Appendix 4E
The Reject Shop Limited
(ABN 33 006 122 676)
Consolidated preliminary final report
For the 52 week financial period ended 01 July 2018
Compared to the 52 week financial period ended 02 July 2017
Results for announcement to the market
$A'000
Sales revenue from continuing operations
Profit from continuing operations after tax attributable to
members
Net profit for the period attributable to members
Up
Up
Up
0.8%
to
800,306
34.3%
to
16,577
34.3%
to
16,577
Dividends
Interim dividend (paid 09 April 2018)
Final dividend
Amount per share
Franked amount per
share
24.0 cents
11.0 cents
100%
100%
Record date for determining entitlements to final
dividend
28 September 2018
Dividend payment date
15 October 2018
Commentary on the Company’s trading results is included in the media release and on pages 18 to 21 of
the annual report enclosed.
ANNUAL
REPORT
2017/2018
TABLE OF
contents
Chairman’s Report
Managing Director and Chief Executive Officer’s Report
Board of Directors
Management Team
The Reject Shop Foundation
Corporate Governance, Environmental,
Social Statement and Financial Report
- Directors’ Report
- Auditors Independence Declaration
- Consolidated Statement of Comprehensive Income
- Consolidated Balance Sheet
- Consolidated Statement of Changes in Equity
- Consolidated Statement of Cash Flows
- Notes to the Consolidated Financial Statements
- Directors’ Declaration
- Independent Auditor’s Report to the
Members of The Reject Shop Limited
- Shareholders’ Information
- Corporate Directory
2
4
6
8
10
11
17
34
35
36
37
38
39
68
69
75
77
Notice Of Annual General Meeting: 3:30pm, Wednesday 17 October 2018
at 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. These financial statements
are presented in Australian currency and were authorised for issue by the
directors on 22 August, 2018. The company has the power to amend and
re-issue these financial statements.
THE REJECT SHOP 2017/2018
1
CHAIRMAN’S
report
Dear Shareholder,
After a good first half result, the net
profit of $16.6 million represents a solid
result for the year. It is a significant
improvement on the outcome for the
prior comparative period - and is the
outcome of continuing expenditure
on the development of systems and
processes. It reflects more nimble
approaches to the challenges of the
sector; and, the fantastic attitude and
endeavours of our total team – which
now numbers more than 5,000 people.
Your Company has continued its
history of annual profitable operations.
We remain committed to leveraging
organic growth opportunities, where
sensible economic outcomes can
be achieved. It has been a very
challenging time, and the Board
thank all our staff for their positive
attitudes and actions in support of
your company and its objectives.
Regarding the contributions of our
people, and on behalf of all the TRS
team, I particularly express my thanks
to the family of Denis Westhorpe.
Denis was a Director of the Reject
Shop from October 2010 – until
his premature, untimely and most
unexpected death on 2nd April 2018.
Denis, with his extensive and deep retail
background; and his calm, considered
and challenging conversation, was an
incredibly vital member of the Board for
more than seven years. His participation
and contribution are missed, and our
condolences to his wife Julie and their
family continue.
We are keen to replace the skill,
experience and capability that Denis
brought to the Board, and I expect
to provide further detail prior to the
Annual General Meeting in October.
Our Chief Executive Officer and
Managing Director, Ross Sudano, has
set out further detail, in his report, all
of the actions that he and his team
believe will achieve our objectives. While
some elements of the retail economy
appear sound; the Discount Variety
sector remains particularly challenged.
The limited growth in real wages, and
the very slow growth in the Australian
economy overall will ensure, for Ross
and his team, that competition within
the sector will remain very sharp indeed.
The Company’s balance sheet
nonetheless remains strong. The profit
and the cash flows achieved during the
year allows distributions to shareholders
to return to historic levels of 60% of
net profit, while allowing continued
investment into the Company’s future.
The Board wishes to remunerate all our
people fairly for the work that they do.
This fairness is relative to the role and
responsibilities that they undertake, and
relative to the marketplace. Following
the underperformance of the business
in the second half of 2017, and for that
financial year, no performance-based
remuneration was paid for 2017, and
no increases in fixed salary or fees
were paid to the members of the
Executive team, or the Board, in 2018.
William J Stevens
Chairman
The annual result for 2018 is at the
lower end of the range expected
by the Board. As set out in the 2018
Remuneration Report, the Board has
approved the payment of some
performance-based remuneration
to members of the Executive team
in respect of the 2018 year.
No amount payable to any Executive
is more than 50% of the amount
which could have been payable,
had the Targets been achieved.
The operating cash flows, together
with strong management by Ross
and his team of our inventory, capital
expenditure programs and investment
in new stores; ensures that the
Company continues to have adequate
access to finance to support our
objectives. The Company has been,
and remains, compliant with all its
debt facility covenants.
All Reject Shop stores are staffed and
operated by the Company. Ross,
together with his team, are continuing
the development of the operating
processes that will sustain the growth,
and the enhanced profitability, of your
Company. Growth in sales remains
vital, but it is recognised that across the
retail sector, that the capacity for sales
growth is very challenged. Accordingly,
driving growth in sales with both value
and low price is also balanced with
the achievement of sensibly profitable
sales. For the long-term; we continue to
devote significant attention to efficiently
reducing our Cost of Doing Business,
sustaining and developing our team
members, and effectively minimising
our environmental impacts and their
costs to the business.
2
OUR EXTENSIVE STORE NETWORK
ENABLES US TO HAVE ONGOING
CONTACT WITH MANY COMMUNITIES
The team, and your Board, consider
that our charter, our core values,
and our mission remain steadfast.
In this sense, and with the Trugganina
Distribution Centre (opened in the
2nd half of 2017) now achieving its
expected efficiencies; and with the
ability to benefit from our recently
opened Hong Kong sourcing centre;
we believe we have a greater capacity
to leverage these investments in fixed
infrastructure, and to continue to seek
new store opening opportunities.
The safety and well-being of our
people, and our customers remains
paramount. This year was free of major
health and safety incidents, and the
Board, and the whole team, remain
committed to an objective of injury
free operations. We are however a
significant cash-based multi-product
and multi-location business, and a
major importer of pre-packaged
products. We remain vigilant to the
risks which that this may involve for
our staff and customers.
Our store numbers grew only slightly this
year, but we will continue to seek the
sensible expansion of our store network
across the country. Increased store
numbers will better leverage our fixed
infrastructure, and we will also continue
our store refurbishment program.
Our engagement with, and support
from, our customers requires that
we continue to reward them with
the best offer, within inviting and
well-furbished stores.
Where store locations and customer
access are further challenged by
frequent property redevelopment
activity, we will continue to seek
alternative and replacement sites.
We will also seek new store opportunities
in locations that may not have had
access to our exciting and value offer.
We have a great many loyal customers;
but the opportunity to take our offer
to new and profitable locations is
important in further leveraging our
investment in the support services,
systems and infrastructure.
As discussed previously, all our stores
are expected to achieve sales that will
enable sound economic outcomes,
or be closed. We consider the vast
majority of our stores to be sustainable,
however Store rents are, and will
remain, a significant component of
our expenses, and operating cash
flows. Accordingly, where sustainable
sales and rental outcomes cannot be
achieved, alternative action will occur.
As stated above, lease rental costs of
our Stores and Distribution Centres are
a significant component of our costs.
I have referred previously to some
of the ill-informed commentary on
the new Lease Accounting Standard
causing negative impacts on the share
prices of many retailers. Accordingly,
and well in advance of any requirement
for adoption, our Financial report for
this year includes significant detail
regarding the likely impacts of the
new accounting standard for leases.
This new accounting standard is not
required to be adopted until next year.
Our Balance Sheet will record a sizeable
increase in total assets, and an equal
increase in total liabilities. As our cash
flows are unaffected, and the small
negative impact on reported expenses
in the year of introduction is reversed
in the following years of the lease
terms, your Board remain of the view
that the impacts of the new standard
remain minimal.
Our extensive store network enables
us to have ongoing contact with
many communities. We have received
resounding support from those
communities, and our staff, for our
established Reject Shop Foundation,
and for our localised Community
Support programs. Our Foundation
continues to provide support to children
with medical difficulties. The Board
thank all involved for their generous
engagement.
A great deal of information is set out
in the Director’s Report, the Annual
Report, and its Supplements on
our values, and how the Company
operates. We encourage you to read
it, and to engage with us at the Annual
General Meeting in October, with any
of your questions.
The Board acknowledges your
continuing support, and we remain
confident in the Company’s outlook.
On behalf of the Board
William J Stevens
Chairman
3
THE REJECT SHOP 2017/2018 CHIEF EXECUTIVE
OFFICER’S report
Ross Sudano
Managing Director and
Chief Executive Officer
Our sales growth strategy has two
key pillars,
Brilliant Basics – where the goal is to
consistently grow sales through the
insights we have from our customers,
enabled by the capability, systems
and process we have put in place over
the last three years. This builds on the
progress made in the execution of our
merchandise strategy during the year.
We see the investment we have
been making into our digital platform
as a key enabler to maximizing the
benefits of Brilliant Basics. Having built
our data base of Savvy shoppers to
approx. 1 million, we will launch a
loyalty program in the first half of the
new financial year.
New Growth Opportunities that
leverage off the infrastructure and
assets we have in place and generate
new sales and profitability. Annual sales
growth from Brilliant Basics will deliver
consistent profit growth; but won’t step
change our profitability.
To significantly grow our profitability, we
need to deliver growth over and above
Brilliant Basics. We have been identifying
sales growth opportunities that we can
deliver via our existing assets.
Dear Shareholders,
We are pleased to announce a strong
Net Profit after Tax of $16.6m for the
year, 34% above that delivered in
the prior year.
Despite the continuing challenge of
declining consumer confidence, we
are pleased that improvement in the
execution of our merchandise strategy
delivered total sales growth and
stabilized comparable sales results
for the full year
Additionally, the benefits of many
changes to our ways of working have
continued to reduce our costs of
doing business; and contributed
to the strong Net Profit for the year.
During the year we successfully
delivered;
• A direct sourcing office located in
Hong Kong, to focus on reducing
our cost of goods sold and further
product quality improvements
• Truck to Customer, a standardized
way of operating to improve in
store productivity, product
availability, merchandising and
overall customer experience
• A Roster Guidance Tool that
allocates store labour based on
expected store activity
• TruRating (an individual store
feedback loop provided by
customers)
• Investment in an energy saving
project to minimize our power
usage, using improved technology
to lower our operating costs and
reduce our environmental foot print
• A significant investment in systems
to allow us to differentiate what we
send to stores and when we send it
• Supply chain improvements as
the new Melbourne Distribution
Centre delivered on its expected
productivity improvements
• Increased investment in training
of our store teams
• A continued focus on safety with
a further reduction in incidents
achieved during the year, and
• Opened 11 new stores, relocated
3 and closed 7 existing stores.
Despite these significant changes,
and the progress we have made,
consistent sales growth in all market
conditions remains both our challenge
and our key opportunity. We believe
sustainable sales growth will be driven
by increased transactions. While the
focus on continuous improvement
continues in reducing our CODB,
our strategic focus moves to growing
sales in a sustainable way.
4
OUR SALES GROWTH STRATEGY HAS
TWO KEY PILLARS, BRILLIANT BASICS
AND NEW GROWTH OPPORTUNITIES
We are now able to invest into taking
these ideas from concepts to reality.
