Microsoft Word - ACCT2212 Group Assignment 2017.doc

1. Analyse the financial statements for FY2008 and FY2009 using the analytical methods below and discuss any material red flags which may be revealed by each analytical method. Please show all calculations (25 marks): Analytical methods: (a) Horizontal Analysis (b) Vertical Analysis. (c) Ratio Analysis (select any five key ratios only) (d) Beneish ratios. (e) M-scores using both the five variable and eight variable models.

Performance Highlights R ABN 52 058 868 018 289-311 Bayswater Road North Bayswater Victoria 3153 www.clivepeeters.com.au Clive Peeters Limited Clive Peeters Limited Annual Report 2008 Annual Report 2008 Clive Peeters Limited ABN 52 058 868 018 Performance Highlights R ABN 52 058 868 018 289-311 Bayswater Road North Bayswater Victoria 3153 www.clivepeeters.com.au Clive Peeters Limited Clive Peeters Limited Annual Report 2008 Annual Report 2008 Clive Peeters Limited ABN 52 058 868 018 Sales 2007 actual 2008 actual EBITDA 2007 actual 2008 actual 534.8 Sales 457.2 EBIT 24.7 NPAT 2007 actual EBITDA 17.3 13.5 457.2 2007 actual 2008 actual 22.8 EBIT 534.8 20.5 2008 actual 24.7 Clive Peeters Ltd ABN 52 058 868 018 NPAT Directors Brian Pollock Chairman 22.8 10.3 13.5 20.5 17.3 Sales Revenue 2007 actual +17.0% 2008 actual 2007 actual 2008 actual 2007 actual 2008 actual EBIT Sales 2007 actual 2007 actual Stores 20.5 EBIT 2008 actual 48 534.8 2008 actual 457.2 Gross Profit EBIT 2007 actual Sales NPAT 534.8 13.5 17.3 NPAT 141.1 457.2 10.3 Rick Hart Executive Director EBITDA 2007 actual 2008 actual 24.7 24.7 2007 actual 2008 actual Stores 22.8 Gross Profit 17.3 Gross Profit 2007 actual +17.1% 2008 actual 2007 actual 2008 actual 2007 actual 2008 actual Stores 2007 actual 2008 actual 2007 actual 36 Ebitda 2008 actual 2007 actual (7.3%) 2007 actual Gross 2007 actual 2008 actual 2007 actual 2008 actual 2008 actual 2007 actual 2008 actual Profit 2008 actual EBIT 2007 actual +33.0% 20.5 17.3 141.1 120.5 36 2007 actual 2008 actual 2007 actual 2008 actual 2007 actual 2008 actual 2007 actual 2008 actual 10.3 13.5 17.3 10.3 NPAT (23.7%) 2007 actual 2007 actual 2008 actual 13.5 Gross Profit 48 NPAT NPAT 20.5 Stores 36 141.1 EBIT 120.5 Stores 120.5 10.3 48 Increase measured in terms of uplift FY2008 over FY2007 actual. 141.1 48 13.5 20.5 Stores 2008 actual 2007 actual 2008 actual 2008 actual 2007 actual 2008 actual Gross Profit Geoff Webb Non-executive Director John Ries Non-executive Director 22.8 120.5 36 Greg Smith Managing Director Peter Lord Non-executive Director EBITDA (15.6%) 2008 actual 10.3 Joint Company Secretaries Andrew Metcalfe and Steven Rowarth Registered Office 289-311 Bayswater Road North Bayswater VIC 3153 Website www.clivepeeters.com.au 2007 actual 2008 actual Auditors Deloitte Touche Tohmatsu Queen Victoria Building 180 Lonsdale Street Melbourne VIC 3001 Solicitor to the Company Freehills Level 43, 101 Collins Street Melbourne VIC 3000 Share Registry Computershare Investor Services Pty Limited GPO Box 52 Melbourne VIC 8060 AUSTRLALIA Sales 2007 actual 2008 actual EBITDA 2007 actual 2008 actual 534.8 Sales 457.2 EBIT 24.7 NPAT 2007 actual EBITDA 17.3 13.5 457.2 2007 actual 2008 actual 22.8 EBIT 534.8 20.5 2008 actual 24.7 Clive Peeters Ltd ABN 52 058 868 018 NPAT Directors Brian Pollock Chairman 22.8 10.3 13.5 20.5 17.3 Sales Revenue 2007 actual +17.0% 2008 actual 2007 actual 2008 actual 2007 actual 2008 actual EBIT Sales 2007 actual 2007 actual Stores 20.5 EBIT 2008 actual 48 534.8 2008 actual 457.2 Gross Profit EBIT 2007 actual Sales NPAT 534.8 13.5 17.3 NPAT 141.1 457.2 10.3 Rick Hart Executive Director EBITDA 2007 actual 2008 actual 24.7 24.7 2007 actual 2008 actual Stores 22.8 Gross Profit 17.3 Gross Profit 2007 actual +17.1% 2008 actual 2007 actual 2008 actual 2007 actual 2008 actual Stores 2007 actual 2008 actual 2007 actual 36 Ebitda 2008 actual 2007 actual (7.3%) 2007 actual Gross 2007 actual 2008 actual 2007 actual 2008 actual 2008 actual 2007 actual 2008 actual Profit 2008 actual EBIT 2007 actual +33.0% 20.5 17.3 141.1 120.5 36 2007 actual 2008 actual 2007 actual 2008 actual 2007 actual 2008 actual 2007 actual 2008 actual 10.3 13.5 17.3 10.3 NPAT (23.7%) 2007 actual 2007 actual 2008 actual 13.5 Gross Profit 48 NPAT NPAT 20.5 Stores 36 141.1 EBIT 120.5 Stores 120.5 10.3 48 Increase measured in terms of uplift FY2008 over FY2007 actual. 141.1 48 13.5 20.5 Stores 2008 actual 2007 actual 2008 actual 2008 actual 2007 actual 2008 actual Gross Profit Geoff Webb Non-executive Director John Ries Non-executive Director 22.8 120.5 36 Greg Smith Managing Director Peter Lord Non-executive Director EBITDA (15.6%) 2008 actual 10.3 Joint Company Secretaries Andrew Metcalfe and Steven Rowarth Registered Office 289-311 Bayswater Road North Bayswater VIC 3153 Website www.clivepeeters.com.au 2007 actual 2008 actual Auditors Deloitte Touche Tohmatsu Queen Victoria Building 180 Lonsdale Street Melbourne VIC 3001 Solicitor to the Company Freehills Level 43, 101 Collins Street Melbourne VIC 3000 Share Registry Computershare Investor Services Pty Limited GPO Box 52 Melbourne VIC 8060 AUSTRLALIA Corporate Profile Clive Peeters Limited (the Company) specialises in the retail of premium electrical appliances but caters for all customers. The Company is committed to innovation and to improving the shopping experience by delivering more to its customers. Its success can be attributed to exceptional staff dedicated to excellence in customer service, its very impressive range of electrical appliances, an ever-expanding services proposition and growing brand recognition. Clive Peeters Limited employs more than 1500 staff and had 48 stores Australia-wide at June 30 2008. The Company operates under two brands, trading as Clive Peeters in Victoria, Queensland, New South Wales and Tasmania, and trading as Rick Hart in Western Australia. Notice of Annual General Meeting The Annual General Meeting of Clive Peeters Limited will be held at Deloitte Touche Tohmatsu, Level 14, Queen Victoria Building, 180 Lonsdale St., Melbourne, 10.30am October 30th, 2008. Contents Corporate Profile 1 Directors' Declaration 47 Notice of Annual General Meeting 1 Income Statement 48 Chairman's Report 12 Balance Sheet 49 Managing Director's Review 14 Statement of Changes in Equity 50 Board of Directors 24 Cash Flow Statement 51 Corporate Governance Statement 27 Notes to the Financial Statements 52 Directors' Report 35 ASX Additional Information as at 29 August 2008 81 Declaration of Independence Report 44 Location Listing 82 Audit Report 45 Corporate Directory 84 1 More. At Clive Peeters, we make it easy. We do this by giving more: more stores in more locations than ever before; \u0007a more pleasant shopping environment with more product choices; more value because of our competitive pricing; more peace of mind with our price guarantee; \u0007more customer confidence with in-store product demonstrations; and more customer satisfaction with our in-home set-up services. At Clive Peeters, customers get more, without having to pay more. It's that easy. 2 Clive Peeters Annual Report 2008 More reasons to visit We've recently introduced Easy Photos, an in-store digital photo printing service with a range of products including prints, canvas wall art and photo gifts. This initiative attracts more store traffic from new customers as well as repeat business from existing customers. More store visits is an easy way to build closer relationships with our customers. 3 More value-adding services This year sees the introduction of our innovative E-Team, a dedicated team of installers and computer experts which sets up home entertainment systems and solves technical problems. More solutions make the buying experience more comfortable and much more easy. 4 Clive Peeters Annual Report 2008 More diversity We've introduced more new products for our home renovation customers. We now offer more than just kitchen and laundry appliances with our extensive range of bathroomware in selected stores making us even more of a one-stop-shop than ever before. It's just another way we make shopping more convenient and easy for our customers. 