247
739
3,638
3,803
80,246
134,673
Profit for the period
Other comprehensive income
Transaction with owners in their capacity
as owners:
Dividends Paid
Share based remuneration
Current tax – credited directly to equity
-
-
-
-
-
-
-
-
-
-
-
-
-
681
178
-
(6,182)
17,100
-
17,100
(6,182)
-
-
-
(11,108)
(11,108)
-
-
681
178
Balances as at 3 July 2016
46,247
739
4,497
(2,379)
86,238
135,342
CONSOLIDATED ENTITY 2015
Balance as at 29 June 2014
46,247
739
3,705
(3,636)
73,217
120,272
CONTRIBUTED
EQUITY
$’000
CAPITAL
PROFITS
$’000
SHARE BASED
PAYMENTS
$’000
HEDGING
RESERVE
$’000
RETAINED
EARNINGS
$’000
TOTAL
$’000
Profit for the period
Other comprehensive income
Transaction with owners in their capacity
as owners:
Dividends Paid
Share based remuneration
Current tax – (debited) directly to equity
-
-
-
-
-
-
-
-
-
-
-
-
-
(189)
122
-
7,439
14,239
-
14,239
7,439
-
-
-
(7,210)
(7,210)
-
-
(189)
122
Balances as at 28 June 2015
46,247
739
3,638
3,803
80,246
134,673
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
45
ANNUAL REPORT 2015/16
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE 53 WEEK FINANCIAL PERIOD ENDED 3 JULY 2016
CASH FLOW FROM OPERATING ACTIVITIES
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and
services tax)
Interest received
Borrowing costs paid
Income tax paid
Net cash inflow from operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment
Payments for property, plant and equipment
Net cash outflow from investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net cash inflow/ (outflow) from financing activities
Net (decrease) /increase in cash held
Cash at the beginning of the financial period
Cash at the end of the period
Note
CONSOLIDATED ENTITY
2016
$’000
2015
$’000
878,732
831,083
(842,813)
(776,276)
105
(672)
(9,744)
25,608
3
(16,761)
(16,758)
63,800
(63,800)
(11,108)
(11,108)
(2,258)
17,326
15,068
57
(1,545)
(6,467)
46,852
231
(17,119)
(16,888)
141,000
(154,000)
(7,210)
(20,210)
9,754
7,572
17,326
21
18
21
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
46
REJECT SHOP
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES
The principal accounting policies
adopted in the preparation of the
financial report are set out below.
These policies have been consistently
applied to all the periods presented,
unless otherwise stated. The financial
statements are for the consolidated
entity, consisting of The Reject Shop
Limited and its subsidiaries.
(a) Basis of Preparation
This general purpose financial report
has been prepared in accordance with
Australian Accounting Standards and
Interpretations issued by the Australian
Accounting Standards Board and the
Corporations Act 2001. The Reject
Shop Limited is a for-profit entity for
the purpose of preparing financial
statements.
Compliance with IFRS
The financial report of The Reject Shop
Limited also complies with International
Financial Reporting Standards (IFRS) as
issued by the International Accounting
Standards Board (IASB).
Historical cost convention
These financial statements have
been prepared under the historical
cost convention, as modified by
the revaluation of financial assets
and liabilities (including derivative
instruments) at fair value through
profit or loss.
Critical accounting estimates
The preparation of financial statements
requires the use of certain critical
accounting estimates. It also requires
management to exercise its judgement
in the process of applying the group’s
accounting policies. The areas involving
a higher degree of judgement and
complexity, or areas where assumptions
and estimates are significant to the
financial statements, are disclosed
further in note 1 (aa).
(b) Principles of Consolidations
(c) Segment Reporting
(i) Subsidiaries
The consolidated financial statements
incorporate all the assets and liabilities
of the subsidiary of The Reject Shop
Limited as at 3rd July 2016 and the
results of the subsidiary for the period.
The Reject Shop Limited and its
subsidiary are referred to in this financial
report as the consolidated entity.
Subsidiaries are all entities (including
special purpose entities) over which
the the group has control. The group
controls an entity when the group is
exposed to, or has rights to, variable
returns from its involvement with the
entity and has the ability to affect those
returns through its power to direct the
activities of the entity. Subsidiaries are
fully consolidated from the date on
which control is transferred to the
group. They are deconsolidated from
the date that control ceases.
The acquisition method of accounting
is used to account for business
combinations by the group.
Intercompany transactions, balances
and unrealised gains on transactions
between group companies are
eliminated. Unrealised losses are also
eliminated unless the transaction
provides evidence of an impairment of
the transferred asset. Accounting policies
of subsidiaries have been changed
where necessary to ensure consistency
with the policies adopted by the group.
The Reject Shop Limited has a 100%
owned non-operating subsidiary,
TRS Trading Group Pty Ltd, which
has not traded since 2003.
(ii) Employee Share Trust
The Reject Shop Limited has formed
a trust to administer the Company’s
Performance Rights Plan. This trust
is consolidated, as it is controlled
by the group.
Operating segments are reported in
a manner consistent with the internal
reporting provided to the senior
management personnel. The Reject
Shop Limited has only one operating
business segment. Refer to note 30
for information.
(d) Income Tax
The income tax expense for the period
is the tax payable on the current period’s
taxable income based on the current
income tax rate 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.
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. The relevant tax rates are applied
to the cumulative amounts of deductible
and taxable temporary differences
to measure the deferred tax asset
or liability.
Deferred tax assets and liabilities 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 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.
47
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Current and deferred tax balances
attributable to amounts recognised
directly in equity are also recognised
directly in equity.
The head entity, The Reject Shop
Limited, and the controlled entity 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 standalone tax payer
in its own right.
(e) Inventories
Inventories are measured at the lower
of cost and net realisable value. Costs
are assigned on a moving average basis
and include an appropriate proportion
of freight inwards, logistics, discounts
and supplier rebates.
Net realisable value is the estimated
selling price in the ordinary course
of business less the estimated costs
necessary to make the sale.
(f) Property, Plant and Equipment
Each class of property, plant and
equipment is carried at cost less,
where applicable, any accumulated
depreciation.
The depreciable amount of all fixed
assets including capitalised leased assets,
is depreciated on a straight line basis
over their estimated useful lives. The
useful life for each class of asset is:
(g) Leases
Leases of property, plant and equipment
where the consolidated entity has
substantially all the risks and rewards
of ownership are classified as finance
leases. Finance leases are capitalised at
the inception of the lease at the lower
of the fair value of the leased asset and
the present value of the minimum lease
payments. The corresponding rental
obligations, net of finance charges, are
included in long term borrowings. Each
lease payment is allocated between the
liability and finance cost. 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
lease term and the asset’s useful life.
Lease payments for operating leases,
where substantially all the risks and
benefits remain with the lessor, are
charged as expenses in the periods
in which they are incurred. Leases
containing fixed escalation clauses
require the escalation amounts to be
determined on lease inception and
expensed evenly over the lease term,
generally between 3 and 8 years.
Lease incentives received under
operating leases are recognised in the
balance sheet as deferred income and
are recognised as a reduction of expenses
over the initial term of the lease.
CLASS OF FIXED ASSET
USEFUL LIFE
Onerous Contracts
Leasehold Improvements
and Office Equipment
Fixtures and Fittings
Motor Vehicles
Computer Equipment
5-12 years
5-12 years
3-5 years
3 years
If an entity has a contract that is
onerous, the present obligation under
the contract shall be recognised and
measured as a provision.
AASB 137 defines an onerous contract as
a contract in which the unavoidable costs
of meeting the obligations under the
contract exceed the economic benefits
expected to be received under it. The
unavoidable costs under a contract
reflect the least net cost of exiting from
the contract, which is the lower of the
cost of fulfilling it and any compensation
or penalties arising from failure to fulfil it.
