ACCY801 Accounting and Financial Management Trimester 1 2019 Assessment 2 – Report Description You are required to analyse the annual reports and financial statements of two companies in the Retailing industry and write a report based on the results of your analysis. Your analysis will include a discussion of each company’s objectives, liquidity, capital structure, asset utilisation efficiency, profitability and capital expenditures. All of the necessary information for your report is contained in the 2019 annual reports of the two companies you will be analysing. All of the background knowledge necessary to successfully complete the report has been covered in the lectures, tutorials and readings for ACCY801 before week 5. Company allocation and Annual Report download Each student has been allocated two companies. To find the companies you have been allocated, refer to the file ‘List of students and companies’ on Moodle, in the ‘Assignment’ folder. For example the student with student number 1234567 (a fictitious student) is required to analyse the companies ‘ABC’ and ‘CBA’1. If you are unsure about which two companies you should analyse, please contact the subject coordinator. Download the 2019 annual report for each of your two companies. All of the annual reports are available on Moodle, in the ‘Annual Reports’ folder within the ‘Assignment’ folder. Detailed Instructions 1 These companies are actually not retailers and no student will have to analyse these companies. Students should complete the ratio analysis first, or at the very least calculate the return on assets (ROA) of each company. Identify the company with the lowest ROA. For the purposes of this report, assume you are an internal analyst working for this company, and the other (higher ROA) company has been identified by management as your company’s main competitor. Assume that senior management has asked you for a report comparing your company with the competitor, and that identifies ways of improving profitability and increasing returns for shareholders. Your report must contain the following sections: i. Executive Summary ii. Objectives and long-term plans iii. Financial Ratios iv. Liquidity, capital structure and asset management efficiency v. Operating profitability vi. Returns on shareholders’ investment vii. Capital expenditures viii. Conclusion and recommendations A description of the requirements of each section follows. i. Executive summary (4 marks) A brief section that summarizes the important parts of the rest of the document, including the analysis conducted, key results or findings, recommendations and limitations of the report. ii. Objectives and long-term plans (10 marks) Discuss the objectives and long-term plans of each company. Include references to any relevant page numbers in the Annual Reports. iii. Financial ratios (28 marks) Using the relevant financial statements for the 2019 year, calculate the following ratios for each company: Current ratio Quick ratio Receivables turnover Inventory turnover Fixed asset turnover Total asset turnover Debt ratio Interest coverage Gross profit margin Operating profit margin Net profit margin Return on assets Equity multiplier Return on equity Important: Do not include any formulas or discussion in this section. iv. Liquidity, capital structure and asset management efficiency (15 marks) Discuss the differences between your company and its competitor in terms of:  Liquidity  Capital Structure  Asset management efficiency v. Operating profitability (18 marks) Explain how your company (with the lowest ROA) might be able to improve its operating profitability, relative to its main competitor (as identified by management). Also discuss any favourable aspects of your company’s operating performance relative to its competitor. vi. Returns on shareholders’ investment (10 marks) Explain and discuss any differences in return on equity for your company and its competitor. vii. Capital expenditures (10 marks) Discuss the extent of each company’s capital expenditures in 2019, and how each firm financed the capital expenditure. viii. Conclusion and recommendations (5 marks) Summarise the main points you wish to draw the reader’s attention to, and provide recommendations to management about possible courses of action. Style and format Reports must be typed in 12-point font, with appropriate headings in bold, margins of 2.54cm (1 inch), double line spacing, and page numbers. There are no restrictions on the choice of font however the font chosen must be appropriate for business purposes and must be consistent throughout the report. Marking guide This assignment is marked out of 100 and is worth 25% of the total mark for this subject. Marks are allocated as shown in the ‘Detailed Instructions’ section; however students should be aware that in general marks will primarily accrue for the following three main aspects: (i) accuracy of calculations, (ii) demonstration of knowledge of concepts and (iii) correct application of concepts. Students’ efforts in reading and interpreting the annual report will also contribute to the total number of marks. Students must demonstrate the ability to discuss the aspects of financial performance or position represented by each financial ratio in simple terms that do not include the name of each ratio, and can expect to lose marks if they fail to do so. In addition, up to 10% of the maximum total marks may be deducted for poor presentation and readability including poor layout, formatting, grammar, spelling, and referencing. Further details will be made available on Moodle. Plagiarism and other forms of cheating Plagiarism or any other form of academic misconduct, if detected, may result in a mark of zero for the whole report, in addition to other serious consequences as discussed in the subject outline. Students suspected of academic misconduct will be interviewed and required to defend their assignment. Beacon Lighting Group Limited ANNUAL REPORT 9 201 Contents Chairman’s and Chief Executive Officer’s Report 1 Board of Directors 4 Management Team 5 Corporate Governance Statement 6 Directors’ Report 12 Auditor’s Independence Declaration 27 Index to the Financial Statements 28 Consolidated Statement of Comprehensive Income 29 Consolidated Balance Sheet 30 Consolidated Statement of Changes in Equity 31 Consolidated Statement of Cash Flows 32 Notes to Consolidated Financial Statements 33 Directors’ Declaration 80 Independent Auditor’s Report to the Members of Beacon Lighting Group Limited 82 Shareholders’ Information 88 Corporate Directory 90 Store Locations 92 Important Notice This financial report is the consolidated financial report of the consolidated entity consisting Beacon Lighting Group Limited, ACN 164 122 785 and its subsidiaries. Beacon Lighting Group Limited is a Company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is 5 Bastow Place Mulgrave Victoria 3170. A description of the nature of the consolidated entity’s operations and its principal activities is included in the Directors’ report on page 12, which is not part of the financial report. The financial report was authorized for issue by the Directors on 19 August 2019. The Directors have the power to amend and re-issue the financial statements. Chairman’s & Chief Executive Officer’s Report The Beacon Lighting Group is pleased to announce the sales and profit result for FY2019. The Board of Directors would like to thank our Customers, Associates, Suppliers and Shareholders for their support and contribution to our results in FY2019. FY2019 HIGHLIGHTS FINANCIAL RESULT The key highlights which contributed to the 53 weeks ended 30 June 2019 include: The Beacon Lighting Group sales and profit performance was challenging during H2 FY2019. As reported in the trading update to the ASX on 30 April 2019, trading was subdued as a result of a number of factors including a decline in housing prices and churn rates, weak consumer confidence, the federal election and tighter credit availability within the housing sector. All of these factors impacted upon the Beacon Lighting Group result for FY2019. Record sales result of $246.3 million. EBITDA result of $29.6 million and NPAT result of $16.0 million. The opening of five new company stores and the purchase of two franchised stores. The purchase of the ex-Masters store in Parkinson (QLD) and transforming it into a new Distribution Centre to service the QLD and NSW markets. Record sales for Beacon Lighting Company stores, Online Sales Channels, Beacon International, Beacon Energy Solutions, Light Source Solutions Roadway and Masson For Light. GROUP OVERVIEW The Beacon Lighting Group finished FY2019 with 109 company stores and 4 franchised stores. During the year, the Group opened new company stores at Warrnambool (VIC), Mackay (QLD), Moore Park (NSW), Modbury (SA) and Craigieburn (VIC). The Beacon Lighting Group also purchased the franchised stores at Underwood (QLD) and Albury (NSW) and converted them to company stores. The Subiaco (WA) store was also closed during FY2019. The Beacon Lighting Commercial team continues to operate sales offices in Brisbane (QLD), Sydney (NSW), Melbourne (VIC), Adelaide (SA) and Perth (WA). Beacon International has sales offices in Hong Kong, Germany and the United States and a support office in China. Light Source Solutions Globes has sales teams in Australia and New Zealand while Light Source Solutions Roadway services customers across Australia. Beacon Energy Solutions has a sales office in Melbourne (VIC) and Masson For Light has one store in Richmond (VIC). The Beacon Lighting Group achieved a sales result of $246.3 million. The sales result was also reflected in the company comparative sales which declined by 2.3%, on a 52 week comparable basis in FY2019. QLD was the better performing state, whilst sales in NSW, VIC and WA were all disappointing. The sales increases achieved by Beacon International, Beacon Energy Solutions, Light Source Solutions Roadway and Masson For Light were pleasing. Despite the change in the sales mix and the decline in the AUD/USD exchange rate, the Beacon Lighting Group was still able to produce a strong gross profit margin result in FY2019. The gross profit margin result of 64.0% in FY2019 was a good outcome despite it declining from the record gross profit margin result of 65.7% in FY2018. Although having a strong focus on cost control throughout FY2019, Beacon Lighting continued to invest in new stores, Commercial and the emerging businesses. This saw an increase in the Selling and Distribution expenses as a percentage of sales whilst the Marketing and Administration expenses declined as a percentage of sales. As a percentage of sales, operating expenses (which exclude finance costs, depreciation and amortisation) were 52.7% in FY2019. In line with the trading update, the Beacon Lighting Group was able to achieve an EBITDA result of $29.6 million in FY2019. The Beacon Lighting Group also achieved a NPAT result of $16.0 million in FY2019. CHAIRMAN’S AND CHIEF EXECUTIVE OFFICER’S REPORT 1 KEY GROWTH STRATEGIES OUTLOOK The key growth strategies in FY2020 will be: The Beacon Lighting Group remains committed to being at the forefront of the changes that are occurring in the lighting industry and around the world. The Group will continue to focus on new technologies, fashion and energy efficient lighting solutions supported by market leading customer service. Beacon Lighting Group continues to maintain it’s strong market position as Australia’s leading lighting retailer and combined with its emerging businesses