Appendix 4E
The Reject Shop Limited
(ABN 33 006 122 676)
Consolidated preliminary final report
For the 52 week financial period ended 30 June 2019
Compared to the 52 week financial period ended 01 July 2018
Results for announcement to the market
Sales revenue from continuing operations
(Loss) / Profit from continuing operations after tax
attributable to members
$A'000
(0.8%)
to
793,687
(201.9%)
to
(16,899)
down
down
Net (loss) / profit for the period attributable to members
down
(201.9%)
to
(16,899)
Dividends
Interim dividend (paid 08 April 2019)
Final dividend
Amount per share
Franked amount per
share
10.0 cents
nil
100%
n/a
Record date for determining entitlements to final
dividend
n/a
Dividend payment date
n/a
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Commentary on the Group’s trading results is included in the media release and on pages 19 to 23 of the
annual report enclosed.
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Annual
Report
2018 – 2019
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Annual Report 2018/2019The Reject Shop
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Notice Of Annual General Meeting: 3:30pm, Wednesday 16 October 2019 at
The Savoy Hotel, Spencer Room, 630 Little Collins 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,
Kensington VIC 3031. These financial statements are presented in Australian currency
and were authorised for issue by the directors on 22 August, 2019. The Company has
the power to amend and re-issue these financial statements.
Contents
Chairman’s Report
Acting Chief Executive Officer’s Report
Board of Directors
Management Team
The Reject Shop Foundation
Corporate Governance, Environmental and Social Statement
Directors’ Report
Auditor’s 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
Shareholder Information
Corporate Directory
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Annual Report 2018/2019The Reject Shop
Chairman’s Report
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Chairman’s Report
This additional provisioning charge has been taken,
in accordance with accounting standards, and based
upon an estimated shortfall in the future discounted
cash flows of the business based upon a range of
assumptions, including current performance; rather
than expectations of what our performance should be,
given the positive changes being made. The Company
remain of the view that our future cash flows are within
our control, and that the full historical cost of all
acquired assets should, and will be, recovered from
future operations.
The net loss for the year resulted, at 30th June 2019,
in the Company being in breach of the Fixed Charge
Covenant established with its bankers in respect of its
ongoing financing facilities. We also expect to be in
breach of that covenant at 30th September 2019. Our
bankers have waived compliance with the breach at
those dates; and continue to provide the working
capital facilities that support our ongoing operations.
The return to profitable operations in this 2020 financial
year will sustain our ability, in the medium term, to meet
all debt covenants.
The Company balance sheet remains strong, with all
long-term assets being funded by shareholder equity.
The Company have had a long-term approach of using
debt facilities only for working capital purposes. Due to
the net loss for the period; the Board have determined
that no final dividend will be paid.
These financial outcomes have necessitated change.
The Chief Executive Officer has recently left the
business, together with some other senior roles.
Ongoing succession and transformation activity had
also been occurring at the Board level. The Company has
commenced a search for a new Chief Executive Officer.
This search process is very well underway and we hope
to have made an appointment within the near term.
During this time, the Board is confident that the
Company, under our Acting CEO, Dani Aquilina and her
team, will be well on the way to turning the Company’s
fortunes around. Dani has experience and exposure to
several roles within the Company over the past ten years,
and we consider that she has a sound understanding
of our core promise, and the expectations of our
customers. Dani and her team have already introduced
some effective changes and together in due course with
our new CEO, the Board is confident of a return to both
profitability and growth.
Dear Shareholder,
The financial results for the 2019 year have been
significantly disappointing. The Company has reported a
loss from its trading for the year, for the first time.
While acknowledged that general economic conditions
remain tough, and that there is a particularly challenged
retail trading environment, we consider that the
Company has made some poor execution decisions.
These have further exacerbated the trading outcome.
On a more positive note, we have identified changes that
are necessary, and these are being implemented.
As forecast in May 2019, the trading activity for the
year has resulted in a net loss of $1.54 million after tax.
While costs have been well controlled, this has primarily
resulted from a shortfall in sales, through changes in
our merchandising strategies that have not been well
executed. We have taken actions to address and correct
this. This operating result includes provisions in respect
of several onerous store leases, as well as accelerated
write-offs of fittings and fixtures at stores where leases
are unlikely to be renewed.
In addition to this net trading loss, a further non-cash
provisioning charge of $15.36 million (after tax) has been
taken against the carrying value of the Company’s assets
across the Distribution Centres, and the store network.
This has resulted in a Net Loss for the year (after tax) of
$16.90 million.
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Dani has set out further detail, in the CEO Report, some
of the actions that she and the team believe will return
us to our profit objective. The Discount Variety sector
of the economy provides great opportunity in tough
economic times, and so long as our offer is ‘best in class’
there is no reason we should not return to the position
of leading Discount Variety destination.
Together with your Board, I would like to acknowledge
the enormous effort that the entire staff at the Company
have made; and continue to make. It does not go
unnoticed. Together with this effort, and a development
of the return to our core competencies; a return to
profitability and growth is not far away. The keen
selection of product at the right margins, combined
with an ongoing focus on reducing our Cost-of-Doing-
Business will ensure that we will return to continuing
profitable outcomes.
by your Board, nonetheless resulted in them becoming a
substantial shareholder. They acquired almost 20% of the
Company’s shares – and were accordingly granted Board
representation. Notwithstanding the disappointing
financial outcome for the 2019 year, and the current
share price, it remains the view of both the Board, and
our substantial shareholder, that the Company has a
prominent place in the retail landscape – and that long
term value of a Company share significantly exceeds its
current market price.
A great deal of information is set out in the Directors’
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.
On behalf of the Board
William J Stevens
Chairman
The team, and your Board,
consider that our charter, our
core values, and our mission
remain steadfast.
The Board considers the safety and well-being of our
people, and our customers to be paramount. We are
committed to an objective of injury-free operations, and
we remain vigilant to the risks which that may invoke for
our staff and customers.
As discussed previously, all our stores are expected
to achieve sales that will enable sound economic
outcomes. The vast majority of our stores are sustainable.
Where sustainable sales and rental outcomes cannot be
achieved, stores will be closed when leases expire.
Our extensive store network enables us to have ongoing
contact with many communities. Our established Reject
Shop Foundation and our localised Community Support
programs continue to receive resounding support
from the communities and our staff. Our Foundation
continues to provide support to children with medical
difficulties. The Board thank all involved for their
generous engagement.
Throughout the year, your Board has been in regular
contact with our shareholders. Some of this has been
the disappointing updates regarding the current year
financial performance. The takeover bid initiated by
Allensford in November 2018, which was not supported
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Annual Report 2018/2019The Reject Shop
Acting Chief Executive Officer’s Report
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Acting Chief Executive
Officer’s Report
products through the front of our stores and through
the repositioning of our campaigns. These changes
have included a greater focus on volume lines that
deliver great savings to customers.
From a store perspective, we saw a continuing
weakness in the West Australian economy with
declining comparative growth of -7.6%. Queensland
and New South Wales also softened throughout the
year whilst Victoria and South Australia were relatively
flat and Tasmania achieved a pleasing +0.9% growth.
The sales decline was compounded by a reduction in
our gross margin which reduced through the second
half. The reduction in margin was the result of the
following factors:
a response to competitive price pressures which
resulted in price roll backs;
increased markdowns to clear product in support
of simplifying the shopping experience; and
as a result of responding to the shift in elements
of the merchandise strategy which resulted in
clearance activity.
Additionally, we experienced a significant increase in
our shrink results on the prior year. We are progressing
through a plan to reduce the impact of shrink.
We will accelerate this program through FY2020 with an
expected improvement to be realised through the year.
Freight and supply chain costs were well controlled
following on from several cost and efficiency initiatives
delivered over the previous years.
As a business, we have managed our costs well
despite incurring increases relating to operating our
store network. Rate rises in store Enterprise Bargaining
Agreements and CPI increases in rents have had
significant impact to the cost of doing business.
We have invested in our people through staff training
programs targeted at our store management team.
We also increased marketing activity over the festive
season with a pre-Christmas television campaign
to remind consumers of our brand and maximise
sales potential. The impact of these cost increases
were lessened through ongoing savings in Power,
due to our Energy Efficiency Initiatives and significant
cash reductions as a result of lease renewals
throughout the year.
Dear Shareholder,
I am honoured to have been appointed to the position
of Acting Chief Executive Officer. The Reject Shop is
a business that plays such an integral role of serving
the value conscious consumer and supporting those
that need to stretch their money further. I believe
that there is a distinct position in the Australian retail
environment for a clearly defined and well-executed
Discount Variety Store that owns low prices and delivers
amazing products every day. The Reject Shop is best
positioned to deliver this with our asset base, scale and
knowledgeable team.
FY2019 proved to be a challenging sales environment
for the business due to both a decline in consumer
confidence and strategic shifts to our merchandise
strategy that resulted in comparable sales growth of -2.5%.
Challenging market conditions were overlaid with
directional shifts to some elements of our merchandise
strategy that took the focus away from core aspects of
our value proposition. This entailed a deeper investment
into home and apparel categories as well as the
introduction of an increasing number of higher priced
items. This shift in direction did not meet customer
expectations and ultimately came at a cost.
As a business we have responded quickly to the results
of last year with a clear strategy to turn the business
around. We are doing this by re-engaging our core DNA
with an absolute focus on our value proposition.
We are working to reinforce the benefit that we provide
to consumers by emphasising the great value of our
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Store Openings and Closures
Throughout the year we opened fourteen stores,
relocated one store, reopened two stores impacted by fire
and flood and closed eight stores. The decision to close
stores was made based on financial measures relating to
the store or resulting from centre refurbishments whereby
we were unable to maintain tenancy.
Looking ahead we are focusing on how we can optimise
our portfolio through both a strategic and commercial
lens. Our network will continue to grow through
FY2020 however, we will see a reduction in the number
of openings on previous years. Additionally, we will
continue to re-locate or close non-performing stores
to ensure a healthy portfolio.
Our People
The company has over 5,000 valuable team members.
We are continuing to invest in our people having placed
400 of our team members through our retail leaders’
program through FY2019. We are also pleased to have
launched our inclusion and diversity strategy which is
aimed at ensuring our team work in an environment of
inclusivity, built on diversity, equality and opportunity.
The sustained focus and attention on preventing injury
and returning injured workers back into their workplaces
more quickly; has resulted in reduced levels of Worker
Compensation premiums during the past three years
and the lowest number of serious injuries resulting in
Lost Time since 2013/14. In addition, there has been a
14% decline in customer incidents recorded from FY2018
to FY2019.
Looking Ahead
In response to the declining profitability we experienced
in FY2019 we have enacted a turnaround plan to alter the
sales trajectory and set The Reject Shop up for a stronger
FY2020 and beyond.
Re-engaging Our Core DNA
We are doing this by dialing up the essence of who
we are, a proud discount variety retailer. We have
commenced executing a plan which re-engages
our core DNA with an absolute focus on our value
proposition which remains centered around owning
everyday low prices. We offer customers:
leading branded product;
great daily essentials and household general
merchandise; and
new exciting product which is refreshed regularly.
Ensuring we maintain a balance across all these factors is
key to our success.
We are also progressing strategies to improve
transaction growth including our trials with Card Factory,
which are now complete. This has delivered significant
growth in volume and improved the overall sales for
those stores through increased transactions. Following
these results, we are excited to announce an exclusive
partnership with Card Factory, which will see us sell their
branded greeting card range in our stores. The roll out
will commence in the second half of FY2020.
Making it Easier for Customers
We are working to make the shopping experience easier
for customers both in store and browsing online. This
includes ensuring our Buyers are creating a carefully
curated range of the best-selling product at discount
retail prices. This will see a more tailored range in our
store throughout FY2020 and will be complemented
by a simplified pricing architecture to reinforce value.
We are progressing our digital strategy with the first
objective to help customers find our amazing product
through our website. We anticipate yielding a significant
benefit once executed.
Focusing on Costs
Our work on costs is never done. As a discount variety
store we must maintain a strong focus on efficiencies
and ensure we have initiatives that capture scale and
simplification benefits from our network.
This will include supply chain initiatives that deliver cost
and capital efficient benefits and a continued focus
on achieving rental reductions. We are very focused
on anything that adds cost and complexity into our
business and are reviewing activity that will remove this
to ensure our prices remain low.
Whilst in the early stages of our turnaround I invite
shareholders to shop with us and see the changes that
we are making to cement our relevance in the market
and improve performance.
In closing, I want to thank every one of our team
members who work hard every day. I am excited to see
what we will accomplish in FY2020.
Regards,
Dani Aquilina
Acting Chief Executive Officer
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Annual Report 2018/2019The Reject Shop
Board of Directors
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Board of Directors
William (Bill)
Stevens
Non-Executive
Chairman
Michele
Teague
Non-Executive
Director
Bill is a Fellow of the Institute of Chartered Accountants
in Australia with an extensive career with KPMG (and
Touche Ross) for 37 years. During his career with KPMG
he was the client service partner for major clients
including BHP Billiton, Santos, Pacific Dunlop/Ansell
and Pacific Brands. More recently he was CEO of the
Pacific Edge Group. He is also a director of International
Healthcare Investments Ltd and a number of private
company groups. Bill joined the Board in August 2008
and was appointed Chairman on 14 July 2010.
Michele is an experienced senior executive having
operated within large corporates – many publically
listed - and for companies employing 30,000+ people
with revenues of $14+ billion. Key roles have been at
General Manager Marketing/Global Marketing level,
and commercial Managing Director/GM level, with P&L
accountability for $100m+ revenue. Michele joined
the Board of The Reject Shop in September 2017, and
has been on boards of industry bodies (marketing and
advertising) and New Zealand Rugby League.
Selina
Lightfoot
Non-Executive
Director
Jack
Hanrahan
Non-Executive
Director
Selina is an experienced Company Director and
consultant; her previous executive experience including
over 25 years as a corporate legal advisor including 10
years as a Partner at a major Australian law firm. Selina’s
areas of expertise include corporate governance, mergers
and acquisitions, business integration, outsourcing and
commercial contracting. Through her legal roles and
other directorships, Selina has been exposed to a broad
range of industries, including technology, retail and
manufacturing. In addition to her legal qualifications,
Selina holds a Graduate Diploma in Applied Finance and
Investment and is a Graduate of the Australian Institute
of Company Directors. Selina joined the Board of
The Reject Shop in August 2018.
