OROTONGROUP

Transcription

OROTONGROUP

Contents
Chairman’s Report
Financial Highlights
Managing Director’s Report
Financial Report Index 2003
Directors’ Report
Corporate Governance Statement
Statements of Financial Performance
Statements of Financial Position
Statements of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Audit Report
Shareholder Information
Corporate Directory
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06
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27
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56
ACN 000 038 675
OROTON
POLO RALPH LAUREN
MORRISSEY
MARCS
OROTONGROUP LIMITED ANNUAL REPORT 2003
OROTONGROUP
OROTONGROUP
LIMITED
ANNUAL
REPORT
2003
“Timeless styling with a sleek
modern edge. Oroton offers an
attitude of chic fashionability
teamed with functionality.”
OROTONGROUP
OROTON
POLO RALPH LAUREN
MORRISSEY
MARCS
The Oroton brand is steeped in
history and renowned for quality and
style. Think effortless simplicity and
sophisticated design. Perfect for those
that desire style, elegance and quality.
Oroton's collection has the answer to
every occasion. The Oroton brand is
set apart with its innovative designs,
development processes and products
that are aspirational yet functional.
It aspires to achieve customer
satisfaction through its unique
product qualities and premium
level of customer service we offer
to the Oroton customer when they
visit one of our stores.
“MORRISSEY gives you the confidence
to feel the power of seduction.”
Morrissey’s designs are intoxicating,
cool, sassy and full of attitude. They
let you express yourself, to be who
you want to be and have a good
time doing it.
This brand exists through its products
but more importantly through the
attitude, talent and respect of the team
that make MORRISSEY live and breathe.
Peter Morrissey’s philosophy is to
enhance people’s personality by
dressing them, because he believes
that your personality is your best
accessory. You should be proud
of who you are. You should use
clothes to express yourself, not
to hide. MORRISSEY is a brand
that makes people feel good
about themselves and feel sexy.
“My goal in design is to achieve
the ultimate dream – the best
reality imaginable.”
With these simple words Ralph Lauren
describes the creative quest that drives
his international empire. His design
philosophy is straight forward:
“I believe in design that has integrity,
designs that last”.
Ralph Lauren established Polo in 1967
starting with a collection of neck ties.
He chose the name Polo because to him,
the sport of polo represented a lifestyle
of athletic grace and discreet elegance.
OrotonGroup is the sole Australian
and New Zealand licensee of Polo Ralph
Lauren clothing. As the world’s premier
lifestyle brand, everything associated
with Polo Ralph Lauren reflects the
aspirational lifestyle the brand
personifies and provides the
customer with a unique experience.
“MARCS is energetic style with
a passion for colour and a focus
on fashion essentials.”
MARCS has a philosophy that
is built around four ideals:
UNEXPECTED TWIST – MARCS
understands that its customers expect
something unique from the brand and
so strives to deliver the unexpected
which surprises and entertains in
every shopping/purchase experience.
TIMELESSNESS – MARCS aims to have
a consistency which transcends seasons
and the range always includes classic
items that are fashion fundamentals.
QUALITY – MARCS ensures quality
in every aspect including fabric,
manufacture, fastenings, environments,
service and packaging.
WEARABILITY – MARCS is a brand
that is both stylish and refreshingly
down to earth, creating clothes that
are accessible to many people that
can be worn anytime, anywhere.
OROTONGROUP
OROTON
POLO RALPH LAUREN
MORRISSEY
MARCS
time doing it.
OROTONGROUP
OROTON
POLO RALPH LAUREN
MORRISSEY
MARCS
time doing it.
OROTONGROUP
OROTON
POLO RALPH LAUREN
MORRISSEY
MARCS
time doing it.
Contents
Chairman’s Report
Financial Highlights
Financial Report Index 2003
Directors’ Report
Corporate Directory
02
06
08
14
15
20
24
25
26
27
52
53
54
56
ACN 000 038 675
OROTON
POLO RALPH LAUREN
MORRISSEY
MARCS
OROTONGROUP LIMITED ANNUAL REPORT 2003
OROTONGROUP
OROTONGROUP
LIMITED
ANNUAL
REPORT
2003
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Page 01
Changing the shape of a company does
not happen overnight. Building an enduring
company that delivers real shareholder value
takes many years of work. Over the last six years
OrotonGroup has undergone a fundamental
change. We have changed from a two-brand
company into a thriving multi-brand manager.
We have come far and yet there is still a long
way to go and much more to achieve.
This report looks at our journey in the last twelve
months and the plans we have for the future.
LEFT TO RIGHT: ROBERT LANE, SAM WEISS, ROSS LANE
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Chairman’s Report
It is my great pleasure to write to you on the occasion
of the 2003 Annual Report of OrotonGroup Limited. The
vision of your Board and the Company is to build an
enduring business that delivers long term tangible
shareholder value. The hallmark of the success of
OrotonGroup over the years has been our steadfast
commitment to superior design, superb quality and
exemplary presentation of our brand stories to our core
consumers and the marketplace. This focus on product
and quality has not changed, however, in today’s rapidly
changing world this focus is not enough. Your Company
is also dedicated to creating the right infrastructure,
financial disciplines and controls and systems to manage
an increasingly complex premium brand business.
The focus of this year’s
Annual Report is the balance
we place between the
importance of quality and
design in creating premium
fashion brands and the value
from having rigorous financial
performance measurement
systems and controls.
Year in Review
For the year ended 2 August 2003 OrotonGroup sales
revenues increased a healthy 38% to $118.3 million. This
substantial increase over 2002 included eight months
trading of MARCS and an additional week of trading.
Our sales growth was matched by a 30% increase
in Profit after Tax to $8.4 million and our Earnings
per Share (pre-goodwill) was up 35% to 49.5 cents.
The Board is pleased to declare a final fully franked
dividend of 13 cents per share payable on 4 December
2003 to shareholders as at 20th November 2003. The
full year dividend is 23 cents per share: an increase
of 15% over 2002.
02
OROTONGROUP
ANNUAL REPORT 2003
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Rating our Performance
The acquisition of MARCS, which we believe
to be very much in the long-term interest
of our shareholders, did impact our balance
sheet this year. It was funded entirely with
debt and occurred in the second quarter
of the year; the flow-on from the material
increase in net debt, assets and inventory
carried by OrotonGroup caused a number
of key financial ratios to decline. As we
discussed in last year's Annual Report
the two key measures we use at the
Group level to drive the creation of
shareholder value are:
SAM WEISS
•
•
LEFT TO RIGHT:
CATHY STEWART,
HENRY THOMPSON,
ABBY TOBIA
LEFT TO RIGHT:
KATRINA AFFLICK AND SANDY BUNNING
EBITA (Earnings before Interest, Tax
and Amortisation of Goodwill). At the
Group level this is our key measure
of operational performance. While
the 29% increase to $13.4 million is
satisfactory the result was affected
by our need to increase investments
in infrastructure and resources.
ROCE (EBITA/Net Debt + Equity). This
indicates how well the Group’s capital
is being used to generate earnings.
With the material increase in debt carried
and only eight months sales contribution
from MARCS, there was a substantial
lowering in the return we recorded; 25.1%
for the 2003 financial year compared to
41.9% for 2002. We expect this measure
to improve in the coming two years.
Our success as
premium fashion brand
managers is based
on a number of things,
such as the quality
and desirability of our
products, the strength
of our people and
the efficiency of
our operations.
Many of OrotonGroup’s systems, though
suited to a two-brand or even three-brand
business, now need to be reviewed.
OrotonGroup has more than doubled in
size in the last six years. To continue steady
top and bottom line growth, we will invest
in purchasing, inventory planning, retailing
and warehousing systems that are central
to improvement in shareholder returns.
Measuring our Brands
In a challenging retail environment we are
pleased to report that our four brands met
our expectations. The focus for each of the
brand management teams during the year
was the continued:
•
•
Fine-tuning of the "brand’s proposition"
•
•
Building of its retail presence
Assessment of the positioning and
marketing of each brand
Focus on brand contribution/profit
From a management perspective we treat
each brand as a business in its own right.
This allows the brand management teams
to be judged by the same criteria. The two
brand financial ratios we use to measure
performance are:
•
Brand Contribution (Brand Earnings
before Interest, Tax and non-brand
overheads and shared services).
This measures the earnings
performance of the brand.
•
Return on Assets (Brand Contribution/
Assets). This measures brand
contribution against the asset base
of that brand. The asset base consists
of net inventory, written down property,
plant and equipment, and net debtors.
Oroton
Oroton is the flagship brand of the
Group and continues to be the strongest
performer as measured by Return on
Assets. The Brand Management Team
continues to develop the Oroton brand
personality, which resulted in improved
revenues and improved brand
contribution. We expect to see the trend
continue through the 2004 financial year.
During the year, as part of our regular
brand review we decided to bring back
in-house the Oroton jewellery business,
which will give us better control of
product design and development
and higher profits.
OROTONGROUP
ANNUAL REPORT 2003
03
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Polo Ralph Lauren
The Retail Network
Polo is the largest brand in the Group
in sales revenue and Brand Contribution
and its continued growth in sales
revenue confirms our conviction there
is more upside in this global brand. The
strategy for the current financial year is
very much on continued improvement
of product mix and margin and inventory
management resulting in an increasing
Brand Contribution and Return on Assets.
With the addition of the 18 MARCS stores,
OrotonGroup, as at 2 August 2003, had 75
stores compared to 54 stores for the prior
corresponding period. Comparable store
sales were up 3.5%. With plans to add at
least another 10 stores in the 2004 financial
year our strategy of building store traffic
and leveraging the existing asset base
is on course.
Polo also continued its support of the
"Pink Pony Campaign". The Pink Pony
Scholarship enables Australian rural
nurses to be further educated in the
care of breast cancer patients. Last
year’s campaign resulted in a donation
of $65,000 to the National Breast
Cancer Centre.
STORE NUMBERS
Morrissey
Morrissey was profitable in the 2003
financial year for the first time since we
purchased the brand. This was in line
with our forecasts. With the successful
launch of a new sub-brand MorrisseyX
and the launch of Morrissey brand
extensions under licence, Morrissey is
expected to perform well in the coming
years. The focus for 2003 has been
building the brand personality and
developing its retail presence. Since
acquiring Morrissey in December
2000 we have opened 10 stores.
Another highlight of the year was
the award of the Qantas uniform
design contract to Morrissey.
This brand has always had the ability
to capture market attention; our strategy
has been to build a business around
this ability. The focus for the Brand
Management Team is to build the
infrastructure to support growth
and to develop brand extensions.
MARCS
MARCS performed in line with
expectations for the period under
review and contributed $797k in Profit
after Tax after the allocation of corporate
overheads and shared services. We are
merging the best elements of MARCS
merchandise planning, buying practices
and financial reporting functions with
our own brand methodology.
04
Page 04
OROTONGROUP
ANNUAL REPORT 2003
FY 02
FY 03
2 OCT 03
Oroton
28
24
24
PRL
18
19
19
Morrissey
8
10
11
MARCS
-
18
19
Aspect
-
4
5
Doctor Denim
-
-
1
54
75
79
TOTAL
Operations Division
As we have noted in the past two Annual
Reports, inventory management is central
to our ability to deliver superior returns.
Inventory is our largest asset and therefore
is the major component of our brand
Return on Assets measure.
There have been improvements in the
way we manage our inventory. However,
the addition of the MARCS inventory,
a special Oroton bulk purchase to take
advantage of a deep discount and the
early delivery of Polo inventory, led us to
book an increase in inventories for the end
of the 2003 financial year. We expect to
reduce inventory and therefore holding
costs as the new systems and processes
we implement deliver benefits.
Board Changes
On 26 October 2003, Robert Lane
celebrated 50 years working for the
Group and it gives me great pleasure to
congratulate Robert and thank him for his
enormous contribution to the development
of OrotonGroup. When Robert joined the
family business in 1953, the Company was
an importer of fabrics. It was his drive and
vision that saw the transformation of the
company over the years. There are many
legacies of Robert's vision. Four highlights
that best demonstrate his contribution
to the building of OrotonGroup are:
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•
Developing the Oroton brand and its first
range of mesh bags and accessories
•
Moving the company away from pure
wholesale to retail with the opening
of the first Oroton store in 1971
•
Guiding the company through its listing
on the Australian Stock Exchange in 1987
•
Recognising the appeal of Polo Ralph
Lauren and securing the Australian
and New Zealand license.
These contributions are significant not only
for OrotonGroup but for the fashion industry
in Australia as well. Robert’s vision, product
knowledge, determination and leadership
have enabled OrotonGroup and its growing
stable of brands to change and stay
relevant in an environment that has seen
many other brands fall by the wayside.
Over the years Robert has served in many
roles within the company including 32 years
as Chief Executive Officer and as Chairman
from before the Company’s public listing in
1987 up until May 1998. We are very much
indebted to his continued support and the
experience he brings to the Board.
Part of our development this year was to
recognise that the Board needed to change
to better support the strategic role now
required by the Group’s strong growth.
The Board also recognised that it needed
to strengthen its retail expertise and to
introduce new levels of independence.
To achieve these outcomes and to support
the growth being achieved by the Group,
the Board decided it would appoint me
as independent Non-Executive Chairman.
With OrotonGroup
embarking on a further
period of challenging
growth, this change
positions us well
for the future.
substantial shareholders in OrotonGroup.
This means we want you to consider your
investment, like ours, in OrotonGroup to be
a long-term one. Our strategy is to ensure
that growth is prudent and that our returns
are achievable and centred on creating
long-term tangible shareholder value.
Our People
Our aim is to be the employer of choice
for those who want to work in the fashion
sector and to create an environment
where our team members know that
their development is essential to our
goal of building premium lifestyle brands.
On behalf of the Board and Management I
would like to recognise each team member
of OrotonGroup without whose passion and
drive we could not continue to deliver the
results expected of us. We thank them for
their continued contribution to the success
of OrotonGroup.
The Way Forward
OrotonGroup has made substantial progress
over the last six years and the Board and
Management are excited by our long-term
prospects, as there is significant organic
growth potential in Australia and New
Zealand for our brands. Not only has the
Group’s earning capacity been transformed
over the last 5-6 years but also the whole
business behind the scenes is continually
evolving to meet current and future needs.
We are focused on continuing to deliver
exciting product to satisfy consumer desire
and to building the Group’s operational
infrastructure, systems and processes to
handle increased sales, our portfolio of
brands and the different offerings within the
brands. Central to this development is the
way we work with our people and building
the support they receive. The structure we
have designed is there to support organic
growth and future acquisitions.
Corporate Governance
The Board and Management looks
forward to being able to continue to
deliver good Earnings per Share and
dividend growth over the coming years.