the Group remains very well positioned to take advantage of the changes that are occurring in the lighting industry. • Continue to enhance the brand and the customer experience in order to increase differentiation and drive incremental sales. • Target the growth of sales and profit through the optimisation of the existing store network. • Target the opening of new company operated stores in Australia. • Offer an extensive range of the latest fashion, on trend, energy efficient and home automation lighting and fan products at great prices to our customers. • Continue to enhance our online presence in order to drive incremental sales. • Target the growth of sales and profits in the emerging businesses. • Investigate and pursue local and international business opportunities that complement the core activities of the Group. • Target efficiency gains and productivity improvements as the store network matures. DIVIDENDS The Beacon Lighting Group Directors have declared a fully franked dividend of 2.00 cents per share for H2 FY2019 (compared to 2.50 cents per share for H2 FY2018). Along with the H1 FY2019 fully franked dividend of 2.55 cents per share (compared to 2.50 cents per share for H1 FY2018), this brings the annual Beacon Lighting Group dividend for FY2019 to 4.55 cents per share (compared to 5.00 cents per share in FY2018). The Directors will continue to target a dividend payout ratio of between 50% and 60% of the annual Net Profit After Tax result. Ian Robinson Executive Chairman 2 BEACON LIGHTING GROUP ANNUAL REPORT 2019 The Beacon Lighting Group is planning for further growth in FY2020 and has already committed to the following activities: • The opening of new company stores at Virginia (QLD) and Belmont (WA). • The purchase of the Myaree (WA) franchised store and conversion to a company store will occur in September 2019. • The relocation of the Midland (WA) store. • Re-platforming of the beaconlighting.com.au website and online sales channel. • The expansion of Beacon International into new markets in Canada and China. • The introduction of exciting new product ranges for the Beacon Lighting Stores, Beacon International, Light Source Solution Globes, Light Source Solutions Roadway and Masson For Light businesses. The Beacon Lighting Group is encouraged that following the federal election result, interest rate cuts, tax rebates and tax cuts have provided more optimism within the housing industry and market confidence going forward into FY2020. Glen Robinson Chief Executive Officer 3 Board of Directors 4 Ian Robinson Glen Robinson Executive Chairman Chief Executive Officer 45 years of service Ian Robinson purchased the first Beacon Lighting store in 1975. Over the subsequent 44 years, his role has grown from store management, to CEO and in July 2013 to his current role as Executive Chairman. Ian remains actively involved in the operations of the Group. Ian is a Director of Lighting Council of Australia, Carbonetix Pty Ltd and the Large Format Retailers Association. 24 years of service Glen Robinson assumed his current role of Chief Executive Officer in July 2013 after joining the Group in 1994. Glen has a strong understanding of the business having started with the Group on the sales floor, progressing to trainee buyer, merchandising manager and then taking responsibility for Beacon Lighting’s product range from development to in-store presentation. Glen holds a Bachelor of Business (Management). (James) Eric Barr Neil Osborne Deputy Chairman Non-Executive Director Non-Executive Director Eric Barr is Deputy Chairman and Chairman of the Remuneration and Nomination Committee of the Group. Eric retired in 2000 as a Partner with PricewaterhouseCoopers after 20 years of service. Since then Eric has been a Director of public companies in the United States and Australia, including 10 years as lead director of Reading International Inc. Eric is a Non-Executive director of Generation Life Limited (formerly known as Austock Group Limited) where he holds the positions of Chairman of the Audit Committee, Chairman of Risk Committee and Chairman of the Remuneration Committee. Eric was previously a NonExecutive director of the Sydney Stock Exchange Limited, holding the positions of Chairman of Directors and Chairman of the Audit Committee. Eric is a Chartered Accountant. Neil Osborne is a Non-Executive Director and is also Chairman of the Group’s Audit Committee. Neil has over 35 years experience in the retail industry. Neil was formerly an Accenture Partner, leading large strategic projects in Australia and Asia. Neil also spent 18 years with Coles Myer Ltd in senior positions including finance (including CFO Myer), operations and strategic planning. Neil is a Non-Executive Director of Vita Group (ASX Listed) and Chairman of their Audit and Risk Committee. Neil is also Chairman of Australian United Retailers (trading as Foodworks). Neil holds a Bachelor of Commerce, is a CPA and a FAICD. BEACON LIGHTING GROUP ANNUAL REPORT 2019 Management Team Ian Bunnett Prue Robinson Managing Director - Sales Marketing Director Joined Beacon Lighting in 2004 having had extensive retail experience including the GM of Store Operations with Payless Shoes. Joined Beacon Lighting in 2006 following a variety of roles in Sydney and London and four years in marketing with Spotlight. Prue holds a BBus (Management and Marketing). David Speirs Lenore Harris Chief Financial Officer Group Human Resources Manager Joined Beacon Lighting in 2003 after six years of business consulting and a career working with various Coles Myer businesses. David holds a BBus (Accounting), MBus (Accounting), Post Grad Dip (Finance) and is a FCPA. Joined Beacon Lighting in 2017 having had extensive retail management, human resources and communications experience predominantly at Myer and Monash University’s Australian Centre for Retail Studies. Lenore holds a BA (Psych /Sociology) and a Diploma in Investor Relations. Barry Martens Tracey Hutchinson Chief Operating Officer Financial Controller & Company Secretary Joined Beacon Lighting in 1996 following a retail advertising career with Clemenger Harvey and retail marketing experience with Klein’s Jewellery. Joined Beacon Lighting in 2011 having had senior financial management roles with various ASX businesses, including Eyecare Partners. Tracey holds a BBus (Accounting), a MBus (Administration), a Graduate Diploma of Corporate Governance and is a CPA. Michael (Mick) Tan Rodney Brown Chief Information Officer General Manager – Supply Chain Joined Beacon Lighting in 2000 and has had more than 30 years information technology experience including a career with Fujitsu Systems. Mick holds a Dip (Management). Joined Beacon Lighting in 2012 with extensive supply chain experience including management roles with Cadbury Schweppes and Fosters Brewing. MANAGEMENT TEAM 5 Corporate Governance Statement The Board of Directors of Beacon Lighting Group Limited is responsible for the corporate governance of the Group. This statement outlines the corporate governance policies and practices formally approved by the Board of Beacon Lighting. This statement is current as at 19 August 2019. These policies and practices are in accordance with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (3rd Edition) unless otherwise stated. The Board considers that the Group’s corporate governance practices and procedures substantially reflect the principles. The full content of the Group’s Corporate Governance policies and charters can be found on the Group’s website (www.beaconlightinggroup.com.au). PRINCIPLE 1 PRINCIPLE 2 Lay Solid Foundations for Management and Oversight Structure the Board to Add Value The Board’s responsibilities are defined in the Board Charter and there is a clear delineation between the matters expressly reserved to the Board and those delegated to the Chief Executive Officer and senior management. The experience and expertise relevant to the position of Director held by each Director in office at the date of the annual report is included in the Directors’ Report. The Board Charter outlines: • The guidelines for Board composition, including the processes around Director appointments and resignations. The term in office held by each Director in office at the date of this report is as follows: NAME TERM IN OFFICE Ian Robinson 6 years Eric Barr 5 years Glen Robinson 5 years Neil Osborne 5 years • The operation of the Board and the Board Committees. • The roles of the Board, the Chairperson, CEO and senior management. • Specifically includes risk management responsibilities (rather than these being delegated to a separate Risk Committee). A copy of the Group’s Board Charter is available on the Group’s website. The Board and Committee Charters sets out the processes for the annual review of the performance of the Board as a whole, each Director and the Board Committees. Note: these terms of office relate to the listed entity Beacon Lighting Group Limited only and do not relate to the subsidiary or operating entities. The Board has established a Remuneration and Nomination Committee which is responsible for reviewing executive remuneration and incentive policies and practices. Ian Robinson is a substantial shareholder. He has been Executive Chairman since July 2013 having previously held the position of Executive Chairman and Chief Executive Officer. The Group has a written agreement with each Director and senior executive setting out the terms of their appointment. Eric Barr and Neil Osborne are shareholders of Beacon Lighting Group Limited. They are Non-Executive Directors and bring objective judgment to bear on Board decisions commensurate with their commercial knowledge, experience and expertise. The Group has adopted a Diversity Policy. The Group does not propose to establish measurable objectives for achieving gender diversity in the foreseeable future as recommended by Recommendation 1.5 of the ASX Corporate Governance Principles and Recommendations. The Group is strongly committed to making all selection decisions on the basis of merit and the setting of specific targets for the proportion of men and women at any level would potentially influence decision making to the detriment of the business. The Diversity Policy affirms the commitment of the Group to embrace diversity and sets out the principles and work practices to ensure that all Associates have the opportunity to achieve their full potential. 