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Annual Report 2021
Dream 3 Seater Lounge with Chaise.
Tropea Dining Table in Solid Australian Oak.
Joseph Fabric Dining Chair. Jameel Rug.
2
Annual Report 2021 | Nick Scali Limited
Contents
Page
Chairman and Managing Director’s Review
5
Directors’ Report
6
Auditor’s Independence Declaration
17
Consolidated Statement of comprehensive income
20
Consolidated Statement of financial position
21
Consolidated Statement of changes in equity
22
Consolidated Statement of cash flows
23
Directors’ Declaration
44
Independent Auditor’s Report
45
Shareholder Information
49
Corporate Information
51
Page
Notes to the consolidated financial statements
Note 1. Basis of preparation
Note 2. Segment information
Note 3. Revenue
Note 4. Expenses
Note 5. Income tax expense
Note 6. Earnings per share
Note 7. Dividends
Note 8. Reconciliation of profit after income
tax to net cash from operating activities
Note 9. Cash and cash equivalents
Note 10. Receivables
Note 11. Inventories
Note 12. Property, plant and equipment
Note 13. Leases
Note 14. Intangibles
Note 15. Borrowings
Note 16. Payables
Note 17. Deferred revenue
Note 18. Provisions
Note 19. Other financial assets and liabilities
Note 20. Issued capital
Note 21. Equity – Reserves
Note 22. Financing facilities
Note 23. Financial instruments
Note 24. Fair value measurement
Note 25. Key management personnel
Note 26. Remuneration of auditors
Note 27. Contingent liabilities
Note 28. Commitments
Note 29. Related party transactions
Note 30. Significant events after the reporting period
Note 31. Share-based payments
Note 32. Controlled entities
Note 33. Parent entity information
Note 34. Summary of other significant accounting policies
Annual Report 2021 | Nick Scali Limited
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3
Historical Performance
Sales ($m)
Net profit after tax ($m)
84.2
373.0
232.9
2017
250.8
2018
268.0
42.1
42.1
2019
2020
41.0
262.5
37.2
2019
2020
2021
Nick Scali Furniture showrooms
2017
2018
2021
Dividends (cents per share)
65.0
57
58
45.0
61
47.5
40.0
34.0
51
45
2017
4
2018
2019
2020
2021
Annual Report 2021 | Nick Scali Limited
2017
2018
2019
2020
2021
Chairman and Managing
Director’s Review
Operating Performance
We are pleased to report that Nick Scali Limited has had an
exceptional year, delivering record levels of revenue and profit,
with earnings per share doubling to 104.0 cents per share.
During the year, sales revenue increased by 42.0% to $373
million, with the Company capitalising on an environment
where consumers reallocated discretionary spending toward
items for the home and unprecedented trading conditions were
experienced across the whole store network.
Gross margin increased by 80 basis points to 63.5%,
predominantly achieved through reduced discounting offsetting rising freight and supply chain costs.
Despite the elevated revenues costs remain tightly controlled,
and operating expenses increased by $7.4m due to new store
openings, increased employee incentives and the impact of
one-off Covid related savings in the prior year. The Company
demonstrated its ability to drive revenue growth off its
existing infrastructure without incurring incremental costs and
consequently net profit after tax increased by 100%.
The Company maintained its effective working capital
management practices and generated an operating cashflow
before interest and tax of $138m, returning over $50million to
shareholders in dividends during the year. The current cash
reserves and strong balance sheet leave the Company well
placed to continue to pursue growth initiatives and to take
advantage of any opportunities that might arise.
Impact of Covid
The Covid pandemic had a significant impact on the Company,
with government mandated store closures in most regions at
various points in the year, ranging from a few days for certain
showrooms to three months for all showrooms in Melbourne
during August, September and October.
During the year, the Company received $3.6m through the
Federal Government’s JobKeeper wage subsidy scheme,
which enabled the Company to provide security of employment
at the height of the pandemic and to continue to pay employees
throughout the government mandated closures in Melbourne
during the first half of the year. However, the Company fully
recognised that it benefited from the increased consumer
confidence the program created, and subsequently repaid the
net benefit of the subsidy to the Federal Government in the
second half of the financial year.
Store network
Three new showrooms were opened during the year in
Bennetts Green (NSW), Wairau Park (New Zealand) and
Maribyrnong (Victoria). These openings brought the total
number of Nick Scali Furniture stores at 30 June 2021 to 61.
A further showroom was opened in Hastings, New Zealand, in
July 2021, and the Company continues to assess new store
opportunities with a view to opening up to three further stores
during the year ending 30 June 2022.
During the year, the Company expanded its owned property
portfolio with the purchase of a retail showroom in Keswick,
South Australia which replaced the Mile End showroom
and became the flagship store for Adelaide. The Company
currently has over 37,000m2 of owned property in Australian
metro locations, and considers property acquisition a key
strategy to protect the Company from material rent elevation
over the long term.
Alongside the store network, the Company operates a
successful online business. The online business was launched
in April 2020, and has grown consistently since then as
customer awareness has increased and the Company has
developed its capability in this area.
Dividends
The Directors declared a fully franked final dividend of 25.0
cents per share on 5th August 2021, bringing the total dividend
for the year to 65.0 cents per share, representing a payout ratio
of 63%. The final dividend has a record date of 4th October
2021 and will be paid on the day of the annual general meeting
on 25th October 2021.
Outlook
The Company’s future growth will primarily be driven by the
continuation of the new store rollout and increasing online
penetration, and the Company continues to accelerate
initiatives to capture these opportunities.
In the short-term, trading continues to be impacted by
government mandated lockdowns across both Australia and
New Zealand, and whilst trading remains buoyant in regions
where showrooms remain open, there is a high degree of
uncertainty in the current retail environment, due to potential
future lockdowns, supply chain challenges caused by
lockdowns in sourcing countries, and the continuing escalation
of global shipping costs.
The Board recognises that the exceptional financial results
achieved in the last year are the result of the hard work of
our many employees and associates across Australia and
New Zealand, and we thank them for their contribution and
commitment to the Company, particularly during these
turbulent times.
The Board would also like to thank our shareholders,
customers and suppliers, whose continued support is critical
to the success of the Company.
Annual Report 2021 | Nick Scali Limited
5
Directors’ Report
The directors present their report, together with the financial
statements, on the consolidated entity (referred to hereafter as
the ‘Group’) consisting of Nick Scali Limited (referred to hereafter
as the ‘Company’ or ‘parent entity’) and the entities it controlled at
the end of, or during, the year ended 30 June 2021.
Directors
The names and details of the Company’s directors (referred to
hereafter as the ‘Board’) in office at any time during the financial
year or until the date of this report are as follows. Directors were
in office for this entire year unless otherwise stated.
John Ingram
Carole Molyneux
Stephen Goddard
William Koeck (appointed 1 August 2020)
Anthony Scali
Principal activities
The principal activities of the Group during the year were
the sourcing and retailing of household furniture and related
accessories.
No significant change in the nature of these activities occurred
during the year.
Dividends
Dividends paid during the year were as follows:
Final franked dividend for 30 June 2020:
22.5 cents (2019: 20.0 cents)
2021
$’000
2020
$’000
18,225
16,200
Interim franked dividend for 30 June 2021:
40.0 cents (2020: 25.0 cents)
32,400
20,250
36,450
50,625
In addition to the above dividend, since the end of the financial
year directors have declared a fully franked final dividend of 25.0
cents per fully paid ordinary share to be paid on 25 October 2021
out of retained profits at 30 June 2021.
Operating and financial review
Nick Scali Limited is a furniture retailer operating in Australia and
New Zealand. The business operates under a single brand, Nick
Scali Furniture.
Group operating results
Revenue
EBITDA
EBIT
NPAT
EPS (cents)
DPS (cents)
Net cash flow
6
2021
$m
2020
$m
% Change
373.0
158.5
127.6
84.2
104.0
65.0
43.8
262.5
96.9
67.0
42.1
51.9
47.5
26.8
42.1%
63.5%
90.4%
100.0%
100.4%
Annual Report 2021 | Nick Scali Limited
The financial year ended 30 June 2021 has seen the Group
deliver unprecedented results with sales revenue increasing by
42.1% to $373,040,000 and net profit after tax increasing by over
100% to $84,241,000.
Revenue growth was supported by improvements in gross
margins, as the Group benefited from an improved foreign
exchange environment and shallower promotional pricing activity.
The gross profit margin for financial year ended 30 June 2021
was 63.5%, an increase of 80 basis points on the prior year.
Despite the growth in revenue, operating expenses remained at
similar levels to previous years, and the Group leveraged its fixed
cost base to deliver exceptional profit growth.
The Group continues to have low debt and a strong working
capital position, and had net assets of $114,026,000 at 30 June
2021. Net cash inflows during the year were $43,855,000, an
increase of $17,102,000 on the previous year cash inflow, driven
by the strong trading result.
Showroom network
During the year, two new stores were opened in Australia at
Bennetts Green, NSW and Maribyrnong, Victoria. One new store
was opened at Wairau Park Auckland, New Zealand, bringing the
store network in New Zealand to a total of 4 stores. The Company
closed its existing store in Mile End and opened a flagship store in
the neighbouring suburb of Keswick, SA. The company has a total
store network of 61 stores across Australia and New Zealand.
In the first half of the new financial year the Company expects to
open the fifth New Zealand store at Hastings. A number of further
new store opportunities are being considered in both Australia
and New Zealand and the Company remains focused on its target
of 85 stores across Australia and New Zealand.
People
The Group has a strong focus on attracting, engaging, developing
and retaining top talent to ensure it remains an employer of choice
and maximises its potential to deliver growth. Investment in training
and leadership development ensures employees are equipped to
deliver in their varied roles, and best practice short and long term
incentives are in place to reward exceptional performance.