Earlier this year the ASX Corporate
Governance Council released its 10
corporate governance principles. The Board
respects and endorses the principals.
Collectively the Board and Management are
Samuel S Weiss
NON EXECUTIVE CHAIRMAN
OROTONGROUP
ANNUAL REPORT 2003
05
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Dividend
Special Dividend
140
16
120
14
60
50
50
40
40
12
10
8
Cents
80
Cents
$m
100
$m
60
30
30
20
20
10
10
60
6
40
4
20
2
99 00 01 02 03
99 00 01 02 03
99 00 01 02 03
99 00 01 02 03
Year
Year
Year
Year
40
Dividends
Earnings per Share
(basic – pre goodwill)
EBITA
Sales Revenue
50
00
40
80
35
30
30
60
$m
30
Ratio
%
%
25
20
20
20
40
10
20
15
10
10
5
99 00 01 02 03
99 00 01 02 03
99 00 01 02 03
99 00 01 02 03
Year
Year
Year
Year
Return on
Operating Assets
06
OROTONGROUP
ANNUAL REPORT 2003
Return on
Capital Employed
Net Debt to Equity
Inventory
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Highlights
Net Profit after Tax increase of 30% to $8.4 million
Successful acquisition and integration of MARCS brand and businesses
Sales increase of 38% to $118.3 million
Morrissey brand becomes profitable
Earnings per Share (pre goodwill) increased 35% to 49.5 cents per share
Consolidation and upgrade of warehouse and distribution centre
Comparable store sales up 3.5%
All brands improved their profitability
Final & Interim Dividend of 23 cents per share, up 15%
Ratios and Statistics
1999
$M
2000
$M
2001
$M
2002
$M
2003
$M
52.3
5.5
4.1
63.2
8.4
4.8
69.7
9.4
5.6
85.6
10.4
6.4
118.3
13.4
8.4
15.8
27.5
15.2
15.4
30.2
16.7
24.8
38.1
18.8
20.1
35.6
21.2
30.2
68.2
27.7
(cents)
(%)
(%)
(%)
(%)
27.4
10.5
24.2
28.0
30.0
29.3
13.3
35.2
44.6
13.3
32.3
13.5
27.5
34.4
44.6
36.7
12.1
33.9
41.9
16.7
49.5
11.3
28.6
25.1
92.5
(cents)
12
15
17
20
23
Profitability
Sales revenue
EBITA
Net profit after tax
Balance Sheet Summary
Inventory
Total assets
Total shareholders equity
Financial Ratios
EPS (basic – pre goodwill)
EBITA / sales
Return on operating assets (1)
Return on capital employed (2)
Net debt / equity ratio
Dividends
Ordinary Dividend (100% franked)
(1) Return on operating assets = EBITA / operating assets (net inventory + written down
property, plant and equipment + net debtors)
(2) Return on capital employed = EBITA / (net debt + equity)
OROTONGROUP
ANNUAL REPORT 2003
07
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In last year’s Annual Report we outlined the management philosophy that underpins the
development of OrotonGroup as premium fashion brand managers. Much of the discussion
centered on how we had developed our brand management strategy, what it took to build
a brand and the culture we were creating. With six years of back-to-back growth in sales
and profits our focus is on continuing this growth and delivering sustainable results.
ROSS LANE
This report looks at where we have come from, where we are going and the platforms
and foundations we have developed over the years to support our brand management
strategy and deliver the growth we believe OrotonGroup is capable of generating.
Where we have come from
In planning for the future it is often good to reflect on where we have come from.
As the table below shows we have, in the last 6 years, substantially grown our number
of brands and with this has come the growth in revenues and earnings.
1998
2003
2 – Oroton, Polo
4 – Oroton, Polo,
MARCS, Morrissey
USA license; Australia, New Zealand
Australia, New Zealand only
25
75
Sales
$45m
$118m
Profit
$1.8m
$8.4m
10 cents
45 cents
Leather goods
None (All outsourced)
Brands
Markets
Stores
Earnings per share
Manufacturing
Where we are going
In building OrotonGroup, our business strategy is derived
from the experiences we have gained over the years.
Understanding the drivers behind
good brand management is the
cornerstone on which OrotonGroup
has structured its business.
Being able to replicate those drivers and refine them is key to
continuing our growth. We have learnt much over the years and
recognise that we must never stop learning. Central to our strategy
is the way we learn from our experiences and how we interpret
and implement the lessons.
With four brands, which operate as separate businesses, we have
discovered that each brand management team can contribute
to the growth of our other brands. In acquiring MARCS we found
systems and processes that would benefit our brand management
strategy, so we are now in the process of merging these systems.
LEFT TO RIGHT:
MIKE HOLTZER, CLARE BALDRY, MARK SLATTERY
08
OROTONGROUP
ANNUAL REPORT 2003
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Page 09
Harnessing these experiences and being
able to put them into context will allow
us to continue to evolve as a Company.
In the past six years we have set many
performance benchmarks. Each time
we reached these benchmarks, we set
for ourselves a further challenge by raising
the bar again. This is a continuous process.
We will always be looking for ways of
improving our processes and systems.
Investing for Growth
While there is a creative element in any
brand proposition, much of our business
is about standard operational activities –
warehousing, information systems, stock
control, planning, sourcing, etc. These
are areas where it is possible to build
business efficiencies.
ANGELA CRAWLEY AND ANDREW SMITH
By designing systems
that introduce structure,
support and control,
we have a clear path
to improving our
long-term profitability
through the long-term
reduction in costs
and the elimination
of processing
inefficiencies.
Without doubt the most significant
investment during the year was the
acquisition of the MARCS business in
November 2002 for approximately $21
million. The purchase strengthened our
brand portfolio, enhanced our sourcing
capabilities and significantly broadened
the distribution base. The brand’s
continued good profitability and lack
of major management or integration
issues reinforces our aim to create
“the OrotonGroup Way” of managing
our brands that eliminates much of
the risk normally associated with brand
management in the fashion sector.
Investing in our Operations
In the past year we have continued to
identify the operational gaps within our
business. Some are relatively easy to rectify,
while others will take time. Examples of
issues that we are currently tackling include:
Warehousing and Distribution
After the acquisition of MARCS we had
four brands and three warehouses. The
duplication of processes and the lack
of effective resource planning meant
increased logistics costs. To this end,
between May and July 2003, we
amalgamated all our warehouses into
one specifically designed warehouse
and distribution centre at Belrose,
NSW. This will allow us to better plan,
and implement, the distribution
of inventory and the flow between
stores and suppliers
Staffing
Part of investing for growth has been
our emphasis on our Human Resource
capabilities to deliver on our vision of
being the employer of choice for those
people wanting to work in the fashion
industry. In less than five years we have
tripled the number of people we employ.
A characteristic of the retail sector is the
high turnover. It is our belief if we can
reduce this turnover we will build better
loyalty within our team and a better
relationship with our customers thus
reducing the associated costs. We
have identified a number of initiatives
that should allow us to reduce staff
turnover and we are looking to invest
in the first phase of this in the coming
financial year.
OrotonGroup Sourcing
Taking the concept of shared operational
services to the next step has led us
to create OrotonGroup Sourcing. This
new division will be responsible for
a good part of the Group’s apparels
sourcing. The centralisation of these
activities allows us to improve our
supply chain management, thereby
making us more efficient.
OROTONGROUP
ANNUAL REPORT 2003
09
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Jewellery Capability
Another way in which we are capitalising
on our in-house expertise, is the decision
to bring Oroton Jewellery back in-house.
This decision was initially designed to
improve our control and the margins the
Oroton brand earns from this product
range. However, it became apparent that
our investment in creating a specialist
jewellery design and sourcing team
has created opportunities for our other
brands. The result is that the team
will also provide jewellery design and
sourcing capabilities for MARCS and
Morrissey. Both ranges will be launched
later this year.
Regardless of the investment we make,
the ultimate long-term aim is the reduction
of costs as a percentage of sales year
on year. There will be times when this will
be difficult to achieve because we must
continue to evaluate the needs of our
business as it continues to grow. These
investments will not be made lightly, with
the emphasis remaining on the long-term
benefits for the growth of OrotonGroup.
Strengthening our Expertise
A flow on from this need to learn is the
structure of the organisation. With our
revenues growing each year, our investment
in the Operations Division takes on greater
importance. So during the past year we
took the strategic decision to strengthen
and broaden our Management team.
To this end we have:
MANAGER
•
Strengthened our IT department with
the employment of Eamon Canavan, as
Chief Information Officer. He is leading
a detailed analysis of our back-office
systems. With the acquisition of MARCS
we gained a second ERP system, which
gave us the opportunity to analyse both
systems to assess their suitability to
support our present and future back
office and inventory management needs.
•
Reinforced our financial capabilities
with the employment of Mark Slattery
as General Manager, Finance who
brings with him a wealth of retail and
fashion industry expertise. We recognise
that like our processing systems we
need to invest in financial procedures
and reporting.
•
Appointed Bernard Negline as General
Manager, Business Risk with the charter
to identify business risks and implement
the appropriate strategies to mitigate
and manage them. This is a broad
based role that allows us to target
immediately issues that may have
both short and long term implications
for a brand or our business as a whole.
To deliver the next period of growth we
are continuing our investment by changing
the roles and responsibilities of all the
General Managers of our brands. This
re-organisation will allow each Brand
Management Team to benefit from the
different perspectives and strengths that
their new manager will bring. The changes,
effective 7th October 2003, reflect our
commitment in developing our staff
and our brands.
WAS
NOW
Polo Ralph Lauren
MARCS
Natalie Lenton
MARCS
Morrissey & OG Sourcing
Gordon Devin
Morrissey & OG Multi-brand Division
Polo Ralph Lauren
Oroton
Oroton & OG Multi-brand Division
Sandra Bunning
Tom Lane
10
Page 10
OROTONGROUP
ANNUAL REPORT 2003
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Growing our Brands
Distribution
Notwithstanding building the revenues
through our existing retail and wholesale
network there are essentially three methods
available to us to grow our brands;
Integral to the development of our brands
is the building of their market presence.
Up until recent months we relied on singlebrand stores and wholesale relationships
to distribute our brands. With the expansion
of the number of brands that we manage
and their product range we have been
able to add a new distribution strategy –
multi-brand retail stores.
•
•
•
Distribution
Brand extension
Sub brands
The combination and the process of
deciding are the realm of the Brand
Management Team. The strategy is
very much based on management’s
understanding of their own brand’s
proposition and the relationship with
its customers. First and foremost in the
brand’s development is the building
of this relationship.
The Brand’s "proposition" or "personality"
is an amalgamation of such things
as product range, pricing, marketing
images, quality, advertising medium,
retail environment and standards.
By understanding
the customer and
the associated
psychographics the
brand team builds the
necessary proposition
to attract the customer.
It is an ongoing
relationship that needs
to develop over time
if the brand is to
continue its growth.
Multi-Brand Retail Stores
This new concept is based on the
realisation that there are many retail
precincts in Australia where despite
a reasonable demand for our brands,
sales would not justify our single-brand
store concept. So adopting a "boutique"
approach, we have developed two multibrand retail store concepts. The first
concept is called "Aspect".
Aspect stores will stock a range of our
four brands and, where appropriate,
other sourced brands.
The aim is to create stores that reflect
the needs of our customers.
For stores that are in resort locations the
emphasis would be different from larger
provincial cities. In the last six months we
have rebadged four existing stores, as
we believe we can improve the returns
achieved if we adopted a multi-brand
strategy. At the time of writing this report,
trading is in-line with our expectations
and additional stores are planned.
OROTONGROUP
ANNUAL REPORT 2003
11
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The second concept, "Dr Denim" opened
its first store on 2 October 2003. Described
as the "field hospital for fashion casualties",
it is aimed at the 18-35 age category. The
stores will give OrotonGroup an opportunity
to showcase its youth brands (MARCS
Babydoll, Scram, MorrisseyX and Polo
Jeans Company) complimented by other
local and international aspirational denim
brands. We intend to open a total of three
Dr Denim stores by Christmas.
New Stores
The number of stores each brand has
is a result of strategic planning and market
opportunities. MARCS have started to
develop their presence outside NSW
with stores opening in both Victoria and
Queensland. We are planning an additional
10 stores across all brands during the
forthcoming financial year. However the
final numbers and locations will depend
on the performance of existing stores,
lease renewals, property opportunities
and the development of Aspect and
Dr Denim in the coming months.
We are cognisant of the fact that despite
the investment in these distribution
strategies, we still need to continue to
build the revenues derived from existing
retail stores. We also need to invest in our
wholesale relationships, which have stood
us in good stead in the past. While our
focus is very much on retail we will look at
developments as and when the appropriate
opportunities arise.
12
OROTONGROUP
ANNUAL REPORT 2003
Page 12
It is a business
approach to
managing
fashion brands.
LEFT TO RIGHT:
MARC ADAMS AND GORDON DEVIN
Brand Extensions
By understanding the customer there
comes a time when it becomes appropriate
for the brand to extend its reach by creating
new brand categories or brand extensions.
Within the OrotonGroup range of brands
this brand extension could be the
introduction of eyewear, underwear,
leather goods or jewellery. In the case
of Polo, there is a host of USA developed
brand extensions including homewares
which could be retailed in Australia.
In the case of Morrissey and MARCS,
brand extensions recently included the
introduction of eyewear and leather goods.
Sub Brands
Unlike brand extensions, which take a brand
into anew category, sometimes it makes
sense to extend the brand proposition
to include a new set of customers. The
introduction of MARCS Babydoll brand three
years ago allowed the Brand Management
Team to strongly target the female youth
market that was, to a certain extent,
being missed by the brand’s initial
proposition.
LEFT TO RIGHT:
NATALIE LENTON
AND JARROD POTITO
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Based on continued customer research MARCS is now
working on two sub-brands. The first, ‘Mini-Marcs’ a range of
children’s wear aimed at those who want great clothes that
look good, are practical and colourful…a MARCS signature.
The second brand is called ‘Scram’ a men’s label designed
to complement the successful Baby Doll range. The label
is influenced by street culture and appeals to a different
customer base than the traditional MARCS menswear
designs. The range will be denim and denim related
and will be in store from Autumn 2004.
In the case of Morrissey we have seen the successful
launch earlier this year of MorrisseyX. This label is essentially
a denim and items driven business that caters to the
market of savvy, Internet surfing, MTV watching, brandconscious "youth".
Over the last two years the Polo Brand Management
Team has overseen the successful introduction
of the Polo Jeans Company.