6 BEACON LIGHTING GROUP ANNUAL REPORT 2019 Glen Robinson is a senior executive of Beacon Lighting and has been Chief Executive Officer since July 2013. Recommendation 2.1 of the ASX Corporate Governance Principles and Recommendations recommends that the Board establishes a nomination committee and that the committee have at least three members, a majority of whom are independent and be chaired by an independent Director. The Remuneration and Nominations Committee has four members. Three are independent: Eric Barr and Neil Osborne, as independent Directors and Andrew Hanson as an external consultant. Ian Robinson, Executive Chairman, is the other member. The Committee is chaired by Eric Barr. given the Group's present circumstances. A copy of the Remuneration and Nomination Committee Charter is available on the Group’s website. PRINCIPLE 3 In relation to nominations, the Remuneration and Nomination Committee is responsible for: • Assessing current and future Director skills and experiences and identifying suitable candidates for succession. • Annually enquiring of the Executive Chairman and the Chief Executive Officer their processes for evaluating their direct reports. An internal process of evaluation is undertaken annually on the performance, skills and knowledge of the Board and its committees, utilising a board skills matrix. The review provides comfort to the Board that its structure and performance is effective and appropriate to Beacon Lighting and that the Board has the range of skills, knowledge and experience to direct the Group. The Board skills matrix sets out the requisite skills, expertise, experience and other desirable attributes for the Board. The following attributes have been identified which Beacon seeks to achieve across its Board membership: other Board experience, retail industry experience, financial management experience and governance experience. The Directors have been selected for their relevant expertise and experience. They bring to the Board a variety of skills and experience, including industry and business knowledge, financial management, accounting, operational and corporate governance experience. The annual report includes details of the Directors, including their specific experience, expertise and term of office. To enable performance of their duties, all Directors: • Are provided with appropriate information in a timely manner and can request additional information at any time; • Have access to the Company Secretary; •  Have access to appropriate development opportunities; and continuing professional •  Are able to seek independent professional advice at the Group’s expense in certain circumstances. Recommendations 2.4 and 2.5 of the ASX Corporate Governance Principles and Recommendations recommends that the Board comprise a majority of Directors who are independent, and that the Chairperson should be an independent Director. The Board, as currently composed, does not comply with these recommendations. The Board considers that the composition of the Board is appropriate Act Ethically and Responsibly The Group has adopted a written Code of Conduct which applies to the Directors and all associates employed by the Group, including senior management. The objective of this Code is to ensure that high standards of corporate and individual behavior are observed by all associates in the context of their employment. In summary, the Code requires associates to always act: • In a professional, fair and ethical manner, in accordance with Group values. • In accordance with applicable legislation and regulations, and internal policies and procedures. • In a manner that protects the Group interests, reputation, property and resources. The Code also reminds associates of their responsibility to raise any concerns in relation to suspected or actual breaches of the Code. Beacon Lighting has in place a policy concerning trading in Beacon Lighting Group securities. The Securities Trading policy includes detailed requirements for Directors, Officers and senior management regarding when they can trade Beacon Lighting securities. PRINCIPLE 4 Safeguard Integrity in Corporate Reporting Principle 4.1 of the ASX Corporate Governance Principals and Recommendations, recommends that the Audit Committee consist only of Non-Executive Directors and consists of a majority of independent Directors. The Audit Committee as currently composed does not comply with these recommendations. Beacon Lighting has an Audit Committee comprising of four members, three of whom are considered independent. The Audit Committee presently comprises Neil Osborne (Chairman), Eric Barr, Glen Robinson (Directors) and Andrew Hanson (external consultant). Two of the four members of the committee are Non-Executive Directors and have experience in, and knowledge of, the industry in which Beacon Lighting operates. Neil Osborne, Eric Barr and Andrew Hanson each have accounting qualifications. The details of the number of Audit Committee meetings held and attended are included in the Directors’ Report. Minutes are taken at each Audit Committee meeting, with the minutes tabled in the following full Board meeting. CORPORATE GOVERNANCE STATEMENT 7 The Audit Committee has adopted a formal charter which outlines its role in assisting the Board in the Group’s governance and exercising of due care, diligence and skill in relation to: • Reporting of financial information; • The application of accounting policies; • Financial risk management; • The Group’s internal control system; and • Its relationship with the external auditor. In accordance with Recommendation 4.2 the Board, before it approves the Group's statements for a financial period, ensures that it receives from its Chief Executive Officer and Chief Financial Officer a declaration that, in their opinion, the financial records of the Group have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. In accordance with Principle 4.3, the Group’s external auditor attends each annual general meeting and is available to answer shareholder questions about the audit. PRINCIPLE 5 Make Timely and Balanced Disclosure Principle 5.1 of the ASX Corporate Governance Principles and Recommendations recommends that companies should establish a written policy designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance and disclose that policy or a summary of it. The Group has adopted a Continuous Disclosure Policy. This Policy sets out the standards, protocols and the detailed requirements expected of all Directors, Officers, senior management and associates of the Group for ensuring the Group immediately discloses all price-sensitive information in compliance with the Listing Rules and Corporations Act relating to continuous disclosure. PRINCIPLE 6 Respect the Rights of Security Holders The Group has adopted a Communications Policy governing its approach to communicating with its shareholders, market participants, customers, associates and other stakeholders. This policy specifically includes: • The approach to briefing institutional investors, brokers and analysts. • The approach to communications with investors whether by meetings, via the Group’s websites, electronically or by any other means. 8 BEACON LIGHTING GROUP ANNUAL REPORT 2019 Beacon Lighting provides a printed copy of its annual report to all requesting shareholders. The annual report contains relevant information about the Group’s operations during the year, changes in the state of affairs and, other disclosures required by the Corporations Act and Accounting Standards. The half year report contains summarised financial information and a review of Beacon Lighting operations during the period. The Beacon Lighting Corporate website provides all shareholders and the public access to our announcements to the ASX, and general information about Beacon Lighting and its business. It also includes a section specifically dedicated to governance, which includes links to the Company's Constitution, Code of Conduct and its various corporate governance charters and policies. The format of general meetings aims to encourage shareholders to actively participate in the meeting through being invited to comment, or raise questions of Directors on any matter relevant to the performance and operation of the Group. PRINCIPLE 7 Recognise and Manage Risk Principle 7.1 of the ASX Corporate Governance Principles and Recommendations recommends that a listed company either have a committee to oversee risk or otherwise disclose the processes it employs to for overseeing the Company's risk management framework. The Board does not currently have a committee to oversee risk. Instead, the Board Charter specifically includes risk management responsibilities (rather than these being delegated to a separate Risk Committee). The Board evaluates all risks to the Group on an annual basis. The risk matrix is then reviewed at regular intervals throughout the year to ensure that the Group is not being exposed to any new risks and that all existing risks are being monitored and managed effectively. The Board retains oversight responsibility for assessing the effectiveness of the Group’s systems for the management of material business risks. The Board reviews the Group's risk management on an annual basis to ensure it continues to be sound. The Board does not consider a separate internal audit function is necessary at this stage. One of the Audit Committee responsibilities is to evaluate compliance with the Group’s risk management and internal control processes. The Board has received written assurances from management as to the effectiveness of the Group’s management of its material business risks. The Chief Executive Officer and Chief Financial Officer provide a written assurance in the form of a declaration in respect of each relevant financial period that, in their opinion, the declaration is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Principle 7.4 of the ASX Corporate Governance Principles and Recommendations requires the Group to disclose details about whether it has any material exposure to economic, environmental and social sustainability risks (if any). The Group has considered the following risks and has risk mitigation strategies in place. Economic Risks include impacts to consumers’ willingness to spend on discretionary retail and lighting products in particular. The Group mitigates the risk through the constant monitoring of the macro-economic environment and adjusting capital expenditure, new projects and operating expenses accordingly. Consumer sentiment was lower in 2019 which affected general retail demand, housing activity was also subdued which resulted in lower consumer sentiment towards discretionary expenditure for the Group. Exchange Rate Volatility can impact upon the Group’s ability to grow margins. The Group can also lock in a forward position for this foreign exchange exposure for a period of up to 12 months. The Board believes this mitigates the Group’s exchange rate volatility risk to an acceptable level. Environmental Sustainability Risks include impacts on the Group’s supply chain from suppliers through to stores. These risks can be reputational, regulatory and financial. The Boards assesses its primary exposure to be in the production of its products. The Group through its supply chain operates responsibly within the community and expects the same from its suppliers. Social Sustainability Risks include workplace health and safety as well as personnel management and corporate conduct. The Group has an extensive workplace health and safety policy incorporating the early identification and correction of potential risks, both in store and at the support offices. The Board is informed of all incidents and material potential risks at each Board meeting and the appropriate action taken. PRINCIPLE 8 Remunerate Fairly and Responsibly Principle 8.1 of the Corporate Governance Principles and Recommendations, recommends that the remuneration committee should comprise a majority of independent Directors. The Remuneration and Nomination Committee as currently composed does not comply with this recommendation. The Remuneration and Nomination Committee has four members. Three are independent: Eric Barr and Neil Osborne, as independent Directors, and Andrew Hanson as an external consultant. Ian Robinson, Executive Chairman, is the other member. The Committee is chaired by Eric Barr. In relation to remuneration, the Remuneration and Nomination Committee is responsible for: • Ensuring the Group has remuneration policies and practices appropriate to attracting and retaining key talent. • Reviewing and making recommendations in relation to the remuneration of Directors and senior management. • Reviewing and recommending the design of any executive incentive plans and approving the proposed awards to each executive under those plans. In accordance with its Charter, the Remuneration and Nomination Committee clearly distinguishes the structure of Non-Executive Directors’ remuneration from that of Executive Directors and senior executives. Details of Directors’ and executives’ remuneration, including the principles used to determine the nature and amount of remuneration, are disclosed in the remuneration report section of the annual report. The Group's Securities Trading Policy expressly prohibits relevant participants from entering into arrangements that limit the economic risk of participating in the Group's incentive schemes prior to the relevant securities becoming fully vested. Corporate Conduct Risks could impact regulatory, reputational and financial performance. It includes stock loss and theft. The Group has a dedicated store operations team to regularly monitor and assess store related risks. The Group undertakes regular inventory counts and analysis of store performance to reduce the risk of material loss. 9 10 Directors' Report The Directors of Beacon Lighting Group Limited (the ‘Group’) present their report together with the Consolidated Financial Statements of the Group and its controlled entities (the ‘Consolidated Entity’) for the 53 weeks ended 30 June 2019. 