Appendix 4E
The Reject Shop Limited
(ABN 33 006 122 676)
Consolidated preliminary final report
For the 52 week financial period ended 28 June 2020
Compared to the 52 week financial period ended 30 June 2019
Results for announcement to the market
Sales revenue from continuing operations
Profit from continuing operations after tax attributable to
members
Net profit for the period attributable to members
up
up
up
$A'000
3.4%
to
820,645
106.6%
to
1,120
106.6%
to
1,120
Dividends
Interim dividend
Final dividend
Amount per share
nil
nil
Franked amount per
share
n/a
n/a
Record date for determining entitlements to final
dividend
Dividend payment date
n/a
n/a
Commentary on the Group’s trading results is included in the media release and the annual report enclosed.
Annual
Report
2019– 2020
About The Reject Shop
The Reject Shop has been delivering value to shoppers for almost 40 years. The Reject Shop
helps all Australians save money everyday by offering products frequently used and
replenished such as food, snacks, greeting cards, party, health and beauty, cleaning
supplies, storage, kitchenware, homewares, pet care and seasonal products at low prices
in 354 convenient store locations across Australia.
Contents
Chairman’s Review
CEO’s Review
Board of Directors
Leadership Team
Corporate Governance, Environmental and
Social Statement
Directors’ Report
Remuneration Report
Auditors’ Independent Declaration
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to Financial Consolidated Statements
Directors’ Declaration
Independent Auditor’s Report to the Members of
The Reject Shop Limited
Shareholders’ Information
Corporate Directory
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Notice Of Annual General Meeting:
10.00am, Wednesday 21 October 2020.
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 19 August 2020. The Company
has the power to amend and re-issue these financial
statements.
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The Reject Shop | Annual Report 2020 2
Chairman’s Review
“The Reject Shop has been stabilised and
the process of fixing has commenced”
The FY20 financial year saw the stabilisation of The Reject Shop and the commencement of the process of
‘fixing’ the business under the new leadership of our Chief Executive Officer, Andre Reich.
The Company was pleased to welcome Andre Reich as Chief Executive Officer in January 2020. Andre has
created a strong new leadership team with key new hires and, under Andre’s leadership, the Company
has developed a comprehensive three-phase strategy, successfully responded to the challenges of the
initial phase of COVID-19 and further progressed a range of initiatives to better manage the cost of doing
business.
The Company delivered a 3.4% increase in sales as more customers turned to us throughout the year,
particularly through the Christmas trade period and the initial phase of the COVID-19 pandemic. Moving
forward, we will continue to work on ways for customers to shop with us first and more regularly.
Earnings before interest and taxes (“EBIT”) of $9.3 million and net profit after tax (“NPAT”) of $1.1 million
were significantly improved on the prior year when the Company recorded a loss.
In addition to securing a new debt facility with our long-standing existing bankers, the Company
successfully completed a $25 million equity raise.
Due to a significant turnaround, together with the successful equity raise, the Company generated
positive cash flows of $66.2 million during the year, which has resulted in the Company holding cash of
$92.5 million at year end with no drawn debt. This is indicative of the Company’s improving position.
On behalf of the Board, I would like to take the opportunity to thank Andre and our committed and
passionate team members for their work in delivering this year’s results.
Finally, I would like to express my gratitude to my Board colleagues, our shareholders, customers, suppliers
and other stakeholders for your support and encouragement throughout the year.
Yours sincerely,
Steven Fisher
Non-executive Chairman
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The Reject Shop | Annual Report 2020
CEO’s Review
“The Reject Shop is well
positioned to navigate the
uncertain trading
environment with its
improved profitability and
strong balance sheet –
there is further work to do to
fix the Company before we
reset and grow.”
Our financial position
The Reject Shop has a long history of discount
price retailing in Australia. The Reject Shop’s
purpose has always been centred on helping all
Australians save money. Our purpose has
assisted us well, especially over the past 6
months. During this time, our team has stepped
up and served our customers in a way that has
greatly inspired me. The dedication of our team
to go above and beyond is, and will be, our
competitive advantage. I am deeply thankful for
their shared commitment and hard work.
The FY20 financial year saw positive progress in
stabilising our business, with notable
achievements underpinning the ‘fix’ phase of the
business turnaround. Team member and
customer safety has been a key focus throughout
the COVID-19 period. We are faced with
unprecedented challenges and implemented
measures to ensure our team members and
customers remained safe.
We were pleased to secure $25 million of
additional funding through a successful equity
raising in March 2020. This has allowed us to
positively reset our banking relationship. We were
then able to turn our attention to reducing the
level of product inventory in the business.
Combined, these actions resulted in the
Company finishing FY20 in a strong liquidity
position with $92.5 million in cash and no drawn
debt.
We also undertook the restructuring of the Store
Support Centre and store operations functions,
which included creating smaller ‘hands-on’
leadership teams to improve decision-making
speed and accountability. We appointed a
new senior leadership team that combines
experienced internal and external talent,
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who I am confident are well placed to take the
business forward.
Importantly, we commenced engaging our
strategic suppliers with the focus of rationalising
and resetting our product assortments to improve
the product supply of everyday products at low
prices.
Overall, in FY20, we concentrated on stabilising
the business to support the turnaround.
Our Vision – ‘helping all Australians
save money every day’
In FY21, we will continue to deliver cost reduction
initiatives that will ensure the business is set with a
lean cost base to support transformation and
growth over the coming years.
We will refine our purpose by listening to our
teams and our customers about the role we play
in ‘helping all Australians save money every day’
and we will do this by executing strategies that
are grouped into the following categories:
Customers, Operations and Performance.
Customers
Over the next 12 months, we will deliver a
noticeable change in the value of our products.
Our prices and range width will reduce as we
realise cost savings achieved by buying at scale
from our suppliers and passing those savings onto
our customers through lower prices.
Our product assortment across our 350+ stores will
provide the opportunity for our customers to
conveniently address most of their basic
shopping needs in one trip. We will improve our
selection of known national brands from leading
local and overseas manufacturers, supported by
private brands offering even greater value.
To our suppliers and business partners who
believe in our purpose and who are by our side
every day – thank you for your partnership and
for helping us reposition our business for the
future.
To our customers, and to the communities who
support our customers, we pledge to make
continued improvements to satisfy your shopping
needs and bring fun to your experience while
saving you money on everyday items, every
single day.
And to our shareholders, thank you for your
patience and long-term commitment to our
business. We are genuinely committed to
delivering a successful turnaround over the
coming years and creating a sustainable growth
platform for The Reject Shop.
On a personal note, I have appreciated the warm
welcome that I have received from team
members, suppliers and stakeholders. The
COVID-19 pandemic has created many
unexpected challenges and opportunities for The
Reject Shop and I am immensely proud of how
our team members responded by helping all
Australians save money every day.
Andre Reich
Chief Executive Officer
Operations
We know that it is our committed and passionate
team members who will transform our business
and it is for this reason that we recognise them as
our unique competitive advantage. To support
our team, our priority will be to ensure we have
the right people in the right roles with our
objective to create meaningful long-term
employment with The Reject Shop. We will ensure
that we have standard ways of working across
our business to improve efficiencies, increase
team member job satisfaction, and create an
easy and consistent experience for our
customers.
We have the ability to deliver lower prices in
convenient locations that provide a safe, fast and
friendly shopping experience, which will in time
distinguish us from other retailers. We believe that
a strong focus on efficiency and scale will support
our expansion into many more suburban and rural
locations across Australia – allowing us to help
more Australians save every day.
Performance
The ‘fix’ phase of our turnaround is focused on
resetting the financial cost base of the business.
We have three significant priorities that will be
undertaken in FY21:
• inventory optimisation and reduction;
• efficiency realisation across our stores and
supply chain; and
• renegotiation of a substantial number of store
leases.
Our commercial and business simplification focus
will create a platform that is scalable and will
support further store expansion in the coming
years.
Looking forward
2021 is our 40-year anniversary and it is a
significant and exciting milestone.
I would like to thank the Board for their support
throughout this deeply challenging year and for
sharing their experience, encouragement and
governance.
With great thanks and respect, I recognise our
5,000 plus committed and passionate team
members in stores, distribution centres and the
Store Support Centre. Their determination and
commitment to restore The Reject Shop to
profitability is greatly valued and admired.
Thanks team!
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The Reject Shop | Annual Report 2020
Board of Directors
Steven Fisher
Non-Executive Chairman
Bachelor of Accounting,
Chartered Accountant
(South Africa)
David Grant
Non-Executive Director
Bachelor of Commerce,
Chartered Accountant (Australia
& New Zealand) and Graduate
of the Australian Institute of
Company Directors
Selina Lightfoot
Non-Executive Director
Bachelor of Arts, Bachelor of
Laws, Graduate Diploma in
Applied Finance & Investment
and Graduate of the Australian
Institute of Company Directors
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 practising
chartered accountant having
qualified with a Bachelor of
Accounting degree in
South Africa.
Steven joined the Board of The
Reject Shop in June 2019 and
he is also a director of Laybuy
Australia Pty Ltd.
During the last three years Steven
has served as a director of the
following other listed company:
• Breville Group Limited (director
since 2004) #
David is a Chartered Accountant
with extensive experience in the
accounting profession and the
commercial sector. David’s
executive career included roles
with Goodman Fielder Limited
and Iluka Resources Limited.
David is currently a non-executive
director of a range of publicly
listed entities and is the chairman
of the audit and risk committee of
two of these entities.
David joined the Board of The
Reject Shop in May 2020.
During the last three years David
has served as a director of the
following other listed companies:
• Event Hospitality and
Entertainment Limited
(director since 2013) #
• Retail Food Group Limited
(director since 2018) #
• A2B Australia Limited (director
since 2020) #
• The responsible entity of the
MG Listed Unit Trust (Murray
Goulburn Co-operative Co.
Limited) (director 2017 to 2020)
Selina is an experienced
company director and consultant;
her previous executive experience
includes 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.
Selina joined the Board of The
Reject Shop in August 2018 and
she is a director of Hydro
Tasmania, Victorian Opera and
JDRF Australia.
During the last three years, Selina
has served as a director of the
following other listed companies:
• Nuchev Limited (director since
2016 – the entity was listed on
9 December 2019) #
• DWS Limited (director 2016
to 2020)
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Nicholas (Nick) Perkins
Non-Executive Director
Michele Teague
Non-Executive Director
Bachelor of Arts, Bachelor of
Laws and Graduate of the
Australian Institute of Company
Directors
Diploma of Business (Marketing)
and Graduate of the Australian
Institute of Company Directors
Nick is the Managing Director
and General Counsel of Kin
Group Pty Ltd, which is a
substantial shareholder of The
Reject Shop. The Kin Group is a
diversified, global, long-term
focused investor with offices in
Melbourne and New York.
Nick has held a variety of roles
within the Kin Group, and its
subsidiary businesses, for over a
period of 17 years, including 10
years as the General Counsel of
Pact Group Limited.
Nick joined the Board of The
Reject Shop in May 2020.
During the last three years, Nick
has not served as a director of
any other listed company.
Michele is an experienced senior
executive and company director;
her previous experience includes
managing director and marketing
roles with expertise in brand,
customer experience and digital.
Michele’s executive career
included roles with Kmart
Australia, Metcash, Woolworths
NZ and Air New Zealand.
Michele joined the Board of The
Reject Shop in September 2017
and she is a director of Kinetic IT,
a national enterprise solutions
provider. Michele has previously
been a director of New Zealand
Rugby League.
During the last 3 years, Michele
has not served as a director of
any other listed company.
# denotes current directorship.
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The Reject Shop | Annual Report 2020
Leadership Team
Andre Reich
Chief Executive
Officer
Dani Aquilina
Chief Operating
Officer
Clinton Cahn
Chief Financial
Officer
Paul Calvert
General Manager,
Operations
Dani has more than 20
years’ experience in
retail, including 12 years
with The Reject Shop
and 8 years with Kmart
Australia.
Since joining The Reject
Shop in 2007, Dani has
progressed through a
variety of roles within the
Company and has deep
knowledge and hands-
on experience with most
aspects of the
Company. It was on this
basis that Dani
performed the role of
acting Chief Executive
Officer from May 2019
until the appointment of
Andre Reich in January
2020. Dani was
appointed Chief
Operating Officer of the
Company in January
2020 with accountability
for the operations
function and process
and performance
improvement from the
factory gate to the
hands of our customers.
Clinton was appointed
Chief Financial Officer of
The Reject Shop from
1 May 2020.
Clinton joined the
Company in March 2020
following roles at Crown
Resorts, TPG Capital and
UBS Investment Bank.
At Crown Resorts, Clinton
had significant strategic
and financial
involvement in key
projects and
transactions both in
Australia and overseas,
including the $2.2 billion
Crown Sydney Hotel
Resort. Clinton was also
heavily involved in
Crown’s digital strategy
and headed Crown’s
investor relations.
Paul has more than 25
years of retail
experience in the United
Kingdom and Australia.
Paul started his retail
journey as a team
member with his local
Asda store where he
filled the shelves whilst
studying before working
his way through the
ranks to become a store
manager. Paul went on
to hold a variety of
leadership positions in
Sainsburys in both their
supermarket and
convenience teams.
After moving to Australia
in November 2015 Paul
initially worked for
Woolworths in Western
Australia before moving
to Coles where he held
several roles both in
operations and store
support.
Paul joined The Reject
Shop in May 2020.
Andre is recognised
across the market as a
high performing retail
executive with extensive
experience in low price
general merchandise and
apparel retail formats.
Andre’s retail experience
commenced at Myer in
the mid-1990s with time
in a number of roles
spanning business
growth roles, concessions
and buying. In 2007,
Andre became the CEO
of Review (an Australian
womenswear retail
brand) and he
successfully transitioned
that business to new
ownership.
In 2009, Andre joined
Wesfarmers and played a
key role in Kmart
Australia’s successful
turnaround through his
leadership of the
merchandise and
marketing functions.
Andre was transferred to
Target Australia as Chief
Operating Officer in 2016
with responsibility for
merchandise, sourcing,
quality and marketing.
Andre spent three years
resetting the Target
Australia business.
Andre commenced as
Chief Executive Officer of
The Reject Shop in
January 2020.
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Michael Freier
General Counsel &
Company Secretary
Kate Lewis
General Manager,
Human Resources
Paul Rose
General Manager,
Property
Carl Wilson
General Manager,
Merchandise
Michael is an
experienced legal
practitioner with private
practice (King & Wood
Mallesons in Melbourne
and McCullough
Robertson in Brisbane)
and in-house experience
(Repco in Melbourne). In
private practice,
Michael worked on a
wide range of property
transactions around the
country. Since moving
in-house, Michael has
demonstrated
experience managing
property transactions,
risk, corporate
governance and
product safety issues.
Michael has held the
role of General Counsel
of The Reject Shop since
August 2016 and he was
appointed Company
Secretary on 1
September 2019.
Kate has more than 25
years of experience
working across large
supermarket retailers
where she has held both
operational and human
resource positions. Kate
has had extensive
experience in driving
and executing human
resource strategy across
these large complex
businesses. Kate’s
experience includes
developing capability,
sourcing great talent,
transformation, fostering
high performing teams,
driving process and
organisational
improvement as well as
achieving results in fast
paced environments.
Kate joined The Reject
Shop in February 2020.
Carl is a highly
experienced retailer with
extensive experience in
the United Kingdom (Ted
Baker and Debenhams)
and Australia (Jeans
West and Wesfarmers
Group) working within
Merchandise and Supply
Chain.
For the past 13 years he
has worked within the
Wesfarmers Group
where he contributed to
the successful
turnaround of Kmart
Australia and the
transformation of Target
Australia, where he held
the positions of General
Manager of Planning
and the General
Manager of
Transformation.
Carl joined The Reject
Shop in February 2020.
Paul is an experienced
senior level professional
with over 20 years’
experience in retail
property, working with
major retailers and major
landlords throughout
Australia.
Paul held senior roles for
10 years with leading
ASX listed property trusts
and commercial
agencies in centre
management, leasing
and development.
Paul then held senior
property roles with
Wesfarmers-owned
Kmart Australia from
2009 and incorporated
Target Australia from
2016. During this time,
Paul was part of the
property leadership
team that delivered
major store network
growth to assist with
re-positioning Kmart
Australia.
Paul joined The Reject
Shop in February 2020.
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The Reject Shop | Annual Report 2020
Corporate Governance,
Environmental and Social Statement
The Company and the Board are committed to
maintaining high standards of corporate
governance. The Company supports the intent
and purpose of the ASX Corporate Governance
Council’s Principles and Recommendations (“ASX
Principles”) and complies with the requirements
of the 3rd Edition, as outlined in this Corporate
Governance Statement. The Company
acknowledges the new recommendations and
suggestions contained in the 4th Edition of the
ASX Principles to come into effect for the
Company’s next financial year and will report
against this edition in its Corporate Governance
Statement in the 2020 / 2021 Annual Report.
A summary of the Company’s main corporate
governance practices is outlined below and were
in place for the entire period, unless otherwise
stated. This statement is accurate and is up to
date as at 19 August 2020 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 ‘About Us’ 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 three
directors;
• The Board must be comprised of a majority of
independent directors;
• The Chairman must be an independent
director; and
• The Managing Director (if one has been
appointed) and the Chairman are separate
roles and undertaken by separate people.
There are currently five 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
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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 five non-executive directors, four are
assessed as independent in that they satisfy all
criteria above.
Mr Steven Fisher and Mr Nick Perkins have each
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 Kin Group Pty Ltd
(“Kin Group”). The protocol sets out the agreed
approach to the 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 Perkins is not considered independent by
virtue of his employment with Kin Group.