In order to deliver maximum shareholder value, and to maintain
investor and consumer confidence, the Group is committed to
achieving high levels of integrity and ethical standards across all
areas of the business, and has a Code of Conduct in place to
ensure honesty, care, fair dealing, and integrity in the conduct of
all business activities.
The Group promotes workplace diversity and has zero tolerance
for discrimination and harassment, and ensures that Workplace
Health and Safety is a priority for all employees, along with that of
customers and suppliers.
Directors’ Report (continued)
Covid-19 impact
Throughout the year, the Group continued to be impacted by
the issues arising from the Covid-19 pandemic, and has been
required to close various stores under government mandated
lockdowns at different times during the year. Most notably, the
Company was required to close eleven showrooms in Melbourne
for a period of three months.
Despite these temporary closures, trading remained extremely
buoyant throughout the year, with written sales orders growing
significantly as consumers continued to allocate a significant
proportion of discretionary spending toward items for the home.
The Group was able to negotiate rent concessions relating to the
showroom closures in the form of either rent free periods, lease
extensions or short term rent reductions.
The Group was eligible for the first phase of the Australian
Government’s JobKeeper wage subsidy scheme up until
September 2020, as well as the New Zealand Government’s
equivalent scheme for a shorter period in August 2020. The
Group received $3,565,000 in wage subsidies during the first
three months of the financial year. After assessing the increase
in consumer confidence in Australia created by the Jobkeeper
scheme, which resulted in record sales for the Group, the Board
and management decided to make a voluntary repayment to the
Federal Government of $2,471,000 (being the net benefit after tax
of the amount received in the current year).
Climate change
The Company has assessed that climate related risks do not have
a significant or material impact on the business.
Outlook
The Company’s future growth will primarily be driven by the
continuation of the new store rollout and increasing online
penetration, and the Company continues to accelerate initiatives to
capture these opportunities.
Although the existing store network is currently impacted by
government mandated lockdowns, trading remains strong and the
revenue contribution from the store network is supported by strong
online revenue growth.
The Directors are mindful that there are significant uncertainties in
the current retail environment, due to potential future lockdowns,
supply chain challenges caused by lockdowns in sourcing
countries, and the continuing escalation of global shipping costs,
but is confident that the Company is well placed to deal with these
challenges.
Significant changes in the state of affairs
Matters subsequent to the end of the financial year
Other than the dividend declared on 5 August 2021 (and discussed
above), no other matter or circumstance has arisen since 30 June
2021 that has significantly affected, or may significantly affect
the Group’s operations, the results of those operations, or the
Group’s state of affairs in future financial years.
Likely developments and expected results
of operations
Refer to the Operating and financial review on page 6.
Environmental regulation
The Company is not subject to any significant environmental
regulation under Australian Commonwealth or State law.
The Directors are not aware of any particular or significant
environmental issues which have been raised in relation to the
Group’s operations during the financial year.
Information on directors
Name:
John Ingram
Title:
Independent Non-Executive Chairman
Qualifications: AM, FCPA
Experience and expertise:
John was appointed to the Board as non-executive Chairman
on 7 April 2004. John was formerly Managing Director of Crane
Group Limited.
Other current directorships:
Non-Executive Chairman of Peter Warren Automotive Holdings
Ltd (PWR).
Former directorships (last three years):
Non-executive Chairman of Shriro Holdings Limited (SHM).
Special responsibilities:
Member of the Audit and Risk Committee.
Member of the Remuneration and Human Resources Committee.
Interests in shares: 360,000.
Name:
Carole Molyneux
Title:
Independent Non-Executive Director
Experience and expertise:
Carole was appointed to the Board in June 2014. Carole has
extensive experience in retail and was the Chief Executive Officer
of Suzanne Grae, (part of the Sussan Retail Group), for eighteen
years until 2013.
Other current directorships:
Nil.
Former directorships (last three years):
Independent Non-Executive Director of White Ribbon Australia.
Special responsibilities:
Chairman of the Remuneration and Human Resources Committee.
Member of the Audit and Risk Committee.
Interests in shares: 15,500.
There were no significant changes in the state of affairs of the
Company during the year.
Annual Report 2021 | Nick Scali Limited
7
Directors’ Report (continued)
Name:
Stephen Goddard
Title:
Independent Non-Executive Director
Experience and expertise:
Stephen was appointed to the Board in March 2018. Stephen
is an experienced retailer having held a broad range of senior
executive positions in the industry. These include Finance Director
and Operations Director for David Jones, founding Managing
Director of Officeworks, and various senior management roles
with Myer.
Other current directorships:
Independent Non-Executive Chairman and Chairman of
Remuneration and Nomination Committee for JB Hifi Limited
(JBH).
Independent Non-Executive Director and Chairman of the Audit
and Risk Committee for both GWA Group Limited (GWA) and
Accent Group Limited (AX1).
Former directorships (last three years):
Nil.
Special responsibilities:
Chairman of the Audit and Risk Committee.
Member of the Remuneration and Human Resources Committee.
Interests in shares: 6,000.
Name:
William (Bill) Koeck
Title:
Independent Non-Executive Director
Qualifications: LLB, LLM(Hons), Post Graduate Applied
Corporate Finance; admitted UK and
Australia
Experience and expertise:
Bill was appointed to the Board in August 2020. Bill is an
experienced legal adviser with over 40 years of experience in
mergers and acquisitions, equity capital markets, private equity,
restructuring and corporate governance. Bill is currently a
member of the Federal Governments Takeovers Panel.
Other current directorships:
Independent Non-Executive Chairman, Member of Audit Risk
and Governance Committee and Chairman of Compensation
and Nomination Committee for Coronado Global Resources Inc
(CRN).
Non-Executive Director of Poulos Bros. Group.
Former directorships (last three years):
Nil.
Special responsibilities:
Member of the Remuneration and Human Resources Committee.
Member of the Audit and Risk Committee.
Interests in shares: 5,900.
.
8
Annual Report 2021 | Nick Scali Limited
Name:
Anthony Scali
Title:
Managing Director
Qualifications: BCom
Experience and expertise:
Anthony is Managing Director of Nick Scali Limited. Anthony
joined the Company in 1982 after completing a Bachelor of
Commerce degree at the University of New South Wales and
has almost 40 years’ experience in furniture retailing.
Other current directorships:
Nil.
Former directorships (last three years):
Nil.
Interests in shares: 11,039,474.
‘Other current directorships’ quoted above are current
directorships for listed entities only and exclude directorships of
all other types of entities, unless otherwise stated.
‘Former directorships (last 3 years)’ quoted above are
directorships held in the last three years for listed entities only
and exclude directorships of all other types of entities, unless
otherwise stated.
At the date of this report, no Directors held options over ordinary
shares in the Company.
Company Secretary
The Company Secretary and Chief Financial Officer since
February 2019 is Christopher Malley. He is a current member
of the Institute of Chartered Accountants in England and Wales
and began his career in Audit and Advisory with Deloitte in their
consumer business practices in London and Sydney. Following
ten years with Pepsico International, Christopher’s retail career
began with MySale PLC before he joined Nick Scali as the
General Manager Finance in November 2017.
Special responsibilities of directors
Audit and Risk Committee
The members of the Audit and Risk Committee are as follows:
• Stephen Goddard (Chairman)
• John Ingram
• William Koeck (appointed 1 August 2020)
• Carole Molyneux
Remuneration and Human Resources Committee
The members of the Remuneration and Human Resources
Committee are as follows:
• Carole Molyneux (Chairman)
• Stephen Goddard
• John Ingram
• William Koeck (appointed 1 August 2020)
Directors’ Report (continued)
Meetings of directors
The numbers of meetings of the Board and of each Board sub-committee held during the year ended 30 June 2021, and the numbers
of meetings attended by each director, were:
Directors’
Meetings
John Ingram
Stephen Goddard
William Koeck
Carole Molyneux
Anthony Scali1
Held
10
10
10
10
10
Attended
10
10
10
10
10
Remuneration and Human
Resources Committee
Held
1
1
1
1
–
Attended
1
1
1
1
–
Audit and Risk
Committee
Held
4
4
4
4
–
Attended
4
4
4
4
–
Anthony Scali is not a member of the sub-committees, but was invited to attend these meetings and his attendance
was noted in the minutes.
1
Remuneration Report – Audited
The remuneration report details the remuneration arrangements
for the key management personnel of the Group, in accordance
with the requirements of the Corporations Act 2001 and its
Regulations. For the purposes of the report, key management
personnel are defined as those persons having authority and
responsibility for planning, directing and controlling the major
activities of the business.
1. Details of key management personnel
For the year ended 30 June 2021 the key management
personnel (KMPs) of the Group consisted of the following
directors:
John Ingram
Stephen Goddard
William Koeck
Carole Molyneux
Anthony Scali
– Non-Executive Chairman
– Non-Executive Director
– Non-Executive Director (appointed
on 1 August 2020)
– Non-Executive Director
– Managing Director &
Chief Executive Officer
And the following executives:
Christopher Malley – Chief Financial Officer
& Company Secretary
John Austin – Chief Operating Officer
(appointed on 1 July 2020)
2. Remuneration strategy
The quality of Nick Scali Limited’s directors and executives is
a major factor in the overall performance of the Group. To this
end, the Company believes that an appropriately structured
remuneration strategy underpins a performance based
culture which in turn drives shareholder returns. The Group’s
remuneration strategy is therefore designed to attract and
retain high quality and committed non-executive directors and
employees.
The executive remuneration and reward framework has two
components:
• fixed remuneration comprising of salary and superannuation
• variable incentives comprising short-term incentives (STIs) in
the form of a cash based reward and long-term incentives
(LTIs) in the form of an equity reward.