1. DIRECTORS 4. OPERATING AND FINANCIAL REVIEW The Directors of the Group during the whole financial period and up to the date of the report were: 4.1. Overview of Operations Ian Robinson Executive Chairman Chairman of the Board, Member of the Remuneration and Nomination Committee. Glen Robinson Chief Executive Officer Member of the Audit Committee. Eric Barr Non-Executive Director Deputy Chairman of the Board, Chairman of the Remuneration and Nomination Committee and Member of the Audit Committee. Neil Osborne Non-Executive Director Chairman of the Audit Committee and Member of the Remuneration and Nomination Committee. At the end of FY2019, Beacon Lighting operated the following trading businesses: • 109 Beacon Lighting company stores • 4 Beacon Lighting franchised stores Details of the expertise and experience of the Directors are outlined on page 4 of this annual report. • 5 Commercial sales offices 2. PRINCIPAL ACTIVITIES • Light Source Solutions Globes Australia and New Zealand During the financial period the principal continuing activities of the Group consisted of the selling of light fittings, globes, ceiling fans and energy efficient products in the Australian market. • Light Source Solutions Roadway The consolidated profit for the year attributable to the members of Beacon Lighting Group Limited was: CONSOLIDATED ENTITY Profit before Income Tax Income Tax Expense Operating profit after tax attributable to the members of Beacon Lighting Group Limited BEACON LIGHTING GROUP ANNUAL REPORT 2019 • Beacon International Hong Kong, Germany, USA and China • Masson For Light • Beacon Lighting Wholesale During FY2019, Beacon Lighting continued to invest in the growth of the Group. These investments included: 3. RESULTS 12 Beacon Lighting is Australia’s leading lighting retailer and also an emerging supplier of lighting and energy efficient products to the commercial industry throughout Australia and other international markets. As a vertically integrated business, Beacon Lighting designs, develops, sources, imports, distributes, merchandises, promotes and sells its own product range to meet the demands of its retail and commercial customers. More than 95% of the lighting and fan products sold by the Beacon Lighting Group are supplied through the Beacon Lighting supply chain with approximately 85% of the products are exclusively branded. Actual FY2019 $’000 Actual FY2018 $’000 23,118 27,705 7,074 8,115 16,044 19,590 • The opening of five new company stores at Warrnambool (VIC), Mackay (QLD), Moore Park (NSW), Modbury (SA) and Craigieburn (VIC). • The Underwood (QLD) and Albury (NSW) franchised stores were purchased and converted to company stores. • The purchase of the ex-Masters site in Parkinson (QLD) and then transformed it into a Distribution Centre to service the QLD and NSW markets. • Designed, developed and released 600 new products for Beacon Lighting stores. 4.2. Financial Summary 4.2.1. Financial Performance A summary of the Beacon Lighting Group FY2019 statutory result compared to the FY2018 statutory result is presented in the following table: Statutory FY2018 $’000 Statutory FY2019 $’000 Change Change Sales 235,964 246,304 10,340 4.4% Gross Profit 155,065 157,711 2,646 1.7% 1,819 1,655 (164) (9.0%) (123,712) (129,768) (6,056) 4.9% EBITDA 33,172 29,598 (3,574) (10.8%) EBIT 29,308 25,088 (4,220) (14.4%) Net Profit After Tax 19,590 16,044 (3,546) (18.1%) Consolidated Entity Other Income Operating Expenses (1) (1) Operating Expenses excludes interest, depreciation and amortisation It is difficult to compare the FY2019 statutory result to the FY2018 statutory result because the FY2019 statutory result had 53 weeks and the FY2018 statutory result had 52 weeks. Additionally, there were also one-off set up costs associated with the establishment of the Parkinson (QLD) Distribution Centre. A reconciliation of the FY2019 statutory result to the FY2019 underlying result is presented in the following table: Statutory FY2019 $’000 Less 53rd week(1) $’000 Less Parkinson DC (2) $’000 Underlying FY2019 (3) $’000 246,304 4,520 - 241,784 157,711 2,966 - 154,745 1,655 25 - 1,630 (129,768) (2,522) (605) (126,641) EBITDA 29,598 469 (605) 29,734 EBIT 25,088 375 (605) 25,318 Net Profit After Tax 16,044 241 (424) 16,227 Consolidated Entity Sales Gross Profit Other Income Operating Expenses (4) (1) Eliminating 53rd week in FY2019 based on the alignment to the retail marketing program to FY2018 (2) Eliminating one off non recurring costs associated with the establishment of the new Parkinson (QLD) Distribution Centre (3) FY2019 52 Week Proforma result to be used as comparison to the FY2018 Statutory Result (4) Operating Expenses excludes interest, depreciation and amortisation DIRECTORS’ REPORT 13 4.2.2. Sales Beacon Lighting achieved a sales result of $246.3 million in FY2019. The best sales increases were achieved by the Online Sales Channels, Beacon International, Beacon Energy Solutions, Light Source Solutions Roadway and Masson For Light. Company Store sales and Commercial sales were disappointing with Company comparative sales declining by 2.3% in FY2019 on a 52 week comparable basis. 4.2.3. Gross Profit Margin The gross profit margin was 64.0% for FY2019 compared to the gross profit margin of 65.7% for FY2018. The decline in the margin was a result of the change in the margin mix of the Beacon Lighting Group and the decline in the AUD/USD exchange rate. 4.2.4. Other Income & Other Revenue Other income was $1.6 million in FY2019. Other income received from franchised stores continues to decline as franchised stores are purchased and converted to company operated stores. 4.2.5. Operating Expenses Operating Expenses were $129.8 million in FY2019. As a percentage of sales, Operating Expenses were 52.7% for FY2019. With the continued investment in new stores and the emerging businesses, the Selling and Distribution Expenses increased as a percentage of sales in FY2019. Expense productivity improvements were achieved for Marketing Expenses and General and Administration Expenses. 4.2.6. Earnings The Beacon Lighting Group Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) was $29.6 million in FY2019. As a percentage of sales, the EBITDA margin of 12.0% in FY2019 decreased from the EBITDA margin of 14.1% in FY2018. The Net Profit After Tax (NPAT) result decreased to $16.0 million or 6.5% of sales from a NPAT result of $19.6 million or 8.3% of sales in FY2018. 4.2.7. Dividends The Directors of Beacon Lighting have declared an annual fully franked divided of 4.55 cents per share for FY2019. For H1 FY2019, the Directors declared a fully franked dividend of 2.55 cents per share and for H2 FY2019, the Directors declared a fully franked dividend of 2.50 cents per share. Going forward, it is expected that the Beacon Lighting Group will target an annual NPAT dividend payout ratio of between 50% and 60%. 4.2.8. Financial Position In FY2019, the Beacon Lighting Group made the first property acquisition for the Group with the purchase of the ex-Masters site in Parkinson (QLD). This facility has been converted into a distribution centre to service the QLD and NSW markets. The purchase price of the property was $11.8 million plus purchasing on costs and was funded by additional finance from the ANZ Bank. In FY2019, the Beacon Lighting Group has increased the investment in inventory by $6.3 million, particularly to support the growth opportunities of the emerging businesses. Trade 14 BEACON LIGHTING GROUP ANNUAL REPORT 2019 receivables have increased by $2.2 million, also reflecting the growth in sales of the emerging businesses. Excluding the land and building investment associated with Parkinson (QLD) Distribution Centre, the Group has increased capital expenditure by $5.0 million in FY2019. Beyond the new finance associated with the Parkinson (QLD) Distribution Centre and additional inventory finance, the additional investments in FY2019 have been funded by retained earnings which has been supported by the Beacon Lighting Group dividend reinvestment program. In FY2019, the Beacon Lighting Group continued to operate comfortably within all of its bank covenants. 4.3. Business Strategies Beacon Lighting continues to strengthen its market position as Australia’s leading specialist retailer of light fittings, ceiling fans and light globes. The Group has also continued to expand in the wholesale / commercial lighting industry with growth in the Beacon Lighting Commercial, Beacon International, Light Source Solutions (Globes and Roadway), Beacon Energy Solutions and the Masson For Light businesses. Beacon Lighting intends to drive sales and profit growth through a number of different business strategies. 4.3.1. Brand and Customer Beacon Lighting will continue to enhance the brand and the customer experience in order to increase differentiation and drive incremental sales. Beacon Lighting continues to design, develop and release uniquely branded products with a core range of more than 3,000 products. With over 300 Accredited Lighting Design Consultants across the store network and 28 Premium Lighting Design Studios, Beacon Lighting are able to offer a unique customer service experience. Our VIP and Trade Club customers also enjoy additional offers and benefits. A fan installation service is also available to our customers. The 113 retail stores and online web presence provides an omni-channel offering making it easy for customers to shop at Beacon Lighting any time. 4.3.2. Store Optimisation Beacon Lighting will target the growth of sales and profits through the optimisation of the existing store network. Since FY2014, Beacon Lighting has opened 31 new company stores which are yet to reach full maturity and consequently increased sales growth from these stores. The Group closed the Subiaco (WA) store and expects to maintain the majority of those sales through other stores within the state. Ongoing operational refinements including the marketing plans, roster management, merchandise changes and refurbishments all provide the store network with further optimisation opportunities. 