We will commence this process in the
new financial year with a small team,
building out the opportunities we have
identified, and mapping delivery of
this sales growth.
Within our supply chain, we are building
the capability to leverage capacity
and cost efficiencies through value-
add services in China. Trials through
FY19 will validate the full benefits of
efficiency, increased capacity and
end to end cost reductions.
Whilst our focus and investment move
to growing sales, we continue to look
for opportunities to further lower our
costs and gain operating efficiencies.
The next phase of in store
improvements include,
• Maximizing the benefits of Truck to
Customer and Roster Guidance
• Building our people capabilities.
The development and roll out of
further training to ensure our store
teams can positively develop their
own performance is well underway
• Focusing on customer feedback
via TruRating (an individual store
feedback loop provided by
customers) to reinforce customers
as the driving force behind
everything we do.
I am pleased with the outcomes
from the many changes introduced
into our business over the last year,
the significant improvement in our
profitability and the further opportunity
that exists for TRS. Whilst there is much
more opportunity to leverage the
strengths of the TRS business model
and our continued growth in relevance
of the discount sector; I would like to
acknowledge and thank the many
people who have positively impacted
the performance of TRS during the year.
Ross Sudano
Managing Director and
Chief Executive Officer
5
THE REJECT SHOP 2017/2018 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 38 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 30 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 Community Fund Ltd. Kevin has also been a lecturer
with the Governance Institute of Australia in the area
of corporate governance. Kevin joined the Board of
The Reject Shop in February 2008.
6
THE BOARD ACKNOWLEDGES YOUR
CONTINUING SUPPORT, AND WE REMAIN
CONFIDENT IN THE COMPANY’S OUTLOOK.
Michele Teague
Non-Executive Director
Ross Sudano
Managing Director and
Chief Executive Officer
Michele retired last year from her role as General Manager
Marketing for Kmart Australia. This role has followed an
extensive career in Australia and New Zealand with and for
consumer facing organisations in a range of sectors; but
significantly in the retail and Fast Moving Consumer Goods
(FMCG) sector. Her previous Marketing roles with Metcash,
and with Restaurant Brands, Pacific Retail and Woolworths
in New Zealand, as well as her engagements in the
advertising sector, brings an additional commercial
perspective of contemporary retail issues. Michele has
a deep understanding of consumers, media and digital,
as well as driving operational efficiency and implementing
new concepts in the retail space. Michele has also served
as a non-executive member of industry associations and
was a Non-Executive Director of the New Zealand Rugby
League. Michele joined the Board of The Reject Shop
Limited in September 2017.
Ross has over 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.
7
THE REJECT SHOP 2017/2018 MANAGEMENT
team
Darren Briggs
BCom, CA, ACIS
Chief Financial Officer
and Company Secretary
Ed Tollinton
Chief Information Officer
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.
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.
Dani Aquilina
MBus (LogMgt)
General Manager –
Supply Chain and Planning
Allan Molloy
General Manager – Operations
Dani has more than 15 years experience in retail including
8 years with Kmart. Since joining The Reject Shop in 2007,
Dani plays a key role in the development of the Ipswich
and Truganina Distribution Centres. 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.
Allan has over 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.
8
WE UNDERSTAND THAT VALUE IS
A KEY DRIVER OF OUR CUSTOMER
MOTIVATION, AND THAT WE NEED
TO DELIVER ON THIS EVERY DAY.
Kelvin Chand
General Manager – Property
Robert d’Andrea
General Manager – Human
Resources
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.
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.
Peter Barry
General Manager – Buying
Allan Penrose
General Manager – Marketing
Peter has extensive executive retail experience across the
full range of merchandising activity having previously held
senior buying and planning roles with Kmart and Big W.
Peter also held the role of CEO for Webster Holdings whose
brands included Jigsaw, MARCS and David Lawrence.
Peter has also consulted with the Spotlight Retail Group
assisting with their overseas sourcing strategies. Peter joined
The Reject Shop in July 2018.
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.
9
THE REJECT SHOP 2017/2018 THE REJECT SHOP
foundation
The Reject Shop Foundation
is a not-for-profit foundation
committed to helping kids in
need, by contributing funds to
Australian programs that support
kids at a time they need it most.
Over the past five years, The Reject
Shop Foundation has engaged with
both The Reject Shop’s customers
and team members to raise more
than $640,000. Donations have
been raised through our cash
collection boxes available across
the Company’s entire store network,
team member fundraising and
voluntary work place giving program.
Throughout the past year,
The Reject Shop Foundation
partnered with HeartKids. HeartKids
assist in improving the lives and
futures for the growing number of
kids and their families affected by
childhood heart disease, through
their family support programs and
investment into world class research.
Given the success of this partnership,
we are proud to continue supporting
HeartKids over the coming year.
We thank our customers and
team members for their ongoing
donations and look forward to
helping more kids in need.
The Reject Shop Foundation
is administered by the
Good2Give Community Fund.
10
CORPORATE
GOVERNANCE,
ENVIRONMENTAL
SOCIAL STATEMENT
AND FINANCIAL
report
FINANCIAL PERIOD ENDED 1 JULY 2018
11
THE REJECT SHOP 2017/2018 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 three 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
(Deceased 2 April 2018)
Michele Teague
(Appointed 18 September 2017)
All directors have entered into
written contracts of employment.
Details of each directors’ experience is
contained on page 6 and 7 and their
attendance at Board and Committee
meetings is contained in the Directors’
Report on page 17 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.
12
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
expertise in the areas identified below:
TRS – Board Skills and Experience
Matrix (out of 4 directors)
Legal, Governance & Compliance
Legal
Corporate Governance
Compliance
Operations
Marketing
Retail, buying, sales & distribution
General management experience
Business Development
Strategy
CEO
Property/ store development
2
4
3
2
3
4
3
4
2
2
Supply chain/ off shore procurement 0
Finance and Risk
Accounting
Finance
OH&S/ Risk Management
People
Human Resources
Remuneration
Technology
Technology
Digital
1
1
4
4
4
1
2
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.
AUDIT AND RISK COMMITTEE
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;
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:
• 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 meetings.
In addition, they will attend the Annual
General Meeting to answer shareholder
questions with regard to the conduct
of their audit.
RISK MANAGEMENT
AND ASSESSMENT
The Board has delegated to the Audit
and Risk Committee the responsibility
for overseeing the implementation
of certain 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.
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
Michele Teague
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;
• 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.
13
THE REJECT SHOP 2017/2018
CORPORATE GOVERNANCE,,ENVIRONMENTAL
AND SOCIAL STATEMENT CONTINUED
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.
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 Securities
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.
Link Market Services (our Registrar)
provide the ability to have these
services provided electronically.
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.
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.
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.
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. Included in the code of
conduct is an encouragement to all
employees to report any breaches of
the code to senior management or
Human Resources. A more formalised
whistle-blower’s policy is being
developed.
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.
14
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
1 JULY 2018
NO OF
EMPLOYEES
- TOTAL
1 JULY 2018
1
1
4
227
3,523
4
7
25
380
5,296
NO OF
EMPLOYEES -
FEMALE
2 JULY 2017
NO OF
EMPLOYEES
- TOTAL
2 JULY 2017
0
1
9
214
3,536
4
8
33
374
5,430
% OF
FEMALES
25.0%
14.3%
16.0%
59.7%
66.5%
% OF
FEMALES
0.0%
12.5%
27.3%
57.2%
65.1%
Board/ CEO
Senior Executives
Middle Management
Store Managers
All Team Members
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 the 12th of June 2018, 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.
The Remuneration Committee currently
comprises the following members:
William J Stevens (Chairman)
Kevin J Elkington
Michele Teague
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 62 to 64 of this annual report.
15
THE REJECT SHOP 2017/2018
CORPORATE GOVERNANCE,,ENVIRONMENTAL
AND SOCIAL STATEMENT CONTINUED
Air Conditioning
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.
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 Awareness 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.
COMMUNITY ENGAGEMENT
The Reject Shop Charity
Foundation
The Reject Shop Foundation is a
not-for-profit foundation committed
to helping kids in need, by contributing
funds to Australian programs that
support kids at a time they need it
most, as set out on page 10.
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.
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.
ENERGY EFFICIENCY INITIATIVES
Lighting
In mid-2015, with increasing electricity
costs and usage in its store network, TRS
commenced a multi-million investment
into an energy saving project to insure
itself against ongoing price rises and to
bring down operating costs; consistent
with our objective of reducing our
environmental footprint.
As of 30 June 2018 we have installed
high-efficiency LED lighting and
automated energy management
systems into 268 stores in order to
regulate lighting levels, run times and
air conditioning usage. In addition, the
energy management system will allow
TRS to individually control power usage
at each store and therefore manage
its energy costs. This energy reduction
equipment now forms part of our
standard fitout, and will be rolled
out to all new stores in future.
In addition TRS are also actively
managing supply contracts with
energy retailers on an annual basis
to ensure we are obtaining the lowest
unit tariff charges to support the
above investment.
16
DIRECTORS’ REPORT
Your directors present their report on
the Company and its subsidiaries for
the financial period ended 1 July 2018.
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
MEETINGS OF DIRECTORS
The number of meetings of the Board of directors and Committees held during the
period ended 01 July 2018 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
A
11
13
12
9
11
B
13
13
13
9
11
A
3
xx
4
4
2
B
4
xx
4
4
2
A
2
xx
3
2
3
B
3
xx
3
2
3
Chairman of the Board, Member of the
Remuneration Committee and Member
of the Audit and Risk Committee.
DR Westhorpe
M Teague
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
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,
on pages 18 to 21.
SIGNIFICANT CHANGES
IN THE STATE OF AFFAIRS
There has been no material change
in the state of affairs of the Company
or the consolidated entity.
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 18 to 21 of this annual report.
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
(Deceased 2 April 2018)
Non-executive Director
Member of the Audit and Risk
Committee and Member of the
Remuneration Committee until his
premature death.
Michele Teague
(Appointed 18 September 2017)
Non-executive Director
Member of the Audit and Risk
Committee and Member of the
Remuneration Committee.
Details of the experience and expertise
of the directors and the Company
Secretary are outlined on pages 6 to 8
of this annual report.
17
THE REJECT SHOP 2017/2018
DIRECTORS’ REPORT
CONTINUED
ENVIRONMENTAL REGULATION
The Company is not involved in any
direct 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:
There was no final ordinary dividend for
the financial period ended 2 July 2017.
An interim ordinary dividend for the
financial period ended 1 July 2018
of 24.0 cents per share totalling
$6,926,292 was paid on 9 April 2018.
Since the end of the financial period
the directors have declared the
payment of a final ordinary dividend of
11.0 cents per share. Dividends are fully
franked at a tax rate of 30% and will be
paid on the 15th of October 2018.
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
$222,739 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.
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 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. Providing our customers with a
clearly differentiated offer that
is delivered conveniently via our
existing store network, new stores
and new store formats,
2. Building sustainable comparable
store sales growth driven by
increasing customer transactions,
3. Focusing 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. Providing a safe, challenging
and rewarding environment to
attract and retain great people
and to engage and support the
communities in which we serve.
We have made significant progress
on many of our change initiatives and
are seeing the benefits of these within
the business.
Our operational focus is built on
extensive work done with both
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 our promise of;
“Always get more for your money
through the fun and excitement of
discovering a bargain”.
The ongoing development of product
ranges to meet these customer needs
has resulted in some improvement
in comparable sales from last year.