5 More choice This year sees the introduction of Clive Peeters' own brand, Allure. This exclusive range is endorsed by respected Australian chef, Neil Perry, and is ideal for the gourmet home chef with innovative functions never before seen in upright cookers. More products, more features, more choice, more easy decisions. 6 Clive Peeters Annual Report 2008 More and better stores We've recently added twelve more stores: five new stores in Bella Vista (NSW), Ipswich (QLD), Bendigo and Warrnambool (VIC) and Belmont (WA); and seven more stores acquired in North Queensland and Brisbane. We've also updated and upgraded more stores. More stores in more locations makes it even more convenient and easy for our customers. 7 More expertise Staff training and expertise are more important than ever. We've recently introduced our innovative Easy Academy, a centralised, integrated staff education and assessment programme delivered both online and face-to-face. More expert staff makes customers' purchase decisions more informed and much more easy. 8 Clive Peeters Annual Report 2008 More accolades and recognition We're proud to announce that 2007/2008 has seen us win more awards. Whilst these are gratifying, it's our customers' opinions that matter more. Recent research shows an average of 94% of our national customers will visit Clive Peeters again, and a similar 94% found the shopping experience 'easy'1. 'Easy' is so much more than just a slogan - it's a promise that's delivered. 1'The Realise Group', May 2008. 9 Even More. At Clive Peeters, it's more than just a transaction, it's an experience. And, as we continue to grow, we will work hard to find even more ways to surprise and excite customers. We will offer more stores, more products and more innovative services all designed to make the buying experience even more easy. We want more happy customers who will recommend us to others and be more likely to put us on the top of their shopping list next time. At Clive Peeters, we give more. It's that easy. 10 Clive Peeters Annual Report 2008 11 The Board is satisfied that the Company's business model is sound, and that the strategy that the Board and Management have recently implemented to manage the business appropriately during this challenging business cycle is the right one for the times. 12 Clive Peeters Annual Report 2008 R Chairman's Report Head Office 289-311 Bayswater Road North Bayswater Victoria 3153 The 2007/2008 financial year was notable for its fluctuating fortunes. The year started with great promise with a strong first half performance by the Company, only to finish on a tough note over the last three to four months of the Financial Year, due to deterioration in retail conditions in this industry. The Company found it necessary to make a profit guidance announcement early in June 2008, when it became clear that the difficult retail conditions that had emerged since mid March and continued into April and May 2008 were likely to extend throughout the key month of June, and beyond. This provided a reminder of how quickly business cycles can turn when economic conditions deteriorate, and that nothing in business should ever be taken for granted. Despite the fact that the year ended on a tough note the year brought further strong store expansion for the Company with the opening of four new stores nationally and one additional clearance outlet, and the acquisition of seven stores in Queensland, the latter providing a strong fillip for the Group's market share in that State. The Company finished FY 2008 with 48 stores, yet is still not even half way to achieving its long term store rollout potential. One of the highlights is that the Sydney operation is showing steady improvement, with improved conversion rates resulting in increased sales across all Sydney stores over H2 2008. The Company remains optimistic about the medium to long term prospects of the Sydney operation, and will continue to open new stores in that market as suitable sites are identified. Increasing critical mass in Sydney, allowing the business to fractionalise existing infrastructure and operating costs, is the key to bringing that State to profitability. The Board is satisfied that the Company's business model is sound, and that the strategy that the Board and Management have recently implemented to manage the business appropriately during this challenging business cycle is the right one for the times. The Company's focus is on doing everything possible to generate a sound Operating Profit result for FY 2009, underpinned by material reductions in overheads, whilst simultaneously implementing prudent Balance Sheet management strategies, in particular the careful management of inventories, cash and debt. It is pleasing that in June 2008 the Company was able to conclude a restructuring of its Debt Facilities, with $30 million of the Group's total debt now being converted to a three year term, demonstrating the faith that the Company's bank has in the business. The Company's Corporate Governance arrangements comply with the ASX Principles of Good Corporate Governance and Best Practice recommendations. These arrangements are summarised in this Report. I thank my fellow Directors for their efforts and their outstanding support over FY 2008. A special thank you to our Managing Director Greg Smith. We are indeed fortunate to have such a hardworking, effective and professional person leading the Company in these challenging times. Our Board will continue to work diligently with Management to manage the business in the best interests of all Shareholders. The Board has every confidence that Management and Staff will work energetically and effectively to achieve the Company's objectives over FY 2009, and that they will give their absolute best in order to meet and where possible exceed expectations in this difficult retail environment. On behalf of the Board, Management and Staff, I once more thank all of our loyal customers and shareholders for their continued support over FY 2008. I commend the Clive Peeters Limited 2008 Annual Report to you. Yours sincerely Brian Pollock Chairman of Directors 19 September 2008 13 We are delighted that research shows that 94% of our customers will shop with us again, and that 94% also believe we live up to our promise of making it easy. 14 Clive Peeters Annual Report 2008 Managing Director's Review The Company achieved sales revenue of $534.8 million (up 17.0%), gross profit margin of 26.4% (unchanged), EBIT of $17.3 million (down 15.6%), EBITDA of $22.8 million (down 7.3%) and NPAT of $10.3 million (down 23.7%) for the year ended 30th June 2008. During the year the Company opened four new large format stores, and one new clearance outlet. In addition the Company acquired seven stores in Queensland. The Company had forty-eight stores trading at 30th June 2008 (36 as at 30th June 2007), representing a 33% increase on our fleet. Result The Company's sales increased to $534.8 million in 2008, enhanced by the continued maturing of stores opened in recent years, and the sales contribution from new stores opened or acquired during the year. Consolidated sales growth for the year was a solid 17.0%, building on the rapid market share growth over the previous three years. Retail conditions over FY 2008 for the product categories in which Clive Peeters Group competes were mixed. The Company's skew towards whitegoods and cooking (58% of total sales) meant that sales continued to be adversely affected by the high interest rate regime and the continued flat housing markets which impacted most states with the exception of Western Australia. In contrast, the positive retail environment for audio visual and technology product categories (comprising 42% of the Company's sales mix) allowed strong sales growth in those segments. In the second half of FY 2008, despite a strong start to the half, Clive Peeters Group sales on a like for like basis increased by just 2.7%. Sales in Victoria grew by 0.7%, declined