The directors considered as independent are as
follows:
Steven Fisher
David Grant (Appointed 1 May 2020)
Selina Lightfoot
Michele Teague
The director considered as non-independent is as
follows:
Nicholas Perkins (Appointed 1 May 2020)
Details of each director’s experience is contained
on pages 6 and 7 and their attendance at Board
and Committee meetings is contained in the
Directors’ Report on page 17 in this annual report.
All directors have entered into written
agreements with the Company. In addition,
Mr Perkins has agreed to comply with the terms
of the nominee director protocol.
Responsibilities of the Board
The Board delegates responsibility for the
day-to-day management of the Company to the
Chief Executive Officer and leadership team,
however retains responsibility for:
• establishing and reviewing the implementation
of strategy;
• monitoring the performance and approving
remuneration of the Chief Executive Officer
and members of the leadership team;
• ensuring appropriate resources are available
to achieve the Company’s objectives; and
• promoting high standards of 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.
The Chairman, in conjunction with the
Remuneration and Nominations Committee, is
responsible for monitoring, assessing and
reviewing the Board’s performance. This year the
Chairman has conducted a Board performance
review by way of an internal assessment,
incorporating both verbal and written feedback
from directors, with feedback subsequently
reported by the Chairman back to the Board.
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The Reject Shop | Annual Report 2020
CORPORaTE GOvERNaNCE, ENviRONMENTaL aND SOCiaL STaTEMENT CONTINUED
To assist in meeting its responsibilities, the Board
has established the Audit and Risk Committee
and the Remuneration and Nominations
Committee, each with their own separate
charter. 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 of
skills, 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 directors’
individual skills, experience and expertise in the
areas identified below:
Board Skills and Experience Matrix
(out of 5 directors)
Legal, Governance & Compliance
Legal
Corporate Governance
Compliance
Operations
Marketing
Retail, buying, sales & distribution
General management experience
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
2
5
5
2
2
5
4
5
3
1
2
2
4
5
2
5
2
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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 (if one has been appointed).
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:
David Grant (Chair from 1 June 2020)
Selina Lightfoot (Chair from 30 June 2019 to
31 May 2020)
Michele Teague
Steven Fisher
Nicholas Perkins
Role of the Audit and Risk Committee
The role of the Audit and Risk Committee is to
assist the Board in:
• overseeing the reliability and integrity of
financial and asset management;
• ensuring compliance with the Company’s
accounting policies, financial reporting and
disclosure practices;
• monitoring internal controls including financial
systems integrity and risk management; and
• maintaining the relationship with, and
reviewing the work of, external auditors.
12
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 relating to the conduct of their audit.
Risk Management and Assessment
The Board has delegated to the Audit and Risk
Committee the responsibility for overseeing the
implementation of certain policies and
procedures aimed at ensuring that the Company
conducts its operations in a manner that
manages risk to protect its people, its customers,
the environment, Company assets and reputation
as well as to realise business opportunities.
The Company does not have an internal audit
function. However, risk identification and
management is a key focus of the leadership
team. Accordingly, the leadership team has
designed and implemented a risk management
and internal control system to manage the
Company’s material risks, including a
comprehensive analysis of the material risks
which is prepared for review by the Audit and Risk
Committee.
In addition, the Company’s Loss Prevention and
Quality Assurance functions provide ongoing
assurance to the Audit & Risk Committee and
management that established procedures and
requirements are being met.
Consistent with the obligations contained in
section 295A of the Corporations Act 2001 (Cth),
the Chief Executive Officer and the Chief
Financial Officer have made the necessary
certifications to the Board.
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) enables the
Company to provide these services
electronically.
Annual and half year reports, media and analyst
presentations, press releases, together with the
broader Continuous Disclosure Policy, are
available on the Company’s website.
Code of Conduct
The Company has an established corporate
code of conduct which forms the basis for a
shared view of the Company, its mission and its
ethical standards and the forms of acceptable
behaviour by the leadership team and team
members. After approval by the Board, this code
has been adopted by all members of the
leadership team. The code of conduct
encourages all team members to report any
breaches of the code to the leadership team or
People and Culture team. In addition, the
Company has a whistleblower policy which offers
team members an avenue to report matters of
concern on a known or anonymous basis.
The Company has a Share Trading Policy which
restricts the dealing of securities by directors and
team members to specified windows during the
period and only with the prior approval of an
authorised officer. In the case of any director,
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The Reject Shop | Annual Report 2020
CORPORaTE GOvERNaNCE, ENviRONMENTaL aND SOCiaL STaTEMENT CONTINUED
Key Management Personnel or other team member at the level of general manager intending to deal in
the Company’s securities, the written clearance from the Chairman is required (or the Board of Directors,
where the Chairman wishes to deal in the Company’s securities).
Diversity Policy
The Company recognises the importance of diversity and values differences such as age, gender,
ethnicity, religion, sexual orientation, disability and cultural background 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,
disability 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 and is particularly focused on gender diversity
and inclusivity. The following initiatives have been set to support this focus:
• communication of the Company’s Gender Diversity Statement to internal and external stakeholders;
• review the means by which the Company recruits, develops and retains female team members 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.
The following table represents the level of gender diversity within the Company and changes from the
prior year:
No. of
Employees
- Female
28 June 2020
No. of
Employees
- Total
28 June 2020
No. of
Employees
- Female
30 June 2019
% Female
No. of
Employees
- Total
30 June 2019 % Female
Board
Senior Executives (i)
Middle Management (ii)
Store Managers (iii)
All Team Members
2
3
5
229
3,709
5
10
16
387
5,461
40%
30%
31%
59%
70%
2
1
6
222
3,745
6
6
28
381
5,595
33%
17%
21%
58%
67%
(i) Senior Executives are the Chief Executive Officer and members of the leadership team (i.e. those team members that
report to the Chief Executive Officer).
(ii) Middle Management includes management roles that report to members of the leadership team.
(iii) All team members include anyone employed by The Reject Shop other than members of the Board.
During July 2020, The Reject Shop lodged its annual public report with the Workplace Gender Equality
Agency.
14
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.
The majority of Committee members must be
non-executive directors, with the chairperson of
the Committee being a non-executive director. In
the last annual report, it was indicated that the
functions of the Committee would be separated
into two separate committees, but on further
reflection, it was determined the functions be
performed by one committee.
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 and Nominations Committee
currently comprises the following members:
Selina Lightfoot (appointed Chair on 17 June 2020)
Michele Teague
Steven Fisher
David Grant
Nicholas Perkins
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 key
management personnel, including Chief
Executive Officer, and non-executive directors;
• policies for remuneration and compensation
programs of the Company; and
• all equity-based compensation plans.
To adequately fulfil its 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 Chief Executive Officer,
members of the leadership team 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 26 to 35 of
this annual report.
Environmental and Social Statement
The Company is committed to being responsible
for the impact it has on our environment and,
wherever possible, engaging with our community
to research and implement positive
environmental outcomes.
The Company is committed to reducing our
environmental footprint and our greenhouse gas
emissions. Our focus is on providing 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 dollar 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 28 June 2020, we have installed high-
efficiency LED lighting and automated energy
management systems into 308 stores. 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 the future.
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.
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The Reject Shop | Annual Report 2020
CORPORaTE GOvERNaNCE, ENviRONMENTaL aND SOCiaL STaTEMENT CONTINUED
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.
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 local and imported
products sourced directly or through agents. The
policy encourages trade partners and agents to
improve their social and environmental practices
as well as protect our corporate reputation and
that of their individual businesses and brands.
16
Directors’ Report
Your directors present their report on the
Company and its subsidiaries for the financial
period ended 28 June 2020.
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:
Steven Fisher
Non-Executive Director
Chairman of the Board (appointed 1 October
2019), Member of the Audit and Risk Committee
and Member of the Remuneration and
Nominations Committee.
David Grant (Appointed 1 May 2020)
Non-Executive Director
Chairman of the Audit and Risk Committee
(appointed 1 June 2020) and Member of the
Remuneration and Nominations Committee.
Selina Lightfoot
Non-Executive Director
Chair of the Audit and Risk Committee (until 31
May 2020), Member of the Audit and Risk
Committee (from 1 June 2020), Member of the
Remuneration and Nominations Committee (30
June 2019 to 16 June 2020) and Chair of the
Remuneration and Nominations Committee
(appointed 17 June 2020).
Nicholas Perkins (Appointed 1 May 2020)
Non-Executive Director
Member of the Audit and Risk Committee and
Member of the Remuneration and Nominations
Committee.
Michele Teague
Non-Executive Director
Member of the Audit and Risk Committee and
Member of the Remuneration and Nominations
Committee.
Jack Hanrahan (Resigned 15 October 2019)
Non-Executive Director
Member of the Audit and Risk Committee and
Chairman of the Remuneration and Nominations
Committee.
William J Stevens (Retired 16 October 2019)
Non-Executive Director
Chairman of the Board (resigned 30 September
2019), Member of the Remuneration and
Nominations Committee and Member of the
Audit and Risk Committee.
Zachary Midalia (Resigned 30 April 2020)
Non-Executive Director
Member of the Audit and Risk Committee and
Member of the Remuneration and Nominations
Committee.
For the financial period ended 28 June 2020, the
details of the experience and expertise of the
current directors and the Company Secretary are
outlined on pages 6 to 9 of this annual report.
Meetings of Directors
The number of meetings of the Board of Directors
and Committees held during the period ended 28
June 2020, and the number of meetings attended
by each director, were:
Director
meetings
Audit & Risk
Committee
meetings
Rem-
uneration &
Nominations
Committee
meetings
Director
S Fisher
M Teague
S Lightfoot
D Grant
N Perkins
J Hanrahan
WJ Stevens
A
21
21
21
2
2
4
4
B
21
21
21
2
2
4
5
Z Midalia
18
18
A
4
4
4
0
0
2
2
4
B
4
4
4
Y Y
YY
2
2
4
A
3
3
3
1
1
2
2
2
B
3
3
3
1
1
2
2
2
A – Number of meetings attended
B – Number of meetings held during the time the director
held office during the period
YY – No meetings held during the time the director held
office during the period
Principal Activities
The principal activities of the consolidated entity
during the financial period were the retailing of
discount variety merchandise and no significant
change in the nature of these activities occurred
during the period.
Operating and Financial Review
The Operating and Financial Review, forms part
of the Directors’ Report, on pages 18 to 25.
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The Reject Shop | Annual Report 2020
DiRECTORS ’ REPORT CONTINUED
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
The Company and the Australia and New
Zealand Banking Group (ANZ) have agreed to
extend the Company’s existing banking facilities
to now expire in August 2021 (previously March
2021). The limits for the banking facilities are as
follows:
• interchangeable facility: $10 million; and
• seasonal facility: $20 million (the seasonal
facility can only be used between October
and December each year; the Company is
required to deposit $5 million with ANZ when
the seasonal facility is being used).
The COVID-19 pandemic continues to impact the
Australian economy and retail sector. During July
and August 2020, various State governments in
Australia implemented new restrictions, which
vary by State. While the future impact and
duration of the COVID-19 pandemic (and any
associated State government restrictions) on the
Company is currently unknown, the pandemic
may affect the Company’s operations and
results.
Otherwise 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.
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
No dividends were paid to members during the
financial period. 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 $399,979 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 ongoing development of the merchandise
product ranges to meet customer needs is a key
focus.
Our store locations continue to be one of the key
strengths of the Company, providing our
customers with convenient access to our offer.
We expect to continue to open new stores in
locations that reach 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.
During the year, the Company opened six new
stores, relocated two stores and closed nine
stores, resulting in a national store footprint
totalling 354 stores by the end of the year.
18
Overview of Financial Performance
$ Amounts are $m / % to Sales
Sales
Gross Profit (ii)
Cost of doing business (ii)
EBITDA(ii)
Depreciation and Amortisation
EBIT(ii)
Impairment charge
EBIT after impairment (ii)
Net Interest Expense
Profit / (Loss) Before Tax
Income Tax (Expense) / Benefit
Net Profit After Tax / (Loss)
FY20
Statutory(i)
FY19 Statutory
(Pre AASB 16)
820.6
41.7%
26.7%
123.4
(113.4)
10.0
(0.7)
9.3
(7.7)
1.6
(0.5)
1.1
793.7
42.2%
39.9%
18.2
(19.6)
(1.4)
(21.9)
(23.3)
(0.7)
(24.1)
7.2
(16.9)
(i) The Statutory results for FY20 reflect the adoption of the new Accounting Standard AASB 16 Leases. The Company has
adopted AASB 16 using the modified retrospective approach and, as a result, prior period comparatives have not been
restated.
(ii) Non IFRS measure and unaudited.
FY20 Performance
Sales in FY20 increased by $26.9 million or 3.4% on the prior period to $820.6 million. Comparable store
sales growth was 3.5% (first half: 0.5%; second half: 7.1%).
Second half comparable store sales growth was mainly driven by strong customer demand for ‘essential’
and ‘stay at home’ products during the first wave of COVID-19 in Australia. These products included
grocery, cleaning, toiletries and pet care as well as craft and stationery, toys, garden, furniture,
electronics, hardware and kitchen. However, certain traditionally strong performing categories
experienced a decline in sales during the second half due to COVID-19 restrictions. These products
included Easter-related products, luggage, party/events as well as cards and wrap.
All States showed positive comparable store sales growth in FY20.
Due to changes in accounting for leases, gross profit, cost of doing business (CODB), EBITDA, EBIT and net
profit after tax (NPAT) are not directly comparable.
Gross profit was $342.4 million with a gross margin of 41.7%. The margin decline during the year reflects the
product mix shift that occurred during the second half towards lower margin, higher volume consumables
and away from higher margin general merchandise.
The margin decline also incorporates the impact of markdowns taken on aged/clearance inventory
during the fourth quarter as well as an increase in the net realisable value (NRV) provision of $0.9 million in
relation to further markdowns planned for FY21. Supply chain costs, which are incorporated in gross profit,
were also higher compared to the prior period due to the sales growth achieved in the second half. Gross
profit benefited in the second half from an improvement in shrinkage, which reflects the initial benefit from
security barrier gate installations in approximately 90 stores, with a further 110 gates expected to be
installed during the first half of FY21.
CODB (consisting of store and administrative expenses but excluding depreciation and amortisation) was
$219.1 million. CODB as a percentage of sales was 26.7%. CODB savings achieved during the year included
the optimisation of in-store labour, which resulted in store labour reducing to 14.5% of sales (compared to
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The Reject Shop | Annual Report 2020
DiRECTORS ’ REPORT CONTINUED
15.4% in the prior period). Store occupancy costs
were flat at approximately 14% of sales, with CPI
increases partially offset by rent reductions on
renewals. Other store costs were well controlled
and marketing spend was reduced.
CODB includes $1.9 million in redundancy costs as
well as $1.9 million of costs associated with
moving the annual stocktake from July 2020 to
June 2020, resulting in two full annual stocktakes
occurring during the year (compared to one in
the prior period). The head office was
restructured in April 2020, which resulted in an
approximately 20% reduction in headcount at
head office (or 12.5% reduction net of new hires).
The Reject Shop did not receive any wage
subsidies under the JobKeeper program during
the year.
The Company generated EBITDA of $123.4 million
and EBIT of $9.3 million. Statutory NPAT for FY20
was $1.1 million, which compares to a loss of
$(16.9) million in the prior period.
New Leases Accounting Standard (AASB
16 Leases)
AASB 16 Leases became effective for the
Company from 1 July 2019.
As disclosed in further detail on page 50 of these
accounts, the adoption of the new standard has
had a material impact on the financial
statements, albeit the cash flows of the business
will not be impacted at all.
Dividends
The Company did not declare any dividends
during the year.
Financial Position and Capital
Investment
The combination of sales growth during the initial
phase of COVID-19, solid working capital
management and a moderated capital
expenditure program has resulted in free cash
flow increasing from $(1.9) million in the prior
period to $61.6 million in financial year 2020.
After taking into account free cash flow, net
equity raising proceeds of $24.1 million and net
repayment of borrowings of $19.5 million, the
Company’s net cash position at 28 June 2020 is
$92.5 million with no drawn debt. This compares
to a net cash position of $6.8m at 30 June 2019.
Inventory was significantly reduced during the
year and closed at $70.9 million, representing a
36% reduction from $110.8 million in the prior
period. This reflects markdowns taken to aged/
clearance inventory in the fourth quarter of FY20,
with aged inventory levels reducing to 5.6% of
total inventory (previously 9.2%). Rationalisation of
the number of different types of products within
the range has commenced, reducing to
approximately 10,000.
As at the balance date, the Company does not
have any drawn debt.
Store Network Plans
The Company will continue to restructure its store
portfolio. Currently, three new stores are planned
for FY21, and an expected four closures. The
Company will also look to perform refurbishments
on selected stores.
Overview of retail industry trends and
supply chain
The Australian retail sector is in a state of flux with
the COVID-19 pandemic creating uncertainty.
The COVID-19 pandemic has adversely impacted
a number of retailers and, in a number of
prominent and well publicised cases, some
retailers have closed. For others, the COVID-19
pandemic created an opportunity.
E-commerce continues to evolve and become
more prominent although bricks and mortar
remains the largest component of the retail
landscape.
It is expected that economic conditions will
remain challenging in the short-term with
unemployment increasing, consumer confidence
potentially weakening and traditional spending
behaviour changing. The easing of COVID-19
restrictions in some jurisdictions and increased
government fiscal expenditure provide some
support, but the Australian retail sector is likely to
face headwinds on its path to recovery.