The amount of the liability shall be
recognised as the best estimate of
the expenditure required to settle the
present obligation at the end of the
reporting period. It should be based
on the excess of the cash flows for
the unavoidable costs in meeting the
obligations under the lease over the
unrecognised estimated future economic
benefits from the lease.
(h) Employee Benefits
(i) Wages and salaries, annual leave and
sick leave
Liabilities for wages and salaries,
annual leave and vested sick leave are
recognised in respect of employees’
services up to the reporting date, and
are measured at the amounts expected
to be settled.
(ii) Long service leave
The liabilities for long service leave
and annual leave are not expected
to be settled wholly within 12 months
after the end of the period in which
the employees render the related
service. They are therefore measured
as the present value of expected future
payments to be made in respect of
services provided by employees up to
the end of the reporting period 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
end of the reporting period on corporate
bonds with terms and currencies
that match, as closely as possible,
the estimated future cash outflows.
The obligations are presented as current
liabilities in the balance sheet if the
entity does not have an unconditional
right to defer settlement for at least
twelve months after the reporting date,
regardless of when the actual settlement
is expected to occur.
48
REJECT SHOP
(iii) Superannuation
Contributions are made by the
consolidated entity to employee
personal superannuation funds and are
charged as expenses when incurred.
The consolidated entity does not have
any Defined Benefit Fund obligations.
The fair value at grant date is determined
using a Black-Scholes options pricing
model that takes into account:
∙ the exercise price;
∙ the term of the Performance Rights;
∙ the vesting and performance criteria;
(iv) Bonus plans
A liability for employee benefits in the
form of bonus plans is recognised when
there is a contractual or constructive
liability and at least one of the following
conditions are met:
∙ There are formal terms in the plan for
determining the amount of the benefit;
∙ the impact of dilution;
∙ the non-tradeable nature of the
Performance Rights;
∙ 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
∙ The amounts to be paid are
of the Performance Rights.
determined before the time of
completion of the financial report; or
∙ Past practice has created a
constructive obligation.
Liabilities for short term cash incentives
are expected to be settled within 12
months and are measured at amounts
expected to be paid when settled.
(v) Equity-based compensation benefits
Equity-based compensation benefits
are provided to selected employees
via the Performance Rights Plan.
The fair value of performance rights
granted is 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 shares, adjusted for the
fair value of any rights which do not
ultimately vest.
The fair value of the Performance
Rights 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 rights that are expected to
become exercisable. At each balance
sheet date, the entity revises its
estimates of the number of Performance
Rights that are expected to become
exercisable, net of any Performance
Rights that have lapsed throughout the
period. The employee benefit expense
recognised each period takes into
account the most recent estimate.
(i) Cash
For presentation of statement of cash
flows, cash includes cash on hand and at
call, short-term deposits with banks and
financial institutions, and investments
in money market instruments maturing
within two months, net of bank
overdrafts. Bank overdrafts are shown
with borrowings in current liabilities on
the balance sheet.
(j) Revenue Recognition
Revenue from the sale of goods is
recognised at the point of sale. All
revenue is stated net of the amount
of goods and services tax (GST),
returns and staff discounts.
(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 entity designates
derivatives as hedges of the cash flows
of highly probable forecast transactions
(cash flow hedges).
The consolidated entity documents
at the inception of the transaction
the relationship between the hedging
instrument and hedged items, as well
as its risk management objective and
strategy for undertaking various hedge
transactions. The consolidated entity
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
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
transferred out of equity and included
in the cost of the hedged item when
the forecast purchase that is hedged
takes place.
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 that 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.
49
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
(l) Foreign Currency Translation
(i) Functional and presentation currency
Items included in the financial
statements of the consolidated entity
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 The Reject Shop
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 period end
exchange rates of monetary assets
and liabilities denominated in foreign
currency are recognised in the income
statement.
(m) Trade and Other Payables
These amounts represent liabilities for
goods and services provided to the
consolidated entity prior to the end
of the financial period and which are
unpaid. The amounts are unsecured
and are usually paid within 30 days of
recognition.
(n) Borrowing Costs
Borrowing costs are recognised as
expenses in the period in which they are
incurred. Borrowing costs incurred for
the construction of a qualifying asset
are capitalised during the period of
time that is required to complete and
prepare the asset for its intended use.
(o) Impairment of Property,
Plant and Equipment
impairment loss is recognised for the
amount by which the asset’s carrying
amount exceeds its recoverable amount.
The recoverable amount is the higher
of an asset’s fair value less costs to sell
and value in use. For the purposes of
assessing impairment, assets are grouped
at the lowest levels for which there are
separately identifiable cash flows (cash
generating units).
(p) Dividends
Provision is made for the amount of
any dividends declared, determined
or publicly recommended by the
Directors on or before the end of the
financial period but not distributed
at balance date.
(q) 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 rate.
(r) Contributed Equity
Ordinary shares are classified as equity.
(s) Earnings per Share
(i) Basic earnings per share
Basic earnings per share is determined
by dividing net profit after income tax
attributable to members of the Company,
excluding any costs of servicing equity
other than ordinary shares, by the
weighted average number of ordinary
shares outstanding during financial
period, adjusted for bonus elements in
ordinary shares issued during the period.
Assets that are subject to amortisation
are reviewed for impairment at each
reporting date when events or changes in
circumstances indicate that the carrying
amount may not be recoverable. An
(ii) Diluted earnings per share
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 (including performance rights)
and the weighted average number of
shares assumed to have been issued for
no consideration in relation to dilutive
potential ordinary shares.
(t) Software Costs
Costs in relation to software
development, including website costs,
are charged as expenses in the period
in which they are incurred unless they
relate to the acquisition or development
of an asset, in which case they are
capitalised and amortised over the
useful life which is generally three years.
(u) Restoration Costs
An expense is provided for in the period
in which the legal or constructive
obligation arises, usually on lease
inception. The provision is measured
at the present value of management’s
best estimate of make-good costs
with a corresponding asset added
to the cost of the fitout.
(v) Store Opening Costs
Non-capital costs associated in the
setup of a new store are expensed in
the period in which they are incurred.
(w) Training Subsidies
Government subsidies for employees
undertaking external traineeships are
treated as income in the period they
are received and after all costs to
which they relate have been incurred.
(x) Cost of Sales
The Company includes the full amount
of its warehousing and logistics costs
as part of its “Cost of Sales” line
in the Consolidated Statement of
Comprehensive Income.
The Company considers that all costs
associated with getting stock to stores
ready for sale is a cost attributable
to the sale of such inventory.
50
REJECT SHOP (y) Goods and Services Tax (GST)
(i) Provisioning for shrinkage expense
Revenues, expenses and assets are
recognised net of the amount of
associated GST, unless the GST incurred
is not recoverable from the taxation
authority. In this case it is recognised
as part of the cost of acquisition of the
asset or as part of the expense.
Receivables and payables are stated
inclusive of the amount of GST receivable
or payable. The net amount of GST
recoverable from, or payable to, the
taxation authority is included with
other receivables or payables in the
balance sheet.
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 flows.
(z) Rounding of Amounts
The Company is a kind referred to in
ASIC Corporations (rounding in financial/
directors report) Instrument 2016/191,
issued by the Australian Securities and
Investment Commission, relating to
the “rounding off” of amounts in the
directors’ and financial reports. Amounts
in these reports have been rounded
off in accordance with that Class Order
to the nearest thousand dollars, or in
certain cases, to the nearest dollar.
(aa) Critical Accounting
Estimates and Judgements
For the 3 July 2016 reporting period
certain accounting estimates and
judgements were made in relation
to outstanding insurance claims and
provisioning for shrinkage expense.
The Company provides for shrinkage
expense for the period since a store last
completed a stock take. Management
estimates this provision based on the
actual stock take results recorded during
the period. The assumptions made
in relation to the current period are
consistent with those in the prior year.
Factors that could impact the estimated
provision include the length of the time
period since a store last completed
a stock take or a change in the actual
stocktake results ultimately recognised.