by 3.9% in Queensland, increased in Tasmania by 3.2% and increased by 3.6% in Western Australia. It was very pleasing that New South Wales sales grew by 18.8% on a like for like basis over this six months period (despite the market deterioration), confirming that the Clive Peeters' Brand is steadily gaining recognition in that state, albeit off a lower base. Sales on a like for like basis in some states were noticeably weaker in the fourth quarter of FY 2008. The major economic causes of this decline in sales over Q4 2008 have been well reported. The most recent interest rate rise in March 2008 (the fourth in twelve months) , record high fuel costs, rising food costs and declining property and share markets all combined to dampen consumer sentiment (which was reported as the lowest in 16 years), and to put a brake on consumer spending on big ticket discretionary items. Floor traffic into the majority of stores (except WA and NSW) fell by between 5% to 10% over the June 2008 quarter, despite one of the strongest and most aggressive advertising programmes that the Company has embarked on. The most affected States were Victoria, Queensland and Tasmania. Growth in the overall appliance industry over FY 2008 could best be described as steady, up 5.9% nationally. By comparison the Clive Peeters Group grew 17.0% nationally, outstripping market growth in all states except Victoria. The Company's resolve to carefully manage gross margins enabled it to maintain its strong margin result of recent years. For the Clive Peeters Group, sales on a like store basis nationally increased by 0.6% for FY 2008. This varied from state to state. Like for like sales in Victoria grew by 1.8%, an improvement on the negative growth of 2007. Queensland comparable store sales fell 3.0%, largely due to one of the worst air conditioning seasons in recent history. The sole Tasmanian store grew by 6.0%. Western Australia grew by 0.7% (off record highs in 2007), supported by the buoyant economy in that state. NSW has not yet had any stores trading for two complete years, however headline sales grew by 17%. The gross margin of 26.4% for FY 2008 was consistent with 26.4% for FY 2007. This was full of merit, as it was achieved in spite of the very tough retail conditions and the outbreak of competitor discounting that set in over the last quarter of 2008. Consolidated sales growth for the year was a solid 17.0%, building on the rapid market share growth over the previous three years. 15 Also the continued shift in sales mix towards lower margin home entertainment and technology categories, and a very poor air conditioning season in Queensland and New South Wales, placed further pressure on margins. Gross profit dollars on a like store basis increased by 1.9% for FY 2008. On a State by State basis Victoria increased 1.5%, Queensland increased by 1.4% (despite sales falling 3.0%), Tasmania increased by 5.5%, and Western Australia increased by 2.3%. No full year gross profit comparisons can yet be made for New South Wales, but in the second half of 2008 Gross Profit dollars from New South Wales stores improved on a like for like basis by 10.5% over the corresponding period in 2007. The Company is conscious of the need to work hard to bring down its cost of doing business, as measured by net operating costs as a percentage of sales. For FY 2007 the ratio was 20.9% and for FY 2008 this increased to 22.1%. The increase in this ratio is largely a result of the downturn in sales in the fourth quarter of FY 2008. This was exacerbated by the set up and operating costs of new stores which are still so new that they are not yet contributing to their full sales potential, and by salary and finance cost escalations. The Company is optimistic about recording improvement in this cost of business ratio in FY 2009, and it has initiated a number of cost saving measures in recent months. The Company's EBIT result for 2008, which fell 15.6% below 2007 levels, can be attributed directly to the slowdown over the final quarter of FY 2008. 16 Clive Peeters Annual Report 2008 It is notable that at the end of Q3 2008 the Company's EBIT result was in line with the comparable nine months for FY 2007, and also in line with FY 2008 forecast. Excluding the New South Wales trading result the Company's EBIT for FY 2008 was $23.6 million, and EBITDA was $27.6 million, emphasising that the main priority for the Company is to continue to improve the trading results out of the Sydney operation. Inventory levels increased from $98.9 million in FY 2007 to $131.4 million at 30th June, 2008, largely due to the addition of eleven new stores and one additional clearance outlet. The increased inventory was funded by a combination of increased debt and trade payables. The Company's capital expenditure outlay on property, plant and equipment for FY 2008 was $8.6 million, down from $12.5 million for FY 2007. This year's outlays included capital expenditure incurred with the acquisition of seven new stores, the cost of opening four new greenfield site stores and one new clearance outlet, and the total refurbishment of large format stores in Thomastown (Victoria) and Belmont (Western Australia). A number of other stores across the Clive Peeters' Group underwent partial refurbishment of specific departments within the stores. The expansion of the Victorian Head Office and central warehouse was another major project that was funded during FY 2008. The Company is forecasting a reduced capital expenditure outlay of $7.5 million for FY 2009. Managing Director's Review Debt Position Due to the investment related to the significant store expansion programme the Company's net debt increased to $29.7 million as at 30th June, 2008. The Company's operating cash position remains sound at 30th June 2008, and Clive Peeters continues to enjoy a relatively low gearing ratio (37%). Adopting a policy of prudent debt management, the Board of Clive Peeters reached agreement to allow its banker to register a Fixed and Floating Charge over the Company's assets and undertaking, in consideration of an agreement to restructure $30 million of existing Debt facilities to a three year term facility. This strengthens the position of the Company's Balance Sheet. Making this security available to the bank enhances the Company's prospects of raising further debt facilities at short notice if the need arises, including for acquisition opportunities. Expansion Programme The Company succeeded in opening four new large format stores and one new clearance outlet during FY 2008, meeting its new store objectives. It also acquired a chain of seven stores in Queensland, and in the process, significantly increased its market share in that state. As a result of the more difficult retail environment the Company will likely moderate its FY 2009 store rollout programme. Only two new stores are earmarked to open, in Coburg (Victoria) and Townsville (Queensland). It remains the Company's broader objective to open a minimum of four new large format stores each year, to provide increased scale and a foundation for improved cost leveraging. A number of additional stores are under negotiation for FY 2010 and beyond. However, whilst the market remains challenging, the Company will shift its focus towards opening new stores in the established capital city markets of Melbourne, Brisbane, Perth and Sydney. This is where the fractionalisation of operating costs, including administration, advertising and warehousing, is most pronounced. Opening stores in new markets requires additional supporting infrastructure to be put in place, and this will generally be delayed until retail conditions improve. Opened five new stores and completed an acquisition of seven Queensland stores. It is the Company's preference to open greenfield sites where it can strategically place stores that do not pose a threat to our existing network, whilst at the same time not compromising the successful store model. 