We are focussed on building on
these changes to further grow sales
in coming years.
The second element of our focus on
customers is developing our capability
to communicate key messages,
both in and out of store. We are
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 on digital channels, including
the development and use of a data
base of loyal customers. In store we are
communicating a sense of urgency,
discovery and regular convenience
to our customers.
We are also improving the in store
experience for our customers. This
remains a significant element for
the business moving forward.
Our store locations continue to
be 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 opened eleven new
stores during the year and closed
seven, resulting in a National store
footprint totalling 351 stores by the
end of the year.
18
OVERVIEW OF FINANCIAL PERFORMANCE
$ AMOUNTS ARE $’000 / %’S ARE TO SALES
Sales
Gross Profit (i)
Cost of doing business (i) (ii)
EBITDA (i)
Depreciation and Amortisation
EBIT (i)
Net Interest Expense
Profit Before Tax
Income Tax Expense
Net Profit After Tax
(i) Non IFRS measure
(ii) Unaudited
FY18
800,306
43.3%
37.9%
43,483
19,178
24,305
563
23,742
7,165
16,577
FY17
794,036
42.7%
37.9%
38,315
19,742
18,573
724
17,849
5,503
12,346
% CHG
0.8%
13.5%
30.9%
33.0%
34.3%
Sales Performance
Overall sales increased in FY2018 by
$6.3m or 0.8% on the prior period,
which reflects the net of:
• Flat Comparable Store Sales
(First half: +0.4%; Second half:
negative 0.4%), with West Australian
and ACT stores dragging on the
Comp Store performance; and
• Lift in sales coming from the Net
positive effect of the openings
and closures in FY2018 and FY2017.
Gross Margin
Gross margin, as a percentage of
sales, increased by 0.6% of Sales.
This was primarily the result of improved
efficiencies coming from the Distribution
Centre Network, in particular the first full
year of the Melbourne DC in Truganina,
and a well managed Foreign Exchange
position.
Cost of Doing Business (CODB)
CODB (excluding depreciation and
amortisation), being the combination
of Store Expenses and Administrative
Expenses, was flat at 37.9% to Sales,
which was a pleasing achievement
given the challenges faced on the
Sales line.
Store Expenses fell slightly from
33.0% to 32.8%, where the major
movements were:
• Store Wages decreased by 0.03%
to Sales, on the back of gains from
the Truck to Customer and Roster
Guidance Tool initiatives, and the
reduced workers compensation
premiums that have been facilitated
by improved safety metrics in
recent years;
• Occupancy Costs increased
by 0.14% to Sales;
• Advertising Costs decreased by
0.03% to Sales (flat in $ spent),
with the business continuing with
a blend of catalogues, TV and
increasing digital media;
• Store Operating Costs decreased
by 0.09% to Sales, reflecting the
impact of a number Store related
Cost-Out initiatives, including the
Energy Optimisation project that
continue to be rolled-out across
Australia; and
• Store Opening/Refurbishment/
Relocation Costs decreased 0.10%
to Sales, mainly due to a reduction
in the refurbishments compared to
the prior period.
Administrative Expenses increased
by 0.2% to 5.1% of Sales, mainly due
to a increased level of remuneration
provisions in line with the increased
profitability of the business against
the prior year.
Earnings
The Company has a reported EBIT
of $24.3 million, an increase of
30.9% on the prior period.
This EBIT represents 3.0% return on
Sales, which is up on the 2.5% of the
prior year, which reflects the improved
reported Gross Margin and the flat
cost of doing business.
Impact of New Leases Accounting
Standard (AASB 16 Leases)
AASB 16 Leases does not become
effective until 1st January 2019 and
it will supersede the current Standard
AASB 117 Leases.
During recent months, the Company
has performed a detailed analysis
of its operating lease book, which
includes stores, distribution centres
and Head Office.
As disclosed in further detail on page
44 of these accounts, the adoption of
the new standard will have a material
impact on the balance sheet. It will
have minor imacts on lease expenses
in each year of the lease term, albeit
the cash flows of the business will not
be impacted at all.
If the Company was to adopt the new
standard effective on 1st July 2018,
taking account of current (and likely)
operating lease arrangements during
FY2019, it estimates the impact on the
financial statements as follows:
19
THE REJECT SHOP 2017/2018
DIRECTORS’ REPORT
CONTINUED
• Right of Use Liabilities of
approximately $250 million;
• Right of Use Assets of the same
amount;
• Existing IFRS and lease incentive
provisions will be offset against the
balance of right of use assets on
transition, and will be returned to
profit over the remainder of the
lease terms
• Nil impact on retained earnings
upon adoption of AASB 16, and
• NPAT would reduce by $2.0m-$2.5m
in the year of adoption This adverse
impact for the leases taken to
account on adoption will reverse
over the remaining life of the
existing leases;
when compared to treatment under
the current standard.
Dividends
Total dividends declared of 35.0 cents
per share (FY17: 24.0 cents per share)
represents a payout ratio of 61% of
the Company’s earnings per share
of 57.4cps.
An interim dividend of 24.0 cents
per share has been paid and a final
dividend of 11.0 cents per share will
be paid on 15 October 2018.
All dividends are fully franked.
The Board intends to maintain a
minimum dividend payout ratio of 60%
of Net Profit After Tax, having regard to
the continuing strategy associated with
new stores and store refurbishments.
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
$14.8m (Net Cash: $2.6 million).
The Company’s operational
performance has resulted in significant
improvement in all its gearing ratios
and covenant measures, with the
business having in excess of $8 million
in EBITDA Headroom over its fixed
charge covenant at year-end.
The Company expects to slightly
reduce its average debt requirements
over the course of FY2019.
Net interest expense decreased by
$0.2 million on FY2017. This reflects:
• a combination of the reduced net
debt carried during the year, which
was aided by a subdued capital
expenditure profile; and
• the continuation of the moderate
interest rates that have ruled over
the last couple of years.
Investments for Future Growth
The Company has long stated that
Australian demographics should
allow it to operate around 400 stores
nationally. It has invested sufficiently in
its Distribution and IT network capacity
to support 400 stores and has an
organisational structure in place to
support an ever-increasing business.
The Company will continue to
restructure its store portfolio and
anticipates by the end of FY2019 to
have at least 360 stores open. Fifteen
new stores are planned for FY2019,
and an expected three closures.
The Company will perform selected
refurbishments during FY2019 and
invest in enhancing its Workforce
Management systems to further
develop operating efficiencies.
The Company will also trial some
recalibration of its store layouts. This
will involve reallocating bays between
merchandise categories to optimize
the sales per square metre in-store.
In addition, the Company has a
number of projects that will require
expenditure.The main goal is to drive
sales growth via changes in the
merchandise offering.
Notwithstanding these ongoing
investments for future profit growth, the
Company does anticipate a reduced
Capital Expenditure program in FY2019.
The new Hong Kong sourcing office,
which opened in October 2017, is
expected to flow some lower cost
product in the first half of FY2019.
Overview of retail industry trends
The Discount Variety sector remains very
competitive. There are many regionally
based chains, as well as a multitude of
single owner-operator businesses.
Price competition continues to be a
challenge, particularly with the Regional
based Discount Variety chains, 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. This competition has certainly
intensified over the last 12 months,
which has challenged the sales growth
and margin profile in particular within
our fast moving consumer goods
categories. The Company remains
determined to be a leader on providing
everyday low prices on its core
merchandise offerings.
Overall, the gap between Business
Confidence (High) and Consumer
Confidence (Low) remains a challenge
for all retailers. Without a point of
difference or compelling offer, all
retailers must be operating at or
near their optimums to achieve a
respectable Sales outcome.
OUTLOOK
Underlying Trading
The relatively flat comparable sales
growth trajectory of the second half
of FY2018 has continued into the first
six weeks of FY2019.
Whilst basket values are up on the
prior period, transaction growth has
been challenging. This indicates that
value seeking consumers continue
to be discerning as they strive for
maximum outcomes for the available
discretionary spend.
The Company completed its annual
stocktaking process of the entire
network. This gives us greater visibility
on stock balances at a granular
SKU level, and allows us to address
replenishment of gaps identified in
our basic everyday lines.
The Company has set relatively
conservative Comparable Sales
targets for the first half of circa 1%.
20
The Company is changing the volumes
of stock it puts behind its catalogue
process.The focus is to cut down the
number of SKU’s within the catalogue;
limit the related promotional stock flows;
and achieve a better promotional sell
through. We will ensure that the basic
stock levels are not compromised
during these promotional periods.
Notwithstanding the ongoing Sales
challenges, there a number of positives
that are expected to assist in increasing
underlying profitability of the business.
These include:
• Solid First Sales Margins, which will be
supported by a Strong FX Hedging
Position and the positive impact of
the Hong Kong Sourcing Office;
• Continued focus on Occupancy
Costs, where we have over
90 stores up for renewal in FY2019;
• Continued pursuit of a number
of other Cost-out opportunities,
including the finalisation of the
National Energy System Optimisation
Program; and
• Improving efficiencies coming
from the overall supply chain of
the business.
With a progressive return to positive
Comparable Sales during the half, the
Company aims to report an operating
profit in the first half that is consistent
with the reported result in the first half
of FY2018.
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.
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 three 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
20,000 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
5,300 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 and the
Company was pleased to record its
lowest Lost Time Injury Rate ever in
FY2019.
21
THE REJECT SHOP 2017/2018 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 15 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 and;
• 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
consists of a weighting of 90% 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 FY2018 the Remuneration
Committee has determined that
50% of contracted short-term rewards
will be payable to Key Management
Personnel on the basis that the
Company achieved marginally below
the budgeted EBIT for the FY2018 year.
In addition, the Company achieved
its safety metric targets in FY2018.
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 total of $1.00 exercise
price for each tranche granted
and exercised 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,
which are independently 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.
22
The Board retain the right to assess all
aspects of the vesting conditions for
future performance rights grants.
The number of performance rights
issued 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 2015
financial year and due to vest 1st July
2018, the Remuneration Committee
has determined in August 2018 that
only 25% of the performance rights
that were granted and potentially
available will vest. This vesting is on
the basis that the Company has
partially achieved the criteria as set out
above. In particular, the Company has
achieved a compound EPS growth of
approximately 5% over the qualifying
three year period.
B – DETAILS OF REMUNERATION
Executive 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 $201,175 p.a.
(FY2017: $201,175) and to a
non-executive director currently
$117,443 p.a. (FY2017: $117,443).
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 $6,180 (FY2017:
$6,180), Chairman of Remuneration
Committee $5,150 (FY2017: $5,150).
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 executives along with
the directors, as detailed on page
12 of the Directors’ report, were the
key management personnel with the
responsibility and authority for planning,
directing and controlling the activities
of the Company and the consolidated
entity, during the financial period.