As at 3 July 2016 this particular provision
had a carrying amount of $8,317,511
(FY2015 - $6,011,970).
(ii) Impairment
The assessment of impairment on store
assets is a critical judgement. A test for
impairment is triggered by a change in a
number of indicators, both internal and
external. These indicators include, but
are not limited to, physical damage to the
asset, declining economic performance
of the asset, technological changes,
market or economic changes and plans
to discontinue or restructure operations.
Impairment testing can only be done for
an individual asset that generates cash
inflows that are largely independent
of cash inflows from other assets. A
‘cash generating unit’ is the smallest
identifiable group of assets that
generates cash inflows that are largely
independent of the cash inflows of other
assets or groups of assets. The Company
has defined each individual store as a
cash generating unit as the cash inflows
from an individual store are largely
independent from the inflows of any
other store. Accordingly, the assessment
of the carrying value of the relevant
assets is on an individual store basis
for store fixtures and fittings.
The recoverable amount is defined as
the higher of the assets fair value less
costs of disposal or its value in use. The
Company determines value in use by
making certain assumptions including
forcast future cash flows and discount
rates. The assumptions on future cash
flows have been developed based on
past performance and expectations
in relation to the future. The discount
rate has been determined using market
information relevant to the industry in
which the Company operates.
Impairment assessments are sensitive to
the judgements made in the impairment
test and assumptions outlined above.
Changes to these assumptions could
result in a different outcome or
impairment of assets for other cash
generating units in the future. Refer
to Note 8 for details.
(iii) Onerous lease provisions
Onerous lease provisions have been
recognised for the excess of the
unavoidable cost, being the least of
the cost to fulfil the contract and
compensation or penalties for early
exit, over the economic benefits
expected to be received. The Company
uses a discounted cash flow model
to determine the estimated future
economic benefits. For some leases the
estimated exit costs could be dependent
on the outcome of negotiations.
(iv) Net realisable value of inventory
The net realisable value of inventories is
the estimated selling price in the ordinary
course of business less estimated costs
to sell. The key assumptions require the
use of management judgement. These key
assumptions are the variables affecting the
expected selling price. Any reassessment
of the selling price in a particular period
will affect the cost of goods sold.
There are no other accounting estimates
or judgements within these accounts which
have a significant effect on the amounts
recognised in the financial report.
51
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
(ab) New and amended standards adopted by the group
The Reject Shop Limited has applied the following standards and amendments for the first time for their annual reporting period
commencing 29 June 2015:
∙ AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets
∙ AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting
∙
Interpretation 21 Accounting for levies
∙ AASB 2014-1 Amendments to Australian Accounting Standards
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for the 3 July 2016 reporting
period and have not been early adopted by the Company. The Company’s assessment of the impact of these new standards and
interpretations is set out below:
TITLE OF STANDARD
NATURE OF CHANGE
IMPACT
MANDATORY APPLICATION DATE
AASB 9 Financial
Instruments
AASB 9 addresses the classification,
measurement and derecognition
of financial assets and financial
liabilities and introduces new rules
for hedge accounting.
In December 2014, the AASB made
further changes to the classification
and measurement rules and also
introduced a new impairment
model. These latest amendments
now complete the new financial
instruments standard.
There is no expected impact on The
Reject Shop Limited’s accounting
for financial assets and liabilities.
Must be applied for financial years
commencing on or after 1 January
2018.
The Reject Shop Limited does not plan
to early adopt any parts of AASB 9.
The new hedging rules align hedge
accounting more closely with
The Reject Shop Limited’s risk
management practices.
As a general rule it will be easier
to apply hedge accounting going
forward. The new standard also
introduces expanded disclosure
requirements and changes in
presentation.
AASB 15 Revenue
from Contracts with
Customers
The AASB has issued a new standard
for the recognition of revenue.
This will replace AASB 118 which
covers contracts for goods and
services and AASB 111 which covers
construction contracts.
Management is not expecting the
new rules to have a material impact
on The Reject Shop as revenue
from the sale of goods is recognised
at the point of sale.
Mandatory for financial years
commencing on or after 1 January
2017.
Expected date of adoption by the
group: 1 July 2017
The new standard is based on the
principle that revenue is recognised
when control of a good or service
transfers to a customer – so the
notion of control replaces the
existing notion of risks and rewards.
The standard permits a modified
retrospective approach for the
adoption. Under this approach
entities will recognise transitional
adjustments in retained earnings
on the date of initial application
(eg 1 July 2017), ie without restating
the comparative period. They will
only need to apply the new rules to
contracts that are not completed as
of the date of initial application.
52
REJECT SHOP MANDATORY APPLICATION DATE
Mandatory for financial years
commencing on or after 1 January
2019. At this stage, the group does
not intend to adopt the standard
before its effective date.
TITLE OF STANDARD
NATURE OF CHANGE
IMPACT
AASB 16 Leases
AASB 16 was issued in January
2016. It will result in almost all
leases being recognised on the
balance sheet, as the distinction
between operating and finance
leases is removed. Under the
new standard, an asset (the right
to use the leased item) and a
financial liability to pay rentals are
recognised. The only exceptions
are short- term and low-value
leases. The accounting for lessors
will not significantly change.
The standard will affect primarily
the accounting for the group’s
operating leases. As at the reporting
date, the group has non-cancellable
operating lease commitments, see
note 20. However, the group has
not yet determined to what extent
these commitments will result in the
recognition of an asset and a liability
for future payments and how this
will affect the group’s profit and
classification of cash flows. Some of
the commitments may be covered
by the exception for short-term
and low- value leases and some
commitments may relate to
arrangements that will not qualify
as leases under AASB 16.
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.
53
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
NOTE 2: REVENUE FROM CONTINUING OPERATIONS AND OTHER INCOME
Revenue from continuing operations
Sales of goods
Interest
NOTE 3: EXPENSES
Profit before income tax expense includes the following expenses:
Interest and finance charges paid/payable
Depreciation & amortisation expenses are included in:
Cost of sales
Store expenses
Administrative expenses
Impairment of store assets
Foreign exchange loss/(gain)
Asset write offs on store closures
(Gain)/ Loss on disposal of property, plant and equipment
Rental expenses relating to operating leases
Minimum lease payments
Provision for onerous leases
Provision for rent escalation
Rent paid on percentage of sales basis
Employee benefits expense
New store opening costs
Melbourne Distribution exit costs
Redundancy costs
Make good costs
Asset write off
54
CONSOLIDATED ENTITY
2016
$’000
799,958
105
800,063
2015
$’000
756,800
57
756,857
CONSOLIDATED ENTITY
2016
$’000
664
2,701
13,761
2,995
19,457
-
589
684
3
109,412
(900)
(481)
256
171,678
571
7,650
600
810
2015
$’000
1,532
2,616
13,580
2,931
19,127
1,291
(3,956)
1,214
(139)
107,269
845
1,077
641
158,562
2,199
-
-
-
REJECT SHOP NOTE 4: INCOME TAX EXPENSE
(a) Income tax expense
Current tax
Deferred tax
(Over) / Under provided in prior years
CONSOLIDATED ENTITY
2016
$’000
10,729
(3,560)
(39)
7,130
2015
$’000
7,279
(1,320)
5,959
Deferred income tax expense included in income tax expense comprises:
(Increase) in net deferred tax assets
9
(3,560)
(1,320)
(b) Numerical reconciliation of income tax expense
to prima facie tax payable
Profit before income tax expense
Tax at the Australian tax rate of 30% (2015 – 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Research and Development
Income tax expense
(Over) / Under provided in prior years
Income Tax Expense
24,230
7,269
(100)
7,169
(39)
7,130
20,198
6,059
(100)
5,959
-
5,959
(c) 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 in equity
Current tax – credited/ (debited) directly to equity
178
122
(d) Tax income relating to items of other comprehensive income
Cash flow hedges
2,649
(3,188)
NOTE 5: CURRENT ASSETS - CASH
Cash on hand
Cash at bank
CONSOLIDATED ENTITY
2016
$’000
1,600
13,468
15,068
2015
$’000
1,472
15,854
17,326
21
21
55
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
NOTE 6: CURRENT ASSETS - INVENTORIES
Inventory at cost
Inventory at net realisable value
CONSOLIDATED ENTITY
2016
$’000
96,636
1,879
98,515
2015
$’000
99,115
1,125
100,240
Inventories recognised as an expense during the year ended 3 July 2016 amounted to $384,837,543 (FY2015: $357,267,572). These
were included in the cost of sales. Writedowns of inventories to net realisable value amounted to $2,247,232 (FY2015: $1,675,867)
These were recognised as an expense during the year ended 3 July 2016 and included in cost of sales.
