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2019S2Miniauditgroupassignment-AdoreUfinancialstatements.xlsx
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AdoreU Children Fashion Ltd
STATEMENTS OF COMPREHENSIVE INCOME
For the year ended 31 Dec 2018
Unaudited
31-Dec-18 31-Dec-17
Notes $’000 $’000
Revenue 2 238,537 100.0% 240,902 100.0%
Cost of goods sold -115,901 -48.6% -120,120 -49.9% - 2.20 - 2.07 Inventory turnover
Gross profit 122,636 51.4% 120,782 50.1%
Other operating income 231 173
Expenses 3
Selling expenses -108,223 -45.4% -109,016 -45.3%
Finance expenses -4,011 -1.7% -3,352 -1.4% 0.85 3.23 Interests coverage ratio
Administrative and general expenses -18,056 -7.6% -22,778 -9.5%
Loss from continuing operations before income tax -7,423 -3.1% -14,191 -5.9%
Income tax (expense)/credit -1,656 2,579
Net loss from continuing operations -9,079 -11,612
Profit from discontinuing operations (net of tax) 0 -117
Loss for the year -9,079 -11,495
Other comprehensive loss
Items that may be reclassified subsequently to loss:
Exchange differences on translation of foreign operations 2,093 -59
Net movement on cash flow hedges 1,818 -4,128
Income tax relating to components of other
comprehensive income -509 1,157
Other comprehensive income/(loss) for the year 3,402 -3030
Total comprehensive loss for the year, net of tax -5,677 -14,525
Total comprehensive loss for the year is
attributable to equity holders -5,677 -14,525

Balance Sheet

BALANCE SHEETS As at 31 December 2018
12/31/18 12/31/17 12/31/16
Notes $’000 $’000 $’000
ASSETS Current assets
Cash and cash equivalents 1,870 1,077 3,679 0.21328 0.58460 0.32539 Quick ratio
Trade and other receivables 7 13,458 16,845 14,957
Derivative financial instruments 5,808 1,009 8,348
Inventories 8 41,230 64,318 51,957
Current tax receivables 1,016 - -
Total current assets 63,382 83,249 78,941 0.8819224133 2.7154972763 1.3783283572 Current ratio
Non-current assets
Property, plant and equipment 10 28,420 32,436 40,113
Intangible assets 11 2,803 5,756 9,690
Non-current tax receivables 3,567 3,475 2,958
Derivative financial instruments - 278 614
Deferred tax assets 5,550 7,932 3,563
Total non-current assets 40,340 49,877 56,938
Total assets 103,722 133,126 135,879
LIABILITIES Current liabilities
Trade and other payables 12 25,451 27,305 24,608
Interest bearing liabilities 41,000 - 25,000
Lease Provisions 13 1,210 356 662
Derivative financial instruments 2,968 1,112 5,509
Other Provisions 1,239 1,884 1,494
Total current liabilities 71,868 30,657 57,273
Non-current liabilities
Interest bearing liabilities - 66,000 27,000
Lease Provisions 13 518 488 512
Deferred landlord contributions 2,105 2,102 2,971
Derivative financial instruments 1,054 74 57
Total non-current liabilities 3,677 68,664 30,540
Total liabilities 75,545 99,321 87,813 1.2730229345 1.6740152703 Debt/equity
Net assets 28,177 33,805 48,066
EQUITY Share capital 15 59,343 59,331 59,147
Reserves 3,006 - 433 3,734
Retained earnings / (deficit) - 34,172 - 25,093 - 14,815
Total equity 28,177 33,805 48,066

Equity

STATEMENTS OF CHANGES IN EQUITY
For the year ended 31 December 2018
ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
Share capital Reserves Treasury stock Retained deficit Total equity
$’000 $’000 $’000 $’000
Balance at 1 January 2017 Note 59,415 3,734 - 268 - 14,815 48,066
Comprehensive income - 0 - 0 - 11,495 - 11,495
Loss for the year - 0 - 0 - 0 - 0 - 0
Other comprehensive loss - 0 - 3,030 - 3,030
Total comprehensive income - 0 - 3,030 - 0 - 11,495 - 14,525
Movement in treasury stock 15 184 184
Movement in share based payment reserve - 1,137 1,217 80
Balance at 31 December 2017 59,415 - 433 - 84 - 25,093 33,805
Balance at 1 January 2018 59,415 - 433 - 84 - 25,093 33,805
Comprehensive income
Loss for the year - 9,079 - 9,079
Other comprehensive income 3,402 3,402
Total comprehensive income 3,402 - 0 - 9,079 - 5,677
Movement in treasury stock 15 12 12
Movement in share based payment reserve 37 37
Balance at 31 December 2018 59,415 3,006 - 72 - 34,172 28,177