Jack has over 30 years of experience across various retail
sectors in a variety of senior executive roles. Jack’s broad
expertise in retail was developed through a range of
retailers, including heading up the Retailer Relations
section at Westfield. Jack has academic qualifications
from the Graduate School of Business at Macquarie
University and he has also written a textbook “Retail
Strategy Planning & Control”. Jack joined the Board of
The Reject Shop in December 2018.
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Steven
Fisher
Non-Executive
Director
Zachary
Midalia
Non-Executive
Director
Steven has more than 30 years experience in general
management positions in the wholesale consumer
goods industry and was the former Managing Director
of the Voyager Group. Prior to entering the consumer
goods industry Steven was a practicing chartered
accountant having qualified with a Bachelor of
Accounting degree. Steven is the current Chairman
of The Breville Group and has held the position
of Chairman since 2012. Steven joined the Board of
The Reject Shop in June 2019.
During the last three years he has served as a Non-
Executive Director of the following other listed company:
Breville Group Limited.
Zachary Midalia has experience working nationally
and internationally with some of the most respected
investment firms and entities. He has led critical
investment decisions across a broad range of sectors in
both the public and private markets and been a Non-
Executive Director representing shareholder interests
on a range of boards. Currently he is the Investment
Director of the Melbourne head-quartered Kin Group
with responsibility for investments across retail, real
estate and consumer businesses. Zachary holds a Master
of Business Administration with Dean’s Honours from
Columbia Business School and a Bachelor of Commerce
from University of Sydney. Zachary joined the Board of
The Reject Shop in June 2019 as a representative of major
shareholder, Kin Group.
The board acknowledges
your continuing support,
and we remain confident
in the Company’s outlook.
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Annual Report 2018/2019The Reject Shop
Management Team
Management Team
Dani
Aquilina
Acting Chief
Executive Officer
Darren
Briggs
Chief Financial
Officer & Company
Secretary
Dani has more than 20 years experience in retail
including over eight years with Kmart. Since joining
The Reject Shop in 2007, Dani has played key roles
spanning production, supplier sourcing, customer
distribution, planning and most recently, product
development and business innovation. She has a Masters
of Business in Supply Chain and Logistics Management.
Dani was appointed General Manager of Distribution in
January 2013 progressing to General Manager of Supply
Chain Planning in June 2016 and later General Manager
of Supply Chain and Strategy in October 2018. As of May
2019, Dani is now Acting CEO for The Reject Shop.
Darren spent over 10 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 as Financial
Controller/Company Secretary in May 2008 and was
promoted to Chief Financial Officer/Company Secretary
in October 2009.
Robert
d’Andrea
General Manager –
Human Resources
Brendon
Short
General Manager –
Operations
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.
Brendon has 27 years of experience working across
big box retail and specialty stores in South Africa and
Australia. He has worked with Woolworths South Africa,
Country Road Group and most recently David Jones as
Retail General Manager for their South West Region.
Brendon’s experience includes commercial, sales and
operational roles leading large teams. Brendon joined
The Reject Shop in March 2019.
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Allan
Penrose
General Manager –
Marketing
Steven
Williamson
Acting General
Manager – Buying
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.
Steven joined The Reject Shop in 2017 having more than
30 years experience in Retail and Wholesale including
over 17 years with Target. At Target, Steven held multiple
roles ranging from Buyer to Business Manager of General
Merchandise. At The Reject Shop, Steven has previously
acted as General Manager – Buying and played key roles
in Strategy and Innovation. Steven was appointed Acting
General Manager of Buying in June 2019.
We understand that
value is a key driver of
our customer motivation,
and that we need to
deliver on this every day.
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Annual Report 2018/2019The Reject Shop
The Reject Shop Foundation
The Reject Shop
Foundation
The Reject Shop Foundation is a not-for-profit foundation committed to
‘Help Kids In Need’, by contributing funds to Australian programs that
support kids at a time they need it most.
Our national charity partner HeartKids assists us in improving the lives
and futures of the growing number of kids and their families affected
by childhood heart disease, through their family support programs and
investment into world class research. We however could not do this
without the generosity of our customers and team members through
donations via our cash collection boxes available across the Company’s
entire store network, and team member fundraising and voluntary work
place giving programs.
FY2019 also marked the launch of The Reject Shop Foundation
Community Grants Program; an initiative which gives team members
an opportunity to support a child, charity or local cause which has
impacted them, their family or community through the use of a
community grant, valued up to $1,000 each. Community grants are
awarded to ‘Help Kids In Need’ in the areas of education, social support,
rural and remote accessibility and serious illness.
We thank our customers and team members
for their ongoing support to raise in excess
of $818,000 to help ‘Kids In Need’ and look
forward to supporting many more kids over
the coming year.
The Reject Shop Foundation is administered by the Good2Give
Community Fund.
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Annual Report 2018/2019The Reject Shop
Corporate Governance, Environmental and Social Statement
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.
This statement is accurate and is up to
date as at 22 August 2019 and has been
approved by the Board. 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 six Non-Executive
Directors. 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.
Of the six Non-Executive Directors, five
are assessed as independent in that they
satisfy all criteria above.
Mr Steven Fisher and Mr Midalia have
been nominated and appointed, under
a nominee director protocol agreed
with Allensford Pty Ltd in its capacity
as trustee for the Allensford Unit Trust
(Allensford), a substantial shareholder
that is ultimately controlled by the Kin
Group Pty Ltd (Kin Group). The protocol
sets out the agreed approach to
appointment of two nominee directors,
the management of potential and
actual conflicts of interest, including
information sharing, and dealing in
shares of the Company.
The Board has considered Mr Fisher’s
independence in light of the criteria
above and satisfied itself that Mr Fisher
is not associated with Allensford or
Kin Group. The Board has determined
that Mr Fisher is independent and
that his nomination by a substantial
shareholder does not materially
interfere with his capacity to bring an
independent judgement to bear on
issues before the Board.
Mr Midalia is not considered independent
by virtue of his other commercial
arrangements with Allensford and the
Kin Group.
The directors considered as independent
are as follows:
William J Stevens
Michele Teague
Selina Lightfoot
(Appointed 23 August 2018)
Jack Hanrahan
(Appointed 12 December 2018)
Steven Fisher
(Appointed 14 June 2019)
The director considered as
non-independent is as follows:
Zachary Midalia
(Appointed 14 June 2019)
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Responsibilities of the Board
Monitoring senior management’s
Corporate Governance
Details of each directors’ experience is
contained on pages 6 and 7 and their
attendance at Board and Committee
meetings is contained in the Directors’
Report on page 18 in this annual report.
All directors have entered into written
contracts of employment. In addition,
Mr Midalia has agreed to comply with the
terms of the nominee director protocol.
The Board delegates responsibility for
the day-to-day management of the
Company to the Acting Chief Executive
Officer and senior management, however
retains responsibility for:
Establishing and reviewing the
implementation of strategy;
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 and
Nominations Committee, each with their
own separate charter and structure.
Significant matters arising from these
Committee meetings are tabled at the
subsequent Board meeting.
Board Skills and
Experience Matrix
To assist in identifying areas of focus and
maintaining 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:
Board Skills and Experience
Matrix (out of 6 directors)
Legal, Governance & Compliance
Legal
2
6
6
3
Compliance
Operations
Marketing
Retail, buying, sales & distribution 3
General management experience 5
Business Development
Strategy
CEO
Property/ store development
Supply chain/
offshore procurement
Finance and Risk
Accounting
Finance
OH&S/Risk Management
People
Human Resources
Remuneration
Technology
Technology
Digital
4
6
3
2
2
4
4
6
3
4
2
3
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
The Audit and Risk Committee operates
under the Audit and Risk Committee
Charter which outlines the composition
and responsibilities of the Audit and Risk
Committee as outlined below:
Composition of the Audit and
Risk Committee
The Audit and Risk Committee Charter, in
line with the recommendations outlined
by the Corporate Governance Council,
states that the Committee should
consist of at least three members, all
of whom are Non-Executive Directors
and the majority being independent
directors. The chairperson must be
an independent director and not the
Chairman of the Board. In addition, the
members of the Committee must have
a working familiarity with basic finance
and accounting practices, and at least
one member of the Committee must
have accounting or related financial
management expertise.
The Audit and Risk Committee currently
comprises the following members:
Selina Lightfoot (Chair)
William J Stevens
Michele Teague
Jack Hanrahan
Steven Fisher
Zachary Midalia
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Annual Report 2018/2019The Reject Shop
Corporate Governance, Environmental and Social Statement
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Role of the Audit and Risk
Committee
Risk Management and
Assessment
compliance is operating efficiently
and effectively in all material respects.
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.
Responsibilities of the Audit and
Risk Committee
Reviewing the integrity of
accounting principles adopted by
management in the presentation of
financial reports;
Regularly reviewing, assessing
and updating internal controls,
risk management and regulatory
compliance;
Reviewing, monitoring and assessing
related party transactions; and
Monitoring the effectiveness and
independence of the external
auditor.
Role of the External Auditor
PricewaterhouseCoopers was appointed
auditor effective 2 July 2001, and
provides an annual declaration of their
independence to the Audit and Risk
Committee. Whilst not a member of
the Audit and Risk Committee, they are
invited to attend meetings. In addition,
they will attend the Annual General
Meeting to answer shareholder questions
with regard to the conduct of their audit.
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.
In addition, the Company’s Internal
Audit and Loss Prevention, and Quality
Assurance functions provide ongoing
assurance to the Board and management
that established procedures and
requirements are being met.
The Acting 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
To enable these certifications to be
made, all functional General Managers
have provided similar certifications to the
Acting 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.
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.
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Code of Conduct
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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.
In addition, a formalised whistleblowers
policy has been developed and
implemented during the year which
offers employees an avenue to report on
a known or anonymous basis.
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
Securities Exchange.
Diversity Policy
The Company recognises the importance
of diversity and values the competitive
advantage that is gained from a diverse
workforce at all levels of the organisation.
Accordingly, the Company has developed
a Diversity Policy which focuses on
respecting the unique differences that
individuals can bring to the business.
This policy ensures the Company will
continue to foster an environment that
respects differences in age, gender,
ethnicity, religion, sexual orientation and
cultural background. The Company will
continue to ensure that all employment
opportunities are filled and remunerated
on the basis of merit and performance
and not due to any known bias.
The Company is committed to building
a diverse workforce, with a particular
focus on gender and gender equality,
and to support this focus, the following
objectives have been set:
Communication of the Company’s
Gender Diversity Statement to
internal and external stakeholders;
Review the means by which
the Company recruits, develops
and retains females across the
organisation;
Continue to build from our current
workplace flexibility options
including job sharing and/or part-
time employment;
Conduct and report a gender audit
to measure progress from baseline
data and identify and review any
specific areas of gender inequality;
and
Report to the Board on a regular
basis.
In accordance with this policy the following table represents the level of gender diversity within the Company and changes from the
prior year.
Board
Senior Executives
Middle Management
Store Managers
All Team Members
No of
Employees
- Female
30 June 2019
No of
Employees
- Total
30 June 2019
2
1
6
222
3,745
6
6
28
381
5,595
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
% of
Females
33.3%
16.7%
21.4%
58.3%
66.9%
% of
Females
25.0%
14.3%
16.0%
59.7%
66.5%
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Annual Report 2018/2019The Reject Shop
Corporate Governance, Environmental and Social Statement
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Senior Executives includes the General
Management team reporting to the
Acting Chief Executive Officer (excludes
Board). 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 1st of June 2019, 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 and
Nominations Committee
The Remuneration and Nominations
Committee Charter outlines the
composition and responsibilities of
the Remuneration and Nominations
Committee.
Composition of the Remuneration
and Nominations Committee
Under the Remuneration and
Nominations 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. During this Board renewal
period, the committee functions have
been separated, and the Charters will be
amended in 2019-2020 to reflect this.
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:
Environmental and Social
Statement
Jack Hanrahan (Chair)
William J Stevens
Michele Teague
Selina Lightfoot
Steven Fisher
Zachary Midalia
The Nominations Committee currently
comprises the following members:
Jack Hanrahan (Chair)
Michele Teague
Steven Fisher
Role of the Remuneration and
Nominations Committee
The role of the Remuneration and
Nominations 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 and Nominations
Committee obtains and considers
all relevant advice and information
including industry trends in
remuneration policy, market rates for
the positions of Acting Chief Executive
Officer, 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 70 to 73 of this annual report.
The Company is committed to being
responsible for the impact it has on
our environment and where 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, the
Company 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 2019, we have installed
high-efficiency LED lighting and
automated energy management systems
into 302 stores, including 21 Tasmanian
stores completed in May 2019. This
equipment regulates lighting levels,
run times and air conditioning usage.
In addition, the energy management
system will allow the Company to
individually control power usage at
each store and therefore manage its
energy costs. This energy reduction
equipment now forms part of our
standard fit out, and will be rolled out
to all new stores in future.
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In addition, the Company is 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.
Air Conditioning
The Company continues with a
stringent maintenance plan to ensure
all equipment is running efficiently and
to Australian Standards. The Company
also continues to work with landlords
to maximise servicing within any
contractual agreements. Integration of
company-controlled air-conditioning
units with the nationwide electricity
optimisation program is also driving
some significant benefits.
Reducing Waste and Recycling
The Company is increasing its
engagement with its contracted
waste company in order to improve its
recycling capabilities. Increased plastic
and cardboard recycling across the
store network has been a focus. Further
reductions in the usage of plastic and
cardboard are 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.
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.
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Annual Report 2018/2019The Reject Shop
Directors’ Report
Directors’ Report
Your directors present their report on
the Company and its subsidiaries for the
financial period ended 30 June 2019.
Matthew Campbell
(Appointed 12 December 2018 and
Resigned 17 April 2019)
Non-Executive Director
Zachary Midalia
(Appointed 14 June 2019)
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.