NOTE 7: CURRENT ASSETS - OTHER
Prepayment
Other current assets
NOTE 8: NON-CURRENT ASSETS - PROPERTY, PLANT AND EQUIPMENT
Leasehold improvements
At cost
Less accumulated depreciation
Plant and equipment*
At cost
Less accumulated depreciation
CONSOLIDATED ENTITY
2016
$’000
10,049
934
10,983
2015
$’000
969
508
1,477
CONSOLIDATED ENTITY
2016
$’000
68,541
(32,831)
35,710
135,327
(81,095)
54,232
2015
$’000
63,016
(26,329)
36,687
126,366
(68,921)
57,445
Total Property, Plant and Equipment
89,942
94,132
* Plant & equipment includes fixtures, fittings and motor vehicles as well as $4,819,978 (FY2015: $1,577,657) of work in progress costs ($3.1m relates to
the new Melbourne Distibution centre at Truganina).
56
REJECT SHOP Movements in Carrying Amounts
Movements in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the
current financial period are as follows:
Balance at 29 June 2015
Additions at cost
Asset write offs for store closures
Asset write offs for DC closure
Depreciation/amortisation expense
Balance at 3 July 2016
Balance at 29 June 2014
Additions at cost
Impairment of store assets
Asset write offs for store closures
Asset disposals
Depreciation/amortisation expense
Balance at 28 June 2015
LEASEHOLD IMPROVEMENTS
PLANT AND EQUIPMENT
$’000
36,687
6,269
(297)
-
(6,949)
35,710
$’000
57,445
10,492
(387)
(810)
(12,508)
54,232
LEASEHOLD IMPROVEMENTS
PLANT AND EQUIPMENT
$’000
36,298
8,038
(503)
(573)
(39)
(6,534)
36,687
$’000
62,440
9,081
(788)
(641)
(54)
(12,593)
57,445
TOTAL
$’000
94,132
16,761
(684)
(810)
(19,457)
89,942
TOTAL
$’000
98,738
17,119
(1,291)
(1,214)
(93)
(19,127)
94,132
In FY2016, the Company recognised a total of $0 (FY2015: $1,291,129) of impairment losses. The losses relate to fixed assets within
the store such as fixtures and fittings, store fitout and computer equipment. The poor trading performance has resulted in the
carrying value of the assets being greater than the recoverable amount. The recoverable amount has been determined as the value
in use of the assets which is the estimated future cash flows discounted back to the present value. The discount rate used was
15.61% (FY2015: 16.43%).
In addition to store impairment three stores were closed and associated costs with carrying amount of $684,277 (FY2015: $1,213,993)
were written off.
57
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
NOTE 9: NON-CURRENT ASSETS – DEFERRED TAX ASSETS
CONSOLIDATED ENTITY
The balance comprises temporary differences attributable to:
Amounts recognised in profit or loss
Employee benefits
Lease escalation
Inventories
Lease incentives
Depreciation
Other provisions and accruals
Employee share trust
Equity raising costs
Hedging reserve
Sundry items
Set-off of deferred tax liabilities of consolidated entity pursuant to set-off provisions:
Depreciation
Hedging reserve
Net deferred tax assets
Net deferred tax assets expected to be recovered within 12 months
Net deferred tax assets expected to be recovered after more than 12 months
Net deferred tax assets
MOVEMENTS CONSOLIDATED
EMPLOYEE
BENEFITS
INVENTORIES
HEDGING
RESERVE
At 29 June 2014
(Charged) / credited
- to profit or loss
- to other comprehensive income
- direct to equity
At 28 June 2015
(Charged) / credited
- to profit or loss
- to other comprehensive income
- direct to equity
At 3 July 2016
$’000
3,586
497
-
-
4,083
3,239
-
-
$’000
1,281
174
-
-
1,455
93
-
-
7,322
1,548
$’000
1,558
-
(3,188)
-
(1,630)
-
2,649
-
1,019
2016
$’000
7,322
3,068
1,548
628
2,350
1,073
441
65
1,019
(300)
17,214
(1,127)
-
16,087
10,426
5,661
16,087
OTHER
$’000
4,882
-
-
910
5,792
228
-
178
6,198
2015
$’000
4,083
3,212
1,455
617
1,668
1,343
66
131
-
(403)
12,172
(842)
(1,630)
9,700
4,084
5,616
9,700
TOTAL
$’000
11,307
671
(3,188)
910
9,700
3,560
2,649
178
16,087
58
REJECT SHOP NOTE 10: CURRENT LIABILITIES – PAYABLES
Unsecured liabilities
Trade payables
Sundry payables and accruals
NOTE 11: CURRENT LIABILITIES – BORROWINGS
Secured liabilities(i)
Bank Overdraft
Cash advance(ii)
CONSOLIDATED ENTITY
2016
$’000
27,516
5,602
33,118
2015
$’000
35,893
7,111
43,004
CONSOLIDATED ENTITY
2016
$’000
-
12,000
12,000
2015
$’000
-
-
-
(i) Commercial Bill – rolling 12 months
(ii) Cash advance will be settled within six months. A fixed interest rate of 2.9% (2015: 3.5%) is applied to the cash advance.
NOTE 12: LIABILITIES – PROVISIONS
CONSOLIDATED ENTITY
2016
$’000
2015
$’000
Make good (i)
Restructuring costs (ii)
Onerous leases
Employment entitlements
CURRENT
NON-CURRENT
TOTAL
CURRENT NON-CURRENT
TOTAL
600
7,650
355
13,811
22,416
-
-
335
1,497
1,832
600
7,650
690
15,308
24,248
-
-
1,261
11,720
12,981
-
-
329
1,666
1,995
-
-
1,590
13,386
14,976
(i) An estimate of the make good costs relating to the exit from the Melbourne Distribution Centre.
(ii) An estimate of the redundancy costs relating to the outsourcing of operations at the Melbourne Distribution Centre.
Amounts not expected to be settled within the next 12 months
The current provision for employee entitlements includes accrued annual leave, long service leave and bonus accruals. For long service
leave it covers all unconditional entitlements where employees have completed the required period of service and also those where
employees are entitled to pro-rata payments in certain circumstances. The entire amount of the provision for annual leave is presented
as current, since the group does not have an unconditional right to defer settlement for any of these obligations. The provision for long-
service leave has both a current and non-current portion. However, based on past experience, the group does not expect all employees
to take the full amount of accrued leave or require payment within the next 12 months. Expected future payments are discounted using
appropriate market yields at the end of the reporting period that match, as closely as possible, the estimated future cash outflows. The
following amounts reflect leave that is not expected to be taken or paid within the next 12 months.
Leave obligations expected to be settled after 12 months
CONSOLIDATED ENTITY
2016
$’000
3,339
2015
$’000
3,175
59
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
NOTE 13: CURRENT LIABILITIES - OTHER
Accrued expenses
Deferred income (note 1(g))
Rent escalation
NOTE 14: NON-CURRENT LIABILITIES – BORROWINGS
Secured liabilities
Cash advance (i)
CONSOLIDATED ENTITY
2016
$’000
6,929
851
2,614
10,394
2015
$’000
8,137
815
2,725
11,677
CONSOLIDATED ENTITY
2016
$’000
2015
$’000
-
12,000
(i) A fixed interest rate of 3.5% (FY2015) is applied to the cash advance.