Within this context, the discount variety sector
contains a range of challenges. The greatest
challenge concerns competitor activity.
Competition comes from a range of areas,
including:
a) regionally based discount variety chains;
b) a multitude of single owner-operator discount
variety businesses;
c) discount department stores;
d) supermarkets, particularly larger national
chains; and
e) various e-commerce participants, including
international and national businesses.
Competitor activity is focused on price
competition and store location. The Company
20
remains determined to be a leader in providing
every day low prices on our core merchandise
offerings in convenient locations. The Company is
well positioned to respond to changing levels of
consumer spending amid a potential economic
downturn.
Business Risks
There are a number of factors, both specific to
the Company and of a general nature, which
may threaten both the future operating and
financial performance of the Company and the
outcome of an investment in the Company. There
can be no guarantee that the Company will
achieve its stated objectives, that it will meet
trading performance expectations, or that any
forward-looking statements contained in this
report will be realised or otherwise eventuate.
The operating and financial performance of the
Company is influenced by a variety of general
economic and business conditions, including
levels of consumer spending, inflation, interest
and exchange rates, access to debt and capital
markets and government fiscal, monetary and
regulatory policies. A prolonged deterioration in
general economic conditions, including
increases in interest rates or a decrease in
consumer and business demand, may have an
adverse effect on the Company’s business or
financial position.
The specific material business risks faced by the
Company, and how the Company manages
these risks, are set out below:
1. COVID-19
The COVID-19 pandemic has created uncertainty
and volatility internationally and domestically.
This uncertainty and volatility includes: the
evolving restrictions imposed by the government
which continue to evolve to deal with COVID-19;
international and domestic economic conditions;
interest rates; employment levels; consumer
demand; consumer and business sentiment;
government fiscal, monetary and regulatory
policies. Additionally, the duration of the
pandemic is uncertain.
The impact of COVID-19 on the Company has
taken a number of different forms in different
parts of the Company’s operations. The initial
outbreak of COVID-19 impacted the Company’s
international supply chain in China, which
resulted in short delays or cancellations of orders
from international suppliers or manufacturers of
products to be purchased by the Company. The
spread of COVID-19 throughout Australia, and the
associated restrictions imposed by authorities,
created challenges for the Company to source
products domestically and around its ability to
continue to operate from its retail network and
distribution centres.
In general, the Company was able to successfully
operate through the initial phase of the COVID-19
pandemic due to being able to provide a safe
and clean shopping environment for team
members and customers through additional
cleaning, taking additional safety measures and
complying with the health advice provided by
authorities. The Company was required to close
six stores in North-West Tasmania between 13 April
and 3 May 2020 due to restrictions imposed by
the Tasmanian Government.
As the COVID-19 pandemic continues to evolve,
the Company’s financial performance depends
on its ability to operate and manage uncertainty
across its entire operation.
2. New and existing store growth
The growth strategy of the Company is
dependent upon its ability to generate growth
from its existing stores and to open new stores in
accordance with its expansion strategy.
Generating growth from existing stores will be
dependent on a number of factors, including
improving supply chain efficiencies, stock levels
and appropriate sourcing of products. The
opening of new stores from time to time will
depend on the availability of suitable sites and
the ability of the Company to negotiate
acceptable lease terms. These factors will
therefore impact on the ability of the Company
to successfully implement its growth strategy.
The Company has appointed an experienced
and capable property team to manage its
property expansion strategy.
3. Competition
The Company operates a retail model where
price and value are critical to the customers it
serves. The market in which the Company
operates is highly competitive and is subject to
changing customer demand and preferences,
with competition based on a variety of factors
including merchandise selection, price, parallel
importing, marketing and customer service. The
Company closely monitors price and quality to
ensure it maintains its competitive stance. The
Company’s financial performance or operating
margins could be adversely affected if its
competitors develop competitive advantages
over it or engage in aggressive product
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The Reject Shop | Annual Report 2020
DiRECTORS ’ REPORT CONTINUED
discounting, if new competitors enter the market
or if the Company fails to successfully respond to
changes in the market. Market consolidation or
future acquisitions could also result in further
competition and changes to retail margins and
market share, which could negatively impact the
Company’s financial performance or operating
margins.
The Company has developed a comprehensive
three-phase strategy to respond to the
competitive environment. A key component of
the three-phase strategy concerns the ongoing
development of the merchandise range to meet
customer needs.
4. 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.
As many of the Company’s products are
consumable goods, sales levels are sensitive to
customer sentiment. The Company’s product
range and its financial operation and
performance may be affected by changes in
consumer disposable incomes, confidence and
demand, including as a result of changes to
economic outlook and interest rates.
5. Financial performance and costs
The Company earns the majority of its EBIT and
NPAT in the first six months of its financial year. This
is due mainly to significant sales attributable to
the number of high-profile seasonal events in the
first half of the financial year. Sustained poor
trading performance at any time during major
seasonal events, such as Christmas, may have a
material impact on the profitability of the
Company. A significant proportion of the
Company’s operating costs are fixed in nature. As
a result, a significant shortfall in sales during any
period could result in an adverse impact on the
Company’s profitability. At the same time, the
Company is subject to increases in the cost of
operating its business, with annual cost
escalations being built into the enterprise
agreements in place for its store and distribution
centre staff as well as its lease agreements for
both stores and distribution centres. While 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, such increases would also
impact on profitability.
The Company’s future financial performance is
dependent, to a certain extent, on the level of
capital expenditure that is required to maintain its
business. Any significant unforeseen increase in
the capital expenditure would impact its future
cash flow.
6. Financing risks
Historically, the Company has relied on a working
capital facility with the ANZ Bank, which requires
an annual review. While the annual review
requirement is consistent with the terms on which
the Company’s bank facilities have been made
available in recent years, there is a risk that the
financier will not agree to renew its bank facilities
with the Company in the future. Likewise, the bank
may only renew such bank facilities on terms
which are not acceptable to the Company. An
inability of the Company to renew these facilities
may affect the Company’s financial performance
and position in the future. Further, should the
Company be unable to satisfy the terms,
conditions and relevant covenants under its bank
facilities, the Company would be in breach of
those facilities and, amongst other things, may
need to source funding from alternative sources.
As outlined on page 18, the Company and the
ANZ Bank have agreed to extend the Company’s
existing banking facilities to now expire in August
2021 (previously March 2021).
7. Employment laws
The Company is mindful of recent instances in the
Australian retail and hospitality sectors where
there has been non-compliance with statutory
and award obligations (including payment
obligations) owed by employers to employees.
The Company has processes in place to monitor
compliance with employment laws and takes its
obligations to its workforce seriously.
8. Supply risk
The Company and its suppliers are subject to
various risks which could limit the Company’s
ability to procure sufficient supply of products. As
a consequence of the fact that the Company
relies significantly on a mixture of Australian
sourced and imported products from outside
Australia, the Company is exposed to various risks
in relation to its supply chain. Outbreaks of
pandemics or diseases and, in particular, the
recent outbreak of COVID-19, could potentially
have a detrimental financial impact on the
Company’s business.
22
The Company remains focussed on other risks
relating to its international supply chain. Other
such risks include modern slavery, political
instability, increased security requirements for
foreign goods, costs and delays in international
shipping arrangements, imposition of taxes and
other charges as well as restrictions on imports.
The Company is also exposed to risks related to
labour practices, environmental matters,
disruptions to production and ability to supply,
and other issues in the foreign jurisdictions where
suppliers operate. More generally, risks which
could limit the Company’s ability to procure
sufficient supply of products include raw material
costs, inflation, labour disputes, union activities,
boycotts, financial liquidity, product
merchantability, safety issues, natural disasters,
disruptions in exports, trade restrictions, currency
fluctuations and general economic and political
conditions. Any of these risks, individually or
collectively, could materially adversely affect the
Company’s financial and operational
performance.
In response to the requirements of the Modern
Slavery Act 2018 (Cth), the Company is currently
developing a modern slavery policy framework,
conducting due diligence and assessing the risk
of modern slavery within the Company’s
operations and supply chain. The Company will
publish a mandatory public statement in
accordance with the legislation during the
course of FY21.
Separately, there is a risk that any change in the
Company’s relationships with key suppliers
(including a supplier seeking to terminate the
relevant agreement) may result in the Company
being unable to continue to source products from
existing suppliers, and in the future, to source
products from new suppliers, at favourable
prices, on favourable terms, in a timely manner
and in sufficient volume. The Company cannot
guarantee that its existing arrangements with key
suppliers will be renewed, or renewed on terms
similar to their current terms. The loss or
deterioration of the Company’s relationships with
suppliers, or an inability to negotiate agreements
with new suppliers on terms which are not
materially less favourable than existing
arrangements, may have a material adverse
effect on the Company’s financial and
operational performance.
9. Property portfolio management
Lease costs represent a significant proportion of
the overall operating cost base of the Company.
The Company’s stores and distribution centres are
leased and therefore subject to negotiation at
the end of each lease term. While the potential
impact of a single store closure is mitigated by
the number of stores the business now operates,
there is no guarantee any store or distribution
centre will be renewed at the end of each lease
term on terms acceptable to the business.
The business actively manages its store portfolio
against established financial and operational
criteria which must be met for both new and
existing stores.
Each of the Company’s distribution centres is
operated either by the Company itself or by a
third party. In either case, there is a risk that, due
to circumstances outside the control of the
Company, stock located at the distribution
centre could be damaged, or that access to the
distribution centre could be restricted, meaning
that such stock is unable to be retrieved. This
could have a material adverse effect on the
Company’s financial and operational
performance.
The Company has appointed an experienced
and capable property team to manage its
property portfolio.
10. Merchandising sourcing and
management
The Company relies on its ability to anticipate
and meet the needs of its target customers and
purchases products accordingly. Misjudgements
in demand and trends or changes in consumer
preferences could result in overstocked inventory
and the sale of products below originally
anticipated selling prices, which may in turn have
an adverse impact on cash flows and profitability.
The Company’s merchandise team actively
manage the Company’s inventory to avoid
inventory becoming overstocked or selling below
anticipated prices.
11. Reliance on key personnel
The Company is reliant on retaining and
attracting quality senior executives and other
team members who provide expertise,
experience and strategic direction in operating
the business. The responsibility of overseeing
day-to-day operations and the management of
the Company is concentrated amongst a number
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The Reject Shop | Annual Report 2020
DiRECTORS ’ REPORT CONTINUED
of key senior personnel. The leadership team is
led by a new Chief Executive Officer who has
recently been appointed to lead the
implementation of the current strategy for the
business. The loss of the services of any of those
key team members (for any reason whatsoever)
or the inability to attract new qualified personnel,
could adversely affect the Company’s
operations.
Additionally, successful operation of each of the
Company’s stores depends on its ability to attract
and retain quality team members. The Company
has over 5,000 team members across its stores
and distribution centre network. Competition
within the Australian retail market, as well as other
factors such as changing demographics or
employment laws could increase the demand
for, and cost of hiring, quality team members. The
Company’s financial and operational
performance could be materially adversely
affected if it cannot attract and/or retain quality
team members for its stores.
The Company is developing a comprehensive
recruitment and retention strategy, which is
aimed at providing meaningful employment
through many (and varied) career opportunities
within the Company.
12. Exchange rate
The Company relies significantly on imported
products (either directly purchased by the
business or indirectly through local or overseas
wholesalers) the costs of which are denominated
in foreign currencies and as a result the cost of
product and retail sales prices can be subject to
movements in exchange rates. The Company
mitigates against movements in exchange rates
through the use of forward cover. If the Company
is unable to alter pricing due to uncovered
movements in exchange rates, this may have a
material impact on its financial performance.
13. Product liability exposure
The Company purchases and sells over 12,000
different products on an annual basis, all of
which must be fit for purpose and compliant with
the Australian Consumer Law. Notwithstanding
the compliance protocols established by the
Company and insurance arrangements, there is
a risk that a product may breach relevant
consumer law, the implication of which could
have a material impact on the Company’s
business and performance.
The Company’s success in generating profits and
increasing its market share is also based on the
success of the key brands which it distributes and
sells, including third party branded products.
Reliance on these key brands has the potential to
make the Company vulnerable to brand or
reputational damage from any negative
publicity, product tampering or recalls. This may
also increase the rise of stock and asset write
downs.
The Company has a comprehensive product
compliance program in place. The quality
assurance team continues to enhance and refine
the program and is focused on ensuring that the
Company complies with its product compliance
obligations.
14. Occupational health and safety
The Company has over 5,000 team members
across its stores and distribution centre network,
as well as thousands of customers who visit its
stores nationwide. The business has a national
occupational health and safety (“OH&S”)
function, supported by OH&S representatives in
appropriate geographic locations to oversee the
application of OH&S policies and work safe
procedures across the business.
Notwithstanding the above, given that the
Company operates more than 350 stores in
Australia, there is always a risk that a personal
injury claim or otherwise may occur to a
customer or employee due to unforeseen
circumstances. Any claim relating to an accident
which occurs in any of the Company’s stores
could materially affect the Company’s brand
and reputation, as well as its businesses,
operating and financial performance.
15. Information technology
The Company’s management information and
other information technology systems are
designed to enhance the efficiency of the
Company’s operations. If any of these systems
are not maintained sufficiently or updated when
required, or if disaster recovery processes are not
adequate, system failures may negatively impact
on the Company’s business and performance.
There is a risk that a general technological
development will involve costs which are
disproportionate to previous generation
technologies.
The Company is currently reviewing its
technology architecture and infrastructure to
ensure that the technology system supports the
Company’s three-phase strategy.
24
16. Markets and Liquidity
The market price of the Company’s shares will
fluctuate due to various factors, many of which
are non-specific to the Company, including the
number of potential buyers or sellers of the
Company’s shares on the Australian Securities
Exchange (“ASX”) at any given time,
recommendations by brokers and analysts,
Australian and international general economic
conditions, inflation rates, interest rates, changes
in government, fiscal, monetary and regulatory
policies, commodity prices, global geo-political
events and hostilities and acts of terrorism, and
investor perceptions. In the future, these factors
may cause the Company’s shares to trade at a
lower price.
In addition, the Company currently has a small
number of substantial shareholders on its share
register. There is a risk that these shareholders
may sell their shares at a future date. This could
cause the price of the Company shares to
decline.
There may be few or many potential buyers or
sellers of the Company shares on the ASX at any
given time. This may affect the volatility and/or
the market price of the Company’s shares and/or
the prevailing market price at which shareholders
are able to sell their shares in the Company.
17. Litigation
The Company is subject to the usual business risk
that litigation or disputes may arise from time to
time in the course of its business activities. These
may include claims, disputes, inquiries and
investigations involving customers, team
members, landlords, suppliers, government
agencies/authorities, regulators or other third
parties. There can be no assurance that legal
claims will not be made against the Company, or
that the Company’s insurance will be adequate
to cover liabilities resulting from any such claims.
Any successful claim against the Company may
adversely impact its future financial performance
or position as well as its reputation and brand.
The Company has a comprehensive risk
framework in place to respond to the actual or
potential risk of litigation.
18. Reputational risk
The risks that have been identified in this annual
report may individually or collectively materially
affect the Company’s brand and reputation,
which may in turn adversely impact on the
Company’s operating and financial
performance. The Company has developed a
comprehensive system of managing risk to
protect its people, its customers, the environment,
Company’s assets and reputation as well as to
realise business opportunities. The Company has
a very low tolerance for any activities that could
materially damage its brand or reputation
although the Company accepts that it may
periodically have temporary negative publicity.
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The Reject Shop | Annual Report 2020
Remuneration Report
The remuneration report is set out in the following
sections and includes remuneration information
for The Reject Shop Limited’s non-executive
directors, executive directors and key
management personnel:
A – Principles used to determine the nature and
amount of remuneration
B – Details of remuneration
C – Service agreements
D – Share-based compensation
E – Additional information
The information provided in this remuneration
report has been audited as required by section
308 (3C) of the Corporations Act 2001.
A – Principles used to determine the
nature and amount of remuneration
The objective of the Company’s Remuneration
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 15 of this
annual report.
Officers and executive remuneration
structure
The executive remuneration and reward
framework has four components:
• Base pay and benefits;
• Other remuneration such as superannuation
payments;
• Short-term cash rewards; and
• Long-term rewards through participation 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. 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 the contracts of any of the senior
executives. The Company has a formal process
by which the performance of all senior executives
is reviewed. An executive’s pay is also reviewed
on promotion.
Executive benefits made available are car
allowances, private use of Company owned
vehicles (disclosed as non-monetary benefits)
and salary sacrifice superannuation
arrangements.
Short term cash rewards (STR)
For FY20, the Remuneration and Nominations
Committee determined that one member
of the Key Management Personnel will receive
50% of their potential STR. As announced on
9 December 2019, the Chief Executive Officer
was not eligible for an STR during FY20.
For FY20, the STR for key management personnel
was determined based on improving the Lost
Time Injury Frequency Rate (10% weighting) and
financial performance through achieving
budgeted EBIT (90% weighting). If these STR
targets are achieved, payments of 22.5% of total
fixed remuneration are eligible to be 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 team members. 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.
26
Criteria for periods prior to FY20:
The financial criteria upon which the
performance rights are eligible to vest consist of
the following hurdles, which are independently
measured over a three-year period:
• Weighting of 50% – Earnings Per Share
compound growth of at least 10% per annum;
• Weighting of 25% – Improved Earnings Before
Interest, Income Tax, Depreciation and
Amortisation (EBITDA) of at least 0.15% to sales
per annum; and
• Weighting of 25% – Return on Average Capital
Employed of at least 20% per annum.