Summary
We have accomplished much in the past six years. We
have refined our brand management strategy and taken
the company from 2 brands to 4 brands and from 25 stores
to more than 75 stores. The demands have been many.
Some challenges we have met well and some are yet
to be fully mastered. We have taken a good long look
at where we want to be in the next five years and have
started to invest for that growth.
We know the world of premium fashion brands and
are comfortable with our objectives. We are committed
to the long-term success of OrotonGroup and delivering
tangible shareholder value and returns.
Ross Lane
MANAGING DIRECTOR
LEFT TO RIGHT: MARTINE KIESELBACH AND TOM LANE
OROTONGROUP
ANNUAL REPORT 2003
13
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Financial Report 2003 Index
14
Directors’ Report
15
20
24
25
26
Note 1
Summary of significant accounting policies
27
Note 2
Segment information
30
Note 3
Revenue
30
Note 4
Profit from ordinary activities
31
Note 5
Income tax
32
Note 6
Current assets - Cash assets
32
Note 7
Current assets - Receivables
33
Note 8
Current assets - Inventories
33
Note 9
Current assets - Other
33
Note 10 Non-current assets - Receivables
33
Note 11 Non-current assets - Other financial assets
33
Note 12 Non-current assets - Property, plant & equipment
34
Note 13 Non-current assets - Deferred tax assets
35
Note 14 Non-current assets - Intangible assets
35
Note 15 Current liabilities - Payables
35
Note 16 Current liabilities - Interest bearing liabilities
35
Note 17 Current liabilities - Current tax liabilities
35
Note 18 Current liabilities - Provisions
36
Note 19 Non-current liabilities - Interest bearing liabilities
37
Note 20 Non-current liabilities - Deferred tax liabilities
38
Note 21 Non-current liabilities - Provisions
38
Note 22 Contributed equity
38
Note 23 Reserves and retained profits
39
Note 24 Equity
39
Note 25 Dividends
40
Note 26 Financial instruments
41
Note 27 Remuneration of Directors
43
Note 28 Remuneration of Executives
44
Note 29 Remuneration of Auditors
45
Note 30 Contingent liabilities
45
Note 31 Commitments for expenditure
46
Note 32 Employee benefits
47
Note 33 Related parties
49
Note 34 Investments in controlled entities
50
Note 35 Events occurring after reporting date
51
Note 36 Reconciliation of profit from ordinary activities after
income tax to net cash inflow from operating activities
51
Note 37 Earnings per share
51
52
53
OROTONGROUP
FINANCIAL REPORT 2003
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Directors’ Report
Directors' Report
Review of Operations
Your Directors present their report on the Consolidated
Entity consisting of OrotonGroup Limited and the
entities it controlled at the end of or during, the
year ended 2 August 2003.
Significant Changes in the State of Affairs
The review of operations should be read in conjunction
with the Chairman’s and Managing Director's reports.
Directors
There were no significant changes in the state
of affairs of the Consolidated Entity during the
financial year.
The following persons were Directors of
OrotonGroup Limited at the date of this report:
Change in Company Name
•
•
•
•
•
•
Samuel S Weiss
Ross B Lane
Michael R Day
Robert B Lane
Tom B Lane
J Will Vicars
Principal Activities
On 27 November 2002, Oroton International Limited
changed its name to OrotonGroup Limited.
Matters Subsequent to
the end of the Financial Year
No matter or circumstance has arisen since
2 August 2003 that has significantly affected,
or may significantly affect:
The principal activities of the Consolidated
Entity during the financial year were:
(a) the Consolidated Entity's operations in future
financial years, or
•
Wholesaling and retailing fashion clothing,
leathergoods and other fashion accessories
under the Oroton, Morrissey, Polo Ralph Lauren
and MARCS labels. MARCS was acquired during
the year. There were no other changes
in the principal activities during the year.
(b) results of those operations in future financial
years, or
Licensing of the Oroton and Morrissey
brand names.
The entity's focus is premium lifestyle brands in
fashion related businesses. The Company continues
to have a multi-brand strategy and will build on its
existing strengths when the right opportunities arise.
The Company's philosophy is to provide consistent
profit growth supporting a stable dividend growth
for shareholders. Further information relating to likely
developments in the operations of the Consolidated
Entity have not been included in this report as the
Directors believe that to include such information
would be likely to prejudice the Consolidated Entity.
•
There were no significant changes in the principal
activities of the Consolidated Entity during the
financial year.
Operating Results
The consolidated profit of the Consolidated Entity
after providing for income tax was $8,350,000
(2002: $6,434,000)
Dividends – OrotonGroup Limited
(a) A fully franked final dividend of 1 1.0 cents per
share in respect of the year to 27 July 2002 was
paid on 27 November 2002, totalling $2,026,626
(b) A fully franked interim dividend was paid on
15 April 2003 on issued shares at 10.0 cents
per share, totalling $1,842,387
(c) Since the end of the financial year a fully franked
final dividend of 13.0 cents per share in respect
of the year to 2 August 2003 has been declared,
totalling $2,395,104 to be paid on 4 December 2003.
(c) the Consolidated Entity's state of affairs
in future financial years.
Likely Developments
Information on Directors
Samuel S Weiss (Non-Executive Chairman)
Experience: Mr. Sam Weiss, a graduate of Harvard
University and Columbia School of Business
Administration, brings to the Board more than
25 years of management expertise. His strong
reputation as a builder of premium brands and
expertise in international marketing techniques was
founded with such companies as NIKE, Sheridan and
Gateway Computers. Mr. Weiss has worked at Board
level in Australia, Europe and the United States and
is currently the Non-Executive Chairman of Ecos
Corporation and a Non-Executive Director of
OROTONGROUP
15
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Page 16
Canterbury Limited. On 3 June 2003, Mr. Weiss
joined the Board as a Non-Executive Director and
on 31 July 2003 was appointed Chairman of the
Board. Mr. Weiss is also on the Audit Committee,
Remuneration Committee, and Chairman of the
newly formed Board Nomination Committee.
Directors' meetings attended: 2
Audit Committee meetings attended: 2
Ross B Lane (Managing Director)
Experience: Mr. Ross Lane has held various positions
within the Consolidated Entity over the past 15 years.
On 1 November 1996, Mr. Lane was appointed
Managing Director of OrotonGroup Limited and
Chairman and Managing Director on 30 April 2001.
On July 31 2003, Mr. Lane stepped down as Chairman
after a decision to focus on running the day to day
business. Mr. Lane is a member of the newly formed
Board Nomination Committee.
Audit Committee meetings attended: 1 by proxy,
2 by invitation
Interest in shares: Mr. Lane holds 214,424 ordinary shares
and 320,000 options over ordinary shares in his own
name. Hazakson Pty Ltd, a company associated with
Mr. Lane, holds 972,192 shares. Mr. Lane has interests
in Zacnali Pty Limited, which as trustee for the
Lane Super Fund, owns 19,600 shares.
Michael R Day (Non Executive Director)
Experience: Mr. Michael Day retired from the position
of Finance Director with the Just Jeans Group in 1997
after 27 years of involvement, including 23 years as a
full-time employee. In this time, he was involved in an
organisation growing from its first store to 500 stores.
Mr. Day has since been involved in consulting work for
the retail industry. He is currently Honorary President
of Scope (Vic) Ltd and has been a Director of that
organisation for seven years. Mr. Day is Chairman
of both the Audit Committee and the Remuneration
Committee and a member of the newly formed Board
Nomination Committee of OrotonGroup Limited.
Interest in shares: Anulka Pty Limited, a Company
associated with Mr. Lane, holds 7,878,296 ordinary
shares in OrotonGroup Limited. Mr. Lane holds 135,000
ordinary shares in his own name. Trurim Pty Limited,
a controlled entity of Anulka Pty Limited, holds 1 15,873
ordinary shares. Mr. Lane has interests in Akora Pty Ltd,
which, as trustee for the Robert Lane Superannuation
Fund, owns 1 17,080 ordinary shares.
Interests in contracts: Mr. Lane is a Director
and substantial shareholder of Pipalo Pty Limited,
a Company that has (as lessor) entered into a
commercial lease at market rates with OrotonGroup
(Australia) Pty Limited and Polo Ralph Lauren Australia
Pty Limited (as lessees) for the premises at 52-54
Balgowlah Road, Balgowlah NSW.
Tom B Lane (Executive Director)
Experience: Mr. Tom B Lane (B.Bus.) commenced as an
employee in 1994 and has experience across various
departments within the Consolidated Entity. Mr. Lane
currently holds the position of General Manager, Oroton
and OG Multi-Brand Division and was appointed
as a Director on 6 July 2001.
Interest in shares: Mr. Lane holds 64,439 ordinary shares
and 106,667 options over ordinary shares in his own
name. Hubbas Pty Limited, a company controlled by
Mr. Lane, holds 936,192 shares in OrotonGroup Limited.
J Will Vicars (Non-Executive Director)
Remuneration Committee meetings attended: 1
Experience: Mr. Will Vicars (BA (Eco) Syd) was a
Senior Portfolio Manager at NRMA Investments and
later a Portfolio Manager at BT Australia. At present,
Mr. Vicars is an Executive Director of Caledonia (Private)
Investments Pty Limited and Caledonia Investments
Limited. He has more than 14 years experience in a
variety of financial markets and is currently on both the
Audit Committee and the Remuneration Committee of
OrotonGroup Limited. He is also a member of the NSW
Board of the Starlight Children's Foundation and the
St Luke's Hospital Foundation.
Robert B Lane (Executive Director)
Directors’ meetings attended: 10
Experience: Mr. Robert Lane was Chief Executive Officer
of OrotonGroup Limited and its controlled entities for
32 years and was primarily responsible for building
the Oroton brand. His vast knowledge of the industry
Directors' meeting attended: 9
16
from marketing to retailing has contributed significantly
to the growth of the business. Mr. Lane was Chairman
of the Company from prior to its public listing in 1987
up until May 1998.
OROTONGROUP
Remuneration committee meetings attended: 1
Interest In shares: Mr. Vicars has a relevant interest
in 1,767,108 ordinary shares of OrotonGroup Limited.
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Directors’ Report
Meetings of Directors
Directors' and Executives' Emoluments
During the financial year, 10 meetings
of the Board of Directors were held.
The Consolidated Entity's policy for determining
emoluments is influenced by the market and
independent advice taken as required, based upon
which competitive remuneration levels are set. The
Consolidated Entity’s performance as a determining
factor to remuneration policy for Senior Executives was
addressed at the 1999 Annual General Meeting with
the shareholders approving the introduction of a Senior
Executive Option Scheme. Divisional Executives and
Officers are issued options as incentives on terms
agreed by the Board of Directors in accordance with
the 1989 Oroton Executive Share and Option Scheme.
A Board Remuneration Committee was established
in November 2001 consisting of Mr. Will Vicars and
Mr. Michael Day. Mr. Sam Weiss is also now a member
of this Committee. The Committee was requested
to review and report back on the remuneration
of an Executive group above and including
General Managers.
Audit Committee
As at the date of this report, there is an Audit
Committee of the Board of Directors. During the
financial year, 6 meetings of the Audit Committee
were held.
Remuneration Committee
As at the date of this report, there is a Remuneration
Committee of the Board of Directors. During the
financial year, 1 meeting of the Remuneration
Committee was held.
Board Nomination Committee
As at the date of this report, there is a Board
Nomination Committee of the Board of Directors.
During the financial year, no meetings of the
Board Nomination Committee were held.
The only Officers of the parent entity are the Directors.
All other Executive Officers are Executives of the
Consolidated Entity.
The nature and amount of emoluments paid or payable
for each Director and Senior Executive are as follows:
DIRECTORS
NAME
OPTIONS
OTHER
TOTAL
$
$
$
635
-
2,677
10,366
70,000
34,438
94,279
34,369
626,641
27,653
-
2,489
-
3,117
33,259
Robert B Lane
Executive Director
120,998
-
87,141
-
7,256
215,395
Tom B Lane
Executive Director,
General Manager Oroton
& OG Multi-Brand Division
184,646
40,000
12,651
31,426
34,299
303,022
27,653
-
2,489
-
3,117
33,259
Samuel S Weiss*
Non-Executive Chairman
Ross B Lane
Managing Director
Michael R Day
Non-Executive Director
J Will Vicars
Non-Executive Director
BASE
REMUNERATION
$
BONUS
SUPER
CONTRIBUTIONS
$
$
7,054
-
393,555
* Sam Weiss was appointed Director on 3 June 2003 and Non-Executive Chairman on 31 July 2003.
OROTONGROUP
17
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Page 18
EXECUTIVES OF THE CONSOLIDATED ENTITY
NAME
BASE
REMUNERATION
$
BONUS
OPTIONS
OTHER
$
Michael Holtzer
Chief Operating Officer
111,412
40,000
5,260
Sandra Bunning
General Manager Marcs
124,340
Gordon Devin
General Manager Polo
40,000
118,664
Andrew Smith
General Manager of Corporate
Affairs/Company Secretary
128,000
Natalie Lenton
General Manager
Morrissey and OG Sourcing *
87,332
SUPER
CONTRIBUTIONS
$
$
OPTIONS
$
TOTAL
GRANTED
$
15,421
110,110
282,203
-
23,760
10,697
23,422
222,219
-
20,000
11,748
7,131
8,704
166,247
-
-
11,627
7,131
18,961
165,719
-
25,200
15,167
7,300
10,000
144,999
60,000
NO.
* Commenced with OrotonGroup 29 November 2002.
The Company has adopted the fair value measurement
provisions of ED 108 "Share-based Payment"
prospectively for all options granted to Directors and
relevant Executives, which have not vested as at 28 July
2002. The fair value of such grants is being amortised
and disclosed as part of Director and Executive
emoluments on a straight-line basis over the vesting
period. No adjustments have been or will be made
to reserve amounts previously disclosed in relation to
options that never vest, (i.e., forfeitures). Prior to 28 July
2002, the Company disclosed the fair value of option
grants using a Black-Scholes option-pricing model but
did not allocate those values over the vesting period.
As a result, included in the amounts disclosed as
option grant emoluments in relation to the 2003
financial year, are amounts related to options that
vested during or over the 2003 financial year, which
were granted and therefore disclosed as part of
18
OROTONGROUP
emoluments in prior years as well. This is a one-off
result of transitioning to allocation of such amounts
to emoluments over the vesting period rather than
disclosure of the full amount as emoluments in the
year of the grant.
From 28 July 2002, options granted as part of Director
and Executive emoluments have been valued using
a binomial option pricing model, which takes account
of factors including the option exercise price, the
current level and volatility of the underlying share
price, the risk-free interest rate, expected dividends
on the underlying share, current market price of the
underlying share and the expected life of the option.