All secured liabilities listed within note 11, 14 and 21 including Bank overdraft and bank loans, finance purchases and hire purchase
agreements are secured by a Cross Guarantee and Indemnity between The Reject Shop Limited and TRS Trading Group Pty Ltd
supported by:
First Registered Company Charge (Mortgage Debenture) over all the assets and undertakings of The Reject Shop Limited.
This is a fixed and floating charge over all present and future assets, undertakings (including goodwill); and unpaid/uncalled
capital of the Company.
First Registered Company Charge (Mortgage Debenture) over all the assets and undertakings of TRS Trading Group Pty Ltd.
This is a fixed and floating charge over all present and future assets, undertakings (including goodwill); and unpaid/uncalled
capital of the Company.
Letter of Set Off by and on account of The Reject Shop Limited and TRS Trading Group Pty Ltd.
REJECT SHOP NOTE 15: NON-CURRENT LIABILITIES – OTHER
Deferred income (Note 1(g))
Rent escalation
NOTE 16: CONTRIBUTED EQUITY
Movements in ordinary share capital:
DATE
29 June 2014
1 July 2014
DETAILS
Balance
Exercise of performance rights
28 June 2015
Balance
21 July 2015
3 July 2016
Exercise of performance rights
Balance
CONSOLIDATED ENTITY
2016
$’000
2,004
7,612
9,616
2015
$’000
2,462
7,982
10,444
NUMBER OF
ISSUED SHARES
ISSUE PRICE
PER SHARE $
CONTRIBUTED
EQUITY $’000
28,826,248
18,400
28,844,648
4,975
28,849,623
-
-
46,247
-
46,247
-
46,247
All shares carry one vote per share and rank equally in terms of dividends and on winding up. Ordinary shares have no par value and
the Company does not have a limited amount of authorised capital.
NOTE 17: EQUITY – RESERVES
Capital profits reserve
Share based payments reserve
Hedging reserve – cash flow hedges
Movements:
Share based payments reserve
Balance at beginning of period
Performance Rights expense
Deferred tax – share based payments
Balance at end of period
Hedging reserve – cash flow hedges
Balance at beginning of period
Transfer to inventory
Revaluation of cash flow hedges
Balance at end of period
CONSOLIDATED ENTITY
2016
$’000
739
4,497
(2,379)
2,857
3,638
681
178
4,497
3,803
(3,803)
(2,379)
(2,379)
2015
$’000
739
3,638
3,803
8,180
3,705
(189)
122
3,638
(3,636)
3,636
3,803
3,803
61
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
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 22. Amounts accumulated in equity are included in the cost of the hedged item when the forecast
purchase that is hedged takes place.
(ii) Share-based payments reserve
The share-based payments reserve is used to recognise the fair value of performance rights issued.
NOTE 18: EQUITY – RETAINED PROFITS
Retained profits at the beginning of the financial period
Net profit attributable to members of the consolidated entity
Dividends provided for or paid
Retained profits at reporting date
CONSOLIDATED ENTITY
2016
$’000
80,246
17,100
(11,108)
86,238
2015
$’000
73,217
14,239
(7,210)
80,246
Since the end of the financial period the directors have declared the payment of a final ordinary dividend of 19.0cents per share.
Dividends are fully franked at a tax rate of 30% and will be paid on 17 October 2016.
NOTE 19: COMMITMENTS
Operating Lease Commitments
Non cancellable operating leases contracted for but not capitalised in the financial
statements payable:
Not later than one year
Later than one year and not later than five years
Later than five years
CONSOLIDATED ENTITY
2016
$’000
2015
$’000
108,613
191,008
29,984
329,605
85,630
196,641
15,898
298,169
Operating leases primarily relate to retail stores over a two to eight year time period and contain varying terms and escalation
clauses.
This does not include any rental payments payable as a percentage of sales contingent on achieving sales thresholds contained
within existing operating leases (‘percentage rent’) as these amounts cannot be reliably measured for future periods. The amount
expensed during the current period for percentage rent was $256,036 (FY2015: $641,490).
Capital Commitments
The consolidated entity has capital commitments totalling $8,805,806 (FY2015: $690,000), all payable within one year.
62
REJECT SHOP
NOTE 20: CONTINGENT LIABILITIES
Estimates of the maximum amount of contingent liabilities that may become payable:
Letters of credit established for acquisition of goods for resale
NOTE 21: STATEMENT OF CASH FLOW INFORMATION
Reconciliation of Cash Flow from operating activities with profit
after income tax from ordinary activities
Profit from ordinary activities after Income Tax
Non cash items in profit from ordinary activities
Depreciation
Impairment of store assets
Asset write offs on store closures
Asset write offs on DC closure
(Gain)/Loss on disposal of property, plant and equipment
Provision for onerous leases
Non cash share based expense
Changes in assets and liabilities:
(Increase)/Decrease in receivables and other assets
Decrease in inventories
Increase in trade, other creditors and other provisions
Increase in income tax payable
(Increase)/Decrease in deferred tax assets
Net cash provided by operations
Reconciliation of cash
Cash at the end of the financial period as shown in the statements of cash flows is
reconciled to the related items in the balance sheets as follows:
Cash on hand
Cash at bank
Less: Bank overdraft
CONSOLIDATED ENTITY
2016
$’000
-
2015
$’000
-
CONSOLIDATED ENTITY
2016
$’000
17,100
19,457
-
684
810
3
(900)
681
(9,507)
1,725
997
945
(6,387)
25,608
1,600
13,468
15,068
-
15,068
2015
$’000
14,239
19,127
1,291
1,214
-
(139)
845
(189)
1,919
1,020
5,081
957
1,487
46,852
1,472
15,854
17,326
-
17,326
63
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Credit standby arrangement and loan facilities
The ongoing funding requirements of the Company, renewed annually, are provided under the terms of a facility agreement.
The key facilities and their utilisation are as follows:
Interchangeable Working Capital Facility
2016
Limit
$’000
40,005
Utilised
$’000
12,000
2015
Limit
$’000
40,005
Foreign Currency Settlement
850
-
850
Other Facilities
Total Facilities
1,600
42,455
1,354
13,354
23,600
64,455
Utilised
$’000
-
-
13,391
13,391
A seasonal facility of $20,000,000 was utilised from 1 October 2015 and repaid in full by 31 December 2015. Other facilities include
an ANZ Bank indemnity guarantee of $1,600,000 of which $1,354,051 was utilised in relation to property leases at 3 July 2016.
NOTE 22: FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
CONSOLIDATED ENTITY
2016
$’000
2015
$’000
Derivative Financial Instruments
Current assets and (liabilities)
Forward foreign exchange contracts – cash flow hedges
(3,398)
5,433
Forward exchange contracts – cash flow hedges
The consolidated entity imports product from overseas. In order to protect against exchange rate movements, the consolidated
entity enters into forward exchange contracts to purchase foreign currency for all overseas purchases. These contracts are hedging
contracts for highly probable forecast purchases for the ensuing financial period. The contracts are timed to mature when payments
for shipments of products are scheduled to be made.
At balance date, the details of outstanding forward exchange contracts to be settled within 12 months are:
SELL
Australian Dollars
Australian Dollars
Australian Dollars
BUY
United States Dollars
Euro
Pounds Sterling
AVERAGE EXCHANGE RATE
2016
$’000
174,712
5,168
3,629
2015
$’000
136,156
5,087
1,585
2016
$
0.73
0.66
0.50
2015
$
0.81
0.69
0.51
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other
comprehensive income. When the cash flows occur, the consolidated entity adjusts the initial measurement of the component
recognised in the balance sheet by the related amount deferred in equity.
At the balance date the revaluation of these contracts to fair value resulted in a liability of $3,398,327 (FY2015 – asset of $5,433,153).