4.3.3. New Store Rollout Beacon Lighting plans to open new company stores in Australia each year. In FY2019, Beacon Lighting opened five new company stores and closed one store. Currently with 113 Beacon Lighting stores and with the Store Network Plan from August 2018 identifying 175 store opportunities, Beacon Lighting still has the opportunity for the planned store roll out for a number of years to come. 4.3.4. New Product Ranges and how they are managed are set out below. Beacon Lighting will offer an extensive range of the latest fashion, on trend, technologically advanced and energy efficient products to our customers. With the introduction of more than 600 new products in FY2019, Beacon Lighting aims to refresh its core product range in all stores each year, complemented by the online range extension. The continuing demand for greater energy efficiency, along with the growth of internet enabled smart lighting, continues to represent additional opportunities for the Beacon Lighting Group. 4.4.1. Retail Environment and General Economic Conditions 4.3.5. Online and Social Media Presence Beacon Lighting will continue to enhance our online and social media presence in order to drive incremental sales. The introduction of store stock on hand balances on the website plus the splitting of online orders based on stock availability has enhanced our customer online experience. A variety of online and social media channels continue to offer significant growth opportunities for the Group which are closely aligned to the 113 Beacon Lighting stores. Beacon Lighting continues to nurture strong relationships with social influencers who engage and endorse Beacon Lighting. 4.3.6. Emerging Businesses Beacon Lighting will continue to target the growth of sales and profits of the emerging businesses. Beacon International, Light Source Solutions (Globes and Roadway), Beacon Energy Solutions and Masson For Lights continue to offer significant growth opportunities for the Group, including synergies with the retail businesses and to strengthen the market opportunities for the Beacon Lighting brand within Australia and internationally. 4.3.7. New Business Opportunities Beacon Lighting will investigate and pursue local and international business opportunities that complement the core business activities of the Group. During FY2019, the Beacon Lighting Group purchased the Underwood (QLD) and Albury (NSW) franchised stores and converted them into company stores. New business opportunities may include other lighting stores, franchised stores, wholesaling and other opportunities. 4.3.8. Efficiency Gains Beacon Lighting will continue to target expense efficiency gains and manage the growth of expenses. However, the Group still plans to invest in the opening of new stores and emerging businesses. The Beacon Lighting Group has installed solar systems on 50 Beacon Lighting locations and continue with a cost-conscious approach to operating expenses. 4.4 Business Risks Beacon Lighting is subject to both specific risks to the Group and risks of a general nature which may threaten both the current and future operating and financial performance of the Group and the outcome of an investment in Beacon Lighting. A number of the Group risks are beyond the control and influence of the Directors and management of Beacon Lighting, but the Group has in place mitigation strategies to manage the impact of the risks should those risks occur. The Beacon Lighting Group is sensitive to the current state and future changes in the retail environment and general economic conditions. This includes but is not limited to interest rates, consumer confidence, business confidence, property prices, housing churn, dwelling approvals, government policy and natural disasters. Beacon Lighting plans to manage the Group according to the current environment and maintain a capital structure capable of supporting the Group in any anticipated operating environment. 4.4.2. Foreign Currency Rates The majority of goods purchased and imported by Beacon Lighting into Australia are purchased in US dollars. As a result, the Group is exposed to fluctuations in the AUD/USD exchange rate. Beacon Lighting mitigates this risk by adjusting prices, releasing new products, negotiating with manufactures and carrying all domestic stock in Australia in AUD and by using FX forward contracts to secure future FX positions. 4.4.3. Growth Strategies Beacon Lighting has a number of different growth strategies to generate future growth and earnings. There is no guarantee that the planned benefits of these strategies will be realised. Beacon Lighting will continue to invest in and support growth strategies that can continue to increase Group value in the long term. If these opportunities do not have this capability, then resources will be reallocated to other strategies. 4.4.4. Operating Expenses As the Beacon Lighting Group continues to grow, the Group’s operating expenses continue to increase. The Group’s ability to maintain and improve profitability is based on the economies of scale of the operation, reasonable stock turns and maintaining a suitable cost structure. 4.4.5. Competition Beacon Lighting operates in a competitive retail market which is subject to moderate barriers to entry, changing competitor tactics and consumer preferences. Beacon Lighting believes that with its vertically integrated business model and its business strategies, the Group remains well positioned to maintain its leading retail market position and emerging commercial position in Australia and other international markets. 4.4.6. Management Systems The Beacon Lighting Group has a number of management systems which are critical to the ongoing operations of the Group. It is critical that these management systems are secure and fit for purpose. The Group needs to ensure that there are appropriate security and disaster recovery capabilities are in place to ensure the ongoing operations of our management systems. The specific material business risks faced by Beacon Lighting DIRECTORS’ REPORT 15 5. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS During the financial year there were no significant changes in the state of the affairs of the Group. 6. DIRECTORS’ MEETINGS The numbers of meetings of the Group’s Board of Directors held during the financial period ended 30 June 2019, and the numbers of meetings attended by each Director were: COMMITTEE MEETINGS DIRECTOR’S MEETINGS REMUNERATION & NOMINATION AUDIT DIRECTOR H A H A H A I Robinson 11 11 - - 4 4 G Robinson 11 11 4 4 - - E Barr 11 11 4 4 4 4 N Osborne 11 11 4 4 4 4 H = Number of meetings held during the time the Director held office or was a member of the committee during the period. A = Number of meetings attended. 7. DIRECTORS’ INTERESTS IN SHARES The relevant interest of each Director in the Company, as notified by the Directors to the ASX in accordance with section 205G(l) of the Corporations Act 2001 (Cth), at the date of the report is as follows: Director Ordinary Shares in the Company 121,054,088 I Robinson (1) G Robinson 121,054,088 (1) E Barr 200,000 N Osborne 300,000 (1) Heystead Nominees and other Robinson Family member interests 8. DIRECTORS’ INTERESTS IN CONTRACTS Directors’ interests in contracts are disclosed in Note 32 of the financial statements. 9. DIVIDENDS Dividends paid to members during the financial period were as follows: Consolidated Entity Fully franked dividends provided or paid during the period 16 BEACON LIGHTING GROUP ANNUAL REPORT 2019 Actual FY2019 $'000 Actual FY2018 $'000 10,986 10,577 10. INSURANCE OF OFFICERS 10.1. Indemnification of Directors The Group has indemnified each Director and external consultant referred to in this Report, the Company Secretary and previous Directors and Officers against all liabilities or loss (other than to the Group or a related body corporate) that may arise from their position as Officers of the Group and its controlled entities, except where the liability arises out of conduct involving a lack of good faith or where indemnification is otherwise not permitted under the Corporations Act. The indemnity stipulates that the Group will meet the full amount of any such liabilities, including costs and expenses, and covers a period of seven years after ceasing to be an Officer of the Group. The indemnity is contained in a Deed of Access, Insurance and Indemnity, which also gives each officer access to the Group’s books and records. The Group has also indemnified the current and previous Directors of its controlled entities and certain members of the Company’s senior management for all liabilities or loss (other than to the Group or a related body corporate) that may arise from their position, except where the liability arises out of conduct involving a lack of good faith or where indemnification is otherwise not permitted under the Corporations Act. 10.2. Insurance Premiums 12. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the Corporations Act 2001 (Cth). 13. EVENTS SUBSEQUENT TO REPORTING DATE In July 2019 the Group entered into an agreement to purchase a property for the value of $1,580,000 located in Epping, Victoria for Masson Manufacturing. In July 2019 both the Sunshine (Vic) and Mandurah (WA) stores were closed. In September 2019 the Group will be purchasing the Myaree (WA) franchisee store. A fully franked dividend of $4,384,299 was declared on 19 August, 2019. During the financial period, Beacon Lighting Group Limited paid a premium of $139,500 to insure the Directors and Officers of the Group against any loss which he/she becomes legally obligated to pay on account of any claim first made against him/her during the policy period. Other than the above, there has been no other matter or circumstance that has occurred subsequent to period end that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or economic entity in subsequent financial periods. 11. INDEMNITY OF AUDITORS 14. AUDIT SERVICES Beacon Lighting Group Limited has agreed to indemnify their auditors, PricewaterhouseCoopers (PwC), to the extent permitted by law, against any claim by a third party arising from Beacon Lighting Group Limited’s breach of their agreement. The indemnity stipulates that Beacon Lighting Group Limited will meet the full amount of any such liabilities including a reasonable amount of legal costs. 14.1. Auditor’s Independence Declaration The auditor’s independence declaration to the Directors of the Consolidated Entity in relation to the auditor’s compliance with the independence requirements of the Corporations Act 2001 (Cth) and the professional code of conduct for external auditors, forms part of the Directors’ Report. No person who was an officer of the Consolidated Entity during the financial year was a Director or Partner of the Consolidated Entity’s external auditor. DIRECTORS’ REPORT 17 14.2. Audit and Non-Audit Services Provided by the External Auditor During the 53 weeks ended 30 June 2019, the following fees were paid or were due and payable for services provided by the external auditor, PwC, of the Consolidated Entity: FY2019 $ FY2018 $ 236,900 222,100 - 69,580 Tax compliance services 22,390 28,235 Other Services 10,000 49,489 269,290 369,404 Consolidated Entity Audit & Assurance Services Audit & review of financial statements Other assurance services Other Services Total Remuneration of PwC In addition to their statutory audit duties, PwC provided taxation and other assurance related services to the Group. The Board has a review process in relation to non-audit services provided by the external auditor. The Board considered the non-audit services provided by PwC and, in accordance with written advice provided, and endorsed, by a resolution of the Audit Committee, is satisfied that the provision of these nonaudit services by the auditor is compatible with, and does not compromise, the auditor independence requirements of the Corporations Act 2001 (Cth) for the following reasons: • All non-audit services are subject to the corporate governance procedures adopted by the Group and are reviewed by the Audit Committee to ensure they do not impact the integrity and objectivity of the auditor. • Non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they do not involve reviewing or auditing the auditor’s own work, aiding in a management or decision making capacity for the Group, acting as an advocate for the Company or jointly sharing risks and rewards with the Group. 