Member of the Audit and Risk Committee
and Member of the Remuneration
Committee.
Steven Fisher
(Appointed 14 June 2019)
Non-Executive Director
Member of the Audit and Risk Committee
and Member of the Remuneration and
Nominations Committee.
Meetings Of Directors
The number of meetings of the Board of directors and Committees held during the
period ended 30 June 2019 and the number of meetings attended by each director were:
Director
Director Meetings
Audit and Risk
Committee Meetings
Remuneration
and Nominations
Committee Meetings
WJ Stevens
R Sudano
KJ Elkington
M Teague
S Lightfoot
J Hanrahan
M Campbell
S Fisher
Z Midalia
A
22
17
14
22
19
13
7
2
2
B
22
18
15
22
20
13
7
2
2
A
4
XX
4
4
2
2
2
0
0
B
4
XX
4
4
2
2
2
YY
YY
A
3
2
1
3
2
2
1
1
1
B
3
2
1
3
2
2
1
1
1
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.
YY – No meetings held during the time the director held office during the period.
Directors
The directors of The Reject Shop Limited
during the whole of the financial period
and up to the date of this report, unless
otherwise stated below, were:
William J Stevens
Non-Executive Director
Chairman of the Board, Member of the
Remuneration Committee and Member
of the Audit and Risk Committee.
Ross Sudano
(Resigned 23 May 2019)
Managing Director and
Chief Executive Officer
Kevin J Elkington
(Resigned 28 February 2019)
Non-Executive Director
Chairman of the Audit and Risk
Committee and Member of the
Remuneration Committee.
Michele Teague
Non-Executive Director
Member of the Audit and Risk Committee
and Member of the Remuneration and
Nominations Committee.
Selina Lightfoot
(Appointed 23 August 2018)
Non-Executive Director
Chairman of the Audit and Risk
Committee and Member of the
Remuneration Committee.
Jack Hanrahan
(Appointed 12 December 2018)
Non-Executive Director
Member of the Audit and Risk Committee
and Chair of the Remuneration and
Nominations Committee.
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Principal Activities
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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 19 to 23.
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
19 to 23 of this annual report.
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:
A final ordinary dividend for the financial
period ended 1 July 2018 of 11.0 cents
per share totalling $3,179,896 was paid on
15 October 2018.
An interim ordinary dividend for the
financial period ended 30 June 2019 of
10.0 cents per share totalling $2,890,815
was paid on 8 April 2019.
Since the end of the financial period,
no dividend has been declared.
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 $324,626 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.
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.
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Annual Report 2018/2019The Reject Shop
Directors’ Report
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FY2019 saw the Board and Management
team evaluate the strategic direction
of the Company and some short and
long term strategic initiatives were set.
We have made progress on many of
our short term strategic initiatives and
are starting to see the benefits of these
within the business.
We expect to continue to open new
stores in locations that provide access to
new customers and close non-profitable
locations. 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 fourteen new
stores during the year and closed eight,
resulting in a national store footprint
totalling 357 stores by the end of the year.
Overview Of Financial Performance
$ Amounts are $’000 / %’s are to Sales
FY19
FY18
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
us. This work is ongoing, and forms the
basis of all our thinking as we develop
Sales
Gross Profit (i)
our promise of;
Cost of doing business (i)
“Always get more for
your money through the
fun and excitement of
discovering a bargain”.
EBITDA (i)
Impairment charge / (Reversal of impairment)
Depreciation and Amortisation
793,687
800,306
42.2%
39.9%
18,209
21,941
19,603
(23,335)
738
(24,073)
(7,174)
(16,899)
43.3%
38.0%
42,932
(551)
19,178
24,305
563
23,742
7,165
16,577
EBIT (i)
Net Interest Expense
(Loss) / Profit Before Tax
Income Tax (Benefit) / Expense
Net (Loss) / Profit After Tax
(i) Non IFRS measure and unaudited.
Sales Performance
Gross Margin
Overall sales decreased in FY2019 by
$6.6 million or (0.8%) on the prior period,
which reflects the net of:
A decline in Comparable Store Sales
(First half: negative 2.6%; Second
half: negative 2.5%), with Western
Australia, ACT and Queensland stores
most affected, reducing Comparable
Store performance; and
Lift in sales coming from the Net
positive effect of the openings and
closures in FY2019 and FY2018.
Gross margin, as a percentage of sales,
decreased by (1.1%) of sales. This was
primarily the result of a significant
increase in shrinkage post completion of
stocktakes and reduced margins through
discounting and clearance activity in
response to a competitive environment
and changes to the merchandise
strategy. This margin erosion was
partially offset by increases in rebates
and favourable outcomes of foreign
exchange management.
The ongoing development of product
ranges to meet these customer needs is
key to this promise, and we are focussed
on building on these changes to further
grow our sales in coming years.
An important 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 commercial television and catalogues,
as well as an increasing focus on digital
channels. 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.
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Cost of Doing Business (CODB)
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CODB (consisting of store and
administrative expenses but excluding
depreciation and amortisation) increased
by 1.9% to sales, which primarily reflects
the increased costs of running the
national retail network as well as the
impact of negative comparable store
sales in FY2019.
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Store expenses rose by 1.7% to 36.2% of
sales which was indicative of increased
store operating costs over the following
categories:
Store Wages (incl. on-costs) rose
0.80% to sales, primarily due to
the significant impacts of the
company EBA increases, which has
been partially offset by workers
compensation premium savings.
In addition, a greater level of
investment was made into Store
Management training and Retail
Leadership & Development training
programs.
Occupancy Costs increased by 0.7%
of sales which reflects the impact of
fixed price increases and IFRS lease
straight lining combined with the
impact of negative comparable sales
growth moderated by;
- net cash reductions from
renewed leases
- positive effect of closing
underperforming stores FY2019;
Light and Power savings of $1
million, reflects a reduction -0.1% of
sales over FY2019. The efficiencies
realised are consistent with the
installation of the high-efficiency
LED lighting throughout the store
portfolio which forms an ongoing
investment into energy savings
throughout the store network;
Advertising Costs increased by $1.2
million or 0.2% of sales, on the back
of investment into one additional
catalogue and a pre-Christmas
Teleision Branding Campaign in the
first half of FY2019. Other marketing
activity over and above the prior
year was through Spend & Save 4
Day Deals and clearance campaigns
to help drive sales activity within
the second half of FY2019 as well
as specific marketing into products
such as Bees Knees and the Peter
Morrissey home/manchester range.
Administrative expenses have risen
slightly on prior year to 5.7% of sales,
primarily reflecting the impact of
operational costs of a number of
strategic projects that have been
launched throughout FY2019
compounded by a lower sales base.
During the year, the Company booked a
total of $21.9 million of Asset Impairment
charges. Of these charges, $6.9 million
was a specific impairment provision that
relates to underperforming stores whilst
$15.0 million relates to a Corporate Asset
Impairment charge. This was recognised as
a result of an assessment of the net present
value of the Company’s future cash flows
which was not found sufficient to support
the carrying value of the Company’s
working capital and fixed assets.
Earnings
The Company has a reported EBIT of
negative ($23.3) million, a decrease of
(196%) on the prior year.
This EBIT represents (2.9%) return on
sales, well down on the 3.0% to sales
in the prior year. This is the result of a
$21.9m impairment expense, a decrease
in Gross Margin % and the increased
Cost of Doing Business.
However, when the effects of impairment
are excluded from FY2019 and FY2018,
the EBIT recorded in FY2019 is ($1.4m),
reflecting an EBIT to sales ratio of
(0.2%), and a fall in underlying EBIT of
approximately 106%.
Impact of New Leases Accounting
Standard (AASB 16 Leases)
AASB 16 Leases will be effective for
the Company on 1st July 2019 and it will
supersede the current Standard AASB
117 Leases.
Consistent with the prior year, the
Company has performed a detailed
analysis of its operating lease book,
which includes stores, distribution
centres and Head Office in preparation
for adopting the standard in the new
financial period.
As disclosed in further detail on page 51
of these accounts, the adoption of the
new standard will have a material impact
on the balance sheet. It will have minor
impacts 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 30th June 2019,
taking account of current (and likely)
operating lease arrangements during
FY2020, it estimates the impact on the
financial statements as follows:
Right of Use Liabilities of
approximately $246 million;
Right of Use Assets of the same
amount;
Existing IFRS and lease incentive
provisions of $17 million 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 in the range of
$3.5 million to $4.5 million 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.
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Annual Report 2018/2019The Reject Shop
Directors’ Report
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Dividends
The fall in total dividends paid/payable
to 10.0 cents per share comparable to
FY2018: 35.0 cents per share; reflects
the significant challenges the Company
has had with the decline in its sales
performance and underlying profitability.
The Company decided not to declare a
final dividend at year-end mainly due to
the second half loss and the decline in
the Earnings per Share. The Company has
historically had a 60% payout ratio within
recent years.
Financial Position and Capital
Investment
The Company’s Gearing has remained in
a Net Cash position at year-end of $6.8
million (2018: Net Cash $14.8 million).
The Company expects to increase Net
Debt during the first half of FY2020,
in line with regular trading patterns,
to cover the stock costs in preparation
for the Christmas period. However,
the Company projects it will be in
a significant Net Cash position by the
end of the first half of FY2020.
Net interest expense increased by $0.2
million in FY2019, this was the result of
increased average level of borrowings
held during the period due to the
disappointing sales performance.
Investments for Future Growth
The Company will continue to restructure
its store portfolio. Currently, seven new
stores are planned for FY2020, and an
expected five closures. The Company will
also look to perform refurbishments on
selected stores.
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.
This includes investing in marketing
initiatives such as improvements to
the company website and other digital
platforms to support brand awareness.
weeks trading of FY2020 are positive with
comparable sales sitting at -0.5%, which
is a significant improvement on the -2.5%
recorded in FY2019.
Notwithstanding these ongoing
investments for future profit growth,
the Company does anticipate a reduced
Capital Expenditure program in FY2020.
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,
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
With a clear and focused merchandise
strategy, the Company expects to see
a progressive improvement in the
comparable sales growth trajectory
throughout the first half of FY2020.
Current indicators of the first seven
Notwithstanding the ongoing sales
challenges, there are a number of
positives that are expected to assist in
increasing underlying profitability of
the business. These include:
Improvement to First Sales Margins,
which will be supported by a
continued focus on our FX Hedging
Position;
Continued emphasis on optimising
contractual obligations within
Occupancy Costs, where we have
over 100 stores up for renewal in
FY2020;
Continued pursuit of other Cost-out
opportunities;
Improving efficiencies coming
from the overall supply chain of the
business;
Implementing a clearance program
to support sales growth and improve
our current stock position;
Identify areas within the Company to
reduce discretionary spend;
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
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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
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 Distribution Centre network,
as well as thousands of customers
who visit its stores nationally.
The Company has structured a
Workplace Health & Safety function,
supported by technical specialists
in appropriate geographic locations
to oversee the application of safety
policies and procedures across the
network. The sustained focus and
attention on preventing injury and
returning injured workers back
into their workplaces more quickly;
has resulted in reduced levels of
Worker Compensation premiums
during the past three years and the
lowest number of serious injuries
resulting in Lost Time since 2013/14.
In addition, there has been a 14%
decline in customer incidents
recorded from FY2018 to FY2019.
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 using
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 Quality
Assurance function that has the
responsibility of ensuring all
products sold by the Company
adhere to legal requirements.
The Company is subject to an
external review of its Compliance
function by an independent
Compliance firm on an annual
basis, with any recommendations
noted and implemented as soon as
possible. In addition, the Company’s
legal advisors run an annual update
session at which changes to relevant
Consumer law are discussed.
Occupational Health & Safety
(OH&S) – The Company has over
5,500 employees across its stores
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Annual Report 2018/2019The Reject Shop
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24
Remuneration Report
Long-term rewards via participation
Short Term Cash Rewards (STR)
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 and Nominations
Committee is to ensure that directors
and executives are remunerated fairly
and within accepted market and
industry ranges. The composition, role
and responsibility of this Committee is
outlined in the Corporate Governance
Statement on page 16 of this annual
report.
Officers and Executive
Remuneration Structure
The executive remuneration and reward
framework has four components:
Base pay and benefits;
Other remuneration such as
superannuation payments;
Short-term cash rewards and;
in the Company’s Performance
Rights Plan.
The framework seeks to align 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.
For FY2019, the Remuneration and
Nominations Committee has determined
that 0% of contracted short-term rewards
will be payable to Key Management
Personnel on the basis that the Company
did not achieve the targets for FY2019.
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.
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
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Weighting of 25% - Return on
Average Capital Employed of at least
20% per annum.
The Managing Director does not receive
directors’ fees.
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 targets.
For the performance rights tranche
granted in respect of the 2016 financial
year and due to vest 30th June 2019,
the Remuneration and Nominations
Committee has determined in August
2019 that none of the performance
rights will vest. This is on the basis that
the Company has not achieved the
performance criteria as set out above.
B – Details of Remuneration
Directors’ Fees
The current aggregate limit for directors’
fees is $950,000 per annum with a base
fee payable (including superannuation)
to the Chairman of $206,205p.a. (FY2018:
$201,175) and to a Non-Executive Director
currently $120,438 p.a. (FY2018: $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 (FY2018: $6,180), Chairman
of Remuneration and Nominations
Committee $5,150 (FY2018: $5,150).
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 directors’ 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.
Executive Remuneration
The following executives along with
the directors, as detailed on page
18 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.
Ross Sudano
Managing Director &
Chief Executive Officer
(Resigned on 23 May 2019)
Allan Molloy
General Manager, Retail Operations
(Resigned 28 February 2019)
Allan J Penrose
General Manager, Marketing
Brendon Short
General Manager, Retail Operations
(Commenced 12 March 2019)
Danielle Aquilina
Acting Chief Executive Officer
(Commenced on 23 May 2019)
General Manager, Supply Chain
and Planning
Darren R Briggs
Chief Financial Officer and Company
Secretary
Ed Tollinton
Chief Information Officer
(Resigned 1 March 2019)
Kelvin Chand
General Manager, Property
(Resigned 31 July 2018)
Peter Barry
General Manager, Buying
(Commenced 9 July 2018 and
resigned 24 May 2019)
Robert d’Andrea
General Manager, Human Resources
Steve Williamson
General Manager, Buying (Acting)
(Commenced 1 June 2019)
All of the above persons were employed
by The Reject Shop Limited and were key
management personnel for the entire
period ended 30 June 2019 and the period
1 July 2018 unless otherwise stated.
During the year a review of the key
management personnel was conducted.