The variable incentives are designed to deliver value to
executives for performance against a combination of Company
profitability and achievement against strategic goals. Shortterm incentives motivate employees to achieve outstanding
performance and are based on current year predetermined
key performance indicators (KPIs) such as profit after tax,
and non-financial activities that achieve short to medium term
objectives, while long-term incentives align employees with
shareholder interests and are based on maintaining long-term
shareholder value using performance measures such as EPS.
Annual Report 2021 | Nick Scali Limited
9
Directors’ Report (continued)
Remuneration Report – Audited (continued)
3. Remuneration and Human Resources Committee
The Remuneration and Human Resources Committee
currently consists of the non-executive Board members and is
responsible for:
• reviewing remuneration arrangements and succession
planning of senior management, including the Managing
Director and engaging external compensation consultants
if necessary.
• reviewing and approving any discretionary component of
short and long-term incentives for the Managing Director
and senior executives.
• recommending to the Board any increase in the
remuneration of existing senior employees of the Group for
which Board approval is required.
• recommending to the Board the remuneration of new senior
executives appointed by the Group.
• the setting of overall guidelines for Human Resources policy,
within which Senior Management determines specific
policies.
• reviewing the performance of the Board and its subcommittees, with the advice of external parties if appropriate.
The Committee has met once in the last twelve months. In
addition, matters for consideration by the Committee have
been dealt with during various Board meetings, where all
Remuneration and Human Resources Committee members
were in attendance.
4. Remuneration structure
In accordance with corporate governance best practices,
the remuneration structures for non-executive directors and
executives are separate.
4.1 Non-executive directors’ remuneration
Non-executive directors are paid a fixed annual fee, which
is periodically reviewed. Non-executive directors do not
receive any variable remuneration and they are not entitled to
participate in the Executive Performance Rights Plan.
Non-executive chairman and directors’ fees remained
unchanged for the year ended 30 June 2021 as reflected
below:
Base fee for Non-Executive Chairman
Base fee for Non-Executive Director
Additional fee for Audit and
Risk Committee Chairman
Additional fee for Audit and Risk
Committee Member
Additional fee for Remuneration and
Human Resources Committee Chairman
Additional fee for Remuneration and
Human Resources Committee Member
2021
$
2020
$
200,000
100,000
200,000
100,000
17,000
17,000
5,000
5,000
7,000
7,000
3,000
3,000
The pool for non-executive directors’ fees is capped at
$750,000 per year as approved by shareholders at the
Company’s Annual General Meeting in October 2015.
4.2 Executive remuneration
The Group provides appropriate rewards to attract and retain
key personnel. Base salaries, STIs and LTIs are established
by the Remuneration and Human Resources Committee for
each executive having regard to the nature of each role, the
experience of the individual employee and the performance
of the individual, and are then approved by the Board.
External consultants are engaged as appropriate and market
information is used to benchmark executive remuneration.
4.2.1 Service agreements
Details of the service agreements between the Company and executives considered KMPs, are as follows:
Name
Title
Term of agreement
Base salary including
superannuation
Termination benefit
Anthony Scali
Managing Director
Ongoing, commencing
24 May 2004
$750,000
–
Christopher Malley
Chief Financial Officer
& Company Secretary
Ongoing, commencing
6 February 2019
$300,000
3 months base salary
John Austin
Chief Operating Officer
Ongoing, commencing
1 July 2020
$300,000
3 months base salary
4.2.2 Remuneration mix
The relative proportions and components of the total remuneration opportunity for the executives considered to be key management
personnel (KMPs) for the 2021 financial year were:
Base (Fixed)
STI (Variable)
LTI (Variable)
Total
% of % of % of % of
Name
$ Total
$ Total
$ Total
$ Total
Anthony Scali
Christopher Malley
John Austin
10
750,000
300,000
300,000
50
50
67
Annual Report 2021 | Nick Scali Limited
750,000
150,000
150,000
50
25
33
–
150,000
–
–
25
–
1,500,000
600,000
450,000
100
100
100
Directors’ Report (continued)
Remuneration Report – Audited (continued)
4.2.3 Fixed remuneration – Base Salary
Fixed compensation is set to provide a base level of
compensation which is appropriate to the position and
responsibility and is competitive in the market. Fixed
compensation is reviewed annually, with effect from 1
September each year, by the Remuneration and Human
Resources Committee with reference to the performance of
both the business and the individual, the individuals skills and
experience, comparative market compensation and where
appropriate, external advice.
The Group provides superannuation contributions in line with
statutory obligations with benefits being contributed to the
employee’s chosen superannuation fund.
4.2.4 Variable remuneration – Short-term incentives (STI)
The Company operates annual short-term incentive programs
that reward KMPs on the achievement of predetermined KPIs
established each financial year, according to the accountabilities
Year ended
30 June 2021
Total $
Anthony Scali
Christopher Malley
John Austin
750,000
150,000
150,000
Year ended
30 June 2020
Total $
Anthony Scali
Christopher Malley
750,000
150,000
1
of their role and its impact on the Group’s performance.
KPIs include profit targets and personal performance criteria
which are set to incentivise superior performance. Using KPIs
which include profit targets ensures that variable rewards are
paid only when value is created for shareholders and Group
profitability meets or exceeds a level approved by the Board.
STIs are linked to KPIs on a sliding scale which is established
at the beginning of each financial year. The STIs are paid in
the form of cash bonuses and the Remuneration and Human
Resources Committee is responsible for assessing whether
the KPIs are met and the STIs are payable.
The Managing Director may also recommend to the Board
discretionary bonuses in exceptional circumstances to reward
contributions from high performing employees. The following
table shows the STI cash bonus target and the amount
achieved for each KMP in the years ended 30 June 2021 and
30 June 2020:
STI Target
Financial Non Financial
KPIs1 %
KPIs %
Total $
80%
100%
100%
20%
–
–
750,000
150,000
150,000
STI Target
Financial Non Financial
KPIs1 %
KPIs %
Total $
80%
100%
20%
–
STI Achieved
Financial Non Financial
KPIs1 %
KPIs %
80%
100%
100%
20%
–
–
STI Achieved
Financial Non Financial
KPIs1 %
KPIs %
–
–
–
–
–
–
Financial KPIs include net profit before tax.
4.2.5 Variable remuneration – Long-term incentives (LTI)
Long-term incentives, in the form of the share rights offered
under the Executive Performance Rights Plan (EPRP), are
provided to employees in order to align remuneration with the
creation of shareholder value over the long-term. The EPRP is
only made available to executives and other employees who
have been employed for more than 12 months who are able
to influence the generation of shareholder value and who have
a direct impact on the Group performance against relevant
long-term performance targets.
The Board has determined earnings per share (EPS) growth to
be the most appropriate measure of long-term performance.
Under the EPRP, employees are granted rights to ordinary
shares that will vest after a period of three years subject to the
achievement of specific levels of EPS growth. EPS is based on
the Group’s underlying profit after tax and before non-recurring
items, as determined by the Board.
Under the EPRP the number of rights exercisable at the end of the vesting period is dependent on the level of EPS growth achieved
by the Company, as follows:
EPS growth (CAGR, 3Yr)
Percentage of rights exercisable
Less than 5%
5%
Greater than 5%, but less than 10%
10%, or greater
Nil
50%
Pro rata between 50% and 100%
100%
Annual Report 2021 | Nick Scali Limited
11
Directors’ Report (continued)
Remuneration Report – Audited (continued)
If the minimum level of EPS growth is not met or if the participant
ceases to be employed by the Group, any unvested rights will
immediately lapse unless otherwise determined by the Board.
The number of rights granted is calculated by taking the
relevant executive’s fixed annual remuneration and multiplying
it by the relevant predetermined LTI entitlement percentage
of fixed remuneration and then dividing this by the Group’s
volume weighted average share price for the four week period
prior to the date of the release of the Group’s full year results.
There is no exercise price for shares granted under the EPRP
and the employees are able to exercise their rights up to two
years following the vesting date, after which time the rights will
lapse. In the event of a takeover offer for the Company, the
rights may, at the discretion of the Board, vest in accordance
with an assessment of performance with the performance
period pro-rated to the date of the takeover offer
Rights to ordinary shares may also be granted in accordance
with the EPRP as a retention award where the only performance
condition is continued employment with the Group at the
vesting date. No such retention rights were awarded during
the year ended 30 June 2021.
KMP
The LTI entitlement of executives considered KMPs is
calculated as a percentage of fixed annual remuneration for
the year ended 30 June 2021 as follows:
LTI entitlement of fixed
Years of Service
remuneration
LTI entitlement year
ended 30 June 2021
Anthony Scali
Christopher Malley
0%
50%
39
3
0%
50%
John Austin
50%
1
0%
Employees who have been granted rights are prohibited from entering into transactions to limit the economic risk of such rights
whether through a derivative, hedge or similar arrangement. In addition, employees are prohibited from entering into any margin lending
arrangements in respect of shares in the Company where those shares are offered as security for the lending arrangement.
4.2.6 Performance rights granted
The terms and conditions of each grant of performance rights to ordinary shares affecting the remuneration of employees in this financial
year or future reporting years are as follows:
Vesting and
exercisable
Grant reference
Grant date1
date
Expiry date
FY21/23
FY20/22
FY19/21
14 Sep 2020
13 Sep 2019
31 Aug 2018
Aug 20232
Aug 20222
5 Aug 2021
Exercise
price
($)
Fair value
per right at
grant date ($)
Vested and
exercised
30 June 2021 (No.)
0.00
0.00
0.00
6.61
5.17
5.39
–
–
–
30 Jun 2025
30 Jun 2024
30 Jun 2023
The grant date is the date at which the performance rights are communicated to the employees. The effective date of the grant, from
which the performance hurdles are measured, is the first day of the financial year in which the grant is made.