During the period $3,803,207 (FY2015 – $3,635,855) was removed from equity and included in the acquisition cost of goods and a
net gain of $nil (FY2015 – net $Nil) was transferred to the profit and loss.
64
REJECT SHOP Exposure to Foreign Currency Risk
The Company’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollar was as follows:
DATE
Cash at bank
Trade payables
2016
$’000
34
4,920
2015
$’000
2,783
3,782
Forward exchange contracts – Balance Date Sensitivity Analysis
The following table summarises the sensitivity of the consolidated entity as at balance date to movements in the value of the
Australian dollar compared to the United States dollar, the principal currency that the consolidated entity has an exposure to.
The sensitivity analysis as at balance date relates to the conversion of the United States Dollar foreign currency bank account
and foreign currency payables and the impact on other components of equity arises from foreign forward exchange contracts
designated as cash flow hedges as follows:
Sensitivity Analysis – foreign exchange AUD/USD
For every 1c increase in AUD:USD rate, total exposures (decrease) by
Income Statement
Equity
For every 1c decrease in AUD:USD rate, total exposures increase by
Income Statement
Equity
Interest Rate Risk
CONSOLIDATED ENTITY
2016
$’000
2015
$’000
(62)
(2,284)
64
2,346
(13)
(556)
13
573
The consolidated entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result
of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial
liabilities, is as follows:
2016
Financial Assets
Cash
Receivables and other debtors
Total Financial Assets
Financial Liabilities
Bank loans and overdrafts
Trade, sundry and other creditors
Total Financial Liabilities
WEIGHTED
AVERAGE
EFFECTIVE
INTEREST RATE
FLOATING
INTEREST
RATE
$’000
FIXED INTEREST
RATE MATURING
WITHIN 1 YEAR
$’000
FIXED INTEREST
RATE MATURING
WITHIN 1 TO 5 YEARS
$’000
NON-
INTEREST
BEARING
$’000
TOTAL
$’000
1.50
15,068
-
-
-
15,068
-
-
-
2.90
-
-
-
-
-
12,000
-
12,000
-
-
-
-
-
-
-
-
-
15,068
-
15,068
-
12,000
37,904 37,904
37,904 49,904
65
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
2015
Financial Assets
Cash
Receivables and other debtors
Total Financial Assets
Financial Liabilities
Bank loans and overdrafts
Trade, sundry and other creditors
Total Financial Liabilities
WEIGHTED
AVERAGE
EFFECTIVE
INTEREST RATE
FLOATING
INTEREST
RATE
$’000
FIXED INTEREST
RATE MATURING
WITHIN 1 YEAR
$’000
FIXED INTEREST RATE
MATURING WITHIN 1
TO 5 YEARS
$’000
NON-
INTEREST
BEARING
$’000
TOTAL
$’000
1.14
17,326
-
-
-
17,326
3.48
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,326
-
17,326
12,000
-
12,000
-
48,941
48,941
12,000
12,000
48,941
60,941
The following table summarises the sensitivity of the consolidated entity to movements in interest rates by applying changes in
interest rates to the average levels of financial assets and liabilities carried by the consolidated entity over the last two reporting
periods. The table illustrates the impact of a change in rates of 100 basis points, a level that management believes to be a
reasonably possible movement.
Sensitivity Analysis – Interest Rates
For every 100 basis points increase in interest rates
Income Statement
Equity
For every 100 basis points decrease in interest rates
Income Statement
Equity
Credit Risk
2016
$’000
CONSOLIDATED
2015
$’000
(42)
-
42
-
(350)
-
350
-
The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date in respect of
recognised financial assets is the carrying amount of those assets, net of any provisions for doubtful debts of those assets, as
disclosed in the balance sheet 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 is the net fair value of these contracts.
The consolidated entity does not have any material credit risk exposure to any single debtor or group of debtors under financial
instruments entered into by the consolidated entity.
66
REJECT SHOP
Capital Risk Management
The consolidated entity’s objectives when managing capital are to safeguard the 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 cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce debt.
During 2016, the company’s strategy, which was unchanged from 2015, was to maintain a gearing ratio at or below 30%. The gearing
ratio at 3 July 2016 and 28 June 2015 were as follows:
Net debt/(cash)
Total equity
Net debt to equity ratio
Liquidity Risk
2016
$’000
(3,068)
135,342
(2.27%)
2015
$’000
(5,326)
134,673
(3.95%)
The consolidated entity manages liquidity risk by continuously monitoring forecast and actual cashflow and matching the maturity
profiles of financial assets and liabilities. Such cashflow forecasting ranges from daily to weekly to monthly, with an annual forecast
to ensure funding facilities are sufficient to service the business.
The tables below analyse the consolidated entity’s financial liabilities, net 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. The consolidated and parent entity has no financial liabilities
maturing in greater than five years.
CONSOLIDATED – AT 3 JULY 2016
LESS
THAN
6 MONTHS
$’000
6-12
MONTHS
$’000
BETWEEN
1 AND 2 YEARS
$’000
BETWEEN
2 AND 5 YEARS
$’000
TOTAL
CONTRACTUAL
CASH FLOWS
$’000
CARRYING AMOUNT
(ASSETS)/LIABILITIES
$’000
Non-derivatives
Non-interest bearing
Variable rates
Fixed rate
Total non-derivatives
Derivatives
Net settled
Gross settled
- (inflow)
- outflow
Total derivatives
37,904
-
12,000
49,904
-
-
-
-
-
-
(123,963)
(56,148)
127,825
55,684
3,862
(464)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,904
-
12,000
49,904
-
(180,111)
183,509
3,398
37,904
-
12,000
49,904
-
-
3,398
3,398
67
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
CONSOLIDATED – AT 28 JUNE 2015
Non-derivatives
LESS THAN
6 MONTHS
$’000
6-12
MONTHS
$’000
BETWEEN
1 AND 2 YEARS
$’000
BETWEEN
2 AND 5 YEARS
$’000
TOTAL
CONTRACTUAL
CASH FLOWS
$’000
CARRYING AMOUNT
(ASSETS)/LIABILITIES
$’000
Non-interest bearing
48,941
Variable rates
Fixed rate
-
-
Total non-derivatives
48,941
-
-
-
-
-
-
(82,716)
(44,488)
81,674
43,403
(1,042)
(1,085)
-
-
12,013
12,013
-
-
-
-
-
-
-
-
-
-
-
-
48,941
-
12,013
60,954
48,941
-
12,013
60,954
-
-
(127,204)
125,077
(2,127)
(5,433)
-
(5,433)
Derivatives
Net settled
Gross settled
- (inflow)
- outflow
Total derivatives
Net Fair Values
For other assets and other liabilities the net fair value approximates their carrying value.
Fair Value Measurements
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure
purposes.
AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value
measurement hierarchy:
(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
(b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or
indirectly (derived from prices) (level 2); and
(c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).
No financial assets and financial liabilities are readily traded on organised markets in standardised form other than listed
investments, forward exchange contracts and interest rate swaps.
The following table presents the entity’s assets and liabilities measured and recognised at fair value at 3 July 2016.
2016
$’000
Level 2
(3,398)
2015
$’000
Level 2
5,433
Derivatives used for hedging
68
REJECT SHOP NOTE 23: KEY MANAGEMENT PERSONNEL DISCLOSURES
Non-Executive Directors
William J Stevens – Chairman
Kevin J Elkington
Denis R Westhorpe
Melinda Conrad
Executive Directors
Ross Sudano – Managing Director
All of the above persons were directors of The Reject Shop Limited for the entire period ended 3 July 2016.