17 New South Wales Trading Update The Company declared in its H1 2008 results announcement in February 2008 that the loss on Sydney operations was likely to be in the vicinity of $4.2 million after Tax. The actual loss realised on Sydney trading for FY 2008 was $4.4 million after Tax. (H1 2008 $2.6 million, H2 2008 $1.8 million, demonstrating an improved trend in the second half). Although Sydney losses clearly continue to impact Group profits, the Company is encouraged that sales in Sydney stores are increasing at a rate in excess of expectations, notwithstanding a weak retail and flat housing market. Air conditioning sales in that state proved to be a non-event for the second season running. Floor traffic in Sydney stores continues to strengthen, and conversion rates have continued to improve with the appointment of additional and more experienced staff. The fifth store in New South Wales, at Bella Vista, opened in August 2007 and contributed to further leveraging of costs in that state over FY 2008. Independent research recently conducted in the Sydney market verifies a high level of customer satisfaction with Clive Peeters' service levels and with the in-store shopping experience, and this augurs well for continued growth through the Sydney stores in the years ahead. The Company's strategy for Sydney is to focus on increased scale (maturing of existing stores and opening of several new stores); on increasing margins with an improved sales mix; and on trimming operating costs in certain stores that have been carrying excessive staff numbers to fully test the sales potential of the stores. Clive Peeters is committed to opening a number 18 Clive Peeters Annual Report 2008 of new stores in New South Wales to gain the critical mass to sustain profitability in the long term. It remains Clive Peeters' longer term strategic objective to accommodate up to twelve metropolitan stores and eight regional stores in New South Wales. Acquisitions In October 2007 the Company completed an acquisition of seven Queensland stores, varying from small to large format size. This acquisition was important strategically, giving Clive Peeters its first presence in the growth market of North Queensland, with stores in Mackay, Bundaberg, Hervey Bay, Maryborough and Maroochydore, along with two extra stores in Brisbane. These additional stores, along with the new store in Ipswich, (opened December 2007) will lift total sales generated out of Queensland by the Group in a full year to a level similar to the sales generated out of its Western Australian operation. The opening of the new large format store in Townsville during FY 2009 will further consolidate the Company's market share in that state. The new Queensland stores, as expected, only made a minor operating profit contribution during FY 2008, not assisted by a once in a century flood in the Mackay store four months after acquisition. However they will contribute more significantly to operating profit during FY 2009, as initiatives to fully integrate the stores into the Clive Peeters' operation take hold. Store Refurbishments In FY 2009 the Company will fully refurbish the Mackay (Qld) store post its flooding (H1 2009) and the Osborne Park (WA) store (H2 2009). It will also proceed with departmental upgrades in selected stores to accommodate new product Managing Director's Review categories, but otherwise the Group intends to put on hold all non essential store refurbishments. the industry in terms of its training capabilities, and will reflect in improved skills and effectiveness of Managers and staff at all levels. Site Closures In H1 2009 the Company will take advantage of expired leases to close a loss making Clearance Outlet in Greensborough (Vic), and a back up warehouse in Northbridge (WA). Emerging Products The Company is ready to test the viability of a number of new but complementary product categories in selected stores, with the long range intention of refining and improving the retail store model of Clive Peeters and Rick Hart. Staff Training The Company is in the process of developing an E-Learning system which will be introduced progressively over FY 2009 and FY 2010 with initial concentration on improved induction training for all staff. For retail staff the focus will be on improved sales training and more enhanced product knowledge learnings. This training platform will be unique to our business and this has already been endorsed by many of our suppliers as an exciting innovation. We are looking forward to working closely with our suppliers to give our team members the tools and knowledge they need to make our business more successful. Other training modules will be progressively introduced for all operating Divisions of the business. These training initiatives will in time cement the Company's position as a market leader in The Company is now in the final stages of planning for the launch of the refined store model. Due to the challenging retail conditions Management has resolved to initially confine the launch of the product innovations to two Melbourne based stores. This new look store model, earmarked for completion in H1 2009, will include bathroomware and a complete kitchen and bathroom renovation solution, both of which hold the promise of medium to long term profit growth for the Company. Additionally, new products which will be incorporated into each of the pilot stores' home entertainment and technology departments will include a Fuji Lab, photo accessories, downloaded music, gaming hardware and gaming software, mobile phones, latest release DVD software titles, and an expanded range of Sydney floor traffic and conversion rates trending up, generating an improved trading result in the second half of FY2008 19 lap top computers, all to capitalise on the Australian consumer's insatiable appetite for technology. The Company expects to generate sales growth and repeat store visitations by offering these additional products to its existing loyal customer base, and to attract new target audiences not shopping with us currently. Once the viability of the store pilots is proven, and when conditions in the electrical appliance retail industry have shown signs of improvement, the Company will be well placed to rollout the new store model across the broader Clive Peeters and Rick Hart operations. The rollout will proceed on a State by State basis and it is expected that it will take up to twenty-four months from completion of the pilot periods to fully implement. Based on conservative assumptions as to the market shares we could achieve in each of these emerging categories, this has the potential to generate significant comparable sales growth on a store by store basis post implementation. On-line selling solution During FY 2009 the Company plans to design and develop the strategic initiative of an on-line selling solution. Management believes the time has come to investigate and implement this type of medium to our business. The number of consumers who are comfortable to shop electronically is exploding as evidenced by numerous independent results, and the development of our emerging products is complementary and conducive to this type of operation. This new retail channel will constitute an exciting sales growth opportunity for the Group. 