2
The exact vesting and exercisable date for rights that have not yet vested is currently indeterminate, and depends on the date of
meeting at which the Board can confirm the achievement of the long-term performance hurdles. This is typically four to six weeks
following the end of the financial year.
1
4.2.7 Performance rights holding
The table below sets out the balance of performance rights held by executives considered KMPs.
Balance
30 June 2020
Granted
Anthony Scali
Christopher Malley
John Austin2
2
12
–
21,898
–
Balance
30 June 2019
Granted
Anthony Scali
Kevin Fine1
Christopher Malley
1
–
23,810
–
–
33,169
–
–
–
23,810
Kevin Fine resigned as Chief Financial Officer and Company Secretary on 6 February 2019.
John Austin was appointed as Chief Operating Officer on 1 July 2020.
Annual Report 2021 | Nick Scali Limited
Vested and
exercised
Forfeited
–
–
–
Balance
30 June 2021
–
–
–
–
45,708
–
Vested and
exercised
Forfeited
Balance
30 June 2020
–
(33,169)
_
–
–
_
–
–
23,810
Directors’ Report (continued)
Remuneration Report – Audited (continued)
4.3 Group performance
The table below sets out the financial performance of the Group over the past five years:
2017
2018
2019
2020
2021
CAGR
(%)
Revenue
EBITDA
Net profit after tax
Earnings per share
Ordinary dividends per share
Share price at financial year end
Stores
Basic earnings per share growth
$m
$m
$m
Cents
Cents
$
No. of
%
232.9
55.7
37.2
46.0
34.0
6.09
45
42.4
250.8
62.8
41.0
50.6
40.0
6.73
51
10.1
268.0
64.1
42.1
52.0
45.0
6.26
57
2.8
262.5
96.9
42.1
51.9
47.5
6.48
58
0.4
373.0
158.5
84.2
104.0
65.0
11.72
61
100.4
12.5
29.9
22.7
22.6
17.6
17.8
4.4 Remuneration outcomes
The tables below set out the remuneration outcomes for the KMPs for the years ended 30 June 2021 and 30 June 2020 respectively:
Salary &
fees
Short-term
benefits
Year ended
30 June 2021
$
Cash
incentive
$
Non-Executive Directors:
John Ingram
William Koeck1
Carole Molyneux
Stephen Goddard
182,648
90,411
102,283
109,589
–
–
–
–
Share-based
payments
Long-term
benefits
Total
Share Long service
rights
Superannuation
leave
$
$
$
$
–
–
–
–
Post-employment
benefits
17,352
8,589
9,717
10,411
–
–
–
–
200,000
99,000
112,000
120,000
Executive Directors:
Anthony Scali3
803,723
750,000
–
21,277
11,852 1,586,852
Other Key Management Personnel:
Christopher Malley3
308,723
150,000
82,938
21,277
–
562,938
John Austin2
288,723
150,000
–
21,277
–
460,000
1,886,100
1,050,000
82,938
109,900
11,852
3,140,790
William Koeck was appointed as a Non-executive Director on 1 August 2020.
John Austin was appointed as Chief Operating Officer on 1 July 2020.
3
The voluntary 30% reduction to remuneration accepted by executives for the period 1 April 2020 to 30 June 2020, in response to the
Covid-19 crisis, was repaid as an ex-gratia payment in September 2020.
1
2
Salary &
fees
Short-term
benefits
Year ended
30 June 2020
$
Cash
incentive
$
Non-Executive Directors:
John Ingram2
Greg Laurie1
Carole Molyneux2
Stephen Goddard2
168,950
82,192
94,612
92,511
–
–
–
–
Share-based
payments
Post-employment
benefits
Long-term
benefits
Total
Share
rights
Superannuation
$
$
Long service
leave
$
$
–
–
–
–
185,000
90,000
103,600
101,300
–
–
–
–
16,050
7,808
8,988
8,789
Executive Directors:
Anthony Scali2
692,833
–
–
21,003
12,007
725,843
Other Key Management Personnel:
Christopher Malley2
263,894
–
27,369
21,003
–
312,266
1,394,992
–
27,369
83,641
12,007 1,518,009
Greg Laurie ceased to be a Non-executive Director on 23 March 2020.
In response to the Covid-19 crisis, Directors and executives accepted a voluntary 30% reduction to remuneration for the period
1 April 2020 to 30 June 2020.
1
2
Annual Report 2021 | Nick Scali Limited
13
Directors’ Report (continued)
Remuneration Report – Audited (continued)
4.5 Additional disclosures relating to key management personnel
Interest in the Shares of the Company
The beneficial interest of each director in the contributed equity of the Company are as follows:
Balance at
Received as part
Balance at
30 June 2020
of remuneration
Purchases
Disposals
30 June 2021
Ordinary shares
John Ingram
360,000
–
–
–
360,000
Stephen Goddard
William Koeck
Carole Molyneux
Scali Consolidated Pty Ltd
1
1
6,000
–
–
–
6,000
–
–
5,900
–
5,900
15,500
–
–
–
15,500
11,039,474
–
–
–
11,039,474
11,420,974
–
5,900
–
11,426,874
Scali Consolidated Pty Ltd is a director related entity of Anthony Scali.
This concludes the remuneration report, which has been audited.
Indemnity and insurance of officers
Proceedings on behalf of the Company
During the financial year, the Company has indemnified all
the directors and executive officers against certain liabilities
incurred as such by a director or officer, while acting in that
capacity. The premiums have not been determined on an
individual director or officer basis. The directors have not
included details of the nature of the liabilities covered or the
amount of the premium paid in respect of the directors’ and
officers’ liability insurance contract, as such disclosure is
prohibited under the terms of the contract.
No person has applied to the Court under section 237 of the
Corporations Act 2001 for leave to bring proceedings on behalf
of the Company, or to intervene in any proceedings to which
the Company is a party for the purpose of taking responsibility
on behalf of the Company for all or part of those proceedings.
No other agreement to indemnify directors or officers have
been entered into, nor have any payments in relation to
indemnification been made, during or since the end of the
financial year, by the Company.
Indemnity and insurance of auditor
To the extent permitted by law, the Company has agreed to
indemnify its auditors, Ernst & Young Australia (EY), as part of
the terms of audit engagement agreement against claims by
third parties arising from the audit (for an unspecified amount)
– except for any loss in respect of any matters which are finally
determined to have resulted from EY’s negligent, wrongful
or wilful acts or omissions. No payment has been made to
indemnify EY during or since the financial year.
14
Annual Report 2021 | Nick Scali Limited
Officers of the Company who are former partners of
Ernst & Young
There are no officers of the Company who are former partners
of Ernst & Young.
Corporate Governance Statement
Nick Scali Limited’s Corporate Governance Statement discloses
how the Company complies with the recommendations of the
ASX Corporate Governance Council (4th Edition) and sets
out the Group’s main corporate governance practices. This
statement has been approved by the Board and is current as
at 30 June 2021. The Corporate Governance Statement of
Nick Scali Limited can be found on the Company’s website:
www.nickscali.com.au/corporate-governance.
Rounding of amounts
The Company is of a kind referred to in Class Order 2016/191,
issued by the Australian Securities and Investments Commission,
relating to ‘rounding-off’. Amounts in this report have been
rounded off in accordance with that Class Order to the nearest
thousand dollars, or in certain cases, the nearest dollar.
Directors’ Report (continued)
Non-audit services
The Company may decide to employ the Company’s auditor, or its network firms, for non-audit services where their skills and expertise
are considered relevant.
During the year ended 30 June 2021, Ernst & Young Australia performed due diligence services on a potential acquisition and provided
tax compliance services. Details of the amount paid to the auditor for non-audit services are set out below.
$
30,936
145,000
175,936
Tax compliance services
Due diligence
The directors are satisfied that the provisions of non-audit services are compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The nature and scope of all non-audit services provided was approved by the Audit
and Risk Committee, and the directors are satisfied that the services provided do not compromise the integrity and objectivity of the
Company’s auditor for the following reasons:
• none of the services required the auditor to review or audit the auditors own work
• none of the services required the auditor to act in a management or decision-making capacity for the Company
• none of the services required the auditor to act as an advocate for the Company
• none of the services involved the auditor jointly sharing in the economic risks and rewards of the Company
• a declaration required by section 307C of the Corporations Act 2001 confirming their independence has been received from
Ernst & Young Australia
Auditor’s independence declaration
The Directors received the declaration from the auditor of Nick Scali Limited and is included on page 16 of the Financial Statements.
Auditor
Ernst & Young Australia continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001.
On behalf of the directors
John Ingram
Chairman
Anthony Scali
Managing Director
5 August 2021
Sydney
Danni Armchair 100% Leather.
Annual Report 2021 | Nick Scali Limited
15
Cora Bed. Aix Bedside Table, Dresser. Awan Rug.
16
Annual Report 2021 | Nick Scali Limited
Auditor’s Independence Declaration
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s Independence Declaration to the Directors of Nick Scali Limited
As lead auditor for the audit of the financial report of Nick Scali Limited for the financial year ended 30
June 2021, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Nick Scali Limited and the entities it controlled during the financial year.
Ernst & Young
Lisa Nijssen-Smith
Partner
5 August 2021
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Annual Report 2021 | Nick Scali Limited
17
Hogarth 3 Seater Lounge 100% Natural Leather.
Cooper Console, Lamp Table. Nasiri Wool Rug.