15. AUDITOR PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001 (Cth). 16. ROUNDING OF AMOUNTS The Group has relied on the relief provided by ASIC Corporations Instrument 2016/191, and in accordance with that Instrument, amounts in the financial statements have been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar. 18 BEACON LIGHTING GROUP ANNUAL REPORT 2019 17. REMUNERATION REPORT 17.1. Remuneration Policy and Link to Performance The Board recognises that the performance of the Group depends on the quality and motivation of our Associates, including the senior management and our more than 1,000 Associates employed by the Group across Australia and Internationally. The Group remuneration strategy therefore seeks to appropriately attract, reward and retain Associates at all levels in the business, but in particular for management and key executives. The Board aims to achieve this by establishing executive remuneration packages that include a mix of fixed remuneration and short term incentives. The Board has appointed the Remuneration and Nomination Committee whose objective is to assist the Board in relation to the Group remuneration strategy, policies and actions. In performing this responsibility, the Committee must give appropriate consideration to the Group’s performance and objectives, employment conditions and external remuneration relativities. The Committee reviews and determines our remuneration policy and structure annually to ensure it remains aligned to business needs and meets the Group’s remuneration principles. No specific advice or recommendations were sought from remuneration consultants during the 53 weeks ended 30 June 2019. The remuneration framework for senior executives comprises a mix of both fixed and variable remuneration components. Variable remuneration may be delivered in the form of cash and performance rights or options, subject to the achievement of short term performance targets. An outline of the remuneration framework is set out on page 19. Remuneration Framework Performance Metrics Changes for FY2019 Element Purpose Fixed Remuneration Provide competitive market salary including superannuation and non-monetary benefits Nil Positioned at competitive market rates No change Consolidated Group as well as individual performance are considered during the annual review of fixed remuneration Short Term Incentive (Cash Bonus) Reward for in year performance Budgeted Earnings before Interest & Tax (EBIT) 200% of the executives on target cash bonus No change EBIT measures as determined by the Board Short Term Incentive (Performance Rights or Options) Reward for in year performance Budgeted Earnings before Interest & Tax (EBIT) 125% of the executives on target cash bonus No change Grants are subject to achieving budgeted performance and vesting is subject to the executive remaining employed by the Group at the vesting date Potential Value Link to Performance Remuneration Approach The proportion of fixed and variable remuneration is established for Key Management Personnel (KMP) by the Board following recommendations from the Remuneration and Nomination Committee which are subject to Board approval. For FY2019 these are: Fixed Remuneration % Executive Chairman Short Term Incentive (Cash Bonus) % Short Term Incentive (Performance Rights or Options) % Total % 100.0% 0.0% 0.0% 100.0% Chief Executive Officer 80.2% 0.0% 19.8% 100.0% Managing Director – Sales 86.8% 0.0% 13.2% 100.0% Chief Financial Officer 86.2% 0.0% 13.8% 100.0% Chief Operating Officer 85.2% 0.0% 14.8% 100.0% DIRECTORS’ REPORT 19 17.2  Principles Used to Determine the Nature and Amount of Remuneration (a) Directors’ Fees The Executive Chairman and the Chief Executive Officer do not receive Directors’ fees but are remunerated as executives within the business. The Deputy Chairman and the Non-Executive Director are entitled to receive annual fees of $110,000 and $100,000 respectively. These fees are inclusive of their relevant responsibilities on the various Group Committees, and are also inclusive of superannuation. These fees exclude any additional fees for special services which may be determined from time to time. No additional retirement benefits are payable. The Non-Executive Director fees are reviewed annually to ensure that the fees reflect market rates. There are no guaranteed annual increases in any Directors’ fees. The Executive Chairman and Non-Executive Directors do not participate in the short or long term incentive schemes. The Group’s Earnings Before Interest and Tax (EBIT) result has been determined as the appropriate financial performance target to trigger the payment of cash incentives for each period. The amount of any short term cash incentive paid in a year is dependent upon the level of performance achieved against the Group’s EBIT budget for the year. The Board considers EBIT to be an appropriate performance measure as it aligns the Group’s remuneration philosophy with creating value, and is within the scope of influence of participants. Structure of Short Term Cash Incentive Plan Feature Description Maximum Opportunity 200% of on target cash bonus value Performance Metric Budgeted EBIT Delivery of STI 100% of STI award is paid in cash after the financial results have been audited and approved by the Board Board Discretion The Board has discretion to adjust remuneration outcomes up or down to prevent any inappropriate reward outcomes, including reducing down to zero if appropriate (b) Executive Remuneration The current executive salary and reward framework has three components: 1. Fixed Remuneration. 2. Short Term Incentive (Cash Bonus). 3. Short Term Incentive (Performance Rights or Options). The combination of these components comprises the executives’ total remuneration. For the 53 weeks ended 30 June 2019, the Group did not a have long term incentive program in place. 1. Fixed Remuneration Executive base salaries are structured as a part of the total employment remuneration package which comprises the fixed component of pay and other financial benefits being car allowances. Fixed remuneration includes superannuation which is paid in accordance with legislated amounts. Fixed remuneration for executives is reviewed annually to provide competitiveness with the market, whilst also taking into account capability, experience, value to the organization and performance of the individual. There are no guaranteed base salary increases included in executive contracts. An executive’s remuneration is also reviewed on promotion. In FY2019 fixed remuneration was increased for the five executives at an average of increase of 3.81%. This was done to align remuneration with comparative roles. 2. Short Term Incentive (Cash Bonus) Executives including the Chief Executive Officer but not the Executive Chairman are eligible to participate in an annual short term cash incentive which delivers rewards by way of cash bonuses, subject to the achievement of the Group financial performance targets. 20 BEACON LIGHTING GROUP ANNUAL REPORT 2019 3. Short Term Incentive (Performance Rights or Options). 17.3 FY2019 Performance and Impact on Remuneration During the 53 weeks ended 30 June 2019 the Group continued with the short term performance rights incentive plan and the short term incentive option plan for selected senior management. The Executive Chairman does not participate in either plan. The Chief Executive Officer (subject to shareholder approval) and one executive are eligible to participate in the annual short term performance rights incentive plan, subject to the achievement of the Group financial performance targets. Other executives are eligible to participate in the annual short term options incentive plan, subject to the achievement of the Group financial performance targets. Performance rights and options provide selected senior executives the opportunity to acquire shares or potentially be cash settled, subject to meeting the relevant conditions for vesting including remaining an employee of the Group at that time, at no cost to the senior executive. 100% of the grants are assessed by financial measures. The financial measure used is the Group’s EBIT result against the Group’s EBIT budget. This is tested annually. The Board considers EBIT to be an appropriate performance measure as it aligns the Group’s remuneration philosophy with creating value, and is within the scope of influence of participants. Beacon Lighting's financial performance in FY2019 was below that of the FY2019 budget. For the 53 weeks ended 30 June 2019, the Group's financial performance targets were not met. The annual short term cash incentive and the short term incentive (performance rights or options) targets were not achieved for the financial year. The Board will review the nature of potential issues of performance incentives moving forward to reflect market practice and to reflect the principles underlying the Group's remuneration policy. Structure of Short Term Performance Rights and Options Incentive Plans Feature Description Maximum Opportunity 125% of on target cash bonus value Performance Metric Budgeted EBIT Delivery of STI 100% of STI performance rights and options award vests after the financial results have been audited and approved by the Board if the executive remains an employee of the Group at that time 17.4 Statutory Performance Indicators Beacon Lighting aims to align executive remuneration to strategic and business objectives and the creation of shareholder wealth. The table below shows measures of the Group’s financial performance over the last two years as required by the Corporations Act 2001 (Cth). However these measures are not necessarily consistent with measures used in determining the variable amounts of remuneration awarded to executives. As a consequence there may not always be a direct correlation between the statutory key performance measures and the variable remuneration awarded. Statutory Key Performance Indicators of the Group FY2019 FY2018 Profit for the year attributable to owners of Beacon Lighting Group Limited ($’000) 16,044 19,590 Basic earnings per share (cents) 7.37 9.09 10,986 10,577 1.04 1.54 Dividend payments ($’000) Board Discretion Share Price (Year End) The Board has discretion to adjust remuneration outcomes up or down to prevent any inappropriate reward outcomes, including reducing down to zero if appropriate, subject to the terms of the plan 17.5. Details of Remuneration The following executives along with the Directors are identified as key management personnel with the authority and responsibility for planning, directing and controlling the activities of the Group, directly and indirectly, during the financial year. Ian Robinson Executive Chairman Glen Robinson Chief Executive