Note 2

2 SEGMENT INFORMATION
An operating segment is a component of an entity that engages in business activities which earns revenue and incurs expenses on which the chief operating decision maker reviews the operating results on a regular basis and makes decisions on resource allocation.
The Company is organised into operating segments, depicting the three geographical regions the Company operates in and the centralised support function based in New Zealand. Management has determined the operating segments based on the business activities of the Company together with the information and the manner in which decisions regarding performance and resource allocation are made by the Senior Management Team.
The “Chief Operating Decision Maker” is considered to be the Senior Management Team who consider the business from a geographic and support function perspective, being New Zealand, Australia and other International markets while the performance of the centralised support function is assessed separately. The International segment includes the results of continuing operations in markets located outside New Zealand and Australia.
The following is an analysis of the Company’s revenue and results by operating segment. Revenue reported below represents revenue from the sale of children’s clothing products to external customers. Revenue is allocated based on the country where the sale is generated. There were no inter-segment sales in the year (2015: nil). Geographic segment profit represents the profit earned by each segment without allocation of central administration costs, finance costs, income tax, store impairment and lease provisions. These costs are recorded in the centralised support segment.
Australia New Zealand International Centralised Support Total
2018 $’000 $’000 $’000 $’000 $’000
Revenue 151,923 46,833 39,781 - 0 238,537
Expenses - 135,734 - 38,611 - 37,857 - 33,758 - 245,960
Segment result before income tax 16,189 8,222 1,924 - 33,758 - 7,423
Income tax - 1,656
Loss for the year - 9,079
Segment total assets (other than deferred tax) 39,844 18,745 18,653 20,930 98,172
Segment non-current assets (other than deferred tax) 18,910 4,869 90 10,921 34,790
Acquisitions of property, plant and equipment, intangibles and other non-current segment assets 3,028 188 - 649 3,865
Depreciation and amortisation expense - 3,438 - 1,275 - 97 - 4,117 - 8,927
Finance expense - 4,011 - 4,011        
2017
Revenue 149,914 47,971 43,017 - 240,902
Expenses - 130,993 - 39,527 - 38,845 - 45,728 - 255,093
Segment result before income tax Income tax 18,921 8,444 4,172 - 45,728 - 14,191
Income tax - - - - 2,579
Profit from discontinuing operations (net of tax) - - - - 117
- - - - 2,696
Loss for the year - - - - - 11,495
Segment total assets (other than deferred tax) 51,217 25,410 31,632 16,935 125,194
Segment non-current assets (other than deferred tax) 20,139 6,639 471 14,696 41,945
Acquisitions of property, plant and equipment, intangibles and other non current segment assets 4,045 757 223 3,542 8,567
Depreciation and amortisation expense - 4,471 - 1,335 - 127 - 5,077 - 11,010
Finance expense - - - - 3,352 - 3,352
(i) The Company’s liabilities are not analysed on a segmental basis and therefore have not been reported.
(ii) Revenue comprises the fair value for the sale of goods and services, net of sales tax and discounts and after eliminating sales within the Company.
• Sales of goods - retail
Sales of goods are recognised when a Company entity sells a product to the customer. Retail sales are usually in cash or by credit card either in store or online.
• Sales of goods - wholesale
Wholesale sales are recognised in accordance with the terms of sales when the title has transferred and the benefits of ownership and risk pass to the customer. This is dependent on customer specific terms of trade.
• Interest income
Interest income is recognised using the effective interest method.
31-Dec-18 31-Dec-17
Other income
Interest received 941 830