20 Clive Peeters Annual Report 2008 The Company is ideally positioned to promote and administer on-line selling as it can leverage off its existing infrastructure, including its bricks and mortar stores, and the existing warehousing and distribution facilities in every state. Information Technology The Company has invested this year in a major upgrade of its IT facilities to increase the speed and capacity of its IT systems, to cater for continued growth and to provide for a more robust and effective Disaster Recovery solution. Additionally the IT Department is being restructured to support the number of new initiatives we have flagged. Customers The Company's commitment to providing the highest standard of customer service is resonating strongly with its loyal customer base. The results of recent independent research were particularly pleasing. The highlights included 94% of customers in Clive Peeters' stores indicating their intention to shop with the Company again, and a similar 94% agreeing that Clive Peeters lives up to its promise of making it \"easy\" - both outstanding findings, and powerful vindication of the entire Easy Strategy. The strong sales performance of the Group's Western Australian stores verifies that the Rick Hart Division is generating similar levels of customer satisfaction and loyalty. We thank all customers for their patronage and loyalty and remain firmly committed to our goal of complete customer satisfaction and service excellence. Managing Director's Review Brand Awareness Research independently conducted by the Company has highlighted that the Clive Peeters' Brand enjoys strong brand recognition. In Melbourne 72% of people are familiar with the Clive Peeters' Brand, 66% in Brisbane, and an impressive 67% in Hobart, despite that store only being opened two years ago. In New South Wales the research also reveals that Clive Peeters' brand recognition is growing and after two years with just five stores has already reached 35%. Whilst a great result, this reinforces how difficult a task it is to establish a brand in a new market. However the positive in this is that there is clearly considerable upside in the New South Wales market in the years ahead, as Clive Peeters' brand recognition improves over time. This brand recognition will be accelerated by expanding the network of Sydney stores, which will improve accessibility, and enable more customers to experience the Clive Peeters' retail point of difference. The Rick Hart Brand is already an icon brand in Western Australia, regularly ranked amongst the most recognisable in that state. Board and Corporate Governance The Company is fortunate to have a very experienced, skilled and hardworking Board of Directors, the composition of which is unchanged since the public listing of Clive Peeters Limited in September 2005. The Board, which consists of four non-executive Directors and two Executive Directors, has provided strong leadership over the last three years. This will stand the Company in good stead in the challenging retail environment which has recently emerged. The Board has the vision, expertise and energy required to guide the Company in its quest to become a leading long term participant in the household appliance retail sector. The Board is committed to compliance with Corporate Governance best practice. Management The Management team has been further strengthened over the last year. Two key appointments have recently been made to bring the senior management team to full strength, including the appointment of a new Chief Operating Officer, Gary Dunne, who is a very experienced, talented and passionate retailer, and the inclusion of a Strong management team now in place is capable of successfully overseeing profitable growth in the years ahead. 21 well credentialed Group People Development Manager, who is responsible for the new strategic Group training initiatives, and the implementation thereof. The strong Management team now in place is capable of successfully overseeing profitable growth in the years ahead. Dividend The Company will pay a final dividend of 1.5 cents per share (fully franked) for the year ended 30th June 2008. The total dividend for the year is 4.5 cents per share fully franked (6 cents per share for FY 2007). The Board's decision to pay a reduced final dividend reflects a prudent approach to capital management, yet achieves an appropriate balance of wanting to maintain a reasonable dividend return to shareholders in a challenging retail environment. The total dividend payout for FY 2008 equates to 56% of Net Profit after Tax. Outlook The big ticket discretionary retail environment, although subdued, was still reasonably sound for the first nine months of FY 2008 despite depressed housing markets in the eastern states. However, since mid March 2008, conditions in this sector have deteriorated. The Company believes there is little prospect of any material improvement in retail conditions in H1 2009, and is proceeding on the assumption that conditions are likely to remain very challenging for the whole of FY 2009. The early signs of increases in unemployment levels that are now emerging may further contribute to the growth slowdown. 22 Clive Peeters Annual Report 2008 Despite tax cuts taking effect on the 1st July 2008 the discretionary spending capacity of customers will be tested for so long as interest rates remain high, and whilst high fuel costs and soaring food costs continue. Consumer confidence can be expected to remain at or near two decade lows, at least until the interest rate environment improves. It is a positive that when the retail conditions in this sector do improve within the next economic cycle, there is a strong chance of a surge in the housing markets to meet the pent up demand and supply shortfalls that are emerging in the property market. If this occurs this will be a cycle that particularly benefits the Clive Peeters' Group because of its uniquely high concentration on the Whitegoods and Cooking appliance categories. Another positive is that the home entertainment and technology categories are likely to show continued growth as consumers' thirst for high definition televisions and for new and innovative technology products shows little sign of waning. In this difficult retail environment the Company's priority is to consolidate the trading performance of existing stores. Sales in July 2008 were in line with FY 2009 forecasts, but sales in August were subdued, and margins have been under considerable pressure partly due to a higher mix of home entertainment sales pre Olympics. The Company will continue to look to generate some sales growth by selectively opening new stores in existing markets that it operates in, and it is confident it can maintain and even grow its market shares in this economic environment. Managing Director's Review Reducing operating costs over FY 2009 will be a key objective. The Company is intent on re-engineering the business to a lower level of operating costs that is more consistent with current floor traffic and sales trends. A programme to immediately reduce underlying operating costs will be largely implemented by the end of first quarter 2008, and ongoing cost scrutiny will be a management priority. None of the planned cost cuts will impact customer service levels. FY 2008 has been a year of mixed fortunes. To be well positioned at end of March 2008 to achieve the Group's FY 2008 Operating Profit objectives, only to experience the industry downturn in the last three months of FY 2008, has disappointed us all. We will now concentrate on managing the business appropriately for this difficult retail cycle. We are determined that when the inevitable upturn comes we will emerge as a leaner and more cost efficient retail business, ready to capitalise on the more positive sales environment. I congratulate the Board and Management, and all of the very dedicated and capable staff of the Clive Peeters and Rick Hart Divisions, for their fine individual and collective efforts over FY 2008. I also wish to thank all staff for their personal commitment, loyalty and understanding. This support has never been more appreciated than at this time when we have undertaken the difficult task of restructuring the business to adjust to the challenging retail conditions. The Clive Peeters' Group is fortunate to have such exceptional teams, collectively the best I have ever worked with. I feel privileged and proud to be associated with each and every one of them. Greg Smith Managing Director 19 September 2008 23 Board of Directors 24 Brian Pollock Greg Smith Chairman Managing Director Non-executive Director Age: 62 years Age: 59 years Age: 60 years Brian is a Fellow of the Australian Property Institute and Senior Associate of the Australian and New Zealand Institute of Insurance and Finance. Brian is currently Chairman of Becton Property Group Limited, Chairman of Macquarie Real Estate Equity