The Board has determined that from
1 July 2019 under a review of the
management structure which is in
progress, that not all general manager
roles will meet the definition of key
management personnel.
All remuneration details have been
disclosed in this report for all individuals
previously considered key management
personnel. In the Annual Report
for 2019/2020 it is proposed that
remuneration details will be provided
for only those individuals that meet the
determination in the new structure.
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:
25
Annual Report 2018/2019The Reject Shop
Directors’ Report
2019
Short-Term
Benefits
Post-
Employment
Benefits
Other
Benefits
Share-Based
Benefits
Cash
Salary
and Fees
$
Cash
Rewards
$
Non-
monetary
Benefits
$
Super-
annuation
$
Performance
Rights
$
Other
$
Other
$
Total
$
Proportion of
Annualised
Remuneration
as
Performance
Related
%
188,315
109,989
77,362
96,014
39,125
68,015
4,628
5,656
-
-
-
-
-
-
-
-
-
17,890
-
10,449
-
7,349
-
-
-
-
-
-
-
206,205
-
120,438
-
-
-
84,711
-
-
9,132
-
-
-
105,146
-
-
3,717
-
-
-
42,842
-
-
-
-
440
-
-
-
-
68,015
-
-
-
5,067
-
-
-
-
-
-
5,656
-
589,103
-
-
48,977
-
-
-
638,080
-
Name
Non-Executive
Directors
WJ Stevens
M Teague
KJ Elkington (i)
S Lightfoot (ii)
M Campbell (iii)
J Hanrahan (iv)
S Fisher (v)
Z Midalia (v)
Total Non-
Executive Directors
Executive Directors
R Sudano (vi)
752,318
-
41,259
20,531
473,659
(88,363)
-
1,199,404
-
Total Executive
Directors
752,318
-
41,259
20,531 473,659
(88,363)
- 1,199,404
-
The remuneration in the table above only reflects the amounts paid to the individuals for the time they were key management personnel.
(i) KJ Elkington ceased being a Director on 28th February 2019.
(ii) S Lightfoot was appointed a Director on 23rd August 2018.
(iii) M Campbell was appointed a Director on 12th December 2018; Ceased being a Director on 17th April 2019.
(iv) J Hanrahan was appointed a Director on 12th December 2018.
(v) S Fisher and Z Midalia were appointed as Directors on 14th June 2019.
(vi) R Sudano was the CEO until 23rd May 2019. As a result, R Sudano was paid in cash $74,644 of annual leave entitlements (which are excluded from the
table above); $277,065 in lieu of a contracted notice period and a grossed up motor vehicle fringe benefit of $196,594 paid out upon his resignation
which are included in ‘other benefits’ above.
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The Reject Shop
Annual Report 2018/2019
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Name
Other Key
Management
Personnel
DR Briggs
D Aquilina
AJ Penrose
R d’Andrea
E Tollinton (vii)
K Chand (viii)
A Molloy (ix)
B Short (x)
P Barry (xi)
S Williamson (xii)
Total Other Key
Management
Personnel
Total
Short-Term
Benefits
Post-
Employment
Benefits
Other
Benefits
Share-Based
Benefits
Cash
Salary
and Fees
$
Cash
Rewards
$
Non-
monetary
Benefits
$
Super-
annuation
$
Performance
Rights
$
Other
$
Other
$
Total
$
Proportion of
Annualised
Remuneration
as
Performance
Related
%
332,866
-
854
20,531
-
(5,382)
-
348,870
-
355,270
-
4,733
20,531
-
(6,128)
-
374,406
-
253,912
-
7,448
20,531
-
(4,134)
-
277,758
-
305,176
-
6,278
20,531
-
(4,178)
-
327,808
-
212,760
-
-
15,399
-
(30,298)
-
197,861
-
334,211
-
2,277
1,711
-
-
-
338,199
-
273,333
-
4,532
-
-
(36,992)
-
240,872
-
106,184
-
985
6,844
-
-
-
114,013
-
353,016
-
-
20,531
63,412
-
-
436,959
-
25,643
-
-
1,711
-
-
-
27,354
-
2,552,372
-
27,108
128,321
63,412
(87,111)
-
2,684,101
3,893,793
-
68,366
197,829
537,070
(175,474)
- 4,521,585
-
-
The remuneration in the table above only reflects the amounts paid to the individuals for the time they were key management personnel.
(vii) E Tollinton was the CIO until 1st March 2019. E Tollinton was paid in cash $11,241 annual leave entitlements which are excluded from the table above.
(viii) K Chand was the General Manager of Property until 31st July 2018. K Chand was paid in cash $15,194 annual leave entitlements which are excluded
from the table above. From 1st August 2018 K Chand was employed as a contractor and was paid $308,000 for the remainder of the financial year.
(ix) A Molloy was the General Manager of Operations until 28th February 2019. A Molloy was paid in cash $39,829 annual leave entitlements which are
excluded from the table above.
(x) B Short was appointed the General Manager of Operations on 12th March 2019.
(xi) P Barry was the General Manager of Buying until 24th May 2019. As a result, P Barry was paid in cash $25,772 of annual leave entitlements which are
excluded from the table above and $63,412 in lieu of a three month notice period paid out upon his resignation which is included in ‘other benefits’ above.
(xii) S Williamson was appointed Acting General Manager of Buying on 1st June 2019.
27
Directors’ Report
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28
2018
Short-Term
Benefits
Post-
Employment
Benefits
Other
Benefits
Share-Based
Payments
Cash
Salary
and Fees
$
Cash
Rewards
$
Non-
monetary
Benefits
$
Super-
annuation
$
Performance
Rights
$
Other
$
Other
$
Total
$
Proportion of
Annualised
Remuneration
as
Performance
Related
%
183,721
113,212
89,379
84,607
470,919
-
-
-
-
-
-
-
-
-
-
Name
Non-Executive
Directors
WJ Stevens
KJ Elkington
DR Westhorpe (i)
M Teague (ii)
Total Non-
Executive Directors
Executive Directors
Other Key
Management
Personnel
DR Briggs
D Aquilina
E Tollinton
AJ Penrose
K Chand
R d’Andrea
R Sudano
733,951
113,100
29,015
Total Directors
1,204,870
113,100
29,015
319,851
38,239
329,951
39,375
309,552
37,080
-
-
-
247,701
30,122
5,163
315,014
37,695
297,714
35,749
4,500
4,013
3,839
-
A Molloy (iii)
400,000
45,000
C Tomlinson (iv)
183,327
-
17,454
10,755
8,491
8,038
44,738
20,049
64,787
20,049
20,049
20,049
20,049
20,049
20,049
-
-
-
-
-
-
-
-
-
-
-
-
-
-
166,666
9,760
87,500
-
-
-
-
-
18,096
18,096
6,603
6,649
5,088
4,461
(20,479)
5,530
21,908
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
201,175
123,967
97,870
92,645
515,657
914,211
1,429,868
384,742
396,024
371,769
307,496
356,779
363,055
637,413
280,587
3,097,864
-
-
-
-
-
14.4
-
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
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.
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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.
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C – Service Agreements
All key management personnel are on
employment terms consistent with the
remuneration framework outlined in
this report.
In addition, all key management
personnel have service agreements
which provide that a period of notice
of three months is required by the
Company or the senior executive to
terminate employment.
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.
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D – Share-based Compensation
The number of performance rights over shares in the Company granted to executive directors and other key management personnel
during the current financial period, together with prior period grants which vested during the period is set out below:
Number
of Rights
Granted
During the
Period
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
2019
Grant Date
Executive Directors
R Sudano
18 Oct 2018
80,200
1 Jul 2021
17 Oct 2022
147,178
16,100
Other Key Management
Personnel
DR Briggs
D Aquilina
E Tollinton
AJ Penrose
K Chand
R d’Andrea
A Molloy
B Short
P Barry
S Williamson
Total
18 Oct 2018
27,200
1 Jul 2021
17 Oct 2022
49,916
5,600
18 Oct 2018
28,000
1 Jul 2021
17 Oct 2022
51,384
5,600
18 Oct 2018
26,300
1 Jul 2021
17 Oct 2022
48,264
6,000
18 Oct 2018
21,400
1 Jul 2021
17 Oct 2022
39,272
4,800
18 Oct 2018
-
1 Jul 2021
17 Oct 2022
-
5,100
18 Oct 2018
25,400
1 Jul 2021
17 Oct 2022
46,613
5,400
18 Oct 2018
32,000
1 Jul 2021
17 Oct 2022
58,725
-
N/A
-
N/A
N/A
-
18 Oct 2018
30,400
1 Jul 2021
17 Oct 2022
55,788
N/A
-
N/A
N/A
-
-
-
-
270,900
497,140
48,600
The fair value of performance rights on 18 October 2018 (grant date) with an expiry date of 17 October 2022 was $1.8351. The fair value
of performance rights vested on 23 August 2018 was $5.41.
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. In addition, no performance
rights granted to key personnel in prior years vested subsequent to period end. These performance rights were not vested on the
basis that the elements of the criteria relevant to that tranche were not achieved.
Shares Issued to Directors and Other Key Management Personnel on Exercise of Options or Performance Rights
The number of shares issued to executive directors and other key personnel on exercise of performance rights during the current year
are outlined in the following tables.
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E Tollinton
Rights
15 Oct 2015
23 Aug 2018
6,000
Type
Date Granted
Date Vested
and Exercised
No of Shares
Issued
Exercise Price
Rights
15 Oct 2015
23 Aug 2018
16,100
-
Rights
15 Oct 2015
23 Aug 2018
5,600
Rights
15 Oct 2015
23 Aug 2018
5,600
Rights
15 Oct 2015
23 Aug 2018
4,800
Rights
15 Oct 2015
23 Aug 2018
5,100
Rights
15 Oct 2015
23 Aug 2018
5,400
48,600
-
-
-
-
-
-
-
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.
2019
Executive Directors
R Sudano
Other Key Management Personnel
DR Briggs
D Aquilina
AJ Penrose
K Chand
R d’Andrea
Total
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2019
Cash Incentive
Performance Rights
Paid
%
Forfeited
%
Date
Granted
Vested
%
Forfeited
#
Forfeited
%
Executive Directors
R Sudano
0
100
FY2019
Other Key
Management
Personnel
DR Briggs
D Aquilina
AJ Penrose
R d’Andrea
E Tollinton
K Chand
A Molloy
Peter Barry
FY2018
FY2017
100
FY2019
FY2018
FY2017
100
FY2019
FY2018
FY2017
100
FY2019
FY2018
FY2017
100
FY2019
FY2018
FY2017
100
FY2019
FY2018
FY2017
100
FY2019
FY2018
FY2017
100
FY2019
FY2018
FY2017
100
FY2019
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Financial
Periods In
Which
Rights
May Vest
Maximum
Total
Number of
Rights
May Vest
Maximum
Total Value
of Grants
May Vest $
FY2022
-
-
FY2021
-
-
FY2020
-
-
FY2022
27,200
49,916
FY2021
36,900
142,308
80,200
109,000
32,700
-
-
100
100
100
0
0
12,200
100
FY2020
-
-
-
-
0
0
FY2022
28,000
51,384
FY2021
38,000
146,550
12,900
100
FY2020
-
-
-
-
0
0
FY2022
21,400
39,272
FY2021
29,100
112,227
9,400
100
FY2020
-
-
-
-
10,700
26,300
35,800
11,800
-
-
-
32,000
43,400
14,800
30,400
0
0
100
100
100
100
0
0
0
100
100
100
100
FY2022
25,400
46,613
FY2021
34,500
133,052
FY2020
-
-
FY2022
-
-
FY2021
-
-
FY2020
-
-
FY2022
-
-
FY2021
-
-
FY2020
-
-
FY2022
-
-
FY2021
-
-
FY2020
-
-
FY2022
-
-
# 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.
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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:
2019
Executive Directors
R Sudano (i)
Other Key Management Personnel
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DR Briggs
D Aquilina
AJ Penrose
R d'Andrea
E Tollinton (ii)
K Chand (iii)
A Molloy (iv)
Peter Barry (v)
B Short
S Williamson
Total
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
157,800
80,200
(16,100)
(221,900)
-
54,700
56,500
43,300
27,200
28,000
21,400
50,600
25,400
53,600
5,100
58,200
-
-
-
26,300
-
32,000
30,400
-
(5,600)
(5,600)
(4,800)
(5,400)
(6,000)
(5,100)
-
-
(12,200)
(12,900)
(9,400)
(10,700)
(73,900)
64,100
66,000
50,500
59,900
-
-
-
(90,200)
(30,400)
-
-
-
-
-
-
-
-
-
479,800
270,900
(48,600)
(461,600)
240,500
(i) R Sudano resigned during the year and all non-vested performance rights were lapsed prior to end June 2019.
(ii) E Tollinton resigned during the year and all non-vested performance rights were lapsed prior to end June 2019.
(iii) K Chand resigned during the year and all non-vested performance rights were lapsed prior to end June 2019.
(iv) A Molloy resigned during the year and all non-vested performance rights were lapsed prior to end June 2019.
(v) P Barry resigned during the year and all non-vested performance rights were lapsed prior to end of June 2019.
Subsequent to period end there have been no performance rights granted or vested to key management personnel.