Further information on the options, including
the numbers of options granted to Directors and
other Executives, is set out in the following sections
of this report.
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Directors’ Report
Shares Under Option
Unissued ordinary shares of OrotonGroup Limited under option at the date of this report are as follows:
NUMBER
ISSUE PRICE
OF SHARES
EXPIRY DATE
Oroton Senior Executive Option Scheme
426,667
0.20
see below
Oroton Executive Share and Option Scheme (a)
220,000
2.96
04/07/09
Oroton Executive Share and Option Scheme (b)
135,000
3.65
13/12/06
60,000
2.98
23/08/09
140,000
3.99
14/02/09
The options under the Oroton Senior Executive Option
Scheme are exercisable in three equal tranches
subject to the achievement of performance conditions
related to the compound growth of the Consolidated
Entity's earnings per share before tax. The options
expire six months after the announcement to the
Australian Stock Exchange of the results for the year
ending 31 July 2005.
(a) The options under the Oroton Executive Share
and Option Scheme are exercisable in three
equal tranches at two-year intervals. There are
no performance conditions and the options
expire on the dates set out in the table above.
(b) The options under the Oroton Executive Share
and Option Scheme are exercisable in four equal
tranches at one-year intervals, subject to the
achievement of the applicable performance hurdles.
Indemnity of Officers and Auditor
In accordance with the Company's Constitution the
Company indemnifies, to the extent permitted by law:
•
every Officer of the Company against any liability
incurred in his or her capacity as an Officer to third
parties (other than related bodies corporate) when
acting in good faith and in accordance with express
instructions; and
•
every Officer of the Company and the Auditor
against liability for costs and expenses of
successfully defending legal proceedings or
in connection with an application in which the
Court grants relief to the person under the
Corporations Act 2001.
The Officers indemnified are the Directors, Mr. Sam
Weiss, Mr. Ross Lane, Mr. Michael Day, Mr. Robert Lane,
Mr. Tom Lane and Mr. Will Vicars and in their capacity
as Directors, the Company Secretary, Mr. Andrew Smith,
and any other person concerned in or who takes part
in the management of the Company. The Directors' and
Officers' insurance contracts specifically prohibit the
disclosure of the nature of the insurance cover, the
limit of the aggregate liability and the premiums paid.
Environmental Regulation
The Consolidated Entity's operations are not regulated
by any significant environmental regulation under
a law of the Commonwealth or a State.
Rounding of Amounts
The Company is of a kind referred to in Class
Order 98/0100, issued by the Australian Securities
& Investments Commission, relating to the 'rounding
off' of amounts in the Directors' report. Amounts in the
Directors' report have been rounded off in accordance
with that Class Order to the nearest thousand dollars,
or in certain cases, to the nearest dollar.
Auditor
PricewaterhouseCoopers continues in office in
accordance with section 327 of the Corporations
Act 2001.
This report is made in accordance
with a resolution of Directors.
Ross B Lane
MANAGING DIRECTOR
Samuel S Weiss
NON-EXECUTIVE CHAIRMAN
15 OCTOBER 2003
OROTONGROUP
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Corporate
Governance Statement
•
Approving and monitoring the progress of
major capital expenditure, capital management,
acquisitions and divestitures.
OrotonGroup Limited is committed to observing
the highest standards of corporate governance.
The Company’s Board will continue to review and
improve the Company’s corporate governance
practices, and in doing so, will monitor developments
in this field.
•
Ensuring the Company keeps proper financial
records, ie correctly record and explain its
transactions, and explain the Company's financial
position and performance.
•
Determining the method of raising debt or equity
by issuing shares or other securities to the public.
Roles and Responsibilities
of the Board and Management
•
Determining profits to be retained
and profits to be paid out as dividends.
The overall purpose of the Board of Directors is to:
•
The appointment and overseeing of various Board
sub-committees, including the Audit Committee,
the Nomination Committee, and the Remuneration
Committee.
•
Principally protect and enhance long-term
shareholder value.
•
Control the overall corporate governance
of the Company, including its strategic direction,
establishing goals for management and monitoring
performance against these goals.
•
Create a framework for managing the Company
including internal controls, business risk processes
& appropriate ethical standards.
Although responsibility for the operations of the
Company’s business is delegated to the Managing
Director, the Board remains responsible for:
20
The above division of responsibilities is documented
in a statement adopted by the Board in July 2003.
Board Membership
The composition of the Board is determined
using the following principals:
•
The Board should be comprised of not less
than three Directors and not more than seven
in accordance with the current Constitution.
•
The Board should be comprised of Directors
with a broad range of expertise and proven ability
to make a contribution to strategy and policy,
and be able to participate fully in the overseeing
and guidance of management.
•
The oversight of the Company, including
its controls and accountability systems.
•
•
Appointing and removing the Managing Director.
Ratifying the appointment and removal of the Chief
Operating Officer and the Company Secretary.
•
•
Input into the final approval of Management’s
development of corporate strategy and
performance objectives.
The Board is presently comprised of three
Non-Executive Directors and three Executive
Directors.
•
•
The strategic management of the Company’s
resources to ensure they are utilised in the most
efficient, effective and the appropriate manner.
The term of any appointment is subject
to continuing shareholder approval.
•
Reviewing and ratifying systems of risk management
and internal compliance and control, codes of
conduct, and legal compliance.
•
Monitoring Senior Management’s performance
and implementation strategy, ensuring appropriate
resources are available.
•
Approving and monitoring financial
and other reporting.
OROTONGROUP
The Constitution sets out the rules to which the
Company must adhere and which include rules
as to the nomination, appointment and re-election
of Directors. The Constitution provides for one third
of the Directors (excluding the Managing Director) to
retire and stand for re-election each year at the Annual
General Meeting. Directors appointed during the year
by the Board stand for re-election at the next Annual
General Meeting.
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Independent Professional Advice
Audit Committee
Each director has the right to seek independent
professional advice at the expense of the Consolidated
Entity. However, prior written approval of the Chairman
is required, but this will not be unreasonably withheld.
All Directors are made aware of the professional advice
sought and obtained.
The Board has an Audit Committee. The terms
of reference and the responsibilities of the audit
committee include:
•
1. the truth and fairness of the view given
by the financial statements of the Company.
Remuneration Committee
The Board has a Remuneration Committee.
The Committee reviews and reports back on the
remuneration of Directors and Senior Management
above and including General Managers. Remuneration
levels are competitively set to attract the most qualified
and experienced Directors and Senior Executives.
Independent advice on the appropriateness of the
remuneration packages is obtained, as required. Taking
into account inflation levels, Director responsibilities,
fees paid to Directors of comparable organisations,
and independent advice, the Directors may, from time
to time, determine to seek shareholder approval for
an increase in Directors' fees at an Annual General
Meeting. Information relating to Directors' remuneration
is set out in Note 27 to the financial statements and
in the Directors' report.
Membership of the Remuneration Committee:
Michael R Day (Non-Executive Director
and Chairman of the Remuneration Committee)
Assist the Board in its oversight responsibilities
by monitoring and advising on:
2. the Company’s accounting policies and
practices in accordance with current
and emerging accounting standards.
3. the external Auditors’ independence.
4. reports from the external Auditor and
the audit effectiveness and efficiency.
5. the performance of the internal audit function.
6. compliance with legal and regulatory
requirements and policies in this regard.
7. compliance with policy framework in place
from time to time.
8. internal controls, and the overall efficiency
and effectiveness of financial operations.
9. the Company’s overall risk management program.
•
Provide a forum for communication between
the Board, executive leadership and internal
and external Auditors.
•
Provide a conduit to the Board for external
advice on audit and risk management.
Samuel S Weiss (Non-Executive Director
and Chairman of the Board of Directors)
Membership of the Audit Committee:
The Remuneration Committee may have in
attendance or by invitation such members of
Management, or others as it may deem necessary,
to provide appropriate information or explanations.
Michael R Day (Non-Executive Director
and Chairman of the Audit Committee)
Samuel S Weiss (Non-Executive Director
Ross B Lane (Managing Director) –
attended 1 meeting by proxy and 2 by invitation
The Audit Committee may have in attendance
or by invitation such members of Management
or others as it may deem necessary to provide
appropriate information or explanations.
The external Auditor attends Audit Committee meetings
when requested by the Audit Committee Chairman.
OROTONGROUP
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Nomination Committee
Business Risk
The Board formed a Nomination Committee on
31 July 2003. The overall purpose of the Nomination
Committee is to monitor the selection and appointment
practices of the Company. The Nomination Committee
is composed of a Chairman who is an independent
Director and at least two other Directors. The majority
of the members of the Nomination Committee will
be independent Directors.
In consultation with the Board and the Audit
Committee, Management is required to identify
areas of significant business risk and develop
strategies to mitigate these risks.
The responsibilities of the Nomination
Committee include:
•
Creation, implementation and monitoring of
the Company’s policies and procedures for
the appointment and removal of Directors
and the Company Secretary.
•
Determination of the skills and experience
necessary for Directors of the Company.
•
Recruitment and induction of the Company’s
Directors.
•
Annual review of Board performance, both
measurable and qualitative, and succession plans.
•
Determination and monitoring of, and reporting
on, the Company’s policy on the role and
independence of the Chairman.
•
Determination of the Company’s policy on the
procedure for Directors to take independent
professional advice at the expense of the company.
•
Assure that the Chairman of the Board reviews
the performance of the Managing Director
at least on an annual basis.
Membership of the Nomination Committee:
Samuel S Weiss (Non-Executive Director,
Chairman of the Nomination Committee
Michael R Day (Non-Executive Director)
Ross B Lane (Managing Director)
22
OROTONGROUP
Ethical Standards
The Board oversees the identification, implementation
of procedures and development of policies in respect
of the maintenance of appropriate ethical standards.
The Company has a Code of Conduct, which sets out
the standards as to how Directors, Senior Management
and Employees of the Company are expected to act.
On an annual basis Employees are required to read
the updated Code of Conduct and to sign an
acknowledgement stating that they have read
and understood the document.
Communications with Shareholders
The Board encourages communications between
the Company and its shareholders. The Board’s
strategy to promote effective communication
with shareholders consists of the following:
•
All announcements made to the market and all
related information (such as information provided
to analysts or media during briefings) are accessible
from the website after they have been released
to ASX.
•
The full text of all Notices of Meetings and
explanatory material are placed on the Company
corporate website, orotongroup.com.au.
•
The website includes the last three years of
financial reports, and major announcements
from the last two years.
•
The Company’s external Auditor is requested
to attend the Annual General Meeting and to be
available to answer questions about the conduct
of the audit and preparation and content of the
Auditor’s report.
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Conflict of Interest
Australian Stock Exchange Limited Listing Rules
In accordance with the Corporations Act 2001 and the
Company’s Constitution, Directors must keep the Board
advised, on an ongoing basis, of any interest that could
potentially conflict with those of the Company. Where
the Board believes that a significant conflict exists, the
Director concerned does not receive the relevant board
papers and is not present at the meeting while the
item is considered.
The Australian Stock Exchange Limited listing rules are
the rules set down by the Australian Stock Exchange
by which the Company must abide in order to remain
a listed Company.
Director Dealings in Company Shares
The Constitution permits Directors to acquire shares
in the Company. Company policy prohibits Directors
and Senior Management of the Company from dealing
in Company shares 6 weeks before each annual and
half year financial period ends and until the release
of the annual or half year results announcement,
provided that outside of these periods they are
not in possession of price sensitive information.
Directors must notify the Company Secretary
and Chairman before they sell or buy shares in
the Company. In accordance with provisions of
the Corporations Act 2001 and the Listing Rules
of the Australian Stock Exchange, Directors advise
the Australian Stock Exchange of any transaction
conducted by them in shares in the Company.
Listing rule 3.1 requires the Company once it is or
becomes aware of any information concerning it that
a reasonable person would expect to have a material
effect on the price or value of the Company's
securities, to immediately inform the Australian Stock
Exchange that information. The Company has a policy
that shareholders and investors have equal access
to the Company’s information and has procedures to
ensure that all price sensitive information is disclosed
to the Australian Stock Exchange in accordance
with the continuous disclosure requirements of the
Corporations Act 2001 and Australian Stock Exchange
Listing Rules.
All information provided to the Australian Stock
Exchange is immediately posted on the Company
corporate website, orotongroup.com.au.
OROTONGROUP
23
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FOR THE YEAR ENDED 2 AUGUST 2003
NOTES
Revenues from sale of goods
Cost of sales
3
Gross Profit
CONSOLIDATED
2003
2002
$'000
$'000
118,313
(45,171)
85,554
(31,415)
PARENT ENTITY
2003
2002
$'000
$'000
-
-
73,142
54,139
-
-
Other revenues from ordinary activities
1,989
1,813
289
5,007
Other expenses from ordinary activities:
Warehouse and distribution
Marketing
Selling
Administration
Other
Borrowing costs
4
(4,615)
(2,186)
(40,920)
(14,127)
(568)
(1,095)
(3,644)
(2,673)
(29,599)
(9,716)
(257)
(529)
(33)
-
(143)
-
Profit from ordinary activities before
related income tax expense
Income tax expense
4
5
11,620
(3,270)
9,534
(3,100)
256
(77)
4,864
(56)
8,350
6,434
179
4,808
Profit from ordinary activities after
related income tax expense
Net increase (decrease) in foreign
currency translation reserve
Total revenue, expenses and valuation adjustments
attributable to members of OrotonGroup
Limited recognised directly in equity
(6)
(6)
-
-
(6)
(6)
-
-
179
4,808
Total changes in equity attributable to members
of OrotonGroup Limited other than those
resulting from transactions with owners as owners
24
8,344
6,428
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
37
37
45.3
44.1
34.8
33.9
The above Statements of Financial Performance should be read in conjunction with the accompanying Notes.
24
OROTONGROUP
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AS AT 2 AUGUST 2003
NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Current assets
Cash assets
Receivables
Inventories
Other
6, 26
7, 26
8
9
1,786
4,853
30,258
2,781
1,027
2,835
20,087
1,352
12
-
8
2,500
17
39,678
25,301
12
2,525
416
11,204
766
16,138
479
7,222
497
2,143
9,611
6,500
-
10,793
6,500
-
Total non-current assets
28,524
10,341
16,111
17,293
Total assets
68,202
35,642
16,123
19,818
10,477
7,803
1,095
1,282
5,610
1,905
1,079
3,012
44
-
49
2,027
20,657
11,606
44
2,076
19,630
35
160
2,669
33
116
-
-
Total current assets
Non-current assets
Receivables
Other financial assets
Property, plant and equipment
Deferred tax assets
Intangible assets
10, 26
11, 26
12
13
14
Current liabilities
Payables
Interest bearing liabilities
Current tax liabilities
Provisions
15, 26
16, 26
17
18
Total current liabilities
Non-current liabilities
Interest bearing liabilities
Deferred tax liabilities
Provisions
19, 26
20
21
Total non-current liabilities
19,825
2,818
-
-
Total liabilities
40,482
14,424
44
2,076
Net assets
27,720
21,218
16,079
17,742
22
23(a)
23(b)
15,997
163
11,560
15,997
169
5,052
15,997
82
15,997
1,745
24
27,720
21,218
16,079
17,742
Equity
Parent entity interest
Contributed equity
Reserves
Retained profits
Total equity
The above Statements of Financial Position should be read in conjunction with the accompanying Notes.