Funds' Pty. Ltd. Nos. 2-7 and Chairman of A.E. Smith and Son Pty. Ltd. A.E. Smith is a large privately owned building and mechanical services contracting company operating throughout Australia. Brian is a Director of Programmed Maintenance Services Limited and Director of Industry Super Holdings Pty. Ltd. and its subsidiaries. Brian is Chair of the Remuneration and Nomination Committee and a member of the Audit, Business Risk and Compliance Committee. Greg is a Fellow of the Institute of Chartered Accountants and conducted his own Chartered Accounting practice for many years. Greg and Peter Lord purchased Clive Peeters on 1 May 1993 and Greg has been Managing Director of Clive Peeters since then. Greg has 25 years of retail experience as Managing Director of retail and retail consulting companies. Prior to purchasing Clive Peeters, Greg was the Managing Director of Billy Guyatts Limited and subsequently The Vox Retail Group. Greg was appointed a director of NARTA in 1998 and was appointed Chairman in 1999, a position he held for three years. Although Greg resigned as a director of NARTA in 2002, he is still involved in strategic planning and new product and services development for NARTA. Greg is a member of the Remuneration and Nomination Committee. Peter was in the life assurance industry for 26 years with 10 of those spent in various management roles including Victorian Agency Development Manager for Scottish Amicable. Peter qualified by examination as an Associate of the Australian Insurance Institute. Peter conducted his own highly successful life assurance and superannuation sales agency for over 10 years becoming one of the insurance industry's most successful and respected consultants. He was amongst the early pioneers of the "multi-agency" system and was the number one consultant for Australian Eagle for a number of years. Peter sold his agency in 1989 and concentrated on investments in the property and equity markets. He acquired his interest in Clive Peeters in 1993 and since then has been actively involved as a Director of the Company. Peter is a member of the Remuneration and Nomination Committee and the Audit, Business Risk and Compliance Committee. Clive Peeters Annual Report 2008 Peter Lord Rick Hart Geoff Webb John Ries Executive Director Non-executive Director Non-executive Director Age: 64 years Age: 59 years Age: 63 years Rick Hart is the current Managing Director of the Rick Hart Group which was acquired by Clive Peeters Ltd in October 2005. Rick has been involved in the electrical appliance retailing industry since 1975. The Rick Hart Group's operations grew from a single outlet in 1979 to a chain of retail outlets under the brands of Rick Hart, Rick Hart Fans and Lighting, Rick Hart Seconds and Rick Hart Park Discounts Superstore. Rick is the Chairman of the Fremantle Football Club, a member of the Australian Institute of Company Directors, an Honorary Convention Ambassador for the Perth Convention Bureau and a former Vice Chairman of the Western Australian Turf Club. Geoff has over 36 years experience in the financial services industry. He retired as Managing Director, International, with AXA Asia Pacific Limited (formerly the National Mutual Group) in December 1998. Geoff is currently Chairman, MLC Nominees Pty Limited and National Australia Bank Superannuation Fund Pty Ltd. He is a Fellow of the Australian Institute of Company Directors and a Fellow of the Australian Institute of Management. Geoff is a member of the Remuneration and Nomination Committee and the Audit, Business Risk and Compliance Committee. John retired as an executive Director of ANZ Bank at the end of December 1998 after a career spanning 38 years, including more than 6 years as a Director. John is a Director of Industry Super Holdings Pty. Ltd. and its subsidiaries. John is also a Director of Mercy Health and Aged Care Inc., Melbourne. He also consults to a number of entities in the property and construction sectors. He is qualified with a Bachelor of Business and is a FCPA and a F FIN and attended Harvard's AMP program in 1995. John is Chair of the Audit, Business Risk and Compliance Committee and a member of the Remuneration and Nomination Committee. 25 26 Clive Peeters Annual Report 2008 Corporate Governance Statement The Board of Directors of Clive Peeters Limited is responsible for the corporate governance of the Consolidated Entity. The Board guides and monitors the business and affairs of Clive Peeters Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. The table below summarises the Company's compliance with the ASX Corporate Governance Council's Revised Principles and Recommendations. Principles and Recommendations Compliance Comply Principle 1 - Lay solid foundations for management and oversight Complies. Establish the functions reserved to the Board of Directors (Board) of Clive Peeters Limited (Company) and those delegated to manage and disclose those functions. The Board is responsible for the overall corporate governance of the Company. 1.2 Disclose the process for evaluating the performance of senior executives. Senior executives prepare strategic objectives that are signed off by the Board. These objectives must then be met by senior executives as part of their performance targets. The CEO then reviews the performance of the senior executives against those objectives. The Board reviews the CEO's compliance against his and the Company's objectives. These reviews occur annually. 1.3 Provide the information indicated in Guide to reporting on Principle 1. A Board Charter has been disclosed on the Company's website and is Complies. summarised in this Corporate Governance Statement. 1.1 The Board has adopted a Board Charter that formalises its roles and responsibilities and defines the matters that are reserved for the Board and specific matters that are delegated to management. Complies. A performance evaluation process has been disclosed on the Company's website and is summarised in this Corporate Governance Statement. Complies. The Board conducts a performance evaluation for senior executives on an annual basis in accordance with the process above. Complies. Principle 2 - Structure the Board to add value 2.1 A majority of the Board should be independent Directors. The majority of the Board's Directors are not independent as the Board is split equally between independent and non-independent Directors. Brian Pollock (Chair), John Ries and Geoff Webb are independent, non-executive Directors. Does not comply however the skills and experience of both the independent and non-independent Directors allows the Board to act in the best interests of shareholders. 2.2 The Chair should be an independent Director. Brian Pollock is an independent, non-executive Director of the Board. Complies. 2.3 The roles of Chair and Chief Executive Officer should not be exercised by the same individual. Brian Pollock is the Chairman and Greg Smith the Chief Executive Officer/Managing Director. Complies. 2.4 The Board should establish a Nomination Committee. The Board has established a Nomination and Remuneration Committee. Complies. 2.5 Disclose the process for evaluating the performance of the Board, its committees and individual Directors. Complies. The Company conducts the processes outlined in its policy 'Board and Senior Executive Evaluation' which is available on the Company's website. 