Notes 3,7,8

3 EXPENSES
12/31/18 12/31/17
$’000 $’000
Loss before income tax includes the following specific expenses:
Depreciation of property, plant & equipment - 5,720 - 7,169
Impairment of store assets - 1,167 - 5,905
Gain/(loss) on disposal of assets 33 - 43
Amortisation of intangibles - 3,207 - 3,841
Impairment of intangibles - 0 - 3,074
Lease provision expense - 1,471 - 397
- 11,532 - 20,429
Employee benefit expense
Salaries & wages - 57,549 - 58,449
Share based payments - 37 - 80
Employee related reorganisation costs - 859 - 2,034
- 58,445 - 60,563
Rental expense relating to operating leases
Rental and operating lease expenses - 48,889 - 49,875
Finance costs
Interest expense - 4,011 - 3,352
Sundry expenses
Bad debts written off - 58 - 34 71%
Director's fees - 418 - 359
Donations - 40 - 24
Doubtful debts expense - 2,090 -
- 2,606 - 417
Remuneration of auditors (based on the amount agreed upon engagement)
Audit of financial statements
– Statutory audit - 150 - 156
Other services
– Treasury advice - 25 - 20
– Taxation advice - 14
Total fees paid to auditor - 189 - 176
7 TRADE RECEIVABLES, PREPAYMENTS AND OTHER ASSETS
Accounting Policy
Trade receivables are recognised initially at fair value and subsequently at amortised cost less provision for doubtful debts.
Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows. The amount of the provision is recognised in the Income Statement. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired.
31 Dec 2018 $’000 31 Dec 2017 $’000
Trade receivables 6,531 12,704
Prepayments 5,454 2,739
Other receivables 1,473 1,402
13,458 16,845
The carrying amounts of the Company’s trade and other receivables are denominated in the following currencies:
NZD 2,974 3,357
USD 6,219 12,479
AUD 3,728 70
GBP 251 588
EUR 286 351
13,458 16,845
The Company has assessed total trade receivables as being impaired and has recognised a doubtful debt provision of $2.1m based on additional information in relation to economic developments subsequent to year end. All other remaining balances at 31 Dec 2018 are considered current and within terms.
8 INVENTORIES
Accounting Policy
Finished goods are stated at the lower of cost and net realisable value. Costs are assigned to individual items of inventory on the basis of weighted average costs, and include expenditure incurred in acquiring the assets and bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business.
The Company annually reviews the carrying value of inventory to ensure it remains valued at lower of cost or net realisable value. An inventory provision is created to reflect instances where the forecast selling value is lower than cost.
31 Dec 2018 $’000 31 Dec 2017 $’000
Finished Goods 41,230 64,318
Inventory provisions of $1,093,000 (2017: $1,566,000) have been included in the Income Statement to reflect the recoverable value of the company;s aged stock provision.

Note 10

10 PROPERTY, PLANT AND EQUIPMENT
Accounting Policy
All property, plant and equipment is stated at historical cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their costs, net of their residual values, over their estimated useful lives, as follows:
– Shop fitout 5 - 10 years
– Office equipment (including furniture and fittings (F&F) 5 - 10 years
– Computer equipment (including point of sale equipment (POS) 3 - 5 years
– Plant and machinery 3 - 7 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the Income Statement.
Year ended 31 December 2018 Shop fitout Computer equipment and POS Office equipment and F&F Plant and machinery Land Total
$’000 $’000 $’000 $’000 $’000 $’000
Opening net book amount 17,219 2,648 9,163 902 2,504 32,436
Exchange differences - 18 - 14 - 43 1 - - 74
Additions 2,848 314 385 64 - 3,611
Disposals - 210 - 7 - 48 - 401 - - 666
Impairment charge recognised in income statement - 1,167 - - - - - 1,167
Depreciation charge - 3,384 - 574 - 1,714 - 48 - - 5,720
Closing net book amount 15,288 2,367 7,743 518 2,504 28,420
At 31 December 2018
Cost 92,868 13,666 25,126 6,263 2,504 140,427
Accumulated depreciation & impairment - 77,580 - 11,299 - 17,383 - 5,745 - - 112,007
Net book amount 15,288 2,367 7,743 518 2,504 28,420
The performance of all AdoreU stores is reviewed throughout the year to ascertain whether any indicators of impairment exist in relation to the carrying value of store assets. During the year such a review highlighted that the carrying value of shop fitout of a number of stores in the retail network did not reflect their current and forecast trading performance. As a result a charge of $1,167,000 (2017: $5,905,000) has been recorded in the administrative and general expenses account in the financial statements for the year ending 31 December 2018, which reflects the full impairment of the shop fitout of the stores identified. The recoverable amount of the assets has been determined based on a value-in-use calculation. The assumption used to determine the recoverable amount is a key accounting estimate .