18
Annual Report 2021 | Nick Scali Limited
Annual Report 2021 | Nick Scali Limited
19
Consolidated statement of comprehensive income
For the year ended 30 June 2021
2021
Note
$’000
2020
$’000
Revenue from contracts with customers
3
373,040
262,480
Cost of goods sold
(136,285)
(97,817)
Gross profit 236,755
164,663
Other income
3
1,582
4,790
Expenses
Marketing expenses
(16,217)
(18,498)
Employment expenses
4
(46,124)
(37,411)
General and administration expenses
(10,417)
(10,795)
Property expenses
4
(5,216)
(3,543)
Distribution expenses
(1,322)
(1,635)
Depreciation and amortisation
(30,870)
(29,987)
Finance costs
(6,958)
(7,432)
Profit before income tax expense
121,213
60,152
Income tax expense
5
(36,972)
(18,076)
Profit after income tax expense for the year attributable to the owners of
Nick Scali Limited
84,241
42,076
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Net change in the fair value of cash flow hedges taken to equity, net of tax
Other comprehensive income for the year, net of tax
13
4,858
4,871
(10)
(4,235)
(4,245)
Total comprehensive income for the year attributable to the owners of
Nick Scali Limited
89,112
37,831
CENTS
CENTS
Basic earnings per share
6
104.0
51.9
Diluted earnings per share
6
104.0
51.9
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes
20
Annual Report 2021 | Nick Scali Limited
Consolidated statement of financial position
As at 30 June 2021
2021
Note
$’000
2020
$’000
Assets
Current assets
Cash and cash equivalents
9
106,892
Receivables
10
1,694
Inventories
11
46,733
Other financial assets
19
1,565
Prepayments 2,382
Total current assets
159,266
63,037
2,571
36,273
–
2,091
103,972
Non-current assets
Land and buildings
12
Plant and equipment
12
Right-of-use assets
13
Deferred tax
5
Intangibles
14
Total non-current assets
83,413
15,215
170,904
5,334
2,691
277,557
74,488
15,134
161,734
7,041
2,425
260,822
Total assets 436,823
364,794
Liabilities
Current liabilities
Borrowings
15
Payables
16
Lease liabilities
13
Deferred revenue
17
Current tax liabilities
Provisions
18
Other financial liabilities
19
Total current liabilities
15,500
22,075
27,309
51,895
15,588
3,593
–
135,960
2,300
18,020
23,434
40,243
5,587
3,222
5,371
98,177
Non-current liabilities
Borrowings
15
18,162
31,362
Lease liabilities
13
166,009
157,769
Deferred revenue
17
1,272
620
Provisions
18
1,394
1,452
Total non-current liabilities
186,837
191,203
Total liabilities 322,797
289,380
Net assets
114,026
75,414
Issued capital
20
Reserves
21
Retained profits
3,364
958
109,704
3,364
(4,038)
76,088
Total equity
114,026
75,414
Equity
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
Annual Report 2021 | Nick Scali Limited
21
Consolidated statement of changes in equity
For the year ended 30 June 2021
Issued
capital
$’000
Equity
benefits
reserve
$’000
Capital
profits
reserve
$’000
Cash flow
hedge
reserve
$’000
Foreign
exchange
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
Balance at 1 July 2019
3,364
(29)
78
475
6
81,289
Adjustment to opening balance
for adoption of AASB16
–
–
–
–
–
(10,827)
85,183
(10,827)
Adjusted opening balance
at 1 July 2020
Profit after income tax expense for the year
3,364
(29)
78
475
6
70,462
74,356
–
–
–
–
–
42,076
42,076
Other comprehensive income for the year,
net of tax
–
–
–
(4,235)
(10)
–
Total comprehensive income for the year
–
–
–
(4,235)
(10)
42,076
Employee share rights recognised
under EPRP (Note 31)
–
(323)
–
–
–
–
Dividends paid (Note 7)
–
–
–
–
–
(36,450)
Balance at 30 June 2020
3,364
(352)
78
(3,760)
(4)
76,088
Balance at 1 July 2020
3,364
(352)
78
(3,760)
(4)
76,088
Profit after income tax expense for the year
–
–
–
–
–
84,241
(4,245)
37,831
(323)
(36,450)
75,414
75,414
84,241
Other comprehensive income for the year,
net of tax
–
–
–
4,858
13
–
4,871
Total comprehensive income for the year
–
–
–
4,858
13
84,241
89,112
Employee share rights recognised
under EPRP (Note 31)
–
125
–
–
–
–
125
Dividends paid (Note 7)
–
–
–
–
–
(50,625) (50,625)
Balance at 30 June 2021
3,364
(227)
78
1,098
9
109,704 114,026
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
22
Annual Report 2021 | Nick Scali Limited
Consolidated statement of cash flows
For the year ended 30 June 2021
2021
Note
$’000
2020
$’000
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
426,170
(258,777)
304,490
(199,183)
167,393
Interest received 367
Income tax payments
(27,332)
105,307
501
(13,630)
Net cash from operating activities
8
140,428
92,178
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
(15,637)
22
(8,645)
9,768
Net cash from investing activities
(15,615)
1,123
Payment of dividends on ordinary shares
7
Repayment of lease liabilities
13
Interest payments – lease liabilities
13
Interest payments – borrowings
(50,625)
(23,594)
(6,208)
(531)
(36,450)
(22,796)
(6,512)
(790)
Net cash used in financing activities
(80,958)
(66,548)
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
43,855
63,037
26,753
36,284
Cash and cash equivalents at the end of the financial year
106,892
63,037
Cash flows from investing activities
Cash flows from financing activities
9
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes
Annual Report 2021 | Nick Scali Limited
23
Notes to the consolidated financial statements
For year ended 30 June 2021
Note 1. Basis of preparation
Corporate information
Nick Scali Limited (the Company or the parent) is a for profit
company limited by shares incorporated in Australia whose
shares are publicly traded on the Australian Stock Exchange.
Basis of preparation
These general purpose financial statements have been prepared
in accordance with Australian Accounting Standards and
Interpretations issued by the Australian Accounting Standards
Board (‘AASB’) and the Corporations Act 2001. These financial
statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards
Board (‘IASB’). The financial statements have been prepared
under the historical cost convention, except for derivative
financial instruments, which have been prepared at fair value.
The financial report was authorised for issue in accordance with
a resolution of the directors on 5 August 2021.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at 30
June 2021. A subsidiary is an entity that is controlled by the
Company. The Company controls an entity when it is exposed
to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its
power over the entity.
The financial statements of the subsidiaries are included in
the consolidated financial statements from the date on which
control commences until the date on which control ceases.
Intercompany transactions, balances and unrealised gains
on transactions between the Company and its subsidiaries
are eliminated. Accounting policies of the subsidiaries are
consistent with the policies adopted by the Company.
Changes in accounting policies, accounting standards and
interpretations
The accounting policies adopted in the preparation of the
annual financial statements are consistent with those followed
in the preparation of the annual financial statements for the
period 30 June 2020.
The Group is currently assessing the impact of the recently
published IFRIC agenda decision which was published in June
2021 in relation to the accounting treatment when determining
net realisable value of inventories. Based on preliminary analysis
performed, the Group expects the impact of the adoption of
the IFRIC agenda decision to be immaterial. The Group expects
to complete the implementation of the above IFRIC agenda
decision by 31 December 2021.
24
Annual Report 2021 | Nick Scali Limited
Significant accounting judgements, estimates
and assumptions
In the process of applying the Company’s accounting
policies, management has made judgements, estimates and
assumptions. All judgements, estimates and assumptions
made are believed to be reasonable, based on the most
current information available to management. Actual results
may differ from these judgements, estimates and assumptions.
Judgements, estimates and assumptions which have the most
significant effect on the amounts recognised in the financial
statements:
Impairment of goodwill
The Company determines whether goodwill is impaired on an
annual basis. This requires an estimation of the recoverable
amount of the cash-generating unit to which the goodwill
is allocated. The assumptions used in this estimation of
recoverable amount and the carrying amount of goodwill is
discussed in the financial report.
Lease term of contracts with renewable options
The Company determines the lease term to be the noncancellable term of the lease, together with any periods covered
by an option to extend the lease if it is reasonably certain that
the option will be exercised. In assessing the likelihood of a
lease option being exercised, the Company considers the
costs of termination, the extent of any leasehold improvements,
the strategic importance of the lease location and the current
market rent for the site.
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based on
historical experience as well as consideration of lease terms (for
assets used in or affixed to leased premises) and replacement
policies (for motor vehicles). In addition, the condition of the
assets is assessed at least once per year and considered
against the remaining useful life. Adjustments to useful lives are
made when considered necessary.
Net realisable value of inventory
Inventories are valued at the lower of cost and net realisable
value. Weighted average cost is used to value inventories.
Costs incurred in bringing each product to its present location
and condition including freight, cartage and import duties are
included in the cost of finished goods.
Net realisable value is the estimated selling price in the ordinary
course of business, less estimated costs necessary to make
the sale. Judgment is applied in assessing the net realisable
value.
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 2. Segment information
The Company has identified the Managing Director and the Board of Directors as the chief operating decision makers. The Company
has one reportable segment being the retailing of furniture in Australia and New Zealand.
2021
$’000
2020
$’000
373,040
262,480
14
–
783
367
418
1,794
1,073
1,154
501
268
1,582
4,790
Note 3. Revenue
Revenue
Revenue from contracts with customers
Other income
Net gain on disposal of property, plant and equipment
Net gain on disposal of right-of-use asset and remeasurement of lease liability
Rental income
Interest income
Sundry income
Recognition and measurement – Revenue and income recognition
Revenue from contracts with customers is recognised at an amount that reflects the consideration to which the Group is expected to
be entitled in exchange for transferring goods or services to a customer. Contracts with customers provide for both the sale of goods
and the provision of accidental damage warranties, and the timing of the recognition of revenue of these separate components is as
follows:
Sale of goods
When recognising revenue in relation to the sale of goods to customers, the key performance obligation of the Group is considered to
be the delivery of the goods to the customer, and revenue is recognised at the time of delivery of the goods to the customer.
Accidental damage warranties
When recognising revenue in relation to ADWs, the key performance obligation of the Group extends over the term of the warranty, and
consequently revenue is recognised over the term of warranty, weighted according to the expected occurrence of the performance
obligations.