OROTONGROUP
25
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FOR THE YEAR ENDED 2 AUGUST 2003
NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Cash flows from operating activities
Receipts from customers
(inclusive of Goods and Services Tax)
Payments to suppliers and employees
(inclusive of Goods and Services Tax)
Dividends received
Interest received
Borrowing costs
Income taxes paid
Net cash inflow from operating activities
36
128,245
95,398
-
-
(114,194)
(78,284)
(32)
(263)
14,051
17,114
(32)
(263)
106
(1,095)
(4,080)
38
(529)
(4,203)
2,500
289
(82)
2,180
327
(14)
8,982
12,420
2,675
2,230
(5,403)
80
(4,044)
(135)
181
-
-
Cash flows from investing activities
Payments for property, plant and equipment
Payments for patents and trademarks
Proceeds from sale of property, plant and equipment
Payments for purchase of controlled entity,
net of cash acquired
34
Net cash (outflow) from investing activities
(21,037)
-
-
-
-
-
(26,360)
(3,998)
25,603
(4,486)
(3,869)
272
1,688
(587)
(5,860)
(3,241)
1,198
(3,869)
272
1,332
(587)
(3,241)
17,248
(7,728)
(2,671)
(2,224)
Cash flows from financing activities
Proceeds from issues of shares
and other equity securities
Proceeds from borrowings
Payment for shares bought back
Repayment of borrowings
Dividends paid
25
Net cash inflow (outflow) from financing activities
Net increase (decrease) in cash held
Cash at the beginning of the financial year
Effects of exchange rate changes on cash
Cash at the end of the financial year
Financing arrangements
6
(130)
766
(6)
694
78
(6)
4
8
-
6
2
-
630
766
12
8
19
The above Statements of Cash Flows should be read in conjunction with the accompanying Notes.
26
OROTONGROUP
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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 2 AUGUST 2003
Note 1
Summary of significant accounting policies
This general purpose financial report has been
prepared in accordance with Accounting Standards,
other authoritative pronouncements of the Australian
Accounting Standards Board, Urgent Issues Group
Consensus Views and the Corporations Act 2001.
The financial report has been prepared on an accruals
basis and is based on historical costs and does not
take into account changing money values or current
values of non-monetary assets, except where stated.
The accounting policies have been consistently
applied, unless otherwise stated. The following is
a summary of the significant accounting policies
adopted by the Consolidated Entity in the preparation
of the financial report.
(a) Principles of Consolidation
The Consolidated Entity's financial report comprises
the financial report of OrotonGroup Limited and all
of its controlled entities. OrotonGroup Limited and
its controlled entities together are referred to in this
financial report as the Consolidated Entity. Control
exists where OrotonGroup Limited has the capacity
to dominate the decision-making in relation to the
financial and operating policies of another entity so that
the other entity operates with OrotonGroup Limited to
achieve the objectives of OrotonGroup Limited. A list of
controlled entities is contained in Note 34. The effects
of all transactions between entities in the Consolidated
Entity are eliminated in full. Outside equity interests in
the results and equity of controlled entities are shown
separately in the consolidated Statements of Financial
Performance and Statements of Financial Position
respectively.
(b) Goodwill
Goodwill is amortised on a straight-line basis over
the period in which the future benefits are expected
to arise, but not exceeding 20 years. The balances are
reviewed annually by the Directors and any balance
representing future benefits, the realisation of which
is considered to be no longer probable, is written off.
(c) Foreign Currencies
Transactions in foreign currencies are converted to
Australian currency at the exchange rate ruling at
the date of the transaction. Amounts receivable and
payable in foreign currencies at balance date are
converted at rates of exchange ruling at that date. The
assets and liabilities of the overseas controlled entities,
which are self-sustaining, are translated at the rate of
exchange ruling at balance date. Operating results are
translated at the average rate for the year, gains and
losses arising on translation of overseas self-sustaining
controlled entities are taken to the foreign currency
translation reserve.
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 or services, together with subsequent
exchange gains or losses resulting from those
transactions are deferred up to the date of the
purchase or sale and included in the measurement
of the purchase or sale. In the case of hedges of
monetary items, exchange gains or losses are brought
to account in the financial year in which the exchange
rates change. Gains or costs arising at the time of
entering into such hedging transactions are brought
to account in the Statement of Financial Performance
over the lives of the hedges
When anticipated purchase or sale transactions have
been hedged, actual purchases or sales, which occur
during the hedged period, are accounted for as having
been hedged until the amounts of those transactions
are fully allocated against the hedged amounts.
(d) Investments
All investments, including those in controlled entities,
are brought to account at cost less amounts written off
for permanent diminution in the value of the investment.
Dividend income is recognised in the Statement of
Financial Performance when receivable. The carrying
amount of the investments is reviewed annually by
the Directors to ensure that it is not in excess of the
recoverable amount.
(e) Property, Plant and Equipment
Property, plant and equipment is included at cost
and is depreciated on a straight line basis over their
estimated useful lives commencing from the time
the asset is held ready for use. Items of plant and
equipment are depreciated at rates ranging from 7.5%
to 33.3% per annum. Motor vehicles are depreciated
at 15.5% per annum. Leased assets and leasehold
improvements are amortised over the unexpired
period of the lease which is between 1 and 5 years.
OROTONGROUP
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(f) Other Non-Current Assets
(l) Inventories
The carrying amount of all non-current assets is
reviewed annually by the Directors to ensure that the
carrying value is not in excess of the non-discounted
recoverable amounts based on the future cash flows.
Inventories are valued at the lower of cost and
net realisable value determined on a first in first out
basis. The cost of manufactured products comprises
direct materials, direct labour and an appropriate
proportion of variable and fixed overhead expenditure,
the latter being allocated on the basis of normal
operating capacity.
(g) Revenue
Revenue from the sale of goods is recognised upon
delivery of goods to customers. Revenue from licence
fees, franchise fees and commissions are recognised
and accrued in the period in which the fees are
earned. Interest income is recognised as it accrues.
Dividend revenue is recognised when the right to
receive a dividend has been established.
(h) Trade and Other Receivables
Receivables are carried at nominal amounts due less
any provision for doubtful debts. A provision for doubtful
debt is recognised when collection of the full nominal
amount is no longer probable. Bad debts are written off
during the period in which they are identified. Amounts
(other than trade debts) receivable from related parties
are carried at nominal amounts due. Interest, when
charged, is taken up as income on an accrual basis.
(i) Trade and Other Payables
Liabilities are recognised for amounts to be paid
for goods and services received, whether or not
billed to the Consolidated Entity.
(j) Goods and Services Tax
Revenues, expenses and assets are recognised
net of the amount of Goods and Services Tax (GST).
Receivables and payables are stated with the amount
of GST included. The net amount of GST recoverable
from, or payable to, the Australian Taxation Office is
included as part of receivables or payables in the
Statements of Financial Position. Cash flows in the
Statements of Cash Flows are included on a gross
basis. The GST component of cash flows arising from
investing activities that are recoverable from, or payable
to, the Australian Taxation Office are classified as
operating cash flows.
(k) Comparative Information
Comparative information is for the 2002 financial year
ended on 27 July 2002. Information for the current
financial year ends 2 August 2003. Where necessary
certain information has been reclassified to facilitate
comparison. During 2003, an additional week (week 53)
was included. It is standard accounting practice to
include an additional 53rd week every 5-6 years in
order to keep month end dates in alignment.
28
OROTONGROUP
(m) Employee Entitlements
The provisions for employee entitlements to wages,
salaries, annual leave and sick leave represents the
amount which the Consolidated Entity has a present
obligation to pay resulting from employees' services
provided up to the balance date. The provision has
been calculated at nominal amounts based on current
wage and salary rates and includes related on-costs.
The liability for employee entitlements to long service
leave represents the present value of expected future
cash outflows to be made by the employer resulting
from services provided by employees up to the
balance date. Liabilities for employee entitlements
which are not expected to be settled within 12 months
are discounted using the rates attached to national
government securities at balance date, which most
closely match the terms of maturity of the related
liabilities. In determining the liability for employee
entitlements, consideration has been given to future
increases in wage and salary rates, and the economic
entity's experience with staff departures. Related
on-costs have also been included in the liability.
(n) Employee Share Plan
OrotonGroup Limited granted interest free loans to
certain employees under an employee share plan.
Further information is set out in Note 32 to the
financial statements. Other than the costs incurred
in administering the schemes which are expensed
as incurred, the scheme does not result in any
expense to the economic entity.
(o) Superannuation
During the year, the Consolidated Entity participated
in superannuation funds which provide benefits
upon retirement or death of employees. Contributions
to these funds are expensed as incurred. The
Consolidated Entity has no legal obligation to cover any
shortfall in the Consolidated Entity's superannuation
funds' obligations to provide benefits to employees
on retirement. Under relevant employee awards,
contributions to industry funds are made as required
by the relevant award and expensed as incurred.
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(p) Income Tax
Tax effect accounting procedures are followed whereby
the income tax expense in the Statements of Financial
Performance is matched with the accounting profit
after allowing for permanent differences. The future
tax benefit relating to tax losses is not carried forward
as an asset unless the benefit is virtually certain
of realisation. Income tax on cumulative timing
differences is set aside to the deferred income
tax or the future income tax benefit accounts at
the rates which are expected to apply when those
timing differences reverse.
No provision is made for additional taxes which could
become payable if certain reserves of the foreign
operation were to be distributed as it is not expected
that any substantial amount will be distributed from
those reserves in the foreseeable future.
(q) Leases
A distinction is made between finance leases which
effectively transfer from the lessor to the lessee
substantially all the risks and benefits incident to
ownership of leased non-current assets, and operating
leases under which the lessor effectively retains
substantially all such risks and benefits.
Assets of the Consolidated Entity, which are subject to
finance leases, are capitalised. The initial amount of the
leased asset and corresponding lease liability is the
present value of the minimum lease payments. Leased
assets are amortised over the life of the relevant asset.
Lease payments for operating leases are charged as
expenses in the periods they are incurred.
(r) Cash
For purposes of the Statements of Cash Flows, cash
includes cash on hand and deposits at call with banks
and financial institutions, net of bank overdrafts and
bank bills with maturity dates not exceeding three
months from the date of acquisition.
OrotonGroup Limited has implemented a change in
accounting policy for providing for dividends with effect
from 28 July 2002 to comply with AASB 1044 Provisions,
Contingent Liabilities and Contingent Assets. Under the
new policy, a provision is only made for any dividend
declared, determined or publicly recommended by the
Directors on or before the end of the reporting period.
The proposed dividend has not been recognised
as a liability at the end of the financial year.
An adjustment of $2,026,626 was made against the
retained profits at the beginning of the financial year
to reverse the amount provided at 27 July 2002 for
the proposed final dividend for that year that was
recommended by the Directors between the end
of the financial year and the completion of the financial
report. This reduced current liabilities and total liabilities
at the beginning of the financial year by $2,026,626
with a corresponding increase in net assets, retained
profits, total equity, and the total dividends provided
for or paid during the current financial year.
2003
$A'000
(RESTATED)
Restatement of retained profits
Previously reported retained profits
at the end of the previous year
5,052
Change in accounting policy
for providing for dividends
2,027
Restated retained profits at the
beginning of the financial year
Net profit attributable to members
of OrotonGroup Limited
2002
$A'000
(RESTATED)
2,345
1,541
7,079
3,886
8,350
6,434
Total available for appropriation
Dividends provided for or paid
15,429
(3,869)
10,320
(3,241)
Restated retained profits
at the end of the financial year
11,560
7,079
(t) Earnings Per Share
(i) Basic earnings per share
(s) Dividends
Provision is made for any dividend declared,
determined or publicly recommended by the
Directors on or before the end of the financial
year but not distributed at balance date.
Basic earnings per share is determined by
dividing the net profit after income tax attributable
to members of the Company, excluding any costs
of servicing equity other than ordinary shares, by
the weighted average number of ordinary shares
outstanding during the financial year, adjusted for
bonus elements in ordinary shares issued during
the year.
OROTONGROUP
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(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used
in the determination of basic earnings per share
to take into account the after income tax effect of
interest and other financing costs associated with
dilutive potential ordinary shares and the weighted
average number of shares assumed to have been
issued for no consideration in relation to dilutive
potential ordinary shares.
Note 2.
Segment information
Business and Geographical Segments
OrotonGroup Limited operates in one industry and
one geographical segment. OrotonGroup Limited
is a retailer, wholesaler and brand manager operating
predominantly in Australia.
(u) Deferred Expenditure
Expenditure is deferred to the extent that the benefits
are recoverable out of future revenue, do not relate
solely to revenue already brought to account, and
will contribute to the future earning capacity of
the Consolidated Entity.
Deferred expenditure is written off over the period in
which the related benefits are expected to be realised.
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 3
Revenue
Revenue from operating activities
Sale of goods
Licence and franchise fees
Commissions
Interest from wholly owned entities
Interest received
Dividends received or receivable
118,313
1,251
106
-
85,554
997
98
38
-
286
3
-
325
2
4,680
119,670
86,687
289
5,007
55
80
497
50
181
449
-
-
632
680
-
-
120,302
87,367
289
5,007
Revenue from outside the operating activities
Rental income
Proceeds from sale of Fixed Assets
Other revenue
Revenue from ordinary activities
30
OROTONGROUP
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CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 4
Profit from ordinary activities
Net gains and expenses
Profit from ordinary activities before income tax expense
includes the following specific net gains and expenses:
Net gains
Net gain on disposal
Property, plant and equipment
14
-
-
-
164
86
-
-
Cost of sales of goods
45,171
31,415
-
-
Depreciation
Plant and equipment
2,244
891
-
-
Amortisation
Plant and equipment under finance leases
Goodwill
1,532
778
1,535
342
-
-
Total amortisation
Foreign exchange gains and losses
Other net foreign exchange gains
Expenses
2,310
1,877
-
-
Other charges against assets
Write down of inventories to net realisable value
Bad and doubtful debts – trade debtors
765
31
45
179
-
-
Total other charges against assets
796
224
-
-
Borrowing costs
Borrowing costs
Interest and finance charges paid/payable
873
222
196
333
-
-
1,095
529
-
-
-
162
-
-
446
664
-
-
12,204
8,513
-
-
2,465
2,443
-
-
Total borrowing costs
Cost of disposal of property, plant and equipment
Other Provisions
Employee entitlements
Rental expense relating to operating leases
Minimum lease payments
Royalties and licence fees paid
OROTONGROUP
31
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CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 5
Income tax
The income tax expenses for the financial year
differs from the amount calculated on the profit.