Other Key Management Personnel
The following persons had authority and responsibility for planning, directing, and controlling the activities of the consolidated entity
directly or indirectly during the financial period:
Ed Tollinton – Chief Information Officer
Darren R Briggs – Chief Financial Officer and Company Secretary
Colleen Grady – General Manager, Merchandise Buying
Kelvin Chand – General Manager, Property
Geoff W Pearce – General Manager, Business Transformation (Resigned on 1 July 2015)
Robert d’Andrea – General Manager, Human Resources
Danielle Aquilina – General Manager, Supply Chain and Planning
Allan J Penrose – General Manager, Marketing
Allison Batten – General Manager, Merchandise Planning (Resigned on 1 July 2016)
Michael Robertson – General Manager, Retail Operations (Resigned on 31 May 2016)
All of the above persons were employed by The Reject Shop Limited and were key management personnel for the entire period
ended 3 July 2016.
Remuneration of Directors and Key Management Personnel
Short-term cash rewards
Short-term employee benefits
Post-employment benefits
Termination benefits
Other
Share-based payments
2016
$
1,133,743
3,910,733
240,709
111,467
-
700,373
6,097,025
CONSOLIDATED
2015
$
-
3,352,677
226,804
154,751
80,505
(44,348)
3,770,389
No other long term or termination benefits were paid or payable with respect to the current or prior period.
69
ANNUAL REPORT 2015/16
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
NOTE 24: SHARE-BASED PAYMENTS
Performance Rights Plan (PRP)
The PRP is the basis of The Reject Shop Limited’s long term reward scheme for selected senior employees. In summary, eligible
employees identified by the Board may be granted performance rights, which is an entitlement to a share subject to satisfaction
of exercise conditions on terms determined by the Board.
The details of all grants made outstanding for each financial period are detailed in the tables below:
2016
DATE OF GRANT EXPIRY DATE
DATE
EXERCISABLE
FAIR VALUE
AT GRANT
DATE $
BALANCE
AT START
OF
PERIOD
GRANTED
DURING
THE
PERIOD
EXERCISED
DURING
THE
PERIOD
LAPSED
DURING
THE
PERIOD
BALANCE
AT THE END
OF THE
PERIOD
VESTED AND
EXERCISABLE
AT THE END OF
THE PERIOD
18 Oct 2011
18 Oct 2016 1 Jul 2015
18 Oct 2012
18 Oct 2017
1 Jul 2016
10 Jan 2013
10 Jan 2018 1 Jul 2016
17 Oct2013
17 Oct 2017
1 Jul 2016
13 Oct 2014 (i)
13 Oct 2018 1 Jul 2017
14 Oct 2015 (ii)
14 Oct 2019 1 Jul 2018
8.92
12.24
14.04
16.89
7.54
8.62
4,975
5,975
750
8,050
110,600
-
-
-
-
-
-
270,500
(4,975)
-
-
-
-
-
-
(500)
-
(4,350)
-
5,475
750
3,700
(33,200)
77,400
(51,800)
218,700
Total
130,350
270,500
(4,975)
(89,850)
306,025
-
-
-
-
-
-
-
There were no other changes to performance rights granted during the period.
(i) The performance rights that will vest if targeted criteria are met will be 39,500. The additional 37,900 performance rights will only be issued to key
management personnel if targeted criteria are over achieved.
(ii) The performance rights that will vest if targeted criteria are met will be 110,400. The additional 108,300 performance rights will only be issued to
key management personnel if targeted criteria are over achieved.
2015
DATE OF
GRANT
EXPIRY DATE
DATE
EXERCISABLE
FAIR VALUE
AT GRANT
DATE $
BALANCE
AT START
OF PERIOD
GRANTED
DURING
THE PERIOD
EXERCISED
DURING
THE PERIOD
LAPSED
DURING
THE PERIOD
BALANCE AT
THE END OF
THE PERIOD
VESTED AND
EXERCISABLE
AT THE END OF
THE PERIOD
15 Sep 2010
15 Sep 2015 1 Jul 2014
15.27
13,600
20 Oct 2010
20 Oct
2015
1 Jul 2014
15.49
4,800
18 Oct 2011
18 Oct 2016 1 Jul 2015
18 Oct 2012
18 Oct 2017
1 Jul 2016
10 Jan 2013
10 Jan 2018 1 Jul 2016
17 Oct2013
17 Oct 2017
1 Jul 2016
13 Oct 2014(i)
13 Oct 2018 1 Jul 2017
8.92
12.24
14.04
16.89
7.54
53,900
99,500
6,000
63,800
-
-
-
-
-
-
(13,600)
(4,800)
-
-
-
-
-
-
-
(48,925)
(93,525)
(5,250)
(55,750)
-
-
4,975
5,975
750
8,050
(69,400)
110,600
-
-
-
-
-
-
-
-
180,000
Total
241,600
180,000
(18,400)
(272,850)
130,350
There were no other changes to performance rights granted during the period.
(i) The performance rights that will vest if targeted criteria are met will be 55,500. The additional 55,100 performance rights will only be issued to key
management personnel if targeted criteria are over achieved.
The Company, effective from 2 July 2011 and prior to 12 October 2014, changed the vesting conditions for all performance rights
grants that had not expired. The proportion of performance rights grants that ultimately vest will be determined by a combination
of financial and non-financial criteria.
The financial criteria, which will carry a 60% weighting toward the performance rights vesting, consists of the following hurdles over
a three year period:
70
REJECT SHOP ∙ Earnings Per Share compound growth of at least 10% per annum;
∙
Improved Earnings Before Interest, Income Tax, Depreciation and Amortisation (EBITDA) of at least 0.15% to sales per annum; and
∙ Return on Average Capital Employed of at least 20% per annum.
The non-financial criteria, consists of a number of improvements in operational aspects considered critical to the long-term
development of the business. These non-financial criteria include:
∙
Improved OH&S performance (Lost Time Injury Rate);
∙ Staff and customer satisfaction measures; and
∙ Brand development measures.
The Board retain the right to assess all aspects of the vesting conditions for future performance rights grants.
Performance rights, which are an entitlement to a share, had traditionally vested four years after grant date, representing a three
year earnings period over which the established financial and non-financial (if applicable) criteria are measured, and an additional
one year service period the employee must satisfy prior to vesting of the shares. However, effective from the rights issues in
October 2013, vesting of shares will now occur over the three year period over which the established financial and non-financial
(if applicable) criteria are measured. Rights participants will no longer have to serve the additional twelve month service period
before such rights are able to vest. In respect of performance rights granted after 12 October 2014, a 100% weighting will apply
to the achievement of the financial criteria, as set out above.
The total exercise price payable on the exercise of one or more performance rights on a particular day is $1.00, regardless of the
number of performance rights exercised on that day.
The assessed fair value at grant date of performance rights granted to the individuals is allocated equally over the period from grant
date to vesting date, and the annual allocation amount is included in remuneration.
For the grants made on 14 October 2015 the fair value was determined using Black-Scholes option pricing model taking into account
the following inputs:
(a) Performance rights are granted for no consideration, all grants are exercisable provided the relevant EPS hurdle rate is met and
the executive remains employed on the exercise date;
(b) exercise price: $1.00 in total for all performance rights exercised;
(c) share price at grant date: $9.40;
(d) expected volatility of the Company’s shares: 37.56%;
(e) expected dividend yield: 3.19%; and
(f) risk-free interest rate: 2.50%
The expected price volatility is based on the historic volatility, adjusted for any expected changes to future volatility due to publicly
available information.
Performance rights do not carry voting or dividend entitlements.
Subsequent to period end, the Board has not granted any further performance rights under the PRP.
Remuneration Expenses arising from share-based payment transactions
Performance rights granted
2016
$
681,764
CONSOLIDATED
2015
$
(189,366)
71
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
NOTE 25: REMUNERATION OF AUDITORS
During the period the following fees for services were paid or payable
to PricewaterhouseCoopers and its related parties as the auditor:
Audit and Assurance Related Services
Audit and review work
Other assurance services
Tax Compliance and Consulting Services
Tax compliance
Tax consulting advice
CONSOLIDATED ENTITY
2016
$
2015
$
303,892
25,060
328,952
35,712
25,000
60,712
286,206
20,406
306,612
42,500
35,500
78,000
Total remuneration
389,664
384,612
NOTE 26: DIVIDENDS
Since period end the directors have declared the payment of a fully franked final dividend
of 19.0 cents per share. The amount of the proposed dividends is to be paid on 17
October 2016 out of retained profits, but not recognised as a liability at period end.