The Board retains the right to reassess all aspects
of the vesting conditions for future performance
rights grants.
The number of performance rights issued is based
on 22.5% of the total fixed remuneration divided
by the weighted average share price for the
period 30 days before and 31 days after the end
of the financial period in which the rights are
granted. For financial reporting purposes, the
value of each right granted at grant date is
measured using a Black-Scholes option pricing
model. The audited financial report is the basis
for measuring achievement against the financial
performance target.
For the performance rights tranche granted in
respect of the 2017 financial year, and due to vest
on 28 June 2020, the Remuneration and
Nominations Committee has determined 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.
Criteria for FY20:
The need to stabilise the Company during FY20,
and the commencement of the process of ‘fixing’
the business, required the Company to develop
new criteria for the long-term incentive scheme
for a small number of team members, including
the Key Management Personnel (excluding the
Chief Executive Officer).
The financial criteria upon which the
performance rights are eligible to vest concern
the Company meeting budgeted EBIT in FY20 and
the relevant participants being employed by the
Company when the Performance Rights are
exercised (1 July 2022).
The Board retains the right to reassess all aspects
of the vesting conditions for future performance
rights grants.
The number of performance rights issued is based
on 22.5% of the total fixed remuneration divided
by the weighted average share price for the
period 30 days before and 31 days after the end
of the financial period in which the rights are
granted. For financial reporting purposes, the
value of each right granted at grant date is
measured using a Black-Scholes option pricing
model. The audited financial report is the basis
for measuring achievement against the financial
performance target.
One-off allocation
In addition, and subject to defined service
periods, the Board granted performance rights
with no financial criteria as a one-off allocation
to certain key management personnel during the
course of FY20.
As announced on 9 December 2019, the Chief
Executive Officer received a one-off allocation of
300,000 performance rights, which will vest as
follows:
a) 50% on 14 January 2023;
b) 25% on 14 January 2024; and
c) 25% on 14 January 2025.
Other members of the key management
personnel received a one-off allocation totalling
150,000 performance rights on 1 September 2019
in order to retain their services for at least a one
to two year period.
For FY21:
The Remuneration and Nominations Committee is
currently in the process of implementing a revised
incentive scheme for a small number of team
members, including Key Management Personnel,
in relation to FY21. The incentive scheme will
include both a short-term cash rewards
component as well as a long-term rewards
component through participation in the
Company’s Performance Rights Plan. The revised
incentive scheme is being designed to:
• incentivise key executives to outperform Board
expectations during the ‘fix’ phase of the
turnaround strategy;
• align the interests of key executives with
shareholders by rewarding for long-term share
price appreciation; and
• incentivise key executives to remain with the
Company during the turnaround and for
longer-term growth.
Targets for eligibility will include measurement
against over-performance of EBIT targets and in
the case of long term rewards, EPS growth.
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REMu NERaTiON REPORT CONTINUED
B – Details of remuneration
Directors’ fees
The current aggregate limit for directors’ fees is $950,000 per annum (FY2019 : $950,000) with a base
fee payable (including superannuation) to the Chairman of $206,205 per annum (FY2019 : $206,205)
and to a non-executive director of $120,438 per annum (FY2019 : $120,438). 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 (FY2019 : $6,180),
Chairman of Remuneration and Nominations Committee: $5,150 (FY2019 : $5,150)). The Managing
Director (if one had been appointed) does not receive directors’ fees.
Directors’ fees are reviewed annually, with external remuneration consultants providing advice, as the
need arises, to ensure fees reflect market rates. There are no guaranteed annual increases in any
director’s fees. Any increase in the aggregate limit for directors’ fees must be approved at the
Company’s Annual General Meeting.
Non-executive directors do not participate in the short or long-term incentive schemes.
Executive Remuneration
The following executives, along with the directors, as detailed on page 17 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:
andre Reich
– Chief Executive Officer (commenced on 13 January 2020)
Dani aquilina
– Acting Chief Executive Officer (commenced on 23 May 2019 and concluded on 12 January 2020)
– Chief Operating Officer (commenced on 13 January 2020)
Darren Briggs
– Chief Financial Officer (left the Company on 30 April 2020)
All of the above persons were employed by The Reject Shop Limited and were key management
personnel for the entire period ended 28 June 2020 and the period 30 June 2019 unless otherwise
stated.
As indicated in the Annual Report for 2018/2019, the Company conducted a review of the key
management personnel. Following that review, the Board has determined that, from 1 July 2019, not all
members of the leadership team will meet the definition of key management personnel. For those
personnel who were previously considered to be key management personnel in the prior period, their
remuneration has been disclosed in the comparatives in this report.
28
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:
2020
SHORT-TERM BENEFITS
POST
EMPLOY-
MENT
BENEFITS
OTHER
BENEFITS
SHARE-BASED
BENEFITS
Cash
salary and
fees
Cash
Rewards
Non-
monetary
benefits
Name
Non-executive
Directors
$
WJ Stevens (i)
52,127
M Teague
S Lightfoot
109,989
115,149
J Hanrahan (ii)
36,411
S Fisher
168,582
99,813
18,737
19,962
620,770
Z Midalia (iii)
D Grant (iv)
N Perkins (iv)
Total Non-
Executive
Directors
Other Key
Management
Personnel
A Reich (v)
369,523
$
-
-
-
-
-
-
-
-
-
-
D Aquilina (vi)
542,765 168,390
D Briggs (vii)
355,157
-
Total Other Key
Management
Personnel
1,267,445 168,390
Total
1,888,215 168,390
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Super-
annuation
$
Other
$
4,952
10,449
10,939
-
16,015
-
1,780
-
44,135
10,501
21,003
-
-
-
-
-
-
-
-
-
-
-
Perform-
ance
Rights
$
-
-
-
-
-
-
-
-
-
72,276
117,621
21,002
115,427
63,385
Proportion of
Annualised
Remuneration
as
performance
related
%
Other
$
Total
$
-
57,079
-
-
-
-
-
-
-
120,438
126,088
36,411
184,597
99,813
20,517
19,962
-
664,905
-
-
-
452,300
849,779
554,971
-
-
-
-
-
-
-
-
-
-
21.9%
11.4%
-
-
52,506
115,427
253,282
- 1,857,050
96,641
115,427
253,282
- 2,521,955
(i) WJ Stevens retired as a Director on 16 October 2019.
(ii) J Hanrahan resigned as a Director on 15 October 2019.
(iii) Z Midalia resigned as a Director on 30 April 2020.
(iv) D Grant and N Perkins were each appointed Directors on 1 May 2020.
(v) A Reich was appointed Chief Executive Officer on 13 January 2020.
(vi) D Aquilina concluded the role of Acting Chief Executive Officer on 12 January 2020 and commenced as Chief Operating
Officer on 13 January 2020. D Aquilina’s cash rewards during the period included a retention payment of $100,000 and
short term cash rewards of $68,390.
(vii) D Briggs left the Company on 30 April 2020 and received an exit payment of $115,427.
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The Reject Shop | Annual Report 2020
REMu NERaTiON REPORT CONTINUED
2019
SHORT-TERM BENEFITS
POST
EMPLOY-
MENT
BENEFITS
OTHER
BENEFITS
SHARE-BASED
BENEFITS
Cash
salary and
fees
Cash
Rewards
Non-
monetary
benefits
Super-
annuation
$
$
$
$
Other
$
Proportion of
Annualised
Remuneration
as
performance
related
%
Other
$
Total
$
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
188,315
109,989
77,362
96,014
39,125
68,015
4,628
5,656
589,103
R Sudano (vi)
752,318
Total Executive
Directors
Other Key
Management
Personnel
D Briggs
D Aquilina
AJ Penrose
R d’Andrea
E Tollinton (vii)
K Chand (viii)
A Molloy (ix)
B Short (x)
P Barry (xi)
752,318
332,866
355,270
253,912
305,176
212,760
334,211
273,333
106,184
353,016
S Williamson (xii)
25,643
Total Other Key
Management
Personnel
Total
2,552,372
3,893,793
Perform-
ance
Rights
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,890
10,449
7,349
9,132
3,717
-
440
-
48,977
-
-
-
-
-
-
-
-
-
41,259
20,531
473,659
(88,363)
41,259
20,531
473,659
(88,363)
854
20,531
4,733
7,448
6,278
20,531
20,531
20,531
-
15,399
2,277
4,532
1,711
-
985
6,844
-
-
-
-
-
-
-
-
-
-
20,531
63,412
1,711
-
(5,382)
(6,128)
(4,134)
(4,178)
(30,298)
-
(36,992)
-
-
-
27,108
128,321
63,412
(87,111)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
206,205
120,438
84,711
105,146
42,842
68,015
5,067
5,656
638,080
1,199,404
1,199,404
348,870
374,406
277,758
327,808
197,861
338,199
240,872
114,013
436,959
27,354
2,684,101
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
30
KJ Elkington ceased being a Director on 28 February 2019.
(i)
(ii) S Lightfoot was appointed a Director on 23 August 2018.
(iii) M Campbell was appointed a Director on 12 December 2018 and resigned as a Director on 17 April 2019.
(iv) J Hanrahan was appointed a Director on 12 December 2018.
(v)
(vi) R Sudano was Chief Executive Officer until 23 May 2019. As a result, R Sudano was paid in cash $74,644 of annual leave
S Fisher and Z Midalia were appointed as Directors on 14 June 2019.
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.
(vii) E Tollinton was the Chief Information Officer until 1 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 31 July 2018. K Chand was paid in cash $15,194 annual leave
entitlements which are excluded from the table above. From the 1 August 2018, K Chand was engaged 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 28 February 2019. A Molloy was paid in cash $39,829 annual leave
(x)
entitlements which are excluded from the table above.
B Short was appointed the General Manager of Operations on the 12 March 2019. B Short ceased to be considered a
member of key management personnel on 1 July 2019.
(xi) P Barry was the General Manager of Buying until 24 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 the 1 June 2019. S Williamson ceased to be considered a
member of key management personnel on 1 July 2019.
For remuneration report purposes, the amount reported as “Share Based Payments” is the accounting
expense under AASB 2.
The ‘fair value’ is determined using a Black Scholes model and will generally be different to the “volume
weighted average market price (VWAP)” which is used to determine the number of rights that are granted.
No adjustment to the reported remuneration amounts is made in the event that actual market price of
shares on the vesting of Performance Rights exceeds the fair value of those Performance Rights on their
grant date. Similarly, no reduction is made to remuneration where the market price of shares on the
vesting of Performance Rights is lower than the market price of shares on the date that Performance Rights
are granted.
No other long term or remuneration benefits were paid or are payable with respect to the current and
prior period.
C - Service agreements
All key management personnel are on employment terms consistent with the remuneration framework
outlined in this report.
In addition, all executive key management personnel have service agreements which provide that a
period of notice of three to six months is required by the Company or the relevant team member to
terminate their employment.
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The Reject Shop | Annual Report 2020
REMu NERaTiON REPORT CONTINUED
D – Share-based compensation
The number of performance rights over shares in the Company granted to 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
Fair value
of
performance
rights at
grant date
Total
fair value of
performance
rights at
grant date
Number of
performance
rights granted
in prior
periods
vested during
the period
2020
Grant date
Key Management Personnel
D Briggs
D Briggs
D Briggs
D Aquilina
D Aquilina
D Aquilina
A Reich
A Reich
A Reich
Total
1 Sep 2019
25,000
31 Aug 2020
31 Aug 2022
$1.83
$45,814
1 Sep 2019
25,000
31 Aug 2021
31 Aug 2022
$1.74
$43,500
18 Oct 2019
39,000
1 July 2022
16 Oct 2023
$2.07
$80,913
1 Sep 2019
50,000
31 Aug 2020
31 Aug 2022
$1.83
$91,627
1 Sep 2019
50,000
31 Aug 2021
31 Aug 2022
$1.74
$87,001
18 Oct 2019
58,700
1 Jul 2022
16 Oct 2023
$2.07
$121,784
13 Jan 2020
150,000
14 Jan 2023
12 Jan 2025
$1.91
$286,410
13 Jan 2020
75,000
14 Jan 2024
12 Jan 2026
$1.82
$136,813
13 Jan 2020
75,000
14 Jan 2025
12 Jan 2027
$1.74
$130,690
547,700
$1,024,552
-
-
-
-
-
-
-
-
-
-
All performance rights granted during the current period will vest on the exercise dates above provided
the required performance hurdles are achieved (if applicable) and the team member 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.
On 17 July 2020 (subsequent to the period end), the Company vested 50,000 performance rights to Darren
Briggs, which were exercised on 20 July 2020.
Shares Issued to Key Management Personnel on Exercise of Options or Performance Rights
Non-executive directors have not been granted performance rights in any period.
No shares were issued to key management personnel on exercise of performance rights during the current
year.
32
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 as well as the percentage that was forfeited, because the
performance criteria were not achieved or the person did not meet the service criteria, is as listed. The
performance rights vest over several years provided the vesting conditions are met. No performance rights
will vest if the conditions are not satisfied, hence the minimum value of each performance right yet to vest
is $Nil. The maximum value of performance rights yet to vest has been determined as the total number of
performance rights still to vest multiplied by the fair value of each performance right at grant date. The fair
value for accounting purposes is determined using the Black-Scholes option pricing model.
Cash Incentive
Performance Rights
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%
Forfeited
%
Date
Granted
Vested
%
Forfeited
# %
Financial
Periods in
which rights
may vest
Maximum
total
number
of rights
may vest
Maximum
total value
of grants
may vest
$
2020
Key
Management
Personnel
D Briggs
-
100
D Aquilina (i)
50
50
A Reich
-
-
FY20
FY19
FY18
FY20
FY19
FY18
FY20
-
-
-
-
-
-
-
39,000
27,200
36,900
-
-
44
FY21 - FY22
50,000
89,314
100
100
-
-
-
-
-
-
-
-
FY21 - FY23
158,700
300,412
FY22
28,000
51,384
38,000
100
-
-
-
-
-
FY23 - FY25
300,000
553,914
(i) D Aquilina’s cash incentive included a short term cash reward of $68,390, representing 50% of the potential reward, and a
cash retention payment of $100,000.
The vesting conditions associated with Performance rights are tested each year and, to the extent that the
conditions are not expected to be met, the Remuneration and Nominations Committee has the discretion
to cancel or forfeit the performance rights yet to vest.
33
The Reject Shop | Annual Report 2020
REMu NERaTiON REPORT CONTINUED
Performance Rights Holdings
Non-executive directors do not participate in long term incentives and have not been granted
performance rights in any period.
The number of performance rights over shares in the Company held during the current and prior financial
period by each key management personnel of The Reject Shop Limited and the consolidated entity,
including related parties, are set out below:
2020
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 the
end of the period
Key Management Personnel
D Briggs (i)
D Aquilina
A Reich
Total
64,100
66,000
-
130,100
89,000
158,700
300,000
547,700
-
-
-
-
(103,100)
(38,000)
-
(141,100)
50,000
186,700
300,000
536,700
(i)
D Briggs left the Company on 30 April 2020 and all performance rights were lapsed or forfeited other than 50,000
performance rights.
On 17 July 2020 (subsequent to the period end), the Company vested 50,000 performance rights to Darren
Briggs, which were exercised on 20 July 2020. The fair value of the performance rights at the grant date on
1 September 2019 was $89,314. Otherwise there have been no performance rights granted or vested to key
management personnel subsequent to the period end.
34
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:
Balance at
the start of the period
Received during
the period on the
exercise of
performance
rights and options
Other changes
during the period
Balance at the
end of the period
2020
Directors
WJ Stevens (i)
M Teague
S Lightfoot
J Hanrahan (ii)
S Fisher
Z Midalia (iii)
D Grant
N Perkins (vi)
Key Management Personnel
D Briggs (iv)
D Aquilina
A Reich (v)
Total
6,500
-
5,500
5,000
-
4,040
-
7,799
-
-
-
28,839
-
-
-
-
-
-
-
-
-
-
-
-
(6,500)
1,500
7,375
(5,000)
99,039
(4,040)
-
-
-
9,000
536,842
638,216
-
1,500
12,875
-
99,039
-
-
7,799
-
9,000
536,842
667,055
(i) WJ Stevens retired as a Director on 16 October 2019.
(ii) J Hanrahan resigned as a Director on 15 October 2019.
(iii) Z Midalia resigned as a Director on 30 April 2020.
(iv) D Briggs left the Company on 30 April 2020.
(v) A Reich was appointed Chief Executive Officer on 13 January 2020. A Reich purchased his shares on-market and took up
his pro-rata entitlement in the March 2020 equity raise.
(vi) N Perkins shares were acquired prior to his appointment as Director.
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 28 June 2020
(FY2019 - $Nil).
No other transactions were undertaken with directors or other key management personnel, including
related parties during the period (FY2019 - $Nil).
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The Reject Shop | Annual Report 2020
REMu NERaTiON REPORT CONTINUED
Company Performance
The following table outlines the Company’s earnings and share performance over the last ten years:
Period
FY2011
FY2012 (i)(ii)
FY2013
FY2014
FY2015
FY2016 (i)
FY2017
FY2018
FY2019
FY2020
NPAT
$16.2m
$21.9m
$19.5m
$14.5m
$14.2m
$17.1m
$12.3m
$16.6m
($16.9m)
$1.1m
EPS cents
per share
Share price at
start of period
Share price at
end of period
Share
price growth
62.1
84.1
73.4
50.3
49.4
59.3
42.8
57.4
(58.5)
3.6
$16.42
$11.66
$9.15
$17.19
$8.82
$5.40
$12.45
$4.16
$5.68
$1.83
$11.66
$9.15
$17.19
$8.82
$5.40
$12.45
$4.16
$5.68
$1.83
$7.46
(29.0)%
(21.5)%
87.9%
(48.7)%
(38.8)%
130.6%
(66.6)%
36.5%
(68.0)%
307.6%
(i)
(ii)
53-week period.