The differences are reconciled as follows:
Profit from ordinary activities before income tax expense
11,620
9,534
256
4,864
1,459
(1,404)
-
Income tax calculated @ 30% (2002 – 30%)
Non-deductible depreciation and amortisation
Rebateable dividends
Sundry items
3,486
238
(45)
2,860
103
140
77
-
Income tax adjusted for permanent differences
Under (over) provision in prior year
3,679
(409)
3,103
(3)
77
-
55
1
Income tax expense
3,270
3,100
77
56
Tax Consolidation Legislation
OrotonGroup Limited and its wholly owned Australian
subsidiaries have decided to implement the Tax
Consolidation Legislation as of 3 August 2003.
The Australian Taxation Office has yet to be notified
of this decision. The entities may enter a tax sharing
agreement, but details of this agreement are yet
to be finalised.
As a consequence, OrotonGroup Limited, as
the head entity in the tax consolidated group, will
recognise current and deferred tax amounts relating to
transactions, events and balances of the wholly owned
Australian controlled entities in this group in future
financial statements as if those transactions, events
and balances were its own transactions, events and
balances. Amounts receivable or payable under the tax
sharing agreement may be recognised separately by
OrotonGroup Limited as tax-related amounts receivable
or payable. The impact on the income tax expense and
results of OrotonGroup Limited is unlikely to be material
because of the possible tax sharing agreement.
This is not expected to have a material impact on
the consolidated assets and liabilities and results.
The financial effect of the implementation of the
legislation has not been recognised in the financial
statements for the year ended 2 August 2003.
NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 6
Current assets – Cash assets
Cash on hand
Cash at bank
Cash on deposit
47
1,530
209
38
975
14
12
-
8
-
1,786
1,027
12
8
1,786
1,156
1,027
261
12
-
8
-
630
766
12
8
The above figures are reconciled to cash
at the end of the financial year as shown
in the statements of cash flows as follows:
Balances as above
Less: Bank overdrafts
Balances as per statements of cash flows
32
OROTONGROUP
16
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NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 7
Current assets – Receivables
Trade debtors
Less: Provision for doubtful debts
Other debtors
Dividends receivable
Concession stores receivable
4,272
243
1,936
212
-
-
4,029
1,724
-
-
275
549
242
869
-
2,500
-
4,853
2,835
-
2,500
31,554
1,296
20,618
531
-
-
30,258
20,087
-
-
1,957
824
-
598
687
67
-
17
-
2,781
1,352
-
17
416
-
479
-
416
9,195
479
10,314
416
479
9,611
10,793
Note 8
Current assets – Inventories
Finished goods
Less: Provision for obsolescence
Note 9
Current assets – Other
Prepayments
Future income tax benefit
Other current assets
Note 10
Non-current assets – Receivables
Receivable from individual shareholders
Receivable from wholly owned entities
Receivables from individual shareholders as at 2 August 2003 include 19 Employee Share and Option Scheme
loans totalling $415,722 (2002:$478,71 1). These loans range from $2,300 to $170,000 and were owing by employees
engaged in the full-time employment of the Consolidated Entity, refer Note 32.
Note 11
Non-current assets – Other financial assets
Other (non-traded) investments
Shares in controlled entities – at cost
Shares in other corporations – at cost
34
-
-
6,500
-
6,500
-
-
-
6,500
6,500
OROTONGROUP
33
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NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 12
Non-current assets – Property, plant & equipment
Plant and equipment
Plant & equipment
At cost
Less: Accumulated depreciation
Plant & equipment under finance lease
Motor vehicles
Motor vehicles under finance lease
At cost
Total plant and equipment
13,764
5,191
5,216
2,100
-
-
8,573
3,116
-
-
8,062
5,662
8,031
4,251
-
-
2,400
3,780
-
-
304
162
329
116
-
-
142
213
-
-
144
55
123
10
-
-
89
113
-
-
11,204
7,222
-
-
Reconciliations
Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning
and end of the current and previous financial year are set out below:
MOTOR VEHICLES,
PLANT AND
EQUIPMENT
$'000
Consolidated
Carrying amount at 27 July 2002
Additions
Disposals
Additions through acquisition of entity
Depreciation/amortisation expense
Foreign currency exchange differences
Carrying amount at 2 August 2003
34
4(a)
MOTOR VEHICLES,
PLANT AND
EQUIPMENT
UNDER LEASE
$'000
3,229
5,403
(475)
2,724
(2,244)
25
3,993
81
(1,532)
-
7,222
5,403
(475)
2,805
(3,776)
25
8,662
2,542
11,204
As at year-end, the parent entity’s carrying amount of property, plant and equipment was nil.
34
OROTONGROUP
TOTAL
$'000
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NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 13
Non-current assets – Deferred tax assets
Future income tax benefit
766
497
-
-
21,543
5,405
6,770
4,627
-
-
16,138
2,143
-
-
4,902
5,575
1,146
4,464
-
-
10,477
5,610
-
-
1,156
5,500
1,130
17
261
1,634
10
-
-
7,803
1,905
-
-
Note 14
Non-current assets – Intangible assets
Goodwill at cost
Less: Accumulated amortisation
Note 15
Current liabilities – Payables
Trade creditors
Other payables
Note 16
Current liabilities – Interest bearing liabilities
Secured
Bank overdraft
Bills of exchange
Lease liability
Hire purchase liability
6
31
Bank overdraft, trade finance and bills of exchange are fully secured by registered first mortgage over the
assets of the Consolidated Entity. Lease and hire purchase liabilities are secured over the assets subject
to the agreement. Further information on the bank overdrafts and bank loans are set out in Note 19.
Note 17
Current liabilities – Current tax liabilities
Deferred tax liability
Provision for taxation
41
1,054
84
995
44
1
48
1,095
1,079
44
49
OROTONGROUP
35
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NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 18
Current liabilities – Provisions
Dividends
Other
32
1,282
-
2,027
881
104
-
2,027
-
1,282
3,012
-
2,027
Movements in provisions
Movements in each class of provision during the financial year, other than employee benefits, are set out below.
DIVIDENDS
$'000
OTHER
$'000
TOTAL
$'000
Consolidated
Adjustment from change in accounting policy
Payments
1(s)
2,027
(2,027)
-
104
(104)
-
2,131
(2,027)
(104)
-
Parent entity
Adjustment from change in accounting policy
36
OROTONGROUP
1(s)
2,027
(2,027)
-
-
2,027
(2,027)
-
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NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 19
Non-current liabilities - Interest bearing liabilities
Secured
Bank loans
Lease liability
Hire purchase liability
18,103
1,477
50
2,621
48
-
-
19,630
2,669
-
-
Total secured liabilities (current and non-current) are:
Bank overdrafts and bank loans
Lease liabilities
Other loans
19,259
2,607
5,567
261
4,255
58
-
-
Total secured liabilities
27,433
4,574
-
-
Total secured non-current interest bearing liabilities
31
Total secured liabilities
Lease liabilities (other than liabilities recognised in relation to surplus space under non-cancellable
operating leases) are effectively secured as the rights to the leased assets recognised in the financial
statements revert to the lessor in the event of default.
Financing arrangements
Unrestricted access was available at balance date to the following lines of credit:
Credit standby arrangements
Total facilities
Bank overdrafts
Other facilities
400
28,200
300
12,710
-
-
Total
28,600
13,010
-
-
Used at balance date
Bank overdrafts
Other facilities
102
25,124
1,221
-
-
Total
25,226
1,221
-
-
Unused at balance date
Bank overdrafts
Other facilities
298
3,076
300
11,489
-
-
Total
3,374
11,789
-
-
The bank overdraft facilities and bank bill acceptance facility may be drawn at any time and may be terminated
by the bank without notice. In addition to the unused credit facilities disclosed above, the Consolidated Entity
has access to the cash balances disclosed in Note 6. Bank facilities are arranged with the general terms and
conditions being set and agreed from time to time. Finance will be provided under all facilities provided the
parent entity and the Consolidated Entity have not breached any borrowing requirements.
Since the end of the Financial Year, the Company has increased its bank facilities by a further $8m.
OROTONGROUP
37
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NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 20
Non-current liabilities – Deferred tax liabilities
Provision for deferred income tax
35
33
-
-
160
116
-
-
Note 21
Non-current liabilities – Provisions
PARENT ENTITY
2003
2002
SHARES
SHARES
PARENT ENTITY
2003
2002
$'000
$'000
Note 22
Contributed equity
Issued and paid up capital
18,423,875
DATE
NUMBER OF SHARES
DETAILS
18,423,875
15,997
ISSUE PRICE
15,997
$'000
(a) Movements in ordinary share capital
28/07/2001
24/08/2001
28/08/2001
26/04/2002
29/05/2002
19/06/2002
20/06/2002
21/06/2002
24/06/2002
25/06/2002
27/06/2002
28/06/2002
Opening Balance
Oroton Senior Executive Option Scheme issue
Oroton Executive Share and Option Scheme issue
Share buyback
Share buyback
Share buyback
Oroton Executive Share and Option Scheme issue
Share buyback
Share buyback
Share buyback
Share buyback
Share buyback
2/08/2003 Balance
(b) Share buy-back
There is no current on-market buy-back.
38
OROTONGROUP
18,228,142
266,666
25,000
(50,000)
(21,700)
(8,783)
25,000
(9,103)
(2,000)
(114)
(25,000)
(4,233)
18,423,875
$0.20
$2.98
$4.65
$4.48
$4.57
$4.36
$4.60
$4.57
$4.55
$4.45
$4.45
16,311
53
75
(232)
(97)
(40)
109
(42)
(9)
(1)
(111)
(19)
15,997
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NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 23
Reserves and retained profits
(a) Reserves
Foreign currency translation reserve
163
169
-
-
Movements:
Foreign currency translation reserve
Balance 28 July 2002
Net exchange differences on translation
of foreign controlled entity
169
175
-
-
-
-
(6)
Balance 2 August 2003
(6)
163
169
-
-
5,052
2,345
1,745
664
8,350
6,434
179
4,808
(b) Retained profits
Retained profits at the beginning
of the financial year
Net profit attributable to members
of OrotonGroup Limited
Final Dividends paid on additional shares
issued prior to dividend entitlement date
25
(1,842)
(33)
(3,694)
Retained profits at the end of the financial year
1(s)
11,560
5,052
82
1,745
21,218
18,831
17,742
16,975
8,344
6,428
179
4,808
(1,842)
(314)
(3,694)
(1,842)
(33)
(3,694)
Note 24
Equity
Total equity at the beginning of the financial year
Total changes in equity recognised
in the Statements of Financial Performance
Transactions with owners as owners:
Contributions of equity, net of transaction costs
2001 Final dividends paid on additional shares
issued prior to dividend entitlement date
Total equity at the end of the financial year
22
25
27,720
(33)
21,218
(1,842)
16,079
(314)
(3,694)
(33)
17,742
OROTONGROUP
39
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Page 40
PARENT ENTITY
2003
2002
$'000
$'000
Note 25
Dividends
Ordinary shares
Interim dividend of 10.0 cents (2002 - 9.0 cents) per fully paid share paid 15 April 2003
(2002 - 17 April 2002) Fully franked (2002 - 100% franked) based on tax paid
@ 30% (2002 - 30%) per share
1,842
1,667
-
2,027
1,842
3,694
Final dividend of 1 1.0 cents per fully paid share paid on 27 November 2002 recognised
as a liability at 27 July 2002 but adjusted against retained profits at the beginning of the
financial year on the change in accounting policy for providing for dividends (Note 1(s))
Fully franked based on tax paid @ 30%
Total dividends provided for or paid
Dividends paid in cash during the years ended 2 August 2003 and 27 July 2002 were as follows:
Paid in cash
3,869
3,241
2,395
-
12,631
6,164
Dividends not recognised at year end
In addition to the above dividends, since year end the Directors have recommended
the payment of a final dividend of 13.0 cents per fully paid ordinary share, franked at 30%.
The aggregate amount of the proposed dividend expected to be paid on 4 December
2003 out of retained profits at 2 August 2003, but not recognised as a liability at year
end as a result of the change in accounting policy for providing for dividends (Note 1(s))
Franked dividends
The franked portions of the dividends recommended after 2 August 2003
will be franked out of existing franking credits or out of franking credits arising
from the payment of income tax in the year ending 30 June 2004.
Franking credits available for subsequent financial years based
on a tax rate of 30% (2002 - 30%)
The above amounts represent the balance of the franking account
as at the end of the financial year, adjusted for:
(a) franking credits that will arise from the payment of the current tax liability
(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date
(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date, and
(d) franking credits that may be prevented from being distributed in subsequent financial years.
40
OROTONGROUP
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Note 26
Financial instruments
(a) Foreign Exchange Risk
OrotonGroup Limited and certain of its controlled entities are parties to derivative financial instruments particularly
forward exchange contracts with varying terms of from one to six months, used to hedge exposure to exchange
rate risk associated with foreign currency purchasing activity of the Consolidated Entity. The derivative financial
instruments used by the entity are not recognised in the financial report until the underlying transaction occurs.
Transactions for hedging purposes are undertaken without the use of collateral as only reputable institutions with
sound financial positions are dealt with.
Forward Exchange Contracts
At balance date, the details of outstanding contracts are:
CURRENCY
US dollar
AUSTRALIAN
DOLLARS
2003
2002
$'000
$'000
9,674
7,454
AVERAGE EXCHANGE
RATE
2003
2002
$'000
$'000
0.6305
0.5235
The net unrecognised profit(loss) on contracts hedging foreign currency exposures at reporting date
was ($298,000) loss (2002: ($514,000) )
(b) Credit Risk
The exposure to credit risk at balance date in respect of recognised financial assets is the carrying amount, net
of any provisions for doubtful debts, as disclosed in the Balance Sheet and Notes in the financial report. There is
no material credit risk in respect of unrecognised financial assets and liabilities (derivative financial instruments as
disclosed in (a) of this Note). The Consolidated Entity does not have any material credit risk exposure to any single
debtor or group of debtors under financial instruments entered into by the Consolidated Entity.