Officer Ian Bunnett Managing Director – Sales David Speirs Chief Financial Officer Barry Martens Chief Operating Officer All of the above executives were employed by Beacon Lighting and were key management personnel for the entire 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018 unless otherwise stated. DIRECTORS’ REPORT 21 The details of the remuneration of the Directors and other key management personnel for the Beacon Lighting Group Limited and the consolidated entity for the current and prior financial periods are set out in the following table: Fixed Remuneration Cash Salary & Fees NonMonetary Benefits $ 2019 2018 Variable Remuneration Annual & Long Service Leave $ Cash Performance Based Payment $ Share Based Payments $ Post Employment Super Contributions $ 192,728 - 17,397 (7,586) - - 202,539 192,728 - 17,397 (28,166) - 181,959 Total $ DIRECTORS I Robinson (Executive Chairman) G Robinson (Chief Executive Officer) 2019 356,957 - 20,531 2,444 - 93,939 473,871 2018 352,278 - 20,048 (8,522) 109,140 46,557 519,501 2019 100,457 - 9,543 - - - 110,000 2018 100,457 - 9,543 - - - 110,000 2019 100,000 - - - - - 100,000 2018 100,000 - - - - - 100,000 E Barr (Non-Executive) N Osborne (Non-Executive) Total Remuneration Directors 2019 750,142 - 47,471 (5,142) - 93,939 886,410 2018 745,463 - 46,988 (36,688) 109,140 46,557 911,460 EXECUTIVES I Bunnett (Managing Director – Sales) 2019 271,628 - 20,531 25,345 - 48,207 365,711 2018 262,006 - 20,049 (3,556) 51,000 24,068 353,567 D Speirs (Chief Financial Officer) 2019 272,225 - 20,531 9,169 - 48,207 350,132 2018 262,356 - 20,049 3,015 51,000 24,068 360,488 B Martens (Chief Operating Officer) 2019 237,371 - 20,531 18,602 - 48,207 324,711 2018 228,174 - 20,049 (9,069) 51,000 24,068 314,222 Total Remuneration Executives 22 2019 781,224 - 61,593 53,116 - 144,621 1,040,554 2018 752,536 - 60,147 (9,610) 153,000 72,204 1,028,277 BEACON LIGHTING GROUP ANNUAL REPORT 2019 17.6. Share Based Compensation The number of performance rights over shares in the Group granted to the Chief Executive Officer during the current financial period, together with prior period grants which vested during the period are set out below: Grant Date Quantity Granted Vest Date Value at Grant Date $ Vest % Quantity Vested Quantity Unvested Value Expensed this Year $ G Robinson 24/06/2016 22,107 28-Aug-17 43,750 100.00% 22,107 0 - G Robinson 18/08/2016 23,603 28-Aug-17 32,100 100.00% 23,603 0 753 G Robinson 24/08/2017 39,338 13-Oct-17 53,500 66.67% 26,227 13,111 11,332 G Robinson 16/08/2018 71,333 09-Oct-18 109,140 33.34% 23,783 47,550 81,854 Total 156,381 238,490 93,939 The fair value of performance rights granted on 24 June 2016 (grant date) was $1.979, with a final vesting date of 28 August 2017. The fair value of performance rights granted on 18 August 2016 (grant date) was $1.360, with a final vesting date of 25 August 2018. All unvested performance rights will vest on 25 August 2018 provided the executive remains employed by the Group at the vesting date. The fair value of performance rights granted on 24 August 2017 (grant date) was $1.360, with a final vesting date of 25 August 2020. All unvested performance rights will vest on 25 August 2020 provided the executive remains employed by the Group at the vesting date. The fair value of performance rights granted on 16 August 2018 (grant date) was $1.530, with a final vesting date of 16 August 2020. All unvested performance rights will vest on 16 August 2020 provided the executive remains employed by the Group at the vesting date. The performance rights have a zero exercise price. Subject to meeting the relevant vesting conditions, shares will be issued at no cost to the executive. In the event an executive leaves the Group prior to the vesting date the performance rights will generally lapse. DIRECTORS’ REPORT 23 The number of options over shares in the Group granted to the Key Management Personnel during the current financial period, together with prior period grants which vested during the period are set out below. I Bunnett D Speirs B Martens Total Vest Date Value at Grant Date $ Vest % Quantity Vested & Exercisable Quantity Unvested Value Expensed this Year $ 31,582 Refer below 40,740 100.00% 31,582 - 797 18/08/2016 11,029 Refer below 15,000 70.00% 7,720 3,309 1,696 24/08/2017 18,382 Refer below 25,000 40.00% 7,353 11,029 7,465 16/08/2018 33,333 Refer below 51,000 33.33% 11,110 22,223 38,249 24/06/2016 31,582 Refer below 40,740 100.00% 31,582 - 797 18/08/2016 11,029 Refer below 15,000 70.00% 7,720 3,309 1,696 24/08/2017 18,382 Refer below 25,000 40.00% 7,353 11,029 7,465 16/08/2018 33,333 Refer below 51,000 33.33% 11,110 22,223 38,249 24/06/2016 31,582 Refer below 40,740 100.00% 31,582 - 797 18/08/2016 11,029 Refer below 15,000 70.00% 7,720 3,309 1,696 24/08/2017 18,382 Refer below 25,000 40.00% 7,353 11,029 7,465 16/08/2018 33,333 Refer below 51,000 33.33% 11,110 22,223 38,249 Grant Date Quantity Granted 24/06/2016 282,978 395,220 144,621 The fair value of options granted on 24 June 2016 (grant date) was $1.290. 40% vested on 26 June 2017, 30% vested on 25 August 2017 and 30% vest on 25 August 2018, in each case provided that the executive remains employed by the Group at the vesting date. The options expire on 24 June 2031. The fair value of options granted on 18 August 2016 (grant date) was $1.360. 40% vested on 18 August 2017, 30% vest on 18 August 2018 and 30% vest on 18 August 2019, in each case provided that the executive remains employed by the Group at the vesting date. The options expire on 24 June 2031. The fair value of options granted on 24 August 2017 (grant date) was $1.360. 40% vest on 24 August 2018, 30% vest on 24 August 2019 and 30% vest on 24 August 2020, in each case provided that the executive remains employed by the Group at the vesting date. The options expire on 24 June 2031. The fair value of options granted on 16 August 2018 (grant date) was $1.530. 33.33% vest on 16 August 2018, 33.33% vest on 16 August 2019 and 33.33% vest on 16 August 2020, in each case provided that the executive remains employed by the Group at the vesting date. The options expire on 24 June 2031. The options have a zero exercise price. Subject to meeting the relevant vesting conditions, shares will be issued at no cost to the executive. In the event an executive leaves the Group prior to the vesting date the options will generally lapse. 24 BEACONLIGHTING LIGHTING GROUP ANNUAL REPORT BEACON GROUP ANNUAL REPORT 20182019 17.7 Share Holdings The numbers of ordinary voting shares in the Company held during the financial year by each director of Beacon Lighting Group and other key management personnel of Beacon Lighting Group, including their personally related parties, are set out below. Balance at Start of Year Received During the Year(1) Purchase of Shares DRP Issue(2) Sales of Shares Balance at End of the Year 2019 119,584,748 - - 1,343,584 - 120,928,332 2018 118,659,353 10,779 41,500 873,116 - 119,584,748 DIRECTORS I Robinson (Executive Chairman)(3) G Robinson (Chief Executive Officer) 2019 124,264 - - 1,492 - 125,756 2018 93,386 28,352 - 2,526 - 124,264 2019 200,000 - - - - 200,000 2018 150,000 - 50,000 - - 200,000 2019 300,000 - - - - 300,000 2018 300,000 - - - - 300,000 2019 63,974 - - - - 63,974 2018 63,974 - - - - 63,974 2019 76,473 - - 3,108 - 79,581 2018 73,974 - - 2,499 - 76,473 2019 68,519 - - - - 68,519 2018 68,519 - - - - 68,519 2019 120,417,978 - - 1,348,184 - 121,766,162 2018 119,409,206 39,131 91,500 878,141 - 120,417,978 E Barr (Non-Executive) N Osborne (Non-Executive) EXECUTIVES I Bunnett (Managing Director – Sales) D Speirs (Chief Financial Officer) B Martens (Chief Operating Officer) Total (1) Shares received during the year were a result of performance rights vesting under the STI plan. (2) Shares received during the year as a result of participating in the Dividend re-investment plan. (3) Heystead Nominees Pty Ltd and other Robinson Family member interests, excluding Glen Robinson. DIRECTORS’ REPORT 25 17.8 Service Agreements All executives are employed on terms consistent with the remuneration framework outlined in this report. Each of the relevant executive agreements is for a continuing term but may be terminated by either party with a required notice period of 12 weeks. These agreements do not provide for any termination payments other than payment in lieu of notice. 17.9 Voting of Shareholders at Last Year’s Annual General Meeting Beacon Lighting Group received more than 90% of yes votes on its remuneration report for the 2018 financial year. The Company did not receive any specific feedback at the Annual General Meeting or throughout the year on its remuneration practices. Signed in accordance with a resolution of Directors Ian Robinson Executive Chairman Melbourne, 19 August 2019 26 BEACON LIGHTING GROUP ANNUAL REPORT 2019 Glen Robinson Chief Executive Officer Auditor’s Independence Declaration Index to the Financial Statements Page Page Consolidated Statement of Comprehensive Income 29 18. Current Borrowings 59 Consolidated Balance Sheet 30 19. Current Provisions 59 Consolidated Statement of Changes in Equity 31 20. Current Tax Liabilities 61 Consolidated Statement of Cash Flows 32 21. Non Current Borrowings 61 22. Non Current Provisions 62 Notes to the Financial Statements 28 1. Summary of Significant Accounting Policies 33 23. Contributed Equity 63 2. Changes in Accounting Policies 39 24. Reserves and Retained Profits 64 3. Financial Risk Management 40 25. Dividends 66 4. Segment Information 46 26. Key Management Personnel Disclosures 67 5. Revenue from Ordinary Activities and Other Revenue 47 27. Share Based Payments 68 6. Other Income 47 28. Earnings Per Share 71 7. 48 29. Remuneration of Auditors 71 8. Income Tax Expense 49 30. Contingencies 71 9. Cash and Cash Equivalents 50 31. Commitments 72 10. Trade and Other Receivables 50 32. Related Party Transactions 73 11. Inventories 52 33. Subsidiaries 74 12. Derivative Financial Instruments 53 34. Events Occurring After the Reporting Period 74 13. Other Current Assets 54 35. Cash Flow Information 75 14. Property, Plant and Equipment 55 36. Critical Accounting Estimates 76 15. Deferred Tax Assets 56 37. Parent Entity Financial Information 76 16. Intangible Assets 57 38. Deed of Cross Guarantee 77 17. Trade and Other Payables 58 Expenses BEACON LIGHTING GROUP ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities. Notes FY2019 $’000 FY2018 $’000 Sale of goods 5 246,304 235,964 Other revenue 5 1,375 1,716 Total revenue from ordinary activities and other revenue 5 247,679 237,680 Other income 6 280 103 EXPENSES 7 (88,592) (80,899) (13,738) (13,722) (104,211) (97,243) (16,329) (16,611) (1,971) (1,603) 23,118 27,705 (7,074) (8,115) 16,044 19,590 Consolidated Entity REVENUE FROM ORDINARY ACTIVITIES Cost of sales of goods Other expenses from ordinary activities Marketing Selling and distribution General and administration Finance costs 7 PROFIT BEFORE INCOME TAX Income tax expense 8 PROFIT FOR THE PERIOD ATTRIBUTABLE TO THE MEMBERS OF THE PARENT ENTITY Other comprehensive income Items that may be reclassified to profit or loss Changes in the fair value of derivatives 24(a) (1,499) 483 Exchange differences on translation of foreign operations 24(a) 239 176 377 (198) (883) 461 15,161 20,051 CENTS CENTS Income tax relating to these items Other comprehensive income for the period, net of tax TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO THE MEMBERS OF THE PARENT ENTITY EARNINGS PER SHARE Basic earnings per share 28 7.37 9.09 Diluted earnings per share 28 7.37 9.09 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying Notes. FINANCIAL STATEMENTS 29 CONSOLIDATED BALANCE SHEET As at 30 June 2019 and as at 24 June 2018. Beacon Lighting Group and its controlled entities. Notes FY2019 $’000 FY2018 $’000 Cash and cash equivalents 9 18,305 10,671 Trade and other receivables 10 12,053 10,091 Inventories 11 68,698 62,446 Derivative financial instruments 12 - 401 Other current assets 13 2,277 2,324 101,333 85,933 Consolidated Entity CURRENT ASSETS Total current assets Non-current assets Property, plant and equipment 14 46,009 29,862 Deferred tax assets 15 5,834 5,941 Intangible assets 16 11,646 10,870 63,489 46,673 164,822 132,606 Total non-current assets Total assets CURRENT LIABILITIES Trade and other payables 17 17,848 18,166 Borrowings 18 31,480 19,965 Derivative financial instruments 12 649 - Provisions 19 7,667 6,978 Current tax liabilities 20 658 1,436 58,302 46,545 Total current liabilities Non-current liabilities Borrowings 21 19,459 6,365 Provisions 22 3,881 3,367 Total non-current liabilities 23,340 9,732 Total liabilities 81,642 56,277 Net assets 83,180 76,329 23 68,229 65,690 Other reserves 24(a) (43,333) (42,587) Retained earnings 24(b) 58,282 53,226 83,180 76,329 EQUITY Contributed equity Total equity The above consolidated balance sheet should be read in conjunction with the accompanying Notes. 