In FY2012 a special dividend of 8.5 cents was also paid.
Ordinary &
special
dividends paid
or declared
per share
$0.31
$0.42
$0.37
$0.30
$0.30
$0.44
$0.24
$0.35
$0.10
-
A detailed review of performance and operations can be found in the Operating and Financial review on
pages 18 to 25 of this annual report.
Shares under performance rights
Unissued ordinary shares of the Company under performance rights at the date of this report are as
follows:
Date of Grant
Expiry Date
Vesting Date
18 Oct 2018
1 Sep 2019
1 Sep 2019
1 Jul 2022
1 Jul 2021
31 Aug 2022
31 Aug 2020
31 Aug 2022
31 Aug 2021
18 Oct 2019
16 Oct 2023
1 Jul 2022
13 Jan 2020
12 Jan 2025
14 Jan 2023
13 Jan 2020
12 Jan 2026
14 Jan 2024
13 Jan 2020
12 Jan 2027
14 Jan 2025
27 Mar 2020
28 Mar 2025
27 Mar 2023
4.05
Value at
Grant Date $
Exercise
Price $
Total number
on Issue
Number on issue
to key
management
personnel
1.84
1.83
1.74
2.07
1.91
1.82
1.74
-
-
-
-
-
-
-
-
28,000
50,000
50,000
87,600
150,000
75,000
75,000
150,000
28,000
50,000
50,000
58,700
150,000
75,000
75,000
-
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 further shares issued during the year as a result of the exercise of performance rights.
On 17 July 2020 (subsequent to the period end), the Company vested 50,000 performance rights to
Darren Briggs, which were exercised on 20 July 2020.
36
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
Consolidated Entity
2020
$
2019
$
425,720
43,615
469,335
44,136
37,500
81,636
374,000
50,613
424,613
40,500
59,400
99,900
Total Remuneration
550,971
524,513
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 38 of this annual report.
This report is made in accordance with a resolution of the directors:
Steven Fisher
Chairman
19 August 2020
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The Reject Shop | Annual Report 2020
auditors’ independent Declaration
Auditor’s Independence Declaration
As lead auditor for the audit of The Reject Shop Limited for the 52 week period ended 28 June 2020, 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
19 August 2020
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.
38
Consolidated Statement
of Comprehensive income
For the 52 week period ended 28 June 2020
Revenue from continuing operations
Sales revenue
Other income
Expenses
Cost of sales
Store expenses
Administrative expenses
Impairment expenses
Finance costs
Profit / (loss) before income tax
Income tax expense / (benefit)
Profit / (loss) for the period attributable to
shareholders of The Reject Shop
Other comprehensive income
Items that may be re-classified to profit or loss
Changes in the fair value of cash flow hedges
Income tax relating to components of other comprehensive income
Other comprehensive income for the period, net of tax
Total Comprehensive loss attributable to shareholders of The Reject
Shop Limited
Note
2020
$’000
2019
$’000
2
2
3
3
4
820,645
793,687
17
51
820,662
793,738
487,713
275,846
47,042
727
811,328
7,708
1,626
506
462,556
287,692
44,833
21,941
817,022
789
(24,073)
(7,174)
1,120
(16,899)
(11,489)
3,447
(8,042)
(3,379)
1,014
(2,365)
(6,922)
(19,264)
Earnings per share
Basic earnings per share
Diluted earnings per share
27
27
Cents
3.6
3.5
Cents
(58.5)
(58.5)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
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The Reject Shop | Annual Report 2020
Consolidated Balance Sheet
As at 28 June 2020
Current Assets
Cash
Inventories
Tax assets
Derivative financial instruments
Other current assets
Total Current Assets
Non Current Assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Total Non Current Assets
Total Assets
Current Liabilities
Payables
Borrowings
Lease liabilities - current
Tax liabilities
Provisions - current
Derivative financial instruments
Other - current liabilities
Total Current Liabilities
Non Current Liabilities
Lease liabilities - non current
Provisions - non current
Other - non current liabilities
Total Non Current Liabilities
Total Liabilities
Net Assets
Equity
Contributed equity
Reserves
Retained profits
Total Equity
Note
2020
$’000
2019
$’000
5
6
22
7
8
9
10
11
12
9
13
22
14
9
13
15
16
17
18
92,489
70,850
-
-
6,629
169,968
51,277
172,698
28,171
252,146
422,114
45,042
-
83,557
4,295
11,795
9,382
11,411
165,482
110,165
3,404
-
113,569
279,051
143,063
70,326
(1,240)
73,977
26,308
110,791
2,696
2,107
2,245
144,147
60,975
-
20,196
81,171
225,318
43,826
19,500
-
-
10,341
-
10,606
84,273
-
2,930
12,793
15,723
99,996
125,322
46,247
6,218
72,857
143,063
125,322
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
40
Consolidated Statement of
Changes in Equity
For the 52 week period ended 28 June 2020
2020
Contributed
Equity
Capital
Profits
Share Based
Payments
Hedging
Reserve
Translation
Reserve
Retained
Earnings
Foreign
Currency
Balances as at 30 June 2019
$’000
46,247
$’000
739
$’000
4,004
-
-
-
24,079
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
305
244
$’000
1,476
-
(8,042)
-
-
-
-
-
$’000
$’000
Total
$’000
(1)
72,857
125,322
-
-
35
-
-
-
-
1,120
1,120
-
-
-
-
-
-
(8,042)
35
24,079
-
305
244
70,326
739
4,553
(6,566)
34
73,977
143,063
Contributed
Equity
Capital
Profits
Share Based
Payments
Hedging
Reserve
Translation
Reserve
Retained
Earnings
Foreign
Currency
$’000
46,247
$’000
739
$’000
4,321
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(178)
(139)
$’000
3,841
-
(2,365)
-
-
-
-
$’000
$’000
Total
$’000
12
95,826
150,986
-
-
(13)
-
-
-
(16,899)
(16,899)
-
-
(2,365)
(13)
(6,070)
(6,070)
-
-
(178)
(139)
46,247
739
4,004
1,476
(1)
72,857
125,322
Profit for the period
Other comprehensive
income
Foreign exchange
translation
Transaction with owners in
their capacity as owners:
Issue of ordinary shares,
net of transaction costs
Dividends Paid
Share based
remuneration
Tax credited/(debited)
directly to equity
Balances as at
28 June 2020
2019
Balances as at 1 July 2018
Profit for the period
Other comprehensive
income
Foreign exchange
translation
Transaction with owners in
their capacity as owners:
Dividends Paid
Share based
remuneration
Tax credited/(debited)
directly to equity
Balances as at
30 June 2019
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
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The Reject Shop | Annual Report 2020
Consolidated Statement of
Cash Flows
For the 52 Week Period Ended 28 June 2020
Note
2020
$’000
2019
$’000
Cash Flows from Operating Activities
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services
tax)
Interest received
Borrowing costs paid
Income tax (paid) / received
Net cash inflows from operating activities
21
Cash Flows from Investing Activities
Payments for property, plant and equipment
Net cash outflows used in investing activities
Cash Flows from Financing Activities
Proceeds from borrowings
Repayment of borrowings
Principal elements of lease payments
Proceeds from issue of shares
Share issue costs
Dividends paid
Net cash (outflows) / inflows used in financing activities
Net increase in cash held
Cash at the beginning of the financial year
Cash at the end of the financial year
26
21
902,710
873,056
(729,841)
(858,738)
17
(7,708)
2,202
167,380
51
(789)
(4,750)
8,830
(10,681)
(10,681)
(10,706)
(10,706)
134,000
247,500
(153,500)
(228,000)
(95,097)
25,000
(921)
-
(90,518)
66,181
26,308
92,489
-
-
-
(6,070)
13,430
11,554
14,754
26,308
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
42
Notes to Financial Consolidated
Statements
Note 1: Summary of significant
accounting policies
The principal accounting policies adopted in the
preparation of the financial report are set out
below. These policies have been consistently
applied to all the periods presented, unless
otherwise stated. The financial statements are for
the consolidated entity, consisting of The Reject
Shop Limited and its subsidiaries.
(a) Basis of Preparation
This general purpose financial report has been
prepared in accordance with Australian
Accounting Standards and Interpretations issued
by the Australian Accounting Standards Board
and the Corporations Act 2001, as appropriate for
for-profit oriented entities.
Going Concern and COVID-19
In preparing the financial report, the Directors
have considered the current impact of the
COVID-19 pandemic on the Group as well as the
general economic and business conditions in
which the Group operates. The Group was able
to trade through the initial phase of the COVID-19
pandemic with minimal disruption to its network
of 354 stores (only six stores in North-West
Tasmania were closed between 13 April and 3
May 2020 due to restrictions imposed by the
Tasmanian Government) during the year. The
Group did not require any wage subsidies under
the Federal Government’s JobKeeper Program
during the year. The Directors are unable to
predict the potential future impact on the Group,
whether positive or negative, of the COVID-19
pandemic and its associated impact on the
Australian economy and the retail sector as well
as any other direct or indirect consequence of
the COVID-19 pandemic and any further
restrictions that could be imposed.
During the year, the Group has been successful in
raising additional equity capital and has made
significant working capital improvements,
including reducing its inventory balance to
$70,850,000 (FY2019: $110,791,000). Importantly, at
year end, the Group had cash reserves of
$92,489,000 (FY2019: $26,308,000) and no drawn
debt. Subsequent to year end, the Group
extended its banking facilities with the ANZ Bank
from March 2021 to August 2021, which provides
further certainty in relation to debt funding. For
details on the Group banking arrangements see
Notes 12 and 21.
Given the Group’s strong liquidity position, and
having regard to the current known impact of the
COVID-19 pandemic on the Group, the Directors
are satisfied that the company will continue as a
going concern and have prepared the financial
statements on this basis.
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
for:
– certain financial assets and liabilities
(including derivative instruments) that are
measured at fair value, and
– certain classes of property, plant and
equipment and right-of-use assets that are
measured at historical cost less depreciation
and impairment (where applicable).
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 Consolidation
(i) Subsidiaries
The consolidated financial statements
incorporate all the assets and liabilities of the
subsidiaries of The Reject Shop Limited as at 28
June 2020 and the results of the subsidiaries for
the period. The Reject Shop Limited and its
subsidiaries are referred to in this financial report
as the consolidated entity.
Subsidiaries are all entities (including special
purpose entities) over which the Group has
control. The Group controls an entity when the
Group is exposed to, or has rights to, variable
returns from its involvement with the entity and
has the ability to affect those returns through its
power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date
on which control is transferred to the Group. They
are deconsolidated from the date that control
ceases.
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
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
provided 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.
(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 30 for information.
(d) Income Tax
The income tax expense for the period is the tax
payable on the current period’s taxable income
based on the current income tax rate adjusted by
changes in deferred tax assets and liabilities
attributable to temporary differences between
the tax bases of assets and liabilities and their
carrying amounts in the financial statements.
Deferred tax assets and liabilities are recognised
for temporary differences at the tax rates
expected to apply when the assets are recovered
or liabilities are settled. The relevant tax rates are
applied to the cumulative amounts of deductible
and taxable temporary differences to measure
the deferred tax asset or liability.
Deferred tax assets and liabilities are recognised
for deductible temporary differences and unused
tax losses only if it is probable that future taxable
amounts will be available to utilise those
temporary differences and losses.
Deferred tax assets and liabilities are offset when
there is a legally enforceable right to offset
current tax assets and liabilities and when the
deferred tax balances relate to the same taxation
authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable
right to offset and intends either to settle on a net
basis, or to realise the asset and settle the liability
simultaneously.
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.
(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
5 – 12 years
and Office Equipment
- Fixtures and Fittings
- Motor vehicles
- Computer Equipment
5 – 12 years
3 – 5 years
3 years
(g) Leases
The Group leases various retail stores, distribution
centres, offices and vehicles. Rental contracts
are typically made for fixed periods of two to five
years but may have extension options as
described below. Lease terms are negotiated on
44
Note 1: Summary of significant
accounting policies continued
12 months or less. Low-value assets comprise
IT-equipment and small items of office furniture.
(g) Leases continued
(h) Employee Benefits
an individual basis and contain a wide range of
different terms and conditions. The lease
agreements do not impose any covenants, but
leased assets may not be used as security for
borrowing purposes.
Until the 2020 financial year, leases described
above were classified as operating leases.
Payments made under operating leases (net of
any incentives received from the lessor) were
charged to the profit or loss on a straight-line
basis over the period of the lease.
From 1 July 2019, leases are recognised as a
right-of-use asset and a corresponding liability at
the date at which the leased asset is available
for use by the Group. Each lease payment is
allocated between the liability and finance cost.
The finance cost is charged to profit or loss 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
right-of-use asset is depreciated over the shorter
of the asset’s useful life and the lease term on a
straight-line basis.
Assets and liabilities arising from a lease are
initially measured on a present value basis. Lease
liabilities include the net present value of the
fixed payments (including in-substance fixed
payments), less any lease incentives receivable.
The lease payments are discounted using the
interest rate implicit in the lease. If that rate
cannot be determined, the lessee’s incremental
borrowing rate is used, being the rate that the
lessee would have to pay to borrow the funds
necessary to obtain an asset of similar value in a
similar economic environment with similar terms
and conditions.
Right-of-use assets are measured at cost
comprising the following:
–
the amount of the initial measurement of
lease liability,
– any lease payments made at or before the
commencement date less any lease
incentives received; and
– any initial direct costs.
Payments associated with short-term leases and
leases of low-value assets are recognised on a
straight-line basis as an expense in profit or loss.
Short-term leases are leases with a lease term of
(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.
(iv) Bonus plans
A liability for employee benefits in the form of
bonus plans is recognised when there is a
contractual or constructive liability and at least
one of the following conditions are met:
–
–
there are formal terms in the plan for
determining the amount of the benefit;
the amounts to be paid are determined
before the time of completion of the financial
report; or
– past practice has created a constructive
obligation.
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
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 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.
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.
46
Note 1: Summary of significant
accounting policies continued
(l) Foreign Currency Translation
(i) Functional and presentation currency
Items included in the financial statements of the
consolidated entity are measured using the
currency of the primary economic environment in
which the entity operates (“the functional
currency”). The consolidated financial statements
are presented in Australian dollars, which is The
Reject Shop Limited’s functional and presentation
currency.
(ii) Transactions and balances
Foreign currency transactions are translated into
the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the
settlement of such transactions and from the
translation at period end exchange rates of
monetary assets and liabilities denominated in
foreign currency are recognised in the income
statement, except derivatives which comprise of
effective hedges.
(m) Trade and Other Payables
These amounts represent liabilities for goods and
services provided to the consolidated entity prior
to the end of the financial period and which are
unpaid. The amounts are unsecured and are
usually paid within 30 days of recognition.
(n) Borrowing Costs
Borrowing costs are recognised as expenses in the
period in which they are incurred. Borrowing costs
incurred for the construction of a qualifying asset
are capitalised during the period of time that is
required to complete and prepare the asset for its
intended use.
(o) Impairment of Property, Plant and
Equipment and Right-Of-Use assets
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.
(s) Earnings per Share
(i) Basic earnings per share
Basic earnings per share is determined by dividing
net profit after income tax attributable to members
of the Group, excluding any costs of servicing
equity other than ordinary shares, by the weighted
average number of ordinary shares outstanding
during financial year, 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.
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
(v) Store Opening Costs
Non-capital costs associated in the setup of a
new store are expensed in the period in which
they are incurred.
(w) Training Subsidies
Government subsidies for employees undertaking
external traineeships are treated as income in the
period they are received and after all costs to
which they relate have been incurred.
(x) Cost of Sales
The Group includes 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 28 June 2020 reporting period, certain
accounting estimates and judgements were
made in relation to the following:
(i) Impairment of store assets
The Group offers a wide range of discount variety
merchandise through its network of 354 stores
and store assets, including the right-of-use asset,
which represents one of the largest amounts on
the Consolidated Balance Sheet.
The assessment of impairment on store assets is a
critical estimate and judgment. 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. The
Group considers the ongoing COVID-19 pandemic
and the impairment noted at 30 June 2019 to be
impairment indicators at 28 June 2020.
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 CGU 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 and right-of-use assets.
The recoverable amount is defined as the higher
of the asset’s fair value less costs of disposal or its
value in use. The Group determines value in use
by making 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
estimates and judgments made in the impairment
test and assumptions outlined above. Changes to
these assumptions could result in a different
outcome or impairment of assets done in the
future. Refer to Note 8 for details.
(ii) Impairment of corporate and distribution
centre assets
The Group considers the ongoing COVID-19
pandemic and the impairment noted at 30 June
48
Note 1: Summary of significant
accounting policies continued
(aa) Critical Accounting Estimates and
Judgements continued
2019 to be impairment indicators at 28 June 2020.
As a result, corporate and distribution centre
assets, including right-of-use 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, having 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 and estimates 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.
(iii) Determining the lease term for the lease
liability
In determining the lease term, management
considers all facts and circumstances that create
an economic incentive to exercise an extension
option, or not exercise a termination option.
Extension options are only included in the lease
term if the lease is reasonably certain to be
extended (or not terminated). For leases of
distribution centres and retail stores, the following
factors are most relevant:
–
–
If there are significant penalties to terminate
(or not extend), the Group is typically
reasonably certain to extend (or not
terminate).