Notes 11,12,13

11 INTANGIBLE ASSETS
Accounting Policy
(i) Trademarks
Trademarks have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight line method to allocate the cost of trademarks and licences over their estimated useful lives (three to five years).
(ii) Software costs
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years).
Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Company, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs.
Computer software costs recognised as assets are amortised over their estimated useful lives (three to five years).
Trademarks $'000 Software $'000 Total $'000
Year ended 31 Dec 2017
Opening net book amount 472 5,284 5,756
Additions 59 195 254
Disposals - 0 - -
Imparirment expenses - 0 - -
Amortisation expenses - 165 - 3,042 - 3,207
Closing net book amount 366 2,437 2,803
At 31 Dec 2017
Cost 2,296 29,011 31,307
Accumulated amortisation - 1,930 - 26,574 - 28,504
Net book amount 366 2,437 2,803
The carrying value of software assets have been assessed to determine whether any indicators of impairment exist. No indicators were identified and accordingly no impairment charge was recorded in the year ending 31 Dec 2018 (2017: $3,074,000).
12 TRADE AND OTHER PAYABLES
Accounting Policy
Trade and other payables are initially recognised at fair value and subsequently at amortised cost.
These amounts represent liabilities for goods and services provided to the Company prior to the end of financial year which are unpaid. Trade Payable amounts are unsecured and are usually paid within 30 days of recognition.
31 Dec 2018 $’000 31 Dec 2017 $’000
Trade payables 11,414 12,021
Sundry Accruals 10,025 11,206
Sales tax payable 826 1,004
Employee Benefits 3,186 3,074
25,451 27,305
The carrying amounts of Company’s trade and other payables are denominated in the
following currencies:
NZD 6,265 6,574
USD 9,890 12,573
AUD 7,984 7,059
GBP 437 402
EUR 875 697
25,451 27,305
13 LEASE PROVISIONS
Accounting Policy
Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognised for future operating losses.
31 Dec 2018 $’000 31 Dec 2017 $’000
Current Provisions 1,210 356
Lease provision 1,210 356
Non-Current Provisions 518 488
Lease provision 518 488
Onerous Lease and Make Good Provision
The Company recognised a lease provision for onerous contracts and make good under existing lease agreements as follows:
The provision for onerous lease represents the lesser of the discounted future lease payments or the estimated costs to exit the lease. The leases are deemed to be onerous on the basis that the forecast future profit of the relevant stores is not sufficient to cover the contracted costs of leasing the store. The provision for make good represents the obligation to restore certain leasehold sites to their original condition upon store closure or relocation. This provision represents the present value of the expected future make good commitment. At 31 Dec 2018 the provision relating to leases of stores identified being onerous and make good provisions totalled $1,728,000 (2017: $844,000).
Movement in provisions
Lease provision 31 Dec 2018 $’000 31 Dec 2017 $’000
Opening provision 844 1,174
Utilised during the year - 587 - 727
Lease provision expense 1,471 397
Closing provision 1,728 844

Note 15

15 SHARE CAPITAL
Accounting Policy
Ordinary shares are classified as capital.
Incremental costs directly attributable to the issue of new shares or instruments are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company purchases or controls the Company’s equity share capital (treasury stock), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Group’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received (net of any directly attributable incremental transaction costs and the related income tax effects) is included in equity attributable to the Group’s equity holders.
31 Dec 2018 31 Dec 2017
$’000 $’000
Opening balance of issued and paid up capital 59,415 59,415
Issues of ordinary shares during the year - 0 - 0
Shares held as Treasury stock - 72 - 84
Closing balance of issued and paid up capital 59,343 59,331
(a) Ordinary shares
As at 31 Dec 2018 there were 169,078,908 ordinary shares on issue (2017: 169,078,908). 169,078,908 ordinary shares include treasury shares. All ordinary shares are fully paid and rank equally with one vote attaching to each share.
(b) Treasury stock
As at 31 Dec 2018 there were 1,096,974 shares (2017: 1,097,754) which have been issued under the DF7 (Income Tax Act 1994) Scheme and other employee schemes but at balance date have not been allocated to employees. The shares are held in trust by Cool & Cute Children Fashion Limited.
(c) Earnings per share
Basic earnings per share is calculated by dividing the loss attributable to the equity holders of the company by the weighted average number of ordinary shares on issue during the year, 169,078,908 shares (2017: 169,078,908 shares). Diluted earnings per shares is calculated by dividing the loss by the weighted average number of ordinary shares on issue during the year adjusted to assume conversion of dilutive potential of ordinary shares as a result of the issue of share options, 169,078,908 shares (2017: 169,078,908 shares). Where the market price is lower than the exercise price of the option, there is no effect on diluted earnings per share.

Others

Inventory rage Retailing Stores
Nature of the range Label Age Value $000 Location #of stores
Infants Cuties 0-2 8,431 New Zealand 25
Young children Cool monkeys 2-5 18,654 Australia 61
School-aged children Fun kids 5-12 10,765 Ireland 6
Maternity wear Comfort Adults 4,473 Total 92
Total 42,323
Closing balance of inventory 41,230
Provision for inventory write-offs 1,093