27 R Corporate Governance Statement Principles and Recommendations Compliance Comply Principle 2 - Structure the Board to add value (continued) 2.6 Provide the information indicated in the Guide to reporting on Principle 2. The Board does not consist of Brian Pollock, John Ries and Geoff Webb are considered independent a majority of independent Directors of the Company. A Director is considered independent when he substantially satisfies the test for independence as set out in Directors, however the skills and the ASX Corporate Governance Recommendations. experience Members of the Board are able to take independent professional of both the advice at the expense of the Company. independent and non-independent Brian Pollock, non-executive Chairman, was appointed to the Board Directors allows the on 5th August 2005. Board to act in the Greg Smith, Managing Director and Chief Executive Officer, was best interests of appointed to the Board on 10th February 1993. shareholders. Peter Lord, non-executive Director, was appointed to the Board on The Board has 10th February 1993. established a John Ries, non-executive Director, was appointed to the Board on Nomination and 5th August 2005. Remuneration Committee. Geoff Webb, non-executive Director, was appointed to the Board on This information has been disclosed (where applicable) in the Directors' Report attached to this Corporate Governance Statement. 5th August 2005. Rick Hart, executive Director was appointed to the Board on 5th August 2005. In accordance with the information suggested in Guide to Reporting on Principle 2, the Company has disclosed full details of its Directors in the Directors' Report attached to this Corporate Governance Statement. Other disclosure material as suggested in Guide to Reporting on Principle 2 has been made available on the Company's website. Principle 3 - Promote ethical and responsible decision making 3.1 3.2 3.3 Establish a Code of Conduct and disclose the Code or a summary of the Code. The Board has adopted a Code of Conduct. Establish a policy concerning trading in company securities by Directors, senior executives and employees and disclose the policy or a summary of that policy. The Company has adopted a securities trading policy that applies to trading in shares in the Company by any Director or employee of the Company. Provide the information indicated in Guide to reporting on Principle 3. The code of conduct and securities trading policy are available on the Company's website. The securities trading policy is summarised in this Corporate Governance Statement. Complies. The Code is located within the Board Charter and is available on the Company's website. Complies. This policy is available on the Company's website. Complies. Principle 4 - Safeguard integrity in financial reporting 4.1 28 The Board should establish an Audit Committee. Clive Peeters Annual Report 2008 The Board has established an Audit, Business Risk and Compliance Committee and adopted an Audit, Business Risk and Compliance Charter to focus on issues relevant to the integrity of the Company's financial reporting. Complies. Principles and Recommendations Compliance Comply Principle 4 - Safeguard integrity in financial reporting (continued) The Audit Committee should be structured so that it consists of only non-executive Directors, a majority of independent Directors, is chaired by an independent Chair, who is not a chair of the Board and have at least 3 members. Members of the Audit, Business Risk and Compliance Committee are John Ries (chair), Brian Pollock, Geoff Webb and Peter Lord. John Ries is an independent, non-executive Director and is not chair of the Board and has technical finance and accounting expertise. 4.3 The Audit Committee should have a formal Charter. The Board has adopted an Audit, Business Risk and Compliance Committee Charter. 4.4 Provide the information indicated in Guide to reporting on Principle 4. 4.2 Complies. The Audit and Business and Risk Committee complies with Recommendation 4.2. Complies. This Charter is available on the Company's website. In accordance with the information suggested in Guide to Reporting on Principle 2, this has been disclosed in the Directors' Report attached to this Corporate Governance Statement and is summarised in this Corporate Governance Statement. Complies. The Audit, Business Risk and Compliance Committee has held 5 meetings during the Financial Year ended 30 June 2008. The Audit, Business Risk and Compliance Committee Charter, and information on procedures (which will be determined by the Committee) for the selection and appointment of the external auditor, and for the rotation of external audit engagement partners, is available on the Company's website. Principle 5 - Make timely and balanced disclosure 5.1 5.2 Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. The Company has adopted a continuous disclosure policy, to ensure that it complies with the continuous disclosure regime under the ASX Listing Rules and the Corporations Act 2001. Provide the information indicated in the Guide to reporting on Principle 5. The Company's continuous disclosure policy is available on the Company's website. Complies. This policy is available on the Company's website. Complies. Principle 6 - Respect the rights of shareholders 6.1 6.2 Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose that policy or a summary of that policy. The Company has adopted a Shareholder Communications Policy. The Company uses its website (www.clivepeeters.com.au), Annual Report and periodic mailouts to communicate with its shareholders, as well as encourage participation at general meetings. Provide the information indicated in the Guide to reporting on Principle 6. The Company has adopted a Shareholder Communications policy. This policy is available on the Company's website. Complies. This policy is available on the Company's website. Complies. 29 R Corporate Governance Statement Principles and Recommendations Compliance Comply Principle 7 - Recognise and manage risk The Company has adopted a risk management statement. The Audit, Business Risk and Compliance Committee is responsible for managing risk, however ultimate responsibility for risk oversight and risk management rests with the Board. The Board should require management to design and implement the risk management and internal control system to manage the Company's material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the Company's management of its material business risks. The Company has identified key risks within the business. In the ordinary course of business, management monitors and manages these risks on a regular basis. 7.3 The Board should disclose whether it has received assurance from the Chief Executive Officer and Chief Financial Officer that the Declaration provided in accordance with section 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control and that the system is operating efficiently and effectively in all material respects in relation to the financial reporting risks. The Board has received a statement from the Chief Executive Officer and Chief Financial Officer that the Declaration provided in accordance with section 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control and that the system is operating efficiently and effectively in all material respects in relation to the financial reporting risks. Complies. 7.4 Provide the information indicated in Guide to reporting on Principle 7. The Board has adopted a Risk Management Statement of the Company's policies. Complies. 7.2 This statement is located in the Board Charter which is available on the Company's website and is summarised in this Corporate Governance Statement. Clive Peeters Annual Report 2008 Complies. The Company has completed a risk management framework and Risk Complies. Register that reports the likelihood and consequence of risks within the business. This Statement is located in the Board Charter which is available on the Company's website and is summarised in this Corporate Governance Statement. The Company has identified key risks within the business and has received a statement of assurance from the Chief Executive Officer and Chief Financial Officer. 30 Complies. Establish policies for the oversight and management of material business risks and disclose a summary of these policies. 7.1 Principles and Recommendations Compliance Comply Principle 8 - Remunerate fairly and responsibly 8.1 The Board should establish a Remuneration Committee. The Board has established a Nomination and Remuneration Committee and adopted a Nomination and Remuneration Committee Charter. Complies. Members of the Nomination and Remuneration Committee are Brian Pollock (Chair), Greg Smith , John Ries, Geoff Webb and Peter Lord. Rick Hart attends by invitation. Brian Pollock (Chair), John Ries and Geoff Webb are independent, non-executive Directors. 