If any leasehold improvements are expected
to have a significant remaining value, the
Group is typically reasonably certain to
extend (or not terminate).
– Otherwise, the Group considers other factors
including historical lease durations and the
costs and business disruption required to
replace the leased asset.
Company policy is not to exercise extension
options, unless there is a site-specific rationale for
doing so.
The lease term is reassessed if an option is
actually exercised (or not exercised) or the Group
becomes obliged to exercise (or not exercise) it.
The assessment of reasonable certainty is only
revised if a significant event or a significant
change in circumstances occurs, which affects
this assessment, and that is within the control of
the Group.
(iv) Net realisable value of inventory
The net realisable value of inventories is the
estimated selling price in the ordinary course of
business less estimated costs to sell. The key
assumptions require the use of management
judgement. These key assumptions are the
variables affecting the expected selling price.
Any reassessment of the selling price in a
particular period will affect the cost of goods
sold.
This provision is calculated by applying an
assumed percentage markdown to the inventory
on hand at year end. The specific write-down
amount depends, in part, on the age of the
inventory and incorporates information on known
loss-making products. The judgement on this
estimate is further informed by:
–
–
–
the Group’s view of current inventory profile
and historical data on the margins achieved;
inventory items held at year end which have
been sold below cost during the period ended
28 June 2020 or after 28 June 2020 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 the year;
and
–
short term changes to consumer preferences
as a result of the COVID-19 pandemic.
(v) Provisioning for shrinkage expense
The Group provides for shrinkage expense for the
period by applying an estimated shrink loss
percentage to the sales since the date of the last
stock count to period-end, on a store-by-store
basis. Stock counts are performed across stores to
calculate the estimated shrink loss percentage
for the whole store network. This estimate includes
stock count information obtained from counts
performed during the financial period and those
completed post period-end. Factors that could
impact the estimated provision include the
length of the time period since a store last
completed a stock take or a change in the
actual stocktake results ultimately recognised.
There are no other accounting estimates or
judgements within these accounts which have a
significant effect on the amounts recognised in
the financial report.
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
(ab) New standards and interpretations adopted by the Group
(i) New and amended standards adopted by the Group
The following new or amended standards became applicable for the current reporting period:
– AASB 16 Leases – For details on the new standard and the adjustment recognised on adoption, see
Note 1 (ab)(ii).
– AASB Interpretation 23 Uncertainty over Income Tax Treatments – The Interpretation clarifies how to
apply the recognition and measurement requirements in AASB 112 Income Taxes when there is
uncertainty over income tax treatments.
– Annual Improvements 2015–2017 Cycle (AASB 2018-1) – This standard makes amendments to AASB 3
Business Combinations, AASB 11 Joint Arrangements, AASB 112 Income Taxes and AASB 123 Borrowing
Costs.
The adoption of AASB Interpretation 23 Uncertainty over Income Tax Treatments and Annual Improvements
2015–2017 Cycle (AASB 2018-1) has not had a material impact on the Group.
The Group has adopted AASB 16 from 1 July 2019 but has not restated comparatives for the prior reporting
period, as permitted under the specific transitional provisions in the standard. The reclassifications arising
from the new leasing rules are therefore recognised in the balance sheet as at 1 July 2019.
(ii) Adjustments recognised on adoption of AASB 16
On adoption of AASB 16, the Group recognised lease liabilities in relation to leases which had previously
been classified as ‘operating leases’ under the principles of AASB 117 Leases. These liabilities were
measured at the present value of the remaining lease payments, discounted using the lessee’s
incremental borrowing rate on 1 July 2019 of 3.25%.
Operating lease commitments disclosed as at 30 June 2019
Discounted using the Group’s incremental borrowing rate of 3.25%
(less): adjusted as a result of Motor Vehicles and Outgoings not included in lease liability
Lease liability recognised as at 1 July 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
2019
$’000
280,869
1,092
(36,398)
245,563
88,068
157,495
245,563
The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by
the amount of any lease incentive provisions and lease escalation provisions recognised in the balance
sheet as at 30 June 2019.
The recognised right-of-use assets relate to the following types of assets:
Properties
Motor Vehicles
Total right-of-use assets
50
1 July
2019
$’000
228,313
355
228,668
Note 1: Summary of significant accounting policies continued
(ii) Adjustments recognised on adoption of AASB 16 continued
The change in accounting policy affected the following items in the balance sheet on 1 July 2019:
–
–
right-of-use assets – increase by $228,668,000;
lease liabilities – increase by $245,563,000;
– other current and non-current liabilities – decrease by $16,895,000.
In applying AASB 16 for the first time, the Group has used a single discount rate to a portfolio of leases with
reasonably similar characteristics as a practical expedient as permitted by the standard.
The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial
application. Instead, for contracts entered into before the transition date, the Group relied on its assessment
made applying AASB 117 and Interpretation 4 ‘Determining whether an Arrangement contains a Lease’.
(ac) New standards and interpretations
New standards and amendments – applicable from 1 January 2020:
– Release of 4th edition of Corporate Government Principles and Recommendations – The ASX
Corporate Governance Council (Council) has released the Fourth Edition of its Corporate Governance
Principles and Recommendations, which will take effect for a listed entity’s first full financial year
commencing on or after 1 January 2020. The changes in the Fourth Edition are designed to encourage
listed entities to commit to improving the culture and values of their organisation by clearly articulating
the principles and policies they adopt and remaining accountable to all stakeholders by monitoring
and reporting on the organisation’s performance against each standard.
The impact of the adoption of 4th edition of Corporate Government Principles and Recommendations is
currently being considered by the Group.
New standards and amendments – applicable from 1 June 2020:
– COVID-19 rent concessions – As a result of the coronavirus (COVID-19) pandemic, rent concessions
have been granted to lessees. The IASB issued amendments outlining an optional practical expedient
where lessees benefiting from these rent concessions may account for them as variable lease
payments in the periods in which they are granted.
Whilst early adoption of this amendment is available, the Group has chosen not to adopt it. The optional
practical expedient is not expected to be adopted.
Note 2: Revenue from Continuing Operations
and Other Income
Revenue from continuing operations
Sales of goods
Interest
Note 3: Expenses
Profit before income tax expense includes the following expenses:
Interest and finance charges paid/payable - borrowings
Interest and finance charges paid/payable - leases
Depreciation of owned assets and amortisation expenses included in:
Cost of sales
Store expenses
Administrative expenses
Consolidated Entity
2020
$’000
2019
$’000
820,645
793,687
17
51
820,662
793,738
Consolidated Entity
2020
$’000
567
7,141
7,708
3,302
12,817
2,366
18,485
2019
$’000
789
-
789
3,606
13,634
2,363
19,603
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
Note 3: Expenses continued
Depreciation of right- of- use assets expenses included in:
Cost of sales
Store expenses
Administrative expenses
Impairment of Corporate Cash Generating Unit assets – Plant and
Equipment and right-of-use
Impairment / (reversal of impairment) of Store Cash Generating
Unit assets - Plant and Equipment and right-of-use
Asset write offs on store closures
Rental expenses relating to operating expenses (ii)
Minimum lease payments
Provision for onerous leases
Provision for rent escalation
Employee benefits expense (i)
New store opening costs (inc. refurbishments and defits)
Consolidated Entity
2020
$’000
2019
$’000
6,214
87,761
891
94,866
-
-
-
-
15,000
727
727
594
-
-
-
170,801
1,436
6,941
21,941
413
121,545
273
1,595
172,958
1,291
(i) Included within employee benefits expense are redundancy and termination costs of $1,898,000 (FY2019 : $79,000).
(ii) For details on the adoption of AASB 16 Note 1(aa).
Note 4: Income Tax Expense
(a) Income tax expense
Current tax
Deferred tax
Under provided in prior years
Consolidated Entity
2020
$’000
2019
$’000
4,790
(4,284)
-
506
521
(7,743)
48
(7,174)
Deferred income tax expense included in income tax expense comprises:
(Increase) in net deferred tax assets
(4,284)
(7,743)
(b) Numerical reconciliation of income tax expense to prima facie
tax payable
Profit / (Loss) 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 (income)
Under provided in prior years
Income Tax Expense (income)
52
1,626
488
(24,073)
(7,222)
18
506
-
506
-
(7,222)
48
(7,174)
Note 4: Income Tax Expense continued
(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
Cash on hand
Cash at bank
Note
21
21
Note 6: Current Assets – Inventories
Inventory at cost
Inventory at net realisable value
Consolidated Entity
2020
$’000
2019
$’000
244
(139)
3,447
1,014
Consolidated Entity
2020
$’000
1,546
90,943
92,489
2019
$’000
1,643
24,665
26,308
Consolidated Entity
2020
$’000
65,345
5,505
70,850
2019
$’000
107,675
3,116
110,791
Inventories recognised as an expense during the period ended 28 June 2020 amounted to $415,868,000
(FY2019: $393,922,000). These were included in the cost of sales. Write-downs of inventories to net
realisable value amounted to $6,147,000 (FY2019: $2,337,000). These were recognised as an expense
during the period ended 28 June 2020 and included in cost of sales.
Note 7: Current Assets – Other
Prepayment
Other current assets (i)
Consolidated Entity
2020
$’000
1,765
4,864
6,629
2019
$’000
1,486
759
2,245
(i) Other current assets include a deposit held of $2,462,000 against certain open hedge contracts at 28 June 2020
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
Consolidated Entity
2020
$’000
2019
$’000
84,539
(66,422)
18,117
158,931
(125,771)
33,160
84,894
(60,754)
24,140
161,954
(125,119)
36,835
Total Property, Plant and Equipment
51,277
60,975
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
Note 8: Non-Current Assets – Property, plant and equipment continued
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 30 June 2019
Additions at cost
Asset write offs for store closures
Impairment
Depreciation/amortisation expense
Balance at 28 June 2020
Balance at 1 July 2018
Additions at cost
Asset write offs for store closures
Impairment
Depreciation/amortisation expense
Balance at 30 June 2019
Leasehold
improvements
$’000
Consolidated Entity
Plant and
equipment
$’000
Total $’000
24,140
2,246
(730)
(265)
(7,274)
18,117
36,835
9,330
(1,332)
(462)
(11,211)
33,160
60,975
11,576
(2,062)
(727)
(18,485)
51,277
Leasehold
improvements
$’000
Consolidated Entity
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
Total
$’000
92,513
11,439
(1,433)
(21,941)
(19,603)
60,975
Impairment testing of property, plant and equipment (PP&E) and right-of-use assets
The Group’s property, plant and equipment assets comprise assets located at specific stores, distribution
centres and at the corporate office. Right-of-use assets are included in the impairment assessment for the
first time on adoption of AASB 16 Leases.
The Group assesses these assets and the right-of-use assets (see Note 9) for indicators of impairment at
each reporting date in accordance with AASB 136 Impairment of Assets. The Group considered the
impairment recognised at 30 June 2019 and the ongoing impact of the COVID-19 pandemic to be
indicators of impairment at 28 June 2020.
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 stores CGU using
a value-in-use (VIU) discounted cash flow model. The model uses cash flow projections based on forecasts
approved by the Board.
For testing of the distribution centres and corporate assets, the Group determined a CGU comprising their
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 the
Board-approved budget for the financial year 2021 and management forecasts thereafter. Cash flows
beyond the five year period were extrapolated using a terminal growth rate.
In preparing the forecasts for the impairment testing, the Group has considered the current impact of the
COVID-19 pandemic on the Australian economy and the retail sector, including near term anticipated
easing of restrictions. However, the future impact of the COVID-19 pandemic on the Group, including
future government restrictions, is currently unknown.
54
Note 8: Non-Current Assets – Property, plant and equipment continued
The key assumptions used in the CGU models were:
Key assumption
2020
Approach to determine value
Post-tax
discount rate
10.0%
The post-tax discount rate is calculated from observable market information
with consideration for the COVID-19 pandemic and is risk adjusted relative to
the risks associated with the net post-tax cash flows being achieved.
Terminal
growth rate
1.40%
The terminal growth rate for the Corporate GCU is estimated by the Group
and having regard to long-term industry and economic forecasts.
Average sales
growth rate
2.5%
The sales growth rate is based on the Board-approved budget for the
financial year 2021 and management forecasts thereafter, which reflects
past performance and the Company’s expectations.
During the year, the Group recognised an impairment of $727,000 (FY2019: $6,941,000) in relation to
underperforming stores and $Nil for the corporate CGU (FY2019: $15,000,000).
Note 9 : Leases
Right-of-use assets
Property
Vehicles
Included within right-of-use assets were additions of $42,962,000 during the year.
Lease Liabilities
Current
Non-current
Reconciliation
Opening lease liabilities recognised on adoption of AASB 16 on 1 July 2019
Additional leases entered into during the year
Interest on leases
Lease repayments (i)
Balance at 28 June 2020
Consolidated Entity
2020
$’000
2019
$’000
172,533
165
172,698
83,557
110,165
193,722
245,563
42,904
7,141
(101,886)
193,722
-
-
-
-
-
-
-
-
-
-
-
(i) Excludes payments made for short term leases of $3,299,000 included in cost of goods sold and administrative expenses.
The Group assesses these right-of-use assets with property, plant and equipment for indicators of impairment
at each reporting date in accordance with AASB 136 Impairment of Assets. For details of this assessment see
Note 8.
In the previous year, the Group only recognised lease assets and lease liabilities in relation to leases that
were classified as ‘finance leases’ under AASB 117 Leases. For adjustments recognised on adoption of AASB
16 on 1 July 2019, refer to Note 1.
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
Note 10: Non-Current Assets – Deferred tax assets
The balance comprises temporary differences attributable to:
Amounts recognised in profit or loss
Employee benefits
Lease escalation
Lease liabilities
Inventories
Derivative financial instruments
Lease incentives
Depreciation and impairment
Other provisions and accruals
Employee share trust
Tax losses
Sundry items
Set-off of deferred tax liabilities of consolidated entity pursuant to set-off
provisions:
Depreciation
Receivables
Other current assets
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
Consolidated Entity
2020
$’000
2019
$’000
5,151
-
6,307
771
2,814
-
13,093
1,608
438
-
3
3,683
3,027
-
1,800
-
2,042
11,267
736
29
291
0
30,185
22,875
(1,804)
(1,981)
(27)
(183)
-
28,171
12,973
15,198
28,171
Other
$’000
8,018
7,637
-
(310)
15,345
3,845
-
244
(66)
-
(632)
20,196
6,794
13,402
20,196
Total
$’000
11,749
7,743
1,014
(310)
20,196
4,284
3,447
244
Movements – Consolidated Entity
At 1 July 2018
(Charged) / credited:
- to profit or loss
- to other comprehensive income
- direct to equity
At 30 June 2019
(Charged) / credited:
- to profit or loss
- to other comprehensive income
- direct to equity
At 28 June 2020
56
Employee
Benefits
$’000
Inventories
$’000
3,730
1,647
Hedging
Reserve
$’000
(1,646)
(47)
-
-
153
-
-
3,683
1,800
1,468
(1,029)
-
-
-
-
-
1,014
-
(632)
-
3,447
-
5,151
771
2,815
19,434
28,171
Note 11: Current Liabilities – Payables
Trade payables
Payroll tax and other statutory liabilities
Sundry payables and accruals
Note 12: Current Liabilities – Borrowings
Loan Facility - Cash advance (i)
Consolidated Entity
2020
$’000
34,833
5,917
4,292
45,042
2019
$’000
29,916
7,790
6,121
43,826
Consolidated Entity
2020
$’000
-
-
2019
$’000
19,500
19,500
(i) Interest rate of Nil (2019: 2.245%) is applied to the cash advance at year end.
In February 2020, the Group agreed to new banking facilities with ANZ Bank. The limit for the
interchangeable facility was reduced from $25 million to $10 million while the limit for the seasonal facility
remained unchanged at $20 million. The seasonal facility can only be drawn between October and
December each year and the Group is required to deposit $5 million with ANZ Bank when the seasonal
facility is drawn.
In August 2020, subsequent to period-end, the Group agreed to extend its new banking facilities with ANZ
Bank from 31 March 2021 to 31 August 2021. The Group will be required to maintain a fixed charge cover
ratio of 1.15 as at the balance dates ending 30 September and 31 December 2020 and a fixed charge
cover ratio of 1.20 as at the balance dates ending 31 March and 30 June 2021. Prior to declaring any
dividends the company is required to obtain consent from ANZ Bank.
The Group has fully complied with all of its financial covenants at 28 June 2020. During the prior period,
the Group breached its covenant requirements and obtained a waiver from ANZ Bank of the fixed charge
cover ratio for the 30 June 2019 and 30 September 2019 compliance dates.
All secured liabilities listed within Notes 12 and 21, including bank overdraft and bank loans, finance
purchases and hire purchase agreements, are secured by a Cross Guarantee and Indemnity between The
Reject Shop Limited and TRS Trading Group Pty Ltd supported by:
– First Registered Company Charge (Mortgage Debenture) over all the assets and undertakings of The
Reject Shop Limited. This is a fixed and floating charge over all present and future assets, undertakings
(including goodwill); and unpaid/uncalled capital of the Company.
– First Registered Company Charge (Mortgage Debenture) over all the assets and undertakings of TRS
Trading Group Pty Ltd. This is a fixed and floating charge over all present and future assets,
undertakings (including goodwill); and unpaid/uncalled capital of the Company.
– Letter of Set Off by and on account of The Reject Shop Limited and TRS Trading Group Pty Ltd.