Allan Molloy
General Manager, Retail Operations
Allan J Penrose
General Manager, Marketing
Craig Tomlinson
General Manager, Merchandise Buying
(Commenced 1 May 2017,
resigned 14 December 2017)
Danielle Aquilina
General Manager, Supply Chain
and Planning
Darren R Briggs
Chief Financial Officer and
Company Secretary
Ed Tollinton
Chief Information Officer
Kelvin Chand
General Manager, Property
Robert d’Andrea
General Manager, Human Resources
All of the above persons were
employed by The Reject Shop Limited
and were key management personnel
for the entire period ended 1 July 2018
and the period 2 July 2017 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:
23
THE REJECT SHOP 2017/2018
DIRECTORS’ REPORT
CONTINUED
2018
NAME
Non-executive Directors
WJ Stevens
KJ Elkington
DR Westhorpe (i)
M Teague (ii)
Total Non-executive
Directors
Executive Directors
183,721
113,212
89,379
84,607
470,919
-
-
-
-
-
-
-
-
-
-
17,454
10,755
8,491
8,038
44,738
R Sudano
733,951
113,100
29,015
20,049
Total Directors
1,204,870
113,100
29,015
64,787
Other Key Management Personnel
DR Briggs
D Aquilina
E Tollinton
AJ Penrose
K Chand
R d’Andrea
A Molloy (iii)
319,851
38,239
329,951
39,375
309,552
37,080
-
-
-
20,049
20,049
20,049
247,701
30,122
5,163
20,049
315,014
37,695
4,500
20,049
297,714
35,749
4,013
20,049
400,000
45,000
3,839
-
C Tomlinson (iv)
183,327
-
-
9,760
SHORT-TERM
BENEFITS
POST-EMPLOYMENT
BENEFITS
OTHER
BENEFITS SHARE-BASED PAYMENTS
CASH
SALARY
AND FEES
$
CASH
REWARDS
$
NON-
MONETARY
BENEFITS
$
SUPER-
ANNUATION
$
RETIREMENT
BENEFIT
$
OTHER
$
PERFORMANCE
RIGHTS
$
OTHER
$
TOTAL
$
PROPORTION
ON OF
ANNUALISED
REMUNERATION
AS
PERFORMANCE
RELATED %
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,096
18,096
6,603
6,649
5,088
4,461
(20,479)
5,530
166,666
21,908
87,500
-
-
-
-
-
-
-
201,175
123,967
97,870
92,645
515,657
-
-
-
-
-
914,211
14.4
- 1,429,868
-
-
-
-
-
-
-
-
384,742
396,024
371,769
307,496
356,779
363,055
637,413
280,587
11.7
11.6
11.3
11.2
4.8
11.4
11.7
-
Total Other Key
Management Personnel
2,403,110
263,259
17,515
130,054
- 254,166
29,760
-
3,097,864
Total
4,078,899 376,359
46,530
239,579
- 254,166
47,856
- 5,043,389
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 passed away on 2nd April 2018.
• (ii) M Teague was appointed a Director on 18th September 2017
• (iii) In accordance with contract terms, A Molloy was paid a service bonus of $100,000 in November 2017. In addition, after three years service
in 2019, Mr. Molloy will receive an additional $100,000 service bonus, payable in cash or shares.
• (iv) C Tomlinson was General Manager, Buying until 14th December 2017. As a result, C Tomlinson was paid in cash $5,626 of annual leave
entitlements which are excluded from the table above and $87,500 (in lieu of a three month notice period paid out upon his resignation)
which is included in ‘other benefits’ above.
24
2017
NAME
SHORT-TERM
BENEFITS
POST-EMPLOYMENT
BENEFITS
OTHER
BENEFITS SHARE-BASED PAYMENTS
CASH
SALARY
AND FEES
$
CASH
REWARDS
$
NON-
MONETARY
BENEFITS
$
SUPER-
ANNUATION
$
RETIREMENT
BENEFIT
$
OTHER
$
PERFORMANCE
RIGHTS
$
OTHER
$
TOTAL
$
PROPORTION ON
OF ANNUALISED
REMUNERATION
AS
PERFORMANCE
RELATED %
Non-executive Directors
WJ Stevens
KJ Elkington
DR Westhorpe
M Conrad (i)
Total Non-executive
Directors
Executive Directors
R Sudano
Total Directors
183,721
113,212
107,254
112,218
516,405
723,091
1,239,496
Other Key Management Personnel
C Grady (ii)
DR Briggs
D Aquilina
E Tollinton
AJ Penrose
K Chand
R d’Andrea
A Batten (iii)
A Molloy (iv)
C Tomlinson (v)
Total Other Key
Management Personnel
Total
172,305
320,284
330,385
309,986
248,135
315,447
298,147
2,494
398,461
58,334
2,453,978
3,693,474
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,454
10,755
10,189
10,661
49,059
30,071
19,616
30,071
68,675
-
-
-
-
17,981
19,616
19,616
19,616
5,780
19,616
4,549
19,616
4,286
19,616
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(142,867)
-
-
-
-
-
-
201,175
123,967
117,443
122,879
565,464
-
-
-
-
-
629,911
(22.7)
(142,867)
- 1,195,375
180,117
(62,203)
-
-
-
-
-
-
-
-
-
(12,895)
(3,933)
20,940
(7,570)
10,484
18,923
-
12,620
-
-
-
-
-
-
-
-
-
-
-
308,200
327,005
346,068
350,542
265,961
350,096
340,972
2,494
411,081
58,334
(20.2)
(3.9)
(1.1)
6.0
(2.8)
3.0
5.5
-
3.1
-
14,615
135,677
- 180,117
(23,634)
- 2,760,753
44,686
204,352
- 180,117
(166,501)
- 3,956,128
The remuneration in the table above only reflects the amounts paid to the individuals for the time they were key management personnel.
• (i) M Conrad was a Non executive Director until 30 June 2017.
• (ii) C Grady was General Manager, Merchandise Buying until 30 November 2016. In accordance with contract terms,
C Grady was paid $180,117 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 $2,494 of annual leave included in cash salary.
• (iv) A Molloy was appointed General Manager, Operations on 4 July 2016.
• (v) C Tomlinson was appointed General Manager, Merchandise Buying on 1 May 2017.
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.
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.
25
THE REJECT SHOP 2017/2018
DIRECTORS’ REPORT
CONTINUED
C - SERVICE AGREEMENTS
D – SHARE-BASED COMPENSATION
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.
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
GRANT
DATE
DATE
EXERCISABLE
EXPIRY
DATE
TOTAL FAIR
VALUE OF
PERFORMANCE
RIGHTS AT
GRANT DATE
$
NUMBER OF
PERFORMANCE
RIGHTS GRANTED
IN PRIOR PERIODS
VESTED DURING
THE PERIOD
2018
Executive Directors
R Sudano
19 Oct 2017
109,000
1 Jul 2020
18 Oct 2021
420,368
Other Key Management Personnel
DR Briggs
19 Oct 2017
36,900
1 Jul 2020
18 Oct 2021
D Aquilina
19 Oct 2017
38,000
1 Jul 2020
18 Oct 2021
E Tollinton
19 Oct 2017
35,800
1 Jul 2020
18 Oct 2021
AJ Penrose
19 Oct 2017
29,100
1 Jul 2020
18 Oct 2021
K Chand
19 Oct 2017
36,300
1 Jul 2020
18 Oct 2021
R d’Andrea
19 Oct 2017
34,500
1 Jul 2020
18 Oct 2021
A Molloy
19 Oct 2017
43,400
1 Jul 2020
18 Oct 2021
C Tomlinson
19 Oct 2017
38,000
1 Jul 2020
18 Oct 2021
142,308
146,550
138,066
112,227
139,994
133,052
167,376
146,550
Total
401,000
1,546,493
-
-
-
-
-
-
-
-
-
-
The fair value of performance rights granted on 19 October 2017 (grant date) with an expiry date of 18 October 2021
was $3.8566.
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. 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, 48,600
performance rights granted to key personnel in prior years vested subsequent to period end, of which 48,600 have been
exercised. These performance rights vested on the basis that in excess of 5% earnings per share growth has been achieved
in the three year period since their issue. The remaining 142,700 performance rights issued in that tranche were forfeited.
Shares Issued to Directors and Other Key Management Personnel on Exercise of Options or Performance Rights
No shares were issued to non-executive directors as a result of an exercise of performance rights in the current or prior period.
26
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
PAID
%
FORFEITED
%
DATE
GRANTED
VESTED
%
FORFEITED
# %
Executive Directors
R Sudano
50
50
Key Management Personnel
DR Briggs
50
50
D Aquilina
50
50
AJ Penrose
50
50
K Chand
50
50
R d’Andrea
50
50
A Molloy
E Tollinton
50
50
50
50
C.Tomlinson
0
100
FY2018
FY2017
FY2016
FY2018
FY2017
FY2016
FY2018
FY2017
FY2016
FY2018
FY2017
FY2016
FY2018
FY2017
FY2016
FY2018
FY2017
FY2016
FY2018
FY2017
FY2018
FY2017
FY2016
FY2018
FY2017
0
0
25
0
0
25
0
0
25
0
0
25
0
0
25
0
0
25
0
0
0
0
25
0
0
0
0
46,300
0
0
16,600
0
0
16,700
0
0
14,100
36,300
10,400
15,300
0
0
16,000
0
0
0
0
17,700
38,000
12,900
0
0
75
0
0
75
0
0
75
0
0
75
100
100
75
0
0
75
0
0
0
0
75
100
100
FINANCIAL
PERIODS IN
WHICH
RIGHTS
MAY VEST
MAXIMUM
TOTAL
NUMBER OF
RIGHTS
MAY VEST
MAXIMUM
TOTAL VALUE
OF GRANTS
YET TO VEST $
FY2021
109,000
420,368
FY2020
32,700
215,195
FY2019
16,100
138,779
FY2021
36,900
142,308
FY2020
12,200
FY2019
5,600
80,287
48,271
FY2021
38,000
146,550
FY2020
12,900
FY2019
5,600
84,894
48,271
FY2021
21,900
112,227
FY2020
FY2019
FY2021
FY2020
FY2019
FY2021
FY2020
FY2019
9,400
4,800
-
-
5,100
34,500
10,700
5,400
61,860
41,375
-
-
43,961
133,052
70,416
46,547
FY2021
43,400
167,376
FY2020
14,800
97,397
FY2021
35,800
138,066
FY2020
11,800
FY2019
FY2021
FY2020
6,000
0
0
77,655
51,719
0
0
# 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.
27
THE REJECT SHOP 2017/2018
DIRECTORS’ REPORT
CONTINUED
Performance Rights Holdings
Non-executive directors do not participate in long term incentives and have not been granted performance rights in
any period.
The number of performance rights over shares in the Company held during the current and prior financial period by each
executive 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
2018
Executive Director
R Sudano
95,100
109,000
Other Key Management Personnel
DR Briggs
D Aquilina
E Tollinton
AJ Penrose
K Chand
R d’Andrea
A Molloy
C Tomlinson (i)
Total
34,400
35,200
35,500
28,300
30,800
32,100
14,800
-
36,900
38,000
35,800
29,100
36,300
34,500
43,400
50,900
306,200
413,900
-
-
-
-
-
-
-
-
-
-
(46,300)
157,800
(16,600)
(16,700)
(17,700)
(14,100)
(62,000)
(16,000)
-
50,900
54,700
56,500
53,600
43,300
5,100
50,600
58,200
-
(240,300)
479,800
(i) C Tomlinson resigned during the year and all non-vested performance rights were lapsed prior to end June 2018
Subsequent to period end there have been no performance rights granted or vested to key management personnel.