Balance of franking account at period end adjusted for franking credits arising from
payment of provision for income tax and dividends recognised as receivables, franking
debits arising from payment of proposed dividends and any credits that may be
prevented from distribution in subsequent periods based on a tax rate of 30%
2016
$’000
CONSOLIDATED
2015
$’000
5,483
3,895
46,528
42,313
Dividends recognised during the reporting period:
Dividends paid to members during the financial period was a final ordinary dividend for the financial period ended 28 June 2015 of 13.5
cents per share totalling $3,894,710 paid on 12 October 2015. An interim ordinary dividend for the financial period ended 3 July 2016 of
25.0 cents per share (2015: 16.5 cents per share) totalling $7,212,406 (2015: $4,759,379) was paid on the 11 April 2016 (2015: 13 April 2015).
72
REJECT SHOP NOTE 27: EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
Weighted average number of ordinary shares used as the denominator in calculating
basic earnings per share.
Adjustments for dilutive portion of performance rights
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share.
2016
CENTS
59.3
58.8
CONSOLIDATED
2015
CENTS
49.4
49.2
28,849,328
245,531
28,844,597
98,446
29,094,846
28,943,043
Performance Rights granted under the Performance Rights Plan are considered to be potential ordinary shares and have been
included in the determination of diluted earnings per share. Details relating to the performance rights are set out in note 24.
NOTE 28: NET TANGIBLE ASSETS
Net tangible asset backing per ordinary share
NOTE 29: PARENT ENTITY FINANCIAL INFORMATION
(a) Summary financial information
The individual financial statements for the parent entity show the following aggregate
amounts:
Balance Sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Issued capital
Reserves
Retained earnings
Profit for the year
Total Comprehensive Income
CONSOLIDATED ENTITY
2016
CENTS
469.1
2015
CENTS
466.9
2016
$’000
PARENT ENTITY
2015
$’000
124,566
230,595
84,808
96,256
46,247
2,857
85,235
134,339
17,100
10,918
124,476
228,308
70,199
94,638
46,247
8,180
79,243
133,670
14,239
21,678
73
ANNUAL REPORT 2015/16 NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
(b) Guarantees entered into by the parent entity
Carrying amount included in current liabilities
2016
$’000
-
PARENT ENTITY
2015
$’000
-
Refer to note 19 and 20 for disclosures concerning contingent liabilities and contractual commitments for the parent entity.
NOTE 30: SEGMENT INFORMATION
The Reject Shop operates within one reportable segment (retailing of discount variety merchandise). Total revenues of $799,957,744
all relate to the sale of discount variety merchandise in the Company’s country of domicile (Australia), in this single reportable
segment. The Company is not reliant on any single customer.
NOTE 31: SUBSIDIARIES
The Reject Shop Limited has a 100% owned non-operating subsidiary, TRS Trading Group Pty Ltd incorporated in Australia.
There were no transactions between the parent entity and its subsidiary during the period (FY2015 - Nil).
In addition, The Reject Shop Limited has effective control over The Reject Shop Limited Employee Share Trust which administers
shares issued through the Company’s Performance Rights Plan. This entity is also consolidated.
NOTE 32: MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL PERIOD
No matters or circumstances have arisen since the end of the financial period which have significantly affected or may significantly
affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in
future financial periods.
NOTE 33: RELATED PARTY TRANSACTIONS
No related party transactions were entered into during the period ended 3 July 2016.
74
REJECT SHOP DIRECTORS’ DECLARATION
In the directors’ opinion:
(a) The financial statements and notes set out on pages 43 to 74 are in accordance with the Corporations Act 2001, including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements; and
(ii) giving a true and fair view of the consolidated entity’s financial position as at 3 July 2016 and of its performance for the
financial period ended on that date; and
(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and
payable; and
The directors draw attention to Note 1(a) to the financial statements, which includes a statement of compliance 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:
WJ Stevens
Chairman
Dated this 24th day of August 2016
75
ANNUAL REPORT 2015/16 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF THE REJECT SHOP LIMITED
76
REJECT SHOP 77
ANNUAL REPORT 2015/16 SHAREHOLDERS’ INFORMATION
AS AT 28TH JULY 2016
The shareholder information set out below was applicable as at 28 July 2016.
(a) The distribution of shareholding was as follows:
SIZE OF SHAREHOLDING
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
SHAREHOLDERS
4,693
1,741
196
100
13
(b) 272 shareholders hold less than a marketable parcel of shares, being a market value of less than $1,000
(c) Substantial shareholders based on notifications to the Company were:
SHAREHOLDER
Westpac Banking Corporation
Vinva Investment Management
NUMBER
1,466,593
1,447,054
% HELD
5.08%
5.02%
(d) The fully paid issued capital of the Company consisted of 28,849,623 shares held by 6,743 shareholders.
Each share entitles the holder to one vote.
(e) Unquoted Equity Securities
UNQUOTED EQUITY SECURITIES
NUMBER ON ISSUE
NUMBER OF HOLDERS
Performance Rights issued under The Reject Shop Performance Rights Plan
296,100
8
78
REJECT SHOP
SHAREHOLDERS’ INFORMATION
AS AT 28TH JULY 2016
CONTINUED
(f) Twenty largest shareholders
SHAREHOLDER
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
RBC INVESTOR SERVICES AUSTRALIA PTY LIMITED
BNP PARIBAS NOMS PTY LTD
BRISPOT NOMINEES PTY LTD
UBS NOMINEES PTY LTD
GRAHGER CAPITAL SECURITIES PTY LTD
BUTTONWOOD NOMINEES PTY LTD
MR ROBERT THOMAS & MRS KYRENIA THOMAS
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
WARBONT NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
CASHMERE DELL PTY LTD
MR DANIEL JAMES FITZGERALD & MRS KARINA FITZGERALD
DR ANDREW RICHARD CONWAY & DR VANESSA JOY TEAGUE
ARACAN PTY LTD
MR RICHARD WAITE & MRS SUSAN WAITE
NUMBER
4,668,430
4,614,687
3,325,694
3,098,006
1,375,580
737,417
224,411
213,141
195,232
178,343
145,000
140,644
122,470
108,261
93,107
76,693
71,800
70,925
65,843
51,500
The twenty members holding the largest number of shares together held a total of 67.85% of the issued capital.
(g) Restricted Shares
There are no restricted shares on issue.
% HELD
16.18%
16.00%
11.53%
10.74%
4.77%
2.56%
0.78%
0.74%
0.68%
0.62%
0.50%
0.49%
0.42%
0.38%
0.32%
0.27%
0.25%
0.25%
0.23%
0.18%
79
ANNUAL REPORT 2015/16
CORPORATE DIRECTORY
DIRECTORS
William J Stevens
Chairman
Ross Sudano
Executive Director
Kevin J Elkington
Non-executive Director
Denis R Westhorpe
Non-executive Director
Melinda Conrad
Non-executive Director
COMPANY SECRETARY
Darren R Briggs
PRINCIPAL
REGISTERED OFFICE
245 Racecourse Road
Kensington Vic 3031
Phone: (03) 9371 5555
SHARE REGISTRY
Link Market Services Ltd
Tower 4, 727 Collins Street
Melbourne Vic 3008
AUDITORS
PricewaterhouseCoopers
Freshwater Place
2 Southbank Boulevard
Southbank Vic 3006
LAWYERS
Baker McKenzie
Level 39
525 Collins Street
Melbourne Vic 3000
STOCK EXCHANGE LISTING
The Reject Shop Limited shares are listed
on the Australian Stock Exchange.
WEBSITE
www.rejectshop.com.au
80
REJECT SHOP