Note 13: Liabilities – Provisions
Onerous leases (i)
Provision for make good
Employment entitlements
2020
Non
Current
$’000
-
526
2,878
3,404
Current
$’000
-
-
11,795
11,795
Consolidated Entity
Total
$’000
Current
$’000
-
526
174
-
14,673
15,199
10,167
10,341
2019
Non
Current
$’000
206
-
2,724
2,930
Total
$’000
380
-
12,891
13,271
(i) Prior period onerous lease provisions were recognised against the ROU asset on adoption of AASB16.
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
Note 13: Liabilities – Provisions continued
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 where employees are entitled to pro-rata payments in certain
circumstances. The entire amount of the provision for annual leave is presented as current, since the Group
does not have an unconditional right to defer settlement for any of these obligations. The provision for long
service leave has both a current and non-current portion. However, based on past experience, the Group
does not expect all employees to take the full amount of accrued leave or require payment within the next
12 months. Expected future payments are discounted using appropriate market yields at the end of the
reporting period that match, as closely as possible, the estimated future cash outflows. The following
amounts reflect leave that is not expected to be taken or paid within the next 12 months.
Leave obligations expected to be settled after 12 months
Note 14: Current Liabilities - Other
Accrued expenses
Deferred income (i)
Rent escalation (i)
Consolidated Entity
2020
$’000
5,996
2019
$’000
5,484
Consolidated Entity
2020
$’000
9,519
1,892
-
2019
$’000
6,435
2,203
1,968
11,411
10,606
(i) Prior period rental escalation and leasehold incentive liabilities were recognised against the ROU asset on adoption of the
AASB16.
Note 15: Non-Current Liabilities – Other
Deferred income (i)
Rent escalation (i)
Consolidated Entity
2020
$’000
-
-
-
2019
$’000
4,671
8,122
12,793
(i) Prior period rental escalation and leasehold incentive liabilities were recognised against the ROU asset on adoption of the
AASB16.
Note 16: Contributed Equity
Movements in ordinary share capital - Consolidated Entity
Date
Details
1 July 2018
Balance
23 August 2018 Exercise of performance rights
30 June 2019
Balance
27 March 2020
Issue of ordinary shares net of
transaction costs (i)
28 June 2020
Balance
Number of
issued shares
Issue price per
share $
Contributed
Equity $‘000
28,859,548
48,600
28,908,148
9,268,474
38,176,622
-
-
-
$2.70
-
46,247
-
46,247
24,079
70,326
(i) On 27 March 2020, the Group completed its 1 for 3.12 traditional non-renounceable pro rata entitlement offer for fully paid
ordinary shares at an offer price of $2.70. The entitlement offer resulted in the issue of 9,268,474 fully paid ordinary shares
and raised proceeds of approximately $25,025,000 or approximately $24,079,000 net of transaction costs
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.
58
Note 17: 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
Deferred tax – share based payments
Balance at end of period
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
Consolidated Entity
2020
$’000
739
4,553
(6,566)
34
(1,240)
4,004
305
244
4,553
1,476
(1,476)
(6,566)
(6,566)
(1)
35
34
2019
$’000
739
4,004
1,476
(1)
6,218
4,321
(178)
(139)
4,004
3,841
(3,841)
1,476
1,476
12
(13)
(1)
(i) Share-based payments reserve
The share-based payments reserve is used to recognise the fair value of performance rights issued.
(ii) Hedging reserve – cash flow hedges
The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that
are recognised directly in equity, as described in Note 22. Amounts accumulated in equity are included in
the cost of the hedged item when the forecast purchase that is hedged takes place.
(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.
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
Note 18: Equity – Retained Profits
Retained profits at the beginning of the financial period
Net profit / (loss) attributable to members of the consolidated entity
Dividends provided for or paid
Retained profits at end of financial period
Consolidated Entity
2020
$’000
72,857
1,120
-
73,977
2019
$’000
95,826
(16,899)
(6,070)
72,857
Note 19: Commitments
The consolidated entity has capital commitments totalling $4,225,036 (FY2019: $5,368,090) all payable
within one year.
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
2020
$’000
2019
$’000
-
-
-
-
104,799
163,712
12,358
280,869
Operating leases primarily relate to retail stores over a two to five-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 28 June 2020 for percentage rent was
$319,873 (FY2019: $83,461).
For detail on the adoption of AASB 16 see Note 1.
Note 20: Contingent Liabilities
As at 28 June 2020, the Group has no contingent liabilities (30 June 2019: $Nil).
60
Note 21: Consolidated Statement of Cash Flow Information
Reconciliation of Cash Flow from operating activities with (loss) / profit
after income tax from ordinary activities
Profit (loss) from ordinary activities after Income Tax
1,120
(16,899)
Non cash items in profit / (loss) from ordinary activities
Consolidated Entity
2020
$’000
2019
$’000
Depreciation – owned assets
Depreciation – right of use assets
Impairment of corporate assets
Impairment of store assets
Asset write offs on store closures
Provision for onerous leases
Non cash share-based expense
Tax credited / (debited) directly to equity
Changes in assets and liabilities:
(increase) / Decrease in receivables and other assets
Decrease / (increase) in inventories
Decrease in right-of-use assets net of lease liabilities
(Decrease) / increase in trade and other creditors and
other provisions
Increase / (decrease) in income tax payable
(Increase) in deferred tax assets
Net cash provided by operations
18,485
94,866
-
727
594
-
305
244
(4,384)
39,941
21,024
(4,559)
6,991
(7,974)
167,380
19,603
-
15,000
6,941
413
273
(178)
(139)
1,178
(5,704)
-
1,087
(4,298)
(8,447)
8,830
Reconciliation of cash
Cash at the end of the financial period as shown in the statements of cash flows is reconciled to the
related items in the consolidated balance sheets as follows:
Cash on hand
Cash at bank
Consolidated Entity
2020
$’000
1,546
90,943
92,489
2019
$’000
1,643
24,665
26,308
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
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)
Seasonal facility (ii)
Other Facilities (iii)
Total Facilities
Consolidated Entity
2020
Limit
$’000
10,000
-
550
10,550
Utilised
$’000
-
-
460
460
2019
Limit
$’000
25,000
-
800
Utilised
$’000
19,500
-
471
25,800
19,971
(i) The interchangeable facility may be allocated to the following sub-facilities: documentary credit issuance/documents
surrendered facility, foreign currency overdraft facility and Loan facility.
(ii) A seasonal facility of $20,000,000 was utilised from 1 October 2019 and repaid in full by 31 December 2019. Under the new
banking facilities agreed with ANZ Bank in February 2020 (see Note 12), the Group is required to deposit $5 million with ANZ
Bank when the seasonal facility is drawn.
(iii) Other facilities include an ANZ Bank indemnity guarantee of $550,000 of which $460,000 was utilised in relation to property
leases at 28 June 2020.
Note 22: Financial Instruments and Financial Risk Management
Derivative Financial Instruments
Consolidated Entity
2020
$’000
2019
$’000
Current assets and (liabilities)
Forward foreign exchange contracts – cash flow hedges
(9,382)
2,107
Forward exchange contracts – cash flow hedges
The Group imports product from overseas. In order to protect against exchange rate movements, the
Group 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:
Consolidated Entity
Average Exchange Rate
Sell
Buy
2020
$’000
2019
$’000
Australian Dollars
United States Dollars
240,695
115,976
Australian Dollars
Euros
1,028
817
2020
$
0.66
0.58
2019
$
0.72
0.61
The Company’s United States Dollars (USD) forward exchange contracts include US$121,000,000 of forward
contracts as well as a number of option contracts.
The USD to be delivered at settlement of these option contracts is contingent on the USD spot rate at the
time of settlement. If the USD spot rate at settlement is below the exercise price of each of these option
contracts, the aggregate amount of USD to be delivered at settlement under all of these contracts would
be US$19,500,000 (the “Lower Amount”).
62
Note 22: Financial Instruments and Financial Risk Management continued
If the USD spot rate at settlement is above the exercise price of each of these option contracts, the
aggregate amount of USD to be delivered at settlement under all of these contracts would be
US$38,500,000 (the “Higher Amount”), which is approximately double the Lower Amount.
The table above shows the Australian Dollar Equivalent of the USD forward exchange contracts
outstanding at 28 June 2020 of $240,694,507. This is the Australian Dollar Equivalent of USD forward
exchange contracts totalling US$159,500,000, which include: forward contracts of US$121,000,000 and
option contracts of US$38,500,000 (being the Higher Amount given the current USD spot rate is above the
exercise price of each of the option contracts at 28 June 2020).
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 Group adjusts the initial
measurement of the component recognised in the balance sheet by the related amount deferred in
equity.
At the balance date the revaluation of these contracts to fair value resulted in a liability of $9,381,529
(FY2019: asset of $2,107,361).
During the period $1,475,152 (FY2019: $3,840,576) was transferred from equity and included in inventory
and a net gain of $Nil (FY2019: net $Nil) was transferred to the consolidated profit and loss.
Exposure to Foreign Currency Risk
The Group’s exposure to foreign currency risk at the end of the reporting period was as follows:
Cash at bank
Trade payables
Consolidated Entity
2020
USD
3,302
5,747
2019
USD
1,323
8,275
Forward exchange contracts – Balance Date Sensitivity Analysis
The following table summarises the sensitivity of the Group as at balance date to movements in the value
of the Australian Dollar compared to the United States Dollar, the principal currency that the Group has an
exposure to. The sensitivity analysis as at balance date relates to the conversion of the United States Dollar
foreign currency bank account and foreign currency payables and the impact on other components of
equity arises from foreign forward exchange contracts designated as cash flow hedges as follows:
Sensitivity Analysis – foreign exchange AUD/USD
For every 1c increase in AUD:USD rate, total exposures decrease by
Income Statement
Equity
For every 1c decrease in AUD:USD rate, total exposures (increase) by
Income Statement
Equity
Consolidated Entity
2020
$’000
2019
$’000
51
(3,221)
139
(1,664)
(52)
3,246
(143)
1,712
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
Interest Rate Risk
The Group’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:
Weighted
Average
Effective
Interest Rate
Floating
Interest Rate
$’000
0.04%
82,103
2.21%
-
82,103
-
-
-
Weighted
Average
Effective
Interest Rate
Floating
Interest Rate
$’000
0.23%
22,148
-
22,148
Consolidated Entity
Fixed Interest
Rate Maturing
within
1 Year
$’000
Fixed
Interest Rate
Maturing
1 to 5 Years
$’000
-
-
-
-
-
-
-
-
-
-
Non-Interest
Bearing
$’000
Total
$’000
10,386
92,489
2,462
12,848
2,462
94,951
49,903
49,903
193,722
193,722
243,625
243,625
Consolidated Entity
Fixed Interest
Rate Maturing
within
1 Year
$’000
Fixed
Interest Rate
Maturing
1 to 5 Years
$’000
Non-Interest
Bearing
$’000
Total
$’000
-
-
-
-
-
-
-
-
-
4,159
26,308
-
-
4,159
26,308
-
19,500
49,814
49,814
49,814
69,314
2.92%
-
-
-
19,500
-
19,500
2020
Financial Assets
Cash
Receivables and other
debtors
Total Financial Assets
Financial Liabilities
Bank loans and
overdrafts
Trade, sundry and other
creditors
Lease liabilities
Total Financial Liabilities
2019
Financial Assets
Cash
Receivables and other
debtors
Total Financial Assets
Financial Liabilities
Bank loans and
overdrafts
Trade, sundry and other
creditors
Total Financial Liabilities
64
Note 22: Financial Instruments and Financial Risk Management continued
The following table summarises the sensitivity of the Group to movements in interest rates by applying
changes in interest rates to the average levels of financial assets and liabilities carried by the Group 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
Consolidated Entity
2020
$’000
2019
$’000
424
-
(93)
-
(66)
-
(59)
-
Credit Risk
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 Group does not have any material credit risk exposure to any single debtor or group of debtors under
financial instruments entered into by the Group.
Capital Risk Management
The Group’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 2020, the Group’s strategy, which was unchanged from 2019, was to maintain a gearing ratio at or
below 30%. The gearing ratio at 28 June 2020 and 30 June 2019 were as follows:
Net debt/ (cash)
Total equity
Net debt to equity ratio (i)
Consolidated Entity
2020
$’000
(92,489)
143,063
0%
2019
$’000
(6,808)
125,322
0%
(i) The Group has no net debt so debt to equity ratio is not applicable.
Liquidity Risk
The Group 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.
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
The tables below analyses the Group’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.
Consolidated Entity –
At 28 June 2020
Less than 6
months
$’000
6 – 12
months
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over 5
years
$’000
Total
contractual
cash flows
$’000
Carrying
Amount
(assets) /
liabilities
$’000
Non-derivatives
Non-interest
bearing
(including lease
liabilities)
Variable rates
Fixed rate
Total
non-derivatives
Derivatives
Net settled
Gross settled
- (inflow)
- outflow
110,373
42,286
59,763
49,787
4,777
266,986
256,347
-
-
-
-
-
-
-
-
-
-
-
-
-
-
110,373
42,286
59,763
49,787
4,777
266,986
256,347
-
-
-
(102,699)
(41,549)
2,960
102,819
50,280
(2,429)
-
-
-
-
-
-
-
-
-
(141,288)
150,670
-
-
-
9,382
9,382
Total derivatives
120
8,731
531
Consolidated Entity –
At 30 June 2019
Less than 6
months
$’000
6 – 12
months
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
Over 5
years
$’000
Total
contractual
cash flows
$’000
Carrying
Amount
(assets) /
liabilities
$’000
Non-derivatives
Non-interest
bearing
Variable rates
Fixed rate
Total
non-derivatives
Derivatives
Net settled
Gross settled
- (inflow)
- outflow
Total derivatives
54,346
-
19,500
73,846
-
-
-
-
-
-
(115,352)
(3,548)
113,220
(2,132)
3,573
25
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
54,346
54,346
-
-
19,500
19,500
73,846
73,846
-
(118,900)
116,793
-
-
-
(2,107)
(2,107)
66
Note 22: Financial Instruments and Financial Risk Management continued
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)
(c)
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
inputs for the asset or liability that are not based on observable market data (unobservable
inputs) (level 3).
No financial assets and financial liabilities are readily traded on organised markets in standardised form
other than listed investments, forward exchange contracts and interest rate swaps.
The following table presents the entity’s assets and liabilities measured and recognised at fair value.
Derivatives used for hedging
Net Debt Reconciliation
Cash and cash equivalents
Borrowings repayable within 1 year (including overdraft)
Net cash / (debt)
Cash and liquid investments
Gross debt – fixed interest rate
Net cash / (debt)
Balance as at 1 July 2018
Cash flows
Foreign exchange adjustments
Balance at 30 June 2019
Cash flows
Foreign exchange adjustments
Balance at 28 June 2020
Consolidated Entity
2020
$’000
Level 2
(9,382)
2019
$’000
Level 2
2,107
Consolidated Entity
2020
$’000
92,489
2019
$’000
26,308
-
(19,500)
92,489
92,489
6,808
26,308
-
(19,500)
92,489
6,808
Consolidated Entity
Borrowings due within 1 year
$’000
-
(19,500)
-
(19,500)
19,500
-
-
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
Note 23: Key Management Personnel Disclosures
Non-Executive Directors
Steven Fisher
(Chairman) (Appointed 1 October 2019)
Selina Lightfoot
Michele Teague
Nicholas Perkins
(Appointed 1 May 2020)
David Grant
(Appointed 1 May 2020)
Jack Hanrahan
(Resigned 15 October 2019)
William J Stevens
(Retired 16 October 2019)
Zachary Midalia
(Resigned 30 April 2020)
All of the above persons were directors of The Reject Shop Limited for the entire period ended 28 June
2020, unless otherwise stated.
Other Key Management Personnel
The following persons had authority and responsibility for planning, directing, and controlling the activities
of the Group directly or indirectly during the financial period:
andre Reich
– Chief Executive Officer (commenced on 13 January 2020)
Dani aquilina
– Acting Chief Executive Officer (commenced on 23 May 2019 and concluded on
12 January 2020)
Darren Briggs
– Chief Financial Officer (left the Company on 30 April 2020)
– Chief Operating Officer (commenced on 13 January 2020)
All of the above persons were employed by The Reject Shop Limited and were key management personnel
for the entire period ended 28 June 2020 unless otherwise stated.
As indicated in the Annual Report for 2018/2019, the Company conducted a review of the key
management personnel. Following that review, the Board has determined that, from 1 July 2019, not all
members of the leadership team will meet the definition of key management personnel.
Remuneration of Directors and Key Management Personnel
Short-term cash rewards
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
Consolidated Entity
2020
$
168,390
2019
$
-
1,888,215
3,962,160
96,641
115,427
253,282
2,521,955
197,829
537,070
(175,474)
4,521,585
No other long-term or termination benefits were paid or payable with respect to the current or prior period.
68
Note 24: Share-based payments
Performance Rights Plan (PRP)
The PRP is the basis of The Reject Shop Limited’s long-term reward scheme for selected senior employees.
In summary, eligible employees identified by the Board may be granted performance rights, which is an
entitlement to a share subject to satisfaction of exercise conditions on terms determined by the Board.