OROTONGROUP
41
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Note 26 Financial instruments (continued)
(c) Interest Rate Risk Exposures
The Consolidated Entity's exposure to interest rate risk, which is the risk that a financial instrument's
value will fluctuate as a result of changes in market interest rates and the weighted average interest rates
on classes of financial assets and financial liabilities are:
2003
FLOATING
INTEREST RATE
NOTES
$'000
FIXED INTEREST MATURING IN:
1 YEAR
OVER 1 TO 5 NON INTEREST
OR LESS
YEARS
BEARING
$'000
$'000
$'000
TOTAL
$'000
Financial assets
Cash and deposits
Receivables
6
7, 10
Weighted average interest rate
1,256
-
-
-
530
5,269
1,786
5,269
1,256
-
-
5,799
7,055
1,156
18,103
-
5,500
1,147
1,527
10,477
-
1,156
10,477
5,500
18,103
2,674
19,259
6,647
1,527
10,477
37,910
5.00%
(18,003)
5.20%
(6,647)
6.40%
(1,527)
(4,678)
(30,855)
4.20%
Financial liabilities
Bank overdraft and loans
Trade and other creditors
Bills payable
Other loans
Lease liabilities
16, 19
15
16, 19
19
16, 19
Net financial assets (liabilities)
2002
FLOATING
INTEREST RATE
NOTES
$'000
FIXED INTEREST MATURING IN:
1 YEAR
OVER 1 TO 5 NON INTEREST
OR LESS
YEARS
BEARING
$'000
$'000
$'000
TOTAL
$'000
Financial assets
Cash and deposits
Receivables
6
7, 10
111
-
-
-
916
3,314
1,027
3,314
111
-
-
4,230
4,341
261
-
1,644
2,669
5,610
-
261
5,610
4,313
261
1,644
2,669
5,610
10,184
6.80%
(1,644)
6.40%
(2,669)
(1,380)
(5,843)
4.30%
Financial liabilities
Bank overdraft and loans
Trade and other creditors
Lease liabilities
Net financial assets (liabilities)
42
OROTONGROUP
16, 19
15
16, 19
8.00%
(150)
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Note 26 Financial instruments (continued)
(d) Net Fair Values
The net fair values for unlisted investments, where there is no organised financial market, have been
based on a reasonable estimation of the underlying net assets or discounted cash flows of the investment.
The net fair value of bills of exchange and loan amounts are determined by discounting the cash flows, at
market interest rates of similar borrowings, to their present value. The net fair value of off-balance sheet financial
instruments detailed in this Note, reflect the estimated amounts the Consolidated Entity expects to pay or receive
to terminate or replace the contracts at reporting date. These values have been considered in section (a) of this
Note. Other than the off-balance sheet financial instruments discussed above, the carrying value of all other
financial assets and liabilities approximate their net fair value.
DIRECTORS OF ENTITIES IN
THE CONSOLIDATED ENTITY
2003
2002
$
$
DIRECTORS OF
PARENT ENTITY
2003
2002
$
$
Note 27
Remuneration of Directors
Income paid or payable, or otherwise made available,
to Directors by entities in the Consolidated Entity and
related parties in connection with the management of
affairs of the parent entity or its controlled entities (including
superannuation contributions and premiums to indemnify
for costs and expenses defending legal proceedings):
Directors including Executive Directors
1,221,942
837,357
1,221,942
837,357
Details of options granted to and exercised by Directors under the Oroton Senior Executive Option Scheme,
for the year ended 2 August 2003, are set out in the Directors’ Report and Notes 32 and 33.
The amounts disclosed above for remuneration of Directors include the assessed fair values of options at the
date they were granted to Executive Directors and other Executives during the year ended 2 August 2003. Fair
values have been independently determined using an appropriate option pricing model that takes into account
the exercise price, the term of the option, the vesting and performance criteria, the non-tradable nature of the
option, the current price and expected price volatility of the underlying share, the expected dividend yield and
the risk-free interest rate for the term of the option.
The numbers of parent entity Directors whose total income from the parent entity or related parties was
within the specified bands are as follows:
$
$
2003
2002
10,000 -
19,999
1
-
30,000 -
39,999
2
2
200,000 - 209,000
-
1
210,000 - 219,999
1
1
300,000 - 309,999
1
-
350,000 - 359,999
-
1
620,000 - 629,999
1
-
OROTONGROUP
43
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EXECUTIVE OFFICERS OF
2003
2002
$
$
EXECUTIVE OFFICERS
OF THE PARENT ENTITY
2003
2002
$
$
Note 28
Remuneration of Executives
Remuneration received, or due and receivable,
from entities in the Consolidated Entity and related
parties by Executive Officers (including Directors)
whose remuneration was at least $100,000:
Executive Officers of other entities in the Consolidated Entity
2,379,492
1,533,386
1,145,058
776,641
Details of options granted to Executive Directors under the Oroton Senior Executive Option Scheme,
and to Executive Officers under the Oroton Executive Share and Option Scheme, are set out in the Directors'
Report and Notes 32 and 33.
Australian based Executive Officers of the Consolidated Entity
GRANTED
EXERCISED
OUTSTANDING
140,000
-
981,667
The amounts disclosed for remuneration of Executive Officers in this Note include the assessed fair values
of options at the date they were granted to Executive Directors and other Executive Officers during the year
ended 2 August 2003. Fair values have been independently determined using an appropriate option pricing
model that takes into account the exercise price, the term of the option, the vesting and performance criteria,
the non-tradable nature of the option, the current price and expected price volatility of the underlying share,
the expected dividend yield and the risk-free interest rate for the term of the option.
The numbers of Australian based Executive Officers (including Directors) whose remuneration from
entities in the Consolidated Entity and related parties was within the specified bands are as follows:
$
44
$
EXECUTIVE OFFICERS OF
2003
2002
EXECUTIVE OFFICERS
OF THE PARENT ENTITY
2003
2002
100,000
- 109,000
-
1
-
-
110,000
- 119,000
-
1
-
-
120,000
- 129,999
2
-
-
-
140,000
- 149,999
1
1
-
-
160,000
- 169,999
2
-
-
-
180,000
- 189,999
-
1
-
-
200,000
- 209,999
-
2
-
1
210,000
- 219,999
1
1
1
1
220,000
- 229,999
1
-
-
-
280,000
- 289,999
1
-
-
-
300,000
- 309,999
1
-
1
-
350,000
- 359,999
-
1
-
1
620,000
- 629,999
1
-
1
-
OROTONGROUP
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CONSOLIDATED
2003
2002
$
$
PARENT ENTITY
2003
2002
$
$
Note 29
Remuneration of Auditors
During the year, the Auditor of the parent entity and its related practices earned the following remuneration:
PricewaterhouseCoopers – Australian firm
Audit or review of financial reports of the entity
or any entity in the Consolidated Entity
Other audit-related work
Other assurance services
136,230
28,264
106,500
76,310
31,675
9,400
17,000
-
12,000
-
Total audit and other assurance services
270,994
117,385
17,000
12,000
Advisory services
12,545
28,539
-
-
Taxation
72,665
58,222
-
-
356,204
204,146
17,000
12,000
Total remuneration
It is the Consolidated Entity's policy to employ PricewaterhouseCoopers on assignments additional to
their statutory audit duties where PricewaterhouseCoopers' expertise and experience with the Consolidated
Entity are important. These assignments are principally tax advice and due diligence reporting on acquisitions,
or where PricewaterhouseCoopers is awarded assignments on a competitive basis. It is the Consolidated Entity's
policy to seek competitive tenders for all major consulting projects.
Note 30
Contingent liabilities
Details and estimates of maximum amounts
of contingent liabilities are as follows:
Guarantees and letters of responsibility have been
given to lending institutions by OrotonGroup Limited,
OrotonGroup (Australia) Pty Limited, Polo Ralph Lauren
Australia Pty Limited, Macbray Pty Limited and Marcs
Wholesale Pty Limited in respect of borrowings and
documentary letters of credit of controlled entities
in the normal course of business. Entities in the
Consolidated Entity have guaranteed each other
in respect of amounts advanced under banking
and finance arrangements in the normal course
of business.
OrotonGroup Limited has guaranteed OrotonGroup
(Australia) Pty Limited, Polo Ralph Lauren Australia Pty
Limited, OrotonGroup (NZ) Pty Limited, Macbray Pty
Limited and Marcs Wholesale Pty Limited in respect
of the tenancy of a total of 71 properties, occupied in
the normal course of business. The contingent liability
under the leases, covering the period to the lease
expiry dates, is assessed at $36,752,000 at 2 August
2003 (2002: $30,532,000).
OrotonGroup Limited, OrotonGroup (Australia) Pty
Limited, Polo Ralph Lauren Australia Pty Limited,
OrotonGroup (NZ) Pty Limited, Macbray Pty Limited
and Marcs Wholesale Pty Limited are parties to a
Deed of Cross Guarantee (“the Deed”) under which
each company guarantees the debts of the others.
By entering into the Deed, the wholly owned entities
have been relieved from the requirement to prepare
a financial report and Directors' report under Class
Order 98/1418 issued by the Australian Securities
& Investments Commission.
The above companies represent a Closed Group
for the purpose of the Class Order and as there
are no other parties to the Deed that are controlled
by OrotonGroup Limited, they also respresent the
Extended Closed Group.
No material liabilities, not already provided for in the
financial report, are anticipated in respect of the above.
OROTONGROUP
45
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NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 31
Commitments for expenditure
Operating leases
Commitments for minimum lease payments in relation
to non-cancellable operating leases are payable as follows:
Within one year
Later than one year but not later than 5 years
Later than 5 years
12,115
27,381
1,716
9,084
22,568
1,462
-
-
Commitments not recognised in the financial statements
41,212
33,114
-
-
Commitments in relation to finance
leases are payable as follows:
Within one year
Later than one year but not later than 5 years
1,336
1,542
1,874
2,918
-
-
Minimum lease payments
Less: Future finance charges
2,878
271
4,792
537
-
-
Recognised as a liability
2,607
4,255
-
-
Total lease liabilities
2,607
4,255
-
-
1,130
1,477
1,634
2,621
-
-
2,607
4,255
-
-
Not included in the above commitments are contingent
rental payments which may arise in the event that
a pre-determined percentage of sales produced in
certain leased shops exceed the basic rent provided
for in the lease. The contingent rentals payable
are based on varying percentages of sales revenue.
Finance leases
Representing lease liabilities:
Current
Non-current
46
OROTONGROUP
16
19
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NOTES
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 32
Employee benefits
Employee benefit and related on-costs liabilities
Provision for employee entitlements - current
Provision for employee entitlements - non-current
18
21
1,282
160
881
116
-
-
Aggregate employee benefit and related on-costs liabilities
1,442
997
-
-
NUMBER
NUMBER
NUMBER
NUMBER
Full-time
Casual
376
414
234
331
-
-
Number of employees at the end of the financial year
790
565
Employee numbers
Oroton Executive Share and Option Scheme
The total number of shares and/or options to be subject to the scheme including those issued or to be issued
to Directors and consultants shall be limited to 10% of the total number of ordinary shares on issue from time
to time. The total number of shares and/or options which are subject to the scheme and which have been
or will be issued to Directors and their associates shall not exceed 2.5% of the total number of ordinary shares
on issue from time to time.
The issue price of shares shall be the price as determined by the Directors but at not less than 95% of the
market price, or at par, whichever is higher. The market price shall be determined by the average closing price
of the Company's shares on the Australian Stock Exchange in the five business days preceding the allotment
and if there has been no sale on any one or more of those days then the price to be used for that day(s)
is to be the last offer price recorded for the Company's shares.
The issue price for options shall be nil and the exercise price calculated in the same manner as the issue
price for the shares as set out above.
Oroton Senior Executive Option Scheme
The rules of the scheme provide that options will not be issued under the scheme if, immediately following
the date of the proposed grant:
(a) the number of options proposed to be granted; plus
(b) the number of shares that would be issued if all unexercised options granted by the Company under
the scheme preceding the proposed grant of options under the scheme were exercised (excluding those
options that have lapsed), would exceed 5% of the number of shares in the issued capital of the Company
from time to time immediately following the proposed date of the proposed grant of options.
The exercise price for an option will be determined by the Board in its discretion on the date of issue of the
option but the rules provide that it cannot be less than 20 cents or such greater amount as may be specified
in ASX Listing Rules from time to time.
OROTONGROUP
47
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Note 32 Employee benefits (continued)
Set out below are summaries of options granted under the plan and still outstanding at the beginning
and/or the end of the financial year.
GRANT DATE
EXPIRY DATE
EXERCISE
PRICE
BALANCE AT
START OF
THE YEAR
NUMBER
ISSUED
DURING
THE YEAR
NUMBER
EXERCISED
DURING
THE YEAR
NUMBER
LAPSED
DURING
THE YEAR
NUMBER
BALANCE
AT END OF
THE YEAR
NUMBER
426,667
220,000
135,000
60,000
-
140,000
-
-
426,667
220,000
135,000
60,000
140,000
841,667
140,000
-
-
981,667
800,000
220,000
-
135,000
60,000
266,666
-
106,667
-
426,667
220,000
135,000
60,000
1,020,000
195,000
266,666
106,667
841,667
Consolidated and parent entity - 2003
15/03/00
07/05/01
14/12/01
24/08/01
14/02/03
See below
04/07/09
13/12/06
23/08/09
13/02/11
0.20
2.96
3.65
2.98
3.99
Consolidated and parent entity - 2002
15/03/00
07/05/01
14/12/01
24/08/01
See below
04/07/09
13/12/06
23/08/09
0.20
2.96
3.65
2.98
The options under the Oroton Senior Executive Option Scheme are exercisable in three equal tranches subject
to the achievement of performance conditions related to the compound growth of the Consolidated Entity's
earnings per share before tax. The options expire six months after the announcement to the Australian Stock
Exchange of the results for the year ending 31 July 2005.
Under the Oroton Executive Share and Option Scheme, 19 interest free loans totalling $415,722 as at 2 August 2003
(2002: $478,71 1) were owing by employees engaged in full-time employment. The loans were secured over shares
issued to the employees. The loans are repayable out of dividends or in total on termination of employment.
During the year, loans of $62,989 were repaid. There are 323 employees who are eligible to participate in the
scheme. Those persons are in full-time employment with the Company, including, but not limited, to Directors,
their associates and consultants of the Company or any such subsidiary at 2 August 2003. The eligibility of
employees to participate in the scheme shall be determined by the Directors from time to time.