28
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:
2018
Non-executive Directors
WJ Stevens
KJ Elkington
DR Westhorpe (i)
M Teague (ii)
Executive Director
R Sudano
Key Management Personnel
DR Briggs
D Aquilina
AJ Penrose
K Chand
E Tollinton
R d’Andrea
A Molloy
C Tomlinson (iii)
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
6,500
11,000
5,000
-
-
-
1,350
3,276
1,600
-
1,000
-
-
29,726
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5,000)
-
-
-
(1,350)
(1,276)
(1,600)
-
-
-
-
6,500
11,000
-
-
-
-
-
2,000
-
-
1,000
-
-
(9,226)
20,500
(i) DR Westhorpe passed away on 2nd April 2018 and hence his shareholdings have been shown as Nil at year-end.
(ii) M Teague was appointed a Director on 18th September 2017.
(iii) C Tomlinson resigned during the year and hence his shareholdings have been shown as Nil at year-end
29
THE REJECT SHOP 2017/2018
DIRECTORS’ REPORT
CONTINUED
2017
Non-executive Directors
WJ Stevens
KJ Elkington
DR Westhorpe
M Conrad (i)
Executive Director
R Sudano
Key Management Personnel
DR Briggs
D Aquilina
AJ Penrose
K Chand
E Tollinton
C Grady (ii)
R d’Andrea
A Molloy
C Tomlinson
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
4,500
8,500
3,000
4,000
-
-
890
601
-
-
-
-
-
-
-
-
-
-
-
2,400
1,350
1,675
-
-
-
-
-
-
2,000
2,500
2,000
(4,000)
-
(2,400)
(890)
1,000
1,600
-
-
6,500
11,000
5,000
-
-
-
1,350
3,276
1,600
-
-
1,000
1,000
-
-
-
-
21,491
5,425
2,810
29,726
(i) M Conrad share holdings have been shown as Nil at the end of the period as she’s no longer a non executive Director of the Company.
(ii) C Grady share holdings have been shown as Nil at the end of the period as she’s 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 1 July 2018 (FY2017 - $Nil).
No other transactions were undertaken with directors or other key management personnel, including related parties
during the period (FY2017 - $Nil).
30
Company Performance
The Managing Director and other key management personnel have an at risk component of their remuneration based on a
number of criteria including the Company’s overall financial performance and shareholder returns. Refer to the performance
rights plan on page 22 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
PERIOD
FY2005
FY2006(i)
FY2007
FY2008(ii)
FY2009
FY2010
FY2011
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%)
FY2012(ii)(iii)
$21.9m
35.6%
FY2013
FY2014
FY2015
FY2016(ii)
FY2017
FY2018
$19.5m
(11.0%)
$14.5m
(25.4%)
$14.2m
$17.1m
(1.9%)
20.1%
$12.3m
(28.1%)
$16.6m
34.3%
SHARE
PRICE AT
START OF
PERIOD
$2.00
$2.99
$5.95
SHARE
PRICE AT
END OF
PERIOD
$2.99
$5.95
SHARE
PRICE
GROWTH
49.5%
99.0%
$12.80
115.1%
$12.80
$9.37
(26.8)%
$9.37
$11.62
$11.62
$16.42
24.0%
41.3%
16.2%
34.5%
34.0%
34.9%
13.4%
22.3%
(31.0%)
$16.42
$11.66
(29.0%)
35.4%
$11.66
$9.15
(21.5%)
(12.7%)
$9.15
$17.19
87.9%
(31.5%)
$17.19
(1.8%)
20.0%
$8.82
$5.40
$8.82
$5.40
(48.7%)
(38.8%)
$12.45
130.6%
(27.8%)
$12.45
34.1%
$4.16
$4.16
$5.68
(66.6%)
36.5%
26.7
35.9
48.1
64.9
73.6
90.0
62.1
84.1
73.4
50.3
49.4
59.3
42.8
57.4
(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 18 to 21 of this annual report.
ORDINARY &
SPECIAL DIVIDENDS
PAID OR DECLARED
PER SHARE
$0.17
$0.31
$0.31
$0.48
$0.55
$0.67
$0.31
$0.42
$0.37
$0.30
$0.30
$0.44
$0.24
$0.35
31
THE REJECT SHOP 2017/2018 DIRECTORS’ REPORT
CONTINUED
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
VALUE AT
GRANT DATE
$
EXERCISE
PRICE*
$
20 Oct 2016
19 Oct 2020
1 Jul 2019
19 Oct 2017
18 Oct 2021
1 Jul 2020
6.58
3.86
-
-
NUMBER
ON ISSUE
104,500
326,700
NUMBER ON ISSUE
TO KEY MANAGEMENT
PERSONNEL
104,500
326,700
*Nominal exercise price of $1.00 is payable each exercise.
Subsequent to period end, the Board has not granted any further performance rights under the Performance Rights Plan.
Shares issued and the exercise of options and performance rights
The following shares of the Company were issued during the period between 1st July 2018 and the date of this report on the
exercise of performance rights:
DATE OF GRANT
VESTING
DATE
ISSUE PRICE
OF SHARES
$
TOTAL NUMBER
OF SHARES
ISSUED
NUMBER OF SHARES
ISSUED TO KEY
MANAGEMENT PERSONNEL
14 October 2015
1 Jul 2018
-
48,600
48,600
Remuneration of Auditors
During the period the following fees for services were paid or payable to
PricewaterhouseCoopers Australia and its related parties as the auditor:
Audit and Accounting Related Services
Audit and review work (i)
Other Assurance services
Tax Compliance and Consulting Services
Tax compliance
Tax consulting advice
Total Remuneration
CONSOLIDATED ENTITY
2018
$
2017
$
380,000
342,240
38,332
43,305
418,332
385,545
45,666
15,300
60,966
30,000
25,452
55,452
479,298
440,997
(i) Additional audit fees were paid in FY2018 in respect of services associated with the accounting for leases under AASB 16.
32
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 34 of this annual report.
This report is made in accordance with a resolution of the directors:
WJ Stevens
Chairman
22 August 2018
33
THE REJECT SHOP 2017/2018 AUDITORS INDEPENDENCE
DECLARATION
34
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE 52 WEEK PERIOD ENDED 1 JULY 2018
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
CONSOLIDATED ENTITY
NOTE
2018
$’000
2017
$’000
2
2
3
4
800,306
794,036
44
28
800,350
794,064
457,462
457,759
275,749
275,662
42,790
42,042
776,001
775,463
607
23,742
7,165
16,577
752
17,849
5,503
12,346
8,580
(2,574)
6,006
305
(91)
214
Total comprehensive income attributable to shareholders of The Reject Shop Limited
22,583
12,560
Earnings per Share
Basic earnings per share
Diluted earnings per share
Cents
Cents
26
26
57.4
56.7
42.8
42.4
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
35
THE REJECT SHOP 2017/2018 CONSOLIDATED BALANCE SHEET
AS AT 1 JULY 2018
CURRENT ASSETS
Cash
Inventories
Tax assets
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
Provisions
Other
TOTAL NON CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Retained profits
TOTAL EQUITY
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
36
CONSOLIDATED ENTITY
NOTE
2018
$’000
2017
$’000
5
6
14,754
105,087
-
22
5,487
15,616
92,906
434
-
7
3,423
2,416
128,751
111,372
8
9
92,513
11,749
94,586
12,782
104,262
107,368
233,013
218,740
31,976
13,000
-
9,757
3,093
10,661
68,487
1,873
13,227
15,100
83,587
10
11
44,096
-
1,602
12 10,564
-
9,481
65,743
2,079
14,205
16,284
82,027
22
13
12
14
15
16
17
150,986
135,153
46,247
8,913
95,826
46,247
2,731
86,175
150,986
135,153
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE 52 WEEK PERIOD ENDED 1 JULY 2018
CONSOLIDATED ENTITY 2018
CONTRIBUTED
EQUITY
$’000
CAPITAL
PROFITS
$’000
SHARE BASED
PAYMENTS
$’000
HEDGING
RESERVE
$’000
F/X
TRANSLATION
RESERVE
$’000
RETAINED
EARNINGS
$’000
TOTAL
$’000
Balance as at 03 July 2017
46,247
739
4,157
(2,165)
Profit for the period
Other comprehensive income
Foreign exchange translation
Transaction with owners in their capacity as owners:
Dividends Paid
Share based remuneration
Current tax – credited directly to equity
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
48
116
-
6,006
-
-
-
-
-
-
-
12
-
-
86,175 135,153
16,577
16,577
-
-
6,006
12
(6,926)
(6,926)
-
-
48
116
Balances as at 01 July 2018
46,247
739
4,321
3,841
12
95,826 150,986
CONSOLIDATED ENTITY 2017
CONTRIBUTED
EQUITY
$’000
CAPITAL
PROFITS
$’000
SHARE BASED
PAYMENTS
$’000
HEDGING
RESERVE
$’000
F/X
TRANSLATION
RESERVE
$’000
RETAINED
EARNINGS
$’000
TOTAL
$’000
Balance as at 03 July 2016
46,247
739
4,497
(2,379)
Profit for the period
Other comprehensive income
Foreign exchange translation
Transaction with owners in their capacity as owners:
Dividends Paid
Share based remuneration
Current tax – (debited) directly to equity
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(219)
(121)
-
214
-
-
-
-
Balances as at 02 July 2017
46,247
739
4,157
(2,165)
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
-
-
-
-
-
-
-
-
86,238 135,342
12,346
12,346
-
-
214
-
(12,409)
(12,409)
-
-
(219)
(121)
86,175 135,153
37
THE REJECT SHOP 2017/2018
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 52 WEEK PERIOD ENDED 1 JULY 2018
CASH FLOW FROM OPERATING ACTIVITIES
Receipts from customers (inclusive of goods and services tax)
880,337
873,440
Payments to suppliers and employees (inclusive of goods and services tax)
(836,542)
(830,224)
CONSOLIDATED ENTITY
NOTE
2018
$’000
2017
$’000
Interest received
Borrowing costs paid
Income tax paid
Net cash inflow from operating activities
20
44
(610)
(6,812)
36,417
28
(749)
(5,324)
37,171
-
(17,353)
(17,353)
14
(25,228)
(25,214)
119,000
140,960
(132,000)
(139,960)
17
(6,926)
(19,926)
(12,409)
(11,409)
(862)
15,616
14,754
548
15,068
15,616
20
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 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
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
38
NOTES TO CONSOLIDATED 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 subsidiaries of
The Reject Shop Limited as at 1st
July 2018 and the results of the
subsidiaries for the period. The Reject
Shop Limited and its subsidiaries are
referred to in this financial report as
the consolidated entity.
Subsidiaries are all entities (including
special purpose entities) over which
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.
The Reject Shop Limited has a
100% owned operating subsidiary
TRS Sourcing Co. Limited, which
is domicilied in Hong Kong. This
subsidiary provides procurement
services to the group.
(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 29
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.
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.
39
THE REJECT SHOP 2017/2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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.
Onerous Lease Contracts
If an entity has a contract that is
onerous, the present obligation
under the contract is recognised and
measured as a provision.
AASB 137 Provisions, Contingent
Liabilities and Contingent Assets
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
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.
(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.
(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:
Class of fixed asset
Useful Life
Leasehold
Improvements and
Office Equipment
5 – 12 years
Fixtures and Fittings
5 – 12 years
Motor vehicles
3 – 5 years
Computer Equipment
3 years
(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.
40
(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 amounts to be paid are
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 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;
• 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 of the Performance Rights.
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.
(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.
41
THE REJECT SHOP 2017/2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
(m) Trade and Other Payables
(r) Contributed Equity
(w) Training Subsidies
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
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 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.
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.
(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.
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.
(y) Goods and Services Tax (GST)
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.