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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:
2019
Directors
WJ Stevens
M Teague
KJ Elkington (i)
S Lightfoot (ii)
M Campbell (iii)
J Hanrahan (iv)
S Fisher (v)
Z Midalia (vi)
Executive Director
R Sudano (vii)
Other Key Management Personnel
DR Briggs
D Aquilina
AJ Penrose
R d’Andrea
E Tollinton (viii)
K Chand (ix)
A Molloy (x)
P Barry (xi)
B Short (xii)
S Williamson (xiii)
Total
Received During
the Period on
the Exercise of
Performance
Rights
Balance at
the Start of
the Period
Other Changes
During the
Period
Balance at
End of the
Period
6,500
-
-
6,500
-
-
-
-
11,000
-
(11,000)
-
-
-
5,500
5,500
-
-
-
-
-
-
5,000
5,000
-
-
-
-
-
-
4,040
4,040
-
16,100
(16,100)
-
5,600
-
5,600
2,000
4,800
1,000
5,400
(5,600)
(5,600)
(4,800)
(5,400)
-
-
-
2,000
1,000
-
-
-
-
-
-
6,000
(6,000)
-
5,100
(5,100)
-
-
-
-
-
-
-
-
-
-
-
-
-
20,500
48,600
(45,060)
24,040
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(i) KJ Elkington ceased being a Director on 28th February 2019, hence his shareholdings are shown as nil at year end.
(ii) S Lightfoot was appointed a Director on 23rd August 2018.
(iii) M Campbell was appointed a Director on 12th December 2018; Ceased being a Director on 17th April 2019.
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(v) S Fisher was appointed a Director on 14th June 2019.
(vi) Z Midalia was appointed a Director on 14th June 2019.
(vii) R Sudano resigned as CEO on the 23rd May 2019.
(viii) E Tollinton resigned as CIO on the 1st March 2019.
(ix) K Chand resigned as General Manager of Property on the 31st July 2018.
(x) A Molloy resigned as General Manager of Operations on the 28th February 2019.
(xi) P Barry resigned as General Manager of Buying on the 24th May 2019.
(xii) B Short was appointed the General Manager of Operations on the 12th March 2019.
(xiii) S Williamson was appointed Acting General Manager of Buying on the 1st June 2019.
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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
Received During
the Period on
the Exercise of
Performance
Rights
Balance at
the Start of
the Period
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.
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 30 June 2019 (FY2018 - $Nil).
No other transactions were undertaken with directors or other key management personnel, including related parties during the period
(FY2018 - $Nil).
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Company Performance
The Acting Chief Executive Officer 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 24 for the performance rights criteria.
The following table outlines the Company’s earnings and share performance over the last ten years:
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FY2010
FY2011
FY2012(i)(ii)
FY2013
FY2014
FY2015
FY2016(i)
FY2017
FY2018
FY2019
Period
NPAT
NPAT
Growth
EPS Cents
Per Share
$23.4m
22.90%
$16.2m
-30.80%
$21.9m
35.60%
$19.5m
-11.00%
$14.5m
-25.40%
$14.2m
$17.1m
-1.90%
20.10%
$12.3m
-28.10%
$16.6m
34.30%
90
62.1
84.1
73.4
50.3
49.4
59.3
42.8
57.4
Share
Price at
End of
Period
$16.42
$11.66
$9.15
$17.19
$8.82
$5.40
Share
Price
Growth
41.30%
-29.00%
-21.50%
87.90%
-48.70%
-38.80%
$12.45
130.60%
$4.16
$5.68
-66.60%
36.50%
$1.83
-68.00%
Ordinary &
Special
Dividends
Paid or
Declared
Per Share
$0.67
$0.31
$0.42
$0.37
$0.30
$0.30
$0.44
$0.24
$0.35
$0.10
Share
Price at
Start of
Period
$11.62
$16.42
$11.66
$9.15
$17.19
$8.82
$5.40
$12.45
$4.16
$5.68
EPS
Growth
22.30%
-31.00%
35.40%
-12.70%
-31.50%
-1.80%
20.00%
-27.80%
34.10%
($16.9m)
-201.9%
-58.5
-202.00%
(i) 53-week period.
(ii) 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 19 to 23
of this annual report.
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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*
$
19 Oct 2017
18 Oct 2021
1 Jul 2020
3.86
-
18 Oct 2018
17 Oct 2022
1 Jul 2021
1.84
-
*Nominal exercise price of $1.00 is payable each exercise.
Total
Number
on Issue
138,500
102,000
Number on
Issue to Key
Management
Personnel
138,500
102,000
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
There were no shares issued during the period between 1st July 2019 and the date of this report as a result of the exercise of
performance rights.
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
Other Assurance services
Tax Compliance and Consulting Services
Tax compliance
Tax consulting advice (i)
Consolidated Entity
2019
$
2018
$
374,000
50,613
424,613
40,500
59,400
99,900
380,000
38,332
418,332
45,666
15,300
60,966
Total Remuneration
524,513
479,298
(i) Additional tax consulting fees were paid in FY2019 in respect of services associated with consulting for deferred tax balances and research
and development tax services.
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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 40 of this annual report.
This report is made in accordance with a resolution of the directors:
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William J Stevens
Chairman
22 August 2019
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Auditor’s Independence Declaration
Auditor’s Independence
Declaration
Auditor’s Independence Declaration
As lead auditor for the audit of The Reject Shop Limited for the 52 week period ended 30 June 2019, I
declare that to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of The Reject Shop Limited and the entities it controlled during the
period.
Sam Lobley
Partner
PricewaterhouseCoopers
Melbourne
22 August 2019
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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40
The Reject Shop
Annual Report 2018/2019
Consolidated Statement
of Comprehensive Income
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For the 52 Week Period Ended 30 June 2019
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Revenue from continuing operations
Sales revenue
Other revenue
Expenses
Cost of sales
Store expenses
Administrative expenses
Impairment expenses / (gains)
Finance costs
(Loss) / Profit before income tax
Income tax (benefit) / expense
Consolidated Entity
2019
$’000
2018
$’000
793,687
800,306
51
44
793,738
800,350
Note
2
2
462,556
457,462
287,692
276,300
44,833
42,790
21,941
(551)
817,022
776,001
3
789
607
(24,073)
4
(7,174)
23,742
7,165
(Loss) / Profit for the period attributable to shareholders of The Reject Shop Limited
(16,899)
16,577
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 (loss) / income for the period, net of tax
(3,379)
1,014
(2,365)
8,580
(2,574)
6,006
Total comprehensive (loss) / income attributable to shareholders of The Reject Shop Limited
(19,264)
22,583
Earnings per Share
Basic earnings per share
Diluted earnings per share
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Cents
Cents
26
26
(58.5)
(58.5)
57.4
56.7
41
Consolidated Balance Sheet
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Consolidated
Balance Sheet
As at 30 June 2019
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
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.
Consolidated Entity
2019
$’000
2018
$’000
26,308
14,754
110,791
105,087
2,696
-
Note
5
6
21
2,107
5,487
7
2,245
3,423
144,147
128,751
8
9
10
11
12
13
12
14
15
16
17
60,975
92,513
20,196
11,749
81,171
104,262
225,318
233,013
43,826
44,096
19,500
-
-
1,602
10,341
10,564
10,606
9,481
84,273
65,743
2,930
2,079
12,793
14,205
15,723
16,284
99,996
82,027
125,322
150,986
46,247
46,247
6,218
8,913
72,857
95,826
125,322
150,986
Consolidated Statement
of Changes in Equity
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For the 52 Week Period Ended 30 June 2019
Consolidated Entity 2019
Contributed
Equity
$’000
Capital
Profits
$’000
Share Based
Payments
$’000
Hedging
Reserve
$’000
46,247
739
4,321
3,841
Balance as at 01 July 2018
Loss for the period
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Other comprehensive
(loss) / income
Foreign exchange
translation
Transaction with owners in their capacity as owners:
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Dividends Paid
Share based
remuneration
Current tax – (debited)
directly to equity
Consolidated Entity 2018
Balance as at 02 July 2017
Profit for the period
Other comprehensive
income
Foreign exchange
translation
-
-
-
-
-
-
-
-
-
F/X
Translation
Reserve
$’000
Retained
Earnings
$’000
Total
$’000
12
-
-
(13)
-
-
-
95,826
150,986
(16,899)
(16,899)
-
-
(2,365)
(13)
(6,070)
(6,070)
-
-
(178)
(139)
F/X
Translation
Reserve
$’000
-
-
-
12
-
-
-
Retained
Earnings
$’000
86,175
16,577
-
-
Total
$’000
135,153
16,577
6,006
12
(6,926)
(6,926)
-
-
48
116
-
-
-
-
-
-
-
-
-
-
(178)
(139)
-
(2,365)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
48
116
-
6,006
-
-
-
-
Transaction with owners in their capacity as owners:
Dividends Paid
Share based
remuneration
Current tax – credited
directly to equity
-
-
-
Contributed
Equity
$’000
Capital
Profits
$’000
Share Based
Payments
$’000
Hedging
Reserve
$’000
46,247
739
4,157
(2,165)
Balances as at 30 June 2019
46,247
739
4,004
1,476
(1)
72,857
125,322
Balances as at 01 July 2018
46,247
739
4,321
3,841
12
95,826
150,986
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
43
Annual Report 2018/2019The Reject Shop
Consolidated Statement of Cash Flows
Consolidated Statement
of Cash Flows
For the 52 Week Period Ended 30 June 2019
Consolidated Entity
2019
$’000
2018
$’000
Note
Cash Flow from Operating Activities
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services tax)
Interest received
Borrowing costs paid
Income tax paid
Net cash inflow from operating activities
20
873,056
880,337
(858,738)
(836,542)
51
(789)
(4,750)
8,830
44
(610)
(6,812)
36,417
(10,706)
(10,706)
(17,353)
(17,353)
247,500
119,000
(228,000)
(132,000)
25
(6,070)
13,430
11,554
14,754
26,308
(6,926)
(19,926)
(862)
15,616
14,754
Cash flow from investing activities
Payments for property, plant and equipment
Net cash (outflow) from investing activities
Cash flow from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net cash inflow / (outflow) from financing activities
Net increase / (decrease) in cash held
Cash at the beginning of the financial period
Cash at the end of the period
20
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
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44
The Reject Shop
Annual Report 2018/2019
Notes to Consolidated
Financial Statements
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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.
As at 30 June 2019, the Group made
a net loss after tax of $16,899,000.
Additionally, as at 30 June 2019, the
Group did not meet its fixed charge
cover ratio covenant required under
the existing lending agreement with its
bank, Australia and New Zealand Banking
Group (ANZ). However, the Group
received a waiver of this covenant breach
on 5 July 2019.
The ongoing funding requirements of
the Group is dependent on the Group’s
ability to access financing over the 12
month period from the date of the
financial report. The current ANZ facilities
are due to mature on 30 September
2019. Subsequent to year end, the Group
has received notice from the ANZ of
its intention to renew all the facilities
through to 31 August 2020, subject
to compliance with certain covenants.
Importantly, the renewal notice from
the ANZ requests the Group to
complete refinancing of the funding
facility with a different lender, ideally
by 30 April 2020, but by no later than
31 August 2020.
The Reject Shop Limited and its
subsidiaries are referred to in this financial
report as the consolidated entity.
The Directors advise that a process has
been initiated in respect of refinancing
for FY2021. In preparing the financial
report, the Directors have applied
judgement over the Group’s ability to
obtain refinancing at acceptable terms
with a different lender, assessing forecast
cash flows for the period of 12 months
from the date of this report and forecast
compliance with bank covenants.
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
(i) Subsidiaries
The consolidated financial statements
incorporate all the assets and liabilities
of the subsidiaries of The Reject Shop
Limited as at 30 June 2019 and the results
of the subsidiaries for the period.
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 domiciled
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.
45
Notes to Consolidated Financial Statements
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(c) Segment Reporting
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 taxpayer in
its own right.
is depreciated over the shorter of the
lease term and the asset’s useful life.
Lease payments for operating leases,
where substantially all the risks and
benefits remain with the lessor, are
charged as expenses in the periods
in which they are incurred. Leases
containing fixed escalation clauses
require the escalation amounts to be
determined on lease inception and
expensed evenly over the lease term,
generally between three and eight 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.
(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
(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.
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(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;
that have been forfeited 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 (i.e. at a
point in time). 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 effective
in offsetting changes in cash flows of
hedged items.
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
vest. At each balance sheet date, the
entity revises its estimates of the number
of Performance Rights that are expected
to vest, net of any Performance Rights
47
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
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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.
(m) Trade and Other Payables
(s) Earnings per Share
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.
(r) Contributed Equity
Ordinary shares are classified as equity.
(i) Basic earnings per share
Basic earnings per share is determined
by dividing net profit after income tax
attributable to members of the Group,
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 fit out.
(v) Store Opening Costs
Non-capital costs associated in the setup
of a new store are expensed in the period
in which they are incurred.
(w) Training Subsidies
Government subsidies for employees
undertaking external traineeships are
treated as income in the period they are
received and after all costs to which they
relate have been incurred.
The Reject Shop
Annual Report 2018/2019
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(x) Cost of Sales
The Group 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 Group 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 Group is a kind referred to in ASIC
Corporations (Rounding in Financial/
Directors’ Report) Instrument 2016/191,
issued by the Australian Securities and
Investment Commission, relating to
the “rounding off” of amounts in the
directors’ and financial reports. Amounts
in these reports have been rounded off
in accordance with that Class Order to
the nearest thousand dollars, or in certain
cases, to the nearest dollar.
(aa) Critical Accounting Estimates
and Judgements
For the 30 June 2019 reporting period
certain accounting estimates and
judgements were made in relation to the
following:
(i) Provisioning for shrinkage expense
The group provides for shrinkage
expense for the period by applying an
certain assumptions including forecast
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
Group 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) Impairment of corporate and
distribution centre assets
Due to impairment indicators at the
end of the financial period, corporate
and distribution centre assets are tested
for impairment using a value in use
discounted cash flow model. The Group
determines value in use by making
certain assumptions over forecast cash
flows, giving regard to external industry
forecasts and board approved budgets,
and estimating the present value of
these cash flows using a discount rate
reflecting the Group’s cost of capital.
Impairment assessments are sensitive to
the judgments made in the impairment
test, including the assumptions outlined
above. Changes to these assumptions
could result in a different outcome or
impairment of assets in the future.
(iv) 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 Group
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.
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 30 June 2019 this particular
provision had a carrying amount of
$10,401,065 (FY2018 - $9,099,803).