48
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Note 33
Related parties
Related Parties and Transactions
The related parties within the Consolidated Entity
are those disclosed in Note 34. Normal commercial
transactions have been conducted between wholly
owned controlled entities within the economic entity
and all transactions and accounts between entities
in the economic entity have been eliminated
on consolidation.
Mr. Ross Lane, Mr. Michael Day, Mr. Robert Lane,
Mr. Tom Lane and Mr. Will Vicars were Directors
for the whole year. Mr. Sam Weiss was appointed
on 3 June 2003. No other persons were Directors
during the year.
The number of options held by Directors during
the year was 426,667. This number is unchanged
from the previous year (2002: 426,667), as there
were no options granted or exercised by
Directors during the year.
During the year ended 2 August 2003, Directors or
their related entities purchased 207,201 ordinary shares
(2002: purchased 236,333) in OrotonGroup Limited.
As at the date of this report, Directors and their Director
related entities beneficially owned 12,220,204 ordinary
shares (2002: 12,013,003) in OrotonGroup Limited.
Due to a Deed dated 19 October 2001 and approved
by the Company on 27 November 2001, Mr. Robert
Lane, Mr. Ross Lane and Mr. Tom Lane agreed
to act cooperatively with each other in relation to
the Company's affairs and to consult with each other
before disposing or causing the disposition of any
shares in which they have a relevant interest and
before exercising any vote in respect of any shares
in which they have a relevant interest.
Under the Deed above, 10,505,249 (2002: 10,324,569)
shares representing 57.02% (2002: 56.04%) of the issued
capital of OrotonGroup Limited are beneficially owned
by Mr. Robert Lane, Mr. Ross Lane, Mr. Tom Lane and
entities associated with them.
Pipalo Pty Limited, an entity associated with
Mr. Robert Lane, has entered into a lease (as lessor)
with OrotonGroup (Australia) Pty Limited and Polo
Ralph Lauren Australia Pty Limited (as lessees) at
market rates for premises at 52-54 Balgowlah Road,
Balgowlah. The current rent is $497,262 per annum
and rent paid during the financial year to 2 August
2003 totalled $474,036 (2002: $393,396). The main
reason for the increase in current rent over the
previous financial year is an increase in the
size of the square metreage of the lease at
52 Balgowlah Road, Balgowlah.
Mr. Will Vicars and entities associated with Mr. Vicars
own or control 1,767,108 ordinary shares in OrotonGroup
Limited representing 9.59 % (2002: 9.16%) of the
issued shares.
OROTONGROUP
49
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Page 50
NAME OF ENTITY
COUNTRY OF
INCORPORATION
CLASS OF
SHARES
EQUITY HOLDING
2003
%
2002
%
COST OF PARENT
ENTITY’S INVESTMENT
2003
2002
$'000
$'000
Note 34
Investments in controlled entities
OrotonGroup Limited – parent entity
Controlled entities
OrotonGroup (Australia) Pty Limited
Controlled entities of OrotonGroup
(Australia) Pty Limited
Polo Ralph Lauren Australia Pty Limited
OrotonGroup (NZ) Pty Limited
Marcs Wholesale Pty Limited/
Macbray Pty Limited
Eliminations/adjustments
Australia
Ordinary
100
100
-
-
Australia
Ordinary
100
100
6,500
6,500
Australia
NZ
Ordinary
Ordinary
100
100
100
100
16
41
16
41
Australia
Ordinary
100
-
20,705
(20,762)
(57)
6,500
6,500
OrotonGroup Limited, OrotonGroup (Australia) Pty Limited, Polo Ralph Lauren Australia Pty Limited, OrotonGroup
(NZ) Pty Limited, Marcs Wholesale Pty Limited and Macbray Pty Limited are parties to a Deed of Cross Guarantee
(“the Deed”) under which each company guarantees the debts of the others. By entering into the Deed, the wholly
owned entities have been relieved from the requirement to prepare a financial report and Directors' report under
Class Order 98/1418 issued by the Australian Securities & Investments Commission.
Acquisition of Controlled Entity
On 29 November 2002 OrotonGroup (Australia) Pty Limited acquired 100% of the issued share capital
of Marcs Wholesale Pty Limited and Macbray Pty Limited Pty Ltd for $20,705,000. The operating results
of this newly Controlled Entity have been included in the Consolidated Statement of Financial Performance
since the date of acquisition.
Details of the acquisition are as follows:
FAIR VALUE OF IDENTIFIABLE NET ASSETS OF CONTROLLED ENTITY ACQUIRED
$'000
Plant and equipment
Trade debtors
Inventories
Cash
Bank overdraft
Trade creditors
Other creditors
Other assets
2,805
289
7,051
50
(382)
(1,571)
(2,576)
266
Goodwill on consolidation
14,773
Cash consideration
20,705
5,932
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Outflow of cash to acquire controlled entity, net of cash acquired
Cash consideration
Cash
Bank overdraft
Outflow of cash
50
OROTONGROUP
20,705
-
-
-
50
(382)
-
-
-
(332)
-
-
-
-
-
-
21,037
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Page 51
Note 35
Events occurring after reporting date
No matters or circumstances have arisen since the end of the financial year which significantly affected,
or may significantly affect the operations of the Consolidated Entity, the results of those operations or
the state of affairs of the Consolidated Entity in subsequent financial years.
CONSOLIDATED
2003
2002
$'000
$'000
PARENT ENTITY
2003
2002
$'000
$'000
Note 36
Reconciliation of profit from ordinary activities after
income tax to net cash inflow from operating activities
Profit from ordinary activities after income tax
Depreciation and amortisation
Net loss on sale of non-current assets
Decrease (increase) in trade debtors and bills of exchange
Decrease (increase) in inventories
Decrease (increase) in future income tax benefit
Decrease (increase) in other debtors
Increase (decrease) in trade creditors
Increase (decrease) in provision for income taxes payable
Increase (decrease) in provision for deferred income tax
Increase (decrease) in other provisions
Increase (decrease) in prepaid expenses
8,350
4,554
(94)
(1,641)
(3,120)
(281)
(1,124)
2,849
(401)
(128)
18
-
6,434
2,768
(18)
(208)
4,724
(115)
(656)
469
(1,032)
45
(302)
311
179
2,518
(4)
(1)
(17)
4,808
(2,570)
(8)
(3)
3
8,982
12,420
2,675
2,230
Net cash inflow from operating activities
CONSOLIDATED
2003
2002
CENTS
CENTS
Note 37
Earnings per share
Basic earnings per share
Diluted earnings per share
45.3
44.1
34.8
33.9
CONSOLIDATED
2003
2002
NUMBER
NUMBER
Weighted Average Number of Shares Used as the Denominator
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share and alternative basic earnings per share
18,423,875 18,479,879
Weighted average number of ordinary shares and potential ordinary
shares used as the denominator in calculating diluted earnings
per share and alternative diluted earnings per share
18,948,799 18,960,075
OROTONGROUP
51
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Page 52
Directors' Declaration
The Directors declare that the Financial Statements
and Notes set out on pages 15 to 51.
(a) comply with Accounting Standards, the Corporations
Regulations 2001 and other mandatory professional
reporting requirements; and
(b) give a true and fair view of the Company's
and Consolidated Entity's financial position
as at 2 August 2003 and of their performance,
as represented by the results of their operations
and their cash flows, for the financial year ended
on that date.
In the Directors' opinion:
(a) the Financial Statements and Notes are in
accordance with the Corporations Act 2001; and
(b) there are reasonable grounds to believe that
the Company will be able to pay its debts as
and when they become due and payable; and
(c) at the date of this declaration, there are reasonable
grounds to believe that the members of the
Extended Closed Group identified in Note 30 will
be able to meet any obligations or liabilities to which
they are, or may become, subject to by virtue of the
Deed of Cross Guarantee described in Note 30.
This declaration is made in accordance
with a resolution of the Directors.
Ross B Lane
MANAGING DIRECTOR
Samuel S Weiss
BALGOWLAH, NSW
15 OCTOBER 2003
52
OROTONGROUP
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Page 53
to the members of OrotonGroup Limited
Audit opinion
In our opinion, the Financial Report
of OrotonGroup Limited:
•
gives a true and fair view, as required by the
Corporations Act 2001 in Australia, of the financial
position of OrotonGroup Limited and the
OrotonGroup (defined below) as at 2 August 2003,
and of their performance for the year ended on
that date, and
•
is presented in accordance with the Corporations
Act 2001, Accounting Standards and other
mandatory financial reporting requirements in
Australia, and the Corporations Regulations 2001.
influenced by factors such as the use of professional
judgement, selective testing, the inherent limitations
of internal control, and the availability of persuasive
rather than conclusive evidence. Therefore, an audit
cannot guarantee that all material misstatements
have been detected.
We performed procedures to assess whether in all
material respects the financial report presents fairly, in
accordance with the Corporations Act 2001, Accounting
Standards and other mandatory financial reporting
requirements in Australia, a view which is consistent
with our understanding of the Company's and the
Consolidated Entity's financial position, and of their
performance as represented by the results of their
operations and cash flows.
We formed our audit opinion on the basis of these
procedures, which included:
This opinion must be read in conjunction with
the rest of our audit report.
•
examining, on a test basis, information to provide
evidence supporting the amounts and disclosures
in the financial report, and
Scope
•
assessing the appropriateness of the
accounting policies and disclosures used and
the reasonableness of significant accounting
estimates made by the Directors.
The Financial Report and Directors' responsibility
The Financial Report comprises the Statements of
financial position, Statements of financial performance,
Statements of cash flows, accompanying Notes to
the financial statements, and the Directors' declaration
for both OrotonGroup Limited (the Company) and
OrotonGroup (the Consolidated Entity), for the year
ended 2 August 2003. The Consolidated Entity
comprises both the Company and the entities
it controlled during that year.
The Directors of the Company are responsible
for the preparation and true and fair presentation
of the financial report in accordance with the
Corporations Act 2001. This includes responsibility
for the maintenance of adequate accounting records
and internal controls that are designed to prevent
and detect fraud and error, and for the accounting
policies and accounting estimates inherent in the
financial report.
When this audit report is included in an Annual Report,
our procedures include reading the other information
in the Annual Report to determine whether it contains
any material inconsistencies with the financial report.
While we considered the effectiveness of
management's internal controls over financial reporting
when determining the nature and extent of our
procedures, our audit was not designed to provide
assurance on internal controls.
Our audit did not involve an analysis of the prudence of
business decisions made by Directors or management.
Independence
In conducting our audit, we followed applicable
independence requirements of Australian professional
ethical pronouncements and the Corporations Act 2001.
Audit approach
We conducted an independent audit in order to
express an opinion to the members of the Company.
Our audit was conducted in accordance with Australian
Auditing Standards, in order to provide reasonable
assurance as to whether the financial report is free
of material misstatement. The nature of an audit is
PRICEWATERHOUSECOOPERS
PARTNER
OROTONGROUP
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Page 54
Shareholder information as at 30 September 2003
OrotonGroup Limited has an issued capital of 18,423,875 fully paid
ordinary shares and those shares are held by 1,121 shareholders.
(a) Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
ORDINARY SHARES
SHARES
OPTIONS
1 1,000
1,001 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
497
475
79
49
21
8
3
1,121
11
There were 5 holders of less than a marketable parcel of ordinary shares.
(b) Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest holders of quoted equity securities are listed below:
NAME
Anulka Pty Limited
Gazal Industries Pty Ltd
Hazakson Pty Ltd
Hubbas Pty Ltd
CJH Holdings Pty Ltd
Batiha Pty Ltd (Sixways Trust A/C)
Ulmoro Pty Ltd
Kirkcowan Limited
Velcara Pty Limited
JW Investments
ANZ Nominees Limited
Mr. Ross Boyd Lane
Bond Street Custodians Limited
Commonwealth Custodial Services Limited
Asia Union Investments
Robert Boyd Lane
Akora Pty Limited
SJ Howard & Associates Pty Limited
Trurim Pty Ltd
Velcara Pty Limited (Will Vicars Super Fund A/C)
54
OROTONGROUP
ORDINARY SHARES
NUMBER
PERCENTAGE
HELD
OF ISSUED
SHARES
7,878,296
1,139,138
972,192
936,192
503,784
444,247
405,127
402,000
348,150
298,805
248,950
214,424
192,255
163,528
160,000
135,000
117,080
116,225
115,873
112,072
42.76
6.18
5.28
5.08
2.73
2.41
2.20
2.18
1.89
1.62
1.35
1.16
1.04
0.89
0.87
0.73
0.64
0.63
0.63
0.61
14,903,338
80.88
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Page 55
(c) Substantial holders
Substantial holders in the Company are set out below:
NUMBER
HELD
PERCENTAGE
10,505,249
1,767,108
1,139,138
57.02
9.59
6.18
Ordinary shares
Robert Lane, Ross Lane and Tom Lane, under the Deed dated 19 October 2001
Will Vicars
Gazal Industries Pty Ltd
(d) Voting rights
The voting rights attaching to each class of equity securities are set out below:
Ordinary shares
Voting Rights are governed by the Constitution. In summary, on a show of hands, every member
personally present or by proxy shall have one vote. On a poll, every member will have one vote for
every fully paid share held.
OROTONGROUP
55
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Corporate Directory
Directors
Samuel S Weiss
Ross B Lane
MANAGING DIRECTOR
Michael R Day
NON-EXECUTIVE DIRECTOR
Robert B Lane
EXECUTIVE DIRECTOR
Tom B Lane
EXECUTIVE DIRECTOR
J Will Vicars
NON-EXECUTIVE DIRECTOR
Company Secretary
Andrew R Smith
Registered office
and head office
54 Balgowlah Road
Balgowlah NSW 2093
Sydney Australia
Telephone (02) 9951 0500
Facsimile (02) 9951 0506
Page 56
Share Registry
ASX Perpetual Registrars Limited
Level 8
580 George Street
Sydney NSW
Telephone (02) 8280 7100
Auditor
PricewaterhouseCoopers
Chartered Accountants
PO Box 2650
201 Sussex Street
Sydney 1 171
Solicitors
Gilbert & Tobin Lawyers
2 Park Street
Sydney NSW 2000
Bankers
Westpac Banking Corporation
Level 8
255 Elizabeth Street
Sydney NSW 2000
Stock Exchange
OrotonGroup Limited is listed on the
Australian Stock Exchange Limited.
Notice of Annual General Meeting
The Annual General Meeting of OrotonGroup Limited
will be held at the offices of Gilbert & Tobin Lawyers,
Citigroup Building, Seminar Room
Level 37, 2 Park Street, Sydney NSW 2000
at 10.00am on Thursday 4 December 2003.
56
OROTONGROUP

OROTONGROUP

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