42
(aa) Critical Accounting
Estimates and Judgements
For the 1 July 2018 reporting period
certain accounting estimates and
judgements were made in relation
to the following:
(i) Provisioning for shrinkage expense
The company provides for shrinkage
expense for the period by applying
an estimated shrink loss percentage
to the sales since the date of the
last stock count to period-end, on
a store-by-store basis. Stock counts
are performed across stores to
calculate the estimated shrink loss
percentage for the whole store
network. This estimate includes
stock count information obtained
from counts performed during
the financial period and those
completed post period-end.
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 1 July 2018 this particular
provision had a carrying amount of
$9,099,803 (FY2017 - $7,588,350).
(ii) Impairment
The Group offers a wide range of
discount merchandise through
its network of 351 stores and
store assets represents one of the
largest amounts on the Consolidated
Balance Sheet.
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.
This provision is calculated by
applying an assumed percentage
markdown to the inventory on hand
at year end. The specific write-down
amount depends, in part, on the age
of the inventory and incorporates
information on known loss making
products. The judgement on this
estimate is further informed by:
- The Group’s view of current
inventory profile and historical
data on the margins achieved
- Inventory items held at year end
which have been sold below cost
during the period ended 1 July
2018 or after 1 July 2018 and
prior to finalising the financial
statements
- The impact on estimated selling
price of planned mark downs
or other strategies to clear slow
moving inventory during 2018/19.
There are no other accounting
estimates or judgements within
these accounts which have a
significant effect on the amounts
recognised in the financial report.
(ab) New standards and
interpretations not yet adopted
Certain new accounting standards and
interpretations have been published
that are not mandatory for the 1 July
2018 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:
43
THE REJECT SHOP 2017/2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
TITLE OF
STANDARD
NATURE OF
CHANGE
IMPACT
OF CHANGE
AASB 9
Financial
Instruments
AASB 9 Financial Instruments 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.
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
MANDATORY
APPLICATION DATE
Must be applied for
financial periods
commencing on or
after 1 January 2018.
The Reject Shop
Limited does not
plan to early adopt
any parts of AASB 9.
TITLE OF
STANDARD
NATURE OF
CHANGE
IMPACT
OF CHANGE
MANDATORY
APPLICATION DATE
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.
Must be applied for
financial periods
commencing on or
after 1 January 2018.
The Reject Shop
Limited does not
plan to early adopt
any parts of AASB 15.
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.
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 , i.e. 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.
44
MANDATORY
APPLICATION DATE
Mandatory for
financial periods
commencing on or
after 1 January 2019.
At this stage,
the group does not
intend to adopt the
standard before its
effective date.
The group intends
to apply the
simplified Modified
Retrospective at
Transition approach
on adoption of the
standard, and will not
restate comparative
amounts for the year
prior to first adoption.
TITLE OF
STANDARD
NATURE OF
CHANGE
IMPACT
OF CHANGE
AASB 16
Leases
The standard will primarily affect the
accounting for the group’s operating leases.
It is noted that the adoption of this standard
does not in any way impact or change the
group’s cash flows.
The group has analysed its current lease
arrangements and has concluded that if it
had adopted the standard on 1 July 2018,
the right of use liabilities to be taken to the
balance sheet on adoption date would be
approximately $250 million and the right of
use assets to be taken to the balance sheet
would be the same amount. The existing IFRS
and lease incentive provisions will be offset
against the balance of right of use assets
on transition, and will be returned to profit
over the remainder of the lease terms. Under
these assumptions there will be no impact on
retained earnings upon adoption of AASB 16.
The group estimates that if it had adopted
the standard on 1 July 2018, net profit after
tax for the 2019 financial period would be
adversely impacted in the range of $2.0
million to $2.5 million. Our analysis shows that
the profit impact in the first financial period
will be reversed over the remaining life of
the existing leases. The group estimates that
approximately $90 million to $93 million of
expenses previously designated as lease
rentals will be reclassified and reported as
interest and depreciation, increasing EBITDA
by an equivalent amount.
The group notes that the above estimates
are for information only, as they are based
on the leases in existence at 1 July 2018,
assuming an adoption date of 1 July 2018,
and that the actual values on the 1 July
2019 adoption date may be different. This
difference will be due to: (i) the actual terms
and conditions of replacement leases for
those leases expiring during the 2019 financial
period being different to those assumed in
the above analysis, and (ii) the rate of rollout
of new stores and the terms and conditions
thereof are different to those included in the
above analysis.
AASB 16 Leases was issued in February
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 future rentals are
recognised. The only qualifying exceptions
under the standard relate to short-term and
low-value leases, which TRS has elected
to continue expensing under the current
accounting regime. All property and motor
vehicle leases will fall within the scope of the
new standard.
For those leases that do fall within the scope
of the new standard, it is only the rental
components associated with the “financing”
of the property or vehicle that are included
in the calculation of the right of use asset
and liability values, with all other service or
variable rental components, such as property
outgoings, vehicle operating expenses,
variable rent components, etc., being
expensed under the current accounting
regime.
For the Consolidated Balance Sheet, the right
of use asset and liability values on adoption
date are based on the net present value of
the relevant future rental payments for each of
the leases. Any existing IFRS or lease incentive
provisions on adoption date can be applied
to reduce the right of use asset on adoption.
As with finance leases, the right of use liability is
reduced over the life of the lease as rents are
paid, incurring an interest component, whilst the
right of use asset is depreciated over the life of
the lease.
For the Consolidated Statement of
Comprehensive Income, the relevant rental
payments currently reflected in rent expense
will instead be allocated to depreciation and
interest. This will have a significant impact on
the EBITDA measure, as expenses previously
accounted for as operating expenses will
in future be reclassified as below-the-line
expenses. It is noted that the adoption of this
standard is likely to initially create an adverse
impact to profit after tax as the interest
component is higher in the early stages of the
lease and lower in the later stages of the lease.
For the Consolidated Statement of Cash Flows,
the relevant rental payments will be reclassified
from the Operating Activities section of the
report to the Interest and Financing Activities
sections of the report.
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.
45
THE REJECT SHOP 2017/2018 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
NOTE 2: REVENUE FROM CONTINUING OPERATIONS AND OTHER INCOME
Revenues from continuing operations
Sales of goods
Interest
NOTE 3: EXPENSES
CONSOLIDATED ENTITY
2018
$’000
2017
$’000
800,306
794,036
44
28
800,350
794,064
CONSOLIDATED ENTITY
2018
$’000
2017
$’000
Profit before income tax expense includes the following expenses:
Interest and finance charges paid / payable
607
752
Depreciation & amortisation expenses are included in:
Cost of sales
Store expenses
Administrative expenses
Reversal of impairment of store assets
Foreign exchange gain (included in cost of sales)
Asset write offs on store closures
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
Reversal of surplus provision
Make good costs
Asset writeoff
46
3,593
13,573
2,012
19,178
(551)
3,039
13,617
3,086
19,742
(276)
(4,549)
(1,705)
799
-
536
14
116,910
114,764
(145)
2,754
(335)
(439)
(1,295)
380
164,095
165,453
1,373
2,228
-
-
-
(404)
75
306
NOTE 4: INCOME TAX EXPENSE
(a) Income tax expense
Current tax
Deferred tax
Under provided in prior years
CONSOLIDATED ENTITY
NOTE
2018
$’000
5,697
1,425
43
7,165
2017
$’000
2,310
3,093
100
5,503
Deferred income tax expense included in income tax expense comprises:
(Increase) / Decrease in net deferred tax assets
9
1,425
3,093
(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% (2017 – 30%)
Tax effect of amounts which are not deductible in calculating taxable income:
Other
Income tax expense
Under provided in prior years
Income Tax Expense
23,742
7,122
17,849
5,355
-
7,122
43
7,165
48
5,403
100
5,503
(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
(116)
121
(d) Income Tax relating to items of other comprehensive income
Cash flow hedges
(2,574)
(91)
NOTE 5: CURRENT ASSETS - CASH
Cash on hand
Cash at bank
NOTE
20
20
CONSOLIDATED ENTITY
2018
$’000
2,139
12,615
14,754
2017
$’000
1,674
13,942
15,616
47
THE REJECT SHOP 2017/2018 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
NOTE 6: CURRENT ASSETS – INVENTORIES
Inventory at cost
Inventory at net realisable value
CONSOLIDATED ENTITY
2018
$’000
104,080
1,007
105,087
2017
$’000
91,289
1,617
92,906
Inventories recognised as an expense during the period ended 1 July 2018 amounted to $392,368,924 (FY2017:
$387,175,005). These were included in the cost of sales. Writedowns of inventories to net realisable value amounted
to $2,239,501 (FY2017: $2,676,980) These were recognised as an expense during the period ended 1 July 2018
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
2018
$’000
1,380
2,043
3,423
2017
$’000
589
1,827
2,416
CONSOLIDATED ENTITY
2018
$’000
2017
$’000
82,250
74,411
(46,267)
(39,363)
35,983
35,048
156,520
(99,990)
56,530
148,625
(89,087)
59,538
Total Property, Plant and Equipment
92,513
94,586
* Plant & equipment includes fixtures, fittings and motor vehicles as well as $Nil (FY2017: $1,519,431) of work in progress costs.
48
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 03 July 2017
Additions at cost
Asset write offs for store closures,
net of impairment
Asset write offs for DC closure
Depreciation/amortisation expense
Balance at 1 July 2018
Balance at 04 July 2016
Additions at cost
Asset write offs for store closures
Asset write offs for DC closure
Depreciation/amortisation expense
Balance at 2 July 2017
LEASEHOLD IMPROVEMENTS
$’000
PLANT AND EQUIPMENT
$’000
35,048
8,707
(231)
-
(7,541)
35,983
59,538
8,646
(17)
-
(11,637)
56,530
LEASEHOLD IMPROVEMENTS
$’000
PLANT AND EQUIPMENT
$’000
35,710
6,913
(241)
-
(7,334)
35,048
54,232
18,315
(295)
(306)
(12,408)
59,538
TOTAL
$’000
94,586
17,353
(248)
-
(19,178)
92,513
TOTAL
$’000
89,942
25,228
(536)
(306)
(19,742)
94,586
In FY2018, the Company reversed a total of $551,495 (FY2017: $276,451) of impairment losses recorded in prior periods.
These reversals relate to provisions for fixed assets within the store such as fixtures and fittings, store fitout and computer
equipment. The previous poor trading performance of underperforming stores has improved during FY 2018 resulting in the
carrying value of the assets being lower than the estimated recoverable amount. As at 1 July 2018 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 15.76% (FY2017: 15.29%).
In addition to store impairment, nine stores were closed / will close, and associated costs with carrying amount of
$799,206 (FY2017: $536,523) were written off.