2021
$’000
2020
$’000
33,805
(3,565)
2,471
3,265
210
32,493
(3,915)
–
2,972
120
697
(624)
817
(2,263)
2021
2020
541
477
Note 4. Expenses
Profit before income tax includes the following specific expenses:
Included within employee expenses
Salaries and wages
Government wage subsidies received as a consequence of Covid-19
Voluntary repayment of government wage subsidies
Superannuation contributions
Share-based payments
Included within property expenses
Short-term and low value lease payments
Rent concessions received as a consequence of Covid-19
Number of employees
Number of full-time and part-time employees at balance date
Annual Report 2021 | Nick Scali Limited
25
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
2021
$’000
2020
$’000
Income tax expense
Current income tax charge
Adjustments in respect of current income tax of previous years
Relating to origination and reversal of temporary differences
37,527
(94)
(461)
18,501
(105)
(320)
Aggregate income tax expense
36,972
18,076
Numerical reconciliation of income tax expense and tax at the statutory rate
Profit before income tax expense
121,213
60,152
Tax at the statutory tax rate of 30%
Adjustments in respect of current income tax of previous years
Adjustment for difference in overseas tax rates
Adjustment for share rights exercised
Adjustment for voluntary repayment of government wage subsidies
Other items
36,369
(94)
(23)
(105)
741
84
18,045
(105)
(3)
(133)
–
272
Income tax expense
36,972
18,076
Deferred tax recognised comprises temporary differences attributable to:
Right-of-use assets
Lease liabilities
Deferred capital gains
Property, plant and equipment
Employee entitlements
Cashflow hedge (Note 23)
Other
(50,812)
57,480
(1,612)
(1,550)
1,153
(469)
1,144
(48,059)
54,055
(1,612)
(1,135)
1,023
1,611
1,158
5,334
7,041
Note 5. Income tax expense
Total deferred tax asset
Recognition and measurement – Income tax
Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted
by the reporting date.
Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes. Deferred income tax, assets and liabilities are measured at the tax rates that
are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the reporting date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and
deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the
deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.
26
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
2021
$’000
2020
$’000
Profit after income tax attributable to the owners of Nick Scali Limited
84,241
42,076
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
81,000,000
81,000,000
Weighted average number of ordinary shares used in calculating diluted earnings per share
81,000,000
81,000,000
Cents
Cents
Basic earnings per share
Diluted earnings per share
104.0
104.0
51.9
51.9
Note 6. Earnings per share
Recognition and measurement – Earnings per share
Basic earnings per share
Basic earnings per share (EPS) is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other
than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.
Diluted earnings per share
Diluted EPS adjusts the basic EPS to take account of the after tax effect of dividends and interest associated with dilutive potential
ordinary shares that have been recognised as expenses; and other costs associated with dilutive potential ordinary shares and the
weighted average number of shares assumed to have been issued for no consideration.
2021
$’000
2020
$’000
18,225
32,400
50,625
16,200
20,250
36,450
Note 7. Dividends
Dividends
Dividends paid during the financial year were as follows:
Final fully franked dividend for 30 June 2020: 22.5 cents (2019: 20.0 cents)
Interim fully franked dividend for 30 June 2021: 40.0 cents (2020: 25.0 cents)
In addition to the above dividend, since the end of the financial year directors have declared a final fully franked dividend of 25.0 cents
per fully paid ordinary share to be paid on 25 October 2021 out of retained profits at 30 June 2021.
Franking credits
Franking credits available at the reporting date based on a tax rate of 30%
Franking credits that will arise from the payment of the amount of the provision
for income tax at the reporting date based on a tax rate of 30%
36,011
30,726
15,457
5,425
Franking credits available for subsequent financial years based on a tax rate of 30%
51,468
36,151
Franking credits available for future reporting periods based on a tax rate of 30%
42,789
28,340
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
• franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date
• franking debits that will arise from the payment of dividends recognised as a liability at the reporting date
• franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date
The tax rate at which paid dividends have been franked is 30% (30 June 2020: 30%).
Dividends declared and unpaid will be franked at the rate of 30% (30 June 2020: 30%).
Annual Report 2021 | Nick Scali Limited
27
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
2021
$’000
2020
$’000
Profit after income tax expense for the year
84,241
Adjustments for:
Depreciation and amortisation expense
30,870
Net gain on disposal of property, plant and equipment
145
Share-based payments
105
Interest expense
6,739
Net foreign currency differences
140
Net fair value change on derivatives
4,858
42,076
Note 8. Reconciliation of profit after income tax to net cash from operating activities
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
877
(Increase)/decrease in inventories
(10,460)
Decrease/(increase) in deferred tax
1,707
Increase in prepayments
(291)
(Increase) in value of other financial asset and decrease of other financial liability
(6,936)
Increase/(decrease) in trade and other payables
Increase in deferred revenue
Increase in provision for income tax
Increase/(decrease) in other provisions
29,987
(1,794)
(323)
4,291
177
(4,235)
(1,463)
1,324
(2,593)
(222)
6,050
5,813
12,304
10,001
315
(537)
14,369
5,225
(154)
140,428
92,178
2021
$’000
2020
$’000
Cash at bank and on hand
Short-term deposits
50,045
56,847
18,053
44,984
106,892
63,037
Net cash from operating activities
Note 9. Cash and cash equivalents
Recognition and measurement – Cash and cash equivalents
Cash and short-term deposits in the statement of financial position comprise cash at bank and on hand and short-term deposits with
an original maturity of three months or less. For the purposes of the statement of cash flows, cash and cash equivalents consist of
cash and cash equivalents as defined above.
28
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
2021
$’000
2020
$’000
Trade debtors
Other debtors
189
1,505
140
2,431
1,694
2,571
Note 10. Receivables
Trade receivables are initially recognised at fair value, less any allowance for expected credit losses. Trade receivables are generally due
for settlement within 30 days.
During the year ended 30 June 2021, $2,160 (2021: $35,756) was recognised as an expense for expected credit losses.
Other debtors includes receivables from suppliers and GST paid in advance as required in New Zealand. These are non-interest bearing
and are due for settlement between 30 and 90 days.
2021
$’000
2020
$’000
Finished goods
Stock in transit – at cost
34,987
11,746
28,576
7,697
46,733
36,273
Note 11. Inventories
During the year ended 30 June 2021, $620,000 (2020: expense of $746,000) was recognised as reduction in cost of goods sold for
inventories carried at net realisable value.
Recognition and measurement – Inventories
Inventories are valued at the lower of cost and net realisable value. Weighted average cost is used to value inventories. Costs incurred
in bringing each product to its present location and condition includes purchase price plus freight, cartage and import duties. Net
realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale.
2021
$’000
2020
$’000
Land and buildings – at cost
Less: Accumulated depreciation
90,164
(6,751)
83,413
80,084
(5,596)
74,488
Leasehold improvements – at cost
Less: Accumulated depreciation
21,215
(11,243)
9,972
19,484
(10,122)
9,362
Fixtures and fittings – at cost
Less: Accumulated depreciation
950
(755)
195
956
(729)
227
Motor vehicles – at cost
Less: Accumulated depreciation
747
(419)
328
684
(381)
303
Office equipment – at cost
Less: Accumulated depreciation
12,794
(8,074)
4,720
12,183
(6,941)
5,242
98,628
89,622
Note 12. Property, plant and equipment
Annual Report 2021 | Nick Scali Limited
29
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 12. Property, plant and equipment (continued)
Reconciliations
Reconciliation of the carrying amounts of property, plant and equipment at the beginning and end of the financial year:
Consolidated
Land &
buildings
$’000
Leasehold
improvements
$’000
Fixtures &
fittings
$’000
Motor
vehicles
$’000
Office
equipment
$’000
Total
$’000
Balance at 1 July 2019
77,035
9,483
263
351
5,532
92,664
Reclassification of make good
asset to right-of-use asset
–
(332)
–
–
–
(332)
Reclassification of website
to intangibles
–
–
–
–
(47)
(47)
Additions
5,307
2,171
6
75
1,086
8,645
Disposals
(6,719)
(113)
–
(34)
(12)
(6,878)
Foreign currency translation
–
(47)
–
(1)
(7)
(55)
Depreciation expense
(1,135)
(1,800)
(42)
(88)
(1,310)
(4,375)
Balance at 30 June 2020
74,488
9,362
227
303
5,242
89,622
Additions
10,080
2,896
4
126
682
13,788
Disposals
–
–
–
(6)
–
(6)
Foreign currency translation
–
(8)
–
–
(1)
(9)
Depreciation expense
(1,155)
(2,278)
(36)
(95)
(1,203)
(4,767)
Balance at 30 June 2021
83,413
9,972
195
328
4,720
98,628
Land and buildings totalling $83.4m (2020: $74.5m) are used to secure bank loans relating to their purchase.
Recognition and measurement – Property, plant and equipment
All classes of property, plant and equipment are measured at cost, less accumulated depreciation and any impairment in value.
Depreciation is provided on a straight line basis on all property, plant and equipment.
Major depreciation periods are:
Buildings
Leasehold improvements
Furniture and fittings
Motor vehicles
Office equipment (including IT equipment)
20 – 40 years
5 – 15 years
3 – 15 years
6 years
3 – 12 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold
improvements are depreciated at the shorter of the useful life or the term of the lease. Land is not depreciated.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Company.
Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate
the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which it belongs. If any such indication exists and where the carrying values
exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.