(ii) Impairment of store assets
The Group offers a wide range of
discount merchandise through its
network of 357 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’ (CGU) 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 Group
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 Group
determines value in use by making
49
Notes to Consolidated Financial Statements
(ac) New standards and
interpretations not yet adopted
Certain new accounting standards and
interpretations have been published that
are not mandatory for the 30 June 2019
reporting period and have not been early
adopted by the Group.
The Group’s assessment of the impact of
these new standards and interpretations
is set out opposite:
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 adopted by
the Group
The Group has applied the following
standards and amendments for the first
time for their annual reporting period
commencing 1 January 2018:
AASB 9 Financial Instruments
AASB 15 Revenue from Contracts
with Customers
The Group has not had to make
significant changes to its accounting
policies or make certain retrospective
adjustments following the adoption
of AASB 9 and AASB 15. There was not
any impact on the amounts recognised
in prior periods and are not expected
to significantly affect the current or
future periods.
(v) Net realisable value of inventory
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 30 June
2019 or after 30 June 2019 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 2019/20.
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Title of
Standard
AASB 16
Leases
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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.
Nature of
Change
Impact
of Change
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 the Group has elected
to continue expensing under the current
accounting regime. All property and motor
vehicle leases for the Group 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., will continue to be
expensed in line with the current treatment.
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.
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 estimates that on the
adoption date of 1 July 2019, the right of use
liabilities to be taken to the balance sheet
on adoption date will be approximately
$246 million and the right of use assets to be
taken to the balance sheet will initially be the
same amount. The existing IFRS and lease
incentive provisions of $17 million 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 the
standard. The Group estimates that, as a result
of adopting the standard on 1 July 2019, net
profit after tax for the 2020 financial period
will be adversely impacted in the range of
$3.5 million to $4.5 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 $107 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
based on the leases in existence at 30 June
2019 plus expected new sites and closures to
occur during the 2020 financial period. These
openings and closures of sites are calculated
per their specific arrangements. In addition,
expected replacement of leases has been
taken into account and assumes a standard
lease period, rent uplift rate and incremental
borrowing rate. The Group notes that these
calculations assume an adoption date of 1
July 2019, and that the actual values for the
2020 financial period may be different. This
difference will be due to: (i) the actual terms
and conditions of replacement leases for
those leases expiring during the 2020 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.
51
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
Note 2: Revenue from Continuing Operations and Other Income
Revenues from continuing operations
Sales of goods
Interest
Note 3: Expenses
Consolidated Entity
2019
$’000
2018
$’000
793,687
800,306
51
44
793,738
800,350
Consolidated Entity
2019
$’000
2018
$’000
Note
(Loss) / Profit before income tax expense includes the following expenses:
Interest and finance charges paid / payable
789
607
Depreciation & amortisation expenses are included in:
Cost of sales
Store expenses
Administrative expenses
Impairment
Impairment of Corporate Cash Generating Unit Assets
- Property, Plant and Equipment
Impairment / (reversal of impairment) of Store Cash Generating Unit Assets
- Property, Plant and Equipment
3,606
3,593
13,634
13,573
2,363
2,012
19,603
19,178
15,000
6,941
21,941
-
(551)
(551)
8
Asset write offs on store closures
413
799
Rental expenses relating to operating leases
Minimum lease payments
Provision/(reversal) for onerous leases
Provision for rent escalation
Rent paid on percentage of sales basis
Employee benefits expense
New store opening costs
121,545
116,910
273
1,595
(28)
(145)
2,754
(335)
172,958
164,095
1,291
1,373
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Note 4: Income Tax Expense
(a) Income tax expense
Current tax
Deferred tax
Under provided in prior years
Deferred income tax expense included in income tax expense comprises:
(Increase) / Decrease in net deferred tax assets
(b) Numerical reconciliation of income tax expense to prima facie tax payable
(Loss) / Profit before income tax expense
Tax at the Australian tax rate of 30% (2018 – 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
(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
(d) Income tax relating to items of other comprehensive income
Cash flow hedges
Note 5: Current Assets - Cash
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Cash on hand
Cash at bank
Consolidated Entity
2019
$’000
2018
$’000
Note
521
5,697
(7,743)
1,425
48
43
(7,174)
7,165
9
(7,743)
1,425
(24,073)
(7,222)
-
(7,222)
48
(7,174)
23,742
7,122
-
7,122
43
7,165
(139)
116
1,014
(2,574)
Note
20
20
Consolidated Entity
2019
$’000
2018
$’000
1,643
2,139
24,665
12,615
26,308
14,754
53
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
Note 6: Current Assets – Inventories
Inventory at cost
Inventory at net realisable value
Consolidated Entity
2019
$’000
107,675
3,116
110,791
2018
$’000
104,080
1,007
105,087
Inventories recognised as an expense during the period ended 30 June 2019 amounted to $393,922,000 (FY2018: $392,369,000).
These were included in the cost of sales. Writedowns of inventories to net realisable value amounted to $2,337,000 (FY2018: $2,240,000)
These were recognised as an expense during the period ended 30 June 2019 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 and impairment
Plant and equipment*
At cost
Less accumulated depreciation and impairment
Total Property, Plant and Equipment
* Plant & equipment includes fixtures, fittings and motor vehicles as well as $1,104 (FY2018: $Nil) of work in progress costs.
Consolidated Entity
2019
$’000
2018
$’000
1,486
1,380
759
2,043
2,245
3,423
Consolidated Entity
2019
$’000
2018
$’000
84,894
(60,754)
24,140
82,250
(46,052)
36,198
161,954
156,520
(125,119)
(100,205)
36,835
60,975
56,315
92,513
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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 01 July 2018
Additions at cost
Asset write offs for store closures
Impairment
Depreciation/amortisation expense
Balance at 30 June 2019
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Balance at 02 July 2017
Additions at cost
Asset write offs for store closures
Impairment
Depreciation/amortisation expense
Balance at 1 July 2018
Leasehold Improvements
$’000
Plant and Equipment
$’000
36,198
4,812
(512)
(8,667)
(7,691)
24,140
56,315
6,627
(921)
(13,274)
(11,912)
36,835
Leasehold Improvements
$’000
Plant and Equipment
$’000
35,048
8,707
(231)
215
(7,541)
36,198
59,538
8,646
(568)
336
(11,637)
56,315
Total
$’000
92,513
11,439
(1,433)
(21,941)
(19,603)
60,975
Total
$’000
94,586
17,353
(799)
551
(19,178)
92,513
The Group’s property, plant and equipment assets comprise assets located at specific stores, distribution centres and at the corporate
office. The Group assesses these assets for indicators of impairment at each reporting date in accordance with AASB 136 Impairment
of Assets. During the period, there were indicators of impairment due to declining market conditions within the retail sector, operating
performance of the business, and a deficiency of the market capitalisation position to net assets as at 30 June 2019.
The Group performed the test for impairment first at the CGU level consisting of individual stores as this is the smallest group of assets
for which independent cash flows can be determined (the “stores CGU”). For testing at the individual stores level, the Group calculated
the recoverable amount of the CGU using a value-in-use (VIU) discounted cash flow model. The model uses cash flow projections
based on forecasts approved by management covering a period equivalent to the lease term of the individual store.
For testing of the distribution and corporate assets, the Group determined a CGU comprising these assets along with the store assets
as it is only at this level that independent cash flows can be determined (the “corporate CGU”). For testing at the corporate CGU level,
the Group calculated the recoverable amount using a VIU discounted cash flow model. The model uses cash flow projections based on
forecasts approved by the Company covering a period of five years. Cash flows beyond the five year period were extrapolated using a
terminal growth rate.
As a result of the impairment testing for the stores CGU, the Group recognised an aggregate impairment expense of $6,941,000 (2018:
reversal of $551,000). As a result of the impairment testing for the corporate CGU, the Group recognised a further impairment expense
of $15,000,000 (2018: nil). These amounts will be carried as a provision, separate to ongoing accumulated depreciation.
In addition to store impairment, six stores were closed, and associated costs with carrying amount of $407,994 (FY2018: $799,206) were
written off.
55
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
The key assumptions used in the corporate CGU models were:
Key assumption
Pre-tax discount rate
Terminal growth rate
Sales growth rate
2019
14.47%
1.40%
1.53%
Average first margin over 5 year
forecast period
51.16%
Approach to determine value
The pre-tax discount rate is calculated from observable market
information and is risk adjusted relative to the risks associated with the
net pre-tax cash flows being achieved.
The terminal growth rate estimated by the Group and is consistent
with long-term industry and economic forecasts.
The sales growth rate is based on the board-approved five year
forecast, which reflects past performance and the Company’s
expectations, as well as relevant external information such as industry
reports and economic forecasts.
The average first margin is based on past performance and the
Company’s expectations. The assumption incorporates anticipated
market conditions and the Company’s expectations of first margin
improvement and future cost saving initiatives.
The assumptions used to record the impairment remain appropriate to use for the assessment at the end of the financial reporting
period. Therefore the recoverable amount continues to approximate carrying value, and any adverse movement in these assumptions
may lead to further impairment. The recoverable amount is highly sensitive to changes in the key assumptions. The impact of these
changes in key assumptions is shown in the table below and has been calculated in isolation from other changes.
Key assumption
Discount rate
Sensitivity applied
Impact of Sensitivity on Corporate CGU impairment
Increased by 50 bp
Additional impairment of $3,274,000
Terminal growth rate
Decreased by 50 bp
Additional impairment of $2,589,000
Sales growth rate
Decreased by 25 bp
Additional impairment of $20,076,000
Average first margin
Decreased by 10 bp
Additional impairment of $5,960,000
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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 and Impairment
Other provisions and accruals
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Tax Losses
Sundry items
Set-off of deferred tax liabilities of consolidated entity pursuant
to set-off provisions:
Depreciation
Receivables
Hedging reserve
Net deferred tax assets
Net deferred tax assets expected to be recovered within 12 months
Net deferred tax assets expected to be recovered after more than 12 months
Net deferred tax assets
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Consolidated Entity
2019
$’000
2018
$’000
3,683
3,027
1,800
2,042
3,730
3,506
1,647
1,909
11,267
2,776
736
29
291
650
339
-
-
(438)
22,875
14,119
(1,981)
(724)
(66)
(632)
20,196
6,794
13,402
20,196
-
(1,646)
11,749
4,725
7,024
11,749
57
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
Movements – Consolidated
At 02 July 2017
(Charged) / credited
- to profit or loss
- to other comprehensive income
- direct to equity
At 01 July 2018
(Charged) / credited
- to profit or loss
- to other comprehensive income
- direct to equity
At 30 June 2019
Employee
Benefits
$’000
Inventories
$’000
3,409
1,627
321
-
-
20
-
-
Hedging
Reserve
$’000
928
-
(2,574)
-
3,730
1,647
(1,646)
(47)
-
-
153
-
-
3,683
1,800
-
1,014
-
(632)
Note 10: Current Liabilities – Payables
Unsecured liabilities
Trade payables
Sundry payables and accruals
Note 11: Current Liabilities – Borrowings
Loan Facility - Cash advance (i)
Other
$’000
6,818
1,084
-
116
8,018
7,637
-
(310)
Total
$’000
12,782
1,425
(2,574)
116
11,749
7,743
1,014
(310)
15,345
20,196
Consolidated Entity
2019
$’000
2018
$’000
39,783
41,243
4,043
2,853
43,826
44,096
Note
20
Consolidated Entity
2019
$’000
19,500
19,500
2018
$’000
-
-
(i) A fixed interest rate of 2.245% (2018: Nil) 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.
The Group is required to maintain a fixed charge cover ratio of 1.20 as at the balance dates ending 31 December, 31 March, 30 June and 30 September
through the term of its financing facility. The Group’s fixed charge cover ratio as at the compliance date of 30 June 2019 was marginally below 1.20
and therefore the Group breached its covenant requirements. On 5 July 2019, the Group obtained a waiver of the fixed charge cover ratio for the
30 June 2019 and 30 September 2019 compliance dates. Notwithstanding the breach and waiver received after the end of the reporting period,
all borrowing facilities are short-term in nature and remain classified as current on the balance sheet.
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Note 12: Liabilities – Provisions
Onerous leases
Employment entitlements
Current
$’000
174
10,167
10,341
2019
Non-Current
$’000
206
2,724
2,930
Consolidated Entity
Total
$’000
380
12,891
13,271
Current
$’000
74
10,490
10,564
2018
Non-Current
$’000
33
2,046
2,079
Total
$’000
107
12,536
12,643
Amounts not expected to be settled within the next 12 months
The current provision for employee entitlements includes 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.
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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
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Rent escalation
Consolidated Entity
2019
$’000
5,484
2018
$’000
4,868
Consolidated Entity
2019
$’000
2018
$’000
6,435
5,594
2,203
1,516
1,968
2,371
10,606
9,481
Consolidated Entity
2019
$’000
2018
$’000
4,671
4,891
8,122
9,314
12,793
14,205
59
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
Note 15: Contributed Equity
Movements in ordinary share capital:
Date
02 July 2017
01 July 2018
Details
Balance
Balance
23 August 2018
Exercise of performance rights
30 June 2019
Balance
Number of
Issued Shares
28,859,548
28,859,548
48,600
28,908,148
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 Group does not have a limited amount of authorised capital.
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Deferred tax – share based payments
Balance at end of period
Note 16: Equity – Reserves
Capital profits reserve
Share-based payments reserve (i)
Hedging reserve – cash flow hedges (ii)
Foreign currency translation reserve (iii)
Movements:
Share based payments reserve (i)
Balance at beginning of period
Performance Rights expense
Hedging reserve – cash flow hedges (ii)
Balance at beginning of period
Transfer to inventory
Revaluation of cash flow hedges
Balance at end of period
Foreign currency translation reserve (iii)
Balance at beginning of period
Currency translation differences
Balance at end of period
Nature and Purpose of Reserves
(i) Share-based payments reserve
(ii) Hedging reserve – cash flow hedges
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Consolidated Entity
2019
$’000
2018
$’000
739
739
4,004
4,321
1,476
3,841
(1)
12
6,218
8,913
4,321
(178)
(139)
4,004
4,157
48
116
4,321
3,841
(2,165)
(3,841)
2,165
1,476
3,841
1,476
3,841
12
-
(13)
12
(1)
12
The share-based payments reserve is used to recognise the fair value of performance rights issued.