The details of all grants made and outstanding for each financial period are detailed in the tables below:
2020 - Consolidated Entity
Date of Grant
Expiry Date
Date
Exercisable
Fair Value
at Grant
Date
$’s
Balance
At Start of
Period
Granted
During
Period
Exercised
During
The
Period
19 Oct 2017
18 Oct 2021
1 Jul 2020
3.86
138,500
18 Oct 2018
17 Oct 2022
1 Jul 2021
1 Sep 2019
31 Aug 2022
31 Aug 2020
1 Sep 2019
31 Aug 2022
31 Aug 2021
18 Oct 2019
16 Oct 2023
1 Jul 2022
13 Jan 2020
12 Jan 2025
14 Jan 2023
13 Jan 2020
12 Jan 2026
14 Jan 2024
13 Jan 2020
12 Jan 2027
14 Jan 2025
25 Mar 2020
26 Mar 2025
27 Mar 2023
1.84
1.83
1.74
2.07
1.91
1.82
1.74
4.05
102,000
-
-
-
-
-
-
-
-
-
75,000
75,000
168,000
150,000
75,000
75,000
150,000
Total
240,500
768,000
-
-
-
-
-
-
-
-
-
-
Lapsed,
forfeited
or
cancelled
during The
Period
(138,500)
Balance
at End of
The
Period
-
(74,000)
28,000
-
-
75,000
75,000
(80,400)
87,600
-
-
-
-
150,000
75,000
75,000
150,000
(292,900)
715,600
2019 - Consolidated Entity
Date of Grant
Expiry Date
Date
Exercisable
14 Oct 2015
14 Oct 2019
1 Jul 2018
20 Oct 2016
19 Oct 2020
1 Jul 2019
19 Oct 2017
18 Oct 2021
1 Jul 2020
18 Oct 2018
17 Oct 2022
1 Jul 2021
Fair Value
at Grant
Date
$’s
8.62
6.58
3.86
1.84
Balance
At Start of
Period
Granted
During
Period
48,600
104,500
326,700
-
-
-
-
270,900
Lapsed,
forfeited
or
cancelled
during The
Period
-
(104,500)
Balance
at End of
The
Period
-
-
(188,200)
138,500
(168,900)
102,000
Exercised
During
The
Period
(48,600)
-
-
-
Total
479,800
270,900
(48,600)
(461,600)
240,500
Vested
and
Exercis-
able At
The End
of Period
-
-
-
-
-
-
-
-
-
Vested
and
Exerci-
sable At
The End
of Period
-
-
-
-
-
For the grants made during the year the fair value was determined using Black-Scholes option pricing
model taking into account the following inputs:
Date of new grants
Exercise price
Share price at grant date $
Expected dividend yield
Risk free rate
18 Oct 2018
1 Sep 2019
18 Oct 2019
13 Jan 2020
25 Mar 2020
-
2.63
5.2%
2.5%
-
1.93
5.2%
3.0%
-
2.33
4.3%
3.0%
-
2.19 (i)
4.6%
3.0%
-
4.35
2.3%
3.0%
(i) Share price based on date of signing of contract and market announcement of CEO appointment.
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
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.
On 17 July 2020 (subsequent to the period end), the Company vested 50,000 performance rights to Darren
Briggs, which were exercised on 20 July 2020. The fair value of the performance rights at the grant date on
1 September 2019 was $89,314. Otherwise there have been no performance rights granted or vested to key
management personnel subsequent to the period end.
Remuneration Expense / (Income) arising from share-based payment transactions
Performance rights granted
Note 25 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
Tax Compliance and Consulting Services
Tax compliance
Tax consulting advice
Total remuneration
Note 26: Dividends
Dividend declared subsequent to the period end.
Balance of franking account at period end adjusted for franking credits
arising from payment of provision for income tax and dividends recognised
as receivables, franking debits arising from payment of proposed dividends
and any credits that may be prevented from distribution in subsequent
periods based on a tax rate of 30%
Consolidated Entity
2020
$
2019
$
305,338
(177,440)
Consolidated Entity
2020
$
2019
$
425,720
43,615
469,335
44,136
37,500
81,636
550,971
374,000
50,613
424,613
40,500
59,400
99,900
524,513
Consolidated Entity
2020
$
-
2019
$
-
55,724
51,328
Dividends recognised during the reporting period:
There were no dividends paid to members during the financial period FY2020 (FY2019 interim ordinary
dividend of 10.0 cents per share totalling $2,890,815 paid on 8 April 2019).
70
Note 27: Earnings per share
Basic earnings per share
Diluted earnings per share
Consolidated Entity
2020
Cents
3.6
3.5
2019
Cents
(58.5)
(58.5)
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share.
Adjustments for dilutive portion of performance rights
31,276,192
28,901,072
372,952
-
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share.
31,649,144
28,901,072
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 24.
Note 28: Net Tangible Assets
Net tangible asset backing per ordinary share (i)
(i) Net tangible assets backing per ordinary share includes right-of-use assets.
Note 29: Parent Entity Financial Information
(a) Summary financial information
The individual financial statements for the parent entity show the
following aggregate amounts:
Balance Sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Issued capital
Reserves
Retained earnings
Profit / (Loss) for the financial period
Consolidated Entity
2020
Cents
374.7
2019
Cents
433.5
Parent Entity
2020
$’000
2019
$’000
156,947
409,056
154,427
267,468
70,326
(1,122)
72,384
141,588
963
144,355
225,415
85,677
101,397
46,247
6,202
71,569
124,018
(17,101)
Total Comprehensive Loss for the financial period
(7,079)
(19,466)
(b) Guarantees entered into by the parent entity
Carrying amount included in current liabilities
-
-
Refer to Notes 19 and 20 for disclosures concerning contingent liabilities and contractual commitments
for the parent entity.
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The Reject Shop | Annual Report 2020
NOTES TO FiNaNCiaL CONSOLi DaTED STaTEMENTS CONTINUED
Note 30: Segment information
The Reject Shop operates within one reportable segment (retailing of discount variety merchandise).
Total revenues of $820,645,000 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 31: Subsidiaries
The Reject Shop Limited has a 100% owned operating subsidiary based in Hong Kong, TRS Sourcing Co.
Limited. This subsidiary provided procurement services for TRS Limited and charged a fee for those
services.
Fees paid to TRS Sourcing Co. Limited
2020
$’000
1,717
2019
$’000
2,355
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 (2019: Nil).
In addition, The Reject Shop Limited has effective control over The Reject Shop Limited Employee Share
Trust which administers shares issued through the Company’s Performance Rights Plan. This entity is also
consolidated.
Note 32: Matters Subsequent to the End of the Financial Period
In August 2020, subsequent to period-end, the Group agreed to extend its banking facilities with ANZ Bank
from 31 March 2021 to 31 August 2021. Refer to Notes 12 and 21 for further information.
The COVID-19 pandemic continues to impact the Australian economy and retail sector. During July and
August 2020, various State governments in Australia implemented new restrictions, which vary by State.
While the future impact and duration of the COVID-19 pandemic (and any associated State government
restrictions) on the Company is currently unknown, the pandemic may affect the Company’s operations
and results.
No other matters or circumstances have arisen since the end of the financial period which have
significantly affected or may significantly affect the operations of the Group, the results of those
operations, or the state of affairs of the Group in future financial periods.
Note 33: Related Party Transactions
During the year the Group transacted with a related party of Kin Group to purchase goods. Transactions
totaled $9,415. All transactions were on a commercial, arms-length basis.
There were no other related party transactions, other than those with KMPs in the normal course of
business, during the period ended 28 June 2020.
72
Directors’ Declaration
In the directors’ opinion:
(a)
The financial statements and notes set out on pages 39 to 72 are in accordance with the
Corporations Act 2001, including:
(i)
(ii)
complying with Accounting Standards, the Corporations Regulations 2001 and other
mandatory professional reporting requirements; and
giving a true and fair view of the consolidated entity’s financial position as at 28 June
2020 and of its performance for the financial period ended on that date; and
(b)
there are reasonable grounds to believe that the company will be able to pay its debts as and
when they become due and payable.
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 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:
Steven Fisher
Chairman
Dated this 19 August 2020
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73
The Reject Shop | Annual Report 2020
independent auditor’s Report to the
Members of The Reject Shop Limited
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 28 June 2020 and of its financial
performance for the 52 week period ended 28 June 2020
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
●
●
●
●
●
●
the consolidated statement of comprehensive income for the 52 week period ended 28 June 2020
the consolidated balance sheet as at 28 June 2020
the consolidated statement of changes in equity for the 52 week period ended 28 June 2020
the consolidated statement of cash flows for the 52 week period ended 28 June 2020
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 (including Independence
Standards) (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.
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.
74
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.
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
Audit scope
● For the purpose of our audit we used overall Group
materiality of $0.4 million, which represents
approximately 5% of the Group’s weighted average
profit or loss before tax.
● Our audit focused on where the Group made
subjective judgements; for example, significant
accounting estimates involving assumptions and
inherently uncertain future events.
● 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.
● The Group is principally involved in retailing
through discount stores across Australia. The
accounting processes are structured around the
Group finance function at the Group’s head office
in Melbourne.
● We chose Group profit or loss before tax because,
in our view, it is the benchmark against which the
performance of the Group is most commonly
measured. Due to fluctuations in profit or loss
from year to year, we chose a weighted three year
average.
● We utilised a 5% threshold based on our
professional judgement, noting it is within the
range of commonly acceptable thresholds.
● Our audit evidence was derived through a
combination of:
o developing an understanding of the control
environment and tests of specific automated
and manual controls; and
o
substantive procedures such as use of data
analysis techniques, together with substantive
analytical procedures and tests of detail.
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The Reject Shop | Annual Report 2020
iNDEPENDENT auDiTOR’S REPORT TO THE M EMBERS OF T HE REJECT SHOP LiMiTED CONTINUED
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
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
Carrying amount of distribution centre and
head office assets
(Refer to note 8)
The Group operates three distribution centres (DCs)
servicing its store network and a head office located in
Melbourne, Australia, which functions as a shared-
service centre for the Group. Fixed assets at the DCs
and head office are material to the consolidated balance
sheet.
Given the challenging trading conditions in the
Australian retail industry, the prior period impairment,
and the impact of the COVID-19 pandemic, there is a
risk the carrying amount of the DC and head office
assets may be higher than their recoverable amount.
The Group assess 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 the future sales growth, terminal
growth rate and discount rate.
Our audit procedures included, amongst others:
•
•
•
•
•
•
assessing the appropriateness of the model by
comparing it to the requirements of the
Australian Accounting Standards
testing the mathematical accuracy of the
model
assessing the key inputs into the model, such
as the sales growth rate and terminal growth
rate by comparing them to board approved
budgets, industry forecasts and historical
performance of the Group and considered the
potential impact of COVID-19
engaging internal experts to assess the
reasonableness of the discount rate used in
the model
performing valuation cross-checks by
comparing the Group’s market capitalisation
as at 28 June 2020 to net assets
assessing the adequacy of the disclosures in
the financial report having regard to the
requirements of Australian Accounting
Standards.
76
Key audit matter
How our audit addressed the key audit matter
Carrying value of store assets, including right
of use assets
(Refer to note 8)
The Group offers a wide range of discount merchandise
through its network of more than 350 stores. Store
assets represent one of the largest assets on the
consolidated balance sheet.
Given the challenging trading conditions in the
Australian retail industry and the impact of the COVID-
19 pandemic, there is a risk the carrying amount of the
store assets may be higher than their recoverable
amount.
The Group assesses impairment of store assets on a
store-by-store basis, by preparing models with
estimates of future cash flows discounted to their
present value (“the models”).
This was a key audit matter because of:
•
•
the financial significance of the store assets to
the consolidated balance sheet
the judgemental factors involved in the Group
assessing impairment, in particular,
estimating future sales growth over the
forecast period and discount rate.
Our audit procedures included, amongst others:
•
•
•
•
•
•
•
evaluating the Group’s assessment of the
determination of cash generating units
assessing the appropriateness of the models
by comparing them to the requirements of the
Australian Accounting Standards
testing the mathematical accuracy of the
models
assessing the key inputs in the models such as
the sales growth rate by comparing them to
board approved budgets, historical
performance of the stores and the Group’s
overall sales growth rate, and considered the
potential impact of COVID-19
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
engaging internal experts to assess the
reasonableness of the discount rate used in
the model
assessing the adequacy of the disclosures in
the financial report having regard to the
requirements of Australian Accounting
Standards.
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The Reject Shop | Annual Report 2020
iNDEPENDENT auDiTOR’S REPORT TO THE M EMBERS OF T HE REJECT SHOP LiMiTED CONTINUED
Key audit matter
How our audit addressed the key audit matter
Inventory provision –net realisable value
(NRV)
(Refer to note 1(aa)(iv))
A provision was recognised as at 28 June 2020 in the
financial report to provide for inventory expected to be
sold below cost.
The Group undertook 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 at 28 June 2020 and therefore the
potential effect of the provision for NRV on the
consolidated statement of comprehensive
income and consolidated balance sheet
the subjective nature of the provision on the
calculation due to the judgement involved in
estimating the ultimate selling price of
inventory.
Inventory provision – shrinkage
(Refer to note 1(aa)(v))
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.
The provision is calculated by applying an estimated
shrink loss percentage to the sales since the date of the
last stock count to period-end, on a store-by-store basis.
This was a key audit matter because of:
●
●
the financial significance of the inventory
balance and therefore the potential effect of
the shrinkage provision on the consolidated
statement of comprehensive income and the
consolidated balance sheet
the subjective nature of the provision
calculation due to judgement involved in
estimating the shrink loss percentage to apply
to sales.
Our audit procedures included, amongst others:
•
•
•
obtaining an understanding of how the Group
determines the NRV provision
considering the potential impact on the
Group’s estimate of the NRV provision from
the COVID-19 pandemic
considering the appropriateness of the
provision by having regard to:
o
o
o
o
aggregate total inventory sold below
cost during the financial period
aggregate of inventory in excess of
expected future sales quantities
aggregate total of inventory wastage
incurred during the financial period
inventory written-off subsequent to
the end of the financial period and
up to the completion of our audit.
Our audit procedures over the provision for shrinkage
included, amongst others:
•
•
•
•
obtaining an understanding of how the Group
determines the shrinkage provision
comparing the shrink loss percentage applied
against historical data on the Group’s
shrinkage result
attending stock counts for a selection of store
locations and developed an understanding of
the Group’s process for reviewing stock count
results for other stores
comparing the shrink loss percentage applied
against the results of the stock counts
completed prior to the financial period end.
78
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 28 June 2020, 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
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:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our
auditor's report.
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The Reject Shop | Annual Report 2020
iNDEPENDENT auDiTOR’S REPORT TO THE M EMBERS OF T HE REJECT SHOP LiMiTED CONTINUED
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 26 to 36 of the directors’ report for the period
1 July 2019 to 28 June 2020.
In our opinion, the remuneration report of The Reject Shop Limited for the period 1 July 2019 to 28 June
2020 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
19 August 2020
80
Shareholders’ information
As at 7 August 2020
The shareholder information set out below was applicable as at 7 August 2020.
(a) The distribution of shareholding was as follows:
Size of Shareholding
Shareholders
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
3,203
1,338
220
155
27
(b) 474 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
Gragher Retail Securities Pty Ltd
Bennelong Australian Equity Partners Ltd
Wilson Asset Management Group
Number
7,253,018
5,149,432
4,495,662
2,040,343
% Held
18.97%
13.49%
11.78%
5.34%
(d) The fully paid issued capital of the Company consisted of 38,226,622 shares held by 4,943
shareholders.
Each share entitles the holder to one vote.
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The Reject Shop | Annual Report 2020
SHaREHOLDERS’ iNFORM aTiON CONTINUED
(e) Unquoted Equity Securities
Reject Shop Performance Rights Plan
(f) Twenty largest shareholders
Shareholder
Allensford Pty Ltd
HSBC Custody Nominees (Australia) Limited
Grahger Retail Securities Pty Ltd
National Nominees Limited
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Pty Limited
Little Blue Porsche Pty Ltd
Mr Andre Peter Reich
Brispot Nominees Pty Ltd
Neweconomy Com Au Nominees Pty Limited
CS Fourth Nominees Pty Limited
National Nominees Limited
GCS Narooma Pty Ltd
NCH Pty Ltd
UBS Nominees Pty Ltd
Wyong Rugby League Club Ltd
BFA Super Pty Ltd
Barloo Investments Pty Ltd
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Number on
Issue
Number
of holders
665,600
4
Number
7,253,018
6,492,035
4,000,000
2,258,220
1,616,832
960,276
600,000
536,842
479,298
471,742
441,180
315,060
300,000
273,966
261,417
255,000
198,828
196,616
188,974
155,279
% Held
18.97
16.98
10.46
5.91
4.23
2.51
1.57
1.40
1.25
1.23
1.15
0.82
0.78
0.72
0.68
0.67
0.52
0.51
0.49
0.41
The twenty members holding the largest number of shares together held a total of 71.3% of the issued
capital.
(g) Restricted Shares
There are no restricted shares on issue.
82
Corporate Directory
THE REJECT SHOP LIMITED
ABN 33 006 122 676
AND SUBSIDIARIES
Directors
Steven Fisher
Non-Executive Chairman
Michele Teague
Non-Executive Director
Selina Lightfoot
Non-Executive Director
David Grant
Non-Executive Director
Nicholas Perkins
Non-Executive Director
Company Secretary
Michael Freier (BA, BCom, LLB, LLM, MA (Theol) & Grad Dip Leg Prac)
Principal Registered Office
245 Racecourse Road
Kensington, Victoria 3031
Phone: (03) 9371 5555
Share Registry
Link Market Services Ltd
Tower 4, 727 Collins St
Melbourne, Victoria 3008
Auditors
PricewaterhouseCoopers
2 Riverside Quay
Southbank, Victoria 3006
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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www.therejectshop.com.au