30
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
2021
$’000
2020
$’000
Lease liabilities
Lease liabilities – current
Lease liabilities – non current
27,309
166,009
23,434
157,769
193,318
181,203
Reconciliation of lease liabilities
Opening lease liabilities
181,203
194,764
Lease modifications agreed during the year
Additional leases entered into during the year
Leases terminated during the year
Net reduction in future lease payments agreed as a consequence of Covid-19
Interest accrued
Lease repayments
Foreign currency translation
8,934
26,509
–
–
6,207
(29,472)
(63)
6,026
11,838
(6,674)
(1,135)
6,510
(29,824)
(302)
193,318
181,203
Right-of-use assets
Right-of-use assets – at cost
Less: Accumulated depreciation
270,663
(99,759)
263,488
(101,754)
170,904
161,734
Reconciliation
Opening right-of-use asset
Transfer of make good asset from leasehold improvements
Lease modifications agreed during the year
Additional right-of-use assets relating to leases entered into during the year
Disposal of right-of-use assets relating to leases terminated during the year
Depreciation
Foreign currency translation
161,734
–
8,934
26,509
(160)
(26,057)
(56)
174,312
332
6,026
12,445
(5,591)
(25,499)
(291)
170,904
161,734
Note 13. Leases
Recognition and measurement – Leases
Lease liabilities
The Group enters into non-cancellable leases for retail showrooms and warehouse facilities in Australia and New Zealand. Leases
are entered into for varying terms and rent reviews are based on CPI increases or fixed increases. A lease liability is recognised at the
commencement date of a lease at the present value of the lease payments to be made over the term of the lease.
A number of the leases contain options to renew in favour of the Group. These options are negotiated by management to provide
flexibility in managing the leased-asset portfolio and align with the Group’s business needs. Management exercises judgement in
determining whether these extension options are reasonably certain to be exercised. The present value of the lease payments to
be made under options considered reasonably certain to be exercised have been included in the lease liability balance at 30 June
2021. The undiscounted potential future payments under options that are not considered reasonably certain to be exercised is
$121,385,000, which includes those that have an exercise date within the next five years of $21,106,000.
Right-of-use assets
Right-of-use assets are measured at cost at commencement of the lease, and depreciated on a straight-line basis over the effective
life of the asset. The right-of-use assets have an effective life of between 3 and 14 years dependent on the term of the lease and the
likelihood of the Company exercising any lease extension options in its favour.
Annual Report 2021 | Nick Scali Limited
31
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
2021
$’000
2020
$’000
1,165
(852)
853
(806)
313
47
Goodwill – at cost
2,378
2,378
2,691
2,425
Note 14. Intangibles
Website – at cost
Less: Accumulated amortisation
For the purposes of impairment testing, goodwill has been wholly allocated to the cash generating unit (CGU) comprising the Group’s
South Australian operations. The recoverable amount of the South Australia CGU is based on its value in use determined by discounting
the future cash flows expected to be generated by the continued use of this CGU. The key assumptions used in determining the value
in use are as follows:
2021
2020
Long-term growth rate
Weighted average cost of capital
2.0%
8.0%
2.0%
8.0%
No impairment losses have been recognised and it would require a significant adverse change in these assumptions to impact the
assessment that the recoverable amount of the South Australia CGU exceeds its carrying amount and such change is not expected.
Recognition and measurement – Intangibles
Goodwill
Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the Group’s interest
in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at
cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually, or more frequently if events or changes
in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of
the CGU to which the goodwill relates.
Website costs
The direct costs of developing the Group’s websites are measured at cost, less accumulated amortisation and any impairment in value.
The Group determines that the website will generate probable future economic benefits and recognises both internal expenditure and
external expenditure on website content as an intangible. The website costs are determined to have a finite life of between 3 and 5
years and amortisation is provided on a straight line basis over the useful life.
2021
$’000
2020
$’000
Current
Bank loans
15,500
2,300
Non-current
Bank loans
18,162
31,362
Note 15. Borrowings
The effective interest rates of the current and non-current loans are included at Note 23. The maturities of the non-current loans are
between 12 months and 30 months.
Recognition and measurement – Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest
method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans
and borrowings. Borrowing costs are recognised as an expense when incurred, unless they are directly attributable to the acquisition,
construction or production of a qualifying asset whereby they are capitalised.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at
least 12 months after the reporting date.
32
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
2021
$’000
2020
$’000
Trade creditors
Other creditors and accruals
11,542
10,533
11,027
6,993
22,075
18,020
Note 16. Payables
Trade creditors are non-interest bearing financial instruments and are normally settled within 30 days.
Other creditors are non-interest bearing financial instruments and are normally settled on 30 to 60 day terms.
Recognition and measurement – Payables
Trade and other payables are carried at amortised cost and due to their short-term nature they are not discounted. They represent
liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the
Company becomes obliged to make future payments in respect of goods and services received.
2021
$’000
2020
$’000
51,418
477
51,895
40,045
198
40,243
1,272
620
Note 17. Deferred revenue
Current
Customer deposits
Accidental damage warranties
Non-current
Accidental damage warranties
Recognition and measurement – Deferred revenue
Customer deposits
Customer deposits represent amounts received from customers for orders not yet completed. Deposits received from customers are
recognised as revenue at the point of delivery of the goods to the customer. Orders are typically completed within three months and
deposits are therefore considered short-term in nature and are not discounted.
Accidental damage warranties
Accidental damage warranties are purchased by customers in conjunction with the purchase of goods and are initially measured based
on an allocation of the purchase price between the fair value of the goods and the warranty. Amounts deferred are recognised as
revenue over the term of the warranty. Accidental damage warranties are classified as current and will be recognised as revenue within
12 months of the reporting date.
2021
$’000
2020
$’000
Current
Employee entitlements
Lease make good
3,462
131
3,083
139
3,593
3,222
Non-Current
Lease make good
Employee entitlements
1,007
387
1,122
330
Note 18. Provisions
1,394
1,452
Recognition and measurement – Provisions
Employee entitlements
Liabilities for annual leave and long service leave expected to be settled within 12 months of the reporting date are measured as the
amounts to be paid when the liabilities are settled and are discounted to net present value.
Annual Report 2021 | Nick Scali Limited
33
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 18. Provisions (continued)
Liabilities for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured as the
present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the
projected unit credit method. Consideration is given to the expected future wage and salary levels, experience of employee departures
and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with
terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
Lease make good
A provision has been made for the present value of anticipated costs of future restoration of leased properties. The provision includes
future cost estimates associated with restoring the premises to its condition at the time the Company initially leased the premises,
subject to fair wear and tear.
2021
$’000
2020
$’000
–
5,371
1,565
–
Note 19. Other financial assets and liabilities
Other financial assets
Derivative hedge payable
Other financial liabilities
Derivative hedge receivable
Foreign exchange forward contracts are held as hedging instruments against forecast purchases in USD. The notional amount for
the contracts held at 30 June 2021 totalled $USD39,760,000 which covers between 75% and 100% of highly probable purchases
for the six months to 31 December 2021 (30 June 2020 $USD40,560,000). The average rate of the forward contracts is $USD0.77
(30 June 2020 $USD0.65).
The net gain or loss recognised as other comprehensive income is equal to the change in fair value of the hedging instruments. The
ineffective portion if applicable is recognised in profit or loss.
Recognition and measurement – Other financial assets and liabilities
The Group uses derivative financial instruments, such as forward currency contracts, interest rate swaps and forward commodity
contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial
instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently
remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the
fair value is negative.
2021
Shares
2020
Shares
2021
$’000
2020
$’000
81,000,000
81,000,000
3,364
3,364
Note 20. Issued capital
Authorised and fully paid ordinary shares
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the
number of and amounts paid on the shares held.
Capital risk management
The Board policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. The Board seeks to maintain a balance between the higher returns that might be possible with higher
levels of borrowings and the advantages and security afforded by a sound capital position. There were no changes in the Company’s
approach to capital management during the year.
The Company may look to raise capital when an opportunity to invest in a business is seen as value adding. The Company has
established specific borrowing facilities in relation to property purchases, which are secured over those specific properties. The
Company may consider using external equity when required for specific investments.
The Company pays dividends at the discretion of the Board. The dividend amount is based on market conditions and the profitability
of the Company.
Recognition and measurement – Issued share capital
Ordinary share capital is recognised at the fair value of the consideration received by the Company.
Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds
received, net of tax.
34
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
2021
$’000
2020
$’000
78
1,098
9
(227)
78
(3,760)
(4)
(352)
958
(4,038)
Note 21. Equity – Reserves
Capital profits reserve
Cash flow hedge reserve
Foreign exchange reserve
Equity benefits reserve
Movements in reserves
Equity
benefits
reserve
$’000
Balance at 1 July 2019
(29)
Amounts recognised for cash flow hedges
–
Income tax on items taken directly to or transferred from equity
–
Amounts transferred to non-financial assets
–
Purchase of shares under EPRP
(443)
Foreign currency translation differences
–
Share-based payments
120
Balance at 30 June 2020
(352)
Amounts recognised for cash flow hedges
–
Income tax on items taken directly to or transferred from equity
21
Amounts transferred to non-financial assets
–
Purchase of shares under EPRP
(105)
Foreign currency translation differences
–
Share-based payments
209
Balance at 30 June 2021
(227)
Capital
profits
reserve
$’000
Cash flow
hedge
reserve
$’000
Foreign
exchange
reserve
$’000
Total
$’000
78
–
–
–
–
–
–
475
(6,050)
1,815
–
–
–
–
6
–
–
–
–
(10)
–
530
(6,050)
1,815
–
(443)
(10)
120
78
–
–
–
–
–
–
(3,760)
6,937
(2,079)
–
–
–
–
(4)
–
–
–
–
13
–
(4,038)
6,937
2,058
–
(105)
13
251
78
1,098
9
958
Equity benefits reserve
This reserve is used to record the value of share-based payments provided to employees as part of their remuneration. Refer to Note
31 for further details of these plans.
Capital profits reserve
This reserve is comprised wholly of the surplus on the disposal of assets that were acquired prior to the introduction of Capital Gains
Tax provisions.