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.
(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.
61
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
Note 17: Equity – Retained Profits
Retained profits at the beginning of the financial period
Net (loss) / 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
2019
$’000
2018
$’000
95,826
86,175
(16,899)
16,577
(6,070)
(6,926)
72,857
95,826
Consolidated Entity
2019
$’000
2018
$’000
104,799
100,618
163,712
174,128
12,358
21,062
280,869
295,808
Operating leases primarily relate to retail stores over a two to seven-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 accrued as
at 30 June 2019 for percentage rent was $83,461 (FY2018: $163,374).
Capital Commitments
The consolidated entity has capital commitments totalling $5,368,090 (FY2018: $1,009,749) all payable within one year.
Note 19: Contingent Liabilities
As at 30 June 2019, the Group has no contingent liabilities (1 July 2018: $Nil).
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Note 20: Consolidated Statement Of Cash Flow Information
Reconciliation of cash flow from operating activities with (loss) / profit after
income tax from ordinary activities
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Non-cash items in (loss) / profit from ordinary activities
Impairment / (Reversal of impairment) of store assets
Depreciation
Impairment of corporate assets
Asset write offs on store closures
Provision for onerous leases
Non cash share-based expense
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Tax (debited) / credited directly to equity
Changes in assets and liabilities:
Decrease / (Increase) in receivables and other asset
(Increase) in inventories
Increase in trade, other creditors and other provisions
(Decrease) / Increase in income tax payable
(Increase) / Decrease in deferred tax
Net cash provided by operations
Cash on hand
Cash at bank
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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:
Consolidated Entity
2019
$’000
2018
$’000
(16,899)
16,577
19,603
15,000
6,941
413
273
(178)
(139)
19,178
-
(551)
799
(145)
48
116
1,178
(1,007)
(5,704)
1,087
(4,298)
(8,447)
8,830
(12,181)
10,514
2,036
1,033
36,417
1,643
2,139
24,665
12,615
26,308
14,754
63
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
Credit Standby Arrangement and Loan Facilities
The ongoing funding requirements of the Group, reviewed 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
2019
2018
Limit
$’000
25,000
-
800
25,800
Utilised
$’000
19,500
-
471
19,971
Limit
$’000
30,000
-
800
30,800
Utilised
$’000
-
-
471
471
A seasonal facility of $20,000,000 was utilised from 1 October 2018 and repaid in full by 31 December 2018. Other facilities include an
ANZ Bank indemnity guarantee of $800,000 of which $470,897 was utilised in relation to property leases at 30 June 2019.
(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
Derivative Financial Instruments
Current assets and (liabilities)
Consolidated Entity
2019
$’000
2018
$’000
Forward foreign exchange contracts – cash flow hedges
2,107
5,487
Forward Exchange Contracts – Cash Flow Hedges
The consolidated entity imports product from overseas. In order to protect against exchange rate movements, the consolidated
entity enters into forward exchange contracts to purchase foreign currency for all overseas purchases. These contracts are hedging
contracts for highly probable forecast purchases for the ensuing financial period. The contracts are timed to mature when payments
for shipments of products are scheduled to be made.
At balance date, the details of outstanding forward exchange contracts to be settled within 12 months are:
Sell
Buy
Australian Dollars
United States Dollars
Australian Dollars
Euros
Australian Dollars
Pounds Sterling
Average Exchange Rate
2019
$’000
115,976
817
-
2018
$’000
133,101
311
-
2019
$
0.72
0.61
-
2018
$
0.77
0.64
-
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 $2,107,361 (FY2018 – asset of $5,486,538).
During the period $3,840,576 (FY2018 – $2,165,381) was removed from equity and included in the acquisition cost of goods and a net
gain of $Nil (FY2018 – net $Nil) was transferred to the consolidated profit and loss.
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Exposure to Foreign Currency Risk
The Group’s exposure to foreign currency risk at the end of the reporting period was as follows:
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
AUS/USD
l
For every 1c increase in AUD:USD rate, total exposures decrease by
For every 1c decrease in AUD:USD rate, total exposures (increase) by
2019 USD
$’000
2018 USD
$’000
1,323
8,275
256
5,776
Consolidated Entity
2019
$’000
139
(1,664)
(143)
1,712
2018
$’000
100
(1,851)
(102)
1,902
Cash at bank
Trade payables
Income Statement
Equity
Income Statement
Equity
Interest Rate Risk
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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:
2019
Cash
Financial Assets
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
0.23
-
2.92
-
22,148
-
22,148
-
-
-
-
-
-
19,500
-
19,500
-
-
-
-
-
-
4,159
26,308
-
-
4,159
26,308
-
49,814
19,500
49,814
49,814
69,314
65
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
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
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
2019
$’000
2018
$’000
(66)
-
(59)
-
(46)
-
(21)
-
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.
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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 2019, the Group’s strategy, which was unchanged from 2018, was to maintain a gearing ratio at or below 30%. The gearing ratio at
30 June 2019 and 01 July 2018 were as follows:
Consolidated Entity
2019
$’000
(6,808)
125,322
0%
2018
$’000
(14,754)
150,986
0%
Net debt/ (cash)
Total equity
Net debt to equity ratio (i)
Liquidity Risk
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(i) The group has no net debt so debt to equity ratio is not applicable.
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 30 June 2019
Non-Derivatives
Non-interest bearing
Variable rates
Fixed rate
Total Non-Derivatives
Derivatives
Net settled
Gross settled
- (inflow)
- outflow
Total Derivatives
Less Than
6 Months
$’000
6 – 12
Months
$’000
Between
1 and 2 Years
Between
2 and 5 Years
Total
Contractual
Cash Flows
$’000
$’000
$’000
Carrying
Amount
(Assets) /
Liabilities
$’000
54,346
-
19,500
73,846
-
-
-
-
-
-
(115,352)
(3,548)
113,220
(2,132)
3,573
25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
54,346
54,346
-
19,500
73,846
-
19,500
73,846
-
(118,900)
116,793
(2,107)
-
-
(2,107)
(2,107)
67
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
Less Than
6 Months
$’000
6 – 12
Months
$’000
Between
1 and 2 Years
Between
2 and 5 Years
Total
Contractual
Cash Flows
$’000
$’000
$’000
Carrying
Amount
(Assets) /
Liabilities
$’000
51,676
-
-
-
-
-
-
-
-
(115,756)
(23,143)
111,089
22,323
(4,667)
(820)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
51,676
51,676
-
-
-
-
51,676
51,676
-
(138,899)
133,412
(5,487)
-
-
(5,487)
(5,487)
Total Non-Derivatives
51,676
Consolidated Risk
– At 01 July 2018
Non-Derivatives
Non-interest bearing
Variable rates
Fixed rate
Derivatives
Net settled
Gross settled
- (inflow)
- outflow
Total Derivatives
Net Fair Values
For other assets and other liabilities the net fair value approximates their carrying value.
Fair Value Measurements
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.
AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement
hierarchy:
(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
(b)
inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or
indirectly (derived from prices) (level 2); and
(c)
inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).
No financial assets and financial liabilities are readily traded on organised markets in standardised form other than listed investments,
forward exchange contracts and interest rate swaps.
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The following table presents the entity’s assets and liabilities measured and recognised at fair value at 30 June 2019.
Borrowings repayable within 1 year (including overdraft)
Derivatives used for hedging
Net Debt Reconciliation
Cash and cash equivalents
Net cash / (debt)
Cash and liquid investments
Gross debt – fixed interest rate
Net cash / (debt)
Balance as at 2 July 2017
Cash flows
Foreign exchange adjustments
Balance at 1 July 2018
Cash flows
Foreign exchange adjustments
Balance at 30 June 2019
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2019
$’000
Level 2
2,107
2018
$’000
Level 2
5,487
2019
$’000
26,308
(19,500)
6,808
26,308
(19,500)
6,808
Borrowings Due Within 1 Year
$’000
(13,000)
13,000
-
-
(19,500)
-
(19,500)
69
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
Note 22: Key Management Personnel Disclosures
Non-Executive Directors
William J Stevens
Chairman
Kevin J Elkington
(Resigned 28 February 2019)
Michele Teague
Selina Lightfoot
(Appointed 23 August 2018)
Jack Hanrahan
(Appointed 12 December 2018)
Matthew Campbell
(Appointed 12 December 2018 and Resigned 17 April 2019)
Steven Fisher
(Appointed 14 June 2019)
Zachary Midalia
(Appointed 14 June 2019)
Executive Directors
Ross Sudano
Managing Director (Resigned 23 May 2019)
All of the above persons were directors of The Reject Shop Limited for the entire period ended 30 June 2019, 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:
Allan Molloy
General Manager, Retail Operations (Resigned 28 February 2019)
Allan J Penrose
General Manager, Marketing
Brendon Short
General Manager, Retail Operations (Commenced 12 March 2019)
Danielle Aquilina
General Manager, Supply Chain and Planning (Acting Chief Executive Officer)
Darren R Briggs
Chief Financial Officer and Company Secretary
Ed Tollinton
Chief Information Officer (Resigned 1 March 2019)
Kelvin Chand
General Manager, Property (Resigned 31 July 2018)
Peter Barry
General Manager, Buying (Commenced 9 July 2018, Resigned 24 May 2019)
Robert d’Andrea
General Manager, Human Resources
Steve Williamson
General Manager, Buying (Acting) (Commenced 1 June 2019)
All of the above persons were employed by The Reject Shop Limited and were key management personnel for the entire period ended
30 June 2019 unless otherwise stated.
During the year a review of the key management personnel was conducted. The Board has determined that from 1 July 2019
under a review of the management structure which is in progress, that not all general manager roles will meet the definition of key
management personnel. All remuneration details have been disclosed in this report for all individuals previously considered key
management personnel. In the Annual Report for 2019/2020 it is proposed that remuneration details will be provided for only those
individuals that meet the determination in the new structure.
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70
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Remuneration of Directors and Key Management Personnel
Short-term cash rewards
Short-term employee benefits
Post-employment benefits
Termination benefits
Other
Share-based payments
Consolidated Entity
2019
$
-
2018
$
376,359
3,962,160
4,125,429
197,829
537,070
-
(175,474)
239,579
87,500
166,666
47,856
4,521,585
5,043,389
No other long term or termination benefits were paid or payable with respect to the current or prior period.
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:
2019
Date of Grant
14 Oct 2015
20 Oct 2016
19 Oct 2017 (i)
18 Oct 2018 (ii)
Total
Date
Exercisable
Fair Value
at Grant
Date $
Balance
at Start of
Period
Granted
During the
Period
Exercised
During the
Period
Lapsed
During the
Period
Balance at
End of the
Period
Expiry Date
14 Oct 2019
1 Jul 2018
8.62
48,600
19 Oct 2020
1 Jul 2019
6.58
104,500
18 Oct 2021
1 Jul 2020
3.86
326,700
-
-
-
17 Oct 2022
1 Jul 2021
1.84
-
270,900
(48,600)
-
(104,500)
-
-
-
-
-
(188,200)
138,500
(168,900)
102,000
479,800
270,900
(48,600)
(461,600)
240,500
Vested and
Exercisable
at the
End of the
Period
-
-
-
-
-
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 69,100. The additional 69,400 will only be issued to key management
personnel if targeted criteria are overachieved.
(ii) The performance rights that will vest if targeted criteria are met will be 51,000. The additional 51,000 will only be issued to key management
personnel if targeted criteria are overachieved.
71
Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
2018
Date of Grant
Expiry Date
Date
Exercisable
Fair Value
at Grant
Date $
Balance
at Start of
Period
Granted
During
the
Period
Exercised
During the
Period
Lapsed
During the
Period
Balance at
End of the
Period
Vested and
Exercisable
at the
End of the
Period
14 Oct 2015
14 Oct 2019
1 Jul 2018
20 Oct 2016 (i)
19 Oct 2020
1 Jul 2019
19 Oct 2017 (ii)
18 Oct 2021
1 Jul 2020
Total
8.62
6.58
3.42
191,300
-
114,900
12,900
-
401,000
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 overachieved.
(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 overachieved.
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 18 October 2018 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: $2.63;
(d) expected volatility of the Company’s shares: 37.56%;
(e) expected dividend yield: 13.31% 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.
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72
Remuneration Expense / (Income) Arising from Share-based Payment Transactions
Performance rights granted
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
Other assurance services
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Tax Compliance and Consulting Services
Tax compliance
Tax consulting advice (i)
Total Remuneration
development tax services.
Note 25: Dividends
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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%
Dividends Recognised During the Reporting Period:
Dividends paid to members during the financial period was an interim ordinary dividend for the financial period ended 30 June 2019
of 10.0 cents per share (2018: 24.0 cents per share) totalling $2,890,815 (2018: $6,926,292), paid on 8 April 2019 (2018: 09 April 2018).
There was a final ordinary dividend paid for the financial period ended 1 July 2018 of 11.0 cents per share totalling $3,179,896.
Consolidated Entity
2019
$
(177,440)
2018
$
47,856
Consolidated Entity
2019
$
2018
$
374,000
380,000
50,613
38,332
424,613
418,332
40,500
59,400
99,900
524,513
45,666
15,300
60,966
479,298
Consolidated Entity
2019
$’000
-
2018
$’000
3,180
51,328
51,234
(i) Additional tax consulting fees were paid in FY2019 in respect of services associated with consulting for deferred tax balances and research and
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Annual Report 2018/2019The Reject Shop
Notes to Consolidated Financial Statements
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Note 26: Earnings Per Share
Basic earnings per share
Diluted earnings per share
Consolidated Entity
2019
Cents
(58.5)
(58.5)
2018
Cents
57.4
56.7
Weighted average number of ordinary shares used as the denominator in calculating basic
earnings per share.
28,901,072
28,859,548
Adjustments for dilutive portion of performance rights
-
382,867
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share.