8.2 Clearly distinguish the structure of non-executive Directors' remuneration from that of executive Directors and senior executives. The Company complies with the guidelines suggested in Guide to Reporting on Principle 8 for executive remuneration packages and non-executive Director remuneration. Complies. 8.3 Provide the information indicated in the Guide to reporting on Principle 8. The Board has adopted a Nomination and Remuneration Committee Charter. Complies. This Charter is available on the Company's website and is summarised in this Corporate Governance Statement. In accordance with the information suggested in Guide to Reporting on Principle 8, this has been disclosed in the Remuneration Report within the Directors' Report attached to this Corporate Governance Statement, and is summarised in this Corporate Governance Statement. The Company does not have any schemes for retirement benefits other than superannuation for non-executive Directors. Clive Peeters Limited's corporate governance practices were in place throughout the Financial Year ended 30 June 2008 and to the date of signing the Directors' Report. Various corporate governance practices are discussed within this statement. For further information on corporate governance policies adopted by Clive Peeters Limited, refer to our website: http://www.clivepeeters.com.au/investor-relations _ corporate-governance.php Board functions The Board's role is to govern Clive Peeters rather than to manage it. In governing Clive Peeters, the Directors must act in the best interests of Clive Peeters as a whole. It is the role of senior management to manage Clive Peeters in accordance with the direction and delegations of the Board and it is the responsibility of the Board to oversee the activities of management in carrying out these delegated duties. Thus, except when dealing with specific management delegations of individual Directors (particularly the Managing Director), it is misleading to refer to the management function of the Board. In general, the Board is responsible for, and has the authority to determine, all matters relating to the policies, practices, management and operations of Clive Peeters. The Board must also ensure that Clive Peeters complies with all of its contractual, statutory and any other legal obligations, including the requirements of any regulatory body. Without intending to limit this general role of the Board, the principal functions and responsibilities of the Board include the following: overseeing the development and implementation of an appropriate strategy by: - working with the senior management team to ensure that an appropriate strategic direction and corporate objectives are in place; - regularly reviewing and amending or updating Clive Peeters' strategic direction and corporate objectives; - ensuring that an appropriate set of internal controls are implemented and reviewed regularly; -\t\u0007overseeing planning activities including the development and approval of strategic plans, annual plans, annual corporate budgets including operating budgets, capital expenditure budgets and cash flow budgets; -\t\u0007reviewing the progress and performance of Clive Peeters in meeting these plans and corporate objectives, including reporting the outcome of such reviews on at least an annual basis; 31 R Corporate Governance Statement providing leadership to Clive Peeters by: -\t\u0007guiding the development of the \"Easy\" culture and values for Clive Peeters through the establishment and review of Codes of Conduct, rules and procedures to enforce ethical behaviour and provide guidance on appropriate work methods; -\t\u0007always acting in a manner consistent with Clive Peeters' culture and Code of Conduct; ensuring corporate accountability to the shareholders by: -\t\u0007adopting an effective shareholder communications strategy; - -\t\u0007ensuring effective procedures exist to comply with the ASX Listing Rules, particularly the rules relating to continuous disclosure; and encouraging effective participation at general meetings; -\t\u0007being the key interface, through the Chairman, between Clive Peeters and its shareholders. overseeing the control and accountability systems that ensure Clive Peeters is progressing towards the goals set by the Board and in line with Clive Peeters' purpose, the agreed corporate strategy, legislative requirements and community expectations; ensuring robust and effective risk management, compliance and control systems (including legal compliance) are in place and operating effectively; being responsible for Clive Peeters' senior management and personnel including: -\t\u0007directly managing the performance of the Managing Director including: o appointing and remunerating the Managing Director; o\t\u0007providing advice and counsel to the Managing Director including formal reviews and feedback on his performance; o\t\u0007overseeing the development or removal of the Managing Director, where necessary; -\t\u0007ratifying the appointment, the terms and conditions of the appointment and, where appropriate, removal of the Company Secretary; -\t\u0007ensuring that an appropriate succession plan for the Managing Director and senior executives is in place; -\t\u0007ensuring appropriate human resource systems (including OH&S systems) are in place to ensure the well-being and effective contribution of all employees; delegating appropriate powers to the Managing Director, management and committees to ensure the effective day-today management of the business and monitoring the exercise of these powers; and 32 Clive Peeters Annual Report 2008 making all decisions outside the scope of these delegated powers including: -\t\u0007approving the details of each item of capital expenditure in excess of $250,000; -\t\u0007approving all mergers, acquisitions or property disposals in excess of $250,000; and -\t\u0007approving and monitoring the progress of major capital expenditure, capital management and acquisitions and divestitures. The detail of some Board functions will be handled through Board Committees. However, the Board as a whole is responsible for determining and reviewing annually the extent of powers residing in each Committee and is ultimately responsible for accepting, modifying or rejecting Committee recommendations. Structure of the Board The Company's Constitution governs the regulation of meetings and proceedings of the Board. The Board, together with the Nomination and Remuneration Committee, determines the size and composition of the Board, subject to the terms of the Constitution. The Board does not believe that it should establish a limit on tenure. While tenure limits can help to ensure that there are fresh ideas and viewpoints available to the Board, they hold the disadvantage of losing the contribution of Directors who have been able to develop, over a period of time, increasing insight into the Company and its operation and, therefore, an increasing contribution to the Board as a whole. It is intended that the Board should comprise a number of independent, non-executive Directors at least equivalent to executive Directors, and that the Chairman, (who shall have a casting vote) is to be an independent non-executive Director. This ensures that all Board discussions or decisions have the benefit of Directors with a broad range of skills, expertise and experience from a diverse range of backgrounds, and that there is an appropriate balance of Directors who are free of any interests or influences that could, or could reasonably be perceived to, materially interfere with the Director's ability to act in the best interests of Clive Peeters. The Board regularly reviews the independence of each Director in light of the interests disclosed to the Board. The balance of skills and experience of the Board is regularly reviewed by the Nomination and Remuneration Committee. The Board only considers Directors to be