Cash flow hedge reserve
This reserve is used to recognise the effective portion of the gain or loss on cash flow hedge instruments that are determined to be an
effective hedge.
Foreign exchange reserve
This reserve is used to recognise differences arising where assets and liabilities denominated in foreign currencies are translated at the
functional currency exchange rate prevailing at the reporting date.
Annual Report 2021 | Nick Scali Limited
35
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
2021
$’000
2020
$’000
Total facilities:
Bank loans expiring within 12 months
Bank loans expiring in greater than 12 months
Interchangeable facilities, including letters of credit and bank guarantees
15,500
18,162
3,015
2,300
31,362
3,015
36,677
36,677
Facilities used at reporting date:
Bank loans expiring within 12 months
Bank loans expiring in greater than 12 months
Interchangeable facilities, including letters of credit and bank guarantees
15,500
18,162
1,312
2,300
31,362
1,312
34,974
34,974
Facilities unused at reporting date:
Bank loans expiring within 12 months
Bank loans expiring in greater than 12 months
Interchangeable facilities, including letters of credit
–
–
1,703
–
–
1,703
1,703
1,703
Note 22. Financing facilities
Unrestricted access was available to the following credit facilities at the reporting date:
Note 23. Financial instruments
Financial risk management objectives
The Company has exposure to foreign exchange risk, interest rate risk, credit risk and liquidity risk.
The Company’s financial risk management policies are established to identify and analyse the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed
regularly to reflect changes in market conditions and the Company’s activities.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The
Board of Directors has established an Audit and Risk Committee, which is responsible for developing and monitoring the Company’s
risk management policies. The Committee provides regular reports to the Board of Directors on its activities.
The Company’s principal financial instruments comprise bank loans, and cash and short-term deposits. The main purpose of these
financial Instruments is to raise finance for and fund the Company’s operations. The Company has various other financial instruments
such as trade debtors and trade creditors, which arise directly from its operations. It is, and has been throughout the year, the Company’s
policy that no trading in financial instruments is undertaken.
Market risk
Market risk is the risk that changes in market prices such as foreign exchange rates and interest rates will affect the Company’s income
or the value of its holdings of financial instruments. The objective of market risk management is to manage and control exposure within
acceptable parameters while maximising return.
Foreign currency risk
All of the Company’s sales are denominated in either Australian dollars or New Zealand dollars, whilst the majority of inventory purchases
are denominated in currencies other than Australian dollars, primarily US dollars. Where appropriate the Company uses forward currency
contracts and options to manage its currency exposures; and where the qualifying criteria are met, these are designated as hedging
instruments for the purposes of hedge accounting.
As at 30 June 2021, the Company had trade payables of $3,318,000 (2020: $1,528,000) denominated in US dollars and stock in transit
of $11,746,000 (2020: $7,697,000) denominated in US dollars, all of which are covered by designated cash flow hedges. As a result,
the sensitivity to a reasonably possible change in the US dollar exchange rate is minimal. The cash flows relating to cash flow hedge
positions held at year end are expected to occur in July 2021 through to March 2022, and the profit and loss is expected to be affected
through cost of sales as the hedged items (inventory) are sold to customers. All forecast transactions subject to hedge accounting have
occurred or are highly likely to occur.
36
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 23. Financial instruments (continued)
During the year, the Company designated foreign currency forward contracts as hedges of highly probable purchases of inventory in US
dollars. The forecast purchases of inventory for which designated foreign currency forward contracts were in place at 30 June 2021 are
expected to occur during July 2021 through to March 2022.
The terms of the foreign currency forward contracts have been negotiated to match the terms of the forecasted transactions. Both
parties of the contract have fully cash collateralised the foreign currency forward contracts, and therefore, effectively eliminated any
credit risk associated with the contracts (both the counter-party’s and the Company’s own credit risk). Consequently, the hedges were
assessed to be highly effective. As at 30 June 2021, an unrealised gain of $4,858,000 (30 June 2020: an unrealised loss of $4,235,000)
is recorded in other comprehensive income.
Interest rate risk
Financial instruments utilised that are subject to interest, and therefore interest rate risk, are cash and commercial bills. Management
continually monitor the exposure to interest rate risk. The following table sets out the carrying amount by maturity of the financial
instruments exposed to interest rate risk at reporting date. All financial instruments exposed to interest rate risk are exposed to a variable
interest rate.
The fair value of the cash and commercial bills shown below are based on the face value of those financial instruments.
2021 2020
Cash – Assets less than one year
Commercial Bills – Liabilities less than one year
Commercial Bills – Liabilities between one and five years
Weighted
average
interest rate
Balance
%
$’000
0.20
1.54
1.49
Net exposure to cash flow interest rate risk
Weighted
average
interest rate
%
Balance
$’000
0.71
1.45
1.78
63,037
(2,300)
(31,362)
73,230
29,375
106,892
(15,500)
(18,162)
A reasonably possible increase/(decrease) in the interest rate of 50 basis points would result in an increase/(decrease) of profit of
$45,000 (2020: $148,000 on 50 basis points movement).
Credit risk
Credit risk refers to the risk that a counter-party will default on its contractual obligations resulting in a financial loss to the Company.
In most cases, the Company requires full and final payment either prior to, or upon delivery of the goods to the customer. In limited
cases where credit is provided, the Company trades on credit terms with recognised, creditworthy third parties. Customers who wish
to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing
basis with the result that the Company’s exposure to bad debts is not significant. There are no significant concentrations of credit risk
within the Company.
With respect to credit risk arising from financial assets of the Company, which comprise of cash and cash equivalents and receivables,
the Company’s maximum exposure to credit risk, excluding the value of any collateral or other security, at reporting date to recognised
financial assets is in the carrying amount, net of any provisions for doubtful debts, as disclosed in the statement of financial position
and notes to the financial statements. Cash and cash equivalents are only invested with corporations which are approved by the Board.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions.
The Company manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously
monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities.
The following tables detail the Company’s remaining contractual maturity for its financial instrument liabilities. The tables have been
drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are
required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and
therefore these totals may differ from their carrying amount in the statement of financial position.
Annual Report 2021 | Nick Scali Limited
37
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 23. Financial instruments (continued)
Less than
3 to 12
1 to 5
Over 5
3 months
months
years
years
2021
$’000
$’000
$’000
$’000
Remaining
contractual
maturities
$’000
Interest bearing
Bank loans
Lease liabilities
–
8,509
15,613
24,928
18,609
94,094
–
16,583
34,222
144,114
Non-interest bearing
Trade creditors
Other creditors
Current tax liabilities
11,542
10,533
15,588
–
–
–
–
–
–
–
–
–
11,542
10,533
15,588
Total
46,172
40,541
112,703
16,583
215,999
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.
Remaining
Less than
3 to 12
1 to 5
Over 5
contractual
3 months
months
years
years
maturities
2020
$’000
$’000
$’000
$’000
$’000
Interest bearing
Bank loans
Lease liabilities
2,308
7,770
–
23,305
32,288
99,104
–
22,723
34,596
152,902
Non-interest bearing
Trade creditors
Other creditors
Other financial liabilities
Current tax liabilities
11,027
6,993
2,134
5,587
–
–
3,237
–
–
–
–
–
–
–
–
–
11,027
6,993
5,371
5,587
Total
35,819
26,542
131,392
22,723
216,476
Fair value hierarchy
All financial instruments for which fair value is recognised or disclosed are categorised with the fair value hierarchy, described as
follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1: Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
At the reporting date the fair value of derivative financial instruments represented a derivative hedge receivable of $1,565,000 (2020:
payable of $5,371,000). All foreign currency forward contracts were measured at fair value using the Level 2 method. Unless otherwise
stated, the carrying amounts of financial instruments reflect their fair value.
Recognition and measurement – Financial instruments
Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to
their fair value at each reporting date. Recognition of the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument and the nature of the item being hedged.
As appropriate, the Company designates derivatives as either hedges of the fair value of recognised assets or liabilities of firm
commitments (fair value hedges) or hedges of highly probable forecast transactions (cash flow hedges).
38
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 24. Fair value measurement
Recognition and measurement – Fair value measurement
Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of
the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are
determined based on a reassessment of the lowest level of input that is significant to the fair value measurement.
For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or
when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there
is a significant change in fair value of an asset or liability from one year to another, an analysis is undertaken, which includes a verification
of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data.
2021
$
2020
$
2,936,100
11,852
1,394,992
12,007
109,900
82,938
83,641
27,369
3,140,790
1,518,009
2021
$
2020
$
195,315
205,567
–
6,500
Other services
Due diligence services
Tax compliance
145,000
30,936
–
27,532
371,251
239,599
Note 25. Key management personnel
The aggregate compensation made to directors and other
key management personnel of the Company is set out below:
Short-term employee benefits
Long-term employee benefits
Post-employment benefits
Share-based payments
Note 26. Remuneration of auditors
During the financial year the following fees were paid or payable for services
provided by Ernst & Young, the auditor of the Company, and its network firms:
Audit services
Auditing the statutory financial report of the Company and its controlled
entities and auditing the statutory financial reports of any controlled entities
Other assurance and agreed-upon procedure services under other legislation
or contractual arrangements where there is discretion as to whether the service
is provided by the auditor or another firm
Note 27. Contingent liabilities
There are no contingent liabilities at 30 June 2021 (2020: Nil).
Annual Report 2021 | Nick Scali Limited
39
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
2021
$
2020
$
Land and buildings
Leasehold improvements
Plant and equipment
Intangibles – Website
4,453
253
41
244
8,330
1,100
34
–
4,991
9,464
Note 28. Commitments
Note 29. Related party transactions
Other related party transactions
Dealings between the Company and the directors and personally-related entities were made during the year in the ordinary course
of business on norma…
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