49
THE REJECT SHOP 2017/2018 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
NOTE 9: NON-CURRENT ASSETS – DEFERRED TAX ASSETS
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
Hedging reserve
Sundry items
Set-off of deferred tax liabilities of consolidated entity pursuant to set-off provisions:
Depreciation
Hedging reserve
Sundry items
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
EMPLOYEE
BENEFITS
$’000
INVENTORIES
$’000
HEDGING
RESERVE
$’000
7,322
1,548
1,019
(3,913)
-
-
79
-
-
3,409
1,627
1,841
-
-
20
-
-
-
(91)
-
928
-
(2,574)
-
5,250
1,647
(1,646)
6,498
11,749
MOVEMENTS – CONSOLIDATED
At 03 July 2016
(Charged) / credited
- to profit or loss
- to other comprehensive income
- direct to equity
At 02 July 2017
(Charged) / credited
- to profit or loss
- to other comprehensive income
- direct to equity
At 01 July 2018
50
CONSOLIDATED ENTITY
2018
$’000
2017
$’000
3,730
3,506
1,647
1,909
2,776
650
339
-
(438)
14,119
(724)
(1,646)
-
3,409
2,679
1,627
831
3,798
996
208
928
(252)
14,224
(1,412)
-
(30)
11,749
12,782
4,725
7,024
6,766
6,016
11,749
12,782
OTHER
$’000
6,198
741
-
(121)
6,818
(436)
-
116
TOTAL
$’000
16,087
(3,093)
(91)
(121)
12,782
1,425
(2,574)
116
NOTE 10: CURRENT LIABILITIES – PAYABLES
Unsecured liabilities
Trade payables
Sundry payables and accruals
NOTE 11: CURRENT LIABILITIES – BORROWINGS
Secured liabilities(i)
Cash advance(ii)
CONSOLIDATED ENTITY
2018
$’000
2017
$’000
41,243
2,853
44,096
28,668
3,308
31,976
CONSOLIDATED ENTITY
2018
$’000
2017
$’000
-
-
13,000
13,000
(i) Commercial Bill – rolling 12 months
(ii) A fixed interest rate of Nil (2017: 2.66%) is applied to the cash advance.
All secured liabilities listed within note 11 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.
NOTE 12: LIABILITIES – PROVISIONS
Onerous leases
Employment entitlements
CONSOLIDATED ENTITY
2018
NON-CURRENT
$’000
33
TOTAL
$’000
107
2,046
12,536
2,079
12,643
CURRENT
$’000
109
9,648
9,757
CURRENT
$’000
74
10,490
10,564
2017
NON-CURRENT
$’000
142
TOTAL
$’000
251
1,731
11,379
1,873
11,630
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.
51
THE REJECT SHOP 2017/2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Leave obligations expected to be settled after 12 months
NOTE 13: CURRENT LIABILITIES - OTHER
Accrued expenses
Deferred income (Note 1(g))
Rent escalation
NOTE 14: NON-CURRENT LIABILITIES – OTHER
Deferred income (Note 1(g))
Rent escalation
NOTE 15: CONTRIBUTED EQUITY
Movements in ordinary share capital:
CONSOLIDATED ENTITY
2018
$’000
2,046
2017
$’000
3,413
CONSOLIDATED ENTITY
2018
$’000
5,594
1,516
2,371
9,481
2017
$’000
6,810
1,395
2,456
10,661
CONSOLIDATED ENTITY
2018
$’000
4,891
9,314
2017
$’000
6,752
6,475
14,205
13,227
DATE
03 July 2016
DETAILS
Balance
26 July 2016
Exercise of performance rights
02 July 2017
Balance
Nil movement
01 July 2018
Balance
NUMBER OF
ISSUED SHARES
28,849,623
9,925
28,859,548
-
28,859,548
ISSUE PRICE
PER SHARE
$
CONTRIBUTED
EQUITY
$’000
-
-
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.
52
NOTE 16: EQUITY – RESERVES
Capital profits reserve
Share based payments reserve
Hedging reserve – cash flow hedges
Foreign currency translation reserve
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
Foreign currency translation reserve
Balance at beginning of period
Currency translation differences
Balance at end of period
Nature and purpose of reserves
(i) Hedging reserve – cash flow hedges
CONSOLIDATED ENTITY
2018
$’000
739
4,321
3,841
12
8,913
4,157
48
116
4,321
(2,165)
2,165
3,841
3,841
-
12
12
2017
$’000
739
4,157
(2,165)
-
2,731
4,497
(219)
(121)
4,157
(2,379)
2,379
(2,165)
(2,165)
-
-
-
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 21. 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.
(iii) Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial
statements of foreign subsidiaries.
53
THE REJECT SHOP 2017/2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
NOTE 17: 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 end of financial period
NOTE 18: 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
2018
$’000
86,175
16,577
2017
$’000
86,238
12,346
(6,926)
(12,409)
95,826
86,175
CONSOLIDATED ENTITY
2018
$’000
2017
$’000
100,618
100,630
174,128
171,828
21,062
21,351
295,808
293,809
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 credited during the current period for percentage rent was $335,129 (FY2017: debit $379,956).
Capital Commitments
The consolidated entity has capital commitments totalling $1,009,749 (FY2017: $Nil) all payable within one year.
NOTE 19: CONTINGENT LIABILITIES
As at 1 July 2018, the Company has no contingent liabilities (2 July 2017: $Nil).
54
NOTE 20: CONSOLIDATED 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
Reversal of 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
(Increase) / Decrease in inventories
Increase / (Decrease) in trade, other creditors and other provisions
Increase / (Decrease) in income tax payable
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 consolidated balance sheets as follows:
Cash on hand
Cash at bank
CONSOLIDATED ENTITY
2018
$’000
2017
$’000
16,577
12,346
19,178
(551)
799
-
-
(145)
48
(1,007)
(12,181)
10,630
2,036
1,033
36,417
19,742
(276)
536
306
14
(439)
(219)
8,567
5,609
(9,407)
(2,913)
3,305
37,171
2,139
12,615
14,754
1,674
13,942
15,616
55
THE REJECT SHOP 2017/2018 NOTES TO CONSOLIDATED 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 Facility (i)
Foreign Currency Settlement
Other Facilities
Total Facilities
2018
2017
LIMIT
$’000
30,000
-
800
30,800
UTILISED
$’000
LIMIT
$’000
UTILISED
$’000
-
-
471
471
40,000
13,000
-
-
1,600
41,600
471
13,471
A seasonal facility of $20,000,000 was utilised from 1 October 2017 and repaid in full by 31 December 2017. Other facilities
include an ANZ Bank indemnity guarantee of $800,000 of which $470,897 was utilised in relation to property leases at 1 July 2018.
(i) The interchangeable facility may be allocated to the following sub-facilities - overdraft facility, documentary
credit Issuance/ documents surrendered facility, Foreign currency overdraft facility and Loan facility.
NOTE 21: FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
CONSOLIDATED ENTITY
2018
$’000
2017
$’000
Derivative Financial Instruments
Current assets and (liabilities)
Forward foreign exchange contracts – cash flow hedges
5,487
(3,093)
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:
AVERAGE EXCHANGE RATE
SELL
BUY
2018
$’000
2017
$’000
Australian Dollars
United States Dollars
133,101
154,365
Australian Dollars
Euros
Australian Dollars
Pounds Sterling
311
-
1,872
1,291
2018
$
0.77
0.64
-
2017
$
0.75
0.67
0.58
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 an asset of $5,486,538 (FY2017 – liability of
$3,093,402).
During the period $2,165,381 (FY2017 – $2,378,828) was removed from equity and included in the acquisition cost of goods
and a net gain of $Nil (FY2017 – net $Nil) was transferred to the consolidated profit and loss.
56
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:
Cash at bank
Trade payables
2018
USD
$’000
347
5,776
2017
USD
$’000
1,164
5,162
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
2018
$’000
2017
$’000
100
(80)
(1,851)
(1,935)
(102)
1,902
82
1,986
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:
2018
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
FIXED
INTEREST RATE
MATURING
WITHIN 1 YEAR
FIXED
INTEREST RATE
MATURING 1 TO
5 YEARS
NON-INTEREST
BEARING
$’000
$’000
$’000
$’000
TOTAL
$’000
0.40
10,643
-
-
-
-
10,643
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,111
14,754
-
-
4,111
14,754
-
49,299
49,299
-
49,299
49,299
57
THE REJECT SHOP 2017/2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2017
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
FIXED
INTEREST RATE
MATURING
WITHIN 1 YEAR
FIXED
INTEREST RATE
MATURING 1 TO
5 YEARS
NON-INTEREST
BEARING
$’000
$’000
$’000
$’000
0.50
-
2.66
-
15,616
-
15,616
-
-
-
-
-
-
13,000
-
13,000
-
-
-
-
-
-
-
-
-
-
36,353
36,353
TOTAL
$’000
15,616
-
15,616
13,000
36,353
49,353
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
CONSOLIDATED ENTITY
2018
$’000
2017
$’000
(46)
-
(21)
-
(28)
-
28
-
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 consolidated balance sheet and notes to the consolidated 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.
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 2018, the company’s strategy, which was unchanged from 2017, was to maintain a gearing ratio at or below 30%.
The gearing ratio at 1 July 2018 and 2 July 2017 were as follows:
58
SENSITIVITY ANALYSIS – INTEREST RATES
Net debt/ (cash)
Total equity
Net debt to equity ratio (i)
CONSOLIDATED ENTITY
2018
$’000
(14,754)
150,986
0%
2017
$’000
(2,616)
135,153
0%
(i) The company has no net debt so debt to equity ratio is not applicable.
Liquidity Risk
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 RISK
– AT 01 JULY 2018
LESS THAN
6 MONTHS
6 – 12
MONTHS
BETWEEN
1 AND 2 YEARS
BETWEEN
2 AND 5 YEARS
TOTAL
CONTRACTUAL
CASH FLOWS
CARRYING
AMOUNT
(ASSETS) /
LIABILITIES
$’000
$’000
$’000
$’000
$’000
$’000
Non-derivatives
Non-interest bearing
54,052
Variable rates
Fixed rate
-
-
Total non-derivatives
54,052
Derivatives
Net settled
Gross settled
- (inflow)
- outflow
-
(115,756)
(23,143)
111,089
22,323
Total derivatives
(4,667)
(820)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
54,052
54,052
-
-
-
-
54,052
54,052
-
(138,899)
133,412
(5,487)
-
-
(5,487)
(5,487)
59
THE REJECT SHOP 2017/2018 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
CONSOLIDATED RISK
– AT 01 JULY 2017
LESS THAN
6 MONTHS
6 – 12
MONTHS
BETWEEN
1 AND 2 YEARS
BETWEEN
2 AND 5 YEARS
TOTAL
CONTRACTUAL
CASH FLOWS
CARRYING
AMOUNT
(ASSETS) /
LIABILITIES
$’000
$’000
$’000
$’000
$’000
$’000
Non-derivatives
Non-interest bearing
Variable rates
Fixed rate
Total non-derivatives
Derivatives
Net settled
Gross settled
- (inflow)
- outflow
Total derivatives
Net Fair Values
-
-
-
-
-
40,035
-
13,000
53,035
-
-
-
-
-
-
(130,745)
(23,692)
133,463
24,067
2,718
375
-
-
-
-
-
40,035
40,035
-
13,000
53,035
-
(154,437)
157,530
3,093
-
13,000
53,035
-
-
3,093
3,093
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 1 July 2018.