28,901,072
29,242,415
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 but to the extent they are not anti-dilutive. 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
(Loss) / Profit for the financial period
Total Comprehensive Income for the financial period
(b) Guarantees entered into by the parent entity
Consolidated Entity
2019
Cents
433.5
2018
Cents
523.2
Parent Entity
2019
$’000
2018
$’000
144,355
126,319
225,415
230,438
85,677
64,326
101,397
80,609
46,247
46,247
6,202
8,901
71,569
94,681
124,018
149,829
(17,101)
(19,466)
16,435
22,441
Carrying amount included in current liabilities
-
-
Refer to note 18 and 19 for disclosures concerning contingent liabilities and contractual commitments for the parent entity.
Note 29: Segment Information
The Reject Shop operates within one reportable segment (retailing of discount variety merchandise). Total revenues of $793,687,248 all
relate to the sale of discount variety merchandise in the Group’s country of domicile (Australia), in this single reportable segment. The
Group 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
2019
$’000
2,355
2018
$’000
1,352
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 (2018: 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.
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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 30 June 2019.
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Annual Report 2018/2019The Reject Shop
Directors’ Declaration
Directors’ Declaration
In the directors’ opinion:
(a) The financial statements and notes set out on pages 41 to 75 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 30 June 2019 and of its performance for the
financial period ended on that date; and
(b) there are reasonable grounds to believe that the group will be able to pay its debts as and when they become due and payable.
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 Acting Chief Executive Officer 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:
William J Stevens
Chairman
22 August 2019
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Independent Auditor’s Report to the
Members of The Reject Shop Limited
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Independent auditor’s report
To the members of The Reject Shop Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of The Reject Shop Limited (the Company) and its controlled entities
(together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 30 June 2019 and of its financial
performance for the 52 week period ended 30 June 2019
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
the consolidated balance sheet as at 30 June 2019
the consolidated statement of comprehensive income for the 52 week period ended 30 June 2019
the consolidated statement of changes in equity for the 52 week period ended 30 June 2019
the consolidated statement of cash flows for the 52 week period ended 30 June 2019
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial report
section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to
our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in
accordance with the Code.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
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Annual Report 2018/2019The Reject Shop
Independent Auditor’s Report to the Members of The Reject Shop Limited
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the financial report as a whole, taking into account the geographic and management structure of the
Group, its accounting processes and controls and the industry in which it operates.
Materiality
•
For the purpose of our audit we used overall Group materiality of $0.4 million, which represents approximately
5% of the Group’s adjusted weighted average profit before tax.
• We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial
report as a whole.
•
This benchmark was considered appropriate, because, in our view profit/loss is the metric against which the
performance of the Group is most commonly measured. A weighted average of the current and two previous
years was used due to fluctuations in profit/loss. We adjusted for impairment in the current period as it is an
unusual or infrequently occurring item impacting profit and loss.
• We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly
acceptable thresholds.
Audit Scope
• Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
•
The Group is principally involved in retailing through discount department stores across Australia. The
accounting processes are structured around the group finance function at the Group’s head office in Melbourne.
• Our scope reflected the Group's business model, with standardised systems and controls. Accordingly our audit
evidence was derived through combination of:
− developing an understanding of the control environment and tests of specific automated and manual
business process controls; and
−
substantive procedures such as use of data analysis techniques, together with analytical review and tests of
detail.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report for the current period. The key audit matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. Further, any commentary on the outcomes of a particular audit
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procedure is made in that context. We communicated the key audit matters to the Audit and Risk
Committee.
Key audit matter
How our audit addressed the key audit matter
Refinancing of bank facilities and ongoing
funding requirements of the Group
(Refer to note 1(a) and note 11)
In assessing the appropriateness of the Group’s going
concern basis of preparation for the financial report,
we performed the below procedures, amongst others:
As described in the financial report, the financial
statements have been prepared on a going concern basis,
which contemplates that the Group will continue to meet
its commitments, realise its assets and settle its liabilities
in the normal course of business.
• Enquired of management and the Board of
Directors as to its knowledge of events or
conditions that may cast significant doubt on
the Group's ability to continue as a going
concern
• Read the terms associated with the existing
debt agreement and other correspondence
with the Group’s lender and assessed the
amount and terms, including maturity date,
of the facility available
• Considered selected assumptions in
management’s cash flow forecasts for a
period of at least 12 months from balance
date
• Requested written representations from
management regarding their plans for future
action and the feasibility of these plans
• Evaluated whether, in view of the
requirements of Australian Accounting
Standards, the financial report provide
adequate disclosures about these events or
conditions.
As at 30 June 2019 the Group has drawn down
$19,500,000 on its current bank facilities with the
Australia and New Zealand Banking Group (ANZ). The
ANZ facilities are due to mature and are due for
repayment within 12 months from balance date and have
been classified as current liabilities at balance date.
At 30 June 2019, the Group had breached its fixed charge
cover ratio covenant requirement under the ANZ
facilities. A waiver of this breach was obtained on 5 July
2019.
Subsequent to year end, the Group received notice from
the ANZ bank of its intention to renew its lending
facilities with the Group, subject to compliance with
certain covenants. The renewal notice requests the
Group to complete refinancing of the funding facility
with a different lender by 30 April 2020, but by no later
than 31 August 2020.
Assessing the basis of preparation of the financial report
was a key audit matter due to its importance to the
financial report and the level of judgement involved in
assessing the Group’s ability to obtain refinancing at
acceptable terms with a different lender and assessing
forecast cash flows for a period of at least 12 months from
the date of the financial report.
Carrying value of Head Office and Distribution
Centre assets
(Refer to note 8) $60,975,000
The Group operates three (3) Distribution Centres
(“DCs”) servicing the 357 store network and a Head
Office located in Melbourne, Australia which functions as
Our audit procedures, amongst others, included:
• Assessing the appropriateness of the model
by comparing it to the requirements of the
Australian Accounting Standards
•
Tested the mathematical accuracy of the
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Independent Auditor’s Report to the Members of The Reject Shop Limited
Key audit matter
How our audit addressed the key audit matter
a shared-service centre for the Group. Fixed assets at the
DCs and Head Office are material to the consolidated
balance sheet.
Due to impairment indicators at the period end, the
Group has tested DC and Head Office assets for
impairment. The Group has recognised a $15,000,000
impairment charge in the period ended 30 June 2019.
The Group assesses impairment of DC and Head Office
assets by preparing a model which estimates future cash
flows discounted to their present value (“the model”).
This was a key audit matter because of:
•
•
The financial significance of the DC and Head
Office assets to the consolidated balance sheet
The judgemental factors involved in the Group
assessing impairment, in particular estimating
Group sales growth rate, profit margins and
corporate costs.
model
• Assessing the key inputs in the model such as
the sales growth rate, first margins, store
operating costs and corporate costs by
comparing them to board approved budgets,
industry forecasts and historical performance
of the Group
• Assessed if the discount rate assumption was
reasonable by comparing it to market data,
comparable companies and industry
research, with the assistance of our valuation
specialists
• Assessing the appropriateness of disclosures
in the financial report in accordance with
Australian Accounting Standards.
Carrying value of store assets
(Refer to note 8) $60,975,000
Our audit procedures, amongst others, included:
The Group offers a wide range of discount merchandise
through its network of 357 stores and store assets
represent one of the largest assets on the consolidated
balance sheet.
Given the challenging trading conditions in the Australia
retail market in recent years and the below budget
trading performance of the Group for the period ended
30 June 2019, there is a risk that the carrying value of
certain store assets may be higher than their recoverable
amount. The Group has recognised a $6,941,000
impairment charge in the period ended 30 June 2019.
The Group assesses impairment of store assets on a
store-by-store basis, by preparing models with estimates
future cash flows discounted to their present value (“the
models”).
This was a key audit matter because of:
•
The financial significance of store assets to the
• Evaluated the Group’s assessment of the
determination of cash generating units
(CGU)
• Assessing the appropriateness of the models
by comparing them to the requirements of
the Australian Accounting Standards
•
Tested the mathematical accuracy of the
model
• Assessing the key inputs in the models such
as the sales growth rate and margins by
comparing them to board approved budgets,
historical performance of the stores and the
overall Group’s sales growth rate, and
considered other known risk factors
• Considering the appropriateness of the
period over which cash flows were projected
based on our knowledge of the business and
the Group’s lease portfolio management
strategy
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How our audit addressed the key audit matter
consolidated balance sheet
•
The judgemental factors involved in the Group
assessing impairment, in particular estimating
future sales growth rate and cash flow
projection period.
• Assessed if the discount rate assumption was
reasonable by comparing it to market data,
comparable companies and industry
research, with the assistance of our valuation
specialists.
Our audit procedures, amongst others, included:
• Obtaining an understanding of how the
Group determined the NRV provision
• Considering the appropriateness of the
provision having assessed:
a) Aggregate total of inventory sold
below cost during the financial
period
b) Aggregate total of inventory wastage
incurred during the financial period
c)
Inventory written-off subsequent to
the end of the financial period and
up to the completion of our audit.
Inventory valuation & provision - net realisable
value (NRV)
(Refer to note 1(aa)(v))
A provision was recognised as at 30 June 2019 in the
financial report to provide for inventory expected to be
sold below cost.
The Group undertakes a process to identify period –end
inventory which is likely to be sold below cost. The
provision is then recognised by applying the expected
markdown required to clear this inventory.
The identification of the provision depends, in part, on
sales sold below cost throughout the financial period and
incorporates information on known loss making products
as well as the impact of planned markdowns.
This was a key audit matter because of:
•
•
The financial significance of the inventory
balance and therefore the potential effect of net
realisable value provision on the consolidated
statement of comprehensive income and the
consolidated balance sheet
The subjective nature of the provision
calculation due to the judgement involved in
estimating the ultimate selling price of
inventory.
Inventory provision – shrink
(Refer to note 1(aa)(i)) $10,401,065
Our audit procedures, amongst others, included:
At period-end, the Group recognised a provision against
stock for estimated losses related to shrinkage, being
physical losses of inventory at each store since the date of
the last stock count at that store of $10,401,065 (2018:
$9,099,803).
• Obtaining an understanding of how the
Group determined the shrinkage provision
• Comparing the shrink loss percentage
applied against available historical data on
the Group’s shrinkage results
The provision is calculated by applying an estimated
• Attending the stock counts for selected store
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Independent Auditor’s Report to the Members of The Reject Shop Limited
Key audit matter
How our audit addressed the key audit matter
shrink loss percentage to the sales since the date of the
last stock count to period-end, on a store-by-store basis.
The Group performs stock counts across stores to
calculate the estimates 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.
locations and developing an understanding
the Group’s process for reviewing stock count
results for other stores
• Comparing the shrink loss percentage
applied against the results of the stock count
completed subsequent to the end of the
financial period.
This was a key audit matter because of:
•
•
The financial significance of the inventory
balance and therefore the potential effect of
shrinkage provision on the consolidated
statement of comprehensive income and the
consolidated balance sheet
The subjective nature of the provision
calculation due to the judgement involved in
estimating stock count information obtained
from counts performed during the financial
period and those completed post period-end.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report for the 52 week period ended 30 June 2019, but does not include the
financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
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report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing
and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf.
This description forms part of our auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 24 to 37 of the directors’ report for the 52
week period ended 30 June 2019.
In our opinion, the remuneration report of The Reject Shop Limited for the 52 week period ended 30 June
2019 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the remuneration
report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the remuneration report, based on our audit conducted in accordance with Australian
Auditing Standards.
PricewaterhouseCoopers
Sam Lobley
Partner
Melbourne
22 August 2019
83
Shareholder Information
Shareholder
Information
As at 31st July 2019
The shareholder information set out below was applicable as at 31 July 2019.
(a) The Distribution of Shareholding was as follows:
Size of Shareholding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Shareholders
3,509
1,913
384
259
18
(b) 1,230 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
Allensford Pty Ltd
Number
5,492,576
% Held
19.00%
(d) The fully paid issued capital of the Company consisted of 28,908,148 shares held by 6,083 shareholders.
Each share entitles the holder to one vote.
(e) Unquoted Equity Securities
Unquoted Equity Securities
Number on Issue
Number of Holders
Performance Rights issued under The Reject Shop
Performance Rights Plan
240,500
4
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The Reject Shop
Annual Report 2018/2019
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(f) Twenty Largest Shareholders
Shareholder
ALLENSFORD PTY LTD
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
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ACE PROPERTY HOLDINGS PTY LTD
WYONG RUGBY LEAGUE CLUB LTD
TEN LUXTON PTY LTD
NCH PTY LTD
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
SOUTH LAKE PTY LTD
UBS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
BAN FAM PTY LTD
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
MRS PHILIPPA JANE DICKSON & MR ALEXANDER JOHN DICKSON
MR ROSS BIRD
MR GORDON DENBY COAD
MR PHILIP WEINMAN & MS ROCHELLE WEINMAN
& MR DEAN WEINMAN
COAD AND PRATT SUPERFUND PTY LTD
MR BRENDAN FRANCIS NICLASEN & MRS CORA LYN NICLASEN
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Number
5,492,576
2,336,290
1,086,167
911,551
692,011
600,000
255,000
250,095
243,109
203,218
191,558
180,000
169,117
150,868
118,256
117,850
101,318
101,110
100,000
100,000
100,000
95,000
% Held
19.00%
8.08%
3.76%
3.15%
2.39%
2.08%
0.88%
0.87%
0.84%
0.70%
0.66%
0.62%
0.59%
0.52%
0.41%
0.41%
0.35%
0.35%
0.35%
0.35%
0.35%
0.33%
The twenty members holding the largest number of shares together held a total of 47.03% of the issued capital.
(g) Restricted Shares
There are no restricted shares on issue.
85
Corporate Directory
Corporate Directory
Directors
William J Stevens
Non-Executive Chairman
Michele Teague
Non-Executive Director
Selina Lightfoot
Non-Executive Director
Jack Hanrahan
Non-Executive Director
Steven Fisher
Non-Executive Director
Zachary Midalia
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
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The Reject Shop
Annual Report 2018/2019
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245 Racecourse Road Kensington Vic 3031 Phone: (03) 9371 5555
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