30 BEACON LIGHTING GROUP ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities. Consolidated Entity Notes Balance as at 24 June 2018 Contributed Equity $’000 Reserves $’000 Retained Earnings $’000 Total Equity $’000 65,690 (42,587) 53,226 76,329 - - 16,044 16,044 - (883) - (883) (883) 16,044 15,161 Profit for the year Other comprehensive income 24(a) Total comprehensive income for the period Transactions with owners in their capacity as owners: Issue of shares to employees 23 - - - - Issue of shares via dividend re-investment plan 23 2,539 - - 2,539 Employee share scheme 24(a) - 329 - 329 Treasury share reserve 24(a) - (192) - (192) 25 - - (10,986) (10,986) 2,539 136 (10,986) (8,312) Balance as at 30 June 2019 68,229 (43,333) 58,284 83,180 Balance as at 25 June 2017 62,870 (42,965) 44,213 64,118 - - 19,590 19,590 - 461 - 461 - 461 19,590 20,051 Dividends provided for or paid Total contributions by and distributions to owners Profit for the year Other comprehensive income 24(a) Total comprehensive income for the period Transactions with owners in their capacity as owners: Issue of shares to employees 23 251 - - 251 Issue of shares via dividend re-investment plan 23 2,569 - - 2,569 Employee share scheme 24(a) - (83) - (83) Treasury share reserve 24(a) - - - - 25 - - (10,577) (10,577) 2,820 (83) (10,577) (7,840) 65,690 (42,587) 53,226 76,329 Dividends provided for or paid Total contributions by and distributions to owners Balance as at 24 June 2018 The above consolidated statement of changes in equity should be read in conjunction with the accompanying Notes. FINANCIAL STATEMENTS 31 CONSOLIDATED STATEMENT OF CASH FLOWS For the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities. FY2019 $’000 FY2018 $’000 269,876 259,833 (247,766) (236,360) Interest received 45 43 Borrowing costs (2,014) (1,603) Income taxes paid (7,393) (6,370) 12,748 15,543 (1,138) (782) (20,146) (5,075) 8 6 (21,276) (5,851) 24,609 (3,938) (8,447) (8,008) Net cash inflow / (outflow) from financing activities 16,162 (11,946) Net increase / (decrease) in cash and cash equivalents 7,634 (2,254) 10,671 12,925 18,305 10,671 Consolidated Entity Notes 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) Net cash inflow from operating activities 35 CASH FLOWS FROM INVESTING ACTIVITIES Payments for acquisitions Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Net cash (outflow) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES (Repayment)/Proceeds from borrowings (net) Dividends paid to Company's shareholders 25 Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year The above consolidated statement of cash flows should be read in conjunction with the accompanying Notes. 32 BEACON LIGHTING GROUP ANNUAL REPORT 2019 9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities. 1. S  ummary of Significant Accounting Policies The principal accounting policies adopted in the preparation of this consolidated financial report is set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. The financial report is for the consolidated entity consisting of Beacon Lighting Group 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 (Cth). Beacon Lighting Group Limited is a for-profit entity for the purpose of preparing the financial report. Beacon Lighting Group Limited operates within a retail financial period. The current financial period was a 53 week retail period ending on the 30 June 2019 (2018: 52 week period ending 24 June 2018). This treatment is consistent with section 323D of Corporations Act 2001 (Cth). (i) New, revised or amended accounting standards and interpretations adopted by the group The company has applied the following standards and amendments for first time in their annual reporting period commencing 25 June 2018. centres, retail stores and support office facilities. The nature of expenses related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets and interest expense on lease liabilities. Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised. Based on the information currently available, the Group estimates that it will recognise right-of-use assets within a range of approximately $83.0 million to $85.0 million on 1 July 2019, lease liabilities within a range of $101.0 million to $103.0 million and lease receivables within a range of $2.5 million to $3.5 million. The estimated impact was calculated using a discount rate derived from the incremental borrowing rate when the interest rate implicit in the lease was not readily available. The Group does not expect the adoption of AASB 16 to impact its ability to comply with its financial covenants. The Group plans to apply AASB 16 on 1 July 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting AASB 16 will be recognised as a reduction to the opening balance of retained earnings at 1 July 2019 within a range of $14.5 million to $16.5 million, with no restatement of comparative information. • AASB 9 Financial Instruments There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. • AASB 15 Revenue from Contracts with Customers (iii) Compliance with IFRS The company had to change its accounting policies following the adoption of AASB 9 & 15, refer to Note 2 for further information. The adoption of the new Standards and amendments did not have any impact on the amounts recognised in prior years, did not impact the current year and is not expected to significantly affect future years. The consolidated financial report of the Group also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. (ii) Impact of Standards Issued but Not Yet Applied by Group The Group is required to adopt AASB 16 Leases from 1 July 2019. AASB 16 replaces existing leases guidance, including AASB 117 Leases and related Interpretations. The Group has assessed the estimated impact that initial application of AASB 16 will have on its consolidated financial statements, as described below. AASB 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right ofuse asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. The Group will recognise new assets and liabilities for its operating leases of distribution (iv) Historical Cost Convention This financial report has been prepared in accordance with the historical cost convention. (v) 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. Refer to Note 36 Critical Accounting Estimates for detailed explanation of items requiring assumptions and estimates. (b) Comparative Financial Information Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year. Comparative information is reclassified where appropriate to enhance comparability and provide more appropriate information to users. NOTES TO THE FINANCIAL STATEMENTS 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the 53 weeks ended 30 June 2019 and the 52 weeks ended 24 June 2018. Beacon Lighting Group and its controlled entities. (c) Principles of Consolidation The consolidated financial report incorporates the assets and liabilities of all subsidiaries of Beacon Lighting Group Limited (‘Group’ or ‘parent entity’) as at 30 June 2019 and the results of all subsidiaries for the period then ended. Beacon Lighting Group Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group (refer to Note 1(i)). 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. Where control of an entity is obtained during a financial period, its results are included in the consolidated statement of comprehensive income from the date on which control commences. Where control of an entity ceases during a financial period its results are included for that part of the period during which control existed. Investments in subsidiaries are accounted for at cost in accounting records of Beacon Lighting Group Limited. (d) Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker for Beacon Lighting Group Limited and its controlled entities (the Group), is the Chief Executive Officer (CEO). The Group determines operating segments based on information provided to the CEO in assessing performance and determining the allocation of resources within the Group. Consideration is given to the manner in which products are sold, nature of the products supplied, the organisational structure and the nature of customers. Reportable segments are based on the aggregated operating segments determined by the manner in which products are sold, similarity of products, nature of the products supplied, the nature of customers, the methods used to distribute the 34 BEACON LIGHTING GROUP ANNUAL REPORT 2019 product and materiality. The Group purchases goods in USD for sales into Australia. The Group’s one reportable segment is the selling of light fittings, fans and energy efficient products. (e) Foreign Currency Translation (i) Functional and Presentation Currency Items included in the financial report of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial report is presented in Australian dollars, which is Beacon Lighting Group Limited’s functional and presentation currency. (ii) Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when they are deferred in equity as qualifying cash flow hedges. (iii) Specific Commitments Hedging is undertaken in order to avoid or minimise possible adverse financial effects of movements in exchange rates. Gains or costs arising upon entry into a hedging transaction intended to hedge the purchase or sale of goods and services, together with subsequent exchange gains or losses resulting from those transactions are deferred in the consolidated statement of comprehensive income from the inception of the hedging transaction up to the date of the purchase or sale and included in the measurement of the purchase or sale. Any gains or losses arising on the hedging transaction after the recognition of the hedge purchase or sale are included in the consolidated statement of comprehensive income. In the case of hedges of monetary items, exchange gains or losses are brought to account in the financial period in which the exchange rates change. (iv) Group Companies The results and financial position of foreign operations (none of which has the currency of a hyper inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet. • Income and expenses for...
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