Derivatives used for hedging
2018
$’000
LEVEL 2
5,487
2017
$’000
LEVEL 2
(3,093)
60
NET DEBT RECONCILIATION
Cash and cash equivalents
Borrowings repayable within 1 year (including overdraft)
Net debt
Cash and liquid investments
Gross debt – variable interest rate
Net debt
Balance as at 3 July 2016
Cash flows
Foreign exchange adjustments
Balance at 2 July 2017
Cash flows
Foreign exchange adjustments
Balance at 1 July 2018
2018
$’000
14,754
-
14,754
14,754
-
14,754
BORROWINGS DUE WITHIN 1 YEAR
$’000
(12,000)
(1,000)
-
(13,000)
13,000
-
-
61
THE REJECT SHOP 2017/2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
NOTE 22: KEY MANAGEMENT PERSONNEL DISCLOSURES
Non-Executive Directors
William J Stevens (Chairman)
Kevin J Elkington
Denis R Westhorpe (Deceased on 2 April 2018)
Michele Teague (Appointed on 18 September 2017)
Executive Directors
Ross Sudano – Managing Director
All of the above persons were directors of The Reject Shop Limited for the entire period ended 1 July 2018, unless otherwise stated.
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
Kelvin Chand
General Manager, Property
Robert d’Andrea General Manager, Human Resources
Danielle Aquilina General Manager, Supply Chain and Planning
Allan J Penrose
General Manager, Marketing
Allan Molloy
General Manager, Operations
Craig Tomlinson General Manager, Merchandise Buying (Resigned on 14 December 2017)
All of the above persons were employed by The Reject Shop Limited and were key management personnel for the entire period
ended 1 July 2018 unless otherwise stated.
Remuneration of Directors and Key Management Personnel
Short-term cash rewards
Short-term employee benefits
Post-employment benefits
Termination benefits
Other
Share-based payments
No other long term or termination benefits were paid or payable with respect to the current or prior period.
CONSOLIDATED ENTITY
2018
$
376,359
2017
$
-
3,654,510
3,738,160
194,841
204,352
-
-
254,166
180,117
47,856
(166,501)
4,527,732
3,956,128
62
NOTE 23: 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 and outstanding for each financial period are detailed in the tables below:
2018
DATE OF GRANT
EXPIRY DATE
FAIR
VALUE AT
GRANT
DATE $
BALANCE
AT START
OF
PERIOD
GRANTED
DURING
THE
PERIOD
EXERCISED
DURING
THE
PERIOD
LAPSED
DURING THE
PERIOD
BALANCE AT
END OF THE
PERIOD
VESTED AND
EXERCISABLE
AT THE END OF
THE PERIOD
DATE
EXERCISABLE
14 Oct 2015
14 Oct 2019
1 Jul 2018
8.62 191,300
-
20 Oct 2016 (i)
19 Oct 2020
1 Jul 2019
6.58 114,900
12,900
19 Oct 2017 (ii) 18 Oct 2021
1 Jul 2020
3.42
- 401,000
Total
306,200 413,900
-
-
-
-
(142,700)
48,600
48,600
(23,300)
104,500
(74,300)
326,700
-
-
(240,300)
479,800
48,600
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 52,400. The additional 52,100 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 163,500. The additional 163,200 will only be issued to key management
personnel if targeted criteria are over achieved.
2017
DATE OF GRANT
EXPIRY DATE
FAIR
VALUE AT
GRANT
DATE $
BALANCE
AT START
OF
PERIOD
GRANTED
DURING
THE
PERIOD
EXERCISED
DURING
THE
PERIOD
LAPSED
DURING THE
PERIOD
BALANCE AT
END OF THE
PERIOD
VESTED AND
EXERCISABLE
AT THE END OF
THE PERIOD
DATE
EXERCISABLE
18 Oct 2012
18 Oct 2017
1 Jul 2016
12.24
5,475
10 Jan 2013
10 Jan 2018
1 Jul 2016
14.04
750
17 Oct 2013
17 Oct 2017
1 Jul 2016
16.89
3,700
13 Oct 2014
13 Oct 2018
1 Jul 2017
7.54
77,400
14 Oct 2015 (i)
14 Oct 2019
1 Jul 2018
8.62 218,700
-
-
-
-
-
20 Oct 2016 (ii) 19 Oct 2020
1 Jul 2019
6.58
- 128,500
(5,475)
(750)
(3,700)
-
-
-
-
-
-
(77,400)
-
-
-
-
(27,400)
191,300
(13,600)
114,900
Total
306,025 128,500
(9,925)
(118,400)
306,200
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 96,700. The additional 94,600 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 57,600. The additional 57,300 performance rights will only be issued
to key management personnel if targeted criteria are over achieved.
63
THE REJECT SHOP 2017/2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
The Company, effective from 14 October 2015 onwards, has changed the vesting conditions for all performance rights granted
thereafter. The proportion of performance rights grants that ultimately vest will be determined by the following financial criteria,
measured over a three year period post issue:
• Earnings Per Share compound growth of at least 10% per annum (50% weighting);
• Improved Earnings Before Interest, Income Tax, Depreciation and Amortisation (EBITDA) of at least 0.15% to sales per annum
(25% weighting); and
• Return on Average Capital Employed of at least 20% per annum (25% weighting).
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 19 October 2017 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: $4.46;
(d) expected volatility of the Company’s shares: 37.56%;
(e) expected dividend yield: 9.87% 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 Expense / (Income) arising from share-based payment transactions
Performance rights granted
CONSOLIDATED ENTITY
2018
$
2017
$
47,856
(218,692)
64
NOTE 24: REMUNERATION OF AUDITORS
During the period the following fees for services were paid or payable to
PricewaterhouseCoopers Australia and its related parties as the auditor:
Audit and Assurance Related Services
Audit and review work (i)
Other assurance services
Tax Compliance and Consulting Services
Tax compliance
Tax consulting advice
Total remuneration
CONSOLIDATED ENTITY
2018
$
2017
$
380,000
342,240
38,332
43,305
418,332
385,545
45,666
15,300
60,966
30,000
25,452
55,452
479,298
440,997
(i) Additional audit fees were paid in FY2018 in respect of services associated with the accounting for leases under AASB 16 Leases.
NOTE 25: DIVIDENDS
Dividend declared subsequent to the 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%
CONSOLIDATED ENTITY
2018
$’000
3,175
2017
$’000
-
49,339
47,349
Dividends recognised during the reporting period:
Dividends paid to members during the financial period was an interim ordinary dividend for the financial period ended
1 July 2018 of 24.0 cents per share (2017: 24.0 cents per share) totalling $6,926,292 (2017: $6,926,292), paid on
9 April 2018 (2017: 10 April 2017). There was no final dividend paid for the period ended 2 July 2017.
65
THE REJECT SHOP 2017/2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
NOTE 26: 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
CONSOLIDATED ENTITY
2018
CENTS
57.4
56.7
2017
CENTS
42.8
42.4
28,859,548
28,858,948
382,867
272,109
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share.
29,242,415
29,131,057
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 23.
NOTE 27: NET TANGIBLE ASSETS
Net tangible asset backing per ordinary share
NOTE 28: 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 financial period
Total Comprehensive Income for the financial period
(b) Guarantees entered into by the parent entity
Carrying amount included in current liabilities
CONSOLIDATED ENTITY
2018
CENTS
523.2
2017
CENTS
468.3
PARENT ENTITY
2018
$’000
2017
$’000
126,319
111,372
230,438
218,740
64,326
80,609
46,247
8,901
94,681
68,892
84,590
46,247
2,731
85,172
149,829
134,150
16,435
22,441
12,346
12,560
-
-
Refer to note 18 and 19 for disclosures concerning contingent liabilities and contractual commitments for the parent entity.
66
NOTE 29: SEGMENT INFORMATION
The Reject Shop operates within one reportable segment (retailing of discount variety merchandise). Total revenues of
$800,306,426 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 30: SUBSIDIARIES
The Reject Shop Limited has a 100% owned operating subsidiary based in Hong Kong, TRS Sourcing Co. Limited. This subsidiary
provides procurement services for TRS Limited and charges a fee for those services.
Fees paid to TRS Sourcing Co. Limited
2018
$’000
1,352
2017
$’000
-
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 (FY2017: 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 31: 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 32: RELATED PARTY TRANSACTIONS
No related party transactions were entered into during the period ended 01 July 2018.
67
THE REJECT SHOP 2017/2018 DIRECTORS’ DECLARATION
In the directors’ opinion:
(a) The financial statements and notes set out on pages 35 to 67 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 1 July 2018 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
22 August 2018
68
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF THE REJECT SHOP LIMITED
69
THE REJECT SHOP 2017/2018 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF THE REJECT SHOP LIMITED
70
71
THE REJECT SHOP 2017/2018 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF THE REJECT SHOP LIMITED
72
73
THE REJECT SHOP 2017/2018 74
SHAREHOLDERS INFORMATION
AS AT 31ST JULY 2018
The shareholder information set out below was applicable as at 31 July 2018.
(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
(B) 505 SHAREHOLDERS HOLD LESS THAN A MARKETABLE PARCEL OF SHARES, BEING A MARKET VALUE OF LESS THAN $500
(C) SUBSTANTIAL SHAREHOLDERS BASED ON NOTIFICATIONS TO THE COMPANY WERE:
SHAREHOLDER
Australian Super Pty Ltd
Celeste Funds Management Pty Ltd
Commonwealth Bank
NUMBER
2,919,569
2,648,876
1,877,500
(D) THE FULLY PAID ISSUED CAPITAL OF THE COMPANY CONSISTED OF 28,859,548 SHARES HELD BY 5,941 SHAREHOLDERS.
EACH SHARE ENTITLES THE HOLDER TO ONE VOTE.
SHAREHOLDERS
3,697
1,778
280
168
18
% HELD
10.12%
9.18%
6.51%
(E) UNQUOTED EQUITY SECURITIES
UNQUOTED EQUITY SECURITIES
NUMBER ON ISSUE
NUMBER OF HOLDERS
Performance Rights issued under The Reject Shop
Performance Rights Plan
479,800
8
75
THE REJECT SHOP 2017/2018
(F) TWENTY LARGEST SHAREHOLDERS
SHAREHOLDER
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
NEWECONOMY COM AU NOMINEES PTY LIMITED
BRISPOT NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
TEN LUXTON PTY LTD
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
UBS NOMINEES PTY LTD
WYONG RUGBY LEAGUE CLUB LTD
MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED
BAN FAM PTY LTD
ACE PROPERTY HOLDINGS PTY LTD
MR ROSS BIRD
STEPIEN VALUE INVESTING PTY LTD
TEE2GREEN PTY LTD
NUMBER
4,900,980
3,986,201
3,338,215
867,196
628,000
530,191
409,488
387,243
250,095
203,025
199,541
177,852
150,868
144,500
119,998
117,850
110,000
101,110
100,000
90,833
% HELD
16.98%
13.81%
11.57%
3.00%
2.18%
1.84%
1.42%
1.34%
0.87%
0.70%
0.69%
0.62%
0.52%
0.50%
0.42%
0.41%
0.38%
0.35%
0.35%
0.31%
The twenty members holding the largest number of shares together held a total of 58.26% of the issued capital.
(G) RESTRICTED SHARES
There are no restricted shares on issue.
76
CORPORATE DIRECTORY
DIRECTORS
William J Stevens
Non-executive Chairman
Ross Sudano
Executive Director
Kevin J Elkington
Non-executive Director
Michele Teague
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
2 Riverside Quay
Southbank Vic 3006
LAWYERS
Lander and Rogers
Level 12
600 Bourke Street
Melbourne Vic 3000
STOCK EXCHANGE LISTING
The Reject Shop Limited shares are listed
on the Australian Securities Exchange
(ASX code: TRS).
WEBSITE
www.rejectshop.com.au
77
THE REJECT SHOP 2017/2018
245 Racecourse Road
Kensington Vic 3031
Phone: (03) 9371 5555